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 The leading web portal for pharmacy resources, news, education and careers March 21, 2019
Pharmacy Choice - Pharmaceutical News - BIOXCEL THERAPEUTICS, INC. - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operations - March 21, 2019

Pharmacy News Article

 3/12/19 - BIOXCEL THERAPEUTICS, INC. - 10-K - 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 "Selected Financial Data" and our
financial statements and the related notes appearing elsewhere in this report.
In addition to historical information, this discussion and analysis contains
forwardlooking statements that involve risks, uncertainties and assumptions.
Our actual results may differ materially from those discussed below. Factors
that could cause or contribute to such differences include, but are not limited
to, those identified below, and those discussed in the section titled "Risk
Factors" included elsewhere in this prospectus. All amounts in this report are
in U.S. dollars, unless otherwise noted.

Overview


We are a clinical stage biopharmaceutical company utilizing novel artificial
intelligence-based approaches to identify the next wave of medicines across
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 substantial unmet medical
need. Our two most advanced clinical development programs are BXCL501, a
sublingual thin film formulation of the ?2a adrenergic receptor agonist
dexmedetomidine, or Dex, for acute treatment of agitation resulting from
neurological and psychiatric disorders, and BXCL701, an immunooncology agent
for treatment of a rare form of prostate cancer and pancreatic cancer.

We intend to develop firstinclass, high value therapeutics by leveraging
EvolverAI, a research and development engine created and owned by our parent,
BioXcel Corporation, or BioXcel. We believe the combination of our therapeutic
area expertise and our ability to generate product candidates through our
exclusive collaborative relationship with BioXcel in the areas of neuroscience
and immunooncology gives us a significant competitive advantage. EvolverAI was
developed over the last decade and integrates millions of fragmented data points
using artificial intelligence and proprietary machine learning algorithms. After
evaluating multiple product candidates using EvolverAI, we selected our lead
programs because our analysis indicated these drugs may have utility in new
therapeutic indices where there is substantial unmet medical needs and limited
competition. By focusing on clinical candidates with relevant human data, we
believe our approach will help us design more efficient clinical trials, thereby
accelerating our product candidates' time to market. We retain global
development and commercialization rights to these two programs.

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Our Clinical Programs

The following table summarizes our lead development programs:



                          [[Image Removed: Picture 4]]



Our Strategy

Our goal is to become a leader in the field of neuroscience and immunooncology. The key elements to achieving this goal are to:

Advance BXCL501, a sublingual thin film formulation of Dex, a selective ?2a

adrenergic receptor agonist, designed for acute treatment of agitation, to

approval through an accelerated FDA Section 505(b)(2) pathway.

Neurological and Psychiatric Disorders. We believe that BXCL501 has the

potential to become the standard of care for the acute treatment of agitation

arising from diseases such as schizophrenia, bipolar disorder, senile dementia

(Alzheimer's type), and other indications. Dex has been shown to significantly

reduce agitation in elderly patients experiencing post surgical

anestheticinduced delirium who did not respond to treatment with haloperidol,

    a potent antipsychotic that is used to treat symptoms for schizophrenia.


   Additional Indications.  We also plan to expand into additional indications for

acute treatment of agitation resulting from delirium, alcohol or opioid

withdrawal, and posttraumatic stress disorder, or PTSD, as well as explore the

use of BXCL501 in patients who are claustrophobic and anxious awaiting an MRI

or other out-patient medical procedures.

Advance BXCL701 into Phase 2 trials to assess its potential to be the first

approved therapy for tNEPC and for the second line treatment of pancreatic

cancer.

tNEPC (Orphan Segment of Prostate Cancer). BXCL701 was previously studied in

multiple clinical trials and demonstrated single agent antitumor activity in

melanoma, an immunosensitive tumor. In our preclinical studies, BXCL701 has

    demonstrated the ability to


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synergistically increase the antitumor activity of checkpoint inhibitors. We
believe the existing preclinical and clinical data for BXCL701 may significantly
reduce our development time for this compound. The FDA accepted our IND proposal
to test BXCL701 in tNEPC, and the trial opened to accrual in February 2019.


