You should read the following discussion and analysis of our financial condition and results of operations together with our condensed financial statements and related notes included in this Quarterly Report and our audited consolidated financial statements and related notes thereto for the year endedDecember 31, 2020 , included in our prospectus datedJune 17, 2021 (the "Prospectus"), as filed with theSecurities and Exchange Commission (the "SEC"), pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, (the "Securities Act"), relating to our Registration Statements on Form S-1 (File No. 333-255383). This discussion contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In some cases, you can identify these statements by forward-looking words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "should," "estimate," or "continue," and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled "Risk Factors" included in the Prospectus. The forward-looking statements in this Quarterly Report represent our views as of the date of this Quarterly Report. Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report. Additionally, our historical results are not necessarily indicative of the results that may be expected for any period in the future. All references to years, unless otherwise noted, refer to our fiscal years, which end onDecember 31 . Unless the context otherwise requires, all references in this subsection to "we," "us," "our," "ATAI" or the "Company" refer to ATAI and its consolidated subsidiaries. Business Overview We are a clinical-stage biopharmaceutical company aiming to transform the treatment of mental health disorders. We foundedatai Life Sciences in 2018 as a response to the significant unmet need and lack of innovation in the mental health treatment landscape, as well as the emergence of therapies that previously may have been overlooked or underused, including psychedelic compounds and digital therapeutics. We have built a pipeline of 11 development programs and six enabling technologies, each led by focused teams with deep expertise in their respective fields and supported by our internal development and operational infrastructure. We believe that several of our therapeutic programs' target indications have potential market opportunities of at least$1 billion in annual sales, if approved. One of our ATAI companies, Recognify Life Sciences, has initiated a Phase 2a trial inthe United States . In addition, we plan to initiate Perception's Phase 2 trial for TRD and DemeRx's Phase 1/2 OUD trial in Q3 2021. Additionally, we plan to initiate three Phase 2 trials and also expect to initiate four Phase 1 trials in 2022. Our Emerging Clinical and Preclinical Programs The table below summarizes the status of our product candidate portfolio as of the filing date of this Quarterly Report. Our pipeline currently consists of therapeutic candidates across multiple neuropsychiatric indications including depression, cognitive impairment associated with schizophrenia, or CIAS, SUD, anxiety, mTBI and PTSD. We currently hold at least a majority interest, or have options to obtain a majority interest, in each of these atai companies. 51
--------------------------------------------------------------------------------
Table of Contents
[[Image Removed]] Majority Owned Companies Note: TRD = Treatment-resistant depression; CIAS = Cognitive impairment associated with schizophrenia; OUD = Opioid use disorder; GAD = Generalized anxiety disorder; mTBI = Mild traumatic brain injury; DMT = N,N-dimethyltryptamine; MDMA = 3,4-Methylenedioxymethamphetamine; PTSD = Post-traumatic stress disorder, VIE = Variable interest entity.
(1) Unless otherwise indicated herein, ownership percentage based on ownership of
securities with voting rights as of
(2) Perception does not give effect to the shares of common stock issuable after
giving full effect to the anti-dilution feature of the Stock Purchase
Agreement, which would not impact our majority position in Perception.
(3) RL-007
compound is (2R,
3S)-2-amino-3-hydroxy-3-pyridin-4-yl-1-pyrrolidin-1-yl-propan-1-one(L)-(+)
tartrate salt.
(4) Neuronasal ownership does not give effect to the obligation to acquire
further shares upon the achievement of specified development milestones which
may increase the ownership to up to 64.5%.
(5) Kures ownership does not give effect to the obligation to acquire further
shares upon the achievement of specified development milestones which may
increase the ownership to up to 67.9%.
(6) Operational involvement through MSA model, including
GABA CMO; GABA ownership does not give effect to the obligation to acquire
further shares upon the achievement of specified development milestones which
may increase the ownership to up to 54.2%.
Perception Neuroscience: PCN-101 for TRD
• Product concept
: PCN-101 is a parenteral formulation of R-ketamine, a glutamatergic
modulator that is a component of ketamine and being developed as a
rapid-acting antidepressant, with the potential to be an at-home
non-dissociative alternative to S-ketamine (marketed as SPRAVATO).
• Prior evidence in humans
: In a third-party clinical trial, another formulation of R-ketamine was
observed to produce a rapid and durable response with limited
dissociative side effects in patients with TRD. In
Perception Neuroscience completed a Phase 1 trial of PCN-101 supporting
the advancement of PCN-101 into a Phase 2 trial. • Upcoming milestones : We expect to initiate a Phase 2 randomized, double blind,
placebo-controlled trial in patients with treatment-resistant depression
in the third quarter and anticipate the trial to run through late 2022.
The trial will assess the efficacy and safety, dose response and duration
of action in patients with TRD.
Recognify Life Sciences: RL-007 for CIAS
• Product concept
: RL-007, a cholinergic, glutamatergic and GABA-B receptor modulator, is
an orally available compound that is thought to alter the
excitatory/inhibitory balance in the brain to produce pro-cognitive
effects. We are developing this compound for the treatment of cognitive
impairments associated with schizophrenia. • Prior evidence in humans
: In third-party studies, other formulations of this compound have been
shown to effect a significant improvement in aspects of cognitive
function in both experimental paradigms involving healthy subjects as
well as in a Phase 2 trial in patients suffering from diabetic peripheral
neuropathic pain. • Recent a dvancements : InApril 2021 , Recognify initiated a Phase 2a study for RL-007, after
receiving IND clearance from the
commence clinical trials for the treatment of Cognitive Impairment
Associated with Schizophrenia (CIAS). The study is designed to evaluate
the effects of RL-007 on safety, tolerability, electroencephalogram-based
biomarkers and cognition. • Upcoming milestones
: We expect topline results from the Phase 2a single-arm, multiple dose
trial in patients with CIAS in late 2021.
DemeRx IB: DMX-1002 for OUD
• Product concept
: DMX-1002 is an oral formulation of ibogaine, a cholinergic,
glutamatergic and monoaminergic receptor modulator that is a naturally
occurring psychedelic product isolated from a West African shrub, that we are developing for the treatment of OUD. • Prior evidence in humans
: In third-party studies evaluating other formulations of ibogaine,
significant reductions in opioid cravings were observed, both at discharge and at one month post treatment, and were associated with improved mood in patients with OUD. • Upcoming milestones : We expect to initiate the Phase 1 component of Phase 1/2 trial of DMX-1002 in recreational drug users and healthy volunteers to be
initiated in Q3 and to read out safety data in early 2022. The trial is
designed to assess safety, tolerability, pharmacokinetics, and efficacy,
and the results will inform future studies in patients with opioid use disorder. GABA: GRX-917 for GAD • Product concept
: GRX-917 is an oral formulation of a deuterated version of etifoxine, a
compound that has a long history of prescription use in
treating anxiety disorders. GRX-917 is designed to provide rapid
anxiolytic activity with improved tolerability to current treatments for
anxiety inthe United States . • Prior evidence in humans
: Etifoxine has been observed to have the rapid onset of anxiolytic
activity of benzodiazepines without their sedating or addicting properties. Furthermore, etifoxine is not associated with abuse, dependence or respiratory depression and has been observed to have no significant impact on motor skills or cognition. • Recent a dvancements : InJune 2021 , GABA initiated a randomized, double blind, placebo-controlled Phase 1 trial. The study will evaluate safety, tolerability, pharmacokinetics, as well as pharmacodynamics using qEEG. • Upcoming milestones : We expect topline results from the Phase 1 single ascending dose/multiple ascending dose program in early 2022.
Neuronasal: NN-101 for mTBI
• Product concept
: NN-101 is a novel intranasal formulation of NAC. NAC is believed to
stimulate the synthesis of GSH, an endogenous antioxidant that plays a
protective role in the pathogenesis of mTBI. • Prior evidence in humans
: An orally administered formulation of NAC was shown to increase the
probability of mTBI symptom resolution at seven days in a third-party
study conducted by theU.S. Army . Neuronasal has also completed a pilot study of NN-101 in nine healthy volunteers. In this pilot study, NN-101 was observed to be approximately 20 times and 100 times more brain-penetrant compared to IV and oral NAC, respectively, and was well tolerated.
Viridia Life Sciences: VLS-01 for TRD
• Product concept
: VLS-01 is a formulation of DMT, the active moiety of the traditional,
hallucinogenic drink ayahuasca. DMT is characterized by an intrinsically
short duration of psychedelic effect with a serum half-life estimated at
less than 10 minutes. VLS-01 is formulated to provide a psychedelic
experience lasting 30 to 45 minutes, thus potentially allowing for a shorter clinic visit compared to many other psychedelic compounds that may require a patient to be monitored for four or more hours. • Prior evidence in humans : Ayahuasca has shown significant antidepressant effects compared with
placebo at one, two and seven days after dosing in a double-blind,
randomized, placebo-controlled third-party clinical trial in patients with TRD. EmpathBio: EMP-01 for PTSD
• Product concept:
EMP-01 is an oral formulation of an MDMA derivative being developed for
the treatment of PTSD. We are developing EMP-01 for the potential to have
an improved therapeutic index compared to MDMA. • Prior evidence in humans:
In a meta-analysis of 21 third-party trials of other formulations of
MDMA-combined with psychotherapy for the treatment of PTSD, the benefits
of such treatment were statistically significant versus placebo or active
placebo-assisted therapy alone. In addition, a recent third-party
randomized, double-blind, placebo-controlled phase 3 study with 90
patients with severe PTSD, showed statistically significant reduction in
PTSD symptoms in the MDMA-assisted psychotherapy group versus placebo.
Revixia Life Sciences: RLS-01 for TRD
• Product concept:
RLS-01 is a formulation of SalA, a naturally occurring psychedelic
compound with pharmacology differentiated from that of psilocybin or DMT, being developed for the treatment of TRD and other indications. • Prior evidence in humans:
In a third-party study of another formulation of SalA, the effects of the
compound were observed to be similar to those of psilocybin based upon
functional brain imaging. We believe these data combined with anecdotal
usage reports suggest that SalA may possess rapid-acting antidepressant properties. Kures: KUR-101 for OUD • Product concept:
KUR-101 is an oral formulation of deuterated mitragynine being developed
for the treatment of OUD. Mitragynine is a component of the leaves of
kratom ( Mitragnyna speciosa ). • Prior evidence in humans:
Kratom has a long history of traditional medicine use as an analgesic in
parts of
in recent years, particularly amongst individuals seeking to reduce
prescription opioid consumption or manage opioid withdrawal symptoms.
Published third-party human data involving isolated mitragynine are
limited, but recent mechanistic insights suggest that this compound may
be well-suited for the medically assisted therapy of OUD.
