MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information in this discussion and analysis contains forward-looking statements reflecting our current expectations and involves risk and uncertainties. For example, statements regarding our expectations as to our plans and strategy for our business, future financial performance, expense levels and liquidity sources are forward-looking statements. Our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under the "Risk Factors" section and elsewhere in this Annual Report on Form 10-K. Please also see the section entitled "Special Note Regarding Forward-Looking Statements."
Overview
We are a clinical-stage biopharmaceutical company focused on the development and
commercialization of proprietary product candidates to treat patients suffering
from central nervous system ("CNS") diseases. Leveraging our scientific insights
and clinical experience, we have acquired or in-licensed compounds that we
believe have innovative mechanisms of actions and therapeutic profiles that
potentially address the unmet needs of patients with these diseases.
We are developing roluperidone (f/k/a MIN-101) for the treatment of negative
symptoms in patients with schizophrenia and have exclusive rights to develop and
commercialize MIN-301 for the treatment of Parkinson's disease. In addition, we
previously co-developed seltorexant (f/k/a MIN-202 or JNJ-42847922) with Janssen
Pharmaceutica NV ("Janssen") for the treatment of insomnia disorder and
adjunctive treatment of Major Depressive Disorder ("MDD"). During 2020, we
exercised our right to opt out of a joint development agreement with Janssen for
the future development of seltorexant. As a result, we were entitled to collect
royalties in the mid-single digits on potential future sales of seltorexant
worldwide in certain indications, with no further financial obligations to
Janssen. In January 2021 , we sold our rights to these potential royalties to
Royalty Pharma plc ("Royalty Pharma").
We have not received regulatory approvals to commercialize any of our product
candidates, and we have not generated any revenue from the sales or license of
our product candidates. We have incurred significant operating losses every year
since inception. We expect to incur net losses and negative cash flow from
operating activities for the foreseeable future in connection with the clinical
development and the potential regulatory approval, infrastructure development
and potential commercialization of our product candidates.
Clinical and Regulatory Update
Roluperidone
Type C Meeting Request
OnNovember 3, 2021 we announced that theU. S. Food and Drug Administration ("FDA") denied our request for a pre-NDA meeting for roluperidone and responded that a Type C guidance meeting would be more appropriate to discuss the evidence for use of roluperidone as monotherapy for the treatment of negative symptoms of schizophrenia. Following the scheduled Type C meeting and, subject to the timing and feedback from the FDA, we continue to prepare for a potential submission of a New Drug Application ("NDA") for roluperidone in the first half of 2022.
Pivotal Bioequivalence Study (MIN-101C015 study)
OnSeptember 30, 2021 , we announced results from a pivotal bioequivalence study comparing the roluperidone formulations used in our late-stage Phase 2b (MIN-101C03 study), Phase 3 trials (MIN-101C07 study), and the planned commercial formulation. The planned commercial formulation was tested under both fasted and fed conditions. The study met key pharmacokinetic ("PK") objectives, and the data demonstrate bioequivalence in terms of exposure across the various formulations. Subject screening in this study was initiated onApril 23, 2021 , the completion of the enrollment of 48 healthy volunteers was achieved onJune 29, 2021 , and the last subject assessment took place onJuly 26, 2021 . Subjects were randomized to the four treatment sequences described above in a 1:1:1:1 ratio. Of the 48 subjects randomized, 45 completed all study periods. Male subjects constituted 69% of the participants, and 75% of the subjects were white. Median age was 36 years, and all had negative SARS-CoV2 status at the beginning of the study and of every study period with the exception of 1 subject who tested positive at the beginning of study Period 4 and was discontinued. The mean body mass index was 28.1±4 kg/m2. The results demonstrated bioequivalence in terms of exposure between the formulations 56 --------------------------------------------------------------------------------
used in the late-stage efficacy and safety trials of roluperidone with the
planned commercial formulation and allow administration of the drug with or
without food.