Pancreatic Cancer. Data indicates that fibroblast activation protein positive,

or FAP contribute to checkpoint inhibitor resistance, and immunosuppression

more generally in pancreatic cancer. We believe provides a strong rationale for

combining BXCL701 with a checkpoint inhibitor avelumab (Bavencio) or nivolumab

(Opdivo). Furthermore we have shown strong synergy Between BXCL 701 checkpoint

inhibition and NKTR 214, a CD122 based agonist of IL2, in a pancreatic

preclinical model. BXCL701 has been granted orphan drug designation by the FDA

for the treatment of pancreatic cancer. We believe the existing clinical and

preclinical data for BXCL701 in pancreatic cancer may reduce our development

time for this compound.

Potential for Accelerated Clinical and Regulatory Approval. Given that both

indications represent high unmet medical needs with few treatment options, we

intend to pursue breakthrough therapy designation and accelerated approval

pathways for both indications.

Additional Indications. We believe BXCL701 is active at multiple stages of the

cancer immunity cycle. As such, we believe BXCL701 offers a "pipeline in a

product" platform given its potential application across other solid tumor

types. We believe existing preclinical and clinical evidence support the

combination of BXCL701 with checkpoint inhibitors, agents that stimulate of

"co-stimulate" immune effoctor calles. Moreover, agents that stimulate

antibodydependent cellmediated cytotoxicity, (ADCC) or cell-based therapies

such as chimeric antigen receptor Tcell (CART) therapy, oncolytic viruses or

therapeutic vaccines all represent potential combinations with synergistic

benefit.

Identify biomarkers to select patients who have the highest likelihood to

respond to our product candidates. Predicting optimal drug responses in

patients requires the identification and validation of predictive biomarkers.

We believe that our ability to identify patient subsets most likely to respond

to our product candidates will increase the clinical benefit to patients and

improve the probability of success of our clinical trials. The indications for

our lead product candidate BXCL701 were chosen in part because they are known

to overexpress DPP 8/9 and FAP. Our planned PoC clinical trial of BXCL701 will

examine biomarkers retrospectively related to its molecular and cellular

targets to identify those that may correlate with clinical efficacy and

increase our likelihood of success.

Enhance our R&D pipeline by leveraging our therapeutic area expertise with

EvolverAI to identify, develop and commercialize new product candidates in

neuroscience and immunooncology. In addition to our leading clinical programs

and our emerging and future pipeline, we intend to select our next clinical

program during 2019. We have established translational and development

expertise, which we believe will help us advance the present and future product

candidates in these fields. We may also opportunistically inlicense additional

product candidates identified through our AI platform approach within our core

areas of expertise.

Maximize the commercial potential of our product candidates. We have worldwide

development and commercialization rights to our BXCL501, BXCL701, BXCL502 and

BXCL702 product candidates. If BXCL501 and BXCL701 are approved in the United

States, we would consider building a specialty sales force in the United States

and/or collaborate with third parties to maximize the potential of our product

candidates. Furthermore, we intend to commercialize BXCL501 and BXCL701 outside

    the United States through collaborations with third parties.




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Our Novel Drug Re-Innovation Approach


Our AIbased discovery and development process is the foundation of our drug
reinnovation model for identifying the next wave of medicines. Our therapeutic
area experts have over 60 years of experience across the drug discovery and
development value chain. We believe EvolverAI is a novel method of finding
potential product candidates because it combines the comprehensiveness and
efficiency of machine learning and big data analytics with the expertise and
intuition of human experience in drug development. We believe the combination of
our therapeutic area expertise and our ability to generate therapeutic
candidates in neuroscience and immunooncology through our exclusive
collaborative relationship in those areas with BioXcel gives us a significant
competitive advantage.

The pharmacological space spans more than 27,000 active pharmaceutical agents
and only around 4,000 are approved and marketed drugs benefiting patients. These
marketed drugs may be applied to other indications, including rare diseases, and
represent an untapped potential for meeting significant unmet medical need and
recoupment of research and development investments. A large number of the
remaining agents are clinical candidates that are active, shelved or have failed
for reasons other than toxicity and can potentially be reengineered for
different indications or patient segments. They potentially represent an
unrealized investment of billions of research and development dollars by the
private and public sectors, resulting in an immeasurable amount of patient
suffering and sacrificing during clinical development.

