cere-424b3.htm

 

Filed Pursuant to Rule 424(b)(3)

Registration No. 333-250964

PROSPECTUS SUPPLEMENT NO. 8

(to prospectus dated March 25, 2021)

 

Up to 42,437,330 Shares of Common Stock

166,333 Warrants to Purchase Common Stock

This prospectus supplement no. 8 (this “prospectus supplement”) amends and supplements the prospectus dated March 25, 2021 (as supplemented or amended from time to time, the “Prospectus”) which forms a part of our Registration Statement on Form S-1 (Registration Statement No. 333-250964). This prospectus supplement is being filed to update and supplement the information included or incorporated by reference in the Prospectus with the information contained in our Quarterly Report on Form 10-Q, filed with the Securities and Exchange Commission (the “SEC”) on August 11, 2021 (the “Form 10-Q”). Accordingly, we have attached the Form 10-Q to this prospectus supplement.

This prospectus supplement updates and supplements the information in the Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and if there is any inconsistency between the information in the Prospectus and this prospectus supplement, you should rely on the information in this prospectus supplement.

Our common stock and warrants are listed on The NASDAQ Stock Market LLC under the symbols “CERE” and “CEREW”, respectively. On August 9, 2021, the closing price of our common stock was $25.33 per share and the closing price of our warrants was $13.98 per share.

 

Investing in our securities involves risks that are described in the “Risk Factors” section beginning on page 10 of the Prospectus.

Neither the SEC nor any state securities commission has approved or disapproved of the securities to be issued under the Prospectus or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus supplement is August 11, 2021.

 

 


 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended 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: 001-39311

 

CEREVEL THERAPEUTICS HOLDINGS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

85-3911080

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

222 Jacobs Street, Suite 200

Cambridge, MA

02141

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (844) 304-2048

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.0001 per share

Warrants to purchase one share of common stock
at an exercise price of $11.50

 

CERE

CEREW

 

 

The NASDAQ Stock Market LLC

The NASDAQ Stock Market LLC

 

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

 

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

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

As of August 6, 2021, the registrant had 144,869,798 shares of common stock, par value $0.0001 per share, outstanding.

 

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

4

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

5

 

Condensed Consolidated Statements of Stockholders' Equity

6

 

Condensed Consolidated Statements of Cash Flows

8

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

Controls and Procedures

38

PART II.

OTHER INFORMATION

39

Item 1.

Legal Proceedings

39

Item 1A.

Risk Factors

39

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

88

Item 3.

Defaults Upon Senior Securities

89

Item 4.

Mine Safety Disclosures

89

Item 5.

Other Information

89

Item 6.

Exhibits

90

Signatures

91

 

 

i


 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Quarterly Report on Form 10-Q, or this Quarterly Report, may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “will,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report may include, for example, statements about:

 

the success, cost and timing of our product development activities and clinical trials, including statements regarding our plans for clinical development of our product candidates, the initiation and completion of clinical trials and related preparatory work and the expected timing of the availability of results of clinical trials;

 

our ability to recruit and enroll suitable patients in our clinical trials;

 

the potential attributes and benefits of our product candidates;

 

our ability to obtain and maintain regulatory approval for our product candidates, and any related restrictions, limitations or warnings in the label of an approved product candidate;

 

our ability to obtain funding for our operations, including funding necessary to complete further development, approval and, if approved, commercialization of our product candidates;

 

the period over which we anticipate our existing cash and cash equivalents will be sufficient to fund our operating expense and capital expenditure requirements;

 

the potential for our business development efforts to maximize the potential value of our portfolio;

 

our ability to identify, in-license or acquire additional product candidates;

 

our ability to maintain the Pfizer License Agreement underlying our product candidates;

 

our ability to compete with other companies currently marketing or engaged in the development of treatments for the indications that we are pursuing for our product candidates;

 

our expectations regarding our ability to obtain and maintain intellectual property protection for our product candidates and the duration of such protection;

 

our ability to contract with and rely on third parties to assist in conducting our clinical trials and manufacturing our product candidates;

 

the size and growth potential of the markets for our product candidates, and our ability to serve those markets, either alone or in partnership with others;

 

the rate and degree of market acceptance of our product candidates, if approved;

 

the pricing and reimbursement of our product candidates, if approved;

 

regulatory developments in the United States and foreign countries;

 

the impact of laws, regulations, accounting standards, regulatory requirements, judicial decisions and guidance issued by authoritative bodies;

 

our ability to attract and retain key scientific, medical, commercial or management personnel;

 

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

 

our financial performance;

 

the ability to recognize the anticipated benefits of the Business Combination and the tavapadon financing transaction; and

 

the effect of COVID-19 on the foregoing.

The forward-looking statements contained in this Quarterly Report are based on current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section titled “Risk Factors” of this Quarterly Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. Some of these risks and uncertainties may in the future be amplified by the COVID-19 pandemic and there may be additional risks that we consider immaterial or which are unknown. It is not possible to predict or identify all such risks. We do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

You should read this Quarterly Report completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.


ii


 

SUMMARY OF MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous risks and uncertainties that you should be aware of before making an investment decision, including those highlighted in the section entitled “Risk Factors.” These risks include, but are not limited to, the following:

 

The successful development of pharmaceutical products is highly uncertain.

 

We are a clinical-stage biopharmaceutical company with a limited operating history. We have incurred significant financial losses since our inception and anticipate that we will continue to incur significant financial losses for the foreseeable future.

 

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

 

Due to the significant resources required for the development of our pipeline, and depending on our ability to access capital, we must prioritize the development of certain product candidates over others. Moreover, we may fail to expend our limited resources on product candidates or indications that may have been more profitable or for which there is a greater likelihood of success.

 

Our business is highly dependent on the success of our product candidates. If we are unable to successfully complete clinical development, obtain regulatory approval for or commercialize one or more of our product candidates, or if we experience delays in doing so, our business will be materially harmed.

 

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

 

Business interruptions resulting from the COVID-19 outbreak or similar public health crises could cause a disruption of the development of our product candidates and adversely impact our business.

 

If our clinical trials fail to replicate positive results from earlier preclinical studies or clinical trials conducted by us or third parties, we may be unable to successfully develop, obtain regulatory approval for or commercialize our product candidates.

 

We may incur unexpected costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

 

Even if any of our product candidates receives regulatory approval, it may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success, in which case we may not generate significant revenues or become profitable.

 

Competitive products may reduce or eliminate the commercial opportunity for our product candidates, if approved. If our competitors develop technologies or product candidates more rapidly than we do, or their technologies or product candidates are more effective or safer than ours, our ability to develop and successfully commercialize our product candidates may be adversely affected.

 

We depend heavily on our executive officers, third-party consultants and others and our ability to compete in the biotechnology and pharmaceutical industries depends upon our ability to attract and retain highly qualified managerial, scientific and medical personnel. The loss of their services or our inability to hire and retain such personnel would materially harm our business.

 

Bain Investor and Pfizer have significant influence over us.

 

We rely on third parties to assist in conducting our clinical trials. If they do not perform satisfactorily, we may not be able to obtain regulatory approval or commercialize our product candidates, or such approval or commercialization may be delayed, and our business could be substantially harmed.

 

We depend and expect in the future to continue to depend on in-licensed intellectual property. Such licenses impose obligations on our business, and if we fail to comply with those obligations, we could lose license rights, which would substantially harm our business.

The risks described above should be read together with the text of the full risk factors described below in the section entitled “Risk Factors” and the other information set forth in this Quarterly Report, including our consolidated financial statements and the related notes, as well as in other documents that we file with the Securities Exchange Commission, or the SEC. The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us, or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations and future growth prospects.

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CEREVEL THERAPEUTICS HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts and per share data)

(Unaudited)

 

 

 

As of

 

 

 

June 30,
2021

 

 

December 31,
2020

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

327,060

 

 

$

383,623

 

Prepaid expenses and other current assets

 

 

4,722

 

 

 

6,937

 

Total current assets

 

 

331,782

 

 

 

390,560

 

Property and equipment, net

 

 

28,032

 

 

 

24,165

 

Operating lease assets

 

 

23,888

 

 

 

24,459

 

Restricted cash

 

 

4,200

 

 

 

4,200

 

Other long-term assets

 

 

3,102

 

 

 

1,889

 

Total assets

 

$

391,004

 

 

$

445,273

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

4,986

 

 

$

4,993

 

Accrued expenses and other current liabilities

 

 

22,035

 

 

 

22,519

 

Operating lease liabilities, current portion

 

 

2,236

 

 

 

2,036

 

Total current liabilities

 

 

29,257

 

 

 

29,548

 

Operating lease liabilities, net of current portion

 

 

32,907

 

 

 

30,969

 

Financing liability, related party (Notes 5 and 6)

 

 

16,121

 

 

 

 

Financing liability (Notes 5 and 6)

 

 

16,121

 

 

 

 

Other long-term liabilities

 

 

2,711

 

 

 

236

 

Total liabilities

 

 

97,117

 

 

 

60,753

 

Commitments and contingencies (Notes 11 and 12)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value: 10,000,000 shares authorized;
    no shares issued and outstanding as of June 30, 2021 and
    December 31, 2020

 

 

 

 

 

 

Common stock, $0.0001 par value: 500,000,000 shares authorized;
  127,584,659 and 127,123,954 shares issued and outstanding
    as of June 30, 2021 and December 31, 2020, respectively

 

 

13

 

 

 

13

 

Additional paid-in capital

 

 

789,004

 

 

 

775,417

 

Accumulated deficit

 

 

(495,130

)

 

 

(390,910

)

Total stockholders’ equity

 

 

293,887

 

 

 

384,520

 

Total liabilities and stockholders’ equity

 

$

391,004

 

 

$

445,273

 

 

 

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

4


 

CEREVEL THERAPEUTICS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except share amounts and per share data)

(Unaudited)

 

 

 

 

For the Three Months Ended
June 30,

 

 

For the Six Months Ended
June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

37,294

 

 

$

22,183

 

 

$

73,855

 

 

$

49,142

 

General and administrative

 

 

13,216

 

 

 

12,973

 

 

 

27,226

 

 

 

23,716

 

Total operating expenses

 

 

50,510

 

 

 

35,156

 

 

 

101,081

 

 

 

72,858

 

Loss from operations

 

 

(50,510

)

 

 

(35,156

)

 

 

(101,081

)

 

 

(72,858

)

Interest income, net

 

 

10

 

 

 

5

 

 

 

25

 

 

 

209

 

Other income (expense), net

 

 

(2,739

)

 

 

8,418

 

 

 

(3,164

)

 

 

(7,292

)

Loss before income taxes

 

 

(53,239

)

 

 

(26,733

)

 

 

(104,220

)

 

 

(79,941

)

Income tax benefit (provision), net

 

 

 

 

 

16

 

