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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
⌧ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
◻ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the year ended December 31, 2020
or
For the transition period from to .
Commission file number 001-38410
BioXcel Therapeutics, Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
555 Long Wharf Drive
New Haven CT
(Address of principal executive offices)
82-1386754
(I.R.S. Employer
Identification No.)
06511
(Zip Code)
Registrant’s telephone number, including area code: (475) 238-6837
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Trading Symbol(s)
BTAI
Name of exchange on which registered
Nasdaq Capital Market
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 ⌧
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes ⌧ No ◻
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧
No ◻
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
Large accelerated filer ◻
Accelerated filer ◻
Non-accelerated filer ⌧
Smaller reporting company ⌧
Emerging growth company ⌧
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ⌧
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ◻ No ⌧
As of June 30, 2020, the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the registrant’s common
stock held by non-affiliates of the registrant was approximately $564,815,666 (based upon the closing sale price of the registrant’s common stock reported on the
Nasdaq Capital Market on that date). This calculation excludes shares held by the registrant’s current directors and executive officers and stockholders that the
registrant has concluded are affiliates of the registrant.
There were 24,572,962 shares of our common stock outstanding at March 1, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2021 annual meeting of stockholders, which the registrant intends to file pursuant to
Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year ended December 31, 2020, are incorporated
by reference into Part III of this Annual Report on Form 10-K.
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TABLE OF CONTENTS
Forward Looking Statements
Summary Risk Factors
Business
Part I.
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
Reserved
Part II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Part III.
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Part IV.
Item 15. Exhibits and Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties. We make such forward-
looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities
laws. All statements other than statements of historical facts contained in this Annual Report on Form 10-K are forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,”
“anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology.
These forward-looking statements include, but are not limited to, statements about:
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our plans relating to clinical trials for BXCL501, BXCL701 and our other product candidates;
our plans for 505(b)(2) regulatory path approval;
our plans to research, develop and commercialize our current and future product candidates;
our plans to seek to enter into collaborations for the development and commercialization of certain product candidates;
the potential benefits of any future collaboration;
the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;
the rate and degree of market acceptance and clinical utility of any products for which we receive marketing approval;
our commercialization, marketing and manufacturing capabilities and strategy;
our intellectual property position and strategy;
our estimates regarding expenses, future revenue, capital requirements and need for additional financing;
developments relating to our competitors and our industry;
the impact of government laws and regulations; and
our relationship with BioXcel LLC.
These forward-looking statements are based on management’s current expectations. These statements are neither promises nor
guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-
looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those
listed under Part I, Item 1A. “Risk Factors,” Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and elsewhere in this Annual Report on Form 10-K. Given these uncertainties, you should not rely on these forward-looking
statements as predictions of future events. Except as required by law, we assume no obligation to update or revise these forward-looking
statements for any reason, even if new information becomes available in the future.
This Annual Report on Form 10-K also contains estimates, projections and other information concerning our industry, our business,
and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of
certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is
inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this
information. Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys,
studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government
data and similar sources.
As used in this Annual Report on Form 10-K, unless otherwise specified or the context otherwise requires, the terms “we,” “our,” “us,”
the “Company” or “BTI” refer to BioXcel Therapeutics, Inc. and its subsidiaries, and “BioXcel” or “Parent” refer to BioXcel LLC, the
Company’s parent. All brand names or trademarks appearing in this Annual Report on Form 10-K are the property of their respective
owners.
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Summary Risk Factors
Our business is subject to numerous risks and uncertainties, including those described in Part I, Item 1A. “Risk Factors” in this Annual
Report on Form 10-K. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks
and uncertainties affecting our business include the following:
● We have a limited operating history and have never generated any product revenues, which may make it difficult to evaluate the
success of our business to date and to assess our future viability.
● We have incurred significant operating losses since inception and anticipate that we will continue to incur substantial operating
losses for the foreseeable future and may never achieve or maintain profitability.
● We will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce
or eliminate our product development programs or commercialization efforts.
● We have limited experience in drug discovery and drug development, and we have never had a drug
approved.
● In the near term, we are dependent on the success of BXCL501 and BXCL701. If we are unable to complete the clinical
development of, obtain marketing approval for or successfully commercialize BXCL501, BXCL701 and our other product
candidates, either alone or with a collaborator, or if we experience significant delays in doing so, our business could be
substantially harmed.
● Interim “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more
patient data become available and are subject to audit and verification procedures that could result in material changes in the final
data.
● The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming, expensive and
inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business
will be substantially harmed.
● Clinical trials are expensive, time-consuming and difficult to design and implement, and involve an uncertain
outcome.
● Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory
approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing
approval, if any.
● BioXcel’s approach to the discovery and development of product candidates based on EvolverAI is novel and unproven, and we do
not know whether we will be able to develop any products of commercial value.
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If we are required by the FDA or similar regulatory authorities to obtain approval (or clearance, or certification) of a companion
diagnostic device in connection with approval of one of our product candidates, and we do not obtain or face delays in obtaining
FDA approval (or clearance, or certification) of a companion diagnostic device, we will not be able to commercialize the product
candidate and our ability to generate revenue will be materially impaired.
Even if we obtain regulatory approval for BXCL501, BXCL701 or any product candidate, we will still face extensive and ongoing
regulatory requirements and obligations and any product candidates, if approved, may face future development and regulatory
difficulties.
● If our products do not gain market acceptance, our business will suffer because we might not be able to fund future
operations.
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● Even if we obtain regulatory approvals to commercialize BXCL501, BXCL701 or our other product candidates, our product
candidates may not be accepted by physicians or the medical community in general.
● We continue to depend on BioXcel to provide us with certain services for our
business.
● We are substantially dependent on third parties for the manufacture of our clinical supplies of our product candidates, and we
intend to rely on third parties to produce commercial supplies of any approved product candidate. Therefore, our development of
our products could be stopped or delayed, and our commercialization of any future product could be stopped or delayed or made
less profitable if third party manufacturers fail to obtain approval of the FDA or comparable regulatory authorities or fail to
provide us with drug product in sufficient quantities or at acceptable prices.
● Our failure to find third party collaborators to assist or share in the costs of product development could materially harm our
business, financial condition and results of operations.
● It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position
does not adequately protect our product candidates, others could compete against us more directly, which would harm our
business, possibly materially.
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Item 1. Business
Overview
PART I
We are a clinical stage biopharmaceutical company utilizing artificial intelligence approaches to develop transformative medicines in
neuroscience and immuno-oncology. Our drug re-innovation approach leverages existing approved drugs and/or clinically validated
product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. We believe that
this differentiated approach has the potential to reduce the cost and time of drug development in diseases with a substantial unmet medical
need.
Our two most advanced clinical development programs are BXCL501, an investigational, proprietary, orally dissolving, sublingual
thin film formulation of the adrenergic receptor agonist dexmedetomidine , or Dex, for the treatment of agitation resulting from
neuropsychiatric disorders, and BXCL701, an investigational orally administered systemic innate immune activator for the treatment of a
rare form of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.
Impact of COVID-19 Pandemic
During the first quarter ended March 31, 2020, and continuing through December 31, 2020, the novel coronavirus disease, or COVID-
19, was declared a pandemic and spread to multiple regions across the globe, including the United States and Europe. The outbreak and
government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker
shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods
and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen.
Throughout 2020, we took steps in line with guidance from the U.S. Centers for Disease Control and Prevention , or CDC and the
State of Connecticut to protect the health and safety of our employees and the community. In particular, we implemented a work-from-
home policy for all employees and have restricted on-site activities to certain chemical, manufacturing and control , or CMC , and clinical
trial activities. We continue to assess the impact of the COVID-19 pandemic to best mitigate risk and continue the operations of our
business. Beginning late in the second quarter of 2020, we began to slowly bring our staff, in very limited numbers, back to our office. Our
office is currently open to employees on a voluntary basis with a maximum number of 25% of employees present at any given time , which
is aligned to state guidelines. We have also implemented protocols as required under the State of Connecticut’s Reopen program and have
limited travel. We have taken steps to protect our workforce and have instituted strict work rules to protect our employees. To date, our
remote working arrangements have not significantly affected our ability to maintain critical business operations.
We continue to work closely with our clinical sites to monitor the potential impact of the evolving COVID-19 pandemic. We remain
committed to our clinical programs and development plans. Through December 31, 2020, we have not experienced any significant delays to
our ongoing or planned clinical trials, except for challenges in accessing elderly care facilities; however, this could rapidly change.
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Our Clinical Programs
The following is a summary of the status of our clinical development programs as of the date of this Annual Report on Form 10-K.
Our Strategy
Our goal is to become a leader in the field of neuroscience and immuno-oncology. The key elements to achieving this goal are to:
● Advance BXCL501, a proprietary, orally dissolving thin film formulation of dexmedetomidine, or Dex, a selective α2a
adrenergic receptor agonist, designed for acute treatment of agitation, and opioid withdrawal symptoms towards approval
through the Section 505(b)(2) pathway. The Company believes that BXCL501 may directly target a causal agitation
mechanism.
● Neurological and Psychiatric Disorders. We believe that BXCL501 , if approved, has the potential to become the
standard of care for the acute treatment of agitation arising from diseases such as:
◾ Schizophrenia and bipolar disorder (SERENITY TRIAL);
◾ Dementia (TRANQUILITY TRIAL);
◾ Opioid withdrawal (RELEASE TRIAL);
◾ Delirium (PLACIDITY TRIAL);
◾ Post-traumatic stress disorder in collaboration with the VA Connecticut Healthcare System and the Yale
University Medical School; and
◾ other neuropsychiatric indications.
● Additional Indications. We also plan to evaluate BXCL501 for several additional indications including neuro psychiatric
and neuro degenerative disorders. In addition, we plan to evaluate BXCL501 in chronic agitation in dementia either as a
single agent or a combination product with another agent.
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● Agitation Franchise Expansion. We are also investigating potential treatments for the entire spectrum of agitation from
pre-agitation to severe agitation. We are exploring the use of wearable digital device technology, such as the Apple watch,
with the goal of the prevention and treatment of agitation, including, if approved, the administration of BXCL501 prior to
the onset of agitation. For severe agitation, a single use intramuscular, or IM, injection called KalmPen™ is under
development.
● Complete BXCL701 Phase 2 trials to evaluate its potential for the treatment of castrate resistant cancer (CRPC), including
the neuroendocrine (NEPC) variety.
● NEPC (Orphan Segment of Prostate Cancer and Castrate Resistant Prostate Cancer). BXCL701 was previously
studied in multiple clinical trials and demonstrated single agent anti-tumor activity in melanoma, an immune-sensitive
tumor. In April 2020, we announced the initiation of the Phase 2 efficacy portion of the Phase 1b/2 trial evaluating
BXCL701 in combination with KEYTRUDA® (pembrolizumab, a PD-1 inhibitor) for NEPC. In addition to the efficacy
cohort in NEPC patients, in August 2020, we opened a separate cohort for CRPC patients who have failed taxane-based
chemotherapy and up to two lines of second-generation androgen pathway blockers. Top line results from this trial are
expected in mid-2021.
● Basket Trial. BXCL701 is being evaluated in an open-label phase 2 basket trial led by MD Anderson. The investigator
led study is designed to evaluate the response rate of orally administered BXCL701, combined with Pembrolizumab
(KEYTRUDA®) in patients with advanced solid cancers. The study will evaluate both patients who are naïve to
checkpoint therapy and those who are refractory to checkpoint therapy. Top line results from the basket trial are also
expected in mid-2021.
●
Soft Tissue Sarcoma. On January 26, 2021, the FDA granted BXCL701 orphan designation for the treatment of soft tissue
sarcoma.
● Topline Results. Topline results from two ongoing trials with BXCL701 in aggressive forms of prostate cancer and
advanced solid tumors are expected in mid-2021.
●
Potential for Expedited Review Programs. Given that these indications represent high unmet medical needs with few
treatment options, we intend to pursue breakthrough therapy designation and accelerated approval for NEPC.
● Additional Indications. We believe BXCL701 may be active at multiple stages of the cancer immunity cycle and
therefore, we believe BXCL701 offers a “pipeline in a product” platform given its potential for evaluation across other
cancers. BXCL701 was granted an orphan drug designation for the treatment of acute myeloid leukemia in September
2019, its fourth orphan drug designation in addition to pancreatic cancer, melanoma, and soft tissue sarcoma. We believe
existing preclinical evidence supports the combination of BXCL701 with checkpoint inhibitors and/or agents that act on
“co-stimulatory” pathways within immune effector cells. Moreover, we believe agents that stimulate antibody-dependent
cell mediated cytotoxicity, or ADCC , or cell-based therapies such as chimeric antigen receptor T cell , or CAR T ,
therapy, oncolytic viruses or therapeutic vaccines all represent potential combination with BXCL701.
● Identify biomarkers to select patients who we believe have the highest likelihood to respond to our product candidates.
Predicting optimal drug responses in patients requires the identification and validation of predictive biomarkers. We
believe that our ability to identify patient subsets most likely to respond to our product candidates will increase the clinical
benefit to patients and improve the probability of success of our clinical trials. The indications for our lead product candidate
BXCL701 were chosen in part because they are known to overexpress dipeptidyl peptidase, or DPP 8/9, and fibroblast activation
protein, or FAP. Our planned proof-of-concept clinical trial of BXCL701 will retrospectively examine biomarkers related to its
molecular and cellular targets to identify those that may correlate with clinical efficacy and increase our likelihood of success.
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● Enhance our R&D pipeline by leveraging our therapeutic area expertise with EvolverAI to identify, develop and
commercialize new product candidates in neuroscience and immuno-oncology. In addition to our leading clinical programs
and our emerging and future pipeline, we have identified several potential product candidates and intend to select our next clinical
program from among such candidates. We have established translational and development expertise, which we believe will help us
advance the present and future product candidates in these fields. We may also opportunistically in-license additional product
candidates identified through our AI platform approach within our core areas of expertise.
● Maximize the commercial potential of our product candidates. We have worldwide development and commercialization rights
to BXCL501 and BXCL701. If BXCL501 and BXCL701 are approved in the United States, we would consider building a specialty
sales force in the United States and/or collaborate with third parties to maximize the potential of our product candidates. We are
currently taking the early steps towards developing a specialty sales force for BXCL501 in anticipation of potential
commercialization. Furthermore, we intend to commercialize BXCL501 and BXCL701, if approved, outside the United States
through collaborations with third parties.
Our Novel Drug Re-Innovation Approach
We intend to develop first-in-class, high value therapeutics by leveraging EvolverAI, a research and development engine created and
owned by our parent, BioXcel. We believe the combination of our therapeutic area expertise and our ability to generate product candidates
through our exclusive collaborative relationship with our parent company, BioXcel Corporation in the areas of neuroscience and immune-
oncology gives us a significant competitive advantage. EvolverAI was developed over the last decade and integrates millions of fragmented
data points using artificial intelligence, or AI and proprietary machine learning algorithms. After evaluating multiple product candidates
using EvolverAI, we selected our lead programs because our analysis indicated these drugs may have utility in new therapeutic indices
where there is substantial unmet medical needs and limited competition. By focusing on clinical candidates with relevant human data, we
believe our approach will help us design more efficient clinical trials, thereby accelerating our product candidates’ time to market. We
retain global development and commercialization rights to these two programs.
Our AI-based discovery and development process is the foundation of our drug re-innovation model for identifying the next wave of
medicines. Our therapeutic area experts have over 150 years of combined experience across the drug discovery and development value
chain. We believe EvolverAI is a novel method of finding potential product candidates because it combines the comprehensiveness and
efficiency of machine learning and big data analytics with the expertise and intuition of human experience in drug development. We believe
the combination of our therapeutic area expertise and our ability to generate therapeutic candidates in neuroscience and immuno-oncology
through our exclusive collaborative relationship in those areas with BioXcel gives us a significant competitive advantage.
The pharmacological space spans more than 27,000 active pharmaceutical agents, and only approximately 4,000 are approved and
marketed drugs benefiting patients. These marketed drugs may be applied to other indications, including rare diseases, and represent an
untapped potential for meeting significant unmet medical need and recoupment of research and development investments. A large number
of the remaining agents are clinical candidates that are active, shelved, or have failed for reasons other than toxicity and can potentially be
re-engineered for different indications or patient segments. They potentially represent an unrealized investment of billions of research and
development dollars by the private and public sectors, resulting in an immeasurable amount of patient suffering and sacrificing during
clinical development.
Traditional drug development is plagued with low success rates (13.8%, according to an MIT study of 186,000 trials from January
2000 to October 2015), long drug development cycles (10-15 years, according to PhRMA Key Facts 2016), and exorbitant development
costs ($2.6 billion per drug, according to PhRMA Key Facts). Furthermore, many serious diseases continue to go unaddressed due to
limitations of the current drug discovery paradigm. The recent advent of numerous ‘omics’ technologies (genomics, proteomics) and rapid
advances in science and medicine are generating terabytes of valuable unexploited knowledge that is widely distributed in multiple big data
lakes with several orders of complexity and variety. Much of this data is not being systematically applied to the development of next
generation therapeutics, thus preventing the optimization of drug development utilizing the understanding of technology, science,
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medicine, markets, and commercial opportunities. The efficient and intuitive use of big data remains a bottleneck and a challenge to the
pharmaceutical industry. Taken together, these factors underscore the need for fundamental new approaches to drug discovery and
development. The market opportunity to identify new uses for existing pharmacological agents remains substantial due to the lack of
technology driven insights. Our parent, BioXcel, has created a proprietary R&D engine, EvolverAI, for drug re-innovation that provides a
proprietary systems-based approach designed to unlock the hidden value in drugs. The combination of our therapeutic area expertise and
our exclusive collaborative relationship with BioXcel enables us to screen, analyze, and identify the product candidates that we believe
have a high likelihood of benefiting patients. The compounds in our pipeline have been identified using this proprietary platform.
EvolverAI is designed to eliminate human bias by scanning millions of data points from disparate data sources to create network maps.
The nodes and connections in the network map are weighted and ranked based on the validity of supporting evidence using disease specific
algorithms. They are then further analyzed using artificial intelligence and machine learning approaches supplemented by human domain-
based expertise to uncover novel connections between disease parameters, molecular targets, mechanisms of actions and product candidates.
This drug re-innovation model has been exemplified by the successful development and commercialization of drugs such as Tecfidera
(Biogen, Inc.), Thalomid (Celgene Corporation) and Viagra (Pfizer, Inc., or Pfizer). All of these drugs were identified by insights in
biology and disease pathophysiology. The successful business models of biotech companies like Axsome-Therapeutics, Inc. and Karuna
Therapeutics, Inc. are based on the re-innovation and combination of existing clinical candidates or marketed drugs to provide novel
solutions for patients. Unfortunately, such discoveries have been severely limited in scope due to the lack of a genuinely integrated big data
analytics-based approach.
We believe that only EvolverAI allows a comprehensive and unbiased evaluation of the complete pharmacological space. We believe
our drug re-innovation model and exclusive collaborative relationship with BioXcel has the potential to reduce the cost and time of drug
development, help us design more efficient trials, and accelerate our product candidates’ time to market. This assumption is based on
capitalizing product candidates with substantial clinical data and mitigated risk due to well-defined safety profiles, known PK/PD
properties, and an established manufacturing and regulatory path. Our approach is illustrated below:
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We continue to integrate and evolve our neuroscience AI machine learning and drug development platform, focusing on symptoms
resulting from stress-related behaviors. The combination of Evolver AI and this platform has led to the identification and rapid development
of BXCL501 as well as advancing other potential indications leading to the submission of our first NDA. We are continuing to leverage our
platform to identify and develop new neuroscience programs.
BXCL501 Neuroscience Program
Overview
BXCL501 is an investigational, proprietary, orally dissolving, thin film formulation of dexmedetomidine (Dex), a selective alpha-2a
receptor agonist, targeting symptoms from stress-related behaviors such as agitation and opioid withdrawal symptoms. BXCL501 is our
most advanced neuroscience clinical program, currently being developed for the acute treatment of agitation related to schizophrenia,
bipolar disorders, dementia, delirium, and opioid withdrawal symptoms. As a selective adrenergic agent with a sublingual or buccal route of
administration, BXCL501 is designed to be easy to administer and has shown a rapid onset of action in multiple clinical trials, including
clinical trials studying patients with schizophrenia, bipolar disorders, and dementia. We believe the results from these studies suggest that
BXCL501 has the potential to generate a calming effect without producing excessive sedation. We believe that BXCL501 is highly
differentiated from antipsychotics currently used as a standard of care for the treatment of agitation, which often produce unwanted side
effects such as excessive sedation and extra-pyramidal motor effects. Managing patient agitation in neuropsychiatric and neurodegenerative
disorders represents a significant challenge for physicians and caregivers. We believe that BXCL501 has the potential to address these
challenges while providing an efficient treatment regimen for patients.
Agitation Overview and Market Opportunity
Agitation in patients with neuropsychiatric diseases (psychomotor agitation) is a serious medical condition. Agitation is characterized
by feelings of unease, excessive talking and/or unintentional and purposeless motions, such as wringing of the hands or pacing. People
experiencing agitation may also express excitement, hostility, poor impulse control, tension, uncooperativeness, and sometimes disruptive
behavior, which could lead to aggression and violence. In many cases, people develop agitation when treatment for their underlying
disorder is not working well. Stressful situations or traumatic events can also trigger agitation. Agitation can occur suddenly or slowly and
vary in length, lasting for a few minutes or for an extended period of time.
With the agitation issues associated with schizophrenia and bipolar disease coupled with a fast-growing elderly population, the
difficulties and expenses of acute treatment of agitation are expected to grow significantly. Based on our market research, we estimate that
in 2016 the total direct financial cost of all aspects of care for agitation in Alzheimer’s Disease, or AD , was approximately $40 billion.
Below are estimated statistics associated with BTI’s initial indications targeting agitation in Schizophrenia , Bipolar Disease and Dementia.
Disease Prevalence
Patients Experiencing Agitation
U.S. Market for Treating Agitation
Schizophrenia & Bipolar Disorder
9,000,0001
~3,000,000*
Dementia
5,800,0002
~4,000,000*
1Schizophrenia: Wu et al., 2006; Bipolar Disorder: Merikangas et al., 2007
2Herbert et al., 2013
* - current internal Company estimates
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Treatments for Agitation
Antipsychotics, the current standard of care for acute treatment of agitation in schizophrenia and bipolar disorder, are also used off-
label to treat agitation in dementia as well as delirium. Side effects of these medications include movement disorders, including akathisia
and extrapyramidal symptoms. One of the serious limitations of these drugs is that they can sedate the patient and do not permit verbal
interaction with the hospital staff to continue. Intramuscular (“IM ”) delivered antipsychotics, such as haloperidol andolanzapine, are used
extensively in this setting but are invasive and often require patient restraint. This type of treatment dehumanizes patients and can cause
trauma that could have long-term impact on the individual. Furthermore, these treatments include a black box warning for use in elderly
patients.
While sublingual tablet formulations utilizing antipsychotics have been developed, these sublingual formulations have long half-lives
(21-24 hours) and significant side effects when given either acutely or chronically. Oral agents such as benzodiazepines are also used but
have a slow onset of action and are consequently not effective in the acute treatment of agitation. Side effects of these agents include
sedation, amnesia, confusion, and a paradoxical response. They can intensify cognitive slowing, cause dependence, and can contribute to an
increased risk of falls and fractures. In addition, long-term use of benzodiazepines has been found to be habit-forming and can cause
addiction. Non-adherence with oral agents can also be problematic as patients may attempt to spit out these medications. We believe that
based on the current method of administration of oral medicine for agitation, the orally-dissolving, mucoadhesive thin film offers
compliance advantages as it will prevent patients from avoiding treatment.
There is precedent for FDA approval of a non-invasive therapy for the acute treatment of agitation. In 2012, Adasuve, an inhaled
version of the antipsychotic loxapine, became the first approved non-invasive acute treatment for agitation in patients with schizophrenia
and bipolar 1 disorder. The use of Adasuve has been limited due to a risk management program and the risk of bronchospasm. Adasuve
also has a high incidence of side effects. Upon launch, Adasuve was priced at $145 per dose.
The sublingual or buccal route of administration is an accepted alternative to oral administration of drug delivery to the central nervous
system, or CNS, when rapid onset or more controlled delivery is required. Currently, there are six products that are approved for thin-film
administration. For example, BioDelivery Sciences International, Inc., a commercial-stage specialty pharmaceutical company dedicated to
patients living with chronic conditions, has developed a buccal film formulation of buprenorphine for chronic pain management and
buprenorphine and naloxone for opioid dependence. We have developed BXCL501 as a differentiated sublingual thin film dosage form of
Dex, which we believe, if approved, may offer benefits such as ease of use and quick absorption for rapid therapeutic effects.
Mechanism of Action: α2a Adrenergic Receptor and NE Role in Acute Agitation
BXCL501 is designed to be easily administered and to have a rapid onset of action. We believe that BXCL501, with its differentiated
pharmacology and ease of administration, if approved, could potentially be a first-in-class, non-invasive acute treatment for agitation that
can be rapidly administered by physicians and caregivers. Dex is approved in the United States for the sedation of initially intubated and
mechanically ventilated patients during treatment in the Intensive Care Unit, or ICU. It is also used in the intensive care setting for sedation
of non-intubated patients prior to and/or during surgical and other invasive procedures. Dex, launched in the United States as Precedex in
1999, is a selective α2a adrenergic receptor agonist that has a strong safety record and has been studied in over 130 clinical trials to date. It
has also been launched in the European Union and multiple other countries under the trade name Dexdor as a sedative for intensive care
patients. Dex gained approval by the European Medicines Agency, or EMA, for sedation of adult ICU patients (requiring a sedation level
no deeper than arousal in response to verbal stimulation). It has been used to prevent or treat hyperactive delirium resulting from anesthesia
in the ICU. Given these uses of the IV formulation of Dex, we believe Dex formulated in a sublingual thin film will allow for ease of
administration in settings where rapid acute treatment of agitation is needed.
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Phase 1 IV Dexmedetomidine Studies
Throughout 2018 and 2019 we completed four clinical trials and announced the results from several proof-of-concept Phase 1 studies
of intravenous, or IV, Dex for acute treatment of agitation.
● Data from our four IV Dex studies in healthy volunteers, schizophrenia patients, SDAT patients, and opioid withdrawal
patients was used to determine the optimal dose of BXCL501.
The goal of the healthy volunteer studies, which was met, was to achieve mild sedation without any clinically meaningful
cardiovascular side effects. The IV formulation of Dex achieved mild sedation or a RASS score of -1 in patients at a Dex
exposure level without producing any clinically meaningful effects on blood pressure and/or heart rate. This activity was
evident in eleven (11) out of twelve (12) subjects on the IV formulation of Dex and occurred within thirty minutes of starting
the dose, which produced the desired effect. In contrast, mild sedation was observed in only 1 out of 4 individuals on placebo.
The mild sedative effects of the IV formulation of Dex persisted for ninety to one hundred and twenty minutes, a clinically
relevant duration. The study also found that the IV formulation of Dex was well tolerated, and the results supported further
clinical evaluation of dexmedetomidine in acute treatment of agitation resulting from neuropsychiatric disorders including
schizophrenia and Senile Dementia of the Alzheimer’s Type, or SDAT.
●
In November 2018, we announced positive results from a Phase 1b study evaluating IV Dex for acute treatment of agitation in
patients suffering from schizophrenia. The trial met its primary endpoint by identifying a safe dose of IV Dex that produced a
mild arousable sedation, defined by a RASS score of -1. The study enrolled a total of fourteen (14) patients. Ten (10) patients
in the treatment arm received IV Dex therapy, while four (4) patients received placebo. Dose escalation was performed by
infusing 0.2 to 0.6 mcg/kg/hr of the IV formulation of Dex over a period of thirty minutes. The dose range in this study was
consistent with the range used in the healthy volunteer study.
The study demonstrated that nine out of ten patients in the treatment arm achieved a RASS score of -1, while no patients in the
placebo arm experienced meaningful sedation. Additionally, the drug was well tolerated without any clinically meaningful
adverse effects on blood pressure and/or heart rate. As a secondary endpoint, nine out of ten patients in the treatment arm had
agitation reduced to a minimum as measured by a Positive and Negative Symptom Scale - Excitatory Component , or PEC,
score of 7 or below in contrast with 0 out of 4 of the placebo patients. PEC is a five item scale that measures symptoms of
agitation with each item rated from 1 -Absent to 7 -Extreme.
●
In January 2019, we announced positive results from a Phase 1 study evaluating IV Dex for acute treatment of agitation in
patients suffering from SDAT. The SDAT trial met its primary endpoint by identifying a well-tolerated dose of IV Dex that
produced a mild arousable sedation, defined by a RASS of -1.
This study enrolled a total of fourteen SDAT patients. Ten patients in the treatment arm received IV Dex therapy, while four
patients received placebo. In accordance with study designs used in previous participant populations, Dex treatment was begun
at 0.1 mcg/kg/h and dose escalation occurred every thirty minutes by increasing the infusion rate by 0.1 mcg/kg/h to a
maximum infusion of 0.5 mcg/kg/h. Such dosing allowed for the efficient determination of the optimal dose in each participant.
The study demonstrated that seven out of ten patients in the treatment arm achieved arousable sedation (RASS score of -1),
versus only 1 of 4 patients in the placebo arm. The drug was well tolerated without any clinically significant adverse events.
●
In February 2019, we announced positive proof of concept data from a Phase 1b study of IV Dex in patients suffering from
opioid withdrawal symptoms. The study provided evidence supporting further evaluation of BXCL501’s selective alpha-2a
adrenergic receptor mechanism application in opioid withdrawal symptoms, in addition to acute treatment of agitation in
schizophrenia, bipolar disorder and dementia.
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The study enrolled total of fourteen patients with opioid dependence. Ten subjects were randomized to the treatment arm while
five subjects were randomized to the placebo arm. Symptoms of opioid withdrawal were evaluated using the Clinical Opioid
Withdrawal Scale, or COWS1, an 11-item scale that measures a constellation of withdrawal symptoms experienced after
abstaining from opioid use. All ten subjects receiving IV Dex responded to treatment, while there were no responders in the
placebo arm. Results from this study suggest that IV Dex mitigated the physiological symptoms of opioid withdrawal.
Data from the four IV Dex studies in healthy volunteers, schizophrenia patients, SDAT patients, and opioid withdrawal patients was
used to determine the optimal dose of BXCL501.
BXCL501 Clinical Trials
SERENITY I and SERENITY II
In July 2020, we announced topline results from the SERENITY I and II pivotal trials, which showed that treatment with BXCL501
was well-tolerated and resulted in clinically meaningful reductions in agitation in schizophrenia and bipolar disorder 1 and 2 patients. In
October 2020, we held a pre-New Drug Application (“NDA”) meeting with the U.S. Food and Drug Administration (“FDA”) to discuss the
content and format of our anticipated NDA submission. The FDA also agreed to a rolling review of our NDA, allowing us to submit
completed sections of the application early. On March 5, 2021, we completed the rolling submission of our NDA to the FDA. The FDA has
a 60-day filing review period to determine whether the NDA is complete and acceptable for filing.
TRANQUILITY
In January 2021, we announced topline results from the TRANQUILITY trial, a phase 1b/2 randomized, placebo-controlled, adaptive
ascending dose-finding study that enrolled 54 patients with agitation related to dementia. Patients received BXCL501 at either 30mcg
(n=16), 60mcg (n=20), 90mcg (n=4) or placebo (n=14). Overall, BXCL501 was well tolerated and demonstrated statistically significant,
clinically meaningful, rapid, and durable reductions in agitation with the 60 mcg dose as measured by multiple scales.
The trial’s primary endpoint was to evaluate safety and tolerability. During the study, BXCL501 was well-tolerated and no severe or
serious adverse events were reported. The most common adverse event was somnolence characterized as either mild (55% for 60 mcg,
50% for 30 mcg and 7.1% for placebo) or moderate (5% for 60 mcg and 0% for both 30 mcg and placebo), followed by hypotension (10%,
0%, 0%), orthostatic hypotension (5%, 6.3%, 0%) and dizziness (5%, 6.3% and 0%). There were no reported cases of syncope or falls in
any of the patients studied. Higher exposure levels of BXCL501 were observed in this elderly patient population compared to earlier trials.
The trial met its secondary efficacy endpoints with the 60 mcg dose compared to placebo in all three agitation scales: the PEC; the
Pittsburg Agitation Scale , or PAS, and the Modified Cohen -Mansfield Inventory , or Mod-CMAI. Treatment with BXCL501
demonstrated statistically significant and clinically meaningful reductions in total scores at two hours post-dosing (PEC p=0.0011; PAS
p<0.0001; Mod-CMAI p<0.001; PEC response rate = 70%), numerical separation from placebo in PEC total score as early as 30 minutes
with statistically significant reductions on both PEC and PAS at 60 minutes lasting 8 hours after treatment.
Additional statistically significant reductions with the 60 mcg dose compared to placebo at the 2 hours post-dosing were observed
with the Agitation and Calmness Scale (ACES p=0.0006) and Clinical Global Impression-Improvement Scale (CGI p<0.0001, 90%
responder rate).
The 30 mcg dose cohort showed numerical improvements across all scales.
On March 3, 2021, we announced that following a routine quality control review of the Company’s TRANQUILITY study data, the
Company discovered that two patients were mis-categorized within the 30 mcg cohort at the clinical site. After moving the two patients into
their appropriate placebo and 30 mcg groups, the data from the 30
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mcg cohort were re-analyzed, resulting in the 30 mcg dose crossing over to statistical significance at the two hour time point, as measured
by PEC: p=0.0149; PAS: p=0.0195; and Mod-CMAI: p=0.0364.
The Company also announced that it has initiated a 46 patient (1:1 randomization) multicenter, placebo-controlled TRANQUILITY
expansion study investigating a 40 mcg dose cohort of BXCL501. PK/PD modeling of BXCL501 data from the TRANQUILITY trial was
supportive of evaluating the efficacy of a 40 mcg dose. Results are expected to provide additional insights to support the Company’s clinical
development strategy directed at all segments of the dementia market.
With the positive results from TRANQUILITY, we have been advancing the BXCL 501 dementia clinical program in close
consultation with the FDA.
An end of Phase 2 meeting has been scheduled with the FDA in the second quarter of 2021, following which the Company plans to
finalize study design, dosing, and endpoints for its pivotal Phase 3 program, which is expected to begin in the second half of 2021.
RELEASE
In August 2020, we announced that the third dose cohort (90 mcg twice a day, 12 hours apart). was enrolling in the RELEASE trial.
This is a multicenter, randomized, double-blind, placebo-controlled, ascending dose Phase 1b/2 trial designed to evaluate the safety,
pharmacokinetics, tolerability, and efficacy of BXCL501 in patients experiencing symptoms of opioid withdrawal. We expect to report
topline results from the study in the first quarter of 2021.
PLACIDITY
In October 2020, we announced that we had received authorization to proceed under our IND Application from the FDA for treatment
of patients with agitation associated with delirium in intensive care units, including patients with COVID-19 and on February 25, 2021, we
announced the initiation of the Phase 2 PLACIDITY trial of BXCL501. This program is intended to provide a potential synergy with the
medical and commercial infrastructure being developed to support our first two indications.
The PLACIDITY trial is a multicenter, randomized, double-blind, placebo-controlled, ascending dose-finding, adaptive Phase 2 study
designed to evaluate the safety, efficacy, and pharmacokinetics of BXCL501 in intensive care unit adult patients experiencing delirium
related agitation, including COVID-19 patients. Approximately 20 patients will be randomized into each sequential ascending dose cohort
of BXCL501 (starting doses of 120 ug, 180 ug, 240 ug, or 300 ug), or matching placebos to determine an optimal starting dose that could
effectively and safely reduce agitation. Elderly delirium patients (65 years or older) in these cohorts will receive half the dose. The primary
endpoint is the reduction in agitation measured by at least a 2-point drop in the Richmond Agitation Sedation Scale (“RASS”) at two hours
post BXCL501 administration. The secondary endpoint is the earliest time at which a 2-point drop is seen in RASS after BXCL501
administration. An exploratory endpoint of this trial will be to determine the overall clinical improvement after drug administration using
the Clinical Global Impression – Improvement Scale (“CGI-I”). Topline data is expected in the first quarter of 2022.
Agitation associated with delirium is a serious condition that affects patients in many hospital settings: ICUs, surgical & medical
wards, and emergency departments. Currently, there are no FDA-approved medications for delirium or agitation associated with delirium.
BioXcel and its collaborators, the VA Connecticut Healthcare System and the Yale University Medical School, were awarded a grant
by the U.S. Department of Defense’s (“DOD”) Congressionally Directed Medical Research Programs (“CDMRP”) to evaluate BXCL501 in
patients suffering from post-traumatic stress disorder (“PTSD”) related to alcohol and substance abuse disorder (“ASUD”). This will be the
first time the Company is investigating BXCL501 as a potential chronic treatment.
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Additional Opportunities
We are also continuing our development of BXCL501, exploring this candidate as a potential treatment option for chronic agitation
associated with dementia. We are also developing a single-use intramuscular injection for patients with severe agitation (non-cooperative).
Relative Bioavailability Study
In the third quarter of 2020, we analyzed the data from a cross-over study in healthy volunteers comparing the bioavailability of
BXCL501 administered sublingually with the film placed drug-side down under the tongue, compared to the film placed drug-side up under
the tongue, and administered buccally (placed between the lower lip and gum). Results of this study showed that:
●
●
●
●
consistent with previously reported data, BXCL501 was rapidly absorbed into the systemic circulation following drug side
down or drug side up sublingual administration or buccal administration of the BXCL501 film;
administering BXCL501 sublingually was shown to be bioequivalent to administering BXCL501 buccally;
administering BXCL501 with the drug side up under the tongue was shown to be bioequivalent to administering BXCL501
drug side down under the tongue; and
subjects were able to drink water starting at 15 minutes following sublingual BXCL501 administration without affecting
bioavailability in the subject.
Other Neuropsychiatric /Neurodegenerative Indications
Given the differentiated design features of BXCL501 and its selective mechanism of action, we believe that BXCL501 has the potential
for broad applicability across several indications where agitation is a symptom of a condition or underlying disease. There are additional
neurological and psychiatric disorders where agitation is a symptom that requires treatment.
We are also exploring the potential of BXCL501 in Depression Related Agitation, Anxiety Disorders and Traumatic Brain Injury.
BXCL701, DPP 8/9 and FAP Inhibitor for the Treatment of NEPC
BXCL701
BXCL701 is a potential first-in-class, oral, small-molecule immunomodulator designed to stimulate both the innate and acquired
immune systems by inhibiting DPP 8/9. DPP 8/9 behave as "checkpoints" of the innate immune system. We believe that BXCL701 , if
successfully developed and approved, may establish a differentiated immuno-oncology platform by modulating multiple steps in the cancer
immunity cycle and, when combined with checkpoint inhibitors and/or immune activating agents, may be able to convert immuno-resistant
tumors to immuno-sensitive tumors (“cold” to “hot” tumors).
Clinically, BXCL701 has been evaluated in more than 700 healthy subjects and cancer patients across multiple clinical trials, which
provided evidence regarding tolerability, proof of mechanism, and single agent anti-tumor activity. In the latter case, single agent activity
was seen in melanoma patients, an immune sensitive tumor. While providing evidence regarding the safety profile of the drug, these clinical
studies also identified a maximum tolerated and recommended Phase 2 dose to use in future clinical trials.
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BXCL701 is in development for the treatment of Castrate Resistant Prostate Cancer, including the highly aggressive Neuro-endocrine
variant NEPC, a segment of prostate cancer patients that have progressed on second generation androgen inhibitors (Zytiga and Xtandi).
Approximately one in four patients treated with Zytiga and Xtandi are expected to develop NEPC based on current clinical literature. The
combined global sales of Zytiga and Xtandi, which are only approved for prostate cancer treatment, were over $7 billion in 2018, and we
believe such sales number gives a perspective of the potential market for BXCL701 in this indication. Additionally, generic alternatives for
Zytiga became available in the U.S. market in 2019, and we, therefore, expect the number of patients with access to androgen inhibitor
therapy to increase.
Prostate Cancer Overview and Market Opportunity
Prostate cancer is the most common malignancy and is the second leading cause of cancer death in men in the United States. In 2016,
there were an estimated 3 million men with prostate cancer in the United States. According to estimates from Surveillance, Epidemiology
and End Results Program, SEER, more than 174,000 men are expected to be diagnosed and more than 31,000 men were expected to die
from prostate cancer in 2019. While the five-year survival rate of local and regional prostate cancer is almost 100%, more aggressive forms
of the disease such as metastatic prostate cancer have a five-year survival rate of approximately 30%. These aggressive forms of prostate
cancer can initially be treated with androgen deprivation therapy, or ADT. However, almost all patients experience a recurrence in tumor
growth, which results in the patient having castrate resistant prostate cancer, or CRPC. An estimated 180,000 men in the United States are
eligible for treatment with the second-generation anti-androgen drugs Zytiga and Xtandi. These drugs have widely become the standard of
care and generated combined worldwide sales of over $7 billion in 2018.
