10-Q 1 btai-20240331x10q.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 March 31, 2024

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 May 7, 2024 was 37,530,821.

Table of Contents

Page

PART I - FINANCIAL INFORMATION

Forward Looking Statements

3

Summary Risk Factors

4

Item 1.

Financial Statements (Unaudited)

7

Condensed Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

7

Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023

8

Condensed Consolidated Statements of Changes in Stockholders’ (Deficit) Equity for the three months ended March 31, 2024 and 2023

9

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

10

Notes to Condensed Consolidated Financial Statements

11

Item 2.

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

36

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

65

Item 4.

Controls and Procedures

65

PART II OTHER INFORMATION

Item 1.

Legal Proceedings

67

Item 1A.

Risk Factors

67

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

130

Item 3.

Defaults Upon Senior Securities

130

Item 4.

Mine Safety Disclosures

130

Item 5.

Other Information

130

Item 6.

Exhibits

131

Signatures

133

2

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “anticipate,” “believe,” “can,” “continue,” “could,” “designed,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and similar expressions are intended to identify forward-looking statements, though not all forward-looking statements use these words or expressions. All statements contained in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements, including, without limitation, statements regarding:

our sales strategy for IGALMITM;
strategy relating to, anticipated benefits from, and cost savings from our Reprioritization (as defined herein);
our ability to raise additional capital and continue as a going concern;
developments relating to our TRANQUILITY program;
the size of our total addressable markets and related underlying estimates;
our plans relating to clinical trials and marketing applications for our product candidates;
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 timing of and results of discussions we have with regulators;
the rate and degree of market acceptance, clinical utility, number of prescribers and formulary wins of IGALMITM and any product candidates for which we receive marketing approval;
our commercialization, marketing and manufacturing capabilities and strategy, including the potential benefits from any advertising campaigns;
our participation in, and any potential benefits from, events, conferences, presentations and conventions;
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;
compliance with covenants under our financing arrangements;
the impact of government laws and regulations;
developments related to legal proceedings and investigations; 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, including, but not limited to, 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. These and other important factors discussed under the caption “Risk Factors” in our other filings with the Securities and Exchange Commission (“SEC”) could cause actual results to differ materially from those indicated by the forward-looking statements made in this filing. Given these uncertainties, you should not rely on these forward-looking statements as predictions of future events. While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change.

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.

3

We may use our website as a distribution channel for 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 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 not generated substantial product revenues to date, 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.
Our strategic reprioritization and related reduction in force may not achieve our intended outcome.
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 or otherwise seek strategic alternatives. In addition, the failure to raise additional financing in accordance with the minimum capital raising requirements of our Credit Agreement (as defined herein) would trigger an event of default thereunder.
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 identified conditions and events that raise substantial doubt about our ability to continue as a going concern.
We have limited experience in drug discovery and drug development.
Developments relating to our TRANQUILITY II Phase 3 trial may impact the timing of our development plans for, and prospects for seeking or obtaining regulatory approval of, BXCL501 for the acute treatment of agitation (non-daily) associated with dementia in patients with probable Alzheimer’s disease and may also subject us to additional risks and uncertainties, including regulatory, stockholder or other actions, loss of investor confidence and negative impacts on the trading price of our common stock.
In the near term, we are dependent on the success of IGALMITM, and four of our product candidates, BXCL501, BXCL502, BXCL701 and BXCL702. If we are unable to complete the clinical development of or obtain marketing approval for our product candidates 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 (“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.

4

Clinical trials are expensive, difficult to design, difficult to conduct and involve an uncertain outcome.
We depend on enrollment of patients in our clinical trials to continue development of our product candidates. If we are unable to enroll patients in our clinical trials, our research and development efforts could be adversely affected.
Our estimated number of episodes of agitation and our corresponding estimated total addressable market are subject to inherent challenges and uncertainties. If we have overestimated the number of episodes or the size of our total addressable market for our current and potential future products or product candidates, or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability may be harmed.
The discovery and development of product candidates based on EvolverAI, BioXcel LLC’s proprietary pharmaceutical discovery and development engine, as well as our own AI platform is novel and unproven, and we do not know whether we will be able to develop any products of commercial value.
Regulators may limit our ability to develop or implement our proprietary AI algorithms and/or may eliminate or restrict the confidentiality of our proprietary technology, which could have an adverse effect on our business, results of operations, and financial condition.
Although 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.
Although we obtained FDA approval for IGALMITM, our products and product candidates may not be accepted by physicians or the medical community in general, and there may be insufficient insurance coverage and reimbursement.
If we are found in violation of federal, state or foreign health care “fraud and abuse” laws, we may be required to pay significant fines and penalties, which may adversely affect our business, financial condition and results of operations.
We continue to depend on BioXcel LLC to provide us with certain services for our business.
BioXcel LLC has significant influence over the direction of our business, and the concentrated ownership of our common stock will prevent you and other stockholders from influencing significant decisions.
We are substantially dependent on third parties for the manufacture of our clinical supplies of our product candidates, and our commercial supplies of IGALMITM, and we intend to rely on third parties to produce commercial supplies of any other approved product candidate.
We rely on third parties to conduct our preclinical and clinical trials. If these third parties do not successfully perform their contractual legal and regulatory duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
Data breaches or cyber-attacks could disrupt our business, operations and information technology systems, and financial results, or result in the loss or exposure of confidential or sensitive Company information.
We are and may in the future be subject to legal proceedings, claims and investigations in or outside the ordinary course of business. Such proceedings, claims and investigations could be costly and time-consuming to defend and could result in unfavorable outcomes, which may have a material adverse effect on our business, operating results and financial condition, and negatively affect the price of our common stock.

5

Unfavorable global political or economic events and conditions could adversely affect our business, financial condition or results of operations.
We face risks associated with the increased scrutiny relating to environmental, social and governance matters.
It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection.

TRADEMARKS, TRADE NAMES AND SERVICE MARKS

This Quarterly Report includes our trademarks, trade names and service marks, including, without limitation, “IGALMITM” and our logo, which are our property and are protected under applicable intellectual property laws. Solely for convenience, trademarks, trade names and service marks may appear in this Quarterly Report without the ®, TM and SM symbols, but such references are not intended to indicate, in any way, that we or the applicable owner forgo or will not assert, to the fullest extent permitted under applicable law, our rights or the rights of any applicable licensors to these trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply a relationship with, or endorsement or sponsorship of us by, these other parties.