 

 

 

 

 

16

 

Net loss and comprehensive loss

 

$

(53,239

)

 

$

(26,717

)

 

$

(104,220

)

 

$

(79,925

)

Net loss per share, basic and diluted

 

$

(0.42

)

 

$

(0.44

)

 

$

(0.82

)

 

$

(1.31

)

Weighted-average shares used in calculating net loss per share, basic and diluted

 

 

127,482,127

 

 

 

60,946,300

 

 

 

127,354,540

 

 

 

60,945,516

 

 

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

5


 

CEREVEL THERAPEUTICS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(1)

(In thousands, except share amounts)

(Unaudited)

 

 

 

 

Common stock

 

 

Additional
paid-in

 

 

Accumulated

 

 

Total
stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

equity

 

Balance at December 31, 2020

 

 

127,123,954

 

 

$

13

 

 

$

775,417

 

 

$

(390,910

)

 

$

384,520

 

Issuance of common stock under equity incentive plans related to vesting of RSUs

 

 

14,270

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under equity incentive plans related to exercise of options

 

 

186,892

 

 

 

 

 

 

742

 

 

 

 

 

 

742

 

Reclassification of private placement warrants from equity to other long-term liabilities

 

 

 

 

 

 

 

 

(305

)

 

 

 

 

 

(305

)

Equity-based compensation expense

 

 

 

 

 

 

 

 

6,060

 

 

 

 

 

 

6,060

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(50,981

)

 

 

(50,981

)

Balance at March 31, 2021

 

 

127,325,116

 

 

$

13

 

 

$

781,914

 

 

$

(441,891

)

 

$

340,036

 

Issuance of common stock under equity incentive plans related to vesting of RSUs

 

 

14,270

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under equity incentive plans related to exercise of options

 

 

204,684

 

 

 

 

 

 

1,394

 

 

 

 

 

 

1,394

 

Issuance of common stock under equity incentive plans related to ESPP issuances

 

 

40,589

 

 

 

 

 

 

435

 

 

 

 

 

 

435

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

5,261

 

 

 

 

 

 

5,261

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(53,239

)

 

 

(53,239

)

Balance at June 30, 2021

 

 

127,584,659

 

 

$

13

 

 

$

789,004

 

 

$

(495,130

)

 

$

293,887

 

 

 

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

6


 

CEREVEL THERAPEUTICS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(1)

(In thousands, except share amounts)

(Unaudited)

 

 

 

Common stock

 

 

Additional
paid-in

 

 

Accumulated

 

 

Total
stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

deficit

 

 

equity

 

Balance at December 31, 2019

 

 

60,930,932

 

 

$

6

 

 

$

322,115

 

 

$

(244,298

)

 

$

77,823

 

Issuance of common stock under equity incentive plans related to vesting of RSUs

 

 

14,270

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

2,970

 

 

 

 

 

 

2,970

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(53,208

)

 

 

(53,208

)

Balance at March 31, 2020

 

 

60,945,202

 

 

$

6

 

 

$

325,085

 

 

$

(297,506

)

 

$

27,585

 

Issuance of common stock under equity incentive plans related to vesting of RSUs

 

 

14,270

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

3,423

 

 

 

 

 

 

3,423

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(26,717

)

 

 

(26,717

)

Balance at June 30, 2020

 

 

60,959,472

 

 

$

6

 

 

$

328,508

 

 

$

(324,223

)

 

$

4,291

 

 

 

 

(1)

Historical share and capital amounts were retroactively restated for reverse recapitalization as described in Note 1, Nature of Operations.

 

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

 

 

7


 

CEREVEL THERAPEUTICS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Six Months
Ended June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(104,220

)

 

$

(79,925

)

Adjustments to reconcile net loss to net cash flows used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

664

 

 

 

285

 

Non-cash rent expense under operating leases

 

 

(400

)

 

 

1,009

 

Equity-based compensation

 

 

11,321

 

 

 

6,393

 

Change in fair value of Equity Commitment and Share Purchase Option

 

 

 

 

 

7,290

 

Change in fair value of financing liability, related party

 

 

496

 

 

 

 

Change in fair value of financing liability

 

 

496

 

 

 

 

Change in fair value of private placement warrants

 

 

2,171

 

 

 

 

Write-off of deferred costs related to financing activities

 

 

 

 

 

2,485

 

Changes in operating assets and liabilities, net:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

2,270

 

 

 

3,725

 

Operating lease asset

 

 

(14

)

 

 

(459

)

Other assets

 

 

(743

)

 

 

(128

)

Accounts payable

 

 

1,485

 

 

 

3,300

 

Accrued expenses and other liabilities

 

 

1,325

 

 

 

8

 

Operating lease liability

 

 

3,123

 

 

 

 

Net cash flows used in operating activities

 

 

(82,026

)

 

 

(56,017

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(8,243

)

 

 

(4,042

)

Net cash flows used in investing activities

 

 

(8,243

)

 

 

(4,042

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from the exercise of stock options and ESPP purchases

 

 

2,571

 

 

 

 

Proceeds from financing liability, related party

 

 

15,625

 

 

 

 

Proceeds from financing liability

 

 

15,625

 

 

 

 

Deferred costs related to financing activities

 

 

(115

)

 

 

(1,524

)

Net cash flows provided by (used in) financing activities

 

 

33,706

 

 

 

(1,524

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(56,563

)

 

 

(61,583

)

Cash, cash equivalents and restricted cash, beginning of the period

 

 

387,823

 

 

 

83,682

 

Cash, cash equivalents and restricted cash, end of the period

 

$

331,260

 

 

$

22,099

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents

 

$

327,060

 

 

$

17,968

 

Restricted cash

 

 

4,200

 

 

 

4,131

 

Total cash, cash equivalents and restricted cash

 

$

331,260

 

 

$

22,099

 

Supplemental cash flow disclosures from non-cash operating, investing, and financing activities:

 

 

 

 

 

 

Fixed asset additions included in accounts payable and other current liabilities

 

$

655

 

 

$

5,588

 

Deferred unpaid transaction costs related to financing activities

 

$

520

 

 

$

424

 

 

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

 

8


 

CEREVEL THERAPEUTICS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Nature of Operations

Unless the context otherwise requires, references in these notes to “Cerevel,” “the company,” “we,” “us” and “our” and any related terms are intended to mean Cerevel Therapeutics Holdings, Inc. and its consolidated subsidiaries.

We are a clinical-stage biopharmaceutical company pursuing a targeted approach to neuroscience that combines a deep understanding of disease-related biology and neurocircuitry of the brain with advanced chemistry and central nervous system, or CNS, target receptor selective pharmacology to discover and design new therapies. We seek to transform the lives of patients through the development of new therapies for neuroscience diseases, including schizophrenia, epilepsy and Parkinson’s disease.

On October 27, 2020, ARYA Sciences Acquisition Corp II (ARYA) completed the acquisition of Cerevel Therapeutics, Inc. (Old Cerevel), a private company and our predecessor, pursuant to the Business Combination Agreement dated July 29, 2020, as amended on October 2, 2020 (the Business Combination Agreement). ARYA was incorporated as a Cayman Islands exempted company on February 20, 2020, and was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. Cerevel Therapeutics, Inc. was incorporated in Delaware on July 23, 2018, under the name Perception Holdco, Inc., which was subsequently changed to Cerevel Therapeutics, Inc. on October 23, 2018.

Our principal operations commenced on September 24, 2018 (Formation Transaction Date), when Old Cerevel licensed technology to a portfolio of pre-commercial neuroscience assets from Pfizer Inc. (Pfizer) in exchange for the issuance of Series A-2 Preferred Stock of Old Cerevel and obtained a $350.0 million equity commitment (the Equity Commitment), from BC Perception Holdings, LP (Bain Investor), an affiliate of Bain Capital, to develop the in-licensed assets in exchange for the issuance of Series A-1 Preferred Stock and Series A Common Stock of Old Cerevel. Bain Investor also received the option to purchase up to an additional 10.0 million shares of Old Cerevel at $10.00 per share, subject to Pfizer’s participation rights (the Share Purchase Option). On the Formation Transaction Date, we received an initial investment of $115.0 million in equity funding from Bain Investor to begin operations. During 2019 we received an additional investment of $60.1 million in equity funding from Bain Investor. Bain Investor contributed an additional $25.0 million in equity funding in July 2020 (the Additional Financing Shares).

Upon the closing of the transactions contemplated by the Business Combination Agreement (the Business Combination or the Business Combination Transaction), Old Cerevel became a wholly owned subsidiary of ARYA and ARYA was renamed Cerevel Therapeutics Holdings, Inc. and the Equity Commitment and the Share Purchase Option related to Old Cerevel were terminated. Upon completion of the Business Combination Transaction, and pursuant to the terms of the Business Combination Agreement, the existing shareholders of Old Cerevel exchanged their interests for shares of common stock of Cerevel Therapeutics Holdings, Inc. (New Cerevel). Net proceeds from this transaction totaled approximately $439.5 million.

We accounted for the Business Combination Transaction as a reverse recapitalization, which is the equivalent of Old Cerevel issuing stock for the net assets of ARYA, with ARYA treated as the acquired company for accounting purposes. The net assets of ARYA were stated at historical cost with no goodwill or other intangible assets recorded. Reported results from operations included herein prior to the Business Combination are those of Old Cerevel. The shares and corresponding capital amounts and loss per share related to Old Cerevel’s outstanding redeemable convertible preferred stock, redeemable convertible common stock, and common stock prior to the Business Combination Transaction have been retroactively restated to reflect the exchange ratio (the Exchange Ratio) established in the Business Combination Agreement (1.00 share of Old Cerevel for 2.854 shares of New Cerevel).

For additional information on the Business Combination Transaction and the Additional Financing Shares, please read Note 3, Business Combination, to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 (our Annual Report). For additional information on our license arrangement with Pfizer, please read Note 6, Pfizer License Agreement, to our audited consolidated financial statements included in our Annual Report. For additional information on the Equity Commitment and the Share Purchase Option, please read Note 7, Equity Commitment and Share Purchase Option, to our audited consolidated financial statements included in our Annual Report.

2. Risks and Liquidity

We are subject to risks and uncertainties common to clinical-stage companies in the biopharmaceutical industry. These risks include, but are not limited to, the introduction of new products, therapies, standards of care or new technological innovations, our ability to obtain and maintain adequate protection for our licensed technology, data or other intellectual property and proprietary rights and compliance with extensive government regulation and oversight. In addition, we are dependent upon the services of our employees, including key personnel, consultants, third-party contract research organizations and other third-party organizations.

 

9


 

Our product candidates, currently under development or that we may develop, will require significant additional research and development efforts, including extensive clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting capabilities. There can be no assurance that our research and development activities will be successfully completed, that adequate protection for our licensed or developed technology will be obtained and maintained, that products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable.