DemeRx NB: DMX-1001 for OUD
• Product concept:
DMX-1001 is an oral formulation of noribogaine being developed for the
treatment of OUD. Noribogaine is an active metabolite of ibogaine
designed to have a longer plasma half-life and potentially reduced
hallucinogenic effects compared with ibogaine. • Prior evidence in humans:
Three third-party clinical trials have been conducted, testing various
doses of another formulation of noribogaine in both healthy subjects and
opioid dependent subjects undergoing detoxification. We believe the results from these trials support further development. Our Ownership Position in COMPASS In addition to our emerging clinical and preclinical programs and enabling technologies, we led the Series A financing round in 2018 for COMPASS, co-led their Series B financing round in 2020 and continue to hold a significant equity ownership position in COMPASS. COMPASS is developing its investigational COMP360 psilocybin therapy, which comprises administration of COMP360 with psychological support from specially trained therapists, with an initial focus on TRD. The therapeutic potential of psilocybin administered in conjunction with psychological support has been shown in multiple academic-sponsored studies, which did not involve COMP360, specifically exhibiting rapid reductions in depression symptoms after a single high dose with no SAEs. COMPASS evaluated COMP360 in conjunction with psychological support in a Phase 2b trial that concluded inJune 2021 and expects to report data from this trial in late 2021. The randomized, double-blind, dose-ranging study investigated the safety and efficacy of psilocybin therapy in 233 patients, the largest clinical trial with psilocybin to date. As ofJune 30, 2021 , we beneficially owned 8,075,663 shares representing 19.4 % equity interest in COMPASS. Certain of our founding investors were also seed investors and founders of COMPASS. Our interest in the product candidates of COMPASS is limited to the potential appreciation of our equity interest. Recent Developments Purchase of GABA Shares InApril 2021 , pursuant to the GABA Preferred Stock Purchase Agreement, we purchased additional shares of Series A preferred stock of GABA for an aggregate cost of$5.0 million based on the achievement of certain development milestones. InMay 2021 , we exercised our option to purchase additional shares of Series A preferred stock prior to the achievement of certain development milestone for an aggregate cost of$5.0 million . The purchase of additional shares of Series A preferred stock resulted in us holding an 53.8% equity interest in the outstanding common stock and Series A preferred stock of GABA. Purchase of COMPASS Ordinary Shares InMay 2021 , we purchased additional ordinary shares of COMPASS (represented by American Depositary Shares) common stock for an aggregate cost of$5.0 million . Following the close of the additional purchase, we held a 19.4% equity interest in COMPASS ordinary shares. Purchase of IntelGenx Shares InMay 2021 , we entered into the IntelGenx Share Purchase Agreement, ("SPA"), whereby IntelGenx issued shares of its common stock and warrants to us at an aggregate price of approximately$12.3 million . Pursuant to the IntelGenx SPA, we have the right to purchase additional shares of common stock at a price determined in the IntelGenx SPA. Following the initial close of the transaction, we held a 25% voting interest in IntelGenx. 52 -------------------------------------------------------------------------------- Table of Contents Consolidation of Neuronasal InMay 2021 , pursuant to the Neuronasal Preferred Share Purchase Agreement, we exercised our option to purchase additional shares of Series A preferred stock of Neuronasal for an aggregate cost of$1.0 million . The purchase of additional shares of Series A preferred stock resulted in us holding an 56.0% equity interest in the outstanding common stock and Series A preferred stock of Neuronasal as of the date of purchase. Following the closing of this share purchase, the results of Neuronasal have been consolidated in our condensed consolidated financial statements. Financial Overview Since our inception in 2018, we have focused substantially all of our efforts and financial resources on acquiring and developing product and technology rights, establishing our platform, building our intellectual property portfolio and conducting research and development activities for our product candidates within our ATAI companies that we consolidate based on our controlling financial interest of such entities. We operate a decentralized model to enable scalable drug or technological development at our ATAI companies. Our ATAI companies drive development of our programs and enabling technologies that we have either acquired a controlling or significant interest in or created de novo . We believe that this model provides our development teams the support and incentives to rapidly advance their therapeutic candidates or technologies in a cost-efficient manner. We look to optimize deployment of our capital in order to maximize value for our stakeholders. Wholly owned subsidiaries and variable interest entities with greater than 50% ownership and deemed control are consolidated in our financial statements, and our net income (loss) is reduced for the non-controlling interest of the VIE's share, resulting in net income(loss) attributable to ATAI stockholders. Investments, where we have ownership in the underlying company's equity greater than 20% and less than 50%, or where we have significant influence, are recorded under the equity method. We then record income(loss) in equity method investments for our proportionate share of the underlying company's net results until the investment balance is adjusted to zero. If we make subsequent additional investments in that same company, we may record additional gains(losses) based on changes to our investment basis and also may record additional income(loss) in equity method investments. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations to date primarily with proceeds from the sale of our common stock and from issuances of convertible notes. We were incorporated pursuant to the laws ofthe Netherlands onSeptember 10, 2020 . As more fully described in the Prospectus in the section titled "Corporate Reorganization," and in the Notes to Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report, we undertook a corporate reorganization, or the Corporate Reorganization onApril 23, 2021 . InApril 2021 , all of the outstanding shares inATAI Life Sciences AG were contributed and transferred toATAI Life Sciences N.V. in a capital increase in exchange for newly issued common shares ofATAI Life Sciences N.V. on a 1 to 10 basis, and, as a result,ATAI Life Sciences AG became a wholly owned subsidiary ofATAI Life Sciences N.V. Furthermore, onJune 7, 2021 , shares ofATAI Life Sciences N.V. were split applying a ratio of 1.6 to one. The Corporate Reorganization is considered a continuation ofATAI Life Sciences AG resulting in no change in the carrying values of assets or liabilities. As a result, the financial statements for periods prior to the Corporate Reorganization are the financial statements ofATAI Life Sciences AG as the predecessor toATAI Life Sciences N.V. for accounting and reporting purposes. All share, per-share and financial information presented and corresponding disclosures have been retrospectively adjusted, where applicable, to reflect the impact of the share exchange and share split resulting from the Corporate Reorganization. In connection with the Corporate Reorganization, outstanding share awards and option grants ofATAI Life Sciences AG were exchanged for share awards and option grants ofATAI Life Sciences N.V. with identical restrictions. 53 -------------------------------------------------------------------------------- Table of Contents OnJune 22, 2021 , we completed an IPO on Nasdaq, in which we issued and sold 17,250,000 shares of our common stock at a public offering price of$15.00 per share, including 2,500,000 shares of common stock sold pursuant to the underwriters' exercise of their option to purchase additional shares of common stock, for aggregate net proceeds of$231.6 million , after deducting underwriting discounts and commissions of$18.1 million and offering costs of$9.0 million . Prior to the IPO, we received gross cash proceeds of$361.5 million from sales of our common stock and convertible notes. We have incurred significant operating losses since our inception. Our net loss attributable toATAI Life Sciences N.V. stockholders was$48.5 million and$16.4 million for the three months endedJune 30, 2021 and 2020, respectively, and$47.8 million and$0.05 million for the six months endedJune 30, 2021 and 2020, respectively. As ofJune 30, 2021 andDecember 31, 2020 , our accumulated deficit was$237.8 million and$190.0 million , respectively. Our ability to generate product revenue sufficient to achieve profitability will depend substantially on the successful development and eventual commercialization of product candidates at our ATAI companies and at our ATAI companies that we consolidate based on our controlling financial interest of such entities as determined under the variable interest entity model, or VIEs. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our historical losses resulted principally from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. In the future, we intend to continue to conduct research and development, preclinical testing, clinical trials, regulatory compliance, market access, commercialization and business development activities that, together with anticipated general and administrative expenses, will result in incurring further significant losses for at least the next several years. Our operating losses stem primarily from development of our mental health research programs. Furthermore, we expect to incur additional costs associated with operating as a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing andSEC requirements, director and officer insurance premiums, and investor relations costs. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of our product candidates, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, strategic collaborations and alliances or licensing arrangements. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances, however, that our current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all. As ofJune 30, 2021 , we had cash and cash equivalents of$453.6 million We believe that our existing cash will be sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See "Liquidity and Capital Resources-Liquidity Risk" below. Factors Affecting our Results We believe that the most significant factors affecting our results of operations include: Acquisitions/Investments To continue to grow our business and to aid in the development of our various product candidates, we are continually acquiring and investing in companies that share our common goal towards advancing transformative treatments, including psychedelic compounds and digital therapeutics, for patients that suffer from mental health disorders. During the three months endedJune 30, 2021 , we spent$28.8 million on investments in GABA, COMPASS, IntelGenx and Neuronasal. 54 -------------------------------------------------------------------------------- Table of Contents Research and Development Expenses Our ability to successfully develop innovative product candidates through our programs will be the primary factor affecting our future growth. Our approach to the discovery and development of our product candidates is still being demonstrated. As such, we do not know whether we will be able to successfully develop any products. Developing novel product candidates requires a significant investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. We have chosen to leverage our platform to initially focus on advancing our product candidates in the area of mental health. All of our product candidates are still in development stages, and we have incurred and will continue to incur significant research and development costs for their preclinical studies and clinical trials. We expect that our research and development expenses will constitute the most substantial part of our expenses in future periods in line with the advancement and expansion of the development of our product candidates. Acquisition of In-Process Research and Development Expenses In an asset acquisition, including the initial consolidation of a VIE that is not a business, acquired in-process research and development, or IPR&D, with no alternative future is charged to the condensed consolidated statements of operations as a component of operating expenses at the acquisition date. Since inception, we have grown primarily by continually acquiring and investing in other companies. Our IPR&D expenses were$8.0 million and$9.0 million , representing 13.0% and 11.6% of our total operating expenses for the three and six months endedJune 30, 2021 , respectively. Our IPR&D expenses for the three and six months endedJune 30, 2020 were$0.1 million . As we continue to acquire and invest in companies, we expect our IPR&D expenses to increase in absolute amounts and continue to represent a significant percentage of our total operating expenses. Stock-Based Compensation InAugust 2020 , we adopted the 2020 Equity Incentive Plan and the Hurdle Share Option Plan, which