The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10Q and our audited consolidated financial statements and related notes for the year endedDecember 31, 2021 included in our Annual Report on Form 10-K, or the Annual Report, filed with theSecurities and Exchange Commission , or theSEC , onFebruary 24, 2022 . This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as "anticipate," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "project," "will," "would" or the negative or plural of these words or similar expressions or variations. Such forward-looking statements are subject to a number of risks, uncertainties, assumptions and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified and discussed in the section titled "Risk Factors," set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q, Part I, Item 1A of our Annual Report, and in subsequentSEC filings. You should not rely upon forward-looking statements as predictions of future events. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Overview We are a clinical-stage biopharmaceutical company driven to create and deliver transformative medicines for people living with psychiatric and neurological conditions. Our pipeline is built on the broad therapeutic potential of our lead product candidate, KarXT (xanomeline-trospium), an oral modulator of muscarinic receptors that are located both in the central nervous system, or CNS, and various peripheral tissues. KarXT is our proprietary product candidate that combines xanomeline, a novel muscarinic agonist, with trospium, an approved muscarinic antagonist, to preferentially stimulate muscarinic receptors in the CNS. We are initially developing KarXT for the treatment of acute psychosis in adults with schizophrenia. KarXT combines xanomeline, a muscarinic receptor agonist that preferentially stimulates M1 and M4 muscarinic receptors, and trospium, an approved muscarinic receptor antagonist that does not measurably cross the blood-brain barrier, confining its effects to peripheral tissues. M1 and M4 muscarinic receptors are the receptor subtypes believed to mediate the antipsychotic and procognitive effects of xanomeline and other muscarinic agonists. Results from preclinical studies and clinical trials conducted by third parties support the hypothesis that xanomeline can reduce psychosis and improve cognition. To our knowledge, xanomeline is the only muscarinic orthosteric agonist that has demonstrated therapeutic benefit in clinical trials in both schizophrenia and Alzheimer's Disease, or AD. Like all muscarinic orthosteric agonists studied to date, however, xanomeline's tolerability has been limited by side effects arising from muscarinic receptor stimulation in peripheral tissues, leading to nausea, vomiting, diarrhea and increased salivation and sweating, collectively referred to as cholinergic adverse events. Trospium is a muscarinic receptor antagonist approved inthe United States andEurope for the treatment of overactive bladder that inhibits all five muscarinic receptor subtypes in peripheral tissues. We believe that the combination of xanomeline and trospium in KarXT has the potential to preferentially stimulate M1 and M4 muscarinic receptors in the brain without stimulating muscarinic receptors in peripheral tissues in order to achieve meaningful therapeutic benefit in patients with psychotic and cognitive disorders. The EMERGENT program is our clinical program evaluating KarXT for the treatment of schizophrenia as a monotherapy, and includes our completed positive Phase 2 EMERGENT-1 and Phase 3 EMERGENT-2 trials and three ongoing Phase 3 trials (EMERGENT-3, EMERGENT-4, and EMERGENT-5). InAugust 2022 , we announced positive topline results from our Phase 3 EMERGENT-2 trial evaluating the efficacy, safety and tolerability of KarXT compared to placebo for the treatment of acute psychosis in adults with schizophrenia. KarXT met the primary endpoint, demonstrating a statistically significant and clinically meaningful 9.6-point reduction in Positive and Negative Syndrome Scale, or PANSS, total score compared to placebo at Week 5 (Cohen's d effect size of 0.61). KarXT also demonstrated an early and sustained statistically significant reduction of symptoms, as assessed by PANSS total score, starting at Week 2 and maintained such reduction through all timepoints in the trial. KarXT also met key secondary endpoints, demonstrating a statistically significant 2.9-point reduction in the PANSS positive symptoms subscale, a 1.8-point reduction in PANSS negative symptoms subscale and a 2.2-point reduction in PANSS negative Marder factor subscale. We are evaluating the exploratory cognitive endpoint in EMERGENT-2, and plan to provide these results in the future. 18 -------------------------------------------------------------------------------- KarXT was generally well tolerated in the EMERGENT-2 trial. Overall discontinuation rates were similar between KarXT and placebo groups (25% vs. 21%). The overall treatment-emergent adverse events, or TEAEs, rate for KarXT and placebo was 75% and 58%, respectively. TEAEs associated with KarXT were mild to moderate in severity, time limited, and resolved with repeated dosing, consistent with prior trials. Discontinuation rates related to TEAEs were similar between KarXT (7%) and placebo (6%), and equal rates of serious TEAEs were observed between KarXT and placebo (2% in each group) and included suicidal ideation, worsening of schizophrenia symptoms, and appendicitis. None of the serious TEAEs were determined to be drug related. Following the positive results of EMERGENT-1 inNovember 2019 , we had an End-of-Phase 2 meeting with theU.S. Food and Drug Administration , or FDA, in which the FDA indicated that our completed Phase 2 EMERGENT-1 trial, along with one successful Phase 3 efficacy and safety trial, and additional safety data to meet regulatory requirements, would be acceptable to support a New Drug Application, or NDA, submission in schizophrenia. As a result of our recently completed Phase 3 EMERGENT-2 trial, we plan to submit our NDA for KarXT for the treatment of schizophrenia to the FDA in mid-2023. We define mid-year as the second and third quarters of a calendar year.
