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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

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 001-36576

Graphic

MARINUS PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware

20-0198082

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

5 Radnor Corporate Center, Suite 500

100 Matsonford Rd

Radnor, PA 19087

(Address of registrant’s principal executive offices, including zip code)

Registrant’s telephone number, including area code: (484801-4670

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 $0.001 per share

MRNS

Nasdaq Global Market

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, a 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

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of May 3, 2024, was: 54,933,774.

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2024

PART I – FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements (unaudited)

Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

3

Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2024 and 2023

4

Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023

5

Consolidated Statements of Stockholders’ (Deficit) Equity for the three months ended March 31, 2024 and 2023

6

Notes to Consolidated Financial Statements

7

Item 2.

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

25

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

Item 4.

Controls and Procedures

48

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

49

Item 1A.

Risk Factors

49

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

51

Item 3.

Defaults Upon Senior Securities

51

Item 4.

Mine Safety Disclosures

51

Item 5.

Other Information

52

Item 6.

Exhibits

53

Signatures

54

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to the “Company,” “Marinus,” “we,” “us,” and “our” include Marinus Pharmaceuticals, Inc. and its wholly owned subsidiary, Marinus Pharmaceuticals Emerald Limited, an Ireland company.

2

PART I

FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

March 31,

December 31,

2024

2023

ASSETS

    

    

    

    

Current assets:

Cash and cash equivalents

$

104,253

$

120,572

Short-term investments

9,000

29,716

Accounts receivable, net

3,513

3,799

Inventory

5,783

2,413

Prepaid expenses and other current assets

 

8,727

 

8,746

Total current assets

 

131,276

 

165,246

Property and equipment, net

 

3,735

 

3,843

Other assets

 

2,339

 

1,819

Total assets

$

137,350

$

170,908

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

Current liabilities:

Accounts payable

$

6,125

$

4,003

Current portion of notes payable

15,401

11,551

Current portion of revenue interest financing payable

2,511

2,211

Accrued expenses

18,721

22,859

Total current liabilities

 

42,758

 

40,624

Notes payable, net of deferred financing costs

58,072

61,423

Revenue interest financing payable, net of deferred financing costs

34,642

33,766

Contract liabilities, net

17,730

17,545

Other long-term liabilities

582

785

Total liabilities

153,784

154,143

Stockholders’ (deficit) equity:

Common stock, $0.001 par value; 150,000,000 shares authorized, 54,938,349 issued and 54,931,042 outstanding at March 31, 2024 and 54,585,428 issued and 54,578,121 outstanding at December 31, 2023

 

55

 

55

Additional paid-in capital

 

594,106

 

588,656

Treasury stock at cost, 7,307 shares at March 31, 2024 and December 31, 2023

 

 

Accumulated other comprehensive loss

(20)

Accumulated deficit

 

(610,595)

 

(571,926)

Total stockholders’ (deficit) equity

 

(16,434)

 

16,765

Total liabilities and stockholders’ (deficit) equity

$

137,350

$

170,908

See accompanying notes to consolidated financial statements.

3

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

(unaudited)

Three Months Ended March 31,

    

2024

    

2023

    

Revenue:

    

Product revenue, net

    

$

7,509

    

$

3,332

Federal contract revenue

152

7,048

Collaboration revenue

    

18

    

Total revenue

7,679

10,380

Expenses:

Research and development

24,118

27,933

Selling, general and administrative

 

18,626

 

15,204

Cost of product revenue

756

206

Total expenses

 

43,500

 

43,343

Loss from operations

 

(35,821)

 

(32,963)

Interest income

 

1,462

 

2,343

Interest expense

 

(4,346)

 

(4,147)

Other income, net

 

36

 

37

Net loss applicable to common shareholders

$

(38,669)

$

(34,730)

Per share information:

Net loss per share of common stock—basic and diluted

$

(0.68)

$

(0.67)

Basic and diluted weighted average shares outstanding

 

56,851,811

 

51,769,685

Other comprehensive income:

Unrealized gain on available-for-sale securities

20

74

Total comprehensive loss

$

(38,649)

$

(34,656)

See accompanying notes to consolidated financial statements.

4

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

Three Months Ended March 31,

 

2024

2023

 

Cash flows from operating activities

    

    

    

    

Net loss

$

(38,669)

$

(34,730)

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

Depreciation and amortization

 

131

 

157

Amortization of debt issuance costs

609

480

Accretion of revenue interest financing debt, net of cash paid

1,065

1,440

Amortization of discount on short-term investments

(149)

(228)

Stock-based compensation expense

 

5,193

 

3,741

Amortization of net contract asset/liability

(337)

(413)

Noncash lease expense

 

47

 

53

Noncash lease liability

224

96

Write off of fixed assets

62

Changes in operating assets and liabilities:

Net contract asset/liability

 

522

 

544

Prepaid expenses and other current assets, non-current assets, inventory and accounts receivable

 

(3,833)

 

(8,963)

Accounts payable and accrued expenses

 

(2,264)

 

(3,717)

Net cash used in operating activities

 

(37,461)

 

(41,478)

Cash flows from investing activities

Maturities of short-term investments

 

20,885

 

Purchases of short-term investments

(51,995)

Net cash provided by (used in) investing activities

 

20,885

 

(51,995)

Cash flows from financing activities

Proceeds from exercise of stock options

 

257

 

Other cash flows from financing activities

(174)

Net cash provided by (used in) financing activities

 

257

 

(174)

Net decrease in cash and cash equivalents

 

(16,319)

 

(93,647)

Cash and cash equivalents—beginning of period

 

120,572

 

240,551

Cash and cash equivalents—end of period

$

104,253

$

146,904

Supplemental disclosure of cash flow information

Unrealized gain on short-term investments

$

20

$

74

Cash paid for interest during the period

$

2,671

$

2,156

See accompanying notes to consolidated financial statements.

5

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF (DEFICIT) EQUITY

(in thousands)

(unaudited)

Accumulated 

Series A

Additional

Other

Total 

Convertible Preferred Stock

Common Stock

Paid-in 

Treasury Stock

Comprehensive

Accumulated 

Stockholders’

  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Shares

  

Amount

  

Income (Loss)

  

Deficit

  

(Deficit) Equity

Balance, December 31, 2022

4,300

$

4,043

49,642,767

$

50

$

542,428

7,307

$

$

$

(430,521)

$

116,000

Stock-based compensation expense

3,741

3,741

Net issuance of common stock in connection with the vesting of restricted stock

22,350

Unrealized gain on short-term investments

74

74

Net Loss

(34,730)

(34,730)

Balance, March 31, 2023

 

4,300

$

4,043

49,665,117

$

50

$

546,169

7,307

$

74

$

(465,251)

$

85,085

Balance, December 31, 2023

 

$

54,578,121

$

55

$

588,656

7,307

$

$

(20)

$

(571,926)

$

16,765

Stock-based compensation expense

5,193

5,193

Exercise of stock options

57,665

257

257

Net issuance of common stock in connection with the vesting of restricted stock

295,256

Unrealized gain on short-term investments

20

20

Net loss

(38,669)

(38,669)

Balance, March 31, 2024

$

54,931,042

$

55

$

594,106

7,307

$

$

$

(610,595)

$

(16,434)

See accompanying notes to consolidated financial statements.