Unfortunately, virtually all the patients who respond to Zytiga and Xtandi are expected to progress to even more aggressive forms of
prostate cancer requiring further treatment. About one in four of the progressing patients will develop very aggressive, androgen receptor,
or AR-independent tumors, or NEPC, for which there is no effective treatment based on information in an article published in the Journal
of the National Comprehensive Cancer Network in 2014 by Agarwal et. al. and an article published by Journal of Clinical Oncology in
2014 by Wang et. al. NEPC specifically displays neuroendocrine differentiation, either pathologically with the presence of the typical
neuroendocrine small cells, or molecularly by expressing neuroendocrine markers.
U.S. Prostate Cancer Patient Population
Patients Eligible for Treatment with ADT
Patients progressing to NEPC
Limitations of Current Treatments for CRPC
Large market Opportunity: NEPC
~3,000,000
~180,000 (6%)
~20,000
Despite demonstrated benefit of immunotherapies targeting PD-1—such as pembrolizumab—on clinical outcomes in many solid
tumors, mCRPC remains largely resistant to such therapies with single-agent response rates of around 6%. Further exploration has been
focused on combination therapies.
There is no approved therapy for NEPC. NEPC patients are treated off-label with cytotoxic chemotherapies, such as platinum-based
regimens. These treatments have poor efficacy due to their short duration of response and substantial toxicity. While the immuno-oncology
field has made several advances in the treatment of solid tumors, several trials of immuno-oncology agents in patients with prostate cancer,
and specifically NEPC, have shown limited or no anti-tumor activity.
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BXCL701 ’s potential immunomodulatory mechanism of action may manipulate the tumor micro-environment in such a way to
convert a “cold” tumor environment into an inflamed “hot” environment so that prostate cancer can overcome resistance to immunotherapy.
BXCL701 Immuno-Oncology Program
BXCL701 Clinical Trials
BXCL701 is currently being evaluated in two combination therapy clinical trials:
In April 2020, we announced the initiation of the Phase 2 efficacy portion of the Phase 1b/2 trial evaluating BXCL701 in combination
with KEYTRUDA® (pembrolizumab, a PD-1 inhibitor) for NEPC. The Phase 1b safety assessment of BXCL701 identified a split dose
totaling 0.6 mg per day as the recommended dose when used in combination with KEYTRUDA. In addition to the efficacy cohort in NEPC
patients, in August 2020, we opened a separate cohort for CRPC patients who have failed taxane-based chemotherapy and up to two lines
of second-generation androgen pathway blockers. The Phase 1b portion of this trial was presented at the Society for Immunotherapy of
Cancer’s, or SITC’s, 35th Anniversary Annual Meeting in 2020, and an efficacy update was recently presented at the ASCO Genitourinary
Symposium in February 2021. Topline results from the trial are expected in mid-2021.
The MD Anderson-led Phase 2 open-label basket trial is designed to evaluate the response rate of orally administered BXCL701,
combined with KEYTRUDA, in two arms: Arm A is enrolling checkpoint naïve patients (where checkpoint therapy is indicated: “hot
tumors”); and Arm B is enrolling patients who have progressed following checkpoint therapy alone. As of August 2020, the efficacy bar
had been met for both arms, allowing the trial to advance to completion. Preliminary data were recently presented at the SITC’s, 35th
Anniversary Annual Meeting. Topline results from the trial are expected in mid-2021.
On November 10, 2020, the Company and Nektar terminated the Nektar Collaboration Agreement, pursuant to which the Company
and Nektar had agreed to jointly collaborate to conduct a Phase 1/2 clinical trial evaluating a combination therapy using BXCL701,
Bempegaldesleukin, a CD122-biased agonist and a checkpoint inhibitor as a potential therapy for pancreatic cancer and such other clinical
trials evaluating the combined therapy as mutually agreed by the parties. The BXCL701 phase of the triple combination study of BXCL701,
bempegaldesleukin (NKTR-214, Nektar Therapeutics) and BAVENCIO® (avelumab, Merck KGaA, Darmstadt, Germany and Pfizer) in
second line pancreatic cancer was planned to initiate following Nektar and Pfizer’s Phase 1B dose-escalation trial of bempegaldesleukin
and avelumab, which was delayed. As a result, the parties have agreed to discontinue activities on the triple combination study and instead
reallocate resources to other studies and development programs.
Other Immuno-oncology Indications
In addition to CRPC and CPI-refractory tumors, we plan to leverage our existing preclinical and clinical data to identify other cancer
types with high unmet medical need that we believe would benefit from BXCL701’s novel potential mechanism of action. We are
prioritizing indications where the immuno-suppressive microenvironment is driven by the potential molecular and cellular targets of
BXCL701 and where the single agent activity of approved immune checkpoint inhibitors is limited. On September 4, 2019, we announced
that the FDA granted Orphan Drug Designation for BXCL701 for the treatment of acute myeloid leukemia, and on January 26, 2021,
BXCL701 received Orphan Drug Designation for the treatment of Soft Tissue Sarcoma.
In addition, we believe BXCL701, if successfully developed and approved, may provide a platform for combination with
immunotherapy modalities that go beyond the currently approved immune checkpoint agents that target the PD-1/PD-L1 axis. Following
our proof-of-concept trials, we plan to conduct clinical trials covering a broad range of additional combinations with other immunotherapy
agents, including:
●
●
immune checkpoint inhibitors (other than PD-1/PD-L1);
cellular therapies (CAR-T and chimeric antigen receptor natural killer cells);
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●
therapeutic vaccines; and
● ADCC driven monoclonal antibodies.
Other Product Candidates
Neuroscience Program
We are targeting neuroscience disorders where there is a high unmet medical need, and therefore, a requirement for symptom
management is a priority (such as agitation and symptoms resulting from stress-related behaviors) as well for transformative care for
monogenic rare CNS disorders.
For symptomatic approaches, our neuroscience program is developing product candidates with a focus on treating symptoms for
various neurological and psychiatric disorders. This entails re-innovating existing agents through formulation changes and deuteration. The
utilization of EvolverAI has identified several monogenic diseases with available animal models across rare neuroscience diseases. We
utilize proprietary algorithms to identify associated mechanisms with existing pharmacology to test whether these agents can improve the
disease profile in the animal model either through disease modification or symptomatic manner. The agents identified must be those that we
believe are Phase 2 ready with a potential for a short, cost-effective development plan (four to five years to potential NDA submission).
Immuno-oncology Program
Our immuno-oncology program is based on utilizing a comprehensive map of all known relationships that link immuno-evasion and
immuno-activation pathways and targets with thousands of pharmacological agents and tumor indications. This comprehensive map has
permitted us to select a potential pipeline of candidates based on our ability to alter the tumor micro-environment and the potential to
address relevant unmet medical needs for various tumor types.
Finally, we continually leverage the artificial intelligence platform owned by our parent to select and prioritize additional development
opportunities to expand the current portfolio and broaden the addressable market for our lead programs through the identification of new
indications. This includes exploring additional combination therapy approaches to expand BXCL701’s target indications beyond NEPC and
pancreatic cancer.
Competition
The pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense competition, and a
strong emphasis on proprietary products. The immuno-oncology, neuroscience, and rare disease segments of the industry in particular are
highly competitive. While we believe that our technology, development experience and scientific knowledge provide competitive
advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical, and
biotechnology companies, academic institutions and governmental agencies, and public and private research institutions.
Many of our competitors may have significantly greater financial resources, and expertise in research and development,
manufacturing, preclinical studies, conducting clinical trials, obtaining regulatory approvals, and marketing approved medicines than we
do. Mergers and acquisitions in the pharmaceutical, biotechnology, and diagnostic industries may result in even more resources being
concentrated among a smaller number of our competitors. These competitors also compete with us in recruiting and retaining qualified
scientific and management personnel and in establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring
technologies complementary to or necessary for our programs. Smaller or early-stage companies may also prove to be significant
competitors, particularly through collaborative arrangements with large and established companies.
The key competitive factors affecting the success of all of our product candidates, if approved, are likely to be their efficacy, safety,
convenience, price, the effectiveness of companion diagnostics in guiding the use of related
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therapeutics, if any, the level of generic competition and the availability of reimbursement from government and other third-party payors.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize medicines that are safer, are
more effective, have fewer or less severe side effects, are more convenient or are less expensive than any medicines we may develop. Our
competitors also may obtain FDA or other regulatory approval for their medicines more rapidly than we may obtain approval for ours,
which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, our ability to
compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic medicines. There are
many generic medicines currently on the market for certain of the indications that we are pursuing, and additional generics are expected to
become available over the coming years. If our therapeutic product candidates are approved, we expect that they will be priced at a
significant premium over competitive generic medicines.
Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that
may become available in the future. If the product candidates of our priority programs are approved for the indications for which we are
currently planning clinical trials, they will compete with the drugs discussed below and will likely compete with other drugs currently in
development.
Neurological and Psychiatric Disorders
Drugs used for the acute treatment of agitation related to schizophrenia and bipolar disorder are antipsychotics frequently administered
via IM injection which typically requires patient restraint. These include IM aripiprazole, olanzapine, ziprasidone and haloperidol. Oral
products include the sublingually administered atypical antipsychotic asenapine as well as the benzodiazepines, lorazepam and midazolam.
The typical antipsychotic Adasuve (loxapine) from Alexza is delivered via inhalation.
Immuno-oncology
The immuno-oncology field is characterized by the rapid evolution of technologies and products and by fierce competition based on the
development of compounds, often with similar mechanisms of action. Clinical development plans are further compounded by the possibility
of overlapping intellectual property. A wide variety of commercial players, large pharmaceutical companies, established and emerging
biotechnology companies, and several not-for-profit entities are actively developing potentially competitive products in immuno-oncology
and in our lead indications.
While we believe our product candidates, technology, knowledge, and experience provide us with competitive advantages, we face
competition from established and emerging pharmaceutical and biotechnology companies. Such companies include:
● Major pharmaceutical companies developing multiple immuno-oncology agents: AstraZeneca PLC, Bristol-Myers Squibb
Company, Celgene Corporation, Merck & Co., Inc., Novartis AG, Pfizer Inc., Roche Holding Ltd., and Sanofi SA.
● Companies developing agents aimed at stimulating the immune response: AdaptImmune LLC, Idera
Pharmaceuticals, Inc., Immune Design Corp., NewLink Genetic Corporation, Advaxis, Inc., Argos Therapeutics, Inc., Biovest
International, Inc., ImmunoCellular Therapeutics, Ltd., Immune Design, Inc., Inovio Pharmaceuticals, Inc., Intrexon
Corporation and Northwest Biotherapeutics, Inc.
● Companies developing cell-based immunotherapy approaches: Intrexon Corporation, Juno Therapeutics, Inc., Kite
Pharma, Inc. (acquired by Gilead Sciences, Inc.), Novartis AG and Pfizer Inc.
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Manufacturing
We do not have manufacturing facilities. We currently rely on strategic manufacturing partners and expect to continue to rely on third
parties for the manufacture of our product candidates for clinical research as well as for eventual, possible commercial manufacturing.
For the supply of drug substance and drug product for our BXCL501 clinical program, we have secured manufacturing partners. We
have completed the manufacture of phase III clinical supply and registration batches of our proprietary, sublingual thin film product.
We produce clinical drug product for BXCL701 under exclusivity with the original manufacturers of the active pharmaceutical
ingredient, or API, and drug product tablets, respectively.
Manufacturing partners used for both programs currently manufacture commercial products, and we consider them to be suitable for
commercial supply for our programs, if approved.
Commercialization
We plan to retain our worldwide commercialization rights for some of our key product candidates, while for other product candidates
we might consider collaboration opportunities to maximize returns.
While as a Company we have no experience in commercializing products, we intend to build our own commercialization organization
and capabilities over time. We are considering partnerships, joint ventures, and a variety of business partnerships for the Japanese and
European Markets. We currently plan to retain US rights and have begun to lay the groundwork for commercialization efforts. When
appropriate, we will decide whether to build a sales force to manage commercialization for these product candidates on our own or in
combination with a larger pharmaceutical partner to maximize patient coverage in the United States as well as to support global expansion,
especially as our programs have a substantial opportunity for additional follow-up indications alone or in combinations.
As product candidates advance through our pipeline, our commercial plans may change. Clinical data, the size of the development
programs, the size of the target market, the size of a commercial infrastructure, and manufacturing needs may all influence our United
States, European Union, and rest-of-world strategies.
Intellectual Property
Our policy is to protect and enhance the proprietary technologies, inventions, and improvements that are commercially important to
our business by filing patent applications in the United States and other jurisdictions related to our proprietary technology, inventions,
improvements, and product candidates. We also rely on trademarks, trade secrets, and know-how relating to our proprietary technologies
and product candidates, continuing innovation, and in-licensing technology and products. This reliance is expected to develop, strengthen,
and maintain our proprietary position for novel therapeutics and novel formulations of existing therapeutics across multiple therapeutic
areas. We also plan to rely on data exclusivity, market exclusivity, and patent term extensions when available.
Patent Portfolio
As of March 10, 2021, our patent portfolio included 6 Patent Cooperation Treaty, or PCT, applications, 8 U.S. utility applications,
1 issued U.S. utility patent, 16 U.S. provisional patent applications, 62 pending non-U.S. applications, 5 allowed or granted non-U.S.
patents, 2 design patent applications, one of which is a U.S. design application, and 33 allowed or registered design patents. U.S. Pat. No.
10,792,246, directed to our proprietary sublingual thin-film formulation of Dex, was issued on October 6, 2020 and has a term that is set to
expire no earlier than 2039. We plan to list the U.S. patent in the FDA's Approved Drug Products with Therapeutic Equivalence
Evaluations, or Orange Book. We have filed applications in the core patent family protecting BXCL501 in the United States, Taiwan, and
other major markets. We expect that patents issuing from these applications, if any, will expire no earlier than 2039. We have also filed
applications in additional patent families that are relevant to BXCL501. We have applications pending in the
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United States, Europe and Japan directed to methods of treating insomnia using sublingual Dex. We expect that patents issuing from these
applications, if any, will expire no earlier than 2035. We also have applications filed in fifteen countries, including the United States,
Europe, Japan, and China, directed to methods of treating agitation. We expect that patents issuing from these applications, if any, will
expire no earlier than 2037. We have one U.S. application and one European application directed to intravenous administration of Dex. We
expect that patents issuing from these applications, if any, will expire no earlier than 2039. We continue to file new applications on an
ongoing basis, including provisional applications directed to treating mania and dementia. If patents issue from those cases, we expect them
to expire no earlier than 2041 and 2042, respectively.
We have multiple patent families filed to protect our BXCL701 program, including our core patent family directed to methods of using
BXCL701 with immune checkpoint inhibitors, which is filed in the United States and fourteen other countries. Any patents issuing from
that family should expire no earlier than 2036. We have a PCT application directed to combination therapies using BXCL701 with immune
checkpoint inhibitors and approaches for modifying T-cell activity. We expect any patents issuing from this family to expire no earlier than
2038. Additional PCT and ex-US applications are directed to administering BXCL701 in combinations with various other molecules and
dosing regimens. We expect that patents issuing from these applications, if any, will expire no earlier than 2039. Finally, we have multiple
provisional applications directed to various dosing regimens and combination therapies. Any patents issuing from those applications are
expected to expire between 2039 and 2041 at the earliest.
The term of individual patents depends upon the legal term for patents in the countries in which they are obtained. In most countries,
including the United States, the patent term is 20 years from the earliest filing date of a non-provisional patent application. Depending upon
the timing, duration, and specifics of FDA approval of our product candidates, a United States patent we own or license may be eligible for
limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman
Act. The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product
development and the drug approval regulatory review process. However, patent term restoration cannot extend the remaining term of a
patent beyond a total of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between
the effective date of an IND, and the submission date of a NDA, plus the time between the submission date of an NDA and the approval of
that application. Only one patent applicable to an approved drug is eligible for the extension, and the application for extension must be
made prior to the expiration of the patent. The United States Patent and Trademark Office, in consultation with the FDA, reviews and
approves the application for any patent term extension or restoration. In the future, we intend to apply for restorations of patent term for
some of our currently owned or licensed patents to add patent life beyond their current expiration date, depending on the expected length of
clinical trials and other factors involved in the submission of the relevant NDA.
The patent positions of companies such as ours are generally uncertain and involve complex legal and factual questions. No consistent
policy regarding the scope of claims allowable in patents in the field of method of use patents or reformulation patents has emerged in the
United States. The relevant patent laws and their interpretation outside of the United States are also uncertain. Changes in either the patent
laws or their interpretation in the United States and other countries may diminish our ability to protect our technology or product candidates
and enforce the patent rights that we license, and also could affect the value of such intellectual property. In particular, our ability to stop
third parties from making, using, selling, offering to sell, or importing products that infringe our intellectual property will depend in part on
our success in obtaining and enforcing patent claims that cover our technology, inventions, and improvements. With respect to both licensed
and company owned intellectual property, we cannot guarantee that patents will be granted with respect to any of our pending patent
applications or with respect to any patent applications we may file in the future, nor can we be sure that any patents that may be granted to
us in the future will be commercially useful in protecting our products, the methods of use, or the manufacture of those products. Patent and
other intellectual property rights in the pharmaceutical and biotechnology space are evolving and involve many risks and uncertainties. For
example, third parties may have blocking patents that could be used to prevent us from commercializing our product candidates and
practicing our proprietary technology, and the issued patents that we in-license and those that may issue in the future may be challenged,
invalidated, or circumvented, which could limit our ability to stop competitors from marketing related products or could limit the term of
patent protection that otherwise may exist for our product candidates. In addition, the scope of the rights granted under any issued patents
may not provide us with protection or competitive advantages against competitors with similar technology. Furthermore, our competitors
may independently develop
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similar technologies that are outside the scope of the rights granted under any issued patents that we own or exclusively in license. For these
reasons, we may face competition with respect to our product candidates. Moreover, because of the extensive time required for
development, testing, and regulatory review of a potential product, it is possible that, before any particular product candidate can be
commercialized, any patent protection for such product may expire or remain in force for only a short period following commercialization,
thereby reducing the commercial advantage the patent provides.
Our Relationship with BioXcel LLC
We are currently a 37% owned subsidiary of BioXcel , and our pipeline compounds have been identified by applying BioXcel's R&D
engine, EvolverAI, for drug re-innovation.
We entered into the Amended and Restated Asset Contribution Agreement, pursuant to which BioXcel agreed to contribute BioXcel’s
rights, title and interest in BXCL501, BXCL701, BXCL502 and BXCL702, and all of the assets and liabilities associated in consideration
for (i) 9,480,000 shares of our common stock, (ii) $1 million upon completion of an initial public offering, (iii) $500,000 upon the later of
the 12 month anniversary of an initial public offering and the first dosing of a patient in the bridging bioavailability/ bioequivalence study
for the BXCL501 program, (iv) $500,000 upon the later of the 12 month anniversary of an initial public offering and the first dosing of a
patient in the Phase 2 proof of concept open-label monotherapy or combination trial with Keytruda for the BXCL701 program and (v) a
one-time payment of $5 million within 60 days after the achievement of $50 million in cumulative net sales of any product or combination
of products resulting from the development and commercialization of any one of the Candidates or a product derived therefrom. Upon
completion of our IPO in March 2018, $1 million was charged to Research and Development costs in connection with (ii) above and was
paid on April 5, 2018. We paid $500,000 to BioXcel in connection with (iii) above in April 2019. In July 2019, we completed the first
dosing of a patient in the combination trial of BXCL701 with Keytruda, and as a result we paid $500,000 to BioXcel in connection with (iv)
above in July 2019.
We entered into a Separation and Shared Services Agreement with BioXcel that took effect on June 30, 2017, as amended and restated
thereafter, or the Services Agreement, pursuant to which services provided by BioXcel through its subsidiaries in India and the United
States will continue indefinitely, as agreed upon by the parties. These services are primarily for drug discovery, chemical, manufacturing
and controls cost and general and administrative support. Service charges recorded under this agreement were $1.3 million and $862,000 for
the years ended December 31, 2020 and 2019, respectively.
Under the Services Agreement, the Company has an option, exercisable until March 12, 2023, to enter into a collaborative services
agreement with BioXcel pursuant to which BioXcel shall perform product identification and related services for us utilizing EvolverAI. The
parties are obligated to negotiate the collaborative services agreement in good faith and to incorporate reasonable market-based terms,
including consideration for BioXcel reflecting a low, single-digit royalty on net sales and reasonable development and commercialization
milestone payments, provided that (i) development milestones shall not exceed $10 million in the aggregate and not be payable prior to
proof of concept in humans and (ii) commercialization milestones shall be based on reaching annual net sales levels, be limited to 3% of the
applicable net sales level, and not exceed $30 million in the aggregate. BioXcel shall continue to make such product identification and
related services available to us until at least September 30, 2024.
We paid $9 million in February 2020 for the purchase and subsequent cancellation of 300,000 shares owned by BioXcel, which is
more fully discussed in Note 5 to the financial statements included elsewhere in this Annual Report on Form 10-K.
Government Regulation
Government Regulation and Product Approval
Government authorities in the United States, at the federal, state and local level, and other countries extensively regulate, among
other things, the research, development, testing, manufacture, quality control, approval, labeling,
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packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of drug products. A new
drug must be approved by the FDA through the NDA process before it may be legally marketed in the United States. We, along with any
third-party contractors, will be required to navigate the various preclinical, clinical and commercial approval requirements of the governing
regulatory agencies of the countries in which we wish to conduct studies or seek approval of our products and product candidates. The
process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign statutes and
regulations require the expenditure of substantial time and financial resources.
U.S. Drug Development Process
In the United States, the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act (“FDCA”), and its implementing
regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign
statutes and regulations require the expenditure of substantial time and financial resources. The process required by the FDA before a drug
may be marketed in the United States generally involves the following:
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completion of preclinical laboratory tests, animal studies and formulation studies in accordance with FDA’s Good Laboratory
Practice requirements and other applicable 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 (“IRB”), or ethics committee at each clinical site before each trial
may be initiated;
performance of adequate and well-controlled human clinical trials in accordance with good clinical practices (“GCPs”), to
establish the safety and efficacy of the proposed drug for its intended use;
preparation of and submission to the FDA of an NDA after completion of all pivotal trials;
a determination by the FDA within 60 days of its receipt of an NDA to file the application for review
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 drug is produced to assess
compliance with current Good Manufacturing Practice (“cGMP”) requirements to assure that the facilities, methods and controls are
adequate to preserve the drug’s identity, strength, quality and purity, and of selected clinical investigation sites to assess compliance
with GCPs; and
FDA review and approval of the NDA to permit commercial marketing of the product for particular indications for use in the
United States.
Prior to beginning the first clinical trial with a product candidate in the United States, a sponsor must submit an IND to the
FDA. An IND is a request for authorization from the FDA to administer an investigational new drug product to humans. The central focus
of an IND submission is on the general investigational plan and the protocol(s) for clinical studies. The IND also includes results of animal
and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic characteristics of the product;
chemistry, manufacturing, and controls information; and any available human data or literature to support the use of the investigational
product. An IND must become effective before human clinical trials may begin. The IND automatically becomes effective 30 days after
receipt by the FDA, unless the FDA, within the 30-day time period, raises safety concerns or questions about the proposed clinical trial. In
such a case, the IND may be placed on clinical hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions
before the clinical trial can begin. Submission of an IND therefore may or may not result in FDA authorization to begin a clinical trial.
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Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified
investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed consent for their
participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things, the objectives of the
study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A separate submission to the existing
IND must be made for each successive clinical trial conducted during product development and for any subsequent protocol amendments.
Furthermore, an independent IRB for each site proposing to conduct the clinical trial must review and approve the plan for any clinical trial
and its informed consent form before the clinical trial begins at that site and must monitor the study until completed. Some studies also
include oversight by an independent group of qualified experts organized by the clinical study sponsor, known as a data safety monitoring
board, which provides authorization for whether or not a study may move forward at designated check points based on access to
certain data from the study and may halt the clinical trial if it determines that there is an unacceptable safety risk for subjects or other
grounds, such as no demonstration of efficacy. Depending on its charter, this group may determine whether a trial may move forward at
designated check points based on access to certain data from the trial. The FDA or the sponsor may suspend a clinical trial at any time on
various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an
IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the
IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. There are also requirements governing the
reporting of ongoing clinical studies and clinical study results to public registries.
Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:
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Phase 1: The product candidate is initially introduced into healthy human subjects or patients with the target disease or
condition. These studies are designed to test the safety, dosage tolerance, absorption, metabolism and distribution of the
investigational product in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on
effectiveness.
Phase 2: The product candidate is administered to a limited patient population with a specified disease or condition to
evaluate the preliminary efficacy, optimal dosages and dosing schedule and to identify possible adverse side effects and safety
risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning larger and more expensive
Phase 3 clinical trials.
Phase 3: The product candidate is administered to an expanded patient population to further evaluate dosage, to provide
statistically significant evidence of clinical efficacy and to further test for safety, generally at multiple geographically dispersed
clinical trial sites. These clinical trials are intended to establish the overall risk/benefit ratio of the investigational product and to
provide an adequate basis for product approval.
In some cases, the FDA may require, or companies may voluntarily pursue, additional clinical trials after a product is approved to
gain more information about the product. These so-called Phase 4 studies, may be conducted after initial marketing approval, and may be
used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, the FDA may
mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.
Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information
about the chemistry and physical characteristics of the drug and finalize a process for manufacturing the product in commercial quantities in
accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product
candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final
drug. In addition, appropriate packaging must be selected and tested, and stability studies must be conducted to demonstrate that the
product candidate does not undergo unacceptable deterioration over its shelf life.
While the IND is active and before approval, progress reports summarizing the results of the clinical trials and nonclinical studies
performed since the last progress report must be submitted at least annually to the FDA, and written
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IND safety reports must be submitted to the FDA and investigators for serious and unexpected suspected adverse events, findings from
other studies suggesting a significant risk to humans exposed to the same or similar drugs, findings from animal or in vitro testing
suggesting a significant risk to humans, and any clinically important increased incidence of a serious suspected adverse reaction compared
to that listed in the protocol or investigator brochure.
In addition, during the development of a new drug, sponsors are given opportunities to meet with the FDA at certain points. These
points may be prior to submission of an IND, at the end of Phase 2, and before an NDA is submitted. Meetings at other times may be
requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date, for the FDA to
provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically use the meetings
at the end of the Phase 2 trial to discuss Phase 2 clinical results and present plans for the pivotal Phase 3 clinical trials that they believe will
support approval of the new drug.
U.S. Review and Approval Process
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, the results of
product development, preclinical and other non-clinical studies and clinical trials, along with descriptions of the manufacturing process,
analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the FDA as part
of an NDA requesting approval to market the product. Data can come from company-sponsored clinical studies intended to test the safety
and effectiveness of a use of the product, or from a number of alternative sources, including studies initiated by independent investigators.
The submission of an NDA is subject to the payment of substantial user fees; a waiver of such fees may be obtained under certain limited
circumstances. Additionally, no user fees are assessed on NDAs for products designated as orphan drugs, unless the product also includes a
non-orphan indication.
The FDA conducts a preliminary review of all NDAs within the first 60 days after submission, before accepting them for filing, to
determine whether they are sufficiently complete to permit substantive review The FDA may request additional information rather than
accept an NDA for filing. In this event, the NDA must be resubmitted with the additional information. The resubmitted application also is
subject to review before the FDA accepts it for filing. Once filed, the FDA reviews an NDA to determine, among other things, whether a
product is safe and effective for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s
identity, strength, quality and purity. Under the Prescription Drug User Fee Act (“PDUFA”), guidelines that are currently in effect, the FDA
has a goal of ten months from the filing date to complete a standard review of an NDA for a drug that is a new molecular entity, and of ten
months from the date of NDA receipt to complete a standard review of an NDA for a drug that is not a new molecular entity.
The FDA may refer an application for a novel drug to an advisory committee. An advisory committee is a panel of independent
experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the
application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it
considers such recommendations carefully when making decisions.
Before approving an NDA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA will
not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP and adequate
to assure consistent production of the product within required specifications. Additionally, before approving a NDA, the FDA will typically
inspect one or more clinical sites to assure compliance with GCPs. If the FDA determines that the application, manufacturing process or
manufacturing facilities are not acceptable, it will outline the deficiencies in the submission and often will request additional testing or
information. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application
does not satisfy the regulatory criteria for approval.
After the FDA evaluates an NDA and conducts inspections of manufacturing facilities where the investigational product and/or its
drug substance will be produced, the FDA may issue an approval letter or a Complete Response Letter (“CRL). An approval letter
authorizes commercial marketing of the product with specific prescribing information for
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specific indications. A CRL will describe all of the deficiencies that the FDA has identified in the NDA, except that where the FDA
determines that the data supporting the application are inadequate to support approval, the FDA may issue the CRL without first conducting
required inspections and/or reviewing proposed labeling. In issuing the CRL, the FDA may recommend actions that the applicant might
take to place the NDA in condition for approval, including requests for additional information or clarification. The FDA may delay or refuse
approval of an NDA if applicable regulatory criteria are not satisfied, require additional testing or information and/or require post-
marketing testing and surveillance to monitor safety or efficacy of a product.
If regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations
on the indicated uses for which such product may be marketed. For example, the FDA may approve the NDA with a Risk Evaluation and
Mitigation Strategy (“REMS”) to ensure the benefits of the product outweigh its risks. A REMS is a safety strategy to manage a known or
potential serious risk associated with a medicine and to enable patients to have continued access to such medicines by managing their safe
use, and could include medication guides, physician communication plans, or elements to assure safe use, such as restricted distribution
methods, patient registries, and other risk minimization tools. The FDA also may condition approval on, among other things, changes to
proposed labeling or the development of adequate controls and specifications. The FDA may also require one or more Phase 4 post- market
studies and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization and may limit further
marketing of the product based on the results of these post-marketing studies.
In addition, the Pediatric Research Equity Act (“PREA”), requires a sponsor to conduct pediatric clinical trials for most drugs, for a
new active ingredient, new indication, new dosage form, new dosing regimen or new route of administration. Under PREA, original NDAs
and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver. The required assessment must
evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing
and administration for each pediatric subpopulation for which the product is safe and effective. The sponsor or FDA may request a deferral
of pediatric clinical trials for some or all of the pediatric subpopulations. A deferral may be granted for several reasons, including a finding
that the drug is ready for approval for use in adults before pediatric clinical trials are complete or that additional safety or effectiveness data
needs to be collected before the pediatric clinical trials begin. The FDA must send a non-compliance letter to any sponsor that fails to
submit the required assessment, keep a deferral current or fails to submit a request for approval of a pediatric formulation.
Regulation of Combination Products in the United States
Certain products are comprised of components, such as drug components and device components, that would normally be subject to
different regulatory frameworks by the FDA and frequently regulated by different centers at the FDA. These products are known as
combination products. Under the FDCA, the FDA is charged with assigning a center with primary jurisdiction, or a lead center, for review
of a combination product. The determination of which center will be the lead center is based on the “primary mode of action” of the
combination product. Thus, if the primary mode of action of a drug-device combination product is attributable to the drug product, the FDA
center responsible for premarket review of the drug product would have primary jurisdiction for the combination product. The FDA has also
established the Office of Combination Products to address issues surrounding combination products and provide more certainty to the
regulatory review process. That office serves as a focal point for combination product issues for agency reviewers and industry. It is also
responsible for developing guidance and regulations to clarify the regulation of combination products, and for assignment of the FDA center
that has primary jurisdiction for review of combination products where the jurisdiction is unclear or in dispute.
A combination product with a primary mode of action attributable to the drug component generally would be reviewed and approved
pursuant to the drug approval processes set forth in the FDCA. In reviewing the NDA for such a product, however, FDA reviewers would
consult with their counterparts in the device center to ensure that the device component of the combination product met applicable
requirements regarding safety, effectiveness, durability and performance. In addition, under FDA regulations, combination products subject
to cGMP requirements applicable to both drugs and devices, including the Quality System Regulations (“QSR”) applicable to medical
devices.
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Expedited Development and Review Programs
The FDA offers a number of expedited development and review programs for qualifying product candidates. For example, the Fast
Track program is intended to expedite or facilitate the process for reviewing new products that are intended to treat a serious or life-
threatening disease or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast Track
designation applies to the combination of the product and the specific indication for which it is being studied. The sponsor of a fast track
product has opportunities for more frequent interactions with the applicable FDA review team during product development and, once an
NDA is submitted, the product candidate may be eligible for priority review. A Fast Track product may also be eligible for rolling review,
where the FDA may consider for review sections of the NDA on a rolling basis before the complete application is submitted, if the sponsor
provides a schedule for the submission of the sections of the NDA, the FDA agrees to accept sections of the NDA and determines that the
schedule is acceptable, and the sponsor pays any required user fees upon submission of the first section of the NDA.
A product candidate intended to treat a serious or life-threatening disease or condition may also be eligible for Breakthrough
Therapy designation to expedite its development and review. A product candidate can receive Breakthrough Therapy designation if
preliminary clinical evidence indicates that the product candidate, alone or in combination with one or more other drugs or biologics, may
demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment
effects observed early in clinical development. The designation includes all of the Fast Track program features, as well as more intensive
FDA interaction and guidance beginning as early as Phase 1 and an organizational commitment to expedite the development and review of
the product candidate, including involvement of senior managers.
Any marketing application for a drug submitted to the FDA for approval, including a product candidate with a Fast Track
designation and/or Breakthrough Therapy designation, may be eligible for other types of FDA programs intended to expedite the FDA
review and approval process, such as priority review and accelerated approval. A product candidate is eligible for priority review if it is
designed to treat a serious or life-threatening disease or condition, and if approved, would provide a significant improvement in safety or
effectiveness compared to available alternatives for such disease or condition. For new-molecular-entity NDAs, priority review designation
means the FDA’s goal is to take action on the marketing application within six months of the 60-day filing date, or with respect to non-new-
molecular-entity NDAs, within six months of the NDA receipt date.
Additionally, product candidates studied for their safety and effectiveness in treating serious or life-threatening diseases or
conditions may receive accelerated approval upon a determination that the product has an effect on a surrogate endpoint that is reasonably
likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is
reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity,
or prevalence of the condition and the availability or lack of alternative treatments. As a condition of accelerated approval, the FDA will
generally require the sponsor to perform adequate and well-controlled post-marketing clinical studies to verify and describe the anticipated
effect on irreversible morbidity or mortality or other clinical benefit. Products receiving accelerated approval may be subject to expedited
withdrawal procedures if the sponsor fails to conduct the required post-marketing studies or if such studies fail to verify the predicted
clinical benefit. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional materials,
which could adversely impact the timing of the commercial launch of the product.
Fast Track designation, Breakthrough Therapy designation, priority review, and accelerated approval do not change the standards
for approval, but may expedite the development or approval process. Even if a product candidate qualifies for one or more of these
programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA
review or approval will not be shortened.
Orphan drug designation and exclusivity
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug intended to treat a rare disease or condition, defined as
a disease or condition with a patient population of fewer than 200,000 individuals in the United
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States, or a patient population greater than 200,000 individuals in the United States and when there is no reasonable expectation that the
cost of developing and making available the drug in the United States will be recovered from sales in the United States for that drug. Orphan
drug designation must be requested before submitting an NDA. After the FDA grants orphan drug designation, the generic identity of the
therapeutic agent and its potential orphan use are disclosed publicly by the FDA.
If a product that has orphan drug designation subsequently receives the first FDA approval for a particular active ingredient for the
disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve
any other applications, including a full NDA, to market the same drug for the same indication for seven years, except in limited
circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity or if the FDA finds that the holder of the
orphan drug exclusivity has not shown that it can assure the availability of sufficient quantities of the orphan drug to meet the needs of
patients with the disease or condition for which the drug was designated. Orphan drug exclusivity does not prevent the FDA from approving
a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan
drug designation are tax credits for certain research and a waiver of the NDA application user fee.
A designated orphan drug many not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for
which it received orphan designation. In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later
determines that the request for designation was materially defective or, as noted above, if a second applicant demonstrates that its product is
clinically superior to the approved product with orphan exclusivity or the manufacturer of the approved product is unable to assure
sufficient quantities of the product to meet the needs of patients with the rare disease or condition.
Post-approval Requirements
Drug products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the
FDA, including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting, product
sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved product, such as
adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual program
fees for any marketed products. Drug manufacturers and their subcontractors are required to register their establishments with the FDA
and certain state agencies, and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance
with cGMP, which impose certain procedural and documentation requirements upon us and our third-party manufacturers. Changes to the
manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior FDA approval before
being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting
requirements. Accordingly, manufacturers must continue to expend time, money and effort in the area of production and quality control to
maintain compliance with cGMP and other aspects of regulatory compliance.
The FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems
occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of
unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in
revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical studies to assess new safety
risks; or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences include, among
other things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or product
recalls;
fines, warning letters, or untitled letters;
clinical holds on clinical studies;
refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or
revocation of product approvals;
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product seizure or detention, or refusal to permit the import or export of products;
consent decrees, corporate integrity agreements, debarment or exclusion from federal healthcare programs;
mandated modification of promotional materials and labeling and the issuance of corrective information;
the issuance of safety alerts, Dear Healthcare Provider letters, press releases and other communications containing warnings or
other safety information about the product; or
injunctions or the imposition of civil or criminal penalties.
The FDA closely regulates the marketing, labeling, advertising and promotion of drug products. A company can make only those
claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions of the
approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. Failure to
comply with these requirements can result in, among other things, adverse publicity, warning letters, corrective advertising and potential
civil and criminal penalties. Physicians may prescribe, in their independent professional medical judgment, legally available products for
uses that are not described in the product’s labeling and that differ from those tested by us and approved by the FDA. Physicians may
believe that such off-label uses are the best treatment for many patients in varied circumstances. The FDA does not regulate the behavior of
physicians in their choice of treatments. The FDA does, however, restrict manufacturer’s communications on the subject of off-label use of
their products. However, companies may share truthful and not misleading information that is otherwise consistent with a product’s FDA-
approved labelling.
Hatch-Waxman Act
Section 505 of the FDCA describes three types of marketing applications that may be submitted to the FDA to request marketing
authorization for a new drug. A Section 505(b)(1) NDA is an application that contains full reports of investigations of safety and efficacy. A
505(b)(2) NDA is an application that contains full reports of investigations of safety and efficacy but where at least some of the information
required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not
obtained a right of reference or use from the person by or for whom the investigations were conducted. This regulatory pathway enables the
applicant to rely, in part, on the FDA's prior findings of safety and efficacy for an existing product, or published literature, in support of its
application. Section 505(j) establishes an abbreviated approval process for a generic version of approved drug products through the
submission of an Abbreviated New Drug Application (“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, to a previously approved product. ANDAs are termed "abbreviated" because they are generally not required to include preclinical
(animal) and clinical (human) data to establish safety and efficacy. Instead, generic applicants must scientifically demonstrate that their
product is bioequivalent to, or performs in the same manner as, the innovator drug through in vitro, in vivo, or other testing. The generic
version must deliver the same amount of active ingredients into a subject's bloodstream in the same amount of time as 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, applicants are required to list with the FDA each patent with claims that cover the applicant's drug or a method of using the drug.
Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDA's Approved Drug Products
with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. Drugs listed in the Orange Book can, in turn, be cited by
potential competitors in support of approval of an ANDA or 505(b)(2) NDA.
Upon submission of an ANDA or a 505(b)(2) NDA, an applicant must certify to the FDA that (1) no patent information on the drug
product that is the subject of the application has been submitted to the FDA; (2) such patent has expired; (3) the date on which such patent
expires; or (4) such patent is invalid or will not be infringed upon by the manufacture, use or sale of the drug product for which the
application is submitted. Generally, the ANDA or 505(b)(2)
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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 the last type of certification, also known as a paragraph IV certification. If the applicant does not challenge the listed patents
or indicates that it is not seeking approval of a patented method of use, the ANDA or 505(b)(2) NDA application will not be approved until
all of the listed patents claiming the referenced product have expired. If the ANDA or 505(b)(2) NDA applicant has provided a Paragraph
IV certification to the FDA, the applicant must send notice of the Paragraph IV certification to the NDA and patent holders once the
application has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in
response to the notice of the paragraph IV certification. If the paragraph IV certification is challenged by an NDA holder or the patent
owner(s) asserts a patent challenge to the paragraph IV certification, the FDA may not approve that application until the earlier of 30
months from the receipt of the notice of the paragraph IV certification, the expiration of the patent, when the infringement case concerning
each such patent was favorably decided in the applicant's favor or settled, or such shorter or longer period as may be ordered 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 patent owner(s) regularly take action to trigger the 30-month stay, recognizing that the related patent
litigation may take many months or years to resolve. Thus, approval of an ANDA or 505(b)(2) NDA could be delayed for a significant
period of time depending on the patent certification the applicant makes and the reference drug sponsor's decision to initiate patent
litigation.
The Hatch-Waxman Act establishes periods of regulatory exclusivity for certain approved drug products, during which the
FDA cannot approve (or in some cases accept) an ANDA or 505(b)(2) application that relies on the branded reference drug. For example,
the holder of an NDA, including a 505(b)(2) NDA, may obtain five years of exclusivity upon approval of a new drug containing new
chemical entities that have not been previously approved by the FDA. A drug is a new chemical entity if the FDA has not previously
approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the therapeutic activity of the
drug substance. During the exclusivity period, the FDA may not accept for review an ANDA or a 505(b)(2) NDA submitted by another
company that contains the previously approved active moiety. However, an ANDA or 505(b)(2) NDA may be submitted after four years if
it contains a certification of patent invalidity or non-infringement. The Hatch-Waxman Act also provides three years of marketing
exclusivity to the holder of an NDA (including a 505(b)(2) NDA) for a particular condition of approval, or change to a marketed product,
such as a new formulation for a previously approved product, if one or more new clinical studies (other than bioavailability or
bioequivalence studies) was essential to the approval of the application and was conducted/sponsored by the applicant. This three-year
exclusivity period protects against FDA approval of ANDAs and 505(b)(2) NDAs for the condition of the new drug's approval. As a general
matter, the three year exclusivity 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 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 the preclinical studies and adequate and
well-controlled clinical trials necessary to demonstrate safety and efficacy.
