Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q, including the following sections, contains forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially from those expressed or implied by such forward-looking statements. For a detailed discussion of these risks and uncertainties, see Item 1A “Risk Factors” in our Annual Report on Form 10-K, as filed with the SEC on March 28, 2022. See also “Special Note Regarding Forward-Looking Statements.” We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Quarterly Report. We undertake no obligation to update forward-looking statements, which reflect events or circumstances occurring after the date of this Quarterly Report.
Our U.S. GAAP accounting policies are referred to in Note 2 of the Condensed Consolidated Financial Statements as well as the Consolidated Financial Statements included in our Annual Report on Form 10-K. All amounts are in United States dollars, unless otherwise indicated. References to “CAD$” are to Canadian dollars.
Overview
We are a clinical stage biopharmaceutical company developing novel products to treat brain health disorders, with a particular focus on psychiatry, addiction, pain and neurology. Our mission is to be the global leader in the development and delivery of treatments that unlock new opportunities to improve patient outcomes. We are developing a pipeline of innovative drug candidates, with and without acute perceptual effects, targeting the serotonin, dopamine and acetylcholine systems. This specifically includes pharmaceutically optimized drug products derived from the psychedelic and empathogen drug classes including LSD, R(-)-MDMA and zolunicant, or 18-MC, a congener of ibogaine.
We were incorporated under the laws of the Province of British Columbia. Our wholly owned subsidiary, Mind Medicine, Inc. (“MindMed US”) was incorporated in Delaware. Prior to February 27, 2020, our operations were conducted through MindMed US.
On February 26, 2021 the Company acquired 100% of the issued and outstanding shares of HealthMode Inc. (“HealthMode”), a developer of technologies using Artificial Intelligence (AI)-enabled digital measurement to increase the precision and speed of clinical research and patient monitoring. The Company plans to utilize these technologies in its clinical trials to enhance the quality of the data that is collected during the Company’s clinical trials.
Since inception, we have incurred losses while advancing the research and development of our products and processes. Our net losses were $18.5 million for the three months ended March 31, 2022, and $13.8 million for the three months ended March 31, 2021. As of March 31, 2022, we had an accumulated deficit of $156.1 million and cash of $120.5 million
During the three months ended March 31, 2022, we continued to enhance the resources it requires to build our pipeline of opportunities. This included adding personnel and contract resources and ramping up the nonclinical aspects of our activities. In addition, considerable effort was directed towards employing a successful financing strategy.
Impact of COVID-19 Pandemic
We continue to monitor the ongoing COVID-19 global pandemic, which has resulted in travel and other restrictions to reduce the spread of the disease. To date, we have not experienced any significant disruptions from the ongoing COVID-19 pandemic. All clinical and chemistry, manufacturing and control activities are currently active.
The safety, health and well-being of all patients, medical staff and our internal and external teams is paramount and is our primary focus. As the pandemic and its resulting restrictions evolve in jurisdictions across the country, we are aware that the potential exists for further disruptions to our projected timelines. We are in close communication with our clinical teams and key vendors and are prepared to take action should the pandemic worsen and impact our business in the future.
16
Components of Operating Results
Operating Expenses
Research and Development
To date, our resources have focused primarily on the development of our MM-120 and MM-110 programs and the commencement of related clinical activities. We have commenced clinical studies and have funded data and study acquisitions and acquired the materials required to supply our studies.
Research and development expenses account for a significant portion of our operating expenses. Research and development expenses consist primarily of direct and indirect costs incurred for the development of our product candidates, as follows:
•payroll, consulting and benefits expenses;
•manufacturing costs to produce clinical trial materials;
•clinical research costs associated with discovery, preclinical and clinical testing of our product candidates;
•data and study acquisition cost;
•allocated operational expenses, which include direct or allocated expenses for Information Technologies and Human Resources; and
We may also incur in-process research and development expense as we acquire or in-license assets from other parties. Technology acquisitions are expensed or capitalized based upon the asset achieving technological feasibility in accordance with management’s assessment regarding the ultimate recoverability of the amounts paid and the potential for alternative future use. Acquired in-process research and development costs that have no alternative future use are immediately expensed.
General and Administrative
General and administrative expenses consist primarily of compensation costs, including stock-based compensation, for executive management and administrative employees, including finance and accounting, legal, human resources and other offices supporting administrative functions, professional services fees, insurance expenses and allocated expenses.
