ATAI LIFE SCIENCES N.V. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included in this Quarterly Report and our audited financial statements and related notes thereto for the year endedDecember 31, 2021 , included in our Form 10-K. 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, 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 niether promises nor guarantees and are subject to known and unknown risks, uncertainties and other factors that could cause actual results, performance achievements and the timing of certain events to differ materially from actual future results, performance, achievements and the timing of certain events 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 Part I, Item 1A of our Form 10-K and elsewhere in our Form 10-K and those discussed in the section titled "Risk Factors" in Part II, Item 1A of this Quarterly Report. 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 were founded in 2018 as a response to the significant unmet need and lack of innovation in the mental health treatment landscape, as well as to the emergence of therapies that previously may have been overlooked or underused, including psychedelic compounds and digital therapeutics. We have built a pipeline consisting of eight drug and discovery programs and four 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 target indications of several of our therapeutic programs have potential market opportunities of at least$1 billion in annual sales, if approved. A summary of our clinical and preclinical programs - including related prior evidence in humans based on third-party clinical trials or studies, recent advancements, and upcoming milestones, as applicable - follows under the heading "Our Emerging Clinical and Preclinical Programs" below.
Our business is organized along three strategic pillars:
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Rapid-acting intervention: first, second, and third generation compounds that result in rapid-acting improvement of mental health disorders;
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Ongoing digital support: additional care that is provided to patients before, during, and after initial treatment interventions;
•
Biomarker-driven precision mental health: the identification of patient sub-types using biological and digital biomarkers.
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 the development of our programs and enabling technologies for which 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.
We provide our development teams with access to shared services including
scientific, intellectual property, clinical, and regulatory support, as well as
project management, research and development, market strategy, and development
and corporate finance. Our global team of subject matter professionals provides
deep domain expertise in areas such as mental health drug development and life
sciences intellectual property. Development teams have access to relevant
expertise specific to each stage of their development. We believe our knowledge
and specialization in psychedelics and mental health continuously enhance the
quality of the services we provide through the sharing of learnings and
experiences across the teams.
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On June 22, 2021 , we completed an IPO on Nasdaq, in which we issued and sold
17,250,000 common shares at a public offering price of $15.00 per share,
including 2,500,000 common shares sold pursuant to the underwriters' exercise of
their option to purchase additional common shares, 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 shares and convertible
notes.
We have incurred significant operating losses since our inception. Our net loss
attributable to ATAI Life Sciences N.V. stockholders was $33.9 million and
$107.4 million for the three and nine months ended September 30, 2022 ,
respectively. Our net loss attributable to ATAI Life Sciences N.V. stockholders
was $31.2 million and $78.9 million for the three and nine months ended
September 30, 2021 , respectively. As of September 30, 2022 and December 31,
2021 , our accumulated deficit was $465.2 million and $357.8 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 that we
consolidate based on our controlling financial interest of such entities as
determined under the variable interest entity model ("VIE model") or voting
interest entity model ("VOE model"). 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, as well as 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 the 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 and SEC 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 our 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 of September 30, 2022 , we had cash and cash equivalents of $142.5 million and
short-term securities of $161.5 million . We believe that our existing cash and
short-term securities will be sufficient for us to fund our operating expenses
and capital expenditure requirements for at least the next 12 months following
the filing of this Quarterly Report. 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.
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 shares, issuances of convertible notes and
a term loan.
Impactful Capital Allocation and Strategic Value Capture
Consistent with our strategy, we provide the necessary funding and operational support to our programs to maximize their probability of success in clinical development and commercialization. We also regularly review the status of our programs to assess whether there are alternative forms of ownership, partnership or other forms of collaboration that would optimize our economic interests and the success of our programs. To that end, we are focusing on clinical phase programs that we expect to generate meaningful data in the near term, and therefore prioritizing programs that we believe have the highest return potential and value. As a result, inJuly 2022 through reduction of capital allocation and operational resources, we decided to decelerate some of our drug discovery programs and Revixia Life Sciences. InNovember 2022 , we finalized and entered into agreements through which we have disposed of our equity interests in (and residual Preferred Stock Purchase Agreement funding obligations to) Neuronasal and are also evaluating potential divestiture of our equity interests in certain deprioritized programs (such as DemeRx NB). 46 --------------------------------------------------------------------------------
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 ("CIAS"), opioid
use disorder ("OUD"), anxiety, and post-traumatic stress disorder ("PTSD"). We
rely on third parties to conduct our preclinical and clinical trials and, as
such, progress and timing of these preclinical and clinical trials and related
milestone events - including those discussed in greater detail below - may be
impacted by several factors including, but not limited to, changes in existing
or future contractual obligations or arrangements with these third parties,
geographic developments, such as site locations or regulatory requirements, and
other changing circumstances associated with these third parties and the
clinical trial sites. See the section titled "Risk Factors-Risks Related to
Reliance on Third Parties" in the Form 10-K.
[[Image Removed: img105020950_0.jpg]]
Note: DMT = N,N-dimethyltryptamine; MDMA = 3,4-Methyl enedioxy methamphetamine;
(1)
Perception, Recognify, DemeRx IB, and Kures are all VIEs; GABA is a non-consolidated VIE with operational involvement through MSA model; Viridia and EmpathBio are wholly owned subsidiaries; COMPASS Pathways is a non-controlling equity interest. (2)
RL-007 compound is (2R, 3S)-2-amino-3-hydroxy-3-pyridin-4-yl-1-pyrrolidin-1-yl-propan-1-one(L)-(+) tartrate salts.
(3)
Developing COMP360, a formulation of psilocybin, administered with psychological support from specially trained therapists.
The following is a summary of our clinical and preclinical programs, including related prior evidence in humans based on third-party clinical trials or studies, recent advancements, and upcoming milestones, as applicable.
Perception Neuroscience: PCN-101(R-Ketamine) for Treatment-Resistant Depression (TRD)
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Product concept: PCN-101 is a parenteral formulation of R-ketamine, a glutamatergic modulator that is a component of racemic ketamine and is being developed as a rapid-acting antidepressant, with the potential to be an at-home alternative to S-ketamine (marketed as SPRAVATO ®).
•
Prior evidence in humans: In a third-party, open label clinical trial, another
formulation of R-ketamine was observed to produce a rapid and durable response
with limited dissociative side effects in a small number of patients with TRD.
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Recent advancements: InSeptember 2020 , Perception Neuroscience completed a Phase 1 trial of PCN-101, which supported the advancement of PCN-101 into a randomized, double-blind, placebo-controlled Phase 2a proof-of-concept trial designed to assess the efficacy, safety, dose response, and duration of response of a single intravenous (IV) infusion dose of PCN-101 in patients with TRD. InSeptember 2021 , this Phase 2a proof-of-concept trial of PCN-101 for TRD was initiated inEurope . Additionally, inDecember 2021 , theU.S. Food and Drug Administration (U.S. FDA) gave Investigational New Drug ("IND") clearance to conduct a clinical DDI study of PCN-101 and to conduct a portion of the PCN-101 Phase 2a proof-of-concept trial inthe United States . The clinical phase of the DDI study, which was conducted to assess the pharmacokinetics of PCN-101 when used concurrently with certain classes of other drugs, was completed inJune 2022 . As ofOctober 2022 , the last patient has been dosed in the Phase 2a proof-of-concept study.
