ovid-10q_20210331.htm

10-Q 1 ovid-10q_20210331.htm 10-Q ovid-10q_20210331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

Commission File Number: 001-38085

Ovid Therapeutics Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

46-5270895

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

1460 Broadway, Suite 15044

New York, New York

10036

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (646) 661-7661

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

OVID

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:


Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated Filer	☒	Smaller Reporting Company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ☐ No ☒

As of May 6, 2021, the registrant had 67,807,266 shares of common stock, $0.001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	4
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income (Loss)	6
	Condensed Consolidated Statements of Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	8
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 5.	Other Information	56
Item 6.	Exhibits	57
Signatures		58

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of this Quarterly Report on Form 10-Q. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” continue,” “could,” “design,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “positioned,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would” or the negative or plural of those terms, and similar expressions.

Forward-looking statements include, but are not limited to, statements about:

•

statements regarding the impact of the COVID-19 pandemic and its effects on our operations, access to capital, research and development and clinical trials and potential disruption in the operations and business of third-party manufacturers, contract research organizations, or CROs, other service providers, and collaborators with whom we conduct business;

•

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

•

our ability to identify additional novel compounds with significant commercial potential to acquire or in-license;

•

our ability to successfully acquire or in-license additional drug candidates on reasonable terms;

•

our ability to obtain regulatory approval of our current and future drug candidates;

•

our expectations regarding the potential market size and the rate and degree of market acceptance of such drug candidates;

•

our ability to fund our working capital requirements;

•

the implementation of our business model and strategic plans for our business and drug candidates;

•

developments or disputes concerning our intellectual property or other proprietary rights;

•

our ability to maintain and establish collaborations or obtain additional funding;

•

our expectations regarding government and third-party payor coverage and reimbursement;

•

our ability to compete in the markets we serve;

•

the impact of government laws and regulations;

•

developments relating to our competitors and our industry; and

•

the factors that may impact our financial results.

Factors that may cause actual results to differ materially from current expectations include, among other things, those set forth in Part I, Item 1A, “Risk Factors,” herein and for the reasons described elsewhere in this Quarterly Report on Form 10-Q. Any forward-looking statement in this Quarterly Report on Form 10-Q reflects our current view with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, industry and future growth. Given these uncertainties, you should not rely on these forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for certain drugs and consumer products, including data regarding the estimated size of those markets, their projected growth rates and the incidence of certain medical conditions. Information that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated, we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third parties, industry, medical and general publications, government data and similar sources and we have not independently verified the data from third party sources. In some cases, we do not expressly refer to the sources from which these data are derived.

In this Quarterly Report on Form 10-Q, unless otherwise stated or as the context otherwise requires, references to “Ovid,” “the Company,” “we,” “us,” “our” and similar references refer to Ovid Therapeutics Inc. and its wholly owned subsidiaries. This Quarterly Report on Form 10-Q also contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to, including logos, artwork and other visual displays, may appear without the ® or TM symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

Summary of Selected Risks Associated with Our Business

Our business is subject to numerous risks and uncertainties, including those discussed at length in the section titled “Risk Factors.” These risks include, among others, the following:

•

We have incurred significant operating losses since inception and expect to continue to incur substantial operating losses for the foreseeable future.

•

We have never generated any revenue from drug sales. Our operating history may make it difficult to evaluate the success of our business to date and to assess our future viability.

•

We will require additional capital to finance our operations, which may not be available on acceptable terms, if at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate certain of our drug development efforts or other operations.

•

Our future success is dependent on the successful clinical development, regulatory approval and commercialization of our current and future drug candidates. If we, or our licensees, are not able to obtain required regulatory approvals, we will not be able to commercialize our drug candidates, and our ability to generate revenue will be adversely affected.

•

Because the results of preclinical studies or earlier clinical trials are not necessarily predictive of future results, our drug candidates may not have favorable results in planned or future preclinical studies or clinical trials, or may not receive regulatory approval.

•

Interim topline and preliminary results from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures, which could result in material changes in the final data.

•

We may encounter substantial delays in our clinical trials or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.

•

If we are not successful in discovering, developing and commercializing additional drug candidates, our ability to expand our business and achieve our strategic objectives would be impaired.

•

Our drug candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial potential or result in significant negative consequences following any potential marketing approval.

•

Even if our current or future drug candidates receive marketing approval, they may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success.

