OVID THERAPEUTICS INC. The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in the Annual Report on Form 10-K for the year endedDecember 31, 2021 , which was filed with theSecurities and Exchange Commission ("SEC") onMarch 15, 2022 . In addition to historical financial information, the following discussion contains forward-looking statements based upon our current plans, expectations and beliefs that involve risks, uncertainties and assumptions. Our actual results may differ materially from those described in or implied by these forward-looking statements because of many factors, including those set forth under the section titled "Risk Factors" in Part II, Item 1A. Such factors may be amplified by the ongoing COVID-19 pandemic and its potential impact on our business and the global economy.
Overview
We are a biopharmaceutical company focused on drug discovery and development for epilepsies and rare CNS disorders in a manner that is scientifically driven, patient focused and is coupled with an integrated and disciplined approach to research, clinical development and business development. Our team has significant experience and understanding of rare epilepsy and neurological conditions, and we continue to build insight into the way the different molecular mechanisms and pathways underlying these disorders impact the symptoms patients suffer. Ovid has set out to be a leader in the field, and has developed a differentiated pipeline containing three novel mechanisms of action to target different causes of epilepsies and seizures. Our knowledge of epilepsy disease biology and pathology, which was acquired through our small molecule development programs, now contributes to our pursuit of additional relevant genetic targets and molecular pathways that are the cause of seizures. Over time, we have built a scalable scientific platform and efficient development capabilities in epilepsies that focus on clear, clinical endpoints. We are initially pursuing therapeutic assets for rare disorders as they can leverage accelerated development programs. If successfully developed and marketed in rare conditions, we intend to explore these assets for broader neurologic indications. Our cohesive focus in epilepsies and seizures reinforces our belief that we can develop and produce multiple novel medicines, scale our infrastructure, and thereby succeed in our mission.
Since our inception in
The following chart sets forth the status and mechanism of action of our drug candidates: [[Image Removed: img42364362_0.gif]] During the three months endedMarch 31, 2022 , we generated$1.4 million revenue through licensing agreements. We have historically funded our business primarily through the sale of capital stock. ThroughMarch 31, 2022 , we have raised net proceeds of$275.4 million from the sale of our convertible preferred stock and our common stock. As ofMarch 31, 2022 , we had$166.7 million in cash and cash equivalents. As ofMarch 31, 2022 , we had an accumulated deficit of$187.5 million .
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. Our net losses may fluctuate significantly from period to period, depending on the timing of our planned clinical trials and expenditures on our other research and development and commercial development activities. We expect our expenses will increase substantially over time as we:
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continue the ongoing and planned preclinical and clinical development of our drug candidates;
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build a portfolio of drug candidates through the development, acquisition or in-license of drugs, drug candidates or technologies;
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initiate preclinical studies and clinical trials for any additional drug candidates that we may pursue in the future;
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seek marketing approvals for our current and future drug candidates that successfully complete clinical trials;
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establish a sales, marketing and distribution infrastructure to commercialize any drug candidate for which we may obtain marketing approval;
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develop, maintain, expand and protect our intellectual property portfolio;
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implement operational, financial and management systems; and attract, hire and retain additional administrative, clinical, regulatory, manufacturing, commercial and scientific personnel.
