Company Quick10K Filing
Quick10K
Bioxcel Therapeutics
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$10.81 16 $169
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
8-K 2019-05-23 Shareholder Vote
8-K 2019-05-22 Regulation FD
8-K 2019-05-20 Regulation FD, Other Events, Exhibits
8-K 2019-05-20 Enter Agreement, Exhibits
8-K 2019-05-07 Earnings, Exhibits
8-K 2019-03-25 Other Events, Exhibits
8-K 2019-03-11 Other Events, Exhibits
8-K 2019-03-07 Officers, Other Events, Exhibits
8-K 2019-02-11 Regulation FD, Exhibits
8-K 2019-02-04 Other Events, Exhibits
8-K 2019-01-03 Regulation FD, Other Events, Exhibits
8-K 2018-12-27 Other Events, Exhibits
8-K 2018-12-19 Other Events, Exhibits
8-K 2018-12-12 Regulation FD, Exhibits
8-K 2018-12-12 Other Events, Exhibits
8-K 2018-11-14 Other Events, Exhibits
8-K 2018-11-09 Earnings, Exhibits
8-K 2018-11-05 Other Events, Exhibits
8-K 2018-10-30 Other Events, Exhibits
8-K 2018-09-21 Enter Agreement, Other Events, Exhibits
8-K 2018-08-20 Enter Agreement, Exhibits
8-K 2018-08-08 Earnings, Exhibits
8-K 2018-07-24 Other Events, Exhibits
8-K 2018-06-27 Other Events, Exhibits
8-K 2018-06-07 Regulation FD, Exhibits
8-K 2018-06-04 Other Events, Exhibits
8-K 2018-06-01 Officers, Exhibits
8-K 2018-05-21 Regulation FD, Exhibits
8-K 2018-05-17 Other Events, Exhibits
8-K 2018-04-26 Other Events, Exhibits
8-K 2018-03-07 Officers, Amend Bylaw, Other Events, Exhibits
LADR Ladder Capital 1,950
NVGS Navigator Holdings 616
HIIQ Health Insurance Innovations 295
SENEA Seneca Foods 241
TUES Tuesday Morning 81
XTNT Xtant Medical Holdings 39
PETZ TDH Holdings 7
JMU JMU 1
RETC 12 Retech 0
ARS Aleris 0
BTAI 2019-03-31
Part 1. Financial Information
Item 1. Financial Statements
Note 1. Organization and Principal Activities
Note 2. Initial Public Offering
Note 3. Liquidity and Going Concern
Note 4. Summary of Significant Accounting Policies
Note 5. Transactions with Bioxcel
Note 6. Property & Equipment
Note 7. Commitments and Contingencies
Note 8. Accrued Expenses and Other Current Liabilities
Note 9. Stockholders’ Equity (Deficit)
Note 10. Stock-Based Compensation
Note 11. Income Taxes
Note 12. Leases
Item 2. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II — Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 btai-20190331ex3116dbbd0.htm
EX-31.2 btai-20190331ex312b6301f.htm
EX-32.1 btai-20190331ex321c34036.htm
EX-32.2 btai-20190331ex32292614f.htm

Bioxcel Therapeutics Earnings 2019-03-31

BTAI 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 btai-20190331x10q.htm 10-Q btai_Current_Folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2019

 

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)

 


 

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, or 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 ☒

Small 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 7(a)(2)(B) of the Securities Act. ☒

 

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

 

 

 

 

 

 

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

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock,
$0.001 par value per share

 

BTAI

 

Nasdaq Capital Market

 

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding at May 1, 2019 was 15,665,802.

 

 

 

 


 

Table of Contents

 

 

 

 

 

Page

PART I - FINANCIAL INFORMATION

 

 

Forward Looking Statements

3

Item 1. 

Financial Statements

5

 

Balance Sheets as of March  31, 2019 (unaudited) and December 31, 2018

5

 

Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited)

6

 

Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2019 and 2018 (unaudited)

7

 

Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited)

8

 

Notes to Financial Statements (unaudited)

9

Item 2. 

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

19

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4. 

Controls and Procedures

27

 

 

 

PART II OTHER INFORMATION 

 

Item 1. 

Legal Proceedings

28

Item 1A. 

Risk Factors

28

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

65

Item 3. 

Defaults Upon Senior Securities

65

Item 4. 

Mine Safety Disclosures

65

Item 5. 

Other Information

65

Item 6. 

Exhibits

66

Signatures 

67

 

 

2


 

FORWARD-LOOKING STATEMENTS

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

·

our plans to initiate clinical trials for BXCL501, BXCL701 and our other product candidates;

·

our plans for 505(b)(2) regulatory path approval;

·

our plans to research, develop and commercialize our current and future product candidates;

·

our plans to seek to enter into collaborations for the development and commercialization of certain product candidates;

·

the potential benefits of any future collaboration;

·

the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;

·

the rate and degree of market acceptance and clinical utility of any products for which we receive marketing approval;

·

our commercialization, marketing and manufacturing capabilities and strategy;

·

our intellectual property position and strategy;

·

our estimates regarding expenses, future revenue, capital requirements and need for additional financing;

·

developments relating to our competitors and our industry;

·

the impact of government laws and regulations; and

·

risks associated with our relationship with BioXcel.

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other 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 these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under Part II, Item 1A. “Risk Factors” and elsewhere in this Quarterly Report. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

3


 

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

4


 

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

BIOXCEL THERAPEUTICS, INC.

BALANCE SHEETS

(amounts in thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31, 

 

    

2019

    

2018

 

 

(unaudited)

 

 

ASSETS

 

 

  

 

 

  

Current assets

 

 

  

 

 

  

Cash and cash equivalents

 

$

36,296

 

$

42,565

Prepaid expenses and other current assets

 

 

1,783

 

 

491

Due from Parent

 

 

 —

 

 

115

Total current assets

 

 

38,079

 

 

43,171

Property and equipment, net

 

 

905

 

 

327

Operating lease right-of-use asset

 

 

1,293

 

 

 —

Other assets

 

 

51

 

 

51

Total assets

 

$

40,328

 

$

43,549

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

  

 

 

  

Current liabilities

 

 

  

 

 

  

Accounts payable

 

$

2,128

 

$

1,604

Accrued expenses

 

 

3,348

 

 

3,056

Due to Parent

 

 

392

 

 

 —

Other current liabilities

 

 

939

 

 

 —

Total current liabilities

 

 

6,807

 

 

4,660

 

 

 

 

 

 

 

Operating lease liability

 

 

1,153

 

 

 —

 

 

 

 

 

 

 

    Total liabilities

 

 

7,960

 

 

4,660

 

 

 

 

 

 

 

Stockholders' equity

 

 

  

 

 

  

Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued or outstanding

 

 

 —

 

 

 —

Common stock, $0.001 par value, 50,000,000 shares authorized; 15,665,802 and 15,663,221 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

16

 

 

16

Additional paid-in-capital

 

 

63,276

 

 

62,593

Accumulated deficit

 

 

(30,924)

 

 

(23,720)

Total stockholders' equity

 

 

32,368

 

 

38,889

Total liabilities and stockholders' equity

 

$

40,328

 

$

43,549

 

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

5


 

BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF OPERATIONS

(amounts in thousands, except share and per share data)

(unaudited)

 

 

 

 

 

 

 

 

 

Three Months Ended March 31,

 

    

2019

    

2018

Revenues

 

$

 —

 

$

 —

 

 

 

 

 

 

 

Operating costs and expenses

 

 

  

 

 

  

Research and development

 

 

5,674

 

 

2,938

General and administrative

 

 

1,745

 

 

1,348

Total operating expenses

 

 

7,419

 

 

4,286

Loss from operations

 

 

(7,419)

 

 

(4,286)