allowed us to grant stock-based awards to executive officers, directors, employees and consultants. Prior to our IPO, we issued stock options that vest over a two to four-year service period, only if and when a "Liquidity Event" (as defined in the plans) occurs, with accelerated vesting if a Liquidity Event occurred by specified dates. Upon the closing of our IPO, the stock-based award vesting contingent upon a Liquidity Event was no longer deferred. For the three and six months endedJune 30, 2021 , stock-based compensation of$37.5 million and$37.7 million , respectively. Impact of COVID-19 InDecember 2019 , a novel strain of coronavirus, severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, was identified inWuhan, China . OnMarch 11, 2020 , theWorld Health Organization designated the outbreak of COVID-19, the disease associated with SARS-CoV-2, as a global pandemic. Governments and businesses around the world have taken unprecedented actions to mitigate the spread of COVID-19, including, but not limited to, shelter- in-place orders, quarantines, significant restrictions on travel, as well as restrictions that prohibit many employees from going to work. We have been actively monitoring the impact of the COVID-19 pandemic, including variants, on our employees and our business. Although some of our research and development timelines have been impacted by delays related to the COVID-19 pandemic, we have not experienced material financial impacts on our business and operations as a result of the COVID-19 pandemic. We have undertaken a number of business continuity measures to mitigate potential disruption to our operations and in order to preserve the integrity of our research and development programs. However, the impact on our future results will largely depend on future developments related to COVID-19, which are highly uncertain and cannot be predicted with confidence, such as the emergence of new variants, the rate and success of vaccination roll-out efforts, the ultimate duration and spread of the outbreak, the continuing impact of the COVID-19 pandemic on financial markets and the global economy, travel restrictions, social distancing and other mitigation measures inthe United States and other countries, business closures or business disruptions and the effectiveness of actions taken inthe United States and other countries to contain, treat, and prevent the disease, including the availability and effectiveness of vaccines. 55 -------------------------------------------------------------------------------- Table of Contents Basis of Presentation and Consolidation Since our inception, we have created wholly-owned subsidiaries or made investments in certain controlled entities, including partially-owned subsidiaries for which we have majority voting interest under the VOE model or for which we are the primary beneficiary under the VIE model, which we refer to collectively as our consolidated entities. Ownership interests in entities over which we have significant influence, but not a controlling financial interest, are accounted for as cost and equity method investments. Ownership interests in consolidated entities that are held by entities other than us are reported as redeemable convertible noncontrolling interests and noncontrolling interests in our condensed consolidated balance sheets. Losses attributed to redeemable convertible noncontrolling interests and noncontrolling interests are reported separately in our condensed consolidated statements of operations. Components of Our Results of Operations Revenue OnMarch 11, 2021 , we entered into a license and collaboration agreement, or the Otsuka Agreement, withOtsuka Pharmaceutical Co., LTD , or Otsuka, under which we granted exclusive rights to Otsuka to develop and commercialize certain products containing arketamine inJapan for the treatment of depression and other select indications. We received an upfront, non-refundable payment of$20.0 million inJune 2021 and we are also eligible to receive up to$35.0 million if certain development and regulatory milestones are achieved and up to$66.0 million in commercial milestones upon the achievement of certain commercial sales thresholds. We are eligible to receive a tiered, double-digit royalties on net sales of licensed products subject to reduction in certain circumstances. InMarch 2021 , we satisfied the performance obligation related to the license upon delivery of the license and recognized the amount of$19.7 million allocated to the license as license revenue. Additionally, we recognized revenues of$0.2 million related to certain research and development services. As ofJune 30, 2021 , we had current deferred revenue of$0.1 million due to certain research and development services under the Otsuka Agreement which will be recognized over time as the respective study results are delivered. To date, there have been no milestones achieved under the Otsuka Agreement. License revenue of$0 and$19.9 million was recorded for the three and six months endedJune 30, 2021 , respectively. For the foreseeable future, we may generate revenue from reimbursements of services under the Otsuka Agreement, as well as milestone payments under our current and/or future collaboration agreements. We do not expect to generate any revenue from the sale of products unless and until such time that our product candidates have advanced through clinical development and regulatory approval, if ever. We expect that any revenue we generate, if at all, will fluctuate from quarter-to-quarter as a result of the timing and amount of payments relating to such services and milestones and the extent to which any of our products are approved and successfully commercialized. If we fail to complete preclinical and clinical development of product candidates or obtain regulatory approval for them, our ability to generate future revenues and our results of operations and financial position would be adversely affected. Operating Expenses Research and Development Expenses Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates, which include: • employee-related expenses, including salaries, related benefits and stock-based compensation, for employees engaged in research and development functions; • expenses incurred in connection with the preclinical and clinical development of our product candidates, including our agreements with third parties, such as consultants and CROs;
• expenses incurred under agreements with consultants
internal capabilities;
• the cost of lab supplies and acquiring, developing and manufacturing
preclinical study materials and clinical trial materials; • costs related to compliance with regulatory requirements; 56
--------------------------------------------------------------------------------
Table of Contents
• facilities, depreciation and other expenses, which include direct and
allocated expenses for rent and maintenance of facilities, insurance and
other operating costs; and • payments made in connection with third-party licensing agreements. Research and development costs, including costs reimbursed under our collaboration with Otsuka, are expensed as incurred, with reimbursements of such amounts being recognized as revenue. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received. Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under third-party license agreements. We do not allocate internal research and development expenses consisting of employee and contractor-related costs, to specific product candidate programs because these costs are deployed across multiple product candidate programs under research and development and, as such, are separately classified. Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase for the foreseeable future in connection with our planned preclinical and clinical development activities in the near term and in the future. The successful development of our product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of these product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from our product candidates. This is due to the numerous risks and uncertainties associated with developing products, including the uncertainty of whether (i) any clinical trials will be conducted or progress as planned or completed on schedule, if at all, (ii) we obtain regulatory approval for our product candidates and (iii) we successfully commercialize product candidates. Acquisition of In-Process Research and Development Expenses Acquisition of in-process research and development expenses consist of acquired in-process research and development with no future alternative use based on the probability of clinical success. We expect our acquisition of IPR&D expenses to increase as we continue to grow and expand. General and Administrative Expenses General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions, professional fees for legal, patent, accounting, auditing, tax and consulting services, travel expenses and facility-related expenses, which include allocated expenses for rent and maintenance of facilities, advertising, and information technology-related expenses. We expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our continued research and development and potential commercialization of our product candidates. We also expect to incur increased expenses associated with being a public company, including increased costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing andSEC requirements, director and officer insurance costs, and investor and public relations costs. 57 -------------------------------------------------------------------------------- Table of Contents Other Income (Expense), Net Interest Income Interest income consists of interest earned on cash balances held in interest-bearing accounts and interest earned on notes receivable. We expect that our interest income will fluctuate based on the timing and ability to raise additional funds as well as the amount of expenditures for our research and development of our product candidates and ongoing business operations. Change in Fair Value of Contingent Consideration Liability-Related Parties Changes in fair value of contingent consideration liability-related parties, consists of subsequent remeasurement of our contingent consideration liability-related parties with Perception and InnarisBio for which we have elected the fair value option. See "-Liquidity and Capital Resources-Indebtedness" below for further discussion of our contingent consideration liability-related parties. Change in Fair Value ofShort Term Notes Receivable-Related Party Changes in fair value of short term notes receivable-related party, including interest, consists of subsequent remeasurement of our short term notes receivable-related party with COMPASS for which we have elected the fair value option. The COMPASS notes were converted during 2020. See "-Liquidity and Capital Resources-Indebtedness" below for further discussion of our short term notes receivable - related party. Change in Fair Value of Convertible Promissory Notes Changes in fair value of convertible promissory notes consists of subsequent remeasurement of our convertible promissory notes for which we have elected the fair value option. See "-Liquidity and Capital Resources-Indebtedness" below for further discussion of our convertible promissory notes. Change in Fair Value of Derivative Liability Changes in fair value of derivative liability consists of subsequent remeasurement of our derivative liability relating to certain embedded features contained in the Perception convertible promissory notes for which we have elected the fair value option. The Perception convertible promissory notes were converted duringJune 2021 . See "-Liquidity and Capital Resources-Indebtedness" below for further discussion the Perception convertible promissory notes. Unrealized Loss on Other Investments Held at Fair Value InMay 2021 , we received IntelGenx common stock, warrants and additional unit warrants for a price of approximately$12.3 million . We determined that the initial aggregate fair value is equal to the transaction price and recorded the common shares at$3.0 million , the warrants at$1.2 million and the additional unit warrants at$8.2 million on a relative fair value basis resulting in no initial gain or loss recognized in the condensed consolidated statements of operations. Subsequently, changes in fair value of the common shares, the warrants and additional unit warrants are recorded as a component of other income (expense), net in the condensed consolidated statement of operations. Unrealized Gain on Other Investments InMarch 2020 , we entered into a series of transactions including the purchase of additional shares of COMPASS Series A and Series B preferred stock under the secondary Series A preferred stock purchase agreement and the Series B preferred stock subscription agreement, respectively. InApril 2020 , COMPASS entered into a Series B preferred stock subscription agreement with other investors for issuance of its Series B preferred stock, which resulted in the automatic conversion of our COMPASS convertible notes receivable into shares of COMPASS Series B preferred stock. We remeasured our investment in COMPASS' Series A preferred shares to fair value due to the observable price change in connection with COMPASS' secondary Series A preferred stock purchase inMarch 2020 and recognized unrealized gains on other investments in the condensed consolidated statements of operations in association with the transaction. 