FDA Approval and Regulation of Medical Devices and Companion Diagnostics
If safe and effective use of a therapeutic depends on an in vitro diagnostic, then the FDA generally will require approval or clearance
of that diagnostic, known as a companion diagnostic, at the same time that the FDA approves the therapeutic product. In August 2014, the
FDA issued final guidance clarifying the requirements that will apply to approval of therapeutic products and in vitro companion
diagnostics. According to the guidance, if FDA determines that a companion diagnostic device is essential to the safe and effective use of a
novel therapeutic product or indication, FDA generally will not approve the therapeutic product or new therapeutic product indication if the
companion diagnostic device is not approved or cleared for that indication. Approval or clearance of the companion diagnostic device will
ensure that the device has been adequately evaluated and has adequate performance characteristics in the intended population. The review
of in vitro companion diagnostics in conjunction with the review of our therapeutic treatments for cancer will, therefore, likely involve
coordination of review by the FDA’s Center for Drug Evaluation and Research and the FDA’s Center for Devices and Radiological Health
Office of In Vitro Diagnostics and Radiological Health.
Under the FDCA, in vitro diagnostics, including companion diagnostics, are regulated as medical devices. In the United States, the
FDCA and its implementing regulations, and other federal and state statutes and regulations govern, among other things, medical device
design and development, preclinical and clinical testing, premarket clearance or
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approval, registration and listing, manufacturing, labeling, storage, advertising and promotion, sales and distribution, export and import, and
post-market surveillance. Unless an exemption applies, medical devices, including companion diagnostic tests, require marketing clearance
or approval from the FDA prior to commercial distribution.
The two primary types of FDA marketing authorization applicable to a medical device are premarket notification, also called 510(k)
clearance, and premarket approval (“PMA”). To obtain 510(k) clearance, a manufacturer must submit to the FDA a premarket notification
submission demonstrating that the proposed device is “substantially equivalent” to a legally marketed predicate device. The FDA’s 510(k)
clearance process usually takes from three to twelve months, but may take longer. The FDA may require additional information, including
clinical data, to make a determination regarding substantial equivalence. If the FDA agrees that the device is substantially equivalent to a
predicate device currently on the market, it will grant 510(k) clearance to commercially market the device. If the FDA determines that the
device is “not substantially equivalent” to a previously cleared device, the device is automatically designated as a Class III (i.e., high-risk)
device. The device sponsor must then fulfill more rigorous PMA requirements, or can request a risk-based classification determination for
the device in accordance with the “de novo” process, which is a route to market for novel medical devices that are low to moderate risk and
are not substantially equivalent to a predicate device.
After a device receives 510(k) clearance, any modification that could significantly affect its safety or effectiveness, or that would
constitute a major change or modification in its intended use, will require a new 510(k) clearance or, depending on the modification, PMA
approval or de novo classification. The FDA requires each manufacturer to determine whether the proposed change requires submission of a
510(k), de novo classification or a PMA in the first instance, but the FDA can review any such decision and disagree with a manufacturer’s
determination. If the FDA disagrees with a manufacturer’s determination, the FDA can require the manufacturer to cease marketing and/or
request the recall of the modified device until 510(k) marketing clearance, approval of a PMA, or issuance of a de novo classification. Also,
in these circumstances, the manufacturer may be subject to significant regulatory fines or penalties.
The PMA process, including the gathering of clinical and preclinical data and the submission to and review by the FDA, can take
several years or longer. It involves a rigorous premarket review during which the applicant must prepare and provide the FDA with
reasonable assurance of the device’s safety and effectiveness and information about the device and its components regarding, among other
things, device design, manufacturing and labeling. PMA applications are subject to an application fee. In addition, PMAs for certain devices
must generally include the results from extensive preclinical and adequate and well-controlled clinical trials to establish the safety and
effectiveness of the device for each indication for which FDA approval is sought. In particular, for a diagnostic, a PMA application typically
requires data regarding analytical and clinical validation studies. As part of the PMA review, the FDA will typically inspect the
manufacturer’s facilities for compliance with the QSR which imposes elaborate testing, control, documentation and other quality assurance
requirements.
PMA approval is not guaranteed, and the FDA may ultimately respond to a PMA submission with a not approvable determination
based on deficiencies in the application and require additional clinical trial or other data that may be expensive and time-consuming to
generate and that can substantially delay approval. If the FDA’s evaluation of the PMA application is favorable, the FDA typically issues an
approvable letter requiring the applicant’s agreement to specific conditions, such as changes in labeling, or specific additional information,
such as submission of final labeling, in order to secure final approval of the PMA. If the FDA’s evaluation of the PMA or manufacturing
facilities is not favorable, the FDA will deny approval of the PMA or issue a not approvable letter. A not approvable letter will outline the
deficiencies in the application and, where practical, will identify what is necessary to make the PMA approvable. The FDA may also
determine that additional clinical trials are necessary, in which case the PMA approval may be delayed for several months or years while
the trials are conducted and then the data submitted in an amendment to the PMA. If the FDA concludes that the applicable criteria have
been met, the FDA will issue a PMA for the approved indications, which can be more limited than those originally sought by the applicant.
The PMA can include post-approval conditions that the FDA believes necessary to ensure the safety and effectiveness of the device,
including, among other things, restrictions on labeling, promotion, sale and distribution. Once granted, PMA approval may be withdrawn by
the FDA if compliance with post approval requirements, conditions of approval or other regulatory standards are not maintained or
problems are identified following initial marketing.
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After a device is placed on the market, it remains subject to significant regulatory requirements. Medical devices may be marketed only
for the uses and indications for which they are cleared or approved. Device manufacturers must also establish registration and device
listings with the FDA. A medical device manufacturer’s manufacturing processes and those of its suppliers are required to comply with the
applicable portions of the QSR, which cover the methods and documentation of the design, testing, production, processes, controls, quality
assurance, labeling, packaging and shipping of medical devices. Domestic facility records and manufacturing processes are subject to
periodic unscheduled inspections by the FDA. The FDA also may inspect foreign facilities that export products to the United States.
International Regulations
In addition to regulations in the United States, we are and will be subject to a variety of regulations in other jurisdictions
governing, among other things, clinical studies and any commercial sales and distribution of our products. Whether or not we obtain FDA
approval of a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior to the commencement of
clinical studies or marketing of the product in those countries. The requirements and process governing the conduct of clinical studies,
product licensing, pricing and reimbursement vary from country to country. Failure to comply with applicable foreign regulatory
requirements, may be subject to, among other things, fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of
products, operating restrictions and criminal prosecution.
Clinical Trials
Certain countries outside of the United States have a similar process that requires the submission of a clinical study application, or
CTA, much like the IND prior to the commencement of human clinical studies. In the European Union, or EU, for example, a CTA must be
submitted to each country’s national health authority and an independent ethics committee, much like the FDA and the IRB, respectively.
Once the CTA is approved by the national health authority and the ethics committee has granted a positive opinion in relation to the conduct
of the trial in the relevant member state(s), in accordance with a country’s requirements, clinical study development may proceed.
Clinical trials of medicinal products in the European Union must be conducted in accordance with EU and national regulations and
the International Conference on Harmonization, or ICH, guidelines on Good Clinical Practices, or GCP, as well as the applicable regulatory
requirements and the ethical principles that have their origin in the Declaration of Helsinki. Additional GCP guidelines from the European
Commission, focusing in particular on traceability, apply to clinical trials of advanced therapy medicinal products, or ATMPs. If the sponsor
of the clinical trial is not established within the EU, it must appoint an EU entity to act as its legal representative. The sponsor must take out
a clinical trial insurance policy, and in most EU countries, the sponsor is liable to provide ‘no fault’ compensation to any study subject
injured in the clinical trial.
Prior to commencing a clinical trial, the sponsor must obtain a clinical trial authorization from the competent authority, and a positive
opinion from an independent ethics committee. The CTA must include, among other things, a copy of the trial protocol and an
investigational medicinal product dossier containing information about the manufacture and quality of the medicinal product under
investigation. Currently, CTAs must be submitted to the competent authority in each EU member state in which the trial will be conducted.
Under the new Regulation on Clinical Trials, which is currently expected to take effect by early 2022, there will be a centralized application
procedure where one national authority takes the lead in reviewing the application and the other national authorities have only limited
involvement. Any substantial changes to the trial protocol or other information submitted with the CTA must be notified to or approved by
the relevant competent authorities and ethics committees. Medicines used in clinical trials must be manufactured in accordance with GMP.
Other national and European Union-wide regulatory requirements may also apply.
During the development of a medicinal product, the EMA and national regulators provide the opportunity for dialogue and guidance on
the development program. At the EMA level, this is usually done in the form of scientific advice, which is given by the Scientific Advice
Working Party of the Committee for Medicinal Products for Human Use, or CHMP. A fee is incurred with each scientific advice procedure.
Advice from the EMA is typically provided based on questions concerning, for example, quality (chemistry, manufacturing and controls
testing), nonclinical testing and
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clinical trials, and pharmacovigilance plans and risk-management programs. Advice is not legally binding with regard to any future
marketing authorization application of the product concerned.
Marketing Authorizations
In the European Union, medicinal products can only be placed on the market after obtaining a Marketing Authorization, or MA. To
obtain regulatory approval of an investigational drug in the EU, we must submit a marketing authorization application, or MAA. The
process for doing this depends, among other things, on the nature of the medicinal product.
The centralized procedure results in a single MA, issued by the European Commission, based on the opinion of the EMA’s CHMP,
which is valid across the entire territory of the EU. The centralized procedure is compulsory for human medicines that are: (i) derived from
biotechnology processes, such as genetic engineering, (ii) contain a new active substance indicated for the treatment of certain diseases,
such as HIV/AIDS, cancer, diabetes, neurodegenerative diseases, autoimmune and other immune dysfunctions and viral diseases, (iii)
designated orphan medicines and (iv) advanced therapy medicinal products, or ATMPs, such as gene therapy, somatic cell therapy or tissue-
engineered medicines. The centralized procedure may at the request of the applicant also be used in certain other cases. It is very likely that
the centralized procedure would apply to the products we are developing.
Under the centralized procedure, the maximum timeframe for the evaluation of a MAA by the EMA is 210 days. This excludes so-
called clock stops, during which additional written or oral information is to be provided by the applicant in response to questions asked by
the CHMP. At the end of the review period, the CHMP provides an opinion to the European Commission. If this opinion is favorable, the
Commission may then adopt a decision to grant an MA. In exceptional cases, the CHMP might perform an accelerated review of a MAA in
no more than 150 days (not including clock stops). Innovative products that target an unmet medical need and are expected to be of major
public health interest may be eligible for a number of expedited development and review programs, such as the PRIME scheme, which
provides incentives similar to the breakthrough therapy designation in the U.S. PRIME is a voluntary scheme aimed at enhancing the
EMA’s support for the development of medicines that target unmet medical needs. It is based on increased interaction and early dialogue
with companies developing promising medicines, to optimize their product development plans and speed up their evaluation to help them
reach patients earlier. Product developers that benefit from PRIME designation can expect to be eligible for accelerated assessment, but this
is however not guaranteed. The benefits of a PRIME designation include the appointment of a CHMP rapporteur before submission of a
MAA, early dialogue and scientific advice at key development milestones, and the potential to qualify products for accelerated review
earlier in the application process.
There are also two other possible routes to authorize medicinal products in several EU member states, which are available for
investigational medicinal products that fall outside the scope of the centralized procedure: i.e. the decentralized procedure and the mutual
recognition procedure. Under the decentralized procedure, an applicant may apply for simultaneous authorization in more than one EU
member state for medicinal products that have not yet been authorized in any EU member states. Under the mutual recognition procedure, a
medicine is first authorized in one EU member state, in accordance with the national procedures of that country. Following a national
authorization, the applicant may seek further marketing authorizations from other EU member states under a procedure whereby the
countries concerned agree to recognize the validity of the original national marketing authorization.
MAs have an initial duration of five years. After these five years, the authorization may be renewed on the basis of a reevaluation of
the risk-benefit balance. Once renewed, the MA is valid for an unlimited period unless the European Commission or the national competent
authority decides, on justified grounds relating to pharmacovigilance, to proceed with one additional five-year renewal.
Orphan Medicinal Products
The criteria for designating an “orphan medicinal product” in the European Union are similar in principle to those in the United States.
A medicinal product may be designated as orphan if (1) it is intended for the diagnosis, prevention or treatment of a life-threatening or
chronically debilitating condition; (2) either (a) such condition affects no more than
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five in 10,000 persons in the European Union when the application is made, or (b) the product, without the benefits derived from orphan
status, would not generate sufficient return in the European Union to justify investment; and (3) there exists no satisfactory method of
diagnosis, prevention or treatment of such condition authorized for marketing in the European Union, or if such a method exists, the product
will be of significant benefit to those affected by the condition. The application for orphan drug designation must be submitted before the
MAA. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon grant of a MA,
entitled to ten years of market exclusivity for the approved therapeutic indication. During the ten-year market exclusivity period, the EMA
cannot accept a MAA, or grant a MA, or accept an application to extend a MA, for the same indication, in respect of a similar medicinal
product. An orphan medicinal product can also obtain an additional two years of market exclusivity in the European Union for pediatric
studies. No extension to any supplementary protection certificate can be granted on the basis of pediatric studies for orphan indications.
Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
The 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer
meets the criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market
exclusivity. Additionally, a MA may be granted to a similar product for the same indication at any time if (1) the second applicant can
establish that its product, although similar, is safer, more effective or otherwise clinically superior; (2) the applicant consents to a second
orphan medicinal product application; or (3) the applicant cannot supply enough orphan medicinal product.
Approval and Regulation of Companion Diagnostics
In the EU, in vitro diagnostic medical devices are regulated by Directive 98/79/EC which regulates the placing on the market, the CE-
marking, the essential requirements, the conformity assessment procedures, the registration obligations for manufactures and devices as
well as the vigilance procedure. In vitro diagnostic medical devices must comply with the requirements provided for in the Directive, and
with further requirements implemented at national level (as the case may be).
Companion diagnostics can also be considered “combination products” which are governed by a different regulatory pathway
depending on the mode of action of the products. A combination medicine/device product could either be regulated as a medicinal product
or a medical device based on its primary mode of action. In principle, if a medical device incorporates a substance which, if used separately,
is likely to be considered as a medicinal product and act on the human body by an action ancillary to that of the device, the device must be
evaluated and authorized in accordance with the medical device regulations. However, if the medicinal substance constitutes the main
function of the product then the product is considered as a medicinal product. Currently, for such combination products, the manufacturer
will have to consult, prior to obtaining the CE marking of the device, the EMA or national competent authorities to obtain scientific advice
on the quality and safety of the medicinal substance, including the benefit/risk profile of its incorporation into the device.
The regulation of companion diagnostics will be subject to further requirements as of the entry into force of the in-vitro diagnostic
devices Regulation (No 2017/746) which introduces a new classification system for companion diagnostics which are now specifically
defined as diagnostic tests that support the safe and effective use of a specific medicinal product, by identifying patients that are suitable or
unsuitable for treatment. Companion diagnostics will have to undergo a conformity assessment by a notified body. Before it can issue a CE
certificate, the notified body must seek a scientific opinion from the EMA on the suitability of the companion diagnostic to the medicinal
product concerned if the medicinal product falls exclusively within the scope of the centralized procedure for the authorization of
medicines, or the medicinal product is already authorized through the centralized procedure, or a marketing authorization application for the
medicinal product has been submitted through the centralized procedure. For other substances, the notified body can seek the opinion from
a national competent authorities or the EMA.
The aforementioned EU rules are generally applicable in the European Economic Area, or EEA, which consists of the 27 EU member
states plus Norway, Liechtenstein and Iceland.
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The United Kingdom, or UK, formally left the EU on January 31, 2020, commonly referred to as “Brexit”. The post-Brexit transition
period, during which EU pharmaceutical laws continued to apply to the UK, expired on December 31, 2020. This means that since January
1, 2021, the UK operates under a distinct regulatory regime. EU pharmaceutical laws now only apply to the UK in respect of Northern
Ireland (as laid out in the Protocol on Ireland and Northern Ireland, including but not limited to MAAs). Since January 1, 2021, EU laws
which have been transposed into UK law through secondary legislation continue to be applicable as “retained EU law”.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we obtain regulatory
approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for
commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party payors include government
health administrative authorities, managed care providers, private health insurers and other organizations. The process for determining
whether a payor will provide coverage for a drug product may be separate from the process for setting the price or reimbursement rate that
the payor will pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or formulary,
which might not include all of the FDA-approved drugs for a particular indication. Third-party payors are increasingly challenging the price
and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. We
may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of our
products, in addition to the costs required to obtain FDA approvals. Our product candidates may not be considered medically necessary or
cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be
approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate
return on our investment in product development.
In 2003, the U.S. government enacted legislation providing a partial prescription drug benefit for Medicare beneficiaries, which became
effective at the beginning of 2006. Government payment for some of the costs of prescription drugs may increase demand for any products
for which we receive marketing approval. However, to obtain payments under this program, we would be required to sell products to
Medicare recipients through prescription drug plans operating pursuant to this legislation. These plans will likely negotiate discounted
prices for our products.
Further, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation
Act, or ACA, was enacted and the Healthcare Reform Law substantially changes the way healthcare is financed in the United States by both
government and private insurers. Among other cost containment measures, the ACA established:
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an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and biologic agents;
a new Medicare Part D coverage gap discount program, in which pharmaceutical manufacturers who wish to have their drugs
covered under Part D must offer discounts to eligible beneficiaries during their coverage gap period, or the “donut hole”; and
a new formula that increases the rebates a manufacturer must pay under the Medicaid Drug Rebate Program.
Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA. For example,
the Tax Cuts and Jobs Act, or the Tax Act, was enacted in 2017, which, among other things, removes penalties for not complying with the
ACA’s individual mandate to carry health insurance. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas,
ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax
Act, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld
the District Court’s decision that the individual mandate was unconstitutional but remanded the case back to the District Court to determine
whether the remaining provisions of the ACA are invalid as well. The U.S. Supreme Court is currently reviewing the case, although it is
unclear how the Supreme Court will rule. It is unclear how these decisions, subsequent appeals, if any, or other efforts to challenge, repeal
or replace the ACA will impact the law, or our business or financial condition.
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In addition, we expect that federal, state and local governments in the United States will continue to consider legislation to limit the growth
of healthcare costs, including the cost of prescription drugs. Future legislation could limit payments for pharmaceuticals such as the product
candidates that we are developing.
Different pricing and reimbursement schemes exist in other countries. In the European Union, governments influence the price of
pharmaceutical products through their pricing and reimbursement rules and control of national health care systems that fund a large part of
the cost of those products to consumers. Member states are free to restrict the range of pharmaceutical products for which their national
health insurance systems provide reimbursement, and to control the prices and reimbursement levels of pharmaceutical products for human
use. Some jurisdictions operate positive and negative list systems under which products may only be marketed once a reimbursement price
has been agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical trials that
compare the cost-effectiveness of a particular product candidate to currently available therapies. Other member states allow companies to
fix their own prices for medicines but monitor and control company profits. The downward pressure on health care costs in general,
particularly prescription drugs, has become very intense. As a result, new products are facing increasingly high barriers to entry. In addition,
in some countries, cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.
The marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and
third-party payors fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United
States has increased and we expect will continue to increase the pressure on pharmaceutical pricing. Coverage policies and third-party
reimbursement rates may change at any time. Even if favorable coverage and reimbursement status is secured for one or more products for
which we receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
In order to raise sufficient financial resources to continue to advance our product candidates, we will need to address pricing pressures and
potential third-party reimbursement coverage for our product candidates. In the United States and elsewhere, sales of pharmaceutical
products depend in significant part on the availability of reimbursement to the consumer from third party payors, such as government and
private insurance plans. Third party payors are increasingly challenging the prices charged for medical products and services. It is and will
continue to be time consuming and expensive for us or our strategic collaborators to go through the process of seeking reimbursement from
Medicare and private payors. Our products may not be considered cost effective, and coverage and reimbursement may not be available or
sufficient to allow us to sell our products on a competitive and profitable basis.
Other Healthcare Laws and Compliance Requirements
If we obtain regulatory approval for any of our product candidates, we may be subject to various federal and state laws targeting fraud
and abuse in the healthcare industry. Such laws include, without limitation, U.S. federal and state anti-kickback, fraud and abuse, false
claims, consumer fraud, pricing reporting, data privacy and security, and transparency laws and regulations with respect to drug pricing and
payments and other transfers of value made to physicians and other healthcare professionals, as well as similar foreign laws in the
jurisdictions outside the U.S.
The federal Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, receiving, offering or paying
remuneration, directly or indirectly, to induce either the referral of an individual, or the furnishing, recommending, or arranging for a good
or service, for which payment may be made under a federal healthcare program, such as the Medicare and Medicaid programs. A person or
entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation. Many
states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare items or
services reimbursed by any source, not only the Medicare and Medicaid programs.
The federal False Claims Act imposes liability on any person who, among other things, knowingly presents, or causes to be presented,
a false or fraudulent claim for payment by a federal healthcare program. In addition, the government may assert that a claim including items
or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False
Claims Act. The “qui tam” provisions of the False Claims Act allow a private individual to bring civil actions on behalf of the federal
government alleging that the defendant has submitted a false claim to the federal government, and to share in any monetary recovery. In
addition,
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various states have enacted false claims laws analogous to the False Claims Act. Many of these state laws apply where a claim is submitted
to any third-party payer and not merely a federal healthcare program. When an entity is determined to have violated the False Claims Act, it
may be required to pay up to three times the actual damages sustained by the government, plus significant civil penalties for each separate
false claim.
Also, the Health Insurance Portability and Accountability Act of 1996, or HIPAA, created several federal crimes, including healthcare
fraud, and false statements relating to healthcare matters. The health care fraud statute prohibits knowingly and willfully executing a
scheme to defraud any health care benefit program, including private third-party payers. The false statements statute prohibits knowingly
and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in
connection with the delivery of or payment for health care benefits, items or services. Similar to the federal Anti-Kickback Statute, a person
or entity does not need to have actual knowledge of this statute or specific intent to violate it in order to have committed a violation.
The Physician Payment Sunshine Act, or the Sunshine Act, which was enacted as part of the ACA, requires applicable manufacturers
of drugs, devices, biologicals, or medical supplies covered under Medicare, Medicaid or the Children’s Health Insurance Program, to report
annually to the Secretary of the Department of Health and Human Services payments or other transfers of value made by that entity, or by a
third party as directed by that entity, to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain
other healthcare providers starting in 2022, and teaching hospitals, or to third parties on behalf of such providers, during the course of the
preceding calendar year. Failure to comply with the reporting requirements can result in significant civil monetary penalties for any payment
or other transfer of value that is not reported.
Violations of any of these laws or any other governmental laws and regulations that may apply include, without limitation, significant
civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare
programs, such as Medicare and Medicaid, disgorgement, contractual damages, reputational harm, diminished profits and the curtailment or
restructuring of our operations.
Data Privacy & Security
Numerous state, federal and foreign laws, including consumer protection laws and regulations, govern the collection, dissemination,
use, access to, confidentiality and security of personal information, including health-related information. In the United States, numerous
federal and state laws and regulations, including data breach notification laws, health information privacy and security laws, including
HIPAA, and federal and state consumer protection laws and regulations (e.g., Section 5 of the FTC Act), that govern the collection, use,
disclosure, and protection of health-related and other personal information could apply to our operations or the operations of our partners. In
addition, certain state and non-U.S. laws, such as the California Consumer Privacy Act, or CCPA, the California Privacy Rights Act, or
CPRA, and the EU General Data Protection Regulation, or GDPR, govern the privacy and security of personal information, including
health-related information in certain circumstances, some of which are more stringent than HIPAA and many of which differ from each
other in significant ways and may not have the same effect, thus complicating compliance efforts. Failure to comply with these laws, where
applicable, can result in the imposition of significant civil and/or criminal penalties and private litigation. Privacy and security laws,
regulations, and other obligations are constantly evolving, may conflict with each other to complicate compliance efforts, and can result in
investigations, proceedings, or actions that lead to significant civil and/or criminal penalties and restrictions on data processing.
Additionally, our use of artificial intelligence and machine learning may be subject to laws and evolving regulations regarding the use of
artificial intelligence/machine learning, controlling for data bias, and antidiscrimination.
Human Capital
Our Employees. We have grown to a team of 50 employees as of December 31, 2020, all of whom were employed in the U.S. Our
highly qualified and experienced team includes scientists, physicians and professionals across sales,
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marketing, manufacturing, regulatory, finance and other important functions that are critical to our success. We also leverage certain experts
in drug development employed by our BioXcel to provide flexibility for our business needs.
We expect to continue to hire additional employees in 2021 with a focus on expanding our expertise and bandwidth in clinical and
preclinical research and development, marketing and sales and finance. We continually evaluate our business needs and opportunities.
Our Culture. The success of our human capital management investments is evidenced by our low employee turnover, a number which
is regularly reviewed by our Board of Directors as part of their oversight of our human capital strategy.
Employee Engagement, Talent Development & Benefits. We believe that our future success largely depends upon our continued ability
to attract and retain highly skilled employees. We provide our employees with competitive salaries and bonuses, and opportunities for
equity ownership.
Diversity & Inclusion. Much of our success is rooted in the diversity of our teams and our commitment to inclusion. We value diversity
at all levels and continue to focus on extending our diversity and inclusion initiatives across our entire workforce. We believe that our
business benefits from the different perspectives a diverse workforce brings, and we pride ourselves on having a strong, inclusive and
positive culture based on our shared mission and values.
Our Corporate Information
We were incorporated as a Delaware corporation on March 29, 2017 as a wholly owned subsidiary of BioXcel. Our principal
executive offices are located at 555 Long Wharf Drive, New Haven, CT 06511 and our telephone number is (475) 238-6837.
Available Information
Our website address is www.bioxceltherapeutics.com. The contents of, or information accessible through, our website are not part of
this Annual Report on Form 10-K. We make our filings with the SEC, including our Annual Report on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and all amendments to those reports, available free of charge on our website as soon as
reasonably practicable after we file such reports with, or furnish such reports to, the SEC.
We may use our website as a distribution channel of material information about the Company. Financial and other important
information regarding the Company is routinely posted on and accessible through the Investors sections of its website at
www.bioxceltherapeutics.com. In addition, you may automatically receive email alerts and other information about the Company when you
enroll your email address by visiting the “Email Alerts” option under the News / Events menu of the Investors section of our website at
www.bioxceltherapeutics.com .
The reference to our website address does not constitute incorporation by reference of the information contained on or available
through our website, and you should not consider such information to be a part of this Annual Report on Form 10-K.
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Item 1A. Risk Factors
You should carefully consider the risks described below, as well as general economic and business risks and the other information in
this Annual Report on Form 10-K. The occurrence of any of the events or circumstances described below or other adverse events could
have a material adverse effect on our business, results of operations and financial condition and could cause the trading price of our
common stock to decline. Additional risks or uncertainties not presently known to us or that we currently deem immaterial may also harm
our business.
Risks Related to Financial Position and Need for Additional Capital
We have a limited operating history and have never generated any product revenues, which may make it difficult to evaluate the success
of our business to date and to assess our future viability.
We were incorporated in March 2017 and our operations to date have been largely focused on staffing our company, raising capital and
advancing the development of, our product candidates, including conducting clinical and preclinical studies. We have not yet demonstrated
an ability to successfully obtain marketing approvals, manufacture products on a commercial scale, or arrange for a third party to do so on
our behalf or conduct sales and marketing activities necessary for successful commercialization. Consequently, predictions about our future
success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and
commercializing products.
We expect our financial condition and operating results to continue to fluctuate from quarter to quarter and year to year due to a variety
of factors, many of which are beyond our control. We will need to eventually transition from a company with a research and development
focus to a company capable of undertaking commercial activities. We may encounter unforeseen expenses, difficulties, complications and
delays, and may not be successful in such a transition.
We have incurred significant operating losses since inception and anticipate that we will continue to incur substantial operating losses
for the foreseeable future and may never achieve or maintain profitability.
Since our inception, we have incurred significant operating losses. Our net loss was $82.2 million and $33.0 million for the years
ended December 31, 2020 and 2019 respectively. As of December 31, 2020, we had stockholders’ equity of $206.7 million. We expect to
continue to incur significant expenses and increasing operating losses for the foreseeable future. None of our product candidates have been
approved for marketing in the United States, or in any other jurisdiction, and may never receive such approval. It could be several years, if
ever, before we have a commercialized product that generates significant revenues. As a result, we are uncertain when or if we will achieve
profitability and, if so, whether we will be able to sustain it. The net losses we incur may fluctuate significantly from quarter to quarter
and year to year. We anticipate that our expenses will increase substantially as we:
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continue the development of our product candidates;
conduct preclinical studies and clinical trials for our current product candidates and any future product candidates that we may
pursue;
continue to build our portfolio of product candidates through the acquisition or in-license of additional product candidates or
technologies;
continue to develop, maintain, expand and protect our intellectual property portfolio;
pursue regulatory approvals for our current and future product candidates that successfully complete clinical trials;
ultimately establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may
obtain marketing approval;
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hire additional clinical, regulatory, scientific and accounting personnel; and
incur additional legal, accounting and other expenses in operating as a public company.
To become and remain profitable, we must develop and eventually commercialize one or more product candidates with significant
market potential. This will require us to be successful in a range of challenging activities, including completing clinical trials of our product
candidates, developing commercial scale manufacturing processes, obtaining marketing approval, manufacturing, marketing and selling any
current and future product candidates for which we may obtain marketing approval, and satisfying any post-marketing requirements. We
may never succeed in any or all of these activities and, even if we do, we may never generate sufficient revenue to achieve profitability.
Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or
amount of expenses or when, or if, we will obtain marketing approval to commercialize any of our product candidates. If we are required by
the U.S. Food and Drug Administration, or FDA, or other regulatory authorities such as the European Medicines Agency, or EMA, to
perform studies and trials in addition to those currently expected, or if there are any delays in the development, or in the completion of any
planned or future preclinical studies or clinical trials of our current or future product candidates, our expenses could increase and
profitability could be further delayed.
Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.
Our failure to become and remain profitable would decrease the value of our company and could impair our ability to raise capital,
maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also
could cause you to lose all or part of your investment.
We will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or
eliminate our product development programs or commercialization efforts.
We anticipate that our expenses will increase substantially if and as we continue to develop and conduct clinical trials with respect to
BXCL501, BXCL701 and our other product candidates; seek to identify and develop additional product candidates; acquire or in-license
other product candidates or technologies; seek regulatory and marketing approvals for our product candidates that successfully complete
clinical trials, if any; establish sales, marketing, distribution and other commercial infrastructure in the future to commercialize various
products for which we may obtain marketing approval, if any; require the manufacture of larger quantities of product candidates for clinical
development and, potentially, commercialization; maintain, expand and protect our intellectual property portfolio; hire and retain additional
personnel, such as clinical, quality control and scientific personnel; add operational, financial and management information systems and
personnel, including personnel to support our product development and help us comply with our obligations as a public company; and add
equipment and physical infrastructure to support our research and development programs.
We expect that our cash and cash equivalents as of December 31, 2020 will be sufficient to fund our ongoing research and
development efforts and commercialization preparation for at least twelve months from the date of the issuance of the financial statements
included in the Annual Report on Form 10-K. We will be required to expend significant funds in order to advance the development of
BXCL501, BXCL701 and our other product candidates. In addition, while we may seek one or more collaborators for future development of
our current product candidate or any future product candidates that we may develop for one or more indications, we may not be able to
enter into a collaboration for any of our product candidates for such indications on suitable terms, on a timely basis or at all. In any event,
the net proceeds of our prior equity offerings and our existing cash will not be sufficient to fund all of the efforts that we plan to undertake
or to fund the completion of development of our product candidates or our other preclinical programs. Accordingly, we will be required to
obtain further funding through public or private equity offerings, debt financings, collaborations and licensing arrangements or other
sources. Further financing may not be available to us on acceptable terms, or at all. Additionally, market volatility resulting from the
COVID-19 pandemic or other factors could
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also adversely impact our ability to access capital as and when needed. Our failure to raise capital as and when needed would have a
negative impact on our financial condition and our ability to pursue our business strategy.
Our estimate as to how long we expect our existing cash to be able to continue to fund our operations is based on assumptions that may
prove to be wrong, and we could use our available capital resources sooner than we currently expect. Further, changing circumstances,
some of which may be beyond our control, could cause us to consume capital significantly faster than we currently anticipate, and we may
need to seek additional funds sooner than planned. Our future funding requirements, both short-term and long-term, will depend on many
factors, including:
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the scope, progress, timing, costs and results of clinical trials of BXCL501, BXCL701 and our other product candidates;
our ability to enter into and the terms and timing of any collaborations, licensing agreements or other arrangements;
the costs, timing and outcome of seeking regulatory approvals;
the costs of commercialization activities for any of our product candidates that receive marketing approval to the extent such
costs are not the responsibility of any future collaborators, including the costs and timing of establishing product sales,
marketing, distribution and manufacturing capabilities;
our headcount growth and associated costs as we expand our research and development as well as establish a commercial
infrastructure;
revenue received from commercial sales, if any, of our current and future product candidates;
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and
defending against intellectual property related claims;
the number of future product candidates that we pursue and their development requirements;
changes in regulatory policies or laws that may affect our operations;
changes in physician acceptance or medical society recommendations that may affect commercial efforts;
the costs of acquiring potential new product candidates or technology; and
the costs of operating as a public company.
Risks Related to the Discovery and Development of Product Candidates
We have limited experience in drug discovery and drug development, and we have never had a drug approved.
Prior to the acquisition of our product candidates, we were not involved in and had no control over their preclinical and clinical
development. In addition, we are relying upon the parties we have acquired our product candidates from to have conducted such research
and development in accordance with the applicable protocol, legal, regulatory and scientific standards, having accurately reported the
results of all clinical trials conducted prior to our acquisition of the applicable product candidate, and having correctly collected and
interpreted the data from these studies and trials. To the extent any of these has not occurred, our expected development time and costs may
be increased, which could adversely affect our prospects for marketing approval of, and receiving any future revenue from, these product
candidates.
In the near term, we are dependent on the success of BXCL501 and BXCL701. If we are unable to complete the clinical development of,
obtain marketing approval for or successfully commercialize BXCL501, BXCL701 and our other product candidates, either alone or
with a collaborator, or if we experience significant delays in doing so, our business could be substantially harmed.
We currently do not have any products that have received regulatory approval and may never be able to develop marketable product
candidates. We are investing a significant portion of our efforts and financial resources in the development of BXCL501, BXCL701 and our
other product candidates. Our prospects are substantially dependent on
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our ability, or that of any future collaborator, to develop, obtain marketing approval for and successfully commercialize product candidates
in one or more disease indications.
The success of BXCL501, BXCL701 and our other product candidates will depend on several factors, including the following:
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acceptance of an IND application by the FDA authorizing us to conduct clinical trials of our product candidates in the United
States;
initiation, progress, timing, costs and results of clinical trials of our product candidates and potential product candidates;
demonstration of safety and efficacy of our product candidates to the satisfaction of the FDA or any comparable foreign
regulatory authority and sufficient for marketing approval;
the timing and performance of our current and future collaborators;
the nature of any required post-marketing clinical trials or other commitments to applicable regulatory authorities;
establishment of supply arrangements with third-party raw materials suppliers and manufacturers;
establishment of arrangements with third-party manufacturers to obtain finished drug product that is appropriately packaged for
sale;
adequate ongoing availability of raw materials and drug product for clinical development and any commercial sales;
obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and
internationally;
protection of our rights in our intellectual property portfolio;
successful launch of commercial sales following any marketing approval;
a continued acceptable safety profile following any marketing approval;
commercial acceptance by patients, the medical community and third-party payors; and
our ability to compete with other therapies.
Many of these factors are beyond our control, including the results of clinical trials, the time required for the FDA or any comparable
foreign regulatory authorities to review any regulatory submissions we may make, potential threats to our intellectual property rights and
the manufacturing, marketing and sales efforts of any future collaborator. If we are unable to develop, receive marketing approval for and
successfully commercialize BXCL501, BXCL701 and our other product candidates, on our own or with any future collaborator, or
experience delays as a result of any of these factors or otherwise, our business could be substantially harmed.
Interim “top-line” and preliminary data from our clinical trials that we announce or publish from time to time may change as more
patient data become available and are subject to audit and verification procedures that could result in material changes in the final
data.
From time to time, we may publicly disclose top-line or preliminary data from our clinical trials, which is based on a preliminary
analysis of then-available data, and the results and related findings and conclusions are subject to change following a more comprehensive
review of the data related to the particular study or trial. For example, on March 3, 2021, we provided further top line data regarding our
TRANQUILITY study based on our ongoing analysis. We also make assumptions, estimations, calculations and conclusions as part of our
analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the top-line or
preliminary results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify
such results, once additional data have been received and fully evaluated. Top-line or preliminary data also remain subject to
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audit and verification procedures that may result in the final data being materially different from the top-line or preliminary data we
previously published. As a result, top-line and preliminary data should be viewed with caution until the final data are available.
From time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data from clinical trials
that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment
continues and more patient data become available. Adverse differences between interim data and final data could significantly harm our
business prospects. Further, disclosure of interim data by us or by our competitors could result in volatility in the price of our common
stock.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or
analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the
approvability or commercialization of the particular product candidate or product and our company in general. In addition, the information
we choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or
others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.
If the interim, top-line or preliminary data that we report differ from actual results, or if others, including regulatory authorities,
disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which
could harm our business, operating results, prospects or financial condition.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming, expensive and
inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be
substantially harmed.
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years
following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory
authorities. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-
stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having
progressed through preclinical studies and initial clinical trials. It is not uncommon for companies in the biopharmaceutical industry to
suffer significant setbacks in advanced clinical trials due to nonclinical findings made while clinical studies were underway and safety or
efficacy observations made in clinical studies, including previously unreported adverse events. Our future clinical trial results may not be
successful, and notwithstanding any potential promising results in earlier studies, we cannot be certain that we will not face similar
setbacks. The historical failure rate for product candidates in our industry is high. In addition, approval policies, regulations, or the type and
amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may
vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing
product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.
Our product candidates could fail to receive regulatory approval for many reasons, including the following:
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the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
● we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product
candidate is safe and effective for its proposed indication;
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the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign
regulatory authorities for approval;
the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or
clinical trials;
the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an New Drug
Application, or NDA, or other submission or to obtain regulatory approval in
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the United States or elsewhere; the FDA or comparable foreign regulatory authorities may disagree that our changes to branded
reference drugs meet the criteria for the 505(b)(2) regulatory pathway or foreign regulatory pathways;
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the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-
party manufacturers with which we contract for clinical and commercial supplies; and
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a
manner rendering our clinical data insufficient for approval.
We have limited experience in completing clinical trials of any of our product candidates. Consequently, we may not have the
necessary capabilities, including adequate staffing, to successfully manage the execution and completion of any clinical trials we initiate in a
way that leads to our obtaining marketing approval for our product candidates in a timely manner, or at all. This lengthy approval process as
well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product
candidates, which would significantly harm our business, results of operations and prospects.
In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more
limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the
performance of costly post-marketing clinical trials, may approve a product candidate with a label that does not include the labeling claims
necessary or desirable for the successful commercialization of that product candidate or may restrict its distribution. Any of the foregoing
scenarios could materially harm the commercial prospects for our product candidates.
We have not previously submitted an NDA to the FDA or similar drug approval filings to comparable foreign authorities, for any
product candidate, and we cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory
approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not
receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain
regulatory approvals to market one or more of our product candidates, our revenues will be dependent, in part, upon the size of the markets
in the territories for which we gain regulatory approval and have commercial rights. If the markets for patients that we are targeting for our
product candidates are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.
We plan to seek regulatory approval to commercialize our product candidates both in the United States, the European Union and in
additional foreign countries. While the scope of regulatory approval is similar in other countries, to obtain separate regulatory approval in
many other countries we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy
and governing, among other things, clinical trials and commercial sales, pricing and distribution of our product candidates, and we cannot
predict success in these jurisdictions.
Clinical trials are expensive, time-consuming and difficult to design and implement, and involve an uncertain outcome.