Traditional drug development is plagued with low success rates (11.3%, according
to Tufts Center for the Study of Drug Development White Paper, 2015), long drug
development cycles (1015 years, according to PhRMA Key Facts 2016) and
exorbitant development costs ($2.6 billion per drug, according to PhRMA Key
Facts 2016). Furthermore, many serious diseases continue to go unaddressed due
to limitations of the current drug discovery paradigm. The recent advent of
numerous 'omics' technologies (genomics, proteomics) and rapid advances in
science and medicine are generating terabytes of valuable unexploited knowledge
that is widely distributed in multiple big data lakes with several orders of
complexity and variety. Much of this data is not being systematically applied to
the development of nextgeneration therapeutics, thus preventing the
optimization of drug development utilizing the understanding of technology,
science, medicine, markets and commercial opportunities. The efficient and
intuitive use of big data remains a bottleneck and a challenge to the
pharmaceutical industry. Taken together, these factors underscore the need for
fundamental new approaches to drug discovery and development. The market
opportunity to identify new uses for existing pharmacological agents remains
substantial, due to the lack of technologydriven insights. Our parent, BioXcel,
has created a proprietary R&D engine, EvolverAI, for drug reinnovation that
provides a proprietary systemsbased approach designed to unlock the hidden
value in drugs. The combination of our therapeutic area expertise and our
exclusive collaborative relationship with BioXcel enables us to screen, analyze,
and identify the product candidates that we believe have a high likelihood of
benefiting patients. The compounds in our pipeline have been identified using
this proprietary platform.

EvolverAI is designed to eliminate human bias by scanning millions of data
points from disparate data sources to create network maps. The nodes and
connections in the network map are weighted and ranked based on the validity of
supporting evidence using disease specific algorithms. They are then further
analyzed using artificial intelligence and machine learning approaches
supplemented by human domainbased expertise to uncover novel connections
between disease parameters, molecular targets, mechanisms of actions and product
candidates.

This drug reinnovation model is exemplified by the successful development and
commercialization of drugs such as Tecfidera (Biogen, Inc.), Thalomid (Celgene
Corporation) and Viagra (Pfizer, Inc.). All of these drugs were identified by
insights in biology and disease pathophysiology. The successful business models
of biotech companies like Puma Biotechnology, Inc. and Corvus Pharmaceuticals,
Inc. are based on the reinnovation of existing clinical candidates or marketed
drugs to provide novel solutions for patients. Unfortunately, such discoveries
have been severely limited in scope due to the lack of a genuinely integrated
big data analytics based approach.

We believe that only EvolverAI allows a comprehensive and unbiased evaluation of
the complete pharmacological space. Our drug portfolio was identified using
EvolverAI and the lead programs were chosen among more than 20 compounds
selected using this approach. We believe our drug reinnovation model and
exclusive collaborative relationship with BioXcel has the potential to reduce
the cost and time of drug development, help us design more

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efficient trials and accelerate our product candidates' time to market. This
assumption is based on capitalizing product candidates with substantial clinical
data and mitigated risk due to welldefined safety profiles, known PK/PD
properties, and an established manufacturing and regulatory path.

Basis of Presentation


For periods prior to June 30, 2017, our financial statements are presented on a
carve-out basis from the financial records of BioXcel. The carve-out includes
reasonable allocations of assets and liabilities and expenses attributable to
our business.

Our financial results reflect amounts specifically attributable to the BTI
Business, which include expenses, assets and liabilities of BioXcel relating to
the Candidates that were contributed to us by BioXcel under the Contribution
Agreement for the period from January 1, 2015 until June 30, 2017. The Services
Agreement provides us with certain general and administrative and development
support services that became effective June 30, 2017. The general and
administrative services were reduced when we occupied separate office space in
the early part of 2018. In addition, financial support services were phased out
during the balance of 2018.

Management believes the assumptions underlying the allocations of indirect
expenses in the carve-out financial information are reasonable, however, our
financial position, results of operations and cash flows may have been
materially different if it had operated as a stand-alone entity. Our financial
information for periods beginning July 1, 2017 have been prepared as if we are
standalone entity. For the year ended December 31, 2018 the results are on a
stand-alone entity basis.

Components of Our Results of Operations

Revenues

We have not recognized any revenue since inception.

