10-Q 1 btai-20220630x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 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: 001-38410

BioXcel Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware

82-1386754

(State or other jurisdiction of
incorporation or organization)

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

555 Long Wharf Drive

New Haven, CT

06511

(Address of principal executive offices)

(Zip Code)

(475) 238-6837

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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,
$0.001 par value per share

BTAI

Nasdaq Capital Market

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 (§ 232.405 of this chapter) 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 the 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

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding at August 8, 2022 was 28,022,465.

Table of Contents

Page

PART I - FINANCIAL INFORMATION

Forward Looking Statements

3

Summary Risk Factors

4

Item 1.

Financial Statements (Unaudited)

6

Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021

6

Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021

7

Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2022 and 2021

8

Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021

9

Notes to Consolidated Financial Statements

10

Item 2.

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

28

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

Item 4.

Controls and Procedures

46

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

47

Item 1A.

Risk Factors

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

98

Item 3.

Defaults Upon Senior Securities

98

Item 4.

Mine Safety Disclosures

98

Item 5.

Other Information

99

Item 6.

Exhibits

100

Signatures

102

2

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

our commercialization plans for IGALMITM;
our plans relating to clinical trials for our product candidates;
our plans for 505(b)(2) regulatory path approval;
our plans to research, develop and commercialize our current and future product candidates;
our plans to seek to enter into collaborations for the development and commercialization of certain product candidates;
the potential benefits of any future collaboration;
the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;
the rate and degree of market acceptance and clinical utility of IGALMITM and any product candidates for which we receive marketing approval;
our commercialization, marketing and manufacturing capabilities and strategy;
our intellectual property position and strategy;
our estimates regarding expenses, future revenue, capital requirements and need for additional financing;
potential investments in, or other strategic options for, our subsidiary, OnkosXcel Therapeutics, LLC (“OnkosXcel”);
developments relating to our competitors and our industry;
the impact of government laws and regulations; and
our relationship with BioXcel LLC.

These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Summary Risk Factors,” Part II, Item 1A. “Risk Factors,” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not rely on these forward-looking statements as predictions of future events. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

As used in this Quarterly Report on Form 10-Q, unless otherwise specified or the context otherwise requires, the terms “we,” “our,” “us,” the “Company” or “BTI” refer to BioXcel Therapeutics, Inc. and “BioXcel LLC” refers to the Company’s former parent company and significant stockholder, BioXcel LLC and its predecessor, BioXcel Corporation. All brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners, including IGALMITM, which is a trademark of BioXcel Therapeutics, Inc.

We may use our website as a distribution channel of material information about the Company. Financial and other important information regarding the Company is routinely posted on and accessible through the Investors & Media section of its website at www.bioxceltherapeutics.com. In addition, you may automatically receive email alerts and

3

other information about the Company when you enroll your email address by visiting the “Email Alerts” option under the News / Events menu of the Investors & Media section of our website at www.bioxceltherapeutics.com.

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

We have a limited operating history and have never generated any substantial product revenues, which may make it difficult to evaluate the success of our business to date and to assess our future viability.
We have incurred significant operating losses since inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability.
We will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.
We have significant indebtedness and other contractual obligations that could impair our liquidity, restrict our ability to do business and thereby harm our business, results of operations and financial condition. We may not have sufficient cash flow from operations to satisfy our obligations under our financing facilities.
We have limited experience in drug discovery and drug development.
In the near term, we are dependent on the success of IGALMITM, BXCL501 and BXCL701. If we are unable to complete the clinical development of, obtain marketing approval for or successfully commercialize IGALMITM or our product candidates, either alone or with a collaborator, or if we experience significant delays in doing so, our business could be substantially harmed.
Interim “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
The regulatory approval processes of the United States of America (“U.S.”) Food and Drug Administration (“FDA”), and comparable foreign authorities are lengthy, time consuming, expensive and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.
Clinical trials are expensive, time-consuming and difficult to design and implement, and involve an uncertain outcome.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval.
BioXcel LLC’s approach to the discovery and development of product candidates based on EvolverAI, its proprietary pharmaceutical discovery and development engine, is novel and unproven, and we do not know whether we will be able to develop any products of commercial value.
If we are required by the FDA or similar regulatory authorities to obtain approval (or clearance, or certification) of a companion diagnostic device in connection with approval of one of our product candidates, and we do not obtain or face delays in obtaining approval (or clearance, or certification) of a companion

4

diagnostic device, we will not be able to commercialize the product candidate and our ability to generate revenue will be materially impaired.
Even though the FDA has approved IGALMITM for the acute treatment of agitation associated with schizophrenia or bipolar I or II disorder, we will still face extensive and ongoing regulatory requirements and obligations for IGALMITM and for any product candidates for which we obtain approval.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
If our products do not gain market acceptance, our business will suffer because we might not be able to fund future operations.
If we are unable to develop satisfactory sales and marketing capabilities, we may not succeed in commercializing IGALMITM or any product candidate for which we may obtain regulatory approval.
Although we obtained FDA approval for IGALMITM, our products and product candidates may not be accepted by physicians or the medical community in general.
We continue to depend on BioXcel LLC to provide us with certain services for our business.
We are substantially dependent on third parties for the manufacture of our clinical supplies of our product candidates, and we intend to rely on third parties to produce commercial supplies of any approved product candidate. Therefore, our development of our products could be stopped or delayed, and our commercialization of any future product could be stopped or delayed or made less profitable if third-party manufacturers fail to obtain approval of the FDA or comparable regulatory authorities or fail to provide us with drug product in sufficient quantities or at acceptable prices.
Our failure to find third-party collaborators to assist or share in the costs of product development could materially harm our business, financial condition and results of operations.
It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position does not adequately protect our product candidates, others could compete against us more directly, which would harm our business, possibly materially.

5

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BIOXCEL THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share amounts)

June 30, 

2022

December 31, 

    

(unaudited)

    

2021

ASSETS

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

233,452

$

232,968

Inventory

 

1,395

 

Prepaid expenses

 

8,384

 

2,888

Other current assets

 

1,693

 

956

Total current assets

$

244,924

$

236,812

Property and equipment, net

 

1,272

 

1,294

Operating lease right-of-use assets

1,114

1,247

Other assets

925

86

Total assets

$

248,235

$

239,439

LIABILITIES AND STOCKHOLDERS' EQUITY

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

6,021

$

4,678

Accrued expenses

 

13,372

 

11,492

Due to related party

 

296

 

204

Other current liabilities

306

293

Total current liabilities

$

19,995

$

16,667

Long-term portion of operating lease liabilities

949

 

1,105

Derivative liabilities

1,954

Long-term debt

61,075

Total liabilities

$

83,973

$

17,772

Commitments and contingencies (Note 15)

Stockholders' equity

 

  

 

  

Common stock, $0.001 par value, 100,000 shares authorized as of June 30, 2022 and December 31, 2021; 28,018 and 27,980 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively

$

28

$

28

Preferred stock, $0.001 par value, 10,000 shares authorized; no shares issued and outstanding as of June 30, 2022 and December 31, 2021

Additional paid-in-capital

 

479,164

 

467,427

Accumulated deficit

 

(314,930)

 

(245,788)

Total stockholders' equity

$

164,262

$

221,667

Total liabilities and stockholders' equity

$

248,235

$

239,439

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

6

BIOXCEL THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share amounts)

(unaudited)

Three Months Ended June 30, 

Six months ended June 30, 

    

2022

    

2021

    

2022

    

2021

Operating expenses

 

 

 

  

 

  

Research and development

$

17,906

$

13,509

$

36,593

$

28,250

Selling, general and administrative

 

18,382

 

14,104

 

31,175

 

25,742

Total operating expenses

$

36,288

$

27,613

$

67,768

$

53,992

Loss from operations

$

(36,288)

$

(27,613)

$

(67,768)

$

(53,992)

Other income (expense)

 

 

 

  

 

  

Interest income

 

204

 

10

 

219

 

20

Interest expense

(1,586)

(16)

(1,593)

(23)

Net loss and comprehensive loss

$

(37,670)

$

(27,619)

$

(69,142)

$

(53,995)

Basic and diluted net loss per share attributable to common stockholders

$

(1.35)

$

(1.11)

$

(2.47)

$

(2.18)

Weighted average shares outstanding - basic and diluted

 

27,989

 

24,962

 

27,985

 

24,744

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

7

BIOXCEL THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands)