Before obtaining marketing approval from the FDA or other comparable foreign regulatory authorities for the sale of our product
candidates, we must complete preclinical development and extensive clinical trials to demonstrate the safety and efficacy of our product
candidates. Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at
any time during the clinical trial process. Although we are planning for certain clinical trials relating to BXCL501, BXCL701 and our other
product candidates, there can be no assurance that the FDA will accept our proposed trial designs. We may experience delays in our clinical
trials and we do not know whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed
on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays related to:
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obtaining regulatory authorizations to commence a trial or consensus with regulatory authorities on trial designs;
reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the
terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
diversion of healthcare resources to combat epidemics, such as the COVID-19 pandemic;
obtaining institutional review board, or IRB, approval at each site, or independent ethics committee, or IEC, approval at any
sites outside the United States;
dependence on the needs and timing of third party collaborators;
changes to clinical trial protocols;
recruiting suitable patients to participate in a trial in a timely manner and in sufficient numbers;
clinical sites deviating from trial protocol or dropping out of a trial;
addressing patient safety concerns that arise during the course of a trial;
having patients complete a trial or return for post-treatment follow-up;
imposition of a clinical hold by regulatory authorities, including as a result of unforeseen safety issues or side effects or failure
of trial sites to adhere to regulatory requirements;
the occurrence of serious adverse events in trials of the same class of agents conducted by other companies or institutions;
subjects choosing an alternative treatment for the indications for which we are developing our product candidates, or
participating in competing trials;
adding a sufficient number of clinical trial sites;
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lack of adequate funding to continue the clinical trial;
selection of clinical end points that require prolonged periods of clinical observation or analysis of the resulting data;
a facility manufacturing our product candidates or any of their components being ordered by the FDA or comparable foreign
regulatory authorities to temporarily or permanently shut down due to violations of current good manufacturing practice, or
cGMP, regulations or other applicable requirements, or infections or cross-contaminations of product candidates in the
manufacturing process;
any changes to our manufacturing process that may be necessary or desired;
third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not performing our
clinical trials on our anticipated schedule or consistent with the clinical trial protocol, good clinical practice, or GCP, or other
regulatory requirements; or
third-party contractors not performing data collection or analysis in a timely or accurate manner; or third-party contractors
becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for
violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use
some or all of the data produced by such contractors in support of our marketing applications.
In addition, disruptions caused by the COVID-19 pandemic may increase the likelihood that we encounter such difficulties or delays
in initiating, enrolling, conducting or completing our planned and ongoing clinical trials. We could encounter delays if a clinical trial is
suspended or terminated by us, by the IRBs (or IECs) of the institutions in which
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such trials are being conducted, by the Data Safety Monitoring Board, or DSMB, for such trial or by the FDA or other regulatory authorities.
Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in
accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other
regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a
benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical
trial. Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and, while we have
agreements governing their committed activities, we have limited influence over their actual performance.
Further, conducting clinical trials in foreign countries, as we may do for our current and future product candidates, presents additional
risks that may delay completion of our clinical trials. These risks include the failure of enrolled patients in foreign countries to adhere to
clinical protocol as a result of differences in healthcare services or cultural customs, managing additional administrative burdens associated
with foreign regulatory schemes, as well as political and economic risks relevant to such foreign countries.
If we experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of
our product candidates will be harmed, and our ability to generate product revenues from any of these product candidates will be delayed. In
addition, any delays in completing our clinical trials will increase our costs, slow down our product candidate development and approval
process and jeopardize our ability to commence product sales and generate revenues. Any of these occurrences may harm our business,
financial condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or
completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
We depend on enrollment of patients in our clinical trials in order for us to continue development of our product candidates. If we are
unable to enroll patients in our clinical trials, our research and development efforts could be adversely affected.
The timely completion of clinical trials in accordance with their protocols depends, among other things, on our ability to enroll a
sufficient number of patients who remain in the study until its conclusion. We may experience difficulties in patient enrollment in our
clinical trials for a variety of reasons. Patient enrollment is affected by many factors including the size and nature of the patient population,
the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, the size of the patient population
required for analysis of the trial’s primary endpoints, the proximity of patients to study sites, our ability to recruit clinical trial investigators
with the appropriate competencies and experience, our ability to obtain and maintain patient consents, the risk that patients enrolled in
clinical trials will drop out of the trials before completion, and competing clinical trials and clinicians’ and patients’ perceptions as to the
potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the
indications we are investigating. Our ability to enroll patients in our clinical trials may be impacted by governmental restrictions and
diversion of healthcare resources resulting from the COVID-19 pandemic. Many pharmaceutical companies are conducting clinical trials in
patients with the disease indications that our potential drug products target. As a result, we must compete with them for clinical sites,
physicians and the limited number of patients who fulfill the stringent requirements for participation in clinical trials. Also, due to the
confidential nature of clinical trials, we do not know how many of the eligible patients may be enrolled in competing studies and who are
consequently not available to us for our clinical trials. Our clinical trials may be delayed or terminated due to the inability to enroll enough
patients. The delay or inability to meet planned patient enrollment may result in increased costs and delay or termination of our trials, which
could have a harmful effect on our ability to develop products.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory
approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing
approval, if any.
Undesirable side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt clinical
trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA
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or other comparable foreign authorities. The clinical evaluation of BXCL501, BXCL701 and our other product candidates in patients is still
in the early stages and it is possible that there may be side effects associated with their use. Results of our trials could reveal a high and
unacceptable severity and prevalence of these or other side effects. For example, in our Phase 2 clinical trial for the treatment of emergent
Neuroendocrine Prostate Cancer, one patient experienced acidosis with a fatal outcome. Although the clinical investigator could not
determine that the fatality was related to treatment with BXCL701, it is possible that BXCL701 could be tied to unacceptable side effects in
the future. In such an event, we, the FDA, the IRBs (or IECs) at the institutions in which our studies are conducted, or the DSMB could
suspend or terminate our clinical trials or the FDA or comparable foreign regulatory authorities could order us to cease clinical trials or
deny approval of our product candidates for any or all targeted indications. For example, the FDA placed Point Therapeutics, Inc.’s IND for
BXCL701 on clinical hold following an increase in observed mortality in patients receiving BXCL701 in a Phase 3 trial in patients with
non-small cell lung cancer. Though we believe that this result was caused by, among other things, an imbalance in the disease severity of
patients enrolled in the active arm of the clinical trial, there is no guarantee that excess mortality will not be observed in future clinical
studies. Treatment-related side effects could also affect patient recruitment or the ability of enrolled patients to complete the clinical trial or
result in potential product liability claims. In addition, these side effects may not be appropriately recognized or managed by the treating
medical staff. We expect to have to train medical personnel using our product candidates to understand the side effect profiles for our
clinical trials and upon any commercialization of any of our product candidates. Inadequate training in recognizing or managing the
potential side effects of our product candidates could result in patient injury or death. Any of these occurrences may harm our business,
financial condition and prospects significantly.
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side
effects caused by such products, a number of potentially significant negative consequences could result, including:
●
regulatory authorities may withdraw approvals of such products;
● we may be required to recall a product or change the way such a product is administered to patients;
●
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additional restrictions may be imposed on the marketing or distribution of the particular product or the manufacturing processes
for the product or any component thereof;
regulatory authorities may require additional warnings on the label, such as a “black box” warning or contraindication;
● we may be required to implement Risk Evaluation and Mitigation Strategies, or REMS, or create a medication guide outlining
the risks of such side effects for distribution to patients;
● we could be sued and held liable for harm caused to patients;
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our product may become less competitive; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the particular product candidate or for
particular indications of a product candidate, if approved, and could significantly harm our business, results of operations and prospects.
BioXcel’s approach to the discovery and development of product candidates based on EvolverAI is novel and unproven, and we do not
know whether we will be able to develop any products of commercial value.
We are leveraging EvolverAI to create a pipeline of neuroscience and immuno-oncology product candidates for patients whose diseases
have not been adequately addressed to date by other approaches and to design and conduct efficient clinical trials with a higher likelihood of
success. While we believe that applying EvolverAI to create medicines for defined patient populations may potentially enable drug research
and clinical development that is more efficient than conventional drug research and development, our approach is both novel and unproven.
Because our approach is both novel and unproven, the cost and time needed to develop our product candidates is difficult to predict, and our
efforts
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may not result in the discovery and development of commercially viable medicines. We may also be incorrect about the effects of our
product candidates on the diseases of our defined patient populations, which may limit the utility of our approach or the perception of the
utility of our approach. Furthermore, our estimates of our defined patient populations available for study and treatment may be lower than
expected, which could adversely affect our ability to conduct clinical trials and may also adversely affect the size of any market for
medicines we may successfully commercialize. Our approach may not result in time savings, higher success rates or reduced costs as we
expect it to, and if not, we may not attract collaborators or develop new drugs as quickly or cost effectively as expected and therefore we
may not be able to commercialize our approach as originally expected.
EvolverAI may fail to help us discover and develop additional potential product candidates.
Any drug discovery that we are conducting using EvolverAI may not be successful in identifying compounds that have commercial
value or therapeutic utility. EvolverAI may initially show promise in identifying potential product candidates, yet fail to yield viable
product candidates for clinical development or commercialization for a number of reasons, including:
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research programs to identify new product candidates will require substantial technical, financial and human resources, and we
may be unsuccessful in our efforts to identify new product candidates. If we are unable to identify suitable additional
compounds for preclinical and clinical development, our ability to develop product candidates and obtain product revenues in
future periods could be compromised, which could result in significant harm to our financial position and adversely impact our
stock price;
compounds found through EvolverAI may not demonstrate efficacy, safety or tolerability;
potential product candidates may, on further study, be shown to have harmful side effects or other characteristics that indicate
that they are unlikely to receive marketing approval and achieve market acceptance;
competitors may develop alternative therapies that render our potential product candidates non-competitive or less attractive; or
a potential product candidate may not be capable of being produced at an acceptable cost.
We have obtained Fast Track Designation for BXCL501 for the treatment of acute agitation, and we may seek Fast Track designation
for other indications or for our other product candidates, but we might not receive such designations, and even if we do, such
designations may not actually lead to a faster development or regulatory review or approval process.
If a product candidate is intended for the treatment of a serious condition and nonclinical or clinical data demonstrate the potential to
address unmet medical need for this condition, a product sponsor may apply for FDA Fast Track designation. The sponsor of a Fast Track
product candidate has opportunities for more frequent interactions with the applicable FDA review team during product development and,
once an NDA is submitted, the product candidate may be eligible for priority review if the relevant criteria are met. A Fast Track product
candidate may also be eligible for rolling review, where the FDA may consider for review sections of the NDA on a rolling basis before the
complete application is submitted, if the sponsor provides a schedule for the submission of the sections of the NDA, the FDA agrees to
accept sections of the NDA and determines that the schedule is acceptable, and the sponsor pays any required user fees upon submission of
the first section of the NDA. We have obtained Fast Track designation for BXCL501 for the treatment of acute agitation, and we may seek
Fast Track designation for other indications for BXCL701 or for one or more of our other product candidates, but we might not receive such
designations from the FDA. However, even if we receive Fast Track designation, Fast Track designation does not ensure that we will
receive marketing approval or that approval will be granted within any particular timeframe. We may not experience a faster development
or regulatory review or approval process with Fast Track designation compared to conventional FDA procedures. In addition, the FDA may
withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development program.
Fast Track designation alone does not guarantee qualification for the FDA’s priority review procedures.
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If the FDA does not conclude that our product candidates satisfy the requirements for the 505(b)(2) regulatory approval pathway, or if
the requirements for approval of any of our product candidates under Section 505(b)(2) are not as we expect, the approval pathway for
our product candidates will likely take significantly longer, cost significantly more and encounter significantly greater complications
and risks than anticipated, and in any case may not be successful.
We intend to seek FDA approval through the 505(b)(2) regulatory pathway for certain of our product candidates, including BXCL501.
The Hatch-Waxman Act added Section 505(b)(2) to the FDCA. Section 505(b)(2) permits the filing of an NDA where at least some of the
information required for approval comes from studies that were not conducted by or for the applicant. If the FDA does not allow us to
pursue the 505(b)(2) regulatory pathway for our product candidates as anticipated, we may need to conduct additional clinical trials, provide
additional data and information and meet additional standards for regulatory approval. If this were to occur, the time and financial resources
required to obtain FDA approval for our product candidates would likely substantially increase. Moreover, the inability to pursue the 505(b)
(2) regulatory pathway could result in new competitive products reaching the market faster than our product candidates, which could
materially adversely impact our competitive position and prospects. Even if we are allowed to pursue the 505(b)(2) regulatory pathway for
a product candidate, we cannot assure you that we will receive the requisite or timely approvals for commercialization of such product
candidate. In addition, we expect that our competitors will file citizens’ petitions with the FDA in an attempt to persuade the FDA that our
product candidates, or the clinical studies that support their approval, contain deficiencies. Such actions by our competitors could delay or
even prevent the FDA from approving any NDA that we submit under Section 505(b)(2).
If we are required by the FDA or similar regulatory authorities to obtain approval (or clearance, or certification) of a companion
diagnostic device in connection with approval of one of our product candidates, and we do not obtain or face delays in obtaining
approval (or clearance, or certification) of a companion diagnostic device, we will not be able to commercialize the product candidate
and our ability to generate revenue will be materially impaired.
According to FDA guidance, if the FDA determines that a companion diagnostic device is essential to the safe and effective use of a
novel therapeutic product or indication, the FDA generally will not approve the therapeutic product or new therapeutic product indication if
the companion diagnostic is not also approved or cleared for that indication. We may decide to collaborate with patient diagnostic
companies during our clinical trial enrollment process for BXCL701 to help identify patients with tumor gene alterations that we believe
may be most likely to respond to our product candidates. If a satisfactory companion diagnostic is not commercially available, we may be
required to create or obtain one that would be subject to regulatory approval requirements. The process of obtaining or creating such
diagnostic is time consuming and costly.
Companion diagnostics are developed in conjunction with clinical programs for the associated product and are subject to regulation as
medical devices by the FDA and comparable foreign regulatory authorities, and, to date, the FDA has generally required premarket
approval of companion diagnostics for cancer therapies. Generally, when a companion diagnostic is essential to the safe and effective use of
a therapeutic product, the FDA requires that the companion diagnostic be approved before or concurrent with approval of the therapeutic
product and before a product can be commercialized. The approval of a companion diagnostic as part of the therapeutic product’s labeling
limits the use of the therapeutic product to only those patients who express the specific genetic alteration that the companion diagnostic was
developed to detect.
If the FDA or a comparable foreign regulatory authority requires approval (certification or clearance) of a companion diagnostic for
any of our product candidates, whether before or after the product candidate obtains marketing approval, we and/or third-party collaborators
may encounter difficulties in developing and obtaining approval (or clearance, or certification) for these companion diagnostics. Any delay
or failure by us or third-party collaborators to develop or obtain regulatory approval (or clearance, or certification) of a companion
diagnostic could delay or prevent approval or continued marketing of our related product candidates. We may also experience delays in
developing a sustainable, reproducible and scalable manufacturing process for the companion diagnostic or in transferring that process to
commercial partners or negotiating insurance reimbursement plans, all of which may prevent us from completing our clinical trials or
commercializing our product candidates, if approved, on a timely or profitable basis, if at all.
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Approval, clearance or certification of companion diagnostics may be subject to further legislative or regulatory reforms notably in the
EU. On May 25, 2017, the new In Vitro Medical Devices Regulation (2017/746 or IVDR) entered into force. The IVDR repeals and
replaces the EU In Vitro Diagnostic Medical Devices Directive. Unlike directives, which must be implemented into the national laws of the
EU member states, regulations are directly applicable, i.e., without the need for adoption of EU member states laws implementing them, in
all EU member states and are intended to eliminate current differences in the regulation of medical devices among EU member states. The
IVDR, among other things, is intended to establish a uniform, transparent, predictable and sustainable regulatory framework across the EU
for medical devices and ensure a high level of safety and health while supporting innovation. The IVDR will, however, only become
applicable in May 2022.
The regulation of companion diagnostics will be subject to further requirements as of the entry into force of the IVDR which introduces
a new classification system for companion diagnostics which are now specifically defined as diagnostic tests that support the safe and
effective use of a specific medicinal product, by identifying patients that are suitable or unsuitable for treatment. Companion diagnostics
will have to undergo a conformity assessment by a notified body. Before it can issue a CE certificate, the notified body must seek a
scientific opinion from the EMA on the suitability of the companion diagnostic to the medicinal product concerned if the medicinal product
falls exclusively within the scope of the centralized procedure for the authorization of medicines, or the medicinal product is already
authorized through the centralized procedure, or a marketing authorization application for the medicinal product has been submitted
through the centralized procedure. For other substances, the notified body can seek the opinion from a national competent authorities or the
EMA.
These modifications may make it more difficult and costly for us to obtain regulatory clearances or approvals for our companion
diagnostics or to manufacture, market or distribute our products after clearance or approval is obtained.
Even if we obtain regulatory approval for BXCL501, BXCL701 or any product candidate, we will still face extensive and ongoing
regulatory requirements and obligations and any product candidates, if approved, may face future development and regulatory
difficulties.
Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data,
labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising and promotional activities for
such product, among other things, will be subject to extensive and ongoing requirements of and review by the FDA and other regulatory
authorities. These requirements include submissions of safety and other post-marketing information and reports, establishment registration
and drug listing requirements, continued compliance with cGMP requirements relating to manufacturing, quality control, quality assurance
and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and
recordkeeping and GCP requirements 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 indicated uses for
which the product candidate may be marketed or to the conditions of approval, including a requirement to implement a REMS. If any of our
product candidates receives marketing approval, the accompanying label may limit the approved indicated use of the product candidate,
which could limit sales of the product candidate. The FDA may also impose requirements for costly post-marketing studies or clinical trials
and surveillance to monitor the safety or efficacy of a product. Violations of the Federal Food, Drug, and Cosmetic Act, or FDCA, relating
to the promotion of prescription drugs may lead to FDA enforcement actions and investigations alleging violations of federal and state
healthcare fraud and abuse laws, as well as state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems with our products, manufacturers or
manufacturing processes or failure to comply with regulatory requirements, may yield various results, including:
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restrictions on manufacturing such products;
restrictions on the labeling or marketing of products;
restrictions on product manufacturing, distribution or use;
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requirements to conduct post-marketing studies or clinical trials;
● warning letters or untitled letters;
● withdrawal of the products from the market;
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refusal to approve pending applications or supplements to approved applications that we submit;
recall of products;
fines, 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
injunctions or the imposition of civil or criminal penalties.
Further, the FDA’s policies may change, and additional government regulations may be enacted that could impose extensive and
ongoing regulatory requirements and obligations on any product candidate for which we obtain marketing approval. For instance, the EU
has adopted Regulation (EU) No 536/2014 (Clinical Trials Regulation, or CTR) in April 2014, which is expected to come into application in
2022. The CTR will be directly applicable in all the EU member states, repealing the current Clinical Trials Directive. Conduct of all
clinical trials performed in the European Union will continue to be bound by currently applicable provisions until the new CTR becomes
applicable. The extent to which ongoing clinical trials will be governed by the CTR will depend on when the CTR becomes applicable and
on the duration of the individual clinical trial. If a clinical trial continues for more than three years from the day on which the CTR becomes
applicable the CTR will at that time begin to apply to the clinical trial. The CTR harmonizes the assessment and supervision processes for
clinical trials throughout the EU via a Clinical Trials Information System, which will notably contain a centralized EU portal and database.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to
maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our
business, prospects and ability to achieve or sustain profitability.
We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or
administrative or executive action, either in the United States or abroad. We also cannot predict the likelihood, nature or extent of
government regulation that may arise from future legislation or administrative action, either in the United States or abroad. For example,
the results of the 2020 U.S. Presidential Election may impact our business and industry. Namely, the Trump administration took several
executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise
materially delay, the FDA’s ability to engage in routine oversight activities such as implementing statutes through rulemaking, issuance of
guidance, and review and approval of marketing applications. It is difficult to predict whether or how these orders will be implemented, or
whether they will be rescinded and replaced under the Biden administration. The policies and priorities of the new administration are
unknown and could materially impact the regulations governing our product candidates. If we are slow or unable to adapt to changes in
existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may be
subject to enforcement action and we may not achieve or sustain profitability.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
If we are found to have improperly promoted off-label uses of our products or product candidates, if approved, we may become subject
to significant liability. Such enforcement has become more common in the industry. The FDA and other regulatory agencies strictly
regulate the promotional claims that may be made about prescription drug products, such as our product candidates, if approved. In
particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the
product’s approved labeling. If we receive marketing
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approval for our product candidates for our proposed indications, physicians may nevertheless use our products for their patients in a
manner that is inconsistent with the approved label, if the physicians personally believe in their professional medical judgment it could be
used in such manner. However, if we are found to have promoted our products for any off-label uses, the U.S. federal government (and
other foreign governments) could levy civil, criminal and/or administrative penalties, and seek fines against us. The FDA or other
regulatory authorities could also request that we enter into a consent decree or a corporate integrity agreement, or seek a permanent
injunction against us under which specified promotional conduct is monitored, changed or curtailed. If we cannot successfully manage the
promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect
our business and financial condition.
Disruptions at the FDA and other government agencies caused by funding shortages or global health concerns could hinder their
ability to hire , retain or deploy key leadership and other personnel, or otherwise prevent new or modified products from being
developed , approved or commercialized in a timely manner or at all, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and
funding levels, statutory, regulatory and policy changes, the FDA’s ability to hire and retain key personnel and accept the payment of user
fees, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times at the FDA have
fluctuated in recent years as a result. In addition, government funding of other government agencies that fund research and development
activities is subject to the political process, which is inherently fluid and unpredictable. Disruptions at the FDA and other agencies such as
the EMA, following its relocation to Amsterdam and corresponding staff changes, may also slow the time necessary for new drug or
modifications to approved drugs to be reviewed and/or approved by necessary government agencies, which would adversely affect our
business. For example, over the last several years, including for 35 days beginning on December 22, 2018, the U.S. government has shut
down several times and certain regulatory agencies, such as the FDA, have had to furlough critical FDA employees and stop critical
activities.
Separately, in response to the COVID-19 pandemic, on March 10, 2020 the FDA announced its intention to postpone most inspections
of foreign manufacturing facilities and products, and on March 18, 2020 the FDA temporarily postponed routine surveillance inspections of
domestic manufacturing facilities. Subsequently, on July 10, 2020, the FDA announced its intention to resume certain on-site inspections of
domestic manufacturing facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to
identify the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections to
resumption of all regulatory activities. Regulatory authorities outside the United States may adopt similar restrictions or other policy
measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns continue to
prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews or other regulatory activities, it could
significantly impact the ability of the FDA or other regulatory authorities to timely review and process our regulatory submissions, which
could have a material adverse effect on our business.
We may be subject to extensive regulations outside the United States and may not obtain marketing approvals for products in Europe
and other jurisdictions.
In addition to regulations in the United States, should we or our collaborators pursue marketing approvals for BXCL501, BXCL701
and our other product candidates internationally, we and our collaborators will be subject to a variety of regulations in other jurisdictions
governing, among other things, clinical trials and any commercial sales and distribution of our products. Whether or not we, or our
collaborators, obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries
prior to the commencement of clinical trials or marketing of the product in those countries. The requirements and process governing the
conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country.
We expect to pursue marketing approvals for BXCL501, BXCL701 and our other product candidates in Europe and other jurisdictions
outside the United States with collaborative partners. The time and process required to obtain regulatory approvals and reimbursement in
Europe and other jurisdictions may be different from those in the United
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States regulatory and approval in one jurisdiction does not ensure approvals in any other jurisdiction; however, negative regulatory
decisions in any jurisdiction may have a negative impact on the regulatory process in other jurisdictions.
Following a national referendum and enactment of legislation by the government of the United Kingdom, or the UK, the United
Kingdom withdrew from the European Union, or Brexit, on January 31, 2020 and entered into a transition period during which it was
essentially treated as a member state of the EU and the regulatory regime remained the same across the United Kingdom and the European
Union . Since January 1, 2021, the United Kingdom operates under a distinct regulatory regime. EU pharmaceutical laws now only apply to
the UK in respect of Northern Ireland (as laid out in the Protocol on Ireland and Northern Ireland, including but not limited to marketing
authorization applications). EU laws which have been transposed into UK law through secondary legislation continue to be applicable as
“retained EU law” . As there is no general power to amend this “retained EU law” the UK government has introduced a new Medicines and
Medical Devices Bill which seeks to address regulatory gaps through implementing regulations and delegated powers covering the fields of
human medicines, clinical trials of human medicines, veterinary medicines and medical devices. The purpose of the bill is to enable the
existing UK regulatory frameworks to be updated. Although regulatory authorities in the UK have indicated in the bill that new UK rules
will closely align with EU laws, detailed proposals are yet to be published. The bill has not been formally enacted and had its final reading
in the House of Lords on January 21, 2021. As the House of Lords proposed amendments to the draft legislation, the bill will go back to the
other house of parliament for debate. There is no set time period for consideration of amendments and the bill will only proceed to be
enacted as law once the draft bill has been agreed by both houses and royal assent has been obtained. The draft bill currently contemplates
that the provisions will come into effect immediately upon enactment or otherwise within two months thereafter, with the exception of
certain provisions on enforcement and disclosure, which are subject to further regulation Significant political and economic uncertainty
therefore remains about how much the relationship between the UK and EU will differ as a result of the UK’s withdrawal. Any delay in
obtaining, or an inability to obtain, any marketing approvals, as a result of Brexit or otherwise, would prevent us from commercializing our
product candidates in the United Kingdom and/or the European Union and restrict our ability to generate revenue and achieve and sustain
profitability. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the United Kingdom
and/or European Union for our product candidates, which could significantly and materially harm our business.
If we are found in violation of federal or state “fraud and abuse” laws, we may be required to pay a penalty and/or be suspended from
participation in federal or state health care programs, which may adversely affect our business, financial condition and results of
operations.
In the United States, we will be subject to various federal and state health care “fraud and abuse” laws, including anti-kickback laws,
false claims laws and other laws intended to reduce fraud and abuse in federal and state health care programs, which could affect us,
particularly upon successful commercialization of our products in the United States. These laws include:
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the federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer (or a party acting
on its behalf), to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce the referral of
business, including the purchase, order or prescription of a particular drug for which payment may be made under a federal
health care program, such as Medicare or Medicaid. A person or entity does not need to have actual knowledge of this statute
or specific intent to violate it to have committed a violation;
false claims laws prohibit anyone from knowingly and willfully presenting or causing to be presented for payment to third-
party payers, including government payers, claims for reimbursed drugs or services that are false or fraudulent, claims for items
or services that were not provided as claimed, or claims for medically unnecessary items or services. Cases have been brought
under false claims laws alleging that off-label promotion of pharmaceutical products or the provision of kickbacks has resulted
in the submission of false claims to governmental health care programs. In addition, the government may assert that a claim
including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent
claim for purposes of the false claims laws. Further, private individuals have the ability to bring actions on behalf of the
government under the federal False Claims Act;
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the Health Insurance Portability and Accountability Act of 1996, or HIPAA, prohibits persons or entities from knowingly and
willfully executing a scheme to defraud any health care benefit program, including private payers, or knowingly and willfully
falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in
connection with the delivery of or payment for health care benefits, items or services. Similar to the federal Anti- Kickback
Statute, a person or entity does not need to have actual knowledge of these statutes or specific intent to violate them to have
committed a violation;
federal civil monetary penalties laws, which impose civil fines for, among other things, the offering or transfer of remuneration
to a Medicare or state healthcare program beneficiary if the person knows or should know it is likely to influence the
beneficiary’s selection of a particular provider, practitioner, or supplier of services reimbursable by Medicare or a state
healthcare program, unless an exception applies;
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that
potentially harm consumers;
the federal physician sunshine requirements under the ACA, which requires certain manufacturers of drugs, devices, biologics,
and medical supplies to report annually to the Centers for Medicare & Medicaid Services, or CMS, information related to
payments and other transfers of value to physicians (defined to include doctors, dentists, optometrists, podiatrists and
chiropractors), certain other healthcare providers starting in 2022, and teaching hospitals, and ownership and investment
interests held by physicians and other healthcare providers and their immediate family members;
state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or
services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies
to comply with the pharmaceutical industry’s voluntary compliance guidelines and the applicable compliance guidance
promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other
potential referral sources; and state laws that require drug manufacturers to report information related to payments and other
transfers of value to physicians and other healthcare providers or marketing expenditures and pricing information; and; and
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European and other foreign law equivalents of each of the laws, including reporting requirements detailing interactions with
and payments to healthcare providers.
The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the
regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Any action against us for violation of these
laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention
from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other
governmental laws and regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines,
the curtailment or restructuring of our operations, the exclusion from participation in federal and state healthcare programs, additional
reporting obligations and oversight if we become subject to a corporate integrity agreement or other agreement to resolve allegations of
non-compliance with these laws, and imprisonment, any of which could adversely affect our ability to market our products and adversely
impact our financial results.
We may be unable to maintain sufficient clinical trial liability insurance.
Our inability to retain sufficient clinical trial liability insurance at an acceptable cost to protect against potential liability claims could
prevent or inhibit our ability to conduct clinical trials for product candidates we develop. We may be unable to obtain appropriate levels of
such insurance. Even if we do secure clinical trial liability insurance for our programs, we may not be able to achieve sufficient levels of
such insurance. Any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in
whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. We expect we will supplement our clinical
trial coverage with
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product liability coverage in connection with the commercial launch of BXCL501, BXCL701 or other product candidates we develop in the
future; however, we may be unable to obtain such increased coverage on acceptable terms or at all. If we are found liable in a clinical trial
lawsuit or a product liability lawsuit in the future, we will have to pay any amounts awarded by a court or negotiated in a settlement that
exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay
such amounts.
Risks Related to Commercialization of Our Product Candidates
If our products do not gain market acceptance, our business will suffer because we might not be able to fund future operations.
A number of factors may affect the market acceptance of our products or any other products we develop or acquire, including, among
others:
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the price of our products relative to other products for the same or similar treatments;
the perception by patients, physicians and other members of the health care community of the effectiveness and safety of our
products for their indicated applications and treatments;
our ability to fund our sales and marketing efforts; and
the effectiveness of our sales and marketing efforts.
If our products do not gain market acceptance, we may not be able to fund future operations, including developing, testing and
obtaining regulatory approval for new product candidates and expanding our sales and marketing efforts for our approved products, which
would cause our business to suffer.
We have been granted Orphan Drug Designation for BXCL701 for the treatment of pancreatic cancer, melanoma, acute myeloid
leukemia and soft tissue sarcoma and we may seek Orphan Drug Designation for other indications or product candidates, and we may
be unable to maintain the benefits associated with Orphan Drug Designation, including the potential for market exclusivity, and may
not receive Orphan Drug Designation for other indications or for our other product candidates.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs intended for relatively small
patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a drug as an orphan drug if it is a drug intended to
treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States,
or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of developing the
drug will be recovered from sales in the United States. In the United States, orphan drug designation entitles a party to financial incentives
such as opportunities for grant funding towards clinical trial costs, tax advantages and user-fee waivers. In addition, if a product that has
orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is
entitled to orphan drug exclusivity. Orphan drug exclusivity in the United States provides that the FDA may not approve any other
applications, including a full NDA, to market the same drug for the same indication for seven years, except in limited circumstances the
applicable exclusivity period is ten years in Europe. The European exclusivity period can be reduced to six years if, at the end of the fifth
year, it is established that a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that
market exclusivity is no longer justified. In January 2021, the FDA granted Orphan Drug Designation to BXCL701 for the treatment of soft
tissue sarcoma. In September 2019, the FDA granted Orphan Drug Designation to BXCL701 for the treatment of acute myeloid leukemia.
Prior to 2019, the FDA granted Orphan Drug Designation to BXCL701 for the treatment of pancreatic cancer and melanoma. We may seek
Orphan Drug Designations for BXCL701 in other indications or for our other product candidates. There can be no assurances that we will
be able to obtain such designations.
Even if we, or any future collaborators, obtain orphan drug designation for a product candidate, we, or they, may not be able to obtain
or maintain orphan drug exclusivity for that product candidate. We may not be the first to obtain marketing approval of any product
candidate for which we have obtained orphan drug designation for the orphan-designated indication due to the uncertainties associated with
developing pharmaceutical products, and it is possible that
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another company also holding orphan drug designation for the same product candidate will receive marketing approval for the same
indication before we do. If that were to happen, our applications for that indication may not be approved until the competing company’s
period of exclusivity expires. In addition, exclusive marketing rights in the United States may be limited if we seek approval for an
indication broader than the orphan-designated indication or may be lost if the FDA later determines that the request for designation was
materially defective or if we are unable to assure sufficient quantities of the product to meet the needs of patients with the rare disease or
condition. Further, even if we, or any future collaborators, obtain orphan drug exclusivity for a product, that exclusivity may not effectively
protect the product from competition because different drugs with different active moieties may be approved for the same condition. Even
after an orphan drug is approved, the FDA can subsequently approve the same drug with the same active moiety for the same condition if
the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to
patient care or the manufacturer of the product with orphan exclusivity is unable to maintain sufficient product quantity. Orphan drug
designation neither shortens the development time or regulatory review time of a drug nor gives the drug any advantage in the regulatory
review or approval process, nor does it prevent competitors from obtaining approval of the same product candidate as ours for indications
other than those in which we have been granted orphan drug designation.
If we are unable to develop satisfactory sales and marketing capabilities, we may not succeed in commercializing BXCL501, BXCL701
or any other product candidate.
We have no experience in marketing and selling drug products. We have not entered into arrangements for the sale and marketing of
BXCL501, BXCL701 or any other product candidate. Typically, pharmaceutical companies would employ groups of sales representatives
and associated sales and marketing staff numbering in the hundreds to thousands of individuals to call on this large number of physicians
and hospitals. We may seek to collaborate with a third party to market our drugs or may seek to market and sell our drugs by ourselves. If
we seek to collaborate with a third party, we cannot be sure that a collaborative agreement can be reached on terms acceptable to us. If we
seek to market and sell our drugs directly, we will need to hire additional personnel skilled in marketing and sales. We cannot be sure that
we will be able to acquire, or establish third party relationships to provide, any or all of these marketing and sales capabilities. The
establishment of a direct sales force or a contract sales force or a combination direct and contract sales force to market our products will be
expensive and time-consuming and could delay any product launch. Further, we can give no assurances that we may be able to maintain a
direct and/or contract sales force for any period of time or that our sales efforts will be sufficient to grow our revenues or that our sales
efforts will ever lead to profits.
We operate in a highly competitive and rapidly changing industry.
Biopharmaceutical product development is highly competitive and subject to rapid and significant technological advancements. Our
success is highly dependent upon our ability to in-license, acquire, develop and obtain regulatory approval for new and innovative products
on a cost-effective basis and to market them successfully. In doing so, we face and will continue to face intense competition from a variety
of businesses, including large, fully integrated, well-established pharmaceutical companies who already possess a large share of the market,
specialty pharmaceutical and biopharmaceutical companies, academic institutions, government agencies and other private and public
research institutions in the United States, the European Union and other jurisdictions.
Many of the companies against which we are competing or against which we may compete in the future have significantly greater
financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining
regulatory approvals and marketing approved drugs than we do. These third parties compete with us in recruiting and retaining qualified
scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring
technologies complementary to, or necessary for, our programs. Mergers and acquisitions in the biopharmaceutical industry could result in
even more resources being concentrated among a small number of our competitors.
Competition may further increase as a result of advances in the commercial applicability of technologies and greater availability of
capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis,
products that are more effective or less costly than any product candidate that we may develop.
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Established biopharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-
license novel compounds that could make our product candidates less competitive. In addition, any new product that competes with an
approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price
competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, discovering,
developing, receiving FDA approval for or commercializing drugs before we do, which would have an adverse impact on our business and
results of operations.
The availability of our competitors’ products could limit the demand and the price we are able to charge for any product candidate we
commercialize, if any. The inability to compete with existing or subsequently introduced drugs would harm our business, financial
condition and results of operations.
Even if we obtain regulatory approvals to commercialize BXCL501, BXCL701 or our other product candidates, our product candidates
may not be accepted by physicians or the medical community in general.
There can be no assurance that BXCL501, BXCL701 and our other product candidates or any other product candidate successfully
developed by us, independently or with partners, will be accepted by physicians, hospitals and other health care facilities. BXCL501,
BXCL701 and any future product candidates we develop will compete with a number of products manufactured and marketed by major
pharmaceutical and biotech companies. The degree of market acceptance of any drugs we develop depends on a number of factors,
including:
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our demonstration of the clinical efficacy and safety of BXCL501, BXCL701 and our other product candidates;
timing of market approval and commercial launch of BXCL501, BXCL701 and our other product candidates;
the clinical indication(s) for which BXCL501, BXCL701 and our other product candidates are approved;
product label and package insert requirements;
advantages and disadvantages of our product candidates compared to existing therapies;
continued interest in and growth of the market for anti-cancer or anti-agitation drugs;
strength of sales, marketing, and distribution support;
product pricing in absolute terms and relative to alternative treatments;
future changes in health care laws, regulations, and medical policies; and
availability of reimbursement codes and coverage in select jurisdictions, and future changes to reimbursement policies of
government and third-party payors.
Significant uncertainty exists as to the coverage and reimbursement status of any product candidate for which we obtain regulatory
approval. In the United States and markets in other countries, sales of any products for which we receive regulatory approval for
commercial sale will depend in part on the availability of reimbursement from third-party payors. Third-party payors include government
health administrative authorities, managed care providers, private health insurers and other organizations.
Other third-party payors are increasingly challenging the prices charged for medical products and services. It will be time consuming
and expensive for us to go through the process of seeking coverage and reimbursement from Medicare and private payors. Our proposed
products may not be considered cost-effective, and coverage and reimbursement may not be available or sufficient to allow us to sell our
proposed products on a profitable basis. Further federal and state proposals and health care reforms are likely which could limit the prices
that can be charged for the product candidates that we develop and may further limit our commercial opportunities. Our results of
operations could be materially adversely affected by proposed healthcare reforms, by the Medicare prescription drug coverage legislation,
by the possible effect of such current or future legislation on amounts that private insurers will pay and by other health care reforms that
may be enacted or adopted in the future.
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In September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-
marketing authority, including the authority to require post-marketing studies and clinical trials, labeling changes based on new safety
information, and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDA’s exercise of this authority
could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to assure
compliance with post-approval regulatory requirements, and potential restrictions on the sale and/or distribution of approved products.
Healthcare reform measures could hinder or prevent our product candidates’ commercial success.
The U.S. government and other governments have shown significant interest in pursuing healthcare reform. Any government-adopted
reform measures could adversely impact the pricing of healthcare products and services in the United States or internationally and the
amount of reimbursement available from governmental agencies or other third-party payors. The continuing efforts of the U.S. and foreign
governments, insurance companies, managed care organizations and other payors of health care services to contain or reduce health care
costs may adversely affect our ability to set prices for our products which we believe are fair, and our ability to generate revenues and
achieve and maintain profitability.
New laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and decisions, that relate to healthcare
availability, methods of delivery or payment for products and services, or sales, marketing or pricing, may limit our potential revenue, and
we may need to revise our research and development programs. The pricing and reimbursement environment may change in the future and
become more challenging due to several reasons, including policies advanced by the current executive administration in the United States,
new healthcare legislation or fiscal challenges faced by government health administration authorities. Specifically, in both the United States
and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways
that could affect our ability to sell our products profitably.
For example, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the
ACA , has substantially changed the way healthcare is financed by both government health plans and private insurers, and significantly
impacts the pharmaceutical industry. The ACA contained a number of provisions that are expected to impact our business and operations in
ways that may negatively affect our potential revenues in the future. For example, the ACA imposed a non-deductible excise tax on
pharmaceutical manufacturers or importers that sell branded prescription drugs to government programs which we believe will increase the
cost of our products. In addition, as part of the ACA’s provisions closing a funding gap that existed in the Medicare Part D prescription
drug program, manufacturers are now required to provide a discount on branded prescription drugs equal to 70% of the government-
negotiated price, for drugs provided to certain beneficiaries who fall within the donut hole. Similarly, the ACA increased the level of
Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1% of the average manufacturer price, and required
collection of rebates for drugs paid by Medicaid managed care organizations. The ACA also included significant changes to the 340B drug
discount program including expansion of the list of eligible covered entities that may purchase drugs under the program. At the same time,
the expansion in eligibility for health insurance benefits created under ACA is expected to increase the number of patients with insurance
coverage who may receive our products.
Since its enactment, there have been judicial , executive and Congressional challenges to certain aspects of the ACA. For example, the
Tax Cuts and Jobs Act, or the Tax Act, was enacted, which, among other things, removed penalties for not complying with the ACA’s
individual mandate to carry health insurance. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas, ruled
that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed as part of the Tax Act, the
remaining provisions of the ACA are invalid as well. On December 18, 2019, the U.S. Court of Appeals for the 5th Circuit upheld the
District Court’s decision that the individual mandate was unconstitutional but remanded the case back to the District Court to determine
whether the remaining provisions of the ACA are invalid as well. The U.S. Supreme Court is currently reviewing the case, although it is
unclear how the Supreme Court will rule. It is also unclear how other efforts, if any, to challenge, repeal or replace the ACA will impact the
law, or our business or financial condition.
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In addition, other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes
include the Budget Control Act of 2011, which resulted in aggregate reductions of Medicare payments to providers of 2% per fiscal year,
which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2030,
with the exception of a temporary suspension from May 1, 2020 through March 31, 2021, unless additional Congressional action is taken,
as well as the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to several types of
providers, including hospitals, and increased the statute of limitations period for the government to recover overpayments to providers from
three to five years.
