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
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR
THE TRANSITION PERIOD FROM TO
Commission File Number 001-36517
Minerva Neurosciences, Inc.
(Exact name of Registrant as specified in its Charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
1500 District Avenue
Burlington, MA
(Address of principal executive offices)
26-0784194
(I.R.S. Employer
Identification No.)
01803
(Zip Code)
Registrant’s telephone number, including area code: (617) 600-7373
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.0001 par value per share
Trading Symbol(s)
NERV
Name of each exchange on which registered
The Nasdaq Capital Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer
Non-accelerated filer
Emerging growth company
Accelerated filer
Smaller reporting 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. ☐
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). ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The aggregate value of the Company’s Common Stock held by non-affiliates of the Company was approximately $17.1 million as of June 30, 2022, when the last reported
sales price was $3.31 per share.
The number of shares of Registrant’s Common Stock outstanding as of March 3, 2023 was 5,340,193.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s Definitive Proxy Statement relating to the 2023 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A with the Securities and
Exchange Commission are incorporated by reference into Part III of this Report. Such proxy statement will be filed with the Securities and Exchange Commission not later
than 120 days following the end of the Registrant’s fiscal year ended December 31, 2022.
MINERVA NEUROSCIENCES, INC.
TABLE OF CONTENTS
PART I.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV.
Item 15.
Exhibit Index
Item 16.
Signatures
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Person Transactions and Director Independence
Principal Accountant Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
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All trademarks, trade names, service marks, and copyrights appearing in this Annual Report on Form 10-K are the property of their respective owners.
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This Annual Report on Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as
amended. These forward-looking statements reflect our plans, estimates and beliefs. These statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or
achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as
“anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and
similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and
are based on assumptions and subject to risks and uncertainties. Because of these risks and uncertainties, the forward-looking events and circumstances
discussed in this report may not transpire. These risks and uncertainties include, but are not limited to, the risks included in this Annual Report on Form
10-K under Part I, Item IA, “Risk Factors.”
Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our
estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be
materially different from what we expect. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking
statements contained in this report, whether as a result of new information, future events or otherwise.
Summary of Risks Associated with Our Business
The summary of risks below provides an overview of the principal risks that we are exposed to in the normal course of our business activities. The below
summary of risks is not exhaustive, and such summary should be considered in addition to the other risks described elsewhere in this report:
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We have incurred significant losses since our inception. We expect to continue to incur losses over the next several years and may never
achieve or maintain profitability;
We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. Failure to obtain
this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations;
Raising additional funds by issuing equity securities will cause dilution to existing stockholders. Raising additional funds through debt
financings may involve restrictive covenants and raising funds through lending and licensing arrangements may restrict our operations or
require us to relinquish proprietary rights;
Changes in estimates regarding fair value of intangible assets may result in an adverse impact on our results of operations;
We cannot give any assurance that any of our product candidates will receive regulatory approval in a timely manner or at all. The results of
clinical trials conducted at sites outside the U.S. may not be accepted by the FDA and the results of clinical trials conducted at sites in the
U.S. may not be accepted by comparable foreign regulatory authorities;
If we experience delays in clinical testing, we will be delayed in commercializing our product candidates, our costs may increase, and our
business may be harmed. If we are unable to enroll subjects in clinical trials, we will be unable to complete these trials on a timely basis or at
all. Our clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which could prevent or delay
regulatory approval and commercialization, and also increase costs;
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or
indications that may be more profitable or for which there is a greater likelihood of success;
Even if we complete the necessary clinical trials, we cannot predict when or if we will obtain regulatory approval to commercialize a product
candidate or the approval may be for a narrower indication than we expect. We have no experience in advancing product candidates beyond
Phase 3 clinical trials, which makes it difficult to assess our ability to develop and commercialize our product candidates;
Even if our product candidates receive regulatory approval, they may still face future development and regulatory difficulties, including
ongoing regulatory obligations and continued regulatory review. Additionally, our product candidates, if approved, could be subject to
labeling and other restrictions and market withdrawal and we may be subject to administrative sanctions or penalties if we fail to comply with
regulatory requirements or experience unanticipated problems with our products;
The regulatory pathway for our product candidate, MIN-301, has not yet been determined. Depending on the pathway, we may be subject to
different regulatory requirements;
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If the market opportunities for any product that we or our collaborators develop are smaller than we believe, our revenue may be adversely
affected and our business may suffer;
We face substantial competition, which may result in others discovering, developing or commercializing products before or more
successfully than us;
Even if any of our drug candidates receives regulatory approval, it may fail to achieve the degree of market acceptance by physicians,
patients, third-party payors and others in the medical community necessary for commercial success;
We currently have a limited marketing and sales organization. If we are unable to establish greater marketing and sales capabilities or enter
into agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell our product
candidates, if approved, or generate product revenues. Even if we commercialize any of our product candidates, these products may become
subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which could harm our
business;
Recently enacted and future legislation may increase the difficulty and cost for us to commercialize our product candidates and affect the
prices we may obtain;
Our business and operations would suffer in the event of system failures. If we fail to maintain an effective system of internal control over
financial reporting, we may not be able to accurately report our financial condition, results of operations or cash flows, which may adversely
affect investor confidence in us and, as a result, the value of our common stock. Our disclosure controls and procedures may not prevent or
detect all errors or acts of fraud;
We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering
laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets.
We are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations
related to data privacy and security.
If our information technology systems or data, or those of third parties upon which we rely, are or were compromised, we could experience
adverse consequences resulting from such compromise, including but not limited to regulatory investigations or actions; litigation; fines and
penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; and other adverse consequences.
We currently rely and continue to expect to rely on third parties to conduct our future clinical trials. The failure of these third parties to
successfully carry out their contractual duties or meet expected deadlines could substantially harm our business;
We contract with third parties for the manufacturing of our product candidates for pre-clinical and clinical testing and expect to continue to
do so for commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product
candidates or products, or such quantities at an acceptable cost;
We depend on collaborations with certain of our licensing partners, and could be seriously harmed if our license agreements are terminated or
breached;
Substantial potential future milestone payments to the Company depend on the development and commercialization of seltorexant, and we
may be obligated to make related payments to certain of our contractual partners even if certain of our other contractual partners breach their
obligations to pay us;
We may not be successful in establishing new collaborations, which could adversely affect our ability to develop future product candidates
and commercialize future products;
One or more of our owned or licensed patents directed to our proprietary products or technologies may expire or have limited commercial life
before the proprietary product or technology is approved for marketing in a relevant jurisdiction;
We have in-licensed or acquired a portion of our intellectual property necessary to develop our product candidates, and if we fail to comply
with our obligations under any of these arrangements, we could lose such intellectual property rights;
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time
consuming and unsuccessful;
We cannot predict what the market price of our common stock will be and, as a result, it may be difficult for you to sell your shares of our
common stock;
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Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over
matters subject to stockholder approval;
Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to
fall;
Securities litigation could result in substantial damages and may divert management’s time and attention from our business;
We have never paid dividends on our capital stock, and because we do not anticipate paying any cash dividends in the foreseeable future,
capital appreciation, if any, of our common stock will be your sole source of gain on an investment in our common stock; and
Our common stock may be delisted from The Nasdaq Capital Market which could negatively impact the price of our common stock, liquidity
and our ability to access capital markets, and “Penny Stock” rules may make buying or selling our securities difficult which may make our
stock less liquid and make it harder for investors to buy and sell our securities.
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ITEM 1. Business
Overview
Part I
We are a clinical-stage biopharmaceutical company focused on the development and commercialization of proprietary product candidates to treat patients
suffering from central nervous system (“CNS”) diseases. Leveraging our scientific insights and clinical experience, we have acquired or in-licensed
compounds that we believe have innovative mechanisms of actions and therapeutic profiles that potentially address the unmet needs of patients with these
diseases.
We are developing roluperidone (f/k/a MIN-101) for the treatment of negative symptoms in patients with schizophrenia and have exclusive rights to
develop and commercialize MIN-301 for the treatment of Parkinson’s disease. In addition, we previously co-developed seltorexant (f/k/a MIN-202 or JNJ-
42847922) with Janssen Pharmaceutica NV, one of the Janssen Pharmaceutical Companies of Johnson & Johnson (“Janssen”), for the treatment of
insomnia disorder and adjunctive treatment of Major Depressive Disorder (“MDD”). In June 2020, we exercised our right to opt out of our agreement with
Janssen for the future Phase 3 development and commercialization of seltorexant. Under the terms of the opt-out agreement, we were entitled to collect
royalties in the mid-single digits on potential future worldwide sales of seltorexant in certain indications, with no further financial obligations to Janssen. In
January 2021, we sold our rights to these potential royalties to Royalty Pharma plc (“Royalty Pharma”) for a $60 million cash payment and up to an
additional $95 million in potential milestone payments, subject to completion of Phase 3 trials by Janssen and regulatory approvals. Janssen is currently
conducting two Phase 3 studies with seltorexant, a third Phase 3 study was discontinued during 2022.
In August 2022, we submitted a New Drug Application (“NDA”) with the U.S. Food and Drug Administration (the “FDA”) for our lead product candidate,
roluperidone. The FDA subsequently notified us that they would not accept the file for review, issuing a refusal to file letter in October 2022. In December
2022, we announced that, following the Type A meeting held on November 30, 2022, the FDA confirmed that the refusal to file letter remains in effect with
respect to our NDA for roluperidone. We anticipate further discussion with the FDA over the coming months regarding the status of the roluperidone NDA
and development program.
We have not received regulatory approvals to commercialize any of our product candidates, and we have not generated any revenue from the sales or
license of our product candidates. We routinely evaluate the status of our drug development programs as well as potential strategic options. We have
incurred significant operating losses since inception and expect to continue to incur net losses and negative cash flows from operating activities for the
foreseeable future in connection with the clinical and regulatory activities associated with advancing our product candidates. As of December 31, 2022 and
2021, we had an accumulated deficit of $366.8 million and $334.7 million, respectively. For the years ended December 31, 2022 and 2021, we recorded net
losses of $32.1 million and $49.9 million, respectively.
We believe our product candidates have potential to improve the lives of a large number of affected patients and their families who are currently not well-
served by available therapies. According to Datamonitor, an independent market research firm, in 2022 approximately 2.9 million people suffered from
schizophrenia in the United States (“U.S.”), Japan, the United Kingdom (“UK”), and the four major European Union (“EU”) markets of France, Germany,
Italy, and Spain. There is no approved treatment to address negative symptoms in patients with schizophrenia in the U.S., which is a significant driver of
the cost burden of that disease. An estimated 69% of treated patients with schizophrenia have predominant/persistent negative symptoms. Negative
symptoms also exist in other CNS diseases beyond schizophrenia, the existing treatments for which we believe are poorly addressed in a broad range of
indications such as Alzheimer’s disease, Parkinson’s disease and depression.
Our Strategy
Our strategy is to develop and commercialize first-in-class products that address critical unmet medical needs in the CNS therapeutic area. We are pursuing
this strategy based on the following principles: selection of differentiated products with novel mechanisms of action that target therapeutic areas of high
unmet need and significant disease burden; attention to patient safety and compliance; scientific rigor applied to patient selection and clinical trial conduct;
engagement of highly trained clinical trial investigators; incorporation of patient and caregiver insights to drive clinical advancements; and integrity. With
the experience and knowledge base of our clinicians and physicians, we have generated substantive data from randomized, double blind, placebo-controlled
trials that support the clinical advancement of these products in defined patient populations and in multiple regulatory jurisdictions. In summary, key
elements of our strategy are to:
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Identify, acquire and develop differentiated products with innovative mechanisms of action based on biological and clinical insights into
the unmet needs of patients;
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Leverage the randomized, double-blind, placebo-controlled data from completed trials to advance the clinical development of our product
candidates in multiple regulatory jurisdictions;
Advance our lead product, roluperidone, which, if approved, will potentially be the first product approved to treat negative symptoms in
patients with schizophrenia in the U.S. and, in the longer term as a potential treatment for other brain disorders in which negative
symptoms represent a significant debilitating, unmet need;
Selectively explore collaborations with leading pharmaceutical companies to maximize the value of our current product candidate
portfolio, particularly in connection with pivotal clinical trials and subsequent regulatory review, approval and commercialization; and
Apply our management team’s expertise and current intellectual property portfolio to identify and explore additional indications to
investigate with our current portfolio of compounds and to acquire additional product candidates.
Our History
Minerva Neurosciences, Inc. was formed in November 2013 from the merger of Cyrenaic Pharmaceuticals, Inc. and Sonkei Pharmaceuticals, Inc. These
two predecessor companies had exclusively licensed roluperidone and another compound from Mitsubishi Tanabe Pharma Corporation (“MTPC”). In
February 2014 we acquired Mind-NRG Sarl (“Mind-NRG”), which owns exclusive rights to develop and commercialize MIN-301 globally.
We have not received regulatory approvals to commercialize any of our product candidates, and we have not generated any revenue from the sales or
license of our product candidates. We have incurred significant operating losses since inception. We expect to incur net losses and negative cash flow from
operating activities for the foreseeable future in connection with the clinical development and the potential regulatory approval, infrastructure development
and potential commercialization of our product candidates.
Our Clinical-Stage Programs
Roluperidone (MIN-101)
Introduction
Roluperidone is a compound that has been shown to block serotonin, sigma, and α‑adrenergic receptors that are involved in the regulation of mood,
cognition, sleep and anxiety. We are developing roluperidone to treat patients with schizophrenia. Roluperidone has been designed to block a specific
subtype of serotonin receptor called 5-HT2A. When 5-HT2A is blocked, certain symptoms of schizophrenia, such as hallucinations, delusions, agitation and
thought and movement disorders, as well as the side effects associated with antipsychotic treatments, can be minimized. Additionally, blocking 5-HT2A
promotes slow wave sleep, a sleep stage often disrupted in patients with schizophrenia. Roluperidone has also been designed to block a specific subtype of
sigma receptor called sigma2, which is involved in movement control, psychotic symptom control and learning and memory. Blocking sigma2, along with
blocking the α‑adrenergic subtypes α1A, and to a lesser extent α1B, also increases calcium levels in neurons in the brain, which can improve memory. Pre-
clinical findings provide evidence of the effect of roluperidone on Brain-Derived Neurotrophic Factor (“BDNF”), which has been associated with
neurogenesis, neuroplasticity, neuroprotection, synapse regulation, learning and memory.
We believe the scientifically supported and innovative mechanisms of action of roluperidone may potentially address the unmet needs of schizophrenic
patients, which include treatment of negative symptoms and cognitive impairment, without the side effects of existing therapies. Negative symptoms are
lifelong debilitating symptoms and include: asociality, or the lack of motivation to engage in social interactions; anhedonia, or the inability to experience
positive emotions; alogia, or failure to engage in normal conversation; avolition, or loss of energy and interest in activities; and blunted affect, or
diminished emotional expression. We plan to seek approval of roluperidone initially as a first line treatment of negative symptoms in patients diagnosed
with schizophrenia, and we also may study its use to treat all aspects of the disease, including positive symptoms and relapse prevention. We believe that
roluperidone, if approved, could treat the majority of patients diagnosed with schizophrenia. An estimated 69% of patients diagnosed with schizophrenia
have negative symptoms, with at least 42% of patients diagnosed with schizophrenia having prominent negative symptoms.
Beyond schizophrenia, we believe roluperidone may potentially possess therapeutic utility in brain disorders where negative symptoms are a core feature of
the disease associated with a range of poor clinical outcomes. These potential indications include apathy in dementia, for which we have filed an
Investigational New Drug (“IND”) application, the majority of schizophrenia spectrum and other psychotic disorders, autism spectrum disorders,
Alzheimer’s disease, Parkinson’s disease and depression.
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Clinical and Regulatory Updates
NDA fee refund
In January 2023, we received a refund of our NDA filing fee of approximately $3.1 million from the FDA. This refund was made in accordance with the
Federal Food Drug and Cosmetic Act, which allows a fee waiver for a small business submitting its first human drug application.
Refusal to File Letter and Type A Meeting (November 30, 2022)
On October 17, 2022, we announced that we received a refusal to file letter from the FDA for our NDA for roluperidone for the treatment of negative
symptoms in schizophrenia. On December 28, 2022, we announced that, following the Type A meeting held on November 30, 2022, the FDA confirmed
that the refusal to file letter remains in effect with respect to our NDA for roluperidone. We anticipate further discussion with the FDA over the coming
months regarding the status of the roluperidone NDA and development program.
New Drug Application
On August 22, 2022, we announced that we submitted an NDA to the FDA for roluperidone for the treatment of negative symptoms in patients with
schizophrenia. The NDA submission is supported by results from two late-stage, well-controlled studies in patients with moderate to severe negative
symptoms and stable positive symptoms of schizophrenia, referred to as Study MIN-101C03 (the Phase 2b trial) and Study MIN-101C07 (the Phase 3
trial). Both studies were planned to constitute the bulk of evidence of roluperidone’s effectiveness for the indication of treating negative symptoms of
schizophrenia. This plan relied on both studies having the same overall study design: both were multicenter, multinational, randomized, double-blind,
placebo-controlled, parallel-group studies in which patients received either 32 mg or 64 mg doses of roluperidone. In both studies, if patients were taking
antipsychotic treatments, they were discontinued and a washout period of two days was implemented before beginning the assigned study treatment. Both
studies capture comparative placebo-controlled data through their 12-week double-blind period. Both studies also provide long-term exposure data
regarding the safety and tolerability of roluperidone, as well as efficacy based on blinded doses of roluperidone, specifically intended to demonstrate the
maintenance of improvement in negative symptoms and the low rate of worsening of positive symptoms following 24-week (Study MIN-101C03) and 40-
week (Study MIN-101C07) Open Label (“OL”) periods. With the exception of the duration of the OL period, these two studies were nearly identical with
respect to patient population and main assessment tools (namely, Positive and Negative Syndrome Scale (“PANSS”), Personal and Social Performance
Scale (“PSP”), and Clinical Global Impression (“CGI”)). As such, the data from these studies are the basis for the decision to submit the application at this
stage of development as we believe they provide data to support the long-term safety and efficacy in adults in an area of high unmet medical need.
We are seeking approval for the 64 mg dose of roluperidone, and results described hereafter are for the 64 mg dose only.
Results of Study MIN-101C03 supported the primary hypothesis that after 12 weeks of treatment, roluperidone is superior to placebo in reducing negative
symptoms of schizophrenia. In the primary efficacy analysis, 64 mg roluperidone resulted in a statistically significant reduction of negative symptoms of
schizophrenia as measured by PANSS Pentagonal Structured Model Negative score (“PSM”) (p ≤ 0.0036). A post hoc analysis of the change from Baseline
to Week 12 in the PANSS Marder’s Negative Symptoms Factor Score (“NSFS”) also demonstrated a statistically significant difference for 64 mg
roluperidone compared with placebo (p ≤ 0.001). Statistically significant improvements with 64 mg roluperidone compared with placebo after 12 weeks of
the Double Blind (“DB”) period were also seen for multiple secondary/exploratory efficacy analyses. Further improvements in the NSFS were also seen
during the 24-week OL period.
The superiority of roluperidone over placebo was also demonstrated in Study MIN-101C07. Although the primary analysis (intent-to-treat (“ITT”)) of
change from Baseline in the NSFS to Week 12 for roluperidone compared to placebo marginally missed statistical significance (p ≤ 0.064), the results were
quantitatively superior for 64 mg roluperidone treatment. Furthermore, the analysis of the modified intent-to-treat (“mITT”) population (mITT data set
excludes data from one clinical site with implausible results for the 17 patients recruited at this site) demonstrated a nominal statistically significant
improvement in the NSFS for 64 mg roluperidone compared to placebo (p ≤ 0.044). In addition, statistically significant improvements (unadjusted) in the
NSFS from Baseline were seen as early as Weeks 4 and 8 for 64 mg roluperidone compared to placebo for both the ITT and the mITT populations. PSP
Total score (key secondary endpoint measuring vocational and social skills) reached statistical significance for both ITT and mITT populations (p ≤ 0.022
and p ≤ 0.017, respectively). Further improvements in the NSFS and PSP Total score were also seen during the 40-week OL period.
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Type C Meeting (March 2, 2022)
On April 7, 2022, we announced that we had received the official meeting minutes from the Type C meeting with the FDA held on March 2, 2022, in which
the development of roluperidone for the treatment of negative symptoms in schizophrenia was discussed. Four main topics (listed below) were highlighted
by the FDA for which they requested input and further clarification from us. The FDA, at that time, proposed to keep an open dialogue moving towards the
NDA submission. Following the meeting, Minerva provided additional data to address:
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The potential impact of roluperidone administration on the efficacy and safety of antipsychotic drugs. More specifically, the psychiatric
division (the “Division”) wanted reassurance that those patients administered roluperidone who manifest worsening of schizophrenia
symptoms and in the opinion of the clinician/investigators need treatment with antipsychotics, do not experience a diminished benefit of the
antipsychotic treatment or unexpected adverse effects.
The comparability of US and non-US schizophrenia patients. More specifically, the Division wanted to be reassured that data collected in
MIN-101C03 in non-US patients is applicable to US patients.
Supporting statistical evidence of efficacy of roluperidone on negative symptoms.
The ability of clinicians to identify patients who might benefit from roluperidone.
Chemistry, Manufacturing and Controls program
The chemistry, manufacturing and controls (“CMC”) scale-up program for roluperidone is ongoing to ensure consistency between the drug batches used
during Phase 3 testing and those that will be available for potential marketing and commercialization and subsequent regulatory submission and review of
an NDA for roluperidone. The CMC program requires validation of all aspects of the manufacturing processes required to result in a drug product that
consistently meets approved quality standards.
In September 2019 we entered into a long-term commercial supply agreement for roluperidone with Catalent, Inc. (“Catalent”), a leading global provider of
advanced delivery technologies, development, and manufacturing solutions for drugs, biologics, gene therapies, and consumer health products. Under the
terms of the agreement, Catalent manufactures and packages the finished dose form of roluperidone at its facility in Schorndorf, Germany. To date, Catalent
has worked with us to enable the transfer from pilot to commercial-scale production. This has included analytical methods transfer and validation, process
optimization, stability studies, and registration batch manufacturing, as well as packaging studies and the assessment of the influence of formulation factors
on the product’s critical quality attributes as required by Quality by Design process.
Drug-Drug Interaction Studies
We completed certain pharmacology trials that include a Drug-Drug Interaction study, which comprise a standard part of the NDA. We have studied
interactions separately with molecules inhibiting two subtypes of the cytochrome P450 (CYP2D6 and CYP3A4). The data from this study show minimal to
no interaction with the strong CYP3A4 inhibitor, and some interaction (< 1.6-fold increase in exposure) with the moderate CYP2D6 inhibitor.
Dose Escalation Study with formulation employed in Phase 3 clinical trial
We completed a prospective, double-blind, placebo-controlled, randomized single-escalating dose study in healthy subjects to evaluate the investigational
drug roluperidone as monotherapy administered at nine ascending doses (16, 32, 64, 96, 128, 160, 192, 224 and 256 mg). The highest dose tested is 4
multiples of the highest dose (64 mg) used in the Phase 3 trial.
The trial included a total of 90 subjects. 72 received 9 different doses of roluperidone, and 18 received placebo. All subjects who were dosed completed the
study as planned except for one male subject who received placebo and subsequently withdrew his consent.
We believe the findings from the trial suggest an expanded therapeutic window and a significantly improved safety margin for roluperidone. Furthermore,
we believe these data suggest the potential for future testing of roluperidone in schizophrenic patients with an exacerbation of psychosis at higher doses
than those used in the Phase 3 trial.
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Brain-Derived Neurotrophic Factor (“BDNF”) Findings
We completed non-clinical studies that provide evidence of the effect of roluperidone on Brain-Derived Neurotrophic Factor (“BDNF”) and on Glial Cell-
Derived Neurotrophic Factor (“GDNF”). BDNF is the most widely distributed member of neurotrophins in the brain and has been associated with
neurogenesis, neuroplasticity, neuroprotection, synaptic regulation and learning and memory. Its involvement in schizophrenia has also been described.
GDNF is another neurotrophin known to promote the survival of different types of brain cells and has been shown to be essential for the maintenance and
survival of dopamine neurons.
Data from this study were presented at the 2019 Congress of the Schizophrenia International Research Society on April 11, 2019. These findings
demonstrate that administration of roluperidone significantly increased BDNF release by astrocytes and hippocampal neurons obtained from the cerebral
cortex of newborn rats, as well as the release of GDNF in cultured astrocytes. Furthermore, data showed that roluperidone enhanced BDNF gene
expression at drug concentrations comparable to those observed in humans at tested doses. Based on these results, we believe that the effect of roluperidone
on BDNF and GDNF may indicate its potential for disease modification and improved neuroplasticity, in addition to its observed effects on the
serotoninergic 5-HT2A, sigma2, and α1A- and α1B- adrenergic neurotransmitter pathways.
Roluperidone License Agreement with MTPC
We have entered into a license agreement with MTPC dated as of August 30, 2007, as amended (“Roluperidone License Agreement”). Under the terms of
the Roluperidone License Agreement, we acquired an exclusive license to the lead compound known as CYR-101 (subsequently renamed MIN-101 and
roluperidone), and other compounds with a similar structure and intended purpose and other data included within the valid claims of certain patents
licensed to us under the Roluperidone License Agreement. The license is for world-wide rights other than certain countries in Asia, including China, Japan,
India and South Korea. We will pay MTPC a tiered royalty for net sales of product by us or any of our affiliates or sublicensees containing the licensed
compound at a range of percentages of the high single digits to the low teens depending on net sales of products under the Roluperidone License
Agreement. We were also required to make certain milestone payments upon the achievement of certain development and commercial milestones,
potentially up to $57.5 million for roluperidone and up to $59.5 million for additional products.
In January 2014 we renegotiated the structure of the license for roluperidone such that we are required to make milestone payments upon the achievement
of one development milestone totaling $0.5 million and certain commercial milestones, which could total up to $47.5 million, in the aggregate, as well as
the tiered royalty payments described above. In addition, in the event that we sell the rights to the license, MTPC will be entitled to a percentage of
milestone payments in the low teens and a percentage of royalties received by us in the low double digits. This license agreement expires upon the
expiration of our obligation to pay royalties, upon which we will have a fully paid-up, non-exclusive, perpetual, irrevocable license. Our obligation to pay
royalties continues, on a country-by-country basis, until the 12 year anniversary from the launch of the product in each country in our territory.
Seltorexant (MIN-202)
Introduction of Seltorexant and the Royalty Pharma Arrangement
Seltorexant is an innovative selective orexin 2 receptor antagonist that we co-developed with Janssen for the treatment of insomnia and MDD. Insomnia is
the repeated difficulty with sleep initiation, maintenance or quality that occurs despite adequate time and opportunity for sleep, resulting in daytime
impairment. Insomnia can be the primary condition for patients or a secondary symptom of, and contributor to, another medical or psychiatric condition,
such as MDD or schizophrenia.
In June 2020 we exercised our right to opt out of our agreement with Janssen for the future Phase 3 development and commercialization of seltorexant.
Under the terms of the opt-out agreement, we were entitled to collect royalties in the mid-single digits on potential future worldwide sales of seltorexant in
certain indications, with no further financial obligations to Janssen. In January 2021 we sold our rights to these potential royalties to Royalty Pharma for a
$60 million cash payment and up to an additional $95 million in potential milestone payments, subject to completion of Phase 3 trials by Janssen and
regulatory approvals. Janssen is currently conducting two Phase 3 studies with seltorexant, a third Phase 3 study was discontinued during 2022.
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Historical Clinical Developments
In October 2019 we announced top-line results from a Phase 2b clinical trial in which flexibly dosed seltorexant (20 mg or 40 mg) was compared to
flexibly dosed quetiapine XR (150 mg or 300 mg) for adjunctive treatment of patients with MDD. There were 102 patients enrolled, each with MDD not
responding adequately to SSRIs and SNRIs. The primary endpoint was all cause discontinuation of therapy over 6 months. Mood improvement, measured
using the MADRS, and safety and tolerability were evaluated. The primary intent of this exploratory trial was to generate data to assist with the planning of
Phase 3 studies; it was not powered to detect statistical significance. Quetiapine XR was used as a comparator, because it is the only medication approved
for the adjunctive treatment of MDD in both the U.S. and the European Union.
In May 2019 we announced positive top-line results from a Phase 2b trial of seltorexant as adjunctive therapy to antidepressants in adult patients with
MDD who have responded inadequately to antidepressant therapy, including selective serotonin reuptake inhibitors (“SSRIs”) and/or serotonin-
norepinephrine reuptake inhibitors (“SNRIs”). We believe these results represent the first clinical observation in a large, late-stage study that a selective
orexin molecule can achieve a positive effect as an adjunctive treatment in patients with MDD who have an inadequate response to SSRIs and SNRIs. We
believe these findings, if confirmed in Phase 3 studies, may suggest a novel approach to treating MDD with an improved safety profile compared to
existing therapies. Approximately 60%-70% of patients diagnosed and treated with first-line therapies, including SSRIs and/or SNRIs, do not experience
adequate treatment response, and seltorexant potentially represents an opportunity to improve treatment response rates safely in most of these patients.
MIN-301
Introduction of MIN-301 and Strategic Development Deferral
As a result of our acquisition of Mind-NRG in February 2014, we have exclusive rights to develop and commercialize MIN-301, a soluble recombinant
form of the Neuregulin-1b1 (“NRG-1b1”), protein, for the treatment of Parkinson’s disease and potentially for other neurodegenerative disorders. We
believe MIN-301 may have the potential to slow the onset of, and restore the brain tissue damage caused by, the disease. MIN-301 is produced by
recombinant technology, which is a type of process that modifies the genetics of a biological organism to cause it to produce a particular product. MIN-301
is a peptide that contains the extracellular domain of the human neureglin-1 beta 1 protein and is produced using an Escherichia coli organism that is
genetically engineered to express this peptide. Once administrated, this peptide binds to a particular receptor, ErbB4, which produces certain biological
effects. For instance, binding to ErbB4 modulates the levels of certain neurotransmitters such as Gamma-Aminobutyric Acid (“GABA”) and glutamate in
the brain, which are often unbalanced in individuals with Parkinson’s disease. Further, ErbB4 promotes oxygenation and metabolism of neurons and it is
involved in the control of brain inflammation, which may indicate that MIN-301 could have the potential to reverse the damage caused by Parkinson’s
disease.
Current treatments for Parkinson’s disease improve the symptoms of patients, but none have been proven to delay the onset of the disease, slow or prevent
the progression of the disease or reverse its effects. Due to MIN-301’s novel mechanism of action that targets neurological deficits, we believe MIN-301
may have the potential to address these unmet needs of patients and, if approved, may be used as an early-stage monotherapy as well as a complementary
therapy to existing treatments.
In 2021, we made the strategic decision to focus our limited resources on moving forward our lead drug candidate, roluperidone, and deferred the
development of MIN-301 until additional resources become available.
Non-clinical Development
Results from a non-human primate study showed that treatment with an analog of MIN-301 resulted in improvements in a range of symptoms associated
with a Parkinson’s disease model in primates. The results confirmed the beneficial effects of MIN-301 in non-primate pre-clinical models. We believe these
data provide support for advancing MIN-301 into clinical trials for the treatment of Parkinson’s disease in humans.
Optimization of the bioanalytical method was accomplished during 2020 following the completion of a rat pharmacokinetic study. The new bioanalytical
method facilitates the detection of MIN-301 concentrations at very low levels which we believe may enable further non-clinical testing of this compound.
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Impairment of MIN-301 In-process Research and Development Asset
As a result of our limited resources and development deferral combined with the overall market conditions, we recognized a non-cash charge of $15.2
million as of December 31, 2021 related to the impairment of the intangible asset for MIN-301. We had previously recognized in-process research and
development for MIN-301 in conjunction with the acquisition of MIN-301 during 2014. No updates were made in respect of the development of MIN-301
during 2022.
Competition
Roluperidone: Competition in the Pharmaceutical Market for the Treatment of Schizophrenia
Current drug therapies for the treatment of schizophrenia mainly target the positive symptoms of the disease. When patients present positive symptoms and
require treatment, they are typically given either conventional “first-generation” antipsychotic medication, such as GlaxoSmithKline’s Thorazine Sanofi-
Aventis’ Largactil (chlorpromazine) and Janssen’s Haldol (haloperidol), or second-generation “atypical antipsychotics,” such as Novartis’ Clozaril
(clozapine), Janssen’s Risperdal (risperidone), AstraZeneca’s Seroquel (quetiapine), Eli Lilly’s Zyprexa (olanzapine) and Bristol-Myers Squibb’s Abilify
(aripiprazole).
Both types of existing therapies have limited ability to improve negative symptoms and cognitive symptoms. In addition, existing therapies have extensive
side effects such as weight gain, metabolic syndrome, sedation, nausea, movement disorders, restlessness, insomnia, impairment of cognitive skills, and
prolactin increase. Since schizophrenia has a wide range of symptoms, multiple therapeutics are often prescribed in an attempt to address all aspects of the
disease, compounding these side effects.
Given the focus of currently approved drug therapies for positive symptoms and their side effect profiles, we believe these therapies are unlikely to be
directly competitive with roluperidone, which is intended to target primarily negative symptoms. However, new drug therapies in addition to roluperidone
are being developed to address the limitations of current therapies. Several new pharmacological approaches have been investigated. One targets a
neurotransmitter called glutamate and the other targets a neurotransmitter called nicotine. Glutamate is the most predominant neurotransmitter system in
maintaining the brain in an active state and is involved in maintaining accurate vigilance, attention and contributing to some cognitive skills. Nicotine is
among the most predominant neurotransmitter system involved in learning and some other cognitive skills.
Specific compounds under late-stage development that include negative symptoms as a target include Acadia Pharmaceuticals’ pimavanserin, a selective
serotonin 5HT2A inverse agonist (“SSIA”) that is approved for the treatment of hallucinations and delusions associated with Parkinson’s disease psychosis.
A Phase 3 trial to evaluate the efficacy and safety of pimavanserin as adjunctive treatment for the negative symptoms of schizophrenia was initiated in
August 2020. In January 2019, Lundbeck indicated they would begin proof-of-concept studies for Lu AF11167, a PDE-10 inhibitor for the treatment of
persistent negative symptoms in schizophrenia. In August 2020, Lundbeck announced they were discontinuing the trial based on the results of a futility
interim analysis, which concluded that the trial was unlikely to achieve statistical significance on its primary endpoint, mean change from baseline to week
12 on the Brief Negative Symptom Scale (“BNSS”).
Other products in clinical development, as a monotherapy or as an adjunctive treatment, whose targets include negative symptoms, (although not
necessarily defined as a primary outcome of their clinical trials) are Roche’s RO6889450/RG-7906, Neurocrine’s NBI-1065844 (formerly Takeda’s TAK-
831), SyneuRx’s NaBen, Avanir Pharmaceuticals’ AVP-786, and Karuna Therapeutics’ KarXT. In addition, a number of academic groups are conducting
studies with existing compounds for the treatment of negative symptoms of schizophrenia.
MIN-301: Competition in the Pharmaceutical Market for the Treatment of Parkinson’s Disease
Current treatments for Parkinson’s disease are intended to improve the symptoms of patients. The cornerstone of Parkinson’s therapy is levodopa, as it is
the most effective therapy for reducing symptoms of Parkinson’s disease. However, levodopa may cause unpleasant systemic side effects, such as
dyskinesias, and is often used with dopaminergics to manage these side effects. While initially effective, symptoms become increasingly difficult to control
over time, and patients experience a pattern of motor complications that include motor fluctuations, dyskinesias, off-period dystonia, freezing and falls.
Accordingly, there are advantages to deferring their use to later stages of the disease, or using them with other therapies to reduce the side effects of motor
fluctuations and dyskinesia that 50% of levodopa patients experience.
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Unlike currently available therapies, MIN-301, if approved, is intended to delay the onset of the disease, slow or prevent the progression of the disease or
reverse its effects. Since MIN-301 is expected to target Parkinson’s disease, rather than merely its symptoms, and current therapies are not fully effective at
improving the symptoms of Parkinson’s disease without side effects, we believe that levodopa and other currently available generic products may not be
directly competitive with MIN-301. While there are other drug therapies in development that will target the disease, such as gene and stem cell therapy and
A2A receptor agonists, the majority of products in development for disease modifying treatments of Parkinson’s disease are still in early-stage
development.
Intellectual Property
We strive to protect the proprietary products and technologies that we believe are important to our business, including seeking and maintaining patent
protection intended to cover the composition of our product candidates, their methods of use, related technology and other inventions that are important to
our business. We also rely on trade secrets and careful monitoring of our proprietary information to protect aspects of our business that are not amenable to,
or that we do not consider appropriate for, patent protection.
The patent portfolios for our product candidates, which we own or are exclusively licensed to us, are summarized below.
Roluperidone
Compound
Minerva owns numerous granted patents and patent applications worldwide that provide strong protection for roluperidone. These include patents and
applications directed to pharmaceutical compositions comprising roluperidone and methods of using roluperidone.
Pharmaceutical Compositions
We own four granted U.S. patents, U.S. Patent Nos. 9,458,130, 9,730,920, 10,258,614 and 10,799,493, and patents in Australia, Chile, Colombia, Europe,
Israel, Mexico, and Ukraine, as well as pending applications in the U.S., Australia, Brazil, Canada, Chile, Eurasia, Europe, Israel, New Zealand, Peru,
Ukraine, and South Africa that cover a novel formulation comprising roluperidone. This novel formulation provides improved therapeutic response and
minimizes the potential for transient QTc increases – and thus safety issues – when compared to previous formulations. Because of this improved safety
profile, it is this formulation of roluperidone that is being used in Phase 3 clinical trials, and it is this formulation that we expect will be the basis for
approval in the US and EU. The granted U.S. patents, as well as any other U.S. or foreign patents that may grant from these applications, will expire no
earlier than November 30, 2035. These patents are listable in the FDA’s Orange Book and would, we believe, bar generic competition during their terms. In
addition to the patent terms referenced above, a patent term extension of up to 5 years may also be available.
We also own pending applications in the U.S., Australia, Brazil, Canada, Chile, Colombia, Europe, Israel, Mexico, New Zealand, Peru, Russia, Ukraine,
and South Africa that cover gastro-resistant, controlled release dosage formulations of roluperidone. The terms of any future granted patents in this patent
family would expire no earlier than June 21, 2038.
Methods of Use
We own U.S. Patent No. 9,732,059, three granted patents in Russia, a single patent in Canada, and a single patent in a number of European territories
(Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Spain, Sweden,
Switzerland, Turkey, United Kingdom, Anguilla, Bermuda, Cayman Islands, Gibraltar, Jersey, Turks & Caicos Islands, and British Virgin Islands), as well
as pending applications in United States, Brazil, Canada, Europe, and Russia across two patent families that are directed to methods of use of roluperidone
to treat negative and other symptoms of schizophrenia, sleep disorders, depression, and other sigma-2 disorders or conditions. U.S. Patent No. 9,732,059
covers the use of roluperidone to treat one or more negative symptoms of schizophrenia and will not expire until 2033. This patent is listable in the FDA’s
Orange Book and would, we believe, bar generic competition during its term. A patent term extension of up to 5 years may also be available. The foreign
patents, as well as any future U.S. or foreign patents granting in these families, are scheduled to expire no earlier than July 20, 2031.
We also own U.S. and EP patent applications directed to the use of roluperidone to treat negative symptoms in non-schizophrenic patients. Any patents
granting from these applications would expire no earlier than May 23, 2037.
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In addition, we own a U.S. patent and pending applications in the U.S., Australia, Brazil, Canada, Chile, Europe, Israel, Mexico, New Zealand, Russia,
Ukraine, United Kingdom, and South Africa directed to the use of roluperidone to treat negative symptoms, various disorders (including autism disorders,
amblyopia, personality disorders, traumatic brain injury), as well as increasing neuroplasticity and promoting neuroprotection in subjects in need thereof.
The U.S. Patent and any future U.S. or foreign patents granting from these applications would expire no earlier than August 21, 2039.
MIN-301
We own a patent family that is directed to the use of MIN-301 for treating neurologic and psychiatric diseases, including Parkinson’s disease. This patent
family includes patents granted in the U.S., Australia, Brazil, Canada, Europe (Austria, Belgium, Denmark, France, Germany, Greece, Ireland, Italy,
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey and United Kingdom), Japan, Mexico and Russia. Applications are also pending in the
United States and Brazil. Any existing and future granted patents in this family will expire no earlier than November 17, 2028. A patent term extension of
up to five years may be available in the United States.
