10-Q 1 axsm-20220331.htm 10-Q 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number 001-37635

 

AXSOME THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

45-4241907

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

22 Cortlandt Street

16th Floor

New York, New York

10007

(Address of principal executive offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (212) 332-3241

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer

Accelerated Filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class:

 

Trading Symbol(s)

 

Name of each exchange on which registered:

Common Stock, Par Value $0.0001 Per Share

 

AXSM

 

The Nasdaq Global Market

 

There were 38,913,550 shares of the registrant’s common stock, $0.0001 par value, outstanding as of April 26, 2022.

 

 


Table of Contents

AXSOME THERAPEUTICS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2022

 

TABLE OF CONTENTS

 

 

 

 

Page

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

 

3

PART I — FINANCIAL INFORMATION

 

 

ITEM 1

Financial Statements

 

4

ITEM 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

ITEM 3

Quantitative and Qualitative Disclosure About Market Risk

 

37

ITEM 4

Controls and Procedures

 

37

PART II — OTHER INFORMATION

 

 

ITEM 1

Legal Proceedings

 

38

ITEM 1A

Risk Factors

 

38

ITEM 6

Exhibits

 

90

Signatures

 

 

91

 

2


Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain matters discussed in this report, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. The words “anticipate,” “believe,” “estimate,” “may,” “expect” and similar expressions are generally intended to identify forward-looking statements. Our actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, those discussed under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, as well as other factors which may be identified from time to time in our other filings with the Securities and Exchange Commission, or the SEC, or in the documents where such forward-looking statements appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements. Such forward-looking statements include, but are not limited to, statements about:

our expectations for increases or decreases in expenses;
our expectations for the clinical and preclinical development, manufacturing, regulatory approval, and commercialization of our pharmaceutical product candidates or any other products that we may acquire or in-license;
our estimates of the sufficiency of our existing capital resources combined with future anticipated cash flows to finance our operating requirements;
our expectations for incurring capital expenditures to expand our research and development and manufacturing capabilities;
unforeseen circumstances or other disruptions to normal business operations arising from or related to COVID-19;
our expectations for generating revenue or becoming profitable on a sustained basis;
our expectations or ability to enter into marketing and other partnership agreements;
our expectations or ability to enter into product acquisition and in-licensing transactions;
our expectations or ability to build our own commercial infrastructure to manufacture, market and sell our product candidates;
our expected losses;
our ability to obtain and maintain intellectual property protection for our product candidates;
the acceptance of our products by doctors, patients, or payors;
our stock price and its volatility;
our ability to attract and retain key personnel;
the performance of our third-party manufacturers;
our expectations for future capital requirements; and
our ability to successfully implement our strategy.

The forward-looking statements contained in this report reflect our views and assumptions only as of the date that this report is signed. Except as required by law, we assume no responsibility for updating any forward-looking statements.

We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

3


Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Axsome Therapeutics, Inc.

Consolidated Balance Sheets

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(Unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

84,707,782

 

 

$

86,472,854

 

Prepaid and other current assets

 

 

2,122,144

 

 

 

45,286

 

Total current assets

 

 

86,829,926

 

 

 

86,518,140

 

Equipment, net

 

 

460,946

 

 

 

283,846

 

Right-of-use asset - operating lease

 

 

946,479

 

 

 

660,162

 

Other assets

 

 

322,910

 

 

 

322,910

 

Total assets

 

$

88,560,261

 

 

$

87,785,058

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

12,595,112

 

 

$

13,149,329

 

Accrued expenses and other current liabilities

 

 

10,987,222

 

 

 

9,295,180

 

Operating lease liability, current portion

 

 

967,248

 

 

 

620,675

 

Total current liabilities

 

 

24,549,582

 

 

 

23,065,184

 

Loan payable, long-term

 

 

49,312,665

 

 

 

49,089,522

 

Total liabilities

 

 

73,862,247

 

 

 

72,154,706

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value per share (10,000,000 shares authorized, none issued and outstanding at March 31, 2022 and December 31, 2021, respectively)

 

 

 

 

 

 

Common stock, $0.0001 par value per share (150,000,000 shares authorized, 38,883,445 and 37,816,794 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively)

 

 

3,888

 

 

 

3,782

 

Additional paid-in capital

 

 

463,525,522

 

 

 

424,825,655

 

Accumulated deficit

 

 

(448,831,396

)

 

 

(409,199,085

)

Total stockholders’ equity

 

 

14,698,014

 

 

 

15,630,352

 

Total liabilities and stockholders’ equity

 

$

88,560,261

 

 

$

87,785,058

 

 

The accompanying notes are an integral part of the consolidated financial statements.

4


Table of Contents

Axsome Therapeutics, Inc.

Consolidated Statements of Operations

(Unaudited)

 

 

 

Three Months

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

12,585,141

 

 

$

16,595,689

 

General and administrative

 

 

25,703,731

 

 

 

11,248,372

 

Total operating expenses

 

 

38,288,872

 

 

 

27,844,061

 

Loss from operations

 

 

(38,288,872

)

 

 

(27,844,061

)

Interest income (expense)

 

 

(1,343,439

)

 

 

(1,415,909

)

Net loss

 

$

(39,632,311

)

 

$

(29,259,970

)

Net loss per common share, basic and diluted

 

$

(1.03

)

 

$

(0.78

)

Weighted average common shares outstanding, basic and diluted

 

 

38,323,167

 

 

 

37,429,450

 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5


Table of Contents

Axsome Therapeutics, Inc.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

 

 

 

Common stock

 

 

Additional

 

 

Accumulated

 

 