In addition to our completed Phase 2 EMERGENT-1 and Phase 3 EMERGENT-2 trials, our EMERGENT program includes the following ongoing Phase 3 trials:
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EMERGENT-3: A five-week inpatient trial evaluating the efficacy and safety of KarXT compared to placebo in 246 adults with schizophrenia, conducted inthe United States andUkraine . We completed enrollment of EMERGENT-3 in the fourth quarter of 2022 and we anticipate topline data in the first quarter of 2023.
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EMERGENT-4: A 52-week outpatient, open-label extension trial evaluating the long-term safety and tolerability of KarXT in adults with schizophrenia who completed EMERGENT-2 or EMERGENT-3.
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EMERGENT-5: A 52-week outpatient, open-label trial conducted in
In addition to the EMERGENT program, we plan to initiate the PENNANT trial, a three-year, open-label, outpatient Phase 3b trial evaluating the long-term safety, tolerability and efficacy of KarXT in up to 380 adults with schizophrenia inthe United States . Data from the trial will provide insight into the long-term use of KarXT over the period of multiple years. We expect to initiate the PENNANT trial in the fourth quarter of 2022. Given the unique mechanism of action of KarXT in comparison to existing standard of care therapies, we believe there is the potential for therapeutic benefit as both a monotherapy and as an adjunctive therapy for the treatment of schizophrenia. InNovember 2021 , we initiated our Phase 3 ARISE trial evaluating the safety and efficacy of KarXT compared to placebo as an adjunctive treatment in adults with schizophrenia who have an inadequate response to their current antipsychotic therapy. This six-week, 1:1 randomized, double-blind, placebo-controlled Phase 3 trial is designed to enroll approximately 400 adults with schizophrenia who have not achieved an adequate response to their current atypical antipsychotic treatment. The primary outcome measure of the trial is change in PANSS total score of KarXT compared to placebo at week 6. Upon completion of the trial at week 6, participants have the opportunity to enroll in our ARISE-2 trial, an on-going 52-week outpatient, open-label extension trial evaluating the long-term safety and tolerability of KarXT when dosed with atypical antipsychotic treatment. We anticipate topline data from the ARISE trial in the first half of 2024. We are also developing KarXT as a potential treatment for dementia-related psychosis, or DRP, with an initial focus on psychosis related to AD. The ADEPT program, which is the clinical program evaluating KarXT as a potential treatment for psychosis related to AD, will consist of three Phase 3 trials: ADEPT-1, ADEPT-2 and ADEPT-3. InAugust 2022 , we initiated our Phase 3 ADEPT-1 trial evaluating the efficacy and safety of KarXT compared to placebo in adults with moderate to severe psychosis related to AD. This trial consists of a 12-week, single-blind treatment period, followed by a 26-week, double-blind, randomized withdrawal period in which subjects who meet the response criteria will be randomized to receive KarXT or placebo. The single-blind treatment period is designed to enroll approximately 400 adults with AD, between 55 and 90 years old, with moderate to severe hallucinations or delusions, who are living at home or at an assisted living facility. The primary objective of this trial is to evaluate relapse prevention as measured by time from randomization to relapse during the 26-week, double-blind period. 19 -------------------------------------------------------------------------------- In addition, in 2023 we plan to initiate our Phase 3 ADEPT-2 and ADEPT-3 trials. ADEPT-2 will be a 12-week, flexible-dose, double-blind, placebo-controlled trial evaluating the efficacy and safety of KarXT versus placebo, and ADEPT-3 will be an open-label extension trial of ADEPT-1 and ADEPT-2 evaluating the long-term safety of KarXT in adults with psychosis related to AD. We anticipate topline data from both the ADEPT-1 and ADEPT-2 trials in 2025. Our initial focus on the AD dementia subtype of DRP reflects various strategic development, regulatory and commercial considerations, and we remain interested in exploring KarXT in other dementia subtypes in future development programs. Since our inception in 2009, we have focused substantially all of our efforts and financial resources on organizing and staffing our company, acquiring and developing our technology, raising capital, building our intellectual property portfolio, undertaking preclinical studies and clinical trials and providing general and administrative support for these activities. We have never generated revenue from product sales and have incurred significant net losses since inception. Our net losses were$200.1 million and$115.9 million for the nine months endedSeptember 30, 2022 and 2021, respectively. As ofSeptember 30, 2022 , we had an accumulated deficit of$488.0 million . Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our operating expenses and capital expenditures will increase substantially, particularly as we:
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invest significantly to further develop and potentially commercialize KarXT for our current and future indications;
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advance additional product candidates into preclinical and clinical development;
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seek regulatory approvals for any product candidates that successfully complete clinical trials;
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require the manufacture of larger quantities of our product candidates for clinical development and potential commercialization;
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hire additional clinical, scientific, management and administrative personnel;
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maintain, expand and protect our intellectual property portfolio;
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acquire or in-license other assets and technologies; and
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add additional operational, financial and management information systems and processes to support our ongoing development efforts, any future manufacturing or commercialization efforts and our ongoing operations as a public company. We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for a product candidate, which we expect will take a number of years, if ever, and the outcome of which is subject to significant uncertainty. Additionally, we currently use third parties such as contract research organizations, or CROs, and contract manufacturing organizations, or CMOs, to carry out our preclinical and clinical development activities, and we do not yet have a sales organization. If we obtain regulatory approval for any product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. 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 product sales, if ever, we expect to finance our operations through a combination of private and public equity offerings, debt financings, collaborations, strategic alliances and marketing, distribution, or licensing arrangements with third parties. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates. 20 -------------------------------------------------------------------------------- OnAugust 9, 2022 , we completed a follow-on public offering in which we issued and sold 4,011,628 shares of common stock, including full exercise of the underwriters' over-allotment option to purchase an additional 523,255 shares of common stock, at a public offering price of$215 per share. The aggregate net proceeds to us from the offering, inclusive of proceeds from the over-allotment exercise, were$819.1 million after deducting underwriting discounts and commissions of$43.1 million and offering expenses of$0.3 million . As ofSeptember 30, 2022 , we had cash, cash equivalents and available-for-sale investments of$1,192.0 million . We believe that our existing cash, cash equivalents and available-for-sale investments will be sufficient to meet our anticipated operating and capital expenditure requirements through the end of 2025. 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." Components of Our Results of Operations
Revenue
To date, we have not generated any revenue from product sales. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates. Our revenue to date has been derived from payments under our license agreement, or the Zai License Agreement, with Zai Lab (Shanghai) Co., Ltd., or Zai. We may also generate revenue in the future from payments under the Zai License Agreement or as a result of any other license or collaboration agreements for any of our product candidates or intellectual property. For the nine months endedSeptember 30, 2022 , we recognized revenue of$5.3 million under the Zai License Agreement, and less than$0.1 million associated with the sale of clinical drug supply to Zai. We cannot provide assurance as to the timing of future milestone or royalty payments under the Zai License Agreement, or that we will receive any of these payments at all. We generated no revenue from license or collaboration agreements in the three or nine months endedSeptember 30, 2021 . Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates and our drug discovery efforts, which include:
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personnel costs, including salaries and the related costs, and stock-based compensation expense for employees engaged in research and development functions;
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expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with CROs;
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expenses incurred in connection with CMOs that manufacture drug products for use in our preclinical and clinical trials;
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formulation costs and chemistry, manufacturing and controls, or CMC, costs; and
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expenses incurred under agreements with consultants who supplement our internal capabilities.