Sigma Ligands
We own U.S. and PCT applications directed to sigma ligand compounds and their potential use in treating a variety of diseases and disorders, including
pain disorders, CNS disorders (e.g., Parkinson’s disease and Alzheimer’s disease), viruses, and cancer. Any patents granting from the U.S. application, or
any national phase applications that may be filed based upon the PCT application, would expire no earlier than August 12, 2041. A patent term extension of
up to five years may be available in the United States.
Data and Marketing Exclusivity
In addition to patent protection, our product candidates may also be eligible for data and marketing exclusivity protection in the U.S., EU and certain other
countries. If our product candidates are approved and this protection is available, no competitor may use the data in our application for regulatory approval
of our product candidates to obtain regulatory approval of a generic product during the data exclusivity period.
For small molecules, such as roluperidone, the data and marketing exclusivity period is generally five years in the U.S., measured from the FDA approval
date. If MIN-301 is approved as a biologic product, it may be eligible for a data and marketing exclusivity period of twelve years in the U.S. The data and
marketing exclusivity periods in the U.S. may be extended by 6 months of pediatric exclusivity if a qualifying pediatric study is performed. Similar data
and market exclusivity opportunities are available in the EU; for more information, see the section titled “—Government Regulation and Product Approval
—Data and Marketing Exclusivity in the EU” below.
Manufacturing
We do not have any manufacturing facilities or personnel. We currently rely, and expect to continue to rely, on third parties for the manufacturing of our
product candidates for pre-clinical and clinical testing, as well as for commercial manufacturing if our product candidates receive regulatory approval. Our
product candidates are manufactured in reliable and reproducible synthetic processes from readily available starting materials. The chemistry does not
require unusual equipment in the manufacturing process. We expect to continue to develop product candidates that can be produced cost-effectively at
contract manufacturing facilities.
Commercialization
Except for most of Asia, we have global commercialization rights for roluperidone. We also own worldwide rights for MIN-301. We believe that it will be
possible for us to access European and, in the case of roluperidone and MIN-301, other priority markets including the United States, Asia, and Latin
America, through a focused, specialized sales force where the population dynamics would prove efficient. We may enter into sales, distribution or other
marketing arrangements with third parties for priority markets or limited to certain territories for any of our drug candidates that obtain regulatory approval.
Subject to receiving regulatory approvals, we expect to commence commercialization activities by building a focused sales and marketing organization,
either alone or through collaborations with third parties, in the United States, EU and Latin America to sell our product candidates. We believe that such an
organization will be able to target the community of physicians who are the key specialists in treating the patient populations for which our product
candidates are being developed. Additionally, we plan to engage fully with all key constituencies involved in treatment decisions, including payors, patients
and others.
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Government Regulation and Product Approval
Regulation of Medicinal Products in the European Union
Clinical Trials in the EU
In the EU, clinical trials are governed by the Clinical Trials Regulation (EU) No 536/2014 (“CTR”), which entered into application on January 31, 2022,
repealing and replacing the former Clinical Trials Directive 2001/20 (“CTD”) and related national implementing legislation of EU Member States.
The CTR is intended to harmonize and streamline clinical trial authorizations, simplify adverse-event reporting procedures, improve the supervision of
clinical trials and increasing their transparency. Specifically, the Regulation, which is directly applicable in all EU Member States, introduces a streamlined
application procedure through a single-entry point, the “EU portal,” the Clinical Trials Information System (“CTIS”); a single set of documents to be
prepared and submitted for the application; as well as simplified reporting procedures for clinical trial sponsors. A harmonized procedure for the
assessment of applications for clinical trials has been introduced and is divided into two parts. Part I assessment is led by the competent authorities of a
reference Member State selected by the trial sponsor and relates to clinical trial aspects that are considered to be scientifically harmonized across EU
Member States. This assessment is then submitted to the competent authorities of all concerned Member States in which the trial is to be conducted for
their review. Part II is assessed separately by the competent authorities and Ethics Committees in each concerned EU Member State. Individual EU
Member States retain the power to authorize the conduct of clinical trials on their territory.
The extent to which ongoing clinical trials will be governed by the CTR will depend on the duration of the individual clinical trial. Sponsors could choose
to submit a clinical trial application under either the CTD or the CTR until January 31, 2023. For clinical trials in relation to which application for approval
was made on the basis of the CTD before January 31, 2022, the CTD will continue to apply on a transitional basis for three years. If authorized, those
clinical trials will be governed by the CTD until January 31, 2025. By that date, all ongoing trials will become subject to the provisions of the CTR. The
CTR will apply to clinical trials from an earlier date if the clinical trial has already transitioned to the CTR framework.
In all cases, the clinical trials must be conducted in accordance with EU and national regulations governing clinical trials, including the Good Clinical
Practice Directive 2005/28. Studies should also be conducted in accordance with all applicable European Medicines Agency (“EMA”), European
Commission and national guidelines and investigational medicinal products used in clinical trials must be manufactured in accordance with Good
Manufacturing Practices.
Marketing Authorization in the EU
In the EU, medicinal products can only be commercialized after a related marketing authorization (“MA”) has been granted. A company may submit a
marketing authorization application (“MAA”), either on the basis of the centralized, or decentralized procedure or mutual recognition procedure.
To obtain a MA for a product in the EEA (which is comprised of the 27 Member States of the European Union plus Norway, Iceland and Liechtenstein), an
applicant must submit an MAA either under a centralized procedure administered by the EMA or one of the procedures administered by competent
authorities in the EU Member States (decentralized procedure, national procedure or mutual recognition procedure). An MA may be granted only to an
applicant established in the EU.
The centralized procedure provides for the grant of a single MA by the European Commission that is valid for all EU Member States. Pursuant to
Regulation (EC) No 726/2004, the centralized procedure is compulsory for specific products, including for (i) medicinal products derived from
biotechnological processes, (ii)products designated as orphan medicinal products, (iii) advanced therapy medicinal products (“ATMPs”) and (iv) products
with a new active substance indicated for the treatment of HIV/AIDS, cancer, neurodegenerative diseases, diabetes, auto-immune and other immune
dysfunctions and viral diseases. For products with a new active substance indicated for the treatment of other diseases and products that are highly
innovative or for which a centralized process is in the interest of patients, authorization through the centralized procedure is optional on related approval.
Under the centralized procedure, the EMA’s Committee for Medicinal Products for Human Use (“CHMP”) conducts the initial assessment of a product.
The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an
existing MA.
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Under the centralized procedure in the EU, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops when additional
information or written or oral explanation is to be provided by the applicant in response to questions of the CHMP. Accelerated assessment may be granted
by the CHMP in exceptional cases, when a medicinal product targeting an unmet medical need is expected to be of major interest from the point of view of
public health and, in particular, from the viewpoint of therapeutic innovation. If the CHMP accepts a request for accelerated assessment, the time limit of
210 days will be reduced to 150 days (excluding clock stops). The CHMP can, however, revert to the standard time limit for the centralized procedure if it
considers that it is no longer appropriate to conduct an accelerated assessment.
Unlike the centralized authorization procedure, the decentralized MA procedure requires a separate application to, and leads to separate approval by, the
competent authorities of each EU Member State in which the product is to be marketed. This application is identical to the application that would be
submitted to the EMA for authorization through the centralized procedure. The reference EU Member State prepares a draft assessment and drafts of the
related materials within 120 days after receipt of a valid application. The resulting assessment report is submitted to the concerned EU Member States who,
within 90 days of receipt, must decide whether to approve the assessment report and related materials. If a concerned EU Member State cannot approve the
assessment report and related materials due to concerns relating to a potential serious risk to public health, disputed elements may be referred to the Heads
of Medicines Agencies’ Coordination Group for Mutual Recognition and Decentralized Procedures – Human (“CMDh”) for review. The subsequent
decision of the European Commission is binding on all EU Member States.
The mutual recognition procedure allows companies that have a medicinal product already authorized in one EU Member State to apply for this
authorization to be recognized by the competent authorities in other EU Member States. Like the decentralized procedure, the mutual recognition procedure
is based on the acceptance by the competent authorities of the EU Member States of the MA of a medicinal product by the competent authorities of other
EU Member States. The holder of a national MA may submit an application to the competent authority of an EU Member State requesting that this
authority recognize the MA delivered by the competent authority of another EU Member State.
An MA has, in principle, an initial validity of five years. The MA may be renewed after five years on the basis of a re-evaluation of the risk-benefit balance
by the EMA or by the competent authority of the EU Member State in which the original MA was granted. To support the application, the MA holder must
provide the EMA or the competent authority with a consolidated version of the eCTD (Common Technical Document) providing up-to-date data
concerning the quality, safety and efficacy of the product, including all variations introduced since the MA was granted, at least nine months before the MA
ceases to be valid. The European Commission or the competent authorities of the EU Member States may decide on justified grounds relating to
pharmacovigilance, to proceed with one further five-year renewal period for the MA. Once subsequently definitively renewed, the MA shall be valid for an
unlimited period. Any authorization which is not followed by the actual placing of the medicinal product on the EU market (for a centralized MA) or on the
market of the authorizing EU Member State within three years after authorization ceases to be valid (the so-called sunset clause).
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 Priority Medicines (“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 medicinal products that target unmet
medical needs. Eligible products must target conditions for which there is an unmet medical need (there is no satisfactory method of diagnosis, prevention
or treatment in the EU or, if there is, the new medicinal product will bring a major therapeutic advantage) and they must demonstrate the potential to
address the unmet medical need by introducing new methods of therapy or improving existing ones. 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 potentially accelerated MAA assessment once a dossier has been submitted.
In the EU, a “conditional” MA may be granted in cases where all the required safety and efficacy data are not yet available. The European Commission
may grant a conditional MA for a medicinal product if it is demonstrated that all of the following criteria are met: (i) the benefit-risk balance of the
medicinal product is positive; (ii) it is likely that the applicant will be able to provide comprehensive data post-authorization; (iii) the medicinal product
fulfils an unmet medical need; and (iv) the benefit of the immediate availability to patients of the medicinal product is greater than the risk inherent in the
fact that additional data are still required. The conditional MA is subject to conditions to be fulfilled for generating the missing data or ensuring increased
safety measures. It is valid for one year and must be renewed annually until all related conditions have been fulfilled. Once any pending studies are
provided, the conditional MA can be converted into a traditional MA. However, if the conditions are not fulfilled within the timeframe set by the EMA and
approved by the European Commission, the MA will cease to be renewed.
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An MA may also be granted “under exceptional circumstances” where the applicant can show that it is unable to provide comprehensive data on efficacy
and safety under normal conditions of use even after the product has been authorized and subject to specific procedures being introduced. These
circumstances may arise in particular when the intended indications are very rare and, in the state of scientific knowledge at that time, it is not possible to
provide comprehensive information, or when generating data may be contrary to generally accepted ethical principles. Like a conditional MA, an MA
granted in exceptional circumstances is reserved to medicinal products intended to be authorized for treatment of rare diseases or unmet medical needs for
which the applicant does not hold a complete data set that is required for the grant of a standard MA. However, unlike the conditional MA, an applicant for
authorization in exceptional circumstances is not subsequently required to provide the missing data. Although the MA “under exceptional circumstances” is
granted definitively, the risk-benefit balance of the medicinal product is reviewed annually, and the MA will be withdrawn if the risk-benefit ratio is no
longer favorable.
Pediatric Development
In the EU, Regulation (EC) No 1901/2006 provides that all marketing authorization applications for new medicinal products must include the results of
trials conducted in the pediatric population, in compliance with a pediatric investigation plan (“PIP”), agreed with the EMA’s Pediatric Committee
(“PDCO”). The PIP sets out the timing and measures proposed to generate data to support a pediatric indication of the medicinal product for which
marketing authorization is being sought. The PDCO may grant a deferral of the obligation to implement some or all of the measures provided in the PIP
until there are sufficient data to demonstrate the efficacy and safety of the product in adults. Furthermore, the obligation to provide pediatric clinical trial
data can be waived by the PDCO when these data are not needed or appropriate because the product is likely to be ineffective or unsafe in children, the
disease or condition for which the product is intended occurs only in adult populations, or when the product does not represent a significant therapeutic
benefit over existing treatments for pediatric patients. Once the marketing authorization is obtained in all EU Member States and study results are included
in the product information, even when negative, the product is eligible for a six-month extension to the Supplementary Protection Certificate (“SPC”), if
any is in effect at the time of authorization or, in the case of orphan medicinal products, a two-year extension of orphan market exclusivity. For other
countries outside of the EU, such as certain countries in Eastern Europe, Latin America or Asia, the requirements governing the conduct of clinical trials,
product approval, pricing and reimbursement vary from country to country. In all cases, the clinical trials are to be conducted in accordance with GCP and
the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
Data and Marketing Exclusivity in the EU
The EU also provides opportunities for market exclusivity. Upon receiving an MA in the EU, innovative medicinal products generally receive eight years
of data exclusivity and an additional two years of market exclusivity. If granted, data exclusivity prevents generic or biosimilar applicants from referencing
the innovator’s pre-clinical and clinical trial data contained in the dossier of the reference product when applying for a generic or biosimilar marketing
authorization during a period of eight years from the date on which the reference product was first authorized in the EU. During the additional two-year
period of market exclusivity, a generic or biosimilar marketing authorization can be submitted, and the innovator’s data may be referenced, but no generic
or biosimilar product can be marketed until the expiration of the market exclusivity period. The overall ten-year period will be extended to a maximum of
eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic
indications which, during the scientific evaluation prior to authorization, is held to bring a significant clinical benefit in comparison with existing therapies.
In the EU, there is a special regime for biosimilars, or biological medicinal products that are similar to a reference medicinal product but that do not meet
the definition of a generic medicinal product. For such products, the results of appropriate preclinical or clinical trials must be provided in support of an
application for marketing authorization. Guidelines from the EMA detail the type of quantity of supplementary data to be provided for different types of
biological product.
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U.S. FDA Approval Process
In the United States, pharmaceutical products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (“FDCA”), and
other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, packaging, storage,
recordkeeping, approval, labeling, advertising, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and
export of pharmaceutical products. MIN-301, a peptide, may be regulated as a biologic and additionally subject to the Public Health Service Act. Failure to
comply with applicable U.S. requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to allow pending
Investigational New Drug Applications (“INDs”), and approve NDAs, withdrawal of a marketing approval, imposition of clinical holds or termination of
clinical trials, or issuance of Warning or Untitled Letters, product recalls, product seizures, refusal to allow imports or exports total or partial suspension of
production or distribution, debarment, injunctions, fines, refusal of government contracts, exclusion from participation in federal and state healthcare
programs, restitution, disgorgement, civil penalties and criminal prosecution, including criminal fines and imprisonment.
FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the
United States. Pharmaceutical product development in the United States typically involves, among other things, pre-clinical laboratory and animal tests, the
submission to the FDA of an IND, which must become effective before clinical testing may commence, and adequate and well-controlled clinical trials to
establish the safety and effectiveness of the drug for each indication for which FDA approval is sought. Satisfaction of FDA pre-market approval
requirements typically takes many years and significant financial investment, and the actual time and cost required may vary substantially based upon the
type, complexity and novelty of the product or disease indicated for treatment.
Pre-clinical tests include laboratory evaluation of product chemistry, pharmacology, stability, formulation and toxicity, as well as animal trials to assess the
characteristics and potential safety and efficacy of the product. The conduct of the preclinical tests must comply with federal regulations and requirements
including good laboratory practices. The results of pre-clinical testing are submitted to the FDA as part of an IND along with other information including
information about product chemistry, manufacturing and controls, any available clinical data or literature, and a proposed clinical trial protocol, among
other items. Certain pre-clinical tests, such as animal tests of reproductive toxicity and carcinogenicity, may be conducted after the IND is submitted. A 30-
day waiting period after the submission of each IND is required prior to the commencement of clinical testing in humans. If the FDA has not placed a
clinical hold on the IND within this 30-day period, the clinical trial proposed in the IND may begin. Should FDA place a clinical hold on the IND, the IND
sponsor and the FDA must resolve any outstanding concerns before the clinical trial may begin.
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of a qualified investigator. Clinical trials
must be conducted in compliance with federal regulations, good clinical practices (“GCP”), which include the ethical principles that all research subjects
provide their informed consent in writing for their participation in any clinical trial, and that all trials be approved and monitored on an ongoing basis by an
institutional review board (“IRB”). Clinical trials must also be conducted under protocols detailing the objectives of the trial, trial procedures, the
parameters to be used in monitoring safety and the effectiveness criteria to be evaluated, and a statistical analysis plan. Each protocol involving testing in
U.S. subjects and subsequent protocol amendments must be submitted to the FDA as part of the IND. The study protocol and informed consent information
for subjects in clinical trials, along with all amendments, must also be submitted to an IRB for approval.
Clinical trials to support NDAs for marketing approval are typically conducted in three sequential phases, but the phases may overlap. In Phase 1, the initial
introduction of the drug into healthy human subjects or subjects with the target disease or condition, the drug is tested to assess safety, metabolism,
pharmacokinetics, pharmacological actions, side effects associated with increasing doses and, if possible, early evidence of effectiveness. Phase 2 usually
involves trials in a limited subject population with the target disease or condition to evaluate the effectiveness of the drug for a particular indication or
indications, dosage tolerance and optimum dosage, and identify possible adverse effects and safety risks. If a compound demonstrates evidence of
effectiveness and an acceptable safety profile in Phase 2 evaluations, generally two adequate and well-controlled Phase 3 trials are undertaken to obtain
additional information about clinical efficacy and safety in a larger number of subjects, typically at geographically dispersed clinical trial sites, to establish
the overall benefit-risk relationship of the drug and to provide adequate information for the labeling of the drug. In some cases, the FDA may condition
approval on the sponsor’s agreement to conduct additional clinical trials to further assess the drug’s safety and effectiveness after approval. Such post-
approval trials are typically referred to as Phase 4 trials. Progress reports detailing the results of the clinical trials must be submitted at least annually to the
FDA and more frequently if serious adverse events occur. Information about certain clinical trials, including a description of the study and study results
must also be submitted within specific timeframes to the National Institutes of Health (“NIH”), for public dissemination on their clinicaltrials.gov website.
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The manufacture of investigational drugs for the conduct of human clinical trials is subject to the Current Good Manufacturing Practices (“cGMPs”).
Investigational drugs and active pharmaceutical ingredients imported into the United States are also subject to regulation by FDA relating to their labeling
and distribution. Further, the export of investigational drug products outside of the United States is subject to regulatory requirements of the receiving
country as well as United States export requirements.
The FDA may impose a clinical hold on a clinical trial, or impose other sanctions, at any time on various grounds, including a finding that the research
subjects are being exposed to an unacceptable health risk or if it believes that the clinical trials are not being conducted in accordance with FDA
requirements. 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 subjects, or may impose other conditions on the
conduct of the research. Additionally, some clinical trials are overseen by an independent group of qualified experts organized by the clinical trial sponsor,
known as a data safety monitoring board or committee. This group regularly reviews accumulated data and advises the study sponsor regarding the
continuing safety of trial subjects, potential trial subjects, and the continuing validity and scientific merit of the clinical trial. Sponsors may also suspend or
terminate a clinical trial based on safety concerns, a lack of evidence of drug efficacy, evolving business objectives and/or competitive climate.
After completion of the required clinical testing, an NDA is prepared and submitted to the FDA. FDA approval of the NDA is required before marketing of
the product may begin in the United States. The NDA must include the results of all pre-clinical, clinical and other testing and a compilation of data
relating to the product’s pharmacology, chemistry, manufacture and controls, and proposed labeling, among other things. Under federal law, the submission
of most marketing applications is subject to a substantial application user fee, and the sponsor of an approved application is also subject to annual program
fees.
In addition, under the Pediatric Research Equity Act (“PREA”), a marketing application or supplement to a marketing application for a new active
ingredient, indication, dosage form, dosage regimen or route of administration must contain data that are adequate to assess the safety and effectiveness of
the drug for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for
which the product is safe and effective. The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all
pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements.
The FDA also may require submission of a risk evaluation and mitigation strategy (“REMS”), either during the application process or after the approval of
the drug to mitigate any identified or suspected serious risks, and to identify any new risks that were not apparent in clinical investigations. The REMS plan
could include medication guides, physician communication plans, assessment plans, and elements to assure safe use, such as restricted distribution
methods, patient registries or other risk minimization tools.
The FDA has 60 days from its receipt of an NDA to determine whether the application will be accepted for filing based on the agency’s threshold
determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review.
The FDA reviews an NDA to determine, among other things, whether the drug is safe and effective and whether the facility in which it is manufactured,
processed, packaged or held meets standards designed to assure the product’s continued safety, quality and purity.
Under the Prescription Drug User Fee Act the FDA has agreed to certain performance goals in the review of NDAs. The FDA has a goal of reviewing
ninety percent of applications for non-priority drug products within 10 months of the FDA’s acceptance of the full application for filing. The review process
may be extended by the FDA under certain circumstances.
Under the FDCA and FDA guidance, before approving a drug for which no active ingredient (including any ester or salt of the active ingredients) has
previously been approved by the FDA or a first-of-a-kind, first-in-class biologic, FDA must either refer that drug to an external advisory committee or
provide in an action letter, a summary of the reasons why FDA did not refer the drug to an advisory committee. The external advisory committee review
may also be required for other drugs because of certain other issues, including clinical trial design, safety and effectiveness, and public health questions. An
advisory committee is a panel of independent experts, including clinicians and other experts, for review, evaluation and a recommendation as to whether
the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers
such recommendations carefully when making decisions.
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Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. The FDA will not approve the product unless the facility,
and all of its subcontractors and contract manufacturers, demonstrate compliance with cGMPs, and provide adequate assurance that they can consistently
produce the product within required specifications, and the NDA contains data that provides substantial evidence that the drug is safe and effective for the
indication sought in the proposed labeling. Additionally, the FDA will typically inspect one or more clinical trial sites to assure compliance with GCPs
before approving a marketing application. After the FDA evaluates the marketing application and the manufacturing facilities, it may issue an approval
letter, or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional
testing or information in order for the FDA to reconsider the application. Even with submission of this additional information, the FDA ultimately may
decide that the application does not satisfy the regulatory criteria for approval. If and when those deficiencies have been addressed to the FDA’s satisfaction
in a resubmission of the NDA, the FDA may issue an approval letter.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA
approval, the FDA may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy and may impose other conditions,
including labeling restrictions, limitations on the approved indications, contraindications, warnings or precautions, such as boxed warnings, distribution
restrictions or other risk-management mechanisms under a REMS which can materially affect the potential market and profitability of the drug. The FDA
may prevent or limit further marketing of a product based on the results of post-marketing trials or surveillance programs. Further, if there are any
modifications to the drug, including changes in indications, labeling, manufacturing processes or facilities, or new safety issues arise, a new or
supplemental NDA or a post-implementation notification or other report may be required or requested depending on the change, which may require
additional data or additional pre-clinical studies and clinical trials. Once granted, product approvals may be withdrawn if compliance with regulatory
standards is not maintained or problems are identified following initial marketing.
Post-Approval Requirements
Drugs manufactured or distributed pursuant to approvals from the FDA or comparable foreign regulatory authorities are subject to pervasive and continuing
regulation by the FDA, or comparable foreign regulatory authorities including, among other things, requirements relating to recordkeeping, periodic
reporting, product sampling and distribution, advertising and promotion, and reporting of adverse experiences with the product and drug shortages. After
approval, most changes to the approved product, such as adding new indications, manufacturing changes or other labeling claims, are subject to further
testing requirements and prior review and approval by the FDA or comparable foreign regulatory authorities.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are subject to periodic announced and
unannounced inspections by the FDA, state agencies, as well as comparable foreign regulatory authorities for compliance with cGMP and other regulatory
requirements. Changes to the manufacturing process are strictly regulated and may require prior approval from or notification to the FDA or comparable
foreign regulatory authorities before being implemented. FDA and comparable foreign regulatory authorities also require investigation and correction of
any deviations from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor
may decide to use.
The FDA and comparable foreign regulatory authorities strictly regulate marketing, labeling, advertising and promotion of products that are placed on the
market. Although physicians, in the practice of medicine, may prescribe approved drugs for unapproved indications if in their professional medical
judgment they believe it to be appropriate, pharmaceutical companies may only market and promote their drug products for the FDA approved indications
and in accordance with the provisions of the approved label. The FDA and other regulatory authorities actively enforce the laws prohibiting the marketing
and promotion of off-label uses, and a company that is found to have improperly marketed or promoted off-label uses may be subject to significant liability,
including, among others, criminal and civil penalties under the FDCA and False Claims Act, exclusion from participation in federal healthcare programs,
and mandatory compliance programs. Equivalent limitations and penalties are provided in the EU both at the EU and at national level in individual EU
Member States.
Moreover, the Drug Quality and Security Act imposes obligations on manufacturers of pharmaceutical products, among others, related to product and
tracking and tracing.
Where an MA is granted in relation to a medicinal product in the EU, the holder of the MA is required to comply with a range of regulatory requirements
applicable to the manufacturing, marketing, promotion and sale of medicinal products. Similar to the United States, both MA holders and manufacturers of
medicinal products are subject to comprehensive regulatory oversight by the EMA, the European Commission and/or the competent regulatory authorities
of the individual EU Member States. The holder of an MA must establish and maintain a pharmacovigilance system and appoint an individual qualified
person for pharmacovigilance who is responsible for oversight of that system. Key obligations include expedited reporting of suspected serious adverse
reactions and submission of periodic safety update reports.
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All new MAAs in the European Union must include a risk management plan (“RMP”), describing the risk management system that the company will put in
place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific
obligations as a condition of the MA. Such risk-minimization measures or post-authorization obligations may include additional safety monitoring, more
frequent submission of PSURs, or the conduct of additional clinical trials or post-authorization safety studies. RMPs and PSURs can be made available to
third parties requesting access, subject to limited redactions and related conditions. In the EU, the advertising and promotion of medicinal products are
subject to both EU and EU Member States’ laws governing promotion of medicinal products, interactions with physicians and other healthcare
professionals, misleading and comparative advertising and unfair commercial practices. Although general requirements for advertising and promotion of
medicinal products are established under EU directives, the details are governed by regulations in each EU Member State and can differ from one country
to another. All advertising and promotional activities for the product must be consistent with the approved summary of product characteristics in
connection with an MA. The SmPC is the document that provides information to physicians concerning the safe and effective use of the product.
Promotional activity that does not comply with the SmPC is considered off-label and is prohibited in the EU. Direct-to-consumer advertising of
prescription only medicines is also prohibited in the European Union.
Brexit
The UK’s withdrawal from the EU on January 31, 2020, commonly referred to as Brexit, has created significant uncertainty concerning the future
relationship between the UK and the EU. The Medicines and Healthcare products Regulatory Agency (“MHRA”) is now the UK’s standalone regulator. On
December 24, 2020, the EU and UK reached an agreement in principle on the framework for their future relationship, the EU-UK Trade and Cooperation
Agreement (the “Agreement”). The Agreement primarily focuses on ensuring free trade between the EU and the UK in relation to goods, including
medicinal products. Although the body of the Agreement includes general terms which apply to medicinal products, greater detail on sector-specific issues
is provided in an Annex to the Agreement.
Among the changes that will now occur are that Great Britain (England, Scotland and Wales) will be treated as a third country. Northern Ireland will, with
regard to EU regulations, continue to follow the EU regulatory rules. As part of the Agreement, the EU and the UK will recognize GMP inspections carried
out by the other party and the acceptance of official GMP documents issued by the other party. The Agreement also encourages, although it does not oblige,
the parties to consult one another on proposals to introduce significant changes to technical regulations or inspection procedures. Among the areas of
absence of mutual recognition are batch testing and batch release. The UK has unilaterally agreed to accept EU batch testing and batch release. However,
the EU continues to apply EU laws that require batch testing and batch release to take place in the EU territory. This means that medicinal products that are
tested and released in the UK must be retested and re-released when entering the EU market for commercial use.
The UK regulatory framework in relation to clinical trials is derived from existing EU legislation (as implemented into UK law, through secondary
legislation). However, it is currently unclear to what extent the UK will seek to align its regulations with the EU following entry into application of the
Clinical Trials Regulation on January 31, 2022.
As regards marketing authorizations, Great Britain has a separate regulatory submission process, approval process and a national marketing authorization.
Northern Ireland will, however, continue to be covered by the marketing authorizations granted by the European Commission. Since January 1, 2021, an
applicant for a centralized procedure marketing authorization can no longer be established in the UK. Since this date, companies established in the UK
cannot use the centralized procedure and instead must follow one of the UK national authorization procedures to obtain an MA to market products in the
UK. Until 31 December 2023, MHRA may rely on a decision taken by the European Commission on the approval of a new centralized procedure
marketing authorization when determining an application for a Great Britain marketing authorization; or use the MHRA’s decentralized or mutual
recognition procedures which enable marketing authorizations approved in EU Member States through decentralized and mutual recognition procedures to
be granted in the United Kingdom or Great Britain. Post Brexit, the MHRA has been updating various aspects of the regulatory regime for medicinal
products in the UK. These include: introducing the Innovative Licensing and Access Procedure to accelerate the time to market and facilitate patient access
for innovative medicinal products; updates to the UK national approval procedure, introducing a 150-day objective for assessing applications for marketing
authorizations in the UK, Great Britain and Northern Ireland and a rolling review process for marketing authorization applications (rather than a
consolidated full dossier submission).
Federal and State Fraud and Abuse, Data Privacy and Security and Transparency Laws
In addition to FDA restrictions on marketing and promotion of pharmaceutical products, other federal and state healthcare laws restrict business practices in
the biopharmaceutical industry. These laws include, without limitation, state and federal anti-kickback and false claims laws, data privacy and security
laws, as well as transparency laws regarding payments or other items of value provided to healthcare providers.
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The federal Anti-Kickback Statute prohibits, among other things, individuals and entities from knowingly and willfully soliciting, receiving, offering or
paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for,
the referral of an individual for the furnishing or arranging for the furnishing of any item or service, or the purchase, lease, order, arrangement for, or
recommendation of the purchase, lease, or order of any good, facility, item or service for which payment may be made, in whole or in part, under a federal
healthcare program, such as the Medicare and Medicaid programs. There are a number of statutory exceptions and regulatory safe harbors protecting some
common activities from prosecution, but the exceptions and safe harbors are drawn narrowly and require strict compliance in order to offer protection.
Additionally, the intent standard under the federal Anti-Kickback Statute was amended by the Patient Protection and Affordable Care Act, as amended by
the Health Care and Education Reconciliation Act of 2010 (collectively, “ACA”), to a stricter standard such that a person or entity does not need to have
actual knowledge of the statute or specific intent to violate it in order to have committed a violation. Further, the ACA codified case law 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 civil
False Claims Act.
The federal false claims laws, including the civil False Claims Act, which can be enforced through civil whistleblower or qui tam actions, impose civil and
criminal penalties on individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for
payment that are false or fraudulent; knowingly making, using or causing to be made or used, a false record or statement to get a false or fraudulent claim
paid or approved by the government; conspiring to defraud the government by getting a false or fraudulent claim paid or approved by the government; or
knowingly making, using or causing to be made or used a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal
government. Further, the civil monetary penalties statute, imposes penalties against any person or entity who, among other things, is determined to have
presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not
provided as claimed or is false or fraudulent.
In addition, the federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), created additional federal criminal statutes that prohibit
knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or fraudulent
pretenses, representations or promises, any of the money or property owned by, or under the custody or control of, any healthcare benefit program,
regardless of the payor (e.g., public or private), knowingly and willfully embezzling or stealing from a health care benefit program, willfully obstructing a
criminal investigation of a health care offense and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or
making any materially false statements in connection with the delivery of, or payment for, healthcare benefits, items or services relating to healthcare
matters. Moreover, HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), and their
respective implementing regulations, impose requirements on certain covered healthcare providers, health plans and healthcare clearinghouses as well as
their respective business associates and covered subcontractors that perform services for them that involve individually identifiable health information,
relating to the privacy, security and transmission of individually identifiable health information without appropriate authorization, including mandatory
contractual terms as well as directly applicable privacy and security standards and requirements.
The federal Physician Payments Sunshine Act and its implementing regulations requires manufacturers of drugs, devices, biologicals and medical supplies
for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain exceptions) to report annually to CMS
information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and
chiropractors), certain other healthcare professionals (such as physician assistants and nurse practitioners) and teaching hospitals, as well as ownership and
investment interests held by physicians and their immediate family members.
Most states and foreign countries also have statutes or regulations similar to the fraud and abuse laws described above, including certain state laws which
apply to items and services reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payor. We may also be subject
to state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways
and often are not preempted by the HIPAA, thus complicating compliance efforts. In addition, we may be subject to reporting requirements under state
transparency laws, as well as state laws that require pharmaceutical companies to comply with the industry’s voluntary compliance guidelines and the
applicable compliance guidance promulgated by the federal government that otherwise restricts certain payments that may be made to healthcare providers
and entities.
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If our operations are found to be in violation of any of the health regulatory laws described above or any other laws that apply to us, we may be subject to
penalties, including potentially significant criminal and civil and/or administrative penalties, damages, fines, disgorgement, individual imprisonment,
exclusion from participation in government healthcare programs, contractual damages, reputational harm, administrative burdens, diminished profits and
future earnings, additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve
allegations of non-compliance with these laws, and the curtailment or restructuring of our operations, any of which could adversely affect our ability to
operate our business and our results of operations. To the extent that any of our products are sold in a foreign country, we may be subject to similar foreign
laws.
Coverage and Reimbursement
The commercial success of our product candidates and our ability to commercialize any approved product candidates successfully will depend in part on
the extent to which governmental authorities, private health insurers and other third-party payors provide coverage for and establish adequate
reimbursement levels for our product candidates, once approved.
Government health administration authorities, private health insurers and other third-party payors generally decide which drugs they will pay for and
establish reimbursement levels for healthcare. In particular, in the United States, private health insurers and other third-party payors often provide
reimbursement for products and services based on the level at which the government (through the Medicare or Medicaid programs) provides
reimbursement for such treatments. Sales of our product candidates will therefore depend substantially, both domestically and abroad, on the extent to
which the costs of our product candidates will be covered by third-party payors. The market for our product candidates will depend significantly on access
to third-party payors’ formularies without prior authorization, step therapy, or other limitations such as approved lists of treatments for which third-party
payors provide coverage and reimbursement. Also, third-party payors are developing increasingly sophisticated methods of controlling healthcare costs.
Coverage and reimbursement for therapeutic products can differ significantly from payor to payor. A third-party payors’ decision to provide coverage for a
medical product or service does not imply that an adequate reimbursement rate will be approved. One third-party payor’s decision to cover a particular
medical product or service does not ensure that other payors will also provide coverage for the medical product or service, or will provide coverage at an
adequate reimbursement rate. As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our
products to each payor separately, with no assurance that adequate coverage and reimbursement will be obtained.
In the United States, the European Union and other potentially significant markets for our product candidates, government authorities and other third-party
payors are developing increasingly sophisticated methods of controlling healthcare costs and are increasingly imposing additional requirements and
restrictions on coverage.
Further, the increased emphasis on managed healthcare in the United States and on country and national regional pricing and reimbursement controls in the
European Union will put additional pressure on product pricing, reimbursement and utilization, which may adversely affect our future product sales and
results of operations. These pressures can arise from rules and practices of managed care organizations, competition within therapeutic classes, availability
of generic equivalents or biosimilars, judicial decisions and governmental laws related to Medicare, Medicaid and healthcare reform, pharmaceutical
coverage and reimbursement policies and pricing in general. The cost containment measures that healthcare payors and providers are instituting and the
effect of any healthcare reform implemented in the future could significantly reduce our revenues from the sale of any approved product candidates. We
cannot provide any assurances that we will be able to obtain and maintain governmental or private third-party coverage or adequate reimbursement for our
product candidates in whole or in part.
Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices.
Specifically, there have been several recent U.S. presidential executive orders, congressional inquiries and proposed federal and proposed and enacted state
legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for drugs. For example, in July 2021, the Biden administration released an
executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s
executive order, on September 9, 2021, the U.S. Department of Health and Human Services (“HHS”), released a Comprehensive Plan for Addressing High
Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as
potential administrative actions HHS can take to advance these principles. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act
of 2022 (“IRA”) into law which, among other things, (1) directs HHS to negotiate the price of certain single-source drugs and biologics covered under
Medicare and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions will take
effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. It is currently unclear how the IRA will be implemented
but is likely to have a significant impact on the pharmaceutical industry.
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Further, the Biden administration released an additional executive order on October 14, 2022, directing HHS to submit a report on how the Center for
Medicare and Medicaid Innovation can be further leveraged to test new models for lowering drug costs for Medicare and Medicaid beneficiaries. It is
unclear whether this executive order or similar policy initiatives will be implemented in the future. At the state level, legislatures are passing increasing
amounts of legislation and implementing regulations designed to control pharmaceutical and biological product pricing, including price or patient
reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases,
designed to encourage importation from other countries and bulk purchasing.
In the EU, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only after a
reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular
product candidate to currently available therapies (so called health technology assessments) in order to obtain reimbursement or pricing approval. For
example, some EU Member States may approve a specific price for a product, or they may instead adopt a system of direct or indirect controls on the
profitability of the company placing the product on the market. Other EU Member States allow companies to fix their own prices for products but monitor
and control prescription volumes and issue guidance to physicians to limit prescriptions. Recently, many EU Member States have increased the amount of
discounts that pharmaceutical companies are requirement to offer. These efforts could continue as countries attempt to manage healthcare expenditures. The
downward pressure on healthcare costs in general, particularly prescription products, has become intense. As a result, increasingly high barriers are being
erected to the entry of new products onto national markets. Political, economic, and regulatory developments may further complicate pricing negotiations,
and pricing negotiations may continue after reimbursement has been obtained. Reference pricing used by various EU Member States, and parallel trade
(arbitrage between low-priced and high-priced member states), can further reduce prices.
In addition, some EEA countries may require the completion of additional studies that compare the cost-effectiveness of a particular medicinal product
candidate to currently available therapies. This Health Technology Assessment (“HTA”) process is the procedure according to which the assessment of the
public health impact, therapeutic impact and the economic and societal impact of use of a given medicinal product in the national healthcare systems of the
individual country is conducted. The outcome of HTA regarding specific medicinal products will often influence the pricing and reimbursement status
granted to these medicinal products by the competent authorities of individual EU Member States.
Healthcare Reform
The United States and some foreign jurisdictions are considering enacting or have enacted a number of additional legislative and regulatory proposals
designed to change the healthcare system in ways that could affect our ability to sell our products profitably.
In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative
initiatives, including the ACA, which substantially changed healthcare financing and delivery by both governmental and private insurers, and significantly
impacted the pharmaceutical industry. The ACA contains provisions that may potentially reduce the profitability of products, including, for example,
increased rebates for products sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain
Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. There have been
executive, judicial and congressional challenges to the ACA, as well as to repeal or replace certain aspects of the ACA. For example, on June 17, 2021, the
U.S. Supreme Court dismissed a challenge on procedural grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate”
was repealed by Congress. In addition, the IRA, among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in
ACA marketplaces through plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by
significantly lowering the beneficiary maximum out-of-pocket cost and creating a new manufacturer discount program. It is unclear how any such
challenges and additional healthcare reform measures of the Biden administration will impact the ACA and our business.
Further, Congress is considering additional health reform measures.
In December 2021, Regulation No 2021/2282 on Health Technology Assessment (“HTA”) amending Directive 2011/24/EU, was adopted in the EU. This
Regulation, which entered into force in January 2022 and will apply as of January 2025, is intended to boost cooperation among EU Member States in
assessing health technologies, including new medicinal products, and providing the basis for cooperation at EU level for joint clinical assessments in these
areas. The Regulation foresees a three-year transitional period and 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 most
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.
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Individual EU Member States will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technologies, and
making decisions on pricing and reimbursement.
The Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act (“FCPA”), prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of
anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign
entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the
United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions
of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international
operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment,
disgorgement, oversight, and debarment from government contracts.
Employees and Human Capital Resources
Employees
As of December 31, 2022, we had 9 full-time employees. In addition, we are or have engaged with a number of consultants and companies, including
Pharma Partnering in Research & Strategy SAS (“PPRS”), that provide expertise in the key functions involved with the development of our products. None
of our employees is subject to a collective bargaining agreement and we consider our relationship with our employees to be good.
Talent Acquisition and Development
We believe the skills and experience of our employees are an essential driver of our business and important to our future prospects. We face intense
competition for qualified individuals from numerous pharmaceutical and biotechnology companies, universities, governmental entities and other research
institutions, and we believe that our future success will depend in part on our continued ability to attract and retain highly skilled employees. To attract
qualified applicants and retain our employees, we offer our employees what we believe to be competitive salaries, comprehensive benefit packages, equity
compensation awards, and discretionary bonuses based on a combination of seniority, individual performance and corporate performance.