Total
stockholders’

 

 

 

Shares

 

 

Amount

 

 

paid-in capital

 

 

deficit

 

 

equity

 

Balance at December 31, 2020

 

 

37,374,088

 

 

 

3,737

 

 

 

392,585,265

 

 

 

(278,796,093

)

 

 

113,792,909

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,731,097

 

 

 

 

 

 

3,731,097

 

Issuance of common stock upon exercise of options

 

 

94,000

 

 

 

10

 

 

 

1,913,289

 

 

 

 

 

 

1,913,299

 

Issuance of common stock upon vesting of RSUs

 

 

1,917

 

 

 

0

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon financing

 

 

93,877

 

 

 

9

 

 

 

6,115,855

 

 

 

 

 

 

6,115,864

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(29,259,970

)

 

 

(29,259,970

)

Balance at March 31, 2021

 

 

37,563,882

 

 

 

3,756

 

 

 

404,345,506

 

 

 

(308,056,063

)

 

 

96,293,199

 

Balance at December 31, 2021

 

 

37,816,794

 

 

 

3,782

 

 

 

424,825,655

 

 

 

(409,199,085

)

 

 

15,630,352

 

Stock-based compensation

 

 

 

 

 

 

 

 

7,598,329

 

 

 

 

 

 

7,598,329

 

Issuance of common stock upon exercise of options

 

 

18,015

 

 

 

2

 

 

 

181,635

 

 

 

 

 

 

181,637

 

Issuance of common stock upon vesting of RSUs

 

 

4,555

 

 

 

0

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon financing

 

 

1,044,081

 

 

 

104

 

 

 

31,008,497

 

 

 

 

 

 

31,008,601

 

Shares tendered for withholding taxes

 

 

 

 

 

0

 

 

 

(88,594

)

 

 

 

 

 

(88,594

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(39,632,311

)

 

 

(39,632,311

)

Balance at March 31, 2022

 

 

38,883,445

 

 

 

3,888

 

 

 

463,525,522

 

 

 

(448,831,396

)

 

 

14,698,014

 

 

The accompanying notes are an integral part of the consolidated financial statements.

6


Table of Contents

Axsome Therapeutics, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(39,632,311

)

 

$

(29,259,970

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

7,598,329

 

 

 

3,731,097

 

Amortization of debt discount

 

 

223,143

 

 

 

276,095

 

Depreciation

 

 

36,636

 

 

 

8,326

 

Amortization of operating lease right-of-use asset

 

 

275,063

 

 

 

262,764

 

Change in operating lease liability

 

 

(214,807

)

 

 

(275,840

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(2,076,858

)

 

 

(226,933

)

Accounts payable

 

 

(554,217

)

 

 

1,117,695

 

Accrued expenses and other current liabilities

 

 

1,692,042

 

 

 

(2,848,723

)

Net cash used in operating activities

 

 

(32,652,980

)

 

 

(27,215,489

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of equipment

 

 

(213,736

)

 

 

(29,995

)

Net cash used in investing activities

 

 

(213,736

)

 

 

(29,995

)

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock upon financing, net

 

 

31,008,601

 

 

 

6,115,864

 

Proceeds from issuance of common stock upon exercise of options

 

 

181,637

 

 

 

1,913,299

 

Payments of tax withholdings on stock award

 

 

(88,594

)

 

 

 

Net cash (used in) provided by financing activities

 

 

31,101,644

 

 

 

8,029,163

 

Net (decrease) increase in cash

 

 

(1,765,072

)

 

 

(19,216,321

)

Cash at beginning of period

 

 

86,472,854

 

 

 

183,876,453

 

Cash at end of period

 

$

84,707,782

 

 

$

164,660,132

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

Interest paid

 

$

1,118,750

 

 

$

1,143,750

 

Operating lease right-of-use asset obtained in exchange for operating lease liability

 

 

561,380

 

 

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

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Axsome Therapeutics, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Nature of Business and Basis of Presentation

Axsome Therapeutics, Inc. (“Axsome” or the “Company”) is a biopharmaceutical company developing novel therapies for central nervous system (“CNS”) disorders for which there are limited treatment options. By focusing on this therapeutic area, the Company is addressing significant and growing markets where current treatment options are limited or inadequate. The Company’s core CNS portfolio includes four product candidates, AXS-05, AXS-07, AXS-12, and AXS-14, which are being developed for multiple indications. The Company aims to become a fully integrated biopharmaceutical company that develops and commercializes differentiated therapies that expand the treatment options available to caregivers and improve the lives of patients living with CNS disorders. The Company was incorporated on January 12, 2012 in the State of Delaware.

The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 1, 2022.

In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, which are normal recurring adjustments, necessary for the fair presentation of the financial information for the interim periods. The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the operating results for the full fiscal year or any future period.

Acquisition of Assets of Jazz Pharmaceuticals

On March 25, 2022, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Jazz Pharmaceuticals plc ("Jazz Pharmaceuticals"), pursuant to which the Company will acquire Sunosi® from Jazz Pharmaceuticals ("the Acquisition"), a dual-acting dopamine and norepinephrine reuptake inhibitor indicated to improve wakefulness in adult patients living with excessive daytime sleepiness due to narcolepsy or obstructive sleep apnea, which was approved by the U.S. Food and Drug Administration, or the FDA, in 2019 and by the European Medicines Agency (the “EMA”) in 2020.