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and third-party service providers. Research and development costs directly related to our clinical development activities, such as fees paid to consultants, central laboratories, contractors, CMOs and CROs, are tracked on an indication-by-indication basis. Other costs that are indirectly related to our clinical development activities, such as formulation and CMC, preclinical, discovery and other unallocated expenses in the table below, are not allocated on an indication-by-indication basis due to the overlap of the potential benefit of those efforts across multiple indications that utilize KarXT and future product and development candidates. Unallocated expenses primarily relate to personnel or other consulting costs which are deployed across multiple projects under development. The following table summarizes our research and development expenses: 21 --------------------------------------------------------------------------------
Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (in thousands) (in thousands) Schizophrenia clinical trials$ 27,792 $ 21,520 $ 72,791 $ 39,220 Dementia-related psychosis clinical trials 1,854 198 3,802 1,596 Pain clinical trial - (34 ) - 143 CMC and formulation 8,301 3,883 21,674 9,460 Preclinical 526 993 1,522 1,736 Discovery 5,979 3,538 14,328 9,680 Unallocated expenses 17,498 8,677 44,126 21,273
Total research and development expense
We expect our research and development expenses to continue to increase for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, as our programs advance into later stages of development and we continue to conduct clinical trials. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. Because of the numerous risks and uncertainties associated with conducting product development, we cannot determine with certainty the duration and completion costs of our current or future preclinical studies and clinical trials or if, when, or to what extent we will generate revenues from the commercialization and sale of our product candidates. We may never succeed in achieving regulatory approval for our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, if and as we:
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continue to develop and conduct clinical trials for KarXT for our current and future indications;
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initiate and continue research, preclinical and clinical development efforts for future product candidates;
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seek to identify additional product candidates;
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seek regulatory approvals for KarXT for our current and future indications as well as any other product candidates that successfully complete clinical development;
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add operational, financial and management information systems and personnel, including personnel to support our product development;
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hire and retain additional personnel, such as clinical, quality control, scientific, commercial and administrative personnel;
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maintain, expand and protect our intellectual property portfolio;
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establish sales, marketing, distribution, manufacturing, supply chain and other commercial infrastructure in the future to commercialize various products for which we may obtain regulatory approval, if any;
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continue to assess the impact of the ongoing and evolving COVID-19 pandemic on the ability to execute research and development activities;
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add equipment and physical infrastructure to support our research and development; and
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acquire or in-license other product candidates and technologies.
A change in the outcome of any of these variables with respect to the development of any of our product candidates would significantly change the costs and timing associated with the development of that product candidate. We may never succeed in obtaining regulatory approval for any of our product candidates.
We do not believe that it is possible at this time to accurately project total indication-specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans. 22 --------------------------------------------------------------------------------
