Description of the Business and Liquidity	6 Months Ended
Jun. 30, 2022
Description of the Business and Liquidity
Description of the Business and Liquidity	1. Description of the Business and Liquidity We are a commercial-stage pharmaceutical company dedicated to the development of innovative therapeutics for the treatment of seizure disorders, including rare genetic epilepsies and status epilepticus. On March 18, 2022, the U.S Food and Drug Administration (FDA) approved our new drug application (NDA) for the use of ZTALMY® (ganaxolone) oral suspension for the treatment of seizures associated with cyclin-dependent kinase-like 5 (CDKL5) deficiency disorder (CDD) in patients 2 years of age and older. We expect ZTALMY, our first FDA approved product, to become available for commercial sale and shipment to patients with a prescription in the U.S. in the third quarter of 2022. In June 2022, the U.S. Drug Enforcement Administration (DEA) published an interim final rule in the Federal Register placing ganaxolone and its salts in schedule V of the Controlled Substances Act (CSA). We also plan to continue to develop ganaxolone for the treatment of other rare genetic epilepsies including tuberous sclerosis complex and for the treatment of status epilepticus. The continued global spread of COVID-19 has impacted our clinical operations and timelines. For example, our Phase 3 Randomized Therapy In Status Epilepticus Trial (RAISE trial) in refractory status epilepticus (RSE) is conducted in hospitals, primarily intensive care units in academic medical centers, which have experienced high rates of COVID-19 admissions. Several of these sites participating in the RAISE trial have experienced COVID-related difficulties, including staff turnover and the need to devote significant resources to patients with COVID-19, which has resulted in site initiation and enrollment delays for the RAISE trial. Given these COVID-19-related challenges and a temporary pause beginning in February 2022 of the RAISE trial after routine monitoring of stability batches of clinical supply material indicated that it became necessary to reduce the shelf life to less than the anticipated 24-months to meet product stability testing specifications, we previously adjusted the expectation for our top-line data readout for the RAISE trial to the second half of 2023. In May 2022, we resumed screening and recruitment for the RAISE trial. In addition, our ganaxolone clinical trials in the outpatient setting may be negatively impacted if patients and their caregivers do not want to participate while the COVID-19 pandemic persists. The duration and severity of the pandemic and its long-term impact on our business are uncertain at this time. Liquidity We have not generated any product revenues and have incurred operating losses since inception, including losses of $58.8 million for the six months ended June 30, 2022. There is no assurance that profitable operations will ever be achieved, and if achieved, could be sustained on a continuing basis. In addition, development activities, clinical and preclinical testing, and commercialization of ganaxolone will require significant additional financing. Our accumulated deficit as of June 30, 2022 was $469.5 million and we expect to incur substantial losses in future periods. We plan to finance our future operations with a combination of proceeds from the issuance of equity securities, the issuance of debt, government funding, collaborations, licensing transactions and other commercial transactions or other sources, and revenues from future product sales, if any. In July 2022, we entered into an asset purchase agreement with Novo Nordisk, Inc. to sell the Rare Pediatric Disease (RPD) Priority Review Voucher (PRV) awarded to us by the FDA as a result of the RPD Designation for ganaxolone for the treatment of CDD, pursuant to which Novo Nordisk, Inc. will pay us $110.0 million upon the closing of the transaction which is expected to occur in the third quarter of 2022 (the PRV Asset Purchase Agreement), subject to customary closing conditions. We have not generated positive cash flows from operations, and there are no assurances that we will be successful in obtaining an adequate level of financing for the commercialization and continued development of ganaxolone. On July 30, 2021, we entered into a collaboration agreement (the Orion Collaboration Agreement) with Orion Corporation (Orion), whereby Orion received exclusive rights to commercialize the oral and IV dose formulations of ganaxolone in the European Economic Area, United Kingdom and Switzerland in multiple seizure disorders, including CDD, tuberous sclerosis complex (TSC) and RSE. Under the agreement, we received a €25 million ($29.6 million) upfront fee and are eligible to receive up to an additional €97 million in research