Open Label Extension (MIN-101C07 study)
OnMay 11, 2021 , we announced results from the 40-week Open-Label Extension ("OLE") of the Company's Phase 3 trial of roluperidone for the treatment of negative symptoms ("NS") of schizophrenia. The OLE followed the 12-week double-blind, placebo-controlled portion of this trial. During the 40-week OLE, both investigators and patients were blinded to the roluperidone dose received. The OLE was designed to evaluate the safety of roluperidone after long-term exposure. Efficacy endpoints were also assessed during the OLE period. As such, efficacy data collected during the OLE are not placebo-controlled and therefore their interpretation is limited. Over the 40-week OLE period, 333 patients participated, of whom 166 patients received the 32 mg dose and 167 patients received the 64 mg dose. A total of 202 of the 333 patients completed the 40-week OLE period. The mean improvement in negative symptoms, as measured by the Negative Symptom Factor Score ("NSFS"), the primary endpoint of the trial, was 6.8 points in the 32 mg arm and 7.5 points in the 64 mg arm. Personal and Social Performance ("PSP") scale total score (key secondary endpoint) improved by a mean of 12.3 points in the 32 mg arm and 14.5 points in the 64 mg arm, suggesting functional improvement.
The mean improvement in positive symptoms, as measured by the Positive and
Negative Syndrome Scale (“PANSS”) positive symptom subscore was 1.9 points in
the 32 mg arm and 1.8 points in the 64 mg arm.
Reduced emotional experience, as measured by a sub-factor of the NSFS that assesses a patient's motivation to take part in everyday life activities, had a mean improvement of 2.8 points in the 32 mg group and 3.0 points in the 64 mg group. The relapse rate during the OLE, defined as patients being withdrawn from the trial due to worsening of symptoms of psychosis, was 15 patients out of 166 patients (9%) in the 32 mg arm and 10 patients out of 167 patients (6%) in the 64 mg arm. Over the one-year duration of the study (including both the 12 weeks double-blind phase and the 40 weeks OLE) the relapse rate was 11.7% overall. Roluperidone at both doses was safe and well tolerated and treatment-emergent adverse events (TEAE) were generally mild to moderate in severity. The most frequently reported TEAE in the overall group of 333 patients that participated in the OLE were headaches in 26 patients (7.8%), followed by worsening of schizophrenia in 18 patients (5.4%) and insomnia in 15 patients (4.5%). No other TEAE was reported by more than 4% of the patients. There was one death during the OLE that occurred after treatment discontinuation (45-year old male) in the 64 mg arm due to treatment-unrelated respiratory failure. Twenty patients (6%) experienced serious adverse events, with the majority of them associated with the disease characteristics, and only 5 were judged by the investigator to be related to roluperidone. In total, 37 patients (11%) did not complete the OLE due to TEAE, with 25 patients (7.5%) due to relapse-related events and the remaining 12 patients due to a variety of other TEAE reported in ?1% of the patients. Few QT prolongations were observed during the OLE, were generally transient in duration and only one in the 64 mg arm led to discontinuation from the study.
Type C Meeting (
OnNovember 30, 2020 we received official meeting minutes from ourNovember 10, 2020 Type C meeting with the FDA regarding the development of roluperidone for treatment of negative symptoms of schizophrenia. The objective of this meeting was to obtain FDA input regarding the existing roluperidone data package, which included the completed Phase 2b study (double-blind phase and OLE) and 12 weeks double-blind phase of the Phase 3 study, and its readiness to support an NDA submission.