INDUSTRY AND OTHER DATA

Unless otherwise indicated, information contained in this Quarterly Report concerning our industry and the markets in which we operate, including our general expectations, market position and market opportunity, is based on our management’s estimates and research, as well as industry and general publications and research, surveys and studies conducted by third parties. While we believe the information from these third-party publications, research, surveys and studies included in this Quarterly Report is reliable, we do not guarantee the accuracy or completeness of such information, and we have not independently verified this information. Management’s estimates are derived from publicly available information, their knowledge of our industry and their assumptions based on such information and knowledge, which we believe to be reasonable. This data involves a number of assumptions and limitations which are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in this Quarterly Report under “Forward-Looking Statements” and Part II, Item 1A “Risk Factors.” These and other factors could cause our future performance and market expectations to differ materially from our assumptions and estimates.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BIOXCEL THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except per share amounts)

March 31, 

    

2024

    

December 31, 

(unaudited)

2023

ASSETS

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

74,141

$

65,221

Accounts receivable, net

378

 

71

Inventory

 

2,439

 

1,991

Prepaid expenses

 

2,103

 

2,782

Other current assets

 

1,856

 

2,078

Total current assets

$

80,917

$

72,143

Property and equipment, net

 

706

 

784

Operating lease right-of-use assets

613

688

Other assets

87

87

Total assets

$

82,323

$

73,702

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

 

  

 

  

Current liabilities

 

  

 

  

Accounts payable

$

17,220

$

13,654

Accrued expenses

 

13,675

 

12,424

Due to related parties

 

116

 

107

Accrued interest

117

736

Other current liabilities

353

346

Total current liabilities

$

31,481

$

27,267

Long-term portion of operating lease liabilities

350

 

440

Derivative liabilities

21,222

1,905

Long-term debt

101,633

100,598

Total liabilities

$

154,686

$

130,210

Commitments and contingencies (Note 16)

Stockholders' (deficit) equity

 

  

 

  

Preferred stock, $0.001 par value, 10,000 shares authorized; no shares issued and outstanding as of March 31, 2024 and December 31, 2023

$

$

Common stock, $0.001 par value, 100,000 shares authorized as of March 31, 2024 and December 31, 2023; 33,632 and 29,930 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively

34

30

Additional paid-in-capital

 

544,992

 

534,060

Accumulated deficit

 

(617,389)

 

(590,598)

Total stockholders' (deficit) equity

$

(72,363)

$

(56,508)

Total liabilities and stockholders' (deficit) equity

$

82,323

$

73,702

7

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

BIOXCEL THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in thousands, except per share amounts)

(unaudited)

Three months ended March 31, 

    

2024

    

2023

Revenues

Product revenue, net

$

582

$

206

Operating expenses

 

  

 

  

Cost of goods sold

$

80

$

9

Research and development

11,401

27,800

Selling, general and administrative

 

13,264

 

23,595

Total operating expenses

$

24,745

$

51,404

Loss from operations

$

(24,163)

$

(51,198)

Other expense (income)

 

  

 

  

Interest expense

 

3,607

 

3,367

Interest income

(947)

(2,015)

Other (income) expense, net

(32)

246

Net loss

$

(26,791)

$

(52,796)

Basic and diluted net loss per share attributable to common stockholders

$

(0.87)

$

(1.84)

Weighted average shares outstanding - basic and diluted

 

30,868

 

28,616

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

8

BIOXCEL THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY

(amounts in thousands)

(unaudited)

Additional

Common stock

paid-in-

Accumulated

    

Shares

    

Amount

    

capital

    

deficit

    

Total

Balance as of December 31, 2022

28,147

$

28

$

488,292

$

(411,545)

$

76,775

Issuance of common shares, net of offering costs

756

1

23,917

23,918

Stock-based compensation

4,877

4,877

Exercise of stock options

173

258

258

Vesting of restricted stock units, net of employee tax obligations

24

(27)

(27)

Net loss

(52,796)

(52,796)

Balance as of March 31, 2023

29,100

$

29

$

517,317

$

(464,341)

$

53,005

Additional

Common stock

paid-in-

Accumulated

Shares

    

Amount

    

capital

    

deficit

    

Total

Balance as of December 31, 2023

29,930

$

30

$

534,060

$

(590,598)

$

(56,508)

Issuance of common shares, net of offering costs

3,702

4

3,705

3,709

Stock-based compensation

3,433

3,433

Issuance of stock purchase warrants

224

224

Issuance of pre-funded stock purchase warrants

3,570

3,570

Net loss

(26,791)

(26,791)

Balance as of March 31, 2024

33,632

$

34

$

544,992

$

(617,389)

$

(72,363)

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

9

BIOXCEL THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

Three months ended March 31, 

    

2024

    

2023

OPERATING CASH FLOW ACTIVITIES:

 

  

 

  

Net loss

$

(26,791)

$

(52,796)

Reconciliation of net loss to net cash used in operating activities

 

 

Depreciation

 

78

 

80

Accretion of debt discount and amortization of financing costs

43

333

Change in fair value of derivative liabilities

(30)

231

Stock-based compensation expense

 

3,433

 

4,877

Payable-in-kind interest on Credit Agreement

1,216

398

Operating lease right-of-use assets

75

70

Changes in operating assets and liabilities

 

 

Accounts receivable

(307)

 

(35)

Inventory

 

(448)

 

33

Prepaid expenses, other current assets and other assets

 

901

 

(2,006)

Accounts payable, accrued expenses, due to related parties, and other current liabilities

 

4,826

 

(4,654)

Accrued interest

(619)

1,193

Operating lease liabilities

(83)

(77)

Net cash used in operating activities

$

(17,706)

$

(52,353)

INVESTING CASH FLOW ACTIVITIES:

 

  

 

  

Net cash from investing activities

$

$

FINANCING CASH FLOW ACTIVITIES:

 

  

 

  

Proceeds from issuance of common stock and warrants

$

26,743

$

24,657

Offering costs for common stock and warrants issuance

(117)

(739)

Payment of employee tax obligations related to vesting restricted stock units

(27)

Exercise of stock options

258

Net cash provided by financing activities

$

26,626

$

24,149

Net increase (decrease) in cash and cash equivalents

$

8,920

$

(28,204)

Cash and cash equivalents, beginning of the period

 

65,221

 

193,725

Cash and cash equivalents, end of the period

$

74,141

$

165,521

Supplemental cash flow information:

 

  

 

  

Deferred initial public offering costs in accrued expenses

$

$

596

Issuance of stock purchase warrants

$

224

$

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

10

BIOXCEL THERAPEUTICS, INC.

NOTES TO CONDENSED 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” or the “Company”) is a biopharmaceutical company utilizing artificial intelligence (“AI”) approaches to develop transformative medicines in neuroscience and immuno-oncology. The Company is focused on utilizing cutting-edge technology and innovative research to develop high-value therapeutics aimed at transforming patients’ lives. BTI employs a unique AI platform to reduce therapeutic development costs and potentially accelerate timelines. The Company’s 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. BTI management believes this differentiated approach has the potential to reduce the expense and time associated with drug development in diseases with substantial unmet medical needs.

As used in these condensed consolidated financial statements, unless otherwise specified or the context otherwise requires, the terms “BioXcel LLC” refers to the Company’s former parent and current significant stockholder, BioXcel LLC and, its predecessor, BioXcel Corporation. “OnkosXcel” refers to BTI’s wholly owned subsidiary for its advanced immuno-oncology assets, OnkosXcel Therapeutics, LLC.

On April 6, 2022, BTI announced that the United States (“U.S.”) Food and Drug Administration (“FDA”) approved IGALMITM (dexmedetomidine or “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 health care provider. On July 6, 2022, BTI announced that IGALMITM, was commercially available in doses of 120 and 180 micrograms.