and development reimbursement and cash milestone payments based on specific clinical and commercial achievements, as well as tiered royalty payments based on net sales ranging from the low double digits to the high teens for the oral programs and the low double-digits to the low twenties for the IV programs. On May 11, 2021 (Closing Date), we entered into a Credit Agreement and Guaranty (as amended by that certain letter agreement on May 17, 2021 and as further amended by that certain letter agreement on May 23, 2022, the Credit Agreement) with Oaktree Fund Administration, LLC, as administrative agent and the lenders party thereto that provides for a five-year senior secured term loan facility in an aggregate principal amount of up to $100.0 million available to us in four tranches (collectively, the Term Loans). As of June 30, 2022, we have drawn a total of $75.0 million of the Term Loans pursuant to the Credit Agreement, with a remaining undrawn principal balance of $25.0 million, which is available through December 31, 2023 and is subject to the achievement of certain milestone events. Refer to Note 8. Notes Payable for additional information. In September 2020, we entered into a contract (BARDA Contract) with the Biomedical Advanced Research and Development Authority (BARDA), a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response. Under the BARDA Contract, we received an award of up to an estimated $51 million for development of IV-administered ganaxolone for the treatment of RSE. The BARDA Contract provides for funding to support, on a cost-sharing basis, the completion of a Phase 3 clinical trial of IV-administered ganaxolone in patients with RSE, which covers the RAISE trial, funding of pre-clinical studies to evaluate IV-administered ganaxolone as an effective treatment for RSE due to chemical nerve gas agent exposure, and funding of certain ganaxolone manufacturing scale-up and regulatory activities. In March 2022, we entered into an amendment with BARDA to extend the end date of our base performance period for funding under the BARDA Contract from September 1, 2022 to December 31, 2023. The BARDA Contract consists of an approximately two-year base period, and an extension period through December 31, 2023 per the amendment described above, during which BARDA will provide up to approximately $21 million of funding for the RAISE trial on a cost share basis and funding of additional preclinical studies of ganaxolone in nerve agent exposure models. Following successful completion of the RAISE trial and preclinical studies in the base period and extension period, the BARDA Contract provides for approximately $30 million of additional BARDA funding for three options in support of ganaxolone manufacturing, supply chain, clinical, regulatory and toxicology activities. Under the BARDA Contract, we will be responsible for cost sharing in the amount of approximately $33 million and BARDA will be responsible for approximately $51 million, if all development options are completed. The contract period-of-performance (base and extension periods plus option exercises) is up to approximately five years. Management’s operating plan, which underlies the analysis of our ability to continue as a going concern, involves the estimation of the amount and timing of future cash inflows and outflows. Actual results could vary from the operating plan. We follow the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements—Going Concern, which requires management to assess our ability to continue as a going concern within one year after the date the financial statements are issued. Our cash and cash equivalents on hand as of June 30, 2022, excluding the $15.0 million liquidity requirement associated with our Note Payable (Note 8), is not sufficient to fund operations for the one-year period after the date the financial statements are issued. As a result, there is substantial doubt about our ability to continue as a going concern through the one-year period from the date these financial statements are issued. In July 2022, we entered into the PRV Asset Purchase Agreement, pursuant to which Novo Nordisk, Inc. will pay us $110.0 million upon the closing of the transaction, which is expected to occur in the third quarter of 2022, subject to customary closing conditions. In addition to monetizing the PRV, management’s plans that are intended to further mitigate the risk of our ability to continue as a going concern include additional financing or strategic transactions. We have and will continue to evaluate available alternatives to further extend our operations beyond the one-year period after the date the financial statements are issued. If additional capital is not obtained when required, we may need to delay or curtail our operations until additional funding is received.