Our condensed consolidated financial statements have been prepared on the basis of continuity of operations, the realization of assets and the satisfaction of liabilities in the ordinary course of business. Since our inception, we have incurred significant operating losses and, as of June 30, 2021, had an accumulated deficit of $495.1 million and had not yet generated revenues. In addition, we anticipate that our expenses will increase significantly in connection with our ongoing activities to support our research, discovery and clinical development efforts and we expect to continue to incur significant expenses and operating losses for the foreseeable future.

Prior to the Business Combination Transaction, our operations were funded primarily from the issuance of convertible preferred stock, convertible common stock and common stock. Upon the closing of the Business Combination Transaction in October 2020, we received net proceeds totaling approximately $439.5 million, as described above in Note 1, Nature of Operations.  We believe that our available cash resources as of June 30, 2021, of $327.1 million will enable us to fund our operating expense and capital expenditure requirements through at least twelve months from the issuance date of these financial statements.

Impact of the COVID-19 Pandemic

We are closely monitoring the impact of the pandemic of COVID-19 on all aspects of our business, including how it has impacted and may continue to impact our operations and the operations of our suppliers, vendors and business partners. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, our research programs, healthcare systems or the global economy and we cannot presently predict the scope and severity of any potential business shutdowns or disruptions.

The extent to which COVID-19 ultimately impacts our business, results of operations and financial condition will depend on future developments, which, despite progress in vaccination efforts, are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of COVID-19, such as new strains of the virus, including the Delta variant, which may impact rates of infection and vaccination efforts, developments or perceptions regarding the safety of vaccines, and the effectiveness of any additional preventative and protective actions to contain it or treat its impact. The estimates of the impact on our business may change based upon new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets.

We have not incurred any significant impairment losses in the carrying values of our assets as a result of the pandemic and we are not aware of any specific related event or circumstance that would require us to revise our estimates reflected in our unaudited condensed consolidated financial statements.   

3. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include those of the company and its subsidiaries, Cerevel Therapeutics, Inc., Cerevel Therapeutics LLC and Cerevel MA Securities Corporation, after elimination of all intercompany accounts and transactions. The accompanying unaudited condensed consolidated financial statements and notes hereto have been prepared in conformity with the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting and, therefore, omit or condense certain footnotes and other information normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) as set forth in the Financial Accounting Standards Board’s (FASB) accounting standards codification. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the FASB.

In the opinion of management, all adjustments necessary for a fair statement of the financial information, which are of a normal and recurring nature, have been made for the interim periods reported. Results of operations for the three and six months ended June 30, 2021 and 2020, are not necessarily indicative of the results for the entire fiscal year or any other period. The condensed consolidated financial statements for the three and six months ended June 30, 2021 and 2020, have been prepared on the same basis as and should be read in conjunction with the audited consolidated financial statements and notes included in our Annual Report.  

As a result of the Business Combination Transaction, the shares and corresponding capital amounts and loss per share related to Old Cerevel’s outstanding redeemable convertible preferred stock, redeemable convertible common stock and common stock prior to the Business Combination Transaction have been retroactively restated to reflect the Exchange Ratio established in the Business Combination Agreement. For additional information on the Business Combination Transaction and the Exchange Ratio, please read Note 3, Business Combination, to our audited consolidated financial statements included in our Annual Report.

 

10


 

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions made in the accompanying condensed consolidated financial statements include, but are not limited to, the fair value of our financing liabilities, the fair value of the Equity Commitment and Share Purchase Option, the fair value of stock options, the recoverability of our net deferred tax assets and the related valuation allowance and the accrual for research and development expense. The impact on accounting estimates and judgments on our financial condition and results of operations due to COVID-19 has introduced additional uncertainties. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors and adjust those estimates and assumptions when facts and circumstances change. Actual results could differ materially from those estimates.

Restricted Cash

In connection with our entering into the lease agreement for our headquarters in Cambridge, MA, in July 2019, we were required to provide a security deposit in the form of a letter of credit. We have classified this amount as restricted cash within our condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020.

Common Stock Warrants and Derivative Financial Instruments

We account for our common stock purchase warrants and other freestanding derivative financial instruments based on an assessment of the specific terms of the instrument and applicable authoritative guidance in accordance with ASC 480, Distinguishing Liabilities from Equity (ASC 480), and review our common stock purchase warrants and other freestanding derivative financial instruments at each balance sheet date to determine whether a change in classification is required.

Our assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether the warrants meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

We classify freestanding derivative financial instruments that are indexed in our own stock as:

 

a)

Equity if they (i) require physical settlement or net-share settlement, or (ii) give the company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement), or

 

b)

Assets or liabilities if they (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the company’s control), or (ii) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement)

Warrants to purchase an aggregate of 5,149,666 shares were issued by ARYA as part of the units sold in its IPO in June 2020. We determined that our 4,983,314 outstanding public warrants satisfied the criteria for classification as equity instruments as of June 30, 2021 and December 31, 2020, respectively. In certain circumstances, the identity of the holder may result in different settlement amounts, and therefore our private placement warrants are not considered indexed in our own stock in the manner contemplated by ASC Section 815-40-15. Accordingly, we classify our 166,333 private placement warrants as long-term liabilities within our condensed consolidated balance sheet. We did not recognize a liability in relation to our private placement warrants prior to March 31, 2021, as we previously determined that the fair value of these warrants were immaterial. We revalue the liability associated with our private placement warrants on a recurring basis each reporting period with changes in fair value of these warrants recognized as an adjustment to other income (expense), net in our condensed consolidated statements of operations and comprehensive loss. Changes in the fair value of our private placement warrants result from changes to one or multiple inputs, including adjustments to the discount rate, expected volatility and dividend yield as well as changes in the fair value of our common stock and public warrants.

Fair Value Option for Funding Agreements

We elected to account for our funding agreements and related financial liabilities described in Note 5, Financing Liabilities, in accordance with the fair value option permitted under ASC 825-10, Financial Instruments. A liability associated with each of our funding agreements was initially recognized at their estimated fair value within our condensed consolidated balance sheets. We revalue these financial instruments on a recurring basis each reporting period with subsequent changes in fair value, excluding the impact of the change in fair value related to instrument-specific credit risk, separately presented as a component of other income (expense), net in our condensed consolidated statements of operations and comprehensive income. The portion of the fair value adjustment attributed to a change in the instrument-specific credit risk will be recognized and separately presented as a component of other comprehensive income.

 

11


 

Changes in the fair value of our financing liabilities can result from changes to one or multiple inputs, including adjustments to the discount rate and achievement and timing of any cumulative sales-based and regulatory milestones or changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market.

Up-front, direct costs and fees related to the instruments for which we have elected the fair value option were recognized in general and administrative expense in earnings as incurred.

The decision to elect the fair value option is determined on an instrument-by-instrument basis, must be applied to an entire instrument and is irrevocable once elected, but need not be applied to all similar instruments. Assets and liabilities measured at fair value pursuant to ASC 825-10 are required to be reported separately from those instruments measured using another accounting method.

For additional information related to our qualifying instruments that we have elected to account for under the fair value option, please read Note 5, Financing Liabilities, and Note 6, Fair Value Measurements.

Emerging Growth Company Status

We are currently an “emerging growth company” (EGC), as defined in Section 2(a)(19) of the Securities Act of 1933 (the Securities Act), as modified by the Jumpstart Our Business Startups Act (JOBS Act) and we may choose to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not EGCs. We may take advantage of these exemptions until the company is no longer an EGC under Section 107 of the JOBS Act, which provides that an EGC can take advantage of the extended transition period afforded by the JOBS Act for complying with new or revised accounting standards. We have elected to avail of this extended transition period for complying with new or revised accounting standards and as a result of this election, our consolidated financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions until we no longer qualify as an EGC.

As of June 30, 2021, the last business day of our most recently completed second fiscal quarter, the market value of our common stock that was held by non-affiliates exceeded $700.0 million, and as of December 31, 2021, we will have been public for more than one year and filed at least one annual report. As a result, we will lose our emerging growth company status and our smaller reporting company status as of the end of the current fiscal year ending December 31, 2021, and we will be subject to certain requirements that apply to other public companies but did not previously apply to us due to our status as an emerging growth company, including the provisions of Section 404(b) of the Sarbanes-Oxley Act, which require that our independent registered public accounting firm provides an attestation report on the effectiveness of our internal control over financial reporting.

For additional information related to our other significant accounting policies, please read Note 4, Summary of Significant Accounting Policies, to our audited consolidated financial statements included in our Annual Report.

Recent Accounting Guidance

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the company as of the specified effective date. Unless otherwise discussed, the company believes that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.

Collaborative Arrangements

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. This standard clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer for a promised good or service that is distinct within the collaborative arrangement. The guidance also precludes entities from presenting amounts related to transactions with a collaborative arrangement participant that is not a customer as revenue, unless those transactions are directly related to third-party sales. We adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact on our consolidated financial statements as we have had no transactions applicable to this guidance; however, the standard may impact how we account for certain business transactions in the future.

Credit Losses

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements (ASU 2016-13). The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. We adopted this standard on January 1, 2021. The adoption of this standard did not have a material impact on our consolidated financial statements.

 

12


 

Income Taxes

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)—Simplifying the Accounting for Income Taxes. The standard simplifies various aspects of the income tax accounting guidance in Topic 740, including the elimination of exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. We adopted this standard effective January 1, 2021. The adoption of this standard did not have a material impact on our consolidated financial statements.

4. Pfizer License Agreement

In August 2018 we entered into a license agreement with Pfizer (the Pfizer License Agreement) pursuant to which we were granted an exclusive, sublicensable, worldwide license under certain Pfizer patent rights, and a non-exclusive, sublicensable, worldwide license under certain Pfizer know-how to develop, manufacture and commercialize certain compounds and products, which currently constitute the entirety of our asset portfolio, in the field of treatment, prevention, diagnosis, control and maintenance of all diseases and disorders in humans, subject to the terms and conditions of the Pfizer License Agreement.

Under the Pfizer License Agreement, we are solely responsible for the development, manufacture, regulatory approval and commercialization of compounds and products in the field and we will pay Pfizer tiered royalties on the aggregate net sales during each calendar year, determined on a product-by-product basis, with respect to products under the Pfizer License Agreement, and we may pay potential milestone payments to Pfizer, based on the successful achievement of certain regulatory and commercial milestones. To date, no regulatory or commercial approval milestone payments or royalty payments were made or became due under this agreement.

For additional information on our Pfizer License Agreement, please read Note 6, Pfizer License Agreement, to our audited consolidated financial statements included in our Annual Report.