58 -------------------------------------------------------------------------------- Table of Contents Other Income (Expense), net Other income (expense), net consists principally of interest expense, foreign currency transactions gains and losses, impairment related to our other investments and credits related to our research and development tax credits which are claimed from the Australian tax authority, in respect to qualifying research and development costs incurred. Income Tax For our consolidated entities, deferred income taxes are provided for the effects of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We regularly assess the need to record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. Accordingly we continue to maintain a full valuation allowance against our deferred tax assets as ofJune 30, 2021 , consistent with prior periods, which primarily relate to our German and international tax loss carryforwards. In assessing the realizability of deferred tax assets, we consider whether it is more likely than not that some or all of the deferred tax assets will not be realized. The future realization of deferred tax assets is subject to the existence of sufficient taxable income of the appropriate character (e.g., ordinary income or capital gain) as provided under the carryforward provisions of local tax law. We consider the scheduled reversal of deferred tax liabilities (including the effect in available carryback and carryforward periods), future projected taxable income, including the character and jurisdiction of such income, and tax-planning strategies in making this assessment. Unrecognized tax benefits arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of the considerations described above. As ofJune 30, 2021 andDecember 31, 2020 , we had no unrecognized tax benefits. Losses from Investments in Equity Method Investees, Net of Tax Losses from investments in equity method investees, net of tax consists of our share of equity method investees losses on the basis of our equity ownership percentage, IPR&D charges resulting from basis differences and impairment related to our equity method investments. Net Loss Attributable to Redeemable Noncontrolling Interests and Noncontrolling Interests Net loss attributable to redeemable noncontrolling interests and noncontrolling interests in our condensed consolidated statements of operations is a result of our investments in certain of our consolidated VIEs, and consists of the portion of the net loss of these consolidated entities that is not allocated to us. Net losses in consolidated VIEs are attributed to redeemable noncontrolling interests and noncontrolling interests considering the liquidation preferences of the different classes of equity held by the shareholders in the VIE and their respective interests in the net assets of the consolidated VIE in the event of liquidation, and their pro rata ownership. Changes in the amount of net loss attributable to redeemable noncontrolling interests and noncontrolling interests are directly impacted by changes in the net loss of our VIEs and our ownership percentage changes. 59 -------------------------------------------------------------------------------- Table of Contents Results of Operations Comparison of the Three Months EndedJune 30, 2021 and 2020 (unaudited) Three months ended June 30, 2021 2020 $ Change % Change (in thousands, except percentages) Operating expenses: Research and development$ 16,026 $ 2,854 $ 13,172 461.5 % Acquisition of in-process research and development 7,962 120 7,842 6535.0 % General and administrative 37,331 2,851 34,480 1209.4 % Total operating expenses 61,319 5,825 55,494 952.7 % Loss from operations (61,319 ) (5,825 ) (55,494 ) 952.7 % Other income (expense), net: Interest income 35 18 17 94.4 % Change in fair value of contingent consideration liability - related parties (911 ) (42 ) (869 ) 2069.0 % Change in fair value of convertible promissory notes - (1,260 ) 1,260 (100.0 %) Unrealized loss on other investments held at fair value (5,460 ) - (5,460 ) 100.0 % Loss on conversion of convertible promissory notes (513 ) - (513 ) 100.0 % Gain on consolidation of a variable interest entity 3,543 - 3,543 100.0 % Other income (expense), net (2,676 ) (37 ) (2,639 ) 7132.4 % Total other income (expense), net (5,982 ) (1,321 )
(4,661 ) 352.8 %
Net loss before income taxes (67,301 ) (7,146 ) (60,155 ) 841.8 % Provision for income taxes (58 ) - (58 ) 100.0 % Gain on dilution of equity method investment 16,923 - 16,923 100.0 % Losses from investments in equity method investees, net of tax (2,937 ) (9,811 ) 6,874 (70.1 %) Net loss (53,373 ) (16,957 ) (36,416 ) 214.8 % Net loss attributable to redeemable noncontrolling interests and noncontrolling interests (4,912 ) (600 )
(4,312 ) 718.7 %
Net loss attributable to ATAI Life Sciences AG stockholders$ (48,461 ) $ (16,357 ) $ (32,104 ) 196.3 % License Revenue No license revenue was recognized for the three months endedJune 30, 2021 orJune 30, 2020 . 60 -------------------------------------------------------------------------------- Table of Contents Research and Development Expenses The table and discussion below present research and development expenses for the three months endedJune 30, 2021 and 2020: Three months ended June 30, 2021 2020 Change % Change (in thousands, except percentages) Direct research and development expenses by program: PCN-101 (Perception)$ 2,373 $ 1,086 $ 1,286 118.4 % DMX-1002 (DemeRx IB) 949 152 797 524.2 % RL-007 (Recognify) 676 - 676 100.0 % VLS-01 (Viridia) 646 2 644 28618.0 % KUR-101 (Kures) 376 920 (544 ) (59.1 %) EMP-01 (EmpathBio) 249 - 249 100.0 % Novel drug delivery (InnarisBio) 200 - 200 100.0 % RLS-01 (Revixia) 188 - 188 100.0 % Novel compounds (EntheogeniX) 133 248 (114 ) (46.2 %) NN-01 (Neuronasal) 122 - 122 100.0 % Other (Introspect, Psyber, Psyprotix) 89 - 89 100.0 % Unallocated research and development expenses: Personnel expenses 9,851 365 9,486 2596.2 % Professional and consulting services 118 65 53 82.0 % Other 56 16 40 257.9 %
Total research and development expenses
Research and development expenses were$16.0 million for the three months endedJune 30, 2021 , compared to$2.9 million for the three months endedJune 30, 2020 . The increase of$13.1 million was primarily attributable to$9.5 million of personnel costs, which included$8.7 million of stock-based compensation and an increase of$3.6 million of direct costs at the platform companies as discussed below. The$1.2 million increase in direct costs for PCN-101 was primarily due to an increase of$0.9 million in clinical development costs, and$0.2 million in consulting and personnel related costs. The$0.8 million increase in direct costs for DMX-1002 program was primarily due to an increase of$0.3 million preclinical activities,$0.2 million in manufacturing and$0.1 million in clinical development costs. The direct costs of$0.7 million for RL-007 program were$0.5 million in clinical development costs and$0.2 million of personnel related costs, which included$0.1 million of stock-based compensation expense. The direct costs for VLS-01 program were$0.6 million of manufacturing and control processes and other preclinical activities. The decrease of$0.5 million in direct costs for KUR-101 was primarily due to a$0.5 million decrease in preclinical activities. The direct costs for EMP-001 were$0.2 million of manufacturing and control processes costs and other preclinical activities. The direct costs for InnarisBio were$0.2 million of preclinical activities. The direct costs for RLS-01 were$0.2 million of manufacturing and control processes costs and other preclinical activities. The$0.1 million decrease in direct costs for EntheogeniX was primarily due to a$0.2 million decrease in data and analytical support costs, partially offset by a$1.0 million increase in manufacturing and control processes costs and other preclinical activities. The direct costs for NN-01, which are from the date of acquisition inMay 2021 were$0.1 million in clinical development costs. 61 -------------------------------------------------------------------------------- Table of Contents During the three months endedJune 30, 2021 , we did not incur any significant direct costs in association with IntroSpect, Psyber, or Psyprotix; direct costs associated with these programs were related to the ramp up of preclinical development and initial clinical-stage activities. Acquisition of In-Process Research and Development Expense Three Months Ended June 30, 2021 2020 Change % Change (in thousands, except percentages) Acquisition of in-process research and development expense by program: Neuronasal $ 7,962 $ -$ 7,962 100.0 % KUR-101 (Kures) -
120 (120 ) 100.0 %
Total acquisition of in-process research and development expense $ 7,962$ 120 $ 7,842 6535.0 % Acquisition of in-process research and development expenses was$8.0 million for the three months endedJune 30, 2021 , which was IPR&D acquired from Neuronasal inMay 2021 . Acquisition of in-process research and development expenses was$0.1 million for the three months endedJune 30, 2020 , which was IPR&D acquired from Kures. The acquired IPR&D were all considered to have no future alternative use. General and Administrative Expenses General and administrative expenses were$37.3 million for the three months endedJune 30, 2021 compared to$2.9 million for the three months endedJune 30, 2020 . The increase of$34.5 million , was attributable to$30.2 million of personnel costs, which included$28.7 million of stock-based compensation,$3.4 million of professional fees, and$0.9 million other costs related to support of our platform growth and public company requirements. Interest Income Interest income for the three months endedJune 30, 2021 and 2020 primarily consisted of interest earned on our cash balances and notes receivable during these periods. We had interest income for the three months endedJune 30, 2021 and 2020 of$35,000 and$18,000 , respectively. Change in Fair Value of Contingent Consideration Liability-Related Parties The milestone and royalty payments in relation to the acquisition of Perception Neuroscience were recorded at the acquisition date or at the exercise date related to the call option, and is subsequently remeasured to fair value as ofJune 30, 2021 , resulting in an expense of$0.9 million and$0.04 million being recognized for the three months endedJune 30, 2021 and 2020, respectively. The increase of$0.86 million was primarily attributable to Perception's completion of its Phase 1 clinical trial inSeptember 2020 , which increased the probability of the milestone event occurring, and a potential license agreement with a third-party pharmaceutical company, which would include an upfront payment and additional milestone payments. As the license agreement had not been executed as ofDecember 31, 2020 , we used a probability weighted approach for the royalty payments, where 80% was applied to the license scenario and 20% was applied to the no-license scenario. AtMarch 31, 2021 , the license transaction had closed and the scenario-based method with 80%/20% probability was no longer used. The milestone and royalty payments in relation to the acquisition of InnarisBio were recorded at the acquisition date and is subsequently remeasured to fair value as ofJune 30, 2021 , resulting in an immaterial expense being recognized for the three months endedJune 30, 2021 because there were no material changes to any of the significant assumptions used that impacts the fair value of the contingent liability. Change in Fair Value of Convertible Promissory Notes Change in fair value of convertible promissory notes for the three months endedJune 30, 2020 was$1.3 million , which was primarily associated with the change in fair value of our 2020 convertible notes, or the 2020 Notes. The change in fair value of the 2020 Notes was primarily attributable to an increase in the fair value of the underlying common stock in 2020 leading up to the conversion of the convertible promissory notes into our common shares inNovember 2020 . We did not recognize a change in fair value of convertible promissory notes for the three months endedJune 30, 2021 . 