Description of the Business and Liquidity

6 Months Ended

Jun. 30, 2022

Description of the Business and Liquidity

Description of the Business and Liquidity

1. Description of the Business and Liquidity

We are a commercial-stage pharmaceutical company dedicated to the development of innovative therapeutics for the treatment of seizure disorders, including rare genetic epilepsies and status epilepticus. On March 18, 2022, the U.S Food and Drug Administration (FDA) approved our new drug application (NDA) for the use of ZTALMY® (ganaxolone) oral suspension for the treatment of seizures associated with cyclin-dependent kinase-like 5 (CDKL5) deficiency disorder (CDD) in patients 2 years of age and older. We expect ZTALMY, our first FDA approved product, to become available for commercial sale and shipment to patients with a prescription in the U.S. in the third quarter of 2022. In June 2022, the U.S. Drug Enforcement Administration (DEA) published an interim final rule in the Federal Register placing ganaxolone and its salts in schedule V of the Controlled Substances Act (CSA). We also plan to continue to develop ganaxolone for the treatment of other rare genetic epilepsies including tuberous sclerosis complex and for the treatment of status epilepticus.

The continued global spread of COVID-19 has impacted our clinical operations and timelines. For example, our Phase 3 Randomized Therapy In Status Epilepticus Trial (RAISE trial) in refractory status epilepticus (RSE) is conducted in hospitals, primarily intensive care units in academic medical centers, which have experienced high rates of COVID-19 admissions. Several of these sites participating in the RAISE trial have experienced COVID-related difficulties, including staff turnover and the need to devote significant resources to patients with COVID-19, which has resulted in site initiation and enrollment delays for the RAISE trial. Given these COVID-19-related challenges and a temporary pause beginning in February 2022 of the RAISE trial after routine monitoring of stability batches of clinical supply material indicated that it became necessary to reduce the shelf life to less than the anticipated 24-months to meet product stability testing specifications, we previously adjusted the expectation for our top-line data readout for the RAISE trial to the second half of 2023. In May 2022, we resumed screening and recruitment for the RAISE trial. In addition, our ganaxolone clinical trials in the outpatient setting may be negatively impacted if patients and their caregivers do not want to participate while the COVID-19 pandemic persists. The duration and severity of the pandemic and its long-term impact on our business are uncertain at this time.

Liquidity

We have not generated any product revenues and have incurred operating losses since inception, including losses of $58.8 million for the six months ended June 30, 2022. There is no assurance that profitable operations will ever be achieved, and if achieved, could be sustained on a continuing basis. In addition, development activities, clinical and preclinical testing, and commercialization of ganaxolone will require significant additional financing. Our accumulated deficit as of June 30, 2022 was $469.5 million and we expect to incur substantial losses in future periods. We plan to finance our future operations with a combination of proceeds from the issuance of equity securities, the issuance of debt, government funding, collaborations, licensing transactions and other commercial transactions or other sources, and revenues from future product sales, if any.

In July 2022, we entered into an asset purchase agreement with Novo Nordisk, Inc. to sell the Rare Pediatric Disease (RPD) Priority Review Voucher (PRV) awarded to us by the FDA as a result of the RPD Designation for ganaxolone for the treatment of CDD, pursuant to which Novo Nordisk, Inc. will pay us $110.0 million upon the closing of the transaction which is expected to occur in the third quarter of 2022 (the PRV Asset Purchase Agreement), subject to customary closing conditions. We have not generated positive cash flows from operations, and there are no assurances that we will be successful in obtaining an adequate level of financing for the commercialization and continued development of ganaxolone.