•

If we are unable to establish sales and marketing capabilities, or enter into agreements with third parties to market and sell our current or any future drug candidates, we may be unable to generate any revenue from drug sales.

•

We may be required to make significant payments in connection with our license of OV101 from H. Lundbeck A/S.

•

Our relationships with customers, physicians, and third-party payors may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws, health information privacy and security laws, and other healthcare laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.

•

Coverage and adequate reimbursement may not be available for our current or any future drug candidates, which could make it difficult for us to sell profitably, if approved.

•

If we are unable to obtain and maintain patent protection for our current or any future drug candidates, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets.

•

We may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights, which could be expensive, time consuming and unsuccessful.

•

We do not have our own manufacturing capabilities and will rely on third parties to produce clinical and commercial supplies of our current and any future drug candidates.

•

We intend to rely on third parties to conduct, supervise and monitor our preclinical studies and clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business.

•

COVID-19 could adversely impact our business, including our clinical trials and access to capital.

•

We may need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt our operations.

•

We may be subject to numerous and varying privacy and security laws, and our failure to comply could result in penalties and reputational damage.

iii

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

OVID THERAPEUTICS INC.

Condensed Consolidated Balance Sheets

	March 31,			December 31,
	2021			2020
Assets	(unaudited)
Current assets:
Cash and cash equivalents	$	233,051,160		$	72,033,930
Related party receivable		1,023,791			141,763
Prepaid expenses and other current assets		2,587,099			2,667,508
Total current assets		236,662,050			74,843,201

Long-term prepaid expenses		252,055			477,171
Security deposit		150,626			150,626
Property and equipment, net		128,491			135,620
Other assets		262,808			318,900
Total assets	$	237,456,030		$	75,925,518

Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	3,147,558		$	5,446,206
Accrued expenses		13,198,532			12,032,685
Deferred revenue, current		-			2,212,892
Related party payable		-			2,370,992
Total current liabilities		16,346,090			22,062,775
Deferred revenue, net of current portion		-			10,169,887
Related party payable - noncurrent		-			61,200
Total liabilities		16,346,090			32,293,862


Stockholders' equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; Series A convertible preferred stock, 10,000 shares designated, 1,250 and 3,250 shares issued and outstanding at March 31, 2021 and December 31, 2020 respectively	$	1		$	3
Common stock, $0.001 par value; 125,000,000 shares authorized; 67,787,826 and 65,743,170 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		67,788			65,743
Additional paid-in-capital		339,226,941			337,758,007
Accumulated other comprehensive income		-			-
Accumulated deficit		(118,184,790	)		(294,192,097	)
Total stockholders' equity		221,109,940			43,631,656
Total liabilities and stockholders' equity	$	237,456,030		$	75,925,518

See accompanying notes to these unaudited condensed consolidated financial statements

OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Operations

(unaudited)

	For The Three Months Ended March 31,			For The Three Months Ended March 31,
	2021			2020
Revenue:
License and other revenue	$	12,382,779		$	-
License revenue - related party		196,000,000			-
Total revenue		208,382,779			-
Operating expenses:
Research and development	$	16,248,909		$	14,625,367
General and administrative		15,576,554			5,669,019
Total operating expenses		31,825,463			20,294,386
Income (loss) from operations		176,557,316			(20,294,386	)
Other (expenses) income, net		(49,732	)		264,296
Income (loss) before provision for income taxes		176,507,584			(20,030,090	)
Provision for income taxes		500,277			-
Net income (loss)	$	176,007,307		$	(20,030,090	)
Net income (loss) per share, basic	$	2.55		$	(0.37	)
Net income (loss) per share, diluted	$	2.53		$	(0.37	)
Weighted-average common shares outstanding, basic		66,088,592			54,715,610
Weighted-average common shares outstanding, diluted		66,578,377			54,715,610

See accompanying notes to these unaudited condensed consolidated financial statements

OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

	For The Three Months Ended March 31,		For The Three Months Ended March 31,
	2021		2020
Net income (loss)	$	176,007,307	$	(20,030,090	)
Other comprehensive income:
Unrealized gain on available-for-sale securities		-		63,235
Comprehensive income (loss)	$	176,007,307	$	(19,966,855	)

See accompanying notes to these unaudited condensed consolidated financial statements

OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

	Series A Convertible Preferred Stock						Common Stock				Additional Paid-In			Accumulated Other Comprehensive		Accumulated
	Shares			Amount			Shares		Amount		Capital			Income		Deficit			Total
Balance, December 31, 2020		3,250		$	3			65,743,170	$	65,743	$	337,758,007		$	-	$	(294,192,097	)	$	43,631,656
Stock-based compensation expense		-			-			-		-		1,320,002			-		-			1,320,002
Issuance of common stock from employee stock purchase plan		-			-			34,256		34		130,139			-		-			130,173
Issuance of common stock from exercise of stock options		-			-			10,400		11		20,791			-		-			20,802
Conversion of series A convertible preferred stock to common stock		(2,000	)		(2	)		2,000,000		2,000		(1,998	)		-		-			-
Net income		-			-			-		-		-			-		176,007,307			176,007,307
Balance, March 31, 2021		1,250		$	1			67,787,826	$	67,788	$	339,226,941		$	-	$	(118,184,790	)	$	221,109,940

	Series A Convertible Preferred Stock						Common Stock				Additional Paid-In			Accumulated Other Comprehensive		Accumulated
	Shares			Amount			Shares		Amount		Capital			Income		Deficit			Total

Balance, December 31, 2019		7,762		$	8			54,710,322	$	54,711	$	283,122,894		$	2,469	$	(213,156,521	)	$	70,023,561
ATM offering costs		-			-			-		-		2,053			-		-			2,053
Stock-based compensation expense		-			-			-		-		1,302,931			-		-			1,302,931
Issuance of common stock from employee stock purchase plan		-			-			43,743		43		83,067			-		-			83,110
Other comprehensive income		-			-			-		-		-			63,235		-			63,235
Net loss		-			-			-		-		-			-		(20,030,090	)		(20,030,090	)
Balance, March 31, 2020		7,762		$	8			54,754,065	$	54,754	$	284,510,945		$	65,704	$	(233,186,611	)	$	51,444,800

See accompanying notes to these unaudited condensed consolidated financial statements

OVID THERAPEUTICS INC.

Condensed Consolidated Statements of Cash Flows

(unaudited)

	Three Months Ended March 31,			Three Months Ended March 31,
	2021			2020
Cash flows from operating activities:
Net income (loss)	$	176,007,307		$	(20,030,090	)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Stock-based compensation expense		1,320,002			1,302,931
Depreciation and amortization expense		74,735			66,879
Change in accrued interest and accretion of discount on short-term investments		-			(130,328	)
Change in operating assets and liabilities:
Prepaid expenses and other current assets		80,409			(86,809	)
Security deposit		-			(18,446	)
Related party receivable		(882,028	)		756,894
Long-term prepaid expenses		225,116			72,969
Accounts payable		(2,277,334	)		932,005
Accrued expenses		1,165,847			(1,277,734	)
Deferred revenue		(12,382,779	)		-
Related party payable		(2,432,192	)		-
Net cash provided by (used in) operating activities		160,899,083			(18,411,729	)

Cash flows from investing activities:
Purchases of short-term investments		-			(9,961,092	)
Proceeds from maturities of short-term investments		-			14,000,000
Purchase of property and equipment		(11,514	)		(14,139	)
Software development and other assets		-			(188,842	)
Net cash (used in) provided by investing activities		(11,514	)		3,835,927

Cash flows from financing activities:
ATM offering costs		(21,314	)		(67,575	)
Proceeds from employee stock purchase plan		130,173			83,110
Proceeds from exercise of options		20,802			-
Net cash provided by financing activities		129,661			15,535

Net increase (decrease) in cash and cash equivalents		161,017,230			(14,560,267	)
Cash and cash equivalents, at beginning of period		72,033,930			41,897,144
Cash and cash equivalents, at end of period	$	233,051,160		$	27,336,877

Non-cash investing and financing activities:
Purchase of property and equipment in accounts payable	$	—		$	38,534

See accompanying notes to these unaudited condensed consolidated financial statements

OVID THERAPEUTICS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 – NATURE OF OPERATIONS

Ovid Therapeutics Inc. (the “Company”) was incorporated under the laws of the state of Delaware on April 1, 2014 and maintains its principal executive office in New York, New York. The Company commenced operations on April 1, 2014 (date of inception). The Company is a biopharmaceutical company focused exclusively on developing impactful medicines for patients and families living with rare neurological disorders.