62 -------------------------------------------------------------------------------- Table of Contents Unrealized Loss on Other Investments Held at Fair Value InMay 2021 , we received IntelGenx common stock, warrants and additional unit warrants for a price of approximately$12.3 million . We determined that the initial aggregate fair value is equal to the transaction price and recorded the common shares at$3.0 million , the warrants at$1.2 million and the additional unit warrants at$8.2 million on a relative fair value basis resulting in no initial gain or loss recognized in the condensed consolidated statements of operations. Subsequently, changes in fair value of the common shares, the warrants and additional unit warrants are recorded as a component of other income (expense), net in the condensed consolidated statement of operations. During the three months endedJune 30, 2021 , we recognized$5.5 million of unrealized loss on other investments held at fair value. Loss on Conversion of Convertible Promissory Notes Loss on conversion of convertible promissory notes for the three months endedJune 30, 2021 was$0.5 million . InJune 2021 , upon the funding of the Otsuka license and collaborative agreement, the Perception convertible promissory notes were converted into Perception Series A preferred stock. The loss represents the difference between (i) carrying value including derivative liability of the PerceptionDecember 2020 Notes of$2.2 million and (ii) the fair value of Perception Series A preferred stock into which the notes converted of$2.7 million . There was no loss on conversion of convertible promissory notes recorded in the three months endedJune 30, 2020 . Gain on Consolidation of a Variable Interest Entity Gain on consolidation of a variable interest entity for the three months endedJune 30, 2021 was$3.5 million . We purchased additional shares of Neuronasal inMay 2021 and recognized a gain of$3.5 million . The gain was calculated as the sum of the consideration paid of$1.0 million , the fair value of the noncontrolling interest issued of$3.0 million , the carrying value of our investments in Neuronasal's common stock and preferred stock prior toMay 2021 of$0.8 million , less the fair value of identifiable net assets acquired of$8.3 million . The fair value of the IPR&D acquired of$8.3 million was charged to research and development expense as it had no alternative future use at the time of the acquisition. There was no gain on asset acquisition of a variable interest entity recorded in the three months endedJune 30, 2020 . Other Income (Expense), Net Other expense, net for the three months endedJune 30, 2021 was$2.7 million , compared to$.04 million for the three months endedJune 30, 2020 . The increase of$2.7 million was primarily related to foreign currency expense. Income Tax We incurred income tax expense of$58,000 for the three months endedJune 30, 2021 . The income tax expense relates to book profits and thus taxable profits generated in one of ourUnited States subsidiaries. Given our early stage development and lack of prior earnings history, we have a full valuation allowance primarily related to German and overseas tax loss carryforwards that we do not consider more likely than not to be realized. We did not incur income tax expense for the three months endedJune 30, 2020 Losses from Investments in Equity Method Investees Losses from investment in equity method investees for the three months endedJune 30, 2021 and 2020 were$2.9 million and$9.8 million , respectively. Loss from investment in equity method investees represents our share of equity method investee losses on the basis of our equity ownership percentages or based on our proportionate share of the respective class of securities in our other investments in the event that the carrying amount of our equity method investments was zero. 63 -------------------------------------------------------------------------------- Table of Contents Comparison of the Six Months EndedJune 30, 2021 and 2020 (unaudited) Six months ended June 30, 2021 2020
$ Change % Change
(in thousands, except percentages) License revenue$ 19,880 $ - 19,880 100.0 % Operating expenses: Research and development 21,611 4,998 16,613 332.4 % Acquisition of in-process research and development 8,934 120 8,814 7345.0 % General and administrative 46,604 4,421 42,183 954.2 % Total operating expenses 77,149 9,539 67,610 708.8 % Loss from operations (57,269 ) (9,539 ) (47,730 ) 500.4 % Other income (expense), net: Interest income 72 38 34 89.5 % Change in fair value of contingent consideration liability - related parties (660 ) (66 ) (594 ) 100.0 % Change in fair value of short term notes receivable - related party - 718 (718 ) (100 %) Change in fair value of convertible promissory notes - (133 ) 133 (100 %) Change in fair value of derivative liability 41 - 41 100.0 % Unrealized loss on other investments held at fair value (5,460 ) - (5,460 ) 100.0 % Unrealized gain on other investments - 19,856 (19,856 ) (100 %) Loss on conversion of convertible promissory notes (513 ) - (513 ) 100.0 % Gain on consolidation of a variable interest entity 3,543 - 3,543 100.0 % Other income (expense), net (1,302 ) (119 )
(1,183 ) 994.1 %
Total other income (expense), net (4,279 ) 20,294
(24,573 ) (121 %)
Net income (loss) before income taxes (61,548 ) 10,755 (72,303 ) (672 %) Provision for income taxes (64 ) - (64 ) 100.0 % Gain on dilution of equity method investment 16,923 - 16,923 100.0 % Losses from investments in equity method investees, net of tax (4,640 ) (11,831 ) 7,191 (61 %) Net loss (49,329 ) (1,076 ) (48,253 ) 4484.5 % Net loss attributable to redeemable noncontrolling interests and noncontrolling interests (1,556 ) (1,022 )
(534 ) 52.3 %
Net loss attributable to ATAI Life Sciences AG stockholders$ (47,773 ) $ (54 ) $ (47,719 ) 88368.5 % License Revenue License revenue was$19.9 million for the six months endedJune 30, 2021 , which related to a license and collaboration agreement entered into withOtsuka Pharmaceutical Co., LTD , or Otsuka, whereby Otsuka was granted an exclusive right to develop and commercialize products containing PCN-101 inJapan at its own cost and expense. The license revenue was recognized upon delivery of the license to Otsuka during the period. 64 -------------------------------------------------------------------------------- Table of Contents Research and Development Expenses The table and discussion below present research and development expenses for the six months endedJune 30, 2021 and 2020: Six months ended June 30, 2021 2020 Change % Change (in thousands, except percentages) Direct research and development expenses by program: PCN-101 (Perception Neuroscience)$ 4,072 $ 1,787 $ 2,286 127.9 % DMX-1002 (DemeRx IB) 1,835 361 1,474 408.4 % RL-007 (Recognify) 1,076 - 1,076 100.0 % VLS-01 (Viridia) 1,067 2 1,065 47316.2 % KUR-101 (Kures) 688 1,594 (906 ) (56.8 %) EMP-01 (EmpathBio) 331 - 331 100.0 % RLS-01 (Revixia) 280 - 280 100.0 % Novel compounds (EntheogeniX) 245 363 (118 ) (32.5 %) Novel drug delivery (InnarisBio) 224 - 224 100.0 % NN-01 (Neuronasal) 122 - 122 100.0 % Other (Introspect, Psyber, Psyprotix) 65 2
64 3394.2 %
Unallocated research and development expenses: Personnel expenses 11,119 680 10,439 1534.9 % Professional and consulting services 303 104 200 192.4 % Other 182 105 76 72.5 %
Total research and development expenses
Research and development expenses were$21.6 million for the six months endedJune 30, 2021 , compared to$5.0 million for the six months endedJune 30, 2020 . The increase of$16.6 million was primarily attributable to$10.4 million of personnel costs, which included$8.9 million in stock-based compensation and an increase of$5.9 million of direct costs at the platform companies as discussed below. The$2.3 million increase in direct costs for PCN-101 was primarily due to an increase of$1.0 million in clinical development costs,$0.6 million in drug manufacturing costs,$0.3 million in preclinical activities, and$0.4 million in consulting and personnel related costs. The$1.5 million increase in direct costs for DMX-1002 program was primarily due to an increase of$0.7 million in clinical development cost,$0.4 million in preclinical activities,$0.3 million in manufacturing, and$0.1 million increase in personnel related costs. The direct costs of$1.1 million for RL-007 were$0.6 million of clinical development costs,$0.4 million of personnel related costs, which included$0.2 million of stock-based compensation expense and$0.1 million in manufacturing and control processes costs. The direct costs for VLS-01 program were$1.1 million of manufacturing and control processes and other preclinical activities. The$0.9 million decrease in direct costs for KUR-101 was primarily due to a$0.8 million reduction in preclinical activities, and a$0.2 million decrease in manufacturing and control processes costs, offset by a$0.1 million increase in clinical development costs. The direct costs for EMP-001 were$0.3 million of manufacturing and control processes costs and other preclinical activities. The direct costs for RLS-01 were$0.3 million of manufacturing and control processes costs and other preclinical activities. The decrease of$0.1 million in direct costs for EntheogeniX was primarily due to a$0.2 million decrease in data and analytical support costs, partially offset by a$0.1 million increase in manufacturing and control processes costs. The direct costs for NN-01, which are from the date of acquisition inMay 2021 , were$0.1 million of clinical development costs. 65 -------------------------------------------------------------------------------- Table of Contents During the six months endedJune 30, 2021 , we did not incur any significant direct costs in association with IntroSpect, Psyber, or Psyprotix; direct costs associated with these programs were related to the ramp up of preclinical development and initial clinical-stage activities. Acquisition of In-Process Research and Development Expense Six Months Ended June 30, 2021 2020 Change % Change (in thousands, except percentages) Acquisition of in-process research and development expense by program: Neuronasal $ 7,962 $ -$ 7,962 100.0 % InnarisBio 972 972 100.0 % KUR-101 (Kures) 120 (120 ) 100.0 % Total acquisition of in-process research and development expense $ 8,934$ 120 $ 8,814 7361.7 % Acquisition of in-process research and development expenses was$9.0 million for the six months endedJune 30, 2021 , which was IPR&D acquired from Neuronasal inMay 2021 and InnarisBio inMarch 2021 . Acquisition of in-process research and development expenses was$0.1 million for the six months endedJune 30, 2020 , which was IPR&D acquired from Kures. The acquired IPR&D were all considered to have no future alternative use. General and Administrative Expenses General and administrative expenses were$46.6 million for the six months endedJune 30, 2021 compared to$4.4 million for the six months endedJune 30, 2020 . The increase of$42.2 million , was attributable to$32.7 million of personnel costs, which included$28.7 million of stock-based compensation,$8.2 million of professional fees, and$1.3 million other costs related to support of our platform growth and public company requirements. Interest Income Interest income for the six months endedJune 30, 2021 and 2020 primarily consisted of interest earned on our cash balances and notes receivable during these periods. We had interest income for the six months endedJune 30, 2021 and 2020 of$72,000 and$38,000 , respectively. Change in Fair Value of Contingent Consideration Liability-Related Parties The milestone and royalty payments in relation to the acquisition of Perception Neuroscience were recorded at the acquisition date or at the exercise date related to the call option, and is subsequently remeasured to fair value as ofJune 30, 2021 , resulting in an expense of$0.7 million and$0.07 million being recognized for the six months endedJune 30, 2021 and 2020, respectively. The increase of$0.6 million was primarily attributable to Perception's completion of its Phase 1 clinical trial inSeptember 2020 , which increased the probability of the milestone event occurring, and a potential license agreement with a third-party pharmaceutical company, which would include an upfront payment and additional milestone payments. As the license agreement had not been executed as ofDecember 31, 2020 , we used a probability weighted approach for the royalty payments, where 80% was applied to the license scenario and 20% was applied to the no-license scenario. AtMarch 31, 2021 , the license transaction had closed and the scenario-based method with 80%/20% probability was no longer used. The milestone and royalty payments in relation to the acquisition of InnarisBio were recorded at the acquisition date and is subsequently remeasured to fair value as ofJune 30, 2021 , resulting in an immaterial expense being recognized for the six months endedJune 30, 2021 because there were no material changes to any of the significant assumptions used that impacts the fair value of the contingent liability. 