(unaudited)

Additional

Common stock

paid-in-

Accumulated

    

Shares

    

Amount

    

capital

    

deficit

    

Total

Balance as of December 31, 2020

24,417

$

24

$

345,529

$

(138,857)

$

206,696

Stock-based compensation

5,565

5,565

Exercise of stock options

214

1

851

852

Net loss

(26,376)

(26,376)

Balance as of March 31, 2021

24,631

$

25

$

351,945

$

(165,233)

$

186,737

Issuance of common stock, net of issuance costs of $3,542

3,279

3

101,024

101,027

Stock-based compensation

6,769

6,769

Exercise of stock options

59

497

497

Net loss

(27,619)

(27,619)

Balance as of June 30, 2021

27,969

$

28

$

460,235

$

(192,852)

$

267,411

Additional

Common stock

paid-in-

Accumulated

Shares

    

Amount

    

capital

    

deficit

    

Total

Balance as of December 31, 2021

27,980

$

28

$

467,427

$

(245,788)

$

221,667

Stock-based compensation

3,825

3,825

Net loss

(31,472)

(31,472)

Balance as of March 31, 2022

27,980

$

28

$

471,252

$

(277,260)

$

194,020

Stock-based compensation

4,482

4,482

Issuance of stock purchase warrants

3,245

3,245

Exercise of stock options

38

185

185

Net loss

(37,670)

(37,670)

Balance as of June 30, 2022

28,018

$

28

$

479,164

$

(314,930)

$

164,262

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

8

BIOXCEL THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

Six months ended June 30, 

    

2022

    

2021

OPERATING CASH FLOW ACTIVITIES:

 

  

 

  

Net loss

$

(69,142)

$

(53,995)

Reconciliation of net loss to net cash used in operating activities

 

 

Depreciation

 

161

 

144

Accretion of debt discount and amortization of financing costs

321

Stock-based compensation expense

 

8,307

 

12,334

Changes in operating assets and liabilities:

 

 

Inventory

 

(1,395)

 

Prepaid expenses, other current assets and other assets

 

(7,072)

 

(1,064)

Operating lease right-of-use assets

133

Accounts payable, accrued expenses, and other liabilities

 

3,315

 

559

Operating lease liabilities

(144)

Net cash used in operating activities

$

(65,516)

$

(42,022)

INVESTING CASH FLOW ACTIVITIES:

 

  

 

  

Purchases of equipment and leasehold improvements

$

(139)

$

(416)

Net cash used in investing activities

$

(139)

$

(416)

FINANCING CASH FLOW ACTIVITIES:

 

  

 

  

Proceeds from long-term debt

$

68,600

$

Debt issuance costs

(2,646)

Proceeds from issuance of common stock, net of issuance costs

101,027

Exercise of stock options

185

1,349

Net cash provided by financing activities

$

66,139

$

102,376

Net increase in cash and cash equivalents

$

484

$

59,938

Cash and cash equivalents, beginning of the period

 

232,968

 

213,119

Cash and cash equivalents, end of the period

$

233,452

$

273,057

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

9

BIOXCEL THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(amounts in thousands, except per share amounts and where otherwise noted)

(unaudited)

Note 1. Nature of the Business

BioXcel Therapeutics, Inc. (“BTI”) is a commercial stage biopharmaceutical company focused on drug development that utilizes artificial intelligence (“AI”) to identify improved therapies in neuroscience and immuno-oncology. BTI's drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. BTI's two most advanced clinical development programs are BXCL501, a proprietary, orally dissolving, thin film formulation of the adrenergic receptor agonist dexmedetomidine (“Dex”), for the treatment of agitation, and BXCL701, an orally administered, systemic innate immune activator for the treatment of a rare form of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.

As used in these consolidated financial statements, unless otherwise specified or the context otherwise requires, the terms the “Company” or “BTI” refer to BioXcel Therapeutics, Inc., and “BioXcel LLC” refers to BioXcel LLC and, its predecessor, BioXcel Corporation.

The Company was incorporated under the laws of the State of Delaware on March 29, 2017. The Company’s principal office is in New Haven, Connecticut.

Impact of COVID-19 Pandemic

During the first quarter ended March 31, 2020, the novel coronavirus disease (“COVID-19”) was declared a pandemic and spread to multiple regions across the globe, including the U.S. and Europe. The outbreak and government measures taken in response had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production were suspended; and demand for certain goods and services spiked, while demand for other goods and services decreased.

We continue to work closely with our clinical sites to monitor the potential impact of the evolving COVID-19 pandemic and the spread of its variants. We remain committed to our clinical programs and development plans. To-date, we have not experienced significant delays in any of our ongoing or planned clinical trials except for our TRANQUILITY II trial where screenings and enrollment have been slower than expected but continues at a steady rate. However, this could rapidly change.

Note 2. Basis of Presentation

The accompanying unaudited consolidated financial statements do not include all of the information and notes required by Generally Accepted Accounting Principles in the U.S. (“GAAP”). The accompanying year-end balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. The unaudited interim consolidated financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2022, the results of its operations for the three and six months ended June 30, 2022 and 2021 and its cash flows for the six months ended June 30, 2022 and 2021, respectively. The results for the three and six months ended June 30, 2022 are not necessarily indicative of results to be expected for the year ending December 31, 2022, any other interim periods or any future year or period. The accompanying unaudited consolidated financial statements of the Company should be read in

10

conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission on March 10, 2022.

Our consolidated financial statements include the accounts for the Company and all entities where we have a controlling financial interest after elimination of all intercompany accounts and transactions.

As of June 30, 2022, the Company had cash and cash equivalents of $233,452 and an accumulated deficit of $314,930. BTI has incurred substantial net losses and negative cash flows from operating activities in nearly every fiscal period since inception and expects this trend to continue for the foreseeable future. The Company recognized net losses of $37,670 and $27,619 for the three months ended June 30, 2022 and 2021, respectively and $69,142 and $53,995 for the six months ended June 30, 2022 and 2021, respectively, and had net cash used in operating activities of $65,516 and $42,022 for the six months ended June 30, 2022 and 2021, respectively. The Company believes that its existing cash and cash equivalents will be sufficient to cover its cash flow requirements for at least the next twelve months from the issuance date of these consolidated financial statements. However, the Company’s future requirements may change and will depend on numerous factors.

Note 3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements and notes thereto. Although these estimates are based on the Company’s knowledge of current events and actions it may undertake in the future, actual results may ultimately materially differ from these estimates.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of June 30, 2022 and December 31, 2021, cash equivalents were comprised primarily of money market funds. Cash and cash equivalents held at financial institutions may at times exceed federally insured amounts. We believe we mitigate such risk by investing in or through major financial institutions.

Inventory

Inventories are stated at the lower of cost or net realizable value. Cost of inventory is determined on a first-in, first-out basis.

BTI capitalizes inventory costs associated with the Company’s products prior to regulatory approval, when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to be realized; otherwise, such costs are expensed as research and development expense in the Consolidated Statements of Operations.

The Company performs an assessment of the recoverability of capitalized inventory during each reporting period and writes down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is first identified. Such impairment charges, should they occur, will be recorded within the cost of sales in the Consolidated Statements of Operations. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected, write-downs of inventory may be required.

Property and Equipment

Property and equipment are recorded at cost and depreciated and amortized over the shorter of their remaining lease term or their estimated useful life on a straight-line basis as follows:

11

Equipment

3-5 years

Furniture

7 years

Leasehold improvements

Lesser of life of improvement or lease term

Expenditures for maintenance and repairs which do not improve or extend the useful lives of the respective assets are expensed as incurred. When assets are sold or retired, the related cost and accumulated depreciation are removed from their respective accounts and any resulting gain or loss is included within selling, general and administrative expenses in the Consolidated Statements of Operations.