Phase 3 Trial 12 weeks double-blind phase results (MIN-101C07 study)
OnMay 29, 2020 , the double-blind, placebo-controlled portion of the Phase 3 trial enrolled a total of 515 patients that were randomized in a 1:1:1 ratio to 32 mg/day roluperidone, 64 mg/day roluperidone, or placebo for 12 weeks, and 513 patients received study drugs. The 12-week double-blind, placebo-controlled portion of the trial did not meet its primary or key secondary endpoints in the intent-to-treat population. The 32 mg and 64 mg doses were not statistically significantly different from placebo at week 12 on the primary endpoint of NSFS (p ?0.259 and p ?0.064, respectively), but showed a nominal statistically significant separation from placebo on the 64 mg dose on the key secondary endpoint, PSP total score (p ?0.542 for 32 mg dose and nominal p ?0.021 for the 64 mg dose). The subsequent analysis of the change in baseline in NSFS and PSP total score based on the modified ITT population treated with the 64 mg dose resulted in nominally statistically significant p ?0.044 and p ?0.017, respectively. 57 --------------------------------------------------------------------------------
Seltorexant
InJune 2020 we exercised our right to opt out of our agreement with Janssen for the future Phase 3 development and commercialization of seltorexant. Under the terms of the opt-out agreement, we were entitled to collect royalties in the mid-single digits on potential future worldwide sales of seltorexant in certain indications, with no further financial obligations to Janssen. InJanuary 2021 we sold our rights to these potential royalties to Royalty Pharma for a$60 million cash payment and up to an additional$95 million in potential milestone payments, subject to completion of the Phase 3 program by Jansen and regulatory approvals. As a result of the sale, we will recognize non-cash interest expense related to the amortization of estimated future royalty payments to Royalty Pharma. Accordingly, for the three and twelve months endedDecember 31, 2021 , we recognized$1.7 million and$6.3 million in non-cash interest expense related to this agreement. The$60 million payment received from Royalty Pharma has been included on our balance sheet under Liability related to the sale of future royalties. As we recognize interest expense, the Liability related to the sale of future royalties will increase until such time that we begin to receive the related royalty payments. Under the terms of the agreement, all payments from Royalty Pharma to us, including the initial upfront payment of$60 million as well as amortized interest expense and potential milestone payments, are not repayable to Royalty Pharma in the event that Janssen discontinues the clinical development of seltorexant or ceases to pursue its commercialization at a future date for any reason. MIN-301 During 2021 we focused our resources on moving forward our lead drug candidate roluperidone and deferred the future development of MIN-301 until additional resources become available. As a result of our limited resources and development deferral combined with the overall market conditions, we have recognized a non-cash charge of$15.2 million as ofDecember 31, 2021 related to the impairment of the intangible asset for MIN-301. We had previously recognized in-process research and development for MIN-301 in conjunction with the acquisition of MIN-301 during 2014.
Financial Overview
Revenue
None of our product candidates have been approved for commercialization and we
have not received any revenue in connection with the sale or license of our
product candidates.
Collaborative Revenue
During 2020 we exercised our right to opt out of the joint development agreement with Janssen for the future development of seltorexant. As a result, we have no future obligations under the agreement and recognized approximately$41.2 million in collaborative revenue during 2020, which we had previously included on our balance sheet under deferred revenue.
Research and Development Expenses
Research and development expenses consists of costs incurred in connection with
the development of our product candidates, including: fees paid to consultants
and clinical research organizations ("CROs") including in connection with our
non-clinical and clinical trials, and other related clinical trial fees, such as
for investigator grants, patient screening, laboratory work, clinical trial
database management, clinical trial material management and statistical
compilation and analysis; licensing fees; costs related to acquiring clinical
trial materials; costs related to compliance with regulatory requirements; and
costs related to salaries, benefits, bonuses and stock-based compensation
granted to employees in research and development functions. We expense research
and development costs as they are incurred.
The historic direct costs relating to each of our product candidates are
summarized as follows (in thousands):
Year Ended December 31,
2021 2020
Roluperidone $ 14,421 $ 17,955
MIN-117 4 490
MIN-301(1) - 568
Total $ 14,425 $ 19,013
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(1) During 2021 we focused our resources on moving forward our lead drug
candidate roluperidone and deferred the future development of MIN-301 until
additional resources become available. As a result of our limited resources
and development deferral combined with the overall market conditions, we
have recognized a non-cash charge of
related to the impairment of the intangible asset for MIN-301.
Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success or failure of each product candidate, the estimated costs to continue the development program relative to our available resources, as well as an ongoing assessment as to each product candidate's commercial potential. We will need to raise additional capital or may seek additional product collaborations in the future in order to complete the development and commercialization of our product candidates. We test goodwill and in-process research and development for impairment annually onNovember 30 or more frequently if changes in circumstances or the occurrence of events suggest impairment exists. The test for impairment of in-process research and development requires us to make several estimates about fair value, most of which are based on projected future cash flows. Changes in these estimates may result in the recognition of an impairment loss in our results of operations. An impairment analysis is performed whenever events or changes in circumstances indicate that the carrying amount of any individual asset may not be recoverable. For example, if we or our counterparties fail to perform our respective obligations under an agreement, or if we lack sufficient funding to develop our product candidates, an impairment may result. In addition, any significant change in market conditions, estimates or judgments used to determine expected future cash flows that indicate a reduction in carrying value may give rise to impairment in the period that the change becomes known.
