UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 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 June 30, 2021
OR
☐	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: 001-38410

BioXcel Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware	82-1386754
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
555 Long Wharf Drive
New Haven, CT	06511
(Address of principal executive offices)	(Zip Code)

(475) 238-6837

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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, $0.001 par value per share	BTAI	Nasdaq Capital Market

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 such 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, a 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 ☒

The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding at August 5, 2021 was 27,968,988.

Table of Contents

		Page
PART I - FINANCIAL INFORMATION
	Forward Looking Statements	3
	Summary Risk Factors	4
Item 1.	Financial Statements (Unaudited)	6
	Balance Sheets as of June 30, 2021 and December 31, 2020	6
	Statements of Operations for the three and six months ended June 30, 2021 and 2020	7
	Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020	8
	Statements of Cash Flows for the six months ended June 30, 2021 and 2020	9
	Notes to Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35
PART II OTHER INFORMATION
Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	81
Item 3.	Defaults Upon Senior Securities	81
Item 4.	Mine Safety Disclosures	81
Item 5.	Other Information	81
Item 6.	Exhibits	82
Signatures		83

2

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

● our plans relating to clinical trials for BXCL501, BXCL701 and our other product candidates;

● our plans for 505(b)(2) regulatory path approval;

● our plans to research, develop and commercialize our current and future product candidates;

● our plans to seek to enter into collaborations for the development and commercialization of certain product candidates;

● the potential benefits of any future collaboration;

● the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;

● the rate and degree of market acceptance and clinical utility of any products for which we receive marketing approval;

● our commercialization, marketing and manufacturing capabilities and strategy;

● our intellectual property position and strategy;

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

● developments relating to our competitors and our industry;

● the impact of government laws and regulations;

● the impact of COVID-19 on our business, including our preclinical studies and clinical trials: and

● our relationship with BioXcel LLC.

These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Summary Risk Factors” Part II, Item 1A. “Risk Factors,” and Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. Given these uncertainties, you should not rely on these forward-looking statements as predictions of future events. 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 diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research 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 this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

As used in this Quarterly Report on Form 10-Q, unless otherwise specified or the context otherwise requires, the terms “we,” “our,” “us,” the “Company” or “BTI” refer to BioXcel Therapeutics, Inc. and “BioXcel LLC” refers to the Company’s former parent company and significant stockholder, BioXcel LLC and its predecessor, BioXcel Corporation. All brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

We may use our website as a distribution channel of material information about the Company. Financial and other important information regarding the Company is routinely posted on and accessible through the Investors sections of its website at www.bioxceltherapeutics.com. In addition, you may automatically receive email alerts and other information about the Company when you enroll your email address by visiting the “Email Alerts” option under the News / Events menu of the Investors section of ours website at www.bioxceltherapeutics.com.

3

SUMMARY RISK FACTORS

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. You should carefully consider these risks and uncertainties when investing in our common stock. The principal risks and uncertainties affecting our business include the following:

● We have a limited operating history and have never generated any product revenues, which may make it difficult to evaluate the success of our business to date and to assess our future viability.

● We have incurred significant operating losses since inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future and may never achieve or maintain profitability.

● We will need substantial additional funding, and if we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate our product development programs or commercialization efforts.

● We have limited experience in drug discovery and drug development, and we have never had a drug approved.

● In the near term, we are dependent on the success of BXCL501 and BXCL701. If we are unable to complete the clinical development of, obtain marketing approval for or successfully commercialize BXCL501, BXCL701 and our other product candidates, either alone or with a collaborator, or if we experience significant delays in doing so, our business could be substantially harmed.

● Interim “top-line” and preliminary data 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 that could result in material changes in the final data.

● The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming, expensive and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

● Clinical trials are expensive, time-consuming and difficult to design and implement, and involve an uncertain outcome.

● Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.

● BioXcel LLC’s approach to the discovery and development of product candidates based on EvolverAI is novel and unproven, and we do not know whether we will be able to develop any products of commercial value.

● If we are required by the FDA or similar regulatory authorities to obtain approval (or clearance, or certification) of a companion diagnostic device in connection with approval of one of our product candidates, and we do not obtain or face delays in obtaining FDA approval (or clearance, or certification) of a companion diagnostic device, we will not be able to commercialize the product candidate and our ability to generate revenue will be materially impaired.

● Even if we obtain regulatory approval for BXCL501, BXCL701 or any product candidate, we will still face extensive and ongoing regulatory requirements and obligations and any product candidates, if approved, may face future development and regulatory difficulties.

● If our products do not gain market acceptance, our business will suffer because we might not be able to fund future operations.

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● Even if we obtain regulatory approvals to commercialize BXCL501, BXCL701 or our other product candidates, our product candidates may not be accepted by physicians or the medical community in general.

● We continue to depend on BioXcel LLC to provide us with certain services for our business.

● We are substantially dependent on third parties for the manufacture of our clinical supplies of our product candidates, and we intend to rely on third parties to produce commercial supplies of any approved product candidate. Therefore, our development of our products could be stopped or delayed, and our commercialization of any future product could be stopped or delayed or made less profitable if third party manufacturers fail to obtain approval of the FDA or comparable regulatory authorities or fail to provide us with drug product in sufficient quantities or at acceptable prices.

● Our failure to find third party collaborators to assist or share in the costs of product development could materially harm our business, financial condition and results of operations.

● It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection. If our patent position does not adequately protect our product candidates, others could compete against us more directly, which would harm our business, possibly materially.

5

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BIOXCEL THERAPEUTICS, INC.

BALANCE SHEETS

(amounts in thousands)

	June 30,		December 31,
	2021		2020
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	273,057	$	213,119
Prepaid expenses and other current assets		3,601		3,946
Total current assets		276,658		217,065
Property and equipment, net		1,442		1,273
Operating lease right-of-use asset		1,377		1,511
Other assets		1,630		87
Total assets	$	281,107	$	219,936
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	2,497	$	3,979
Accrued expenses		9,557		7,469
Due to related party		106		157
Other current liabilities		281		237
Total current liabilities		12,441		11,842
Long-term portion of operating lease liability		1,255		1,398
Total liabilities		13,696		13,240
Commitments and contingencies (Note 11)
Stockholders' equity
Common stock, $0.001 par value, 100,000 and 50,000 shares authorized as of June 30, 2021 and December 31, 2020, respectively; 27,969 and 24,417 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		28		24
Preferred stock, $0.001 par value, 10,000 shares authorized; no shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		—		—
Additional paid-in-capital		460,235		345,529
Accumulated deficit		(192,852)		(138,857)
Total stockholders' equity		267,411		206,696
Total liabilities and stockholders' equity	$	281,107	$	219,936

The accompanying notes are an integral part of these financial statements.

6

BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF OPERATIONS

(amounts in thousands, except per share amounts)

(unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues	$	—	$	—	$	—	$	—
Operating expenses
Research and development		13,509		17,906		28,250		30,277
General and administrative		14,104		3,529		25,742		6,154
Total operating expenses		27,613		21,435		53,992		36,431
Loss from operations		(27,613)		(21,435)		(53,992)		(36,431)
Other income (expense)
Interest income		10		28		20		119
Interest expense		(16)		(12)		(23)		(18)
Net loss and comprehensive loss	$	(27,619)	$	(21,419)	$	(53,995)	$	(36,330)
Basic and diluted net loss per share attributable to common stockholders	$	(1.11)	$	(1.06)	$	(2.18)	$	(1.85)
Weighted average shares outstanding - basic and diluted		24,962		20,293		24,744		19,619

The accompanying notes are an integral part of these financial statements.