We expect our general and administrative expenses to increase substantially for the foreseeable future as we continue to support our research and development activities, grow our business and, if any of our product candidates receive marketing approval, commercialization activities. We also expect to increase the size of our administrative function and facility costs to support the growth of our business.
17
Results of Operations
Comparison of the Three Months Ended March 31, 2022 and 2021
The following tables summarize our results of operations for the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Three Months
Ended
March 31,
2022 |
|
|
For the
Three Months
Ended
March 31,
2021 |
|
|
$
Change |
|
|
%
Change |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
$ |
10,241 |
|
|
$ |
6,813 |
|
|
$ |
3,428 |
|
|
|
50 |
% |
General and administrative |
|
|
8,264 |
|
|
|
7,035 |
|
|
|
1,229 |
|
|
|
17 |
% |
Total operating expenses |
|
|
18,505 |
|
|
|
13,848 |
|
|
|
4,657 |
|
|
|
34 |
% |
Loss from operations |
|
|
(18,505 |
) |
|
|
(13,848 |
) |
|
|
(4,657 |
) |
|
|
34 |
% |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(27 |
) |
|
|
(87 |
) |
|
|
60 |
|
|
|
-69 |
% |
Foreign exchange gain, net |
|
|
45 |
|
|
|
8 |
|
|
|
37 |
|
|
* |
|
Other income |
|
|
36 |
|
|
|
168 |
|
|
|
(132 |
) |
|
|
-79 |
% |
Total other income, net |
|
|
54 |
|
|
|
89 |
|
|
|
(35 |
) |
|
|
-39 |
% |
Loss before income taxes |
|
|
(18,451 |
) |
|
|
(13,759 |
) |
|
|
(4,692 |
) |
|
|
34 |
% |
Income taxes |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
100 |
% |
Net loss |
|
$ |
(18,451 |
) |
|
$ |
(13,759 |
) |
|
$ |
(4,692 |
) |
|
|
34 |
% |
Other comprehensive gain/(loss): |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/gain on foreign currency translation |
|
|
(49 |
) |
|
|
59 |
|
|
|
(108 |
) |
|
|
-183 |
% |
Comprehensive loss |
|
$ |
(18,500 |
) |
|
$ |
(13,700 |
) |
|
$ |
(4,800 |
) |
|
|
35 |
% |
* Represents a change greater than 300%
18
Operating Expenses
Research and Development (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the
Three Months
Ended
March 31,
2022 |
|
|
For the
Three Months
Ended
March 31,
2021 |
|
|
$
Change |
|
|
%
Change |
|
External Costs |
|
|
|
|
|
|
|
|
|
|
|
|
MM-120 research program |
|
$ |
1,862 |
|
|
$ |
468 |
|
|
$ |
1,394 |
|
|
|
298 |
% |
MM-110 research program |
|
|
682 |
|
|
|
2,027 |
|
|
|
(1,345 |
) |
|
|
-66 |
% |
External R&D collaborations |
|
|
1,224 |
|
|
|
1,432 |
|
|
|
(208 |
) |
|
|
-15 |
% |
Preclinical and other programs |
|
|
1,509 |
|
|
|
2,317 |
|
|
|
(808 |
) |
|
|
-35 |
% |
Total external costs |
|
|
5,277 |
|
|
|
6,244 |
|
|
|
(967 |
) |
|
|
-15 |
% |
Internal Costs |
|
|
4,964 |
|
|
|
569 |
|
|
|
4,395 |
|
|
* |
|
Total research and development expenses |
|
$ |
10,241 |
|
|
$ |
6,813 |
|
|
$ |
3,428 |
|
|
|
50 |
% |
* Represents a change greater than 300%
Research and development expenses increased by $3.4 million, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to $4.4 million of internal expenses related to compensation costs for additional headcount of $2.0 million and an increase in non-cash expenses of $1.7 million of stock-based compensation expenses. This increase was primarily offset by a decrease in external spending of $0.8 million related to our preclinical and other programs.
General and Administrative
General and administrative expenses increased by $1.2 million, for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The increase was primarily due to an increase of $0.9 million in non-cash stock-based compensation expenses. Other contributors to the increase included higher professional services including accounting, audit, legal, compliance, director and officer insurance, and investor and public relations and personnel costs to support the growth of the company.
