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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, 2023
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. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the
correction of an error to previously issued financial statements. (cid:0)
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the
registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). (cid:0)
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, 2023, 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 $134,938,946 (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 30,576,671 shares of our common stock outstanding at March 18, 2024.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its 2024 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, 2023, are incorporated by reference into Part III of this
Annual Report on Form 10-K.
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Forward Looking Statements
Summary Risk Factors
Part I.
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
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Part II.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6. Reserved
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. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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 within the meaning of the Private Securities
Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The words “anticipate,” “believe,”
“can,” “continue,” “could,” “designed,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “might,” “plan,”
“possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” and similar expressions are intended to
identify forward-looking statements, though not all forward-looking statements use these words or expressions. All
statements contained in this Annual Report on Form 10-K, other than statements of historical fact, are forward-looking
statements, including, without limitation, statements regarding:
● our sales strategy for IGALMITM;
● strategy relating to, anticipated benefits from, and cost savings from our Reprioritization (as defined herein);
● our ability to raise additional capital and continue as a going concern;
● developments relating to our TRANQUILITY program;
● the size of our total addressable markets and related underlying estimates;
● our plans relating to clinical trials and marketing applications for our product candidates;
● our plans to research, develop and commercialize our current and future product candidates;
● our plans to seek to enter into collaborations for the development and commercialization of certain product
candidates;
● the potential benefits of any future collaboration;
● the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;
● the timing of and results of discussions we have with regulators;
● the rate and degree of market acceptance, clinical utility, number of prescribers and formulary wins of
IGALMITM and any product candidates for which we receive marketing approval;
● our commercialization, marketing and manufacturing capabilities and strategy, including the potential benefits
from any advertising campaigns;
● our participation in, and any potential benefits from, events, conferences, presentations and conventions;
● our intellectual property position and strategy;
● our estimates regarding expenses, future revenue, capital requirements and need for additional financing;
● potential investments in, or other strategic options for, our subsidiary, OnkosXcel Therapeutics, LLC
(“OnkosXcel”);
● developments relating to our competitors and our industry;
● compliance with covenants under our financing arrangements;
● the impact of government laws and regulations;
● developments related to legal proceedings and investigations; and
● our relationship with BioXcel LLC.
These forward-looking statements are based on management’s current expectations. These statements are neither
promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause
our actual results, performance or achievements to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements, including, but not limited to, those listed under
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. These and other important factors discussed
under the caption “Risk Factors” in our other filings with the Securities and Exchange Commission (“SEC”) could cause
actual results to differ materially from those indicated by the forward-looking statements made in this filing. Given these
uncertainties, you should not rely on these forward-looking statements as predictions of future events. While we may elect
to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if
subsequent events cause our views to change.
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
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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 “BioXcel, LLC” refers to the
Company’s former parent company and significant stockholder, BioXcel LLC, and its predecessor, BioXcel Corporation.
All brand names or trademarks appearing in this Annual Report on Form 10-K are the property of their respective owners,
including IGALMITM, which is a trademark of BioXcel Therapeutics, Inc.
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 & Media section
of its website at www.bioxceltherapeutics.com. In addition, you may automatically receive email alerts and other
information about the Company when you enroll your email address by visiting the “Email Alerts” option under the News /
Events menu of the Investors & Media section of our website at www.bioxceltherapeutics.com.
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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 not generated substantial product revenues to date, which may make
it difficult to evaluate the success of our business to date and to assess our future viability.
● We have incurred significant operating losses since inception and anticipate that we will continue to incur
substantial operating losses for the foreseeable future and may never achieve or maintain profitability.
● Our strategic reprioritization and related reduction in force may not achieve our intended outcome.
● We will need substantial additional funding, and if we are unable to raise capital when needed, we could be
forced to delay, reduce or eliminate our product development programs or commercialization efforts or otherwise
seek strategic alternatives. In addition, the failure to raise additional financing in accordance with the minimum
capital raising requirements of our Credit Agreement (as defined herein) would trigger an event of default
thereunder.
● We have significant indebtedness and other contractual obligations that could impair our liquidity, restrict our
ability to do business and thereby harm our business, results of operations and financial condition. We may not
have sufficient cash flow from operations to satisfy our obligations under our financing facilities.
● We have identified conditions and events that raise substantial doubt about our ability to continue as a going
concern.
● We have limited experience in drug discovery and drug development.
● Developments relating to our TRANQUILITY II Phase 3 trial may impact the timing of our development plans
for, and prospects for seeking or obtaining regulatory approval of, BXCL501 for the acute treatment of agitation
(non-daily) associated with dementia in patients with probable Alzheimer’s disease and may also subject us to
additional risks and uncertainties, including regulatory, stockholder or other actions, loss of investor confidence
and negative impacts on the trading price of our common stock.
● In the near term, we are dependent on the success of IGALMITM, and four of our product candidates, BXCL501,
BXCL502, BXCL701 and BXCL702. If we are unable to complete the clinical development of or obtain
marketing approval for our product candidates or successfully commercialize IGALMITM or our product
candidates, either alone or with a collaborator, or if we experience significant delays in doing so, our business
could be substantially harmed.
● Interim “top-line” and preliminary data from our clinical trials that we announce or publish from time to time
may change as more patient data become available and are subject to audit and verification procedures that could
result in material changes in the final data.
● The regulatory approval processes of the United States (“U.S.”) Food and Drug Administration (“FDA”), and
comparable foreign authorities are lengthy, time consuming, expensive and inherently unpredictable, and if we
are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially
harmed.
● Clinical trials are expensive, difficult to design, difficult to conduct and involve an uncertain outcome.
● We depend on enrollment of patients in our clinical trials to continue development of our product candidates. If
we are unable to enroll patients in our clinical trials, our research and development efforts could be adversely
affected.
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● Our estimated number of episodes of agitation and our corresponding estimated total addressable market are
subject to inherent challenges and uncertainties. If we have overestimated the number of episodes or the size of
our total addressable market for our current and potential future products or product candidates, or if any approval
that we obtain is based on a narrower definition of the patient population, our revenue and ability to achieve
profitability may be harmed.
● The discovery and development of product candidates based on EvolverAI, BioXcel LLC’s proprietary
pharmaceutical discovery and development engine, as well as our own AI platform is novel and unproven, and we
do not know whether we will be able to develop any products of commercial value.
● Regulators may limit our ability to develop or implement our proprietary AI algorithms and/or may eliminate or
restrict the confidentiality of our proprietary technology, which could have an adverse effect on our business,
results of operations, and financial condition.
● Although the FDA has approved IGALMITM for the acute treatment of agitation associated with schizophrenia or
bipolar I or II disorder, we will still face extensive and ongoing regulatory requirements and obligations for
IGALMITM and for any product candidates for which we obtain approval.
● Although we obtained FDA approval for IGALMITM, our products and product candidates may not be accepted
by physicians or the medical community in general, and there may be insufficient insurance coverage and
reimbursement.
● If we are found in violation of federal, state or foreign health care “fraud and abuse” laws, we may be required to
pay significant fines and penalties, which may adversely affect our business, financial condition and results of
operations.
● We continue to depend on BioXcel LLC to provide us with certain services for our business.
● BioXcel LLC has significant influence over the direction of our business, and the concentrated ownership of our
common stock will prevent you and other stockholders from influencing significant decisions.
● We are substantially dependent on third parties for the manufacture of our clinical supplies of our product
candidates, and our commercial supplies of IGALMITM, and we intend to rely on third parties to produce
commercial supplies of any other approved product candidate.
● We rely on third parties to conduct our preclinical and clinical trials. If these third parties do not successfully
perform their contractual legal and regulatory duties or meet expected deadlines, we may not be able to obtain
regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
● Data breaches or cyber-attacks could disrupt our business, operations and information technology systems, and
financial results, or result in the loss or exposure of confidential or sensitive Company information.
● We are and may in the future be subject to legal proceedings, claims and investigations in or outside the ordinary
course of business. Such proceedings, claims and investigations could be costly and time-consuming to defend
and could result in unfavorable outcomes, which may have a material adverse effect on our business, operating
results and financial condition, and negatively affect the price of our common stock.
● Unfavorable global political or economic events and conditions could adversely affect our business, financial
condition or results of operations.
● We face risks associated with the increased scrutiny relating to environmental, social and governance matters.
● It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection.
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TRADEMARKS, TRADE NAMES AND SERVICE MARKS
This Annual Report includes our trademarks, trade names and service marks, including, without limitation,
“IGALMITM” and our logo, which are our property and are protected under applicable intellectual property laws. Solely for
convenience, trademarks, trade names and service marks may appear in this Annual Report without the ®, TM and SM
symbols, but such references are not intended to indicate, in any way, that we or the applicable owner forgo or will not
assert, to the fullest extent permitted under applicable law, our rights or the rights of any applicable licensors to these
trademarks, trade names and service marks. We do not intend our use or display of other parties’ trademarks, trade names
or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or
sponsorship of us by, these other parties.
INDUSTRY AND OTHER DATA
Unless otherwise indicated, information contained in this Annual Report concerning our industry and the markets in
which we operate, including our general expectations, market position and market opportunity, is based on our
management’s estimates and research, as well as industry and general publications and research, surveys and studies
conducted by third parties. While we believe the information from these third-party publications, research, surveys and
studies included in this Annual Report is reliable, we do not guarantee the accuracy or completeness of such information,
and we have not independently verified this information. Management’s estimates are derived from publicly available
information, their knowledge of our industry and their assumptions based on such information and knowledge, which we
believe to be reasonable. This data involves a number of assumptions and limitations which are necessarily subject to a
high degree of uncertainty and risk due to a variety of factors, including those described in this Annual Report under
“Forward Looking Statements,” “Risk Factor Summary” and Part I, Item 1A “Risk Factors.” These and other factors could
cause our future performance and market expectations to differ materially from our assumptions and estimates.
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Item 1. Business
Overview
PART I
BioXcel Therapeutics, Inc. (“BTI,” the “Company,” “we,” “us” or “our”) is a biopharmaceutical company utilizing
artificial intelligence (“AI”) to develop transformative medicines in neuroscience and, through the Company’s wholly
owned subsidiary, OnkosXcel Therapeutics LLC (“OnkosXcel”), immuno-oncology. We are focused on utilizing cutting-
edge technology and innovative research to develop high-value therapeutics aimed at transforming patients’ lives. We
employ various AI platforms to reduce therapeutic development costs and potentially accelerate development timelines.
Our approach leverages existing approved drugs and/or clinically evaluated product candidates together with big data
and proprietary machine learning algorithms to identify new therapeutic indications. We believe this differentiated
approach has the potential to reduce the expense and time associated with drug development in diseases with substantial
unmet medical needs.
On April 6, 2022, we announced that the United States (“U.S.”) Food and Drug Administration (“FDA”) approved
IGALMITM (dexmedetomidine (or “Dex”)) sublingual film for the acute treatment of agitation associated with
schizophrenia or bipolar I or II disorder in adults. IGALMITM is approved to be self-administrated by patients under the
supervision of a health care provider. On July 6, 2022, we announced that IGALMITM was commercially available in doses
of 120 and 180 microgram (“mcg”).
Our most advanced neuroscience candidate is BXCL501. In indications other than those approved by the FDA as
IGALMITM, BXCL501 is an investigational, proprietary, orally dissolving film formulation of Dex in development for the
treatment of agitation associated with psychiatric and neurological disorders.
We are continuing to develop BXCL501 for the potential acute treatment of agitation associated with bipolar disorders
or schizophrenia in the at-home setting and for the potential acute treatment of agitation (non-daily) associated with
dementia due to probable Alzheimer’s disease in the at-home setting and in care facilities. As described further below, we
have deprioritized the development of BXCL501 for certain other proposed indications, including development of
BXCL501 as a potential adjunctive treatment for major depressive disorder (“MDD”), as well as our BXCL701 program,
except as noted under “Immuno-Oncology” below.
Our most advanced immuno-oncology candidate, BXCL701, is an investigational oral innate immune activator being
developed by OnkosXcel as a potential therapy for the treatment of aggressive forms of prostate cancer, pancreatic cancer,
and other solid and liquid tumors.
Neuroscience
Our Neuroscience Strategy
Our goal is to become the leading AI-enabled neuroscience therapeutics company. We continue to evaluate all strategic
options for our neuroscience assets, which could include licensing, partnering, and co-commercialization.
Our Novel Drug Re-Innovation Approach
We aim to deploy and implement, throughout the drug development process, an AI ecosystem designed to rapidly
identify medications related to our key focus areas of neuroscience and immuno-oncology. Our in-house, uniquely
integrated AI-to-drug-development capability is complemented by the services and technology of BioXcel LLC, our
former parent company. It includes a labeled properties graph (also referred to as a “knowledge graph”) that visually relates
collected big data in the form of entities and their properties that include neuropsychiatric symptoms, brain circuits, drug
targets, and existing drugs. We believe that understanding the relation between entities relevant to drug development may
lead to novel potential uses for existing drugs. Predictive algorithms or queries of the knowledge graph may uncover not
only single drugs but potentially identify new combinations of drugs that we believe may be
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more effective in treating disorders than single agents. New combinations of drugs may lower tolerable doses of drugs and
provide the basis for stronger intellectual property positions. Our AI team works closely with our Business Development
team to prioritize in a data-driven manner the most valuable external opportunities. These opportunities may be found in
new potential uses for launched drugs, in drugs that are part of pharmaceutical company pipelines no longer being pursued,
or within academic efforts to develop new drug candidates.
Traditional drug development is marred by low success rates, long drug development cycles, and exorbitant
development costs that are increasing year over year. In addition, many serious diseases remain unaddressed due to
limitations of the current drug discovery paradigm. The pharmacological universe spans more than 27,000 active
pharmaceutical agents, of which only approximately 4,000 are approved and marketed. Marketed drugs may not be
exclusively effective in the indication for which they are approved but relevant to other indications, including rare diseases,
and thus represent an untapped potential for addressing unmet medical needs and recouping research and development
costs. Many of the remaining agents are active clinical candidates that are shelved or have failed for reasons other than
toxicity, which offers the opportunity to re-innovate for other indications or patient segments. Such agents potentially
represent an unrealized investment of billions of research and development dollars by the private and public sectors, while
failing to remediate immeasurable patient suffering and sacrifice during clinical development. Also, these compounds may
have known pharmaco-dynamic and pharmaco-kinetic properties, potentially allowing for a more data-driven selection of
appropriate doses for development programs. Finally, with respect to neuropsychiatric indications, we prioritize those
compounds with structural design features that we believe may contribute to high blood-brain barrier permeability, and
therefore could increase the likelihood of compound penetration into the brain. Lack of brain penetration is a common
cause for failure of many drugs developed for neuropsychiatric indications. In addition, we are prioritizing compounds with
available human safety data, acceptable pharmacokinetic results, and data that support a high probability of achieving
reasonable brain concentrations after dosing. The compounds in our pipeline have been identified using this proprietary
platform.
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.). 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 approach to mining big data and advanced analytics.
Our AI-based discovery and development process is the foundation of our drug re-innovation model for identifying the
next wave of potential medicines. Our therapeutic area experts have over 200 years of combined experience across the drug
discovery and development value chain. We believe that our method of finding potential product candidates gives us a
higher probability of success because it combines AI expertise and intuition of human experience in drug development. We
believe the combination of AI and drug discovery and development expertise facilitates the generation of therapeutic
candidates and gives us a significant competitive advantage.
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Our approach is illustrated below:
We continue to integrate and evolve our neuroscience and immuno-oncology AI machine learning and drug discovery
and development platform. Our platform led to the identification of Dex, the rapid development of BXCL501, and its
approval by the FDA as IGALMITM, as well as the advancement of BXCL501 for other potential indications. We are
continuing to leverage our platform to identify and develop new neuroscience and immuno-oncology programs.
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Our Neuroscience Programs
The following is a summary of the status of our neuroscience clinical development programs as of the date of this Annual
Report on Form 10-K:
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 that 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 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 occasional disruptive behavior, which may 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.
With the agitation issues associated with schizophrenia and bipolar disease coupled with a fast-growing elderly
population that is potentially likely to experience agitation associated with Alzheimer’s disease, the difficulties and
expenses of acute treatment of agitation are expected to grow significantly. We estimate that in the United States, there are
approximately 1.9 million patients diagnosed with Alzheimer’s disease-related dementia (“AAD”) and that those patients
experience agitation at a rate of about six episodes per month, on average. In addition, we estimate that there are
approximately 1.6 million Americans diagnosed with schizophrenia or bipolar disorders and that those patients experience
agitation at a rate of about three episodes per month, on average. We, therefore, believe there is significant potential market
opportunity for BXCL501 if approved for use in these patient populations in the at-home setting. The
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foregoing estimates of the incidence of each patient population and the number of agitation episodes experienced and
potential market opportunity are based on management’s estimates and third-party data, which may be materially different
from actual agitation episodes and actual treatable patients. For additional information regarding risks associated with these
estimates, see Part I, Item 1A, Risk Factors “— Our estimated number of episodes of agitation and our corresponding
estimated total addressable market are subject to inherent challenges and uncertainties. If we have overestimated the
number of episodes or the size of our total addressable market for our current and potential future products or product
candidates, or if any approval that we obtain is based on a narrower definition of the patient population, our revenue and
ability to achieve profitability may be harmed.”
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 and other conditions. 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 and olanzapine, are used extensively in this setting but are invasive and often require
patient restraint. This type of treatment can dehumanize patients and cause trauma that could have long-term impact on
them. Furthermore, these treatments include a black box warning for use in elderly patients.
While sublingual tablet formulations utilizing antipsychotics have been developed, these formulations have long half-
lives (21-24 hours) and significant side effects when given acutely or chronically. Oral agents such as benzodiazepines are
also used but have a slow onset of action and are consequently ineffective in the acute treatment of agitation. Side effects of
these agents include sedation, amnesia, confusion, and paradoxical responses. They can intensify cognitive slowing and
worsen memory and motor impairment, contributing 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 or relapse to abuse substances.
Nonadherence 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, an orally dissolving, mucoadhesive film
could offer compliance advantages by making it less likely that patients will avoid treatment.
The sublingual or buccal route of administration is an accepted alternative to oral administration of drug delivery to
the central nervous system when rapid onset or more controlled delivery is required. Currently, there are six products
approved for film administration, including our product, IGALMITM. For example, BioDelivery Sciences International,
Inc., a commercial-stage specialty pharmaceutical company, has developed a buccal film formulation of buprenorphine for
chronic pain management and buprenorphine and naloxone for opioid dependence. We developed BXCL501 as a
differentiated sublingual film dosage form of Dex, which we believe 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 a sublingual formulation of Dex that is designed to be easily administered and have a rapid onset of
action. Dex is approved in the U.S. for the sedation of initially intubated and mechanically ventilated patients during
treatment in the intensive care unit (“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 U.S. 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 sold in the European Union (“EU”) and other countries under the trade name Dexdor® as a sedative
for intensive care patients. Dex was approved by the European Commission for sedation of adult ICU patients requiring a
sedation level no deeper than arousal in response to verbal stimulation (corresponding to Richmond Agitation-Sedation
Scale 0 to -3). It has been used to prevent or treat hyperactive delirium resulting from anesthesia in
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the ICU. Given these uses of the IV formulation of Dex, we believe Dex formulated in a sublingual film and at much lower
doses allows for ease of administration in settings where rapid acute treatment of agitation is needed.
IGALMITM Commercial Progress
We continue to support IGALMI™ in the hospital setting through limited and focused commercial activity. On
August 14, 2023, the Company announced it had implemented a shift in commercial strategy for IGALMITM in the
institutional setting, a reduction of in-hospital commercialization expenses, a suspension of programs no longer deemed
core to the Company’s business, and a shift to focus on the development of BXCL501 for use in the at-home and care
facilities in the treatment of acute agitation in schizophrenia and bipolar disorders, and in the treatment of acute agitation
(non-daily) associated with dementia due to probable Alzheimer’s disease (collectively, the “Reprioritization”). Following
the Reprioritization, a small Corporate Account Director (“CAD”) team supports current customers and targeted Integrated
Delivery Networks (“IDNs”) with educational support and contracting opportunities, while our trade operation supports
customers with drug supply. The goal of this approach is to help maintain current business and potentially broaden
IGALMITM utilization through volume contracting. Over time, we believe the revised commercial effort is expected to
allow the Company to continue to make inroads into the institutional market in a more cost-efficient manner.
Commercial efforts for the IGALMITM launch were impacted significantly in the six months ended December 31,
2023 due to the reduction in force, which included the elimination of sales, marketing, and commercial operations staff.
The realigned CAD team generated $376,000 in net revenue for the three-month period ended December 31, 2023 through
legacy sales and volume-based contracts, up from $341,000 for the three-month period ended September 30, 2023. Net
revenues from IGALMI™ product sales for the years ended December 31, 2023 and 2022 were $1.4 million and $375,000
respectively.
On October 30, 2023, we announced that the Centers for Medicare & Medicaid Services (“CMS”) assigned a new J-
Code for IGALMITM (J1105). J-Codes are permanent codes used by healthcare providers, commercial insurance plans, and
government payers to help standardize the reimbursement process. A J-Code can help simplify claims submission as
compared to use of a miscellaneous or unlisted code, which in turn can streamline the billing and reimbursement process.
The J-Code for IGALMITM has been published online in the CMS HCPCS Application Summaries and Coding
Recommendations, Third Quarter, 2023 HCPCS Coding Cycle. We believe this J-Code, which became effective on January
1, 2024, will facilitate access to IGALMITM for patients with agitation associated with bipolar disorder or schizophrenia.
If IGALMITM is approved outside the U.S., we would consider launching the product through collaborations with third
parties.
Our continued commercialization efforts for IGALMITM are designed to build the foundation to launch additional
potential follow-on indications, if any, paving the way for our expanding neuroscience business.
BXCL501 Development
In indications other than those approved by the FDA as IGALMITM, BXCL501 remains an investigational, proprietary,
orally dissolving film formulation of Dex, a selective alpha-2 receptor agonist, targeting symptoms from stress-related
behaviors such as agitation. BXCL501 is our most advanced neuroscience clinical program, being evaluated for the at-
home acute treatment of agitation related to bipolar disorders or schizophrenia and for the acute treatment of agitation
(non-daily) in patients with dementia due to probable Alzheimer’s disease in care facilities and at-home settings.
As a selective adrenergic agent with a sublingual or buccal route of administration, BXCL501 is designed to be easily
administered and, compared to medications that may take days or weeks, has shown a relatively rapid onset of action in
multiple clinical trials, including those studying patients with bipolar disorders, schizophrenia, and Alzheimer’s disease.
We believe results from these studies suggest that BXCL501 has the potential to reduce agitation without producing
excessive sedation. We also believe BXCL501 is highly differentiated from antipsychotics, which are
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currently used as first-line standard-of-care treatments despite often producing unwanted side effects such as excessive
sedation or extra pyramidal motor effects. Managing patient agitation in neuropsychiatric and neurodegenerative disorders
represents a significant challenge for physicians and caregivers. We believe BXCL501 has the potential to address these
challenges while providing an efficient treatment regimen for patients.
We also believe that BXCL501, if approved for the respective indications, has the potential to become the standard of
care for the acute treatment of agitation arising from diseases such as schizophrenia and bipolar disorder and Alzheimer’s
disease.
In addition, given the differentiated design of BXCL501 and its potential mechanism of action, we believe BXCL501
has the potential to address several diseases or conditions for which agitation is a symptom of the condition or underlying
disease, including opioid withdrawal and post-traumatic stress disorder (“PTSD”), which are being evaluated in clinical
trials run by third-parties.
BXCL501 Clinical Trials
TRANQUILITY Program: Acute Agitation Associated with Dementia due to Probable Alzheimer’s Disease
(AAD)
On June 29, 2023, we announced positive topline results from TRANQUILITY II, a randomized, double-blind,
placebo-controlled, parallel group trial that evaluated the safety and efficacy of BXCL501 for the acute treatment of
Alzheimer’s-related agitation in adults 65 years and older with mild to moderate dementia in assisted living facilities
(“ALFs”) and residential care settings who required minimal assistance with activities of daily living. The trial dosed 149
patients. Randomized patients self-administered 40 mcg or 60 mcg of BXCL501 or placebo for agitation episodes that
occurred over a 12-week period. The primary endpoint was the change from pre-dose in PEC total score at 2 hours post-
dose for the first treated episode of agitation. The key secondary efficacy endpoints were PEC change from pre-dose at 1-
hour post-dose of study treatment for the first treated episode of agitation, and PEC change from pre-dose at 30 minutes
post-dose of study treatment for the first treated episode of agitation.
The Phase 3 trial met its primary efficacy endpoint with the 60 mcg dose; a statistically significant and clinically
meaningful 7.5 point reduction from baseline in Positive and Negative Syndrome Scale-Excitatory Component (“PEC”)
total score was observed at 2 hours versus 5.4 with placebo (p=0.0112). The 60 mcg dose also met the first key secondary
endpoint of reducing agitation symptoms at 1 hour during the first episode of agitation (p=0.0185) but did not meet the
other key secondary endpoint of change from baseline in PEC score at 30 minutes.
Efficacy for this dose was supported by several secondary measures, including CGI-Improvement and Agitation-
Calmness Evaluation Scale. Most patients (76%) responded to the first 60 mcg dose and were determined to be “Very
Much” or “Much Improved” (CGI-I of 1 or 2, respectively) compared to 50% with placebo. The primary endpoint was not
met for the 40 mcg dose, with a 5.7 point reduction from baseline in PEC score.
On June 29, 2023, we also announced that we had learned that an investigator in this study, who enrolled
approximately 40% of the patients, engaged in misconduct. Since that time, we have taken steps to further investigate and
evaluate the conduct of the TRANQUILITY II trial at this clinical site. Based on these steps to date, we believe that there
have been no further instances of misconduct or fraud or other findings that adversely impact the data integrity or
reliability of the eligibility, safety, and efficacy data obtained at the clinical trial site in question.
Our TRANQUILITY III trial was designed to evaluate the safety and efficacy of BXCL501 in patients residing
predominantly in nursing homes with moderate to severe dementia due to Alzheimer’s disease who require moderate or
greater assistance with activities of daily living. We halted additional enrollment in this Phase 3 after initial enrolled
patients were observed to have more frequent episodes of agitation than originally anticipated, suggesting that agitation
may present chronically in this population. Due to the chronic nature of agitation episodes observed in this population thus
far, we believe that continued evaluation of BXCL501 in this population would require a different development program
targeting more frequent or chronic use. We have chosen to focus our development efforts on the urgent need for episodic
treatment in the care facility and at-home setting.
In a Type B/Breakthrough Therapy designation meeting with the FDA on October 11, 2023, we reviewed our
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TRANQUILITY clinical trial program and discussed the data package required to support submission of an sNDA for the
potential approval of BXCL501 for the acute treatment of agitation in patients with mild to moderate dementia due to
probable Alzheimer’s disease in the ALF and at-home settings. Specifically, we sought feedback from the FDA as to
whether our data package consisting of TRANQUILITY I and II, along with the clinical pharmacology and toxicology
programs previously discussed with the FDA, would be sufficient to support an sNDA submission for the potential use of
BXCL501 to treat agitation in patients with mild to moderate dementia due to probable Alzheimer’s disease in either the at-
home or ALF setting, or, if not, what additional data would be required. Based on the FDA’s feedback in this meeting, we
understand that the FDA will require additional efficacy data, including repeat efficacy data, and that it requested long-term
safety data. We therefore requested another meeting with the FDA to further discuss the additional data that would be
required to support an sNDA submission.
On February 20, 2024, we held a Type B/Breakthrough Therapy designation meeting with the FDA. The original
purpose of this meeting was to obtain feedback on the design of a proposed at-home study that did not include caregiver-
collected efficacy endpoints, based on our belief that obtaining caregiver assessments of efficacy would be challenging. We
believe there are no validated caregiver endpoints for assessing efficacy in Alzheimer’s disease patients in the at-home
setting. As a result, we focused on requesting feedback from the FDA regarding our proposal for an at-home clinical study
with safety as the primary objective, and to better understand what additional data would be required to submit an sNDA to
support labeling for BXCL501 to include the acute treatment of agitation associated with dementia in probable Alzheimer’s
disease or, in the alternative, in this population in the care setting only. In its preliminary responses, the FDA reiterated its
prior comments that we generate additional efficacy data, including repeat-dose efficacy data, to support an sNDA
submission, as the FDA indicated that our proposed efficacy database, which currently includes the 70 patients who have
been treated with 60 mcg of BXCL501 in TRANQUILITY I and TRANQUILITY II, would not contain substantial
evidence of effectiveness absent additional data. The FDA advised that we generate the necessary efficacy data in care
facilities prior to conducting any trials in the at-home setting. In addition, the FDA indicated the need to generate long-term
safety data to support an sNDA submission, including from probable Alzheimer’s disease patients exposed to BXCL501,
for up to one year. We have received the final meeting minutes from the FDA, which we believe are consistent with the
FDA’s preliminary responses and the subsequent meeting discussion. Based on the FDA’s feedback, we are currently
planning to generate additional Phase 3 efficacy and safety data, in a variety of relevant care-facility settings and across
severity of dementia using the Positive and Negative Syndrome Scale-Excitatory Component (“PEC”) as the primary
efficacy measure, as used in the prior TRANQUILITY II study. In addition, we plan to discuss the details of the
requirement for long-term safety data at a future meeting with the FDA. Also, although we announced in November 2023
that we were planning to conduct a Phase 3 trial in the at-home setting, with safety as the primary objective
(TRANQUILITY At Home), given the priority to expand the database to generate additional efficacy and safety data in
care facilities, we are re-evaluating the timing for initiating TRANQUILITY At Home.
SERENITY Program: Agitation Associated with Bipolar Disorders I and II and Schizophrenia (at-home use)
We initiated the SERENITY III clinical study of BXCL501 in patients with agitation associated with bipolar disorders
or schizophrenia in SERENITY III, which consists of two parts. The first part was comparable to our pivotal SERENITY I
and II studies. Using similar inclusion and exclusion criterion under a well-controlled in-patient setting, acutely agitated
patients with schizophrenia or bipolar disorders were randomized to self-administer either 60 mcg of BXCL501 or placebo
in a double-blind placebo-controlled trial. The primary endpoint of Part I was efficacy, as measured by the change in PEC
score change from baseline at two hours post-dose. The secondary objectives of Part I were safety and tolerability.
On May 25, 2023, we reported topline results from Part I of the study. Although the trial did not meet its primary
efficacy endpoint, we believe the efficacy results, observed with the 60 mcg dose, representing half of the lowest approved
dose of IGALMITM for in-patient use (120 mcg), were promising. Specifically, greater than 50% of individuals were
responders, defined as those patients who achieved a 40% or greater reduction in PEC score. Furthermore, this population
responder rate was consistent and dose-proportionate to the same response rates observed in the larger SERENITY I and II
trials. Although the primary efficacy endpoint as a group mean change in PEC score from baseline at 2 hours was not
statistically significant at the primary endpoint at 2 hours (p=0.077), BXCL501 statistically separated from placebo at 4
hours (p=0.049).
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Part II of the SERENITY III study was designed to evaluate the same dose tested in Part I, 60 mcg (with an optional
additional 60 mcg dose), but in the at-home setting and focusing on safety only. However, because the trial did not meet its
primary efficacy endpoint using this 60 mcg dose in Part I, we paused continuation of Part II of the study pending feedback
from the FDA. We held a Type C meeting on November 8, 2023 with the FDA to discuss changes to Part II of our
SERENITY III study. We proposed the evaluation of an 80 mcg dose based on previous clinical experience with this dose
during our Phase 1b trial in schizophrenia patients with agitation, and pharmacokinetic and pharmacodynamic modeling
suggesting that use of an 80 mcg dose of BXCL501 could provide an optimal balance between safety and efficacy for at-
home use. Based on feedback from the FDA during the meeting, we made the decision to evaluate a 120 mcg dose in the
at-home setting. The 120 mcg dose has already demonstrated efficacy based on the approved conditions of use for
IGALMITM (when administered under the supervision of a healthcare provider, for a single agitation episode), so we
sought further feedback from the FDA regarding the proposed design of this study amendment in a request for a follow-up
meeting with the FDA, which was held on March 6, 2024.
Based on the FDA’s feedback in advance of and during the March 6, 2024 meeting, we plan to move forward to
evaluate at-home use of the 120 mcg dose of BXCL501, with safety as the primary objective and efficacy measures as
exploratory endpoints to support continued efficacy in the at-home setting as recommended by the FDA in the November
8, 2023 meeting, for the acute treatment of agitation in bipolar disorders or schizophrenia. We also plan to conduct a
clinical study designed to enroll approximately 30 patients to evaluate the correlation between patient-reported or
informant-reported efficacy with trained rater-reported efficacy using PEC measurements, which the FDA had previously
recommended.
IGALMITM is already approved at the 120 mcg dose based on efficacy data that we previously generated in treating a
single episode of agitation. Consistent with the data generated to date, the label for IGALMITM currently includes a
limitation on use (“LOU”), noting the lack of efficacy or safety data beyond 24 hours following the first dose. During our
March 6, 2024 Type C meeting with the FDA, we discussed, among other things, whether evaluating the at-home use of
BXCL501 120 mcg, with safety as the primary objective and efficacy measures as exploratory endpoints, if successful,
could support the submission of an sNDA seeking expansion of the current label for IGALMITM 120 mcg to allow at-home
use and labeling without the current LOU. Based on FDA feedback, we believe that our ability to seek labeling without the
current LOU will depend, in part, on the number of agitation episodes we observe during our planned study period. We
plan to provide further guidance regarding our plans for the SERENITY program following receipt of the final meeting
minutes from the FDA.
Adjunctive treatment in Major Depressive Disorder (“MDD”)
We were previously evaluating BXCL501 as an adjunctive treatment for MDD. The initial clinical study in this
program was a double-blind, placebo-controlled, multiple ascending dose (“MAD”) trial to evaluate the safety and
tolerability of daily doses of BXCL501 in healthy volunteers.
On May 16, 2023, we reported positive topline results from a MAD study. It enrolled 125 healthy adult volunteers
across seven different cohorts in a 2:1 randomization to BXCL501 or placebo film. Healthy volunteers were dosed for 7
consecutive days. Both safety and pharmacokinetics were assessed. The study included 7 cohorts. Four distinct cohorts
received 30 mcg, 60 mcg, 80 mcg, or 120 mcg doses of BXCL501 or placebo once daily. Two additional dosing cohorts
received twice-daily (BID) BXCL501 at either 30 mcg in the morning and 60 mcg in the evening, or 40 mcg in the
morning and 80 mcg in the evening. The final escalation cohort evaluated BXCL501 at 60 mcg in the morning and 80 mcg
in the evening in combination with 30 mg of duloxetine BID. BXCL501 was generally well tolerated across all dosing
cohorts. Based upon pre-specified stopping criteria, a maximum tolerated dose was not reached. All adverse events were
reported as mild or moderate.
As part of the Reprioritization announced on August 14, 2023, we have paused our plan to develop a Phase 2 human
proof-of-concept trial design to investigate BXCL501 as a potential adjunctive treatment and its potential accelerant effect
in combination with first-line selective serotonin reuptake inhibitors or serotonin-norepinephrine reuptake inhibitors.
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Pediatric Study
In June 2021, we initiated a global clinical trial designed to evaluate the safety and efficacy of BXCL501 in the acute
treatment of agitation associated with pediatric schizophrenia and bipolar disorders, in part to fulfill pediatric study
requirements agreed to with the FDA in connection with the approval of IGALMITM. The trial protocol has been reviewed
by the FDA, as well as by the European Medicines Agency, to fulfill potential commitments to study the effects of
BXCL501 in pediatric patients ages 13 to 17 with schizophrenia and ages 10 to 17 with bipolar disorders. Enrollment of
patients with schizophrenia, schizoaffective disorder, bipolar I, and bipolar II disorder is ongoing in this multisite, double-
blind, placebo-controlled parallel group trial. Approximately 54% of the 150 total subjects have been enrolled in the U.S.
and 81 of such subjects have completed the clinical trial. In July 2023, we stopped activities in the European region as
enrollment and site recruitment was unproductive. Similar to our registration trials in schizophrenia and bipolar disorder
(SERENITY I and II), the primary endpoint is the change from baseline PEC total score at two hours. The U.S. portion of
this program remains active following the Reprioritization.
Additional Neuroscience Opportunities
BXCL501 Pipeline Opportunities for Franchise Expansion
Given the differentiated design of BXCL501 and its selective mechanism of action, we believe BXCL501 has the
potential for broad applicability across several indications where agitation is a symptom of a condition or underlying
disease.
Government-Supported Investigator-Initiated Trial Programs
The Company has been awarded key opportunities for the development of BXCL501 in post-traumatic stress disorder
(“PTSD”), alcohol use disorder (“AUD”), and opioid use disorder (“OUD”). These are being funded through Cooperative
Agreements with the U.S. Department of Defense Congressionally Directed Medical Research Program and National
Institute on Drug Abuse (“NIDA”). Clinical and regulatory responsibilities are led by clinical researchers and regulatory
staff at the Veterans Affairs Connecticut Healthcare System, Yale University Medical School, RTI International, Columbia
University New York State Psychiatric Institute, and NIDA. The Company has retained all rights to commercialization of
BXCL501 in all potential indications evaluated in clinical trials supported by the U.S. government.
Opioid Use Disorder Program
As previously announced, NIDA awarded a grant to Columbia University to fund clinical testing of BXCL501 as a
potential treatment for opioid withdrawal in patients diagnosed with OUD. The original 160-patient, three-site, four-
arm study is a randomized, double-blind, double-dummy inpatient study comparing BXCL501 (180 mcg and 240 mcg
BID), lofexidine (as a positive control), and placebo. The study’s goal is to evaluate the safety and efficacy of BXCL501
relative to lofexidine and placebo in subjects with OUD. A majority of OUD patients participating in the study are
anticipated to be exposed to fentanyl adulterated or associated with xylazine. To date, all three initial sites have recruited,
enrolled, and dosed patients diagnosed with OUD who are physically dependent on opioids, including prescription opioids.
The Company is supplying the drug product for the conduct of this study, which is sponsored by Columbia University. We
expect that the results from current study will be used to select a recommended dose of BXCL501 to compare to placebo in
a later outpatient Phase 3 study sponsored by NIDA.
On November 6, 2023, we announced that NIDA has requested Columbia University, the trial coordinator, to add a
fourth site to target trial completion in 2024. The patient screening and enrollment process for the fourth site commenced in
March 2024. Pending favorable results, after completion of the trial, we plan to seek FDA feedback on potential
registrational paths.
Alcohol Use Disorder with Comorbid Post-traumatic Stress Disorder Program
In December 2020, the Veterans Affairs Connecticut Healthcare System and Yale University Medical School were
awarded a grant by the U.S. Department of Defense’s Congressionally Directed Medical Research Program with the
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overall objective to evaluate BXCL501 in patients who suffer from AUD with comorbid PTSD. The Company provided
BXCL501 for the inpatient Alcohol Interaction Study, which has been completed. We understand Yale is currently seeking
approval from its IRB and allowance from the FDA to proceed with a trial evaluating the effects of up to 80 mcg BID of
BXCL501 per day for 28 days on alcohol consumption, PTSD symptoms, cognitive function, memory, sleep, and mood in
patients diagnosed with mild, moderate, or severe AUD and who meet Criterion A for comorbid PTSD. The new outpatient
study has received funding approval from the Pharmacotherapies for Alcohol and Substance Use Disorders Alliance
(funded through a Cooperative Agreement between the U.S. Department of Defense Congressionally Directed Medical
Research Program and RTI International). We believe the results from this study will be used to inform a Phase 3 study
intended to commence with support by the alliance.
Algorithms for Wearable Technologies
The Company completed a healthy volunteer study designed to train an algorithm to detect a state of hyper-arousal,
which often precedes agitated behaviors. In hyper-aroused healthy volunteers, robust signals were measured using
wearable technology (phones and watches). As part of the Reprioritization announced on August 14, 2023, we
deprioritized our plan to develop wearable technology.
BXCL502 Development
We identified a second neuropsychiatric drug candidate, BXCL502 − Latrepirdine (Dimebon) − through our AI-based
platform. We plan to evaluate BXCL502 initially as a monotherapy and possibly in combination with BXCL501 for the
chronic treatment of agitation in patients with dementia and acute stress disorder. The active pharmaceutical ingredient
(“API”) underlying BXCL502 is designed to affect serotonergic signaling in the brain. Our preclinical data suggests
BXCL502 has the potential to treat stress-related neuropsychiatric symptoms in dementia and other stress-related disorders.
In previously published third-party clinical trial data, daily administration of the API of BXCL502 demonstrated
improvement in behaviors using a well-established, clinically validated symptom scale. Formulation and further clinical
development planning are currently under way with BXCL502 and are expected to continue in 2024.
Other Product Candidates Leveraging the AI Platform
We are targeting neuropsychiatric disorders with high unmet medical needs. Our focus is on treating stress-related
symptoms, such as agitation, that are responsible for increased levels of healthcare burden. We are also using AI
approaches and machine learning to identify new candidates for rare neurological diseases and to re-innovate late-stage
drug candidates, such as BXCL503, targeting apathy in dementia, and BXCL504, targeting aggression in dementia.
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 we believe can enter the clinic with the potential for an efficient development path
(similar to BXCL501). We are also developing an AI-based research and development platform to help identify potential
product candidates and indications across a range of treatment areas.
Neuroscience Competition
The pharmaceutical and biotechnology industries are characterized by rapidly advancing technologies, intense
competition, and a strong emphasis on proprietary products. The neuroscience and rare disease segments of the industry 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, 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
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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 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 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, more effective, more convenient, less expensive, or have fewer or less severe side effects than any medicines
we may develop. Our competitors also may obtain FDA or other regulatory approval for their medicines more rapidly than
us, 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 indications that we are
pursuing, and additional generics are expected to become available over the coming years. We expect that any of our
therapeutic product candidates that are approved 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. IGALMITM and any of our other product candidates that are approved, if
any, will compete with the drugs discussed below, in addition to any other drugs currently in development.
Drugs used for the acute treatment of agitation related to schizophrenia and bipolar disorder are antipsychotics
frequently administered via IM injection that typically requires patient restraint. These include IM aripiprazole, olanzapine,
ziprasidone, and haloperidol. Oral products include the sublingually administered atypical antipsychotic asenapine, as well
as benzodiazepines, lorazepam, and midazolam. The typical antipsychotic Adasuve® (loxapine) from Alexza is delivered
via inhalation.
Neuroscience Manufacturing
We do not have manufacturing facilities. We currently rely on strategic manufacturing partners, in particular ARx,
LLC (“ARx”), and expect to continue to rely on third parties for the manufacture of our product candidates for clinical
research and our products for commercialization efforts. ARx has agreed to exclusively manufacture and supply all of our
worldwide supply of film formulation of dexmedetomidine to be used for the commercial supply of IGALMITM and for
ongoing clinical trials of BXCL501, subject to certain alternative supply provisions.
BXCL501 drug product is manufactured using commercially available components and packaging materials. The
equipment employed for manufacture and analysis is consistent with standard pharmaceutical production.
Neuroscience Commercialization
We plan to retain worldwide commercialization rights for IGALMITM and other approved product candidates, if any,
but could consider collaboration opportunities to maximize returns or facilitate commercialization efforts in foreign
jurisdictions. For additional information regarding our commercialization efforts for IGALMITM, see above under
“IGALMITM Commercial Progress.”
As product candidates advance through our pipeline, our commercialization plans may change. Clinical data, the size
of the development programs, the size of the target market, the required commercial infrastructure, and manufacturing
needs may all influence global commercialization strategies.
Neuroscience 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 U.S. and other jurisdictions related to our
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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, maintain, and strengthen 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.
We have multiple patent families filed to protect our Neuroscience program, including BXCL501. As of March 15,
2024, our neuroscience patent portfolio included two Patent Cooperation Treaty (“PCT”) applications not yet in national
phase, 19 U.S. utility applications, seven U.S. provisional applications, one allowed US application, ten issued U.S. utility
patents, 112 pending non-U.S. utility applications, 18 allowed or granted non-U.S. patents (including three in Japan), one
pending U.S. design patent application, and 34 allowed or registered design patents (including two in Japan). Eight U.S.
utility patents, directed to our proprietary sublingual film formulation of Dex and methods of treating agitation, are now
listed in the FDA’s Approved Drug Products with Therapeutic Equivalence Evaluations (commonly known as the “Orange
Book”) for IGALMI™ with expiration dates between 2039 and 2043. In the formulation family, we also have a granted
patent in China, two granted patents in Eurasia, and pending applications in the U.S., China, and other major markets. We
expect that patents issued in this family 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 U.S., Europe and Japan directed to
methods of treating insomnia using sublingual Dex. We expect that patents issued from these applications, if any, will
expire no earlier than 2035. We also have applications filed in 16 regions/countries, including the U.S., Europe, Japan, and
China, directed to methods of treating agitation. We expect that patents issued from these applications, if any, will expire
between 2039 and 2043. We also have one PCT application directed to treating mania and another to treating depression. If
patents are issued from those cases, we expect them to expire no earlier than 2041 and 2042, respectively.
In March 2024, the Company announced that the European Patent Office granted the Company’s European Patent No.
3,562,486 (the “’486 patent”), which covers the use of dexmedetomidine administered sublingually to treat agitation in
individuals with dementia. The ‘486 patent encompasses a broad range of dosage forms, including films such as BXCL501
(sublingual dexmedetomidine), wafers, and tablets, at dexmedetomidine doses ranging from 3 mcg to 100 mcg. The ‘486
patent will expire no earlier than December 29, 2037.
In February 2024, the Company announced that the United States Patent and Trademark Office (“USPTO”) had
allowed U.S. Patent Application No. 17/496,470 with claims pertaining to a method of treating agitation in patients with
Alzheimer’s disease using the oromucosal administration of 60 mcg of dexmedetomidine in a water-soluble dosage form.
The broad claims encompass film formulations such as BXCL501 (sublingual dexmedetomidine), tablets, or wafers. The
patent, when issued, is expected to have an expiration date of December 29, 2037, subject to patent term adjustment
(“PTA”), patent term extension (“PTE”) and terminal disclaimers.
In February 2024, the Company also announced the USPTO issued U.S. Patent No. 11,890,272 (the “'272 Patent”) on
February 6, 2024. The '272 Patent claims a method of treating agitation associated with schizophrenia or bipolar disorder
through oromucosal administration of about 120 mcg to about 180 mcg of dexmedetomidine where the patient has a QT
interval of less than 470 msec. The '272 Patent has an expiration date of July 17, 2040, subject to PTA, PTE and terminal
disclaimers. The '272 Patent has been accepted for listing in the FDA Approved Drug Products with Therapeutic
Equivalence Evaluations (commonly known as the “Orange Book”).
In February 2024, the Company also received notice that the USPTO had allowed U.S. Patent Application No.
18/216,890 with claims pertaining to a method of treating agitation using an oromucosal formulation of dexmedetomidine
or a pharmaceutically acceptable salt thereof through the administration of an initial dose of 60 mcg, 80 mcg, 90 mcg, 120
mcg or 180 mcg of dexmedetomidine and, after at least two hours, administering an oromucosal formulation of
dexmedetomidine or a pharmaceutically acceptable salt thereof in a second dose of 40 mcg, 60 mcg, 80 mcg or 90 mcg of
dexmedetomidine, where the patient has a QT interval of less than 470 msec. The patent, when issued, is expected to have
an expiration date of July 17, 2040, subject to PTA, PTE and terminal disclaimers. The Company expects that this patent,
when issued, will be submitted for listing in the Orange Book with the eight currently listed U.S.
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patents for IGALMI™ (dexmedetomidine) sublingual film. Collectively, these nine patents will in general extend patent
protection for IGALMITM until January 12, 2043.
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 U.S., 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 U.S. patent
that we own or license may be eligible for limited patent term extension under the Drug Price Competition and Patent Term
Restoration Act of 1984 (a.k.a., the “Hatch-Waxman Act”). The 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 new drug application (“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 patent expiration. The USPTO, 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 term of a patent can also be extended by Patent Term Adjustment (“PTA”) established in 35 U.S.C. 154(b). The
intention of the PTA is to accommodate for delays caused by the USPTO during the prosecution of a US utility or plant
patent application. Under PTA, the USPTO delay is divided into three types: type A (delays after 14 months from the filing
date of the application until the USPTO issues a first Office Action and delays after four months from the filing of certain
actions by the applicant until the USPTO responds to such actions); type B (delays after three years from the earliest
effective filing date until a patent is granted); and type C (delays due to interferences, secrecy orders, and successful
appeals). The total amount of PTA is calculated by adding the types A, B, and C delays, and then subtracting any delay that
is overlapped among three types or that is attributable to the applicant.
The term of a patent can also be shortened by a terminal disclaimer. A terminal disclaimer is a statement filed by a
patent owner in which the owner disclaims or dedicates to the public the terminal part of the term of a patent. Often, the
terminal disclaimer is filed in cases where at least one claim of a pending application would have been obvious in light of
at least one claim in an earlier-filed patent, (or non-statutory obviousness-type double patenting rejection).
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 U.S. patent laws and their interpretation outside of the U.S. are also uncertain.
Changes in either the patent laws or their interpretation in the U.S. 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.
In addition, if a pending patent application is granted, it is possible that only a subset of the claims that are currently
contained in the pending patent application will be issued. Further, the coverage claimed in a patent application can be
significantly reduced before the patent is issued, and its scope can be reinterpreted after issuance. 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 similar technologies outside the scope of the rights granted under any issued
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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. For additional information regarding intellectual property regulations and risks,
see below under “Immuno-Oncology Intellectual Property” and Part I, Item 1A, “Risk Factors - Risks Related to Our
Intellectual Property.”
Immuno-Oncology
On April 19, 2022, we announced the formation of a wholly owned subsidiary, OnkosXcel to develop potentially
transformative medicines in oncology. OnkosXcel uses proprietary AI capabilities to drive the capital-efficient
development of innovative anti-cancer therapeutics. On March 14, 2023, we announced that OnkosXcel had confidentially
submitted a draft registration statement on Form S-1 with the SEC relating to the proposed initial public offering of its
common stock following its conversion into a corporation. The Company is continuing to evaluate strategic options for
OnkosXcel. With the Company’s Reprioritization announcement on August 14, 2023, further work on the immuno-
oncology programs described below have generally been paused, except as noted below.
Our approach to drug discovery leverages the application and methodology of our proprietary AI-based research and
development platform, complemented by EvolverAI, utilized in the successful development of IGALMITM with the aim of
efficiently identifying and developing immuno-oncology product candidates. We believe that BXCL701 reflects the
potential of this discovery approach in immuno-oncology. BXCL701 is an investigational, oral innate immune activator
which demonstrated a 25% composite response rate in a Phase 2a clinical trial to treat patients with small cell
neuroendocrine (“SCNC”)-phenotype metastatic castration-resistant prostate cancer (“mCRPC”). On February 12, 2024,
the Company announced that the FDA has designated as a Fast Track development program the investigation of BXCL701
in combination with a checkpoint inhibitor for the treatment of patients with metastatic SCNC with progression on
chemotherapy and no evidence of microsatellite instability. We intend to finalize a potential registrational trial design in
mCRPC patients with SCNC phenotype following planned meetings with the FDA in the first half of 2024. However, the
start of any such trial is paused following our Reprioritization.
mCRPC is often characterized as a “cold” tumor, which is a tumor with an immunosuppressive tumor
microenvironment (“TME”) and poor immune cell infiltration. Currently approved checkpoint inhibitors (“CPIs”) that
target programmed cell death 1 (“PD-1”) or cytotoxic T-lymphocyte-associated protein 4 (“CTLA-4") have failed to
demonstrate meaningful single-agent activity against such difficult-to-treat tumor types, including mCRPC. BXCL701 is
designed to promote an immune-induced inflammatory response in the TME primarily via inhibition of dipeptidyl
peptidases (“DPP”) 8 and 9, which we believe can provide enhanced CPIs therapeutic utility. We believe BXCL701 can
potentially provide significant benefits for the approximately 20% of the estimated 299,010 men who will be diagnosed
with prostate cancer in the U.S. in 2024 and are expected to progress to the more aggressive mCRPC form of the disease,
including approximately 20%, or 11,960, of those patients who develop the SCNC phenotype, for which there are currently
limited treatment options. Immune checkpoints represent a myriad of inhibitory pathways that act to regulate the duration
and intensity of an antigen-induced immune response and factor prominently in mediating immune tolerance. They
function as critical gatekeepers that prevent the indiscriminate attack of normal host cells by components of the immune
system. Certain cancers co-opt these pathways and overexpress immune checkpoint molecules to camouflage themselves to
avoid detection and destruction. CPIs, designed to harness the intrinsic power resident in the immune system, work by
disabling the suppressive function of immune checkpoints, allowing the immune system to bypass such cancers’ shield of
immune tolerance. CPIs are expected to generate sales of more than $50 billion worldwide by 2025, up from sales of
approximately $29 billion in 2020. While CPIs have proven to be a significant advancement in cancer therapy, those
currently approved by the FDA do not produce meaningful results in a majority of patients, as the clinical benefit is
generally viewed to be limited to between 13% and 30% of cancer patients, and the duration of response is relatively short.
We believe the limited efficacy of approved CPIs results primarily from their intervention at later stages of the immune
response. As a result, other targets and pathways can be exploited by the tumor to create a TME that can evade the
enhanced immunological response enabled by approved CPIs. While numerous agents designed to target the earlier stages
of an immune response are in development for use in combination with CPIs, their activity is restricted to a single
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component of the immune response. In contrast, we have developed BXCL701 to simultaneously address multiple
components of the immune response, including:
● Cancer antigen presentation by dendritic cells: stimulation of dendritic cell trafficking to tumor draining lymph
nodes.
● Priming and activation of T cells: acceleration of tumor-induced priming of T cells and the formation of potent
cytotoxic T lymphocytes (“CTLs”).
● Infiltration of immune cells into the tumor: stimulation of release of chemokines that attract effector T cells but
block regulatory T cells, and also induce NK cell and neutrophil migration.
● Killing of tumor cells: induction of formation of CTLs and NK cells expressing tumor-killing perforins and
granzymes, as well as the formation of memory T cells that can selectively kill returning tumor cells.
Accordingly, we believe BXCL701 may have utility in stimulating increased activation, proliferation, and infiltration
of tumor cells by immune effector cells, enabling its potential application in combination with currently approved CPIs,
across a range of solid tumors and hematological malignancies, to potentially:
● Convert immunological cold tumors into ones sensitive to CPIs;
● Enhance hot tumors’ response rate and depth of response to CPIs; and
● Restore CPI sensitivity to tumors that were previously responsive.
Central to our drug discovery initiatives are proprietary, AI-driven platform technologies we employ to identify novel
therapeutic uses for approved therapeutics and candidates in clinical evaluation. The first and most advanced of our AI-
driven discovery programs is our innate immune modulation program, which supported the pursuit of BXCL701 as a
development candidate. We believe the application of this program provides us actionable insights into the inflammasome,
a component of the innate immune system responsible for activation of the inflammatory response. We are working to
develop our second AI-driven product candidate, BXCL702, by leveraging our innate immunity modulation program via
re-innovation or in-licensing and we intend to nominate a candidate by 2025.
Our Immuno-Oncology Programs
Below is a summary of the status of our immuno-oncology clinical development programs as of the date of this
Annual Report on Form 10-K. We believe our product candidates, if successfully developed and approved, have the
potential to become compelling treatment options for their respective indications. With our Strategic Reprioritization
announcement on August 14, 2023, further work on our immuno-oncology program has been paused, other than as noted
below.
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An Overview of the Immune System
The immune system is a host defense system comprised of multiple structures and processes within an organism that
protects against disease. As with other mammalian species, the human immune system is comprised of the innate immune
system and the adaptive immune system. The innate immune system involves an immediate, non-specific response to
infected or diseased cells. Triggering its activation are pathogen-associated and damage-associated molecular patterns
recognized by pattern-recognition receptors, which reside on the surface of various types of leukocytes, or white blood
cells, making up the innate immune system including phagocytes, eosinophils, and natural killer cells. The innate immune
response also participates in promoting activity of the adaptive immune system.
The adaptive immune system is made up of special types of leukocytes known as T and B lymphocytes, or T cells and
B cells, respectively. T cells participate primarily in the cell-mediated immune response while B cells are involved in the
humoral immune response. T lymphocytes can be further segregated into distinct cell types, with the primary types being
CD8, or cytotoxic, T cells and CD4 T cells. CTLs directly eliminate cells that are infected with viruses or other pathogens
or are otherwise damaged or dysfunctional. Anti-cancer activity is primarily CD8 T cell mediated. CD4 T cells, which have
limited cytotoxic activity, mediate the activity of other cells to eliminate pathogens. Activation of a resting CD4 T cell
causes it to release cytokines that influence the activity of an array of cell types. Cytokines released by activated Type 1
CD4 T cells enhance the microbicidal activity of macrophages and the activity of CD8 T cells.
A critical capability of the immune system is its ability to distinguish between healthy, functioning host cells and either
non-self-infectious agents or damaged or dysfunctional host cells. The ability to differentiate between these entities is the
central feature of immune tolerance. A significant limitation of currently approved therapeutics against endogenous
diseases such as cancer is the inability to overcome host immune tolerance and elicit a strong, target-specific immune
response while avoiding off-target complications.
Immune Tolerance and the Role of Immune Checkpoints
The immune system’s ability to distinguish between a normal, healthy cell and an infected, damaged, dysfunctional, or
cancer cell is accomplished through an immunological selection process that occurs in the thymus during early
development. Antigen specific immune cells, such as T cells, B cells and NK cells, which recognize molecular markers
originating from normal, healthy tissues are eliminated in the thymic medulla to avoid possible autoimmune consequences
through a negative selection process. This results in the suppression of immune effector cell activation and proliferation.
Immune checkpoints represent a myriad of inhibitory pathways that act to regulate the duration and intensity of antigen-
induced immune responses and factor prominently in mediating immune tolerance. A number of
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checkpoint molecules have been identified and studied in cancer therapy in the past decades. Two of the more well-
characterized immune checkpoint molecules are CTLA-4 and PD-1, and its related ligand, PD-L1.
As key regulators of the immune system, immune checkpoints are critical gatekeepers that prevent the indiscriminate
attack of normal host cells by components of the immune system. Their suppressive function usually depends on ligand-
induced signaling, with protein structures on the surface of immune effector cells binding to complementary molecular
structures on partnered cells. This signaling not only dampens the generation of co-stimulatory cytokines instrumental in
triggering and sustaining a robust immune response, such as interleukin 2 and interferon gamma, but also results in an
upregulation of regulatory T cells, which acts to further suppress immune effector cell activity. These factors bias the
immune response towards anergy and senescence rather than activation and proliferation. Certain tumors co-opt these
pathways and overexpress immune checkpoint molecules on their cell surface to camouflage themselves to evade detection
and destruction by the immune system.
Immunotherapy and the Emergence of Checkpoint Inhibitors
Cancer immunotherapy, designed to harness the intrinsic power resident in the immune system by modulating immune
cell function, has proven to be a major advancement in cancer treatment. Immune CPIs have emerged as one of the most
promising classes of cancer immunotherapy. CPIs work by disabling the inhibitory function of immune checkpoint
proteins. Disabling immune checkpoints allows the immune system to bypass the shield of immune tolerance the
checkpoints provide, allowing the tumor-directed immune effector cells to engage the tumor. Seven CPIs targeting
PD1/PD-L1 and CTLA-4 have been approved by the FDA to treat more than a dozen different types of cancer. CPIs
directed towards other validated checkpoints, including lymphocyte activation gene 3 and T cell immunoreceptor with
immunoglobulin and ITIM domain have recently been approved or are advancing through clinical development. These
CPIs are largely involved in modulating the activity of the adaptive immune system. Immune checkpoint molecules, such
as CD47, which regulate responses mediated by the innate immune system, are also under evaluation as potential
therapeutic targets for checkpoint inhibition. CPIs across a spectrum of cancer types are expected to generate sales of more
than $50 billion worldwide by 2025, up from sales of $29 billion in 2020.
Limitations of Current Approaches
While CPIs have proven to be a significant advancement in cancer therapy, those currently approved by the FDA do
not produce meaningful results in a majority of patients: clinical benefit is generally viewed to be limited to between 13%
and 30% of cancer patients and the duration of response to treatment is often short. CPIs require the infiltration of anti-
tumor CD8 T cells for therapeutic activity, and patients whose tumors are characterized by a TME that lacks activated
TILs, typically fail to respond to therapy. Moreover, the expression of positive costimulatory signals is critical to the
amplification and diversification of a TIL-based response following initial activation, without which treatment durability is
limited. We are focused on advancing therapeutic candidates designed to overcome these challenges and
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enhance the sensitivity of immunologically inaccessible, or cold, tumors to an efficacious immune response. The chart
below shows the single agent objective response rate (“ORR”) of CPIs by different cancer types and clinical trial.
Immuno-Oncology Clinical Trials
Leveraging the insights enabled by the application and methodology of our proprietary AI-based platform
complemented by EvolverAI, which was used to identify novel therapeutic uses for our approved therapeutics and product
candidates in clinical evaluation, and our industry expertise, we are pursuing two proprietary discovery programs to
advance our goal of developing anti-cancer therapeutics. The first program, which encompasses BXCL701 across a range
of indications, is based on the application of innate immune modulation technology. This program has been constructed to
embrace key distinguishing characteristics of the innate immune system and we believe it is supported by our development
efforts. This approach has driven the development of BXCL701, which we are currently evaluating in a Phase 1b/2a
clinical proof-of-concept trial as a potential treatment for mCRPC with either SCNC or adenocarcinoma phenotype.
Fundamental to the innate immune modulation program is BXCL701’s potential to:
● Convert cold tumors into ones sensitive to CPIs;
● Enhance hot tumors’ response rate and depth of response to CPIs; and
● Restore CPI sensitivity to tumors which had previously been responsive.
BXCL701 Innate Immune Activator
BXCL701 is an oral small molecule inhibitor of a class of enzymes called DPPs, specifically DPP8/9 and DPP4.
Inhibition of DPP8/9 initiates activation of the inflammasome and ultimately activation of the innate immune system. Key
characteristics of BXCL701 include:
● Orally bioavailable, potentially sole inhibitor of both DPP8/9 and DPP4, key regulators of the inflammasome
directed innate immune response, currently in clinical development for cancer.
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● Novel proposed mechanism of action may complement CPIs activity, enabling therapeutic access to
immunologically cold tumors as well as other difficult-to-treat cancers, including relapsed or refractory tumor
types.
● Phase 2 clinical proof-of-concept achieved in treating mCRPC patients with either adenocarcinoma or SCNC
phenotype.
The initial focus on mCRPC with SCNC phenotype is designed to provide for a more efficient clinical development
pathway than current industry standards.
BXCL701 as a Potential Treatment for mCRPC
Prostate cancer is the most common malignancy and the second-leading cause of cancer-related deaths in men in the
U.S. According to the American Cancer Society, approximately 299,010 men will be diagnosed with, and 35,250 men will
die of, prostate cancer in 2024. The majority of these cases are classified as adenocarcinomas and involve low risk,
localized or regional disease for which the five-year survival rate ranges from 60% to 99%. However, an estimated 20% of
these newly diagnosed cases will progress to the more aggressive metastatic disease. The five-year survival rate for men
with metastatic prostate cancer drops significantly, to approximately 30%. Approximately 20% of patients with mCRPC
will develop the SCNC phenotype, which is characterized by poor prognosis and low survival rate with a five-year life
expectancy of 14%.
Prostate function requires the presence of various androgens, such as testosterone. Early cancerous prostate cells
typically also require androgens to proliferate. Accordingly, aggressive forms of prostate cancer can initially be treated
using androgen deprivation therapy (“ADT”). While ADT offers temporary therapeutic benefit, in almost all patients the
treatment eventually loses efficacy, referred to as “castration resistance.” Cases of castration-resistant prostate cancer
(“CRPC”) are generally treated with a second-generation androgen receptor (“AR”) inhibitor, such as XTANDIâ
(enzalutamide), or an androgen synthesis inhibitor, such as ZYTIGAâ (abiraterone), which targets the enzyme CYP17 to
block the production of testosterone. These therapeutics have widely become the standard of care, though only ZYTIGA
has been approved to treat mCRPC, as well as metastatic high-risk castration-sensitive prostate cancer. XTANDI has been
approved to treat CRPC and metastatic castration-sensitive prostate cancer.
Virtually all patients who initially respond to ZYTIGA and XTANDI are expected to progress to even more aggressive
forms of prostate cancer requiring further treatment. Patients whose disease has progressed after treatment with these
second-generation targeted endocrine therapies are administered a docetaxel containing drug regimen that provides a
survival benefit of only 10 months. The poly-ADP ribose polymerase (“PARP”) inhibitors LYNPARZAâ (olaparib) and
RUBRACAâ (rucaparib) are approved for the treatment of mCRPC in patients whose disease has progressed after receiving
XTANDI or ZYTIGA, but their approval is limited to instances of mCRPC linked to a BRCA gene mutation. As such, an
unmet medical need remains for patients with mCRPC who are not eligible for PARP inhibitor treatment after treatment
with the targeted endocrine therapy and docetaxel.
In addition, a number of men, both newly diagnosed patients and men whose disease has progressed after second-
generation targeted endocrine therapy, will develop an aggressive tumor that typically expresses very little AR and
accordingly does not respond to therapeutics targeting the AR signaling pathway. Prostate cancer with this phenotype is
referred to as SCNC, for which there is currently no effective treatment. The incidence of SCNC is increasing with the
widespread use of AR inhibitor therapy. Treatment protocols for patients with SCNC typically involve cytotoxic
chemotherapies despite their short duration of response and considerable toxicities. These patients represent an additional
unmet medical need among men with prostate cancer. We believe BXCL701 may prove efficacious in addressing the unmet
needs of both adenocarcinoma and SCNC prostate cancer phenotypes.
mCRPC is often characterized as a cold tumor, or a tumor with an immunosuppressive TME and poor immune cell
infiltration. Currently approved CPIs, which target PD-1 and CTLA-4, have not demonstrated significant single-agent
therapeutic activity. For instance, a Phase 2 investigator sponsored trial (“IST”) to assess the efficacy of the PD-L1
inhibitor avelumab, marketed by EMD Serono and Pfizer as BAVENCIO â, to treat mCRPC with SCNC phenotype, as well
as aggressive variant prostate cancer with adenocarcinoma histology, generated an ORR of 6.7% (representing 1 of 15
patients who was known to be microsatellite instability-high, an established marker of response to CPIs).
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We believe the limited efficacy of CPIs results primarily from their intervention at later stages of the immune response.
As a result, other targets and pathways can be exploited by the tumor to create a TME that can evade the enhanced
immunological response enabled by approved CPIs. BXCL701 is designed to act on multiple components of immune
system functioning, including:
● Cancer antigen presentation by dendritic cells: stimulation of dendritic cell trafficking to tumor draining lymph
nodes.
● Priming and activation of T cells: acceleration of tumor-induced priming of T cells and the formation of potent
CTLs.
● Infiltration of immune cells into the tumor: stimulation of release of chemokines that attract effector T cells but
block regulatory T cells and also induce NK cell and neutrophil migration.
