COMPASS PATHWAYS PLC You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the consolidated financial statements and the related notes to those statements included in this Annual Report on Form 10-K. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Important factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A. "Risk Factors" and the section titled "Special Note Regarding Forward-Looking Statements."
References to "we," "our," "us" and "the Company" refer to
Operating Results Overview We are a mental health care company dedicated to accelerating patient access to evidence-based innovation in mental health. We are motivated by the need to find better ways to help and empower people suffering with mental health challenges who are not helped by existing therapies, and are pioneering the development of a new model of psilocybin therapy, in which COMP360 psilocybin is administered in conjunction with psychological support, which we refer to as COMP360 psilocybin therapy. Our initial focus is on TRD comprising patients who are inadequately served by the current treatment paradigm. Early signals from academic studies, using formulations of psilocybin not developed by us, have shown that psilocybin therapy may have the potential to improve outcomes for patients suffering with TRD, with rapid reductions in depression symptoms and effects lasting up to six months, after administration of a single high dose. In 2018, we received Breakthrough Therapy designation from the FDA for COMP360 for the treatment of TRD. In 2019, we completed a Phase 1 clinical trial administering COMP360, along with psychological support, to 89 healthy volunteers. In this trial, we observed that COMP360 was generally well-tolerated and supported continued progression of Phase 2b studies. We also demonstrated the feasibility of administering COMP360 psilocybin to up to six healthy participants simultaneously, with 1:1 support. InNovember 2021 , we announced positive topline results from our Phase 2b clinical trial evaluating COMP360 in conjunction with psychological support for the treatment of TRD. OnNovember 3, 2022 ,The New England Journal of Medicine , the world's leading peer-reviewed medical journal, published the positive results from our Phase 2b trial. This is the largest, randomized, controlled, double-blind psilocybin therapy clinical trial completed to date. The objective of the phase 2b study was to evaluate the efficacy and safety of a single dose of investigational COMP360 psilocybin (25mg or 10mg), compared to 1mg, in patients with TRD. The topline results from the 233-participant trial showed a rapid and sustained response for patients receiving a single 25mg dose of COMP360 psilocybin administered with psychological support, with 29.1% of participants in remission by week 3 (p<0.002). The trial achieved its primary endpoint for the 25mg dose, with a 25mg dose of COMP360 demonstrating a statistically significant (p<0.001) and clinically relevant treatment difference against the 1mg dose of COMP360 in reducing depressive symptom severity after three weeks.
We commenced our Phase 3 program evaluating our COMP360 psilocybin therapy in TRD. The Phase 3 program is composed of two pivotal trials, each with a long-term follow-up component. The pivotal program design is as follows:
• Pivotal trial 1 (COMP005) (n=255): a single dose (25mg) monotherapy compared with placebo. This trial is designed to replicate the treatment response seen in the Company's Phase 2b trial (n=233). We expect top-line data in summer of 2024. • Pivotal trial 2 (COMP006) (n= 568): a fixed repeat dose monotherapy using three dose arms: 25mg, 10mg and 1mg. This trial is designed to investigate whether a second dose can increase treatment responders and/or improve responses observed in our Phase 2b trial and explore the potential for a meaningful treatment response from repeat administration of COMP360 10mg. We expect top-line data by mid-2025.
• The primary endpoint in both pivotal trials is the change from baseline in MADRS total score at week 6.
Beyond TRD, we have ongoing Phase 2 trials in anorexia nervosa and PTSD.
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Table of Contents Since our formation, we have devoted substantially all of our resources to conducting preclinical studies and clinical trials, organizing and staffing our company, business planning, raising capital and establishing our intellectual property portfolio. We do not have any therapeutic candidates approved for sale and have not generated any revenue. We have funded our operations to date primarily with proceeds from the sale of convertible preferred shares, convertible loan notes, our initial public offering, or IPO, and our follow-on offering completed inMay 2021 , or Follow-On Offering, of American Depositary Shares, or ADSs, representing our ordinary shares inSeptember 2020 andMay 2021 , respectively. ThroughDecember 31, 2022 , we had received net cash proceeds of$116.4 million from sales of our convertible preferred shares and convertible loan notes,$132.8 million from sales of ADSs in our IPO and$154.8 million from sales of ADSs in our Follow-On Offering. InOctober 2021 , we entered into a Sales Agreement withCowen and Company, LLC , under which we may issue and sell from time to time up to$150.0 million of our ADSs at market prices, which we refer to as our ATM Facility. AtDecember 31, 2022 , we had received net cash proceeds of$0.4 million from sales of ADSs under our ATM Facility. We have incurred significant operating losses since our inception. We incurred total net losses of$91.5 million and$71.7 million for the year endedDecember 31, 2022 and 2021, respectively. As ofDecember 31, 2022 , we had an accumulated deficit of$261.1 million . Our historical losses resulted principally from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. In the future, we intend to continue to conduct research and development, preclinical testing, clinical trials, regulatory compliance, market access, commercialization and business development activities that, together with anticipated general and administrative expenses, will result in incurring further significant losses for at least the next several years. Our operating losses stem primarily from development of our investigational COMP360 psilocybin therapy for TRD, and we expect they will continue to increase as we increase our staffing and conduct our Phase 3 program in TRD for our investigational COMP360 psilocybin therapy candidate and conduct our Phase 2 studies for anorexia nervosa and PTSD and, potentially including expanding into additional indications, and initiate preclinical and clinical development of additional programs for different therapeutic candidates, as well as using digital technologies and solutions to enhance our therapeutic offering. Furthermore, since the completion of our IPO, we have incurred, and expect to continue to incur, significant costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of therapeutic candidates, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Our ability to raise additional funds may also be adversely impacted by macroeconomic conditions and disruptions to and volatility in the credit and financial markets inthe United States and worldwide, such as those resulting from heightened or fluctuating interest rates and rates of inflation and foreign exchange fluctuations, potential recessions in any of the regions or countries in which we operate, the ongoing war betweenUkraine andRussia , and changing conditions resulting from the COVID-19 pandemic or other public health crises. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances, however, that our current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all. As ofDecember 31, 2022 , we had cash and cash equivalents of$143.2 million . We believe that our existing cash and cash equivalents will be sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See "-Liquidity and Capital Resources-Funding Requirements" below.
