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, 2020 included in our Annual Report on Form 10-K, or the Annual Report, filed with theSecurities and Exchange Commission , or theSEC , onFebruary 25, 2021 . 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 10Q, 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, 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 our lead product candidate, KarXT, for the treatment of acute psychosis in patients 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. InNovember 2019 , we announced positive results from the first trial in our EMERGENT program, the clinical program evaluating KarXT for the treatment of schizophrenia. In this Phase 2 trial, EMERGENT-1, we evaluated KarXT for the treatment of acute psychosis in adults with schizophrenia. KarXT met the trial's primary endpoint with a statistically significant (p<0.0001) and clinically meaningful 11.6 point mean reduction in total Positive and Negative Syndrome Scale, or PANSS, scores over placebo at week 5 (-17.4 KarXT vs. -5.9 placebo). Following the positive results of EMERGENT-1, we had an End-of-Phase 2 meeting with theU.S. Food and Drug Administration , or FDA, in which the FDA confirmed that our completed 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, filing. In addition to our completed positive Phase 2 EMERGENT-1 trial, our EMERGENT program includes two Phase 3 trials evaluating the efficacy and safety of KarXT compared to placebo (EMERGENT-2 & EMERGENT-3, which are similar in design to EMERGENT-1), and two Phase 3 trials evaluating the long-term safety of KarXT (EMERGENT-4 & EMERGENT-5). All Phase 3 trials within our EMERGENT program are currently enrolling, with details as follows:
• EMERGENT-2: A five-week inpatient trial evaluating the efficacy and safety
of KarXT compared to placebo in 246 adults with schizophrenia in the
reporting topline data in mid-2022.
• EMERGENT-3: A five-week inpatient trial evaluating the efficacy and safety
of KarXT compared to placebo in 246 adults with schizophrenia in the
and
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• EMERGENT-4: A 52-week outpatient, open-label extension trial evaluating the
long-term safety and tolerability of KarXT in 350 adults with schizophrenia
who completed EMERGENT-2 or EMERGENT-3. Enrollment for this trial began in
the first quarter of 2021.
• EMERGENT-5: A 52-week outpatient, open-label trial evaluating the long-term
safety and tolerability of KarXT in 400 adults with schizophrenia in theU.S. in patients who were not enrolled in EMERGENT-2 or EMERGENT-3. Enrollment for this trial began in the second quarter of 2021. We are on track to initiate 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 in the second half of 2021. This six-week, 1:1 randomized, double-blind, placebo-controlled Phase 3 trial will enroll approximately 400 adults with schizophrenia who have not achieved an adequate response to current atypical antipsychotic treatment. Participants in this trial will continue their currently prescribed atypical antipsychotic therapy at the same dose or regimen schedule as prior to entry in the study, and will receive a flexible dose of KarXT or placebo based on tolerability and clinical response as determined by a clinician. The primary outcome measure of the trial is change in Positive and Negative Syndrome Scale (PANSS) total score of KarXT compared to placebo at week 6. Upon completion of the trial at week 6, participants will have the opportunity to enroll in a 52-week outpatient, open-label extension trial evaluating the long-term safety and tolerability of KarXT when dosed with antipsychotic treatment.
In
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. OnJuly 2, 2019 , we issued and sold 6,414,842 shares of our common stock, including full exercise of the underwriters' over-allotment option to purchase an additional 836,718 shares, at a public offering price of$16.00 per share, in our initial public offering, or IPO. The aggregate net proceeds to us from the IPO were$93.0 million . OnNovember 25, 2019 , we issued and sold 2,600,000 shares of our common stock at a public offering price of$96.00 per share in a follow-on offering in which we received net proceeds of$234.2 million . Prior to the IPO and follow-on public offering, we funded our operations primarily with proceeds from the sales of redeemable convertible preferred stock and the issuance of convertible notes. OnJuly 2, 2020 , we filed an automatically effective registration statement on Form S-3, or the Registration Statement, with theSEC which registered 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 ofJune 30, 2021 , no sales had been made pursuant to the ATM Program. OnMarch 4, 2021 , we completed a follow-on public offering under the Registration Statement and a related prospectus supplement in which we issued and sold 2,395,834 shares of our common stock, including full exercise of the underwriters' over-allotment option to purchase an additional 312,500 shares, at a public offering price of$120 per share. The aggregate net proceeds from the offering were$270.0 million . We have never generated revenue and have incurred significant net losses since inception. Our net losses were$64.9 million and$25.7 million for the six months endedJune 30, 2021 and 2020, respectively. As ofJune 30, 2021 , we had an accumulated deficit of$209.0 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 KarXT for our current and future
indications; 18
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• 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. As ofJune 30, 2021 , we had cash, cash equivalents and available-for-sale investments of$543.6 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 for at least twelve months following the potential submission of a new drug application, or NDA, with theU.S. Food and Drug Administration for KarXT for the treatment of acute psychosis in patients with schizophrenia. 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 and do not expect to generate any revenue in the foreseeable future, if at all. 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. If we enter into license or collaboration agreements for any of our product candidates or intellectual property, we may generate revenue in the future from payments as a result of such license or collaboration agreements. 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.
