Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our annual audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the Securities and Exchange Commission ("SEC") on February 25, 2025. This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. Our actual results, performance or experience could differ materially from what is indicated by any forward-looking statement due to various important factors, risks and uncertainties, including, but not limited to, those set forth under "Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of proprietary product candidates to treat patients suffering from central nervous system diseases. We are currently developing roluperidone for the treatment of negative symptoms in patients diagnosed with schizophrenia. In addition, we previously co-developed seltorexant with Janssen Pharmaceutica NV ("Janssen"), a subsidiary of Johnson & Johnson, for the treatment of insomnia disorder and adjunctive treatment of Major Depressive Disorder ("MDD"). As a result of our collaboration with Janssen, we were entitled to collect royalties in the mid-single digits on potential future worldwide sales of seltorexant in certain indications, with no further financial obligations to Janssen. In January 2021, we sold our rights to these potential royalties to Royalty Pharma plc ("Royalty Pharma") for a $60 million cash payment and up to an additional $95 million in potential future milestone payments, subject to completion of Phase 3 trials by Janssen and regulatory approvals. To our knowledge, Janssen is currently recruiting patients under a Phase 3 trial with seltorexant.

In August 2022, we submitted a New Drug Application ("NDA") with the U.S. Food and Drug Administration ("FDA") for our lead product candidate, roluperidone, for the treatment of negative symptoms in schizophrenia. On February 26, 2024, the FDA issued a Complete Response Letter ("CRL") regarding our NDA for roluperidone. We have had multiple interactions with the FDA following receipt of the CRL for our NDA in February 2024 and the FDA has confirmed the requirement for an additional confirmatory clinical trial to address the deficiencies cited in the CRL and resubmit the NDA.

As in the two previous clinical trials of roluperidone (C03 and C07), the confirmatory trial will include patients diagnosed with schizophrenia who present with stable impairing negative symptoms and stable positive symptoms for the six months prior to entering the trial. We agreed with the FDA that best efforts will be made to secure 25-30% of patients from the United States, subject to competitive recruitment. The FDA has confirmed that roluperidone can be studied in monotherapy where patients would receive a double-blinded single daily 64 mg dose of roluperidone or placebo. The FDA has also confirmed that, the sole primary endpoint to assess efficacy would be the change from Baseline in PANSS Marder negative symptoms factor score ("NSFS") at 12 weeks of treatment with roluperidone compared to placebo. The FDA advised that, to support a monotherapy indication, it would be necessary to assess relapses on an observational basis for at least 52 weeks, in patients treated in monotherapy with roluperidone, placebo or antipsychotics. The FDA has stated that it would consider a resubmission of the NDA that included a double-blind, placebo- or active-controlled trial of roluperidone with a duration of at least 52 weeks with the efficacy primary endpoint at week 12.

We have not received any regulatory approvals to commercialize any of our product candidates, and we have not generated any revenue from the sales or license of our product candidates. We routinely evaluate the status of our drug development programs as well as potential strategic options. We have incurred significant operating losses since inception and expect to continue to incur net losses and negative cash flows from operating activities for the foreseeable future. As of September 30, 2025 and December 31, 2024, we had an accumulated deficit of $405.1 million and $395.4 million, respectively. For the nine months ended September 30, 2025 and 2024, we recorded net loss of $9.8 million and a net income of $5.7 million, respectively. We expect our clinical and administrative costs will increase as we begin to incur clinical trial costs and hire additional support staff to support the Phase 3 trial of roluperidone.

Recent Developments

On October 21, 2025, we entered into a securities purchase agreement (the "Securities Purchase Agreement") with certain accredited investors, pursuant to which we agreed to issue and sell, in a private placement (the "Private Placement"), (i) 80,000 shares of Series A Convertible Preferred Stock, par value $0.0001 per share ("Series A Preferred Stock"), at a purchase price of $1,000 per share, (ii) tranche A warrants (the "Preferred Tranche A Warrants") to acquire shares of Series A Preferred Stock (the "Tranche A Warrant Shares") and (iii) tranche B warrants (the "Preferred Tranche B Warrants," together with the Preferred Tranche A Warrants, the "Preferred Warrants") to acquire shares of Series A Preferred Stock for an aggregate offering price of up to $200 million. The closing of the Private Placement took place on October 23, 2025.