6

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Description of the Business and Liquidity

We are a commercial-stage pharmaceutical company dedicated to the development of innovative therapeutics for the treatment of seizure disorders, including rare genetic epilepsies and status epilepticus (SE). On March 18, 2022, the U.S. Food and Drug Administration (FDA) approved our new drug application (NDA) for the use of ZTALMY® (ganaxolone) oral suspension CV for the treatment of seizures associated with Cyclin-dependent Kinase-like 5 (CDKL5) Deficiency Disorder (CDD) in patients two years of age and older. ZTALMY, our first FDA approved product, became available for commercial sale and shipment in the third quarter of 2022. On July 28, 2023, the European Commission (EC) granted marketing authorization for ZTALMY for the adjunctive treatment of epileptic seizures associated with CDD in patients two to 17 years of age. ZTALMY may be continued in patients 18 years of age and older. We have an exclusive collaboration agreement with Orion Corporation (Orion) for European commercialization of ganaxolone for ZTALMY. Orion is preparing for commercial launches of ZTALMY in select European countries in 2024.

We are also developing ganaxolone for the treatment of other rare genetic epilepsies, including Tuberous Sclerosis Complex (TSC), and for the treatment of Refractory Status Epilepticus (RSE). SE is a life-threatening condition characterized by continuous, prolonged seizures or rapidly recurring seizures without intervening recovery of consciousness. If SE is not treated urgently, permanent neuronal damage may occur, which contributes to high rates of morbidity and mortality. Patients with SE who do not respond to first-line benzodiazepine treatment are classified as having Established Status Epilepticus (ESE) and those who then progress to and subsequently fail at least one second-line antiepileptic drug are classified as having RSE.

We are developing ganaxolone in formulations for two different routes of administration: intravenous (IV) and oral. The different formulations are intended to maximize potential therapeutic applications of ganaxolone for adult and pediatric patient populations, in both acute and chronic care. While the precise mechanism by which ganaxolone exerts its therapeutic effects in the treatment of seizures is unknown, its anticonvulsant effects are thought to result from positive allosteric modulation of the gamma-aminobutyric acid type A (GABAA) receptor in the central nervous system (CNS). Ganaxolone is a synthetic analog of allopregnanolone, an endogenous neurosteroid, and targets both synaptic and extrasynaptic GABAA. This unique receptor binding profile may contribute to the anticonvulsant, antidepressant and anxiolytic effects shown by neuroactive steroids in animal models, clinical trials or both.

Liquidity

Since inception, we have incurred negative cash flows from our operations, and other than for the three months ended September 30, 2022 due to a one-time net gain from the sale of our Priority Review Voucher (PRV), we have incurred net losses. We incurred a Net loss of $38.7 million for the three months ended March 31, 2024. There is no assurance that profitable operations will be achieved in the future, and if achieved, could be sustained on a continuing basis. In addition, development activities, clinical and preclinical testing, and commercialization of ganaxolone (in indications other than CDD in the U.S.) will require significant additional financing. Our accumulated deficit as of March 31, 2024 was $610.6 million, and we expect to incur substantial losses in future periods.

We plan to finance our future operations with a combination of proceeds from the issuance of equity securities, the issuance of debt, government funding, collaborations, licensing transactions and other commercial transactions or other sources, and revenues from product sales. We have not generated positive cash flows from operations, and there are no assurances that we will be successful in obtaining an adequate level of financing for the continued development and commercialization of ganaxolone.

Management’s operating plan, which underlies the analysis of our ability to continue as a going concern, involves the estimation of the amount and timing of future cash inflows and outflows. Actual results could vary from the operating plan. We follow the provisions of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 205-40, Presentation of Financial Statements—Going Concern, which requires management

7

to assess our ability to continue as a going concern within one year after the date the financial statements are issued. We had Cash and cash equivalents and Short-term investments of $113.3 million as of March 31, 2024. We believe that such amount is not sufficient to fund our operations for the one-year period after the date these financial statements are issued. As a result, there is substantial doubt about our ability to continue as a going concern through the one-year period from the date these financial statements are issued. Cost reduction activities are being implemented, with expected impact beginning in the second quarter of 2024. Management’s plans that are intended to further mitigate this risk include securing additional funding in the future from one or more equity or debt financings, government funding, collaborations, licensing transactions, other commercial or strategic transactions or other sources. However, there can be no assurance that we will be successful in raising additional capital or that such capital, if available, will be on terms acceptable to us. We have and will continue to evaluate alternatives to extend our operations beyond the one-year period after the date the financial statements are issued.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of Marinus Pharmaceuticals, Inc. (a Delaware corporation) as well as the accounts of Marinus Pharmaceuticals Emerald Limited (an Ireland company incorporated in February 2021), a wholly owned subsidiary requiring consolidation. Marinus Pharmaceuticals Emerald Limited serves as a corporate presence in the European Union for regulatory purposes. The unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all information and disclosures necessary for a presentation of our financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the U.S. (GAAP) for annual financial statements. In the opinion of management, these unaudited interim consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations and cash flows for the periods presented. The results of operations for interim periods are not necessarily indicative of the results for the full year. These unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2023 and accompanying notes thereto included in our Annual Report on Form 10-K filed with the SEC on March 5, 2024.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from such estimates.

Product Revenue, net

We recognize ZTALMY revenue in accordance with ASC 606 – Revenue from contracts with customers. Our revenue recognition analysis consists of the following steps: (i) identification of the promised goods in the contract; (ii) determination of whether the promised goods are performance obligations, including whether they are capable of being distinct; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue as we satisfy each performance obligation.