Since its inception, the Company has devoted substantially all of its efforts to business development, research and development, recruiting management and technical staff, and raising capital, and has financed its operations through issuance of convertible preferred stock (“Preferred Stock”), common stock and other equity instruments. The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development and regulatory success, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and ability to secure additional capital to fund operations.

Historically, the Company’s major sources of cash have been composed of proceeds from various public and private offerings of its capital stock and interest income. As of March 31, 2021, the Company had approximately $233.1 million in cash and cash equivalents. Since inception, the Company has generated $221.0 million in revenue, which comprises $25.0 million received pursuant to the Company’s license and collaboration agreement (the “Angelini License Agreement”) with Angelini Pharma Rare Diseases AG (“Angelini”) and a one-time, upfront payment of $196.0 million received pursuant to the Company’s royalty, license and termination agreement (the “Takeda License and Termination Agreement”) with Takeda Pharmaceutical Company Limited (“Takeda”). The Company has incurred recurring losses, has experienced negative operating cash flows and requires significant cash resources to execute its business plans. The Company has an accumulated deficit of $118.2 million as of March 31, 2021, working capital of $220.3 million and had cash provided by operating activities of $160.9 million for the three months ended March 31, 2021.

Although the Company recorded net income of $176.0 million during the three months ended March 31, 2021, the Company expects to incur losses in subsequent periods for at least the next several years and is highly dependent on its ability to find additional sources of funding through either equity offerings, debt financings, collaborations, strategic alliances, licensing agreements or a combination of any such transactions. Management believes that the Company’s existing cash and cash equivalents as of March 31, 2021 will be sufficient to fund its current operating plans through at least the next 12 months from the date of filing of the Company’s Quarterly Report on Form 10-Q. Adequate additional funding may not be available to the Company on acceptable terms or at all. The failure to raise capital as and when needed could have a negative impact on the Company’s financial condition and ability to pursue its business strategy. The Company may be required to delay, reduce the scope of or eliminate research and development programs, or obtain funds through arrangements with collaborators or others that may require the Company to relinquish rights to certain drug candidates that the Company might otherwise seek to develop or commercialize independently.

We have implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on our business. The extent to which the ongoing COVID-19 pandemic impacts our business, our clinical development and regulatory efforts, our corporate development objectives and the value of and market for our common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the U.S., Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease. The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

In addition, we are subject to other challenges and risks specific to our business and our ability to execute on our strategy, as well as risks and uncertainties common to companies in the pharmaceutical industry with development and commercial operations, including, without limitation, risks and uncertainties associated with: obtaining regulatory approval of our late-stage product candidates; delays or problems in the supply of our products, loss of single source suppliers or failure to comply with manufacturing regulations; identifying, acquiring or in-licensing additional products or product candidates; pharmaceutical product development and the inherent uncertainty of clinical success; and the challenges of protecting and enhancing our intellectual property rights; complying with applicable regulatory requirements. In addition, to the extent the ongoing COVID-19 pandemic adversely affects our business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties discussed above.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are described in Note 2, “Summary of Significant Accounting Policies,” in the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (“SEC”) on March 15, 2021. There have been no material changes to the significant accounting policies during the period ended March 31, 2021, except for items mentioned below.

(A) Unaudited Interim Condensed Consolidated Financial Statements

The interim condensed consolidated balance sheet at March 31, 2021, the condensed consolidated statements of operations, comprehensive income (loss), cash flows, and stockholders’ equity for the three months ended March 31, 2021 and 2020 are unaudited. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and following the requirements of the SEC for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP are condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as

the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments that are necessary for a fair statement of its financial information. The results of operations for the three months ended March 31, 2021 and 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2021 or for any other future annual or interim period. The balance sheet as of December 31, 2020 included herein was derived from the audited financial statements as of that date. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K.

(B) Basis of Presentation and Consolidation

The accompanying consolidated financial statements have been prepared in conformity with GAAP and include the accounts of Ovid Therapeutics Inc. and its wholly owned subsidiary, Ovid Therapeutics Hong Kong Limited. All intercompany transactions and balances have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ materially from those estimates.

(D) Fair Value of Financial Instruments

Financial Accounting Standards Board (“FASB”) guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels of the fair value hierarchy are as follows:

•

Level 1—Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. The Company’s Level 1 assets consisted of money market funds and short-term investments totaling $231.2 million and $70.1 million as of March 31, 2021 and December 31, 2020, respectively.