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Upcoming milestones: A topline data readout of the Phase 2a proof-of-concept
trial is expected around year-end 2022. For this study, patients received either
a single dose of placebo, 30 mg, or 60 mg of PCN-101 via IV in addition to their
existing treatment regimen, and will be assessed for change in depressive
symptomology using the Montgomery-Asberg Depression Rate Scale ("MADRS") with
the primary endpoint being at 24 hours and secondary assessments at intervals
over 14 days. In addition to monitoring for vital signs and adverse events,
sedation and dissociation will be assessed via the Modified Observer's
Assessment of Alertness ("MOAA/S") scale and the Clinician-Administered
Dissociative States Scale ("CADSS"), respectively. The topline results of the
DDI trial are also anticipated around year-end 2022. Additionally, a Phase 1
relative bioavailability bridging study of the current intravenous formulation
and a subcutaneous formulation supporting at-home use is expected to initiate in
the first half of 2023, with topline results available in mid 2023.
Recognify Life Sciences: RL-007 for CIAS
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Product concept: RL-007 is an orally available compound that modulates cholinergic, glutamatergic and GABA-B receptors, thereby putatively altering the excitatory/inhibitory balance in the brain to produce pro-cognitive effects. We are developing this compound for the treatment of CIAS.
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Prior evidence in humans: In third-party studies, other formulations of this compound have been shown to improve aspects of cognitive function in experimental paradigms involving healthy subjects as well as in a Phase 2 trial in patients suffering from diabetic peripheral neuropathic pain.
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Recent advancements: InApril 2021 , Recognify initiated a Phase 2a proof-of-mechanism study for RL-007 in 32 CIAS patients, after receiving IND clearance from theU.S. FDA to commence clinical trials for the treatment of CIAS. The study was designed to evaluate the effects of RL-007 on safety, tolerability, electroencephalogram-based biomarkers, and cognition. InDecember 2021 , we announced positive biomarker data from the Phase 2a study of RL-007 in CIAS patients. RL-007 was well tolerated and demonstrated a clinically meaningful pro-cognitive profile consistent with previous Phase 1 and Phase 2 trials of this compound. Changes in quantitative electroencephalogram ("qEEG") consistent with a previous Phase 1 trial involving a scopolamine challenge were noted. These results support the progression of RL-007 to a double-blind, placebo-controlled Phase 2b proof-of-concept trial with the goal of demonstrating the pro-cognitive benefit of RL-007 in CIAS.
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Upcoming milestones: We anticipate the Phase 2b proof-of-concept trial to be initiated by the end of this year with results expected in the first half of 2024.
GABA: GRX-917 (deuterated Etifoxine) for GAD
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Product concept: GRX-917 is a deuterated version of etifoxine, a compound that is approved as a treatment for anxiety disorders inFrance and other countries. GRX-917 is anticipated to provide the same differentiated clinical profile as etifoxine with the increased metabolic stability conferred by deuteration potentially resulting in lower doses and/or less frequent dosing.
•
Prior evidence in humans: Etifoxine has been shown to have both the rapid onset and magnitude of anxiolytic efficacy 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 advancements: InJune 2021 , GABA initiated a Phase 1 single and multiple ascending dose trial of GRX-917. The Phase 1 trial was a randomized, double-blind, placebo-controlled study of the safety, tolerability and pharmacokinetics of single and multiple-ascending doses of GRX-917 up to 300mg given every twelve hours for seven days. InOctober 2022 , we announced positive preliminary results in the Phase 1 study. GRX-917 was well-tolerated with no dose-limiting toxicities, and both single ascending dose and multiple ascending doses showed only mild adverse events comparable to placebo. Additionally, the data confirmed an improved pharmacokinetic profile including longer half-life and increased bioavailability compared to etifoxine. Quantitative electroencephalography (qEEG) data showed dose-dependent increases in frontal beta power, providing evidence of target engagement and mechanism of action.
•
Upcoming milestones: We anticipate initiating an efficacy study in healthy volunteers in the second half of 2022 with results expected in the second half of 2023.
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--------------------------------------------------------------------------------Viridia Life Sciences: VLS-01(N,N-dimethyltryptamine) for TRD
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Product concept: VLS-01 is a buccal transmucosal film 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 enabling a shorter clinic visit compared to many other psychedelic compounds that may require a patient to be monitored for four or more hours.
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Prior evidence in humans: Ayahuasca administration was shown to provide 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.
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Recent advancements: A Phase 1 open-label single ascending dose trial of VLS-01 was initiated in May of this year. The study compares the safety, tolerability, and pharmacokinetics of VLS-01 administered by both buccal and oral routes, as well as the pharmacodynamics of DMT using qEEG and other measures. The Phase 1 trial is the first application of our app-based digital therapeutics technology (DTx) to a pipeline product, and this technology will be used to prepare subjects prior to dosing. InOctober 2022 , we announced that the first patient was dosed.
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Upcoming milestones: We expect topline results for the Phase 1 study during the first half of 2023. Additionally, we expect the initiation of a Phase 2a proof-of-concept study in the first half of 2023, with results expected in the first half of 2024.
Kures: KUR-101(deuterated mitragynine) for OUD
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Product concept: KUR-101 is a formulation of deuterated mitragynine that is being developed for the treatment of OUD. Mitragynine is the active component of the leaves of the kratom tree (Mitragnyna speciosa).
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Prior evidence in humans: Kratom has a long history of traditional medicine use as an analgesic in parts ofSoutheast Asia , and its use inthe United States has increased 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.
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Recent advancements: KUR-101 is being evaluated in a Phase 1 randomized, double-blind, two-part study of the safety, tolerability, pharmacokinetics, analgesic and respiratory effects of KUR-101 in healthy volunteers. Part 1 is a five-cohort, single ascending dose study of KUR-101. Part 2 is a three-period crossover study to compare the analgesic and respiratory effects of a single dose of KUR-101, a single dose of immediate release oxycodone (OxyNorm®), and a single dose of placebo in healthy male volunteers. As ofSeptember 2022 , Part 1 of the Phase 1 trial has been completed. Preliminary results indicated that KUR-101 is generally well-tolerated and that a single ascending dosing of KUR-101 produces dose-dependent analgesia (pain relief) with effects on respiration comparable to that of a placebo, as well as a dose-proportional pharmacokinetic ("PK") profile that was unaffected by food. Dosing of subjects in Part 2 of the trial was completed inOctober 2022 .
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Upcoming milestones: Part 2 of the Phase 1 study is designed to be a head-to-head comparator trial of KUR-101 versus the standard of care (oxycodone). Safety and analgesia data from this study are expected by the end of 2022.
DemeRx IB: DMX-1002 (ibogaine) for OUD
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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, which we are developing for the treatment of OUD.
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Prior evidence in humans: In third-party open label studies evaluating other formulations of ibogaine, significant reductions in opioid cravings were observed, both at discharge and at one month post treatment, and these were associated with improved mood in patients with OUD.
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Recent advancements: DMX-1002 is being tested in an ongoing Phase 1/2 trial to evaluate its safety, tolerability, pharmacokinetics, and efficacy in recreational drug users and healthy volunteers, to help inform future studies in patients with OUD. The dosing of 2 cohorts have been completed and dosing of participants of cohort 3 is scheduled to begin in the first half of 2023.
•
Upcoming milestones: We expect safety data from the Phase 1 period of the trial in the first half of 2023.
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--------------------------------------------------------------------------------EmpathBio: EMP-01 (MDMA derivative) for PTSD
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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 racemic MDMA.
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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 of 90 patients with severe PTSD showed a statistically significant reduction in PTSD symptoms in the MDMA-assisted psychotherapy group versus placebo.