The gross proceeds of the Private Placement are estimated to be up to approximately $200 million, before deducting fees paid to the placement agent of the Private Placement and other estimated offering expenses payable by us, including initial upfront gross proceeds of $80 million in exchange for shares of the Series A Preferred Stock, up to an additional $80 million in gross proceeds if all Preferred Tranche A Warrants are exercised, subject to the terms and conditions specified therein, and up to an additional $40 million in gross proceeds if all Preferred Tranche B Warrants are exercised by cash payment upon the achievement of certain milestone event.

This private placement followed our announcement in August 2025 of our alignment with the FDA on the design of a confirmatory Phase 3 trial of roluperidone. We expect the net proceeds of this private placement will be sufficient to fund the confirmatory Phase 3 trial of roluperidone and our resubmission of our NDA, to prepare for a potential commercial launch of roluperidone in the U.S., if approved, and for working capital and general corporate purposes.

Macroeconomic Considerations

Results of our operations have varied and may vary in the future based on the impact of changes in the domestic or global economy. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in inflation and fluctuations in interest rates, financial and credit market fluctuations, international trade relations and tariffs, pandemics, political turmoil, natural catastrophes and warfare in the United States or elsewhere, could negatively affect our business. It is not possible at this time to estimate the long-term impact that these and related events could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted.

Financial Overview

Revenue

None of our product candidates have been approved for commercialization and we have not received any revenue in connection with the sale or license of our product candidates.

Research and Development Expenses

Research and development costs are expensed as they are incurred and consist principally of costs incurred in connection with the development of our product candidates including: fees paid to consultants and clinical research organizations ("CROs"), investigator grants, patient screening, laboratory work, database management, material management, statistical analysis, license fees, regulatory compliance, and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in research and development functions.

Completion dates and costs can vary significantly by product candidate and are difficult to predict. We anticipate making determinations as to which programs to pursue and the level of funding to direct to each program on an ongoing basis in response to the scientific and clinical success or failure of each product candidate, the estimated costs to continue the development program relative to our available resources, as well as an ongoing assessment of each product candidate's commercial potential. We will need to raise additional capital or may seek additional product collaborations in the future to complete the development and commercialization of our product candidates.

General and Administrative Expenses

General and administrative costs are expensed as they are incurred and consist principally of costs for facility and information systems, professional fees for auditing, consulting and legal services and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in administrative functions. General and administrative costs also include costs for maintaining a publicly listed company including increased audit and legal fees, compliance with securities laws, corporate governance and investor relations.

Foreign Exchange Losses

Foreign exchange losses are comprised primarily of losses on foreign currency transactions primarily related to research and development expenses. We incur certain expenses, primarily in Euros, and record these expenses in United States Dollars at the time the liability is incurred. Changes in the applicable foreign currency rate between the date that an expense is recorded and the payment date is recorded as a foreign currency (loss) or gain.

Investment Income

Investment income consists of income earned on our cash equivalents and marketable securities.

Non-Cash Interest Expense for the Sale of Future Royalties

Non-cash interest expense for the sale of future royalties consists of the non-cash interest expense associated with the Royalty Pharma agreement.

Other Income

Other income consists of the gain associated with the adjustment to the carrying amount of the liability related to the sale of future royalties.

Results of Operations

Comparison of Three Months Ended September 30, 2025 versus September 30, 2024

Research and Development Expenses

Research and development expenses were $0.9 million and $1.9 million for the three months ended September 30, 2025 and 2024, respectively, a decrease of approximately $1.0 million. The decrease in research and development expenses was primarily due to lower costs associated with our drug substance validation campaign, consultant fees, and lower compensation expenses. Non-cash stock compensation costs included in research and development expenses were $0.1 million for both the three months ended September 30, 2025 and 2024.