Macroeconomic Conditions
We continue to monitor current macroeconomic and geopolitical events, including heightened or fluctuating inflation and interest rates and the related impact onU.S. and global economies, fluctuations in foreign exchange rates, the ongoing war betweenUkraine andRussia , and changing conditions resulting from the COVID-19 pandemic, for any potential impact they may have on our business.
Components of Our Results of Operations
Revenue
To date, we have not generated any revenue and do not expect to generate any
revenue from the sale of therapeutic candidates in the foreseeable future. If
our development efforts for our investigational COMP360 psilocybin therapy are
successful and result in regulatory approval of COMP360, we may generate revenue
in the future.
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Table of Contents Operating Expenses Research and Development
Research and development expenses consist primarily of:
• development costs, including expenses incurred under agreements with CROs and CMOs, investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services, as well as manufacturing scale-up expenses and the cost of acquiring and manufacturing materials for preclinical studies and clinical trials and laboratory and trial site supplies and equipment;
• personnel expenses, including salaries, related benefits and travel expense for employees engaged in research and development functions;
• non-cash share-based compensation expenses resulting from equity awards granted to employees engaged in research and development functions; and
• other expenses, including costs of outside consultants, including their fees and related travel expenses, allocated facility-related expenses such as direct depreciation costs, allocated expenses for rent and maintenance of facilities and other operating costs.
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our consolidated financial statements as a prepaid expense or accrued research and development expenses.
Research and development activities are central to our business model. Product or therapeutic candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials and related product manufacturing expenses. As a result, we expect that our research and development expenses will continue to increase over the next several years as we: (i) seek to complete the clinical development for our investigational COMP360 psilocybin therapy for TRD; (ii) fund research for our investigational COMP360 psilocybin therapy in other neuropsychiatric indications, including anorexia nervosa and PTSD; (iii) seek to develop digital technologies to complement and augment our therapies, and seek to access other novel drug candidates for development in neuropsychiatric and related indications; (iv) improve the efficiency and scalability of our third-party manufacturing processes and supply chain; and (v) build our third-party or in-house process development, analytical and related capabilities, increase personnel costs and prepare for regulatory filings related to our potential or future therapeutic candidates. The successful development and commercialization of our investigational COMP360 psilocybin therapy is highly uncertain. This is due to the numerous risks and uncertainties associated with development and commercialization, including the following:
•successful enrollment in and completion of clinical trials and preclinical studies, including our Phase 3 clinical trials in TRD;
•sufficiency of our financial and other resources to complete the necessary preclinical studies and clinical trials and our ability to raise capital on favorable terms or at all;
•receiving regulatory approvals or clearance for conducting our planned clinical trials or future clinical trials;
•receiving positive data from our clinical trials that support an acceptable risk-benefit profile of COMP360 psilocybin therapy and any future therapeutic candidates in the intended populations;
•receipt and maintenance of regulatory and marketing approvals from applicable regulatory authorities;
•establishing and scaling up, through third-party manufacturers, manufacturing capabilities of clinical supply for our clinical trials and commercial manufacturing, if any therapeutic candidates are approved;
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Table of Contents •entry into collaborations to further the development of our investigational COMP360 psilocybin therapy and our future therapeutic candidates;
•obtaining and maintaining patent and trade secret protection or regulatory exclusivity for COMP360 and any future therapeutic candidates;
•successfully launching commercial sales of our investigational COMP360 psilocybin therapy and any future therapeutic candidates, if approved;
•acceptance of our current and future therapeutic candidates' benefits and uses, if approved, by patients, the medical community and third-party payors; and
•maintaining a continued acceptable safety profile of our investigational COMP360 psilocybin therapy and our future therapeutic candidates following approval.
A change in the outcome of any of these variables, among others, with respect to the development of our investigational COMP360 psilocybin therapy in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of our investigational COMP360 psilocybin therapy. For example, if the FDA, theEuropean Medicines Agency , or EMA, the Medicines and Healthcare products Regulatory Agency, or MHRA, or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to commit significant additional financial resources and time on the completion of clinical development of that therapeutic candidate.
General and Administrative
General and administrative expenses consist primarily of:
•personnel expenses, including salaries and related benefits, travel and other expenses incurred by personnel in certain executive, finance and administrative functions; •non-cash share-based compensation expenses resulting from the equity awards granted to employees engaged in certain executive, finance and administrative functions;
•legal and professional fees, including consulting, accounting and audit services; and
•facilities and other expenses, including depreciation costs, allocated expenses for rent and maintenance of facilities, director and officer insurance and other operating costs.