5. Financing Liabilities

Funding Agreements

On April 12, 2021 (the Effective Date), we entered into a funding agreement with NovaQuest Co-Investment Fund XVI, L.P. (NovaQuest and the NovaQuest Funding Agreement) and a funding agreement with BC Pinnacle Holdings, LP (Bain, the Bain Funding Agreement and, together with the NovaQuest Funding Agreement, the Funding Agreements), pursuant to which NovaQuest and Bain will provide funding to support our development of tavapadon for the treatment of Parkinson’s disease.

Under the terms of the Funding Agreements, we will receive up to $62.5 million in funding from each of NovaQuest and Bain, for a combined total of up to $125.0 million in funding (the Total Funding Commitment), of which approximately $31.1 million (25% of the Total Funding Commitment, net of $0.2 million of fees incurred by Bain and NovaQuest) was received in April 2021, with $37.5 million (30% of the Total Funding Commitment), approximately $31.3 million (25% of the Total Funding Commitment) and $25.0 million (20% of the Total Funding Commitment) expected to be received on the first, second and third anniversaries of the Effective Date, respectively, subject to certain customary funding conditions.

In exchange, we agreed to pay to NovaQuest and Bain (1) upon approval of tavapadon by the FDA, a combined $187.5 million (1.5x of the Total Funding Commitment) (the Approval Milestone Payment), with 50% of the Approval Milestone Payment due within 30 days of FDA approval and 12.5% of the Approval Milestone Payment due on each of the first four anniversaries of FDA approval, (2) upon first reaching certain cumulative U.S. net sales thresholds, certain sales milestone payments and (3) combined tiered, mid-single digit to low-double digit royalties on annual net sales of tavapadon in the U.S.

At the time that NovaQuest and Bain collectively receive an aggregate of approximately $531.3 million (4.25x of the Total Funding Commitment), our payment obligations under the Funding Agreements will be fully satisfied. We have the option to satisfy our payment obligations to NovaQuest and Bain upon the earlier of FDA approval or May 1, 2025, by paying an amount equal to the Total Funding Commitment multiplied by an initial factor of 3.00x. This factor will increase ratably over time up to a maximum of 4.25x, less amounts previously paid to NovaQuest and Bain.

During the term of the Funding Agreements, the Company will use commercially reasonable efforts to develop and commercialize tavapadon in the United States, except that, upon the occurrence of certain significant safety, efficacy and regulatory technical failures of the program (each, a Technical Failure), the Company will have the right to terminate the development of tavapadon and, upon such termination, will not be obligated to make any payments to NovaQuest and Bain. If the Company suspends or terminates the development of tavapadon or fails to perform certain diligence obligations for any reason other than a Technical Failure, the Company will pay NovaQuest and Bain a combined amount equal to the total amount funded by NovaQuest and Bain up to the date of termination, plus 12% interest compounded annually.

 

13


 

We determined that each funding agreement represents a financial instrument that are considered to be a debt host containing embedded redemption features due to certain contingencies related to repayment. We elected to account for the Funding Agreements in accordance with the fair value option as permitted under ASC 825, Financial Instruments.

As of June 30, 2021, the estimated fair value of the financing liability related to potential amounts payable to Bain under the Bain Funding Agreement, which is reflected within our condensed consolidated balance sheet as financing liability, related party, totaled $16.1 million. As of June 30, 2021, the estimated fair value of the financing liability related to potential amounts payable to NovaQuest under the NovaQuest Funding Agreement, which is reflected within our condensed consolidated balance sheet as financing liability, totaled $16.1 million. Losses of $0.5 million and $0.5 million, respectively, were recognized as a charge to other income (expense), net within our condensed consolidated statements of operations and comprehensive loss, reflecting the net change in fair value of the financing liabilities associated with the Bain and NovaQuest Funding Agreements for the period of initial recognition on April 12, 2021 through June 30, 2021. No amounts were recognized within other comprehensive income due to a change fair value attributable to instrument-specific credit risk as such amounts were not material. In addition, general and administrative expense for the three and six months ended June 30, 2021, includes a charge of $0.6 million for direct costs and fees incurred related to the Funding Agreements that cannot be deferred as a result of our election to apply the fair value option to the agreements.

For additional information on our election to apply Fair Value Option to account for our Funding Agreements, please read Note 6, Fair Value Measurements.

6. Fair Value Measurements

The following table presents information about our financial assets and liabilities measured at fair value on a recurring basis and indicates the level of fair value hierarchy utilized to determine such fair values:

 

As of June 30, 2021 (In thousands)

 

Quoted Prices
in Active Markets
(Level 1)

 

 

Significant Other
Observable Inputs
(Level 2)

 

 

Significant
Unobservable Inputs
(Level 3)

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents—money market funds

 

$

327,060

 

 

$

 

 

$

 

 

$

327,060

 

Restricted cash—money market funds

 

 

4,200

 

 

 

 

 

 

 

 

 

4,200

 

Total Assets

 

$

331,260

 

 

$

 

 

$

 

 

$

331,260

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Private placement warrants

 

$

 

 

$

 

 

$

2,475

 

 

$

2,475

 

Financing liability, related party

 

 

 

 

 

 

 

 

16,121

 

 

 

16,121

 

Financing liability

 

 

 

 

 

 

 

 

16,121

 

 

 

16,121

 

Total Liabilities

 

$

 

 

$

 

 

$

34,717

 

 

$

34,717

 

 

As of December 31, 2020 (In thousands)

 

Quoted Prices
in Active Markets
(Level 1)

 

 

Significant Other
Observable Inputs
(Level 2)

 

 

Significant
Unobservable Inputs
(Level 3)

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents—money market funds

 

$

383,623

 

 

$

 

 

$

 

 

$

383,623

 

Restricted cash—money market funds

 

 

4,200

 

 

 

 

 

 

 

 

 

4,200

 

Total Assets

 

$

387,823

 

 

$

 

 

$

 

 

$

387,823

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Private placement warrants

 

$

 

 

$

 

 

$

 

 

$

 

Total Liabilities

 

$

 

 

$

 

 

$

 

 

$

 

 

There have been no impairments of our assets measured and carried at fair value during the six months ended June 30, 2021. In addition, there were no changes to previously recognized financial assets and liabilities in valuation techniques, inputs utilized or transfers between fair measurement levels in the periods presented. Upon execution of the Funding Agreements, we determined that the agreements qualified for election under the fair value option and have initially measured the financial instruments at their issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date utilizing the valuation technique and inputs described below.

The carrying amounts reflected in our condensed consolidated balance sheets for our cash and cash equivalents, prepaid expenses and other current assets, accounts payable, accrued expenses and other current liabilities approximate fair value due to the short-term nature of these assets and liabilities.

 

14


 

Our private placement warrants and financing liabilities represent our Level 3 assets and liabilities carried at fair market value as of June 30, 2021. The fair value measurement of the private placement warrants and financing liabilities are sensitive to changes in the unobservable inputs used to value the financial instrument. Changes in the inputs could result in changes to the fair value of each financial instrument.

The following table provides a roll forward of the liability associated with our private placement warrants:

 

Private Placement Warrants (In thousands)

 

Amount

 

Liability, December 31, 2020

 

$

 

Reclassification from equity

 

 

(305

)

Change in fair value

 

 

(424

)

Liability, March 31, 2021

 

$

(729

)

Change in fair value

 

 

(1,746

)

Liability, June 30, 2021

 

$

(2,475

)

 

We reclassified our private placement warrants from equity to other long-term liabilities as of June 30, 2021. Our estimate of the fair value of our private placement warrant liability was determined through a binomial lattice model utilizing a discount rate of 0.73%, an expected volatility implied by the market price of the public warrants of 112.5%, an expected dividend yield of 0% and the fair values of our common stock and public warrants as of June 30, 2021.

The financing liability, related party and financing liability represent Level 3 measurements of the fair value hierarchy as they are based upon significant inputs not observable in the market. As of June 30, 2021, the financing liability, related party and financing liability totaled $16.1 million and $16.1 million, respectively. We determined their respective estimated fair values using a Monte Carlo simulation model under the income approach determined by using probability assessments of the expected future payments and applying discount rates ranging from 9.5% to 11.0%. The probability assessments of the expected future payments and the timing of expected future repayments are based on significant inputs that are not observable in the market and are subject to remeasurement at each reporting date.

7. Financial Statement Components

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

 

 

 

As of

 

(In thousands)

 

June 30,
2021

 

 

December 31,
2020

 

Prepaid clinical trial services

 

$

891

 

 

$

172

 

Prepaid research and development expenses

 

 

723

 

 

 

1,650

 

Prepaid insurance

 

 

1,501

 

 

 

3,675

 

Other prepaid expenses

 

 

1,482

 

 

 

1,280

 

Other current assets

 

 

125

 

 

 

160

 

Prepaid expenses and other current assets

 

$

4,722

 

 

$

6,937

 

Property and Equipment, Net

Property and equipment, net consisted of the following:

 

 

 

As of

 

(In thousands)

 

June 30,
2021

 

 

December 31,
2020

 

Computer equipment

 

$

923

 

 

$

96

 

Furniture and fixtures

 

 

322

 

 

 

322

 

Laboratory equipment

 

 

2,288

 

 

 

101

 

Leasehold improvements

 

 

22,709

 

 

 

 

Construction in progress

 

 

2,422

 

 

 

23,728

 

Less: Accumulated depreciation

 

 

(632

)

 

 

(82

)

Property and equipment, net

 

$

28,032

 

 

$

24,165

 

 

15


 

In the second quarter of 2021, the build-out of our headquarters in Cambridge, Massachusetts was completed and we took occupancy of the premises, placed assets ready-for-use in service and began depreciating over the assets' respective useful lives.  

Other Long-Term Assets

Other long-term assets consisted of the following:

 

 

 

As of

 

(In thousands)

 

June 30,
2021

 

 

December 31,
2020

 

Deferred expenses associated with financing activities

 

$

635

 

 

$

 

Other prepaid expenses, net of current portion

 

 

1,926

 

 

 

1,389

 

Other

 

 

541

 

 

 

500

 

Other long-term assets

 

$

3,102

 

 

$

1,889

 

As of June 30, 2021, other long-term assets include approximately $0.6 million of deferred expenses for professional fees directly associated with the follow-on public offering of our common stock, as described below in Note 15, Subsequent Events.

As of June 30, 2021 and December 31, 2020, other prepaid expenses, net of current portion, primarily consists of deposits paid under certain clinical research organization (CRO) agreements that will be held until the completion of the related clinical trials that are anticipated to end more than twelve months from the balance sheet date.