7

BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(amounts in thousands)

(unaudited)

				Additional
	Common Stock			Paid in		Accumulated
	Shares	Amount		Capital		Deficit		Total
Balance as of December 31, 2019	18,087	$	18	$	83,565	$	(56,688)	$	26,895
Issuance of common stock, net of issuance costs of $4,789	2,300		2		68,809		—		68,811
Purchase and cancellation of shares from BioXcel Corporation	(300)		—		(9,024)		—		(9,024)
Stock-based compensation	—		—		776		—		776
Exercise of stock options	95		—		39		—		39
Net loss	—		—		—		(14,911)		(14,911)
Balance as of March 31, 2020	20,182	$	20	$	144,165	$	(71,599)	$	72,586
Stock-based compensation	—		—		1,956		—		1,956
Exercise of stock options	171		—		271		—		271
Net loss	—		—		—		(21,419)		(21,419)
Balance as of June 30, 2020	20,353	$	20	$	146,392	$	(93,018)	$	53,394
				Additional
	Common Stock			Paid in		Accumulated
	Shares	Amount		Capital		Deficit		Total
Balance as of December 31, 2020	24,417	$	24	$	345,529	$	(138,857)	$	206,696
Stock-based compensation	—		—		5,565		—		5,565
Exercise of stock options	214		1		851		—		852
Net loss	—		—		—		(26,376)		(26,376)
Balance as of March 31, 2021	24,631	$	25	$	351,945	$	(165,233)	$	186,737
Issuance of common stock, net of issuance costs of $3,542	3,279		3		101,024		—		101,027
Stock-based compensation	—		—		6,769		—		6,769
Exercise of stock options	59		—		497		—		497
Net loss	—		—		—		(27,619)		(27,619)
Balance as of June 30, 2021	27,969	$	28	$	460,235	$	(192,852)	$	267,411

The accompanying notes are an integral part of these financial statements.

8

BIOXCEL THERAPEUTICS, INC.

STATEMENTS OF CASH FLOWS

(amounts in thousands)

(unaudited)

	Six months ended June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(53,995)	$	(36,330)
Reconciliation of net loss to net cash used in operating activities
Depreciation and amortization		144		95
Stock-based compensation expense		12,334		2,732
Changes in operating assets and liabilities:
Prepaid expenses, other assets and right of use assets		(1,064)		(1,137)
Accounts payable, accrued expenses, lease liabilities and other liabilities		559		7,663
Net cash used in operating activities		(42,022)		(26,977)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements		(416)		(51)
Net cash used in investing activities		(416)		(51)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of issuance costs		101,027		68,811
Purchase and cancellation of shares from BioXcel LLC		—		(9,024)
Exercise of stock options		1,349		310
Net cash provided by financing activities		102,376		60,097
Net increase in cash and cash equivalents		59,938		33,069
Cash and cash equivalents, beginning of the period		213,119		32,426
Cash and cash equivalents, end of the period	$	273,057	$	65,495
Supplemental cash flow information:
Interest paid	$	23	$	18

The accompanying notes are an integral part of these financial statements.

9

BIOXCEL THERAPEUTICS, INC.

NOTES TO FINANCIAL STATEMENTS

(amounts in thousands, except per share amounts)

(unaudited)

Note 1. Nature of the Business

BioXcel Therapeutics, Inc. is a clinical stage biopharmaceutical company focused on drug development that utilizes artificial intelligence to identify improved therapies in neuroscience and immuno-oncology. BTI's drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. BTI's two most advanced clinical development programs are BXCL501, a proprietary, orally dissolving, thin film formulation of the adrenergic receptor agonist dexmedetomidine (“Dex”), for the treatment of agitation and opioid withdrawal symptoms, and BXCL701, an orally administered, systemic innate immune activator for the treatment of aggressive forms of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.

As used in these financial statements, unless otherwise specified or the context otherwise requires, the terms the “Company” or “BTI” refer to BioXcel Therapeutics, Inc., and “BioXcel LLC” refers to BioXcel LLC and, its predecessor, BioXcel Corporation.

The Company was incorporated under the laws of the State of Delaware on March 29, 2017. The Company’s principal office is in New Haven, Connecticut.

The Company incurred losses of $27,619 and $21,419 for the three months ended June 30, 2021 and 2020, respectively and $53,995 and $36,330 for the six months ended June 30, 2021 and 2020, respectively. The Company had an accumulated deficit of $192,852 as of June 30, 2021. The Company has funded its operations primarily through the sale of equity securities.

Impact of COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19, a novel strain of coronavirus, a global pandemic. This pandemic has caused and is continuing to cause major disruptions to businesses and financial markets worldwide. This may affect the Company’s operations and those of third parties on which the Company relies, including causing disruptions in the supply of the Company’s product candidates and the conduct of current and planned preclinical and clinical studies. The Company may need to limit its operations and may experience limitations in employee resources. There are risks that the COVID-19 pandemic, or the spread of the variants of the disease, may be more difficult to control than currently anticipated in which case the risks described herein could increase significantly. The extent to which the COVID-19 pandemic impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the prevalence of variants of the disease, the efficacy and adoption of vaccines, and actions to contain the coronavirus or treat its impact, among others.

Additionally, while the potential economic impact brought by, and the duration of, the COVID-19 pandemic is difficult to assess or predict, the impact of the coronavirus on the global financial markets may reduce the Company’s ability to access capital, which could negatively impact the Company’s short-term and long-term liquidity, and the Company’s ability to complete its preclinical and clinical studies on a timely basis, or at all. The ultimate impact of COVID-19 is highly uncertain and subject to change. The Company does not yet know the full extent of potential delays or impacts on its business, financing, preclinical and clinical trial activities or the global economy as a whole. However, these effects could have a material, adverse impact on the Company’s liquidity, capital resources, operations and business and those of the third parties on which the Company relies.

10

Note 2. Basis of Presentation

The accompanying unaudited financial statements do not include all of the information and footnotes required by GAAP. The accompanying year-end balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of June 30, 2021, the results of its operations for the three and six months ended June 30, 2021 and 2020 and its cash flows for the six months ended June 30, 2021 and 2020, respectively. The results for the three and six months ended June 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods or any future year or period. The accompanying unaudited financial statements of the Company should be read in conjunction with the audited financial statements and notes as of and for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2021.

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and notes thereto. The Company believes that its existing cash and cash equivalents will be sufficient to cover its cash flow requirements for at least the next twelve months from the issuance of these financial statements. However, the Company’s future requirements may change and will depend on numerous factors.

Note 3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of our financial statements requires us to make estimates, judgments and assumptions that may affect the reported amounts of assets, liabilities, equity and expenses. We base our estimates on historical experience and on various other assumptions that we believe are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of expenses.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. As of June 30, 2021 and December 31, 2020, cash equivalents were comprised primarily of U.S. government money market funds. Cash and cash equivalents held at financial institutions may at times exceed federally insured amounts. We believe we mitigate such risk by investing in or through major financial institutions.

Property and Equipment

Property and equipment are recorded at cost and depreciated and amortized over the shorter of their remaining lease term or their estimated useful life on a straight-line basis as follows:

Equipment 3-5 years

Furniture 7 years

Leasehold improvements Lesser of life of improvement or lease term

Expenditures for maintenance and repairs which do not improve or extend the useful lives of respective assets are expensed as incurred. When assets are sold or retired, the related cost and accumulated depreciation are removed from their respective accounts and any resulting gain or loss is included in income (loss) from operations.