•

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 2 includes financial instruments that are valued using models or other valuation methodologies. The Company had no Level 2 assets or liabilities as of March 31, 2021 and December 31, 2020.

•

Level 3—Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. The Company had no Level 3 assets or liabilities as of March 31, 2021 and December 31, 2020.

The carrying amounts reported in the balance sheets for cash and cash equivalents, related party receivable, other current assets, accounts payable, accrued expenses, and current related party payable approximate their fair value based on the short-term maturity of these instruments.

(E) Revenue Recognition

Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration that the entity expects to receive in exchange for those goods or services. In applying ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the promises and performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) it satisfies the performance obligations. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration to which it is entitled in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract, determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Prior to recognizing revenue, the Company makes estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved.

If there are multiple distinct performance obligations, the Company allocates the transaction price to each distinct performance obligation based on its relative standalone selling price. The standalone selling price is generally determined using expected cost and comparable transactions. Revenue for performance obligations recognized over time is recognized by measuring the progress toward complete satisfaction of the performance obligations using an input measure.

Non-refundable upfront fees allocated to licenses that are not contingent on any future performance and require no consequential continuing involvement by the Company, are recognized as revenue when the license term commences and the licensed data, technology or product is delivered. The Company defers recognition of upfront license fees if the performance obligations are not satisfied.

(F) Net Income (Loss) Per Share

Net income (loss), basic per share is calculated by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding. The Company applies the two-class method to allocate earnings between common stock and participating securities.

Net income (loss), diluted per share attributable to common stockholders adjusts the basic earnings per share attributable to common stockholders and the weighted-average number of shares of common stock outstanding for the potential dilutive impact of stock options, using the treasury-stock method.

(G) Recent Accounting Pronouncements

Recent accounting standards which have been adopted

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This new standard requires the measurement and recognition of expected credit losses for financial assets held at amortized cost, including loans and trade and other receivables. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The standard also amends the impairment model for available-for-sale debt securities and requires entities to determine whether all or a portion of the unrealized loss on an available-for-sale debt security is a credit loss. Under the new guidance, an entity recognizes an allowance for credit losses on available-for-sale debt securities as a contra-account to the amortized cost basis rather than as a direct reduction of the amortized cost basis of the investment, as was previously required. ASU 2016-13 is effective for annual reporting periods, and interim periods within those years, beginning after December 15, 2019. As of March 31, 2021, the Company did not hold any debt securities with credit losses, nor does it have any trade receivables. The adoption of this standard effective January 1, 2020 did not have a material impact on the Company’s consolidated financial statements.

On August 29, 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other - Internal-Use Software (Subtopic 350-40) - which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. ASU No. 2018-15 aligns the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract. According to the standard the balance sheet line item for the presentation of capitalized implementation costs should be the same as that for the prepayment of fees related to the hosting arrangement and the manner in which an entity classifies the cash flows related to capitalized implementation costs should be the same as that in which it classifies the cash flows for the fees related to the hosting arrangement. ASU 2018-15 is effective for the Company for fiscal years beginning after December 15, 2019, including interim periods therein. Entities are permitted to apply either a retrospective or prospective transition approach to adopt the guidance. The adoption of this standard effective January 1, 2020 did not have a material impact on the Company’s consolidated financial statements and was adopted prospectively.

On November 5, 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808) - which amends ASC 808 to clarify when transactions between participants in a collaborative arrangement under ASC 808 are within the scope of the FASB’s new revenue standard, ASU 2014-09 (codified in ASC 606). The amendments require the application of ASC 606 existing guidance to determine the units of account that are distinct in a collaborative arrangement for purposes of identifying transactions with customers. If a unit of account within the collaborative arrangement is distinct and is with a customer, an entity shall apply the guidance in Topic 606 to that unit of account. In a transaction between collaborative participants, an entity is precluded by ASU 2018-18 from presenting a transaction together with “revenue from contracts with customers” unless the unit of account is within the scope of ASC 606 and the entity applies the guidance in ASC 606 to such unit of account. The amended guidance is effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The retrospective adoption of this standard effective January 1, 2020 did not have a material impact on the Company’s consolidated financial statements.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements, which updates various codification topics by clarifying or improving disclosure requirements. ASU 2020-10 is effective for annual and interim periods beginning after December 15, 2020. The Company early adopted ASU 2020-10 for the reporting period ending December 31, 2020. The adoption of this update did not have a material effect on the Company’s consolidated financial statements.

