Ovid Therapeutics Inc. [OVID] Filings

10-Q 1 ovid-20240630.htm 10-Q ovid-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

_______________________________________________________

FORM 10-Q

_______________________________________________________

(Mark One)

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

For the quarterly period ended June 30, 2024

o 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: 001-38085

_______________________________________________________

Ovid Therapeutics Inc.

(Exact Name of Registrant as Specified in its Charter)

_______________________________________________________


Delaware			46-5270895
(State or Other Jurisdiction of Incorporation or Organization)			(I.R.S. Employer Identification Number)


441 Ninth Avenue, 14th Floor New York, New York			10001
(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code: (646) 661-7661

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

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

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

OVID

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

_______________________________________________________

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 the filing requirements for the past 90 days. Yes x No o

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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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	o	Accelerated Filer	o
Non-accelerated Filer	x	Smaller Reporting Company	x
Emerging growth company	o

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

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

As of August 10, 2024, the registrant had 70,971,577 shares of common stock, $0.001 par value per share, outstanding.

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		Page
	SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS	i

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Loss	5
	Condensed Consolidated Statements of Stockholders’ Equity	6
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 5.	Other Information	68
Item 6.	Exhibits	69
Signatures

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of this Quarterly Report on Form 10-Q. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” or the negative or plural of those terms, and similar expressions.

Forward-looking statements include, but are not limited to, statements about:

•our ability to identify additional novel compounds with significant commercial potential to acquire or in-license;

•our ability to successfully acquire or in-license additional drug candidates on reasonable terms;

•our estimates regarding expenses, future revenue including any royalty or milestone payments, capital requirements and needs for additional financing;

•our ability to obtain regulatory approval of our current and future drug candidates;

•our expectations regarding the timing of clinical trials and potential regulatory filings;

•our expectations regarding the potential market size and the rate and degree of market acceptance of such drug candidates;

•our ability to fund our working capital requirements;

•the implementation of our business model and strategic plans for our business and drug candidates;

•developments or disputes concerning our intellectual property or other proprietary rights;

•our ability to maintain and establish collaborations or obtain additional funding;

•our expectations regarding government and third-party payor coverage and reimbursement;

•our ability to compete in the markets we serve;

•the impact of government laws and regulations;

•developments relating to our competitors and our industry;

•the impact of geopolitical tensions, including war or the perception that hostilities may be imminent, adverse global economic conditions, terrorism, natural disasters or public health crises on our operations, research and development and clinical trials and potential disruption in the operations and business of third parties and collaborators with whom we conduct business; and

•the factors that may impact our financial results.

Factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in Part II, Item 1A, “Risk Factors,” herein and for the reasons described elsewhere in this Quarterly Report on Form 10-Q. Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, industry and future growth. Given these uncertainties, you should not rely on these forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for certain drugs and consumer products, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections 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 these industry, business, market and other data from reports, research surveys, studies and

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similar data prepared by third parties, industry, medical and general publications, government data and similar sources and we have not independently verified the data from third party sources. In some cases, we do not expressly refer to the sources from which these data are derived.

In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “Ovid,” the “Company,” “we,” “us,” “our” and similar references refer to Ovid Therapeutics Inc. and its wholly owned subsidiaries. This Quarterly Report on Form 10-Q also contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

OVID THERAPEUTICS INC.

Condensed Consolidated Balance Sheets


(in thousands, except share and per share data)	June 30, 2024		December 31, 2023
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	29,694	$	27,042
Marketable securities	47,280		78,792
Prepaid expenses and other current assets	3,915		3,764
Total current assets	80,889		109,598

Long-term equity investments	21,052		17,626
Restricted cash	1,931		1,931
Right-of-use asset, net	13,357		13,894
Property and equipment, net	618		769
Other noncurrent assets	246		210
Total assets	$	118,093	$	144,027

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	4,720	$	3,703
Accrued expenses	8,108		6,525
Current portion, lease liability	1,291		1,246
Total current liabilities	14,119		11,474

Long-term liabilities:
Lease liability	14,099		14,756
Royalty monetization liability	972		30,000
Total liabilities	29,190		56,230

Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; Series A convertible preferred stock, 10,000 shares designated, 1,250 shares issued and outstanding at June 30, 2024 and December 31, 2023	—		—
Common stock, $0.001 par value; 125,000,000 shares authorized; 70,971,577 and 70,691,992 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively	71		71
Additional paid-in-capital	369,883		365,591
Accumulated other comprehensive (loss) income	(12)		1
Accumulated deficit	(281,039)		(277,866)
Total stockholders’ equity	88,903		87,797
Total liabilities and stockholders’ equity	$	118,093	$	144,027

See accompanying notes to these unaudited condensed consolidated financial statements

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OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Operations

(unaudited)


(in thousands, except share and per share data)	For The Three Months Ended June 30, 2024		For The Three Months Ended June 30, 2023		For The Six Months Ended June 30, 2024		For The Six Months Ended June 30, 2023
Revenue:
License and other revenue	$	169	$	75	$	317	$	141
Total revenue	169		75		317		141
Operating expenses:
Research and development	12,582		5,999		22,984		12,613
General and administrative	8,104		8,248		15,267		16,592
Total operating expenses	20,686		14,247		38,251		29,205
Loss from operations	(20,517)		(14,172)		(37,934)		(29,064)
Other income (expense), net	29,038		1,764		34,760		3,300
Income (loss) before provision for income taxes	8,521		(12,408)		(3,174)		(25,765)
Provision for income taxes	—		—		—		—
Net income (loss)	$	8,521	$	(12,408)	$	(3,174)	$	(25,765)
Net income (loss) per share, basic	$	0.12	$	(0.18)	$	(0.04)	$	(0.37)
Net income (loss) per share, diluted	$	0.12	$	(0.18)	$	(0.04)	$	(0.37)
Weighted-average common shares outstanding basic	70,916,471		70,534,181		70,816,585		70,512,479
Weighted-average common shares outstanding diluted	71,200,798		70,534,181		70,816,585		70,512,479

See accompanying notes to these unaudited condensed consolidated financial statements

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OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)


(in thousands)	For The Three Months Ended June 30, 2024		For The Three Months Ended June 30, 2023		For The Six Months Ended June 30, 2024		For The Six Months Ended June 30, 2023
Net income (loss)	$	8,521	$	(12,408)	$	(3,174)	$	(25,765)
Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities	7		—		(13)		47
Comprehensive income (loss)	$	8,528	$	(12,408)	$	(3,187)	$	(25,717)

See accompanying notes to these unaudited condensed consolidated financial statements

OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Stockholders’ Equity (unaudited)


(in thousands, except shares)	Series A Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Total
	Shares	Amount		Shares	Amount
Balance, December 31, 2023	1,250	$	—	70,691,992	$	71	$	365,591	$	1	$	(277,866)	$	87,797
Issuance of common stock from exercise of stock options and purchases from employee stock purchase plan	—	—		91,969	—		228		—		—		228
Stock-based compensation expense	—	—		—	—		1,968		—		—		1,968
Other comprehensive loss	—	—		—	—		—		(20)		—		(20)
Net loss	—	—		—	—		—		—		(11,694)		(11,694)
Balance, March 31, 2024	1,250	$	—	70,783,961	$	71	$	367,787	(19)		$	(289,560)	$	78,279
Issuance of common stock from exercise of stock options and purchases from employee stock purchase plan	—	—		187,616	—		356		—		—		356
Stock-based compensation expense	—	—		—	—		1,740		—		—		1,740
Other comprehensive loss	—	—		—	—		—		7		—		7
Net income	—	—		—	—		—		—		8,521		8,521
Balance, June 30, 2024	1,250	$	—	70,971,577	$	71	$	369,883	$	(12)	$	(281,039)	$	88,903





(in thousands, except shares)	Series A Convertible Preferred Stock			Common Stock			Additional Paid-In Capital		Accumulated Other Comprehensive (Loss) Income		Accumulated Deficit		Total
	Shares	Amount		Shares	Amount
Balance, December 31, 2022	1,250	$	—	70,466,885	$	70	$	357,771	$	(42)	$	(225,527)	$	132,273
Issuance of common stock from exercise of stock options and purchases from employee stock purchase plan	—	—		24,625	—		67		—		—		67
Stock-based compensation expense	—	—		—	—		1,917		—		—		1,917
Other comprehensive income	—	—		—	—		—		48		—		48
Net loss	—	—		—	—		—		—		(13,356)		(13,356)
Balance, March 31, 2023	1,250	$	—	70,491,510	$	70	$	359,754	6		$	(238,883)	$	120,948
Issuance of common stock from exercise of stock options and purchases from employee stock purchase plan	—	—		112,283	—		211		—		—		211
Stock-based compensation expense	—	—		—	—		1,949		—		—		1,949
Other comprehensive loss	—	—		—	—		—		—		—		—
Net loss	—	—		—	—		—		—		(12,408)		(12,408)
Balance, June 30, 2023	1,250	$	—	70,603,793	$	71	$	361,914	$	5	$	(251,291)	$	110,699

See accompanying notes to these unaudited condensed consolidated financial statements

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OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)


(in thousands)	Six Months Ended June 30, 2024		Six Months Ended June 30, 2023
Cash flows from operating activities:
Net loss	$	(3,174)	$	(25,765)
Adjustments to reconcile net loss to cash used in operating activities:
Change in fair value of royalty monetization liability	(29,028)		—
Unrealized gain on equity investment	(3,427)		(848)
Change in accrued interest and accretion of discount on marketable securities	(1,678)		(1,139)
Stock-based compensation expense	3,708		3,865
Depreciation and amortization expense	284		282
Non-cash operating lease expense	538		511
Change in lease liability	(612)		573
Change in operating assets and liabilities:
Prepaid expenses and other current assets	(151)		(4,048)
Security deposit	—		12
Accounts payable	1,017		1,810
Accrued expenses	1,582		929
Net cash used in operating activities	(30,941)		(23,818)

Cash flows from investing activities:
Purchase of marketable securities	(46,821)		(24,574)
Sales/maturities of marketable securities	80,000		85,000
Purchase of long-term equity investment	—		(10,000)
Purchases of property and equipment	(53)		(21)
Software development and other costs	(116)		(110)
Net cash provided by investing activities	33,010		50,295

Cash flows from financing activities:
Proceeds from exercise of options and purchases from employee stock purchase plan	584		278
Net cash provided by financing activities	584		278

Net increase in cash, cash equivalents and restricted cash	2,653		26,755
Cash, cash equivalents and restricted cash, at beginning of period	28,973		46,799
Cash, cash equivalents and restricted cash, at end of period	$	31,625	$	73,554

See accompanying notes to these unaudited condensed consolidated financial statements

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OVID THERAPEUTICS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – NATURE OF OPERATIONS

Ovid Therapeutics Inc. (the “Company”) was incorporated under the laws of the state of Delaware and commenced operations on April 1, 2014 and maintains its principal executive office in New York, New York. The Company is a biopharmaceutical company that is dedicated to meaningfully improving the lives of people affected by certain epilepsies and brain conditions with seizure symptoms.

Since its inception, the Company has devoted substantially all of its efforts to business development, research and development, recruiting management and technical staff, and raising capital, and has financed its operations through the issuance of convertible preferred stock, common stock, other equity instruments, the sale and/or licensing of certain assets and the licensing of certain intellectual property. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development and regulatory success, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and the ability to secure additional capital to fund operations.

The Company’s major sources of cash have been licensing revenue, proceeds from various public and private offerings of its capital stock, option exercises and interest income. As of June 30, 2024, the Company had approximately $77.0 million in cash, cash equivalents and marketable securities. Since inception, the Company has generated $223.2 million in revenue, primarily from the Company’s royalty, license and termination agreement (“RLT Agreement”) with Takeda Pharmaceutical Company Limited (“Takeda”). For most periods, the Company has incurred recurring losses, has experienced negative operating cash flows and has required significant cash resources to execute its business plans, which the Company expects will continue for the foreseeable future. The Company has an accumulated deficit of $281.0 million as of June 30, 2024, working capital of $66.8 million and had cash used in operating activities of $30.9 million for the six months ended June 30, 2024.

The Company recorded net income of $8.5 million due to an adjustment to a royalty monetization liability (see Note 2 “Summary of Significant Accounting Policies” below) and net loss of $3.2 million during the three and six months ended June 30, 2024, respectively, and expects to incur losses in subsequent periods for at least the next several years. The Company is highly dependent on its ability to find additional sources of funding through either equity offerings, debt financings, collaborations, strategic alliances, licensing agreements or a combination of any such transactions. Management believes that the Company’s existing cash, cash equivalents and marketable securities as of June 30, 2024 will be sufficient to fund its current operating plans through at least the next 12 months from the date of filing of this Quarterly Report on Form 10-Q. Adequate additional funding may not be available to the Company on acceptable terms or at all. The failure to raise capital as and when needed could have a negative impact on the Company’s financial condition and ability to pursue its business strategy. The Company may be required to delay, reduce the scope of or eliminate research and development programs, or obtain funds through arrangements with collaborators or others that may require the Company to relinquish rights to certain drug candidates that the Company might otherwise seek to develop or commercialize independently.

The Company is subject to other challenges and risks specific to its business and its ability to execute on its strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: delays or problems in the supply of the Company’s product candidates, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; the challenges of protecting and enhancing intellectual property rights; complying with applicable regulatory requirements; and obtaining regulatory approval of any of the Company’s product candidates.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 8, 2024.

(A) Unaudited Interim Condensed Consolidated Financial Statements

The interim condensed consolidated balance sheet at June 30, 2024 and the condensed consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity for the three and six months ended June 30, 2024 and 2023 are unaudited. The accompanying unaudited condensed consolidated financial statements have been

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prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and following the requirements of the SEC for interim reporting. As permitted under those rules, certain notes or other financial information that are normally required by GAAP are condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of its financial information. The results of operations for the three and six month periods ended June 30, 2024 and 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or for any other future annual or interim period. The balance sheet as of December 31, 2023 included herein was derived from the audited financial statements as of that date. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K.

(B) Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements have been prepared in conformity with GAAP and include the accounts of Ovid Therapeutics Inc. and its wholly owned subsidiaries, Ovid Therapeutics Hong Kong Limited and Ovid Therapeutics Australia Pty Ltd. All intercompany transactions and balances have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ materially from those estimates.

(D) Marketable Securities

Marketable securities consist of investments in U.S. treasury instruments which are considered available-for-sale securities. The Company classifies its marketable securities with maturities of less than one year from the balance sheet date as current assets on its condensed consolidated balance sheets. The Company classifies its marketable securities with original maturities of less than three months as cash equivalents on its condensed consolidated balance sheets. Unrealized gains and losses on these securities that are determined to be temporary are reported as a separate component of accumulated other comprehensive (loss) income in stockholders’ equity.

(E) Restricted Cash

The Company classifies as restricted cash all cash pledged as collateral to secure long-term obligations and all cash whose use is otherwise limited by contractual provisions. Amounts are reported as non-current unless restrictions are expected to be released in the next 12 months.