The Company’s most advanced clinical development program is BXCL501. In indications other than those approved by the FDA as IGALMITM, BXCL501 is an investigational proprietary, orally dissolving, film formulation of Dex for the treatment of agitation associated with psychiatric and neurological disorders.

The Company’s advanced immuno-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.

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

Note 2. Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements do not include all the information and notes required by Generally Accepted Accounting Principles (“GAAP”) in the U.S. The accompanying year-end balance sheet was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The unaudited interim condensed 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 March 31, 2024, the results of its operations for the three months ended March 31, 2024 and 2023 and its cash flows for the three months ended March 31, 2024 and 2023. The results for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the year ending December 31, 2024, any other interim periods or any future year or period. The accompanying unaudited interim condensed consolidated financial statements of the Company should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report

11

on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission on March 22, 2024.

The accompanying condensed consolidated financial statements include the accounts for the Company and all entities where BTI has a controlling financial interest after elimination of all intercompany accounts and transactions and have been prepared in conformity with U.S. GAAP.

As of March 31, 2024, the Company had cash and cash equivalents of $74,141 and an accumulated deficit of $617,389. 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 $26,791 and $52,796 for the three months ended March 31, 2024 and 2023, respectively, and had net cash used in operating activities of $17,706 and $52,353 for the three months ended March 31, 2024 and 2023, respectively.

Under ASC Topic 205-40, Presentation of Financial Statements - Going Concern, management is required at each reporting period to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

The Company’s history of significant losses, its negative cash flows from operations, potential near-term, increased covenant-driven payments under its Credit Agreement (as defined in Note 9, Debt and Credit Facilities), its limited liquidity resources currently on hand, and its dependence on its ability to obtain additional financing to fund its operations after the current resources are exhausted, about which there can be no certainty, have resulted in management’s assessment that there is substantial doubt about the Company’s ability to continue as a going concern for a period of at least 12 months from the issuance date of the financial statements included in this Quarterly Report on Form 10-Q.

This going concern evaluation takes into consideration the potential mitigating effect of management’s Reprioritization (as defined in Note 4, Restructuring). When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates the substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (i) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued and (ii) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans need to be approved by the Company’s Board of Directors.  The Company’s Reprioritization was approved by the Board of Directors on August 8, 2023; however, such plans will not mitigate the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and does not include any adjustments that may result from the outcome of this uncertainty. The going concern analysis does not consider possible future amendments to or restructuring of the Credit Agreement (as defined in Note 9, Debt and Credit Facilities) or other potential sources of debt or equity capital.

Successful completion of the Company’s development programs and, ultimately, the attainment of profitable operations are dependent upon future events, including obtaining adequate financing to support the Company’s cost structure and operating plan. Management’s plans to improve the Company’s liquidity and reduce its operating expenses and capital requirements include, among other things, pursuing one or more of the following steps to raise additional capital, none of which can be guaranteed or are entirely within the Company’s control:

raise funding through the sale of the Company’s equity securities;
raise funding through third-party investments in or other strategic options for OnkosXcel;
raise funding through debt financing and/or restructuring of its existing Credit Agreement;
establish collaborations with potential partners to advance the Company’s product pipeline;

12

establish collaborations with potential marketing partners;
reduce overhead and headcount to focus on core priorities; and/or
any combination of the foregoing.

If the Company is unable to raise capital when needed or on acceptable terms, refinance or restructure its existing Credit Agreement or if it is unable to procure collaboration arrangements to advance its programs, the Company would be forced to discontinue some of its operations or develop and implement a plan, beyond its Reprioritization initiatives, to further extend payables, reduce overhead, scale back or cease some or all of its revised operating plan until sufficient additional capital is raised to support further operations.

Note 3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the condensed consolidated financial statements and notes thereto. Estimates are used in the following areas, among others: revenue recognition, derivative liabilities, stock-based compensation expense, accrued expenses and income taxes. 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 March 31, 2024 and December 31, 2023, cash equivalents were comprised primarily of money market funds. Cash and cash equivalents held at financial institutions may at times exceed federally insured amounts. BTI management believes it mitigates such risk by investing in or through major financial institutions.

Accounts Receivable, Net

Accounts receivable arise from sales of IGALMITM and represent amounts due from distributors. Payment terms generally range from 30 to 75 days from the date of the sale transaction, and accordingly, do not involve a significant financing component. Receivables from product sales are recorded net of allowances which generally include distribution fees, prompt payment discounts, chargebacks, and credit losses. Allowances for distribution fees, prompt payment discounts and chargebacks are based on contractual terms. The Company estimated the current expected credit losses of its accounts receivable by assessing the risk of loss and available relevant information about collectability, existing contractual payment terms, actual payment patterns of its customers, individual customer circumstances, and reasonable and supportable forecast of economic conditions expected to exist throughout the contractual life of the receivable. Based on its assessment, as of March 31, 2024, the Company determined that an allowance for credit losses was not required.

Concentrations of Credit Risk

The Company sells IGALMITM through a drop-ship program under which orders from hospitals and similar health care institutions are processed through wholesalers, but shipments of the product are sent directly to the individual hospitals and similar health care institutions. BTI also contracts directly with certain hospitals, and intermediaries such as group purchasing organizations (“GPOs”). All trade accounts receivables are due from the distributor that fulfills orders on behalf of the Company.

Inventory

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

13

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 Condensed 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 are recorded within Cost of goods sold in the Condensed 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.

Deferred Initial Public Offering Costs

Deferred initial public offering costs of $2,570 consisted of legal, accounting, and other costs that were directly related to the Company’s proposed initial public offering of OnkosXcel. These costs were charged to the Condensed Consolidated Statements of Operations during the year ended December 31, 2023 as the initial public offering was delayed for an extended period of time. The costs were recorded as Selling, general and administrative expenses.

Property and Equipment

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

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 Other (income) expense, net in the Condensed Consolidated Statements of Operations.

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 from its use and disposition. 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

The Company determines 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 Condensed Consolidated Balance Sheets.

ROU assets represent BTI’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s 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. The Company uses the implicit rate when readily determinable. As BTI’s leases do not provide an implicit rate, it used an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any prepaid lease payments made and excludes lease incentives. The Company’s leases may include options to extend the lease; such options are included in determining the lease term when it is reasonably certain that BTI will exercise that option. Lease expense is recognized on a straight-line basis over the lease term.

14

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 then 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.

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 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 Condensed 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 within Other (income) expense, net in the Condensed Consolidated Statements of Operations.

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.

In connection with a registered direct offering completed in March 2024, the Company issued accompanying warrants to purchase 8,620 shares of its common stock that are classified as derivative liabilities, and were measured at fair value upon issuance, with subsequent changes in fair value reported in the Condensed Consolidated Statement of Operations each reporting period.

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.

Revenue Recognition

The Company’s revenues consist of product sales of IGALMITM.

BTI recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration that the Company expects to receive in exchange for those goods or services. To determine revenue recognition, BTI management performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations.

15

The exercise of a material right may be accounted for as a contract modification or as a continuation of the contract for accounting purposes.