Under the terms of the Asset Purchase Agreement, the Company will receive from Jazz Pharmaceuticals worldwide commercial, development, manufacturing, and intellectual property rights to Sunosi, except for certain Asian markets. Jazz Pharmaceuticals will receive from the Company a total upfront payment of $53 million, a high single-digit royalty on the Company's U.S. net sales of Sunosi in the current indication, and a mid single-digit royalty on the Company's U.S. net sales of Sunosi in future indications. The Company will also assume the commitments of Jazz Pharmaceuticals to SK Biopharmaceuticals (“SK)” and Aerial Biopharma (“Aerial”). SK is the originator of Sunosi and retains rights in 12 Asian markets, including China, Korea, and Japan. In 2014, Jazz Pharmaceuticals acquired from Aerial worldwide rights to Sunosi excluding those Asian markets. The assumed commitments to SK and Aerial include single-digit tiered royalties based on the Company's sales of Sunosi, and up to $165 million in revenue milestones and $1 million in development milestones. The Company expects to finance the transaction via its existing $300 million term loan facility with Hercules Capital, Inc. (see below).
 

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The Purchase Agreement also provides for customary conditions to closing, including the receipt of antitrust approval from the Federal Trade Commission pursuant to the Hart-Scott-Rodino Act, and the receipt of certain required financial statements from Jazz required by Regulation S-X of the Securities Exchange Act of 1934, as amended. The Company expects the closing to occur in the second quarter of 2022 and therefore, purchase accounting is not reflected in these consolidated financial statements.

Second Amendment to the Loan and Security Agreement

On March 27, 2022, in connection with the Acquisition (as described above), the Company entered into a Second Amendment to the Loan and Security Agreement (the “Second Amendment”) with Hercules Capital, Inc. The Second Amendment amends the terms of that certain Loan and Security Agreement, dated as of September 25, 2020 (as amended by the First Amendment to the Loan and Security Agreement, dated of October 14, 2021) (the “Loan Agreement”). The changes in the Term Loan Advances (as defined in the Loan Agreement) amounts and dates are as follows: (i) increasing the Tranche 1 (as defined in the Loan Agreement) from $60.0 million to $95.0 million, whereby $45.0 million is available upon the Second Amendment closing date (ii) changing the Tranche 2 Advances (as defined in the Loan Agreement) from two sub-tranches of $50.0 million each to three sub-tranches of $35.0 million, $35.0 million and $30.0 million, respectively, (iii) changing the Tranche 3 Advance (as defined in the Loan Agreement) from one tranche of $20.0 million to two sub-tranches of $15.0 million and $5.0 million, respectively, (iv) decreasing the Tranche 4 Advance (as defined in the Loan Agreement) from $55.0 million to $50.0 million, and (v) decreasing the Tranche 5 Advance (as defined in the Loan Agreement) from $75.0 million to $35.0 million. In connection with the Second Amendment, the parties also clarified certain terms of the Warrant Agreement previously issued to Hercules. The Second Amendment shall only be effective upon the closing of the Acquisition.

Conditioned upon the closing of the Second Amendment, Hercules will also purchase between $5.0 million and $8.0 million of the Company’s unregistered common stock, at a share price equal to the lesser of (a) the three-day volume weighted average price as of the date of the Second Amendment, or (b) the three-day volume weighted average price as of the Second Amendment Effective Date, pursuant to a stock purchase agreement to be agreed upon by the parties; provided, that, in no case shall the share price be less than a 20% discount to the three-day volume weighted average price of the Company’s common stock at the time of the purchase.

Liquidity and Capital Resources

The Company has incurred operating losses since its inception and expects to continue to incur operating losses for the foreseeable future and may never become profitable. As of March 31, 2022, the Company had an accumulated deficit of $448.8 million.

The Company’s primary sources of cash have been proceeds from the issuance and sale of its common stock in public offerings and the issuance of debt. The Company has not yet commercialized any of its product candidates and cannot be sure if it will ever be able to do so. The Company’s ability to achieve profitability depends on a number of factors, including its ability to obtain regulatory approval for its product candidates, successfully complete any post-approval regulatory obligations and successfully commercialize its product candidates alone or in partnership. The Company may continue to incur substantial operating losses even if it begins to generate revenues from its product candidates.

The Company believes its existing cash will be sufficient to fund its anticipated operating cash requirements for at least twelve months following the date of this filing. The actual amount of cash that the Company will need to operate is subject to many factors, including, but not limited to, the timing, design and conduct of clinical trials for its product candidates. The Company may use a combination of public and private equity offerings, debt financings, other third-party funding, strategic alliances, licensing arrangements or marketing and distribution arrangements if market conditions are favorable or as a result of other strategic considerations to finance its future cash needs.

The Company’s common stock is listed on the Nasdaq Global Market and trades under the symbol “AXSM”.

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Impact of COVID-19

In December 2019, a novel (new) coronavirus known as SARS-CoV-2 was first detected in Wuhan, Hubei Province, People’s Republic of China, causing outbreaks of the coronavirus disease, known as COVID-19, that has now spread globally. On January 30, 2020, the World Health Organization (WHO) declared COVID-19 a public health emergency. The Secretary of Health and Human Services declared a public health emergency in the United States on January 31, 2020, under section 319 of the Public Health Service Act (42 U.S.C. 247d), in response to the COVID-19 outbreak. On March 11, 2020, the WHO declared COVID-19 a global pandemic. The full impact of the ongoing COVID-19 pandemic is still unknown and rapidly evolving. While the potential economic impact brought by and over the duration of the COVID-19 pandemic may be difficult to assess or predict, the COVID-19 pandemic has resulted in significant disruption of global financial markets, which could in the future negatively affect the Company’s liquidity. In addition, a recession or market volatility resulting from the COVID-19 pandemic could affect the Company’s business. Given the nature and type of the Company’s short-term investments, the Company does not believe the COVID-19 pandemic has had or will have a material impact on the Company’s current investment liquidity.