General and Administrative Expenses
General and administrative expenses consist principally of costs for functions in executive, finance, legal, auditing and taxes. Our general and administrative expenses include salaries, bonuses, facility and information system costs and professional fees for auditing, accounting, consulting and legal services. General and administrative costs also include non-cash stock-based compensation expense as part of our compensation strategy to attract and retain qualified staff. We expect to continue to incur general and administrative expenses related to operating as a publicly-traded company, including increased audit and legal fees, costs of compliance with securities laws, corporate governance and other regulations, investor relations expenses and higher insurance premiums.
Foreign Exchange (Losses) Gains
Foreign exchange (losses) gains are comprised primarily of losses and gains of foreign currency transactions related to clinical trial expenses denominated in Euros. Since our current clinical trials are conducted inEurope , we incur certain expenses in Euros and record these expenses inUnited States Dollars at the time the liability is incurred. Changes in the applicable foreign currency rate between the date an expense is recorded and the payment date is recorded as a foreign currency loss or gain. We expect to continue to incur future expenses denominated in Euros as certain of our planned clinical trials are expected to be conducted inEurope . Investment Income
Investment income consists of income earned on our cash equivalents and
marketable securities.
Non-cash interest expense for the sale of future royalties
Non-cash interest expense for the sale of future royalties consists of the
interest expense associated with the Royalty Pharma agreement.
Net Operating Losses and Tax Carryforwards
As ofDecember 31, 2021 , we had approximately$70.5 million of federal net operating loss carryforwards. These federal net operating loss carryforwards will begin to expire at various dates beginning in 2030, if not utilized. As ofDecember 31, 2021 , we had approximately$66.3 million of state net operating loss carryforwards. During the year endedDecember 31, 2021 , no state operating loss carryforwards had expired. 59 --------------------------------------------------------------------------------
Results of Operations
Comparison of the Years EndedDecember 31, 2021 andDecember 31, 2020 (in thousands): Year Ended December 31, 2021 2020 Revenues Collaborative revenue $ -$ 41,176 Total revenues - 41,176 Expenses Research and development 32,039 22,040 General and administrative 13,327 17,289 Total expenses 45,366 39,329 (Loss) gain from operations (45,366 ) 1,847 Foreign exchange losses (33 ) (67 ) Investment income 17 161
Non-cash interest expense for the sale of future royalties (6,327 )
- (Loss) gain before income taxes (51,709 ) 1,941 Benefit for income taxes (1,803 ) - Net (loss) income$ (49,906 ) $ 1,941 Collaborative Revenue Collaborative revenue was zero and$41.2 million for the years endedDecember 31, 2021 and 2020, respectively. The decrease in collaborative revenue was the result of opting out of our co-development and license agreement with Janssen and recognizing the revenue during the year endedDecember 30, 2020 and no similar activity in the corresponding period in 2021.
Research and Development Expenses
Research and development expenses were$32.0 million and$22.0 million for the years endedDecember 31, 2021 and 2020, respectively, an increase of$10.0 million . The increase in research and development expenses was primarily due to a non-cash$15.2 million charge for the impairment of the in-process research and development intangible asset related to MIN-301 in 2021, partially offset by lower non-cash stock compensation expense and a decrease in clinical costs due to the completion of the roluperidone OLE inMay 2021 . Non-cash stock compensation expense included in research and development expenses was$2.4 million and$3.0 million for the years endedDecember 31, 2021 and 2020, respectively.
General and Administrative Expenses
General and administrative expenses were$13.3 million and$17.3 million for the years endedDecember 31, 2021 and 2020, respectively, a decrease of approximately$4.0 million . The decrease in general and administrative expenses was primarily due to lower staffing related expenses and non-cash stock compensation expense, partially offset by higher legal and insurance costs. Non-cash stock compensation expense included in general and administrative expenses was$2.8 million and$6.7 million for the years endedDecember 31, 2021 and 2020, respectively. Foreign Exchange Losses Foreign exchange losses were$33 thousand and$67 thousand for the years endedDecember 31, 2021 and 2020, respectively, a decrease of$34 thousand . The loss was primarily due to a higher level of clinical activities in 2020 denominated in Euros. Investment Income
Investment income was
decrease was primarily due to lower average balances for cash equivalents and
marketable securities during 2021.