Operating Costs and Expenses

Research and Development

Research and development expenses consist primarily of costs incurred for the research and development of our clinical and pre-clinical candidates, which includes payments to BioXcel, our Parent.

employee-related expenses, including salaries, benefits and stock-based

compensation expense and travel expenses for employees engaged in research and

development functions

expenses incurred under agreements with contract research organizations, or

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

depreciation and other expenses.



We expense research and development costs to operations as incurred.
Historically we have not segmented costs associated with our various development
programs, however, beginning January 1, 2018, we have begun assigning costs to
our individual development candidates.

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Our research and development costs by program for the year ended December 31,
2018 are as follows:


               BXCL 501                                     $  6,051
               BXCL 701                                        5,984
               BXCL 502                                           75
               BXCL 702                                          105
               Other research and development programs           573
               Research and development support services       1,770
               Total research and development expenses      $ 14,558




General and Administrative

General and administrative expenses consist primarily of personnel costs,
including salaries, benefits, stock-based compensation and travel expenses, for
our executive, finance, corporate development and other administrative
functions. 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 as we
operate both as an independent entity and as a public company. We expect
increased administrative costs resulting from our anticipated 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 also expect to incur
increased costs to comply with corporate governance, internal controls, investor
relations and disclosures 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 Annual Report on Form 10K.

Results of Operations

Comparison of the Years Ended December 31, 2018 and 2017


The following table summarizes our results of operations for the years ended
December 31, 2018 and 2017:


                                                     Year
                                                     Ended
                                                 December 31,           Increase
                                               2018         2017       (Decrease)
                                                        (in thousands)

Operating costs and expenses

       Research and development             $   14,558    $   2,690    $    

11,868

       General and administrative                5,404        1,847         

3,557

       Total operating expenses                 19,962        4,537         

15,425

       Loss from operations                   (19,962)      (4,537)      

(15,425)

Other expense

       Dividend and interest income, net           692          (2)            694
       Net loss                             $ (19,270)    $ (4,539)    $  (14,731)




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Research and Development Expense


Research and development expenses for the years ended December 31, 2018 and 2017
were $14,558 and $2,690, respectively. The increase of $11,868 is attributable
to the costs described in the table below:


                                                           Year Ended
                                                          December 31,
                                                         2018       2017       Change
  Salaries, bonus & related costs                      $  3,086    $   635    $  2,451
  Non-cash stock-based compensation                       1,843        944         899
  Professional research & project related costs           2,240        382       1,858
  Drug acquisition costs                                  1,000          -       1,000
  Clinical trials expense                                 3,851        384       3,467
  Chemical, manufacturing and controls cost ("CMC")       1,693        200       1,493
  All other                                                 845        145         700
  Total research and development expenses              $ 14,558    $ 2,690    $ 11,868



Salaries, bonus and related costs increased due to higher bonus accruals, increases in headcount, payroll taxes, recruiting fees and travel related costs.

Non-cash stock-based compensation has increased as a result of options granted to a significantly increased headcount following our IPO.

Drug acquisition expenses included a payment to BioXcel of $1,000 pursuant to the Contribution Agreement for the BTI business programs.


Professional research, project related costs, clinical trials expenses and CMC
costs increased due to the completion of clinical trials that commenced in 2017
and the initiation of new trials related to thin film formulation of Dex and IV
Dex and the acceleration of research and development activities. Costs also
increased as the Company prepared for BXCL 701clinical trials in tNEPC and
pancreatic cancer.

General and Administrative Expense

General and administrative expenses for the years ended December 31, 2018 and 2017 were $5,404 and $1,847, respectively. The increase of $3,557 is attributable to the costs described in the table below:


                                                        Year Ended
                                                      December 31,
                                                     2018       2017      Change
       Salaries, bonus & related costs              $ 1,409    $   403    $ 

1,006

       Non-cash stock-based compensation              1,239        662        577
       Professional fees                              1,745        566      1,179
       Insurance                                        681         16        665
       All other                                        330        200        130

Total general and administrative expenses $ 5,404 $ 1,847 $ 3,557

Salaries, bonus and related costs increased due to increases in headcount, higher bonus accruals, payroll taxes, recruiting fees and travel related costs.

Non-cash stock-based compensation has increased as a result of options granted to a significantly increased headcount following our IPO.