● Killing of tumor cells: induction of formation of CTLs and NK cells expressing tumor-killing perforins and
granzymes as well as the formation of memory T cells that can selectively kill returning tumor cells.
We believe BXCL701 may have utility in stimulating increased activation, proliferation, and infiltration of tumor cells
by immune effector cells, enabling its potential use in combination with currently approved CPIs to treat cold tumors, such
as mCRPC. We elected to pursue mCRPC as an indication for BXCL701 due to its enrichment for DPP mutations, which
are especially prevalent in tumors with SCNC phenotype.
BXCL701 is being evaluated in a Phase 1b/2a clinical proof-of-concept trial that we are sponsoring to investigate its
potential efficacy when used in combination with pembrolizumab. Enrollment in this trial is complete.
We received initial comments from the FDA on our proposed clinical development plan, and we plan to meet with the
FDA in an End-of-Phase 2 meeting in the first half of 2024 to discuss the development path forward. However, the start of
any such additional trial is paused following the Company’s Reprioritization. The Phase 1b portion of our Phase 1b/2
clinical trial was a dose escalation safety lead-in which employed a standard 3 x 3 trial design to determine the
recommended Phase 2 dose (“RP2D”). During each 21-day treatment cycle, 200 mg of pembrolizumab were administered
intravenously on day one, with BXCL701 taken twice daily on days one through 14, for a minimum of two cycles. The
results of this Phase 1b trial, which were presented at The Society for Immunotherapy of Cancer’s 35th Anniversary Annual
Meeting, allowed us to identify 0.3 mg, taken twice daily, as the RP2D.
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The Phase 2a portion of the trial was segregated into two 28-patient trial cohorts, one cohort consisting of mCRPC
patients with SCNC phenotype and a second cohort consisting of mCRPC patients with adenocarcinoma phenotype.
Initially, we focused on mCRPC with SCNC phenotype as the primary patient population for BXCL701, since DPP9 is
amplified in approximately 17% of treatment-emergent mCRPC with SCNC phenotype, compared to 5% or less in the
broader prostate cancer population. However, we also observed responses in mCRPC patients with adenocarcinoma
phenotype who were microsatellite stable in the Phase 1b portion of the trial. On this basis, we widened our Phase 2a trial
to include relapsed mCRPC patients with either SCNC or adenocarcinoma phenotype. Both cohorts employed a Simon
two-stage trial design of 15 trial participants followed by 13 additional patients. The primary endpoint of the Phase 2a
portion of this trial was a composite response rate, determined as either a RECIST 1.1 response (defined as a reduction in
RECIST score of 30% or more), and/or a reduction in prostate specific antigen (“PSA”) level of 50% or more, and/or a
conversion in circulating tumor cells (“CTCs”) from 5 or more CTCs/7.5 milliliter (“ml”) to less than 5 CTCs/7.5 ml.
Secondary endpoints included duration of response, progression-free survival, overall survival, changes in circulating
cytokines, and certain disease-specific biomarkers.
We believe the results observed in the Phase 2a trial of BXCL701 administered in combination with pembrolizumab
support further development.
We were particularly encouraged by the results observed in the cohort consisting of mCRPC patients with SCNC
phenotype. Updated Phase 2a results for the SCNC cohort were presented at the 30th Annual Prostate Cancer Foundation
Scientific Retreat (PCF 2023). BXCL701 in combination with pembrolizumab demonstrated a 25% (seven out of 28
evaluable patients) composite response rate in mCRPC patients with SCNC phenotype, for whom there is no standard of
care. As of a data cutoff of September 6, 2023, five of these responders were RECIST 1.1 responders (four confirmed
responses and one unconfirmed response) with decreases in tumor size ranging from -45% to -67% and a median duration
of response of 7.6 months.
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AEs consistent with cytokine activation, including fever, nausea, chills, fatigue, headache, and dizziness were
observed during the trial and were generally mild to moderate. SAEs experienced by six trial participants - one patient
hospitalized with Grade 1 orthostatic hypotension, one patient hospitalized with Grade 3 hypotension and acute kidney
injury (“AKI”), which resolved, one patient with Grade 3 hypothyroidism which resolved, one patient with Grade 3 colitis,
one patient with Grade 3 generalized oedema, and one patient hospitalized with Grade 4/5 tumor lysis syndrome/AKI,
which resulted in fatality after the patient voluntarily discontinued dialysis - were reported as related or possibly related to
BXCL701 or pembrolizumab, though there was no evidence that BXCL701 potentiated immune-related AEs associated
with CPIs. The table below summarizes treatment-related AEs observed in the SCNC cohort as of December 19, 2022.
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On October 10, 2023, we reported positive overall survival (OS) results from the Phase 2a portion of the trial in SCNC
patients. BXCL701 in combination with pembrolizumab demonstrated a compelling median OS and 12-month survival
rate. As of a data cutoff of September 6, 2023, evaluable patients with SCNC (n = 28) showed a median OS of 13.6 months
(95% CI 10.9–NR), and a 12-month survival rate of 56.5%.
On February 12, 2024 the Company announced that the FDA designated as a Fast Track development program the
investigation of BXCL701 in combination with a checkpoint inhibitor for treatment of patients with metastatic SCNC with
progression on chemotherapy and no evidence of microsatellite instability.
The Phase 2a trial has also been completed for the adenocarcinoma cohort. Updated results for this trial cohort were
also presented at PCF 2023. BXCL701 in combination with pembrolizumab demonstrated a 21% (six out of 29 evaluable
patients) composite response rate in mCRPC patients with adenocarcinoma phenotype, for whom there are limited
treatment options. As of a cutoff date of September 6, 2023, five of these composite responders were RECIST 1.1
responders (four confirmed responses and one unconfirmed response) with decreases in tumor size ranging from -30% to
-99% and a median duration of response to 19 months.
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As of the cutoff date of December 19, 2022, the majority of AEs experienced by patients in the adenocarcinoma cohort
were low grade. AEs consistent with cytokine activation were observed, including fever, myalgia, nausea, chills, fatigue,
dyspnea, headache and dizziness. SAEs experienced by five patients (12%) were reported as possibly related to BXCL701
or pembrolizumab: two reports of hypotension; one report of dizziness; one report of peripheral edema; one report of
pyrexia; one report of Myasthenia Gravis; and one report of Cytokine Release Syndrome. Two patients (5%) discontinued
therapy due to AEs. There was no evidence that BXCL701 potentiated immune-related AEs related to CPIs. The table
below summarizes treatment-related AEs observed in the adenocarcinoma cohort.
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On November 8, 2023, we reported positive OS results from the Phase 2a portion of the trial in patients with
adenocarcinoma. As of a data cutoff of September 6, 2023, among evaluable patients with adenocarcinoma (n = 29)
BXCL701 in combination with pembrolizumab demonstrated a median OS of 15.5 months (95% CI 9.6–NR), and a 12-
month survival rate of 59.3%.
BXCL701 as a Potential Treatment for Small Cell Lung Cancer (“SCLC”)
The American Cancer Society estimates that in 2024, about 35,187 cases of SCLC will be diagnosed in the U.S.
Approximately 60-70% of these patients present with extensive disease, and first-line therapy for a majority of these
patients involves the combination of a CPI with platinum-based chemotherapy or etoposide.
We are encouraged by the therapeutic potential of BXCL701 for SCLC given the activity it has demonstrated in the
ongoing SCNC clinical trial. We are preparing the protocol for a Phase 1b/2 trial design to be a dose-escalation safety lead-
in to establish a RP2D. However, the start of any such trial is paused following the Reprioritization.
BXCL701 as a Potential Treatment for Other Cancers
In addition to its potential use in combination with CPIs to treat mCRPC, an immunologically cold tumor, we are
developing BXCL701 as a therapeutic for pancreatic cancer, and other solid tumors with greater, or “non-cold,”
immunological activity that are nonetheless regarded as difficult-to-treat, and hematological malignancies. We believe the
synergistic potential of BXCL701 and CPIs, when administered in combination, could increase cancer cell susceptibility to
an enhanced immune response, potentially increasing the clinical benefit of CPIs, whose single-agent efficacy in treating
these tumor types is generally viewed to be limited to between 13% and 30% of cancer patients and the duration of
response to treatment is often short. As such, we envision the potential therapeutic benefit of BXCL701 increasing the
sensitivity of cold tumors to CPI therapy, enabling the potential treatment of a range of cancers including pancreatic cancer,
breast cancer, colorectal cancer, and ovarian cancer, as well as enhancing the depth of response to CPIs in other cancers. In
addition, based on the preclinical observation that BXCL701 showed direct cytotoxic activity
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against certain leukemic cells, we have initiated clinical development targeting relapsed or refractory acute myeloid
leukemia (“AML”).
Pancreatic Cancer
The American Cancer Society estimates that in 2024, approximately 66,440 cases of pancreatic cancer will be
diagnosed in the U.S. We are supporting a Phase 2 IST sponsored by Georgetown Lombardi Comprehensive Cancer Center
(“Georgetown Lombardi”), designed to evaluate the use of BXCL701 along with pembrolizumab to treat pancreatic cancer.
Few therapeutic options are available for patients with this disease, which has a five-year survival rate of less than 10%,
among the lowest of all cancers. Pancreatic cancer has among the highest levels of overexpression and amplification of
DPPs. Preclinical models demonstrated synergy between DPP inhibition with BXCL701 and anti-PD-1 antibody in the
pancreatic cancer tumor microenvironment. Based on these preclinical observations, Georgetown Lombardi has initiated a
Phase 2 IST to assess the safety of BXCL701 when administered in combination with pembrolizumab (safety lead-in), as
well as to estimate the 18-week progression-free survival rate (primary objective of the efficacy phase) in previously
treated metastatic pancreatic ductal adenocarcinoma. This trial started in the third quarter of 2023. On February 6, 2024, we
announced the completion of patient enrollment in the safety lead-in portion of the trial. As part of the trial’s safety lead-in,
the first six patients have been enrolled and will be observed for a six-week safety window period. The trial is then
expected to enroll approximately 39 patients in its efficacy phase in a Simon 2-stage single-arm, open-label design (19
patients in stage 1 and 20 patients in stage 2). Patients will be monitored radiographically and by tumor markers for
response assessment. Tumor biopsies and blood samples will also be collected over the course of treatment to better
understand the potential mechanism of action for the combination. The human proof of concept portion of the trial is
expected to start in the first half of 2024.
Relapsed or Refractory AML
The American Cancer Society estimates that in 2024, about 20,800 new cases of AML will be diagnosed in the U.S.
We are supporting a Phase 1b IST sponsored by the Dana-Farber Cancer Institute (“Dana-Farber”) designed to evaluate the
use of BXCL701, along with the current standard of care to treat relapsed or refractory AML. We believe that pyroptosis
triggered by BXCL701 may provide potent single agent cytotoxicity directed towards AML. We also believe that DPP9
copy number may provide an actionable biomarker, as high copy number has been observed to correlate with BXCL701
toxicity in human AML cell lines. DPP8/9 inhibition has been shown to be cytotoxic to THP-1 cells, monocytic cancer
cells cultured from a patient with AML, but not other cell lines, suggesting a specific vulnerability of AML to these
inhibitors which we believe can be exploited for therapeutic benefit. Based on these preclinical observations, Dana-Farber
has initiated a Phase 1b trial to assess the safety of BXCL701 and to determine the maximum tolerated dose or the RP2D of
BXCL701 as a single agent. This trial started in the first quarter of 2023. Subject to successful completion of this Phase 1b
trial, we anticipate that Dana-Farber will conduct further studies to determine BXCL701's objective response rate in AML
in combination with the standard of care.
Other Potential Anti-cancer Programs
We collaborated with the University of Texas MD Anderson Cancer Center in a Phase 2a IST to evaluate the potential
efficacy of BXCL701 administered in combination with pembrolizumab in patients with advanced solid cancer. The design
of this open label trial included two cohorts and incorporated a two-stage configuration, which allowed for an expansion of
patient enrollment to a total of 17 patients in each cohort if a RECIST 1.1 complete response or partial response was
observed in at least one of the initial nine patients. The first cohort enrolled patients who previously had not received CPI
therapy, with a second cohort consisting of patients that were either refractory to CPI therapy or had relapsed while on CPI
therapy, meaning that no further response to CPI treatment is anticipated among patients in the second cohort. Trial
participants received 200 mg of pembrolizumab on day 1 of a 21-day cycle, with 0.2 mg of BXCL701 administered twice-
daily (“BID”) on days 1 through 7 during the first cycle, the dose increasing to 0.3 mg BID on Days 8 through 14 during
the first and the subsequent cycles. Evaluable trial participants were required to receive a minimum of two treatment
cycles. A preliminary assessment of BXCL701 dosed in combination with a CPI, as of completion of the first stage, noted
responses in one patient in each of the CPI naïve and CPI refractory/relapsed cohorts, including a partial response in CPI-
naïve, microsatellite stable endometrial carcinoma, PD-L1 negative (CPS <1) and a partial response in CPI-refractory uveal
melanoma. These preliminary results were presented at the 2021
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American Society of Clinical Oncology annual meeting (ASCO 2021). Patient enrollment in this trial was completed in the
third quarter of 2022.
We believe BXCL701 may have potential application in breast cancer, as its use in combination with monoclonal
antibody therapy generated encouraging in vivo data in a preclinical disease model where enhanced antibody-dependent
cellular cytotoxicity was observed.
The FDA has granted BXCL701 orphan drug designation for the treatment of AML, stage IIb to IV melanoma,
pancreatic cancer, and soft tissue sarcoma. As we consider BXCL701’s therapeutic potential for additional indications that
represent unmet medical needs, we intend to apply for additional orphan drug designations for BXCL701.
Biomarker Development Initiatives Intended to Complement BXCL701 Administration
We are also actively engaged in the identification and development of predictive biomarkers that we believe could be
used in conjunction with BXCL701 to predict the likelihood of patient response to therapy across the range of targeted
indications. Based on preliminary data from AML patients, we believe DPP9 copy number could correlate to BXCL701
response rate, with a greater likelihood of BXCL701 cytotoxicity in patients with increased DPP9 copy number. We are
pursuing its use in our biomarker discovery activities as a potential companion diagnostic. At the Society for
Immunotherapy of Cancer’s 38th Annual Meeting (SITC 2023), we presented data from the Phase 2a trial in SCNC
patients, which indicated DPP9 overexpression is a potential response-predictive biomarker of BXCL701 and
pembrolizumab combination treatment in mCRPC patients with SCNC phenotype.
Immuno-Oncology Manufacturing
We rely on third party contract manufacturing organizations to support development and manufacture of product
candidates for our clinical trials, and, if any of our current or future product candidates receives marketing approval, we
expect to rely on such manufacturers to meet commercial demand. We expect this strategy will enable us to maintain a
more efficient infrastructure, avoiding dependence on our own manufacturing facility and equipment, while simultaneously
enabling us to focus our expertise on the clinical development and future commercialization of our products. Currently, the
Patheon pharma services division of Thermo Fisher Scientific Inc. and another third-party contract manufacturer supply the
drug substance and clinical trial supplies for BXCL701, and we expect to enter into commercial supply agreements with
such manufacturers prior to any potential approval of BXCL701.
BXCL701 drug product is manufactured via conventional pharmaceutical processing procedures, employing
commercially available excipients and packaging materials. The procedure and equipment employed for manufacture and
analysis are consistent with standard organic synthesis or pharmaceutical production, and are transferable to a range of
manufacturing facilities, if needed. We have selected a larger third-party drug product manufacturer and will be executing
technology transfer of drug product manufacture to a larger manufacturer. We also plan to maintain the current drug
substance and product manufacturer as part of our supply chain strategy.
Immuno-Oncology Competition
The biotechnology and pharmaceutical industries have made substantial investments in recent years into the rapid
development of novel immunotherapies for the treatment of a range of pathologies, including infectious diseases and
cancers, making this a highly competitive market. We believe BXCL701 is the only innate immune system activator in
clinical development specifically addressing the cold tumor problem in immuno-oncology.
We face substantial competition from multiple sources, including large and specialty pharmaceutical,
biopharmaceutical and biotechnology companies, academic research institutions and governmental agencies, and public
and private research institutions. Our competitors compete with us on the level of the technologies employed, or on the
level of development of product candidates. In addition, many small biotechnology companies have formed collaborations
with large, established companies to (i) obtain support for their research, development, and commercialization of products
or (ii) combine several treatment approaches to develop longer lasting or more efficacious treatments that may potentially
directly compete with our current or future product candidates. We anticipate that we
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will continue to face increasing competition as new therapies and combinations thereof, technologies, and data emerge
within the field of immunotherapy and, furthermore, within the treatment of infectious diseases and cancers.
In addition to the current standard of care treatments for patients with infectious diseases or cancers, numerous
commercial and academic preclinical studies and clinical trials are being undertaken by a large number of parties to assess
novel technologies and product candidates in the field of immunotherapy. Results from these studies and trials have fueled
increasing levels of interest in the field of immunotherapy.
Large pharmaceutical companies that have commercialized or are developing immunotherapies to treat cancer include
AstraZeneca AB, Bristol-Myers Squibb Company, Merck & Co., Inc., Novartis AG, Pfizer Inc., and F. Hoffmann-La
Roche Ltd.
We face significant competition from pharmaceutical and biotechnology companies that target specific tumor-
associated antigens using immune cells or other cytotoxic modalities. These generally include immune cell redirecting
therapeutics such as T cell engagers, adoptive cellular therapies such as CAR-Ts, antibody drug conjugates, targeted
radiopharmaceuticals, targeted immunotoxin, and targeted cancer vaccines.
Clinical stage companies that compete with us directly on the level of the development of product candidates targeting
the innate immune system include Amgen Inc., Mirati Therapeutics, Inc., Bristol- Myers Squibb Company, Ryvu
Therapeutics, Merck & Co., Inc., Replimune Group Inc., Nektar Therapeutics, Novartis AG, Xbiotech Inc., Stingthera,
Inc., AstraZeneca AB, F. Hoffmann-La Roche Ltd and Aravive, Inc. Clinical stage companies that compete with us directly
on the level of the development of product candidates targeting the mCRPC include Astellas Pharma Inc., Pfizer Inc.,
Bayer AG, Janssen, Sanofi S.A., Clovis Oncology, Inc., AstraZeneca AB, Merck & Co., Inc., GSK plc, Tempest
Therapeutics, Inc., Zenith Epigenetics Ltd. and Gossamer Bio, Inc. Clinical stage companies that compete with us directly
on the level of the development of product candidates utilizing the therapeutic potential of synthetic lethality include
Repare Therapeutics Inc., IDEAYA Biosciences, Inc. and Tango Therapeutics, Inc.
Many of our competitors, either alone or in combination with their respective strategic partners, have significantly
greater financial resources and expertise in research and development, manufacturing, the regulatory approval process, and
marketing than we do. Mergers and acquisition activity in the pharmaceutical, biopharmaceutical and biotechnology sector
is likely to result in greater resource concentration among a smaller number of our competitors. Smaller or early-stage
companies may also prove to be significant competitors, particularly through sizeable collaborative arrangements with
established companies. These competitors also compete with us in recruiting and retaining qualified scientific and
management personnel and establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring
technologies complementary to, or necessary for, our programs.
Our commercial opportunity could be reduced or eliminated if one or more of our competitors develop and
commercialize products that are safer, more effective, better tolerated, or of greater convenience or economic benefit than
our proposed product offerings. Our competitors also may be in a position to obtain FDA or other regulatory approval for
their products more rapidly, resulting in a stronger or dominant market position before we are able to enter the market. The
key competitive factors affecting the success of all of our programs are likely to be product safety, efficacy, convenience
and treatment cost.
Immuno-Oncology Intellectual Property
Intellectual property is of vital importance in our field and in biotechnology generally. We seek to protect and enhance
proprietary technology, inventions, and improvements that are commercially important to the development of our business
by seeking, maintaining, enforcing, and defending patent and other intellectual property rights, whether developed
internally or licensed from third parties. We will also seek to rely on regulatory protection afforded through inclusion in
expedited development and review, data exclusivity, market exclusivity, and patent term extensions where available.
As of February 29, 2024, we have multiple patent families filed to protect our immuno-oncology program, including
our core patent family directed to methods of using BXCL701 with immune checkpoint inhibitors, which is granted in the
U.S., Japan, Australia, Canada, Russia, China, South Africa, Mexico, New Zealand, and United Arab Emirates, and
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with at least one pending application in the U.S., China, Mexico, the Republic of Korea, New Zealand, Russia, Australia,
Brazil, Hong Kong, and Europe. Patents issued from this family, if any, are expected to expire no earlier than 2036. We
have one additional patent issued in the U.S. directed to a method of selecting patients based on a biomarker, with an
expected expiration date no earlier than 2039.
Additional applications are directed to administering BXCL701 in combinations with various other molecules, biomarkers,
and dosing regimens. We also have four provisional applications directed to novel formulations of BXCL701, various
dosing regimens, methods of use, and combination therapies. We expect that patents issued from these applications, if any,
will expire from 2039 to 2044.
We expect to file additional patent applications in support of current and new immuno-oncology clinical candidates as
well as new platform and core technologies. For additional information regarding intellectual property regulations and
risks, see above under “—Neuroscience—Neuroscience Intellectual Property” and Part I, Item 1A, “Risk Factors - Risks
Related to Our Intellectual Property.”
Our Relationship with BioXcel LLC
BioXcel LLC currently holds an ownership interest of approximately 29% in the Company and our pipeline
compounds were identified by applying our growing internal AI capabilities, along with BioXcel LLC’s EvolverAI, a
proprietary pharmaceutical discovery and development engine, for drug re-innovation.
We entered into the Amended and Restated Asset Contribution Agreement (the “Contribution Agreement”), pursuant
to which BioXcel LLC, agreed to contribute BioXcel LLC’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 contributed product candidates or a product derived therefrom. As of December 31, 2023, all of the
foregoing have been paid except for (v).
We entered into a Separation and Shared Services Agreement with BioXcel LLC that took effect on June 30, 2017, as
amended and restated thereafter (the “Services Agreement”), pursuant to which services provided by BioXcel LLC through
its subsidiaries in India and the U.S. will continue indefinitely, as agreed upon by the parties. These services include certain
intellectual property prosecution and management and research and development activities. The Company has an option,
exercisable until December 31, 2024, to enter into a collaborative services agreement with BioXcel LLC pursuant to which
BioXcel LLC shall perform product identification and related services for us utilizing EvolverAI, its proprietary
pharmaceutical discovery and development engine. To maintain the ability to exercise the foregoing option, pursuant to an
amendment to the Services Agreement effective as of April 19, 2022, the Company has agreed to pay BioXcel LLC
$18,000 per month from March 13, 2023 to December 31, 2024. The parties are obligated to negotiate the collaborative
services agreement in good faith and to incorporate reasonable market-based terms, including consideration for BioXcel
LLC reflecting a low, single-digit royalty on net sales and reasonable development and commercialization milestone
payments, provided that (i) development milestone payments shall not exceed $10 million in the aggregate and not be
payable prior to proof of concept in humans and (ii) commercialization milestone payments shall be based on reaching
annual net sales levels, be limited to 3% of the applicable net sales level, and not exceed $30 million in the aggregate.
Service charges recorded under the Services Agreement were $1.3 million and $1.4 million for the years ended
December 31, 2023 and 2022, respectively.
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Government Regulation
Government Regulation and Product Approval
Government authorities in the U.S., at the federal, state and local level, and other countries extensively regulate,
among other things, the research, development, testing, manufacture, quality control, approval, labeling, 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 U.S. 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 U.S. federal, state, and local and foreign statutes and regulations require the expenditure of substantial time and
financial resources.
U.S. Drug Development Process
In the U.S., the FDA regulates drugs under the federal Food, Drug, and Cosmetic Act (“FDCA”), and its implementing
regulations. The process required by the FDA before a drug may be marketed in the U.S. generally involves the following:
● 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 clinical 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 clinical 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
potential inspection 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 specified indications
for use in the U.S.
Prior to beginning the first clinical trial with a product candidate in the U.S., a sponsor must submit an IND to the
FDA. An IND is a request for allowance 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 any clinical trials can begin. Submission of an IND may or may not result in FDA allowance 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 among other things, 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. While the IND is active,
progress reports summarizing the results of the clinical trials and nonclinical studies performed since the last progress
report, among other information, must be submitted at least annually to the FDA, and written IND safety reports must be
submitted to the FDA and its investigators for actual or suspected serious and adverse events, along with any findings from
other studies suggesting a significant risk to humans exposed to the same or similar drugs and findings from animal or in
vitro testing suggesting a significant risk to humans, as well as any clinically important increased incidence of a suspected
serious adverse reaction compared to that listed in the protocol or investigator brochure.
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 a study can move
forward at designated check points, based on access to data from the study, and may halt the clinical trial if it determines
that there is an unacceptable safety risk for subjects or other for other grounds, such as no demonstration of efficacy. 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:
● 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 labeling.
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.
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In addition, during the development of a drug, sponsors are given opportunities to periodically meet with or seek
feedback from the FDA. These interactions may be requested, for example, prior to submission of an IND, at the end of
Phase 2, and before an NDA is submitted. These interactions 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
alignment on the next phase of development.
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, including results from 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 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 review, evaluate and provide a recommendation
as to whether the NDA 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 comply with
cGMP and are adequate to assure consistent production of the product within required specifications. Additionally, before
approving an NDA, the FDA will typically inspect one or more clinical trial sites to assure compliance with GCPs.
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 and sale of the product with specific prescribing information
for specific indications. A CRL usually describes the specific deficiencies in the NDA identified by the FDA and may
require additional clinical data, including additional clinical trials, or other significant and time-consuming requirements
related to clinical trials, nonclinical studies or manufacturing. If a CRL is issued, the sponsor must resubmit the NDA or,
address all of the deficiencies identified in the letter, or withdraw the application. Even if such data and information are
submitted, the FDA may decide that the NDA does not satisfy the criteria for approval.
If regulatory approval of a product is granted, such approval will be granted for specific 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
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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 post-market studies and
additional surveillance programs 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.
Expedited Development and Review Programs
The FDA offers 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 product candidates 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 candidate and the specific indication
for which it is being studied. 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 NDA
may be eligible for priority review. An NDA for 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.
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
Breakthrough Therapy designation includes 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 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 FDA review programs intended to
expedite the FDA review and approval process, such as priority review. An NDA is eligible for priority review if the
product candidate 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 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, depending on the design of the applicable clinical studies, 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,
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the FDA will generally require the sponsor to perform adequate and well-controlled confirmatory clinical studies to verify
and describe the anticipated effect on irreversible morbidity or mortality or other clinical benefit, and may require that such
confirmatory studies be underway prior to granting accelerated approval. Products receiving accelerated approval may be
subject to expedited withdrawal procedures if the sponsor fails to conduct the required confirmatory studies or if such
studies fail to verify the predicted clinical benefit. In addition, the FDA currently requires pre-approval of promotional
materials as a condition for accelerated approval, which could adversely impact the timing of the commercial launch of the
relevant product.
Fast Track designation, Breakthrough Therapy designation, priority review, and accelerated approval do not change the
standards for approval, but such designations 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 to qualify for such program or may 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 U.S., or a
patient population greater than 200,000 individuals in the U.S. and when there is no reasonable expectation that the cost of
developing and making available the drug in the U.S. will be recovered from sales in the U.S. 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
disease or condition 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 costs and a waiver of the NDA user fee.
A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the
disease or condition for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the
U.S. 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 events,
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.
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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. 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:
● 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;
● product seizure or detention, or refusal to permit the import or export of products;
● consent decrees, corporate integrity agreements, debarment or exclusion from federal health care 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 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 manufacturers’ 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
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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 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)
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 (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 non-patent 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 non-
patent data 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 non-patent 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 or 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 apply to approval of
therapeutic products and in vitro companion diagnostics. According to the guidance, if the FDA determines that a
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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 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.
Under the FDCA, in vitro diagnostics, including companion diagnostics, are regulated as medical devices. In the U.S.,
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 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
(“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, approval of a PMA application 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 it receives 510(k) clearance, approval of a PMA application, 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.
Approval of a PMA 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 may be delayed for several
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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, 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.
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 currently 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 U.S.
In January 2024, the FDA announced that it intends to initiate the process to reclassify most in vitro diagnostic tests
(“IVDs”) that are currently Class III into Class II, including companion diagnostics. If such reclassification efforts occur,
any companion diagnostics that are the subject of the down-classification may no longer require premarket approval, but
rather may become subject to the generally less burdensome 510(k) clearance process.
International Regulations
In addition to regulations in the U.S., we are and will be subject to a variety of regulations in other jurisdictions
governing, among other things, clinical trials, marketing authorization, post-marketing requirements, and any commercial
sales and distribution of our products. We must obtain the requisite approvals from regulatory authorities in foreign
countries prior to the commencement of clinical trials or marketing of any products in those countries. The requirements
and process governing the conduct of clinical trials, 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.
Non-Clinical Studies and Clinical Trials
Similar to the U.S., the various phases of non-clinical and clinical research in the EU are subject to significant
regulatory controls.
Non-clinical studies are performed to demonstrate the health or environmental safety of new chemical or biological
substances. Non-clinical (pharmaco-toxicological) studies must be conducted in compliance with the principles of good
laboratory practice (“GLP”) as set forth in EU Directive 2004/10/EC (unless otherwise justified for certain particular
medicinal products, e.g., radio-pharmaceutical precursors for radio-labeling purposes). In particular, non-clinical studies,
both in vitro and in vivo, must be planned, performed, monitored, recorded, reported and archived in accordance with the
GLP principles, which define a set of rules and criteria for a quality system for the organizational process and the
conditions for non-clinical studies. These GLP standards reflect the Organization for Economic Co-operation and
Development requirements.
Clinical trials of medicinal products in the EU must be conducted in accordance with EU and national regulations and
the International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use (“ICH”)
guidelines on GCP as well as the applicable regulatory requirements and the ethical principles that have their origin in the
Declaration of Helsinki. 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.
The regulatory landscape related to clinical trials in the EU has been subject to recent changes. The EU Clinical Trials
Regulation (“CTR”) which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became
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applicable on January 31, 2022. Unlike directives, the CTR is directly applicable in all EU member states without the need
for member states to further implement it into national law. The CTR notably harmonizes the assessment and supervision
processes for clinical trials throughout the EU via a Clinical Trials Information System, which contains a centralized EU
portal and database.
While the EU Clinical Trials Directive required a separate clinical trial application (“CTA”) to be submitted in each
member state in which the clinical trial takes place, to both the competent national health authority and an independent
ethics committee, much like the FDA and IRB, respectively, the CTR introduces a centralized process and only requires the
submission of a single application for multi-center trials. The CTR allows sponsors to make a single submission to both the
competent authority and an ethics committee in each member state, leading to a single decision per member state. 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. The assessment procedure of
the CTA has been harmonized as well, including a joint assessment by all member states concerned, and a separate
assessment by each member state with respect to specific requirements related to its own territory, including ethics rules.
Each member state’s decision is communicated to the sponsor via the centralized EU portal. Once the CTA is approved,
clinical study development may proceed.
The CTR foresees a three-year transition period. The extent to which ongoing and new clinical trials will be governed
by the CTR varies. Clinical trials for which an application was submitted (i) prior to January 31, 2022 under the EU
Clinical Trials Directive, or (ii) between January 31, 2022 and January 31, 2023 and for which the sponsor has opted for
the application of the EU Clinical Trials Directive remain governed by said Directive until January 31, 2025. After this
date, all clinical trials (including those which are ongoing) will become subject to the provisions of the CTR.
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 (“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 clinical trials, and
pharmacovigilance plans and risk-management programs. Advice is not legally binding to any future MA application
(“MAA”) of the product concerned.
Marketing Authorization
In order to market our product candidates in the EU and many other foreign jurisdictions, we must obtain separate
regulatory approvals. More concretely, in the EU, medicinal products candidates can only be placed on the market after
obtaining a MA. To obtain regulatory approval of a product candidate in the EU, we must submit a MAA. The process for
doing this depends, among other things, on the nature of the medicinal product. There are two types of MAs:
● “Centralized MA”: are issued by the European Commission through the centralized procedure based on the
opinion of the EMA’s CHMP and are valid throughout the EU. The centralized procedure is compulsory for
certain types of medicinal products such as (i) medicinal products derived from biotechnology processes, such as
genetic engineering, (ii) medicinal products containing a new active substance indicated for the treatment of
certain diseases, such as HIV or AIDS, cancer, diabetes, neurodegenerative diseases, autoimmune and other
immune dysfunctions and viral diseases, (iii) designated orphan medicinal products, and (iv) advanced therapy
medicinal products (“ATMPs”) such as gene therapy, somatic cell therapy or tissue-engineered medicines. The
centralized procedure is optional for product candidates containing a new active substance not yet authorized in
the EU, or for product candidates that constitute a significant therapeutic, scientific or technical innovation or
which are in the interest of public health in the EU.
● “National MA”: are issued by the competent authorities of the EU member states, only cover their respective
territory, and are available for product candidates not falling within the mandatory scope of the centralized MAs.
Where a product has already been authorized for marketing in an EU member state, this national MA can be
recognized in another member state through the mutual recognition procedure. If the product has not received a
national MA in any member state at the time of application, it can be approved simultaneously in various member
states through the decentralized procedure. Under the decentralized procedure, an identical
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dossier is submitted to the competent authorities of each of the member states in which the MA is sought, one of
which is selected by the applicant as the reference member state.
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 European 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. Many benefits accrue to sponsors of product candidates with
PRIME designation, including but not limited to, early and proactive regulatory dialogue with the EMA, frequent
discussions on clinical trial designs and other development program elements, and accelerated MAA assessment once a
dossier has been submitted. Importantly, a dedicated contact and rapporteur from the CHMP is appointed early in the
PRIME scheme, facilitating increased understanding of the product at EMA’s committee level. An initial meeting initiates
these relationships and includes a team of multidisciplinary experts at the EMA to provide guidance on the overall
development and regulatory strategies.
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.
Data and Marketing Exclusivity
The EU also provides opportunities for market exclusivity. Upon receiving an MA, reference product generally
receives eight years of data exclusivity and an additional two years of market exclusivity. If granted, the data exclusivity
period prevents generic or biosimilar applicants from relying on the pre-clinical and clinical trial data contained in the
dossier of the reference product when applying for a generic or biosimilar MA in the EU during a period of eight years
from the date on which the reference product was first authorized in the EU. The market exclusivity period prevents a
successful generic or biosimilar applicant from commercializing its product in the EU until 10 years have elapsed from the
initial MA of the reference product in the EU. The overall 10-year market exclusivity period can be extended to a
maximum of 11 years if, during the first eight years of those 10 years, the MA holder obtains an authorization for one or
more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a
significant clinical benefit in comparison with existing therapies. However, there is no guarantee that a product will be
considered by the EU’s regulatory authorities to be a new chemical entity, and products may not qualify for data
exclusivity.
Orphan Medicinal Products
The criteria for designating an “orphan medicinal product” in the EU are similar in principle to those in the U.S. 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 five in 10,000 persons in
the EU when the application is made, or (b) the product, without the benefits derived from orphan status, would not
generate sufficient return in the EU to justify investment; and (3) there exists no satisfactory method of diagnosis,
prevention, or treatment of such condition authorized for marketing in the EU, 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 designation entitles a party to
incentives such as fee reductions or fee waivers, protocol assistance, and access to the Centralized MA process. Upon grant
of a MA, orphan medicinal products are entitled to 10 years of market exclusivity for the approved therapeutic indication.
During the 10-year market exclusivity period, the competent authorities cannot accept a MAA, or grant a
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MA, or accept an application to extend a MA, for the same indication, in respect of a similar medicinal product. The period
of market exclusivity is extended by two years for orphan medicinal products that have also complied with an agreed
pediatric investigation plan (“PIP”). 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.
Failure to comply with EU and member state laws that apply to the conduct of clinical trials, manufacturing approval,
MA of medicinal products and marketing of such products, both before and after grant of the MA, manufacturing of
pharmaceutical products, statutory health insurance, bribery and anti-corruption or with other applicable regulatory
requirements may result in administrative, civil, or criminal penalties. These penalties could include delays or refusal to
authorize the conduct of clinical trials, or to grant MA, product withdrawals and recalls, product seizures, suspension,
withdrawal or variation of the MA, total or partial suspension of production, distribution, manufacturing or clinical trials,
operating restrictions, injunctions, suspension of licenses, fines, and criminal penalties.
The aforementioned EU rules are generally applicable in the European Economic Area (“EEA”), which consists of the
27 EU member states plus Iceland, Liechtenstein, Norway, Switzerland and Turkey, as well as cooperating countries
Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia.
Since the end of the Brexit transition period on January 1, 2021, Great Britain (England, Scotland and Wales) has not
been directly subject to EU laws, however under the terms of the Ireland/Northern Ireland Protocol, EU laws generally
apply to Northern Ireland. The EU laws that have been transposed into UK law through secondary legislation remain
applicable in Great Britain, however new legislation such as the EU CTR is not applicable in Great Britain (“GB”).
The Trade and Cooperation Agreement (“TCA”) became effective on January 1, 2021. The TCA includes specific
provisions concerning pharmaceuticals, which include the mutual recognition of Good Manufacturing Practice (“GMP”)
inspections of manufacturing facilities for medicinal products and GMP documents issued, but does not foresee wholesale
mutual recognition of UK and EU pharmaceutical regulations.
Other Foreign Regulations
For other countries outside of Europe, such as countries in Eastern Europe, Latin America, or Asia, the requirements
governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary from country to country. In all
cases, the clinical trials are conducted in accordance with GCP and the applicable regulatory requirements and the ethical
principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines,
suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions, and criminal
prosecution.
Regulation of Companion Diagnostics
In the EU, in vitro diagnostic medical devices were regulated by Directive 98/79/EC, which regulated the placing on
the market, the CE marking, the essential requirements, the conformity assessment procedures, the registration obligations
for manufacturers and devices, as well as the vigilance procedure. In vitro diagnostic medical devices had to comply with
the requirements provided for in the Directive, and with further requirements implemented at national level (as the case
may be).
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The regulation of companion diagnostics is subject to further requirements since in-vitro medical diagnostic devices
Regulation (No 2017/746) (“IVDR”) became applicable on May 26, 2022. The IVDR applies since May 26, 2022, but
there is a tiered system extending the grace period for many devices (depending on their risk classification) before they
have to be fully compliant with the Regulation.
The IVDR introduced 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 an EU 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 process for the authorization of medicines, or the medicinal product is already authorized
through the centralized procedure process, or an MAA for the medicinal product has been submitted through the
centralized procedure process. For other substances, the notified body can seek the opinion from a national competent
authority or the EMA.
The aforementioned EU rules are generally applicable in the EEA.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of drug products for which we obtain
regulatory approval. In the U.S. and other countries, sales of 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.
Different pricing and reimbursement schemes exist in other countries. In the EU, 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 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 U.S. 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.
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To raise sufficient financial resources to commercialize our approved products and continue to advance our product
candidates, we will need to address pricing pressures and potential third-party reimbursement coverage for our approved
products and product candidates. In the U.S. 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 payors, like Medicare and
Medicaid, 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.
Healthcare Reform
We participate in the Medicaid Drug Rebate Program and other federal and state government pricing programs in the
U.S., and we may participate in additional government pricing programs in the future. The U.S. government and other
governments have shown significant interest in pursuing health care reform, which has resulted in changes to these
programs and impacts IGALMITM and our product candidates that may be approved. For example, in March 2010, the
Patient Protection and Affordable Care Act (“ACA”) was enacted and substantially changed the way health care is financed
in the U.S. by both government and private insurers. Among other cost containment measures, the ACA established:
● an annual, nondeductible fee on any entity that manufactures or imports certain branded prescription drugs and
biologic agents;
● a 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.
On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA without specifically
ruling on the constitutionality of the ACA. Thus, the ACA will remain in effect in its current form. In addition, we expect
that federal, state, and local governments in the U.S. will continue to consider legislation to limit the growth of health care
costs, including the cost of prescription drugs. Future legislation could limit payments for pharmaceuticals such as
IGALMITM and the product candidates that we are developing.
Other legislative changes have been proposed and adopted since the ACA was enacted, including aggregate reductions
of Medicare payments to providers, which will remain in effect through 2032, absent additional congressional action. In
January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced
Medicare payments to several providers, and increased the statute of limitations period for the government to recover
overpayments to providers from three to five years. More recently, in March 2021, Congress enacted the American Rescue
Plan Act of 2021, which, among other things, eliminated the statutory Medicaid drug rebate cap, effective January 1, 2024.
The rebate was previously capped at a drugs average manufacturer price.
Most significantly, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law.
This statute marks the most significant action by Congress with respect to the pharmaceutical industry since adoption of the
ACA in 2010. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with
Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B
and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage
gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the
Department of Health and Human Services (HHS) to implement many of these provisions through guidance, as opposed to
regulation, for the initial years. On August 29, 2023, HHS announced the list of the first ten drugs that will be subject to
price negotiations. HHS has issued and will continue to issue guidance implementing the IRA, although the Medicare drug
price negotiation program is currently subject to legal challenges. While the
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impact of the IRA on the pharmaceutical industry and our business cannot yet be fully determined, it is likely to be
significant.
In addition, individual U.S. states have also become increasingly active in 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, mechanisms 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.
Future legislation could limit payments for pharmaceuticals such as IGALMITM and the product candidates that we are
developing. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of
which could limit the amounts that federal and state governments will pay for healthcare products and services, which
could result in reduced demand for our products or additional pricing pressures. The implementation of cost-containment
measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or
commercialize our products.
Other Health Care Laws and Compliance Requirements
For approved products, we may be subject to various federal, state, and foreign laws targeting fraud and abuse in the
health care industry. Such laws include, without limitation, U.S. federal and state anti-kickback, fraud and abuse, false
claims, consumer fraud, and transparency laws and regulations with respect to drug pricing and payments and other
transfers of value made to physicians and other health care professionals, as well as similar foreign laws in 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 health care 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 health care 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 health care 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, 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 health care 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 (“HIPAA”) created several federal crimes,
including health care fraud, and false statements relating to health care 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 (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
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physicians (defined to include doctors, dentists, optometrists, podiatrists, and chiropractors), certain non-physician
providers including physician assistants and nurse practitioners, and teaching hospitals, or to third parties on behalf of such
providers, as well as ownership and investment interests held by physicians and their immediate family members 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.
Moreover, analogous state and foreign laws and regulations may be broader in scope than the provisions described
above and may apply regardless of payor. Some state laws require pharmaceutical companies to comply with the
pharmaceutical industry’s voluntary compliance guidelines and relevant federal government compliance guidance; require
drug manufacturers to report information related to payments and other transfers of value to physicians and other health
care providers, many of which differ from each other in significant ways, thus further complicating compliance efforts; and
restrict marketing practices or require disclosure of marketing expenditures and pricing information.
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 health care 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 U.S., 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 Federal Trade Commission 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 (“CCPA”), the California Privacy Rights Act (“CPRA”), and
the EU General Data Protection Regulation (“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 AI and machine learning may be
subject to laws and evolving regulations regarding the use of AI or machine learning, controlling for data bias, and anti-
discrimination.
Human Capital
Our Employees
In August 2023, our Board of Directors approved the Reprioritization. Following a comprehensive review of the
business, we determined to focus on high-potential agitation-market opportunities using our innovative, AI-based clinical
drug development platforms. We intend to reduce more than 50% of our cash burn, as compared to our cash burn levels
during the second quarter of 2023, to approximately $80 million on a go-forward annualized basis. As part of the
Reprioritization, our Board of Directors approved a reduction of approximately 60% of our workforce, from approximately
190 to 80 employees. These actions also included a shift in commercial strategy for IGALMI™ in the institutional setting,
a reduction of in-hospital commercialization expenses, a suspension of programs no longer deemed core to our business,
and a shift in focus to develop BXCL501 for use in the at-home setting in the treatment of agitation in schizophrenia,
bipolar disorders, and in patients with mild to moderate dementia due to probable Alzheimer’s disease. We recorded
restructuring costs of $4.2 million in the year ended December 31, 2023, including severance and benefit costs of $4.1
million and contract termination costs of $0.1 million, substantially all of which were paid in 2023. As of December 31,
2023, we had 74 full-time employees. We also leverage certain experts in drug development and AI that are employed by
BioXcel LLC to provide flexibility for our business needs.
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Our Culture
We believe that 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, bonuses, opportunities for equity ownership and other
comparable benefits for our industry.
Employee and Visitor Safety Protocols
We follow health and safety guidelines to protect the well-being of our employees and visitors.
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
The Company was incorporated as a Delaware corporation on March 29, 2017. 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 & Media sections
of our website at www.bioxceltherapeutics.com. In addition, you may automatically receive email alerts and other
information about the Company when you enroll your email address by visiting the “Email Alerts” option under the News /
Events menu of the Investors & Media section of our website at www.bioxceltherapeutics.com.
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 not generated substantial product revenues to date, which may make it
difficult to evaluate the success of our business 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, advancing the development of our product candidates, including conducting clinical and preclinical studies
and establishing our commercial organization. We have only one product approved for commercial sale, and have limited
experience in obtaining marketing approvals, manufacturing products on a commercial scale, and conducting 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
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 are transitioning from a company with primarily a
research and development focus to a company also 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 $179.1 million and $165.8 million
for the years ended December 31, 2023 and 2022, respectively. As of December 31, 2023, we had a stockholders’ deficit of
approximately $56.5 million. We expect to continue to incur significant expenses and increasing operating losses for the
foreseeable future. We have only one product candidate approved for marketing in the U.S., none in any other jurisdiction,
and may never receive approval beyond the one product approved to date. It could be several years, if ever, before we have
a commercialized product that generates significant revenues through sales of IGALMITM or our product candidates, if
approved. 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 may increase in the long term as we:
•
•
•
•
•
•
•
evaluate 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 develop, maintain, expand and protect our intellectual property portfolio;
pursue regulatory approvals for our current and future product candidates that successfully complete clinical
trials;
develop an appropriate sales, marketing, and distribution infrastructure to commercialize IGALMITM and any
other product candidates for which we may obtain marketing approval;
potentially hire additional clinical, commercial, regulatory, scientific and finance personnel; and
incur additional legal, accounting and other expenses in operating as a public company.
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To become and remain profitable, we must develop and commercialize more products or 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 IGALMITM and 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.
Although we have obtained U.S. Food and Drug Administration (“FDA”) approval for IGALMITM, 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 additional product candidates.
If we are required by the FDA, or other regulatory authorities such as the European Medicines Agency (“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. For example, developments with respect to our
TRANQUILITY program evaluating BXCL501 in patients with dementia due to probable Alzheimer’s disease may
increase the likelihood that we experience such costs or delays, as discussed in the risk factor below entitled:
“Developments relating to our TRANQUILITY II Phase 3 trial may impact the timing of our development plans for, and
prospects for seeking or obtaining regulatory approval of, BXCL501 for the acute treatment of agitation (non-daily)
associated with dementia in patients with probable Alzheimer’s disease.”
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.
Our strategic reprioritization and related reduction in force may not achieve our intended outcome.
In August 2023, we announced a broad-based strategic reprioritization (the “Reprioritization”). We have taken actions
to reduce certain operational and workforce expenses that are no longer deemed core to our ongoing operations in order to
extend our cash runway and drive innovation and growth in high potential clinical development and value creating
opportunities. These actions include a shift in commercial strategy for IGALMITM in the institutional setting, a reduction of
in-hospital commercialization expenses, a suspension of programs no longer determined to be core to ongoing operations,
and a prioritization on at-home treatment setting opportunities for BXCL501. As part of this strategy, we reduced our
workforce by approximately 60%. As of December 31, 2023, the Reprioritization was substantially completed.
The reduction in force may result in unintended consequences and costs, such as the loss of institutional knowledge
and expertise, attrition beyond the intended number of employees, decreased morale among our remaining employees, and
the risk that we may not achieve the anticipated benefits of the reduction in force. In addition, while positions have been
eliminated, certain functions necessary to our operations remain, and we may be unsuccessful in distributing the duties and
obligations of departed employees among our remaining employees. The reduction in workforce could also make it
difficult for us to pursue, or prevent us from pursuing, new opportunities and initiatives due to insufficient personnel, or
require us to incur additional and unanticipated costs to hire new personnel to pursue such opportunities or initiatives. The
workforce reduction could also harm our reputation, making our ability to recruit skilled personnel difficult. If we are
unable to realize the anticipated benefits from the reduction in force, or if we experience significant adverse consequences
from the reduction in force, our business, financial condition, and results of operations may be materially adversely
affected.
In addition, we may not realize the benefits of or there may be unanticipated costs associated with our Reprioritization.
As a result of the Reprioritization, including our strategic refocus, we may not generate material revenues from IGALMITM
in the near term because our commercial force will be significantly reduced. If we are unable to commercialize IGALMITM
in a different setting or unable to develop, receive marketing approval for and successfully commercialize BXCL501,
BXCL701 and any of our other product candidates on our own or with any future
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collaborator, or experience delays because of any of these factors or otherwise, our business could be materially and
substantially harmed.
In addition, because we have limited financial and managerial resources, under our Reprioritization, we intend to focus
on specific product candidates, indications and development programs. We may also conduct several clinical trials for our
product candidates in parallel over the next several years, which may make our decision as to which product candidates to
focus on more difficult. As a result, we may forgo or delay pursuit of opportunities with other product candidates or other
indications that could have had greater commercial potential or likelihood of success. Our resource allocation decisions
may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on
current and future research and development programs and product candidates for specific indications may not yield any
commercially viable products. If we do not accurately evaluate the commercial potential or target market for a particular
product candidate, we may relinquish valuable rights to that product candidate through future collaborations, licenses and
other similar arrangements in cases in which it would have been more advantageous for us to retain sole development and
commercialization rights to such product candidate. If we are not successful in increasing our efficiency as a result of this
Reprioritization, our efforts to develop and commercialize our product candidates may be delayed or halted and our
business could be materially adversely impacted.
Furthermore, we may undertake further similar cost-saving initiatives, which may include additional restructuring or
workforce reductions. These types of cost-reduction activities can be complex and result in unintended consequences and
costs, including decreased employee morale, loss of institutional knowledge and expertise and adversely impact our
business.
We will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to
delay, reduce or eliminate our product development programs or commercialization efforts or otherwise seek strategic
alternatives. In addition, the failure to raise additional financing in accordance with the minimum capital raising
requirements of our Credit Agreement (as defined herein) would trigger an event of default thereunder.
We will require additional future funding to support current and anticipated future expenses. We currently anticipate
continuing to develop and conduct clinical trials with respect to our current and any future product candidates; seek to
identify and develop additional product candidates; acquire or in-license other product candidates or technologies; seek
regulatory approvals for our product candidates that successfully complete clinical trials, if any; establish sales, marketing,
distribution and other commercial infrastructure to support the commercialization of products for which we may obtain
marketing approval; 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 limited
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 may be required to expend significant funds to continue to commercialize IGALMITM in the U.S. and advance the
development of BXCL501, BXCL701, BXCL502 and our other product candidates. In addition, while we may seek one or
more collaborators for future development of our current product candidates 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, 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. We may also seek third-party investments in or
other strategic options for our subsidiary, OnkosXcel. Further financing may not be available to us on acceptable terms, or
at all. In addition, we are reliant on the financial institutions with which we hold our cash and cash equivalents. If such
institutions were to close, we may not be able to recover all of our cash or cash equivalents held at such institutions.
Moreover, market volatility resulting from COVID-19, credit crises, adverse macroeconomic conditions, such as high
interest or inflation rates, or other factors, as well as Company-specific factors such as the progress of our development
pipeline, adverse clinical events or results, regulatory investigations, or ongoing or potential legal proceedings, could also
adversely impact our ability to access capital as and when needed. Our failure
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to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our
business strategy.
Management believes that, after giving effect to the Reprioritization, the Company’s cash and cash equivalents of
$65.2 million as of December 31, 2023 will allow the Company to fund its operations and meet its liquidity requirements
into mid-2024. However, the expected cost benefit of the Reprioritization cannot be assured, and there can be no assurance
that we will be able to extend our cash runway by meeting the conditions for additional funding under the terms of our
Credit Agreement (defined below) or otherwise. In addition, the failure to raise additional financing in accordance with the
minimum capital raising requirements of our Credit Agreement would trigger an event of default thereunder. The Fourth
Amendment to our Credit Agreement includes covenants that we will receive, (i) after March 20, 2024, which is the
effective date of the Fourth Amendment, and on or before April 15, 2024, at least $25.0 million in gross proceeds from the
issuance of our common stock, warrants and/or pre-funded warrants, and/or in non-refundable cash consideration from
partnering transactions entered into after March 20, 2024 (so long as such partnering transactions would not require us or
any of our subsidiaries to make any cash investments in connection with the partnering transactions and no such cash
investments are made), and (ii) after March 20, 2024 and on or before November 30, 2024, at least $50.0 million (for the
avoidance of doubt, inclusive of amounts previously counted toward the preceding clause (i)) in gross proceeds from the
issuance of our common stock, warrants and/or pre-funded warrants, and/or in cash and/or non-cash consideration
(measured at fair market value, as determined by the Administrative Agent (as defined in the Credit Agreement) in its sole
discretion from partnering transactions entered into after March 20, 2024. Failure to perform this covenant would constitute
(A) a default under the Credit Agreement and (B) an event of default under the Credit Agreement, subject to a cure period
in the case of clause (i) of the preceding sentence, until May 15, 2024. For the avoidance of doubt, failure to perform clause
(ii) would constitute an immediate event of default under the Credit Agreement without any cure or grace period.
Furthermore, our estimate as to how long we expect our existing cash to be able to continue to fund our operations is
based on assumptions that may prove to be wrong, and we could use our available capital resources sooner than we
currently expect. Further, changing circumstances, some of which may be beyond our control, could cause us to consume
capital significantly faster than we currently anticipate, and we may need to seek additional funds sooner than planned. Our
future funding requirements, both short-term and long-term, will depend on many factors, including:
● the scope, progress, timing, costs, and results of clinical trials of our product candidates, including any delays that
have occurred or may occur due to the recent developments with the TRANQUILITY program;
● 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 IGALMITM and 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 and establish a
commercial infrastructure;
● revenue received from commercial sales of IGALMITM and 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;
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● the costs of acquiring potential new product candidates or technology;
● the costs of operating as a public company;
● the extent to which our operations continue;
● the costs of legal proceedings and investigations; and
● costs associated with any adverse market conditions or other macroeconomic factors.
As we continue our research and development activities, we will require additional resources to continue as a going
concern. We can provide no assurance that we will successfully obtain additional resources to improve our financial
condition. If we are unable to obtain necessary additional capital, we could be compelled to pursue alternative options,
including, without limitation, implementing further workforce reductions, reducing or ceasing product development
programs and advancement of our clinical trials and product candidates, selling our assets or seeking other strategic
alternatives.
We have significant indebtedness and other contractual obligations that could impair our liquidity, restrict our
ability to do business and thereby harm our business, results of operations and financial condition. We may not have
sufficient cash flow from operations to satisfy our obligations under the Credit Agreement.
As of December 31, 2023, we had aggregate principal indebtedness of $102.7 million outstanding under our Credit
Agreement and Guaranty (as amended, the “Credit Agreement”) by and among the Company, as the borrower, certain
subsidiaries of the Company from time to time party thereto as subsidiary guarantors, the lenders party thereto (the
“Lenders”), and Oaktree Fund Administration LLC (“OFA”) as administrative agent.
Restrictive covenants in the Credit Agreement place limits on our ability to conduct our business. The Credit
Agreement contains customary representations and warranties and customary affirmative and negative covenants,
including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other
indebtedness, and dividends and other distributions, subject to certain exceptions, including specific exceptions with
respect to product commercialization and development activities. In addition, certain events, including receipt of a warning
letter from the FDA, may constitute an event of default. We must also comply with certain covenants under the Credit
Agreement, including a financial covenant that requires we maintain a minimum cash liquidity amount of $15 million (or
higher upon certain events, including as described in the Fourth Amendment to the Credit Agreement described in Note 19,
Subsequent Events in the audited financial statements included elsewhere in this Annual Report on Form 10-K) and a
minimum revenue requirement measured on a quarterly basis based on the revenue attributable to BXCL501 for the six
consecutive month period ending on the last day of the relevant quarter, subject to cure payments of not less than $1.0
million if we fail to meet the minimum revenue requirement. The minimum revenue requirement applies beginning with
the preceding six-month period ending on December 31, 2024, and ranges from approximately $4.5 million for the fourth
quarter of 2024 to approximately $47.9 million for the first quarter of 2027. If we fail to meet the minimum revenue
requirements for the preceding six-month periods ending on December 31, 2024, March 31, 2025, June 30, 2025 and
September 30, 2025, we could be required to make revenue cure payments for the revenue shortfalls of up to $4.5 million,
$6.2 million, $8.5 million, and $8.5 million, respectively, plus aggregate prepayment fees of $1.9 million. Under the Credit
Agreement, these cure payments would be due on April 21, 2025, June 6, 2025, September 5, 2025 and December 8, 2025,
respectively. We are only permitted to make cure payments for revenue shortfalls up to three times during the term of the
Credit Agreement, after which we would default on the Credit Agreement if we are unable to satisfy the minimum revenue
requirement for any subsequent fiscal quarter. In addition, certain events, including certain regulatory events and any
“going concern” or similar qualification in a report of the Company’s independent registered public accountants relating to
the Company’s annual financial statements, constitute an event of default under the Credit Agreement. The report of our
independent registered public accounting firm included in this Annual Report on Form 10-K contains a “going concern”
explanatory paragraph. In March 2024 we entered into a Fourth Amendment to the Credit Agreement, pursuant to which
the Lenders waived compliance with this covenant with respect to the report contained in this Annual Report on Form 10-
K. The Fourth Amendment to the Credit Agreement also includes other covenants relating to minimum cash liquidity
covenants and minimum capital raising requirements, as described further in Note 19, Subsequent Events in the audited
financial statements included elsewhere in this Annual
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Report on Form 10-K, and failure to comply with such obligations, or other obligations required under the Credit
Agreement, could trigger an event of default. Certain change of control events can also trigger an event of default under the
Credit Agreement, including control by any entity or group of entities, other than BioXcel LLC and its affiliates, that
acquires 35% or more of our voting capital stock.
Our ability to make scheduled payments or payments to maintain compliance with covenants or to restructure or
refinance these and other outstanding debt obligations depends on our financial and operating performance, including
growth in revenue from IGALMITM and BXCL501, which will be affected by prevailing economic, industry and
competitive conditions and by financial, business and other factors beyond our control. A failure to pay our debt, fixed
costs and other obligations or a breach of our contractual obligations or other event of default could result in a variety of
adverse consequences, including the acceleration of our obligations or the exercise of remedies by our creditors and
lessors. In such a situation, it is unlikely that we would be able to cure our breach, fulfill our obligations, make required
payments or otherwise cover our fixed costs, which would have a material adverse effect on our business, results of
operations and financial condition.
In addition, historically we have relied on debt and equity financings as our primary sources of liquidity. If our future
cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay
expenditures, sell assets, seek additional capital or seek to restructure or refinance our indebtedness. Any refinancing or
restructuring of our indebtedness could be at higher interest rates and may require us to comply with more onerous
covenants. These alternative measures may not be successful and may not permit us to meet our scheduled or any
accelerated debt service obligations. In the absence of such cash flows and resources, we could face substantial liquidity
problems and might be required to sell material assets or pursue other strategic alternatives to attempt to meet our debt
service obligations.
We have identified conditions and events that raise substantial doubt regarding our ability to continue as a going
concern.
As of December 31, 2023, we had $65.2 million in cash and cash equivalents. Based on our existing cash, cash
equivalents and lack of current availability under our funding facilities, we do not believe we have sufficient cash on hand
to support current operations and service our debt obligations for at least one year from the date of issuance of the audited
consolidated financial statements appearing in this Annual Report on Form 10-K. This condition raises substantial doubt
about our ability to continue as a going concern for at least one year from the date that our financial statements for the year
ended December 31, 2023 are issued. In order to mitigate the current and potential future liquidity issues, we have
undertaken the Reprioritization and may, among other things, seek to raise capital through the issuance of common stock,
or by restructuring, refinancing, and/or amending the terms of the Credit Agreement (including with respect to regulatory
related events of default that do not contain a cure period) or pursue other strategic alternatives. However, such
transactions may not be successful and we may not be able to raise additional equity and/or financing necessary to meet our
obligations. Moreover, our Credit Agreement contains covenants that we may be unable to comply with and which could
result in the acceleration of our debt service obligations, further reducing our capital resources and ability to fund our
operations. As such, there can be no assurance that we will be able to continue as a going concern and we may be forced to
delay, reduce or discontinue our product development programs or commercialization efforts in order to preserve cash. For
additional cost-saving and other strategic initiatives we may be compelled to pursue, see the risk factor entitled, “We will
need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce
or eliminate our product development programs or commercialization efforts or otherwise seek strategic alternatives.”
Risks Related to the Discovery and Development of Product Candidates
We have limited experience in drug discovery and drug development.
Prior to the acquisition of our product and 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 acquired our product candidates from
to have conducted research and development in accordance with the applicable protocol, legal, regulatory and scientific
standards, accurately reported the results of all clinical trials conducted prior to our acquisition of the applicable product
candidate, and correctly collected and interpreted the data from these studies and trials. To the extent
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any of these activities did not occur, our expected development time and costs could increase, which could adversely affect
our prospects for marketing approval of, and receiving any future revenue from, these product candidates.
Developments relating to our TRANQUILITY II Phase 3 trial may impact the timing of our development plans for, and
prospects for seeking or obtaining regulatory approval of, BXCL501 for the acute treatment of agitation (non-daily)
associated with dementia in patients with probable Alzheimer’s disease.
Following our discovery of principal investigator misconduct at one of the clinical sites in our TRANQUILITY II
Phase 3 clinical trial, we initiated an investigation into the issues associated with the trial. This principal investigator had
previously been subject to a December 2022 FDA inspection of her clinical site in connection with the TRANQUILITY II
clinical trial. At the conclusion of this inspection, the FDA issued an FDA Form-483 identifying three inspectional
observations. These observations related to the principal investigator’s failure to adhere to the informed consent form
approved by the Institutional Review Board for a limited number of subjects whose records the FDA reviewed, maintain
adequate case histories for certain patients whose records the FDA reviewed, and adhere to the investigational plan in
certain instances. For example, the FDA cited the principal investigator’s delay in informing the sponsor’s medical monitor
or pharmacovigilance safety vendor of an SAE, for one of the subjects, which report was made to our vendor outside of the
24 hour time period prescribed by the clinical trial protocol. The principal investigator for this clinical site responded to the
FDA observations within the time period requested. The FDA inspection remains open, however, as the FDA has not
issued an Establishment Inspection Report.
In May 2023, it came to our attention that this same principal investigator in the TRANQUILITY II clinical trial may
have fabricated email correspondence around the time of the FDA inspection, purporting to demonstrate that the
investigator timely submitted to our pharmacovigilance safety vendor a report of an SAE from a different subject than the
one cited in the FDA Form-483, and purporting to show that the vendor had confirmed receipt. Upon receipt of this
information, we promptly initiated an investigation and received confirmation that the principal investigator fabricated the
email correspondence related to the timing of the reporting of this SAE to our pharmacovigilance vendor to make it appear
as though this SAE had been timely reported as required by the clinical trial protocol. This principal investigator has not
participated in any other clinical trial sponsored or conducted by us. Both we and the principal investigator’s employer
have reported this incident to the FDA.
Since that time, we have taken steps to further investigate and evaluate the conduct of the TRANQUILITY II trial at
this clinical site. Based on these steps to date, we believe that there have been no further instances of misconduct or fraud
or other findings that adversely impact the data integrity or reliability of the eligibility, safety, and efficacy data obtained at
the clinical trial site in question.
However, the FDA may not accept or agree with our conclusions or analyses or may interpret or weigh their
importance differently. Further, if we or the FDA determine that there are issues with data integrity and/or compliance with
good clinical practice (“GCP”) requirements at the trial site, we may be unable to use some or all of the subject data
generated at this clinical site to support a marketing application. Any issues identified at this trial site may also be
identified at other trial sites. If all of data from this clinical trial site were discarded, the TRANQUILITY II trial would no
longer be adequately powered for statistical significance or would not be considered adequately well-controlled by the
FDA, and in either case, we would need to conduct a new comparable clinical trial before we are able to seek any approval
of BXCL501 for use in patients with acute agitation (non-daily) due to dementia in probable Alzheimer’s disease. If a
substantial portion of the data were discarded, similar outcomes may also occur.
In addition, we are continuing to seek feedback from the FDA with respect to our TRANQUILITY program. For
example, on February 20, 2024, we held a Type B/Breakthrough Therapy designation meeting with the FDA. The original
purpose of this meeting was to obtain feedback on the design of a proposed at-home study that did not include caregiver-
collected efficacy endpoints, based on our belief that obtaining caregiver assessments of efficacy would be challenging. We
believe there are no validated caregiver endpoints for assessing efficacy in Alzheimer’s disease patients in the at-home
setting. As a result, we focused on requesting feedback from the FDA regarding our proposal for an at-home clinical study
with safety as the primary objective, and to better understand what additional data would be required to submit an sNDA to
support labeling for BXCL501 to include the acute treatment of agitation associated with dementia in probable Alzheimer’s
disease or, in the alternative, in this population in the care setting only. In its preliminary responses, the FDA reiterated its
prior comments that we generate additional efficacy data, including repeat-
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dose efficacy data, to support an sNDA submission, as the FDA indicated that our proposed efficacy database, which
currently includes the 70 patients who have been treated with 60 mcg of BXCL501 in TRANQUILITY I and
TRANQUILITY II, would not contain substantial evidence of effectiveness absent additional data. The FDA advised that
we generate the necessary efficacy data in care facilities prior to conducting any trials in the at-home setting. In addition,
the FDA indicated the need to generate long-term safety data to support an sNDA submission, including from probable
Alzheimer’s disease patients exposed to BXCL501, for up to one year. We have received the final meeting minutes from
the FDA, which we believe are consistent with the FDA’s preliminary responses and the subsequent meeting discussion.
Based on the FDA’s feedback, we are currently planning to generate additional Phase 3 efficacy and safety data, in a
variety of relevant care-facility settings and across severity of dementia using the PEC as the primary efficacy measure, as
used in the prior TRANQUILITY II study. In addition, we plan to discuss the details of the requirement for long-term
safety data at a future meeting with the FDA. Also, although we announced in November 2023 that we were planning to
conduct a Phase 3 trial in the at-home setting, with safety as the primary objective (TRANQUILITY At Home), given the
priority to expand the database to generate additional efficacy and safety data in care facilities, we are re-evaluating the
timing for initiating TRANQUILITY At Home. Conducting any new clinical trial can take significant time, funding and
resources, and there are no assurances we could raise the capital or have the liquidity and resources to conduct further
clinical trials in our TRANQUILITY program. Any new clinical trials conducted in our target patient populations may
have different safety or efficacy results from the topline data the Company previously announced for the TRANQUILITY
II clinical trial. Further, any government investigation, disqualification, or debarment of, or proceeding or action against the
principal investigator, or any government investigation, proceeding or action against us, could further delay development
and approval of BXCL501 for this indication, and otherwise have a material adverse effect on us, our financial condition
(including triggering a potential event of default under our Credit Agreement), results of operations and prospects.