Available Information
We file reports with the Securities and Exchange Commission (“SEC”), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any other filings required by the SEC. We make available on our website (www.minervaneurosciences.com) 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 as soon as reasonably practicable after such
material is electronically filed with or furnished to the SEC. These materials are available free of charge on or through our website via the Investor
Relations page at www.minervaneurosciences.com. References to our website address in this report are intended to be inactive textual references only, and
none of the information contained on our website is part of this report or incorporated in this report by reference.
The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers
that file electronically with the SEC.
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ITEM 1A. Risk Factors
This Annual Report on Form 10-K contains forward-looking information based on our current expectations. Because our actual results may differ
materially from any forward-looking statements that we make or that are made on our behalf, this section includes a discussion of important factors that
could affect our actual future results, including, but not limited to, our capital resources, the progress and timing of our clinical programs, the safety and
efficacy of our product candidates, risks associated with regulatory filings, risks associated with determinations made by regulatory agencies, the potential
clinical benefits and market potential of our product candidates, commercial market estimates, future development efforts, patent protection, effects of
healthcare reform, reliance on third parties, and other risks set forth below.
Risks Related to Our Financial Position and Capital Requirements
We have incurred significant losses since our inception. We expect to continue to incur losses over the next several years and may never achieve or
maintain profitability.
We are a clinical development-stage biopharmaceutical company. In November 2013, we merged with Sonkei Pharmaceuticals, Inc. (“Sonkei”), and, in
February 2014, we acquired Mind-NRG Sarl (“Mind-NRG”), which were also clinical development-stage biopharmaceutical companies. Investment in
biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any
potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval or become commercially
viable. In August 2022, we submitted a New Drug Application (“NDA”) with the U.S. Food and Drug Administration (the “FDA”) for our lead product
candidate, roluperidone. The FDA subsequently notified us that they would not accept the file for review, issuing a refusal to file letter in October 2022. In
December 2022, we announced that, following the Type A meeting held on November 30, 2022, the FDA confirmed that the refusal to file letter remains in
effect with respect to our NDA for roluperidone. While we anticipate further discussion with the FDA over the coming months regarding the status of the
roluperidone NDA and development program, we may never succeed in any or all these activities and, even if we do, we may never generate sufficient
revenue to achieve profitability.
We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we may never generate product
revenue or achieve profitability. Our net loss was $32.1 million and $49.9 million for the fiscal years ended December 31, 2022 and 2021, respectively. As
of December 31, 2022, we had an accumulated deficit of approximately $366.8 million.
We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and
development of, and/or seek regulatory approvals for, roluperidone and other potential product candidates. If any of our product candidates fail in clinical
trials or do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never generate revenue
or become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Failure to become and
remain profitable may adversely affect the market price of shares of our common stock and our ability to raise capital and continue operations. We may
encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future
net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. Our prior losses and expected future losses
have had and will continue to have an adverse effect on our results of operations, financial position and working capital.
We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. Failure to obtain this
necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.
Our operations and the historic operations of Sonkei and Mind-NRG have consumed substantial amounts of cash since inception. As of December 31,
2022, we had cash, cash equivalents, and restricted cash of $36.2 million. We believe that our existing cash, cash equivalents, and restricted cash will be
sufficient to meet our cash commitments for at least the next 12 months after the date that the year-end condensed financial statements are issued. The
process of drug development can be costly, and the timing and outcomes of clinical trials are uncertain. The assumptions upon which we have based our
estimates are routinely evaluated and may be subject to change. The actual amount of our expenditures will vary depending upon a number of factors
including but not limited to the design, timing and duration of future clinical trials, the progress of our research and development programs, the
infrastructure to support a commercial enterprise, the cost of a commercial product launch, and the level of financial resources available.
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We will require additional capital to continue advancing the development, regulatory approval process and potential commercialization of roluperidone and
other potential product candidates that we may develop in the future. Because the length of time and activities associated with successful development of
product candidates are highly uncertain, we are unable to estimate with certainty the actual funds we will require for development and any approved
marketing and commercialization activities. Additional capital may not be available in sufficient amounts or on reasonable terms, if at all, and our ability to
raise additional capital may be adversely impacted by global economic conditions, including the recent disruptions to and volatility in the credit and
financial markets in the U.S. and worldwide resulting from the COVID-19 pandemic, the war in Ukraine and other factors. Our future funding
requirements, both short and long-term, will depend on many factors, including:
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the initiation, progress, timing, costs and results of pre-clinical studies and clinical trials for our product candidates and future product
candidates we may develop;
the outcome, timing and cost of seeking and obtaining regulatory approvals from the European Commission, FDA, and comparable foreign
regulatory authorities, including the potential for such authorities to require that we perform more studies than those that we currently expect;
the cost to establish, maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any
payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecution, defense and
enforcement of any patents or other intellectual property rights;
the effect of competing technological and market developments;
market acceptance of any approved product candidates;
the costs of acquiring, licensing or investing in additional businesses, products, product candidates and technologies; and
the cost of establishing sales, marketing and distribution capabilities for our product candidates for which we may receive regulatory
approval and that we determine to commercialize ourselves or in collaboration with our partners.
If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to delay, limit or terminate the development or
commercialization of one or more of our product candidates or other operations, including potentially discontinue operations altogether. In addition, when
we need to secure additional financing, such additional fundraising efforts may divert our management from our day-to-day activities, which may adversely
affect our ability to develop and commercialize our product candidates. Any of these events could significantly harm our business, financial condition and
prospects, and our stockholders could lose all or part of their investment in our company.
Raising additional funds by issuing equity securities will cause dilution to existing stockholders. Raising additional funds through debt financings may
involve restrictive covenants and raising funds through lending and licensing arrangements may restrict our operations or require us to relinquish
proprietary rights.
We expect that significant additional capital will be needed in the future to continue our planned operations. Until such time, if ever, that we can generate
substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, strategic alliances and license
and development agreements or other collaborations. We cannot guarantee that future financing will be available in sufficient amounts or on terms
acceptable to us, if at all. If we raise additional equity financing, our stockholders may experience significant dilution of their ownership interests, the terms
of these securities may include liquidation or other preferences that could adversely affect the rights of a common stockholder, and the per-share value of
our common stock could decline. If we engage in debt financing, we may be required to accept terms that restrict or limit our ability to take specific
actions, such as incurring additional indebtedness, making capital expenditures or declaring dividends, and other restrictive covenants that could adversely
impact our ability to conduct our business. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing
arrangements with third parties, we may have to relinquish valuable rights to our future revenue streams, research programs or any future product candidate
or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit,
reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would
otherwise develop and market ourselves.
Changes in estimates regarding fair value of intangible assets may result in an adverse impact on our results of operations.
We test goodwill and in-process research and development for impairment annually or more frequently if changes in circumstances or the occurrence of
events suggest impairment exists. The test for impairment of in-process research and development requires us to make several estimates about fair value,
most of which are based on projected future cash flows. Changes in these estimates may result in the recognition of an impairment loss in our results of
operations. An impairment analysis is performed whenever events or changes in circumstances indicate that the carrying amount of any individual asset
may not be recoverable. For example, if we or our counterparties fail to perform our respective obligations under an agreement, or if we lack sufficient
funding to develop our product candidates, an impairment may result.
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In addition, any significant change in market conditions, estimates or judgments used to determine expected future cash flows that indicate a reduction in
carrying value may give rise to impairment in the period that the change becomes known.
As a result of our limited resources and development deferral combined with the overall market conditions, we recognized a non-cash charge of $15.2
million as of December 31, 2021 related to the impairment of the intangible asset for MIN-301. We had previously recognized in-process research and
development for MIN-301 in conjunction with the acquisition of MIN-301 during 2014. No updates were made in respect of the development of MIN-301
during 2022.
Our ability to use net operating losses (“NOL”) carryforwards may be limited.
Our ability to use our federal and state NOL carryforwards to offset potential future taxable income is dependent upon our generation of future taxable
income before the expiration dates of the NOL carryforwards, and we cannot predict with certainty when, or whether, we will generate sufficient taxable
income to use all of our NOL carryforwards. As of December 31, 2022, we had approximately $98.0 million of federal NOL carryforwards and
approximately $94.4 million of state NOL carryforwards. Our federal NOL carryforwards will begin to expire in 2030, if not utilized. Under current law,
federal NOL carryforwards generated in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such
NOL carryforwards is limited to 80% of taxable income. Many states have similar laws. Accordingly, our federal and state NOL carryforwards could
expire unused and be unavailable to offset future income tax liabilities.
In addition, under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), federal NOL carryforwards may become subject
to an annual limitation in the event of certain cumulative changes in our ownership. An “ownership change” pursuant to Section 382 of the Code generally
occurs if one or more stockholders or groups of stockholders who own at least 5% of the company’s stock increase their ownership by more than 50
percentage points over their lowest ownership percentage within a rolling three-year period. If substantial changes in ownership have occurred, there could
be annual limitations on the amount of NOL carryforwards that can be realized in future periods. It is possible that some or all of our existing or future
NOL carryforwards could be limited by the provisions of Section 382 of the Tax Code as a result of future changes in ownership, including as a result of
subsequent sales of securities by us or our stockholders. Further, state NOL carryforwards may be similarly limited. Any such disallowances may result in
greater tax liabilities than we would incur in the absence of such a limitation and any increased liabilities could adversely affect our business, results of
operations, financial condition and cash flow.
Changes in tax laws or tax rulings could materially affect our financial position, results of operations, and cash flows.
The tax regimes we are subject to or operate under, including income and non-income taxes, are unsettled and may be subject to significant change.
Changes in tax laws, regulations, or rulings, or changes in interpretations of existing laws and regulations, could materially affect our financial position and
results of operations. For example, the Tax Cuts and Jobs Act Tax Act enacted in 2017 (the “Tax Act”) made broad and complex changes to the U.S. tax
code, including changes to U.S. federal tax rates, additional limitations on the deductibility of interest, both positive and negative changes to the utilization
of future NOL carryforwards, allowing for the expensing of certain capital expenditures, and putting into effect the migration from a “worldwide” system
of taxation to a territorial system. Moreover, recently, in the United States, Congress passed the Inflation Reduction Act, which provides for a minimum tax
equal to 15% of the adjusted financial statement income of certain large corporations, as well as a 1% excise tax on certain share buybacks by public
corporations that would be imposed on such corporations. The issuance of additional regulatory or accounting guidance related to the Tax Act or the
Inflation Reduction Act could materially affect our tax obligations and effective tax rate. In addition, many countries in Europe, as well as a number of
other countries and organizations (including the Organization for Economic Cooperation and Development and the European Commission), have recently
proposed, recommended, or (in the case of countries) enacted or otherwise become subject to changes to existing tax laws or new tax laws that could
significantly increase our tax obligations in the countries where we do business or require us to change the manner in which we operate our business. These
proposals, recommendations and enactments include changes to the existing framework in respect of income taxes, as well as new types of non-income
taxes (such as taxes based on a percentage of revenue or taxes applicable to digital services) which could apply to our business. These types of changes to
the taxation of our activities could increase our worldwide effective tax rate, increase the amount of taxes imposed on our business, and harm our financial
position. Such changes may also apply retroactively to our historical operations and result in taxes greater than the amounts estimated and recorded in our
financial statements.
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Risks Related to Our Business and Industry
We cannot give any assurance that any of our product candidates will receive regulatory approval in a timely manner or at all, which is necessary
before they can be commercialized.
The regulatory approval process is expensive and the time required to obtain approval from the European Commission (following the opinion of the
Committee of Medicinal Products for Human Use of the European Medicines Agency (“EMA”)), FDA or other comparable regulatory authorities in other
jurisdictions to sell any product is uncertain and may take years.
Whether regulatory approval will be granted is unpredictable and depends upon numerous factors, including the substantial discretion of the regulatory
authorities. Moreover, the filing of an application for regulatory approval, including a New Drug Application (“NDA”), or Biologics License Application
(“BLA”), a Marketing Authorization Application (“MAA”) in the EEA, or comparable foreign regulatory applications for approval, requires a payment of a
significant user fee upon submission. The filing of applications for regulatory approval of our product candidates may be delayed due to our lack of
financial resources to pay such user fee.
If, following submission, our application is not accepted for substantive review or approved, the EMA, FDA or other comparable foreign regulatory
authorities may require that we conduct additional clinical or pre-clinical trials, provide additional data, manufacture additional validation batches or
develop additional analytical tests methods before they will reconsider our application. On October 14, 2022, we received a refusal-to-file communication
from the FDA for our NDA submission for roluperidone, our lead product candidate, which decision was confirmed by the FDA in a subsequent Type A
meeting. We are presently assessing the next steps for the roluperidone program, including additional discussions with the FDA. There can be no assurance
that such discussions will change the requirements of the FDA, EMA or other regulators. Additional studies and data will impose increased costs and
delays in the regulatory approval process, which may require us to expend more resources than we have available. In addition, the EMA, FDA or other
comparable foreign regulatory authorities may not consider any additional required trials, data or information that we perform or provide to be sufficient, or
we may decide, or be required, to abandon the program.
Moreover, policies, regulations, or the type and amount of pre-clinical and clinical data necessary to gain approval may change during the course of a
product candidate’s clinical development and may vary among jurisdictions. It is possible that none of our existing product candidates or any of our future
product candidates will ever obtain regulatory approval, even if we expend substantial time and resources seeking such approval.
Our product candidates could fail to receive regulatory approval for many reasons, including the following:
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The EMA, FDA or other regulatory authorities may disagree with the design or implementation of our clinical trials.
We may be unable to demonstrate to the satisfaction of the EMA, the European Commission, the FDA or other comparable 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 EMA, FDA or other regulatory authorities for
approval.
We may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh any safety risks.
The EMA, the European Commission, the FDA or other regulatory authorities may disagree with our interpretation of data from pre-clinical
studies or clinical trials.
The data collected from clinical trials of our product candidates may not be sufficient to support an NDA or other submission or to obtain
regulatory approval in the United States or elsewhere.
The national competent authorities of EU Member States, FDA or other regulatory authorities may fail to approve the manufacturing
processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies.
The approval policies or regulations of the European Commission, FDA or other regulatory authorities may significantly change in a manner
rendering our clinical data insufficient for approval.
Even if we obtain approval for a particular product, regulatory authorities may approve that product for fewer or more limited indications, including more
limited patient populations, than we request, may require that contraindications, warnings, or precautions be included in the product labeling, including a
boxed warning, may grant approval contingent on the performance of costly post-marketing clinical trials or other post-market requirements, including risk
evaluation and mitigation strategies (“REMS”) or comparable foreign strategies, or 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. Any of the foregoing could materially harm the commercial
prospects for our product candidates.
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Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.
The results of pre-clinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials.
Interpretation of results from early, usually smaller, trials that suggest positive trends in some subjects, require caution. Results from later stages of clinical
trials enrolling more subjects may fail to show the desired safety and efficacy results or otherwise fail to be consistent with the results of earlier trials of the
same product candidate. For example, our Phase 3 trial of roluperidone for the treatment of negative symptoms of schizophrenia failed to meet its primary
endpoint despite our Phase 2b trial of the same design achieving statistical significance on the same endpoint. Inconsistencies such as this may occur for a
variety of reasons, including differences in trial design, trial endpoints (or lack of trial endpoints in exploratory studies), subject population, number of
subjects, subject selection criteria, trial duration, drug dosage and formulation or due to the lack of statistical power in the earlier trials. A number of
companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or
unacceptable safety profiles, notwithstanding positive results in earlier trials.
The results of clinical trials conducted at sites outside the United States may not be accepted by the FDA and the results of clinical trials conducted at
sites in the United States may not be accepted by comparable foreign regulatory authorities.
We may conduct our future clinical trials outside the United States. Although the FDA may accept data from clinical trials conducted outside the United
States, acceptance of this data would be subject to certain conditions imposed by the FDA. For example, the clinical trial must be well-designed and
conducted and performed by qualified investigators in accordance with ethical safeguards such as institutional review board (“IRB”), or Ethics Committee
positive opinions are part of the decision on the authorization of the clinical trial issued by EU Member States including input from the national competent
authorities and Ethic Committee, and informed consent. The study population must also adequately represent the applicable United States population, and
the data must be applicable to the American population and medical practice in ways that the FDA deems clinically meaningful. In addition, while clinical
trials conducted outside of the United States are subject to the applicable local laws, FDA acceptance of the data from such trials will be dependent upon its
determination that the trials were conducted consistent with all applicable United States laws and regulations. There can be no assurance the FDA will
accept data from trials conducted outside of the United States as adequate support of an application for regulatory approval, and it is not unusual for the
FDA to require some Phase 3 clinical trial data to be generated in the United States. If the FDA does not accept the data from our international clinical
trials, it would likely result in the need for additional trials in the United States, which would be costly and time-consuming and could delay or permanently
halt the development of one or more of our product candidates.
If we experience delays in clinical testing, we will be delayed in commercializing our product candidates, our costs may increase and our business may
be harmed.
We do not know whether our clinical trials will be completed on schedule, or at all. Our product development costs will increase if we experience delays in
clinical testing. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product
candidates or allow our competitors to bring products to market before we do, which would impair our ability to successfully commercialize our product
candidates and may harm our business, results of operations and prospects.
The commencement and completion of clinical development can be delayed or halted for a number of reasons, including:
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difficulties obtaining regulatory approval to commence a clinical trial or complying with conditions imposed by a regulatory authority
regarding the scope or term of a clinical trial;
delays in reaching or failure to reach agreement on acceptable terms with prospective clinical research organizations, or CROs, and trial sites,
which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
deviations from the trial protocol by clinical trial sites and investigators, or failing to conduct the trial in accordance with regulatory
requirements;
failure of our third parties, such as CROs, to satisfy their contractual duties or meet expected deadlines;
insufficient or inadequate supply or quantity of product material for use in trials due to delays in the importation and manufacture of clinical
supply, including delays in the testing, validation, and delivery of the clinical supply of the investigational drug to the clinical trial sites;
delays in identification and auditing of central or other laboratories and the transfer and validation of assays or tests to be used;
delays in having subjects complete participation in a trial or return for post-treatment follow-up;
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difficulties obtaining IRB Ethics Committee positive opinions, as part of the decision on the authorization of the clinical trial issued by EU
Member States including input from the national competent authorities and Ethics Committee to conduct a trial at a prospective site, or
complying with conditions imposed by IRBs, Ethics Committees or comparable foreign regulatory authorities;
challenges recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including competition from other programs
for the treatment of similar conditions;
severe or unexpected drug-related adverse events experienced by subjects in a clinical trial;
difficulty retaining subjects who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of
efficacy or personal issues, which are common among schizophrenia and MDD subjects who we require for our clinical trials of our product
candidate roluperidone;
delays in adding new investigators and clinical sites;
withdrawal of clinical trial sites from clinical trials;
lack of adequate funding; and
clinical holds or termination imposed competent authorities, including national regulatory authorities of EU Member States, the FDA or IRBs
or Ethics Committees.
Clinical trials may also be delayed as a result of ambiguous or negative interim results. In addition, clinical trials may be suspended or terminated by us, an
IRB or Ethics Committee overseeing the clinical trial at a trial site (with respect to that site), the national competent authorities of EU Member States or the
FDA due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements, the trial protocols and applicable laws;
observations during inspection of the clinical trial operations or trial sites by the national competent authorities of EU Member States, FDA
or other comparable foreign regulatory authorities that ultimately result in the imposition of a clinical hold;
unforeseen safety issues; or
lack of adequate funding to continue the clinical trial.
Failure to conduct a clinical trial in accordance with regulatory requirements, the trial protocols and applicable laws may also result in the inability to use
the data from such trial to support product approval. Additionally, changes in regulatory requirements and guidance may occur, and we may need to amend
clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to the national competent authorities of
EU Member States, FDA, IRBs or Ethics Committees for reexamination, which may impact the costs, timing and successful completion of a clinical trial.
Many of the factors that cause, or lead to, a delay in the commencement or completion of a clinical trial may also ultimately lead to the denial of regulatory
approval of the associated product candidate. If we experience delays in completion of, or if we terminate any of our clinical trials, our ability to obtain
regulatory approval for our product candidates may be materially harmed, and our commercial prospects and ability to generate product revenues will be
diminished.
We have no experience in advancing product candidates beyond Phase 3, which makes it difficult to assess our ability to develop and commercialize our
product candidates.
We have no experience in progressing clinical trials past Phase 3, obtaining regulatory approvals or commercializing product candidates. We merged with
Sonkei and acquired Mind-NRG and have limited operating history since the respective merger and acquisition. We may encounter unforeseen expenses,
difficulties, complications, delays and other known or unknown factors in pursuing our business objectives. We expect our financial condition and
operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our
control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.
If we are unable to enroll subjects in clinical trials, we will be unable to complete these trials on a timely basis or at all.
The timely completion of clinical trials largely depends on subject enrollment. Many factors affect subject enrollment, including:
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the size and nature of the subject population;
the number and location of clinical sites we enroll;
competition with other companies for clinical sites or subjects;
the eligibility and exclusion criteria for the trial;
the design of the clinical trial;
inability to obtain and maintain subject consents;
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risk that enrolled subjects will drop out before completion; and
clinicians’ and subjects’ perceptions as to the potential advantages or disadvantages 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.
We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials in Europe and, we expect, eventually in the United
States and, while we have agreements governing their committed activities, we have limited influence over their actual performance. We may also
experience difficulties enrolling subjects for our clinical trials relating to roluperidone due to the mental health of the subjects that we will need to enroll,
related diagnoses and drop-out rates.
Our clinical trials may fail to demonstrate adequately the safety and efficacy of our product candidates, which could prevent or delay regulatory
approval and commercialization, and also increase costs.
Before obtaining regulatory approvals for the commercial sale of our product candidates, we must demonstrate through lengthy, complex and expensive
pre-clinical testing and clinical trials that our product candidates are both safe and effective for use in each target indication, and failures can occur at any
stage of testing. Clinical trials often fail to demonstrate safety and statistically significant efficacy of the product candidate studied for the target indication
in later stages of clinical development. For example, a Phase 2b trial in MDD with respect to a drug that we were previously developing, MIN-117, failed
to achieve its primary endpoint, and we decided to discontinue development of MIN-117 for MDD. Regulatory authorities may find that our studies do not
support, in combination with other studies, approval of our product candidates for the target indication. In addition, our product candidates may be
associated with undesirable side effects or have characteristics that are unexpected, which may result in abandoning their development or regulatory
authorities restricting or denying regulatory approval. For instance, prior clinical studies indicated that roluperidone and MIN-117 may cause adverse
events, including, but not limited to, dizziness, vital sign changes, central nervous system events, cardiac events, including prolongation of the QT/QTc
interval, and gastrointestinal events. Most product candidates that commence clinical trials are never approved by the applicable regulatory authorities.
In the case of our product candidate roluperidone, we are seeking to develop a treatment for schizophrenia, which adds a layer of complexity to our clinical
trials and may delay regulatory approval. The cause and pathophysiology of schizophrenia are not fully understood, and our results rely on subjective
feedback from patients, caregivers and healthcare providers, which is inherently difficult to evaluate, can be influenced by factors outside of our control
and can vary widely from day to day for a particular subject, and from subject to subject and site to site within a clinical study. The placebo effect may also
have a more significant impact on our clinical trials.
If our product candidates are not shown to be both safe and effective in clinical trials, we will not be able to obtain regulatory approval or commercialize
our product candidates.
We may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications
that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and management resources, we focus on a limited number of research programs and product candidates. For instance, at
the present time we are prioritizing the development of the most advanced of our product candidates, roluperidone. As a result, we have suspended further
development of MIN-301, and may forego or delay pursuit of opportunities with other product candidates, or for other indications that later prove to have
greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs 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 collaboration, licensing or other arrangements in cases in which it would have been more
advantageous for us to retain sole development and commercialization rights.
Even if we complete the necessary clinical trials, we cannot predict when or if we will obtain regulatory approval to commercialize a product candidate
or the approval may be for a narrower indication than we expect.
We cannot commercialize a product candidate until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if our
product candidates demonstrate safety and efficacy in clinical trials, the regulatory authorities may not complete their review processes in a timely manner,
or we may not be able to obtain regulatory approval from the relevant regulatory authorities. Additional delays may result if the EMA, FDA, an FDA
Advisory Committee, or other regulatory authority recommends non-approval or restrictions on approval. In addition, we may experience delays or
rejections based upon additional government regulation from future legislation or administrative action, or changes in regulatory authority policy during the
period of product development, clinical trials and the review process.
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Even if our product candidates receive regulatory approval, they may still face future development and regulatory difficulties, including ongoing
regulatory obligations and continued regulatory review. Additionally, our product candidates, if approved, could be subject to labeling and other
restrictions and market withdrawal and we may be subject to administrative sanctions or penalties if we fail to comply with regulatory requirements or
experience unanticipated problems with our products.
Even if we obtain regulatory approval for a product candidate, product candidates may be approved for fewer or more limited indications, including more
limited subject populations, than we request, and regulatory authorities may require that contraindications, warnings, or precautions be included in the
product labeling, including a black box warning, may grant approval contingent on the performance of costly post-marketing clinical trials or other post-
market requirements, such as REMS or comparable foreign strategies, may require post-marketing surveillance, or 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. For instance, in 2007,
the FDA requested that makers of all antidepressant medications update existing black box warnings about increased risk of suicidal thoughts and behavior
in young adults, ages 18 to 24, during initial treatment. If approved for marketing, our drugs may be required to carry warnings similar to this and other
class-wide warnings.
Any approved products would further be subject to ongoing requirements imposed by the FDA, and other comparable foreign regulatory authorities
governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, import, export, advertising,
promotion, marketing, recordkeeping and reporting of safety and other post-market information. If there are any modifications to the drug, including
changes in indications, labeling, manufacturing processes or facilities, or if new safety issues arise, a new or supplemental NDA, post-implementation
notification or other reporting may be required or requested, which may require additional data or additional pre-clinical studies and clinical trials.
The EMA, FDA and other comparable foreign regulatory authorities will continue to closely monitor the safety profile of any product even after approval.
If the EMA, FDA or other comparable foreign regulatory authorities become aware of new adverse safety information after approval of any of our product
candidates, a number of potentially significant negative consequences could result, including:
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we may suspend marketing of, or withdraw or recall, such product;
regulatory authorities may withdraw approvals of such product;
regulatory authorities may require additional warnings or otherwise restrict the product’s indicated use, label, or marketing;
the FDA or other comparable foreign regulatory authorities may issue safety alerts, Dear Healthcare Provider letters, press releases or other
communications containing warnings about such product;
the FDA may require the establishment or modification of a REMS or the EMA or a comparable foreign regulatory authority may require the
establishment or modification of a similar strategy that may, for instance, require us to issue a medication guide outlining the risks of such
side effects for distribution to subjects or restrict distribution of our products and impose burdensome implementation requirements on us;
regulatory authorities may require that we conduct post-marketing studies or surveillance;
we could be sued and held liable for harm caused to subjects or patients; and
our reputation may suffer.
In addition, manufacturers of drug products and their facilities, including contracted facilities, are subject to continual review and periodic inspections by
national competent authorities of EU Member States, the FDA and other comparable foreign regulatory authorities for compliance with current Good
Manufacturing Practices (“cGMP”), regulations and standards. The European Union cGMP guidelines are as set forth in Commission Directive
2003/94/EC of October 8, 2003. If we or a regulatory authority discover previously unknown problems with a product, such as adverse events of
unanticipated severity or frequency, the product’s stability (changes in levels of impurities or dissolution profile) or problems with the facility where the
product is manufactured, we may be subject to reporting obligations, additional testing and additional sampling, and a regulatory authority may impose
restrictions on that product, the manufacturing facility, our suppliers, or us, including requiring recall or withdrawal of the product from the market or
suspension of manufacturing. If we, our product candidates, the manufacturing facilities for our product candidates, our CROs, or other persons or entities
working on our behalf fail to comply with applicable regulatory requirements either before or after regulatory approval, a regulatory authority may,
depending on the stage of product development and approval:
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issue adverse inspectional findings;
issue Warning Letters or Untitled Letters;
mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
amend and update labels or package inserts;
require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due
dates for specific actions and penalties for noncompliance;
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seek an injunction or impose civil, criminal and/or administrative penalties, damages or monetary fines or imprisonment;
suspend or withdraw regulatory approval;
suspend or terminate any ongoing clinical studies;
bar us from submitting or assisting in the submission of new regulatory applications;
refuse to approve pending applications or supplements to applications filed by us;
refuse to allow us to enter into government contracts;
suspend or impose restrictions on operations, including restrictions on marketing or manufacturing of the product, or the imposition of costly
new manufacturing requirements or use of alternative suppliers; or
seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall.
The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and generate revenue.
Our product candidates and the activities associated with their development and commercialization in the United States, including, but not limited to, their
advertising and promotion, will further be heavily scrutinized by the FDA, the United States Department of Justice, the United States Department of Health
and Human Services’ Office of Inspector General, state attorneys general, members of Congress and the public. Violations of applicable law, including
advertising, marketing and promotion of our products for unapproved (or off-label) uses, are subject to enforcement letters, inquiries and investigations,
and civil, criminal and/or administrative sanctions by regulatory authorities. Additionally, comparable foreign regulatory authorities will heavily scrutinize
advertising and promotion of any product candidate that obtains approval outside of the United States. In the EU, the advertising and promotion of
medicinal products are subject to both EU and EU Member States’ laws governing promotion of medicinal products, interactions with physicians and other
healthcare professionals, misleading and comparative advertising and unfair commercial practices. Although general requirements for advertising and
promotion of medicinal products are established under EU legislation, the details are governed by regulations in individual EU Member States and can
differ from one country to another. For example, applicable laws require that promotional materials and advertising in relation to medicinal products
comply with the product’s Summary of Product Characteristics, or SmPC, as approved by the competent authorities in connection with an MA.
Promotional activity that does not comply with the SmPC is considered off-label and is prohibited in the EU. Direct-to-consumer advertising of
prescription medicinal products is also prohibited in the EU. Enforcement of advertising and promotional requirements relating to medicinal products in the
EU is carried out at the national level by the national competent authorities of EU Member States. Furthermore, in the United Kingdom the code of practice
of the Association of the British Pharmaceutical Industry (the lead United Kingdom trade association) is considerably stricter than applicable legislative
requirements.
In the United States, engaging in the impermissible promotion of products for off-label uses can also subject the entity engaging in such conduct to false
claims litigation under federal and state statutes, which can lead to civil, criminal and/or administrative penalties, damages, monetary fines, disgorgement,
exclusion from participation in Medicare, Medicaid and other federal healthcare programs, curtailment or restructuring of its operations and agreements
that materially restrict the manner in which it promotes or distributes drug products. Accordingly, we are subject to the federal civil False Claims Act,
which prohibits persons and entities from knowingly filing, or causing to be filed, a false claim, or the knowing use of false statements, to obtain payment
from the federal government. Certain suits filed under the civil False Claims Act, known as “qui tam” actions, can be brought by any individual on behalf
of the government and such individuals, commonly known as “whistleblowers,” may share in certain amounts paid by the entity to the government in fines
or settlement. When an entity is determined to have violated the civil False Claims Act, it may be required to pay up to three times the actual damages
sustained by the government, plus civil penalties for each separate false claim. Various states have also enacted laws modeled after the federal civil False
Claims Act. We are also subject to the federal criminal False Claims Act, which imposes criminal fines or imprisonment against individuals or entities who
make or present a claim to the government knowing such claim to be false, fictitious, or fraudulent. Additionally, we may be subject to civil monetary
penalties that may be imposed against any person or entity that, among other things, is determined to have presented or caused to be presented a claim to a
federal health program that the person knows or should know is for an item or service that was not provided as claimed or is false or fraudulent.
False Claims Act lawsuits against pharmaceutical companies have increased significantly in volume and breadth, leading to substantial civil and criminal
settlements regarding certain sales practices, including promoting off-label drug uses. This growth in litigation has increased the risk that a pharmaceutical
company will have to defend a false claims action, pay settlement fines or restitution, agree to comply with burdensome reporting and compliance
obligations, and/or be excluded from Medicare, Medicaid and other federal and state healthcare programs. If we do not lawfully promote our products, we
may become subject to such litigation, which may have a material adverse effect on our business, financial condition and results of operations. Failure to
comply with EU and EU Member State laws that apply to the conduct of clinical trials, manufacturing approval, marketing authorization of medicinal
products and marketing of such products, both before and after grant of the marketing authorization, or with other applicable regulatory requirements may
result in administrative, civil or criminal penalties.
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These penalties could include delays or refusal to authorize the conduct of clinical trials, or to grant marketing authorization, product withdrawals and
recalls, product seizures, suspension, withdrawal or variation of the marketing authorization, total or partial suspension of production, distribution,
manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties.
The policies of the FDA, the national competent authorities of the EU Member States, the EMA, the European Commission and other applicable
comparable foreign regulatory may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval
and marketing authorization, and the sale and promotion of our product candidates. For instance, the regulatory landscape related to clinical trials in the EU
recently evolved. The EU Clinical Trials Regulation, or CTR, which was adopted in April 2014 and repeals the EU Clinical Trials Directive, became
applicable on January 31, 2022. The CTR allows sponsors to make a single submission to both the competent authority and an ethics committee in each EU
Member State, leading to a single decision for each EU Member State. The assessment procedure for the authorization of clinical trials has been
harmonized as well, including a joint assessment by all EU Member States concerned, and a separate assessment by each EU Member State with respect to
specific requirements related to its own territory, including ethics rules. Each EU Member State’s decision is communicated to the sponsor via the
centralized EU portal. Once the clinical trial 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 in relation to which application for approval was
made on the basis of 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 clinical trial application under either the Clinical Trials Directive or the CTR until January 31,
2023 and, if authorized, those will be 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. Compliance with the CTR requirements by us and our third-party service providers, such as CROs, may impact our
developments plans.
It is currently unclear to what extent the UK will seek to align its regulations with the EU in the future. The UK regulatory framework in relation to clinical
trials is derived from existing EU legislation (as implemented into UK law, through secondary legislation). However, the Retained EU Law (Revocation
and Reform) Bill published in late 2022 which is intended to remove all EU-derived legislation from the UK statute book by the end of 2023, may result in
a divergence of approach between the EU and the UK.
On January 17, 2022, the UK Medicines and Healthcare products Regulatory Agency, or MHRA, launched an eight-week consultation on reframing the
UK legislation for clinical trials. The consultation closed on March 14, 2022 and aims 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 outcome of the
consultation will be closely watched and will determine whether the UK chooses to align with the regulation or diverge from it to maintain regulatory
flexibility. 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 and/or make it harder to seek a marketing authorization in the EU for our product
candidates on the basis of clinical trials conducted in the UK.
If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain
regulatory compliance, our development plans may be impacted, we may lose any regulatory approval that we may have obtained, and be subject to civil,
criminal and administrative enforcement, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
The regulatory pathway for our product candidate, MIN-301, has not yet been determined in the US. Depending on the pathway, we may be subject to
different regulatory requirements.
MIN-301 is a peptide, and, as a peptide, may be subject to the Public Health Service Act (“PHSA”), and the Food, Drug, and Cosmetic Act (“FDCA”). We
have yet to meet with the FDA regarding the approval pathway for this product candidate. Based on the definition of a biologic in the PHSA, we believe
that MIN-301 meets the definition of a biologic and, thus, we will need to submit a BLA, for product approval. Moreover, based on an FDA intercenter
agreement, we believe that MIN-301 will be regulated by the FDA’s Center for Drug Evaluation and Research. However, we intend to discuss jurisdiction
with the FDA to determine the appropriate regulatory pathway and corresponding requirements. Depending on the pathway, we may be subject to different
regulatory requirements, including different regulatory and testing requirements, shorter or longer periods of market exclusivity, and different approval
processes for generic drug and biosimilar competitors.
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If the market opportunities for any product that we or our collaborators develop are smaller than we believe, our revenue may be adversely affected and
our business may suffer.
Our product candidates are intended for the treatment of schizophrenia, MDD, and Parkinson’s disease. Our projections of both the number of people who
have these disorders or diseases, as well as the subsets of people who have the potential to benefit from treatment with our product candidates and who will
pursue such treatment, are based on our beliefs and estimates that may prove to be inaccurate. For instance, with respect to schizophrenia and MDD, our
estimates are based on the number of patients that suffer from schizophrenia and MDD, but these disorders are difficult to accurately diagnose and high
rates of patients may not seek or continue treatment. Our estimates and beliefs are also based on the potential market of other drugs in development for
schizophrenia and MDD, which may prove to be inaccurate and our advantages over such drugs may not be, or may not be perceived to be, as significant as
we believe they are. If our estimates prove to be inaccurate, even if our products are approved, we may not be able to successfully commercialize them. In
addition, the cause and pathophysiology of schizophrenia and MDD are not fully understood, and additional scientific understanding and future drug or
non-drug therapies may make our product candidates obsolete.
Changes in methods of product candidate manufacturing or formulation may result in additional costs or delay.
As product candidates are developed through pre-clinical to late stage clinical trials towards approval and commercialization, it is common that various
aspects of the development program, such as manufacturing methods and formulation, are altered in an effort to optimize processes and results. Such
changes carry the risk that they will not achieve these intended objectives. Any of these changes could cause our product candidates to perform differently
and affect the results of planned clinical trials or future clinical trials to be conducted with the altered materials. Such changes may also require additional
testing, notification to the FDA or comparable foreign regulatory authorities or approval from, the FDA or comparable foreign regulatory authorities. This
could delay completion of clinical trials, require the conduct of bridging clinical trials or the repetition of one or more clinical trials, increase clinical trial
costs, delay approval of our product candidates and/or jeopardize our ability to commence product sales and generate revenue.
Our failure to obtain regulatory approval in additional international jurisdictions would prevent us from marketing our product candidates outside the
European Union and the United States.
We plan to seek regulatory approval to commercialize our product candidates in the European Union and the United States. We also expect to seek
regulatory approval in additional foreign countries. To market and sell our products in other jurisdictions, we must obtain separate regulatory approvals and
comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time
required to obtain approval may differ substantially from that required to obtain European Commission or FDA approval. The regulatory approval process
outside the European Union and United States generally includes risks substantially similar to those associated with obtaining European Commission or
FDA approval. In addition, in many countries outside the United States, we must secure product price and reimbursement approvals before regulatory
authorities will approve the product for sale in that country or within a short time after receiving such regulatory approval. Obtaining foreign regulatory
approvals and compliance with foreign regulatory requirements could result in significant delays, difficulties and costs for us and could delay or prevent the
introduction of our products in certain countries. Further, clinical trials conducted in one country may not be accepted by regulatory authorities in other
countries and regulatory approval in one country does not ensure approval in any other country, while a failure or delay in obtaining regulatory approval in
one country may have a negative effect on the regulatory approval process in others. Also, regulatory approval for any of our product candidates may be
withdrawn. If we fail to comply with the regulatory requirements in international markets or do not receive applicable regulatory approvals, our target
market will be reduced and our ability to realize the full market potential of our product candidates will be harmed and our business will be adversely
affected. We may not obtain foreign regulatory approvals on a timely basis, if at all, especially because some foreign jurisdictions require prior approval of
a treatment by the domestic regulatory authority. Our failure to obtain approval of any of our product candidates by regulatory authorities in another
country may significantly diminish the commercial prospects of that product candidate and our business prospects could decline.
We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than us.
The biopharmaceutical industry is intensely competitive and subject to rapid and significant technological change. We face competition with respect to our
current product candidates and will face competition with respect to any future product candidates from major pharmaceutical companies, specialty
pharmaceutical companies and biotechnology companies worldwide. Many of our competitors have significantly greater financial, technical and human
resources. Smaller and early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and
established companies.
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Our competitors may obtain regulatory approval of their products more rapidly than us or may obtain patent protection or other intellectual property rights
that limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are more effective, more
convenient, more widely used, less costly and/or have a better safety profile than our products, and competitors may also be more successful than us in
manufacturing and marketing their products.
Our competitors will also compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial
sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.