Our first FDA approved product, ZTALMY, became available for commercial sale and shipment in the third quarter of 2022. We have three customers, one of which, Orsini Pharmaceutical Services, LLC (Orsini), a specialty pharmacy that dispenses ZTALMY directly to patients, represents approximately 99% of our ZTALMY revenue to date. Our contract with Orsini has a single performance obligation to deliver ZTALMY upon receipt of a purchase order, which is satisfied when Orsini receives ZTALMY. We recognize ZTALMY revenue at the point in time when control of ZTALMY is transferred to Orsini, which is upon delivery to Orsini. The transaction price that we recognize for

8

ZTALMY revenue includes an estimate of variable consideration. Shipping and handling costs to Orsini are recorded as selling, general and administrative expenses. The components of variable consideration include:

Trade Discounts and Allowances. We provide contractual discounts, including incentive prompt payment discounts and chargebacks. Each of these potential discounts is recorded as a reduction of ZTALMY revenue and Accounts receivable in the period in which the related ZTALMY revenue is recognized. We estimate the amount of variable consideration for all discounts and allowances using the expected value method.

Product Returns and Recall. We provide for ZTALMY returns in accordance with our Return Good Policy. We estimate the amount of ZTALMY that may be returned using the expected value method, and we present this amount as a reduction of ZTALMY revenue in the period the related ZTALMY revenue is recognized. In the event of a recall, we will promptly notify Orsini and will reimburse Orsini for direct administrative expenses incurred in connection with the recall as well as the cost of replacement product.

Government Rebates. We are subject to discount obligations under state Medicaid programs, Medicare and the Tricare Retail Refund Program. We estimate reserves related to these discount programs and record these obligations in the same period the related revenue is recognized, resulting in a reduction of ZTALMY revenue.

Patient Assistance. We offer a voluntary co-pay patient assistance program intended to provide financial assistance to eligible patients with a prescription drug co-payment required by payors and coupon programs for cash payors. The calculation of the Current liability for this assistance is based on an estimate of claims and the cost per claim that we expect to receive associated with ZTALMY that has been recognized as Product revenue but remains in the distribution channel inventories at the end of each reporting period.

Federal Contract Revenue

We recognize Federal contract revenue from the BARDA Contract in the period in which the allowable research and development expenses are incurred, and receivables associated with this revenue are included within Accounts receivable, net on our interim consolidated balance sheets. This revenue is not within the scope of ASC 606 – Revenue from contracts with customers.

Short-term Investments

We classify our Short-term investments as available-for-sale securities, which include U.S. government agency debt securities and U.S. treasury debt securities with original maturities of greater than three months. These securities are carried at fair market value, with unrealized gains and losses reported in Other comprehensive loss and Accumulated other comprehensive income (loss) within stockholders’ equity. All of our investments were short-term in nature as of March 31, 2024.

Accounts Receivable, net

Net trade receivables related to ZTALMY sales, which are recorded in Accounts receivable, net on the consolidated balance sheets, were approximately $2.8 million and $2.6 million as of March 31, 2024 and December 31, 2023, respectively. As of both March 31, 2024 and December 31, 2023, we had no allowance for doubtful accounts. An allowance for doubtful accounts is determined based on our assessment of the credit worthiness and financial condition of our customers, aging of receivables, as well as the general economic environment. Any allowance would reduce the net receivables to the amount that is expected to be collected. We have three customers, one of which, Orsini Pharmaceutical Services, LLC (Orsini), a specialty pharmacy that dispenses ZTALMY directly to patients, represents approximately 99% of our ZTALMY revenue to date. Payment terms for Orsini are 30 days from the shipment date.

Excluding net trade receivables, Accounts receivable, net represents amounts due to us under the BARDA contract for valid expenditures expected to be reimbursed to us under the terms of the BARDA contract and current amounts due to us from Orion Corporation (Orion) under the collaboration agreement (Note 12).

9

Inventory

Inventories are recorded using actual costs and may consist of raw materials (ganaxolone API), work in process and finished goods. We began capitalizing Inventory related to ZTALMY subsequent to the March 2022 FDA approval of ZTALMY, as the related costs were expected to be recoverable through the commercialization and subsequent sale of ZTALMY. Prior to FDA approval of ZTALMY, costs estimated at approximately $2 million for commercially saleable product and materials were incurred and included in Research and development expenses. As a result, Cost of product revenues related to ZTALMY initially reflected a lower average per unit cost of materials, and will continue to reflect a lower average per unit cost of materials through the second quarter of 2024, as previously expensed inventory is utilized for commercial production and sold to customers.

Debt Issuance Costs

Debt issuance costs incurred in connection with Note payable (Note 10) and Revenue interest financing payable (Note 11) are amortized to Interest expense over the term of the respective financing arrangement using the effective-interest method. Debt issuance costs, net of related amortization, are deducted from the carrying value of the related debt.

Contract Liabilities, net

When consideration is received, or such consideration is unconditionally due, from a customer prior to completing our performance obligation to the customer under the terms of a contract, a Contract liability is recorded. Contract liabilities expected to be recognized as revenue or a reduction of expense within the 12 months following the balance sheet date are classified as Current liabilities. Contract liabilities not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as Long-term liabilities. In accordance with ASC 210-20, our Contract liabilities were partially offset by our Contract assets at March 31, 2024, as further discussed in Note 12.

Liability Related to Revenue Interest Financing and Non-Cash Interest Expense

In October 2022, we recognized a liability related to the Revenue Interest Financing Agreement with Sagard Healthcare Royalty Partners, LP (Sagard) under ASC 470-10 Debt and ASC 835-30 Interest - Imputation of Interest. The initial funds received by us from Sagard pursuant to the terms of the Revenue Interest Financing Agreement were recorded as a liability and will be accreted under the effective interest method upon the estimated amount of future royalty payments to be made pursuant to the Revenue Interest Financing Agreement. The issuance costs were recorded as a direct deduction to the carrying amount of the liability and will be amortized under the effective interest method over the estimated period the liability will be repaid. We estimated the total amount of future product revenue to be generated over the life of the Revenue Interest Financing Agreement, and a significant increase or decrease in these estimates could materially impact the liability balance and the related Interest expense. If the timing or amounts of any estimated future revenue and related payments change, we will prospectively adjust the effective interest and the related amortization of the liability and related issuance costs. The liability related to the Revenue Interest Financing Agreement with Sagard is further discussed in Note 11.

Collaboration and Licensing Revenue

We may enter into collaboration and licensing arrangements for research and development, manufacturing, and commercialization activities with counterparties for the development and commercialization of our product candidates. These arrangements may contain multiple components, such as (i) licenses, (ii) research and development activities, and (iii) the manufacturing of certain material. Payments pursuant to these arrangements may include non-refundable and refundable payments, payments upon the achievement of significant regulatory, development and commercial milestones, sales of product at certain agreed-upon amounts, and royalties on product sales. The amount of variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period.