Recently, there has also been heightened government scrutiny over the manner in which manufacturers set prices for their marketed
products, which has resulted in several Congressional inquiries and proposed and enacted legislation designed to, among other things,
reform government program reimbursement methodologies. Individual states in the United States have also become increasingly active in
passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and,
in some cases, designed to encourage importation from other countries and bulk purchasing. Furthermore, there has been increased interest
by third party payors and governmental authorities in reference pricing systems and publication of discounts and list prices.
It is likely that federal and state legislatures within the United States and foreign governments will continue to consider changes to
existing healthcare legislation. We cannot predict the reform initiatives that may be adopted in the future or whether initiatives that have
been adopted will be repealed or modified. The continuing efforts of the government, insurance companies, managed care organizations and
other payors of healthcare services to contain or reduce costs of healthcare may adversely affect the demand for any drug products for
which we may obtain regulatory approval, our ability to set a price that we believe is fair for our products, our ability to obtain adequate
coverage and reimbursement approval for a product, our ability to generate revenues and achieve or maintain profitability, and the level of
taxes that we are required to pay.
Risks Related to Our Relationship with BioXcel LLC
BioXcel LLC has significant influence over the direction of our business, and the concentrated ownership of our common stock will
prevent you and other stockholders from influencing significant decisions.
As of December 31, 2020, BioXcel owned approximately 37.0% of the economic interest and voting power of our outstanding
common stock. Even though BioXcel controls less than a majority of the voting power of our outstanding common stock, it may influence
the outcome of such corporate actions so long as it owns a significant portion of our common stock.
Approval of commercial terms between us and BioXcel does not preclude the possibility of stockholder litigation, including but not
limited to derivative litigation nominally against BioXcel and against its directors and officers and also against us and our directors and
officers.
The commercial terms of the Services Agreement and the Amended and Restated Asset Contribution Agreement, or the Contribution
Agreement, that we have entered into with BioXcel have not been negotiated on behalf of BioXcel by persons consisting solely of
disinterested BioXcel directors.
No assurance can be given that any stockholder of BioXcel will not claim in a lawsuit that such terms in fact are not in the best
interests of BioXcel and its stockholders, that the directors and officers of BioXcel breached their fiduciary duties in connection with such
agreements and that any disclosures by BioXcel to its stockholders regarding these agreements and the relationship between BioXcel and
us did not satisfy applicable requirements. In any such instance, we and our directors and officers may also be named as defendants and we
would have to defend ourselves and our directors and officers. While we will seek indemnification from BioXcel under the terms of these
agreements against any damages or other costs, which could be substantial, no such indemnification has yet been agreed to or may be
agreed to and be in effect. Further, any such litigation would be time-consuming and would divert focus and resources from the
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development of our product candidates and our business, including but not limited to possibly delaying our clinical trials due to our
management having to spend time and attention on such litigation.
We continue to depend on BioXcel to provide us with certain services for our business.
We rely, in part, on BioXcel and access to EvolverAI, a research and development engine created and owned by BioXcel, to identify,
research and develop potential product candidates in neuroscience and immuno-oncology. The Company has negotiated a collaborative
services agreement with BioXcel pursuant to which BioXcel shall perform product identification and related services for us utilizing
EvolverAI. Under the Services Agreement, the Company has an option, exercisable until March 12, 2023, to enter into a collaborative
services agreement with BioXcel pursuant to which BioXcel shall perform product identification and related services for us utilizing
EvolverAI. The parties are obligated to negotiate the collaborative services agreement in good faith and to incorporate reasonable market-
based terms, including consideration for BioXcel reflecting a low, single-digit royalty on net sales and reasonable development and
commercialization milestone payments, provided that (i) development milestones shall not exceed $10 million in the aggregate and not be
payable prior to proof of concept in humans and (ii) commercialization milestones shall be based on reaching annual net sales levels, be
limited to 3% of the applicable net sales level, and not exceed $30 million in the aggregate. BioXcel shall continue to make such product
identification and related services available to us until at least September 30, 2024. In addition, BioXcel has granted us a first right to
negotiate exclusive rights to any additional product candidates in the fields of neuroscience and immuno-oncology that BioXcel may
identify on its own and not in connection with BioXcel’s provision of services to us under the Services Agreement. This option for first
negotiation shall be valid for a period of five years from the date of our IPO. If our rights and access to BioXcel’s collaborative services and
to EvolverAI were to become limited, terminated, or if we were otherwise precluded from conducting research and development using
EvolverAI, or if BioXcel is unable to fulfill its obligations under the agreements, such development could materially adversely affect our
future operating results, financial condition and prospects. Furthermore, certain individuals conducting services on our behalf are not our
employees, and except for remedies available to us under our agreements with BioXcel, we cannot control whether or not they devote
sufficient time, skill and resources to our ongoing development programs. We also cannot ensure that BioXcel retains sufficient resources
or personnel or otherwise to conduct its operations. BioXcel may also have relationships with other commercial entities, including our
competitors, for whom they may also be conducting research and development activities, which could impede their ability to devote
appropriate time to our research and development programs. In addition, if we fail to comply with our diligence, payment or other
obligations under the agreements, any such collaboration may terminate or we may not be able to successfully negotiate agreements for
future product candidates or collaborations with BioXcel.
The management of and beneficial ownership in BioXcel by our executive officers and our directors may create, or may create the
appearance of, conflicts of interest.
The management of and beneficial ownership in BioXcel by our executive officers and our directors may create, or may create the
appearance of, conflicts of interest. For example, each of our Chief Executive Officer and a director on our Board, Vimal Mehta, Ph.D., and
our Chief Digital Officer and a director on our Board, Krishnan Nandabalan, Ph.D., is a manager of BioXcel, as well as a director, officer
and stockholder of BioXcel LLC, BioXcel’s parent company. Additionally, as of December 31, 2020, each of Dr. Mehta and Dr.
Nandabalan, through their beneficial ownership of BioXcel, beneficially owned approximately 38.6% and 38.2%, respectively, of the
Company. Management and ownership by our executive officers and directors in BioXcel, creates, or, may create the appearance of,
conflicts of interest when these individuals are faced with decisions that could have different implications for BioXcel than the decisions
have for us, including decisions that relate to our Services Agreement, Contribution Agreement, as well as potential agreements relating to
future product candidates and AI-related services or collaborations. Any perceived conflicts of interest resulting from investors questioning
the independence of our management or the integrity of corporate governance procedures may materially affect our stock price.
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Any disputes that arise between us and BioXcel with respect to our past and ongoing relationships could harm our business operations.
Disputes may arise between BioXcel and us in a number of areas relating to our past and ongoing relationships, including:
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intellectual property, technology and business matters, including failure to make required technology transfers and failure to
comply with non-compete provisions applicable to BioXcel and us;
labor, tax, employee benefit, indemnification and other matters arising from the Separation;
distribution and supply obligations;
employee retention and recruiting;
business combinations involving us;
sales or distributions by BioXcel of all or any portion of its ownership interest in us;
the nature, quality and pricing of services BioXcel has agreed to provide us; and
business opportunities that may be attractive to both BioXcel and us.
We entered into the Services Agreement with BioXcel related to the Separation of our business operations from those of BioXcel that
contains certain limitations on BioXcel’s ability to control various aspects of our business and operations, notwithstanding BioXcel’s
substantial ownership position. This agreement may be amended upon agreement between us and BioXcel.
BioXcel may experience challenges with the acquisition, development, enhancement or deployment of technology necessary for
EvolverAI.
BioXcel operates in businesses that require sophisticated computer systems and software for data collection, data processing, cloud-
based platforms, analytics, statistical projections and forecasting, mobile computing, social media analytics and other applications and
technologies. BioXcel seeks to address its technology risks by increasing its reliance on the use of innovations by cross-industry technology
leaders and adapt these for their pharmaceutical, biotech, biopharmaceutical, diagnostic, medical device and contract research and
manufacturing clients. Some of the technologies supporting the industries they serve are changing rapidly and we must continue to adapt to
these changes in a timely and effective manner at an acceptable cost. They also must continue to deliver data to its clients in forms that are
easy to use while simultaneously providing clear answers to complex questions. There can be no guarantee that we or BioXcel will be able
to develop, acquire or integrate new technologies, that these new technologies will meet our and BioXcel’s needs or achieve our expected
goals, or that we will be able to do so as quickly or cost-effectively as our competitors. Significant technological change could render
EvolverAI obsolete. BioXcel’s continued success will depend on its ability to adapt to changing technologies, manage and process ever-
increasing amounts of data and information and improve the performance, features and reliability of its services in response to changing
client and industry demands. BioXcel may experience difficulties that could delay or prevent the successful design, development, testing,
and introduction of advanced versions of EvolverAI, limiting our ability to identify new product candidates. New services, or enhancements
to existing EvolverAI services, may not adequately meet our requirements. Any of these failures could have a material adverse effect on
our operating results and financial condition.
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Risks Related to Our Reliance on Third Parties
We are substantially dependent on third parties for the manufacture of our clinical supplies of our product candidates, and we intend to
rely on third parties to produce commercial supplies of any approved product candidate. Therefore, our development of our products
could be stopped or delayed, and our commercialization of any future product could be stopped or delayed or made less profitable if
third party manufacturers fail to obtain approval of the FDA or comparable regulatory authorities or fail to provide us with drug
product in sufficient quantities or at acceptable prices.
The manufacture of biotechnology and pharmaceutical products is complex and requires significant expertise, capital investment,
process controls and know-how. Common difficulties in biotechnology and pharmaceutical manufacturing may include: sourcing and
producing raw materials, transferring technology from chemistry and development activities to production activities, validating initial
production designs, scaling manufacturing techniques, improving costs and yields, establishing and maintaining quality controls and
stability requirements, eliminating contaminations and operator errors, and maintaining compliance with regulatory requirements. We do
not currently have nor do we plan to acquire the infrastructure or capability internally to produce an adequate supply of compounds to meet
future requirements for clinical trials and commercialization of our products or to produce our products in accordance with cGMP
prescribed by the FDA. Drug manufacturing facilities are subject to inspection before the FDA will issue an approval to market a new drug
product, and all of the manufacturers that we intend to use must adhere to the cGMP regulations prescribed by the FDA.
We expect therefore to rely on third-party manufacturers for clinical supplies of our product candidates that we may develop. These
third-party manufacturers will be required to comply with cGMPs, and other applicable laws and regulations. We will have no control over
the ability of these third parties to comply with these requirements, or to maintain adequate quality control, quality assurance and qualified
personnel. If the FDA or any other applicable regulatory authorities do not approve the facilities of these third parties for the manufacture of
our other product candidates or any products that we may successfully develop, or if it withdraws any such approval, or if our suppliers or
contract manufacturers decide they no longer want to supply or manufacture for us, we may need to find alternative manufacturing
facilities, in which case we might not be able to identify manufacturers for clinical or commercial supply on acceptable terms, or at all. Any
of these factors would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates and
adversely affect our business.
We and/or our third-party manufacturers may be adversely affected by developments outside of our control, and these developments
may delay or prevent further manufacturing of our products. Adverse developments may include labor disputes, resource constraints,
shipment delays, inventory shortages, lot failures, unexpected sources of contamination, lawsuits related to our manufacturing techniques,
equipment used during manufacturing, or composition of matter, unstable political environments, acts of terrorism, war, natural disasters,
and other natural and man-made disasters. If BioXcel, we or our third-party manufacturers were to encounter any of the above difficulties,
or otherwise fail to comply with contractual obligations, our ability to provide any product for clinical trial or commercial purposes would
be jeopardized. This may increase the costs associated with completing our clinical trials and commercial production. Further, production
disruptions may cause us to terminate ongoing clinical trials and/or commence new clinical trials at additional expense. We may also have
to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications or pass safety inspections.
Moreover, as a result of the COVID-19 pandemic, third-party manufacturers may be affected, which could disrupt their activities and, as a
result, we could face difficulty sourcing key components necessary to produce supply of our product candidates, which may negatively
affect our preclinical and clinical development activities. If production difficulties cannot be solved with acceptable costs, expenses, and
timeframes, we may be forced to abandon our clinical development and commercialization plans, which could have a material adverse
effect on our business, prospects, financial condition, and the value of our securities.
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We, or third-party manufacturers on whom we rely, may be unable to successfully scale-up manufacturing of our product candidates in
sufficient quality and quantity, which would delay or prevent us from developing our product candidates and commercializing approved
products, if any.
In order to conduct clinical trials of our product candidates and commercialize any approved product candidates, we, or our
manufacturers, will need to manufacture them in large quantities. We, or our manufacturers, may be unable to successfully increase the
manufacturing capacity for any of our product candidates in a timely or cost-effective manner, or at all. In addition, quality issues may arise
during scale-up activities. If we, or any of our manufacturers, are unable to successfully scale up the manufacture of our product candidates
in sufficient quality and quantity, the development, testing, and clinical trials of that product candidate may be delayed or infeasible, and
regulatory approval or commercial launch of any resulting product may be delayed or not obtained, which could significantly harm our
business. If we are unable to obtain or maintain third-party manufacturing for commercial supply of our product candidates, or to do so on
commercially reasonable terms, we may not be able to develop and commercialize our product candidates successfully.
Our failure to find third party collaborators to assist or share in the costs of product development could materially harm our business,
financial condition and results of operations.
Our strategy for the development and commercialization of our proprietary product candidates may include the formation of
collaborative arrangements with third parties. We are a party to several collaboration agreements (research and clinical). Existing and future
collaborators have significant discretion in determining the efforts and resources they apply and may not perform their obligations as
expected. Potential third party collaborators include biopharmaceutical, pharmaceutical and biotechnology companies, academic institutions
and other entities. Third-party collaborators may assist us in:
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funding research, preclinical development, clinical trials and manufacturing;
seeking and obtaining regulatory approvals; and
successfully commercializing any future product candidates.
If we are not able to establish further collaboration agreements, we may be required to undertake product development and
commercialization at our own expense. Such an undertaking may limit the number of product candidates that we will be able to develop,
significantly increase our capital requirements and place additional strain on our internal resources. Our failure to enter into additional
collaborations could materially harm our business, financial condition and results of operations.
In addition, our dependence on licensing, collaboration and other agreements with third parties may subject us to a number of risks.
These agreements may not be on terms that prove favorable to us and may require us to relinquish certain rights in our product candidates.
To the extent we agree to work exclusively with one collaborator in a given area, our opportunities to collaborate with other entities could
be curtailed. Lengthy negotiations with potential new collaborators may lead to delays in the research, development or commercialization of
product candidates. The decision by our collaborators to pursue alternative technologies or the failure of our collaborators to develop or
commercialize successfully any product candidate to which they have obtained rights from us could materially harm our business, financial
condition and results of operations.
We rely on third parties to conduct our preclinical and clinical trials. If these third parties do not successfully perform their contractual
legal and regulatory duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our
product candidates and our business could be substantially harmed.
We have relied upon and plan to continue to rely upon third-party medical institutions, clinical investigators, contract laboratories and
other third party CROs to monitor and manage data for our ongoing preclinical and clinical programs. We rely on these parties for
execution of our preclinical and clinical trials, and control only certain aspects of their activities. Nevertheless, we are responsible for
ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our
reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs are required to comply with GCPs, which are
regulations and guidelines
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enforced by the FDA, the Competent Authorities of the member states of the EEA and comparable foreign regulatory authorities for all of
our products in clinical development.
Regulatory authorities enforce these GCPs through periodic inspections of trial sponsors, principal investigators and trial sites. If we or
any of our CROs fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the
FDA, the EMA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our
marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine
that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product produced under
cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory
approval process.
If any of our relationships with these third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs
or to do so on commercially reasonable terms. In addition, our CROs are not our employees, and except for remedies available to us under
our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our on-going clinical,
nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected
deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere
to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and we
may not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of
operations and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate
revenues could be delayed.
Many of the third parties with whom we contract may also have relationships with other commercial entities, including our
competitors, for whom they may also be conducting clinical trials or other drug development activities that could harm our competitive
position. If the third parties conducting our GLP preclinical studies or our clinical trials do not perform their contractual duties or
obligations, experience work stoppages, do not meet expected deadlines, terminate their agreements with us or need to be replaced, or if the
quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical trial protocols or to GCPs, or
for any other reason, we may need to enter into new arrangements with alternative third parties. Switching or adding additional CROs
involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO
commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines.
Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter similar challenges 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.
Risks Related to Our Business and Industry
The outbreak of the novel coronavirus disease, COVID-19, or other pandemic, epidemic or outbreak of an infectious disease may
materially and adversely impact our business, including our preclinical studies and clinical trials.
In 2020, the novel coronavirus disease, COVID-19, was declared a pandemic and has spread across the globe, including throughout the
United States and Europe. The outbreak and government measures taken in response have also had a significant impact, both direct and
indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have
been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other
goods and services, such as travel, has fallen. Our office is currently open to employees on a voluntary basis with a maximum number of
25% of employees present at any given time limited and which is aligned to state guidelines. We have also implemented protocols as
required under the State of Connecticut’s Reopen program and have limited travel. We have taken steps to protect our workforce and have
instituted strict work rules to protect our employees. To date, our remote working arrangements have not significantly affected our ability to
maintain critical business operations.
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As a result of the COVID-19 pandemic or other pandemics, epidemics or outbreaks of infectious disease, we may experience
disruptions that could severely impact our business, preclinical studies and clinical trials, including:
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delays or difficulties in enrolling patients in our clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our
clinical trial sites and hospital staff supporting the conduct of our clinical trials;
interruption of key clinical trial activities, such as clinical trial site data monitoring, due to limitations on travel imposed or
recommended by federal or state governments, employers and others or interruption of clinical trial subject visits and study
procedures, which may impact the integrity of subject data and clinical study endpoints;
interruption or delays in the operations of the FDA or other regulatory authorities, which may impact review and approval
timelines;
interruption of, or delays in receiving, supplies of our product candidates from our contract manufacturing organizations due to
staffing shortages, production slowdowns or stoppages and disruptions in delivery systems;
interruptions in preclinical studies due to restricted or limited operations resulting from restrictions on our on-site activities;
limitations on employee resources that would otherwise be focused on the conduct of our preclinical studies and clinical trials,
including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of
people;
impacts from prolonged remote work arrangements, such as strains on our business continuity plans, cybersecurity risks, and
inability of certain employees to perform their work remotely; and
interruption or delays to our sourced discovery and clinical activities.
The COVID-19 pandemic continues to rapidly evolve. The extent to which the outbreak impacts our business, preclinical studies and
clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate
geographic spread of the disease, the rate of infection, the duration of the pandemic and subsequent waves of infection, travel restrictions
and social distancing in the United States and other countries, business closures or business disruptions, the availability and effectiveness of
any vaccines and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. If we or any of
the third parties with whom we engage were to experience shutdowns or other business disruptions, our ability to conduct our business in
the manner and on the timelines presently planned could be materially and negatively impacted. Additionally, concerns over the economic
impact of COVID-19 pandemic have caused extreme volatility in financial and other capital markets which has and may continue to
adversely impact our stock price and our ability to access capital markets.
We will need to increase the size of our organization and the scope of our outside vendor relationships, and we may experience
difficulties in managing growth.
As of December 31, 2020, we employed a total of 50 full-time employees. In addition, we have access to certain of BioXcel’s
employees and resources through the various agreements we have entered into with BioXcel. Our current internal departments include
finance, research and development and administration. We have been expanding our management team to include an operational ramp up
of additional technical staff required to achieve our business objectives. We will need to continue to expand our managerial, operational,
technical and scientific, financial and other resources in order to manage our operations and clinical trials, establish independent
manufacturing, continue our
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research and development activities, and commercialize our product candidate. Our management and scientific personnel, systems and
facilities currently in place may not be adequate to support our future growth.
Our need to effectively manage our operations, growth and various projects requires that we:
● manage our clinical trials effectively, including our planned clinical trials of BXCL501, BXCL701 and our other product
candidates;
● manage our internal development efforts effectively while carrying out our contractual obligations to licensors, contractors and
other third parties;
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continue to improve our operational, financial and management controls and reporting systems and procedures; and
attract and retain sufficient numbers of talented employees.
We may utilize the services of third-party vendors to perform tasks including pre-clinical and clinical trial management, statistics and
analysis, regulatory affairs, medical advisory, market research, formulation development, chemistry, manufacturing and control activities,
other drug development functions, legal, auditing, financial advisory, and investor relations. Our growth strategy may also entail expanding
our group of contractors or consultants to implement these and other tasks going forward. Because we rely on numerous consultants, to
outsource many key functions of our business, we will need to be able to effectively manage these consultants to ensure that they
successfully carry out their contractual obligations and meet expected deadlines. However, if we are unable to effectively manage our
outsourced activities or if the quality or accuracy of the services provided by consultants is compromised for any reason, our clinical trials
may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for our product candidate or otherwise
advance our business. There can be no assurance that we will be able to manage our existing consultants or find other competent outside
contractors and consultants on economically reasonable terms, or at all. If we are not able to effectively expand our organization by hiring
new employees and expanding our groups of consultants and contractors, we may be unable to successfully implement the tasks necessary
to further develop and commercialize our product candidate and, accordingly, may not achieve our research, development and
commercialization goals.
We depend on our senior management team, and the loss of one or more of our executive officers or key employees or an inability to
attract and retain highly skilled employees could adversely affect our business.
Our success depends largely upon the continued services of our key executive officers, Vimal Mehta, our Chief Executive Officer,
President, and a member of our Board, as well as the other principal members of our management, scientific and clinical teams. We do not
maintain “key person” insurance for any of these executive officers or any of our other key employees. We also rely on our leadership team
in the areas of research and development, marketing, services and general and administrative functions. From time to time, there may be
changes in our executive management and leadership teams resulting from the hiring or departure of executives or other key employees,
which could disrupt our business. The replacement of one or more of our executive officers or other key employees would likely involve
significant time and costs and may significantly delay or prevent the achievement of our business objectives.
To continue to execute our growth strategy, we also must attract and retain highly skilled personnel. We might not be successful in
maintaining our unique culture and continuing to attract and retain qualified personnel. We have from time to time in the past experienced,
and we expect to continue to experience in the future, difficulty in hiring and retaining highly skilled personnel with appropriate
qualifications. The pool of qualified personnel with experience working with the pharma market is limited overall. In addition, many of the
companies with which we compete for experienced personnel have greater resources than we have.
In addition, in making employment decisions, particularly in the biotechnology and high-technology industries, job candidates often
consider the value of the stock options or other equity instruments they are to receive in connection with their employment. Volatility in the
price of our stock might, therefore, adversely affect our ability to attract or retain highly skilled personnel. Furthermore, the requirement to
expense stock options and other equity instruments might discourage us from granting the size or type of stock option or equity awards that
job candidates require to join our
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company. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects
could be severely harmed.
We may acquire other companies or technologies, which could divert our management’s attention, result in dilution to our stockholders
and otherwise disrupt our operations and adversely affect our operating results.
We may in the future seek to acquire or invest in businesses, applications and services or technologies that we believe could
complement or expand our services, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential
acquisitions may divert the attention of management and cause us to incur various expenses in identifying, investigating and pursuing
suitable acquisitions, whether or not they are consummated.
In addition, we do not have any experience in acquiring other businesses. If we acquire additional businesses, we may not be able to
integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the
acquisition. We also may not achieve the anticipated benefits from the acquired business due to a number of factors, including:
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inability to integrate or benefit from acquired technologies or services in a profitable manner;
unanticipated costs or liabilities associated with the acquisition;
difficulty integrating the accounting systems, operations and personnel of the acquired business;
difficulties and additional expenses associated with supporting legacy products and hosting infrastructure of the acquired
business;
difficulty converting the customers of the acquired business onto our platform and contract terms, including disparities in the
revenue, licensing, support or professional services model of the acquired company;
diversion of management’s attention from other business concerns;
adverse effects to our existing business relationships with business partners and customers as a result of the acquisition;
the potential loss of key employees;
use of resources that are needed in other parts of our business; and
use of substantial portions of our available cash to consummate the acquisition.
In addition, a significant portion of the purchase price of companies we acquire may be allocated to acquired goodwill and other
intangible assets, which must be assessed for impairment at least annually. In the future, if our acquisitions do not yield expected returns,
we may be required to take charges to our operating results based on this impairment assessment process, which could adversely affect our
results of operations.
Acquisitions could also result in dilutive issuances of equity securities or the incurrence of debt, which could adversely affect our
operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial position
may suffer.
Our employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and
requirements and insider trading.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to
comply with any regulations applicable to us, to provide accurate information to regulatory authorities, to comply with manufacturing
standards we have established, to comply with federal and state healthcare fraud and abuse laws and regulations, or to report financial
information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the
healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other
abusive
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practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales
commission, customer incentive programs and other business arrangements. Employee misconduct could also involve the improper use of
information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. We have
adopted a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the
precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risk.
Business interruptions could adversely affect future operations, revenues, and financial conditions, and may increase our costs and
expenses.
Our operations, and those of our directors, advisors, contractors, consultants, CROs, and collaborators, could be adversely affected by
earthquakes, floods, hurricanes, typhoons, extreme weather conditions, fires, water shortages, power failures, business systems failures,
medical epidemics, pandemics such as the COVID-19 pandemic, and other natural and man-made disaster or business interruptions. Our
phones, electronic devices and computer systems and those of our directors, advisors, contractors, consultants, CROs, and collaborators are
vulnerable to damages, theft and accidental loss, negligence, unauthorized access, terrorism, war, electronic and telecommunications
failures, and other natural and man-made disasters. Several of our employees conduct business outside of our headquarters and leased or
owned facilities. These locations may be subject to additional security and other risk factors due to the limited control of our employees. If
such an event as described above were to occur in the future, it may cause interruptions in our operations, delay research and development
programs, clinical trials, regulatory activities, manufacturing and quality assurance activities, sales and marketing activities, hiring, training
of employees and persons within associated third parties, and other business activities. For example, the loss of clinical trial data from
completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or
reproduce the data.
Likewise, we will rely on third parties to manufacture BXCL501 and BXCL701 and conduct clinical trials, and similar events as those
described in the prior paragraph relating to their business systems, equipment and facilities could also have a material adverse effect on our
business. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or
inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and
commercialization of our product candidate could be delayed or altogether terminated.
Data breaches or cyber-attacks could disrupt our business operations and information technology systems, adversely impact our
financial results or result in the loss or exposure of confidential or sensitive product candidate, clinical trial, employee or Company
information.
Our information technology systems have been and may in the future be attacked or breached by individuals or organizations
intending to obtain sensitive data regarding our business, our product candidates, clinical trials or other third parties with whom we do
business; harm or disrupt our business operations; or otherwise misappropriate information or Company funds. A security compromise of
our information technology systems or business operations could occur through a variety of methods such as cyber-attacks or cyber-
intrusions over the Internet, malware, computer viruses, email spoofing, attachments to e-mails, persons inside our organization, persons
with access to systems inside our organization. The risk of such intrusions, threats to data and information technology systems and breaches
has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have
increased. For example, in September 2020, we were the victim of an email-based wire fraud that involved two electronic communications
impersonating one of our vendors, resulting in our sending wires totaling $1.9 million to accounts controlled by the impersonator. We use
our information technology systems to protect confidential or sensitive product candidate, clinical trial, employee and Company
information. Any attack on such systems that results in the unauthorized release or loss of such information could have a material adverse
effect on our business reputation, increase our costs and expose us to material legal claims and liability. If the unauthorized release or loss
of product candidate, clinical trial, employee or other confidential or sensitive data were to occur, our operations and financial results and
our share price could be adversely affected.
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While we maintain some of our own critical information technology systems, we also depend on third parties to provide important
information technology services relating to several key business functions. Our measures to prevent, detect and mitigate these threats,
including password protection, firewalls, backup servers, threat monitoring and periodic penetration testing, may not be successful in
preventing a data breach or limiting the effects of a breach. Because the techniques used to obtain unauthorized access to, or to sabotage,
systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or
implement adequate preventative measures. We may also experience security breaches that may remain undetected for an extended period.
Furthermore, the security measures employed by third-party service providers may prove to be ineffective at preventing breaches of their
systems. Although we maintain insurance for our business, the coverage under our policies may not be adequate to compensate us for all
losses that may occur .
Actual or perceived failures to comply with applicable data protection, privacy and security laws, regulations, standards and other
requirements could adversely affect our business, results of operations, and financial condition.
The global data protection landscape is rapidly evolving, and we are or may become subject to numerous state, federal and foreign
laws, requirements and regulations governing the collection, use, disclosure, retention, and security of personal data, such as information
that we may collect in connection with clinical trials in the U.S. and abroad. Additionally, our use of artificial intelligence and machine
learning may be subject to laws and evolving regulations regarding the use of artificial intelligence/machine learning, controlling for data
bias, and antidiscrimination. Implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future,
and we cannot yet determine the impact future laws, regulations, standards, or perception of their requirements may have on our business.
This evolution may create uncertainty in our business, affect our ability to operate in certain jurisdictions or to collect, store, transfer use
and share personal information, necessitate the acceptance of more onerous obligations in our contracts, result in liability or impose
additional costs on us. The cost of compliance with these laws, regulations and standards is high and is likely to increase in the future. Any
failure or perceived failure by us to comply with federal, state or foreign laws or regulation, our internal policies and procedures or our
contracts governing our processing of personal information could result in negative publicity, government investigations and enforcement
actions, claims by third parties and damage to our reputation, any of which could have a material adverse effect on our operations, financial
performance and business.
As our operations and business grow, we may become subject to or affected by new or additional data protection laws and regulations
and face increased scrutiny or attention from regulatory authorities. In the U.S., HIPAA imposes, among other things, certain standards
relating to the privacy, security, transmission and breach reporting of individually identifiable health information. Certain states have also
adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. Such laws and
regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex
compliance issues for us and our future customers and strategic partners. In addition, the CCPA went into effect on January 1, 2020. The
CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling
certain personal information. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that
is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability, and many similar laws
have been proposed at the federal level and in other states. Further, the CPRA recently passed in California, which will impose additional
data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit
requirements for higher risk data, and opt outs for certain uses of sensitive data. It will also create a new California data protection agency
authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The majority of the
provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes may be
required. In the event that we are subject to or affected by HIPAA, the CCPA, the CPRA or other domestic privacy and data protection laws,
any liability from failure to comply with the requirements of these laws could adversely affect our financial condition.
In Europe, the GDPR went into effect in May 2018 and imposes strict requirements for processing the personal data of individuals
within the EEA. Companies that must comply with the GDPR face increased compliance obligations and risk, including more robust
regulatory enforcement of data protection requirements and potential fines for noncompliance of up to €20 million or 4% of the annual
global revenues of the noncompliant company, whichever is
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greater. Among other requirements, the GDPR regulates transfers of personal data subject to the GDPR to third countries that have not been
found to provide adequate protection to such personal data, including the United States, and the efficacy and longevity of current transfer
mechanisms between the EU and the United States remains uncertain. For example, in 2016, the EU and United States agreed to a transfer
framework for data transferred from the EU to the United States, called the Privacy Shield, but the Privacy Shield was invalidated in July
2020 by the Court of Justice of the European Union. Further, from January 1, 2021, companies have to comply with the GDPR and also the
United Kingdom GDPR, or UK GDPR, which, together with the amended UK Data Protection Act 2018, retains the GDPR in UK national
law. The UK GDPR mirrors the fines under the GDPR, i.e., fines up to the greater of €20 million (£17.5 million) or 4% of global turnover.
The relationship between the United Kingdom and the European Union in relation to certain aspects of data protection law remains unclear,
and it is unclear how United Kingdom data protection laws and regulations will develop in the medium to longer term, and how data
transfers to and from the United Kingdom will be regulated in the long term. Currently there is a four to six-month grace period agreed in
the EU and United Kingdom Trade and Cooperation Agreement, ending June 30, 2021 at the latest, whilst the parties discuss an adequacy
decision. However, it is not clear whether (and when) an adequacy decision may be granted by the European Commission enabling data
transfers from EU member states to the United Kingdom long term without additional measures. These changes may lead to additional costs
and increase our overall risk exposure.
Although we work to comply with applicable laws, regulations and standards, our contractual obligations and other legal obligations,
these requirements are evolving and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another,
and may conflict with one another or other legal obligations with which we must comply. Any failure or perceived failure by us or our
employees, representatives, contractors, consultants, collaborators, or other third parties to comply with such requirements or adequately
address privacy and security concerns, even if unfounded, could result in additional cost and liability to us, damage our reputation, and
adversely affect our business and results of operations.
Our failure to successfully acquire, develop and market additional product candidates or approved drug products could impair our
ability to grow.
As part of our growth strategy, we may evaluate, acquire, license, develop and/or market additional product candidates and
technologies. These investments will not constitute a significant portion of our business. However, our internal research capabilities are
limited and we may be dependent upon pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or
license products or technology to us. The success of this strategy depends partly upon our ability to identify, select and acquire promising
pharmaceutical product candidates and products. The process of proposing, negotiating and implementing a license or acquisition of a
product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial,
marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have
limited resources to identify and execute the acquisition or in-licensing of third party products, businesses and technologies and integrate
them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing opportunities that are
never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional
product candidates on terms that we find acceptable, or at all.
In addition, future acquisitions may entail numerous operational and financial risks, including:
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exposure to unknown liabilities;
disruption of our business and diversion of our management’s and technical personnel’s time and attention to develop acquired
products or technologies;
incurrence of substantial debt or dilutive issuances of securities to pay for acquisitions;
higher than expected acquisition and integration costs;
increased amortization expenses;
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difficulty and cost in combining the operations and personnel of any acquired businesses with our operations and personnel;
impairment of relationships with key suppliers or customers of any acquired businesses due to changes in management and
ownership; and
inability to retain key employees of any acquired businesses.
Any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive
clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure
typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe
and effective for approval by regulatory authorities. In addition, we cannot provide assurance that any products that we develop or approved
products that we acquire will be manufactured profitably or achieve market acceptance.
Our ability to use net operating losses and research and development credits to offset future taxable income may be subject to certain
limitations.
As of December 31, 2020, we had federal operating loss carryforwards, or NOLs, of approximately $40.7 million. Our NOLs arising
before January 1, 2018 are subject to expiration and will begin to expire in 2037. As of December 31, 2020, we also had federal and state
research and development and other tax credit carryforwards, or credits of approximately $5.0 million available to reduce future tax
liabilities. The federal and state credits expire at various dates through 2037. These NOLs and credits could expire unused and be
unavailable to offset future taxable income or income tax liabilities. In addition, in general, under Sections 382 and 383 of the Internal
Revenue Code of 1986, as amended, or the Code, a corporation that undergoes an "ownership change" is subject to limitations on its ability
to utilize its pre-change NOLs or credits to offset future taxable income or income tax liabilities. For these purposes, an ownership change
generally occurs where the aggregate change in stock ownership of one or more stockholders or groups of stockholders owning at least 5%
of a corporation's stock exceeds 50 percentage points over a three-year period. Future changes in our stock ownership, including as a result
of February 2020 offering of common stock, many of which are outside of our control, could result in an ownership change. Our NOLs or
credits may also be impaired under state law. Accordingly, even if we attain profitability, we may not be able to utilize a material portion of
our NOLs or credits. Furthermore, under the Tax Cuts and Jobs Act of 2017 and modified by the CARES Act signed on March 27, 2020,
although the treatment of NOLs arising on or before December 31, 2017 has generally not changed, NOLs arising on or after January 1,
2018 and beyond may only be used to offset 80% of taxable income for tax years beginning after December 31, 2020. This change may
require us to pay federal income taxes in future years despite generating a loss for federal income tax purposes in prior years.
Risks Related to Our Intellectual Property
It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position does
not adequately protect our product candidates, others could compete against us more directly, which would harm our business, possibly
materially.
Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our current
and future product candidates, the processes used to manufacture them and the methods for using them, as well as successfully defending
these patents against third-party challenges. We are the owner of record of patents and patent applications pending in the United States and
in certain foreign jurisdictions. Patents issue from non-provisional applications, which are typically filed from provisional patent
applications or from PCT applications that enter the national phase. Neither provisional patent applications nor PCT applications issue
directly as patents. We own PCT, patent applications relating to our platform technologies covering methods of use and applications of the
platform technologies. As of March 10, 2021, we had five allowed or issued foreign patents that are relevant to our BXCL701 program and
one issued U.S. patent that is relevant to our BXCL501 program. We cannot be certain that any future patents will issue with claims that
cover our product candidates. Our ability to stop third parties from making, using, selling, offering to sell or importing our product
candidates is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these
activities.
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The patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex legal and factual
questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in
pharmaceutical patents has emerged to date in the United States or in foreign jurisdictions outside of the United States. Changes in either
the patent laws or interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property.
Accordingly, we cannot predict the breadth of claims that may be enforced in the patents that may be issued from the applications we
currently or may in the future own or license from third parties. Further, if any patents we obtain or license are deemed invalid and
unenforceable, our ability to commercialize or license our technology could be adversely affected.
Others have filed, and in the future are likely to file, patent applications covering products and technologies that are similar, identical
or competitive to ours or important to our business. We cannot be certain that any patent application owned by a third party will not have
priority over patent applications filed or in-licensed by us, or that we or our licensors will not be involved in interference, opposition,
reexamination, review, reissue, post grant review or invalidity proceedings before U.S. or non-U.S. patent offices.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not
adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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others may be able to make compounds that are similar to our product candidates, but that are not covered by the claims of our
patents;
● we might not have been the first to make the inventions covered by our pending patent applications;
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our pending patent applications may not result in issued patents;
the claims of our issued patents or patent applications when issued may not cover our products or product candidates;
any patents that we obtain may not provide us with any competitive advantages;
any granted patents may be held invalid or unenforceable as a result of legal challenges by third parties; and
the patents of others may have an adverse effect on our business.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and
other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-
compliance with these requirements.
Periodic maintenance, renewal and annuity fees and various other government fees on any issued patent and pending patent application
must be paid to the U.S. Patent and Trademark Office, or USPTO, and foreign patent agencies in several stages or annually over the
lifetime of our owned and in-licensed patents and patent applications. 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 application
process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the
applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application,
resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or
lapse of a patent or patent application include failure to respond to official actions within prescribed time limits, non-payment of fees and
failure to properly legalize and submit formal documents. In such an event, potential competitors might be able to enter the market with
similar or identical products or technology. If we or our licensors fail to maintain the patents and patent applications covering our product
candidates, it would have a material adverse effect on our business, financial condition, results of operations, and prospects.
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If we fail to comply with our obligations in the agreements under which we may license intellectual property rights from third parties or
otherwise experience disruptions to our business relationships with our licensors, we could lose rights that are important to our
business.
We may be required to enter into intellectual property license agreements that are important to our business. These license agreements
may impose various diligence, milestone payment, royalty and other obligations on us. For example, we may enter into exclusive license
agreements with various universities and research institutions, we may be required to use commercially reasonable efforts to engage in
various development and commercialization activities with respect to licensed products and may need to satisfy specified milestone and
royalty payment obligations. If we fail to comply with any obligations under our agreements with any of these licensors, we may be subject
to termination of the license agreement in whole or in part; increased financial obligations to our licensors or loss of exclusivity in a
particular field or territory, in which case our ability to develop or commercialize products covered by the license agreement will be
impaired.
In addition, disputes may arise regarding intellectual property subject to a license agreement, including:
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the scope of rights granted under the license agreement and other interpretation-related issues;
the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the
licensing agreement;
our diligence obligations under the license agreement and what activities satisfy those obligations;
if a third-party expresses interest in an area under a license that we are not pursuing, under the terms of certain of our license
agreements, we may be required to sublicense rights in that area to a third party, and that sublicense could harm our business;
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the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and
us.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements
on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
We may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates. We
may fail to obtain any of these licenses at a reasonable cost or on reasonable terms, if at all. In that event, we would be unable to further
develop and commercialize one or more of our product candidates, which could harm our business significantly.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We or our licensors may be subject to claims that former employees, collaborators or other third parties have an interest in our patents,
trade secrets, or other intellectual property as an inventor or co-inventor. For example, we or our licensors may have inventorship disputes
arise from conflicting obligations of employees, consultants or others who are involved in developing our product candidates. Litigation
may be necessary to defend against these and other claims challenging inventorship or our or our licensors’ ownership of our owned or in-
licensed patents, trade secrets, or other intellectual property. If we or our licensors fail in defending any such claims, in addition to paying
monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, intellectual property
that is important to our product candidates. Even if we are successful in defending against such claims, litigation could result in substantial
costs and be a distraction to management and other employees. Any of the foregoing could have a material adverse effect on our business,
financial condition, results of operations and prospects.
An NDA submitted under Section 505(b)(2) subjects us to the risk that we may be subject to a patent infringement lawsuit that would
delay or prevent the review or approval of our product candidate.
Our product candidates will be submitted to the FDA for approval under Section 505(b)(2) of the FDCA. Section 505(b)(2) permits the
submission of an NDA where at least some of the information required for approval comes from
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studies that were not conducted by, or for, the applicant and on which the applicant has not obtained a right of reference. The 505(b)(2)
application would enable us to reference published literature and/or the FDA’s previous findings of safety and effectiveness for a branded
reference drug with the same active ingredient. For NDAs submitted under Section 505(b)(2) of the FDCA, the patent certification and
related provisions of the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act, apply.