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Non-cash interest expense for the sale of future royalties
Non-cash interest expense for the sale of future royalties was$6.3 million for the year endedDecember 31, 2021 and zero for the prior year period. The increase was primarily due to the sale of our royalty interest in seltorexant to Royalty Pharma and the effective interest associated with the agreement, see Note 6 for the sale of future royalties.
Benefit for Income Taxes
Benefit for income taxes was$1.8 million and zero for the years endedDecember 31, 2021 and 2020, respectively, an increase of$1.8 million . The increase was primarily due to the benefit received from lowering the deferred tax liability due to the impairment of the MIN-301 IPR&D asset during 2021.
Non-GAAP Operating Loss
Non-GAAP financial measures are included with the intent of providing investors with a more complete understanding of our historical financial results and trends and to facilitate comparisons between periods. In addition, these non-GAAP financial measures are among the indicators our management uses for planning and forecasting purposes and measuring our performance. Non-GAAP financial measures have no standardized meaning and investors are cautioned that, unlike financial measures prepared in accordance withU.S. GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies. The limitations of using non-GAAP financial measures as performance measures are that they provide a view of our results of operations without including all events during a period and may not provide a comparable view of our performance to other companies in the biopharmaceutical industry. We believe that these non-GAAP financial measures, when considered together withU.S. GAAP measures, can enhance the understanding of our financial and operating performance. Excluding non-cash revenue and expenses, net loss for the three months endedDecember 31, 2021 and 2020 was$5.0 million and$5.3 million , respectively, or a basic and diluted loss per share of$0.12 and$0.12 , respectively. Net loss for the twelve months endedDecember 31, 2021 and 2020 was$25.0 million and$29.6 million , respectively. For the twelve months endedDecember 31, 2021 and 2020, basic non-GAAP loss per share was$0.59 and$0.73 respectively, diluted non-GAAP loss per share was$0.59 and$0.72 , respectively. The decrease in non-GAAP net loss for both the three and twelve-month periods endedDecember 31, 2021 versus the prior year periods was due primarily to lower clinical trial expenses as well as lower staffing related expenses, partially offset by higher legal and insurance costs. Reconciliations of reported GAAP net (loss) income to non-GAAP operating loss for the three and twelve months endedDecember 31, 2021 and 2020 were as follows (in millions, except share and per share amounts): Three Months EndedDecember 31 ,
Twelve Months Ended
2021 2020 2021 2020
GAAP net (loss) income $ (21.3 ) $ (7.3 ) $ (49.9 ) $ 1.9
Adjustments to reconcile GAAP net
(loss) income to non-GAAP net loss:
Collaborative revenue $ - $ - $ - $ (41.2 )
Impairment of in-process research and
development 15.2 - 15.2 -
Non-cash interest expense associated
with the sale of future royalties 1.7 - 6.3 -
Stock-based compensation expense 1.2 2.0 5.2 9.7
Subtotal non-cash items 18.1 2.0 26.7 (31.5 )
Benefit for income taxes (1.8 ) - (1.8 ) -
Non-GAAP net loss $ (5.0 ) $ (5.3 ) $ (25.0 ) $ (29.6 )
Non-GAAP loss per share, basic $ (0.12 ) $ (0.12 ) $ (0.59 ) $ (0.73 )
Weighted average shares outstanding,
basic 42,721,566 42,683,701 42,721,566 40,823,717
Non-GAAP loss per share, diluted $ (0.12 )
(0.59 )$ (0.72 ) Weighted average shares outstanding, diluted 42,721,566 42,683,701 42,721,566 40,916,871 61
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Liquidity and Capital Resources
Sources of Liquidity
As ofDecember 31, 2021 , we had an accumulated deficit of approximately$334.7 million . We anticipate that we will continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of our product candidates and to support our operations as a public company. AtDecember 31, 2021 , we had approximately$60.9 million in cash, cash equivalents, and restricted cash. InJanuary 2021 Royalty Pharma acquired our royalty interest in seltorexant for an upfront payment of$60 million and up to an additional$95 million in potential milestone payments. The potential future milestone payments to us will be contingent on the achievement of certain clinical, regulatory and commercialization milestones for seltorexant by Janssen. Seltorexant is currently in Phase 3 development for the treatment of MDD with insomnia symptoms by Janssen. We believe that our existing cash, cash equivalents, and restricted cash will be sufficient to meet our cash commitments for at least the next 12 months after the date that the financial statements are issued and beyond. Our material cash requirements primarily relate to expenditures for the continued development of roluperidone, NDA activities, and human capital. The process of drug development can be costly and the timing and outcomes of clinical trials is uncertain. The assumptions upon which we have based our estimates are routinely evaluated and may be subject to change. The actual amount of our expenditures will vary depending upon a number of factors including but not limited to the design, timing and duration of future clinical trials, the progress of our research and development programs, the infrastructure to support a commercial enterprise, the cost of a commercial product launch and the level of financial resources available. We have the ability to adjust our operating plan spending levels based on the timing of future clinical trials which will be predicated upon adequate funding to complete the trials.