66 -------------------------------------------------------------------------------- Table of Contents Change in Fair Value ofShort Term Notes Receivable-Related Party Change in fair value of short term notes receivable with COMPASS for the six months endedJune 30, 2020 was$0.7 million . The COMPASS notes were converted during 2020. No change in fair value of short term notes receivable of related parties was recognized for the six months endedJune 30, 2021 . Change in Fair Value of Convertible Promissory Notes Change in fair value of convertible promissory notes for the six months endedJune 30, 2020 was$0.1 million , which was primarily associated with the change in fair value of our 2020 convertible notes, or the 2020 Notes. The change in fair value of the 2020 Notes was primarily attributable to an increase in the fair value of the underlying common stock in 2020 leading up to the conversion of the convertible promissory notes into our common shares inNovember 2020 . No changes in fair value of convertible promissory notes were recognized for the six months endedJune 30, 2021 as the 2020 Notes were converted inNovember 2020 . Change in Fair Value of Derivative Liability Change in fair value of derivative liability was$0.04 million for the six months endedJune 30, 2021 , which was primarily due to the additional issuance of convertible promissory notes inJanuary 2021 and the increased probability of a potential licensing transaction with a third-party pharmaceutical company and a decrease in the probability of a potential preferred equity financing round. We did not recognize a change in fair value of derivative liability for the six months endedJune 30, 2020 . Unrealized Loss on Other Investments Held at Fair Value InMay 2021 , we received IntelGenx common stock, warrants and additional unit warrants for a price of approximately$12.3 million . We determined that the initial aggregate fair value is equal to the transaction price and recorded the common shares at$3.0 million , the warrants at$1.2 million and the additional unit warrants at$8.2 million on a relative fair value basis resulting in no initial gain or loss recognized in the condensed consolidated statements of operations. Subsequently, changes in fair value of the common shares, the warrants and additional unit warrants are recorded as a component of other income (expense), net in the condensed consolidated statement of operations. During the six months endedJune 30, 2021 , we recognized$5.5 million of unrealized loss on other investments held at fair value. Unrealized Gain on Other Investments Unrealized gain on other investments for the six months endedJune 30, 2021 was zero compared to$19.9 million for the six months endedJune 30, 2020 . The$19.9 million gain in 2020 mainly related to our remeasurement of our investment in COMPASS' Series A preferred shares to fair value due to the observable price change in connection with COMPASS' secondary Series A preferred stock purchase inMarch 2020 . Loss on Conversion of Convertible Promissory Notes Loss on conversion of convertible promissory notes for the six months endedJune 30, 2021 was$0.5 million . InJune 2021 , upon the funding of the Otsuka license and collaborative agreement, the Perception convertible promissory notes were converted into Perception Series A preferred stock. The loss represents the difference between (i) carrying value including derivative liability of the PerceptionDecember 2020 Notes of$2.2 million and (ii) the fair value of Perception Series A preferred stock into which the notes converted of$2.7 million . There was no loss on conversion of convertible promissory notes recorded in the six months endedJune 30, 2020 . Gain on Consolidation of a Variable Interest Entity Gain on consolidation of a variable interest entity was$3.5 million for the six months endedJune 30, 2021 . We purchased additional shares of Neuronasal inMay 2021 and recognized a gain of$3.5 million . The gain was calculated as the sum of the consideration paid of$1.0 million , the fair value of the noncontrolling interest issued of$3.0 million , the carrying value of our investments in Neuronasal's common stock and preferred stock prior toMay 2021 of$0.8 million , less the fair value of identifiable net assets acquired of$8.3 million . The fair value of the IPR&D acquired of$8.3 million was charged to research and development expense as it had no alternative future use at the time of the acquisition. There was no gain on consolidation of a variable interest entity recorded in the six months endedJune 30, 2020 . Other Income (Expense), Net Other expense, net for the six months endedJune 30, 2021 was$1.3 million , compared to$0.1 million for the six months endedJune 30, 2020 . The increase of$1.2 million was primarily related to foreign currency expense. Income Tax We incurred income tax expense for$64,000 for the six months endedJune 30, 2021 . The income tax expense relates to book profits and thus taxable profits generated in one of ourUnited States subsidiaries. Given our early stage development and lack of prior earnings history, we have a full valuation allowance primarily related to German and overseas tax loss carryforwards that we do not consider more likely than not to be realized. We did not incur income tax expense for the six months endedJune 30, 2020 . Losses from Investments in Equity Method Investees Losses from investment in equity method investees for the six months endedJune 30, 2021 and 2020 were$4.6 million and$11.8 million , respectively. Loss from investment in equity method investees represents our share of equity method investee losses on the basis of our equity ownership percentages or based on our proportionate share of the respective class of securities in our other investments in the event that the carrying amount of our equity method investments was zero. 67 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources Sources of Liquidity InJune 2021 , we completed our IPO of 17,250,000 shares of our common stock at a price to the public of$15.00 per share, including the exercise in full by the underwriters of their option to purchase 2,250,000 additional shares of our common stock. We received aggregate net proceeds of$231.6 million , after underwriting discounts and commissions of$18.1 million and offering costs of$9.0 million . Since our inception throughJune 30, 2021 , sources of capital raised to fund our operations were comprised of aggregate gross proceeds of$630.0 million from sales of our common stock and convertible notes. As ofJune 30, 2021 , we had cash and cash equivalents of$453.6 million . Convertible Promissory Notes InNovember 2018 , we issued an aggregate principal amount of$0.2 million of convertible notes, or the 2018 Convertible Notes. The 2018 Convertible Notes are non-interest-bearing and have a maturity date ofSeptember 30, 2025 , unless previously redeemed, converted, purchased or cancelled. InOctober 2020 , we issued an additional principal amount of$1.0 million of 2018 Convertible Notes. Each note has a face value of €1 and is convertible into one ordinary share ofATAI Life Sciences AG upon the payment of €17.00. We expect each of the 2018 Convertible Notes to be amended to allow for conversion into sixteen ordinary shares ofATAI Life Sciences N.V. As ofJune 30, 2021 an aggregate principal amount of$1.2 million of the 2018 Convertible Notes remained outstanding. Investments While a significant potential source of liquidity resides in our investment in COMPASS ordinary shares, we do not expect that our investment in COMPASS will be a material source of liquidity in the near term. Based on quoted market prices, the market value of our ownership in COMPASS was$308.1 million as ofJune 30, 2021 . As ofJune 30, 2021 , the carrying value of our investment in COMPASS was$19.8 million under the equity method. As a result of additional ordinary shares issued by COMPASS inMay 2021 , including additional shares purchased by us for an aggregate cost of$5.0 million , our ownership interest in COMPASS was reduced to 19.4%. Liquidity Risks As ofJune 30, 2021 , we had cash and cash equivalents of$453.6 million . We believe that our cash and cash equivalents will be sufficient to fund our projected operating expenses and capital expenditures through at least the next 12 months. We expect to incur substantial additional expenditures in the near term to support our ongoing activities. Additionally, we expect to incur additional costs as a result of operating as a public company. We expect to continue to incur net losses for the foreseeable future. Our ability to fund our product development and clinical operations as well as commercialization of our product candidates, will depend on the amount and timing of cash received from planned financings. Our future capital requirements will depend on many factors, including:
• the time and cost necessary to complete ongoing and planned clinical trials;
• the outcome, timing and cost of meeting regulatory requirements
established by the FDA, the EMA and other comparable foreign regulatory
authorities; • the progress, timing, scope and costs of our preclinical studies, clinical trials and other related activities for our ongoing and planned clinical trials, and potential future clinical trials; • the costs of commercialization activities for any of our product candidates that receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution and
manufacturing capabilities, or entering into strategic collaborations
with third parties to leverage or access these capabilities; • the amount and timing of sales and other revenues from our product
candidates, if approved, including the sales price and the availability
of coverage and adequate third party reimbursement; 68
--------------------------------------------------------------------------------
Table of Contents
• the cash requirements in purchasing additional equity from certain of our
ATAI companies upon the achievement of specified development milestone
events;
• the cash requirements of developing our programs and our ability and
willingness to finance their continued development;
• the cash requirements of any future acquisitions or discovery of product
candidates; and
• the time and cost necessary to respond to technological and market
developments, including other products that may compete with one or more
of our product candidates.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans. If we are unable to obtain this funding when needed and on acceptable terms, we could be forced to delay, limit or terminate our product development efforts." Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity financings, debt financings, collaborations with other companies or other strategic transactions. We do not currently have any committed external source of funds. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings or other arrangements 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 prefer to develop and market ourselves. Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs. Cash Flows The following table summarizes our cash flows for six months endedJune 30, 2021 and 2020: June 30, 2021 2020 (in thousands) Net cash used in operating activities$ (14,627 ) $ (9,107 ) Net cash used in investing activities (32,029 ) (19,029 ) Net cash provided by financing activities 404,262 13,011
Effect of foreign exchange rate changes on cash (1,230 ) (204 )
Net increase (decrease) in cash 356,376$ (15,329 ) Net Cash Used in Operating Activities Net cash used in operating activities was$14.6 million for the six months endedJune 30, 2021 , which consisted of a net loss of$49.3 million , adjusted by non-cash charges of$37.7 million and net cash outflows from the change in operating assets and liabilities of$3.0 million . The non-cash charges primarily consisted of$37.7 million of stock-based compensation,$8.9 million of IPR&D considered to have no future alternative use,$5.5 million of unrealized loss on other investments held at fair value and$4.6 million of losses from our equity method investments partially offset by$16.9 million of gain on investment dilution. The net cash outflows from the change in operating assets and liabilities were primarily due to a$3.8 million decrease in accrued liabilities and a$1.7 million increase in prepaid expenses offset by a$2.4 million increase in accounts payable and$0.1 million increase in deferred revenue. 69 -------------------------------------------------------------------------------- Table of Contents Net cash used in operating activities was$9.1 million in the six months endedJune 30, 2020 , which consisted of a net loss of$1.1 million , adjusted by non-cash adjustments of$8.5 million and net cash inflows from the change in operating assets and liabilities of$0.5 million . The non-cash charges primarily consisted of$19.9 million of unrealized gains on other investments associated with COMPASS,$0.7 million related to the change in the fair value of short term note receivable with a related party, offset by$11.8 million of losses from investments in equity method investees,$0.1 million related to the change in the fair value of convertible promissory notes, and$0.1 million of in process research and development expense. The net cash inflows from the change in operating assets and liabilities were primarily due to a$1.0 million increase in accounts payable and accrued liabilities, offset by a$0.5 million increase in prepaid expenses.Net Cash Used in Investing Activities Net cash used in investing activities was$32.0 million for the six months endedJune 30, 2021 , primarily driven by additional investments of$23.4 million in our other investments,$5.4 million additional investments into equity-method investees,$0.3 million of purchases of property, plant and equipment,$0.2 million of capitalized internal-use software development costs,$2.6 million of loans to related parties and$0.2 million of purchase of other assets. Net cash used in investing activities was$19.0 million in the six months endedJune 30, 2020 , primarily driven by additional investments of$17.8 million in our other investments and$1.2 million of long term notes receivable additional investments. Net Cash Provided by Financing Activities Net cash provided by financing activities was$404.3 million for the six months endedJune 30, 2021 , primarily due to$400.3 million of net proceeds from the issuance of our common stock,$2.4 million of proceeds from our sale of Innoplexus investments treated as a secured financing, and$1.6 million of proceeds from the issuance of convertible promissory notes. Net cash provided by financing activities was$13.0 million in the six months endedJune 30, 2020 , primarily due to$13.0 million from the issuance of convertible promissory notes. Indebtedness Convertible Notes BetweenNovember 2018 andJune 2021 , we issued an aggregate of$34.3 million of convertible notes. InNovember 2018 , we issued an aggregate principal amount of$0.2 million of convertible notes, or the 2018 Convertible Notes. The 2018 Convertible Notes are non-interest-bearing and have a maturity date ofSeptember 30, 2025 , unless previously redeemed, converted, purchased or cancelled. InOctober 2020 , we issued an additional principal amount of$1.0 million of 2018 Convertible Notes. Each note has a face value of €1 and is convertible into one ordinary share ofATAI Life Sciences AG upon the payment of €17.00. Conversion rights may be exercised by a noteholder at any time prior to maturity, except during certain periods subsequent to the consummation of the IPO. As ofJune 30, 2021 andDecember 31, 2020 , an aggregate principal amount of$1.2 million of the 2018 Convertible Notes remained outstanding. During the year endedDecember 31, 2020 , we issued an aggregate of$30.4 million of the 2020 Notes. The 2020 Notes accrue interest at a rate of 5% per annum and have a maturity date ofJanuary 31, 2022 , unless previously redeemed, converted, purchased or cancelled. The 2020 Notes are convertible upon mandatory conversion events into shares ofATAI Life Sciences N.V. , subject to certain dilution adjustments. InNovember 2020 , all of the outstanding principal and accrued interest under the 2020 Notes was automatically converted into shares of common stock. 