General and Administrative Expenses

General and administrative expenses were $1.9 million and $2.5 million for the three months ended September 30, 2025 and 2024, respectively, a decrease of approximately $0.6 million. The decrease in general and administrative expenses was primarily due to lower professional service fees and insurance costs. Non-cash stock compensation costs included in general and administrative expenses were $0.2 million for both the three months ended September 30, 2025 and 2024.

Foreign Exchange Losses

Foreign exchange losses were $6 thousand and $13 thousand for the three months ended September 30, 2025 and 2024, respectively, a decrease of $7 thousand, primarily due to currency movements.

Investment Income

Investment income was $107 thousand and $314 thousand for the three months ended September 30, 2025 and 2024, respectively, a decrease of approximately $207 thousand, primarily due to cash and cash equivalents balances and interest rates.

Non-cash interest expense for the sale of future royalties

Non-cash interest expense for the sale of future royalties was zero for both the three months ended September 30, 2025 and 2024.

Other Income

Other income was zero and $26.6 million for the three months ended September 30, 2025 and 2024, respectively, a decrease of $26.6 million, due to recognizing other income in the third quarter of 2024 as a result of the adjustment to the carrying amount of the liability related to the sale of future royalties.

Comparison of Nine Months Ended September 30,2025 versus September 30, 2024

Research and Development Expenses

Research and development expenses were $3.6 million and $9.9 million for the nine months ended September 30, 2025 and 2024, respectively, a decrease of approximately $6.3 million. The decrease in research and development expenses was primarily due to lower costs associated with our drug substance validation campaign, costs for the C18 study, consultant fees, and lower compensation expenses. Non-cash stock compensation costs included in research and development expenses were $0.3 million and $0.4 million for the nine months ended September 30, 2025 and 2024, respectively.

General and Administrative Expenses

General and administrative expenses were $6.5 million and $7.4 million for the nine months ended September 30, 2025 and 2024, respectively, a decrease of approximately $0.9 million. The decrease in general and administrative expenses was primarily due to lower professional service fees. Non-cash stock compensation costs included in general and administrative expenses were $0.6 million and $0.7 million for the nine months ended September 30, 2025 and 2024, respectively.

Foreign Exchange Losses

Foreign exchange losses were $36 thousand and $12 thousand for the nine months ended September 30, 2025 and 2024, respectively, an increase of $24 thousand, primarily due to currency movements.

Investment Income

Investment income was $0.4 million and $1.0 million for the nine months ended September 30, 2025 and 2024, respectively, a decrease of approximately $0.6 million, primarily due to cash and cash equivalents balances and interest rates.

Non-cash interest expense for the sale of future royalties

Non-cash interest expense for the sale of future royalties was zero and $4.6 million for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $4.6 million. The decrease in non-cash interest expense for the sale of future royalties was due to revising our estimates for the timing and amount of future royalty payments to be received under the royalty arrangement. During the third quarter of 2024, we adjusted the carrying amount of our liability related to the sale of future royalties to the initial payment of $60 million. This adjustment resulted in the recognition of $26.6 million in other income during the third quarter of 2024, representing the amount of non-cash interest expense amortized through June 30, 2024.

Other Income

Other income was zero and $26.6 million for the nine months ended September 30, 2025 and 2024, respectively, a decrease of $26.6 million, due to recognizing other income in the third quarter of 2024 as a result of the adjustment to the carrying amount of the liability related to the sale of future royalties.

Liquidity and Capital Resources

Sources of Liquidity

As of September 30, 2025, we had an accumulated deficit of approximately $405.1 million. We anticipate that we will continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of our product candidates and to support our operations as a public company. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we may never generate product revenue or achieve profitability. As of September 30, 2025, we had cash, cash equivalents, and restricted cash of $12.4 million. We believe that this amount, together with the net proceeds from the Private Placement that was closed on October 23, 2025, will be sufficient to meet our operating commitments for at least twelve months from the date that our interim condensed financial statements are issued.