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;
19 --------------------------------------------------------------------------------
• 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. Most research and development costs, such as fees paid to consultants, central laboratories, contractors, CMOs and CROs in connection with our clinical development activities, are tracked on an indication-by-indication basis. Formulation and CMC, preclinical, and discovery expenses consist of costs associated with activities to support our current and future clinical programs, but 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. We similarly do not track certain research and development expenses on an indication-by-indication basis as they primarily relate to personnel, early research and consumable costs or other consulting costs which are deployed across multiple projects under development. These costs are included in unallocated research and development expenses in the table below. The following table summarizes our research and development expenses: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 (in thousands) (in thousands) Schizophrenia clinical trials$ 10,538 $ 2,636 $ 17,700 $ 2,696 Dementia-related psychosis clinical trials 1,212 (2 ) 1,398 483 Pain clinical trial 46 485 177 790 Formulation and CMC 2,243 2,732 5,577 3,477 Preclinical 219 434 743 531 Discovery 3,051 1,288 6,142 1,921 Unallocated expenses 6,838 3,246 12,596 5,341
Total research and development expense
We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in manufacturing, 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; 20
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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;
• assess the potential impact of COVID-19 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.
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, 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 if and as we 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. Results of Operations
Comparison of the Three Months Ended
Three Months Ended June 30, 2021 2020 Change (in thousands) Revenue $ - $ - $ - Operating expenses: Research and development 24,147 10,819 13,328 General and administrative 10,384 7,006 3,378 Total operating expenses 34,531 17,825 16,706 Loss from operations (34,531 ) (17,825 ) (16,706 ) Total other income, net 115 779 (664 )
Net loss attributable to common stockholders
(17,046 )$ (17,370 ) 21
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Research and Development Expenses
Three Months Ended June 30, 2021 2020 Change (in thousands) Direct research and development expenses: Schizophrenia clinical trials$ 10,538 $ 2,636$ 7,902 Dementia-related psychosis clinical trials 1,212 (2 ) 1,214 Pain clinical trial 46 485 (439 ) Formulation and CMC 2,243 2,732 (489 ) Preclinical 219 434 (215 ) Discovery 3,051 1,288 1,763 Unallocated expenses: Personnel related expenses (including stock-based compensation) 6,345 2,503 3,842 Consultant fees and other expenses 493 743 (250 )
Total research and development expense
10,819
Expenses related to our schizophrenia clinical trials increased by$7.9 million in the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 due to expenses related to start-up and ongoing enrollment activities for our EMERGENT Phase 3 trials. The increase of$1.2 million in expenses related to our dementia-related psychosis, or DRP, clinical trials during the three months endedJune 30, 2021 is primarily driven by enrollment and dosing activities related to our completed Phase 1b clinical trial in healthy elderly volunteers. The decrease of$0.4 million in expenses related to our pain clinical trial is primarily due to unrepeated costs for enrollment and dosing activities for our Phase 1b trial incurred in the three months endedJune 30, 2020 , compared to close out costs for that trial incurred in the three months endedJune 30, 2021 . Formulation and CMC expenses decreased by$0.5 million due to the timing of manufacturing activities necessary in the prior period to support current and future clinical trial activities. Preclinical expenses decreased by$0.2 million due to the unrepeated initiation of new studies in the three months endedJune 30, 2020 . The increase of$1.7 million in discovery costs is due to an increase in ongoing discovery efforts, including ongoing collaborations with Charles River Labs andPsychogenics, Inc. The increase of$3.8 million in personnel-related costs was primarily a result of an increase in headcount and an increase of$1.9 million related to stock-based compensation expense. The decrease of$0.3 million in consultant fees and other expenses was due a decrease in consulting costs not specifically allocated to discovery, preclinical, clinical, formulation and CMC activities.