11

The Company follows the guidance provided by the Financial Accounting Standards Board (“FASB”) ASC Topic 360-10, Property, Plant, and Equipment. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future net cash flows expected to be generated. Impairment charges are recognized at the amount by which the carrying amount of an asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and the long-term portion of operating lease liabilities in our balance sheet.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our lease did not provide an implicit rate, we used an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The operating lease ROU asset also includes any prepaid lease payments made and excludes lease incentives. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Renewal options were not included in our calculation of the related asset and liability. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, “Compensation—Stock Compensation,” which requires the measurement and recognition of compensation expense based on estimated fair market values for all share-based awards made to employees, directors, and non-employees, including stock options. The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) became effective in August 2017. The Company’s 2020 Incentive Award Plan (the “2020 Plan”) became effective in May 2020. Following the effective date of the Company's 2020 Plan, the Company ceased granting awards under the 2017 Plan, however the terms and conditions of the 2017 Plan continue to govern any outstanding awards granted thereunder.

The Company’s stock option awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period. The estimated fair value of stock option awards was determined using the Black-Scholes option pricing model on the date of grant. Significant judgment and estimates were used to estimate the fair value of awards, granted prior to the Company’s IPO in March 2018. Stock awards granted by the Company subsequent to the IPO are valued using market prices at the date of grant.

ASC 718 requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The Black-Scholes option-pricing model was used as its method of determining fair value. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to, the expected stock price volatility over the term of the awards, and projected employee stock option exercise behaviors. The value of the award is recognized as an expense in the statement of operations over the requisite service period. The Company has elected to account for forfeitures as they occur, by reversing compensation cost when the award is forfeited.

Research and Development Costs

Research and development expenses include wages, benefits, facilities, supplies, external services, clinical study and manufacturing costs and other expenses that are directly related to the Company’s research and development activities. At the end of the reporting period, the Company compares payments made to third party service providers to the estimated progress toward completion of the research or development objectives. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service

12

provided, the Company may record net prepaid or accrued expense relating to these costs. Such estimates are subject to change as additional information becomes available. The Company expenses research and development costs as incurred.

Expenses Accrued Under Contractual Arrangements

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary.

We base our expenses related to clinical trials 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 trials 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 expenses, we estimate the time period over which services will be performed and the level of effort to be expended in each period, which is based on an established protocol specific to each clinical trial. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.

Patent Costs

Costs related to filing and pursuing patent applications are recorded as general and administrative expense and expensed as incurred since recoverability of such expenditures is uncertain.

Fair Value of Financial Instruments

The Company applies the provisions of ASC 820, “Fair Value Measurements and Disclosures” for financial assets and liabilities measured on a recurring basis which requires disclosure that establishes a framework for measuring fair value. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources, or observable inputs, and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances, or unobservable inputs. The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). ASC 820 requires that fair value measurements be classified and disclosed in one of three categories:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 2: Directly or indirectly observable inputs as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in markets that are not active. Level 2 also includes assets and liabilities that are valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full term of the financial instrument.

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Level 3: Unobservable inputs that are supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.

In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk in its assessment of fair value.

The carrying amounts of cash and accounts payable approximate fair value due to the short-term nature of these instruments.

As of June 30, 2021 and December 31, 2020, the Company had $271,845 and $212,562, respectively, in U.S. government money market accounts (included in cash and cash equivalents) which was valued based on Level 1 inputs. There were no transfers between levels within the hierarchy during the six months ended June 30, 2021 and the year ended December 31, 2020.

Earnings (Loss) per Share

Basic earnings (loss) per share (“EPS”) is calculated in accordance with ASC 260, “Earnings Per Share,” by dividing net income or loss attributable to common stockholders by the weighted average common stock outstanding. Diluted EPS is calculated by adjusting weighted average common shares outstanding for the dilutive effect of common stock options and warrants. In periods in which a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be antidilutive. Securities that could potentially dilute basic EPS in the future were not included in the computation of diluted EPS because to do so would have been antidilutive. 

Segment Information

The Company operates in a single segment. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker in making decisions regarding resource allocation and assessing performance. To date, our chief operating decision maker has made such decisions and assessed performance at the company level as one segment.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) which amends the existing guidance relating to the accounting for income taxes. ASU No. 2019-12 is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. ASU No. 2019-12 is effective for interim and annual periods beginning after December 15, 2020. The Company adopted ASU No. 2019-12 effective January 1, 2021. The adoption of ASU No. 2019-12 did not have a material impact on the Company’s financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. We adopted this standard effective January 1, 2020. ASU No. 2018-15 requires that certain implementation costs for cloud computing arrangements are capitalized and amortized over the term of associated hosted cloud computing arrangement service and that capitalized implementation costs are classified in prepaid expenses and other assets. ASO No. 2018-15 also provides classification guidance on these implementation costs as well as additional quantitative and qualitative disclosures. The adoption of ASU No. 2018-15 did not have an effect on the Company’s financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments and subsequent amendments to the initial guidance: ASU 2018-19, ASU 2019-04 and ASU 2019-05 (collectively, “Topic 326”). Topic 326 requires measurement and recognition of expected

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credit losses for financial assets held. Topic 326 was to be effective for reporting periods beginning after December 15, 2019, with early adoption permitted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates, which deferred the effective dates for the Company, until fiscal year 2023. The Company does not expect that the adoption of ASU No. 2016-13 will have a material impact on its financial statements.

Note 4. Financing Activities

In June 2021, the Company sold in a registered offering 3,155 shares of its common stock at a public offering price of $31.70 per share. The Company received proceeds of $96,971, net of issuance costs of $3,042.

In May 2021, the Company entered into an Open Market Sale Agreement (the “Sale Agreement”) with Jefferies LLC (“Jeffries”) pursuant to which the Company could offer and sell shares of its common stock, par value $0.001 per share (the “Common Stock”), having an aggregate offering price of up to $100,000 (the “Shares”), from time to time, through an “at the market offering” program under which Jefferies will act as sale agent. The Company sold 124 shares under the Sale Agreement in June 2021. As of June 30, 2021, the Company received proceeds of $4,056, net of issuance costs of $500.

In February 2020, the Company sold in a registered offering 2,300 shares of its common stock at a public offering price of $32.00 per share. The Company received proceeds of $68,811, net of issuance costs of $4,789. The Company used $9,024 of the proceeds to purchase and cancel 300 shares of common stock from BioXcel LLC.

In July 2020, the Company sold in a registered offering 4,000 shares of its common stock at a public offering price of $50.00. The Company received proceeds of approximately $186,974, net of issuance costs of $13,026. Under the terms of the Underwriting Agreement entered into by the Company in connection with the July 2020 offering, certain stockholders of the Company granted the underwriters an option exercisable for thirty days to purchase up to an additional 600 shares of common stock at the public offering price less underwriting discounts and commissions, which was not exercised. The Company intends to use the net proceeds of the offering to fund ongoing clinical trials, commercialization preparation and for general corporate purposes.

Note 5. Transactions with BioXcel LLC

The Company entered into a Separation and Shared Services Agreement with BioXcel LLC that took effect on June 30, 2017, as amended and restated, (the “Services Agreement”), pursuant to which services provided by BioXcel LLC through its subsidiaries in India and the United States will continue indefinitely, as agreed upon by the parties. These services are primarily for drug discovery, chemical, manufacturing and controls cost, and administrative support.

Service charges recorded under this agreement for the three and six months ended June 30, 2021 and 2020 were comprised as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Research and development	$	310	$	259	$	630	$	656
General and administrative		45		—		94		—
Total	$	355	$	259	$	724	$	656

As of June 30, 2021, $106 related to these service charges is included in due to related parties in the Company’s balance sheet.

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Under the Services Agreement, the Company has an option, exercisable until March 12, 2023, to enter into a collaborative services agreement with BioXcel LLC pursuant to which BioXcel LLC shall perform product identification and related services for us utilizing EvolverAI. As of June 30, 2021, this option has not been exercised.