The Company assesses whether the goods or services promised within each contract are distinct to identify those that are performance obligations. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such goods and services are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer and (ii) the Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

The Company allocates the transaction price (the amount of consideration it expects to be entitled to from a customer in exchange for the promised goods or services) to each performance obligation and recognizes the associated revenue when (or as) each performance obligation is satisfied. The Company’s estimate of the transaction price for each contract includes all variable consideration to which the Company expects to be entitled.

BTI distributes IGALMITM in the U.S. through arrangements with a distributor, wholesalers, and GPOs. The distributor and wholesalers help process and fulfill orders from hospitals on the Company’s behalf. The Company believes the hospitals are its customers.

The Company recognizes product revenues, net of consideration payable to customers, as well as variable consideration related to certain allowances and accruals that are determined using either the expected value or most likely amount method, depending on the type of the variable consideration, in its condensed consolidated financial statements at the point in time when control transfers to the customer, which is typically when the product has been delivered to the customer’s location. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company’s only performance obligation identified for IGALMITM is to deliver the quantity of product ordered to the location specified by the customer’s order. The Company records shipping and handling costs associated with delivery of product to its customers within Selling, general and administrative expenses on its Condensed Consolidated Statements of Operations. Under the Company’s current product sales arrangements, BTI does not have contract assets (unbilled receivables), as it generally invoices its customer at the time of revenue recognition.

BTI sells IGALMITM at wholesale acquisition cost less any agreed upon discounts, and calculates product revenue net of variable consideration and consideration payable to third parties associated with distribution of product. The Company records reserves, based on contractual terms, for the following components of consideration related to product sold during the reporting period. Calculating these amounts involves estimates and judgments, and the Company reviews these estimates quarterly and records any material adjustments in the period they are identified, which affects net product revenue and earnings in the period such variances occur.

Trade Discounts and Allowances

The Company provides the distributor and wholesalers with discounts for prompt payment and pays fees to the distributor, wholesalers and GPOs related to distribution of the product. BTI expects the relevant third parties to earn these discounts and fees, and therefore it deducts such amounts from gross product revenue and accounts receivable at the time it recognizes the related revenue.

Government Rebates

IGALMITM is eligible for purchase by, or qualifies for reimbursement from, Medicaid and other U.S. government programs that are eligible for rebates on the price they pay for the product. To determine the appropriate amount to reserve for these rebates, BTI applies the applicable government discount to these sales, and estimates the portion of total rebates that it anticipates will be claimed. The Company deducts certain government rebates from gross product

16

revenue and accounts receivable at the time it recognizes the related revenue; other government rebates are recognized as an accrued liability at the time BTI recognizes the related revenue.

Chargebacks

BTI provides product discounts to hospitals associated with certain GPOs. The Company estimates the chargebacks that it expects to be obligated to provide based upon the terms of the applicable arrangements. BTI deducts such amounts from gross product revenue and accounts receivable at the time it recognizes the related revenue.

Product Returns

The Company provides contractual return rights to its customers including the right to return product within six months of product expiration and up to 12 months after product expiration, as well as for incorrect shipments, and damaged or defective product, which the Company expects to be rare. Management expects product returns to be minimal, thus BTI recognizes a nominal allowance for product returns at the time of each sale. In the future, if any of these factors and/or the history of product returns changes, the Company will adjust the allowance for product returns.

BTI classifies all fees paid to the distributor, other than those discussed above and those related to warehouse operations, as Selling, general and administrative expenses on its Condensed Consolidated Statements of Operations. Fees paid to the distributor for warehouse operations are classified as Cost of goods sold on BTI’s Condensed Consolidated Statements of Operations.

Cost of Goods Sold

Cost of goods sold includes the cost of producing and distributing inventories that are related to product revenues during the respective period. Cost of goods sold also includes costs related to excess or obsolete inventory, as well as costs related to warehouse operations paid to distributors.

Stock-Based Compensation

The Company measures and recognizes stock-based compensation expense based on estimated fair value for all share-based awards made to employees, non-employee service providers, and directors, including stock options, BTI restricted stock units (“BTI RSUs”), OnkosXcel profit sharing units (“PSUs”), OnkosXcel restricted stock units (“OnkosXcel RSUs”) and BTI performance stock units (“Performance Units”). 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 Condensed Consolidated Statements of Operations over the requisite service period using the accelerated attribution method. The estimated value of the BTI RSUs and Performance Units is based on the Company’s closing stock price on the grant date. The estimated fair value of stock options, OnkosXcel RSUs and PSUs was determined using the Black-Scholes pricing model on the date of grant. For awards subject to performance-based vesting conditions, the Company recognizes stock-based compensation expense when the achievement of the performance condition becomes probable.

The Black-Scholes pricing model is affected by the Company’s stock price, as well as assumptions regarding 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 expected term of the award. 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, non-cash stock-based compensation, facilities, supplies, external services, clinical study, manufacturing costs related to clinical trials and other expenses that are

17

directly related to the Company’s research and development activities. At the end of the reporting period, the Company estimates the progress toward completion of the research or development objectives and, depending on the amount and timing of payments to the service providers may record net prepaid or accrued expense for associated research and development costs. Such estimates are subject to change as additional information becomes available. The Company expenses research and development costs as incurred.

Most of the Company’s service providers invoice BTI monthly in arrears for services performed. The Company estimates its accrued expenses as of each balance sheet date in the condensed consolidated financial statements based on facts and circumstances known to management at that time. BTI management periodically confirms the accuracy of the Company’s estimates with the service providers and makes adjustments if necessary.

Although management does not expect its estimates to be materially different from amounts actually incurred, management’s 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 BTI 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 in the Condensed Consolidated Statements of Operations and are expensed as incurred since recoverability of such expenditures is uncertain.

Fair Value of Financial Instruments

The Company measures certain financial assets and liabilities at fair value, which is defined 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. The Company applies 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). Fair value measurements must be classified and disclosed in one of the following 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, as well as considering counterparty credit risk in its assessment of fair value.

Earnings (Loss) Per Share

Earnings (loss) per share (“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

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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, the Company’s 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 June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 adopted Topic 326 in 2023 and it did not have a material impact on its condensed consolidated financial statements.

Accounting Pronouncements effective in future periods

In November 2023, the FASB issued ASU 2023-07, Segment reporting, which requires disclosure of incremental segment information on an annual and interim basis. The standard is effective for years beginning after December 15, 2023, and interim periods beginning after December 15, 2024 and early adoption is permitted. The Company is currently evaluating the effect of adopting this guidance on its condensed consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Improvements to income tax disclosures, which requires disclosure of disaggregated income taxes paid by jurisdiction, enhances disclosures in the effective tax rate reconciliation and modifies other income tax-related disclosures. The amendments are effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the effect of adopting this guidance on its condensed consolidated financial statements.

Note 4. Restructuring

On August 8, 2023, the Company’s Board of Directors approved a broad-based strategic reprioritization (the “Reprioritization”). The Company took actions to reduce certain operational and workforce expenses that were no longer deemed core to ongoing operations in order to extend its cash runway and drive innovation and growth in high potential clinical development and value creating opportunities. These actions included a shift in commercial strategy for IGALMITM in the institutional setting, a reduction of in-hospital commercialization expenses, a suspension of programs no longer determined to be core to ongoing operations, and a prioritization of at-home treatment setting opportunities for BXCL501.