NOTE 3 – CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS

All short-term investments are classified as available-for-sale. The following tables summarize the fair value of cash, cash equivalents and short-term investments, as well as gross unrealized holding gains and losses as of March 31, 2021 and December 31, 2020:

	March 31, 2021
	Amortized		Gross unrealized		Gross unrealized		Fair
	cost		holding gains		holding losses		value
Cash	$	1,857,457	$	-	$	-	$	1,857,457
Money market funds		231,193,703		-		-		231,193,703
Total cash and cash equivalents	$	233,051,160	$	-	$	-	$	233,051,160

	December 31, 2020
	Amortized		Gross unrealized		Gross unrealized		Fair
	cost		holding gains		holding losses		value
Cash	$	1,977,320	$	-	$	-	$	1,977,320
Money market funds		70,056,610		-		-		70,056,610
Total cash and cash equivalents	$	72,033,930	$	-	$	-	$	72,033,930

The Company did not hold any securities that were in an unrealized loss position for more than 12 months as of March 31, 2021 and December 31, 2020.

There were no material realized gains or losses on available-for-sale securities during the three months ended March 31, 2021 and 2020.

NOTE 4 – PROPERTY AND EQUIPMENT AND INTANGIBLE ASSETS

Property and equipment is summarized as follows:

	March 31,			December 31,
	2021			2020
Furniture and equipment	$	332,471		$	320,957
Less accumulated depreciation		(203,980	)		(185,337	)
Total property and equipment, net	$	128,491		$	135,620

Depreciation expense was $19,000 and $12,000 for the three months ended March 31, 2021 and 2020, respectively.

Intangible assets, net of accumulated amortization was $263,000 and $319,000 as of March 31, 2021 and December 31,2020, respectively, and are included in other assets. Amortization expense was $56,000 and $55,000 for the three months ended March 31, 2021 and 2020, respectively.

NOTE 5 – ACCRUED EXPENSES

Accrued expenses consist of the following:

	March 31,		December 31,
	2021		2020
Clinical trials accrual	$	2,211,228	$	4,175,497
Payroll and bonus accrual		1,194,988		3,845,441
Professional fees accrual		9,119,031		3,846,211
Other		673,285		165,536
Total	$	13,198,532	$	12,032,685

NOTE 6 – STOCKHOLDERS’ EQUITY AND PREFERRED STOCK

The Company’s capital structure consists of common stock and Preferred Stock. Pursuant to the Company’s amended and restated certificate of incorporation, as amended, the Company is authorized to issue up to 125,000,000 shares of common stock and 10,000,000 shares of Preferred Stock. The Company has designated 10,000 of the 10,000,000 authorized shares of Preferred Stock as non-voting Series A Convertible Preferred Stock (“Series A Preferred Stock”).

The holders of common stock are entitled to one vote for each share held. The holders of common stock have no preemptive or other subscription rights, and there are no redemption or sinking fund provisions with respect to such shares. Subject to preferences that may apply to any outstanding series of Preferred Stock, holders of the common stock are entitled to receive ratably any dividends declared on a non-cumulative basis. Shares of Series A Preferred Stock will be entitled to receive dividends at a rate equal to (on an as-if-converted-to-common stock basis), and in the same form and manner as, dividends actually paid on shares of common stock. The common stock is subordinate to all series of Preferred Stock with respect to rights upon liquidation, winding up and dissolution of the Company. The holders of common stock are entitled to liquidation proceeds after all liquidation preferences for the Preferred Stock are satisfied.

In November 2020, the Company entered into a sales agreement (the “2020 ATM agreement”) with Cowen and Company, LLC (“Cowen”), under which the Company may offer and sell in “at the market offerings,” from time to time at its sole discretion, shares of its common stock having an aggregate offering price of up to $75.0 million through Cowen acting as sales agent. As of March 31, 2021, the Company has not sold any shares of its common stock under the 2020 ATM agreement.