General and Administrative Expenses
Three Months Ended June 30, 2021 2020 Change (in thousands) Personnel-related expenses (including stock-based compensation)$ 6,892 $ 4,349$ 2,543 Professional and consultant fees 1,372 908 464 Other 2,120 1,749 371
Total general and administrative expense
7,006
The increase of$2.5 million in personnel-related costs in the three months endedJune 30, 2021 as compared to the three months endedJune 30, 2020 was primarily a result of an increase in headcount and an increase of$2.3 million related to stock-based compensation expense. The increase of$0.4 million in professional and consultant fees was primarily due to an increase in recruiting fees, accounting fees, legal costs and consulting fees related to our ongoing business activities. The increase of$0.4 million in other costs was primarily due to additional lease costs for ourHigh Street lease inBoston, Massachusetts as well as other infrastructure and administrative related costs to support increased headcount. Other Income, Net Three Months Ended June 30, 2021 2020 Change (in thousands) Interest income 106 779 (673 ) Sublease income 9 - 9 Total other income, net $ 115 $ 779$ (664 ) 22
-------------------------------------------------------------------------------- Interest income is attributable to interest earned on our cash equivalents and available-for-sale investments. The decrease of$0.7 million in interest income is primarily due to lower market interest rates.
Sublease income is due to the sublease of a portion of our
Comparison of the Six Months Ended
Six Months Ended June 30, 2021 2020 Change (in thousands) Revenue $ - $ - $ - Operating expenses: Research and development 44,333 15,239 29,094 General and administrative 20,161 12,641 7,520 Total operating expenses 64,494 27,880 36,614 Loss from operations (64,494 ) (27,880 ) (36,614 ) Total other income (loss), net (419 ) 2,176 (2,595 ) Net loss attributable to common stockholders$ (64,913 ) $
(25,704 )
Research and Development Expenses
Six Months Ended June 30, 2021 2020 Change (in thousands) Direct research and development expenses: Schizophrenia clinical trials$ 17,700 $ 2,696$ 15,004 Dementia-related psychosis clinical trials 1,398 483 915 Pain clinical trial 177 790 (613 ) Formulation and CMC 5,577 3,477 2,100 Preclinical 743 531 212 Discovery 6,142 1,921 4,221 Unallocated expenses: Personnel related expenses (including stock-based compensation) 11,625 3,908 7,717 Consultant fees and other expenses 971 1,433 (462 )
Total research and development expense
15,239$ 29,094 Expenses related to our schizophrenia clinical trials increased by$15.0 million in the six months endedJune 30, 2021 , as compared to the six months endedJune 30, 2020 , due to expenses related to start-up and ongoing enrollment activities for our EMERGENT Phase 3 trials. The increase of$0.9 million in expenses related to our DRP clinical trials during the six months endedJune 30, 2021 is primarily driven by enrollment and dosing activities related to our completed Phase 1b clinical trial in healthy elderly volunteers. The decrease of$0.6 million in expenses related to our pain clinical trial is primarily due to unrepeated costs for enrollment and dosing activities incurred in the six months endedJune 30, 2020 for our Phase 1b trial compared to close out costs for that trial incurred in the six months endedJune 30, 2021 . Formulation and CMC expenses increased by$2.1 million due to an increase in manufacturing activities in 2021 to obtain sufficient supply to support current and future clinical trial activities. Preclinical expenses increased by$0.2 million due to the initiation of new studies in late 2020 and into 2021. The increase of$4.2 million in discovery costs is due to an increase in ongoing discovery efforts, including ongoing collaborations with Charles River Labs andPsychogenics, Inc. The increase of$7.7 million in personnel-related costs was primarily a result of an increase in headcount and an increase of$3.6 million related to in stock-based compensation expense. The decrease of$0.5 million in consultant fees and other expenses was due a decrease in consulting costs not specifically allocated to discovery, preclinical, clinical, formulation and CMC activities. 23 --------------------------------------------------------------------------------
General and Administrative Expenses
Six Months Ended June 30, 2021 2020 Change (in thousands) Personnel-related expenses (including stock-based compensation)$ 12,591 $ 7,239$ 5,352 Professional and consultant fees 3,705 2,108 1,597 Other 3,865 3,294 571
Total general and administrative expense
12,641
The increase of$5.4 million in personnel-related costs in the six months endedJune 30, 2021 as compared to the six months endedJune 30, 2020 was primarily a result of an increase in headcount and an increase of$4.8 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 recruiting fees, accounting fees, legal costs and consulting fees related to our ongoing business activities. The increase of$0.6 million in other costs was primarily due to increased lease costs for ourArch Street lease and High Street Lease inBoston, Massachusetts as well as other infrastructure and administrative related costs to support increased headcount. Other Income (Loss), Net Six Months Ended June 30, 2021 2020 Change (in thousands) Impairment loss on right-of-use assets$ (677 ) $ -$ (677 ) Interest income 249 2,176 (1,927 ) Sublease income 9 - 9 Total other income (loss), net$ (419 ) $ 2,176
Impairment loss on right-of-use assets for the six months endedJune 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 8 to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Interest income is attributable to interest earned on our cash equivalents and available-for-sale investments. The decrease of$1.9 million in interest income is primarily due to lower market interest rates.