Professional fees increased due to expanding operations and operating as a public company. Higher legal, audit, investor relations, licensing and information technology costs were incurred during the current period.

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Insurance costs increased primarily due to Director and Officer liability insurance.

Liquidity and Capital Resources


As of December 31, 2018, we had cash and cash equivalents of $42.6 million,
working capital of $38.5 million and stockholders' equity of $38.9 million. Net
cash used in operating activities was $13.5 million and $2.2 million for the
years ended December 31, 2018 and 2017. We incurred losses of approximately
$19.3 million and $4.5 million for the years ended December 31, 2018 and 2017.
We have not yet generated any revenues and we have not yet achieved
profitability. We expect that our research and development and general and
administrative expenses will continue to increase and, as a result, we will need
to generate significant product revenues to achieve profitability.

On March 7, 2018, the Company's registration statement on Form S-1 relating to
its IPO was declared effective by the Securities and Exchange Commission
("SEC"). The IPO closed on March 12, 2018, and the Company issued and sold
5,454,545 common shares at a public offering price of $11.00 per share. Gross
proceeds totaled $60,000 and net proceeds totaled $54,102 after deducting
underwriting discounts and commissions of $4,200 and other offering expenses of
approximately $1,698.

We believe that our existing cash and cash equivalents as of December 31, 2018,
and a review of projected project timing, will enable us to fund our operating
expenses and capital expenditure requirements for at least one year from the
date of this Annual Report on Form 10-K. Our current cash and cash equivalents
will be used primarily to fund our ongoing research and development efforts over
the coming months. We will be required to expend significant funds in order to
advance the development of BXCL501, BXCL701 and our other product candidates. In
addition, while we may seek one or more collaborators for future development of
our current product candidate or any future product candidates that we may
develop for one or more indications, we may not be able to enter into a
collaboration for any of our product candidates for such indications on suitable
terms, on a timely basis or at all. In any event, the net proceeds of our IPO
and our existing cash and cash equivalents will not be sufficient to fund all of
the efforts that we plan to undertake or to fund the completion of development
of our product candidates or our other preclinical programs. Our estimate as to
how long we expect our existing cash to be able to continue to fund our
operations is based on assumptions that may prove to be wrong, and we could use
our available capital resources sooner than we currently expect. Further,
changing circumstances, some of which may be beyond our control, could cause us
to consume capital significantly faster than we currently anticipate, and we may
need to seek additional funds sooner than planned. Accordingly, we will be
required to obtain further funding through public or private equity offerings,
debt financings, collaborations and licensing arrangements or other sources.
Further financing may not be available to us on acceptable terms, or at all. Our
failure to raise capital as and when needed would have a negative impact on our
financial condition and our ability to pursue our business strategy and we may
be forced to curtail or cease operations.

Sources of Liquidity


We have focused our efforts on raising capital and building the products in our
pipeline. Since our inception, and through our recently completed IPO, all our
operations have been financed by our Parent, BioXcel, or the sales of our common
stock in a series of private placements and a public offering. We have not yet
established an ongoing source of revenue sufficient to cover our operating costs
and will need to do so in future periods.

Cash Flows


                                                     Year Ended December 31,
       (in thousands)                                   2018            2017
       Cash provided by (used in) in thousands:
       Operating activities                        $     (13,509)     $ (2,196)
       Investing activities                                 (340)             -
       Financing activities                                55,527         3,083




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Operating Activities

For the year ended December 31, 2018, net cash used in operating activities was
approximately $13,509 which consisted of a net loss of $19,270 partially offset
by $3,082 in stock-based compensation and $17 of depreciation. Increases in
accounts payable and accrued expenses of $3,201 were offset in part by increases
in prepaid expenses (primarily for insurance premiums) and other assets of $539.

For the year ended December 31, 2017, net cash used in operating activities was
approximately $2,196 which consisted of a net loss of $4,539 offset by $1,606 in
stock-based compensation and $737 an increase in accounts payable and accrued
expenses.

Investing Activities

We purchased computers and related equipment for technical research and for additional headcount during the year ended December 31, 2018. In addition, the Company incurred design charges and construction costs for future space occupancy.

Financing Activities


The net cash provided by financing activities was approximately $55,527 for
the year ended December 31, 2018 which was mainly attributable to the proceeds
from issuance of common stock in our IPO offset in part by repayment of loans to
our Parent.