We anticipate that our general and administrative expenses will continue to be significant in order to support our continued research activities and development of our investigational COMP360 psilocybin therapy.
We also anticipate we will continue to incur significant accounting, audit, legal, regulatory and compliance costs, as well as investor and public relations expenses associated with being a public company. Additionally, if and when we believe a regulatory approval of a therapeutic candidate appears likely, we anticipate an increase in payroll and other expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our therapeutic candidate.
Other Income (Expense), Net
Other Income
Other income relates to interest earned on cash balances and gains/losses recognized in connection with a forward exchange contract.
Foreign exchange gains (losses)
Foreign exchange gains (losses) consist of foreign exchange impacts arising from foreign currency transactions, primarily related toU.S. dollars maintained in bank accounts in Pounds Sterling functional currency entities.
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Benefit from Research and Development Tax Credit
Benefit from R&D tax credit consists of the R&D tax credit received in theUK , which is recorded within other income (expense), net. As a company that carries out extensive research and development activities, we seek to benefit from the Small and Medium Enterprise, or SME, Program. Qualifying expenditures largely comprise employment costs for research staff, consumables, a proportion of relevant, permitted sub-contract costs and certain internal overhead costs incurred as part of research projects for which we do not receive income. Based on criteria established by His Majesty's Revenue and Customs, or HMRC, a portion of expenditures being recognized in relation to our pipeline research and development, clinical trial management and third-party manufacturing development activities were eligible for the SME regime for the years endedDecember 31, 2022 and 2021. We expect such elements of expenditure will also continue to be eligible for the SME regime for future accounting periods. TheUK R&D tax credit is fully refundable to us and is not dependent on current or future taxable income. As a result, we have recorded the entire benefit from theUK research and development tax credit as a benefit which is included in our net loss before income tax and, accordingly, not reflected as part of the income tax provision. If, in the future, anyUK R&D tax credits generated are needed to offset a corporate income tax liability in theUK , that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within other income (expense), net.
Income Tax Expense
We are subject to corporate taxation inthe United States and theUK . Due to the nature of our business, we have generated losses since inception and have therefore not paidUK corporation tax. Our income tax expense represents only income taxes inthe United States . UnsurrenderedUK losses may be carried forward indefinitely and may be offset against future taxable profits, subject to numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50% ofUK taxable profits. After accounting for tax credits receivable, we had accumulated trading losses for carry forward in theUK of$176.9 million and$144.0 million as ofDecember 31, 2022 and 2021, respectively, which is offset by a full valuation allowance. During the years endedDecember 31, 2022 and 2021, we recorded a tax provision of$0.4 million and$0.2 million , related to our income tax obligations of its operating company in the US, which generates a profit for tax purposes. 139
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Results of Operations
Comparison For The Years Ended
The following table summarizes our results of operations for the years ended
Year ended December 31,
2022 2021 Change
OPERATING EXPENSES:
Research and development $ 65,053 $ 44,027 $ 21,026
General and administrative 45,350 39,194 6,156
Total operating expenses 110,403 83,221 27,182
LOSS FROM OPERATIONS (110,403) (83,221) (27,182)
OTHER INCOME, NET:
Other income 4,061 40 4,021
Foreign exchange gains 821 1,990 (1,169)
Benefit from R&D tax credit 14,424 9,648 4,776
Total other income, net 19,306 11,678 7,628
Loss before income taxes (91,097) (71,543) (19,554)
Income tax expense (408) (199) (209)
Net loss $ (91,505) $ (71,742) $ (19,763)
Research and Development
The table below summarizes our research and development expenses incurred for
the years ended
Year ended December 31,
2022 2021 Change
Development expenses $ 34,342 $ 27,618 $ 6,724
Personnel expenses 16,662 10,538 6,124
Non-cash share-based compensation expense 7,358 4,569 2,789
Other expenses 6,691 1,302 5,389
Total research and development expenses $ 65,053 $
44,027
Research and development expenses increased by$21.0 million to$65.1 million for the year endedDecember 31, 2022 , from$44.0 million for the year endedDecember 31, 2021 . The increase in research and development expenses was primarily attributable to: •an increase of$6.7 million in external development expenses, which primarily related to$4.6 million for the cost of preclinical studies,$2.6 million in drug development and manufacturing costs,$0.5 million in costs for digital activities and$0.3 million in therapist training costs, offset by a$1.3 million decrease in clinical trial expenses due to the completion of Phase 2 studies;
•an increase of
•an increase of$2.8 million in non-cash share-based compensation expense due to increased staffing levels year over year, and the inducement grant awarded to our new chief executive officer inAugust 2022 , in addition to a company-wide option grant inFebruary 2022 . There was no similar company-wide grant in 2021; and •an increase of$5.4 million in other expenses, which primarily related to$3.6 million in R&D external consulting expenses,$1.1 million increased pre-commercial spend and$0.7 million in clinical trial insurance, IT and travel costs. We expect research and development costs to continue to increase substantially in the near future, consistent with our plan to continue to advance our Phase 3 program for COMP360 psilocybin therapy in TRD in 2023.