The Company follows the guidance provided by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 360-10, Property, Plant, and Equipment-Overall. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated. Impairment charges are recognized at the amount by which the carrying amount of an asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and the long-term portion of operating lease liabilities in the Consolidated Balance Sheets.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we used an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any prepaid lease payments made and excludes lease incentives. Our leases may include options to extend the lease; such options are included in determining the lease term when it is reasonably certain that we will exercise that option. Renewal options were not included in our calculation of the related asset and liability since it is not reasonably certain we will exercise the relevant option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Debt and Detachable Warrants

Detachable warrants are evaluated for classification as either equity instruments, derivative liabilities, or liabilities depending on the specific terms of the warrant agreement. In circumstances in which debt is issued with equity-classified warrants, the proceeds from the issuance of debt are first allocated to the debt and the warrants at their estimated fair values. The portion of the proceeds allocated to the warrants are accounted for as paid-in capital and a debt discount. The remaining proceeds, as further reduced by discounts created by the bifurcation of any embedded derivatives, are allocated to the debt. Detachable warrants classified as derivative liabilities are accounted for as indicated under “Derivative Assets and Liabilities” section of this Note and as a debt discount. The Company accounts for debt as liabilities measured at amortized cost and amortizes the resulting debt discount from the allocation of proceeds, to interest expense using the effective interest method over the expected term of the debt instrument. The Company considers whether there are any embedded features in debt instruments that require bifurcation and separately accounts for them as derivative financial instruments pursuant to ASC 815, Derivatives and Hedging.

The Company entered into financing arrangements, the terms of which involve significant assumptions and estimates, including future net product sales, in determining interest expense, amortization period of the debt discount, as well as the classification between current and long-term portions. In estimating future net product sales, the Company assesses prevailing market conditions using various external market data against the Company’s anticipated sales and planned commercial activities. Consequently, the Company imputes interest on the carrying value of the debt and records interest expense using an imputed effective interest rate. The Company reassesses the expected payments

12

during each reporting period and accounts for any changes through an adjustment to the effective interest rate on a prospective basis, with a corresponding impact to the classification of the Company’s current and long-term portions of the debt.

Derivative Assets and Liabilities

Derivative assets and liabilities are recorded on the Company`s Consolidated Balance Sheets at their fair value on the date of issuance and are revalued on each balance sheet date until such instruments are settled or expire, with changes in the fair value between reporting periods to be recorded as other income or expense.

The Company does not use derivative instruments for speculative purposes or to hedge exposures to cash-flow or market risks. Certain financing facilities entered into by the Company include freestanding financial instruments and/or embedded features that require separate accounting as derivative assets and/or liabilities.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation, which requires the measurement and recognition of compensation expense based on estimated fair value for all share-based awards made to employees, non-employees and directors, including stock options and restricted stock units (“RSUs”). The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) became effective in August 2017. The Company’s 2020 Incentive Award Plan (the “2020 Plan”) became effective in May 2020. Following the effective date of the 2020 Plan, the Company ceased granting awards under the 2017 Plan; however the terms and conditions of the 2017 Plan continue to govern any outstanding awards granted thereunder.

The Company’s stock-based awards are valued at fair value on the date of grant and that fair value is recognized as an expense in the Consolidated Statements of Operations over the requisite service period using the accelerated attribution method. The estimated fair value of stock-based awards was determined using the Black-Scholes pricing model on the date of grant. Prior to the Company’s initial public offering (“IPO”), significant judgment and estimates were used to estimate the fair value of these awards. Stock awards granted by the Company subsequent to the IPO are valued using market prices at the date of grant.

The Black-Scholes pricing model is affected by the Company’s stock price, as well as assumptions regarding a number of variables including, but not limited to, the strike price of the instrument, the risk-free rate, the expected stock price volatility over the term of the awards, and time until expiration of the instrument. The Company has elected to account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.

Research and Development Costs

Research and development expenses include wages, benefits, facilities, supplies, external services, clinical study, manufacturing costs and other expenses that are directly related to the Company’s research and development activities. At the end of the reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development objectives. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made for the program as a result of the level of service provided, the Company may record net prepaid or accrued expense relating to these costs. Such estimates are subject to change as additional information becomes available. The Company expenses research and development costs as incurred.

Expenses Accrued Under Contractual Arrangements

As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our

13

accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.

We base our expenses related to clinical trials on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations (“CROs”) that conduct and manage clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing expenses, we estimate the time period over which services will be performed and the level of effort to be expended in each period, which is based on an established protocol specific to each clinical trial. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.

Patent Costs

Costs related to filing and pursuing patent applications are recorded in selling, general and administrative expenses and are expensed as incurred since recoverability of such expenditures is uncertain.

Fair Value of Financial Instruments

The Company applies the provisions of ASC 820, Fair Value Measurement, for financial assets and liabilities measured on a recurring basis which requires disclosure that establishes a framework for measuring fair value. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources, or observable inputs, and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances, or unobservable inputs. The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). ASC 820 requires that fair value measurements be classified and disclosed in one of three categories:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk in its assessment of fair value.

14

Earnings (Loss) Per Share

Earnings (loss) per share (“EPS”) is calculated in accordance with ASC 260, Earnings Per Share. Basic EPS is calculated by dividing net income or loss attributable to common stockholders by the weighted average number of shares of common stock that were outstanding. Diluted EPS is calculated by adjusting the weighted average number of shares of common stock that were outstanding for the dilutive effect of common stock equivalents. In periods in which a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be antidilutive. 

Segment Information

The Company operates in a single segment. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance. To date, our chief operating decision maker has made such decisions and assessed performance at the Company level as one segment.

Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”), which amends the existing guidance relating to the accounting for income taxes. ASU No. 2019-12 is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. ASU No. 2019-12 was effective for interim and annual periods beginning after December 15, 2020. The adoption of ASU No. 2019-12 did not have a material impact on the Company’s consolidated financial statements.

Accounting Pronouncements effective in future periods

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and subsequent amendments to the initial guidance (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected credit losses for financial assets held. Topic 326 was to be effective for reporting periods beginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) - Effective Dates, which deferred the effective dates of Topic 326 for the Company, until fiscal year 2023. The Company does not expect that the adoption of Topic 326 will have a material impact on its consolidated financial statements.

Note 4. Common Stock Financing Activities

In June 2021, the Company sold, in a registered offering, 3,155 shares of its common stock at a public offering price of $31.70 per share. The Company received proceeds of $96,971, net of issuance costs of $3,042.

In May 2021, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jeffries”) pursuant to which the Company could offer and sell shares of its common stock, having an aggregate offering price of up to $100,000, from time to time, through an “at the market offering” program under which Jefferies will act as sale agent. The Company sold 124 shares under the Sale Agreement in June 2021. As of December 31, 2021, the Company received proceeds of $4,056, net of issuance costs of $500. The Company did not sell any shares, and thus did not receive any proceeds under this program, for the six months ended June 30, 2022.

Note 5. Transactions with BioXcel LLC

The Company entered into a Separation and Shared Services Agreement with BioXcel LLC that took effect on June 30, 2017 (as amended and restated, the “Services Agreement”), pursuant to which services provided by BioXcel

15

LLC, through its subsidiaries in India and the U.S., will continue indefinitely, as agreed upon by the parties. These services are primarily for drug discovery, chemical, manufacturing and controls (“CMC”) and administrative support.

Service charges recorded under the Services Agreement for the three and six months ended June 30, 2022 and 2021 were as follows:

Three Months Ended June 30, 

Six months ended June 30, 

2022

2021

2022

2021

Research and development

    

$

299

$

310

$

605

$

630

Selling, general and administrative

 

58

45

 

129

94

Total

$

357

$

355

$

734

$

724

As of June 30, 2022, $210 related to these service charges are included in due to related parties in the Company’s Consolidated Balance Sheets.

Under a Second Amended and Restated Shared Services Agreement signed in April 2022, the Company has an option, exercisable until December 31, 2024, to enter into a collaborative services agreement with BioXcel LLC pursuant to which BioXcel LLC shall perform product identification and related services for us utilizing EvolverAI, its proprietary pharmaceutical discovery and development engine. The parties are obligated to negotiate the collaborative services agreement in good faith and to incorporate reasonable market-based terms, including consideration for BioXcel LLC reflecting a low, single-digit royalty on net sales and reasonable development and commercialization milestone payments, provided that (i) development milestone payments shall not exceed $10,000 in the aggregate and not be payable prior to proof of concept in humans and (ii) commercialization milestone payments shall be based on reaching annual net sales levels, be limited to 3% of the applicable net sales level, and not exceed $30,000 in the aggregate. In conjunction with the Second Amended and Restated Shared Services Agreement, the Company agreed to pay BioXcel LLC $18 per month to extend the option to December 31, 2024 from its prior expiration of March 13, 2023.