Sublease income is due to the sublease of a portion of our
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 for several years, if at all. To date, we have funded our operations primarily with proceeds from the sale of redeemable convertible preferred stock, issuance of convertible notes, and sales of our common stock. ThroughJune 30, 2021 , 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 IPO,$234.2 million from the sale of our common stock in a follow-on public offering inNovember 2019 , and$270.0 million from the sale of our common stock in a follow-on public offering inMarch 2021 . As ofJune 30, 2021 , we had$543.6 million in cash, cash equivalents and available-for-sale investments, and an accumulated deficit of$209.0 million . OnJuly 2, 2020 , we filed the Registration Statement with theSEC and simultaneously entered into an equity distribution agreement withGoldman Sachs & Co. LLC , as sales agent, for the ATM Program. As ofJune 30, 2021 , no sales had been made pursuant to the ATM Program. Our primary use of cash has been to fund operating expenses, which consist of research and development and general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay 24 --------------------------------------------------------------------------------
these expenses, as reflected in the change in our outstanding prepaid expenses, accounts payable and accrued expenses.
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented: Six Months Ended June 30, 2021 2020 (in thousands) Net cash used in operating activities$ (50,072 ) $ (24,130 ) Net cash provided by (used in) investing activities 69,701 (52,481 ) Net cash provided by financing activities 273,076
1,589
Net increase (decrease) in cash, cash equivalents and restricted cash$ 292,705 $ (75,022 )
Cash Flows from Operating Activities
Cash used in operating activities for the six months endedJune 30, 2021 was$50.1 million , consisting of a net loss of$64.9 million partially offset by non-cash items, including stock-based compensation expense of$13.3 million , non-cash interest on our available-for-sale investments of$0.8 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 an increase in prepaid expenses and other current assets of$1.3 million , offset by an increase in accounts payable of$1.1 million , primarily driven by upfront payments made to CROs and CMOs in connection with our clinical trials and the timing of payments to our vendors. Cash used in operating activities for the six months endedJune 30, 2020 was$24.1 million , consisting of a net loss of$25.7 million , partially offset by non-cash items, including stock-based compensation expense of$4.9 million . The change in our net operating assets and liabilities was mainly due to an increase in prepaid expenses and other current assets of$3.6 million , which was primarily driven by upfront payments made to CROs and CMOs in connection with our clinical trials.
Cash Flows from Investing Activities
Cash provided by investing activities for the six months ended
Cash used in investing activities for the six months endedJune 30, 2020 was$52.5 million , primarily attributable to the purchases of investment securities of$132.3 million , which was partially offset by maturities of investment securities of$80.0 million .
Cash Flows from Financing Activities
Cash provided by financing activities for the six months ended
Cash provided by financing activities for the six months ended
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. In addition, we expect to incur additional costs associated with operating as a public company.
As ofJune 30, 2021 , we had cash and cash equivalents and available-for-sale investments of$543.6 million . Based on our current plans, we believe that our existing cash, cash equivalents and available-for-sale investments will be 25 --------------------------------------------------------------------------------
sufficient to meet our anticipated operating and capital expenditure requirements for at least twelve months following the potential submission of an NDA for KarXT for the treatment of acute psychosis in patients with schizophrenia.
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. 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 26 -------------------------------------------------------------------------------- Premises, and to extend the original lease term throughDecember 2023 . Remaining lease payments fromJuly 1, 2021 through the end of the lease term total$2.1 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 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 fromJuly 1, 2021 through the end of the lease term total$7.0 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
During the six months ended
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: • Research and development contract costs and accruals 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. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of theSEC . JOBS Act Accounting Election As ofJune 30, 2020 , the market value of our common stock held by non-affiliates exceeded$700 million , and as a result, as ofJanuary 1, 2021 , we qualified as a "large accelerated filer" and no longer qualified as an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As a large accelerated filer, we are subject to certain disclosure requirements that are applicable to other public companies that were not applicable to us as an emerging growth company, including compliance with the auditor attestation requirements in the assessment of our internal control over financial reporting imposed by the Sarbanes-Oxley Act of 2002, compliance with any requirement that may be adopted by thePublic Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor's report providing additional information about the audit and the financial statements and full disclosure obligations regarding executive compensation. Additionally, we are no longer able to take advantage of 27 --------------------------------------------------------------------------------
transition periods for complying with new or revised accounting standards that are available to emerging growth companies.
Recently Issued or Adopted Accounting Pronouncements A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. 28
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