As part of this strategy, the Company’s Board of Directors approved a reduction of approximately 60% of the Company’s workforce. The Company notified impacted employees on August 14, 2023 and recorded total restructuring costs of $4,163 for the year ended December 31, 2023. These costs consisted of severance and benefit costs of $4,063 and contract termination costs of $100. The Company paid $3,998 of severance and benefit costs and $100 of contract termination costs in the year ended December 31, 2023. The Reprioritization is substantially complete as of December 31, 2023, and the remaining costs were paid during the first quarter of 2024.

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Note 5. Inventory

Inventory consists of the following:

    

March 31, 

    

December 31, 

    

2024

    

2023

Raw materials

$

935

$

935

Work-in-process

253

651

Finished goods

1,251

405

Total inventory

$

2,439

$

1,991

The Company recorded inventory write-downs of $45 for the three months ended March 31, 2024. No inventory write-downs were recorded for the three months ended March 31, 2023.

Note 6. Property and Equipment, Net

Property and equipment, net consists of the following:

    

March 31, 

    

December 31, 

    

2024

    

2023

Computers and equipment

$

202

$

202

Furniture

575

575

Leasehold improvements

1,200

1,200

Total property and equipment

$

1,977

$

1,977

Accumulated depreciation

(1,271)

(1,193)

Total property and equipment, net

$

706

$

784

Depreciation expense was $78 and $80 for the three months ended March 31, 2024 and 2023, respectively.

Note 7. Accrued Expenses

Accrued expenses consist of the following:

    

March 31, 2024

    

December 31, 2023

Accrued research and development expenses

$

5,156

$

6,406

Accrued compensation and benefits

1,260

163

Accrued professional fees

 

6,847

 

5,562

Accrued taxes

85

116

Other accrued expenses

327

177

Total accrued expenses

$

13,675

$

12,424

Note 8. 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 thereafter (the “Services Agreement”), pursuant to which BioXcel LLC has agreed to provide the Company with certain intellectual property prosecution and management and research and development activities.

Under the Services Agreement, we have an option, exercisable until December 31, 2024, to enter into a separate collaborative services agreement with BioXcel LLC pursuant to which BioXcel LLC shall perform product identification and related services for us utilizing its EvolverAI. We agreed to pay BioXcel LLC $18 per month from March 13, 2023 to December 31, 2024 in exchange for this option. We agreed to negotiate any such collaborative

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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.

Service charges recorded under the Services Agreement for the three months ended March 31, 2024 and 2023, respectively were as follows:

Three months ended March 31, 

2024

2023

Research and development

$

186

$

215

Selling, general and administrative

 

48

26

Total

$

234

$

241

As of March 31, 2024, there were no outstanding service charges related to the Services Agreement included in Due to related parties in the Company’s Condensed Consolidated Balance Sheets.

Note 9. Debt and Credit Facilities

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

March 31, 2024

    

December 31, 2023

Credit Agreement and Guaranty

102,319

102,319

Payable-in-kind ("PIK") interest

1,577

361

Total long-term debt liability

$

103,896

$

102,680

Unamortized debt premiums, discounts and issuance costs

(2,263)

(2,082)

Total long-term debt

$

101,633

$

100,598

On April 19, 2022, the Company entered into two strategic financing agreements: (i) 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 (ii) 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 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 affiliates of Oaktree Capital Management, L.P. and Qatar Investment Authority.

Waiver and First Amendment to Credit Agreement and Guaranty

On November 13, 2023, the Company, the lenders party to the Credit Agreement and OFA entered into a Waiver and First Amendment to Credit Agreement and Guaranty (the “First Amendment”) that provided for (i) a waiver and a modification to the covenant in the Credit Agreement regarding investments in OnkosXcel and (ii) an agreement among the parties to further revise key financial terms in the Credit Agreement and terminate the RIFA. Pursuant to the First Amendment, the Lenders agreed to permit the Company to invest up to a maximum of $30,000 at any time outstanding in OnkosXcel, increased from $25,000 at any time outstanding. The First Amendment also waived any defaults or events of default arising under the Credit Agreement due to a breach prior to the date of the First Amendment of the OnkosXcel investment covenant, or a breach of the Company’s obligation to notify OFA of such default. In connection

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with the First Amendment, the Company paid the Lenders a fee of $180 (representing 0.25% of the loans outstanding under the Credit Agreement on the date of the First Amendment) and agreed to pay to the Lenders an exit fee equal to 0.25% of the loans under the Credit Agreement repaid upon maturity or prepayment of the loans.

Second Amendment to Credit Agreement and Guaranty and Termination of the RIFA

On December 5, 2023, (the “Second Amendment Effective Date”), the Company entered into the Second Amendment to Credit Agreement and Guaranty and Termination of Revenue Interest Financing Agreement (the “Second Amendment”), which further amended the Credit Agreement. On the Second Amendment Effective Date, the Credit Agreement was amended to provide up to $202,319 in senior secured term loans, including the initial Tranche A of $70,000, which was funded on April 28, 2022, and related capitalized interest on Tranche A through the Second Amendment Effective Date in the amount of $72,319. In addition, the $30,000 in financing previously provided to the Company under the RIFA on July 8, 2022 was converted to a term loan under the Credit Agreement (the “Tranche A-2 Term Loan”). The RIFA and all commitments for potential future funding thereunder were terminated. In addition, pursuant to the Second Amendment, the Lenders agreed to permit the Company to invest up to a maximum of $30,865 at any time outstanding in OnkosXcel, increased from $30,000. In connection with the Second Amendment, the Company agreed to pay to the Lenders an exit fee equal to 0.25% of the loans under the Credit Agreement repaid upon maturity or prepayment of the loans (which exit fee is in addition to, and not in lieu of, the exit fee provided for by the First Amendment). As of December 31, 2023, $100,000 in commitments under the Credit Agreement remains unfunded, and Oaktree has an Equity Investment Right (as defined below) to purchase up to $5,000 of Common Stock from the Company. The blended effective interest rate on the Tranches A-1 and A-2 as of March 31, 2024 was approximately 13.9%.

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 $20,000 and is available upon satisfaction of certain conditions and financial milestones. Tranche C of the Credit Agreement is $30,000 and is available upon satisfaction of certain conditions, including receipt of certain regulatory and financial milestones. Tranche D of the Credit Agreement is $50,000 and is available upon satisfaction of the Tranche C Term Loans conditions precedent to, and the funding of Tranche C Loans, including specified minimum net sales of the Company attributable to sales of BXCL501 for a trailing twelve consecutive month period, on or before December 31, 2025.