Note 6. Earnings Net (Loss) Per Share

The calculations of basic and diluted net loss per share are as follows:

Three Months Ended

Six months ended

    

June 30, 

June 30, 

2022

    

2021

2022

    

2021

Net loss (numerator)

$

(37,670)

$

(27,619)

$

(69,142)

$

(53,995)

Weighted average shares (denominator)

27,989

24,962

27,985

24,744

Basic and diluted net loss per share (in whole dollars)

$

(1.35)

$

(1.11)

$

(2.47)

$

(2.18)

Potentially dilutive securities outstanding consists of stock options and RSUs. The Company had common stock equivalents outstanding at June 30, 2022 and 2021 of 4,916 and 4,041 shares, respectively.

16

Note 7. Inventory, net

Inventories consist of the following:

    

June 30, 

    

2022

Raw materials

$

692

Work-in-process

403

Finished goods

300

Total inventory, net

$

1,395

There were no write-downs of inventory for the six months ended June 30, 2022. The Company did not have commercial inventory as of December 31, 2021.

Note 8. Property and Equipment, net

Property and Equipment, net consists of the following:

    

June 30, 

    

December 31, 

    

2022

    

2021

Computers and related equipment

$

167

$

167

Furniture

687

572

Leasehold improvements

1,156

1,133

Work in process

25

24

Total property and equipment

$

2,035

$

1,896

Accumulated depreciation

(763)

(602)

Total property and equipment, net

$

1,272

$

1,294

Depreciation expense was $84 and $80 for the three months ended June 30, 2022 and 2021, respectively, and $161 and $144 for the six months ended June 30, 2022 and 2021, respectively.

Note 9. Accrued Expenses

Accrued expenses consist of the following:

    

June 30, 2022

    

December 31, 2021

Accrued research and development expenses

$

5,923

$

5,762

Accrued compensation and benefits

3,342

3,968

Accrued professional expenses

 

3,608

 

1,324

Accrued taxes

258

302

Other accrued expenses

 

241

 

136

Total accrued expenses

$

13,372

$

11,492

17

Note 10. Debt and Credit Facilities

Debt, net of unamortized discounts and financing costs, consists of the following:

    

June 30, 2022

Term loan

$

70,000

Less:

Original issue discount

(1,400)

Discount from issuance of BTI Warrants

(3,245)

Discount from issuance of Equity Investment Right

(1,340)

Discount from issuance of OnkosXcel Warrants

(614)

Debt issuance costs

(2,647)

Plus:

Accretion of discounts and amortization of financing costs

321

Long-term debt, net

$

61,075

On April 19, 2022 (the “Effective Date”), the Company entered into two strategic financing agreements: a Credit Agreement and Guaranty (the “Credit Agreement”) by and among the Company, as the borrower, certain subsidiaries of the Company from time to time party thereto as subsidiary guarantors, the lenders party thereto (the “Lenders”), and Oaktree Fund Administration LLC (“OFA”) as administrative agent, and a Revenue Interest Financing Agreement (the “RIFA”; and together with the Credit Agreement, the “OFA Facilities”) by and among the Company, the purchasers party thereto (the “Purchasers”) and OFA as administrative agent. Under the OFA Facilities, the Lenders and the Purchasers have agreed to, in the aggregate between the two OFA Facilities, provide up to $260,000 in gross funding to support the Company’s commercial activities of IGALMITM sublingual film. In addition, the OFA Facilities are intended to support the expansion of clinical development efforts of BXCL501, which includes a Phase 3 program for the acute treatment of agitation in patients with Alzheimer’s disease, and for general corporate purposes. The Lenders and Purchasers are comprised of funds of Oaktree Capital Management, L.P. (“Oaktree”) and Qatar Investment Authority (“QIA”).

A high-level summary of the OFA Facilities is provided below.

Credit Agreement

The Credit Agreement provides up to $135,000 in senior secured term loans, of which the initial Tranche A of $70,000 was funded on April 28, 2022, and the remaining tranches may be borrowed at the Company’s option prior to December 31, 2024, subject to satisfaction of certain conditions, including regulatory and financial milestones. Tranche B of the Credit Agreement is $35,000 and is available upon satisfaction of certain conditions, including receipt of certain regulatory and financial milestones.

Tranche C of the Credit Agreement is $30,000 and is available upon satisfaction of certain conditions, including specified minimum net sales of the Company attributable to sales of BXCL501 for a trailing twelve consecutive month period.

The loans under the Credit Agreement do not amortize and mature on the fifth anniversary of the effective date; provided that the Company may, at its option, extend the maturity date to the sixth anniversary if, prior to December 31, 2024, the Company receives and satisfies certain conditions including receipt of certain regulatory and financial milestones. Borrowings under the Credit Agreement are issued at a 200-basis point original issue discount and bear interest at a fixed annual rate of 10.25%, payable quarterly. Of such interest, 225 basis points per annum is, at the Company’s option, payable in kind by capitalizing and adding such interest to the outstanding principal amount of loans from the first payment date on which such interest is owed through, and including, the third anniversary of such payment date, unless, with respect to any payment date, the Company elects to pay all or a portion of such interest in cash. The Company is required to pay a ticking fee equal to 0.750% per annum on the undrawn amount of the commitments, payable quarterly commencing 120 days after the funding of the Tranche A term loan through the

18

termination of the commitments, which is expensed as incurred. The Company may voluntarily prepay the Credit Agreement at any time subject to a prepayment fee.

The Company’s obligations under the Credit Agreement are guaranteed by BTI’s existing and subsequently acquired or organized subsidiaries, subject to certain exceptions. Our obligations under the Credit Agreement and the related guarantees thereunder are secured, subject to customary permitted liens and other agreed upon exceptions, by (i) a pledge of all of the equity interests of all of our existing and any future direct subsidiaries, and (ii) a perfected security interest in all of our and the guarantors’ tangible and intangible assets (except that the guarantees provided by the BXCL 701 Subsidiaries (defined below) are unsecured).

The Credit Agreement contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, and dividends and other distributions, subject to certain exceptions, including specific exceptions with respect to product commercialization and development activities. We must also comply with certain financial covenants, including (i) maintenance of cash or permitted cash equivalent investments in accounts controlled by OFA for the Lenders, of at least (a) $15,000 from the Effective Date until the date on which the second tranche of loans are funded (the “Step-Up Date”) and (b) $20,000 from and after the Step-Up Date, provided, in the case of (a) and (b), that following any Permitted BXCL701 Release Event (as defined below), such amount will increase by $12,500, and following such time as unaffiliated third parties hold ownership of at least 30% of the equity interests in the BXCL701 Subsidiaries (as defined below), such amount will increase by an additional $5,000 (provided, that such amount will in no event exceed 50% of the aggregate amount of loans outstanding at any time); and (ii) a minimum revenue test, measured quarterly beginning with our fiscal quarter ending on December 31, 2023, that requires our and our subsidiaries’ consolidated net revenue for the six consecutive month period ending on the last day of each such fiscal quarter to not be less than a minimum revenue amount specified in the Credit Agreement. Our failure to comply with the financial covenants will result in an event of default, subject to certain cure rights with respect to the revenue covenant.

Notwithstanding the foregoing, the Credit Agreement permits OnkosXcel (together with OnkosXcel Employee Holdings LLC, a wholly owned subsidiary of BTI, and their respective subsidiaries, the “BXCL701 Subsidiaries”) to receive third-party investment or transfer all or substantially all of their assets to an unaffiliated third-party, in each case subject to terms and conditions set forth in the Credit Agreement, including the escrow of certain proceeds received by us and our subsidiaries (other than the BXCL701 Subsidiaries) in respect of these disposition events and, under circumstances set forth in the Credit Agreement, the mandatory prepayment of such escrowed amounts. Our equity interests in the BXCL701 Subsidiaries have been pledged in support of our obligations under the Credit Agreement, and the BXCL701 Subsidiaries have provided direct guarantees of our obligations under the Credit Agreement on an unsecured basis. However, the pledge, guarantee and other obligations of the BXCL701 Subsidiaries under the Credit Agreement will be released upon certain agreed upon events (“Permitted BXCL701 Release Events”), including an initial public offering by the BXCL701 Subsidiaries or the ownership by unaffiliated third parties of at least 20% of the equity interests in the BXCL701 Subsidiaries.

The Credit Agreement contains events of default that are customary for financings of this type relating to, among other things, payment defaults, breach of covenants, breach of representations and warranties, cross default to material indebtedness, bankruptcy-related defaults, judgment defaults, breach of the financial covenants described above, and the occurrence of certain change of control events. In certain circumstances, events of default are subject to customary cure periods. Following an event of default and any applicable cure period, the Lenders will have the right upon notice to terminate any undrawn commitments and may accelerate all amounts outstanding under the Credit Agreement, in addition to other remedies available to them as our secured creditors.