Net cash provided by financing activities for the years ended December 31, 2017 of $3,083 were attributable to investments and loans made by BioXcel.

Operating Capital and Capital Expenditure Requirements


We expect to continue to incur significant and increasing operating losses at
least for the next several years as we expand our clinical trials of BXCL501 and
BXCL701, seek marketing approval for our product candidates and pursue
development of our other product candidates. We do not expect to generate
revenue unless and until we successfully complete development and obtain
regulatory approval for our product candidates. Our net losses may fluctuate
significantly from quarter-to-quarter and year-to-year, depending on the timing
of our planned clinical trials and our expenditures on other research and
development activities.

We have based our projections of operating capital requirements on assumptions
that may prove to be incorrect and we may use all of our available capital
resources sooner than we expect. Because of the numerous risks and uncertainties
associated with research, development and commercialization of pharmaceutical
products, we are unable to estimate the exact amount of our operating capital
requirements. We anticipate that our expenses will increase substantially as we:

continue our clinical development of BXCL501 and commence clinical development

of BXCL701;

conduct additional research and development with our product candidates;

seek to identify, acquire, develop and commercialize additional product

candidates;

integrate acquired technologies into a comprehensive regulatory and product

development strategy;

maintain, expand and protect our intellectual property portfolio;

hire scientific, clinical, quality control and administrative personnel;

add operational, financial and management information systems and personnel,

including personnel to support our drug development efforts;

seek regulatory approvals for any product candidates that successfully complete

clinical trials;

ultimately establish a sales, marketing and distribution infrastructure and

scale up external manufacturing capabilities to commercialize any product

candidates for which we may obtain regulatory approval; and

continue to operate as a public company.

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We expect that we will need to obtain substantial additional funding in order to
complete our clinical trials. To the extent that we raise additional capital
through the sale of common stock, convertible securities or other equity
securities, the ownership interests of our existing stockholders may be
materially diluted and the terms of these securities could include liquidation
or other preferences that could adversely affect the rights of our existing
stockholders. In addition, debt financing, if available, would result in
increased fixed payment obligations and may involve agreements that include
restrictive covenants that limit our ability to take specific actions, such as
incurring additional debt, making capital expenditures or declaring dividends,
that could adversely impact our ability to conduct our business. If we are
unable to raise capital when needed or on attractive terms, we could be forced
to significantly delay, scale back or discontinue the development or
commercialization of BXCL501, BXCL701 or other product candidates, seek
collaborators at an earlier stage than otherwise would be desirable or on terms
that are less favorable than might otherwise be available, and relinquish or
license, potentially on unfavorable terms, our rights to BXCL501, BXCL701 or
other product candidates that we otherwise would seek to develop or
commercialize ourselves.

Critical Accounting Policies


    The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States requires management to
exercise its judgment. We exercise considerable judgment with respect to
establishing sound accounting policies and in making estimates and assumptions
that affect the reported amounts of our assets and liabilities, our recognition
of revenues and expenses, and disclosure of commitments and contingencies at the
date of the financial statements.

    On an ongoing basis, we evaluate our estimates and judgments. We base our
estimates and judgments on a variety of factors including our historical
experience, knowledge of our business and industry, current and expected
economic conditions, the attributes of our products, the regulatory environment,
and in certain cases, the results of outside appraisals. We periodically
re-evaluate our estimates and assumptions with respect to these judgments and
modify our approach when circumstances indicate that modifications are
necessary.

    While we believe that the factors we evaluate provide us with a meaningful
basis for establishing and applying sound accounting policies, we cannot
guarantee that the results will always be accurate. Since the determination of
these estimates requires the exercise of judgment, actual results could differ
from such estimates.

    A description of significant accounting policies that require us to make
estimates and assumptions in the preparation of our financial statements is as
follows:

Use of Estimates

    The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosures of contingent liabilities at the dates of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from these estimates.

    The financial statements of the Company for the period through June 30, 2017
are derived by carving out the historical results of operations and historical
cost basis of the assets and liabilities associated with the BTI Business that
have been contributed to the Company by BioXcel, from the financial statements
of BioXcel.