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

 

 

As of

 

(In thousands)

 

June 30,
2021

 

 

December 31,
2020

 

External research and development services

 

$

14,006

 

 

$

8,893

 

Accrued compensation and personnel costs

 

 

5,271

 

 

 

9,489

 

Accrued property and equipment

 

 

391

 

 

 

2,618

 

Accrued deferred expenses associated with financing activities

 

 

520

 

 

 

96

 

Professional fees and consulting services

 

 

1,515

 

 

 

1,150

 

Other

 

 

332

 

 

 

273

 

Accrued expenses and other current liabilities

 

$

22,035

 

 

$

22,519

 

Other Long-Term Liabilities

Other long-term liabilities consisted of the following:

 

 

As of

 

(In thousands)

 

June 30,
2021

 

 

December 31,
2020

 

Private placement warrants

 

$

2,475

 

 

$

 

Other

 

 

236

 

 

 

236

 

Other long-term liabilities

 

$

2,711

 

 

$

236

 

 

16


 

Other Income (Expense), net

Other income (expense), net consisted of the following:

 

 

 

For the Three Months
Ended June 30,

 

 

For the Six Months
Ended June 30,

 

(In thousands)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Gain (loss) on fair value remeasurement of Equity Commitment

 

$

 

 

$

9,110

 

 

$

 

 

$

(6,650

)

Loss on fair value remeasurement of Share Purchase Option

 

 

 

 

 

(690

)

 

 

 

 

 

(640

)

Loss on fair value remeasurement of financing liability, related party

 

 

(496

)

 

 

 

 

 

(496

)

 

 

 

Loss on fair value remeasurement of financing liability

 

 

(496

)

 

 

 

 

 

(496

)

 

 

 

Loss on fair value remeasurement of private placement warrants

 

 

(1,746

)

 

 

 

 

 

(2,170

)

 

 

 

Other, net

 

 

(1

)

 

 

(2

)

 

 

(2

)

 

 

(2

)

Other income (expense), net

 

$

(2,739

)

 

$

8,418

 

 

$

(3,164

)

 

$

(7,292

)

The Equity Commitment and Share Purchase Option were free-standing financial instruments that were recorded at fair value on the Formation Transaction Date. We revalued these financial instruments each reporting period and classified the fair value of the remaining Equity Commitment and the Share Purchase Option as an asset or a liability in our condensed consolidated balance sheets through their termination. We recognized the changes in fair value of the Equity Commitment and Share Purchase Option as a component of other income (expense), net in our condensed consolidated statements of operations and comprehensive loss.

For additional information on the Equity Commitment and Share Purchase Option and their related valuation, please read Note 7, Equity Commitment and Share Purchase Option, to our audited consolidated financial statements included in our Annual Report.  

8. Stockholders’ Equity

The condensed consolidated statement of stockholders’ equity has been retroactively adjusted for all periods presented to reflect the Business Combination and reverse recapitalization as discussed in Note 3, Summary of Significant Accounting Policies.

Preferred Stock

Upon closing of the Business Combination Transaction, pursuant to the terms of our Certificate of Incorporation, we authorized 10,000,000 shares of preferred stock with a par value of $0.0001 per share. Our board of directors has the authority, without further action by our stockholders, to issue such shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, and to fix the dividend, voting, and other rights, preferences and privileges of the shares. There were no issued and outstanding shares of preferred stock as of June 30, 2021 and December 31, 2020.

Common Stock

Pursuant to the terms of our Certificate of Incorporation, we authorized 500,000,000 shares of common stock with a par value of $0.0001 per share. There were 127,584,659 and 127,123,954 shares of common stock issued and outstanding as of June 30, 2021 and December 31, 2020, respectively.

Voting

The holders of our common stock are entitled to one vote for each share of common stock held at all meetings of stockholders (and written actions in lieu of meetings), and there is no cumulative voting.

Dividends

Common stockholders are entitled to receive dividends whenever funds are legally available and when declared by the board of directors. No dividends have been declared to date.

Warrants

ARYA issued public warrants and private placement warrants (collectively, the warrants) in its Initial Public Offering in June 2020. Upon the consummation of the Business Combination Transaction, each outstanding warrant of ARYA become one warrant to purchase one share of Cerevel Therapeutics Holdings, Inc. Pursuant to the agreement, no fractional warrants were issued upon separation of the units and only whole warrants will trade. If a holder would be entitled to receive a fractional warrant, we rounded

 

17


 

down to the nearest whole number of warrants to be issued to the warrant holder. None of the terms of the warrants were modified as a result of the Business Combination Transaction.

As of June 30, 2021 and December 31, 2020, we determined that our 4,983,314 public warrants outstanding satisfied the criteria for classification as equity instruments in our condensed consolidated balance sheets.

As of June 30, 2021 and December 31, 2020, there were 166,333 private placement warrants outstanding. The fair value of our private placement warrants as of June 30, 2021, totaled approximately $2.5 million, which is reflected as a component of other long-term liabilities in our condensed consolidated balance sheet. We reclassified our private placement warrants from equity to other long-term liabilities in our condensed consolidated balance sheet as of March 31, 2021. The fair value of our private placement warrants as of March 31, 2021, totaled approximately $0.7 million. Upon establishment of this liability, we classified approximately $0.3 million from additional paid-in capital and recognized a charge of approximately $0.4 million to other income (expense), net, reflecting the net change in fair value of these warrants between October 27, 2020 and March 31, 2021. We did not recognize a liability in relation to our private placement warrants prior to March 31, 2021, as we previously determined that the fair value of these warrants were immaterial. For the three and six months ended June 30, 2021, we recognized net losses of $1.7 million and $2.2 million, respectively, as a component of other income (expense), net, related to the changes in fair value of our private placement warrants. The changes in the fair value of this liability were primary due to changes in the fair value of the underlying warrants.

The warrants became exercisable beginning on June 9, 2021. No warrants were exercised during the three and six months ended June 30, 2021. Each whole warrant entitles the holder to purchase one share of common stock at an exercise price of $11.50 per share. The warrants will expire five years after the completion of the Business Combination, or earlier upon redemption or liquidation.

9. Equity-Based Compensation

Equity-based Compensation Expense

The following table summarizes equity-based compensation expense included in our condensed consolidated statements of operations and comprehensive loss:

 

 

 

For the Three Months
Ended June 30,

 

 

For the Six Months
Ended June 30,

 

In thousands

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Research and development

 

$

2,122

 

 

$

915

 

 

$

3,919

 

 

$

1,825

 

General and administrative

 

 

3,062

 

 

 

2,508

 

 

 

7,402

 

 

 

4,568

 

Total equity-based compensation expense included in total operating expense

 

$

5,184

 

 

$

3,423

 

 

$

11,321

 

 

$

6,393

 

 

The following table summarizes equity-based compensation expense by award type included in our condensed consolidated statements of operations and comprehensive loss:

 

 

 

For the Three Months
Ended June 30,

 

 

For the Six Months
Ended June 30,

 

In thousands

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Stock options

 

$

5,024

 

 

$

3,401

 

 

$

11,063

 

 

$

6,350

 

Restricted stock units

 

 

21

 

 

 

22

 

 

 

43

 

 

 

43

 

Employee stock purchase plan

 

 

139

 

 

 

 

 

 

215

 

 

 

 

Total equity-based compensation expense included in total operating expense

 

$

5,184

 

 

$

3,423

 

 

$

11,321

 

 

$

6,393

 

 

18


 

 

Stock Options

The following table summarizes our stock option activity for the six months ended June 30, 2021:

 

 

 

Number of
Shares

 

 

Weighted
Average
Exercise
Price

 

 

Weighted
Average
Remaining
Contractual
Life
(in years)

 

 

Aggregate
Intrinsic
Value
(in thousands)

 

Outstanding at December 31, 2020

 

 

12,464,668

 

 

$

6.37

 

 

 

8.57

 

 

$

127,301

 

Granted

 

 

6,099,762

 

 

$

13.00

 

 

 

 

 

 

 

Exercised

 

 

(391,576

)

 

$

5.45

 

 

 

 

 

 

 

Forfeited

 

 

(1,052,505

)

 

$

8.71

 

 

 

 

 

 

 

Outstanding at June 30, 2021

 

 

17,120,349

 

 

$

8.61

 

 

 

8.42

 

 

$

291,253

 

Options exercisable as of June 30, 2021

 

 

5,552,756

 

 

$

5.49

 

 

 

7.23

 

 

$

111,784

 

The aggregate intrinsic value represents the difference between the closing stock price of our common stock and the exercise price of in-the-money options. Our closing stock price as reported on Nasdaq as of June 30, 2021, was $25.62. 

As of June 30, 2021, total unrecognized equity-based compensation expense relating to stock options was $68.2 million. This amount is expected to be recognized over a weighted average period of 3.4 years.

Stock options granted during the six months ended June 30, 2021, include awards granted in conjunction with our annual awards made in February 2021.

The weighted-average assumptions that we used to determine the fair value of stock options granted to employees and directors are summarized as follows:

 

 

 

For the Six Months
Ended June 30,

 

 

 

2021

 

 

2020

 

Risk free interest rate

 

 

0.76

%

 

 

1.56

%

Expected term (in years)

 

 

6.04

 

 

 

6.01

 

Expected volatility

 

 

94.0

%

 

 

105.0

%

Expected dividend yield

 

 

0.0

%

 

 

0.0

%

Weighted-average grant date fair value

 

$

9.87

 

 

$

2.54

 

 

10. Net Loss Per Share

The following table sets forth the computation of the basic and diluted net loss per share:

 

 

 

For the Three Months
Ended June 30,

 

 

For the Six Months
Ended June 30,

 

(In thousands, except per share data)

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(53,239

)

 

$

(26,717

)

 

$

(104,220

)

 

$

(79,925

)

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used in calculating net loss per share, basic and diluted

 

 

127,482,127

 

 

 

60,946,300

 

 

 

127,354,540

 

 

 

60,945,516

 

Net loss per share, basic and diluted

 

$

(0.42

)

 

$

(0.44

)

 

$

(0.82

)

 

$

(1.31

)

 

 

19


 

Since we were in a loss position for all periods presented, diluted net loss per share is the same as basic net loss per share as the inclusion of all potential dilutive securities would have been anti-dilutive. The shares in the table below were excluded from the calculation of diluted net loss per share due to their anti-dilutive effect:

 

 

 

As of

 

 

 

June 30,
2021

 

 

June 30,
2020

 

Stock options outstanding

 

 

17,120,349

 

 

 

14,891,424

 

Restricted stock units outstanding

 

 

42,810

 

 

 

85,620

 

Warrants outstanding

 

 

5,149,647

 

 

 

 

ESPP shares issuable

 

 

8,187

 

 

 

 

Shares to be issued upon settlement of remaining Equity Commitment

 

 

 

 

 

49,929,121

 

Shares to be issued upon exercise of Share Purchase Option

 

 

 

 

 

28,540,304

 

Total

 

 

22,320,993

 

 

 

93,446,469

 

 

11. Income Taxes

For the three and six months ended June 30, 2021 and 2020, we did not record income tax benefits for net operating losses incurred or for the research and development tax credits generated in each period due to the uncertainty of realizing a benefit from those items. The benefit recognized for the three and six months ended months ended June 30, 2020, was related to the changes in our valuation allowance. Our tax provision and the resulting effective tax rate for interim periods is determined based upon our estimated annual effective tax rate, adjusted for the effect of discrete items arising during the interim quarterly period. The impact of such inclusions could result in a higher or lower effective tax rate during a particular quarterly period, based upon the mix and timing of actual earnings or losses versus annual projections. In each quarterly period, we update our estimate of the annual effective tax rate, and if the estimated annual tax rate changes, a cumulative adjustment is made in that quarter.

