Axsome Therapeutics
Annual Report 2015

Plain-text annual report

Table of Contents UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2015OR 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 001-37635AXSOME THERAPEUTICS, INC.(Exact name of registrant as specified in its charter) Delaware(State or other jurisdiction ofincorporation or organization)45-4241907(I.R.S. EmployerIdentification No.) 25 Broadway9 FloorNew York, New York(Address of principal executive offices)10004(Zip Code)Registrant’s telephone number, including area code: (212) 332-3241 Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.0001 Per Share(Title of Class)NASDAQ Capital Market(Name of Each Exchange on Which Registered)Securities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes ☐ No ☒ 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 of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ☒ No ☐ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes ☐ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, tothe best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to thisForm 10-K. ☒ Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act). (Check one): Large accelerated filer ☐Accelerated filer ☐Non-accelerated filer ☒Smaller reporting company ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒ As of June 30, 2015, the last business day of the registrant’s most recently completed second fiscal quarter, there was no established public market forthe registrant’s common stock. The registrant’s common stock began trading on The NASDAQ Capital Market on November 19, 2015. There were 19,149,417 shares of the registrant’s common stock outstanding as of March 22, 2016. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for its 2016 Annual Meeting of Stockholders (the "Proxy Statement"), to be filed within 120 daysof the registrant's year ended December 31, 2015, are incorporated by reference in Part III of this Report on Form 10-K. Except with respect to informationspecifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K. thTable of ContentsAXSOME THERAPEUTICS, INC.ANNUAL REPORT ON FORM 10-KFOR THE FISCAL YEAR ENDED DECEMBER 31, 2015 TABLE OF CONTENTS Page SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS 3 PART I ITEM 1 Business4ITEM 1A Risk Factors41ITEM 1B Unresolved Staff Comments90ITEM 2 Properties90ITEM 3 Legal Proceedings90ITEM 4 Mine Safety Disclosures90 PART II ITEM 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities91ITEM 6 Selected Financial Data94ITEM 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations95ITEM 7A Quantitative and Qualitative Disclosure About Market Risk104ITEM 8 Financial Statements and Supplementary Data105ITEM 9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure105ITEM 9A Controls and Procedures105ITEM 9B Other Information105 PART III ITEM 10 Directors, Executive Officers and Corporate Governance106ITEM 11 Executive Compensation106ITEM 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters106ITEM 13 Certain Relationships and Related Transactions and Director Independence106ITEM 14 Principal Accountant Fees and Services106 PART IV ITEM 15 Exhibits and Financial Statement Schedules107 2 Table of ContentsCAUTIONARY NOTEREGARDING FORWARD‑LOOKING STATEMENTSCertain matters discussed in this report, including matters discussed under the caption “Management’s Discussionand Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements for purposes ofthe Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or theExchange Act, and involve known and unknown risks, uncertainties and other factors that may cause our actual results,performance or achievements to be materially different from the future results, performance or achievements expressed orimplied by such forward-looking statements. The words "anticipate," "believe," "estimate," "may," "expect" and similarexpressions are generally intended to identify forward-looking statements. Our actual results may differ materially from theresults anticipated in these forward-looking statements due to a variety of factors, including, without limitation, thosediscussed under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and elsewhere in this report, as well as other factors which may be identified from time to time in our otherfilings with the Securities and Exchange Commission, or the SEC, or in the documents where such forward-lookingstatements appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety bythese cautionary statements. Such forward-looking statements include, but are not limited to, statements about our: ·expectations for increases or decreases in expenses;·expectations for the clinical and preclinical development, manufacturing, regulatory approval, and commercialization ofour pharmaceutical product candidates or any other products that we may acquire or in-license;·estimates of the sufficiency of our existing capital resources combined with future anticipated cash flows to finance ouroperating requirements;·expectations for incurring capital expenditures to expand our research and development and manufacturing capabilities;·expectations for generating revenue or becoming profitable on a sustained basis;·expectations or ability to enter into marketing and other partnership agreements;·expectations or ability to enter into product acquisition and in-licensing transactions;·expectations or ability to build our own commercial infrastructure to manufacture, market and sell our productcandidates;·expected losses;·ability to obtain and maintain intellectual property protection for our product candidates;·acceptance of our products by doctors, patients, or payors;·stock price and its volatility;·ability to attract and retain key personnel;·the performance of third-party manufacturers;·expectations for future capital requirements; and·our ability to successfully implement our strategy. The forward-looking statements contained in this report reflect our views and assumptions only as of the date thatthis report is signed. Except as required by law, we assume no responsibility for updating any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all ofour forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in thePrivate Securities Litigation Reform Act of 1995.3 Table of ContentsPART IUnless the context requires otherwise, references in this report to “Axsome,” “Company,” “we,” “us” and “our”and similar designations refer to Axsome Therapeutics, Inc. and our subsidiaries. ITEM 1. BUSINESS. OVERVIEW We are a clinical stage biopharmaceutical company developing novel therapies for the management of centralnervous system, or CNS, disorders including pain. By focusing on this therapeutic area, we are addressing significant andgrowing markets where current treatment options are limited or inadequate. Our product candidate portfolio includes twolate‑stage candidates, AXS‑02 and AXS‑05, which we are developing for multiple indications. We have initiated a Phase 3trial with AXS‑02 in complex regional pain syndrome and plan to initiate a Phase 3 trial in knee osteoarthritis associatedwith bone marrow lesions in the first quarter of 2016 pursuant to a Special Protocol Assessment, or SPA. We have alsoinitiated a Phase 3 trial with AXS‑05 in treatment resistant depression. We aim to become a fully integratedbiopharmaceutical company that develops and commercializes differentiated therapies that expand the treatment optionsavailable to caregivers and improve the lives of patients living with CNS disorders.Our first product candidate, AXS‑02 (disodium zoledronate tetrahydrate), is a potentially first‑in‑class, oral, targeted,non‑opioid therapeutic for chronic pain. AXS‑02 is a potent inhibitor of osteoclasts, which are bone remodeling cells thatbreak down bone tissue. We are initially developing AXS‑02 for the treatment of pain in the following three conditions:complex regional pain syndrome, or CRPS; knee osteoarthritis, or OA, associated with bone marrow lesions, or BMLs; andchronic low back pain, or CLBP, associated with type 1 or mixed type 1 and type 2 Modic changes, or MCs. Theseconditions exhibit target lesions or specific pathology that we believe may be addressed by the mechanisms of action ofAXS‑02, such as inhibition of osteoclast activity. These mechanisms may result in a reduction of pain in these conditions.We have successfully completed a Phase 1 trial of AXS‑02 to characterize the pharmacokinetics of zoledronic acid and itseffects on markers of bone resorption after oral administration of AXS‑02. The results of our Phase 1 trial demonstrated thatoral administration of AXS‑02 tablets resulted in rapid absorption of zoledronic acid, which is the active molecule in AXS‑02and the free acid form of disodium zoledronate tetrahydrate, and substantial suppression of bone resorption markers, whichare proteins indicative of bone tissue breakdown. We selected the dose for our ongoing and planned Phase 3 trials based onthe pharmacokinetic and pharmacodynamic results of our Phase 1 trial. We intend to seek U.S. Food and DrugAdministration, or FDA, approval for AXS‑02 utilizing the 505(b)(2) regulatory development pathway.We initiated a Phase 3 trial with AXS‑02 for the treatment of pain in patients with CRPS, which we refer to as theCREATE‑1 study, in July 2015. There is currently no drug approved by the FDA or the European Medicines Agency, orEMA, to treat CRPS. CRPS is a debilitating condition characterized by severe pain in a limb, accompanied by autonomic,sensory, motor, and trophic changes. For many patients, the pain and associated loss of function result in significant andsometimes permanent disability. AXS‑02 has been granted FDA Fast Track designation for the treatment of pain associatedwith CRPS. AXS‑02 has also been granted Orphan Drug Designation by the FDA and Orphan Medicinal Product Designationby the EMA for the treatment of CRPS. It has been estimated that approximately 80,000 individuals in the United States arediagnosed with CRPS annually.We plan to initiate a Phase 3 clinical trial with AXS‑02 for the treatment of pain in patients with knee OA associatedwith BMLs in the first quarter of 2016, which we refer to as the COAST‑1 study. We have reached agreement with the FDAregarding an SPA for the COAST‑1 study. There is currently no therapy specifically approved by the FDA or the EMA to treatthis subset of knee OA. Results from cross‑sectional and longitudinal studies have shown an association between thepresence of BMLs and knee pain in patients with knee OA. These studies suggest that BMLs are a source of knee pain and apotential target for pharmaceutical intervention. We believe the mechanisms of action of AXS‑02 may preferentially targetBMLs. We estimate that as many as 7 million individuals in the United States suffer from symptomatic knee OA and BMLs.4 Table of ContentsWe plan to initiate a Phase 3 clinical trial with AXS‑02 for the treatment of CLBP associated with MCs in the fourthquarter of 2016 or the first quarter of 2017. There is currently no therapy specifically approved by the FDA or the EMA totreat this subset of CLBP. Results of numerous studies suggest that MCs, especially type 1 MCs, are correlated with low backpain, and that changes in the extent of type 1 MCs are positively associated with changes in low back symptoms. Thesestudies suggest that MCs are a potential target for pharmaceutical intervention. We believe the mechanisms of action ofAXS‑02 may preferentially target MCs. We estimate that as many as 1.6 million individuals in the United States suffer fromCLBP associated with type 1 MCs.Our second product candidate, AXS‑05, is an innovative fixed‑dose combination of dextromethorphan, or DM, andbupropion. We are developing AXS‑05 initially for the treatment of the following two conditions: treatment resistantdepression, or TRD; and agitation in patients with Alzheimer’s disease, or AD. DM is active at multiple CNS receptors but israpidly and extensively metabolized in humans. As a result, it is difficult to attain potential therapeutic plasma levels of DMwhen it is dosed as a single agent. AXS‑05 uses bupropion as a novel drug delivery method to inhibit DM metabolism andincrease its bioavailability. We have demonstrated in two Phase 1 trials that DM plasma levels are substantially increasedinto a potentially therapeutic range with the co‑administration of bupropion. Bupropion is itself active at distinct CNSreceptors providing the potential for an additive or synergistic effect. We intend to seek FDA approval for AXS‑05 utilizingthe 505(b)(2) regulatory development pathway.We initiated a Phase 3 trial with AXS‑05 in TRD, which we refer to as the STRIDE-1 study, in March 2016.Currently only one product, Symbyax, a combination of olanzapine and fluoxetine, which is marketed by Eli Lilly andCompany, is approved in the United States for the treatment of TRD. DM’s mechanisms of action encompass those of severalantidepressant drug classes, and bupropion is a well‑established antidepressant. DM administration has resulted indose‑dependent antidepressant‑like effects in two widely used preclinical models of antidepressant effect. Furthermore,administration of DM with quinidine, which serves as an inhibitor of metabolism of DM, resulted in a statistically significantreduction in depressive symptoms in patients with pseudobulbar affect, which is a disorder characterized by involuntary,sudden, and frequent episodes of laughing or crying, as shown in a third‑party study. The term statistically significantdenotes an experimental result, such as one derived from a clinical or non‑clinical trial, that is unlikely to have occurred bychance. The plasma concentrations of DM achieved with AXS‑05 in our Phase 1 trials are in the range of those associatedwith the DM and quinidine dose that resulted in a reduction in depressive symptoms in patients with pseudobulbar affect,based on data published by the FDA. We estimate that as many as 3 million individuals in the United States suffer from TRD.We intend to develop AXS‑05 for the treatment of agitation in patients with AD, and plan to meet with the FDA thisyear to discuss our development plans. There is currently no FDA‑approved pharmacological treatment for the indication ofagitation in patients with AD. Agitation in patients with AD has been associated with increased caregiver burden, decreasedfunctioning, earlier nursing home placement, and death. Administration of DM with quinidine has been shown to result in astatistically significant reduction in agitation in patients with probable AD, as shown in a randomized, double‑blind,placebo‑controlled, third‑party clinical trial. The plasma concentrations of DM achieved with AXS‑05 in our Phase 1 trialsare in the range of those associated with the DM and quinidine doses that resulted in a reduction in agitation in patients withprobable AD, based on data published by the FDA. It has been estimated that AD afflicts 5 million individuals in the UnitedStates, with agitation being reported in as many as 40% of those afflicted.We have one active program, AXS‑06, in preclinical development. We are developing AXS‑06 for the treatment ofchronic pain disorders.Our product candidates are protected through a combination of patents, trade secrets, and proprietary know‑how. Ifapproved, they may also be eligible for periods of regulatory exclusivity. Our intellectual property portfolio includes U.S.patents with claims extending to 2034 for AXS‑02 and AXS‑05, as well as corresponding foreign patent applications. OurU.S. and E.U. orphan designations for AXS‑02 for the treatment of CRPS potentially provide 7 and up to 12 years ofmarketing exclusivity in the respective geographies for the orphan indication.On November 19, 2015, our registration statement on Form S-1 (File No 333-207393) was declared effective for ourinitial public offering, pursuant to which we sold 5,666,667 shares of common stock at a public offering price of5 Table of Contents$9.00 per share. From this offering we received gross proceeds of approximately $51.0 million and net proceeds ofapproximately $45.5 million, after deducting underwriting discounts and commissions and offering expenses paid by us.Our StrategyOur goal is to cost‑effectively and efficiently develop and commercialize novel, differentiated therapies for themanagement of CNS disorders. The primary elements of our strategy to achieve this goal are the following:·Pursue novel CNS indications with high unmet medical need. We believe that CNS disorders, including pain,are significantly underserved therapeutic segments with currently limited treatment options. We are initiallydeveloping our product candidates for indications that have no or few FDA‑approved pharmacologicaltreatments. For example, there currently is no drug approved by the FDA or the EMA for CRPS, the pain of kneeOA associated with BMLs, CLBP associated with MCs, or agitation in patients with AD. There is currently onlyone FDA‑approved drug for TRD. These conditions are often disabling, difficult to treat, and associated withsignificant comorbidities. By focusing on novel indications, we aim to develop products that have the potentialto change current medical practice, and that are highly relevant to patients, physicians, and regulatory bodiesbecause they address unmet medical needs. Many of these indications have significant patient populationswhich, when combined with the lack of approved treatments, should provide us with attractive commercialopportunities.·Use biomarkers to define specific patient subsets for our pain indications. We are using biomarkers, such asBMLs and MCs, which are visible on magnetic resonance imaging, or MRI, to define specific subsets of patientswho we believe are more likely to respond to the mechanisms of action of AXS‑02. Biomarkers have been usedsuccessfully in connection with oncology treatments, but are not commonly used with pain therapeutics. Whilepatients with common pain conditions, such as knee OA and CLBP, experience similar symptoms, thesesymptoms may be due to different underlying conditions. We believe that the variability in underlyingconditions contributes to heterogeneity in these populations and may account for observed differences intreatment response. We believe that our targeted biomarker approach may result in a less heterogeneous patientpopulation in our clinical trials, which may improve our ability to demonstrate a treatment effect and, ifapproved, enable treatment of more appropriate patient populations with our product candidates.·Develop products with differentiated profiles. We aim to develop products with novel mechanisms of actionfor the intended indications that may yield differentiated product profiles. For example, AXS‑02 utilizes apotentially first‑in‑class mechanism of action for the treatment of pain that may result in analgesia that lasts forone or more months after treatment. AXS‑05 combines several mechanisms of action resulting in a uniquepharmacological profile that may be relevant to the treatment of numerous CNS disorders. We believe thatproducts with clearly differentiated features will be attractive to patients and their physicians, and will provideus with a competitive commercial advantage.·Reduce clinical and regulatory risk, limit development costs, and accelerate time to market. Our productcandidates incorporate chemical entities with long histories of clinical use and well‑characterized safetyprofiles. Use of well‑characterized molecules has allowed us to rapidly complete early clinical development ofour product candidates, and may reduce the risk of late‑stage clinical failures due to unexpected toxicities. Thisstrategy also allows us to seek FDA approval for our product candidates using the 505(b)(2) regulatory pathway.Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FDCA, permits an applicant to file a new drugapplication, or NDA, that relies, in part, on the FDA’s prior findings of safety and efficacy in the approval of asimilar drug, or on published literature. It therefore allows us to leverage previous preclinical and clinicalexperience with the active molecules in our product candidates and potentially forego conducting certainlengthy and costly preclinical studies, reduce clinical and regulatory risk, limit development costs, andaccelerate our time to commercialization.·Retain commercial rights in the United States, where appropriate, and selectively partner outside of theUnited States to maximize the value of our product candidates. We intend to commercialize AXS‑02, if6 Table of Contentsapproved, in the United States through the establishment of our own focused, cost‑effective sales and marketingorganization targeting high‑prescribing specialists. We intend to selectively partner commercial rights outsideof the United States with third parties to maximize the value of AXS‑02 without the substantial investmentrequired to develop independent sales forces in those geographies. We continue to evaluate strategic optionsfor the commercialization of our other product candidates.Our PipelineOur current product candidate pipeline is summarized in the table below:AXS‑02OverviewAXS‑02 is a novel, targeted investigational pain therapeutic. It is an orally administered, non‑opioid agent with anew mechanism of action for the treatment of pain. We are developing AXS‑02 for the treatment of pain associated withCRPS, a severe and debilitating orphan condition. No drug is currently approved by the FDA or the EMA to treat CRPS. Weare also developing AXS‑02 for the treatment of the pain of knee OA associated with BMLs, and for the treatment of CLBPassociated with MCs. No drug is currently approved by the FDA or the EMA specifically for these targeted subsets of kneeOA and CLBP.We believe that, if successfully developed, AXS‑02 may overcome many of the limitations of current treatments forpain, and may be attractive to patients and their physicians, based on the following differentiating features:·Novel osteoclast‑inhibiting mechanism of action for the treatment of pain·Targeted therapy approach that utilizes radiographic biomarkers to identify appropriate patients·Oral administration·Convenient weekly dosing and short course of treatment·Potential for extended duration of pain relief·Lack of opioid‑related side effects and abuse and addiction potential7 Table of ContentsWe initiated a Phase 3 trial with AXS‑02 for the treatment of pain associated with CRPS in July 2015. We plan toinitiate Phase 3 trials with AXS‑02 for the treatment of the pain of knee OA associated with BMLs in the first quarter of 2016,and for the treatment of CLBP associated with MCs in the fourth quarter of 2016 or the first quarter of 2017.Novel Mechanisms of Action for PainZoledronic acid, the active molecule in AXS‑02, is a potent nitrogen‑containing bisphosphonate. Bisphosphonatesare compounds that bind with high affinity to bone mineral and inhibit the bone‑resorbing cells called osteoclasts.Zoledronic acid reduces osteoclast activity by inhibiting a critical enzyme called farnesyl pyrophosphate synthase, or FPPS.Zoledronic acid is the bisphosphonate with the strongest affinity for bone and the highest inhibitory activity of FPPS.Osteoclasts resorb bone by secreting protons and generating an acidic extracellular microenvironment. The secreted protonsmay directly excite pain receptors, which are found in mineralized bone. We believe that zoledronic acid may thereforereduce pain by inhibiting osteoclast hyperactivity and suppressing the up‑regulation of acid‑sensing ion channels on sensoryneurons. Zoledronic acid has also been shown to inhibit the production of pro‑inflammatory cytokines and to haveanti‑angiogenic properties.Targeted Therapy for PainWe are developing AXS‑02 for specific subsets of patients who display certain target lesions or specific pathologythat we believe may be addressed by the mechanisms of action of our product candidate. The target lesions include regionalosteoporosis, BMLs, and MCs. In order to select for CRPS patients with target lesions, such as regional osteoporosis, we planto include only patients whose condition was precipitated by traumatic injury in our registration trials for CRPS. We plan toinclude only patients with BMLs in our registration trials of AXS‑02 for the pain of knee OA, and only patients with MCs inour registration trials of AXS‑02 for CLBP. These target lesions exhibit increased bone turnover, which is potentiallyinhibited by zoledronic acid. Furthermore, because zoledronic acid localizes preferentially to sites of high bone turnover, webelieve it may specifically target these sites of disease activity in CRPS, knee OA, and CLBP. We believe that this targetedapproach may result in a less heterogeneous patient population in our clinical trials, improve our ability to demonstrate atreatment effect, and, if approved, enable treatment of more appropriate patient populations.Orally AdministeredAXS‑02 is a novel oral formulation of zoledronic acid. Zoledronic acid is currently marketed only as an intravenous,or IV, preparation and is not currently approved for the treatment of pain. Our oral formulation uses a disodium salt ofzoledronic acid, which exhibits substantially improved solubility as compared to the diacid form. This improved solubilitymay facilitate oral absorption.Oral administration is non‑invasive, less costly, more convenient, and less burdensome to patients and prescribers ascompared to IV dosing. Oral administration provides greater prescribing flexibility for clinicians and convenience forpatients since it allows them to self‑administer the therapy at home and avoid having to travel to and from a hospital orinfusion facility. Additionally, based on clinical experience with currently approved bisphosphonates, oral administration ofzoledronic acid may have certain safety advantages as compared to IV dosing.In a recent trial of 6,097 patients treated over 3 years who received either IV zoledronic acid therapy or oral therapywith alternative bisphosphonates, 76% and 73% of patients indicated a preference for oral versus IV formulations if all agentsshowed equal efficacy at randomization and therapy completion, respectively.Infrequent Dosing and Convenient RegimenThe potency and pharmacokinetics of zoledronic acid may allow for very infrequent dosing and for a short andconvenient treatment regimen. Based on the results of our Phase 1 trial, we are currently dosing AXS‑02 once weekly for6 weeks in our Phase 3 trial for the treatment of pain associated with CRPS. Because of its convenient administration andlimited treatment duration, we believe that AXS‑02, if successfully developed, may improve compliance and be preferred bypatients and their physicians over currently available treatments.8 Table of ContentsExtended Pain ReliefAXS‑02 may provide pain relief of long duration based on results of trials conducted with IV‑administeredzoledronic acid. In trials in patients with knee OA and BMLs and CLBP associated with MCs, treatment with IV‑administeredzoledronic acid resulted in pain relief that was measurable one or more months after cessation of treatment. For example, painreduction as compared to placebo was demonstrated 6 months after treatment in knee OA, and 1 month after treatment inCLBP. Furthermore, 1 year after treatment, a statistically significant reduction was observed in the percentage of zoledronicacid‑treated patients with CLBP who were taking non‑steroidal anti‑inflammatory drugs, or NSAIDs, as compared toplacebo‑treated patients. This observed extended pain reduction may be related to the potency of zoledronic acid and itslong residence time in bone.Lack of Opioid‑related Side Effects and Abuse and Addiction PotentialReflecting the currently limited treatment options for chronic pain, opioid medications are widely prescribeddespite their numerous significant undesirable side effects and potential consequences. These side effects and consequencesinclude dependency, addiction and abuse potential, respiratory depression, hypotension, constipation, and a higherincidence of falls and fractures in older patients. Prescription opioids are also increasingly associated with deaths fromunintentional overdose, with over 16,000 deaths reported in the United States each year.AXS‑02 exerts its potential effects for the treatment of pain via novel non‑opioid mechanisms of action. Ifsuccessfully developed, AXS‑02 would represent an alternative treatment for pain that lacks the addiction and abusepotential and other serious side effects of opioids.Complex Regional Pain Syndrome (CRPS)We are developing AXS‑02 for the treatment of pain associated with CRPS. There is currently no drug approved bythe FDA or the EMA for the treatment of CRPS. AXS‑02 has been granted Orphan Drug Designation by the FDA and OrphanMedicinal Product Designation by the EMA for the treatment of CRPS. The FDA has also granted Fast Track designation forAXS‑02 for the treatment of pain associated with CRPS.Indication OverviewCRPS is a disorder characterized by severe, continuous, disabling pain in a limb accompanied by autonomic,sensory, motor, and skin and nail changes. The sensory changes, including allodynia, which is pain invoked by normallynon‑painful tactile stimuli, and hyperalgesia, which is greater than normal pain from painful stimuli, are accompanied bymovement disorders and joint stiffness. These symptoms are initially confined to a specific limb but can spread beyond theaffected limb. Radiographic examination using plain x‑ray, three‑phase bone scan, or MRI often reveal evidence of increasedbone turnover in the affected limb.The disorder impairs daily functioning and negatively impacts quality of life. For many patients, the pain andassociated loss of function result in significant and sometimes permanent disability. Depression is a common comorbidity.CRPS is often triggered by minor trauma, such as wrist fracture, surgery, or needle stick injury, but can occur spontaneously.The extreme nature of the pain is disproportionate to these inciting events. Fracture of the wrist or ankle are the mostcommon inciting events. The disorder affects women 3 to 4 times as frequently as men and its prevalence increases with age.The pathophysiology of CRPS is thought to be multi‑factorial and may include a localized increase in bone turnover,aberrant inflammatory mechanisms, vasomotor dysfunction, and maladaptive neuroplasticity.Diagnosis of CRPS is made using the International Association for the Study of Pain, or IASP, criteria. It is based onthe presence of pain and its characteristics, and the presence of other signs and symptoms. CRPS type 1 is diagnosed if thecriteria are seen without evidence of major nerve damage. If seen in the presence of major nerve damage, CRPS type 2,formerly known as causalgia, is diagnosed. CRPS type 1, formerly known as reflex sympathetic dystrophy, or RSD, isestimated to account for approximately 97% of all CRPS cases.9 Table of ContentsIt is estimated that there are approximately 80,000 new cases of CRPS in the United States annually. Spontaneousremission is common in some patients. Currently, no medicinal product is approved in either the United States or theEuropean Union for the treatment of CRPS. In addition, current methods for the treatment of pain associated with CRPS arenot considered satisfactory. Medicines used for more common pain conditions, such as opioids, NSAIDs, and neuropathicpain medications, are considered to be largely ineffective in CRPS, as demonstrated by controlled trials. Consequently,invasive and expensive palliative interventions, such as IV sympathetic blockades and surgical sympathectomy, are oftenused with their attendant risk of significant complications. Due to the resistance of the condition to medical therapy,amputation of the affected limb is sometimes performed for the relief of pain.Rationale for the Use of AXS‑02 in CRPSThe rationale for the use of AXS‑02 for the treatment of pain associated with CRPS is supported by thepharmacological action of AXS‑02, demonstrated in our Phase 1 clinical trial, which addresses a common pathophysiologicalfinding in CRPS‑affected limbs, and by positive results in a well‑validated animal study of CRPS.Clinical rationale. Increased bone resorption is seen in the affected limbs of the majority of CRPS patients and ismanifested by increased tracer uptake on three‑phase bone scan, regional osteoporosis visible on plain x‑ray, and bonemarrow edema visible on MRI. Bisphosphonate compounds, such as zoledronic acid, are inhibitors of bone resorption. Boneresorption occurs when bone breaks down and releases minerals into the blood. In our completed Phase 1 trial, oraladministration of AXS‑02 to healthy human volunteers resulted in substantial reductions in markers of bone resorption. Forexample, a single oral administration of AXS‑02 at varying doses resulted in an 80% to 90% reduction in serum CTx, astandard marker of bone resorption, suggesting the potential for AXS‑02 to address a common pathophysiological finding inCRPS‑affected limbs. Furthermore, zoledronic acid localizes preferentially to regions of high bone turnover suggesting itmay be able to preferentially target CRPS‑affected limbs. Results of several small clinical trials with other less potentbisphosphonate compounds have shown a reduction in pain in CRPS patients treated with these agents. The pharmacologicaleffect of AXS‑02 shown in our Phase 1 trial may therefore translate to a clinical benefit in CRPS patients.Effects of AXS‑02 in the rat tibia fracture model of CRPS. The effect of AXS‑02 was examined in the rat tibiafracture model of CRPS. This well‑validated animal model has been shown to replicate the inciting trauma, natural history,signs, symptoms, and pathologic changes observed in human CRPS patients. We conducted a study with AXS‑02 in thismodel. After baseline tests, 20 rats underwent a right distal tibia fracture with casting to induce CRPS‑like symptoms andsigns. Animals were then orally administered either placebo or AXS‑02 in a dosage of 3 mg/kg/day for 28 days, starting theday after fracture and casting. The casts were removed on the 28th day after fracture, and on the following day, bilateraltesting of hindpaw pain thresholds, weight bearing, thickness, and temperature was performed. Hindpaw temperature andthickness data were analyzed as the difference between the affected hindpaw and the normal hindpaw. Weight‑bearing datawere analyzed as the ratio between the affected and the normal hindpaw. Weight bearing is a functional measure of pain sincethe animal is expected to shift its weight off the painful limb. Hindpaw thickness was measured to assess edema, commonlyknown as swelling. Hindpaw temperature was measured to assess warmth, a symptom of CRPS.Oral administration of AXS‑02 resulted in a statistically significant reduction in pain, improvement in weightbearing, and prevention of edema as compared to placebo in the rat tibia fracture model of CRPS. Treatment with AXS‑02reduced pain by 77% and edema by 60% as compared to placebo treatment. AXS‑02 treatment also resulted in a 56%improvement in weight bearing as compared to placebo. The study did not find an effect of AXS‑02 on hindpaw temperature.We conducted a second study using the same rat tibia fracture model. In this study, the animals underwent tibiafracture and casting as described above, but dosing of AXS‑02 was started following cast removal and continued for aduration of three weeks. Oral administration of AXS‑02 resulted in a statistically significant reversal of pain andimprovement in weight bearing as compared to placebo. Treatment with AXS‑02 reversed pain by approximately 100%versus baseline and improved weight bearing by approximately 13% as compared to placebo. The study did not find aneffect of AXS‑02 on edema or hindpaw temperature.10 Table of ContentsKnee Osteoarthritis (OA) Associated with Bone Marrow Lesions (BMLs)We are developing AXS‑02 for the treatment of the pain of knee OA associated with BMLs. There is currently notherapy specifically approved by the FDA or the EMA to treat this subset of knee OA. The FDA has agreed to an SPA for ourplanned Phase 3 COAST‑1 study in subjects with knee OA and BMLs.Indication OverviewKnee OA is a disorder characterized by periarticular bone changes, progressive loss of articular cartilage, joint spacenarrowing, and eventual total joint failure. It is clinically manifested by knee pain, significant physical disability, andreduced quality of life. While currently available drug therapies attempt to address the pain of knee OA, they are not thoughtto address the cause of the pain.Recently, BMLs have been recognized as an important feature of knee OA because of their relation to the pain andpathogenesis of the condition. BMLs appear as areas of increased signal intensity on MRI of the knee, and represent regionsof increased subchondral bone turnover. BMLs are clinically relevant because they are associated with and predict knee pain,disease severity, and structural progression in patients with knee OA, based on published studies. Findings from severalcross‑sectional and longitudinal studies have demonstrated that (1) BMLs are strongly associated with the presence andseverity of pain in patients with knee OA, (2) new or enlarging BMLs are associated with increased pain and diminishingBMLs with decreased pain, (3) BMLs are associated with progression of joint space narrowing and cartilage loss, (4) BMLspredict knee joint replacement, and (5) increasing BML size is associated with cartilage loss. These studies therefore suggestthat BMLs are a source of knee pain and a potential target for pharmaceutical intervention.There is currently no therapy specifically approved by the FDA or the EMA to treat the pain of knee OA associatedwith BMLs. Currently available therapy for the broader knee OA population include non‑pharmacological treatments, oraland topical medications, and intra‑articular injections. Non‑pharmacological approaches include exercise, weightmanagement, strength training, self‑management, and education. Oral treatments include acetaminophen, selective andnon‑selective NSAIDs, and opioid medications. Intra‑articular injections for knee OA include intra‑articular hyaluronic acid,or IAHA, and intra‑articular corticosteroids, or IACS. These treatments are generally short‑acting and may address thesymptoms of knee OA, but are not thought to have an effect on the underlying cause of the condition. Knee joint replacementsurgery is viewed as a last resort for patients who, despite pharmacological and non‑pharmacological treatment, do not haveadequate pain relief and functional improvement.Results of epidemiological studies suggest that there are approximately 25 million patients in the United States,50 years of age and older, with radiographic knee OA. Approximately 12 million of these patients are estimated to besymptomatic, 7 million of whom we estimate have BMLs.Rationale for the Use of AXS‑02 in the Pain of Knee OA Associated with BMLsThe rationale for utilizing AXS‑02 for the treatment of the pain of knee OA associated with BMLs is based on theobservations that (1) BMLs are strongly associated with pain in knee OA, (2) BMLs represent regions of increasedsubchondral bone turnover and reduced mineral content based on studies of BMLs resected from human subjects, and(3) zoledronic acid potently inhibits bone turnover, increases bone mineral density, and localizes preferentially to regions ofincreased bone turnover. The pharmacological actions of zoledronic acid therefore suggest the potential for AXS‑02 to affectBMLs, thereby reducing pain in patients with knee OA associated with BMLs.Chronic Low Back Pain (CLBP) Associated with Modic Changes (MCs)We are developing AXS‑02 for the treatment of CLBP associated with MCs. There is currently no therapyspecifically approved by the FDA or the EMA to treat this subset of CLBP.11 Table of ContentsIndication OverviewCLBP is defined as persistent or fluctuating low back pain lasting at least three months. It is a disabling and costlycondition that is associated with increased healthcare utilization. The economic costs of CLBP are estimated to range from$12.2 billion to $90.6 billion annually in the United States. Factors that contribute to this economic impact includeprolonged loss of function, consequent loss of work productivity, treatment costs, and disability payments. Low back painmay be due to a specific cause such as fracture, tumor, infection, or nerve root compression. However it is estimated that inmore than 85% of cases such specific causes cannot be identified, resulting in the majority of cases being classified asnon‑specific.Recently, it has been suggested that patients with MCs may represent a specific clinical subgroup of CLBP patients.MCs are vertebral bone marrow changes that are visible on MRI of the spine, and that represent regions of increased boneturnover and pro‑inflammatory mediators. MCs are classified into types 1, 2, or 3, based on radiographic and histologicalfeatures. MCs are clinically relevant because they are associated with low back pain, based on published studies. Findingsfrom studies in clinical and non‑clinical populations have demonstrated that the presence of MCs, especially type 1 MCs, iscorrelated with low back pain, predicts persistent symptoms, and sick leaves, and is associated with poor outcomes. Thesestudies therefore suggest that MCs are a potential target for pharmaceutical intervention.There is currently no therapy specifically approved by the FDA or the EMA to treat CLBP associated with MCs.Currently available therapy for the broader CLBP population includes non‑pharmacological approaches, such as exercise,and pharmacological treatments, such as NSAIDs and opioid medications. Current pharmacological treatments are generallyshort‑acting and may address the symptoms of CLBP, but are not thought to have an effect on the underlying cause of thecondition.Results of epidemiological studies suggest that there are approximately 121 million adults in the United States withlow back pain in a given year. Approximately 9 million of these sufferers are estimated to have CLBP, of whom we estimateapproximately 1.6 million have type 1 MCs.Rationale for the Use of AXS‑02 in CLBP Associated with MCsThe rationale for utilizing AXS‑02 for the treatment of CLBP associated with MCs is based on the observations that(1) MCs are associated with low back pain, (2) MCs represent regions of increased bone turnover based on three‑phase bonescans and increased pro‑inflammatory cytokines and vascular density based on analysis of lesions resected from humansubjects, and (3) zoledronic acid potently inhibits bone turnover, may reduce pro‑inflammatory cytokine production, isanti‑angiogenic, and localizes preferentially to regions of increased turnover. The pharmacological actions of zoledronicacid therefore suggest the potential for AXS‑02 to affect MCs, thereby reducing pain in patients with CLBP associated withMCs.Clinical Development of AXS‑02We are developing AXS‑02 and intend to seek FDA approval for the product candidate utilizing the 505(b)(2)regulatory pathway. Section 505(b)(2) of the FDCA permits an applicant to file an NDA that relies, in part, on data notdeveloped by or for the applicant and to which the applicant has not received a right of reference, such as the FDA’s findingsof safety and efficacy in the approval of a similar drug, or reference listed drug, or published literature, in support of itsapplication. We currently plan to rely on the FDA’s prior finding of safety and efficacy for IV‑administered zoledronic acid aswell as published literature to support our marketing application.We held a Type C meeting with the FDA in June 2014 where we presented our clinical development plan forAXS‑02 in the treatment of pain associated with CRPS, the pain of knee OA associated with BMLs, and CLBP associatedwith MCs. Based on feedback from this meeting and other ongoing communications with the FDA, we plan to conduct twoPhase 3 trials with AXS‑02 in the treatment of pain associated with recently diagnosed CRPS, as well as a toxicology studyand a food‑effect study, to support an NDA filing for this indication. We requested scientific advice and protocol assistancefrom the EMA for the development of AXS‑02 for the treatment of pain associated with CRPS. We12 Table of Contentsreceived final advice from the EMA in March 2015. Based on this advice, we believe that only one successful Phase 3 trial inCRPS will be required to support a Marketing Authorization Application, or MAA, for AXS‑02 in this indication.In May 2013, we received Orphan Drug Designation from the FDA for AXS‑02 for the treatment of CRPS. Thisdesignation may entitle AXS‑02 to a period of seven years of marketing exclusivity for the treatment of CRPS in the UnitedStates upon FDA approval. We submitted an Investigational New Drug Application, or IND, sponsored by us, in October2013 for AXS‑02 for the treatment of pain associated with CRPS.In October 2013, we received Orphan Medicinal Product Designation from the EMA for AXS‑02 for the treatment ofCRPS. Orphan Medicinal Product Designation provides ten years of potential market exclusivity in the European Union ifthe designated product candidate is approved for the indication for which it is designated and the orphan designation ismaintained. Additionally, if a Pediatric Investigation Plan is completed, an additional two years of exclusivity in theEuropean Union could be granted for a product with Orphan Medicinal Product Designation.In August 2014, we received Fast Track designation from the FDA for AXS‑02 for the treatment of pain associatedwith CRPS. The FDA’s Fast Track designation program is designed to aid in the development and expedite the review ofdrugs that are intended to treat serious or life‑threatening conditions. In order to receive Fast Track designation, a productcandidate must also demonstrate the potential to address an unmet medical need. Fast Track designation provides greateraccess to, and more frequent communication with, the FDA throughout the entire drug development and review process, withthe goal of getting important new drugs to patients more rapidly. It also provides the opportunity to submit sections of anNDA on a rolling basis, where the FDA may review portions of the NDA as they are received instead of waiting for the entireNDA submission. In addition, Fast Track designated product candidates may be eligible for priority review at the time ofNDA submission.In October 2015, we reached agreement with the FDA regarding an SPA on the design of a Phase 3 clinical trial withAXS‑02 for the treatment of the pain of knee OA associated with BMLs. An SPA documents the FDA’s agreement that thedesign and planned analysis of a clinical trial adequately address scientific and regulatory objectives that, if met, wouldsupport a regulatory submission for approval of a drug.We completed oral toxicology studies in the rat and dog models to support the dosing of AXS‑02 in our completedPhase 1 trial and in our ongoing and planned Phase 3 trials. Dose‑limiting adverse effects were primarily gastrointestinalrelated. We have completed a Phase 1 trial of AXS‑02 to characterize the pharmacokinetics of zoledronic acid and its effectson markers of bone resorption after oral administration of AXS‑02. In this trial, oral administration of AXS‑02 tablets resultedin rapid absorption of zoledronic acid and marked suppression of bone resorption markers.The potential effect of zoledronic acid on the pain of knee OA associated with BMLs has been demonstrated in aPhase 2, investigator‑initiated, randomized, double‑blind, placebo‑controlled trial. In this trial, IV administration ofzoledronic acid resulted in a statistically significant reduction in pain and BML size at 6 months. The potential effect ofzoledronic acid in CLBP associated with MCs has been demonstrated in a Phase 2, investigator‑initiated, randomized,double‑blind, placebo‑controlled trial. In this trial, IV administration of zoledronic acid resulted in statistically significantreductions in pain at 1 month and NSAID use at 12 months. We have obtained exclusive rights to the data generated fromthis trial in CLBP.We are currently conducting a randomized, double‑blind, placebo‑controlled Phase 3 trial of AXS‑02 in patientswith CRPS. We plan to initiate a Phase 3 trial in patients with knee OA and BMLs in the first quarter of 2016, and a Phase 3trial in patients with CLBP associated with MCs in the fourth quarter of 2016 or the first quarter of 2017. We believe ourplanned Phase 3 dosing of AXS‑02 will provide cumulative systemic exposure of zoledronic acid that is similar to thatachieved with the 5 mg IV dose used in the Phase 2 trials in knee OA and CLBP, based on the results of our completedPhase 1 trial.Completed Phase 1 Trial of AXS‑02We conducted a Phase 1 trial to assess the fasting pharmacokinetics, pharmacodynamics, safety, and tolerability oforally administered AXS‑02 tablets in healthy adult male and postmenopausal female volunteers under a Health13 Table of ContentsCanada Clinical Trial Application. The trial was a randomized, open‑label, partial crossover study in a total of 36 subjects.Each subject received two of the following four treatments: three varying oral doses of AXS‑02 or a 1 mg IV dose ofzoledronic acid. Each treatment was separated by a wash‑out period of at least 14 days. Blood samples were collected prior todosing and after dosing to measure zoledronic acid plasma concentrations and the effect of AXS‑02 on biomarkers of boneresorption, including serum CTx.Zoledronic acid was rapidly absorbed after oral administration of AXS‑02 tablets with median time to reach themaximum plasma concentration, or Tmax, of 30 to 45 minutes. The absolute oral bioavailability of zoledronic acid afteradministration of AXS‑02 tablets found in this trial was greater than that reported for oral bisphosphonate agents currentlymarketed in the United States, based on FDA package inserts. Zoledronic acid plasma concentrations after oral administrationof AXS‑02, measured using area under the plasma concentration curve, or AUC, and maximum plasma concentration, orCmax, were found to be dose proportional in the range tested using the power model.Oral administration of AXS‑02 resulted in marked reductions of biomarkers of bone resorption. For example, levelsof serum CTx were reduced by approximately 80 to 90% seven days after dosing. This effect was generally maintained 14 to15 days after dosing. There were no reported serious adverse events in the trial. The majority of treatment‑emergent adverseevents experienced were graded as mild or moderate in severity, were transient in nature, and were completely resolved bythe end of the study. The most commonly reported adverse events were headache, fever, musculoskeletal pain, diarrhea,abdominal pain, nausea, myalgia, and chills. Adverse events were reported more frequently with increasing oral doses, andmore frequently in the oral dose groups than in the IV dose group.Phase 2 of Zoledronic Acid in the Pain of Knee OA Associated with BMLsIV‑administered zoledronic acid, the active molecule in AXS‑02, was tested in an investigator‑initiated,single‑center, randomized, double‑blind, placebo‑controlled trial in patients with knee OA and BMLs. In this trial,zoledronic acid treatment reduced pain and BML size, as further described below, demonstrating an effect on symptom andstructure. The design and results of this trial have been reported in a peer‑reviewed journal.In the trial, 59 patients, aged 50 to 80 years, with clinical knee OA and knee BMLs on MRI were randomized in a1:1 ratio to receive either a single 5‑mg IV infusion of zoledronic acid or placebo. BMLs were determined using protondensity‑weighted fat saturation magnetic resonance images at baseline, 6, and 12 months. Pain intensity was measured atbaseline, 3, 6, and 12 months using a 100‑mm visual analogue scale, or VAS, which is a standard clinical measurement forpain severity. Total BML area was measured in square millimeters at baseline, 6, and 12 months. The primary outcomes werethe change from baseline to 6 months in pain intensity as measured by the VAS, and maximal area of BML measured at6 months. Participants were allowed to remain on their background pain medications but the dose was kept constant throughthe trial period where possible. One subject randomized to placebo received zoledronic acid. Therefore, data for this patientwas included in the zoledronic acid arm in the analyses and results discussed below. This analysis is referred to as a perprotocol analysis.At baseline, the mean VAS score was 54 mm. There was a statistically significant reduction in pain intensity,measured using the VAS, from baseline to 6 months in the zoledronic acid‑treated group as compared to placebo, using theper protocol analysis. Changes in pain intensity between baseline and the other time points were numerically greater in thezoledronic acid arm than in the placebo arm but were not statistically significant. There was a statistically significantreduction in BML area at 6 months in the zoledronic acid‑treated group as compared to placebo. At the 12 month assessment,the changes in BML size were lower in magnitude in the zoledronic acid arm as compared to the placebo arm and were notstatistically significant. The most commonly reported adverse events were acute phase reactions, which are primarily cold orflu‑like symptoms and headaches. Adverse events occurred more frequently in the zoledronic acid‑treated group. Seriousadverse events were primarily non‑elective hospital admissions, none of which were considered causally related to studydrug.Phase 2 of Zoledronic Acid in CLBP Associated with MCsIV‑administered zoledronic acid was tested in an investigator‑initiated, single‑center, randomized, double‑blind,placebo‑controlled trial in patients with CLBP associated with MCs. In this trial, zoledronic acid treatment resulted in14 Table of Contentsstatistically significant reductions in pain at 1 month and NSAID use at 12 months. We have exclusive rights to referencethese trial data.In the trial, 40 patients, with a mean age of approximately 50 years, with low back pain lasting at least 3 months andMCs on MRI, were randomized in a 1:1 ratio to receive either a single 5‑mg IV infusion of zoledronic acid or placebo. MCswere determined on MRI performed within 6 months prior to enrollment. Other inclusion criteria included pain intensity of atleast 6 cm on a 10‑cm VAS or an Oswestry Disability Index, or ODI, of at least 30%. Low back pain intensity was measured atscreening and 1 and 12 months after infusion using a 10‑cm VAS. The primary outcome was the change in low back painintensity as measured by the VAS. Pain medication use was inquired about during study visits.Study participants had a mean low back pain duration of 293 days at study entry, and initial low back pain intensityof 6.7 on the VAS. All patients displayed either type 1, type 2, or mixed type 1 and type 2 MCs on MRI. There was astatistically significant reduction in pain intensity, measured using the VAS, at 1 month in the zoledronic acid‑treated groupas compared to placebo. Changes in pain intensity at 12 months were numerically greater in the zoledronic acid arm than inthe placebo arm but were not statistically significant. At 1 year only 20% of patients in the zoledronic acid treatment groupreported using NSAIDs compared to 60% of patients in the placebo group. At baseline, there were no differences inself‑reported use of NSAIDs between the treatment groups. The most commonly reported adverse events were acute phasereactions, which occurred more frequently in the zoledronic acid‑treated group. The majority of the acute phase reactionswere rated mild to moderate in severity and typically resolved within three days of onset. Sinusitis requiring temporaryhospitalization following zoledronic acid infusion was reported in one patient and was therefore classified as a seriousadverse event.Ongoing and Planned Phase 3 Trials of AXS‑02 in CRPSOngoing CREATE‑1 StudyIn July 2015, we initiated the CREATE‑1 study, a Phase 3, randomized, double‑blind, placebo‑controlled trial toassess the efficacy and safety of AXS‑02 in the treatment of pain associated with CRPS. Eligible patients must be at least18 years of age, with recently diagnosed CRPS type 1 according to the International Association for the Study of Pain, orIASP, diagnostic criteria, and an average weekly baseline pain intensity in the affected limb of at least 5 on an 11‑point(0‑10) numeric rating scale, or NRS. In addition, the CRPS must have been precipitated by traumatic injury to the affectedlimb, for example, fracture, crushing injury, or orthopedic surgery. We expect to complete this trial by the end of 2017.After a baseline period, patients meeting the entry criteria will be randomly assigned in a 1:1 ratio to orally receiveeither (1) AXS‑02 tablets once per week for 6 weeks, or (2) matching placebo tablets once per week for 6 weeks. Patients willreceive drug or placebo under fasting conditions, which is typical for oral bisphosphonates. Randomized patients will remainblinded for an additional 6 weeks, totaling 12 weeks for the double‑blind phase. The primary endpoint will be the change inpain intensity from baseline to week 12, measured using the NRS. Patients will be followed for an additional 12 weeks afterthe double‑blind period. We anticipate that the study will enroll a total of approximately 190 patients. An interim analysisfor efficacy is planned on the first approximately 50% of patients who are enrolled and who complete the double‑blindphase, and is anticipated around the end of 2016.Additional Planned Phase 3 Trial in CRPSWe plan to conduct a second Phase 3 trial in patients with recently diagnosed CRPS. The design and entry criteriafor this trial will be similar to those of the CREATE‑1 trial with the exception that it will incorporate three treatment armsinstead of two. After a baseline period, patients meeting the entry criteria will be randomized in a 1:1:1 ratio to receive either(1) AXS‑02 tablets once per week for 6 weeks, (2) AXS‑02 tablets once per week for 3 weeks and matching placebo tablets forthe following 3 weeks, or (3) matching placebo tablets once per week for 6 weeks. Randomized patients will remain blindedfor an additional 6 weeks, totaling 12 weeks for the double‑blind phase. The primary endpoint will be the change in painintensity from baseline to week 12, measured using the NRS. We anticipate that the trial will enroll a total of approximately285 patients.15 Table of ContentsPlanned Phase 3 Trial in the Pain of Knee OA Associated with BMLs, the COAST‑1 StudyWe intend to initiate a Phase 3, randomized, double‑blind, placebo‑controlled trial to assess the efficacy and safetyof AXS‑02 in the treatment of the pain of knee OA associated with BMLs, which we refer to as the COAST‑1 study. This trialis anticipated to enroll approximately 346 patients with clinically diagnosed knee OA and at least one confirmed BML in theaffected knee on MRI. Eligible patients must be at least 50 years of age, either male or postmenopausal female, and have atleast moderate pain intensity. After a baseline period, patients meeting the entry criteria will be randomized in a 1:1 ratio toreceive either (1) AXS‑02 tablets once per week or (2) matching placebo tablets once per week, under fasting conditions for6 weeks. Randomized patients will remain blinded for an additional 18 weeks, totaling 24 weeks for the double‑blind phase.The primary endpoint is anticipated to be the change in pain intensity from baseline to week 24, measured using the NRS.We plan to initiate this trial in the first quarter of 2016.Planned Phase 3 Trial in CLBP Associated with MCsWe intend to initiate a Phase 3, randomized, double‑blind, placebo‑controlled trial to assess the efficacy and safetyof AXS‑02 in the treatment of CLBP associated with MCs. This trial is anticipated to enroll patients with low back painlasting at least 3 months and confirmed type 1 or mixed type 1 and type 2 MCs on MRI. After a baseline period, patientsmeeting the entry criteria will be randomized in a 1:1 ratio to receive either (1) AXS‑02 tablets once per week or (2) matchingplacebo tablets once per week, under fasting conditions for 6 weeks. Randomized patients will remain blinded for anadditional 6 weeks, totaling 12 weeks for the double‑blind phase. The primary endpoint is anticipated to be the change inpain intensity from baseline to week 12, measured using the NRS. We anticipate that the trial will enroll a total ofapproximately 300 patients. We plan to initiate this trial in the fourth quarter of 2016 or the first quarter of 2017.AXS‑05OverviewAXS‑05 is an innovative fixed‑dose combination of dextromethorphan and bupropion under development for thetreatment of CNS disorders. DM is active at multiple CNS receptors but is rapidly metabolized into dextrorphan, or DXO,when dosed alone. Our combination uses bupropion as a novel drug delivery method to inhibit DM metabolism and increaseits bioavailability. Bupropion itself is also active at distinct CNS receptors. The activity of the two components may providean additive or synergistic effect.AXS‑05 is potentially applicable to the treatment of a variety of CNS disorders, based on the mechanisms of actionof its two components. We are developing AXS‑05 initially as a therapeutic for treatment resistant depression and agitationin patients with Alzheimer’s disease.16 Table of ContentsScientific RationaleDM and bupropion each target different CNS receptor systems that are potentially relevant to the treatment of CNSdisorders. Combining the distinct and independent mechanisms of action of these two compounds may be additive orsynergistic in the treatment of depression and other CNS disorders. However, as shown in the figure above, DM is quicklyeliminated from the body following administration due to extensive first pass metabolism, which results in low blood levelseven at high doses. Attainment of potential therapeutic plasma levels of DM is therefore difficult when DM is dosed as asingle agent. We have demonstrated