Note 6. Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is calculated in accordance with ASC 260, “Earnings Per Share,” by dividing net income or loss attributable to common stockholders by the weighted average common stock outstanding. Diluted EPS is calculated by adjusting weighted average common shares outstanding for the dilutive effect of common stock options and warrants. In periods in which a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be antidilutive. Securities that could potentially dilute basic EPS in the future were not included in the computation of diluted EPS because to do so would have been antidilutive. The calculations of basic and diluted net loss per share are as follows (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Net loss (numerator)	$	(27,619)	$	(21,419)	$	(53,995)	$	(36,330)
Weighted-average share, in thousands (denominator)		24,962		20,293		24,744		19,619
Basic and diluted net loss per share	$	(1.11)	$	(1.06)	$	(2.18)	$	(1.85)

Potentially dilutive securities outstanding consists solely of stock options. The Company had options outstanding to purchase 4,041 and 3,731 shares of common stock as of June 30, 2021 and 2020, respectively.

Note 7. Property and Equipment, net

Property and Equipment, net consisted of the following

	June 30,		December 31,
	2021		2020
Computers and related equipment	$	273	$	260
Furniture		568		369
Leasehold improvements		1,107		650
Work in Process		—		356
		1,948		1,635
Accumulated depreciation		(506)		(362)
	$	1,442	$	1,273

Depreciation expense was $80 and $47 for the three months ended June 30, 2021 and 2020, respectively, and $144 and $95 for the six months ended June 30, 2021 and 2020, respectively.

Note 8. Accrued Expenses and Other Current Liabilities

Accrued expenses consist of the following:

	June 30, 2021		December 31, 2020
Research and development expenses	$	3,588	$	3,264
Accrued compensation and benefits		2,359		2,066
Accrued professional expenses		3,294		1,288
Accrued taxes		254		697
Other accrued expenses		62		154
	$	9,557	$	7,469

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Other current liabilities as of June 30, 2021 and December 31, 2020 consists of $281 and $237, respectively, for the current portion of operating lease liabilities.

Note 9. Stock-Based Compensation

2017 Equity Incentive Plan

The Company’s 2017 Plan became effective in August 2017. Following the effective date of the Company's 2020 Plan (as defined below), the Company ceased granting awards under the 2017 Plan, however the terms and conditions of the 2017 Plan continue to govern any outstanding awards granted thereunder.

2020 Incentive Award Plan

The Company’s 2020 Plan was approved and became effective at the Company’s 2020 annual meeting of Shareholders on May 20, 2020 and unless, earlier terminated by the Board of Directors, will remain in effect until March 26, 2030. The 2020 Plan originally authorized for issuance the sum of (i) 911 shares of the Company’s common stock authorized for issuance and (ii) 233 shares of the Company’s common stock, which represents the number of shares that remained available for issuance under the 2017 Plan immediately prior to the approval of the 2020 Plan by the Company’s shareholders. Any shares of Common Stock under the 2017 Plan immediately prior to the approval of the 2020 Plan by the Company’s stockholders, that were subject to awards granted under the 2017 Plan that are forfeited or lapse unexercised and are not issued under the 2017 Plan will increase the number of shares of common stock available for grant under the 2020 Plan. In addition, the number of shares available for issuance under the 2020 Plan will increase on the first day of each calendar year beginning January 1, 2021 and ending on and including January 1, 2030 by a number of shares equal to the lesser of (A) 4% of the aggregate number of shares of the Company’s common stock outstanding on the final day of the immediately preceding calendar year and (B) such smaller number of shares of common stock as is determined by the Board of Directors. On January 1, 2021, the shares available for issuance under the 2020 Plan increased by 977 shares.

Options granted under the 2020 Plan have a term of ten years with the vesting schedule determined by the Board of Directors, which is generally four years.

As of June 30, 2021, there were 619 shares available to be granted under the 2020 Plan.

A summary of the status of the Company’s stock option activity for the six months ended June 30, 2021 is presented below (in thousands, except per share amounts):

	Number	Weighted Average
	of	Exercise
	Shares	Price per Share
Outstanding as of January 1, 2021	3,798	$	16.15
Granted	615	$	41.88
Forfeited	(95)	$	35.42
Cancelled	(4)	$	16.04
Exercised	(273)	$	4.95
Outstanding as of June 30, 2021	4,041	$	20.37
Options vested and exercisable as of June 30, 2021	2,489	$	7.93

As of June 30, 2021, the intrinsic value of options outstanding was $62,578. The intrinsic value for stock options is calculated based on the difference between the exercise prices of the underlying awards and the quoted stock price of the Company’s common stock as of the reporting date.

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The total intrinsic value of stock options exercised for the six months ended June 30, 2021 and 2020 was $11,727 and $8,661, respectively.

The weighted average grant date fair value of options granted during the six months ended June 30, 2021 and 2020 was $32.30 and $31.47, respectively.

The weighted average grant date fair value of options vested at June 30, 2021 was $5.87.

The weighted average remaining contractual life is 6.7 years for options exercisable as of June 30, 2021.

Stock-Based Compensation

The fair value of options granted during the six months ended June 30, 2021 and 2020 was estimated using the Black-Scholes option-pricing model with the following assumptions.

	For the						For the
	Six Months Ended						Six Months Ended
	June 30, 2021						June 30, 2020
Expected Term		5.50	years	-	6.25	years	5.50	years	-	6.25	years
Expected stock price volatility		95.00	%	-	98.00	%	79.02	%	-	85.78	%
Risk-free rate of interest		0.96	%	-	1.22	%	0.40	%	-	2.34	%
Expected dividend		0.0	%	-	0.0		0.0	%	-	0.0

Prior to the Company’s IPO, it did not have a history of market prices of its common stock and, as such, volatility was estimated using historical volatilities of similar public companies. In 2021, the Company began using a combination of the historical volatility of similar public companies and the limited historical information related to the Company’s common stock. The expected term of the employee awards is estimated based on the simplified method, which calculates the expected term based upon the midpoint of the term of the award and the vesting period. The Company uses the simplified method because it does not have sufficient option exercise data to provide a reasonable basis upon which to estimate the expected term. The expected dividend yield is 0% as the Company has no history of paying dividends nor does management expect to pay dividends over the contractual terms of these options. The risk-free interest rates are based on the United States Treasury yield curve in effect at the time of grant, with maturities approximating the expected term of the stock options.

Unrecognized compensation expense related to unvested awards as of June 30, 2021 was $29,674 and will be recognized over the remaining vesting periods of the underlying awards. The weighted-average period over which such compensation is expected to be recognized is 1.8 years.

Total stock-based compensation charges for the three months and six months ended June 30, 2021 and 2020 were comprised as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Research and Development	$	2,173	$	918	$	4,205	$	1,384
General and administrative		4,596		1,038		8,129		1,348
Total	$	6,769	$	1,956	$	12,334	$	2,732

2020 Employee Stock Purchase Plan

The Company’s 2020 Employee Stock Purchase Plan (the “ESPP”) was also approved and became effective at the Company’s 2020 annual meeting of Shareholders on May 20, 2020. The ESPP is designed to assist eligible employees of the Company with the opportunity to purchase the Company’s common stock at a discount through accumulated

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payroll deductions during successive offering periods. The aggregate number of Shares that may be issued pursuant to rights granted under the ESPP is 100 shares of common stock. In addition, the number of shares available for issuance under the ESPP will increase on the first day of each calendar year beginning on January 1, 2021 and ending on and including January 1, 2030 by a number of shares of common stock equal to the lesser of (a) 1% of the shares outstanding on the final day of the immediately preceding calendar year and (b) such smaller number of shares as determined by the Board. The number of shares that may be issued or transferred pursuant to rights granted under the component of the ESPP that is intended to qualify for favorable U.S. federal tax treatment under Section 423 of the Internal Revenue Code (the “Section 423 Component”) shall not exceed 500 shares. The purchase price will be determined by the administrator of the ESPP and, for purposes of the Section 423 Component, shall not be less than 85% of the fair market value of a share on the first trading day or on the last trading day of the applicable offering period, whichever is lower. On January 1, 2021, the shares available for issuance under the 2020 ESPP increased by 244 shares. To date, no shares have been sold under the ESPP.