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General and Administrative
The following table summarizes our general and administrative expenses for the
years ended
Year ended December 31,
2022 2021 Change
Personnel expenses $ 17,160 $ 13,999 $ 3,161
Non-cash share-based compensation expense 5,765 4,070 1,695
Legal and professional fees 11,404 8,654 2,750
Facilities and other expenses 11,021 12,471 (1,450)
Total general and administrative expenses $ 45,350 $
39,194
General and administrative expenses increased by$6.2 million to$45.4 million for the year endedDecember 31, 2022 from$39.2 million for the year endedDecember 31, 2021 . The increase in general and administrative expenses was primarily attributable to the following: •an increase of$3.2 million in personnel expenses, primarily due to an increase in staffing levels related to the hiring of additional personnel in general, administrative and commercial departments to support our growth initiatives, including operating as a public company; •an increase of$1.7 million in non-cash share-based compensation expense due to increased staffing levels year over year, and the inducement grant awarded to our new chief executive officer inAugust 2022 , in addition to a company-wide option grant inFebruary 2022 . There was no similar company-wide grant in 2021; •an increase of$2.8 million in legal and professional fees, primarily related to expenses associated with external consulting, public relations, patent applications and legal advice, as well as continuing costs associated with operating as a public company, and other corporate activities as we continue to grow our business; and •a decrease of$1.5 million in facilities and other expenses, primarily attributable to decreases of$1.1 million in insurance costs,$0.6 million in Centers of Excellence costs and$0.2 million in communications costs. This was offset by an increase of$0.4 million in sponsorships and other donations. We expect to continue to incur significant general and administrative expenses as a result of ongoing requirements as a public company, in addition to ongoing general and administrative support for research and development growth initiatives. Other Income (Expense), Net Other income Other income was$4.1 million for the year endedDecember 31, 2022 and less than$0.1 million for the year endedDecember 31, 2021 . The increase in other income primarily related to increased interest income as a result of higher interest rates on cash deposits in addition to a gain of$2.8 million recognized in connection with a forward exchange contract that we entered into and settled in the third quarter of 2022.
Foreign exchange gains (losses)
Foreign exchange gains decreased by$1.2 million to a gain of$0.8 million for the year endedDecember 31, 2022 from a gain of$2.0 million for the year endedDecember 31, 2021 , primarily related to gains arising from the translation of cash balances generated from the IPO proceeds and the Follow-On Offering proceeds that were maintained inU.S. dollars, which is different from the legal entity's functional currency (Pound Sterling) giving rise to foreign currency gains. Currently, ourU.S. dollar balances are held in a Pound Sterling functional currency legal entity and converted as required into Pound Sterling because the predominant cash outflows are Pound Sterling. As our operating model and business develops we will continually monitor and assess our legal entity structure and whether our future cash outflows continue to be reported in Pounds Sterling or inU.S. dollars, as well as the continuing impact of foreign exchange rates on our results of operations. 141
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Benefit from Research and Development Tax Credit
During the year ended
Income tax expense
The income tax expense was$0.4 million for the year endedDecember 31, 2022 and$0.2 million for the year endedDecember 31, 2021 . The income tax expense was related to income tax obligations of our operating company inthe United States , which generates a profit for tax purposes.
Results of Operations
Comparison For The Years Ended
The following table summarizes our results of operations for the years ended
Year ended December 31,
2021 2020 Change
OPERATING EXPENSES:
Research and development $ 44,027 $ 23,366 $ 20,661
General and administrative 39,194 28,027 11,167
Total operating expenses 83,221 51,393 31,828
LOSS FROM OPERATIONS (83,221) (51,393) (31,828)
OTHER INCOME (EXPENSE), NET:
Other income 40 319 (279)
Foreign exchange gains (losses) 1,990 (11,702) 13,692
Fair value change of convertible notes - (1,771)
1,771
Benefit from R&D tax credit 9,648 4,245
5,403
Total other income (expense), net 11,678 (8,909) 20,587 Loss before income taxes (71,543) (60,302) (11,241) Income tax expense (199) (32) (167) Net loss$ (71,742) $ (60,334) $ (11,408) Research and Development
The table below summarizes our research and development expenses incurred for
the years ended
Year ended December 31,
2021 2020 Change
Development expenses $ 27,618 $ 11,553 $ 16,065
Personnel expenses 10,538 4,563 5,975
Non-cash share-based compensation expense 4,569 6,336 (1,767)
Other expenses 1,302 914 388
Total research and development expenses $ 44,027 $
23,366
Research and development expenses increased by$20.7 million to$44.0 million for the year endedDecember 31, 2021 , from$23.4 million for the year endedDecember 31, 2020 . The increase in research and development expenses was primarily attributable to: •an increase of$16.1 million in external development expenses, which primarily related to increases of$15.1 million in clinical trial expenses,$0.4 million in the cost of preclinical studies to assess additional indications for our investigational COMP360 psilocybin therapy development,$0.3 million in regulatory compliance expenses and$0.3 million in drug development and manufacturing costs; 142
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Table of Contents •an increase of$6.0 million in personnel expenses, as a result of hiring additional personnel in our research and development departments to support the expansion of our digital activities, as well as the requirements of increased clinical activities; •a decrease of$1.8 million in non-cash share-based compensation primarily related to a large option grant that was granted inMay 2020 to one employee, which became fully vested onAugust 17, 2020 , resulting in the recognition of$9.5 million in share-based compensation expense in the year endedDecember 31, 2020 ,$2.4 million of which was allocated to research and development expenses based on an estimate of time spent indirectly supporting research and development activities. In addition, the vesting of certain other options accelerated upon completion of the IPO in accordance with the option grant terms resulted in the recognition of$3.5 million in share-based compensation expense in 2020,$1.4 million of which was allocated to research and development expenses based on the time spent supporting research and development activities during the year endedDecember 31, 2020 . There were no similar expenses recognized during the year endedDecember 31, 2021 . This year-over-year decrease was offset by a$2.0 million increase in non-cash share-based compensation from option grants made to other employees during the year endedDecember 31, 2021 ; and