The process of drug development can be costly and the timing and outcomes of clinical trials is uncertain. The assumptions upon which we have based our estimates are routinely evaluated and may be subject to change. The actual amount of our expenditures will vary depending upon many factors, including, but not limited to, the design, timing and duration of future clinical trials, the progress of our research and development programs, the infrastructure to support a commercial enterprise and the level of financial resources available. We can adjust our operating plan spending levels based on the timing of future clinical trials which are predicated upon adequate funding to complete the trials. We routinely evaluate the status of our clinical development programs as well as potential strategic options.

Private Placement

On October 21, 2025, we entered into the Securities Purchase Agreement with certain accredited investors, pursuant to which we agreed to issue and sell, in the Private Placement, (i) 80,000 shares of Series A Convertible Preferred Stock, at a purchase price of $1,000 per share, (ii) Preferred Tranche A Warrants to acquire shares of Series A Preferred Stock and (iii) Preferred Tranche B Warrants to acquire shares of Series A Preferred Stock for an aggregate offering price of up to $200 million. The closing of the Private Placement took place on October 23, 2025 (the "Closing Date").

Pursuant to the Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Voting Preferred Stock (the "Certificate of Designation"), each share of Series A Preferred Stock is, subject to the stockholder approval and certain beneficial ownership conversion limitations, automatically convertible into shares of common stock, par value $0.0001 per share, of the Company.

Each Preferred Tranche A Warrant has an exercise price of $1,000 and may only be exercised for cash. The Preferred Tranche A Warrants are immediately exercisable for an aggregate of 80,000 shares of Series A Preferred Stock for an aggregate cash exercise price of $80 million until the tenth day following the date of our public announcement that we have achieved, on a statistically significant basis, the primary endpoint of our Phase 3 confirmatory trial of roluperidone in schizophrenia at the 12-week timepoint (the "Milestone Event").

Each Preferred Tranche B Warrant has an exercise price of $1,000 and may be exercised by a cashless exercise. The Preferred Tranche B Warrants are exercisable for an aggregate of 40,000 shares of Series A Preferred Stock for an aggregate cash exercise price of $40 million commencing on the earlier of (i) our public announcement of the Milestone Event and (ii) the three year anniversary of the Closing Date. The Preferred Tranche B Warrants will expire on the four (4)-year anniversary of the Closing Date.

The Preferred Warrants are subject to forfeiture in the event the applicable investor engages in any short sales involving our securities during the 48-months period following the Closing Date. In addition, the Tranche B Warrant Shares are subject to reduction if the applicable investor sells or transfers any shares of Series A Preferred Stock or shares of our common stock received upon conversion of the Series A Preferred Stock, except to affiliates for no consideration.

Subject to the terms and limitations contained in the Certificate of Designation, the Series A Preferred Stock issued in the Private Placement will not become convertible until our stockholders approve the issuance of all common stock issuable upon conversion of the Series A Preferred Stock and the Preferred Warrants Shares (the "Stockholder Approval"). On the first (1st) trading day following the announcement of the Stockholder Approval, each share of Series A Preferred Stock shall automatically convert into the number of shares of common stock, at the conversion price of $2.11 per share, rounded down to the nearest whole share, subject to the terms and limitations contained in the Certificate of Designation, including that shares of Series A Preferred Stock shall not be convertible if the conversion would result in a holder beneficially owning more than 9.99% of outstanding shares of our common stock as of the applicable conversion date.

At-the-Market Equity Offering Program

In September 2022, we entered into an Open Market Sale Agreement (the "Sales Agreement") with Jefferies LLC ("Jefferies") pursuant to which we may offer and sell, from time to time, through Jefferies, shares of our common stock, by any method permitted by law deemed to be an "at-the-market" offering as defined in Rule 415 promulgated under the Securities Act of 1933, as amended.

During the nine months ended September 30, 2025, no shares of our common stock were issued or sold under the Sales Agreement. Our Registration Statement on Form S-3 (File No. 333-267424) expired on September 23, 2025, and therefore no sales can be made under the Sales Agreement until such time as we file a new Registration Statement on Form S-3. Based on the public float of our common stock as of the date of the filing of the Annual Report on Form 10-K for the year ended December 31, 2024, we are currently subject to General Instruction I.B.6 of Form S-3 and therefore may not sell more than one-third of the market value of our common stock held by non-affiliates until our public float exceeds $75.0 million.