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Recent advancements: InSeptember 2022 , after having received Medsafe central regulatory and the Health and Disability Ethics Committees approvals, we initiated our Phase 1 single ascending dose trial to assess the safety and tolerability of orally administered EMP-01 in up to 32 healthy volunteers. This trial will also incorporate our digital therapeutics technology, with the technology used to prepare subjects prior to dosing.
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Upcoming milestones: We anticipate topline results for the Phase 1 study in the second half of 2023.
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, with an initial focus on TRD. Early signals from academic studies, using formulations of psilocybin not developed by COMP 360, have shown that psilocybin therapy may have the potential to improve outcomes for patients suffering with TRD, with rapid reductions in depression symptoms and effects lasting up to six months, after administration of a single high dose. In 2019, COMPASS completed a Phase 1 clinical trial administering COMP360, along with psychological support, the results of which showed that COMP360 was generally well-tolerated, supporting continued progression of Phase 2b studies. InNovember 2021 , COMPASS announced positive topline results from its Phase 2b clinical trial evaluating COMP360 in conjunction with psychological support for the treatment of TRD. The topline results from the 233-participant trial showed a rapid and sustained response for patients receiving a single dose of COMP360 psilocybin with psychological support. COMPASS anticipates the initiation of a Phase 3 program in the fourth quarter of 2022, which is composed of three clinical trials, two pivotal trials and one long-term follow-up. In addition, beyond TRD, COMPASS has on-going, multicenter Phase 2 trials in anorexia nervosa and PTSD. It is conducting a double-blind, randomized controlled Phase 2 clinical trial investigating the efficacy of COMP360 psilocybin, administered with psychological support, in people with anorexia nervosa and is conducting a Phase 2 clinical trial to assess the safety and tolerability of COMP360 psilocybin therapy in PTSD. As ofSeptember 30, 2022 , we beneficially owned 9,565,774 shares representing a 22.5% 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.
Our Enabling Technologies
We believe our enabling technologies have the potential to support the development of our pipeline and be used as patient support tools. We currently have three enabling technologies housed at our atai companies: Introspect Digital Therapeutics, InnarisBio, and IntelGenx Technologies, which is a strategic investment of ours. Furthermore, products from Introspect Digital Therapeutics, InnarisBio, and IntelGenx Technologies are currently being tested in humans. We intend to use these enabling technologies to support the future development of our programs. For more information regarding our enabling technologies, see the section titled "Enabling Technologies" in Part 1, Item 1 of our Form 10-K filed with theSEC .
Our Drug Discovery Companies
Although we are currently prioritizing certain clinical phase programs as described further under the section titled "Impactful Capital Allocation and Strategic Value Capture," above we also believe in the development of innovative and scalable solutions to better meet patient needs. InNovember 2019 , we acquired a majority interest in EntheogeniX Biosciences, a controlled variable interest entity, which is based on an AI-enabled computational biophysics platform designed to optimize and accelerate drug discovery. PsyProtix, a majority owned subsidiary we launched inFebruary 2021 , is developing metabolomics-based biomarkers that stratify TRD patients with the aim of improving patient outcomes through a precision psychiatry approach. In addition, inDecember 2021 andJanuary 2022 , respectively, we announced the launch of two new companies, TryptageniX and Invyxis. to support this commitment in driving next-generation approaches in the treatment of mental health disorders. The approaches of these two companies' to drug discovery are highly complementary to that of EntheogeniX Biosciences. TryptageniX will specialize in the biosynthesis of our naturally derived development candidates and Invyxis will bring proven medicinal chemistry tools and comprehensive biological screening approaches to our growing enterprise of drug 50 -------------------------------------------------------------------------------- discovery and design. Expanding intellectual property has been essential to our strategy since inception, with key investments made to unlock NCEs. We have already made substantial progress in our drug discovery efforts to date, synthesizing and screening over 300 compounds and identifying novel scaffolds that display potential in targeting mental health disorders. For more information regarding our drug discovery companies, see the section titled "Drug Discovery Companies" in Part 1, Item 1 our Form 10-K filed with theSEC .
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 VIEs 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 losses from investments in equity method investees, net of tax, 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 shares and from issuances of convertible notes and term loans.
Factors and Trends Affecting our Results of Operations
We believe that the most significant factors affecting our results of operations include:
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 of our product candidates. 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 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. 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.
Acquisition of
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 use is charged to the 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 for the three and nine months endedSeptember 30, 2022 , were$0 and$0.4 million , respectively, representing 0% and 0.3%, respectively, of our total operating expenses. Our IPR&D expenses for the three and nine months endedSeptember 30, 2021 were$0 and$9.0 million , respectively, representing 0% and 8.1%, respectively, of our total operating expenses. As we continue to acquire and invest in companies, we expect our IPR&D expenses to increase. 51 --------------------------------------------------------------------------------
Stock-Based Compensation
InAugust 2020 , we adopted the 2020 Equity Incentive Plan (the "2020 Incentive Plan") and the Hurdle Share Option Plan (the "HSOP 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. EffectiveApril 23, 2021 , we adopted and our shareholders approved the 2021 Incentive Award Plan (the "2021 Incentive Plan"). The 2021 Incentive Plan enables us to grant incentive stock options or nonqualified stock options, restricted stock awards and other stock-based awards to our executive officers, directors and other employees and consultants. Any shares subject to outstanding options originally granted under the 2020 Incentive Plan that terminate, expire or lapse for any reason without the delivery of shares to the holder thereof shall become available for issuance pursuant to the 2021 Incentive Plan. For the three months endedSeptember 30, 2022 and 2021, we incurred$10.5 million and$12.2 million of stock-based compensation expense, respectively. For the nine months endedSeptember 30, 2022 and 2021, we incurred$30.2 million and$50.0 million of stock-based compensation expense, respectively.
Impact of COVID-19
The COVID-19 pandemic has continued to present global public health and economic challenges. Although some 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. The full extent to which the COVID-19 pandemic will continue to directly or indirectly impact our results of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it, the success or failure of ongoing vaccination programs worldwide, the emergence and spread of additional variants of COVID-19, as well as the overall impact on local, regional, national and international markets and the global economy. We continue to monitor the impact of the COVID-19 pandemic on our employees and business, including working remotely on a part or full time basis, and have, and will continue to, undertake business continuity measures to mitigate potential disruption to our operations and safety of our employees. For a discussion of the risks related to COVID-19 and impact to our Company's business and operations, including our research and development programs and related clinical trials, refer to the section titled "Risk Factors" in Part I, Item 1A of the Form 10-K.
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 ,Perception Neuroscience, Inc. ("Perception") entered into a license and collaboration agreement (the "Otsuka Agreement"), withOtsuka Pharmaceutical Co., LTD ("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. Perception 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. Perception is eligible to receive tiered, royalties ranging from low-teens to high-teens 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, inMarch 2021 we recognized revenues of$0.4 million related to certain research and development services. As ofSeptember 30, 2021 , we had current deferred revenue of$0.2 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$0.3 million and$20.1 million was recorded for the three and nine months endedSeptember 30, 2021 , respectively.
We recognized
52
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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
year-to-year 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. Our ability to generate future revenues will
also depend on our ability to complete preclinical and clinical development of
product candidates or obtain regulatory approval for them.
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 contract research organizations ("CROs");
•
expenses incurred under agreements with consultants who supplement our 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;
•
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 the Otsuka
Agreement, 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, contract manufacturing organizations
("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
Acquisition of IPR&D expenses consist of acquired in-process research and development with no future alternative use based on the probability of clinical success.
53
--------------------------------------------------------------------------------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 have incurred increased expenses associated with being a public company, including increased costs for 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.