Note 10. Leases

In August 2018, the Company entered into an agreement to lease approximately 11,040 square feet of space on the 12^th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut (the “12^th Floor Lease) which was effective February 22, 2019. The 12^th Floor Lease expires in February 2026.

In August 2020, the Company entered into an amendment to the 12^th Floor Lease wherein the Company leased an additional 7,245 square feet of space on the 12^th floor of the building located at 555 Long Wharf Drive, New Haven, Connecticut (the “12^th Floor Lease Amendment”). The 12^th Floor Lease Amendment expires in February 2026.

The future minimum annual lease payments under these operating leases as of June 30, 2021 are as follows:

Year ending December 31,	Amount
Remainder of 2021		178
2022		363
2023		372
2024		381
2025		391
Thereafter		64
Total lease payments		1,749
Less imputed interest		(213)
Total lease liability		1,536
Less current portion of lease liability		(281)
Long-term portion operating lease liability	$	1,255

The current portion of the Company’s operating lease liability of $281 as of June 30, 2021 is included in other current liabilities on the balance sheet.

The Company recorded lease expense of $85 and $54 related to its operating lease right-of-use asset for the three months ended June 30, 2021 and 2020, respectively. The Company recorded lease expense of $194 and $108 related to its operating lease right-of-use asset for the six months ended June 30, 2021 and 2020, respectively.

The Company has an option to renew the leases for one additional five-year term at 95% of the then-prevailing market rates but not less than the rental rate at the end of the initial lease term.

Note 11. Commitments and Contingencies

From time to time, in the ordinary course of business, the Company may be subject to litigation and regulatory examinations as well as information gathering requests, inquiries and/or investigations. The Company is not currently subject to any matters where it believes there is a reasonable possibility that a material loss may be incurred.

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The Company has received a demand letter pursuant to Section 220 of the Delaware General Corporation Law (“DGCL”) from a stockholder seeking disclosure of certain of the Company's records. The Company has responded to those demands, stating its belief that the demand letter fails to fully comply with the requirements of Section 220 of the DGCL. On June 15, 2021, the stockholder filed a complaint in Delaware Chancery Court seeking to compel inspection of books and records pursuant to Section 220 of the DGCL. On July 19, 2021, the parties entered into a settlement agreement to resolve the matter.

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Item 2. 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 our financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and related notes contained in our Annual Report on Form 10-K for the year ended December 31, 2020. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, such as information with respect to our plans and strategy for our business and expectations related to the clinical development of our product candidates, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Summary Risk Factors” and “Risk Factors” sections of this Quarterly Report, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. All dollar amounts in the below Management’s Discussion and Analysis of Financial Condition and Results of Operations are presented in U.S. dollars, and all dollar amounts are presented in thousands, unless otherwise noted or the context otherwise provides.

Overview

We are a clinical stage biopharmaceutical company utilizing artificial intelligence approaches to develop transformative medicines in neuroscience and immuno-oncology. Our drug re-innovation approach leverages existing approved drugs and/or clinically validated product candidates together with big data and proprietary machine learning algorithms to identify new therapeutic indices. We believe that this differentiated approach has the potential to reduce the cost and time of drug development in diseases with a substantial unmet medical need.

Our two most advanced clinical development programs are BXCL501, an investigational proprietary, orally dissolving, thin film formulation of the adrenergic receptor agonist dexmedetomidine (“Dex”), for the treatment of agitation resulting from neuropsychiatric disorders, and BXCL701, an investigational orally administered systemic innate immune activator for the treatment of a rare form of prostate cancer and advanced solid tumors that are refractory or treatment naïve to checkpoint inhibitors.

During the first quarter of 2020 and continuing through June 30, 2021, the novel coronavirus disease, or COVID-19, was declared a pandemic and spread to multiple regions across the globe, including the United States and Europe. The pandemic and government measures taken in response have had a significant impact, both direct and indirect, on businesses and commerce, as worker shortages have occurred; supply chains have been disrupted; facilities and production have been suspended; and demand for certain goods and services, such as medical services and supplies, has spiked, while demand for other goods and services, such as travel, has fallen.

Throughout 2020 and continuing in 2021, we took steps in line with guidance from the U.S. Centers for Disease Control and Prevention (“CDC”) and the State of Connecticut to protect the health and safety of our employees and the community. In particular, we implemented a work-from-home policy for all employees and have restricted on-site activities to certain chemical, manufacturing and control (“CMC”) and clinical trial activities. We continue to assess the impact of the COVID-19 pandemic to best mitigate risk and continue the operations of our business. Beginning late in the first quarter of 2021, and in line with State of Connecticut guidelines, we opened our office on a voluntary basis up to full capacity. In May 2021 the State of Connecticut lifted all business and office restrictions in the State. We have instituted a return to the office policy and will continue to evaluate that policy over the next several months.

We continue to work closely with our clinical sites to monitor the potential impact of the evolving COVID-19 pandemic and the spread of its variants. We remain committed to our clinical programs and development plans. Through June 30, 2021, we have not experienced any significant delays to our ongoing or planned clinical trials, except for challenges in accessing elderly care facilities and ICU settings; however, this could rapidly change.

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Our Clinical Programs

The following is a summary of the status of our clinical development programs as of the date of this Quarterly Report on Form 10-Q:

BXCL501 Neuroscience Program

BXCL501 is an investigational, proprietary, orally dissolving, thin film formulation of Dex, a selective alpha-2a receptor agonist, targeting symptoms from stress-related behaviors such as agitation and opioid withdrawal symptoms. BXCL501 is our most advanced neuroscience clinical program, currently being developed for the acute treatment of agitation related to schizophrenia, bipolar disorders, dementia, and delirium, as well as for the treatment of symptoms associated with opioid withdrawal. As a selective adrenergic agent with a sublingual or buccal route of administration, BXCL501 is designed to be easy to administer and has shown a rapid onset of action in multiple clinical trials, including clinical trials studying patients with schizophrenia, bipolar disorders, and dementia. We believe the results from these studies suggest that BXCL501 has the potential to generate a calming effect without producing excessive sedation. We believe that BXCL501 is highly differentiated from antipsychotics currently used as a standard of care for the treatment of agitation, which often produce unwanted side effects such as excessive sedation and extra-pyramidal motor effects. Managing patient agitation in neuropsychiatric and neurodegenerative disorders represents a significant challenge for physicians and caregivers. We believe that BXCL501 has the potential to address these challenges while providing an efficient treatment regimen for patients.

BXCL501 Clinical Trials

SERENITY I and SERENITY II

In 2020, we announced topline results from the SERENITY I and II pivotal trials, which showed that treatment with BXCL501 was well-tolerated and resulted in clinically meaningful reductions in agitation in schizophrenia and bipolar disorder I and II patients. The FDA subsequently agreed to a rolling review of our NDA, allowing us to submit completed sections of the application early. In May 2021, we announced that the FDA had notified us that our NDA submission was accepted for filing. The FDA assigned a Prescription Drug User Fee Act (“PDUFA”) date of January

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5, 2022. We also have plans underway for a Marketing Authorization Application (“MAA”) with the European Medicines Agency (“EMA”) for BXCL501 for the acute treatment of agitation associated with schizophrenia and bipolar disorders I & II in the second half of 2021.