(F) Long-Term Equity Investments

Long-term equity investments consist of equity investments in the preferred shares of Gensaic, Inc., formerly M13 Therapeutics, Inc. (“Gensaic”), and Graviton Bioscience Corporation (“Graviton”), both privately held corporations. The preferred shares are not considered in-substance common stock, and the investments are accounted for at cost, with adjustments for observable changes in prices or impairments, and are classified within long-term equity investments on the condensed consolidated balance sheets with adjustments recognized in other income (expense), net on the condensed consolidated statements of operations. The Company has determined that these equity investments do not have a readily determinable fair value and elected the measurement alternative. Therefore, the carrying amount of the equity investments will be adjusted to fair value at the time of the next observable price change for the identical or similar investment of the same issuer or when an impairment is recognized. Each reporting period, the Company performs a qualitative assessment to evaluate whether the investments are impaired. The assessment includes a review of recent operating results and trends, recent sales/acquisitions of the investees' securities, and other publicly available data. If an investment is determined to be impaired, the Company will then write it down to its estimated fair value. As of June 30, 2024 and December 31, 2023, the equity investment in Gensaic had a carrying value of $5.1 million. As of June 30, 2024 and December 31, 2023, the equity investment in Graviton had a carrying value of $15.8 million and $11.2 million, respectively. The initial investment in Graviton was $10.0 million, and cumulative measurement adjustments totaling $5.8 million have been recognized. The Company’s equity investments are assessed quarterly and increases have been based upon change in observable price.

Long-term equity investments also consist of an equity investment in the common shares of Marinus Pharmaceuticals, Inc. (“Marinus”) that were received as non-cash consideration via the terms of a licensing agreement executed between the two companies effective March 2022. The equity shares are marked-to-market at each reporting date with changes in the fair value being reflected in the carrying value of the investment on the Company’s condensed consolidated balance sheets and other income (expense), net on the Company’s condensed consolidated statements of

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operations. As of June 30, 2024 and December 31, 2023, the equity investment in Marinus had a carrying value of $0.1 million and $1.3 million, respectively.

(G) Fair Value of Financial Instruments

Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels of the fair value hierarchy are as follows:

•Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. The Company’s Level 1 assets consisted of investments in a U.S. treasury money market fund and equity securities totaling $18.9 million as of June 30, 2024 and $25.7 million as of December 31, 2023.

•Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 2 includes financial instruments that are valued using models or other valuation methodologies. The Company’s Level 2 assets consisted of U.S. treasury bills, totaling $57.2 million as of June 30, 2024 and $78.8 million as of December 31, 2023.

•Level 3—Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. The Company’s Level 3 liabilities consist of a royalty monetization liability that was valued at $972,000 as of June 30, 2024 and $30.0 million as of December 31, 2023. There were no Level 3 assets as of June 30, 2024 or December 31, 2023.

The following table presents information about liabilities measured at fair value on a recurring basis and for which the Company utilizes Level 3 inputs to determine fair value.


Royalty Monetization Liability
(in thousands)	June 30, 2024
Balance, beginning of period	$	30,000
Change in fair value of royalty monetization liability	(29,028)
Balance, end of period	$	972

The Company estimated the fair value of the royalty monetization liability using a probability-weighted discounted cash flow valuation based on the estimated future sales of soticlestat. Using this approach, the estimated future sales of soticlestat are calculated over the expected life of the agreement using certain unobservable inputs. The unobservable inputs include: the estimated probability of FDA approval for commercialization of soticlestat, the estimated future sales forecast for soticlestat, and the discount rate used to present value the probability-weighted estimated future sales of soticlestat.

The royalty monetization liability is classified as a Level 3 liability as its valuation requires substantial judgment and estimation of factors that are not observable. If different input assumptions were used for the valuation, the estimated fair value could be significantly higher or lower than the fair value determined. See “Royalty Monetization Liability” in this Note 2 (L) below.

The carrying amounts reported in the balance sheets for cash and cash equivalents, other current assets, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments.

(H) Leases

The Company determines if an arrangement is a lease at inception and recognizes the lease in accordance with FASB Accounting Standards Codification (“ASC”) 842. Operating leases are included in right-of-use (“ROU”) assets, current liabilities, and long-term lease liability in the Company's condensed consolidated balance sheets. ROU assets

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represent the right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The Company determines the portion of the lease liability that is current as the difference between the calculated lease liability at the end of the current period and the lease liability that is projected 12 months from the current period.

(I) Property and Equipment

Property and equipment are stated at cost and depreciated over their estimated useful lives of three years using the straight-line method. Repair and maintenance costs are expensed. The Company reviews the recoverability of all long-lived assets, including the related useful life, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable.

(J) Research and Development Expenses

The Company expenses the cost of research and development as incurred. Research and development expenses are comprised of costs incurred in performing research and development activities, including clinical trial costs, manufacturing costs for both clinical and preclinical materials as well as contracted services, license fees, and other external costs. Research and development expenses also include the cost of licensing agreements acquired from third parties. Nonrefundable advance payments for goods and services that will be used in future research and development activities are expensed when the activity is performed or when the goods have been received in accordance with ASC 730, Research and Development.

(K) Stock-Based Compensation

The Company accounts for its stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation, which establishes accounting for stock-based awards granted to employees for services and requires companies to expense the estimated fair value of these awards over the requisite service period. The Company estimates the fair value of all awards granted using the Black-Scholes valuation model. Key inputs and assumptions include the expected term of the option, stock price volatility, risk-free interest rate, dividend yield, stock price and exercise price. Many of the assumptions require significant judgment and any changes could have an impact in the determination of stock-based compensation expense. The Company elected an accounting policy to record forfeitures as they occur. The Company recognizes employee stock-based compensation expense based on the fair value of the award on the date of the grant. The compensation expense is recognized over the vesting period under the straight-line method.

The Company accounts for option awards granted to nonemployee consultants and directors in accordance with ASC 718. The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company’s common stock at the earlier of the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.

(L) Royalty Monetization Liability

The Company accounted for its sale to Ligand Pharmaceuticals Incorporated (“Ligand”) under the purchase and sale agreement (the “Ligand Agreement”) of a 13% share of royalties and milestones owed to the Company pursuant to the RLT Agreement with Takeda related to the potential approval and commercialization of soticlestat in accordance with ASC 470, Debt, which addresses situations in which an entity receives cash from an investor in return for an agreement to pay the investor a specified percentage of the revenue from a contractual right. The Company classified the proceeds received from the sale to Ligand as debt as the Company determined that it had significant continuing involvement in the generation of the cash flows to Ligand. The Company further elected to account for the debt at fair value in accordance with ASC 825, Financial Instruments, which permits a company to elect the fair value option on an instrument specific basis for a recognized financial liability that is not specifically excluded.

If commercialized, the Company will recognize 100% of the royalties and milestones received for sales of soticlestat as revenue and the 13% share of royalties payable to Ligand as a cash outflow from financing activities in the condensed consolidated statements of cash flows. Changes in the fair value of the debt will be classified as a component of other income (expense), net in the condensed consolidated statements of operations.

In June 2024, Takeda reported Phase 3 topline study results for soticlestat, noting that soticlestat narrowly missed its primary endpoint and showed clinically meaningful and significant effects in multiple key secondary efficacy endpoints with respect to Dravet syndrome and missed its primary endpoint with respect to Lennox-Gastaut syndrome. Based on the study results, the Company’s management reassessed certain assumptions for soticlestat that factor into the valuation of the royalty monetization liability and determined the probability of potential commercialization related to Dravet syndrome to be 7.5% and the probability of potential commercialization related to Lennox-Gastaut syndrome to be 0%. A discount rate

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of 15% was utilized in calculating the change to the royalty monetization liability. The impact on the fair value resulted in a $29.0 million reduction in the royalty monetization liability which was recognized as other income (expense), net in the statement of operations for the period ended June 30, 2024.

Given that the two Phase 3 Takeda trials evaluating soticlestat for the treatment of Dravet and Lennox-Gastaut syndromes did not meet their primary endpoints, it is uncertain whether Takeda will continue to progress, or elect to terminate the development of soticlestat as contemplated by the RLT Agreement, in which case we may not receive some or all of the royalty and milestone payments under the RLT Agreement. See Note 11 – Collaboration and License Agreements for a description of the RLT Agreement.

(M) Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires deferred tax assets and liabilities to be recognized for the estimated future tax consequences attributable to differences between financial statement carrying amounts and respective tax bases of existing assets and liabilities, as well as for net operating loss carryforwards and research and development credits. Valuation allowances are provided if it is more likely than not that some portion or all of the deferred tax assets will not be realized. The impact of a change in the tax laws is recorded in the period in which the law is enacted.

(N) Net Loss per Share

Net loss per common share is determined by dividing net loss attributable to common stockholders by the basic and diluted weighted-average common shares outstanding during the period. The Company applies the two-class method to allocate earnings between common stock and participating securities.

When applicable, net income per diluted share attributable to common stockholders adjusts the basic earnings per share attributable to common stockholders and the weighted-average number of shares of common stock outstanding for the potential dilutive impact of stock options using the treasury-stock method and the potential impact of preferred stock using the if-converted method.

(O) Revenue Recognition

Under ASC 606, Revenue from Contracts with Customers, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. In applying ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) it satisfies the performance obligations. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services the Company transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Prior to recognizing revenue, the Company makes estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved.

If there are multiple distinct performance obligations, the Company allocates the transaction price to each distinct performance obligation based on its relative standalone selling price. The standalone selling price is generally determined using expected cost and comparable transactions. Revenue for performance obligations recognized over time is recognized by measuring the progress toward complete satisfaction of the performance obligations using an input measure.

Non-refundable upfront fees allocated to licenses that are not contingent on any future performance and require no consequential continuing involvement by the Company, are recognized as revenue when the license term commences and the licensed data, technology or product is delivered. The Company defers recognition of upfront license fees if the performance obligations are not satisfied.

(P) Recent Accounting Pronouncements

The Company has reviewed recently issued accounting standards and plans to adopt those that are applicable. The Company will adopt ASU 2023-7, Segment Reporting (Topic 280): "Improvement to Reportable Segment Disclosures" ("ASU 2023-07"), beginning with its fiscal year ended December 31, 2024. ASU 2023-07 introduces a new

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requirement to disclose significant segment expenses regularly provided to the chief operating decision maker (“CODM”), extends certain annual disclosures to interim periods, clarifies that single reportable segment entities must apply ASC 280 in its entirety, permits more than one measure of segment profit or loss to be reported under certain conditions, and requires disclosure of the title and position of the CODM. The Company does not expect the adoption of these standards to have a material impact on its financial position, results of operations, or cash flows.

The Company adopts new pronouncements relating to generally accepted accounting principles applicable to the Company as they are issued, which may be in advance of their effective date. Management does not believe that any recently issued, but not yet effective accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.

NOTE 3 – CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

The following tables summarize the fair value of cash, cash equivalents and marketable securities as well as gross unrealized holding gains and losses as of June 30, 2024 and December 31, 2023:


	June 30, 2024
(in thousands)	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
Cash	$	1,037	$	—	$	—	$	1,037
Cash equivalents	28,659		—		(2)		28,657
Marketable securities	47,292		—		(12)		47,280
Total cash, cash equivalents and marketable securities	$	76,988	$	—	$	(14)	$	76,974


	December 31, 2023
(in thousands)	Amortized Cost		Gross Unrealized Holding Gains		Gross Unrealized Holding Losses		Fair Value
Cash	$	2,701	$	—	$	—	$	2,701
Cash equivalents	24,340		—		—		24,340
Marketable securities	78,791		1		—		78,792
Total cash, cash equivalents and marketable securities	$	105,832	$	1	$	—	$	105,833

The Company did not hold any securities that were in an unrealized loss position for more than 12 months as of June 30, 2024 and December 31, 2023.

There were no material realized gains or losses on available-for-sale securities during the six months ended June 30, 2024 and 2023.

NOTE 4 – PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

Property and equipment is summarized as follows:


(in thousands)	June 30, 2024		December 31, 2023
Furniture and equipment	$	1,517	$	1,463
Leasehold improvements	306		306
Less accumulated depreciation	(1,205)		(1,001)
Total property and equipment, net	$	618	$	769

Depreciation expense was $103,000 and $105,000 for the three months ended June 30, 2024 and 2023, respectively. Depreciation expense was $204,000 and $214,000 for the six months ended June 30, 2024 and 2023, respectively.

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Intangible assets, net of accumulated amortization, were $219,000 and $186,000 as of June 30, 2024 and December 31, 2023, respectively, and are included in other assets. Amortization expense was $45,000 and $32,000 for the three months ended June 30, 2024 and 2023, respectively. Amortization expense was $80,000 and $63,000 for the six months ended June 30, 2024 and 2023, respectively.

NOTE 5 – LEASES

During September 2021, the Company entered into a 10-year lease agreement for its corporate headquarters with a term commencing March 10, 2022, for approximately 19,000 square feet of office space at Hudson Commons in New York, New York. The lease provides for monthly rental payments over the lease term. The base rent under the lease is currently $2.3 million per year. Rent payments commenced 10 months following the commencement date of the lease, or January 10, 2023, and continue for 10 years following the rent commencement date. The Company issued a letter of credit in the amount of $1.9 million in association with the execution of the lease agreement; the letter of credit is characterized as restricted cash on the Company’s condensed consolidated balance sheets.

The Hudson Commons lease has a remaining lease term of approximately nine years and includes a single renewal option for an additional five years. The Company did not include the renewal option in the lease term when calculating the lease liability as the Company is not reasonably certain that it will exercise the renewal option. The present value of the lease payments was calculated using an incremental borrowing rate of 7.02%. Lease expense is included in general and administrative and research and development expenses in the condensed consolidated statements of operations.

ROU asset and lease liabilities related to the Company’s operating lease are as follows:


(in thousands)	June 30, 2024
ROU asset, net	$	13,357
Current lease liability	1,291
Long-term lease liability	$	14,099

The components of operating lease cost for the six months ended June 30, 2024 were as follows:


(in thousands)	June 30, 2024
Operating lease cost	$	1,084
Variable lease cost	—
Short-term lease cost	—

Future minimum commitments under the non-cancelable operating lease are as follows:


(in thousands)
2024	1,158
2025	2,316
2026	2,316
2027	2,316
2028	2,469
Thereafter	9,878
Total lease payments	$	20,453

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NOTE 6 – ACCRUED EXPENSES

Accrued expenses consist of the following:


(in thousands)	June 30, 2024		December 31, 2023
Payroll and bonus accrual	$	4,947	$	4,277
Research and development accrual	2,170		1,396
Professional fees accrual	622		522
Other	369		331
Total	$	8,108	$	6,525

NOTE 7 – STOCKHOLDERS’ EQUITY

The Company’s capital structure consists of common stock and preferred stock. Pursuant to the Company’s amended and restated certificate of incorporation, as amended, the Company is authorized to issue up to 125,000,000 shares of common stock and 10,000,000 shares of preferred stock. The Company has designated 1,250 of the 10,000,000 authorized shares of preferred stock as non-voting Series A Convertible Preferred Stock (“Series A Preferred Stock”).

The holders of common stock are entitled to one vote for each share held. The holders of common stock have no preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to such shares. Subject to preferences that may apply to any outstanding series of preferred stock, holders of the common stock are entitled to receive ratably any dividends declared on a non-cumulative basis. The common stock is subordinate to all series of preferred stock with respect to rights upon liquidation, winding up and dissolution of the Company. The holders of common stock are entitled to liquidation proceeds after all liquidation preferences for the preferred stock are satisfied.