70 -------------------------------------------------------------------------------- Table of Contents InMarch 2020 , we received proceeds of$0.6 million from the issuance of Perception Notes, as defined below, to third party investors. InDecember 2020 ,January 2021 , andMay 2021 we received$0.4 million ,$0.8 million , and$0.8 million respectively, in proceeds from the issuance of additional Perception Notes. The Perception Notes are convertible upon mandatory conversion events into shares of Perception. As ofJune 30, 2021 andDecember 31, 2020 ,$0 million and$1.0 million , respectively, of the Perception Notes remained outstanding. Promissory Note InDecember 2019 , we executed a promissory note payable to DemeRx IB whereby we agreed, under a contribution agreement and a Series A Preferred Stock Purchase Agreement, or the DemeRx IB SPA, to make aggregate payments to DemeRx IB of up to$17.0 million upon the achievement of specified clinical and regulatory milestones. As ofJune 30, 2021 , we had made aggregate payments of$10.0 million pursuant to the DemeRx IB SPA. Investment inConvertible Promissory Notes-Related Party OnMay 15, 2019 , we purchased convertible promissory notes from Kures, or the Kures Notes, in an aggregate principal amount of$0.1 million that earned interest at an annual rate of 5% and matured onDecember 31, 2019 . We qualified for and elected the fair value option. All principal and interest accrued under the Kures Notes was converted into shares of Series A-1 preferred stock in connection with Kures' sale of Series A-1 preferred stock inAugust 2019 . OnSeptember 27, 2019 , we purchased convertible promissory notes from COMPASS for a total principal amount of$4.0 million , and onNovember 6, 2019 , we purchased an additional convertible promissory note for$4.2 million , together, the COMPASS Notes. The COMPASS Notes bear interest at an annual rate of 3%, which was considered contingent in nature and therefore no earned interest was recorded. We qualified for and elected the fair value option. All principal amounts under the COMPASS Notes were converted into shares of Series B preferred stock in connection with COMPASS' sale of Series B preferred stock inApril 2020 . OnMarch 16, 2020 , Perception Neuroscience entered into a convertible promissory note agreement with us and certain other unrelated investors, or the Perception Note Purchase Agreement, pursuant to which Perception Neuroscience issued$3.9 million in principal amount of convertible notes in aggregate. Under the Perception Note Purchase Agreement, Perception Neuroscience issued convertible notes, or the Perception Notes, in the aggregate principal amount of$3.3 million to us and$0.6 million to other investors, including related parties. The Perception Notes bear interest at an annual rate of 5% and are due and payable onJune 30, 2022 unless earlier converted. InDecember 2020 , Perception Neuroscience issued additional convertible notes to us, certain related parties and third party investors in the aggregate principal amount of$7.0 million , of which$5.8 million was issued to us and$1.2 million was issued to other investors, including related parties. InMay 2021 , Perception Neuroscience issued additional convertible notes to us, certain related parties and third party investors in the aggregate principal amount of$5.0 million , of which$4.2 million was issued to us and$0.8 million was issued to other investors, including related parties, as part of its second tranche funding. The notes bear interest at an annual rate of 5% and are due and payable onFebruary 28, 2022 , unless earlier converted. Perception Neuroscience may not prepay in whole or in part without our consent. InJune 2021 , the convertible promissory notes were converted. InJanuary 2021 , pursuant to the Perception Note Purchase Agreement, Perception issued an aggregate principal amount of$0.8 million to other investors, including related parties, as part of its first tranche funding. Contractual Obligations and Commitments We have entered into other contracts in the normal course of business with certain CROs, CMOs and other third parties for preclinical research studies and testing, clinical trials and manufacturing services. These contracts do not contain any minimum purchase commitments and are cancelable by us upon written notice. Payments due upon cancellation consist only of payments for services provided and expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation. The amounts and timing of such payments are not known. 71 -------------------------------------------------------------------------------- Table of Contents In addition, under various licensing and related agreements to which we are a party, we are obligated to pay annual license maintenance fees and may be required to make milestone payments and to pay royalties and other amounts to third parties. The payment obligations under these agreements are contingent upon future events, such as our achievement of specified milestones or generating product sales, and the amount, timing and likelihood of such payments are not known. Such contingent payment obligations are described below. For additional information regarding our license agreements described below, see Note 17 to our condensed consolidated financial statements included elsewhere in this Quarterly Report. Columbia Stock Purchase Agreement InJune 2020 , Kures and Columbia entered into a stock purchase agreement, or the Kures SPA. Pursuant to the Kures SPA, Kures can, from time to time, issue to Columbia additional shares of Kures' common stock, at a per share price equal to the then fair market value of each such share, and shall be deemed to have been paid in partial consideration for the execution, delivery and performance by Columbia of the Kures License Agreement. If Kures proposes to sell any equity securities or securities convertible into equity securities, Columbia will have the right to purchase up to 5% of such securities. These rights shall terminate upon the occurrence of an IPO, if Kures becomes subject to periodic reporting requirements under Section 12(g) or 15(d) of the Exchange Act or certain liquidation events. Columbia also has certain co-sale rights. At the acquisition date, we recorded the fair value of the shares of Kures common stock issued to Columbia of$0.1 million to our additional-paid-in-capital and a debit to research and development expense. GABA Preferred Stock Purchase Agreement We entered into the Preferred Stock Purchase Agreement, or the GABA PSPA, inAugust 2019 withGABA Therapeutics LLC , and purchased shares of Series A preferred stock of GABA at a price of approximately$5.5 million . In addition, pursuant to the GABA PSPA, we are obligated to purchase additional shares of Series A preferred stock, at the same price as the original transaction, for up to$10.0 million , upon the achievement of specified contingent development milestones. InOctober 2020 , we entered into an Omnibus Amendment Agreement, or the GABA Omnibus Amendment Agreement, withGABA and GABA Therapeutics LLC under which the Right of First Refusal and Co-Sale Agreement was amended. Pursuant to the GABA Omnibus Amendment,GABA Therapeutics LLC granted us the right to purchase additional shares of common stock of GABA held byGABA Therapeutics LLC at the call option purchase price of$1.8 million . InNovember 2020 , we exercised the call option and made a cash contribution of$1.8 million in exchange for additional shares of common stock of GABA. InApril 2021 , pursuant to the GABA PSPA, we purchased additional shares of Series A preferred stock of GABA for an aggregate cost of$5.0 million based on the achievement of certain development milestones. InMay 2021 , we purchased additional shares of Series A preferred stock prior to the achievement of certain development milestones for an aggregate cost of$5.0 million . The GABA PSPA terminates upon the occurrence of certain liquidation events. InMay 2021 , we,GABA and GABA Therapeutics LLC entered into an Amendment Agreement under which the GABA PSPA was amended. Pursuant to the Amendment Agreement, we purchased additional shares of GABA Series A preferred stock at a price of approximately$0.6 million . We are obligated to purchase additional shares of GABA Series A preferred stock for up to$1.5 million with the same price per share as our initial investment and additional shares of GABA common stock for up to$1.0 million upon the achievement of specified contingent development milestones. Further in accordance with the GABA PSPA, we have the option but not the obligation to purchase the aforementioned additional shares of Series A preferred stock at any time prior to the achievement of any of the specified milestones. Additionally, we have the Right of First Refusal and Co-Sale Agreement withGABA Therapeutics LLC , under which we have the option but not the obligation to purchase shares of common stock for up to$2.0 million from the existing common shareholders. 72 -------------------------------------------------------------------------------- Table of Contents As ofJune 30, 2021 , we had made aggregate payments of$15.5 million pursuant to the GABA PSPA,$1.8 million pursuant to the GABA Omnibus Amendment Agreement and$0.6 million pursuant to the Amendment Agreement. Neuronasal Preferred Stock Purchase Agreement Under our Preferred Stock Purchase Agreement, or the Neuronasal PSPA, and the Secondary Sale and Put Right Agreement, or the Neuronasal Secondary Sale Agreement, entered with Neuronasal inDecember 2019 , we are obligated to purchase additional shares of Series A preferred stock from Neuronasal, and shares of common stock from the existing common shareholders, at the same price as the original transaction, at a purchase price of approximately$3.8 million , upon the achievement of specified contingent clinical development milestones. InOctober 2020 , pursuant to the Neuronasal PSPA, we purchased additional Series A preferred shares at a price of approximately$0.8 million upon the achievement of a specified contingent clinical development milestone. InMarch 2021 , pursuant to the Neuronasal PSPA and the Neuronasal Secondary Sale Agreement, we purchased additional Series A preferred shares and additional common shares for an aggregate of approximately$1.1 million based on the achievement of certain development milestones. InMay 2021 , pursuant to the Neuronasal PSPA and the Neuronasal Secondary Sale Agreement, we exercised our option to purchase additional Series A preferred shares for an aggregate of approximately$1.0 million . Under the Neuronasal PSPA, we have the option but not the obligation to purchase additional shares of Series A preferred stock, at the same price as the original transaction, at a purchase price of up to approximately$1.0 million upon achievement of certain contingent clinical development milestones by a specified date. Additionally, pursuant to the Neuronasal Secondary Sale Agreement, upon the achievement of certain development milestones, existing common shareholders have the right to sell and we have the option but not the obligation to purchase additional shares of common stock at a price determined based on the fair market value per share. These options are contingent only upon the exercise of the options of the common shareholders. Additionally, under the Neuronasal PSPA, we have a right of first offer, which requires Neuronasal to first offer us new securities it proposes to sell. The Neuronasal PSPA terminates upon the occurrence of certain liquidation events. The Neuronasal Secondary Sale Agreement terminates when shares of Neuronasal are no longer held by us or our affiliates, Neuronasal consummates a sale of its securities pursuant to a registration statement or the consummation of certain mergers or consolidations. As ofJune 30, 2021 , we had made aggregate payments of$3.7 million pursuant to this agreement. Kures Preferred Stock Purchase Agreement We entered into the Preferred Stock Purchase Agreement, or the Kures PSPA, inAugust 2019 with Kures, where we purchased shares of Series A-1 preferred stock of Kures for an aggregate purchase price of$3.5 million . The Kures PSPA provided us with control of Kures' board of directors, resulting