in two Phase 1 trials that co‑administration of bupropion and DM leads to substantiallyincreased DM plasma levels. This positive pharmacokinetic interaction between bupropion and DM therefore may enableDM’s clinical utility by increasing DM’s plasma levels into a potentially therapeutic range. We believe this dualpharmacodynamic and pharmacokinetic synergy results in a unique pharmacological profile that could potentially beefficacious in CNS disorders.Bupropion is a well‑characterized antidepressant that is chemically unrelated to tricyclic, tetracyclic, selectiveserotonin reuptake inhibitor, or other known antidepressant agents. It is an inhibitor of the neuronal uptake ofnorepinephrine and dopamine, and does not inhibit monoamine oxidase or the reuptake of serotonin. It is the onlyantidepressant currently available that is capable of selectively inhibiting both dopamine and norepinephrine reuptake.Bupropion was approved in the United States in 1985 and is marketed under the trade name Wellbutrin for the treatment ofmajor depressive disorder, or MDD, and under the trade name Zyban as an aid to smoking cessation.DM is a noncompetitive N‑methyl‑D‑aspartate, or NMDA, receptor antagonist, a sigma‑1 receptor agonist, and aninhibitor of the serotonin transporter, or SERT, and norepinephrine transporter, or NET. Each of these mechanisms of actionhas been shown to be associated with antidepressant response. DM is a well‑known agent that is used as an ingredient inover‑the‑counter cough and cold preparations. DM, in combination with quinidine, was approved by the FDA in 2010 for thetreatment of pseudobulbar affect, also known as emotional lability. Like bupropion in our product candidate, quinidine isused to inhibit the metabolism of DM and increase its plasma concentrations. Unlike bupropion, however, the quinidine inthe preparation does not have CNS activity.Treatment Resistant Depression (TRD)We are developing AXS‑05 for the treatment of TRD. Currently only one product, Symbyax, a combination ofolanzapine and fluoxetine, which is marketed by Eli Lilly and Company, is approved in the United States for the treatment ofTRD.17 Table of ContentsIndication OverviewPatients diagnosed with MDD are defined as having TRD if they have failed two or more antidepressant therapies.MDD is a serious condition characterized by depressed mood or a loss of interest or pleasure in daily activities consistentlyfor at least a two‑week period, and which impairs social, occupational, educational, or other important functioning. MDD ishighly prevalent and difficult to treat. According to the National Institute of Health, or NIH, an estimated 6.7% of U.S. adultsexperience MDD each year, while 3.3% of individuals 13 to 18 years of age experience a seriously debilitating depressivedisorder. Results of the Sequenced Treatment Alternatives to Relieve Depression, or STAR*D trial, funded by the NationalInstitute of Mental Health, indicate that nearly two‑thirds of diagnosed and treated patients do not experience adequatetreatment response with first‑line therapy, and that the majority of these initial failures also fail second‑line treatment. Basedon these observations, we estimate that there are approximately 3 million patients with TRD in the United States.Rationale for the Use of AXS‑05 in TRDThe rationale for the use of AXS‑05 in TRD is based on the mechanisms of action of DM, preclinical evidence ofantidepressant effects of DM, preliminary clinical evidence of antidepressant effects of DM when co‑administered with aninhibitor of its metabolism, and the established clinical efficacy of bupropion in MDD.Mechanistic rationale. DM’s mechanisms of action encompass those of several currently marketed antidepressantdrugs such as duloxetine (Cymbalta), fluoxetine (Prozac), and fluvoxamine (Luvox). Bupropion inhibits the reuptake ofdopamine and is a nicotinic acetylocholine receptor antagonist. The distinct mechanisms of action of DM and bupropionmay therefore be complementary. Additionally we believe that, if successfully developed, the NMDA receptor antagonistproperties of DM in AXS‑05 may potentially result in a faster onset of action than currently available antidepressanttreatments.Preclinical rationale. The effects of DM have been reported in two preclinical models of antidepressant effect. Inthe forced swim test model in mice, DM administered intraperitoneally resulted in antidepressant‑like effects in adose‑dependent manner. The forced swim test is considered to be the most well‑validated animal model for predictingantidepressant effect. Using the tail suspension test in mice, another widely used behavioral test for assessing antidepressantpotential, DM was also shown to display antidepressant‑like effects similar to those seen with imipramine, a conventionalantidepressant, and ketamine, a compound that has demonstrated fast‑acting antidepressant effects. In both models,inhibition of DM metabolism using quinidine was shown to potentiate the antidepressant‑like effects.Clinical Rationale. Administration of DM with an inhibitor of its metabolism has been shown to reduce depressivesymptoms, measured using the Beck Depression Inventory Second Edition, or BDI‑II, in a third‑party study. In a 326‑patient,randomized, double‑blind, placebo‑controlled trial in patients with pseudobulbar affect, co‑administration of DM and themetabolic inhibitor quinidine resulted in a statistically significant reduction in depressive symptoms as compared to placeboat the 30 mg DM / 10 mg quinidine dose at 12 weeks. Patients were excluded from the study if their BDI‑II score was greaterthan 19, with a score in the range of 0 to 13 corresponding to minimal depression and 14 to 19 corresponding to milddepression. Assessment of depressive symptoms was a pre‑specified secondary endpoint in this trial.According to the FDA package insert for the combination of DM and quinidine (Nuedexta), DM is thepharmacologically active ingredient of the DM / quinidine combination that acts on the CNS, with quinidine serving toincrease DM plasma levels. The plasma concentrations of DM, measured using AUC0‑12 and Cmax, achieved with AXS‑05administration in our Phase 1 trials are in the range of those associated with a 30 mg DM / 10 mg quinidine dose, based ondata published by the FDA.Agitation in Patients with Alzheimer’s Disease (AD)We intend to develop AXS‑05 for the treatment of agitation in patients with AD. There is currently noFDA‑approved pharmacological treatment for the indication of agitation in patients with AD.18 Table of ContentsIndication OverviewAD is a progressive neurodegenerative disorder that manifests initially as forgetfulness advancing to severecognitive impairment and memory loss. It is a common form of dementia and afflicts an estimated 5 million individuals inthe United States, a number that is anticipated to increase to approximately 14 million by 2050. In addition to cognitivedecline, individuals diagnosed with AD typically experience behavioral and psychological symptoms including agitationand aggression. These symptoms are seen in a high percentage of AD sufferers with agitation being reported in as many as40% of patients. Agitation is characterized by emotional distress, aggressive behaviors, disruptive irritability, anddisinhibition. Agitation in patients with AD has been associated with increased caregiver burden, decreased functioning,earlier nursing home placement, and death.Because there are no FDA‑approved pharmacological treatments for the indication of agitation in patients with AD,patients are currently treated off‑label with various agents including antipsychotics, which have been considered themainstay of treatment. These treatments however are limited by safety concerns. Typical antipsychotics prescribed foragitation, aggression, or insomnia are associated with functional decline in patients with AD, while studies indicate thatatypical antipsychotics may be associated with increased rates of cerebrovascular events in patients with dementia.Rationale for the Development of AXS‑05 in Agitation in Patients with ADThe rationale for the use of AXS‑05 for the treatment of agitation in patients with AD is based on the mechanisms ofaction of DM, and preliminary clinical evidence of the effect of DM when co‑administered with an inhibitor of itsmetabolism in agitation in patients with AD.Mechanistic rationale. Mechanisms of action of DM include NMDA receptor antagonism and sigma‑1 receptoragonism. Altered glutamate transmission via NMDA receptors has been suggested to play a role in behavioral changes indementia, and clinical evidence suggests that NMDA antagonism may reduce agitation and aggression in AD patients. Thepharmacologic action of agents used in the treatment of dementia, such as donepezil, and behavioral disorders, such asfluvoxamine, include sigma‑1 receptor agonism.Clinical Rationale. Administration of DM with an inhibitor of its metabolism has been shown to result in astatistically significant reduction in agitation in patients with AD. The effects of DM co‑administered with the metabolicinhibitor quinidine was studied in a third‑party, randomized, double‑blind, placebo‑controlled, two‑stage trial in 220patients with probable AD and clinically meaningful agitation. In stage 1 of the study, patients were randomized to receiveeither placebo or DM with quinidine (20 mg DM / 10 mg quinidine once per day, titrated to 30 mg DM / 10 mg quinidinetwice per day). In stage 2, patients initially on placebo were stratified according to response, then re‑randomized to placeboor active treatment (titrated as in stage 1). Each stage lasted five weeks. The primary endpoint was the change in theagitation/aggression domain of the Neuropsychiatric Inventory, or NPI, assessed by combining results from the two stages.The primary endpoint showed a statistically significant improvement with DM and quinidine as compared toplacebo. A statistically significantly greater reduction in the agitation/aggression domain of the NPI for active treatment ascompared to placebo was seen in both stage 1 as well as in stage 2 of the study. An experimental result, such as those derivedfrom a clinical or non-clinical study, is statistically significant if it is unlikely to have occurred by chance. The statisticalsignificance of experimental results is determined by a widely used statistical method that establishes the P value of theresults. A P value is a statistical measure of the probability that the difference in results between treatment and control groupsin a study could have occurred by chance. Under this method, the smaller the P value the greater the confidence that theresults are significant, and a P value of 0.05 or less is generally considered by the FDA to represent statistical significance.During stage 1, a reduction of 3.3 in the agitation/aggression domain of the NPI was seen for active treatment as compared toa reduction of 1.7 for placebo, with a P value that is less than 0.001. During stage 2, a reduction of 2.0 was observed for activetreatment as compared to a reduction of 0.8 for placebo, with a P value that is equal to 0.02. Average baseline values for theagitation/aggression domain of the NPI were 7.1 for the active treatment group and 7.0 for the placebo group. Statisticallysignificant improvements for the active treatment arm compared to placebo were also reported for the majority of secondaryendpoints including the NPI total score, NPI‑Caregiver Distress19 Table of ContentsScore, Caregiver Strain Index, and Cornell Scale for Depression in Dementia. Moreover, treatment with DM and themetabolic inhibitor was not associated with cognitive decline as measured by the Mini Mental State Examination.In the trial, patients were titrated to a 30 mg DM / 10 mg quinidine dose. According to the FDA package insert forNuedexta, DM is the pharmacologically active ingredient of the DM / quinidine combination that acts on the CNS, withquinidine serving to increase DM plasma levels. The plasma concentrations of DM, measured using AUC0‑12 and Cmax,achieved with AXS‑05 administration in our Phase 1 trials are in the range of those associated with a 30 mg DM / 10 mgquinidine dose, based on data published by the FDA.Clinical Development of AXS‑05We are developing AXS‑05 and intend to seek FDA approval for the product utilizing the 505(b)(2) regulatorypathway. We have completed two Phase 1 pharmacokinetic clinical trials of AXS‑05 under clinical trial applications withHealth Canada. In both studies, administration of bupropion in combination with DM resulted in a substantial increase inDM plasma concentrations measured using Cmax and AUC at all doses tested.We held a pre‑IND meeting with the FDA in February 2015 where we discussed our clinical development plan forAXS‑05 in TRD. Based on that meeting, we submitted an investigational new drug application, or IND, to the FDA and weplan to conduct two Phase 3 trials of AXS‑05 in TRD to support an NDA filing for this indication.In March 2016, we initiated the STRIDE-1 study, a Phase 3, randomized, double‑blind, active‑controlled trial toassess the efficacy and safety of AXS‑05 in the treatment of TRD. We plan to meet with the FDA this year to discuss our plansto conduct a controlled trial of AXS‑05 in agitation in patients with AD.Completed Phase 1 Trials of AXS‑05We have completed two Phase 1 pharmacokinetic clinical trials of AXS‑05. The objectives of these trials were toassess the pharmacokinetics of DM when co‑administered with bupropion, and to assess the safety and tolerability of thecombination. In these Phase 1 trials, the components of AXS‑05, DM and bupropion, were co‑administered as separatetablets. In both studies, administration of bupropion in combination with DM resulted in substantial increases in DM plasmaconcentrations measured using Cmax and AUC at all doses tested.The first Phase 1 trial was a randomized, multiple‑dose, open‑label study to determine the pharmacokinetics of DMwhen various doses of DM are administered concomitantly with bupropion under fasting conditions, as well as the safety ofthe combination. Subjects were randomized to receive twice‑daily administrations of 150 mg of bupropion in combinationwith DM at various doses up to 60 mg, or 60 mg of DM alone, for 8 consecutive days. Bupropion was titrated with subjectsbeing dosed once daily for the first 3 days, then twice daily thereafter. A total of 32 healthy, adult volunteers were includedin this study in four treatment groups. Full pharmacokinetic assessments were made on Day 1 and Day 8. For the dose of60 mg of DM / 150 mg of bupropion, AUC0‑12 and Cmax values on Day 8 for DM when dosed in combination withbupropion were approximately 60 times and 40 times, respectively, the values for DM when dosed alone. For all doses tested,administration of DM in combination with bupropion resulted in substantial increases in AUC0‑12 and Cmax values of DMon Day 8 as compared to Day 1 of dosing. DM exposure measured using AUC and Cmax increased in a dose dependentmanner with increasing doses of DM. Administration of DM did not appear to affect the pharmacokinetics of bupropion.There were no reported serious adverse events in the trial. The majority of treatment‑emergent adverse eventsexperienced were graded as mild or moderate in severity, and had resolved by the end of the study. The most commonlyreported adverse events were dizziness, nausea, headache, insomnia, dry mouth, constipation, hypoesthesia, palpitation,disturbance in attention, tremor, and hyperhidrosis. Adverse events were reported more frequently in the AXS‑05 arm ascompared to the DM‑only arm. The majority of these adverse events were expected with the administration of bupropion,having been already reported in the FDA package inserts for products containing bupropion.The second Phase 1 trial was a randomized, multiple‑dose, open‑label study to determine the pharmacokinetics ofDM when various doses of DM are administered concomitantly with various doses of bupropion and to assess safety20 Table of Contentsduring co‑administration of bupropion and DM. A total of 40 healthy, adult volunteers were included in this study in fivetreatment groups. Subjects were randomized to receive twice‑daily administration of either 150 mg of bupropion alone, orcombinations of varying doses of bupropion and DM for 8 consecutive days. Bupropion was titrated with subjects beingdosed once daily for the first 3 days, then twice daily thereafter. Full pharmacokinetic assessments were made on Day 1 andDay 8. Similar to the results in our first study, administration of DM in combination with bupropion resulted in substantialincreases in AUC0‑12 and Cmax values of DM on Day 8 as compared to Day 1 of dosing for all combinations tested. DMexposure measured using AUC and Cmax increased in a dose‑dependent manner as doses of either DM or bupropion wereincreased. Administration of DM did not appear to affect the pharmacokinetics of bupropion.There were no reported serious adverse events in the trial. The majority of treatment‑emergent adverse eventsexperienced were graded as mild in severity, and had resolved by the end of the study. The most commonly reported adverseevents were headache, nausea, dizziness, fatigue, increased heart rate, palpitations, constipation, diarrhea, increased bloodpressure, and tremor. No particular trend was observed when comparing the rates or types of adverse events in thecombination groups as compared to the group receiving bupropion alone.Ongoing STRIDE-1 StudyIn March 2016, we initiated a Phase 3, randomized, double‑blind, active‑controlled trial to assess the efficacy andsafety of AXS‑05 in the treatment of TRD. Patients with MDD who have previously failed one or two antidepressanttreatments will be treated in an open‑label fashion with bupropion during a 6‑week lead‑in period. Patients who fail torespond to bupropion during this lead‑in period will be considered to have TRD and will be randomly assigned in a 1:1 ratioto receive bupropion or AXS‑05 in a double‑blind fashion for 6 weeks. The primary endpoint is anticipated to be the changein the Montgomery‑Asberg Depression Rating Scale after 6 weeks of treatment. We anticipate that the trial will enroll a totalof approximately 346 randomized patients.Planned Phase 3 Trial of AXS‑05 in Agitation in Patients with ADWe plan to meet with the FDA this year to discuss our development plans for AXS‑05 in agitation in patients withAD. Pending the results of this meeting, we intend to conduct a controlled trial to assess the efficacy and safety of AXS‑05 inAD patients with agitation.Preclinical ProgramsWe have one active program, AXS‑06, in preclinical development. We are currently conducting formulation workfor this program. Following formulation, we plan to conduct a preclinical study to assess the pharmacokinetics of AXS‑06prior to potentially advancing it into clinical trials.Commercial AgreementsWe have customary clinical supply agreements and customary agreements with clinical research organizations tohelp manage our clinical trials. Each of our commercial agreements are non‑exclusive, and we have no material contractualobligations under such agreements, except to the extent we order supply or request services to be performed.Material License AgreementsIn 2012, we entered into three exclusive license agreements with Antecip Bioventures II LLC, or Antecip, an entityowned by our Chief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., in which we were grantedexclusive licenses to develop, manufacture, and commercialize Antecip’s patents and applications related to thedevelopment of AXS‑02 and AXS‑05, as well as AXS‑04, a product candidate that is currently in early stage development,anywhere in the world for veterinary and human therapeutic and diagnostic use. The agreements were amended in August2015 to update the schedule of patents and applications subject to the license agreements. Pursuant to the agreements, we arerequired to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize AXS‑02,AXS‑05, and AXS‑04. Under the terms of the agreements, we are required to pay to Antecip a royalty equal to 4.5% forAXS‑02, 3.0% for AXS‑05, and 1.5% for AXS‑04, of net sales of products containing the21 Table of Contentslicensed technology by us, our affiliates, or permitted sublicensees. These royalty payments are subject to reduction by anamount up to 50.0% of any required payments to third parties. Unless earlier terminated by a party for cause or by us forconvenience, the agreements remain in effect on a product‑by‑product and country‑by‑country basis until the later to occurof (1) the applicable product is no longer covered by a valid claim in that country or (2) 10 years from the first commercialsale of the applicable product in that country. Upon expiration of the agreements with respect to a product in a country, ourlicense grant for that product in that country will become a fully paid‑up, royalty‑free, perpetual non‑exclusive license. IfAntecip terminates any of the agreements for cause, or if we exercise our right to terminate any of the agreements forconvenience, the rights granted to us under such terminated agreement will revert to Antecip. To date, we have not beenrequired to make any payments to Antecip under any of the license agreements.Intellectual PropertyWe seek to protect our product candidates and our technology through a combination of patents, trade secrets,proprietary know‑how, FDA and EMA exclusivity, and contractual restrictions on disclosure. Our policy is to pursue,maintain, and defend patent rights whether developed internally or licensed from third parties and to protect the proprietaryposition of our product candidates by, among other methods, filing U.S. and foreign patent applications related to ourproprietary technology, inventions, and improvements that are important to the development of our business. U.S. patentsgenerally have a term of 20 years from the earliest effective date of the application.As of March 22, 2016, our intellectual property portfolio contains 27 issued patents and 5 allowed and more than 45pending applications in the United States and worldwide. Twenty-one issued patents and 3 allowed and more than 20pending patent applications covering our AXS‑02 product candidate, and related compounds, have claims covering methodof delivery, pharmacokinetics, composition of matter, and methods of use with protection extending through 2034 for bothour issued patents and pending applications. In addition to patent protections, our AXS‑02 program, if approved, may also beafforded potential exclusivity by the FDA’s and EMA’s orphan drug designation programs for CRPS, which provide 7 yearsand 10 to 12 years of exclusivity, respectively. Six issued patents and 2 allowed and more than 10 pending patentapplications covering our AXS‑05 product candidate have claims covering pharmaceutical composition, drug delivery, andpharmacokinetics with protection extending through 2034 for our issued and allowed patents, as well as our pendingapplications. An “allowed” patent application is one which, having been examined by the USPTO, is approved to issue as apatent, subject to payment of the issue fee by the applicant. Its status as an “allowed” patent application continues from thedate of the notice of allowance until it is withdrawn from issue, it issues as a patent, or it becomes abandoned. We havepending PCT applications, as well as pending applications in Australia, Canada, China, Europe, Hong Kong, Japan, SouthKorea, and New Zealand. We have other patent applications with claims covering the other programs in our pipeline,including those that are not relevant to our current programs in development. We have licensed the patents and pendingapplications which cover AXS‑02, AXS‑04, and AXS‑05 from Antecip. All of the other components of our intellectualproperty portfolio are owned by Axsome.Many pharmaceutical companies, biotechnology companies, and academic institutions are competing with us in thefield of pain and CNS disorders and filing patent applications potentially relevant to our business. In order to contend withthe inevitable possibility of third‑party intellectual property conflicts, from time to time we review and assess the third‑partyintellectual property landscape for competitive and other developments that may inform or impact our intellectual propertydevelopment and commercialization strategies. With respect to third‑party intellectual property, it is impossible to establishwith certainty that our product candidates or discovery platform will be free of claims by third‑party intellectual propertyholders or whether we will require licenses from such third parties. Even with modern databases and on‑line search engines,literature searches are imperfect and may fail to identify relevant patents and published applications. Even when a third‑partypatent is identified, we may conclude, upon a thorough analysis, that we do not infringe the patent or that the patent isinvalid. If the third‑party patent owner disagrees with our conclusion and we continue with the business activity in question,we might have patent litigation forced upon us. Alternatively, we might decide to initiate litigation in an attempt to have acourt declare the third‑party patent invalid or not infringed by our activity. In either scenario, patent litigation typically iscostly and time consuming, and the outcome is uncertain. The outcome of patent litigation is subject to uncertainties thatcannot be quantified in advance, for example, the credibility of expert witnesses who may disagree on technicalinterpretation of scientific data. Ultimately, in the case of an adverse outcome in litigation, we could be prevented fromcommercializing a product or using certain aspects of our discovery platform as a result of patent infringement claimsasserted against us. This could have a material adverse effect on our22 Table of Contentsbusiness. In addition to patents, we rely upon unpatented trade secrets, know‑how, and continuing technological innovationto develop and maintain a competitive position. We seek to protect our proprietary information, including our trade secretsand proprietary know‑how, by requiring our employees to execute Proprietary Information, Inventions, Non‑Solicitation, andNon‑Competition Agreements upon the commencement of their employment. Consultants and other advisors are required tosign consulting agreements. These agreements generally provide that all confidential information developed or made knownduring the course of the relationship with us be kept confidential and not be disclosed to third parties except in specificcircumstances. In the case of our employees, the agreements also typically provide that all inventions resulting from workperformed for us, utilizing our property, or relating to our business and conceived or completed during employment shall beour exclusive property to the extent permitted by law. Further, we require confidentiality agreements from entities thatreceive our confidential data or materials.Sales and MarketingWe intend to build a commercial infrastructure in the United States in advance of anticipated drug approval of ourproduct candidates. We believe that we can cost‑effectively implement a targeted sales force required to commercialize ourproducts, if approved, in the United States for the treatment of pain associated with CRPS, the pain of knee OA associatedwith BMLs, and CLBP associated with MCs. Support for this team will include sales management, internal sales support,distribution support, and an internal marketing group. Additional requisite capabilities will include focused management ofkey accounts such as managed care organizations, group purchasing organizations, and government accounts. We may seekco‑promotion partners for our sales efforts to reach other United States physician groups, such as primary care physicians. Webelieve that there are significant market opportunities for our products outside of the United States. As a result, we plan toseek strategic partnerships with third parties, which may have greater reach and resources by virtue of their size andexperience in the field, for the development and commercialization of our products outside the United States. We may electin the future to utilize strategic partners, distributors, or contract sales forces to assist in the commercialization of ourproducts. In order to implement this infrastructure, we will have to allocate management resources and make significantfinancial investments including some prior to product approval.Scientific AdvisorsIn March 2015, we formed a Depression Scientific Advisory Board, or SAB, composed of leading experts in the areasof depression, FDA regulations, and clinical trial design. These experts provide key scientific, clinical, and strategicguidance concerning our development programs in depression and other CNS disorders. The following members wereappointed to our Depression SAB: Maurizio Fava, M.D., Director of the Clinical Research Program and Executive Vice Chairof the Department of Psychiatry at Massachusetts General Hospital, and Slater Family Professor of Psychiatry at HarvardMedical School; Thomas Laughren, M.D., retired Division Director of the FDA’s Division of Psychiatry Products; and DanIosifescu, M.D., Director of the Mood and Anxiety Disorders Program and Associate Professor of Psychiatry and Neuroscienceat the Icahn School of Medicine at Mount Sinai, and Consultant in Psychiatry at Massachusetts General Hospital. We alsobenefit from the guidance of our other scientific advisors in the areas of CRPS, knee OA, CLBP, and pain clinical trial design.CompetitionOverviewOur industry is highly competitive and subject to rapid and significant technological change. The large size andexpanding scope of the pain and CNS markets make them attractive therapeutic areas for biopharmaceutical businesses. Ourpotential competitors include pharmaceutical, biotechnology, and specialty pharmaceutical companies. While we believethat our employees and consultants, scientific knowledge, technology, and development experience provide us withcompetitive advantages, we face potential competition from many different sources, including major pharmaceutical,specialty pharmaceutical, and biotechnology companies, academic institutions and governmental agencies, and public andprivate research institutions. Several of these entities have robust drug pipelines, readily available capital, and establishedresearch and development organizations. Any product candidates that we successfully develop and commercialize willcompete with existing therapies and new therapies that may become available in the future. Many of our competitors mayhave significantly greater financial resources and expertise in research and23 Table of Contentsdevelopment, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals, and marketingapproved products than we do. Mergers and acquisitions in the pharmaceutical, biotechnology, and diagnostic industriesmay result in even more resources being concentrated among a smaller number of our competitors. These competitors alsocompete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical trialsites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, ourprograms. Small or early stage companies may also prove to be significant competitors, particularly through collaborativearrangements with large and established companies. The key competitive factors affecting the success of all of our productcandidates, if approved, are likely to be their efficacy, safety, convenience, price, the level of branded and genericcompetition, and the availability of reimbursement from government and other third‑party payors.AXS‑02 CompetitionThere are no drugs approved by the FDA or the EMA for the treatment of pain associated with CRPS, althoughvarious classes of pain medications, such as NSAIDs and opioids, are used off‑label. We are aware of other companiesworking to develop therapeutics for the treatment of pain associated with CRPS, including Grunenthal GmbH and TharPharmaceuticals, Inc. Companies working to develop therapeutics for the treatment of pain associated with knee OA includeCarbylan Therapeutics, Inc.; Flexion Therapeutics, Inc.; and Levolta Pharmaceuticals, Inc., which is developing an IVzoledronic acid product for the treatment of knee OA. We are aware of two companies attempting to develop oral dosageforms of zoledronic acid for various indications, Merrion Pharmaceuticals plc and Thar Pharmaceuticals, Inc.AXS‑05 CompetitionThere is one product approved for the treatment of TRD, Symbyax, which is marketed by Eli Lilly and Company. Inaddition, Otsuka Pharmaceutical Co. Ltd. is working to develop a combination of DM and quinidine for the treatment ofTRD. We are aware of several other companies developing compounds for the treatment of TRD including Alkermes plc;Allergan plc; and Janssen Research & Development, LLC. We are aware of other companies working to develop therapeuticsfor the treatment of agitation in patients with AD, including Otsuka Pharmaceutical Co. Ltd., which is working to develop acombination of DM and quinidine in this indication, and Transition Therapeutics Inc.ManufacturingManufacturing of drugs and product candidates, including AXS‑02 and AXS‑05, must comply with FDA currentgood manufacturing practice, or cGMP, regulations. AXS‑02 and AXS‑05 comprise synthetic small molecules made througha series of organic chemistry steps starting with commercially available organic chemical raw materials. We do not currentlyown or operate any manufacturing facilities for the clinical or commercial production of our drug candidates. We conductmanufacturing activities under individual purchase orders with independent contract manufacturing organizations, or CMOs,to supply our clinical trials. We conduct periodic quality audits of their facilities. We believe that our existing suppliers ofAXS‑02 and AXS‑05 active pharmaceutical ingredients and finished products will be capable of providing sufficientquantities of each to meet our clinical trial supply needs. Other CMOs may be used in the future for clinical supplies and,subject to approval, commercial manufacturing.24 Table of ContentsGovernment Regulation and Product ApprovalGovernment authorities in the United States, at the federal, state, and local level, and in other countries, extensivelyregulate, among other things, the research, development, testing, manufacture, packaging, storage, recordkeeping, labeling,advertising, promotion, distribution, marketing, import, and export of pharmaceutical products such as those we aredeveloping. In addition, manufacturers of pharmaceutical products participating in Medicaid and Medicare are required tocomply with mandatory price reporting, discount, and rebate requirements. The processes for obtaining regulatory approvalsin the United States and in foreign countries, along with subsequent compliance with applicable statutes and regulations,require the expenditure of substantial time and financial resources.FDA RegulationIn the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or FDCA, and itsimplementing regulations. The process required by the FDA before product candidates may be marketed in the United Statesgenerally involves the following:•completion of preclinical laboratory tests, animal studies, and formulation studies in compliance with the FDA’sGood Laboratory Practice, or GLP, regulations;•submission to the FDA of an IND which must become effective before human clinical trials may begin;•approval by an independent Institutional Review Board, or IRB, for each clinical site or centrally, before eachtrial may be initiated;•adequate and well‑controlled human clinical trials to establish the safety and efficacy of the proposed drugcandidates for its intended use, performed in accordance with current Good Clinical Practices, or GCP;•development of manufacturing processes to ensure the drug’s identity, strength, quality, and purity;•submission to the FDA of an NDA;•satisfactory completion of an FDA advisory committee review, if applicable;•satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product isproduced to assess compliance with cGMPs, and to assure that the facilities, methods, and controls are adequateto preserve the drug’s identity, strength, quality, and purity, as well as satisfactory completion of an FDAinspection of selected clinical sites and selected clinical investigators to determine GCP compliance; and•FDA review and approval of the NDA to permit commercial marketing for particular indications for use.Preclinical Studies and IND SubmissionThe testing and approval process of product candidates requires substantial time, effort, and financial resources.Preclinical studies include laboratory evaluation of drug substance chemistry, pharmacology, toxicity, and drug productformulation, as well as animal studies to assess potential safety and efficacy. Such studies must generally be conducted inaccordance with the FDA’s Good Laboratory Practices. Prior to commencing the first clinical trial with a product candidate,an IND sponsor must submit the results of the preclinical tests and preclinical literature, together with manufacturinginformation, analytical data, any available clinical data or literature, and proposed clinical study protocols, among otherthings, to the FDA as part of an IND. In the case of 505(b)(2) applications, though, some of the IND components may not berequired. Some preclinical testing may continue even after the IND is submitted.An IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30‑day timeperiod, notifies the applicant of safety concerns or questions related to one or more proposed clinical trials and25 Table of Contentsplaces the trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns beforethe clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during trials due to safetyconcerns or noncompliance. As a result, submission of an IND may not result in FDA authorization to commence a clinicaltrial.Clinical TrialsClinical trials involve the administration of the investigational new drug to human subjects under the supervision ofqualified investigators in accordance with GCP requirements, which include the requirements that all research subjectsprovide their informed consent in writing for their participation in any clinical trial, as well as review and approval of thestudy by an IRB. Investigators must also provide certain information to the clinical trial sponsors to allow the sponsors tomake certain financial disclosures to the FDA. Clinical trials are conducted under protocols detailing, among other things,the objectives of the trial, the trial procedures, the parameters to be used in monitoring safety, the effectiveness criteria to beevaluated, and a statistical analysis plan. A protocol for each clinical trial, and any subsequent protocol amendments, mustbe submitted to the FDA as part of the IND. In addition, an IRB at each study site participating in the clinical trial or a centralIRB must review and approve the plan for any clinical trial, informed consent forms, and communications to study subjectsbefore a study commences at that site. An IRB considers, among other things, whether the risks to individuals participating inthe trials are minimized and are reasonable in relation to anticipated benefits and whether the planned human subjectprotections are adequate. The IRB must continue to oversee the clinical trial while it is being conducted. Once an IND is ineffect, each new clinical protocol and any amendments to the protocol must be submitted to the IND for FDA review, and tothe IRB for approval. Progress reports detailing the results of the clinical trials must also be submitted at least annually to theFDA and the IRB and more frequently if serious adverse events or other significant safety information is found.Information about certain clinical trials, including a description of the study and study results, must be submittedwithin specific timeframes to the National Institutes of Health, or NIH, for public dissemination on their clinicaltrials.govwebsite.Additionally, some clinical trials are overseen by an independent group of qualified experts organized by theclinical trial sponsor, known as a data safety monitoring board or committee. This group regularly reviews accumulated dataand advises the study sponsor regarding the continuing safety of trial subjects, enrollment of potential trial subjects, and thecontinuing validity and scientific merit of the clinical trial. The data safety monitoring board receives special access tounblinded data during the clinical trial and may advise the sponsor to halt the clinical trial if it determined there is anunacceptable safety risk for subjects or on other grounds, such as no demonstration of efficacy.The manufacture of investigational drugs for the conduct of human clinical trials is subject to cGMP requirements.Investigational drugs and active pharmaceutical ingredients imported into the United States are also subject to regulation bythe FDA relating to their labeling and distribution. Further, the export of investigational drug products outside of the UnitedStates is subject to regulatory requirements of the receiving country as well as U.S. export requirements under the FDCA.In general, for purposes of NDA approval, human clinical trials are typically conducted in three sequential phases,which may overlap or be combined.•Phase 1—Studies are initially conducted in healthy human volunteers or subjects with the target disease orcondition and test the product candidate for safety, dosage tolerance, structure‑activity relationships,mechanism of action, absorption, metabolism, distribution, and excretion. If possible, Phase 1 trials may also beused to gain an initial indication of product effectiveness.•Phase 2—Controlled studies are conducted in limited subject populations with a specified disease or conditionto evaluate preliminary efficacy, identify optimal dosages, dosage tolerance and schedule, possible adverseeffects and safety risks, and expanded evidence of safety.•Phase 3—These adequate and well‑controlled clinical trials are undertaken in expanded subject populations,generally at geographically dispersed clinical trial sites, to generate enough data to provide statisticallysignificant evidence of clinical efficacy and safety of the product for approval, to establish the26 Table of Contentsoverall risk‑benefit profile of the product, and to provide adequate information for the labeling of the product.Typically, two Phase 3 trials are required by the FDA for product approval.The FDA may also require, or companies may conduct, additional clinical trials for the same indication after aproduct is approved. These so‑called Phase 4 studies may be made a condition to be satisfied after approval. The results ofPhase 4 studies can confirm the effectiveness of a product candidate and can provide important safety information.In the case of a 505(b)(2) NDA, which is a marketing application in which sponsors may rely on investigations thatwere not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from theperson by or for whom the investigations were conducted, some of the above‑described studies and preclinical studies maynot be required or may be abbreviated. Bridging studies may be needed, however, to demonstrate the applicability of thestudies that were previously conducted by other sponsors to the drug that is the subject of the marketing application.Phase 1, Phase 2, and Phase 3 clinical trials may not be completed successfully within any specified period, or at all.Regulatory authorities, an IRB, or the sponsor may suspend or discontinue a clinical trial at any time on various grounds,including a finding that the subjects are being exposed to an unacceptable health risk, the clinical trial is not beingconducted in accordance with the FDA’s or the IRB’s requirements, if the drug has been associated with unexpected seriousharm to the subjects, or based on evolving business objectives or competitive climate.Concurrent with clinical trials, companies usually complete additional animal studies and must also developadditional information about the chemistry and physical characteristics of the product candidate as well as finalize a processfor manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing processmust be capable of consistently producing quality batches of the product candidate and, among other things, must developmethods for testing the identity, strength, quality, potency, and purity of the final product. Additionally, appropriatepackaging must be selected and tested, and stability studies must be conducted to demonstrate that the product candidatedoes not undergo unacceptable deterioration over its shelf life.During the development of a new drug, a sponsor may be able to request a Special Protocol Assessment, or SPA, thepurpose of which is to reach agreement with the FDA on the Phase 3 clinical trial protocol design and analysis that will formthe primary basis of an efficacy claim as well as preclinical carcinogenicity trials and stability studies. An SPA may only bemodified with the agreement of the FDA and the trial sponsor or if the director of the FDA reviewing division determines thata substantial scientific issue essential to determining the safety or efficacy of the drug was identified after the testing began.An SPA is intended to provide assurance that, in the case of clinical trials, if the agreed‑upon clinical trial protocol isfollowed, the clinical trial endpoints are achieved, and there is a favorable risk‑benefit profile, the data may serve as theprimary basis for an efficacy claim in support of an NDA. However, SPA agreements are not a guarantee of an approval of aproduct candidate or any permissible claims about the product candidate. In particular, SPAs are not binding on the FDA if,among other reasons, previously unrecognized public health concerns arise during the performance of the clinical trial, othernew scientific concerns regarding the product candidate’s safety or efficacy arise, or if the sponsoring company fails tocomply with the agreed upon clinical trial protocol.NDA Submission, Review by the FDA, and Marketing ApprovalAssuming successful completion of the required clinical and preclinical testing, the results of product development,including chemistry, manufacture, and controls, non‑clinical studies, and clinical trial results, including negative orambiguous results as well as positive findings, are all submitted to the FDA, along with the proposed labeling, as part of anNDA requesting approval to market the product for one or more indications. In most cases, the submission of an NDA issubject to a substantial application user fee. These user fees must be paid at the time of the first submission of the application,even if the application is being submitted on a rolling basis. Fee waivers or reductions are available in certain circumstances.One basis for a waiver of the application user fee is if the applicant employs fewer than 500 employees, including employeesof affiliates, the applicant does not have an approved marketing application for a product that has been introduced ordelivered for introduction into interstate commerce, and the applicant, including its affiliates, is submitting its first marketingapplication. Product candidates that are designated as orphan drugs, which are27 Table of Contentsfurther described below, are also not subject to application user fees unless the application includes an indication other thanthe orphan indication.In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA for a new activeingredient, indication, dosage form, dosage regimen, or route of administration must contain data that are adequate to assessthe safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to supportdosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may, on itsown initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until afterapproval of the product for use in adults, or full or partial waivers from the pediatric data requirements. The FDA also mayrequire submission of a risk evaluation and mitigation strategy, or REMS, to ensure that the benefits of the drug outweigh therisks of the drug. The REMS plan could include medication guides, physician communication plans, and elements to assuresafe use, such as restricted distribution methods, patient registries, or other risk minimization tools. An assessment of theREMS must also be conducted at set intervals. Following product approval, a REMS may also be required by the FDA if newsafety information is discovered and the FDA determines that a REMS is necessary to ensure that the benefits of the drugoutweigh the risks of the drug.Once the FDA receives an application, it has 60 days to review the NDA to determine if it is substantially completeto permit a substantive review, before it accepts the application for filing. The FDA may request additional information ratherthan accept an NDA for filing. In this event, the application must be resubmitted with the additional information. Theresubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted forfiling, the FDA begins an in‑depth substantive review of the NDA.Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, the FDA hasset the review goal of completing its review of 90% of all applications within ten months from the 60‑day filing date for itsinitial review of a standard NDA for a New Molecular Entity, or NME. For non‑NME standard applications, the FDA has setthe goal of completing its review of 90% of all applications within ten months from the submission date. Such deadlines arereferred to as the PDUFA date. The PDUFA date is only a goal, thus, the FDA does not always meet its PDUFA dates. Thereview process and the PDUFA date may also be extended if the FDA requests or the NDA sponsor otherwise providessubstantial additional information or clarification regarding the submission.The FDA must refer applications for drugs that contain active ingredients, including any ester or salt of the activeingredients, that have not previously been approved by the FDA to an advisory committee or provide in an action letter asummary for not referring it to an advisory committee. The FDA may also refer drugs to advisory committees when it isdetermined that an advisory committee’s expertise would be beneficial to the regulatory decision‑making process, includingthe evaluation of novel products and the use of new technology. An advisory committee is typically a panel that includesclinicians and other experts, which review, evaluate, and make a recommendation as to whether the application should beapproved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but itconsiders such recommendations carefully when making decisions.The FDA reviews applications to determine, among other things, whether a product is safe and effective for itsintended use and whether the manufacturing methods and controls are adequate to assure and preserve the product’s identity,strength, quality, safety, potency, and purity. Before approving an NDA, the FDA typically will inspect the facility orfacilities where the product is manufactured, referred to as a Pre‑Approval Inspection. The FDA will not approve anapplication unless it determines that the manufacturing processes and facilities, including contract manufacturers andsubcontractors, are in compliance with cGMP requirements and adequate to assure consistent production of the productwithin required specifications. Additionally, before approving an NDA the FDA will inspect one or more clinical trial sites toassure compliance with GCPs.The approval process is lengthy and difficult and the FDA may refuse to approve an NDA if the applicableregulatory criteria are not satisfied or may require additional clinical data or other data and information. Even if such dataand information are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Dataobtained from clinical trials are not always conclusive and the FDA may interpret data differently than an applicant interpretsthe same data.28 Table of ContentsAfter evaluating the NDA and all related information, including the advisory committee recommendation, if any,and inspection reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or,in some cases, a Complete Response Letter, or CRL. If a CRL is issued, the applicant may either resubmit the NDA,addressing all of the deficiencies identified in the letter; withdraw the application; or request an opportunity for a hearing. ACRL indicates that the review cycle of the application is complete and the application is not ready for approval and describesall of the specific deficiencies that the FDA identified in the NDA. A CRL generally contains a statement of specificconditions that must be met in order to secure final approval of the NDA, and may require additional clinical or preclinicaltesting in order for the FDA to reconsider the application. The deficiencies identified may be minor, for example, requiringlabeling changes; or major, for example, requiring additional clinical trials. The FDA has the goal of reviewing 90% ofapplication resubmissions in either two or six months of the resubmission date, depending on the kind of resubmission. Evenwith submission of this additional information, the FDA ultimately may decide that the application does not satisfy theregulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction, the FDA may issue anapproval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information forspecific indications.Even if the FDA approves a product, it may limit the approved indications for use of the product, require thatcontraindications, warnings, or precautions be included in the product labeling, including a boxed warning, require thatpost‑approval studies, including Phase 4 clinical trials, be conducted to further assess a drug’s safety and efficacy afterapproval, require testing and surveillance programs to monitor the product after commercialization, or impose otherconditions, including distribution restrictions or other risk management mechanisms under a REMS which can materiallyaffect the potential market and profitability of the product. The FDA may also not approve label statements that are necessaryfor successful commercialization and marketing.After approval, some types of changes to the approved product, such as adding new indications, manufacturingchanges, and additional labeling claims, are subject to further testing requirements and FDA review and approval. The FDAmay also withdraw the product approval if compliance with the pre‑ and post‑marketing regulatory standards are notmaintained or if problems occur after the product reaches the marketplace. Further, should new safety information arise,additional testing, product labeling, or FDA notification may be required.505(b)(2) Approval ProcessSection 505(b)(2) of the FDCA, provides an alternate regulatory pathway to FDA approval for new or improvedformulations or new uses of previously approved drug products. Specifically, Section 505(b)(2) was enacted as part of theDrug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch‑Waxman Amendments,and permits the filing of an NDA where at least some of the information required for approval comes from studies notconducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person byor for whom the investigations were conducted. The applicant may rely upon the FDA’s prior findings of safety andeffectiveness for an approved product that acts as the reference listed drug or on published scientific literature, in support ofits application. The FDA may also require 505(b)(2) applicants to perform additional studies or measurements to support thechanges from the reference listed drug as well as bridging studies to the reference listed drug. The FDA may then approve thenew product candidate for all or some of the labeled indications for which the referenced product has been approved, as wellas for any new indication sought by the Section 505(b)(2) applicant.Orange Book ListingSection 505 of the FDCA describes three types of marketing applications that may be submitted to the FDA torequest marketing authorization for a new drug. A Section 505(b)(1) NDA is an application that contains full reports ofinvestigations of safety and efficacy. A Section 505(b)(2) NDA is an application in which the applicant, in part, relies oninvestigations that were not conducted by or for the applicant and for which the applicant has not obtained a right ofreference or use from the person by or for whom the investigations were conducted. Section 505(j) establishes an abbreviatedapproval process for a generic version of approved drug products through the submission of an Abbreviated New DrugApplication, or ANDA. An ANDA provides for marketing of a generic drug product that has the same active ingredients,dosage form, strength, route of administration, labeling, performance characteristics, and intended use, among other things, toa previously approved product. Limited changes must be pre‑approved by the FDA via a suitability petition. ANDAs aretermed “abbreviated” because they are generally not required to include preclinical and29 Table of Contentsclinical data to establish safety and efficacy. Instead, generic applicants must scientifically demonstrate that their product isbioequivalent to, or performs in the same manner as, the innovator drug through in vitro, in vivo, or other testing. Thegeneric version must deliver the same amount of active ingredients into a subject’s bloodstream in the same amount of timeas the innovator drug and can often be substituted by pharmacists under prescriptions written for the reference listed drug.In seeking approval for a drug through an NDA, including a 505(b)(2) NDA, applicants are required to list with theFDA certain patents whose claims cover the applicant’s product and method of use. Upon approval of an NDA, each of thepatents listed in the application for the drug is then published in Approved Drug Products with Therapeutic EquivalenceEvaluations, also known as the Orange Book. These products may be cited by potential competitors in support of approval ofan ANDA or 505(b)(2) NDA.Any applicant who files an abbreviated new drug application, or ANDA, seeking approval of a generic equivalentversion of a drug listed in the Orange Book or a 505(b)(2) NDA referencing a drug listed in the Orange Book must makepatent certifications to the FDA that: (1) no patent information on the drug or method of use that is the subject of theapplication has been submitted to the FDA; (2) the patent has expired; (3) the date on which the patent has expired andapproval will not be sought until after the patent expiration; or (4) the patent is invalid or will not be infringed upon by themanufacture, use, or sale of the drug product for which the application is submitted. The last certification is known as aparagraph IV certification. Generally, the ANDA or 505(b)(2) NDA cannot be approved until all listed patents have expired,except where the ANDA or 505(b)(2) NDA applicant challenges a listed patent through a paragraph IV certification or if theapplicant is not seeking approval of a patented method of use. If the applicant does not challenge the listed patents or doesnot indicate that it is not seeking approval of a patented method of use, the ANDA or 505(b)(2) NDA application will not beapproved until all of the listed patents claiming the referenced product have expired.If the competitor has provided a paragraph IV certification to the FDA, the competitor must also send notice of theparagraph IV certification to the holder of the NDA for the reference listed drug and the patent owner within 20 days after theapplication has been accepted for filing by the FDA. The NDA holder or patent owner may then initiate a patent infringementlawsuit in response to the notice of the paragraph IV certification. The filing of a patent infringement lawsuit within 45 daysof the receipt of a paragraph IV certification notice prevents the FDA from making the approval of the ANDA or 505(b)(2)application effective until the earlier of 30 months from the date of the lawsuit, expiration of the patent, settlement of thelawsuit, a decision in the infringement case that is favorable to the applicant or such shorter or longer period as may beordered by a court. This prohibition is generally referred to as the 30‑month stay.In instances where an ANDA or 505(b)(2) NDA applicant files a paragraph IV certification, the NDA holder or patentowners regularly take action to trigger the 30‑month stay, recognizing that the related patent litigation may take manymonths or years to resolve. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant period of timedepending on the patent certification the applicant makes and the reference drug sponsor’s decision to initiate patentlitigation.ExclusivityMarket exclusivity provisions under the FDCA can also delay the submission or the approval effective date ofcertain applications. The FDA provides periods of regulatory exclusivity, which provides the holder of an approved NDAlimited protection from new competition in the marketplace for the innovation represented by its approved drug. Five yearsof exclusivity are available to New Chemical Entities, or NCEs. An NCE is a drug that contains no active moiety that hasbeen approved by the FDA in any other NDA. An active moiety is the molecule or ion excluding those appended portions ofthe molecule that cause the drug to be an ester, salt, including a salt with hydrogen or coordination bonds, or othernoncovalent derivatives, such as a complex, chelate, or clathrate, of the molecule, responsible for the therapeutic activity ofthe drug substance. During the exclusivity period, the FDA may not accept for review and make an ANDA or a 505(b)(2)NDA approval effective for an application submitted by another company that contains the previously approved activemoiety. An ANDA or 505(b)(2) application, however, may be submitted one year before NCE exclusivity expires if aparagraph IV certification is filed.30 Table of ContentsIf a product is not eligible for NCE exclusivity, it may be eligible for three years of exclusivity. Three‑yearexclusivity is available to the holder of an NDA, including a 505(b)(2) NDA, for a particular condition of approval, or changeto a marketed product, such as a new formulation or indication for a previously approved product, if one or more new clinicalstudies, other than bioavailability or bioequivalence studies, was essential to the approval of the application and wasconducted or sponsored by the applicant. This three‑year exclusivity period protects against FDA making an approval ofANDAs and 505(b)(2) NDAs for the condition of the new drug’s approval effective. As a general matter, the three yearexclusivity does not prohibit the FDA from approving ANDAs or 505(b)(2) NDAs for generic versions of the original,unmodified drug product. Five‑year and three‑year exclusivity will also not delay the submission or approval of a full NDA;however, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of thepreclinical studies and adequate and well‑controlled clinical trials necessary to demonstrate safety and efficacy. Moreover,even if a product receives a period of exclusivity, a physician may prescribe the reference listed drug or a generic version ofthe reference listed drug off‑label for the same use as the newly approved drug.Pediatric exclusivity is another type of non‑patent marketing exclusivity in the United States and, if granted,provides for the attachment of an additional six months of marketing protection to the term of any existing regulatoryexclusivity, including the non‑patent exclusivity period described above. This six‑month exclusivity may be granted if anNDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not needto show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respondto the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to andaccepted by the FDA within the required time frames, whatever statutory or regulatory periods of exclusivity or Orange Booklisted patent protection cover the drug are extended by six months. This is not a patent term extension, but it effectivelyextends the regulatory period during which the FDA cannot approve an ANDA or 505(b)(2) application owing to regulatoryexclusivity or listed patents. Moreover, pediatric exclusivity attaches to all formulations, dosage forms, and indications forproducts with existing marketing exclusivity or patent life that contain the same active moiety as that which was studied.The Orphan Drug Act provides incentives for the development of drugs intended to treat rare diseases or conditions,which generally are diseases or conditions affecting less than 200,000 individuals annually in the United States, or affectingmore than 200,000 in the United States and for which there is no reasonable expectation that the cost of developing andmaking the drug available in the United States will be recovered from United States sales. Additionally, sponsors mustpresent a plausible hypothesis for clinical superiority to obtain orphan designation if there is a drug already approved by theFDA that is intended for the same indication and that is considered by the FDA to be the same drug as the already approveddrug. This hypothesis must be demonstrated to obtain orphan drug exclusivity. If granted, prior to product approval, OrphanDrug Designation entitles a party to financial incentives such as opportunities for grant funding towards clinical study costs,tax advantages, and user‑fee waivers. In addition, if a product receives FDA approval for the indication for which it hasorphan designation, the product is generally entitled to orphan drug exclusivity, which means the FDA may not approve anyother application to market the same drug for the same indication for a period of seven years, except in limited circumstances,such as a showing of clinical superiority over the product with orphan exclusivity.Special FDA Expedited Review and Approval ProgramsThe FDA has various programs, including Fast Track designation, priority review and breakthrough designation,that are intended to expedite or simplify the process for the development and FDA review of certain drug products that areintended for the treatment of serious or life threatening diseases or conditions, and demonstrate the potential to addressunmet medical needs or present a significant improvement over existing therapy. The purpose of these programs is to provideimportant new drugs to patients earlier than under standard FDA review procedures.To be eligible for a Fast Track designation, the FDA must determine, based on the request of a sponsor, that aproduct is intended to treat a serious or life threatening disease or condition and demonstrates the potential to address anunmet medical need. The FDA will determine that a product will fill an unmet medical need if the product will provide atherapy where none exists or provide a therapy that may be potentially superior to existing therapy based on efficacy, safety,or public health factors. If Fast Track designation is obtained, drug sponsors may be eligible for more frequent developmentmeetings and correspondence with the FDA. In addition, the FDA may initiate review of sections of an31 Table of ContentsNDA before the application is complete. This “rolling review” is available if the applicant provides and the FDA approves aschedule for the remaining information. In some cases, a Fast Track product may be eligible for accelerated approval orpriority review.The FDA may give a priority review designation to drugs that are intended to treat serious conditions and, ifapproved, would provide significant improvements in the safety or effectiveness of the treatment, diagnosis, or prevention ofserious conditions. A priority review means that the goal for the FDA is to review an application within six months, ratherthan the standard review of ten months under current PDUFA guidelines, of the 60‑day filing date for NMEs and within sixmonths of the submission date for non‑NMEs. Products that are eligible for Fast Track designation may also be consideredappropriate to receive a priority review.Moreover, under the provisions of the Food and Drug Administration Safety and Innovation Act, or FDASIA,enacted in 2012, a sponsor can request designation of a product candidate as a “breakthrough therapy.” A breakthroughtherapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious orlife‑threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantialimprovement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effectsobserved early in clinical development. Drugs designated as breakthrough therapies are eligible for the Fast Trackdesignation features as described above, intensive guidance on an efficient drug development program beginning as early asPhase 1 trials, and a commitment from the FDA to involve senior managers and experienced review staff in a proactivecollaborative, cross‑disciplinary review.Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longermeets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.Post‑approval RequirementsAny product manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuingregulation by the FDA, including, among other things, requirements related to manufacturing, recordkeeping, and reporting,including adverse experience reporting, drug shortage reporting, and periodic reporting; product sampling and distribution;advertising; marketing; promotion; certain electronic records and signatures; and post‑approval obligations imposed as acondition of approval, such as Phase 4 clinical trials, REMS, and surveillance to assess safety and effectiveness aftercommercialization.After approval, most changes to the approved product, such as adding new indications or other labeling claims aresubject to prior FDA review and approval. There also are continuing annual user fee requirements for any marketed productsand the establishments at which such products are manufactured, as well as new application fees for supplementalapplications with clinical data. In addition, drug manufacturers and other entities involved in the manufacture anddistribution of approved drugs are required to register their establishments with the FDA and certain state agencies and listtheir drug products, and are subject to periodic announced and unannounced inspections by the FDA and these stateagencies for compliance with cGMP and other requirements, which impose certain procedural and documentationrequirements upon the company and third‑party manufacturers.Changes to the manufacturing process are strictly regulated and often require prior FDA approval or notificationbefore being implemented. FDA regulations also require investigation and correction of any deviations from cGMP andspecifications, and impose reporting and documentation requirements upon the sponsor and any third‑party manufacturersthat the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the areaof production and quality control to maintain cGMP compliance.The FDA also strictly regulates marketing, labeling, advertising, and promotion of products that are placed on themarket. A company can make only those claims relating to safety and efficacy, purity, and potency that are approved by theFDA. Physicians, in their independent professional medical judgment, may prescribe legally available products forunapproved indications that are not described in the product’s labeling and that differ from those tested and approved by theFDA. Pharmaceutical companies, however, are required to promote their drug products only for the approved indications andin accordance with the provisions of the approved label. The FDA and other agencies actively enforce32 Table of Contentsthe laws and regulations prohibiting the promotion of off‑label uses, and a company that is found to have improperlypromoted off‑label uses may be subject to significant liability, including, but not limited to, criminal and civil penaltiesunder the FDCA and False Claims Act, exclusion from participation in federal healthcare programs, mandatory complianceprograms under corporate integrity agreements, debarment, and refusal of government contracts.In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug MarketingAct, or PDMA, which regulates the distribution of drugs and drug samples at the federal level, and sets minimum standardsfor the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution ofprescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.Moreover, the Drug Quality and Security Act, or DQSA, imposes obligations on manufacturers of pharmaceuticalproducts related to product tracking and tracing. Among the requirements of this legislation, manufacturers are required toprovide certain information regarding the drug products to individuals and entities to which product ownership is transferred,will be required to label drug product with a product identifier, and are required to keep certain records regarding the drugproduct. The transfer of information to subsequent product owners by manufacturers will eventually be required to be doneelectronically. Manufacturers are also required to verify that purchasers of the manufacturers’ products are appropriatelylicensed. Further, under this legislation, manufactures have drug product investigation, quarantine, disposition, andnotification responsibilities related to counterfeit, diverted, stolen, and intentionally adulterated products that would resultin serious adverse health consequences of death to humans, as well as products that are the subject of fraudulent transactionsor which are otherwise unfit for distribution such that they would be reasonably likely to result in serious healthconsequences or death.Later discovery of previously unknown problems with a product, including adverse events of unanticipated severityor frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in significantregulatory actions. Such actions may include refusal to approve pending applications, license suspension or revocation,withdrawal of an approval, imposition of a clinical hold or termination of clinical trials, warning letters, untitled letters, cyberletters, modification of promotional materials or labeling, provision of corrective information, imposition of post‑marketrequirements including the need for additional testing, imposition of distribution or other restrictions under a REMS, productrecalls, product seizures or detentions, refusal to allow imports or exports, total or partial suspension of production ordistribution, FDA debarment, injunctions, fines, consent decrees, corporate integrity agreements, debarment from receivinggovernment contracts and new orders under existing contracts, exclusion from participation in federal and state healthcareprograms, restitution, disgorgement, or civil or criminal penalties including fines and imprisonment, and may result inadverse publicity, among other adverse consequences.Fraud and Abuse, Data Privacy and Security, and Transparency Laws and RegulationsOur business activities, including but not limited to research, sales, promotion, distribution, medical education, andother activities following product approval, will be subject to regulation by numerous federal and state regulatory and lawenforcement authorities in the United States in addition to the FDA, including potentially the Department of Justice, theDepartment of Health and Human Services and its various divisions, including the Centers for Medicare & MedicaidServices, or CMS, and the Health Resources and Services Administration, the Department of Veterans Affairs, the Departmentof Defense, and state and local governments. Our business activities must comply with numerous healthcare laws, includingbut not limited to, anti‑kickback and false claims laws and regulations as well as data privacy and security laws andregulations, which are described below.The federal Anti‑Kickback Statute prohibits, among other things, any person or entity, from knowingly and willfullyoffering, paying, soliciting, or receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, toinduce or in return for purchasing, leasing, ordering, or arranging for or recommending the purchase, lease, furnishing, ororder of any item or service reimbursable under Medicare, Medicaid, or other federal healthcare programs, in whole or in part.The term “remuneration” has been interpreted broadly to include anything of value. The Anti‑Kickback Statute has beeninterpreted to apply to arrangements between pharmaceutical manufacturers on one hand and prescribers, purchasers,formulary managers, and beneficiaries on the other. There are certain statutory exceptions and regulatory safe harborsprotecting some common activities from prosecution. The exceptions and safe harbors are33 Table of Contentsdrawn narrowly, and practices that involve remuneration that may be alleged to be intended to induce prescribing, purchases,or recommendations may be subject to scrutiny if they do not qualify for an exception or safe harbor. Failure to meet all ofthe requirements of a particular applicable statutory exception or regulatory safe harbor does not make the conduct per seillegal under the Anti‑Kickback Statute. Instead, the legality of the arrangement will be evaluated on a case‑by‑case basisbased on a cumulative review of all of its facts and circumstances. Several courts have interpreted the statute’s intentrequirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federalhealthcare covered business, the statute has been violated. The Patient Protection and Affordable Care Act, or ACA, of 2010,as amended, modified the intent requirement under the Anti‑Kickback Statute, such that a person or entity no longer needs tohave actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, theACA also provided that a violation of the federal Anti‑Kickback Statute is grounds for the government or a whistleblower toassert that a claim for payment of items or services resulting from such violation constitutes a false or fraudulent claim forpurposes of the federal civil False Claims Act. The ACA further created new federal requirements for reporting, by applicablemanufacturers of covered drugs, payments and other transfers of value to physicians and teaching hospitals, and ownershipand investment interests held by physicians and other healthcare providers and their immediate family members.The federal civil False Claims Act, or FCA, prohibits, among other things, any person or entity from knowinglypresenting, or causing to be presented, a false or fraudulent claim for payment to, or approval by, the federal government,knowingly making, using, or causing to be made or used a false record or statement material to a false or fraudulent claim tothe federal government, or avoiding, decreasing, or concealing an obligation to pay money to the federal government. Aclaim includes “any request or demand” for money or property presented to the U.S. government. The civil False Claims Acthas been used to assert liability on the basis of kickbacks and other improper referrals, improperly reported governmentpricing metrics such as Best Price or Average Manufacturer Price, improper use of Medicare provider or supplier numberswhen detailing a provider of services, improper promotion of off‑label uses not expressly approved by the FDA in a drug’slabel, and allegations as to misrepresentations with respect to the services rendered. Several pharmaceutical and otherhealthcare companies have further been sued under these laws for allegedly providing free product to customers with theexpectation that the customers would bill federal programs for the product. Intent to deceive is not required to establishliability under the civil False Claims Act. Liability may be predicated on reckless disregard for the truth. Civil False ClaimsAct actions may be brought by the government or may be brought by private individuals on behalf of the government, called“qui tam” actions. If the government decides to intervene in a qui tam action and prevails in the lawsuit, the individual willshare in the proceeds from any fines or settlement funds. If the government declines to intervene, the individual may pursuethe case alone. In recent years, False Claims Act lawsuits against pharmaceutical companies have increased significantly involume and breadth, leading to several substantial civil and criminal settlements, as much as $3.0 billion, regarding certainsales practices and promoting off label drug uses. Civil False Claims act liability may be imposed for Medicare or Medicaidoverpayments, for example, overpayments caused by understated rebate amounts, that are not refunded within 60 days ofidentifying the overpayment, even if the overpayment was not caused by a false or fraudulent act.The government may further prosecute conduct constituting a false claim under the criminal False Claims Act. Thecriminal False Claims Act prohibits the making or presenting of a claim to the government knowing such claim to be false,fictitious, or fraudulent and, unlike the civil False Claims Act, requires proof of intent to submit a false claim.The civil monetary penalties statute is another potential statute under which biopharmaceutical companies may besubject to enforcement. Among other things, the civil monetary penalties statue imposes fines against any person who isdetermined to have presented, or caused to be presented, claims to a federal healthcare program that the person knows, orshould know, is for an item or service that was not provided as claimed or is false or fraudulent.Payment or reimbursement of prescription drugs by Medicaid or Medicare requires manufacturers of the drugs tosubmit pricing information to CMS. The Medicaid Drug Rebate statute requires manufacturers to calculate and report pricepoints, which are used to determine Medicaid rebate payments shared between the states and the federal government andMedicaid payment rates for the drug. Drugs that are approved under a Biologic License Application, or BLA, or an NDA,including 505(b)(2) drugs, are subject to an additional inflation penalty which can substantially increase rebate payments. Inaddition, for BLA and NDA drugs, the Veterans Health Care Act, or VHCA, requires manufacturers to calculate and report tothe Veterans Administration, or VA, a different price called the Non‑Federal34 Table of ContentsAverage Manufacturing Price, which is used to determine the maximum price that can be charged to certain federal agencies,referred to as the Federal Ceiling Price, or FCP. Like the Medicaid rebate amount, the FCP includes an inflation penalty. ADepartment of Defense regulation requires manufacturers to provide this discount on drugs dispensed by retail pharmacieswhen paid by the TRICARE Program. All of these price reporting requirements create risk of submitting false information tothe government, and potential FCA liability.The VHCA also requires manufacturers of covered drugs participating in the Medicaid program to enter into FederalSupply Schedule contracts with the VA through which their covered drugs must be sold to certain federal agencies at FCPand to report pricing information. This necessitates compliance with applicable federal procurement laws and regulations andsubjects us to contractual remedies as well as administrative, civil, and criminal sanctions. In addition, the VHCA requiresmanufacturers participating in Medicaid to agree to provide different mandatory discounts to certain Public Health Servicegrantees and other safety net hospitals and clinics.The federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, also created federal criminalstatutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain, bymeans of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under thecustody or control of, a healthcare benefit program, regardless of whether the payor is public or private, knowingly andwillfully embezzling or stealing from a health care benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing, or covering up by any trick or device a material fact ormaking any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items, orservices relating to healthcare matters. Additionally, the ACA amended the intent requirement of certain of these criminalstatutes under HIPAA so that a person or entity no longer needs to have actual knowledge of the statute, or the specific intentto violate it, to have committed a violation. The ACA further created new federal requirements for reporting, by applicablemanufacturers of covered drugs, payments and other transfers of value to physicians and teaching hospitals, and ownershipand investment interests held by physicians and other healthcare providers and their immediate family members.Further, we may be subject to data privacy and security regulation by both the federal government and the states inwhich we conduct our business. HIPAA, as amended by the Health Information Technology for Economic and ClinicalHealth Act, or HITECH, and its respective implementing regulations imposes certain requirements relating to the privacy,security, and transmission of individually identifiable health information. Among other things, HITECH, through itsimplementing regulations, makes HIPAA’s security standards and certain privacy standards directly applicable to businessassociates, defined as a person or organization, other than a member of a covered entity’s workforce, that creates, receives,maintains, or transmits protected health information on behalf of a covered entity for a function or activity regulated byHIPAA. HITECH also increased the civil and criminal penalties that may be imposed against covered entities, businessassociates, and possibly other persons, and gave state attorneys general new authority to file civil actions for damages orinjunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuingfederal civil actions. In addition, other federal and state laws may govern the privacy and security of health and otherinformation in certain circumstances, many of which differ from each other in significant ways and may not have the sameeffect, thus complicating compliance efforts.Many states have also adopted laws similar to each of the above federal laws, which may be broader in scope andapply to items or services reimbursed by any third‑party payor, including commercial insurers. Certain state laws alsoregulate manufacturers’ use of prescriber‑identifiable data. Certain states also require implementation of commercialcompliance programs and compliance with the pharmaceutical industry’s voluntary compliance guidelines and theapplicable compliance guidance promulgated by the federal government, or otherwise restrict payments or the provision ofother items of value that may be made to healthcare providers and other potential referral sources; impose restrictions onmarketing practices; or require drug manufacturers to track and report information related to payments, gifts, and other itemsof value to physicians and other healthcare providers. These laws may affect our future sales, marketing, and otherpromotional activities by imposing administrative and compliance burdens.If our operations are found to be in violation of any of the laws or regulations described above or any other laws thatapply to us, we may be subject penalties or other enforcement actions, including criminal and significant civil monetarypenalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government healthcare35 Table of Contentsprograms, corporate integrity agreements, debarment from receiving government contracts or refusal of new orders underexisting contracts, reputational harm, diminished profits and future earnings, and the curtailment or restructuring of ouroperations, any of which could adversely affect our ability to operate our business and our results of operations. Enforcementactions can be brought by federal or state governments, or as qui tam actions brought by individual whistleblowers in thename of the government under the civil False Claims Act if the violations are alleged to have caused the government to pay afalse or fraudulent claim.To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign laws andregulations, which may include, for instance, applicable post‑marketing requirements, including safety surveillance,anti‑fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or transfers ofvalue to healthcare professionals.Coverage and Reimbursement GenerallyThe commercial success of our product candidates and our ability to commercialize any approved productcandidates successfully will depend in part on the extent to which governmental payor programs at the federal and statelevels, including Medicare and Medicaid, private health insurers, and other third‑party payors provide coverage for andestablish adequate reimbursement levels for our product candidates. Government authorities, private health insurers, andother organizations generally decide which drugs they will pay for and establish reimbursement levels for healthcare.Medicare is a federally funded program managed by CMS through local fiscal intermediaries and carriers that administercoverage and reimbursement for certain healthcare items and services furnished to the elderly and disabled. Medicaid is aninsurance program for certain categories of patients whose income and assets fall below state‑defined levels and who areotherwise uninsured that is both federally and state funded and managed by each state. The federal government sets generalguidelines for Medicaid and each state creates specific regulations that govern its individual program, includingsupplemental rebate programs that restrict coverage to drugs on the state Preferred Drug List. Similarly, government laws andregulations establish the parameters for coverage of prescription drugs by Tricare, the health care program for militarypersonnel, retirees, and related beneficiaries. Many states have also created pharmacy assistance programs for individualswho do not qualify for federal programs. In the United States, private health insurers and other third‑party payors oftenprovide reimbursement for products and services based on the level at which the government provides reimbursementthrough the Medicare or Medicaid programs for such products and services.In the United States, the European Union, and other potentially significant markets for our product candidates,government authorities and third‑party payors are increasingly attempting to limit or regulate the price of medical productsand services, particularly for new and innovative products and therapies, which often has resulted in average selling priceslower than they would otherwise be. For example, in the United States, federal and state governments reimburse coveredprescription drugs at varying rates generally below average wholesale price. These restrictions and limitations influence thepurchase of healthcare services and products. Third‑party payors are developing increasingly sophisticated methods ofcontrolling healthcare costs. Third‑party payors may limit coverage to specific drug products on an approved list, orformulary, which might not include all of the FDA‑approved drug products for a particular indication. Third‑party payorsalso control costs by requiring prior authorization or imposing other dispensing restrictions before covering certain products,by broadening therapeutic classes to increase competition, and by covering lower cost products for medically accepted off-label use. Third‑party payors are increasingly challenging the price and examining the medical necessity andcost‑effectiveness of medical products and services, in addition to their safety and efficacy. Absent clinical differentiators,third‑party payors may treat products as therapeutically equivalent and base formulary decisions on net cost. To lower theprescription cost, manufacturers frequently rebate a portion of the prescription price to the third‑party payors.Federal programs also impose price controls through mandatory ceiling prices on purchases by federal agencies andfederally funded hospitals and clinics and mandatory rebates on retail pharmacy prescriptions paid by Medicaid and Tricare.These restrictions and limitations influence the purchase of healthcare services and products. Legislative proposals to reformhealthcare or reduce costs under government programs may result in lower reimbursement for our product candidates orexclusion of our product candidates from coverage. In addition, government programs like Medicaid include substantialpenalties for increasing commercial prices over the rate of inflation which can affect realization and return on investment.36 Table of ContentsPrivate payors often rely on the lead of the governmental payors in rendering coverage and reimbursementdeterminations. Therefore, achieving favorable CMS coverage and reimbursement is usually a significant gating issue forsuccessful introduction of a new product. In addition, many government programs as a condition of participation mandatefixed discounts or rebates from manufacturers regardless of formulary position or utilization, and then rely on competition inthe market to attain further price reductions, which can greatly reduce realization on the sale.Further, the increased emphasis on managed healthcare in the United States and on country and regional pricing andreimbursement controls in the European Union will put additional pressure on product pricing, reimbursement, andutilization, which may adversely affect our future product sales and results of operations. These pressures can arise from rulesand practices of managed care groups, competition within therapeutic classes, availability of generic equivalents, judicialdecisions and governmental laws and regulations related to Medicare, Medicaid, and healthcare reform, pharmaceuticalcoverage and reimbursement policies, and pricing in general. Patients who are prescribed treatments for their conditions andproviders performing the prescribed services generally rely on third‑party payors to reimburse all or part of the associatedhealthcare costs. Sales of our product candidates will therefore depend substantially, both domestically and abroad, on theextent to which the costs of our products will be paid by health maintenance, managed care, pharmacy benefit and similarhealthcare management organizations, or reimbursed by government health administration authorities, such as Medicare andMedicaid, private health insurers, and other third‑party payors.As a result of the above, we may need to conduct expensive pharmacoeconomic studies in order to demonstrate themedical necessity and cost‑effectiveness of our products, in addition to the costs required to obtain the FDA approvals. Ourproduct candidates may not be considered medically necessary or cost‑effective, or the rebate percentages required to securecoverage may not yield an adequate margin over cost.Moreover, a payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursementrate will be approved. Adequate third‑party reimbursement may not be available to enable us to maintain price levelssufficient to realize an appropriate return on our investment in drug development. Legislative proposals to reform healthcareor reduce costs under government insurance programs may result in lower reimbursement for our products and productcandidates or exclusion of our products and product candidates from coverage. The cost containment measures thathealthcare payors and providers are instituting and any healthcare reform could significantly reduce our revenues from thesale of any approved product candidates. We cannot provide any assurances that we will be able to obtain and maintainthird‑party coverage or adequate reimbursement for our product candidates in whole or in part.Healthcare Reform MeasuresThe United States and some foreign jurisdictions are considering or have enacted a number of legislative andregulatory proposals designed to change the healthcare system in ways that could affect our ability to sell our productsprofitably. Among policy makers and payors in the United States and elsewhere, there is significant interest in promotingchanges in healthcare systems with the stated goals of containing healthcare costs, improving quality, and expanding access.In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantlyaffected by major legislative initiatives.The American Recovery and Reinvestment Act of 2009 provides funding for the federal government to compare theeffectiveness of different treatments for the same illness. A plan for the research will be developed by the Department ofHealth and Human Services, the Agency for Healthcare Research and Quality, and the National Institutes for Health, andperiodic reports on the status of the research and related expenditures will be made to Congress. Although the results of thecomparative effectiveness studies are not intended to mandate coverage policies for public or private payors, it is not clearwhat effect, if any, the research will have on the sales of any product, if any such product or the condition that it is intendedto treat is the subject of a study. It is also possible that comparative effectiveness research demonstrating benefits in acompetitor’s product could adversely affect the sales of our product candidates. If third‑party payors do not consider ourproduct candidates to be cost‑effective compared to other available therapies, they may not cover our product candidates,once approved, as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow us to sell ourproducts on a profitable basis.37 Table of ContentsMoreover, as enacted, the ACA is a sweeping law intended to broaden access to health insurance, reduce orconstrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirementsfor healthcare and health insurance industries, impose new taxes and fees on the health care industry, and impose additionalhealth policy reforms. The law expanded the eligibility criteria for Medicaid programs, thereby potentially increasing boththe volume of sales and manufacturers’ Medicaid rebate liability. The law also expanded the entities eligible for discountsunder the 340B drug discount program, which mandates discounts to certain hospitals, community centers, and otherqualifying providers, although, with the exception of children’s hospitals, these newly eligible entities will not be eligible toreceive discounted 340B pricing on orphan drugs. The law additionally extended manufacturer’s Medicaid rebate liability tocovered drugs dispensed to patients enrolled in Medicaid managed care organizations, increased the statutory minimumrebates a manufacturer must pay under the Medicaid Drug Rebate program, and created an alternative rebate formula forcertain new formulations of certain existing products, which is intended to increase the amount of rebates due on those drugs.The revisions to the Medicaid rebate formula could have the further effect of increasing the required 340B discounts. Further,the ACA requires manufacturers of NDA drugs, including 505(b)(2) drugs, to pay 50% of the pharmacy charge to Medicarepatients while they are in the coverage gap. Finally, the ACA imposes a significant annual fee on companies thatmanufacture or import branded prescription drug products. Substantial new provisions affecting compliance have also beenenacted through the ACA and otherwise, including the reporting of drug sample distribution, which may require us to modifyour business practices with healthcare practitioners. On February 1, 2016, CMS published a final rule governingmanufacturers’ obligations under the Medicaid Drug Rebate Program, including the calculation and reporting of AMP andBest Price and the payment of rebates. Among other changes, the final rule extends the Program to the territories of theUnited States, which will increase manufacturers’ overall rebate liability and creates the risk that a low price in the territoriescould increase the unit rebate amount applied to all Medicaid utilization of the drug. On March 8, 2016, CMS announced aproposed rule to test new models for Medicare Part B payment for prescription drugs intended to eliminate incentives forproviders to purchase higher cost therapeutically equivalent drugs and in some cases create incentives to select lower costalternatives. In the coming years, similar and additional changes could be made to governmental healthcare programs thatcould significantly impact the success of our product candidates.The cost of pharmaceuticals continues to generate substantial governmental and third‑party payor interest. Weexpect that the pharmaceutical industry will experience pricing pressures due to the trend toward managed healthcare, theincreasing influence of managed care organizations, and additional legislative proposals. Our results of operations could beadversely affected by current and future healthcare reforms.Some third‑party payors also require pre‑approval of coverage for new or innovative devices or drug therapies beforethey will reimburse healthcare providers that use such therapies. While we cannot predict whether any proposedcost‑containment measures will be adopted or otherwise implemented in the future, the announcement or adoption of theseproposals could have a material adverse effect on our ability to obtain adequate prices for our product candidates and operateprofitably.In addition, in August 2011, President Obama signed into law the Budget Control Act of 2011, as amended, which,among other things, created the Joint Select Committee on Deficit Reduction to recommend proposals in spendingreductions to Congress. The Joint Select Committee on Deficit Reduction did not achieve its targeted deficit reduction of atleast $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reductions to several governmentprograms. These reductions include aggregate reductions to Medicare payments to providers of up to 2% per fiscal year,which went into effect in April 2013 and will remain in effect through 2024 unless additional Congressional action is taken.Under the Budget Control Act of 2011, as amended, federal budget “sequestration” Medicare payment reductions becameeffective on April 1, 2013 and automatically reduced payments under various government programs, including, for example,certain Medicare provider and supplier reimbursement payments.In November 2015, the Bipartisan Budget Act was enactedinto law, which, among other things, extended sequestration through 2025. These and other healthcare reform initiatives mayresult in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on ourfinancial operations. We expect that additional state and federal healthcare reform measures will be adopted in the future, anyof which could limit the amounts that federal and state governments will pay for healthcare products and services, whichcould further limit the prices we are able to charge, or the amounts of reimbursement available, for our product candidatesonce they are approved.38 Table of ContentsThe Foreign Corrupt Practices ActThe Foreign Corrupt Practices Act, or FCPA, prohibits any U.S. individual or business from paying, offering, orauthorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party, orcandidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or businessin obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States tocomply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect alltransactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system ofinternal accounting controls for international operations. Activities that violate the FCPA, even if they occur wholly outsidethe United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment fromgovernment contracts.Foreign RegulationTo the extent we choose to develop or sell any products outside of the United States, we will be subject to a varietyof foreign regulatory requirements of other countries regarding safety and efficacy and governing, among other things,clinical trials, marketing authorization, commercial sales, and distribution of our products. For example, in the EuropeanUnion, we must obtain authorization of a clinical trial application in each member state in which we intend to conduct aclinical trial. Whether or not we obtain FDA approval for a product, we would need to obtain the necessary approvals by thecomparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product inthose countries. The approval process varies from country to country and can involve additional product testing andadditional administrative review periods. The time required to obtain approval in other countries might differ from and belonger than that required to obtain FDA approval. The requirements governing the conduct of clinical trials, productlicensing, pricing, and reimbursement vary greatly from country to country. Regulatory approval in one country does notensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negativelyimpact the regulatory process in others. As in the United States, post‑approval regulatory requirements, such as thoseregarding product manufacture, marketing, or distribution, would apply to any product that is approved outside the UnitedStates.European Union Drug Approval ProcessTo obtain a marketing authorization of a drug in the European Union, we may submit marketing authorizationapplications, or MAAs, either under the so‑called centralized, decentralized, mutual recognition, or national authorizationprocedures.Centralized ProcedureThe centralized procedure provides for the grant of a single marketing authorization following a favorable opinionby the European Medicines Agency, or EMA, that is valid in all European Union member states, as well as Iceland,Liechtenstein, and Norway. The centralized procedure is compulsory for medicines produced by specified biotechnologicalprocesses, products designated as orphan medicinal products, and products with a new active substance indicated for thetreatment of specified diseases, such as HIV/AIDS, cancer, diabetes, neurodegenerative disorders, or autoimmune diseases andother immune dysfunctions. The centralized procedure is optional for products that represent a significant therapeutic,scientific, or technical innovation, or whose authorization would be in the interest of public health. Under the centralizedprocedure the maximum timeframe for the evaluation of an MAA by the EMA is 210 days, excluding clock stops, whenadditional written or oral information is to be provided by the applicant in response to questions asked by the Committee ofMedicinal Products for Human Use, or the CHMP. Accelerated assessment might be granted by the CHMP in exceptionalcases, when a medicinal product is expected to be of a major public health interest, particularly from the point of view oftherapeutic innovation. The timeframe for the evaluation of an MAA under the accelerated assessment procedure is of150 days, excluding clock stops.Other Authorization ProceduresThere are also two other possible routes to authorize medicinal products in several European Union countries, whichare available for investigational medicinal products that fall outside the scope of the centralized procedure:39 Table of Contents•Decentralized procedure. Using the decentralized procedure, an applicant may apply in more than oneEuropean Union country, although the applicant must nominate one reference European Union Member State,for simultaneous authorization of medicinal products that have not yet been authorized in any European Unioncountry and that do not fall within the mandatory scope of the centralized procedure. Failing agreement, there isa procedure for resolving disagreements between member states and ultimately an arbitration procedure beforethe CHMP.•Mutual recognition procedure. In the mutual recognition procedure, a medicine is first authorized in oneEuropean Union Member State, referred to as the reference member state, in accordance with the nationalprocedures of that country. Following this, further marketing authorizations can be sought from othernominated European Union countries, referred to as the concerned member states, in a procedure whereby thecountries concerned agree to recognize the validity of the original, national marketing authorization. Theprocedure for disagreements described above similarly applies.•National procedures. Purely national procedures continue to be possible but are strictly limited to where theproduct is to be authorized in one member state only.In the European Union, new products authorized for marketing, referred to as reference products, qualify for eightyears of data exclusivity and an additional two years of market exclusivity upon marketing authorization. The dataexclusivity period prevents generic applicants from relying on the preclinical and clinical trial data contained in the dossierof the reference product when applying for a generic marketing authorization in the European Union during a period of eightyears from the date on which the reference product was first authorized in the European Union. The market exclusivity periodprevents a successful generic applicant from commercializing its product in the European Union until 10 years have elapsedfrom the initial authorization of the reference product in the European Union. The 10‑year market exclusivity period can beextended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holderobtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to theirauthorization, are held to bring a significant clinical benefit in comparison with existing therapies.Research and DevelopmentConducting research and development is central to our business model. We have invested and expect to continue toinvest significant time and capital in our research and development operations. Our research and development expenses were$6.8 million, $4.3 million and $1.5 million for the years ended December 31, 2015, 2014, and 2013, respectively. We plan toincrease our research and development expenses for the foreseeable future as we seek to complete the development of AXS-02, AXS-05, and AXS-06.EmployeesAs of March 22, 2016, we had 11 full‑time employees and 4 key consultants, 3 of whom hold Ph.D. or M.D. degrees.None of our employees is represented by a collective bargaining agreement and we have never experienced any workstoppage. We believe that we maintain good relations with our employees.Corporate InformationWe were incorporated in Delaware in January 2012. Our offices are located at 25 Broadway, 9 Floor, New York,New York 10004, and our telephone number is (212) 332-3241.Available InformationWe file reports and other information with the SEC as required by the Exchange Act. We make available free ofcharge through our website (http://www.axsome.com) our annual report on Form 10-K, quarterly reports on Form 10-Q,current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Sections 13(a) and 15(d) of theExchange Act. We make these reports available through our website as soon as reasonably practicable after we40 thTable of Contentselectronically file such reports with, or furnish such reports to, the SEC. In addition, we regularly use our website to postinformation regarding our business, product development programs and governance, and we encourage investors to use ourwebsite, particularly the information in the section entitled “Investors,” as a source of information about us. The foregoingreferences to our website are not intended to, nor shall they be deemed to, incorporate information on our website into thisAnnual Report on Form 10-K by reference.We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act").We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifthanniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least$1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stockthat is held by non-affiliates exceeded $700 million as of the prior June 30, and (2) the date on which we have issued morethan $1.0 billion in non-convertible debt during the prior three-year period. ITEM 1A. RISK FACTORS.Investing in our common stock involves a high degree of risk. You should consider carefully the risks and uncertaintiesdescribed below, together with all of the other information in this Annual Report on Form 10-K, including our consolidatedfinancial statements and the related notes and the section titled “Management’s Discussion and Analysis of FinancialCondition and Results of Operations”. If any of the following risks is realized, our business, financial condition, results ofoperations, and prospects could be materially and adversely affected. In that event, the price of our common stock coulddecline.RISKS RELATED TO OUR FINANCIAL CONDITION AND CAPITAL REQUIREMENTSWe have incurred significant losses since our inception, anticipate that we will incur substantial and increasing losses forthe foreseeable future, and may never achieve or maintain profitability.We are a clinical stage biopharmaceutical company with a limited operating history. For the last several years, wehave focused our efforts primarily on developing AXS‑02 and AXS‑05, with the goal of achieving regulatory approval. Sinceinception, we have incurred significant operating losses. Our net losses were $10.6 million and $6.0 million for the yearsended December 31, 2015 and 2014, respectively. As of December 31, 2015, we had an accumulated deficit of $18.8 million.To date, we have not received regulatory approvals for any of our product candidates or generated any revenue from the saleof products, and we do not expect to generate any revenue in the foreseeable future. We expect to continue to incursubstantial and increasing expenses and operating losses over the next several years, as we continue to develop AXS‑02,AXS‑05, and our other current and future product candidates. In addition, we expect to incur significant sales, marketing, andmanufacturing expenses related to the commercialization of AXS‑02, AXS‑05, and our other current and future productcandidates, if they are approved by the U.S. Food and Drug Administration, or FDA. As a result, we expect to continue toincur significant losses for the foreseeable future. We anticipate that our expenses will increase substantially as we:•conduct our Phase 3 clinical trial with AXS‑02 for the treatment of pain associated with complex regional painsyndrome, or CRPS;•conduct our Phase 3 clinical trial with AXS‑02 for the treatment of pain associated with knee osteoarthritis, orOA, associated with bone marrow lesions, or BMLs;•conduct our Phase 3 clinical trial with AXS‑05 for the treatment of treatment resistant depression, or TRD;•initiate and enroll patients in our Phase 3 clinical trials in other indications for AXS‑02 and for AXS‑05;•in‑license or acquire additional product candidates;41 thTable of Contents•conduct late‑stage clinical trials for any product candidates that successfully complete early‑stage clinical trials;•seek regulatory approval for any product candidates that successfully complete late‑stage clinical trials;•conduct additional non‑clinical studies with any product candidates;•conduct preclinical studies with AXS‑06 or any additional product candidates;•increase manufacturing batch sizes of AXS‑02 and AXS-05 to satisfy FDA requirements for a marketingapplication submission;•establish a sales, marketing, and distribution infrastructure, and scale up external manufacturing capabilities tocommercialize any products for which we may obtain regulatory approval and that we choose not to license to athird party;•require larger quantities of product;•maintain, expand, and protect our intellectual property portfolio;•hire additional clinical, quality control, and scientific personnel; and•add operational, financial, and management information systems and personnel, including personnel to supportour product candidate development and planned future commercialization efforts.To become and remain profitable, we must succeed in developing and eventually commercializing products thatgenerate significant revenue. We do not expect to generate significant revenue unless and until we are able to obtainmarketing approval for and successfully commercialize one or more of our product candidates. This will require us to besuccessful in a range of challenging activities, including completing preclinical testing and clinical trials of our productcandidates, discovering additional product candidates, potentially entering into collaboration and license agreements,obtaining regulatory approval for product candidates and manufacturing, marketing, and selling any products for which wemay obtain regulatory approval, achieving market acceptance of our products, satisfying any post‑marketing requirements,maintaining appropriate distribution, setting prices, and obtaining reimbursement for our products from private insurance orgovernment payors. We are only in the preliminary stages of most of these activities. We may never succeed in theseactivities and, even if we do, may never achieve profitability.Because of the numerous risks and uncertainties associated with pharmaceutical product development, we areunable to accurately predict the timing or amount of increased expenses we may incur or when, or if, we will be able toachieve profitability. If we are required by the FDA or comparable foreign regulatory authorities to perform studies inaddition to those currently expected, or if there are any delays in completing our clinical trials or the development of any ofour product candidates, our expenses could increase.Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annualbasis. Our failure to become and remain profitable would depress the value of our company and could impair our ability toraise capital, expand our business, maintain our research and development efforts, diversify our product offerings, or evencontinue our operations. A decline in the value of our company could also cause you to lose all or part of your investment.We will need additional funding to conduct our future clinical trials and to complete development and commercializationof our product candidates. If we are unable to raise capital when needed, we would be forced to delay, reduce, or eliminateour product development programs or commercialization efforts.Conducting clinical trials, pursuing regulatory approvals, establishing outsourced manufacturing relationships, andsuccessfully manufacturing and commercializing our product candidates, including AXS‑02 and AXS‑05, is, and42 Table of Contentswill be, a very time‑consuming, expensive, and uncertain process that takes years to complete. We will need to raiseadditional capital to:•fund our future clinical trials for our current product candidates, especially if we encounter any unforeseendelays or difficulties in our planned development activities;•fund our operations and continue our efforts to hire additional personnel and build a commercial infrastructureto prepare for the commercialization of AXS‑02, AXS‑05, and our other current and future product candidates, ifapproved by the FDA or other comparable foreign regulatory authorities;•qualify and outsource the commercial‑scale manufacturing of our products under current good manufacturingpractices, or cGMP;•develop additional product candidates, including AXS‑06; and•in‑license other product candidates.We believe that with our available cash as of December 31, 2015, we will have sufficient funds to meet ouranticipated operating cash requirements into the third quarter of 2017. We have based this estimate on assumptions that mayprove to be wrong and we could spend our available financial resources faster than we currently expect. Further, we may nothave sufficient financial resources to meet all of our objectives if AXS‑02 or AXS‑05 is approved, which could require us topostpone, scale back, or eliminate some, or all, of these objectives, including our potential launch activities relating toAXS‑02 and AXS‑05. Our future funding requirements will depend on many factors, including, but not limited to:•the potential for delays in our efforts to seek regulatory approval for AXS‑02 and AXS‑05, and any costsassociated with such delays;•the costs of establishing a commercial organization to sell, market, and distribute AXS‑02 and AXS‑05;•the rate of progress and costs related to our Phase 3 development of AXS‑02 and AXS‑05;•the rate of progress and costs of our efforts to prepare for the submission of a new drug application, or NDA, forany product candidates that we may in‑license or acquire in the future, and the potential that we may need toconduct additional clinical or preclinical trials to support applications for regulatory approval;•the costs of filing, prosecuting, defending, and enforcing any patent claims and other intellectual property rightsassociated with our product candidates;•the cost and timing of manufacturing sufficient supplies of AXS‑02 and AXS‑05 in preparation forcommercialization;•the effect of competing technological and market developments;•revenue, if any, received from commercial sales of our product candidates, subject to the receipt of regulatoryapproval;•the terms and timing of any collaborative, licensing, co‑promotion, or other arrangements that we may establish;and•the success of the commercialization of AXS‑02, AXS‑05, and any other of our current or future productcandidates.43 Table of ContentsFuture capital requirements will also depend on the extent to which we acquire or invest in additional businesses,products, and technologies. Until we can generate a sufficient amount of product revenue, if ever, we expect to finance futurecash needs through public or private equity offerings, debt financings, royalties, and corporate collaboration and licensingarrangements, as well as through interest income earned on cash and investment balances. We cannot be certain thatadditional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may be required todelay, reduce the scope of, or eliminate one or more of our development programs or our commercialization efforts.We have a limited operating history and no history of commercializing products, which may make it difficult to evaluateour business and prospects.We commenced operations in 2012, and our operations to date have been limited to organizing and staffing ourcompany, business planning, raising capital, and developing our product candidates, including undertaking preclinicalstudies and conducting clinical trials of our lead product candidates, AXS‑02 and AXS‑05, and our other product candidates.We have not yet demonstrated an ability to obtain regulatory approval for, or successfully commercialize, a productcandidate. In addition, as a relatively nascent business, we may encounter unforeseen expenses, difficulties, complications,delays, and other known and unknown difficulties. If our product candidates are approved by the FDA, we will need toexpand our capabilities to support commercial activities. We may not be successful in adding such capabilities.Consequently, any predictions about our future performance may not be as accurate as they could be if we had a history ofsuccessfully developing and commercializing pharmaceutical products.RISKS RELATED TO OUR BUSINESS AND THE DEVELOPMENT OF OUR PRODUCT CANDIDATESWe are substantially dependent on the success of our lead product candidates, AXS‑02 and AXS‑05, and cannot guaranteethat these product candidates will successfully complete our planned Phase 3 clinical trials, receive regulatory approval,or be successfully commercialized.We currently have no products approved for commercial distribution. We have invested a significant portion of ourefforts and financial resources in the development of our most advanced product candidates, AXS‑02 and AXS‑05. Ourbusiness depends entirely on the successful development and commercialization of our product candidates, and in particular,AXS‑02 and AXS‑05, which may never occur. Our ability to generate revenues in the near term is substantially dependent onour ability to develop, obtain regulatory approval for, and then successfully commercialize AXS‑02 and AXS‑05. Wecurrently generate no revenues from sales of any products, and we may never be able to develop or commercialize amarketable product.Our lead product candidates, AXS‑02 and AXS‑05, will require additional clinical and non‑clinical development,regulatory approval, commercial manufacturing arrangements, establishment of a commercial organization, significantmarketing efforts, and further investment before we generate any revenues from product sales. We initiated our Phase 3 trialwith AXS‑02 for the treatment of pain in patients with CRPS in July 2015, which we expect to complete by the end of 2017.However, we cannot assure you that we will meet this timeline. Further, we initiated our Phase 3 clinical trial with AXS‑05 forthe treatment of TRD in March 2016. Our Phase 1 trial with AXS‑05 was initially conducted with two tablets, one tabletconsisting of dextromethorphan, or DM, and one tablet consisting of bupropion. However, we are conducting our Phase 3clinical trial using one tablet containing both DM and bupropion. This change in formulation may result in apharmacokinetic profile that is different from those observed in our completed Phase 1 trials using two tablets.We are not permitted to market or promote any of our product candidates, including AXS‑02 or AXS‑05, before wereceive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive suchregulatory approval for any of our product candidates. Even if AXS‑02 or AXS‑05 is approved, they may be subject tolimitations on the indicated uses for which they may be marketed, distribution restrictions, or to other conditions of approval,may contain significant safety warnings, including boxed warnings, contraindications, and precautions, may not be approvedwith label statements necessary or desirable for successful commercialization, or may contain requirements for costlypost‑market testing and surveillance, or other requirements, including the submission of a risk evaluation and mitigationstrategy, or REMS, to monitor the safety or efficacy of the products. If we do not receive44 Table of Contentsregulatory approval for, and successfully commercialize, AXS‑02 or AXS‑05, we will not be able to generate revenue fromthese product candidates in the foreseeable future, or at all. Any significant delays in obtaining approval for andcommercializing AXS‑02 or AXS‑05 will have a material adverse impact on our business and financial condition.We have not previously submitted an NDA to the FDA, or similar drug approval filings to comparable foreignauthorities, for any product candidate, and we cannot be certain that AXS‑02, AXS‑05, or any other of our current or futureproduct candidates will be successful in clinical trials or receive regulatory approval. In addition, AXS‑02 has onlycompleted one Phase 1 clinical trial. We also have not yet submitted an IND or our planned clinical trial protocol for AXS‑02for the treatment of chronic low back pain, or CLBP, with Modic changes, or MCs. Furthermore, our product candidateAXS‑06 is only in the early stages of product development and additional preclinical work is required before we may submitan IND and begin clinical trials.Our product candidates are susceptible to the risks of failure inherent at any stage of product development,including the appearance of unexpected adverse events or failure to achieve its primary endpoints in subsequent clinicaltrials, including our initiated and planned Phase 3 clinical trials. Further, our product candidates, including AXS‑02 andAXS‑05, may not receive regulatory approval even if they are successful in clinical trials.If approved for marketing by applicable regulatory authorities, our ability to generate revenues from AXS‑02 orAXS‑05 will depend on our ability to:•create market demand for AXS‑02 and AXS‑05 through our own marketing and sales activities, and any otherarrangements to promote these product candidates that we may otherwise establish;•receive regulatory approval for claims that are necessary or desirable for successful marketing;•hire, train, and deploy a sales force to commercialize AXS‑02 and AXS‑05 in the United States;•manufacture AXS‑02 and AXS‑05 in sufficient quantities and at acceptable quality and manufacturing cost tomeet commercial demand at launch and thereafter;•establish and maintain agreements with wholesalers, distributors, and group purchasing organizations oncommercially reasonable terms;•create partnerships with, or offer licenses to, third parties to promote and sell AXS-02 and AXS-05 in foreignmarkets where we receive marketing approval;•maintain patent and trade secret protection and regulatory exclusivity for AXS‑02 and AXS‑05;•launch commercial sales of AXS‑02 and AXS‑05, whether alone or in collaboration with others;•achieve market acceptance of AXS‑02 and AXS‑05 by patients, the medical community, and third‑party payors;•achieve appropriate reimbursement for AXS‑02 and AXS‑05;•effectively compete with other therapies; and•maintain a continued acceptable safety profile of AXS‑02 and AXS‑05 following launch.As we continue to develop our other product candidates, including AXS‑06, we expect to face similar risks related toour ability to develop, obtain regulatory approval for, and successfully commercialize such product candidates as we facewith AXS‑02 and AXS‑05.45 Table of ContentsPotential conflicts of interest exist with respect to the intellectual property rights that we license from an entity owned byour Chief Executive Officer and Chairman of the Board, and it is possible that our interests and their interests may diverge.In 2012, we entered into three exclusive license agreements with Antecip Bioventures II LLC, or Antecip, an entityowned by our Chief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., in which we were grantedexclusive licenses to develop, manufacture, and commercialize Antecip’s patents and applications related to thedevelopment of our current product candidates. See “Business—Material License Agreements.” Although Dr. Tabuteaudedicates all of his working time to us because Antecip is an inactive intellectual property holding company, he may facepotential conflicts of interest regarding these licensing transactions as a result of his ownership of Antecip. The licenseagreements provide that, subject to the reasonable consent of Antecip, we have the right to control the prosecution ordefense, as the case may require, of a patent infringement claim involving the licensed intellectual property. Our interestswith respect to pleadings and settlements in such cases may be at odds with those of Antecip. If there is a dispute between usand Antecip, Dr. Tabuteau will have a conflict of interest because he may, at the time of a prospective dispute,simultaneously have a financial interest in and owe a fiduciary duty to Antecip and simultaneously have a financial interestin and owe a fiduciary duty to us. For example, if a contractual dispute arises between us and Antecip under any of thelicense agreements we have with Antecip, Dr. Tabuteau may be in a position where he would benefit if Antecip prevails, tothe detriment of our business or our investors, even though he is an officer and director of our company, because he is thesole owner of Antecip. Similarly, if we have a claim of any kind against Antecip, Dr. Tabuteau may be, even as our ChiefExecutive Officer and Chairman of the Board, reluctant to assert a claim by us against Antecip because of his financialinterest in Antecip. We cannot assure you that any conflicts will be resolved in our favor, and as a result, our business couldbe impeded or materially harmed.We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize onproduct candidates or indications that may be more profitable or for which there is a greater likelihood of success.Because we have limited financial and managerial resources, we focus on developing product candidates for specificindications that we identify as most likely to succeed, in terms of both its regulatory approval and commercialization. Assuch, we are currently primarily focused on the development of AXS‑02 for the treatment of pain associated with CRPS andknee OA associated with BMLs, and AXS‑05 for the treatment of TRD. As a result, we may forego or delay pursuit ofopportunities with other product candidates or for other indications that may prove to have greater commercial potential.Additionally, as more fully described in “Business—Material License Agreements,” we are required to pay to an entityowned by our Chief Executive Officer and Chairman of the Board certain royalty payments related to the development ofAXS‑02 and AXS‑05, as well as AXS‑04, a product candidate that is currently in early‑stage development, but not withrespect to the development of other product candidates, which may influence management’s decision concerning whichproduct candidates or indications to pursue. Our resource allocation decisions may cause us to fail to capitalize on viablecommercial products or profitable market opportunities. Our spending on current and future research and developmentprograms and product candidates for specific indications may not yield any commercially viable products. If we do notaccurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuablerights to that product candidate through collaboration, licensing, or other royalty arrangements in cases in which it wouldhave been more advantageous for us to retain sole development and commercialization rights to such product candidate.Our future growth may depend on our ability to identify and develop product candidates and if we do not successfullyidentify and develop product candidates or integrate them into our operations, we may have limited growth opportunities.A component of our business strategy is to continue to develop a pipeline of product candidates by developingproducts that we believe are a strategic fit with our focus on central nervous system, or CNS, therapeutics. However, thesebusiness activities may entail numerous operational and financial risks, including:•difficulty or inability to secure financing to fund business activities for such development;•disruption of our business and diversion of our management’s time and attention;46 Table of Contents•higher than expected development costs;•exposure to unknown liabilities;•difficulty in managing multiple product development programs; and•inability to successfully develop new products or clinical failure.For instance, our prior efforts have resulted in our decision not to further develop certain product candidates that, atone time, appeared to be promising. We have limited resources to identify and execute the developments of products.Moreover, we may devote resources to potential development that are never completed, or we may fail to realize theanticipated benefits of such efforts. If we do not successfully develop and commercialize product candidates, we may not beable to obtain product revenues in future periods.If safety and efficacy data for our product candidates, a reference listed drug, or published literature does not satisfactorilydemonstrate safety and efficacy to the FDA, or if the FDA and other regulators do not permit us to rely on the data of areference listed drug or published literature, we may incur additional costs or experience delays in completing, orultimately be unable to complete, the development and commercialization of our product candidates.We are not permitted to commercialize, market, promote, or sell any product candidate in the United States withoutobtaining marketing approval from the FDA. Comparable foreign regulatory authorities, such as the European MedicinesAgency, or EMA, impose similar restrictions.In the United States, we currently plan to at least initially seek approval of our product candidates using the 505(b)(2) pathway. The FDA interprets Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FDCA, for purposes ofapproving an NDA, to permit the applicant to rely, in part, upon published literature or the FDA’s previous findings of safetyand efficacy for an approved product. The FDA, though, requires companies to perform additional clinical trials or preclinicalstudies to support any deviation from the previously approved product and to support reliance on the FDA’s prior findings ofsafety and efficacy or published literature.Under the 505(b)(2) pathway, the FDA may approve our product candidates for all or some of the label indicationsfor which the referenced product has been approved, as well as for any new indication sought pursuant to the Section 505(b)(2) process. The label, however, may require all or some of the limitations, contraindications, warnings, or precautionsincluded in the reference product’s label, including a black box warning, or may require additional limitations,contraindications, warnings, or precautions, including class‑wide warnings. For instance, antidepressants, includingbupropion, include a class‑wide black box warning regarding the increased risk of suicidal thoughts and behavior.Based on the side effects disclosed in FDA product labels for marketed drugs that contain the same active moleculeas our product candidate, AXS‑02 may result in nausea, fatigue, anemia, bone pain, constipation, fever, vomiting, dyspnea,hypersensitivity reactions, osteonecrosis of the jaw, renal toxicity, musculoskeletal pain, atypical fractures, hypocalcemia,bronchoconstriction, or other adverse events or potential adverse events reported or discussed in the product labels forzoledronic acid‑containing products including Zometa, Reclast, and Aclasta.Based on the side effects disclosed in FDA product labels for marketed drugs that contain the same active moleculesas our product candidate, AXS‑05 may result in dry mouth, nausea, insomnia, dizziness, pharyngitis, abdominal pain,agitation, anxiety, tremor, seizure, increase in blood pressure and heart rate, hepatoxicity, hypoglycemia, thrombocytopeniaor other hypersensitivity reactions, QT prolongation, left ventricular hypertrophy or left ventricular dysfunction, palpitation,sweating, tinnitus, myalgia, anorexia, urinary frequency, rash, seizure, hypertension, activation of mania or hypomania,psychosis and other neuropsychiatric reactions, suicidal ideation, suicide attempt, completed suicide, angle closureglaucoma, allergic or anaphylactoid or anaphylactic reactions, diarrhea, cough, vomiting, asthenia, peripheral edema, urinarytract infection, influenza, increased gamma‑glutamyltransferase, flatulence, or other adverse events or potential adverseevents reported or discussed in the product labels for bupropion‑containing products or47 Table of Contentsdextromethorphan‑containing products including Wellbutrin, Wellbutrin SR, Wellbutrin XL, Zyban, Contrave, andNuedexta.In addition, because we plan to file our product candidates under an NDA submitted pursuant to 505(b)(2), we willrely, at least in part, upon a reference listed drug and published literature. For example, we intend to rely on data collected incertain investigator‑initiated Phase 2 clinical trials and other third‑party studies in the published literature as well as FDAfindings of safety and efficacy for approved drug products containing the same active molecules in AXS‑02 and AXS‑05. Ifthe FDA disagrees with our conclusions regarding the appropriateness of our reliance on a reference listed drug or publishedliterature, we could be required to conduct additional clinical trials or other studies to support our NDA, which could lead tounanticipated costs and delays or to the termination of our development program. If we are unable to obtain approval for ourpharmaceutical formulations through the 505(b)(2) NDA process, we may be required to pursue the more expensive andtime‑consuming 505(b)(1) approval process, which consists of full reports of investigations of safety and effectivenessconducted by or for the applicant. In addition, because we plan to submit NDAs for AXS‑02 and AXS‑05 pursuant to the505(b)(2) process, we have not conducted Phase 2 clinical trials for these product candidates and, as such, we will have lessexperience with actual testing of the product candidate.There may also be circumstances under which the FDA would not allow us to pursue a 505(b)(2) application. Forinstance, should the FDA approve a pharmaceutically equivalent product to our product candidates, we would no longer beable to use the 505(b)(2) pathway. In that case, it is the FDA’s policy that the appropriate submission would be anAbbreviated New Drug Application, or ANDA, for a generic version of the approved product. We may, however, not be ableto immediately submit an ANDA or have an ANDA approval made effective, as we could be blocked by others’ periods ofpatent and regulatory exclusivity protection.Notwithstanding the approval of a number of products by the FDA under 505(b)(2) over the last few years,pharmaceutical companies and others have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA’sinterpretation of Section 505(b)(2) is successfully challenged, the FDA may change its policies and practices with respect toSection 505(b)(2) regulatory approvals, which could delay or even prevent the FDA from approving any NDA that we submitpursuant to the 505(b)(2) process. Moreover, our inability to pursue a 505(b)(2) application could result in new competitiveproducts reaching the market more quickly than our product candidates, which could hurt our competitive position and ourbusiness prospects.We may never receive approval for any of our product candidates, and even if our product candidates are approvedunder 505(b)(2), the approval may be subject to limitations on the indicated uses for which the products may be marketed,distribution restrictions, or to other conditions of approval; may contain significant safety warnings, including boxedwarnings, contraindications, and precautions; may not be approved with label statements necessary or desirable forsuccessful commercialization; or may contain requirements for costly post‑market testing and surveillance or otherrequirements, including REMS, to monitor the safety or efficacy of the products. Moreover, any future actions or inquiries bythe FDA with respect to the reference listed drug may require that we make changes to our labeling or, possibly, withdraw theproduct from the market.An NDA submitted under Section 505(b)(2) subjects us to the risk that we may be subject to a patent infringement lawsuitor regulatory actions that would delay or prevent the review or approval of our product candidate.Applicants submitting NDAs under Section 505(b)(2) of the FDCA must provide a patent certification with theapplication for all reference listed drugs and for all brand name products identified in published literature upon which the505(b)(2) applicant relies. One such certification is known as a paragraph IV certification, which certifies that any patentslisted in the FDA’s publication, the Approved Drug Products with Therapeutic Equivalence Evaluations, commonly knownas the Orange Book, are invalid, unenforceable, or will not be infringed by the manufacture, use, or sale of the product that isthe subject of the 505(b)(2) NDA.Under the Hatch‑Waxman Act, the holder of patents or NDAs that the 505(b)(2) application references may file apatent infringement lawsuit after receiving notice of the paragraph IV certification. Filing of a patent infringement lawsuitagainst the filer of the 505(b)(2) applicant within 45 days of the patent or NDA owner’s receipt of notice triggers a one‑time,automatic, 30‑month stay of the FDA’s ability to make the 505(b)(2) NDA approval effective. In such a case,48 Table of Contentsthe FDA may not make the 505(b)(2) NDA approval effective until the earlier of 30 months from the receipt of the notice ofthe paragraph IV certification, the expiration of the patent, when the infringement case concerning each such patent wasfavorably decided in the applicant’s favor or settled, or such shorter or longer period as may be ordered by a court.Accordingly, we may invest a significant amount of time and expense in the development of one or more product candidatesonly to be subject to significant delay and patent litigation before such product candidates may be commercialized, if at all.In addition, a 505(b)(2) application approval will not be made effective until any existing non‑patent exclusivity, such asexclusivity for obtaining approval of a new chemical entity, or NCE, or exclusivities for changes to NCEs listed in theOrange Book for the referenced product have expired or, if possible, are carved out from the label.Companies that produce branded reference listed drugs routinely bring litigation against applicants that seekregulatory approval to manufacture and market generic and reformulated forms of their branded products. These companiesoften allege patent infringement or other violations of intellectual property rights as the basis for filing suit. Likewise, patentholders may bring patent infringement suits against companies that are currently marketing and selling their approvedgeneric or reformulated products. Litigation to enforce or defend intellectual property rights is often complex and ofteninvolves significant expense and can delay or prevent introduction or sale of our product candidates. If patents are held to bevalid and infringed by our product candidates in a particular jurisdiction, we may be required to cease selling, relinquish ordestroy existing stock, or pay monetary damages in that jurisdiction unless we can obtain a license from the patent holder.There may also be situations where we use our business judgment and decide to market and sell our approved products,notwithstanding the fact that allegations of patent infringement(s) have not been finally resolved by the courts, which isknown as an “at‑risk launch.” The risk involved in doing so can be substantial because the remedies available to the owner ofa patent for infringement may include, among other things, damages measured by the profits lost by the patent owner whichmay be greater than the profits earned by the infringer. In the case of willful infringement, such damages may be increased upto three times. An adverse decision in patent litigation could have a material adverse effect on our business, financialposition, and results of operations and could cause the market value of our common stock to decline. While, at this time, webelieve that we will not need to file a paragraph IV certification for AXS‑02 or AXS‑05, should circumstances change, shouldthe FDA disagree or should we be required to file a paragraph IV certification in the future for other product candidates, wemay risk patent litigation and substantial delays.The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming, andinherently unpredictable. If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, wewill not be able to commercialize our product candidates as expected, and our ability to generate revenue will bematerially impaired.The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typicallytakes many years following the commencement of clinical trials and depends upon numerous factors, including thesubstantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount ofclinical data necessary to gain approval may change during the course of a product candidate’s clinical development andmay vary among jurisdictions, and may require us to amend our clinical trial protocols or conduct additional studies thatrequire regulatory or institutional review board, or IRB, approval, or otherwise cause delays in the approval or rejection of anapplication. We have not obtained regulatory approval for any product candidate and it is possible that none of our existingproduct candidates, including AXS‑02 and AXS‑05, or any product candidates we may seek to develop in the future, willever obtain regulatory approval. Any delay in obtaining or failure to obtain required approvals could materially adverselyaffect our ability or that of any of our collaborators to generate revenue from the particular product candidate, which likelywould result in significant harm to our financial position and adversely impact our stock price.Our product candidates and the activities associated with their development and commercialization, including theirdesign, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale, anddistribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States, and bythe EMA and similar regulatory authorities outside the United States and Europe. Failure to obtain marketing approval for aproduct candidate will prevent us from commercializing the product candidate. We have no experience in filing andsupporting the applications necessary to gain marketing approvals and expect to rely on third‑party clinical researchorganizations, or CROs, and consultants to assist us in this process. Securing marketing49 Table of Contentsapproval requires the submission of extensive preclinical and clinical data and supporting information to regulatoryauthorities for each therapeutic indication to establish the product candidate’s safety and efficacy for that indication.Securing marketing approval also requires the submission of information about the product manufacturing process to, andinspection of manufacturing facilities and clinical trial sites by, the regulatory authorities.Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failurecan occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our productcandidates may not be predictive of the results of later‑stage clinical trials. Product candidates in later stages of clinical trialsmay fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initialclinical trials. Preclinical studies may also reveal unfavorable product candidate characteristics, including safety concerns. Anumber of companies in the pharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lackof efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. Our future clinical trial results maynot be successful. Moreover, should there be a flaw in a clinical trial, it may not become apparent until the clinical trial iswell advanced.We may also experience numerous unforeseen events during, or as a result of, clinical trials that could delay orprevent our ability to receive marketing approval or commercialize our product candidates, including:•regulators or IRBs may not authorize us or our investigators to commence a clinical trial or conduct a clinicaltrial at a prospective trial site or amend trial protocols;•we may experience delays in reaching, or fail to reach, agreement on acceptable clinical trial contracts orclinical trial protocols with prospective trial sites and our CROs;•clinical trials of our product candidates may produce negative or inconclusive results, or our studies may fail toreach the necessary level of statistical significance, and we may decide, or regulators may require us, to conductadditional clinical trials or abandon product development programs. For instance, as CRPS may spontaneouslyresolve on its own, our studies in recently diagnosed patients may fail to show a treatment effect;•the number of patients required for clinical trials of our product candidates may be larger than we anticipate,enrollment in these clinical trials may be slower than we anticipate, or participants may drop out of theseclinical trials at a higher rate than we anticipate;•our third‑party contractors may fail to comply with regulatory requirements or the clinical trial protocol, or meettheir contractual obligations to us in a timely manner, or at all, or we may be required to engage in additionalclinical trial site monitoring;•we, the regulators, or IRBs may require that we or our investigators suspend or terminate clinical research forvarious reasons, including noncompliance with regulatory requirements or a finding that the participants arebeing exposed to unacceptable health risks, undesirable side effects, or other unexpected characteristics of theproduct candidate, or due to findings of undesirable effects caused by a chemically or mechanistically similardrug or drug candidate;•changes in marketing approval policies during the development period rendering our data insufficient to obtainmarketing approval;•changes in or the enactment of additional statutes or regulations;•changes in regulatory review for each submitted product application;•the cost of clinical trials of our product candidates may be greater than we anticipate or we may have insufficientfunds for a clinical trial or to pay the substantial user fees required by the FDA upon the filing of an NDA;50 Table of Contents•the supply or quality of our product candidates or other materials necessary to conduct clinical trials of ourproduct candidates may be insufficient or inadequate;•we may decide, or regulators may require us, to conduct additional clinical trials, analyses, reports, data, orpreclinical trials, or we may abandon product development programs. For instance, for the development ofAXS‑02, the FDA has indicated that we will need to file a new IND for each indication to supplement the initialIND that we filed in 2013 for the treatment of pain associated with CRPS, and that we will need to conductadditional preclinical studies and clinical trials, such as non‑clinical oral toxicology studies and clinical trialsto further assess the safety and duration of effect of AXS‑02, AXS‑02 food effects, and possibly repeat dosing.For our planned Phase 3 clinical trial with AXS‑02 for the treatment of the pain of knee OA associated withBMLs, although we have received a Special Protocol Assessment, or SPA, the FDA stated that if there is arecurrence of knee OA pain, we will need to explore repeat dosing, which would require additional preclinicalstudies. Also, as part of our clinical plan for AXS‑02 for the treatment of the pain of knee OA associated withBMLs, we will need to conduct two preclinical chronic toxicology studies with AXS‑02. For AXS‑05, we willneed to conduct additional clinical and preclinical studies in addition to our planned Phase 3 trials in order tofile an NDA for this product candidate. The outcome of our studies may further necessitate additional clinical orpreclinical work;•we may fail to reach an agreement with regulators regarding the scope or design of our clinical trials;•we may have delays in adding new investigators or clinical trial sites, or we may experience a withdrawal ofclinical trial sites;•patients that enroll in our studies may misrepresent their eligibility or may otherwise not comply with theclinical trial protocol, resulting in the need to drop the patients from the study or clinical trial, increase theneeded enrollment size for the study or clinical trial, or extend the study’s or clinical trial’s duration;•there may be regulatory questions regarding interpretations of data and results, or new information may emergeregarding our product candidates;•the FDA or comparable foreign regulatory authorities may disagree with our study design or our interpretation ofdata from preclinical studies and clinical trials or find that a product candidate’s benefits do not outweigh itssafety risks. For instance, in our communications with the FDA, the FDA has raised questions and had commentsregarding our preclinical studies and clinical trials, such as comments on the acceptability of the proposed trialdesigns for our product candidates, the number of patients planned for our studies, our data analysis plans, theapplicability of the serum biomarkers studied in our Phase 1 study of AXS‑02, the species and doses used in ourpreclinical studies, and the results of our preclinical studies;•the FDA or comparable foreign regulatory authorities may not accept data from studies with clinical trial sites inforeign countries;•the FDA or comparable foreign regulatory authorities may disagree with our intended indications. For instance,the FDA has raised questions regarding the relevance of only studying knee OA with BMLs as well as thepathophysiology of the pain of knee OA associated with BMLs, and CLBP associated with MCs;•the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with themanufacturing processes or our manufacturing facilities for clinical and future commercial supplies;•the FDA or comparable foreign regulatory authorities may take longer than we anticipate to make a decision onour product candidates; and•we may not be able to demonstrate that a product candidate provides an advantage over current standards of careor current or future competitive therapies in development.51 Table of ContentsMoreover, if we are required to conduct additional clinical trials or other testing of our product candidates beyondthose that we currently contemplate, if we are unable to successfully complete clinical trials or other testing of our productcandidates, if the results of these trials or tests are not positive, or are only modestly positive or if there are safety concerns,we may:•be delayed in obtaining marketing approval for our product candidates;•not obtain marketing approval at all;•obtain approval for indications or patient populations that are not as broad as intended or desired or are notcovered by our intellectual property;•obtain approval with labeling that includes significant use or distribution restrictions, including restrictions onthe intended patient population, or safety warnings, including boxed warnings, contraindications, andprecautions, or may not include label statements necessary or desirable for successful commercialization;•be subject to additional post‑marketing testing and surveillance requirements, including REMS; or•have the product removed from the market after obtaining marketing approval.Our product candidate development costs will also increase if we experience delays in testing or approvals and wemay not have sufficient funding to complete the testing and approval process for any of our product candidates. We may berequired to obtain additional funds to complete clinical trials and prepare for possible commercialization of our productcandidates. We do not know whether any preclinical tests or clinical trials will be required, will begin as planned, will needto be restructured, or will be completed on schedule, or at all. Significant delays relating to any preclinical studies or clinicaltrials also could shorten any periods during which we may have the exclusive right to commercialize our product candidatesor allow our competitors, or the competitors of our collaborators, to bring products to market before we do and impair ourability to successfully commercialize our product candidates and may harm our business and results of operations. Inaddition, many of the factors that cause, or lead to, such delays may ultimately lead to the denial of marketing approval ofany of our product candidates. If any of this occurs, our business, financial condition, results of operations, and prospects willbe materially harmed.Regulatory authorities have substantial discretion in the approval process and may refuse to accept any applicationor may decide that our data are insufficient for approval and require additional preclinical studies, clinical trials, or otherstudies. In addition, varying interpretations of the data obtained from preclinical and clinical testing could delay, limit, orprevent marketing approval of a product candidate. Furthermore, there is the possibility that the FDA has not previouslyreviewed product candidates for the indications we are pursuing, such as bisphosphonates for the treatment of pain. As aresult, we may experience delays in regulatory approval due to uncertainties in the approval process.Finally, even if we were to obtain approval, regulatory authorities may approve any of our product candidates forfewer or more limited indications or uses than we request, may contain significant safety warnings, including black boxwarnings, contraindications, and precautions, may grant approval contingent on the performance of costly post‑marketingclinical trials, surveillance, or other requirements, including REMS to monitor the safety or efficacy of the product, or mayapprove a product candidate with a label that does not include the labeling claims necessary or desirable for the successfulcommercialization of that product candidate. Any of these scenarios could compromise the commercial prospects for ourproduct candidates.If we experience delays in obtaining approval, if we fail to obtain approval of a product candidate or if the label fora product candidate does not include the labeling claims necessary or desirable for the successful commercialization of thatproduct candidate, the commercial prospects for such product candidate may be harmed and our ability to generate revenuesfrom that product candidate will be materially impaired.52 Table of ContentsThe FDA may determine that AXS‑02, AXS‑05, or any other of our current or future product candidates have undesirableside effects that could delay or prevent their regulatory approval or commercialization.Undesirable side effects caused by our product candidates could cause us, IRBs, and other reviewing entities orregulatory authorities to interrupt, delay, or halt clinical trials and could result in a more restrictive label or the delay ordenial of regulatory approval by the FDA or other comparable foreign authorities. For example, if concerns are raisedregarding the safety of a new drug as a result of undesirable side effects identified during clinical or preclinical testing, theFDA may order us to cease further development, decline to approve the drug, or issue a letter requesting additional data orinformation prior to making a final decision regarding whether or not to approve the drug.The number of requests for additional data or information issued by the FDA in recent years has increased, andresulted in substantial delays in the approval of several new drugs. Undesirable side effects caused by AXS‑02, AXS‑05, orany other of our current or future product candidates could also result in denial of regulatory approval by the FDA or othercomparable foreign authorities for any or all targeted indications or the inclusion of unfavorable information in our productlabeling, such as limitations on the indicated uses for which the products may be marketed or distributed, a label withsignificant safety warnings, including boxed warnings, contraindications, and precautions, a label without statementsnecessary or desirable for successful commercialization, or may result in requirements for costly post‑marketing testing andsurveillance, or other requirements, including REMS, to monitor the safety or efficacy of the products, and in turn prevent usfrom commercializing and generating revenues from the sale of AXS‑02, AXS‑05, or any other of our current or future productcandidates.To date, the most commonly reported adverse events observed in the completed clinical trial of AXS‑02 includeheadache, fever, musculoskeletal pain, diarrhea, abdominal pain, nausea, myalgia, and chills. Some reported adverse eventsled to discontinuation from our trial of AXS‑02. These adverse events included abdominal pain.To date, the most commonly reported adverse events observed in a completed clinical trial with zoledronic acid, theactive molecule in AXS‑02, for the treatment of the pain of knee OA associated with BMLs include acute phase reactions,primarily cold or flu‑like symptoms and headaches.To date, the most commonly reported adverse events observed in a completed clinical trial with zoledronic acid, theactive molecule in AXS‑02, for the treatment of CLBP associated with MCs include fever, headache, myalgia, arthralgia,pain, nausea, and flu‑like symptoms. Sinusitis requiring temporary hospitalization following zoledronic acid infusion wasreported in one patient and was therefore classified as a serious adverse event.To date, the most commonly reported adverse events observed in the completed clinical trials of the combination ofDM, one of the active molecules in AXS‑05, and quinidine for the treatment of pseudobulbar affect and agitation in patientswith probable AD include falls, dizziness, headache, nausea, diarrhea, and urinary tract infection.To date, the most commonly reported adverse events observed in the completed clinical trials of AXS‑05 includeheadache, nausea, dizziness, insomnia, dry mouth, fatigue, hypoesthesia, disturbance in attention, hyperhidrosis, increasedheart rate, palpitation, constipation, diarrhea, increased blood pressure, and tremor. Some reported adverse events resulted indiscontinuations from our trials of AXS‑05. These adverse events included chest pain, headache, abdominal pain, diarrhea,signs of potential allergic reactions, atrial tachycardia, disturbance in attention, metamorphosia, tremor, feeling hot,dizziness, dyspnea, and increased respiratory rate.If any of our other product candidates is associated with serious adverse events or undesirable side effects or haveproperties that are unexpected, we may need to abandon development or limit development of that product candidate tocertain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe, ormore acceptable from a risk‑benefit perspective. The drug‑related side effects could affect patient recruitment or the ability ofenrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences maysignificantly harm our business, financial condition, results of operations, and prospects.53 Table of ContentsIf we experience delays or difficulties in the enrollment of patients in clinical trials, our receipt of necessary regulatoryapprovals could be delayed or prevented.We may not be able to initiate or continue conducting clinical trials for our product candidates if we are unable tolocate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or similarregulatory authorities outside the United States. Some of our competitors have ongoing clinical trials for product candidatesthat treat the same indications as our product candidates, and patients who would otherwise be eligible for our clinical trialsmay instead enroll in clinical trials of our competitors’ product candidates. Patient enrollment is affected by other factorsincluding:•the size and nature of the patient population;•the severity of the disease under investigation;•the eligibility criteria for, and design of, the clinical trial in question, including factors such as frequency ofrequired assessments, length of the study, and ongoing monitoring requirements;•the perceived risks and benefits of the product candidate under study, including the potential advantages ordisadvantages of the product candidate being studied in relation to other available therapies;•competition in recruiting and enrolling patients in clinical trials;•the efforts to facilitate timely enrollment in clinical trials;•the patient referral practices of physicians;•effectiveness of publicity created by clinical trial sites regarding the trial;•patients’ ability to comply with the specific instructions related to the trial protocol, proper documentation, anduse of the drug product;•inability to obtain or maintain patient informed consents;•risk that enrolled patients will drop out before completion;•the ability to monitor patients adequately during and after treatment; and•the proximity and availability of clinical trial sites for prospective patients.Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays andcould require us to abandon one or more clinical trials altogether. For instance, because we are seeking regulatory approvalfor certain indications that may have a narrow or small patient population, it may be difficult to find patients eligible toparticipate in our clinical studies at a sufficient rate or in a sufficient quantity. Our current development plan for AXS‑02contemplates recruiting and enrolling more than 475 patients for our Phase 3 clinical trials for the treatment of painassociated with CRPS. We may encounter difficulties or delays in completing our planned enrollments for these trials. Inaddition, because of some of our other entry criteria for our Phase 3 clinical trials with AXS‑02 for the treatment of painassociated with CRPS, such as the requirement that patients cease any usage of previous opioid therapy, we may further limitour potential patient population. For our planned Phase 3 clinical trials with AXS‑02 for the treatment of the pain of knee OAassociated with BMLs and CLBP associated with type 1 or mixed type 1 and type 2 MCs, enrollment will require theexistence of radiographic biomarkers and we may require patients to discontinue use of their existing medication beforeparticipating in our clinical trials. We may also exclude patients who have been treated with opioids or other classes ofmedications. For our Phase 3 clinical trial with AXS‑05 for the treatment of TRD, we will require patients to have previouslyfailed one or two antidepressant treatments, which further limits our potential patient population. As a result, these entrycriteria may make it difficult for us to enroll patients in any of our clinical54 Table of Contentstrials. Moreover, patients in our clinical trials, especially patients in our control groups, may be at risk for dropping out of ourstudies if they are not experiencing relief of their symptoms. A significant number of withdrawn patients would compromisethe quality of our data.Enrollment delays in our clinical trials may result in increased development costs for our product candidates, or theinability to complete development of our product candidates, which would cause the value of our company to decline, limitour ability to obtain additional financing, and materially impair our ability to generate revenues.One of our lead product candidates, AXS‑05, if approved, will compete in the marketplace with other bupropion productsthat are subject to restrictive marketing and distribution regulations, which if applied to our product candidates wouldrestrict their use and harm our ability to generate profits.Some of the currently approved bupropion products require REMS. REMS programs may require medication guidesfor patients, special communication plans to healthcare professionals, or elements to assure safe use, such as restricteddistribution methods, distribution only to certain medical professionals, training for medical professionals prescribing ourproduct candidates, patient registries, or other risk minimization tools. The FDA may determine that AXS‑05 will require aREMS program. We cannot predict whether REMS will be required as part of the FDA’s approval of our product candidatesand, if required, what those requirements might be. Any limitations on approval or marketing could restrict the commercialpromotion, distribution, prescription, or dispensing of our product candidates, if approved. If a REMS program is required,depending on the extent of the REMS requirements, the program might significantly increase our costs to commercializethese product candidates or could place a substantial burden on medical professionals, discouraging their use of our productcandidates, if approved. Furthermore, risks of our product candidates that are not adequately addressed through proposedREMS for such product candidates may also prevent or delay their approval for commercialization.Changes in product candidate manufacturing or formulation may result in additional costs or delay.As product candidates are developed through preclinical studies to late‑stage clinical trials towards approval andcommercialization, it is common that various aspects of the development program, such as manufacturing methods andformulation, are altered along the way in an effort to optimize processes and results. For instance, our initial studies inAXS‑05 were completed with two separate tablets containing DM and bupropion. Our Phase 3 studies, however, will beconducted using a single tablet containing both active ingredients. Such changes carry the risk that they will not achievethese intended objectives. Any of these changes could cause our product candidates to perform differently and affect theresults of planned clinical trials or other future clinical trials conducted with the altered materials. Such changes may alsorequire additional testing, FDA notification, or FDA approval. This could delay completion of clinical trials; require theconduct of bridging clinical trials or studies, or the repetition of one or more clinical trials; increase clinical trial costs; delayapproval of our product candidates; and jeopardize our ability to commence product sales and generate revenue.Failure to obtain marketing approval in international jurisdictions would prevent our product candidates from beingmarketed abroad.In order to market and sell our products in the European Union and many other jurisdictions, we or our third‑partycollaborators must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. Theapproval procedure varies among countries and can involve additional testing. The time required to obtain approval maydiffer substantially from that required to obtain FDA approval. The regulatory approval process outside the United Statesgenerally includes all of the risks associated with obtaining FDA approval. In addition, in many countries outside the UnitedStates, it is required that the product be approved for reimbursement before the product can be approved for sale in thatcountry. We or these third parties may not obtain approvals from regulatory authorities outside the United States on a timelybasis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions,and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities inother countries or jurisdictions or by the FDA. However, the failure to obtain approval in one jurisdiction may compromiseour ability to obtain approval elsewhere. We may not be able to file for marketing approvals and may not receive necessaryapprovals to commercialize our products in any market.55 Table of ContentsA Fast Track product designation or other designation to facilitate product candidate development may not lead to fasterdevelopment or regulatory review or approval process, and it does not increase the likelihood that our product candidateswill receive marketing approval.We have received a Fast Track product designation for AXS‑02 for the treatment of pain associated with CRPS, andwe may seek Fast Track designation for other of our current or future product candidates. Receipt of a designation tofacilitate product candidate development is within the discretion of the FDA. Accordingly, even if we believe one of ourproduct candidates meets the criteria for a designation, the FDA may disagree. In any event, the receipt of such a designationfor a product candidate may not result in a faster development process, review, or approval compared to drugs considered forapproval under conventional FDA procedures and does not assure ultimate marketing approval by the FDA. In addition, theFDA may later decide that the products no longer meet the designation conditions.Regulatory approval is limited by the FDA to those specific indications and conditions for which clinical safety andefficacy have been demonstrated, and we may be subject to fines, penalties, injunctions, or other enforcement actions if weare determined to be promoting the use of our products for unapproved or “off‑label” uses, resulting in damage to ourreputation and business.We, and any of our collaborators, must comply with requirements concerning advertising and promotion for any ofour product candidates for which we or they obtain marketing approval. Promotional communications with respect toprescription drugs are subject to a variety of legal and regulatory restrictions and continuing review by the FDA, Departmentof Justice, Department of Health and Human Services’ Office of Inspector General, state attorneys general, members ofCongress, and the public. When the FDA or comparable foreign regulatory authorities issue regulatory approval for a productcandidate, the regulatory approval is limited to those specific uses and indications for which a product is approved. If we arenot able to obtain FDA approval for any desired uses or indications for our products and product candidates, we may notmarket or promote our products for those indications and uses, referred to as off‑label uses, and our business may be adverselyaffected. We further must be able to sufficiently substantiate any claims that we make for our products including claimscomparing our products to other companies’ products.While physicians may choose to prescribe drugs for uses that are not described in the product’s labeling and for usesthat differ from those tested in clinical studies and approved by the regulatory authorities, we are prohibited from marketingand promoting the products for indications and uses that are not specifically approved by the FDA. These off‑label uses arecommon across medical specialties and may constitute an appropriate treatment for some patients in varied circumstances.Regulatory authorities in the United States generally do not restrict or regulate the behavior of physicians in their choice oftreatment within the practice of medicine. Regulatory authorities do, however, restrict communications by pharmaceuticalcompanies concerning off‑label use.If we are found to have impermissibly promoted any of our product candidates, we may become subject tosignificant liability and government fines. The FDA and other agencies actively enforce the laws and regulations regardingproduct promotion, particularly those prohibiting the promotion of off‑label uses, and a company that is found to haveimproperly promoted a product may be subject to significant sanctions. The federal government has levied large civil andcriminal fines against companies for alleged improper promotion and has enjoined several companies from engaging inoff‑label promotion. The FDA has also requested that companies enter into consent decrees of permanent injunctions underwhich specified promotional conduct is changed or curtailed. Thus, we and any of our collaborators will not be able topromote any products we develop for indications or uses for which they are not approved.In the United States, engaging in the impermissible promotion of our products, following approval, for off‑label usescan also subject us to false claims and other litigation under federal and state statutes, including fraud and abuse andconsumer protection laws, which can lead to civil and criminal penalties and fines, agreements with governmental authoritiesthat materially restrict the manner in which we promote or distribute drug products and do business through, for example,corporate integrity agreements, suspension or exclusion from participation in federal and state healthcare programs, anddebarment from government contracts and refusal of future orders under existing contracts. These false claims statutesinclude the federal civil False Claims Act, which allows any individual to bring a lawsuit against a pharmaceutical companyon behalf of the federal government alleging submission of false or fraudulent claims, or causing others to present such falseor fraudulent claims, for payment by a federal program such as Medicare or56 Table of ContentsMedicaid. If the government decides to intervene and prevails in the lawsuit, the individual will share in the proceeds fromany fines or settlement funds. If the government declines to intervene, the individual may pursue the case alone. These FalseClaims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading toseveral substantial civil and criminal settlements, up to $3.0 billion, pertaining to certain sales practices and promotingoff‑label drug uses. This growth in litigation has increased the risk that a pharmaceutical company will have to defend a falseclaim action; pay settlement fines or restitution, as well as criminal and civil penalties; agree to comply with burdensomereporting and compliance obligations; and be excluded from Medicare, Medicaid, or other federal and state healthcareprograms. If we or our collaborators do not lawfully promote our approved products, if any, we may become subject to suchlitigation and, if we do not successfully defend against such actions, those actions may have a material adverse effect on ourbusiness, financial condition, results of operations, and prospects.In the United States, the distribution of product samples to physicians must further comply with the requirements ofthe U.S. Prescription Drug Marketing Act. If the FDA determines that our promotional activities violate its regulations andpolicies pertaining to product promotion, it could request that we modify our promotional materials or subject us toregulatory or other enforcement actions, including issuance of warning letters or untitled letters, suspension or withdrawal ofan approved product from the market, requests for recalls, payment of civil fines, disgorgement of money, imposition ofoperating restrictions, injunctions, or criminal prosecution. These regulatory and enforcement actions could significantlyharm our business, financial condition, results of operations, and prospects.Even if AXS‑02 or AXS‑05 receive regulatory approval, we will be subject to ongoing obligations and continuedregulatory review, which may result in significant additional expense. Additionally, any of our product candidates, ifapproved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties ifwe fail to comply with regulatory requirements or experience unanticipated problems with our products.Any product candidate for which we obtain marketing approval will be subject to extensive and ongoingrequirements of and review by the FDA and other regulatory authorities, including requirements related to the manufacturingprocesses, post‑approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping,export, import, advertising, marketing, and promotional activities for such product. These requirements further includesubmissions of safety and other post‑marketing information, including manufacturing deviations and reports; registrationand listing requirements; the payment of annual fees for our product candidates, if approved, and the establishments at whichthey are manufactured; continued compliance with cGMP requirements relating to manufacturing, quality control, qualityassurance, and corresponding maintenance of records and documents; requirements regarding the distribution of samples tophysicians and recordkeeping; and good clinical practices, or GCPs, for any clinical trials that we conduct post‑approval.Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicateduses and populations for which the product may be marketed or to the conditions of approval, including significant safetywarnings, including boxed warnings, contraindications, and precautions that are not desirable for successfulcommercialization and any requirement to implement a REMS that render the approved product not commercially viable orother post‑market requirements or restrictions. Any such restrictions could limit sales of the product.We and any of our collaborators, including our contract manufacturers, could be subject to periodic unannouncedinspections by the FDA to monitor and ensure compliance with cGMPs. Application holders must further notify the FDA, anddepending on the nature of the change, obtain FDA pre‑approval for product and manufacturing changes. Application feesmay apply to certain changes.In addition, later discovery of previously unknown adverse events or that the drug is less effective than previouslythought or other problems with our products, manufacturers, or manufacturing processes, or failure to comply with regulatoryrequirements both before and after approval, may yield various results, including:•restrictions on manufacturing or distribution, or marketing of such products;•restrictions on the labeling, including required additional warnings, such as black box warnings,contraindications, precautions, and restrictions on the approved indication or use;57 Table of Contents•modifications to promotional pieces;•requirements to conduct post‑marketing studies or clinical trials;•clinical holds or termination of clinical trials;•requirements to establish or modify a REMS or a comparable foreign authority may require that we establish ormodify a similar strategy, that may, for instance, require us to create a Medication Guide outlining the risks ofthe previously unidentified side effects for distribution to patients, or restrict distribution of the product, if andwhen approved, and impose burdensome implementation requirements on us;•changes to the way the drug is administered;•liability for harm caused to patients or subjects;•reputational harm;•the drug becoming less competitive;•warning, untitled, or cyber letters;•suspension of marketing or withdrawal of the products from the market;•regulatory authority issuance of safety alerts, Dear Healthcare Provider letters, press releases, or othercommunications containing warnings or other safety information about the drug;•refusal to approve pending applications or supplements to approved applications that we submit;•recall of products;•fines, damages, restitution, or disgorgement of profits or revenues;•suspension or withdrawal of marketing approvals;•refusal to permit the import or export of our products;•product seizure or detention;•FDA debarment, debarment from government contracts, and refusal of future orders under existing contracts,exclusion from federal healthcare programs, consent decrees, or corporate integrity agreements; or•injunctions or the imposition of civil or criminal penalties, including imprisonment.Any of these events could prevent us from achieving or maintaining market acceptance of the particular productcandidate, if approved, or could substantially increase the costs and expenses of commercializing such product, which in turncould delay or prevent us from generating significant revenues from its sale. Any of these events could further have othermaterial and adverse effects on our operations and business and could adversely impact our stock price and couldsignificantly harm our business, financial condition, results of operations, and prospects.The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit, ordelay regulatory approval of our product candidates or that could impose additional regulatory obligations on us58 Table of Contentsif our product candidates are approved. If we are slow or unable to adapt to changes in existing requirements or the adoptionof new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approvalthat we may have obtained and be subject to regulatory enforcement action.Should any of the above actions take place, they could adversely affect our ability to achieve or sustainprofitability. Further, the cost of compliance with post‑approval regulations may have a negative effect on our operatingresults and financial condition.If we obtain approval to commercialize our product candidates outside of the United States, a variety of risks associatedwith international operations could materially adversely affect our business.If any of our product candidates are approved for commercialization, we may enter into agreements with third partiesto market them on a worldwide basis or in more limited geographical regions. We expect that we will be subject to additionalrisks related to entering into international business relationships, including:•different regulatory requirements for approval of drugs in foreign countries;•the potential for so‑called parallel importing, which is what happens when a local seller, faced with high orhigher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buyingthem locally;•challenges enforcing our contractual and intellectual property rights, especially in those foreign countries thatdo not respect and protect intellectual property rights to the same extent as the United States;•unexpected changes in tariffs, trade barriers, and regulatory requirements and in the health care policies offoreign jurisdictions;•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 taxes, including withholding of payroll taxes;•foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, andother obligations incident to doing business in another country;•difficulties staffing and managing foreign operations;•workforce uncertainty in countries where labor unrest is more common than in the United States;•costs of compliance with U.S. laws and regulations for foreign operations, including the Foreign CorruptPractices Act or comparable foreign regulations, and the risks and costs of noncompliance;•production shortages resulting from any events affecting raw material supply or manufacturing capabilitiesabroad; and•business interruptions resulting from geopolitical actions, including war and terrorism, or natural disastersincluding earthquakes, typhoons, floods, and fires.These and other risks associated with our international operations may materially adversely affect our ability toattain or maintain profitable operations.59 Table of ContentsWe will need to obtain FDA approval of any proposed product names, and any failure or delay associated with suchapproval may adversely affect our business.Any name we intend to use for our product candidates will require approval from the FDA regardless of whether wehave secured a formal trademark registration from the U.S. Patent and Trademark Office, or USPTO. The FDA typicallyconducts a review of proposed product names, including an evaluation of the potential for confusion with other productnames. The FDA may also object to a product name if it believes the name inappropriately implies medical claims orcontributes to an overstatement of efficacy. If the FDA objects to any of our proposed product names, we may be required toadopt alternative names for our product candidates. If we adopt alternative names, we would lose the benefit of any existingtrademark applications for such product candidate and may be required to expend significant additional resources in an effortto identify a suitable product name that would qualify under applicable trademark laws, not infringe the existing rights ofthird parties, and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in atimely manner or at all, which would limit our ability to commercialize our product candidates.RISKS RELATED TO THE COMMERCIALIZATION OF OUR PRODUCT CANDIDATESWe face significant competition from other pharmaceutical and biotechnology companies, academic institutions,government agencies, and other research organizations. Our operating results will suffer if we fail to compete effectively.The development and commercialization of new drug products is highly competitive. We face competition withrespect to our current product candidates, and will face competition with respect to any product candidates that we may seekto develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies, andbiotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies thatcurrently market and sell products or are pursuing the development of products for the treatment of pain and central nervoussystem disorders. Potential competitors also include academic institutions, government agencies, and other public andprivate research organizations that conduct research, seek patent protection, and establish collaborative arrangements forresearch, development, manufacturing, and commercialization.Specifically, there are a large number of companies developing or marketing therapies for the treatment andmanagement of pain and other CNS disorders, including many major pharmaceutical and biotechnology companies. Amongthe companies that currently market or are developing therapies that, if approved, our product candidates would potentiallycompete with include: Alkermes plc; Allergan plc; Carbylan Therapeutics, Inc.; Eli Lilly and Company; FlexionTherapeutics, Inc.; Grunenthal GmbH; Janssen Research & Development, LLC; Levolta Pharmaceuticals, Inc.; MerrionPharmaceuticals plc; Otsuka Pharmaceutical Co. Ltd.; Thar Pharmaceuticals, Inc.; and Transition Therapeutics Inc.Our commercial opportunities could be reduced or eliminated if our competitors develop and commercializeproducts that are safer, are more effective, have fewer or less severe side effects, are more convenient, or are less expensivethan any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their productsmore rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong marketposition before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurersor other third‑party payors seeking to encourage the use of generic products or therapeutically similar lower cost brands. Ifour product candidates achieve marketing approval, we expect that they will be priced at a significant premium overcompetitive generic products, which would further impact our commercialization efforts.We are not aware of any generic products currently available on the market that are approved for the specificindications that we are pursuing; however, generic forms of the active ingredients of our product candidates, includingzoledronic acid, DM, and bupropion, are available and could be used off‑label. Any such off‑label use could adversely affectour profitability and have a negative effect on our operating results and financial condition. For example, even thoughzoledronic acid is not currently approved for the treatment of pain, we would not be able to prevent a physician fromprescribing zoledronic acid in intravenous form for such treatment. Nor could we prevent a payer from offering60 Table of Contentsfavorable coverage for such product and disadvantaging our product candidates, even if the generics would be used off-label. Many of the companies against which we are competing or against which we may compete in the future havesignificantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,conducting clinical trials, obtaining regulatory approvals, and marketing approved products than we do. Mergers andacquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentratedamong a smaller number of our competitors. Early stage companies may also prove to be significant competitors, particularlythrough collaborative arrangements with large and established companies. These third parties compete with us in recruitingand retaining qualified scientific and management personnel and establishing clinical trial sites and patient registration forclinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.If the FDA or comparable foreign regulatory authorities approve generic or similar versions of any of our products thatreceive marketing approval, or such authorities do not grant our products appropriate periods of data exclusivity beforeapproving generic or similar versions of our products, the sales of our products could be adversely affected.Once an NDA is approved, the covered product becomes a “reference listed drug” in the FDA’s Orange Book.Manufacturers may seek approval of generic versions of reference listed drugs through submission of ANDAs in the UnitedStates. In support of an ANDA, a generic manufacturer need not conduct full clinical studies. Rather, the applicant generallymust show that its product has the same active ingredient(s), dosage form, strength, route of administration, and conditions ofuse or labeling, among other commonalities, as the reference listed drug and that the generic version is bioequivalent to thereference listed drug, meaning it is absorbed in the body at the same rate and to the same extent. Generic products may besignificantly less costly to bring to market than the reference listed drug and companies that produce generic products aregenerally able to offer them at lower prices, and are generally preferred by third‑party payors. Thus, following theintroduction of a generic drug, a significant percentage of the sales of any branded product or reference listed drug istypically lost to the generic product.Moreover, in addition to generic competition, we could face competition from other companies seeking approval ofdrug products that are similar to ours using the 505(b)(2) pathway. Such applicants may be able to rely on our productcandidates, if approved, or other approved drug products or published literature to develop drug products that are similar toours. The introduction of a drug product similar to our product candidates could expose us to increased competition.Further, if we do not file a patent infringement lawsuit against a generic manufacturer within 45 days of receivingnotice of its paragraph IV certification, the ANDA or 505(b)(2) applicant would not be subject to a 30‑month stay. Litigationor other proceedings to enforce or defend intellectual property rights are often very complex in nature, may be expensive andtime consuming, may divert our management’s attention from our core business, and may result in unfavorable results thatcould adversely impact our ability to prevent third parties from competing with our products. Accordingly, upon approval ofour product candidates we may be subject to generic competition or competition from similar products, or may need tocommence patent infringement proceedings, which would divert our resources.We currently anticipate that we may be eligible for three years of non‑patent marketing exclusivity for our productcandidates if they are approved. These three years, however, would only protect our modifications in formulation orapproved uses in comparison to the reference listed drug and would not prevent other companies from submitting full NDAs.Moreover, a 505(b)(2) applicant could rely on a reference listed drug that is not one of our product candidates, or publishedliterature, in which case any periods of patent or non‑patent protection may not prevent FDA making an approval effective.We may also be eligible in the United States for seven years of orphan exclusivity for AXS‑02 for the treatment of CRPS,which is further discussed below.Competition that our products may face from generic or similar versions of our products could materially andadversely impact our future revenue, profitability, and cash flows and substantially limit our ability to obtain a return on theinvestments we have made in those product candidates.61 Table of ContentsAXS‑02 has received Orphan Drug Designation from the FDA. However, there is no guarantee that we will be able tomaintain this designation for AXS‑02, receive this designation for any of our other product candidates, or receive ormaintain any corresponding benefits, including periods of exclusivity.AXS‑02 has received Orphan Drug Designation from the FDA for the treatment of CRPS. We may also seek OrphanDrug Designation for our other product candidates, as appropriate.Orphan Drug Designation, however, may be lost if the indication for which we develop AXS‑02 or the indicationsfor which we develop any of our future product candidates do not meet the orphan drug criteria. Moreover, following productapproval, orphan drug exclusivity may be lost if the FDA determines, among other reasons, that the request for designationwas materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs ofpatients with the rare disease or condition. Even if we obtain orphan drug exclusivity for AXS‑02, AXS‑05, or any other ofour current or future product candidates, that exclusivity may not effectively protect the product from competition becausedifferent products can be approved for the same condition. Even after an orphan product is approved, the FDA cansubsequently approve a product containing the same principal molecular features for the same condition if the FDAconcludes that the later product is clinically superior in that it is shown to be safer or more effective or makes a majorcontribution to patient care.The FDA or the EMA may grant orphan exclusivity to two different sponsors for the same compound or activemolecule and for the same indication. For example, subsequent to our Orphan Drug Designation, the FDA granted OrphanDrug Designation to Thar Pharmaceuticals, Inc. for a zoledronic acid‑containing product for the treatment of CRPS. If TharPharmaceuticals or another sponsor receives FDA approval for a zoledronic acid‑containing product for the treatment ofCRPS before we obtain FDA approval for AXS‑02 for the treatment of pain associated with CRPS, we would be preventedfrom launching our product in the United States for this indication for a period of at least 7 years. If another sponsor receivesEMA approval for a zoledronic acid‑containing product for the treatment of CRPS before we obtain EMA approval forAXS‑02 for the treatment of pain associated with CRPS, we would be prevented from launching our product in the EuropeanUnion for this indication for a period of at least 10 to 12 years.In response to a recent court decision regarding the plain meaning of the exclusivity provision of the Orphan DrugAct, the FDA may undertake a reevaluation of aspects of its orphan drug regulations and policies. We do not know if, when,or how the FDA may change the orphan drug regulations and policies, and it is uncertain how any changes might affect ourbusiness. Depending on what changes the FDA may make to its orphan drug regulations and policies, our business, financialcondition, results of operations, and prospects could be harmed.If we are unable to establish effective marketing and sales capabilities or enter into agreements with third parties tomarket and sell our product candidates, if they are approved, we may be unable to generate product revenues.We currently do not have a commercial infrastructure for the marketing, sale, and distribution of pharmaceuticalproducts. If approved, in order to commercialize our products, we must build our marketing, sales, and distributioncapabilities or make arrangements with third parties to perform these services. We may not be successful in doing so. If one ofour product candidates is approved by the FDA, we plan to build a commercial infrastructure, including the creation of aspecialty sales force to launch that product candidate throughout the United States. In the future, we may seek to furtherpenetrate the U.S. market by expanding our sales force or through collaborations with other pharmaceutical or biotechnologycompanies or third‑party manufacturing and sales organizations. If approved for marketing outside the United States, weintend to commercialize our product candidates outside the United States with a marketing and sales collaborator orcollaborators, rather than with our own sales force.We have no prior experience in the marketing, sale, and distribution of pharmaceutical products, and there aresignificant risks involved in the building and managing of a commercial infrastructure. The establishment and developmentof our own sales force and related compliance plans to market any products we may develop will be expensive and timeconsuming and could delay any product launch, and we may not be able to successfully develop this capability. We, or ourfuture collaborators, will have to compete with other pharmaceutical and biotechnology companies to recruit, hire, train,manage, and retain marketing and sales personnel. In the event we are unable to develop a marketing and sales infrastructure,we may not be able to commercialize AXS‑02, AXS‑05, or any other of our current or62 Table of Contentsfuture product candidates, which would limit our ability to generate product revenues. Factors that may inhibit our efforts tocommercialize AXS‑02, AXS‑05, or any other of our current or future product candidates on our own include:•our inability to recruit, train, manage, and retain adequate numbers of effective sales and marketing personnel;•the inability of sales personnel to obtain access to physicians or persuade adequate numbers of physicians toprescribe AXS‑02, AXS‑05, or any other of our current or future product candidates;•our inability to effectively oversee a geographically dispersed sales and marketing team;•the costs associated with training sales and marketing personnel on legal and regulatory compliance matters andmonitoring their actions;•an inability to secure adequate coverage and reimbursement by government and private health plans;•the clinical indications for which the product is approved;•limitations or warnings, including distribution or use restrictions, contained in the product’s approved labeling;•any distribution and use restrictions imposed by the FDA or to which we agree as part of a mandatory REMS orvoluntary risk management plan;•liability for sales or marketing personnel who fail to comply with the applicable legal and regulatoryrequirements;•the lack of complementary products to be offered by sales personnel, which may put us at a competitivedisadvantage relative to companies with more extensive product lines; and•unforeseen costs and expenses associated with creating an independent sales and marketing organization orengaging a contract sales organization.Although our current plan is to hire most of our sales and marketing personnel only if a product candidate isapproved by the FDA, we will incur expenses prior to product launch in recruiting this sales force and developing amarketing and sales infrastructure. If a commercial launch is delayed as a result of FDA requirements or other reasons, wewould incur these expenses prior to being able to realize any revenue from sales of our product candidates. Even if we areable to effectively hire a sales force and develop a marketing and sales infrastructure, our sales force and marketing teamsmay not be successful in commercializing AXS‑02, AXS‑05, or any other of our current or future product candidates.In the event we are unable to collaborate with a third‑party marketing and sales organization to commercialize anyapproved product candidates outside the United States, our ability to generate product revenues may be limited. To theextent we rely on third parties to commercialize any products for which we obtain regulatory approval, we may receive lessrevenues than if we commercialized these products ourselves. In addition, we would have less control over the sales efforts ofany other third parties involved in our commercialization efforts, and could be held liable if they failed to comply withapplicable legal or regulatory requirements.If AXS‑02 or AXS‑05 does not achieve broad market acceptance, the revenues that we generate from their sales will belimited.We have never commercialized a product candidate for any indication. Even if AXS‑02 or AXS‑05 is approved bythe appropriate regulatory authorities for marketing and sale, it may not gain acceptance among physicians, patients,third‑party payors, and others in the medical community. If any product candidates for which we obtain regulatory63 Table of Contentsapproval do not gain an adequate level of market acceptance, we may not generate significant product revenues or becomeprofitable. Market acceptance of AXS‑02 or AXS‑05 by the medical community, patients, and third‑party payors will dependon a number of factors, some of which are beyond our control. For example, physicians are often reluctant to switch theirpatients from existing therapies even when new and potentially more effective or convenient treatments enter the market.Further, patients often acclimate to the therapy that they are currently taking and do not want to switch unless theirphysicians recommend switching products or they are required to switch therapies due to lack of reimbursement for existingtherapies.Efforts to educate the medical community and third‑party payors on the benefits of our product candidates mayrequire significant resources and may not be successful. If any of our product candidates is approved but does not achieve anadequate level of market acceptance, we may not generate significant revenues and we may not become profitable. Thedegree of market acceptance of any of our product candidates, and in particular AXS‑02 and AXS‑05, will depend on anumber of factors, including:•the efficacy of our product candidates;•the prevalence and severity of adverse events associated with such product candidate;•the clinical indications for which the product is approved and the approved claims that we may make for theproduct;•limitations or warnings contained in the product’s FDA‑approved labeling, including potential limitations orwarnings for such product candidate, that may be more restrictive than other competitive products;•changes in the standard of care for the targeted indications for such product candidate, which could reduce themarketing impact of any claims that we could make following FDA approval, if obtained;•the relative convenience and ease of administration of such product candidate;•cost of treatment versus economic and clinical benefit in relation to alternative treatments or therapies;•the availability of adequate coverage or reimbursement by third parties, such as insurance companies and otherhealthcare payors, and by government healthcare programs, including Medicare and Medicaid;•the extent and strength of our marketing and distribution of such product candidate;•the safety, efficacy, and other potential advantages over, and availability of, alternative treatments already usedor that may later be approved for any of our intended indications;•distribution and use restrictions imposed by the FDA with respect to such product candidate or to which weagree as part of a mandatory risk evaluation and mitigation strategy or voluntary risk management plan;•the timing of market introduction of such product candidate, as well as competitive products;•our ability to offer such product candidate for sale at competitive prices, including prices that are competitivewith generic products;•the willingness of the target patient population to try new therapies and of physicians to prescribe thesetherapies;•the clinical indications for which such product candidate is approved;•the extent and strength of our third‑party manufacturer and supplier support;64 Table of Contents•the approval of other new products for the same indications;•adverse publicity about the product or favorable publicity about competitive products; and•potential product liability claims.Our efforts to educate the medical community and third‑party payors on the benefits of our product candidates mayrequire significant resources and may never be successful. Even if the medical community accepts that one of our productcandidates is safe and effective for its approved indications, physicians and patients may not immediately be receptive tosuch product candidate and may be slow to adopt it as an accepted treatment of the approved indication. It is unlikely thatany labeling approved by the FDA will contain claims that one of our product candidates is safer or more effective thancompetitive products or will permit us to promote such product candidate as being superior to competing products. Further,the availability of inexpensive generic forms of pain management products for acute pain may also limit acceptance ofcertain of our product candidates among physicians, patients, and third‑party payors. If AXS‑02, AXS‑05, or any other of ourcurrent or future product candidates is approved but does not achieve an adequate level of acceptance among physicians,patients, and third‑party payors, we may not generate meaningful revenues from our product candidates, and we may notbecome profitable.The ability of patients to purchase certain of the active ingredients of our product candidates in generic form couldput us at a competitive disadvantage. For example, in some foreign jurisdictions, generic oral forms of DM and bupropion arecurrently available individually for consumer purchase. In addition, physicians may prescribe generic zoledronic acid for thetreatment of pain off‑label. Any use of these generic forms of the active molecules of our product candidates could adverselyaffect our business and our results of operations.The potential market opportunities for our product candidates are difficult to precisely estimate. Our estimates of thepotential market opportunities are predicated on many assumptions including industry knowledge and publications,third‑party research reports, and other surveys. While we believe that our internal assumptions are reasonable, theseassumptions involve the exercise of significant judgment on the part of our management and are inherently uncertain, andthe reasonableness of these assumptions has not been assessed by an independent source. If any of the assumptions proves tobe inaccurate, the actual markets for our product candidates could be smaller than our estimates of the potential marketopportunities.We face potential product liability exposure, and if successful claims are brought against us, we may incur substantialliability for AXS‑02, AXS‑05, or any other of our current or future product candidates and may have to limit theircommercialization.The use of AXS‑02, AXS‑05, or any other of our current or future product candidates in clinical trials, and the sale ofany of our product candidates for which we obtain regulatory approval, exposes us to the risk of product liability claims. Weface inherent risk of product liability related to the testing of our product candidates in human clinical trials and will face aneven greater risk if we commercially sell any product candidates that we may develop. For example, we may be sued if anyproduct candidate we develop allegedly causes injury or is found to be otherwise unsuitable during clinical testing,manufacturing, marketing, or sale. Any such product liability claims may include allegations of defects in manufacturing,defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability or a breach of warranties.Claims could also be asserted under state consumer protection acts. Product liability claims might be brought against us byconsumers, healthcare providers, or others using, administering, or selling our products. If we cannot successfully defendourselves against these claims, we will incur substantial liabilities or be required to limit commercialization of our productcandidates. Even successful defense would require significant financial and management resources. Regardless of merit oreventual outcome, liability claims may result in:•loss of revenue from decreased demand for our products and/or product candidates;•impairment of our business reputation or financial stability;•costs of related litigation;65 Table of Contents•substantial monetary awards to patients or other claimants;•diversion of management attention;•loss of revenues;•withdrawal of clinical trial participants and potential termination of clinical trial sites or entire clinicalprograms;•the inability to commercialize our product candidates;•significant negative media attention;•decrease in our stock price;•initiation of investigations and enforcement actions by regulators; and•product recalls, withdrawals, or labeling, marketing, or promotional restrictions.We have obtained limited product liability insurance coverage for our products and our clinical trials with a$8 million annual aggregate coverage limit. However, our insurance coverage may not reimburse us or may not be sufficientto reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive,and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protectus against losses due to liability. We intend to expand our insurance coverage to include the sale of commercial products ifwe obtain FDA approval for our product candidates in development, but we may be unable to obtain commerciallyreasonable product liability insurance for any products approved for marketing, or at all. On occasion, large judgments havebeen awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claimor series of claims brought against us could cause our stock price to fall and, if judgments exceed our insurance coverage,could decrease our cash and adversely affect our business and our prospects.RISKS RELATED TO OUR DEPENDENCE ON THIRD PARTIESWe rely, and expect to continue to rely, on third parties to conduct, supervise, and monitor our preclinical studies andclinical trials, and those third parties may not perform satisfactorily, including failing to meet deadlines for the completionof such trials or failing to comply with regulatory requirements.We rely on third‑party CROs to conduct, supervise, and monitor our preclinical studies and clinical trials for ourproduct candidates, including AXS‑02 and AXS‑05, and do not currently plan to independently conduct preclinical studiesor clinical trials of any other potential product candidates. We expect to continue to rely on third parties, such as CROs,clinical data management organizations, medical institutions, and clinical investigators, to conduct our preclinical studiesand clinical trials. While we have agreements governing their activities, we have limited influence over their actualperformance and control only certain aspects of their activities. The failure of these third parties to successfully carry outtheir contractual duties or meet expected deadlines could substantially harm our business because we may not obtainmarketing approval for or commercialize our product candidates in a timely manner or at all. Moreover, these agreementsmight terminate for a variety of reasons, including a failure to perform by the third parties. If we need to enter into alternativearrangements, that would delay our product development activities and adversely affect our business.Our reliance on these third parties for development activities will reduce our control over these activities.Nevertheless, we are responsible for ensuring that each of our studies is conducted in accordance with the applicableprotocol, legal, regulatory, and scientific standards and our reliance on the CROs does not relieve us of our regulatoryresponsibilities. For example, we will remain responsible for ensuring that each of our clinical trials is conducted inaccordance with the general investigational plan and protocols for the trial and for ensuring that our preclinical trials are66 Table of Contentsconducted in accordance with good laboratory practice, or GLP, as appropriate. Moreover, the FDA and comparable foreignregulatory authorities require us to comply with standards, commonly referred to as good clinical practices, or GCPs, forconducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible andaccurate and that the rights, integrity, and confidentiality of trial participants are protected. Regulatory authorities enforcethese requirements through periodic inspections of trial sponsors, clinical investigators, and trial sites. If we or any of ourCROs fail to comply with applicable GCPs, we or our CROs may be subject to enforcement or other legal actions, the clinicaldata generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities mayrequire us to perform additional clinical trials.In addition, once we have an approved product, we will be required to report certain financial interests of ourthird‑party investigators if these relationships exceed certain financial thresholds or meet other criteria. The FDA orcomparable foreign regulatory authorities may question the integrity of the data from those clinical trials conducted byinvestigators who previously served or currently serve as scientific advisors or consultants to us from time to time and receivecash compensation in connection with such services or otherwise receive compensation from us that could be deemed toimpact study outcome, proprietary interests in a product candidate, certain company equity interests, or significant paymentsof other sorts.We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority willdetermine that any of our clinical trials complies with GCP regulations. In addition, our clinical trials must be conductedwith product candidates that were produced under cGMP regulations. Our failure to comply with these regulations mayrequire us to repeat clinical trials, which would delay the regulatory approval process. We also are required to register certainclinical trials and post the results of certain completed clinical trials on a government‑sponsored database,ClinicalTrials.gov, within specified timeframes. Failure to do so can result in enforcement actions and adverse publicity.Our CROs may also have relationships with other entities, some of which may be our competitors, for whom theymay also be conducting clinical trials or other drug development activities that could harm our competitive position. Inaddition, our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, wecannot control whether or not they devote sufficient time and resources to our ongoing clinical, non‑clinical, and preclinicalprograms. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct ourpreclinical studies or clinical trials in accordance with regulatory requirements or our stated protocols, if they need to bereplaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to ourclinical protocols or regulatory requirements or for other reasons, our clinical trials may be extended, delayed, or terminatedand we may not be able to obtain, or may be delayed in obtaining, marketing approvals for our product candidates and willnot be able to, or may be delayed in our efforts to, successfully commercialize our product candidates, or we or they may besubject to regulatory enforcement actions. As a result, our results of operations and the commercial prospects for our productcandidates would be harmed, our costs could increase and our ability to generate revenues could be delayed. To the extentwe are unable to successfully identify and manage the performance of third‑party service providers in the future, our businessmay be materially and adversely affected.If any of our relationships with these third‑party CROs terminate, we may not be able to enter into arrangements withalternative CROs or to do so on commercially reasonable terms. Switching or adding additional CROs involves additionalcost and requires management time and focus. In addition, there is a natural transition period when a new CRO commenceswork. As a result, delays could occur, which could compromise our ability to meet our desired development timelines.Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similarchallenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business,financial condition and prospects, and results of operations.If the manufacturers upon whom we rely fail to produce our product candidates in the volumes that we require on a timelybasis, or to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face delays in thedevelopment and commercialization of, or be unable to meet demand for, our products and may lose potential revenues.We do not manufacture any of our product candidates, and we do not currently plan to develop any capacity to doso. We currently outsource all manufacturing of our product candidates to third parties typically without any67 Table of Contentsguarantee that there will be sufficient supplies to fulfill our requirements or that we may obtain such supplies on acceptableterms. Any delays in obtaining adequate supplies with respect to our product candidates may delay the development orcommercialization of our product candidates. Moreover, we do not yet have agreements established regarding commercialsupply of our product candidates, and we may not be able to establish or maintain commercial manufacturing arrangementson commercially reasonable terms for AXS‑02, AXS‑05, or any other of our current or future product candidates for which weobtain approval in the future.We may not succeed in our efforts to establish manufacturing relationships or other alternative arrangements for anyof our existing or future product candidates and programs. Our product candidates may compete with other products andproduct candidates for access to manufacturing facilities. There are a limited number of manufacturers that operate undercGMP regulations and that are both capable of manufacturing for us and willing to do so. If our existing third‑partymanufacturers, or the third parties that we engage in the future to manufacture a product for commercial sale or for ourclinical trials, should cease to continue to do so for any reason, we likely would experience delays in obtaining sufficientquantities of our product candidates for us to meet commercial demand or to advance our clinical trials while we identify andqualify replacement suppliers. If for any reason we are unable to obtain adequate supplies of our product candidates or thedrug substances used to manufacture them, it will be more difficult for us to develop our product candidates and competeeffectively. Further, even if we do establish such collaborations or arrangements, our third‑party manufacturers may breach,terminate, or not renew these agreements.Any problems or delays we experience in preparing for commercial‑scale manufacturing of a product candidate mayresult in a delay in FDA approval of the product candidate or may impair our ability to manufacture commercial quantities orsuch quantities at an acceptable cost, which could result in the delay, prevention, or impairment of clinical development andcommercialization of our product candidates and could adversely affect our business. For example, our manufacturers willneed to produce specific batches of our product candidates to demonstrate acceptable stability under various conditions andfor commercially viable lengths of time. We and our contract manufacturers will need to demonstrate to the FDA and otherregulatory authorities that this is acceptable stability data for our product candidates, as well as validate methods andmanufacturing processes, in order to receive regulatory approval to commercialize AXS‑02, AXS‑05, or any of our othercurrent or future product candidates. Furthermore, if our commercial manufacturers fail to deliver the required commercialquantities of bulk drug substance or finished product on a timely basis and at commercially reasonable prices, we wouldlikely be unable to meet demand for our products and we would lose potential revenues.We only have one contract manufacturer for each of AXS‑02 and AXS‑05 for use in our clinical trials. In addition,we do not have any long‑term commitments from our suppliers of clinical trial material or guaranteed prices for our productcandidates. The manufacture of pharmaceutical products requires significant expertise and capital investment, including thedevelopment of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products oftenencounter difficulties in production, particularly in scaling up initial production. These problems include difficulties withproduction costs and yields; quality control, including stability of the product candidate and quality assurance testing;shortages of qualified personnel; and compliance with strictly enforced federal, state, and foreign regulations. Ourmanufacturers may not perform as agreed. If our manufacturers were to encounter any of these difficulties, our ability toprovide product candidates to patients in our clinical trials and for commercial use, if approved, would be jeopardized.In addition, all manufacturers of our product candidates must comply with cGMP requirements enforced by the FDAthat are applicable to both finished drug products and active pharmaceutical ingredients used both for clinical andcommercial supply, through its facilities inspection program. Our manufacturers must be approved by the FDA pursuant toinspections that will be conducted after we submit our marketing applications to the agency. The cGMP requirementsinclude quality control, quality assurance, and the maintenance of records and documentation. Manufacturers of our productcandidates may be unable to comply with our specifications, these cGMP requirements and with other FDA, state, and foreignregulatory requirements. If our contract manufacturers cannot successfully manufacture material that conforms to ourspecifications and the strict regulatory requirements of the FDA or other regulatory authorities, they will not be able to secureor maintain regulatory approval for their manufacturing facilities. While we are ultimately responsible for the manufacture ofour product candidates, other than through our contractual arrangements, we have little control over our manufacturers’compliance with these regulations and standards. If the FDA or a comparable68 Table of Contentsforeign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdrawsany such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impactour ability to develop, obtain regulatory approval for, or market our product candidates, if approved. A failure to complywith these requirements may result in regulatory enforcement actions against our manufacturers or us, including fines andcivil and criminal penalties, including imprisonment; suspension or restrictions of production; suspension, delay, or denialof product approval or supplements to approved products; clinical holds or termination of clinical studies; warning oruntitled letters; regulatory authority communications warning the public about safety issues with the drug; refusal to permitthe import or export of the products; product seizure, detention, or recall; suits under the civil False Claims Act; corporateintegrity agreements; consent decrees; or withdrawal of product approval. If the safety of any quantities supplied iscompromised due to our manufacturers’ failure to adhere to applicable laws or for other reasons, we may not be able to obtainregulatory approval for or successfully commercialize our product candidates.Any failure or refusal to supply our product candidates or components for our current or future product candidatesthat we may develop could delay, prevent, or impair our clinical development or commercialization efforts. Any change inour manufacturers could be costly because the commercial terms of any new arrangement could be less favorable and becausethe expenses relating to the transfer of necessary technology and processes could be significant.We may rely on third parties to perform many essential services for any products that we commercialize, including servicesrelated to warehousing and inventory control, distribution, government price reporting, customer service, accountsreceivable management, cash collection, and adverse event reporting. If these third parties fail to perform as expected or tocomply with legal and regulatory requirements, our ability to commercialize AXS‑02, AXS‑05, or any other of our currentor future product candidates will be significantly impacted and we may be subject to regulatory sanctions.We may retain third‑party service providers to perform a variety of functions related to the sale and distribution ofAXS‑02, AXS‑05, or any other of our current or future product candidates, key aspects of which will be out of our directcontrol. These service providers may provide key services related to warehousing and inventory control, distribution,government price reporting, customer service, accounts receivable management, and cash collection, and, as a result, most ofour inventory may be stored at a single warehouse maintained by one such service provider. If we retain a service provider,we would substantially rely on it as well as other third‑party providers that perform services for us, including entrusting ourinventories of products to their care and handling. If these third‑party service providers fail to comply with applicable lawsand regulations, fail to meet expected deadlines, or otherwise do not carry out their contractual duties to us, or encounterphysical or natural damage at their facilities, our ability to deliver product to meet commercial demand would besignificantly impaired and we may be subject to regulatory enforcement action.In addition, we may engage third parties to perform various other services for us relating to adverse event reporting,safety database management, fulfillment of requests for medical information regarding our product candidates and relatedservices. If the quality or accuracy of the data maintained by these service providers is insufficient, or these third partiesotherwise fail to comply with regulatory requirements related to adverse event reporting, we could be subject to regulatorysanctions.Additionally, if a third party errs in calculating government pricing information from transactional data in ourfinancial records, it could impact our discount and rebate liability.Any collaboration arrangements that we are a party to or may enter into in the future may not be successful, which couldadversely affect our ability to develop and commercialize our product candidates.Our business model is to commercialize our product candidates in the United States and generally to seek futurecollaboration arrangements with pharmaceutical or biotechnology companies for the development or commercialization ofour product candidates in the rest of the world. We currently have not entered into any sub‑license agreements. Our futurecollaboration arrangements may not be successful, and the success of them will depend heavily on the efforts and activitiesof our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that theywill apply to these collaboration arrangements. Disagreements between parties to a collaboration arrangement regardingclinical development and commercialization matters can lead to delays in the development69 Table of Contentsprocess or commercializing the applicable product candidate and, in some cases, termination of the collaborationarrangement. These disagreements can be difficult to resolve if neither of the parties has final decision making authority.We may license the right to market and sell our product candidates under our collaborators’ labeler codes.Alternatively, we may enter into agreements with collaborators to market and sell our product candidates under our ownlabeler code, in which case errors and omissions by collaborators in capturing and transmitting transactional data may impactthe accuracy of our government price reporting.Collaborations with pharmaceutical companies and other third parties often are terminated or allowed to expire bythe other party. Any such termination or expiration would adversely affect us financially and could harm our businessreputation. Any future collaborations we might enter into may pose a number of risks, including the following:•collaborators may not perform their obligations as expected;•collaborators may not pursue development and commercialization of any product candidates that achieveregulatory approval or may elect not to continue or renew development or commercialization programs basedon clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors,such as an acquisition, that divert resources or create competing priorities;•collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinicaltrial or abandon a product candidate, repeat or conduct new clinical trials, or require a new formulation of aproduct candidate for clinical testing;•collaborators could fail to make timely regulatory submissions for a product candidate;•collaborators may not comply with all applicable regulatory requirements or may fail to report safety data inaccordance with all applicable regulatory requirements;•collaborators could independently develop, or develop with third parties, products that compete directly orindirectly with our products or product candidates if the collaborators believe that competitive products aremore likely to be successfully developed or can be commercialized under terms that are more economicallyattractive than ours;•product candidates discovered in collaboration with us may be viewed by our collaborators as competitive withtheir own product candidates or products, which may cause collaborators to cease to devote resources to thecommercialization of our product candidates;•a collaborator with marketing and distribution rights to one or more of our product candidates that achieveregulatory approval may not commit sufficient resources to the marketing and distribution of such productcandidate or product;•disagreements with collaborators, including disagreements over proprietary rights, contract interpretation, or thepreferred course of development, might cause delays or termination of the research, development, orcommercialization of product candidates, might lead to additional responsibilities for us with respect to productcandidates, or might result in litigation or arbitration, any of which would be time consuming and expensive;•collaborators may not properly maintain or defend our intellectual property rights or may use our proprietaryinformation in such a way as to invite litigation that could jeopardize or invalidate our intellectual property orproprietary information or expose us to potential litigation; and•collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation andpotential liability.70 Table of ContentsIf any collaborations we might enter into in the future do not result in the successful development andcommercialization of products or if one of our collaborators subsequently terminates its agreement with us, we may notreceive any future research funding or milestone or royalty payments under the collaboration. If we do not receive thefunding we expect under the agreements, our development of our product candidates could be delayed and we may needadditional resources to develop our product candidates and our product platform.Additionally, if any future collaborator of ours is involved in a business combination, the collaborator mightdeemphasize or terminate development or commercialization of any product candidate licensed to it by us. If one of ourcollaborators terminates its agreement with us, we may find it more difficult to attract new collaborators and our reputation inthe business and financial communities could be adversely affected.For AXS‑02, AXS‑05, and any other current or future product candidates, we may in the future determine tocollaborate with additional pharmaceutical and biotechnology companies for their development and potentialcommercialization. We face significant competition in seeking appropriate collaborators. Our ability to reach a definitiveagreement for collaboration will depend upon, among other things, our assessment of the collaborator’s resources andexpertise, the terms and conditions of the proposed collaboration, and the proposed collaborator’s evaluation of a number offactors. If we are unable to reach agreements with suitable collaborators on a timely basis, on acceptable terms, or at all, wemay have to curtail the development of a product candidate, reduce or delay its development program or one or more of ourother development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities,or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect tofund and undertake development or commercialization activities on our own, we may need to obtain additional expertise andadditional capital, which may not be available to us on acceptable terms, or at all. If we fail to enter into collaborations anddo not have sufficient funds or expertise to undertake the necessary development and commercialization activities, we maynot be able to further develop our product candidates or bring them to market or continue to develop our product platformand our business may be materially and adversely affected.We are dependent on third parties to decide to utilize AXS‑02 and AXS‑05 to make them readily available at the point ofcare throughout their networks of pharmacies.In addition to extensive internal efforts, the successful commercialization of AXS‑02 and AXS‑05 will require manythird parties, over whom we have no control, to decide to utilize AXS‑02 and AXS‑05, and to make them readily available atthe point of care throughout their networks of pharmacies. These third parties include HMOs, long term care facilities, andpharmacy benefit managers, or PBMs, which use pharmacy and therapeutics committees, commonly referred to as P&Tcommittees, to make purchasing and reimbursement decisions. Generally, before an HMO or long‑term care facility willacquire AXS‑02 or AXS‑05 for its own pharmacies, or a PBM will pay retail network pharmacies on behalf of its health plans,AXS‑02 and AXS‑05 must be approved for addition to that organization’s list of approved drugs, or formulary list, by theorganization’s P&T committee. An institutional P&T committee typically governs all matters pertaining to the use ofmedications within the institution, including review of medication formulary data and recommendations for the appropriateuse of drugs within the institution to the medical staff. PBM P&T committees develop the criteria for plan beneficiaries toaccess prescription medication, including such cost control measures as step therapy and prior authorization. The frequencyof P&T committee meetings varies considerably, and P&T committees often require additional information to aid in theirdecision‑making process, so we may experience substantial delays in obtaining formulary approvals. Additionally, P&Tcommittees may be concerned that the cost of acquiring AXS‑02 or AXS‑05 for use in their institutions or reimbursing retailpharmacies outweighs clinical benefits and will resist efforts to add AXS‑02 or AXS‑05 to the formulary, or implementrestrictions on the usage of the drug in order to control costs. We cannot guarantee that we will be successful in getting theapprovals we need from enough P&T committees quickly enough to maintain and grow sales of AXS‑02 or AXS‑05.We are dependent upon our license agreements with an entity owned by our Chief Executive Officer and Chairman of theBoard related to the development of our current product candidates, and if the agreements are terminated for any reasonour business will be materially harmed.In 2012, we entered into three exclusive license agreements with Antecip Bioventures II LLC, or Antecip, an entityowned by our Chief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., in which we were71 Table of Contentsgranted exclusive licenses to develop, manufacture, and commercialize Antecip’s patents and applications related to thedevelopment of AXS‑02 and AXS‑05, as well as AXS‑04, a product candidate that is currently in early stage development,anywhere in the world for veterinary and human therapeutic and diagnostic use. The agreements were amended in August2015 to update the schedule of patents and applications subject to the license agreements. Pursuant to the agreements, we arerequired to use commercially reasonable efforts to develop, obtain regulatory approval for, and commercialize AXS‑02,AXS‑05, and AXS‑04. Under the terms of the agreements, we are required to pay to Antecip a royalty equal to 4.5% forAXS‑02, 3.0% for AXS‑05, and 1.5% for AXS‑04, of net sales of products containing the licensed technology by us, ouraffiliates, or permitted sublicensees. These royalty payments are subject to reduction by an amount up to 50.0% of anyrequired payments to third parties. Unless earlier terminated by a party for cause or by us for convenience, the agreementsremain in effect on a product‑by‑product and country‑by‑country basis until the later to occur of (1) the applicable product isno longer covered by a valid claim in that country or (2) 10 years from the first commercial sale of the applicable product inthat country. Upon expiration of the agreements with respect to a product in a country, our license grant for that product inthat country will become a fully paid‑up, royalty‑free, perpetual non‑exclusive license. If Antecip terminates any of theagreements for cause, or if we exercise our right to terminate any of the agreements for convenience, the rights granted to usunder such terminated agreement will revert to Antecip. To date, we have not been required to make any payments to Antecipunder any of the license agreements. If any of the license agreements with Antecip are terminated for any reason, ourbusiness, financial condition, results of operations, and prospects will be materially harmed.RISKS RELATED TO INTELLECTUAL PROPERTYIt is difficult and costly to protect our proprietary rights and as a result we may not be able to ensure their protection. Inaddition, patents have a limited lifespan and will eventually expire.Market exclusivity awarded by the FDA upon the approval of an NDA is limited in scope and duration. Ourcommercial success will depend in part on obtaining, maintaining, enforcing, and defending against third‑party challenges,our patent and trade secret protection for AXS‑02, AXS‑05, and any other of our current and future product candidates that wemay develop, license, or acquire, and the related manufacturing methods. We will only be able to fully protect ourtechnologies from unauthorized use by third parties to the extent that valid and enforceable patents or trade secrets coverthem.The patent prosecution process is expensive and time consuming, and we may not be able to file and prosecute allnecessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail toidentify patentable aspects of our research and development output before it is too late to obtain patent protection.Moreover, should we enter into additional collaborations we may be required to consult with or cede control to collaboratorsregarding the prosecution, maintenance, and enforcement of our patents. Therefore, these patents and applications may notbe prosecuted and enforced in a manner consistent with the best interests of our business. The patent positions ofpharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions forwhich important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed inpharmaceutical or biotechnology patents has emerged to date in the United States. The patent situation outside the UnitedStates is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States andother countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims thatmay be allowed or enforced in our patents or in third‑party patents. The degree of future protection for our proprietary rightsis uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us togain or keep our competitive advantage. Moreover, the patent application process is also subject to numerous risks anduncertainties, and there can be no assurance that we or any of our future development partners will be successful in protectingAXS‑02, AXS‑05, or any other of our current or future product candidates that we may develop, license, or acquire byobtaining and defending patents. For example:•we may not have been the first to make the inventions covered by each of our pending patent applications andissued patents;•we may not have been the first to file patent applications for these inventions;72 Table of Contents•others may independently develop similar or alternative technologies or duplicate any of our productcandidates or technologies;•it is possible that none of the pending patent applications will result in issued patents;•the issued patents may not cover commercially viable active products, may not provide us with any competitiveadvantages, or may be successfully challenged by third parties;•we may not develop additional proprietary technologies that are patentable;•patents of others may have an adverse effect on our business;•noncompliance with governmental patent agencies requirements can result in abandonment or lapse of a patentor patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction,potentially allowing competitors to enter the market earlier than would otherwise have been the case;•our competitors, many of whom have substantially greater resources than we do and many of whom have madesignificant investments in competing technologies, may seek or may have already obtained patents that willlimit, interfere with, or eliminate our ability to make, use, and sell our potential product candidates; or•there may be significant pressure on the U.S. government and international governmental bodies to limit thescope of available patent protection both inside and outside the United States for disease treatments that provesuccessful, as a matter of public policy regarding worldwide health concerns.Patents have a limited lifespan. In most countries, including the United States, the expiration of a patent is typically20 years from the date that the application for the patent is filed. Various extensions of patent term may be available inparticular countries; however, in all circumstances the life of a patent, and the protection it affords, has a limited term. If weencounter delays in obtaining regulatory approvals, the period of time during which we could market a product under patentprotection could be reduced. We expect to seek extensions of patent terms where these are available in any countries wherewe are prosecuting patents. Such possible extensions include those permitted under the Drug Price Competition and PatentTerm Restoration Act of 1984 in the United States, which permits a patent term extension of up to five years to cover anFDA‑approved product. The actual length of the extension will depend on the amount of patent term lost while the productwas in clinical trials. However, the applicable authorities, including the USPTO and the FDA in the United States, and anyequivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions areavailable, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If thisoccurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencingour clinical and preclinical data, and then may be able to launch their product earlier than might otherwise be the case.Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patentapplications and the enforcement or defense of our issued patents.On September 16, 2011, the Leahy‑Smith America Invents Act, or the Leahy‑Smith Act, was signed into law. TheLeahy‑Smith Act includes a number of significant changes to United States patent law. These include provisions that affectthe way patent applications are prosecuted and may also affect patent litigation. The United States Patent Office recentlydeveloped new regulations and procedures to govern administration of the Leahy‑Smith Act, and many of the substantivechanges to patent law associated with the Leahy‑Smith Act, and in particular, the first to file provisions, only becameeffective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy‑Smith Act will have on the operationof our business. However, the Leahy‑Smith Act and its implementation could increase the uncertainties and costssurrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of whichcould have a material adverse effect on our business, financial condition, results of operations, and prospects.73 Table of ContentsPatent applications in the United States are maintained in confidence for at least 18 months after their earliesteffective filing date. Consequently, we cannot be certain we were the first to invent or the first to file patent applications onAXS‑02, AXS‑05, or any other of our current or future product candidates that we may develop, license, or acquire. In theevent that a third party has also filed a U.S. patent application relating to our product candidates or a similar invention, wemay have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine priority ofinvention in the United States. The costs of these proceedings could be substantial and it is possible that our efforts would beunsuccessful, resulting in a material adverse effect on our U.S. patent position. The results of these types of proceedings mayreduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or products andcompete directly with us, without payment to us, or result in our inability to manufacture or commercialize products withoutinfringing third‑party patent rights. In addition, if the breadth or strength of protection provided by our patents and patentapplications is threatened, it could dissuade companies from collaborating with us to license, develop, or commercializecurrent or future product candidates. Such results could have a material adverse effect on our business, financial condition,results of operations, and prospects.In addition, the patentability of claims in pending patent applications covering AXS‑02, AXS‑05, or any other ofour current or future product candidates can be challenged by third parties during prosecution in the U.S. Patent andTrademark Office, for example by third‑party observations and derivation proceedings, and the validity of claims in issuedpatents can be challenged by third parties in various post‑grant proceedings such as post‑grant review, reexamination, andinter‑partes review proceedings.Furthermore, we may not have identified all United States and foreign patents or published applications that affectour business either by blocking our ability to commercialize our drugs or by covering similar technologies that affect ourdrug market. In addition, some countries, including many in Europe, do not grant patent claims directed to methods oftreating humans, and in these countries patent protection may not be available at all to protect our product candidates. Evenif patents issue, we cannot guarantee that the claims of those patents will be valid and enforceable or provide us with anysignificant protection against competitive products, or otherwise be commercially valuable to us.We also rely on trade secrets to protect our technology, particularly where we do not believe patent protection isappropriate or obtainable. However, trade secrets are difficult to protect. While we use reasonable efforts to protect our tradesecrets, our licensors, employees, consultants, contractors, outside scientific collaborators, and other advisors mayunintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtainedand is using our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outsidethe United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently developequivalent knowledge, methods, and know‑how.Obtaining and maintaining our patent protection depends on compliance with various procedural, documentary, feepayment, and other requirements imposed by governmental patent agencies, and our patent protection could be reduced oreliminated for noncompliance with these requirements.The USPTO and various foreign governmental patent agencies require compliance with a number of procedural,documentary, fee payment, and other similar provisions during the patent prosecution process. Periodic maintenance fees,renewal fees, annuity fees, and various other governmental fees on patents or patent applications will be due to be paid to theUSPTO and various patent agencies outside of the United States in several stages over the lifetime of the patents andapplications. We have systems in place to remind us to pay these fees, and we employ and rely on reputable law firms andother professionals to effect payment of these fees to the USPTO and non‑U.S. patent agencies for the patents and patentapplications we own and those that we in‑license. We also employ reputable law firms and other professionals to help uscomply with the various documentary and other procedural requirements with respect to the patents and patent applicationsthat we own and those that we in‑license. In some cases, an inadvertent lapse can be cured by payment of a late fee or byother means in accordance with the applicable rules. However, there are situations in which noncompliance can result inabandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevantjurisdiction. In such an event, our competitors might be able to enter the market and this circumstance would have a materialadverse effect on our business.74 Table of ContentsIf we or any future collaboration partner are sued for infringing intellectual property rights of third parties, it will be costlyand time consuming, and an unfavorable outcome in any litigation would harm our business.Our ability to develop, manufacture, market, and sell AXS‑02, AXS‑05, and any other of our current and futureproduct candidates depends upon our ability to avoid infringing the proprietary rights of third parties, and our commercialsuccess depends upon our ability, and the ability of our collaborators, to develop, manufacture, market, and sell our productcandidates and use our proprietary technologies without infringing the proprietary rights of third parties. There isconsiderable intellectual property litigation in the biotechnology and pharmaceutical industries. Numerous U.S. and foreignissued patents and pending patent applications, which are owned by third parties, exist in the general field of treatment andmanagement of pain and other CNS disorders and cover the use of numerous compounds and formulations in our targetedmarkets. Third parties may assert infringement claims against us based on existing patents or patents that may be granted inthe future. Because of the uncertainty inherent in any patent or other litigation involving proprietary rights, we and ourlicensors may not be successful in defending intellectual property claims by third parties, which could have a materialadverse effect on our business, financial condition, results of operations, and prospects. Regardless of the outcome of anylitigation, defending the litigation may be expensive, time consuming, and distracting to management. In addition, becausepatent applications can take many years to issue, there may be currently pending applications, unknown to us, which maylater result in issued patents that AXS‑02, AXS‑05, or any other of our current or future product candidates may infringe.There could also be existing patents of which we are not aware that AXS‑02, AXS‑05, or any other of our current or futureproduct candidates may inadvertently infringe.If a third party claims that we infringe on their products or technology, we could face a number of issues, including:•infringement and other intellectual property claims which, whether meritorious or not, can be expensive andtime consuming to litigate and can divert management’s attention from our core business;•substantial damages for past infringement which we may have to pay if a court decides that our product infringeson a competitor’s patent;•a court prohibiting us from selling or licensing our product unless the patent holder licenses the patent to us,which it would not be required to do;•if a license is available from a patent holder, we may have to pay substantial royalties or grant cross licenses toour patents; and•redesigning our product candidates and processes so they do not infringe, which may not be possible or couldrequire substantial funds and time.If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license fromsuch third party to continue developing and marketing our products and technology. However, we may not be able to obtainany required license on commercially reasonable terms, or at all. Even if we were able to obtain a license, it could benon‑exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, includingby court order, to cease commercializing the infringing technology or product. In addition, we could be found liable formonetary damages, including treble damages and attorneys’ fees if we are found to have willfully infringed a patent. Afinding of infringement could prevent us from commercializing our product candidates or force us to cease some of ourbusiness operations, which could materially harm our business. Claims that we have misappropriated the confidentialinformation or trade secrets of third parties could have a similar negative impact on our business, financial condition, resultsof operations, and prospects.We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive,time consuming, and unsuccessful.Competitors may infringe our issued patents, our in‑licensed patents, or other intellectual property that we own orin‑license. Under the terms of our license agreements with Antecip, if we believe a third party is infringing on the75 Table of Contentspatents subject to the licenses, we are obligated, at our own expense, to initiate suit against those third parties. To counterinfringement or unauthorized use, we may be required to file infringement claims, which can be expensive and timeconsuming. Any claims we assert against perceived infringers could provoke these parties to assert counterclaims against usalleging that we infringe their patents. In addition, in a patent infringement proceeding, a court may decide that a patent ofours is invalid or unenforceable, in whole or in part; construe the patent’s claims narrowly; or refuse to stop the other partyfrom using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse resultin any litigation proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly.Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation,there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation.Most of our competitors are larger than we are and have substantially greater resources than we do. They are,therefore, likely to be able to sustain the costs of complex patent litigation longer than we could. In addition, theuncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary tocontinue our clinical trials, continue our internal research programs, in‑license needed technology, or enter into developmentpartnerships that would help us bring our product candidates to market.We may need to license certain intellectual property from third parties, and such licenses may not be available or may notbe available on commercially reasonable terms.A third party may hold intellectual property, including patent rights that are important or necessary to thedevelopment or commercialization of our products. It may be necessary for us to use the patented or proprietary technologyof third parties to commercialize our products, in which case we would be required to obtain a license from these third parties.Such a license may not be available on commercially reasonable terms, or at all, which could materially harm our business,financial condition, results of operations, and prospects.We may be subject to claims that our employees, independent contractors, or consultants have wrongfully used or disclosedalleged trade secrets of their former employers or other third parties.As is common in the biotechnology and pharmaceutical industry, we employ individuals who were previouslyemployed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors.Although no claims against us are currently pending, we may be subject to claims that these individuals or we haveinadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers.Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims,litigation could result in substantial costs and be a distraction to management.We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.We rely on trade secrets to protect our proprietary technological advances and know‑how, especially where we donot believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part onconfidentiality agreements with our employees, consultants, contractors, outside scientific collaborators, sponsoredresearchers, and other advisors, including the third parties we rely on to manufacture our product candidates, to protect ourtrade secrets and other proprietary information. However, any party with whom we have executed such an agreement maybreach that agreement and disclose our proprietary information, including our trade secrets. Accordingly, these agreementsmay not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event ofunauthorized disclosure of confidential information. Costly and time‑consuming litigation could be necessary to enforce anddetermine the scope of our proprietary rights. In addition, others may independently discover our trade secrets andproprietary information. Further, the FDA, as part of its Transparency Initiative, a proposal to increase disclosure and makedata more accessible to the public, is currently considering whether to make additional information publicly available on aroutine basis, including information that we may consider to be trade secrets or other proprietary information, and it is notclear at the present time how the FDA’s disclosure policies may change in the future, if at all. Failure to obtain or maintaintrade secret protection could enable competitors to use our proprietary information to develop products that compete withour products or cause additional, material adverse effects upon our competitive business position and financial results.76 Table of ContentsWe or our licensors may not be able to protect our intellectual property rights throughout the world.Filing, prosecuting, and defending patents on product candidates in all countries throughout the world would beprohibitively expensive, and our intellectual property rights in some countries outside the United States can be lessextensive than those in the United States. In addition, the laws of some foreign countries do not protect intellectual propertyrights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent thirdparties from practicing our inventions in all countries outside the United States, or from selling or importing products madeusing our inventions in and into the United States or other jurisdictions. Competitors may use our technologies injurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwiseinfringing products to territories where we have patent protection, but enforcement rights are not as strong as those in theUnited States. These products may compete with our product candidates and our patents or other intellectual property rightsmay not be effective or sufficient to prevent them from competing.Many companies have encountered significant problems in protecting and defending intellectual property rights inforeign jurisdictions. The legal systems of certain countries do not favor the enforcement of patents and other intellectualproperty protection, which could make it difficult for us to stop the infringement of our patents generally. Proceedings toenforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention fromother aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patentapplications at risk of not issuing, and could provoke third parties to assert claims against us. We may not prevail in anylawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.Accordingly, our efforts to enforce our or our licensors’ intellectual property rights around the world may be inadequate toobtain a significant commercial advantage from the intellectual property that we develop or license.RISKS RELATED TO LEGAL AND COMPLIANCE MATTERSIf we fail to comply with federal and state healthcare laws, including fraud and abuse and health and other informationprivacy and security laws, we could face substantial penalties and our business, financial condition, results of operations,and prospects could be adversely affected.As a pharmaceutical company, we are subject to many federal and state healthcare laws, including those described inthe “Business—Government Regulation and Product Approval” section of this Annual Report on Form 10-K, such as thefederal Anti‑Kickback Statute, the federal civil and criminal False Claims Act, the civil monetary penalties statute, theMedicaid Drug Rebate statute and other price reporting requirements, the Veterans Health Care Act of 1992, the federalHealth Insurance Portability and Accountability Act of 1996 (as amended by the Health Information Technology forEconomics and Clinical Health Act), the Foreign Corrupt Practices Act of 1977, the Patient Protection and Affordable CareAct of 2010, and similar state laws. Even though we do not and will not control referrals of healthcare services or bill directlyto Medicare, Medicaid, or other third‑party payors, certain federal and state healthcare laws and regulations pertaining tofraud and abuse and patients’ rights are and will be applicable to our business. We would be subject to healthcare fraud andabuse by both the federal government and the states in which we conduct our business.If we or our operations are found to be in violation of any federal or state healthcare law, or any other governmentalregulations that apply to us, we may be subject to penalties, including civil, criminal, and administrative penalties, damages,fines, disgorgement, debarment from government contracts, refusal of orders under existing contracts, exclusion fromparticipation in U.S. federal or state health care programs, corporate integrity agreements, and the curtailment or restructuringof our operations, any of which could materially adversely affect our ability to operate our business and our financial results.If any of the physicians or other healthcare providers or entities with whom we expect to do business, including ourcollaborators, is found not to be in compliance with applicable laws, it may be subject to criminal, civil, or administrativesanctions, including but not limited to, exclusions from participation in government healthcare programs, which could alsomaterially affect our business.Although an effective compliance program can mitigate the risk of investigation and prosecution for violations ofthese laws, the risks cannot be entirely eliminated. Moreover, achieving and sustaining compliance with applicable federaland state fraud laws may prove costly. Any action against us for violation of these laws, even if we successfully77 Table of Contentsdefend against it, could cause us to incur significant legal expenses and divert our management’s attention from theoperation of our business.If the government or third‑party payors fail to provide adequate coverage and payment rates for AXS‑02, AXS‑05, or anyother of our current or future product candidates, or if HMOs or long‑term care facilities choose to use therapies that areless expensive, our revenue and prospects for profitability will be limited.In both domestic and foreign markets, sales of our future products will depend in part upon the availability ofcoverage and reimbursement from third‑party payors. Such third‑party payors include government health programs such asMedicare and Medicaid, managed care providers, private health insurers, and other organizations. Coverage decisions maydepend upon clinical and economic standards that disfavor new drug products when more established or lower costtherapeutic alternatives are already available or subsequently become available. If reimbursement is not available, or isavailable only to limited levels, our product candidates may be competitively disadvantaged, and we, or our collaborators,may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approvedreimbursement amount may not be high enough to allow us, or our collaborators, to establish or maintain a market sharesufficient to realize a sufficient return on our or their investments. Alternatively, securing favorable reimbursement terms mayrequire us to compromise pricing and prevent us from realizing an adequate margin over cost.There is significant uncertainty related to third‑party payor coverage and reimbursement of newly approved drugs.Marketing approvals, pricing, and reimbursement for new drug products vary widely from country to country. Current andfuture legislation may significantly change the approval requirements in ways that could involve additional costs and causedelays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In manycountries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets,prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval isgranted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to priceregulations that delay commercial launch of the product, possibly for lengthy time periods, which may negatively impact therevenues we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder ourability or the ability of our collaborators to recoup our or their investment in one or more product candidates, even if ourproduct candidates obtain marketing approval. Our ability, and the ability of our collaborators, to commercialize our productcandidates will depend in part on the extent to which coverage and reimbursement for these products and related treatmentswill be available from government health administration authorities, private health insurers, and other organizations.Regulatory authorities and third‑party payors, such as private health insurers and health maintenance organizations, decidewhich medications they will cover and establish reimbursement levels. The healthcare industry is acutely focused on costcontainment, both in the United States and elsewhere. Several third‑party payors are requiring that drug companies providethem with predetermined discounts from list prices, are using preferred drug lists to leverage greater discounts in competitiveclasses, are disregarding therapeutic differentiators within classes, and are challenging the prices charged for drugs. Branddrugs without generic equivalents are often included in therapeutic classes with other brands that have generic versions andmay be similarly disadvantaged by the availability of low cost alternatives within the class, particularly if a generic versionof the same agent is available in another form.Third‑party payors, whether foreign or domestic, or governmental or commercial, are developing increasinglysophisticated methods of controlling healthcare costs. In addition, in the United States, no uniform policy of coverage andreimbursement for drug products exists among third‑party payors. Therefore, coverage and reimbursement for drug productscan differ significantly from payor to payor. Further, we believe that future coverage and reimbursement will likely be subjectto increased restrictions both in the United States and in international markets. Third‑party coverage and reimbursement forour products or product candidates for which we receive regulatory approval may not be available or adequate in either theUnited States or international markets, which could have a negative effect on our business, financial condition, results ofoperations, and prospects.Assuming coverage is approved, the resulting reimbursement payment rates might not be adequate. If payors subjectour product candidates to maximum payment amounts, or impose limitations that make it difficult to obtain reimbursement,providers may choose to use therapies which are less expensive when compared to our product candidates. Additionally, ifpayors require high copayments, beneficiaries may decline prescriptions and seek alternative78 Table of Contentstherapies. We may need to conduct post‑marketing studies in order to demonstrate the cost‑effectiveness of any futureproducts to the satisfaction of hospitals and other target customers and their third‑party payors. Such studies might require usto commit a significant amount of management time and financial and other resources. Our future products might notultimately be considered cost‑effective. Adequate third‑party coverage and reimbursement might not be available to enableus to maintain price levels sufficient to realize an appropriate return on investment in product development.In addition, federal programs impose penalties on manufacturers of drugs marketed under an NDA, including 505(b)(2) drugs, in the form of mandatory additional rebates and/or discounts if commercial prices increase at a rate greater than theConsumer Price Index‑Urban, and these rebates and/or discounts, which can be substantial, may impact our ability to raisecommercial prices. Regulatory authorities and third‑party payors have attempted to control costs by limiting coverage andthe amount of reimbursement for particular medications, which could affect our ability or that of our collaborators to sell ourproduct candidates profitably. These payors may not view our products, if any, as cost‑effective, and coverage andreimbursement may not be available to our customers, or those of our collaborators, or may not be sufficient to allow ourproducts, if any, to be marketed on a competitive basis. Cost‑control initiatives could cause us, or our collaborators, todecrease, discount, or rebate a portion of the price we, or they, might establish for products, which could result in lower thananticipated product revenues. If the realized prices for our products, if any, decrease or if governmental and other third‑partypayors do not provide adequate coverage or reimbursement, our prospects for revenue and profitability will suffer.There may also be delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may bemore limited than the indications for which the drug is approved by the FDA or comparable foreign regulatory authorities.Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers ourcosts, including research, development, manufacture, sale, and distribution. Interim reimbursement levels for new drugs, ifapplicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary, by wayof example, according to the use of the drug and the clinical setting in which it is used. Reimbursement rates may also bebased on reimbursement levels already set for lower cost drugs or may be incorporated into existing payments for otherservices.Prices paid for a drug also vary depending on the class of trade. Prices charged to government customers are subjectto price controls, including ceilings, and private institutions obtain discounts through group purchasing organizations. Netprices for drugs may be further reduced by mandatory discounts or rebates required by government healthcare programs anddemanded by private payors. Drugs approved under NDAs, including 505(b)(2) drugs, are subject to greater discounts andreporting obligations under federal programs than drugs approved under ANDAs, and the inflation penalty applicable tothese products can equal the selling price. It is also not uncommon for market conditions to warrant multiple discounts todifferent customers on the same unit, such as purchase discounts to institutional care providers and rebates to the health plansthat pay them, which reduces the net realization on the original sale.In addition, increasingly, third‑party payors are requiring higher levels of evidence of the benefits and clinicaloutcomes of new technologies and are challenging the prices charged. We, and our collaborators, cannot be sure thatcoverage will be available for any product candidate that we, or they, commercialize and, if available, that the reimbursementrates will be adequate. Further, the net reimbursement for drug products may be subject to additional reductions if there arechanges to laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in theUnited States. An inability to promptly obtain coverage and adequate payment rates from both government‑funded andprivate payors for any our product candidates for which we obtain marketing approval could have a material adverse effecton our operating results, our ability to raise capital needed to commercialize products, and our overall financial condition.We are subject to new legislation, regulatory proposals, and healthcare payor initiatives that may increase our costs ofcompliance, and adversely affect our ability to market our products, obtain collaborators, and raise capital.In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changesand proposed changes regarding the healthcare system that could prevent or delay marketing approval of our79 Table of Contentsproduct candidates, restrict or regulate post‑approval activities, and affect our ability, or the ability of our collaborators, toprofitably sell any products for which we obtain marketing approval. We expect that current laws, as well as other healthcarereform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downwardpressure on the price that we, or our collaborators, may receive for any approved products.For example, legislative changes have been proposed and adopted since President Obama signed into law theAffordable Care Act, or ACA, in 2010. These changes include, among other things, aggregate reductions to Medicarepayments to providers of up to 2% per fiscal year, which went effective on April 1, 2013. Changes imposed by recentlegislative actions are further described in the “Business—Governmental Regulation and Product Approval” section of thisAnnual Report on Form 10-K. These new laws may result in additional reductions in Medicare and other healthcare funding,which could have a material adverse effect on customers for our drugs, if approved, and, accordingly, on our results ofoperations.While the full effect that the ACA may have on our business continues to evolve, we expect that the ACA, as well asother federal and state healthcare reform measures that may be adopted in the future, may result in more rigorous coveragecriteria, increased regulatory burdens and operating costs, decreased net revenue from our pharmaceutical products,decreased potential returns from our development efforts, and additional downward pressure on the price that we receive forany approved drug. Any reduction in reimbursement from Medicare or other government healthcare programs may result in asimilar reduction in payments from private payors. The implementation of cost containment measures or other healthcarereforms may prevent us from being able to generate revenue, attain profitability or commercialize our drugs.Legislative and regulatory proposals may also be made to expand post‑approval requirements and restrict sales andpromotional activities for drugs. We cannot be sure whether additional legislative changes will be enacted, or whether theFDA regulations, guidance, or interpretations will be changed, or what the impact of such changes on the marketingapprovals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA’sapproval process may significantly delay or prevent marketing approval, as well as subject us to more stringent productlabeling and post‑marketing testing and other requirements.In addition, there have been a number of other legislative and regulatory proposals aimed at changing thepharmaceutical industry. For instance, the enacted Drug Quality and Security Act imposes obligations on manufacturers ofpharmaceutical products related to product tracking and tracing. Among the requirements of this new legislation,manufacturers are required to provide certain information regarding the drug product to individuals and entities to whichproduct ownership is transferred, will be required label drug product with a product identifier, and are required to keepcertain records regarding the drug product. The transfer of information to subsequent product owners by manufacturers willeventually be required to be done electronically. Manufacturers are also required to verify that purchasers of themanufacturers’ products are appropriately licensed. Further, under this legislation, manufactures have drug productinvestigation, quarantine, disposition, and FDA and trading partner notification responsibilities related to counterfeit,diverted, stolen, and intentionally adulterated products that would result in serious adverse health consequences of death tohumans, as well as products that are the subject of fraudulent transactions or which are otherwise unfit for distribution suchthat they would be reasonably likely to result in serious health consequences or death.Compliance with the federal track and trace requirements may increase our operational expenses and imposesignificant administrative burdens. As a result of these and other new proposals, we may determine to change our currentmanner of operation, provide additional benefits, or change our contract arrangements, any of which could have a materialadverse effect on our business, financial condition, and results of operations.Governments outside the United States tend to impose strict price controls, which may adversely affect our revenues, if any.In international markets, reimbursement and health care payment systems vary significantly by country, and manycountries have instituted price ceilings on specific products and therapies. In some countries, particularly the countries of theEuropean Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricingnegotiations with governmental authorities can take considerable time after the receipt of marketing80 Table of Contentsapproval for a product. To obtain coverage and reimbursement or pricing approval in some countries, we may be required toconduct a clinical trial that compares the cost‑effectiveness of our product candidate to other available therapies. There canbe no assurance that our products will be considered cost‑effective by third‑party payors, that an adequate level ofreimbursement will be available, or that the third‑party payors’ reimbursement policies will not adversely affect our ability tosell our products profitably. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is setat unsatisfactory levels, our business could be harmed, possibly materially.Our employees, independent contractors, consultants, commercial partners, principal investigators, or CROs may engagein misconduct or other improper activities, including noncompliance with regulatory standards and requirements, whichcould have a material adverse effect on our business.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees, independentcontractors, consultants, commercial partners, principal investigators, or CROs could include intentional, reckless, negligent,or unintentional failures to comply with FDA regulations, comply with applicable fraud and abuse laws, provide accurateinformation to the FDA, report financial information or data accurately, or disclose unauthorized activities to us. Thismisconduct could also involve the improper use or misrepresentation of information obtained in the course of clinical trials,which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deterthis type of misconduct, and the precautions we take to detect and prevent this activity may not be effective in controllingunknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuitsstemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, andwe are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on ourbusiness, financial condition, and results of operations, including the imposition of significant fines or other sanctions.Our third‑party manufacturers may use hazardous materials in the production of our product candidates and if so, theymust comply with environmental laws and regulations, which can be expensive and restrict how we or they do business.Manufacturing activities for the production of our product candidates involve the controlled storage, use, anddisposal of hazardous materials, including the components of our product candidates, and other hazardous compounds. Ourthird‑party manufacturers and we are subject to federal, state, and local laws and regulations governing the use, manufacture,storage, handling, release, and disposal of, and exposure to, these hazardous materials. Violation of these laws andregulations could lead to substantial fines and penalties. Although we believe that our safety procedures, and those of ourthird‑party manufacturers, for handling and disposing of these materials comply with the standards prescribed by these lawsand regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of anaccident, state or federal authorities may curtail our use of these materials and interrupt our business operations. In addition,we could become subject to potentially material liabilities relating to the investigation and cleanup of any contamination,whether currently unknown or caused by future releases.Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due toinjuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverageagainst potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may beasserted against us in connection with our storage or disposal of biological, hazardous, or radioactive materials.In addition, we may incur substantial costs in order to comply with current or future environmental, health, andsafety laws and regulations. These current or future laws and regulations may impair our research, development, orproduction efforts. Our failure to comply with these laws and regulations also may result in substantial fines, penalties, orother sanctions.81 Table of ContentsRISKS RELATED TO OUR BUSINESS OPERATIONSWe will need to significantly increase the size of our organization, and we may experience difficulties in managing growth.As of March 22, 2016, we had only 11 full‑time employees and 4 key consultants. We will need to substantiallyexpand our managerial, commercial, financial, manufacturing, and other personnel resources in order to manage ouroperations and prepare for the commercialization of AXS‑02 and AXS‑05, if approved. Our management, personnel, systems,and facilities currently in place may not be adequate to support this future growth. In addition, we may not be able to recruitand retain qualified personnel in the future, particularly for sales and marketing positions, due to competition for personnelamong pharmaceutical businesses, and the failure to do so could have a significant negative impact on our future productrevenues and business results. Our need to effectively manage our operations, growth and various projects requires that we:•continue the hiring and training of personnel for an effective commercial organization in anticipation of thepotential approval of AXS‑02 and AXS‑05, and establish appropriate systems, policies and infrastructure tosupport that organization;•ensure that our consultants and other service providers successfully carry out their contractual obligations,provide high quality results, and meet expected deadlines;•continue to carry out our own contractual obligations to our licensors and other third parties; and•continue to improve our operational, financial, and management controls, reporting systems, and procedures.We may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve ourdevelopment and commercialization goals.We may acquire businesses or products, or form strategic alliances in the future, and we may not realize the benefits of suchacquisitions or alliances.We may acquire additional businesses or products, form strategic alliances or create joint ventures with third partiesthat we believe will complement or augment our existing business. If we acquire businesses with promising markets ortechnologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integratethem with our existing operations and company culture. We may encounter numerous difficulties in developing,manufacturing, and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent usfrom realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition,we will achieve the expected synergies to justify the transaction.We may not be able to manage our business effectively if we are unable to attract and retain key personnel.We may not be able to attract or retain qualified management and commercial, scientific, and clinical personnel dueto the intense competition for qualified personnel among biotechnology, pharmaceutical, and other businesses. If we are notable to attract and retain necessary personnel to accomplish our business objectives, we may experience constraints that willsignificantly impede the achievement of our development objectives, our ability to raise additional capital and our ability toimplement our business strategy.Our industry has experienced a high rate of turnover of management personnel in recent years. We are highlydependent on the skills and leadership of our management team, including Dr. Herriot Tabuteau, our Chief Executive Officerand Chairman of the Board. We do not have formal employment agreements with any of our management team. However, wetypically enter into offer letters with our executive officers and key personnel. Our senior management may terminate theiremployment with us at any time. If we lose one or more members of our senior management team, our ability to successfullyimplement our business strategy could be seriously harmed. Replacing these employees may82 Table of Contentsbe difficult and may take an extended period of time because of the limited number of individuals in our industry with thebreadth of skills and experience required to develop, gain regulatory approval of, and commercialize products successfully.Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain, or motivate additional keypersonnel. We do not maintain “key person” insurance for any of our executives or other employees.We will incur increased costs as a result of operating as a public company.As a public company, and particularly after we are no longer an emerging growth company, we will incur significantlegal, accounting, and other expenses that we did not incur as a private company. The Sarbanes‑Oxley Act of 2002, theDodd‑Frank Wall Street Reform and Consumer Protection Act, the listing requirements of The NASDAQ Capital Market andother applicable securities rules and regulations impose various requirements on public companies, including establishmentand maintenance of effective disclosure and financial controls and corporate governance practices. Our management andother personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules andregulations will increase our legal and financial compliance costs and will make some activities more time consuming andcostly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us toobtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualifiedmembers of our board of directors.We are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we mayincur or the timing of such costs. These rules and regulations are often subject to varying interpretations, in many cases dueto their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided byregulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costsnecessitated by ongoing revisions to disclosure and governance practices.If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on atimely basis could be impaired.We are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes‑Oxley Act of2002 and the rules and regulations of The NASDAQ Capital Market. Pursuant to Section 404 of the Sarbanes‑Oxley Act of2002, or Section 404, we will be required to furnish a report by our management on our internal control over financialreporting. However, while we remain an emerging growth company, we will not be required to include an attestation reporton internal control over financial reporting issued by our independent registered public accounting firm. Commencing withour fiscal year ending December 31, 2016, we must perform system and process evaluation and testing of our internal controlover financial reporting to allow management to report on the effectiveness of our internal controls over financial reportingin our Form 10‑K filing for that year, as required by Section 404.To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to documentand evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will needto continue to dedicate internal resources, potentially engage outside consultants and adopt a detailed work plan to assessand document the adequacy of internal control over financial reporting, continue steps to improve control processes asappropriate, validate through testing that controls are functioning as documented, and implement a continuous reporting andimprovement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not be able toconclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as requiredby Section 404. We have never been required to test, nor have we tested, our internal controls within a specified period, and,as a result, we may experience difficulty in meeting these reporting requirements in a timely manner.We may discover weaknesses in our system of internal financial and accounting controls and procedures that couldresult in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent ordetect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, notabsolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all controlsystems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur orthat all control issues and instances of fraud will be detected. If we are not able to comply with the83 Table of Contentsrequirements of Section 404 in a timely manner, or if we identify one or more material weaknesses in our internal controls,investors could lose confidence in the reliability of our financial statements, the market price of our stock could decline andwe could be subject to sanctions or investigations by The NASDAQ Capital Market, the SEC, or other regulatory authorities.Our business and operations would suffer in the event of system failures.Despite our implementation of security measures, our internal computer systems and those of our CROs and othercontractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism,war, and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our operations, itcould result in a material disruption of our product candidate development programs. For example, the loss of clinical trialdata from completed, ongoing, or planned clinical trials could result in delays in our regulatory approval efforts andsignificantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were toresult in a loss of or damage to our data or applications, or inappropriate disclosure of personal, confidential, or proprietaryinformation, we could incur liability and the further development of any of our product candidates could be delayed.RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCKAn active trading market for our common stock may not be sustained.In November 2015, we closed our initial public offering. Prior to our initial public offering, there was no publicmarket for shares of our common stock. Although we have completed our initial public offering and shares of our commonstock are listed and trading on The NASDAQ Capital Market, an active trading market for our shares may not be sustained. Ifan active market for our common stock does not continue, it may be difficult for our stockholders to sell their shares withoutdepressing the market price for the shares or sell their shares at or above the prices at which they acquired their shares or selltheir shares at the time they would like to sell. Any inactive trading market for our common stock may also impair our abilityto raise capital to continue to fund our operations by selling shares.The market price of our common stock may be highly volatile.The trading price of our common stock is likely to be volatile. As a result of this volatility, investors may not beable to sell their common stock at or above the price paid for the shares. The market price for our common stock may beinfluenced by many factors, including:•delays in the commencement, enrollment, and ultimate completion, of our planned Phase 3 clinical trials forAXS‑02 and AXS‑05;•any delay or refusal on the part of the FDA in approving an NDA for AXS‑02, AXS‑05, or any other of ourcurrent and future product candidates;•the commercial success of AXS‑02, AXS‑05, and any other of our current and future product candidates, ifapproved by the FDA;•results of clinical trials of AXS‑02, AXS‑05, and any other of our current and future product candidates or thoseof our competitors;•actual or anticipated variations in quarterly or annual operating results;•failure to meet or exceed financial projections we provide to the public, if any;•failure to meet or exceed the estimates and projections of the investment community, including securitiesanalysts;84 Table of Contents•introduction of competitive products or technologies;•changes or developments in laws or regulations applicable to our product candidates;•the perception of the pharmaceutical industry by the public, legislatures, regulators, and the investmentcommunity;•general economic and market conditions and overall fluctuations in U.S. equity markets;•developments concerning our sources of manufacturing supply, warehousing, and inventory control;•disputes or other developments relating to patents or other proprietary rights;•additions or departures of key scientific or management personnel;•announcements of investigations or regulatory scrutiny of our operations or lawsuits filed against us;•capital commitments;•investors’ general perception of our company and our business;•announcements and expectations of additional financing efforts, including the issuance of debt, equity orconvertible securities;•sales of our common stock, including sales by our directors and officers or significant stockholders;•changes in the market valuations of companies similar to us;•announcements by us or our competitors of significant acquisitions, strategic partnerships, or divestitures;•general conditions or trends in our industry; and•the other factors described in this “Risk Factors” section.In addition, the stock market in general, and the market for small pharmaceutical and biotechnology companies inparticular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to theoperating performance of these companies. Broad market and industry factors may negatively affect the market price of ourcommon stock, regardless of our actual operating performance.Further, in the past, stockholders have initiated class action lawsuits against pharmaceutical and biotechnologycompanies following periods of volatility in the market prices of these companies’ stocks. Such litigation, if institutedagainst us, could cause us to incur substantial costs and divert management’s attention and resources from our business.If equity research analysts do not publish research or reports, or publish unfavorable research or reports, about us, ourbusiness, or our market, our stock price and trading volume could decline.The trading market for our common stock is influenced by the research and reports that equity research analystspublish about us and our business. We do not have any control over the equity research analysts that provide researchcoverage of our common stock or the content and opinions included in their reports. The price of our stock could decline ifone or more equity research analysts downgrades our stock or issue other unfavorable commentary or research. If one or moreequity research analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stockcould decrease, which in turn could cause our stock price or trading volume to decline.85 Table of ContentsOur quarterly operating results may fluctuate significantly.We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results willbe affected by numerous factors, including:•whether the FDA requires us to complete additional, unanticipated studies, tests, or other activities prior toapproving AXS‑02, AXS‑05, or any other of our current and future product candidates, which would likelyfurther delay any such approval;•if AXS‑02, AXS‑05, or any other of our current or future product candidates is approved, our ability to establishthe necessary commercial infrastructure to launch this product candidate without substantial delays, includinghiring sales and marketing personnel and contracting with third parties for warehousing, distribution, cashcollection, and related commercial activities;•our ability to identify and enter into third‑party manufacturing arrangements capable of manufacturing AXS‑02,AXS‑05, or any other of our current or future product candidates in commercial quantities;•our execution of other collaborative, licensing, or similar arrangements and the timing of payments we maymake or receive under these arrangements;•variations in the level of expenses related to our future development programs;•any product liability or intellectual property infringement lawsuit in which we may become involved;•regulatory developments affecting AXS‑02, AXS‑05, and our other current and future product candidates, or theproduct candidates of our competitors; and•if AXS‑02, AXS‑05, or any other of our current or future product candidates receive regulatory approval, thelevel of underlying demand for such product candidate and wholesaler buying patterns.If our quarterly or annual operating results fall below the expectations of investors or securities analysts, the price ofour common stock could decline substantially. Furthermore, any quarterly or annual fluctuations in our operating resultsmay, in turn, cause the price of our stock to fluctuate substantially. We believe that quarterly comparisons of our financialresults are not necessarily meaningful and should not be relied upon as an indication of our future performance.Raising additional funds by issuing securities may cause dilution to existing stockholders and raising funds throughlending and licensing arrangements may restrict our operations or require us to relinquish proprietary rights.Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needsthrough a combination of equity offerings, debt financings, grants, and license and development agreements in connectionwith any collaborations. We do not have any committed external source of funds. To the extent that we raise additionalcapital by issuing equity securities, our existing stockholders’ ownership will be diluted, and the terms of these securitiesmay include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing andpreferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability totake specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends.If we raise additional funds through collaborations, strategic alliances, or marketing, distribution or licensingarrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams,research programs, or product candidates or grant licenses on terms that may not be favorable to us. Any debt financing weenter into may involve covenants that restrict our operations. These restrictive covenants may include limitations onadditional borrowing and specific restrictions on the use of our assets as well as prohibitions on our ability to create liens,pay dividends, redeem our stock, or make investments. If we are unable to raise additional funds through equity or debtfinancings when needed, we may be required to delay, limit, reduce, or terminate our product development or future86 Table of Contentscommercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to developand market ourselves.Our principal stockholders and management own a significant percentage of our stock and will be able to exert significantcontrol over matters subject to stockholder approval.As of March 14, 2016, our executive officers, directors, and 5% stockholders and their affiliates beneficially ownedan aggregate of approximately 64.9% of our outstanding common stock. As a result, these stockholders have significantinfluence and may be able to determine all matters requiring stockholder approval. For example, these stockholders may beable to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets,or other major corporate transaction. This concentration of ownership could delay or prevent any acquisition of our companyon terms that other stockholders may desire, and may adversely affect the market price of our common stock.Some of these persons or entities may have interests different than yours. For example, these stockholders, if theyacted together, could significantly influence all matters requiring approval by our stockholders, including the election ofdirectors and the approval of mergers or other business combination transactions. These stockholders may be able todetermine all matters requiring stockholder approval. The interests of these stockholders may not always coincide with ourinterests or the interests of other stockholders. This may also prevent or discourage unsolicited acquisition proposals or offersfor our common stock that other stockholders may feel are in their best interest and our large stockholders may act in amanner that advances their best interests and not necessarily those of other stockholders, including seeking a premium valuefor their common stock, and might affect the prevailing market price for our common stock.Sales of a substantial number of shares of our common stock in the public market by our existing stockholders could causeour stock price to fall.Sales of a substantial number of shares of our common stock in the public market or the perception that these salesmight occur, could depress the market price of our common stock and could impair our ability to raise adequate capitalthrough the sale of additional equity securities. We are unable to predict the effect that sales may have on the prevailingmarket price of our common stock.As of March 22, 2016, we have outstanding 19,149,417 shares of common stock. Of these shares, the 5,666,667shares sold in our initial public offering are freely tradable, 13,482,750 additional shares of common stock will be availablefor sale in the public market beginning 180 days after the date of the final prospectus filed with the SEC in connection withour initial public offering following the expiration of lock‑up agreements between some of our stockholders and theunderwriters, subject, in the case of our affiliates, to the volume, manner of sale, and other limitations of Rule 144, and814,498 shares issued or issuable upon exercise of options and warrants vested as of the expiration of the lock‑up period willbe eligible for sale at that time, subject, in the case of our affiliates, to the volume, manner of sale and other limitations ofRule 144. The representative of the underwriters of our initial public offering may release these stockholders from theirlock‑up agreements with the underwriters at any time and without notice, which would allow for earlier sales of shares in thepublic market. Sales of stock by these stockholders could have a material adverse effect on the market price of our commonstock.In addition, we have filed a registration statement on Form S‑8 registering the issuance of 4,491,507 shares ofcommon stock subject to options or other equity awards issued or reserved for future issuance under our 2015 OmnibusIncentive Compensation Plan. Shares registered under this registration statement on Form S‑8 will be available for sale in thepublic market subject to vesting arrangements and exercise of options, the lock‑up agreements described above and therestrictions of Rule 144 in the case of our affiliates.87 Table of ContentsOur management will have broad discretion in the use of the net proceeds from our initial public offering and may not usethem effectively.Our management will have broad discretion in the application of the net proceeds from our recently completedinitial public offering and our stockholders will not have the opportunity as part of their investment decision to assesswhether the net proceeds are being used appropriately. You may not agree with our decisions, and our use of the proceedsmay not yield any return on your investment. Because of the number and variability of factors that will determine our use ofthe net proceeds from our initial public offering, their ultimate use may vary substantially from their currently intended use.Our failure to apply the net proceeds of our initial public offering effectively could compromise our ability to pursue ourgrowth strategy and we might not be able to yield a significant return, if any, on our investment of those net proceeds. Youwill not have the opportunity to influence our decisions on how to use our net proceeds from our initial public offering.Pending their use, we may invest the net proceeds from our initial public offering in short‑term, investment‑grade,interest‑bearing instruments and U.S. government securities. These temporary investments are not likely to yield a significantreturn.We are an “emerging growth company” and as a result of the reduced disclosure and governance requirements applicableto emerging growth companies, our common stock may be less attractive to investors.We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act,and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other publiccompanies that are not emerging growth companies, including not being required to comply with the auditor attestationrequirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports andproxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensationand stockholder approval of any golden parachute payments not previously approved. We may take advantage of thesereporting exemptions until we are no longer an emerging growth company. We cannot predict if investors will find ourcommon stock less attractive because we will rely on these exemptions. If some investors find our common stock lessattractive as a result, there may be a less active trading market for our common stock and our stock price may be morevolatile.We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following thefifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least$1.0 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stockthat is held by non‑affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which we have issued morethan $1.0 billion in non‑convertible debt during the prior three‑year period. To the extent we are no longer eligible to useexemptions from various reporting requirements under the JOBS Act, we may be unable to realize our anticipated costsavings from these exemptions, which could have a material adverse impact on our operating results.The use of our net operating loss carryforwards and research tax credits may be limited.Our net operating loss carryforwards and any future research and development tax credits may expire and not beused. As of December 31, 2015, we had U.S. net operating loss carryforwards of approximately $15.5 million. Our netoperating loss carryforwards will begin expiring in 2033 if we have not used them prior to that time. Additionally, our abilityto use any net operating loss and credit carryforwards to offset taxable income or tax, respectively, in the future will belimited under Internal Revenue Code Sections 382 and 383, respectively, if we have a cumulative change in ownership ofmore than 50% within a three‑year period. The completion of our initial public offering, together with private placementsand other transactions that have occurred, may trigger, or may have already triggered, such an ownership change. In addition,since we will need to raise substantial additional funding to finance our operations, we may undergo further ownershipchanges in the future. We have never completed an analysis as to whether such a change of ownership has occurred, but insuch an event, we will be limited regarding the amount of net operating loss carryforwards and research tax credits that couldbe utilized annually in the future to offset taxable income or tax, respectively. Any such annual limitation may significantlyreduce the utilization of the net operating loss carryforwards and research tax credits before they expire. In addition, certainstates have suspended use of net operating loss carryforwards for certain taxable years, and other states are consideringsimilar measures. As a result, we may incur higher state income tax expense in the future. Depending on our future taxposition, continued suspension of our ability88 Table of Contentsto use net operating loss carryforwards in states in which we are subject to income tax could have an adverse impact on ourresults of operations and financial condition.Because we do not intend to pay dividends on our common stock, your returns will be limited to any increase in the value ofour stock.We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all availablefunds and any future earnings to support our operations and finance the growth and development of our business and do notanticipate declaring or paying any cash dividends on our common stock for the foreseeable future. Any return tostockholders will therefore be limited to the appreciation of their stock, if any. Investors seeking cash dividends should notpurchase our common stock.Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by ourstockholders to change our management and hinder efforts to acquire a controlling interest in us, and the market price ofour common stock may be lower as a result.There are provisions in our amended and restated certificate of incorporation and amended and restated bylaws thatmay make it difficult for a third party to acquire, or attempt to acquire, control of our company, even if a change in controlwas considered favorable by you and other stockholders. For example, our board of directors will have the authority to issueup to 10,000,000 shares of preferred stock and to fix the price, rights, preferences, privileges, and restrictions of the preferredstock without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent achange in control transaction. As a result, the market price of our common stock and the voting and other rights of ourstockholders may be adversely affected. An issuance of shares of preferred stock may result in the loss of voting control toother stockholders.In addition, we are subject to the anti‑takeover provisions of Section 203 of the Delaware General Corporation Law,which regulates corporate acquisitions by prohibiting Delaware corporations from engaging in specified businesscombinations with particular stockholders of those companies. These provisions could discourage potential acquisitionproposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging othersfrom making tender offers for our common stock, including transactions that may be in your best interests. These provisionsmay also prevent changes in our management or limit the price that investors are willing to pay for our stock.Our amended and restated certificate of incorporation designates the state or federal courts located in the State ofDelaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by ourstockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or ourdirectors, officers or employees.Our amended and restated certificate of incorporation provides that, subject to limited exceptions, the state andfederal courts located in the State of Delaware will be the sole and exclusive forum for (1) any derivative action orproceeding brought on our behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of our directors,officers or other employees to us or our stockholders, (3) any action asserting a claim against us arising pursuant to anyprovision of the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amendedand restated bylaws, or (4) any other action asserting a claim against us that is governed by the internal affairs doctrine. Anyperson or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have noticeof and to have consented to the provisions of our amended and restated certificate of incorporation described above. Thischoice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable fordisputes with us or our directors, officers, or other employees, which may discourage such lawsuits against us and ourdirectors, officers, and employees. Alternatively, if a court were to find these provisions of our amended and restatedcertificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions orproceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which couldadversely affect our business and financial condition. 89 Table of ContentsITEM 1B. UNRESOLVED STAFF COMMENTS. None. ITEM 2. PROPERTIES. Our corporate and executive office is located at 25 Broadway in New York, New York. We currently have amonth‑to‑month agreement for office space that automatically renews for successive monthly periods, unless we providenotice of non‑renewal. We believe that our current facilities are suitable and adequate to meet our current needs. ITEM 3. LEGAL PROCEEDINGS. We, and our subsidiaries, are not a party to, and our property is not the subject of, any material pending legalproceedings; however, we may become involved in various claims and legal actions arising in the ordinary course ofbusiness. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. 90 Table of ContentsPart II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock has been listed on the NASDAQ Capital Market since November 19, 2015, under the symbol“AXSM.” Prior to our initial public offering, there was no public market for our common stock. The following table sets forth the high and low sale prices of our common stock for the periods indicated. Fourth Quarter 2015 (1) High $9.70 Low $8.00 (1)Beginning on November 19, 2015 Common Stock Performance Graph The following graph illustrates a comparison of the total cumulative stockholder return for our common stock sinceNovember 19, 2015, which is the date our common stock first began trading on the NASDAQ Capital Market, to two indices:the NASDAQ Composite Index and the NASDAQ Biotechnology Index. The graph assumes an initial investment of $100 onNovember 19, 2015, in our common stock, the NASDAQ Composite Index, and the NASDAQ Biotechnology Index andassumes reinvestment of dividends. The stockholder return shown in the graph below is not91 Table of Contentsnecessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns. Holders The number of record holders of our common stock as of March 22, 2016 was 113. This number does not reflect thebeneficial holders of our common stock who hold shares in street name through brokerage accounts or other nominees. Dividends We have never declared or paid any cash dividends on our common stock and do not anticipate paying any cashdividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board ofdirectors, subject to applicable laws, and will depend on a number of factors, including our financial condition, results ofoperations, capital requirements, contractual restrictions, general business conditions, and any other factors that our boardmay deem relevant. Use of Proceeds from Initial Public Offering of Common Stock On November 19, 2015, our Registration Statement on Form S-1, as amended (File No. 333-207393) was declaredeffective in connection with the initial public offering of our common stock, pursuant to which we sold 5,666,667 shares at apublic offering price of $9.00 per share. Ladenburg Thalmann & Co. Inc. acted as sole book-running manager of the initialpublic offering. Cantor Fitzgerald & Co. acted as lead manager, and Brean Capital, LLC acted as co-manager. The initialpublic offering closed on November 24, 2015, as a result of which we received gross proceeds of approximately $51.0million and net proceeds of approximately $45.5 million, after deducting underwriting92 Table of Contentsdiscounts and commissions of approximately $3.6 million and offering-related transaction costs of approximately $1.9million. As of December 31, 2015, we have not used any of our net proceeds from the initial public offering.There has been no material change in the planned use of proceeds from our initial public offering as described in ourfinal prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on November 19, 2015. Recent Sales of Unregistered Securities During the preceding year, we issued the following securities that were not registered under the Securities Act:(1)From September to November 2014, we issued convertible notes in the aggregate principal amount of$4,140,000 to investors pursuant to a note purchase agreement. These notes, together with accrued interest,converted into 836,202 shares of common stock upon the close of our initial public offering on November 24,2015.(2)From December 2014 to January 2015, we issued convertible notes in the aggregate principal amount of$1,570,000 to investors pursuant to a note purchase agreement. These notes, together with accrued interest,converted into 283,131 shares of common stock upon the close of our initial public offering on November 24,2015.(3)From May to July 2015, we issued convertible notes in the aggregate principal amount of $7,166,469 toinvestors pursuant to a note purchase agreement. These notes, together with accrued interest, converted into1,255,273 shares of common stock upon the close of our initial public offering on November 24, 2015.(4)On February 27, 2015, and June 5, 2015, we granted stock options outside of our 2013 Equity CompensationPlan to purchase an aggregate of 6,418 shares of common stock at an exercise price of $5.94 to a serviceprovider. On September 15, 2015, we granted stock options outside of our 2013 Equity Compensation Plan topurchase an aggregate of 1,850 shares of common stock at an exercise price of $6.47 to a service provider.(5)In 2015, we granted unregistered stock options under our 2013 Equity Compensation Plan and our 2015Omnibus Incentive Compensation Plan to purchase an aggregate of 430,022 shares of common stock at aweighted average exercise price of $6.75 per share to officers, directors, and employees, of which options topurchase 36,772 shares of common stock were subsequently forfeited.The offers, sales and issuances of the securities described in paragraphs (1), (2), (3), and (4) were deemed to beexempt from registration under the Securities Act in reliance on Section 4(a)(2) (or Regulation D promulgated thereunder), inthat the issuance of securities to the accredited investors did not involve a public offering. The recipients of securities in eachof these transactions acquired the securities for investment only and not with a view to or for sale in connection with anydistribution thereof and appropriate legends were affixed to the securities issued in these transactions. Each of the recipientsof securities in these transactions was an accredited investor under Rule 501 of Regulation D. No underwriters were involvedin these transactions.The offers, sales and issuances of the securities described in paragraph (5) were deemed to be exempt fromregistration under the Securities Act in reliance on Rule 701 in that the transactions were under compensatory benefit plansand contracts relating to compensation as provided under Rule 701. The recipients of such securities were the employees,directors or bona fide consultants of the Registrant and received the securities under our 2013 Equity Compensation Planand our 2015 Omnibus Incentive Compensation Plan. Appropriate legends were affixed to the securities issued in thesetransactions. Each of the recipients of securities in these transactions had adequate access, through employment, business orother relationships, to information about us.93 Table of ContentsITEM 6. SELECTED FINANCIAL DATA. The following Statement of Operations Data for the years ended December 31, 2015, 2014 and 2013 and BalanceSheet Data as of December 31, 2015, 2014 and 2013, as set forth below are derived from our audited consolidated financialstatements included elsewhere in this Annual Report. This financial data should be read in conjunction with “Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 8. Financial Statementsand Supplementary Data.” Our historical results are not necessarily indicative of the results that may be expected in thefuture. Year ended December 31, 2015 2014 2013 Statements of operations data: Operating expenses: Research and development $6,776,987 $4,279,200 $1,535,255 General and administrative 2,419,289 1,392,830 304,183 Total operating expenses 9,196,276 5,672,030 1,839,438 Loss from operations (9,196,276) (5,672,030) (1,839,438) Interest and amortization of debt discount/premiumincome (expense) 914,952 2,233,338 (327,192) Tax credit — 184,139 — Change in fair value of warrant liability (108,539) (57,106) — Change in fair value of embedded derivativeliabilities 274,800 182,000 — Loss on extinguishment of debt (2,444,516) (2,870,903) — Net loss $(10,559,579) $(6,000,562) $(2,166,630) Weighted average common shares outstanding—basic and diluted 11,945,318 9,099,188 7,690,572 Net loss per common share—basic and diluted $(0.88) $(0.66) $(0.28) As of December 31, 2015 2014 2013 Balance sheet data: Cash $48,036,260 $2,617,815 $2,087,843 Total assets 49,076,156 2,786,380 2,097,375 Total current liabilities 2,631,895 972,616 4,125,186 Convertible notes, net of discounts, non-currentportion — 4,441,415 — Interest payable, non-current portion — 78,524 — Embedded derivative liabilities — 496,400 — Accumulated deficit (18,788,798) (8,229,219) (2,228,657) Total stockholders’ equity (deficit) $46,444,261 $(3,202,575) $(2,027,811) 94 Table of ContentsITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OFOPERATIONSThe following discussion and analysis contains forward-looking statements about our plans and expectations of whatmay happen in the future. You should read the following discussion and analysis in conjunction with “Item 6. SelectedFinancial Data,” “Item 8. Financial Statements and Supplementary Data,” and our consolidated financial statementsbeginning on page F-1 of this report. Forward-looking statements are based on a number of assumptions and estimates thatare inherently subject to significant risks and uncertainties, and our results could differ materially from the results anticipatedby our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factorsdiscussed in “Item 1A. Risk Factors.” See also the “Special Cautionary Notice Regarding Forward-Looking Statements” setforth at the beginning of this report.OverviewWe are a clinical stage biopharmaceutical company developing novel therapies for central nervous system, or CNS,disorders including pain. By focusing on this therapeutic area, we are addressing significant and growing markets wherecurrent treatment options are limited or inadequate. Our product candidate portfolio includes two late‑stage candidates,AXS‑02 and AXS‑05, which we are developing for multiple indications. We have initiated a Phase 3 trial with AXS‑02 incomplex regional pain syndrome, or CRPS, and plan to initiate a Phase 3 trial in knee osteoarthritis associated with bonemarrow lesions in the first quarter of 2016 pursuant to a Special Protocol Assessment, or SPA. We have also initiated aPhase 3 trial with AXS‑05 in treatment resistant depression. We aim to become a fully integrated biopharmaceutical companythat develops and commercializes differentiated therapies that expand the treatment options available to caregivers andimprove the lives of patients living with CNS disorders.Since our incorporation in January 2012, our operations to date have included organizing and staffing our company,business planning, raising capital, developing our compounds, and engaging in other discovery and preclinical activities.Prior to our initial public offering, or IPO, in November 2015, we financed our operations primarily through privateplacements of our convertible notes. In November 2015, we completed our IPO, in which we sold 5,666,667 shares ofcommon stock at an offering price to the public of $9.00 per share. We received gross proceeds of approximately $51.0million and net proceeds of approximately $45.5 million, after deducting underwriting discounts and commissions andoffering-related transaction costs. Our ability to become profitable depends on our ability to generate revenue. We do not expect to generatesignificant revenue unless and until we or our collaborators obtain marketing approval for and successfully commercializeone of our product candidates.We have incurred significant operating and net losses since inception. We incurred net losses of $10.6 million,$6.0 million, and $2.2 million for the years ended December 31, 2015, 2014, and 2013, respectively. Our accumulated deficitas of December 31, 2015 was $18.8 million, and we expect to incur significant expenses and increasing operating losses forthe foreseeable future. We expect our expenses to increase in connection with our ongoing activities, as we continue thedevelopment and clinical trials of, and seek regulatory approval for, AXS‑02, AXS‑05, and any other product candidates thatwe develop or in‑license and advance to clinical development. If we obtain regulatory approval for a product candidate, weexpect to incur significant expenses in order to create an infrastructure to support the commercialization of the productcandidate, including manufacturing, sales, marketing, and distribution functions. Further, we expect to incur additional costsassociated with operating as a public company. Accordingly, we will need additional financing to support our continuingoperations. We will seek to fund our operations through public or private equity or debt financings or other sources.Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as andwhen needed would have a negative impact on our financial condition and our ability to pursue our business strategy. Wewill need to generate significant revenue to achieve profitability, and we may never do so.On October 30, 2015, we filed an amendment to our certificate of incorporation whereby we (1) increased thenumber of authorized shares of common stock to 25,000,000 shares and (2) effectuated a 7.3445‑for‑1 forward stock split ofour common stock. Fractional shares resulting from the stock split were rounded down to the next whole share95 Table of Contentsand in lieu of any fractional shares we will pay a cash amount to the holder of such fractional share equal to the fair marketvalue of such fractional share as determined by our board of directors.In connection with the completion of our IPO on November 24, 2015, our stockholders approved an amended andrestated certificate of incorporation, in which our authorized capital stock was increased to 150,000,000 shares of commonstock and 10,000,000 shares of preferred stock.Financial OverviewRevenueWe have not generated any revenue since we commenced operations and we do not expect to generate any revenuein the near future. To the extent we enter into licensing or collaboration arrangements, we may have sources of revenue in thefuture. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the amount and timing ofpayments that we may recognize upon the sale of our product candidates, to the extent that any product candidates aresuccessfully commercialized, and the amount and timing of fees, reimbursements, and milestone and other payments receivedunder any future licensing or collaboration arrangements. If we fail to complete the development of our product candidates ina timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operationsand financial position, would be materially and adversely affected.Research and Development ExpensesResearch and development expenses primarily consist of costs incurred in performing research and developmentactivities, including preclinical studies, clinical trials, manufacturing costs, employee salaries and benefits, stock‑basedcompensation expense; contract services, including external research and development expenses incurred underarrangements with third parties, such as contract research organizations, or CROs; facilities costs; overhead costs;depreciation; and other related costs.Research and development activities are central to our business model. We will incur substantial costs beyond ourpresent and planned clinical trials in order to file a new drug application, or NDA, for any of our product candidates. It isdifficult to determine with certainty the costs and duration of our current or future clinical trials and preclinical studies, or if,when, or to what extent we will generate revenue from the commercialization and sale of our product candidates if we obtainregulatory approval. We may never succeed in achieving regulatory approval. The duration, costs, and timing of clinicaltrials and development of our product candidates will depend on a variety of factors, including the uncertainties of futureclinical trials and preclinical studies, uncertainties in clinical trial enrollment rate, and significant and changing governmentregulation. In addition, the probability of success for each product candidate will depend on numerous factors, includingcompetition, manufacturing capability, and commercial viability. We will determine which programs to pursue and howmuch to fund each program in response to the scientific and clinical success of each product candidate, as well as anassessment of each product candidate’s commercial potential.96 Table of ContentsThe following table summarizes our research and development expenses by program for the years endedDecember 31, 2015, 2014 and 2013: Year ended December 31, 2015 2014 2013 AXS-02 $3,737,421 $2,001,560 $1,239,095 AXS-05 678,273 900,669 — AXS-06 182,744 19,739 — Other research and development 1,555,648 1,076,753 282,094 Stock-based compensation 622,901 280,479 14,066 Total research and development expenses $6,776,987 $4,279,200 $1,535,255 Other research and development expenses primarily consist of employee salaries and benefits, facilities andoverhead costs, and expenses for terminated programs.General and Administrative ExpensesGeneral and administrative expenses primarily consist of salaries and related costs for personnel in executive,finance, and operational functions, including stock‑based compensation and travel expenses. Other general andadministrative expenses include facility‑related costs, insurance expense, and professional fees for legal and accountingservices and patent filing and prosecution costs. General and administrative expenses are expensed when incurred.We anticipate that our general and administrative expenses will increase in future periods as a result of increasedpayroll, expanded infrastructure, and increased legal, compliance (such as maintaining compliance with stock exchangelisting and Securities and Exchange Commission, or SEC, requirements), accounting, and investor and public relationsexpenses associated with being a public company, among other factors.Interest and Amortization of Debt Discount/Premium Income (Expense)Interest and amortization of debt discount/premium income (expense) primarily consists of cash and non‑cashinterest costs related to our convertible debt. We record costs incurred in connection with the issuance of debt as a directdeduction from the debt liability. We amortize these costs over the term of our debt agreements as interest expense in ourconsolidated statement of operations. Interest and amortization of debt discount/premium income (expense) also includes theamortization of the premium recognized due to extinguishment of debt.Tax CreditThe tax credit represents the receipt of the New York City Biotechnology Tax Credit, or NYC Biotech credit, relatedto our research and development expenses incurred for our product candidates.Change in Fair Value of Warrant LiabilityThe warrants to purchase our common stock issued to the placement agent in connection with our convertible notesissued in 2014 were classified as a warrant liability and recorded at fair value. This warrant liability was subject tore‑measurement at each balance sheet date and any change in fair value was recognized in our statements of operations as achange in fair value of the warrant liability.Change in Fair Value of Embedded Derivative LiabilitiesWe issued convertible notes from September 2014 through July 2015 that included an embedded derivative thatrequired bifurcation from the host debt instrument. We aggregated these bifurcated features and reflected the values of theseembedded derivatives in the account “embedded derivative liabilities” which was subject to re‑measurement at97 Table of Contentseach balance sheet date and any change in fair value was recognized in our statements of operations as a change in fair valueof the embedded derivative liabilities.Loss on Extinguishment of DebtDuring June 2014, we amended our convertible notes issued from June 2013 through October 2013 in order to allowthe notes to automatically convert into shares of common stock at maturity. The amendment was deemed to be a substantivechange resulting in a loss on extinguishment of debt with an offsetting premium to the convertible notes.During September 2015, we amended our outstanding convertible notes to provide that the principal and anyaccrued and unpaid interest would automatically convert into shares of our common stock upon the occurrence of an equityfinancing of at least $2.0 million in gross aggregate cash proceeds at a conversion price equal to the applicable fixedconversion price for the notes; provided, however, if the lowest price per share at which our shares of equity securities weresold in such equity financing was less than the applicable fixed conversion price, then the note conversion price would equal75% of the lowest price per share at which our shares of equity securities were sold. The amendment was deemed to be asubstantive change resulting in a loss on extinguishment of debt. The difference between the fair value and the face value ofthe amended notes was recorded as a premium to the convertible notes.Critical Accounting Policies and Significant Judgments and EstimatesThis discussion and analysis of our financial condition and results of operations is based on our consolidatedfinancial statements, which have been prepared in accordance with generally accepted accounting principles in the UnitedStates of America, or GAAP. The preparation of these consolidated financial statements requires us to make estimates andassumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the dateof the consolidated financial statements and the reported amounts of expenses during the reported period. In accordance withGAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable underthe circumstances. Actual results may differ from these estimates under different assumptions or conditions.While our significant accounting policies are more fully described in Note 2 to our audited consolidated financialstatements appearing elsewhere in this report, we believe the following accounting policies are the most critical to thejudgments and estimates we use in the preparation of our consolidated financial statements.Research and Development ExpensesGenerally, research and development costs are expensed as incurred. Nonrefundable advance payments for goods orservices that will be used or rendered for future research and development activities are deferred and amortized over theperiod that the goods are delivered or the related services are performed, subject to an assessment of recoverability. We makeestimates of costs incurred in relation to external CROs and clinical site costs. We analyze the progress of clinical trials,including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of the amountexpensed and the related prepaid asset and accrued liability. Significant judgments and estimates must be made and used indetermining the accrued balance and expense in any accounting period. We review and accrue CRO expenses and clinicaltrial study expenses based on work performed and rely upon estimates of those costs applicable to the stage of completion ofa study. Accrued CRO costs are subject to revisions as such trials progress to completion. Revisions are charged to expense inthe period in which the facts that give rise to the revision become known. With respect to clinical site costs, the financialterms of these agreements are subject to negotiation and vary from contract to contract. Payments under these contracts maybe uneven, and depend on factors such as the achievement of certain events, the successful recruitment of patients, thecompletion of portions of the clinical trial or similar conditions. The objective of our policy is to match the recording ofexpenses in our financial statements to the actual services received and efforts expended. As such, expense accruals related toclinical site costs are recognized based on our estimate of the degree of completion of the event or events specified in thespecific clinical study or trial contract.98 Table of ContentsIncome TaxesIncome taxes are accounted for under the asset and liability method. Under this method, deferred tax assets andliabilities are recognized for the future tax consequences attributable to the differences between the financial statementcarrying amounts of existing assets and liabilities and their respective tax bases, operating losses, and tax creditcarryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income inthe years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuationallowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of thedeferred tax assets will not be realized.We recognize the tax benefit from an uncertain tax position only if it is more likely than not to be sustained uponexamination based on the technical merits of the position as well as consideration of the available facts and circumstances.When uncertain tax positions exist, we recognize the tax benefit of tax positions to the extent that the benefit will morelikely than not be realized. As of December 31, 2015, we do not believe any material uncertain tax positions are present.As of December 31, 2015, we had federal and state net operating loss carryforwards of approximately $15.5 millionwhich will begin expiring in 2033.Utilization of the net operating losses may be subject to a substantial annual limitation due to ownership changelimitations provided by the Internal Revenue Code of 1986, as amended. The annual limitation may result in the expirationof our net operating losses before we can use them. We have recorded a valuation allowance on all of our deferred tax assets.Stock‑based compensation and fair market value of stockWe account for stock‑based compensation in accordance with the provisions of ASC Topic 718,Compensation‑Stock Compensation, or ASC 718, which requires the recognition of expense related to the fair value ofstock‑based compensation awards in the consolidated statements of operations. For stock options issued to employees andmembers of the Company’s board of directors for their services, we estimate the grant date fair value of each option using theBlack‑Scholes option pricing model. The Black-Scholes model takes into account the expected volatility of our commonstock, the risk-free interest rate, the estimated life of the option, the closing market price of our common stock and theexercise price. The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application ofmanagement judgment. In addition, we are required to estimate the expected forfeiture rate and only recognize expense forthose equity awards expected to vest. For awards subject to service-based vesting conditions, we recognize stock-basedcompensation expense on a straight-line basis over the requisite service period, which is generally the vesting term. Forawards subject to performance-based vesting conditions, we recognize stock-based compensation expense using theaccelerated attribution method when it is probable that the performance condition will be achieved.For stock‑based payments issued to non‑employees, compensation expense is determined at the “measurementdate,” which is the earlier of (i) the date at which a commitment for performance by the counterparty to earn the equityinstrument is reached or (ii) the date at which the counterparty’s performance is complete. The expense is recognized over thevesting period of the award. Until the measurement date is reached, the total amount of compensation expense remainsuncertain. We record compensation expense based on the fair value of the award at the reporting date. The awards tonon‑employees are then revalued, or the total compensation is recalculated based on the then‑current fair value, at eachsubsequent reporting date.99 Table of ContentsResults of OperationsComparison of the Years Ended December 31, 2015 and 2014The following table summarizes our results of operations for the years ended December 31, 2015 and 2014: Year ended December 31, 2015 2014 Operating expenses: Research and development $6,776,987 $4,279,200 General and administrative 2,419,289 1,392,830 Total operating expenses 9,196,276 5,672,030 Loss from operations (9,196,276) (5,672,030) Interest and amortization of debt discount/premium income 914,952 2,233,338 Tax credit — 184,139 Change in fair value of warrant liability (108,539) (57,106) Change in fair value of embedded derivative liabilities 274,800 182,000 Loss on extinguishment of debt (2,444,516) (2,870,903) Net loss $(10,559,579) $(6,000,562) Research and Development Expenses. Our research and development expenses for the year ended December 31,2015 were $6.8 million, compared to $4.3 million for the year ended December 31, 2014, an increase of $2.5 million. Theincrease was primarily due to increased clinical trial expenses related to the initiation of our Phase 3 trial in pain associatedwith CRPS with AXS‑02, increased manufacturing expenses for our two lead product candidates, AXS‑02 and AXS‑05, andan increase in personnel costs and stock compensation expense in 2015. We expect increased research and developmentexpenses in 2016 as compared to 2015 in connection with the conduct of our Phase 3 clinical trials. General and Administrative Expenses. Our general and administrative expenses for the year ended December 31,2015 were $2.4 million, as compared to $1.4 million for the year ended December 31, 2014, an increase of $1.0 million. Theincrease was primarily due to an increase in personnel costs, stock compensation expense, and professional fees associatedwith becoming a public company. General and administrative expenses are expected to increase in 2016 as compared to2015 primarily associated with the costs of being a public company. Interest and Amortization of Debt Discount/Premium Income. Interest and amortization of debt discount/premiumincome for the year ended December 31, 2015 was $0.9 million, as compared to $2.2 million for the year ended December 31,2014, a decrease of $1.3 million. The decrease was primarily due to incurring non‑cash income of $2.4 million during theyear ended December 31, 2014 related to the amortization of debt premium associated with the June 2014 amendment of ourconvertible notes, which was partially offset by $1.6 million of non‑cash income recognized in the year ended December 31,2015 primarily related to the accelerated amortization of debt premium associated with the automatic conversion of ouroutstanding convertible notes upon our IPO. In addition, during the year ended December 31, 2015, we incurred an increaseof approximately $0.4 million in non‑cash interest expense, as compared to the year ended December 31, 2014, related to ourthen-outstanding convertible notes.Tax Credit. During the year ended December 31, 2014, we received the NYC Biotech credit in the amount of$0.2 million related to the research and development expenses of our product candidates. There was no tax credit receivedduring the year ended December 31, 2015.Change in Fair Value of Warrant Liability. We recorded expense related to the change in fair value of our warrantliability for the year ended December 31, 2015 of $108,539, as compared to $57,106 for the year ended December 31, 2014,an increase of $51,433. 100 Table of ContentsChange in Fair Value of Embedded Derivative Liabilities. We recorded income related to the change in fair valueof our embedded derivative liabilities of $274,800 for the year ended December 31, 2015, as compared to $182,000 for theyear ended December 31, 2014, an increase of $92,800.Loss on Extinguishment of Debt. During the year ended December 31, 2015, we amended the conversion provisionin our convertible notes issued from September 2014 through July 2015. The amendment was deemed to be a substantivechange resulting in a $2.4 million loss on extinguishment of debt. The difference between the fair value and the face value ofthe amended notes was recorded as a premium to the convertible notes and was amortized over the remaining life of thenotes. During the year ended December 31, 2014, we amended our convertible notes issued from June 2013 throughOctober 2013 in order to allow automatic conversion of the notes at maturity. The amendment was deemed to be asubstantive change resulting in a $2.9 million loss on extinguishment of debt with an offsetting premium to the convertiblenotes. The premium was amortized on a pro rata basis attributable to the individual convertible note issuances throughOctober 2014.Comparison of the Years Ended December 31, 2014 and 2013The following table summarizes our results of operations for the years ended December 31, 2014 and 2013: Year ended December 31, 2014 2013 Operating expenses: Research and development $4,279,200 $1,535,255 General and administrative 1,392,830 304,183 Total operating expenses 5,672,030 1,839,438 Loss from operations (5,672,030) (1,839,438) Interest and amortization of debt discount/premium income (expense) 2,233,338 (327,192) Tax credit 184,139 — Change in fair value of warrant liability (57,106) — Change in fair value of embedded derivative liabilities 182,000 — Loss on extinguishment of debt (2,870,903) — Net loss $(6,000,562) $(2,166,630) Research and Development Expenses. Our research and development expenses for the year ended December 31,2014 were $4.3 million, compared to $1.5 million for the year ended December 31, 2013, an increase of $2.8 million. Theincrease was primarily due to increased clinical trial, preclinical, and manufacturing expenses for our two lead productcandidates, AXS‑02 and AXS‑05, in addition to the hiring of personnel in 2014.General and Administrative Expenses. Our general and administrative expenses for the year ended December 31,2014 were $1.4 million, as compared to $0.3 million for the year ended December 31, 2013, an increase of $1.1 million. Theincrease was primarily due to an increase in intellectual property and professional fees.Interest and Amortization of Debt Discount/Premium Income (Expense). Interest and amortization of debtdiscount/premium income (expense) for the year ended December 31, 2014 was income of $2.2 million, as compared tointerest expense of $0.3 million for the year ended December 31, 2013. The change of $2.5 million was due to incurringnon‑cash income of $2.9 million related to the amortization of debt premium associated with the June 2014 amendment ofconvertible notes issued from June 2013 through October 2013, partially offset by an increase of amortization and non‑cashinterest expense in 2014 related to our convertible notes.Tax Credit. In 2014, we received the NYC Biotech credit in the amount of $0.2 million related to the research anddevelopment expenses of our product candidates. There was no tax credit received in 2013.Change in Fair Value of Warrant Liability. We recorded expense related to the change in fair value of our warrantliability of $0.1 million for the year ended December 31, 2014. There was no warrant liability recorded for the year endedDecember 31, 2013.101 Table of ContentsChange in Fair Value of Embedded Derivative Liabilities. We recorded income related to the change in fair valueof our embedded derivative liabilities of $0.2 million for the year ended December 31, 2014. There was no embeddedderivative liabilities recorded for the year ended December 31, 2013.Loss on Extinguishment of Debt. During June 2014, we amended our convertible notes issued from June 2013through October 2013 in order to allow automatic conversion of the notes at maturity. The amendment was deemed to be asubstantive change resulting in a $2.9 million loss on extinguishment of debt with an offsetting premium to the convertiblenotes. The premium was amortized on a pro rata basis attributable to the individual convertible note issuances throughOctober 2014.Liquidity and Capital ResourcesIn November 2015, we completed our IPO, in which we sold 5,666,667 shares of common stock at a public offeringprice of $9.00 per share. We received gross proceeds of approximately $51.0 million and net proceeds of approximately$45.5 million, after deducting underwriting discounts and commissions and offering-related transaction costs. At December 31, 2015, we had cash of $48.0 million. We currently anticipate our cash to be sufficient to fund ouranticipated operating cash requirements into the third quarter of 2017. Because the process of evaluating product candidatesin clinical trials is costly and the timing of progress in these trials is uncertain, it is possible that the assumptions upon whichwe have based this estimate may prove to be wrong, and we could use our capital resources sooner than we currently expect.Cash FlowsThe following table summarizes our primary sources and uses of cash for the periods indicated: Year ended December 31, 2015 2014 2013 Net cash (used in) provided by: Operating activities $(7,438,991) $(4,596,394) $(1,631,065) Investing activities (20,195) — — Financing activities 52,877,631 5,126,366 3,717,282 Net increase in cash $45,418,445 $529,972 $2,086,217 Operating Activities. Net cash used in operating activities for the year ended December 31, 2015 was $7.4 millionas compared to $4.6 million for the year ended December 31, 2014. The increase of $2.8 million in net cash used wasprimarily related to an increase in expenditures for our clinical programs, including the initiation of our AXS-02 Phase 3 trialin pain associated with CRPS, as well as an increase in general and administrative expenses related to our becoming a publiccompany.Net cash used in operating activities for the year ended December 31, 2014 was $4.6 million as compared to$1.6 million for the year ended December 31, 2013. The increase of $3.0 million in net cash used was primarily related to anincrease in expenditures for our clinical programs and the hiring of personnel, which is partially offset by an increase inaccounts payable, prepaid expenses and other current assets.Investing Activities. Cash used in investing activities for the purchase of property and equipment was less than$0.1 million for the year ended December 31, 2015. Cash used in investing activities was zero for the years endedDecember 31, 2014 and 2013. Financing Activities. Net cash provided by financing activities was $52.9 million for the year ended December 31,2015 as compared to $5.1 million for the year ended December 31, 2014. The increase of $47.8 million was related to the netproceeds of $45.5 million received from our IPO in November 2015 as well as net proceeds of $7.4102 Table of Contentsmillion received from convertible notes issued in 2015, which is an increase of $2.2 million in net proceeds received fromconvertible notes as compared to those received from convertibles notes issued in 2014.Net cash provided by financing activities was $5.1 million for the year ended December 31, 2014 as compared to$3.7 million for the year ended December 31, 2013. The increase of $1.4 million was primarily related to an increase in netproceeds from the issuance of convertible notes in 2014.Funding requirementsWe have not achieved profitability since our inception and we expect to continue to incur significant losses for theforeseeable future. We expect our losses to increase as we continue the development of and seek regulatory approvals for ourproduct candidates and begin to commercialize any approved products. We are subject to all of the risks pertinent to thedevelopment of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays, andother unknown factors that may harm our business.We anticipate that we will need to raise substantial additional financing in the future to fund our operations. In orderto meet these additional cash requirements, we may incur debt, license certain intellectual property, and seek to selladditional equity or convertible securities that may result in dilution to our stockholders. If we raise additional funds throughthe issuance of equity or convertible securities, these securities could have rights or preferences senior to those of ourcommon stock and could contain covenants that restrict our operations. There can be no assurance that we will be able toobtain additional equity or debt financing on terms acceptable to us, if at all. Our future capital requirements will depend onmany factors, including:·the scope, rate of progress, results, and cost of our clinical studies and other related activities;·our ability to enter into collaborative agreements for the development and commercialization of our productcandidates;·the number and development requirements of any other product candidates that we pursue;·the costs, timing, and outcome of regulatory reviews of our product candidates;·the costs and timing of future commercialization activities, including product manufacturing, marketing, sales, anddistribution, for any of our product candidates for which we receive marketing approval;·any product liability or other lawsuits related to our product candidates;·the expenses needed to attract and retain skilled personnel;·the general and administrative expenses related to being a public company;·the revenue, if any, received from commercial sales of our product candidates for which we receive marketingapproval; and·the costs involved in preparing, filing, and prosecuting patent applications, maintaining and enforcing ourintellectual property rights, and defending our intellectual property‑related claims.Please see “Risk Factors” for additional risks associated with our substantial capital requirements.Contractual Obligations and CommitmentsUnder three exclusive license agreements with Antecip Bioventures II LLC, or Antecip, an entity owned by ourChief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., we are obligated to make specified royaltypayments ranging from 1.5% to 4.5%, subject to up to a 50% reduction depending on required payments to third parties, onnet sales of licensed products. The amount, timing, and likelihood of such payments are not known. For a more detaileddescription of these agreements, please see “Business—Material License Agreements.”103 Table of ContentsOff‑Balance Sheet ArrangementsWe did not have during the periods presented, and we do not currently have, any off‑balance sheet arrangements, asdefined by applicable SEC regulations.JOBS ActWe are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBSAct. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issuedsubsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We haveirrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will besubject to the same new or revised accounting standards as other public companies that are not emerging growth companies.Recent Accounting PronouncementsIn April 2015, the FASB issued Accounting Standards Updates, or ASU, 2015‑03, Interest—Imputation of Interest(Subtopic 835‑30). The update requires debt issuance costs related to a recognized debt liability to be presented in thebalance sheet as a direct deduction from the debt liability rather than as an asset. The guidance is effective for fiscal yearsbeginning after December 15, 2015. We early adopted this guidance for all periods presented.In August 2014, the FASB issued ASU 2014‑15, Presentation of Financial Statements—Going Concern (Subtopic205‑40), which requires management of an entity to evaluate whether there are conditions or events, considered in theaggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the datethat the financial statements are issued or available to be issued. The guidance is effective for fiscal years ending afterDecember 15, 2016. Early adoption is permitted. We expect to adopt this guidance when effective and are currentlyevaluating the effect that the updated standard will have on our financial statements and related disclosures.In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. The newstandard requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. The standardis effective for interim and annual periods beginning after December 15, 2016. We do not expect this standard to have amaterial impact on our financial statements due to the full valuation allowance recorded on our deferred taxes. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKInterest Rate RiskWe are exposed to market risks in the ordinary course of our business. These market risks are principally limited tointerest rate fluctuations. We had cash of $48.0 million as of December 31, 2015. The primary objective of our investmentactivities is to preserve principal and liquidity while maximizing income without significantly increasing risk. We do notenter into investments for trading or speculative purposes. Due to the short‑term nature of our investment portfolio, we do notbelieve an immediate 10% increase in interest rates would have a material effect on the fair market value of our portfolio,and, accordingly, we do not expect our operating results or cash flows to be materially affected by a sudden change in marketinterest rates.Foreign Currency Exchange RiskWe contract with vendors and third‑party manufacturers in several foreign countries. Several of these contracts aredenominated in Euros, British pounds, and Australian dollars. We are therefore subject to fluctuations in foreign currencyrates in connection with these agreements, and recognize foreign exchange gains or losses in our statement of operations. Wehave not historically hedged our foreign currency exchange rate risk. To date, we have not incurred any material effects fromforeign currency changes on these contracts.104 Table of ContentsWe do not believe a 10% change in these currencies on December 31, 2015 would have had a material effect on ourresults of operations or financial condition.Inflation RiskInflation generally affects us by increasing our cost of labor and pricing of contracts. We do not believe thatinflation has had a material effect on our business, financial condition, or results of operations during the year endedDecember 31, 2015. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Our consolidated financial statements and the notes thereto, included in Part IV, Item 15(a), part 1, are incorporatedby reference into this Item 8. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE. None. ITEM 9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief ExecutiveOfficer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as ofDecember 31, 2015. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under theExchange Act, mean controls and other procedures of a company that are designed to ensure that information required to bedisclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in the SEC's rules and forms. Disclosure controls include, without limitation, controls andprocedures designed to ensure that information required to be disclosed by a company in the reports that it files or submitsunder the Exchange Act is accumulated and communicated to management, including our principal executive and principalfinancial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that anycontrols and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving theirobjectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controlsand procedures. Based on the evaluation of our disclosure controls and procedures as of December 31, 2015, our chiefexecutive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures wereeffective at the reasonable level.Management’s Annual Report on Internal Control over Financial Reporting. This Annual Report on Form 10-Kdoes not include a report of management’s assessment regarding internal control over financial reporting or an attestationreport of our independent registered public accounting firm due to a transition period established by the rules of the SEC fornewly public companies.Changes in Internal Control over Financial Reporting. No change in our internal control over financial reportingoccurred during the quarter ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect,our internal control over financial reporting.Inherent Limitations on Effectiveness of Controls. Our management, including our Chief Executive Officer andPrincipal Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. Acontrol system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that theobjectives of the control system are met. Further, the design of a control system must reflect the fact that there are resourceconstraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any,within our Company have been detected. ITEM 9B. OTHER INFORMATION. None.105 Table of ContentsPART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2016Annual Meeting of Stockholders or will be included in an amendment to this Annual Report on Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2016Annual Meeting of Stockholders or will be included in an amendment to this Annual Report on Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS. The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2016Annual Meeting of Stockholders or will be included in an amendment to this Annual Report on Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2016Annual Meeting of Stockholders or will be included in an amendment to this Annual Report on Form 10-K. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The information required by this Item is incorporated herein by reference from our Proxy Statement for our 2016Annual Meeting of Stockholders or will be included in an amendment to this Annual Report on Form 10-K.106 Table of ContentsPART IV ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES. (a)1.Consolidated Financial Statements The following consolidated financial statements of Axsome Therapeutics, Inc. are filed as part of this report. ContentsPage Report of Independent Registered Public Accounting Firm F-1 Consolidated Balance Sheets as of December 31, 2015 and 2014 F-2 Consolidated Statements of Operations for the Years Ended December 31, 2015, 2014 and 2013 F-3 Consolidated Statements of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2015, 2014 and2013 F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 2015, 2014 and 2013 F-5 Notes to the Consolidated Financial Statements F-6 2.Consolidated Financial Statement Schedules All schedules are omitted as the information required is inapplicable or the information is presented in theconsolidated financial statements or the related notes. 3.Exhibits The list of exhibits filed with this report is set forth in the Exhibit Index following the signature page and isincorporated herein by reference. 