Other income

 

 

  

 

 

  

Dividend and interest income, net

 

 

215

 

 

 4

Net loss

 

$

(7,204)

 

$

(4,282)

 

 

 

 

 

 

 

Net loss per share attributable to common stockholders basic and diluted

 

$

(0.46)

 

$

(0.37)

 

 

 

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

15,663,795

 

 

11,456,325

 

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

6


 

BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY / DEFICIT

(amounts in thousands, except shares)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

Common Stock

 

Paid in

 

Accumulated

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Deficit

    

Total

Balance as of December 31, 2017

 

9,907,548

 

$

10

 

$

3,458

 

$

(4,450)

 

$

(982)

Issuance of common shares

 

283,452

 

 

 1

 

 

1,949

 

 

 —

 

 

1,950

Issuance of common shares, upon completion of Initial Public Offering, net of issuance costs of $5,898

 

5,454,545

 

 

 5

 

 

54,097

 

 

 —

 

 

54,102

Stock-based compensation

 

 —

 

 

 —

 

 

1,319

 

 

 —

 

 

1,319

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(4,282)

 

 

(4,282)

Balance as of March 31, 2018

 

15,645,545

 

$

16

 

$

60,823

 

$

(8,732)

 

$

52,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2018

 

15,663,221

 

$

16

 

$

62,593

 

$

(23,720)

 

$

38,889

Stock-based compensation

 

 —

 

 

 —

 

 

682

 

 

 —

 

 

682

Exercise of stock options

 

2,581

 

 

 —

 

 

 1

 

 

 —

 

 

 1

Net loss

 

 —

 

 

 —

 

 

 —

 

 

(7,204)

 

 

(7,204)

Balance as of March 31, 2019

 

15,665,802

 

$

16

 

$

63,276

 

$

(30,924)

 

$

32,368

 

 

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

 

 

7


 

BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

 

 

 

 

 

 

 

 

 

Three months ended March 31, 

 

    

2019

    

2018

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

  

 

 

  

Net loss

 

$

(7,204)

 

$

(4,282)

Reconciliation of net loss to net cash used in operating activities

 

 

  

 

 

  

Depreciation and amortization

 

 

37

 

 

 —

Stock-based compensation expense

 

 

682

 

 

1,319

Due to Parent under asset contribution agreement

 

 

500

 

 

1,000

Changes in operating assets and liabilities:

 

 

  

 

 

  

Prepaid expenses and other assets

 

 

(1,292)

 

 

(805)

Accounts payable, accrued expenses and other

 

 

1,603

 

 

1,743

Due to related party

 

 

 4

 

 

13

Net cash used in operating activities

 

 

(5,670)

 

 

(1,012)

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

  

 

 

  

Purchases of equipment and leasehold improvements

 

 

(600)

 

 

 —

Net cash used in investing activities

 

 

(600)

 

 

 —

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

  

 

 

  

Proceeds from issuance of common stock, net

 

 

 —

 

 

56,512

Exercise of options

 

 

 1

 

 

 —

Due to Parent

 

 

 —

 

 

(551)

Note Payable Parent

 

 

 —

 

 

(371)

Net cash provided by financing activities

 

 

 1

 

 

55,590

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(6,269)

 

 

54,578

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of the period

 

 

42,565

 

 

887

Cash and cash equivalents, end of the period

 

$

36,296

 

$

55,465

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

  

 

 

  

Interest paid

 

$

 8

 

$

 2

 

 

 

 

 

 

 

Supplemental disclosure of non-cash Financing Activity:

 

 

  

 

 

  

Deferred issuance costs, unpaid as of December 31, 2017

 

$

 —

 

$

391

Deferred issuance costs reclassified to additional paid-in-capital upon completion of initial public offering.

 

$

 —

 

$

461

Reclassification of net Parent Investment in the Company to accumulated deficit.

 

$

 —

 

$

440

 

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

8


 

BIOXCEL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS

(amounts in thousands, except share and per share data)

(unaudited)

Note 1. Organization and Principal Activities

BioXcel Therapeutics, Inc. (the “Company” or “BTI”) is a clinical stage biopharmaceutical company utilizing novel artificial intelligence-based approaches to identify the next wave of medicines across neuroscience and immuno-oncology. The Company’s drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. The Company is a majority-owned subsidiary of BioXcel Corporation (“BioXcel” or “Parent”) and was incorporated under the laws of the State of Delaware on March 29, 2017. The Company’s principal office is in New Haven, Connecticut. Unless otherwise indicated or the context requires otherwise, references in this report to “we,” “our,” “us” and similar expressions refer to BioXcel Therapeutics, Inc.

The unaudited financial information for the three months ended March 31, 2019 and 2018 is presented on the same basis as the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Certain reclassifications have been made to the prior year financial information to conform to the current period presentation. These reclassifications had no effect on the reported results of operations.

The Company’s primary activities have been the development of a clinical plan and pre-clinical research and development of two advanced programs: BXCL501, a sublingual thin film formulation of dexmedetomidine designed for acute treatment of agitation resulting from neurological and psychiatric disorders, and BXCL701, an immuno-oncology agent designed for treatment of a rare form of prostate cancer and for treatment of pancreatic cancer. These two programs and two emerging programs BXCL502 and BXCL702 (together, the “BTI Business”) have been contributed to the Company from the Parent pursuant to a contribution agreement.

Note 2. Initial Public Offering

On March 7, 2018, the Company’s registration statement on Form S‑1 relating to its initial public offering of its common stock (the “IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). The IPO closed on March 12, 2018, and the Company issued and sold 5,454,545 shares of common stock at a public offering price of $11.00 per share. Gross proceeds totaled $60,000 and net proceeds totaled $54,102 after deducting underwriting discounts and commissions of $4,200 and other offering expenses of approximately $1,698.

In connection with and effective upon the completion of its IPO, the Company effectuated a 237 to one stock split. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements have been adjusted retroactively, where applicable, to reflect the stock split.

Also, in connection with the completion of its IPO, the Company amended its articles of incorporation to authorize the issuance of up to 50,000,000 shares of common stock with a par value of $.001 each and 10,000,000 shares of preferred stock with a par value of $.001 each.

Note 3. Liquidity and Going Concern

In accordance with Accounting Standards Update (“ASU”) 2014‑15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205‑40), management must evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

9


 

As of March 31, 2019, we had cash and cash equivalents of $36,296, working capital of $31,272 and stockholders’ equity of $32,368. Net cash used in operating activities was $5,670 and $1,012 for the three months ended March 31, 2019 and 2018, respectively.  We incurred losses of approximately $7,204 and $4,282 for the three months ended March 31, 2019 and 2018, respectively. We have not yet generated any revenues and we have not yet achieved profitability. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need to generate significant product revenues to achieve profitability.

We believe that our existing cash and cash equivalents as of March 31, 2019, and a review of projected project timing, will enable us to fund our operating expenses and capital expenditure requirements for at least one year from the date of this Quarterly Report on Form 10-Q. Our current cash and cash equivalents will be used primarily to fund our ongoing research and development efforts over the coming months. We will be required to expend significant funds in order to advance the development of BXCL501, BXCL701 and our other product candidates. In addition, while we may seek one or more collaborators for future development of our current product candidate or any future product candidates that we may develop for one or more indications, we may not be able to enter into a collaboration for any of our product candidates for such indications on suitable terms, on a timely basis or at all. In any event, the net proceeds of our IPO and our existing cash and cash equivalents will not be sufficient to fund all of the efforts that we plan to undertake or to fund the completion of development of our product candidates or our other preclinical programs. Our estimate as to how long we expect our existing cash to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. Further financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy and we may be forced to curtail or cease operations.