in us having unilateral rights to control all decisions related to the significant activities of Kures. In connection with the Kures PSPA, we are required to purchase up to approximately$5.5 million of Series A-2 preferred stock upon the achievement of specified clinical milestones. The Kures PSPA also contains a call option, such that we have the right, but not the obligation, to purchase up to a certain number of shares of Series B preferred stock upon the achievement of specified clinical milestones. As ofJune 30, 2021 , we have not exercised our option to purchase any shares of Series B preferred stock of Kures. As ofJune 30, 2021 , we had made aggregate payments of$3.5 million pursuant to the Kures PSPA. Perception Preferred Stock Purchase Agreement We formed ATAI US 2, Inc., or ATAI US 2, an entity formed for the sole purpose of effecting the acquisition and a wholly owned subsidiary of Perception, entered into a series of transactions to acquire 100% of the equity of Perception Neuroscience, a pre-clinical stage biotech company. In connection with the Perception SPA and the Rollover Agreement between us, Perception and Perception Neuroscience, Perception acquired the outstanding 73 -------------------------------------------------------------------------------- Table of Contents common shares of Perception Neuroscience, or the Rollover Shares, in exchange for aggregate consideration which consisted of (i) a$4.0 million cash payment by Perception at closing ($4.6 million purchase price, less transaction costs of Perception Neuroscience assumed by Perception of$0.6 million ), (ii) contingent consideration payable to a founder of Perception Neuroscience of$2.4 million based on the achievement of certain development milestones and royalties on future revenues and (iii) issuance of Class B common shares of Perception to the founders of Perception Neuroscience, representing a 100% interest in the common equity of Perception. In connection with the Perception SPA, we are required to make milestone payments and sub-single-digit royalty payments to a founder of Perception Neuroscience upon the achievement of certain development milestones and royalties on future revenues. Also, in connection with the Perception SPA, Perception entered into a call option agreement with one of the founders of Perception Neuroscience, whereby Perception was granted an option to repurchase 2,350,000 shares of its Class B common stock from the founder. Upon the exercise of the call option, the other founder was entitled to receive a contingent consideration payment. In connection with the acquisition of Perception Neuroscience by Perception and, ultimately, ATAI US 2, and pursuant to the Perception Preferred Stock Purchase Agreement or Perception PSPA, we purchased shares of Perception's Series A preferred stock for approximately$9.5 million . The Perception PSPA provided us with control of Perception's board of directors, resulting in us having unilateral rights to control all decisions related to the significant activities of Perception. Pursuant to a Secondary Perception Preferred Stock Purchase Agreement, we sold shares of Series A preferred stock to secondary investors for approximately$1.6 million in November and December of 2018 under the same terms and conditions of the original purchase. In addition, under the Perception PSPA, Perception was granted the option to sell, and we had the obligation to purchase additional shares of Perception Series A preferred stock at a price equal to Perception PSPA purchase price upon the exercise of the call option. InApril 2019 , Perception exercised the call option with the founder resulting in the redemption and cancellation of Perception Class B common shares. The exercise of the call option and the related purchase of the noncontrolling interest resulted in a cash payment of$1.0 million . As ofJune 30, 2021 , we had made aggregate payments of$4.0 million pursuant to the Perception SPA and$10.5 million pursuant to the Perception PSPA. DemeRx NB Options We entered into a Series A Preferred Stock Purchase Agreement, or the DemeRx NB PSPA, pursuant to which we purchased shares of Series A Preferred Stock of DemeRx NB at a purchase price of$1.0 million . In accordance with the DemeRx NB PSPA, we also have the option but not the obligation to purchase additional shares of Series A preferred stock at a purchase price of up to$19.0 million . As ofJune 30, 2021 , we have not exercised our option to purchase any shares of Series A preferred stock of DemeRx NB. The DemeRx NB PSPA can be terminated with the written consent of all parties. As ofJune 30, 2021 , we had made aggregate payments of$1.0 million pursuant to the DemeRx NB PSPA. DemeRx IB Preferred Stock Purchase Agreement InDecember 2019 , we entered into the DemeRx IB SPA, pursuant to which we purchased shares of Series A Preferred Stock of DemeRx IB in exchange for an initial payment of$5.0 million in cash and a promissory note issued by us payable to DemeRx IB. Under the promissory note, we agreed to make aggregate payments to DemeRx IB of up to$17.0 million upon the achievement of specified clinical and regulatory milestones. As ofJune 30, 2021 , we had made aggregate payments of$0 million pursuant to the DemeRx IB SPA. Further, in connection with the promissory note issued, we pledged and assigned to DemeRx IB a portion of shares of our Series A preferred stock of DemeRx IB, or the Pledged Shares, as security under the promissory note. The Pledged Shares have voting and all other rights until an event of default occurs where we fail to make a payment when due. In the event of default, a pro rata portion of the Pledged Shares will automatically be surrendered and be deemed forfeited and canceled. Recognify Preferred Stock Purchase Agreement We entered into the Preferred Stock Purchase Agreement, or the Recognify PSPA, inNovember 2020 with Recognify, where we purchased shares of Series A preferred stock of Recognify at a purchase price of$2.0 million . In addition, pursuant to the Recognify PSPA, we agreed to make aggregate payments to Recognify of up to 74 -------------------------------------------------------------------------------- Table of Contents$18.0 million upon the achievement of specified clinical and regulatory milestones to complete the purchase of the shares and provide additional funding to Recognify. In connection with the Recognify PSPA for additional funding, Recognify issued the corresponding Series A preferred shares to the us provided that the shares, or the Escrow Shares, were held in an escrow account. The Escrow Shares will be released, from time to time, to us upon Recognify achieving certain milestones as defined in the Recognify PSPA with cash payments to be made by us. In addition, we have the right, but not the obligation, to make payment for the certain Escrow Shares at any time, regardless of the achievement of any milestones. The Escrow Shares have voting and all other rights until an event of default occurs where we fail to make a payment within 10 days following the written notice of the achievement of the relevant milestone. In the event of default, a pro rata portion of the Escrow Shares will automatically be surrendered and be deemed forfeited and canceled, and could result in us losing control of Recognify's board of directors and our controlling financial interest in Recognify. InMay 2021 , pursuant to the Recognify PSPA, we purchased additional shares of Series A preferred stock prior to the achievement of certain development milestone for an aggregate cost of$0.5 million . As ofJune 30, 2021 , we had made aggregate payments of$2.5 million pursuant to the Recognify PSPA. EntheogeniX License Agreement InNovember 2019 , EntheogeniX entered into a license agreement with Cyclica relating to EntheogeniX's drug discovery and development initiatives. Pursuant to the agreement, EntheogeniX obtained a limited, non-transferable, and non-exclusive right, solely for the term of the agreement, to access and use Cyclica's hosted and cloud-based software platforms, solely for the purposes of screening certain compounds generated by Cyclica pursuant to the license agreement. Upon execution of the agreement, EntheogeniX paid Cyclica an upfront service fee of$0.1 million . In addition, EntheogeniX is obligated to make aggregate milestone payments to Cyclica of up to$0.3 million upon the achievement of specified development milestones. The term of the license agreement will continue for the life of EntheogeniX and may only be terminated by either party following a non-curable material breach of the shareholders agreement between Cyclica and EntheogeniX. PsyProtix Purchase Agreement InFebruary 2021 , we jointly formed PsyProtix withChymia, LLC , or Chymia. PsyProtix was created for the purpose of exploring and developing a metabolomics-based precision psychiatry approach, initially targeting the stratification and treatment of TRD patients. InFebruary 2021 , pursuant to a Series A Preferred Stock Purchase Agreement, or the PsyProtix Purchase Agreement, we acquired shares of PsyProtix's Series A preferred stock in exchange for an initial payment of$0.1 million in cash. In addition, pursuant to the PsyProtix Purchase Agreement, we agreed to make aggregate payments to PsyProtix of up to$4.9 million upon the achievement of specified clinical milestones to complete the purchase of the shares and provide additional funding to PsyProtix. Psyber Purchase Agreement InFebruary 2021 , pursuant to a Series A Preferred Stock Purchase Agreement, or the Psyber Purchase Agreement, we acquired shares of Psyber's Series A preferred stock in exchange for an initial payment of$0.2 million in cash. In addition, pursuant to the Psyber Purchase Agreement, we agreed to make aggregate payments to Psyber of up to$1.8 million upon the achievement of specified clinical milestones to complete the purchase of the shares and provide additional funding to Psyber. InnarisBio Preferred Stock Purchase Agreement InFebruary 2021 , we jointly formed InnarisBio withUniQuest Pty Ltd , or UniQuest, for the purpose of adding a solgel-based direct-to-brain intranasal drug delivery technology to our platform. InMarch 2021 , pursuant to a Series A Preferred Stock Purchase Agreement, or the InnarisBio Purchase Agreement, we acquired shares of InnarisBio's Series A preferred stock in exchange for an initial payment of$1.1 million in cash. In addition, pursuant to the InnarisBio Purchase Agreement, we agreed to make aggregate payments to InnarisBio of up to$3.9 million upon the achievement of specified clinical milestones to complete the purchase of the shares and provide additional funding to InnarisBio. 75 -------------------------------------------------------------------------------- Table of Contents For additional information regarding our contingent commitments and future put rights or options associated with our investments, see Note 5 to our consolidated financial statements included elsewhere in this Quarterly Report. Off-Balance Sheet Arrangements As ofJune 30, 2021 , we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation S-K. While we have investments classified as VIEs, their purpose is not to provide off-balance sheet financing. Recent Accounting Pronouncements See Note 2, "Summary of Significant Accounting Policies-Recently Adopted Accounting Pronouncements" to our unaudited condensed consolidated financial statements appearing under Part 1, Item 1 for more information. Critical Accounting Policies and Estimates There have been no significant changes to our critical accounting policies from our disclosure reported in "Critical Accounting Policies and Estimates" in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Prospectus. JOBS Act We are an emerging growth company, as defined in the JOBS Act. We intend to rely on certain of the exemptions and reduced reporting requirements provided by the JOBS Act. As an emerging growth company, we are not required to, among other things, (i) provide an auditor's attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, and (ii) comply with any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements (auditor discussion and analysis). We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates. As described in Note 2 to our condensed consolidated financial statements included elsewhere in this Quarterly Report, we have early adopted accounting standards, as the JOBS Act does not preclude an emerging growth company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company. We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, orDecember 31, 2026 , (b) in which we have total annual gross revenues of$1.07 billion or more, or (c) in which we are deemed to be a large accelerated filer under the rules of theSEC , which means the market value of our outstanding common stock held by non-affiliates exceeds$700 million as of last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than$1.0 billion in nonconvertible debt during the previous three years. Further, even after we no longer qualify as an emerging growth company, we may still qualify as a "smaller reporting company," which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions. If some investors find our common shares less attractive as a result, there may be a less active trading market for our common shares and our share price may be more volatile. 76
--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source