•an increase of
General and Administrative
The following table summarizes our general and administrative expenses for years
ended
Year ended December 31,
2021 2020 Change
Personnel expenses $ 13,999 $ 6,084 $ 7,915
Non-cash share-based compensation expense 4,070 11,647 (7,577)
Legal and professional fees 8,654 6,827 1,827
Facilities and other expenses 12,471 3,469 9,002
Total general and administrative expenses $ 39,194 $
28,027
General and administrative expenses increased by$11.2 million to$39.2 million for the year endedDecember 31, 2021 from$28.0 million for the year endedDecember 31, 2020 . The increase in general and administrative expenses was primarily attributable to the following: •an increase of$7.9 million in personnel costs, primarily due to an increase in staffing levels related to the hiring of additional personnel in general, administrative and commercial functions to support our growth initiatives, including operating as a public company, in addition to costs related to the severance amount associated with the departure of our prior General Counsel and Chief Legal Officer; •a decrease of$7.6 million in non-cash share-based compensation primarily related to a large option grant that was granted inMay 2020 to one employee, which became fully vested onAugust 17, 2020 , resulting in the recognition of$9.5 million in share-based compensation expense in the year endedDecember 31, 2020 ,$7.1 million of which was allocated to general and administrative expenses based on an estimate of time spent indirectly supporting general and administrative activities. In addition, the vesting of certain other options accelerated upon the IPO in accordance with the option grant terms, resulting in the recognition of$3.5 million in share-based compensation expense in 2020,$2.1 million of which was allocated to general and administrative expenses based on the time spent supporting general and administrative activities. There was no similar accelerated expense recognized during the year endedDecember 31, 2021 . The year-over-year decrease was offset by a$1.6 million increase in non-cash share-based compensation which resulted from option grants made to other employees in the year endedDecember 31, 2021 ; •an increase of$1.8 million in legal and professional fees, primarily related to expenses associated with external consulting, patent applications and legal advice as well as costs associated with operating as a public company, including the transition from a foreign private issuer and additional audit fees associated with the loss ofEmerging Growth Company status and the requirements of Sarbanes Oxley 404 (b), and other corporate activities as we continue to grow our business compared to legal costs and other indirect fees in the prior period associated with preparing for operations as a public company; and
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Table of Contents •an increase of$9.0 million in facilities and other expenses, mainly in relation to an increase in director and officer insurance expenses of$3.6 million , patent application costs of$1.0 million , Centers of Excellence costs of$0.8 million , corporate communications strategy and implementation costs of$0.7 million , IT and office supplies, services and software of$1 million , rent of$0.8 million , subscriptions and memberships of$0.4 million and other expenses of$0.7 million , all in line with company growth in 2021.
Total Other Income (Expense), Net
Benefit from Research and Development Tax Credit
During the years endedDecember 31, 2021 and 2020, we recognized an R&D tax credit from theUK as a benefit within other income (expense), net of$9.6 million and$4.2 million , respectively. The tax credit receivable increased in 2021 compared to 2020 in line with increased research and development activity. The 2020 tax credit was received in full in 2021.
Fair value change of convertible notes
Fair value change of convertible notes relates to the convertible notes issued during the year endedDecember 31, 2019 , which were converted to Series B convertible preferred shares inApril 2020 . No such change was recognized during the year endedDecember 31, 2021 .
Foreign exchange gains (losses)
Foreign exchange gains (losses) increased by$13.7 million to a gain of$2.0 million for the year endedDecember 31, 2021 from a loss of$11.7 million for the year endedDecember 31, 2020 , primarily related to gains arising from the translation of cash balances generated from the IPO proceeds and the Follow-On Offering proceeds that were maintained inU.S. dollars, which is different from the legal entity's functional currency (Pound Sterling) giving rise to foreign currency gains. Currently, our US dollar balances are held in a sterling functional currency legal entity and converted as required into pound sterling because the predominant cash outflows are pounds sterling. As our operating model and business matures we will continually monitor and assess our legal entity structure and whether our future cash outflows continue to be reported in pounds sterling or in US dollars.
Other income
Other income was less than$0.1 million and$0.3 million for the years endedDecember 31, 2021 and 2020 respectively. The decrease in other income primarily related to the decrease in interest income as a result of lower interest rates on cash deposits. Income tax expense The income tax expense was$0.2 million for the year endedDecember 31, 2021 and less than$0.1 million for the year endedDecember 31, 2020 . The income tax expense was related to income tax obligations of our operating company in theU.S. , which generates a profit for tax purposes.
Liquidity and Capital Resources
We are a clinical-stage mental health care company and we have not yet generated any revenue to date. We have incurred significant operating losses since our formation. We have not yet commercialized any therapeutic candidates and we do not expect to generate revenue from sales of any therapeutic candidates for the foreseeable future, if at all. We have funded our operations to date primarily with proceeds from the sale of convertible preferred shares, convertible loan notes and ADSs in our IPO and our Follow-On Offering. ThroughDecember 31, 2022 , we had received net cash proceeds of$116.4 million from sales of our convertible preferred shares and convertible loan notes,$132.8 million in net proceeds from sales of ADSs through our IPO, and$154.8 million in net proceeds from our Follow-On Offering. ThroughDecember 31, 2022 , we had received net cash proceeds of$0.4 million through sales of ADSs under our ATM facility. We believe our existing cash balance of$143.2 million atDecember 31, 2022 will be sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next twelve months.