Note 4. Summary of Significant Accounting Policies

Use of Estimates

The Company’s financial statements are prepared in accordance with GAAP. The preparation of financial statements requires the Company to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses in its financial statements and the accompanying notes. The most significant estimates in the financial statements relate to the fair value of equity awards and valuation allowance related to the Company’s deferred tax assets and liabilities.

Unaudited Interim Financial Information

The accompanying unaudited financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States (“GAAP”). The accompanying year-end balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. The unaudited interim 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, 2019, and the results of its operations for the three months ended March 31, 2019 and 2018 and its cash flows for the three months ended March 31, 2019 and 2018, respectively. The results for the three months ended March 31, 2019 are not necessarily indicative of results to be expected for the year ending December 31, 2019, any other interim periods or any future year or period.

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, 2019, cash equivalents were comprised of money market funds.

10


 

Deferred Offering Costs

The Company capitalized certain legal, professional accounting and other third-party fees that were directly associated with in-process equity financings as deferred offering costs until the equity financing was consummated. After consummation of an equity financing, these costs were recorded in shareholders’ equity (deficit) as a reduction of proceeds generated as a result of the offering. As of December 31, 2017, the Company recorded deferred offering costs relating to its IPO of $461. The Company’s IPO was completed in March 2018, and these costs, as well as additional IPO costs including commissions of $4,200 and an additional $1,237 of other expenses incurred in 2018, were recorded as a reduction to shareholders’ equity.

Property and Equipment

Equipment consists of computers and related equipment and furniture that are stated at cost and depreciated using the straight-line method over estimated useful life of 5 years. Leasehold improvements are being amortized over the shorter of the life of the lease or the asset.

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

Since its inception, the Company has not recognized any impairment or disposition of long lived assets.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities in our balance sheet.

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

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation,” which requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made to employees and directors, including stock options. The Company’s stock-based compensation plan was adopted and became effective in August 2017. Prior to the Company adopting its stock-based compensation plan the Parent granted stock options to its employees. As a result, related stock-based compensation expense has been allocated to the Company over the required service period over which these BioXcel stock option awards vest in the same manner salary costs of employees have been allocated to the BTI Business in the carve-out process.

Both BioXcel and the Company’s stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period. The estimated fair value of stock option awards was determined

11


 

using the Black-Scholes option pricing model on the date of grant. Significant judgment and estimates were used to estimate the fair value of these awards, as they were not publicly traded. Stock awards granted by the Company subsequent to the IPO are valued using market prices at the date of grant.

Stock-based awards to non-employees are re-measured at fair value each financial reporting date until performance is complete.

ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The Black-Scholes option-pricing model was used as its method of determining fair value. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the award is recognized as an expense in the statement of operations over the requisite service period. The periodic expense is then determined based on the valuation of the options.

The Company adopted FASB ASU 2016-09 as of January 1, 2018 and has elected to account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.

The Company adopted FASB ASU 2018-07 as of January 1, 2019 which allows non-employee options to be expensed using the adoption date fair value. This is expected to reduce the volatility of stock based compensation in future periods. Historically, such options were re-measured at each valuation date.

Research and Development Costs

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

Patent Costs

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

Fair Value Measurements

ASC 820 “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (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). The three levels of the fair value hierarchy under ASC 820 are described below:

·

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

12


 

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

·

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

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

The carrying amounts of cash, accounts payable and accrued expenses approximate fair value due to the short-term nature of these instruments.

Net Loss per Share

The Company computes basic net loss per share by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period and excludes the effects of any potentially dilutive securities. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable. The potential dilutive securities included outstanding options (for both employees and non-employees) for the three months ended March 31, 2019 and 2018. Such securities have not been included in the loss per share calculation since their impact would be anti-dilutive. There were 2,682,545 and 2,525,811 shares of options that were excluded from the calculation of the loss per share for the three months ended March 31, 2019 and 2018, respectively.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016‑02 Lease Accounting Topic 842. This ASU requires the Company to record all leases longer than one year on its balance sheet. Under the new guidance, when the Company records leases on its balance sheet it will record a liability with a value equal to the present value of payments it will make over the life of the lease and an asset representing the underlying leased asset. The new accounting guidance requires the Company to determine if its leases are operating or financing leases, similar to current accounting guidance. The Company will record expense for operating type leases on a straight-line basis as an operating expense and it will record expense for finance type leases as interest expense. The new lease standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company adopted the new standard in January 2019 and recorded a ROU asset and related liability in the amount of $1,308 on commencement of a new office lease.

Note 5. Transactions with BioXcel

The Company has entered into an asset contribution agreement, effective June 30, 2017, with BioXcel, as amended and restated on November 7, 2017, or the Contribution Agreement, pursuant to which BioXcel agreed to contribute BioXcel’s rights, title and interest in BXCL501, BXCL701, BXCL502 and BXCL702, and all of the assets and liabilities associated in consideration for (i) 9,480,000 shares of our common stock, (ii) $1,000 upon completion of an initial public offering, (iii) $500 upon the later of the 12 month anniversary of an initial public offering and the first dosing of a patient in the bridging bioavailability/ bioequivalence study for the BXCL501 program, (iv) $500 upon the later of the 12 month anniversary of an initial public offering and the first dosing of a patient in the Phase 2 PoC open label monotherapy or combination trial with Keytruda for the BXCL701 program and (v) a one-time payment of $5,000 within 60 days after the achievement of $50,000 in cumulative net sales of any product or combination of products resulting from the development and commercialization of any one of the Candidates or a product derived therefrom. With the completion of the Company’s IPO in March 2018, $1,000 was charged to Research and Development costs in connection with (ii)

13


 

above and was paid on April 5, 2018. The Company also paid $500 to BioXcel in connection with (iii) above in April 2019.

We entered into a separation and shared services agreement with BioXcel that took effect on June 30, 2017, as amended and restated on November 7, 2017, the (“Services Agreement”), pursuant to which BioXcel will allow us to continue to use the office space, equipment, services and leased employees based on the agreed upon terms and conditions for a payment of defined monthly and/or hourly fees. The parties have agreed that the services and office space provided under the Services Agreement shall decrease over time until the 12-month anniversary of the date of the Services Agreement. The office space and equipment portion of the Services Agreement ended effectively on April 30, 2018 when the Company moved to new office space to accommodate additional personnel that had been hired.  Services to be provided by BioXcel through its subsidiary in India, were originally expected to decrease through June 30, 2019 provided such dates may be extended upon mutual agreement between the parties.  The parties are currently discussing extending the term of these services provided however no definitive agreement has been agreed upon as of the date hereof.  There can be no assurance that the parties will agree to any extension to the Services Agreement in the future.

On or before December 31, 2019, the Company will have the option to enter into a collaborative services agreement with BioXcel pursuant to which BioXcel shall perform product identification and related services for us utilizing EvolverAI. We have agreed that this agreement will be negotiated in good faith and that such agreement will incorporate reasonable market-based terms, including consideration for BioXcel reflecting a low, single-digit royalty on net sales and reasonable development and commercialization milestone payments, provided that (i) development milestones shall not exceed $10,000 in the aggregate and not be payable prior to proof of concept in humans and (ii) commercialization milestones 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. BioXcel shall continue to make such product identification and related services available to us for at least five years from June 30, 2017.  The parties are currently discussing extending the product identification and related services that BioXcel would provide however no definitive agreement has been agreed upon as of the date hereof.  There can be no assurance that the parties will agree to any extension to the collaborative services agreement in the future.

In connection with the Services Agreement, BioXcel had agreed to provide the Company a line of credit, which was capped at $1,000, or the Total Funding Amount, pursuant to the terms of a grid note, the (“Grid Note”). The Grid Note was payable upon the earlier of (i) the completion of an initial public offering and (ii) December 31, 2018, together with interest on the unpaid balance of each advance made under the Grid Note, which would accrue at a rate per annum equal to the applicable federal rate for short-term loans as of the date hereof, in each case calculated based on a 365‑day year and actual days elapsed. As of December 31, 2017, the Company had drawn down $371 under the Grid Note.

