424B3

Filed Pursuant to Rule 424(b)(3)

Registration No. 333-250964

PROSPECTUS SUPPLEMENT NO. 10

(to prospectus dated March 25, 2021)

https://cdn.kscope.io/0f2ed7ff6c9dc742987cd35e1986e064-img190174794_0.jpg 

 

Up to 42,437,330 Shares of Common Stock

This prospectus supplement no. 10 (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 November 10, 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 is listed on The NASDAQ Stock Market LLC under the symbol “CERE”. On November 9, 2021, the closing price of our common stock was $43.42 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 November 10, 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 September 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

 

CERE

 

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 November 5, 2021, the registrant had 147,235,789 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

88

Item 4.

Mine Safety Disclosures

88

Item 5.

Other Information

88

Item 6.

Exhibits

89

Signatures

90

 

 

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 format, likelihood of success, cost and timing of our clinical trials and other product development activities, including the design of clinical trials and preclinical studies, the timing of initiation and completion of clinical trials and related preparatory work and the timing and outcome of regulatory interactions;
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 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 ongoing 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 ongoing 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

 

 

 

September 30,
2021

 

 

December 31,
2020

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

669,676

 

 

$

383,623

 

Prepaid expenses and other current assets

 

 

5,353

 

 

 

6,937

 

Total current assets

 

 

675,029

 

 

 

390,560

 

Property and equipment, net

 

 

28,404

 

 

 

24,165

 

Operating lease assets

 

 

23,576

 

 

 

24,459

 

Restricted cash

 

 

4,200

 

 

 

4,200

 

Other long-term assets

 

 

2,271

 

 

 

1,889

 

Total assets

 

$

733,480

 

 

$

445,273

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

5,445

 

 

$

4,993

 

Accrued expenses and other current liabilities

 

 

23,020

 

 

 

22,519

 

Operating lease liabilities, current portion

 

 

2,335

 

 

 

2,036

 

Total current liabilities

 

 

30,800

 

 

 

29,548

 

Operating lease liabilities, net of current portion

 

 

34,752

 

 

 

30,969

 

Financing liability, related party (Notes 5 and 6)

 

 

19,306

 

 

 

 

Financing liability (Notes 5 and 6)

 

 

19,306

 

 

 

 

Other long-term liabilities

 

 

236

 

 

 

236

 

Total liabilities

 

 

104,400

 

 

 

60,753

 

Commitments and contingencies (Notes 12 and 13)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

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

 

 

 

 

 

 

Common stock, $0.0001 par value: 500,000,000 shares authorized;
  147,135,968 and 127,123,954 shares issued and outstanding
    as of September 30, 2021 and December 31, 2020, respectively

 

 

15

 

 

 

13

 

Additional paid-in capital

 

 

1,186,787

 

 

 

775,417

 

Accumulated other comprehensive loss

 

 

(533

)

 

 

 

Accumulated deficit

 

 

(557,189

)

 

 

(390,910

)

Total stockholders’ equity

 

 

629,080

 

 

 

384,520

 

Total liabilities and stockholders’ equity

 

$

733,480

 

 

$

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
September 30,

 

 

For the Nine Months Ended
September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

40,159

 

 

$

24,026

 

 

$

114,014

 

 

$

73,168

 

General and administrative

 

 

14,368

 

 

 

10,336

 

 

 

41,594

 

 

 

34,052

 

Total operating expenses

 

 

54,527

 

 

 

34,362

 

 

 

155,608

 

 

 

107,220

 

Loss from operations

 

 

(54,527

)

 

 

(34,362

)

 

 

(155,608

)

 

 

(107,220

)

Interest income, net

 

 

13

 

 

 

1

 

 

 

38

 

 

 

210

 

Other income (expense), net

 

 

(7,545

)

 

 

(4,684

)

 

 

(10,709

)

 

 

(11,976

)

Loss before income taxes

 

 

(62,059

)

 

 

(39,045

)

 

 

(166,279

)

 

 

(118,986

)

Income tax benefit (provision), net

 

 

 

 

 

5

 

 

 

 

 

 

21

 

Net loss

 

$

(62,059

)

 

$

(39,040

)

 

$

(166,279

)

 

$

(118,965

)

Net loss per share, basic and diluted

 

$

(0.43

)

 

$

(0.62

)

 

$

(1.25

)

 

$

(1.93

)

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

 

 

144,022,109

 

 

 

63,270,340

 

 

 

132,971,450

 

 

 

61,726,114

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(62,059

)

 

$

(39,040

)

 

$

(166,279

)

 

$

(118,965

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

Changes in fair value attributable to instrument-specific credit risk

 