10

In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under a collaboration agreement, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are capable of being distinct; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue as we satisfy each performance obligation.

We must develop estimates and assumptions that require judgment to determine the underlying stand-alone selling price for each performance obligation, which determines how the transaction price is allocated among the performance obligations. The estimation of the stand-alone selling price may include such estimates as forecasted revenues and costs, development timelines, discount rates and probabilities of regulatory and commercial success. We also apply significant judgment when evaluating whether contractual obligations represent distinct performance obligations, allocating transaction price to performance obligations within a contract, determining when performance obligations have been met, assessing the recognition and future reversal of variable consideration and determining and applying appropriate methods of measuring progress for performance obligations satisfied over time.

3. Cash, Cash Equivalents and Short-Term Investments

As of March 31, 2024, our Cash and cash equivalents included $1.4 million of cash accounts in banking institutions and $102.9 million in money market funds. As of December 31, 2023, our Cash and cash equivalents included $1.3 million of cash accounts in banking institutions and $119.3 million in money market funds. Our Cash and cash equivalents are maintained in federally insured financial institutions in excess of the federally insured limit. Included in Other assets at March 31, 2024 and December 31, 2023 was $0.1 million and $0.2 million, respectively, of accrued interest receivable related to our Short-term investments.

The following table provides details regarding our portfolio of Short-term investments (in thousands) as of March 31, 2024 and December 31, 2023:

    

Amortized Cost

    

Unrealized Gains

    

Unrealized Losses

    

Fair Value

March 31, 2024

U.S. Treasury securities

$

9,000

$

155

$

(155)

$

9,000

Total

$

9,000

$

155

$

(155)

$

9,000

December 31, 2023

U.S. Treasury securities

$

26,852

$

138

$

(155)

$

26,835

U.S. Government Agency securities

2,884

31

(34)

2,881

Total

$

29,736

$

169

$

(189)

$

29,716

4. Fair Value Measurements

FASB accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, we use quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources.

The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

11

Level 2 — Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.
Level 3 — Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument. As of March 31, 2024 and December 31, 2023, all of our financial assets and liabilities were classified as Level 1 or Level 2 valuations.

We estimate the fair values of our financial instruments categorized as Level 2 in the fair value hierarchy, including U.S. Treasury securities and U.S. Government Agency securities, by taking into consideration valuations obtained from third-party pricing services. The pricing services use industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, benchmark yields, issuer credit spreads, benchmark securities, and other observable inputs. We obtain a single price for each financial instrument and do not adjust the prices obtained from the pricing service.

The following fair value hierarchy table presents information about each major category of our financial assets and liabilities measured at fair value on a recurring basis (in thousands):

    

Level 1

    

Level 2

    

Level 3

    

Total

 

March 31, 2024

Assets

Cash

$

1,420

$

$

$

1,420

Money market funds (cash equivalents)

102,833

102,833

U.S. Treasury securities

9,000

9,000

Total assets

$

104,253

$

9,000

$

$

113,253

December 31, 2023

Assets

Cash

$

1,255

$

$

$

1,255

Money market funds (cash equivalents)

119,317

119,317

U.S. Treasury securities

26,835

26,835

Agency securities

2,881

2,881

Total assets

$

120,572

$

29,716

$

$

150,288

5. Inventory

Inventories are stated at actual costs and consisted of the following (in thousands):

March 31,

December 31, 

2024

2023

Raw materials

$

3,600

$

436

    

Work in process

1,591

1,075

Finished goods

592

902

Total Inventories

$

5,783

$

2,413

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6. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

March 31,

December 31, 

2024

2023

Payroll and related costs

$

2,830

$

7,746

    

Clinical trials and drug development

5,694

4,701

Accrued license agreement payment

2,000

4,000

Professional fees

1,669

1,236

Selling and commercial liabilities

4,502

3,901

Short-term lease liabilities

1,306

774

Other

720

501

Total accrued expenses

$

18,721

$

22,859

7. Loss Per Share of Common Stock

Basic loss per share of common stock is computed by dividing Net loss attributable to common stockholders by the Weighted average number of shares of common stock outstanding during each period. Diluted loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock, stock options and unvested restricted stock, which would result in the issuance of incremental shares of common stock. In computing the Basic and diluted net loss per share applicable to common stockholders, the Weighted average number of shares remains the same for both calculations due to the fact that when a Net loss exists, dilutive shares are not included in the calculation. These potentially dilutive securities are more fully described in Note 8.

The pre-funded warrants to purchase common stock issued in connection with the November 2022 offering are included in the calculation of Basic and diluted net loss per share as the exercise price of $0.001 per share is non-substantive and is virtually assured. The pre-funded warrants are more fully described in Note 8.

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, as they would be anti-dilutive:

Three Months Ended

March 31,

2024

2023

Convertible preferred stock

860,000

    

Restricted stock awards and restricted stock units

2,293,878

1,542,115

 

Stock options

8,671,041

7,143,397

 

10,964,919

9,545,512

 

8. Stockholders’ Equity

In 2005, we adopted the 2005 Stock Option and Incentive Plan (2005 Plan) that authorizes us to grant stock options, restricted stock and other equity-based awards. As of March 31, 2024, no options to purchase shares of common stock were outstanding pursuant to grants in connection with the 2005 Plan. No additional shares are available for issuance under the 2005 Plan. The amount, terms of grants, and exercisability provisions are determined and set by our board of directors.

Effective August 2014, we adopted our 2014 Equity Incentive Plan, as amended (2014 Plan), that authorizes us to grant stock options, restricted stock, and other equity-based awards, subject to adjustment in accordance with the 2014 Plan. As of March 31, 2024, 6,389,758 options to purchase shares of common stock were outstanding pursuant to grants

13

in connection with the 2014 Plan, and 260,569 shares of common stock were available for future issuance. The amount, terms of grants, and exercisability provisions are determined and set by our board of directors. In accordance with the 2014 Plan, on January 1, 2024, the shares of common stock available for future grants under the 2014 Plan was increased to 3,090,220.

Stock Options

There were 8,671,041 stock options outstanding as of March 31, 2024 at a weighted average exercise price of $9.69 per share, including 2,281,283 stock options outstanding outside of the 2014 Plan, granted as inducements to new employees. During the three months ended March 31, 2024, 1,617,094 options were granted to employees and directors at a weighted average exercise price of $9.76 per share. Of the options granted, 1,540,519 options were granted pursuant to the 2014 Plan and 76,575 were granted outside of the 2014 Plan as inducements for new employees.