We have evaluated the positive and negative evidence bearing upon our ability to realize our deferred tax assets, which primarily consist of net operating loss carryforwards and research and development tax credits. We have considered our history of cumulative net losses, estimated future taxable income and prudent and feasible tax planning strategies and have concluded that it is more likely than not that we will not realize the benefits of our deferred tax assets. As a result, as of June 30, 2021 and December 31, 2020, we have recorded a full valuation allowance against our net deferred tax assets.

12. Legal Proceedings

We, from time to time, may be subject to various legal proceedings and claims that may arise in the ordinary course of business. We were not subject to any material legal proceedings as of June 30, 2021, and, to the best of our knowledge, no material legal proceedings are currently pending or threatened.

13. Commitments and Contingencies

As of June 30, 2021, we have several ongoing clinical studies in various clinical trial stages. Our most significant contracts relate to agreements with CROs for clinical trials and preclinical studies and contract manufacturing organizations (CMOs) for the manufacturing of drug substance, which we enter into in the normal course of business. The contracts with CROs and CMOs are generally cancellable, with notice, at our option.

Guarantees and Indemnification Obligations

We enter into standard indemnification agreements in the ordinary course of business. Pursuant to these agreements, we indemnify and agree to reimburse the indemnified party for losses and costs incurred by the indemnified party in connection with any patent, copyright, trade secret or other intellectual property or personal right infringement claim by any third party with respect to our technology. The term of these indemnification agreements is generally perpetual after execution of the agreement. In addition, we have entered into indemnification agreements with members of our board of directors and our executive officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or executive officers. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited. To date, we have not incurred any losses or any material costs related to these indemnification obligations and no claims with respect thereto were outstanding. We do not believe that the outcome of any claims under indemnification arrangements will have a material effect on our financial position, results of operations and cash flows, and we have not accrued any liabilities related to such obligations in our condensed consolidated financial statements as of June 30, 2021 and December 31, 2020.

 

20


 

14. Related Parties

As of June 30, 2021 and December 31, 2020, Pfizer held 27,349,211 shares of our common stock and had nominated two members to our board of directors. For additional information on our license agreement with Pfizer, please read Note 4, Pfizer License Agreement, to these condensed consolidated financial statements.

As of June 30, 2021 and December 31, 2020, Bain Investor held 60,632,356 shares of our common stock and had nominated four members to our board of directors.

Funding Agreement

On April 12, 2021, we entered into a funding agreement with Bain, pursuant to which Bain will provide up to $62.5 million in funding to support our development of tavapadon for the treatment of Parkinson’s disease over four years of which approximately $15.5 million (25% of the Bain Funding Commitment, net of $0.1 million of fees incurred by Bain) was received in April 2021. For additional information on our funding agreement with Bain, please read Note 5, Financing Liabilities.

Management Agreement

Following the closing of the Business Combination, we entered into a new management agreement with Bain Capital Private Equity, LP and Bain Capital Life Sciences, LP providing for the expense reimbursement and indemnification of such entities.

15. Subsequent Events

We have completed an evaluation of all subsequent events after the unaudited balance sheet date of June 30, 2021, through August 11, 2021, the issuance date of these financial statements, to ensure that these condensed consolidated financial statements include appropriate disclosure of events both recognized in the condensed consolidated financial statements as of June 30, 2021, and events which occurred subsequently but were not recognized in the condensed consolidated financial statements. We have concluded that no subsequent events other than the following have occurred that require disclosure:

Public Warrant Redemption

On July 30, 2021, we announced the redemption of all of our outstanding public warrants. Public warrants may be exercised by the holders thereof until August 30, 2021, to purchase shares of our common stock at the exercise price of $11.50 per share. Any public warrants that remain outstanding as of August 30, 2021, will be void and no longer exercisable, and the holders of those public warrants will be entitled to receive the redemption price of $0.01 per warrant. The private placement warrants are not subject to this redemption. As of August 6, 2021, an aggregate of 3,037,950 public warrants have been exercised, which resulted in proceeds of approximately $34.9 million and the issuance of 3,037,950 shares of common stock.

July 2021 Public Offering

On July 7, 2021, we completed a follow-on public offering of our common stock pursuant to which we issued and sold 14,000,000 shares of our common stock at a price to the public of $25.00 per share. The aggregate net proceeds from this offering totaled approximately $328.2 million, after deducting underwriting discounts and commissions of $21.0 million and offering expenses of approximately $0.8 million.

 

21


 

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 unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report, and the consolidated financial statements and accompanying notes, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2020. Certain of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report, including information with respect to plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section entitled “Risk Factors,” 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. You should carefully read the section entitled “Risk Factors” to gain an understanding of the material and other risks that could cause actual results to differ materially from our forward-looking statements. Please also see the section entitled “Cautionary Note Regarding Forward-Looking Statements.”

Overview

Introduction

We are a clinical-stage biopharmaceutical company pursuing a targeted approach to neuroscience that combines a deep understanding of disease-related biology and neurocircuitry of the brain with advanced chemistry and central nervous system, or CNS, target receptor selective pharmacology to discover and design new therapies. We seek to transform the lives of patients through the development of new therapies for neuroscience diseases, including schizophrenia, epilepsy and Parkinson’s disease. Our “ready-made” pipeline of 11 small molecule programs, which includes five clinical-stage product candidates, was developed through over a decade of research and investment by Pfizer Inc., or Pfizer, and was supported by an initial capital commitment from an affiliate of Bain Capital and a keystone equity position from Pfizer. We are advancing our extensive and diverse pipeline with numerous clinical trials underway, including three Phase 3 trials and an open-label safety extension trial for tavapadon in Parkinson's as well as a Phase 2 trial in focal epilepsy and a Phase 1 trial in acute anxiety for darigabat. In addition, we recently announced positive topline results for CVL-231 in our Phase 1b trial in schizophrenia. See “—Our Pipeline” below. We have built a highly experienced team of senior leaders and neuroscience drug developers who combine a nimble, results-driven biotech mindset with the proven expertise of large pharmaceutical company experience and capabilities in drug discovery and development.

Our portfolio of product candidates is based on a differentiated understanding of the neurocircuitry of CNS diseases, as well as the key pillars of our targeted approach to neuroscience: (i) receptor-drug interactions at the atomic level to achieve targeted receptor subtype selectivity, (ii) orthosteric and allosteric chemistry to achieve ideal receptor pharmacology and (iii) robust packages of preclinical and clinical data that elucidate the key points of differentiation for our compounds. Our rational design approach uses measured and calculated structural and surface charge information from the target protein combined with high-resolution crystallography data, computational homology models, screening of single-residue mutant proteins, indirect solution-phase imaging techniques and other biophysical measurements to glean key molecular-level information about the interaction between a target protein and our product candidates. These insights then drive structure-informed design of subsequent molecules. Due to our understanding of the specificity and dynamic range of neural networks and how to modulate them, we believe that our product candidates have the potential to achieve optimal therapeutic activity while minimizing unintended side effects of currently available therapies.

Key Pipeline and Business Developments

July 2021 Public Offering

On July 7, 2021, we completed a follow-on public offering of our common stock pursuant to which we issued and sold 14,000,000 shares of our common stock at a price to the public of $25.00 per share. The aggregate net proceeds from this offering totaled approximately $328.2 million, after deducting underwriting discounts and commissions of $21.0 million and offering expenses of approximately $0.8 million.

CVL-231 Positive Phase 1b Data

On June 29, 2021, we announced positive topline results for CVL-231 in our Phase 1b clinical trial in schizophrenia. Both doses of CVL-231 demonstrated a clinically meaningful and statistically significant improvement in Positive and Negative Syndrome Scale, or PANSS, total score at six weeks and were generally well-tolerated compared with placebo.

 

22


 

Funding Agreements

On April 12, 2021, we entered into funding agreements, or the Funding Agreements, with NovaQuest Co-Investment Fund XVI, L.P., or NovaQuest, and BC Pinnacle Holdings, LP, or Bain, pursuant to which NovaQuest and Bain will provide up to $125.0 million, or the Total Funding Commitment, to support our development of tavapadon for the treatment of Parkinson’s disease over four years, of which approximately $31.1 million (25% of the Total Funding Commitment, net of $0.2 million of fees incurred by Bain and NovaQuest) was received in April 2021. 

For additional information on our funding agreements, please read Note 5, Financing Liabilities, to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report.

Our Pipeline

The following table summarizes our current portfolio of product candidates. This table does not include two additional preclinical programs with disease-modifying potential that have not yet been disclosed.

Below are our five most advanced product candidates:

1.

CVL-231 is a positive allosteric modulator, or PAM, that selectively targets the muscarinic acetylcholine 4 receptor subtype, or M4. We conducted a Phase 1b trial of CVL-231 in schizophrenia, consisting of Part A, a multiple ascending dose, or MAD, study and Part B, a pharmacodynamic, or PD, assessment. In June 2021, we announced positive topline results for the Phase 1b trial. Both doses of CVL-231 demonstrated a clinically meaningful and statistically significant improvement in PANSS total score at six weeks and were generally well-tolerated compared with placebo. We plan to rapidly advance CVL-231 with a comprehensive Phase 2 development program for schizophrenia and to evaluate the potential of this mechanism in other populations, including dementia-related psychosis.

2.

Darigabat (formerly known as CVL-865) is a PAM that selectively targets the alpha-2/3/5 subunits of the GABAA receptor. In the second half of 2020, we initiated a Phase 2 proof-of-concept trial, known as REALIZE, in patients with drug-resistant focal onset seizures in epilepsy, or focal epilepsy. Data is expected in the second half of 2022 for the Phase 2 focal epilepsy trial. We are also conducting a Phase 1 proof-of-principle trial of darigabat in acute anxiety. The Phase 1 acute anxiety trial is being conducted at the Centre for Human Drug Research, a single specialized site in the Netherlands. In July 2021, Dutch government authorities reimposed restrictions due to the ongoing COVID-19 pandemic, now driven primarily by Delta variant cases in

 

23


 

young unvaccinated adults following relaxation measures that ended in June 2021. We will continue to closely monitor the rapidly evolving regulatory landscape in the Netherlands and its impact on the clinical trial timeline. While this trial remains ongoing and actively recruiting, as a result of recent COVID-19 guidance by the Dutch authorities, data for the acute anxiety trial are now expected in the first half of 2022.