There were 1,250 and 3,250 shares of Series A Preferred Stock outstanding as of March 31, 2021 and December 31, 2020, respectively. Each share of Series A Preferred Stock is convertible into 1,000 shares of common stock at any time at the holder’s option. However, the holder will be prohibited, subject to certain exceptions, from converting shares of Series A Preferred Stock into shares of common stock if, as a result of such conversion, the holder, together with its affiliates, would own more than, at the written election of the holder, either 9.99% or 14.99% of the total number of shares of common stock then issued and outstanding, which percentage may be changed at the holder’s election to any other number less than or equal to 19.99% upon 61 days’ notice to the Company; provided, however, that effective 61 days after delivery of such notice, such beneficial ownership limitations shall not be applicable to any holder that beneficially owns either 10.0% or 15.0%, as applicable based on the holder’s initial written election noted above, of the total number of shares of common stock issued and outstanding immediately prior to delivery of such notice. In the event of a liquidation, dissolution, or winding up of the Company, holders of Series A Preferred Stock will receive a payment equal to $0.001 per share of Series A Preferred Stock before any proceeds are distributed to the holders of common stock.

In March 2021, certain of the Company’s stockholders elected to convert an aggregate of 2,000 shares of Series A Preferred Stock owned by such holders into an aggregate of 2,000,000 shares of the Company’s common stock.

In August 2020, the Company sold 6,250,000 shares of its common stock at a public offering price of $8.00 per share, for net proceeds of $46.7 million after deducting underwriting discounts and commissions and other offering expenses payable by the Company, (the “August 2020 Offering”).

In May 2020, entities affiliated with Biotechnology Value Fund, L.P. elected to convert an aggregate of 2,256 shares of Series A Preferred Stock owned by such holders into an aggregate of 2,256,000 shares of the Company’s common stock.

Dividends

Holders of Series A preferred stock are entitled to receive dividends at a rate equal to (on an as-if-converted-to-common stock basis), and in the same form and manner as, dividends (other than dividends in the form of the issuance of common stock) actually paid on shares of common stock. Through March 31, 2021, the Company has not declared any dividends.

NOTE 7 – STOCK-BASED COMPENSATION

The Company's Board of Directors adopted and the Company's stockholders approved the 2017 equity incentive plan (“2017 Plan”), which became effective immediately on May 4, 2017. The initial reserve of shares of common stock under the 2017 Plan was 3,052,059 shares. The 2017 Plan provides for the grant of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock unit awards, stock appreciation rights, performance-based stock awards, and other forms of stock-based awards. Additionally, the 2017 Plan provides for the grant of performance cash awards. The Company's employees, officers, directors and consultants and advisors are eligible to receive awards under the 2017 Plan. Upon the adoption of the 2017 Plan, no further awards will be granted under the Company’s prior plan. Pursuant to the terms of the 2017 Plan, on each January 1st, the plan limit shall be increased by the lesser of (x) 5% of the number of shares of common stock outstanding as of the immediately preceding December 31 and (y) such lesser number as the Board of Directors may determine in its discretion. On January 1, 2021 and January 1, 2020, respectively, an additional 3,287,158 and 2,735,516 shares were reserved for issuance under the 2017 Plan. As of March 31, 2021, there were 4,443,769 shares of the Company’s common stock reserved and available for issuance under the 2017 Plan.

The Company's Board of Directors adopted, and the Company's stockholders approved the 2017 employee stock purchase plan (the “2017 ESPP”), which became effective immediately prior to the execution of the underwriting agreement related to the Company’s initial public offering on May 4, 2017. The initial reserve of shares of common stock that may be issued under the 2017 ESPP was 279,069 shares. On March 20, 2017, the Company’s Compensation Committee approved an offering period under the 2017 ESPP, which began on October 20, 2017. The ESPP allows employees to purchase common stock of the Company at a 15% discount to the market price on designated purchase dates. During the three months ended March 31, 2021 and 2020, 34,256 and 43,743 shares were purchased under the ESPP and the Company recorded expense of $19,000 and $20,000, respectively. The number of shares of common stock reserved for issuance under the 2017 ESPP will automatically increase on January 1 of each year, beginning on January 1, 2018 and continuing through and including January 1, 2027, by the lesser of (i) 1% of the total number of shares of the Company’s common stock outstanding on December 31 of the preceding calendar year, (ii) 550,000 shares or (iii) such lesser number of shares determined by our Board. The Board acted prior to each of January 1, 2020 and January 1, 2021 to provide that there be no increase in the number of shares reserved for issuance under the 2017 ESPP on either such date. As of March 31, 2021, there were 519,296 shares of the Company’s common stock reserved for issuance under the 2017 ESPP.