Restricted Stock and Restricted Stock Units

All issued and outstanding restricted shares of common stock are time-based, and become vested within two years of the grant date, pursuant to the 2014 Plan. Compensation expense is recorded ratably over the requisite service period. Compensation expense related to restricted stock is measured based on the fair value using the closing market price of our common stock on the date of the grant. As of March 31, 2024, we did not have any restricted shares of common stock outstanding.

During the three months ended March 31, 2024, we granted 1,350,244 restricted stock units, which generally vest within three years of the grant date, pursuant to the 2014 Plan. As of March 31, 2024, we had 2,293,878 restricted stock units outstanding.

Total compensation cost recognized for all stock options, restricted stock awards and restricted stock units in the statements of operations is as follows (in thousands):

Three Months Ended

March 31,

2024

2023

Research and development

    

$

1,832

    

$

1,342

    

Selling, general and administrative

 

3,361

 

2,399

Total

$

5,193

$

3,741

Preferred Stock

As of March 31, 2024 all shares of our Series A Convertible Preferred Stock (Preferred Stock) had been converted and none remained outstanding. In the three months ended March 31, 2023, 4,300 shares of our Preferred stock remained outstanding, convertible into 860,000 shares of our common stock. In the three months ended March 31, 2023, there were no conversions of shares of our Preferred Stock into shares of our common stock.

Underwritten Public Offering

In connection with an underwritten public offering in November 2022 and the closing of the related exercise of the underwriters’ option in December 2022, we issued a total of 12,421,053 shares of common stock and 2,105,264 pre-funded warrants (the Pre-funded Warrants) resulting in aggregate net proceeds, after underwriting discounts and commissions in the public offering and fees, of $64.5 million. The exercise price and the number of shares of common stock issuable upon exercise of each Pre-funded Warrant are subject to appropriate adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events affecting the common stock as well as upon any distribution of assets, including cash, stock or other property, to our stockholders. The Pre-funded Warrants are exercisable at any time, will not expire and are exercisable in cash or by means of a cashless exercise. A holder of Pre-funded Warrants may not exercise such Pre-funded Warrants if the holder, together

14

with its affiliates, would beneficially own more than 9.99% of the number of shares of common stock outstanding immediately after giving effect to such exercise. A holder of Pre-funded Warrants may increase or decrease this percentage not in excess of 19.99% by providing at least 61 days’ prior notice to us.

Sales Pursuant to Equity Distribution Agreement

On July 9, 2020, we entered into an Equity Distribution Agreement (EDA) with JMP Securities LLC (JMP), as amended by the March 31, 2023 Amendment No. 1 to the EDA (Amended EDA), to create an at the market equity program under which we from time to time may offer and sell shares of our common stock without a maximum aggregate offering price. The Amended EDA was entered into in connection with our filing of a Registration Statement on Form S-3 (File No. 333-271041) with the SEC (the 2023 Registration Statement), which includes a prospectus supplement covering the offering, issuance and sale by us of up to $75,000,000 of shares of common stock that may be issued and sold under the Amended EDA. Subject to the terms and conditions of the Amended EDA, JMP will be entitled to a commission of up to 3.0% of the gross proceeds from each sale of shares of our common stock. We did not sell any shares of our common stock during the three months ended March 31, 2024 and March 31, 2023 under the EDA.

9. Leases

We have entered into one operating lease for real estate and several operating leases for clinical site equipment. Our real estate operating lease has a term of 78 months, and includes renewal terms which can extend the lease term by 60 months, which we include in the lease term when it is reasonably certain that we will exercise the option. As of March 31, 2024, our operating lease had a remaining lease term of 18 months. Our operating leases for clinical site equipment each have a term of 18 months and include renewal terms that can extend the lease terms monthly at the end of each applicable term. As of March 31, 2024, our operating leases for clinical site equipment had an average remaining term of 14 months. The right-of-use (ROU) assets are included in Other assets on our interim consolidated balance sheets as of March 31, 2024 and December 31, 2023, and represent our right to use the underlying assets for the applicable lease terms. Our obligations to make lease payments are included in both Accrued expenses and Other long-term liabilities on our interim consolidated balance sheets as of March 31, 2024 and December 31, 2023. The ROU assets were initially measured at cost, which comprise the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred, less any lease incentives received. The ROU assets are subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received.  

As of March 31, 2024 and December 31, 2023, ROU assets were $1.5 million and $1.0 million, respectively, and operating lease liabilities were $1.9 million and $1.4 million, respectively. We have entered into various short-term operating leases, primarily for clinical trial equipment, with an initial term of twelve months or less. These leases are not recorded on our balance sheets. All operating lease expense is recognized on a straight-line basis over the lease term. During the three months ended March 31, 2024 and 2023, we recognized $0.3 million and $0.1 million, respectively, in total lease costs, of which less than $0.1 million related to short-term operating leases for each period.

Because the rate implicit in each lease is not readily determinable, we use our incremental borrowing rate to determine the present value of the lease payments. The weighted average incremental borrowing rate used to determine the initial value of ROU assets and lease liabilities was 11.0%, derived from a corporate yield curve based on a synthetic credit rating model using a market signal analysis. We have certain contracts for real estate which may contain lease and non-lease components which we have elected to treat as a single lease component. The borrowing rate used to determine the initial value of the ROU asset and lease liability related to our operating lease for clinical site equipment was approximately 7.0%.

ROU assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize.  As of March 31, 2024 and December 31, 2023, we have not recognized any impairment losses for our ROU assets.

15

Maturities of operating lease liabilities as of March 31, 2024 were as follows (in thousands):

    

 

Remainder of 2024

$

1,073

2025

 

955

2,028

Less: imputed interest

(140)

Total lease liabilities

$

1,888

Current operating lease liabilities

$

1,306

Non-current operating lease liabilities

582

Total lease liabilities

$

1,888

10. Notes Payable

On May 11, 2021 (Closing Date) and as amended on May 17, 2021, May 23, 2022 and October 28, 2022 (Credit Agreement), we entered into the Credit Agreement with Oaktree Fund Administration, LLC as administrative agent (Oaktree) and the lenders party thereto (collectively, the Lenders) that provided for a five-year senior secured term loan facility in an aggregate original principal amount of up to $125.0 million that was available to us in five tranches (collectively, the Term Loans).