3.

Tavapadon is a selective dopamine D1/D5 partial agonist that we are developing for the treatment of early- and late-stage Parkinson’s disease. We initiated a registration-directed Phase 3 program for tavapadon beginning in January 2020, which includes two trials in early-stage Parkinson’s, known as TEMPO-1 and TEMPO-2, one trial in late-stage Parkinson’s, known as TEMPO-3, and an open-label safety extension trial, known as TEMPO-4. We expect initial data from our Phase 3 program to be available beginning in the first half of 2023.  

4.

CVL-871 is a selective dopamine D1/D5 partial agonist specifically designed to achieve a modest level of partial agonism, which we believe may be useful in modulating the complex neural networks that govern cognition, motivation and apathy behaviors in neurodegenerative diseases. In the second quarter of 2021, the U.S. Food and Drug Administration, or FDA, granted Fast Track Designation for CVL-871 for the treatment of dementia-related apathy. We initiated screening in a Phase 2a exploratory trial in dementia-related apathy, with data expected in the second half of 2022.

5.

CVL-936 is a selective dopamine D3-preferring antagonist that we are developing for the treatment of substance use disorder, or SUD. We have received a notice of award for cooperative grant funding from the National Institute on Drug Abuse, or NIDA, to support the development of this compound in opioid use disorder, or OUD. We initiated a Phase 1 single ascending dose, or SAD, trial in January 2020. We concluded dosing of Cohort 1 of the Phase 1 SAD trial after receiving sufficient clinical data for the intended purposes for this trial. We intend to conduct a multiple dose non-clinical safety pharmacology study before additional Phase 1 SAD and MAD evaluations.

We believe that all five of our most advanced product candidates have target product profiles that may enable them to become backbone therapies in their respective lead indications, either replacing standards of care as monotherapies or enhancing treatment regimens as adjunct to existing therapies. Results from the clinical trials mentioned above will guide the potential development of our product candidates in additional indications with similar neurocircuitry deficits.

We plan to advance the development of the remainder of our broad portfolio across multiple neuroscience indications, including CVL-354, our selective kappa opioid receptor antagonist, which we refer to as KORA, that we are developing in major depressive disorder, or MDD, and SUD. We submitted an Investigational New Drug, or IND, for CVL-354 in the second quarter of 2021 and expect to initiate a Phase 1 SAD and MAD trial in the third quarter of 2021. We are also developing CVL-047, our selective PDE4 inhibitor that spares the PDE4D subtype, for the treatment of MDD and schizophrenia, and we plan to submit an IND in the fourth quarter of 2021. We are also deploying the latest technologies, such as artificial intelligence and DNA-encoded chemical libraries, to efficiently identify new therapeutic molecules, including those with disease-modifying potential. We believe that our targeted approach to neuroscience will enable us to create a leading drug discovery and development platform to transform the lives of patients living with neuroscience diseases.

Behind our portfolio stands a team with a multi-decade track record of drug approvals and commercial success. This track record has been driven by their extensive experience with empirically-driven clinical trial design and implementation, a history of successful interactions with regulatory agencies and relationships with global key opinion leaders. We believe that the distinctive combination of our management team and our existing pipeline has the potential to bring to patients the next generation of transformative neuroscience therapies.

Business Environment

The biopharmaceutical industry is extremely competitive. We are subject to risks and uncertainties common to clinical-stage companies in the biopharmaceutical industry. These risks include, but are not limited to, the introduction of new products, therapies, standards of care or technological innovations, our ability to obtain and maintain adequate protection for our licensed technology, data or other intellectual property and proprietary rights and compliance with extensive government regulation and oversight. We are also dependent upon the services of key personnel, including our Chief Executive Officer, executive team and other highly skilled employees. Demand for experienced personnel in the pharmaceutical and biotechnology industries is high and competition for talent is intense. Please read the section entitled “Risk Factors” for additional information.

We face potential competition from many different sources, including pharmaceutical and biotechnology companies, academic institutions and governmental agencies as well as public and private research institutions. Many of our competitors are working to develop or have commercialized products similar to those we are developing and have considerable experience in undertaking clinical trials and in obtaining regulatory approval to market pharmaceutical products. Our competitors may also have significantly greater financial resources, established presence in the market, expertise in research and development, manufacturing, preclinical and clinical testing, obtaining regulatory approvals and reimbursement and marketing approved products. Other smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.

 

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These third parties also compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

Risks and Liquidity

Product development is very expensive and involves a high degree of risk. Only a small number of research and development programs result in the commercialization of a product. We will not generate revenue from product sales unless and until we successfully complete clinical development, are able to obtain regulatory approval for and successfully commercialize the product candidates we are developing or may develop. We currently do not have any product candidates approved for commercial sale. In addition, we operate in an environment of rapid change in technology. We are also dependent upon the services of our employees, consultants, third-party CROs, CMOs and other third-party organizations.

Our product candidates, currently under development or that we may develop, will require significant additional research and development efforts, including extensive clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting capabilities. There can be no assurance that our research and development activities will be successfully completed, that adequate protection for our licensed or developed technology will be obtained and maintained, that products developed will obtain necessary regulatory approval or that any approved products will be commercially viable.

Until such time, if ever, as we can generate substantial product revenue, we will need substantial additional funding to support our continuing operations and pursue our growth strategy, and we may finance our operations through a combination of additional private or public equity offerings, debt financings, collaborations, strategic alliances, marketing, distribution or licensing arrangements with third parties or through other sources of financing. To the extent that we raise additional capital through the sale of private or public equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates, or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our research, product development or future commercialization efforts, grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves, obtain funds through arrangement with collaborators on terms unfavorable to us or pursue merger or acquisition strategies, all of which could adversely affect the holdings or the rights of our stockholders.

We have incurred significant operating losses since our inception and, as of June 30, 2021, we had an accumulated deficit of $495.1 million and had not yet generated revenues. We believe that our available cash resources as of June 30, 2021, of $327.1 million, will enable us to fund our operating expense and capital expenditure requirements through at least twelve months from the issuance date of the unaudited condensed consolidated financial statements included in this Quarterly Report.

We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:

 

advance our clinical-stage product candidates CVL-231, darigabat, tavapadon, CVL-871 and CVL-936 through clinical development, including as we advance these candidates into later-stage clinical trials;

 

advance our preclinical stage product candidates into clinical development including CVL-354 and CVL-047;

 

seek to identify, acquire and develop additional product candidates, including through business development efforts to invest in or in-license other technologies or product candidates;

 

hire additional clinical, quality control, medical, scientific and other technical personnel to support our clinical operations;

 

expand our operational, financial and management systems and increase personnel to support our operations;

 

meet the requirements and demands of being a public company;

 

maintain, expand and protect our intellectual property portfolio;

 

make milestone, royalty or other payments due under the Pfizer License Agreement and any future in-license or collaboration agreements;

 

seek regulatory approvals for any product candidates that successfully complete clinical trials; and

 

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undertake any pre-commercialization activities to establish sales, marketing and distribution capabilities for any product candidates for which we may receive regulatory approval in regions where we choose to commercialize our products on our own or jointly with third parties.

Business Combination Transaction

On October 27, 2020, ARYA Sciences Acquisition Corp II, or ARYA, completed the acquisition of Cerevel Therapeutics, Inc., or Old Cerevel, a private company, pursuant to the Business Combination Agreement dated July 29, 2020, as amended on October 2, 2020, or the Business Combination Agreement. ARYA was incorporated as a Cayman Islands exempted company on February 20, 2020 and was formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. Cerevel Therapeutics, Inc. was incorporated in Delaware on July 23, 2018 under the name Perception Holdco, Inc., which was subsequently changed to Cerevel Therapeutics, Inc. on October 23, 2018.

Upon the closing of the transactions contemplated by the Business Combination Agreement, which we refer to as the Business Combination or the Business Combination Transaction, Old Cerevel became a wholly owned subsidiary of ARYA and ARYA was renamed Cerevel Therapeutics Holdings, Inc. Upon completion of the Business Combination Transaction, and pursuant to the terms of the Business Combination Agreement, the existing shareholders of Old Cerevel exchanged their interests for shares of common stock of Cerevel Therapeutics Holdings, Inc., or New Cerevel.

We accounted for the Business Combination Transaction as a reverse recapitalization, which is the equivalent of Old Cerevel issuing stock for the net assets of ARYA, with ARYA treated as the acquired company for accounting purposes. The net assets of ARYA were stated at historical cost with no goodwill or other intangible assets recorded. Reported results from operations included herein prior to the Business Combination are those of Old Cerevel. The shares and corresponding capital amounts and loss per share related to Old Cerevel’s outstanding redeemable convertible preferred stock, redeemable convertible common stock, and common stock prior to the Business Combination Transaction have been retroactively restated to reflect the exchange ratio established in the Business Combination Agreement (1.00 share of Old Cerevel for 2.854 shares of New Cerevel), or the Exchange Ratio.

For additional information on our operations, please read Note 1, Nature of Operations, to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, or our Annual Report. For additional information on the Business Combination Transaction, please read Note 3, Business Combination, to our audited consolidated financial statements included in our Annual Report.

Pfizer License Agreement

In August 2018 we entered into a license agreement with Pfizer, or the Pfizer License Agreement, pursuant to which we were granted an exclusive, sublicensable, worldwide license under certain Pfizer patent rights, and a non-exclusive, sublicensable, worldwide license under certain Pfizer know-how to develop, manufacture and commercialize certain compounds and products, which currently constitute the entirety of our asset portfolio, in the field of treatment, prevention, diagnosis, control and maintenance of all diseases and disorders in humans, subject to the terms and conditions of the Pfizer License Agreement.

Under the Pfizer License Agreement, we are solely responsible for the development, manufacture, regulatory approval and commercialization of compounds and products in the field and we will pay Pfizer tiered royalties on the aggregate net sales during each calendar year, determined on a product-by-product basis, with respect to products under the Pfizer License Agreement, and we may pay potential milestone payments to Pfizer, based on the successful achievement of certain regulatory and commercial milestones. To date, no regulatory or commercial approval milestone payments or royalty payments were made or became due under this agreement.

For additional information on our Pfizer License Agreement, please read Note 6, Pfizer License Agreement, to our audited consolidated financial statements included in our Annual Report.

Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The COVID-19 pandemic is evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures.