TRANQUILITY

In January 2021, we announced topline results from the TRANQUILITY trial, a phase 1b/2 randomized, placebo-controlled, adaptive ascending dose-finding study that enrolled 54 patients with agitation related to dementia. Patients received BXCL501 at either 30mcg (n=16), 60mcg (n=20), 90mcg (n=4) or placebo (n=14). Overall, BXCL501 was well tolerated and demonstrated statistically significant, clinically meaningful, rapid, and durable reductions in agitation with the 60 mcg dose as measured by multiple scales.

The trial’s primary objective was to evaluate safety and tolerability. During the study, BXCL501 was well-tolerated and no severe or serious adverse events were reported. The most common adverse event was somnolence characterized as either mild (55% for 60 mcg, 56.3% for 30 mcg and 7.1% for placebo) or moderate (5% for 60 mcg and 0% for both 30 mcg and placebo), followed by hypotension (10%, 0%, 0%), orthostatic hypotension (5%, 6.3%, 0%) and dizziness (5%, 6.3% and 0%). There were no reported cases of syncope or falls in any of the patients studied. Higher exposure levels of BXCL501 were observed in this elderly patient population compared to earlier trials.

The trial met its secondary efficacy endpoints with the 60 mcg dose compared to placebo in all three agitation scales: the Positive and Negative Syndrome Scale-Excitatory Component (“PEC”); the Pittsburg Agitation Scale (“PAS”), and the Modified Cohen-Mansfield Inventory (“Mod-CMAI”). Treatment with BXCL501 demonstrated statistically significant and clinically meaningful reductions in total scores at two hours post-dosing (PEC p=0.0011; PAS p<0.0001; Mod-CMAI p<0.0001; PEC response rate = 70%), numerical separation from placebo in PEC total score as early as 30 minutes with statistically significant reductions on both PEC and PAS at 60 minutes lasting 8 hours after treatment.

Additional statistically significant reductions with the 60 mcg dose compared to placebo at 2 hours post-dosing were observed with the Agitation and Calmness Evaluation Scale (ACES p=0.0006) and Clinical Global Impression-Improvement Scale (CGI p<0.0001, 90% responder rate).

In March 2021, we announced that, following a routine quality control review of the Company’s TRANQUILITY study data, the Company discovered that two patients were mis-categorized within the 30 mcg cohort at the clinical site. After moving the two patients into their appropriate placebo and 30 mcg groups, the data from the 30 mcg cohort were re-analyzed, resulting in the 30 mcg dose crossing over to statistical significance at the two hour time point, as measured by PEC: p=0.0149; PAS: p=0.0195; and Mod-CMAI: p=0.0364.

We announced that we initiated a 46 patient (1:1 randomization) multicenter, placebo-controlled TRANQUILITY expansion study investigating a 40 mcg dose cohort of BXCL501. PK/PD modeling of BXCL501 data from the TRANQUILITY trial was supportive of evaluating the efficacy of a 40 mcg dose. Recruitment in this study is progressing. We expect topline results in the fourth quarter of 2021 that are expected to provide additional insights to support the Company’s clinical development strategy directed at all segments of the dementia market.

With the positive results from TRANQUILITY, we have been advancing the BXCL501 dementia clinical program in close consultation with the FDA.

In March 2021, we announced that we received FDA Breakthrough Therapy Designation for BXCL501 for the acute treatment of agitation associated with dementia. Breakthrough Therapy Designation is intended to expedite the development and review of investigational therapies that are designed to treat serious or life-threatening diseases or conditions. 

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We held an end of Phase 2 meeting with the FDA in May 2021 to discuss the BXCL501 program for the acute treatment of agitation in dementia patients. We plan to hold additional meetings with the FDA in the second half of 2021 in order to discuss certain matters, including development strategy, the trial design, dosing regimen, and endpoints for the pivotal Phase 3 program. We expect to commence the BXCL501 Phase 3 program for the acute treatment of agitation associated with dementia in the fourth quarter of 2021, pending further feedback from the FDA.

RELEASE

The RELEASE trial was a multicenter, randomized, double-blind, placebo-controlled, ascending dose Phase 1b/2 trial designed to evaluate the safety, pharmacokinetics, tolerability, and efficacy of escalating doses of BXCL501 versus placebo, following discontinuation of morphine maintenance in patients with opioid use disorder who are physically dependent on opioids. Throughout the 7-day treatment phase, BXCL501 was evaluated in sequential, ascending dose cohorts and patients received BXCL501 at either 30 mcg, 60 mcg, 90 mcg, 120 mcg, 180 mcg and 240 mcg or placebo, administered twice daily, approximately 12 hours apart.

In March 2021, we announced RELEASE top line results. The trial’s primary objective was to evaluate safety and tolerability. BXCL501 was well tolerated, with no severe or serious adverse events reported across all doses evaluated.  

With respect to retention, a secondary endpoint, the study showed that patients in multiple dose cohorts treated with BXCL501 had numerical improvements in retention rates, a key goal of opioid withdrawal treatment, compared to placebo. The 120 mcg and 180 mcg dose groups showed 42% and 52% rates of retention at Day 6 of BXCL501 treatment, respectively, versus 24% for placebo, though these differences were not statistically significant. However, the results also showed that, of the 87% of patients who had fentanyl in their systems upon entry, greater than 50% remained fentanyl positive following the morphine stabilization phase of 5 days. Consequently, withdrawal symptoms were not equivalent across various dose cohorts, suggesting that morphine use did not mitigate or normalize withdrawal symptoms in these patients. Efficacy measures, including assessment of patients’ symptoms of acute opioid withdrawal following the morphine maintenance phase with the Clinical Opiate Withdrawal Scale (“COWS”) and the Short Opiate Withdrawal Scale of Gossop (“SOWS-Gossop”) were secondary objectives of the trial. Improvements in group mean total scores were not observed in SOWS-Gossop”) or COWS in the BXCL501 treatment arms compared to placebo. The Company believes that the high fentanyl prevalence and lack of normalization (morphine for 5 days) observed in study subjects could have confounded these results and made them difficult to interpret. Although improvements were not observed in group mean total efficacy scores, study showed numerical improvements in retention rates in multiple BXCL501 dose cohorts compared to placebo.

We believe the favorable tolerability results observed in multiple dose regimens within the RELEASE trial provide valuable insights that support investigation across additional indications and treatment settings.

PLACIDITY

Agitation associated with delirium is a serious condition that affects patients in many hospital settings: ICUs, surgical & medical wards, and emergency departments. Currently, there are no FDA-approved medications for delirium or agitation associated with delirium. We believe that the potential to address the treatment of agitation associated with delirium could provide synergy with the medical and commercial infrastructure we are developing to support our first two proposed indications.

In October 2020, we announced that we had received authorization to proceed under our IND Application from the FDA for treatment of patients with agitation associated with delirium in intensive care units, including patients with COVID-19. On February 25, 2021, we announced the initiation of the Phase 2 PLACIDITY trial of BXCL501.

PLACIDITY enrollment was voluntarily paused to assess challenges posed in opening relevant clinical sites and enrolling delirium patients in the ICU settings, including as a result of the burden COVID-19 has placed on the ICU.

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PEDIATRIC STUDY

In June 2021, we initiated a global clinical trial designed to determine the safety and efficacy of BXCL501 in agitation associated with pediatric schizophrenia and bipolar disorder. The trial has been reviewed by the FDA to ensure we meet the Pediatric Equity Research Act (“PREA”) requirements as well as the European Medicines Agency (“EMA”) to fulfill commitments to study the effects of BXCL501 in children, ages 10-17. The multisite double-blind placebo controlled parallel group trial will enroll patients with schizophrenia, schizoaffective disorder, bipolar 1 and bipolar 2 disorder. Similar to the Serenity 1 and 2 trials, the primary endpoint is the change from baseline PEC total score at 2 hours. The trial has been initiated in the U.S. and we expect enrollment to begin Q3 2021. 