Revenue Interest Financing Agreement

The RIFA provides up to $120,000 in financing in exchange for a capped revenue interest on net sales of IGALMITM, and other future BXCL501 products, if any, that receive regulatory approval for sale. The financing under

19

the RIFA may be drawn by the Company at its option prior to December 31, 2024, subject to satisfaction of certain conditions, including certain regulatory, patent and financial milestones.

Under the terms of the RIFA, the Purchasers will receive tiered revenue interest payments on U.S. net sales of IGALMITM, and other future BXCL501 products, if any, that receive regulatory approval for sale, equal to a royalty ranging from 0.375% to 7.750% of net sales of IGALMITM, and other future BXCL501 products, if any, approved for sale in the U.S., subject to a hard cap equal to 1.75x the total amount funded. In addition, if the conditions to the second tranche of the financing provided under the RIFA have been met, once payments equal to the hard cap have been received by the Purchasers, the Company will be required to make revenue interest payments equal to a flat 0.375% royalty on U.S. net sales of IGALMITM, and other future BXCL501 products, if any, that receive regulatory approval for sale, through and including March 31, 2036 (the “Tail Royalty”). The Company is also required to make certain additional payments to the Purchasers from time to time to ensure that the aggregate amount of payments received by the Purchasers under the RIFA is at least equal to certain agreed upon minimum levels as of certain specified dates, subject to terms and conditions set forth in the RIFA. Revenue interest payments due under the RIFA are payable quarterly based on net sales.

Any time after the initial funding of the RIFA, BTI has the right (the “BTI Call Option”), but not the obligation, to buy out the Purchasers’ interests in the revenue interest payments at an agreed upon repurchase price. The BTI Call Option can be exercised in year one, two, three and thereafter at a multiple of the Purchasers invested capital of 1.225x, 1.375x, 1.525x and 2.25x, respectively. The Purchasers will not be entitled to any Tail Royalty if the BTI Call Option is exercised before the third anniversary of the Effective Date.

The Company’s obligations under the RIFA are secured, subject to customary permitted liens and other agreed upon exceptions and subject to an intercreditor agreement between OFA for the Credit Agreement and RIFA, by a perfected security interest in (i) accounts receivable arising from net sales of BXCL501 products in the U.S. and one or more segregated bank accounts maintained for the purpose of receiving payments in respect of such accounts receivable, (ii) intellectual property that is claiming or covering BXCL501 itself or any method of using, making or manufacturing BXCL501 and (iii) regulatory approvals, clinical data, and all other assets that underlie BXCL501.

The RIFA contains customary representations and warranties and certain restrictions on the Company’s ability to incur indebtedness and grant liens on intellectual property related to BXCL501. In addition, the RIFA provides that if certain events occur, including certain bankruptcy events, failure to make payments, a change of control, an out-license or sale of all of the rights in and to BXCL501 in the U.S., in each case except a permitted licensing transaction (as defined in the RIFA) and, subject to applicable cure periods, material breach of the covenants in the RIFA, OFA, at the direction of the Purchasers, may require the Company to repurchase the Purchasers’ interests in the revenue interest payments at an agreed upon repurchase price.

Tranche A of the RIFA is $30,000 and is available upon FDA approval of BXCL501 for acute treatment of agitation associated with Schizophrenia or Bipolar I or II Disorder, which was obtained by the Company on April 5, 2022.

Tranche B of the RIFA is $45,000 and is available upon satisfaction of certain conditions, including receipt of certain regulatory and patent related milestones and specified minimum net sales of BXCL501 during any consecutive twelve-month period.

Tranche C of the RIFA is $45,000 and is available upon satisfaction of certain conditions, including receipt of certain regulatory and patent related milestones and specified minimum net sales of BXCL501 during any consecutive twelve-month period (as defined in the RIFA). No amounts were funded under the RIFA as of June 30, 2022. See Note 16, Subsequent Events for information relating to the draw-down of Tranche A.

Warrants and Equity Investment Right

In connection with the Credit Agreement, on the Effective Date, the Company granted warrants to the Lenders to purchase up to 278 shares of our common stock (the “ BTI Warrants”) at an exercise price of $20.04 per share, which

20

represents the arithmetic average of the volume-weighted average price of the Company’s common stock on the Nasdaq Capital Market during the 30 trading days preceding the issuance of the BTI Warrants. The BTI Warrants will expire on April 19, 2029, are freely transferable and may be net exercised at the holder’s election. In addition, pursuant to the Credit Agreement, the Lenders have the right to purchase shares of the Company’s common stock after the Effective Date, so long as borrowings under the Credit Agreement are outstanding, for a purchase price of $5,000 at a price per share equal to a 10% premium to the volume-weighted average price of the common stock over the 30 trading days prior to the Lenders’ election to proceed with such equity investment (the “Equity Investment Right”). We entered into a registration rights agreement with the Lenders and filed a registration statement on Form S-3 to register the shares issuable upon exercise of the BTI Warrants and, if issued, the shares related to the Equity Investment Right, for resale. The maximum shares of BTI common stock issuable under the BTI Warrants and Lenders’ Equity Investment Right is 5,593.

As part of the Credit Agreement, OnkosXcel, a wholly owned subsidiary of BTI, granted warrants to the Lenders to purchase 175 individual limited liability company units (which number of units is not in thousands; referred to herein as the “OnkosXcel Warrants”). The strike price of the OnkosXcel Warrants is formulaic based on the value of OnkosXcel at the time of exercise and can only be exercised upon occurrence of an equity related liquidity event for OnkosXcel of at least $20,000. The exercise price per unit of the OnkosXcel Warrants will be set upon the earlier of the closing of the next sale (or series of related sales) by OnkosXcel of equity securities of OnkosXcel with aggregate proceeds of not less than $20,000 to unrelated third parties (the “Next Equity Financing”) at an exercise price per unit equal to a 10% premium over the price per unit of the equity securities sold by OnkosXcel in such Next Equity Financing or, in the event of a sale of OnkosXcel prior to the Next Equity Financing or an initial public offering constituting the Next Equity Financing, the lesser of (x) 75% of the fair value of the consideration to be paid for a unit upon the consummation of such transaction and (y) 150% of the valuation applicable to the initial profits units issued by OnkosXcel after the closing of the Credit Agreement. The OnkosXcel Warrants are transferable with approval from BTI, which cannot be unreasonably withheld, expire on April 19, 2029, and may be net exercised at the holder’s election.

Maturities of long-term debt are as follows:

    

June 30, 2022

Remainder of 2022

$

2023

$

2024

$

2025

$

2026

$

2027

$

70,000

Interest expense was as follows:

Three Months Ended

Six months ended

June 30, 

June 30, 

2022

2021

2022

2021

Interest expense

$

1,265

$

16

$

1,272

$

23

Accretion of debt discount and amortization of financing costs

321

 

321

Total interest expense

$

1,586

$

16

$

1,593

$

23

21

Note 11. Derivative Financial Instruments

The Company does not enter into derivative financial instruments for speculative or hedging purposes. Derivative financial instruments recognized and accounted for by BTI are the result of transactions entered into as part of the ongoing operations of the Company.

BTI identified certain freestanding financial instruments and/or embedded features that require separate accounting from the borrowings under the OFA Facilities. This includes the OnkosXcel Warrants and Equity Investment Right held by the Lenders, along with certain put/call options. The OnkosXcel Warrants and Equity Investment Right do not meet certain scope exceptions under ASC 815, primarily because the exercise prices and number of shares of the Company’s common stock issuable under the instruments are variable, and the instruments meet the definition of a derivative under ASC 815. Therefore, these instruments are recorded as derivative liabilities in the Consolidated Balance Sheets. The respective derivative liabilities are recorded on the Company`s Consolidated Balance Sheets at their fair value on the date of issuance and are revalued on each balance sheet date until such instruments are settled or expire, with changes in the fair value between reporting periods recorded as other income or expense.

Note 12. Fair Value Measurements

The Company groups its assets and liabilities measured at fair value in three levels based on the nature of the inputs and assumptions used to determine fair value. Refer to Note 3, Summary of Significant Accounting Policies, for additional information on the accounting policies related to fair value.