Recent Developments
License and Option Agreement with Healx
OnFebruary 1, 2022 , we entered into an exclusive license option agreement, or the Healx License and Option Agreement, with Healx. Under the terms of the Healx License and Option Agreement, Healx has secured a one-year option to investigate gaboxadol (OV101) as part of a potential combination therapy for Fragile X syndrome in a Phase 2A clinical trial, as well as a treatment for other indications, for an upfront payment of$0.5 million , and fees to support prosecution and maintenance of our relevant intellectual property rights. At the end of the one-year option period, Healx has the option to secure rights to an exclusive license under our relevant intellectual property rights, in exchange for a payment of$2.0 million , development and commercial milestone payments, and low to mid-tier double digit royalties. Royalties are payable on a country-by-country and product-by-product basis during the period beginning on the date of the first commercial sale of such product in such country and ending on the later to occur of the expiration of patent rights covering the product in such country and a specified anniversary of such first commercial sale. Healx will assume all responsibility for, and costs of, both development and commercialization of gaboxadol following the exercise of the option. We will retain the option to co-develop and co-commercialize the program with Healx, or the Ovid Opt-In Right, at the end of a positive readout of clinical phase 2B and will share net profits and losses in lieu of the milestones and royalty payments. If the Ovid-Opt-In Right were exercised, the Company would be required to pay Healx 50% of development costs. We do not plan to conduct further trials of gaboxadol. The term of the Healx License and Option Agreement will continue until the later of (a) the expiration of all relevant royalty terms, or in the event that Healx does not exercise its option during the option period defined in the Healx License and Option Agreement, or the Option Period, the expiration of such period, or (b) in the event that Healx does exercise its option during the Option Period, and we do not exercise the Ovid Opt-In Right during the period of time we have to opt-in, or the Opt-In Period, or the opt-in terms are otherwise terminated, upon the expiration of all payment obligations, or (c) in the event that Healx does exercise the Option during the Option Period, and we do exercise the Ovid Opt-In Right during the Opt-In Period, such time as neither Healx nor Ovid is continuing to exploit the gaboxadol. As part of the revised contractual obligations with Lundbeck, Ovid will owe Lundbeck a share of all milestone and royalty payments received from Healx, if we do not exercise the Ovid Opt-In Right. If we to exercise the Ovid Opt-In Right to co-develop and co-commercialize the program with Healx, we will owe a share of the net profit share to Lundbeck.
Out-License Agreement with Marinus Pharmaceuticals
OnMarch 1, 2022 , we entered into an exclusive patent license agreement with Marinus Pharmaceuticals, Inc. or the Marinus License Agreement. Under the Marinus License Agreement, we granted Marinus an exclusive, non-transferable (except as expressly provided therein), royalty-bearing right and license under certain Ovid patents relating to ganaxolone to develop, make, have made, commercialize, promote, distribute, sell, offer for sale and import licensed products in the territory (which consist ofthe United States , the European Economic Area,United Kingdom andSwitzerland ) for the treatment of CDKL5 deficiency disorders. Following regulatory approval by the FDA of the first licensed product in the territory, Marinus issued, at the Company's option, 123,255 shares of Marinus common stock, par value$0.001 per share as payment. The Marinus License Agreement also provides for payment of royalties from Marinus to us in single digits on net sales of each such licensed product sold.
COVID-19 Update
We have implemented business continuity plans designed to address and mitigate the impact of the ongoing COVID-19 pandemic on our employees and our business. We continue to operate normally with the exception of enabling all of our employees to work productively at home and abiding by travel restrictions issued by federal, state and local governments. Our current plans to return to the office remain fluid as federal, state and local guidelines, rules and regulations continue to evolve.
Financial Operations Overview
Revenue
We generated revenue under the various license and collaboration agreements. We have not generated any revenue from commercial drug sales and we do not expect to generate any further revenue unless or until we obtain regulatory approval and commercialize one or more of our current or future drug candidates. In the future, we may also seek to generate revenue from a combination of research and development payments, license fees and other upfront or milestone payments.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our product discovery efforts and the development of our product candidates, which include, among other things:
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employee-related expenses, including salaries, benefits and stock-based compensation expense;
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fees paid to consultants for services directly related to our drug development and regulatory effort;
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expenses incurred under agreements with contract research organizations, as well as contract manufacturing organizations and consultants that conduct preclinical studies and clinical trials;
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costs associated with preclinical activities and development activities;
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costs associated with technology and intellectual property licenses;
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milestone payments and other costs under licensing agreements; and
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depreciation expense for assets used in research and development activities.