We have limited clinical data supporting potential safety or efficacy of BXCL501 for use in the at-home setting.
In August 2023, we announced our intention to pursue a strategic reprioritization of our commercialization and
development efforts (the “Reprioritization”), including among other things, a shift in focus to primarily develop BXCL501
for use in expanded settings, including the at-home setting and care facilities, for the acute treatment of agitation in patients
with dementia due to probable Alzheimer’s disease and the acute treatment of agitation in schizophrenia and bipolar
patients in the at-home setting. Although we have conducted several clinical trials that evaluated BXCL501 in the
institutional setting, we have limited data supporting BXCL501’s potential use in the at-home setting. In particular, we
have not conducted a clinical trial evaluating the at-home use of BXCL501 in the acute treatment of agitation in patients
with dementia due to probable Alzheimer’s disease.
Although we will seek additional feedback from the FDA regarding the potential of its ongoing or completed clinical
trials to support submission of one or more sNDAs and to support a label for use in the home, it is possible that the FDA
may not consider our available data adequate to support such submissions. For example, on October 11, 2023, we received
feedback from the FDA that TRANQUILITY I and TRANQUILITY II alone are not sufficient to support an sNDA
submission for the use of BXCL501 to treat acute agitation (non-daily) in patients with dementia due to probable
Alzheimer’s disease in either the at-home setting or care facilities, and the FDA indicated that we should, among other
things, conduct a further clinical trial to evaluate safety and collect efficacy data of BXCL501 before we are able to submit
an sNDA seeking approval of BXCL501 for use in such populations.
For a description of recent developments relating to our TRANQUILITY program, please see the prior risk factor,
“Developments relating to our TRANQUILITY II Phase 3 trial may impact the timing of our development plans for, and
prospects for seeking or obtaining regulatory approval of, BXCL501 for the acute treatment of agitation (non-daily)
associated with dementia in patients with probable Alzheimer’s disease.” We cannot provide assurance that we will be able
to seek or obtain approval of BXCL501 for treatment of agitation in patients with dementia due to probable Alzheimer’s
disease in the at-home setting based on this updated development plan.
Although we continue to seek feedback from the FDA with respect to our TRANQUILITY program, the FDA may not
agree that any trial designs we propose are sufficient to establish both the safety and efficacy of BXCL501 for the acute
treatment of agitation associated with dementia due to probable Alzheimer’s disease in either a care setting or an at-home
setting. For example, to assess safety, the FDA has indicated that we need to expose more patients to BXCL501 for a
longer period of time and that an efficacy trial of a shorter duration, combined with the patients in its previous
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trials, would not support submissions of an sNDA. Further, to assess efficacy in the home setting, the FDA may determine
that we cannot rely on our previous studies of BXCL501 for this proposed indication since those studies were conducted in
assisted living facilities and they are not comparable to the at-home setting. The FDA may also require us to seek approval
for BXCL501 for use in care facilities prior to seeking any approval for at-home use in the targeted AD patient population.
In particular, we are planning to generate additional Phase 3 safety and efficacy data in a variety of relevant care-facility
settings, but even if our planned clinical efforts are successful and even if we are able to obtain approval of BXCL501 for
use in patients with dementia due to probable Alzheimer's disease, we cannot provide assurance that we will be able to seek
or obtain approval of BXCL501 for the treatment of agitation in patients with dementia due to probable Alzheimer’s
disease in the at-home setting based on this data and we will be required to generate additional data to evaluate the at-home
use of BXCL501 in our targeted Alzheimer's dementia population before we are able to seek approval for such at-home use
in this population, if ever. In addition, the FDA may determine that we cannot rely on the data from our prior
TRANQUILITY II Phase 3 trial to support an sNDA as a result of potential data integrity issues at the trial site, as the FDA
may not agree with our belief that data reliability and integrity remain intact. See Part II, Item 1A, “Risk Factors—Risks
Related to the Discovery and Development of Product Candidates—Developments relating to its TRANQUILITY II Phase 3
trial may impact the timing of its development plans for, and prospects for seeking or obtaining regulatory approval of,
BXCL501 for the acute treatment of agitation (non-daily) associated with dementia in patients with probable Alzheimer’s
disease” for additional information. If the FDA does not accept the data from our prior TRANQUILITY II Phase 3 trial, we
could be required to conduct additional clinical trials beyond those we currently contemplate, which would increase our
costs and delay potential submission of an sNDA for BXCL501 which in turn would adversely affect our financial position
and operations.
Accordingly, if the FDA reaches these conclusions or otherwise finds that our proposed clinical studies would not
adequately evaluate the safety and efficacy of BXCL501 for the acute treatment of agitation associated with dementia due
to probable Alzheimer’s disease in an at-home setting and/or care setting, we may need to evaluate more patients for a
longer period of time to demonstrate the safety and efficacy of BXCL501.
With respect to our SERENITY program, we also held a Type C Meeting with the FDA on March 6, 2024 to obtain
further feedback on our proposed changes to the design of SERENITY III Part 2, including with respect to the trial
endpoints, and to discuss the content and format of a potential sNDA submission to expand the label of IGALMITM 120
micrograms to the acute treatment of agitation associated with schizophrenia and bipolar disorders in the outpatient setting.
IGALMITM is already approved at the 120 mcg dose based on efficacy data that we previously generated in treating a
single episode of agitation. Consistent with the data generated to date, the label for IGALMITM currently includes a
limitation on use (“LOU”), noting the lack of efficacy or safety data beyond 24 hours following the first dose. During our
March 6, 2024 Type C meeting with the FDA, we discussed, among other things, whether evaluating the at-home use of
BXCL501 120 mcg, with safety as the primary objective and efficacy measures as exploratory endpoints, if successful,
could support the submission of an sNDA seeking expansion of the current label for IGALMITM 120 mcg to allow at-home
use and labeling without the current LOU. Based on current FDA feedback, we plan to amend the SERENITY III protocol
to evaluate the safety and efficacy of the 120 mg dose in the at-home setting. We believe that our ability to seek labeling
without the current LOU will depend, in part, on the number of agitation episodes we observe during our planned study
period. Even if our amended SERENITY III trial is successful in demonstrating safety in the at-home setting, and even if
the IGALMITM 120 mcg label is expanded to allow outpatient use, there is no guarantee that we will observe and/or treat a
sufficient number of agitation episodes during the study period to support removal of the current LOU. We plan to provide
further guidance regarding our plans for the SERENITY program following receipt of the final meeting minutes from the
FDA. Even if the protocol for SERENITY III Part 2 is amended as described above, and even if the study produces
favorable data, such data may not be sufficient for approval without additional clinical studies.
Any modifications to our proposed trial designs by the FDA would delay our initiation of such proposed trials,
increase the costs of any trial that we do conduct and delay our submission of an sNDAs for BXCL501. Requirements to
conduct additional clinical trials evaluating BXCL501 in support of our planned sNDAs seeking approvals for BXCL501
for our targeted patient populations in at-home settings would increase our costs, and could have a material adverse effect
on our prospects and results of operations.
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In the near term, we are dependent on the success of IGALMITM, and the development of four of our product
candidates, BXCL501, BXCL502, BXCL701 and BXCL702. If we are unable to complete the clinical development of or
obtain marketing approval for our product candidates or successfully commercialize IGALMITM 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 have only one product that has received regulatory approval and may never be able to develop additional
marketable product candidates. We are continuing to invest a significant portion of our efforts and financial resources in the
commercialization of IGALMITM and development of our four product candidates, BXCL501, BXCL502, BXCL701 and
BXCL702, as well as other product candidates. In connection with the Reprioritization, we have significantly reduced the
resources devoted to commercialization of IGALMITM and it is possible that will have adverse consequences on the
revenue that we are able to generate from IGALMITM in the near term. As part of the Company’s Reprioritization, the
IGALMITM commercial team shifted focus to a hospital/Integrated Delivery Network (“IDN”) contracting strategy with a
Corporate Account Director (CAD) team. The goal of the realigned CAD team is to work with large IDNs and drive sales
utilizing a top-down approach. Over time, the revised commercial effort is expected to allow the Company to continue to
make inroads into the institutional market in a more cost-efficient manner. However, we have limited experience in drug
development and commercialization, and our prospects are substantially dependent on our ability, or that of any future
collaborator, to develop, obtain marketing approval for and successfully commercialize product candidates in one or more
additional disease indications.
The success of IGALMITM, and of BXCL501, BXCL701, BXCL502 and our other product candidates will depend on
several factors, including the following:
● acceptance of an investigational new drug application (“IND”) by the FDA or acceptance of comparable
applications by foreign regulatory authorities allowing us to conduct clinical trials of our product candidates in
the U.S. or in foreign jurisdictions;
● initiation, progress, timing, costs and results of clinical trials of our product candidates and potential product
candidates, including any delays caused by the developments relating to the TRANQUILITY program, and any
additional trials we may need to conduct prior to seeking approvals for BXCL501 in at-home and/or care
facilities;
● 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 U.S. and
internationally;
● protection of our rights in our intellectual property portfolio;
● successful launch of commercial sales following any marketing approval;
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● 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 commercialize IGALMITM or 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 because 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. The results and related findings and conclusions based on such preliminary
data are subject to change, and have in the past changed, following a more comprehensive review of the data related to the
particular study or trial. 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 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, 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
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setbacks in advanced clinical trials due to nonclinical findings made while clinical studies are 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 a
product candidate’s clinical development and may vary among jurisdictions. We obtained regulatory approval for our first
product candidate for the acute treatment of agitation associated with schizophrenia or bipolar I or II disorder, which is in
the early stages of commercialization. It is possible that none of our other product candidates, or any product candidates we
may seek to develop in the future, will ever obtain regulatory approval.
Our current product candidates, or any that may be developed in the future, could fail to receive regulatory approval
for many reasons, including the following:
● the FDA, or comparable foreign regulatory authorities, may disagree with the design or implementation of our
clinical trials;
● we may be unable to demonstrate to the satisfaction of the FDA, or comparable foreign regulatory authorities,
that a product candidate is safe and effective for its proposed indication;
● the results of clinical trials may not meet the level of statistical significance required by the FDA, or comparable
foreign regulatory authorities, for approval;
● the FDA, or comparable foreign regulatory authorities, may disagree with our interpretation of data from
preclinical studies or clinical trials;
● the data collected from clinical trials of our product candidates may not be sufficient to support the submission of
an NDA or other submission or to obtain regulatory approval in the U.S. 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 comparable foreign regulatory pathways;
● the FDA, or comparable foreign regulatory authorities, may fail to approve the manufacturing processes or
facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and
● the approval policies or regulations of the FDA, or comparable foreign regulatory authorities, may significantly
change in a manner rendering our clinical data insufficient for approval.
We have limited experience in completing clinical trials of product candidates. Consequently, we may not have the
necessary capabilities, including adequate staffing, to successfully manage the execution and completion of 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 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 only submitted one NDA to the FDA and have not submitted any similar marketing applications to
comparable foreign authorities, for any product candidate, and we cannot be certain that our product candidates currently in
development, or any than may be developed in the future, will be successful in clinical trials or receive regulatory approval.
Further, our product candidates currently in development, or any that may be developed in the future, may not
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receive regulatory approval even if we believe they are successful in clinical trials. If we do not receive regulatory
approvals for additional product candidates, we may not be able to continue our operations. For any 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 IGALMITM or our other product candidates are not as significant as we estimate, we may not generate
significant revenues from sales of IGALMITM or such other product candidates, if approved.
We plan to seek regulatory approval to commercialize our product candidates in the U.S., the European Union (“EU”)
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.
In addition, the FDA’s and other regulatory authorities’ policies with respect to clinical trials may change and
additional government regulations may be enacted. For instance, the regulatory landscape related to clinical trials in the EU
recently evolved. The EU Clinical Trials Regulation (“CTR”), which was adopted in April 2014 and repeals the EU
Clinical Trials Directive, became applicable on January 31, 2022. While the Clinical Trials Directive required a separate
clinical trial application (“CTA”), to be submitted in each member state in which the clinical trial takes place, to both the
competent national health authority and an independent ethics committee, the CTR introduces a centralized process and
only requires the submission of a single application for multi-center trials. The CTR allows sponsors to make a single
submission to both the competent authority and an ethics committee in each member state, leading to a single decision per
member state. The assessment procedure of the CTA has been harmonized as well, including a joint assessment by all
member states concerned, and a separate assessment by each member state with respect to specific requirements related to
its own territory, including ethics rules. Each member state’s decision is communicated to the sponsor via the centralized
EU portal. Once the CTA is approved, clinical study development may proceed. The CTR foresees a three-year transition
period. The extent to which ongoing and new clinical trials will be governed by the CTR varies. For clinical trials whose
CTA was made under the Clinical Trials Directive before January 31, 2022, the Clinical Trials Directive will continue to
apply on a transitional basis for three years. Additionally, sponsors could choose to submit a CTA under either the Clinical
Trials Directive or the CTR until January 31, 2023 and, if authorized, those are governed by the Clinical Trials Directive
until January 31, 2025. By that date, all ongoing trials will become subject to the provisions of the CTR.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies
governing clinical trials, our development plans may be impacted.
Clinical trials are expensive, time-consuming, difficult to design, difficult to conduct, 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, in accordance with applicable law and regulations. Failure can occur at any time
during the clinical trial process. Although we are planning for certain clinical trials relating to BXCL501, BXCL701,
BXCL502 and our other product candidates, there can be no assurance that the FDA, or other comparable foreign
regulatory authorities, will accept our proposed trial designs as sufficient to establish the safety and/or efficacy of our
product candidates.
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:
● the FDA, or comparable foreign regulatory authorities, disagreeing as to the design or implementation of our
clinical studies;
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● obtaining regulatory allowances or authorizations to commence a trial or consensus with regulatory authorities on
trial designs;
● reaching agreement on acceptable terms with prospective contract research organizations (“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;
● obtaining institutional review board approval at each site, or independent ethics committee approval at any sites
outside the U.S.;
● 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 SAEs 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;
● manufacturing sufficient quantities of a product candidate for use in clinical trials;
● 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 (“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, GCPs or
other regulatory requirements; or
● third-party contractors not performing data collection or analysis in a timely or accurate manner; third-party
contractors not complying with training and trial protocol; or third-party contractors becoming debarred or
suspended or otherwise penalized by the FDA, such as in the case of the recent events relating to the
TRANQUILITY II clinical trial, or other government or regulatory authorities, for violations of regulatory
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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.
We could encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which
such trials are being conducted, by the Data Safety Monitoring Board (“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, which increases
the risk that such CROs or trial sites may fail to perform in accordance with regulatory requirements, clinical trial protocols
or with the agreements governing their services to us. For example, investigator misconduct affecting our TRANQUILITY
II trial, which evaluated BXCL501 in patients with probable Alzheimer’s disease, may have a material adverse impact on
our development program for BXCL501 in these patients, as described more fully in the risk factor above entitled:
“Developments relating to our TRANQUILITY II Phase 3 trial may impact the timing of our development plans for, and
prospects for seeking or obtaining regulatory approval of, BXCL501 for the acute treatment of agitation (non-daily)
associated with dementia in patients with probable Alzheimer’s disease.”
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 due to differences in health care 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. For example, current geopolitical conflicts in Eastern Europe and the Middle East may
adversely impact our ability to conduct trials in those regions and elsewhere.
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 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, 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.
Many pharmaceutical companies are conducting clinical trials in patients with the disease indications that our product
candidates are designed to 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.
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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.
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 or
other comparable foreign authorities. The clinical evaluation of BXCL501, BXCL502, BXCL701, BXCL702 and our other
product candidates in patients, in many cases, is ongoing 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 of BXCL701 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.
If we observe drug-related AEs or other unacceptable safety concerns in clinical trials, we, the FDA, the IRBs 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 observed in our clinical trials and upon
commercialization of any of our product candidates that may receive regulatory approval. 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 we or others later identify undesirable side effects caused by IGALMITM or any other product
candidate that receives marketing approval, 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;
● 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 (“REMS”) or create a medication
guide outlining the risks of such side effects for distribution to patients, or similar risk management measures;
● we could be sued and held liable for harm caused to patients;
● 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 or
product candidate, if approved, and could significantly harm our business, results of operations and prospects.
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The discovery and development of product candidates based on EvolverAI, BioXcel LLC’s proprietary pharmaceutical
discovery and development engine, and our artificial intelligence (“AI”) platform is novel and unproven, and we do not
know whether we will be able to develop any products of commercial value.
We are leveraging our own AI platform and BioXcel LLC’s EvolverAI, a proprietary pharmaceutical discovery and
development engine, 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 our AI platform and BioXcel LLC’s 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 novel. Although we obtained FDA
approval for IGALMITM, because our approach is novel, the cost and time needed to develop our product candidates is
difficult to predict, and our efforts may not result in the discovery and development of commercially viable medicines. We
may also be incorrect about the effects of our product and 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.
The Company’s AI platform and BioXcel LLC’s EvolverAI may fail to help us discover and develop additional potential
product candidates.
Any drug discovery that we are conducting using the Company’s AI platform and BioXcel LLC’s EvolverAI may not
be successful in identifying compounds that have commercial value or therapeutic utility. The Company’s AI platform and
BioXcel LLC’s EvolverAI may initially show promise in identifying potential product candidates, yet fail to yield viable
additional product candidates for clinical development or potential commercialization for a number of reasons, including:
● 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 the Company’s AI platform and BioXcel LLC’s 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.
Regulators may limit our ability to develop or implement our proprietary AI algorithms and/or may eliminate or restrict
the confidentiality of our proprietary technology, which could have an adverse effect on our business, results of
operations, and financial condition.
Our future success depends on our ability to continue to develop and implement our proprietary AI algorithms and
models, and to maintain the confidentiality of this technology. Changes to existing regulations, their interpretation or
implementation, or new regulations could impede our use of this technology or require that we disclose our proprietary
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technology to our competitors, which could impair our competitive position and result in an adverse effect on our business,
results of operations and financial condition.
We obtained Fast Track designation for certain of our product candidates, 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. An NDA for 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 obtained Fast Track designation for BXCL501 for the acute treatment
of mild-to-moderate agitation associated with schizophrenia, bipolar disorder, and dementia, and we further obtained Fast
Track designation for BXCL701, in combination with a checkpoint inhibitor, for the treatment of patients with metastatic
SCNC with progression on chemotherapy and no evidence of microsatellite instability, and we may seek additional Fast
Track designation for BXCL501 or 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.
A Breakthrough Therapy designation by the FDA, even if granted for any of our product candidates, may not lead to a
faster development or regulatory review or approval process and it does not increase the likelihood that our product
candidates will receive marketing approval.
We obtained Breakthrough Therapy Designation for BXCL501 for the acute treatment of agitation associated with
dementia, and we may seek additional Breakthrough Therapy designations for our product candidates if the clinical data
support such a designation for one or more product candidates. A Breakthrough Therapy is defined as a drug or biologic
that is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening
disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement
over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early
in clinical development. For product candidates that have been designated as Breakthrough Therapies, interaction and
communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical
development while minimizing the number of patients placed in ineffective control regimens. Product candidates
designated as Breakthrough Therapies by the FDA also receive the benefits associated with Fast Track designation,
including the potential for rolling review of an NDA.
Designation as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe one of
our product candidates meets the criteria for designation as a Breakthrough Therapy, the FDA may disagree and instead
determine not to make such designation. In any event, the receipt of a Breakthrough Therapy designation for a product
candidate may not result in a faster development process, review or approval compared to drugs considered for approval
under non-expedited FDA review procedures and does not assure ultimate approval by the FDA. In addition, even if one or
more of our product candidates qualify as breakthrough therapies, the FDA may later decide that the product no longer
meets the conditions for qualification or decide that the period for FDA review or approval will not be shortened.
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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. The
Hatch-Waxman Act added Section 505(b)(2) to the Federal Food, Drug and Cosmetic Act (“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. 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. For example, 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 treatment with BXCL701. 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. In January 2024, the FDA announced that it intends to initiate the process to reclassify most in vitro
diagnostic tests (“IVDs”) that are currently Class III into Class II, including companion diagnostic IVDs. If such
reclassification efforts occur, any companion diagnostics that are the subject of the down-classification may no longer
require premarket approval, but rather may be marketed pursuant to the generally less burdensome 510(k) clearance
process. However, there is no assurance that any companion diagnostic required for our pharmaceutical development
programs will benefit from the reclassification, or that the reclassification, even if it does occur, will result in a shorter
timeline to development or marketing of the companion diagnostic.
If the FDA, or a comparable foreign regulatory authority, requires approval (or 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
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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.
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 No. 2017/746 (“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 became
effective in May 2022. However, on October 14, 2021, the European Commission proposed a “progressive” roll-out of the
IVDR to prevent disruption in the supply of in vitro diagnostic medical devices. The European Parliament and Council
adopted the proposed regulation on December 15, 2021. The IVDR has applied since May 26, 2022, but there is a tiered
system extending the grace period for many devices (depending on their risk classification) before they have to be fully
compliant with the regulation.
The regulation of companion diagnostics in the EU is subject to further requirements since the IVDR became
applicable as it introduced a new classification system for companion diagnostics. Companion diagnostics will have to
undergo a conformity assessment by a notified body. Before it can issue an EU 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 (“MA”)
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 authority or the EMA.
These modifications may make it more difficult and costly for us to obtain regulatory clearances, approvals or
certifications for our companion diagnostics or to manufacture, market or distribute our products after clearance, approval
or certification is obtained.
Although the FDA has approved IGALMITM for the acute treatment of agitation associated with schizophrenia or
bipolar I or II disorder, we will still face extensive and ongoing regulatory requirements and obligations for IGALMITM
and for any product candidates for which we obtain approval.
Any regulatory approvals that we may receive for IGALMITM or any of our product candidates will require the
submission of reports to regulatory authorities and surveillance to monitor the safety and efficacy of the product, may
contain significant limitations related to use restrictions for specified age groups, warnings, precautions or
contraindications, and may include burdensome post-approval study or risk management requirements. For example, the
FDA-approved label for IGALMITM includes certain warnings and precautions regarding hypotension, orthostatic
hypotension, bradycardia, somnolence, and QT interval prolongation. The FDA may also require a REMS to approve a
product candidate, which could entail requirements for a medication guide, physician training and communication plans or
additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization
tools.
In addition, the manufacturing processes, labeling, packaging, distribution, AE reporting, storage, advertising,
promotion, import, export and recordkeeping for IGALMITM are and will remain subject to extensive and ongoing
regulatory requirements. These requirements include submissions of safety and other post-marketing information and
reports, registration, and on-going compliance with cGMPs, and GCPs for any clinical trials that we conduct post-approval.
In addition, manufacturers of drug products and their facilities are subject to continual review and periodic, unannounced
inspections by the FDA and other regulatory authorities for compliance with cGMP regulations and standards. If we or a
regulatory authority discover previously unknown problems with a product, such as AEs of unanticipated severity or
frequency, or problems with the facilities where the product is manufactured, a regulatory
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authority may impose restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal
of the product from the market or suspension of manufacturing.
In addition, discovery of previously unknown AEs or other problems with our products, manufacturers or
manufacturing processes or failure to comply with regulatory requirements, may yield various results, including:
● restrictions on manufacturing such products;
● restrictions on the labeling or marketing of products;
● restrictions on product manufacturing, distribution or use;
● requirements to conduct post-marketing studies or clinical trials;
● warning letters or untitled letters;
● withdrawal of the products from the market;
● 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 policies of the FDA and other regulatory authorities 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. 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 U.S. or abroad.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label
uses.
The FDA and other regulatory authorities strictly regulate marketing, labeling, advertising and promotion of
prescription drugs. These regulations include standards and restrictions for direct-to-consumer advertising, industry-
sponsored scientific and educational activities, promotional activities involving the internet and off-label promotion. Any
regulatory approval that the FDA or any other regulatory authority may grant is limited to those specific diseases and
indications for which a product is deemed to be safe and effective. For example, the FDA-approved label for IGALMITM is
currently limited to the acute treatment of agitation associated with schizophrenia or bipolar I or II disorder in adults to be
self-administrated by patients under the supervision of a health care provider.
While physicians in the U.S. may choose, and are generally permitted, to prescribe drugs for uses that are not
described in the product’s labeling and for uses that differ from those tested in clinical trials and approved by the regulatory
authorities, our ability to promote the products is narrowly limited to those indications that are specifically approved by the
FDA. These “off-label” uses are common across medical specialties and may constitute an appropriate treatment for some
patients in varied circumstances. For example, other formulations of Dex, the active ingredient in IGALMITM, have been
approved for uses beyond those authorized in IGALMITM approved labeling, such as for use in sedation of surgical
patients, and we are continuing to develop BXCL501 for potential use in patients with dementia, MDD, Alzheimer’s
disease and other indications. We do not market or promote IGALMITM for these uses.
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Regulatory authorities in the U.S. generally do not regulate the behavior of physicians in their choice of treatments.
Regulatory authorities do, however, restrict communications by pharmaceutical companies on off-label use. 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 require 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 IGALMITM or 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 and foreign regulatory authorities 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 or
foreign regulatory authorities’ ability to hire and retain key personnel and accept the payment of user fees, and other events
that may otherwise affect the FDA’s or foreign regulatory authorities’ ability to perform routine functions. Average review
times at the FDA and foreign regulatory authorities have fluctuated in recent years as a result of some of these
aforementioned issues. 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, 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, the FDA postponed most inspections of domestic and foreign
manufacturing facilities at various points. Even though the FDA has since resumed standard inspection operations, any
resurgence of the virus or emergence of new variants may lead to further inspectional delays. If a prolonged government
shutdown occurs, or if global health concerns 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 conduct certain of or portions of our clinical trials for our product candidates outside of the U.S. and the FDA
may not accept data from such trials, in which case our development plans will be delayed, which could materially harm
our business.
We may choose to conduct one or more of our clinical trials or a portion of our clinical trials for our product
candidates outside the U.S. The acceptance of study data from clinical trials conducted outside the U.S. or another
jurisdiction by the FDA or comparable foreign regulatory authority may be subject to certain conditions or may not be
accepted at all. In cases where data from foreign clinical trials are intended to serve as the sole basis for marketing approval
in the U.S., the FDA will generally not approve the application on the basis of foreign data alone unless (i) the data are
applicable to the U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of
recognized competence and pursuant to GCP regulations; and (iii) the data may be considered valid without the need for an
on-site inspection by the FDA, or if the FDA considers such inspection to be necessary, the FDA is able to validate the data
through an on-site inspection or other appropriate means. In addition, even where the foreign study data are not intended to
serve as the sole basis for approval, if the clinical trial was not otherwise subject to an IND, the FDA will not accept the
data as support for an application for marketing approval unless the study was conducted in accordance with GCP
requirements and the FDA is able to validate the data from the study through an on-site inspection if deemed necessary.
Many foreign regulatory authorities have similar approval requirements. In addition, such foreign trials would be subject to
the applicable local laws of the foreign jurisdictions where the trials are conducted. There can be no assurance that the
FDA or any comparable foreign regulatory authority will accept data from trials conducted outside of the U.S. or the
applicable jurisdiction. If the FDA or any comparable foreign regulatory
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authority does not accept such data, it would result in the need for additional trials, which could be costly and time-
consuming, and could result in current or future product candidates that we may develop not receiving approval for
commercialization in the applicable jurisdiction.
We may be subject to extensive regulations outside the U.S. and may not obtain marketing approvals for products in
Europe and other jurisdictions.
In addition to regulations in the U.S., should we or our collaborators pursue marketing approvals for IGALMITM, and
for BXCL501, BXCL502, BXCL701, BXCL702 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 IGALMITM, and may pursue marketing approvals for BXCL501,
BXCL502, BXCL701, BXCL702 and our other product candidates in Europe and other jurisdictions outside the U.S. 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 U.S. Also, regulatory 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 (“UK”), the
UK formally withdrew from the EU on January 31, 2020 and ratified a trade and cooperation agreement governing its
future relationship (commonly referred to as “Brexit”). The agreement, which was applied provisionally from January 1,
2021 and entered into force on May 1, 2021, addresses trade, economic arrangements, law enforcement, judicial
cooperation and a governance framework including procedures for dispute resolution, among other things. Because the
agreement merely sets forth a framework in many respects and requires complex additional bilateral negotiations between
the UK and the EU as both parties continue to work on the rules for implementation, significant political and economic
uncertainty remains about how the precise terms of the relationship between the parties will differ from the terms before
withdrawal.
Since January 1, 2021, the UK operates under a distinct regulatory regime to the EU. EU pharmaceutical laws only
apply in respect of the UK to Northern Ireland (as set out in the Protocol on Ireland/Northern Ireland). EU laws which have
been transposed into UK law through secondary legislation continue to be applicable as “retained EU law”. While the UK
has indicated a general intention that new laws regarding the development, manufacture and commercialization of
medicinal products in the UK will align closely with EU law, there are limited detailed proposals for future regulation of
medicinal products. The trade and cooperation agreement includes specific provisions concerning medicinal products,
which include the mutual recognition of cGMP, inspections of manufacturing facilities for medicinal products and cGMP
documents issued (such mutual recognition can be rejected by either party in certain circumstances) but does not foresee
wholesale mutual recognition of UK and EU pharmaceutical regulations. For example, it is not clear to what extent the UK
will adopt legislation aligned with, or similar to, the EU CTR which became applicable on January 31, 2022 and which
significantly reforms the assessment and supervision processes for clinical trials throughout the EU. On January 17, 2022,
the UK Medicines and Healthcare products Regulatory Agency (“MHRA”) launched an eight-week consultation on
reframing the UK legislation for clinical trials which aimed to streamline clinical trials approvals, enable innovation,
enhance clinical trials transparency, enable greater risk proportionality, and promote patient and public involvement in
clinical trials. The MHRA responded to the consultation on March 21, 2023 and confirmed that it would bring forward
changes to the legislation. The final legal texts introduced by the UK Government will ultimately determine the extent to
which the UK clinical trials framework aligns with or diverges from the EU CTR. A decision by the UK not to closely
align its regulations with the new approach that will be adopted in the EU may have an effect on the cost of conducting
clinical trials in the UK as opposed to other countries.
Therefore, there remains political and economic uncertainty regarding to what extent the regulation of medicinal
products will differ between the UK and the EU in the future. Any divergences will increase the cost and complexity of
running our business, including with respect to the conduct of clinical trials. Brexit also materially impacted the
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regulatory regime with respect to the approval of our product candidates. Great Britain is no longer covered by the EU’s
procedures for the grant of MAs (Northern Ireland is covered by the centralized authorization procedure and can be
covered under the decentralized or mutual recognition procedures). As of January 1, 2021, all existing centralized MAs
were automatically converted into UK MAs effective in Great Britain and issued with a UK MA number on January 1,
2021 (unless MA holders opted out of this scheme). A separate MA is now required to market drugs in Great Britain. It is
currently unclear whether the regulator in the UK, the MHRA, is sufficiently prepared to handle the increased volume of
MA applications that it is likely to receive. Any delay in obtaining, or an inability to obtain, any regulatory approvals, as a
result of Brexit or otherwise, would prevent us from commercializing our product candidates in Great Britain 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 Great Britain for our product candidates, which could significantly
and materially harm our business. Any of these factors could have a significant adverse effect on our business, financial
condition, results of operations and prospects.
If we are found in violation of federal, state or foreign health care “fraud and abuse” laws, we may be required to pay
significant fines and penalties, including, without limitation, debarment, suspension or exclusion from participation in
federal, state or similar health care programs, which may adversely affect our business, financial condition and results
of operations.
In the U.S., we are 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, and our ability to successfully commercialize our products in the U.S. We may have to comply with similar
laws and regulations outside the U.S. These laws include:
● 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;
● the Health Insurance Portability and Accountability Act of 1996 (“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 health care 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 health care program, unless an exception applies;
● federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and
activities that potentially harm consumers;
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● the federal physician sunshine requirements under the Patient Protection and Affordable Care Act (“ACA”),
which requires certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to the
Centers for Medicare & Medicaid Services (“CMS”) information related to payments and other transfers of value
to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain non-
physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified registered
nurse anesthetists, anesthesiologist assistants, and certified nurse midwives), and teaching hospitals, and
ownership and investment interests held by physicians 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 health care 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
health care providers or marketing expenditures and pricing information; and
● European and other foreign law equivalents of each of the laws, including reporting requirements detailing
interactions with and payments to health care 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 or foreign health care 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, 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
exceeds the limits of our insurance coverage. We have supplemented our clinical trial coverage with product liability
coverage in connection with the commercial launch of IGALMITM and expect that we would similarly supplement our
coverage for any of our other product candidates that may receive regulatory approval, but 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 or if we fail to accurately forecast demand or manage our inventories,
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 or product candidates we
develop or acquire, including, among others:
● the price of our products relative to other products for the same or similar treatments;
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● the perception by patients, physicians and other members of the health care community of the effectiveness,
utility 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, including our strategic refocus to hospital/IDNs as part of the
Reprioritization.
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 plan to continue to commercialize IGALMI TM sublingual film for the acute treatment of agitation associated with
schizophrenia or bipolar I or II disorder, to be self-administered by patients under the supervision of a healthcare provider,
which is our only approved product to date. However, in connection with the Reprioritization, we significantly reduced the
resources devoted to commercialization of IGALMI TM and it is possible that will have adverse consequences on the
revenue that we are able to generate from IGALMI TM. Revenues for IGALMI TM for the year ended December 31, 2023
were $1.4 million. If our commercial products do not gain market acceptance, we may not be able to fund future
operations, including developing, testing and obtaining regulatory approval for an sNDA for other BXCL501 indications,
including in the at-home setting for the acute treatment of agitation (non-daily) associated with dementia due to probable
Alzheimer’s disease, or for other product candidates that it may develop. Our results of operations could be materially
harmed if we are unable to successfully commercialize IGALMI TM for any currently or additionally approved indications
or any future product candidates that we may have approved.
Our results of operations could be materially harmed if we are unable to accurately forecast customer demand for
IGALMITM and manage our inventory. To ensure adequate inventory supply, we must forecast inventory needs and place
orders with our suppliers based on our estimates of future demand for IGALMITM. Our ability to accurately forecast
demand for IGALMITM could be negatively affected by many factors, including our failure to accurately manage our
expansion strategy, product introductions by competitors, an increase or decrease in customer demand for IGALMITM or
for products of our competitors, our failure to accurately forecast customer acceptance of new products, unanticipated
changes in general market conditions or regulatory matters, and weakening of economic conditions or consumer
confidence in future economic conditions. Inventory levels in excess of customer demand may result in inventory write-
downs or write-offs, which would cause our gross margin to be adversely affected and could impair the strength of our
brand. Conversely, if we underestimate customer demand for IGALMITM, our third-party contract manufacturer may not be
able to deliver products to meet our requirements, and this could result in damage to our reputation and customer
relationships. In addition, if we experience a significant increase in demand, additional supplies of raw materials or
additional manufacturing capacity may not be available when required on terms that are acceptable to us, or at all, or
suppliers or our third-party manufacturers may not be able to allocate sufficient capacity in order to meet our increased
requirements, which could have an adverse effect on our ability to meet customer demand for IGALMITM and our results
of operations.
We seek to maintain sufficient levels of inventory to protect ourselves from supply interruptions. As a result, we are
subject to the risk that a portion of our inventory will become obsolete or expire, which could have a material adverse
effect on our earnings and cash flows due to the resulting costs associated with the inventory impairment charges and costs
required to replace such inventory.
Our estimated number of episodes of agitation and our corresponding estimated total addressable market are subject to
inherent challenges and uncertainties. If we have overestimated the number of episodes or the size of our total
addressable market for our current and potential future products or product candidates, or if any approval that we
obtain is based on a narrower definition of the patient population, our revenue and ability to achieve profitability may
be harmed.
We have based our potential market opportunity on a number of internal and third-party estimates and resources,
including, without limitation, management’s estimates and research, as well as industry and general publications and
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research, surveys and studies conducted by third parties, which may be incorrect. Our estimated potential market
opportunity is based on estimates of episodes of agitation across our indications, and these estimated episodes of agitation
are also based on internal and third-party estimates and market resources using data self-reported by patients. The
conditions supporting our assumptions or estimates and the market data supporting these assumptions and estimates may
change at any time or otherwise be inaccurate, thereby reducing the predictive accuracy of these underlying factors. Our
total addressable market will ultimately depend upon, among other things, the number of actual treatable episodes, the
diagnosis criteria included in the final label for each of our product candidates, if approved for sale for these indications,
acceptance by the medical community and patient access, drug pricing and reimbursement. The number of patients and
treatable episodes in the United States and other major markets and elsewhere may turn out to be materially lower than
expected, the number of treatable episodes may be significantly fewer than total episodes experienced, patients may not be
otherwise amenable to treatment with our product candidates or new patients may become increasingly difficult to identify
or gain access to, all of which would harm our results of operations and our business. For example, our estimates of the
monthly average episodes for patients diagnosed with bipolar disorder and patients diagnosed with schizophrenia and,
therefore, our estimated total addressable market are based on third-party market surveys which differ from an
observational study in the EU of inhaled loxapine for the treatment of agitation in patients with schizophrenia or bipolar
disorder conducted which found that only 40% of enrolled patients reported agitation episodes in the six-month study
period. If third-party or internally generated data prove to be inaccurate or we make errors in our assumptions based on that
data, our total addressable market may be meaningfully smaller than we have estimated, our future growth opportunities
and sales growth may be impaired, any of which could have a material adverse effect on our business, financial condition
and results of operations.
We obtained 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 U.S. and EU, 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 U.S., or a patient population greater than 200,000 individuals in the U.S. where there is no
reasonable expectation that the cost of developing the drug will be recovered from sales in the U.S. In the EU, orphan drug
designation is granted by the European Commission based on a scientific opinion of the EMA’s Committee for Orphan
Medicinal Products. A medicinal product may be designated as orphan if its sponsor can establish that (i) the product is
intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition; (ii) either (a)
such condition affects no more than 5 in 10,000 persons in the EU when the application is made, or (b) the product, without
the benefits derived from orphan status, would not generate sufficient return in the EU to justify investment; and (iii) there
exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the EU, or
if such a method exists, the medicinal product will be of significant benefit to those affected by the condition. The
application for orphan designation must be submitted before the application for MA.
In the U.S., 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 or condition for which it has such designation, the product is
entitled to orphan drug exclusivity. Orphan drug exclusivity in the U.S. provides that the FDA may not approve any other
applications, including a full NDA, to market the same drug for the same disease or condition for seven years. In limited
circumstances, the applicable exclusivity period is 10 years in the EU. The EU 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 diseases or conditions or for other product
candidates. There can be no assurances that we will be able to obtain such designations.
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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
another company also holding orphan drug designation for the same product candidate will receive marketing approval for
the same disease or condition before we do. If that were to happen, our applications for that disease or condition may not
be approved until the competing company’s period of exclusivity expires. In addition, exclusive marketing rights in the
U.S. and abroad may be limited if we seek approval for an indication broader than the orphan-designated disease or
condition or may be lost if the FDA or foreign regulatory authorities 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
ingredients may be approved for the same disease or condition. Even after an orphan drug is approved, the FDA or foreign
regulatory authorities can subsequently approve the same drug with the same active ingredient for the same condition if the
FDA or foreign regulatory authorities conclude 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 or regulatory review
time of a drug, nor gives the drug any advantage in the regulatory review or approval process and does not 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
IGALMITM or any product candidate for which we may obtain regulatory approval.
We have limited experience in marketing and selling drug products. We have not entered into arrangements for the sale
and marketing of IGALMITM, BXCL501, BXCL502, BXCL701, BXCL702 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 the large number of physicians and hospitals. Following
our Reprioritization, we may need to rebuild a commercial sales and marketing team if we seek to modify our commercial
strategy for IGALMITM or initiate commercial sales for any product candidate in the future, which will likely require
significant cost. 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. We may also need to hire additional personnel skilled in marketing and sales for our direct
marketing and selling efforts. 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 maintenance and expansion of our direct sales force or
establishment of a contract sales force, or a combination thereof, as applicable, to market our products is expensive and
time-consuming and could delay any product launch. In addition, reputational harm from the Reprioritization may
adversely impact our efforts to hire personnel skilled in marketing and sales. Further, we can give no assurances that we
will 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. A direct sales force has in the past subjected and may
in the future subject us to higher fixed costs than those of companies that market competing products through independent
third parties, due to the costs that we bear associated with employee benefits, training, and managing sales personnel. As a
result, we could be at a competitive disadvantage. Additionally, these fixed costs may slow our ability to reduce costs if
needed, which could have a material adverse effect on our business, financial condition, and results of operations.
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 U.S., the EU and other jurisdictions.
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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.
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 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 products
and product candidates, if any, that we commercialize. The inability to compete with existing or subsequently introduced
drugs would harm our business, financial condition and results of operations.
Although we obtained FDA approval for IGALMITM, our products and product candidates may not be accepted by
physicians or the medical community in general, and there may be insufficient insurance coverage and reimbursement.
There can be no assurance that IGALMITM, or BXCL501, BXCL502, BXCL701, BXCL702 and our other product
candidates or any other product candidate successfully developed by us, independently or with partners, if approved, will
be accepted by physicians, hospitals and other health care facilities. IGALMITM competes, and BXCL501, BXCL502,
BXCL701, BXCL702 and any future product candidates we develop will compete, with a number of products
manufactured and marketed by major pharmaceutical and biotechnology companies. The degree of market acceptance of
IGALMITM and any drugs we develop depends on a number of factors, including:
● our demonstration of the clinical efficacy and safety of our products and product candidates;
● timing of market approval and commercial launch of our products and product candidates;
● the clinical indication(s) for which our products and product candidates are approved;
● product label and package insert requirements;
● advantages and disadvantages of our products and 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 coverage and reimbursement in select jurisdictions, and future changes to coverage and
reimbursement policies of government and third-party payors.
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Significant uncertainty exists as to the coverage and reimbursement status of IGALMITM or any product candidate for
which we obtain regulatory approval. In the U.S. and other countries, sales of IGALMITM and any other products for which
we receive regulatory approval for commercial sale will depend in part on the availability of coverage and reimbursement
from third-party payors. Third-party payors include government health administrative authorities, such as Medicaid and
Medicare, managed care providers, private health insurers and other organizations.
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. IGALMITM and any other products for which we receive regulatory approval 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, state and foreign government proposals and health care reforms are likely which could
limit the prices that can be charged for IGALMITM and the product candidates that we develop and may further limit our
commercial opportunities. Our results of operations could be materially adversely affected by proposed health care
reforms, by the Inflation Reduction Act and other drug pricing legislation in the U.S., 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.
Health care reform measures could hinder or prevent our product candidates’ commercial success.
The U.S. government and other governments have shown significant interest in pursuing health care reform. Any
government-adopted reform measures could adversely impact the pricing of health care products and services in the U.S. or
internationally and the amount of reimbursement available from governmental agencies or other third-party payors for
IGALMITM and the product candidates that we develop. 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 health care 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 U.S., new health care legislation or fiscal challenges faced
by government health administration authorities. Specifically, in both the U.S. 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, in the U.S., the ACA, which was enacted in 2010, has substantially changed the way health care is
financed by both government health plans and private insurers, and significantly impacts the pharmaceutical industry. For
example, the ACA imposed a non-deductible excise tax on pharmaceutical manufacturers or importers that sell branded
prescription drugs to government programs. 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 required to provide a discount on branded
prescription drugs 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 changes to the Public Health Service’s 340B drug pricing program (the “340B program”) including
expansion of the list of eligible covered entities that may purchase drugs under the program.
Since its enactment, there have been judicial, executive and Congressional challenges to certain aspects of the ACA.
On June 17, 2021, the U.S. Supreme Court dismissed the most recent judicial challenge to the ACA brought by several
states without specifically ruling on the constitutionality of the ACA. Thus, the ACA will remain in effect in its current
form.
In addition, other legislative changes have been proposed and adopted in the U.S. since the ACA was enacted. These
changes include the Budget Control Act of 2011, which resulted in aggregate reductions of Medicare payments to
providers, which went into effect on April 1, 2013, and, due to subsequent legislative amendments to the statute, will
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remain in effect through 2032, unless additional Congressional action is taken. Furthermore, the American Taxpayer Relief
Act of 2012, 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. More recently, on
March 11, 2021, President Biden signed the American Rescue Plan Act of 2021 into law, which eliminates the statutory
Medicaid drug rebate cap, beginning January 1, 2024.
Most significantly, on August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (“IRA”) into law.
This statute marks the most significant action by Congress with respect to the pharmaceutical industry since adoption of the
ACA in 2010. Among other things, the IRA requires manufacturers of certain drugs to engage in price negotiations with
Medicare (beginning in 2026), with prices that can be negotiated subject to a cap; imposes rebates under Medicare Part B
and Medicare Part D to penalize price increases that outpace inflation (first due in 2023); and replaces the Part D coverage
gap discount program with a new discounting program (beginning in 2025). The IRA permits the Secretary of the
Department of Health and Human Services (“HHS”) to implement many of these provisions through guidance, as opposed
to regulation, for the initial years. On August 29, 2023, HHS announced the list of the first ten drugs that will be subject to
price negotiations. HHS has issued and will continue to issue guidance implementing the IRA, although the Medicare drug
price negotiation program is currently subject to legal challenges. While the impact of the IRA on the pharmaceutical
industry and our business cannot yet be fully determined, it is likely to be significant.
The cost of prescription pharmaceuticals in the U.S. will likely continue to be the subject of considerable discussion.
Members of Congress and the Biden Administration have indicated they will continue to pursue further legislative or
administrative measures to control prescription drug costs. There have been several Congressional inquiries, as well as
legislative and regulatory initiatives and executive orders designed to, among other things, bring more transparency to
product pricing, review the relationship between pricing and manufacturer patient programs, and reform government
program reimbursement methodologies for drug products. We cannot predict with certainty what impact any federal or
state health reforms will have on us, but such changes could impose new or more stringent regulatory requirements on our
activities or result in reduced reimbursement for our products, any of which could adversely affect our business, results of
operations and financial condition.
Individual states in the U.S. continue to consider and have enacted legislation to limit the growth of health care costs,
including the cost of prescription drugs and combination products. A number of states have either implemented or are
considering implementation of drug price transparency legislation that may prevent or limit our ability to take price
increases at certain rates or frequencies. Requirements under such laws include advance notice of planned price increases,
reporting price increase amounts and factors considered in taking such increases, wholesale acquisition cost information
disclosure to prescribers, purchasers, and state agencies, and new product notice and reporting. Such legislation could limit
the price or payment for certain drugs, and a number of states are authorized to impose civil monetary penalties or pursue
other enforcement mechanisms against manufacturers who fail to comply with drug price transparency requirements,
including the untimely, inaccurate, or incomplete reporting of drug pricing information. If we are found to have violated
state law requirements, we may become subject to penalties or other enforcement mechanisms, which could have a
material adverse effect on our business. 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 U.S. and foreign governments will continue to consider changes
to existing health care 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 governments, insurance
companies, managed care organizations and other payors of health care services to contain or reduce costs of health care
may adversely affect the demand for IGALMITM and any other 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.
In the EU, similar developments may affect our ability to profitably commercialize our product candidates, if
approved. In addition to continuing pressure on prices and cost containment measures, legislative developments at the EU
or member state level may result in significant additional requirements or obstacles that may increase our operating costs.
The delivery of healthcare in the EU, including the establishment and operation of health services and the pricing
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and reimbursement of medicines, is almost exclusively a matter for national, rather than EU, law and policy. National
governments and health service providers have different priorities and approaches to the delivery of health care and the
pricing and reimbursement of products in that context. In general, however, the healthcare budgetary constraints in most
EU member states have resulted in restrictions on the pricing and reimbursement of medicines by relevant health service
providers. Coupled with ever-increasing EU and national regulatory burdens on those wishing to develop and market
products, this could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval
activities and affect our ability to commercialize our product candidates, if approved. In markets outside of the U.S. and
EU, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price
ceilings on specific products and therapies.
On December 13, 2021, Regulation No 2021/2282 on Health Technology Assessment (“HTA”) amending Directive
2011/24/EU, was adopted. While the regulation entered into force in January 2022, it will only begin to apply from January
2025 onwards, with preparatory and implementation-related steps to take place in the interim. Once applicable, it will have
a phased implementation depending on the concerned products. The regulation intends to boost cooperation among EU
member states in assessing health technologies, including new medicinal products as well as certain high-risk medical
devices, and provide the basis for cooperation at the EU level for joint clinical assessments in these areas. It will permit EU
member states to use common HTA tools, methodologies, and procedures across the EU, working together in four main
areas, including joint clinical assessment of the innovative health technologies with the highest potential impact for
patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging
health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas.
Individual EU member states will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical)
aspects of health technology, and making decisions on pricing and reimbursement.
If we fail to comply with reporting and payment obligations under the Medicaid Drug Rebate Program or other
governmental pricing programs in the U.S., we could be subject to additional reimbursement requirements, penalties,
sanctions and fines, which could have a material adverse effect on our business, results of operations and financial
condition.
We participate in the Medicaid Drug Rebate Program (“MDRP”) and other federal and state government pricing
programs in the U.S., and we may participate in additional government pricing programs in the future. These programs
generally require manufacturers to pay rebates or otherwise provide discounts to government payors in connection with
drugs that are dispensed to beneficiaries of these programs. As a condition of having federal funds being made available for
covered outpatient drugs under Medicaid and Medicare Part B, a manufacturer must enroll in the MDRP. Under this
program, we must pay a rebate to state Medicaid programs for each unit of our covered outpatient drug dispensed to a
Medicaid beneficiary and paid for by a state Medicaid program. Medicaid drug rebates are based on pricing data that we
must report on a monthly and quarterly basis to CMS. For the MDRP, this data includes the average manufacturer price
(“AMP”) for each drug and, in the case of an innovator product, like IGALMITM, the best price. If we become aware that
our MDRP price reporting submission for a prior period was incorrect or has changed as a result of recalculation of the
pricing data, we must resubmit the corrected data for up to three years after the data originally was due. Further, under the
IRA, AMP figures we report will also be used to calculate a rebate on Medicare Part D utilization, triggered by price
increases that outpace inflation. If we fail to provide information timely or are found to have knowingly submitted false
information to the government, we may be subject to civil monetary penalties and other sanctions, including termination
from the MDRP, which would result in payment not being available for our covered outpatient drugs under Medicaid or, if
applicable, Medicare Part B. Failure to make necessary disclosures and/or to identify overpayments additionally could
result in allegations against us under the Federal False Claims Act and other laws and regulations.
Federal law requires that a manufacturer that participates in the MDRP also participate in the 340B program in order
for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B, and we participate in
the 340B program. The 340B program is administered by the Health Resources and Services Administration (“HRSA”)
and requires us to charge statutorily defined covered entities no more than the 340B “ceiling price” for our covered
outpatient drugs used in an outpatient setting. These 340B program covered entities include a variety of community health
clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a
disproportionate share of low-income patients. The 340B ceiling price is calculated using a statutory formula, which is
based on the AMP and rebate amount for the covered outpatient drug as calculated under the MDRP. In general, products
subject to Medicaid price reporting and rebate liability are also subject to the 340B ceiling price calculation and discount
requirement. We must report 340B ceiling prices to HRSA on a quarterly basis, and HRSA
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publishes them to 340B covered entities. HRSA has finalized regulations regarding the calculation of the 340B ceiling
price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered
entities for 340B eligible drugs. HRSA has also finalized an administrative dispute resolution process through which 340B
covered entities may pursue claims against participating manufacturers for overcharges, and through which manufacturers
may pursue claims against 340B covered entities for engaging in unlawful diversion or duplicate discounting of 340B
drugs. In addition, legislation may be introduced that, if passed, would further expand the 340B program, such as adding
further covered entities or requiring participating manufacturers to agree to provide 340B program discounted pricing on
drugs used in an inpatient setting.
In order to be eligible to have drug products paid for with federal funds under Medicaid and Medicare Part B and
purchased by certain federal agencies and grantees, we also must participate in the U.S. Department of Veterans Affairs
(“VA”) Federal Supply Schedule (“FSS”) pricing program. Under the VA/FSS program, we must report the Non-Federal
Average Manufacturer Price (“Non-FAMP”) for our covered drugs to the VA and charge certain federal agencies no more
than the Federal Ceiling Price, which is calculated based on Non-FAMP using a statutory formula. These four agencies are
the VA, the U.S. Department of Defense, the U.S. Coast Guard, and the U.S. Public Health Service (including the Indian
Health Service). We must also pay rebates on products purchased by military personnel and dependents through the
TRICARE retail pharmacy program. If we fail to provide timely information or are found to have knowingly submitted
false information, we may be subject to civil monetary penalties.
Individual states continue to consider and have enacted legislation to limit the growth of health care costs, including
the cost of prescription drugs and combination products. A number of states have either implemented or are considering
implementation of drug price transparency legislation that may prevent or limit our ability to take price increases at certain
rates or frequencies. Requirements under such laws include advance notice of planned price increases, reporting price
increase amounts and factors considered in taking such increases, wholesale acquisition cost information disclosure to
prescribers, purchasers, and state agencies, and new product notice and reporting. Such legislation could limit the price or
payment for certain drugs, and a number of states are authorized to impose civil monetary penalties or pursue other
enforcement mechanisms against manufacturers who fail to comply with drug price transparency requirements, including
the untimely, inaccurate, or incomplete reporting of drug pricing information. If we are found to have violated state law
requirements, we may become subject to penalties or other enforcement mechanisms, which could have a material adverse
effect on our business.
Pricing and rebate calculations are complex, vary among products and programs, and are often subject to interpretation
by manufacturers, governmental or regulatory agencies, and the courts. The terms, scope and complexity of these
government pricing programs change frequently, as do interpretations of applicable requirements for pricing and rebate
calculations. Responding to current and future changes may increase our costs and the complexity of compliance will be
time-consuming. Any required refunds to the U.S. government or responding to a government investigation or enforcement
action would be expensive and time consuming and could have a material adverse effect on our business, results of
operations and financial condition. Price recalculations under the MDRP also may affect the ceiling price at which we may
be required to offer products under the 340B program. Civil monetary penalties can be applied if we are found to have
knowingly submitted any false price or product information to the government, if we fail to submit required price data on a
timely basis, or if we are found to have charged 340B program covered entities more than the statutorily mandated ceiling
price. In the event that CMS were to terminate our Medicaid rebate agreement, pursuant to which we participate in the
MDRP, no federal payments would be available under Medicaid or Medicare for our covered outpatient drugs. We cannot
assure you that price data submissions we make will not be found to be incomplete or incorrect.
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, 2023, BioXcel LLC owned approximately 29% of the economic interest and voting power of our
outstanding common stock and BioXcel LLC is controlled by BioXcel Holdings, Inc. Our Chief Executive Officer and
member of our board of directors, Vimal Mehta, Ph.D., is the Chief Executive Officer, President, Treasurer and Secretary
and a member of the board of managers of BioXcel LLC and Chief Executive Officer, President, Treasurer
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and Secretary and the sole member of the board of directors of BioXcel Holdings, Inc. See “The management of and
beneficial ownership in BioXcel LLC by our executive officers and our directors may create, or may create the appearance
of, conflicts of interest.” below. Even though BioXcel LLC 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 LLC does not preclude the possibility of stockholder litigation,
including but not limited to derivative litigation nominally against BioXcel LLC and against its directors and officers
and also against us and our directors and officers.
The commercial terms of the Separation and Shared Services Agreement (as amended and/or restated and in effect as
of the date hereof, the “Services Agreement”), and the Amended and Restated Asset Contribution Agreement (as amended
and/or restated and in effect as of the date hereof, the “Contribution Agreement”), that we entered into with BioXcel LLC
have not been negotiated by persons consisting solely of disinterested directors.
No assurance can be given that any equity or debt holder of BioXcel LLC or the Company will not claim in a lawsuit
that such terms in fact are not in the best interests of BioXcel LLC or the Company and its applicable equity holders, that
the directors and officers of BioXcel LLC or the Company breached their fiduciary duties in connection with such
agreements and that any disclosures by the Company to its stockholders regarding these agreements and the relationship
between BioXcel LLC 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
would seek indemnification from BioXcel LLC 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 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 LLC to provide us with certain services for our business.
We rely, in part, on BioXcel LLC and access to its EvolverAI, to complement our in-house, uniquely integrated AI-to-
drug-development capability. EvolverAI is a research and development engine created and owned by BioXcel LLC, to
identify, research and develop potential product candidates in neuroscience and immuno-oncology. We negotiated the
Services Agreement with BioXcel LLC pursuant to which BioXcel LLC agreed to perform certain intellectual property
prosecution and management and research and development activities for us utilizing its EvolverAI.
Under the Services Agreement, we have an option, exercisable until December 31, 2024, to enter into a separate
collaborative services agreement with BioXcel LLC pursuant to which BioXcel LLC shall perform product identification
and related services for us utilizing its EvolverAI. We agreed to pay BioXcel LLC $18,000 per month from March 13,
2023, to December 31, 2024 in exchange for this option. We agreed to negotiate any such collaborative services agreement
in good faith and to incorporate reasonable market-based terms, including consideration for BioXcel LLC reflecting a low,
single-digit royalty on net sales and reasonable development and commercialization milestone payments, provided that (i)
development milestone payments shall not exceed $10 million in the aggregate and not be payable prior to proof of concept
in humans and (ii) commercialization milestone payments shall be based on reaching annual net sales levels, be limited to
3% of the applicable net sales level, and not exceed $30 million in the aggregate.
In addition, at the time of our initial public offering (“IPO”), BioXcel LLC granted us (i) a first right to negotiate
exclusive rights to any additional product candidates in the fields of neuroscience and immuno-oncology that BioXcel LLC
may identify on its own and not in connection with BioXcel LLC’s provision of services to us under the Services
Agreement and (ii) an exclusivity agreement in the neuroscience and immuno-oncology fields whereby BioXcel LLC
agreed not develop drugs, or engage in preclinical discovery for the purpose of developing drugs, in the neuroscience and
immuno-oncology fields for or on behalf of a third party, utilizing EvolverAI or otherwise. This first right to negotiate and
exclusivity period expired on March 12, 2023, and there is no assurance that we will extend the terms of the agreement. We
are continuing to assess our ongoing business needs.
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On September 19, 2023, the Company, Krishnan Nandabalan, Ph.D., InveniAI LLC (“Inveni”) and Invea Therapeutics,
Inc. (“Invea”) and the other parties thereto entered into a non-compete agreement pursuant to which Dr. Nandabalan,
Inveni and Invea agreed not to compete with the Company and its controlled affiliates in the fields of neuroscience and
immuno-oncology for a period of five years from September 19, 2023 and not to solicit employees of the Company or its
controlled affiliates for a period of two years from September 19, 2023. Inveni and Invea are subsidiaries of BioXcel LLC.
If our rights under the Services Agreement were to become limited or if we are otherwise precluded from conducting
research and development using EvolverAI, or if BioXcel LLC, Inveni or Invea do not fulfill their 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 we cannot control
whether they devote sufficient time, skill and resources to our ongoing development programs. We also cannot ensure that
BioXcel LLC retains sufficient resources or personnel or otherwise to conduct its operations. BioXcel LLC 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. BioXcel LLC is not currently restricted from using EvolverAI to perform drug discovery services for our direct
competitors, and if we do not extend the exclusivity period in the neuroscience and immuno-oncology fields, this could
harm our competitive position and adversely affect our future operating results and financial condition.
The management of and beneficial ownership in BioXcel LLC may create, or may create the appearance of, conflicts of
interest.
Our Chief Executive Officer and member of our board of directors, Vimal Mehta, Ph.D., is the Chief Executive
Officer, President, Treasurer and Secretary and a member of the board of managers of BioXcel LLC and Chief Executive
Officer, President, Treasurer and Secretary and the sole member of the board of directors of BioXcel Holdings, Inc.
Additionally, as of December 31, 2023, Dr. Mehta, through his beneficial ownership of BioXcel LLC, beneficially owned
approximately 31% of the Company. The management and ownership of BioXcel LLC by Dr. Mehta may create the
appearance of conflicts of interest when Dr. Mehta is faced with decisions that could have different implications for
BioXcel LLC than the decisions have for us, including decisions that relate to our Services Agreement and 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 and expose us to litigation risk.
Any disputes that arise between us and BioXcel LLC with respect to our past and ongoing relationships could harm our
business operations.
Disputes may arise between BioXcel LLC and us in a number of areas relating to our past and ongoing relationships,
including:
● intellectual property, technology and business matters, including failure to make required technology transfers
and failure to comply with contractual provisions applicable to BioXcel LLC and us;
● labor, tax, employee benefit, indemnification and other matters arising from the separation of BTI from BioXcel
LLC;
● distribution and supply obligations;
● employee retention and recruiting;
● business combinations involving us;
● sales or distributions by BioXcel LLC of all or any portion of its ownership interest in us;
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● the nature, quality and pricing of services BioXcel LLC has agreed to provide us; and
● business opportunities that may be attractive to both BioXcel LLC and us.
We entered into the Services Agreement with BioXcel LLC related to the separation of our business operations from
those of BioXcel LLC that contains certain limitations on BioXcel LLC’s ability to control various aspects of our business
and operations, notwithstanding BioXcel LLC’s substantial ownership position. This agreement may be amended upon
agreement between us and BioXcel LLC.
BioXcel LLC may experience challenges with the acquisition, development, enhancement, or deployment of technology
necessary for EvolverAI. We may face similar challenges with other AI platforms that we utilize, including our own in-
house proprietary platform.
BioXcel LLC 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 LLC 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,
biotechnology, 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 their clients in forms that are
easy to use while simultaneously providing clear answers to complex questions. We also utilize our own in-house AI
platform.
There can be no guarantee that we or BioXcel LLC will be able to develop, acquire or integrate new technologies, that
these new technologies will meet our and BioXcel LLC’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 BioXcel LLC’s
EvolverAI or other AI platforms that we utilize obsolete. BioXcel LLC’s and our continued success will depend on the
ability to adapt to changing technologies, manage and process ever-increasing amounts of data and information and
improve the performance, features and reliability of these services in response to changing client and industry demands. If
EvolverAI or other AI and machine learning models that we use are incorrectly designed, do not operate properly, the data
we use to train them is incomplete, inadequate or biased in some way, or if we do not have sufficient rights to use the data
on which our AI and machine learning models rely, the performance of our products, services and businesses, as well as
our reputation, could suffer or we could incur liability through the violation of laws, third-party privacy rights or contracts
to which we are a party. BioXcel LLC or we 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.
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 our commercial supplies of IGALMITM, and we intend to rely on third parties to produce commercial supplies of
any other approved product candidate. Therefore, our development of our products could be stopped or delayed, and our
commercialization of any future product could be stopped, 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.
We entered into a commercial supply agreement with ARx, LLC (“ARx”) pursuant to which ARx has agreed to
exclusively manufacture and supply us with all of our worldwide demand of film formulation of Dex to be used for the
commercial supply of IGALMITM and for ongoing clinical trials of our product candidate BXCL501, subject to certain
alternative supply provisions. If ARx is unable or ceases to produce our supply of Dex in sufficient quantities as and when
needed or if the ARx agreement becomes too costly, our business would be harmed because there can be no assurance that
we will be able to identify or enter into agreements with alternative suppliers on a timely basis on acceptable terms, if at
all. An interruption in our ability to sell our products to customers could occur if we encounter
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delays or difficulties in securing Dex, or if the quantity or quality supplied does not meet our specifications, or if we cannot
then obtain an acceptable substitute. If any of these events occur, our business and operating results could be harmed. Our
specified minimum annual payment could adversely affect our cash flows in the future, such as in times when we have
sufficient inventory and would otherwise be able to use our cash for other purposes.
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
or similar foreign requirements. Drug manufacturing facilities are subject to inspection before the FDA or foreign
regulatory authorities will issue an approval to market a new drug product, and ARx, the Patheon pharma services division
of Thermo Fisher Scientific Inc., and any other manufacturers that we may use must adhere to the cGMP or similar foreign
regulations prescribed by the FDA or foreign regulatory authorities.
As such, these third-party manufacturers will be required to comply with cGMPs, and other applicable laws and
regulations. We 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, ARx, the Patheon pharma services division of Thermo Fisher Scientific Inc., and/or our other 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 we, ARx, the Patheon
pharma services division of Thermo Fisher Scientific Inc., or our other 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 have been and may in the future be affected, which could disrupt their
activities and, as a result, we could face difficulty sourcing key components necessary to produce supply of our commercial
product and 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.
We, or third-party manufacturers on whom we rely, including ARx, may be unable to successfully scale-up
manufacturing of our product and product candidates in sufficient quality and quantity, which would delay or prevent
us from developing our product candidates and commercializing any approved products.
In order to conduct clinical trials of our product candidates and commercialize any approved product candidates, we,
or our manufacturers, including ARx, and the Patheon pharma services division of Thermo Fisher Scientific Inc., 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 approved products or product candidates in a timely or cost-effective manner, or
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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 approved products or 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 approved products, or to do
so on commercially reasonable terms, we may not be able to develop and commercialize our approved products or 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 products and product candidates may
include the formation of collaborative arrangements with third parties. 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:
● funding research, preclinical development, clinical trials and manufacturing;
● seeking and obtaining regulatory approvals; and
● successfully commercializing IGALMITM or product candidates.
If we are not able to establish 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 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 enforced by the
FDA, the competent authorities of the European Economic Area (“EEA”) countries 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 regulatory authorities determine that we or any of our CROs failed 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
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any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with product
produced under cGMP and similar foreign regulations. Any failure, whether by us or our CROs, to comply with these
regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
In addition, if any of our relationships with our 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 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. For example, investigator
misconduct during our TRANQUILITY II trial evaluating BXCL501 in patients with probable Alzheimer’s disease could
require us to conduct additional clinical trials before we are able to seek or obtain approval for BXCL501 for use in this
patient population, as described more fully in the risk factor above entitled: “Developments relating to our TRANQUILITY
II Phase 3 trial may impact the timing of our development plans for, and prospects for seeking or obtaining regulatory
approval of, BXCL501 for the acute treatment of agitation (non-daily) associated with dementia in patients with probable
Alzheimer’s disease.” 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 GCP 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 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
Pandemics, epidemics or outbreaks of an infectious disease, such as COVID-19, may materially and adversely impact
our business, including our preclinical studies and clinical trials.
As a result of outbreaks from variants of COVID-19, 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:
● delays or difficulties in initiating, operating and completing 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 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;
and
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● other interruptions or delays to our sourced discovery and clinical activities.
If we or any of the third parties with whom we engage were to experience shutdowns or other business disruptions
from COVID-19 or other pandemics, epidemics or outbreaks of infectious disease, our ability to conduct our business in
the manner and on the timelines presently planned could be materially and negatively impacted.
Unfavorable global political or economic events and conditions could adversely affect our business, financial condition
or results of operations.
Our results of operations could be adversely affected by general conditions in the world, and their impact on the global
economy and in the global financial markets. The global economy, including credit and financial markets, has recently
experienced extreme volatility and disruptions, including severely diminished liquidity and credit availability, rising
interest and inflation rates, declines in consumer confidence, declines in economic growth, increases in unemployment
rates and uncertainty about economic stability. A severe or prolonged economic downturn or recession and a continued
increase in inflation rates or interest rates could result in a variety of risks to our business, and our ability to raise additional
capital when needed on acceptable terms, if at all. There can be no assurance that further deterioration in credit and
financial markets and confidence in economic conditions will not occur. A weak or declining economy could also strain
our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services.
Increased inflation rates and related increases in interest rates can adversely affect us by increasing our costs, including
labor and employee benefit costs. In addition, events such as pandemics, epidemics, or outbreaks of an infectious disease
may materially and adversely impact our business if we or any of the third parties with whom we engage were to
experience shutdowns or other business disruptions. Furthermore, geopolitical conflicts and war, such as the current
military conflict between Russia and Ukraine and the war between Israel and Hamas, could disrupt or otherwise adversely
impact our operations and those of third parties upon which we rely. Related sanctions, export controls or other actions
have and may in the future be initiated by nations including the U.S., the EU or Russia (e.g., potential cyberattacks,
disruption of energy flows, etc.), which could adversely affect our business and/or our supply chain, our CROs, CMOs and
other third parties with which we conduct business. Any of the foregoing could harm our business and we cannot anticipate
all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
Our future success may depend on our ability to attract and retain qualified personnel, including consultants.
We are dependent on the principal members of our management and scientific teams. Our success and the execution of
our operating strategy, to the extent we continue operations, depend largely on the continued service of our employees. In
addition to our employees, we have access to certain of BioXcel LLC’s employees and resources through the various
agreements we have with BioXcel LLC. We have expanded our management team to include an operational ramp-up of
additional technical staff required to achieve our business objectives. We will need to retain such employees, and may need
to continue to expand our managerial, commercial, operational, technical, and scientific, financial, and other resources to
manage our operations and clinical trials, continue our research and development activities, and any approved product
candidates. Our management and scientific personnel, systems and facilities currently in place may not be adequate to
support our future growth.
We may utilize the services of third-party vendors to perform tasks including preclinical 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. 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 recruit and
retain qualified personnel, 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.
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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, including Vimal Mehta, our
Chief Executive Officer, President and a member of our Board, as well as the other principal members of our management,
scientific, clinical teams and commercial readiness 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 selling, 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 business 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, had difficulty hiring and retaining highly skilled personnel with appropriate qualifications, including as a result of the
Reprioritization and related consequences for our reputation. We may experience such difficulties in the future, and any
further restructuring or related reduction in force could exacerbate such difficulties. The pool of qualified personnel with
experience working within the biopharmaceutical and biotechnology market is limited overall. In addition, many of the
companies with which we compete for experienced personnel have greater resources than we have.
Furthermore, prior workforce reductions and any future similar cost-saving initiatives may make it difficult for us to
maintain valuable aspects of our culture, retain institutional knowledge and expertise, to prevent a negative effect on
employee morale or attrition beyond our planned reduction in headcount, and to attract competent personnel who are
willing to embrace our culture in the future. Our executive officers and other employees are at-will employees, which
means they may terminate their employment relationship with us at any time, and their knowledge of our business and
industry would be extremely difficult to replace. We may not be able to retain the services of any members of our senior
management or other key employees. If we do not succeed in retaining and motivating existing employees or attracting
well-qualified employees in the future, our business, financial condition and results of operations could be materially and
adversely affected.
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 the fair value of 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
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:
● inability to integrate or benefit from acquired technologies or services in a profitable manner;
● unanticipated costs or liabilities associated with the acquisition;
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● 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 health care 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 health care industry are subject to extensive laws and
regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive 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 during 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, 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
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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, including ARx, to manufacture IGALMITM and our product candidates and to
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 or those of
third parties on which we rely, adversely impact our financial results, or result in the loss or exposure of confidential or
sensitive product candidate, clinical trial, employee, or Company information.
We collect and maintain information in digital form that is necessary to conduct our business, and we are increasingly
dependent on information technology systems and infrastructure to operate our business, including our mobile and web-
based applications, our e-commerce platform and our enterprise software. In the ordinary course of our business, we
collect, store and transmit large amounts of confidential information, including intellectual property, proprietary business
information, clinical trial data, and personal information (collectively, “Confidential Information”) of customers and our
employees and contractors. It is critical that we do so in a secure manner to maintain the confidentiality and integrity of
such Confidential Information.
Our information technology systems and those of third parties on which we rely have been and may in the future be
attacked or breached by individuals or organizations intending to obtain our Confidential Information; harm or disrupt our
business operations; or otherwise misappropriate information or Company funds. A security compromise of our
information technology systems or business operations, or those of third parties on which we rely, could occur through a
variety of methods such as from cyber-attacks and cyber-intrusions over the Internet, misconfigurations, “bugs” or other
vulnerabilities, malware, computer viruses, email spoofing, attachments to e-mails, persons inside or outside our
organization or 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.
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. Even if identified,
we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and
techniques that are designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence.
Furthermore, the security measures employed by third-party service providers may prove to be ineffective at
preventing breaches of their systems. Any attack that results in disruptions to our operations, or the unauthorized release or
loss of Confidential Information, could have a material adverse effect on our business reputation, increase our costs and
expose us to material legal claims and liability (such as class actions) and result in regulatory investigations and
enforcement actions, fines and penalties, negative reputational impacts that cause us to lose existing or future customers,
and/or significant incident response, system restoration or remediation and future compliance costs. If the unauthorized
release or loss of Confidential Information were to occur, our operations and financial results and our share price could be
adversely affected. 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.
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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 AI and machine learning may be subject to laws and evolving regulations regarding the use of AI or machine learning,
controlling for data bias, and anti-discrimination, and we may not always be able to anticipate how to respond to these laws
or regulations. Further, there is an increase in litigation in a number of jurisdictions, including the United States, relating to
the use of AI, particularly generative AI. New laws regulating AI are at an advanced stage of the legislative process in the
EU, and it is possible that new laws and regulations will be adopted in the United States and in other non-U.S.
jurisdictions, or that existing laws and regulations may be interpreted in ways that would affect the operation of our
learning platforms, online testing business and data analytics and the way in which we use AI and machine learning
technology.
In Europe, on December 8, 2023, the European Union legislators reached a political agreement on the EU Artificial
Intelligence Act (“EU AI Act”) which establishes a comprehensive, risk-based governance framework for artificial
intelligence in the EU market. The EU AI Act is expected to enter into force in 2024, and the majority of the substantive
requirements will apply two years later. The EU AI Act will apply to companies that develop, use and/ or provide artificial
intelligence in the EU and includes requirements around transparency, conformity assessments and monitoring, risk
assessments, human oversight, security, accuracy, general purpose artificial intelligence and foundation models, and
proposes fines for breach of up to 7% of worldwide annual turnover. In addition, on September 28, 2022, the European
Commission proposed two Directives seeking to establish a harmonized civil liability regime for AI in the EU. Once fully
applicable, this regulatory framework is expected to have a material impact on the way AI is regulated in the EU, and
together with developing guidance and/ or decisions in this area, may affect our use of AI and our ability to provide,
improve or commercialize our services, require additional compliance measures and changes to our operations and
processes, result in increased compliance costs and potential increases in civil claims against us, and could adversely affect
our business, operations and financial condition. 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. Most healthcare providers, including research institutions from which we obtain patient
health information, are subject to privacy and security regulations promulgated under HIPAA. If we are determined to act
as a covered entity or business associate under HIPAA and be directly regulated under HIPAA, any person acting on our
behalf may be prosecuted under HIPAA’s criminal provisions either directly or under aiding-and-abetting or conspiracy
principles. Consequently, depending on the facts and circumstances, we could face substantial criminal penalties if we
knowingly receive individually identifiable health information from a HIPAA-covered healthcare provider or research
institution that has not satisfied HIPAA’s requirements for disclosure 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. For
example, the California Consumer Privacy Act, as amended by the California Privacy Rights Act (collectively, the
“CCPA”), requires covered businesses that process the personal information of California residents to,
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among other things: provide certain disclosures to California residents regarding the business’s collection, use, and
disclosure of their personal information; receive and respond to requests from California residents to access, delete, and
correct their personal information, or to opt out of certain disclosures of their personal information, and enter into specific
contractual provisions with service providers that process California resident personal information on the business’s behalf.
If we are subject to or affected by HIPAA, the CCPA, 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 General Data Protection Regulation (“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 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 U.S., and the efficacy and longevity of current transfer mechanisms between the EEA, and the United States
remains uncertain. On July 10, 2023, the European Commission adopted its Adequacy Decision in relation to the new EU-
US Data Privacy Framework (“DPF”), rendering the DPF effective as a GDPR transfer mechanism to U.S. entities self-
certified under the DPF. We expect the existing legal complexity and uncertainty regarding international personal data
transfers to continue. In particular, we expect the DPF Adequacy Decision to be challenged and international transfers to
the United States and to other jurisdictions more generally to continue to be subject to enhanced scrutiny by regulators. As
supervisory authorities issue further guidance on personal data export mechanisms, including circumstances where the
standard contractual clauses cannot be used, and/or start taking enforcement action, we could suffer additional costs,
complaints and/or regulatory investigations or fines, and/or if we are otherwise unable to transfer personal data between
and among countries and regions in which we operate, it could affect the manner in which we provide our services, the
geographical location or segregation of our relevant systems and operations, and could adversely affect our financial
results.
Further, since January 1, 2021, companies have had to comply with the GDPR and also the 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 £17.5 million or 4% of global turnover). On October 12, 2023, the UK
Extension to the DPF came into effect (as approved by the UK Government), as a data transfer mechanism from the UK to
U.S. entities self-certified under the DPF.
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.
Increased scrutiny of and evolving expectations for environmental, social and governance (“ESG”) initiatives may
impose additional costs or otherwise adversely impact our business.
There has been an increased focus from investors, capital providers, shareholder advocacy groups, other market
participants, customers, and other stakeholder groups regarding companies’ ESG initiatives. While we may at times engage
in voluntary initiatives (such as voluntary disclosures, certifications, or goals, among others) or commitments to improve
the ESG profile of our Company and/or offerings, such initiatives or achievements of such commitments may be costly and
may not have the desired effect. Additionally, some investors may use third-party or proprietary ESG ratings to guide their
investment strategies and, in some cases, may choose not to invest in us if they believe our ESG practices are inadequate.
The criteria by which companies’ ESG practices are assessed are evolving, which could result in greater expectations of us
and cause us to undertake costly initiatives to satisfy such new criteria. Alternatively, if we
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elect not to or are unable to satisfy new criteria or do not meet the criteria, some investors may conclude that our policies
with respect to ESG are inadequate and choose not to invest in us.
If our ESG practices do not meet evolving investor or other stakeholder expectations and our standards, reputation,
ability to attract or retain employees and desirability as an investment or business partner could be negatively impacted.
Similarly, our failure or perceived failure to adequately pursue or fulfill any ESG goals and objectives or to satisfy various
reporting standards, if any, could expose us to additional regulatory, social or other scrutiny, the imposition of unexpected
costs, or damage to our reputation, which in turn could have a material adverse effect on our business and could cause the
market value of our common stock to decline.
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 third-party products or
product candidates and technologies. 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:
● 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;
● 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.
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Our ability to use our net operating losses and tax credits to offset future taxable income and income tax liabilities may
be limited.
As of December 31, 2023, the Company had federal net operating loss carryforwards (“NOLs”) of approximately
$351.3 million and state NOLs of approximately $360.1 million. If not utilized, the federal and state NOLs, which are
subject to expiration, will begin to expire in 2037. Federal NOLs generated in taxable years beginning after December 31,
2017 may be carried forward indefinitely but may only be used to offset 80% of our taxable income in future taxable years
beginning after December 31, 2020. As of December 31, 2023, we also had approximately $14.3 million of federal orphan
drug credits and research and development credits and $1.2 million of state research and development credits, which will
begin to expire in 2037 if not utilized. The utilization of such NOLs and tax credits and realization of tax benefits in future
years depends upon our having taxable income and income tax liabilities.
In addition, in general, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, a corporation
that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-ownership change NOLs and
tax 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 rolling three-year period. We may have experienced
ownership changes in the past, and future changes in our stock ownership, many of which are outside of our control, could
result in ownership changes in the future. Our state NOLs or tax 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 tax credits. We have
recorded a full valuation allowance related to our NOLs and other deferred tax assets due to the uncertainty of the ultimate
realization of the future benefits of those assets.
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, maintaining enforcing and defending our patents,
trademarks, trade secrets and other intellectual property rights and proprietary technology for our current and future
approved products and 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 certain patents and
patent applications pending in the U.S. and in certain foreign jurisdictions. Patents issued 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.
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, trademarks, trade secrets and other intellectual property
rights and proprietary technology that cover these activities.
The patent positions of biotechnology and pharmaceutical companies can be highly uncertain and involve complex
legal and factual questions that have been the subject of much litigation in recent years and for which important legal
principles remain unresolved. Therefore, the scope of any patent claims that we have or may obtain cannot be predicted
with certainty. No consistent policy regarding the breadth of claims allowed in pharmaceutical patents has emerged to date
in the U.S. or in foreign jurisdictions outside of the U.S. Changes in either the patent laws or interpretations of patent laws
in the U.S. and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict which
of our patent applications will issue, 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, whether any of the issued patents will be
found to be infringed, invalid or unenforceable or will be threatened or challenged by third parties, that any of our issued
patents have, or that any of our currently pending or future patent applications that mature into issued patents will include,
claims with a scope sufficient to protect our products and services. Further, if any patents we
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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:
● others may be able to independently develop, make and commercialize compounds that are similar to, or are
alternatives or duplicates of any of our product candidates, but that are not covered by the claims of our patents or
are not infringing, misappropriating, or otherwise violating our other intellectual property rights;
● we might not have been the first to make the inventions covered by our issued patents or pending patent
applications that we license or may own in the future;
● we, or our future collaborators, might not have been the first to file patent applications covering certain of our or
their inventions;
● our pending patent applications or those that we may own in the future 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;
● our competitors might conduct research and development activities in countries where we do not have patent
rights and then use the information learned from such activities to develop, manufacture and commercialize
competitive products or product candidates for sale in our major commercial markets;
● we may not develop additional proprietary technologies that are patentable;
● we may choose not to seek patent protection for some of our proprietary technology or product candidates to
maintain certain trade secrets or know-how, and a third party may subsequently file a patent covering such trade
secrets or know-how;
● 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.
Should any of these events occur, they could have a material adverse effect on our business, financial condition, results of
operations and prospects.
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 USPTO and foreign patent agencies in several stages or annually over the lifetime of
our owned and in-licensed patents and patent applications. In addition, the USPTO and various foreign governmental
patent agencies require compliance with various procedural, document submission, fee payment and other requirements
during the patent application process. While an inadvertent lapse can in many cases be cured by payment
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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, but are not limited to, 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.
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, payment, and other obligations on us. For example, we may enter into
exclusive license agreements with universities, research institutions, or peer industry third parties pursuant to which 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:
● 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; and
● 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
approved products or 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 third parties have an interest in our patents, trade secrets, or other
intellectual property that we regard as our own or our licensor’s, based on claims that the relevant agreements with
employees or consultants obligating them to assign their intellectual property rights to us or our licensor are ineffective or
in conflict with prior or competing contractual obligations to assign inventions and intellectual property rights to another
employer, to a former employer, or to another person or entity. We may also be subject to claims that our former
employees, contractors or collaborators, or other third parties have an ownership interest in our current or future patents,
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patent applications, or other intellectual property rights, including 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. Although it is our policy to require our employees, consultants and
contractors who may be involved in the development of intellectual property to execute agreements assigning such
intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in fact, conceives
or develops intellectual property rights that we regard as our own, and we cannot be certain that our agreements with such
parties will be upheld in the face of a potential challenge, or that they will not be breached, for which we may not have an
adequate remedy.
We are not aware of any threatened or pending claims related to these matters, but in the future 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, and it may be necessary or we may desire to
obtain a license to a third party’s intellectual property rights to settle any such claim; however, there can be no assurance
that we would be able to obtain such license on commercially reasonable terms, if at all. If we or our licensors fail in
defending any such claims, in addition to paying monetary damages or a settlement payment, 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. A court could prohibit us from using technologies, features or other intellectual property rights that are
essential to our products or technologies, if such technologies or features are found to incorporate or be derived from the
trade secrets or other proprietary information of another person or entity, including another or former employers. An
inability to incorporate technologies, features or other intellectual property rights that are important or essential to our
products or product candidates could have a material adverse effect on our business, financial condition, results of
operations, and competitive position, and may prevent us from developing, manufacturing and/or commercializing our
products or technologies. In addition, we may lose valuable intellectual property rights or personnel. 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 litigation or the threat thereof may adversely affect our ability to hire employees or contract with
independent sales representatives. A loss of key personnel or their work product could hamper or prevent our ability to
develop, manufacture and/or commercialize our products or services, which could materially and adversely affect our
business, financial condition and results of operations. 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 have been or 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 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 Hatch-Waxman Act apply. In
accordance with the Hatch-Waxman Act, such NDAs may be required to include paragraph IV certifications, that certify
that any patents listed in the FDA’s 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 certification 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, 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
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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.
If our intellectual property related to IGALMITM BXCL501, BXCL502, BXCL701, BXCL702 or any future product
candidates is not adequate or if we are not able to successfully enforce our intellectual property rights, the commercial
value of our products or product candidates may be adversely affected and we may not be able to compete effectively in
our market.
Third parties, including our competitors, may currently, or in the future, infringe, misappropriate or otherwise violate
our issued patents or other intellectual property rights, and we may file lawsuits or initiate other proceedings to protect or
enforce our patents or other intellectual property rights, which could be expensive, time-consuming and unsuccessful. We
regularly monitor for unauthorized use of our intellectual property rights and, from time to time, analyze whether to seek
enforce our rights against potential infringement, misappropriation or violation of our intellectual property rights. However,
the steps we have taken, and are taking, to protect our proprietary rights may not be adequate to enforce our rights as
against such infringement, misappropriation or violation of our intellectual property rights. In certain circumstances it may
not be practicable or cost-effective for us to enforce our intellectual property rights fully, particularly in certain developing
countries or where the initiation of a claim might harm our business relationships. We may also be hindered or prevented
from enforcing our rights with respect to a government entity or instrumentality because of the doctrine of sovereign
immunity. Our ability to enforce our patent or other intellectual property rights depends on our ability to detect
infringement. It may be difficult to detect infringers who do not advertise the components or methods that are used in
connection with their products or technologies. Moreover, it may be difficult or impossible to obtain evidence of
infringement in a competitor’s or potential competitor’s product or technologies. Thus, we may not be able to detect
unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Any inability to meaningfully
enforce our intellectual property rights could harm our ability to compete and reduce demand for our products and product
candidates.
Even where laws provide protection, costly and time-consuming litigation could be necessary to enforce and determine
the scope of our proprietary rights, and the outcome of such litigation would be uncertain. If we choose to commence a
proceeding or litigation to prevent another party from infringing our patents, that party could counterclaim that our patents
are invalid or should not be enforced against them. In patent litigation in the United States, defendant counterclaims
alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure
to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for an
unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant
information from the USPTO, or made a misleading statement, during prosecution. The outcome following legal assertions
of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is
no invalidating prior art, of which we and the patent examiner were unaware during prosecution. There is a risk that the
examiner or court will decide that our patents are invalid or unenforceable, in whole or in part, 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 may construe the patent’s claims or other intellectual property narrowly or refuse to stop
the other party from using the technology at issue on the grounds 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. If a defendant were to
prevail on its legal assertion of invalidity and/or unenforceability against our intellectual property related to a product or a
product candidate, we could lose at least part, and perhaps all, of the patent protection on such product or product
candidate. Such a loss of patent protection would have a material adverse impact on our business. Moreover, our
competitors could counterclaim that we infringe their intellectual property, and some of our competitors have substantially
greater intellectual property portfolios than we do. An adverse result in any litigation or administrative proceeding could
put one or more of our patents or other intellectual
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property rights at risk of being invalidated or interpreted narrowly, which could adversely affect our competitive business
position, financial condition and results of operations. 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. Even if we are successful in any litigation, we may incur significant expense in connection with such
proceedings, and the amount of any monetary damages may be inadequate to compensate us for damage as a result of the
infringement and the proceedings. Further, a court may decide not to grant an injunction against further infringing activity
and instead award only monetary damages, which may not be an adequate remedy. Furthermore, the monetary cost of such
litigation and the diversion of the attention of our management could outweigh any benefit we receive as a result of the
proceedings. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could
have a material adverse effect on our business. Any of the foregoing may cause us to incur substantial costs, and could
place a significant strain on our financial resources, divert the attention of management from our core business and harm
our reputation.
Further, because of the substantial amount of discovery required in connection with intellectual property litigation,
there is a risk that some of our confidential information could be compromised by disclosure during litigation. There could
also be public announcements of the results of hearing, motions, or other interim developments. If securities analysts or
investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common
stock.
Third parties may initiate legal proceedings alleging that we are infringing, misappropriating or otherwise violating
their intellectual property rights, and/or third party claims seeking to invalidate our patents, which would be costly, time
consuming and, if successfully asserted against us, may prevent or delay our product development efforts and stop us
from commercializing or increase the costs of commercializing our product candidates.
Our commercial success will depend in part on our ability to develop, manufacture or commercialize our products and
product candidates without infringing, misappropriating or otherwise violating the intellectual property rights of third
parties. There is considerable patent and other intellectual property litigation in the pharmaceutical and biotechnology
industries, and companies in the industry have used intellectual property litigation to gain a competitive advantage. 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. In addition to infringement claims against us,
third parties may also raise similar claims before administrative bodies in the United States or abroad. Such mechanisms
include interference proceedings, post grant review, inter partes review, and derivation proceedings before the USPTO and
similar proceedings in foreign jurisdictions. If third parties prepare and file patent applications in the United States that also
claim technology similar or identical to ours, we may have to participate in interference or derivation proceedings in the
USPTO to determine which party is entitled to a patent on the disputed invention. We may also become involved in similar
opposition proceedings in the European Patent Office or similar offices in other jurisdictions regarding our intellectual
property rights with respect to our products and technology. Since patent applications are confidential for a period of time
after filing, we cannot be certain that we were the first to file any patent application related to our product candidates. Such
administrative proceedings could result in revocation of or amendment to our patents in such a way that they no longer
cover our products or product candidates. With respect to the validity question, for example, we cannot be certain that there
is no invalidating prior art, of which we, our patent counsel, and the patent examiner were unaware during prosecution. If a
third party were to prevail on a legal assertion of invalidity and/or unenforceability, we may lose at least part, and perhaps
all, of the patent protection on our products or technologies. Such a loss of patent protection would have a material adverse
impact on our business, financial condition, results of operations, and prospects.
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. We also
could be ordered to pay substantial damages, including treble damages and attorney’s fees if we are
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found to be willfully infringing a third party’s patents or other intellectual property rights. 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. Even if we believe such claims are without merit, a court of competent jurisdiction
could hold that these third party patents are valid and enforceable, and infringed by the use of our products and/or
technologies, which could have a negative impact on the commercial success of our current and any future products or
technologies.
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 U.S., 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:
● some patent applications in the U.S. may be maintained in secrecy until the patents are issued;
● patent applications in the U.S. 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 U.S. patent applications on inventions similar to
ours that claim 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 U.S. 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.
If we do not obtain patent term extension in the United States under the Hatch-Waxman Act and in foreign countries
under similar legislation, thereby potentially extending the term of marketing exclusivity for IGALMITM, or our product
candidates, our business may be materially harmed.
Following the approval by the FDA for our NDA to market IGALMITM, we became eligible to seek and sought patent
term restoration under the Hatch-Waxman Act for one of the U.S. patents covering our approved product or the use thereof.
The Hatch-Waxman Act allows a maximum of one patent to be extended per FDA approved product. Patent term extension
also may be available in certain foreign countries upon regulatory approval of our product candidates.
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Despite seeking patent term extension for our product candidates, we may not be granted patent term extension either in the
United States or in any foreign country because of, for example, failing to apply within applicable deadlines, failing to
apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the term of
extension, as well as the scope of patent protection during any such extension, afforded by the governmental authority
could be less than we request.
We may not be able to enforce our intellectual property rights throughout the world.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the
United States. Many companies have encountered significant problems in protecting and defending intellectual property
rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor
the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could
make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property
rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant
licenses to third parties.
Proceedings to enforce our patent rights in foreign jurisdictions, whether or not successful, could result in substantial
costs and divert our efforts and attention from other aspects of our business. Furthermore, while we intend to protect our
intellectual property rights in our expected significant markets, we cannot ensure that we will be able to initiate or maintain
similar efforts in all jurisdictions in which we may wish to market our products. Accordingly, our efforts to protect our
intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by
courts in the United States and foreign countries may affect our ability to obtain and enforce adequate intellectual property
protection for our technology.
Finally, a Unitary Patent and Unified Patent Court (“UPC”) system was implemented in Europe on June 1, 2023. This
new regime may present uncertainties for our ability to protect and enforce our patent rights against competitors in Europe.
Under the UPC, all European patents, including those issued prior to ratification of the European Patent Package, by
default automatically fall under the jurisdiction of the UPC. The UPC provides our competitors with a new forum to
centrally revoke our European patents, and allows for the possibility of a competitor to obtain pan-European injunctions. It
will be several years before we will understand the scope of patent rights that will be recognized and the strength of patent
remedies that will be provided by the UPC. Under the EU Patent Package, we will have the right to opt our patents out of
the UPC over the first seven years of the court’s existence, but doing so may preclude us from realizing the benefits of the
new unified court.
If our trademarks and trade names are not adequately protected, we may not be able to build name recognition in our
markets of interest and our competitive position may be harmed.
Our trademarks could be challenged, invalidated, infringed, and circumvented by third parties, and our trademarks
could also be diluted, declared generic or found to be infringing on other marks. If any of the foregoing occurs, we could
be forced to re-brand our products or technologies, resulting in loss of brand recognition and requiring us to devote
resources to advertising and marketing new brands, and suffer other competitive harm. Third parties may also adopt
trademarks similar to ours, which could harm our brand identity and lead to market confusion. Further, there can be no
assurance that competitors will not infringe on our trademarks or that we will have adequate resources to enforce our
trademarks. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our ability to
build brand identity and possibly leading to market confusion. Certain of our current or future trademarks may become so
well known by the public that their use becomes generic and they lose trademark protection. Over the long term, if we are
unable to establish name recognition based on our trademarks and trade names, then we may not be able to compete
effectively. Any of the foregoing could have a material adverse effect on our competitive position, business, financial
condition, operating results and prospects.
We rely on our trademarks, trade names and brand names, such as “IGALMITM” and our logo, to distinguish our
company and our products from our competitors and the products of our competitors, and have registered or applied to
register many of these trademarks in the United States and certain countries outside the United States, however, we have
not yet registered all of our trademarks in all of our current and potential markets. There can be no assurance that our
trademark applications will be approved for registration. During trademark registration proceedings, we may receive
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rejections. Although we are given an opportunity to respond to those rejections, we may be unable to overcome such
rejections. In addition, in proceedings before the USPTO and comparable agencies in many foreign jurisdictions, third
parties may also oppose our trademark applications and may seek to cancel trademark registrations or otherwise challenge
our use of the trademarks. Opposition or cancellation proceedings may be filed against our trademark filings in these
agencies, and such filings may not survive such proceedings. While we may be able to continue the use of our trademarks
in the event registration is not available, particularly in the United States, where trademark rights are acquired based on use
and not registration, third parties may be able to enjoin the continued use of our trademarks if such parties are able to
successfully claim infringement in court. In addition, opposition or cancellation proceedings may be filed against our
trademark applications and registrations and our trademarks may not survive such proceedings. If we do not secure
registrations for our trademarks, we may encounter more difficulty in enforcing them against third parties than we
otherwise would. Our trademarks or trade names may be infringed, circumvented, declared generic or determined to be
violating or infringing on other marks.
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.
In addition to patent protection, we also rely on other intellectual property rights, including protection of copyright,
trade secrets, know-how and/or other proprietary information to protect our proprietary technologies, especially where we
do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect, and some courts
are less willing or unwilling to protect trade secrets. To maintain the confidentiality of our trade secrets and proprietary
information, 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. However, we
cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade
secrets or proprietary technology and processes and we may not enter into such agreements with all employees, consultants
and third parties who have been involved in the development of our intellectual property rights. Although we generally
require all of our employees, consultants, advisors and any third parties who have access to our proprietary know-how,
information, or technology to enter into confidentiality agreements, we cannot provide any assurances that all such
agreements have been duly executed. In addition, despite the protections we do place on our intellectual property or other
proprietary rights, monitoring unauthorized use and disclosure of our intellectual property rights by employees, consultants
and other third parties who have access to such intellectual property or other proprietary rights is difficult, and we do not
know whether the steps we have taken to protect our intellectual property or other proprietary rights will be adequate.
Therefore, we may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade
secrets by such employees, consultants, advisors or third parties, despite the existence generally of these confidentiality
restrictions. 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. There can be no assurances that such
employees, consultants, advisors or third parties will not breach their agreements with us, that we will have adequate
remedies for any breach, or that our trade secrets will not otherwise become known or independently developed by third
parties, including our competitors. If any of our trade secrets were to be lawfully obtained or independently developed by a
competitor, we would have no right to prevent them, or those to whom they communicate it, from using that technology or
information to compete with us. If any of our trade secrets were to be disclosed to or independently developed by a
competitor, our competitive position would be harmed. The exposure of our trade secrets and other proprietary information
would impair our competitive advantages and could have a material adverse effect on our business, financial condition and
results of operations. In particular, a failure to protect our proprietary rights may allow competitors to copy our technology,
which could adversely affect our pricing and market share.
In addition to contractual measures, we try to protect the confidential nature of our proprietary information by
maintaining physical security of our premises and electronic security of our information technology systems. Such security
measures may not, for example, in the case of misappropriation of a trade secret by an employee, consultant or other third
party with authorized access, provide adequate protection for our proprietary information. Our security measures may not
prevent an employee, consultant or other third party from misappropriating our trade secrets and providing them to a
competitor, and recourse we take against such misconduct may not provide an adequate remedy to protect our interests
fully. Unauthorized parties may also attempt to copy or reverse engineer certain aspects of our products or services that we
consider proprietary. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult,
expensive and time-consuming, and the outcome is unpredictable. Further, we may not be
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able to obtain adequate remedies for any breach. While we use commonly accepted security measures, trade secret
violations are often a matter of state law in the United States, and the criteria for protection of trade secrets can vary among
different jurisdictions. If the steps we have taken to maintain our trade secrets are deemed inadequate, we may have
insufficient recourse against third parties for misappropriating the trade secret. In addition, trade secrets may be
independently developed by others in a manner that could prevent legal recourse by us. If any of our intellectual property
rights or confidential or proprietary information, such as our trade secrets, were to be disclosed or misappropriated, or if
any such information was independently developed by a competitor, it could have a material adverse effect on our
competitive position, business, financial condition, results of operations and prospects.
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. Further, it is possible that others will independently
develop the same or similar technology, products or services or otherwise obtain access to our unpatented technology, and
in such cases, we could not assert any trade secret rights against such parties. If we fail to obtain or maintain trade secret
protection, or if our competitors obtain our trade secrets or independently develop technology or products similar to ours,
our competitive market position could be materially and adversely affected. In addition, some courts are less willing or
unwilling to protect trade secrets and agreement terms that address non-competition are difficult to enforce in many
jurisdictions and might not be enforceable in certain cases.
We may be subject to claims that our employees, consultants or independent contractors have misappropriated the
intellectual property rights, including know-how or trade secrets of a third party.
We may be subject to claims that our employees or consultants have wrongfully used for our benefit or disclosed to us
confidential information of third parties. 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. Some of these employees, consultants and contractors may have executed proprietary rights, non-
disclosure and non-competition agreements in connection with such previous employment or engagement. Although we try
to ensure that our employees, consultants and independent contractors do not use the intellectual property rights,
proprietary information, know-how, or trade secrets of others in their work for us, and do not perform work for us that is in
conflict with their obligations to another employer or any other entity, we may be subject to claims that we or our
employees, consultants or independent contractors have, inadvertently or otherwise misappropriated the intellectual
property, including know-how, trade secrets or other proprietary information of their former employers or clients. To the
extent that our employees, consultants or contractors use intellectual property rights or proprietary information owned by
others in their work for us, disputes may arise as to the rights in any related or resulting know-how and inventions.
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. There is no guarantee of success in defending these claims, and even if we are successful, 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.
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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, BXCL502, BXCL701 and BXCL702, 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 adversely 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 or
license from BioXcel LLC. If we do not prevail in enforcing our intellectual property rights in this type of litigation, we
may be subject to:
● 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 U.S.; 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 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 LLC, 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 USPTO, 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” and
“short and distort” schemes;
● 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;
● 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
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;
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● 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 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, 2023, our directors, executive officers and BioXcel LLC, and their respective affiliates,
beneficially owned approximately 35% 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:
● 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 (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
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items) on an unconsolidated basis. We do not believe that we are an “investment company,” as such term is defined in 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 a “smaller reporting company” and are able to avail ourselves of reduced disclosure requirements applicable to
smaller reporting companies, which could make our common stock less attractive to investors.
We are a smaller reporting company, and we will remain a smaller reporting company until we determine that either
(1) our annual revenues are at least $100 million and our voting and non-voting common stock held by non-affiliates is at
least $250 million measured on the last business day of our most recent second fiscal quarter, or (2) our voting and non-
voting common stock held by non-affiliates is at least $700 million measured on the last business day of our most recent
second fiscal quarter. Smaller reporting companies are able to provide simplified executive compensation disclosure, 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. In addition, as a non-accelerated filer, we are exempt from the auditor attestation requirements
of Section 404 of the Sarbanes-Oxley Act.
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 are and may in the future be subject to legal proceedings, claims and investigations in or outside the ordinary course
of business. Such proceedings, claims and investigations could be costly and time-consuming to defend and could result
in unfavorable outcomes, which may have a material adverse effect on our business, operating results and financial
condition, and negatively affect the price of our common stock.
We are, and may in the future become, subject to various legal proceedings, claims and investigations that arise in or
outside the ordinary course of business. For example, on July 7, 2023, plaintiff Katelyn Martin filed a class action
complaint against the Company and certain executives in the United States District Court for the District of Connecticut,
captioned Martin v. BioXcel Therapeutics, et al., 3:23-cv-00915 (D. Conn). On October 4, 2023, pursuant to the Private
Securities Litigation Reform Act, the court appointed two co-Lead Plaintiffs. The co-Lead Plaintiffs filed an amended
complaint on December 5, 2023, alleging violations of Sections 10(b) and 20A of the Securities and Exchange Act of 1934
(the “Exchange Act”) and SEC Rule 10b-5 promulgated thereunder. The amended complaint alleges that defendants made
false or misleading statements regarding the TRANQUILITY II trial and the development of BXCL501 for an expanded
indication related to the treatment of certain Alzheimer’s-related agitation. Defendants filed a motion to dismiss on
February 6, 2024, which has not been decided.
On November 28, 2023, Plaintiffs Pratheesan Panancherry and Jeffrey Bastress filed a stockholder derivative
complaint in the United States District Court for the District of Connecticut purportedly on behalf of the Company and
against Vimal Mehta, Richard I. Steinhart, Peter Mueller, June Bray, Sandeep Laumas, Michael Miller, Michal Votruba,
and Krishnan Nandabalan as Defendants, and the Company as Nominal Defendant under the caption Panancherry et al v.
Mehta et al, 3:23-cv-1554. Following the initial action, Plaintiffs Maria Vomvolakis (3:24-cv-3) and Kelly Fowler (3:24-
cv-203) each filed separate stockholder derivative complaints in the District of Connecticut raising similar claims as
Panancherry and Bastress, including business torts and violations of the Securities Exchange Act of 1934. The cases have
been consolidated under the caption In re BioXcel Therapeutics, Inc. Stockholder Derivative Litigation, 3:23-cv-1554 (D.
Conn.). The above-captioned consolidated action is currently stayed.
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On January 11, 2024, Plaintiff Jeremy Smith filed a stockholder derivative complaint in the United States District
Court for the United States District Court for the District of Delaware purportedly on behalf of the Company and against
Vimal Mehta, Peter Mueller, June Bray, Sandeep Laumas, Michael Miller, Michal Votruba, Richard I. Steinhart, Robert
Risinger, and Krishnan Nandabalan as Defendants, and the Company as Nominal Defendant under the caption Smith v.
Mehta et al, 1:24-cv-00041. Following the initial action, Plaintiff Janice Korff filed a stockholder derivative complaint in
the District of Delaware raising similar claims as Smith (1:24-cv-130), including business torts and violations of the
Securities Exchange Act of 1934. The cases have been consolidated under the caption In re BioXcel Therapeutics, Inc.
Derivative Litigation, 1:24-cv-00041 (D. Del.). The Company expects to seek a stay in the above-captioned consolidated
action.
The Company is also cooperating with an investigation by the SEC. The above-captioned proceedings, as well as any
investigation or proceeding that may be instituted by the SEC may result in substantial costs or liabilities, as well as a
diversion of management’s attention and resources, which could harm our business, result in a decline in the market price
of our common stock and impact our financing efforts.
The potential costs and liabilities associated with legal proceedings, claims and investigations involving us or
members of our leadership team is uncertain, and the results of such legal proceedings, claims and investigations cannot be
predicted with certainty. Lawsuits and other administrative or legal proceedings that may arise can involve substantial
costs, including the costs associated with investigation, litigation and possible settlement, judgment, penalty or fine. In
addition, lawsuits and other legal proceedings may be time consuming to defend or prosecute and may require a
commitment of management and personnel resources that will be diverted from our normal business operations. Also, our
insurance coverage may be insufficient, our assets may be insufficient to cover any amounts that exceed our insurance
coverage, and we may have to pay damage awards or otherwise may enter into settlement arrangements in connection with
such claims. Moreover, we may be unable to continue to maintain our existing insurance at a reasonable cost, if at all, or to
secure additional coverage, which may result in costs associated with lawsuits and other legal proceedings being uninsured.
Any such payments or settlement arrangements in current or future litigation could have a material adverse effect on our
business, operating results or financial condition. Even if the plaintiffs’ claims are not successful, current or future
litigation could result in substantial costs and significantly and adversely impact our reputation and divert management’s
attention and resources, which could have a material adverse effect on our business, operating results and financial
condition, and negatively affect the price of our common stock. In addition, such lawsuits may make it more difficult to
finance our operations.
Biotechnology and pharmaceutical companies with publicly traded stock or who obtain funding through the stock
market often experience significant stock price volatility, based on events beyond their control, including outcomes of
clinical trials, actions of regulators and product approvals. Such further litigation, may result in substantial costs and a
diversion of management’s attention and resources, which could harm our business and result in a decline in the market
price of our common stock.
Our certificate of incorporation, 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, 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 million 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. 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.
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
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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 U.S. 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 and will continue to incur significant legal, accounting and other
expenses. The obligations of being a public company in the U.S. 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, the Dodd-Frank Wall Street Reform and Consumer Protection 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 as we are no longer an “emerging
growth company.” In addition, we expect these and similar 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 such insurance. Our continued compliance with applicable requirements and to keep pace with new regulations
requires management and other personnel to devote a substantial amount of their time, otherwise we may fall out of
compliance and risk becoming subject to litigation or being delisted, among other potential problems.
General Risk Factors
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, which has occurred in the past, 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
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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 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. We have
discovered material weaknesses in the past. If future 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.
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. Future changes in corporate tax rates, the realization
of net deferred tax assets relating to our operations, the taxation of any foreign earnings, and the deductibility of expenses
under future reform legislation could have a material impact on the value of our deferred tax assets, could result in
significant one-time charges, and could increase our future U.S. tax expense.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
We have developed and implemented a cybersecurity risk management program intended to protect the confidentiality,
integrity, and availability of our critical systems and information. Our cybersecurity risk management program includes a
cybersecurity incident response plan.
We designed and assessed our program based on the National Institute of Standards and Technology Cybersecurity
Framework. This does not imply that we meet any particular technical standards, specifications, or requirements, only that
we used the National Institute of Standards and Technology Cybersecurity Framework as a guide to help us identify, assess,
and manage cybersecurity risks relevant to our business.
Our cybersecurity risk management program is integrated into our overall enterprise risk management program, and
shares common methodologies, reporting channels and governance processes that apply across the enterprise risk
management program to other legal, compliance, strategic, operational, and financial risk areas.
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Our cybersecurity risk management program includes:
● risk assessments designed to help identify material cybersecurity risks to our critical systems, information,
products, services, and our broader enterprise information technology environment;
● a management team responsible for managing (1) our cybersecurity risk assessment processes, (2) our security
controls, and (3) our response to cybersecurity incidents;
● the use of external service providers, where appropriate, to assess, test or otherwise assist with aspects of our
security controls;
● cybersecurity awareness training of our employees, incident response personnel, and senior management;
● a cybersecurity incident response plan that includes procedures for responding to cybersecurity incidents; and
● a third-party risk management process for service providers, suppliers, and vendors.
There can be no assurance that our cybersecurity risk management program and processes, including our policies,
controls or procedures, will be fully implemented, complied with or effective in protecting our systems and information.
We have not identified risks from known cybersecurity threats, including as a result of any prior cybersecurity
incidents, that have materially affected or are reasonably likely to materially affect us, including our operations, business
strategy, results of operations, or financial condition. For more information, see the section titled “Risk Factors— Business
interruptions could adversely affect future operations, revenues, and financial conditions, and may increase our costs and
expenses.”
Cybersecurity Governance
Our Board considers cybersecurity risk as part of its risk oversight function and has delegated to the Audit Committee
(the “Committee”) oversight of cybersecurity and other information technology risks. The Committee oversees
management’s implementation of our cybersecurity risk management program.
The Committee receives periodic reports from management on our cybersecurity risks. In addition, management
updates the Committee, as necessary, regarding any material cybersecurity incidents, as well as any incidents with lesser
impact potential.
The Committee reports to the full Board regarding its activities, including those related to cybersecurity. The full
Board also receives briefings from management on our cyber risk management program. Board members receive
presentations on cybersecurity topics from the internal Security Incident Management Team or external experts as part of
the Board’s continuing education on topics that impact public companies.
Our Security Incident Management Team, which includes our Chief Financial Officer, the Executive Director of
Information Technology, Chief Legal Officer and the Quality Assurance Director, has approximately 30 combined years of
risk management experience and is responsible for assessing and managing our material risks from cybersecurity threats.
The team has primary responsibility for our overall cybersecurity risk management program and supervises both our
internal cybersecurity personnel and our retained external cybersecurity consultants. Our Security Incident Management
Team’s experience includes prior work experience in cybersecurity; financial management and controls, data quality
assurance and liability and risk management.
Our management team supervises efforts to prevent, detect, mitigate, and remediate cybersecurity risks and incidents
through various means, which may include briefings from internal security personnel; threat intelligence and other
information obtained from governmental, public or private sources, including external consultants engaged by us; and
alerts and reports produced by security tools deployed in the information technology environment.
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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.
Item 3. Legal Proceedings
From time to time, we may be subject to litigation and claims arising in the ordinary course of business. For
information about our legal proceedings, see Note 18 to our audited financial statements included elsewhere in this Annual
Report on Form 10-K which is information is incorporation herein by reference.
In addition, on February 12, 2024, we became aware that the SEC has initiated an investigation involving the
Company and is seeking the production of certain documents. We are fully cooperating with the SEC’s investigation. We
cannot predict or determine whether any proceeding may be instituted by the SEC in connection with its investigation or
the outcome of any proceeding that may be instituted, or the effects any such proceeding could have on the Company’s
business or financing efforts.
Item 4. Mine Safety Disclosures
Not applicable.
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock is traded on The Nasdaq Capital Market® under the symbol “BTAI.”
Stockholders
As of March 21, 2024, there were 12 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.
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.
Unregistered Sales of Securities
There were no unregistered sales of equity securities by the Company during the three months ended December 31,
2023 except as reported in the Company’s Current Report on Form 8-K filed on December 6, 2023.
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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 our consolidated 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 and
share amounts are presented in thousands, unless otherwise noted or the context otherwise provides.
Overview
BioXcel Therapeutics, Inc. (“BTI” or the “Company”) is a biopharmaceutical company utilizing artificial intelligence
(“AI”) to develop transformative medicines in neuroscience and, through the Company’s wholly owned subsidiary,
OnkosXcel Therapeutics LLC (“OnkosXcel”), immuno-oncology. We are focused on utilizing cutting-edge technology and
innovative research to develop high-value therapeutics aimed at transforming patients’ lives. We employ various AI
platforms to reduce therapeutic development costs and potentially accelerate development timelines. Our approach
leverages existing approved drugs and/or clinically evaluated product candidates together with big data and proprietary
machine learning algorithms to identify new therapeutic indications. We believe this differentiated approach has the
potential to reduce the expense and time associated with drug development in diseases with substantial unmet medical
needs.
Our most advanced neuroscience candidate is BXCL501. In indications other than those approved by the United States
(“U.S.”) Food and Drug Administration (“FDA”) as IGALMI™, BXCL501 is an investigational, proprietary, orally
dissolving film formulation of dexmedetomidine (or “Dex”) in development for the treatment of agitation associated with
psychiatric and neurological disorders. Our most advanced immuno-oncology asset, BXCL701, is an investigational oral
innate immune activator being developed by OnkosXcel Therapeutics as a potential therapy for the treatment of aggressive
forms of prostate cancer, pancreatic cancer, and other solid and liquid tumors.
On April 6, 2022, we announced that the FDA approved IGALMITM (dexmedetomidine) sublingual film for the acute
treatment of agitation associated with schizophrenia or bipolar I or II disorder in adults. IGALMITM is approved to be self-
administrated by patients under the supervision of a health care provider. On July 6, 2022, we announced that IGALMITM
was commercially available in doses of 120 and 180 microgram (“mcg).
We are continuing to develop BXCL501 for the acute treatment of agitation associated with bipolar disorders or
schizophrenia in the at-home setting and for the acute treatment of agitation (non-daily) associated with dementia due to
probable Alzheimer’s disease in the at-home setting and in care facilities. As described further below, we have recently
deprioritized the development of BXCL501 for certain indications, including development of BXCL501 as a potential
adjunctive treatment for major depressive disorder (“MDD”), as well as our BXCL701 program except as noted in Part,
Item 1, “Business” under the heading “Immuno-Oncology.”
For our TRANQUILITY program, we have conducted clinical studies evaluating BXCL501 for the acute treatment of
agitation associated with mild to moderate dementia in patients with probable Alzheimer’s disease, who reside in assisted
living facilities (“ALFs”) and residential care settings and who required minimal assistance with activities of daily living.
On June 29, 2023, we announced positive topline data from our TRANQUILITY II trial, as well as information regarding
certain investigator misconduct and noncompliance at a clinical trial site. Since that time, we have taken steps to further
investigate and evaluate the conduct of the TRANQUILITY II trial at this clinical site. Based on these steps to date, we
believe that there have been no further instances of misconduct or fraud or other findings that adversely impact the data
integrity or reliability of the eligibility, safety, and efficacy data obtained at the clinical trial site in question.
We had previously been conducting the TRANQUILITY III clinical trial, which was designed to evaluate the potential
for BXCL501 to treat acute agitation in patients with moderate to severe dementia associated with probable Alzheimer’s
disease living in nursing homes and who require moderate to full assistance with activities of daily living.
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We paused enrollment in TRANQUILITY III due to the much higher-than-expected background frequency of episodes of
agitation experienced by the first several patients enrolled in the study.
We held Type B/Breakthrough Therapy Designation meetings with the FDA on October 11, 2023 and on February 20,
2024 to obtain additional feedback on our plans for further development of BXCL501 for the treatment of agitation
associated with dementia in patients with probable Alzheimer’s disease. We are currently planning to generate additional
Phase 3 efficacy and safety data, in a variety of relevant care-facility settings and across severity of dementia using the
Positive and Negative Syndrome Scale-Excitatory Component (“PEC”) as the primary efficacy measure. In addition, we
plan to discuss the details of the requirement for long-term safety data at a future meeting with the FDA.
In our SERENITY program, we are evaluating BXCL501 for use in the at-home setting for agitation associated with
bipolar disorders or schizophrenia. We completed Part 1 of the SERENITY III trial and announced topline results on May
25, 2023.
We reviewed our SERENITY III program with the FDA in Type C meetings on November 8, 2023 and March 6, 2024.
Based on the feedback received from the FDA to date, we plan to move forward to evaluate at-home use of the 120 mcg
dose of BXCL501, with safety as the primary objective and efficacy measures as exploratory endpoints to support
continued efficacy in the at-home setting as recommended by the FDA in the November 8, 2023 meeting, for the acute
treatment of agitation in bipolar disorders or schizophrenia. We also plan to conduct a clinical study designed to enroll
approximately 30 patients to evaluate the correlation between patient-reported or informant-reported efficacy with trained
rater-reported efficacy using PEC measurements, which the FDA had previously recommended.
Strategic Reprioritization
On August 8, 2023, our Board of Directors approved a broad-based strategic reprioritization (the “Reprioritization”).
We determined to take actions to reduce certain operational and workforce expenses no longer deemed core to ongoing
operations to extend its cash runway and drive innovation and growth in high-potential clinical development and value-
creating opportunities. These actions included a shift in commercial strategy for IGALMI™ in the institutional setting as
described, a reduction of in-hospital commercialization expenses, a de-prioritization of programs no longer determined to
be core to ongoing operations, and a prioritization on at-home treatment setting opportunities for BXCL501, all as
described in Part I, Item 1, “Business”. As part of this strategy, our Board of Directors approved a reduction of
approximately 60% of our workforce. Annualized operating expenses are expected to be reduced by approximately
$80,000. As of December 31, 2023, the Reprioritization was substantially completed.
As a result of the Reprioritization, the Company recorded restructuring costs of $4,163 in the year ended December 31,
2023. These costs consisted of severance and benefit costs of $4,063 and contract termination costs of $100. The Company
paid $3,998 of severance and benefit costs and $100 of contract termination costs during the year ended December 31,
2023. Any remaining costs are expected to be paid during the first quarter of 2024.
IGALMITM Revised Commercialization Strategy
As part of the Company’s Reprioritization, the IGALMITM commercial team shifted focus to a hospital/Integrated
Delivery Network (“IDN”) contracting strategy with a Corporate Account Director (“CAD”) team. The goal of the
realigned CAD team is to work with large IDNs and drive sales utilizing a top-down approach. Over time, the revised
commercial effort is expected to allow the Company to continue to make inroads into the institutional market in a more
cost-efficient manner.
Commercial efforts for the IGALMITM launch were impacted significantly in the six months ended December 31,
2023, due to the reduction in force, which included the elimination of sales, marketing, and commercial operations staff.
The realigned CAD team generated $376 in net revenue for the three-month period ended December 31, 2023 through
legacy sales and volume-based contracts, up from $341 for the three-month period ended September 30, 2023. Net
revenues from IGALMI™ product sales for the years ended December 31, 2023 and 2022 were $1,380 and $375,
respectively.
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On October 30, 2023, we announced that the Centers for Medicare & Medicaid Services (“CMS”) assigned a new J-
Code for IGALMITM (J1105). J-Codes are permanent codes used by healthcare providers, commercial insurance plans, and
government payers to help standardize the reimbursement process. A J-Code can help simplify claims submission as
compared to use of a miscellaneous or unlisted code, which in turn can streamline the billing and reimbursement process.
The J-Code for IGALMITM has been published online in the CMS HCPCS Application Summaries and Coding
Recommendations, Third Quarter, 2023 HCPCS Coding Cycle. We believe this J-Code will facilitate access to IGALMITM
for patients with agitation associated with bipolar disorder or schizophrenia.
December 2023 Refinancing
On December 5, 2023 (the “Second Amendment Effective Date”), we entered into the Second Amendment to
Credit Agreement and Guaranty and Termination of Revenue Interest Financing Agreement (the “Second Amendment”),
which amended the Credit Agreement and Guaranty, dated April 19, 2022, by and among us, as the borrower, certain
subsidiaries of the Company from time to time party thereto as subsidiary guarantors, the lenders party thereto (the
“Lenders”), and Oaktree Fund Administration LLC (“OFA”) as administrative agent (as amended, the “Credit
Agreement”). Among other things, the Second Amendment deferred the effectiveness of the Credit Agreement’s Revenue
Covenant (as defined below) to the fourth quarter of 2024 and reduced the required minimum revenue levels under the
Revenue Covenant; modified the interest rate of loans under the Credit Agreement; provided for warrants to be issued to
the Lenders to purchase 70 shares of our common stock; and lowered the strike price of warrants previously issued to the
Lenders under the Credit Agreement to $3.6452 per share. Also on the Second Amendment Effective Date, we terminated
the Revenue Interest Financing Agreement (as amended, the “RIFA”) by and among the Company, the purchasers party
thereto (the “Purchasers”) and OFA, as administrative agent. The $30,000 in financing previously provided to us under the
RIFA was converted to an outstanding loan under the Credit Agreement (the “Tranche A-2 Term Loan”) pursuant to the
Second Amendment. All commitments for potential future funding under the RIFA were terminated. For additional
information, see below under “Liquidity and Capital Resources—Sources of Liquidity—Financing Agreements.”
March 2024 Waiver
On March 20, 2024 (the “Effective Date”), we entered into a Fourth Amendment (the “Fourth Amendment”) to
the Credit Agreement pursuant to which the Lenders waived the covenant that we not receive a report and opinion from our
independent registered public accounting firm that contains a “going concern” or similar qualification with respect to our
financial statements for the year ended December 31, 2023. Accordingly, while our independent registered public
accounting firm’s report contained in this Annual Report on Form 10-K contains a “going concern” explanatory paragraph,
it does not constitute an event of default under the Credit Agreement. The Fourth Amendment also includes a number of
other changes to the Credit Agreement, as described below under “— Liquidity and Capital Resources—Sources of
Liquidity—Financing Agreements.”
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Our Clinical Programs
The following is a summary of the status of our major clinical development programs as of the date of this Annual
Report on Form 10-K:
For additional information regarding our pipeline candidates, see Part I, Item 1, “Business” in this Annual Report on
Form 10-K.
Basis of Presentation
The Company’s consolidated financial statements are prepared in accordance with U.S. Generally Accepted
Accounting Principles (“GAAP”).
Components of Our Results of Operations
Product Revenue, Net
Revenue relates to sales of IGALMITM and reflect limited market access since commercial launch in July 2022. The
revenues are net of rebates, chargebacks, discounts, and other adjustments. During the fourth quarter of 2022, we began
contracting directly with intermediaries such as GPOs.
Operating Costs and Expenses
Cost of Goods Sold
Cost of goods sold primarily relates to the costs of producing, packaging, and delivering our product to customers as
well as costs related to excess or obsolete inventory.
Research and Development
Our research and development expenses reflect costs associated with the identification of our preclinical and clinical
product candidates. Expenditures 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 and sites that
conduct our non-clinical studies and clinical trials, costs of outside consultants engaged in research and development
activities, travel expenses, the cost of acquiring, developing and manufacturing preclinical and clinical trial materials and
lab supplies, and depreciation and other expenses. Payments to BioXcel LLC are also included in research and
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development expenses. Costs associated with third parties that provide non-clinical services such as toxicology,
pharmacology, research and discovery, biomarker studies and similar services are included in the professional fees category
of research and development expenses.
We expense research and development costs as incurred.
Our research and development costs by program for the years ended December 31, 2023 and 2022 were as follows:
Direct external costs
BXCL501
BXCL701
Other research and development programs
Total direct external costs
Internal personnel costs
Sub-total direct costs
Indirect costs and overhead
Total research and development expenses
Selling, General and Administrative
Year ended
December 31,
2023
2022
$
$
$
$
46,661
7,050
4,142
57,853
22,675
80,528
3,798
84,326
$
$
$
$
52,044
9,631
2,687
64,362
22,831
87,193
4,046
91,239
Selling, general and administrative expenses primarily consist of salaries, benefits and non-cash stock-based
compensation for our sales, executive and administrative personnel. Selling, general and administrative expenses also
include legal expenses to pursue patent protection of our intellectual property and other corporate matters, professional fees
for audit and tax services and insurance charges. We may also incur increased costs to comply with corporate governance,
internal controls, investor relations and disclosures and similar requirements applicable to public companies.
With our Reprioritization substantially completed as of December 31, 2023, we expect that our selling, general and
administrative expenses will decline due to the restructured commercialization plan of IGALMITM and reduced personnel
costs. However, we may also experience increased selling, general and administrative expenses due to higher fees for
outside consultants, attorneys, and accountants.
Restructuring Costs
On August 8, 2023, our Board of Directors approved the Reprioritization. We took actions to reduce certain
operational and workforce expenses that were no longer deemed core to ongoing operations in order to extend our cash
runway and drive innovation and growth in high potential clinical development and value creating opportunities. These
actions included a shift in commercial strategy for IGALMI™ in the institutional setting, a reduction of in-hospital
commercialization expenses, a suspension of programs no longer determined to be core to ongoing operations, and a
prioritization of at-home treatment setting opportunities for BXCL501.
As part of this strategy, the Company’s Board of Directors approved a reduction of approximately 60% of the
Company’s workforce. The Company notified impacted employees on August 14, 2023. Annual operating expenses are
expected to be reduced by approximately $80,000. Management believes that, after giving effect to the Reprioritization, the
Company’s cash and cash equivalents of $65.2 million as of December 31, 2023 will allow the Company to fund its
operations and meet its liquidity requirements into mid-2024.
As a result of the Reprioritization, the Company recorded restructuring costs of $4,163 for the year ended December
31, 2023. These costs consisted of severance and benefit payments of $4,063 and contract termination costs of $100, which
were paid in cash. The Company paid $3,998 of severance and benefit costs and $100 of contract termination
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costs during the year ended December 31, 2023. As of December 31, 2023, the Reprioritization was substantially
completed and any remaining costs are expected to be paid during the first quarter of 2024.
Other Expense (Income)
Other (income) expense primarily consists of interest costs associated with the Credit Agreement the Company entered
into in April 2022, changes in fair value of derivative financial instruments, and interest income earned on cash and cash
equivalents that were comprised primarily of money market funds. Interest expense may increase in the future as our loans
provided under the Credit Agreement are subject to floating interest rates following our December 2023 amendment to the
Credit Agreement and, if we meet required milestones, we may draw down additional funds under the Credit Agreement.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements is set forth in Note 3, Summary of Significant Accounting
Policies to the consolidated financial statements included in this Annual Report on Form 10-K.
Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022
Product Revenue, Net
Commercial sales of IGALMITM launched in July 2022. Product revenue, net for the years ended December 31, 2023
and 2022 was $1,380 and $375, respectively, comprised of sales of IGALMITM. As part of the Company’s Reprioritization,
the IGALMITM commercial team shifted focus to a hospital/contracting strategy with a CAD team. The goal of the
realigned CAD team is to work with large Integrated Delivery Networks and drive sales utilizing a top-down approach. The
realigned CAD team generated $376 in net revenue for the three-month period ended December 31, 2023 through legacy
sales and volume-based contracts. Commercial efforts for the IGALMITM launch were impacted significantly in the six
months ended December 31, 2023, due to the reduction in force, which included the elimination of sales, marketing, and
commercial operations staff. However, the revised commercial effort is expected to allow the Company to continue to
make inroads into the institutional market in a more cost-efficient manner.
Cost of Goods Sold
Cost of goods sold for the years ended December 31, 2023 and 2022, were $1,260 and $20, respectively, which
primarily related to the costs to produce, package and deliver IGALMITM to customers, as well as costs related to excess or
obsolete inventory. We entered into a commercial supply agreement with ARx, LLC (“ARx”) pursuant to which ARx has
agreed to exclusively manufacture and supply us with all of our worldwide demand of film formulation of Dex to be used
for the commercial supply of IGALMITM and for ongoing clinical trials of our product candidate BXCL501, subject to
certain alternative supply provisions. The increase in Cost of goods sold for the year ended December 31, 2023 is primarily
the result of increased sales and the increase in the reserve for excess and obsolete inventory.
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Research and Development Expense
Research and development expenses for the years ended December 31, 2023 and 2022 were as follows:
Personnel and related costs
Non-cash stock-based compensation
Professional fees
Clinical trials expense
Chemical, manufacturing and controls cost
Travel and other costs
Total research and development expenses
Year ended
December 31,
2023
2022
Change
% Change
$ 16,351
6,324
14,590
35,094
8,687
3,280
$ 84,326
$ 18,272
4,558
14,342
40,630
10,144
3,293
$ 91,239
$ (1,921)
1,766
248
(5,536)
(1,457)
(13)
$ (6,913)
(11)%
39 %
2 %
(14)%
(14)%
(0)%
(8)%
The decrease of $6,913 for the year ended December 31, 2023, compared to the year ended December 31, 2022 is
primarily attributable to the following:
● A decrease in clinical trials expense as a result of reduced costs associated with the wind down of the SERENITY
III study to evaluate BXCL501 for at home use for the acute treatment of agitation related to schizophrenia and
bipolar disorders, as well as the TRANQUILITY II study of BXCL501 for the potential treatment of agitation in
patients with Alzheimer’s disease.
● A decrease in personnel and related costs during the fourth quarter of 2023 as a result of the Company’s
Reprioritization.
● A decrease in Chemical, manufacturing and controls (“CMC”) costs due to lower CMC costs related to decreased
clinical trial activities.
● An increase in non-cash stock-based compensation due to higher award forfeitures in 2022.
Following IGALMITM’s approval by the FDA, we capitalize costs related to commercial production of IGALMITM as
inventory and expense those CMC costs related to clinical trials.
Selling, General and Administrative Expense
Selling, general and administrative expenses for the years ended December 31, 2023 and 2022 were as follows:
Personnel and related costs
Non-cash stock-based compensation
Professional fees
Commercial and marketing
Insurance
Travel and other costs
Total selling, general and administrative expenses
127
Year ended
December 31,
2023
2022
Change
% Change
$ 27,171
12,290
22,310
12,485
1,743
7,414
$ 83,413
$ 20,690
12,779
14,313
13,006
2,370
5,603
$ 68,761
$ 6,481
(489)
7,997
(521)
(627)
1,811
$ 14,652
31 %
(4)%
56 %
(4)%
(26)%
32 %
21 %
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The increase of $14,652 for the year ended December 31, 2023, relative to the year ended December 31, 2022 is
primarily attributable to:
● Increased professional fees, primarily related to higher legal costs for the investigation of our TRANQUILITY II
study, the write-off of previously deferred costs related to the initial public offering of OnkosXcel, and higher
corporate operating support levels partially offset by reductions in consulting and recruiting fees.
● An increase in personnel costs due to our efforts to expand our functional teams, particularly in sales, to support
commercialization of IGALMITM in the U.S., prior to the Reprioritization.
● An increase in travel and other costs as a result of the commercial launch of IGALMITM.
● Decreased non-cash stock-based compensation costs due to increased award forfeitures in 2023 resulting from the
Reprioritization and decreased insurance costs as a result of completed clinical activities.
● Decreased commercial and marketing costs due to higher spend levels in 2022 resulting from the commercial
launch of IGALMITM.
Restructuring Costs
Restructuring costs were $4,163 for the year ended December 31, 2023. See “Components of Our Results of
Operations - Restructuring Costs” above for a discussion of the Company’s Reprioritization and restructuring activities.
There were no restructuring costs for the year ended December 31, 2022.
Other (Income) Expense
Interest expense increased to $13,314 for the year ended December 31, 2023 compared to $8,213 for the year ended
December 31, 2022, due to higher average debt balances during the year due to borrowings under the Credit Agreement
and, prior to its termination, the RIFA that the Company put in place in April 2022. The expense was partially offset by
interest income earned on cash and cash equivalents that were held primarily in short-term money market funds. Interest
income increased to $5,649 for the year ended December 31, 2023 compared to $2,528 for the year ended December 31,
2022, due to higher average cash balances during the year. Other (income) expense, net is primarily associated with
changes in fair value of derivative financial instruments for the period, which relate to instruments associated with the
Credit Agreement.
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. For a discussion of inflationary risks to our
future revenues under the Inflation Reduction Act, see “Health care reform measures could hinder or prevent our product
candidates’ commercial success.” in Part I, Item 1A., “Risk Factors” elsewhere in this Annual Report on Form 10-K.
Liquidity and Capital Resources
As of December 31, 2023, we had cash and cash equivalents of $65,221, working capital of $44,876 and stockholders’
deficit of $56,508. Net cash used in operating activities was $155,006 and $135,341 for the years ended December 31,
2023 and 2022, respectively. We incurred losses of approximately $179,053 and $165,757 for the years ended December
31, 2023 and 2022, respectively. We will need to generate significant product revenues to achieve profitability. Our history
of significant losses, negative cash flows from operations, potential near-term increased covenant-driven amortization
payments or full repayment obligations under our Credit Agreement, the regulatory event of default triggers under the
Credit Agreement, other funding requirement covenants under the Credit Agreement, limited liquidity resources currently
on hand, and dependence on our ability to obtain additional financing to fund our operations after the current resources are
exhausted, about which there can be no certainty, have resulted in management’s assessment that there is substantial doubt
about our ability to continue as a going concern for a period of at least 12 months from the issuance date of the financial
statements included in this Annual Report on Form 10-K.
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Successful completion of the Company’s development programs and, ultimately, the attainment of profitable
operations are dependent upon future events, including obtaining adequate financing to support the Company’s cost
structure and operating plan. Management’s plans to improve the Company’s liquidity and reduce its operating expenses
and capital requirements include, among other things, pursuing one or more of the following steps to raise additional
capital, none of which can be guaranteed or are entirely within the Company’s control:
●
●
●
●
●
●
●
raise funding through the sale of the Company’s equity securities;
raise funding through third-party investments in or other strategic options for OnkosXcel;
raise funding through debt financing and/or restructuring of its existing Credit Agreement;
establish collaborations with potential partners to advance the Company’s product pipeline;
establish collaborations with potential marketing partners;
reduce overhead and headcount to focus on core priorities, and/or
any combination of the foregoing.
To date, we have continued research and development activities while managing our cash position. However, we
require additional funding to continue as a going concern. 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
when there is market uncertainty or an economic downturn or if other events make investment in our securities less
appealing. If we are unable to secure adequate additional funding as and when needed on acceptable or commercially
reasonable terms, we may have to significantly delay, scale back or discontinue the development and commercialization of
one or more product candidates. In addition, there are various macro-economic trends affecting the financing markets
whose impact on our liquidity and future funding requirements are uncertain as of the filing date of this Annual Report on
Form 10-K. We will need substantial additional funding, and if we are unable to raise capital when needed, we could be
compelled to pursue alternative options, including, without limitation, implementing further workforce reductions,
reducing or ceasing product development programs and advancement of our clinical trials and product candidates, selling
our assets or seeking other strategic alternatives. See “Risks Related to Financial Position and Need for Additional Capital
— We will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to
delay, reduce or eliminate our product development programs or commercialization efforts or otherwise seek strategic
alternatives.” in Part I. Item 1A., “Risk Factors” elsewhere in this Annual Report on Form 10-K.
Sources of Liquidity
We have primarily focused our efforts on raising capital and building the products in our pipeline, and, although we
generate revenue from sales of IGALMITM, we do not expect to generate positive cash flows from operations in the near
term. Since our inception, our operations have been financed primarily from proceeds from the sale of equity securities,
including our initial public offering, private placements of our common stock, registered offerings of our common stock, an
Open Market Sale Agreement (as amended, supplemented and/or restated from time to time, the “Sale Agreement”) with
Jefferies LLC (“Jefferies”), and borrowings under our Credit Agreement (as described below). 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.
Financing Agreements
On April 19, 2022, we entered into two financing agreements: the Credit Agreement and the RIFA. Pursuant to the
Credit Agreement, the Lenders originally agreed to provide us up to $135,000 in senior secured term loans to us. On April
28, 2022, we borrowed the first $70,000 tranche of loans under the Credit Agreement. Pursuant to the RIFA, the Purchasers
agreed to provide us with up to $120,000 in financing for our near-term commercial activities of IGALMITM, development
and commercialization of BXCL501 and other general corporate purposes. On July 8, 2022, we drew down the first tranche
of $30,000 under the RIFA. In connection with the Credit Agreement, we granted to the Lenders (i) warrants to purchase
up to 278 shares of our common stock (the “Original Warrants”), (ii) rights to purchase up to
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$5,000 of our common stock and (iii) warrants to purchase up to 175 individual ownership units (i.e., not in thousands) in
OnkosXcel (the “OnkosXcel Warrants”).
On November 13, 2023, we, the Lenders and OFA entered into a Waiver and First Amendment to Credit Agreement
and Guaranty (the “First Amendment”) that provided for, among other things, a waiver and a modification to the covenant
in the Credit Agreement regarding investments in OnkosXcel, pursuant to which we are permitted to invest up to a
maximum of $30,000 at any time outstanding in OnkosXcel, increased from the $25,000 at any time outstanding. The First
Amendment waived any defaults or events of default arising under the Credit Agreement due to a breach prior to the date
of the First Amendment of the OnkosXcel investment covenant, or a breach of our obligation to notify OFA of such
default, including our investment in an amount in excess of what was previously permitted under the OnkosXcel
investment covenant. In connection with the First Amendment, we paid to the Lenders a fee of $180 (representing 0.25%
of the loans outstanding under the Credit Agreement on the date of the First Amendment) and agreed to pay to the Lenders
an exit fee equal to 0.25% of the loans under the Credit Agreement repaid upon maturity or prepayment of the loans.
On December 5, 2023, we entered into the Second Amendment to Credit Agreement and Guaranty and Termination of
Revenue Interest Financing Agreement (the “Second Amendment”) with the Lenders and OFA, as administrative agent.
The Second Amendment terminated the RIFA and converted the financing previously provided to us thereunder to term
loans under the Credit Agreement. In addition, the Second Amendment replaced the Credit Agreement’s existing “Tranche
B” and “Tranche C” term loan opportunities with three new tranches aggregating up to $100,000 in potential funding:
● A $20,000 “Tranche B” term loan available upon satisfaction of the following conditions on or before
December 31, 2024: (i) us raising an aggregate of at least $40,000 after the date of the First Amendment
from (a) equity proceeds or (b) a bona fide contract with a governmental authority to use BXCL501 for
opioid withdrawal, (ii) initiation of a new clinical trial in the TRANQUILITY program based on our meeting
with the FDA held on October 11, 2023, and (iii) the total pro forma indebtedness outstanding under the
Credit Agreement as a percentage of our trailing 30-day market capitalization being less than 30%;
● A $30,000 “Tranche C” term loan available upon satisfaction of the following conditions on or before
December 31, 2025: (i) either (a) receipt of approval from the FDA of an sNDA in respect of the use of
BXCL501 for the acute treatment of agitation associated with dementia or (b) the receipt of approval from
the FDA of an sNDA in respect of the use of BXCL501 for (x) the acute treatment of agitation associated
with schizophrenia in adults and (y) the acute treatment of agitation associated with bipolar I or II disorder in
adults, in each case, in the community/at home setting without the requirement for administration under the
supervision of a healthcare provider, and (ii) the total pro forma indebtedness outstanding under the Credit
Agreement as a percentage of our trailing 30-day market capitalization being less than 30%; and
● A $50,000 “Tranche D” term loan available upon satisfaction of the following conditions on or before
December 31, 2025: (i) the conditions precedent to the borrowing of Tranche C (as described in the
preceding bullet point) have been satisfied, and (ii) our total net revenue attributable to sales of BXCL501
(for the avoidance of doubt, including any revenues attributable to use of BXCL501 for opioid withdrawal)
for the trailing twelve consecutive month period exceeding a specified amount.
The Second Amendment also modified the interest rate of the loans provided under the Credit Agreement to be a
floating rate per annum equal to the secured overnight financing rate (“SOFR”) (subject to a SOFR floor of 2.5% and a cap
of 5.5%) plus 7.5%.
Following the Second Amendment, we must also comply with certain covenants under the Credit Agreement,
including a financial covenant that requires we maintain a minimum cash liquidity amount of $15,000 (or higher upon
certain events) and a modified minimum revenue requirement measured on a quarterly basis based on the revenue
attributable to BXCL501 for the six consecutive month period ending on the last day of the relevant quarter (the “Revenue
Covenant”), subject to cure payments of not less than $1,000 if we fail to meet the minimum revenue requirement. The
Revenue Covenant applies beginning with the six-month period ending on December 31, 2024. If we
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fail to meet the minimum Revenue Covenant for the preceding six-month periods ending on December 31, 2024, March
31, 2025, June 30, 2025 and September 30, 2025, we could be required to make revenue cure payments of up to $4,500,
$6,200, $8,500, and $8,500, respectively, plus aggregate prepayment fees of $1,900. Under the Credit Agreement, these
cure payments would be due on April 21, 2025, June 6, 2025, September 5, 2025 and December 8, 2025, respectively. We
are only permitted to make cure payments for revenue shortfalls up to three times during the term of the Credit Agreement,
after which we would default on the Credit Agreement if we are unable to satisfy the minimum revenue requirement for
any subsequent fiscal quarter. As of December 31, 2023, we had aggregate principal indebtedness of $102,680 outstanding
under the Credit Agreement.
In connection with the closing of the Second Amendment, we amended and restated the Original Warrants granted to
the Lenders on April 19, 2022 to purchase up to 278 shares of the Company’s common stock at an exercise price of $20.04
per share. Pursuant to the amendment and restatement of the Original Warrants, dated December 5, 2023 (the “Amended
and Restated Original Warrants”), the exercise price of the Original Warrants has been reduced to $3.6452 per share, which
represents the arithmetic average of the volume-weighted average price of the Company’s common stock on the Nasdaq
Capital Market during the 30 trading days preceding the Second Amendment Effective Date. In addition, the Company
granted new warrants to the Lenders to purchase up to 70 shares of the Company’s common stock (the “2023 Warrant
Shares”) at an exercise price of $3.6452 per share (the “2023 Warrants”). The Original Warrants and the 2023 Warrants will
expire on April 19, 2029 and may be net exercised at the holder’s election.
On the “Effective Date, we entered into the Fourth Amendment to the Credit Agreement (“the Fourth Amendment”),
pursuant to which the Lenders waived the covenant that we not receive a report and opinion from our independent
registered public accounting firm that contains a “going concern” or similar qualification with respect to our financial
statements for the year ended December 31, 2023. Accordingly, while our independent registered public accounting firm’s
report contained in this Annual Report on Form 10-K contains a “going concern” explanatory paragraph, it does not
constitute an event of default under the Credit Agreement.
The Fourth Amendment includes covenants that we will receive, (i) after the Effective Date and on or before April 15,
2024, at least $25,000 in gross proceeds from the issuance of our common stock, warrants and/or pre-funded warrants,
and/or in non-refundable cash consideration from partnering transactions entered into after the Effective Date (so long as
such partnering transactions would not require us or any of our subsidiaries to make any cash investments in connection
with the partnering transactions and no such cash investments are made), and (ii) after the Effective Date and on or before
November 30, 2024, at least $50,000 (for the avoidance of doubt, inclusive of amounts previously counted toward the
preceding clause (i)) in gross proceeds from the issuance of our common stock, warrants and/or pre-funded warrants,
and/or in cash and/or non-cash consideration (measured at fair market value, as determined by the Administrative Agent
(as defined in the Credit Agreement) in its sole discretion ) from partnering transactions entered into after the Effective
Date. Failure to perform this covenant would constitute (A) a default under the Credit Agreement and (B) an event of
default under the Credit Agreement, subject to a cure period, in the case of clause (i) of the preceding sentence, until May
15, 2024 (for the avoidance of doubt, failure to perform clause (ii) would constitute an immediate event of default under
the Credit Agreement without any cure or grace period).
In addition, the Fourth Amendment provides that if we have not, after the Effective Date and on or before September
30, 2024, received at least $40,000 in gross proceeds from the issuance of our common stock, warrants and/or pre-funded
warrants, and/or cash and/or non-cash consideration (measured at fair market value, as determined by the Administrative
Agent in its sole discretion) from partnering transactions entered into after the Effective Date, the “Minimum Liquidity
Amount” (as defined in the Credit Agreement) that we are required to maintain at all times will increase to $25,000 from
$15,000, unless and until we have received, after the Effective Date and on or before November 30, 2024, at least $50,000
in gross proceeds from the issuance of our common stock, warrants and/or pre-funded warrants, and/or in cash and/or non-
cash consideration (measured at fair market value, as determined by the Administrative Agent in its sole discretion) from
partnering transactions entered into after the Effective Date.
In connection with the Fourth Amendment, on the Effective Date, we granted new warrants to the Lenders to purchase
up to 100 shares of our common stock (the “2024 Warrant Shares”) at an exercise price of $3.0723 per share (the “2024
Warrants”), which represents a 10% premium over the arithmetic average of the volume-weighted average
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price of our common stock on the Nasdaq Capital Market during the 30 trading days preceding the Effective Date. The
2024 Warrants will expire on April 19, 2029 and may be net exercised at the holder’s election.
In addition, pursuant to the Credit Agreement, the Lenders have the right to purchase shares of our common stock, so
long as borrowings under the Credit Agreement are outstanding, for a purchase price of $5,000 at a price per share equal to
a 10% premium to the volume-weighted average price of the common stock over the 30 trading days prior to the Lenders’
election to proceed with such equity investment (the “Equity Investment Right”). We entered into a registration rights
agreement with the Lenders (as amended and restated in connection with the Second Amendment, the “Amended and
Restated Registration Rights Agreement”) and filed registration statements on Form S-3 to register the shares issuable upon
exercise of the Original Warrants, 2023 Warrants and, if issued, the shares related to the Equity Investment Right, for
resale. The maximum shares of our common stock issuable under the Original Warrants, the 2023 Warrants and the
Lenders’ Equity Investment Right is 5,852. On the Effective Date, we further amended and restated the Amended and
Restated Registration Rights Agreement (the “Second Amended and Restated Registration Rights Agreement”) with the
Lenders. Pursuant to the Second Amended and Restated Registration Rights Agreement, we agreed to register the 2024
Warrant Shares for resale.
As part of entering into the Credit Agreement, OnkosXcel, a wholly owned subsidiary of BTI, granted the OnkosXcel
Warrants to the Lenders to purchase 175 individual limited liability company units. The strike price of the OnkosXcel
Warrants is formulaic based on the value of OnkosXcel at the time of exercise and can only be exercised upon occurrence
of an equity related liquidity event for OnkosXcel of at least $20,000. The exercise price per unit of the OnkosXcel
Warrants will be set upon the earlier of the closing of the next sale (or series of related sales) by OnkosXcel of equity
securities of OnkosXcel with aggregate proceeds of not less than $20,000 to unrelated third parties (the “Next Equity
Financing”) at an exercise price per unit equal to a 10% premium over the price per unit of the equity securities sold by
OnkosXcel in such Next Equity Financing or, in the event of a sale of OnkosXcel prior to the Next Equity Financing or an
initial public offering constituting the Next Equity Financing, the lesser of (x) 75% of the fair value of the consideration to
be paid for a unit upon the consummation of such transaction and (y) 150% of the valuation applicable to the initial profits
units issued by OnkosXcel after the closing of the Credit Agreement. The OnkosXcel Warrants are transferable with
approval from BTI, which cannot be unreasonably withheld, expire on April 19, 2029, and may be net exercised at the
holder’s election.
See Note 9, Debt and Credit Facilities and Note 19, Subsequent Events in the notes to consolidated financial
statements included elsewhere in this Annual Report on Form 10-K for additional information relating to the Credit
Agreement and RIFA, including applicable interest rates, payment obligations and certain restrictive and financial
covenants thereunder. As of December 31, 2023, we were in compliance with all restrictive and financial covenants under
the Credit Agreement, other than the “going concern” covenant described above as to which the Lenders have waived
compliance.
ATM Program
In May 2021, we entered into the Sale Agreement with Jefferies pursuant to which we could offer and sell shares of
our common stock, having an aggregate offering price of up to $100,000, from time to time, through an “at the market
offering” program under which Jefferies will act as sale agent. On November 1, 2023, we entered into an amendment to the
Sale Agreement with Jefferies to increase the size of the “at the market offering” program; pursuant to the Sale Agreement,
as amended, we can offer and sell shares of our common stock having an aggregate offering price of up to $150,000
(excluding any shares of common stock already sold in the “at the market offering” program prior to the date of the
amendment), from time to time, through an “at the market offering” program under which Jefferies will act as sale agent.
During the year ended December 31, 2023, we sold 1,408 shares under the Sale Agreement for net proceeds of $26,221.
We did not sell any shares, and no proceeds were received under the Sale Agreement during the year ended December 31,
2022. From January 1, 2024 through March 19, 2024, we sold 647 shares under the Sale Agreement for gross proceeds of
$1,743 and received proceeds of $1,691, net of issuance costs of $52.
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Cash Flows
Cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Operating Activities
Year ended December 31,
2022
2023
$ (155,006)
(20)
$
26,522
$
$ (135,341)
(139)
$
96,237
$
Net cash used in operating activities for the year ended December 31, 2023 was $155,006 and was primarily
attributable to our net loss of $179,053 and a $3,219 decrease in accounts payable, accrued expenses, due to related parties,
and other current liabilities, partially offset by a $2,888 decrease in prepaid expenses, other current assets and other assets,
$18,614 in non-cash stock-based compensation, and a $4,369 increase in accrued and payable in kind interest.
Net cash used in operating activities was $135,341 for the year ended December 31, 2022, and was primarily
attributable to our $165,757 net loss, a $1,985 increase in inventory of IGALMITM and a $3,905 increase in prepaid
expenses, other current assets and other assets, partially offset by $17,337 in non-cash stock-based compensation, a $4,611
increase in accrued and payment in kind interest, and $13,030 increase in accounts payable, accrued expenses, due to
related parties and other current liabilities.
Investing Activities
Net cash used in investing activities for the year ended December 31, 2023, was $20 and was primarily attributable to
leasehold improvements.
Net cash used in investing activities was $139 for the year ended December 31, 2022, and was primarily attributable to
the purchase of equipment and leasehold improvements.
Financing Activities
Net cash provided by financing activities for the year ended December 31, 2023, was $26,522 and was primarily
attributable to net proceeds of $26,221 from the sale of common stock under the Sale Agreement with Jefferies and net
proceeds of $508 from the exercise of stock options.
Net cash provided by financing activities for the year ended December 31, 2022, was $96,237 and was primarily
attributable to $98,600 of proceeds received from the OFA Facilities, net of $2,646 of debt issuance costs and proceeds of
$283 from the exercise of stock options.
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
commercialize IGALMITM and as we expand our clinical trials of and seek marketing approval focused on BXCL501
while pursuing development of additional product candidates for BXCL502, BXCL701 and BXCL702. We expect to
continue to incur net losses in the near term. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-
year, depending on the timing of our planned clinical trials and our expenditures on other research and development
activities.
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect, and
we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties
associated with research, development, and commercialization of pharmaceutical products, we are unable to estimate the
exact amount of our operating capital requirements. We anticipate that our expenses will increase substantially as we:
● continue our clinical development of our product candidates;
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● conduct additional research and development with our product candidates;
● seek to identify, acquire, license, develop and commercialize 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 and utilize professional services, including
consultants, lawyers, and accountants;
● add operational, financial and management information systems and personnel, including personnel to support
our drug development and commercial efforts;
● seek regulatory approvals for any product candidates that successfully complete clinical trials;
● fully develop a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to
commercialize IGALMITM and 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, 2023 will not 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 consolidated financial statements included in this Annual Report on Form 10-K, including funding our ongoing
research and development and commercialization efforts. In particular, after giving effect to the Reprioritization, we
believe that our cash and cash equivalents of $65.2 million as of December 31, 2023 will allow us to fund our operations
and meet our liquidity requirements into mid-2024, assuming we are able to comply with the covenants under our Credit
Agreement. We expect that we will need to obtain substantial additional funding to fund our ongoing 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, which could adversely impact our ability to conduct our business. 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. 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 our 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 our product candidates that we otherwise would seek to
develop or commercialize ourselves. To date, we have continued research and development activities while managing our
cash position. However, we can provide no assurance that will be successful in obtaining additional necessary resources
and, if we are unable to fund our operations, including our clinical trials, we may need to focus on advancing fewer of our
product candidates or otherwise consider strategic alternatives.
Contractual Obligations and Commitments
In April 2022, the Company signed a commercial supply agreement that requires minimum annual payments for the
first three years of the agreement that in aggregate total $10,000 for the three-year period and the minimum commitment
for 2024 is $5,000.
In February 2022, we signed a distribution agreement with a third party to distribute product related to BXCL501 in
the U.S. The distributor will be paid defined fees for its services under the agreement, which can be terminated by either
party for cause. The distribution agreement can also be terminated by us without cause, subject to payment of agreed
termination fees.
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BTI leases office space for its corporate headquarters at 555 Long Wharf Drive, New Haven, Connecticut (the “HQ
Lease”). The HQ Lease expires in February 2026. The Company has an option to renew the HQ Lease for one additional
five-year term. Payments under the HQ Lease are fixed. The Company has approximately $837 of payments remaining
under the HQ Lease. For additional details, see Note 13, Leases in the notes to consolidated financial statements included
in this Annual Report on Form 10-K for additional information relating to the Company’s leases.
In addition, we are obligated to make quarterly interest payments under our Credit Agreement. For additional details,
see Note 9, Debt and Credit Facilities in the notes to consolidated financial statements included in this Annual Report on
Form 10-K for additional information relating to the Company’s debt payment obligations.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with U.S. 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 consolidated 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 and the regulatory environment. 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.
We define critical accounting policies as those that are reflective of significant judgments and uncertainty and which
may potentially result in materially different results under different assumptions and conditions. In applying these critical
accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making
certain estimates. These estimates are subject to an inherent degree of uncertainty. Our critical accounting policies are
noted below.
Stock Compensation
The Company has granted stock options, restricted stock units and profit units to employees, directors, and
consultants, as well as warrants to other third parties. For employee, director and consultant awards, the value of each grant
is estimated on the date of grant using a Black-Scholes option-pricing model. The Black-Scholes pricing model
incorporates the volatility of the price of BTI’s stock, the risk-free interest rate, the estimated life of the award, the closing
market price of the Company’s stock and the exercise price of the award. Management bases the Company’s estimates of
stock price volatility on the historical volatility of the Company’s common stock, as well as a peer group of comparable
companies. However, these estimates are neither predictive nor indicative of the future performance of the Company’s
stock. For purposes of the calculation, management assumed that no dividends would be paid during the life of the stock
awards. The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of
management judgment.
Research and Development Expenses
As part of the process of preparing the Company’s consolidated financial statements, BTI’s management is required to
estimate prepaid and accrued expenses, including research and development expenses. This process involves reviewing
open contracts, communicating with personnel to identify services that have been performed on behalf of the Company and
estimating the level of service performed and the associated cost incurred for the service when BTI has not yet been
invoiced or otherwise notified of the actual cost. The majority of the Company’s service providers invoice BTI monthly for
services performed or when contractual milestones are met. BTI management makes estimates of prepaid and/or accrued
expenses, including research and development expenses, as of each reporting date in the
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Company’s consolidated financial statements based on facts and circumstances known to management at that time. BTI
periodically confirms the accuracy of its estimates with the service providers and makes adjustments, if necessary.
Examples of estimated accrued research and development expenses include fees paid to contract research organizations
(“CROs”) in connection with clinical studies, amounts paid to contract manufacturing organizations, and fees paid to sites
in connection with clinical trials.
The Company bases its expenses related to clinical studies on management’s estimates of the services received and
efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical trial studies on our behalf. The
financial terms of these agreements are subject to an initial negotiation, vary from contract to contract and may result in
uneven payment flows. There may be instances in which payments made to vendors exceed the level of services provided
and result in a prepayment of the clinical expense. 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 certain service fees, BTI
management estimates the time period over which services will be performed, enrollment of patients, number of sites
activated and the level of effort to be expended in each period. If the actual timing of the performance of services or the
level of effort varies from management’s estimate, management will adjust the accrual or prepaid accordingly. Although
the Company does not expect management’s estimates to be materially different from amounts actually incurred,
management’s understanding of the status and timing of services performed relative to the actual status and timing of
services performed may vary and may result in BTI reporting amounts that are too high or too low in any particular period.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Foreign Exchange Risk
As of December 31, 2023, we had $65,221 of cash and cash equivalents. Our cash and cash equivalents are primarily
held in U.S. Government money market funds. We do not participate in any foreign currency hedging activities and have
limited exposure to other derivative financial instruments, primarily resulting from the terms and conditions of the Credit
Agreement. We did not recognize any significant exchange rate losses during the years ended December 31, 2023 and
2022, 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 do not contain material market 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 exceed federally insured limits. In the event of a failure of any of the
financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we will be able to
access uninsured funds in a timely manner or at all.
Interest Rate Risk
The loans under the Credit Agreement bear interest at a variable annual rate of the Secured Overnight Financing Rate
(“Term SOFR”) (but not less than 2.5% or more than 5.5%) plus 7.5% payable quarterly. Consequently, we have material
interest rate exposure due to our indebtedness, however this risk is hedged in part by the floor and ceiling on TERM SOFR
rates.
Capital Market Risk
We currently do not have substantial product revenues and depend on funds raised through other sources. One source
of funding includes 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.
Item 8. Financial Statements and Supplementary Data
The financial statements required pursuant to this item and the related report of our independent auditor are included in
Item 15 of this report beginning on page F-1 and are incorporated under this Item by reference. Our independent auditor for
the years ended December 31, 2023 and 2022 was Ernst & Young LLP (PCAOB ID: 42), located in Stamford, Connecticut,
USA.
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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, 2023. 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 (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 rules and forms of the SEC. 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, 2023, our Chief Executive
Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were 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. Our management conducted an 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. Based on this assessment, management concluded
that, as of December 31, 2023, our internal control over financial reporting was effective.
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 as we are a “non-accelerated filer” as defined under SEC rules.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act) during the three months ended December 31, 2023, that have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
(a) On March 20, 2024 (the “Effective Date”), we entered into a Fourth Amendment (the “Fourth Amendment”) to
the Credit Agreement and Guaranty (as amended, the “Credit Agreement”) by and among the Company, as the borrower,
certain subsidiaries of the Company from time to time party thereto as subsidiary guarantors, the lenders party thereto (the
“Lenders”), and Oaktree Fund Administration LLC (“OFA”) as administrative agent (the “Administrative Agent”),
pursuant to which the Lenders waived the covenant that we not receive a report and opinion from our independent
registered public accounting firm that contains a “going concern” or similar qualification with respect to our financial
statements for the year ended December 31, 2023. Accordingly, while our independent registered public accounting
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firm’s report contained in this Annual Report on Form 10-K contains a “going concern” explanatory paragraph, it does not
constitute an event of default under the Credit Agreement.
The Fourth Amendment includes a covenant that we will receive, (i) after the Effective Date and on or before April 15,
2024, at least $25,000,000 in gross proceeds from the issuance of our common stock, warrants and/or pre-funded warrants,
and/or in non-refundable cash consideration from partnering transactions entered into after the Effective Date (so long as
such partnering transactions would not require us or any of our subsidiaries to make any cash investments in connection
with the partnering transactions and no such cash investments are made), and (ii) after the Effective Date and on or before
November 30, 2024, at least $50,000,000 (for the avoidance of doubt, inclusive of amounts previously counted toward the
preceding clause (i)) in gross proceeds from the issuance of our common stock, warrants and/or pre-funded warrants,
and/or in cash and/or non-cash consideration (measured at fair market value, as determined by the Administrative Agent in
its sole discretion ) from partnering transactions entered into after the Effective Date. Failure to perform this covenant
would constitute (A) a default under the Credit Agreement and (B) an event of default under the Credit Agreement, subject
to a cure period, solely in the case of clause (i) of the preceding sentence, until May 15, 2024 (for the avoidance of doubt,
failure to perform clause (ii) of the preceding sentence would constitute an immediate event of default under the Credit
Agreement without any cure or grace period).
In addition, the Fourth Amendment provides that if we have not, after the Effective Date and on or before September
30, 2024, received at least $40,000,000 in gross proceeds from the issuance of our common stock, warrants and/or pre-
funded warrants, and/or cash and/or non-cash consideration (measured at fair market value, as determined by the
Administrative Agent in its sole discretion) from partnering transactions entered into after the Effective Date, the
“Minimum Liquidity Amount” (as defined in the Credit Agreement) that we are required to maintain at all times will
increase to $25,000,000 from $15,000,000, unless and until we have received, after the Effective Date and on or before
November 30, 2024, at least $50,000,000 in gross proceeds from the issuance of our common stock, warrants and/or pre-
funded warrants, and/or in cash and/or non-cash consideration (measured at fair market value, as determined by the
Administrative Agent in its sole discretion) from partnering transactions entered into after the Effective Date.
In connection with the Fourth Amendment, on the Effective Date, we granted new warrants to the Lenders to purchase
up to 100,000 shares of our common stock (the “2024 Warrant Shares”) at an exercise price of $3.0723 per share (the
“2024 Warrants”), which represents a 10% premium over the arithmetic average of the volume-weighted average price of
our common stock on the Nasdaq Capital Market during the 30 trading days preceding the Effective Date. The 2024
Warrants will expire on April 19, 2029 and may be net exercised at the holder’s election. The 2024 Warrants were issued,
and the 2024 Warrant Shares will be issued (if at all), in reliance upon an exemption from the registration requirements of
the Securities Act of 1933, as amended (the “Securities Act”), contained in Section 4(a)(2) of the Securities Act. The
Lenders have represented that they are acquiring the securities for investment only and not with a view towards, or for
resale in connection with, the public sale or distribution thereof, and appropriate legends have been or will be affixed to the
securities.
On the Effective Date, we amended and restated our Amended and Restated Registration Rights Agreement (the
“Second Amended and Restated Registration Rights Agreement”) with the Lenders, originally dated April 19, 2022.
Pursuant to the Second Amended and Restated Registration Rights Agreement, we agreed to register the 2024 Warrant
Shares for resale.
The foregoing summary of the Fourth Amendment, the 2024 Warrants and the Second Amended and Restated
Registration Rights Agreement are qualified in their entirety by the complete text of such agreements, copies of which are
filed hereto as Exhibit 10.22.4, 4.5 and 4.6, respectively.
(b) On December 14, 2023, Vimal Mehta, Chief Executive Officer, adopted a Rule 10b5-1 trading arrangement that is
intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 34,938 shares of the Company’s common
stock to cover taxes due in connection with the vesting of restricted stock units until December 31, 2024.
On December 14, 2023, Richard Steinhart, Chief Executive Officer, adopted a Rule 10b5-1 trading arrangement that is
intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 25,000 shares of the Company’s common
stock to cover taxes due in connection with the vesting of restricted stock units until December 31, 2024.
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On December 14, 2023, Javier Rodriguez, Senior Vice President, Chief Legal Officer, adopted a Rule 10b5-1 trading
arrangement that is intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 25,000 shares of the
Company’s common stock to cover taxes due in connection with the vesting of restricted stock units until December 31,
2024.
On December 14, 2023, Matthew Wiley, Chief Commercial Officer, adopted a Rule 10b5-1 trading arrangement that is
intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 25,000 shares of the Company’s common
stock to cover taxes due in connection with the vesting of restricted stock units until December 31, 2024.
On December 14, 2023, Frank Yocca, Chief Scientific Officer, adopted a Rule 10b5-1 trading arrangement that is
intended to satisfy the affirmative defense of Rule 10b5-1(c) for the sale of up to 25,000 shares of the Company’s common
stock to cover taxes due in connection with the vesting of restricted stock units until December 31, 2024.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
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Item 10. Directors, Executive Officers, and Corporate Governance.
PART III
INFORMATION ABOUT OUR DIRECTORS & EXECUTIVE OFFICERS
The following information with respect to our Board of Directors (the "Board") and executive officers is presented
Position at BioXcel
Principal Employment
as of March 22, 2024:
Name
Vimal Mehta, Ph.D.
Age
63
Richard Steinhart
Matthew Wiley
Frank Yocca, Ph.D.
Vincent O’Neill, M.D.
Javier Rodriguez
Peter Mueller, Ph.D.
66
52
68
54
52
67
Chief Executive Officer and President,
and Director
Senior Vice President and Chief
Financial Officer
Senior Vice President and Chief
Commercial Officer
Senior Vice President and Chief
Scientific Officer
Executive Vice President, Chief of
Product Development and Medical
Officer
Senior Vice President, Chief Legal
Officer and Corporate Secretary
Chairman of the Board
Same
Same
Same
Same
Same
Same
President at Mueller Health Foundation,
a private foundation tackling globally
lethal infectious diseases
Former Senior Vice President, Global
Regulatory Affairs and Medical Writing
at Allergan, Inc., a pharmaceutical
company
Chief Business Officer and Chief
Financial Officer at Instil Bio, Inc., a
pharmaceutical company
Former Executive Vice President, U.S.
Commercial at Jazz Pharmaceuticals,
Inc., a pharmaceutical company
Director at the Gradus/RSJ Life Sciences
Fund, a dedicated fund
June Bray
70
Director
Sandeep Laumas, M.D.
55
Director
Michael Miller
66
Director
Michael Votruba, M.D.
58
Director
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 2024 (the “2024 Annual Meeting of
Stockholders”), which we intend to file with the SEC within 120 days of the year ended December 31, 2023.
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 2024 Annual Meeting of Stockholders, which we intend to file with the SEC within 120
days of the year ended December 31, 2023.
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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 2024 Annual Meeting of Stockholders, which we intend to file with the SEC within 120
days of the year ended December 31, 2023.
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 2024 Annual Meeting of Stockholders, which we intend to file with the SEC within 120
days of the year ended December 31, 2023.
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 2024 Annual Meeting of Stockholders, which we intend to file with the SEC within 120
days of the year ended December 31, 2023.
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 (PCAOB ID: 00042)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022
Notes to Consolidated Financial Statements
F-2
F-3
F-4
F-5
F-6
F-7
(2) Financial Statement Schedules:
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.
Exhibit
Number
3.1
Description
Amended and Restated Certificate of
Incorporation
Form File No.
001-
38410
10-Q
Exhibit Filing Date
08/10/2021
3.1
3.2
Amended and Restated Bylaws
8-K
001-
38410
3.2
03/13/2018
4.1
4.2
Description of the Registrant’s Securities
Registered Under Section 12 of the
Exchange Act
Specimen Stock Certificate evidencing the
shares of common stock
S-1/A
333-
222990
4.2
02/26/2018
Filed/
Furnished
Herewith
*
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Table of Contents
Filed/
Furnished
Herewith
*
*
Exhibit
Number
4.3
4.4
4.5
4.6
10.1+
10.2#
10.3
10.4#
10.5
10.6
Description
Form of Amended and Restated Warrant
Agreement, dated December 5, 2023
Form File No.
001-
38410
8-K
Exhibit Filing Date
12/06/2023
4.1
Form of Warrant Agreement, dated
December 5, 2023
8-K
001-
38410
4.2
12/06/2023
Form of Warrant Agreement, dated March
20, 2024
Second Amended and Restated Registration
Rights Agreement, between the Company
and the parties thereto, dated March 20,
2024.
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.
Second Amendment to Second Amended
and Restated Separation and Shared
Services Agreement, dated March 3, 2021,
by and between BioXcel LLC and BioXcel
Therapeutics Inc.
Amended and Restated Asset Contribution
Agreement, effective November 7, 2017, by
and between BioXcel LLC 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
10-K
001-
38410
10.2
03/09/2020
10-K
001-
38410
10.3
03/12/2021
10-Q
001-
38410
10.2
05/09/2022
S-1/A
333-
222990
10.2
02/12/2018
8-K
001-
38410
10.1
08/23/2018
10-Q
001-
38410
10.1
11/12/2020
10.7@
2017 Equity Incentive Plan
S-1/A
333-
222990
10.3
02/12/2018
142
Table of Contents
Exhibit
Number
10.8@
10.9@
10.10@
10.11@
10.12@
10.13@
10.14@
10.15@
10.16@
10.17@
10.18@
Filed/
Furnished
Herewith
Description
Form of Incentive Stock Option Agreement
under the 2017 Equity Incentive Plan
Form File No.
333-
222990
S-1/A
Exhibit Filing Date
02/12/2018
10.4
Form of Non-Statutory Stock Option
Agreement under the 2017 Equity Incentive
Plan
S-1/A
333-
222990
10.5
02/12/2018
BioXcel Therapeutics, Inc. 2020 Incentive
Award Plan and forms of award agreements
thereunder
10-Q
001-
38410
10.1
08/14/2020
BioXcel Therapeutics, Inc. 2020 Employee
Stock Purchase Plan
10-Q
Form of Indemnification Agreement with
directors and executive officers
Employment Agreement, dated March 7,
2018 by and between BioXcel
Therapeutics, Inc. and Vimal Mehta
S-1/A
8-K
001-
38410
333-
222990
001-
38410
10.2
08/14/2020
10.6
02/12/2018
10.1
03/13/2018
Employment Agreement, dated
February 12, 2018, by and between BioXcel
Therapeutics, Inc. and Frank Yocca
S-1/A
333-
222990
10.11
02/12/2018
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.
S-1/A
333-
222990
10.12
02/12/2018
8-K
001-
38410
10.1
06/07/2018
Employment Agreement between Javier
Rodriguez and BioXcel Therapeutics, Inc.,
dated February 15, 2021.
Employment Agreement between Matthew
Wiley and BioXcel Therapeutics, Inc.,
dated January 12, 2022.
10-K
10-K
10.19@ Employment Agreement BioXcel
10-Q
Therapeutics, Inc. and Vincent O’Neill,
M.D. dated July 1, 2022
10.20@
Non-Employee Director Compensation
Program
10.21
BioXcel Trademark License Agreement,
between the Company and BioXcel LLC
10-Q
10-Q
143
001-
38410
001-
38410
001-
38410
001-
38410
001-
38410
10.19
03/12/2021
10.20
03/11/2022
10.2
05/08/2023
10.4
08/11/2022
10.1
05/09/2022
Table of Contents
Exhibit
Number
Description
Form File No.
Exhibit Filing Date
Filed/
Furnished
Herewith
10.22+& Credit Agreement and Guaranty, by and
10-Q
among BioXcel Therapeutic, Inc., Oaktree
Fund Administration, LLC, the Subsidiary
Guarantors from time to time party thereto
and the Lenders from time to time party
thereto, dated April 19, 2022
10.22.1+& Waiver and First Amendment to Credit
10-Q
Agreement and Guaranty, by and between
the Company, the lenders party thereto and
Oaktree Fund Administration LLC dated
November 13, 2023.
001-
38410
10.1
08/11/2022
001-
38410
10.2
11/14/2023
8-K
001-
38410
10.1
02/08/2024
10.22.2& Second Amendment to Credit Agreement
and Guaranty and Termination of Revenue
Interest Financing Agreement dated
December 5, 2023, to the Credit Agreement
and Guaranty, dated April 19, 2022, by and
among the Company, as the borrower,
certain subsidiaries of the Company from
time to time party thereto as subsidiary
guarantors, the lenders party thereto, and
Oaktree Fund Administration LLC, as
administrative agent (as amended)
001-
38410
10.1
02/12/2024
*
10.22.3& Third Amendment to Credit Agreement and
8-K
10.22.4
Guaranty dated February 12, 2024, to the
Credit Agreement and Guaranty, dated
April 19, 2022, by and among the
Company, as the borrower, certain
subsidiaries of the Company from time to
time party thereto as subsidiary guarantors,
the lenders party thereto, and Oaktree Fund
Administration LLC, as administrative
agent (as amended)
Fourth Amendment to Credit Agreement
and Guaranty, dated March 20, 2024, to the
Credit Agreement and Guaranty, dated
April 19, 2022, by and among the
Company, as the borrower, certain
subsidiaries of the Company from time to
time party thereto as subsidiary guarantors,
the lenders party thereto, and Oaktree Fund
Administration LLC, as administrative
agent (as amended)
10.23+& Commercial Supply Agreement, between
10-Q
ARx, LLC and BioXcel Therapeutics, Inc.,
dated April 1, 2022
001-
38410
10.3
08/11/2022
144
Table of Contents
Exhibit
Number
10.24@ OnkosXcel Therapeutics, LLC and
Description
OnkosXcel Employee Holdings, LLC
Management Incentive Plan
Form File No.
001-
38410
8-K
Exhibit Filing Date
08/19/2022
10.1
Filed/
Furnished
Herewith
10.25@ Form of Profits Interest Award Agreement
8-K
under the Management Incentive Plan
10.26@ Form of RSU Agreement pursuant to the
10-Q
OnkosXcel Therapeutics, LLC and
OnkosXcel Employee Holdings, LLC
Management Incentive Plan.
001-
38410
001-
38410
10.2
08/19/2022
10.3
05/08/2023
8-K
001-
38410
10.1
09/25/2023
10.27+
Non-Compete Agreement, by and among
the Company, Dr. Krishnan Nandabalan,
InveniAI LLC, Invea Therapeutics, Inc. and
the other parties thereto, dated September
19, 2023.
21.1
Subsidiaries of BioXcel Therapeutics, Inc.
23.1
Consent of Ernst & Young LLP
31.1
31.2
32.1
32.2
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.
97.1
Policy for Recovery of Erroneously
Awarded Compensation
101.INS
Inline eXtensible Business Reporting
Language (XBRL) Instance Document – the
instance document does not appear in the
Interactive Data File because its XBRL
145
*
*
*
*
**
**
*
*
Table of Contents
Exhibit
Number
Description
tags are embedded within the Inline XBRL
document
101.SCH Inline XBRL Taxonomy Extension Schema
Document
101.CAL Inline XBRL Taxonomy Extension
Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension
Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label
Linkbase Document
101.PRE Inline XBRL Taxonomy Extension
Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit
101)
Form File No.
Exhibit Filing Date
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.
& Annexes, schedules, and certain exhibits have been omitted pursuant to Item 601(a)(5)(b)(2) of Regulation S-K. The
Registrant hereby agrees to furnish supplementally a copy of any omitted annex, schedule or exhibit to the SEC upon
request.
* Filed herewith.
** Furnished herewith.
Item 16. Form 10-K Summary
Not applicable
146
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 22, 2024
Dated: March 22, 2024
BioXcel Therapeutics, Inc.
By:
/s/ Vimal Mehta
Vimal Mehta, Ph.D.
Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Richard Steinhart
Richard Steinhart
Chief Financial Officer
(Principal Financial Officer)
Signature
/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.
/s/ Michael Miller
Michael Miller
/s/ Michal Votruba
Michal Votruba
Title
Date
Chief Executive Officer and Director (Principal
Executive Officer)
March 22, 2024
Chief Financial Officer (Principal Financial Officer
and Principal Accounting Officer)
March 22, 2024
Chairman of the Board of Directors
March 22, 2024
Director
March 22, 2024
Director
March 22, 2024
Director
Director
147
March 22, 2024
March 22, 2024
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of BioXcel Therapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of BioXcel Therapeutics, Inc. (the Company) as of
December 31, 2023 and 2022, the related consolidated statements of operations, changes in stockholders' (deficit) equity
and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company at December 31, 2023 and 2022, and the results of its operations and its cash flows for the years
then ended in conformity with U.S. generally accepted accounting principles.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a
going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses
from operations, has used significant cash in operations and has stated that substantial doubt exists about the Company’s
ability to continue as a going concern. Management's evaluation of the events and conditions and management’s plans
regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements
that was communicated or required to be communicated to the Audit Committee and that: (1) relates to accounts or
disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex
judgment. The communication of the critical audit matter does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a
separate opinion on the critical audit matter or on the accounts or disclosure to which it relates.
F-1
Table of Contents
Description of
the Matter
How We
Addressed the
Matter in Our
Audit
Clinical trial expense and related accrued clinical trial expenses
As discussed in Note 3 to the consolidated financial statements, at the end of the reporting period,
the Company estimates the progress toward completion of the research or development objectives,
and depending on the amount and timing of payments to the service providers may record net
prepaid or accrued expense for associated research and development costs. As of December 31,
2023, research and development expenses and accrued research and development expenses includes
clinical trial expenses and related accrued clinical trial expenses.
Auditing the Company’s clinical trial expenses and related accrued clinical trial expenses was
complex because the evidence is accumulated from multiple third-party service providers and in
certain circumstances, the nature and amount of services that have been rendered during the
reporting period does not correspond to the timing and pattern of vendor invoicing.
To test the clinical trial expenses and accrued clinical trial expenses, our audit procedures included,
among others, evaluating the significant assumptions used by management to estimate the clinical
trial expenses and testing the accuracy and completeness of the underlying data. To test the
significant assumptions, we inspected the Company's contracts with third-party service providers,
corroborated the progress of clinical trials and other research and development projects with the
Company’s internal personnel that oversee these activities, and obtained information directly from
third-party service providers which included the third parties’ estimates of clinical trial costs
incurred to date. We also examined invoices received from vendors and cash disbursements made
to third-party service providers subsequent to December 31, 2023 to assess the completeness of the
recorded accruals.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2021.
Stamford, Connecticut
March 22, 2024
F-2
BIOXCEL THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share amounts)
Table of Contents
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, net
Inventory
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Operating lease right-of-use assets
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities
Accounts payable
Accrued expenses
Due to related parties
Accrued interest
Other current liabilities
Total current liabilities
Long-term portion of operating lease liabilities
Derivative liabilities
Long-term debt
Total liabilities
Commitments and contingencies (Note 18)
Stockholders' (deficit) equity
Preferred stock, $0.001 par value, 10,000 shares authorized; no shares issued and
outstanding as of December 31, 2023 and December 31, 2022
Common stock, $0.001 par value, 100,000 shares authorized as of
December 31, 2023 and December 31, 2022; 29,930 and 28,147 shares issued and
outstanding as of December 31, 2023 and December 31, 2022, respectively
Additional paid-in-capital
Accumulated deficit
Total stockholders' (deficit) equity
Total liabilities and stockholders' (deficit) equity
December 31,
December 31,
2023
2022
$
$
$
$
$
$
$
$
$
65,221
71
1,991
2,782
2,078
72,143
784
688
87
73,702
13,654
12,424
107
736
346
27,267
440
1,905
100,598
130,210
$
$
$
$
$
$
193,725
248
1,985
3,067
3,843
202,868
1,084
976
925
205,853
10,228
18,669
422
3,175
404
32,898
786
2,343
93,051
129,078
— $
—
30
534,060
(590,598)
(56,508)
73,702
28
488,292
(411,545)
76,775
205,853
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Table of Contents
BIOXCEL THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
Revenues
Product revenue, net
Operating expenses
Cost of goods sold
Research and development
Selling, general and administrative
Restructuring costs
Total operating expenses
Loss from operations
Other expense (income)
Interest expense
Interest income
Other (income) expense, net
Net loss
Basic and diluted net loss per share attributable to common stockholders
Weighted average shares outstanding - basic and diluted
Year ended December 31,
2022
2023
1,380
1,260
84,326
83,413
4,163
173,162
(171,782)
13,314
(5,649)
(394)
(179,053)
(6.15)
29,129
$
$
$
$
$
$
375
20
91,239
68,761
—
160,020
(159,645)
8,213
(2,528)
427
(165,757)
(5.92)
28,015
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
BIOXCEL THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
(amounts in thousands)
Common Stock
Balance as of January 1, 2022
Issuance of stock purchase warrants
Stock-based compensation
Exercise of stock options
Net loss
Balance as of December 31, 2022
Issuance of common stock, net of offering costs
Stock-based compensation
Exercise of stock options
Repricing of stock purchase warrants
Issuance of stock purchase warrants
Vesting of restricted stock units, net of employee
tax obligations
Net loss
Balance as of December 31, 2023
Shares
27,980
—
—
167
—
28,147
1,408
—
310
—
—
65
—
29,930
Amount
$
$
$
28
—
—
—
—
28
2
—
—
—
—
—
—
30
Additional
Paid in
Capital
Accumulated
Deficit
Total
$ 467,427
3,245
17,337
283
—
$ 488,292
26,219
18,614
508
254
200
—
—
—
(165,757)
$ (411,545) $
$ (245,788) $ 221,667
3,245
17,337
283
(165,757)
76,775
26,221
18,614
508
254
200
—
—
—
—
—
(27)
—
$ 534,060
—
(179,053)
$ (590,598) $
(27)
(179,053)
(56,508)
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
BIOXCEL THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
OPERATING CASH FLOW ACTIVITIES:
Net loss
Reconciliation of net loss to net cash used in operating activities
Depreciation
Accretion of debt discount and amortization of financing costs
Change in fair value of derivative liabilities
Stock-based compensation expense
Payable-in-kind interest on Credit Agreement
Loss on disposal of equipment
Operating lease right-of-use assets
Changes in operating assets and liabilities
Accounts receivable
Inventory
Prepaid expenses, other current assets and other assets
Accounts payable, accrued expenses, due to related parties, and other current
liabilities
Accrued interest
Operating lease liabilities
Net cash used in operating activities
INVESTING CASH FLOW ACTIVITIES:
Purchases of equipment and leasehold improvements
Net cash used in investing activities
FINANCING CASH FLOW ACTIVITIES:
Proceeds from long-term debt
Debt issuance costs
Proceeds from issuance of common stock
Offering costs for common stock issuance
Payment of employee tax obligations related to vesting restricted stock units
Exercise of stock options
Net cash provided by financing activities
Net 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:
Issuance of stock purchase warrants
Repricing of stock purchase warrants
Interest paid
Conversion of accrued interest to long-term debt
Year ended December 31,
2022
2023
$
(179,053)
$ (165,757)
318
1,373
(438)
18,614
1,872
2
288
177
(6)
2,888
327
860
389
17,337
807
22
271
(248)
(1,985)
(3,905)
(3,219)
2,497
(319)
(155,006)
13,030
3,804
(293)
$ (135,341)
(20)
(20)
$
$
(139)
(139)
— $
(180)
27,032
(811)
(27)
508
26,522
(128,504)
193,725
65,221
200
254
7,551
767
$
$
$
$
$
$
$
98,600
(2,646)
—
—
—
283
96,237
(39,243)
232,968
193,725
3,245
—
2,697
—
$
$
$
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
BIOXCEL THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except per share amounts and where otherwise noted)
Note 1. Nature of the Business
BioXcel Therapeutics, Inc. (“BTI” or the “Company”) is a biopharmaceutical company utilizing artificial intelligence
(“AI”) approaches to develop transformative medicines in neuroscience and immuno-oncology. The Company is focused
on utilizing cutting-edge technology and innovative research to develop high-value therapeutics aimed at transforming
patients’ lives. BTI employs a unique AI platform to reduce therapeutic development costs and potentially accelerate
timelines. The Company’s approach leverages existing approved drugs and/or clinically evaluated product candidates
together with big data and proprietary machine learning algorithms to identify new therapeutic indices. BTI management
believes this differentiated approach has the potential to reduce the expense and time associated with drug development in
diseases with substantial unmet medical needs.
As used in these consolidated financial statements, unless otherwise specified or the context otherwise requires, the
terms “BioXcel LLC” refers to the Company’s former parent and current significant stockholder, BioXcel LLC and, its
predecessor, BioXcel Corporation. “OnkosXcel” refers to BTI’s wholly owned subsidiary for its advanced immuno-
oncology assets, OnkosXcel Therapeutics, LLC.
On April 6, 2022, BTI announced that the United States (“U.S.”) Food and Drug Administration (“FDA”) approved
IGALMITM (dexmedetomidine or “Dex”) sublingual film for the acute treatment of agitation associated with schizophrenia
or bipolar I or II disorder in adults. IGALMITM is approved to be self-administrated by patients under the supervision of a
health care provider. On July 6, 2022, BTI announced that IGALMITM, was commercially available in doses of 120 and
180 micrograms.
The Company’s most advanced clinical development program is BXCL501. In indications other than those approved
by the FDA as IGALMITM, BXCL501 is an investigational proprietary, orally dissolving, film formulation of Dex for the
treatment of agitation associated with psychiatric and neurological disorders.
The Company’s advanced immuno-oncology asset, BXCL701, is an investigational, orally administered systemic
innate immune activator for the treatment of a rare form of prostate cancer and advanced solid tumors that are refractory or
treatment naïve to checkpoint inhibitors.
BTI was incorporated under the laws of the State of Delaware on March 29, 2017. The Company’s principal office is
in New Haven, Connecticut.
Note 2. Basis of Presentation
The accompanying consolidated financial statements include those of the Company and its subsidiaries after
elimination of all intercompany accounts and transactions and have been prepared in conformity with United States
(“U.S.”) Generally Accepted Accounting Principles (“GAAP”).
The accompanying consolidated financial statements include the accounts for the Company and all entities where BTI
has a controlling financial interest after elimination of all intercompany accounts and transactions and have been prepared
in conformity with U.S. GAAP.
As of December 31, 2023, the Company had cash and cash equivalents of $65,221 and an accumulated deficit of
$590,598. BTI has incurred substantial net losses and negative cash flows from operating activities in nearly every fiscal
period since inception and expects this trend to continue for the foreseeable future. The Company recognized net losses of
$179,053 and $165,757 for the years ended December 31, 2023 and 2022, respectively, and had net cash used in operating
activities of $155,006 and $135,341 for the years ended December 31, 2023 and 2022, respectively.
F-7
Table of Contents
Management is required at each reporting period to evaluate whether there are conditions and events, considered in the
aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date
that the financial statements are issued.
The Company’s history of significant losses, its negative cash flows from operations, potential near-term increased
covenant-driven amortization payments under its Credit Agreement, its limited liquidity resources currently on hand, and
its dependence on its ability to obtain additional financing to fund its operations after the current resources are exhausted,
about which there can be no certainty, have resulted in management’s assessment that there is substantial doubt about the
Company’s ability to continue as a going concern for a period of at least 12 months from the issuance date of the financial
statements included in this Annual Report on Form 10-K.
This going concern evaluation takes into consideration the potential mitigating effect of management’s Reprioritization
(as defined in Note 4, Restructuring). When substantial doubt exists, management evaluates whether the mitigating effect
of its plans sufficiently alleviates the substantial doubt about the Company’s ability to continue as a going concern. The
mitigating effect of management’s plans, however, is only considered if both (i) it is probable that the plans will be
effectively implemented within one year after the date that the financial statements are issued and (ii) it is probable that the
plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be
considered probable of being effectively implemented, the plans need to be approved by the Company’s Board of
Directors. The Company’s Reprioritization was approved by the Board of Directors on August 8, 2023; however, such
plans will not mitigate the entity’s ability to continue as a going concern within one year after the date that the financial
statements are issued.
The accompanying consolidated financial statements have been prepared on a going concern basis, which
contemplates the realization of assets and the satisfaction of liabilities in the normal course of business and does not
include any adjustments that may result from the outcome of this uncertainty. The going concern analysis does not consider
possible future amendments to or restructuring of the Credit Agreement (as defined in Note 9, Debt and Credit Facilities)
or other potential sources of debt or equity capital.
Successful completion of the Company’s development programs and, ultimately, the attainment of profitable
operations are dependent upon future events, including obtaining adequate financing to support the Company’s cost
structure and operating plan. Management’s plans to improve the Company’s liquidity and reduce its operating expenses
and capital requirements include, among other things, pursuing one or more of the following steps to raise additional
capital, none of which can be guaranteed or are entirely within the Company’s control:
•
•
•
•
•
•
•
raise funding through the sale of the Company’s equity securities;
raise funding through third-party investments in or other strategic options for OnkosXcel;
raise funding through debt financing and/or restructuring of its existing OFA Facilities;
establish collaborations with potential partners to advance the Company’s product pipeline;
establish collaborations with potential marketing partners;
reduce overhead and headcount to focus on core priorities; and/or
any combination of the foregoing.
If the Company is unable to raise capital when needed or on acceptable terms, or if it is unable to procure collaboration
arrangements to advance its programs, the Company would be forced to discontinue some of its operations or develop and
implement a plan, beyond its Reprioritization initiatives, to further extend payables, reduce overhead, scale back or cease
some or all of its revised operating plan until sufficient additional capital is raised to support further operations.
F-8
Table of Contents
Note 3. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and
assumptions that affect amounts reported in the consolidated financial statements and notes thereto. 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, 2023 and 2022, cash equivalents were comprised primarily of money
market funds. Cash and cash equivalents held at financial institutions may at times exceed federally insured amounts. BTI
management believes it mitigates such risk by investing in or through major financial institutions.
Accounts Receivable, Net
Accounts receivable arise from sales of IGALMITM and represent amounts due from distributors. Payment terms
generally range from 30 to 75 days from the date of the sale transaction, and accordingly, do not involve a significant
financing component. Receivables from product sales are recorded net of allowances which generally include distribution
fees, prompt payment discounts, chargebacks, and credit losses. Allowances for distribution fees, prompt payment
discounts and chargebacks are based on contractual terms. The Company estimated the current expected credit losses of its
accounts receivable by assessing the risk of loss and available relevant information about collectability, existing contractual
payment terms, actual payment patterns of its customers, individual customer circumstances, and reasonable and
supportable forecast of economic conditions expected to exist throughout the contractual life of the receivable. Based on its
assessment, as of December 31, 2023, the Company determined that an allowance for credit losses was not required.
Concentrations of Credit Risk
The Company sells IGALMITM through a drop-ship program under which orders from hospitals and similar health
care institutions are processed through wholesalers, but shipments of the product are sent directly to the individual
hospitals and similar health care institutions. BTI also contracts directly with intermediaries such as group purchasing
organizations (“GPOs”). All trade accounts receivables are due from the distributor that fulfills orders on behalf of the
Company.
Inventory
Inventory is stated at the lower of cost or net realizable value. Cost of inventory is determined on a first-in, first-out
basis.
BTI capitalizes inventory costs associated with the Company’s products prior to regulatory approval, when, based on
management’s judgment, future commercialization is considered probable and the future economic benefit is expected to
be realized; otherwise, such costs are expensed as research and development expense in the Consolidated Statements of
Operations.
The Company performs an assessment of the recoverability of capitalized inventory during each reporting period and
writes down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment is
first identified. Such impairment charges, should they occur, will be recorded within Cost of goods sold in the Consolidated
Statements of Operations. The determination of whether inventory costs will be realizable requires estimates by
management. If actual market conditions are less favorable than projected, write-downs of inventory may be required.
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Deferred Initial Public Offering Costs
Deferred initial public offering costs of $2,570, consisted of legal, accounting, and other costs that were directly
related to the Company’s proposed initial public offering of OnkosXcel. These costs were charged to the Consolidated
Statements of Operations during the year ended December 31, 2023 as the initial public offering was delayed for an
extended period of time. The costs were recorded as Selling, general and administrative expenses.
Property and Equipment
Property and equipment are recorded at cost and depreciated over the shorter of their remaining lease term or their
estimated useful life on a straight-line basis as follows:
Equipment
Furniture
Leasehold improvements
3-5 years
7 years
Lesser of life of improvement or lease term
Expenditures for maintenance and repairs which do not improve or extend the useful lives of the respective assets are
expensed as incurred. When assets are sold or retired, the related cost and accumulated depreciation are removed from their
respective accounts and any resulting gain or loss is included within Selling, general and administrative expenses in the
Consolidated Statements of Operations.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to undiscounted future net cash flows expected to be generated from its use and disposition.
Impairment charges are recognized at the amount by which the carrying amount of an asset exceeds the fair value of the
asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease
right-of-use (“ROU”) assets, other current liabilities, and the long-term portion of operating lease liabilities in the
Consolidated Balance Sheets.
ROU assets represent BTI’s right to use an underlying asset for the lease term and lease liabilities represent the
Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are
recognized at commencement date based on the present value of lease payments over the lease term. The Company uses
the implicit rate when readily determinable. As BTI’s leases do not provide an implicit rate, it used an incremental
borrowing rate based on the information available at commencement date in determining the present value of lease
payments. The operating lease ROU asset also includes any prepaid lease payments made and excludes lease incentives.
The Company’s leases may include options to extend the lease; such options are included in determining the lease term
when it is reasonably certain that BTI will exercise that option. Lease expense is recognized on a straight-line basis over
the lease term.
Debt and Detachable Warrants
Detachable warrants are evaluated for classification as either equity instruments, derivative liabilities, or liabilities
depending on the specific terms of the warrant agreement. In circumstances in which debt is issued with equity-classified
warrants, the proceeds from the issuance of debt are first allocated to the debt and then the warrants at their estimated fair
values. The portion of the proceeds allocated to the warrants are accounted for as paid-in capital and a debt discount. The
remaining proceeds, as further reduced by discounts created by the bifurcation of any embedded derivatives, are allocated
to the debt. Detachable warrants classified as derivative liabilities are accounted for as indicated under “Derivative Assets
and Liabilities” section of this Note and as a debt discount. The Company accounts for debt as liabilities measured at
amortized cost and amortizes the resulting debt discount from the allocation of proceeds to interest expense using the
effective interest method over the expected term of the debt instrument. The Company considers
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whether there are any embedded features in debt instruments that require bifurcation and separately accounts for them as
derivative financial instruments.
The Company entered into financing arrangements, the terms of which involve significant assumptions and estimates,
including future net product sales, in determining interest expense, amortization period of the debt discount, as well as the
classification between current and long-term portions. In estimating future net product sales, the Company assesses
prevailing market conditions using various external market data against the Company’s anticipated sales and planned
commercial activities. Consequently, the Company imputes interest on the carrying value of the debt and records interest
expense using an imputed effective interest rate. The Company reassesses the expected payments during each reporting
period and accounts for any changes through an adjustment to the effective interest rate on a prospective basis, with a
corresponding impact to the classification of the Company’s current and long-term portions of the debt.
Derivative Assets and Liabilities
Derivative assets and liabilities are recorded on the Company`s Consolidated Balance Sheets at their fair value on the
date of issuance and are revalued on each balance sheet date until such instruments are settled or expire, with changes in
the fair value between reporting periods recorded as other income or expense within Other (income) expense, net in the
Consolidated Statements of Operations.
The Company does not use derivative instruments for speculative purposes or to hedge exposures to cash-flow or
market risks. Certain financing facilities entered into by the Company include freestanding financial instruments and/or
embedded features that require separate accounting as derivative assets and/or liabilities.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs to the extent possible.
Revenue Recognition
The Company’s revenues consist of product sales of IGALMITM.
BTI recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the
consideration that the Company expects to receive in exchange for those goods or services. To determine revenue
recognition, BTI management performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify
the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any;
(iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the
Company satisfies a performance obligation. Arrangements that include rights to additional goods or services that are
exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a
material right to the customer and if so, they are considered performance obligations. The exercise of a material right may
be accounted for as a contract modification or as a continuation of the contract for accounting purposes.
The Company assesses whether the goods or services promised within each contract are distinct to identify those that
are performance obligations. This assessment involves subjective determinations and requires management to make
judgments about the individual promised goods or services and whether such goods and services are separable from the
other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the
customer can benefit from the good or service either on its own or together with other resources that are readily available to
the customer and (ii) the Company’s promise to transfer the good or service to the customer is separately identifiable from
other promises in the contract.
The Company allocates the transaction price (the amount of consideration it expects to be entitled to from a customer
in exchange for the promised goods or services) to each performance obligation and recognizes the associated revenue
when (or as) each performance obligation is satisfied. The Company’s estimate of the transaction price for each contract
includes all variable consideration to which the Company expects to be entitled.
BTI distributes IGALMITM in the U.S. through arrangements with a distributor, wholesalers, and GPOs. The
distributor and wholesalers help process and fulfill orders from hospitals on the Company’s behalf. The Company believes
the hospitals are its customers.
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The Company recognizes product revenues, net of consideration payable to customers, as well as variable
consideration related to certain allowances and accruals that are determined using either the expected value or most likely
amount method, depending on the type of the variable consideration, in its consolidated financial statements at the point in
time when control transfers to the customer, which is typically when the product has been delivered to the customer’s
location. The amount included in the transaction price is constrained to the amount for which it is probable that a
significant reversal of cumulative revenue recognized will not occur. The Company’s only performance obligation
identified for IGALMITM is to deliver the quantity of product ordered to the location specified by the customer’s order. The
Company records shipping and handling costs associated with delivery of product to its customers within Selling, general
and administrative expenses on its Consolidated Statements of Operations. Under the Company’s current product sales
arrangements, BTI does not have contract assets (unbilled receivables), as it generally invoices its customer at the time of
revenue recognition.
BTI sells IGALMITM at wholesale acquisition cost and calculates product revenue net of variable consideration and
consideration payable to third parties associated with distribution of product. The Company records reserves, based on
contractual terms, for the following components of consideration related to product sold during the reporting period.
Calculating these amounts involves estimates and judgments, and the Company reviews these estimates quarterly and
records any material adjustments in the period they are identified, which affects net product revenue and earnings in the
period such variances occur.
Trade Discounts and Allowances
The Company provides the distributor and wholesalers with discounts for prompt payment and pays fees to the
distributor, wholesalers and GPOs related to distribution of the product. BTI expects the relevant third parties to earn these
discounts and fees, and therefore it deducts such amounts from gross product revenue and accounts receivable at the time it
recognizes the related revenue.
Government Rebates
IGALMITM is eligible for purchase by, or qualifies for reimbursement from, Medicaid and other U.S. government
programs that are eligible for rebates on the price they pay for the product. To determine the appropriate amount to reserve
for these rebates, BTI applies the applicable government discount to these sales, and estimates the portion of total rebates
that it anticipates will be claimed. The Company deducts certain government rebates from gross product revenue and
accounts receivable at the time it recognizes the related revenue; other government rebates are recognized as an accrued
liability at the time BTI recognizes the related revenue.
Chargebacks
BTI provides product discounts to hospitals associated with certain GPOs. The Company estimates the chargebacks
that it expects to be obligated to provide based upon the terms of the applicable arrangements. BTI deducts such amounts
from gross product revenue and accounts receivable at the time it recognizes the related revenue.
Product Returns
The Company provides contractual return rights to its customers including the right to return product within six
months of product expiration and up to 12 months after product expiration, as well as for incorrect shipments, and damaged
or defective product, which the Company expects to be rare. Management expects product returns to be minimal, thus BTI
recognizes a nominal allowance for product returns at the time of each sale. In the future, if any of these factors and/or the
history of product returns changes, the Company will adjust the allowance for product returns.
BTI classifies all fees paid to the distributor, other than those discussed above and those related to warehouse
operations, as Selling, general and administrative expenses on its Consolidated Statements of Operations. Fees paid to the
distributor for warehouse operations are classified as Cost of goods sold on BTI’s Consolidated Statements of Operations.
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Cost of Goods Sold
Cost of goods sold includes the cost of producing and distributing inventories that are related to product revenues
during the respective period. Cost of goods sold also includes costs related to excess or obsolete inventory adjustment
charges, as well as costs related to warehouse operations paid to distributors.
Stock-Based Compensation
The Company measures and recognizes stock-based compensation expense based on estimated fair value for all share-
based awards made to employees, non-employee service providers, and directors, including stock options, BTI restricted
stock units (“BTI RSUs”), OnkosXcel profit sharing units (“PSUs”), OnkosXcel restricted stock units (“OnkosXcel
RSUs”) and BTI performance stock units (“Performance Units”). The Company’s 2017 Equity Incentive Plan (the “2017
Plan”) became effective in August 2017. The Company’s 2020 Incentive Award Plan (the “2020 Plan”) became effective in
May 2020. Following the effective date of the 2020 Plan, the Company ceased granting awards under the 2017 Plan;
however, the terms and conditions of the 2017 Plan continue to govern any outstanding awards granted thereunder.
The Company’s stock-based awards are valued at fair value on the date of grant and that fair value is recognized as an
expense in the Consolidated Statements of Operations over the requisite service period using the accelerated attribution
method. The estimated value of the BTI RSUs and Performance Units is based on the Company’s closing stock price on the
grant date. The estimated fair value of stock-options, OnkosXcel RSUs and PSUs was determined using the Black-Scholes
pricing model on the date of grant. For awards subject to performance-based vesting conditions, the Company recognizes
stock-based compensation expense when the achievement of the performance condition becomes probable.
The Black-Scholes pricing model is affected by the Company’s stock price, as well as assumptions regarding variables
including, but not limited to, the strike price of the instrument, the risk-free rate, the expected stock price volatility over the
term of the awards, and expected term of the award. The Company has elected to account for forfeitures as they occur, by
reversing compensation cost when the award is forfeited.
Research and Development Costs
Research and development expenses include wages, benefits, non-cash stock-based compensation, facilities, supplies,
external services, clinical study, manufacturing costs related to clinical trials and other expenses that are directly related to
the Company’s research and development activities. At the end of the reporting period, the Company estimates the progress
toward completion of the research or development objectives and, depending on the amount and timing of payments to the
service providers may record net prepaid or accrued expense for associated research and development costs. Such estimates
are subject to change as additional information becomes available. The Company expenses research and development costs
as incurred.
Most of the Company’s service providers invoice BTI monthly in arrears for services performed. The Company
estimates its accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and
circumstances known to management at that time. BTI management periodically confirms the accuracy of the Company’s
estimates with the service providers and makes adjustments if necessary.
Although management does not expect its estimates to be materially different from amounts actually incurred,
management’s understanding of the status and timing of services performed relative to the actual status and timing of
services performed may vary and may result in BTI reporting amounts that are too high or too low in any particular period.
Patent Costs
Costs related to filing and pursuing patent applications are recorded in Selling, general and administrative expenses in
the Consolidated Statements of Operations and are expensed as incurred since recoverability of such expenditures is
uncertain.
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Fair Value of Financial Instruments
The Company measures certain financial assets and liabilities at fair value, which is defined as the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. The Company applies a fair value hierarchy that distinguishes between (1) market participant
assumptions developed based on market data obtained from independent sources, or observable inputs, and (2) an entity’s
own assumptions about market participant assumptions developed based on the best information available in the
circumstances, or unobservable inputs. The fair value hierarchy consists of three broad levels, which gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3). Fair value measurements must be classified and disclosed in one of the following three
categories:
● Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or
liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
● Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data,
including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not
active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that
do not require significant judgment since the input assumptions used in the models, such as interest rates and
volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the
full term of the financial instrument.
● Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant
management judgment. These values are generally determined using pricing models for which the assumptions
utilize management’s estimates of market participant assumptions.
In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk in its
assessment of fair value.
Income Taxes
BTI uses 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
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.
U.S. GAAP 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. The Company’s financial statements reflect expected
future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant
facts.
The Company does not have any unrecognized tax benefits as of December 31, 2023 and 2022. BTI reviews 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.
Earnings (Loss) per Share
Earnings (loss) per share (“EPS”) is calculated by dividing net income or loss attributable to common stockholders by
the weighted average number of shares of common stock that were outstanding. Diluted EPS is calculated by adjusting the
weighted average number of shares of common stock that were outstanding for the dilutive effect of common stock
equivalents. In periods in which a net loss is recorded, no effect is given to potentially dilutive securities, since the effect
would be antidilutive.
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Segment Information
The Company operates in a single segment. Operating segments are identified as components of an enterprise about
which separate discrete financial information is available for evaluation by the chief operating decision maker in making
decisions regarding resource allocation and assessing performance. To date, the Company’s chief operating decision maker
has made such decisions and assessed performance at the Company level as one segment.
Recent Accounting Pronouncements
Recently adopted accounting pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, and
subsequent amendments to the initial guidance (collectively, “Topic 326”). Topic 326 requires measurement and
recognition of expected credit losses for financial assets held. Topic 326 was to be effective for reporting periods beginning
after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU No. 2019-10, Financial
Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) - Effective Dates,
which deferred the effective dates of Topic 326 for the Company, until fiscal year 2023. The Company adopted Topic 326
in 2023 and it did not have a material impact on its consolidated financial statements.
Accounting Pronouncements effective in future periods
In November 2023, the FASB issued ASU 2023-07, Segment reporting, which requires disclosure of incremental
segment information on an annual and interim basis. The standard is effective for years beginning after December 15,
2023, and interim periods beginning after December 15, 2024 and early adoption is permitted. The Company is currently
evaluating the effect of adopting this guidance on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Improvements to income tax disclosures, which requires
disclosure of disaggregated income taxes paid by jurisdiction, enhances disclosures in the effective tax rate reconciliation
and modifies other income tax-related disclosures. The amendments are effective for annual periods beginning after
December 15, 2024. The Company is currently evaluating the effect of adopting this guidance on its consolidated financial
statements.
Note 4. Restructuring
On August 8, 2023, the Company’s Board of Directors approved a broad-based strategic reprioritization (the
“Reprioritization”). The Company took actions to reduce certain operational and workforce expenses that were no longer
deemed core to ongoing operations in order to extend its cash runway and drive innovation and growth in high potential
clinical development and value creating opportunities. These actions included a shift in commercial strategy for
IGALMITM in the institutional setting, a reduction of in-hospital commercialization expenses, a suspension of programs no
longer determined to be core to ongoing operations, and a prioritization of at-home treatment setting opportunities for
BXCL501.
As part of this strategy, the Company’s Board of Directors approved a reduction of approximately 60% of the
Company’s workforce. The Company notified impacted employees on August 14, 2023 and recorded total restructuring
costs of $4,163 for the year ended December 31, 2023. These costs consisted of severance and benefit costs of $4,063 and
contract termination costs of $100. The Company paid $3,998 of severance and benefit costs and $100 of contract
termination costs in the year ended December 31, 2023. The Reprioritization is substantially complete as of December 31,
2023, and any remaining costs are expected to be paid during the first quarter of 2024.
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Note 5. Inventory
Inventory consists of the following:
Raw materials
Work-in-process
Finished goods
Total inventory
December 31, December 31,
2023
2022
$
$
935
651
405
1,991
$
$
682
708
595
1,985
The Company recorded inventory write-downs of $1,191 for the year ended December 31, 2023. No write-downs of
inventory were recorded for the year ended December 31, 2022.
Note 6. Property and Equipment, net
Property and equipment, net consists of the following:
Computers and equipment
Furniture
Leasehold improvements
Total property and equipment
Accumulated depreciation
Total property and equipment, net
December 31, December 31,
2023
2022
$
$
$
202
575
1,200
1,977
(1,193)
784
$
$
$
213
575
1,181
1,969
(885)
1,084
Depreciation expense was $318 and $327 for the years ended December 31, 2023 and 2022, respectively.
Note 7. Accrued Expenses
Accrued expenses consist of the following:
Accrued research and development expenses
Accrued compensation and benefits
Accrued professional fees
Accrued taxes
Other accrued expenses
Total accrued expenses
Note 8. Transactions with BioXcel LLC
December 31,
2023
December 31,
2022
$
$
6,406
163
5,562
116
177
12,424
$
$
8,659
6,370
2,738
82
820
18,669
The Company entered into a Separation and Shared Services Agreement with BioXcel LLC that took effect on June
30, 2017, as amended and restated thereafter (the “Services Agreement”), pursuant to which BioXcel LLC has agreed to
provide the Company with certain intellectual property prosecution and management and research and development
activities.
Under the Services Agreement, we have an option, exercisable until December 31, 2024, to enter into a separate
collaborative services agreement with BioXcel LLC pursuant to which BioXcel LLC shall perform product identification
and related services for us utilizing its EvolverAI. We agreed to pay BioXcel LLC $18 per month from March 13, 2023, to
December 31, 2024 in exchange for this option. We agreed to negotiate any such collaborative services agreement in
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good faith and to incorporate reasonable market-based terms, including consideration for BioXcel LLC reflecting a low,
single-digit royalty on net sales and reasonable development and commercialization milestone payments, provided that (i)
development milestone payments shall not exceed $10,000 in the aggregate and not be payable prior to proof of concept in
humans and (ii) commercialization milestone payments shall be based on reaching annual net sales levels, be limited to 3%
of the applicable net sales level, and not exceed $30,000 in the aggregate.
Service charges recorded under the Services Agreement for the years December 31, 2023 and 2022 were as follows:
Research and development
Selling, general and administrative
Total
Year ended December 31,
2023
2022
$
$
1,075
211
1,286
$
$
1,151
250
1,401
As of December 31, 2023 and 2022, $0 and $310, respectively, of these service charges are included in Due to related
parties in the Company’s Consolidated Balance Sheets.
Note 9. Debt and Credit Facilities
Debt, net of unamortized discounts and financing costs, consists of the following:
Revenue Interest Financing Agreement ("RIFA")
RIFA accrued interest
RIFA payments
RIFA debt liability
Estimated Portion of RIFA debt liability to be paid within one-year
RIFA long-term debt liability
Credit Agreement and Guaranty
Payable-in-kind ("PIK") interest
Total long-term debt liability
Unamortized debt premiums, discounts and issuance costs
Total long-term debt
December 31, 2023 December 31, 2022
$
$
$
$
$
— $
—
—
— $
—
— $
102,319
361
102,680
(2,082)
100,598
$
$
30,000
2,041
(10)
32,031
(1,401)
30,630
70,000
807
101,437
(8,386)
93,051
On April 19, 2022, the Company entered into two strategic financing agreements: (i) a Credit Agreement and Guaranty
(the “Credit Agreement”) by and among the Company, as the borrower, certain subsidiaries of the Company from time to
time party thereto as subsidiary guarantors, the lenders party thereto (the “Lenders”), and Oaktree Fund Administration
LLC (“OFA”) as administrative agent, and (ii) a Revenue Interest Financing Agreement (the “RIFA”; and together with the
Credit Agreement, the “OFA Facilities”) by and among the Company, the purchasers party thereto (the “Purchasers”) and
OFA as administrative agent. Under the OFA Facilities, the Lenders and the Purchasers agreed to, in the aggregate between
the two OFA Facilities, provide up to $260,000 in gross funding to support the Company’s commercial activities of
IGALMITM sublingual film. In addition, the OFA Facilities are intended to support the expansion of clinical development
efforts of BXCL501, which includes a Phase 3 program for the acute treatment of agitation in patients with Alzheimer’s
disease, and for general corporate purposes. The Lenders and Purchasers are comprised of affiliates of Oaktree Capital
Management, L.P. and Qatar Investment Authority.
Waiver and First Amendment to Credit Agreement and Guaranty
On November 13, 2023, the Company, the lenders party to the Credit Agreement and OFA entered into a Waiver and
First Amendment to Credit Agreement and Guaranty (the “First Amendment”) that provided for (i) a waiver and a
modification to the covenant in the Credit Agreement regarding investments in OnkosXcel and (ii) an agreement among
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the parties to further revise key financial terms in the Credit Agreement and terminate the RIFA. Pursuant to the First
Amendment, the Lenders agreed to permit the Company to invest up to a maximum of $30,000 at any time outstanding in
OnkosXcel, increased from $25,000 at any time outstanding. The First Amendment also waived any defaults or events of
default arising under the Credit Agreement due to a breach prior to the date of the First Amendment of the OnkosXcel
investment covenant, or a breach of the Company’s obligation to notify OFA of such default. In connection with the First
Amendment, the Company paid the Lenders a fee of $180 (representing 0.25% of the loans outstanding under the Credit
Agreement on the date of the First Amendment) and agreed to pay to the Lenders an exit fee equal to 0.25% of the loans
under the Credit Agreement repaid upon maturity or prepayment of the loans.
Second Amendment to Credit Agreement and Guaranty and Termination of the RIFA
On December 5, 2023, (the “Second Amendment Effective Date”), the Company entered into the Second Amendment
to Credit Agreement and Guaranty and Termination of Revenue Interest Financing Agreement (the “Second Amendment”),
which further amended the Credit Agreement. On the Second Amendment Effective Date, the Credit Agreement was
amended to provide up to $202,319 in senior secured term loans, including the initial Tranche A of $70,000, which was
funded on April 28, 2022, and related capitalized interest on Tranche A through the Second Amendment Effective Date in
the amount of $72,319. In addition, the $30,000 in financing previously provided to the Company under the RIFA on July
8, 2022 was converted to a term loan under the Credit Agreement (the “Tranche A-2 Term Loan”). The RIFA and all
commitments for potential future funding thereunder were terminated. In addition, pursuant to the Second Amendment, the
Lenders agreed to permit the Company to invest up to a maximum of $30,865 at any time outstanding in OnkosXcel,
increased from $30,000. In connection with the Second Amendment, the Company agreed to pay to the Lenders an exit fee
equal to 0.25% of the loans under the Credit Agreement repaid upon maturity or prepayment of the loans (which exit fee is
in addition to, and not in lieu of, the exit fee provided for by the First Amendment). As of December 31, 2023, $100,000 in
commitments under the Credit Agreement remains unfunded, and Oaktree has an Equity Investment Right (as defined
below) to purchase up to $5,000 of Common Stock from the Company. The blended effective interest rate on the Tranches
A-1 and A-2 as of December 31, 2023 was approximately 13.5%.
The remaining tranches may be borrowed at the Company’s option prior to December 31, 2024, subject to satisfaction
of certain conditions, including regulatory and financial milestones. Tranche B of the Credit Agreement is $20,000 and is
available upon satisfaction of certain conditions and financial milestones. Tranche C of the Credit Agreement is $30,000
and is available upon satisfaction of certain conditions, including receipt of certain regulatory and financial milestones.
Tranche D of the Credit Agreement is $50,000 and is available upon satisfaction of the Tranche C Term Loans conditions
precedent to, and the funding of Tranche C Loans, including specified minimum net sales of the Company attributable to
sales of BXCL501 for a trailing twelve consecutive month period, on or before December 31, 2025.
The loans under the Credit Agreement do not amortize and mature on April 19, 2027. The Company may, at its option,
no earlier than September 21, 2026 and no later than October 21, 2026, request an extension of the maturity date to April,
19, 2028, provided that the Company satisfies certain conditions including receipt of certain regulatory and financial
milestones. Borrowings under the Credit Agreement are issued at a 200-basis point original issue discount and bear interest
at a variable annual rate of TERM SOFR (but not less than 2.5% or more than 5.5%) plus 7.5%, payable quarterly. The rate
resets every three months based on the current Term SOFR rate. Of such interest, above 8% per annum is, at the
Company’s option, payable in kind by capitalizing and adding such interest to the outstanding principal amount of loans
from the first payment date on which such interest is owed through March 31, 2025, unless, with respect to any payment
date, the Company elects to pay all or a portion of such interest in cash. The Company is required to pay a ticking fee equal
to 0.75% per annum on the undrawn amount of the commitments, payable quarterly commencing 120 days after April 22,
2022 through the termination of the commitments, which is expensed as incurred and recognized as interest expense in the
Consolidated Statements of Operations. The Company may voluntarily prepay the Credit Agreement at any time subject to
a prepayment fee.
The Company’s obligations under the Credit Agreement are guaranteed by BTI’s existing and subsequently acquired
or organized subsidiaries, subject to certain exceptions. BTI’s obligations under the Credit Agreement and the related
guarantees thereunder are secured, subject to customary permitted liens and other agreed upon exceptions, by (i)
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a pledge of all of the equity interests of all of the Company’s existing and any future direct subsidiaries, and (ii) a perfected
security interest in all of its and the guarantors’ tangible and intangible assets (except that the guarantees provided by the
BXCL701 Subsidiaries (as defined below) are unsecured).
The Credit Agreement contains customary representations and warranties and customary affirmative and negative
covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions,
prepayment of other indebtedness, and dividends and other distributions, subject to certain exceptions, including specific
exceptions with respect to product commercialization and development activities. The Company must also comply with
certain financial covenants, including (i) maintenance of cash or permitted cash equivalent investments in accounts
controlled by OFA for the Lenders, of at least (a) initially, $15,000, (b) from and after the funding of the Tranche B loans,
$20,000, and (c) from and after the Company’s satisfaction of the funding conditions for the Tranche C loans, $15,000,
provided, that the liquidity covenant applicable at any time will be increased upon certain events related to a sale of
OnkosXcel (up to a maximum amount equal to $37,500), provided that the minimum liquidity amount will in no event
exceed 50% of the aggregate amount of loans outstanding under the Credit Agreement at any time; and (ii) a minimum
revenue test, measured quarterly beginning with the Company’s fiscal quarter ending on December 31, 2024 (such six-
month period the “Revenue Covenant Measurement Period”), that requires it and its subsidiaries’ consolidated net revenue
for the six consecutive month period ending on the last day of each such fiscal quarter to not be less than a minimum
revenue amount specified in the Credit Agreement (such testing date, the “Revenue Covenant Measurement Testing Date”
and the covenant described in this clause (ii) the “Revenue Covenant”). The Company’s failure to comply with the
financial covenants will result in an event of default, subject to certain cure rights with respect to the Revenue Covenant. If,
as of a Revenue Covenant Measurement Testing Date, the Company’s revenue for the applicable Revenue Covenant
Measurement Period is less than the minimum revenue amount specified for the applicable period then required under the
Revenue Covenant, the Company would have a right to cure such shortfall for a total of three fiscal periods by making a
revenue cure payment (which would be treated as prepayments of the loans subject to a prepayment fee) to the Lenders in
an amount equal to the difference between such minimum required revenue amount and the Company’s actual revenues for
such Revenue Covenant Measurement Period, such payment to not be less than $1,000. If paid, the Company will be
deemed to have complied with the Revenue Covenant as of such Revenue Covenant Measurement Testing Date. Any such
payment will be applied to the prepayment of the loans under the Credit Agreement.
Notwithstanding the foregoing, the Credit Agreement permits OnkosXcel (together with OnkosXcel Employee
Holdings, LLC (“Employee Holdings”), a subsidiary of BTI, and their respective subsidiaries, the “BXCL701
Subsidiaries”) to receive third-party investment or transfer all or substantially all of their assets to an unaffiliated third
party, in each case subject to terms and conditions set forth in the Credit Agreement, including the escrow of certain
proceeds received by BTI and its subsidiaries (other than the BXCL701 Subsidiaries) in respect of these disposition events
and, under circumstances set forth in the Credit Agreement, the mandatory prepayment of such escrowed amounts. The
Company’s equity interests in the BXCL701 Subsidiaries have been pledged in support of its obligations under the Credit
Agreement, and the BXCL701 Subsidiaries have provided direct guarantees of BTI’s obligations under the Credit
Agreement on an unsecured basis. However, the pledge, guarantee and other obligations of the BXCL701 Subsidiaries
under the Credit Agreement will be released upon certain agreed upon events (“Permitted BXCL701 Release Events”),
including an initial public offering by the BXCL701 Subsidiaries or the ownership by unaffiliated third parties of at least
20% of the equity interests in the BXCL701 Subsidiaries.
The Credit Agreement contains events of default that are customary for financings of this type relating to, among other
things, payment defaults, breach of covenants, breach of representations and warranties, cross default to material
indebtedness, bankruptcy-related defaults, judgment defaults, breach of the financial covenants described above, and the
occurrence of certain change of control events. In certain circumstances, events of default are subject to customary cure
periods. The Credit Agreement also contains certain regulatory-related events of default, which do not have cure periods.
Following an event of default and any applicable cure period, the Lenders will have the right upon notice to terminate any
undrawn commitments and may accelerate all amounts outstanding under the Credit Agreement, in addition to other
remedies available to them as the Company’s secured creditors.
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Revenue Interest Financing Agreement
As noted, the RIFA was terminated when the Company entered into the Second Amendment, which amended the
Credit Agreement (as amended by the First Amendment). The $30,000 Tranche A previously provided to the Company
under the RIFA was converted to the Tranche A-2 Term Loan. Prior to termination, the RIFA provided up to $120,000 in
potential financing in exchange for a capped revenue interest on net sales of IGALMITM, and other future BXCL501
products, if any, that received regulatory approval for sale. The initial Tranche A of $30,000 was funded on July 8, 2022.
The effective interest rate on the RIFA as of December 31, 2022, was approximately 14%.
Under the terms of the RIFA, the Purchasers were to receive tiered revenue interest payments on U.S. net sales of
IGALMI™, and other future BXCL501 products, if any, that receive regulatory approval for sale, equal to a royalty
ranging from 0.375% to 7.750% of net sales of IGALMI™, and other future BXCL501 products, if any, approved for sale
in the U.S., subject to a hard cap equal to 1.75x the total amount funded. The Company would also have been required to
make certain additional payments to the Purchasers from time to time to ensure that the aggregate amount of payments
received by the Purchasers under the RIFA were at least equal to certain agreed upon minimum levels as of certain
specified dates, subject to terms and conditions set forth in the RIFA. Revenue interest payments due under the RIFA were
payable quarterly based on net sales.
Warrants and Equity Investment Right
In connection with the closing of the Second Amendment, on the Second Amendment Effective Date, the Company
amended and restated the warrants granted to the Lenders on April 19, 2022 to purchase up to 278 shares of the Company’s
common stock at an exercise price of $20.04 per share (the “Original Warrants”). Pursuant to the amendment and
restatement of the Original Warrants, dated December 5, 2023 (the “Amended and Restated Original Warrants”), the
exercise price of the Original Warrants has been reduced to $3.6452 per share. In addition, the Company granted new
warrants to the Lenders to purchase up to 70 shares of the Company’s common stock (the “2023 Warrant Shares”) at an
exercise price of $3.6452 per share (the “2023 Warrants” and together with the Amended and Restated Original Warrants,
the “Warrants”). The Amended and Restated Original Warrants and the 2023 Warrants will expire on April 19, 2029 and
may be net exercised at the holder’s election. In addition, pursuant to the Credit Agreement, the Lenders have the right to
purchase shares of the Company’s common stock after the Second Amendment Effective Date, so long as borrowings
under the Credit Agreement are outstanding, for a purchase price of $5,000 at a price per share equal to a 10% premium to
the volume-weighted average price of the common stock over the 30 trading days prior to the Lenders’ election to proceed
with such equity investment (the “Equity Investment Right”). BTI entered into a registration rights agreement (the
“Registration Rights Agreement”) with the Lenders and filed a registration statement on Form S-3 to register the shares
issuable upon exercise of the Warrants and, if issued, the shares related to the Equity Investment Right, for resale. The
maximum shares of BTI common stock issuable under the Warrants (including the Original Warrants and the 2023
Warrants) and Lenders’ Equity Investment Right was 5,852 as of December 31, 2023. On the Second Amendment
Effective Date, Company amended and restated its Registration Rights Agreement (the “Amended and Restated
Registration Rights Agreement”) with the Lenders, dated April 19, 2022, pursuant to which the Company agreed to register
the 2023 Warrant Shares for resale.
As part of the Credit Agreement, OnkosXcel, a wholly owned subsidiary of BTI, granted warrants to the Lenders to
purchase 175 individual limited liability company units (which number of units is not in thousands; referred to herein as
the “OnkosXcel Warrants”). The strike price of the OnkosXcel Warrants is formulaic based on the value of OnkosXcel at
the time of exercise and can only be exercised upon occurrence of an equity related liquidity event for OnkosXcel of at
least $20,000. The exercise price per unit of the OnkosXcel Warrants will be set upon the earlier of the closing of the next
sale (or series of related sales) by OnkosXcel of equity securities of OnkosXcel with aggregate proceeds of not less than
$20,000 to unrelated third parties (the “Next Equity Financing”) at an exercise price per unit equal to a 10% premium over
the price per unit of the equity securities sold by OnkosXcel in such Next Equity Financing or, in the event of a sale of
OnkosXcel prior to the Next Equity Financing or an initial public offering constituting the Next Equity Financing, the
lesser of (x) 75% of the fair value of the consideration to be paid for a unit upon the consummation of such transaction and
(y) 150% of the valuation applicable to the initial profits units issued by OnkosXcel after the closing of the Credit
Agreement. The OnkosXcel Warrants are transferable with approval from BTI, which cannot be unreasonably withheld,
expire on April 19, 2029, and may be net exercised at the holder’s election.
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Maturities of long-term debt are expected to be as follows:
2024
2025
2026
2027
2028
Thereafter
Interest expense was as follows:
December 31, 2023
$
$
$
$
$
$
—
—
—
102,680
—
—
Year ended
December 31,
2023
2022
Interest expense
Accretion of debt discount and amortization of financing costs
Total interest expense
$
$
11,941
1,373
13,314
$
$
7,353
860
8,213
Note 10. Derivative Financial Instruments
BTI identified certain freestanding financial instruments and/or embedded features that require separate accounting
from the borrowings under the OFA Facilities. This includes the OnkosXcel Warrants and Equity Investment Right held by
the Lenders, along with certain put/call options. The OnkosXcel Warrants and Equity Investment Right do not meet certain
scope exceptions under U.S. GAAP, primarily because the exercise prices and number of shares of the Company’s common
stock issuable under the instruments are variable, and the instruments meet the definition of a derivative instrument.
Therefore, these instruments are recorded as Derivative liabilities in the Consolidated Balance Sheets. The respective
derivative liabilities are recorded at fair value on the date of issuance and are revalued on each balance sheet date until such
instruments are settled or expire, with changes in the fair value between reporting periods recorded within Other (income)
expense, net in the Company’s Consolidated Statements of Operations.
Note 11. Common Stock Financing Activities
In May 2021, the Company entered into an Open Market Sale Agreement (as amended, supplemented and/or restated
from time to time, the “Sale Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which the Company could offer and
sell shares of its common stock, having an aggregate offering price of up to $100,000, from time to time, through an “at the
market offering” program under which Jefferies will act as sale agent. In November 2023, the Company amended the Sale
Agreement to increase the size of the “at the market offering" program to $150,000. The Company sold 1,408 shares under
the Sale Agreement in the year ended December 31, 2023 for net proceeds of $26,221. For the year ended December 2023,
the Company sold shares for the gross amount of $27,032, and incurred issuance costs of $811. The Company did not sell
any shares, and thus did not receive any proceeds under this program, for the year ended December 31, 2022.
Note 12. Stock-Based Compensation
2017 Equity Incentive Plan
The Company’s 2017 Plan became effective in August 2017. Following the effective date of the Company's 2020 Plan,
the Company ceased granting awards under the 2017 Plan, however, the terms and conditions of the 2017 Plan continue to
govern any outstanding awards granted thereunder.
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2020 Incentive Award Plan
The Company’s 2020 Plan was approved and became effective at the Company’s 2020 annual meeting of stockholders
on May 20, 2020, and unless earlier terminated by the Board of Directors, will remain in effect until March 26, 2030. The
2020 Plan originally authorized for issuance the sum of (i) 911 shares of the Company’s common stock and (ii) 233 shares
of the Company’s common stock, which represents the number of shares that remained available for issuance under the
2017 Plan immediately prior to the approval of the 2020 Plan by the Company’s stockholders. Any shares of common
stock which, immediately prior to the approval of the 2020 Plan by the Company’s stockholders, were subject to awards
granted under the 2017 Plan that are forfeited or lapse unexercised and are not issued under the 2017 Plan will increase the
number of shares of common stock available for grant under the 2020 Plan. In addition, the number of shares available for
issuance under the 2020 Plan will increase on the first day of each calendar year, beginning January 1, 2021 and ending on
and including January 1, 2030, by a number of shares equal to the lesser of (A) 4% of the aggregate number of shares of
the Company’s common stock outstanding on the final day of the immediately preceding calendar year and (B) such
smaller number of shares of common stock as determined by the Board of Directors. The shares available for issuance
under the 2020 Plan increased by 1,126 shares and 1,119 shares on January 1, 2023 and 2022, respectively.
Stock-based awards granted under the 2020 Plan have a term of ten years. The vesting schedule of all awards granted
under the 2020 Plan is determined by the Board of Directors, which is generally four years. Stock-based awards granted
under the 2020 Plan include stock options, BTI RSUs, and Performance Units.
As of December 31, 2023, there were 664 shares available to be granted under the 2020 Plan.
BTI Restricted stock units
The table below summarizes activity relating to BTI RSUs.
Outstanding as of January 1, 2023
Granted
Vested
Outstanding as of December 31, 2023
Number of
shares
119
133
(67)
185
In 2023, the Company granted 133 time-based BTI RSUs to certain employees. All of the BTI RSUs vest over four
years, with 25% vesting at the one-year anniversary of the grant date and the balance vesting ratably over the remaining 12
quarters of the vesting period. The weighted average grant date fair value per share for the BTI RSUs was $19.62.
Unrecognized stock-based compensation expense related to these awards was $1,417 as of December 31, 2023.
In 2022, the Company granted 122 (119, net of forfeitures) time-based BTI RSUs to certain employees and
consultants. The majority of BTI RSUs granted to employees vest over four years, with 25% vesting at the one-year
anniversary of the grant date and the balance vesting ratably over the remaining 12 quarters of the vesting period. There
were 25 BTI RSUs granted to the employees in May 2022 which fully vested at the one-year anniversary of the grant date.
BTI RSUs granted to a third-party consultant vest 50% each on the first and second anniversaries of the grant date. The
weighted average grant date fair value per share for the BTI RSUs granted in 2022 was $14.38. Unrecognized stock-based
compensation expense related to these awards was $298 as of December 31, 2023.
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BTI Performance stock units
The table below summarizes activity relating to Performance Units related to BTI common stock.
Outstanding as of January 1, 2023
Granted
Cancelled
Outstanding as of December 31, 2023
Number of
shares
—
543
(16)
527
In October 2023, the Company granted 543 Performance Units to employees. 209 Performance Units vest on the one-
year anniversary of the grant date, and the remaining 334 Performance Units are performance based and vest on the one-
year anniversary of the grant date, provided certain performance criteria are met. The weighted average value of
Performance Units granted and cancelled during 2023 was $2.43. None of the Performance Units had vested as of
December 31, 2023. Unrecognized stock-based compensation expense related to the awards expected to vest was $515 as
of December 31, 2023.
OnkosXcel Profit sharing units
The table below summarizes activity relating to the PSUs associated with OnkosXcel as described below.
Outstanding as of January 1, 2023
Granted
Cancelled
Forfeited
Outstanding as of December 31, 2023
Vested units as of December 31, 2023
Number of
units
Weighted average
price per unit
(in whole dollars)
1,310
30
(100)
$
$
$
— $
1,240
5,506
10,176
5,506
—
676
$
5,533
During 2023, Employee Holdings, a management holding company used to facilitate the grant of equity interests to
service providers of OnkosXcel granted 30 individual (not in thousands) time-based PSUs related to OnkosXcel to certain
employees of the Company in consideration for services provided to OnkosXcel. In 2022, Employee Holdings granted
1,310 (not in thousands) PSUs to employees and a consultant of the Company for services provided to OnkosXcel. The
PSUs represent indirect equity interests in OnkosXcel. All PSUs, other than those granted to certain
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executive employees of the Company, vest ratably over 48 months. PSUs granted to certain executive employees of the
Company, vested ratably over 24 months.
The fair values of the PSUs granted in 2023 and 2022 were $8 per unit and $4 per unit, respectively, and were
estimated at the date of grant using a Black-Scholes option pricing model. The total fair value of the PSUs vested during
the year ended December 31, 2023 was $1,942.
Expected volatility
Risk-free rate of interest
Expected dividend yield
Expected term
2023 grant profit share
unit valuation inputs
97.4 %
3.6 %
— %
5.8 years
Unrecognized stock-based compensation expense related to the PSUs was $971 and $4,588 as of December 31, 2023
and 2022, respectively.
OnkosXcel restricted stock units
The table below summarizes activity relating to the OnkosXcel RSUs.
Outstanding as of January 1, 2023
Granted
Outstanding as of December 31, 2023
Number of
units
—
225
225
During the year ended December 31, 2023, the Company granted 225 individual (not in thousands) OnkosXcel RSUs
to certain employees. 125 of the OnkosXcel RSUs vest upon the earlier to occur of (a) 180 days after an initial public
offering of OnkosXcel, or (b) a change in control of OnkosXcel. The remaining OnkosXcel RSUs vest over four years,
with 25% vesting at the one-year anniversary of the grant date and the balance vesting ratably over the remaining 12
quarters of the vesting period. The weighted average grant date fair value per unit for the OnkosXcel RSUs was
approximately $10. Unrecognized stock-based compensation expense related to the awards expected to vest was
approximately $552 as of December 31, 2023.
F-24
Table of Contents
BTI Stock options
A summary of the Company’s stock option activity for the year ended December 31, 2023, is presented below.
Outstanding as of January 1, 2023
Granted
Forfeited
Cancelled
Exercised
Outstanding as of December 31, 2023
Options vested and exercisable as of December 31, 2023
Number of
shares
Weighted average
price per share
4,882
1,090
(651)
(36)
(309)
4,976
3,479
$
$
$
$
$
$
$
17.23
19.35
17.84
24.67
1.65
18.52
17.32
As of December 31, 2023, the intrinsic value of options outstanding was $3,149. 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, 2023 and 2022 was $5,928 and
$2,437, respectively. The total intrinsic value of stock options exercisable as of December 31, 2023 and 2022 was $3,148
and $40,255, respectively.
The weighted average grant date fair value of options granted during the years ended December 31, 2023 and 2022
was $15.53 and $11.62, respectively.
The weighted average grant date fair value of options vested as of December 31, 2023 was $12.86.
The weighted average remaining contractual life is 5.5 years for options exercisable as of December 31, 2023. The
weighted average remaining contractual life was 6.4 years for options outstanding as of December 31, 2023.
Unrecognized compensation expense related to unvested stock option awards as of December 31, 2023, was $9,478
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 1.1 years.
Stock-Based Compensation
The fair value of options granted during the years ended December 31, 2023 and 2022 was estimated using the Black-
Scholes pricing model with the following assumptions:
Expected term
Expected stock price volatility
Risk-free rate of interest
Expected dividend yield
Year ended
December 31, 2023
Year ended
December 31, 2022
5.5 years
96.9 %
3.5 %
0.0 %
-
-
-
-
6.1 years
109.9 %
4.7 %
0.0 %
5.5 years
92.7 %
1.5 %
0.0 %
-
-
-
-
6.1 years
99.4 %
4.4 %
0.0 %
In 2023, the Company began using the historical volatility of its common stock to estimate volatility. Prior to 2023,
volatility was estimated using a combination of the historical volatility of publicly traded peer companies and that of the
Company’s common stock. The expected term of the awards is estimated based on the simplified method, which calculates
the expected term based upon the midpoint of the 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 zero percent as the Company has no history of
F-25
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paying dividends nor does management expect to pay dividends over the contractual terms of these options. The risk-free
interest rates are determined by reference to the U.S. Treasury yield curve in effect at the time of grant, with maturities
approximating the expected term of the stock options. The fair value of the underlying common stock is generally
determined as the closing price of the Company’s common stock on The Nasdaq Capital Market on the grant date, with
consideration of whether there is material nonpublic information that could impact that estimated fair value when it is
released.
The Company recognized stock-based compensation expense related to awards issued under the 2017 Plan and the
2020 Plan, as well as the OnkosXcel PSUs and OnkosXcel RSU’s, of $18,614 and $17,337 for the years ended December
31, 2023 and 2022, respectively, which were comprised as follows:
Research and development
Selling, general and administrative
Total
2020 Employee Stock Purchase Plan
Year ended December 31,
2023
2022
$
$
6,324
12,290
18,614
$
$
4,558
12,779
17,337
The Company’s 2020 Employee Stock Purchase Plan (the “ESPP”) was also approved and became effective at the
Company’s 2020 annual meeting of stockholders on May 20, 2020. The ESPP is designed to assist eligible employees of
the Company with the opportunity to purchase the Company’s common stock at a discount through accumulated payroll
deductions during successive offering periods. The aggregate number of shares that may be issued pursuant to rights
granted under the ESPP is 100 shares of common stock. In addition, the number of shares available for issuance under the
ESPP will increase on the first day of each calendar year, beginning on January 1, 2021 and ending on and including
January 1, 2030, by a number of shares of common stock equal to the lesser of (a) 1% of the shares outstanding on the final
day of the immediately preceding calendar year and (b) such smaller number of shares as determined by the Board of
Directors. The number of shares that may be issued or transferred pursuant to rights granted under the component of the
ESPP that is intended to qualify for favorable U.S. federal tax treatment under Section 423 of the Internal Revenue Code
(the “Section 423 Component”) shall not exceed 500 shares. The purchase price will be determined by the administrator of
the ESPP and, for purposes of the Section 423 Component, shall not be less than 85% of the fair value of a share on the
first trading day or on the last trading day of the applicable offering period, whichever is lower. The shares available for
issuance under the ESPP increased by 281 shares and 280 shares on January 1, 2023 and 2022, respectively. To date, no
shares have been sold under the ESPP. There were 905 shares available for issuance as of December 31, 2023.
Note 13. Leases
BTI leases office space for its corporate headquarters at 555 Long Wharf Drive, New Haven, Connecticut (the “HQ
Lease”) under an operating lease that expires in February 2026. The Company has an option to renew the HQ Lease for one
additional five-year term. Payments under the HQ Lease are fixed.
The Company also leases equipment such as copiers and information technology equipment.
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Table of Contents
The future minimum annual lease payments under operating leases, as of December 31, 2023, were as follows:
Year ending December 31,
2024
2025
2026
2027
2028
Thereafter
Total lease payments
Imputed interest
Total lease liability
Less current portion of lease liability
Long-term portion of operating lease liability
Amount
381
391
65
—
—
—
837
(51)
786
(346)
440
$
$
$
The current portion of the Company’s operating lease liability of $346, as of December 31, 2023, is included in Other
current liabilities on the Consolidated Balance Sheets.
Lease expense was $392 and $410 for the years ended December 31, 2023 and 2022, respectively.
Lease renewal options are not included in the ROU asset or lease liability.
Note 14. Employee Benefit Plan
The Company maintains a defined contribution retirement plan for its employees that complies with Section 401(k) of
the Internal Revenue Code (the “401(K) Plan”). Employees are eligible to participate in the 401(K) Plan and can contribute
a portion of their pay into the 401(K) Plan, subject to annual limits established by the U.S. Internal Revenue Service.
Participating employees receive an employer matching contribution equal to 50% of eligible employee contributions on the
first 5% of eligible compensation contributed. Employer contributions to the 401(K) Plan were $788 and $568 for the years
ended December 31, 2023 and 2022, respectively.
Note 15. Fair Value Measurements
The Company groups its assets and liabilities measured at fair value in three levels based on the nature of the inputs
and assumptions used to determine fair value. Refer to Note 3, Summary of Significant Accounting Policies, for additional
information on the accounting policies related to fair value.
The carrying amounts of Cash and cash equivalents, Accounts receivable, net and Accounts payable approximate fair
value due to the short-term nature of these instruments. As of December 31, 2023 and 2022, the Company had $64,860 and
$191,022, respectively, primarily in money market funds that hold U.S. government cash equivalent instruments (included
in Cash and cash equivalents) which were valued based on Level 1 inputs. There were no transfers between levels within
the hierarchy during the years ended December 31, 2023 and 2022.
Derivative liabilities measured at fair value on a recurring basis are summarized below.
Year ended
December 31, 2023
Fair Value
Level 1
Level 2
Level 3
Total
Derivative liability - Equity Investment Right
Derivative liability - OnkosXcel Warrants
Total derivative liabilities
$
$
1,193
712
1,905
$
$
— $
—
— $
— $
—
— $
1,193
712
1,905
$
$
1,193
712
1,905
F-27
Table of Contents
Derivative liabilities are comprised of the OnkosXcel Warrants and Equity Investment Right held by the Lenders. The
fair value of the derivative liabilities was determined using Monte Carlo simulation models for the Equity Investment
Right, and Binomial Option Pricing and Distribution models for the OnkosXcel Warrants.
The following table presents changes in Level 3 liabilities measured at fair value for the year ended December 31,
2023. Both observable and unobservable inputs were used to determine the fair value of positions that the Company has
classified within the Level 3 category.
Derivative liabilities, Balance - January 1
Change in fair value
Derivative liabilities, Balance - December 31
Year ended
December 31,
2023
2022
$
$
2,343
(438)
1,905
$
$
1,954
389
2,343
The derivative liabilities were reported at their fair values in the Consolidated Balance Sheets. The changes in the fair
value of the derivative liabilities were reported in the Consolidated Statements of Operations as Other (income) expense,
net, for the years ended December 31, 2023 and 2022.
Inputs used to calculate the estimated fair value of the Equity Investment Right were as follows:
Strike price relative to volume weighted 30-day average
Volatility (annual)
Probability of exercise
Time period
Estimated premium to 30-day average
Discount rate
Equity Investment Right
110.0 %
99.1 %
90.0 %
3.3 years
24.0 %
4.4 %
In estimating the fair value of the derivative liability related to the OnkosXcel Warrants, inputs included third-party
fair value estimates of OnkosXcel limited liability company units along with the volatility of those units (which was set at
100% based on the historical volatility of the Company’s stock, along with a peer group of comparable publicly traded
companies), and the timing and probability of the relevant capital transactions occurring.
The estimated fair value of the Credit Agreement as of December 31, 2023, was $88,210. Both observable and
unobservable inputs were used to determine the fair value of long-term debt, which was classified within the Level 3
category.
The fair value of the 2023 Warrants, which is a non-recurring fair value, was determined as of the date of issuance
using a Black-Scholes pricing model and the fair value of $200 was recorded as a component of stockholders’ equity in
Additional-paid-in-capital in the Consolidated Balance Sheets, with the offset recorded as a discount on the amounts
funded under the Credit Agreement. This non-recurring measurement is classified as Level 3. The inputs used were a strike
price of $3.6452, the Company’s stock price of $3.71, volatility of 99%, term of 5.4 years and risk-free rate of 4.14%.
The fair value of the Original Warrants, which was a non-recurring fair value, was determined as of the date of
issuance using a Black-Scholes pricing model and the fair value of $3,245 was recorded as a component of stockholders’
equity in Additional-paid-in-capital in the Consolidated Balance Sheets, with the offset recorded as a discount on the
amounts funded under the OFA Facilities. This non-recurring measurement is classified as Level 3. The inputs used were a
strike price of $20.04, the Company’s stock price of $14.93, volatility of 95%, term of 7 years and risk-free rate of 2.95%.
As discussed in Note 9, Debt and Credit Facilities, in connection with the closing of the Second Amendment of the Credit
Agreement, on the Second Amendment Effective Date, the Company amended and restated the Original Warrants granted
to the Lenders to have an exercise price of $3.6452 per share.
F-28
Table of Contents
Using a Black-Scholes pricing model, the Company determined that the Amended and Restated Original Warrants’ fair
values at the original strike price of $20.04 and the amended strike price of $3.6452 were $548 and $802, respectively, as
of the Second Amendment Effective Date. The Amended and Restated Original Warrants’ incremental increase in fair
value for the repricing of $254, was recorded as a component of stockholders’ equity in Additional-paid-in-capital in the
Consolidated Balance Sheets, with the offset recorded as a discount on the amounts refinanced under the Credit
Agreement.
Note 16. 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.
For tax years beginning on or after January 1, 2022, the 2017 Tax Cuts and Jobs Act amended Section 174 of the U.S.
Tax Code to eliminate current-year deductibility of research and development expenses and requires taxpayers to capitalize
and amortize them over five years for research activities performed in the U.S. and fifteen years for research activities
performed outside of the U.S. For the 2023 tax year, the Company capitalized $78,002 of research and development
expenses. This resulted in an increase in the deferred tax asset associated with capitalized research and development of
$20,985. 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. The significant components of the
Company’s net deferred tax assets are as follows:
Deferred tax assets:
Federal net operating losses
State net operating losses
Stock options
Tax credits
Capitalized research & development
Accrued expense
Depreciation
Lease liability
Unrealized loss
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized gain
Right-of-use assets
Total deferred tax liabilities
Net deferred tax asset (liability)
December 31, December 31,
2023
2022
$
$
$
$
$
73,770
21,255
13,915
15,048
49,603
—
73
212
—
(173,679)
197
$
$
46,695
11,271
10,705
10,689
36,663
2,171
42
290
103
(118,373)
256
(12)
(185)
(197)
$
$
— $
—
(256)
(256)
—
The income tax benefit for the year ended December 31, 2023 differed from the amounts computed by applying the
U.S. federal income tax rate of 21% to loss before tax benefit as a result of nondeductible expenses, tax credits generated
and increases in the amount of the Company’s valuation allowance.
F-29
Table of Contents
A reconciliation between the Company’s effective tax rate and the federal statutory rate are as follows:
Federal statutory rate
Stock based compensation
Federal tax credits
State taxes
Other
Valuation allowance
Year ended December 31,
2023
21.0 %
0.3 %
2.3 %
8.0 %
(0.7)%
(30.9)%
— %
2022
21.0 %
(0.4)%
2.1 %
4.2 %
1.1 %
(28.0)%
— %
As of December 31, 2023, the Company had approximately $351,284 of gross federal and $360,081 of gross state net
operating loss (“NOL”) carryforwards. If not utilized, the federal and state NOL carryforwards will begin to expire in
2037. The federal NOL of $348,638 incurred after December 31, 2017, will be carried forward indefinitely. The utilization
of such NOL carryforwards and realization of tax benefits in future years depends predominantly upon having taxable
income. The Company has approximately $14,345 of federal orphan drug and research development credits which will
begin to expire in 2037 if not utilized. The Company also has approximately $1,206 of state drug research development
credits which will begin to expire in 2040 if not utilized.
Utilization of the NOL and research tax credit carryforwards may be subject to a substantial annual limitation due to
ownership limitations that have occurred or that could occur in the future, as required by section 382 of the U.S. Tax Code,
as well as similar state and foreign provisions. These ownership changes may limit the amount of the NOL and research
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 U.S. Tax 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 by
certain stockholders or public groups.
Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax positions taken on
their income tax returns. The Company has analyzed its tax positions and has concluded that as of December 31, 2023,
there were no uncertain positions. The Company's U.S. federal and state NOLs 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 NOLs from
prior years opens the relevant year to audit by the U.S. Internal Revenue Service and/or state taxing authorities. BTI did not
have any unrecognized tax benefits and has not accrued any interest or penalties for the years ended December 31, 2023
and 2022.
Note 17. Net Loss Per Share
Basic and diluted net loss per share are as follows:
Net loss (numerator)
Weighted average shares (denominator)
Basic and diluted net loss per share
Year ended
December 31,
2023
2022
$
$
(179,053)
29,129
(6.15)
$
$
(165,757)
28,015
(5.92)
Potentially dilutive securities outstanding consists of stock options, RSUs and performance units, and BTI warrants.
The Company had common stock equivalents outstanding as of December 31, 2023 and 2022 of 6,036 and 5,280 shares,
respectively.
F-30
Table of Contents
Note 18. 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. Other than the below, the Company
is not currently subject to any matters where it believes there is a reasonable possibility that a material loss may be
incurred.
On July 7, 2023, plaintiff Katelyn Martin filed a class action complaint against the Company and certain executives in
the United States District Court for the District of Connecticut, captioned Martin v. BioXcel Therapeutics, et al., 3:23-cv-
00915 (D. Conn). On October 4, 2023, pursuant to the Private Securities Litigation Reform Act, the court appointed two
co-Lead Plaintiffs. The co-Lead Plaintiffs filed an amended complaint on December 5, 2023, alleging violations of
Sections 10(b) and 20A of the Securities and Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5
promulgated thereunder. The amended complaint alleges that defendants made false or misleading statements regarding the
TRANQUILITY II trial and the development of BXCL501 for an expanded indication related to the treatment of certain
Alzheimer’s-related agitation. Defendants filed a motion to dismiss on February 6, 2024, which has not been decided.
On November 28, 2023, Plaintiffs Pratheesan Panancherry and Jeffrey Bastress filed a stockholder derivative
complaint in the United States District Court for the District of Connecticut purportedly on behalf of the Company and
against Vimal Mehta, Richard I. Steinhart, Peter Mueller, June Bray, Sandeep Laumas, Michael Miller, Michal Votruba,
and Krishnan Nandabalan as Defendants, and the Company as Nominal Defendant under the caption Panancherry et al v.
Mehta et al, 3:23-cv-1554. Following the initial action, Plaintiffs Maria Vomvolakis (3:24-cv-3) and Kelly Fowler (3:24-
cv-203) each filed separate stockholder derivative complaints in the District of Connecticut raising similar claims as
Panancherry and Bastress, including business torts and violations of the Securities Exchange Act of 1934. The cases have
been consolidated under the caption In re BioXcel Therapeutics, Inc. Stockholder Derivative Litigation, 3:23-cv-1554 (D.
Conn.). The above-captioned consolidated action is currently stayed.
On January 11, 2024, Plaintiff Jeremy Smith filed a stockholder derivative complaint in the United States District
Court for the District of Delaware purportedly on behalf of the Company and against Vimal Mehta, Peter Mueller, June
Bray, Sandeep Laumas, Michael Miller, Michal Votruba, Richard I. Steinhart, Robert Risinger, and Krishnan Nandabalan
as Defendants, and the Company as Nominal Defendant under the caption Smith v. Mehta et al, 1:24-cv-00041. Following
the initial action, Plaintiff Janice Korff filed a stockholder derivative complaint in the District of Delaware raising similar
claims as Smith (1:24-cv-130), including business torts and violations of the Securities Exchange Act of 1934. The cases
have been consolidated under the caption In re BioXcel Therapeutics, Inc. Derivative Litigation, 1:24-cv-00041 (D. Del.).
The Company expects to seek a stay in the above-captioned consolidated action.
At this time, the Company does not believe the claims in the above-captioned matters have merit, and intends to
vigorously defend against them; however, the potential costs and liabilities associated with this litigation are uncertain.
In April 2022, the Company signed a commercial supply agreement that requires minimum annual payments for the
first three years of the agreement that in aggregate total $10,000 for the three-year period.
Note 19. Subsequent Events
On February 12, 2024, the Company entered into the Third Amendment to Credit Agreement and Guaranty (the “Third
Amendment”), which amended the Credit Agreement. Pursuant to the Third Amendment, the Lenders agreed to waive the
covenant that the Company shall not receive a report and opinion from the Company’s independent auditors that contains a
“going concern” or like qualification or exception or emphasis of matter of going concern footnote with respect to the
Company’s financial statements for the fiscal year ended December 31, 2023 and, as a result, such event shall not be an
event of default. As a condition to the effectiveness of the Third Amendment, among other things, the Company shall have
received at least $40,000 in gross proceeds from a registered public sale of the Company’s common stock, warrants and/or
pre-funded warrants on or before February 20, 2024. The Company did not meet this condition and therefore the Third
Amendment did not become effective.
F-31
Table of Contents
On March 20, 2024 (the “Effective Date”), the Company entered into a Fourth Amendment (the “Fourth Amendment”)
to the Credit Agreement and Guaranty (as amended from time to time, the “Credit Agreement”) by and among the
Company, as the borrower, certain subsidiaries of the Company from time to time party thereto as subsidiary guarantors,
the Lenders, and OFA as administrative agent, pursuant to which the Lenders waived the covenant that the Company not
receive a report and opinion from the Company’s independent registered public accounting firm that contains a “going
concern” or similar qualification with respect to the Company’s financial statements for the year ended December 31,
2023. Accordingly, while the Company’s independent registered public accounting firm’s report contained in this Annual
Report on Form 10-K contains a “going concern” explanatory paragraph, it does not constitute an event of default under
the Credit Agreement.
The Fourth Amendment includes a covenant that the Company will receive, (i) after the Effective Date and on or
before April 15, 2024, at least $25,000 in gross proceeds from the issuance of its common stock, warrants and/or pre-
funded warrants, and/or in non-refundable cash consideration from partnering transactions entered into after the Effective
Date (so long as such partnering transactions would not require the Company or any of its subsidiaries to make any cash
investments in connection with the partnering transactions and no such cash investments are made) and (ii) after the
Effective Date and on or before November 30, 2024, at least $50,000 (for the avoidance of doubt, inclusive of amounts
previously counted toward the preceding clause (i)) in gross proceeds from the issuance of its common stock, warrants
and/or pre-funded warrants, and/or in cash and/or non-cash consideration (measured at fair market value, as determined by
the Administrative Agent (as defined in the Credit Agreement) in its sole discretion ) from partnering transactions entered
into after the Effective Date. Failure to perform this covenant would constitute (A) a default under the Credit Agreement
and (B) an event of default under the Credit Agreement, subject to a cure period, solely in the case of clause (i) of the
preceding sentence, until May 15, 2024. For the avoidance of doubt, failure to perform clause (ii) of the preceding sentence
would constitute an immediate event of default under the Credit Agreement without any cure or grace period.
In addition, the Fourth Amendment provides that if the Company has not, after the Effective Date and on or before
September 30, 2024, received at least $40,000 in gross proceeds from the issuance of its common stock, warrants and/or
pre-funded warrants, and/or cash and/or non-cash consideration (measured at fair market value, as determined by the
Administrative Agent in its sole discretion) from partnering transactions entered into after the Effective Date, the
“Minimum Liquidity Amount” (as defined in the Credit Agreement) that the Company is required to maintain at all times
will increase to $25,000 from $15,000, unless and until we have received, after the Effective Date and on or before
November 30, 2024, at least $50,000 in gross proceeds from the issuance of the Company’s common stock, warrants and/or
pre-funded warrants, and/or in cash and/or non-cash consideration (measured at fair market value, as determined by the
Administrative Agent in its sole discretion) from partnering transactions entered into after the Effective Date.
In connection with the Fourth Amendment, on the Effective Date, the Company granted new warrants to the Lenders
to purchase up to 100 shares of its common stock (the “2024 Warrant Shares”) at an exercise price of $3.0723 per share
(the “2024 Warrants”), which represents a 10% premium over the arithmetic average of the volume-weighted average price
of the Company’s common stock on the Nasdaq Capital Market during the 30 trading days preceding the Effective Date.
The 2024 Warrants will expire on April 19, 2029 and may be net exercised at the holder’s election. On the Effective Date,
the Company amended and restated its Amended and Restated Registration Rights Agreement (the “Second Amended and
Restated Registration Rights Agreement”) with the Lenders, originally dated April 19, 2022. Pursuant to the Second
Amended and Restated Registration Rights Agreement, the Company agreed to register the 2024 Warrant Shares for resale.
As discussed in Note 11, Common Stock Financings Activities, the Company has previously entered into an Open
Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jefferies”), as amended, pursuant to which the
Company could offer and sell shares of its common stock, having an aggregate offering price of up to $150,000, from time
to time, through an “at the market offering” program under which Jefferies will act as sale agent. From January 1, 2024
through March 19, 2024, the Company sold 647 shares under the Sale Agreement for gross proceeds of $1,743 and
received proceeds of $1,691, net of issuance costs of $52.
F-32
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED UNDER SECTION 12 OF THE EXCHANGE ACT
Exhibit 4.1
General
BioXcel Therapeutics, Inc. has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). References herein to “we,” “us,” “our” and the “Company” refer to BioXcel Therapeutics, Inc. and not
to any of its subsidiaries.
The following description of our common stock and certain provisions of our amended and restated certificate of incorporation
(as amended and/or restated from time to time, our “charter”) and amended and restated bylaws (as amended and/or restated from time to
time, our “bylaws”) are summaries and are qualified in their entirety by reference to the full text of our amended and restated certificate
of incorporation and our amended and restated bylaws, each of which have been publicly filed with the Securities and Exchange
Commission (the “SEC”). We encourage you to read our amended and restated certificate of incorporation and our amended and restated
bylaws and the applicable provisions of the Delaware General Corporation Law (the “DGCL”) for additional information.
Common Stock
We are authorized to issue up to a total of 100,000,000 shares of common stock, par value $0.001 per share. Holders of our
common stock are entitled to one vote for each share held on all matters submitted to a vote of our stockholders. Holders of our common
stock have no cumulative voting rights. Further, holders of our common stock have no preemptive or conversion rights or other
subscription rights.
Upon our liquidation, dissolution or winding- up, holders of our common stock are entitled to share in all assets remaining after
payment of all liabilities and the liquidation preferences of any of our outstanding shares of preferred stock. Subject to preferences that
may be applicable to any outstanding shares of preferred stock, holders of our common stock are entitled to receive dividends, if any, as
may be declared from time to time by our board of directors out of our assets which are legally available. Such dividends, if any, are
payable in cash, in property or in shares of capital stock.
The holders of one-third of the voting power of our issued and outstanding capital stock, represented in person or by proxy, are
necessary to constitute a quorum for the transaction of business at any meeting. If a quorum is present, an action by stockholders entitled
to vote on a matter is approved if the number of votes cast in favor of the action exceeds the number of votes cast in opposition to the
action unless a different vote is required by law, the charter, the by-laws or, with respect to a class or series of preferred stock, the terms
of any resolution or resolutions adopted by the board of directors. Pursuant to our charter, the election of directors requires a plurality of
the votes cast by the stockholders present in person or represented by proxy at the meeting and entitled to vote thereon.
Preferred Stock
Our board of directors has the authority, without further action by the stockholders, to issue up to 10,000,000 shares of preferred
stock in one or more series and to fix the designations, powers, preferences, privileges, and relative participating, optional, or special
rights as well as the qualifications, limitations, or restrictions of the preferred stock, including dividend rights, conversion rights, voting
rights, terms of redemption, and liquidation preferences, any or all of which may be greater than the rights of the common stock. Our
board of directors, without stockholder approval, can issue convertible preferred stock with voting, conversion, or other rights that could
adversely affect the voting power and other rights of the holders of common stock. Preferred stock could be issued quickly with terms
calculated to delay or prevent a change of control or make removal of management more difficult. Additionally, the issuance of preferred
stock may have the effect of decreasing the market price of our common stock, and may adversely affect the voting and other rights of
the holders of common stock.
Anti-Takeover Effects of Certain Provisions of our Charter and Bylaws and the DGCL
Delaware Law
We are governed by the provisions of Section 203 of the Delaware General Corporation Law. In general, Section 203 prohibits a
publicly traded Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years
after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a
prescribed manner. A business combination includes mergers, asset sales or other transactions resulting in a financial benefit to the
stockholder. An interested stockholder is a person who, together with affiliates and associates, owns (or within three years, did own) 15%
or more of the corporation's voting stock, subject to certain exceptions. The statute could have the effect of delaying, deferring or
preventing a change in control of our company.
Classified Board of Directors
Our charter provides that our Board is divided into three classes, with the classes as nearly equal in number as possible and each
class serving three-year staggered terms. Directors may only be removed from our board of directors for cause and only by the
affirmative vote of holders of a majority of the voting power of all then-outstanding shares of capital stock of the Company entitled to
vote generally in the election of directors, voting together as a single class. These provisions may have the effect of deferring, delaying or
discouraging hostile takeovers, or changes in control of us or our management.
Board of Directors Vacancies
Our charter and bylaws authorize only our board of directors to fill vacant directorships. In addition, the number of directors
constituting our board of directors may be set only by resolution of the majority of the incumbent directors.
Stockholder Action; Special Meeting of Stockholders
Our charter and bylaws provide that our stockholders may not take action by written consent. Our charter and bylaws further
provide that special meetings of our stockholders may be called by a majority of the board of directors, the Chief Executive Officer, or
the Chairman of the board of directors.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
Our bylaws provide that stockholders seeking to bring business before our annual meeting of stockholders, or to nominate
candidates for election as directors at our annual meeting of stockholders, must provide timely notice of their intent in writing. To be
timely, a stockholder's notice must be delivered to the secretary at our principal executive offices not later than the close of business on
the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year's annual meeting;
provided, however, that in the event the date of the annual meeting is more than 30 days before or more than 60 days after such
anniversary date, or if no annual meeting was held in the preceding year, notice by the stockholder to be timely must be so delivered not
earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the
90th day prior to such annual meeting or the 10th day following the day on which a public announcement of the date of such meeting is
first made by us. These provisions may preclude our stockholders from bringing matters before our annual meeting of stockholders or
from making nominations for directors at our annual meeting of stockholders.
Authorized but Unissued Shares
Our authorized but unissued shares of common stock and preferred stock are available for future issuance without stockholder
approval and may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of authorized
but unissued and unreserved common stock and preferred stock could render more difficult or discourage an attempt to obtain control of
us by means of a proxy contest, tender offer, merger or otherwise.
Limitations on Liability, Indemnification of Officers and Directors and Insurance
The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders
for monetary damages for breaches of directors’ fiduciary duties as directors and our charter includes such an exculpation provision. Our
charter and bylaws include provisions that indemnify, to the fullest extent allowable under the DGCL, the personal liability of directors
or officers for monetary damages for actions taken as a director or officer of us, or for serving at our request as a director or officer or
another position at another corporation or enterprise, as the case may be. Our charter and bylaws also provide that we must indemnify
and advance reasonable expenses to our directors and officers, subject to our receipt of an undertaking from the indemnified party as may
be required under the DGCL. Our bylaws expressly authorize us to carry directors' and officers' insurance to protect us, our directors,
officers and certain employees for some liabilities. The limitation of liability and indemnification provisions in our charter and bylaws
may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have
the effect of reducing the likelihood of derivative litigation against our directors and officers, even though such an action, if successful,
might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any
stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director's duty of care. These
provisions will not alter the liability of directors under federal securities laws.
Exhibit 4.5
[FORM OF] BIOXCEL THERAPEUTICS, INC. COMMON STOCK WARRANT
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON ITS EXERCISE
OR CONVERSION HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY APPLICABLE STATE
SECURITIES LAW AND MAY NOT BE TRANSFERRED EXCEPT (I) IN ACCORDANCE
WITH THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM, OR (II) WHERE, IN
THE OPINION OF COUNSEL, REGISTRATION UNDER THE SECURITIES ACTS OR
SUCH APPLICABLE STATE SECURITIES LAWS
IN
CONNECTION WITH SUCH PROPOSED TRANSFER.
IS NOT REQUIRED
[# of shares] Shares of Company Common Stock No. [warrant #] WARRANT
This WARRANT (this “Warrant”) is issued as of March 20, 2024 (the “Initial
Issuance Date”), by BIOXCEL THERAPEUTICS, INC., a Delaware corporation (the
“Company”), to [name of purchaser], a [jurisdiction of organization] [entity type] (“Purchaser”
and, together with any assignee(s) or transferee(s), “Holder” or “Holders”).
WHEREAS, the Company, certain subsidiaries of the Company as guarantors,
the Purchaser as lender and the other lenders party thereto are parties to that certain Credit
Agreement and Guaranty, dated as of April 19, 2022, and amended as of November 13, 2023,
December 5, 2023, February 12, 2024 and March 20, 2024 (as amended, restated, supplemented
or otherwise modified from time to time, the “Credit Agreement”), pursuant to which the
Company may borrow from Purchaser and the other lenders party thereto (collectively, the
“Lenders”), and the Lenders may loan to the Company, up to $202,319,447 from the date of the
Credit Agreement through the Maturity Date; and
WHEREAS, the Company is issuing this Warrant to Purchaser as a condition
precedent to the effectiveness of that Fourth Amendment to Credit Agreement and Guaranty,
dated as of March 20, 2024, by and among the Company, Purchaser and the other parties thereto.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Purchaser agree as follows:
Section 1. Definitions. Unless otherwise defined herein, capitalized terms have the
meanings set forth in the Credit Agreement (as in effect on the date hereof), however, the
following terms when used herein have the following meanings:
“Aggregate Exercise Price” means, in connection with any Exercise of this
Warrant pursuant to Section 4 (whether in whole or in part), an amount equal to the product of
(i) the number of Underlying Shares in respect of which this Warrant is then being exercised
pursuant to such Section 4, multiplied by (ii) the Exercise Price.
“Fair Market Value” means, with respect to any security or other property, the
fair market value of such security or other property as determined by the independent members
of the Board of Directors of the Company, acting in good faith. If the Holder objects in writing
to the Board of Directors’ calculation of Fair Market Value within ten (10) days of receipt of
written notice thereof and the Holder and the Company are unable to agree on Fair Market Value
during the five (5) day period following the delivery of the Holder’s objection, the valuation
dispute resolution procedure set forth in Section 20 hereof shall be invoked to determine Fair
Market Value.
“Market Price” means, with respect to a particular security, on any given day, the
last reported sale price, regular way, or, in case no such reported sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case on the principal national
securities exchange on which the applicable securities are listed or admitted to trading, or if not
listed or admitted to trading on any national securities exchange, the last quoted bid price in the
over-the-counter market as reported by Pink Sheets LLC or similar organization. “Market Price”
shall be determined without reference to after hours or extended hours trading. If such security is
not listed and traded in a manner that the quotations referred to above are available for the period
required hereunder, the Market Price per share of Company Common Stock shall be deemed to be
the fair market value per share of such security as determined in good faith by the independent
members of the Board of Directors in reliance upon an opinion of an accounting firm of nationally
recognized standing retained by the Company for this purpose and reasonably acceptable to the
Holder (or if there is more than one Holder, a majority in interest of Holders excluding any Holder
that is an Affiliate of the Company). For the purposes of determining the Market Price of the
Company Common Stock on the Trading Day preceding, on or following the occurrence of an
event, (i) that Trading Day shall be deemed to commence immediately after the regular scheduled
closing time of trading on the Trading Market on which the Company Common Stock is listed or,
if trading is closed at an earlier time, such earlier time and (ii) that Trading Day shall end at the
next regular scheduled closing time, or if trading is closed at an earlier time, such earlier time (for
the avoidance of doubt, and as an example, if the Market Price is to be determined as of the last
Trading Day preceding a specified event and the closing time of trading on a particular day is 4:00
p.m. and the specified event occurs at 5:00 p.m. on that day, the Market Price would be determined
by reference to such 4:00 p.m. closing price).
“Trading Day” means a day on which the Company Common Stock is traded on
a Trading Market or, if the Company Common Stock is not traded on a Trading Market, then on
the principal securities exchange or securities market on which the Company Common Stock is
then traded.
“Trading Market” means any market or exchange of The Nasdaq Stock Market
LLC or the New York Stock Exchange.
“VWAP” means, for any date, the price determined by the first of the following
clauses that applies: (i) if the Company Common Stock is then listed or quoted on a Trading
Market, the daily volume weighted average price of the Company Common Stock for such date
(or the nearest preceding date) on the Trading Market on which the Company Common Stock is
then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m.
(New York City time) to 4:00 p.m. (New York City time)), (ii) if the Company Common Stock
is not then listed on a Trading Market or quoted for trading on the OTC Bulletin Board and if
prices for the Company Common Stock are then reported in the “Pink Sheets” published by
OTC Markets Group Inc. (or a similar organization or agency succeeding to its functions of
reporting prices), the most recent bid price per share of the Company Common Stock so
reported or (iii) in all other cases, the fair market value of a share of Company Common Stock
as determined by an independent nationally recognized investment banking, accounting or
valuation firm selected in good faith by the Company and reasonably acceptable to the Holder,
the fees and expenses of which shall be paid by the Company.
Section 2. Issuance of Warrant; Term. For good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company hereby grants to Holder
the right to purchase from the Company [# of shares] fully paid and nonassessable shares of the
Company’s voting common stock having a par value $0.001 per share (the “Company Common
Stock”). The shares of Company Common Stock issuable upon exercise of this Warrant are
hereinafter referred to as the “Underlying Shares.” This Warrant shall be exercisable at any time
and from time to time, in whole or in part, during the period commencing on the date hereof and
ending on April 19, 2029 (the “Expiration Date”).
Section 3. Exercise Price. The exercise price per share of Company Common Stock
for which each Underlying Share may be purchased pursuant to this Warrant shall be $3.0723,
subject to adjustment pursuant to Section 7 (the “Exercise Price”).
Section 4. Exercise.
(a)
This Warrant may be exercised by the Holder hereof as to all or any portion
of the Underlying Shares, upon delivery of written notice to the Company, together with this
original Warrant and (x) payment to the Company of the Aggregate Exercise Price or (y)
instruction to the Company to withhold a number of the Underlying Shares then issuable upon
exercise of this Warrant with an aggregate value (determined on the basis of the average Market
Price per share for the Company Common Stock on the last five Trading Days for such stock
ended immediately prior to the applicable Exercise Date, as defined below) equal to such
Aggregate Exercise Price (collectively, the “Exercise”, with the date of an Exercise being an
“Exercise Date”). The Exercise Price (if paid pursuant to clause (x) above) shall be payable by
delivery by the Holder of a certified or official bank check payable to the order of the Company or
wire transfer of immediately available funds to an account designated by the Company. This
Warrant shall be deemed to have been so exercised as of the applicable Exercise Date, and the
Holder shall be entitled to receive the Underlying Shares issuable upon such Exercise and be
treated for all purposes as the holder of record of the Underlying Shares as of such date. Upon the
Exercise of this Warrant, the Company shall, within two (2) Business Days of the applicable
Exercise Date (the “Underlying Share Delivery Date”), execute and deliver to the Holder of this
Warrant (a) a statement confirming the total number of Underlying Shares for which this Warrant
is being exercised, and (b) (i) if the Underlying Shares are issued in certificate form, a certificate or
certificates for the number of Underlying Shares issuable upon such Exercise, or (ii) if the
Underlying Shares are issued in uncertificated form, a written confirmation evidencing the book-
entry registration of such Underlying Shares in the Holder’s name; provided that if the Company
fails to deliver to Holder such certificate or certificates (in the case of Underlying Shares issued in
certificate form) or written confirmation (in the case of Underlying Shares issued in uncertificated
form) by the Underlying Share Delivery Date, the Holder will have the right to rescind such
Exercise. Any rescission by the Holder pursuant to this Section 4(a) shall not affect any other
remedies available to the Holder under applicable law or equity or pursuant to Section 14 hereof as
a result of the Company’s failure to timely deliver the Underlying Shares. If this Warrant shall be
exercised with respect to less than all of the Underlying Shares, the Company shall deliver a new
Warrant covering the number of Underlying Shares in respect of which this Warrant shall not have
been exercised, which new Warrant shall in all other respects be identical to this Warrant. The
Company covenants and agrees that it will pay when due any and all state and federal issue taxes
which may be payable in respect of the issuance of this Warrant or the issuance of any Underlying
Shares upon exercise.
(b)
In the event of any withholding of shares of Underlying Shares pursuant to
Section 4(a)(y) above where the number of the Underlying Shares then issuable upon exercise of
this Warrant with an aggregate value equal to the Aggregate Exercise Price is not a whole number,
the number of the Underlying Shares withheld by the Company shall be rounded up to the nearest
whole share, and the Company shall make a cash payment to the Holder (by delivery of a certified
or official bank check or by wire transfer of immediately available funds) based on the incremental
fraction of Underlying Shares being so withheld by the Company in an amount equal to the
product of (x) such incremental fraction of Underlying Shares being so withheld or surrendered
multiplied by (y) the value per share of Underlying Shares (determined on the basis of the average
Market Price per share for the Company Common Stock on the last five Trading Days for such
stock ended immediately prior to the applicable Exercise Date).
(c)
The Company shall not knowingly effect the exercise of this Warrant, and
the Holder shall not have the right to exercise this Warrant to the extent that, after giving effect to
such exercise, the Holder (together with such Person’s Affiliates) would beneficially own in excess
of 9.99% (the “Maximum Percentage”) of the Company Common Stock outstanding immediately
after giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number
of shares of Company Common Stock beneficially owned by such Person and its Affiliates shall
include the number of shares of Company Common Stock issuable upon exercise of this Warrant
with respect to which the determination of such sentence is being made, but shall exclude shares of
Company Common Stock which would be issuable upon (i) exercise of the remaining, unexercised
portion of this Warrant beneficially owned by such Person and its Affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of the Company
beneficially owned by such Person and its Affiliates (including, without limitation, any convertible
notes or convertible shares or warrants) subject to a limitation on conversion or exercise analogous
to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of
this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act. For purposes of this Warrant, in determining the number of outstanding shares of
Company Common Stock, a Holder of this Warrant may rely on the number of outstanding shares
of Company Common Stock as reflected in the most recent of (1) the Company’s Form 10-K,
Form 10-Q or other public filing with the Securities and Exchange Commission, as the case may
be, (2) a more recent public announcement by the Company or (3) any other notice by the
Company or its transfer agent setting forth the number of shares of Company Common Stock
outstanding. Upon the written or oral request of a Holder, the Company shall, within five (5)
Business Days, confirm to such Holder the number of shares of its Company Common Stock then
outstanding. Furthermore, upon the written request of the
Company, a Holder shall confirm to the Company its then current beneficial ownership with
respect to the Company’s Company Common Stock.
Section 5. No Fractional Shares. No fractional shares may be issued upon any
exercise of this Warrant or as a consequence of any adjustment pursuant to Section 7, and any
fractions shall be rounded upwards to the nearest whole number of shares. If upon any exercise or
adjustment of this Warrant a fraction of a share results, the Company will pay to the Holder the
cash value of any such fractional share, calculated on the basis of the Exercise Price.
Section 6. Securities Laws.
(a)
Holder acknowledges that the Underlying Shares are being offered and sold
by the Company in accordance with Regulation D under the Securities Act and that the Underlying
Shares will constitute “restricted securities” as defined in Rule 144 under the Securities Act.
Neither this Warrant nor the Underlying Shares have been registered under the Securities Act, or
any state securities laws (“Blue Sky Laws”). This Warrant has been acquired for the Holder’s own
account for investment purposes and not with a current view to distribution or resale and may not
be sold or otherwise transferred (i) without an effective registration statement for such Warrant
under the Securities Act and such applicable Blue Sky Laws, or (ii) unless Holder shall have
delivered to the Company an opinion of counsel to the effect that the Warrant or such portion of
the Warrant to be sold or transferred may be sold or transferred under an exemption from such
registration; provided, that the foregoing conditions shall not apply to any transfer of this Warrant
from Purchaser to (i) any Affiliate, managed fund or account of Oaktree Capital Management, L.P.
or (ii) an Affiliate of Qatar Investment Authority.
(b)
The Company covenants and agrees that all Underlying Shares will, upon
issuance and payment therefor, be legally and validly issued and outstanding, free from all taxes,
liens, charges and preemptive or similar rights, if any, with respect thereto or to the issuance
thereof. The Company will take all such action as may be reasonably necessary or appropriate to
assure that the Underlying Shares may be issued as provided herein without violating any
applicable law or regulation, or any requirements of the Trading Market upon which the Company
Common Stock may be listed.
(c)
The certificates representing the Underlying Shares will bear the following
or similar legend, unless the Company determines otherwise in compliance with applicable law:
“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO
INVESTMENT FOR AN
BEAR THE FINANCIAL RISKS OF THIS
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.”
Section 7. Anti-Dilution Adjustments.
(a)
If the Company shall at any time prior to the expiration of this Warrant (i)
pay a stock dividend or otherwise make a distribution or distributions on shares of Company
Common Stock or any other equity or equity securities, (ii) subdivide the Company Common
Stock (by stock split, recapitalization, or any other similar event) into a larger number of shares,
(iii) combine the Company Common Stock (by stock split or reverse stock split, recapitalization,
combination of shares, or any other similar event) or (iv) issue by reclassification of shares of
Company Common Stock any shares of capital stock of the Company (with the exception of any
reclassification that constitutes a Fundamental Change, as hereinafter defined), then in each such
case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately
prior to (x) the record date for the determination of stockholders entitled to receive such dividend
or distribution or (y) the effective date in the case of a subdivision, combination or re-classification
by a fraction, the numerator of which shall be the number of shares of Company Common Stock
outstanding immediately before such event and the denominator of which shall be the number of
shares of Company Common Stock outstanding immediately after such event, and the number of
shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the
Aggregate Exercise Price shall remain unchanged. Before taking any action which would result in
an adjustment in the number of Underlying Shares for which this Warrant is exercisable or to the
Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or
consents thereto, as may be necessary from any public regulatory body or bodies having
jurisdiction thereof.
(b)
If the Company shall at any time prior to the expiration of this Warrant (in
each case, occurring after the date hereof) be a party to any merger, consolidation, exchange of
shares of Company Common Stock, sale of a majority of the Company Common Stock, sale of all
or substantially all of the assets of the Company, separation, reorganization, recapitalization,
winding up or liquidation of the Company, or other similar event or transaction (each, a
“Fundamental Change”), as a result of which shares of Company Common Stock shall be
changed into the same or a different number or class or classes of securities of the Company or
another entity, or the holders of shares of Company Common Stock are entitled to receive cash or
other property, then, upon the Exercise of this Warrant by the Holder, such Holder shall receive, for
the Aggregate Exercise Price as in effect immediately prior to such Fundamental Change (subject
to all other adjustments under this Warrant), the aggregate number of shares or such other
securities, cash or other property which such Holder would have received if this Warrant had been
exercised immediately prior to such Fundamental Change (collectively, the “Fundamental
Change Receivable”), which, upon the Holder’s election, may be received net of the Aggregate
Exercise Price (for the avoidance of doubt, without payment by the Holder of any cash in an
amount equal to the then Exercise Price). In the case of any Fundamental Change, the successor or
purchasing party of such merger, consolidation, exchange of shares of Company Common Stock,
sale of all or substantially all of the assets of the Company or reorganization (if other than the
Company) shall duly execute and deliver to the Holder a supplement to this Warrant
acknowledging the Company and such party’s obligations under this Section 7(b). The terms of
this Warrant shall be applicable to the Fundamental Change Receivable due to the Holder upon the
consummation of any such Fundamental Change.
(c)
If the Company, at any time while this Warrant is outstanding, shall
otherwise distribute to all holders of Company Common Stock (and not to the Holder or Holders)
evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security (for the avoidance of doubt, excluding in each such case any
Fundamental Change Receivable), then in each such case the Exercise Price shall be adjusted by
multiplying the Exercise Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a fraction, the numerator of
which shall be such VWAP on such record date less the then Fair Market Value at such record date
of the portion of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Company Common Stock, and the denominator of which shall be the VWAP
determined as of the record date mentioned above. Such adjustment shall be made whenever any
such distribution is made and shall become effective immediately after the record date mentioned
above.
(d)
Not less than five (5) days prior to the record date or effective date, as the
case may be, of any event which requires or might require an adjustment or readjustment pursuant
to Section 7(a) or Section 7(c) (each, an “Adjustment Event”), and not less than ten (10) days
prior to the record date or effective date, as the case may be, of any Fundamental Change, the
Company shall give written notice of such Adjustment Event or Fundamental Change (as
applicable) to the Holder or Holders, describing such Adjustment Event or Fundamental Change in
reasonable detail and specifying the record date or effective date, as the case may be. Such notice
shall additionally include the Company’s certification of the following computations, as applicable,
each of which shall have been made by the Company in good faith: (i) in the case of an
Adjustment Event, if determinable, the required adjustment and the computation thereof or, if the
required adjustment is not determinable at the time of such notice, the Company shall give notice
to the Holder or Holders of such adjustment and computation promptly after such adjustment
becomes determinable, and (ii) in the case of a Fundamental Change, the number of shares or such
other securities, cash or other property which is payable to the Holder or Holders upon the
Fundamental Change, the computation thereof, and the computation of the then applicable
Exercise Price. Except as otherwise prohibited by applicable laws, to the extent that any notice
provided pursuant to this Section 7(d) contains material, non-public information regarding the
Company, the Company shall disclose such information regarding the Company in a Current
Report on Form 8-K and file such Current Report on Form 8-K with the SEC no later than the
second Trading Day following the date such notice is delivered to the Holder.
(e)
Notwithstanding any other provision hereof, if an exercise of all or any
portion of this Warrant is to be made in connection with a Fundamental Change or a public
offering, such exercise may, at the election of the Holder, be conditioned upon the consummation
of such transaction, in which case such exercise shall not be deemed to be effective until
immediately prior to the consummation of such transaction.
(f)
At all times on and prior to the Expiration Date, the Company shall at all
times reserve and keep available out of its authorized but unissued Company Common Stock (or
other equity interests then constituting Underlying Shares), solely for the purpose of issuance upon
the exercise of this Warrant, the maximum number of Underlying Shares issuable upon the
exercise of this Warrant. The Company further covenants that its issuance of this Warrant shall
constitute full authority to its officers who are charged with the duty of executing stock certificates
or effectuating the book entry of uncertificated shares to execute and issue, or enter, the necessary
certificates or book entries (as applicable) for the Underlying Shares upon the exercise of the
purchase rights under this Warrant. The Company shall not increase the par value of any
Underlying Shares receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and shall take all such actions within its power as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and non-assessable Underlying Shares
upon the exercise of this Warrant.
Section 8. Transfer of Warrant. Subject to compliance with applicable federal and
state securities laws, the Holder may, from time to time, transfer this Warrant or the Underlying
Shares, in each case, in whole or in part, by giving the Company a written notice of the portion of
the Warrant or the shares of the Underlying Shares being transferred, such notice to set forth the
name, address and taxpayer identification number of the transferee, the anticipated date of such
transfer, and surrendering this Warrant or the certificates or book-entry records representing shares
of the Underlying Shares, as applicable, to the Company for reissuance to the transferee(s). Upon
surrender of this Warrant by a Holder to the Company for transfer, in whole or in part, the
Company shall issue a new warrant to such Holder in such denomination as shall be requested by
such Holder covering the number of Underlying Shares, if any, in respect of which this Warrant
shall not have been transferred. Such new warrant shall be identical in all other respects to this
Warrant. This Warrant may be divided or combined with other Warrants upon presentation hereof
at the office of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the Holder or its agent or
attorney. Subject to compliance with this Section 8 as to any transfer which may be involved in
such division or combination, the Company shall execute and deliver a new Warrant or Warrants in
exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.
All Warrants issued on transfers or exchanges shall be dated as of the Initial Issuance Date and
shall be identical to this Warrant except as to the number of Underlying Shares issuable pursuant
thereto.
Section 9. No Impairment. The Company may not, including, without limitation,
by amendment of its certificate of incorporation or bylaws, or through a Fundamental Change or
any other voluntary action, avoid or seek to avoid the observance or performance of any of the
terms of this Warrant, and the Company shall at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the Holder or Holders against impairment. Without limiting the generality of
the foregoing, the Company shall take (a) all such action as may be necessary or appropriate in
order that the Company may duly and validly issue fully paid and non-assessable Underlying
Shares, free from any taxes, liens, charges and preemptive rights, upon the exercise of this Warrant,
and (b) use its best efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof, as may be necessary to enable the Company to
perform its obligations under this Warrant.
Section 10. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the Holder or Holders hereof to any voting rights or other rights as a stockholder of the
Company with respect to the Underlying Shares prior to the exercise of the Warrant. No provision
of this Warrant, in the absence of affirmative action by the Holder or Holders to purchase the
Underlying Shares, and no mere enumeration herein of the rights or privileges of the Holder or
Holders, shall give rise to any liability of such Holder or Holders for the Exercise Price or as a
stockholder of the Company, whether such liability is asserted by the Company or by creditors of
the Company.
Section 11. Representations and Warranties of the Company. The Company
hereby represents and warrants:
(a)
As of the Initial Issuance Date, the Company (A) is a corporation duly
organized, validly existing and in good standing under the laws of the State of Delaware, (B) has
all requisite power and authority to own and operate its properties, to carry on its business as now
conducted and as currently proposed to be conducted, to issue and enter into the Warrant and to
carry out the transactions contemplated thereby, and (C) except where the failure to do so,
individually or in the aggregate, has not had, and could not be reasonably expected to have, a
material adverse effect on the business, assets, financial condition or operations of the Company, is
qualified to do business and, where applicable is in good standing, in every jurisdiction where such
qualification is required.
(b)
This Warrant is, and any Warrant issued in substitution for or replacement of
this Warrant (including pursuant to Section 15) shall be, upon issuance, duly authorized and
validly issued. This Warrant constitutes, and any Warrant issued in substitution for or replacement
of this Warrant shall be, upon issuance, a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors’ rights generally and by general principles of equity.
(c)
As of the Initial Issuance Date, the execution, delivery and performance by
the Company of the Warrant does not and will not (A) violate any material provision of applicable
law or the organizational documents of the Company, (B) conflict with, result in a breach of, or
constitute (with the giving of any notice, the passage of time, or both) a default under any material
agreement of the Company or (C) result in or require the creation or imposition of any lien upon
any assets of the Company.
Section 12. Successors. All the covenants and provisions of this Warrant by or for
the benefit of the Company or the Holder or Holders shall bind and inure to the benefit of their
respective successors and assigns.
Section 13. Survival. The rights of the Holder or Holders under this Warrant, and
the covenants and agreements of the Company set forth in this Warrant for the benefit of the
Holder or Holders, shall survive exercise of all or any portion of this Warrant and shall inure to the
Holder or Holders of any Underlying Shares.
Section 14. Remedies. If the Company violates, breaches or defaults under this
Warrant, the Holder may proceed to protect and enforce its rights by any action at law, suit in
equity or other appropriate proceeding, whether for specific performance of any agreement
contained in this Warrant, or for an injunction against a violation of any of the terms hereof, or in
and of the exercise of any power granted hereby or by law, in each case without providing any
bond or other security in connection with such action, suit or other proceeding. In case of any
violation, breach or default under this Warrant, the Company shall pay to the Holder on demand
all reasonable costs and expenses of enforcing the Holder’s rights under this Warrant, including,
without limitation, reasonable attorneys’ fees and legal expenses.
Section 15. Loss, Theft, Destruction or Mutilation of Warrant. The Company
covenants that upon its receipt of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant or any stock certificate relating to the Underlying Shares
(and, in the case of mutilation, the surrender and cancellation of this Warrant or such stock
certificate), the Company shall make and deliver to the Holder a new Warrant or stock certificate
that is identical to this Warrant or to such stock certificate (as applicable).
Section 16. Article and Section Headings. Numbered and titled article and section
headings are for convenience only and shall not be construed as amplifying or limiting any of the
provisions of this Warrant.
Section 17. Notice. Any and all notices, elections or demands permitted or required
to be made under this Warrant shall be in writing, signed by the party giving such notice, election
or demand and shall be delivered in accordance with the notice provisions in the Credit
Agreement.
Section 18. Severability. If any provisions(s) of this Warrant or the application
thereof to any person or circumstances shall be invalid or unenforceable to any extent, the
remainder of this Warrant and the application of such provisions to other persons or circumstances
shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
Section 19. Entire Agreement. This Warrant and between the Company and the
Holder represents the entire agreement between the parties concerning the subject matter hereof,
and all oral discussions and prior agreement are merged herein.
Section 20. Valuation Dispute Resolution. In the case of any dispute as to the
determination of any amount or valuation hereunder or in connection with the amount or value of
any Company Common Stock or Underlying Shares to be issued, withheld or otherwise
determined, the calculation of the Aggregate Exercise Price or any other computation or valuation
required to be made hereunder or in connection herewith, in the event the Holder, on the one hand,
and the Company, on the other hand, are unable to settle such dispute within five (5) Business
Days, then either party may elect to submit the disputed matter(s) for resolution by an accounting
firm of nationally recognized standing as may be mutually agreed upon by the Holder and the
Company. Such firm’s determination of such disputed matter(s) shall be binding upon all parties
absent demonstrable error, and the Company and the Holder shall each pay one half of the fees and
costs of such firm.
Section 21. Governing Law. This Warrant and the rights and obligations of the
parties hereunder, and any claims, controversy, dispute or cause of action (whether in contract or
tort or otherwise) based upon, arising out of or relating to this Warrant and the transactions
contemplated hereby shall be governed by, and construed in accordance with, the law of the State
of New York.
Section 22. Jurisdiction; Waiver of Venue; Service of Process.
(a)
Each party hereto irrevocably and unconditionally agrees that it will not
commence any action, litigation or proceeding of any kind or description, whether in law or equity,
whether in contract or in tort or otherwise, against any other party hereto in any way relating to this
Warrant or the transactions relating hereto, in any forum other than the courts of the State of New
York sitting in New York County, and of the United States District Court of the Southern District
of New York, and any appellate court from any thereof; and each of the parties hereto irrevocably
and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect
of any such action, litigation or proceeding may be heard and determined in such New York State
court or, to the fullest extent permitted by applicable law, in such federal court. Each of the parties
hereto agrees that a final judgment in any such action, litigation or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided
by law.
(b)
Each party hereto irrevocably and unconditionally waives, to the fullest
extent permitted by applicable law, any objection that it may now or hereafter have to the laying of
venue of any action or proceeding arising out of or relating to this Agreement in any court referred
to in paragraph (a) of this Section 22. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance
of such action or proceeding in any such court.
(c)
provided for notices in Section 17.
Each party hereto irrevocably consents to service of process in the manner
Section 23. Amendment. No amendment or modification hereof shall be effective
except in a writing executed by the Company and the Holder.
Section 24. Counterparts. This Warrant may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same Warrant.
Section 25. Waiver of Jury Trial. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT OR THE
TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT
OR ANY OTHER THEORY).
EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER
AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN
INDUCED TO ENTER INTO THIS WARRANT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 25.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date
first above written.
COMPANY:
BIOXCEL THERAPEUTICS, INC.
By:
Name:
Title:
[Signature Page to Warrant]
Exhibit 4.6
Execution Version
BIOXCEL THERAPEUTICS, INC.
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
This SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this “Agreement”) is made as
of March 20, 2024, by and among BioXcel Therapeutics, Inc., a Delaware corporation (the “Company”), the purchasers identified on
Schedule A hereto (each, a “Purchaser”) and such other Persons, if any, from time to time, that become a party hereto as holders of
Registrable Securities (as defined below).
RECITALS
WHEREAS, pursuant to the Credit Agreement (as defined below), on the Closing Date, the Company issued to each Purchaser
a warrant to purchase such number of shares of Common Stock (as defined below) as is set forth opposite such Purchaser’s name on
Schedule A hereto as the Shares Issuable Upon Exercise of Closing Date Warrants (as such number may be adjusted pursuant to the
terms of such warrant) (each, a “Closing Date Warrant” and collectively, the “Closing Date Warrants”);
WHEREAS, pursuant to the Credit Agreement (as defined below), on the Second Amendment Effective Date, the Company
issued to each Purchaser a warrant to purchase such number of shares of Common Stock (as defined below) as is set forth opposite such
Purchaser’s name on Schedule A hereto as the Shares Issuable Upon Exercise of Second Amendment Warrants (as such number may be
adjusted pursuant to the terms of such warrant) (each, a “Second Amendment Warrant”, collectively, the “Second Amendment
Warrants”);
WHEREAS, pursuant to the Credit Agreement (as defined below), on March 20, 2024 (the “Fourth Amendment Effective
Date”), the Company will issue to each Purchaser a warrant to purchase such number of shares of Common Stock (as defined below) as
is set forth opposite such Purchaser’s name on Schedule A hereto as the Shares Issuable Upon Exercise of Fourth Amendment Warrants
(as such number may be adjusted pursuant to the terms of such warrant) (each, a “Fourth Amendment Warrant”, collectively, the
“Fourth Amendment Warrants” and together with the Closing Date Warrants and the Second Amendment Warrants, the “Warrants”);
WHEREAS, the Warrants will be exercisable for shares of Common Stock from time to time on or after the Closing Date, the
Second Amendment Effective Date or the Fourth Amendment Effective Date, as applicable, and on or prior to the close of business on
April 19, 2029, in accordance with the terms thereof;
WHEREAS, in connection with the execution and delivery of the Credit Agreement and the issuance of the Warrants and the
consummation of the transactions contemplated thereby the Company has agreed to grant the Holders (as defined below) certain
registration rights as set forth below; and
NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, and other consideration, the
receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
Definitions
ascribed to them in the Credit Agreement. As used in this Agreement, the following terms shall have the meanings set forth below:
1.1
Definitions. Unless otherwise defined herein, capitalized terms used in this Agreement have the meanings
“Additional Shares” means any shares of Common Stock issued to the Purchasers pursuant to a stock split,
stock dividend or other distribution with respect to, or in exchange or in replacement of, the Underlying Shares, or in connection with a
combination of shares, distribution, recapitalization, merger, consolidation, other reorganization or other similar event.
(a)
(b)
(c)
“Agreement” has the meaning set forth in the Preamble.
“Business Day” means any day, excluding Saturday, Sunday and any day which is a legal holiday in the City
of New York or is a day on which banking institutions located in the City of New York are authorized or required by law or other
governmental action to remain closed.
(d)
“Change of Control” means an event or series of events (i) as a result of which any “person” or “group” (as
such terms are used in Sections 13(d) and 14(d) of the Securities Act, but excluding any of such person or its Subsidiaries, and any
Person acting in its capacity as trustee, agent or other fiduciary or administrator of any such Plan and excluding any Permitted Holder
becomes the “beneficial owner”, directly or indirectly, of thirty-five percent (35%) or more of the Equity Interests of the Company
entitled to vote for members of the Board of the Company on a fully-diluted basis (and taking into account all such Equity Interests that
such person or group has the right to acquire pursuant to any Option Right); (ii) as a result of which any Permitted Holder or “group” (as
such terms are used in Sections 13(d) and 14(d) of the Securities Act) including any Permitted Holder becomes the “beneficial owner”,
directly or indirectly, of forty-five percent (45%) or more of the Equity Interests of the Company entitled to vote for members of the
Board of the Company on a fully-diluted basis (and taking into account all such Equity Interests that such Permitted Holder or group has
the right to acquire pursuant to any Option Right); (iii) that results in the sale of all or substantially all of the assets or businesses of the
Company and its Subsidiaries, taken as a whole, or (iv) that results in the Company’s failure to own, directly or indirectly, beneficially
and of record, one-hundred percent (100%) of all issued and outstanding Equity Interests of each Subsidiary Guarantor (other than, in the
case of this clause (iv), as a result of any Asset Sale permitted by Section 9.09 of the Credit Agreement, liquidation or dissolution
permitted by Section 9.03(b) of the Credit Agreement, the issuance of any Equity Interests in BXCL 701 Subsidiaries pursuant to Section
9.09(o) of the Credit Agreement or a Permitted BXCL 701 Disposition Event, or any interest in or exercise of any 701 Warrant). For
purposes of this definition, “beneficial owner” is as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or
group shall be deemed to have “beneficial ownership” of all Equity Interests that such person or group has the right to acquire, whether
such right is exercisable immediately or only after the passage of time (such right, an “Option Right”).
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(e)
(f)
(g)
(h)
(i)
“Closing Date Warrant” has the meaning set forth in the Recitals.
“Closing Date Warrants Shelf Effectiveness Deadline” has the meaning set forth in Section 2.1(a)(ii).
“Closing Date Warrants Shelf Registration” has the meaning set forth in Section 2.1(a)(i).
“Closing Date Warrants Shelf Registration Statement” has the meaning set forth in Section 2.1(a)(i).
“Closing Date Warrants Subsequent Shelf Effectiveness Deadline” has the meaning set forth in
(j)
“Closing Date Warrants Subsequent Shelf Registration Statement” has the meaning set forth in
(k)
(l)
“Closing Date Warrants Termination Date” has the meaning set forth in Section 2.1(a)(ii).
“Common Stock” means shares of the common stock of the Company, par value $0.001 per share.
(m)
“Company” has the meaning set forth in the Preamble.
Section 2.1(a)(ii).
Section 2.1(a)(ii).
(n)
(o)
(p)
“Company Indemnified Party” has the meaning set forth in Section 2.4(b).
“Controlling Person” has the meaning set forth in Section 2.4(a).
“Credit Agreement” means that certain Credit Agreement and Guaranty (as may be amended or restated from
time to time), dated as of April 19, 2022, and amended as of November 13, 2023, December 5, 2023, February 12, 2024 and March 20,
2024 by and among the Company, the subsidiaries of the Company party thereto as Guarantors, the lenders party thereto and Oaktree
Fund Administration, LLC, as administrative agent.
Deadline.
(q)
(r)
(s)
(t)
(u)
“Default” has the meaning set forth in Section 2.1(c).
“Effectiveness Deadline” means the Shelf Effectiveness Deadline and the Subsequent Shelf Effectiveness
“End of Suspension Notice” has the meaning set forth in Section 2.2(c).
“Fourth Amendment Effective Date” has the meaning set forth in the Recitals.
“Fourth Amendment Warrant” has the meaning set forth in the Recitals.
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(v)
(w)
(x)
(y)
“Fourth Amendment Warrants Shelf Effectiveness Deadline” has the meaning set forth in Section 2.1(c)(ii).
“Fourth Amendment Warrants Shelf Registration” has the meaning set forth in Section 2.1(c)(i).
“Fourth Amendment Warrants Shelf Registration Statement” has the meaning set forth in Section 2.1(c)(i).
“Fourth Amendment Warrants Subsequent Shelf Effectiveness Date” has the meaning set forth in
(z)
“Fourth Amendment Warrants Subsequent Shelf Registration Statement” has the meaning set forth in
Section 2.1(c)(ii).
Section 2.1(c)(ii).
(aa)
“Fourth Amendment Warrants Termination Date” has the meaning set forth in Section 2.1(c)(ii).
(bb)
“Holder” (collectively, “Holders”) means any Purchaser and any transferee permitted under Section 3.1, in
each case, to the extent holding or beneficially owning Registrable Securities or Warrants exercisable for Registrable Securities.
(cc)
“Holder Indemnified Parties” has the meaning set forth in Section 2.4(a).
(dd)
“Indemnified Party” has the meaning set forth in Section 2.4(c).
(ee)
“Liquidated Damages” has the meaning set forth in Section 2.1(c).
(ff)
“Option Right” has the meaning set forth in the definition of “Change of Control”.
nongovernmental entity or any governmental agency, court, authority or other body (whether foreign, federal, state, local or otherwise).
(gg)
“Person” means any person, individual, corporation, limited liability company, partnership, trust or other
(hh)
“Prospectus” means the prospectus or prospectuses (whether preliminary or final) included in any
Registration Statement and relating to Registrable Securities, as amended or supplemented and including all material incorporated by
reference in such prospectus or prospectuses.
(ii)
(jj)
“Purchaser” has the meaning set forth in the Preamble.
“register,” “registered” and “registration” refer to a registration effected by filing with the SEC a registration
statement in compliance with the Securities Act, and the declaration or ordering by the SEC of the effectiveness of such registration
statement.
that Underlying Shares or Additional Shares shall cease to
(kk)
“Registrable Securities” means (i) the Underlying Shares, and (ii) any Additional Shares; provided, however,
4
be treated as Registrable Securities on the earliest to occur of, (A) the date such security has been disposed of pursuant to an effective
registration statement, (B) the date on which such security is sold pursuant to Rule 144 or (C) the date on which the Holder thereof,
together with its Affiliates, is able to dispose of all of its Registrable Securities without restriction or limitation pursuant to Rule 144 and
without the requirement for the Company to be in compliance with Rule 144 (or any successor rule).
(ll)
“Registration Expenses” means any and all expenses incident to the Company’s performance of or
compliance with this Agreement, including without limitation: (i) all SEC registration and filing fees, (ii) all fees and expenses associated
with filings to be made with, or the listing of any Registrable Securities on, any securities exchange or over-the-counter trading market
on which the Registrable Securities are to be listed or quoted, (iii) all fees and expenses with respect to filings required to be made with
an exchange or any securities industry self-regulatory body, (iv) all fees and expenses of compliance with securities or “blue sky” laws
(including fees and disbursements of counsel for the Company in connection therewith), (v) all transfer agent’s and registrar’s fees, (vi)
all fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants
retained by the Company, (vii) securities acts liability insurance, if the Company so desires, (viii) all internal expenses of the Company
(including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (ix) the
expense of any annual audit, and (x) the fees and expenses of any Person, including special experts, retained by the Company.
“Registration Expenses” shall not include underwriting discounts or commissions attributable to the sale of the Registrable Securities or
any legal fees and expenses of counsel to the Holders.
(mm)
“Registration Statement” means any registration statement of the Company under the Securities Act which
covers any of the Registrable Securities pursuant to the provisions of this Agreement, including the Prospectus, all amendments and
supplements to such Registration Statement, including post-effective amendments, all exhibits and all documents incorporated by
reference in such Registration Statement.
(nn)
“Rule 144” means Rule 144 under the Securities Act.
(oo)
“SEC” means the U.S. Securities and Exchange Commission.
(pp)
“Second Amendment Warrant” has the meaning set forth in the Recitals.
(qq)
“Second Amendment Warrants Shelf Effectiveness Deadline” has the meaning set forth in Section 2.1(b)(ii).
(rr)
(ss)
(tt)
Section 2.1(b)(ii).
“Second Amendment Warrants Shelf Registration” has the meaning set forth in Section 2.1(b)(i).
“Second Amendment Warrants Shelf Registration Statement” has the meaning set forth in Section 2.1(b)(i).
“Second Amendment Warrants Subsequent Shelf Effectiveness Date” has the meaning set forth in
5
Section 2.1(b)(ii).
(uu)
“Second Amendment Warrants Subsequent Shelf Registration Statement” has the meaning set forth in
(vv)
“Second Amendment Warrants Termination Date” has the meaning set forth in Section 2.1(b)(ii).
thereunder, as the same may be amended from time to time.
(ww)
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated
(xx)
“Shelf Effectiveness Deadline” has the meaning set forth in Section 2.1(c)(ii).
(yy)
“Shelf Registration Statement” has the meaning set forth in Section 2.1(c)(i).
(zz)
“Subsequent Shelf Effectiveness Deadline” has the meaning set forth in Section 2.1(c)(ii).
(aaa)
“Subsequent Shelf Registration Statement” has the meaning set forth in Section 2.1(c)(ii).
(bbb)
“Suspension Event” has the meaning set forth in Section 2.2(b).
(ccc)
“Suspension Notice” has the meaning set forth in Section 2.2(c).
“Trading Day” means a day on which the Common Stock is traded on a Trading Market or, if the Common
Stock is not traded on a Trading Market, then on the principal securities exchange or securities market on which the Common Stock is
then traded.
(ddd)
Exchange.
(eee)
“Trading Market” means any market or exchange of The Nasdaq Stock Market LLC or the New York Stock
(fff)
“Underlying Shares” means any and all shares of Common Stock issuable upon exercise of the Warrants.
(ggg)
“Warrant” has the meaning set forth in the Recitals.
ARTICLE II
Registration Rights
2.1
(a)
(i)
Shelf Registration.
Closing Date Warrants Shelf Registration.
Filing. Within 45 days following the Closing Date, the Company shall file with the SEC a Registration
Statement on Form S-3 (unless the Company is ineligible to register for resale the Registrable Securities on Form S-3, in which
case such registration shall be on another appropriate form) or the then appropriate form for an offering to be made on a delayed
or continuous basis pursuant to Rule 415 under the Securities Act or
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any successor rule thereto (a “Closing Date Warrants Shelf Registration Statement”) pursuant to which all of the Registrable
Securities associated with the Closing Date Warrants shall be included (on the initial filing or by supplement or amendment
thereto) to enable the public resale of such Registrable Securities on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act or any successor rule thereto (a “Closing Date Warrants Shelf Registration”). If permitted under the
Securities Act, such Closing Date Warrants Shelf Registration Statement shall be an “automatic shelf registration statement” as
defined in Rule 405 under the Securities Act.
(ii)
Effectiveness. The Company shall use its reasonable best efforts to (A) cause the Closing Date Warrants Shelf
Registration Statement filed pursuant to Section 2.1(a)(i) to be declared effective by the SEC as soon as reasonably practicable,
and in any event by the date that is the earlier of (1) 120 days following the Closing Date and (2) five Trading Days after the
date the Company receives written notification from the SEC that the Closing Date Warrants Shelf Registration will not be
reviewed (the “Closing Date Warrants Shelf Effectiveness Deadline”) and (B) maintain the effectiveness of such Closing Date
Warrants Shelf Registration Statement, including by filing any necessary post-effective amendments and Prospectus
supplements and by filing one or more replacement or renewal Closing Date Warrants Shelf Registration Statements (each, a
“Closing Date Warrants Subsequent Shelf Registration Statement”) upon the expiration of such Closing Date Warrants Shelf
Registration Statement, if required by Rule 415 under the Securities Act, continuously until the earliest to occur of (1) the 30-
month anniversary of the Closing Date, (2) a Change of Control and (3) such time as there are no Registrable Securities
remaining or issuable upon exercise of the Closing Date Warrants (the “Closing Date Warrants Termination Date”). If a
Closing Date Warrants Subsequent Shelf Registration Statement is filed, the Company shall use its reasonable best efforts to (x)
cause such Closing Date Warrants Subsequent Shelf Registration Statement to be declared effective by the SEC as soon as
reasonably practicable after such filing, but in any event by the date that is fifty (50) days after such Closing Date Warrants
Subsequent Shelf Registration Statement is filed (the “Closing Date Warrants Subsequent Shelf Effectiveness Deadline”), and
(y) keep such Closing Date Warrants Subsequent Shelf Registration Statement (or another Closing Date Warrants Subsequent
Shelf Registration Statement) continuously effective until the Closing Date Warrants Termination Date. Any Closing Date
Warrants Subsequent Shelf Registration Statement shall be a Closing Date Warrants Shelf Registration Statement.
(b)
(i)
Second Amendment Warrants Shelf Registration.
Filing. Within 45 days following the Second Amendment Effective Date, the Company shall file with the
SEC a new Registration Statement or an amendment to an effective Registration Statement on Form S-3 (unless the Company is
ineligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another
appropriate form) or the then appropriate form for an offering to be made on a delayed or continuous basis pursuant to Rule 415
under the Securities Act or any successor rule thereto (a “Second Amendment Warrants Shelf Registration Statement”)
pursuant to which all of the Registrable Securities associated with the Second Amendment Warrants shall be included (on the
initial filing or by supplement or
7
amendment thereto) to enable the public resale of such Registrable Securities on a delayed or continuous basis pursuant to Rule
415 under the Securities Act or any successor rule thereto (a “Second Amendment Warrants Shelf Registration”). If permitted
under the Securities Act, such Second Amendment Warrants Shelf Registration Statement shall be an “automatic shelf
registration statement” as defined in Rule 405 under the Securities Act.
(ii)
Effectiveness. The Company shall use its reasonable best efforts to (A) cause the Second Amendment
Warrants Shelf Registration Statement filed pursuant to Section 2.1(b)(i) to be declared effective by the SEC as soon as
reasonably practicable, and in any event by the date that is the earlier of (1) 120 days following the Second Amendment and (2)
five Trading Days after the date the Company receives written notification from the SEC that the Second Amendment Warrants
Shelf Registration will not be reviewed (the “Second Amendment Warrants Shelf Effectiveness Deadline”) and (B) maintain
the effectiveness of such Second Amendment Warrants Shelf Registration Statement, including by filing any necessary post-
effective amendments and Prospectus supplements and by filing one or more replacement or renewal Second Amendment
Warrants Shelf Registration Statements (each, a “Second Amendment Warrants Subsequent Shelf Registration Statement”)
upon the expiration of such Second Amendment Warrants Shelf Registration Statement, if required by Rule 415 under the
Securities Act, continuously until the earliest to occur of (1) the 30-month anniversary of the Second Amendment Effective
Date, (2) a Change of Control and (3) such time as there are no Registrable Securities remaining or issuable upon exercise of the
Second Amendment Warrants (the “Second Amendment Warrants Termination Date”). If a Second Amendment Warrants
Subsequent Shelf Registration Statement is filed, the Company shall use its reasonable best efforts to (x) cause such Second
Amendment Warrants Subsequent Shelf Registration Statement to be declared effective by the SEC as soon as reasonably
practicable after such filing, but in any event by the date that is fifty (50) days after such Second Amendment Warrants
Subsequent Shelf Registration Statement is filed (the “Second Amendment Warrants Subsequent Shelf Effectiveness
Deadline”), and (y) keep such Second Amendment Warrants Subsequent Shelf Registration Statement (or another Second
Amendment Warrants Subsequent Shelf Registration Statement) continuously effective until the Second Amendment Warrants
Termination Date. Any Second Amendment Warrants Subsequent Shelf Registration Statement shall be a Second Amendment
Warrants Shelf Registration Statement.
(c)
(i)
Fourth Amendment Warrants Shelf Registration.
Filing. Within 45 days following the Fourth Amendment Effective Date, the Company shall file with the SEC
a new Registration Statement or an amendment to an effective Registration Statement on Form S-3 (unless the Company is
ineligible to register for resale the Registrable Securities on Form S-3, in which case such registration shall be on another
appropriate form) or the then appropriate form for an offering to be made on a delayed or continuous basis pursuant to Rule 415
under the Securities Act or any successor rule thereto (a “Fourth Amendment Warrants Shelf Registration Statement” and
together with the Closing Date Warrants Shelf Registration Statements and the Second Amendment Warrants Shelf Registration
Statement, a “Shelf
8
Registration Statement”) pursuant to which all of the Registrable Securities associated with the Fourth Amendment Warrants
shall be included (on the initial filing or by supplement or amendment thereto) to enable the public resale of such Registrable
Securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act or any successor rule thereto (a
“Fourth Amendment Warrants Shelf Registration”). If permitted under the Securities Act, such Fourth Amendment Warrants
Shelf Registration Statement shall be an “automatic shelf registration statement” as defined in Rule 405 under the Securities
Act.
(ii)
Effectiveness. The Company shall use its reasonable best efforts to (A) cause the Fourth Amendment
Warrants Shelf Registration Statement filed pursuant to Section 2.1(c)(i) to be declared effective by the SEC as soon as
reasonably practicable, and in any event by the date that is the earlier of (1) 120 days following the Fourth Amendment
Effective Date and (2) five Trading Days after the date the Company receives written notification from the SEC that the Fourth
Amendment Warrants Shelf Registration will not be reviewed (the “Fourth Amendment Warrants Shelf Effectiveness
Deadline” and together with the Closing Date Warrants Shelf Effectiveness Deadline and the Second Amendment Warrants
Shelf Effectiveness Deadline, the “Shelf Effectiveness Deadline”) and (B) maintain the effectiveness of such Fourth
Amendment Warrants Shelf Registration Statement, including by filing any necessary post-effective amendments and
Prospectus supplements and by filing one or more replacement or renewal Fourth Amendment Warrants Shelf Registration
Statements (each, a “Fourth Amendment Warrants Subsequent Shelf Registration Statement” and together with the Closing
Date Warrants Subsequent Shelf Registration Statements and the Second Amendment Warrants Subsequent Shelf Registration
Statements, a “Subsequent Shelf Registration Statement”) upon the expiration of such Fourth Amendment Warrants Shelf
Registration Statement, if required by Rule 415 under the Securities Act, continuously until the earliest to occur of (1) the 30-
month anniversary of the Fourth Amendment Effective Date, (2) a Change of Control and (3) such time as there are no
Registrable Securities remaining or issuable upon exercise of the Fourth Amendment Warrants (the “Fourth Amendment
Warrants Termination Date”). If a Fourth Amendment Warrants Subsequent Shelf Registration Statement is filed, the Company
shall use its reasonable best efforts to (x) cause such Fourth Amendment Warrants Subsequent Shelf Registration Statement to
be declared effective by the SEC as soon as reasonably practicable after such filing, but in any event by the date that is fifty (50)
days after such Fourth Amendment Warrants Subsequent Shelf Registration Statement is filed (the “Fourth Amendment
Warrants Subsequent Shelf Effectiveness Deadline” and together with the Closing Date Warrants Subsequent Shelf
Effectiveness Deadline and the Second Amendment Warrants Subsequent Shelf Effectiveness Deadline, the “Subsequent Shelf
Effectiveness Deadline”), and (y) keep such Fourth Amendment Warrants Subsequent Shelf Registration Statement (or another
Fourth Amendment Warrants Subsequent Shelf Registration Statement) continuously effective until the Fourth Amendment
Warrants Termination Date. Any Fourth Amendment Warrants Subsequent Shelf Registration Statement shall be a Fourth
Amendment Warrants Shelf Registration Statement.
(i) or Section 2.1(c)(i) is not declared effective by the
(d)
Default. In the event that (i) the Shelf Registration Statement filed pursuant to Section 2.1(a)(i), Section 2.1(b)
9
SEC by the applicable Shelf Effectiveness Deadline, (ii) a Subsequent Shelf Registration Statement (if required to be filed pursuant to
Section 2.1(a)(ii), Section 2.1(b)(ii) or Section 2.1(c)(ii)) is not filed by the applicable Subsequent Shelf Effectiveness Deadline, or (iii)
after a Shelf Registration Statement has been declared effective, sales cannot be made continuously pursuant to such Shelf Registration
Statement for any reason (including without limitation by reason of a stop order, or the Company’s failure to update the Shelf
Registration Statement), other than, in each case, during the time period(s) permitted by Section 2.2(b) (each such event, a “Default”),
then, in addition to any other rights a Holder may have hereunder or under applicable law, on the first day of the occurrence of the
Default, and on the same day of each succeeding month (if the applicable Default shall not have been cured by such date) until the
applicable Default is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty (the
“Liquidated Damages”), on the date of the Default and the same day each succeeding month, equal to 1% of the aggregate purchase
price paid for the applicable Registrable Securities held by such Holder. The parties agree that in no event shall the aggregate amount of
Liquidated Damages payable to any Holder exceed, in the aggregate, twenty-five percent (25%) of the aggregate purchase price paid for
the applicable Registrable Securities held by such Holder. If the Company fails to pay any Liquidated Damages pursuant to this Section
2.1(d) in full within five (5) Business Days after the date payable, the Company will pay interest thereon at a rate of 1.5% per month (or
such lesser maximum amount that is permitted to be paid by applicable law) to each Holder, accruing daily from the date such Liquidated
Damages are due until such amounts, plus all such interest thereon, are paid in full. The Liquidated Damages pursuant to the terms hereof
shall apply on a daily pro-rata basis for any portion of a month prior to the cure of a Default, except in the case of the first occurrence of
the Default. The applicable Effectiveness Deadline shall be extended without Default or Liquidated Damages hereunder in the event that
the Company’s failure to obtain the effectiveness of such Shelf Registration Statement or Subsequent Shelf Registration Statement on a
timely basis results from the failure of any Holder to timely provide the Company with information requested by the Company and
necessary to complete the Shelf Registration Statement or Subsequent Shelf Registration Statement in accordance with the requirements
of the Securities Act (in which case the applicable Effectiveness Deadline would be extended with respect to the applicable Registrable
Securities held by such Holder).
Additional Selling Stockholders. At any time and from time to time that a Shelf Registration Statement is
effective, if a Holder of Registrable Securities requests that such Holder be added as a selling stockholder in such Shelf Registration
Statement, the Company shall as promptly as practicable amend or supplement the Shelf Registration Statement to cover such Holder.
(e)
2.2
(a)
Provisions Relating to Registration.
If and whenever the Company is required to effect the registration of any Registrable Securities pursuant to
this Agreement, the Company shall use its reasonable best efforts to effect and facilitate the registration of such Registrable Securities as
promptly as is practicable and, pursuant thereto, the Company shall as expeditiously as possible and as applicable:
10
(i)
prepare and file with the SEC a Registration Statement with respect to such Registrable Securities, make all
required filings required in connection therewith and (if the Registration Statement is not automatically effective upon filing)
use its reasonable best efforts to cause such Registration Statement to become effective as promptly as practicable; provided that
before filing a Registration Statement or any amendments or supplements thereto, the Company shall furnish to counsel to the
Holders for such registration copies of all documents proposed to be filed, which documents shall be subject to review by
counsel to the Holders at the Holders’ expense, and give the Holders participating in such registration an opportunity to
comment on such documents and keep such Holders reasonably informed as to the registration process;
(ii)
furnish to each Holder participating in the registration, without charge, such number of copies of the
Prospectus included in such Registration Statement (including each preliminary Prospectus) and any supplement thereto (in
each case including all exhibits thereto and all documents incorporated by reference therein) and such other documents as such
Holder may reasonably request, including in order to facilitate the disposition of the Registrable Securities owned by such
Holder;
(iii)
use its reasonable best efforts to register or qualify such Registrable Securities under such other securities or
blue sky laws of such U.S. jurisdiction(s) or such U.S. self-regulatory bodies as any Holder participating in the registration
reasonably requests and do any and all other acts and things that may be necessary or reasonably advisable to enable such
Holder to consummate the disposition of such Holder’s Registrable Securities in such jurisdiction(s); provided, that the
Company shall not be required to qualify generally to do business, subject itself to taxation or consent to general service of
process in any jurisdiction where it would not otherwise be required to do so but for its obligations pursuant to this
Section 2.2(a)(iii);
(iv)
notwithstanding any other provisions of this Agreement to the contrary, cause (A) any Registration Statement
(as of the effective date of the Registration Statement), any amendment thereof (as of the effective date thereof) or supplement
thereto (as of its date), (1) to comply in all material respects with the applicable requirements of the Securities Act and the rules
and regulations of the SEC and (2) not to contain any untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements therein not misleading and (B) any related Prospectus,
preliminary Prospectus and any amendment thereof or supplement thereto (as of its date), (1) to comply in all material respects
with the applicable requirements of the Securities Act and the rules and regulations of the SEC, and (2) not to contain any
untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, the
Company shall have no such obligations or liabilities with respect to any written information pertaining to a Holder and
furnished to the Company by or on behalf of such Holder specifically for inclusion therein; provided further, that each Holder of
Registrable Securities, upon receipt of any notice from the Company of any noncompliance event or material misstatement or
omission of the kind described in this Section 2.2(a)(iv), shall forthwith discontinue disposition of Registrable Securities
11
pursuant to the Registration Statement covering such Registrable Securities until such Holder is advised in writing by the
Company that the use of the Prospectus may be resumed and, if appropriate, is furnished with a supplemented or amended
Prospectus as contemplated by this Section 2.2(a)(iv);
(v)
as promptly as practicable (and in any event, within twenty-four (24) hours), notify the Holders: (A) when the
Registration Statement, any pre-effective amendment thereto, the Prospectus or any Prospectus supplement or any post-effective
amendment thereto has been filed with the SEC and when the Registration Statement or any post-effective amendment thereto
has become effective, (B) of any oral or written comments by the SEC or of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus included therein or for any additional information regarding such
Holder, (C) of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the
initiation or threatening of any proceedings for that purpose and of any other action, event or failure to act that would cause the
Registration Statement not to remain effective, and (D) of the receipt by the Company of any notification with respect to the
suspension of the qualification or exemption from qualification of any Registrable Securities for sale under the applicable
securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose;
(vi)
in the event of the issuance of any stop order suspending the effectiveness of a Registration Statement, any
order suspending or preventing the use of any related Prospectus or any suspension of the qualification or exemption from
qualification of any Registrable Securities for sale in any jurisdiction, use its reasonable best efforts to promptly obtain the
withdrawal or lifting of any such order or suspension, and each Holder of Registrable Securities, upon receipt of any notice from
the Company of any event of the kind described in this Section 2.2(a)(vi), shall forthwith discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable Securities until such Holder is advised in writing by
the Company that the use of the Prospectus may be resumed and is furnished with a supplemented or amended Prospectus, if
applicable;
(vii)
not file or make any amendment to any Registration Statement with respect to any Registrable Securities, or
any amendment of or supplement to the Prospectus used in connection therewith, that refers to any Holder covered thereby by
name or otherwise identifies such Holder as the holder of any securities of the Company without the consent of such Holder
(which consent shall not be unreasonably withheld, conditioned or delayed), unless and to the extent such disclosure is required
by law; provided, that (A) each Holder shall furnish to the Company in writing such information regarding itself and the
distribution proposed by it as the Company may reasonably request for use in connection with a Registration Statement or
Prospectus and (B) each Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in
information previously furnished to the Company by such Holder or of the occurrence of any event that would cause the
Prospectus included in such Registration Statement to contain an untrue statement of a material fact regarding such Holder or
the distribution of such Registrable Securities or to omit to state any material fact regarding
12
such Holder or the distribution of such Registrable Securities required to be stated therein or necessary to make the statements
made therein not misleading in light of the circumstances under which they were made and to furnish to the Company, as
promptly as practicable, any additional information required to correct and update the information previously furnished by such
Holder such that such Prospectus shall not contain any untrue statement of a material fact regarding such Holder or the
distribution of such Registrable Securities or omit to state a material fact regarding such Holder or the distribution of such
Registrable Securities necessary to make the statements therein not misleading in light of the circumstances under which they
were made;
(viii)
cause such Registrable Securities to be listed on each securities exchange on which the Common Stock is then
listed or, if the Common Stock is not then listed on any securities exchange, use its reasonable best efforts to cause such
Registrable Securities to be listed on a national securities exchange selected by the Company after consultation with the Holders
participating in such registration;
(ix)
provide a transfer agent and registrar (which may be the same Person) for all such Registrable Securities not
later than the effective date of such Registration Statement and, within a reasonable time prior to any proposed sale of
Registrable Securities pursuant to a Registration Statement, provide the transfer agent if reasonably required by the transfer
agent, an opinion of counsel as to the effectiveness of the Registration Statement, together with any other authorizations,
certificates and directions required by the transfer agent which authorize and direct the transfer agent to issue such Registrable
Securities without legend upon sale by the Holder of such Registrable Securities under the Registration Statement, subject to the
provisions of Section 3.1;
(x)
otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the SEC, and
make available to its stockholders, as soon as reasonably practicable, an earnings statement (in a form that satisfies the
provisions of Section 11(a) of the Securities Act and Rule 158 under the Securities Act or any successor rule thereto) covering
the period of at least 12 months beginning with the first day of the Company’s first full fiscal quarter after the effective date of
the applicable Registration Statement, which requirement shall be deemed satisfied if the Company timely files complete and
accurate information on Forms 10-K, 10-Q and 8-K under the Exchange Act and otherwise complies with Rule 158 under the
Securities Act or any successor rule thereto;
(xi)
(A) furnish to each Holder all legal opinions of outside counsel to the Company required to be included in the
Registration Statement, which provision shall be satisfied by filing with the SEC any such opinion as an exhibit to the
Registration Statement and (B) obtain all consents of independent public accountants required to be included in the Registration
Statement;
(xii)
cooperate with the Holders of the Registrable Securities to facilitate the timely preparation and delivery of
certificates representing the Registrable Securities to be sold pursuant to such Registration Statement free of any restrictive
legends and representing such number of shares of Common Stock and registered in such names as
13
the Holders of the Registrable Securities may reasonably request a reasonable period of time prior to sales of Registrable
Securities pursuant to such Registration Statement; provided, that the Company may satisfy its obligations hereunder without
issuing physical stock certificates through the use of The Depository Trust Company’s Direct Registration System; and
(xiii)
otherwise use its reasonable best efforts to take or cause to be taken all other actions necessary or reasonably
advisable to effect the registration of such Registrable Securities contemplated by this Agreement.
(b)
As promptly as practicable after becoming aware of such event, the Company shall notify the Holders of the
happening of any event (a “Suspension Event”), of which the Company has knowledge, as a result of which the Prospectus included in a
Registration Statement as then in effect includes an untrue statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made, and
as promptly as practicable, the Company shall prepare and file with the SEC a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver such number of copies of such supplement or amendment to the Holders as the
Holders may reasonably request so that, as thereafter delivered to the purchasers of such Registrable Securities, such Prospectus will not
contain any untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading in the
light of the circumstances under which they were made; provided, however, that, for not more than forty-five (45) consecutive days (or a
total of not more than one hundred and twenty (120) Trading Days in any 12-month period), the Company may delay or suspend the
filing, effectiveness or use of a Registration Statement or Prospectus, to the extent permitted by and in a manner not in violation of
applicable securities laws, if the board of directors of the Company determines in good faith, based on the advice of counsel, that (i)
proceeding with the filing, effectiveness or use of such Registration Statement or Prospectus would reasonably be expected to require the
Company to disclose any information the disclosure of which would have a material adverse effect on the Company and that the
Company would not otherwise be required to disclose at such time or (ii) the registration or offering proposed to be delayed or suspended
would reasonably be expected to, if not delayed or suspended, have a material adverse effect on any pending negotiation or plan of the
Company to effect a merger, acquisition, disposition, financing, reorganization, recapitalization or similar transaction, in each case that, if
consummated, would be material to the Company.
(c)
Upon a Suspension Event, the Company shall promptly give written notice (a “Suspension Notice”) to the
Holders to suspend sales of the affected Registrable Securities, and such notice shall state that such suspension shall continue only for so
long as the Suspension Event or its effect is continuing and the Company is pursuing with reasonable diligence the completion of the
matter giving rise to the Suspension Event or otherwise taking all reasonable steps to terminate suspension of the effectiveness or use of
the Registration Statement. In no event shall the Company, without the prior written consent of the Holders, disclose to the Holders any
of the facts or circumstances giving rise to the Suspension Event. The Holders shall not effect any sales of the Registrable Securities
pursuant to the Registration Statement (or such filings), at any time after they have received a Suspension Notice and prior to receipt of
an End of Suspension Notice. The Holders may resume effecting sales of the Registrable Securities
14
under the Registration Statement (or such filings), following further notice to such effect (an “End of Suspension Notice”) from the
Company. This End of Suspension Notice shall be given by the Company to the Holders in the manner described above promptly
following the conclusion of any Suspension Event and its effect. For the avoidance of doubt, a Suspension Notice shall not affect or
otherwise limit sales of affected Registrable Securities under Rule 144 or otherwise outside of the Registration Statement;
(d)
Notwithstanding any provision herein to the contrary, if the Company gives a Suspension Notice pursuant to
Section 2.2(c) with respect to any Registration Statement, the Company shall extend the period during which the Registration Statement
shall be maintained effective under this Agreement by the number of days during the period from the date of the giving of the Suspension
Notice to and including the date when the Holders shall have received the End of Suspension Notice and copies of the supplemented or
amended Prospectus necessary to resume sales.
(e)
Notwithstanding anything to the contrary contained in this Agreement, the Company shall not be required to
include Registrable Securities in any Registration Statement unless the Holder owning the Registrable Securities to be registered on the
Registration Statement, following reasonable advance written request by the Company, furnishes to the Company, at least ten Business
Days prior to the scheduled filing date of the Registration Statement, an executed stockholder questionnaire in the form attached hereto
as Exhibit A.
2.3
(a)
(b)
Registration Expenses
The Company shall bear all Registration Expenses.
The obligation of the Company to bear and pay the Registration Expenses shall apply irrespective of whether
a registration becomes effective or is withdrawn or suspended; provided, that the Registration Expenses for any Registration Statement
withdrawn solely at the request of one or more Holder(s) (unless withdrawn following commencement of a Suspension Event) shall be
borne by such Holder(s).
2.4
Indemnification.
(a)
The Company shall, to the fullest extent permitted by law, indemnify and hold harmless each Holder and any
Person who is or might be deemed to be a “controlling person” of such Holder (within the meaning of the Securities Act or the Exchange
Act) (each such Person, a “Controlling Person”), as well as their respective direct and indirect general and limited partners, advisory
board members, directors, officers, trustees, managers, members, employees, agents, Affiliates and shareholders, and each other Person,
if any, who acts on behalf of or controls any such Holder or Controlling Person (collectively, the “Holder Indemnified Parties”) from
and against any losses, claims, damages, liabilities or expenses, joint or several, or any actions in respect thereof to which each Holder
Indemnified Party may become subject under the Securities Act, the Exchange Act, any state blue sky securities laws, insofar as such
losses, claims, damages, liabilities, expenses or actions arise out of or are based upon (i) any untrue statement or alleged untrue statement
of a material fact contained in or incorporated by reference in any Registration Statement or in any amendment thereof, in each case at
the time
15
such became effective under the Securities Act, (ii) the omission or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading or (iii) any violation or alleged violation by the Company of the
Securities Act or any other similar federal or state securities laws or any rule or regulation promulgated thereunder applicable to the
Company and relating to any action or inaction required of the Company in connection with any registration of securities, and the
Company shall reimburse, as incurred, the Holder Indemnified Parties for any reasonable and documented legal or other expenses
reasonably incurred by them in connection with investigating, defending or settling any such loss, claim, damage, liability, expense or
action in respect thereof; provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim,
damage, liability, expense or action arises out of or is based upon any untrue statement or omission made or incorporated by reference in
any such Registration Statement, any Prospectus or in any amendment thereof or supplement thereto in reliance upon and in conformity
with written information pertaining to a Holder and furnished to the Company by or on behalf of such Holder Indemnified Party
specifically for inclusion therein; and provided further, however, that this indemnity agreement will be in addition to any liability that the
Company may otherwise have to such Holder Indemnified Party. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of any Holder Indemnified Parties and shall survive the transfer of the Registrable Securities by any
Holder.
(b)
In connection with any registration in which a Holder of Registrable Securities is participating, each such
Holder shall furnish to the Company in writing such information as the Company reasonably requests for use in connection with any
such Registration Statement or Prospectus and shall, severally and not jointly, to the fullest extent permitted by law, indemnify and hold
harmless the Company, its directors and officers, employees, agents and any Person who is or might be deemed to be a Controlling
Person (a “Company Indemnified Party”) from and against any losses, claims, damages, liabilities or expenses or any actions in respect
thereof, to which a Company Indemnified Party may become subject under the Securities Act, the Exchange Act, any state blue sky
securities laws, any equivalent non-U.S. securities laws or otherwise, insofar as such losses, claims, damages, liabilities or actions arise
out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or
in any amendment thereof, in each case at the time such became effective under the Securities Act, or in any Prospectus or in any
amendment thereof or supplement thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of any Prospectus, in the light of the circumstances under which they
were made) not misleading, but in each of clauses (i) and (ii), only to the extent that the untrue statement or omission or alleged untrue
statement or omission was made in reliance upon and in conformity with written information pertaining to such Holder and furnished to
the Company by or on behalf of such Holder specifically for inclusion therein, and, subject to the limitation immediately preceding this
clause, shall reimburse, as incurred, the Company Indemnified Parties for any legal or other expenses reasonably incurred by them in
connection with investigating, defending or settling any such loss, claim, damage, liability, expense or action in respect thereof. Such
indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder, or any such director,
officer, employees, Affiliates and agents and shall survive the transfer of such Registrable Securities by such Holder, and such Holder
shall reimburse the Company, and each such director, officer, employees, Affiliates and agents for any
16
legal or other expenses reasonably incurred by them in connection with investigating, defending, or settling any such loss, claim,
damage, liability, action, or proceeding; provided, however, that the indemnity amount contained in this Section 2.4(b) shall in no event
exceed the net proceeds actually received by such Holder in the sale of Registrable Securities to which such Registration Statement or
Prospectus relates. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer, employees, Affiliates and agents and shall survive the transfer by a Holder of such Registrable
Securities.
(c)
Promptly after receipt by a Holder Indemnified Party or a Company Indemnified Party (each, an “Indemnified
Party”) of notice of the commencement of any action or proceeding (including a governmental investigation), such Indemnified Party
will, if a claim in respect thereof is to be made against the indemnifying party under this Section 2.4, notify the indemnifying party of the
commencement thereof; provided, that the omission to so notify the indemnifying party will not relieve the indemnifying party from
liability under Sections 2.4(a) or 2.4(b) unless and to the extent it did not otherwise learn of such action and the indemnifying party has
been materially prejudiced by such failure. In case any such action is brought against any Indemnified Party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof at the indemnifying party’s
expense, with counsel reasonably satisfactory to such Indemnified Party (who shall not, except with the consent of the Indemnified Party,
be counsel to the indemnifying party); provided, that any Indemnified Party shall continue to be entitled to participate in the defense of
such claim or action, with counsel of its own choice, but the indemnifying party shall not be obligated to reimburse such Indemnified
Party for any fees, costs and expenses subsequently incurred by the Indemnified Party in connection with such defense unless (i) the
indemnifying party has agreed in writing to pay such fees, costs and expenses, (ii) the indemnifying party has failed to assume the
defense of such claim or action within a reasonable time after receipt of notice of such claim or action, (iii) having assumed the defense
of such claim or action, the indemnifying party fails to employ counsel reasonably acceptable to the Indemnified Party or to pursue the
defense of such claim or action in a reasonably vigorous manner, (iv) the use of counsel chosen by the indemnifying party to represent
the Indemnified Party would present such counsel with a conflict of interest or (v) the Indemnified Party has reasonably concluded that
there may be one or more legal or equitable defenses available to it and/or other any other Indemnified Party which are different from or
additional to those available to the indemnifying party. In no event shall the indemnifying party be liable for the fees and expenses of
more than one counsel (together with appropriate local counsel) at any time for any Indemnified Party in connection with any one action
or separate but substantially similar or related actions arising in the same jurisdiction out of the same general allegations or
circumstances. No indemnifying party shall, without the prior written consent of the Indemnified Party (which consent shall not be
unreasonably withheld, conditioned or delayed), effect any settlement of any pending or threatened action in respect of which any
Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party unless such
settlement (i) includes an unconditional release of such Indemnified Party from all liability on any claims that are the subject matter of
such action, in form and substance reasonably satisfactory to such Indemnified Party, and (ii) does not include a
17
statement as to or an admission of fault, culpability or a failure to act by or on behalf of any Indemnified Party.
(d)
If the indemnification provided for in this Section 2.4 is unavailable or insufficient to hold harmless an
Indemnified Party under Sections 2.4(a) or 2.4(b), then each indemnifying party shall contribute to the amount paid or payable by such
Indemnified Party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to in Sections 2.4(a) or
2.4(b) in such proportion as is appropriate to reflect the relative fault of the indemnifying party or parties on the one hand and the
Indemnified Party on the other in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities
(or actions in respect thereof) as well as any other relevant equitable considerations. The relative fault of the parties shall be determined
by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the one hand or a Holder or Holder Indemnified Party, as the
case may be, on the other, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid by an Indemnified Party as a result of the losses, claims, damages or liabilities referred to in the
first sentence of this Section 2.4 shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any action or claim that is the subject of this Section 2.4(d). The parties agree that it would
not be just and equitable if contributions were determined by pro rata allocation (even if a Holder was treated as one Person for such
purpose) or any other method of allocation that does not take account of the equitable considerations referred to above. Notwithstanding
any other provision of this Section 2.4(d), no Holder shall be required to contribute any amount in excess of the amount by which the net
proceeds received by such Holder from the sale of the Registrable Securities pursuant to the Registration Statement exceeds the amount
of damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
The agreements contained in this Section 2.4 shall survive the sale of the Registrable Securities pursuant to
the Registration Statement and shall remain in full force and effect, regardless of any termination or cancellation of this Agreement or
any investigation made by or on behalf of any Indemnified Party.
(e)
ARTICLE III
Transfer Restrictions
3.1
Transfer Restrictions. Each Holder acknowledges and agrees that the following legend shall be imprinted on
any certificate or book-entry security entitlement evidencing any of the Registrable Securities to the extent that at the time of issuance
such Registrable Securities are not covered by an effective Registration Statement:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF
18
ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF
THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO
THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
This legend shall be removed by the Company from any certificate or book-entry security entitlement evidencing the
Registrable Securities upon delivery by the holder thereof to the Company of a written request to that effect if at the time of such written
request (a) a registration statement under the Securities Act is at that time in effect with respect to the legended security, or (b) the
legended security can be transferred in a transaction in compliance with Rule 144, and, in the case of (b), upon the request and in the
reasonable discretion of the Company’s transfer agent, the holder of such Registrable Securities executes and delivers a representation
letter that includes customary representations regarding the holding requirements and whether such holder is an “affiliate” for purposes
of Rule 144. The Company represents and warrants to the Purchasers that the Company is not currently a shell company (as defined in
Rule 405 promulgated under the Securities Act).
3.2
Rule 144 Compliance. With a view to making available to the Holders of Registrable Securities the benefits
of Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the
public without registration until such date on which the Holders no longer hold any Registrable Securities, the Company shall:
(a)
(b)
make and keep public information available, as those terms are understood and defined in Rule 144;
use reasonable best efforts to file with the SEC in a timely manner all reports and other documents required of
the Company under the Securities Act and the Exchange Act; and
to its compliance with the reporting requirements of Rule 144 and of the Securities Act and the Exchange Act.
(c)
furnish to any Holder of Registrable Securities, promptly upon request, a written statement by the Company as
19
ARTICLE IV
Miscellaneous.
4.1
Remedies; Specific Performance. In the event of a breach or a threatened breach by any party to this
Agreement of its obligations under this Agreement, any party injured or to be injured by such breach shall be entitled to specific
performance of its rights under this Agreement or to injunctive relief, in addition to being entitled to exercise all rights provided in this
Agreement and granted by law, it being agreed by the parties that the remedy at law, including monetary damages, for breach of any such
provision will be inadequate compensation for any loss and that any defense or objection in any action for specific performance or
injunctive relief for which a remedy at law would be adequate is hereby waived.
4.2
No Waivers. No failure or delay by any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of
any other right, power or privilege.
4.3
Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts
and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may
reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile or e-mail as follows:
4.4
Notices. All notices and other communications provided for herein shall be in writing and shall be delivered
If to the Company:
BioXcel Therapeutics, Inc.
555 Long Wharf Drive
New Haven, CT
Attn: Chief Financial Officer
Email: RSteinhart@bioxceltherapeutics.com
With a copy (which shall not constitute notice) to:
Cooley LLP
3 Embarcadero Center
20th Floor
San Francisco, CA 94111-4004
Attention: Mischi a Marca
Email: gmamarca@cooley.com
If to a Purchaser: To the address set forth opposite such Purchaser’s name on Schedule A hereto, or to such other
address and/or e-mail address and/or to the attention of such other person as the recipient party has specified by written notice given to
each other party at least five days prior to the effectiveness of such change.
With a copy (which shall not constitute notice) to:
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Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
E-mail: blauta@sullcrom.com
Attn: Ari Blaut
Notices or communications sent by hand or overnight courier service, or mailed by certified or registered mail, shall be
deemed to have been given when received, notices or communications sent by facsimile shall be deemed to have been given when sent
(except that, if not given during normal business hours for the recipient, such notice or communication shall be deemed to have been sent
at the opening of business on the next Business Day for the recipient) and notices or communications sent by e-mail shall be deemed
received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested”
function, as available, return e-mail or other written acknowledgement) (except that, if not given during the normal business hours of the
recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the
recipient).
4.5
Headings. Section headings herein are included for convenience of reference only and shall not constitute a
part hereof for any other purpose or be given any substantive effect.
4.6
Counterparts. This Agreement may be executed in counterparts (and by different parties hereto in different
counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery
of an executed counterpart of a signature page of this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be
effective as delivery of a manually executed counterpart of this Agreement.
4.7
Governing Law; Disputes.
Governing Law. This Agreement and any claims, controversy, dispute or cause of action (whether in contract
or tort or otherwise) based upon, arising out of or relating to this Agreement and the transactions contemplated hereby shall be governed
by, and construed in accordance with, the law of the State of New York.
(a)
(b)
Jurisdiction. Each party hereto hereby irrevocably and unconditionally agrees that it will not commence any
action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or tort or otherwise, against such
other party in any way relating to this Agreement or the transactions relating hereto or thereto, in any forum other than the courts of the
State of New York sitting in New York County, and of the United States District Court of the Southern District of New York, and any
appellate court from any thereof, and each of the parties hereto irrevocably and unconditionally submits to the jurisdiction of such courts
and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State
court or, to the fullest extent permitted by applicable Law, in such federal court. Each of the parties hereto agrees that a final judgment in
any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law.
21
(c)
Waiver of Venue. Each party hereto irrevocably waives to the fullest extent permitted by law any objection
that it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Agreement
and hereby further irrevocably waives to the fullest extent permitted by law any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum. A final judgment (in respect of which time for all appeals has elapsed) in any
such suit, action or proceeding shall be conclusive and may be enforced in any court to the jurisdiction of which such party is or may be
subject, by suit upon judgment.
(d)
Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL
PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH
PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 4.7.
(e)
Service of Process. Each party hereto irrevocably consents to service of process in the manner provided for
notices in Section 4.4.
4.8
Successors and Assigns. This Agreement and the rights and obligations evidenced hereby shall be binding
upon and inure to the benefit of the parties hereto and their respective the successors and permitted assigns. Neither this Agreement nor
any right, benefit, remedy, obligation or liability arising hereunder may be assigned by any party without the prior written consent of the
other parties, and any attempted assignment without such consent shall be null and void and of no effect; provided that that, (a) the rights
(and related obligations and liabilities) offered a Holder pursuant to this Agreement shall be assignable (in whole or in part) by such
Holder to any transferee of such Holder’s Registrable Securities or Warrants exercisable for Registrable Securities and (b) any such
assignment shall be effected hereunder only by giving written notice thereof from both the transferor and the transferee to the Company
and the transferee’s execution and delivery to the Company of an executed counterpart to this Agreement.
4.9
Amendments. No provision of this Agreement may be amended, waived or modified other than by an
instrument in writing signed by the Company and Holders representing at least fifty percent (50%) (by number) of the Registrable
Securities then held by the Holders.
4.10
Severability. Any provision of this Agreement held to be invalid, illegal or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity,
legality and
22
enforceability of the remaining provisions hereof, and the invalidity of a particular provision in a particular jurisdiction shall not
invalidate such provision in any other jurisdiction.
4.11
Termination. This Agreement shall terminate with respect to any Holder upon such time as such Holder
ceases to hold or beneficially own any remaining Registrable Securities or upon the dissolution, liquidation or winding up of the
Company or a Change of Control; provided that Section 2.3, Section 2.4 of this Agreement and this Article IV shall survive such
termination.
4.12
No Third Party Beneficiaries. This Agreement is intended for the sole benefit of the parties hereto and their
respective permitted successors and assigns and transferees, and is not for the benefit of, nor may any provision hereof be enforced by,
any other person; provided, however, that the parties hereto hereby acknowledge that the Persons set forth in Section 2.4 shall be express
third-party beneficiaries of the obligations of the parties hereto set forth in Section 2.4.
4.13
Language; Currency. This Agreement has been prepared in the English language and the English language
shall control its interpretation. In addition, all notices required or permitted to be given hereunder, and all written, electronic, oral or
other communications between the parties regarding this Agreement, shall be in the English language. All references to “$” contained in
this Agreement shall refer to United States Dollars unless otherwise stated.
[The remainder of this page intentionally left blank]
23
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above.
THE COMPANY:
BIOXCEL THERAPEUTICS, INC.
a Delaware corporation
By: /s/ Vimal Mehta
Name: Vimal Mehta
Title: Chief Executive Officer
Exhibit A-2
PURCHASERS:
OAKTREE-TCDRS STRATEGIC CREDIT, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-3
OAKTREE-FORREST MULTI-STRATEGY, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-4
OAKTREE-TBMR STRATEGIC CREDIT FUND C, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-5
OAKTREE-TBMR STRATEGIC CREDIT FUND F, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-6
OAKTREE-TBMR STRATEGIC CREDIT FUND G, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-7
OAKTREE-TSE 16 STRATEGIC CREDIT, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-8
INPRS STRATEGIC CREDIT HOLDINGS, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-9
OAKTREE SPECIALTY LENDING CORPORATION
By: Oaktree Fund Advisors, LLC
Its: Investment Adviser
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-10
OAKTREE STRATEGIC CREDIT FUND
By: Oaktree Fund Advisors, LLC
Its: Investment Adviser
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-11
OAKTREE GCP FUND DELAWARE HOLDINGS, L.P.
By: Oaktree Global Credit Plus Fund GP, L.P.
Its: General Partner
By: Oaktree Global Credit Plus Fund GP Ltd.
Its: General Partner
By: Oaktree Capital Management, L.P.
Its: Director
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-12
OAKTREE DIVERSIFIED INCOME FUND INC.
By: Oaktree Fund Advisors, LLC
Its: Investment Adviser
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-13
OAKTREE AZ STRATEGIC LENDING FUND, L.P.
By: Oaktree AZ Strategic Lending Fund GP, L.P.
Its: General Partner
By: Oaktree Fund GP IIA, LLC
Its: General Partner
By: Oaktree Fund GP II, L.P.
Its: Managing Member
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-14
OAKTREE LSL FUND HOLDINGS EURRC S.À R.L.
26A, boulevard Royal L-2449
Luxembourg, Grand Duchy of Luxembourg
R.C.S Luxembourg Number: B269245
By: /s/ Martin Eckel
Name: Martin Eckel
Title: Manager
By: /s/ Flora Verrecchia
Name: Flora Verrecchia
Title: Manager
Exhibit A-15
OAKTREE LSL FUND DELAWARE HOLDINGS EURRC, L.P.
By: Oaktree Life Sciences Lending Fund GP, L.P.
Its: General Partner
By: Oaktree Life Sciences Lending Fund GP Ltd.
Its: General Partner
By: Oaktree Capital Management, L.P.
Its: Director
By: /s/ Matthew Stewart
Name: Matthew Stewart
Title: Managing Director
By: /s/ Mary Gallagly
Name: Mary Gallagly
Title: Managing Director
Exhibit A-16
Q BOOST HOLDING LLC
By: /s/ Ahmed Nasser Al-Abdulghani
Name: Ahmed Nasser Al-Abdulghani
Title: Director
Exhibit A-17
Schedule A
Purchasers
Exhibit A-18
Exhibit A
Form of Selling Stockholder Questionnaire
BIOXCEL THERAPEUTICS, INC.
Exhibit A-19
Annex I
Plan of Distribution
Exhibit A-20
Exhibit 10.22.4
Execution Version
FOURTH AMENDMENT TO CREDIT AGREEMENT AND GUARANTY
This Fourth Amendment to Credit Agreement and Guaranty (this “Amendment”) is made as of March 20, 2024, by and among
BIOXCEL THERAPEUTICS, INC., a Delaware corporation (the “Borrower”), the lenders party hereto (collectively, the “Lenders” and
individually, a “Lender”), and OAKTREE FUND ADMINISTRATION, LLC, as administrative agent on behalf of the Lenders (in such
capacity, together with its successors and assigns, the “Administrative Agent”).
WHEREAS, the Borrower, the Administrative Agent and the Lenders previously entered into that certain Credit Agreement and
Guaranty, dated as of April 19, 2022 (including the exhibits and other attachments thereto, as amended by that certain Waiver and First
Amendment to Credit Agreement and Guaranty, dated as of November 13, 2023, that certain Second Amendment to Credit Agreement
and Guaranty and Termination of Revenue Interest Financing, dated as of December 5, 2023, and that certain Third Amendment to
Credit Agreement, dated as of February 12, 2024, the “Existing Credit Agreement”, and as further amended by this Amendment, the
“Credit Agreement”);
WHEREAS, the Borrower, the Administrative Agent and the Lenders have agreed to amend the Existing Credit Agreement on
the terms and subject to the conditions set forth herein.
NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, each of the Borrower, the Administrative Agent and the Lenders party
hereto hereby covenant and agree as follows:
1.
2.
Definitions. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in
the Existing Credit Agreement.
Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 hereof, the Existing Credit
Agreement shall be amended as follows:
(a)
Section 8.01(b) of the Existing Credit Agreement shall be deleted in its entirety and replaced as follows:
“(b)
as soon as available and in any event within ninety (90) days after the end of each fiscal year (i) the
consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such fiscal year and (ii) the related
consolidated statements of income, stockholders’ equity and cash flows of the Borrower and its Subsidiaries for such
fiscal year, in each case prepared in all material respects in accordance with GAAP consistently applied, all in
reasonable detail and setting forth in comparative form the figures for the previous fiscal year, accompanied by a report
and opinion thereon of Ernst & Young U.S. LLP or another firm of independent certified public accountants of
recognized national standing reasonably acceptable to the Administrative Agent, which report and opinion shall be
prepared in accordance with generally accepted auditing standards and such report and opinion shall not be subject to
(x) except with respect to the report and
opinion delivered for the fiscal year ending on December 31, 2023, any “going concern” or like qualification or
exception or emphasis of matter of going concern footnote or (y) any qualification or exception as to the scope of such
audit, and in the case of such consolidated financial statements, certified by a Responsible Officer of the Borrower;
provided that documents required to be furnished pursuant to this Section 8.01(b) shall be deemed furnished on the
date that such documents are publicly available on “EDGAR”;”.
(b)
The definition of “Company Warrants” in Section 1.01 of the Existing Credit Agreement shall be deleted in its entirety
and replaced as follows:
“Company Warrants” means (i) those certain warrants, dated as of the Closing Date and delivered pursuant
to Section 6.01(h), evidenced by an instrument substantially the form of Exhibit J-1 hereto, as amended on the Second
Amendment Effective Date and as further amended, replaced or otherwise modified pursuant to the terms thereof, (ii)
those certain warrants, dated as of the Second Amendment Effective Date, evidenced by an instrument substantially the
form of Exhibit J-1 hereto, as amended, replaced or otherwise modified pursuant to the terms thereof, and (iii) those
certain warrants, dated March 20, 2024, evidenced by an instrument substantially the form of Exhibit A to the Fourth
Amendment to Credit Agreement and Guaranty, dated March 20, 2024, by and among the Borrower, the Lenders and
the Administrative Agent.
(c)
The definition of “Registration Rights Agreement” in Section 1.01 of the Existing Credit Agreement shall be deleted in
its entirety and replaced as follows:
“Registration Rights Agreement” means that certain Second Amended and Restated Registration Rights
Agreement, dated March 20, 2024, by and among the Borrower and the purchasers identified therein.
3.
4.
Reaffirmation of Loan Documents. Except as otherwise expressly provided herein, the parties hereto agree that all terms and
conditions of the Existing Credit Agreement and the other Loan Documents remain in full force and effect. The Borrower
hereby confirms that the Security Documents and all of the Collateral described therein do, and shall continue to, secure the
payment in full and performance of all of the Obligations.
Conditions Precedent to Effectiveness. The effectiveness of this Amendment shall be subject to the following conditions
precedent:
(a)
(b)
This Amendment shall have been duly executed and delivered to the Administrative Agent by the Borrower and the
Lenders, which constitute the “Majority Lenders” as defined in the Existing Credit Agreement;
Each of the representations and warranties in Section 6 of this Amendment, Section 7 of the Credit Agreement and in
the other Loan Documents shall be true, accurate and complete in all material respects (unless such representations are
already qualified by reference to materiality, Material Adverse Effect or similar language, in which case such
representations and warranties shall be true and correct in all
respects) on and as of the date hereof with the same effect as though made on and as of such date, except to the extent
such representations and warranties expressly relate to an earlier date, in which case such representations and
warranties shall have been true and correct in all respects on and as of such earlier date; and
(c)
At the time of and after giving effect to this Amendment, no fact or condition exists that constitutes, or with the
passage of time, the giving of notice, or both, would constitute, a Default or Event of Default.
5.
Condition Subsequent and Post-Closing Covenant.
(a)
In addition to the conditions precedent set forth in the preceding Section 4, the effectiveness of this Amendment shall
be subject to the following:
(i)
(ii)
(iii)
Within two calendar days of the date hereof, the Borrower shall have issued and delivered to the Lenders
warrants, evidenced by an instrument substantially in the form of Exhibit A hereto, dated as of the date of
issuance, exercisable at $3.0723 per share and for an aggregate number of shares of common stock of the
Borrower set forth in Exhibit B hereto;
Within two calendar days of the date hereof, the second amended and restated Registration Rights Agreement
in form and substance reasonably satisfactory to the Administrative Agent shall have been duly executed and
delivered to the Administrative Agent by the Borrower; and
Within two calendar days of the date hereof, the Borrower shall have paid all costs, fees and expenses of the
Administrative Agent and the Lenders, including, without limitation, the fees and expenses of Sullivan &
Cromwell LLP, as outside counsel to Administrative Agent and the Oaktree Lenders and the fees and
expenses of Shearman & Sterling LLP, as outside counsel to Q Boost Holding LLC, incurred prior to the date
hereof, to the extent invoiced on or prior to the date hereof.
(b)
The Borrower shall receive, (i) after the date hereof and on or before April 15, 2024, at least $25,000,000 in gross
proceeds from the issuance of Borrower’s common stock, warrants and/or pre-funded warrants, and/or in non-
refundable cash consideration from partnering transactions entered into after the date hereof (so long as such partnering
transactions would not require the Borrower or any of its Subsidiaries to make any cash investments in connection with
the partnering transactions and no such cash investments are made), and (ii) after the date hereof and on or before
November 30, 2024, at least $50,000,000 (for the avoidance of doubt, inclusive of amounts previously counted toward
the preceding clause (i)) in gross proceeds from the issuance of Borrower’s common stock, warrants and/or pre-funded
warrants, and/or in cash and/or non-cash consideration (measured at fair market value, as determined by the
Administrative Agent in its sole discretion) from partnering transactions entered into after the date hereof. Failure to
perform this covenant shall constitute (A) a Default under the Credit Agreement and (B) an
Event of Default under the Credit Agreement, subject to a cure period, solely in the case of clause (i) of the preceding
sentence, until May 15, 2024 (provided, for the avoidance of doubt, that failure to perform clause (ii) of the preceding
sentence shall constitute an immediate Event of Default under the Credit Agreement without any cure or grace period).
In addition, if the Borrower has not, after the date hereof and on or before September 30, 2024, received at least
$40,000,000 in gross proceeds from the issuance of Borrower’s common stock, warrants and/or pre-funded warrants,
and/or in cash and/or non-cash consideration (measured at fair market value, as determined by the Administrative
Agent in its sole discretion) from partnering transactions entered into after the date hereof, the definition of “Minimum
Liquidity Amount” in Section 1.01 of the Existing Credit Agreement shall be deleted in its entirety and replaced as
follows effective as of September 30, 2024:
“Minimum Liquidity Amount” means (i) from the Closing Date until the date on which the Tranche B Term
Loans are funded (the “Step-Up Date”), $25,000,000; provided, that if the Borrower has received at least
$50,000,000 in gross proceeds from the issuance of Borrower’s common stock, warrants and/or pre-funded
warrants, and/or in cash and/or non-cash consideration (measured at fair market value, as determined by the
Administrative Agent in its sole discretion) from partnering transactions entered into after March 20, 2024 and
on or before November 30, 2024, the Minimum Liquidity Amount shall be $15,000,000; provided, further,
that upon and following the occurrence of a Permitted BXCL 701 Release Event, the Minimum Liquidity
Amount shall be $27,500,000; provided, further, that upon and following the occurrence of a Permitted BXCL
701 Control Event, the Minimum Liquidity Amount shall be $32,500,000; (ii) from and after the Step-Up
Date, $20,000,000; provided, that upon and following the occurrence of a Permitted BXCL 701 Release
Event, the Minimum Liquidity Amount shall be $32,500,000; provided, further, that upon and following the
occurrence of a Permitted BXCL 701 Control Event, the Minimum Liquidity Amount shall be $37,500,000;
and (iii) from and after the Applicable Funding Condition for Tranche C Term Loans is satisfied (as evidenced
by an officer’s certificate delivered by the Borrower to the Administrative Agent) (the “Step-Down Date”),
$25,000,000; provided, that if the Borrower has received at least $50,000,000 in gross proceeds from the
issuance of Borrower’s common stock, warrants and/or pre-funded warrants, and/or in cash and/or non-cash
consideration (measured at fair market value, as determined by the Administrative Agent in its sole discretion)
from partnering transactions entered into after March 20, 2024 and on or before November 30, 2024, the
Minimum Liquidity Amount shall be $15,000,000; provided, further, that upon and following the occurrence
of a Permitted BXCL 701 Release Event, the Minimum Liquidity Amount shall be $27,500,000; provided,
further, that upon and following the occurrence of a Permitted BXCL 701 Control Event, the Minimum
Liquidity Amount shall be $32,500,000. For the avoidance of
doubt, the Minimum Liquidity Amount shall be the highest applicable amount at any time. Notwithstanding
the foregoing or anything to the contrary herein, the Minimum Liquidity Amount shall in no event exceed
50% of the aggregate amount of Loans outstanding at any time.
6.
Representations and Warranties. The Borrower hereby represents and warrants:
(a)
(b)
None of the execution, delivery and performance by the Borrower of this Amendment and the documents, instruments
and agreements executed in connection herewith (collectively, the “Amendment Documents”) or performance under
the Amendment Documents (i) requires any Governmental Approval of, registration or filing with, or any other action
by, any Governmental Authority or any other Person, except for (x) such as have been obtained or made and are in full
force and effect and (y) filings and recordings in respect of perfecting or recording the Liens created pursuant to the
Security Documents, (ii) will violate (1) any Law, (2) any Organic Document of the Borrower or any of its Subsidiaries
or (3) any order of any Governmental Authority, that in the case of clause (ii)(1) or clause (ii)(3), individually or in the
aggregate, would reasonably be expected to result in a Material Adverse Effect, (iii) will violate or result in a default
under any Material Agreement binding upon the Borrower or any of its Subsidiaries that, individually or in the
aggregate, would reasonably be expected to result in a Material Adverse Effect or (iv) will result in the creation or
imposition of any Lien (other than Permitted Liens) on any asset of the Borrower or any of its Subsidiaries.
This Amendment and the other Amendment Documents have been duly authorized by all necessary corporate or other
organizational action including, if required, approval by all necessary holders of Equity Interests, and duly executed
and delivered by the Borrower and constitutes, and each of the Amendment Documents when executed and delivered
by the Borrower will constitute, a legal, valid and binding obligation of the Borrower, enforceable against the Borrower
in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or similar laws of general applicability affecting the enforcement of creditors’ rights and
(ii) the application of general principles of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
7.
Release.
(a)
In consideration of this Amendment and agreements of the Administrative Agent and the Lenders contained herein and
for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Borrower
(the “Releasing Party”), on behalf of itself and its successors, assigns and other legal representatives hereby absolutely,
unconditionally and irrevocably releases, remises and forever discharges the Administrative Agent and the Lenders and
their respective present and former shareholders, affiliates, subsidiaries, divisions, predecessors, directors, officers,
attorneys, employees, agents and other representatives, in each case solely in their capacities relative to the Lenders
and
not in any other capacity such party may have relative to the Releasing Party (the Administrative Agent, each Lender
and all such other Persons being hereinafter referred to collectively as the “Releasees” and individually as a
“Releasee”), of and from all demands, actions, causes of action, suits, covenants, contracts, controversies, agreements,
promises, sums of money, accounts, bills, reckonings, damages and any and all other claims, counterclaims, defenses,
rights of set-off, demands and liabilities whatsoever of every name and nature, known or unknown, suspected or
unsuspected, both at law and in equity, which the Borrower or any of its successors, assigns or other legal
representatives may now or hereafter own, hold, have or claim to have against the Releasees or any of them for, upon,
or by reason of any circumstance, action, cause or thing whatsoever which arises at any time on or prior to the date
hereof, for or on account of, or in relation to, or in any way in connection with the Credit Agreement or any of the
other Loan Documents or transactions thereunder (any of the foregoing, a “Claim” and collectively, the “Claims”).
The Releasing Party expressly acknowledges and agrees, with respect to the Claims, that it waives, to the fullest extent
permitted by applicable law, any and all provisions, rights and benefits conferred by any applicable U.S. federal or state
law, or any principle of U.S. common law, that would otherwise limit a release or discharge of any unknown Claims
pursuant to this Section 7. Furthermore, the Releasing Party hereby absolutely, unconditionally and irrevocably
covenants and agrees with and in favor of each Releasee that it will not sue (at law, in equity, in any regulatory
proceeding or otherwise) any Releasee on the basis of any Claim released and/or discharged by the Releasing Parties
pursuant to this Section 7. The foregoing release, covenant and waivers of this Section 7 shall survive and remain in
full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment or
prepayment of any of the Loans, or the termination of the Credit Agreement, this Amendment, any other Loan
Document or any provision hereof or thereof.
(b)
(c)
Each Releasing Party understands, acknowledges and agrees that its release set forth above may be pleaded as a full
and complete defense and may be used as a basis for an injunction against any action, suit or other proceeding which
may be instituted, prosecuted or attempted in breach of the provisions of such release.
Each Releasing Party agrees that no fact, event, circumstance, evidence or transaction which could now be asserted or
which may hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of the release
set forth above.
8.
Fees and Expenses. The Borrower agrees to pay on demand (a) all out-of-pocket fees, costs and expenses of the Administrative
Agent and the Lenders accrued prior to the date hereof and (b) all out-of-pocket fees, costs and expenses of the Administrative
Agent and the Lenders incurred in connection with the preparation, execution and delivery of (i) this Amendment, (ii) any
Amendment Documents, other Loan Documents or other post-closing amendments, agreements, arrangements or
documentation, (iii) any other instruments and documents to be delivered hereunder or thereunder, in each case of clauses (a)
and (b), including the fees and expenses of Sullivan & Cromwell LLP, as outside counsel to
Administrative Agent and the Oaktree Lenders, and Shearman & Sterling LLP, as outside counsel to Q Boost Holding LLC,
with respect thereto.
9.
Miscellaneous.
(a)
(b)
(c)
(d)
Except as otherwise expressly provided herein, (i) all provisions of the Credit Agreement and the other Loan
Documents remain in full force and effect and (ii) the execution, delivery and effectiveness of this Amendment shall
not operate as a waiver of any right, power or remedy of the Administrative Agent or the Lenders, nor constitute a
waiver of any provision of the Existing Credit Agreement or any of the Loan Documents. None of the Administrative
Agent or any Lender is under any obligation to enter into this Amendment. The entering into of this Amendment by
such parties shall not be deemed to limit or hinder any rights of any such party under the Loan Documents, nor shall it
be deemed to create or infer a course of dealing between any such party, on the one hand, and the Borrower, on the
other hand, with regard to any provision of the Loan Documents. This Amendment shall constitute a Loan Document.
This Amendment may be executed in several counterparts and by each party on a separate counterpart, each of which
when so executed and delivered shall be an original, and all of which together shall constitute one instrument. An
executed facsimile or electronic copy of this Amendment shall be effective for all purposes as an original hereof.
This Amendment expresses the entire understanding of the parties with respect to the amendments contemplated
hereby. No prior negotiations or discussions shall limit, modify, or otherwise affect the provisions hereof.
This Amendment and its contents shall be subject to the governing law, indemnification, venue, service of process,
waivers of jury trial and severability provisions of the Existing Credit Agreement, mutatis mutandis.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the day and
year first above written.
BORROWER:
BIOXCEL THERAPEUTICS, INC.
/s/ Vimal Mehta
By:
Name:Vimal Mehta
Title: Chief Executive Officer
Address for Notices:
555 Long Wharf Drive, 12th Floor New Haven, CT
06511
With a copy to (which shall not constitute notice):
Cooley LLP
3 Embarcadero Center 20th Floor
San Francisco, CA 94111-4004
Attn: Mischi a Marca
Email: gmamarca@cooley.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
ADMINISTRATIVE AGENT:
OAKTREE FUND ADMINISTRATION, LLC
By: Oaktree Capital Management, L.P.
Its: Managing Member
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
LENDERS:
OAKTREE-TCDRS STRATEGIC CREDIT, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
OAKTREE-FORREST MULTI-STRATEGY, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
OAKTREE-TBMR STRATEGIC CREDIT FUND C, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
OAKTREE-TBMR STRATEGIC CREDIT FUND F, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
OAKTREE-TBMR STRATEGIC CREDIT FUND G, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
OAKTREE-TSE 16 STRATEGIC CREDIT, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
INPRS STRATEGIC CREDIT HOLDINGS, LLC
By: Oaktree Capital Management, L.P.
Its: Manager
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Matthew Stewart
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
OAKTREE SPECIALTY LENDING CORPORATION
By: Oaktree Fund Advisors, LLC
Its:
Investment Adviser
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
OAKTREE STRATEGIC CREDIT FUND
By: Oaktree Fund Advisors, LLC
Its:
Investment Adviser
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
OAKTREE GCP FUND DELAWARE HOLDINGS, L.P.
By: Oaktree Global Credit Plus Fund GP, L.P.
Its:
General Partner
By: Oaktree Global Credit Plus Fund GP Ltd.
Its:
General Partner
By: Oaktree Capital Management, L.P.
Its:
Director
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
OAKTREE DIVERSIFIED INCOME FUND INC.
By: Oaktree Fund Advisors, LLC
Its:
Investment Adviser
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
OAKTREE AZ STRATEGIC LENDING FUND, L.P.
By: Oaktree AZ Strategic Lending Fund GP, L.P.
Its:
General Partner
By: Oaktree Fund GP IIA, LLC
Its:
General Partner
By: Oaktree Fund GP II, L.P.
Its: Managing Member
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
OAKTREE LSL FUND HOLDINGS EURRC S.À R.L.
26A, boulevard Royal L-2449
Luxembourg, Grand Duchy of Luxembourg
R.C.S Luxembourg Number: B269245
By:
By:
/s/ Martin Eckel
Name:Martin Eckel
Title: Manager
/s/ Flora Verrecchia
Name:Flora Verrecchia
Title: Manager
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
OAKTREE LSL FUND DELAWARE HOLDINGS EURRC,
L.P.
By: Oaktree Life Sciences Lending Fund GP, L.P.
Its:
General Partner
By: Oaktree Life Sciences Lending Fund GP Ltd.
Its:
General Partner
By: Oaktree Capital Management, L.P.
Its:
Director
By:
By:
/s/ Matthew Stewart
Name:Matthew Stewart
Title: Managing Director
/s/ Mary Gallagly
Name:Mary Gallagly
Title: Managing Director
Address for Notices:
Oaktree Fund Administration, LLC
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Oaktree Agency
Email: Oaktreeagency@alterdomus.com
With a copy to:
Oaktree Capital Management, L.P.
333 S. Grand Avenue, 28th Fl.
Los Angeles, CA 90071
Attn: Aman Kumar
Email: AmKumar@oaktreecapital.com
With a copy to:
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attn: Ari B. Blaut
Email: blauta@sullcrom.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
Q BOOST HOLDING LLC
/s/ Ahmed Nasser Al-Abdulghani
By:
Name: Ahmed Nasser Al-Abdulghani
Title: Director
Address for Notices:
c/o Qatar Investment Authority
Ooredoo Tower (Building 14)
Al Dafna Street (Street 801)
Al Dafna (Zone 61) Doha, Qatar
A copy (which shall not constitute notice) shall also be sent to:
General Counsel
Qatar Investment Authority
Ooredoo Tower (Building 14)
Al Dafna Street (Street 801)
Al Dafna (Zone 61)
Doha, Qatar
Email: notices.legal@qia.qa
A copy (which shall not constitute notice) shall also be sent to:
Shearman & Sterling LLP
535 Mission Street, 25th Floor
San Francisco, CA 94105
Attn: Michael S. Dorf
Tomasz Kulawik
Email: mdorf@shearman.com
tomasz.kulawik@shearman.com
[Signature Page to Fourth Amendment to Credit Agreement and Guaranty]
[FORM OF] BIOXCEL THERAPEUTICS, INC. COMMON STOCK WARRANT
EXHIBIT A
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON ITS EXERCISE OR CONVERSION HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED EXCEPT (I) IN ACCORDANCE WITH
THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM, OR (II) WHERE, IN THE OPINION OF COUNSEL, REGISTRATION UNDER THE
SECURITIES ACTS OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH
SUCH PROPOSED TRANSFER.
[# of shares] Shares of Company Common Stock No. [warrant #] WARRANT
This WARRANT (this “Warrant”) is issued as of March 20, 2024 (the “Initial Issuance Date”), by BIOXCEL
THERAPEUTICS, INC., a Delaware corporation (the “Company”), to [name of purchaser], a [jurisdiction of organization] [entity type]
(“Purchaser” and, together with any assignee(s) or transferee(s), “Holder” or “Holders”).
WHEREAS, the Company, certain subsidiaries of the Company as guarantors, the Purchaser as lender and the other
lenders party thereto are parties to that certain Credit Agreement and Guaranty, dated as of April 19, 2022, and amended as of November
13, 2023, December 5, 2023, February 12, 2024 and March 20, 2024 (as amended, restated, supplemented or otherwise modified from
time to time, the “Credit Agreement”), pursuant to which the Company may borrow from Purchaser and the other lenders party thereto
(collectively, the “Lenders”), and the Lenders may loan to the Company, up to $202,319,447 from the date of the Credit Agreement
through the Maturity Date; and
WHEREAS, the Company is issuing this Warrant to Purchaser as a condition precedent to the effectiveness of that
Fourth Amendment to Credit Agreement and Guaranty, dated as of March 20, 2024, by and among the Company, Purchaser and the other
parties thereto.
acknowledged, the Company and Purchaser agree as follows:
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby
Agreement (as in effect on the date hereof), however, the following terms when used herein have the following meanings:
Section 1. Definitions. Unless otherwise defined herein, capitalized terms have the meanings set forth in the Credit
“Aggregate Exercise Price” means, in connection with any Exercise of this Warrant pursuant to Section 4 (whether in
whole or in part), an amount equal to the product of (i) the number of Underlying Shares in respect of which this Warrant is then being
exercised pursuant to such Section 4, multiplied by (ii) the Exercise Price.
other property as determined by the independent members
“Fair Market Value” means, with respect to any security or other property, the fair market value of such security or
Exhibit A - 1
of the Board of Directors of the Company, acting in good faith. If the Holder objects in writing to the Board of Directors’ calculation of
Fair Market Value within ten (10) days of receipt of written notice thereof and the Holder and the Company are unable to agree on Fair
Market Value during the five (5) day period following the delivery of the Holder’s objection, the valuation dispute resolution procedure
set forth in Section 20 hereof shall be invoked to determine Fair Market Value.
“Market Price” means, with respect to a particular security, on any given day, the last reported sale price, regular way,
or, in case no such reported sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case on
the principal national securities exchange on which the applicable securities are listed or admitted to trading, or if not listed or admitted
to trading on any national securities exchange, the last quoted bid price in the over-the-counter market as reported by Pink Sheets LLC or
similar organization. “Market Price” shall be determined without reference to after hours or extended hours trading. If such security is
not listed and traded in a manner that the quotations referred to above are available for the period required hereunder, the Market Price
per share of Company Common Stock shall be deemed to be the fair market value per share of such security as determined in good faith
by the independent members of the Board of Directors in reliance upon an opinion of an accounting firm of nationally recognized
standing retained by the Company for this purpose and reasonably acceptable to the Holder (or if there is more than one Holder, a
majority in interest of Holders excluding any Holder that is an Affiliate of the Company). For the purposes of determining the Market
Price of the Company Common Stock on the Trading Day preceding, on or following the occurrence of an event, (i) that Trading Day
shall be deemed to commence immediately after the regular scheduled closing time of trading on the Trading Market on which the
Company Common Stock is listed or, if trading is closed at an earlier time, such earlier time and (ii) that Trading Day shall end at the
next regular scheduled closing time, or if trading is closed at an earlier time, such earlier time (for the avoidance of doubt, and as an
example, if the Market Price is to be determined as of the last Trading Day preceding a specified event and the closing time of trading on
a particular day is 4:00 p.m. and the specified event occurs at 5:00 p.m. on that day, the Market Price would be determined by reference
to such 4:00 p.m. closing price).
“Trading Day” means a day on which the Company Common Stock is traded on a Trading Market or, if the Company
Common Stock is not traded on a Trading Market, then on the principal securities exchange or securities market on which the Company
Common Stock is then traded.
“Trading Market” means any market or exchange of The Nasdaq Stock Market LLC or the New York Stock
Exchange.
“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (i) if the Company
Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Company Common Stock
for such date (or the nearest preceding date) on the Trading Market on which the Company Common Stock is then listed or quoted as
reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:00 p.m. (New York City time)), (ii) if the
Company Common Stock is not then listed on a Trading Market or quoted for trading on the OTC Bulletin Board and if prices for the
Company Common Stock are then reported in the “Pink Sheets” published by
Exhibit A - 2
OTC Markets Group Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price
per share of the Company Common Stock so reported or (iii) in all other cases, the fair market value of a share of Company Common
Stock as determined by an independent nationally recognized investment banking, accounting or valuation firm selected in good faith by
the Company and reasonably acceptable to the Holder, the fees and expenses of which shall be paid by the Company.
Section 2. Issuance of Warrant; Term. For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company hereby grants to Holder the right to purchase from the Company [# of shares] fully paid and
nonassessable shares of the Company’s voting common stock having a par value $0.001 per share (the “Company Common Stock”).
The shares of Company Common Stock issuable upon exercise of this Warrant are hereinafter referred to as the “Underlying Shares.”
This Warrant shall be exercisable at any time and from time to time, in whole or in part, during the period commencing on the date
hereof and ending on April 19, 2029 (the “Expiration Date”).
may be purchased pursuant to this Warrant shall be $3.0723, subject to adjustment pursuant to Section 7 (the “Exercise Price”).
Section 3. Exercise Price. The exercise price per share of Company Common Stock for which each Underlying Share
Section 4. Exercise.
(a)
This Warrant may be exercised by the Holder hereof as to all or any portion of the Underlying Shares, upon
delivery of written notice to the Company, together with this original Warrant and (x) payment to the Company of the Aggregate
Exercise Price or (y) instruction to the Company to withhold a number of the Underlying Shares then issuable upon exercise of this
Warrant with an aggregate value (determined on the basis of the average Market Price per share for the Company Common Stock on the
last five Trading Days for such stock ended immediately prior to the applicable Exercise Date, as defined below) equal to such Aggregate
Exercise Price (collectively, the “Exercise”, with the date of an Exercise being an “Exercise Date”). The Exercise Price (if paid pursuant
to clause (x) above) shall be payable by delivery by the Holder of a certified or official bank check payable to the order of the Company
or wire transfer of immediately available funds to an account designated by the Company. This Warrant shall be deemed to have been so
exercised as of the applicable Exercise Date, and the Holder shall be entitled to receive the Underlying Shares issuable upon such
Exercise and be treated for all purposes as the holder of record of the Underlying Shares as of such date. Upon the Exercise of this
Warrant, the Company shall, within two (2) Business Days of the applicable Exercise Date (the “Underlying Share Delivery Date”),
execute and deliver to the Holder of this Warrant (a) a statement confirming the total number of Underlying Shares for which this
Warrant is being exercised, and (b) (i) if the Underlying Shares are issued in certificate form, a certificate or certificates for the number
of Underlying Shares issuable upon such Exercise, or (ii) if the Underlying Shares are issued in uncertificated form, a written
confirmation evidencing the book-entry registration of such Underlying Shares in the Holder’s name; provided that if the Company fails
to deliver to Holder such certificate or certificates (in the case of Underlying Shares issued in certificate form) or written confirmation (in
the case of Underlying Shares issued in uncertificated form) by the Underlying Share Delivery Date, the Holder will have the right to
rescind such Exercise. Any rescission by the Holder pursuant to this Section 4(a) shall not affect any other
Exhibit A - 3
remedies available to the Holder under applicable law or equity or pursuant to Section 14 hereof as a result of the Company’s failure to
timely deliver the Underlying Shares. If this Warrant shall be exercised with respect to less than all of the Underlying Shares, the
Company shall deliver a new Warrant covering the number of Underlying Shares in respect of which this Warrant shall not have been
exercised, which new Warrant shall in all other respects be identical to this Warrant. The Company covenants and agrees that it will pay
when due any and all state and federal issue taxes which may be payable in respect of the issuance of this Warrant or the issuance of any
Underlying Shares upon exercise.
(b)
In the event of any withholding of shares of Underlying Shares pursuant to Section 4(a)(y) above where the
number of the Underlying Shares then issuable upon exercise of this Warrant with an aggregate value equal to the Aggregate Exercise
Price is not a whole number, the number of the Underlying Shares withheld by the Company shall be rounded up to the nearest whole
share, and the Company shall make a cash payment to the Holder (by delivery of a certified or official bank check or by wire transfer of
immediately available funds) based on the incremental fraction of Underlying Shares being so withheld by the Company in an amount
equal to the product of (x) such incremental fraction of Underlying Shares being so withheld or surrendered multiplied by (y) the value
per share of Underlying Shares (determined on the basis of the average Market Price per share for the Company Common Stock on the
last five Trading Days for such stock ended immediately prior to the applicable Exercise Date).
(c)
The Company shall not knowingly effect the exercise of this Warrant, and the Holder shall not have the right
to exercise this Warrant to the extent that, after giving effect to such exercise, the Holder (together with such Person’s Affiliates) would
beneficially own in excess of 9.99% (the “Maximum Percentage”) of the Company Common Stock outstanding immediately after
giving effect to such exercise. For purposes of the foregoing sentence, the aggregate number of shares of Company Common Stock
beneficially owned by such Person and its Affiliates shall include the number of shares of Company Common Stock issuable upon
exercise of this Warrant with respect to which the determination of such sentence is being made, but shall exclude shares of Company
Common Stock which would be issuable upon (i) exercise of the remaining, unexercised portion of this Warrant beneficially owned by
such Person and its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the
Company beneficially owned by such Person and its Affiliates (including, without limitation, any convertible notes or convertible shares
or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act. For purposes of this Warrant, in determining the number of outstanding shares of Company Common Stock, a Holder of
this Warrant may rely on the number of outstanding shares of Company Common Stock as reflected in the most recent of (1) the
Company’s Form 10-K, Form 10-Q or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more
recent public announcement by the Company or (3) any other notice by the Company or its transfer agent setting forth the number of
shares of Company Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall, within five (5)
Business Days, confirm to such Holder the number of shares of its Company Common Stock then outstanding. Furthermore, upon the
written request of the Company, a Holder shall confirm to the Company its then current beneficial ownership with respect to the
Company’s Company Common Stock.
Exhibit A - 4
Section 5. No Fractional Shares. No fractional shares may be issued upon any exercise of this Warrant or as a
consequence of any adjustment pursuant to Section 7, and any fractions shall be rounded upwards to the nearest whole number of shares.
If upon any exercise or adjustment of this Warrant a fraction of a share results, the Company will pay to the Holder the cash value of any
such fractional share, calculated on the basis of the Exercise Price.
Section 6. Securities Laws.
(a)
Holder acknowledges that the Underlying Shares are being offered and sold by the Company in accordance
with Regulation D under the Securities Act and that the Underlying Shares will constitute “restricted securities” as defined in Rule 144
under the Securities Act. Neither this Warrant nor the Underlying Shares have been registered under the Securities Act, or any state
securities laws (“Blue Sky Laws”). This Warrant has been acquired for the Holder’s own account for investment purposes and not with a
current view to distribution or resale and may not be sold or otherwise transferred (i) without an effective registration statement for such
Warrant under the Securities Act and such applicable Blue Sky Laws, or (ii) unless Holder shall have delivered to the Company an
opinion of counsel to the effect that the Warrant or such portion of the Warrant to be sold or transferred may be sold or transferred under
an exemption from such registration; provided, that the foregoing conditions shall not apply to any transfer of this Warrant from
Purchaser to (i) any Affiliate, managed fund or account of Oaktree Capital Management, L.P. or (ii) an Affiliate of Qatar Investment
Authority.
(b)
The Company covenants and agrees that all Underlying Shares will, upon issuance and payment therefor, be
legally and validly issued and outstanding, free from all taxes, liens, charges and preemptive or similar rights, if any, with respect thereto
or to the issuance thereof. The Company will take all such action as may be reasonably necessary or appropriate to assure that the
Underlying Shares may be issued as provided herein without violating any applicable law or regulation, or any requirements of the
Trading Market upon which the Company Common Stock may be listed.
Company determines otherwise in compliance with applicable law:
(c)
The certificates representing the Underlying Shares will bear the following or similar legend, unless the
“THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE
SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS
SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO
THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.”
Exhibit A - 5
Section 7. Anti-Dilution Adjustments.
(a)
If the Company shall at any time prior to the expiration of this Warrant (i) pay a stock dividend or otherwise
make a distribution or distributions on shares of Company Common Stock or any other equity or equity securities, (ii) subdivide the
Company Common Stock (by stock split, recapitalization, or any other similar event) into a larger number of shares, (iii) combine the
Company Common Stock (by stock split or reverse stock split, recapitalization, combination of shares, or any other similar event) or (iv)
issue by reclassification of shares of Company Common Stock any shares of capital stock of the Company (with the exception of any
reclassification that constitutes a Fundamental Change, as hereinafter defined), then in each such case the Exercise Price shall be adjusted
by multiplying the Exercise Price in effect immediately prior to (x) the record date for the determination of stockholders entitled to
receive such dividend or distribution or (y) the effective date in the case of a subdivision, combination or re-classification by a fraction,
the numerator of which shall be the number of shares of Company Common Stock outstanding immediately before such event and the
denominator of which shall be the number of shares of Company Common Stock outstanding immediately after such event, and the
number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the Aggregate Exercise Price shall
remain unchanged. Before taking any action which would result in an adjustment in the number of Underlying Shares for which this
Warrant is exercisable or to the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents
thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.
(b)
If the Company shall at any time prior to the expiration of this Warrant (in each case, occurring after the date
hereof) be a party to any merger, consolidation, exchange of shares of Company Common Stock, sale of a majority of the Company
Common Stock, sale of all or substantially all of the assets of the Company, separation, reorganization, recapitalization, winding up or
liquidation of the Company, or other similar event or transaction (each, a “Fundamental Change”), as a result of which shares of
Company Common Stock shall be changed into the same or a different number or class or classes of securities of the Company or
another entity, or the holders of shares of Company Common Stock are entitled to receive cash or other property, then, upon the Exercise
of this Warrant by the Holder, such Holder shall receive, for the Aggregate Exercise Price as in effect immediately prior to such
Fundamental Change (subject to all other adjustments under this Warrant), the aggregate number of shares or such other securities, cash
or other property which such Holder would have received if this Warrant had been exercised immediately prior to such Fundamental
Change (collectively, the “Fundamental Change Receivable”), which, upon the Holder’s election, may be received net of the
Aggregate Exercise Price (for the avoidance of doubt, without payment by the Holder of any cash in an amount equal to the then
Exercise Price). In the case of any Fundamental Change, the successor or purchasing party of such merger, consolidation, exchange of
shares of Company Common Stock, sale of all or substantially all of the assets of the Company or reorganization (if other than the
Company) shall duly execute and deliver to the Holder a supplement to this Warrant acknowledging the Company and such party’s
obligations under this Section 7(b). The terms of this Warrant shall be applicable to the Fundamental Change Receivable due to the
Holder upon the consummation of any such Fundamental Change.
Company Common Stock (and not to the Holder or Holders)
(c)
If the Company, at any time while this Warrant is outstanding, shall otherwise distribute to all holders of
Exhibit A - 6
evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security
(for the avoidance of doubt, excluding in each such case any Fundamental Change Receivable), then in each such case the Exercise Price
shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction, the numerator of which shall be such VWAP on such record date less the then Fair
Market Value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding
share of Company Common Stock, and the denominator of which shall be the VWAP determined as of the record date mentioned above.
Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date
mentioned above.
(d)
Not less than five (5) days prior to the record date or effective date, as the case may be, of any event which
requires or might require an adjustment or readjustment pursuant to Section 7(a) or Section 7(c) (each, an “Adjustment Event”), and
not less than ten (10) days prior to the record date or effective date, as the case may be, of any Fundamental Change, the Company shall
give written notice of such Adjustment Event or Fundamental Change (as applicable) to the Holder or Holders, describing such
Adjustment Event or Fundamental Change in reasonable detail and specifying the record date or effective date, as the case may be. Such
notice shall additionally include the Company’s certification of the following computations, as applicable, each of which shall have been
made by the Company in good faith: (i) in the case of an Adjustment Event, if determinable, the required adjustment and the computation
thereof or, if the required adjustment is not determinable at the time of such notice, the Company shall give notice to the Holder or
Holders of such adjustment and computation promptly after such adjustment becomes determinable, and (ii) in the case of a Fundamental
Change, the number of shares or such other securities, cash or other property which is payable to the Holder or Holders upon the
Fundamental Change, the computation thereof, and the computation of the then applicable Exercise Price. Except as otherwise prohibited
by applicable laws, to the extent that any notice provided pursuant to this Section 7(d) contains material, non-public information
regarding the Company, the Company shall disclose such information regarding the Company in a Current Report on Form 8-K and file
such Current Report on Form 8-K with the SEC no later than the second Trading Day following the date such notice is delivered to the
Holder.
(e)
Notwithstanding any other provision hereof, if an exercise of all or any portion of this Warrant is to be made
in connection with a Fundamental Change or a public offering, such exercise may, at the election of the Holder, be conditioned upon the
consummation of such transaction, in which case such exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(f)
At all times on and prior to the Expiration Date, the Company shall at all times reserve and keep available out
of its authorized but unissued Company Common Stock (or other equity interests then constituting Underlying Shares), solely for the
purpose of issuance upon the exercise of this Warrant, the maximum number of Underlying Shares issuable upon the exercise of this
Warrant. The Company further covenants that its issuance of this Warrant shall constitute full authority to its officers who are charged
with the duty of executing stock certificates or effectuating the book entry of uncertificated shares to execute and issue, or enter, the
necessary certificates or book entries (as applicable) for the Underlying Shares upon the exercise of the
Exhibit A - 7
purchase rights under this Warrant. The Company shall not increase the par value of any Underlying Shares receivable upon the exercise
of this Warrant above the Exercise Price then in effect, and shall take all such actions within its power as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and non-assessable Underlying Shares upon the exercise of this
Warrant.
Section 8. Transfer of Warrant. Subject to compliance with applicable federal and state securities laws, the Holder
may, from time to time, transfer this Warrant or the Underlying Shares, in each case, in whole or in part, by giving the Company a written
notice of the portion of the Warrant or the shares of the Underlying Shares being transferred, such notice to set forth the name, address
and taxpayer identification number of the transferee, the anticipated date of such transfer, and surrendering this Warrant or the certificates
or book-entry records representing shares of the Underlying Shares, as applicable, to the Company for reissuance to the transferee(s).
Upon surrender of this Warrant by a Holder to the Company for transfer, in whole or in part, the Company shall issue a new warrant to
such Holder in such denomination as shall be requested by such Holder covering the number of Underlying Shares, if any, in respect of
which this Warrant shall not have been transferred. Such new warrant shall be identical in all other respects to this Warrant. This Warrant
may be divided or combined with other Warrants upon presentation hereof at the office of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to
compliance with this Section 8 as to any transfer which may be involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice.
All Warrants issued on transfers or exchanges shall be dated as of the Initial Issuance Date and shall be identical to this Warrant except as
to the number of Underlying Shares issuable pursuant thereto.
Section 9. No Impairment. The Company may not, including, without limitation, by amendment of its certificate of
incorporation or bylaws, or through a Fundamental Change or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, and the Company shall at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder or Holders
against impairment. Without limiting the generality of the foregoing, the Company shall take (a) all such action as may be necessary or
appropriate in order that the Company may duly and validly issue fully paid and non-assessable Underlying Shares, free from any taxes,
liens, charges and preemptive rights, upon the exercise of this Warrant, and (b) use its best efforts to obtain all such authorizations,
exemptions or consents from any public regulatory body having jurisdiction thereof, as may be necessary to enable the Company to
perform its obligations under this Warrant.
Section 10. No Rights or Liabilities as a Stockholder. This Warrant shall not entitle the Holder or Holders hereof to
any voting rights or other rights as a stockholder of the Company with respect to the Underlying Shares prior to the exercise of the
Warrant. No provision of this Warrant, in the absence of affirmative action by the Holder or Holders to purchase the Underlying Shares,
and no mere enumeration herein of the rights or privileges of the Holder or Holders, shall give rise to any liability of such Holder or
Holders for the Exercise Price or as a
Exhibit A - 8
stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.
Section 11. Representations and Warranties of the Company. The Company hereby represents and warrants:
(a)
As of the Initial Issuance Date, the Company (A) is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, (B) has all requisite power and authority to own and operate its properties, to carry on
its business as now conducted and as currently proposed to be conducted, to issue and enter into the Warrant and to carry out the
transactions contemplated thereby, and (C) except where the failure to do so, individually or in the aggregate, has not had, and could not
be reasonably expected to have, a material adverse effect on the business, assets, financial condition or operations of the Company, is
qualified to do business and, where applicable is in good standing, in every jurisdiction where such qualification is required.
(b)
This Warrant is, and any Warrant issued in substitution for or replacement of this Warrant (including pursuant
to Section 15) shall be, upon issuance, duly authorized and validly issued. This Warrant constitutes, and any Warrant issued in
substitution for or replacement of this Warrant shall be, upon issuance, a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors’ rights generally and by general principles of equity.
(c)
As of the Initial Issuance Date, the execution, delivery and performance by the Company of the Warrant does
not and will not (A) violate any material provision of applicable law or the organizational documents of the Company, (B) conflict with,
result in a breach of, or constitute (with the giving of any notice, the passage of time, or both) a default under any material agreement of
the Company or (C) result in or require the creation or imposition of any lien upon any assets of the Company.
Holder or Holders shall bind and inure to the benefit of their respective successors and assigns.
Section 12. Successors. All the covenants and provisions of this Warrant by or for the benefit of the Company or the
Section 13. Survival. The rights of the Holder or Holders under this Warrant, and the covenants and agreements of the
Company set forth in this Warrant for the benefit of the Holder or Holders, shall survive exercise of all or any portion of this Warrant and
shall inure to the Holder or Holders of any Underlying Shares.
Section 14. Remedies. If the Company violates, breaches or defaults under this Warrant, the Holder may proceed to
protect and enforce its rights by any action at law, suit in equity or other appropriate proceeding, whether for specific performance of any
agreement contained in this Warrant, or for an injunction against a violation of any of the terms hereof, or in and of the exercise of any
power granted hereby or by law, in each case without providing any bond or other security in connection with such action, suit or other
proceeding. In case of any violation, breach or default under this Warrant, the Company shall pay to the Holder on demand
Exhibit A - 9
all reasonable costs and expenses of enforcing the Holder’s rights under this Warrant, including, without limitation, reasonable attorneys’
fees and legal expenses.
Section 15. Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon its receipt of
evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the
Underlying Shares (and, in the case of mutilation, the surrender and cancellation of this Warrant or such stock certificate), the Company
shall make and deliver to the Holder a new Warrant or stock certificate that is identical to this Warrant or to such stock certificate (as
applicable).
and shall not be construed as amplifying or limiting any of the provisions of this Warrant.
Section 16. Article and Section Headings. Numbered and titled article and section headings are for convenience only
Section 17. Notice. Any and all notices, elections or demands permitted or required to be made under this Warrant shall
be in writing, signed by the party giving such notice, election or demand and shall be delivered in accordance with the notice provisions
in the Credit Agreement.
Section 18. Severability. If any provisions(s) of this Warrant or the application thereof to any person or circumstances
shall be invalid or unenforceable to any extent, the remainder of this Warrant and the application of such provisions to other persons or
circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law.
agreement between the parties concerning the subject matter hereof, and all oral discussions and prior agreement are merged herein.
Section 19. Entire Agreement. This Warrant and between the Company and the Holder represents the entire
Section 20. Valuation Dispute Resolution. In the case of any dispute as to the determination of any amount or
valuation hereunder or in connection with the amount or value of any Company Common Stock or Underlying Shares to be issued,
withheld or otherwise determined, the calculation of the Aggregate Exercise Price or any other computation or valuation required to be
made hereunder or in connection herewith, in the event the Holder, on the one hand, and the Company, on the other hand, are unable to
settle such dispute within five (5) Business Days, then either party may elect to submit the disputed matter(s) for resolution by an
accounting firm of nationally recognized standing as may be mutually agreed upon by the Holder and the Company. Such firm’s
determination of such disputed matter(s) shall be binding upon all parties absent demonstrable error, and the Company and the Holder
shall each pay one half of the fees and costs of such firm.
Section 21. Governing Law. This Warrant and the rights and obligations of the parties hereunder, and any claims,
controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Warrant and
the transactions contemplated hereby shall be governed by, and construed in accordance with, the law of the State of New York.
Exhibit A - 10
Section 22. Jurisdiction; Waiver of Venue; Service of Process.
(a)
Each party hereto irrevocably and unconditionally agrees that it will not commence any action, litigation or
proceeding of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, against any other party hereto
in any way relating to this Warrant or the transactions relating hereto, in any forum other than the courts of the State of New York sitting
in New York County, and of the United States District Court of the Southern District of New York, and any appellate court from any
thereof; and each of the parties hereto irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims
in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent
permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation or
proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by
law.
(b)
Each party hereto irrevocably and unconditionally waives, to the fullest extent permitted by applicable law,
any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this
Agreement in any court referred to in paragraph (a) of this Section 22. Each of the parties hereto hereby irrevocably waives, to the
fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any
such court.
(c)
Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 17.
Company and the Holder.
Section 23. Amendment. No amendment or modification hereof shall be effective except in a writing executed by the
executed shall be deemed to be an original and all of which taken together shall constitute one and the same Warrant.
Section 24. Counterparts. This Warrant may be executed in any number of counterparts, each of which when so
Section 25. Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED
HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES
THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE
FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED
TO ENTER INTO THIS WARRANT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS
SECTION 25.
[Signature Page Follows]
Exhibit A - 11
IN WITNESS WHEREOF, the parties hereto have set their hands as of the date first above written.
COMPANY:
BIOXCEL THERAPEUTICS, INC.
By:
Name:
Title:
Exhibit A - 1
Subsidiaries
Exhibit 21.1
OnkosXcel Therapeutics, LLC (Delaware)
OnkosXcel Employee Holdings, LLC (Delaware)
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We consent to the incorporation by reference in the following Registration Statements:
(1) Registration Statements (Form S-3 Nos. 333-265277, 333-275261 and 333-276488) of BioXcel
Therapeutics, Inc., and
(2) Registration Statements (Form S-8 Nos. 333-235282, 333-238580, 333-266922 and 333-270652)
pertaining to the 2017 Equity Incentive Plan and the 2020 Incentive Award Plan and 2020 Employee
Stock Purchase Plan of BioXcel Therapeutics, Inc.
of our report dated March 22, 2024, with respect to the consolidated financial statements of BioXcel Therapeutics,
Inc. included in this Annual Report (Form 10-K) of BioXcel Therapeutics, Inc. for the year ended December 31,
2023.
/s/ Ernst & Young, LLP
Stamford, Connecticut
March 22, 2024
Exhibit 31.1
I, Vimal Mehta, Ph.D., certify that:
CERTIFICATIONS
1.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2023, of BioXcel
Therapeutics, Inc.;
2. 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;
3. 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;
4. 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 22, 2024
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.
I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2023, of BioXcel
Therapeutics, Inc.;
2. 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;
3. 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;
4. 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 22, 2024
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, 2023, 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) 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
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: March 22, 2024
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, 2023, 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) 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
(2) the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: March 22, 2024
By: /s/ Richard Steinhart
Richard Steinhart
Chief Financial Officer
(Principal Financial Officer)
Exhibit 97.1
BIOXCEL THERAPEUTICS, INC.
POLICY FOR RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
BioXcel Therapeutics, Inc. (the “Company”) has adopted this Policy for Recovery of Erroneously
Awarded Compensation (the “Policy”), effective as of October 2, 2023 (the “Effective Date”). Capitalized terms
used in this Policy but not otherwise defined herein are defined in Section 11.
1.
Persons Subject to Policy
This Policy shall apply to current and former Officers of the Company. Each Officer shall be required to
sign an acknowledgment agreement pursuant to which such Officer will agree to be bound by the terms of, and
comply with, this Policy; however, any Officer’s failure to sign any such acknowledgment agreement shall not
negate the application of this Policy to the Officer.
2.
Compensation Subject to Policy
This Policy shall apply to Incentive-Based Compensation received on or after the Effective Date. For
purposes of this Policy, the date on which Incentive-Based Compensation is “received” shall be determined under
the Applicable Rules, which generally provide that Incentive-Based Compensation is “received” in the Company’s
fiscal period during which the relevant Financial Reporting Measure is attained or satisfied, without regard to
whether the grant, vesting or payment of the Incentive-Based Compensation occurs after the end of that period.
3.
Recovery of Compensation
In the event that the Company is required to prepare a Restatement, the Company shall recover, reasonably
promptly, the portion of any Incentive-Based Compensation that is Erroneously Awarded Compensation, unless
the Committee has determined that recovery would be Impracticable. Recovery shall be required in accordance
with the preceding sentence regardless of whether the applicable Officer engaged in misconduct or otherwise
caused or contributed to the requirement for the Restatement and regardless of whether or when restated financial
statements are filed by the Company. For clarity, the recovery of Erroneously Awarded Compensation under this
Policy will not give rise to any person’s right to voluntarily terminate employment for “good reason,” or due to a
“constructive termination” (or any similar term of like effect) under any plan, program or policy of or agreement
with the Company or any of its affiliates.
4.
Manner of Recovery; Limitation on Duplicative Recovery
The Committee shall, in its sole discretion, determine the manner of recovery of any Erroneously Awarded
Compensation, which may include, without limitation, reduction or cancellation by the Company or an affiliate of
the Company of Incentive-Based Compensation or Erroneously Awarded Compensation, reimbursement or
repayment by any person subject to this
1
Policy of the Erroneously Awarded Compensation, and, to the extent permitted by law, an offset of the
Erroneously Awarded Compensation against other compensation payable by the Company or an affiliate of the
Company to such person. Notwithstanding the foregoing, unless otherwise prohibited by the Applicable Rules, to
the extent this Policy provides for recovery of Erroneously Awarded Compensation already recovered by the
Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 or Other Recovery Arrangements, the
amount of Erroneously Awarded Compensation already recovered by the Company from the recipient of such
Erroneously Awarded Compensation may be credited to the amount of Erroneously Awarded Compensation
required to be recovered pursuant to this Policy from such person.
5.
Administration
This Policy shall be administered, interpreted and construed by the Committee, which is authorized to
make all determinations necessary, appropriate or advisable for such purpose. The Board of Directors of the
Company (the “Board”) may re-vest in itself the authority to administer, interpret and construe this Policy in
accordance with applicable law, and in such event references herein to the “Committee” shall be deemed to be
references to the Board. Subject to any permitted review by the applicable national securities exchange or
association pursuant to the Applicable Rules, all determinations and decisions made by the Committee pursuant to
the provisions of this Policy shall be final, conclusive and binding on all persons, including the Company and its
affiliates, equityholders and employees. The Committee may delegate administrative duties with respect to this
Policy to one or more directors or employees of the Company, as permitted under applicable law, including any
Applicable Rules.
6.
Interpretation
This Policy will be interpreted and applied in a manner that is consistent with the requirements of the
Applicable Rules, and to the extent this Policy is inconsistent with such Applicable Rules, it shall be deemed
amended to the minimum extent necessary to ensure compliance therewith.
7.
No Indemnification; No Liability
The Company shall not indemnify or insure any person against the loss of any Erroneously Awarded
Compensation pursuant to this Policy, nor shall the Company directly or indirectly pay or reimburse any person
for any premiums for third-party insurance policies that such person may elect to purchase to fund such person’s
potential obligations under this Policy. None of the Company, an affiliate of the Company or any member of the
Committee or the Board shall have any liability to any person as a result of actions taken under this Policy.
8.
Application; Enforceability
Except as otherwise determined by the Committee or the Board, the adoption of this Policy does not limit,
and is intended to apply in addition to, any other clawback, recoupment, forfeiture or similar policies or provisions
of the Company or its affiliates, including any such policies or provisions of such effect contained in any
employment agreement, bonus plan, incentive plan,
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equity-based plan or award agreement thereunder or similar plan, program or agreement of the Company or an
affiliate or required under applicable law (the “Other Recovery Arrangements”). The remedy specified in this
Policy shall not be exclusive and shall be in addition to every other right or remedy at law or in equity that may be
available to the Company or an affiliate of the Company.
9.
Severability
The provisions in this Policy are intended to be applied to the fullest extent of the law; provided, however,
to the extent that any provision of this Policy is found to be unenforceable or invalid under any applicable law,
such provision will be applied to the maximum extent permitted, and shall automatically be deemed amended in a
manner consistent with its objectives to the extent necessary to conform to any limitations required under
applicable law.
10.
Amendment and Termination
The Board or the Committee may amend, modify or terminate this Policy in whole or in part at any time
and from time to time in its sole discretion. This Policy will terminate automatically when the Company does not
have a class of securities listed on a national securities exchange or association.
11.
Definitions
“Applicable Rules” means Section 10D of the Exchange Act, Rule 10D-1 promulgated thereunder, the
listing rules of the national securities exchange or association on which the Company’s securities are listed, and
any applicable rules, standards or other guidance adopted by the Securities and Exchange Commission or any
national securities exchange or association on which the Company’s securities are listed.
“Committee” means the Compensation Committee of the Board, provided that, for purposes of
determining whether recovery of Incentive-Based Compensation that is Erroneously Awarded Compensation
would be Impracticable, “Committee” shall mean the committee of the Board responsible for executive
compensation decisions comprised solely of independent directors (as determined under the Applicable Rules), or
in the absence of such a committee, a majority of the independent directors serving on the Board.
“Erroneously Awarded Compensation” means the amount of Incentive-Based Compensation received by
a current or former Officer that exceeds the amount of Incentive-Based Compensation that would have been
received by such current or former Officer based on a restated Financial Reporting Measure, as determined on a
pre-tax basis in accordance with the Applicable Rules.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Financial Reporting Measure” means any measure determined and presented in accordance with the
accounting principles used in preparing the Company’s financial statements,
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and any measures derived wholly or in part from such measures, including GAAP, IFRS and non-GAAP/IFRS
financial measures, as well as stock or share price and total equityholder return.
“GAAP” means United States generally accepted accounting principles.
“IFRS” means international financial reporting standards as adopted by the International Accounting
Standards Board.
“Impracticable” means (a) the direct expenses paid to third parties to assist in enforcing recovery would
exceed the Erroneously Awarded Compensation; provided that the Company has (i) made reasonable attempts to
recover the Erroneously Awarded Compensation, (ii) documented such attempt(s), and (iii) provided such
documentation to the relevant listing exchange or association, (b) to the extent permitted by the Applicable Rules,
the recovery would violate the Company’s home country laws pursuant to an opinion of home country counsel;
provided that the Company has (i) obtained an opinion of home country counsel, acceptable to the relevant listing
exchange or association, that recovery would result in such violation, and (ii) provided such opinion to the
relevant listing exchange or association, or (c) recovery would likely cause an otherwise tax-qualified retirement
plan, under which benefits are broadly available to employees of the Company, to fail to meet the requirements of
26 U.S.C. 401(a)(13) or 26 U.S.C. 411(a) and the regulations thereunder.
“Incentive-Based Compensation” means, with respect to a Restatement, any compensation that is granted,
earned, or vested based wholly or in part upon the attainment of one or more Financial Reporting Measures and
received by a person: (a) after such person began service as an Officer; (b) who served as an Officer at any time
during the performance period for that compensation; (c) while the Company has a class of its securities listed on
a national securities exchange or association; and (d) during the applicable Three-Year Period.
“Officer” means each person who serves as an executive officer of the Company, as defined in Rule 10D-
1(d) under the Exchange Act.
“Restatement” means an accounting restatement to correct the Company’s material noncompliance with
any financial reporting requirement under securities laws, including restatements that correct an error in
previously issued financial statements (a) that is material to the previously issued financial statements or (b) that
would result in a material misstatement if the error were corrected in the current period or left uncorrected in the
current period.
“Three-Year Period” means, with respect to a Restatement, the three completed fiscal years immediately
preceding the date that the Board, a committee of the Board, or the officer or officers of the Company authorized
to take such action if Board action is not required, concludes, or reasonably should have concluded, that the
Company is required to prepare such Restatement, or, if earlier, the date on which a court, regulator or other
legally authorized body directs the Company to prepare such Restatement. The “Three-Year Period” also includes
any transition period (that results from a change in the Company’s fiscal year) within or immediately following
the three completed fiscal years identified in the preceding sentence. However, a transition period between
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the last day of the Company’s previous fiscal year end and the first day of its new fiscal year that comprises a
period of nine to 12 months shall be deemed a completed fiscal year.
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ACKNOWLEDGMENT AND CONSENT TO
POLICY FOR RECOVERY OF ERRONEOUSLY AWARDED COMPENSATION
The undersigned has received a copy of the Policy for Recovery of Erroneously Awarded Compensation (the
“Policy”) adopted by BioXcel Therapeutics, Inc. (the “Company”).
For good and valuable consideration, the receipt of which is acknowledged, the undersigned agrees to the terms of
the Policy and agrees that compensation received by the undersigned may be subject to reduction, cancellation,
forfeiture and/or recoupment to the extent necessary to comply with the Policy, notwithstanding any other
agreement to the contrary. The undersigned further acknowledges and agrees that the undersigned is not entitled to
indemnification in connection with any enforcement of the Policy and expressly waives any rights to such
indemnification under the Company’s organizational documents or otherwise.
Date
Signature
Name
Title
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