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, TryptageniX and InnarisBio for which we record at fair value. See "-Liquidity and Capital Resources-Indebtedness" below for further discussion of our contingent consideration liability-related parties.
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 record at fair value. The Perception convertible promissory notes were converted duringJune 2021 . See "-Liquidity and Capital Resources-Indebtedness" below for further discussion of the Perception convertible promissory notes.
Change in Fair Value of Warrant Liability
Changes in fair value consist of subsequent remeasurement of our warrant
liability relating to issued and outstanding warrants to purchase shares of
Neuronasal's common stock acquired in connection with the acquisition of
Neuronasal in
Change in Fair Value of Securities carried at Fair Value
Changes in fair value of securities consists of changes in fair value of
available for sale securities. We first purchased securities in
Unrealized Loss on Other Investments Held at Fair Value
InMay 2021 , we received IntelGenx common shares, 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.
Loss on Conversion of Convertible Promissory Notes
InJune 2021 , upon the funding of the Otsuka 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 .
Gain on Consolidation of a Variable Interest Entity
Gain on consolidation of a variable interest entity resulted from the purchase of additional shares of Neuronasal inMay 2021 . 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 . 54 --------------------------------------------------------------------------------
Foreign exchange gain (loss), net
Foreign exchange gain (loss), net consists of the impact of changes in foreign currency exchange rates on our foreign exchange denominated assets and liabilities, relative to theU.S. dollar. The impact of foreign currency exchange rates on our results of operations fluctuates period over period based on our foreign currency exposures resulting from changes in applicable exchange rates associated with our foreign denominated assets and liabilities.
Other Income (Expense), net
Other income (expense), net consists principally of interest expense and impairment related to our other investments. Interest expense consists primarily of interest expense incurred in connection with our term loan under the Loan Agreement entered into inAugust 2022 . Upon closing of the Loan Agreement, Hercules Capital, Inc. issued a term loan advance in the amount of$15.0 million . See "-Liquidity and Capital Resources-Indebtedness" below for further discussion of the 2022 Term Loan Facility.
Provision For Income Taxes
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 maintain a full valuation allowance against net deferred tax assets for all entities except for certain subsidiaries inAustralia ,the United States , and theUnited Kingdom as ofSeptember 30, 2022 which primarily relate to German and international tax loss carryforwards. In assessing the realizability on deferred tax assets, we consider whether it is more-likely-than-not that some or all of 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 ofSeptember 30, 2022 andDecember 31, 2021 , we had no unrecognized tax benefits.
Gain on Dilution of
InMay 2021 , COMPASS completed an additional round of equity financing through the offering of 4,000,000 American Depository Shares. We participated in this financing round but did not purchase enough shares to maintain our ownership percentage. As the purchase of shares resulted in a decrease in our equity ownership percentage in COMPASS, we recorded a gain on dilution of$16.9 million .
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 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.
55
--------------------------------------------------------------------------------Results of Operations
Comparison of the Three Months EndedSeptember 30, 2022 and 2021 (unaudited) Three Months Ended September 30, (unaudited) 2022 2021 $ Change % Change (in thousands, except percentages) License revenue$ 24 $ 266 (242 ) -90.98 % Operating expenses: Research and development 19,028 13,363 5,665 42.39 % General and administrative 19,419 20,264 (845 ) -4.17 % Total operating expenses 38,447 33,627 4,820 14.33 % Loss from operations (38,423 ) (33,361 ) (5,062 ) 15.17 % Other income (expense), net: Interest income 145 8 137 1712.50 % Change in fair value of contingent consideration liability - related parties 430 469 (39 ) -8.32 % Change in fair value of warrant liability - 47 (47 ) -100.00 % Change in fair value of securities carried at fair value 344 - 344 100.00 % Unrealized loss on other investments held at fair value - (70 ) 70 -100.00 % Foreign exchange gain (loss), net 4,470 6,462 (1,992 ) -30.83 % Other expense, net (100 ) (29 ) (71 ) 244.83 % Total other income (expense), net 5,289 6,887 (1,598 ) -23.20 % Loss before income taxes (33,134 ) (26,474 ) (6,660 ) 25.16 % Provision for income taxes (135 ) (368 ) 233 -63.32 % Losses from investments in equity method investees, net of tax (2,432 ) (4,800 ) 2,368 -49.33 % Net loss$ (35,701 ) $ (31,642 ) (4,059 ) 12.83 % Net loss attributable to redeemable noncontrolling interests and noncontrolling interests (1,814 ) (484 ) (1,330 ) 274.79 % Net loss attributable to ATAI Life Sciences N.V. stockholders$ (33,887 ) $ (31,158 ) $ (2,729 ) 8.76 % License Revenue We recognized an immaterial amount of license revenue for the three months endedSeptember 30, 2022 , compared to$0.3 million for the three months endedSeptember 30, 2021 . The decrease of$0.2 million was related to certain research and development services provided pursuant to the Otsuka Agreement signed inMarch 2021 . The remaining deferred revenue balance related to the Otsuka Agreement is not material as ofSeptember 30, 2022 . 56 --------------------------------------------------------------------------------
Research and Development Expenses
The table and discussion below present research and development expenses for the
three months ended
Three Months Ended September
30,
2022 2021 Change % Change
(in thousands, except percentages)
Direct research and development expenses
by program:
PCN-101 (Perception) $ 3,696 $ 1,340 $ 2,356 175.8 %
EMP-01 (EmpathBio Inc) 1,100 337 763 226.3 %
KUR-101 (Kures) 1,057 992 65 6.5 %
RL-007 (Recognify) 1,050 786 264 33.6 %
Novel drug compounds (Invyxis) 1,035 - 1,035 100.0 %
DMX-1002 (DemeRx IB) 670 841 (171 ) -20.4 %
Novel compounds (TryptageniX) 564 - 564 100.0 %
Novel compounds (EntheogeniX) 552 195 357 183.1 %
VLS-01 (Viridia) 522 526 (4 ) -0.7 %
RLS-01 (Revixia) 453 275 178 64.9 %
Novel drug delivery (InnarisBio) 322 271 51 18.9 %
Other (Introspect, Psyber, Psyprotix,
Neuronasal) 147 377 (231 ) -61.1 %
Unallocated research and development
expenses:
Personnel expenses 7,396 7,159 237 3.3 %
Professional and consulting services 262 75 187 248.9 %
Other 202 189 13 6.9 %
Total research and development expenses
$ 5,665 42.4 % Research and development expenses were$19.0 million for the three months endedSeptember 30, 2022 , compared to$13.4 million for the three months endedSeptember 30, 2021 . The increase of$5.6 million was primarily attributable to a$5.2 million increase of direct costs at the platform companies as discussed below, a$0.2 million net increase in personnel costs, which included a$1.3 million decrease in stock-based compensation and a$0.2 million increase in professional and consulting services fees. The$2.3 million increase in direct costs for PCN-101 was primarily due to an increase of$1.4 million in clinical development costs,$0.6 million increase in preclinical development costs,$0.2 million increase in manufacturing costs and$0.1 million of increased personnel costs. The$0.8 million increase in direct costs for EMP-001 was primarily due to an increase of$0.7 million in preclinical development costs,$0.2 increase in clinical development costs, offset by$0.1 million decrease in manufacturing costs. The$0.1 million increase in direct costs for KUR-101 was primarily due to$0.9 million increase in clinical development costs, offset by$0.8 million decrease in preclinical development costs. The$0.3 million increase in direct costs for the RL-007 program was primarily due to an increase of$0.1 million in clinical development costs and increase of$0.1 million in manufacturing costs.