 

(533

)

 

 

 

 

 

(533

)

 

 

 

Total other comprehensive loss

 

 

(533

)

 

 

 

 

 

(533

)

 

 

 

Comprehensive loss

 

$

(62,592

)

 

$

(39,040

)

 

$

(166,812

)

 

$

(118,965

)

 

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 other comprehensive

 

 

Accumulated

 

 

Total
stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

loss

 

 

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

 

Issuance of common stock related to follow-on offering, net of offering costs (Note 1)

 

 

14,000,000

 

 

 

1

 

 

 

328,250

 

 

 

 

 

 

 

 

 

328,251

 

Issuance of common stock related to exercise of public warrants

 

 

4,822,947

 

 

 

1

 

 

 

55,462

 

 

 

 

 

 

 

 

 

55,463

 

Issuance of common stock related to cashless exercise of private placement warrants

 

 

111,426

 

 

 

 

 

 

4,186

 

 

 

 

 

 

 

 

 

4,186

 

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

 

 

602,666

 

 

 

 

 

 

3,751

 

 

 

 

 

 

 

 

 

3,751

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

6,134

 

 

 

 

 

 

 

 

 

6,134

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(533

)

 

 

 

 

 

(533

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(62,059

)

 

 

(62,059

)

Balance at September 30, 2021

 

 

147,135,968

 

 

$

15

 

 

$

1,186,787

 

 

$

(533

)

 

$

(557,189

)

 

$

629,080

 

 

 

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

 

Issuance of Series A-1 preferred stock and Series A common stock in exchange for cash

 

 

2,500,000

 

 

 

 

 

 

25,000

 

 

 

 

 

 

25,000

 

Partial settlement of Equity Commitment liability upon issuance of Series A-1 preferred stock and Series A common stock

 

 

 

 

 

 

 

 

5,530

 

 

 

 

 

 

5,530

 

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

 

 

14,270

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

3,472

 

 

 

 

 

 

3,472

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(39,040

)

 

 

(39,040

)

Balance at September 30, 2020

 

 

63,473,742

 

 

$

6

 

 

$

362,510

 

 

$

(363,263

)

 

$

(747

)

 

 

(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 Nine Months Ended
September 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(166,279

)

 

$

(118,965

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

1,644

 

 

 

336

 

Non-cash rent expense under operating leases

 

 

(615

)

 

 

471

 

Equity-based compensation

 

 

17,455

 

 

 

9,864

 

Change in fair value of Equity Commitment and Share Purchase Option

 

 

 

 

 

11,970

 

Change in fair value of financing liability, related party

 

 

3,415

 

 

 

 

Change in fair value of financing liability

 

 

3,415

 

 

 

 

Change in fair value of private placement warrants

 

 

3,881

 

 

 

 

Write-off of deferred costs related to financing activities

 

 

 

 

 

2,485

 

Changes in operating assets and liabilities, net:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,672

 

 

 

4,577

 

Operating lease asset

 

 

(14

)

 

 

(459

)

Other assets

 

 

(651

)

 

 

(243

)

Accounts payable

 

 

1,874

 

 

 

581

 

Accrued expenses and other liabilities

 

 

2,806

 

 

 

8,699

 

Operating lease liability

 

 

5,595

 

 

 

4,585

 

Net cash flows used in operating activities

 

 

(125,802

)

 

 

(76,099

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(9,431

)

 

 

(11,341

)

Net cash flows used in investing activities

 

 

(9,431

)

 

 

(11,341

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock related to follow-on offering, net of offering costs (refer to Note 1)

 

 

328,251

 

 

 

 

Proceeds from the exercise of public warrants

 

 

55,463

 

 

 

 

Proceeds from the exercise of stock options and ESPP purchases

 

 

6,322

 

 

 

 

Proceeds from financing liability, related party

 

 

15,625

 

 

 

 

Proceeds from financing liability

 

 

15,625

 

 

 

 

Proceeds from issuance of Series A-1 preferred stock and Series A common stock with exchange

 

 

 

 

 

25,000

 

Deferred costs related to financing activities

 

 

 

 

 

(4,234

)

Net cash flows provided by financing activities

 

 

421,286

 

 

 

20,766

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

286,053

 

 

 

(66,674

)

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

 

 

387,823

 

 

 

83,682

 

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

 

$

673,876

 

 

$

17,008

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents

 

$

669,676

 

 

$

12,808

 

Restricted cash

 

 

4,200

 

 

 

4,200

 

Total cash, cash equivalents and restricted cash

 

$

673,876

 

 

$

17,008

 

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

 

 

 

 

 

 

Operating lease assets obtained in exchange for operating lease liabilities

 

$

 

 

$

445

 

Fixed asset additions included in accounts payable and other current liabilities

 

$

753

 

 

$

4,485

 

Deferred unpaid transaction costs related to financing activities

 

$

 

 

$

2,538

 

Cashless exercise of private placement warrants

 

$

4,186

 

 

$

 

Partial settlement of Equity Commitment liability upon issuance of Series A-1 Preferred Stock and Series A Common Stock

 

$

 

 

$

5,530

 

 

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 related to 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 related to 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 related to 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.