Costs incurred in connection with research and development activities are expensed as incurred. Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or other information provided to us by our vendors. Research and development activities are and will continue to be central to our business model. We expect our research and development expenses to increase over the next several years as we advance our current and future drug candidates through preclinical studies and clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. It is difficult to determine with certainty the duration and costs of any preclinical study or clinical trial that we may conduct. The duration, costs and timing of clinical trial programs and development of our current and future drug candidates will depend on a variety of factors that include, but are not limited to, the following:
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number of clinical trials required for approval and any requirement for extension trials;
• per patient trial costs;
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number of patients who participate in the clinical trials;
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number of sites included in the clinical trials;
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countries in which the clinical trial is conducted;
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length of time required to enroll eligible patients;
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number of doses that patients receive;
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drop-out or discontinuation rates of patients;
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potential additional safety monitoring or other studies requested by regulatory agencies;
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duration of patient follow-up; and
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efficacy and safety profile of the drug candidate.
In addition, the probability of success for any of our current or future drug candidates will depend on numerous factors, including competition, manufacturing capability and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each drug candidate, as well as an assessment of each drug candidate's commercial potential.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation expense, related to our executive, finance, business development and support functions. Other general and administrative expenses include costs associated with operating as a public company described below, travel expenses, conferences, professional fees for auditing, tax and legal services and facility-related costs.
Other Income (Expense), Net
Other income (expense) primarily consists of unrealized gains (losses) on long-term equity investments and interest income earned on our cash and cash equivalents maintained in money market funds and prior short-term investments that were maintained inU.S. treasury notes.
Reclassifications
Certain prior period amounts have been reclassified for consistency with the current period presentation. These reclassifications had no effect on the reported results of operations.
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--------------------------------------------------------------------------------Results of Operations
Comparison of the Three Months Ended
The following table summarizes the results of our operations for the periods
indicated:
Three Months Three Months Ended
Ended March 31, March 31,
2022 2021 Change
(in thousands)
Revenue:
License and other revenue $ 1,445 $ 12,383 $ (10,937 )
License revenue - related party - 196,000 (196,000 )
Total revenue 1,445 208,383 (206,937 )
Operating expenses:
Research and development 7,832 16,249 (8,417 )
General and administrative 9,880 15,577 (5,696 )
Total operating expenses 17,712 31,825 (14,113 )
(Loss) income from operations (16,267 ) 176,557 (192,824 )
Other income (expenses), net 209 (50 ) 259
(Loss) income before provision
for income taxes (16,058 ) 176,508 (192,566 )
Provision for income taxes 50 500 (450 )
Net (loss) income $ (16,108 ) $ 176,007 $ (193,016 )
Revenue
Total revenue was $1.4 million during the three months ended March 31, 2022 ,
pursuant to the Marinus and Healx License Agreements. Total revenue was $208.4
million for the three months ended March 31, 2021 , recorded in connection with
the Takeda and Angelini License Agreements.
Research and Development Expenses
Three Months Ended Three Months Ended
March 31, March 31,
2022 2021 Change
(in thousands)
Preclinical and development expense $ 2,120 $ 11,136 $ (9,016 )
Payroll and payroll-related expenses 4,936 3,917 1,019
Other expenses 776 1,196 (420 )
Total research and development $ 7,832 $
16,249
During the three months endedMarch 31, 2022 , total research and development expenses were$7.8 million compared to$16.2 million for the three months endedMarch 31, 2021 . The decrease of$8.4 million was primarily due to the decision to discontinue the clinical study of OV101 in Angelman syndrome and Fragile X syndrome and the termination of the Takeda collaboration agreement for OV935. The increase to payroll and payroll-related expenses was primarily related to severance pay recognized during the period.
General and Administrative Expenses
Three Months Ended Three Months Ended
March 31, March 31,
2022 2021 Change
(in thousands)
Payroll and payroll-related expenses $ 4,768 $ 3,785 $ 984
Legal and professional fees 3,092 10,334 (7,242 )
General office expenses 2,020 1,457 562
Total general and administrative $ 9,880 $
15,577
General and administrative expenses were$9.9 million for the three months endedMarch 31, 2022 compared to$15.6 million for the three months endedMarch 31, 2021 . The decrease of$5.7 million was primarily due to decreases in legal and professional fees of$7.2 million , which related to execution of the Takeda License and Termination Agreement. Further, payroll and payroll-related expenses increased by$1.0 million , which was primarily related to severance payment recognized during the period.