There are numerous currently approved therapies for treating the same diseases or indications for which our product candidates may be useful and many of
these currently approved therapies act through mechanisms similar to our product candidates. Many of these approved drugs are well-established therapies
or products and are widely accepted by physicians, patients and third-party payors. Some of these drugs are branded and subject to patent protection and
regulatory exclusivity, while others are available on a generic basis. Insurers and other third-party payors may encourage the use of generic products or
specific branded products. Moreover, it is difficult to predict the effect that introduction of biosimilars into the market will have on sales of the reference
biologic product, which will depend on the FDA’s, or comparable foreign regulatory authorities, standards for interchangeability, the structure of
government and commercial managed care formularies, and applicable laws on substitution of biosimilars. We expect that if our product candidates are
approved, they will be priced at a significant premium over competitive generics and biosimilars. This may make it difficult for us to differentiate our
products from currently approved therapies, which may adversely impact our business strategy. In addition, any new product that competes with an
approved product must demonstrate compelling advantages in efficacy, convenience, tolerability, and safety in order to overcome price competition and to
be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our
financial condition and operations will suffer. Moreover, many companies are developing new therapeutics, and we cannot predict what the standard of care
will be as our product candidates progress through clinical development.
Even if any of our drug candidates receives regulatory approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-
party payors and others in the medical community necessary for commercial success.
If any of our drug candidates receives regulatory approval, it may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party
payors and others in the medical community necessary for commercial success. If our drug candidates do not achieve an adequate level of acceptance, we
may not generate significant revenue from drug sales and we may not become profitable. Our commercial success also depends on coverage and adequate
reimbursement of our products by third-party payors, including government payors, which may be difficult or time-consuming to obtain, may be limited in
scope or may not be obtained in all jurisdictions in which we may seek to market our products. The degree of market acceptance of our drug candidates, if
approved for commercial sale, will depend on a number of factors, including:
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the efficacy and perceived and potential advantages compared to alternative treatments, including any similar generics and biosimilars;
the timing of market introduction relative to alternative treatment;
our ability to offer our drugs for sale at competitive prices relative to alternative treatments;
the clinical indications for which the product candidate is approved;
the convenience and ease of administration compared to alternative treatments;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength of our marketing and distribution support;
the availability of third-party coverage and adequate reimbursement for our products or the willingness of patients to pay out-of-pocket in the
absence of coverage and adequate reimbursement by third-party payors;
unfavorable publicity relating to the products;
the prevalence and severity of any side effects; and
any restrictions on the use of our drugs together with other medications.
Our focus on CNS disorders, in particular, exposes us to an increased risk that serious side effects and disease events, including suicide, will occur during
patient use of our products, even if such side effects and disease events are unrelated to the use of our products. Most approved CNS medicines carry boxed
warnings for clinically significant adverse events, and our products may categorically need to carry such warnings as well.
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We currently have a limited marketing and sales organization. If we are unable to establish greater marketing and sales capabilities or enter into
agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell our product candidates, if
approved, or generate product revenues.
We currently have a limited marketing or sales organization for the marketing, sales and distribution of pharmaceutical products. In order to commercialize
any product candidates, we must build our marketing, sales, distribution, managerial and other non-technical capabilities or make arrangements with third
parties to perform these services. We may not be successful in doing so on commercially reasonable terms or at all.
If our product candidates receive regulatory approval, we intend to establish our sales and marketing organization with technical expertise and supporting
distribution capabilities to commercialize our product candidates, which will be expensive and time consuming and may require substantial investments
prior to any product candidate being granted regulatory approval. In selling, marketing and distributing our products ourselves, we face a number of
additional risks, including:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to physicians or educate adequate numbers of physicians on the clinical benefits of our
products to achieve market acceptance;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies
with more extensive product lines;
the costs associated with training sales personnel on legal compliance matters and monitoring their actions;
liability for sales personnel failing to comply with the applicable legal requirements; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of these
products.
We may choose to collaborate with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and
distribution systems or in lieu of our own sales force and distribution systems. If we enter into arrangements with third parties to perform sales, marketing
and distribution services for our products, the resulting revenues or the profitability from these revenues to us are likely to be lower than if we had sold,
marketed and distributed our products ourselves. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to
successfully commercialize any of our product candidates that receive regulatory approval. Depending on the nature of the third party relationship, we may
have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, market and
distribute our products effectively.
If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future
product revenue will suffer and we may incur significant additional losses.
Even if we commercialize any of our product candidates, these products may become subject to unfavorable pricing regulations, third-party
reimbursement practices or healthcare reform initiatives, which could harm our business.
The laws that govern regulatory approvals, pricing and reimbursement for new drug products vary widely from country to country. Current and future
legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. In
many countries, the pricing review period begins after marketing or product licensing approval is granted. Some countries require approval of the sale price
of a drug before it can be marketed or soon thereafter. Additionally, in some foreign markets, prescription pharmaceutical pricing remains subject to
continuing governmental control even after initial approval is granted. As a result, we might obtain regulatory approval for a product in a particular country,
but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which could negatively impact
the revenues we generate from the sale of the product in that particular country. Adverse pricing limitations may hinder our ability to recoup our investment
in one or more product candidates even if our product candidates obtain regulatory approval.
In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings on
specific products and therapies. In the European Union, the pricing and reimbursement schemes of medicinal products is governed by the national
legislation of each EU Member State and also vary widely from country to country. In these countries, pricing negotiations with governmental authorities
can take considerable time after receipt of regulatory approval for a product. Some countries provide that products may be marketed only after a
reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular
product candidate to currently available therapies (so called health technology assessments) in order to obtain reimbursement or pricing approval.
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In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost
containment measures in the current economic climate in the European Union. There is very limited harmonization between EU Member States regarding
pricing and reimbursement practices.
Reference pricing used by various European Union Member States and parallel distribution, or arbitrage between low-priced and high-priced Member
States, can further reduce prices. In particular, Germany, Portugal and Spain have all introduced a number of short-term measures to lower healthcare
spending, including mandatory discounts, clawbacks and price referencing rules, which could have a material adverse effect on our business.
Moreover, in the European Economic Area some countries require the completion of additional studies that compare the cost-effectiveness of a particular
medicinal product candidate to currently available therapies. This Health Technology Assessment, or HTA process, which is currently governed by the
national laws of the individual EU Member States, is the procedure according to which the assessment of the public health impact, therapeutic impact and
the economic and societal impact of use of a given medicinal product in the national healthcare systems of the individual country is conducted. The
outcome of HTA regarding specific medicinal products will often influence the pricing and reimbursement status granted to these medicinal products by the
competent authorities of individual EU Member States. On January 31, 2018, the European Commission adopted a proposal for a regulation on health
technologies assessment. The proposed regulation is intended to boost cooperation among EU Member States in assessing health technologies, including
new medicinal products, and providing the basis for cooperation at EU level for joint clinical assessments in these areas. In December 2021 the HTA
Regulation was adopted and entered into force on 11 January 2022. It will apply from 2025.
There can be no assurance that our products will be considered cost-effective, that an adequate level of reimbursement will be available or that a foreign
country’s reimbursement policies will not adversely affect our ability to sell our products profitably.
If reimbursement of our drugs is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be materially
harmed.
Our ability to commercialize any products successfully will depend in part on the extent to which coverage and adequate reimbursement for these products
and related treatments will be available from government health administration authorities and other third-party payors, such as private health insurers and
health maintenance organizations. Government authorities and other third-party payors determine which medications they will cover and establish
reimbursement levels. Assuming we obtain coverage for a given product by a third-party payor, the resulting reimbursement payment rates may not be
adequate or may require co-payments that patients find unacceptably high. Patients who are prescribed medications for the treatment of their conditions,
and their prescribing physicians, generally rely on third-party payors to reimburse all or part of the costs associated with their prescription drugs. Patients
are unlikely to use our products unless coverage is provided and reimbursement is adequate to cover all or a significant portion of the cost of our products.
Therefore, coverage and adequate reimbursement is critical to new product acceptance. Coverage decisions may depend upon clinical and economic
standards that disfavor new drug products when more established or lower cost therapeutic alternatives are already available or subsequently become
available.
Government authorities and other third-party payors are developing increasingly sophisticated methods of controlling healthcare costs, such as by limiting
coverage and the amount of reimbursement for particular medications. Increasingly, third-party payors are requiring that drug companies provide them with
predetermined discounts from list prices as a condition of coverage, are using restrictive formularies and preferred drug lists to leverage greater discounts in
competitive classes, and are challenging the prices charged for medical products. In addition, in the United States, federal programs impose penalties on
drug manufacturers in the form of mandatory additional rebates and/or discounts if commercial prices increase at a rate greater than the Consumer Price
Index-Urban, and these rebates and/or discounts, which can be substantial, may impact our ability to raise commercial prices. Further, in the United States
there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in
several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to drug
pricing, reduce the cost of prescription drugs under government payor programs, and review the relationship between pricing and manufacturer patient
programs. We expect that additional U.S. federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that the
U.S. federal government will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional
pricing pressures.
Additionally, no uniform policy requirement for coverage and reimbursement for drug products exists among third-party payors in the United States.
Therefore, coverage and reimbursement for drug products can differ significantly from payor to payor. As a result, the coverage determination process is
often a time-consuming and costly process that will require us to provide scientific and clinical support for the use of our products to each payor separately,
with no assurance that coverage and adequate reimbursement will be applied consistently or obtained in the first instance.
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We cannot be sure that coverage and reimbursement will be available for any product that we commercialize and, if reimbursement is available, what the
level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain
regulatory approval. If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully
commercialize any product candidate for which we obtain regulatory approval.
There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes
for which the drug is approved by the European Commission, FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and
reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale
and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary.
Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already
set for lower cost drugs and may be incorporated into existing payments for other services. Prices paid for a drug also vary depending on the class of trade.
Prices charged to government customers and certain customers that receive federal funds are subject to price controls, and private institutions may obtain
discounts through group purchasing organizations or use formularies to leverage discounts. Net prices for drugs may be reduced by mandatory discounts or
rebates required by government healthcare programs or private payors and by any future relaxation of laws that presently restrict imports of drugs from
countries where they may be sold at lower prices than in the United States. Our inability to promptly obtain coverage and profitable reimbursement rates
from both government-funded and private payors for any approved products that we develop could have a material adverse effect on our operating results,
our ability to raise capital needed to commercialize products and our overall financial condition.
Additionally, there has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices.
Specifically, there have been several recent U.S. Presidential executive orders, Congressional inquiries and proposed federal and proposed and enacted state
legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for drugs. For example, in July 2021, the Biden administration released an
executive order, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response to Biden’s
executive order, on September 9, 2021, the U.S. Department of Health and Human Services (“HHS”) released a Comprehensive Plan for Addressing High
Drug Prices that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as
potential administrative actions HHS can take to advance these principles. Further, on August 16, 2022, President Biden signed the Inflation Reduction Act
of 2022 (“IRA”) into law which, among other things, (1) directs HHS to negotiate the price of certain single-source drugs and biologics covered under
Medicare and (2) imposes rebates under Medicare Part B and Medicare Part D to penalize price increases that outpace inflation. These provisions will take
effect progressively starting in fiscal year 2023, although they may be subject to legal challenges. It is currently unclear how the IRA will be implemented
but is likely to have a significant impact on the pharmaceutical industry. Further, the Biden administration released an additional executive order on
October 14, 2022, directing HHS to submit a report on how the Center for Medicare and Medicaid Innovation can be further leveraged to test new models
for lowering drug costs for Medicare and Medicaid beneficiaries. It is unclear whether this executive order or similar policy initiatives will be implemented
in the future. At the state level, legislatures are passing increasing amounts of legislation and implementing regulations designed to control pharmaceutical
and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost
disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
Recently enacted and future legislation may increase the difficulty and cost for us to commercialize our product candidates and affect the prices we
may obtain.
In the United States and many foreign jurisdictions, the legislative landscape continues to evolve. There have been a number of enacted or proposed
legislative and regulatory changes affecting the healthcare system and pharmaceutical industry that could, among other things, prevent or delay regulatory
approval of our product candidates, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidate for which we
obtain regulatory approval.
For example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010
(collectively, “ACA”) broadened access to health insurance, reduced or constrained the growth of healthcare spending, enhanced remedies against
healthcare fraud and abuse, add imposed new transparency requirements for healthcare and health insurance industries, imposed new taxes and fees on
pharmaceutical manufacturers and imposed additional health policy reforms. Since the ACA’s enactment, there have been executive, judicial and
Congressional challenges to certain aspects of the ACA. For example, on June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural
grounds that argued the ACA is unconstitutional in its entirety because the “individual mandate” was repealed by Congress.
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In addition, the IRA, among other things, extends enhanced subsidies for individuals purchasing health insurance coverage in ACA marketplaces through
plan year 2025. The IRA also eliminates the “donut hole” under the Medicare Part D program beginning in 2025 by significantly lowering the beneficiary
maximum out-of-pocket cost and creating a new manufacturer discount program. It is possible that the ACA will be subject to judicial or Congressional
challenges in the future. It is unclear how any such challenges and additional healthcare reform measures of the Biden administration will impact the ACA
and our business.
Further, Congress is considering additional health reform measures. We expect that healthcare reform measures that may be adopted in the future may
result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that may be charged for any of our
product candidates, if approved.
Many EU Member States periodically review their reimbursement procedures for medicinal products, which could have an adverse impact on
reimbursement status. We expect that legislators, policymakers and healthcare insurance funds in the EU Member States will continue to propose and
implement cost-containing measures, such as lower maximum prices, lower or lack of reimbursement coverage and incentives to use cheaper, usually
generic, products as an alternative to branded products, and/or branded products available through parallel import to keep healthcare costs down.
Moreover, in order to obtain reimbursement for our products in some European countries, including some EU Member States, we may be required to
compile additional data comparing the cost-effectiveness of our products to other available therapies. Health Technology Assessment, or HTA, of medicinal
products is becoming an increasingly common part of the pricing and reimbursement procedures in some EU Member States, including those representing
the larger markets. The HTA process is the procedure to assess therapeutic, economic and societal impact of a given medicinal product in the national
healthcare systems of the individual country. The outcome of an HTA will often influence the pricing and reimbursement status granted to these medicinal
products by the competent authorities of individual EU Member States. The extent to which pricing and reimbursement decisions are influenced by the
HTA of the specific medicinal product currently varies between EU Member States.
In December 2021, Regulation No 2021/2282 on Health Technology Assessment, or HTA, amending Directive 2011/24/EU, was adopted in the EU. This
Regulation, which entered into force in January 2022 and will apply as of January 2025, is intended to boost cooperation among EU Member States in
assessing health technologies, including new medicinal products, and providing the basis for cooperation at EU level for joint clinical assessments in these
areas. The Regulation foresees a three-year transitional period and 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 most
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 technologies, and making decisions on pricing and
reimbursement. If we are unable to maintain favorable pricing and reimbursement status in EU Member States for product candidates that we may
successfully develop and for which we may obtain regulatory approval, any anticipated revenue from and growth prospects for those products in the EU
could be negatively affected.
Legislators, policymakers and healthcare insurance funds in the EU may continue to propose and implement cost-containing measures to keep healthcare
costs down; particularly due to the financial strain that the COVID-19 pandemic has placed on national healthcare systems of the EU Member States. These
measures could include limitations on the prices we would be able to charge for product candidates that we may successfully develop and for which we
may obtain regulatory approval or the level of reimbursement available for these products from governmental authorities or third-party payors. Further, an
increasing number of EU and other foreign countries use prices for medicinal products established in other countries as “reference prices” to help determine
the price of the product in their own territory. Consequently, a downward trend in prices of medicinal products in some countries could contribute to similar
downward trends elsewhere.
Our international operations are subject to foreign currency and exchange rate risks.
Because we plan to continue to conduct our clinical trials in Europe, we are exposed to currency fluctuations and exchange rate risks. The costs of our
CROs may be incurred in Euros and we may pay them in Euros, or other currencies, however, we expect to keep the substantial portion of our cash, cash
equivalents, marketable securities and private placement transactions, in United States Dollars. Therefore, fluctuations in foreign currencies, especially the
Euro, could significantly impact our costs of conducting clinical trials. In addition, we may have to seek additional funding earlier than expected, which
may not be available on acceptable terms or at all. Changes in the applicable currency exchange rates might negatively affect the profitability and business
prospects of the third parties conducting our future clinical trials. This might cause such third parties to demand higher fees or discontinue their operations.
These situations could in turn increase our costs or delays our clinical development, which could have a material adverse effect on our business, financial
condition and results of operations.
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A variety of risks associated with international operations could materially adversely affect our business.
We own one Swiss subsidiary, expect to engage in significant cross-border activities, and we will be subject to risks related to international operations,
including:
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different regulatory requirements for maintaining approval of drugs in foreign countries;
reduced protection for contractual and intellectual property rights in certain countries;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, political instability in particular foreign economies and markets, such as the instability caused by
Russia’s invasion of Ukraine, or public health issues or pandemics, such as the COVID-19 pandemic;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
compliance with tax laws of various jurisdictions, including with respect to intercompany transfer pricing arrangements and taxable nexus;
foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to
doing business in another country;
workforce uncertainty in countries where labor unrest is more common than in North America;
tighter restrictions on privacy and the collection and use of patient data; and
business interruptions resulting from geopolitical actions, including political instability, hostilities, war and terrorism, such as the war in
Ukraine, or natural disasters including pandemics, earthquakes, typhoons, floods and fires.
If any of these issues were to occur, our business could be materially harmed.
The United Kingdom’s withdrawal from the EU may have a negative effect on global economic conditions, financial markets and our business, which
could reduce the price of our common shares.
Following the result of a referendum in 2016, the United Kingdom left the EU on January 31, 2020, commonly referred to as Brexit. Pursuant to the formal
withdrawal arrangements agreed between the United Kingdom and the EU, the United Kingdom, or the UK, was subject to a transition period until
December 31, 2020, or the Transition Period, during which EU rules continued to apply. The UK and the EU have signed a EU-UK Trade and Cooperation
Agreement, or TCA, which became provisionally applicable on January 1, 2021 and entered into force on May 1, 2021. This agreement provides details on
how some aspects of the UK and EU’s relationship will operate going forwards however there are still many uncertainties. The TCA primarily focuses on
ensuring free trade between the EU and the UK in relation to goods, including medicinal products. Although the body of the TCA includes general terms
which apply to medicinal products, greater detail on sector-specific issues is provided in an Annex to the TCA. The Annex provides a framework for the
recognition of Good Manufacturing Practice, or GMP, inspections and for the exchange and acceptance of official GMP documents. The regime does not,
however, extended to procedures such as batch release certification. Among the changes that have occurred are that Great Britain (England, Scotland and
Wales) is treated as a “third country,” a country that is not a member of the EU and whose citizens do not enjoy the EU right to free movement. Northern
Ireland continues to follow many aspects of the EU regulatory rules, particularly in relation to trade in goods. As part of the TCA, the EU and the UK
recognize GMP inspections carried out by the other party and the acceptance of official GMP documents issued by the other party. The TCA also
encourages, although it does not oblige, the parties to consult one another on proposals to introduce significant changes to technical regulations or
inspection procedures. Among the areas of absence of mutual recognition are batch testing and batch release. The UK has unilaterally agreed to accept EU
batch testing and batch release. However, the EU continues to apply EU laws that require batch testing and batch release to take place in the EU territory.
This means that medicinal products that are tested and released in the UK must be retested and re-released when entering the EU market for commercial
use. As it relates to marketing authorizations, Great Britain has a separate regulatory submission process, approval process and a separate national
marketing authorization. Northern Ireland continues, however, to be covered by the marketing authorizations granted by the European Commission. For
example, the scope of a marketing authorization for a medicinal product granted by the European Commission or by the competent authorities of EU
Member States will no longer encompass Great Britain (England, Scotland and Wales). In these circumstances, a separate marketing authorization granted
by the UK competent authorities is required to place medicinal products on the market in Great Britain. Northern Ireland continues, however, to be covered
by the marketing authorizations granted by the European Commission.
Since a significant proportion of the regulatory framework in the UK applicable to our business and our product candidates is derived from EU Directives
and Regulations, Brexit, following the Transition Period, could materially impact the regulatory regime with respect to the development, manufacture,
importation, approval and commercialization of our product candidates in the UK or the EU, now that UK legislation has the potential to diverge from EU
legislation. All of these changes could increase our costs and otherwise adversely affect our business. 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 the UK or the EU and restrict our
ability to generate revenue and achieve and sustain profitability.
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In addition, we may be required to pay taxes or duties or be subjected to other hurdles in connection with the importation of our product candidates into the
EU. If any of these outcomes occur, we may be forced to restrict or delay efforts to seek regulatory approval in the UK or the EU for our product
candidates, or incur significant additional expenses to operate our business, which could significantly and materially harm or delay our ability to generate
revenues or achieve profitability of our business. Any further changes in international trade, tariff and import/export regulations as a result of Brexit or
otherwise may impose unexpected duty costs or other non-tariff barriers on us. These developments, or the perception that any of them could occur, may
significantly reduce global trade and, in particular, trade between the impacted nations and the UK. It is also possible that Brexit may negatively affect our
ability to attract and retain employees, particularly those from the EU.
If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to compete in the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly
qualified managerial, scientific and medical personnel. We are highly dependent on our management, scientific and medical personnel, especially Dr. Remy
Luthringer, whose services are critical to the successful implementation of our product candidate development and regulatory strategies. We do not
maintain “key man” insurance policies on the lives of these individuals or the lives of any of our other employees. In order to induce valuable employees to
continue their employment with us, we have provided stock options that vest over time and performance-based restricted stock units. The value to
employees of such equity grants that vest over time is significantly affected by movements in our stock price that are beyond our control, and may at any
time be insufficient to counteract more lucrative offers from other companies. In addition, if performance conditions in these awards, to the extent
applicable, are not met or if our stock-based compensation otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain and motivate
personnel could be weakened, which could harm our business.
Despite our efforts to retain valuable employees, members of our management, scientific and development teams generally may terminate their
employment with us, with or without good reason, upon written notice to us. Pursuant to their employment arrangements, some of our executive officers
may voluntarily terminate their employment at any time by providing as little as thirty days advance notice. Our employment arrangements, other than
those with our executive officers, provide for at-will employment, which means that any of our employees (other than our executive officers) could leave
our employment at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to
find suitable replacements could potentially harm our business, financial condition and prospects. Our success also depends on our ability to continue to
attract, retain and motivate highly skilled junior, mid-level, and senior managers as well as junior, mid-level, and senior scientific and medical personnel.
We may not be able to attract or retain qualified management and scientific personnel in the future due to the intense competition for a limited number of
qualified personnel among biopharmaceutical, biotechnology, pharmaceutical and other businesses. Many of the other pharmaceutical companies that we
compete against for qualified personnel have greater financial and other resources, different risk profiles and a longer history in the industry than we do.
They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high
quality candidates than what we have to offer. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can
develop and commercialize product candidates will be limited.
We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
As of December 31, 2022, we had 9 full-time employees. As our development and commercialization plans and strategies develop, we expect to need
additional managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on
members of management, including:
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managing our clinical trials effectively;
identifying, recruiting, maintaining, motivating and integrating additional employees;
managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, collaborators,
contractors and other third parties;
improving our managerial, development, operational and finance systems; and
developing our compliance infrastructure and processes to ensure compliance with complex regulations and industry standards regarding us
and our product candidates.
As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, collaborators, suppliers and other
third parties. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on
our ability to manage any future growth effectively.
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To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management,
administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent
us from successfully growing our company.
Future acquisitions, mergers or joint ventures could disrupt our business and otherwise harm our business.
We actively evaluate various strategic transactions on an ongoing basis and may acquire other businesses, products or technologies as well as pursue
strategic alliances, joint ventures or investments in complementary businesses. We merged with Sonkei in November 2013 and acquired Mind-NRG in
February 2014, but otherwise do not have any substantial experience integrating or managing acquired businesses or assets. Strategic transactions expose
us to many risks, including:
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disruption in our relationships with collaborators or suppliers as a result of such a transaction;
unanticipated liabilities related to acquired companies;
difficulties integrating acquired personnel, technologies and operations into our existing business;
retention of key employees;
diversion of management time and focus from operating our business to management of strategic alliances or joint ventures or acquisition
integration challenges;
increases in our expenses and reductions in our cash available for operations and other uses; and
possible write-offs or impairment charges relating to acquired businesses.
Foreign acquisitions, such as the acquisition of Mind-NRG, a Swiss company, involve unique risks in addition to those mentioned above, including those
related to integration of operations across different cultures and languages, currency risks and the particular economic, political and regulatory risks
associated with specific countries.
Also, the anticipated benefit of any strategic alliance, joint venture or acquisition may not materialize. Future acquisitions or dispositions could result in
potentially dilutive issuances of our equity securities, the incurrence of debt (including on terms that are unfavorable to us that we are unable to repay or
that may place burdensome restrictions on our operations), contingent liabilities or amortization expenses or write-offs of goodwill, any of which could
harm our financial condition. We cannot predict the number, timing or size of future joint ventures or acquisitions, or the effect that any such transactions
might have on our operating results.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product
candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we
commercialize any products. For example, we may be sued if any product we develop allegedly causes injury or is found to be otherwise unsuitable during
product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design,
a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties brought by subjects enrolled in our clinical trials,
patients, healthcare providers or others using, administering or selling our products. Claims could also be asserted under state consumer protection acts. If
we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of
our product candidates, if approved. Even successful defense would require significant financial and management resources. Regardless of the merits or
eventual outcome, liability claims may result in:
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decreased demand for our product candidates or products that we may develop;
termination of clinical trial sites or entire trial programs;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants;
initiation of investigations by regulators;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling revisions, marketing or promotional restrictions;
loss of revenues from product sales; and
the inability to commercialize our product candidates.
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Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could
prevent or inhibit the commercialization of products we develop. We do not currently carry any product liability insurance. Although we anticipate
obtaining and maintaining such insurance in line with our needs for our upcoming trials, such insurance may be more costly than we anticipate and 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 such insurance
or that is in excess of the limits of such insurance coverage. We also expect our insurance policies will also have various exclusions, and we may be subject
to a product liability claim for which we have no coverage. 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.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our CROs and other contractors and consultants are
vulnerable to damage from computer viruses, unauthorized access, natural disasters, outbreaks of contagious diseases, such as coronavirus, terrorism, war
and telecommunication and electrical failures. For example, a cyber-attack on one of our external contractors during the summer of 2019 resulted in a
disruption to patient recruitment in our Phase 3 clinical trial of roluperidone. Further similar events could occur and cause interruptions in our operations,
and could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing or
planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the
extent that any disruption or security breach results 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 of our product candidates could be delayed.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial condition,
results of operations or cash flows, which may adversely affect investor confidence in us and, as a result, the value of our common stock.
We are required to comply with the SEC’s rules that implement Section 404 of the Sarbanes-Oxley Act and the Committee on Sponsoring Organizations,
Report on Internal Control – Integrated Framework, which require, among other things, that we maintain effective internal controls for financial reporting
and disclosure controls and procedures. Under Section 404 of the Sarbanes-Oxley Act, we are required to furnish a report by management on, among other
things, the effectiveness of our internal control over financial reporting. This assessment must include disclosure of any material weaknesses identified by
management in our internal control over financial reporting. A material weakness is a control deficiency, or combination of control deficiencies, in internal
control over financial reporting that results in more than a reasonable possibility that a material misstatement of annual or interim financial statements will
not be prevented or detected on a timely basis.
Our compliance with Section 404 requires that we compile the system and process documentation necessary to perform an appropriate evaluation. During
the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to
assert that our internal control over financial reporting is effective. While we have established certain procedures and control over our financial reporting
processes, we cannot assure you that these efforts will prevent restatements of our financial statements in the future. If we identify any future significant
deficiencies or material weaknesses, the accuracy and timing of our financial reporting may be adversely affected and we may be unable to maintain
compliance with securities law requirements regarding timely filing of periodic reports. In addition, investors’ perceptions that our internal controls are
inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price and business prospects. Failure to
remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of
public companies, could also restrict our future access to the capital markets.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended (“Exchange Act”). We designed our disclosure
controls and procedures to reasonably assure us that the information we disclose in reports we file in accordance with the Exchange Act is accurate,
complete, reviewed by management and reported within the required time period. We believe that any disclosure controls and procedures, no matter how
well-conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized
override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements due to error or fraud may occur and not be
detected.
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Prior to November 2013, we operated without full-time employees, relying on the services of consultants, including representatives of our former affiliate,
Care Capital LLC, to provide certain accounting and finance functions. We have since hired personnel and continue to develop our disclosure control
procedures; however, if we are unsuccessful in building an appropriate infrastructure, or unable to develop procedures and controls to ensure timely and
accurate reporting, we may be unable to meet our disclosure requirements under the Exchange Act, which could adversely affect the market price of our
common stock and impair our access to the capital markets.
Our employees, independent contractors, principal investigators, CROs, consultants, commercial partners and vendors may engage in misconduct or
other improper activities, including non-compliance with regulatory standards and requirements.
We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees and independent contractors, such as principal investigators,
CROs, manufacturers, consultants, commercial partners and vendors, could include failures to comply with regulations of the FDA or comparable foreign
regulatory authorities, to provide accurate information to the FDA or comparable foreign regulatory authorities to comply with manufacturing standards we
have established, to comply with US federal and state healthcare fraud and abuse laws and comparable foreign regulatory requirements, to report financial
information or data accurately or to disclose unauthorized activities to us. For example, in our Phase 3 trial of roluperidone for the treatment of negative
symptoms of schizophrenia, one clinical site that recruited 17 patients reported implausible behavioral (schizophrenia symptoms) and physiological (blood
pressure) data. As a result, these 17 patients were excluded and made part of an mITT analysis set. Sales, marketing and other business arrangements in the
healthcare industry are subject to extensive laws intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws may restrict or
prohibit a wide range of business activities, including, but not limited to certain activities related to research, manufacturing, distribution, pricing,
discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Employee and independent
contractor misconduct could also involve the improper use of individually identifiable information, including, without limitation, information obtained in
the course of clinical trials, which could result in sanctions, monetary penalties, and serious harm to our reputation. In addition, federal procurement laws
impose substantial penalties for misconduct in connection with government contracts and require certain contractors to maintain a code of business ethics
and conduct.
We have adopted a code of business ethics and conduct, but it is not always possible to identify and deter employee and independent contractor misconduct,
and the precautions we take to detect and prevent improper activities may not be effective in controlling unknown or unmanaged risks or losses or in
protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. If any such
actions are instituted against us, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative
penalties, damages, monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal
healthcare programs or comparable foreign programs, contractual damages, reputational harm, additional reporting requirements and oversight if we
become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, diminished profits and
future earnings and curtailment or restructuring of our operations, any of which could adversely affect our ability to operate.
Any relationships with healthcare professionals, principal investigators, consultants, customers (actual and potential) and third-party payors in
connection with our current and future business activities may and may continue to be subject, directly or indirectly, to federal and state healthcare
fraud and abuse laws, false claims laws, marketing expenditure tracking and disclosure (or “sunshine”) laws, government price reporting, and health
information privacy and security laws, as well as equivalent foreign legislation. If we are unable to comply, or have not fully complied, with such laws,
we could face penalties, contractual damages, reputational harm, diminished profits and future earnings and curtailment or restructuring of our
operations.
Our business operations and activities may be directly, or indirectly, subject to various federal, state and local healthcare laws, including, without limitation,
the federal Anti-Kickback Statute and the federal False Claims Act. These laws may impact, among other things, our current activities with principal
investigators and research subjects, as well as proposed and future sales, marketing and education programs. In addition, we may be subject to patient data
privacy and security regulation by the federal government, state governments and foreign jurisdictions in which we conduct our business. The healthcare
laws and regulations that may affect our ability to operate include, but are not limited to:
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The federal Anti-Kickback Statute, which prohibits, among other things, individuals and entities from knowingly and willfully soliciting,
receiving, offering or paying any remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or
in kind, to induce, or in return for, the referral of an individual for the furnishing or arranging for the furnishing of any item or service, or the
purchase, lease, order, arrangement for, or recommendation of the purchase, lease, or order of any good, facility, item or service for which
payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and Medicaid programs.
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The federal civil False Claims Act, which imposes civil penalties, including through civil whistleblower or qui tam actions, against
individuals or entities for, among other things, knowingly presenting, or causing to be presented, to the federal government, claims for
payment that are false or fraudulent; knowingly making, using or causing to be made or used, a false record or statement to get a false or
fraudulent claim paid or approved by the government; conspiring to defraud the government by getting a false or fraudulent claim paid or
approved by the government; or knowingly making, using or causing to be made or used a false record or statement to avoid, decrease or
conceal an obligation to pay money to the federal government.
The federal criminal False Claims Act, which imposes criminal fines or imprisonment against individuals or entities who make or present a
claim to the government knowing such claim to be false, fictitious or fraudulent.
The civil monetary penalties statute, which imposes penalties against any person or entity who, among other things, is determined to have
presented or caused to be presented a claim to a federal health program that the person knows or should know is for an item or service that
was not provided as claimed or is false or fraudulent.
The Veterans Health Care Act of 1992 that requires manufacturers of “covered drugs” to offer them for sale to certain federal agencies,
including but not limited to, the Department of Veterans Affairs, on the Federal Supply Schedule, which requires compliance with applicable
federal procurement laws and regulations and subjects manufacturers to contractual remedies as well as administrative, civil and criminal
sanctions.
The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which created additional federal criminal statutes that
prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by
means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control
of, any healthcare benefit program, regardless of the payor (e.g., public or private), knowingly and willfully embezzling or stealing from a
health care benefit program, willfully obstructing a criminal investigation of a health care offense and knowingly and willfully falsifying,
concealing or covering up by any trick or device a material fact or making any materially false statements in connection with the delivery of,
or payment for, healthcare benefits, items or services relating to healthcare matters.
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), and their respective
implementing regulations, which impose requirements on certain covered healthcare providers, health plans and healthcare clearinghouses as
well as their respective business associates and covered subcontractors that perform services for them that involve individually identifiable
health information, relating to the privacy, security and transmission of individually identifiable health information without appropriate
authorization, including mandatory contractual terms as well as directly applicable privacy and security standards and requirements.
The federal Physician Payments Sunshine Act and its implementing regulations requires manufacturers of drugs, devices, biologicals and
medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program (with certain
exceptions) to report annually to the Centers for Medicare & Medicaid Services information related to payments or other transfers of value
made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors), certain other healthcare professionals
(such as physician assistants and nurse practitioners) and teaching hospitals, as well as ownership and investment interests held by physicians
and their immediate family members.
Federal consumer protection and unfair competition laws, which broadly regulate marketplace and other activities that potentially harm
consumers.
State law equivalents of each of the above federal laws, such as anti-kickback, false claims, consumer protection and unfair competition laws
which may apply to our business practices, including but not limited to our research, distribution, sales and marketing arrangements and our
practices for submitting claims involving healthcare items or services reimbursed by any third-party payors, including commercial insurers.
State laws may also (1) require that pharmaceutical companies comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government that otherwise restrict the payments that may be made to
healthcare providers, (2) require that drug manufacturers file reports with states regarding marketing information, such as the tracking and
reporting of gifts, compensations and other remuneration and items of value provided to healthcare professionals and entities (compliance
with such requirements may require investment in infrastructure to ensure that tracking is performed properly, and some of these laws result
in the public disclosure of various types of payments and relationships, which could potentially have a negative effect on a pharmaceutical
company’s business and/or increase enforcement scrutiny of its activities), (3) require the reporting of information related to drug pricing,
,and (4) govern the privacy and security of health information in certain circumstances. State laws are not uniform, may differ from each
other in significant ways and may be applied with differing effects.
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In addition, any sales of our products or product candidates once commercialized outside the United States will also likely subject us to foreign equivalents
of the healthcare laws mentioned above. Outside the United States, interactions between pharmaceutical companies and health care professionals are
governed by strict laws such as national anti-bribery laws of European countries, national sunshine rules, regulations, industry self-regulation codes of
conduct and physicians’ codes of professional conduct. These laws may include, for instance, the UK Bribery Act 2010 other national anti-corruption
legislation related to EU Member States’ adherence to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business
Transactions, European Union consumer laws protecting against defective products, including the Product Liability Directive 85/374/EEC, the UK ABPI
Code of Practice as well as the French “Bertrand Law” and related Decrees and Ordinances Imposing Transparency requirements on manufacturers in their
interactions with French health care professionals. Failure to comply with these requirements could result in reputational risk, public reprimands,
administrative penalties, fines or imprisonment.
Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental
and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law interpreting
applicable fraud and abuse or other healthcare laws. If our operations are found to be in violation of any of the laws described above or any other
governmental regulations that apply to us, we may be subject to, without limitation, significant civil, criminal and administrative penalties, damages,
monetary fines, disgorgement, individual imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs
or comparable foreign programs, contractual damages, reputational harm, diminished profits and future earnings, additional reporting requirements and
oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws and
curtailment or restructuring of our operations, any of which could adversely affect our ability to operate.
We are subject to the Foreign Corrupt Practices Act.
The Foreign Corrupt Practices Act (“FCPA”), prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of
anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign
entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the
United States to comply with accounting provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions
of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international
operations. Activities that violate the FCPA, even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment,
disgorgement, oversight, and debarment from government contracts.
We are subject to stringent and evolving United States and foreign laws, regulations, rules, contractual obligations, policies and other obligations
related to data privacy and security, including the European Union’s General Data Protection Regulation (“EU GDPR”) and the United Kingdom’s
General Data Protection Regulation (“UK GDPR”). New privacy rules are being enacted in the United States and globally, and existing ones are being
expanded, updated and strengthened.
Certain of our processing of personal data may be subject to EU and/or UK data protection laws. For example, the European Union’s General Data
Protection Regulation (“GDPR”) applies to processing operations carried out in the context of the activities of an establishment in the EEA, as well as any
processing relating to the offering of goods or services to individuals in the EEA and/or the monitoring of their behavior in the EEA. Also, notwithstanding
the UK’s withdrawal from the EU, by operation of the so-called UK GDPR, the GDPR continues to apply in substantially equivalent form to processing
operations carried out in the context of the activities of an establishment in the UK, as well as any processing relating to the offering of goods or services to
individuals in the UK and/or monitoring of their behavior in the UK—so, when we refer to the GDPR in this section, we are also making reference to the
UK GDPR in the context of the UK, unless the context requires otherwise. For example, the GDPR may apply in the context of our processing of personal
data related to the conduct of clinical trials in the EEA and/or UK.
In addition to that Regulation itself, the GDPR provides that EEA Member States may make their own further laws and regulations to introduce specific
requirements related to the processing of “special categories of personal data,” including personal data related to health and genetic information, which we
may process in the context of clinical trials. The UK Data Protection Act of 2018 complements the UK GDPR in this regard. This may lead to greater
divergence on the law that applies to the processing of such types of personal data across the EEA and/or UK, compliance with which, as and where
applicable, may increase our costs and could increase our overall compliance risk. For example, in France, the conduct of clinical trials is subject to
compliance with reference methodologies (such as MR-001) imposing stringent rules to process health-related data. Such country-specific regulations
could also limit our ability to collect, use and share data in the context of our EEA and/or UK operations, and/or could cause our compliance costs to
increase, ultimately having an adverse impact on our business and harming our business and financial condition.
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The GDPR imposes stringent data protection obligations, and requires organizations to give detailed disclosures about how they collect, use and share
personal data; in certain cases, obtain explicit consent to process special categories of personal data, such as the health or genetic information referred to
above; contractually require vendors to meet data protection requirements; maintain adequate data security measures; notify regulators and affected
individuals of certain data breaches; meet extensive privacy governance and documentation requirements; and honor individuals’ data protection rights,
including their rights to access, correct and delete their personal data.
As a particular issue, the GDPR imposes strict rules on the transfer of personal data out of the EEA and UK to the United States and similar “third
countries”. Although one of the primary mechanisms for transferring personal data to the United States (known as the “EU-U.S. Privacy Shield”) was
invalidated in July 2020, alternative solutions exist that may still serve as a valid mechanism by which entities can validly transfer personal data that is
subject to the GDPR to recipients in jurisdictions outside the EEA and UK, which have not been found to provide an adequate level of protection for the
purposes of the GDPR, which would include the United States. For example, such transfers may rely on the European Commission’s Standard Contractual
Clauses or similar approved-form “appropriate safeguards” (such as the UK “International Data Transfer Agreement”); however, these safeguards require
parties that rely upon them to comply with onerous obligations, such as conducting “transfer impact assessments” to determine whether additional
measures are need to supplement such safeguards to protect the transferred personal data effectively. Furthermore, relevant regulatory guidance appears to
conclude that no combination of such supplementary measures could be sufficient to allow effective reliance on these safeguards in the context of transfers
of unencrypted personal data to recipients in third countries where public authorities have excessive powers to access and surveil the transferred personal
data – which may, according to relevant case law and regulatory guidance, include the United States in certain circumstances. At present, there are few, if
any, viable alternatives to these safeguards for many transfers.
In addition, although the European Commission adopted an adequacy decision in relation to the United Kingdom, which provides some relief regarding the
legality of continued personal data flows from the EEA to the UK, some uncertainty remains, as this adequacy decision must be renewed after four years
and may be modified or revoked in the interim. If the adequacy decision is withdrawn, modified or revoked, transfers of personal data from the EEA to the
UK may require an alternative ‘transfer mechanism’ and we may be required to implement new processes and put new agreements in place, such as the
above-mentioned Standard Contractual Clauses, to enable transfers of personal data from the EEA to the UK to continue, which could disrupt our
operations.
If we are unable to implement valid solutions for transfers of personal data processed under the GDPR, we will face increased exposure to regulatory
actions, substantial fines and injunctions against processing personal data from the EEA and UK. It may also (i) restrict our activities in the EEA and/or
UK; (ii) limit our ability to collaborate with partners as well as other service providers, contractors and other companies subject to the GDPR; or (iii)
require us to increase our data processing capabilities in the EEA and/or UK at significant expense or otherwise cause us to change the geographical
location or segregation of our relevant systems and operations—any or all of which could adversely affect our financial results.
The GDPR also provides for a robust regulatory enforcement regime and significant penalties for noncompliance, including fines of up to €20 million or
4% of an undertaking’s total worldwide annual turnover for the preceding financial year, whichever is higher. In addition to these fines, supervisory
authorities have extensive audit and inspection rights, and powers to order temporary or permanent bans on all or some processing of personal data carried
out by noncompliant actors. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with
supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR. Additionally, as noted above,
the UK has transposed the GDPR into the laws of the UK, which could expose us to two parallel regimes, each of which potentially authorizes similar
fines, with the UK GDPR permitting fines of up to the higher of £17.5 million or 4% of global annual revenue of any noncompliant organizations for the
preceding financial year, as well as other potentially overlapping or divergent enforcement actions for certain actual or perceived violations.
We endeavor, and have taken steps, to comply with the GDPR and other EEA and UK privacy and data protection laws and regulations, as well as
associated policies, contracts and other obligations, together, European Data Protection Requirements. However, these efforts may not always have been
wholly successful. In addition, we anticipate needing to continue to devote significant resources to our compliance efforts in this area. Furthermore, it is
possible that the GDPR and/or other EEA and UK privacy and data protection laws and regulations, and other associated European Data Protection
Requirements, may be interpreted and applied in a manner that is inconsistent from jurisdiction to jurisdiction or inconsistent with our current policies and
practices. Our actual or perceived failure to adequately comply with the European Data Protection Requirements could result in significant fines, penalties,
regulatory investigations, lawsuits, significant costs for remediation, damage to our reputation, or other liabilities.
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Moreover, despite our efforts, our personnel or third parties on whom we rely may fail to comply with privacy and security obligations, which could
negatively impact our business operations. If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with
applicable data privacy and security obligations, we could face significant consequences, including but not limited to: government enforcement actions
(e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims); additional reporting requirements and/or
oversight; bans on processing personal data; and orders to destroy or not use personal data.
We are subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money laundering laws and
regulations. Compliance with these legal standards could impair our ability to compete in domestic and international markets. We can face criminal
liability and other serious consequences for violations, which can harm our business.
We are subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs regulations, various
economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign Assets Controls, the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or FCPA, the U.S. domestic bribery statute contained in 18 U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act,
and other state and national anti-bribery and anti-money laundering laws in the countries in which we conduct activities. Anti-corruption laws are
interpreted broadly and prohibit companies and their employees, agents, contractors, and other collaborators from authorizing, promising, offering, or
providing, directly or indirectly, improper payments or anything else of value to recipients in the public or private sector. The Foreign Corrupt Practices Act
(“FCPA”), prohibits any U.S. individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to
any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or
business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting
provisions requiring the company to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international
subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. Activities that violate the FCPA,
even if they occur wholly outside the United States, can result in criminal and civil fines, imprisonment, disgorgement, oversight, and debarment from
government contracts.
We have direct or indirect interactions with officials and employees of government agencies or government-affiliated hospitals, universities, and other
organizations. We can be held liable for the corrupt or other illegal activities of our employees, agents, contractors, and other collaborators, even if we do
not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described above may result in substantial
civil and criminal fines and penalties, imprisonment, the loss of export or import privileges, debarment, tax reassessments, breach of contract and fraud
litigation, reputational harm, and other consequences.
We are subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data
privacy and security. Our actual or perceived failure to comply with such obligations could lead to regulatory investigations or actions; litigation; fines
and penalties; disruptions of our business operations; reputational harm; loss of revenue or profits; and other adverse business consequences.
In the ordinary course of business, we collect, receive, store, process, generate, use, transfer, disclose, make accessible, protect, secure, dispose of, transmit,
and share (collectively, processing) personal data and other sensitive data, including proprietary and confidential business data, trade secrets, intellectual
property, data we collect about trial participants in connection with clinical trials, sensitive third-party data, and employee data. Our data processing
activities may subject us to numerous data privacy and security obligations, such as various laws, regulations, guidance, industry standards, external and
internal privacy and security policies, contractual requirements, and other obligations relating to data privacy and security.
In the United States, federal, state, and local governments have enacted numerous data privacy and security laws, including data breach notification laws,
personal data privacy laws, and consumer protection laws (e.g. Section 5 of the Federal Trade Commission Act). For example, the federal Health Insurance
Portability and Accountability Act of 1996 (“HIPAA”), as amended by the Health Information Technology for Economic and Clinical Health Act
(“HITECH”), imposes specific requirements relating to the privacy, security, and transmission of individually identifiable health information. In addition,
the California Consumer Privacy Act of 2018 (“CCPA”) requires businesses to provide specific disclosures in privacy notices and honor requests of
California residents to exercise certain privacy rights. The CCPA provides for civil penalties of up to $7,500 per violation and allows private litigants
affected by certain data breaches to recover significant statutory damages. Although the CCPA exempts some data processed in the context of clinical trials,
the CCPA may increase compliance costs and potential liability with respect to other personal data maintained about California residents.
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In addition, the California Privacy Rights Act of 2020 (“CPRA”), effective January 1, 2023, expands the CCPA’s requirements, adds a new right for
individuals to correct their personal information, and establishes a new regulatory agency to implement and enforce the law. Other states, such as Virginia,
Colorado and Utah, have also passed comprehensive privacy laws, and similar laws are being considered in several other states. While these states, like the
CCPA, also exempt some data processed in the context of clinical trials, these developments may further complicate compliance efforts, and may increase
legal risk and compliance costs for us, the third parties upon whom we rely. In addition, data privacy and security laws have been proposed at the federal,
state, and local levels in recent years, which could further complicate compliance efforts.
Outside the United States, an increasing number of laws, regulations, and industry standards may apply to data privacy and security, including the GDPR,
as described in preceding risk factors, imposes strict requirements for processing personal data, and violators of these laws face significant penalties.
Certain jurisdictions, such as the EU, Switzerland and the UK, have enacted cross-border personal data transfer laws regulating personal data flows to third
countries. In addition to personal data transfer restrictions, other countries (such as Russia and China) have adopted or proposed laws prohibiting certain
businesses from transferring data outside those countries, which may increase the cost and complexity of doing business or require us not to conduct
business in certain countries. Existing mechanisms that facilitate cross-border personal data transfers may change or be invalidated and may pose additional
compliance burdens. For example, absent appropriate safeguards or other circumstances, the EU GDPR generally restricts the transfer of personal data to
countries outside of the European Economic Area (“EEA”) that the European Commission does not consider to provide an adequate level of data privacy
and security, such as the United States. The European Commission released a set of “Standard Contractual Clauses” (“SCCs”) that are designed to be a
valid mechanism to facilitate personal data transfers out of the EEA to these jurisdictions. Currently, these SCCs are a valid mechanism to transfer personal
data outside of the EEA. Additionally, the SCCs impose additional compliance burdens, such as conducting transfer impact assessments to determine
whether additional security measures are necessary to protect the at-issue personal data. If we cannot implement a valid personal data transfer mechanism,
we may face increased exposure to regulatory actions, substantial fines, and injunctions against processing or transferring personal data, as well as other
adverse consequences. In particular we may be unable to import personal data to the United States, which could significantly and negatively impact our
business operations, including by limiting our ability to conduct clinical trial activities in Europe and elsewhere; limiting our ability to collaborate with
parties that are subject to such cross-border data transfer or localization laws; or requiring us to increase our personal data processing capabilities and
infrastructure in foreign countries at significant expense.
In addition to data privacy and security laws, we may be contractually subject to data privacy and security obligations, including industry standards adopted
by industry groups and may become subject to new data privacy and security obligations in the future. For example, certain privacy laws require our
customers to impose specific contractual restrictions on their service providers.
Obligations related to data privacy and security are quickly changing, becoming increasingly stringent and, creating regulatory uncertainty. Additionally,
these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and
complying with these obligations requires us to devote significant resources. These obligations may necessitate changes to our information technologies,
systems, and practices and to those of any third parties that process personal data on our behalf.
We may at times fail (or be perceived to have failed in our efforts to comply with our data privacy and security obligations). Moreover, despite our efforts,
our personnel or third parties upon whom we rely may fail to comply with such obligations, which could negatively impact our business operations and
compliance posture. For example, any failure by a third-party processor to comply with applicable law, regulations, or contractual obligations could result
in adverse effects, including proceedings against us by governmental entities or others.
If we or the third parties on which we rely fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations,
we could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits,
inspections, and similar); litigation (including class-action claims); additional reporting requirements and/or oversight; bans on processing personal data;
orders to destroy or not use personal data; and imprisonment of company officials. Any of these events could have a material adverse effect on our
reputation, business, or financial condition, including but not limited to: loss of customers; interruptions or stoppages in our business operations (including,
as relevant, clinical trials); inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize our products;
expenditure of time and resources to defend any claim or inquiry; adverse publicity; or revision or restructuring of our operations.
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If our information technology systems or data, or those of third parties upon which we rely, are or were compromised, we could experience adverse
consequences resulting from such compromise, including but not limited to regulatory investigations or actions; litigation; fines and penalties;
disruptions of our business operations; reputational harm; loss of revenue or profits; and other adverse consequences.
In the ordinary course of our business, we or the third parties upon which we rely, may process proprietary, confidential, and sensitive data, including
personal data (such as health-related data and data related to clinical trials), intellectual property, and trade secrets (collectively, sensitive information). We
may rely upon third-party service providers and technologies to operate critical business systems to process sensitive information in a variety of contexts,
including, without limitation, third-party providers of cloud-based infrastructure, encryption and authentication technology, employee email, content
delivery to customers, and other functions. Our ability to monitor these third parties’ information security practices is limited, and these third parties may
not have adequate information security measures in place. While we may be entitled to damages if our third-party service providers fail to satisfy their
privacy or security-related obligations to us, any award may be insufficient to cover our damages, or we may be unable to recover such award. In addition,
supply-chain attacks have increased in frequency and severity, and we cannot guarantee that third parties’ infrastructure in our supply chain or our third-
party partners’ supply chains have not been compromised. We may also share or receive sensitive information with or from third parties.
Cyberattacks, malicious internet-based activity, online and offline fraud, and other similar activities threaten the confidentiality, integrity, and availability of
our sensitive information and information technology systems, and those of the third parties upon which we rely. Such threats are prevalent continue to rise,
are increasingly difficult to detect, and come from a variety of sources, including traditional computer “hackers,” threat actors, “hacktivists,” organized
criminal threat actors, personnel (such as through theft or misuse), sophisticated nation states, and nation-state-supported actors. Some actors now engage
and are expected to continue to engage in cyber-attacks, including without limitation nation-state actors for geopolitical reasons and in conjunction with
military conflicts and defense activities. During times of war and other major conflicts, we and the third parties upon which we rely may be vulnerable to a
heightened risk of these attacks, including retaliatory cyber-attacks, that could materially disrupt our systems and operations, supply chain, and ability to
produce, sell and distribute our goods and services. We and the third parties upon which we rely may be subject to a variety of evolving threats, including
but not limited to social-engineering attacks (including through phishing attacks), malicious code (such as viruses and worms), malware (including as a
result of advanced persistent threat intrusions), denial-of-service attacks (such as credential stuffing), personnel misconduct or error, ransomware attacks,
supply-chain attacks, software bugs, server malfunctions, software or hardware failures, loss of data or other information technology assets, adware,
telecommunications failures, earthquakes, fires, floods, and other similar threats.
In particular, ransomware attacks, including by organized criminal threat actors, nation-states, and nation-state-supported actors, are becoming increasingly
prevalent and severe and can lead to significant interruptions in our operations, loss of data and income, reputational harm, and diversion of funds.
Extortion payments may alleviate the negative impact of a ransomware attack, but we may be unwilling or unable to make such payments due to, for
example, applicable laws or regulations prohibiting such payments. Similarly, supply-chain attacks have increased in frequency and severity, and we cannot
guarantee that third parties and infrastructure in our supply chain or our third-party partners’ supply chains have not been compromised or that they do not
contain exploitable defects or bugs that could result in a breach of or disruption to our information technology systems or the third-party information
technology systems that support us and our services. Future or past business transactions (such as acquisitions or integrations) could expose us to additional
cybersecurity risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated entities’ systems and
technologies. Remote work has become more common and has increased risks to our information technology systems and data, as more of our employees
utilize network connections, computers and devices outside our premises or network, including working at home, while in transit and in public locations.
Any of the previously identified or similar threats could cause a security incident or other interruption. A security incident or other interruption could result
in unauthorized, unlawful, or accidental acquisition, modification, destruction, loss, alteration, encryption, disclosure of, or access to our sensitive
information. A security incident or other interruption could disrupt our ability (and that of third parties upon whom we rely) to provide our services. We
may expend significant resources or modify our business activities (including our clinical trial activities) to try to protect against security incidents. Certain
data privacy and security obligations may require us to implement and maintain specific security measures, industry-standard or reasonable security
measures to protect our information technology systems and sensitive information.
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While we have implemented security measures designed to protect against security incidents, there can be no assurance that these measures, or those of a
third party upon whom we rely, will be effective. For example, an external contractor experienced a cyberattack in 2019, which resulted in a disruption to
patient recruitment in our Phase 3 clinical trial of roluperidone. We may be unable in the future to detect vulnerabilities in our information technology
systems. We take steps to detect and remediate vulnerabilities, but we may not be able to detect and remediate all vulnerabilities because the threats and
techniques used to exploit the vulnerability change frequently and are often sophisticated in nature. Therefore, such vulnerabilities could be exploited but
may not be detected until after a security incident has occurred. These vulnerabilities pose material risks to our business. Despite our efforts to identify and
address vulnerabilities, if any, in our information technology systems, our efforts may not be successful. Further, we may experience delays in developing
and deploying remedial measures designed to address any such identified vulnerabilities.
Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the
disclosure or the failure to comply with such requirements could lead to adverse consequences. If we (or a third party upon whom we rely) experience a
security incident or are perceived to have experienced a security incident, we may experience adverse consequences. These consequences may include:
government enforcement actions (for example, investigations, fines, penalties, audits, and inspections); additional reporting requirements and/or oversight;
restrictions on processing sensitive information (including personal data); litigation (including class claims); indemnification obligations; negative
publicity; reputational harm; monetary fund diversions; interruptions in our operations (including availability of data); financial loss; and other similar
harms. Security incidents and attendant consequences may negatively impact our ability to grow and operate our business. In addition to experiencing a
security incident, third parties may gather, collect, or infer sensitive information about us from public sources, data brokers, or other means that reveals
competitively sensitive details about our organization and could be used to undermine our competitive advantage or market position.
Our contracts may not contain limitations of liability, and even where they do, there can be no assurance that limitations of liability in our contracts are
sufficient to protect us from liabilities, damages, or claims related to our data privacy and security obligations. We cannot be sure that our insurance
coverage will be adequate or sufficient to protect us from or to mitigate liabilities arising out of our privacy and security practices, that such coverage will
continue to be available on commercially reasonable terms or at all, or that such coverage will pay future claims.
Risks Related to Our Dependence on Third Parties
We currently rely and continue to expect to rely on third parties to conduct our future clinical trials. The failure of these third parties to successfully
carry out their contractual duties or meet expected deadlines could substantially harm our business because we may not obtain regulatory approval for
or commercialize our product candidates in a timely manner or at all.
We plan to rely upon third-party CROs to monitor and manage data for our future clinical programs. We will rely on these parties for execution of our
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 and 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 current GCPs, which are regulations and guidelines enforced by the FDA, the national
competent authorities of EEA countries and comparable foreign regulatory authorities for all of our products in clinical development. Regulatory
authorities enforce these GCPs through periodic unannounced inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs
fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign
regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon
inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. In
addition, we must conduct our clinical trials with product produced under cGMP requirements. Failure to comply with these regulations may require us to
repeat pre-clinical and clinical trials, which would delay the regulatory approval process.
Our CROs are not our employees, and except for remedies available to us under our agreements with such CROs, we cannot control whether or not they
devote sufficient time and resources to our ongoing clinical, nonclinical and pre-clinical programs. These CROs 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 necessary, switching or adding CROs involves substantial cost and requires extensive 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, prospects, financial
condition and results of operations.
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If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines 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, we may need to conduct additional trials, and we may not be able to obtain regulatory approval for or successfully
commercialize our product candidates. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our
costs could increase and our ability to generate revenues could be delayed. To the extent we are unable to successfully identify and manage the
performance of third-party service providers in the future, our business may be adversely affected.
We contract with third parties for the manufacturing of our product candidates for pre-clinical and clinical testing and expect to continue to do so for
commercialization. This reliance on third parties increases the risk that we will not have sufficient quantities of our product candidates or products, or
such quantities at an acceptable cost, which could delay, prevent or impair our development or commercialization efforts.
We do not have any manufacturing facilities. For our product candidates, we rely, and expect to continue to rely, on third parties for the manufacturing of
our drug candidates for pre-clinical and clinical testing, as well as for commercial manufacture if any of our drug candidates receive regulatory approval.
This reliance on third parties increases the risk that we will not have sufficient quantities of our drug candidates or drugs, or such quantities at an acceptable
cost or quality, which could delay, prevent or impair our ability to timely conduct our clinical trials or our other development or commercialization efforts.
We also expect to rely on third-party manufacturers or third-party collaborators for the manufacturing of commercial supply of any other drug candidates
for which we or our collaborators obtain regulatory approval. We may be unable to establish any agreements with third-party manufacturers or to do so on
acceptable terms. Even if we are able to establish agreements with third-party manufacturers, reliance on third-party manufacturers entails additional risks,
including:
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reliance on the third party for regulatory compliance and quality assurance;
the possible breach of the manufacturing agreement by the third party;
the possible misappropriation of our proprietary information, including our trade secrets and know-how;
disruption and costs associated with changing suppliers, including additional regulatory filings; and
the possible termination or non-renewal of the agreement by the third party at a time that is costly or inconvenient for us.
Moreover, the facilities used by our contract manufacturers to manufacture our products must be approved by the FDA pursuant to inspections that will be
conducted after we submit our marketing application to the FDA. Other comparable foreign regulatory authorities have comparable requirements and
powers. We, our contract manufacturers, any future collaborators and their contract manufacturers could be subject to periodic unannounced inspections by
the FDA or other comparable foreign regulatory authorities, to monitor and ensure compliance with cGMP. Despite our efforts to audit and verify
regulatory compliance, one or more of our third-party manufacturing vendors may be found. While we are ultimately responsible for the manufacture of
our product candidates, other than through our contractual arrangements, we do not control the manufacturing process of, and are completely dependent on,
our contract manufacturing partners for compliance with cGMP requirements, for manufacture of both active drug substances and finished drug products. If
our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA
or other comparable regulatory authorities, we will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition,
other than through our contractual agreements, we have no control over the ability of our contract manufacturers to maintain adequate quality control,
quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of
our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would
significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved.
Further, our suppliers are subject to regulatory requirements, covering manufacturing, testing, quality control, and record keeping relating to our product
candidates, and subject to ongoing inspections by the regulatory authorities. Failure by any of our suppliers to comply with applicable regulations may
result in long delays and interruptions to our manufacturing capacity while we seek to secure another supplier that meets all regulatory requirements, as
well as market disruption related to any necessary recalls or other corrective actions.
Third-party manufacturers may not be able to comply with cGMP, regulations or similar regulatory requirements outside the United States. If on regulatory
inspection by the FDA or other comparable foreign regulatory authorities, one or more of our third-party manufacturing vendors are found to be to be
noncompliant with cGMP regulation, this may result in shutdown of the third-party vendor or invalidation of drug product lots or processes. In some cases,
a product recall may be warranted or required, which would materially affect our ability to supply and market our drug products.
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Additionally, our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on
us, including clinical hold or termination, fines, imprisonment, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license
revocation, seizures, refusal to allow product import or export, Warning Letters, Untitled Letters, or recalls of drug candidates or drugs, operating
restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our drugs.
Our drug candidates and any drugs that we may develop may compete with other drug candidates and drugs for access to manufacturing facilities. There
are a limited number of manufacturers that operate under cGMP regulations and that might be capable of manufacturing for us. Any performance failure on
the part of our existing or future manufacturers could delay clinical development or regulatory approval. We do not currently have arrangements in place
for redundant supply or a second source for bulk drug substance. If our current contract manufacturers cannot perform as agreed, we may be required to
replace such manufacturers and we may incur added costs and delays in identifying and qualifying any such replacement.
Our current and anticipated future dependence upon others for the manufacturing of our drug candidates or drugs may adversely affect our future profit
margins and our ability to commercialize any drugs that receive regulatory approval on a timely and competitive basis.
If our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for
damages.
Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials, by our
third-party manufacturers. Our manufacturers are or will be subject to supranational, national, federal, state and local laws in the United States and in
Europe governing the use, manufacture, storage, handling and disposal of medical, radioactive and hazardous materials. Although we believe that our
manufacturers’ procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot completely
eliminate the risk of contamination or injury resulting from medical, radioactive or hazardous materials. As a result of any such contamination or injury, we
may incur liability or local, city, state, federal authorities or other equivalent national authorities may curtail the use of these materials and interrupt our
business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources.
We do not have any insurance for liabilities arising from medical radioactive or hazardous materials. Compliance with applicable environmental laws is
expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business,
prospects, financial condition or results of operations.
We may engage third party collaborators to market and commercialize our product candidates, who may fail to effectively commercialize our product
candidates.
We may utilize strategic partners or contract sales forces, where appropriate, to assist in the commercialization of our product candidates, if approved. We
currently possess limited resources and may not be successful in establishing collaborations or co-promotion arrangements on acceptable terms, if at all.
We also face competition in our search for collaborators and co-promoters. By entering into strategic collaborations or similar arrangements, we will rely
on third parties for financial resources and for development, commercialization, sales and marketing and regulatory expertise. Any collaborators may fail to
develop or effectively commercialize our product candidates because they cannot obtain the necessary regulatory approvals, they lack adequate financial or
other resources or they decide to focus on other initiatives. Any failure to enter into collaboration or co-promotion arrangements or the failure of our third
party collaborators to successfully market and commercialize our product candidates would diminish our revenues and harm our results of operations. In
addition, conflicts may arise with our collaborators, such as conflicts concerning the interpretation of clinical data, the achievement of milestones, the
interpretation of financial provisions or the ownership of intellectual property. If any conflicts arise with our collaborators, they may act in their self-
interest, which may be adverse to our best interest.
We depend on our collaboration with Mitsubishi Tanabe Pharma Corporation (“MTPC”), and could be seriously harmed if our license agreement with
MTPC was terminated.
We exclusively license roluperidone, our lead product candidate, from MTPC, with the rights to develop, sell and import roluperidone globally, excluding
most of Asia. If our license agreement with MTPC was terminated, it could have a material impact on our operations.
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Substantial potential future milestone payments from Royalty Pharma depend on the development and commercialization of seltorexant. We may be
obligated to make payments to Royalty Pharma even if Janssen breaches its obligations to pay us.
On January 19, 2021, we entered into an agreement with Royalty Pharma under which Royalty Pharma acquired our royalty interest in seltorexant for an
upfront payment of $60 million and up to $95 million in future milestone payments that are contingent upon the achievement of certain clinical, regulatory
and commercial milestones for seltorexant by Janssen Pharmaceutica NV, one of the Janssen Pharmaceutical Companies of Johnson & Johnson
(“Janssen”), or any other party in the event that Janssen sells seltorexant. For more information regarding this arrangement, see the sections titled “Item 1.
Business—Overview” and “Item 1. Business—Our Clinical-Stage Programs—Seltorexant (MIN-202)” in this Annual Report on Form 10-K.
Therefore, we will only realize future payments if Janssen achieves certain milestones over which we have no control. Some or all of the milestones may
never be achieved, and we may never receive any such future payments.
In addition, if Janssen breaches its contractual obligations to pay royalties, we will be obligated to Royalty Pharma to provide makeup payments to
compensate for the loss of those royalties, which payments could be substantial.
We may not be successful in establishing new collaborations which could adversely affect our ability to develop future product candidates and
commercialize future products.
We may also seek to enter into product collaborations in the future, including alliances with other biotechnology or pharmaceutical companies, to enhance
and accelerate the development of our future product candidates and the commercialization of any resulting products. We face significant competition in
seeking appropriate collaborators and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to
establish collaborations or other alternative arrangements for any future product candidates because our research and development pipeline may be
insufficient, our product candidates may be deemed to be at too early of a stage of development for collaboration efforts and/or third parties may view our
product candidates as lacking the requisite potential to demonstrate safety and efficacy. As a result, we may have to delay the development of a product
candidate and attempt to raise significant additional capital to fund development. Even if we are successful in our efforts to establish collaborations, the
terms that we agree upon may not be favorable to us and we may not be able to maintain such collaborations if, for example, development or approval of a
product candidate is delayed or sales of an approved product are disappointing.
Risks Related to Intellectual Property
If we are unable to obtain or protect intellectual property rights, we may not be able to compete effectively in our market.
Our success depends in significant part on our and our licensors’, licensees’ or collaborators’ ability to establish, maintain and protect patents and other
intellectual property rights and operate without infringing the intellectual property rights of others. We have filed numerous patent applications both in the
United States and in foreign jurisdictions to obtain patent rights to inventions we have discovered. We have also licensed from third parties rights to patent
portfolios. None of these licenses give us the right to prepare, file and prosecute patent applications and maintain patents we have licensed, although we
may provide comments on prosecution matters, which our licensors may or may not choose to follow. If our licensors elect to discontinue prosecution or
maintenance of our licensed patents, we have the right, at our expense, to pursue and maintain those patents and applications.
The patent prosecution process is expensive and time-consuming, and we and our current or future licensors, licensees or collaborators may not be able to
prepare, file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we or our
licensors, licensees or collaborators will fail to identify patentable aspects of inventions made in the course of development and commercialization
activities before it is too late to obtain patent protection on them. Moreover, in some circumstances, we may not have the right to control the preparation,
filing and prosecution of patent applications, or to maintain the patents, covering technology that we license from or license to third parties and are reliant
on our licensors, licensees or collaborators. Therefore, these patents and applications may not be prosecuted and enforced in a manner consistent with the
best interests of our business. If our current or future licensors, licensees or collaborators fail to establish, maintain or protect such patents and other
intellectual property rights, such rights may be reduced or eliminated. If our licensors, licensees or collaborators are not fully cooperative or disagree with
us as to the prosecution, maintenance or enforcement of any patent rights, such patent rights could be compromised. Because the issuance of a patent is not
conclusive as to its inventorship, scope, validity or enforceability, issued patents that we own or have licensed from third parties may be challenged in the
courts or patent offices in the United States and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents
or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical
technology and products, or limit the duration of the patent protection for our technology and products.
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The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in
recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our and our current or
future licensors’, licensees’ or collaborators’ patent rights are highly uncertain. Our and our licensors’, licensees’ or collaborators’ pending and future
patent applications may not result in patents being issued that protect our technology or products, in whole or in part, or that effectively prevent others from
commercializing competitive technologies and products. The patent examination process may require us or our licensors, licensees or collaborators to
narrow the scope of the claims of our or our licensors’, licensees’ or collaborators’ pending and future patent applications, which may limit the scope of
patent protection that may be obtained. Our and our licensors’, licensees’ or collaborators’ patent applications cannot be enforced against third parties
practicing the technology claimed in such applications unless and until a patent issues from such applications, and then only to the extent the issued claims
cover the technology.
One or more of our owned or licensed patents directed to our proprietary products or technologies may expire or have limited commercial life before
the proprietary product or technology is approved for marketing in a relevant jurisdiction.
Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting our product candidates
might expire before or shortly after our product candidates obtain regulatory approval, which may subject us to increased competition and reduce or
eliminate our ability to recover our development costs. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to
exclude others from commercializing products similar or identical to ours. Finally, any patent that grants from our U.S. patent applications relating to
methods of using MIN-301 to treat neurologic and psychiatric diseases is expected to expire as early as 2028. Although we expect to seek extensions of
patent terms where available, including in the United States under the Drug Price Competition and Patent Term Restoration Act of 1984, which permits a
patent term extension of up to five years beyond the expiration of the patent, we cannot be certain that an extension will be granted, or if granted, what the
applicable time period or the scope of patent protection afforded during any extended period will be. The applicable authorities, including the FDA, and
any equivalent regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant
extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may take advantage of our investment in
development and trials by referencing our clinical and pre-clinical data and launch their product earlier than might otherwise be the case.
The expiration of composition of matter patent protection with respect to one or more of our product candidates may diminish our ability to maintain a
proprietary position for our intended uses of a particular product candidate. Moreover, we cannot be certain that we will be the first applicant to obtain an
FDA approval for any indication of one or more of our product candidates and we cannot be certain that it will be entitled to new chemical entity
exclusivity. Such diminution of our proprietary position could have a material adverse effect on our business, results of operations and financial condition.
We have in-licensed or acquired a portion of our intellectual property necessary to develop our product candidates, and if we fail to comply with our
obligations under any of these arrangements, we could lose such intellectual property rights.
We are a party to and rely on several arrangements with third parties, which give us rights to intellectual property that is necessary for the development of
our product candidates. In addition, we may enter into similar arrangements in the future. Our current arrangements impose various development, royalty
and other obligations on us. If we materially breach these obligations or if our counterparts fail to adequately perform their respective obligations, these
exclusive arrangements could be terminated, which would result in our inability to develop, manufacture and sell products that are covered by such
intellectual property.
We may become involved in lawsuits to protect or enforce our patents or other intellectual property, which could be expensive, time consuming and
unsuccessful.
Competitors may infringe our issued patents or other intellectual property. In some cases, it may be difficult or impossible to detect third-party infringement
or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more
difficult. Accordingly, for such undetectable infringement or misappropriation our ability to recover damages will be negligible and we could be at a market
disadvantage because we may lack the resources of some of our competitors to monitor for and detect infringement. To counter infringement or
unauthorized use, we may be required to file infringement claims, which can be expensive and time consuming. Any claims we assert against perceived
infringers could provoke these parties to assert counterclaims against us alleging that we infringe their patents. In addition, in any patent infringement
proceeding, a court may decide that a patent of ours is invalid or unenforceable, in whole or in part, construe the patent’s claims narrowly or refuse to stop
the other party from using the technology at issue on the grounds that our patents do not cover the technology. An adverse result in any litigation
proceeding could put one or more of our patents at risk of being invalidated or interpreted narrowly.
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We may need to license or acquire additional patents and intellectual property rights.
One or more third parties may hold intellectual property rights, including patent rights, important or necessary to the development of our products. It may
be necessary for us to use the patented or proprietary technology of third parties to commercialize our products, in which case we would be required to
obtain a license from these third parties on commercially reasonable terms. If we were not able to obtain a license, or were not able to obtain a license on
commercially reasonable terms, our business could be harmed, possibly materially.
Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain
and could harm our business.
Our commercial success depends upon our ability to develop, manufacture, market and sell our products, and to use our related proprietary technologies.
We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property rights with respect to our products,
including interference or derivation proceedings before the U.S. Patent and Trademark Office (“USPTO”). Third parties may assert infringement claims
against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, we
could be required to obtain a license from such third party to continue commercializing our products. However, we may not be able to obtain any required
license on commercially reasonable terms or at all. Under certain circumstances, we could be forced, including by court order, to cease commercializing
our products. In addition, in any such proceeding or litigation, we could be found liable for monetary damages. Regardless of the outcome, such claims or
litigation may be time-consuming and costly to defend, divert management resources and have other adverse effects on our business.
Restrictions on our patent rights relating to our product candidates may limit our ability to prevent third parties from competing against us.
Our success will depend, in part, on our ability to obtain and maintain patent protection for our product candidates, preserve our trade secrets, prevent third
parties from infringing upon our proprietary rights and operate without infringing upon the proprietary rights of others. Composition-of-matter patents on
the biological or chemical active pharmaceutical ingredient are generally considered to be the strongest form of intellectual property protection for
pharmaceutical products, as such patents provide protection without regard to any method of use. We have filed and in-licensed composition-of-matter
patent applications for all of our product candidates. However, we cannot be certain that the claims in our patent applications to inventions covering our
product candidates will be considered patentable by the USPTO and courts in the United States or by the patent offices and courts in foreign countries.
In addition to composition-of-matter patents and patent applications, we also have filed method-of-use patent applications. This type of patent protects the
use of the product only for the specified method. However, this type of patent does not prevent a competitor from making and marketing a product that is
identical to our product for an indication that is outside the scope of the patented method. Moreover, even if these competitors do not actively promote their
product for our targeted indication, physicians may prescribe these products “off-label.” Although off-label prescriptions may infringe or contribute to the
infringement of method-of-use patents, the practice is common and such infringement is difficult to prevent or prosecute.
Patent applications in the United States and most other countries are confidential for a period of time until they are published, and publication of
discoveries in scientific or patent literature typically lags actual discoveries by several months or more. As a result, we cannot be certain that we and the
inventors of the issued patents and applications that we may in-license were the first to conceive of the inventions covered by such patents and pending
patent applications or that we and those inventors were the first to file patent applications covering such inventions. Also, we have a number of issued
patents and numerous patent applications pending before the USPTO and foreign patent offices and the patent protection may lapse before we manage to
obtain commercial value from them, which might result in increased competition and materially affect our position in the market.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
As is the case with other biotechnology and pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents.
Obtaining and enforcing patents in the biopharmaceutical industry involve technological and legal complexity, and obtaining and enforcing
biopharmaceutical patents is costly, time-consuming, and inherently uncertain. The United States Supreme Court has ruled on several patent cases in recent
years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In
addition to increasing uncertainty with regard to our and our licensors’ or collaborators’ ability to obtain patents in the future, this combination of events
has created uncertainty with respect to the value of patents, once obtained.
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Depending on decisions by the United States Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in
unpredictable ways that would weaken our and our licensors’ or collaborators’ ability to obtain new patents or to enforce existing and future patents.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our and our licensors’ or collaborators’ patent
applications and the enforcement or defense of our or our licensors’ or collaborators’ issued patents. For example, the Leahy-Smith America Invents Act
(“America Invents Act”), includes provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The USPTO
developed new regulations and procedures to govern administration of the America Invents Act, and many of the substantive changes to patent law
associated with the America Invents Act, and in particular, the first to file provisions, are now effective. While it is still not clear what, if any, impact the
America Invents Act will have on the operation of our business, the America Invents Act and its implementation could increase the uncertainties and costs
surrounding the prosecution of our or our licensors’ or collaborators’ patent applications and the enforcement or defense of our or our licensors’ or
collaborators’ issued patents, all of which could have a material adverse effect on our business and financial condition.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on all of our product candidates throughout the world would be prohibitively expensive. Competitors may use our
technologies in jurisdictions where we have not obtained patent protection to develop their own products and further, may export otherwise infringing
products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our
products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or
sufficient to prevent them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems
of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly
those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in
violation of our proprietary rights generally. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our
efforts and attention from other aspects of our business.
Obtaining and maintaining our 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.
The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other
provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application,
resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than
would otherwise have been the case.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not
adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:
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Others may be able to make compounds that are similar to our product candidates but that are not covered by the claims of the patents that we
own or have exclusively licensed.
We or our licensors or strategic partners might not have been the first to make the inventions covered by the issued patents or pending patent
applications that we own or have exclusively licensed.
We or our licensors or strategic partners might not have been the first to file patent applications covering certain of our inventions.
Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual
property rights.
It is possible that our pending patent applications will not lead to issued patents.
Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or
unenforceable, as a result of legal challenges by our competitors.
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 competitive products for sale in our major commercial markets.
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We may not develop additional proprietary technologies that are patentable.
The patents of others may have an adverse effect on our business.
Should any of these events occur, they could significantly harm our business, results of operations and prospects.
We may be subject to claims that we or our employees or consultants have wrongfully used or disclosed alleged trade secrets of our employees’ or
consultants’ former employers or their clients. These claims may be costly to defend and if we do not successfully do so, we may be required to pay
monetary damages and may lose valuable intellectual property rights or personnel.
Many of our employees and contractors were previously employed at universities or biotechnology or pharmaceutical companies, including our
competitors or potential competitors. Although no claims against us are currently pending, we may be subject to claims that these employees or we have
inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend
against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or
personnel. A loss of key research personnel or their work product could hamper our ability to commercialize, or prevent us from commercializing our
product candidates, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in
substantial costs and be a distraction to management.
If we are unable to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In addition to seeking patents for some of our technology and product candidates, we also rely on trade secrets, including unpatented know-how,
technology and other proprietary information, to maintain our competitive position. We seek to protect these trade secrets, in part, by entering into non-
disclosure and confidentiality agreements with parties who have access to them, such as our employees, corporate collaborators, outside scientific
collaborators, contract manufacturers, consultants, advisors and other third parties. We also enter into invention and patent assignment agreements with our
employees and consultants that obligate them to assign their inventions to us. Despite these efforts, any of these parties may breach the agreements and
disclose our proprietary information, including our trade secrets, and we may not be able to obtain adequate remedies for such breaches. Enforcing a claim
that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition,
some courts inside and outside the United States are less willing or unwilling to protect trade secrets. 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 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.
Risks Related to Ownership of Our Common Stock
We cannot predict what the market price of our common stock will be and, as a result, it may be difficult for you to sell your shares of our common
stock.
An inactive market may impair our ability to raise capital by selling shares of our common stock and may impair our ability to enter into strategic
partnerships or acquire companies or products by using our shares of common stock as consideration. We cannot predict the prices at which our common
stock will trade. It is possible that in one or more future periods our results of operations may be below the expectations of public market analysts and
investors and, as a result of these and other factors, the price of our common stock may fall.
The market price of our stock may be volatile, and you could lose all or part of your investment.
The trading price of our common stock is likely to be highly volatile and subject to wide fluctuations in response to various factors, some of which we
cannot control. As a result of this volatility, investors may not be able to sell their securities at a profit. The market price of our securities could be subject
to wide fluctuations in response to a variety of factors, including but not limited to:
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the success of competitive products or technologies;
adverse results or delays in our preclinical or clinical trials or those of our competitors;
regulatory actions, including adverse regulatory decision, with respect to our products or our competitors’ products;
failure to successfully develop or commercialize any of our product candidates;
the perception of limited market sizes or pricing for any of our product candidates;
the results of our efforts to in-license or acquire additional product candidates or products;
failure to maintain our existing strategic collaborations or enter into new collaborations;
actual or anticipated changes in our growth rate relative to our competitors;
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announcements by us or our competitors of significant acquisitions, strategic collaborations, joint ventures, collaborations or capital
commitments;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
the recruitment or departure of key personnel;
actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;
variations in our financial results or those of companies that are perceived to be similar to us;
share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
announcement or expectation of additional financing efforts, or any inability to obtain additional funding;
sales of our common stock by us, our insiders or our other stockholders;
changes in laws or regulations applicable to our products, including changes in the structure of healthcare payment systems, including
coverage and reimbursement;
significant lawsuits, including stockholder litigation and litigation filed by us or filed against us pertaining to patent infringement or other
violations of intellectual property rights;
market conditions in the pharmaceutical and biotechnology sectors;
general economic, industry and market conditions; and
the other factors described in this “Risk Factors” section.
In addition, the stock markets have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity
securities of many companies, including in connection with the COVID-19 pandemic or the war in Ukraine, which has resulted in decreased stock prices
for many companies notwithstanding the lack of a fundamental change in their underlying business models or prospects. Biopharmaceutical companies in
particular have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these
companies. Broad market and industry factors, including potentially worsening economic conditions, increased inflation and other adverse effects or
developments, including political, regulatory and other market conditions, may negatively affect the market price of shares of our common stock,
regardless of our actual operating performance. The market price of shares of our common stock may decline, and you may lose some or all of your
investment.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject
to stockholder approval.
To our knowledge, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially own
approximately 26% of our voting stock as of December 31, 2022. Accordingly, these stockholders may be able to determine all matters requiring
stockholder approval. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or
approval of any merger, sale of assets or other major corporate transaction. This may prevent or discourage unsolicited acquisition proposals or offers for
our common stock that you may feel are in your best interest as one of our stockholders. The interests of this group of stockholders may not always
coincide with the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other
stockholders, including seeking a premium value for their common stock, and might affect the prevailing market price for our common stock.
Sales of a substantial number of shares of our common stock by our existing stockholders in the public market could cause our stock price to fall.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. If our existing stockholders sell, or if the market
perceives that our existing stockholders intend to sell, substantial amounts of our common stock in the public market, the market price of our common
stock could decline significantly. These sales, or the possibility that these sales may occur, might also make it more difficult for us to sell equity securities
in the future at a time and price that we deem appropriate.
In addition, in the future, we may issue shares of common stock, or other equity or debt securities convertible into common stock, in connection with a
financing, acquisition, employee arrangement or otherwise. Any such issuance, including pursuant to any at-the-market agreements, such as the at-the-
market offering program that we entered into with Jefferies LLC in September 2022, could result in substantial dilution to our existing stockholders and
could cause the price of our common stock to decline.
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Our management will continue to have broad discretion over the use of the proceeds we received in our public offerings, private placements, warrant
exercises and loans and might not apply the proceeds in ways that increase the value of your investment.
Our management will continue to have broad discretion to use the net proceeds from our public offerings, private placements warrant exercises and loans
and you will be relying on the judgment of our management regarding the application of these proceeds. Our management might not apply our net proceeds
in ways that ultimately increase the value of your investment. Because of the number and variability of factors that will determine our use of the remaining
net proceeds from our initial public offering, follow-on public offering and other financing transactions, their ultimate use may vary substantially from their
currently intended use. If we do not invest or apply the net proceeds from our public offerings, private placements, warrant exercises and loans in ways that
enhance stockholder value, we may fail to achieve the expected financial results, which could cause our stock price to decline.
Future sales and issuances of equity and debt securities could result in additional dilution to our stockholders and could place restrictions on our
operations and assets, and such securities could have rights, preferences and privileges senior to those of our common stock.
We expect that significant additional capital will be needed in the future to fund our planned operations, including to complete clinical trials for our product
candidates. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a
manner that we will determine from time to time. If we sell common stock, convertible securities or other equity securities, existing stockholders may be
materially diluted by subsequent sales, and new investors could gain rights, preferences and privileges senior to the holders of our common stock.
Pursuant to our Amended and Restated 2013 Equity Incentive Plan, our management is authorized to grant stock options and other equity-based awards of
up to 1,378,917 shares to our employees, directors and consultants. To the extent that new awards are granted and exercised or settled, or we issue
additional shares of common stock in the future, our stockholders may experience additional dilution, which could cause our stock price to fall.
We incur increased costs and demands upon management as a result of being a public company.
As a public company listed in the United States, we incur significant additional legal, accounting and other costs. We are subject to the reporting
requirements of the Exchange Act, which requires, among other things, that we file with the Securities and Exchange Commission (“SEC”), annual,
quarterly and current reports with respect to our business and financial condition. In addition, changing laws, regulations and standards relating to corporate
governance and public disclosure, including regulations implemented by the SEC and The Nasdaq Stock Market (“Nasdaq”), may increase legal and
financial compliance costs and make some activities more time consuming. These laws, regulations and standards are subject to varying interpretations and,
as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. We invest resources to
comply with evolving laws, regulations and standards, and this investment results in increased general and administrative expenses and a diversion of
management’s time and attention. If we do not comply with new laws, regulations and standards, regulatory authorities may initiate legal proceedings
against us and our business may be harmed.
Failure to comply with these rules might also make it more difficult for us to obtain some types of insurance, including director and officer liability
insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.
The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, on committees
of our board of directors or as members of senior management.
We are a “smaller reporting company” and, because we have opted to use the reduced reporting requirements available to us, certain investors may
find investing in our securities less attractive.
We are a “smaller reporting company” under the SEC’s disclosure rules, meaning that we have either: (i) a public float of less than $250 million; or (ii)
annual revenues of less than $100 million during the most recently completed fiscal year; and no public float; or a public float of less than $700 million.
As a smaller reporting company, we are permitted to comply with scaled-back disclosure obligations in our SEC filings compared to other issuers,
including with respect to disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We have elected to adopt
the accommodations available to smaller reporting companies. Until we cease to be a smaller reporting company, the scaled-back disclosure in our SEC
filings will result in less information about our company being available than for other public companies. If investors consider our common shares less
attractive as a result of our election to use the scaled-back disclosure permitted for smaller reporting companies, there may be a less active trading market
for our common shares and our share price may be more volatile.
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We are also a non-accelerated filer under the Exchange Act of 1934, and we are not required to comply with the auditor attestation requirements of Section
404(b) of the Sarbanes-Oxley Act of 2002. Therefore, our internal controls over financial reporting will not receive the level of review provided by the
process relating to the auditor attestation included in annual reports of issuers that are subject to the auditor attestation requirements. In addition, we cannot
predict if investors will find our common shares less attractive because we are not required to comply with the auditor attestation requirements. We cannot
predict if investors will find our securities less attractive because we rely on these available exemptions. If some investors find our securities less attractive
as a result, there may be a less active trading market for our securities and the market price of our securities may be more volatile.
Securities litigation could result in substantial damages and may divert management’s time and attention from our business.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This risk is
especially relevant for us because biopharmaceutical companies have experienced significant stock price volatility in recent years. We have and may
become the target of securities litigation in the future. The outcome of litigation is necessarily uncertain, and we could be forced to expend significant
resources in the defense of such suits, and we may not prevail. Monitoring and defending against legal actions is time-consuming for our management and
detracts from management’s ability to fully focus our internal resources on our business activities. In addition, we may incur substantial legal fees and costs
in connection with any such litigation. We have not established any reserves for any potential liability relating to any such potential lawsuits. It is possible
that we could, in the future, incur judgments or enter into settlements of claims for monetary damages. We currently maintain insurance coverage for some
of these potential liabilities. Other potential liabilities may not be covered by insurance, insurers may dispute coverage or the amount of insurance may not
be enough to cover damages awarded. In addition, certain types of damages may not be covered by insurance, and insurance coverage for all or certain
forms of liability may become unavailable or prohibitively expensive in the future. A decision adverse to our interests on one or more legal matters or
litigation could result in the payment of substantial damages, or possibly fines, and could have a material adverse effect on our reputation, financial
condition and results of operations
Provisions in our corporate charter documents and under Delaware law may prevent or frustrate attempts by our stockholders to change our
management and hinder efforts to acquire a controlling interest in us, and the market price of our common stock may be lower as a result.
There are provisions in our certificate of incorporation and bylaws that may make it difficult for a third party to acquire, or attempt to acquire, control of
our company, even if a change in control was considered favorable by you and other stockholders. For example, our board of directors has the authority to
issue up to 100,000,000 shares of preferred stock. The board of directors can fix the price, rights, preferences, privileges and restrictions of the preferred
stock without any further vote or action by our stockholders. The issuance of shares of preferred stock may delay or prevent a change in control transaction.
As a result, the market price of our common stock and the voting and other rights of our stockholders may be adversely affected. An issuance of shares of
preferred stock may result in the loss of voting control to other stockholders.
Our charter documents also contain other provisions that could have an anti-takeover effect, including:
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establishing a classified board of directors such that not all members of the board are elected at one time;
allowing the authorized number of directors to be changed only by resolution of our board of directors;
limiting the removal of directors by the stockholders;
authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued without
stockholder approval;
prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
eliminating the ability of stockholders to call a special meeting of stockholders;
establishing advance notice requirements for nominations for election to the board of directors or for proposing matters than can be acted
upon at stockholder meetings; and
requiring the approval of the holders of at least 66 2/3% of the votes that all of our stockholders would be entitled to cast to amend or repeal
our bylaws.
In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which regulates corporate acquisitions
by prohibiting Delaware corporations from engaging in specified business combinations with particular stockholders of those companies. These provisions
could discourage potential acquisition proposals and could delay or prevent a change in control transaction. They could also have the effect of discouraging
others from making tender offers for our common stock, including transactions that may be in your best interests. These provisions may also prevent
changes in our management or limit the price that investors are willing to pay for our stock.
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Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the exclusive forum for substantially all disputes
between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors,
officers or employees.
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or
proceedings under Delaware statutory or common law: any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary
duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of
incorporation, as amended, or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine.
This provision would not apply to suits brought to enforce a duty or liability created by the Exchange Act or any other claim for which the U.S. federal
courts have exclusive jurisdiction.
The choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our
directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. If a court were to
find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional
costs associated with resolving such action in other jurisdictions, which could harm our business and financial condition.
If securities or industry analysts cease publishing research or publish inaccurate or unfavorable research about our business, our stock price and
trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our
business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price
would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could
decrease, which might cause our stock price and trading volume to decline.
We have never paid dividends on our capital stock, and because we do not anticipate paying any cash dividends in the foreseeable future, capital
appreciation, if any, of our common stock will be your sole source of gain on an investment in our common stock.
We have paid no cash dividends on any of our classes of capital stock to date, and we currently intend to retain our future earnings, if any, to fund the
development and growth of our business. In addition, the terms of our credit facility limit our ability to pay cash dividends on our capital stock. We do not
anticipate paying any cash dividends on our common stock in the foreseeable future. As a result, capital appreciation, if any, of our common stock will be
your sole source of gain for the foreseeable future. There is no guarantee that shares of our common stock will appreciate in value or even maintain the
price at which you purchase shares of our common stock.
Our common stock may be delisted from The Nasdaq Capital Market which could negatively impact the price of our common stock, liquidity and our
ability to access the capital markets.
Our common stock is currently listed on The Nasdaq Capital Market under the symbol “NERV.” The listing standards of The Nasdaq Capital Market
provide that a company, in order to qualify for continued listing, must maintain a minimum stock price of $1.00 and satisfy standards relative to minimum
stockholders’ equity, minimum market value of publicly held shares and various additional requirements. If Nasdaq delists our securities from trading on its
exchange for failure to meet the listing standards, we and our stockholders could face significant negative consequences including:
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limited availability of market quotations for our securities;
a determination that the common stock is a “penny stock” which would require brokers trading in the common stock to adhere to more
stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for shares of common stock;
a limited amount of analyst coverage, if any; and
a decreased ability to issue additional securities or obtain additional financing in the future.
Delisting from The Nasdaq Capital Market could also result in other negative consequences, including the potential loss of confidence by suppliers,
customers and employees, the loss of institutional investor interest and fewer business development opportunities.
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As previously reported, on January 12, 2022, we received a deficiency letter from Nasdaq notifying us that, for the previous 30 consecutive business days,
the closing bid price of our shares of common stock had not been maintained at the minimum required closing bid price of at least $1.00 per share, as
required for continued listing on The Nasdaq Global Market, where our securities were listed for trading at the time. In accordance with the listing rules of
Nasdaq, we were given 180 calendar days, or until July 11, 2022, to regain compliance with the minimum bid price requirement. On June 17, 2022, we
implemented a one-for-eight (1-for-8) reverse stock split of our outstanding commons stock in an effort to regain compliance with Nasdaq’s minimum bid
price requirement of $1.00 per share. On July 6, 2022, we received a letter from Nasdaq notifying us that the closing bid price of our common stock had
been at $1.00 per share or greater for the last 10 consecutive business days and we had regained compliance with Nasdaq Stock Market Rule 5450(a)(1)
and this matter was closed.
On March 8, 2022, we received a second deficiency letter from Nasdaq that our stockholders’ equity as reported in our Annual Report on Form 10-K for
the year ended December 31, 2021 did not satisfy The Nasdaq Global Market continued listing requirement of $10 million as set forth in Nasdaq Stock
Market Rule 5450(b)(1). We had 45 calendar days from the date of this letter to submit to Nasdaq a plan to regain compliance with such requirement.
Nasdaq later extended the deadline for such submission, and we subsequently submitted our plans to regain compliance on May 2, 2022, May 24, 2022 and
May 25, 2022. On June 3, 2022, we received a letter from Nasdaq notifying us that it has determined to grant us an extension until September 5, 2022 to
regain compliance with Nasdaq Stock Market Rule 5450(b)(1). In September 2022, we submitted an application to Nasdaq to transfer our common stock
from The Nasdaq Global Market to The Nasdaq Capital Market, as allowed under Nasdaq Stock Market Rule 5810(c)(3)(A). Based on our meeting the
listing requirements of The Nasdaq Capital Market, our application was approved by Nasdaq. Effective September 12, 2022, we transferred the listing of
our common stock from The Nasdaq Global Market to The Nasdaq Capital Market.
Also as previously reported, on December 1, 2022, we received a deficiency letter from Nasdaq notifying us that for the last 30 consecutive business days,
our minimum Market Value of Listed Securities (“MVLS”) was below the minimum of $35 million required for continued listing on The Nasdaq Capital
Market pursuant to Nasdaq Listing Rule 5550(b)(2). In accordance with the listing rules of Nasdaq, we have been provided an initial period of 180 calendar
days, or until May 30, 2023, to regain compliance. The letter states that the Nasdaq staff will provide written notification that we have achieved compliance
with Rule 5550(b)(2) if at any time before May 30, 2023, our MVLS closes at $35 million or more for a minimum of ten consecutive business days. If
compliance is not achieved by May 30, 2023, we expect that Nasdaq would provide written notification to us that our securities are subject to delisting.
While we will continue to monitor our MVLS and consider available options to regain compliance with the Nasdaq minimum MVLS requirements, which
may include applying for an extension of the compliance period or appealing to a Nasdaq Hearings Panel, there can be no assurance that we will be able to
regain compliance with the Nasdaq minimum MVLS requirements or otherwise maintain compliance with the other Nasdaq listing requirements.
In particular, our share price may continue to decline for a number of reasons, including many that are beyond our control. See the risk factor captioned
“The market price of our stock may be volatile, and you could lose all or part of your investment”.
If we fail to comply with the continued listing standards of The Nasdaq Capital Market, we may seek to list our common stock on the NYSE American or
on a regional stock exchange or, if one or more broker-dealer market makers comply with applicable requirements, the over-the-counter (“OTC”) market.
Listing on such other market or exchange could reduce the liquidity of our common stock. If our common stock were to trade in the OTC market, an
investor would find it more difficult to dispose of, or to obtain accurate quotations for the price of, the common stock. Delisting of the common stock could
depress our stock price, substantially limit liquidity of our common stock and materially adversely affect our ability to raise capital on terms acceptable to
us, or at all. Further, delisting of the common stock would likely result in the common stock becoming a “penny stock” under the Exchange Act.
“Penny stock” rules may make buying or selling our securities difficult which may make our stock less liquid and make it harder for investors to buy
and sell our securities.
Trading in our securities is subject to the SEC’s “penny stock” rules and it is anticipated that trading in our securities will continue to be subject to the
penny stock rules for the foreseeable future. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a
market price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our securities to
persons other than prior customers and accredited investors must, prior to the sale, make a special written suitability determination for the purchaser and
receive the purchaser’s written agreement to execute the transaction. Unless an exception is available, the regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock
market.
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In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the
securities they offer. The additional burdens imposed upon broker-dealers by these requirements may discourage broker-dealers from recommending
transactions in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the market price for our securities.
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ITEM 1B. Unresolved Staff Comments
None.
ITEM 2. Properties
Our principal executive offices are located at 1500 District Avenue, Burlington, MA 01803. We lease this facility, which consists of approximately 491
square feet of office space. The lease is on a month-to-month basis commencing on February 1, 2023, with a monthly payment of $8,290. The term of the
previous lease for this space began on July 15, 2022 and expired on January 31, 2023. We believe that our existing facility is sufficient for our current
needs for the foreseeable future.
ITEM 3. Legal Proceedings
From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the
results of litigation and claims cannot be predicted with certainty, as of the date of this Form 10-K, we do not believe we are party to any claim or litigation,
the outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse effect on our
business. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management
resources and other factors.
ITEM 4. Mine Safety Disclosures
Not applicable.
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ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Part II
Our common stock was traded on the Nasdaq Global Market under the symbol “NERV” from our initial public offering on July 1, 2014 until September 11,
2022. Effective September 12, 2022, our common stock began trading on The Nasdaq Capital Market under the symbol “NERV.”
Holders of Record
As of the close of business on March 3, 2023, there were approximately 33 holders of record of our common stock, including Cede & Co., a nominee for
The Depository Trust Company (“DTC”), which holds shares of our common stock on behalf of an indeterminate number of beneficial owners. All of the
shares of common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant
accounts at DTC, and are considered to be held of record by Cede & Co. as one stockholder. Because many of our shares are held by brokers and other
institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Recent Sales of Unregistered Securities
None.
Issuer Purchases of Equity Securities
None.
Securities Authorized for Issuance Under Equity Compensation Plans
Our equity plan information required by this Item is incorporated by reference to the information in Part III, Item 12 of this Annual Report on Form 10-K.
ITEM 6. Selected Financial Data
Not applicable.
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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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 the financial statements and related
notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information in this discussion and analysis contains forward-looking
statements reflecting our current expectations and involves risk and uncertainties. For example, statements regarding our expectations as to our plans and
strategy for our business, future financial performance, expense levels and liquidity sources are forward-looking statements. Our actual results and the
timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under
the “Risk Factors” section and elsewhere in this Annual Report on Form 10-K. Please also see the section entitled “Special Note Regarding Forward-
Looking Statements.”
Overview
We are a clinical-stage biopharmaceutical company focused on the development and commercialization of proprietary product candidates to treat patients
suffering from central nervous system (“CNS”) diseases. Leveraging our scientific insights and clinical experience, we have acquired or in-licensed
compounds that we believe have innovative mechanisms of actions and therapeutic profiles that potentially address the unmet needs of patients with these
diseases.
We are developing roluperidone (f/k/a MIN-101) for the treatment of negative symptoms in patients with schizophrenia and have exclusive rights to
develop and commercialize MIN-301 for the treatment of Parkinson’s disease. In addition, we previously co-developed seltorexant (f/k/a MIN-202 or JNJ-
42847922) with Janssen Pharmaceutica NV, one of the Janssen Pharmaceutical Companies of Johnson & Johnson (“Janssen”), for the treatment of
insomnia disorder and adjunctive treatment of Major Depressive Disorder (“MDD”). In June 2020, we exercised our right to opt out of our agreement with
Janssen for the future Phase 3 development and commercialization of seltorexant. Under the terms of the opt-out agreement, we were entitled to collect
royalties in the mid-single digits on potential future worldwide sales of seltorexant in certain indications, with no further financial obligations to Janssen. In
January 2021, we sold our rights to these potential royalties to Royalty Pharma plc (“Royalty Pharma”) for a $60 million cash payment and up to an
additional $95 million in potential milestone payments, subject to completion of Phase 3 trials by Janssen and regulatory approvals. Janssen is currently
conducting two Phase 3 studies with seltorexant, a third Phase 3 study was discontinued during 2022.
In August 2022, we submitted a New Drug Application (“NDA”) with the U.S. Food and Drug Administration (the “FDA”) for our lead product candidate,
roluperidone. The FDA subsequently notified us that they would not accept the file for review, issuing a refusal to file letter in October 2022. In December
2022, we announced that, following the Type A meeting held on November 30, 2022, the FDA confirmed that the refusal to file letter remains in effect with
respect to our NDA for roluperidone. We anticipate further discussion with the FDA over the coming months regarding the status of the roluperidone NDA
and development program.
We have not received regulatory approvals to commercialize any of our product candidates, and we have not generated any revenue from the sales or
license of our product candidates. We routinely evaluate the status of our drug development programs as well as potential strategic options. We have
incurred significant operating losses since inception and expect to continue to incur net losses and negative cash flows from operating activities for the
foreseeable future in connection with the clinical and regulatory activities associated with advancing our product candidates. As of December 31, 2022 and
2021, we had an accumulated deficit of $366.8 million and $334.7 million, respectively. For the years ended December 31, 2022 and 2021, we recorded net
losses of $32.1 million and $49.9 million, respectively.
Clinical and Regulatory Updates
Roluperidone
NDA fee refund
In January 2023, we received a refund of our NDA filing fee of approximately $3.1 million from the FDA. This refund was made in accordance with the
Federal Food Drug and Cosmetic Act, which allows a fee waiver for a small business submitting its first human drug application.
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Refusal to File Letter and Type A Meeting (November 30, 2022)
On October 17, 2022, we announced that we received a refusal to file letter from the FDA for our NDA for roluperidone for the treatment of negative
symptoms in schizophrenia. On December 28, 2022 we announced that, following the Type A meeting held on November 30, 2022, the FDA confirmed
that the refusal to file letter remains in effect with respect to our NDA for roluperidone. We anticipate further discussion with the FDA over the coming
months regarding the status of the roluperidone NDA and development program.
New Drug Application
On August 22, 2022, we announced that we submitted an NDA to the FDA for roluperidone for the treatment of negative symptoms in patients with
schizophrenia. The NDA submission is supported by results from two late-stage, well-controlled studies in patients with moderate to severe negative
symptoms and stable positive symptoms of schizophrenia, referred to as Study MIN-101C03 (the Phase 2b trial) and Study MIN-101C07 (the Phase 3
trial). Both studies were planned to constitute the bulk of evidence of roluperidone’s effectiveness for the indication of treating negative symptoms of
schizophrenia. This plan relied on both studies having the same overall study design: both were multicenter, multinational, randomized, double-blind,
placebo-controlled, parallel-group studies in which patients received either 32 mg or 64 mg doses of roluperidone. In both studies, if patients were taking
antipsychotic treatments, they were discontinued and a washout period of two days was implemented before beginning the assigned study treatment. Both
studies capture comparative placebo-controlled data through their 12-week double-blind period. Both studies also provide long-term exposure data
regarding the safety and tolerability of roluperidone, as well as efficacy based on blinded doses of roluperidone, specifically intended to demonstrate the
maintenance of improvement in negative symptoms and the low rate of worsening of positive symptoms following 24-week (Study MIN-101C03) and 40-
week (Study MIN-101C07) Open Label (“OL”) periods. With the exception of the duration of the OL period, these two studies were nearly identical with
respect to patient population and main assessment tools (namely, Positive and Negative Syndrome Scale (“PANSS”), Personal and Social Performance
Scale (“PSP”), and Clinical Global Impression (“CGI”)). As such, the data from these studies are the basis for the decision to submit the application at this
stage of development as we believe they provide data to support the long-term safety and efficacy in adults in an area of high unmet medical need.
We are seeking approval for the 64 mg dose of roluperidone, and results described hereafter are for the 64 mg dose only.
Results of Study MIN-101C03 supported the primary hypothesis that after 12 weeks of treatment, roluperidone is superior to placebo in reducing negative
symptoms of schizophrenia. In the primary efficacy analysis, 64 mg roluperidone resulted in a statistically significant reduction of negative symptoms of
schizophrenia as measured by PANSS Pentagonal Structured Model Negative score (“PSM”) (p ≤ 0.0036). A post hoc analysis of the change from Baseline
to Week 12 in the PANSS Marder’s Negative Symptoms Factor Score (“NSFS”) also demonstrated a statistically significant difference for 64 mg
roluperidone compared with placebo (p ≤ 0.001). Statistically significant improvements with 64 mg roluperidone compared with placebo after 12 weeks of
the Double Blind (“DB”) period were also seen for multiple secondary/exploratory efficacy analyses. Further improvements in the NSFS were also seen
during the 24-week OL period.
The superiority of roluperidone over placebo was also demonstrated in Study MIN-101C07. Although the primary analysis (intent-to-treat (“ITT”)) of
change from Baseline in the NSFS to Week 12 for roluperidone compared to placebo marginally missed statistical significance (p ≤ 0.064), the results were
quantitatively superior for 64 mg roluperidone treatment. Furthermore, the analysis of the modified intent-to-treat (“mITT”) population (mITT data set
excludes data from one clinical site with implausible results for the 17 patients recruited at this site) demonstrated a nominal statistically significant
improvement in the NSFS for 64 mg roluperidone compared to placebo (p ≤ 0.044). In addition, statistically significant improvements (unadjusted) in the
NSFS from Baseline were seen as early as Weeks 4 and 8 for 64 mg roluperidone compared to placebo for both the ITT and the mITT populations. PSP
Total score (key secondary endpoint measuring vocational and social skills) reached statistical significance for both ITT and mITT populations (p ≤ 0.022
and p ≤ 0.017, respectively). Further improvements in the NSFS and PSP Total score were also seen during the 40-week OL period.
70
Type C Meeting (March 2, 2022)
On April 7, 2022, we announced that we had received the official meeting minutes from the Type C meeting with the FDA held on March 2, 2022, in which
the development of roluperidone for the treatment of negative symptoms in schizophrenia was discussed. Four main topics (listed below) were highlighted
by the FDA for which they requested input and further clarification from us. The FDA, at that time, proposed to keep an open dialogue moving towards the
NDA submission. Following the meeting, Minerva provided additional data to address:
The potential impact of roluperidone administration on the efficacy and safety of antipsychotic drugs. More specifically, the psychiatric
division (the “Division”) wanted reassurance that those patients administered roluperidone who manifest worsening of schizophrenia
symptoms and in the opinion of the clinician/investigators need treatment with antipsychotics, do not experience a diminished benefit of the
antipsychotic treatment or unexpected adverse effects.
The comparability of US and non-US schizophrenia patients. More specifically, the Division wanted to be reassured that data collected in
MIN-101C03 in non-US patients is applicable to US patients.
Supporting statistical evidence of efficacy of roluperidone on negative symptoms.
The ability of clinicians to identify patients who might benefit from roluperidone.
1.
2.
3.
4.
Seltorexant
In June 2020 we exercised our right to opt out of our agreement with Janssen for the future Phase 3 development and commercialization of seltorexant.
Under the terms of the opt-out agreement, we were entitled to collect royalties in the mid-single digits on potential future worldwide sales of seltorexant in
certain indications, with no further financial obligations to Janssen. In January 2021 we sold our rights to these potential royalties to Royalty Pharma for a
$60 million cash payment and up to an additional $95 million in potential milestone payments, subject to completion of Phase 3 trials by Janssen and
regulatory approvals. Janssen is currently conducting two Phase 3 studies with seltorexant, a third Phase 3 study was discontinued during 2022.
As a result of the sale of our rights to potential royalties, we will recognize non-cash interest expense related to the amortization of estimated future royalty
payments to Royalty Pharma. Accordingly, for the three and twelve months ended December 31, 2022, we recognized $1.9 million and $7.4 million in non-
cash interest expense related to this agreement.
The $60 million payment received from Royalty Pharma has been included on our balance sheet under Liability related to the sale of future royalties. As
we recognize interest expense, the Liability related to the sale of future royalties will increase until such time that we begin to receive the related royalty
payments. Under the terms of the agreement, all payments from Royalty Pharma to us, including the initial upfront payment of $60 million as well as
amortized interest expense and potential milestone payments, are not repayable to Royalty Pharma in the event that Janssen discontinues the clinical
development of seltorexant or ceases to pursue its commercialization at a future date for any reason.
MIN-301
In 2021, we made the strategic decision to focus our limited resources on moving forward our lead drug candidate, roluperidone, and deferred the
development of MIN-301 until additional resources become available. As a result of our limited resources and development deferral combined with the
overall market conditions, we recognized a non-cash charge of $15.2 million as of December 31, 2021 related to the impairment of the intangible asset for
MIN-301. We had previously recognized in-process research and development for MIN-301 in conjunction with the acquisition of MIN-301 during 2014.
No updates were made in respect of the development of MIN-301 during 2022.
Financial Overview
Revenue
None of our product candidates have been approved for commercialization and we have not received any revenue in connection with the sale or license of
our product candidates.
71
Research and Development Expenses
Research and development costs are expensed as they are incurred and consist principally of costs incurred in connection with the development of our
product candidates including: fees paid to consultants and clinical research organizations (“CROs”), investigator grants, patient screening, laboratory work,
database management, material management, statistical analysis, license fees, regulatory compliance, and costs related to salaries, benefits, bonuses and
stock-based compensation granted to employees in research and development functions.
The historic direct costs relating to each of our product candidates are summarized as follows (in thousands):
Roluperidone
MIN-117
MIN-301
(1)
Total
Year Ended December 31,
2022
2021
$
$
12,624
17
—
12,641
$
$
14,421
4
—
14,425
(1)
In 2021, we made the strategic decision to focus our limited resources on moving forward our lead drug candidate, roluperidone, and deferred
the development of MIN-301 until additional resources become available. As a result of our limited resources and development deferral
combined with the overall market conditions, we recognized a non-cash impairment charge of $15.2 million in the fourth quarter of 2021 to the
carrying value of in-process research and development related to our MIN-301 development program. No updates were made in respect of the
development of MIN-301 during 2022.
Completion dates and costs can vary significantly by product candidate and are difficult to predict. We anticipate making determinations as to which
programs to pursue and the level of funding to direct to each program on an ongoing basis in response to the scientific and clinical success or failure of
each product candidate, the estimated costs to continue the development program relative to our available resources, as well as an ongoing assessment of
each product candidate’s commercial potential. We will need to raise additional capital or may seek additional product collaborations in the future to
complete the development and commercialization of our product candidates.
We test goodwill and in-process research and development for impairment annually or more frequently if changes in circumstances or the occurrence of
events suggest impairment exists. The test for impairment of in-process research and development requires us to make several estimates about fair value,
most of which are based on projected future cash flows. Changes in these estimates may result in the recognition of an impairment loss in our results of
operations. An impairment analysis is performed whenever events or changes in circumstances indicate that the carrying amount of any individual asset
may not be recoverable. For example, if we or our counterparties fail to perform our respective obligations under an agreement, or if we lack sufficient
funding to develop our product candidates, an impairment may result. In addition, any significant change in market conditions, estimates or judgments used
to determine expected future cash flows that indicate a reduction in carrying value may give rise to impairment in the period that the change becomes
known.
General and Administrative Expenses
General and administrative costs are expensed as they are incurred and consist principally of costs for facility and information systems, professional fees
for auditing, consulting and legal services and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in
administrative functions. General and administrative costs also include costs for maintaining a publicly listed company including increased audit and legal
fees, compliance with securities laws, corporate governance and investor relations.
Foreign Exchange (Losses) Gains
Foreign exchange (losses) gains are comprised primarily of (losses) and gains on foreign currency transactions primarily related to research and
development expenses. We incur certain expenses, primarily in Euros, and record these expenses in United States Dollars at the time the liability is
incurred. Changes in the applicable foreign currency rate between the date that an expense is recorded and the payment date is recorded as a foreign
currency (loss) or gain.
Investment Income
Investment income consists of income earned on our cash equivalents and marketable securities.
72
Non-cash interest expense for the sale of future royalties
Non-cash interest expense for the sale of future royalties consists of the non-cash interest expense associated with the Royalty Pharma agreement.
Net Operating Losses Carryforwards
As of December 31, 2022, we had approximately $98.0 million of federal net operating loss carryforwards. These federal net operating loss carryforwards
will begin to expire at various dates beginning in 2030, if not utilized. As of December 31, 2022, we had approximately $94.4 million of state net operating
loss carryforwards. During the year ended December 31, 2022, no state operating loss carryforwards had expired.
Results of Operations
Comparison of the Years Ended December 31, 2022 and December 31, 2021 (in thousands):
Expenses
Research and development
General and administrative
Total expenses
Loss from operations
Foreign exchange losses
Investment income
Non-cash interest expense for the sale of future royalties
Loss before income taxes
Benefit for income taxes
Net loss
Research and Development Expenses
Year Ended December 31,
2022
2021
$
14,649
10,582
25,231
(25,231 )
(28 )
557
(7,407 )
(32,109 )
—
(32,109 ) $
32,039
13,327
45,366
(45,366 )
(33 )
17
(6,327 )
(51,709 )
(1,803 )
(49,906 )
$
$
Research and development expenses were $14.6 million and $32.0 million for the years ended December 31, 2022 and 2021, respectively, a decrease of
$17.4 million. The decrease in research and development expenses was primarily due to a non-cash impairment charge of $15.2 million in the fourth
quarter of 2021 to the carrying value of in-process research and development related to our MIN-301 development program, as well as lower clinical trial
costs for roluperidone due to the completion of the 40-week open-label extension during 2021. Non-cash stock compensation costs included in research and
development expenses was $2.0 million and $2.4 million for the years ended December 31, 2022 and 2021, respectively.
General and Administrative Expenses
General and administrative expenses were $10.6 million and $13.3 million for the years ended December 31, 2022 and 2021, respectively, a decrease of
$2.7 million. The decrease in general and administrative expenses was primarily due to lower staffing related expenses and lower legal and insurance costs.
Non-cash stock compensation costs included in general and administrative expenses was $2.1 million and $2.8 million for the years ended December 31,
2022 and 2021, respectively.
Foreign Exchange Losses
Foreign exchange losses were $28 thousand and $33 thousand for the years ended December 31, 2022 and 2021, respectively, an increase of $5 thousand.
The loss was primarily due to changes in foreign exchange rates.
Investment Income
Investment income was $557 thousand and $17 thousand for the years ended December 31, 2022 and 2021, respectively, an increase of $540 thousand. The
increase was primarily due to higher interest rates during 2022.
73
Non-cash interest expense for the sale of future royalties
Non-cash interest expense for the sale of future royalties was $7.4 million and $6.3 million for the years ended December 31, 2022 and 2021, respectively,
an increase of $1.1 million. The increase was due to a higher effective interest rate during 2022 and an increase in the carrying value of the liability related
to the sale of future royalties for seltorexant to Royalty Pharma in accordance with ASC 470, Debt.
Benefit for Income Taxes
Benefit for income taxes was zero and $1.8 million for the years ended December 31, 2022 and 2021, respectively, an increase of $1.8 million. The
increase was primarily due to the benefit received from lowering the deferred tax liability due to the impairment of the MIN-301 intangible asset during
2021.
Liquidity and Capital Resources
Sources of Liquidity
As of December 31, 2022, we had an accumulated deficit of approximately $366.8 million. We anticipate that we will continue to incur net losses for the
foreseeable future as we continue the development and potential commercialization of our product candidates and to support our operations as a public
company. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we may never generate
product revenue or achieve profitability. As of December 31, 2022, we had approximately $36.2 million in cash, cash equivalents, and restricted cash,
which we believe will be sufficient to meet our operating commitments for the next 12 months from the date our financial statements are issued. Our cash
requirements primarily relate to expenditures to support the development of roluperidone, which includes advancing the program through the regulatory
process.
The process of drug development can be costly and the timing and outcomes of clinical trials is uncertain. The assumptions upon which we have based our
estimates are routinely evaluated and may be subject to change. The actual amount of our expenditures will vary depending upon many factors including
but not limited to the design, timing and duration of future clinical trials, the progress of our research and development programs, the infrastructure to
support a commercial enterprise and the level of financial resources available. We can adjust our operating plan spending levels based on the timing of
future clinical trials which are predicated upon adequate funding to complete the trials. We routinely evaluate the status of our clinical development
programs as well as potential strategic options.
At-the-Market Equity Offering Program
In September 2022, we entered into an Open Market Sale Agreement (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which we may
offer and sell, from time to time, through Jefferies, shares of our common stock, by any method permitted by law deemed to be an “at-the-market” offering
as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. During the twelve months ended December 31, 2022, no shares of our
common stock were issued or sold under the Sales Agreement. As of December 31, 2022, an aggregate of $22.6 million was eligible for sale pursuant to
the Sales Agreement under our effective registration statement on Form S-3 (File No. 333-267424).
Seltorexant Royalties
We previously co-developed seltorexant with Janssen for the treatment of insomnia disorder and adjunctive treatment of MDD. During 2020, we exercised
our right to opt out of a joint development agreement with Janssen for the future development of seltorexant. As a result, we were entitled to collect
royalties in the mid-single digits on potential future sales of seltorexant worldwide in certain indications, with no further financial obligations to Janssen.
On January 19, 2021, we entered into an agreement under which Royalty Pharma acquired our royalty interest in seltorexant for an upfront payment of $60
million and up to an additional $95 million in potential milestone payments, contingent upon the achievement of certain clinical, regulatory and
commercial milestones for seltorexant by Janssen. Janssen is currently conducting two Phase 3 studies with seltorexant, a third Phase 3 study was
discontinued during 2022.
74
Uses of Funds
To date, we have not generated any revenue from sales of products. We have only generated collaborative revenue due to opting out of our license and co-
development agreement with Janssen. Furthermore, the $60 million payment received from Royalty Pharma for the sale of our royalty interests in
seltorexant has been included on our balance sheet under Liability related to the sale of future royalties. We do not know when, or if, we will generate any
revenue from sales of our products, or from the potential future non-cash royalty revenue associated with the sale of our royalty interests in seltorexant to
Royalty Pharma. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize
any of our product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as
we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. We also expect to continue to incur
costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to
incur significant commercialization expenses for product sales, marketing, manufacturing and distribution.
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity
offerings, debt financings, government or other third party funding, commercialization, marketing and distribution arrangements and other collaborations,
strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the
ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that
adversely affect the rights of our common stockholders. Additional debt financing, if available, may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional
funds through government or other third party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic
alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research
programs or product candidates or to grant licenses on terms that may not be favorable to us. There can be no assurance that such additional funding, if
available, can be obtained on terms acceptable to us, and our ability to raise additional capital may be adversely impacted by global economic conditions,
including the recent disruptions to and volatility in the credit and financial markets in the U.S. and worldwide resulting from the COVID-19 pandemic, the
war in Ukraine and other factors. If we are unable to obtain additional financing, future operations would need to be scaled back or discontinued. We
believe that our existing cash, cash equivalents, and restricted cash will be sufficient to meet our cash commitments for at least the next 12 months after the
date that the financial statements are issued. The timing of future capital requirements depends upon many factors including the size and timing of future
clinical trials, the timing and scope of any strategic partnering activity and the progress of other research and development activities.
Cash Flows
The tables below set forth our significant sources and uses of cash for the periods.
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Net (decrease) increase in cash
Net Cash Used in Operating Activities
Year Ended December 31,
2022
2021
(dollars in millions)
$
$
(24.6 ) $
—
—
(24.6 ) $
(24.6 )
—
60.0
35.4
Net cash used in operating activities of approximately $24.6 million during the year ended December 31, 2022 was primarily due to our net loss of $32.1
million and a $3.1 million increase in refundable regulatory fees, partially offset by non-cash interest expense for the sale of future royalties of $7.4 million
and stock-based compensation expense of $4.1 million.
Net cash used in operating activities of approximately $24.6 million during the year ended December 31, 2021 was primarily due to our net loss of $49.9
million, a $1.8 million increase in deferred taxes and approximately a $1.0 million decrease in accrued expenses, partially offset by an impairment charge
to the carrying value of in-process research and development of $15.2 million, non-cash interest expense for the sale of future royalties of $6.3 million and
stock-based compensation expense of $5.2 million.
Net Cash Provided by Investing Activities
Net cash provided by investing activities was zero during the years ended December 31, 2022 and 2021.
75
Net Cash Provided by Financing Activities
Net cash provided by financing activities was zero during the year ended December 31, 2022.
Net cash provided by financing activities of $60 million during the year ended December 31, 2021 represents the cash payment received from the sale of
future royalties on the seltorexant program to Royalty Pharma.
Reverse Stock Split
On June 17, 2022, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation (the “Amendment”) with the Secretary
of State of the State of Delaware to effect a one-for-eight (1-for-8) reverse stock split of our outstanding common stock. The Amendment became effective
at 5:00 p.m. Eastern Time on June 17, 2022. A series of alternate amendments to effect a reverse stock split was approved by our stockholders at our 2022
Annual Meeting of Stockholders held on June 10, 2022, and the specific one-for-eight (1-for-8) reverse stock split was subsequently approved by our board
of directors on June 10, 2022.
The Amendment provided that, at the effective time of the Amendment, every eight (8) shares of our issued and outstanding common stock automatically
combined into one issued and outstanding share of common stock, without any change in par value per share. The reverse stock split affected all shares of
our common stock outstanding immediately prior to the effective time of the Amendment. As a result of the reverse stock split, proportionate adjustments
were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock units and
restricted stock awards issued by us and outstanding immediately prior to the effective time of the Amendment, which resulted in a proportionate decrease
in the number of shares of our common stock reserved for issuance upon exercise or vesting of such stock options, restricted stock units and restricted stock
awards, and, in the case of stock options, a proportionate increase in the exercise price of all such stock options. In addition, the number of shares reserved
for issuance under our equity compensation plans immediately prior to the effective time of the Amendment was reduced proportionately. The reverse stock
split did not affect the number of shares of common stock authorized for issuance under our Amended and Restated Certificate of Incorporation, which
remained at 125,000,000 shares.
No fractional shares were issued as a result of the reverse stock split. Stockholders of record who would otherwise have been entitled to receive a fractional
share received a cash payment in lieu thereof. The reverse stock split affected all stockholders proportionately and did not affect any stockholder’s
percentage ownership of our common stock (except to the extent that the reverse stock split results in any stockholder owning only a fractional share). As a
result of the reverse stock split, the number of our outstanding shares of common stock as of June 17, 2022 decreased from 42,721,566 (pre-split) shares to
5,340,193 (post-split) shares.
All share and per share amounts in the accompanying financial statements, related footnotes, and management's discussion and analysis have been adjusted
retroactively to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented. Our common stock began trading on The
Nasdaq Global Market on a split-adjusted basis when the market opened on June 21, 2022. Effective September 12, 2022, we transferred the listing of our
common stock from The Nasdaq Global Market to The Nasdaq Capital Market.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared
in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these financial statements requires us to
make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of
the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an
ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our
actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Form 10-K, we believe
that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.
76
Research and Development Costs
Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain
technology in our research and development projects as well as fees paid to consultants and various entities that perform certain research and testing on our
behalf and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in research and development functions. We
determine our expenses related to clinical studies based on our estimates of the services received and efforts expended pursuant to contracts with multiple
research institutions and contract research organizations that conduct and manage clinical studies on our behalf. The financial terms of these agreements are
subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors
such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over
which services will be performed 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 our estimate, we adjust the accrual accordingly. The expenses for some trials may be recognized on a straight-line basis if the anticipated
costs are expected to be incurred ratably during the period. Payments for these activities are based on the terms of the individual arrangements, which may
differ from the pattern of costs incurred, and are reflected in the condensed consolidated financial statements as prepaid or accrued expenses.
We make estimates of our accrued research and development expenses as of each balance sheet date in our financial statements based on facts and
circumstances known at that time. Although we do not expect that our estimates will be materially different from amounts actually incurred, our
understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our
reporting amounts that are too high or too low for any particular period. There had been no material adjustments to our prior period estimates of accrued
expenses for clinical trials. However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as
we become aware of additional information about the status or conduct of our clinical trials.
In-process Research and Development
In-process research and development (“IPR&D”), assets represent capitalized incomplete research projects that we acquired through business
combinations. Such assets are initially measured at their acquisition date fair values. The initial fair values of the research projects are recorded as
intangible assets on the balance sheet, rather than expensed, regardless of whether these assets have an alternative future use.
The amounts capitalized are being accounted for as indefinite-lived intangible assets, subject to impairment testing, until completion or abandonment of
research and development efforts associated with the project. An IPR&D asset is considered abandoned when it ceases to be used (that is, research and
development efforts associated with the asset have ceased, and there are no plans to sell or license the asset or derive defensive value from the asset). At
that point, the asset is considered to be disposed of and is written off. Upon successful completion of each project, we will make a determination about the
remaining useful life of the intangible asset and begin amortization. We test our indefinite-lived intangibles, IPR&D assets, for impairment annually and
more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. When testing indefinite-lived
intangibles for impairment, we may assess qualitative factors for our indefinite-lived intangibles to determine whether it is more likely than not (that is, a
likelihood of more than 50 percent) that the asset is impaired. Alternatively, we may bypass this qualitative assessment for some or all of our indefinite-
lived intangibles and perform the quantitative impairment test that compares the fair value of the indefinite-lived intangible asset with the asset’s carrying
amount.
Impairment of MIN-301 In-process Research and Development Asset
In 2021, we made the strategic decision to focus our limited resources on moving forward our lead drug candidate, roluperidone, and deferred the
development of MIN-301 until additional resources become available. As a result of our limited resources and development deferral combined with the
overall market conditions, we recognized a non-cash charge of $15.2 million as of December 31, 2021 related to the impairment of the intangible asset for
MIN-301. We had previously recognized in-process research and development for MIN-301 in conjunction with the acquisition of MIN-301 during 2014.
No updates were made in respect of the development of MIN-301 during 2022.
77
Goodwill
We test our goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing
our reporting unit’s carrying value to its fair value. Impairment may result from, among other things, deterioration in the performance of the acquired
business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If we determine that an
impairment has occurred, we are required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the
determination is made. In evaluating the recoverability of the carrying value of goodwill, we must make assumptions regarding estimated future cash flows
and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact those judgments in
the future and require an adjustment to the recorded balances. We have a single reporting unit, which is the level that the goodwill impairment test is
performed. There was no impairment of goodwill for the years ended December 31, 2022 and 2021. As of December 31, 2022, $14.9 million of goodwill
was associated with a reporting unit with zero or negative carrying value. As the reporting unit had a positive fair value, there was no impairment
associated with this reporting unit.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are
measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Uncertain tax positions are
evaluated and if appropriate, the amount of unrecognized tax benefits are recorded within deferred tax assets. Deferred tax assets are evaluated for
realization based on a more-likely-than-not criterion in determining if a valuation allowance should be provided. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
We use a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to
be taken, in a tax return. We have elected to treat interest and penalties, to the extent they arise, as a component of income taxes. There was no interest or
penalties related to income taxes for the years ended December 31, 2022 or 2021. Income tax years beginning in 2019 for federal and state purposes are
generally subject to examination by taxing authorities, although net operating losses from all prior years are subject to examinations and adjustments for at
least three years following the year in which the tax attributes are utilized.
Liability related to the sale of future royalties
We treat the sale of future royalties to Royalty Pharma as a debt financing, as we have significant continuing involvement in facilitating the transfer of
royalties to Royalty Pharma and Royalty Pharma has recourse against us relating to the payments due from Janssen. As a result, we recorded the upfront
payment of $60 million from this transaction as a liability related to the sale of future royalties, and up to an additional $95 million in potential milestone
payments will also be recorded as a liability related to the sale of future royalties and amortized as interest expense over the estimated remaining life of the
agreement. Under the terms of the agreement, all payments from Royalty Pharma to us, including the initial upfront payment of $60 million as well as
amortized interest expense and potential milestone payments, are not repayable to Royalty Pharma in the event that Janssen discontinues the clinical
development of seltorexant or ceases to pursue its commercialization at a future date for any reason.
The liability related to sale of future royalties and the related interest expense is based on our current estimates of future royalties expected to be paid over
the life of the arrangement. We will periodically assess the expected royalty payments using a combination of internal projections and forecasts from
external sources. To the extent our future estimates of royalty payments are greater or less than previous estimates or the estimated timing of such payments
is materially different than its previous estimates, we will prospectively recognize related non-cash interest expense. As of December 31, 2022, we
estimated the effective annual interest rate to be approximately 10.7%. For example, as of December 31, 2022, a 20% increase in the probability of clinical
success of the MDD with insomnia trial would represent a 1.6 percentage points increase in the effective annual interest rate, which would increase the
non-cash interest expense and future milestone payments by $37.7 million and $5.4 million, respectively, over the remaining life of the agreement.
For further discussion of the sale of future royalties, please refer to Note 5, Sale of Future Royalties.
78
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by Financial Accounting Standards Board (“FASB”) and are adopted by us as of the
specified effective date. Our significant accounting policies are described in Note 2 to our financial statements appearing elsewhere in this Form 10-K.
Except as described in Note 2, we believe that the impact of other recently issued, but not yet adopted, accounting pronouncements will not have a material
impact on the financial position, results of operations and cash flows, or do not apply to our operations.
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
79
ITEM 8. Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Stockholders’ (Deficit) Equity for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
Notes to Consolidated Financial Statements
80
Page
F-1
F-3
F-4
F-5
F-6
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Minerva Neurosciences, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Minerva Neurosciences, Inc. and subsidiaries (the “Company”) as of December 31, 2022
and 2021, the related consolidated statements of operations, stockholders’ (deficit) equity, and cash flows, for each of the two years in the period ended
December 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in
all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each
of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of
internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
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 judgments. The communication of the critical audit matter does not alter in any way our
opinion on the 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 disclosures to which it relates.
Liability Related to the Sale of Future Royalties
Critical Audit Matter Description
As described in Notes 2 and 5 to the consolidated financial statements, on January 19, 2021, the Company entered into an agreement with Royalty Pharma
under which Royalty Pharma acquired the Company’s royalty interest in seltorexant for an upfront payment of $60 million and up to an additional $95
million in potential milestone payments. Management applied significant judgment in determining the appropriate accounting treatment for the transaction
and accounted for the sale of future revenue to Royalty Pharma as a debt financing, as the Company continues to have significant continuing involvement
in the generation of the cash flows. The proceeds from the transaction were recorded as a liability related to the sale of future royalties, to be amortized
under the interest method over the estimated life of the agreement.
We identified the accounting treatment for the sale of future royalties as a critical accounting matter due to the significant judgment involved in determining
the treatment. We identified the valuation of the liability related to the sale of future royalties as a critical audit matter because of the significant estimates
and assumptions management makes related to the balance. Specifically, the determination of the discount rate involved significant estimation uncertainty.
F-1
How We Addressed the Matter in Our Audit
Our testing approach included both consideration of the accounting treatment, and the recognition and valuation of the liability. Our testing of the
accounting treatment for the sale of future royalties was performed in the prior year and included the assistance of professionals in our firm having
expertise in accounting and evaluated the Company’s conclusions regarding the accounting model applied to the sale of future royalties through
consideration of possible alternatives under accounting principles generally accepted in the United States of America.
To test the estimated value of the liability related to the sale of future royalties and the non-cash interest expense, our audit procedures included the
following, among others:
•
•
In the prior year to test the initial recognition of the liability related to the sale of future royalties, with the assistance of our fair value specialists,
we:
–
–
Evaluated the appropriateness of the methodology used to estimate the implied discount rate, evaluated the significant assumptions
discussed above that are used by management to estimate the future royalties to be paid and tested the underlying data used by the Company
in its analysis.
Compared the significant assumptions used by management to relevant industry forecasts and economic trends, to evaluate consistency with
external market and industry data, as well as consistency with evidence obtained in other areas of the audit.
In the current year to test the subsequent recognition of the liability related to the sale of future royalties, we obtained the liability calculation and
accretion schedule and:
–
–
–
–
Reviewed changes in significant estimates and assumptions used by management.
Recalculated the liability related to the sale of future royalties and associated non-cash interest expense.
Sent a confirmation to the relevant counterparty.
Evaluated whether there were any events or underlying factors that would indicate reassessment of the accounting conclusions.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 8, 2023
We have served as the Company’s auditor since 2013.
F-2
MINERVA NEUROSCIENCES, INC.
Consolidated Balance Sheets
Assets
Current assets
Cash and cash equivalents
Restricted cash
Refundable regulatory fee
Prepaid expenses and other current assets
Total current assets
Equipment, net
Capitalized software, net
Goodwill
Total assets
Liabilities and Stockholders’ (Deficit) Equity
Current liabilities
Accounts payable
Accrued expenses and other current liabilities
Total current liabilities
Liability related to the sale of future royalties
Total liabilities
Commitments and contingencies (Note 9)
Stockholders’ (deficit) equity
Preferred stock; $.0001 par value; 100,000,000 shares authorized; none issued or outstanding as of
December 31, 2022 and 2021, respectively
Common stock; $.0001 par value; 125,000,000 shares authorized; 5,340,193 and 5,340,196 shares
issued and outstanding as of December 31, 2022 and December 31, 2021, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ (deficit) equity
Total liabilities and stockholders’ (deficit) equity
December 31,
2022
December 31,
2021
$
$
$
36,093,606 $
100,000
3,117,218
848,117
40,158,941
16,326
42,567
14,869,399
55,087,233 $
60,755,080
100,000
—
1,346,359
62,201,439
—
51,080
14,869,399
77,121,918
$
969,667
407,909
1,377,576
73,733,876
75,111,452
1,853,215
965,739
2,818,954
66,327,321
69,146,275
—
—
534
346,785,322
(366,810,075 )
(20,024,219 )
55,087,233 $
534
342,676,508
(334,701,399 )
7,975,643
77,121,918
$
See accompanying notes to the consolidated financial statements.
F-3
MINERVA NEUROSCIENCES, INC.
Consolidated Statements of Operations
Expenses
Research and development
General and administrative
Total expenses
Loss from operations
Foreign exchange losses
Investment income
Non-cash interest expense for the sale of future royalties
Loss before income taxes
Benefit for income taxes
Net loss
Net loss per share, basic and diluted
Weighted average shares outstanding, basic and diluted
Year Ended December 31,
2022
2021
$
14,649,087
10,582,239
25,231,326
(25,231,326 )
(27,741 )
556,946
(7,406,555 )
(32,108,676 )
—
(32,108,676 )
(6.01 )
5,340,194
$
$
32,038,947
13,326,710
45,365,657
(45,365,657 )
(32,846 )
16,516
(6,327,321 )
(51,709,308 )
(1,803,356 )
(49,905,952 )
(9.35 )
5,340,196
$
$
$
See accompanying notes to the consolidated financial statements.
F-4
MINERVA NEUROSCIENCES, INC.
Consolidated Statements of Stockholders’ (Deficit) Equity
Balances at January 1, 2021
Stock-based compensation
Net loss
Balances at December 31, 2021
Stock-based compensation
Adjustments due to the rounding impact from the
reverse stock split for fractional shares
Net loss
Balances at December 31, 2022
Common Stock
Amount
Shares
5,340,196
—
—
5,340,196
—
$
$
(3 )
—
5,340,193
$
Additional
Paid-In Capital
534
—
—
534
—
—
—
534
$
$
$
337,457,514
5,218,994
—
342,676,508
4,108,819
$
$
(5 )
—
346,785,322
$
Accumulated
Deficit
(284,795,447 ) $
—
(49,905,952 )
(334,701,399 ) $
—
—
(32,108,676 )
(366,810,075 ) $
Total
52,662,601
5,218,994
(49,905,952 )
7,975,643
4,108,819
(5 )
(32,108,676 )
(20,024,219 )
See accompanying notes to the consolidated financial statements.
F-5
MINERVA NEUROSCIENCES, INC.
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss income to net cash used in operating activities:
Impairment of in-process research and development
Amortization of capitalized software
Amortization of right-of-use assets
Stock-based compensation expense
Non-cash interest expense associated with the sale of future royalties
Deferred taxes
Changes in operating assets and liabilities
Refundable regulatory fee
Prepaid expenses and other current assets
Capitalized software
Other noncurrent assets
Accounts payable
Accrued expenses and other current liabilities
Operating lease liabilities, current
Net cash used in operating activities
Cash flows from investing activities:
Purchases of equipment
Net cash used in investing activities
Cash flows from financing activities:
Fees paid in connection with the reverse stock split fractional shares
Proceeds from the sale of future royalties
Net cash (used in) provided by financing activities
Net (decrease) increase in cash, cash equivalents, and restricted cash
Cash, cash equivalents, and restricted cash
Beginning of period
End of period
Reconciliation of the Condensed Consolidated Statements of Cash Flows to the
Condensed Consolidated Balance Sheets
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents, and restricted cash
Year Ended December 31,
2022
2021
$
(32,108,676 )
$
(49,905,952 )
—
8,513
—
4,108,819
7,406,555
(3,117,218 )
498,242
—
—
(883,548 )
(557,830 )
—
(24,645,143 )
(16,326 )
(16,326 )
(5 )
—
(5 )
(24,661,474 )
$
$
$
60,855,080
36,193,606
36,093,606
100,000
36,193,606
$
$
$
15,200,000
—
101,786
5,218,994
6,327,321
(1,803,356 )
—
636,905
(51,080 )
14,808
857,601
(1,087,670 )
(111,229 )
(24,601,872 )
—
—
—
60,000,000
60,000,000
35,398,128
25,456,952
60,855,080
60,755,080
100,000
60,855,080
See accompanying notes to the consolidated financial statements.
F-6
MINERVA NEUROSCIENCES, INC.
Notes To Consolidated Financial Statements
December 31, 2022 and 2021
NOTE 1 — NATURE OF OPERATIONS AND LIQUIDITY
Nature of Operations
Minerva Neurosciences, Inc. (“Minerva” or the “Company”) is a clinical-stage biopharmaceutical company focused on the development and
commercialization of product candidates to treat patients suffering from central nervous system (“CNS”) diseases. The Company’s lead product candidate
is roluperidone (f/k/a MIN-101), a compound the Company is developing for the treatment of negative symptoms in patients with schizophrenia. The
Company holds the license to roluperidone from Mitsubishi Tanabe Pharma Corporation (“MTPC”) with the rights to develop, sell and import roluperidone
globally, excluding most of Asia. In October 2022, the Company announced that it received a refusal to file letter from the U.S. Food and Drug
Administration (the “FDA”) for its New Drug Application (“NDA”) for roluperidone for the treatment of negative symptoms in schizophrenia. The
Company also has exclusive rights to develop and commercialize MIN-301, a compound for the treatment of Parkinson’s disease. In addition, Minerva
previously co-developed seltorexant (f/k/a MIN-202 or JNJ-42847922) with Janssen Pharmaceutica NV (“Janssen”) for the treatment of insomnia disorder
and adjunctive treatment of Major Depressive Disorder (“MDD”). During 2020 Minerva exercised its right to opt out of the joint development agreement
with Janssen for the future development of seltorexant. As a result, the Company was entitled to collect royalties in the mid-single digits on potential future
worldwide sales of seltorexant in certain indications, with no further financial obligations to Janssen. In January 2021, the Company sold its rights to these
potential royalties to Royalty Pharma plc (“Royalty Pharma”). For further discussion of the joint development agreement with Janssen and the sale of
future royalties, please refer to Note 5, Sale of Future Royalties.
Liquidity
The accompanying financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. The Company has limited capital resources and has incurred recurring operating losses
and negative cash flows from operations since inception. As of December 31, 2022, the Company had an accumulated deficit of approximately $366.8
million and net cash used in operating activities was approximately $24.6 million during the year ended December 31, 2022. Management expects to
continue to incur operating losses and negative cash flows from operations in the future. The Company has financed its operations to date from proceeds
from the sale of common stock, warrants, loans, convertible promissory notes, collaboration agreements and royalty sales.
As of December 31, 2022, the Company had cash, cash equivalents, and restricted cash of $36.2 million, which it believes will be sufficient to meet the
Company’s operating commitments for the next 12 months from the date its financial statements are issued. The process of drug development can be costly
and the timing and outcomes of clinical trials is uncertain. The assumptions upon which the Company has based its estimates are routinely evaluated and
may be subject to change. The actual amount of the Company’s expenditures will vary depending upon many factors including but not limited to the
design, timing and duration of future clinical trials, the progress of the Company’s research and development programs, the infrastructure to support a
commercial enterprise, and the level of financial resources available. The Company can adjust its operating plan spending levels based on the timing of
future clinical trials, which are predicated upon adequate funding to complete the trials. The Company routinely evaluates the status of its clinical
development programs as well as potential strategic options.
The Company will need to raise additional capital in order to continue to fund operations and fully fund any potential later stage clinical development
programs. The Company believes that it will be able to obtain additional working capital through equity financings or other arrangements to fund future
operations; however, there can be no assurance that such additional financing, if available, can be obtained on terms acceptable to the Company. If the
Company is unable to obtain such additional financing, future operations would need to be scaled back or discontinued.
Further, if the Company does not satisfy The Nasdaq Capital Market continued listing requirements, its common stock may be subject to delisting, which
could impact the Company’s ability to complete additional equity financings on terms acceptable to the Company. On December 1, 2022, the Company
received a deficiency letter from Nasdaq notifying the Company that for the last 30 consecutive business days, its minimum Market Value of Listed
Securities (“MVLS”) was below the minimum of $35 million required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule
5550(b)(2). In accordance with the listing rules of Nasdaq, the Company has been provided an initial period of 180 calendar days, or until May 30, 2023, to
regain compliance. If compliance is not achieved by May 30, 2023, the Company expects that Nasdaq would provide written notification that its securities
are subject to delisting.
F-7
NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), and
include all adjustments necessary for the fair presentation of the Company’s financial position for the periods presented. From its inception, the Company
has devoted substantially all of its efforts to business planning, engaging regulatory, manufacturing and other technical consultants, planning and executing
clinical trials and raising capital.
Reverse Stock Split
On June 17, 2022, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation (the “Amendment”) with the
Secretary of State of the State of Delaware to effect a one-for-eight (1-for-8) reverse stock split of its outstanding common stock. The Amendment became
effective at 5:00 p.m. Eastern Time on June 17, 2022. A series of alternate amendments to effect a reverse stock split was approved by the Company’s
stockholders at the Company’s 2022 Annual Meeting of Stockholders held on June 10, 2022, and the specific one-for-eight (1-for-8) reverse stock split was
subsequently approved by the Company’s board of directors on June 10, 2022.
The Amendment provided that, at the effective time of the Amendment, every eight (8) shares of the Company’s issued and outstanding common stock
automatically combined into one issued and outstanding share of common stock, without any change in par value per share. The reverse stock split affected
all shares of the Company’s common stock outstanding immediately prior to the effective time of the Amendment. As a result of the reverse stock split,
proportionate adjustments were made to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options,
restricted stock units and restricted stock awards issued by the Company and outstanding immediately prior to the effective time of the Amendment, which
resulted in a proportionate decrease in the number of shares of the Company’s common stock reserved for issuance upon exercise or vesting of such stock
options, restricted stock units and restricted stock awards, and, in the case of stock options, a proportionate increase in the exercise price of all such stock
options. In addition, the number of shares reserved for issuance under the Company’s equity compensation plans immediately prior to the effective time of
the Amendment was reduced proportionately. The reverse stock split did not affect the number of shares of common stock authorized for issuance under the
Company’s Amended and Restated Certificate of Incorporation, which remained at 125,000,000 shares.
No fractional shares were issued as a result of the reverse stock split. Stockholders of record who would otherwise have been entitled to receive a fractional
share received a cash payment in lieu thereof. The reverse stock split affected all stockholders proportionately and did not affect any stockholder’s
percentage ownership of the Company’s common stock (except to the extent that the reverse stock split results in any stockholder owning only a fractional
share). As a result of the reverse stock split, the number of the Company’s outstanding shares of common stock as of June 17, 2022 decreased from
42,721,566 (pre-split) shares to 5,340,193 (post-split) shares.
All share and per share amounts in the accompanying financial statements, related footnotes, and management’s discussion and analysis have been adjusted
retroactively to reflect the reverse stock split as if it had occurred at the beginning of the earliest period presented. The Company’s common stock began
trading on The Nasdaq Global Market on a split-adjusted basis when the market opened on June 21, 2022. Effective September 12, 2022, the Company
transferred the listing of its common stock from The Nasdaq Global Market to The Nasdaq Capital Market.
Consolidation
The accompanying consolidated financial statements include the results of the Company and its wholly-owned subsidiaries, Mind-NRG Sarl and Minerva
Neurosciences Securities Corporation. Intercompany transactions have been eliminated.
Significant risks and uncertainties
The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not
limited to: the results of clinical testing and trial activities of the Company’s products, the Company’s ability to obtain regulatory approval to market its
products, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, Company products, the
Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, and the Company’s ability to raise
capital.
F-8
The Company currently has no commercially approved products and there can be no assurance that the Company’s research and development will be
successfully commercialized. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and
approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is
dependent upon the continued services of its employees and consultants and obtaining and protecting intellectual property.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of
expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash equivalents include short-term, highly-liquid instruments, consisting of money market accounts and short-term investments with maturities from the
date of purchase of 90 days or less. The majority of cash and cash equivalents are maintained with major financial institutions in North America. Deposits
with these financial institutions may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand which
reduces counterparty performance risk.
Restricted cash
Cash accounts with any type of restriction are classified as restricted. The Company maintained restricted cash balances as collateral for corporate credit
cards in the amount of $0.1 million at December 31, 2022 and 2021.
Refundable regulatory fee
On August 12, 2022, the Company paid $3,117,218 to the FDA for the NDA user fee related to roluperidone. The Company met the conditions of the
Federal Food, Drug, and Cosmetic Act, as amended, for the small business waiver of the user fees and its request for a waiver of an application user fee
was granted by the FDA on November 2, 2022. On January 26, 2023, the refund was received from the FDA.
Research and development costs
Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain
technology in the Company’s research and development projects as well as fees paid to consultants and various entities that perform certain research and
testing on behalf of the Company and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in research and
development functions. The Company determines expenses related to clinical studies based on estimates of the services received and efforts expended
pursuant to contracts with multiple research institutions and contract research organizations (“CROs”) that conduct and manage clinical studies on its
behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows.
Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In
accruing service fees, the Company estimates the time period over which services will be performed 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 the estimate, the accrual is adjusted accordingly. The expenses for some
trials may be recognized on a straight-line basis if the anticipated costs are expected to be incurred ratably during the period. Payments for these activities
are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the consolidated financial
statements as prepaid or accrued expenses.
In-process research and development
In-process research and development (“IPR&D”) assets represent capitalized incomplete research projects that the Company acquired through business
combinations. Such assets are initially measured at their acquisition date fair values. The initial fair values of the research projects are recorded as
intangible assets on the balance sheet, rather than expensed, regardless of whether these assets have an alternative future use.
F-9
The amounts capitalized are being accounted for as indefinite-lived intangible assets, subject to impairment testing, until completion or abandonment of
research and development efforts associated with the project. An IPR&D asset is considered abandoned when it ceases to be used (that is, research and
development efforts associated with the asset have ceased, and there are no plans to sell or license the asset or derive defensive value from the asset). At
that point, the asset is considered to be disposed of and is written off. Upon successful completion of each project, the Company will make a determination
about the remaining useful life of the intangible asset and begin amortization. The Company tests its indefinite-lived intangibles, IPR&D assets, for
impairment annually and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. When
testing indefinite-lived intangibles for impairment, the Company may assess qualitative factors for its indefinite-lived intangibles to determine whether it is
more likely than not (that is, a likelihood of more than 50 percent) that the asset is impaired. Alternatively, the Company may bypass this qualitative
assessment for some or all of its indefinite-lived intangibles and perform the quantitative impairment test that compares the fair value of the indefinite-lived
intangible asset with the asset’s carrying amount.
Impairment of MIN-301 In-process Research and Development Asset
In 2021, the Company made the strategic decision to focus its limited resources on moving forward its lead drug candidate, roluperidone, and deferred the
development of MIN-301 until additional resources become available. As a result of the Company’s limited resources and development deferral combined
with the overall market conditions, it recognized a non-cash charge of $15.2 million as of December 31, 2021 related to the impairment of the intangible
asset for MIN-301. The Company had previously recognized in-process research and development for MIN-301 in conjunction with the acquisition of
MIN-301 during 2014. No updates were made in respect of the development of MIN-301 during 2022.
Stock-based compensation
The Company recognizes compensation cost relating to stock-based payment transactions using a fair-value measurement method, which requires all stock-
based payments to employees, including grants of employee stock options, to be recognized in operating results as compensation expense based on fair
value over the requisite service period of the awards. The Company determines the fair value of stock-based awards using the Black-Scholes option-pricing
model which uses both historical and current market data to estimate fair value. The method incorporates various assumptions such as the risk-free interest
rate, expected volatility, expected dividend yield, and expected life of the options. Forfeitures are recorded as they occur instead of estimating forfeitures
that are expected to occur. The fair value of restricted stock units (“RSUs”) is equal to the closing price of the Company’s common stock on the date of
grant. See Note 6 for information on the Company’s performance-based restricted stock units (“PRSU”) grants.
The date of expense recognition for grants to non-employees is the earlier of the date at which a commitment for performance by the counterparty to earn
the equity instrument is reached or the date at which the counterparty’s performance is complete. The Company determines the fair value of stock-based
awards granted to non-employees similar to the way fair value of awards are determined for employees except that certain assumptions used in the Black-
Scholes option-pricing model, such as expected life of the option, may be different.
Foreign currency transactions
The Company’s functional currency is the U.S. Dollar. The Company pays certain vendor invoices in the respective foreign currency. The Company
records an expense in U.S. Dollars at the time the liability is incurred. Changes in the applicable foreign currency rate between the date an expense is
recorded and the payment date is recorded as a foreign currency gain or loss.
Loss per share
Basic loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted loss
per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that shared in the earnings of the entity. The treasury stock method is used to determine the dilutive effect
of the Company’s stock options and warrants.
Income taxes
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are
measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Uncertain tax positions are
evaluated and if appropriate, the amount of unrecognized tax benefits are recorded within deferred tax assets. Deferred tax assets are evaluated for
realization based on a more-likely-than-not criterion in determining if a valuation allowance should be provided. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
F-10
The Company uses a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or
expected to be taken, in a tax return. The Company has elected to treat interest and penalties, to the extent they arise, as a component of income tax
expense. There was no interest or penalties related to income taxes for the years ended December 31, 2022 or 2021. Income tax years beginning in 2019 for
federal and state purposes are generally subject to examination by taxing authorities, although net operating losses from all prior years are subject to
examinations and adjustments for at least three years following the year in which the tax attributes are utilized.
Concentration of credit risk
Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash, cash equivalents and marketable securities.
The Company maintains its cash and cash equivalent balances in the form of business checking accounts and money market accounts, the balances of
which, at times, may exceed federally insured limits. Exposure to cash and cash equivalents credit risk is reduced by placing such deposits with major
financial institutions and monitoring their credit ratings. Marketable securities consist primarily of corporate bonds, with fixed interest rates. Exposure to
credit risk of marketable securities is reduced by maintaining a diverse portfolio and monitoring their credit ratings.
Equipment
Equipment is stated at cost less accumulated depreciation. Equipment is depreciated on the straight-line basis over their estimated useful lives of three
years. Expenditures for maintenance and repairs are charged to expense as incurred.
Software
The Company accounts for capitalized software in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 350, Intangibles—Goodwill and Other (“ASC 350-40”), which provides guidance for computer software developed or
obtained for internal use. The Company is required to continually evaluate the stage of the implementation process to determine whether costs are expensed
or capitalized. Costs incurred during the preliminary project phase or planning and research phase are expensed as incurred. Costs incurred during the
development phase, such as material and direct services costs, compensation costs of employees associated with the development and interest cost, are
capitalized as incurred. Costs incurred during the post-implementation or operation phase, such as training and maintenance costs, are expensed as incurred.
In addition, costs incurred to modify existing software that result in additional functionality are capitalized as incurred. Capitalized costs are amortized over
the expected useful life of the asset.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), Customer’s Accounting
for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This new guidance requires a customer in a cloud
computing arrangement (i.e., hosting arrangement) that is a service contract to follow the internal-use software guidance in ASC 350-40 to determine which
implementation costs to capitalize as assets or expense as incurred. Also, capitalized implementation costs related to a hosting arrangement that is a service
contract will be amortized over the term of the hosting arrangement, beginning when the module or component of the hosting arrangement is ready for its
intended use.
Leases
At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances
present in the arrangement. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and
long-term lease liabilities, as applicable. The Company has elected not to recognize on the balance sheet leases with terms of 12 months or less. The
Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s
assessment unless there is reasonable certainty that the Company will renew. The Company monitors its plans to renew its material leases on a quarterly
basis.
Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected
remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in the
Company’s leases is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at
which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term and in a similar
economic environment. In transition to FASB ASC Topic 842, Leases (“ASC 842”), the Company utilized the remaining lease term of its leases in
determining the appropriate incremental borrowing rates.
F-11
In accordance with ASC 842, components of a lease should be allocated between lease components (e.g., land, building, etc.) and non-lease components
(e.g., common area maintenance, consumables, etc.). The fixed and in-substance fixed contract consideration (including any consideration related to non-
components) must be allocated based on the respective relative fair values to the lease components and non-lease components.
Although separation of lease and non-lease components is required, certain expedients are available. Entities may elect the practical expedient to not
separate lease and non-lease components by class of underlying asset where entities would account for each lease component and the related non-lease
component together as a single component. For new and amended leases beginning in 2019 and after, the Company has elected to account for the lease and
non-lease components for leases, for classes of all underlying assets, and allocate all of the contract consideration to the lease component only.
Long-lived assets
The Company reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate
that the carrying amount of a long-lived asset might not be recoverable. If required, the Company compares the estimated undiscounted future net cash
flows to the related asset’s carrying value to determine whether there has been an impairment. If an asset is considered impaired, the asset is written down
to fair value, which is based either on discounted cash flows or appraised values in the period the impairment becomes known. The Company believes that
all long-lived assets are recoverable, and no impairment was deemed necessary at December 31, 2022 and 2021.
Goodwill
The Company tests its goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, by
comparing its reporting unit’s carrying value to its fair value. Impairment may result from, among other things, deterioration in the performance of the
acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If the Company
determines that an impairment has occurred, it is required to record a write-down of the carrying value and charge the impairment as an operating expense
in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill, the Company must make assumptions regarding
estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly
impact those judgments in the future and require an adjustment to the recorded balances. The Company has a single reporting unit, which is the level that
the goodwill impairment test is performed. There was no impairment of goodwill for the years ended December 31, 2022 and 2021. As of December 31,
2022, $14.9 million of goodwill was associated with a reporting unit with zero or negative carrying value. As the reporting unit had a positive fair value,
there was no impairment associated with this reporting unit.
Fair value of financial instruments
The Company provides disclosure of financial assets and financial liabilities that are carried at fair value based on the price that would be received upon
sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements may
be classified based on the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities using the following three levels:
Level 1 — Inputs are unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the
measurement date.
Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in
markets that are not active, inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that
are derived principally from or corroborated by observable market data by correlation or other means (market corroborated inputs).
Level 3 — Unobservable inputs that reflect the Company’s estimates of the assumptions that market participants would use in pricing the asset or liability.
The Company develops these inputs based on the best information available, including its own data.
F-12
The following tables present information about the Company’s cash equivalents and marketable securities as of December 31, 2022 and 2021, measured at
fair value on a recurring basis and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value:
Cash equivalents
Total fair value
Cash equivalents
Total fair value
December 31, 2022
Total
Level 1
Level 2
Level 3
34,557,146 $
34,557,146 $
34,557,146 $
34,557,146 $
— $
— $
December 31, 2021
Total
Level 1
Level 2
Level 3
54,003,831 $
54,003,831 $
54,003,831 $
54,003,831 $
— $
— $
—
—
—
—
$
$
$
$
Cash equivalents include short-term, highly-liquid instruments, consisting of money market accounts and short-term investments with maturities from the
date of purchase of 90 days or less. The majority of cash and cash equivalents are maintained with major financial institutions in North America. Deposits
with these financial institutions may exceed the amount of insurance provided on such deposits. These deposits may be redeemed upon demand which
reduces counterparty performance risk.
The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts payable, accrued expenses and liabilities related to the
sale of future royalties. The carrying amounts of cash and cash equivalents, restricted cash, accounts payable, and accrued expenses approximate fair value
because of their short-term nature.
Revenue recognition
The Company applies the revenue recognition guidance in accordance with ASC 606, Revenue from Contracts with Customers. Revenue is recognized
when persuasive evidence of an arrangement exists, delivery has occurred and title has passed, the price is fixed or determinable, and collectability is
reasonably assured. The Company is a development stage company and has had no revenues from product sales to date.
When the Company enters into an arrangement that meets the definition of a collaboration under ASC 808, Collaborative Arrangements, the Company
recognizes revenue as research and development is performed and its respective share of the expenses are incurred. The Company assesses whether the
arrangement contains multiple elements or deliverables, which may include (1) licenses to the Company's technology, (2) research and development
activities performed for the collaboration partner, and (3) participation on joint steering committees. Payments may include non-refundable, upfront
payments, milestone payments upon achieving significant development events, and royalties on future sales. Each required deliverable is evaluated to
determine whether it qualifies as a separate unit of accounting based on whether the deliverable has “stand-alone value” to the customer. The arrangement’s
consideration is then allocated to each separate unit of accounting based on the relative selling price of each deliverable. The estimated selling price of each
deliverable is determined using the following hierarchy of values: (i) vendor-specific objective evidence of fair value, (ii) third-party evidence of selling
price, and (iii) best estimate of selling price. The best estimate of selling price reflects the Company’s best estimate of what the selling price would be if the
deliverable was regularly sold by the Company on a stand-alone basis. The consideration allocated to each unit of accounting is then recognized as the
related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables. Supply or service transactions may
involve the charge of a nonrefundable initial fee with subsequent periodic payments for future products or services. The up-front fees, even if
nonrefundable, are recognized as revenue as the products and/or services are delivered and performed over the term of the arrangement.
Liability related to the sale of future royalties
The Company treats the sale of future royalties to Royalty Pharma as a debt financing, as the Company has significant continuing involvement in
facilitating the transfer of royalties to Royalty Pharma and Royalty Pharma has recourse against the Company relating to the payments due from Janssen.
As a result, the Company recorded the upfront payment of $60 million from this transaction as a liability related to the sale of future royalties, and up to an
additional $95 million in potential milestone payments will also be recorded as a liability related to the sale of future royalties and amortized as interest
expense over the estimated remaining life of the agreement. Under the terms of the agreement, all payments from Royalty Pharma to the Company,
including the initial upfront payment of $60 million as well as amortized interest expense and potential milestone payments, are not repayable to Royalty
Pharma in the event that Janssen discontinues the clinical development of seltorexant or ceases to pursue its commercialization at a future date for any
reason.
F-13
The liability related to sale of future royalties and the related interest expense is based on our current estimates of future royalties expected to be paid over
the life of the arrangement. The Company will periodically assess the expected royalty payments using a combination of internal projections and forecasts
from external sources. To the extent the Company’s future estimates of royalty payments are greater or less than previous estimates or the estimated timing
of such payments is materially different than its previous estimates, the Company will prospectively recognize related non-cash interest expense.
For further discussion of the sale of future royalties, please refer to Note 5, Sale of Future Royalties.
Segment information
Operating segments are defined as components of an enterprise (business activity from which it earns revenue and incurs expenses) about which discrete
financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing
performance. The Company’s chief decision maker, who is the Chief Executive Officer, reviews operating results to make decisions about allocating
resources and assessing performance for the entire Company. The Company views its operations and manages its business as one operating segment.
Comprehensive loss
The Company had no items of comprehensive loss other than its net loss for each period presented.
Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by the FASB and are adopted by the Company as of the specified effective date. The
Company believes that the impact of recently issued, but not yet adopted, accounting pronouncements will not have a material impact on the condensed
consolidated financial statements or do not apply to the Company.
NOTE 3 — ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following:
Research and development costs and other accrued expenses
Accrued bonus
Professional fees
Accrued expenses and other current liabilities
NOTE 4 — NET LOSS PER SHARE OF COMMON STOCK
Year Ended December 31,
2022
2021
$
$
279,434
14,832
113,643
407,909
$
$
902,803
—
62,936
965,739
Diluted loss per share is the same as basic loss per share for all periods presented as the effects of potentially dilutive items were anti-dilutive given the
Company’s net loss. Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding, plus
potential outstanding common stock for the period. Potential outstanding common stock includes stock options and shares underlying RSUs, but only to the
extent that their inclusion is dilutive. The following table sets forth the computation of basic and diluted loss per share for common stockholders:
Net loss
Weighted average shares of common stock outstanding
Net loss per share of common stock – basic and diluted
Year Ended December 31,
2022
$
$
(32,108,676 ) $
5,340,194
(6.01 ) $
2021
(49,905,952 )
5,340,196
(9.35 )
The following securities outstanding at December 31, 2022 and 2021 have been excluded from the calculation of weighted average shares outstanding as
their effect on the calculation of loss per share is antidilutive:
Common stock options
Performance-based restricted stock units
Common stock warrants
F-14
Year Ended December 31,
2022
2021
700,929
456,422
5,099
264,933
456,422
5,099
NOTE 5 — SALE OF FUTURE ROYALTIES
The Company had previously co-developed seltorexant with Janssen for the treatment of insomnia disorder and adjunctive treatment of MDD. During
2020, the Company exercised its right to opt out of the joint development agreement with Janssen for the future development of seltorexant and, as a result,
the Company was entitled to collect royalties in the mid-single digits on potential future sales of seltorexant worldwide in certain indications, with no
further financial obligations to Janssen.