On July 30, 2021, we entered into a collaboration agreement (the Orion Collaboration Agreement) with Orion Corporation (Orion), whereby Orion received exclusive rights to commercialize the oral and IV dose formulations of ganaxolone in the European Economic Area, United Kingdom and Switzerland in multiple seizure disorders, including CDD, tuberous sclerosis complex (TSC) and RSE. Under the agreement, we received a €25 million ($29.6 million)

upfront fee and are eligible to receive up to an additional €97 million in research and development reimbursement and cash milestone payments based on specific clinical and commercial achievements, as well as tiered royalty payments based on net sales ranging from the low double digits to the high teens for the oral programs and the low double-digits to the low twenties for the IV programs.

On May 11, 2021 (Closing Date), we entered into a Credit Agreement and Guaranty (as amended by that certain letter agreement on May 17, 2021 and as further amended by that certain letter agreement on May 23, 2022, the Credit Agreement) with Oaktree Fund Administration, LLC, as administrative agent and the lenders party thereto that provides for a five-year senior secured term loan facility in an aggregate principal amount of up to $100.0 million available to us in four tranches (collectively, the Term Loans). As of June 30, 2022, we have drawn a total of $75.0 million of the Term Loans pursuant to the Credit Agreement, with a remaining undrawn principal balance of $25.0 million, which is available through December 31, 2023 and is subject to the achievement of certain milestone events. Refer to Note 8. Notes Payable for additional information.

In September 2020, we entered into a contract (BARDA Contract) with the Biomedical Advanced Research and Development Authority (BARDA), a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response. Under the BARDA Contract, we received an award of up to an estimated $51 million for development of IV-administered ganaxolone for the treatment of RSE. The BARDA Contract provides for funding to support, on a cost-sharing basis, the completion of a Phase 3 clinical trial of IV-administered ganaxolone in patients with RSE, which covers the RAISE trial, funding of pre-clinical studies to evaluate IV-administered ganaxolone as an effective treatment for RSE due to chemical nerve gas agent exposure, and funding of certain ganaxolone manufacturing scale-up and regulatory activities. In March 2022, we entered into an amendment with BARDA to extend the end date of our base performance period for funding under the BARDA Contract from September 1, 2022 to December 31, 2023.

The BARDA Contract consists of an approximately two-year base period, and an extension period through December 31, 2023 per the amendment described above, during which BARDA will provide up to approximately $21 million of funding for the RAISE trial on a cost share basis and funding of additional preclinical studies of ganaxolone in nerve agent exposure models. Following successful completion of the RAISE trial and preclinical studies in the base period and extension period, the BARDA Contract provides for approximately $30 million of additional BARDA funding for three options in support of ganaxolone manufacturing, supply chain, clinical, regulatory and toxicology activities. Under the BARDA Contract, we will be responsible for cost sharing in the amount of approximately $33 million and BARDA will be responsible for approximately $51 million, if all development options are completed. The contract period-of-performance (base and extension periods plus option exercises) is up to approximately five years.

Management’s operating plan, which underlies the analysis of our ability to continue as a going concern, involves the estimation of the amount and timing of future cash inflows and outflows. Actual results could vary from the operating plan. We follow the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements—Going Concern, which requires management to assess our ability to continue as a going concern within one year after the date the financial statements are issued. Our cash and cash equivalents on hand as of June 30, 2022, excluding the $15.0 million liquidity requirement associated with our Note Payable (Note 8), is not sufficient to fund operations for the one-year period after the date the financial statements are issued. As a result, there is substantial doubt about our ability to continue as a going concern through the one-year period from the date these financial statements are issued. In July 2022, we entered into the PRV Asset Purchase Agreement, pursuant to which Novo Nordisk, Inc. will pay us $110.0 million upon the closing of the transaction, which is expected to occur in the third quarter of 2022, subject to customary closing conditions. In addition to monetizing the PRV, management’s plans that are intended to further mitigate the risk of our ability to continue as a going concern include additional financing or strategic transactions. We have and will continue to evaluate available alternatives to further extend our operations beyond the one-year period after the date the financial statements are issued.

If additional capital is not obtained when required, we may need to delay or curtail our operations until additional funding is received.