10-Q
falseQ1--12-31http://fasb.org/us-gaap/2022#OtherNonoperatingIncomeExpense0001805387http://fasb.org/us-gaap/2022#OtherComprehensiveIncomeLossFinancialLiabilityFairValueOptionUnrealizedGainLossArisingDuringPeriodAfterTax0001805387us-gaap:CommonStockMember2022-03-310001805387cere:FinancingLiabilityRelatedPartyMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387cere:TwoThousandAndTwentySevenConvertibleSeniorNotesMember2022-08-012022-08-310001805387us-gaap:RetainedEarningsMember2022-03-310001805387cere:TwoThousandAndTwentySevenConvertibleSeniorNotesMember2023-03-310001805387us-gaap:CorporateDebtSecuritiesMembercere:ShortTermMarketableSecuritiesMember2023-03-310001805387us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387cere:BainFundingAgreementMember2022-04-300001805387us-gaap:RetainedEarningsMember2023-03-310001805387us-gaap:USTreasuryAndGovernmentMembercere:ShortTermMarketableSecuritiesMember2023-03-310001805387us-gaap:EmployeeStockOptionMember2023-01-012023-03-310001805387us-gaap:CommercialPaperMembercere:ShortTermMarketableSecuritiesMember2022-12-310001805387cere:CommonStockIssuableUponConversionOfTwoThousandTwentySevenNotesMember2023-01-012023-03-310001805387us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387us-gaap:USGovernmentAgenciesDebtSecuritiesMembercere:ShortTermMarketableSecuritiesMember2022-12-310001805387cere:NovaQuestFundingAgreementMember2022-12-310001805387cere:FirstAnniversariesMember2022-04-012022-04-300001805387us-gaap:RestrictedStockUnitsRSUMember2023-03-310001805387us-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387cere:BainFundingAgreementMember2021-04-012021-04-300001805387cere:NovaQuestFundingAgreementMember2021-04-300001805387us-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387us-gaap:LeaseholdImprovementsMember2022-12-310001805387us-gaap:CommonStockMember2022-01-012022-03-310001805387cere:NovaQuestAndBainFundingAgreementsMember2023-01-012023-03-310001805387us-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387us-gaap:ResearchAndDevelopmentExpenseMember2022-01-012022-03-3100018053872023-03-310001805387us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387us-gaap:CommonStockMember2023-03-310001805387cere:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387cere:BainFundingAgreementMember2022-12-310001805387us-gaap:FairValueInputsLevel2Memberus-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387cere:TwoThousandAndTwentySevenConvertibleSeniorNotesMember2022-08-310001805387us-gaap:FairValueInputsLevel1Memberus-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387srt:MinimumMembercere:NovaQuestAndBainFundingAgreementsMember2021-04-012021-04-300001805387us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMembercere:FinancingLiabilityMember2022-12-310001805387us-gaap:NASDAQIndexFutureMemberus-gaap:EmployeeStockOptionMember2023-03-310001805387cere:FirstAnniversariesMember2022-04-300001805387cere:FinancingLiabilityMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387us-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387srt:MinimumMembercere:TwoThousandAndTwentySevenConvertibleSeniorNotesMember2022-08-012022-08-310001805387us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-03-310001805387cere:PurchaserDiscountsMembercere:TwoThousandAndTwentySevenConvertibleSeniorNotesMember2022-08-310001805387cere:FinancingLiabilityMember2023-01-012023-03-310001805387cere:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387us-gaap:EmployeeStockOptionMember2023-01-012023-03-310001805387us-gaap:SubsequentEventMembercere:SecondAnniversariesMember2023-04-300001805387cere:BainFundingAgreementMember2021-04-300001805387cere:BainFundingAgreementMember2022-04-012022-04-300001805387us-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387us-gaap:USTreasuryAndGovernmentMembercere:ShortTermMarketableSecuritiesMember2022-12-310001805387us-gaap:USGovernmentAgenciesDebtSecuritiesMembercere:LongTermMarketableSecuritiesMember2023-03-310001805387us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-01-012022-03-310001805387us-gaap:RetainedEarningsMember2022-12-310001805387us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387us-gaap:AdditionalPaidInCapitalMember2023-01-012023-03-310001805387us-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387us-gaap:AccumulatedOtherComprehensiveIncomeMember2023-01-012023-03-310001805387us-gaap:MeasurementInputInceptionDiscountRateMember2022-12-310001805387us-gaap:ResearchAndDevelopmentExpenseMember2023-01-012023-03-310001805387us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-12-310001805387srt:MaximumMembercere:NovaQuestAndBainFundingAgreementsMember2021-04-012021-04-300001805387cere:BainFundingAgreementMember2023-03-310001805387us-gaap:EmployeeStockOptionMember2022-01-012022-03-310001805387us-gaap:USGovernmentAgenciesDebtSecuritiesMembercere:LongTermMarketableSecuritiesMember2022-12-310001805387us-gaap:EmployeeStockMember2023-03-310001805387cere:FinancingLiabilityRelatedPartyMember2022-01-012022-03-310001805387us-gaap:CommonStockMember2022-12-310001805387us-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387us-gaap:RetainedEarningsMember2022-01-012022-03-310001805387cere:MeasurementPeriodMembersrt:MaximumMembercere:TwoThousandAndTwentySevenConvertibleSeniorNotesMember2022-08-012022-08-310001805387cere:ESPPSharesIssuableMember2022-01-012022-03-310001805387us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-03-310001805387us-gaap:EmployeeStockOptionMember2023-03-310001805387cere:AtmProgramMembersrt:MaximumMember2021-11-102021-11-100001805387cere:NovaQuestAndBainFundingAgreementsMember2021-04-012021-04-300001805387us-gaap:EmployeeStockMember2022-12-310001805387us-gaap:RestrictedStockUnitsRSUMember2023-01-012023-03-310001805387us-gaap:AdditionalPaidInCapitalMember2022-01-012022-03-310001805387us-gaap:AccumulatedOtherComprehensiveIncomeMember2022-03-310001805387us-gaap:FairValueInputsLevel3Membercere:FinancingLiabilityMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387cere:BainInvestorMember2022-12-310001805387us-gaap:SubsequentEventMembercere:BainFundingAgreementMember2023-04-012023-04-300001805387us-gaap:AdditionalPaidInCapitalMember2022-12-310001805387cere:FinancingLiabilityMember2022-01-012022-03-310001805387us-gaap:LeaseholdImprovementsMember2023-03-310001805387cere:FinancingLiabilitiesMemberus-gaap:FairValueInputsLevel3Member2022-12-310001805387us-gaap:AdditionalPaidInCapitalMember2021-12-310001805387cere:OtherOfferingExpensesMembercere:TwoThousandAndTwentySevenConvertibleSeniorNotesMember2022-08-310001805387cere:FinancingLiabilityRelatedPartyMember2023-01-012023-03-310001805387us-gaap:FairValueInputsLevel1Membercere:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387cere:TwoThousandAndTwentySevenConvertibleSeniorNotesMemberus-gaap:CommonStockMember2022-08-012022-08-310001805387us-gaap:FairValueInputsLevel2Memberus-gaap:CommercialPaperMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387cere:LaboratoryEquipmentMember2023-03-310001805387us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387us-gaap:MeasurementInputInceptionDiscountRateMember2023-03-310001805387us-gaap:USGovernmentAgenciesDebtSecuritiesMembercere:ShortTermMarketableSecuritiesMember2023-03-3100018053872022-12-310001805387cere:FinancingLiabilityRelatedPartyMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387us-gaap:AdditionalPaidInCapitalMember2022-03-310001805387cere:NovaQuestAndBainFundingAgreementsMember2021-04-300001805387us-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387cere:MeasurementPeriodMembercere:TwoThousandAndTwentySevenConvertibleSeniorNotesMember2022-08-310001805387us-gaap:AccumulatedOtherComprehensiveIncomeMember2021-12-310001805387us-gaap:FairValueMeasurementsRecurringMembercere:FinancingLiabilityMember2023-03-310001805387cere:ManagementAgreementMember2023-01-012023-03-310001805387cere:FinancingLiabilitiesMemberus-gaap:FairValueInputsLevel3Member2023-01-012023-03-310001805387us-gaap:RestrictedStockUnitsRSUMember2022-01-012022-03-310001805387cere:AtmProgramMember2023-01-012023-03-310001805387cere:PfizerLicenseAgreementMember2023-01-012023-03-310001805387us-gaap:USGovernmentAgenciesDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387us-gaap:FairValueInputsLevel1Membercere:RestrictedCashMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387us-gaap:CorporateDebtSecuritiesMembercere:ShortTermMarketableSecuritiesMember2022-12-310001805387cere:TwoThousandAndTwentySevenConvertibleSeniorNotesMemberus-gaap:CommonStockMember2022-08-310001805387us-gaap:FairValueInputsLevel1Memberus-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387us-gaap:GeneralAndAdministrativeExpenseMember2023-01-012023-03-310001805387us-gaap:CommercialPaperMembercere:ShortTermMarketableSecuritiesMember2023-03-310001805387cere:PfizerIncMember2022-12-310001805387us-gaap:ConstructionInProgressMember2023-03-310001805387us-gaap:ComputerEquipmentMember2022-12-310001805387cere:PfizerIncMember2023-03-310001805387us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387cere:ThirdAnniversariesMembersrt:ScenarioForecastMember2024-04-012024-04-300001805387us-gaap:CommonStockMember2023-01-012023-03-3100018053872022-03-310001805387us-gaap:RetainedEarningsMember2023-01-012023-03-310001805387us-gaap:SubsequentEventMembercere:SecondAnniversariesMember2023-04-012023-04-3000018053872022-01-012022-03-310001805387us-gaap:GeneralAndAdministrativeExpenseMember2022-01-012022-03-310001805387us-gaap:ComputerEquipmentMember2023-03-310001805387cere:BainInvestorMember2023-03-310001805387cere:NovaQuestFundingAgreementMember2023-03-3100018053872022-01-012022-12-310001805387us-gaap:RetainedEarningsMember2021-12-3100018053872023-01-012023-03-310001805387cere:ResearchCollaborationAndLicenseAgreementMember2022-06-012022-06-300001805387cere:FinancingLiabilitiesMemberus-gaap:FairValueInputsLevel3Member2023-03-310001805387us-gaap:EmployeeStockMember2022-01-012022-12-310001805387us-gaap:CommonStockMember2021-12-310001805387cere:LaboratoryEquipmentMember2022-12-310001805387us-gaap:FairValueInputsLevel1Memberus-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387us-gaap:SubsequentEventMembercere:BainFundingAgreementMember2023-04-300001805387us-gaap:RestrictedStockUnitsRSUMember2022-12-310001805387cere:ESPPSharesIssuableMember2023-01-012023-03-310001805387us-gaap:ConstructionInProgressMember2022-12-310001805387us-gaap:AdditionalPaidInCapitalMember2023-03-310001805387us-gaap:USTreasuryAndGovernmentMemberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387cere:FinancingLiabilityRelatedPartyMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2023-03-310001805387cere:EmployeeStockPurchasePlanMember2023-01-012023-03-310001805387us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387us-gaap:MoneyMarketFundsMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387us-gaap:RestrictedStockUnitsRSUMember2023-01-012023-03-310001805387cere:EmployeeStockPurchasePlanMember2022-01-012022-03-310001805387cere:TwoThousandAndTwentySevenConvertibleSeniorNotesMember2022-12-310001805387us-gaap:FurnitureAndFixturesMember2022-12-310001805387us-gaap:EmployeeStockMember2023-01-012023-03-310001805387us-gaap:FairValueInputsLevel2Memberus-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387cere:FinancingLiabilityRelatedPartyMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387us-gaap:EmployeeStockOptionMember2022-01-012022-03-3100018053872021-12-310001805387cere:FinancingLiabilityRelatedPartyMemberus-gaap:FairValueInputsLevel3Memberus-gaap:FairValueMeasurementsRecurringMember2022-12-310001805387us-gaap:CorporateDebtSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2022-12-3100018053872023-04-280001805387cere:ThirdAnniversariesMembersrt:ScenarioForecastMember2024-04-300001805387us-gaap:FurnitureAndFixturesMember2023-03-310001805387cere:TwoThousandAndTwentySevenConvertibleSeniorNotesMember2023-01-012023-03-3100018053872021-04-3000018053872021-04-012021-04-30iso4217:USDxbrli:sharesxbrli:purecere:Directorxbrli:sharescere:Instrumentcere:Daysiso4217:USD

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2023

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 April 28, 2023, the registrant had 156,832,992 shares of common stock, par value $0.0001 per share, outstanding.

 

 

 

 

 


Table of Contents

 

Page

PART I.

FINANCIAL INFORMATION

5

Item 1.

Financial Statements (Unaudited)

5

Condensed Consolidated Balance Sheets

5

Condensed Consolidated Statements of Operations and Comprehensive Loss

6

Condensed Consolidated Statements of Stockholders' Equity

7

Condensed Consolidated Statements of Cash Flows

9

Notes to Condensed Consolidated Financial Statements

10

Item 2.

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

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4.

Controls and Procedures

36

PART II.

OTHER INFORMATION

38

Item 1.

Legal Proceedings

38

Item 1A.

Risk Factors

38

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

87

Item 3.

Defaults Upon Senior Securities

87

Item 4.

Mine Safety Disclosures

87

Item 5.

Other Information

87

Item 6.

Exhibits

87

Signatures

89

 

 

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,” “can,” “target,” “future” or the negative of these terms or 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, objectives, 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, our ability to collect and interpret clinical trial data and the timing and outcome of regulatory interactions, including whether trials meet the criteria to serve as registrational;
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 on 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 available financial resources will enable us 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 our license agreement with Pfizer;
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 future financial performance;
our ability to recognize the anticipated benefits of the tavapadon financing transaction (including our ability to receive future payments thereunder) and other financing and business development transactions;
our ability to satisfy our payment obligations, remain in compliance with covenants under the 2027 Notes (as defined below), to service the interest on or to refinance the 2027 Notes or to make cash payments in connection with any conversion of the 2027 Notes, to the extent required; and
the effect of adverse market or macroeconomic conditions, market volatility resulting from global economic developments and the residual post-COVID environmental and other factors on any of the foregoing or other aspects of our business operations, including but not limited to our clinical trials and other product development activities, healthcare systems and the global economy as a whole.

ii


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. 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.

This Quarterly Report contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed as exhibits to this Quarterly Report. Unless the context otherwise requires, reference in this Quarterly Report to the terms “Cerevel,” “the Company,” “we,” “us,” “our,” and similar designations refer to Cerevel Therapeutics Holdings, Inc. and, where appropriate, our consolidated subsidiaries.

We may from time to time provide estimates, projections and other information concerning our industry, the general business environment, and the markets for certain diseases, including estimates regarding the potential size of those markets and the estimated incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events, circumstances or numbers, including actual disease prevalence rates and market size, may differ materially from the information reflected in this Quarterly Report. Unless otherwise expressly stated, we obtained the industry, market and competitive position data from our internal estimates and research, as well as from independent market research, industry and general publications and surveys, governmental agencies and publicly available information in addition to research, surveys and studies conducted by third parties that have not been independently verified which may, in the future, prove not to have been accurate.
 

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 U.S. Food and Drug Administration, or 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.
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.
If we encounter difficulties enrolling patients in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.

iii


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.
BC Perception Holdings, LP, or Bain Investor, and Pfizer Inc., or Pfizer, have significant influence over us, and may have interests different from yours.
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 discussed in the section entitled “Risk Factors” and the other information set forth in this Quarterly Report, including our condensed consolidated financial statements and the related notes, as well as in other documents that we file with the Securities and Exchange Commission, or the SEC. The risks summarized above or described in full elsewhere in this Quarterly Report are not the only risks that we face. Additional risks and uncertainties not presently 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.

 

iv


 

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

 

 

 

March 31,
2023

 

 

December 31,
2022

 

ASSETS

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

153,816

 

 

$

136,521

 

Marketable securities

 

 

673,171

 

 

 

755,509

 

Prepaid expenses and other current assets

 

 

13,795

 

 

 

13,621

 

Total current assets

 

 

840,782

 

 

 

905,651

 

Marketable securities

 

 

36,048

 

 

 

58,126

 

Property and equipment, net

 

 

27,006

 

 

 

27,467

 

Operating lease assets

 

 

21,434

 

 

 

21,820

 

Restricted cash

 

 

1,867

 

 

 

1,867

 

Other long-term assets

 

 

3,208

 

 

 

2,891

 

Total assets

 

$

930,345

 

 

$

1,017,822

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

7,315

 

 

$

10,061

 

Accrued expenses and other current liabilities

 

 

52,614

 

 

 

59,604

 

Operating lease liabilities, current portion

 

 

3,028

 

 

 

2,899

 

Total current liabilities

 

 

62,957

 

 

 

72,564

 

Operating lease liabilities, net of current portion

 

 

30,381

 

 

 

31,190

 

Financing liability, related party (Notes 5 and 7)

 

 

34,668

 

 

 

28,674

 

Financing liability (Notes 5 and 7)

 

 

34,668

 

 

 

28,674

 

2027 convertible senior notes, net (Note 6)

 

 

335,962

 

 

 

335,482

 

Total liabilities

 

 

498,636

 

 

 

496,584

 

Commitments and contingencies (Notes 13 and 14)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.0001 par value: 10,000,000 shares authorized;
    
no shares issued and outstanding as of March 31, 2023 and
    December 31, 2022

 

 

 

 

 

 

Common stock, $0.0001 par value: 500,000,000 shares authorized;
    
156,760,109 and 156,502,285 shares issued and outstanding
    as of March 31, 2023 and December 31, 2022, respectively

 

 

16

 

 

 

16

 

Additional paid-in capital

 

 

1,500,046

 

 

 

1,485,880

 

Accumulated other comprehensive income (loss)

 

 

3,688

 

 

 

3,097

 

Accumulated deficit

 

 

(1,072,041

)

 

 

(967,755

)

Total stockholders’ equity

 

 

431,709

 

 

 

521,238

 

Total liabilities and stockholders’ equity

 

$

930,345

 

 

$

1,017,822

 

 

 

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

5


 

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
March 31,

 

 

 

2023

 

 

2022

 

Operating expenses:

 

 

 

 

 

 

Research and development

 

$

78,181

 

 

$

55,023

 

General and administrative

 

 

21,370

 

 

 

17,507

 

Total operating expenses

 

 

99,551

 

 

 

72,530

 

Loss from operations

 

 

(99,551

)

 

 

(72,530

)

Interest income (expense), net

 

 

6,440

 

 

 

295

 

Other income (expense), net

 

 

(11,090

)

 

 

3,941

 

Loss before income taxes

 

 

(104,201

)

 

 

(68,294

)

Income tax benefit (provision), net

 

 

(85

)

 

 

 

Net loss

 

$

(104,286

)

 

$

(68,294

)

Net loss per share, basic and diluted

 

$

(0.67

)

 

$

(0.46

)

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

 

 

156,648,365

 

 

 

147,984,926

 

 

 

 

 

 

 

 

Comprehensive loss:

 

 

 

 

 

 

Net loss

 

$

(104,286

)

 

$

(68,294

)

Other comprehensive income (loss):

 

 

 

 

 

 

Changes in fair value attributable to instrument-specific credit risk

 

 

(906

)

 

 

1,276

 

Unrealized gains (losses) on securities available-for-sale

 

 

1,497

 

 

 

(1,624

)

Total other comprehensive income (loss)

 

 

591

 

 

 

(348

)

Comprehensive loss

 

$

(103,695

)

 

$

(68,642

)

 

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

(In thousands, except share amounts)

(Unaudited)

 

 

Common stock

 

 

Additional
paid-in

 

 

Accumulated other
comprehensive

 

 

Accumulated

 

 

Total
stockholders’

 

 

 

Shares

 

 

Amount

 

 

capital

 

 

income (loss)

 

 

deficit

 

 

equity

 

Balance at December 31, 2022

 

 

156,502,285

 

 

$

16

 

 

$

1,485,880

 

 

$

3,097

 

 

$

(967,755

)

 

$

521,238

 

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

 

 

257,824

 

 

 

 

 

 

1,574

 

 

 

 

 

 

 

 

 

1,574

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

12,592

 

 

 

 

 

 

 

 

 

12,592

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

591

 

 

 

 

 

 

591

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(104,286

)

 

 

(104,286

)

Balance at March 31, 2023

 

 

156,760,109

 

 

$

16

 

 

$

1,500,046

 

 

$

3,688

 

 

$

(1,072,041

)

 

$

431,709

 

 

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

 

 

7


 

CEREVEL THERAPEUTICS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(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, 2021

 

 

147,719,523

 

 

$

15

 

 

$

1,195,944

 

 

$

(986

)

 

$

(616,244

)

 

$

578,729

 

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

 

 

449,005

 

 

 

 

 

 

2,854

 

 

 

 

 

 

 

 

 

2,854

 

Equity-based compensation expense

 

 

 

 

 

 

 

 

8,558

 

 

 

 

 

 

 

 

 

8,558

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(348

)

 

 

 

 

 

(348

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(68,294

)

 

 

(68,294

)

Balance at March 31, 2022

 

 

148,182,798

 

 

$

15

 

 

$

1,207,356

 

 

$

(1,334

)

 

$

(684,538

)

 

$

521,499

 

 

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

8


 

CEREVEL THERAPEUTICS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended
March 31,

 

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(104,286

)

 

$

(68,294

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

1,321

 

 

 

1,118

 

Adjustments to operating lease expense

 

 

(280

)

 

 

(236

)

Equity-based compensation

 

 

12,592

 

 

 

8,558

 

Change in fair value of financing liabilities

 

 

11,082

 

 

 

(3,940

)

Non-cash interest expense

 

 

480

 

 

 

 

Amortization of premiums and accretion of discounts on marketable securities

 

 

(5,206

)

 

 

553

 

Other non-cash items

 

 

(8

)

 

 

 

Changes in operating assets and liabilities, net:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(147

)

 

 

1,811

 

Other assets

 

 

(440

)

 

 

(106

)

Accounts payable

 

 

(2,768

)

 

 

(2,499

)

Accrued expenses and other liabilities

 

 

(7,263

)

 

 

(4,613

)

Net cash flows used in operating activities

 

 

(94,923

)

 

 

(67,648

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of marketable securities

 

 

(187,631

)

 

 

(60,242

)

Maturities and redemptions of marketable securities

 

 

298,750

 

 

 

23,897

 

Purchases of property and equipment

 

 

(336

)

 

 

(2,197

)

Net cash flows provided by (used in) investing activities

 

 

110,783

 

 

 

(38,542

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from the exercise of stock options

 

 

1,574

 

 

 

2,854

 

Deferred costs related to financing activities

 

 

(139

)

 

 

(251

)

Net cash flows provided by financing activities

 

 

1,435

 

 

 

2,603

 

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

 

 

17,295

 

 

 

(103,587

)

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

 

 

138,388

 

 

 

197,218

 

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

 

$

155,683

 

 

$

93,631

 

Reconciliation of cash, cash equivalents and restricted cash:

 

 

 

 

 

 

Cash and cash equivalents

 

$

153,816

 

 

$

91,764

 

Restricted cash

 

 

1,867

 

 

 

1,867

 

Total cash, cash equivalents and restricted cash

 

$

155,683

 

 

$

93,631

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

4,289

 

 

$

 

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

 

 

 

 

 

 

Fixed asset additions included in accounts payable and other current liabilities

 

$

779

 

 

$

731

 

 

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

9


 

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 (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, Alzheimer's disease psychosis, epilepsy, panic disorder and Parkinson’s disease. We are advancing our extensive and diverse pipeline with numerous clinical trials underway or planned, including three ongoing Phase 3 trials and an open-label extension trial for tavapadon in Parkinson's, two ongoing Phase 2 trials and an open-label extension trial for emraclidine in schizophrenia, an ongoing Phase 2 proof-of-concept trial and an open-label extension trial for darigabat in focal epilepsy and a planned Phase 2 proof-of-concept trial for darigabat in panic disorder.

For additional information on our formation, 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, 2022 (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 in-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 (CROs), third-party contract manufacturing organizations (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 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. We have incurred significant operating losses since our inception and, as of March 31, 2023, 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.

We have funded our operations primarily with the net proceeds received from the issuance of preferred stock, common stock and convertible senior notes, net proceeds from the consummation of our Business Combination (as defined in Note 15, Related Parties, to these unaudited condensed consolidated financial statements), and our Funding Agreements (as defined in Note 5, Financing Liabilities, to these unaudited condensed consolidated financial statements). We believe that our available cash, cash equivalent and marketable securities as of March 31, 2023, will enable us to fund our operating expense and capital expenditure requirements through at least 12 months from the issuance date of these 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 Corp., 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 (U.S. GAAP) as set forth in the Financial Accounting Standards Board’s (FASB) accounting standards codification. Any reference in these notes to applicable guidance is

10


 

meant to refer to the authoritative U.S. 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 months ended March 31, 2023 and 2022, are not necessarily indicative of the results for the entire fiscal year or any other period. Our unaudited condensed consolidated financial statements for the three months ended March 31, 2023 and 2022, have been prepared on the same basis as and should be read in conjunction with our audited consolidated financial statements and notes included in our Annual Report.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. 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 stock options, the accrual for research and development expense and the recoverability of our net deferred tax assets and the related valuation allowance. 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 in our condensed consolidated balance sheets as of March 31, 2023 and December 31, 2022.

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.

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 have been made or become 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

In April 2021, 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.

11


 

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, $37.5 million (30% of the Total Funding Commitment) was received in April 2022, $31.3 million (25% of the Total Funding Commitment) was received in April 2023 and $25.0 million (20% of the Total Funding Commitment) is expected to be received in April 2024, subject to certain customary funding conditions.

In return, we agreed to pay NovaQuest and Bain significant regulatory milestone, sales milestone and royalty payments upon approval of tavapadon by the FDA that collectively will not exceed $531.3 million. In addition, 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.

We determined that each funding agreement represents a financial instrument that is 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 March 31, 2023 and December 31, 2022, the estimated fair value of the financing liability related to potential amounts payable to Bain under the Bain Funding Agreement, which is reflected in our condensed consolidated balance sheets as financing liability, related party, totaled approximately $34.7 million and $28.7 million, respectively. As of March 31, 2023 and December 31, 2022, the estimated fair value of the financing liability related to potential amounts payable to NovaQuest under the NovaQuest Funding Agreement, which is reflected in our condensed consolidated balance sheets as financing liability, totaled approximately $34.7 million and $28.7 million, respectively.

Changes in estimated fair value of the financing liabilities in our unaudited condensed consolidated statements of operations and comprehensive loss are summarized as follows:

 

 

For the Three Months Ended
March 31,

 

(In thousands)

 

2023

 

 

2022

 

Financing liability, related party

 

 

 

 

 

 

Change in fair value recognized in other (income) expense, net

 

$

5,541

 

 

$

(1,970

)

Change in fair value attributable to instrument-specific credit risk recognized in other comprehensive (income) loss

 

 

453

 

 

 

(638

)

Financing liability

 

 

 

 

 

 

Change in fair value recognized in other (income) expense, net

 

$

5,541

 

 

$

(1,970

)

Change in fair value attributable to instrument-specific credit risk recognized in other comprehensive (income) loss

 

 

453

 

 

 

(638

)

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.

For additional information related to our Funding Agreements, please read Note 8, Financing Liabilities, to our audited consolidated financial statements included in our Annual Report.

6. 2027 Convertible Senior Notes

In August 2022, we completed the offering of $345.0 million aggregate principal amount of 2.50% Convertible Senior Notes due 2027 (the 2027 Notes). The aggregate net proceeds from the 2027 Notes offering totaled approximately $334.8 million, after deducting the initial purchasers' discounts of $9.5 million and other offering expenses of approximately $0.7 million. We accounted for the debt issuance costs as a debt discount for accounting purposes, which was recorded as a reduction in the carrying value of the debt in our unaudited condensed consolidated balance sheet and is being amortized to interest expense using the effective interest method over the expected life of the 2027 Notes, or approximately their five-year term.