The loans under the Credit Agreement do not amortize and mature on April 19, 2027. The Company may, at its option, no earlier than September 21, 2026 and no later than October 21, 2026, request an extension of the maturity date to April, 19, 2028, provided that the Company 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 variable annual rate of TERM SOFR (but not less than 2.5% or more than 5.5%) plus 7.5%, payable quarterly. The rate resets every three months based on the current Term SOFR rate. Of such interest, above 8% 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 March 31, 2025, 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 0.75% per annum on the undrawn amount of the commitments, payable quarterly commencing 120 days after April 22, 2022 through the termination of the commitments, which is expensed as incurred and recognized as interest expense in the Consolidated Statements of Operations. 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. BTI’s 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 the Company’s existing and any future direct subsidiaries, and (ii) a perfected security interest in all of its and the guarantors’ tangible and intangible assets (except that the guarantees provided by the BXCL701 Subsidiaries (as 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,

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prepayment of other indebtedness, and dividends and other distributions, subject to certain exceptions, including specific exceptions with respect to product commercialization and development activities. The Company 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) initially, $15,000, (b) from and after the funding of the Tranche B loans, $20,000, and (c) from and after the Company’s satisfaction of the funding conditions for the Tranche C loans, $15,000, provided, that the liquidity covenant applicable at any time will be increased upon certain events related to a sale of OnkosXcel (up to a maximum amount equal to $37,500), provided that the minimum liquidity amount will in no event exceed 50% of the aggregate amount of loans outstanding under the Credit Agreement at any time; and (ii) a minimum revenue test, measured quarterly beginning with the Company’s fiscal quarter ending on December 31, 2024 (such six-month period the “Revenue Covenant Measurement Period”), that requires it and its 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 (such testing date, the “Revenue Covenant Measurement Testing Date” and the covenant described in this clause (ii) the “Revenue Covenant”). The Company’s 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. If, as of a Revenue Covenant Measurement Testing Date, the Company’s revenue for the applicable Revenue Covenant Measurement Period is less than the minimum revenue amount specified for the applicable period then required under the Revenue Covenant, the Company would have a right to cure such shortfall for a total of three fiscal periods by making a revenue cure payment (which would be treated as prepayments of the loans subject to a prepayment fee) to the Lenders in an amount equal to the difference between such minimum required revenue amount and the Company’s actual revenues for such Revenue Covenant Measurement Period, such payment to not be less than $1,000. If paid, the Company will be deemed to have complied with the Revenue Covenant as of such Revenue Covenant Measurement Testing Date. Any such payment will be applied to the prepayment of the loans under the Credit Agreement.

Notwithstanding the foregoing, the Credit Agreement permits OnkosXcel (together with OnkosXcel Employee Holdings, LLC (“Employee Holdings”), a 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 BTI and its 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. The Company’s equity interests in the BXCL701 Subsidiaries have been pledged in support of its obligations under the Credit Agreement, and the BXCL701 Subsidiaries have provided direct guarantees of BTI’s 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, 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. The Credit Agreement also contains certain regulatory-related events of default, which do not have 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 the Company’s secured creditors.

Waiver and Third and Fourth Amendments to Credit Agreement and Guaranty

On February 12, 2024, the Company entered into the Third Amendment to Credit Agreement and Guaranty (the “Third Amendment”), which amended the Credit Agreement. Pursuant to the Third Amendment, the Lenders agreed to waive the covenant that the Company shall not receive a report and opinion from the Company’s independent auditors that contains a “going concern” or like qualification or exception or emphasis of matter of going concern footnote with respect to the Company’s financial statements for the fiscal year ended December 31, 2023 and, as a result, such event shall not be an event of default. As a condition to the effectiveness of the Third Amendment, among other things, the Company shall have received at least $40,000 in gross proceeds from a registered public sale of the Company’s

23

common stock, warrants and/or pre-funded warrants on or before February 20, 2024. The Company did not meet this condition and therefore the Third Amendment did not become effective.

On March 20, 2024 (the “Effective Date”), the Company entered into the Fourth Amendment to the Credit Agreement and Guaranty (the “Fourth Amendment”), which amended the Credit Agreement. Pursuant to the Fourth Amendment, the Lenders agreed to waive the covenant that the Company shall not receive a report and opinion from the Company’s independent registered public accounting firm that contains a “going concern” or similar qualification with respect to the Company’s financial statements for the year ended December 31, 2023. Accordingly, while the Company’s independent registered public accounting firm’s report contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 contains a “going concern” explanatory paragraph, it does not constitute an event of default under the Credit Agreement.

The Fourth Amendment includes a covenant that the Company will receive, (i) after the Effective Date and on or before April 15, 2024, at least $25,000 in gross proceeds from the issuance of its common stock, warrants and/or pre-funded warrants, and/or in non-refundable cash consideration from partnering transactions entered into after the Effective Date (so long as such partnering transactions would not require the Company or any of its subsidiaries to make any cash investments in connection with the partnering transactions and no such cash investments are made) and (ii) after the Effective Date and on or before November 30, 2024, at least $50,000 (for the avoidance of doubt, inclusive of amounts previously counted toward the preceding clause (i)) in gross proceeds from the issuance of its common stock, warrants and/or pre-funded warrants, and/or in cash and/or non-cash consideration (measured at fair market value, as determined by the Administrative Agent (as defined in the Credit Agreement) in its sole discretion ) from partnering transactions entered into after the Effective Date. Failure to perform this covenant would constitute (A) a default under the Credit Agreement and (B) an event of default under the Credit Agreement, subject to a cure period, solely in the case of clause (i) of the preceding sentence, until May 15, 2024. For the avoidance of doubt, failure to perform clause (ii) of the preceding sentence would constitute an immediate event of default under the Credit Agreement without any cure or grace period.

In addition, the Fourth Amendment provides that if the Company has not, after the Effective Date and on or before September 30, 2024, received at least $40,000 in gross proceeds from the issuance of its common stock, warrants and/or pre-funded warrants, and/or cash and/or non-cash consideration (measured at fair market value, as determined by the Administrative Agent in its sole discretion) from partnering transactions entered into after the Effective Date, the “Minimum Liquidity Amount” (as defined in the Credit Agreement) that the Company is required to maintain at all times will increase to $25,000 from $15,000, unless and until we have received, after the Effective Date and on or before November 30, 2024, at least $50,000 in gross proceeds from the issuance of the Company’s common stock, warrants and/or pre-funded warrants, and/or in cash and/or non-cash consideration (measured at fair market value, as determined by the Administrative Agent in its sole discretion) from partnering transactions entered into after the Effective Date. On March 27, 2024, the Company received $25,000 in gross proceeds from the issuance of its common stock, warrants, and pre-funded warrants discussed in Note 11, Common Stock Financing Activities, satisfying the April 15, 2024 covenant requirement of the Fourth Amendment.

Revenue Interest Financing Agreement

As noted, the RIFA was terminated when the Company entered into the Second Amendment, which amended the Credit Agreement (as amended by the First Amendment). The $30,000 Tranche A previously provided to the Company under the RIFA was converted to the Tranche A-2 Term Loan. Prior to termination, the RIFA provided up to $120,000 in potential financing in exchange for a capped revenue interest on net sales of IGALMITM, and other future BXCL501 products, if any, that received regulatory approval for sale. The initial Tranche A of $30,000 was funded on July 8, 2022. The effective interest rate on the RIFA as of December 31, 2022, was approximately 14%.

Under the terms of the RIFA, the Purchasers were to receive tiered revenue interest payments on U.S. net sales of IGALMI™, 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 IGALMI™, 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. The Company would also have been 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 were at least equal to certain agreed upon minimum levels as of

24

certain specified dates, subject to terms and conditions set forth in the RIFA. Revenue interest payments due under the RIFA were payable quarterly based on net sales.