There were 1,250 shares of Series A Preferred Stock outstanding as of June 30, 2024 and December 31, 2023. Each share of Series A Preferred Stock is convertible into 1,000 shares of common stock at any time at the holder’s option. However, the holder will be prohibited, subject to certain exceptions, from converting shares of Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than, at the written election of the holder, either 9.99% or 14.99% of the total number of shares of common stock then issued and outstanding, which percentage may be changed at the holder’s election to any other number less than or equal to 19.99% upon 61 days’ notice to the Company; provided, however, that effective 61 days after delivery of such notice, such beneficial ownership limitations shall not be applicable to any holder that beneficially owns either 10.0% or 15.0%, as applicable based on the holder’s initial written election noted above, of the total number of shares of common stock issued and outstanding immediately prior to delivery of such notice. In the event of a liquidation, dissolution, or winding up of the Company, holders of Series A Preferred Stock will receive a payment equal to $0.001 per share of Series A Preferred Stock before any proceeds are distributed to the holders of common stock.

Dividends

Through June 30, 2024, the Company has not declared any dividends. No dividends on the common stock shall be declared and paid unless dividends on the preferred stock have been declared and paid.

NOTE 8 – STOCK-BASED COMPENSATION

The Company’s Board of Directors adopted, and the Company’s stockholders approved, the 2017 Equity Incentive Plan (“2017 Plan”), which became effective on May 4, 2017. The initial reserve of shares of common stock issuable under the 2017 Plan was 3,052,059 shares. The 2017 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance-based stock awards, and other forms of stock-based awards. Additionally, the 2017 Plan provides for the grant of performance cash awards. The Company’s employees, officers, directors, consultants and advisors are eligible to receive awards under the 2017 Plan. Following the adoption of the 2017 Plan, no further awards will be granted under the Company’s prior plan. Pursuant to the terms of the 2017 Plan, on each January 1st, the plan limit shall be increased by the lesser of (x) 5% of the number of shares of common stock outstanding as of the immediately preceding December 31 and (y) such lesser number as the Board of Directors may determine at its discretion. On January 1, 2024 and January 1, 2023 an additional 3,534,599 and 3,523,344 shares, respectively, were reserved for issuance under the 2017 Plan. As of June 30, 2024, there were 5,644,244 shares of the Company’s common stock reserved and available for issuance under the 2017 Plan.

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The Company’s Board of Directors adopted, and the Company’s stockholders approved, the 2017 Employee Stock Purchase Plan (“2017 ESPP”), which became effective on May 4, 2017. The initial reserve of shares of common stock issuable under the 2017 ESPP was 279,069 shares. The 2017 ESPP allows employees to purchase common stock of the Company at a 15% discount to the market price on designated semi-annual purchase dates. During the three months ended June 30, 2024 and 2023, no shares were purchased under the 2017 ESPP, and the Company recorded expense of $18,000 and $13,000, respectively. The number of shares of common stock reserved for issuance under the 2017 ESPP automatically increases on January 1 of each year, beginning on January 1, 2018 and continuing through and including January 1, 2027, by the lesser of (i) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, (ii) 550,000 shares or (iii) such lesser number of shares determined by the Board of Directors. The Board of Directors acted prior to each of January 1, 2024 and January 1, 2023 to provide that there be no increase in the number of shares reserved for issuance under the 2017 ESPP on either such date. As of June 30, 2024, there were 321,285 shares of the Company’s common stock reserved and available for issuance under the 2017 ESPP.

The Company’s Board of Directors adopted and the Company’s stockholders approved the 2014 Equity Incentive Plan (“2014 Plan”), which authorized the Company to grant shares of common stock in the form of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock and restricted stock units. The 2014 Plan was terminated as to future awards in May 2017, although it continues to govern the terms of options that remain outstanding under the 2014 Plan. No additional stock awards will be granted under the 2014 Plan, and all outstanding stock awards granted under the 2014 Plan that are repurchased, forfeited, expire or are cancelled will become available for grant under the 2017 Plan in accordance with its terms. As of June 30, 2024, options to purchase 1,356,621 shares of common stock were outstanding under the 2014 Plan.

Unless specified otherwise in an individual option agreement, stock options granted under the 2014 Plan and the 2017 Plan generally have a ten-year term and a four-year graded vesting period. The vesting requirement is generally conditioned upon the grantee’s continued service with the Company during the vesting period. Once vested, all options granted are exercisable from the date of grant until they expire. The option grants are non-transferable. Vested options generally remain exercisable for 90 days under the 2017 Plan and 30 days under the 2014 Plan subsequent to the termination of the option holder’s service with the Company. In the event of the option holder’s death or disability while employed by or providing service to the Company, the exercisable period extends to 18 months or 12 months, respectively, under the 2017 Plan and six months under the 2014 Plan.

The fair value of options granted during the three and six months ended June 30, 2024 and 2023 was estimated using the Black-Scholes option valuation model. The inputs for the Black-Scholes option valuation model require significant assumptions that are detailed in the table below. The risk-free interest rates are based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date. The expected life is based on the simplified method in accordance with the SEC Staff Accounting Bulletin No. Topic 14D. Beginning January 1, 2023, the expected volatility is estimated based on the historical volatility of the Company since the Company’s initial public offering.

The Company granted 80,000 and 270,000 stock options to employees during the three months ended June 30, 2024 and 2023, respectively. The Company granted 2,752,150 and 2,950,500 stock options to employees during the six months ended June 30, 2024 and 2023, respectively. There were 5,807,555 and 6,710,485 unvested employee options outstanding as of June 30, 2024, and 2023, respectively. Total expense recognized related to the employee stock options for the three months ended June 30, 2024 and 2023 was $1.6 million and $1.8 million, respectively. Total expense recognized related to the employee stock options for the six months ended June 30, 2024 and 2023 was $3.5 million and $3.6 million, respectively. Total unrecognized compensation expense related to employee stock options was $13.9 million as of June 30, 2024. The Company did not recognize any expense for employee performance-based option awards during the three months ended June 30, 2024 and 2023.

The Company granted zero and 50,000 stock options to nonemployee consultants for services rendered during the three months ended June 30, 2024 and 2023, respectively. The Company granted 250,000 and 50,000 stock options to nonemployee consultants for services rendered during the six months ended June 30, 2024 and 2023, respectively. There were 268,959 and 130,834 unvested nonemployee options outstanding as of June 30, 2024 and 2023, respectively. Total expense recognized related to nonemployee stock options for the three months ended June 30, 2024 and 2023 was $98,000 and $163,000, respectively. Total expense recognized related to nonemployee stock options for the six months ended June 30, 2024 and 2023 was $157,000 and $272,000, respectively. Total unrecognized compensation expenses related to the nonemployee stock options was $0.1 million as of June 30, 2024. The Company did not recognize any expense for nonemployee performance-based option awards during the three and six months ended June 30, 2024 and 2023.

The Company granted 348,575 restricted stock units to employees during the three and six months ended June 30, 2024. No restricted stock units were granted by the Company in prior periods. The restricted stock units granted will vest in

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equal installments over three years, beginning January 1, 2025 and otherwise have similar terms to the Company’s stock option grants.

The Company’s stock-based compensation expense was recognized in operating expenses as follows:


	Three Months Ended				Six Months Ended
(in thousands)	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Research and development	$	537	$	580	$	1,066	$	1,090
General and administrative	1,203		1,369		2,642		2,775
Total	$	1,740	$	1,948	$	3,708	$	3,865


	Three Months Ended				Six Months Ended
(in thousands)	June 30, 2024		June 30, 2023		June 30, 2024		June 30, 2023
Stock options and restricted stock units	$	1,722	$	1,935	$	3,675	$	3,837
Employee Stock Purchase Plan	18		13		33		29
Total	$	1,740	$	1,948	$	3,708	$	3,865

The fair value of employee options granted during the three and six months ended June 30, 2024 and 2023 was estimated utilizing the following assumptions:


	Three Months Ended						Six Months Ended
	June 30, 2024			June 30, 2023			June 30, 2024			June 30, 2023
	Weighted Average			Weighted Average			Weighted Average			Weighted Average
Volatility	79.01		%	84.11		%	79.82		%	84.56		%
Expected term in years	6.08			6.08			6.05			6.07
Dividend rate	0.00		%	0.00		%	0.00		%	0.00		%
Risk-free interest rate	4.22		%	3.63		%	4.32		%	3.97		%
Fair value of option on grant date	$	1.75		$	2.66		$	2.60		$	1.92

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The fair value of nonemployee options granted during the three and six months ended June 30, 2024 and 2023 was estimated utilizing the following assumptions:


	Three Months Ended						Six Months Ended
	June 30, 2024			June 30, 2023			June 30, 2024			June 30, 2023
	Weighted Average			Weighted Average			Weighted Average			Weighted Average
Volatility	80.59		%	83.00		%	80.59		%	83.00		%
Expected term in years	6.50			5.25			6.50			5.25
Dividend rate	0.00		%	0.00		%	0.00		%	0.00		%
Risk-free interest rate	4.35		%	3.89		%	4.35		%	3.89		%
Fair value of option on grant date	$	2.71		$	2.42		$	2.71		$	2.42

The following table summarizes the number of options outstanding and the weighted average exercise price:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Options outstanding December 31, 2023	15,124,546	$	3.87	6.90	$	5,212,286
Granted	2,752,150	3.66		6.96
Exercised	(248,024)	2.05
Forfeited or expired	(796,360)	6.48
Options outstanding June 30, 2024	16,832,312	$	3.74	6.96	$	12,790
Vested and exercisable at June 30, 2024	10,755,798	$	4.06	5.92	$	12,790

At June 30, 2024, there was approximately $13.9 million of unrecognized stock–based compensation expense related to employee and nonemployee grants, which is expected to be recognized over a remaining average vesting period of 2.51 years.

NOTE 9 – INCOME TAXES

The Company’s interim income tax provision consists of U.S. federal and state income taxes based on the estimated annual effective tax rate that the Company expects for the full year together with the tax effect of discrete items. Each quarter the Company updates its estimate of the annual effective tax rate and records cumulative adjustments as necessary. As of June 30, 2024, the Company was in a pre-tax loss position, and is anticipated to remain so throughout the year. For the six months ended June 30, 2024, the Company did not record any tax benefit or expense.

In assessing the realizability of deferred tax assets, management evaluates whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income in those periods in which temporary differences become deductible and/or net operating losses can be utilized. Management assesses all positive and negative evidence when determining the amount of the net deferred tax assets that are more likely than not to be realized. This evidence includes, but is not limited to, prior earnings history, scheduled reversal of taxable temporary differences, tax planning strategies and projected future taxable income. Significant weight is given to positive and negative evidence that is objectively verifiable. Based on these factors, including cumulative losses in recent years, the Company continues to maintain a full valuation allowance against its net deferred tax assets as of June 30, 2024.

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NOTE 10 – COMMITMENTS AND CONTINGENCIES

License Agreements

Northwestern University License Agreement

In December 2016, the Company entered into a license agreement (“Northwestern Agreement”) with Northwestern University (“Northwestern”), pursuant to which Northwestern granted the Company an exclusive, worldwide license to patent rights of certain inventions (“Northwestern Patent Rights”) which relate to a specific compound and related methods of use for such compound, along with certain know-how related to the practice of the inventions claimed in the Northwestern Patent Rights. The Company is developing OV329 under this agreement.

Under the Northwestern Agreement, the Company was granted exclusive rights to research, develop, manufacture and commercialize products utilizing the Northwestern Patent Rights for all uses. The Company has agreed that it will not use the Northwestern Patent Rights to develop any products for the treatment of cancer, but Northwestern may not grant rights in the technology to others for use in cancer. The Company also has an option, exercisable during the term of the agreement to an exclusive license under certain intellectual property rights covering novel compounds with the same or similar mechanism of action as the primary compound that is the subject of the license agreement. Northwestern has retained the right, on behalf of itself and other non-profit institutions, to use the Northwestern Patent Rights and practice the inventions claimed therein for educational and research purposes and to publish information about the inventions covered by the Northwestern Patent Rights.

Upon entry into the Northwestern Agreement, the Company paid an upfront non-creditable one-time license issuance fee of $75,000, and is required to pay an annual license maintenance fee of $20,000, which will be creditable against any royalties payable to Northwestern following first commercial sale of licensed products under the agreement. The Company is responsible for all ongoing costs of filing, prosecuting and maintaining the Northwestern Patent Rights, but also has the right to control such activities using its own patent counsel. In consideration for the rights granted to the Company under the Northwestern Agreement, the Company is required to pay to Northwestern up to an aggregate of $5.3 million upon the achievement of certain development and regulatory milestones for the first product covered by the Northwestern Patent Rights, and upon commercialization of any such products, will be required to pay to Northwestern a tiered royalty on net sales of such products by the Company, its affiliates or sublicensees, at percentages in the low to mid-single-digits, subject to standard reductions and offsets. The Company’s royalty obligations continue on a product-by-product and country-by-country basis until the later of the expiration of the last-to-expire valid claim in a licensed patent covering the applicable product in such country and 10 years following the first commercial sale of such product in such country. If the Company sublicenses a Northwestern Patent Right, it will be obligated to pay to Northwestern a specified percentage of sublicense revenue received by the Company, ranging from the high single-digits to the low-teens.

The Northwestern Agreement requires that the Company use commercially reasonable efforts to develop and commercialize at least one product that is covered by the Northwestern Patent Rights.

Unless earlier terminated, the Northwestern Agreement will remain in force until the expiration of the Company’s payment obligations thereunder. The Company has the right to terminate the agreement for any reason upon prior written notice or for an uncured material breach by Northwestern. Northwestern may terminate the agreement for the Company’s uncured material breach or insolvency.

AstraZeneca AB License Agreement

In December 2021, the Company entered into an exclusive license agreement with AstraZeneca AB (“AstraZeneca”), for a library of early-stage small molecules targeting the KCC2 transporter, including lead candidate OV350. Upon execution of the agreement, the Company was obligated to pay an upfront cash payment of $5.0 million and issued shares of the Company’s common stock in an amount that equaled $7.3 million based on the volume-weighted average price of shares of the Company's common stock for the 30 business days immediately preceding the execution date of the transaction.

Pursuant to the AstraZeneca license agreement, the Company agreed to potential milestone payments of up to $203.0 million upon the achievement of certain developmental, regulatory and sales milestones. The first payment of $3.0 million is due upon the successful completion of the first Phase 2 clinical study of a licensed product following a positive biomarker readout in a Phase 1 clinical study.

Gensaic Collaboration and Option Agreement

In August 2022, the Company entered into a collaboration and option agreement (“Gensaic Collaboration Agreement”) with Gensaic. The Gensaic Collaboration Agreement involves the research and development of phage-derived

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particle (“PDP”) products on Gensaic’s proprietary platform for certain rare central nervous system (“CNS”) disorder targets.

Under the Gensaic Collaboration Agreement, Gensaic grants the Company an exclusive option to obtain an exclusive license with respect to certain identified lead PDP products, which are exercisable at any time prior to the expiration of the option period. Once a product is identified by the Company that demonstrates sufficient efficacy, the Company may exercise its option with respect to the specific research program for that PDP product.

The Company shall reimburse Gensaic for Gensaic’s research costs related to the specific research plan for PDP products identified. The research plan and budget shall be mutually agreed upon by the parties and shall not exceed $3.0 million in any research year. The Company will record these reimbursement payments as research and development costs in the period the research costs are incurred. In May 2023, the Company identified a lead PDP candidate for further research and provided $3.5 million to Gensaic to support the approved research plan and budget. The amount was expensed as the research and development occurs with the remaining amount included in prepaid expenses and other current assets in the condensed consolidated balance sheets.