The direct costs of
The$0.2 million decrease in direct costs for the DMX-1002 program relates to a decrease of$0.1 million in clinical development costs and$0.1 million decrease in preclinical development costs.
The direct costs of
The$0.4 million increase in direct costs for EntheogeniX was primarily due to$0.4 million increase in preclinical development costs, partially offset by a slight decrease in manufacturing costs.
The direct costs for VLS-01 were consistent period over period due to
The
The
57
--------------------------------------------------------------------------------
During the three months ended September 30, 2022 , we incurred $0.2 million of
direct costs in association with IntroSpect, Psyber, Psyprotix, and Neuronasal;
direct costs associated with these programs were related to preclinical
development and initial clinical-stage activities.
General and Administrative Expenses
General and administrative expense was$19.4 million for the three months endedSeptember 30, 2022 compared to$20.3 million for the three months endedSeptember 30, 2021 . The decrease of$0.9 million was largely attributable to a$2.6 million reduction in value-added tax expense and$0.7 million decrease in insurance cost, partially offset by a$1.3 million increase in personnel costs, which included a$0.4 million decrease in stock-based compensation and$1.1 million increase in investor relations and other costs.
Interest Income
Interest income for the three months endedSeptember 30, 2022 and 2021 primarily consisted of interest earned on our cash balances and notes receivable during these periods. Interest income did not change materially for the three months endedSeptember 30, 2022 and 2021.
Change in Fair Value of Contingent Consideration Liability-Related Parties
The milestone and royalty payments in relation to the acquisition of Perception, InnarisBio and TryptageniX were recorded at the acquisition date or at the exercise date related to the call option, and is subsequently remeasured to fair value. For the three months endedSeptember 30, 2022 we recognized income of$0.4 million and for the three months endedSeptember 30, 2021 , we recognized income of$0.5 million . The immaterial change in the fair value of the contingent consideration liability were primarily due to updates to certain assumptions used to calculate the Perception and TryptageniX contingent consideration liabilities, such as the discount rate.
Change in Fair Value of Warrant Liability
Changes in fair value consist of subsequent remeasurement of our warrant
liability relating to issued and outstanding warrants to purchase shares of
Neuronasal's common stock acquired in connection with the acquisition of
Neuronasal in
Change in Fair Value of Securities carried at Fair Value
Changes in fair value of securities consists of changes in fair value of
available for sale securities. We purchased the securities in
Foreign Exchange Gain (Loss), net
We recorded a gain of$4.5 million related to foreign currency exchange rates for the three months endedSeptember 30, 2022 and a gain of$6.4 million related to foreign currency exchange rate for the three months endedSeptember 30, 2021 . This was due to the impact of fluctuations in the foreign currency exchange rate between the Euro and theU.S. dollar on our foreign denominated balances.
Other expense, net
Other expense, net primarily consists of interest expense incurred in connection with our term loan under the Loan Agreement entered into inAugust 2022 . Upon closing of the Loan Agreement, Hercules Capital, Inc. issued a term loan advance in the amount of$15.0 million . The increase of$0.1 million for the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 was attributed to an increase in principal amounts of our debt.
Provision For Income Taxes
We incurred current income tax expense of$0.1 million for the three months endedSeptember 30, 2022 compared to$0.4 million for the three months endedSeptember 30, 2021 . Our current income tax expense relates to book profits and thus taxable profits generated in ourUnited States , Australian, andUnited Kingdom based subsidiaries.
Losses from Investments in Equity Method Investees
Losses from investment in equity method investees for the three months endedSeptember 30, 2022 and 2021 was$2.4 million and$4.8 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. 58 --------------------------------------------------------------------------------
Comparison of the Nine Months Ended
Nine Months Ended September 30,
(unaudited)
2022 2021 $ Change % Change
(in thousands, except percentages)
License revenue $ 195 $ 20,146 (19,951 ) -99.03 %
Operating expenses:
Research and development 52,437 34,974 17,463 49.93 %
Acquisition of in-process research and
development 357 8,934 (8,577 ) -96.00 %
General and administrative 54,623 66,868 (12,245 ) -18.31 %
Total operating expenses 107,417 110,776 (3,359 ) -3.03 %
Loss from operations (107,222 ) (90,630 ) (16,592 ) 18.31 %
Other income (expense), net:
Interest income 361 80 281 351.25 %
Change in fair value of contingent
consideration liability -
related parties 525 (191 ) 716 -374.87 %
Change in fair value of derivative
liability - 41 (41 ) -100.00 %
Change in fair value of warrant
liability 53 87 (34 ) -39.08 %
Change in fair value of securities
carried at fair value (981 ) - (981 ) 0.00 %
Unrealized loss on other investments
held at fair value - (5,530 ) 5,530 -100.00 %
Loss on conversion of convertible
promissory notes - (513 ) 513 -100.00 %
Gain on consolidation of a variable
interest entity - 3,543 (3,543 ) -100.00 %
Foreign exchange gain (loss), net 11,515 5,446 6,069 111.44 %
Other income (expense), net (112 ) (355 ) 243 -68.45 %
Total other income (expense), net 11,361 2,608 8,753 335.62 %
Loss before income taxes (95,861 ) (88,022 ) (7,839 ) 8.91 %
Provision for income taxes (227 ) (432 ) 205 -47.45 %
Gain on dilution of equity method
investments - 16,923 (16,923 ) -100.00 %
Losses from investments in equity method
investees, net of tax (14,680 ) (9,440 ) (5,240 ) 55.51 %
Net loss $ (110,768 ) $ (80,971 ) (29,797 ) 36.80 %
Net loss attributable to redeemable
noncontrolling interests and
noncontrolling interests (3,394 ) (2,040 ) (1,354 ) 66.37 %
Net loss attributable to ATAI Life
Sciences N.V. stockholders $ (107,374 ) $ (78,931 ) $ (28,443 ) 36.04 %
License Revenue
Perception satisfied the performance obligation related to the license under the
Otsuka Agreement upon delivery of the license and we recognized $19.7 million
allocated to the license as license revenue during the nine months ended
September 30, 2021 . Additionally, we recognized revenues of $0.4 million related
to certain research and development services during the nine months ended
September 30, 2021 . For the nine months ended September 30, 2022 , the Company
recognized revenue of $0.2 million related to certain research and development
services performed during the period. No other performance obligations were
satisfied during the nine month period ended September 30, 2022 .