Upon entering into the Credit Agreement in May 2021, we borrowed $15.0 million in term loans from the Lenders (Tranche A-1 Term Loans); upon receipt of written acceptance by the FDA of our NDA filing relating to the use of ganaxolone for CDD in September 2021, we borrowed $30.0 million of tranche A-2 term loans from the Lenders (Tranche A-2 Term Loans); and in March 2022, we borrowed $30.0 million in term loans from the Lenders that became available as a result of the approval by the FDA of ZTALMY oral suspension for the treatment of seizures associated with CDD in patients two years of age and older (Tranche B Term Loans). In May 2022, we entered into an amendment (the Credit Agreement Amendment) to extend the commitment date for the tranche C Term Loans (Tranche C Term Loans) commitment from June 30, 2023 to December 31, 2023, and to eliminate the commitment fees associated with the Tranche C Term Loans. Also in May 2022, we delivered to Oaktree a separate notice of commitment termination with respect to the tranche D term loans (Tranche D Term Loans) commitment. In October 2022, we entered into an amendment to, among other things, allow for the consummation of the Revenue Interest Financing Agreement with Sagard and the transactions thereunder. In addition, the Credit Agreement Amendment increased the exit fee due by us upon any repayment, whether as a prepayment or a scheduled repayment, of the principal of the loans under the Credit Agreement from 2.00% to 2.67%. In August 2023, we delivered to Oaktree a separate notice of commitment termination with respect to the $25.0 million of Tranche C Term Loans commitment. Following the termination of the Tranche C Term Loan Commitment, the loans under the Credit Agreement consist of $75.0 million of previously drawn Term Loans with no additional funds available thereunder.

The Credit Agreement contains a minimum liquidity covenant that requires us to maintain cash and cash equivalents of at least $15.0 million from the funding date of the Tranche B Term Loans until the maturity of the Term Loans.

The Term Loans will be guaranteed by certain of our future subsidiaries (Guarantors). Our obligations under the Credit Agreement are secured by a pledge of substantially all of our assets and will be secured by a pledge of substantially all of the assets of the Guarantors.

The Term Loans mature on May 11, 2026 (Maturity Date). The Term Loans bear interest at a fixed per annum rate (subject to increase during an event of default) of 11.50%, and we are required to make quarterly interest payments until the Maturity Date. We are also required to make quarterly principal payments beginning on June 30, 2024 in an amount equal to 5.0% of the aggregate amount of the Term Loans outstanding on June 30, 2024, and continuing until the Maturity Date. On the Maturity Date, we are required to pay in full all outstanding Term Loans and other amounts owed under the Credit Agreement.

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At the time of borrowing any tranche of the Term Loans, we were required to pay an upfront fee of 2.0% of the aggregate principal amount borrowed at that time. In addition, a commitment fee of 75 basis points per annum began to accrue on each of the tranche B, C, and D commitments for the period beginning 120 days after the funding date of the Tranche A-2 Term Loans and continued until the applicable tranche was either funded or terminated, at which time the related commitment fees were due. The Tranche A-2 Term Loans were funded on September 27, 2021, and as such, we began accruing the commitment fees for tranche B, C, and D Term Loans 120 days later, on January 25, 2022. We drew down the additional $30.0 million of Tranche B Term Loans in March 2022, and paid less than $0.1 million in commitment fees related to Tranche B Term Loans. The May 2022 amendment eliminated the commitment fees related to the Tranche C Term Loans, and separately, we terminated the Tranche D Term Loans in May 2022 and the Tranche C Term Loans in August 2023.

We may prepay all or any portion of the Term Loans, and are required to make mandatory prepayments of the Term Loans from the proceeds of asset sales, casualty and condemnation events, and prohibited debt issuances, subject to certain exceptions. All mandatory and voluntary prepayments of the Term Loans are subject to prepayment premiums equal to (i) 4% of the principal prepaid if prepayment occurs after May 11, 2023 but on or before May 11, 2024, or (ii) 2% of the principal prepaid if prepayment occurs after May 11, 2024 but on or before May 11, 2025. If prepayment occurs after May 11, 2025, no prepayment premium is due.

In addition, we are required to pay an exit fee in an amount equal to 2.67% of all principal repaid, whether as a mandatory prepayment, voluntary prepayment, or a scheduled repayment. Prior to the October 28, 2022 amendment to the Credit Agreement, the exit fee was 2.0%. The increase in the exit fee resulted in an additional $0.5 million of debt issuance costs that are classified as a contra-liability on the consolidated balance sheets and is being recognized as Interest expense over the term of the loan using the effective interest method.

In addition to the minimum liquidity covenant, we are subject to a number of affirmative and restrictive covenants under the Credit Agreement, including limitations on our ability and our subsidiaries’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, and enter into affiliate transactions, subject to certain exceptions. As of March 31, 2024, we were in compliance with all covenants.

Upon the occurrence of certain events, including but not limited to our failure to satisfy our payment obligations under the Credit Agreement, the breach of certain of our other covenants under the Credit Agreement, the occurrence of cross defaults to other indebtedness, or defaults related to enforcement action by the FDA or other Regulatory Authority or recall of ganaxolone, Oaktree and the Lenders will have the right, among other remedies, to accelerate all amounts outstanding under the Term Loans and declare all principal, interest, and outstanding fees immediately due and payable.

In March 2022, we borrowed $30.0 million upon the approval by the FDA of ZTALMY for CDD and incurred debt issuance costs of $1.8 million, including the exit fee of $0.6 million, that are classified as contra-liabilities on our consolidated balance sheets and are being recognized as Interest expense over the term of the loan using the effective interest method.

In September 2021, we borrowed $30.0 million upon receipt of written acceptance by the FDA of our NDA filing relating to the use of ganaxolone in the treatment of CDD and incurred debt issuance costs of $1.2 million, including the exit fee of $0.6 million, that are classified as contra-liabilities on our consolidated balance sheets and are being recognized as Interest expenses over the term of the loan using the effective-interest method.

In May 2021, we borrowed $15.0 million upon entering into the Credit Agreement and incurred debt issuance costs of $4.4 million, including the exit fee of $0.3 million, that are classified as a contra-liabilities on the consolidated balance sheet and are being recognized as Interest expenses over the term of the loan using the effective-interest method.

For the three months ended March 31, 2024, we recognized interest expense of $2.7 million, of which $2.2 million was interest on the Term Loans and $0.5 million was non-cash interest expense related to the amortization of debt issuance costs.