Provision for income taxes
The provision for income taxes was
Other Income (Expense), net
Other income (expense) for the three months ended
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--------------------------------------------------------------------------------Liquidity and Capital Resources
Overview
As ofMarch 31, 2022 , we had total cash and cash equivalents of$166.7 million as compared to$187.8 million of cash and cash equivalents as ofDecember 31, 2021 . The$(21.1) million decrease in total cash and cash equivalents was due to payments relating to licensing and other agreements of$5 million , and operating expenses totaling$17.7 million for the three months endedMarch 31, 2022 . Similar to other development stage biotechnology companies, we have generated limited revenue, which has been through the Angelini License Agreement. With the exception of the three months endedMarch 31, 2021 , when we received the one-time upfront payment of$196.0 million as part of the Takeda License and Termination Agreement, we have incurred losses and experienced negative operating cash flows since our inception and anticipate that we will continue to incur losses for at least the next several years. We recorded net loss of approximately$16.1 million and net incomes of approximately$176.0 million for the three months endedMarch 31, 2022 and 2021, respectively. We expect to incur net losses in subsequent periods. As ofMarch 31, 2022 , we had an accumulated deficit of$187.5 million and working capital of$159.9 million . We believe that our existing cash and cash equivalents as ofMarch 31, 2022 will be sufficient to fund our current operating plans through at least the next 12 months from the date of the filing of this Quarterly Report on Form 10-Q.
Future Funding Requirements
We believe that our available cash and cash equivalents are sufficient to fund existing and planned cash requirements. Our primary uses of capital are, and we expect will continue to be, compensation and related expenses, third-party clinical research and development services, clinical costs, legal and other regulatory expenses and general overhead costs. We have based our estimates on assumptions that may prove to be incorrect, and we could use our capital resources sooner than we currently expect. Additionally, the process of testing drug candidates in clinical trials is costly, and the timing of progress in these trials is uncertain. We cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. As ofMarch 31, 2022 , we had no long-term debt and no material non-cancelable purchase commitments with service providers, as we have generally contracted on a cancelable, purchase order basis. We cannot estimate whether we will receive or the timing of any potential contingent payments upon the achievement by us of clinical, regulatory and commercial events, as applicable, or royalty payments that we may be required to make under license agreements we have entered into with various entities pursuant to which we have in-licensed certain intellectual property as contractual obligations or commitments, including agreements withAstraZeneca AB , H. Lundbeck A/S, andNorthwestern . Pursuant to these license agreements, we have agreed to make milestone payments up to an aggregate of$279.3 million upon the achievement of certain development, regulatory and sales milestones. We excluded these contingent payments given that the timing, probability, and amount, if any, of such payments cannot be reasonably estimated at this time. InSeptember 2021 , we entered into a 10-year lease agreement for its corporate headquarters with a term commencingMarch 10, 2022 , for approximately 19,143 square feet of office space atHudson Commons inNew York, NY . The lease provides for monthly rental payments over the lease term. The base rent under the lease is currently$2.3 million per year. Rent payments commence 10 months following the commencement date of the lease, orJanuary 10, 2023 , and continue for 10 years following the rent commencement date. Rent also includes two months of free rent in the 6th and 7th months following the rent commencement date. We issued a letter of credit in the amount of$1.9 million in association with the execution of the lease agreement; the letter of credit is characterized as restricted cash on the balance sheet. Payment obligations under the lease agreement include approximately$515,000 in the twelve months subsequent toMarch 31, 2022 and approximately$23.5 million over the term of the agreement. For additional information see Note 5 to our condensed consolidated financial statements. We have no products approved for commercial sale and have not generated any product revenues from product sales to date. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings and additional funding from license and collaboration arrangements. Except for any obligations of our collaborators to reimburse us for research and development expenses or to make milestone or royalty payments under our agreements with them, we will not have any committed external source of liquidity. To the extent that we raise additional capital through future equity offerings or debt financings, ownership interests may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt and equity financings, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. There can be no assurance that such financings will be obtained on terms acceptable to us, if at all. The ongoing COVID-19 pandemic continues to rapidly evolve and has already resulted in a significant disruption of global financial markets. If the disruption persists and deepens, we could experience an inability to access additional capital, which could in the future negatively affect our operations. If we raise additional funds through collaborations, strategic alliances or licensing agreements with third parties for one or more of our current or future drug candidates, we may be required to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or to grant licenses on terms that may not be favorable to us. Our failure to raise capital as and when needed would have a material adverse effect on our financial condition and our ability to pursue our business strategy.