59
--------------------------------------------------------------------------------Research and Development Expenses
The table and discussion below present research and development expenses for the
nine months ended
Nine Months Ended September 30,
2022 2021 Change % Change
(in thousands, except percentages)
Direct research and development
expenses by program:
PCN-101 (Perception) $ 9,503 $ 5,412 $ 4,091 75.6 %
EMP-01 (EmpathBio Inc) $ 3,542 668 2,874 430.3 %
KUR-101 (Kures) $ 3,065 1,680 1,385 82.4 %
VLS-01 (Viridia) $ 2,098 1,593 505 31.7 %
Novel drug compounds (Invyxis) $ 2,831 - 2,831 100.0 %
DMX-1002 (DemeRx IB) $ 2,160 2,676 (516 ) -19.3 %
RLS-01 (Revixia) $ 1,797 555 1,242 223.9 %
RL-007 (Recognify) $ 1,758 1,862 (104 ) -5.6 %
Novel compounds (TryptageniX) $ 1,265 - 1,265 100.0 %
Novel compounds (EntheogeniX) $ 1,222 440 782 177.7 %
Novel drug delivery (InnarisBio) $ 705 495 210 42.5 %
Other (Introspect, Psyber, Psyprotix,
Neuronasal) $ 804 566 238 42.0 %
Unallocated research and development
expenses:
Personnel expenses $ 20,450 18,278 2,172 11.9 %
Professional and consulting services $ 752 378 374 99.0 %
Other $ 484 371 113 30.4 %
Total research and development expenses
$ 17,463 49.9 % Research and development expenses were$52.5 million for the nine months endedSeptember 30, 2022 , compared to$35.0 million for the nine months endedSeptember 30, 2021 . The increase of$17.5 million was primarily attributable to an increase of$14.8 million of direct costs at the platform companies as discussed below, a$2.2 million increase in personnel costs, which included a$2.8 million decrease in stock-based compensation and a$0.5 million increase in professional and consulting services. The$4.1 million increase in direct costs for PCN-101 was primarily due to an increase of$3.2 million in clinical development costs,$0.5 million increase in personnel costs,$0.3 million increase in manufacturing costs and$0.2 million increase in preclinical development costs. The$2.9 million increase in indirect costs for EMP-001 was primarily due to$2.4 million increase in preclinical development costs,$0.3 million increase in manufacturing costs and$0.2 million increase in clinical development costs. The$1.4 million increase in direct costs for KUR-101 was primarily due to an increase of$2.0 million in clinical development costs, offset partially by a decrease of$0.4 million in preclinical development costs and$0.2 million decrease in personnel costs. The$0.5 million increase in direct costs for VLS-01 was primarily due to an increase of$0.5 million in clinical development costs and$0.3 million increase in manufacturing costs, partially offset by$0.3 million decrease in preclinical development costs. Additionally,$0.5 million of manufacturing costs incurred were credited against our Strategic Development Agreement with IntelgenX. Per this agreement, IntelgenX will reimburse atai for specified research and development costs, up to 20% of the proceeds IntelgenX receives from atai for purchases of IntelgenX securities. See Note 5 to our unaudited condensed consolidated financial statements appearing under Part 1, Item 1 for more information.
The direct costs of
The reduction of direct costs for the DMX-1002 program of
The increase of direct costs for RLS-01 by$1.2 million was primary attributable to an increase of$0.9 million in manufacturing costs and$0.3 million increase in preclinical development costs.
The
The direct costs of
The$0.8 million increase in direct costs for EntheogeniX was primarily due to an increase of$1.0 million in preclinical development costs, partially offset by$0.2 million decrease in manufacturing costs. 60 --------------------------------------------------------------------------------
The
During the nine months endedSeptember 30, 2022 , we incurred$0.8 million of direct costs in association with IntroSpect, Psyber, Psyprotix, and Neuronasal. Direct costs associated with these programs were related to preclinical development and initial clinical-stage activities.
Acquisition of
Nine Months Ended September 30,
2022 2021 Change % Change
(in thousands, except percentages)
Acquisition of in-process research
and development expense by program:
Kures $ 357 $ - $ 357 100.00%
Neuronasal - 7,962 (7,962 ) -100.00%
InnarisBio - 972 (972 ) -100.00%
Total acquisition of in-process
research and development expense
Acquisition of in-process research and development expenses was$0.4 million for the nine months endedSeptember 30, 2022 which relates to license costs incurred by Kures. Acquisition of in-process research and development expenses was$9.0 million for the nine months endedSeptember 30, 2021 , which was IPR&D acquired from Neuronasal inMay 2021 and InnarisBio inMarch 2021 . The acquired IPR&D was considered to have no future alternative use.
General and Administrative Expenses
General and administrative expenses were$54.6 million for the nine months endedSeptember 30, 2022 compared to$66.9 million for the nine months endedSeptember 30, 2021 . The decrease of$12.3 million was largely attributable to a decrease of$9.6 million in personnel costs, which included a$16.9 million decrease in stock-based compensation, a$5.4 million reduction in value-added tax expense and$2.4 million decrease in professional and consulting services, partially offset by a$2.2 million increase in insurance and$3.0 million increase in investor relations and other costs.
Interest Income
Interest income for the nine months endedSeptember 30, 2022 and 2021 primarily consisted of interest earned on our cash balances and notes receivable during these periods. We had interest income for the nine months endedSeptember 30, 2022 and 2021 of$0.4 million and$0.1 million , respectively.
Change in Fair Value of Contingent Consideration Liability-Related Parties
The milestone and royalty payments in relation to the acquisition of Perception, InnarisBio and TryptageniX were recorded at the acquisition date or at the exercise date related to the call option, and is subsequently remeasured to fair value. For the nine months endedSeptember 30, 2022 , we recorded income of$0.5 million due to the decrease in the fair value of our Contingent Consideration Liabilities.
For the nine months ended
Change in Fair Value of Warrant Liability
Changes in fair value consist of subsequent remeasurement of our warrant
liability relating to issued and outstanding warrants to purchase shares of
Neuronasal's common stock acquired in connection with the acquisition of
Neuronasal in
Change in Fair Value of Securities carried at Fair Value
Changes in fair value of securities consists of changes in fair value of available for sale securities. We purchased the securities inJanuary 2022 . During the nine months endedSeptember 30, 2022 and 2021, we recognized a loss of$1.0 million and an immaterial change, respectively, relating to the fair value of securities. 61 --------------------------------------------------------------------------------
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 nine months endedSeptember 30, 2022 , we recognized$0 of unrealized loss on other investments held at fair value. During the nine months endedSeptember 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 nine months endedSeptember 30, 2021 was$0.5 million . InJune 2021 , upon the funding of the Otsuka 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 . Upon conversion, no further loss will be recorded.
Gain on Consolidation of a Variable Interest Entity
Gain on consolidation of a variable interest entity for the nine months endedSeptember 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. Upon consolidation, no further gain will be recorded.
Foreign Exchange Gain (Loss), Net
We recorded a gain of$11.5 million related to foreign currency exchange rates for the nine months endedSeptember 30, 2022 and a gain of$5.4 million related to foreign currency exchange rates for the nine months endedSeptember 30, 2021 . This was due to the impact of fluctuations in the foreign currency exchange rate between the Euro and theU.S. dollar on our foreign denominated balances.
Other Expense, Net
Other expense, net was$0.1 million for the nine months endedSeptember 30, 2022 compared to$0.3 million for the nine months endedSeptember 30, 2021 . The decrease of$0.2 million was due to the Company incurring fewer months of interest expense during the nine months endedSeptember 30, 2022 in connection with the Loan and Security Agreement with Hercules. The interest expense incurred during the nine months endedSeptember 30, 2021 was incurred in relation to the Perception convertible promissory notes, which converted inJune 2021 . Provision For Income Taxes We incurred current income tax expense of$0.2 million for the nine months endedSeptember 30, 2022 compared to$0.4 million for the nine months endedSeptember 30, 2021 . Our current income tax expense relates to book profits and thus taxable profits generated in ourUnited States , Australian, andUnited Kingdom based subsidiaries.
Losses from Investments in Equity Method Investees
Losses from investment in equity method investees for the nine months endedSeptember 30, 2022 and 2021 were$14.7 million and$9.4 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.