All amounts due to BioXcel under the line of credit, the Grid Note, and for expenses paid on the Company’s behalf were paid following the completion of the Company’s IPO on March 20, 2018.

Note 6. Property & Equipment

Property and Equipment, net consisted of the following

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

    

2019

    

2018

 

 

Unaudited

 

 

Computers and related equipment

 

$

196

 

$

169

Furniture

 

 

162

 

 

 4

Leasehold improvements

 

 

587

 

 

172

 

 

 

945

 

 

345

Accumulated depreciation

 

 

(40)

 

 

(18)

 

 

$

905

 

$

327

 

 

14


 

Note 7. Commitments and Contingencies

Master Service Agreements

The Company has entered into a Master Services Agreement (“MSA”) with a Contract Research Organization (“CRO”) for strategic planning, expert consultation, clinical trial services, statistical programming and analysis, data processing, data management, regulatory, clerical, project management, medical device services, and other research and development services as set forth in specific work orders. This agreement is for a period of five (5) years. 

Excluding the CRO’s property, all improvements, inventions, processes, techniques, work product, know-how, data and information generated, conceived, reduced to practice or derived under the MSA by the CRO or its personnel and subcontractors, shall be and remain the exclusive property of the Company, and any inventions that may evolve from the foregoing shall belong to the Company.

The Company entered into a series of cancellable work orders to support its clinical trial activities, related to the first of the Company’s BXCL 701 clinical trials. This clinical trial is expected to aggregate approximately $8,000 and is anticipated to take place over the next two years. During the first quarter of 2019 the company has incurred $810 of costs associated with the CRO for this trial.  To date, the Company has incurred $2,512 in costs for the work surrounding this trial

In the first quarter of 2019 the Company entered into a second series of cancellable work orders to support a second clinical trial related the Company’s BXCL 701 product candidate.  This clinical trial is expected to aggregate approximate approximately $6,000 and it is anticipated to take place over the next three years.  Approximately one half of this cost is to be reimbursed by a partner.  The Company has incurred $584 of costs in connection with this trial and has also recorded a related receivable of $291.

In addition, an MSA was signed with a second CRO during the first quarter of 2019 to include strategic planning, expert consultation, regulatory activities, data interpretation, NDA services, and research and development services, including clinical, data management, statistical and medical writing activities.

Note 8. Accrued Expenses and Other Current Liabilities

Accrued expenses consist of the following:

 

 

 

 

 

 

 

 

    

March 31, 2019

    

December 31, 2018

 

 

 

 

 

Drugs and clinical trial expenses

 

$

2,524

 

$

1,887

Accrued salaries, benefits and travel related costs

 

 

447

 

 

774

Professional and consultant fees

 

 

301

 

 

181

Legal expenses

 

 

60

 

 

105

Other administrative accruals

 

 

16

 

 

109

 

 

$

3,348

 

$

3,056

 

 

Other current liabilities includes $156 for the current portion of Operating lease liabilities and $783 for the financing of insurance premiums.

 

Note 9. Stockholders’ Equity (Deficit)

Authorized Capital

The Company is authorized to issue up to 10,000,000 preferred shares with a par value of $0.001 per share. No preferred shares are issued and outstanding.

15


 

The Company is authorized to issue up to 50,000,000 shares of common stock with a par value of $0.001 per share. The Company had 15,665,802 shares of common stock outstanding as of March 31, 2019.

Description of Common Stock

Each share of common stock has the right to one vote. The holders of common stock are entitled to dividends when funds are legally available and when declared by the board of directors.

Common Stock Issuances

On March 7, 2018, the Company’s registration statement on Form S-1 relating to the Company’s IPO was declared effective by the SEC. The IPO closed on March 12, 2018, and the Company issued and sold 5,454,545 shares of common stock at a public offering price of $11.00 per share, for gross proceeds of $60,000 and net proceeds of $54,102 after deducting underwriting discounts and commissions of $4,200 and other offering expenses of $1,698.

In January and February 2018, the Company issued 283,452 shares of common stock with an issuance price of $6.88 per share for gross and net proceeds of $1,950.

Note 10. Stock-Based Compensation

Stock Options

The Company’s 2017 Stock Incentive Plan (the “2017 Stock Plan”) became effective in August 2017 and will expire in August 2027. Under the 2017 Stock Plan, the Company may grant incentive stock options, non-statutory stock options, restricted stock awards and other stock-based awards.

As of March 31, 2019, there were 3,442,313 shares of the Company’s common stock authorized for issuance under the 2017 Stock Plan. Options granted under the 2017 Stock Plan have a term of ten years with vesting terms determined by the board of directors, which is generally four years.

The fair value of options granted during the three months ended March 31, 2019 was estimated using the Black-Scholes option-pricing model with the following assumptions.

Employees

 

 

 

 

 

 

 

 

 

 

 

For the

 

 

 

Three Months Ended

 

 

    

March 31, 2019

  

Exercise price per share

 

$

7.91

 

-

$

10.33

 

Expected stock price volatility

 

 

79.12

%

-

 

79.38

%

Risk-free rate of interest

 

 

2.44

%

-

 

2.53

%

Fair value of grants per share

 

$

5.31

 

-

$

7.54

 

Expected Term (years)

 

 

5.5

 

-

 

7.0

 

 

Non-Employees

The Company did not grant options to non-employees for the three months ended March 31, 2019.

Since the Company recently completed its IPO, it does not have a history of market prices of its common stock and, as such, volatility was estimated using historical volatilities of similar public companies. The expected term of the employee awards is estimated based on the simplified method, which calculates the expected term based upon the midpoint of the term of the award and the vesting period. The Company uses the simplified method because it does not have sufficient option exercise data to provide a reasonable basis upon which to estimate the expected term. The expected term of non-employee awards represents the awards contractual term. The expected dividend yield is 0% as the

16


 

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 based on the United States Treasury yield curve in effect at the time of grant, with maturities approximating the expected term of the stock options.

The following table summarizes information about stock option activity under the 2017 Stock Plan for the three months ended March 31, 2019 (in thousands, except share and per share data):

Employee Options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

Number

 

Weighted Average

 

Total

 

Remaining

 

 

of

 

Exercise

 

Intrinsic

 

Contractual

 

  

Shares

  

Price per Share

  

Value

  

Life (in years)

Outstanding as of January 1, 2019

 

2,306,256

 

$

2.36

 

$

6,182

 

8.8

Employee options granted

 

70,000

 

$

9.27

 

$

57

 

10.0

Outstanding as of March 31, 2019

 

2,376,256

 

$

2.56

 

$

17,679

 

8.6

 

 

 

 

 

 

 

 

 

 

 

Options vested and exercisable as of March 31, 2019

 

1,588,939

 

$

0.80

 

$

14,466

 

8.4

 

Non-employee Options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

Number

 

Weighted Average

 

Total

 

Remaining

 

 

of

 

Exercise

 

Intrinsic

 

Contractual

 

  

Shares

  

Price per Share

  

Value

  

Life (in years)

Outstanding as of January 1, 2019

 

437,897

 

$

2.16

 

$

1,229

 

8.8

Non-employee options exercised

 

(2,581)

 

$

0.41

 

$

-

 

-

Outstanding as of March 31, 2019

 

435,316

 

$

2.17

 

$

3,404

 

8.6

 

 

 

 

 

 

 

 

 

 

 

Options vested and exercisable as of March 31, 2019

 

154,791

 

$

1.30

 

$

1,338

 

8.5

 

The Company granted 70,000 options to purchase shares of common stock during the three months ended March 31, 2019. There were 630,741 shares available for grant as of March 31, 2019.