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Note 2. Summary of Significant Accounting Policies

Significant Risks and Uncertainties

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s product candidates; the Company’s ability to obtain regulatory approval to market its products, if approved; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, the Company’s products, if approved; the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, if approved; and the Company’s ability to raise additional financing. If the Company does not successfully commercialize any of its product candidates, it will be unable to generate recurring product revenue or achieve and maintain profitability.

Use of Estimates

Management considers many factors in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. In preparing these financial statements, management used significant estimates in the following areas, among others: stock‑based compensation expense; the determination of the fair value of the warrants; the accounting for research and development costs; and the recoverability of the Company’s net deferred tax assets and related valuation allowance.

Foreign Currency Translation

Expenses denominated in foreign currency are translated into U.S. dollars at the exchange rate on the date the expense is incurred. Assets and liabilities of foreign operations are translated at period-end exchange rates. The effect of exchange rate fluctuations on translating foreign currency into U.S. dollars is included in the Statements of Operations and is not material to the Company’s financial statements.

Segment and Geographic Information

Operating segments are defined as components of an enterprise for which separate discrete information is available for evaluation by the chief operating decision maker or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as one operating segment, which is the business of developing novel therapies for the management of CNS disorders.

Cash Equivalents

The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents. The Company’s cash and cash equivalents includes holdings in checking and overnight sweep accounts. The Company’s cash equivalents, which are money market funds held in a sweep account, are measured at fair value on a recurring basis. As of March 31, 2022, the balance of cash and cash equivalents was $84.7 million, which approximates fair value and was determined based upon Level 1 inputs. The sweep account is valued using quoted market prices with no valuation adjustments applied. Accordingly, these securities are categorized as Level 1.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash. The Company maintains its cash at financial institutions, which at times, exceed federally insured limits. At March 31, 2022, the majority of the Company’s cash was held by one financial institution and the amount on deposit was in excess of Federal Deposit Insurance Corporation insurance limits. The Company has not recognized any losses from credit risks on such accounts since inception. The Company believes it is not exposed to significant credit risk on cash.

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Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three‑level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

Level 3—Inputs that are unobservable for the asset or liability.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company’s financial instruments are cash, accounts payable, accrued liabilities, and current and long-term debt. The carrying values for cash, accounts payable and accrued liabilities reported in the accompanying consolidated financial statements approximate their respective fair values due to their short-term maturities. The carrying value of debt on the Company’s balance sheet (see Note 6 – Loan and Security Agreement), is estimated to approximate its fair value as the interest rate approximates the market rate for loans with similar terms and risk characteristics.

Debt Issuance Costs

Debt issuance costs consist of costs incurred in obtaining long-term financing. These costs are classified on the consolidated balance sheet as a direct deduction from the carrying amount of the related debt liability. These expenses are deferred and amortized as part of interest expense in the consolidated statement of operations using the effective interest rate method over the term of the debt agreement.

Equipment

Equipment consists primarily of computer equipment and is recorded at cost. Equipment is depreciated on a straight‑line basis over its estimated useful life, which the Company estimates to be three years. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in operating expenses.

Research and Development Costs

Research and development costs are expensed as incurred. Research and development expenses consist primarily of employee-related expenses including salaries, benefits, travel, and stock‑based compensation expense, contract services, costs incurred to third-party service providers for the conduct of research, preclinical and clinical studies, laboratory supplies, product license fees, consulting and other related expenses. We estimate research, preclinical and clinical study expenses based on services performed, pursuant to contracts with third-party research and development organizations that conduct and manage research, preclinical and clinical activities on our behalf. We estimate these expenses based on discussions with internal management personnel and external service providers as to the progress or stage of completion of services and the contracted fees to be paid for such services. If the actual timing of the performance of services or the level of effort varies from the original estimates, we will adjust the accrual accordingly. Payments associated with licensing agreements to acquire licenses to develop, use, manufacture and commercialize products that have not reached technological feasibility and do not have alternative future use are expensed as incurred. Payments made to third parties under these arrangements in advance of the performance of the related services by the third parties are recorded as prepaid expenses until the services are rendered.

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Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2022 and has not recorded an income tax benefit for the three months ended March 31, 2022 and 2021 since it determined that a full valuation allowance is required against the Company’s deferred tax assets.

The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position as well as consideration of the available facts and circumstances. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. As of March 31, 2022, the Company does not believe any material uncertain tax positions are present. In the event the Company determines that accrual of interest or penalties are necessary in the future, the amount will be presented as a component of income tax expense.

Stock-Based Compensation

For stock options issued, the Company estimates the grant date fair value of each option using the Black‑Scholes option pricing model. The Black-Scholes model takes into account the expected volatility of the Company’s common stock, the risk-free interest rate, the estimated life of the option, the closing market price of the Company’s common stock and the exercise price. The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of management’s judgment. In addition, the Company recognizes expense for equity award forfeitures as they occur.

For restricted stock units (“RSUs”), the Company issues them in the form of Company common stock. The fair market value of these awards is based on the market closing price per share on the grant date.

For awards subject to service-based vesting conditions, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period, which is generally the vesting term. For awards subject to performance-based vesting conditions, the Company recognizes stock-based compensation expense using the accelerated attribution method when it is probable that the performance condition will be achieved. The expense related to the stock-based compensation is recorded within the same financial statement line item as the grantee’s cash compensation.