Additional Opportunities

In December 2020, the VA Connecticut Healthcare System and the Yale University Medical School were awarded a grant by the U.S. Department of Defense’s Congressionally Directed Medical Research Programs to evaluate BXCL501 in patients suffering from post-traumatic stress disorder related to alcohol and substance abuse disorder. This will be the first time that we are investigating BXCL501 as a potential chronic treatment.

We continue to explore the use of a wearable device to measure early signs of agitation in subsets of patients that are part of BCXL501 clinical trials. Data is obtained by the wearable device, collected on other electronic devices such as phones, and transmitted to our partner for analysis. Feasibility studies demonstrated that patients were able to wear these devices and that these devices were able to transmit data to our corporate partner. Along with our partner, we are now establishing methods to use these data to construct algorithms that are designed to predict when a patient is becoming agitated. The goal of this program is to establish a predictive algorithm that allows providers to dose patients before they achieve a highly agitated state.

Other Neuropsychiatric /Neurodegenerative Indications and Formulations

Given the differentiated design of BXCL501 and its selective mechanism of action, we believe that BXCL501 has the potential for broad applicability across several indications where agitation is a symptom of a condition or underlying disease. There are additional neurological and psychiatric disorders where agitation is a symptom that requires treatment.

We are exploring development of BXCL501 as a potential treatment option for agitation associated with various forms of dementia including acute, intermittent and chronic. In addition, we are also developing a single-use intramuscular injection formulation for patients with severe agitation (non-cooperative).

Scientific Exchange

We have deployed Medical Science Liaison and Medical Manage Care teams who are engaging in scientific and medical-to-medical exchanges with healthcare professionals and payers, respectively.

Commercial Readiness

On the commercial infrastructure front, we continue to advance our preparations for commercial readiness. We are further refining the design of our sales force, both in size and structure, to finalize our go to market strategy for the potential commercial launch of BXCL501 for the acute treatment of agitation associated with schizophrenia and bipolar disorders I & II. All of this work will be a crucial foundation to launching additional potential follow-on indications, paving the way for our neuroscience business.

BXCL701 Immuno-Oncology Program

BXCL701 is a potential first-in-class, oral, small-molecule immunomodulator designed to stimulate both the innate and acquired immune systems by inhibiting DPP 8/9. DPP 8/9 behave as "checkpoints" of the innate immune system. We believe that BXCL701, if successfully developed and approved, may establish a differentiated immuno-oncology

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platform by modulating multiple steps in the cancer immunity cycle and, when combined with other checkpoint inhibitors and/or immune activating agents, may be able to convert immuno-resistant tumors to immuno-sensitive tumors (“cold” to “hot” tumors).

BXCL701 Clinical Trials

BXCL701 is currently being evaluated in two combination therapy clinical trials:

In April 2020, we announced the initiation of the Phase 2 efficacy portion of the Phase 1b/2 trial evaluating BXCL701 in combination with KEYTRUDA® (pembrolizumab, a PD-1 inhibitor) for Neuro Endocrine Prostate Cancer (“NEPC”). The Phase 1b safety assessment of BXCL701 identified a split dose totaling 0.6 mg per day as the recommended dose when used in combination with KEYTRUDA. In addition to the efficacy cohort in NEPC patients, in August 2020, we opened a separate cohort for castrate resistant prostate cancer (“CRPC”) patients who have failed taxane-based chemotherapy and up to two lines of second-generation androgen pathway blockers. The Phase 1b portion of this trial was presented at the Society for Immunotherapy of Cancer’s 35th Anniversary Annual Meeting in 2020, and an efficacy update was recently presented at the American Society of Clinical Oncology Genitourinary Symposium in February 2021. In May 2021, we announced that the adenocarcinoma cohort of the ongoing Phase 1b/2 trial of BXCL701 and pembrolizumab (KEYTRUDA®) in aggressive forms of prostate cancer met its efficacy bar to move to stage two. The trial will now continue to full enrollment and a more complete efficacy update from the Phase 2 portion of this trial is expected in Q3 2021.

The MD Anderson-led Phase 2 open-label basket trial is designed to evaluate the response rate of orally administered BXCL701, combined with KEYTRUDA, in two arms: Arm A is enrolling checkpoint naïve patients (where checkpoint therapy is indicated: “hot tumors”); and Arm B is enrolling patients who have progressed following checkpoint therapy alone. As of August 2020, the efficacy bar had been met for both arms, allowing the trial to advance to completion. Preliminary data were recently presented at the June 2021 American Society of Clinical Oncology meeting.

Other Immuno-oncology Indications

In addition to CRPC and checkpoint inhibitor (“CPI”) refractory tumors, we plan to leverage our existing preclinical and clinical data to identify other cancer types with high unmet medical need that we believe would benefit from BXCL701’s novel potential mechanism of action. We are prioritizing indications where the immuno-suppressive microenvironment is driven by the potential molecular and cellular targets of BXCL701 and where the single agent activity of approved immune checkpoint inhibitors is limited. In January 2021, we announced that BXCL701 was awarded Orphan Drug Designation for the treatment of Soft Tissue Sarcoma.

In addition, we believe BXCL701, if successfully developed and approved, may provide a platform for combination with immunotherapy modalities that go beyond the currently approved immune checkpoint agents that target the PD-1/PD-L1 axis. Following our proof-of-concept trials, we plan to conduct clinical trials covering a broad range of additional combinations with other immunotherapy agents, including:

● immune checkpoint inhibitors (other than PD-1/PD-L1);

● cellular therapies (CAR-T and chimeric antigen receptor natural killer cells); and

● ADCC driven monoclonal antibodies.

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Other Product Candidates

Neuroscience Program

We are targeting neuroscience disorders where there is a high unmet medical need, including those in which a requirement for symptom management is a priority (such as agitation and symptoms resulting from stress-related behaviors) as well as for transformative care for monogenic rare central nervous system disorders.

For symptomatic approaches, our neuroscience program is developing product candidates with a focus on treating symptoms for various neurological and psychiatric disorders. Additionally, the utilization of EvolverAI has identified several monogenic diseases with available animal models across rare neuroscience diseases. We utilize proprietary algorithms to identify associated mechanisms with existing pharmacology to test whether these agents can improve the disease profile in the animal model either through disease modification or symptomatic manner. The agents identified must be those that we believe can enter the clinic with the potential for an efficient development path.

Immuno-oncology Program

Our immuno-oncology program is based on utilizing a comprehensive map of all known relationships that link immuno-evasion and immuno-activation pathways and targets with thousands of pharmacological agents and tumor indications. This comprehensive map has permitted us to select a potential pipeline of candidates based on our ability to alter the tumor micro-environment and the potential to address relevant unmet medical needs for various tumor types.

Finally, we continually leverage the artificial intelligence platform to select and prioritize additional development opportunities to expand the current portfolio and broaden the addressable market for our lead programs through the identification of new indications. This includes exploring additional combination therapy approaches to expand BXCL701’s target indications beyond NEPC and CRPC.

Intellectual Property

We have recently strengthened our BXCL501 IP portfolio in Japan. Japan utility patent application No. 2021-067079 is allowed and the issued patent will expire no earlier than 2037.

Basis of Presentation

The Company’s financial statements are prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“GAAP”). All amounts are presented in thousands.

Components of Our Results of Operations

Revenues

We have not recognized any revenue since inception.

Operating Costs and Expenses

Research and Development

Our research and development expenses reflect costs incurred for the research and development of our clinical and pre-clinical product candidates. Research and development expense primarily consist of salary, benefits and non-cash stock-based compensation for our research and development personnel, costs incurred under agreements with contract research organizations (“CROs”) and sites that conduct our non-clinical studies and clinical trials, costs of outside consultants engaged in research and development activities, including their fees, stock-based compensation and travel expenses, the cost of acquiring, developing and manufacturing pre-clinical and clinical trial materials and lab supplies, and depreciation and other expenses.