The carrying amounts of cash and accounts payable approximate fair value due to the short-term nature of these instruments. As of June 30, 2022 and December 31, 2021, the Company had $188,798 and $228,584, respectively, primarily in U.S. government cash equivalent instruments (included in cash and cash equivalents) which was valued based on Level 1 inputs. There were no transfers between levels within the hierarchy during the six months ended June 30, 2022 and the year ended December 31, 2021.

Derivative liabilities measured at fair value on a recurring basis are summarized below.

Six months ended

June 30, 2022

Fair Value

Level 1

Level 2

Level 3

Total

Derivative liability - Equity Investment Right

$

1,340

$

$

$

1,340

$

1,340

Derivative liability - OnkosXcel Warrants

614

614

614

Total derivative liabilities

$

1,954

$

$

$

1,954

$

1,954

Derivative liabilities are comprised of the OnkosXcel Warrants and Equity Investment Right held by the Lenders. The fair value of the derivative liabilities was determined using Monte Carlo simulation models for the Equity Investment Right, and Binomial Option Pricing and Distribution models for the OnkosXcel Warrants.

The following table presents changes in Level 3 liabilities measured at fair value for the six months ended June 30, 2022. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category.

Derivative liabilities

Balance - December 31, 2021

$

Addition of derivative liabilities

1,954

Change in fair value

Balance - June 30, 2022

$

1,954

22

The Level 3 balances comprised derivative liabilities related to the OnkosXcel Warrants and Equity Investment Right. BTI executed the Credit Agreement with the Lenders on April 19, 2022. The day one fair value of the derivative liabilities approximates their fair value at June 30, 2022. Consequently, no change in fair value was reported in the Consolidated Balance Sheets or Consolidated Statements of Operations as of and for the six months ended June 30, 2022, respectively.

Inputs to the Level 3 estimated fair value for the Equity Investment Right are as follows:

Equity Investment Right

Strike price relative to volume weighted 30-day average

110

%

Volatility (annual)

95

%

Probability of exercise

95

%

Time period

7

years

In estimating the fair value of the derivative liability related to the OnkosXcel Warrants, inputs included third-party fair value estimates of OnkosXcel limited liability company units along with the volatility of those units (which was set at 100% based on the historical volatility of the Company’s stock, along with a peer group of comparable publicly traded companies), and the timing and probability of the relevant capital transactions occurring.

The estimated fair value of long-term debt as of June 30, 2022 was $62,604. Both observable and unobservable inputs were used to determine the fair value of long-term debt, which was classified within the Level 3 category. The fair value of the long-term debt was determined using the Black-Derman Toy Model, Binomial Option Pricing and present value calculations, with inputs related to market spot interest rates, a calibrated discount rate of 13.2% and historical volatility of the five year U.S. Treasury note plus a spread adjustment for credit worthiness.

The fair value of the BTI warrants, which is a non-recuring fair value, was determined as of the date of issuance using a Black-Scholes pricing model and the fair value of $3,245 was recorded as a component of stockholders’ equity in additional-paid-in-capital in the Consolidated Balance Sheets, with the offset recorded as a discount on the amounts funded under the OFA Facilities. This non-recurring measurement is classified as a Level 3 within the fair value hierarchy since it is based on external valuation models whose inputs include market interest rates, present value calculations and stock price volatilities; the inputs used were a strike price of $20.04, the Company’s stock price of $14.93, volatility of 95%, term of 7 years and risk-free rate of 2.95%.

Note 13. Stock-Based Compensation

2017 Equity Incentive Plan

The Company’s 2017 Plan became effective in August 2017. Following the effective date of the Company's 2020 Plan (as defined below), the Company ceased granting awards under the 2017 Plan, however, the terms and conditions of the 2017 Plan continue to govern any outstanding awards granted thereunder.

2020 Incentive Award Plan

The Company’s 2020 Plan was approved and became effective at the Company’s 2020 annual meeting of stockholders on May 20, 2020, and unless earlier terminated by the Board of Directors, will remain in effect until March 26, 2030. The 2020 Plan originally authorized for issuance the sum of (i) 911 shares of the Company’s common stock authorized for issuance and (ii) 233 shares of the Company’s common stock, which represents the number of shares that remained available for issuance under the 2017 Plan immediately prior to the approval of the 2020 Plan by the Company’s stockholders. Any shares of common stock which, immediately prior to the approval of the 2020 Plan by the Company’s stockholders, were subject to awards granted under the 2017 Plan that are forfeited or lapse unexercised and are not issued under the 2017 Plan will increase the number of shares of common stock available for grant under the 2020 Plan. In addition, the number of shares available for issuance under the 2020 Plan will increase on the first day of each calendar year, beginning January 1, 2021 and ending on and including January 1, 2030, by a

23

number of shares equal to the lesser of (A) 4% of the aggregate number of shares of the Company’s common stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of shares of common stock as determined by the Board of Directors. The shares available for issuance under the 2020 Plan increased by 1,119 shares and 977 shares on January 1, 2022 and 2021, respectively.

Stock-based awards granted under the 2020 Plan have a term of ten years with the vesting schedule determined by the Board of Directors, which is generally four years.

As of June 30, 2022, there were 813 shares available to be granted under the 2020 Plan.

Restricted stock units

The table below summarizes activity relating to RSUs.

Number of

  

shares

Outstanding as of January 1, 2022

 

Granted

122

Forfeited

(3)

Outstanding as of June 30, 2022

119

In March and May of 2022, the Company granted 97 and 25 time-based RSUs, respectively, to certain employees and consultants. The majority of RSUs granted to employees vest over four years, with 25% vesting at the one-year anniversary of the grant date and the balance vesting ratably over the remaining 12 quarters of the vesting period. The 25 RSUs granted to employees in May 2022 cliff-vest 100% at the one-year anniversary of the grant date. RSUs granted to a third-party consultant vest 50% one each of the first and second anniversaries of the grant date. None of the RSUs had vested as of June 30, 2022. The weighted average grant date fair value per share for the March and May 2022 grants were $15.31 and $10.76, respectively. Unrecognized stock-based compensation expense related to these awards was $1,561 at June 30, 2022. No RSUs were issued and outstanding as of December 31, 2021.

Stock options

A summary of the status of the Company’s stock option activity for the six months ended June 30, 2022 is presented below.

Number

Weighted average

of

exercise

  

shares

  

price per share

Outstanding as of January 1, 2022

 

4,000

$

18.89

Granted

1,068

$

15.24

Forfeited

(155)

$

30.25

Cancelled

(78)

$

54.00

Exercised

(38)

$

4.83

Outstanding as of June 30, 2022

4,797

$

17.25

Options vested and exercisable as of June 30, 2022

 

2,949

$

11.91

As of June 30, 2022, the intrinsic value of options outstanding was $23,676. The intrinsic value for stock options is calculated based on the difference between the exercise prices of the underlying awards and the quoted stock price of the Company’s common stock as of the reporting date.

24

The total intrinsic value of stock options exercised for the six months ended June 30, 2022 and 2021 was $292 and $11,727, respectively. The total intrinsic value of stock options exercisable at June 30, 2022 and 2021 was $23,424 and $58,008, respectively.

The weighted average grant date fair value of options granted during the six months ended June 30, 2022 and 2021 was $11.98 and $32.30, respectively.

The weighted average grant date fair value of options vested at June 30, 2022 was $8.78.

The weighted average remaining contractual life is 6.0 years for options exercisable as of June 30, 2022. The weighted average remaining contractual life is 7.2 years for options outstanding.

Stock-Based Compensation

The fair value of options granted during the six months ended June 30, 2022 and 2021 was estimated using the Black-Scholes pricing model with the following assumptions:

Six months ended

Six months ended

    

June 30, 2022

June 30, 2021

Expected term

6.08

years

-

6.08

years

5.50

years

-

6.25

years

Expected stock price volatility

92.74

%

-

95.59

%

95.00

%

-

98.00

%

Risk-free rate of interest

2.41

%

-

3.03

%

0.96

%

-

1.22

%

Expected dividend

0.0

%

-

0.0

%

0.0

%

-

0.0

%

In 2021, the Company began using a combination of the historical volatility of publicly traded peer companies and the limited historical information related to the Company’s common stock to estimate volatility. The expected term of the employee awards is estimated based on the simplified method, which calculates the expected term based upon the midpoint of the term of the award and the vesting period. The Company uses the simplified method because it does not have sufficient option exercise data to provide a reasonable basis upon which to estimate the expected term. The expected dividend yield is 0% as the Company has no history of paying dividends nor does management expect to pay dividends over the contractual terms of these options. The risk-free interest rates are determined by reference to the U.S. Treasury yield curve in effect at the time of grant, with maturities approximating the expected term of the stock options. The fair value of the underlying common stock is generally determined as the closing price of the Company’s common stock on the Nasdaq Capital Market on the grant date, with consideration of whether there is material nonpublic information that could impact that estimated fair value when it is released.