The Company’s policy upon exercise of stock options and RSUs is that shares will be issued as new shares drawing on the Company’s 2015 Omnibus Incentive Compensation Plan share pool that was adopted by the stockholders in November 2015.

Basic and Diluted Net Loss per Common Share

Basic net loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as warrants, stock options, and RSUs, which would result in the issuance of incremental shares of common stock. As the impact of these items is anti-dilutive during periods of net loss, there was no difference between basic and diluted net loss per share of common stock for the three months ended March 31, 2022 and 2021.

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Leases

The Company determines if an arrangement is a lease at contract inception. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. When evaluating whether a contract contains a lease, the Company considers whether (1) the contract explicitly or implicitly identifies assets that are contractually defined and (2) the Company obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract.

The Company’s lease agreement contains lease and non-lease components. Non-lease components primarily include payments for maintenance and utilities. The Company has applied the practical expedient to combine fixed payments for non-lease components with lease payments and account for them together as a single lease component, which increases the amount of lease assets and corresponding liabilities. Payments under the Company’s lease arrangement are primarily fixed, however variable payments, are expensed as incurred and not included in the operating lease asset and liability.

Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. The Company uses the implicit interest rate when readily determinable and uses the Company’s incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the commencement date in determining the present value of the lease payments.

The Company’s operating leases are reflected in the right-of-use operating asset; operating lease liability, current portion; and operating lease liability, long-term portion in the Company’s consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of 12 months or less at the commencement date, and do not include an option to extend the term or purchase the underlying asset that the Company is reasonably certain to exercise, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease.

Recent Accounting Pronouncements

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805) . This update requires that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) 606. This differs from the current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value. The amendments in this update should be applied prospectively, and are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.

Note 3. Accrued Expenses and Other Current Liabilities

At March 31, 2022 and December 31, 2021 accrued expenses and other current liabilities consisted of the following:

 

 

March 31,
2022

 

 

December 31,
2021

 

Accrued research and development

 

$

2,726,847

 

 

$

2,416,897

 

Accrued compensation

 

 

2,013,040

 

 

 

4,050,236

 

Accrued general and administrative

 

 

5,856,779

 

 

 

2,442,700

 

Accrued Interest

 

 

390,556

 

 

 

385,347

 

Total

 

$

10,987,222

 

 

$

9,295,180

 

 

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Note 4. Loan and Security Agreement

Hercules Capital, Inc.

In September 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Hercules Capital, Inc., in its capacity as administrative agent and collateral agent and as a lender (in such capacity, the “Agent” or “Hercules”) and the other financial institutions that from time to time become parties to the Loan Agreement as lenders (collectively, the “Lenders”). The Loan Agreement provides for term loans in an aggregate principal amount of up to $225.0 million under multiple tranches (the “2020 Term Loan”). The tranches consist of (i) a first tranche consisting of term loans in an aggregate principal amount of $60.0 million, of which $50.0 million was funded to the Company on the Closing Date (the “First Advance”), and of which the remaining $10.0 million was available at the Company’s option at any time through September 15, 2021; (ii) subject to the approval of the Company’s AXS-05 product candidate for the treatment of major depressive disorder (the “First Milestone”), a second tranche consisting of additional term loans in an aggregate principal amount of up to $35.0 million, available at the Company’s option beginning on the date that the First Milestone is achieved through the earlier of (A) 181 days following such date and (B) June 30, 2022; (iii) subject to the approval of the Company’s AXS-07 product candidate for the treatment of migraine (the “Second Milestone”), a third tranche consisting of additional term loans in an aggregate principal amount of up to $20.0 million, available at the Company’s option beginning on the date that the Second Milestone is achieved through the earlier of (A) 181 days following such date and (B) June 30, 2022; (iv) subject to the achievement of either the First Milestone or the Second Milestone and so long as the Company is in compliance with a required ratio of Lender indebtedness to net product revenue, a fourth tranche consisting of additional term loans in an aggregate principal amount of up to $60.0 million, available at the Company’s option beginning on January 1, 2022 and continuing through March 31, 2023; and (v) subject to approval by the Lenders’ in their discretion, a fifth tranche of additional term loans in an aggregate principal amount of up to $50.0 million, available through December 31, 2023. The remaining $10.0 million on the first tranche was not utilized and such tranche and future tranches were amended upon the execution of the First Amendment to the Loan and Security Agreement. See "First Amendment to the Loan and Security Agreement" below for further information. The Company intends to use the proceeds of the Term Loan Advances for working capital and general corporate purposes. In addition, approximately $21.7 million of the proceeds from the First Advance was used to satisfy in full and retire the Company’s indebtedness under the 2019 Term Loan (as defined below), as amended.

The outstanding principal balance of the term loans bears interest at an annual rate equal to the greater of either (i) the prime rate as reported in The Wall Street Journal plus 5.90% or (ii) 9.15%, subject to an ability by the Company, during certain periods (each, a “PIK Deferral Period”), to request a reduction of the then-effective cash-pay interest rate by up to 1.00% per annum (the “Cash Interest Reduction Amount”). Accrued interest is payable monthly following the funding of each term loan. During each PIK Deferral Period, the term loans will bear cash-pay interest, at the reduced amount, and will accrue paid-in-kind interest at a rate equal to the Cash Interest Reduction Amount multiplied by 1.15, which amount will be capitalized and added to the outstanding principal balance of the term loans on each monthly interest payment date during the PIK Deferral Period.‌

The Company is required to repay the term loans in equal installments of principal and interest commencing on May 1, 2023 through October 1, 2025 (the “Maturity Date”). However, if either the First Milestone or the Second Milestone are achieved prior to May 1, 2023, and no default exists, the amortization commencement date will be automatically extended to November 1, 2023; if both the First Milestone and the Second Milestone are achieved prior to November 1, 2023, and no default exists, the amortization commencement date will be further automatically extended to May 1, 2024 and if any term loans are funded under the fourth tranche noted above prior to May 1, 2024, and no default exists, the amortization commencement date will be further automatically extended to November 1, 2024. On the Maturity Date, all unpaid term loans will be due and payable.