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related costs for personnel in executive, finance, commercial, and administrative functions, costs related to maintenance and filing of intellectual property, facility-related costs, insurance costs, and other expenses for outside professional services, including legal, human resources, data management, audit and accounting services, and costs incurred as we prepare for commercialization. Personnel costs consist of salaries, short-term incentive compensation, benefits, travel expense and stock-based compensation expense. We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates, and as we prepare to potentially commercialize. We will also continue to incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with operating as a public company. Other Income (Loss), Net Other income (loss), net, consists of interest income from our cash equivalents and available-for-sale investments and sublease income recognized in connection with the sublease of office space, offset by impairment loss on our right-of-use lease assets at ourArch Street facility, due to their carrying value exceeding their estimated fair value. Income Tax Provision Income tax expense of$0.5 million for the nine months endedSeptember 30, 2022 was related to foreign income taxes related to license revenue recognized under the Zai License Agreement. Results of Operations
Comparison of the three months ended
Three Months Ended September 30, 2022 2021 Change (in thousands) License and other revenue $ 81 $ -$ 81 Operating expenses: Research and development 61,950 38,775 23,175 General and administrative 19,125 12,393 6,732 Total operating expenses 81,075 51,168 29,907 Loss from operations (80,994 ) (51,168 ) (29,826 ) Total other income, net 4,031 236 3,795 Income tax provision - - -
Net loss attributable to common stockholders
(50,932 )
Research and Development Expenses
Three Months Ended September 30, 2022 2021 Change (in thousands) Direct research and development expenses: Schizophrenia clinical trials$ 27,792 $ 21,520 $ 6,272 Dementia-related psychosis clinical trials 1,854 198 1,656 Pain clinical trial - (34 ) 34 CMC and formulation 8,301 3,883 4,418 Preclinical 526 993 (467 ) Discovery 5,979 3,538 2,441 Unallocated expenses: Personnel related expenses (including stock-based compensation) 15,337 8,175 7,162 Consultant fees and other expenses 2,161 502 1,659 Total research and development expense$ 61,950 $ 38,775 $ 23,175 23
-------------------------------------------------------------------------------- Expenses related to our schizophrenia clinical trials increased by$6.3 million , primarily due to expenses related to close out costs for the EMERGENT-2 trial and enrollment costs related to our ongoing EMERGENT and ARISE Phase 3 trials. The increase of$1.7 million in expenses related to our DRP clinical trials is primarily driven by the initiation of the ADEPT-1 Phase 3 trial in the third quarter of 2022. The increase of$4.4 million in formulation and CMC expenses is primarily due to an increase in manufacturing activities in 2022 to obtain sufficient supply of KarXT to support current and future clinical trial activities as well as activities to support a planned NDA submission and potential commercialization. The decrease of$0.5 million in expenses related to preclinical activities is primarily due to the timing and execution of studies throughout 2022. The increase of$2.4 million in discovery costs is due to an increase in costs associated with our portfolio of discovery programs, including ongoing collaborations with Charles River Labs andPsychogenics, Inc. The increase of$7.2 million in personnel related costs was primarily a result of an increase in headcount and an increase of$2.2 million related to stock-based compensation expense. The increase of$1.7 million in consultant fees and other expenses was due to an increase in consulting costs not specifically allocated to discovery, preclinical, clinical, formulation and CMC activities.
General and Administrative Expenses
Three Months Ended September 30, 2022 2021 Change (in thousands) Personnel related expenses (including stock-based compensation)$ 11,548 $ 7,067$ 4,481 Professional and consultant fees 4,546 2,971 1,575 Other 3,031 2,355 676
Total general and administrative expense
12,393
The increase of$4.5 million in personnel related costs was primarily a result of an increase in headcount and an increase of$1.6 million related to stock-based compensation expense. The increase of$1.6 million in professional and consultant fees was primarily due to an increase in pre-commercial costs, accounting fees, legal costs and consulting fees related to our ongoing business activities. The increase of$0.7 million in other costs was primarily due to infrastructure and administrative related costs to support increased headcount. Other Income (Loss), Net Three Months Ended September 30, 2022 2021 Change (in thousands) Interest income $ 3,884 $ 114$ 3,770 Sublease income 147 122 25 Total other income, net $ 4,031 $ 236$ 3,795 Interest income is attributable to interest earned on our cash equivalents and available-for-sale investments. The increase of$3.8 million in interest income is primarily due to an increase in our cash equivalents and investment securities held, as well as an increase interest rates on such instruments, during the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 .