Liquidity and Capital Resources
Sources of Liquidity Initial Public Offering InJune 2021 , we completed our IPO and issued and sold 17,250,000 of our common shares at a price to the public of$15.00 per share, which included the exercise in full by the underwriters of their option to purchase 2,250,000 additional common shares. 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 . As ofSeptember 30, 2022 , we had cash and cash equivalents of$142.5 million and short-term securities of$161.5 million . 62 --------------------------------------------------------------------------------
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 the 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. In 2021, several noteholders elected to convert their convertible promissory notes into shares ofATAI Life Sciences N.V. These investors paid €17.00 per share for the aggregate amount of €5.8 million or$6.9 million in order to convert their convertible promissory notes intoATAI Life Sciences AG common shares, which was in accordance with the original terms of the 2018 Convertible Note Agreements. In May andJuly 2022 , certain noteholders elected to convert some of their convertible promissory notes into shares ofATAI Life Sciences N.V. The investors paid €17.00 per share for the aggregate amount of €4.6 million or$4.6 million in order to convert their convertible promissory notes intoATAI Life Sciences AG common shares. Concurrently, with the conversion of the 2018 Convertible Notes intoATAI Life Sciences AG shares, the shares ofATAI Life Sciences AG that were issued to the noteholders were exchanged for shares ofATAI Life Sciences N.V. through a transfer and sale arrangement such thatATAI Life Sciences AG continued to remain a wholly owned subsidiary ofATAI Life Sciences N.V and the transaction was accounted for as an equity transaction that resulted in no gain or loss recognition. The remaining convertible promissory notes balance as ofSeptember 30, 2022 was$0.4 million .
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$102.6 million as ofSeptember 30, 2022 . As ofSeptember 30, 2022 , the carrying value of our investment in COMPASS was$0 under the equity method. Through a series of open market transactions betweenNovember 23, 2021 andDecember 7, 2021 we purchased additional equity investments in COMPASS common stock. As ofSeptember 30, 2022 , our voting interest in COMPASS was 22.5%.
Hercules Term Loan
InAugust 2022 , we entered into a Loan and Security Agreement, with Hercules Capital, Inc. See " - Liquidity Risks - Indebtedness- Hercules Term Loan" for additional information. Liquidity Risks As ofSeptember 30, 2022 , we had cash and cash equivalents of$142.5 million and short-term securities of$161.5 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 from the date of this Quarterly Report. We expect to continue to incur substantial additional expenditures in the near term to support our ongoing activities. Additionally, we have incurred and expect to continue 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;
•
the cash requirements for purchasing additional equity from certain of our atai companies upon the achievement of specified development milestone events;
•
the cash requirements for developing our programs and our ability and willingness to finance their continued development;
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the cash requirements for 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 on acceptable terms or at all, 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 and other strategic transactions. 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 nine months endedSeptember 30, 2022 and 2021: September 30, 2022 2021 (in thousands) Net cash used in operating activities$ (73,962 ) $ (42,737 ) Net cash used in investing activities (166,900 ) (32,643 ) Net cash provided by financing activities 21,707 408,139
Effect of foreign exchange rate changes on cash (572 ) 303 Net increase (decrease) in cash
$ (219,727 ) $ 333,062
Net cash used in operating activities was$73.9 million for the nine months endedSeptember 30, 2022 , which consisted of a net loss of$110.7 million , adjusted by non-cash charges of$36.2 million and net cash inflows from the change in operating assets and liabilities of$0.7 million . The non-cash charges primarily consisted of$30.2 million of stock-based compensation,$14.7 million of losses from our equity method investments and a$1.0 million loss relating to the change in the fair value of our short-term securities during the period, partially offset by$9.5 million of unrealized foreign exchange gains. The net cash inflows from the change in operating assets and liabilities were primarily due to a$2.4 million decrease in accounts payable and a decrease of$1.8 million in prepaid expenses and other current assets, partially offset by a$4.9 million increase in accrued liabilities. Net cash used in operating activities was$42.7 million for the nine months endedSeptember 30, 2021 , which consisted of a net loss of$81.0 million , adjusted by non-cash charges of$46.1 million and net cash outflows from the change in operating assets and liabilities of$7.9 million . The non-cash charges primarily consisted of$50.0 million of stock-based compensation,$8.9 million of IPR&D considered to have no future alternative use,$9.4 million of losses from our equity method investments,$8.3 million of unrealized foreign exchange gains and$5.5 million of unrealized loss on other investments held at fair value and 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$9.4 million increase in prepaid expenses and a$1.7 million decrease in accounts payable, partially offset by a$3.3 million increase in accrued liabilities and$0.1 million increase in deferred revenue.
Net cash used in investing activities was$166.9 million for the nine months endedSeptember 30, 2022 , primarily driven by$256.5 million of cash paid for securities carried at fair value, partially offset by$94.0 million of proceeds from the sale and maturities of securities carried at fair value,$3.0 million of loans remitted to related parties,$0.6 million of additional investments in our platform companies, and$0.7 million of purchases of property and equipment. 64 -------------------------------------------------------------------------------- Net cash used in investing activities was$32.6 million for the nine months endedSeptember 30, 2021 , primarily driven by additional investments of$23.7 million in our other investments,$5.4 million additional investments into equity-method investees,$2.6 million of loans to related parties,$0.7 million of capitalized internal-use software development costs,$0.1 million of purchases of property and equipment, and$0.3 million of purchase of other assets.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was$21.7 million for the nine months endedSeptember 30, 2022 , due to$15 million proceeds from debt financings,$4.6 million of proceeds from the conversion of convertible notes to common stock,$2.2 million of proceeds from stock option exercises and$0.6 million received from the issuance of subsidiary preferred shares, partially offset by$0.7 million of debt financing costs remitted during the nine month period. Net cash provided by financing activities was$408.1 million for the nine months endedSeptember 30, 2021 , primarily due to$409.9 million of net proceeds from the issuance of our common stock,$6.1 million of proceeds from conversion of convertible notes to common stock,$2.4 million of proceeds from our sale ofInnoplexus AG investments treated as a secured financing, and$1.6 million of proceeds from the issuance of convertible promissory notes. The net cash influx was offset by$12.4 million paid for common stock issuance costs. Indebtedness Convertible Notes
Between
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. In 2021, several noteholders elected to convert their convertible promissory notes into shares ofATAI Life Sciences N.V. These investors paid €17.00 per share for the aggregate amount of €5.8 million ($6.9 million ) in order to convert their convertible promissory notes intoATAI Life Sciences AG common shares, which was in accordance with the original terms of the 2018 Convertible Note Agreements. InMay 2022 andJuly 2022 , additional noteholders elected to convert some of their convertible promissory notes into shares ofATAI Life Sciences N.V. The investors paid €17.00 per share for the aggregate amount of €4.6 million or$4.6 million in order to convert their convertible promissory notes intoATAI Life Sciences AG common shares, which was in accordance with the original terms of the 2018 Convertible Note Agreements. Concurrent with the conversion of the 2018 Convertible Notes intoATAI Life Sciences AG shares, the shares ofATAI Life Sciences AG that were issued to the noteholders were exchanged for 5,478,176 shares ofATAI Life Sciences N.V. through a transfer and sale arrangement such thatATAI Life Sciences AG continued to remain a wholly owned subsidiary ofATAI Life Sciences N.V and the transaction was accounted for as an equity transaction that resulted in no gain or loss recognition. As ofSeptember 30, 2022 an aggregate principal amount of$0.4 million remained outstanding under the 2018 Convertible Notes. 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. The Perception Notes converted inJune 2021 in connection with the receipt of proceeds of$20.0 million pursuant to the licensing and collaboration arrangement between Perception and Otsuka.