In accordance with the Hatch-Waxman Act, such NDAs may be required to include certifications, known as paragraph IV certifications,
that certify that any patents listed in the Patent and Exclusivity Information Addendum of the FDA’s publication, Approved Drug Products
with Therapeutic Equivalence Evaluations, commonly known as the Orange Book, with respect to any product referenced in the 505(b)(2)
application, are invalid, unenforceable or will not be infringed by the manufacture, use or sale of the product that is the subject of the 505(b)
(2) NDA.
Under the Hatch-Waxman Act, the holder of patents that the 505(b)(2) application references may file a patent infringement lawsuit
after receiving notice of the paragraph IV certification. Filing of a patent infringement lawsuit against the filer of the 505(b)(2) applicant
within 45 days of the patent owner’s receipt of notice triggers a one-time, automatic, 30 month stay of the FDA’s ability to approve the
505(b)(2) NDA, unless patent litigation is resolved in the favor of the paragraph IV filer or the patent expires before that time. Accordingly,
we may invest a significant amount of time and expense in the development of one or more product candidates only 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
will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, or NCE, listed in
the Orange Book for the branded reference drug product has expired. The FDA may also require us to perform one or more additional
clinical studies or measurements to support the change from the branded reference drug, which could be time consuming and could
substantially delay our achievement of regulatory approvals for such product candidates. The FDA may also reject our future 505(b)(2)
submissions and require us to file such submissions under Section 505(b)(1) of the FDCA, which would require us to provide extensive
data to establish safety and effectiveness of the drug product for the proposed use and could cause delay and be considerably more
expensive and time consuming. These factors, among others, may limit our ability to successfully commercialize our product candidates.
We may incur substantial costs as a result of litigation or other proceedings relating to patents and other intellectual property rights.
If we choose to commence a proceeding or litigation to prevent another party from infringing our patents, that party will have the right
to ask the examiner or court to rule that our patents are invalid or should not be enforced against them. There is a risk that the examiner or
court will decide that our patents are not valid and that we do not have the right to stop the other party from using the related inventions.
There is also the risk that, even if the validity of our patents is upheld, the examiner or court will refuse to stop the other party on the ground
that such other party’s activities do not infringe our rights to such patents. In addition, the U.S. Supreme Court has recently modified some
tests used by the USPTO in granting patents over the past 20 years, which may decrease the likelihood that we will be able to obtain patents
and increase the likelihood of challenge to any patents we obtain or license. Any proceedings or litigation to enforce our intellectual
property rights or defend ourselves against claims of infringement of third-party intellectual property rights could be costly and divert the
attention of managerial and scientific personnel, regardless of whether such litigation is ultimately resolved in our favor. We may not have
sufficient resources to bring these actions to a successful conclusion. Moreover, if we are unable to successfully defend against claims that
we have infringed the intellectual property rights of others, we may be prevented from using certain intellectual property and may be liable
for damages, which in turn could materially adversely affect our business, financial condition or results of operations.
Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating their intellectual
property rights, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of
commercializing our product candidates.
Our success will depend in part on our ability to operate without infringing, misappropriating or otherwise violating the proprietary
rights of third parties. There is considerable patent and other intellectual property litigation in the pharmaceutical and biotechnology
industries. We may become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with
respect to our products, or the manufacture or use of our product candidates, including interference proceedings, post grant review, inter
partes review, and derivation proceedings before
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the USPTO and similar proceedings in foreign jurisdictions. The legal threshold for initiating litigation or contested proceedings is low, so
that even lawsuits or proceedings with a low probability of success might be initiated and require significant resources to defend. The costs
of these lawsuits could affect our results of operations and divert the attention of managerial and scientific personnel. Some of these third
parties may be better capitalized and have more resources than us. There is a risk that a court would decide that we are infringing the third
party’s patents and would order us to stop the activities covered by the patents. In that event, we may not have a viable way around the
patent and may need to halt commercialization of the relevant product candidate. In addition, there is a risk that a court will order us to pay
the other party damages for having violated the other party’s patents. In addition, we may be obligated to indemnify our licensors and
collaborators against certain intellectual property infringement claims brought by third parties, which could require us to expend additional
resources. The pharmaceutical and biotechnology industries have produced a proliferation of patents, and it is not always clear to industry
participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to
interpretation by the courts, and the interpretation is not always uniform.
If we are sued for patent infringement, we would need to demonstrate that our products or methods either do not infringe the patent
claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Proving invalidity is difficult. For
example, in the United States, proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of
validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and divert management’s
time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the
patent rights of others, we may be required to seek a license, which may not be available, defend an infringement action or challenge the
validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to
a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an
infringement action successfully or have infringed patents declared invalid, we may incur substantial monetary damages, encounter
significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our product candidates.
We cannot be certain that others have not filed patent applications for technology covered by our pending applications, or that we were
the first to invent the technology, because:
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some patent applications in the United States may be maintained in secrecy until the patents are issued;
patent applications in the United States are typically not published until 18 months after the priority date; and
publications in the scientific literature often lag behind actual discoveries.
Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent
application may have priority over our patent applications, which could further require us to obtain rights to issued patents covering such
technologies. If another party has filed US patent applications on inventions similar to ours that claims priority to any applications filed
prior to the priority dates of our applications, we may have to participate in an interference proceeding declared by the USPTO to determine
priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be
unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or similar inventions prior to our own inventions,
resulting in a loss of our U.S. patent position with respect to such inventions. Other countries have similar laws that permit secrecy of patent
applications and may be entitled to priority over our applications in such jurisdictions.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have
substantially greater resources. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a
material adverse effect on our ability to raise the funds necessary to continue our operations.
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If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology and
products could be significantly diminished.
We also rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants,
outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information.
These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event
of unauthorized disclosure of confidential information. Furthermore, any license agreements we enter into in the future may require us to
notify, and in some cases license back to the licensor, certain additional proprietary information or intellectual property that we developed
using the rights licensed to us under these agreements. Any such licenses back to the licensor could allow our licensors to use that
proprietary information or intellectual property in a manner that could harm our business. In addition, others may independently discover
our trade secrets and proprietary information. For example, the FDA, as part of its transparency initiative, is currently considering whether
to make additional information publicly available on a routine basis, including information that we may consider to be trade secrets or other
proprietary information, and it is not clear at the present time how the FDA’s disclosure policies may change in the future, if at all. Costly
and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or
maintain trade secret protection could adversely affect our competitive business position.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed alleged
trade secrets.
As is common in the biotechnology and pharmaceutical industries, we employ individuals who were previously employed at other
biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our
employees, consultants and independent contractors do not use the proprietary information or know-how of others in their work for us, we
may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or
disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these
claims. If we fail in defending any such claims, in addition to paying monetary damages, we could lose valuable intellectual property rights
or personnel, which could adversely impact our business. Even if we are successful in defending against these claims, litigation could result
in substantial costs and be a distraction to management.
Our intellectual property may not be sufficient to protect our products from competition, which may negatively affect our business as
well as limit our partnership or acquisition appeal.
We may be subject to competition despite the existence of intellectual property we license or own. We can give no assurances that our
intellectual property claims will be sufficient to prevent third parties from designing around patents we own or license and developing and
commercializing competitive products. The existence of competitive products that avoid our intellectual property could materially
adversely affect our operating results and financial condition. Furthermore, limitations, or perceived limitations, in our intellectual property
may limit the interest of third parties to partner, collaborate or otherwise transact with us, if third parties perceive a higher than acceptable
risk to commercialization of our products or future products.
Our drug re-innovation approach involves the filing of patent applications covering new methods of use and/or new formulations of
previously known, studied and/or marketed drugs. Although the protection afforded by our patent and patent applications may be
significant with respect to BXCL501 and BXCL701, when looking at our patents’ ability to block competition, the protection offered by our
patents may be, to some extent, more limited than the protection provided by patents claiming the composition of matter of entirely new
chemical structures previously unknown. If a competitor were able to successfully design around any method of use and formulation
patents we may have in the future, our business and competitive advantage could be significantly affected.
We may elect to sue a third party, or otherwise make a claim, alleging infringement or other violation of patents, trademarks, trade
dress, copyrights, trade secrets, domain names or other intellectual property rights that we either own
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or license from BioXcel. If we do not prevail in enforcing our intellectual property rights in this type of litigation, we may be subject to:
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paying monetary damages related to the legal expenses of the third party;
facing additional competition that may have a significant adverse effect on our product pricing, market share, business
operations, financial condition, and the commercial viability of our products; and
restructuring our company or delaying or terminating select business opportunities, including, but not limited to, research and
development, clinical trial, and commercialization activities, due to a potential deterioration of our financial condition or market
competitiveness.
A third party may also challenge the validity, enforceability or scope of the intellectual property rights that we license or own; and the
result of these challenges may narrow the scope or claims of or invalidate patents that are integral to our product candidates in the future.
There can be no assurance that we will be able to successfully defend patents we own in an action against third parties due to the
unpredictability of litigation and the high costs associated with intellectual property litigation, amongst other factors.
Intellectual property rights and enforcement may be less extensive in jurisdictions outside of the United States; thus, we may not be
able to protect our intellectual property and third parties may be able to market competitive products that may use some or all of our
intellectual property.
Changes to patent law, including the Leahy-Smith America Invents Act, AIA or Leahy-Smith Act, of 2011 and the Patent Reform Act
of 2009 and other future article of legislation, may substantially change the regulations and procedures surrounding patent applications,
issuance of patents, and prosecution of patents. We can give no assurances that our patents and those of our licensor, BioXcel, can be
defended or will protect us against future intellectual property challenges, particularly as they pertain to changes in patent law and future
patent law interpretations.
In addition, enforcing and maintaining our intellectual property protection depends on compliance with various procedural, document
submission, fee payment and other requirements imposed by the U.S. Patent and Trademark Office, courts and foreign government patent
agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
Risks Related to Owning our Common Stock
The price of our common stock may fluctuate substantially.
You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can
withstand a significant loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of
our common stock to fluctuate, in addition to the other risks mentioned in this "Risk Factors" section, are:
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sale of our common stock by our stockholders, executives, and directors;
volatility and limitations in trading volumes of our shares of common stock;
speculative trading in and short sales of our stock, as well as trading phenomena such as the “short squeeze”;
our ability to obtain financings to conduct and complete research and development activities including, but not limited to, our
clinical trials, and other business activities;
possible delays in the expected recognition of revenue due to lengthy and sometimes unpredictable sales timelines;
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the timing and success of introductions of new applications and services by us or our competitors or any other change in the
competitive dynamics of our industry, including consolidation among competitors, customers or strategic partners;
network outages or security breaches;
our ability to attract new customers;
customer renewal rates and the timing and terms of customer renewals;
our ability to secure resources and the necessary personnel to conduct clinical trials on our desired schedule;
commencement, enrollment or results of our clinical trials for our product candidates or any future clinical trials we may
conduct;
changes in the development status of our product candidates;
any delays or adverse developments or perceived adverse developments with respect to the FDA’s review of our planned
preclinical and clinical trials;
any delay in our submission for studies or product approvals or adverse regulatory decisions, including failure to receive
regulatory approval for our product candidates;
unanticipated safety concerns related to the use of our product candidates;
failures to meet external expectations or management guidance;
changes in our capital structure or dividend policy, future issuances of securities, sales of large blocks of common stock by our
stockholders;
our cash position;
announcements and events surrounding financing efforts, including debt and equity securities;
our inability to enter into new markets or develop new products;
reputational issues;
competition from existing technologies and products or new technologies and products that may emerge;
announcements of acquisitions, partnerships, collaborations, joint ventures, new products, capital commitments, or other events
by us or our competitors;
changes in general economic, political and market conditions in or any of the regions in which we conduct our business;
changes in industry conditions or perceptions;
changes in valuations of similar companies or groups of companies;
analyst research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage;
departures and additions of key personnel;
disputes and litigations related to intellectual properties, proprietary rights, and contractual obligations;
changes in applicable laws, rules, regulations, or accounting practices and other dynamics; and
other events or factors, many of which may be out of our control.
In addition, if the market for stocks in our industry or industries related to our industry, or the stock market in general, experiences a
loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition
and results of operations. If any of the foregoing occurs, it could cause our
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stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.
Because certain of our stockholders control a significant number of shares of our common stock, they may have significant influence
over actions requiring stockholder approval.
As of December 31, 2020, our directors, executive officers and BioXcel, and their respective affiliates, beneficially owned
approximately 45% of our outstanding shares of common stock. As a result, these stockholders, acting together, would have significant
control over the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger,
consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, would have significant control
over the management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our
common stock by:
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delaying, deferring or preventing a change in corporate control;
impeding a merger, consolidation, takeover or other business combination involving us; or
discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
We do not intend to pay cash dividends on our shares of common stock so any returns will be limited to the value of our shares.
We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not
anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the
increase, if any, of our share price.
If we were deemed to be an investment company under the Investment Company Act of 1940, as amended, or the 1940 Act, applicable
restrictions could make it impractical for us to continue our business as contemplated and could have a material adverse effect on our
business, financial condition and results of operations.
Under Sections 3(a)(1)(A) and (C) of the 1940 Act, a company generally will be deemed to be an “investment company” for purposes
of the 1940 Act if (1) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing,
reinvesting or trading in securities or (2) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or
trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets
(exclusive of U.S. government securities and cash items) on an unconsolidated basis. We do not believe that we are an “investment
company,” as such term is defined in either of those sections of the 1940 Act.
Notwithstanding Sections 3(a)(1)(A) and (C) of the 1940 Act, we are a research and development company and comply with the safe
harbor requirements of Rule 3a-8 of the 1940 Act. We intend to conduct our operations so that we will not be deemed an investment
company. However, if we were to be deemed an investment company, restrictions imposed by the 1940 Act, including limitations on our
capital structure and our ability to transact with affiliates, could make it impractical for us to continue our business as contemplated and
could have a material adverse effect on our business, financial condition and results of operations.
We are an “emerging growth company” and “smaller reporting company” and are able to avail ourselves of reduced disclosure
requirements applicable to emerging growth companies and small reporting companies, which could make our common stock less
attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we
intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are
not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and
exemptions from the requirements
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of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not
previously approved. In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the
extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards. In
other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. We are not electing to delay such adoption of new or revised accounting standards, and as a result, we will
comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging
growth companies. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If
some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our
stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an “emerging growth
company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total
annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the
completion of our initial public offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the
previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange
Commission (the “SEC”).
We are also a smaller reporting company, and we will remain a smaller reporting company until , as of fiscal year end, we determine
that either (1) our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day
of our most recent second fiscal quarter or (2) our annual revenues are more than $100 million and our voting and non-voting common
stock held by non-affiliates is more than $700 million measured on the last business day of our most recent second fiscal quarter. Similar to
emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosure, are exempt
from the auditor attestation requirements of Section 404, and have certain other reduced disclosure obligations, including, among other
things, being required to provide only two years of audited financial statements and not being required to provide selected financial data,
supplemental financial information or risk factors.
We have elected to take advantage of certain of the reduced reporting obligations. We cannot predict whether investors will find our
common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may
be a less active trading market for our common stock and our stock price may be reduced or more volatile.
We may be at risk of securities class action litigation.
We may be at risk of securities class action litigation. In the past, biotechnology and pharmaceutical companies have experienced
significant stock price volatility, particularly when associated with binary events such as clinical trials and product approvals. If we face
such litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business
and results in a decline in the market price of our common stock.
Our certificate of incorporation and our bylaws, and Delaware law may have anti-takeover effects that could discourage, delay or
prevent a change in control, which may cause our stock price to decline.
Our amended and restated certificate of incorporation and our amended and restated bylaws and Delaware law could make it more
difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are authorized to issue
up to 10,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined
at the time of issuance by our board of directors without further action by stockholders. The terms of any series of preferred stock may
include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and
redemption rights and sinking fund provisions. No preferred stock is currently outstanding. The issuance of any preferred stock could
materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock and the
Notes. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our
assets to, a third party and thereby preserve control by the present management.
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Provisions of our amended and restated certificate of incorporation and our amended and restated bylaws and Delaware law also could
have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control,
including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to
replace or remove our management. In particular, the certificate of incorporation and bylaws and Delaware law, as applicable, among other
things:
●
●
●
●
provide the board of directors with the ability to alter the bylaws without stockholder approval;
place limitations on the removal of directors;
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can
be acted upon at stockholder meetings; and
provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum.
Financial reporting obligations of being a public company in the United States are expensive and time-consuming, and our
management is required to devote substantial time to compliance matters.
As a publicly traded company we have incurred significant additional legal, accounting and other expenses that we did not incur as a
privately held subsidiary of BioXcel. The obligations of being a public company in the United States require significant expenditures and
place significant demands on our management and other personnel, including costs resulting from public company reporting obligations
under the Exchange Act and the rules and regulations regarding corporate governance practices, including those under the Sarbanes-Oxley
Act of 2002, or the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, and the
listing requirements of the stock exchange on which our securities are listed. These rules require the establishment and maintenance of
effective disclosure and financial controls and procedures, internal control over financial reporting and changes in corporate governance
practices, among many other complex rules that are often difficult to implement, monitor and maintain compliance with. Moreover, despite
reforms made possible by the JOBS Act, the reporting requirements, rules, and regulations will make some activities more time-consuming
and costly, particularly after we are no longer an “emerging growth company.” In addition, we expect these rules and regulations to make it
more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs
to maintain the same or similar coverage that we had through BioXcel. Our management and other personnel will need to devote a
substantial amount of time to ensure that we comply with all of these requirements and to keep pace with new regulations, otherwise we
may fall out of compliance and risk becoming subject to litigation or being delisted, among other potential problems.
General Risk Factors
Risks associated with data privacy issues, including evolving laws, regulations and associated compliance efforts, may adversely impact
our business and financial results.
Legislation in various countries around the world with regard to cybersecurity, privacy and data protection is rapidly expanding and
creating a complex compliance environment. We are subject to many privacy and data protection laws and regulations in the U.S. and
around the world, some of which place restrictions on our ability to process personal data across our business. In particular, the General
Data Protection Regulation, or GDPR, which became effective in May 2018, has caused more stringent data protection requirements in the
European Union. The GDPR imposes onerous accountability obligations requiring data controllers and processors to maintain a record of
their data processing and implement policies as part of its mandated privacy governance framework. It also requires data controllers to be
transparent and disclose to data subjects how their personal information is to be used; imposes limitations on retention of personal data;
introduces mandatory data breach notification requirements; and sets higher standards for data controllers to demonstrate that they have
obtained valid consent for certain data processing activities. To the extent we collect data from individuals in the European Union, we will
be subject to the supervision of local data protection authorities in those E.U. jurisdictions where we are established or otherwise subject to
the GDPR. Certain breaches of the GDPR requirements could result in substantial fines, which can be up to four percent of worldwide
revenue or 20 million Euros, whichever is greater. In addition to the foregoing, a breach of the GDPR could result in regulatory
investigations,
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reputational damage, orders to cease/change our use of data, enforcement notices, as well potential civil claims including class action type
litigation where individuals suffered harm.
If securities or industry analysts do not publish research or reports, or publish unfavorable research or reports about our business, our
stock price and trading volume may decline.
The trading market for our common stock will rely in part on the research and reports that industry or financial analysts publish about
us, our business, our markets and our competitors. We do not control these analysts. If securities analysts do not cover our common stock,
the lack of research coverage may adversely affect the market price of our common stock. Furthermore, if one or more of the analysts who
do cover us downgrade our stock or if those analysts issue other unfavorable commentary about us or our business, our stock price would
likely decline. If one or more of these analysts cease coverage of us or fails to regularly publish reports on us, we could lose visibility in the
market and interest in our stock could decrease, which in turn could cause our stock price or trading volume to decline and may also impair
our ability to expand our business with existing customers and attract new customers.
Future sales and issuances of our common stock could result in additional dilution of the percentage ownership of our stockholders and
could cause our share price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations, including increased
marketing, hiring new personnel, commercializing our products, and continuing activities as an operating public company. To the extent
we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock,
convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we
sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by
subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior
to our existing stockholders.
If we fail to comply with the rules under the Sarbanes-Oxley Act of 2002 related to accounting controls and procedures in the future, or,
if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could
decline significantly and raising capital could be more difficult.
Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal control over
financial reporting. If we fail to comply with the rules under the Sarbanes-Oxley Act related to disclosure controls and procedures in the
future, or, if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price
could decline significantly and raising capital could be more difficult. If material weaknesses or significant deficiencies are discovered or if
we otherwise fail to achieve and maintain the adequacy of our internal control, we may not be able to ensure that we can conclude on an
ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act.
Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important to helping prevent financial
fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could
lose confidence in our reported financial information, and the trading price of our common stock could drop significantly.
During the quarter ended September 30, 2020, we experienced an email-based wire fraud that resulted in the misappropriation of
certain funds. As a result of the foregoing, we identified a material weakness due to our internal controls having not been adequately
designed to prevent or timely detect unauthorized cash disbursements. If we are unable to remediate any such material weakness, if we are
unable to implement and maintain effective internal control over financial reporting and effective disclosure controls and procedures, or if
we fail to satisfy other requirements as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, we may be
unable to accurately report our financial results or report them within the timeframes required by the SEC.
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Comprehensive tax reform bills could adversely affect our business and financial condition.
In 2017, the U.S. government enacted comprehensive federal income tax legislation that includes significant changes to the taxation of
business entities. These changes include, among others, a permanent reduction to the corporate income tax rate. Notwithstanding the
reduction in the corporate income tax rate, the overall impact of this tax reform is uncertain, and our business and financial condition could
be adversely affected. We urge our stockholders to consult with their legal and tax advisors with respect to any such legislation and the
potential tax consequences of investing in our common stock.
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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters are located at 555 Long Wharf Drive in New Haven, Connecticut. The Company occupies 18,285 square
feet of space. The leases for this space expire in February 2026 and we have a renewal option for one additional five-year term. We believe
that our existing facilities are suitable and adequate to meet our current needs. We intend to add new facilities or expand existing facilities
as we add employees, and we believe that suitable additional or substitute space will be available as needed to accommodate any such
expansion of our operations.
Item 3. Legal Proceedings
From time to time, we may be subject to litigation and claims arising in the ordinary course of business. We are not currently a party to
any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a
material adverse effect on our business, operating results, cash flows or financial condition.
Item 4. Mine Safety Disclosures
Not applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Part II
Market Information
Our common stock is traded on the Nasdaq Capital Market under the symbol “BTAI.”
Stockholders
As of March 4, 2021, there were 9 stockholders of record of our common stock. The actual number of holders of our common stock is
greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name
by brokers or held by other nominees.
Dividend Policy
We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our
common stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and
expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend
upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions
imposed by applicable law and other factors that our board of directors deems relevant.
Sales of Unregistered Sales of Securities
None.
Equity Compensation Plans
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 11.
of Part III of this Annual Report on Form 10-K.
Issuer Purchases of Equity Securities
None.
Item 6. Reserved
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with “Selected
Financial Data” and our financial statements and the related notes appearing elsewhere in this report. In addition to historical
information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual
results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not
limited to, those identified below, and those discussed in the section titled “Risk Factors” included elsewhere in this Annual Report on
Form 10-K. All dollar amounts in the below Management’s Discussion and Analysis of Financial Condition and Results of Operations are
presented in U.S. dollars, and all dollar amounts are presented in thousands, unless otherwise noted or the context otherwise provides.
Overview
We are a clinical stage biopharmaceutical company utilizing artificial intelligence approaches to develop transformative medicines in
neuroscience and immuno-oncology. Our drug re-innovation approach leverages existing approved drugs and/or clinically validated
product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. We believe that
this differentiated approach has the potential to reduce the cost and time of drug development in diseases with a substantial unmet medical
need.
Our two most advanced clinical development programs are BXCL501, a proprietary, orally dissolving, sublingual thin film formulation
of the adrenergic receptor agonist dexmedetomidine (“Dex”), for the treatment of agitation resulting from neuropsychiatric disorders, and
BXCL701, an investigational orally administered systemic innate immune activator for the treatment of a rare form of prostate cancer and
advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.
During the first quarter ended March 31, 2020, and continuing through December 31, 2020, the novel coronavirus disease, or COVID-
19, was declared a pandemic and spread to multiple regions across the globe, including the United States and Europe. The outbreak and
government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker
shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods
and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen.
Throughout 2020, we took steps in line with guidance from the U.S. Centers for Disease Control and Prevention (“CDC”) and the State
of Connecticut to protect the health and safety of our employees and the community. In particular, we implemented a work-from-home
policy for all employees and have restricted on-site activities to certain chemical, manufacturing and control (“CMC”) and clinical trial
activities. We continue to assess the impact of the COVID-19 pandemic to best mitigate risk and continue the operations of our business.
Beginning late in the second quarter of 2020, we began to slowly bring our staff, in very limited numbers, back to our office. This modified
return-to-work approach is expected to continue into 2021. We have taken steps to protect our workforce and have instituted strict work
rules to protect our employees.
We continue to work closely with our clinical sites to monitor the potential impact of the evolving COVID-19 pandemic. We remain
committed to our clinical programs and development plans. Through December 31, 2020, we have not experienced any significant delays to
our ongoing or planned clinical trials, except for challenges in accessing elderly care facilities; however, this could rapidly change.
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Our Clinical Programs
The following is a summary of the status of our clinical development programs as of the date of this Annual Report on Form 10-K:
Our Novel Drug Re-Innovation Approach
Our AI-based discovery and development process is the foundation of our drug re-innovation model for identifying the next wave of
medicines. Our therapeutic area experts have over 60 years of experience across the drug discovery and development value chain. We
believe EvolverAI is a novel method of finding potential product candidates because it combines the comprehensiveness and efficiency of
machine learning and big data analytics with the expertise and intuition of human experience in drug development. We believe the
combination of our therapeutic area expertise and our ability to generate therapeutic candidates in neuroscience and immuno-oncology
through our exclusive collaborative relationship in those areas with BioXcel gives us a significant competitive advantage.
The pharmacological space spans more than 27,000 active pharmaceutical agents, and only approximately 4,000 are approved and
marketed drugs benefiting patients. These marketed drugs may be applied to other indications, including rare diseases, and represent an
untapped potential for meeting significant unmet medical need and recoupment of research and development investments. A large number
of the remaining agents are clinical candidates that are active, shelved, or have failed for reasons other than toxicity and can potentially be
re-engineered for different indications or patient segments. They potentially represent an unrealized investment of billions of research and
development dollars by the private and public sectors, resulting in an immeasurable amount of patient suffering and sacrificing during
clinical development.
Traditional drug development is plagued with low success rates (13.8%, according to an MIT study of 186,000 trials from January
2000 to October 2015), long drug development cycles (10-15 years, according to PhRMA Key Facts 2016), and exorbitant development
costs ($2.6 billion per drug, according to PhRMA Key Facts). Furthermore, many serious diseases continue to go unaddressed due to
limitations of the current drug discovery paradigm. The recent advent of numerous ‘omics’ technologies (genomics, proteomics) and rapid
advances in science and medicine are generating terabytes of valuable unexploited knowledge that is widely distributed in multiple big data
lakes with several orders of complexity and variety. Much of this data is not being systematically applied to the development of next
generation therapeutics, thus preventing the optimization of drug development utilizing the understanding of technology, science, medicine,
markets, and commercial opportunities. The efficient and intuitive use of big data remains a bottleneck and a challenge to the
pharmaceutical industry. Taken together, these factors underscore the need for fundamental new
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approaches to drug discovery and development. The market opportunity to identify new uses for existing pharmacological agents remains
substantial due to the lack of technology driven insights. Our parent, BioXcel, has created a proprietary R&D engine, EvolverAI, for drug
re-innovation that provides a proprietary systems-based approach designed to unlock the hidden value in drugs. The combination of our
therapeutic area expertise and our exclusive collaborative relationship with BioXcel enables us to screen, analyze, and identify the product
candidates that we believe have a high likelihood of benefiting patients. The compounds in our pipeline have been identified using this
proprietary platform.
EvolverAI is designed to eliminate human bias by scanning millions of data points from disparate data sources to create network maps.
The nodes and connections in the network map are weighted and ranked based on the validity of supporting evidence using disease specific
algorithms. They are then further analyzed using artificial intelligence and machine learning approaches supplemented by human domain-
based expertise to uncover novel connections between disease parameters, molecular targets, mechanisms of actions and product candidates.
This drug re-innovation model has been exemplified by the successful development and commercialization of drugs such as Tecfidera
(Biogen, Inc.), Thalomid (Celgene Corporation) and Viagra (Pfizer, Inc., or Pfizer). All of these drugs were identified by insights in
biology and disease pathophysiology. The successful business models of biotech companies like Axsome-Therapeutics, Inc. and Karuna
Therapeutics, Inc. are based on the re-innovation and combination of existing clinical candidates or marketed drugs to provide novel
solutions for patients. Unfortunately, such discoveries have been severely limited in scope due to the lack of a genuinely integrated big data
analytics-based approach.
We believe that only EvolverAI allows a comprehensive and unbiased evaluation of the complete pharmacological space. We believe
our drug re-innovation model and exclusive collaborative relationship with BioXcel has the potential to reduce the cost and time of drug
development, help us design more efficient trials, and accelerate our product candidates’ time to market. This assumption is based on
capitalizing product candidates with substantial clinical data and mitigated risk due to well-defined safety profiles, known PK/PD
properties, and an established manufacturing and regulatory path. Our approach is illustrated below:
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Basis of Presentation
The Company’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of
America (“GAAP”). All amounts are presented in thousands.
Components of Our Results of Operations
Revenues
We have not recognized any revenue since inception.
Operating Costs and Expenses
Research and Development
Our research and development expenses reflect costs incurred for the research and development of our clinical and pre-clinical product
candidates, which includes payments to BioXcel, our Parent. Research and development expense primarily consist of salary, benefits and
non-cash stock-based compensation for our research and development personnel, costs incurred under agreements with contract research
organizations (“CROs”) and sites that conduct our non-clinical studies and clinical trials, costs of outside consultants engaged in research
and development activities, including their fees, stock-based compensation and travel expenses, the cost of acquiring, developing and
manufacturing pre-clinical and clinical trial materials and lab supplies, and depreciation and other expenses.
We expense research and development costs to operations as incurred.
Our research and development costs by program for the years ended December 31, 2020 and 2019 are as follows:
BXCL501
BXCL701
BXCL502
BXCL702
Other research and development programs
Research and development support services
Total research and development expenses
General and Administrative
2020
2019
$
$
41,914
10,203
552
487
1,756
3,083
57,995
$
$
15,859
6,947
331
350
708
1,602
25,797
General and administrative expenses primarily consist of salaries, benefits and non-cash stock-based compensation for our executive
and administrative personnel. General and administrative expenses also include legal expenses to pursue patent protection of our
intellectual property, professional fees for audit and tax and insurance charges.
We expect that our general and administrative expenses will increase as we expand our clinical programs. We also expect increased
administrative costs resulting from our clinical trials and the potential commercialization of our product candidates. We believe that these
increases will likely include increased costs for director and officer liability insurance, hiring additional personnel to support future market
research and future product commercialization efforts and increased fees for outside consultants, attorneys and accountants. We may also
incur increased costs to comply with corporate governance, internal controls, investor relations and disclosures and similar requirements
applicable to public companies.
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Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of
operations is set forth in Note 3 to the financial statements included in this Annual Report on Form 10-K.
Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
Revenues
We have not recognized any revenues since inception.
Research and Development Expense
Research and development expenses for the years ended December 31, 2020 and 2019 were $57,995 and $25,797, respectively.
Research and development expenses for the years ended December 31, 2020 and 2019 were comprised as follows:
Personnel and related costs
Non-cash stock-based compensation
Professional research & project related costs
Clinical trials expense
Chemical, manufacturing and controls cost ("CMC")
Drug acquisition costs
Travel and other costs
Research and development tax credit
Total research and development expenses
Year Ended
December 31,
2020
$ 8,408
6,020
7,106
30,808
5,109
—
1,087
(543)
$ 57,995
2019
$ 5,102
1,791
5,486
7,904
3,429
1,000
1,085
—
$ 25,797
Change
$ 3,306
4,229
1,620
22,904
1,680
(1,000)
2
(543)
$ 32,198
% Change
65 %
236 %
30 %
290 %
49 %
(100)%
0 %
(100)%
125 %
The increase of $32,198 for the year ended December 31, 2020 is primarily attributable to:
Personnel and related costs increased due to our efforts to enlarge our clinical teams as we expanded our clinical programs during the
quarter and in preparation of the potential commercial launch of BXCL501 in the U.S.
Non-cash stock-based compensation also increased as result of the additional personnel hired during the year and increased grant date
fair values arising from higher market prices of the Company’s common stock.
The increase in professional research & project related costs and clinical trials expense reflect the broadening of research and
development activities and is primarily related to our SERENITY I and II clinical trials as well as increased costs associated with our
TRANQUILITY and RELEASE clinical trials for BXCL501 and our Phase II study of BXCL701 for the treatment of prostate cancer. These
amounts were offset by reduced costs related to our BXCL501 Phase Ib schizophrenia trial and our BXCL701 pancreatic cancer trial.
The increase in CMC costs is a result of an increase in manufacturing of BXCL501, packaging and storage costs and a larger volume
of purchases of Keytruda to support our oncology program.
Drug acquisition costs incurred during the year ended December 31, 2019 related to a payment due pursuant to our Amended and
Restated Asset Contribution Agreement with our Parent as discussed in Note 5 to the financial statements included elsewhere in this Annual
Report on Form 10-K.
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The State of Connecticut provides companies with the opportunity to exchange certain research and development credit carryforwards
for cash in exchange for foregoing the carryforward of the research and development credit. The program provides for such exchange of the
research and development credit at a rate of 65% of the annual research and development credit. The benefit for such exchange is recorded
as a reduction of research and development expenditures.
General and Administrative Expense
General and administrative expenses for the years ended December 31, 2020 and 2019 were $24,302 and $7,804, respectively. General
and administrative expenses for the years ended December 31, 2020 and 2019 were comprised as follows:
Personnel and related costs
Non-cash stock-based compensation
Professional and consulting fees
Insurance
Travel and other costs
Total general and administrative expenses
Year Ended
December 31,
2020
$ 3,422
8,591
7,960
1,611
2,718
$ 24,302
2019
1,721
1,351
2,558
902
1,272
$ 7,804
Change
$ 1,701
7,240
5,402
709
1,446
$ 16,498
% Change
99 %
536 %
211 %
79 %
114 %
211 %
The increase of $16,498 for the year ended December 31, 2020 is primarily attributable to:
Increased personnel and related costs due to our continuing efforts to expand our teams in preparation of the potential commercial
launch of BXCL501 in the U.S.
Non-cash stock-based compensation also increased as result of the additional personnel and increased grant date fair values arising
from higher market prices of the Company’s common stock.
Professional and consulting fees increased due to the expanding growth of our operations and was primarily related to increased
corporate legal and investor relations fees, increased market research fees, and increased costs related to our preparation for the potential
commercial launch of BXCL501 in the U.S. Insurance costs also increased primarily related to an increase in Director and Officer liability
premiums.
In September 2020, we were the victim of an email-based wire fraud, which led to a misappropriation of approximately $1,927. We
subsequently recovered $774 of this amount and are continuing efforts to recoup the remainder of the funds. As such, $1,153 is included in
Travel and other costs. In February 2021, we received an additional $250 in insurance proceeds, which will partially offset the loss.
Inflation
Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material
effect on our results of operations during the periods presented.
Liquidity and Capital Resources
As of December 31, 2020, we had cash and cash equivalents of $213,119, working capital of $205,223 and stockholders’ equity of
$206,696. Net cash used in operating activities was $66,350 and $27,101 for the years ended December 31, 2020 and 2019. We incurred
losses of approximately $82,169 and $32,968 for the years ended December 31, 2020 and 2019. We have not yet generated any revenues
and we have not yet achieved profitability. We expect that our research and development and general and administrative expenses will
continue to increase and, as a result, we will need to generate significant product revenues to achieve profitability. We believe that our
existing cash and cash equivalents as of December 31, 2020 will enable us to fund our operating expenses and capital expenditure
requirements for at least one year from the date of this Annual Report on Form 10-K.
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We may obtain additional financing through sales of the Company’s equity securities, entering into strategic partnership arrangements
and/or short-term borrowings from banks, stockholders or other related parties, if needed, or a combination of any of the foregoing. There
are no assurances that we will be successful in obtaining an adequate level of financing as and when needed to finance our operations on
terms acceptable to us or at all, particularly in light of the economic downturn and ongoing uncertainty related to the COVID-19 pandemic.
If we are unable to secure adequate additional funding as and when needed, we may have to significantly delay, scale back or discontinue
the development and commercialization of one or more product candidates. In addition, the magnitude and duration of the COVID-19
pandemic and its impact on our liquidity and future funding requirements is uncertain as of the filing date of this Annual Report on Form
10-K, as the pandemic continues to evolve globally. See “Risk Factors—The outbreak of COVID-19, or other pandemic, epidemic or
outbreak of an infectious disease may materially and adversely impact our business, including our preclinical studies and clinical trials.” in
Part I, Item 1A. of this Annual Report on Form 10-K for a further discussion of the potential impact of the COVID-19 pandemic on our
business.
Sources of Liquidity
We have focused our efforts on raising capital and building the products in our pipeline. Since our inception, our operations have been
financed primarily by our Parent, BioXcel, and from proceeds from the sale of equity securities. Through December 31, 2020, we have
received approximately $353,337 in aggregate gross proceeds from stock issuances including our initial public offering, private placements
of our common stock, and registered offerings of our common stock and an Open Market Sale Agreement (“ATM Program”). We have not
yet established an ongoing source of revenue sufficient to cover our operating costs and will need to do so in future periods.
In May 2019, we entered into an Open Market Sale Agreement, or the Sale Agreement, with Jefferies LLC, or Jefferies, pursuant to
which we could offer and sell up to $20,000 of our common stock, from time to time, through an “at the market offering” program under
which Jefferies would act as sales agent. From May 2019 to September 2019, we sold a total of 66,193 shares for gross proceeds of $737
and net proceeds of $387. We terminated the Sale Agreement on September 22, 2019.
In September 2019, we sold in a registered offering 2,303 shares of our common stock at a public offering price of $8.25 per share for
gross proceeds of $19,000 less underwriting discounts and commissions. We received net proceeds of $17,423.
In February 2020, we sold in a registered offering 2,300 shares of our common stock at a public offering price of $32.00 per share for
gross proceeds of $73,600 less underwriting discounts and commissions. We received net proceeds of approximately $68,811.
We received funds under the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (“CARES
Act”) in April 2020 in the amount of $537. On April 23, 2020 the Small Business Administration issued a new FAQ #31, which provided
guidance on what it means to certify that: “current economic uncertainty makes this loan request necessary to support the ongoing
operations of the Applicant.” Following review of this new FAQ #31 we decided to withdraw from the Paycheck Protection Program and
have repaid the loan in full together with all accrued interest.
In July 2020, we sold in a registered offering 4,000 shares of our common stock at a public offering price of $50.00 per share for gross
proceeds of $200,000 less underwriting discounts and commissions. We received net proceeds of approximately $186,974.
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Cash Flows
(in thousands)
Cash provided by (used in) in thousands:
Operating activities
Investing activities
Financing activities
Operating Activities
Year Ended December 31,
2020
2019
$
(66,350)
(316)
247,359
$
(27,101)
(870)
17,832
Cash used in operating activities was $66,350 for the year ended December 31, 2020 and was primarily attributable to our $82,169 net
loss, partially offset by $14,611 in stock-based compensation and a $3,033 increase in accounts payable and accrued expenses. This amount
was partially offset by a $2,013 increase prepaid expenses and other assets.
Cash used in operating activities was $27,101 for the year ended December 31, 2019 and was primarily attributable to our $32,968 net
loss, partially offset by $3,142 in stock-based compensation, $156 of depreciation and amortization and a $3,759 increased in accounts
payable and accrued expenses. This amount was partially offset by a $1,190 increase in prepaid expenses.
Investing Activities
Cash used in investing activities was $316 for the year ended December 31, 2020 and was attributable to the purchase of equipment and
leasehold improvements.
Cash used in investing activities was $870 for the year ended December 31, 2019 and was attributable to the purchase of equipment.
Financing Activities
Net cash provided by financing activities was $247,359 for the year ended December 31, 2020 and was primarily attributable to the net
proceeds of $68,811 from our February 2020 offering combined with net proceeds of $186,974 from our July 2020 offering. Additionally,
we received $598 in proceeds from the exercise of stock options. This amount was partially offset by $9,024 used for the purchase and
cancellation of 300,000 shares of common stock owned by BioXcel in February 2020.
Net cash provided by financing activities was $17,810 for the year ended December 31, 2019 and was primarily attributable to the net
proceeds of $17,423 from our September 2019 Offering combined with net proceeds of $387 under our former ATM Program.
Operating Capital and Capital Expenditure Requirements
We expect to continue to incur significant and increasing operating losses at least for the next several years as we expand our clinical
trials of BXCL501 and BXCL701, seek marketing approval for our product candidates and pursue development of our other product
candidates. We do not expect to generate revenue unless and until we successfully complete development and obtain regulatory approval for
our product candidates. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our
planned clinical trials and our expenditures on other research and development activities.