If a product is ultimately commercialized under this agreement, the Company shall make tiered royalty payments to Gensaic in the mid-single to low double-digit range based on the net sales of all licensed PDP products during the royalty term. The Company is also responsible for potential tiered milestone payments of up to $452.0 million based upon the achievement of certain sales milestone events and developmental milestone approvals for three or more products. Gensaic also has the option to become a collaborative partner in the development and commercialization of PDP products in exchange for a fee based on a percentage of the costs incurred by the Company through the date Gensaic exercises its option. The Company would no longer be required to pay Gensaic royalty or milestone payments if Gensaic elects to exercise its option.

The Company may terminate the Gensaic Collaboration Agreement by providing written notice to Gensaic 90 days in advance of the termination date.

As of June 30, 2024, none of these contingent payments were considered probable.

Contingencies

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company is not currently involved in any legal matters arising in the normal course of business that are material to the Company.

Under the terms of their respective employment agreements, certain of our executive officers are eligible to receive severance payments and benefits upon a termination without “cause” or due to “permanent disability,” or upon “resignation for good reason,” contingent upon the executive officer’s delivery to the Company of a satisfactory release of claims, and subject to the executive officer’s compliance with non-competition and non-solicitation restrictive covenants.

NOTE 11 – COLLABORATION AND LICENSE AGREEMENTS

Takeda Collaboration

In January 2017, the Company entered into a license and collaboration agreement with Takeda under which the Company licensed from Takeda certain exclusive rights to develop and commercialize soticlestat in certain territories.

In March 2021, the Company entered into the RLT Agreement, pursuant to which Takeda secured rights to the Company’s 50% global share in soticlestat, and the Company granted to Takeda an exclusive worldwide license under the Company’s relevant intellectual property rights to develop and commercialize the investigational medicine soticlestat for the treatment of developmental and epileptic encephalopathies, including Dravet syndrome and Lennox-Gastaut syndrome.

Under the RLT Agreement, all rights in soticlestat are owned by Takeda or exclusively licensed to Takeda by the Company. Takeda assumed all responsibility for, and costs of, both development and commercialization of soticlestat, and the Company no longer has any financial obligation to Takeda under the original collaboration agreement, including milestone payments or any future development and commercialization costs. In March 2021, upon the closing of the RLT Agreement, the Company received an upfront payment of $196.0 million and, if soticlestat is successfully developed, will be eligible to receive up to an additional $660.0 million upon Takeda achieving developmental, regulatory and sales milestones. In addition, the Company will be entitled to receive tiered royalties beginning in the low double-digits, and up to 20% on sales of soticlestat if regulatory approval is achieved. Royalties will be payable on a country-by-country and product-by-product basis for any indications that soticlestat is approved for and sold during the period beginning on the

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date of the first commercial sale of such product in such country and ending on the later to occur of the expiration of patent rights covering the product in such country and a specified anniversary of such first commercial sale.

In October 2023, the Company sold a 13% stake in the royalty, regulatory and commercial milestone payments that the Company is eligible to receive under the RLT Agreement to Ligand for $30.0 million. The Company retained 87% of its interest in soticlestat’s potential royalties and milestones. In the event that soticlestat is not approved and commercialized, the Company has no continuing debt or other obligations to Ligand.

In June 2024, Takeda reported the Phase 3 topline study results for soticlestat, noting that soticlestat missed its primary endpoints with respect to Dravet syndrome and Lennox-Gastaut syndromes. Based on the study results, management reassessed certain assumptions for soticlestat that factor into the valuation of the royalty monetization liability and determined the probability of potential commercialization related to Dravet syndrome to be 7.5% and the probability of potential commercialization related to Lennox-Gastaut syndrome to be 0%. The change in valuation assumptions resulted in a $29.0 million reduction in the royalty monetization liability which was recognized as other income in the condensed consolidated statement of operations for the three month period ended June 30, 2024.

During the six months ended June 30, 2024 and 2023, no revenue or expense was recognized pursuant to the RLT Agreement.

Healx License and Option Agreement

In February 2022, the Company entered an exclusive license option agreement (“Healx License and Option Agreement”) with Healx, Ltd. (“Healx”). Under the terms of the Healx License and Option Agreement, Healx secured a one-year option to investigate gaboxadol (“OV101”) as part of a potential combination therapy for Fragile X syndrome in a Phase 1B/2A clinical trial, as well as a treatment for other indications, for an upfront payment of $0.5 million, and fees to support prosecution and maintenance of our relevant intellectual property rights. At the end of the one-year option period, Healx has the option to secure rights to an exclusive license under the Company’s relevant intellectual property rights, in exchange for an additional payment of $2.0 million, development and commercial milestone payments, and low to mid-tier double-digit royalties. On February 1, 2023, the Company granted an extension of the option period for up to four months for Healx to continue to investigate gaboxadol. Royalties are payable on a country-by-country and product-by-product basis during the period beginning on the date of the first commercial sale of such product in such country and ending on the later to occur of the expiration of patent rights covering the product in such country and a specified anniversary of such first commercial sale.

In June 2023, the Company entered into an amendment to the Healx License and Option Agreement whereby revisions were made to terms regarding the timing of the option exercise fee payable by Healx to the Company, the clinical and regulatory milestone payment structure, and the royalty payment structure. Additionally, the parties agreed that following the exercise of the option, Healx would assume direct responsibility for patent maintenance and prosecution and that the Company would transfer to Healx all supply obligations with respect to the active pharmaceutical ingredient and finished gaboxadol products and any related licensed technology and know-how in the Company's possession that is relevant to the manufacture of such licensed products.

Healx will assume all responsibility for, and costs of, both development and commercialization of gaboxadol following the exercise of the option. The Company will retain the option to co-develop and co-commercialize the program with Healx (“Ovid Opt-In Right”) at the end of a positive readout of clinical Phase 2B and would share net profits and losses in lieu of the milestones and royalty payments. If the Ovid Opt-In Right were exercised, the Company would be required to pay Healx 50% of development costs. The Company does not plan to conduct further trials of gaboxadol. The term of the Healx License and Option Agreement will continue until the later of (a) the expiration of all relevant royalty terms, or in the event that Healx does not exercise its option during the option period defined in the Healx License and Option Agreement, or the Option Period, the expiration of such period, or (b) in the event that Healx does exercise its option during the Option Period, and the Company does not exercise the Ovid Opt-In Right during the period of time it has to opt-in, or the Opt-In Period, or the opt-in terms are otherwise terminated, upon the expiration of all payment obligations, or (c) in the event that Healx does exercise the Option during the Option Period, and the Company does exercise the Ovid Opt-In Right during the Opt-In Period, such time as neither Healx nor the Company is continuing to exploit gaboxadol. Further, if the Company exercises the Ovid Opt-In Right to co-develop and co-commercialize the program, it will owe an equal share of the net profit share to a third party with which it previously established a licensing agreement. If the Company does not exercise the Ovid Opt-In Right, it will owe the third party a share of all milestone and royalty payments.

No revenue was recognized relating to the Healx License and Option Agreement during the six months ended June 30, 2024 and 2023.

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Marinus Pharmaceuticals Out-License Agreement

In March 2022, the Company entered into an exclusive patent license agreement with Marinus (“Marinus License Agreement”). Under the Marinus License Agreement, the Company granted Marinus an exclusive, non-transferable (except as expressly provided therein), royalty-bearing right and license under certain Ovid patents relating to ganaxolone to develop, make, have made, commercialize, promote, distribute, sell, offer for sale and import licensed products in the territory (which consists of the United States, the European Economic Area, United Kingdom and Switzerland) for the treatment of CDKL5 deficiency disorders. Following the date of regulatory approval by the FDA of the first licensed product in the territory which was received in March 2022, Marinus issued, at the Company’s option, 123,255 shares of Marinus common stock, par value $0.001 per share, as payment. The Marinus License Agreement also provides for payment of royalties from Marinus to the Company in single-digits on net sales of each such licensed product sold.

The Company had unrealized losses on the Marinus common stock of $1.2 million and unrealized gains of $0.8 million for the six months ended June 30, 2024 and 2023, respectively, which were recorded as unrealized gains (losses) on equity securities and are reflected in other income (expense), net in the condensed consolidated statements of operations.

Graviton License Agreement and Equity Purchase

In April 2023, the Company entered into a collaboration and license agreement with Graviton (“Graviton Agreement”), whereby it secured from Graviton an exclusive license to develop and commercialize Graviton’s library of Rho-associated coiled-coil containing protein kinase 2 (“ROCK2”) inhibitors including their lead program OV888/GV101 in rare CNS disorders (excluding amyotrophic lateral sclerosis) worldwide (excluding China, Hong Kong, Macau and Taiwan). Under the Graviton Agreement, the Company and Graviton are investigating OV888/GV101 in cerebral cavernous malformations as well as Graviton’s library of ROCK2 inhibitors in other rare CNS disorders. The Company will be responsible for all development and commercialization costs of the products. Should the Company receive regulatory approval and commercialize any of Graviton’s ROCK2 inhibitors, it will pay Graviton tiered royalties on net sales ranging from the mid to high-teens. As part of the Graviton Agreement, the Company also purchased shares of Graviton’s preferred stock for $10.0 million. The Company recorded the purchase of the preferred stock as a long-term equity investment on its condensed consolidated balance sheets. In December 2023 and March 2024, the Company recognized unrealized gains on the investment due to observable changes in price and recorded the gains in other income (expense), net, in the condensed consolidated statements of operations.

NOTE 12 – RELATED PARTY TRANSACTIONS

In March 2021, the Company entered into the RLT Agreement with Takeda. For a description of the RLT Agreement, see Note 11 – Collaboration and License Agreements.

NOTE 13 – NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is calculated based upon the weighted-average number of common shares outstanding during the period, excluding outstanding stock options that have not yet vested. For any period in which the Company records net income, diluted net income per share is calculated based upon the weighted-average number of common shares outstanding during the period plus the dilutive impact of weighted-average common equivalent shares outstanding during the period resulting from the assumed exercise of outstanding stock options determined under the treasury stock method and the assumed conversion of preferred stock into common shares determined using the if-converted method. Diluted net loss per share is equivalent to the basic net loss per share due to the exclusion of outstanding stock options and convertible preferred stock because the inclusion of these securities would result in an anti-dilutive effect on per share amounts.

The basic and diluted net loss per common share is presented in conformity with the two-class method required for participating securities and multiple classes of shares. The Company considers its preferred stock to be participating securities.

For any period in which the Company records net income, undistributed earnings allocated to the participating securities are subtracted from net income in determining net income attributable to common stockholders. The undistributed earnings have been allocated based on the participation rights of preferred stock and common shares as if the earnings for the year have been distributed. For periods in which the Company recognizes a net loss, undistributed losses are allocated only to common shares as the participating securities do not contractually participate in the Company’s losses. Basic net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Participating securities are excluded from basic weighted-average common shares outstanding.

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The following table summarizes the calculation of basic and diluted net income (loss) per share:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands)	2024		2023		2024		2023
Net income (loss)	$	8,521	$	(12,408)	$	(3,174)	$	(25,765)
Net income attributable to participating securities	150		—		—		—
Net income (loss) attributable to common stockholders	$	8,371	$	(12,408)	$	(3,174)	$	(25,765)

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(in thousands, except share and per share data)	2024		2023		2024		2023
Net income (loss) attributable to common stockholders	$	8,371	$	(12,408)	$	(3,174)	$	(25,765)
Weighted average common shares outstanding used in computing net income (loss) per share - basic	70,916,471		70,534,181		70,816,585		70,512,479
Weighted average common shares outstanding used in computing net income (loss) per share - diluted	71,200,798		70,534,181		70,816,585		70,512,479
Net income (loss) per share, basic	$	0.12	$	(0.18)	$	(0.04)	$	(0.37)
Net income (loss) per share, diluted	$	0.12	$	(0.18)	$	(0.04)	$	(0.37)

The following potentially dilutive securities have been excluded from the computations of diluted weighted-average shares outstanding as they would be anti-dilutive:


	For the Three Months Ended June 30,		For the Six Months Ended June 30,
	2024	2023	2024	2023
Stock options to purchase common stock	16,547,985	15,448,835	16,547,985	15,448,835
Common stock issuable upon conversion of Series A convertible preferred stock	1,250,000	1,250,000	1,250,000	1,250,000

NOTE 14 – ORGANIZATIONAL RESTRUCTURING

In June 2024, the Company initiated a reduction of its workforce to prioritize its programs and extend its cash runway. The decision, which was approved by the Company’s Board of Directors, was precipitated by Takeda’s report of Phase 3 topline study results for soticlestat, which are described in Note 11 – Collaboration and License Agreements. The workforce reduction included 17 impacted individuals, or approximately 43% of the Company’s headcount, and was recognized in the three month period ended June 30, 2024. Severance costs of approximately $3.4 million related to the organizational restructuring were recognized during the period, and included in operating income (loss) in the line items of the employees’ regular compensation in the condensed consolidated statements of operations. Accrued severance costs of $3.4 million are included in accrued expenses within the condensed consolidated balance sheet.

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

The following information should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission (“SEC”) on March 8, 2024. In addition to historical financial information, the following discussion contains forward-looking statements based upon our current plans, expectations and beliefs that involve risks, uncertainties and assumptions. Our actual results and the timing of selected events may differ materially from those described in or implied by these forward-looking statements as a result of many factors, including those set forth under the section titled “Risk Factors” in Part II, Item 1A. You should carefully read the “Risk Factors” section of this Quarterly Report on Form 10-Q to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a biopharmaceutical company committed to developing medicines that transform the lives of people with certain epilepsies and brain conditions with seizure symptoms in a manner that is scientifically driven and patient focused. We have set out to be a leader in the field of certain epilepsies and intractable neurological diseases with seizure symptoms. Our differentiated pipeline of potential small molecule medicines has produced four unique anti-seizure programs to date, three of which we are actively developing, and the fourth, which we co-developed, was subsequently repurchased by Takeda Company Limited (“Takeda”) in 2021. This pipeline was curated using an integrated and disciplined approach to business development, research, and clinical development. All of the programs in our pipeline act upon either extrinsic or intrinsic factors modulating neuronal hyperexcitability, which we believe underlies seizures and other neurological conditions. Our management team has substantial understanding of rare disease and neurological conditions gained from the management team’s collective experience and contributions to the development and launch of more than 25 approved medicines in their respective careers prior to joining Ovid. Such experience includes many approved anti-seizure medicines. Our knowledge of the underlying biologic targets driving hyperexcitability and the pathology of refractory epilepsies has produced clinical-stage development program. Two of our three programs are in clinical trials. We expect to submit an investigational new drug (“IND”) application, or the equivalent in jurisdictions outside of the U.S., to begin clinical trials for the third program in the second half of 2024.

Over time, we have built a replicable and scalable approach to develop small molecule candidates, which begins with conducting animal disease models and toxicology studies in the pre-clinic to build evidence and confidence before moving into the clinic. Initially, we are pursuing therapeutic assets for rare epilepsies and seizure disorders as they can leverage cost-efficient and accelerated development programs and they can be evaluated with concrete and measurable endpoints such as seizures and electroencephalogram (“EEG”) readings. In addition to seizures, if successfully developed and marketed, we intend to explore our pipeline assets for broader neurologic indications caused by neuronal hyperexcitability, as applicable. Our cohesive focus in rare epilepsies and seizures reinforces our belief that we can develop and produce multiple novel medicines, scale our infrastructure, and thereby succeed in our mission.