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Cash Flows
The following table summarizes our cash flows for each of the periods (in
thousands):
Year Ended December 31,
2022 2021 2020
Net cash used in operating activities $ (105,451) $ (67,745) $ (41,380)
Net cash used in investing activities (596) (334) (628)
Net cash provided by financing activities 1,040 156,646 194,155
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(24,959) (5,576) 13,225
Net (decrease)/increase in cash, cash equivalents and restricted cash
$ (129,966)
During the year endedDecember 31, 2022 , net cash used in operating activities was$105.5 million , primarily resulting from our net loss of$91.4 million offset by a non-cash gain on foreign currency remeasurement of$1.1 million , non-cash share-based compensation expenses of$13.1 million , depreciation and amortization of$0.3 million , and non-cash lease expenses of$2.1 million . The net loss was also adjusted by$30.7 million related to changes in components of working capital, including a$28.8 million increase in prepaid expenses and other current assets which primarily related to the R&D tax credit receivable and prepaid research and development expense, an increase in deferred and prepaid tax assets of$1.7 million , a$0.3 million increase in other assets related to increased implementation costs, a$0.3 million decrease in accrued expenses and other liabilities and a$2.0 million decrease in operating lease liabilities, offset by a$2.5 million increase in accounts payable which primarily relates to research and development invoices received in the quarter. During the year endedDecember 31, 2021 , net cash used in operating activities was$67.7 million , primarily resulting from our net loss of$71.7 million offset by non-cash share-based compensation expense of$8.6 million , depreciation and amortization of$0.2 million , and non-cash lease expenses of$1.8 million . The net loss was also adjusted by$4.8 million related to changes in components of working capital, including a$9.0 million increase in prepaid expenses and other current assets which primarily related to the R&D tax credit receivable and prepaid research and development expense, a$0.2 million increase in other assets which primarily related to the security deposit for our newLondon office lease and a$0.9 million increase in deferred and prepaid tax assets, offset by a$5.3 million increase in accounts payable and accrued expenses primarily related to an increase in clinical trial costs and legal and professional fees. Also included in this increase was a non-cash operating lease liability of$1.9 million in relation to our adoption of ASC 842. During the year endedDecember 31, 2020 , net cash used in operating activities was$41.4 million , primarily resulting from our net loss of$60.3 million , offset by non-cash share-based compensation expense of$18.0 million , depreciation and amortization of$0.1 million and a loss due to the change in fair value of our convertible notes of$1.8 million . The net loss was also adjusted by$0.9 million related to changes in components of working capital, including a$4.5 million increase in prepaid expenses and other current assets which primarily related to the R&D tax credit receivable and prepaid insurance, a$0.2 million increase in deferred tax assets, offset by a$3.9 million increase in accounts payable and accrued expenses which related to increased research and development expenses, incurred in our preclinical and clinical trials and increased general and administrative spending resulting from increased professional and legal expenses we incurred in conjunction with our preparation for becoming a public company.
During the years endedDecember 31, 2022 and 2021, net cash used in investing activities was$0.6 million and$0.3 million respectively, primarily driven by our purchases of property and equipment, which largely consisted of lab and office equipment. During the year endedDecember 31, 2020 , net cash used in investing activities was$0.6 million , comprising the$0.5 million investment to acquire an 8% (on a fully diluted basis) shareholding inDelix Therapeutics, Inc. , a drug discovery and development company researching novel small molecules for use in central nervous system indications, and$0.1 million in purchases of property and equipment. 145
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Net Cash Provided by Financing Activities
During the year endedDecember 31, 2022 , net cash provided by financing activities was$1.0 million , primarily related to proceeds from exercise of options of$0.4 million , proceeds from the issuance of ordinary shares through our ATM facility of$0.4 million and proceeds from the issuance of shares under the employee share purchase plan of$0.2 million .
During the year ended
During the year endedDecember 31, 2020 , net cash provided by financing activities was$194.2 million , primarily related to$61.3 million net cash proceeds from our sale and issuance of Series B convertible preferred shares and$132.8 million net cash proceeds from our sale and issuance of ADSs upon the IPO.
Effect of exchange rate changes on cash, cash equivalents and restricted cash
During the year endedDecember 31, 2022 the effect of exchange rate changes on cash, cash equivalents and restricted cash resulted in an exchange loss of$25.0 million compared with a loss of$5.6 million in the same period in the prior year and a gain of$13.2 million in 2020, primarily driven by movements in exchange rates from period to period, resulting in exchange losses on cash balances which are held in entities with Pound Sterling functional currencies and translated toU.S. dollars, the reporting currency.