Warrants and Equity Investment Right

In connection with the closing of the Second Amendment, on the Second Amendment Effective Date, the Company amended and restated the warrants granted to the Lenders on April 19, 2022 to purchase up to 278 shares of the Company’s common stock at an exercise price of $20.04 per share (the “Original Warrants”). Pursuant to the amendment and restatement of the Original Warrants, dated December 5, 2023 (the “Amended and Restated Original Warrants”), the exercise price of the Original Warrants has been reduced to $3.6452 per share. In addition, the Company granted new warrants to the Lenders to purchase up to 70 shares of the Company’s common stock (the “2023 Warrant Shares”) at an exercise price of $3.6452 per share (the “2023 Warrants” and together with the Amended and Restated Original Warrants, the “Warrants”). The Amended and Restated Original Warrants and the 2023 Warrants will expire on April 19, 2029 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 Second Amendment 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”). BTI entered into a registration rights agreement (the “Registration Rights Agreement”) with the Lenders and filed a registration statement on Form S-3 to register the shares issuable upon exercise of the Warrants and, if issued, the shares related to the Equity Investment Right, for resale. The maximum shares of BTI common stock issuable under the Warrants (including the Original Warrants and the 2023 Warrants) and Lenders’ Equity Investment Right was 5,852 as of March 31, 2024. On the Second Amendment Effective Date, Company amended and restated its Registration Rights Agreement (the “Amended and Restated Registration Rights Agreement”) with the Lenders, dated April 19, 2022, pursuant to which the Company agreed to register the 2023 Warrant Shares for resale.

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.

In connection with the closing of the Fourth Amendment discussed below, the Company granted new warrants to the Lenders to purchase up to 100 shares of its common stock (the “2024 Warrant Shares”) at an exercise price of $3.0723 per share (the “2024 Warrants”), which represents a 10% premium over 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 Effective Date. The 2024 Warrants will expire on April 19, 2029 and may be net exercised at the holder’s election. On the Effective Date, the Company amended and restated its Amended and Restated Registration Rights Agreement (the “Second Amended and Restated Registration Rights Agreement”) with the Lenders, originally dated April 19, 2022. Pursuant to the Second Amended and Restated Registration Rights Agreement, the Company agreed to register the 2024 Warrant Shares for resale.

25

Maturities of debt, excluding the impacts of any mandatory payments pursuant to the Revenue Covenant or to meet minimum royalty levels, are expected to be as follows:

March 31, 2024

    

2024

$

2025

$

2026

$

2027

$

103,896

2028

$

Thereafter

$

Interest expense was as follows:

Three months ended

March 31, 

2024

2023

Interest expense

$

3,564

$

3,034

Accretion of debt discount and amortization of financing costs

 

43

333

Total interest expense

$

3,607

$

3,367

Note 10. Derivative Financial Instruments

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 U.S. GAAP, 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 instrument. Therefore, these instruments are recorded as Derivative liabilities in the Condensed Consolidated Balance Sheets. The respective derivative liabilities were recorded at 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 within Other (income) expense, net in the Company’s Condensed Consolidated Statements of Operations.

With respect to the Securities Purchase Agreement discussed in Note 11, Common Stock Financing Activities, BTI determined that the Accompanying Warrants fail the equity classification criteria and are therefore classified as liabilities in accordance with ASC 480, Distinguishing Liabilities from Equity ("ASC 480") and ASC 815, Derivatives and Hedging (“ASC 815”). The Accompanying Warrants failed to meet the requirements to be indexed to equity and equity classified, and meet the definition of a derivative instrument. Therefore, these instruments are recorded as Derivative liabilities in the Condensed Consolidated Balance Sheet as of March 31, 2024. The respective derivative liabilities were recorded at fair value on the date of issuance in the amount of $19,347 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 within Other (income) expense, net in the Company’s Condensed Consolidated Statements of Operations. We value the Accompanying Warrants using the Black-Scholes option pricing model as discussed in Note 14, Fair value measurements. As of March 31, 2024, the fair value of the Accompanying Warrants was $19,405. The Company recorded a fair value adjustment resulting in an unrealized loss of $58 for the period ended March 31, 2024.

26

Note 11. Common Stock Financing Activities

In May 2021, the Company entered into an Open Market Sale Agreement (as amended, supplemented and/or restated from time to time, the “Sale Agreement”) with Jefferies LLC (“Jefferies”) 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. In November 2023, the Company amended the Sale Agreement to increase the size of the “at the market offering" program to $150,000. For the year ended December 31, 2023, the Company sold 1,408 shares of its common stock for a gross amount of $27,032, incurred issuance costs of $811, and received net proceeds of $26,221. For the three months ended March 31, 2024, the Company sold shares of its common stock for a gross amount of $1,743, incurred issuance costs of $52, and received net proceeds of $1,691.

On March 25, 2024, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with the purchasers named therein (collectively, the “Purchasers”). Pursuant to the Purchase Agreement, the Company agreed to issue and sell to the Purchasers in a registered direct offering (the “Offering”) under an effective shelf registration statement on Form S-3 (File No. 333-275261) and a related prospectus supplement filed with the Securities and Exchange Commission on March 25, 2024 (the “Prospectus Supplement”) an aggregate of 3,055 shares (the “Shares”) of common stock, par value $0.001 per share, and accompanying warrants (the “Accompanying Warrants”) to purchase up to 3,055 shares of common stock at a combined offering price of $2.901 per Share and Accompanying Warrant and pre-funded warrants (the “Pre-Funded Warrants”) to purchase up to 5,565 shares of common stock and Accompanying Warrants to purchase up to 5,565 shares of common stock, at a combined offering price of $2.900 per share underlying each Pre-Funded Warrant and Accompanying Warrant, which equals the offering price per Share and Accompanying Warrant less the $0.001 exercise price per share of the Pre-Funded Warrants. The Pre-Funded Warrants and Accompanying Warrants are not listed on the Nasdaq Capital Market or any other securities exchange or trading system and the Company does not intend to list them. On March 27, 2024, The Company received $25,000 of gross proceeds from the Offering. The Company intends to use the proceeds from the Offering, together with its existing cash and cash equivalents, to fund planned clinical trials of BXCL501, commercialization activities for IGALMI™ and for working capital and other general corporate purposes.

The Pre-Funded Warrants have an exercise price per share of common stock equal to $0.001 per share. The exercise price and the number of shares of common stock issuable upon exercise of the Pre-Funded Warrants are subject to appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock. The Pre-Funded Warrants are exercisable at any time after the date of issuance. The Pre-Funded Warrants meet the equity classification criteria and are therefore classified as equity in accordance with ASC 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging.

The Accompanying Warrants have an exercise price per share of common stock equal to $3.20 per share. The exercise price and the number of shares of common stock issuable upon exercise of the Accompanying Warrants are subject to appropriate adjustments in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock. The Accompanying Warrants will be exercisable at any time after the date of issuance and will expire on the fifth anniversary of the date of issuance. The Accompanying Warrants do not meet certain scope exceptions under U.S. GAAP, primarily because they did not meet the requirements to be indexed to equity and equity classified, and the instruments meet the definition of a derivative instrument. Therefore, these instruments are recorded as Derivative liabilities in the Condensed Consolidated Balance Sheet as of March 31, 2024.