As collateral for the obligations, the Company has granted to Hercules a senior security interest in all of Company’s right, title, and interest in, to and under all of Company’s property, inclusive of intellectual property, which includes one of the Company’s existing license agreements (the “License Agreement”) with Antecip Bioventures II LLC (“Antecip”), an entity owned by Axsome’s Chief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., subject to limited exceptions. Antecip consented to the collateral assignment of the License Agreement, among other things, under a direct agreement (the “Direct Agreement”) with the Company and Hercules.

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The Loan Agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens (including a negative pledge on intellectual property and other assets), guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. At the initial closing, there were no applicable financial covenants contained in the Loan Agreement. Only after additional amounts are drawn down by the Company in the future, if the Company decides to do so, under the terms set forth in the Loan Agreement, there will be certain limited financial covenants that will apply, including:

Effective upon the date the outstanding principal amount of the advances under the Loan Agreement equals or exceeds $55.0 million, which has not yet occurred, the Company at all times thereafter must maintain cash in an account or accounts in which Hercules has a first priority security interest, in an aggregate amount greater than or equal to $15.0 million, plus the amount of the Company’s accounts payable under U.S. GAAP not paid after the 180th day following the invoice for such account payable (such amount, the “Qualified Cash A/P Amount”).
Effective upon the later of (i) the last calendar month of the calendar quarter that is twelve months following the earlier of (x) the date that the First Milestone is achieved and (y) the date that the Second Milestone is achieved, or (ii) the date on which the outstanding principal amount of the term loan advances under the Loan Agreement is equal to or greater than $65.0 million, neither of which have occurred yet, the Company is required to (A) ensure that at all times its market capitalization exceeds $2.0 billion, and that it maintains cash in an account which Hercules has a first priority security interest in an amount not less than 65% of the sum of the outstanding principal amount of the term loan advances plus the Qualified Cash A/P Amount, (B) ensure that at all times that it maintains cash in an account which Hercules has a first priority security interest in an amount not less than 100% of the sum of the outstanding principal amount of the term loan advances plus the Qualified Cash A/P Amount, or (C) achieve at least 60% of the net product revenue per the board of directors approved forecast solely from the sale of AXS-05 and AXS-07 (which may include royalty, profit sharing, or sales-based milestone revenue recognized in accordance with GAAP, but will not include any upfront or non-sales-based milestone payments under business development or licensing transactions), measured on a trailing six-month basis as of the date of the Company’s most recent quarterly financial statement, determined on a quarterly basis.
Restrictions on the Company’s ability to incur additional indebtedness, pay dividends, encumber its intellectual property, or engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses, with certain exceptions.

The Company’s obligations under the Loan Agreement are subject to acceleration upon the occurrence of specified events of default, including payment default, insolvency and a material adverse change in the Borrower’s business, operations or financial or other condition.

In addition, the Company is required to pay a final payment fee equal to the greater of (A) $2,910,000 and (B) 4.85% of the aggregate amount of all term loan advances minus the aggregate amount of repayments made. The final payment fee is being accreted and amortized into interest expense using the effective interest rate method over the term of the loan.

The Company may, at its option prepay the term loans in full or in part, subject to a prepayment penalty equal to (i) 2.0% of the principal amount prepaid if the prepayment occurs prior to the first anniversary of the Closing Date, (ii) 1.5% of the principal amount prepaid if the prepayment occurs on or after the first anniversary and prior to the second anniversary of the Closing Date, and (iii) 1.0% of the principal amount prepaid if the prepayment occurs on or after the second anniversary and prior to the third anniversary of the Closing Date.

First Amendment to the Loan Agreement

 

On October 14, 2021 ("First Amendment Closing Date"), the Company entered into the first amendment to the Loan Agreement (the “First Amendment to the Loan Agreement”).

 

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Under the First Amendment to the Loan Agreement, the First Amendment amended the terms of that certain Loan and Security Agreement, dated as of September 25, 2020, by and among the Company, Hercules and the Lenders (the “Loan Agreement”) to, among other things, (i) increase the aggregate principal amount of the loan, available at the Company’s option, from $225,000,000 to $300,000,000, (ii) change the draw amounts and dates available in Tranche 2 through Tranche 5 including increasing the amount available under Tranche 2 subject to FDA approval of the Company’s AXS-05 product candidate for the treatment of major depressive disorder from $35,000,000 to $100,000,000, maintaining the amount available under Tranche 3 subject to FDA approval of the Company’s AXS-07 product candidate for the acute treatment of migraine of $20,000,000, reducing the amount under Tranche 4 available upon achievement of certain combined sales and outstanding debt criteria from $60,000,000 to $55,000,000, and increasing the amount available under Tranche 5 to support future strategic initiatives, including further pipeline advancement or expansion from $50,000,000 to $75,000,000 subject to the approval from Hercules, (iii) extend the maturity date of the facility from the original October 2025 to October 2026, and optionally to October 2027, subject to certain conditions, (iv) reset and extend the interest only period from the initial 30 months from the original loan closing to 48 months from the First Amendment and extendable up to 60 months subject to FDA approval of the Company’s AXS-05 product candidate for the treatment of major depressive disorder and subject to FDA approval of AXS-07 in the acute treatment of migraine, and (v) decrease the interest rate from 9.15% (floating rate based on the greater of (a) 9.15% or (b) US WSJ Prime + 5.90%) to 8.95% (floating rate based on the greater of (a) 8.95% or (b) US WSJ Prime + 5.70%).