Funding Requirements
We expect our expenses to continue to increase substantially in connection with our ongoing activities, particularly as we advance our Phase 3 clinical program of COMP360 in TRD and continue to advance the preclinical activities, manufacturing and Phase 2 clinical trials of COMP360. In addition, we expect to continue to incur significant costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. Our expenses will also increase as we:
•continue the clinical development of our investigational COMP360 psilocybin
therapy in active clinical trial sites across
•conduct Phase 2 studies evaluating the safety and tolerability of COMP360 psilocybin therapy in patients suffering with anorexia nervosa and PTSD;
•establish relationships with the network of public healthcare institutions and private clinics that will administer our investigational COMP360 psilocybin therapy, if approved;
•continue the training of qualified therapists, psychiatrists and other healthcare professionals to deliver our investigational COMP360 psilocybin therapy in our clinical trials;
•establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize any therapeutic candidates, therapy sessions, or digital support, for which we may obtain regulatory approval, including COMP360;
•advance our commercialization strategy in
•continue the research and development program for our other preclinical stage therapeutic candidates and discovery-stage programs;
•discover and/or develop additional therapeutic candidates;
•seek regulatory approvals for any therapeutic candidates that successfully complete clinical trials;
•pursue necessary scheduling-related decisions to enable us to commercialize any therapeutic candidates containing controlled substances for which we may obtain regulatory approval, including COMP360;
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Table of Contents •explore external business development opportunities through acquisitions, partnerships, licensing deals to enhance our pipeline and add additional therapeutic candidates to our portfolio; •obtain, maintain, expand and protect our intellectual property portfolio, including litigation costs associated with defending against alleged patent or other intellectual property infringement claims;
•add clinical, scientific, operational, financial and management information systems and personnel, including personnel to support our therapeutic development and potential future commercialization efforts;
•expand our operations in
•incur additional legal, accounting and other expenses associated with operating
as a public company listed in
•work to accelerate research of emerging psychedelic therapies through our
partnership with
We believe our existing cash of$143.2 million atDecember 31, 2022 will be sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. As we progress with our development programs and the regulatory review process, we expect to incur significant commercialization expenses related to product manufacturing, pre-commercial activities and commercialization. Because of the numerous risks and uncertainties associated with research, development and commercialization of therapeutic candidates and programs, we are unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on and could increase significantly as a result of many factors, including:
•the progress, timing and completion of our Phase 3 clinical program for COMP360 for the treatment of TRD, and for indications outside of TRD or any future therapeutic candidates outside of TRD, including anorexia nervosa and PTSD;
•the outcome, timing and cost of seeking and obtaining regulatory approvals from the FDA, the EMA, the MHRA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more nonclinical studies or clinical trials than those that we currently expect or change their requirements on studies that had previously been agreed to;
•the outcome and timing of any scheduling-related decisions by the
•the number of potential new therapeutic candidates we identify and decide to develop, either internally through our research and development efforts or externally through acquisitions, licensing or other collaboration agreements;
•the costs involved with establishing and maintaining Centers of Excellence to serve as research facilities and innovation labs, in line with our ambition to create a new mental health care model;
•the cost involved with hiring additional personnel in our research and development department to support the expansion of our digital activities;
•the costs involved in growing our organization to the size needed to allow for the research, development and potential commercialization of our investigational COMP360 psilocybin therapy and future therapeutic candidates;
•the costs involved in filing patent applications and maintaining and enforcing patents or defending against claims of infringements raised by third parties;
•the time and costs involved in obtaining regulatory approval for COMP360 or future therapeutic candidates and any delays we may encounter as a result of evolving regulatory requirements or adverse results with respect to COMP360 or any of our future therapeutic candidates;
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Table of Contents •selling and marketing activities undertaken in connection with the potential commercialization of our investigational COMP360 psilocybin therapy or any future therapeutic candidates, if approved, and costs involved in the creation of an effective sales and marketing organization; •the amount of revenues, if any, we may derive either directly or in the form of royalty payments from future sales of our investigational COMP360 psilocybin therapy and future therapeutic candidates, if approved; and
•the costs of operating as a public company.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Additional financing may not be available at all or on acceptable terms. To the extent that we raise additional capital through the sale of equity, current ownership interests will be diluted. If we raise additional funds through government or third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish future revenue streams, research programs or therapeutic candidates or grant licenses on terms that may not be favorable to us. Debt financing, if available, may involve high interest rates or agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products or therapeutic candidates that we would otherwise prefer to develop and market ourselves.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance withU.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
As part of the process of preparing our consolidated financial statements, we are required to estimate our prepaid and accrued research and development expenses. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual costs. We make estimates of our prepaid and accrued expenses as of each balance sheet date in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates with the service providers and make adjustments if necessary. To date, such adjustments have not been material. The estimate of prepaid and accrued research and development expense is dependent, in part, upon the receipt of timely and accurate reporting from CROs, CMOs, and other third-party service providers. Examples of estimated prepaid and accrued research and development expenses include fees paid to:
•vendors in connection with preclinical development activities;
•CROs and investigative sites in connection with preclinical studies and clinical trials; and
•CMOs in connection with drug substance and drug product formulation of preclinical study and clinical trial materials.
We base our expenses related to preclinical studies and clinical trials on our
estimates of the services received and efforts expended pursuant to quotes and
contracts with multiple research institutions and CROs that conduct and manage
preclinical
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studies and clinical trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Research and Development Incentives and Receivables
We are subject to corporate taxation in theUK . Due to the nature of our business, we have generated losses since our inception. The benefit from research and development, or R&D, tax credits is recognized in our consolidated statements of operations and comprehensive loss as a component of other income (expense), net, and represents the sum of our R&D tax credits recoverable in theUK .