The Company recognized stock-based compensation expense under the 2017 Stock Plan of $659 and $1,196 for the three months ended March 31, 2019 and 2018.   

The total grant-date fair value of options was $454 and $0 for employees and non-employees, respectively, for the three months ended March 31, 2019.

Unrecognized compensation expense related to unvested awards as of March 31, 2019 was $3,301 for employees and $527 for non-employees 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 1.6 years for employees and 1.0 years for non-employees.

BioXcel Charges

BioXcel has granted stock options to its employees under its own Equity Incentive Plan (“BioXcel Plan”). Stock-based compensation expense from the BioXcel Plan is allocated to the Company over the period over which those stock option awards vest and are based the on the percentage of time spent on Company activities compared to BioXcel activities, which is the same basis used for allocation of salary costs. The BioXcel stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period. The estimated fair value of these BioXcel stock option awards was determined using the Black Scholes option pricing model on the date of grant. Significant judgment and estimates were used to estimate the fair value of these awards, as they are not publicly traded.

17


 

Share based compensation expense (income), net of forfeitures, recognized by the Company in its statements of operations related to BioXcel equity awards totaled approximately $23 and $123 for the three months ended March 31, 2019 and 2018, respectively.

Total share based compensation charges were approximately $682 and $1,319 for the three months ended March 31, 2019 and 2018, respectively.

Note 11. Income Taxes

Deferred income tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting and tax bases of assets and liabilities and are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

As a result of the Company’s cumulative losses, management has concluded that a full valuation allowance against the Company’s net deferred tax assets is appropriate. No income tax liabilities existed as of March 31, 2019 and December 31, 2018 due to the Company’s continuing operating losses.

Note 12. Leases

The Company entered into an agreement to lease approximately 11,040 square feet of space on the 12th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut that commenced February 22, 2019 (the “Commencement Date”). The premises were occupied in March 2019.

The term of the 12th floor lease continues from the commencement date through the last day of the calendar month immediately following the seventh (7th) anniversary of the commencement date.

The Company’s improvement costs were approximately $587 and are being amortized over the life of the lease.

Maturities of the operating lease liability are as follows:

 

 

 

 

 

Year ending December 31,

    

Amount

2019 (excluding the three months ended March 31, 2019)

 

$

153

2020

 

 

208

2021

 

 

196

2022

 

 

219

2023

 

 

225

Thereafter

 

 

506

Total lease payments

 

 

1,507

Less imputed interest

 

 

(198)

Total lease liability

 

 

1,309

Less current portion

 

 

(156)

Operating lease liability

 

$

1,153

 

The current portion of our operating lease liability of $156 as of March 31, 2019 is included in other current liabilities on the balance sheet.

The Company recorded amortization charges and interest expense of $16 and $4, respectively related to its operating lease right-of-use asset for the three months ended March 31, 2019.

The Company has an option to renew the lease for one additional five-year term at 95% of the then prevailing market rates but not less than the rental rate at the end of the initial lease term. 

 

 

18


 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Quarterly Report and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2018. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis.

All dollar amounts in this discussion and analysis are to the nearest thousand unless otherwise noted.

Overview

We are a clinical stage biopharmaceutical company utilizing novel artificial intelligence-based approaches to identify the next wave of medicines across neuroscience and immuno-oncology. Our drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. We believe that this differentiated approach has the potential to reduce the cost and time of drug development in diseases with substantial unmet medical need. Our two most advanced clinical development programs are BXCL501, a sublingual thin film formulation of the adrenergic receptor agonist dexmedetomidine, or Dex, for acute treatment of agitation resulting from neurological and psychiatric disorders, and BXCL701, an immuno-oncology agent for treatment of a rare form of prostate cancer and pancreatic cancer.

During the first quarter of 2019, we continued to advance the development of our two lead clinical programs, BXCL501, a proprietary sublingual thin film formulation of dexmedetomidine (Dex), and BXCL701, an orally-available systemic innate-immune activator.

As of May 5, 2019, our patent portfolio included three Patent Cooperation Treaty applications, two U.S. utility applications, seventeen U.S. provisional applications and sixteen foreign applications.

BXCL501 - Neuroscience Program

In late 2018, we initiated our first-in-human pharmacokinetic (bioavailability) and safety study for the sublingual thin film formulation of Dex. During the first quarter the study dosed multiple cohorts with approximately 40 patients having received the drug at various dosing strengths.

This Phase 1 study is a placebo-controlled, single dose, dose-escalation study of BXCL501 is expected to enroll up to 45 healthy adult volunteers across various dosing groups. The primary endpoints are pharmacokinetics and safety, with secondary endpoints including assessment of pharmacodynamics (PD) and the relationship between BXCL501 concentrations and PD endpoints. The Company expects to report top-line data from the study in May 2019. Building on the outcome of the healthy human volunteer study, we plan to launch a trial exploring the safety and efficacy in schizophrenic patients, which we intend to initiate over the next several months. These studies could potentially lead to the start of a registration trial in the second half of 2019.

BXCL701 - Immuno-Oncology Program 

The Company continues to investigate the therapeutic rationale for combining BXCL 701 with various agents.  In April 2019 we presented promising preclinical data demonstrating the potential for combining BXCL701, the Company’s oral immunomodulator, and an OX40 agonist antibody as a possible combination therapy for certain solid tumors.

19


 

Results from this preclinical study demonstrate that BXCL701, a dipeptidyl peptidase (DPP) and fibroblast activation protein (FAP) inhibitor, in combination with an anti-OX40 antibody results in synergistic anti-cancer activity and a statistically significant improvement in median survival compared to vehicle, as well as BXCL701 or the OX40 agonist alone. This data supports the Company’s belief that the combination of BXCL701 and an OX40 agonist represents a new potential treatment approach against multiple cancer types and provides rationale for a clinical efficacy study of the combination therapy. There are currently multiple OX40 agonists in various stages of clinical development.

On March 4, 2019 we announced the addition of Merck KGaA, Darmstadt, Germany, which operates its biopharmaceutical business as EMD Serono in the USA and Canada, and Pfizer Inc. to the previously announced Nektar clinical agreement. This trial is designed to evaluate a novel triple combination therapy in pancreatic cancer. The collaboration includes avelumab, BXCL701 and NKTR-214 as a potential combination therapy for pancreatic cancer. Avelumab is a human anti-programmed death ligand (PD-L1) co-developed and co-commercialized by Merck KGaA Darmstadt, Germany and Pfizer. A successful pre-IND meeting was held with the FDA during the first quarter of 2019 allowing the Company to finalize the study’s protocol and begin site selection. Subsequent to this meeting, an IND was filed with the U.S. Food and Drug Administration.

This first-in-human Phase 1b / 2 combination trial of BXCL701 and pembrolizumab (Keytruda®) was initiated during the fourth quarter of 2018. Several clinical sites have been activated, patients are being evaluated and the first patient is expected to be enrolled shortly. We plan to enroll up to forty patients at multiple clinical sites.

The goal of this single arm, Simon 2-stage open label study is to examine the safety, pharmacokinetics and anti-tumor activity of BXCL701 and pembrolizumab combination in tNEPC patients with the efficacy endpoint of objective response rate. Data readouts are expected throughout the second half 2019.

The Company’s third BXCL701 clinical trial expected in 2019 is a mechanistic study using BXCL701 in a treatment naïve population that is designed to evaluate the drug’s detailed mechanism of action in a clinical setting This study is expected to enroll up to 15 patients and we anticipate initiating this study at a leading medical center in the first half of 2019

Components of Our Results of Operations

Revenues

We have not recognized any revenue since inception.