Unless specified otherwise in an individual option agreement, stock options granted under the prior plan and the 2017 Plan generally have a ten-year term and a four-year graded vesting period. The vesting requirement is generally conditioned upon the grantee’s continued service with the Company during the vesting period. Once vested, all awards are exercisable from the date of grant until they expire. The option grants are non-transferable. Vested options generally remain exercisable for 90 days subsequent to the termination of the option holder’s service with the Company. In the event of option holder’s death or disability while employed by or providing service to the Company, the exercisable period extends to 12 months.

Performance-based option awards generally have similar terms, with vesting commencing on the date the performance condition is achieved and expire in accordance with the specific terms of the agreement. At March 31, 2021, there were 50,000 performance-based options outstanding and unvested that include options to be granted upon the achievement of certain research and development milestones.

The fair value of options granted during the three months ended March 31, 2021 and 2020 was estimated using the Black-Scholes option valuation model. The inputs for the Black-Scholes option valuation model require management’s significant assumptions and are detailed in the table below. The risk-free interest rates were based on the rate for U.S. Treasury securities at the date of grant with maturity dates approximately equal to the expected life at the grant date. The expected life was based on the simplified method in accordance with the SEC Staff Accounting Bulletin No. Topic 14D. The expected volatility was estimated based on historical volatility information of peer companies that are publicly available.

All assumptions used to calculate the grant date fair value of nonemployee options are generally consistent with the assumptions used for options granted to employees. In the event the Company terminates any of its consulting agreements, the unvested options underlying the agreements would also be cancelled.

The Company granted zero and 10,000 stock options to nonemployee consultants for services rendered during the three months ended March 31, 2021 and 2020, respectively. There were 27,188 and 133,946 unvested nonemployee options outstanding as of March 31, 2021 and 2020, respectively. Total expense recognized related to the nonemployee stock options for the three months ended March 31, 2021 and 2020, was $35,000 and $36,000, respectively. Total unrecognized compensation expenses related to the nonemployee stock options was $152,000 as of March 31, 2021. The Company did not recognize any expense for nonemployee performance-based option awards during the three months ended March 31, 2021 and 2020.

The Company granted 643,600 and 520,300 stock options to employees during the three months ended March 31, 2021 and 2020 respectively. There were 5,156,000 and 4,112,758 unvested employee options outstanding as of March 31, 2021, and 2020, respectively. Total expense recognized related to the employee stock options for the three months ended March 31, 2021 and 2020 was $1.3 million and $1.2 million, respectively. Total unrecognized compensation expense related to employee stock options was $12.2 million as of March 31, 2021. During the three months ended March 31, 2021 and 2020, the Company recognized zero and $38,000, respectively, in expenses for employee performance-based option awards.

The Company’s stock-based compensation expense was recognized in operating expense as follows:

	Three Months Ended March 31,
	2021		2020
Research and development	$	458,035	$	564,136
General and administrative		861,967		738,795
Total	$	1,320,002	$	1,302,931

	Three Months Ended March 31,
	2021		2020
Stock options	$	1,301,214	$	1,283,171
Employee Stock Purchase Plan		18,788		19,760
Total	$	1,320,002	$	1,302,931

The fair value of employee options granted during the three months ended March 31, 2021 and 2020 was estimated by utilizing the following assumptions:

	Three Months Ended March 31,
	2021			2020
	Weighted Average			Weighted Average
Volatility		80.40	%		77.43	%
Expected term in years		6.08			6.08
Dividend rate		0.00	%		0.00	%
Risk-free interest rate		0.65	%		1.42	%
Fair value of option on grant date	$	2.18		$	2.49

The fair value of nonemployee options granted during the three months ended March 31, 2021 and 2020 was estimated by utilizing the following assumptions:

	Three Months Ended March 31,
	2021			2020
	Weighted Average			Weighted Average
Volatility		73.90	%		77.40	%
Expected term in years		5.88			6.08
Dividend rate		0.00	%		0.00	%
Risk-free interest rate		2.36	%		1.40	%
Fair value of option on measurement date	$	1.15		$	2.45

The following table summarizes the number of options outstanding and the weighted average exercise price:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Shares			Price		Life in Years		Value
Options outstanding December 31, 2020		10,403,420		$	5.26		7.59	$	652,438
Granted		643,600			3.18		9.47
Exercised		(10,400	)		2.00			$	6,836
Forfeited or expired		(28,439	)		3.52