Other Income (Expense)
Interest Income (Expense), Net
Interest expense, net decreased by a nominal amount for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
Foreign Exchange Gain, Net
Foreign exchange gain increased by a nominal amount for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.
Other Income
Other income was decreased by $0.1 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 primarily due to a decrease in branded merchandise sales.
Liquidity and Capital Resources
Sources of Liquidity
Since inception, we have financed our operations primarily from the issuance of equity. Our primary capital needs are for funds to support our scientific research and development activities including staffing, manufacturing, preclinical studies, clinical trials, administrative costs and for working capital.
19
We have experienced operating losses and cash outflows from operations since inception and will require ongoing financing in order to continue our research and development activities and we have not earned any revenue or reached successful commercialization of our products. Our future operations are dependent upon our ability to finance our cash requirements which will allow us to continue our research and development activities and the commercialization of our products. There can be no assurance that we will be successful in continuing to finance our operations.
On January 7, 2021, we completed a bought deal financing resulting in the issuance of 20,930,000 units of the Company at a price per unit of CAD$4.40 ($3.47) for gross proceeds of $72.6 million. Each unit comprised one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (each whole warrant, a “January Warrant”). Each January Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$5.75 ($4.53) until January 7, 2024. Also, in connection with this transaction, the Company issued 1,255,800 compensation warrants to its underwriter.
On March 9, 2021, we completed a private placement bought deal financing resulting in the issuance of 6,000,000 units of the Company at a price per unit of CAD$3.25 ($2.57) for gross proceeds of $15.4 million. Each unit was comprised of one Subordinate Voting Share of the Company and one-half of one Subordinate Voting Share financing warrant (each whole warrant, a “March Warrant”). Each March Warrant entitles the holder thereof to purchase one Subordinate Voting Share at an exercise price of CAD$4.40 ($3.48) until March 9, 2024. Also, in connection with this transaction, the Company issued 360,000 compensation warrants to its underwriter.
Our cash and working capital as at March 31, 2022 were $120.5 million and $112.7 million, respectively.
Future Funding Requirements
To date, we have not generated any revenue. We do not expect to generate any meaningful revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates, and we do not know when, or if at all, that will occur. We will continue to require substantial additional capital to develop our product candidates and fund operations for the foreseeable future. Moreover, we expect our expenses to increase in connection with our ongoing activities, particularly as we continue the development of and seek regulatory approvals for our product candidates. Further, we are subject to all the risks incident in the development of new pharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may harm our business. Our expenses will increase if, and as, we:
•advance our product candidates through preclinical and clinical development;
•seek regulatory approvals for any product candidates that successfully complete clinical trials;
•seek to discover and develop additional product candidates;
•establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval and intend to commercialize on our own or jointly;
•expand our operational, financial and management systems and increase personnel, including personnel to support our development, manufacturing and commercialization efforts and our operations as a public company;
We expect our current cash will be sufficient to fund our current 2022 and 2023 operating plan and will extend our cash runway into 2024. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. In order to complete the development of our product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding. Until we can generate a sufficient amount of revenue from the commercialization of our product candidates, we may seek to raise any necessary additional capital through the sale of equity, debt financings or other capital sources, which could include income from collaborations, strategic partnerships or marketing, distribution or licensing arrangements with third parties or from grants. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our shareholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, including restricting our operations and limiting our ability to incur liens, issue additional debt, pay dividends, repurchase our Subordinate Voting Shares, make certain investments or engage in merger, consolidation, licensing or asset sale transactions. If we raise funds through collaborations, strategic partnerships and other similar arrangements with third parties, we may be required to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. We may be unable to raise additional funds or to enter into such agreements or arrangements on favorable terms, or at all. If we are unable to raise additional funds when needed, we may be required to delay, reduce or eliminate our product development or future commercialization efforts. We have based our projections of operating capital requirements on our
20
current operating plan, which is based on several assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount and timing of our working capital requirements. Our future funding requirements will depend on many factors, including:
•the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical studies and clinical trials;
•the costs, timing and outcome of regulatory review of our product candidates;
•the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product candidates for which we receive marketing approval;
•the costs of manufacturing commercial-grade products and sufficient inventory to support commercial launch;
•the revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;
•the cost and timing of hiring new employees to support our continued growth;
•the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;
•the ability to establish and maintain collaborations on favorable terms, if at all;
•the extent to which we acquire or in-license other product candidates and technologies; and
•the timing, receipt and amount of sales of, or milestone payments related to or royalties on, our current or future product candidates, if any.