Operating Costs and Expenses

Research and Development

Research and development expenses consist primarily of costs incurred for the research and development of our clinical and pre-clinical candidates, which includes payments to BioXcel, our Parent.

·

employee-related expenses, including salaries, benefits and stock-based compensation expense and travel expenses for employees engaged in research and development functions

·

expenses incurred under agreements with contract research organizations, or CROs, and sites that conduct our non-clinical studies and clinical trials

·

costs of outside consultants engaged in research and development activities, including their fees, stock-based compensation and travel expenses

·

the cost of acquiring, developing and manufacturing pre-clinical and clinical trial materials and lab supplies

20


 

·

depreciation and other expenses.

Our research and development costs by program for the three months ended March 31, 2019 and 2018 are as follows:

 

 

 

 

 

 

 

 

 

2019

 

2018

BXCL 501

    

$

2,558

    

$

1,220

BXCL 701

 

 

2,276

 

 

865

BXCL 502

 

 

80

 

 

 6

BXCL 702

 

 

83

 

 

 8

Other research and development programs

 

 

173

 

 

158

Research and development support services

 

 

504

 

 

681

Total research and development expenses

 

$

5,674

 

$

2,938

 

Because of the numerous risks and uncertainties associated with product development, we cannot determine with certainty the duration and completion costs of these or other current or future clinical trials of BXCL501, BXCL701 or our other product candidates. However, we do expect that our research and development costs will increase as we plan for and begin clinical trials for our current and future product candidates. We may never succeed in achieving regulatory approval for BXCL501, BXCL701 or any of our other product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rate and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability.

General and Administrative

General and administrative expenses consist primarily of salaries and related costs for employees in executive, finance and administration, corporate development and administrative support functions, including stock-based compensation expenses and benefits. Other significant general and administrative expenses include accounting and legal services, the cost of various consultants, occupancy costs and information systems costs.

We expect that our general and administrative expenses will increase as we operate both as an independent entity and as a public company. We also expect increased administrative costs, including payroll and related expenses, as we continue to increase our headcount to support the expected growth in our business, expand our operations and organizational capabilities  These increases will likely include increased costs for director and officer liability insurance, hiring additional personnel to support future market research and future product commercialization efforts and increased fees for outside consultants, attorneys and accountants. We also expect to incur increased costs to comply with corporate governance, internal controls, investor relations and disclosures and similar requirements applicable to public companies.

21


 

Summary Results of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

Three months ended March 31, 

 

(amounts in thousands, except percentage)

    

2019

    

2018

    

Change

 

Net sales

 

$

 —

 

$

 —

 

$

 —

 

 —

 

Operating costs and expenses

 

 

  

 

 

  

 

 

  

 

  

 

Research and development

 

 

5,674

 

 

2,938

 

 

2,736

 

931

%

General and administrative

 

 

1,745

 

 

1,348

 

 

397

 

295

%

Total operating expenses

 

 

7,419

 

 

4,286

 

 

3,133

 

731

%

Loss from operations

 

 

(7,419)

 

 

(4,286)

 

 

(3,133)

 

731

%

Other income

 

 

  

 

 

  

 

 

  

 

  

 

Interest income, net

 

 

215

 

 

 4

 

 

211

 

 —

 

Net loss

 

$

(7,204)

 

$

(4,282)

 

$

(2,922)

 

682

%

 

Comparison of the Three Months Ended March 31, 2019 and 2018

Research and Development Expense

Research and development expenses for the three months ended March 31, 2019 were $5,674, compared to $2,938 for the three months ended March 31, 2018. The increase of $2,736 is attributable to the costs described in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31, 

 

 

 

 

    

2019

    

2018

    

Change

Salaries, bonus & related costs

 

$

1,192

 

$

321

 

$

871

Non-cash stock-based compensation

 

 

453

 

 

718

 

 

(265)

Professional research & project related costs

 

 

483

 

 

111

 

 

372

Drug acquisition costs

 

 

500

 

 

1,000

 

 

(500)

Clinical trials expense

 

 

2,050

 

 

486

 

 

1,564

Chemical, manufacturing and controls cost ("CMC")

 

 

547

 

 

66

 

 

481

All other

 

 

449

 

 

236

 

 

213

Total research and development expenses

 

$

5,674

 

$

2,938

 

$

2,736

 

Salaries, bonus and related costs increased due to increases in headcount and related benefits, payroll taxes, recruiting fees and associated travel costs.

Non-cash stock-based compensation has decreased due to the adoption of FASB ASU 2018-07 as of January 1, 2019 which allowed non-employee options to be expensed using the adoption date fair value. The adoption date value of the stock price was significantly lower than prior re-measurement dates. In addition, several large option grants became fully vested during the first quarter of 2018 thus there was no corresponding charge during the first quarter of 2019. These lower charges were offset in part by increases in expense relating to new hires beginning in the second quarter of 2018.

Drug acquisition costs are in accordance with the asset contribution agreement discussed in Note 5 to the financial statements included elsewhere in this Quarterly Report.

Professional research, project related costs, clinical trials expenses and CMC costs increased due to the acceleration of research and development activities.

22


 

General and Administrative Expense

General and administrative expenses for the three months ended March 31, 2019 were $1,745, compared to $1,348 for the three months March 31, 2018. The increase of $397 is attributable to the costs described in the table below:

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

 

 

March 31, 

 

 

 

 

    

2019

    

2018

    

Change

Salaries, bonus & related costs

 

$

694

 

$

376

 

$

318

Non-cash stock-based compensation

 

 

229

 

 

601

 

 

(372)

Professional fees

 

 

401

 

 

275

 

 

126

Insurance

 

 

224

 

 

56

 

 

168

All other

 

 

197

 

 

40

 

 

157

Total general and administrative expenses

 

$

1,745

 

$

1,348

 

$

397

 

Salaries, bonus and related costs increased due to increases in headcount and related benefits, payroll taxes, recruiting fees and travel related costs.

Non-cash stock-based compensation has decreased due to the adoption of FASB ASU 2018-07 as of January 1, 2019, which allowed non-employee options to be expensed using the adoption date fair value. The adoption date value of the stock price was significantly lower than prior re-measurement dates. In addition, several large option grants became fully vested during the first quarter of 2018 thus there was no corresponding charge during the first quarter of 2019. These lower charges were offset in part by increases in expenses relating to additional headcount beginning in the second quarter of 2018.

Professional fees increased due to expanding operations and operating as a public company. Higher legal, audit, investor relations, licensing and information technology costs were incurred during the current period.

Insurance costs increased primarily due to Director and Officer liability insurance.

Liquidity and Capital Resources

As of March 31, 2019, we had cash and cash equivalents of $36,296, working capital of $31,272 and stockholders’ equity of $32,368. Net cash used in operating activities was $6,458 and $1,012 for the three months ended March 31, 2019 and 2018.  We incurred losses of approximately $7,204 and $4,282 for the three months ended March 31, 2019 and 2018. We have not yet generated any revenues and we have not yet achieved profitability. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need to generate significant product revenues to achieve profitability.

On March 7, 2018, the Company’s registration statement on Form S-1 relating to its IPO was declared effective by the Securities and Exchange Commission (“SEC”). The IPO closed on March 12, 2018, and the Company issued and sold 5,454,545 shares of common stock at a public offering price of $11.00 per share. Gross proceeds totaled $60,000 and net proceeds totaled $54,102 after deducting underwriting discounts and commissions of $4,200 and other offering expenses of approximately $1,698.