Since our inception in April 2014, we have devoted substantially all of our efforts to organizing and planning our business, building our management and technical team, acquiring operating assets and raising capital. We have historically funded our business primarily through the sale of our capital stock. Through June 30, 2024, we have raised net proceeds of $275.4 million from the sale of our capital stock. We have also, in previous periods, generated revenue through license and collaboration agreements, including $196.0 million from our royalty, license and termination agreement (“RLT Agreement”) with Takeda Pharmaceutical Company Limited (“Takeda”) and $30.0 million from our purchase and sale agreement (“Ligand Agreement”) with Ligand Pharmaceuticals Incorporated (“Ligand”). As of June 30, 2024, we had $77.0 million in cash, cash equivalents and marketable securities and an accumulated deficit of $281.0 million.

We expect to incur significant expenses and operating losses for at least the next several years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on our other research and development and commercial development activities. We expect our expenses will increase substantially over time as we:

•continue the ongoing and planned preclinical and clinical development of our drug candidates;

•build a portfolio of drug candidates through the development, acquisition or in-license of drugs, drug candidates or technologies;

•initiate preclinical studies and clinical trials for any additional drug candidates that we may pursue in the future;

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•seek marketing approvals for our current and future drug candidates that successfully complete clinical trials;

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

•develop, maintain, expand and protect our intellectual property portfolio;

•implement operational, financial and management systems; and

•attract, hire and retain additional administrative, clinical, regulatory, manufacturing, commercial and scientific personnel.

Our Pipeline

The following chart sets forth the status and mechanism of action of our drug candidates:

In May 2023, we in-licensed OV888/GV101 and a library of highly selective Rho-associated coiled-coil containing protein kinase 2 (ROCK2) inhibitors from Graviton Bioscience Corporation (“Graviton”) and entered into a research and collaboration agreement with Graviton. Under the collaboration, Graviton is responsible for developing the lead program through Phase 2 development and we will then assume responsibility for Phase 3 development and commercialization. The lead program from this collaboration, OV888/GV101, is formulated as a hard gel capsule, which we expect to be the future clinical formulation. Together with Graviton, we announced positive topline data from a Phase 1 multiple-ascending dose study of OV888/GV101 on July 1, 2024. Ovid and Graviton intend to initiate a signal-finding trial in people living with cerebral cavernous malformations in the second half of 2024.

In December 2022, we initiated a Phase 1 study for OV329, a next-generation GABA-aminotransferase inhibitor, in healthy volunteers. That study is continuing to dose-escalate in the single-ascending dose cohorts and we anticipate initiating a multiple-ascending dose study. No serious adverse events have been observed in the Phase 1 study thus far. At our R&D Day in October 2023, we shared preclinical data demonstrating OV329 elicits an EEG response which is a pharmacodynamic marker of anti-convulsant activity. We subsequently guided that we will be adding a transcranial magnetic stimulation to the Phase 1 study to serve as a second biomarker for efficacy in addition to measuring target engagement via magnetic resonance spectroscopy. The current Phase 1 is expected to be completed in the second half of 2024. Additionally, we announced plans to develop an intravenous (“IV”) formulation of OV329 for potential use in acute seizures based upon emerging evidence that GABA-AT inhibition may be effective in the treatment of status epilepticus. In June 2024, we decided to pause the development of the IV formulation of OV329 to focus on other preclinical and clinical programs.

We are also developing a portfolio of direct activators of the potassium chloride co-transporter 2 (KCC2) for the potential treatment of seizures and other neurological indications, including OV350. We are conducting multiple non-clinical studies to characterize the therapeutic potential of direct activation of the KCC2 from our library of compounds, which is a biological target implicated in many neurological conditions including seizures. An IV formulation of OV350 is progressing toward anticipated regulatory filings or first-in-human studies in the second half of 2024. In October 2023, we also presented at our R&D Day animal studies that validate OV350’s potential anti-psychotic properties. We believe non-epilepsy indications may represent future development collaboration opportunities.

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In 2021, we sold our rights to soticlestat to Takeda, who studied it in two pivotal Phase 3 trials in Lennox-Gastaut syndrome and Dravet syndrome. On June 17, 2024, Takeda announced topline results of those trials. Given that the two Phase 3 Takeda trials evaluating soticlestat for the treatment of Dravet and Lennox-Gastaut syndromes did not meet their primary endpoints, it is uncertain whether Takeda will continue to progress, or elect to terminate the development of soticlestat as contemplated by the RLT Agreement, in which case we may not receive some or all of the royalty and milestone payments under the RLT Agreement. Takeda has publicly announced plans to engage with regulatory authorities to discuss the totality of the data generated by the study in Dravet syndrome to determine next steps.

Recent Developments

June 2024 Organizational Restructuring

On June 28, 2024, we announced a reduction of our workforce to prioritize our programs and extend our cash runway. We reduced our workforce by 17 people, or approximately 43% of our previous headcount. The organizational restructuring was effective as of July 11, 2024. All employees affected by the organizational restructuring were eligible to receive, among other things, severance payments and the continuation of group health insurance coverage for a specified time period post-termination, contingent upon such employee’s execution of a general release of claims against the Company.

We estimate that we will incur approximately $3.7 million in charges related to the organizational restructuring, which represents cash expenditures for severance and notice period payments, benefits and other related costs. We expect that the execution of the organizational restructuring will be substantially completed by the end of the third quarter of 2024 and that the majority of the cash payments related to the organizational restructuring will be substantially completed by the end of the second quarter of 2025.

Significant Risks and Uncertainties

The global economic slowdown, the overall disruption of global healthcare systems and other risks and uncertainties associated with bank failures, public health crises and global geopolitical tensions, like the ongoing war between Russia and Ukraine and the war in Israel, may have a material adverse effect on our business, financial condition, results of operations and growth prospects. The resulting high inflation rates may materially affect our business and corresponding financial position and cash flows. Inflationary factors, such as increases in the cost of our clinical trial materials and supplies, interest rates and overhead costs may adversely affect our operating results. Elevated interest rates also present a recent challenge impacting the U.S. economy and could make it more difficult for us to obtain traditional financing on acceptable terms, if at all, in the future. Furthermore, economic conditions have produced downward pressure on share prices. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience increases in the near future (especially if inflation rates remain high or begin to rise again) on our operating costs, including our labor costs and research and development costs, due to supply chain constraints, global geopolitical tensions as a result of the ongoing war between Russia and Ukraine and the war in Israel, worsening global macroeconomic conditions and employee availability and wage increases, which may result in additional stress on our working capital resources.

In addition, we are subject to other challenges and risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: identifying, acquiring or in-licensing products or product candidates; obtaining regulatory approval of product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing our intellectual property rights; and complying with applicable regulatory requirements.

Financial Operations Overview

Revenue

We have generated revenue under various licensing and collaboration agreements. We have not generated any revenue from commercial drug sales and we do not expect to generate any further revenue unless or until we obtain regulatory approval and commercialize one or more of our current or future drug candidates. In the future, we may also seek to generate revenue from a combination of research and development payments, license fees and other upfront or milestone payments.

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for our research activities, including our product discovery efforts and the development of our product candidates, which include, among other things:

•employee-related expenses, including salaries, benefits and stock-based compensation expense;

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•fees paid to consultants for services directly related to our drug development and regulatory effort;

•expenses incurred under agreements with contract research organizations, as well as contract manufacturing organizations and consultants that conduct preclinical studies and clinical trials;

•costs associated with preclinical activities and development activities;

•costs associated with technology and intellectual property licenses;

•milestone payments and other costs and payments under licensing agreements, research agreements and collaboration agreements; and

•depreciation expense for assets used in research and development activities.

Costs incurred in connection with research and development activities are expensed as incurred. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors.

Research and development activities are and will continue to be central to our business model. We expect our research and development expenses to increase for the foreseeable future as we advance our current and future drug candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. It is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct. The duration, costs and timing of clinical trial programs and development of our current and future drug candidates will depend on a variety of factors that include, but are not limited to, the following:

•number of clinical trials required for approval and any requirement for extension trials;

•per patient trial costs;

•number of patients who participate in the clinical trials;

•number of sites included in the clinical trials;

•countries in which the clinical trial is conducted;

•length of time required to enroll eligible patients;

•number of doses that patients receive;

•drop-out or discontinuation rates of patients;

•potential additional safety monitoring or other studies requested by regulatory agencies;

•duration of patient follow-up; and

•efficacy and safety profile of the drug candidate.

In addition, the probability of success for any of our current or future drug candidates will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate, as well as an assessment of each drug candidate’s commercial potential.

General and Administrative Expenses

General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation expense, related to our executive, finance, legal, business development and support functions. Other general and administrative expenses include costs associated with operating as a public company, travel expenses, conferences, and professional fees for auditing, tax and legal services.

Other Income (Expense), net

Other income (expense), net primarily consists of unrealized gains (losses) on long-term equity investments, interest income and accretion of discount on investments in marketable securities, and change in fair value of royalty monetization liability.

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Results of Operations

Comparison of the Three Months Ended June 30, 2024 and 2023

The following table summarizes the results of our operations for the periods indicated:


(in thousands)	Three Months Ended June 30, 2024		Three Months Ended June 30, 2023		Change $
Revenue:
License and other revenue	$	169	$	75	$	94
Total revenue	169		75		94
Operating expenses:
Research and development	12,582		5,999		6,583
General and administrative	8,104		8,248		(144)
Total operating expenses	20,686		14,247		6,439
Loss from operations	(20,517)		(14,172)		(6,345)
Other income (expense), net	29,038		1,764		27,274
Income (loss) before provision for income taxes	8,521		(12,408)		20,929
Provision for income taxes	—		—		—
Net income (loss)	$	8,521	$	(12,408)	$	20,929

Revenue

Revenue of $169,000 and $75,000 was recorded in the three months ended June 30, 2024 and 2023, respectively, which consisted of royalties on net sales pursuant to an out-licensing agreement.

Research and Development Expenses


(in thousands)	Three Months Ended June 30, 2024		Three Months Ended June 30, 2023		Change $
Preclinical and clinical development expenses	$	7,955	$	2,623	$	5,332
Payroll and payroll-related expenses	3,898		2,547		1,351
Other expenses	729		829		(100)
Total research and development	$	12,582	$	5,999	$	6,583

During the three months ended June 30, 2024, research and development expenses were $12.6 million, compared to $6.0 million for the same period in 2023. The increase of $6.6 million primarily relates to $4.0 million in expenses associated with the acceleration of preclinical and clinical research and development in OV329 and OV888/GV101 as well as costs associated with the organizational restructuring in June 2024. Payroll and payroll-related expenses of the organizational restructuring of $1.6 million were recognized during the three months ended June 30, 2024, but will be paid over an extended period.

General and Administrative Expenses


(in thousands)	Three Months Ended June 30, 2024		Three Months Ended June 30, 2023		Change $
Payroll and payroll-related expenses	$	4,836	$	5,030	$	(194)
Legal and professional fees	2,140		1,616		524
General office expenses	1,128		1,602		(474)
Total general and administrative	$	8,104	$	8,248	$	(144)

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General and administrative expenses were $8.1 million and $8.2 million for the three months ended June 30, 2024 and 2023, respectively. Costs of the organizational restructuring of approximately $1.8 million were recognized during the three months ended June 30, 2024, but will be paid over an extended period. Similar severance costs of $1.0 million were also recognized in the same period in 2023.

Other Income (Expense), net

Other income (expense), net for the three months ended June 30, 2024 and 2023 includes unrealized gain (loss) on long-term equity investments and interest earned and accretion of discount on marketable securities. Additionally, other income of $29.0 million was recognized during the period relating to an adjustment in fair value of the royalty monetization liability under the Ligand Agreement, resulting from our reassessment of certain assumptions underlying the valuation of the royalty monetization liability due to Takeda’s reported soticlestat Phase 3 study results. Other income (expense), net for the three months ended June 30, 2024 and 2023 was $29.0 million and $1.8 million, respectively.

Comparison of the Six Months Ended June 30, 2024 and 2023

The following table summarizes the results of our operations for the periods indicated:


	Six Months Ended June 30, 2024		Six Months Ended June 30, 2023		Change $
	(in thousands)
Revenue:
License and other revenue	$	317	$	141	$	176
Total revenue	317		141		176
Operating expenses:
Research and development	22,984		12,613		10,371
General and administrative	15,267		16,592		(1,326)
Total operating expenses	38,251		29,205		9,046
Loss from operations	(37,934)		(29,064)		(8,870)
Other income (expense), net	34,760		3,300		31,460
Loss before provision for income taxes	(3,174)		(25,765)		22,591
Provision for income taxes	—		—		—
Net loss	$	(3,174)	$	(25,765)	$	22,591

Revenue

Revenue of $317,000 was generated in the six months ended June 30, 2024, compared to revenue of $141,000 recognized in the same period in 2023. Revenue in both periods consisted of royalties on net sales pursuant to an out-licensing agreement.

Research and Development Expenses


	Six Months Ended June 30, 2024		Six Months Ended June 30, 2023		Change $
	(in thousands)
Preclinical and clinical development expenses	$	14,656	$	5,605	$	9,051
Payroll and payroll-related expenses	6,835		5,401		1,434
Other expenses	1,493		1,607		(114)
Total research and development	$	22,984	$	12,613	$	10,371

During the six months ended June 30, 2024, research and development expenses were $23.0 million compared to $12.6 million for the same period in 2023. The increase of $10.4 million primarily relates to $8.8 million in expenses associated with the acceleration of preclinical and clinical research and development in OV329 and OV888/GV101 as well as costs associated with the organizational restructuring announced in June 2024. Payroll and payroll related costs of the organizational restructuring of $1.6 million were recognized during the three months ended June 30, 2024, but will be paid over an extended period.

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General and Administrative Expenses


	Six Months Ended June 30, 2024		Six Months Ended June 30, 2023		Change $
	(in thousands)
Payroll and payroll-related expenses	$	8,727	$	9,777	$	(1,050)
Legal and professional fees	3,813		3,496		317
General office expenses	2,726		3,319		(593)
Total general and administrative	$	15,267	$	16,592	$	(1,326)

General and administrative expenses were $15.3 million for the six months ended June 30, 2024 compared to $16.6 million for the same period in 2023. The decrease of $1.3 million was primarily due to various cost reduction strategies during the period. Additionally, costs of the organizational restructuring of approximately $1.8 million were recognized during the three months ended June 30, 2024, but will be paid over an extended period.

Other Income (Expense), net

Other income (expense), net for the six months ended June 30, 2024 results from unrealized gain (loss) on long-term equity investments and interest earned and accretion of discount on marketable securities. Additionally, other income of $29.0 million was recognized during the period relating to an adjustment to the royalty monetization liability under the Ligand Agreement, resulting from our reassessment of certain assumptions underlying the valuation of the royalty monetization liability, resulting from Takeda’s reported soticlestat Phase 3 study results. Other income, net for the six months ended June 30, 2024 was $34.8 million compared to $3.3 million for the same period in 2023. Aside from the adjustment to the royalty monetization liability, the increase between the periods is primarily due to net unrealized gains recorded on the long-term equity investments.

Liquidity and Capital Resources

Overview

As of June 30, 2024, we had total cash, cash equivalents and marketable securities of $77.0 million. We believe that our cash, cash equivalents and marketable securities as of June 30, 2024 will fund our projected operating expenses and capital expenditure requirements for at least 12 months from the issuance of this Quarterly Report on Form 10-Q.