17

The following table summarizes the composition of Notes payable as reflected on the consolidated balance sheet as of March 31, 2024 (in thousands):

Gross proceeds

$

75,000

Contractual exit fee

 

2,003

Unamortized debt discount and issuance costs

 

(3,530)

Total note payable

$

73,473

Current portion of note payable

15,401

Non-current portion of note payable

58,072

Total note payable

$

73,473

The aggregate maturities of Notes payable as of March 31, 2024 are as follows (in thousands):

Remainder of 2024

$

11,250

2025

15,000

2026

48,750

Total

$

75,000

11. Revenue Interest Financing Agreement

On October 28, 2022 (Closing Date), we entered into a revenue interest financing agreement (Revenue Interest Financing Agreement) with Sagard Healthcare Royalty Partners, LP (Sagard) pursuant to which we received $32.5 million (Investment Amount) to provide funding for our development and commercialization of ganaxolone and related pharmaceutical products, including the commercial launch of ZTALMY, and for working capital and general administrative purposes.

In exchange for the Investment Amount, we have agreed to make quarterly payments to Sagard (Payments) as follows: (i) for each calendar quarter from and after the Closing Date through and including the quarter ended June 30, 2026, an amount equal to 7.5% of (a) our U.S. net sales of ZTALMY and all other pharmaceutical products that contain ganaxolone (Net Sales), in each case with any dosage form, dosing regimen, or strength, or any improvements related thereto (collectively, Included Products) and (b) certain other payments received by us in connection with the manufacture, development and sale of the Included Products in the U.S. (Other Included Payments, and, together with Net Sales, Product Revenue); and (ii) for each calendar quarter following the calendar quarter ended June 30, 2026, an amount equal to (x) 15.0% of the first $100 million in annual Product Revenue of the Included Products and (y) 7.5% of annual Product Revenue of the Included Products in excess of $100 million.

The Payments are subject to a hard cap equal to 190% of the Investment Amount (Hard Cap) or $61.8 million. Sagard’s right to receive payments will terminate when Sagard has received payments in respect of the Included Products, including any additional payments described below, equal to the Hard Cap. Further, we have the right to make voluntary prepayments to Sagard, and such payments will be credited against the Hard Cap.

If Sagard has not received aggregate payments equaling at least 100% of the Investment Amount by December 31, 2027 or at least 190% of the Investment Amount by December 31, 2032 (each, a Minimum Amount), then we will be obligated to make a cash payment to Sagard in an amount sufficient to gross up Sagard up to the applicable Minimum Amount within a specified period of time after each reference date.

The obligations under the Revenue Interest Financing Agreement, including the Payments, will be guaranteed by certain of our future subsidiaries that are required to become a party thereto as guarantors (Guarantors).  Our obligations under the Revenue Interest Financing Agreement and the guarantee of such obligations are secured, subject to customary permitted liens and other agreed upon exceptions and subject to an intercreditor agreement with Oaktree as administrative agent for the lenders under our credit agreement (as described below, the Credit Agreement), by a pledge of substantially all of our and the Guarantors’ assets that relate to, or are used or held for use for, the development, manufacture, use and/or

18

commercialization of ZTALMY and all other pharmaceutical products that contain ganaxolone in the U.S., including the Product Revenue, pursuant to the terms of the Security Agreement dated as of the Closing Date by and among us, the Guarantors from time to time party thereto, and Sagard (Security Agreement).

At any time, we have the right, but not the obligation (Call Option), to repurchase all, but not less than all, of Sagard’s interest in the Payments at a repurchase price (Put/Call Price) equal to: (a) on or before the third anniversary of the Closing Date, 160% of the Investment Amount; (b) after the third anniversary but on or prior to the fourth anniversary of the Closing Date, 180% of the Investment Amount; and (c) after the fourth anniversary of the Closing Date, 190% of the Investment Amount, in each case, less the aggregate of all of our payments in respect of the Payments made to Sagard prior to such date.

The Revenue Interest Financing Agreement contains certain restrictions on our and our subsidiaries’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, dispose of assets, pay dividends and distributions and enter into affiliate transactions, in each case, subject to certain exceptions.  In addition, the Revenue Interest Financing Agreement contains a financial covenant that requires us to maintain at all times cash and cash equivalents in certain deposit accounts in an amount at least equal to (i) from the Closing Date until the repayment of the loans under the Credit Agreement, $15.0 million and (ii) thereafter, $10.0 million.

In connection with the Revenue Interest Financing Agreement, on the Closing Date, we entered into the Credit Agreement Amendment with Oaktree which is fully described in Note 10.

Issuance costs pursuant to the Revenue Interest Financing Agreement consisted primarily of advisory and legal fees and totaled $2.6 million. These issuance costs were recorded as a direct deduction to the carrying amount of the liability and will be amortized under the effective interest method over the estimated period the liability will be repaid. For the three months ended March 31, 2024, we estimated an effective annual interest rate of approximately 18%. Over the course of the Revenue Interest Financing Agreement, the actual interest rate will be affected by the amount and timing of net ZTALMY revenue recognized and changes in the timing of forecasted net ZTALMY revenue. On a quarterly basis, we reassess the expected timing of the net ZTALMY revenue, recalculate the amortization and effective interest rate and adjust the accounting prospectively as needed.

19

The following table summarizes the activity of the Revenue Interest Financing Agreement for the three months ended March 31, 2023 and March 31, 2024 (in thousands):

For the three months ended March 31, 2023

Revenue Interest Financing Balance at December 31, 2022

$

30,877

Non-cash interest expense in the three months ended March 31, 2023

1,440

Amortization of debt discount in the three months ended March 31, 2023

71

Payments made in the three months ended March 31, 2023

(174)

Revenue Interest Financing Balance at March 31, 2023

$

32,214

Current portion of revenue interest financing liability

1,321

Long-term portion of revenue interest financing liability

30,893

Revenue Interest Financing Balance at March 31, 2023

$

32,214

For the three months ended March 31, 2024

Revenue Interest Financing Balance at December 31, 2023

$

35,977

Non-cash interest expense in the three months ended March 31, 2024

1,556

Amortization of debt discount in the three months ended March 31, 2024

111

Payments made in the three months ended March 31, 2024

(491)

Revenue Interest Financing Balance at March 31, 2024

$

37,153

Current portion of revenue interest financing liability

$

2,511

Long-term portion of revenue interest financing liability

34,642

Revenue Interest Financing Balance at March 31, 2024

$

37,153

12. Collaboration Revenue

Orion Collaboration Agreement

In July 2021, we entered into a collaboration agreement (Orion Collaboration Agreement) with Orion. The Orion Collaboration Agreement falls under the scope of ASC Topic 808, Collaborative Arrangements (ASC 808) as both parties are active participants in the arrangement that are exposed to significant risks and rewards. While this arrangement is in the scope of ASC 808, we analogize to ASC 606 for some aspects of this arrangement, including for the delivery of a good or service (i.e., a unit of account). Revenue recognized by analogizing to ASC 606 is recorded as collaboration revenue on the consolidated statements of operations.