The increase in sublease income is due to the sublease of additional space
within our
24 --------------------------------------------------------------------------------
Comparison of the nine months ended
Nine Months Ended September 30, 2022 2021 Change (in thousands) License and other revenue $ 5,359 $ -$ 5,359 Operating expenses: Research and development 158,243 83,108 75,135 General and administrative 51,756 32,554 19,202 Total operating expenses 209,999 115,662 94,337 Loss from operations (204,640 ) (115,662 ) (88,978 ) Total other income (loss), net 5,044 (183 ) 5,227 Income tax provision (528 ) - (528 )
Net loss attributable to common stockholders
(115,845 )
Research and Development Expenses
Nine Months Ended September 30, 2022 2021 Change (in thousands) Direct research and development expenses: Schizophrenia clinical trials $ 72,791$ 39,220 $ 33,571 Dementia-related psychosis clinical trials 3,802 1,596 2,206 Pain clinical trial - 143 (143 ) CMC and formulation 21,674 9,460 12,214 Preclinical 1,522 1,736 (214 ) Discovery 14,328 9,680 4,648 Unallocated expenses: Personnel related expenses (including stock-based compensation) 38,594 19,800 18,794 Consultant fees and other expenses 5,532 1,473 4,059 Total research and development expense$ 158,243 $
83,108
Expenses related to our schizophrenia clinical trials increased by$33.6 million , primarily due to expenses related to enrollment and close out costs related to our EMERGENT Phase 3 trials, and enrollment related to our ARISE Phase 3 trials. The increase of$2.2 million in expenses related to our DRP clinical trials is primarily driven by start-up costs for, and initiation of, the ADEPT-1 Phase 3 trial in the third quarter of 2022. The decrease of$0.1 million in expenses related to our pain clinical trial is due to unrepeated costs of closing out the Phase 1b trial in the first half of 2021. The increase of$12.2 million in formulation and CMC expenses is primarily due to an increase in manufacturing activities in 2022 to obtain sufficient supply of KarXT to support current and future clinical trial activities as well as activities to support a planned NDA submission and potential commercialization. The decrease of$0.2 million in expenses related to preclinical activities is primarily due to the timing and execution of studies in 2022. The increase of$4.7 million in discovery costs is due to an increase in costs associated with our portfolio of discovery programs, including ongoing collaborations with Charles River Labs andPsychogenics, Inc. The increase of$18.8 million in personnel related costs was primarily a result of an increase in headcount and an increase of$7.0 million related to stock-based compensation expense. The increase of$4.1 million in consultant fees and other expenses was due to an increase in consulting costs not specifically allocated to discovery, preclinical, clinical, formulation and CMC activities.
General and Administrative Expenses
Nine Months Ended September 30, 2022 2021 Change (in thousands) Personnel related expenses (including stock-based compensation)$ 32,306 $ 19,658 $ 12,648 Professional and consultant fees 10,775 6,676 4,099 Other 8,675 6,220 2,455 Total general and administrative expense$ 51,756 $ 32,554 $ 19,202 25
-------------------------------------------------------------------------------- The increase of$12.7 million in personnel related costs was primarily a result of an increase in headcount and an increase of$6.3 million related to stock-based compensation expense. The increase of$4.1 million in professional and consultant fees was primarily due to an increase in pre-commercial costs, accounting fees, legal costs and consulting fees related to our ongoing business activities. The increase of$2.5 million in other costs was primarily due to increased lease costs relating to the addition of the High Street Lease inBoston, Massachusetts inMarch 2021 as well as other infrastructure and administrative related costs to support increased headcount. Other Income (Loss), Net Nine Months Ended September 30, 2022 2021 Change (in thousands) Interest income $ 4,611 $ 363$ 4,248 Sublease income 433 131 302 Impairment loss on right-of-use assets - (677 ) 677 Total other income (loss), net $ 5,044 $
(183 )
Interest income is attributable to interest earned on our cash equivalents and available-for-sale investments. The increase of$4.3 million in interest income is primarily due to an increase in cash equivalents and investment securities held, as well as an increase in interest rates on such instruments, during the nine months endedSeptember 30, 2022 compared to the nine months endedSeptember 30, 2021 .
The increase in sublease income is due to the sublease of our
Impairment loss on right-of-use assets for the nine months endedSeptember 30, 2021 represents impairment recognized on our right-of-use lease assets to the extent their carrying value exceeded their estimated fair value for ourArch Street facility leases inBoston, Massachusetts . See Note 9 to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Liquidity and Capital Resources Since our inception, we have incurred significant operating losses. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates until we receive FDA approval, which we expect will take a number of years, if ever. To date, we have funded our operations primarily with proceeds from the sale of redeemable convertible preferred stock, issuance of convertible notes, sales of our common stock and revenue from a license agreement. ThroughSeptember 30, 2022 , our operations have been financed by net proceeds of$25.7 million from the issuance of convertible notes,$91.0 million from the sale of shares of our redeemable convertible preferred stock,$93.0 million from the sale of our common stock in our initial public offering inJune 2019 ,$234.2 million from the sale of our common stock in a follow-on public offering inNovember 2019 ,$270.0 million from the sale of our common stock in a follow-on public offering inMarch 2021 ,$819.1 million from the sale of our common stock in a follow-on public offering inAugust 2022 , and$40.0 million from the Zai License Agreement. As ofSeptember 30, 2022 , we had$1,192.0 million in cash, cash equivalents and available-for-sale investments, and an accumulated deficit of$488.0 million . OnJuly 2, 2020 , we filed an automatically effective registration statement on Form S-3, or the Registration Statement, with theSEC which registers the offering, issuance and sale of an unspecified amount of common stock, preferred stock, debt securities, warrants and/or units of any combination thereof. We simultaneously entered into an equity distribution agreement withGoldman Sachs & Co. LLC , as sales agent, to provide for the issuance and sale by the Company of up to$150.0 million of common stock from time to time in "at-the-market" offerings under the Registration Statement and related prospectus filed with the Registration Statement, or the ATM Program. As ofSeptember 30, 2022 , no sales had been made pursuant to the ATM Program. Our primary use of cash has been to fund operating expenses, which consist of research and development and general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding prepaid expenses, accounts payable and accrued expenses. 26 --------------------------------------------------------------------------------
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented: Nine Months Ended September 30, 2022 2021 (in thousands) Net cash used in operating activities$ (149,249 ) $ (93,880 ) Net cash (used in) provided by investing activities (279,779 ) 19,332 Net cash provided by financing activities 850,392 273,825
Net increase in cash, cash equivalents and restricted cash $ 421,364
Cash Flows from Operating Activities
Cash used in operating activities for the nine months endedSeptember 30, 2022 was$149.2 million , consisting of a net loss of$200.1 million , partially offset by non-cash items, including stock-based compensation expense of$34.8 million . The change in our net operating assets and liabilities was mainly due to increases in prepaid expenses and other current assets of$5.9 million , accounts payable of$13.8 million , and accrued expenses of$6.6 million , primarily driven by timing of payments made to and services rendered by CROs and CMOs in connection with our clinical trials, and a decrease in accounts receivable of$1.7 million pursuant to cash collected under the Zai License Agreement. Cash used in operating activities for the nine months endedSeptember 30, 2021 was$93.9 million , consisting of a net loss of$115.9 million , partially offset by non-cash items, including stock-based compensation expense of$21.5 million , interest expense resulting from the amortization of premiums and accretion of discounts on our available-for-sale investments of$0.7 million , and impairment loss on right-of-use assets of$0.7 million . The change in our net operating assets and liabilities was mainly due to increases in prepaid expenses and other current assets of$8.4 million , and accounts payable and accrued expenses of$7.1 million , primarily driven by the timing of payments to and services rendered by CROs and CMOs in connection with our clinical trials.
Cash Flows from Investing Activities
Cash used in investing activities for the nine months endedSeptember 30, 2022 was$279.8 million , primarily attributable to purchases of investment securities of$459.4 million , which were partially offset by maturities of investment securities of$180.2 million . Cash provided by investing activities for the nine months endedSeptember 30, 2021 was$19.3 million , primarily attributable to maturities and sales of investment securities of$302.1 million and$9.0 million , respectively, which were partially offset by purchases of investment securities of$289.5 million .
Cash Flows from Financing Activities
Cash provided by financing activities for the nine months endedSeptember 30, 2022 was$850.4 million , which was primarily attributable to$819.1 million in net proceeds received from the sale of common stock in ourAugust 2022 follow-on public offering, and$31.4 million attributable to proceeds received from the exercise of stock options. Cash provided by financing activities for the nine months endedSeptember 30, 2021 was$273.8 million , which was primarily attributable to$270.0 million in net proceeds received from the sale of common stock in ourMarch 2021 follow-on public offering and$3.8 million attributable to proceeds received from the exercise of stock options.