We are closely monitoring the impact of the pandemic of COVID-19 on all aspects of our business, including how it has impacted and may continue to impact our operations and the operations of our suppliers, vendors and business partners. We have taken steps to identify and mitigate the adverse impacts on, and risks to, our business posed by its spread and actions taken by governmental and health authorities to address this pandemic; however, the spread of COVID-19 has caused us to modify our business practices, including implementing a temporary work-from-home policy for all employees who are able to perform their duties remotely and temporarily restricting all non-essential travel and discouraging employee attendance at industry events and in-person

 

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work-related meetings. We expect to continue to take actions as may be required or recommended by government authorities or as we determine are in the best interests of our employees and other business partners in light of COVID-19.

More specifically, the onset of the COVID-19 pandemic caused brief pauses in patient screening and enrollment in our Phase 3 trials of tavapadon for the treatment of Parkinson’s (which we subsequently resumed in the second half of 2020), and we remain particularly vigilant about patient safety given the elderly nature of this population. In addition, our Phase 1 trial of darigabat in acute anxiety is being conducted at the Centre for Human Drug Research, a single specialized site in the Netherlands. In July 2021, Dutch government authorities reimposed restrictions due to the ongoing COVID-19 pandemic, now driven primarily by Delta variant cases in young unvaccinated adults following relaxation measures that ended in June 2021. We will continue to closely monitor the rapidly evolving regulatory landscape in the Netherlands and its impact on the clinical trial timeline. While this trial remains ongoing and actively recruiting, as a result of recent COVID-19 guidance by the Dutch authorities, data for the acute anxiety trial are now expected in the first half of 2022.

While we have taken measures to revise clinical trial protocols, the extent to which COVID-19 impacts our business, results of operations and financial condition will depend on future developments, which, despite progress in vaccination efforts, are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of COVID-19, such as new strains of the virus, including the Delta variant, which may impact rates of infection and vaccination efforts, developments or perceptions regarding the safety of vaccines and the effectiveness of any additional preventative and protective actions to contain COVID-19 or treat its impact, including vaccination campaigns, among others.

In addition, recurrences or additional waves of COVID-19 cases could cause other widespread or more severe impacts depending on where infection rates are highest. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties with whom we engage were to experience prolonged business shutdowns or other disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business, results of operations and financial condition. The estimates of the impact on our business may change based on new information that may emerge concerning COVID-19 and the actions to contain it or treat its impact and the economic impact on local, regional, national and international markets.

We have not incurred any significant impairment losses in the carrying values of our assets as a result of the pandemic and we are not aware of any specific related event or circumstance that would require us to revise our estimates reflected in our audited consolidated financial statements.

Components of Operating Results

Revenues

We have not generated any revenues since our inception and do not expect to generate any revenues from the sale of products in the near future, if at all. If our development efforts for our current product candidates or additional product candidates that we may develop in the future are successful and can be commercialized, we may generate revenue in the future from product sales. Additionally, we may enter into collaboration and license agreements from time to time that provide for certain payments due to us. Accordingly, we may generate revenue from payments from such collaboration or license agreements in the future.

Research and Development

We support our drug discovery and development efforts through the commitment of significant resources to our preclinical and clinical development activities. Our research and development expense includes:

 

employee-related expenses, consisting of salaries, benefits and equity-based compensation for personnel engaged in our research and development activities;

 

expenses incurred in connection with the preclinical and clinical development of our product candidates, including costs incurred under agreements with clinical research organizations, or CROs, investigative clinical trial sites and consultants and other third-party organizations that conduct research and development activities on our behalf;

 

costs associated with preclinical studies and clinical trials, including research materials;

 

materials and supply costs associated with the manufacture of drug substance and drug product for preclinical testing and clinical trials;

 

costs related to regulatory compliance requirements; and

 

certain indirect costs incurred in support of overall research and development activities, including facilities, depreciation and technology expenses.

 

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We expense research and development expenses as incurred. Payments we make for research and development services prior to the services being rendered are recorded as prepaid assets in our consolidated balance sheets and are expensed as the services are provided. We estimate and accrue the value of goods and services received from CROs, CMOs and other third parties each reporting period based on estimates of the level of services performed and progress in the period when we have not received an invoice from such organizations. When evaluating the adequacy of accrued liabilities, we analyze progress of the studies or clinical trials, including the phase of completion of events, invoices received and contracted costs. We reassess and adjust our accruals as actual costs become known or as additional information becomes available. Our historical accrued estimates have not been materially different from actual costs.

Our external research and development expenses for our clinical stage product candidates are tracked on a program-by-program basis and consist primarily of fees, reimbursed materials and other costs paid to consultants, contractors, CROs and CMOs. External research and developments costs that directly support our discovery activities and preclinical programs are classified within other research and development programs. Program costs for the periods presented do not reflect an allocation of expenses associated with personnel costs, equity-based compensation expense, activities that benefit multiple programs or indirect costs incurred in support of overall research and development, such as technology and facilities-related costs.

We expect that our research and development expenses will increase substantially in connection with our planned preclinical and clinical development activities both in the near-term and beyond as we continue to invest in activities to develop our product candidates and preclinical programs and as certain product candidates advance into later stages of development. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size, scope and duration of later-stage clinical trials. Furthermore, the process of conducting the necessary clinical trials to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we cannot accurately estimate or know the nature, timing and costs that will be necessary to complete the preclinical and clinical development for any of our product candidates or when and to what extent we may generate revenue from the commercialization and sale of any of our product candidates or achieve profitability.

The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors that include:

 

per patient trial costs;

 

the number of patients that participate in the trials;

 

the number of sites included in the trials;

 

the countries in which the trials are conducted;

 

the length of time required to enroll eligible patients;

 

the number of doses that patients receive;

 

the drop-out or discontinuation rates of patients;

 

potential additional safety monitoring or other studies requested by regulatory agencies;

 

the duration of patient follow-up; and

 

the efficacy and safety profile of our product candidates.

Changes in any of these assumptions could significantly impact the cost and timing associated with the development of our product candidates. Additionally, future competition and commercial and regulatory factors beyond our control may also impact our clinical development programs and plans.

General and Administrative

We expense general and administrative costs as incurred. General and administrative expenses consist primarily of salaries, benefits, equity-based compensation and outsourced labor for personnel in executive, finance, human resources, legal and other corporate administrative functions. General and administrative expenses also include legal fees incurred relating to corporate and patent matters, professional fees incurred for accounting, auditing, tax and administrative consulting services, insurance costs, facilities and depreciation expenses.

We estimate and accrue for services provided by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from our service providers. We reassess and adjust our accruals as actual costs become known or as additional information becomes available.

 

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We expect that our general and administrative expenses will increase both in the near-term and beyond as we continue to build general corporate infrastructure to support organization; however, we expect that the rate at which these expenses grow will moderate throughout 2021.

Interest Income, Net

Interest income, net primarily consists of interest earned on our cash, cash equivalents and restricted cash.

Other Income (Expense), Net

Other income (expense), net primarily consists gains (losses) on the fair value remeasurement of our financing liabilities and private placement warrants and, prior to their termination upon completion of the Business Combination Transaction in October 2020, gains (losses) on the fair value remeasurement of the Equity Commitment and Share Purchase Option. Other income (expense), net also includes amounts for other miscellaneous income and expense unrelated to our core operations.

The private placement warrants are free-standing financial instruments that were reclassified from equity to other long-term liabilities on March 31, 2021. We revalue our private placement warrants each reporting period with increases or decreases in the fair value of these warrants recognized as an adjustment to other income (expense), net in our consolidated statements of operations and comprehensive loss. Changes in the fair value of our private placement warrants result from changes to one or multiple inputs, including adjustments to the discount rate, expected volatility and dividend yield as well as changes in the fair value of our common stock and public warrants.

As permitted under ASC 825, Financial Instruments, we elected the Fair Value Option for our financing liabilities, wherein the financial instruments were initially measured at their issue-date estimated fair value and subsequently remeasured at estimated fair value on a recurring basis at each reporting period date. Changes in the fair value of our financing liabilities can result from changes to one or multiple inputs, including adjustments to the discount rate and achievement and timing of any cumulative sales-based and regulatory milestones or changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. The estimated fair value adjustment for our financing liabilities, as required by ASC 825-10-45-5, is recognized as a component of other comprehensive income with respect to the portion of the fair value adjustment attributed to a change in the instrument-specific credit risk, with the remaining amount of the fair value adjustment recognized as other income (expense), net, in the consolidated statement of operations. As there were no material instrument specific credit risk changes during the period, the change in fair value was recorded as a single line item in our consolidated statement of operations.

The Equity Commitment and Share Purchase Option were free-standing financial instruments that were recorded at their fair value on the Formation Transaction Date. We revalued these instruments each reporting period and recorded increases or decreases in their respective fair value as an adjustment to other income (expense), net in our consolidated statements of operations and comprehensive loss. Changes in the fair value of these financial instruments resulted from changes to one or multiple inputs, including adjustments to the discount rates and expected volatility and dividend yield as well as changes in the amount and timing of the anticipated future funding required to settle these instruments and the fair value of our preferred and common stock that were expected to be exchanged to complete that additional funding. Discount rates in our valuation models represent a measure of the credit risk associated with settling the financial instruments. The expected dividend yield was assumed to be zero as we have never paid dividends, nor do we have current plans to do so in the future.

Significant judgment is employed in determining the appropriateness of the assumptions underlying the initial fair value determination for each of these instruments and for each subsequent period.

Income Tax Benefit (Provision), Net

To date, we have not recorded any significant amounts related to income tax expense, we have not recognized any reserves related to uncertain tax positions, nor have we recorded any income tax benefits for net operating losses incurred to date or for our research and development tax credits.

We account for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements or our tax returns. Deferred tax assets and liabilities are determined based on difference between the financial statement carrying amounts and tax bases of existing assets and liabilities and for loss and credit carryforwards, which are measured using the enacted tax rates and laws in effect in the years in which the differences are expected to reverse. The realization of our deferred tax assets is dependent upon the generation of future taxable income, the amount and timing of which are uncertain. Valuation allowances are provided, if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

 

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As of June 30, 2021, we continue to maintain a full valuation allowance against all of our deferred tax assets based on our evaluation of all available evidence.

We file income tax returns in the U.S. federal tax jurisdiction and state jurisdictions and may become subject to income tax audit and adjustments by related tax authorities. Our initial tax return period for U.S. federal income taxes was the 2018 period. We currently remain open to examination under the statute of limitations by the Internal Revenue Service and state jurisdictions for the 2019 and 2018 tax years. We record reserves for potential tax payments to various tax authorities related to uncertain tax positions. The nature of uncertain tax positions is subject to significant judgment by management and subject to change, which may be substantial. These reserves are based on a determination of whether and how much a tax benefit taken by us in our tax filings or positions is more likely than not to be realized following the resolution of any potential contingencies related to the tax benefit. We develop our assessment of uncertain tax positions, and the associated cumulative probabilities, using internal expertise and assistance from third-party experts. As additional information becomes available, estimates are revised and refined. Differences between estimates and final settlement may occur resulting in additional tax expense. Pote