Sources of Funds
At-the-Market Equity Offering Program
InAugust 2018 we entered into the Sales Agreement withJefferies LLC pursuant to which we may offer and sell, from time to time, through Jefferies, up to$50.0 million in shares of our common stock, by any method permitted by law deemed to be an "at-the-market" offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended. During the year endedDecember 31, 2020 , we issued and sold 3,381,608 shares of our common stock under the Sales Agreement. The shares were sold at an average price of$3.7113 per share for aggregate net proceeds to us of approximately$12.1 million , after deducting sales commissions and offering costs payable by us. During the year endedDecember 31, 2021 , no shares of our common stock were issued or sold under the Sales Agreement. Seltorexant Royalties We previously co-developed seltorexant with Janssen for the treatment of insomnia disorder and adjunctive treatment of MDD. During 2020, we exercised our right to opt out of a joint development agreement with Janssen for the future development of seltorexant. As a result, we were entitled to collect royalties in the mid-single digits on potential future sales of seltorexant worldwide in certain indications, with no further financial obligations to Janssen.
On
which Royalty Pharma acquired our royalty interest in seltorexant for an upfront
payment of
milestone payments, contingent upon the achievement of certain clinical,
regulatory and commercial milestones for seltorexant by Janssen.
Uses of Funds
To date, we have not generated any revenue from sales of products. We have only
generated collaborative revenue due to opting out of our license and
co-development agreement with Janssen, and have only generated revenue from the
one-time sale of our royalty interests in seltorexant to Royalty Pharma. We do
not know when, or if, we will generate any revenue from sales of our products,
or from the potential future royalty streams associated with the sale of our
royalty interests in seltorexant to Royalty Pharma. We do not expect to generate
significant revenue from product sales unless and until we obtain regulatory
approval of and commercialize any of our product candidates. At the same time,
we expect our expenses to increase in connection with our ongoing development
activities, particularly as we continue the research, development and clinical
trials of, and seek regulatory approval for, our product candidates. We also
expect to continue to incur costs associated with operating as a public company.
In addition, subject to obtaining regulatory approval of any of our product
candidates, we expect to incur significant commercialization expenses for
product sales, marketing, manufacturing and distribution.
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Until such time, if ever, as we can generate substantial revenue from product
sales, we expect to finance our cash needs through a combination of equity
offerings, debt financings, government or other third party funding,
commercialization, marketing and distribution arrangements and other
collaborations, strategic alliances and licensing arrangements. To the extent
that we raise additional capital through the sale of equity or convertible debt
securities, the ownership interests of our common stockholders will be diluted,
and the terms of these securities may include liquidation or other preferences
that adversely affect the rights of our common stockholders. Additional debt
financing, 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. If we raise
additional funds through government or other third party funding,
commercialization, marketing and distribution arrangements or other
collaborations, strategic alliances 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 to grant licenses on
terms that may not be favorable to us. There can be no assurance that such
additional funding, if available, can be obtained on terms acceptable to us, and
the uncertainty and volatility in the capital markets caused by the continuing
COVID-19 pandemic may negatively impact the availability and cost of capital. If
we are unable to obtain additional financing, future operations would need to be
scaled back or discontinued. We believe that our existing cash, cash
equivalents, and restricted cash will be sufficient to meet our cash commitments
for at least the next 12 months after the date that the financial statements are
issued. The timing of future capital requirements depends upon many factors
including the size and timing of future clinical trials, the timing and scope of
any strategic partnering activity and the progress of other research and
development activities.