Similar to other development-stage biotechnology companies, we have generated limited revenue, which has been through various license and collaboration agreements, and have financed our operations primarily through the sale of equity securities. We have historically incurred losses and experienced negative operating cash flows for most periods since our inception and anticipate that we will incur losses and experience negative operating cash flows in the future. We recorded net income of $8.5 million (due to an adjustment to the royalty monetization liability under the Ligand Agreement) and net loss of $12.4 million for the three months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, we had an accumulated deficit of $281.0 million and working capital of $66.8 million.

In June 2024 we announced an organizational restructuring which included a reduction of our workforce to prioritize our programs and extend our cash runway.

Future Funding Requirements

We believe that our available cash, and cash equivalents and marketable securities are sufficient to fund existing and planned cash requirements for at least the next 12 months. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, clinical costs, legal and other regulatory expenses and general overhead costs. We have based our estimates on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect. Additionally, the process of testing drug candidates in clinical trials is costly, and the timing of progress in these trials is uncertain. We cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability.

As of June 30, 2024, we had no long-term debt and no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancellable, purchase order basis. We cannot estimate whether we will receive or the timing of any potential contingent payments upon the achievement by us of clinical, regulatory and commercial events, as applicable. In addition, we cannot estimate the timing of any potential royalty payments that we may be required to make under license agreements we have entered into with various entities pursuant to which we have in-licensed certain intellectual property as contractual obligations or commitments, including agreements with AstraZeneca

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and Northwestern. Pursuant to these license agreements, we have agreed to make milestone payments up to an aggregate of $279.3 million upon the achievement of certain development, regulatory and sales milestones. We excluded these contingent payments from the condensed consolidated financial statements, given that the timing, probability, and amount, if any, of such payments cannot be reasonably estimated at this time.

In September 2021, we entered into a 10-year lease agreement for our corporate headquarters with a term commencing March 10, 2022, for approximately 19,000 square feet of office space at Hudson Commons in New York, New York. The lease provides for monthly rental payments over the lease term. The base rent under the lease is currently $2.3 million per year. Rent payments commenced January 10, 2023 and will continue for 10 years following the rent commencement date. We issued a letter of credit in the amount of $1.9 million in association with the execution of the lease agreement, which is reflected as restricted cash on our condensed consolidated balance sheets. Payment obligations under the lease agreement include approximately $2.3 million in the 12 months subsequent to June 30, 2024 and approximately $20.5 million over the remaining term of the agreement. For additional information see Note 5 to our condensed consolidated financial statements under the heading “Leases.”

We have no products approved for commercial sale and have not generated any revenue from product sales to date. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings and additional funding from license and collaboration arrangements. Except for any obligations of our collaborators to reimburse us for research and development expenses or to make milestone or royalty payments under our agreements with them, we will not have any committed external source of liquidity. To the extent that we raise additional capital through future equity offerings or debt financings, ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt and equity financings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. There can be no assurance that such financings will be obtained on terms acceptable to us, if at all. Additionally, inflation rates have increased recently to levels not seen in decades, contributing to the ongoing economic slowdown. Increased inflation may result in increased operating costs (including labor costs) and may affect our operating budgets. In response to concerns about inflation, the U.S. Federal Reserve has raised, and may further raise, interest rates. Increases in interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks. If the disruptions and slowdown deepen or persist, we may not be able to access additional capital on favorable terms, or at all, which could in the future negatively affect our ability to pursue our business strategy. If we raise additional funds through collaborations, strategic alliances or licensing agreements with third parties for one or more of our current or future drug candidates, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or to grant licenses on terms that may not be favorable to us. Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy. See “Risk Factors” for additional risks associated with our capital requirements.

While we expect that the organizational restructuring and the majority of the related cash payments will be substantially completed by the second quarter of 2025, we may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of the organizational restructuring. Additionally, we may not achieve the expected benefits of these cost reduction measures and other cost reduction plans on the anticipated timeline, or at all, which could otherwise accelerate our liquidity needs and could force us to further curtail or suspend our operations.

At-the-Market Offering Program

In November 2023, we filed a shelf registration statement on Form S-3 (Registration No. 333-275307) (the “S-3 Registration Statement”) to replace our prior registration statement that was set to expire. The S-3 Registration Statement allows us to sell up to an aggregate of $250.0 million of our common stock, preferred stock, debt securities and/or warrants, which includes a prospectus covering the issuance and sale of up to $75.0 million of common stock pursuant to an at-the-market (“ATM”) offering program. As of June 30, 2024, we had $250.0 million available under our S-3 Registration Statement, including $75.0 million available pursuant to our ATM program.

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Cash Flows

The following table summarizes our cash flows for the periods indicated:


(in thousands)	Six Months Ended June 30, 2024		Six Months Ended June 30, 2023
Net cash (used in) provided by:
Operating activities	$	(30,941)	$	(23,818)
Investing activities	33,010		50,295
Financing activities	584		278
Net increase in cash, cash equivalents, and restricted cash	$	2,653	$	26,755

Net Cash Used In Operating Activities

Net cash used in operating activities was $30.9 million for the six months ended June 30, 2024, which consisted of net loss of $3.2 million, primarily due to a non-cash fair value adjustment recorded to the royalty monetization liability under the Ligand Agreement. This was offset by non-cash charges and changes in operating assets and liabilities, primarily related to $3.7 million of stock-based compensation expense. Net cash used in operating activities was $23.8 million for the six months ended June 30, 2023, which consisted of net loss of $25.8 million offset non-cash charges and changes in operating assets and liabilities, primarily related to $3.9 million of stock-based compensation expense.

Net Cash Provided By Investing Activities

Net cash provided by investing activities was $33.0 million and $50.3 million for the six months ended June 30, 2024 and 2023, respectively, which was due to maturity of marketable securities during the periods.

Net Cash Provided By Financing Activities

Net cash provided by financing activities during the six months ended June 30, 2024 and 2023 resulted from proceeds from the exercise of stock options and purchases under the employee stock purchase plan.

Smaller Reporting Company Status

We are a smaller reporting company as defined in the Exchange Act. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

As a smaller reporting company, we are permitted to comply with scaled-back disclosure obligations in our SEC filings compared to other issuers, including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We have elected to adopt the accommodations available to smaller reporting companies, including but not limited to:

•reduced disclosure obligations regarding our executive compensation arrangements; and

•being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions.

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During the three and six months ended June 30, 2024, there were no material changes to our critical accounting policies as reported for the year ended December 31, 2023 as part of our Annual Report on Form 10-K, which was filed with the SEC on March 8, 2024. In addition, see Note 2 of our condensed consolidated financial statements under the heading “Recent Accounting Pronouncements” for new accounting pronouncements or changes to the accounting pronouncements during the three and six months ended June 30, 2024.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The primary objectives of our investment activities are to ensure liquidity and to preserve capital. As of June 30, 2024, we had cash, cash equivalents and marketable securities totaling $77.0 million. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and marketable securities and the low risk profile of our investments, an immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents and marketable securities. To minimize the risk in the future, we intend to maintain our portfolio of cash equivalents and marketable securities in institutional market funds that are comprised of U.S. Treasury and U.S. Treasury-backed repurchase agreements as well as treasury notes and high quality short-term corporate bonds. We maintain our cash, cash equivalents and marketable securities with domestic financial institutions of high credit quality.

Item 4. Controls and Procedures.

Management’s Evaluation of our Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is (1) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.

As of June 30, 2024, our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our 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. Our principal executive officer and principal financial officer have concluded based upon the evaluation described above that, as of June 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during our most recent quarter ended June 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently subject to any material legal proceedings.

Item 1A. Risk Factors

An investment in our securities involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and related notes hereto, before deciding to invest in our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In these circumstances, the market price of our common stock could decline and stockholders may lose all or part of their investment. We cannot assure you that any of the events discussed below will not occur.

Summary of Selected Risks Associated with Our Business

Our business faces significant risks and uncertainties. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. Some of the more significant risks we face include the following:

•Historically, we have incurred significant operating losses and expect to incur substantial operating losses in the future and may never achieve or maintain profitability.

•Our operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.

•We will require additional capital to finance our operations, which may not be available on acceptable terms, if at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our drug development efforts or other operations.

•We are early in our development efforts of our current drug candidates and most our drug candidates are in clinical trials or preclinical development. If we are unable to successfully develop, receive regulatory approval for and commercialize our drug candidates, or successfully develop any other drug candidates, or experience significant delays in doing so, our business will be harmed.

•Our future success is dependent on the successful clinical development, regulatory approval and commercialization of our current and future drug candidates. If we, or our licensees, are not able to obtain the required regulatory approvals, we, or our licensees, will not be able to commercialize our drug candidates, and our ability to generate revenue will be adversely affected.

•Because the results of preclinical studies or earlier clinical trials are not necessarily predictive of future results, our drug candidates may not have favorable results in planned or future preclinical studies or clinical trials, or may not receive regulatory approval.

•Interim topline and preliminary results from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures, which could result in material changes in the final data.

•Preclinical studies and clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes. Further, we may encounter substantial delays in our clinical trials or we may fail to demonstrate safety and efficacy in our preclinical studies and clinical trials to the satisfaction of applicable regulatory authorities.

•If we are not successful in discovering, developing and commercializing additional drug candidates, our ability to expand our business and achieve our strategic objectives would be impaired.

•Our drug candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial potential or result in significant negative consequences following any potential marketing approval.

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•Even if our current or future drug candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.

•Under the RLT Agreement, we are entitled to receive royalty and milestone payments in connection with the development and commercialization of soticlestat. If Takeda fails to progress, delays, or discontinues the development of soticlestat, we may not receive some or all of such payments, which would materially harm our business.

•Our relationships with customers, physicians, and third-party payors may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

•Coverage and adequate reimbursement may not be available for our current or any future drug candidates, which could make it difficult for us to sell profitably, if approved.

•If we are unable to obtain and maintain patent protection for our current or any future drug candidates, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.

•We may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights, which could be expensive, time consuming and unsuccessful.

•We do not have our own manufacturing capabilities and will rely on third parties to produce clinical and commercial supplies of our current and any future drug candidates.

•We intend to rely on third parties to conduct, supervise and monitor our preclinical studies and clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business.

•We may need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.

•We may be subject to numerous and varying privacy and security laws, and our failure to comply could result in penalties and reputational damage.

Risks Related to Our Financial Position and Need for Additional Capital

We expect to continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability.

We have historically incurred significant operating losses. While we had net income for the quarter ended June 30, 2024 of $8.5 million (due to a non-cash fair value adjustment to the royalty monetization liability under the Ligand Agreement), we have typically shown net losses, and had an accumulated deficit of $281.0 million as of that date. We expect to incur operating losses in the future. Since inception, we have devoted substantially all of our efforts to research and preclinical and clinical development of our drug candidates, as well as hiring employees and building our infrastructure.

We have no drugs approved for commercialization and have never generated any revenue from drug sales. Most of our drug candidates are still in the preclinical testing stage. It could be several years, if ever, before we have a commercialized drug. We expect to incur significant expenses and operating losses in the future, and the net losses we incur may fluctuate significantly from quarter to quarter and year to year. We anticipate that our expenses will increase substantially if, and as, we:

•continue the ongoing and planned preclinical and clinical development of our drug candidates;

•continue to build a portfolio of drug candidates through the acquisition or in-license of drugs, drug candidates or technologies;

•initiate preclinical studies and clinical trials for any additional drug candidates that we may pursue in the future;

•seek marketing approvals for our current and future drug candidates that successfully complete clinical trials;

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

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•develop, maintain, expand and protect our intellectual property portfolio;

•implement operational, financial and management systems; and

•attract, hire and retain additional administrative, clinical, regulatory and scientific personnel.

Even if we complete the development and regulatory processes described above, we anticipate incurring significant costs associated with launching and commercializing our current and future drug candidates.

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.

Our operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.

Our operations have consumed substantial amounts of cash since our inception, primarily due to research and development of our drug candidates, organizing and staffing our company, business planning, raising capital, and acquiring assets. We have not yet demonstrated the ability to obtain marketing approvals, manufacture a commercial-scale drug or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions about our future success or viability may not be as accurate as they could be if we had more experience developing drug candidates.

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 will require additional capital to finance our operations, which may not be available on acceptable terms, if at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our drug development efforts or other operations.

Our operations have consumed substantial amounts of cash since our inception. We expect our expenses to increase as we advance our current and future drug candidates through preclinical studies and clinical trials, commercialize our drug candidates, and pursue the acquisition or in-licensing of any additional drug candidates. Our expenses could increase beyond expectations if the FDA or other regulatory authorities require us to perform preclinical studies or clinical trials in addition to those that we currently anticipate. In addition, even if we obtain marketing approval for our drug candidates, they may not achieve commercial success. Our revenue, if any, will be derived from sales of drugs that we do not expect to be commercially available for a number of years, if at all. If we obtain marketing approval for any drug candidates that we develop or otherwise acquire, we expect to incur significant expenses related to manufacturing, marketing, sales and distribution.

We will require more capital in order to advance the preclinical and clinical development, obtain regulatory approval, and, following regulatory approval, commercialize our current or future drug candidates. Any additional capital raising efforts may divert our management from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future drug candidates.

As of June 30, 2024, our cash, cash equivalents and marketable securities were $77.0 million, and we had an accumulated deficit of $281.0 million. We believe that our existing cash, cash equivalents and marketable securities will fund our current operating plans through at least 12 months from the filing of this Quarterly Report on Form 10-Q. However, our operating plans may change because of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. For example, in June 2024, Takeda reported that soticlestat failed to meet its primary endpoints in two Phase 3 trials evaluating soticlestat for the treatment of Dravet and Lennox-Gastaut syndromes. If, for any reason, Takeda fails to progress, or elects to terminate the development of soticlestat as contemplated by the RLT Agreement, or if the development or commercialization of soticlestat is delayed or deprioritized by Takeda, we may not receive some or all of the royalty and milestone payments under the RLT Agreement and may need to seek additional funds sooner than we had planned.

While the long-term economic impacts associated with public health crises and geopolitical tensions, like the ongoing war between Russia and Ukraine and war in Israel, are difficult to assess or predict, each of these events has caused significant disruptions to the global financial markets and contributed to a general global economic slowdown. Furthermore, inflation rates have increased recently to levels not seen in decades. Increased inflation may result in increased operating costs (including labor costs) and may affect our operating budgets. In addition, the U.S. Federal

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Reserve has raised interest rates in response to concerns about inflation. High interest rates, especially if coupled with reduced government spending and volatility in financial markets, may further increase economic uncertainty and heighten these risks. If the disruptions and slowdown deepen or persist, we may not be able to access additional capital on favorable terms, or at all, which could in the future negatively affect our financial condition and our ability to pursue our business strategy.

If we are unable to raise additional capital when needed, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts, or grant rights to develop and market drug candidates that we would otherwise develop and market ourselves.

If we are unable to obtain adequate financing when needed, we may be required to implement additional cost reduction measures, such as further reducing operating expenses, or otherwise be required to delay, reduce the scope of or suspend one or more of our preclinical studies, clinical trials, research and development programs or commercialization efforts. In June 2024 we announced a reduction of our workforce to prioritize our programs and extend our cash runway. We may not achieve the expected benefits of these cost reduction measures and other cost reduction plans on the anticipated timeline, or at all, which could otherwise accelerate our liquidity needs and could force us to further curtail or suspend our operations.

Our ability to use our net operating loss (“NOL”) carryforwards and certain other tax attributes to offset future taxable income may be subject to limitation.

