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 ended December 31, 2021 included in our Annual Report
on Form 10-K, or the Annual Report, filed with the Securities and Exchange
Commission, or the SEC, on February 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 subsequent SEC 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 in the United States and
Europe 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). In August 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
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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 in November 2019, we had an
End-of-Phase 2 meeting with the U.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:


EMERGENT-3: A five-week inpatient trial evaluating the efficacy and safety of
KarXT compared to placebo in 246 adults with schizophrenia, conducted in the
United States and Ukraine. We completed enrollment of EMERGENT-3 in the fourth
quarter of 2022 and we anticipate topline data in the first quarter of 2023.

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.

EMERGENT-5: A 52-week outpatient, open-label trial conducted in the United States and Puerto Rico evaluating the long-term safety and tolerability of KarXT in adults with schizophrenia who were not enrolled in EMERGENT-2 or EMERGENT-3.



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 in the 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. In November 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. In August 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
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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 ended September 30, 2022 and 2021, respectively. As
of September 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:

invest significantly to further develop and potentially commercialize KarXT for our current and future indications;

advance additional product candidates into preclinical and clinical development;

seek regulatory approvals for any product candidates that successfully complete clinical trials;

require the manufacture of larger quantities of our product candidates for clinical development and potential commercialization;

hire additional clinical, scientific, management and administrative personnel;

maintain, expand and protect our intellectual property portfolio;

acquire or in-license other assets and technologies; and


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
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On August 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 of
September 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
ended September 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 ended September 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:

personnel costs, including salaries and the related costs, and stock-based compensation expense for employees engaged in research and development functions;

expenses incurred in connection with the preclinical and clinical development of our product candidates, including under agreements with CROs;

expenses incurred in connection with CMOs that manufacture drug products for use in our preclinical and clinical trials;

formulation costs and chemistry, manufacturing and controls, or CMC, costs; and

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
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                                               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 $ 61,950 $ 38,775 $ 158,243 $ 83,108






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:

continue to develop and conduct clinical trials for KarXT for our current and future indications;

initiate and continue research, preclinical and clinical development efforts for future product candidates;

seek to identify additional product candidates;

seek regulatory approvals for KarXT for our current and future indications as well as any other product candidates that successfully complete clinical development;

add operational, financial and management information systems and personnel, including personnel to support our product development;

hire and retain additional personnel, such as clinical, quality control, scientific, commercial and administrative personnel;

maintain, expand and protect our intellectual property portfolio;


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;

continue to assess the impact of the ongoing and evolving COVID-19 pandemic on the ability to execute research and development activities;

add equipment and physical infrastructure to support our research and development; and

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
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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 our Arch 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 ended September 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 September 30, 2022 and 2021



                                                    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 $ (76,963 ) $

(50,932 ) $ (26,031 )

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

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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 and Psychogenics, 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 $ 19,125 $

12,393 $ 6,732




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 ended September 30, 2022 compared to the three months
ended September 30, 2021.

The increase in sublease income is due to the sublease of additional space within our Arch Street office space in Boston, Massachusetts in the first quarter of 2022.


                                       24
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Comparison of the nine months ended September 30, 2022 and 2021



                                                     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 $ (200,124 ) $

(115,845 ) $ (84,279 )

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 $ 75,135




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 and
Psychogenics, 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

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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 in
Boston, Massachusetts in March 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 ) $ 5,227




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 ended September 30, 2022 compared to the nine months ended September
30, 2021.

The increase in sublease income is due to the sublease of our Arch Street office space in Boston, Massachusetts, a portion of which commenced in June 2021.



Impairment loss on right-of-use assets for the nine months ended September 30,
2021 represents impairment recognized on our right-of-use lease assets to the
extent their carrying value exceeded their estimated fair value for our Arch
Street facility leases in Boston, 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. Through September 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 in June 2019, $234.2 million from the sale of our
common stock in a follow-on public offering in November 2019, $270.0 million
from the sale of our common stock in a follow-on public offering in March 2021,
$819.1 million from the sale of our common stock in a follow-on public offering
in August 2022, and $40.0 million from the Zai License Agreement. As of
September 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.

On July 2, 2020, we filed an automatically effective registration statement on
Form S-3, or the Registration Statement, with the SEC 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 with Goldman 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 of September 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.

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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 $ 199,277

Cash Flows from Operating Activities



Cash used in operating activities for the nine months ended September 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 ended September 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 ended September 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 ended September 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 ended September 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 our August 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 ended September 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 our March 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 of September 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.

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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:


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;

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;

the number of future indications and product candidates that we pursue and their development requirements;


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;

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;

the extent to which we in-license or acquire rights to other products, product candidates or technologies;

our headcount growth and associated costs as we expand our research and development and establish a commercial infrastructure;

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

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.

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Cash Requirements due to Contractual Obligations and Other Commitments



In January 2020, we amended our current lease for 7,050 square feet of office
space in Boston, 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 through December 2023. Remaining
lease payments from October 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
in March 2020 and August 2020, respectively.

In February 2020, we entered into an agreement to lease approximately 5,050 square feet of office space in Carmel, Indiana. The term of the lease commenced in June 2020 and expires in July 2023. Remaining lease payments total $0.1 million through the end of the lease term.



In March 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 in
Boston, Massachusetts as part of the relocation of our corporate headquarters.
The term of the sublease extends from April 1, 2021 through December 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 from October 1, 2022 through the end of
the lease term total $5.2 million.

Simultaneously, in March 2021, we entered into an agreement to sublease the Arch
Street Original Premises to a third party. The term of the sublease extends from
July 1, 2021 through December 31, 2023.

In April 2021, we entered into an agreement, or the First Expansion Premises Sublease, to sublease approximately 1,751 square feet of the Arch Street Expansion Premises to a third party from June 1, 2021 through December 31, 2023.



In January 2022, we entered into an agreement, or the Second Expansion Premises
Sublease, to sublease approximately 2,424 square feet of the Arch Street
Expansion Premises to a third party from February 7, 2022 through December 31,
2023.

During the nine months ended September 30, 2022, there were no other material
changes to our contractual obligations and commitments described in our Annual
Report, as filed with the SEC.

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 of September 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 of September 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 in the 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:

Revenue

Research and development contract costs and accruals


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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 after September 30, 2022 are
not expected to have a material impact on the Company's consolidated financial
statements.

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