Cash Flows
The tables below set forth our significant sources and uses of cash for the
periods.
Year Ended December 31,
2021 2020
(dollars in millions)
Net cash (used in) provided by:
Operating activities $ (24.6 ) $ (33.8 )
Investing activities - 24.5
Financing activities 60.0 13.2
Net increase in cash $ 35.4 $ 3.9
Net cash used in operating activities of approximately$24.6 million during the year endedDecember 31, 2021 was primarily due to our net loss of$49.9 million , a$1.8 million increase in deferred taxes, a$0.1 million increase in capitalized software, and approximately a$1.0 million decrease in accrued expenses, partially offset by an impairment expense of in-process research and development assets of$15.2 million , non-cash interest expense for the sale of future royalties of$6.3 million , stock-based compensation expense of$5.2 million ,$0.9 million increase in accounts payable, and a$0.6 million decrease in prepaid expense. Net cash used in operating activities of approximately$33.8 million during the year endedDecember 31, 2020 was primarily due to decreases in deferred revenue of$41.2 million , accrued expenses of$2.1 million and accounts payable of$1.3 million , and an increase of prepaid expense of$0.8 million . The cash used was partially offset by our net income of$1.9 million and stock-based compensation expense of$9.7 million .
Net Cash Provided by Investing Activities
Net cash provided by investing activities was zero during the year ended
Net cash provided by investing activities of approximately$24.5 million during the year endedDecember 31, 2020 was primarily due to the maturity and redemption of marketable securities of$28.4 million , partially offset by the purchase of marketable securities of$3.9 million .
Net Cash Provided by Financing Activities
Net cash provided by financing activities of$60 million during the year endedDecember 31, 2021 was due to the proceeds from the sale of future royalties of$60 million . 63 -------------------------------------------------------------------------------- Net cash provided by financing activities of$13.2 million during the year endedDecember 31, 2020 was due to gross proceeds received from the 'at the market' stock offering of$12.6 million less costs of$0.5 million , and proceeds from the exercise of common stock options of$1.1 million .
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles inthe United States ("GAAP"). 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 reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. 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 readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Form 10-K, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.
Research and Development Costs
Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain technology in our research and development projects as well as fees paid to consultants and various entities that perform certain research and testing on our behalf and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in research and development functions. We determine our expenses related to clinical studies based on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. The expenses for some trials may be recognized on a straight-line basis if the anticipated costs are expected to be incurred ratably during the period. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the condensed consolidated financial statements as prepaid or accrued expenses. We make estimates of our accrued research and development expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time. Although we do not expect that our estimates will be materially different from amounts actually incurred, our understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or too low for any particular period. There had been no material adjustments to our prior period estimates of accrued expenses for clinical trials. However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials.
In-process research and development ("IPR&D"), assets represent capitalized
incomplete research projects that we acquired through business combinations.
Such assets are initially measured at their acquisition date fair values. The
initial fair values of the research projects are recorded as intangible assets
on the balance sheet, rather than expensed, regardless of whether these assets
have an alternative future use.
The amounts capitalized are being accounted for as indefinite-lived intangible
assets, subject to impairment testing, until completion or abandonment of
research and development efforts associated with the project. An IPR&D asset is
considered abandoned when it ceases to be used (that is, research and
development efforts associated with the asset have ceased, and there are no
plans to sell or license the asset or derive defensive value from the asset). At
that point, the asset is considered to be disposed of and is written off. Upon
successful completion of each project, we will make a determination about the
then remaining useful life of the intangible asset and begin amortization. We
test our indefinite-lived intangibles, IPR&D assets, for impairment annually on
November 30 and more frequently if events or changes in circumstances indicate
that it is more likely than not that the asset is impaired. In estimating the
fair value of IPR&D, an income approach was used with a discounted cash flow
analysis. Many assumptions and estimates are included in
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this analysis including revenue and expense projections, probability of success
factors, expected product launch date and a weighted average cost of capital of
20.5%.
Potential triggering events that could indicate whether an impairment to the
IPR&D may have occurred include: clinical trial results where the compound under
investigation did not meet preestablished criteria or clinical endpoints,
failure to obtain regulatory approval, the inability to fund future clinical
trials, failure to obtain patent protection, adverse changes in the regulatory
environment, the approval of competing therapies or compounds, adverse changes
in applicable laws or regulations and a variety of other circumstances. The
impairment of IPR&D could have a material adverse impact on our financial
condition. In order to determine whether an impairment has occurred, management
must evaluate the events and incorporate multiple assumptions including: costs
associated with continuing the development program, competing therapies or
compounds, potential market size, estimated future cash flows and other factors.
When testing indefinite-lived intangibles for impairment, we may assess
qualitative factors for our indefinite-lived intangibles to determine whether it
is more likely than not (that is, a likelihood of more than 50 percent) that the
asset is impaired. Alternatively, we may bypass this qualitative assessment for
some or all of our indefinite-lived intangibles and perform the quantitative
impairment test that compares the fair value of the indefinite-lived intangible
asset with the asset's carrying amount. We test our IPR&D for impairment as of
November 30 .
Impairment of
During 2021 we focused our resources on moving forward our lead drug candidate roluperidone and deferred the future development of MIN-301 until additional resources become available. As a result of our limited resources and development deferral combined with the overall market conditions, we have recognized a non-cash charge of$15.2 million as ofDecember 31, 2021 related to the impairment of the intangible asset for MIN-301. We had previously recognized in-process research and development for MIN-301 in conjunction with the acquisition of MIN-301 during 2014.
We test our goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing our reporting unit's carrying value to its fair value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If we determine that an impairment has occurred, we are required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact those judgments in the future and require an adjustment to the recorded balances. We test our goodwill for impairment as ofNovember 30 . There was no impairment of goodwill for the years endedDecember 31, 2021 or 2020.
Income Taxes
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Uncertain tax positions are evaluated and if appropriate, the amount of unrecognized tax benefits are recorded within deferred tax assets. Deferred tax assets are evaluated for realization based on a more-likely-than-not criterion in determining if a valuation allowance should be provided. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. We use a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. We have elected to treat interest and penalties, to the extent they arise, as a component of income taxes. There was no interest or penalties related to income taxes for the years endedDecember 31, 2021 or 2020. Income tax years beginning in 2012 for federal and state purposes are generally subject to examination by taxing authorities, although net operating losses from all prior years are subject to examinations and adjustments for at least three years following the year in which the tax attributes are utilized.
Liability related to the sale of future royalties
We treat the sale of future royalties to Royalty Pharma as a debt financing, as we have significant continuing involvement in facilitating the transfer of royalties to Royalty Pharma and Royalty Pharma has recourse against us relating to the payments due from Janssen. As a result, we recorded the upfront payment of$60 million from this transaction as a liability related to the sale of future royalties, and up to an additional$95 million in potential milestone payments will also be recorded as a liability related to the sale of future royalties and amortized as interest expense over the estimated remaining life of the agreement. Under the terms of the 65 -------------------------------------------------------------------------------- agreement, all payments from Royalty Pharma to us, including the initial upfront payment of$60 million as well as amortized interest expense and potential milestone payments, are not repayable to Royalty Pharma in the event that Janssen discontinues the clinical development of seltorexant or ceases to pursue its commercialization at a future date for any reason. The liability related to sale of future royalties and the related interest expense is based on our current estimates of future royalties expected to be paid over the life of the arrangement. We will periodically assess the expected royalty payments using a combination of internal projections and forecasts from external sources. To the extent our future estimates of royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than its previous estimates, we will prospectively recognize related non-cash interest expense. As ofDecember 31, 2021 , we estimated the effective annual interest rate to be approximately 10.7%. For example, as ofDecember 31, 2021 , a 20% increase in the probability of clinical success of the MDD with insomnia trial would represent a 1.5 percentage points increase in the effective annual interest rate, which would increase the non-cash interest expense and future milestone payments by$37.7 million and$5.4 million , respectively, over the remaining life of the agreement.
For further discussion of the sale of future royalties, please refer to Note 6,
Sale of Future Royalties.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued byFinancial Accounting Standards Board ("FASB") and are adopted by us as of the specified effective date. Our significant accounting policies are described in Note 2 to our financial statements appearing elsewhere in this Form 10-K. Except as described in Note 2, we believe that the impact of other recently issued, but not yet adopted, accounting pronouncements will not have a material impact on the financial position, results of operations and cash flows, or do not apply to our operations. ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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