Investment in
OnMarch 16, 2020 , Perception 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 were due and payable onJune 30, 2022 unless earlier converted. InDecember 2020 , Perception 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. 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. InMay 2021 , Perception 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 may not prepay in whole or in part without our consent. 65 -------------------------------------------------------------------------------- InJune 2021 , Perception received proceeds of$20.0 million pursuant to the Ostuka Agreement. Upon receipt of the proceeds, the convertible promissory notes automatically converted into 6,456,595 shares of Series A preferred stock of Perception pursuant to their original terms.
Hercules Term Loan
OnAugust 9, 2022 (the "Closing Date"), we,ATAI Life Sciences AG ("ATAI AG " and together with the Company, the "Borrowers") and certain of our subsidiary guarantors (collectively, the "Subsidiary Guarantors") entered into a Loan and Security Agreement (the "Loan Agreement") with Hercules Capital, Inc. ("Hercules"), in its capacity as administrative agent and collateral agent (the "Agent") and as a lender, and certain other financial institutions that from time to time become parties to the Loan Agreement as lenders (collectively, the "Lenders"). The Loan Agreement provides for term loans in an aggregate principal amount of up to$175.0 million under multiple tranches (the "2022 Term Loan Facility"), available as follows: (i) a term loan advance in the amount of$15.0 million on the Closing Date (the "Tranche 1A Advance"); (ii) at any time after the Closing Date but on or prior toMarch 15, 2023 (the "Tranche 1B Expiration Date"), term loan advances in an aggregate principal amount of up to$20.0 million (the "Tranche 1B Advances"); (iii) at any time beginning upon the earlier of (A) the Tranche 1B Expiration Date and (B) the date on which all amounts available to be drawn under the Tranche 1B Advances have been drawn and on or prior toDecember 15, 2023 (the "Tranche 1C Expiration Date"), term loan advances in an aggregate principal amount of up to$25.0 million (the "Tranche 1C Advances" and together with the Tranche 1A Advance and the Tranche 1B Advances, the "Tranche 1 Advances"); (iv) subject to us achieving certain performance milestones and, beginning upon the earlier of (A) the date on which all amounts available to be drawn under the Tranche 1C Advances have been drawn and (B) the Tranche 1C Expiration Date, on or prior toJune 30, 2024 , term loan advances in an aggregate principal amount of$15.0 million (the "Tranche 2 Advances"); and (v) subject to approval by the Lenders' respective investment committees in its discretion, on or prior toMarch 31, 2025 , term loan advances in an aggregate principal amount of up to$100.0 million (the "Tranche 3 Advances"). With the exception of the first$15.0 million tranche available on the Closing Date, each of the tranches may be drawn down in$5.0 million increments at our election, subject to applicable conditions to draw. We have agreed to use the proceeds of the 2022 Term Loan Facility for working capital and general business purposes. We are permitted to engage in certain specified transactions (subject to mandatory prepayment in certain instances as well as certain limitations, including the pledge of equity interests of certain subsidiaries and VIEs), including but not limited to, (i) entering into non-exclusive and certain specified exclusive licensing arrangements with respect to intellectual property without the consent of the Lenders; and (ii) entering into certain permitted acquisitions. The 2022 Term Loan Facility will mature onAugust 1, 2026 (the "Maturity Date"), which may be extended untilFebruary 1, 2027 if we achieve certain performance milestones, raise at least$175.0 million of unrestricted new net cash proceeds from certain permitted sources after the Closing Date and prior toJune 30, 2024 , and satisfy certain other specified conditions. The outstanding principal balance of the 2022 Term Loan Facility bears interest at a floating interest rate per annum equal to the greater of either (i) the prime rate as reported in theWall Street Journal plus 4.55% and (ii) 8.55%. Accrued interest is payable monthly following the funding of each term loan advance. We may make payments of interest only, without any loan amortization payments, for a period of thirty (30) months following the Closing Date, which period may be extended to (i) thirty-six months if certain additional performance milestones have been achieved; and (ii) forty-two months if certain additional performance milestones have been achieved. At the end of the interest only period, we are required to begin repayment of the outstanding principal of the 2022 Term Loan Facility in equal monthly installments. As collateral for the obligations under the 2022 Term Loan Facility, we have granted to the Agent for the benefit of the Lenders a senior security interest in substantially all of our,ATAI AG and each Subsidiary Guarantor's property (including a pledge of equity interests of certain subsidiaries and VIEs), exclusive of intellectual property, with certain limited exceptions set forth in the Loan Agreement. The Loan Agreement contains customary closing and commitment fees, prepayment fees and provisions, events of default and representations, warranties and affirmative and negative covenants, including a financial covenant requiring us to maintain certain levels of cash in accounts subject to a control agreement in favor of the Agent (the "Qualified Cash") at all times commencing from the Closing Date, which includes a cap on the amount of cash that can be held by, among others, certain of our foreign subsidiaries inAustralia and theUnited Kingdom . In addition, the financial covenant under the Loan Agreement requires that beginning on the later of (i)July 1, 2023 and (ii) the date on which the aggregate outstanding amount borrowed under the 2022 Term Loan Facility is equal to or greater than$40.0 million , we shall maintain Qualified Cash in an amount no less than the sum of (1) 33% of the outstanding amount under the 2022 Term Loan Facility, and (2) the amount of the Borrowers' and Subsidiary Guarantors' accounts payable that have not been paid within 180 days from the invoice date of the relevant account payable, subject to certain exceptions; provided, that the financial covenant shall not apply on any day that our market capitalization is at least$600.0 million measured on a consecutive 10-business day period immediately prior to such date of measurement and tested on a daily basis. Upon the occurrence of an event of default, including a material adverse effect, subject to certain exceptions, on our andATAI AG's , taken together, business, operations, properties, assets or financial condition, and subject to any specified cure periods, all amounts owed by us may be declared immediately due and payable by the Lenders. As of the Closing Date, we were in compliance with all applicable covenants under the Loan Agreement. 66 -------------------------------------------------------------------------------- In addition, we are required to make a final payment fee (the "End of Term Charge") upon the earlier of (i) the Maturity Date, (ii) the date that we prepay, in full or in part, the principal balance of the 2022 Term Loan Facility, or (iii) the date that the outstanding balance of the 2022 Term Loan Facility becomes due and payable. The End of Term Charge is 6.95% of the aggregate original principal amount of the term loans so repaid or prepaid under the Loan Agreement. We may, at our option, prepay the term loans in full or in part, subject to a prepayment penalty equal to (i) 2.00% of the principal amount prepaid if the prepayment occurs on or prior to the first anniversary of the Closing Date, (ii) 1.0% of the principal amount prepaid if the prepayment occurs after the first anniversary and on or prior to the second anniversary of the Closing Date, and (iii) 0.5% of the principal amount prepaid if the prepayment occurs after the second anniversary and prior to the Maturity Date.
Material Cash Requirements from Known Contractual and Other Obligations and Commitments
Our commitments and obligations were reported in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , which was filed with theSecurities and Exchange Commission , orSEC , onMarch 30, 2022 . During the nine months endedSeptember 30, 2022 , there have been no material changes from the contractual commitments and obligations previously disclosed in our Form 10-K.
Off-Balance Sheet Arrangements
As of
Recently Adopted 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
We believe that the assumptions and estimates associated with licenses of intellectual property, research and development expenses, acquisitions and share-based compensation have the greatest potential impact on our financial statements. Therefore, we consider these to be our critical accounting estimates. Our critical accounting policies are detailed in our Form 10-K.
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 unaudited consolidated financial statements included elsewhere in this Quarterly Report, we have early adopted certain 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$1.235 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 shares held by non-affiliates equal or 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. 67
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