Our NOL carryforwards could expire unused and be unavailable to offset future income tax liabilities because of their limited duration or because of restrictions under U.S. tax law. Our federal NOLs generated in tax years beginning on or before December 31, 2017, are permitted to be carried forward for only 20 years under applicable U.S. tax law. Under the Tax Cuts and Jobs Act, or the Tax Act, as modified by the Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, federal NOLs incurred in taxable years beginning after December 31, 2017, may be carried forward indefinitely, but the utilization of such federal NOLs is limited.

In addition, under Section 382 and Section 383 of the Internal Revenue Code of 1986, as amended (the “Code”), and corresponding provisions of state law, if a corporation undergoes an “ownership change,” its ability to use its pre-change NOL carryforwards and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. A Section 382 “ownership change” generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points (by value) over their lowest ownership percentage over a rolling three-year period. We may have experienced ownership changes in the past and may experience ownership changes in the future as a result of shifts in our stock ownership (some of which are outside our control). As a result, if we earn net taxable income, our ability to use our pre-change NOLs and certain other tax attributes to offset such taxable income may be subject to limitations. Similar provisions of state tax law may also apply to limit our use of accumulated state tax attributes. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.

For the three months ended June 30, 2024, we recorded no U.S. federal or state income tax provision, based on a pre-tax income of approximately $8.5 million. As of June 30, 2024, we had available approximately $168.6 million of unused NOL carryforwards for U.S. federal income tax purposes, $12.6 million of unused NOL carryforwards for Massachusetts income tax purposes, $164.1 million of unused NOL carryforwards for New York income tax purposes, and $163.9 million of unused NOL carryforwards for New York City income tax purposes, that may be applied against future taxable income. Our NOL carryforwards are significantly limited such that even if we achieve profitability in future periods, we may not be able to utilize most of the NOL carryforwards, which could have a material adverse effect on cash flow and results of operations.

Changes in tax laws or regulations that are applied adversely to us or our customers may have a material adverse effect on our business, cash flow, financial condition, or results of operations.

New tax laws, statutes, rules, regulations, or ordinances could be enacted at any time. For instance, the recently enacted Inflation Reduction Act of 2022 (the “IRA”) imposes, among other rules, a 15% minimum tax on the book income of certain large corporations and a 1% excise tax on certain corporate stock repurchases. Further, existing tax laws, statutes, rules, regulations, or ordinances could be interpreted differently, changed, repealed, or modified at any time. Any such enactment, interpretation, change, repeal, or modification could adversely affect us, possibly with retroactive effect. In particular, changes in corporate tax rates, the realization of our net deferred tax assets, the taxation of foreign earnings, and the deductibility of expenses under the Tax Act, as amended by the CARES Act or any future tax reform legislation, could have a material impact on the value of our deferred tax assets, result in significant one-time charges, and increase our future tax expenses.

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Risks Related to the Development and Commercialization of Our Drug Candidates

We are very early in our development efforts. If we are unable to successfully develop, receive regulatory approval for and commercialize our drug candidates, or successfully develop any other drug candidates, or experience significant delays in doing so, our business will be harmed.

We are early in our development efforts. We have publicly announced we anticipate filing three INDs, or the equivalent in jurisdictions outside of the U.S., in three years, beginning in 2022; however, we cannot guarantee success of preclinical development to achieve all such INDs, or the equivalent in jurisdictions outside of the U.S., or otherwise meet our anticipated timeline for IND, or the equivalent in jurisdictions outside of the U.S., filing. Following IND , or the equivalent in jurisdictions outside of the U.S., acceptance, each of our drug candidates will need to be progressed through clinical development in order to achieve regulatory approval, and we will also need to address issues relating to manufacture and supply, which may involve building our own capacity and expertise. In order to commercialize any product that achieves regulatory approval, we will need to build a commercial organization or successfully outsource commercialization, all of which will require substantial investment and significant marketing efforts before we have the ability to generate any revenue from drug sales. We do not have any drugs that are approved for commercial sale, and we may never be able to develop or commercialize marketable drugs.

Our ability to generate revenue from drug sales and achieve profitability depends on our ability, alone or with any current or future collaborative partners, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, our current and future drug candidates. We do not anticipate generating revenue from drug sales for the next several years, if ever. Our ability to generate revenue from drug sales depends heavily on our, or any current or future collaborators’, success in the following areas, including but not limited to:

•timely and successfully completing preclinical and clinical development of our current and future drug candidates;

•obtaining regulatory approvals for our current and future drug candidates for which we successfully complete clinical trials;

•launching and commercializing any drug candidates for which we obtain regulatory approval by establishing a sales force, marketing and distribution infrastructure or, alternatively, collaborating with a commercialization partner;

•qualifying for coverage and adequate reimbursement by government and third-party payors for any drug candidates for which we obtain regulatory approval, both in the United States and internationally;

•developing, validating and maintaining a commercially viable, sustainable, scalable, reproducible and transferable manufacturing process for our current and future drug candidates that is compliant with current good manufacturing practices (“cGMP”);

•establishing and maintaining supply and manufacturing relationships with third parties that can provide an adequate amount and quality of drugs and services to support clinical development, as well as the market demand for our current and future drug candidates, if approved;

•obtaining market acceptance, if and when approved, of our current or any future drug candidates as a viable treatment option by physicians, patients, third-party payors and others in the medical community;

•effectively addressing any competing technological and market developments;

•implementing additional internal systems and infrastructure, as needed;

•negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations pursuant to such arrangements;

•obtaining and maintaining orphan drug exclusivity for any of our current and future drug candidates for which we obtain regulatory approval;

•maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how;

•avoiding and defending against third-party interference or infringement claims; and

•securing appropriate pricing in the United States, the European Union and other countries.

If we are not successful with respect to one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully commercialize the drug candidates we develop, which would

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materially harm our business. If we do not receive marketing approvals for any drug candidate we develop, we may not be able to continue our operations.

Our future success is dependent on the successful clinical development, regulatory approval and commercialization of our current and future drug candidates. If we, or our licensees, are not able to obtain the required regulatory approvals, we, or our licensees, will not be able to commercialize our drug candidates, and our ability to generate revenue will be adversely affected.

We do not have any drugs that have received regulatory approval. Our business is dependent on our ability to successfully complete preclinical and clinical development of, obtain regulatory approval for, and, if approved, successfully commercialize our current and future drug candidates in a timely manner. Activities associated with the development and commercialization of our current and future drug candidates are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and similar regulatory authorities outside the United States. Failure to obtain regulatory approval in the United States or other jurisdictions would prevent us from commercializing and marketing our current and future drug candidates. An inability to effectively develop and commercialize our current and future drug candidates could have an adverse effect on our business, financial condition, results of operations and growth prospects.

Further, activities associated with the development and commercialization of our current and future drug candidates are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and similar regulatory authorities outside the United States. Failure to obtain regulatory approval in the United States or other jurisdictions would prevent us from commercializing and marketing our current and future drug candidates.

Even if we obtain approval from the FDA and comparable foreign regulatory authorities for our current and future drug candidates, any approval might contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval study or risk management requirements. If we are unable to obtain regulatory approval, or any approval contains significant limitations, we may not be able to obtain sufficient funding or generate sufficient revenue to continue the development of that drug candidate or any other drug candidate that we may in-license, develop or acquire in the future. In certain circumstances, our third-party licensees are responsible for obtaining regulatory approvals in the countries covered by the license, and we are dependent on their efforts in order to achieve the necessary approvals in order to commercialize our products. If any future licensees fail to perform their obligations to develop and obtain regulatory approvals for the licensed products, we may not be able to commercialize our products in the affected countries, or our ability to do so may be substantially delayed.

Furthermore, even if we obtain regulatory approval for our current and future drug candidates, we will still need to develop a commercial organization, establish a commercially viable pricing structure and obtain approval for adequate reimbursement from third-party and government payors. If we are unable to successfully commercialize our current and future drug candidates, we may not be able to generate sufficient revenue to continue our business.

Because the results of preclinical studies or earlier clinical trials are not necessarily predictive of future results, our drug candidates may not have favorable results in planned or future preclinical studies or clinical trials, or may not receive regulatory approval.

Success in preclinical testing and early clinical trials does not ensure that subsequent clinical trials will generate similar results or otherwise provide adequate data to demonstrate the efficacy and safety of a drug candidate. Frequently, drug candidates that have shown promising results in early clinical trials have subsequently suffered significant setbacks in later clinical trials. The results from preclinical studies of our current and future drug candidates may not be predictive of the effects of these compounds in later stage clinical trials. If we do not observe favorable results in clinical trials of one of our drug candidates, we may decide to delay or abandon clinical development of that drug candidate. Any such delay or abandonment could harm our business, financial condition, results of operations and prospects.

For example, in June 2024, following encouraging Phase 2 findings, Takeda reported that soticlestat failed to meet its primary endpoints in two Phase 3 trials evaluating soticlestat for the treatment of Dravet and Lennox-Gastaut syndromes. If, for any reason Takeda fails to progress, or elects to terminate the development of soticlestat as contemplated by the RLT Agreement, or if the development or commercialization of soticlestat is delayed or deprioritized by Takeda, we may not receive some or all of the royalty and milestone payments under the RLT Agreement and may need to seek additional funds sooner than we had planned.

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Interim topline and preliminary results from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures, which could result in material changes in the final data.

From time to time, we have and may in the future publish or report preliminary or interim data from our clinical trials. Preliminary or interim data from our clinical trials and those of our partners may not be indicative of the final results of the trial and are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment continues and/or more patient data become available. Preliminary or topline results also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published or reported. As a result, preliminary or interim data should be considered carefully and with caution until final data are available. Differences between preliminary or interim data and final data could significantly harm our business prospects and may cause the trading price of our common stock to fluctuate significantly.

Preclinical studies and clinical trials are very expensive, time-consuming and difficult to design and implement and involve uncertain outcomes. Further, we may encounter substantial delays in our clinical trials or we may fail to demonstrate safety and efficacy in our preclinical studies and clinical trials to the satisfaction of applicable regulatory authorities.

All of our current drug candidates are in early clinical or preclinical development and their risk of failure is high. We must demonstrate through lengthy, complex and expensive preclinical testing and clinical trials that each of our drug candidates are safe and effective for its intended indications before we are prepared to submit an NDA or BLA for regulatory approval. We cannot predict with any certainty if or when we might submit an NDA or BLA for any of our product candidates or whether any such application will be approved by the FDA. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous review and regulatory requirements by numerous government authorities in the United States and in other countries where we intend to test and market our product candidates. For instance, the FDA may not agree with our proposed endpoints for any future clinical trial of our product candidates, which may delay the commencement of such clinical trial.

We estimate that the successful completion of clinical trials of our product candidates will take at least several years to complete, if not longer. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all. Furthermore, failure can occur at any stage and we could encounter problems that cause us to abandon or repeat clinical trials. Events that may prevent successful or timely completion of clinical development include:

•our inability to generate sufficient preclinical, toxicology or other data to support the initiation of clinical trials;

•our inability to develop and validate disease-relevant clinical endpoints;

•delays in reaching a consensus with regulatory authorities on trial design;

•delays in reaching agreement on acceptable terms with prospective clinical research organizations (“CROs”) and clinical trial sites;

•delays in opening investigational sites;

•delays or difficulty in recruiting and enrollment of suitable patients to participate in our clinical trials;

•imposition of a clinical hold by regulatory authorities because of a serious adverse event, concerns with a class of drug candidates or after an inspection of our clinical trial operations or trial sites;

•delays in having patients complete participation in a trial or return for post-treatment follow-up;

•occurrence of serious adverse events associated with the drug candidate that are viewed to outweigh its potential benefits;

•changes in regulatory requirements and guidance that require amending or submitting new clinical protocols; or

•business interruptions resulting from global geopolitical tensions, including the ongoing war between Russia and Ukraine and war in Israel, any other war or the perception that hostilities may be imminent, including, terrorism, natural disasters or public health crises.

Further, clinical endpoints for certain diseases we are targeting, such as cerebral cavernous malformations, have not been established, and accordingly, we may have to develop new modalities or modify existing endpoints to measure efficacy, which may increase the time it takes for us to commence or complete clinical trials. In addition, we believe

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investigators in this area may be inexperienced in conducting trials in this area due to the current lack of drugs to treat these disorders, which may result in increased time and expense to train investigators and open clinical sites.

Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate revenue from future drug sales and regulatory and commercialization milestones. In addition, if we make manufacturing or formulation changes to our drug candidates, we may need to conduct additional testing to bridge our modified drug candidate to earlier versions. Clinical trial delays could also shorten any periods during which we may have the exclusive right to commercialize our drug candidates, if approved, or allow our competitors to bring comparable drugs to market before we do, which could impair our ability to successfully commercialize our drug candidates and may harm our business, financial condition, results of operations and prospects.

Additionally, if the results of our clinical trials are inconclusive or if there are safety concerns or serious adverse events associated with our drug candidates, we may:

•be delayed in obtaining marketing approval, if at all;

•obtain approval for indications or patient populations that are not as broad as intended or desired;

•obtain approval with labeling that includes significant use or distribution restrictions or safety warnings;

•be subject to additional post-marketing testing requirements;

•be required to perform additional clinical trials to support approval or be subject to additional post-marketing testing requirements;

•have regulatory authorities withdraw, or suspend, their approval of the drug or impose restrictions on its distribution in the form of a modified risk evaluation and mitigation strategy (“REMS”);

•be subject to the addition of labeling statements, such as warnings or contraindications;

•be sued; or

•experience damage to our reputation.

Our drug development costs will also increase if we experience delays in testing or obtaining marketing approvals. We do not know whether any of our preclinical studies or clinical trials will begin as planned, need to be restructured or be completed on schedule, if at all.

Further, we, the FDA or an IRB may suspend our clinical trials at any time if it appears that we or our collaborators are failing to conduct a trial in accordance with regulatory requirements, including the FDA’s current Good Clinical Practice (“GCP”) regulations, that we are exposing participants to unacceptable health risks, or if the FDA finds deficiencies in our IND applications or the conduct of these trials. Therefore, we cannot predict with any certainty the schedule for commencement and completion of future clinical trials. If we experience delays in the commencement or completion of our clinical trials, or if we terminate a clinical trial prior to completion, the commercial prospects of our drug candidates could be negatively impacted, and our ability to generate revenues from our drug candidates may be delayed.

If we are not successful in discovering, developing and commercializing additional drug candidates, our ability to expand our business and achieve our strategic objectives would be impaired.

A key element of our current strategy is to discover, develop and potentially commercialize a portfolio of drug candidates to treat certain epilepsies, seizure-related disorders, and rare neurological disorders. However, our business development activities and research activities may present attractive opportunities outside of certain epilepsies and seizure-related disorders and we may choose to pursue drug candidates in other areas of interest including other disorders that we believe would be in the best interest of the Company and our stockholders. We plan to continuously review our strategies and modify as necessary based on attractive areas of interest and assets that we choose to pursue. We intend to develop our portfolio of drug candidates by in-licensing and entering into collaborations with leading biopharmaceutical companies or academic institutions for new drug candidates. Identifying new drug candidates requires substantial technical, financial and human resources, whether or not any drug candidates are ultimately identified. Even if we identify drug candidates that initially show promise, we may fail to in-license or acquire these assets and may also fail to successfully develop and commercialize such drug candidates for many reasons, including the following:

•the research methodology used may not be successful in identifying potential drug candidates;

•competitors may develop alternatives that render any drug candidate we develop obsolete;

•any drug candidate we develop may nevertheless be covered by third parties’ patents or other exclusive rights;

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•a drug candidate may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;

•a drug candidate may not be capable of being produced in commercial quantities at an acceptable cost, or at all; and

•a drug candidate may not be accepted as safe and effective by physicians, patients, the medical community or third-party payors, even if approved.