Note 12. 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, 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.

27

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 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 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 1,197 shares and 1,126 shares on January 1, 2024 and 2023, respectively.

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

As of March 31, 2024, there were 2,001 shares available to be granted under the 2020 Plan.

BTI Restricted stock units

The table below summarizes activity relating to BTI RSUs.

Number of

  

shares

Outstanding as of January 1, 2024

 

185

Granted

5

Vested

Outstanding as of March 31, 2024

190

During the three months ended March 31, 2024, the Company granted 5 time-based RSUs which fully vest on the one-year anniversary of the grant date. The average grant date fair value per share for the RSUs was $2.52. The outstanding RSUs vest as follows; 5 RSUs vest 100% at the one-year anniversary of the grant date; 4 RSUs granted to a third-party consultant vest 50% on each of the first and second anniversaries of the grant date; the remaining 181 RSUs 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 weighted average grant date fair value per share for the BTI RSUs granted in 2023 was $19.62. Unrecognized stock-based compensation expense related to these awards was approximately $1,308 and $3,606 as of March 31, 2024 and 2023, respectively.

BTI Performance stock units

The table below summarizes activity relating to Performance Units related to BTI common stock.

Number of

  

shares

Outstanding as of January 1, 2024

 

527

Granted

Cancelled

(18)

Outstanding as of March 31, 2024

509

28

In October 2023, the Company granted 543 Performance Units to employees. 209 Performance Units vest on the one-year anniversary of the grant date, and the remaining 334 Performance Units are performance based and vest on the one-year anniversary of the grant date, provided certain performance criteria are met. The weighted average value per share of Performance Units granted and cancelled during 2023 was $2.43. None of the Performance Units had vested as of March 31, 2024. Unrecognized stock-based compensation expense related to the awards expected to vest was $329 as of March 31, 2024.

OnkosXcel profit sharing units

The table below summarizes activity relating to the PSUs associated with OnkosXcel as described below.

Weighted average

Number of

price per unit

  

units

(in whole dollars)

Outstanding as of January 1, 2024

 

1,240

$

5,619

Granted

$

Cancelled

$

Forfeited

$

Outstanding as of March 31, 2024

1,240

Vested units as of March 31, 2024

784

$

5,542

During 2023, OnkosXcel Employee Holdings, LLC, a management holding company used to facilitate the grant of equity interests to service providers of OnkosXcel granted 30 individual (not in thousands) time-based PSUs related to OnkosXcel to certain employees of the Company in consideration for services provided to OnkosXcel. In 2022, OnkosXcel Employee Holdings, LLC granted 1,310 (not in thousands) PSUs to employees and a consultant of the Company for services provided to OnkosXcel. The PSUs represent indirect equity interests in OnkosXcel. All PSUs, other than those granted to certain executive employees of the Company, vest ratably over 48 months. PSUs granted to certain executive employees of the Company, vested ratably over 24 months.

The fair values of PSUs granted during 2023 were estimated at the date of grant using a Black-Scholes option pricing model and assumptions below.

2023 grant profit share unit valuation inputs

Expected volatility

97.4

%

Risk-free rate of interest

3.6

%

Expected dividend yield

%

Expected term

5.8

years

Unrecognized stock-based compensation expense related to these awards was $782 and $4,219 at March 31, 2024 and 2023, respectively.

29

OnkosXcel restricted stock units

The table below summarizes activity relating to the OnkosXcel RSUs.

Number of

  

units

Outstanding as of January 1, 2024

 

225

Granted

Outstanding as of March 31, 2024

225

During the year ended December 31, 2023, the Company granted 225 individual (not in thousands) OnkosXcel RSUs to certain employees. 125 of the OnkosXcel RSUs vest upon the earlier to occur of (a) 180 days after an initial public offering of OnkosXcel, or (b) a change in control of OnkosXcel. The remaining OnkosXcel RSUs 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 weighted average grant date fair value per unit for the OnkosXcel RSUs was approximately $10. Unrecognized stock-based compensation expense related to the awards expected to vest was approximately $420 and $2,194 as of March 31, 2024 and 2023, respectively.

BTI Stock options

A summary of the Company’s stock option activity for the three months ended March 31, 2024 is presented below.

Number of

Weighted average

  

shares

  

price per share

  

Outstanding as of January 1, 2024

 

4,976

$

18.52

Granted

5

$

2.52

Forfeited

(21)

$

17.14

Cancelled

(112)

$

21.75

Exercised

$

Outstanding as of March 31, 2024

4,848

$

18.44

Options vested and exercisable as of March 31, 2024

 

3,662

$

17.71

As of March 31, 2024, the intrinsic value of options outstanding was $2,989. 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.

No stock options were exercised for the three months ended March 31, 2024. The total intrinsic value of stock options exercised for the three months ended March 31, 2023 was $3,576. As of March 31, 2024 and 2023, the total intrinsic value of stock options exercisable was $2,987 and $31,617, respectively.

The weighted average grant date fair value per share of options vested as of March 31, 2024 was $13.19.

The weighted average remaining contractual life is 5.4 years for options exercisable as of March 31, 2024. The weighted average remaining contractual life was 6.1 years for options outstanding as of March 31, 2024.

Unrecognized compensation expense related to unvested BTI stock option awards as of March 31, 2024 was $6,671 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 1.5 years.

30

Stock-Based Compensation

The fair value of BTI stock options granted during the three months ended March 31, 2024 and 2023 was estimated using the Black-Scholes pricing model with the following assumptions:

Three months ended

Three months ended

    

March 31, 2024

March 31, 2023

Expected term

6.1

years

5.5

years

-

6.1

years

Expected stock price volatility

108.4

%

97.0

%

-

97.9

%

Risk-free rate of interest

4.0

%

3.6

%

-

4.2

%

Expected dividend yield

0.0

%

0.0

%

-

0.0

%

In 2023, the Company began using the historical volatility of its common stock to estimate volatility. Prior to 2023, volatility was estimated using a combination of the historical volatility of publicly traded peer companies and that of the Company’s common stock. The expected term of the awards is estimated based on the simplified method, which calculates the expected term based upon the midpoint of the life 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 zero percent 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, as well as the OnkosXcel RSUs and PSUs, of $3,433 and $4,877 for the three months ended March 31, 2024 and 2023, respectively, which were comprised as follows:

Three months ended March 31, 

2024

2023

Research and development

$

1,281

$

1,297

Selling, general and administrative

 

2,152

3,580

Total

$

3,433

$

4,877

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 ESPP increased by 299 shares and 281 shares on

31

January 1, 2024 and 2023, respectively. To date, no shares have been sold under the ESPP. There were 1,204 shares available for issuance as of March 31, 2024.

Note 13. Leases

BTI leases office space for its corporate headquarters at 555 Long Wharf Drive, New Haven, Connecticut (the “HQ Lease”) under an operating lease that expires in February 2026. The Company has an option to renew the HQ Lease for one additional five-year 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 March 31, 2024, are as follows:

Year ending December 31,

    

Amount

Remainder of 2024

$

287

2025

391

2026