107 Table of Contents Axsome Therapeutics, Inc.Index to Consolidated Financial Statements PageReport of Independent Registered Public Accounting Firm F‑1Consolidated Balance Sheets as of December 31, 2015 and 2014 F‑2Consolidated Statements of Operations for the years ended December 31, 2015, 2014, and 2013 F‑3Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2015, 2014, and 2013 F‑4Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014, and 2013 F‑5Notes to Consolidated Financial Statements F‑6 108 Table of ContentsReport of Independent Registered Public Accounting Firm The Board of Directors and StockholdersAxsome Therapeutics, Inc. We have audited the accompanying consolidated balance sheets of Axsome Therapeutics, Inc. (the “Company”) asof December 31, 2015 and 2014, and the related consolidated statements of operations, stockholders’ equity (deficit) andcash flows for each of the three years in the period ended December 31, 2015. These financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements basedon our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internalcontrol over financial reporting. Our audits included consideration of internal control over financial reporting as a basis fordesigning audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An auditalso includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,assessing the accounting principles used and significant estimates made by management, and evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidatedfinancial position of Axsome Therapeutics, Inc. at December 31, 2015 and 2014, and the consolidated results of itsoperations and its cash flows for each of the three years in the period ended December 31, 2015, in conformity with U.S.generally accepted accounting principles./s/ Ernst & Young LLP New York, New YorkMarch 24, 2016F-1 Table of ContentsAxsome Therapeutics, Inc.Consolidated Balance Sheets December 31, 2015 2014 Assets Current assets: Cash $48,036,260 $2,617,815 Prepaid and other current assets 996,618 125,945 Total current assets 49,032,878 2,743,760 Equipment, net 16,653 — Other assets 26,625 — Deferred financing fees — 42,620 Total assets $49,076,156 $2,786,380 Liabilities and stockholders’ equity (deficit) Current liabilities: Accounts payable $1,892,363 $758,159 Accrued expenses 739,532 36,753 Loan from related party — 41,469 Warrant liability — 136,235 Total current liabilities 2,631,895 972,616 Convertible notes, net of discounts, non-current portion — 4,441,415 Interest payable, non-current portion — 78,524 Embedded derivative liabilities — 496,400 Total liabilities 2,631,895 5,988,955 Stockholders’ equity (deficit): Preferred stock, $0.0001 par value per share (10,000,000 and 0 shares authorized, noneissued and outstanding at December 31, 2015 and 2014, respectively) — — Common stock, $0.0001 par value per share (150,000,000 and 14,689,000 sharesauthorized, 19,149,417 and 11,108,144 shares issued and outstanding atDecember 31, 2015 and 2014, respectively) 1,915 1,111 Additional paid-in capital 65,231,144 5,025,533 Accumulated deficit (18,788,798) (8,229,219) Total stockholders’ equity (deficit) 46,444,261 (3,202,575) Total liabilities and stockholders’ equity (deficit) $49,076,156 $2,786,380 The accompanying notes are an integral part of the consolidated financial statements.F-2 Table of ContentsAxsome Therapeutics, Inc.Consolidated Statements of Operations Year ended December 31, 2015 2014 2013 Operating expenses: Research and development $6,776,987 $4,279,200 $1,535,255 General and administrative 2,419,289 1,392,830 304,183 Total operating expenses 9,196,276 5,672,030 1,839,438 Loss from operations (9,196,276) (5,672,030) (1,839,438) Interest and amortization of debt discount/premium income (expense) 914,952 2,233,338 (327,192) Tax credit — 184,139 — Change in fair value of warrant liability (108,539) (57,106) — Change in fair value of embedded derivative liabilities 274,800 182,000 — Loss on extinguishment of debt (2,444,516) (2,870,903) — Net loss $(10,559,579) $(6,000,562) $(2,166,630) Net loss per common share, basic and diluted $(0.88) $(0.66) $(0.28) Weighted average common shares outstanding, basic and diluted 11,945,318 9,099,188 7,690,572 The accompanying notes are an integral part of the consolidated financial statements.F-3 Table of ContentsAxsome Therapeutics, Inc.Consolidated Statements of Stockholders’ Equity (Deficit) Common stock Additional Subscription Accumulated Totalstockholders’ Shares Amount paid-in capital receivable deficit equity(deficit) Balance at December 31, 2012 7,690,572 $769 $4,331 $(5,100) $(62,027) $(62,027) Stock-based compensation — — 55,281 — — 55,281 Issuance of warrants — — 145,565 — — 145,565 Net loss — — — — (2,166,630) (2,166,630) Balance at December 31, 2013 7,690,572 769 205,177 (5,100) (2,228,657) (2,027,811) Stock-based compensation — — 376,806 — — 376,806 Issuance of common stock for conversion ofconvertible notes 3,417,572 342 4,443,550 — — 4,443,892 Collection of subscription receivable — — — 5,100 — 5,100 Net loss — — — — (6,000,562) (6,000,562) Balance at December 31, 2014 11,108,144 1,111 5,025,533 — (8,229,219) (3,202,575) Stock-based compensation — — 803,279 — — 803,279 Issuance of common stock in initial publicoffering, net of expenses 5,666,667 567 45,505,934 — — 45,506,501 Issuance of common stock upon conversion ofconvertible notes 2,374,606 237 13,651,624 — — 13,651,861 Reclassification of warrant liability — — 244,774 — — 244,774 Net loss — — — — (10,559,579) (10,559,579) Balance at December 31, 2015 19,149,417 $1,915 $65,231,144 $ — $(18,788,798) $46,444,261 The accompanying notes are an integral part of the consolidated financial statements.F-4 Table of ContentsAxsome Therapeutics, Inc.Consolidated Statements of Cash Flows Year ended December 31, 2015 2014 2013 Cash flows from operating activities Net loss $(10,559,579) $(6,000,562) $(2,166,630) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 803,279 376,806 55,281 Amortization of debt (premium) discount (1,608,798) (2,649,190) 130,546 Amortization of debt issuance costs 7,757 143,813 60,961 Non-cash interest expense 698,826 272,039 135,685 Change in fair value of warrant and embedded derivative liabilities (166,261) (124,894) — Loss on extinguishment of debt 2,444,516 2,870,903 — Depreciation 3,542 — — Changes in operating assets and liabilities: Prepaid expenses and other current assets (870,673) (116,413) (9,532) Other assets (26,625) — — Accounts payable 1,134,204 598,836 158,139 Accrued expenses 700,821 32,268 4,485 Net cash used in operating activities (7,438,991) (4,596,394) (1,631,065) Cash flows from investing activities Purchases of equipment (20,195) — — Net cash used in investing activities (20,195) — — Cash flows from financing activities Proceeds from issuance of convertible notes 7,382,468 5,209,886 3,775,265 Debt issuance costs (12,489) (25,000) (57,983) Deferred financing fees — (42,620) — Proceeds from initial public offering, net 45,549,121 — — Receipt of subscription receivable — 5,100 — Payment of loan from related party (41,469) (21,000) — Net cash provided by financing activities 52,877,631 5,126,366 3,717,282 Net increase in cash 45,418,445 529,972 2,086,217 Cash at beginning of period 2,617,815 2,087,843 1,626 Cash at end of period $48,036,260 $2,617,815 $2,087,843 Supplemental disclosures of non-cash financing activity: Warrants issued to placement agent for offering costs $— $79,129 $145,565 Conversion of convertible notes to common stock $13,651,861 $4,443,892 $— The accompanying notes are an integral part of the consolidated financial statements.F-5 Table of ContentsAxsome Therapeutics, Inc.Notes to Consolidated Financial Statements Note 1.Nature of Business and Basis of PresentationAxsome Therapeutics, Inc. (“Axsome” or the “Company”) is a clinical stage biopharmaceutical companydeveloping novel therapies for central nervous system, or CNS, disorders including pain. By focusing on this therapeuticarea, the Company is addressing significant and growing markets where current treatment options are limited or inadequate.The Company’s product candidate portfolio includes two late‑stage candidates, AXS‑02 and AXS‑05, which are beingdeveloped for multiple indications. The Company aims to become a fully integrated biopharmaceutical company thatdevelops and commercializes differentiated therapies that expand the treatment options available to caregivers and improvethe lives of patients living with CNS disorders. The Company was incorporated on January 12, 2012 in the State of Delaware.The accompanying consolidated financial statements have been prepared in conformity with accounting principlesgenerally accepted in the United States of America (“GAAP”) and include all adjustments necessary for the fair presentationof the Company’s financial position for the periods presented. The consolidated financial statements include the accounts ofthe Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminatedduring the consolidation process.Amendment to Certificate of IncorporationOn October 30, 2015, the Company filed an amendment to its Certificate of Incorporation whereby the Company(i) increased the number of authorized shares of common stock to 25,000,000 shares and (ii) effectuated a 7.3445‑for‑1forward stock split of its common stock. Fractional shares resulting from the stock split were rounded down to the next wholeshare and in lieu of any fractional shares the Company will pay a cash amount to the holder of such fractional share equal tothe fair market value of such fractional share as determined by the Company’s board of directors. The accompanying auditedfinancial statements and notes to the financial statements give retroactive effect to this stock split for all periods presented.In connection with the completion of the Company’s initial public offering (“IPO”) on November 24, 2015, theCompany’s stockholders approved an amended and restated Certificate of Incorporation, in which its authorized capitalstock consists of 150,000,000 shares of common stock and 10,000,000 shares of preferred stock, par value $0.0001 per share.Liquidity and Capital ResourcesThe Company has incurred operating losses since its inception, and expects to continue to incur operating lossesfor the foreseeable future and may never become profitable. As of December 31, 2015, the Company had an accumulateddeficit of $18.8 million.In November 2015, the Company completed its IPO, whereby it sold 5,666,667 shares of common stock at a publicoffering price of $9.00 per share. The Company received gross proceeds of approximately $51.0 million and net proceeds ofapproximately $45.5 million, after deducting underwriting discounts and commissions and offering-related transaction costs. The Company’s primary sources of cash have been proceeds from its IPO and through private placements of itsconvertible notes. The Company has not yet commercialized any of its product candidates and cannot be sure if it will everbe able to do so. Even if the Company commercializes one or more of its product candidates, it may not become profitable.The Company’s ability to achieve profitability depends on a number of factors, including its ability to obtain regulatoryapproval for its product candidates, successfully complete any post-approval regulatory obligations and successfullycommercialize its product candidates alone or in partnership. The Company may continue to incur substantial operatinglosses even if it begins to generate revenues from its product candidates.F-6 Table of Contents As of December 31, 2015, the Company had $48.0 million in cash. The Company currently anticipates its cash tobe sufficient to fund its anticipated operating cash requirements into the third quarter of 2017. The actual amount of cash thatthe Company will need to operate is subject to many factors, including, but not limited to, the timing, design and conduct ofclinical trials for its product candidates. The Company is dependent upon significant future financing to provide the cashnecessary to execute its current operations, including the commercialization of any of its product candidates. The Company’s common stock is listed on the NASDAQ Capital Market and trades under the symbol “AXSM.” Note 2.Summary of Significant Accounting PoliciesSignificant Risks and UncertaintiesThe Company’s operations are subject to a number of factors that can affect its operating results and financialcondition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’sproduct candidates; the Company’s ability to obtain regulatory approval to market its products, if approved; competitionfrom products manufactured and sold or being developed by other companies; the price of, and demand for, Companyproducts, if approved; the Company’s ability to negotiate favorable licensing or other manufacturing and marketingagreements for its products, if approved; and the Company’s ability to raise additional financing. If the Company does notsuccessfully commercialize any of its product candidates, it will be unable to generate recurring product revenue or achieveand maintain profitability.Use of EstimatesManagement considers many factors in developing the estimates and assumptions that are used in the preparation ofthese financial statements. Management must apply significant judgment in this process. In addition, other factors may affectestimates, including expected business and operational changes, sensitivity and volatility associated with the assumptionsused in developing estimates, and whether historical trends are expected to be representative of future trends. The estimationprocess often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management mustselect an amount that falls within that range of reasonable estimates. This process may result in actual results differingmaterially from those estimated amounts used in the preparation of the financial statements if these results differ fromhistorical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions arereasonable when made. In preparing these financial statements, management used significant estimates in the following areas,among others: stock‑based compensation expense; the determination of the fair value of the warrant and embeddedderivative liabilities; the accounting for research and development costs; and the recoverability of the Company’s netdeferred tax assets and related valuation allowance.Prior to being a public company, the Company utilized significant estimates and assumptions in determining thefair value of its common stock. The Company granted stock options at exercise prices not less than the fair market value ofits common stock as determined by the board of directors, with input from management. The board of directors determinedthe estimated fair value of the Company’s common stock based on a number of objective and subjective factors, includingexternal market conditions affecting the biotechnology industry, the prices at which the Company issued convertible notes,and the likelihood of achieving a liquidity event, such as an IPO or sale of the Company.Segment and Geographic InformationOperating segments are defined as components of an enterprise for which separate discrete information is availablefor evaluation by the chief operating decision maker or decision making group, in deciding how to allocate resources and inassessing performance. The Company views its operations and manages its business as one operating segment, which is thebusiness of developing novel therapies for the management of CNS disorders.F-7 Table of ContentsCash EquivalentsThe Company considers all highly liquid investments that have maturities of three months or less when acquired tobe cash equivalents. Cash equivalents are valued at cost, which approximates their fair value. There were no cash equivalentsat December 31, 2015 and 2014.Concentration of Credit RiskFinancial instruments that potentially subject the Company to a concentration of credit risk consist of cash. TheCompany maintains its cash at financial institutions, which at times, exceed federally insured limits. At December 31, 2015,the Company’s cash was held by one financial institution and the amount on deposit was in excess of FDIC insurance limits.The Company has not recognized any losses from credit risks on such accounts since inception. The Company believes it isnot exposed to significant credit risk on cash.Fair Value of Financial InstrumentsFair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exitprice) in the principal or most advantageous market for the asset or liability in an orderly transaction between marketparticipants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three‑level fairvalue hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputsand minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to accessat the measurement date.Level 2—Inputs other than quoted prices in active markets that are observable for the asset or liability, eitherdirectly or indirectly.Level 3—Inputs that are unobservable for the asset or liability.To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, thedetermination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company indetermining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair valuehierarchy is based on the lowest level of any input that is significant to the fair value measurement.The carrying amounts reported in the accompanying consolidated financial statements for accounts payable andaccrued expenses approximate their respective fair values due to their short‑term maturities. The fair value of the warrant andembedded derivative liabilities are discussed in Note 3, “Fair Value Measurements.” Deferred Financing FeesThe Company capitalizes certain legal, accounting, and other third‑party fees that are directly associated with theCompany’s equity financing to deferred financing fees. Upon consummation of the financing, the fees are reclassified toadditional paid‑in capital as an offset of the proceeds.Debt Issuance CostsThe Company incurred third‑party costs, which include the issuance of warrants, in connection with certainissuances of convertible notes as described in Note 6. These costs are classified on the consolidated balance sheet as a directdeduction from the debt liability.F-8 Table of ContentsEquipmentEquipment consists of computer equipment and is recorded at cost. Equipment is depreciated on a straight‑line basisover its estimated useful life, which the Company estimates to be three years. When equipment is sold or otherwise disposedof, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included inoperating expenses.Research and Development CostsResearch and development expenses primarily consist of costs incurred in performing research and developmentactivities, including preclinical studies, clinical trials, manufacturing costs, employee salaries and benefits, stock‑basedcompensation expense, contract services, including external research and development expenses incurred underarrangements with third parties, such as contract research organizations (“CROs”), facilities costs, overhead costs,depreciation, and other related costs.Generally, research and development costs are expensed as incurred. Nonrefundable advance payments for goods orservices that will be used or rendered for future research and development activities are deferred and amortized over theperiod that the goods are delivered or the related services are performed, subject to an assessment of recoverability. TheCompany makes estimates of costs incurred in relation to external clinical research organizations, or CROs, and clinical sitecosts. The Company analyzes the progress of clinical trials, including levels of patient enrollment, invoices received andcontracted costs when evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability.Significant judgments and estimates must be made and used in determining the accrued balance and expense in anyaccounting period. The Company reviews and accrues CRO expenses and clinical trial study expenses based on workperformed and relies upon estimates of those costs applicable to the stage of completion of a study. Accrued CRO costs aresubject to revisions as such trials progress to completion. Revisions are charged to expense in the period in which the factsthat give rise to the revision become known. With respect to clinical site costs, the financial terms of these agreements aresubject to negotiation and vary from contract to contract. Payments under these contracts may be uneven, and depend onfactors such as the achievement of certain events, the successful recruitment of patients, the completion of portions of theclinical trial or similar conditions. The objective of our policy is to match the recording of expenses in our financialstatements to the actual services received and efforts expended. As such, expense accruals related to clinical site costs arerecognized based on our estimate of the degree of completion of the event or events specified in the specific clinical study ortrial contract.Income TaxesIncome taxes are accounted for under the asset and liability method. Under this method, deferred tax assets andliabilities are recognized for the future tax consequences attributable to the differences between the financial statementcarrying amounts of existing assets and liabilities and their respective tax bases, operating losses, and tax creditcarryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income inthe years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets andliabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuationallowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of thedeferred tax assets will not be realized.The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not to besustained upon examination based on the technical merits of the position as well as consideration of the available facts andcircumstances. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent thatthe benefit will more likely than not be realized. As of December 31, 2015, the Company does not believe any materialuncertain tax positions are present. In the event the Company determines that accrual of interest or penalties are necessary inthe future, the amount will be presented as a component of income tax expense.F-9 Table of ContentsStock‑Based CompensationThe Company accounts for stock‑based compensation in accordance with the provisions of ASC Topic 718,Compensation‑Stock Compensation (“ASC 718”), which requires the recognition of expense related to the fair value ofstock‑based compensation awards in the consolidated statements of operations. For stock options issued to employees andmembers of the Company’s board of directors for their services, the Company estimates the grant date fair value of eachoption using the Black‑Scholes option pricing model. The Black-Scholes model takes into account the expected volatility ofthe Company’s common stock, the risk-free interest rate, the estimated life of the option, the closing market price of theCompany’s common stock and the exercise price. The estimates utilized in the Black-Scholes calculation involve inherentuncertainties and the application of management judgment. In addition, the Company is required to estimate the expectedforfeiture rate and only recognize expense for those equity awards expected to vest. For awards subject to service-basedvesting conditions, the Company recognizes stock-based compensation expense on a straight-line basis over the requisiteservice period, which is generally the vesting term. For awards subject to performance-based vesting conditions, theCompany recognizes stock-based compensation expense using the accelerated attribution method when it is probable thatthe performance condition will be achieved.For stock‑based payments issued to non‑employees, compensation expense is determined at the “measurementdate,” which is the earlier of (i) the date at which a commitment for performance by the counterparty to earn the equityinstrument is reached or (ii) the date at which the counterparty’s performance is complete. The expense is recognized over thevesting period of the award. Until the measurement date is reached, the total amount of compensation expense remainsuncertain. The Company records compensation expense based on the fair value of the award at the reporting date. The awardsto non‑employees are then revalued, or the total compensation is recalculated based on the then‑current fair value, at eachsubsequent reporting date.Basic and Diluted Net Loss per Common ShareBasic net loss per share of common stock is computed by dividing net loss by the weighted average number ofshares of common stock outstanding during the period. Diluted net loss per share of common stock includes the effect, if any,from the potential exercise or conversion of securities, such as convertible notes, warrants, and stock options, which wouldresult in the issuance of incremental shares of common stock. As the impact of these items is anti‑dilutive during periods ofnet loss, there was no difference between basic and diluted net loss per share of common stock for the years endedDecember 31, 2015 and 2014.Recent Accounting PronouncementsIn April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”)2015‑03, Interest—Imputation of Interest (Subtopic 835‑30). The update requires debt issuance costs related to a recognizeddebt liability to be presented in the balance sheet as a direct deduction from the debt liability rather than as an asset. Theguidance is effective for fiscal years beginning after December 15, 2015. The Company early adopted this guidance for allperiods presented.In August 2014, the FASB issued ASU 2014‑15, Presentation of Financial Statements—Going Concern (Subtopic205‑40), which requires management of an entity to evaluate whether there are conditions or events, considered in theaggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the datethat the financial statements are issued or available to be issued. The guidance is effective for fiscal years ending afterDecember 15, 2016. Early adoption is permitted. The Company expects to adopt this guidance when effective and iscurrently evaluating the effect that the updated standard will have on its financial statements and related disclosures.In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. The newstandard requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. The standardis effective for interim and annual periods beginning after December 15, 2016. The Company does not expect this standard tohave a material impact on its financial statements due to the full valuation allowance recorded on its deferred taxes.F-10 Table of Contents Note 3.Fair Value MeasurementsThe Company considers its warrant and embedded derivative liabilities as Level 3 fair value measurements. Thevaluation of these liabilities therefore requires inputs that reflect the Company’s own assumptions that are both significant tothe fair value measurement and unobservable.On the grant date and in subsequent periods, the Company estimated the fair value of the warrant liability using theBlack‑Scholes option pricing model, which requires inputs such as the expected volatility based on comparable publiccompanies, the estimated fair value of the common stock, and the estimated time to liquidity. In connection with the close ofthe Company’s IPO in November 2015, the warrant liability was reclassified to equity. Immediately prior to the close of theCompany’s IPO and as of December 31, 2014, the following inputs were used for the warrant liability: Immediately prior to closeof IPO December 31, 2014 Expected volatility based on comparable public companies 70% 69%Estimated fair value of the common stock $9.20 $5.75 Remaining contractual term 4 years 4.9 years The fair value of the embedded derivative liabilities related to the Company’s outstanding convertible notes wasestimated on the grant date and at each reporting period using a probability weighted estimated returns method, whichincorporated the “with‑and‑without” method to bifurcate the embedded derivatives. In September 2015, the Company andthe holders of its outstanding convertible notes amended the terms of the notes. See Note 6 “Convertible Notes” for adescription of the amendment. The amendment was deemed to be a substantive change and resulted in extinguishmentaccounting, which included the extinguishment of the embedded derivative liabilities.The Company used three different exit scenarios in valuing the embedded derivative liabilities: an initial publicoffering, a private equity financing, and a liquidation. A Monte Carlo simulation was run for each exit scenario as ofDecember 31, 2014 and immediately prior to the effective date of the note amendment, with the following inputs: Immediately prior to note amendment December 31, 2014 Expected volatility based on comparable public companies 70%70% Estimated time to liquidity 0.1 - 0.2 years 0.3 - 0.8 years Changes to these highly subjective Level 3 assumptions can have a significant impact on the fair value of thewarrant liability and the embedded derivative liabilities.F-11 Table of ContentsThe following table provides the fair value measurements of applicable financial liabilities measured at fair value ona recurring basis as of December 31, 2014: Financial liabilities at fair value as of December 31, 2014 Level 1 Level 2 Level 3 Warrant liability $— $— $136,235 Embedded derivative liabilities — — 496,400 Total $— $— $632,635 There were no financial liabilities measured at fair value on a recurring basis as of December 31, 2015.The following table sets forth a summary of changes in the fair value of Level 3 liabilities for the years endedDecember 31, 2015 and 2014: Extinguishments /Conversion of December 31, 2015 Beginning of period Issuances Change in fair value convertible notes tocommon stock End of period Warrant liability $136,235 $— $108,539 $(244,774) $ — Embedded derivative liabilities 496,400 871,000 (274,800) (1,092,600) — Total $632,635 $871,000 $(166,261) $(1,337,374) $ — December 31, 2014 Beginning of period Issuances Change in fair value End of period Warrant liability $— $79,129 $57,106 $136,235 Embedded derivative liabilities — 678,400 (182,000) 496,400 Total $— $757,529 $(124,894) $632,635 Note 4.Net Loss per Common ShareThe following table sets forth the computation of basic and diluted net loss per common share: Year ended December 31, 2015 2014 Basic and diluted net loss per common share: Net loss $(10,559,579) $(6,000,562) Weighted average common shares outstanding—basic and diluted 11,945,318 9,099,188 Net loss per common share—basic and diluted $(0.88) $(0.66) The following potentially dilutive securities outstanding at December 31, 2015 and 2014 have been excluded fromthe computation of diluted weighted average shares outstanding, as they would be anti‑dilutive: December 31, 2015 2014 Convertible notes — 1,002,459 Stock options 998,198 705,899 Warrants 272,468 272,468 1,270,666 1,980,826 F-12 Table of ContentsNote 5.Accrued ExpensesAt December 31, 2015 and 2014, accrued expenses consisted of the following: December 31, 2015 2014 Accrued compensation $330,707 $36,445Research and development 284,057 —Other 124,768 308 $739,532 $36,753Note 6.Convertible NotesDuring March 2013, the Company issued a total of $211,000 in convertible notes (“March 2013 Notes”) to severalinvestors. The March 2013 Notes accrued interest at an annual rate of 8.0% and were due and payable one year from the dateof issuance. The principal and accrued interest were convertible into shares of the Company’s common stock at the option ofthe holder, upon the occurrence of a qualified financing, as defined in the March 2013 Notes, immediately prior to theclosing of a change in control event, or on the maturity date. In March 2014, all outstanding March 2013 Notes and relatedaccrued interest converted into 175,228 shares of common stock at a conversion price of $1.30 per share.During the period from June through October 2013, the Company issued a total of $3,904,000 in convertible notesto several investors (“June 2013 Notes”). The June 2013 Notes accrued interest at an annual rate of 8.0% and were due andpayable one year from the date of issuance. The principal and accrued interest were convertible into shares of the Company’scommon stock at the option of the holder, or upon the occurrence of a qualified financing, as defined in the June 2013 Notes,in which the conversion price would be equal to the lesser of (i) 90% of the lowest price per share at which the Company’sshares of equity securities were sold or (ii) $1.30, as adjusted for capitalization change. The Company recorded an initialdiscount on the June 2013 Notes of $339,735 for fees paid directly to the placement agent.In June 2014, the Company and the holders of the June 2013 Notes amended the June 2013 Notes pursuant to whichthe June 2013 Notes and any accrued and unpaid interest would convert into shares of the Company’s common stock on thedue date at a conversion price of $1.30 (see further discussions in “—Accounting Analysis” below). In accordance with thisamendment, during the period from June 2014 through October 2014, all of the outstanding balance of the June 2013 Notesand accrued and unpaid interest converted into 3,242,344 shares of common stock.During the period from September 2014 through November 2014, the Company issued a total of $4,140,000 inconvertible notes to several investors (“September 2014 Notes”). The September 2014 Notes accrued interest at an annualrate of 8.0% and were due and payable ten years from the date of issuance. The principal and accrued interest wereconvertible into shares of the Company’s common stock upon the occurrence of a qualified financing, as defined in theSeptember 2014 Notes, in which the conversion price would be equal to the lesser of (i) 75% of the lowest price per share atwhich the Company's shares of equity securities are sold (see further discussions in “—Accounting Analysis” below), or(ii) $5.40, as adjusted for capitalization change. The Company’s IPO in November 2015 met the definition of a qualifiedfinancing, and upon the close of the IPO all of the outstanding balance of the September 2014 Notes and accrued and unpaidinterest converted into 836,202 shares of common stock.During the period from December 2014 through January 2015, the Company issued a total of $1,570,000 inconvertible notes to several investors (“December 2014 Notes”). The December 2014 Notes accrued interest at an annual rateof 8.0% and were due and payable ten years from the date of issuance. The principal and accrued interest were convertibleinto shares of the Company’s common stock upon the occurrence of a qualified financing, as defined in the December 2014Notes, in which the conversion price would be equal to the lesser of (i) 75% of the lowest price per share at which theCompany's shares of equity securities are sold (see further discussions in “—Accounting Analysis” below), or (ii) $5.94, asadjusted for capitalization change. The Company’s IPO in November 2015 met the definition of aF-13 Table of Contentsqualified financing, and upon the close of the IPO all of the outstanding balance of the December 2014 Notes and accruedand unpaid interest converted into 283,131 shares of common stock.During the period from May 2015 through July 2015, the Company issued a total of $7,166,469 in convertiblenotes (“2015 Notes”). The 2015 Notes accrued interest at an annual rate of 8.0% and were due and payable ten years from thedate of issuance. The principal and accrued interest were convertible into shares of the Company’s common stock upon theoccurrence of a qualified financing, as defined in the 2015 Notes, in which the conversion price would be equal to the lesserof (i) 75% of the lowest price per share at which the Company's shares of equity securities are sold (see further discussions in“—Accounting Analysis” below), or (ii) $5.94, as adjusted for capitalization change. The Company’s IPO in November 2015met the definition of a qualified financing, and upon the close of the IPO all of the outstanding balance of the 2015 Notesand accrued and unpaid interest converted into 1,255,273 shares of common stock.In September 2015, the Company and the holders of its outstanding convertible notes amended the terms of theSeptember 2014 Notes, December 2014 Notes, and 2015 Notes to provide that the principal and any accrued and unpaidinterest would automatically convert into shares of the Company’s common stock upon the occurrence of an equityfinancing of at least $2.0 million in gross aggregate cash proceeds at a conversion price equal to the applicable fixedconversion price for the notes; provided, however, if the lowest price per share at which the shares of equity securities weresold in such equity financing is less than the applicable fixed conversion price, then the note conversion price would equal75% of the lowest price per share at which the shares of equity securities are sold (see further discussions in “—AccountingAnalysis” below).Accounting AnalysisThe June 2014 amendment of the June 2013 Notes, pursuant to which the June 2013 Notes plus any accrued andunpaid interest automatically converted into shares of the Company’s common stock on the due date, was consideredsubstantive. As such, the June 2013 Notes were considered extinguished, and the amended notes were recorded at fair value.The difference between the fair value of the amended notes of $6,691,000, which was measured using the backsolve method,and the carrying value of the extinguished notes of $3,820,097 was recorded as a loss on extinguishment of debt in theCompany’s consolidated financial statements. The difference between the fair value and the face value of the amended noteswas recorded as a premium to the notes and amortized over the remaining life of the notes. The amortization of the premiumis included in interest and amortization of debt discount/premium income (expense) in the consolidated statements ofoperations.The September 2014 Notes, December 2014 Notes, and 2015 Notes each included a redemption provision, which isan embedded derivative. These embedded derivatives required bifurcation from the host debt instrument. The Companyaggregated these bifurcated features and reflected the values of these embedded derivatives in the account “embeddedderivative liabilities” that was re‑measured at each reporting period and any changes in fair value was recognized in theconsolidated statements of operations. See Note 3, “Fair Value Measurements.”The September 2015 amendment to the September 2014 Notes, December 2014 Notes, and 2015 Notes amended theconversion provision, which was considered substantive. As such, the September 2014 Notes, December 2014 Notes, and2015 Notes were considered extinguished, and the amended notes were recorded at fair value. The difference between the fairvalue of the amended notes of $15,146,410 and the carrying value of the extinguished notes of $12,701,894 was recorded asa loss on extinguishment of debt in the Company’s consolidated financial statements. The difference between the fair valueand the face value of the amended notes was recorded as a premium to the notes and amortized over the remaining life of thenotes. The amortization of the premium is included in interest and amortization of debt discount/premium income (expense)in the consolidated statements of operations.F-14 Table of ContentsAs of December 31, 2015 and 2014, the convertible notes consisted of the following: December 31, 2015 2014 Face value $ — $5,455,000 Debt (discount) premium, net — (1,013,585) Net carrying amount $ — $4,441,415 (1)Debt discount includes the estimated fair value of the warrants issued to the placement agent of the convertible notesand the bifurcated embedded derivative features of the convertible notes at the time of issuance. The Company recordsinterest expense on a quarterly basis. The components of interest expense include (i) accrued interest at the stated 8.0%rate, (ii) the amortization of the debt discount/premium, and (iii) the amortization of the debt issuance costs.Note 7. Stockholders’ EquityCapital StructureAs of December 31, 2014, the Company was authorized to issue 14,689,000 shares of common stock at $0.0001 parvalue per share. In April 2015, the Company’s board of directors and stockholders approved an increase of the Company’sauthorized shares of common stock to 22,033,500 shares. In connection with the close of the Company’s IPO on November24, 2015, the Company’s stockholders approved an amended and restated certificate of incorporation increasing the numberof authorized shares of common stock to 150,000,000 and the number of authorized shares of preferred stock to 10,000,000,par value $0.0001 per share. In November 2015, the Company completed its IPO, whereby it sold 5,666,667 shares of common stock at a publicoffering price of $9.00 per share. The Company received gross proceeds of approximately $51.0 million and net proceeds ofapproximately $45.5 million, after deducting underwriting discounts and commissions and offering-related transaction costs. The holders of shares of common stock are entitled to one vote for each share of common stock held at all meetingsof stockholders and written actions in lieu of meetings. The holders of shares of common stock are entitled to receivedividends, if and when declared by the board of directors. Equity Incentive PlansThe Company had granted stock options under its 2013 Equity Compensation Plan (the "2013 Plan"), which wasadopted for employees and consultants for the purpose of advancing the interests of the Company's stockholders byenhancing its ability to attract, retain and motivate persons who are expected to make important contributions to theCompany. In November 2015, the 2015 Omnibus Incentive Compensation Plan (the “2015 Plan”) was adopted by theCompany’s stockholders. The 2015 Plan is the successor to the Company's 2013 Plan. In conjunction with the adoption ofthe 2015 Plan, no additional grants were made from the 2013 Plan and options from the 2013 Plan remain outstanding. As ofDecember 31, 2015, there were 3,501,577 shares available for future grant under the 2015 Plan.F-15 (1)Table of ContentsStock OptionsThe following table sets forth the stock option activity for the years ended December 31, 2015, 2014 and 2013: Weighted Weighted average Aggregate Number average contractual intrinsic of shares exercise price term value Outstanding at December 31, 2012 — $— Granted 82,521 1.30 Exercised — — Forfeited — — Outstanding at December 31, 2013 82,521 1.30 Granted 623,378 2.13 Exercised — — Forfeited — — Outstanding at December 31, 2014 705,899 2.03 Granted 438,290 6.74 Exercised — — Forfeited (140,116) 3.10 Expired (5,875) 3.67 Outstanding at December 31, 2015 998,198 $3.94 8.9 $5,323,117 Vested and expected to vest at December 31, 2015 925,422 $4.14 8.9 $4,743,092 Exercisable at December 31, 2015 494,355 $2.39 8.4 $3,350,044 The fair value of each stock option grant is estimated on the date of grant using the Black‑Scholes option pricingmodel. The Company periodically remeasures the fair value of stock‑based awards issued to non‑employees and records theexpense over the requisite service period. The expected term of the Company’s stock options has been determined utilizingthe “simplified” method as described in the Securities and Exchange Commission’s Staff Accounting Bulletin No. 107relating to stock‑based compensation. The simplified method was chosen because the Company has limited historical optionexercise experience due to its short operating history. The risk‑free interest rate is based on the U.S. Treasury yield in effect atthe time of grant for a period approximately equal to the expected term of the award. Expected dividend yield is based on thefact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.Expected volatility is based on historical volatilities of similar entities within the Company’s industry which werecommensurate with the Company’s expected term assumption. The relevant data used to determine the value of the stockoption grants for the years ended December 31, 2015, 2014 and 2013 is as follows:Black-Scholes option valuation assumptions 2015 2014 2013 Risk-free interest rates 0.7 - 1.9% 1.8 - 2.1% 1.6%Dividend yield — — — Volatility 67 - 71% 69 - 76% 61%Weighted average expected term 2.5 -6 years 6 years 6.25 years The weighted average valuation date fair value of options granted was $4.21, $2.05, and $0.67 per option for theyears ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, there was $1.7 million of totalunrecognized compensation cost related to non‑vested stock options which is expected to be recognized over a weightedaverage period of 2.4 years. These amounts do not include 72,776 options outstanding as of December 31, 2015, which areperformance‑based and vest upon the achievement of certain corporate milestones. Stock‑based compensation will bemeasured and recorded if and when it is probable that the milestone will occur.F-16 Table of ContentsStock‑based compensation expense recognized for the years ended December 31, 2015, 2014 and 2013 was asfollows: 2015 2014 2013 Research and development $622,901 $280,479 $14,066 General and administrative 180,378 96,327 41,215 $803,279 $376,806 $55,281 Performance‑Based AwardsIn the years ended December 31, 2015 and 2014, the Company issued 81,346 options with a weighted averageexercise price of $6.47 and 264,394 options with a weighted average exercise price of $1.30, respectively, to employees andnon‑employees that vest upon the completion of certain clinical and corporate events. For awards granted to employees withperformance conditions, no expense will be recognized, and no measurement date can occur, until the occurrence of theevent is probable. For awards granted to non‑employees, the Company will recognize the lowest aggregate amount within therange of potential values as expense until the measurement date is established. For the years ended December 31, 2015 and2014, the Company recognized $283,394 and $75,325, respectively, as expense related to performance‑based awards.Note 8. WarrantsAs of December 31, 2015, the Company had outstanding warrants to purchase 272,468 shares of common stock,consisting of 230,409 warrants with an exercise price of $1.30 per share (“2013 Warrants”) and 42,059 warrants with anexercise price of $5.94 per share (“2014 Warrants”). The 2013 Warrants were issued in 2013 to the placement agent inconnection with the issuance of the June 2013 Notes and were classified as equity in the consolidated financial statementssince they did not meet the requirements to be included as a liability. The initial fair value of the warrants was $145,565,which was recorded as a discount to the notes and amortized over the term of the June 2013 Notes. The 2014 Warrants were issued to the placement agent in connection with the issuance of the September 2014 Notesand were initially classified as a liability in the consolidated financial statements, as upon a qualified financing, as defined inthe September 2014 Notes, the warrant price would automatically adjust to a 10% premium to the conversion price of theSeptember 2014 Notes in such mandatory conversion. The initial fair value of the warrant liability was $79,129 which wasrecorded as a discount to the notes and amortized over the term of the original September 2014 Notes. Upon the noteamendment that occurred in September 2015, the discount was included in the carrying amount in the calculation of a losson extinguishment. In connection with the automatic conversion of the September 2014 Notes upon the close of theCompany’s IPO in November 2015, the warrant liability was reclassified to equity. See Note 3, “Fair Value Measurements”,for the fair value calculations of the warrant liability.The initial fair value of the warrants were estimated using the Black‑Scholes option pricing model with thefollowing assumptions:Black-Scholes option valuation assumptions 2014 warrants 2013 warrants Risk-free interest rates 1.6% 1.4%Dividend yield — — Volatility 70% 64%Weighted average contractual term 5 years 5 years Note 9. License AgreementsIn 2012, the Company entered into three exclusive license agreements with Antecip Bioventures II LLC, or Antecip,an entity owned by Axsome’s Chief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., in which it wasgranted exclusive licenses to develop, manufacture, and commercialize Antecip’s patents and applications related to thedevelopment of AXS‑02, AXS‑05, and AXS‑04, a product candidate that is currently in early stageF-17 Table of Contentsdevelopment, anywhere in the world for veterinary and human therapeutic and diagnostic use. Pursuant to the agreements,the Company is required to use commercially reasonable efforts to develop, obtain regulatory approval for andcommercialize AXS‑02, AXS‑05, and AXS‑04. Under the terms of the agreements, the Company is required to pay to Antecipa royalty equal to 4.5% for AXS‑02, 3.0% for AXS‑05, and 1.5% for AXS‑04, of net sales of products containing the licensedtechnology by the Company, its affiliates, or permitted sublicensees. These royalty payments are subject to reduction by anamount up to 50.0% of any required payments to third parties. Unless earlier terminated by a party for cause or by theCompany for convenience, the agreements shall remain in effect on a product‑by‑product and country‑by‑country basis untilthe later to occur of (i) the applicable product is no longer covered by a valid claim in that country or (ii) 10 years from thefirst commercial sale of the applicable product in that country. Upon expiration of the agreements with respect to a product ina country, the Company’s license grant for that product in that country will become a fully paid‑up, royalty‑free, perpetualnon‑exclusive license. If Antecip terminates any of the agreements for cause, or if the Company exercises its right toterminate any of the agreements for convenience, the rights granted to the Company under such terminated agreement willrevert to Antecip. To date, the Company has not been required to make any payments to Antecip under any of the licenseagreements.Note 10. Commitments and ContingenciesOperating LeasesThe Company’s offices are located in New York, New York. The Company is not currently under a lease agreement.Rent expense incurred during the years ended December 31, 2015, 2014 and 2013 was $127,559, $59,798, and $20,573.Note 11. Income TaxesAs of December 31, 2015, the Company had U.S. net operating loss (“NOL”) carryforwards of $15.5 million, whichwill expire beginning in 2033. The NOL carryforwards are subject to review and possible adjustment by the Internal RevenueService and state tax authorities. NOL carryforwards may become subject to an annual limitation in the event of certaincumulative changes in the ownership interest of significant stockholders, as defined under Sections 382 and 383 of theInternal Revenue Code of 1986, as amended, as well as similar state tax provisions. This could limit the amount of NOLs thatthe Company can utilize annually to offset future taxable income or tax liabilities.The components of the Company’s deferred tax assets are as follows: December 31, 2015 December 31, 2014 Deferred tax assets: Net federal operating loss carryforward $5,281,388 $2,260,595 Net state operating loss carryforward 1,760,274 673,585 Non-cash compensation 560,019 195,430 Amortization — 345,460 Research and development credits 4,549 4,549 Accrued expenses 149,917 — Deferred tax asset, excluding valuation allowance 7,756,147 3,479,619 Less valuation allowance (7,756,147) (3,479,619) Net deferred tax assets $— $— ASC Topic 740, Income Taxes, requires a valuation allowance to reduce the deferred tax assets reported if, based onthe weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not berealized. After consideration of all the evidence, both positive and negative, the Company has recorded a full valuationallowance against its deferred tax assets at December 31, 2015 and 2014 because the Company’s management hasdetermined that it is more likely than not that these assets will not be realized. The valuation allowance for deferred tax assetswas $7,756,147 and $3,479,619 as of December 31, 2015 and 2014, respectively.F-18 Table of ContentsA reconciliation of income tax expense (benefit) at the statutory federal income tax rate and income taxes asreflected in the consolidated financial statements is as follows: December 31, 2015 December 31, 2014 U.S. federal statutory income tax rate 34.0% 34%State taxes, net of federal benefit 9.8 9.7 Permanent differences (4.4) (2.1) Change in valuation allowance (40.5) (41.6) Other 1.1 — Effective tax rate —% —%The Company is not currently under examination at the federal or state levels and as of the date of the consolidatedfinancial statements there were no known assessments.Note 12. Related Party TransactionsFrom March 2013 through June 2015, members of the Company’s board of directors, officers, and some familymembers participated in the Company’s issuance of convertible notes for a total investment of $3,371,469. The terms of theseconvertible notes were identical to the terms of the convertible notes issued to unrelated third parties. See Note 6 for furtherinformation regarding the convertible notes. As of December 31, 2015, the entire principal plus interest under theseconvertible notes issued to these related parties have converted into 696,221 shares of the Company’s common stock.In April 2012, the Company entered into a three‑year consulting agreement with Mark Coleman, M.D., a member ofits board of directors since December 2014, which was subsequently amended in June 2014, to engage Dr. Coleman toprovide certain consulting services in connection with the Company’s development of pharmaceutical and other therapeuticproduct candidates. The consulting agreement provided the Company with the ability to compensate Dr. Coleman in cash oroptions. In March 2013, the Company issued to Dr. Coleman an option grant to purchase 20,997 shares of the Company’scommon stock with an exercise price of $1.30 per share that vested immediately; in June 2014, the Company issued toDr. Coleman an option grant to purchase 76,904 shares of the Company’s common stock with an exercise price of $1.30 pershare which were subject to certain performance‑based vesting restrictions, of which the grant was forfeited in December2015; and in June 2015, the Company issued to Dr. Coleman an option grant to purchase 33,410 shares of the Company’scommon stock with an exercise price of $5.94 per share that vested immediately. The Company recorded stock‑basedcompensation expense of $99,234, $0, and $14,066 for the years ended December 31, 2015, 2014 and 2013, respectively,related to these option grants.In 2013, the Company had an outstanding loan payable to its Chief Executive Officer and Chairman of the Board inthe amount of $62,469 pertaining to payment of startup costs of the Company. The loan carried no interest payable and waspayable on demand. In December 2014, the Company satisfied a portion of the loan payable with a cash payment of $21,000,leaving a balance at December 31, 2014 of $41,469. In June 2015, the Company paid the remaining balance of the loanobligation, which Dr. Tabuteau then reinvested into the Company by purchasing an equivalent amount of 2015 Notes.From the Company’s inception, Herriot Tabuteau, M.D. has been the Company’s founder, Chief Executive Officer,Chairman of the Company’s board of directors, and the beneficial owner of more than 5% of the outstanding shares of theCompany’s common stock. In connection with the formation of the Company, in January 2012, the Company issued toAntecip Capital LLC, an entity controlled by Dr. Tabuteau, an aggregate of 7,344,500 shares of the Company’s commonstock for nominal consideration.The Company is a party to three exclusive license agreements with Antecip Bioventures II LLC, an entity owned byDr. Tabuteau. See Note 9 for further information regarding the license agreements.F-19 Table of ContentsNote 13. Quarterly Consolidated Financial Data (Unaudited) 2015 Mar. 31 June 30 Sept. 30 Dec. 31 Total operating expenses $1,933,123 $2,084,804 $2,023,816 $3,154,533Net loss $(2,140,134) $(2,129,394) $(4,576,139) $(1,713,912)Net loss per common share, basic and diluted $(0.19) $(0.19) $(0.41) $(0.12) 2014 Mar. 31 June 30 Sept. 30 Dec. 31 Total operating expenses $999,048 $1,027,885 $1,696,733 $1,948,364Net loss $(1,212,128) $(3,046,044) $(253,118) $(1,489,272)Net loss per common share, basic and diluted $(0.16) $(0.39) $(0.03) $(0.14) F-20 Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, theregistrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 24thday of March 2016. AXSOME THERAPEUTICS, INC. By/s/ Herriot Tabuteau, M.D. Herriot Tabuteau, M.D.Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed by thefollowing persons on behalf of the registrant and in the capacities and on the dates indicated: SignatureTitleDate/s/ Herriot Tabuteau, M.D.Herriot Tabuteau, M.D.Chief Executive Officer and Chairman of theBoard (Principal Executive Officer) March 24, 2016/s/ Constance AmesConstance AmesVice President, Finance(Principal Financial and Accounting Officer) March 24, 2016/s/ Roger Jeffs, Ph.D.Roger Jeffs, Ph.D.Director March 24, 2016/s/ Mark Coleman, M.D.Mark Coleman, M.D.Director March 24, 2016/s/ Mark SaadMark SaadDirector March 24, 2016 Table of ContentsINDEX OF EXHIBITSExhibitNumberDescription3.1 Amended and Restated Certificate of Incorporation of the Company (Incorporated by reference, Exhibit 3.1 to theCompany’s Form 8-K (No. 001-37635) filed November 24, 2015.)3.2 Amended and Restated Bylaws of the Company (Incorporated by reference, Exhibit 3.2 to the Company’s Form 8-K (No. 001-37635) filed November 24, 2015.)4.1 Specimen Certificate evidencing shares of Company’s common stock (Incorporated by reference, Exhibit 4.1 toAmendment No. 1 to the Company’s Registration Statement on Form S-1 (No. 333-207393) filed October 30,2015.)4.2 Form of warrant to purchase shares of Company’s common stock issued in 2013 (Incorporated by reference,Exhibit 4.2 to the Company’s Registration Statement on Form S-1 (No. 333-207393) filed October 13, 2015.)4.3 Form of warrant to purchase shares of Company’s common stock issued in 2014 (Incorporated by reference,Exhibit 4.3 to the Company’s Registration Statement on Form S-1 (No. 333-207393) filed October 13, 2015.)10.1+Axsome Therapeutics, Inc. 2013 Equity Compensation Plan and Form of Nonqualified Stock Option Agreementthereunder (Incorporated by reference, Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (No.333-207393) filed October 13, 2015.)10.2+Axsome Therapeutics, Inc. 2015 Omnibus Incentive Compensation Plan (Incorporated by reference, Exhibit 10.6to Amendment to the Company’s Registration Statement on Form S-1 (No. 333-207393) filed October 30, 2015.)10.3+Axsome Therapeutics, Inc. Form of Stock Option Agreement pursuant to the 2015 Omnibus IncentiveCompensation Plan (Incorporated by reference, Exhibit 99.2 to the Company’s Registration Statement on Form S-8 (No. 333-208579) filed December 16, 2015.)10.4*License Agreement, dated January 12, 2012, by and between the Company and Antecip Bioventures II LLC, asmodified by the First Amendment to License Agreement, dated August 21, 2015, by and between the Companyand Antecip Bioventures II LLC (Incorporated by reference, Exhibit 10.2 to the Company’s RegistrationStatement on Form S-1 (No. 333-207393) filed October 13, 2015.)10.5*License Agreement, dated April 17, 2012, by and between the Company and Antecip Bioventures II LLC, asmodified by the First Amendment to License Agreement, dated August 21, 2015, by and between the Companyand Antecip Bioventures II LLC (Incorporated by reference, Exhibit 10.3 to the Company’s RegistrationStatement on Form S-1 (No. 333-207393) filed October 13, 2015.)10.6*License Agreement, dated June 6, 2012, by and between the Company and Antecip Bioventures II LLC, asmodified by the First Amendment to License Agreement, dated August 21, 2015, by and between the Companyand Antecip Bioventures II LLC (Incorporated by reference, Exhibit 10.4 to the Company’s RegistrationStatement on Form S-1 (No. 333-207393) filed October 13, 2015.)10.7+Consulting Agreement, dated April 13, 2012, by and between the Company and Mark Coleman, M.D., asmodified by the First Amendment to Consulting Agreement, dated June 2, 2014, by and between the Companyand Mark Coleman, M.D (Incorporated by reference, Exhibit 10.5 to the Company’s Registration Statement onForm S-1 (No. 333-207393) filed October 13, 2015.)21.1 Subsidiaries of the Company (Incorporated by reference, Exhibit 21.1 to the Company’s Registration Statementon Form S-1 (No. 333-207393) filed October 13, 2015.)23.1 Consent of Ernst & Young LLP.31.1 Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.31.2 Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant toSection 302 of the Sarbanes-Oxley Act of 2002.32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 ofthe Sarbanes-Oxley Act of 2002 (furnished herewith). Table of Contents32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002 (furnished herewith). + Indicates management contract or compensatory plan.* Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have beenfiled separately with the Securities and Exchange Commission. Exhibit 23.1 Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-208579)pertaining to the Axsome Therapeutics, Inc. 2015 Omnibus Incentive Compensation Plan of our reportdated March 24, 2016, with respect to the consolidated financial statements of Axsome Therapeutics, Inc.included in this Annual Report (Form 10-K) for the year ended December 31, 2015. /s/ Ernst & Young LLP New York, New York March 24, 2016 Exhibit 31.1 CERTIFICATION OF PERIODIC REPORTPURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Herriot Tabuteau, M.D., certify that: 1. I have reviewed this annual report on Form 10-K of Axsome Therapeutics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly presentin all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this reportis being prepared; b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered bythis report based on such evaluation; and c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred duringthe registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financialreporting; and 5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize andreport financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting. Date: March 24, 2016/s/ Herriot Tabuteau, M.D. Herriot Tabuteau, M.D.Chief Executive Officer (Principal Executive Officer) Exhibit 31.2 CERTIFICATION OF PERIODIC REPORT PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Constance Ames, certify that: 1. I have reviewed this annual report on Form 10-K of Axsome Therapeutics, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a materialfact necessary to make the statements made, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly presentin all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, theperiods presented in this report; 4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls andprocedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designedunder our supervision, to ensure that material information relating to the registrant, including its consolidatedsubsidiaries, is made known to us by others within those entities, particularly during the period in which this reportis being prepared; b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered bythis report based on such evaluation; and c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred duringthe registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financialreporting; and 5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control overfinancial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or personsperforming the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financialreporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize andreport financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting. Date: March 24, 2016/s/ Constance Ames Constance Ames Vice President, Finance (Principal Financial and Accounting Officer) Exhibit 32.1 STATEMENT OF PRINCIPAL EXECUTIVE OFFICER OF AXSOME THERAPEUTICS, INC.PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Axsome Therapeutics, Inc. (the “Company”) on Form 10-K for the year endedDecember 31, 2015 as filed with the Securities and Exchange Commission (the “Report”), I, Herriot Tabuteau, M.D., ChiefExecutive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-OxleyAct of 2002, that, based on my knowledge: 1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,as amended; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and resultsof operations of the Company. Date: March 24, 2016/s/ Herriot Tabuteau, M.D. Herriot Tabuteau, M.D.Chief Executive Officer (Principal Executive Officer) Exhibit 32.2 STATEMENT OF PRINCIPAL FINANCIAL OFFICER OF AXSOME THERAPEUTICS, INC. PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the annual report of Axsome Therapeutics, Inc. (the “Company”) on Form 10-K for the year endedDecember 31, 2015 as filed with the Securities and Exchange Commission (the “Report”), I, Constance Ames, Vice President,Finance of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of2002, that, based on my knowledge: 1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,as amended; and 2) The information contained in the Report fairly presents, in all material respects, the financial condition and resultsof operations of the Company. Date: March 24, 2016/s/ Constance Ames Constance Ames Vice President, Finance (Principal Financial and Accounting Officer) 

Continue reading text version or see original annual report in PDF format above