Ovid Therapeutics Inc. annual report, FY2020

Ovid Therapeutics Inc. — Fiscal 2020 Form 10-K Summary

Business context and reporting period

Ovid Therapeutics is a development-stage biopharmaceutical company focused on medicines for rare neurological disorders. This Form 10-K covers the fiscal year ended December 31, 2020, and was filed March 15, 2021. Ovid had no approved drugs and no revenue from commercial drug sales.

Primary programs: OV935 (soticlestat) for rare epileptic encephalopathies and OV101 (gaboxadol) for Angelman and Fragile X syndromes.
Early-stage programs included OV329, OV882 and OV815.
The company had 67 full-time employees at year-end, including 40 primarily engaged in research and development.

Financial results and key metrics

Metric	2020	2019	Change
License and other revenue	$12.6 million	—	+$12.6 million
Research and development expense	$63.4 million	$42.2 million	+$21.3 million
General and administrative expense	$30.6 million	$19.3 million	+$11.4 million
Total operating expenses	$94.0 million	$61.4 million	+$32.6 million
Loss from operations	$(81.4) million	$(61.4) million	$(20.0) million
Net loss	$(81.0) million	$(60.5) million	$(20.6) million
Basic and diluted loss per share	$(1.39)	$(1.54)	Improved per share due primarily to higher share count

2020 license revenue resulted from the Angelini collaboration; the company continued to have no drug-sales revenue.
Research and development expense increased primarily because of higher development activity. It included $43.6 million of preclinical and development costs, $15.4 million of payroll-related costs and $4.4 million of other costs.
General and administrative expense increased primarily because of legal, compliance, professional and pre-commercialization costs and higher payroll-related expense.
Stock-based compensation was $7.5 million, compared with $5.2 million in 2019.
No income tax provision was recorded; deferred tax assets were fully offset by a valuation allowance of approximately $89.8 million.

Cash flow, liquidity and capital structure

Cash and cash equivalents were $72.0 million at December 31, 2020, compared with $41.9 million at December 31, 2019. Total cash, cash equivalents and short-term investments declined from $76.7 million to $72.0 million because all short-term investments had matured or been converted to cash.
Operating cash outflow was $51.6 million, compared with $51.1 million in 2019.
Investing activities provided $34.6 million, primarily because of maturities of short-term investments.
Financing activities provided $47.1 million, primarily from the August 2020 offering, which generated $46.7 million of net proceeds.
Working capital was $52.8 million and the accumulated deficit was $294.2 million.
The company reported no long-term debt, no leases and no material non-cancelable purchase commitments. It had no off-balance-sheet arrangements.
Ovid had $250.0 million available under its Form S-3 shelf registration statement at year-end, including $75.0 million available under an at-the-market program.

Material changes versus the prior comparable period

Revenue began in 2020 through the Angelini license agreement, including $6.1 million of license revenue, $1.5 million related to ongoing trials and $5.0 million related to transferred compound and information.
Operating expenses rose 53% year over year, while net loss increased 34%.
The August 2020 equity offering added 6.25 million common shares and $46.7 million of net proceeds. Shares outstanding increased to 65.7 million at year-end from 54.7 million.
Ovid recognized $12.4 million of deferred revenue at year-end, primarily associated with continuing trial obligations under the Angelini agreement.
In December 2020, the Phase 3 NEPTUNE trial of OV101 in pediatric Angelman syndrome failed to achieve its primary endpoint. Further OV101 development, other than the ongoing ELARA extension study, was placed on hold pending full analysis.
OV935 produced positive topline Phase 2 ELEKTRA results in Dravet and Lennox-Gastaut syndromes, supporting plans to begin separate Phase 3 trials in the second quarter of 2021.
In March 2021, after the reporting period, Ovid entered into an agreement under which Takeda would obtain global rights to OV935 and assume future development and commercialization costs.

Guidance, outlook, risks and unusual items

Management expects substantial operating losses and negative cash flows for at least the next several years as clinical development, regulatory, commercialization and infrastructure activities continue.
Management identified conditions that raised substantial doubt about the company’s ability to continue as a going concern, primarily the need for additional capital. Management expected the proposed Takeda transaction to alleviate this uncertainty, but closing remained subject to customary conditions and was not assured at the filing date.
Under the proposed Takeda transaction, Ovid expected a $196.0 million upfront payment, eligibility for up to $660.0 million in development, regulatory and sales milestones, and tiered royalties ranging from the low double digits to 20% if OV935 is approved and commercialized. These amounts were contingent on closing and future performance.
COVID-19 created risks to clinical enrollment, site operations, manufacturing, regulatory timelines and access to capital. Ovid reported work-from-home operations and potential delays but did not expect a material impact on clinical supply at the filing date.
OV935 remained investigational. Positive Phase 2 results do not assure successful Phase 3 results or regulatory approval.
OV101 faced substantial program risk following the unsuccessful NEPTUNE trial. Development in Fragile X syndrome was also under review.
The company relies on Takeda, Angelini, Lundbeck, contract research organizations and third-party manufacturers. Disruption, termination or underperformance by these parties could delay development or reduce economic rights.
Potential contingent milestone obligations under license agreements totaled up to approximately $279.3 million, excluding royalties; the timing and probability of payment could not be reasonably estimated.
Ovid’s intellectual property, regulatory approval, patient enrollment, manufacturing, reimbursement, competition, cybersecurity and additional-financing risks remain material.

Most important facts for investors to verify

Whether the Takeda License and Termination Agreement closed and whether the $196.0 million upfront payment was received.
Whether OV935 Phase 3 trials started as planned and whether subsequent clinical or regulatory results support milestone payments and royalties.
Ovid’s post-transaction cash balance, operating burn rate and remaining financing needs.
The final accounting treatment and timing of the Angelini deferred revenue and future milestone consideration.
The complete analysis of the NEPTUNE trial and any decision regarding renewed development of OV101.
Potential dilution from the 10.4 million outstanding stock options, 3.25 million shares issuable upon conversion of Series A preferred stock and future equity financing.
The company’s ability to maintain operations if the Takeda transaction fails or if expected milestone and royalty payments are not realized.