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We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of
our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research,
development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital
requirements. We anticipate that our expenses will increase substantially as we:
continue our clinical development of BXCL501 and BXCL701;
conduct additional research and development with our product candidates;
seek to identify, acquire, license, develop and commercialize additional product candidates;
integrate acquired technologies into a comprehensive regulatory and product development strategy;
•
•
•
•
• maintain, expand and protect our intellectual property portfolio;
•
•
hire scientific, clinical, quality control and administrative personnel;
add operational, financial and management information systems and personnel, including personnel to support our drug
development efforts;
seek regulatory approvals for any product candidates that successfully complete clinical trials;
ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to
commercialize any product candidates for which we may obtain regulatory approval; and
continue to operate as a public company.
•
•
•
We believe that our existing cash and cash equivalents as of December 31, 2020 will be sufficient to enable us to fund operating expenses
and capital expenditure requirements for at least the next 12 months from the date of the issuance of the financial statements included in
this Annual Report on Form 10-K and will be sufficient to fund our ongoing research and development efforts and commercialization
preparation into 2022. We expect that we will need to obtain substantial additional funding in order to fund our operations. To the extent
that we raise additional capital through the sale of common stock, convertible securities or other equity securities, the ownership interests of
our existing stockholders may be materially diluted and the terms of these securities could include liquidation or other preferences that
could adversely affect the rights of our existing stockholders. In addition, debt financing, if available, would result in increased fixed
payment obligations and may involve agreements that include restrictive covenants that limit our ability to take specific actions, such as
incurring additional debt, making capital expenditures or declaring dividends, that could adversely impact our ability to conduct our
business. If we are unable to raise capital when needed or on attractive terms, we could be forced to significantly delay, scale back or
discontinue the development or commercialization of BXCL501, BXCL701 or other product candidates, seek collaborators at an earlier
stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available, and relinquish or license,
potentially on unfavorable terms, our rights to BXCL501, BXCL701 or other product candidates that we otherwise would seek to develop
or commercialize ourselves.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with GAAP requires management to exercise its judgment. We exercise
considerable judgment with respect to establishing sound accounting policies and in making estimates and assumptions that affect the
reported amounts of our assets and liabilities, our recognition of revenues and expenses, and disclosure of commitments and contingencies
at the date of the financial statements.
On an ongoing basis, we evaluate our estimates and judgments. We base our estimates and judgments on a variety of factors including
our historical experience, knowledge of our business and industry, current and expected economic conditions, the attributes of our products,
the regulatory environment, and in certain cases, the results of outside appraisals. We periodically re-evaluate our estimates and
assumptions with respect to these judgments and modify our approach when circumstances indicate that modifications are necessary.
While we believe that the factors we evaluate provide us with a meaningful basis for establishing and applying sound accounting
policies, we cannot guarantee that the results will always be accurate. Since the determination of these estimates requires the exercise of
judgment, actual results could differ from such estimates.
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A description of significant accounting policies that require us to make estimates and assumptions in the preparation of our financial
statements is as follows:
Stock-based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation,” which
requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made
to employees and non-employee service providers, including stock options. The Company’s 2017 Equity Incentive Plan (the “2017 Plan”)
became effective in August 2017. The Company’s 2020 Incentive Award Plan (the “2020 Plan”) became effective in May 2020. Following
the effective date of the Company’s 2020 Plan, the Company ceased granting awards under the 2017 Plan; however the terms and
conditions of the 2017 Plan continue to govern any outstanding awards granted thereunder.
The Company’s stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite
service period. The Company utilizes the Black-Scholes option pricing model for determining the estimated fair value for stock-based
awards. The Black-Scholes model requires the use of assumptions which determine the fair value of the stock-based awards. Determining
the fair value of stock-based awards at the grant date requires significant judgment, including estimating the expected term of the stock
options, the expected volatility of our stock and expected dividends. Prior to the IPO, significant judgement and estimates were used to
estimate the fair value of these awards, as the shares of common stock underlying these awards were not then publicly traded. Stock
awards granted by the Company subsequent to its IPO are valued using market prices at the date of grant. The Company has elected to
account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.
The Company adopted FASB ASU 2018-07 as of January 1, 2019 which allowed non-employee options to be expensed using the
adoption date fair value.
Accrued Expenses
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves
reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed
on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been
invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed.
We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances
known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if
necessary.
We base our expenses on our estimates of the services received and level of effort in each period. The financial terms of these
agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of
these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.
In accruing expenses, we estimate the time period over which services will be performed and the level of effort to be expended in each
period. The date on which some services commence, the level of services performed on or before a given dates and the cost of such services
are often subjective determinations. If the actual timing of the performance of services or the level of effort varies from our estimate, we
adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our
understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and
may result in us reporting amounts that are too high or too low in any particular period.
Income Taxes
We use an asset and liability approach for financial accounting and reporting of income taxes. Deferred tax assets and liabilities are
determined based on temporary differences between financial reporting and tax basis assets and liabilities and are measured by applying
enacted rates and laws to taxable years in which differences are expected to be recovered or
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settled. Further, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that the rate
changes. A valuation allowance is required when it is “more likely than not” that all or a portion of deferred tax assets will not be realized.
We apply the provisions of ASC 740, Income Taxes, which prescribes a comprehensive model for how a company should recognize,
measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax
return, including a decision whether to file or not file a return in a particular jurisdiction. Our financial statements reflect expected future tax
consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts.
We do not have any unrecognized tax benefits as of December 31, 2020. We review all tax positions to ensure the tax treatment
selected is sustainable based on its technical merits and that the position would be sustained if challenged.
Contractual Obligations and Commitments
In August 2018, the Company entered into an agreement to lease approximately 11,040 square feet of space on the 12th floor of the
building located at 555 Long Wharf Drive, New Haven, Connecticut (the “12th Floor Lease) which was effective February 22, 2019. The
12th Floor Lease expires in February 2026.
In August 2020, the Company entered into an amendment to the 12th Floor Lease wherein the Company leased an additional 7,245
square feet of space on the 12th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut (the “12th Floor Lease
Amendment”). The 12th Floor Lease Amendment expires in February 2026.
The following table summarizes our contractual obligations related our 12th Floor Lease and the 12th Floor Lease Amendment at
December 31, 2020 and the effect such obligations are expected to have on our liquidity and cash flow in future periods:
Operating lease commitments
Payments due by Period
Total
1,886
$
Less Than
1 year
1-3 years
3-5 years
More Than
5 years
$
314
$
1,116
$
456
$
—
For additional details, see “Note 12 to Financial Statements – Leases.”
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2020 or 2019, as defined under SEC rules.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk. As of December 31, 2020, we had $213,119 cash and cash equivalents. Our cash and cash equivalents is primarily
held in U.S. Government money market funds. We do not participate in any foreign currency hedging activities and we do not have any
other derivative financial instruments. We did not recognize any significant exchange rate losses during the years ended December 31, 2020
and 2019, respectively.
We do not believe that our cash and cash equivalents have significant risk of default or illiquidity. While we believe our cash and cash
equivalents does not contain excessive risk, we cannot provide absolute assurance that in the future our investments will not be subject to
adverse changes in market value. In addition, we maintain significant amounts of cash at one or more financial institutions that are in excess
of federally insured limits.
Capital Market Risk. We currently have no product revenues and depend on funds raised through other sources. One source of funding
is through future debt or equity offerings. Our ability to raise funds in this manner depends upon, among other things, capital market forces
affecting our stock price, and on the state of the capital markets generally.
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Item 8. Financial Statements and Supplementary Data
The financial statements required to be filed pursuant to this Item 8 are appended to this Annual Report on Form 10-K and
incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (our principal executive officer and
principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020.
The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to
be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial
officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management
necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer and Chief
Financial Officer concluded that, as of such date, our disclosure controls and procedures are effective at the reasonable assurance level.
Management’s Annual Report on Internal Controls Over Financial Reporting
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and
maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
In September 2020, we were the victim of an email-based wire fraud which involved two electronic communications impersonating
one of our vendors, resulting in our sending wires totaling $1.9 million to accounts controlled by the impersonator. As a result of the
foregoing, we identified a material weakness due to our internal controls having not been adequately designed to prevent or timely detect
unauthorized cash disbursements. Specifically, certain members within our finance organization failed to exercise appropriate skepticism
and oversight for disbursement of Company-owned funds , and our cash disbursement process was not adequately designed to identify
unauthorized payment requests. We do not believe that this breach had a material adverse effect on our business.
Management took immediate action to remediate the material weakness, including enhancing and formalizing cash disbursement
controls to prevent and timely detect unauthorized cash disbursements and significantly enhancing our information technology
infrastructure and security measures. We have also added additional members to the finance and information technology teams with
greater experience in the area of internal controls and security. Management has concluded that the material was remediated during the
fourth quarter of 2020 and, based on management’s assessment of the effectiveness of our internal control over financial reporting based on
the criteria set forth in “Internal Control–Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the
Treadway Commission, concluded that, as of December 31, 2020, our internal control over financial reporting was effective.
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Attestation Report of the Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm on
internal control over financial reporting due to an exemption established by the JOBS Act for “emerging growth companies.”
Changes in Internal Control over Financial Reporting
Except for the remediation efforts described above taken to address the material weakness, there were no changes in our internal control
over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31,
2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
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Item 10. Directors, Executive Officers and Corporate Governance.
PART III
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy
statement related to our annual meeting of stockholders to be held in 2021 (the “2021 Annual Meeting of Stockholders”), which we intend
to file with the SEC within 120 days of the year ended December 31, 2020.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy
statement related to the 2021 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended
December 31, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy
statement related to the 2021 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended
December 31, 2020.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy
statement related to the 2021 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended
December 31, 2020.
Item 14. Principal Accounting Fees and Services
The information required by this Item is incorporated herein by reference to the information that will be contained in our proxy
statement related to the 2021 Annual Meeting of Stockholders, which we intend to file with the SEC within 120 days of the year ended
December 31, 2020.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
(1) Financial Statements:
Report of Independent Registered Public Accounting Firm
Balance Sheets as of December 31, 2020 and 2019
Statements of Operations for the Years Ended December 31, 2020 and 2019
Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2020 and 2019
Statements of Cash Flows for the Years Ended December 31, 2020 and 2019
Notes to Financial Statements
(2) Financial Statement Schedules:
F-1
F-2
F-3
F-4
F-5
F-6
All financial statement schedules have been omitted because they are not applicable, not required or the information required is shown
in the financial statements or the notes thereto.
(3) Exhibits.
Description
Amended and Restated Certificate of
Incorporation.
Form
8-K
File No.
001-38410
Exhibit
3.1
Filing Date
3/13/2018
Amended and Restated Bylaws
8-K
001-38410
10-K
001-38410
3.2
4.1
3/13/2018
3/09/2020
Exhibit
Number
3.1
3.2
4.1
4.2
10.1
10.2^
10.3#
Description of the Registrant’s Securities
Registered Under Section 12 of the
Exchange Act
Specimen Stock Certificate evidencing the
shares of common stock
Stock Purchase Agreement, dated February
18, 2020, between BioXcel Corporation
and BioXcel Therapeutics, Inc.
Second Amended and Restated Separation
and Shared Services Agreement, dated
March 6, 2020, by and between BioXcel
Corporation and BioXcel Therapeutics, Inc.
First Amendment to Second Amended and
Restated Separation and Shared Services
Agreement, dated March 3, 2021, by and
between BioXcel LLC and BioXcel
Therapeutics Inc.
S-1/A
333-222990
4.2
2/26/2018
8-K
001-38410
10.1
2/21/2020
10-K
001-38410
10.2
3/09/2020
101
Filed/
Furnished
Herewith
*
Table of Contents
Exhibit
Number
10.4#
10.5
10.6
10.7†
10.8†
10.9†
10.10†
10.11†
10.12†
10.13†
10.14†
10.15†
10.16†
Description
Amended and Restated Asset Contribution
Agreement, effective November 7, 2017, by
and between BioXcel Corporation and
BioXcel Therapeutics, Inc.
Lease Agreement, dated as of August 20,
2018, by and between Fusco Harbour
Associates, LLC, as Landlord, and BioXcel
Therapeutics, Inc., as Tenant
First Amendment, dated August 19, 2020,
to Lease Agreement, dated as of August 20,
2018, by and between Fusco Harbour
Associates, LLC, as Landlord, and BioXcel
Therapeutics, Inc., as Tenant.
2017 Equity Incentive Plan
Form of Incentive Stock Option Agreement
under the 2017 Equity Incentive Plan
Form of Non-Statutory Stock option
Agreement under the 2017 Equity Incentive
Plan
BioXcel Therapeutics, Inc. 2020 Incentive
Award Plan and forms of award agreements
thereunder
BioXcel Therapeutics, Inc. 2020 Employee
Stock Purchase Plan
Form of Indemnification Agreement with
directors and executive officers
Employment Agreement, dated March 7,
2018 by and between BioXcel
Therapeutics, Inc. and Vimal Mehta
Employment Agreement, dated
February 12, 2018, by and between
BioXcel Therapeutics, Inc. and Frank
Yocca
Employment Agreement, effective
October 2, 2017, by and between BioXcel
Therapeutics, Inc. and Richard Steinhart
Employment Agreement, dated June 1,
2018, by and between BioXcel
Therapeutics, Inc. and Dr. Vincent O’Neill,
M.D.
Form
S-1/A
File No.
333-222990
Exhibit
10.2
Filing Date
2/12/2018
Filed/
Furnished
Herewith
8-K
001-38410
10.1
8/23/2018
10-Q
001-38410
10.1
11/12/2020
S-1/A
333-222990
10.3
2/12/2018
S-1/A
333-222990
10.4
2/12/2018
S-1/A
333-222990
10.5
2/12/2018
10-Q
001-38410
10.1
8/14/2020
10-Q
001-38410
10.2
8/14/2020
S-1/A
333-222990
10.6
2/12/2018
8-K
001-38410
10.1
3/13/2018
S-1/A
333-222990
10.11
2/12/2018
S-1/A
333-222990
10.12
2/12/2018
8-K
001-38410
10.1
6/07/2018
102
Table of Contents
Exhibit
Number
10.17†
10.18†
10.19†
Description
Employment Agreement between William
Kane and BioXcel Therapeutics, Inc., dated
May 15, 2020.
Employment Agreement between Reina
Benabou and BioXcel Therapeutics, Inc.,
dated June 21, 2020.
Employment Agreement between Javier
Rodriguez and BioXcel Therapeutics, Inc.,
dated February 15, 2021.
Form
10-Q
File No.
001-38410
Exhibit
10.3
Filing Date
8/14/2020
Filed/
Furnished
Herewith
10-Q
001-38410
10.4
8/14/2020
10.20†
Non-Employee Director Compensation
Program
10-Q
001-38410
10.1
5/12/2020
21.1
23.1
31.1
31.2
32.1
32.2
Subsidiaries of BioXcel Therapeutics, Inc.
Consent of BDO USA, LLP
Certification of Principal Executive Officer
Pursuant to Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934,
as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer
Pursuant to Rules 13a-14(a) and 15d-14(a)
under the Securities Exchange Act of 1934,
as Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer
Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
Document
101.CAL
XBRL Taxonomy Extension Calculation
Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition
Linkbase Document
103
*
*
*
*
*
**
**
*
*
*
*
Table of Contents
Exhibit
Number
101.LAB
Description
Form
File No.
Exhibit
Filing Date
XBRL Taxonomy Extension Label
Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation
Linkbase Document
Filed/
Furnished
Herewith
*
*
† Indicates a management contract or any compensatory plan, contract or arrangement.
^ Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
# Confidential treatment has been granted for portions omitted from this exhibit and those portions have been separately filed with the
Securities and Exchange Commission.
* Filed herewith.
** Furnished herewith.
Item 16. Form 10-K Summary
Not applicable
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Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly authorized.
SIGNATURES
Dated: March 12, 2021
Dated: March 12, 2021
BioXcel Therapeutics, Inc.
By:
/s/ Vimal Mehta
Vimal Mehta
Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Richard Steinhart
Richard Steinhart, Chief Financial Officer
(Principal Financial Officer)
11
Signature
Title
Date
/s/ VIMAL MEHTA
Vimal Mehta, Ph.D.
/s/ RICHARD STEINHART
Richard Steinhart
/s/ PETER MUELLER
Peter Mueller, Ph.D.
/s/ JUNE BRAY
June Bray
/s/ SANDEEP LAUMAS
Sandeep Laumas, M.D.
Chief Executive Officer, President, and Director
(Principal Executive Officer)
March 12, 2021
Chief Financial Officer (Principal Financial Officer
and Principal Accounting Officer)
March 12, 2021
Chairman of the Board of Directors
March 12, 2021
Director
March 12, 2021
Director
March 12, 2021
/s/ KRISHNAN NANDABALAN
Director
Krishnan Nandabalan, Ph.D.
March 12, 2021
/s/ MICHAL VOTRUBA
Michal Votruba
Director
March 12, 2021
105
Table of Contents
Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
BioXcel Therapeutics, Inc.
New Haven, CT
Opinion on the Financial Statements
We have audited the accompanying balance sheets of BioXcel Therapeutics, Inc. (the “Company”) as of December 31, 2020
and 2019, the related statements of operations, changes in stockholders’ equity, and cash flows for each of the two years in
the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December
31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control
over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of
the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2017.
Stamford, Connecticut
March 12, 2021
F-1
Table of Contents
BIOXCEL THERAPEUTICS, INC.
BALANCE SHEETS
(amounts in thousands, except per share amounts)
ASSETS
Current assets
Cash and cash equivalents
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use asset
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable
Accrued expenses
Due to Parent
Other current liabilities
Total current liabilities
Long-term portion of operating lease liability
Total liabilities
Commitments and contingencies (Note 13)
Stockholders' equity
Common stock, $0.001 par value, 50,000 shares authorized; 24,417 and 18,087 shares issued and
outstanding as of December 31, 2020 and December 31, 2019, respectively
Additional paid-in-capital
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders' equity
December 31,
2020
December 31,
2019
$
$
$
213,119
3,946
217,065
1,273
1,511
87
219,936
3,979
7,469
157
237
11,842
1,398
13,240
24
345,529
(138,857)
206,696
219,936
$
$
$
$
$
32,426
1,681
34,107
1,041
1,193
51
36,392
4,953
3,120
64
331
8,468
1,029
9,497
18
83,565
(56,688)
26,895
36,392
The accompanying notes are an integral part of these financial statements.
F-2
Table of Contents
BIOXCEL THERAPEUTICS, INC.
STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
Revenues
Operating expenses
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense)
Dividend and interest income
Interest expense
Net loss
Net loss per share - basic and diluted
Weighted average shares outstanding - basic and diluted
Year Ended December 31,
2019
2020
$
— $
—
57,995
24,302
82,297
(82,297)
155
(27)
(82,169)
(3.79)
21,683
$
$
25,797
7,804
33,601
(33,601)
653
(20)
(32,968)
(2.02)
16,289
$
$
The accompanying notes are an integral part of these financial statements.
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BIOXCEL THERAPEUTICS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(amounts in thousands)
Common Stock
Balance as of January 1, 2019
Issuance of common shares, net of issuance costs of
$1,991
Stock-based compensation
Exercise of stock options
Net loss
Balance as of December 31, 2019
Issuance of common shares, net of issuance costs of
$17,815
Purchase and cancellation of shares from BioXcel
Corporation
Stock-based compensation
Exercise of stock options
Net loss
Balance as of December 31, 2020
Shares
15,663
2,369
—
55
—
18,087
6,300
(300)
—
330
—
24,417
$
$
$
Additional
Paid in
Capital
Amount
16
$
62,593
Accumulated
Deficit
(23,720)
$
—
—
—
(32,968)
(56,688)
$
Total
38,889
17,810
3,142
22
(32,968)
26,895
$
$
17,808
3,142
22
—
83,565
$
255,779
—
255,785
(9,024)
14,611
598
—
$ 345,529
—
—
—
(82,169)
$ (138,857)
(9,024)
14,611
598
(82,169)
206,696
$
2
—
—
—
18
6
—
—
—
—
24
The accompanying notes are an integral part of these financial statements.
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BIOXCEL THERAPEUTICS, INC.
STATEMENTS OF CASH FLOWS
(amounts in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
Reconciliation of net loss to net cash used in operating activities
Depreciation and amortization
Stock-based compensation expense
Changes in operating assets and liabilities:
Prepaid expenses, other assets and right of use assets
Accounts payable, accrued expenses, lease liabilities and other liabilities
Net cash used in operating activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements
Net cash used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of issuance costs
Purchase and cancellation of shares from BioXcel Corporation
Exercise of options
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of the period
Cash and cash equivalents, end of the period
Supplemental cash flow information:
Interest paid
Purchases of equipment and leasehold improvements in accounts payable and accrued expense
Operating right of use lease assets obtained in exchange for operating lease liabilities
Operating lease right of use asset and liability (non-cash adoption balances)
Year ended December 31,
2020
2019
$
(82,169)
$
(32,968)
188
14,611
(2,013)
3,033
(66,350)
156
3,142
(1,190)
3,759
(27,101)
(316)
(316)
(870)
(870)
255,785
(9,024)
598
247,359
180,693
32,426
213,119
27
104
606
—
$
$
17,810
—
22
17,832
(10,139)
42,565
32,426
62
—
—
1,308
$
$
The accompanying notes are an integral part of these financial statements.
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BIOXCEL THERAPEUTICS, INC.
NOTES TO FINANCIAL STATEMENTS
(in thousands, except per share amounts)
Note 1. Nature of the Business
BioXcel Therapeutics, Inc. is a clinical stage biopharmaceutical company focused on drug development that utilizes artificial
intelligence to identify improved therapies in neuroscience and immuno-oncology. BTI's drug re-innovation approach leverages existing
approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify
new therapeutic indices. BTI's two most advanced clinical development programs are BXCL501, a proprietary, orally dissolving, sublingual
thin film formulation of the adrenergic receptor agonist dexmedetomidine (“Dex”), for the treatment of agitation and opioid withdrawal
symptoms, and BXCL701, an orally administered, systemic innate immune activator for the treatment of aggressive forms of prostate
cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.
As used in these financial statements, unless otherwise specified or the context otherwise requires, the terms the “Company” or “BTI”
refer to BioXcel Therapeutics, Inc., and “BioXcel” or “Parent” refer to BioXcel LLC and, its predecessor, BioXcel Corporation.
The Company is a minority-owned subsidiary of BioXcel and was incorporated under the laws of the State of Delaware on March 29,
2017. The Company’s principal office is in New Haven, Connecticut.
The Company incurred losses of $82,169 and $32,968 for the years ended December 31, 2020 and 2019, respectively. The Company
had an accumulated deficit of $138,857 as of December 31, 2020. The Company has funded its operations primarily through the sale of
equity securities.
Certain reclassifications have been made to the prior year financial information to conform to the current period presentation. These
reclassifications had no effect on the reported results of operations.
Impact of COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of coronavirus, a global
pandemic. This outbreak has caused and is continuing to cause major disruptions to businesses and financial markets worldwide. This may
affect the Company’s operations and those of third parties on which the Company relies, including causing disruptions in the supply of the
Company’s product candidates and the conduct of current and planned preclinical and clinical studies. The Company may need to limit its
operations and may experience limitations in employee resources. There are risks that the COVID-19 pandemic may be more difficult to
contain than currently anticipated in which case the risks described herein could increase significantly. The extent to which the COVID-19
pandemic impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted,
including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat
its impact, among others.
Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or
predict, the impact of the coronavirus on the global financial markets may reduce the Company’s ability to access capital, which could
negatively impact the Company’s short-term and long-term liquidity, and the Company’s ability to complete its preclinical and clinical
studies on a timely basis, or at all. The ultimate impact of COVID-19 is highly uncertain and subject to change. The Company does not yet
know the full extent of potential delays or impacts on its business, financing, preclinical and clinical trial activities or the global economy as
a whole. However, these effects could have a material, adverse impact on the Company’s liquidity, capital resources, operations and
business and those of the third parties on which the Company relies.
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Note 2. Basis of Presentation
The Company’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of
America (“GAAP”).
Note 3. Summary of Significant Accounting Policies
Use of Estimates
The Company’s financial statements are prepared in accordance with GAAP. The preparation of the Company’s financial statements
requires it to make estimates and assumptions that impact the reported amounts of assets, liabilities and expenses in its financial statements
and the accompanying notes. Although these estimates are based on the Company’s knowledge of current events and actions it may
undertake in the future, actual results may ultimately materially differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be
cash equivalents. As of December 31, 2020, and 2019, cash equivalents were comprised primarily of money market funds. Cash and cash
equivalents held at financial institutions may at times exceed federally insured amounts. We believe we mitigate such risk by investing in or
through major financial institutions.
Property and Equipment
Property and equipment are recorded at cost and depreciated and amortized over the shorter of their remaining lease term or their
estimated useful life on a straight-line basis as follows:
Equipment
Furniture
3-5 years
7 years
Leasehold improvements Lesser of life of improvement or lease term
Expenditures for maintenance and repairs which do not improve or extend the useful lives of respective assets are expensed as
incurred. When assets are sold or retired, the related cost and accumulated depreciation are removed from their respective accounts and any
resulting gain or loss is include income (loss) from operations.
The Company follows the guidance provided by FASB ASC Topic 360-10, Property, Plant, and Equipment. Long-lived assets are
reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted
future net cash flows expected to be generated. Impairment charges are recognized at the amount by which the carrying amount of an asset
exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to
sell.
Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation,” which
requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made
to employees and directors, including stock options. The Company’s 2017 Equity Incentive Plan became effective in August 2017. The
Company’s 2020 Stock Plan became effective in May 2020. Following the effective date of the Company's 2020 Stock Plan, the Company
ceased granting awards under the 2017 Plan, however the terms and conditions of the 2017 Plan continue to govern any outstanding awards
granted thereunder.
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Both BioXcel and the Company’s stock option awards are valued at fair value on the date of grant and that fair value is recognized over
the requisite service period. The estimated fair value of stock option awards was determined using the Black-Scholes option pricing model
on the date of grant. Significant judgment and estimates were used to estimate the fair value of these awards, as they were not publicly
traded. Stock awards granted by the Company subsequent to the IPO are valued using market prices at the date of grant.
The Company adopted FASB ASU 2018-07 as of January 1, 2019 which allowed non-employee options to be expensed using the
adoption date fair value.
ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The
Black-Scholes option-pricing model was used as its method of determining fair value. This model is affected by the Company’s stock price
as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the expected
stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the
award is recognized as an expense in the statement of operations over the requisite service period. The periodic expense is then determined
based on the valuation of the options. The Company has elected to account for forfeitures as they occur, by reversing compensation cost
when the award is forfeited.
Research and Development Costs
Research and development expenses include wages, benefits, facilities, supplies, external services, clinical study and manufacturing
costs and other expenses that are directly related to the Company’s research and development activities. At the end of the reporting period,
the Company compares payments made to third party service providers to the estimated progress toward completion of the research or
development objectives. Depending on the timing of payments to the service providers and the progress that the Company estimates has
been made as a result of the service provided, the Company may record net prepaid or accrued expense relating to these costs. Such
estimates are subject to change as additional information becomes available. The Company expenses research and development costs as
incurred.
Patent Costs
Costs related to filing and pursuing patent applications are expensed as incurred as general and administrative costs as recoverability of
such expenditures is uncertain.
Fair Value of Financial Instruments
The Company applies the provisions of ASC 820, “Fair Value Measurements and Disclosures” for financial assets and liabilities
measured on a recurring basis which requires disclosure that establishes a framework for measuring fair value. ASC 820 defines fair value
as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed
based on market data obtained from independent sources, or observable inputs, and (2) an entity’s own assumptions about market
participant assumptions developed based on the best information available in the circumstances, or unobservable inputs. The fair value
hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). ASC 820 requires that fair value measurements be classified
and disclosed in one of three categories:
Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value
hierarchy gives the highest priority to Level 1 inputs.
Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices
for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities
that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the
models, such as interest rates and volatility factors,
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are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.
Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment.
These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market
participant assumptions.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use
of unobservable inputs to the extent possible, as well as considering counterparty credit risk in its assessment of fair value.
The carrying amounts of cash and accounts payable approximate fair value due to the short-term nature of these instruments.
Earnings (Loss) per Share
Basic earnings (loss) per share (“EPS”) is calculated in accordance with ASC 260, “Earnings Per Share,” by dividing net income or
loss attributable to common stockholders by the weighted average common stock outstanding. Diluted EPS is calculated by adjusting
weighted average common shares outstanding for the dilutive effect of common stock options and warrants. In periods in which a net loss
is recorded, no effect is given to potentially dilutive securities, since the effect would be antidilutive. Securities that could potentially dilute
basic EPS in the future were not included in the computation of diluted EPS because to do so would have been antidilutive.
Segment Information
The Company operates in a single segment. Operating segments are identified as components of an enterprise about which separate
discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource
allocation and assessing performance. To date, our chief operating decision maker has made such decisions and assessed performance at the
company level as one segment.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and
Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic: 815-40): Accounting for Convertible Instruments and Contracts in
an Entity’s Own Equity (“ASU 2020-06”). ASU No. 2020-06 simplifies the accounting for certain financial instruments with characteristics
of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Key provisions include (i) the removal
of separation models in ASC 470-20 for convertible instruments; (ii) expanded disclosures about the terms and features of convertible
instruments; (iii) removed certain conditions for equity classification; and (iv) updated earnings per share calculation with respects to
convertible instruments, share settlement presumption, down round features and the earnings per share denominator. ASU No. 2020-06 is
effective for annual and interim reporting periods beginning after December 15, 2021, and the guidance is to be applied using the full or
modified retrospective approach. Earlier adoption is permitted for annual and interim reporting periods beginning after December 15, 2020.
The Company does not expect that the adoption of ASU No. 2020-06 new guidance will have a material impact on the Company’s financial
statements.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) which amends the existing guidance relating to the
accounting for income taxes. ASU No. 2019-12 is intended to simplify the accounting for income taxes by removing certain exceptions to
the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for
income taxes by clarifying and amending existing guidance. ASU No. 2019-12 is effective for fiscal years beginning after December 15,
2020. The Company does not expect that the adoption of ASU No. 2019-12 will have a material impact on the Company’s financial
statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):
Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That
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Is a Service Contract. We adopted this standard effective January 1, 2020 on a prospective basis. ASU No. 2018-15 requires that certain
implementation costs for cloud computing arrangements are capitalized and amortized over the term of associated hosted cloud computing
arrangement service and that capitalized implementation costs are classified in prepaid expenses and other assets. ASO No. 2018-15 also
provides classification guidance on these implementation costs as well as additional quantitative and qualitative disclosures. The adoption
of ASU No. 2018-15 did not have an effect on the Company’s financial statements.
Note 4. Financing Activities
In May 2019, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”)
pursuant to which the Company could offer and sell shares of its common stock, par value $0.001 per share (the “Common Stock”), having
an initial offering price no greater than $20.0 million (the “Shares”), from time to time, through an “at the market offering” program under
which Jefferies will act as sales agent. The Company sold 66 shares under the Sale Agreement for proceeds of $387, net of issuance costs of
$350. The Sale Agreement was terminated by the Company on September 22, 2019.
In September 2019, the Company entered into an underwriting agreement with several underwriters in connection with the issuance and
sale by the Company in a public offering of 2,303 shares of the Company’s common stock at a public offering price of $8.25 per share, less
underwriting discounts and commissions, pursuant to an effective shelf registration statement on Form S-3 (Registration No. 333-230674)
and a related prospectus supplement filed with the SEC (the “September 2019 Offering”). The September 2019 Offering closed on
September 30, 2019. The Company received proceeds of approximately $17,423, net of issuance costs of $1,577 from the September 2019
Offering.
In February 2020, the Company sold in a registered offering 2,300 shares of its common stock at a public offering price of $32.00 per
share. The Company received proceeds of $68,811, net of issuance costs of $4,789. The Company used $9,024 of the proceeds to purchase
and cancel 300 shares of common stock from BioXcel.
In July 2020, the Company sold in a registered offering 4,000 shares of its common stock at a public offering price of $50.00. The
Company received proceeds of approximately $186,974, net of issuance costs of $13,026. Under the terms of the Underwriting Agreement
entered into by the Company in connection with the July 2020 offering, certain stockholders of the Company granted the underwriters an
option exercisable for thirty days to purchase up to an additional 600 shares of common stock at the public offering price less underwriting
discounts and commissions, which was not exercised. The Company intends to use the net proceeds of the offering to fund ongoing clinical
trials, commercialization preparation and for general corporate purposes.
Note 5. Transactions with BioXcel
The Company has entered into the Amended and Restated Asset Contribution Agreement, pursuant to which BioXcel agreed to
contribute BioXcel’s rights, title and interest in BXCL501, BXCL701, BXCL502 and BXCL702, and all of the assets and liabilities
associated in consideration for (i) 9,480 shares of our common stock, (ii) $1,000 upon completion of an initial public offering, (iii) $500
upon the later of the 12 month anniversary of an initial public offering and the first dosing of a patient in the bridging bioavailability/
bioequivalence study for the BXCL501 program, (iv) $500 upon the later of the 12 month anniversary of an initial public offering and the
first dosing of a patient in the Phase 2 proof of concept open label monotherapy or combination trial with Keytruda for the BXCL701
program and (v) a one-time payment of $5,000 within 60 days after the achievement of $50,000 in cumulative net sales of any product or
combination of products resulting from the development and commercialization of any one of the Candidates or a product derived
therefrom. Upon the completion of the Company’s IPO in March 2018, $1,000 was charged to Research and Development costs in
connection with (ii) above and was paid on April 5, 2018. The Company paid $500 to BioXcel in connection with (iii) above in April 2019.
In July 2019, the Company completed the first dosing of a patient in the combination trial of BXCL701 with Keytruda, and as a result the
Company paid $500 to BioXcel in connection with (iv) above in July 2019.
The Company entered into a Separation and Shared Services Agreement with BioXcel that took effect on June 30, 2017, as amended
and restated, or the Services Agreement, pursuit to which services provided by BioXcel through its
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subsidiaries in India and the United States will continue indefinitely, as agreed upon by the parties. These services are primarily for drug
discovery, chemical, manufacturing and controls cost, and administrative support. Service charges recorded under this agreement were
$1,262 and $862 for the years ended December 31, 2020 and 2019, respectively.
Under the Services Agreement, the Company has an option, exercisable until March 12, 2023, to enter into a collaborative services
agreement with BioXcel pursuant to which BioXcel shall perform product identification and related services for us utilizing EvolverAI. The
parties are obligated to negotiate the collaborative services agreement in good faith and to incorporate reasonable market-based terms,
including consideration for BioXcel reflecting a low, single-digit royalty on net sales and reasonable development and commercialization
milestone payments, provided that (i) development milestones shall not exceed $10 million in the aggregate and not be payable prior to
proof of concept in humans and (ii) commercialization milestones shall be based on reaching annual net sales levels, be limited to 3% of the
applicable net sales level, and not exceed $30 million in the aggregate. BioXcel shall continue to make such product identification and
related services available to us at least September 30, 2024.
The Company paid $9,024 in February 2020 for the purchase and subsequent cancellation of 300 shares owned by BioXcel.
Note 6. Earnings (Loss) Per Share
Basic earnings (loss) per share (“EPS”) is calculated in accordance with ASC 260, “Earnings Per Share,” by dividing net income or
loss attributable to common stockholders by the weighted average common stock outstanding. Diluted EPS is calculated by adjusting
weighted average common shares outstanding for the dilutive effect of common stock options and warrants. In periods in which a net loss
is recorded, no effect is given to potentially dilutive securities, since the effect would be antidilutive. Securities that could potentially dilute
basic EPS in the future were not included in the computation of diluted EPS because to do so would have been antidilutive. The calculations
of basic and diluted net loss per share are as follows (in thousands, except per share amounts):
Net loss (numerator)
Weighted-average share, in thousands (denominator)
Basic and diluted net loss per share
Note 7. Property and Equipment, net
A summary of property and equipment is as follows:
Computers and related equipment
Furniture
Leasehold improvements
Work in Process
Accumulated depreciation
Year Ended
December 31,
2020
(82,169)
21,683
(3.79)
$
$
2019
(32,968)
16,289
(2.02)
$
$
December 31, December 31,
2020
2019
$
$
260
369
650
356
1,635
(362)
1,273
$
$
229
344
642
—
1,215
(174)
1,041
Depreciation expense was $188 and $155 for the years ended December 31, 2020 and 2019, respectively.
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Note 8. Accrued Expenses
Accrued expenses consist of the following:
Research and development expenses
Accrued compensation and benefits
Accrued professional expenses
Accrued taxes
Other accrued expenses
Note 9. Capital Structure
Authorized Capital
December 31, 2020
December 31, 2019
$
$
3,264
2,066
1,288
697
154
7,469
$
$
1,215
1,570
266
-
69
3,120
The Company is authorized to issue up to 10,000 preferred shares with a par value of $0.001 per share of which no shares were issued
and outstanding as of December 31, 2020 and 2019.
The Company is authorized to issue up to 50,000 shares of common stock with a par value of $0.001 per share. The Company had
24,417 and 18,087 shares of common stock outstanding as of December 31, 2020 and December 31, 2019, respectively.
Description of Common Stock
Each share of common stock has the right to one vote. The holders of common stock are entitled to dividends when funds are legally
available and when declared by the board of directors.
Note 10. Stock-Based Compensation
2017 Equity Incentive Plan
The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) became effective in August 2017. Following the effective date of the
Company's 2020 Plan (as defined below), the Company ceased granting awards under the 2017 Plan, however the terms and conditions of
the 2017 Plan continue to govern any outstanding awards granted thereunder.
2020 Incentive Award Plan
The Company’s 2020 Incentive Award Plan (the “2020 Plan”) was approved and became effective at the Company’s 2020 annual
meeting of Shareholders on May 20, 2020 and unless, earlier terminated by the Board of Directors, will remain in effect until March 26,
2030. The 2020 Plan originally authorized for issuance the sum of (i) 911 shares of the Company’s common stock authorized for issuance
and (ii) 233 shares of the Company’s common stock, which represents the number of shares that remained available for issuance under the
2017 Plan as of immediately prior to the approval of the 2020 Plan by the Company’s shareholders. Any shares of Common Stock which, as
of immediately prior to the approval of the 2020 Plan by the Company’s stockholders, were subject to awards granted under the 2017 Plan
that are forfeited or lapse unexercised and are not issued under the 2017 Plan will increase the number of shares of common stock available
for grant under the 2020 Plan. In addition, the number of shares available for issuance under the 2020 Plan will increase on the first day of
each calendar year beginning January 1, 2021 and ending on and including January 1, 2030 by a number of shares equal to the lesser of (A)
4% of the aggregate number of shares of the Company’s common stock outstanding on the final day of the immediately preceding calendar
year and (B) such smaller number of shares of common stock as is determined by the Board of Directors. On January 1, 2021, the shares
available for issuance under the 2020 Plan increased by 977 shares.
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Options granted under the 2020 Plan have a term of ten years with the vesting schedule determined by the Board of Directors, which is
generally four years.
As of December 31, 2020, there were 158 shares available to be granted under the 2020 Plan.
A summary of the status of the Company’s stock option activity for the year ended December 31, 2020 is presented below (in
thousands, except per share amounts):
Outstanding as of January 1, 2020
Granted
Forfeited
Cancelled
Exercises
Outstanding as of December 31, 2020
Options vested and exercisable as of December 31, 2020
Number
of
Shares
Weighted Average
Exercise
Price per Share
3,058
1,149
(63)
(1)
(345)
3,798
2,275
$
$
$
$
$
$
$
3.26
46.26
12.37
9.20
2.82
16.15
2.69
As of December 31, 2020, the intrinsic value of options outstanding was $117,298. The intrinsic value for stock options is calculated
based on the difference between the exercise prices of the underlying awards and the quoted stock price of the Company’s common stock
as of the reporting date.
The total intrinsic value of stock options exercised for the years ended December 31, 2020 and 2019 was $11,629 and $565,
respectively.
The weighted average grant date fair value of options granted in 2020 and 2019 was $32.71 and $9.68, respectively.
The weighted average grant date fair value of options vested at December 31, 2020 was $2.61.
The weighted average remaining contractual life is 6.9 years for options exercisable.
Stock-Based Compensation
The fair value of options granted during the years ended December 31, 2020 and 2019 was estimated using the Black-Scholes option-
pricing model with the following assumptions.
For the
Year Ended
December 31, 2020
For the
Year Ended
December 31, 2019
Expected Term
Expected stock price volatility
Risk-free rate of interest
Expected dividend
6.25 years
5.50 years -
79.02 %
0.33 %
0.0 %
- 86.71 %
2.34 %
-
0.0 %
-
6.25 years
5.50 years -
78.53 %
1.54 %
0.0 %
- 79.42 %
2.50 %
-
0.0 %
-
Prior to the Company’s IPO, it did not have a history of market prices of its common stock and, as such, volatility is estimated using
historical volatilities of similar public companies. The expected term of the employee awards is estimated based on the simplified method,
which calculates the expected term based upon the midpoint of the term of the award and the vesting period. The Company uses the
simplified method because it does not have sufficient option exercise data to provide a reasonable basis upon which to estimate the expected
term. The expected dividend yield is 0% as the Company has no history of paying dividends nor does management expect to pay dividends
over the contractual terms of these options. The risk-free interest rates are based on the United States Treasury yield curve in effect at the
time of grant, with maturities approximating the expected term of the stock options.
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The Company recognized stock-based compensation expense of $14,590 and $3,070 for the years ended December 31, 2020 and 2019,
respectively.