We believe that our existing cash and cash equivalents as of March 31, 2019, and a review of projected project timing, will enable us to fund our operating expenses and capital expenditure requirements for at least one year from the date of this Quarterly Report on Form 10-Q. Our current cash and cash equivalents will be used primarily to fund our ongoing research and development efforts over the coming months. We will be required to expend significant funds in order to advance the development of BXCL501, BXCL701 and our other product candidates. In addition, while we may seek one or more collaborators for future development of our current product candidate or any future product candidates that we may develop for one or more indications, we may not be able to enter into a collaboration for any of our product candidates for such indications on suitable terms, on a timely basis or at all. In any event, the net proceeds of our IPO and our existing cash and cash equivalents will not be sufficient to fund all of the efforts that we plan to undertake or to

23


 

fund the completion of development of our product candidates or our other preclinical programs. Our estimate as to how long we expect our existing cash to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. Further financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy and we may be forced to curtail or cease operations.

Sources of Liquidity

We have focused our efforts on raising capital and building the products in our pipeline. Since our inception, and through our recently completed IPO, all our operations have been financed by our Parent, BioXcel, or the sales of our common stock in a series of private placements and a public offering. We have not yet established an ongoing source of revenue sufficient to cover our operating costs and will need to do so in future periods.

Cash Flows

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

(in thousands)

    

2019

    

2018

Cash provided by (used in) in thousands:

 

 

 

 

 

 

Operating activities

 

$

(5,670)

 

$

(1,012)

Investing activities

 

 

(600)

 

 

 —

Financing activities

 

 

 1

 

 

55,590

 

Operating Activities

For the three months ended March  31, 2019, net cash used in operating activities was approximately $5,670 which consisted of a net loss of $7,204 partially offset by $682 in stock-based compensation, $500 of asset contribution costs and $37 of depreciation.  Reductions in accounts payable and accrued expenses of $1,603 were offset in part by increases in prepaid expenses (primarily for insurance premiums) and other assets of $1,292.

For the three months ended March 31, 2018, net cash used in operating activities was approximately $1,012, which consisted of a net loss of $4,282 partially offset by $1,319 in stock-based compensation and $1,000 of asset contribution costs. Increases in accounts payable, reductions in prepaid expense and depreciation accounted for the remainder.

Investing Activities

Expenditures for property and equipment aggregated $600 for the three months ended March 31, 2019. Construction costs of $415 were incurred related to occupancy at our new office site. Purchases of furniture and computer equipment accounted for the remainder of the increase.

Financing Activities

Net cash provided by financing activities was not material for the three months ended March  31, 2019. 

Net cash provided by financing activities was approximately $55,590 for the three months ended March  31, 2018 which was mainly attributable to the proceeds from issuance of common stock in our IPO and other private placements offset in part by repayment of loans to our Parent.

24


 

Operating Capital and Capital Expenditure Requirements

We expect to continue to incur significant and increasing operating losses at least for the next several years as we commence our clinical trials of BXCL501 and BXCL701, seek marketing approval for our product candidates and pursue development of our other product candidates. We do not expect to generate revenue unless and until we successfully complete development and obtain regulatory approval for our product candidates. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our planned clinical trials and our expenditures on other research and development activities.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. We anticipate that our expenses will increase substantially as we:

·

continue our clinical development of BXCL501 and commence clinical development of BXCL701;

·

conduct additional research and development with our product candidates;

·

seek to identify, acquire, develop and commercialize additional product candidates;

·

integrate acquired technologies into a comprehensive regulatory and product development strategy;

·

maintain, expand and protect our intellectual property portfolio;

·

hire scientific, clinical, quality control and administrative personnel;

·

add operational, financial and management information systems and personnel, including personnel to support our drug development efforts;

·

seek regulatory approvals for any product candidates that successfully complete clinical trials;

·

ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any product candidates for which we may obtain regulatory approval; and

·

continue to operate as a public company.

We expect that we will need to obtain substantial additional funding in order to complete our clinical trials. To the extent that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or discontinue the development or commercialization of BXCL501, BXCL701 or other product candidates, seek collaborators at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license, potentially on unfavorable terms, our rights to BXCL501, BXCL701 or other product candidates that we otherwise would seek to develop or commercialize ourselves.

Off-Balance Sheet Arrangements

As of March 31, 2019, we did not have  any off-balance sheet arrangements as defined under SEC rules.

25


 

Critical Accounting Policies

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States.  We exercise considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies at the date of the financial statements.

On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and judgments on a variety of factors including our historical experience, knowledge of our business and industry, current and expected economic conditions, the attributes of our products, the regulatory environment, and in certain cases, the results of outside appraisals. We periodically re-evaluate our estimates and assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary.

While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of judgment, actual results could differ from such estimates.

Our significant accounting policies are described in Note 4to the financials included elsewhere in this Quarterly Report. As of March 31, 2019, there have been no material changes to any of the critical accounting policies contained therein.

Recent Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in Note 4 to the financial statements included elsewhere in this Quarterly Report.

Quantitative and Qualitative Disclosure About Market Risk

Our balance sheet as of March 31, 2019 includes cash and cash equivalents of $36,296. We do not participate in any foreign currency hedging activities and we do not have any other derivative financial instruments. We did not recognize any significant exchange rate losses during the three months ended March 31, 2019 and 2018, respectively.

We do not believe that our cash has significant risk of default or illiquidity. While we believe our cash and cash equivalents does not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to adverse changes in market value. In addition, we maintain significant amounts of cash at one or more financial institutions that are in excess of federally insured limits.

Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our results of operations during the periods presented.

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the “Securities Act”, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have chosen to opt out of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition periods for complying with new or revised accounting standards is irrevocable.

 

26


 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

The market risk inherent in our financial instruments and in our financial position has historically been the potential loss arising from adverse changes in interest rates. As of March 31, 2019 and December 31, 2018, we had cash of $36.3 million and $42.6 million, respectively. As of March 31, 2019, we held our cash in primarily in money market accounts and accordingly, the value of these accounts is subject to fluctuation in interest rates.

We do not engage in any hedging activities against changes in interest rates. We do not have any foreign currency or other derivative financial instruments.

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of March  31, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of March 31, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

27


 

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.

Item 1A. Risk Factors

You should carefully consider the risks described below, as well as general economic and business risks and the other information in this Quarterly Report on Form 10‑Q. The occurrence of any of the events or circumstances described below or other adverse events could have a material adverse effect on our business, results of operations and financial condition and could cause the trading price of our common stock to decline. Additional risks or uncertainties not presently known to us or that we currently deem immaterial may also harm our business.

Risks Related to Financial Position and Need for Additional Capital

We have a limited operating history and have never generated any product revenues, which may make it difficult to evaluate the success of our business to date and to assess our future viability.

We were incorporated in March 2017 and our operations to date have been largely focused on organizing and staffing our company, raising capital and acquiring the rights to, and advancing the development of, our product candidates, including conducting preclinical studies. We have not yet demonstrated an ability to successfully complete clinical trials, obtain marketing approvals, manufacture products on a commercial scale, or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization. Consequently, predictions about our future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and commercializing products.

We expect our financial condition and operating results to continue to fluctuate from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. We will need to eventually transition from a company with a research and development focus to a company capable of undertaking commercial activities. We may encounter unforeseen expenses, difficulties, complications and delays, and may not be successful in such a transition.

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.

Since our inception, we have incurred significant operating losses. Our net loss was $7.2 million and $4.3 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, we had stockholders’ equity of $32.4 million. We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. None of our product candidates have been approved for marketing in the United States, or in any other jurisdiction, and may never receive such approval. It could be several years, if ever, before we have a commercialized product that generates significant revenues. As a result, we are uncertain when or if we will achieve profitability and, if so, whether we will be able to sustain it. The net losses we incur may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially as we:

·

continue the development of our product candidates;

·

initiate preclinical studies and clinical trials for any additional indications for our current product candidates and any future product candidates that we may pursue;

·

continue to build our portfolio of product candidates through the acquisition or in-license of additional product candidates or technologies;

28


 

·

continue to develop, maintain, expand and protect our intellectual property portfolio;

·

pursue regulatory approvals for our current and future product candidates that successfully complete clinical trials;

·

ultimately establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval;

·

hire additional clinical, regulatory, scientific and accounting personnel; and

·

incur additional legal, accounting and other expenses in operating as a public company.