The Company recognized stock-based compensation expense related to awards issued under the 2017 Plan and the 2020 Plan of $4,482 and $6,769 for the three months ended June 30, 2022 and 2021, respectively, and $8,307 and $12,334, for the six months ended June 30, 2022 and 2021, respectively, which were comprised as follows:

Three Months Ended June 30, 

Six months ended June 30, 

2022

2021

2022

2021

Research and development

    

$

1,269

$

2,173

$

2,271

$

4,205

Selling, general and administrative

 

3,213

4,596

 

6,036

8,129

Total

$

4,482

$

6,769

$

8,307

$

12,334

Unrecognized compensation expense related to unvested stock option awards as of June 30, 2022 was $21,436 and will be recognized over the remaining vesting periods of the underlying awards. The weighted-average period over which such compensation is expected to be recognized is 1.7 years.

25

2020 Employee Stock Purchase Plan

The Company’s 2020 Employee Stock Purchase Plan (the “ESPP”) was also approved and became effective at the Company’s 2020 annual meeting of stockholders on May 20, 2020. The ESPP is designed to assist eligible employees of the Company with the opportunity to purchase the Company’s common stock at a discount through accumulated payroll deductions during successive offering periods. The aggregate number of shares that may be issued pursuant to rights granted under the ESPP is 100 shares of common stock. In addition, the number of shares available for issuance under the ESPP will increase on the first day of each calendar year, beginning on January 1, 2021 and ending on and including January 1, 2030, by a number of shares of common stock equal to the lesser of (a) 1% of the shares outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determined by the Board of Directors. The number of shares that may be issued or transferred pursuant to rights granted under the component of the ESPP that is intended to qualify for favorable U.S. federal tax treatment under Section 423 of the Internal Revenue Code (the “Section 423 Component”) shall not exceed 500 shares. The purchase price will be determined by the administrator of the ESPP and, for purposes of the Section 423 Component, shall not be less than 85% of the fair value of a share on the first trading day or on the last trading day of the applicable offering period, whichever is lower. The shares available for issuance under the 2020 ESPP increased by 156 shares and 244 shares on January 1, 2022 and 2021, respectively. To date, no shares have been sold under the ESPP.

Note 14. Leases

BTI leases office space for its corporate headquarters at 555 Long Wharf Drive, New Haven, Connecticut (the “HQ Lease”) under an operating lease. The HQ Lease was effective in February 2019, was subject to an amendment for additional office space in August 2020 and expires in February 2026. The Company has an option to renew the HQ Lease for one additional five-year term at 95% of the then-prevailing market rates but not less than the rental rate at the end of the initial lease term. Payments under the HQ Lease are fixed.

The Company also leases equipment such as copiers and information technology equipment.

The future minimum annual lease payments under operating leases, as of June 30, 2022, are as follows:

Year ending December 31,

    

Amount

Remainder of 2022

$

182

2023

372

2024

381

2025

391

2026

65

Thereafter

Total lease payments

$

1,391

Less imputed interest

(136)

Total lease liability

$

1,255

Less current portion of lease liability

(306)

Long-term portion of operating lease liability

$

949

The current portion of the Company’s operating lease liability of $306, as of June 30, 2022, is included in other current liabilities on the Consolidated Balance Sheets.

The Company recorded lease expense of $107 and $85 related to its operating lease ROU asset for the three months ended June 30, 2022 and 2021, respectively, and recorded lease expense of $204 and $194 related to its operating lease ROU asset for the six months ended June 30, 2022 and 2021, respectively.

Lease renewal options are not included in the ROU asset.

26

Note 15. Commitments and Contingencies

From time to time, in the ordinary course of business, the Company may be subject to litigation and regulatory examinations as well as information gathering requests, inquiries and/or investigations. The Company is not currently subject to any matters where it believes there is a reasonable possibility that a material loss may be incurred. As of June 30, 2022, there were no matters which would have a material impact on the Company’s financial results.

In addition, on April 1, 2022, the Company signed a commercial supply agreement with ARx, LLC (“ARx”), whereby ARx agreed to manufacture, and supply Dex product related to IGALMITM and BXCL501. The commercial supply agreement contemplates specified minimum annual payments, which increase in intervals at specified points in time during the term of the agreement.

Note 16. Subsequent Events

On July 8, 2022, the Company drew down the initial $30,000 Tranche A funding under the RIFA portion of the OFA Facilities discussed previously herein under Note 10, Debt and Credit Facilities.

27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and related notes appearing elsewhere in this report and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2021. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include, without limitation, those discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, those listed under “Summary Risk Factors,” and those discussed in the section titled “Risk Factors” included in Part II, Item 1A. of this report. All dollar amounts in the below Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented in U.S. dollars, and all dollar amounts are presented in thousands, unless otherwise noted or the context otherwise provides. All share amounts are also presented in thousands, unless otherwise noted.

Overview

BioXcel Therapeutics, Inc. (“BTI” or the “Company”) is a commercial stage biopharmaceutical company utilizing artificial intelligence (“AI”) approaches to develop transformative medicines in neuroscience and immuno-oncology. We are focused on utilizing cutting-edge technology and innovative research to develop high-value therapeutics aimed at transforming patients’ lives. We employ a unique AI platform to reduce therapeutic development costs and potentially accelerate timelines while aiming to increase the possibility of success. Our approach leverages existing approved drugs and/or clinically evaluated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. We believe this differentiated approach has the potential to reduce the expense and time associated with drug development in diseases with substantial unmet medical needs.

Our most advanced clinical development program is BXCL501, an investigational proprietary, orally dissolving, thin film formulation of dexmedetomidine (“Dex”) for the treatment of agitation associated with psychiatric and neurological disorders.

On April 6, 2022, we announced that the United States of America (“U.S.”) Food and Drug Administration (“FDA”) had approved IGALMITM (Dex sublingual film) for the acute treatment of agitation associated with schizophrenia or bipolar I or II disorder in adults. IGALMITM is approved to be self-administrated by patients under the supervision of a healthcare provider. We deployed the first phase of our sales team for high priority targets in May 2022. Furthermore, on July 6, 2022, we announced that IGALMI™, was available in doses of 120 and 180 microgram (“mcg”) through the Company’s third-party logistics provider and was available for order through wholesalers.

We continue to conduct clinical trials evaluating BXCL501 for the acute treatment of agitation in Alzheimer’s disease patients, and for adjunctive treatment of patients with Major Depressive Disorder (“MDD”). We are also planning clinical trials for at-home use for agitation associated with bipolar disorders and schizophrenia.

Our advanced oncology asset, BXCL701, is an investigational orally administered systemic innate immune activator for the treatment of a rare form of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.

The novel coronavirus disease (“COVID-19”) pandemic and government measures taken in response have significantly impacted, both directly and indirectly, businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services spiked, while demand for other goods and services have fallen.

Since the onset of the COVID-19 pandemic, we have taken steps in line with guidance from the U.S. Centers for Disease Control and Prevention and the State of Connecticut to protect the health and safety of our employees and community. We have instituted a return-to-the-office policy and continue to evaluate that policy.

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We also continue to work closely with our clinical sites to monitor the potential impact of the evolving COVID-19 pandemic and the spread of its variants. To date, we have not experienced any significant delays in any of our ongoing or planned clinical trials, except for occasional COVID-19 related disruptions to our TRANQUILITY II trial. However, this could change rapidly.

Commercial Progress

We officially launched IGALMITM in the trade as of July 1, 2022, with all three major wholesalers able to intake and process orders for our hospital customers. We completed the first phase of commercial build-out and deployment of sales teams in the high priority targets, including Integrated Delivery Networks (“IDNs”). We continue to expand our commercial and medical field footprint in other key territories during the second half of 2022 in tandem with market access. This sales team is highly experienced, averaging over 21 years of industry experience (14 in the hospital setting), eight product launches and over six years’ experience in Central Nervous System disorders. The team has made significant progress penetrating their assigned target hospitals, identifying key institution stakeholders, communicating IGALMI’sTM value proposition and assessing the Pharmacy & Therapeutics (“P&T”) process, which is the process used to determine the medications that will appear on a hospital drug formulary.