We have limited financial and management resources and, as a result, we may forego or delay the pursuit of opportunities with other drug candidates or for other indications that later prove to have greater market potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. If we do not accurately evaluate the commercial potential or target market for a particular drug candidate, we may relinquish valuable rights to that drug candidate through collaboration, licensing or other royalty arrangements in circumstances under which it would have been more advantageous for us to retain sole development and commercialization rights to such drug candidate.

If we are unsuccessful in identifying and developing additional drug candidates or are unable to do so, our key growth strategy and business will be harmed.

Enrollment and retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control.

Identifying and qualifying patients to participate in our clinical trials is critical to our success. The number of patients suffering from some of the seizure-related disorders and rare neurological disorders we are pursuing is small and has not been established with precision. If the actual number of patients with these disorders is smaller than we anticipate, we may encounter difficulties in enrolling patients in our clinical trials, thereby delaying or preventing development and approval of our drug candidates. Even once enrolled we may be unable to retain a sufficient number of patients to complete any of our trials. Patient enrollment and retention in clinical trials depends on many factors, including the size of the patient population, the nature of the trial protocol, the existing body of safety and efficacy data, the number and nature of competing treatments and ongoing clinical trials of competing therapies for the same indication, the proximity of patients to clinical sites and the eligibility criteria for the trial, any such enrollment issues could cause delays or prevent development and approval of our drug candidates. Because we are focused on addressing seizure-related disorders and rare neurological disorders, there are limited patient pools from which to draw in order to complete our clinical trials in a timely and cost-effective manner. Furthermore, our efforts to build relationships with patient communities may not succeed, which could result in delays in patient enrollment in our clinical trials. In addition, any negative results we may report in clinical trials of our drug candidate may make it difficult or impossible to recruit and retain patients in other clinical trials of that same drug candidate. Delays or failures in planned patient enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on our ability to develop our drug candidates, or could render further development impossible.

Our drug candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial potential or result in significant negative consequences following any potential marketing approval.

During the conduct of clinical trials, patients report changes in their health, including illnesses, injuries and discomforts, to their doctor. Often, it is not possible to determine whether or not the drug candidate being studied caused these conditions. Regulatory authorities may draw different conclusions or require additional testing to confirm these determinations, if they occur. In addition, it is possible that as we test our drug candidates in larger, longer and more extensive clinical programs, or as use of these drug candidates becomes more widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier trials, as well as conditions that did not occur or went undetected in previous trials, will be reported by subjects. Many times, side effects are only detectable after investigational drugs are tested in large-scale, Phase 3 trials or, in some cases, after they are made available to patients on a commercial scale after approval. For example, adverse events were reported in certain clinical trials for OV101, our former drug candidate, and soticlestat. Clinical trials may not demonstrate any ocular safety benefits for OV329 relative to vigabatrin. If clinical experience indicates that any of our drug candidates causes adverse events or serious or life-threatening adverse events, the development of that drug candidate may fail or be delayed, or, if the drug candidate has received regulatory approval, such approval may be revoked, which would harm our business, prospects, operating results and financial condition.

Moreover, if we elect, or are required, to delay, suspend or terminate any clinical trial of our drug candidates, the commercial prospects of our drug candidates may be harmed and our ability to generate revenue through their sale may be delayed or eliminated. Any of these occurrences may harm our business, financial condition and prospects significantly.

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Additionally, if any of our drug candidates receive marketing approval, the FDA could require us to include a black box warning in our label or adopt REMS to ensure that the benefits outweigh its risks, which may include, among other things, a medication guide outlining the risks of the drug for distribution to patients and a communication plan to health care practitioners. Furthermore, if we or others later identify undesirable side effects caused by our drug candidates, several potentially significant negative consequences could result, including:

•regulatory authorities may suspend or withdraw approvals of such drug candidate;

•regulatory authorities may require additional warnings on the label;

•we may be required to change the way a drug candidate is administered or conduct additional clinical trials;

•we could be sued and held liable for harm caused to patients;

•we may need to conduct a recall; and

•our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of our drug candidates and could significantly harm our business, prospects, financial condition and results of operations.

If the market opportunities for our drug candidates are smaller than we believe they are, even assuming approval of a drug candidate, our business may suffer. Because the patient populations in the market for our drug candidates may be small and difficult to assess, we must be able to successfully identify patients and acquire a significant market share to achieve profitability and growth.

We focus our research and drug development on treatments for certain epilepsies, seizure-related disorders and rare neurological disorders. Given the small number of patients who have the disorders that we are targeting, our eligible patient population and pricing estimates may differ significantly from the actual market addressable by our drug candidates. Our projections of both the number of people who have these disorders, as well as the subset of people with these disorders who have the potential to benefit from treatment with our drug candidates, are based on our beliefs and estimates. These estimates have been derived from a variety of sources, including the scientific literature, patient foundations, or market research, and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these disorders. The number of patients may turn out to be lower than expected. Likewise, the potentially addressable patient population for each of our drug candidates may be limited or may not be amenable to treatment with our drug candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business.

We face substantial competition, which may result in others developing or commercializing drugs before or more successfully than us.

The development and commercialization of new drugs is highly competitive. We face competition with respect to our current drug candidates and will face competition with respect to any other drug candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell drugs or are pursuing the development of drug candidates for the treatment of the indications that we are pursuing. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

More established companies may have a competitive advantage over us due to their greater size, resources and institutional experience. In particular, these companies have greater experience and expertise in securing collaboration or partnering relationships, reimbursement, government contracts, relationships with key opinion leaders, conducting testing and clinical trials, obtaining and maintaining regulatory approvals and distribution relationships to market products, and marketing approved drugs. These companies also have significantly greater research and marketing capabilities than we do. If we are not able to compete effectively against existing and potential competitors, our business and financial condition may be harmed.

As a result of these factors, our competitors may obtain regulatory approval of their drugs before we are able to, which may limit our ability to develop or commercialize our drug candidates. Our competitors may also develop therapies that are safer, more effective, more widely accepted and cheaper than ours, and may also be more successful than us in manufacturing and marketing their drugs. These appreciable advantages could render our drug candidates obsolete or non-competitive before we can recover the expenses of such drug candidates’ development and commercialization.

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Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Even if our current or future drug candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.

Even if our current or future drug candidates receive marketing approval, they may fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If they do not achieve an adequate level of acceptance, we may not generate significant drug revenue and may not become profitable. The degree of market acceptance of our current or future drug candidates, if approved for commercial sale, will depend on a number of factors, including but not limited to:

•the efficacy and potential advantages compared to alternative treatments and therapies;

•the safety profile of our drug candidate compared to alternative treatments and therapies;

•effectiveness of sales and marketing efforts;

•the strength of our relationships with patient communities;

•the cost of treatment in relation to alternative treatments and therapies, including any similar generic treatments;

•our ability to offer such drug for sale at competitive prices;

•the convenience and ease of administration compared to alternative treatments and therapies;

•the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;

•the strength of marketing and distribution support;

•the availability of third-party coverage and adequate reimbursement;

•the prevalence and severity of any side effects; and

•any restrictions on the use of the drug together with other medications.

Our efforts to educate physicians, patients, third-party payors and others in the medical community on the benefits of our drug candidates may require significant resources and may never be successful. Such efforts may require more resources than are typically required due to the complexity and uniqueness of our drug candidates. Because we expect sales of our drug candidates, if approved, to generate substantially all of our drug revenues for the foreseeable future, the failure of our drugs to find market acceptance would harm our business and could require us to seek additional financing.

Even if we obtain and maintain approval for our current or future drug candidates from the FDA, we may never obtain approval for our current or future drug candidates outside of the United States, which would limit our market opportunities and could harm our business.

Approval of a drug candidate in the United States by the FDA does not ensure approval of such drug candidate by regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not ensure approval by regulatory authorities in other foreign countries or by the FDA. Sales of our current and future drug candidates outside of the United States will be subject to foreign regulatory requirements governing clinical trials and marketing approval. Even if the FDA grants marketing approval for a drug candidate, comparable regulatory authorities of foreign countries also must approve the manufacturing and marketing of the drug candidate in those countries. Approval procedures vary among jurisdictions and can involve requirements and administrative review periods different from, and more onerous than, those in the United States, which may require additional preclinical studies or clinical trials. In many countries outside the United States, a drug candidate must be approved for reimbursement before it can be approved for sale in that country. In some cases, the price that we intend to charge for any drug candidates, if approved, is also subject to approval. Obtaining approval for our current and future drug candidates in the European Union from the European Commission following the opinion of the European Medicines Agency, if we choose to submit a marketing authorization application there, would be a lengthy and expensive process. The FDA and comparable foreign regulatory authorities have the ability to limit the indications for which the drug may be marketed, require extensive warnings on the drug labeling or require expensive and time-consuming additional clinical trials or reporting as conditions of approval. Obtaining foreign

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regulatory approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the introduction of our current and future drug candidates in certain countries. In certain cases, we are dependent on third parties to obtain such foreign regulatory approvals, and any delay or failure of performance of such third parties could delay or prevent our ability to commercialize our products in the affected countries.

Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries. Also, regulatory approval for our drug candidates may be withdrawn. If we fail to comply with the regulatory requirements, our target market will be reduced and our ability to realize the full market potential of our current and future drug candidates will be harmed and our business, financial condition, results of operations and prospects could be harmed.

If we seek approval to commercialize our current or future drug candidates outside of the United States, a variety of risks associated with international operations could harm our business.

If we seek approval of our current or future drug candidates outside of the United States, we expect that we will be subject to additional risks in commercialization including:

•different regulatory requirements for approval of therapies in foreign countries;

•reduced protection for intellectual property rights;

•the potential requirement of additional clinical studies in international jurisdictions;

•unexpected changes in tariffs, trade barriers and regulatory requirements;

•economic weakness, including inflation, or political instability in particular foreign economies and markets;

•compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

•foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

•foreign reimbursement, pricing and insurance regimes;

•workforce uncertainty in countries where labor unrest is more common than in the United States;

•production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

•business interruptions resulting from geopolitical tensions, including the ongoing war between Russia and Ukraine and the war in Israel, any other war or the perception that hostilities may be imminent, terrorism, natural disasters or public health crises.

We have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by many of the individual countries in and outside of Europe with which we will need to comply. Many biopharmaceutical companies have found the process of marketing their own products in foreign countries to be very challenging.

Product liability lawsuits against us could cause us to incur substantial liabilities and could limit commercialization of any drug candidate that we may develop.

We face an inherent risk of product liability exposure related to the testing of our current and any future drug candidates in clinical trials and may face an even greater risk if we commercialize any drug candidate that we may develop. If we cannot successfully defend ourselves against claims that any such drug candidates caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:

•decreased demand for any drug candidate that we may develop;

•loss of revenue;

•substantial monetary awards to trial participants or patients;

•significant time and costs to defend the related litigation;

•withdrawal of clinical trial participants;

•the inability to commercialize any drug candidate that we may develop; and

•injury to our reputation and significant negative media attention.

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Although we maintain product liability insurance coverage, such insurance may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage each time we commence a clinical trial and if we successfully commercialize any drug candidate. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise.

Risks Related to Licensing and Collaboration Arrangements

Under the RLT Agreement, we are entitled to receive royalty and milestone payments in connection with the development and commercialization of soticlestat. If Takeda fails to progress or discontinues the development of soticlestat, we may not receive some or all of such payments, which would materially harm our business.

In March 2021, we entered into the RLT Agreement, pursuant to which Takeda secured rights to our 50% global share in soticlestat, which we had originally licensed from Takeda, and we granted to Takeda an exclusive worldwide license under our relevant intellectual property rights to develop and commercialize the investigational medicine soticlestat for the treatment of developmental and epileptic encephalopathies, including Dravet syndrome and Lennox-Gastaut syndrome. All rights in soticlestat are now owned by Takeda or exclusively licensed to Takeda by us. Following the closing date of the RLT Agreement, Takeda assumed all responsibility for, and costs of, both development and commercialization of soticlestat, and we will no longer have any financial obligation to Takeda under the original collaboration agreement, including for milestone payments or any future development and commercialization costs. Upon closing of the RLT Agreement, we received a one-time, upfront payment of $196.0 million and, if soticlestat is successfully developed, we will be eligible to receive up to an additional $660.0 million upon Takeda achieving specified regulatory and sales milestones. In addition, if soticlestat achieves regulatory approval, we will be entitled to receive tiered royalties at percentages ranging from the low double-digits, up to 20% on sales of soticlestat.

Under the terms of the RLT Agreement, Takeda has sole discretion over the conduct of the development and commercialization of soticlestat. In June 2024, Takeda reported that soticlestat failed to meet its primary endpoints in two Phase 3 trials evaluating soticlestat for the treatment of Dravet and Lennox-Gastaut syndromes. Takeda has publicly announced plans to engage with regulatory authorities to discuss the totality of the data generated by the study in Dravet syndrome to determine next steps. If for any reason Takeda fails to progress, or elects to terminate the development of soticlestat as contemplated by the RLT Agreement, or if the development or commercialization of soticlestat is delayed or deprioritized by Takeda, we may not receive some or all of the royalty and milestone payments under the RLT Agreement. We are dependent upon Takeda’s progression of such development. If we do not receive any payments pursuant to the RLT Agreement and are unable to find alternative sources of financing, our business and results of operations would be negatively impacted, including our ability to continue developing our current and future drug candidates.

Risks associated with the in-licensing or acquisition of drug candidates could cause substantial delays in the preclinical and clinical development of our drug candidates.

We have previously acquired and we may acquire or in-license drug candidates for preclinical or clinical development in the future as we continue to build our pipeline. Such arrangements with third parties may impose diligence, development and commercialization obligations, milestone payments, royalty payments, indemnification and other obligations on us. Our obligations to pay milestone, royalty and other payments to our licensors may be substantial, and the amount and timing of such payments may impact our ability to progress the development and commercialization of our drug candidates. Our rights to use any licensed intellectual property may be subject to the continuation of and our compliance with the terms of any such agreements. Additionally, disputes may arise regarding our rights to intellectual property licensed to us or acquired by us from a third party, including but not limited to:

Ovid Therapeutics Inc. [OVID] Filings
10-Q	[2024-08-13]
10-Q	[2024-05-14]
10-K	[2024-03-08]
10-Q	[2023-11-03]
10-Q	[2023-08-04]
10-Q	[2023-05-05]
10-K	[2023-03-13]
10-Q	[2022-11-08]
10-Q	[2022-08-09]
10-Q	[2022-05-10]
10-K	[2022-03-15]
10-Q	[2021-11-10]
10-Q	[2021-08-16]
10-Q	[2021-05-13]
10-K	[2021-03-15]
10-Q	[2020-11-13]
10-Q	[2020-08-10]
10-Q	[2020-05-07]
10-K	[2020-03-11]
10-Q	[2019-11-08]
10-Q	[2019-08-07]
10-Q	[2019-05-07]
10-K	[2019-03-07]
10-Q	[2018-11-08]
10-Q	[2018-08-09]
10-Q	[2018-05-08]
10-K	[2018-03-29]
10-Q	[2017-11-09]
10-Q	[2017-08-10]
10-Q	[2017-06-13]
S-1	[2017-04-10]