Seltorexant Royalties

We previously co-developed seltorexant with Janssen for the treatment of insomnia disorder and adjunctive treatment of MDD. During 2020, we exercised our right to opt out of a joint development agreement with Janssen for the future development of seltorexant. As a result, we were entitled to collect royalties in the mid-single digits on potential future sales of seltorexant worldwide in certain indications, with no further financial obligations to Janssen.

On January 19, 2021, we sold our royalty interest in seltorexant to Royalty Pharma for an upfront payment of $60 million and up to an additional $95 million in potential future milestone payments, contingent upon the achievement of certain clinical, regulatory and commercial milestones for seltorexant by Janssen.

Uses of Funds

To date, we have not generated any revenue from sales of products. We have only generated collaborative revenue due to opting out of our license and co-development agreement with Janssen. Furthermore, the $60 million payment received from Royalty Pharma for the sale of our royalty interests in seltorexant has been included on our balance sheet under liability related to the sale of future royalties. We do not know when, or if, we will generate any revenue from sales of our products, or from the potential future non-cash royalty revenue associated with the sale of our royalty interests in seltorexant to Royalty Pharma. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize any of our product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. We also expect to continue to incur costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution.

Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. There can be no assurance that such additional funding, if available, can be obtained on terms acceptable to us, and our ability to raise additional capital may be adversely impacted by global economic conditions, geopolitical conflicts, such as the war in Ukraine and hostilities in the Middle East, and other factors. If we are unable to obtain additional financing, future operations would need to be scaled back or discontinued. We believe that our existing cash, cash equivalents, and restricted cash, together with the net proceeds from the Private Placement that was closed on October 23, 2025, will be sufficient to meet our cash commitments for at least the next 12 months after the date that the financial statements are issued. The timing of future capital requirements depends upon many factors including the size and timing of future clinical trials, the timing and scope of any strategic partnering activity and the progress of other research and development activities.

Cash Flows

The tables below set forth our significant sources and uses of cash for the periods.

Net Cash Used in Operating Activities

Net cash used in operating activities of approximately $9.0 million during the nine months ended September 30, 2025 was primarily due to our net loss of $9.8 million and a $0.8 million decrease in accounts payable, partially offset by stock-based compensation expense of $0.9 million, a $0.5 million increase in accrued expenses, and a $0.2 million decrease in prepaid expenses.

Net cash used in operating activities of approximately $14.4 million during the nine months ended September 30, 2024 was primarily due to our net income of $5.7 million, non-cash interest expense for the sale of future royalties of $4.6 million, a $2.4 million increase in accrued expenses and stock-based compensation expense of $1.1 million, offset by the adjustment to the carrying amount of the liability related to the sale of future royalties of $26.6 million, a $1.3 million decrease in accounts payable and a $0.3 million increase in prepaid expenses.

Net Cash Provided by Investing Activities

Net cash provided by investing activities was zero during the nine months ended September 30, 2025 and 2024.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities of approximately $0.1 million during the nine months ended September 30, 2025 was primarily due to fees paid in connection with the private placement.

Net cash provided by financing activities was zero during the nine months ended September 30, 2024.

Critical Accounting Policies and Estimates

In our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, our most critical accounting policies and estimates upon which our financial status depends were identified as those relating to research and development costs; goodwill; and the liability related to the sale of future royalties. We reviewed our policies and determined that those policies were our most critical accounting policies for the nine months ended September 30, 2025.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board and are adopted by us as of the specified effective date. See Note 2 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and Note 2 in our condensed consolidated financial statements appearing elsewhere in this Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements. We believe that the impact of recently issued, but not yet adopted, accounting pronouncements will not have a material impact on the condensed consolidated financial statements or do not apply to our operations.

Smaller Reporting Company Status

We are a "smaller reporting company" as defined in the Securities Exchange Act of 1934, as amended ("Exchange Act"). We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as the market value of our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter.