MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with the financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Some of the information in this discussion and analysis contains forward-looking statements reflecting our current expectations and involves risk and uncertainties. For example, statements regarding our expectations as to our plans and strategy for our business, future financial performance, expense levels and liquidity sources are forward-looking statements. Our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under the “Risk Factors” section and elsewhere in this Annual Report on Form 10-K. Please also see the section entitled “Special Note Regarding Forward-Looking Statements.”
Overview
We are a clinical-stage biopharmaceutical company focused on the development and commercialization of certain proprietary product candidates to treat patients suffering from central nervous system (“CNS”) diseases.
Our lead product candidate, roluperidone, is in development for the treatment of negative symptoms in patients diagnosed with schizophrenia. In August 2022, we submitted a New Drug Application (“NDA”) with the U.S. Food and Drug Administration (“FDA”) for roluperidone for the treatment of negative symptoms in schizophrenia. On February 26, 2024, the FDA issued a Complete Response Letter (“CRL”) regarding our NDA for roluperidone. Subsequent to the CRL, we have had multiple interactions with the FDA to confirm the design of an additional Phase 3 confirmatory clinical trial to address the deficiencies cited in the CRL and resubmit the NDA.
As with the completed Phase 2b (C03) and Phase 3 (C07) clinical trials of roluperidone, the new Phase 3 confirmatory trial, which we refer to as the C19 trial, will include patients diagnosed with schizophrenia who present with stable impairing negative symptoms and stable positive symptoms for the six months prior to entering the trial. We agreed with the FDA that best efforts will be made to secure 25-30% of patients from the United States, subject to competitive recruitment. The FDA confirmed that roluperidone can be studied in monotherapy where patients will receive a double-blinded single daily 64 mg dose of roluperidone or placebo. The FDA advised that, to support a monotherapy indication, it would be necessary to assess relapses on an observational basis for at least 52 weeks, in patients treated in monotherapy with roluperidone, placebo or antipsychotics. The FDA also stated that it would consider a resubmission of the NDA that included a double-blind, placebo- or active-controlled trial of roluperidone with a duration of at least 52 weeks with the efficacy primary endpoint at week 12.
Subject to ongoing feedback from the FDA, the C19 trial is currently expected to be initiated, including first patient screened, in the second quarter of 2026. The trial is designed to enroll 380 patients, randomized on a 1:1 basis to receive either placebo or a double-blinded single daily 64 mg dose of roluperidone. The primary efficacy endpoint is expected to be the change from baseline in the PANSS Marder negative symptoms factor score (“NSFS”) at 12 weeks of treatment with roluperidone compared to placebo. Following the initial 12-week treatment period, patients are expected to enter a 40-week relapse assessment phase, during which patients will crossover to receive either a daily 64 mg dose of roluperidone or antipsychotics. We currently expect topline efficacy results in the second half of 2027 and relapse assessment data in the second half of 2028.
In addition, we previously co-developed seltorexant with Janssen Pharmaceutica NV (“Janssen”), a subsidiary of Johnson & Johnson, for the treatment of insomnia disorder and adjunctive treatment of Major Depressive Disorder (“MDD”). As a result of our collaboration with Janssen, we were entitled to collect royalties in the mid-single digits on potential future worldwide sales of seltorexant in certain indications, with no further financial obligations to Janssen. In January 2021, we sold our rights to these potential royalties to Royalty Pharma plc (“Royalty Pharma”) for a $60 million cash payment and up to an additional $95 million in potential future milestone payments, subject to completion of Phase 3 trials by Janssen and regulatory approvals. To our knowledge, Janssen is currently recruiting patients under a Phase 3 trial with seltorexant.
We have not received any regulatory approvals to commercialize any of our product candidates, and we have not generated any revenue from the sales or license of our product candidates. We routinely evaluate the status of our drug development programs as well as potential strategic options. We have incurred significant operating losses since inception and expect to continue to incur net losses and negative cash flows from operating activities for the foreseeable future. As of December 31, 2025 and 2024, we had an accumulated deficit of $688.8 million and $395.4 million, respectively. For the years ended December 31, 2025 and 2024, we recorded net loss of $293.4 million and a net income of $1.4 million, respectively. We expect our clinical and administrative costs will increase as we begin to incur clinical trial costs and hire additional support staff to support the Phase 3 trial of roluperidone.
Recent Developments
On October 21, 2025, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain accredited investors, pursuant to which we agreed to issue and sell, in a private placement (the “Private Placement”), (i) 80,000 shares of Series A Convertible Preferred Stock, par value $0.0001 per share (“Series A Preferred Stock”), at a purchase price of $1,000 per share, (ii) tranche A warrants (the “Preferred Tranche A Warrants”) to acquire shares of Series A Preferred Stock (the “Tranche A Warrant Shares”) and (iii) tranche B warrants (the “Preferred Tranche B Warrants,” together with the Preferred Tranche A Warrants, the “Preferred Warrants”) to acquire shares of Series A Preferred Stock for an aggregate offering price of up to $200 million. The closing of the Private Placement took place on October 23, 2025.
The gross proceeds of the Private Placement are estimated to be up to approximately $200 million, before deducting fees paid to the placement agent of the Private Placement and other estimated offering expenses payable by us, including initial upfront gross proceeds of $80 million in exchange for shares of the Series A Preferred Stock, up to an additional $80 million in gross proceeds if all Preferred Tranche A Warrants are exercised, subject to the terms and conditions specified therein, and up to an additional $40 million in gross proceeds if all Preferred Tranche B Warrants are exercised by cash payment upon the achievement of certain milestone event.
This private placement followed our announcement in August 2025 of our general alignment with the FDA on the design of a confirmatory Phase 3 trial of roluperidone. We expect to use the net proceeds of this private placement to fund the confirmatory Phase 3 trial of roluperidone and our resubmission of our NDA, to prepare for a potential commercial launch of roluperidone in the U.S., if approved, and for working capital and general corporate purposes.
Macroeconomic Considerations
Results of our operations have varied and may vary in the future based on the impact of changes in the domestic or global economy. Negative conditions in the general economy both in the United States and abroad, including conditions resulting from changes in inflation and fluctuations in interest rates, financial and credit market fluctuations, international trade relations and tariffs, pandemics, political turmoil, natural catastrophes and warfare in the United States or elsewhere, could negatively affect our business. It is not possible at this time to estimate the long-term impact that these and related events could have on our business, as the impact will depend on future developments, which are highly uncertain and cannot be predicted.
Financial Overview
Revenue
None of our product candidates have been approved for commercialization and we have not received any revenue in connection with the sale or license of our product candidates.
Research and Development Expenses
Research and development costs are expensed as they are incurred and consist principally of costs incurred in connection with the development of our product candidates including: fees paid to consultants and clinical research organizations (“CROs”), investigator grants, patient screening, laboratory work, database management, material management, statistical analysis, license fees, regulatory compliance, and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in research and development functions.
Completion dates and costs can vary significantly by product candidate and are difficult to predict. We anticipate making determinations as to which programs to pursue and the level of funding to direct to each program on an ongoing basis in response to the scientific and clinical success or failure of each product candidate, the estimated costs to continue the development program relative to our available resources, as well as an ongoing assessment of each product candidate’s commercial potential. We will need to raise additional capital or may seek additional product collaborations in the future to complete the development and commercialization of our product candidates.
General and Administrative Expenses
General and administrative costs are expensed as they are incurred and consist principally of costs for facility and information systems, professional fees for auditing, consulting and legal services and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in administrative functions. General and administrative costs also include costs for maintaining a publicly listed company including increased audit and legal fees, compliance with securities laws, corporate governance and investor relations.
Foreign Exchange Gains (Losses)
Foreign exchange gains (losses) are comprised primarily of gains and (losses) on foreign currency transactions primarily related to research and development expenses. We incur certain expenses, primarily in Euros, and record these expenses in United States Dollars at the time the liability is incurred. Changes in the applicable foreign currency rate between the date that an expense is recorded and the payment date is recorded as a foreign currency gain or (loss).
Investment Income
Investment income consists of income earned on our cash equivalents and marketable securities.
Non-Cash Interest Expense for the Sale of Future Royalties
Non-cash interest expense for the sale of future royalties consists of the non-cash interest expense associated with the Royalty Pharma agreement.
Other Income
Other income consists of the gain associated with the adjustment to the carrying amount of the liability related to the sale of future royalties.
Loss on issuance of convertible preferred stock and warrants
Loss on issuance of convertible preferred stock and warrants consists of the loss recognized due to the issuance of Series A Preferred Stock and warrants at fair value, offset by the gross proceeds received from investors.
Warrant issuance cost
Warrant issuance costs are expensed as incurred and consist principally of legal, professional, and filing fees, as the warrants are classified as liabilities.
Changes in fair value of the warrant liability
Changes in fair value of the warrant liability consist of the gain (loss) associated with the adjustment to the carrying amount of the warranty liability.
Net Operating Losses Carryforwards
As of December 31, 2025, we had approximately $188.2 million of federal net operating losses that will begin to expire in 2036, if not utilized. Of the total federal net operating loss, approximately $166.8 million has an unlimited carryforward and therefore will not expire. As of December 31, 2025, we had approximately $7.7 million of New Jersey and approximately $180.4 million of Massachusetts operating losses that will begin to expire in 2029 and 2037, respectively, if not utilized.
Results of Operations
Comparison of the Years Ended December 31, 2025 and December 31, 2024 (in thousands):
Year Ended December 31,
Expenses
Research and development
General and administrative
Total expenses
Loss from operations
Foreign exchange losses
Investment income
Non-cash interest expense for the sale of future royalties
Other income
Loss on issuance of convertible preferred stock and warrants
Warrant issuance cost
Changes in fair value of the warrant liability
Net (loss) income
Research and Development Expenses
Research and development expenses were $5.8 million and $11.9 million for the years ended December 31, 2025 and 2024, respectively, a decrease of $6.1 million. The decrease in research and development expenses was primarily due to costs incurred during 2024 for a drug substance validation campaign and safety study, as well as lower consultant fees and compensation expenses during 2025. Non-cash stock compensation costs included in research and development expenses were $0.4 million and $0.5 million for the years ended December 31, 2025 and 2024, respectively.
General and Administrative Expenses
General and administrative expenses were $9.3 million and $9.9 million for the years ended December 31, 2025 and 2024, respectively, a decrease of $0.6 million. The decrease in general and administrative expenses was primarily due to lower professional service fees and insurance costs. Non-cash stock compensation costs included in general and administrative expenses were $0.9 million for both the years ended December 31, 2025 and 2024.
Foreign Exchange Losses
Foreign exchange losses were $57 thousand and $2 thousand for the years ended December 31, 2025 and 2024, respectively, an increase of $55 thousand, primarily due to currency movements.
Investment Income
Investment income was $0.9 million and $1.3 million for the years ended December 31, 2025 and 2024, respectively, a decrease of approximately $0.4 million, primarily due to cash and cash equivalents balances and interest rates.
Non-Cash Interest Expense for the Sale of Future Royalties
Non-cash interest expense for the sale of future royalties was zero and $4.6 million for the years ended December 31, 2025 and 2024, respectively, a decrease of $4.6 million. During the third quarter of 2024 based on available data, a revision was made to the assumptions used to calculate estimated future cash flows to be received by us under the royalty purchase agreement with Royalty Pharma. Due to the reduction in future cash flow estimates, the carrying amount of the liability related to the sale of future royalties was reduced from $86.6 million to the initial cash payment received of $60.0 million. This adjustment resulted in the recognition of $26.6 million in non-cash other income during the third quarter of 2024, which represented the amount of non-cash interest expense previously recognized through June 30, 2024. No further non-cash interest expense associated with the liability related to the sale of future royalties has been recognized, and as a result, no interest expense was recognized in the fourth quarter of 2024 or full year 2025.
Other Income
Other income was zero and $26.6 million for the years ended December 31, 2025 and 2024, respectively, a decrease of $26.6 million. The decrease in other income was due to recognizing $26.6 million in non-cash other income during the third quarter of 2024 due to a reduction in the carrying amount of the liability related to the sale of future royalties.
Loss on issuance of convertible preferred stock and warrants
In conjunction with the October 2025 private placement, we issued 80,000 shares of Series A Preferred Stock, which was convertible into 37.8 million shares of common stock. The fair value of the Series A Preferred Stock on the date of issuance was $184.6 million, based upon the conversion ratio of the preferred shares and the closing price of the common stock on the date of issuance. In addition, we issued warrants for up to 120,000 shares of Series A Preferred Stock which, if fully exercised, are convertible into 56.8 million shares of common stock. Based on the valuation model used, the fair value of the warrants on the date of issuance was calculated to be $216.9 million, which was recorded as a non-cash warrant liability. As these warrants have been classified as a liability, any unexercised and outstanding warrants are revalued at each reporting period with subsequent changes in fair value recognized in the statement of operations. For the year ended December 31, 2025, we recorded a loss on the issuance of convertible preferred stock and warrants of $321.5 million, reflecting the initial fair values of the warrants of $216.9 million and the Series A Preferred Stock of $184.6 million, offset by $80.0 million in gross proceeds received from investors. The warrant liability is decreased when warrants are exercised and the liability associated with such exercised warrants is reclassified to stockholders’ equity. The fair value of the warrant liability also decreases or increases based on the price of our common stock during the reporting period as well as any changes in other variables in the valuation model used to calculate the non-cash warrant liability.
Warrant issuance cost
In conjunction with the October 2025 private placement, we incurred offering issuance costs of $5.7 million, of which $2.6 million was recorded in the balance sheet as a reduction to the Series A Preferred Stock and $3.1 million as warrant issuance expense during the fourth quarter of 2025. The allocation of the offering costs was based upon the relative fair values of the Series A Preferred Stock and warrants issued in the private placement on the date of issuance.
Changes in fair value of the warrant liability
Changes in fair value of the warrant liability were $45.4 million and zero for the years ended December 31, 2025 and 2024, respectively, a decrease of $45.4 million. Gain (loss) on the change in fair value of the warrant liability is related to the warrants issued in conjunction with the October 2025 private placement. The fair value of the non-cash warrant liability at December 31, 2025 was calculated to be $171.5 million and, as a result, the decrease in fair value of $45.4 million for the three-month period ended December 31, 2025 was recognized as a non-cash component of other income in the statement of operations.
Non-GAAP Financial Measures
In addition to our results determined in accordance with U.S. generally accepted accounting principles (“GAAP”), we believe the following non-GAAP measures are useful in evaluating our operating performance. Non-GAAP financial measures are included with the intent of providing investors with an understanding of our historical financial results and trends and to facilitate comparisons between periods. In addition, these non-GAAP financial measures are among the indicators our management uses for planning and forecasting purposes and measuring our performance. We believe that these non-GAAP financial measures, when considered together with U.S. GAAP measures, can enhance the understanding of our financial and operating performance. Non-GAAP financial measures have no standardized meaning and investors are cautioned that, unlike financial measures prepared in accordance with U.S. GAAP, non-GAAP measures may not be comparable with the calculation of similar measures for other companies. The limitations of using non-GAAP financial measures as performance measures are that they provide a view of our results of operations without including all events during a period and may not provide a comparable view of our performance to other companies in the biopharmaceutical industry. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business.
Non-GAAP total liabilities is defined as GAAP total liabilities, excluding warrant liability and liability related to the sale of future royalties. Reconciliations of reported GAAP total liabilities to non-GAAP total liabilities for the years ended December 31, 2025 and 2024 were as follows (in thousands):
Year Ended December 31,
Current liabilities
Accounts payable
Accrued expenses and other current liabilities
Total current liabilities
Warrant liability
Liability related to the sale of future royalties
Total liabilities – GAAP
Reconciling items:
Warrant liability
Liability related to the sale of future royalties
Total liabilities – non-GAAP
Non-GAAP adjusted net (loss) income is defined as GAAP net (loss) income, adjusted to exclude non-cash items related to: (i) stock-based compensation expense, (ii) interest expense for the sale of future royalties, (iii) other non-cash income, (iv) loss on issuance of convertible preferred stock and warrants and (v) changes in fair value of warrant liability. Non-GAAP adjusted net (loss) income per share, basic and diluted, is defined as GAAP net (loss) income per share, basic and diluted, adjusted to exclude non-cash items related to: (i) stock-based compensation expense, (ii) interest expense for the sale of future royalties, (iii) other non-cash income, (iv) loss on issuance of convertible preferred stock and warrants and (v) changes in fair value of warrant liability. Reconciliations of reported GAAP net (loss) income to non-GAAP adjusted net (loss) income, and reported GAAP net (loss) income per share, basic and diluted, to non-GAAP adjusted net (loss) income per share, basic and diluted, for the years ended December 31, 2025 and 2024 were as follows (in thousands, except share and per share amounts):
Year Ended December 31,
Net (loss) income – GAAP
Reconciling items:
Stock-based compensation expense
Non-cash interest expense for the sale of future royalties
Other income
Loss on issuance of convertible preferred stock and warrants
Changes in fair value of the warrant liability
Adjusted net (loss) income – non-GAAP
Net (loss) income per share, basic – GAAP
Weighted average shares outstanding, basic
Net (loss) income per share, diluted – GAAP
Weighted average shares outstanding, diluted
Reconciling items:
Stock-based compensation expense
Non-cash interest expense for the sale of future royalties
Other income
Loss on issuance of convertible preferred stock and warrants
Changes in fair value of the warrant liability
Net (loss) income per share, basic – non-GAAP
Weighted average shares outstanding, basic
Net (loss) income per share, diluted – non-GAAP
Weighted average shares outstanding, diluted
Liquidity and Capital Resources
Sources of Liquidity
As of December 31, 2025, we had an accumulated deficit of approximately $688.8 million. We anticipate that we will continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of our product candidates
and to support our operations as a public company. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we may never generate product revenue or achieve profitability. As of December 31, 2025, we had approximately $82.4 million in cash, cash equivalents, and restricted cash, which we believe will be sufficient to meet our operating commitments for the next 12 months from the date our financial statements are issued. Our cash requirements primarily relate to expenditures to support the development of roluperidone, which includes advancing the program through the regulatory process.
The process of drug development can be costly and the timing and outcomes of clinical trials is uncertain. The assumptions upon which we have based our estimates are routinely evaluated and may be subject to change. The actual amount of our expenditures will vary depending upon many factors, including, but not limited to, the design, timing and duration of future clinical trials, the progress of our research and development programs, the infrastructure to support a commercial enterprise and the level of financial resources available. We can adjust our operating plan spending levels based on the timing of future clinical trials which are predicated upon adequate funding to complete the trials. We routinely evaluate the status of our clinical development programs as well as potential strategic options.
Private Placement of Series A Preferred Stock and Warrants
On October 21, 2025, we entered into the Securities Purchase Agreement, see the section titled "Recent Developments" for more information. The Private Placement closed on October 23, 2025 (the “Closing Date”), pursuant to which we received aggregate gross proceeds of $80.0 million, before deducting placement agent fees, financial advisor fees, and other offering expenses. We incurred approximately $5.7 million in offering costs, including deferred issuance costs included in accounts payable and accrued expenses, resulting in net proceeds of approximately $74.3 million. Costs associated with the Preferred Warrants, which are classified as liabilities, are expensed as incurred. Costs attributable to the issuance of Series A Preferred Stock are recorded as a reduction of the carrying value of the Preferred Stock. On the Closing Date, we recorded a loss on issuance of convertible preferred stock and warrants of $321.5 million, reflecting the initial fair values of the Series A Preferred Stock of $184.6 million and the warrants of $216.9 million, offset by $80.0 million in gross proceeds received from investors. The value of the Series A Preferred Stock at issuance was determined based on the contractual conversion ratio multiplied by the closing price of our common stock on the Closing Date. For further discussion regarding the warrant liability and related valuation assumptions, please refer to Note 7, Warrant Liability, to our financial statements appearing elsewhere in this Form 10-K.
On December 23, 2025, following the announcement of the stockholders’ approval of the issuance of common stock issuable upon conversion of the Series A Preferred Stock, we issued an aggregate of 36,280,992 shares of common stock upon the automatic conversion of an aggregate of 76,704 shares of Series A Preferred Stock in accordance with the terms set forth in the Certificate of Designation of Preferences, Rights and Limitations of the Series A Convertible Voting Preferred Stock (the “Certificate of Designation”). Immediately following such conversion, (i) there were 43,274,398 shares of common stock outstanding and (ii) an aggregate of 3,296 shares of Series A Preferred Stock remaining outstanding, which are convertible into an aggregate of 1,559,008 shares of common stock, subject to the limitations on conversion set forth in the Certificate of Designation. Each share of Series A Preferred Stock automatically converted into the number of shares of common stock at the conversion price of $2.11 per share, rounded down to the nearest whole share, subject to the terms and limitations contained in the Certificate of Designation, including that shares of Series A Preferred Stock shall not be convertible if the conversion would result in a holder beneficially owning more than 9.99% (the “Beneficial Ownership Limitation”) of our outstanding shares of common stock as of the applicable conversion date. By written notice to us, the holder may from time to time increase or decrease the Ownership to any other percentage not in excess of 19.99% specified in such notice; provided, that any increase in the Ownership will not be until the 61st day after such notice is delivered to us.
Each Preferred Tranche A Warrant has an exercise price of $1,000 and may only be exercised for cash. The Preferred Tranche A Warrants are immediately exercisable upon issuance for an aggregate of 80,000 shares of Series A Preferred Stock for an aggregate cash exercise price of up to $80 million until the tenth day following the date of our public announcement that we have achieved, on a statistically significant basis, the primary endpoint of our Phase 3 confirmatory trial of roluperidone in schizophrenia at the 12-week timepoint (the “Milestone Event”).
Each Preferred Tranche B Warrant has an exercise price of $1,000 and may be exercised by a cashless exercise. The Preferred Tranche B Warrants are exercisable for an aggregate of 40,000 shares of Series A Preferred Stock for an aggregate cash exercise price of up to $40 million commencing on the earlier of (i) our public announcement of the Milestone Event and (ii) the three year anniversary of the Closing Date. The Preferred Tranche B Warrants will expire on the four (4)-year anniversary of the Closing Date.
The Preferred Warrants are subject to forfeiture in the event the applicable holder engages in any Short Sales (as defined in the Securities Purchase Agreement) involving our securities during the 48-months period following the Closing Date. In addition, the shares of common stock and/or Series A Preferred Stock, as applicable, underlying the Preferred Tranche B Warrants are subject to
reduction if the applicable holder sells or transfers any shares of Series A Preferred Stock or shares of common stock received upon conversion of the Series A Preferred Stock before the Exercisability Date (as defined therein), except to affiliates for no consideration.
Pursuant to the Certificate of Designation, no fractional shares or scrip representing fractional shares of common stock shall be issued upon the conversion of the Series A Preferred Stock. All fractional shares shall be rounded down to the nearest whole shares of common stock. Holders of Series A Preferred Stock are not entitled to receive any dividends except to the extent that dividends are paid on our common stock. If dividends are paid on shares of common stock, holders of Series A Preferred Stock are entitled to participate in such dividends on an as-converted basis. Upon the liquidation, dissolution, or winding up of us, each holder of Series A Preferred Stock will participate pari passu with any distribution of proceeds to holders of common stock. Holders of the Series A Preferred Stock are entitled to vote together with the holders of common stock on an as-if-converted basis on all matters submitted to a vote of stockholders.
Pursuant to the Securities Purchase Agreement, we filed a registration statement on Form S-3 (File No. 333-292410), which was declared effective by the SEC on January 6, 2026, covering the resale of the Registrable Securities (as such term is defined in the Securities Purchase Agreement). We have agreed to take all steps necessary to keep such registration statement effective at all times until all Registrable Shares have been resold, or there remains no Registrable Shares.
Seltorexant Royalties
We previously co-developed seltorexant with Janssen for the treatment of insomnia disorder and adjunctive treatment of MDD. During 2020, we exercised our right to opt out of a joint development agreement with Janssen for the future development of seltorexant. As a result, we were entitled to collect royalties in the mid-single digits on potential future sales of seltorexant worldwide in certain indications, with no further financial obligations to Janssen.
On January 19, 2021, we sold our royalty interest in seltorexant to Royalty Pharma for an upfront payment of $60 million and up to an additional $95 million in potential future milestone payments, contingent upon the achievement of certain clinical, regulatory and commercial milestones for seltorexant by Janssen.
Uses of Funds
To date, we have not generated any revenue from sales of products. We have only generated collaborative revenue due to opting out of our license and co-development agreement with Janssen. Furthermore, the $60 million payment received from Royalty Pharma for the sale of our royalty interests in seltorexant has been included on our balance sheet under liability related to the sale of future royalties. We do not know when, or if, we will generate any revenue from sales of our products, or from the potential future non-cash royalty revenue associated with the sale of our royalty interests in seltorexant to Royalty Pharma. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize any of our product candidates. At the same time, we expect our expenses to increase in connection with our ongoing development activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, our product candidates. We also expect to continue to incur costs associated with operating as a public company. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution.
Until such time, if ever, as we can generate substantial revenue from product sales, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, commercialization, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of our common stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Additional debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through government or other third party funding, commercialization, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be to us. There can be no assurance that such additional funding, if available, can be obtained on terms acceptable to us, and our ability to raise additional capital may be impacted by global economic conditions, geopolitical , such as the war in Ukraine and hostilities in the Middle East, and other factors. If we are to obtain additional financing, future operations would need to be scaled back or . We believe that our existing cash, cash equivalents, and restricted cash will be sufficient to meet our cash commitments for at least the next 12 months after the date that the financial statements are issued. The timing of future capital requirements depends upon many factors including the size and timing of future clinical trials, the timing and scope of any strategic partnering activity and the of other research and development activities.
Cash Flows
The tables below set forth our significant sources and uses of cash for the periods.
Year Ended December 31,
(dollars in millions)
Net cash (used in) provided by :
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash
Net Cash Used in Operating Activities
Net cash used in operating activities of approximately $13.5 million during the year ended December 31, 2025 was primarily due to our net loss of $293.4 million and a $45.4 million decrease in fair value of the warranty liability, partially offset by the loss on issuance of convertible preferred stock and warrants of $321.5 million, warrant issuance costs of $3.1 million and stock-based compensation expense of $1.3 million.
Net cash used in operating activities of approximately $19.6 million during the year ended December 31, 2024 was primarily due to our net income of $1.4 million, non-cash interest expense for the sale of future royalties of $4.6 million and stock-based compensation expense of $1.3 million, offset by the adjustment to the carrying amount of the liability related to the sale of future royalties of $26.6 million and an approximately $0.3 million decrease in accrued expenses.
Net Cash Provided by Investing Activities
Net cash provided by investing activities was zero during the years ended December 31, 2025 and 2024.
Net Cash Provided by Financing Activities
Net cash provided by financing activities of approximately $74.5 million during the year ended December 31, 2025 was primarily due to the net proceeds from the Private Placement that closed in October 2025.
Net cash provided by financing activities was zero during the twelve months ended December 31, 2024.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Form 10-K, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.
Research and Development Costs
Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain technology in our research and development projects as well as fees paid to consultants and various entities that perform certain research and testing on our behalf and costs related to salaries, benefits, bonuses and stock-based compensation granted to employees in research and development functions. We determine our expenses related to clinical studies based on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations
that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. The expenses for some trials may be recognized on a straight-line basis if the anticipated costs are expected to be incurred ratably during the period. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the condensed consolidated financial statements as prepaid or accrued expenses.
We make estimates of our accrued research and development expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time. Although we do not expect that our estimates will be materially different from amounts actually incurred, our understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or too low for any particular period. There had been no material adjustments to our prior period estimates of accrued expenses for clinical trials. However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials.
Goodwill
We test our goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing our reporting unit’s carrying value to its fair value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If we determine that an impairment has occurred, we are required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact those judgments in the future and require an adjustment to the recorded balances. We have a single reporting unit, which is the level that the goodwill impairment test is performed. There was no of goodwill for the years ended December 31, 2025 and 2024. As of December 31, 2025, $14.9 million of goodwill was associated with a reporting unit with zero or carrying value. As the reporting unit had a fair value, there was no associated with this reporting unit.
Liability related to the sale of future royalties
We treat the sale of future royalties to Royalty Pharma as a debt financing, as we have significant continuing involvement in facilitating the transfer of royalties to Royalty Pharma and Royalty Pharma has recourse against us relating to the payments due from Janssen. As a result, we recorded the upfront payment of $60 million from this transaction as a liability related to the sale of future royalties, and up to an additional $95 million in potential milestone payments will also be recorded as a liability related to the sale of future royalties and amortized as interest expense over the estimated remaining life of the agreement. Under the terms of the agreement, all payments from Royalty Pharma to us, including the initial upfront payment of $60 million as well as amortized interest expense and potential milestone payments, are not repayable to Royalty Pharma in the event that Janssen discontinues the clinical development of seltorexant or ceases to pursue its commercialization at a future date for any reason.
The liability related to sale of future royalties and the related interest expense is based on our current estimates of future royalties expected to be paid over the life of the arrangement. We will periodically assess the expected royalty payments using a combination of internal projections and forecasts from external sources. To the extent our future estimates of royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than its previous estimates, we will recognize related non-cash interest expense or other income.
During the third quarter of 2024, we made a significant revision to our estimates for the timing and amount of future royalty payments to be earned over the life of the co-development and license agreement with Janssen. As a result, the estimate of undiscounted royalty payments were less than the original carrying value of the upfront $60 million payment received from Royalty Pharma. Therefore, under the retrospective interest model, as of December 31, 2024 we adjusted the liability related to the sale of future royalties (the “Royalty Obligation”) to the initial upfront payment received of $60 million and recognized $26.6 million as a component of Other Income, representing the amount of amortized non-cash interest expense through June 30, 2024. In addition, we do not expect to recognize non-cash interest expense in the future related to the Royalty Obligation, as the effective annual interest rate is negative.
For further discussion of the sale of future royalties, please refer to Note 5, Sale of Future Royalties, to our financial statements appearing elsewhere in this Form 10-K.
Warrant Liability
In conjunction with the issuance of Series A Preferred Stock and Preferred Tranche A and Tranche B Warrants, we established a warrant liability as of October 23, 2025, representing the fair value of the warrants issued, which was determined using a binomial valuation model. We account for these warrants as liabilities in accordance with ASC 480, Distinguishing Liabilities from Equity , due to the Fundamental Transaction provisions contained in both the Tranche A and Tranche B Warrants, as such provisions do not distinguish between transactions that are within our control and those that are not. Specifically, if, at any time while the warrants are outstanding, we shall enter into or be party to a Fundamental Transaction, then we (or the successor entity) shall purchase all outstanding warrants from the holders by paying to the holders cash in an amount equal to the Black Scholes Value of the remaining unexercised portion of each warrant on the effective date of such Fundamental Transaction. As such, The warrant liabilities are initially measured at fair value and remeasured at fair value at each reporting date, with changes in fair value recognized in earnings. The warrant liabilities are measured using Level 3 inputs within the fair value hierarchy.
For further discussion regarding the warrant liability and related valuation assumptions, please refer to Note 7, Warrant Liability, to our financial statements appearing elsewhere in this Form 10-K.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by Financial Accounting Standards Board (“FASB”) and are adopted by us as of the specified effective date. Our significant accounting policies are described in Note 2 to our financial statements appearing elsewhere in this Form 10-K. Except as described in Note 2, we believe that the impact of other recently issued, but not yet adopted, accounting pronouncements will not have a material impact on the financial position, results of operations and cash flows, or do not apply to our operations.
Smaller Reporting Company Status
We are a “smaller reporting company” as defined in the Securities Exchange Act of 1934, as amended (“Exchange Act”). We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as the market value of our voting and non-voting common stock held by non-affiliates is less than $250 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100 million during the most recently completed fiscal year and the market value of our voting and non-voting common stock held by non-affiliates is less than $700 million measured on the last business day of our second fiscal quarter.
IT EM 7A. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule12b-2 of the Exchange Act and are not required to provide the information required under this item.