Follow-on Public Offering

On July 7, 2021, we completed a follow-on public offering (the Follow-on 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 $328.3 million, after deducting underwriting discounts and commissions of $21.0 million and offering expenses of approximately $0.7 million.

9


 

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.

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 unaudited 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 September 30, 2021, had an accumulated deficit of $557.2 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 and the Follow-on Offering, 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. Upon the closing of our Follow-on Offering in July 2021, we received net proceeds totaling approximately $328.3 million. We believe that our available cash resources as of September 30, 2021, of $669.7 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. For additional information related to the Business Combination Transaction and the Follow-on Offering, please read Note 1, Nature of Operations.

Impact of the Ongoing COVID-19 Pandemic

We are closely monitoring the impact of the ongoing COVID-19 pandemic 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 nine months ended

10


 

September 30, 2021 and 2020, are not necessarily indicative of the results for the entire fiscal year or any other period. The unaudited condensed consolidated financial statements for the three and nine months ended September 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 related to 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.

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 accrual for research and development expense and the recoverability of our net deferred tax assets and the related valuation allowance. 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 September 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)

Upon the consummation of the Business Combination Transaction, there were 4,983,314 public warrants and 166,333 private placement warrants (collectively, the warrants) outstanding. Each outstanding warrant of ARYA become one warrant to purchase one share of Cerevel Therapeutics Holdings, Inc. We determined that the 4,983,314 outstanding public warrants satisfied the criteria for classification as equity instruments at each reporting period. In certain circumstances, the identity of the holder may result in different settlement amounts, and therefore the private placement warrants are not considered indexed in our own stock in the manner contemplated by ASC Section 815-40-15. Accordingly, we classified the 166,333 private placement warrants as long-term liabilities within our condensed consolidated balance sheet. We did not recognize a liability in relation to the private placement warrants prior to March 31, 2021, as we previously determined that the fair value of these warrants were immaterial. We revalued the liability associated with the 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 through their cashless exercise and settlement in September 2021. No warrants remained outstanding as of September 30, 2021. Changes in the fair value of the private placement warrants resulted from changes to one or multiple inputs,

11


 

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 attributable to instrument-specific credit risk, separately presented as a component of other income (expense), net in our condensed consolidated statements of operations and comprehensive loss. The portion of the fair value adjustment attributed to a change in the instrument-specific credit risk is recognized and separately presented as a component of other comprehensive income.

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.

Upfront, 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 of 2012 (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

12


 

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.

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 substantially all 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 related to 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.

13


 

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.

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 September 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 $19.3 million. As of September 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 $19.3 million.

During the three months ended September 30, 2021, losses of $2.9 million and $2.9 million, respectively, were recognized as a charge to other income (expense), net within our condensed consolidated statements of operations and comprehensive loss, reflecting the change in fair value of the financing liabilities associated with the Bain and NovaQuest Funding Agreements. Losses of $3.4 million and $3.4 million, respectively, were recognized as a charge to other income (expense), net within our condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2021. We recognized unrealized losses of $0.5 million and $0.5 million, respectively, within other comprehensive income related to the change in fair value attributable to instrument-specific credit risk on the total financing liabilities for the three and nine months ended September 30, 2021. Changes in fair value attributable to instrument-specific credit risk were derived by benchmarking against the prior period credit spread to isolate the impact directly associated with the change in the credit spread utilized between periods. In addition, we recognized a charge to general and administrative expense of $0.6 million in the second quarter of 2021 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 related to 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 September 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

 

$

669,676

 

 

$

 

 

$

 

 

$

669,676

 

Restricted cash—money market funds

 

 

4,200

 

 

 

 

 

 

 

 

 

4,200

 

Total Assets

 

$

673,876

 

 

$

 

 

$

 

 

$

673,876

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Private placement warrants

 

$

 

 

$

 

 

$

 

 

$

 

Financing liability, related party

 

 

 

 

 

 

 

 

19,306

 

 

 

19,306

 

Financing liability

 

 

 

 

 

 

 

 

19,306

 

 

 

19,306