Research and Development

    Research and development expenses are expensed as incurred. Patent costs and
patent acquisition costs are expensed as incurred and included in general and
administrative expenses.

Stock-based Compensation

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Charges from our Parent BioXcel Corporation.

The financial statements include certain expenses of our parent, BioXcel, including stock-based compensation expense that were carved-out of the historical financial statements of BioXcel based on the percentage of the expense attributable to BTI related activities.

    BioXcel has granted stock options to its employees under its own equity
incentive plan, or the BioXcel Plan. Stock-based compensation expense from
awards granted under the BioXcel Plan is allocated to BTI over the required
service period over which those stock option awards vest and is based upon the
percentage of time the award recipient spent working on our activities compared
to BioXcel activities, which is the same basis used for allocation of salary
costs.

    The BioXcel 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 these BioXcel stock option awards was determined using
the Black Scholes option pricing model on the date of grant. Stock based awards
to non-employees are remeasured at fair value each financial reporting date
until vesting is complete. Significant judgment and estimates were used to
estimate the fair value of these awards, as they are not publicly traded.

    Our estimation of fair value of the awards considered recent transactions
entered into by BioXcel, relevant industry and comparable public company data.
Since BioXcel is a non-public entity, the majority of the inputs used to
estimate the fair value of the common stock option awards are considered level 3
due to their unobservable nature. Each option award is subject to specified
vesting schedules and requirements (a mix of time-based, and corporate
event-based, including financing events). Compensation expense is charged to us
by BioXcel over the required service period to earn the award which is expected
to be up to four years, subject to the achievement of time and event-based
vesting requirements.

BioXcel Therapeutics, Inc. 2017 Equity Incentive Plan


Our board of directors adopted the 2017 Equity Incentive Plan, or the Plan, on
August 22, 2017. The Plan will expire on August 22, 2027. The purpose of the
Plan is to attract and retain key personnel and to provide a means for
directors, officers, managers, employees, consultants and advisors to acquire
and maintain an interest in our company, which interest may be measured by
reference to the value of its common stock.

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 and directors, including stock options.
The Company's stock-based compensation plan was adopted and became effective in
August 2017. Prior to the Company adopting its stock-based compensation plan the
Parent granted stock options to its employees. As a result, related stock-based
compensation expense has been allocated to the Company over the required service
period over which these BioXcel stock option awards vest in the same manner
salary costs of employees have been allocated to the BTI Business in the
carve-out process.

Both BioXcel and 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 these awards, as they were
not publicly traded. Stock awards granted by the Company subsequent to the IPO
are valued using market prices at the date of grant.

Stock-based awards to non-employees are re-measured at fair value each financial reporting date until performance is complete.


The Company adopted FASB ASU 201609 as of January 1, 2018 and has elected to
account for forfeitures as they occur, by reversing compensation cost when the
award is forfeited.





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The assumptions underlying these valuations represent management's best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.

Expenses Accrued Under Contractual Arrangements with Third Parties; Accrued Clinical Expenses


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.


Contractual Obligations and Commitments


The Company entered into a "Swing Space" agreement on June 21, 2018 to lease
approximately 5,300 square feet of office space on the 5th floor (the "5th Floor
Lease") of the building located at 555 Long Wharf Drive, New Haven, Connecticut.
On August 20, 2018, the Company entered into an agreement to lease approximately
11,040 square feet of space (the "12th Floor Lease")

The term of the 5th Floor Lease is through the earlier of the date the Company
conducts business in the 12th Floor space, or April 30, 2019. No base rent is
payable during this period, however the Company is obligated to pay a pro-rata
electricity charge each month.

Occupancy of the 12th floor lease and the related Commencement Date for payment obligations is expected to be in March 2019.


The following table summarizes our contractual obligations at December 31, 2018
and the effect such obligations are expected to have on our liquidity and cash
flow in future periods and is solely related to the 12th floor lease:


                                                                       Payments due by Period
                                                             Less Than                                    More Than
                                                  Total       1 year        1-3 years      3-5 years       5 years
Operating lease commitments                      $ 1,507    $       153    $       405    $       444    $       505



For additional details, see "Notes to Financial Statements - Leases".

Off-Balance Sheet Arrangements

We did not have during the periods presented, nor do we currently have, any off-balance sheet arrangements as defined under SEC rules.

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