On January 19, 2021, the Company entered into an agreement with Royalty Pharma under which Royalty Pharma acquired the Company’s royalty interest
in seltorexant for an upfront payment of $60 million and up to an additional $95 million in potential milestone payments. These milestone payments are
contingent upon the achievement of certain clinical, regulatory and commercial milestones for seltorexant by Janssen or any other party in the event that
Janssen sells seltorexant. Under the terms of the agreement, the Company has significant continuing involvement as Royalty Pharma has recourse against
the Company relating to the payments due from Janssen. As such, the Company applied the debt recognition guidance under ASC 470, Debt, and recorded
the upfront payment of $60 million as a liability related to the sale of future royalties (“Royalty Obligation”), which will be amortized under the interest
method over the estimated life of the agreement. Under the terms of the agreement, all payments from Royalty Pharma to the Company, including the
initial upfront payment of $60 million as well as amortized interest expense and potential milestone payments, are not repayable to Royalty Pharma in the
event that Janssen discontinues the clinical development of seltorexant or ceases to pursue its commercialization at a future date for any reason. In addition,
in accordance with ASC 470, Debt, the Company will account for any royalties received in the future as non-cash royalty revenue.
As royalties are remitted from Janssen to Royalty Pharma, the balance of the Royalty Obligation will be effectively repaid over the life of the co-
development and license agreement (the “Agreement”) with Janssen. In order to determine the amortization of the Royalty Obligation, the Company is
required to estimate the total amount of future royalty payments to Royalty Pharma over the life of the Agreement. In addition to the $60 million upfront
payment, up to an additional $95 million in potential milestone payments will also be recorded as a liability related to the sale of future royalties and
amortized as interest expense over the estimated remaining life of the agreement. At execution, the Company’s estimate of this total interest expense
resulted in an effective annual interest rate of approximately 10.5%. As of December 31, 2022, the Company estimated the effective annual interest rate to
be approximately 10.7%. This estimate contains significant assumptions, which are considered Level 3 fair value inputs, regarding the timing and amount
of expected royalty and milestone payments that impact the interest expense that will be recognized over the royalty period. The Company will periodically
assess the estimated royalty payments to Royalty Payments from Janssen and to the extent the amount or timing of such payments is materially different
than the original estimates, an adjustment will be recorded prospectively to increase or decrease interest expense. There are a number of factors that could
materially affect the amount and timing of royalty payments to Royalty Pharma from Janssen, and correspondingly, the amount of interest expense
recorded by the Company, most of which are not within the Company’s control. Such factors include, but are not limited to, delays or discontinuation of
development of seltorexant, regulatory approval, changing standards of care, the introduction of competing products, manufacturing or other delays,
generic competition, intellectual property matters, adverse events that result in governmental health authority imposed restrictions on the use of the drug
products, significant changes in foreign exchange rates as the royalties remitted to Royalty Pharma are made in U.S. dollars (“USD”) while the underlying
sales of seltorexant will be made in currencies other than USD, the ongoing COVID-19 pandemic, and other events or circumstances that are not currently
foreseen. Changes to any of these factors could result in increases or decreases to both royalty revenues and interest expense. Janssen is currently
conducting two Phase 3 studies with seltorexant, a third Phase 3 study was discontinued during 2022.
The following table shows the activity of the Royalty Obligation since the transaction inception through December 31, 2022:
Upfront payment from the sale of future royalties
Non-cash interest expense associated with the sale of future royalties
Liability related to the sale of future royalties
F-15
December 31, 2022
$
60,000,000
13,733,876
73,733,876
$
NOTE 6 — STOCKHOLDERS’ EQUITY
At-the-Market Equity Offering Program
In September 2022, the Company entered into an Open Market Sale Agreement (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) pursuant to which
the Company may offer and sell, from time to time, through Jefferies shares of the Company's common stock, by any method permitted by law deemed to
be an “at-the-market” offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. During the twelve months ended
December 31, 2022, no shares of the Company’s common stock were issued or sold under the Sales Agreement. As of December 31, 2022, an aggregate of
$22.6 million was eligible for sale pursuant to the Sales Agreement under the Company’s effective registration statement on Form S-3 (File No. 333-
267424).
The Company’s previous sales agreement with Jefferies entered into in August 2018 terminated pursuant to its terms in August 2021.
Term Loan Warrants
In connection with the Company’s former Loan and Security Agreement with Oxford Finance LLC and Silicon Valley Bank (the “Lenders”), which
provided for term loans to the Company in an aggregate principal amount of up to $15 million in two tranches on January 15, 2016, the Company issued
the Lenders warrants to purchase 5,099 shares of common stock at a per share exercise price of $44.13. The warrants were immediately exercisable upon
issuance, and other than in connection with certain mergers or acquisitions, will expire on the ten-year anniversary of the date of issuance. The fair value of
the warrants was estimated at $0.2 million using a Black-Scholes model and assuming: (i) expected volatility of 100.8%, (ii) risk free interest rate of
1.83%, (iii) an expected life of 10 years and (iv) no dividend payments. The fair value of the warrants was included as a discount to the term loans drawn at
such time and also as a component of additional paid-in capital and were amortized to interest expense over the term of the loan. Although the term loans
were repaid in August 2018, all related warrants were outstanding and exercisable as of December 31, 2022.
NOTE 7 — STOCK AWARD PLAN AND STOCK-BASED COMPENSATION
In December 2013, the Company adopted the 2013 Equity Incentive Plan (as subsequently amended and restated, the “Plan”), which provides for the
issuance of options, stock appreciation rights, stock awards and stock units.
Option Exchange Program
On June 11, 2021, the Company’s stockholders, upon recommendation of the board of directors of the Company, approved a one-time stock option
exchange program (the “Exchange Program”) for certain employee option holders (including its named executive officers) (the “Eligible Participants”) who
remained employed by the Company through the completion of the Exchange Program. The Exchange Program permitted Eligible Participants to surrender
stock options issued and outstanding under the Plan granted before July 1, 2020, with a per-share exercise price of $35.76 or greater (the “Eligible
Options”), in exchange for a grant of performance-based restricted stock units (“PRSUs”) that will settle in shares of the Company’s common stock upon
vesting. 50% of the new PRSUs will vest upon the FDA acceptance of a new drug application for roluperidone, provided that such acceptance is not “over
protest” and occurs within three years after the grant date. The remaining new PRSUs will vest upon roluperidone receiving FDA marketing approval
provided that such approval occurs within five years after the grant date.
On July 6, 2021, the Company filed with the SEC a Tender Offer Statement on Schedule TO disclosing the terms and conditions of the Exchange Program.
The Exchange Program closed on August 3, 2021. On August 6, 2021, options to purchase 953,980 shares of the Company’s common stock were
exchanged for 476,640 PRSUs. Options surrendered in the Exchange Program were cancelled and shares subject to the cancelled options again became
available for issuance under the Plan.
The non-cash incremental stock-based compensation cost associated with the Exchange Program was $0.5 million. This incremental cost was measured as
the excess of the fair value of each new PRSU, measured as of the date the new PRSUs were granted, over the fair value of the stock options surrendered in
exchange for the new PRSU, measured immediately prior to the cancellation. This incremental compensation cost will be recognized when it is deemed
probable that the two vesting conditions of the PRSUs will be achieved.
F-16
Stock Option Awards
Stock option activity for employees and non-employees for the year ended December 31, 2022 is as follows:
Shares
Issuable
Pursuant to
Stock Options
Weighted-
Average
Exercise Price
Weighted-
Average
Remaining
Contractual
Terms (years)
Outstanding January 1, 2022
264,929 $
34.10
7.9 $
Total Intrinsic
Value
(in thousands)
—
Granted
Exercised
Cancelled/Forfeited
Outstanding December 31, 2022
Exercisable December 31, 2022
Available for future grant
436,000 $
— $
— $
700,929 $
242,319 $
118,666
4.50
—
—
15.69
35.68
8.6 $
6.8 $
—
—
The weighted average grant-date fair value of stock options outstanding on December 31, 2022 was $10.75 per share. Total unrecognized compensation
costs related to non-vested stock options at December 31, 2022 were approximately $1.6 million and are expected to be recognized within future operating
results over a weighted-average period of 2.8 years. The total intrinsic value of the options exercised during both the years ended December 31, 2022 and
2021 was zero.
The expected term of the employee-related options was estimated using the “simplified” method as defined by the SEC’s Staff Accounting Bulletin No.
107, Share-Based Payment. The volatility assumption was determined by examining the historical volatilities for industry peer companies, as the Company
did not have sufficient trading history for its common stock. The risk-free interest rate assumption is based on the U.S. Treasury instruments, the term of
which was consistent with the expected term of the options. The dividend assumption is based on the Company’s history and expectation of dividend
payouts. The Company has never paid dividends on its common stock and does not anticipate paying dividends on its common stock in the foreseeable
future. Accordingly, the Company has assumed no dividend yield for purposes of estimating the fair value of the options.
The Company uses the Black-Scholes model to estimate the fair value of stock options granted. For stock options granted during the years ended December
31, 2022 and 2021, the Company utilized the following assumptions:
Expected term (years)
Risk free interest rate
Volatility
Dividend yield
Weighted average grant date fair value per share of common stock
Performance-Based Restricted Stock Units
Year Ended December 31,
2022
5.5-6.25
2021
5.5-6.25
1.96%-3.62%
75%-97%
0.86%-1.14%
75%-97%
0%
0%
$
3.48 $
11.28
On August 6, 2021, the Company granted 476,640 PRSUs through the Exchange Program. The Exchange Program was treated as a Type II modification
(Probable-to improbable) under ASC 718. The total PRSUs outstanding at December 31, 2022 was 456,422. The Company will recognize the unrecognized
grant-date fair value of the pre-modification stock options as well as any incremental non-cash compensation cost of the PRSUs granted in the Exchange
Program, if the vesting conditions of the PRSUs are achieved or if they become probable. The Company is using the pre-modification stock options for
determining the compensation cost related to the PRSUs as the vesting conditions remain uncertain for the new PRSUs. The total unrecognized
compensation costs related to non-vested stock options at December 31, 2022 were approximately $1.0 million and are expected to be recognized within
future operating results over a weighted-average period of 1.0 year. As of December 31, 2022, no PRSUs have vested and 20,218 have been cancelled.
The following table presents stock-based compensation expense included in the Company’s consolidated statements of operations:
Research and development
General and administrative
Total
Year Ended December 31,
2022
2,007,681 $
2,101,138
4,108,819 $
2021
2,414,040
2,804,954
5,218,994
$
$
F-17
NOTE 8 — INCOME TAXES
The provision for federal, foreign and state income taxes for the years ended December 31, 2022 and 2021 are as follows:
Current income tax provision (benefit)
Federal
Foreign
State
Deferred income tax provision (benefit)
Federal
Foreign
State
Total income tax provision (benefit)
Net deferred tax assets (liabilities) as of December 31, 2022 and 2021 consist of the following:
Deferred tax assets:
Net operating loss carryforwards
Research and development tax credits
Capitalized research and development costs
Stock-based compensation
Deferred start-up and license costs
Sale of royalties
Other
Total deferred tax assets
Deferred tax asset valuation allowance
Net deferred tax assets
Deferred tax liabilities:
In-process research and development
Depreciation
Total deferred tax liabilities
Total
$
$
$
Year Ended December 31,
2022
2021
— $
—
—
—
—
—
—
—
—
—
(638,400 )
—
(1,164,956 )
$
(1,803,356 )
Year Ended December 31,
2022
2021
26,695,408 $
145,115
29,527,069
10,038,836
3,559,272
20,144,095
—
90,109,795
(90,108,904 )
891
19,129,605
145,115
30,884,326
8,947,268
4,122,178
18,120,624
1,372
81,350,488
(81,350,488 )
—
—
(891 )
(891 )
$
— $
—
—
—
—
A reconciliation between the Company’s effective tax rate and the federal statutory rate for the years ended December 31, 2022 and 2021 are as follows:
Federal statutory rate
Permanent differences
State income taxes, net of federal benefit
Valuation allowance
Effective tax rate
Year Ended December 31,
2022
2021
21.00 %
(0.08 %)
0.00 %
(20.92 %)
0.00 %
21.00 %
(0.30 %)
0.00 %
(17.22 %)
3.49 %
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment. Based upon the level of historical losses and the uncertainty of future taxable income over
the periods which the Company will realize the benefits of its net deferred tax assets, management believes it is more likely than not that the Company will
not realize the benefits on the balance of its net deferred tax asset and, accordingly, the Company has established a full valuation allowance on its net
deferred tax assets. The valuation allowance increased by approximately $8.8 million and $10.3 million during the years ended December 31, 2022 and
2021, respectively.
F-18
As of December 31, 2022, the Company had approximately $98.0 million of federal net operating losses that will begin to expire in 2030. Of the total
federal net operating loss, approximately $76.6 million has an unlimited carryforward and therefore will not expire. As of December 31, 2022, the
Company had approximately $7.7 million of New Jersey and approximately $86.7 million of Massachusetts operating losses that will begin to expire in
2029 and 2037, respectively. As of December 31, 2022, the Company had approximately $0.1 million of federal research and development credits that will
begin to expire in 2027.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is
subject to examination by federal and state jurisdictions, where applicable. There are currently no pending income tax examinations. The Company’s tax
years are still open under statute from 2018 to present.
As of December 31, 2022 and 2021, the Company had no liability recorded for unrecognized tax benefit. The Company classifies penalties and interest
expense related to income tax liabilities as an income tax expense. There were no interest and penalties recognized in the statements of operations for the
years ended December 31, 2022 and 2021, or accrued on the balance sheets as of December 31, 2022 and 2021.
NOTE 9 — COMMITMENTS AND CONTINGENCIES
Legal Proceedings
From time to time, the Company may be subject to various legal proceedings and claims that arise in the ordinary course of the Company’s business
activities. The Company is not aware of any claim or litigation, the outcome of which, if determined adversely to the Company, would have a material
effect on the Company’s financial position or results of operations.
Leases
Please refer to Note 10, for the Company’s current lease commitments.
NOTE 10 — LEASES
Operating leases
On May 5, 2021, the Company entered into an office lease agreement with BP Reservoir Place to lease approximately 5,923 rentable square feet of office
space located at 1601 Trapelo Road, Waltham, MA 02451. The term of the lease agreement began on August 1, 2021 and expired on July 31, 2022, with an
annual rate of $239,881.50 payable in equal monthly installments. The Company has elected to not recognize the lease agreement on the balance sheet as
the term of the agreement is 12 months or less. The total operating lease costs during the twelve months ended December 31, 2022 were $139,931.
On October 11, 2022, the Company entered into an office lease agreement with Regus to lease approximately 491 rentable square feet of office space
located at 1500 District Avenue, Burlington, MA 01803. The lease is on a month-to-month basis commencing on February 1, 2023, with a monthly
payment of $8,290. The term of the previous lease for this space began on July 15, 2022 and expired on January 31, 2023, with a monthly rate of $7,533.
The Company has elected to not recognize the lease agreement on the balance sheet as the term of the agreement is 12 months or less. The total operating
lease costs during the twelve months ended December 31, 2022 were $41,796.
Future minimum lease payments under the Company’s non-cancelable operating lease as of December 31, 2022 were as follows:
Future Operating Lease Payments
2023
Thereafter
Total operating lease liabilities at December 31, 2022
F-19
Year Ended
December 31, 2022
$
$
7,533
—
7,533
NOTE 11 — RELATED PARTY TRANSACTIONS
None.
NOTE 12 — SUBSEQUENT EVENTS
None.
F-20
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
We maintain “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange
Act”), that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure.
Our management, with the participation of our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial
officer), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2022. Based on the evaluation of our disclosure controls
and procedures as of December 31, 2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls
and procedures were effective at a reasonable assurance level.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Exchange Act
Rule 13a-15(f). Internal control over financial reporting is a process designed under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
As of December 31, 2022, our management assessed the effectiveness of our internal control over financial reporting using the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework). Based on this
assessment, our management concluded that, as of December 31, 2022, our internal control over financial reporting was effective based on those criteria.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide
only reasonable assurance with respect to financial statement preparation and presentation.
This annual report does not include an attestation report of our registered public accounting firm due to the Securities and Exchange Commission adopted
amendments to the accelerated filer and large accelerated filer definitions on March 12, 2020. Following the adoption of the amendments, smaller reporting
companies with less than $100 million in revenues will continue to be required to establish and maintain effective internal control over financial reporting
(“ICFR”) but, will no longer be required to obtain a separate attestation of their ICFR from an outside auditor.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during the fourth quarter that would have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
ITEM 9B. Other Information
On March 6, 2023, our Board of Directors, upon recommendation by the Compensation Committee thereof, adopted certain changes to the employment
arrangement with Remy Luthringer, our Chief Executive Officer, to be effective immediately, pursuant to a Second Amendment (the “Employment
Agreement Amendment”) to that certain Employment Agreement by and between Mind-NRG SARL, a wholly-owned subsidiary of the Company, and Dr.
Luthringer, dated as of August 1, 2016 and as amended December 13, 2022. The Employment Agreement Amendment provides that, upon termination of
Dr. Luthringer’s employment under certain circumstances, Dr. Luthringer shall be entitled to, among other things, a pro-rata portion of his annual bonus,
assuming an annual bonus equal to 55% of Dr. Luthringer’s base salary, subject to terms and conditions thereof. The foregoing description of the
Employment Agreement Amendment is qualified in its entirety by reference to the full text of the Employment Agreement Amendment, which is filed as
an Exhibit to this Annual Report on Form 10-K and is incorporated by reference herein.
81
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
82
ITEM 10. Directors, Executive Officers and Corporate Governance
Part III
The information required by this Item 10 will be contained in the sections entitled “Election of Directors,” “Corporate Governance” and “Section 16(a)
Beneficial Ownership Reporting Compliance” appearing in the definitive proxy statement we will file in connection with our 2023 Annual Meeting of
Stockholders and is incorporated by reference herein. The information required by this item relating to executive officers may be found in Part I, Item 1 of
this report under the heading “Business—Executive Officers” and is incorporated herein by reference.
ITEM 11. Executive Compensation
The information required by this Item 11 will be contained in the sections entitled “Executive and Director Compensation,” “Executive and Director
Compensation—Compensation Committee Interlocks and Insider Participation” and “Executive and Director Compensation—Compensation Committee
Report” appearing in the definitive proxy statement we will file in connection with our 2023 Annual Meeting of Stockholders and is incorporated by
reference herein.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item 12 will be contained in the sections entitled “Ownership of Our Common Stock” and “Executive and Director
Compensation—Equity Compensation Plan Information” appearing in the definitive proxy statement we will file in connection with our 2023 Annual
Meeting of Stockholders and is incorporated by reference herein.
ITEM 13. Certain Relationships and Related Person Transactions, and Director Independence
The information required by this Item 13 will be contained in the sections entitled “Certain Relationships and Related Person Transactions” appearing in
the definitive proxy statement we will file in connection with our 2023 Annual Meeting of Stockholders and is incorporated by reference herein.
ITEM 14. Principal Accounting Fees and Services
The information required by this Item 14 will be contained in the section entitled “Corporate Governance—Principal Accountant Fees and Services”
appearing in the definitive proxy statement we will file in connection with our 2023 Annual Meeting of Stockholders and is incorporated by reference
herein.
83
Part IV
ITEM 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of Form 10-K.
(1) Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Stockholders’ (Deficit) Equity for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
Notes to Consolidated Financial Statements
(2) Schedules
Schedules have been omitted as all required information has been disclosed in the financial statements and related footnotes.
(3) Exhibits
84
The following exhibits are filed as part of this Annual Report on Form 10-K or are incorporated herein by reference.
Exhibit
No.
3.1
3.2
3.3
4.1
4.2
10.1
Description of Exhibit
Form
File No.
Exhibit
Filing Date
Filed
Herewith
Amended and Restated Certificate of Incorporation of the
Registrant
Certificate of Amendment to Amended and Restated
Certificate of Incorporation of the Registrant
S-1/A 333-195169
3.1
June 10, 2014
8-K
001-36517
3.1
June 17, 2022
Amended and Restated Bylaws of the Registrant
10-Q
001-36517
Form of Common Stock Certificate
S-1/A 333-195169
3.2
4.1
November 4, 2019
June 10, 2014
X
Description of Securities Registered Pursuant to Section 12
of the Securities Exchange Act of 1934
Share Purchase Agreement between the Registrant, Mind-
NRG SA and Various Shareholders dated as of February
11, 2014
S-1
333-195169
10.13
April 9, 2014
10.2†
Form of Indemnification Agreement between the Registrant
S-1/A 333-195169
10.1
June 10, 2014
10.3*
10.4*
and each of its directors and executive officers
License Agreement between Mitsubishi Pharma
Corporation and the Registrant f/k/a Cyrenaic
Pharmaceuticals, Inc., dated as of August 30, 2007
Amendment to License Agreement between Mitsubishi
Tanabe Pharma Corporation and the Registrant f/k/a
Cyrenaic Pharmaceuticals, Inc., dated as of June 16, 2011
S-1/A 333-195169
10.2
June 10, 2014
S-1/A 333-195169
10.3
June 10, 2014
10.5*
Second Amendment to License Agreement between
S-1/A 333-195169
10.4
June 10, 2014
Mitsubishi Tanabe Pharma Corporation and the Registrant,
dated as of January 20, 2014
10.6*
License Agreement between Mitsubishi Tanabe Pharma
Corporation and the Registrant as successor in interest to
Sonkei Pharmaceuticals, Inc., dated as of September 1,
2008
S-1/A 333-195169
10.5
June 10, 2014
10.7*
Amendment to License Agreement between Mitsubishi
S-1/A 333-195169
10.6
June 10, 2014
Tanabe Pharma Corporation and the Registrant, dated as of
January 20, 2014
10.8*
Co-Development and License Agreement between Janssen
S-1/A 333-195169
10.7
June 10, 2014
Pharmaceutica, N.V. and the Registrant, dated as of
February 13, 2014
10.9
Form of Securities Purchase Agreement between certain
8-K
001-36517
10.1
March 18, 2015
investors referenced therein and the Registrant, dated as of
March 13, 2015
10.10
Form of Registration Rights Agreement between certain
8-K
001-36517
10.3
March 18, 2015
investors referenced therein and the Registrant, dated as of
March 13, 2015
10.11
Second Amendment to License Agreement between
10-Q
001-36517
10.5
May 7, 2015
Mitsubishi Tanabe Pharma Corporation and the Registrant,
dated as of April 21, 2015
10.12†
10.13
Amended and Restated Non-Employee Director
10-Q
001-36517
10.2
August 2, 2018
Compensation Plan
Common Stock Purchase Agreement, dated March 17,
2016, by and between David Kupfer and the Registrant
8-K
001-36517
10.1
March 18, 2016
85
Exhibit
No.
10.14†
10.15†
10.16†
10.17†
Description of Exhibit
Employment Agreement, dated as of August 1, 2016, by
and between Mind-NRG SARL and Dr. Remy Luthringer
Form
10-Q
File No.
Exhibit
Filing Date
Filed
Herewith
001-36517
10.1
August 4, 2016
Employment Agreement, dated as of August 1, 2016, by
10-Q
001-36517
10.2
August 4, 2016
and between Mind-NRG SARL and Geoffrey Race
Employment Agreement, dated as of August 1, 2016, by
10-Q
001-36517
10.3
August 4, 2016
and between the Registrant and Frederick Ahlholm
Employment Agreement, dated as of August 1, 2016, by
10-Q
001-36517
10.5
August 4, 2016
and between the Registrant and Joseph Reilly
10.18†
Form of Restricted Stock Unit Agreement under the
8-K
001-36517
10.1
December 16, 2016
Amended and Restated 2013 Equity Incentive Plan of the
Registrant
10.19†
Form of Option Grant Agreement under the Amended and
10-K
001-36517
10.36
March 13, 2017
Restated 2013 Equity Incentive Plan
Amendment No. 1 to Co-Development and License
Agreement dated June 13, 2017, by and between the
Registrant and Janssen Pharmaceutica NV
8-K
001-36517
10.1
June 14, 2017
Commercial Supply Agreement by and between the
10-Q
001-36517
10.1
November 4, 2019
10.20
10.21*
10.22
10.23
Registrant and Catalent Germany Schorndorf GmbH, dated
September 18, 2019
Open Market Sale Agreement, dated as of September 14,
2022, by and between the Registrant and Jefferies LLC
Settlement Agreement, dated as of June 24, 2020, by and
between the Registrant and Janssen Pharmaceutica, N.V.
10.24†
Amended and Restated 2013 Equity Incentive Plan
10.25*
Royalty Purchase Agreement, dated as of January 15, 2021,
by and between the Registrant and RPI 2019 Intermediate
Finance Trust (redacted)
S-3
333-267424
1.2
September 14, 2022
10-Q
001-36517
10.2
August 3, 2020
10-Q
10-K
001-36517
10.3
August 3, 2020
001-36517
10.48
March 8, 2021
10.26*
Remy Luthringer Supplemental Retention Benefits Letter
10-Q
001-36517
10.1
May 12, 2021
Agreement (redacted)
10.27
10.28
10.29
First Amendment to the Employment Agreement of Geoff
Race by and between Mind-NRG SARL and Geoff Race,
effective October 11, 2021
Amended and Restated Employment Agreement by and
between Minerva Neurosciences, Inc. and Frederick
Ahlholm, effective October 11, 2021
First Amendment to the Employment Agreement of Remy
Luthringer by and between Mind-NRG SARL and Remy
Luthringer, effective December 13, 2022
10.30
Second Amendment to the Employment Agreement of
Remy Luthringer by and between Mind-NRG SARL and
Remy Luthringer, effective March 6, 2023
8-K
001-36517
10.1
October 12, 2021
8-K
001-36517
10.2
October 12, 2021
8-K
001-36517
10.1
December 13, 2022
X
21.1
List of Subsidiaries
10-K
001-36517
21.1
March 1, 2022
86
Exhibit
No.
Description of Exhibit
Form
File No.
Exhibit
Filing Date
Filed
Herewith
23.1
Consent of Deloitte & Touche, LLP, independent registered
public accounting firm
24.1
Power of Attorney (included on the Signature page of this
Annual Report on Form 10-K)
31.1
31.2
32.1**
Certification of Chief Executive Officer (Principal
Executive Officer) pursuant to Section 302 of Sarbanes-
Oxley Act of 2002
Certification of Chief Financial Officer (Principal Financial
Officer) pursuant to Section 302 of Sarbanes-Oxley Act of
2002
Certification of Chief Executive Officer (Principal
Executive Officer) and Chief Financial Officer (Principal
Financial Officer) pursuant to Section 906 of Sarbanes-
Oxley Act of 2002
101.INS
Inline XBRL Instance 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)
† Indicates management contract or compensatory plan or arrangement.
X
X
X
X
X
X
X
X
X
X
X
X
* Confidential treatment has been granted by the Securities and Exchange Commission as to certain portions of this document.
** These certifications are being furnished solely to accompany this annual report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes
of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of the registrant, whether made before or
after the date hereof, regardless of any general incorporation language in such filing.
The agreements and other documents filed as exhibits to this Annual Report on Form 10-K are not intended to provide factual information or other
disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In
particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the
relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
ITEM 16. Form 10-K Summary
Not applicable.
87
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
MINERVA NEUROSCIENCES, INC.
By:
/s/ Remy Luthringer, Ph.D.
Remy Luthringer, Ph.D.
Executive Chairman and
Chief Executive Officer
(Principal Executive Officer)
Date: March 8, 2023
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Remy Luthringer, Ph.D. and
Frederick Ahlholm, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection
therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or
either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
Signature
/s/ Remy Luthringer, Ph.D.
Remy Luthringer, Ph.D.
/s/ Frederick Ahlholm
Frederick Ahlholm
/s/ Geoffrey Race
Geoffrey Race
/s/ William F. Doyle
William F. Doyle
/s/ Hans Peter Hasler
Hans Peter Hasler
/s/ Jeryl Hilleman
Jeryl Hilleman
/s/ David Kupfer, MD
David Kupfer, MD
/s/ Fouzia Laghrissi-Thode, MD
Fouzia Laghrissi-Thode, MD
/s/ Jan van Heek
Jan van Heek
Title
Executive Chairman and
Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
President
Date
March 8, 2023
March 8, 2023
March 8, 2023
Member of the Board of Directors
March 8, 2023
Member of the Board of Directors
March 8, 2023
Member of the Board of Directors
March 8, 2023
Member of the Board of Directors
March 8, 2023
Member of the Board of Directors
March 8, 2023
Member of the Board of Directors
March 8, 2023
88
DESCRIPTION OF THE REGISTRANT'S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.2
Minerva Neurosciences, Inc. (the “Company”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”): our common stock.
The following description of our common stock is a summary, does not purport to be complete and is subject to, and is qualified in its entirety by
reference to, the applicable provisions of Delaware law and our amended and restated certificate of incorporation and our amended and restated bylaws,
copies of which are incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.2 is a part. We encourage you to
read our certificate of incorporation, our bylaws and the applicable provisions of Delaware law for additional information.
Authorized Capital Stock
Our authorized capital stock consists of 125,000,000 shares of common stock, $0.0001 par value per share, and 100,000,000 shares of preferred stock,
$0.0001 par value per share.
Common stock
Voting rights. Each holder of our common stock is entitled to one vote for each share of common stock on all matters submitted to a vote of the
stockholders, including the election of directors. The holders of our common stock do not have cumulative voting rights. Because of this, the holders of a
majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so
choose.
Dividend rights. Subject to preferences that may be applicable to any then outstanding preferred stock, holders of our common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by our board of directors out of legally available funds.
Liquidation. In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in the net assets
legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference
granted to the holders of any then outstanding shares of preferred stock.
Rights and Preferences. Holders of our common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or
sinking fund provisions applicable to our common stock. The outstanding shares of our common stock are fully paid and nonassessable.
Preferred stock
Under our amended and restated certificate of incorporation, our board of directors has the authority, without further action by our stockholders, to
issue up to 100,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights,
preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms
and the number of shares constituting any series or the designation of such series, any or all of which may be greater than the rights of common stock. The
issuance of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive
dividend payments and payments upon liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a
change of control of our company or other corporate action.
Anti-takeover Provisions
Certificate of Incorporation and Bylaws. Our amended and restated certificate of incorporation provides for our board of directors to be divided into
three classes, with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes
continuing for the remainder of their
1
respective three-year terms. Because our stockholders do not have cumulative voting rights, our stockholders holding a majority of the shares of common
stock outstanding will be able to elect all of our directors. Our amended and restated certificate of incorporation and amended and restated bylaws provide
that all stockholder action must be effected at a duly called meeting of stockholders and not by a consent in writing, and that only our board of directors or
chairman of the board may call a special meeting of stockholders.
Our amended and restated certificate of incorporation requires a 66⅔% stockholder vote for the amendment, repeal or modification of certain
provisions of our amended and restated certificate of incorporation and amended and restated bylaws relating to the classification of our board of directors,
the requirement that stockholder actions be effected at a duly called meeting, and the designated parties entitled to call a special meeting of the
stockholders. The combination of the classification of our board of directors, the lack of cumulative voting and the 66⅔% stockholder voting requirements
will make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of us by replacing our
board of directors. Since our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for
existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for
our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of
our company.
These provisions may have the effect of deterring hostile takeovers or delaying changes in control of our company or management. These provisions
are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage certain types of
transactions that may involve an actual or threatened acquisition of us. These provisions are designed to reduce our vulnerability to an unsolicited
acquisition proposal. The provisions also are intended to discourage certain tactics that may be used in proxy fights. However, such provisions could have
the effect of discouraging others from making tender offers for our shares and, as a consequence, they also may inhibit fluctuations in the market price of
our shares that could result from actual or rumored takeover attempts. Such provisions may also have the effect of preventing changes in our management.
Forum. Our amended and restated bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of
the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of
breach of a fiduciary duty owed by any current or former director, officer or other employee or stockholder of the Company to us or our stockholders, any
action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, our amended and restated certificate of incorporation
or our amended and restated bylaws or as to which the Delaware General Corporation Law confers jurisdiction on the Court of Chancery of the State of
Delaware, or any action asserting a claim governed by the internal affairs doctrine. Our amended and restated certificate of incorporation and our amended
and restated bylaws further provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have
notice of and consented to the foregoing provision. Although our amended and restated certificate of incorporation and our amended and restated bylaws
include these provisions, it is possible that a court could rule that such provisions are inapplicable or unenforceable.
Delaware Anti-takeover Law
The Company is subject to Section 203 of the Delaware General Corporation Law (“Section 203”), an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years
following the date such person became an interested stockholder, unless the business combination or the transaction in which such person became an
interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an “interested stockholder” is a person that, together with affiliates and associates,
owns, or within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. The existence
of this provision may have an anti-takeover effect with respect to transactions not approved in advance by the Board, including discouraging attempts that
might result in a premium over the market price for the shares of common stock.
Listing on the Nasdaq Capital Market
Our common stock is listed on the Nasdaq Capital Market under the symbol “NERV”.
2
SECOND AMENDMENT TO THE
EMPLOYMENT AGREEMENT OF REMY LUTHRINGER
Exhibit 10.30
This SECOND AMENDMENT TO THE EMPLOYMENT AGREEMENT OF REMY LUTHRINGER (the “Amendment”) is entered into this
6th day of March 2023 (the “Effective Date”), by and between REMY LUTHRINGER (the “Employee”) and Mind-NRG SARL (the
“Company”).
RECITALS
A. The Company and the Employee have entered into that certain Employment Agreement effective May 1, 2014 (as
amended and restated on August 1, 2016, the “Employment Agreement”);
B. The Company and the Employee amended the Employment Agreement pursuant to that certain First Amendment to
the Employment Agreement effective December 13, 2022 (the “First Amendment”);
C. The Company and the Employee wish to amend the Employment Agreement and the First Amendment as set forth in
this Amendment; and
D. In light of the desire of the Company to continue the employment of Employee, and the desire of both the Company
and the Employee to amend the Employment Agreement and the First Amendment as provided in this Amendment, the parties
agree to the following:
AGREEMENT
Amendment to Section 4(b). Section 4(b) of the Employment Agreement is hereby amended and replaced in its entirety
1.
as follows:
“Annual Bonus
The Employee shall be entitled to a discretionary bonus payment for each calendar year that ends during
the Employment, with a target annual bonus amount at 55% of the Base Salary paid in such calendar year (the “Annual Bonus”).
Whether to grant an Annual Bonus, and in what amount, are determinations to be made in the discretion of the Company based
on a variety of factors including, but not limited to, achievement of objectives established by the Board (and/or the Compensation
Committee thereof (the “Compensation Committee”)) and specific annual objectives for your position set by the Board and/or
the Compensation Committee. Since one of the objectives of the Annual Bonus is employee retention, in order to remain eligible
and receive any Annual Bonus, you must be employed through the end of the calendar year and still be employed by the
Company at the time it makes bonus payments to employees for that year -- generally during the first quarter of the following
year.”
Amendment to Section 9(c). Section 9(c) of the Employment Agreement is hereby amended and replaced in its entirety
2.
as follows:
“Death. The Employment will terminate without notice being required upon Employee’s death. Employee’s
beneficiaries and/or estate will be entitled to (i) any earned but unpaid Base Salary through the date of Employee’s death, to be
paid less applicable taxes and withholdings within 10 days of Employee’s termination of employment, (ii) one (1) additional
month of Base Salary or, where the Employee had completed more than five (5) years of service, two (2) additional months of
Base Salary, (iii) compensation at the rate of Employee’s Base Salary for any vacation time earned but not used as of the date the
Employment terminates, (iv) reimbursement for any business expenses incurred by Employee but not yet paid to Employee as of
the date Employee’s employment terminates, provided all expenses and supporting documentation required are submitted within
sixty (60) days of the date the Employment terminates, and provided further that such expenses are reimbursable under Company
policy, (v) payment of a pro-rata portion of Employee’s Annual Bonus (assuming for purposes of this payment that Employee’s
Annual Bonus would be equal to 55% of Employee’s Base Salary), and (vi) any amounts accrued and payable under the terms of
any of the Company’s benefit plans (items (i), (iii), (iv) and (vi), referred to, together with any other obligations under Swiss
statutory law, as the “Accrued Obligations”).”
Amendment to Section 9(f). Section 9(f) of the Employment Agreement is hereby amended and replaced in its entirety
3.
as follows:
“Termination by the Company without Cause. In case of termination by the Company without Cause and not by
reason of Employee’s Disability, then, in addition to the payment of Employee’s Base Salary during the Notice Period and
Accrued Obligations as at the termination date, and in lieu of any other severance benefits otherwise payable under any Company
policy or plan in effect, Employee will be entitled to (i) continued payment of Employee’s Base Salary for twelve (12) months
after the termination date (the “Salary Severance Period”), (ii) payment of a pro-rata portion of Employee’s Annual Bonus
(assuming for purposes of this payment that Employee’s Annual Bonus is equal to 55% of Employee’s Base Salary), and (iii)
immediate vesting of any unvested options, restricted stock, restricted stock units, or other equity awards that are outstanding
immediately prior to the date of termination and, but for the termination of the Employment, would have vested during the six (6)
month period immediately following the date of termination (collectively, the “Severance Benefits”).”
The Company and the Employee further agree that this Amendment does not constitute a termination pursuant Section 9 of
4.
the Employment Agreement or the First Amendment, or otherwise constitute any trigger for the Company’s payment of any
severance benefits pursuant to Section 9 of the Employment Agreement or the First Amendment.
The Employee will continue to abide by Company rules and policies. Employee acknowledges and agrees to continue to
5.
comply with the covenants in the Employment Agreement, including but not limited to the provision of Sections 12 (Intellectual
Property Rights), 13 (Data Protection and Privacy), 14 (Confidentiality), and 15 (Non-Competition and Non-Solicitation).
The Employee will continue to be eligible for the retention program benefits described in the letter to Employee dated
6.
October 13, 2020, as amended and supplemented by the supplemental retention program benefits described in the letter to
Employee dated April 27, 2021, to the extent applicable.
7.
Except as modified or amended in this Amendment, no other term or provision of the Employment Agreement or the First
Amendment is amended or modified in any respect. The Employment Agreement, along with the First Amendment and this
Amendment, sets forth the entire understanding between the parties with regard to the subject matter hereof and supersedes any
prior oral discussions or written communications and agreements. This Amendment cannot be modified or amended except in
writing signed by the Employee and an authorized officer of the Company.
[Signature page follows]
The parties have executed this SECOND AMENDMENT TO THE EMPLOYMENT AGREEMENT OF REMY LUTHRINGER on the day and year first
written above.
Mind-NRG SARL
/s/ Geoffrey R. Race
Name: Geoffrey R. Race
Title: Director
EMPLOYEE
/s/ Remy Luthringer
Remy Luthringer
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement No. 333-267424 on Form S-3 and Nos. 333-242460, 333-225672, 333-223593, 333-
222368, 333-216637, 333-210147, 333-203738, and 333-198753 on Form S-8 of our report dated March 8, 2023, relating to the consolidated financial
statements of Minerva Neurosciences, Inc. appearing in this Annual Report on Form 10-K for the year ended December 31, 2022.
Exhibit 23.1
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 8, 2023
Exhibit 31.1
I, Remy Luthringer, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Minerva Neurosciences, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) 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)
(b)
(c)
(d)
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;
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;
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
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(s) 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)
(b)
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
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 8, 2023
/s/ Remy Luthringer, Ph.D.
Remy Luthringer, Ph.D.
Executive Chairman and
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Frederick Ahlholm, certify that:
CERTIFICATIONS
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Minerva Neurosciences, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) 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)
(b)
(c)
(d)
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;
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;
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
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(s) 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)
(b)
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
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 8, 2023
/s/ Frederick Ahlholm
Frederick Ahlholm
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002
Pursuant to the requirement set forth in Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Section 1350 of
Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350), Remy Luthringer, Chief Executive Officer of Minerva Neurosciences, Inc. (the
“Company”), and Frederick Ahlholm, Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:
1.
2.
The Company’s Annual Report on Form 10-K for the period ended December 31, 2022, to which this Certification is attached as Exhibit 32.1 (the
“Annual Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Exchange Act, and
The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
Exhibit 32.1
Date: March 8, 2023
/s/ Remy Luthringer, Ph.D.
Remy Luthringer, Ph.D.
Executive Chairman and
Chief Executive Officer
/s/ Frederick Ahlholm
Frederick Ahlholm
Chief Financial Officer
This certification accompanies the Form 10-K to which it relates, is not deemed filed with the Securities and Exchange Commission and is not to be
incorporated by reference into any filing of Minerva Neurosciences, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of
1934, as amended (whether made before or after the date of the Form 10-K), irrespective of any general incorporation language contained in such filing.