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
For the
Three Months
Ended
March 31,
2022 |
|
|
For the
Three Months
Ended
March 31,
2021 |
|
|
Net cash used in operating activities |
|
$ |
(12,866 |
) |
|
$ |
(10,038 |
) |
|
Net cash used in investing activities |
|
|
— |
|
|
|
(316 |
) |
|
Net cash (used in) provided by financing activities |
|
|
(166 |
) |
|
|
89,988 |
|
|
Foreign exchange impact on cash |
|
|
(35 |
) |
|
|
313 |
|
|
Net (decrease) increase in cash |
|
$ |
(13,067 |
) |
|
$ |
79,947 |
|
|
Cash flows from operating activities
Cash used in operating activities for the three months ended March 31, 2022 was $12.9 million, which consisted of a net loss of $18.5 million, partially offset by $4.6 million in non-cash charges and a net change of $1.0 million in our net operating assets and liabilities. The non-cash charges consisted of share-based payments of $3.8 million, and amortization of intangible assets of $0.8 million.
Cash used in operating activities for the three months ended March 31, 2021 was $10.0 million, which consisted of a net loss of $13.8 million, partially offset by $1.5 million in non-cash charges and a net change of $2.2 million in our net operating assets and liabilities. The non-cash charges consisted of share-based payments of $1.3 million, and amortization of intangible assets of $0.3 million.
Cash flows from investing activities
Cash used in investing activities for the three months ended March 31, 2021 was $0.3 million, which consisted of cash paid for the acquisition of HealthMode, net of cash acquired.
21
Cash flows from financing activities
Cash used in financing activities for the three months ended March 31, 2022 was $0.2 million, which consisted of the proceeds of $0.1 million from exercise of warrants, and proceeds of $0.1 million from exercise of options, offset by $0.4 million of withholding taxes paid on vested restricted stock units.
Cash provided by financing activities for the three months ended March 31, 2021 was $90.0 million, which consisted of the net proceeds of $82.1 million from the issuance of common shares and warrants, net of issuance costs, the proceeds of $6.7 million from exercise of warrants, and proceeds of $1.2 million from exercise of options.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited interim condensed consolidated financial statements as at March 31, 2022, which have been prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP and on a basis consistent with those accounting principles followed by us and disclosed in Note 2 to our most recent annual audited consolidated financial statements. The preparation of these unaudited interim condensed consolidated financial statements requires our management to make judgments and estimates 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 revenue generated and expenses incurred during the reporting periods. Our estimates are based on our 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. Significant estimates and judgments include, but are not limited to, research and development tax credits recoverable, research and development expenses, and share-based compensation. Accordingly, actual results may differ from these judgments and estimates under different assumptions or conditions and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
We anticipate that the COVID-19 pandemic will have an impact on the development timelines of our clinical programs. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. As of the date of issuance of these financial statements, we are not aware of any specific event or circumstance that would require the update of our estimates, assumptions and judgments. These estimates may change as new events occur and additional information is obtained and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to our financial statements.
Other than as described under Note 2 of our unaudited interim condensed consolidated financial statements, there have been no material changes to our critical accounting policies from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our most recent annual consolidated financial statements.
Recent Accounting Pronouncements
See Note 2 to our unaudited financial statements located in “Part I – Financial Information, Item 1. Financial Statements” in this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our financial statements.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.
We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
22
Fully Diluted Share Capital
The number of issued and outstanding Subordinate Voting Shares on a fully converted basis as at March 31, 2022 was as follows:
|
|
|
|
|
|
|
Number of Subordinate Voting Share Equivalents |
|
Subordinate Voting Shares |
|
|
422,401,776 |
|
Multiple Voting Shares |
|
|
— |
|
Stock Options |
|
|
30,348,201 |
|
Restricted Share Units |
|
|
14,014,302 |
|
Compensation Warrants |
|
|
1,888,350 |
|
Financing Warrants |
|
|
20,463,729 |
|
Total - March 31, 2022 |
|
|
489,116,358 |
|
23