Future Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, in particular as we continue to advance our product candidates through clinical trials and prepare for commercialization. In addition, we expect to incur additional costs associated with our ongoing operations as a public company. As ofSeptember 30, 2022 , we had cash and cash equivalents and available-for-sale investments of$1,192.0 million . Based on our current plans, we believe that our existing cash, cash equivalents and available-for-sale investments will be sufficient to meet our anticipated operating and capital expenditure requirements through the end of 2025. 27 -------------------------------------------------------------------------------- We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:
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the scope, progress, results and costs of researching and developing KarXT for our current and future indications as well as other product candidates we may develop;
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the timing of, and the costs involved in, obtaining marketing approvals for KarXT for our current and future indications as well as future product candidates we may develop and pursue;
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the number of future indications and product candidates that we pursue and their development requirements;
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if approved, the costs of commercialization activities for KarXT for the approved indication, or any other product candidate that receives regulatory approval to the extent such costs are not the responsibility of any future collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
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subject to receipt of regulatory approval, revenue, if any, received from commercial sales of KarXT for any indication or revenue received from any future product candidates;
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the extent to which we in-license or acquire rights to other products, product candidates or technologies;
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our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure;
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the costs of preparing, filing and prosecuting patent applications, and maintaining and protecting our intellectual property rights, including enforcing and defending intellectual property related claims; and
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the ongoing costs of operating as a public company.
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. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity financings, debt financings, collaborations with other companies or other strategic transactions. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders' ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect their rights as common stockholders. 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 raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. 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 research, 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. We currently have no credit facility or committed sources of capital. 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. 28 --------------------------------------------------------------------------------
Cash Requirements due to Contractual Obligations and Other Commitments
InJanuary 2020 , we amended our current lease for 7,050 square feet of office space inBoston, Massachusetts , or the Arch Street Original Premises, to acquire approximately 4,175 in additional square feet, or the Arch Street Expansion Premises, and to extend the original lease term throughDecember 2023 . Remaining lease payments fromOctober 1, 2022 through the end of the lease term total$1.1 million for both the Arch Street Original Premises and the Arch Street Expansion Premises, of which we took possession of 2,424 square feet and 1,751 square feet inMarch 2020 andAugust 2020 , respectively.
In
InMarch 2021 , we entered into an agreement to sublease approximately 25,445 square feet of office space, or the High Street Premises, from a third party inBoston, Massachusetts as part of the relocation of our corporate headquarters. The term of the sublease extends fromApril 1, 2021 throughDecember 31, 2025 and provides for escalating annualized base rent payments starting at approximately$1.5 million and increasing to$1.6 million in the final year of the sublease. Remaining lease payments fromOctober 1, 2022 through the end of the lease term total$5.2 million . Simultaneously, inMarch 2021 , we entered into an agreement to sublease the Arch Street Original Premises to a third party. The term of the sublease extends fromJuly 1, 2021 throughDecember 31, 2023 .
In
InJanuary 2022 , we entered into an agreement, or the Second Expansion Premises Sublease, to sublease approximately 2,424 square feet of theArch Street Expansion Premises to a third party fromFebruary 7, 2022 throughDecember 31, 2023 . During the nine months endedSeptember 30, 2022 , there were no other material changes to our contractual obligations and commitments described in our Annual Report, as filed with theSEC . We enter into contracts in the normal course of business with CROs, CMOs and other third parties for clinical trials, preclinical research studies and testing and manufacturing services. These contracts are generally cancelable by us upon prior written notice. Payments due upon cancellation consist of payments for services provided or expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation, and may also include termination penalties. As ofSeptember 30, 2022 the timing, amount or likelihood of such payments are not known. We are also party to certain license and collaboration agreements with PureTech Health and Eli Lilly and Company. We may be obligated to make certain future payments which are contingent upon future events such as our achievement of specified regulatory and commercial milestones, or royalties on net product sales under these agreements. As ofSeptember 30, 2022 , we were unable to estimate the timing or likelihood of achieving these milestones or generating future product sales. Critical Accounting Polices and Estimates Our consolidated financial statements are prepared in accordance with generally accepted accounting principles inthe United States . The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We believe that of our critical accounting policies described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in our Annual Report, the following involves the most judgment and complexity:
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Revenue
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Research and development contract costs and accruals
29 -------------------------------------------------------------------------------- Accordingly, we believe the policies set forth above are critical to fully understand and evaluate our financial condition and results of operations. If actual results or events differ materially from the estimates, judgments and assumptions used by us in applying these policies, our reported financial condition and results of operations could be materially affected. Recently Issued or Adopted Accounting Pronouncements New pronouncements issued but not effective until afterSeptember 30, 2022 are not expected to have a material impact on the Company's consolidated financial statements. 30
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