In addition, the Company is required to pay a final payment fee equal to (A) $2,910,000 plus (B) 4.5% of the aggregate amount of all term future loan advances. The final payment fee is being accreted and amortized into interest expense using the effective interest rate method over the term of the loan.

 

The Company may, at its option prepay the term loans in full or in part, subject to a prepayment penalty equal to (i) 2.0% of the principal amount prepaid if the prepayment occurs prior to the first anniversary of the First Amendment Closing Date, (ii) 1.5% of the principal amount prepaid if the prepayment occurs on or after the first anniversary and prior to the second anniversary of the First Amendment Closing Date, and (iii) 1.0% of the principal amount prepaid if the prepayment occurs on or after the second anniversary and prior to the third anniversary of the First Amendment Closing Date. These percentages are unchanged from the Loan Agreement.

Second Amendment to the Loan Agreement

On March 27, 2022, the Company entered into the Second Amendment to the Loan Agreement subject to the closing of the Sunosi® Acquisition. See Note 1 - Nature of Business and Basis of Presentation for more detail.

Loan Interest Expense and Amortization

The Company incurred interest expense of $1,123,958 for the three months ended March 31, 2022 and $1,143,750 for the three months ended March 31, 2021, respectively. In addition, amortization of the final payment fee was $97,860 for the three months ended March 31, 2022 and $143,589 for the three months ended March 31, 2021, respectively. Amortization of the debt discount in relation to warrants and debt issuance costs was $125,497 for the three months ended March 31, 2022 and $132,508 for the three months ended March 31, 2021, respectively.

The outstanding debt and unamortized debt discount balances are as follows:

 

 

March 31,
2022

 

 

December 31,
2021

 

Total Outstanding Debt

 

$

50,000,000

 

 

$

50,000,000

 

Add: accreted liability of final payment fee

 

 

804,053

 

 

 

706,407

 

Less: unamortized debt discount, long-term

 

 

(1,491,388

)

 

 

(1,616,885

)

Less: current portion of long-term debt

 

 

 

 

 

 

Loan payable, long-term

 

$

49,312,665

 

 

$

49,089,522

 

 

In connection with the entry into the Hercules Term Loan, the Company issued to Hercules a warrant to purchase a number of shares of the Company’s common stock equal to 2.5% of the aggregate amount of the Term Loan Advances that are funded. Further information on warrants issued related to this loan and prior debt financings and amendments are disclosed in Note 7 - Stockholders’ Equity under the “Warrants” section.

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Table of Contents

Scheduled Principal Payments on Outstanding Debt, as of March 31, 2022, are as follows:

 

2022

 

 

 

2023

 

 

 

2024

 

 

 

2025

 

 

8,026,818

 

2026

 

 

41,973,182

 

Total principal payments outstanding

 

$

50,000,000

 

 

The Company was in compliance with all covenants and requirements of its financing arrangements as of and during the three months ended March 31, 2022.

Note 5. Net Loss per Common Share

The following table sets forth the computation of basic and diluted net loss per common share:

 

 

 

Three Months Ended March 31, 2022

 

 

 

2022

 

 

2021

 

Basic and diluted net loss per common share:

 

 

 

 

 

 

Net loss

 

$

(39,632,311

)

 

$

(29,259,970

)

Weighted average common shares outstanding—basic
   and diluted

 

 

38,323,167

 

 

 

37,429,450

 

Net loss per common share—basic and diluted

 

$

(1.03

)

 

$

(0.78

)

 

The following potentially dilutive securities outstanding at March 31, 2022 and 2021 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

 

 

 

March 31,

 

 

 

2022

 

 

2021

 

Stock options

 

 

6,219,030

 

 

 

4,385,598

 

Restricted stock units

 

 

667,366

 

 

 

303,983

 

Warrants

 

 

15,541

 

 

 

15,541

 

Total

 

 

6,901,937

 

 

 

4,705,122

 

 

Note 6. Commitments and Contingencies

Operating Leases

For the three months ended March 31, 2022 and 2021, the Company had the following operating lease expense:

 

 

 

Statement of Operations Location

 

Three Months Ended March 31, 2022

 

 

Three Months Ended March 31, 2021

 

 

Operating lease expense

 

General and administrative

 

$

290,769

 

 

$

286,923

 

 

Total operating lease expense

 

 

 

$

290,769

 

 

$

286,923

 

 

Future minimum lease payments of the Company’s operating leases as of March 31, 2022 were as follows:

 

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Table of Contents

2022

 

$

885,000

 

2023

 

 

105,000

 

2024

 

 

 

2025

 

 

 

Thereafter

 

 

 

Total lease payments

 

 

990,000

 

Less imputed interest

 

 

(22,752

)

Present value of operating lease liabilities

 

$

967,248

 

In January 2022, the Company entered into an agreement to extend the lease of 22 Cortlandt Street for a term of six months from August 1, 2022 through January 31, 2023. As of March 31, 2022, the remaining lease term for our operating lease was 0.8 years with a discount rate of 6.0%. The interest rate implicit in lease contracts is typically not readily determinable and as such, the Company uses its incremental borrowing rate based on the information available at the lease commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.