The Market Access team has also made good progress with Group Purchasing Organizations (“GPOs”) since May. We have been in discussions with all three major GPOs and are in varying stages of negotiation with each. The team has also executed an agreement with the U.S. Centers for Medicare & Medicaid Services (“CMS”), the federal agency that administers the Medicaid Drug Rebate Program ("MDRP") and Medicare programs, which will allow state hospitals to access IGALMITM over time, and initiated meetings with high value IDNs that will solicit input from member hospitals to help guide their decisions.

We recently initiated peer-to-peer educational programs, with our first wave of trained healthcare personnel speakers now deployed for regional live and virtual programs. We expect field-based programs to ramp up over the second half of 2022 to complement the efforts of our field sales efforts to facilitate interest in IGALMITM for hospital formulary adoption and utilization. Additionally, branded digital media assets have been launched in conjunction with the trade availability, driving over 100,000 website visits and engagement.

On April 1, 2022, the Company signed a commercial supply agreement with ARx, LLC (“ARx”), whereby ARx agreed to manufacture, and supply Dex product related to IGALMITM and BXCL501. The supply agreement has an initial term of 10 years and can be extended for successive one-year periods, subject to BXCL501 still being marketed or sold. The supply agreement can be canceled upon mutual agreement, for cause or upon certain conditions being met, including BXCL501 no longer being marketed or sold by or on behalf of BTI.

Strategic Financing

As disclosed further under “Liquidity and Capital Resources” below, on April 19, 2022 (the “Effective Date”), we entered into two strategic financing agreements; a Credit Agreement and Guaranty (the “Credit Agreement”) by and among the Company, as the borrower, certain subsidiaries of the Company from time to time party thereto as subsidiary guarantors, the lenders party thereto (the “Lenders”), and Oaktree Fund Administration LLC (“OFA”) as administrative agent, and a Revenue Interest Financing Agreement (the “RIFA”; and together with the Credit Agreement, the “OFA Facilities”) by and among the Company, the purchasers party thereto (the “Purchasers”) and OFA as administrative agent. Under the OFA Facilities, the Lenders and the Purchasers have agreed to, in the aggregate between the two OFA Facilities, provide up to $260,000 in gross funding to support the Company’s commercial activities of IGALMITM sublingual film. In addition, the OFA Facilities are intended to support the expansion of clinical development efforts of BXCL501, which includes a pivotal Phase 3 program for the acute treatment of agitation in patients with Alzheimer’s disease, and for general corporate purposes. With the FDA approval of IGALMITM we met the conditions precedent for the first tranche of both the Credit Agreement and RIFA. We drew $70,000 under the Credit Agreement on April 28, 2022 and $30,000 under the RIFA on July 8, 2022.

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Our Clinical Programs

The following is a summary of the status of our clinical development programs as of the date of this Quarterly Report on Form 10-Q:

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BXCL501 Neuroscience Program

In indications other than approved by the FDA as IGALMITM, BXCL501 remains an investigational, proprietary, orally dissolving, thin film formulation of Dex, a selective alpha-2a receptor agonist, targeting symptoms from stress-related behaviors such as agitation. BXCL501 is our most advanced neuroscience clinical program, developed or being developed for the acute treatment of agitation related to schizophrenia, bipolar disorders for at home use and Alzheimer’s disease, as well as an adjunctive treatment for MDD in conjunction with the use of Selective Serotonin Reuptake Inhibitors (“SSRI”) or Serotonin Norepinephrine Reuptake Inhibitors alone (“SNRI”).

As a selective adrenergic agent with a sublingual or buccal route of administration, BXCL501 is designed to be easily administered and has shown a rapid onset of action in multiple clinical trials, including clinical trials studying patients with schizophrenia, bipolar disorders and Alzheimer’s disease. We believe results from these studies suggest that BXCL501 has the potential to generate a calming effect without producing excessive sedation. We also believe BXCL501 is highly differentiated from antipsychotics, which often produce unwanted side effects such as excessive sedation or extra pyramidal motor effects, currently used as a standard of care to treat agitation. Managing patient agitation in neuropsychiatric and neurodegenerative disorders represents a significant challenge for physicians and caregivers. We believe BXCL501 has the potential to address these challenges while providing an efficient treatment regimen for patients.

BXCL501 Clinical Trials

TRANQUILITY Program

The TRANQUILITY I study of agitation in dementia concluded with a total of four sites enrolling 46 subjects in Part B testing the 40mcg dose versus placebo. Topline data were reviewed with respect to efficacy, safety and

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tolerability. The purpose of enrolling this additional cohort was to gather additional evidence supporting dose selection and statistical powering of multiple-site Phase 3 pivotal trials. All patients were able to take the film themselves and properly place it. There were no serious adverse events (“SAEs”) related to the drug, and no falls, loss of consciousness or syncopal events reported. There were no local tolerability issues. The adverse events (“AEs”) observed for 40mcg were consistent with those previously observed for 30mcg, 60mcg and placebo doses. As expected, the incidence of individual and categorical AEs for the 40mcg dose were lower than the 60mcg group, and similar to the 30mcg dose group.

Efficacy was measured by the change from pre-dose baseline Positive and Negative Syndrome Scale Excitatory Component (“PEC”) total score at two hours, the same primary endpoint utilized in prior pivotal trials of BXCL501. The 40mcg dose showed statistically significant reductions in PEC total score at two hours and demonstrated statistically significant separation from placebo as early as one hour. The magnitude of change in PEC total score was greater for the 40mcg dose than that of 30mcg and somewhat less than the 60mcg dose in previous cohorts. Overall, we believe the 40mcg data support continued evaluation of both 40 and 60mcg doses in Phase 3 pivotal trials.

We believe that, taken as a whole, these data support the initiation of pivotal trials evaluating patients with acute agitation associated with possible Alzheimer’s dementia.

On December 15, 2021, after our initial Breakthrough Therapy designation meetings with FDA, we announced the initiation of our program to evaluate BXCL501 for the treatment of acute agitation associated with dementia in Alzheimer’s patients. The program’s two studies, TRANQUILITY II and TRANQUILITY III, are designed to evaluate the safety and efficacy of BXCL501 in adults 65 years and older across the range of illness including mild, moderate and severe illness in assisted living or residential facilities and nursing homes. Patient enrollment is currently underway for TRANQUILITY II.

The program consists of two randomized, double-blind placebo-controlled, adaptive, parallel group pivotal trials, TRANQUILITY II and TRANQUILITY III.
Each study will enroll approximately 150 dementia patients 65 years and older. Patients will self-administer 40mcg or 60mcg of BXCL501 or placebo whenever agitation episodes may occur.
TRANQUILITY II will enroll patients with mild to moderately severe dementia in assisted living or residential care facilities who generally require minimal assistance with activities of daily living. On May 3, 2022, we announced the first patient had been dosed in this study and patient enrollment has been progressing.
TRANQUILITY III will enroll patients with moderate to severe dementia who require moderate or greater assistance with their activities of daily living.
Despite COVID outbreaks amongst residents and staff at elderly care facilities, access to patients for research has not been overly hampered. TRANQUILITY II screening and enrollment have been continuing at a steady rate with occasional disruptions due to COVID-19. However, this could rapidly change.
We currently anticipate top line data from TRANQUILITY II in the first half of 2023 and expect to begin TRANQUILITY III enrollment in the second half of 2022.
The studies are designed to assess agitation as measured by the changes from baseline in the PEC total score and total Pittsburgh Agitation Scale scores. For both studies, the primary efficacy endpoint will be the change in PEC total score from baseline measured at two hours after the initial dose.
Patients who complete TRANQUILITY II or TRANQUILITY III will be eligible to enroll in an open label, 52-week safety study designed to describe the safety and efficacy of BXCL501 in continued use.

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At-Home Setting

We met with the FDA in July 2022 to discuss the design of a registrational study to support potential expansion of BXCL501 for at-home use for the acute treatment of agitation related to schizophrenia and bipolar disorders. We have alignment with the FDA on key design features with respect to our SERENITY III study which will be a two-part study. The first part is comparable to the pivotal SERENITY I and II studies. Using similar inclusion and exclusion criteri