Each reporting period, we evaluate which
TheUK R&D tax credit is fully refundable to us and is not dependent on current or future taxable income. As a result, we have recorded the entire benefit from theUK R&D tax credit as a benefit which is included in our net loss before income tax and accordingly, not reflected as part of our income tax provision. If, in the future, anyUK R&D tax credits generated are needed to offset a corporate income tax liability in theUK , that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within other income (expense), net. As a company we carry out extensive R&D activities and, therefore, benefit from theUK R&D tax credit regime under the scheme for SMEs. We have assessed our research and development activities and expenditures to determine whether the nature of the activities and expenditures will qualify for credit under the SME regime and whether the claim will ultimately be realized based on the allowable reimbursable expense criteria established by theUK government. Under the SME regime, we are able to surrender some of our trading losses that arise from qualifying R&D activities for a cash rebate of up to 33.35% of such qualifying R&D expenditure. We meet the conditions of the SME regime. Qualifying expenditures largely comprise employment costs for research staff for which an estimate of time spent directly or indirectly supporting the pursuit of R&D activities is made, consumables, outsourced contract research organization costs, which are considered to be subcontracted costs, and utilities costs incurred as part of our research projects. Certain subcontracted qualifying R&D expenditures are eligible for a cash rebate of up to 21.67%. A large portion of costs relating to R&D, clinical trials and manufacturing activities are eligible for inclusion within our tax credit cash rebate claims. Included in the total employment costs are judgements and estimates relating to the allocation of time spent on R&D activities by individual. These estimates are based on real time data such as time spent by various team members, considerations given for non-R&D related events and general day to day activities. The estimates are based on the most accurate representation of the total time spent on qualifying R&D activities. The classification of consumables, outsourced contract research organization costs and utilities costs are based on judgements made by management relating to the direct nature of such costs. The costs incurred relate directly to the pursuit of R&D activities by the company. We have recorded a benefit from the R&D tax credit in other income, net$14.4 million ,$9.6 million and$4.2 million for the years endedDecember 31, 2022 , 2021 and 2020 respectively. The refund is denominated in pounds sterling and, therefore, the receivable is remeasured intoU.S. dollars as of each reporting date. As ofDecember 31, 2022 and 2021, our tax incentive receivable from theUK government was$14.0 million and$9.6 million , respectively. The 2021 credit claimed at £7.1 million was receipted in full in 2022 at an amount of$8.5 million .
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Share-Based Compensation
We measure non-cash share-based awards granted to employees, non-employees and directors based on the fair value on the date of the grant. Forfeitures are accounted for as they occur. We issue non-cash share-based awards with service-based vesting conditions. For equity awards that vest based on a service condition, the non-cash share-based compensation expense is recognized on a straight-line basis over the requisite service period.
Determination of the Fair Value of the Ordinary Shares
The fair value of our Ordinary Shares is determined based on the quoted market price of our common stock.
Prior to our IPO, as there was no public market for our ordinary shares, the estimated fair value of our ordinary shares was determined by our board of directors as of the date of each grant, with input from management, considering our most recently available third-party valuations of our ordinary shares, and our board of directors' assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent valuation through the date of the grant. These third-party valuations were performed in accordance with the guidance outlined in theAmerican Institute of Certified Public Accountants' Accounting and Valuation Guide , Valuation of Privately-Held-Company Equity Securities Issued as Compensation. After a public trading market for our ordinary shares was established following the closing of our IPO, it was no longer necessary for our board of directors to estimate the fair market value of our ordinary shares in connection with our accounting for granted equity awards.
Determination of the Fair Value of the Share Options
We measure share options granted to employees and members of our board of directors for their services as directors based on the fair value on the date of the grant and recognize the corresponding compensation expense of those share options over the requisite service period, which is generally the vesting period of the respective share options. We have only issued share options with service-based vesting conditions and record the expense for these awards using the straight-line method. We estimate the fair value of each share options grant using the Black-Scholes option-pricing model, which uses as inputs the fair value or estimated fair value before our IPO, of our ordinary shares and assumptions we make for the volatility of our ordinary shares, the expected term of our share options, the risk-free interest rate for a period that approximates the expected term of our share options and our expected dividend yield.
We determined the key assumptions for the Black-Scholes option-pricing model as discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.
•Fair Value of Our Ordinary Shares. Prior to our IPO, our ordinary shares were not publicly traded, and therefore we estimated the fair value of our ordinary shares, as discussed in "Determination of the Fair Value of Ordinary Shares" above. •Expected Volatility. Because we do not have a long trading history of our ordinary shares, the expected volatility was derived from the average historical stock volatilities of several public companies within our industry that we consider to be comparable to our business over a period equivalent to the expected term of the share-based awards. We expect to continue to do so until such time as we have adequate historical data regarding the volatility of our own traded share price. If any of the assumptions used in the Black-Scholes model change significantly, share-based compensation for future awards may differ materially compared with the awards granted previously.
Smaller Reporting Company Status
Based on the market value of shares held by non-affiliates onJune 30, 2022 , we are a "smaller reporting company" as defined in the Securities Exchange Act of 1934, as amended, or the Exchange Act and have exited the "large accelerated filer" status as ofDecember 31, 2022 . We may take advantage of certain of the scaled disclosures available to smaller reporting companies. These include, but are not limited to, reduced disclosure obligations regarding executive compensation and an exemption from the requirement to provide a compensation discussion and analysis describing compensation practices and procedures. As a smaller reporting company with annual revenues of less than$100.0 million , we are also not required to provide an attestation report on internal control over financial reporting issued by our independent registered public accounting firm. We will be able to take advantage of these scaled disclosures and exemptions for so long as (i) our voting and non-voting
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shares held by non-affiliates is less than$250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than$100.0 million during the most recently completed fiscal year and our voting and non-voting shares held by non-affiliates is less than$700.0 million measured on the last business day of our second fiscal quarter.
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