Note 7. Stockholders’ Equity

Capital Structure

In December 2019, the Company entered into the December 2019 Sales Agreement with SVB Leerink, pursuant to which the Company may sell up to $80 million in shares of the Company’s common stock from time to time through SVB Leerink, acting as the Company’s sales agent, in one or more at-the-market offerings utilizing the 2019 Shelf Registration Statement. SVB Leerink is entitled to receive a commission of 3.0% of the gross proceeds for any shares sold under the December 2019 Sales Agreement. The December 2019 Sales Agreement was replaced by the March 2022 Sales Agreement (see below).

In March 2022, the Company entered into the March 2022 Sales Agreement with SVB Leerink, pursuant to which the Company may sell up to $200 million in shares of the Company’s common stock from time to time through SVB Leerink, acting as the Company’s sales agent, in one or more at-the-market offerings utilizing the 2019 Shelf Registration Statement. SVB Leerink is entitled to receive a commission of 3.0% of the gross proceeds for any shares sold under the March 2022 Sales Agreement. The March 2022 Sales Agreement supersedes the December 2019 Sales Agreement, dated December 5, 2019, by and between the Company and SVB Leerink LLC.

Under the December 2019 Sales Agreement and March 2022 Sales Agreement, for the three months ended March 31, 2022, the Company received approximately $32.0 million in gross proceeds through the sale of 1,044,081 shares, of which net proceeds were approximately $31.0 million.

The holders of shares of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings. The holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors.

Shelf Registration Statement

On December 5, 2019, the Company filed an automatic shelf registration statement (“2019 Shelf Registration”) with the Securities and Exchange Commission (“SEC”) for the issuance of common stock, preferred stock, warrants, rights, debt securities and units. It became effective upon filing with the SEC and is currently the Company’s only active shelf registration. Through the date of this report, the Company has issued common stock of approximately $261.2 million pursuant to such shelf registration statement.

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Under SEC rules, the 2019 Shelf Registration Statement allows for the potential future offer and sale by the Company, from time to time, in one or more public offerings, of an indeterminate amount of the Company’s common stock, preferred stock, debt securities, and units at indeterminate prices. At the time any of the securities covered by the 2019 Shelf Registration Statement are offered for sale, a prospectus supplement will be prepared and filed with the SEC containing specific information about the terms of any such offering.

Equity Incentive Plans

There were 2,187,058 shares available for the issuance of stock options or stock-based awards under the Company’s 2015 Omnibus Incentive Compensation Plan at March 31, 2022.

Stock Options

The following table sets forth the stock option activity for the three months ended March 31, 2022:

 

 

 

​Number
of shares

 

 

​Weighted
average
exercise price

 

 

Weighted
average
contractual
term

 

 

​Aggregate
intrinsic
value

 

Outstanding at December 31, 2021

 

 

5,090,377

 

 

$

28.89

 

 

 

 

 

 

 

Granted

 

 

1,223,019

 

 

 

30.05

 

 

 

 

 

 

 

Exercised

 

 

(18,015

)

 

 

10.08

 

 

 

 

 

 

 

Forfeited

 

 

(67,139

)

 

 

43.83

 

 

 

 

 

 

 

Expired

 

 

(9,212

)

 

 

53.10

 

 

 

 

 

 

 

Outstanding at March 31, 2022

 

 

6,219,030

 

 

$

28.98

 

 

 

7.6

 

 

$

106,188,389

 

Vested and expected to vest at March 31, 2022

 

 

6,219,030

 

 

$

28.98

 

 

 

7.6

 

 

$

106,188,389

 

Exercisable at March 31, 2022

 

 

2,932,835

 

 

$

15.85

 

 

 

5.7

 

 

$

82,434,018

 

 

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The expected term of the Company’s stock options has been determined utilizing the “simplified” method as described in the SEC’s Staff Accounting Bulletin No. 107 relating to stock-based compensation. The simplified method was chosen because the Company has limited historical option exercise experience due to its short operating history. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for a period approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. Expected volatility is based on historical volatilities of similar entities within the Company’s industry which were commensurate with the Company’s expected term assumption.

The weighted average grant date fair value of options granted was $21.00 per option for the three months ended March 31, 2022. As of March 31, 2022, there was $91.0 million of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted average period of 3.3 years. These amounts do not include 6,169 options outstanding as of March 31, 2022, which are performance-based and vest upon the achievement of certain corporate milestones. Stock‑based compensation will be measured and recorded if and when it is probable that the milestone will occur.

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Table of Contents

Restricted Stock Units

In 2020, the Company began granting RSUs covering an equal number of its shares of common stock to employees. The fair value of RSUs is determined on the date of the grant based on the market price of its shares of common stock as of that date. The fair value of the RSUs is recognized as an expense ratably over the vesting period of four years. As of March 31, 2022, total compensation cost not yet recognized related to unvested RSUs was $19.5 million, which is expected to be recognized over a weighted-average period of 3.6 years.

The following table sets forth the RSU activity for the three months ended March 31, 2022:

 

 

Number
of shares

 

 

Weighted
average
grant date
fair value

 

Outstanding at December 31, 2021

 

 

302,764

 

 

$

42.93

 

Granted

 

 

429,902

 

 

 

23.27

 

Vested

 

 

(61,581

)

 

 

41.49

 

Forfeited

 

 

(3,719

)

 

 

48.73

 

Outstanding at March 31, 2022

 

 

667,366

 

 

$

30.36

 

 

Stock-based compensation expense recognized for the three months ended March 31, 2022 and 2021 was allocated as follows:

 

 

Three Months Ended March 31,

 

 

2022

 

 

2021

 

Research and development

 

$

1,809,477