At-the-Market Offering Program
InNovember 2020 , we filed a shelf registration statement on Form S-3 (Registration No. 333-250054) that allows us to sell up to an aggregate of$250.0 million of our common stock, preferred stock, debt securities and/or warrants (the "S-3 Registration Statement"), which includes a prospectus covering the issuance and sale of up to$75.0 million of common stock pursuant to an at-the-market ("ATM") offering program. As ofMarch 31, 2022 , we had$250.0 million available under our S-3 Registration Statement, including$75.0 million available pursuant to our ATM program. 22 --------------------------------------------------------------------------------
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Three Months Ended Three Months Ended
March 31, March 31,
2022 2021
(in thousands)
Net cash (used in) provided by:
Operating activities $ (20,086 ) $ 160,899
Investing activities (1,076 ) (12 )
Financing activities 33 130
Net (decrease) increase in cash and cash
equivalents $ (21,130 ) $ 161,017
Net cash used in operating activities was$20.1 million for the three months endedMarch 31, 2022 , which consisted of net loss of$16.1 million offset by a net of$2.8 million of non-cash charges and indirect cash changes, primarily related to$1.3 million of stock-based compensation expense, and decreases in accounts payable and accrued expenses of$4.6 million . Net cash provided by operating activities was$160.9 million for the three months endedMarch 31, 2021 , which resulted from an upfront payment pursuant to the Takeda License and Termination Agreement, offset by operating expenses for the period.
Net cash used in investing activities was$1.1 million for the three months endedMarch 31, 2022 , and a nominal amount used in investing activities for the three months endedMarch 31, 2021 . Net cash used in investing activities during the three months endedMarch 31, 2022 consisted of issuance of a note receivable to an investee of the Company.
Net Cash Provided By Financing Activities
Net cash provided by financing activities during the three months endedMarch 31, 2022 was primarily due to purchases of shares under the 2017 employee stock purchase plan and the exercise of options. Net cash provided by financing activities of$0.1 million for the three months endedMarch 31, 2021 was primarily due to proceeds from exercise of options and purchases of shares under the 2017 employee stock purchase plan.
Emerging Growth Company Status and Smaller Reporting Company Status
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company untilDecember 31, 2022 . For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:
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reduced disclosure about our executive compensation arrangements;
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no non-binding stockholder advisory votes on executive compensation or golden parachute arrangements; and
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exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.
We have taken advantage of reduced reporting requirements in this Quarterly Report on Form 10-Q and may continue to do so until such time that we are no longer an emerging growth company. We will remain an "emerging growth company" until the earliest of (a) the last day of the fiscal year in which we have total annual gross revenues of$1.07 billion or more, (b)December 31, 2022 , the last day of the fiscal year following the fifth anniversary of the completion of the our IPO, (c) the date on which we have issued more than$1.0 billion in nonconvertible debt during the previous three years or (d) the date on which we are deemed to be a large accelerated filer under the rules of theSEC . Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. In addition, we are also a smaller reporting company as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as (i) our voting and non-voting common stock held by non-affiliates is less than$250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than$100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than$700.0 million measured on the last business day of our second fiscal quarter. 23
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Critical Accounting Policies and Estimates
Our management's discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States . The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reported periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ from these estimates under different assumptions or conditions. During the three months endedMarch 31, 2022 , there were no material changes to our critical accounting policies as reported for the year endedDecember 31, 2021 as part of our Annual Report on Form 10-K, which was filed with theSEC onMarch 15, 2022 . In addition, see Note 2 of our Condensed Financial Statements under the heading "Recent Accounting Pronouncements" for new accounting pronouncements or changes to the accounting pronouncements during the three months endedMarch 31, 2022 .
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