The 2027 Notes accrue interest at a rate of 2.50% per annum, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2023. As of March 31, 2023 and December 31, 2022, accrued interest on the 2027 Notes of $1.1 million and $3.2 million was included in accrued expenses and other current liabilities in our condensed consolidated balance sheets.

The 2027 Notes mature on August 15, 2027, unless earlier converted, redeemed or repurchased. We will settle conversions by paying or delivering, as applicable, cash, shares of our common stock or a combination of cash and shares of our common stock, at

12


 

our election, subject to terms and conditions provided in the indenture between us and U.S. Bank Trust Company, National Association, as trustee (the Indenture).

Holders of 2027 Notes may convert all or any portion of their Notes at their option at any time prior to the close of business on the business day immediately preceding May 15, 2027, only in the following circumstances: (i) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on December 31, 2022, if the last reported sale price per share of our common stock exceeds 130% of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (ii) during the five consecutive business days immediately after any 10 consecutive trading day period (the Measurement Period) in which the trading price per $1,000 principal amount of notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day; (iii) upon the occurrence of certain corporate events or distributions on our common stock, as defined in the Indenture; and (iv) if we call the 2027 Notes for redemption.

From and after May 15, 2027, noteholders may convert their notes at any time at their election until the close of business on the second scheduled trading day immediately before the maturity date. The initial conversion rate is 21.5633 shares of common stock per $1,000 principal amount of the 2027 Notes, which represents an initial conversion price of approximately $46.38 per share of common stock, or a total of approximately 7,439,338 shares. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events outlined within the Indenture. In addition, if certain corporate events that constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time.

We may not redeem the 2027 Notes at any time before August 20, 2025, and no sinking fund is required to be provided for the 2027 Notes. The 2027 Notes will be redeemable, in whole or in part (subject to certain limitations), at our option at any time, on or after August 20, 2025, and on or before the 50th scheduled trading day immediately before the maturity date, under certain circumstances defined within the Indenture.

The net carrying amount of the 2027 Notes included in our condensed consolidated balance sheets consisted of the following:

 

 

As of

 

(In thousands)

 

March 31,
2023

 

 

December 31,
2022

 

Principal amount

 

$

345,000

 

 

$

345,000

 

Unamortized debt discount

 

 

(9,038

)

 

 

(9,518

)

Net carrying amount

 

$

335,962

 

 

$

335,482

 

The following table sets forth the total interest expense related to the 2027 Notes recognized in interest income (expense), net in our unaudited condensed consolidated statements of operations and comprehensive loss for the periods presented:

 

 

For the Three Months Ended
March 31,

 

(In thousands)

 

2023

 

 

2022

 

Contractual interest expense

 

$

2,156

 

 

$

 

Amortization of debt issuance costs

 

 

480

 

 

 

 

Total interest expense

 

$

2,636

 

 

$

 

Effective interest rate

 

 

3.1

%

 

 

 

Future minimum payments under the 2027 Notes as of March 31, 2023, are as follows (in thousands):

Fiscal year ended December 31, 2023(1)

 

 

4,312

 

Fiscal year ended December 31, 2024

 

 

8,625

 

Fiscal year ended December 31, 2025

 

 

8,625

 

Fiscal year ended December 31, 2026

 

 

8,625

 

Fiscal year ended December 31, 2027

 

 

353,625

 

Thereafter

 

 

 

Total future payments

 

$

383,812

 

Less: amounts representing interest

 

 

(38,812

)

Total principal amount

 

$

345,000

 

(1) For the nine months ended December 31, 2023.

For additional information related to our 2027 Convertible Senior Notes, please read Note 9, 2027 Convertible Senior Notes, to our audited consolidated financial statements included in our Annual Report.

13


 

7. Fair Value Measurements

The tables below present information about our assets and liabilities that are measured and carried at fair value on a recurring basis and indicate the level within the fair value hierarchy we utilized to determine such fair values:

As of March 31, 2023 (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

 

$

133,866

 

 

$

 

 

$