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We expense research and development costs to operations as incurred.

Our research and development costs by program for the three and six months ended June 30, 2021 and 2020 were as follows:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Direct external costs
BXCL501	$	3,972	$	13,193	$	10,132	$	21,410
BXCL701		2,996		1,438		5,068		2,969
Other research and development programs		325		163		674		357
Total direct external costs		7,293		14,794		15,874		24,736
Internal personnel costs		5,761		2,664		11,419		4,674
Sub-total direct costs		13,054		17,458		27,293		29,410
Indirect costs and overhead		665		448		1,292		867
Research and development tax credit		(210)		—		(335)		—
Total research and development expenses	$	13,509	$	17,906	$	28,250	$	30,277

General and Administrative

General and administrative expenses primarily consist of salaries, benefits and non-cash stock-based compensation for our executive and administrative personnel. General and administrative expenses also include legal expenses to pursue patent protection of our intellectual property, professional fees for audit and tax and insurance charges.

We expect that our general and administrative expenses will increase to enable us to support our operations as we continue to expand our clinical programs. We also expect increased administrative costs resulting from our clinical trials and the potential commercialization of our product candidates. We believe that these increases will likely include increased costs for director and officer liability insurance, hiring additional personnel to support future market research and future product commercialization efforts and increased fees for outside consultants, attorneys and accountants. We may also incur increased costs to comply with corporate governance, internal controls, investor relations and similar requirements applicable to public companies.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in Note 3 to the financial statements included in this Quarterly Report on Form 10-Q.

Summary of Results of Operations

Comparison of the Three Months Ended June 30, 2021 and 2020

Revenues

We have not recognized any revenues since inception.

Research and Development Expense

Research and development expenses for the three months ended June 30, 2021 and 2020 were $13,509 and $17,906, respectively. Research and development expenses for the three months ended June 30, 2021 and 2020 were comprised as follows:

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	Three Months Ended
	June 30,
	2021		2020		Change		% Change
Personnel and related costs	$	3,588	$	1,747	$	1,841		105	%
Non-cash stock-based compensation		2,173		918		1,255		137	%
Professional fees		2,789		1,727		1,062		61	%
Clinical trials expense		3,827		12,085		(8,258)		(68)	%
Chemical, manufacturing and controls cost ("CMC")		875		1,171		(296)		(25)	%
Travel and other costs		467		258		209		81	%
Research and development tax credit		(210)		—		(210)		(100)	%
Total research and development expenses	$	13,509	$	17,906	$	(4,397)		(25)	%

The decrease of $4,397 for the three months ended June 30, 2021 is primarily attributable to:

● Decreased clinical trial expense primarily related to decreased costs related to our SERENITY I and II clinical trials, partially offset by increased costs related to our BXCL701 prostate cancer clinical trial.

● Decreased CMC costs largely related to decreased BXCL501 manufacturing costs.

These decreases were partially offset by:

● Increased personnel and recruiting costs related to our efforts to enlarge our clinical team as we expanded our clinical programs and in preparation of the potential commercial launch of BXCL501 in the U.S.

● Increased non-cash stock-based compensation primary resulting from an increase in personnel.

● Increased professional fees primarily due to increased fees related to toxicology studies as well as increased regulatory and consulting fees related to BXCL501.

The State of Connecticut provides companies with the opportunity to exchange certain research and development credit carryforwards for cash in exchange for foregoing the carryforward of the research and development credit. The program provides for such exchange of the research and development credit at a rate of 65% of the annual research and development credit. The benefit for such exchange is recorded as a reduction of research and development expenses.

General and Administrative Expense

General and administrative expenses for the three months ended June 30, 2021 and 2020 were $14,104 and $3,529, respectively. General and administrative expenses for the three months ended June 30, 2021 and 2020 were comprised as follows:

	Three Months Ended
	June 30,
	2021		2020		Change		% Change
Personnel and related costs	$	2,304		644	$	1,660		258	%
Non-cash stock-based compensation		4,596		1,038		3,558		343	%
Professional fees		2,701		1,165		1,536		132	%
Marketing		2,951		—		2,951		100	%
Commercial		576		—		576		100	%
Insurance		552		444		108		24	%
Travel and other costs		424		238		186		78	%
Total general and administrative expenses	$	14,104	$	3,529	$	10,575		300	%

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The increase of $10,575 for the three months ended June 30, 2021 is primarily attributable to:

● Increased personnel and recruiting costs due to our continuing efforts to expand our teams in preparation of the potential commercial launch of BXCL501 in the U.S.

● Increased non-cash stock-based compensation primarily resulting from an increase in personnel.

● Increased professional and consulting fees due to the expanding growth of our operations and was primarily related to increased corporate legal fees and increased consulting costs related to our preparation for the potential commercial launch of BXCL501 in the U.S.

● Increased marketing related fees primarily related to market research and our BXCL501 marketing campaigns.

● Increased commercial related fees primarily costs related to our efforts related to preparation for the potential commercial launch of BXCL501 in the U.S.

● Increased insurance costs primarily related to an increase in Director and Officer liability premiums.

Comparison of the Six Months Ended June 30, 2021 and 2020

Revenues

We have not recognized any revenues since inception.

Research and Development Expense

Research and development expenses for the six months ended June 30, 2021 and 2020 were $28,250 and $30,277, respectively. Research and development expenses for the six months ended June 30, 2021 and 2020 were comprised as follows:

	Six Months Ended
	June 30,
	2021		2020		Change		% Change
Personnel and related costs	$	7,214	$	3,290	$	3,924		119	%
Non-cash stock-based compensation		4,205		1,384		2,821		204	%
Professional fees		6,540		3,174		3,366		106	%
Clinical trials expense		7,108		19,900		(12,792)		(64)	%
Chemical, manufacturing and controls cost ("CMC")		2,693		2,000		693		35	%
Travel and other costs		825		529		296		56	%
Research and development tax credit		(335)		—		(335)		(100)	%
Total research and development expenses	$	28,250	$	30,277	$	(2,027)		(7)	%

The decrease of $2,027 for the six months ended June 30, 2021 is primarily attributable to:

● Decreased clinical trial expense primarily related to decreased costs related to our SERENITY I and II clinical trials, partially offset by increased costs related to our RELEASE clinical trial, partially offset by increased costs related to our BXCL701 prostate cancer clinical trial.

This decrease was partially offset by:

● Increased personnel and recruiting costs related to our efforts to enlarge our clinical team as we expanded our clinical programs and in preparation of the potential commercial launch of BXCL501 in the U.S.

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● Increased non-cash stock-based compensation primary resulting from an increase in personnel.

● Increased professional fees was primarily due to increased fees related to toxicology studies as well as increased regulatory and consulting fees related to BXCL501.

● Increased CMC costs largely related to increased BXCL501 manufacturing, stability and storage costs.

The State of Connecticut provides companies with the opportunity to exchange certain research and development credit carryforwards for cash in exchange for foregoing the carryforward of the research and development credit. The program provides for such exchange of the research and development credit at a rate of 65% of the annual research and development credit. The benefit for such exchange is recorded as a reduction of research and development expenses.

General and Administrative Expense

General and administrative expenses for the six months ended June 30, 2021 and 2020 were $25,742 and $6,154, respectively. General and administrative expenses for the six months ended June 30, 2021 and 2020 were comprised as follows:

	Six Months Ended
	June 30,
	2021		2020		Change		% Change
Personnel and related costs	$	4,594		1,211	$	3,383		279	%
Non-cash stock-based compensation		8,129		1,348		6,781		503	%
Professional and consulting fees		5,311		2,410		2,901		120	%
Marketing		4,946		—		4,946		100	%
Commercial		982