Unrecognized compensation expense related to unvested awards as of December 31, 2020 was $24,599 and will be recognized over the
remaining vesting periods of the underlying awards. The weighted-average period over which such compensation is expected to be
recognized is 1.7 years.
BioXcel Charges
BioXcel has granted stock options to Company employees under its own Equity Incentive Plan (“BioXcel Plan”). Stock-based
compensation expense from the BioXcel Plan is allocated to the Company over the period over which those stock option awards vest and
are based the on the percentage of time spent on Company activities compared to BioXcel activities. The BioXcel stock option awards are
valued at fair value on the date of grant and that fair value is recognized over the requisite service period. The estimated fair value of these
BioXcel stock option awards was determined using the Black Scholes option pricing model on the date of grant. Significant judgment and
estimates were used to estimate the fair value of these awards, as they are not publicly traded.
Stock-based compensation expense, net of forfeitures, recognized by the Company in its statements of operations related to BioXcel
equity awards totaled approximately $21 and $72 for the years ended December 31, 2020 and 2019, respectively.
Total stock-based compensation charges were approximately $14,611 and $3,142 for the years ended December 31, 2020 and 2019,
respectively. The Company charged $6,020 and $8,591 to research and development and general and administrative expense for the year
ended December 31, 2020, respectively. The Company charged $1,791 and 1,351 to research and development and general and
administrative expense for the year ended December 31, 2019, respectively.
2020 Employee Stock Purchase Plan
The Company’s 2020 Employee Stock Purchase Plan (the “ESPP”) was also approved and became effective at the Company’s 2020
annual meeting of Shareholders on May 20, 2020. The ESPP is designed to assist eligible employees of the Company with the opportunity
to purchase the Company’s common stock at a discount through accumulated payroll deductions during successive offering periods. The
aggregate number of Shares that may be issued pursuant to rights granted under the ESPP is 100 shares of common stock. In addition, the
number of shares available for issuance under the ESPP will increase on the first day of each calendar year beginning on January 1, 2021
and ending on and including January 1, 2030 by a number of shares of common stock equal to the lesser of (a) 1% of the shares outstanding
on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determined by the Board. The number
of shares that may be issued or transferred pursuant to rights granted under the component of the ESPP that is intended to qualify for
favorable U.S. federal tax treatment under Section 423 of the Internal Revenue Code (the “Section 423 Component”) shall not exceed 500
shares. The purchase price will be determined by the administrator of the ESPP and, for purposes of the Section 423 Component, shall not
be less than 85% of the fair market value of a share on the first trading day or on the last trading day of the applicable offering period,
whichever is lower. On January 1, 2021, the shares available for issuance under the 2020 ESPP increased by 244 shares. To date, no shares
have been sold under the ESPP.
Note 11. Leases
In August 2018, the Company entered into an agreement to lease approximately 11,040 square feet of space on the 12th floor of the
building located at 555 Long Wharf Drive, New Haven, Connecticut (the “12th Floor Lease) which was effective February 22, 2019. The
12th Floor Lease expires in February 2026.
In August 2020, the Company entered into an amendment to the 12th Floor Lease wherein the Company leased an additional 7,245
square feet of space on the 12th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut (the “12th Floor Lease
Amendment”). The 12th Floor Lease Amendment expires in February 2026.
F-14
Table of Contents
The future minimum annual lease payments under these operating leases as of December 31, 2020 are as follows:
Year ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total lease payments
Less imputed interest
Total lease liability
Less current portion of lease liability
Long-term portion operating lease liability
Amount
314
363
372
381
391
64
1,885
(250)
1,635
(237)
1,398
$
The current portion of the Company’s operating lease liability of $237 as of December 31, 2020 is included in other current liabilities
on the balance sheet.
The Company recorded lease expense related to its operating lease right-of-use asset of $345 and $155 for the years ended December
31, 2020 and 2019, respectively.
The Company has an option to renew the lease for one additional five-year term at 95% of the then-prevailing market rates but not less
than the rental rate at the end of the initial lease term.
Note 12. Commitments and Contingencies
From time to time, in the ordinary course of business, the Company may be subject to litigation and regulatory examinations as well as
information gathering requests, inquiries and/or investigations. The Company is not currently subject to any matters where it believes there
is a reasonable possibility that a material loss may be incurred. As of December 31, 2020, there were no matters which would have a
material impact on the Company’s financial results.
Note 13. Income Taxes
There is no provision for income taxes because the Company has historically incurred operating losses and maintains a full valuation
allowance against its net deferred tax assets. The reported amount of income tax expense for the years differs from the amount that would
result from applying domestic federal statutory tax rates to pretax losses primarily because of changes in valuation allowance.
Pursuant to incorporation of the Company as a C corporation on March 29, 2017, BioXcel became the sole owner of the Company, and
contributed certain assets to the Company in a tax free transaction. From the date of incorporation, the Company is a standalone C
corporation subject to corporate income tax and the deferred taxes of the Company have been calculated accordingly.
F-15
Table of Contents
The significant components of the Company’s net deferred tax assets at December 31, 2020 and 2019 are shown below. In determining
the realizability of the Company’s net deferred tax asset, the Company considered numerous factors, including historical profitability,
estimated future taxable income, and the industry in which it operates. Based on this information the Company has provided a valuation
allowance for the full amount of its net deferred tax asset because the Company has determined that it is more likely than not that it will not
be realized.
Federal net operating losses
State net operating losses
Stock based compensation
Federal and state tax credits
Capitalized research and development costs
Accrued expense
Depreciation
Lease Accounting - ROU
Lease Accounting - Liability
Less: valuation allowance
Net deferred tax assets
$
$
2020
8,547
2,411
3,998
4,895
21,249
599
(11)
(407)
440
41,721
(41,721)
$
— $
2019
3,445
972
860
1,254
8,288
419
3
(310)
321
15,252
(15,252)
—
A reconciliation between the Company’s effective tax rate and the federal statutory rate for the years ended December 31, 2020 and
2019 are as follows:
Federal statutory rate
Stock based compensation
Federal and state credits
State taxes
Other
Valuation allowance
2020
21.0 %
0.9 %
3.7 %
6.8 %
(0.2)
(32.2) %
— %
2019
21.0 %
(1.4)%
2.7 %
5.0 %
—
(27.3) %
0.0 %
At December 31, 2020, the Company had approximately $40,700 of gross federal and $40,700 of gross state net operating loss carry-
forwards. If not utilized, the federal and state net operating loss carry-forwards will begin to expire in 2037. The federal net operating loss of
38,100 incurred after December 31, 2017 will be carried forward indefinitely. The utilization of such net operating loss carry-forwards and
realization of tax benefits in future years depends predominantly upon having taxable income. The Company also has approximately $4,324
of federal research and development credits which will begin to expire in 2037 if not utilized. Our NOLs or credits may also be impaired
under state law.
On March 27, 2020, the Coronavirus Aid Relief and Economic Security (“CARES”) Act was signed into law. The Act contains
several new or changed income tax provisions, including but not limited to the following: increased limitation threshold for determining
deductible interest expense, class life changes to qualified improvements (in general, from 39 years to 15 years) and the ability to carry back
net operating losses incurred from tax years 2018 through 2020 up to the five preceding tax years. Most of these provisions are either not
applicable or have no material effect on the Company.
Utilization of the net operating loss, or NOL, and research tax credit carryforwards may be subject to a substantial annual limitation
due to ownership change limitations that has occurred or that could occur in the future, as required by Section 382 of the Code, as well as
similar state and foreign provisions. These ownership changes may limit the amount of NOL and research tax credit carryforwards that can
be utilized annually to offset future taxable income and tax, respectively. In general, an "ownership change" as defined by Section 382 of
the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than
50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Furthermore, under the Tax Cuts and
Jobs Act
F-16
Table of Contents
of 2017 and modified by the CARES Act signed on March 27, 2020, although the treatment of NOLs arising on or before December 31,
2017 has generally not changed, NOLs arising on or after January 1, 2018 and beyond may only be used to offset 80% of taxable income
for tax years beginning after December 31, 2020. This change may require us to pay federal income taxes in future years despite generating
a loss for federal income tax purposes in prior years.
Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax
returns. The Company has analyzed its tax positions and has concluded that as of December 31, 2020 there were no uncertain positions.
Interest and penalties, if any, as they relate to income taxes assessed, are included in the income tax provision. There was no income tax
related interest and penalties included in the income tax provision. The Company's U.S. federal and state net operating losses have occurred
since its inception in 2017 and as such, tax years subject to potential tax examination could apply from that date because the utilization of
net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities.
F-17
EXHIBIT 10.3
FIRST AMENDMENT TO SECOND AMENDED & RESTATED SEPARATION AND SHARED SERVICES
AGREEMENT
This First Amendment to Second Amended & Restated Separation and Shared Services Agreement (“First
Amendment”), effective as of March 3, 2021 (the “First Amendment Effective Date”), is made by and between
BioXcel LLC, a Delaware corporation located at 2614 Boston Post Road Guilford CT 06437 (“BioXcel”), and BioXcel
Therapeutics, Inc., a Delaware corporation located at 555 Long Wharf Drive New Haven, CT 06511 (“BTI”). BioXcel
and BTI may be referred to herein individually as a “Party”, or collectively as the “Parties.” Capitalized terms used
herein without definition shall have the respective meanings ascribed to such terms under the Shared Services
Agreement (as defined below).
WHEREAS, BioXcel (as successor in interest to BioXcel Corporation) and BTI are parties to that certain Second
Amended & Restated Shared Services Agreement, dated March 6, 2020 (the “Shared Services Agreement”); and
WHEREAS, BioXcel and BTI desire to amend the Shared Services Agreement in respect of BTI’s option thereunder to
enter into a Collaborative Services Agreement with BioXcel.
NOW, THEREFORE, the Parties hereby agree as follows:
A. Amendments. The Shared Services Agreement is hereby amended as follows, effective as of the First
Amendment Effective Date:
1. Section 2(d) of the Shared Services Agreement shall be deleted in its entirety and replaced with the following:
d. EvolverAI Collaborative Services. On or before March 12, 2023, BTI shall have the option to enter
into a Collaborative Services Agreement with BioXcel by which BioXcel shall perform product
identification and related services for BTI utilizing the EvolverAI Platform. The Parties agree to
negotiate the terms of such Collaborative Services Agreement in good faith and that such agreement will
incorporate reasonable market based terms, including consideration for BioXcel reflecting a low, single-
digit royalty on net sales and reasonable development and commercialization milestone payments,
provided that (i) development milestones shall not exceed $10 million in the aggregate and shall not be
payable prior to proof of concept in humans and (ii) commercialization milestones shall be based on
reaching annual net sales levels, be limited to 3% of the applicable net sales level, and not exceed $30M in
the aggregate. BioXcel shall continue to make such product identification and related services available to
BTI until at least September 30, 2024.
B. Miscellaneous.
1. Except to the extent amended by this First Amendment, all of the definitions, terms, provisions and conditions
set forth in the Shared Services Agreement are ratified and confirmed and shall remain in full force and effect.
2. As of the First Amendment Effective Date, the Shared Services Agreement and this First Amendment shall be
read and construed together as a single agreement, and any and all references in the Shared Services Agreement
to “this Agreement”, “hereunder”, “herein”, “hereof” or words
1
of like import referring to the Shared Services Agreement shall be deemed a reference to the Shared Services
Agreement as amended by this First Amendment.
3. This First Amendment may be signed in any number of counterparts (facsimile and electronic transmission
included), each of which shall be deemed an original, but all of which shall constitute one and the same
instrument. Signatures to this First Amendment may be provided by PDF file and shall be deemed to be
original signatures.
[Signature page follows]
2
IN WITNESS WHEREOF, BioXcel and BTI, intending to be legally bound, have caused this First Amendment to be
signed by their duly authorized representatives.
BIOXCEL LLC
BIOXCEL THERAPEUTICS, INC.
By: /s/ Ankush Sethi
Ankush Sethi
Title: COO
By: /s/ Peter Mueller
Name: Peter Mueller
Title: Chairman
3
Exhibit 10.19
EXECUTION VERSION
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (the “Agreement”) is made and entered into as of February 15,
2021, by and between Javier Rodriguez (the “Executive”) and BioXcel Therapeutics, Inc., a Delaware
corporation (the “Company”).
RECITALS
WHEREAS, the Company wishes to retain Executive as its Senior Vice President, Chief Legal Officer
and Corporate Secretary commencing on February 22, 2021 (the “Effective Date”); and
WHEREAS, the Company wishes to secure the services of Executive upon the terms and conditions
hereinafter set forth, and Executive wishes to render such services to the Company upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained and
for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:
1.
meanings:
Definition of Terms. The following terms referred to in this Agreement shall have the following
(a)
“Cause” shall mean any of the following: (i) a material breach or material default
(including, without limitation, any material dereliction of duty) by Executive of this Agreement or any
agreement between Executive and the Company, or a repeated failure by Executive to follow the direction of
the Company; (ii) Executive’s gross negligence, willful misfeasance or breach of fiduciary duty to the Company
or its affiliates; (iii) the commission by Executive of an act or omission involving fraud, embezzlement,
misappropriation or dishonesty in connection with Executive’s duties to the Company or its affiliates or that is
otherwise likely to be materially injurious to the business or reputation of the Company or its affiliates; or (iv)
Executive’s conviction of, indictment for, or pleading guilty or nolo contendere to, any felony or other crime
involving fraud or moral turpitude. For purposes of this subsection, no act or failure to act on Executive’s part
shall be considered “willful” unless done, or omitted to be done, by Executive not in good faith and without
reasonable belief that Executive’s action or omission was in the best interest of the Company. Any
determination of whether Cause exists shall be made by the Company in its sole and absolute discretion.
Provided, however, that before a termination for Cause pursuant to Section 1(a)(iii) or (iv) is effective,
Executive will be given written notice of the particular circumstances constituting the basis for the termination
for Cause and thirty (30) calendar days to cure those particular circumstances (the “Executive’s Cure Period”).
Any determination as to whether Executive successfully cured the circumstances at issue shall be made by the
Company in its sole and absolute discretion. Failing such cure, Executive’s termination for Cause pursuant to
Section 1(a)(iii) or (iv) shall be effective on the day immediately following the expiration of Executive’s Cure
Period.
US-DOCS\115509506.5
(b)
“Change of Control” shall mean the occurrence of any of the following events:
(i)
the date on which any “person” (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) obtains “beneficial ownership” (as
defined in Rule 13d-3 of the Exchange Act) or a pecuniary interest in fifty percent (50%) or more of the
combined voting power of the Company’s then outstanding securities (“Voting Stock”);
(ii)
the consummation of a merger, consolidation, reorganization, or similar
transaction involving the Company, other than a transaction: (1) in which substantially all of the holders of the
Voting Stock immediately prior to such transaction hold or receive directly or indirectly fifty percent (50%) or
more of the voting stock of the resulting entity or a parent company thereof, in substantially the same
proportions as their ownership of the Company immediately prior to the transaction; or (2) in which the holders
of the Company’s capital stock immediately before such transaction will, immediately after such transaction,
hold as a group on a fully diluted basis the ability to elect at least a majority of the authorized directors of the
surviving entity (or a parent company); or
(iii)
there is consummated a sale, lease, license or disposition of all or substantially all
of the consolidated assets of the Company and its subsidiaries, other than a sale, lease, license or disposition of
all or substantially all of the consolidated assets of the Company and its subsidiaries to an entity, fifty percent
(50%) or more of the combined voting power of the voting securities of which are owned by stockholders of the
Company in substantially the same proportions as their ownership of the Company immediately prior to such
sale, lease, license or disposition.
(c)
“Disability” means a physical or mental disability, which prevents Executive from
performing Executive’s duties under this Agreement for a period of at least 120 consecutive days in any twelve
month period or 150 non-consecutive days in any twelve month period.
(d)
“Good Reason” shall mean without Executive’s express written consent any of the
following: (i) a significant reduction of Executive’s duties, position or responsibilities relative to Executive’s
duties, position or responsibilities in effect immediately prior to such reduction, or the removal of Executive
from such position, duties or responsibilities; (ii) the relocation of Executive to a facility or a location more than
twenty-five (25) miles from the Company’s then current principal location (other than a relocation from the
Executive’s primary residence to a location within twenty-five (25) miles of the Company’s headquarters); or
(iii) any action or inaction that constitutes a material breach by the Company or any successor to the Company
of its obligations to Executive under this Agreement. Provided, however, that before a termination for Good
Reason is effective, Executive will provide the Company with written notice of the particular circumstances
constituting the basis for Executive’s termination with Good Reason within sixty (60) calendar days of the
occurrence of the event giving rise to Good Reason and thirty (30) calendar days to cure these particular
circumstances (the “Company’s Cure Period”). Failing such cure, Executive’s termination of employment for
Good Reason shall be effective on the day immediately following the expiration of the Company’s Cure Period.
US-DOCS\115509506.5
2
2.
Duties and Scope of Position. During the Employment Term (as defined below), Executive will
serve as Senior Vice President, Chief Legal Officer and Corporate Secretary of the Company, reporting to the
Chief Executive Officer, and assuming and discharging such responsibilities as are commensurate with
Executive’s position. During the Employment Term, Executive will provide services in a manner that will
faithfully and diligently further the business of the Company and will devote all of Executive’s business time,
attention and energy thereto. Executive’s primary place of work shall be the Company’s principal place of
business in Connecticut; provided, however, that the Company acknowledges and agrees that Executive may
temporarily work at Executive’s home office located in Richmond, Virginia or such other location(s) agreed
upon in writing by the Chief Executive Officer as long as Executive spends a substantial amount of time at the
Company’s principal place of business in Connecticut; provided, further, Executive agrees to relocate (with
Company assistance) to Connecticut prior to the end of June, 2022. Executive may not serve as a director on any
entity’s board of directors without prior written consent of the Company, which consent may be withheld by the
Company in its sole and absolute discretion.
3.
Employment Term. The term of Executive’s employment under this Agreement shall commence
on the Effective Date and shall continue for a period of two (2) years thereafter, unless earlier terminated in
accordance with Section 7 hereof. The term of Executive’s employment shall be automatically renewed for
successive one (1) year periods until Executive or the Company delivers to the other party a written notice of
their intent not to renew the “Employment Term,” such written notice to be delivered at least ninety (90) days
prior to the expiration of the then-effective “Employment Term” (as that term is defined below). The period
commencing as of the Effective Date and ending two (2) years from the Effective Date or such later date to
which the term of Executive’s employment under this Agreement shall have been extended is referred to herein
as the “Employment Term”.
4.
Base Compensation. During the Employment Term, the Company shall pay to Executive a base
compensation (the “Base Compensation”) of $390,000 per year (prorated for any partial year), payable in
accordance with the Company’s regular payroll practices and shall be subject to all applicable tax withholdings
and deductions. The Company shall review Executive’s performance from time to time for purposes of, among
other things, determining the appropriateness of increasing or decreasing Executive’s Base Compensation
hereunder. For purposes of the Agreement, the term “ Base Compensation” as of any point in time shall refer to
the Base Compensation as adjusted pursuant to this Section 4.
5.
Annual Bonus. During the Employment Term, Executive may be eligible to receive an annual
bonus (the “Bonus”) targeted at 35% of Base Compensation. The actual amount of such Bonus, if any, will be
determined by the Board of Directors of the Company or an authorized committee thereof (in either case, the
“Board”) in its sole and absolute discretion based upon, among other things, the Company’s achievement of
performance milestones for each fiscal year (in each case, the “Target Year ”). The performance milestones
referenced in this Section 5 for each Target Year shall be determined by the Board. The Bonus, if any, shall be
paid no later than March 15 of the fiscal year immediately following the Target Year and will be pro-rated for
Target Year 2021 based on the number of days Executive is employed by the Company in 2021. Executive must
be continuously employed by the Company through the end of the Target Year for which the Bonus is
calculated in order to receive such payment. Except in
US-DOCS\115509506.5
3
the case of termination by the Company without Cause or due to Executive’s Disability, termination due to
Executive’s death, or termination by the Executive for Good Reason, Executive must be employed by the
Company on the Bonus payment date in order to be eligible for any such payment. For purposes of clarity, upon
a termination by the Company for Cause or Executive’s termination without Good Reason, Executive will not
be eligible to receive any Bonus.
6.
Equity; Benefits; Vacation Days.
(a)
Option. On or as soon as practicable following the Effective Date, Executive will be
granted an option to purchase thirty-two thousand (32,000) shares of common stock of the Company with an
exercise price per share equal to the closing price per share of the Company’s common stock on the date of
grant or the last trading day preceding the date of grant if the date of grant is not a trading day (the “Option”).
Subject to Executive’s continued employment with the Company, the Option shall vest over a four-year period,
with 25% vesting on the first anniversary of the Effective Date and the remaining 75% vesting in 36 equal
monthly installments following the first anniversary of the Effective Date. The Option will be subject to the
terms of the Company’s equity incentive plan under which it is granted and the applicable award agreement
evidencing such award.
(b)
Employee Benefits. During the Employment Term, Executive shall be entitled to
participate in all employee benefit plans and programs that the Company decides, in its sole and absolute
discretion, to make available to the Company’s senior level executives as a group or to its employees generally,
consistent with the terms thereof and as such plans or programs may be in effect from time to time. In no event
shall Executive be eligible to participate in any severance plan or program of the Company, except as set forth in
Section 8 of this Agreement.
(c)
Vacation. During the Employment Period, Employee shall be entitled to three (3) weeks
of vacation per year (pro-rated for 2021 based on the number of days Executive is employed by the Company),
as well as holidays, sick days and personal days in accordance with the Company’s policies, as such policies
may be amended from time to time. Any unused vacation, holiday, sick or personal days earned in one calendar
year may not be used in any subsequent calendar year. Upon the termination of the Executive’s employment
with the Company, no cash shall be paid in lieu of accrued but unused vacation, holiday, sick or personal days.
7.
Termination.
(a)
Termination by the Company. The Company may terminate Executive’s employment
immediately for Cause. Provided, however, that if the Company seeks to terminate Executive’s employment for
Cause as defined in Section 1(a)(iii) or (iv), then Executive’s termination shall not be effective until the day
immediately following the expiration of the Executive’s Cure Period. Except as otherwise set forth in Section
7(c) below, the Company must provide Executive with thirty (30) days advance written notice of its decision to
terminate Executive’s employment without Cause.
US-DOCS\115509506.5
4
(b)
Termination by Executive. Executive may terminate Executive’s employment for Good
Reason, provided that, if Executive seeks to terminate Executive’s employment for Good Reason, then such
termination for Good Reason shall not be effective until the day immediately following the expiration of the
Company’s Cure Period. Executive must provide the Company with ninety (90) days advance written notice of
Executive’s decision to terminate Executive’s employment without Good Reason. Following its receipt of
Executive’s advance written notice of Executive’s decision to terminate Executive’s employment without Good
Reason, the Company may, in its sole and absolute discretion, decide to render Executive’s termination without
Good Reason effective at any time prior to the expiration of the ninety (90) day notice period set forth in this
Section 7(b).
(c)
Termination for Death or Disability. Executive’s employment shall
terminate
automatically upon Executive’s death. The Company must provide Executive with ten
(10) days advance written notice of its decision to terminate Executive’s employment as a result of Executive’s
Disability.
(d)
Deemed Resignation. Upon termination of Executive’s employment for any reason,
Executive shall be deemed to have resigned from all offices and directorships, if any, then held with the
Company or any of its subsidiaries.
8.
Payments upon Termination.
(a)
Termination by the Company for Cause, Death or Disability or by Executive Without
Good Reason. In the event that Executive’s employment hereunder is terminated: (i) by the Company for
Cause; (ii) as a result of Executive’s death or by the Company due to Executive’s Disability; (iii) by Executive
without Good Reason; or (iv) as a result of either the Company or Executive providing the other with notice of
its intent not to renew the Employment Term pursuant to Section 3, then the Company shall pay to Executive
(or in the case of death, Executive’s estate) (x) any portion of Executive’s unpaid Base Compensation then due
for periods prior to the effective date of Executive’s termination; and (y) any vested amounts accrued and
arising from Executive’s participation in, or vested benefits accrued under any employee benefit plans,
programs or arrangements, which amounts shall be payable in accordance with the terms and conditions of such
employee benefit plans, programs or arrangements. In addition, the Company shall reimburse Executive for all
expenses reasonably and necessarily incurred by Executive in connection with the business of the Company
prior to the effective date of termination, provided that Executive (or Executive’s estate) submit proper expense
reports to the Company no later than fourteen (14) days after the effective date of Executive’s termination.
Except as otherwise expressly required by law (e.g., COBRA) or as specifically provided in a benefit plan or
herein, all of Executive’s rights to salary, severance, benefits, bonuses and other compensatory amounts
hereunder (if any) shall cease upon the termination of Executive’s employment hereunder.
(b)
Termination by the Company Without Cause or by Executive With Good Reason . In the
event that Executive’s employment hereunder is terminated by the Company without Cause or by Executive
with Good Reason, then the Company shall provide Executive with the same payments and benefits set forth in
Section 8(a). Further, provided Executive timely executes a general release of all claims against the Company in
a form acceptable to the
US-DOCS\115509506.5
5
Company (a “Release”) and the Release becomes effective within 60 days following the date of Executive’s
termination, then Executive shall also receive: (i) a pro rata Bonus for the Target Year in which Executive’s
termination became effective, payable on the same date that bonuses are payable to other executives of the
Company in the year following such Target Year; (ii) continued payment of Executive’s Base Compensation
during the six (6) month period immediately following Executive’s termination on the Company’s regularly
scheduled payroll dates and (iii) reimbursement for Executive’s payment of COBRA premiums under the
Company’s medical benefit plan during the six (6) month period immediately following Executive’s
termination; provided, however, that if the 60 day period for the Release to become effective begins in one
calendar year and ends in a second calendar year, the first installment of the payments made under (ii) hereof
shall not be paid until the second calendar year and shall include all amounts that would have been paid prior to
such date if such delay had not applied.
(c)
Termination Prior to a Change of Control. In the event that the Company terminates
Executive’s employment without Cause or Executive terminates Executive’s employment with Good Reason
and a Change of Control is consummated no more than six (6) months following the effective date of
Executive’s termination, then, in addition to the payments and benefits set forth in Section 8(b), Executive shall
also receive a lump sum payment equal to six (6) months of Executive’s Base Compensation. In order to receive
the payment set forth in this Section 8(c): (i) the Change of Control must have been Pending on the effective
date of Executive’s termination; and (ii) Executive must execute the Release and the Release must become
effective within 60 days following the date of Executive’s termination. The payment shall be made on the first
regularly scheduled payroll date following the later of (x) the Change of Control, and (y) the effective date of
the Release; provided, however, that if the 60 day period for the Release to become effective begins in one
calendar year and ends in a second calendar year, the payment shall not be paid until the second calendar year.
(d)
Termination Subsequent to a Change of Control. In the event that the Company
terminates Executive’s employment without Cause or Executive terminates Executive’s employment with Good
Reason and a Change of Control is consummated no more than twelve (12) months prior to the effective date of
Executive’s termination, then, in addition to the payments and benefits set forth in Section 8(b), Executive shall
also receive a lump sum payment equal to six (6) months of Executive’s Base Compensation. In order to receive
the payment set forth in this Section 8(d), Executive must execute the Release and the Release must become
effective within 60 days following the date of Executive’s termination. The payment shall be made on the first
regularly scheduled payroll date following the effective date of the Release; provided, however, that if the 60
day period for the Release to become effective begins in one calendar year and ends in a second calendar year,
the payment shall not be paid until the second calendar year.
(e)
Definition of “Pending.” For purposes of Section 8(c), a Change of Control transaction
shall be deemed to be “Pending” each time any of the following circumstances exist: (A) the Company and a
third party have entered into a confidentiality agreement that has been signed by a duly-authorized officer of the
Company and that is related to a potential Change of Control transaction; or (B) the Company has received a
written expression of interest from a third party, including a binding or non-binding term sheet or letter of intent,
related to a potential Change of Control transaction.
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6
9.
Directors & Officers Liability Insurance. The Company further agrees to maintain a directors and
officers liability insurance policy covering Executive in an amount and on terms no less favorable to Executive
than the coverage the Company provides other senior executives and directors.
10.
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of Executive and the assigns and successors of the Company, but neither this
Agreement nor any rights or obligations hereunder shall be assignable or otherwise subject to hypothecation by
Executive (except by will or by operation of the laws of intestate succession or by Executive notifying the
Company that cash payment be made to an affiliated investment partnership in which Executive is a control
person) or by Company, except that Company may assign this Agreement to any successor (whether by merger,
purchase or otherwise) to all or substantially all of the stock, assets or businesses of Company, and the Company
shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company expressly to assume and agree to perform this
Agreement to the same extent that the Company would be required to perform it if no succession had taken
place.
11.
Notices. Notices and all other communications contemplated by this Agreement shall be in
writing and shall be deemed to have been duly given when personally delivered (if to the Company, addressed
to its Secretary at the Company’s principal place of business on a non- holiday weekday between the hours of 9
a.m. and 5 p.m.; if to Executive, via personal service to Executive’s last known residence) or three business days
following the date it is mailed by U.S. registered or certified mail, return receipt requested and postage prepaid.
12.
Confidential Information.
(a)
Executive recognizes and acknowledges that by reason of Executive’s employment by
and service to the Company before, during and, if applicable, after the Employment Term, Executive will have
access to certain confidential and proprietary information relating to the business of the Company or its
affiliates, which may include, but is not limited to, trade secrets, trade “know-how,” product development
techniques and plans, formulas, customer lists and addresses, financing services, funding programs, cost and
pricing information, marketing and sales techniques, strategy and programs, computer programs and software
and financial information (collectively referred to herein as “Confidential Information”). Executive
acknowledges that such Confidential Information is a valuable and unique asset of the Company and its
affiliates and Executive covenants that Executive will not, unless expressly authorized in writing by the
Company, at any time during the course of Executive’s employment use any Confidential Information or
divulge or disclose any Confidential Information to any person, firm or corporation except in connection with
the performance of Executive’s duties for and on behalf of the Company and in a manner consistent with the
policies of the Company or its affiliates regarding Confidential Information. Executive also covenants that at
any time after the termination of such employment, directly or indirectly, Executive will not use any
Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation,
unless such information is in the public domain through no fault of Executive or except when required to do so
by a court of law, by any governmental agency having supervisory authority over the business of the Company
or its
US-DOCS\115509506.5
7
affiliates or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction
to order Executive to divulge, disclose or make accessible such information. All written Confidential
Information (including, without limitation, in any computer or other electronic format) which comes into
Executive’s possession during the course of Executive’s employment shall remain the property of the Company
or its affiliates, as applicable. Unless expressly authorized in writing by the Company, Executive shall not
remove any written Confidential Information from the premises of the Company or its affiliates, except in
connection with the performance of Executive’s duties for and on behalf of the Company and in a manner
consistent with the policies of the Company or its affiliates regarding Confidential Information. Upon
termination of Executive’s employment, the Executive agrees to immediately return to the Company and its
affiliates all written Confidential Information (including, without limitation, in any computer or other electronic
format) in Executive’s possession.
(b)
Notwithstanding anything to the contrary herein, nothing in this Agreement is intended to
or will be used by the Company in any way to prohibit Executive from reporting possible violations of federal
law or regulation to any United States governmental agency or entity in accordance with the provisions of and
rules promulgated under Section 21F of the Securities Exchange Act of 1934 or Section 806 of the Sarbanes-
Oxley Act of 2002, or any other whistleblower protection provisions of state or federal law or regulation
(including the right to receive an award for information provided to any such government agencies).
Furthermore, in accordance with 18 U.S.C. § 1833, notwithstanding anything to the contrary in this Agreement:
(A) Executive shall not be in breach of this Agreement and shall not be held criminally or civilly liable under
any federal or state trade secret law (x) for the disclosure of a trade secret that is made in confidence to a federal,
state, or local government official or to an attorney solely for the purpose of reporting or investigating a
suspected violation of law, or (y) for the disclosure of a trade secret that is made in a complaint or other
document filed in a lawsuit or other proceeding, if such filing is made under seal; and (B) if Executive files a
lawsuit for retaliation by the Company for reporting a suspected violation of law, Executive may disclose the
trade secret to Executive’s attorney, and may use the trade secret information in the court proceeding, if
Executive files any document containing the trade secret under seal, and does not disclose the trade secret,
except pursuant to court order.
13.
Non-Competition; Non-Solicitation.
(a)
Non-Compete. Except to the extent the following restrictions would prevent Executive
from practicing law or otherwise violate any rules of professional conduct to which Executive is bound,
Executive hereby covenants and agrees that during the Employment Term and for a period of one (1) year
following the termination of Executive’s employment, regardless of the reason for such termination, Executive
will not, without the prior written consent of the Company, directly or indirectly, on Executive’s own behalf or
in the service or on behalf of others, whether or not for compensation, engage in any business activity, or have
any interest in any person, firm, corporation or business, through a subsidiary or parent entity or other entity
(whether as a shareholder, agent, joint venturer, security holder, trustee, partner, Executive, creditor lending
credit or money for the purpose of establishing or operating any such business, partner or otherwise) with any
Competing Business in the Covered Area. For the purpose of this Section 13(a), “Competing Business” means
any business competing with any products and/or services of the Company or its affiliates that exist or are in the
process of being
US-DOCS\115509506.5
8
actively developed or acquired as of or within the six month period prior to the effective date of Executive’s
termination. For the purpose of this Section 13(a), “Covered Area” means all geographical areas of the United
States and other foreign jurisdictions where the Company has offices and/or sells its products directly or
indirectly through distributors and/or other sales agents. Notwithstanding the foregoing, Executive may own
shares of companies whose securities are publicly traded, so long as ownership of such securities do not
constitute more than one percent (1%) of the outstanding securities of any such company.
(b)
Non-Solicitation. Executive further agrees that during the Employment Term and for a
period of one (1) year following the termination of Executive’s employment, regardless of the reason for such
termination, Executive will not divert any business of the Company and/or its affiliates or any customers or
suppliers of the Company and/or the Company’s and/or its affiliates’ business to any other person, entity or
competitor, or induce or attempt to induce, directly or indirectly, any person to leave his or her employment with
the Company and/or its affiliates; provided, however, that the foregoing provisions shall not apply to a general
advertisement or solicitation program that is not specifically targeted at such employees.
(c)
Injunctive Relief; Modification. Executive acknowledges and agrees that Executive’s
obligations provided herein are necessary and reasonable in order to protect the Company and its affiliates and
their respective business and the Executive expressly agrees that monetary damages would be inadequate to
compensate the Company and/or its affiliates for any breach by the Executive of Executive’s covenants and
agreements set forth herein. Accordingly, Executive agrees and acknowledges that any such violation or
threatened violation of Section 12 or 13 will cause irreparable injury to the Company and that, in addition to any
other remedies that may be available, in law, in equity or otherwise, the Company and its affiliates shall be
entitled to obtain injunctive relief against the threatened breach or the continuation of any such breach by the
Executive of Section 12 or 13 without the necessity of proving actual damages. If, at the time of enforcement of
Sections 12 or 13, a court shall hold that the duration, scope or area restrictions stated therein are unreasonable
under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under
such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed
to revise the restrictions contained therein to cover the maximum period, scope and area permitted by law.
14. Miscellaneous Provisions.
(a)
Modifications; No Waiver. No provision of this Agreement may be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing and signed by Executive and by
an authorized officer of the Company (other than Executive). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver
of any other condition or provision or of the same condition or provision at another time.
(b)
Entire Agreement. This Agreement supersedes all prior agreements and understandings
between the parties, oral or written, including, without limitation, that certain letter agreement from the
Company to Executive regarding the Company’s offer of employment.
US-DOCS\115509506.5
9
No modification, termination or attempted waiver shall be valid unless in writing, signed by the party against
whom such modification, termination or waiver is sought to be enforced.
(c)
Choice of Law. The validity, interpretation, construction and performance of this
Agreement shall be governed by the internal substantive laws, but not the conflicts of law rules, of the State of
Connecticut.
(d)
Severability. The invalidity or unenforceability of any provision or provisions of this
Agreement shall not affect the validity or enforceability of any other provision hereof, which shall remain in full
force and effect.
(e)
Counterparts. This Agreement may be executed in separate counterparts, any one of
which need not contain signatures of more than one party, and may be delivered by facsimile or other electronic
means, but all of which shall be deemed originals and taken together will constitute one and the same
Agreement.
(f)
Headings. The headings of the Sections hereof are inserted for convenience only and
shall not be deemed to constitute a part hereof nor to affect the meaning thereof.
(g)
Construction of Agreement. In the event of a conflict between the text of the Agreement
and any summary, description or other information regarding the Agreement, the text of the Agreement shall
control.
(h) Withholding. The Company shall be entitled to withhold from any amounts to be paid or
benefits provided to Executive hereunder any federal, state, local or foreign withholding, FICA and FUTA
contributions, or other taxes, charges or deductions which it is from time to time required to withhold.
(i)
Section 409A.
(i)
The parties agree that this Agreement shall be interpreted to comply with or be
exempt from Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and
guidance promulgated thereunder (collectively “Section 409A”), and all provisions of this Agreement shall
be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.
In no event whatsoever will the Company be liable for any additional tax, interest or penalties that may be
imposed on Executive under Section 409A or any damages for failing to comply with Section 409A.
(ii)
A termination of employment shall not be deemed to have occurred for purposes
of any provision of this Agreement providing for the payment of any amounts or benefits considered
“nonqualified deferred compensation” under Section 409A upon or following a termination of employment
unless and until such termination is also a “separation from service” within the meaning of Section 409A and,
for purposes of any such provision of this Agreement, references to a “termination,” “termination of
employment” or like terms shall mean “separation from service.” If Executive is deemed on the date of
termination to be a “specified employee” within the meaning of that term under Section 409A(a)(2)(B), then
with
US-DOCS\115509506.5
10
regard to any payment or the provision of any benefit that is considered nonqualified deferred compensation
under Section 409A payable on account of a “separation from service,” such payment or benefit shall be made
or provided at the date which is the earlier of (i) the expiration of the six (6)-month period measured from the
date of such “separation from service” of Executive, and (ii) the date of Executive’s death (the “Delay Period”).
Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to this Section 14(i)(ii)
(whether they would have otherwise been payable in a single sum or in installments in the absence of such
delay) shall be paid or reimbursed on the first business day following the expiration of the Delay Period to
Executive in a lump sum and any remaining payments and benefits due under this Agreement shall be paid or
provided in accordance with the normal payment dates specified for them herein.
(iii) With regard to any provision herein that provides for reimbursement of costs and
expenses or in-kind benefits, except as permitted by Section 409A, (x) the right to reimbursement or in-kind
benefits shall not be subject to liquidation or exchange for another benefit, (y) the amount of expenses eligible
for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible
for reimbursement or in-kind benefits, to be provided in any other taxable year, provided, that, this clause (y)
shall not be violated with regard to expenses reimbursed under any arrangement covered by Code Section
105(b) solely because such expenses are subject to a limit related to the period the arrangement is in effect and
(z) such payments shall be made on or before the last day of Executive’s taxable year following the taxable year
in which the expense occurred.
(iv) For purposes of Section 409A, Executive’s right to receive any installment payments
pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.
Whenever a payment under this Agreement specifies a payment period with reference to a number of days (e.g.,
“payment shall be made within thirty (30) days following the date of termination”), the actual date of payment
within the specified period shall be within the sole discretion of the Company.
[signature page follows]
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11
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this
Agreement as of the date first written above.
EXECUTION VERSION
BIOXCEL THERAPEUTICS, INC.
By:
/s/ Vimal Mehta, Ph.D.
Name: Vimal Mehta, Ph.D.
Title: Chief Executive Officer
EXECUTIVE
/s/ Javier Rodriguez
Javier Rodriguez
US-DOCS\115509506.5
BioXcel Therapeutics, Inc. has no subsidiaries.
Subsidiaries
Exhibit 21.1
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
BioXcel Therapeutics, Inc.
New Haven, CT
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-240118)
and Form S-8 (Nos. 333-235282 and 333-238580) of BioXcel Therapeutics, Inc. of our report dated March 12, 2021,
relating to the financial statements of BioXcel Therapeutics, Inc., which appear in this Annual Report on Form 10-
K.
/s/ BDO USA, LLP
Stamford, CT
March 12, 2021
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO
network of independent member firms.
BDO is the brand name for the BDO network and for each of the BDO Member Firms.
Exhibit 31.1
I, Vimal Mehta, Ph.D., certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2020 of BioXcel Therapeutics, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report
financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 12, 2021
By:
/s/ Vimal Mehta
Vimal Mehta, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Richard Steinhart, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2020 of BioXcel Therapeutics, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is
being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles;
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.
Date: March 12, 2021
By:
/s/ Richard Steinhart
Richard Steinhart
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report on Form 10-K of BioXcel Therapeutics, Inc. (the “Company”) for the fiscal year ended
December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby
certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of
his knowledge:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934, as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 12, 2021
By:
/s/ Vimal Mehta
Vimal Mehta, Ph.D.
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report on Form 10-K of BioXcel Therapeutics, Inc. (the “Company”) for the fiscal year ended
December 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned hereby
certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of
his knowledge:
(1)
(2)
the Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934, as amended; and
the information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: March 12, 2021
By:
/s/ Richard Steinhart
Richard Steinhart
Chief Financial Officer
(Principal Financial Officer)