Under the terms of the Orion Collaboration Agreement, we granted Orion an exclusive, royalty-bearing, sublicensable license to certain of our intellectual property rights with respect to commercializing biopharmaceutical products incorporating our product candidate ganaxolone (Licensed Products) in the European Economic Area, the United Kingdom and Switzerland (collectively, the Territory) for the diagnosis, prevention and treatment of certain human diseases, disorders or conditions (Field), initially in the indications of CDD, TSC and RSE. We will be responsible for the continued development of Licensed Products and regulatory interactions related thereto, including conducting and sponsoring all clinical trials, provided that Orion may conduct certain post-approval studies in the Territory. Orion will be responsible, at Orion’s sole cost and expense, for the commercialization of any Licensed Product in the Field in the Territory.

Under the terms of the Orion Collaboration Agreement, we received a €25.0 million ($29.6 million) upfront payment from Orion in July 2021. In connection with the upfront fee, we agreed to provide Orion with the results of a planned genotoxicity study on the M2 metabolite of ganaxolone, a “Combined Micronucleus & Comet study in vivo.” In May 2022, the final study report was received, which confirmed that no genotoxicity was found, as measured by formation of micronuclei in the bone marrow or comet morphology in the liver. In the event that the results of such study were positive, based on the criteria set forth in the study’s protocol, Orion would have had the right to terminate the Orion Collaboration Agreement within ninety (90) days after its receipt of the final report of such study, in which case

20

we would have been required to refund Orion seventy-five percent (75%) of the upfront fee. We are eligible to receive up to an additional €97 million in R&D reimbursement and cash milestone payments based on specific clinical and commercial achievements, as well as tiered royalty payments based on net sales ranging from the low double-digits to high teens for the oral programs and the low double-digits to low 20s for the IV program. Also, as part of the overall arrangement, we have agreed to supply the Licensed Products to Orion at an agreed upon price.

The Orion Collaboration Agreement shall remain effective until the date of expiration of the last to expire Royalty Term, which is defined as the period beginning on the date of the first commercial sale Licensed Product in such country and ending on the latest to occur of (a) the tenth (10th) anniversary of the first commercial sale of Licensed Product in such country, (b) the expiration of the last-to-expire licensed patent covering the manufacture, use or sale of such Licensed Product in such country, and (c) the expiration of regulatory exclusivity period, if any, for such Licensed Product in such country. The Orion Collaboration Agreement has a term of at least ten (10) years since a commercial sale has yet to occur. The Orion Collaboration Agreement allows for termination in certain specific events, such as material breach, in the event Orion challenges the validity, enforceability or scope of the licensed patent rights, termination for forecast failure, insolvency and force majeure, none of which are probable at contract inception.

In accordance with the guidance, we identified the following commitments under the arrangement: (i) exclusive rights to develop, use, sell, have sold, offer for sale and import any product comprised of Licensed Product (License) (ii) development and regulatory activities (Development and Regulatory Activities), and (iii) requirement to supply Orion with the Licensed Product at an agreed upon price (Supply of Licensed Product). We determined that these three commitments represent distinct performance obligations for purposes of recognizing revenue or reducing expense, which we will recognize such revenue or expense, as applicable, as we fulfill these performance obligations.

At contract inception, we determined that the non-refundable portion of the upfront payment plus the research and development reimbursement constitutes the transaction price as of the outset of the Orion Collaboration Agreement. The refundable portion of the upfront payment and the future potential regulatory and development milestone payments were fully constrained at contract inception as the risk of significant revenue reversal related to these amounts had not yet been resolved. During 2022, the refundable portion of the upfront payment was determined to be included in the transaction price as the final genotoxicity study on the M2 metabolite of ganaxolone was received as described above and the remaining $12.7 million of the upfront payment was recorded as collaboration revenue in the year ended December 31, 2022. The achievement of the future potential milestones is not within our control and is subject to certain research and development success and therefore carry significant uncertainty. As a result of the July 2023 EC approval of ZTALMY oral suspension for the adjunctive treatment of epileptic seizures associated with CDD in patients two to 17 years of age, we are now eligible under the Orion Collaboration Agreement to receive a commercial milestone payment of €10 million, if commercial sales of ZTALMY commence in the Territory, due upon the earlier of (1) the first commercial sale of ZTALMY within two of a select set of countries consisting of Germany, France, Italy, Spain, and the United Kingdom and (2) the 18-month anniversary of the first commercial sale of ZTALMY in the Territory. We will reevaluate the likelihood of achieving these milestones at the end of each reporting period and adjust the transaction price in the period the risk is resolved. In addition, we will recognize any consideration related to sales-based milestones and royalties when the subsequent sales occur since those payments relate primarily to the License, which was delivered by us to Orion upon entering into the Orion Collaboration Agreement.

The transaction price was allocated to the three performance obligations based on the estimated stand-alone selling prices at contract inception. The stand-alone selling price of the License was based on a discounted cash flow approach and considered several factors including, but not limited to, discount rate, development timeline, regulatory risks, estimated market demand and future revenue potential using an adjusted market approach. The stand-alone selling price of the Development and Regulatory Activities and the Supply of Licensed Product was estimated using the expected cost-plus margin approach.

As of December 31, 2023, there was a total contract liability of $13.7 million and a total contract asset of $2.9 million. In accordance with ASC 210-20, the contract liability was offset by the contract asset related to the reimbursement of research and development costs, which resulted in a net contract liability of $10.8 million as of December 31, 2023.

21

Transaction Price and Net Contract Liability as of December 31, 2023:

Cumulative Collaboration

Transaction

Revenue Recognized

Contract

Price

   

as of December 31, 2023

   

Liability

License

$

21,660

$

21,660

$

-

Development and Regulatory Services

6,717

2,511

4,206

Supply of Licensed Product

9,503

-

9,503

$

37,880

$

24,171

$

13,709

Less Total Contract Asset

2,912

Net Contract Liability

$

10,797

During the three months ended March 31, 2024, we amortized $0.3 million of the transaction price associated with the Development and Regulatory Services as a reduction of research and development costs. These reductions to the transaction price resulted in a total contract liability of $13.4 million as of March 31, 2024. In accordance with ASC 210-20, the contract liability of $13.4 million is offset by the contract asset of $2.4 million related to the reimbursement of research and development costs, resulting in a net contract liability of $11.0 million as of March 31, 2024.

Transaction Price and Net Contract Liability as of March 31, 2024:

Cumulative Collaboration