To become and remain profitable, we must develop and eventually commercialize one or more product candidates with significant market potential. This will require us to be successful in a range of challenging activities, including completing clinical trials of our product candidates, developing commercial scale manufacturing processes, obtaining marketing approval, manufacturing, marketing and selling any current and future product candidates for which we may obtain marketing approval, and satisfying any post-marketing requirements. We are only in the preliminary stages of most of these activities and, in some cases, have not yet commenced certain of these activities. We may never succeed in any or all of these activities and, even if we do, we may never generate sufficient revenue to achieve profitability.

Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of expenses or when, or if, we will obtain marketing approval to commercialize any of our product candidates. If we are required by the U.S. Food and Drug Administration, or FDA, or other regulatory authorities such as the European Medicines Agency, or EMA, to perform studies and trials in addition to those currently expected, or if there are any delays in the development, or in the completion of any planned or future preclinical studies or clinical trials of our current or future product candidates, our expenses could increase and profitability could be further delayed.

Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.

We will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

We anticipate that our expenses will increase substantially if and as we continue to develop and begin clinical trials with respect to BXCL501, BXCL701 and our other product candidates; seek to identify and develop additional product candidates; acquire or in-license other product candidates or technologies; seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials, if any; establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various products for which we may obtain marketing approval, if any; require the manufacture of larger quantities of product candidates for clinical development and, potentially, commercialization; maintain, expand and protect our intellectual property portfolio; hire and retain additional personnel, such as clinical, quality control and scientific personnel; add operational, financial and management information systems and personnel, including personnel to support our product development and help us comply with our obligations as a public company; and add equipment and physical infrastructure to support our research and development programs.

We expect that our current cash and cash equivalents will be used primarily to fund our ongoing research and development efforts over the coming months. We will be required to expend significant funds in order to advance the development of BXCL501, BXCL701 and our other product candidates. In addition, while we may seek one or more collaborators for future development of our current product candidate or any future product candidates that we may

29


 

develop for one or more indications, we may not be able to enter into a collaboration for any of our product candidates for such indications on suitable terms, on a timely basis or at all. In any event, the net proceeds of our IPO and our existing cash will not be sufficient to fund all of the efforts that we plan to undertake or to fund the completion of development of our product candidates or our other preclinical programs. Accordingly, we will be required to obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources. Further financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy.

We believe that our cash and cash equivalents as of March 31, 2019,  and a review of projected project timing, will enable us to fund our operating expenses and capital expenditure requirements for at least one year from the date of this Quarterly Report on Form 10-Q. Our estimate as to how long we expect our existing cash to be able to continue to fund our operations is based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. Our future funding requirements, both short-term and long-term, will depend on many factors, including:

·

the scope, progress, timing, costs and results of clinical trials of BXCL501, BXCL701 and our other product candidates;

·

our ability to enter into and the terms and timing of any collaborations, licensing agreements or other arrangements;

·

the costs, timing and outcome of seeking regulatory approvals;

·

the costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such costs are not the responsibility of any future collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

·

our headcount growth and associated costs as we expand our research and development as well as potentially establish a commercial infrastructure;

·

revenue received from commercial sales, if any, of our current and future product candidates;

·

the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims;

·

the number of future product candidates that we pursue and their development requirements;

·

changes in regulatory policies or laws that may affect our operations;

·

changes in physician acceptance or medical society recommendations that may affect commercial efforts;

·

the costs of acquiring potential new product candidates or technology; and

·

the costs of operating as a public company.

30


 

Risks Related to the Discovery and Development of Product Candidates

We have limited experience in drug discovery and drug development, and we have never had a drug approved.

Prior to the acquisition of our product candidates, we were not involved in and had no control over their preclinical and clinical development. In addition, we are relying upon the parties we have acquired our product candidates from to have conducted such research and development in accordance with the applicable protocol, legal, regulatory and scientific standards, having accurately reported the results of all clinical trials conducted prior to our acquisition of the applicable product candidate, and having correctly collected and interpreted the data from these studies and trials. To the extent any of these has not occurred, our expected development time and costs may be increased, which could adversely affect our prospects for marketing approval of, and receiving any future revenue from, these product candidates.

In the near term, we are dependent on the success of BXCL501 and BXCL701. If we are unable to initiate or complete the clinical development of, obtain marketing approval for or successfully commercialize BXCL501, BXCL701 and our other product candidates, either alone or with a collaborator, or if we experience significant delays in doing so, our business could be substantially harmed.

We currently do not have any products that have received regulatory approval and may never be able to develop marketable product candidates. We are investing a significant portion of our efforts and financial resources in the development of BXCL501, BXCL701 and our other product candidates. Our prospects are substantially dependent on our ability, or that of any future collaborator, to develop, obtain marketing approval for and successfully commercialize product candidates in one or more disease indications.

The success of BXCL501, BXCL701 and our other product candidates will depend on several factors, including the following:

·

acceptance of an Investigational New Drug, or IND, for the conduct of clinical trials of product candidates and proposed design of future clinical trials;

·

initiation, progress, timing, costs and results of clinical trials of our product candidates and potential product candidates;

·

establishment of a safety, tolerability and efficacy profile that is satisfactory to the FDA or any comparable foreign regulatory authority for marketing approval;

·

the performance of our future collaborators, if any;

·

the extent of any required post-marketing approval commitments to applicable regulatory authorities;

·

establishment of supply arrangements with third-party raw materials suppliers and manufacturers;

·

establishment of arrangements with third-party manufacturers to obtain finished drug product that is appropriately packaged for sale;

·

adequate ongoing availability of raw materials and drug product for clinical development and any commercial sales;

·

obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and internationally;

·

protection of our rights in our intellectual property portfolio;

·

successful launch of commercial sales following any marketing approval;

·

a continued acceptable safety profile following any marketing approval;

·

commercial acceptance by patients, the medical community and third-party payors; and

·

our ability to compete with other therapies.

Many of these factors are beyond our control, including the results of clinical trials, the time required for the FDA or any comparable foreign regulatory authorities to review any regulatory submissions we may make, potential threats to our intellectual property rights and the manufacturing, marketing and sales efforts of any future collaborator. If we are unable to develop, receive marketing approval for and successfully commercialize BXCL501, BXCL701 and our other product candidates, on our own or with any future collaborator, or experience delays as a result of any of these factors or otherwise, our business could be substantially harmed.

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The regulatory approval processes of the 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.

The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. It is not uncommon for companies in the biopharmaceutical industry to suffer significant setbacks in advanced clinical trials due to nonclinical findings made while clinical studies were underway and safety or efficacy observations made in clinical studies, including previously unreported adverse events. Our future clinical trial results may not be successful, and notwithstanding any potential promising results in earlier studies, we cannot be certain that we will not face similar setbacks. The historical failure rate for product candidates in our industry is high. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

·

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

·

we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

·

the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

·

the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

·

the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an New Drug Application, or NDA, or other submission or to obtain regulatory approval in the United States or elsewhere; the FDA or comparable foreign regulatory authorities may disagree that our changes to branded reference drugs meet the criteria for the 505(b)(2) regulatory pathway or foreign regulatory pathways;

·

the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

·

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

We have not previously completed a clinical trial of any of our product candidates. Consequently, we may not have the necessary capabilities, including adequate staffing, to successfully manage the execution and completion of any clinical trials we initiate in a way that leads to our obtaining marketing approval for