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Table of Contents

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 June 30, 2020

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 001-37635

AXSOME THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware

45-4241907

(State or other jurisdiction of incorporation or organization)

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

22 Cortlandt Street
16th Floor
New York, New York

10007

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (212) 332-3241

Former Address: 200 Broadway, 3rd Floor, New York, NY 10038

Securities registered pursuant to Section 12(g) of the Act:

None

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 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 filed, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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

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 $0.0001 Per Share

AXSM

The Nasdaq Global Market

There were 37,284,266 shares of the registrant’s common stock, $0.0001 par value, outstanding as of August 3, 2020.

Table of Contents

AXSOME THERAPEUTICS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2020

TABLE OF CONTENTS

Page

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

3

PART I — FINANCIAL INFORMATION

ITEM 1

Financial Statements

4

ITEM 2

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

22

ITEM 3

Quantitative and Qualitative Disclosure About Market Risk

36

ITEM 4

Controls and Procedures

36

PART II — OTHER INFORMATION

ITEM 1

Legal Proceedings

37

ITEM 1A

Risk Factors

37

ITEM 6

Exhibits

100

Signatures

102

2

Table of Contents

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain matters discussed in this report, including matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by such forward-looking statements. The words “anticipate,” “believe,” “estimate,” “may,” “expect” and similar expressions are generally intended to identify forward-looking statements. Our actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation, those discussed under the captions “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this report, as well as other factors which may be identified from time to time in our other filings with the Securities and Exchange Commission, or the SEC, or in the documents where such forward-looking statements appear. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements. Such forward-looking statements include, but are not limited to, statements about:

our expectations for increases or decreases in expenses;
our expectations for the clinical and preclinical development, manufacturing, regulatory approval, and commercialization of our pharmaceutical product candidates or any other products that we may acquire or in-license;
our estimates of the sufficiency of our existing capital resources combined with future anticipated cash flows to finance our operating requirements;
our expectations for incurring capital expenditures to expand our research and development and manufacturing capabilities;
unforeseen circumstances or other disruptions to normal business operations arising from or related to COVID-19;
our expectations for generating revenue or becoming profitable on a sustained basis;
our expectations or ability to enter into marketing and other partnership agreements;
our expectations or ability to enter into product acquisition and in-licensing transactions;
our expectations or ability to build our own commercial infrastructure to manufacture, market and sell our product candidates;
our expected losses;
our ability to obtain and maintain intellectual property protection for our product candidates;
the acceptance of our products by doctors, patients, or payors;
our stock price and its volatility;
our ability to attract and retain key personnel;
the performance of our third-party manufacturers;
our expectations for future capital requirements; and
our ability to successfully implement our strategy.

The forward-looking statements contained in this report reflect our views and assumptions only as of the date that this report is signed. Except as required by law, we assume no responsibility for updating any forward-looking statements.

We qualify all of our forward-looking statements by these cautionary statements. In addition, with respect to all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

3

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Axsome Therapeutics, Inc.

Consolidated Balance Sheets

June 30, 

December 31, 

    

2020

2019

(Unaudited)

Assets

Current assets:

Cash and cash equivalents

$

190,682,109

$

219,966,167

Prepaid and other current assets

 

137,181

 

413,095

Total current assets

 

190,819,290

 

220,379,262

Equipment, net

 

30,422

 

30,623

Other assets

 

139,875

 

139,875

Total assets

$

190,989,587

$

220,549,760

Liabilities and stockholders’ equity

Current liabilities:

Accounts payable

$

9,363,225

$

10,943,325

Accrued expenses and other current liabilities

 

7,091,470

 

10,949,128

Loan payable, current portion

6,547,261

2,602,292

Total current liabilities

 

23,001,956

 

24,494,745

Loan payable, long-term

13,744,321

17,332,626

Total liabilities

36,746,277

41,827,371

Stockholders’ equity:

Preferred stock, $0.0001 par value per share (10,000,000 shares authorized, none issued and outstanding at June 30, 2020 and December 31, 2019, respectively)

Common stock, $0.0001 par value per share (150,000,000 shares authorized, 37,267,510 and 36,933,217 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively)

 

3,726

 

3,693

Additional paid-in capital

 

380,946,215

 

354,614,189

Accumulated deficit

 

(226,706,631)

 

(175,895,493)

Total stockholders’ equity

 

154,243,310

 

178,722,389

Total liabilities and stockholders’ equity

$

190,989,587

$

220,549,760

The accompanying notes are an integral part of the consolidated financial statements.

4

Table of Contents

Axsome Therapeutics, Inc.

Consolidated Statements of Operations

(Unaudited)

Three months ended

Six months ended

June 30, 

June 30, 

    

2020

2019

2020

2019

Operating expenses:

Research and development

$

10,542,957

$

11,003,142

$

38,064,357

$

18,606,223

General and administrative

 

7,235,877

 

2,445,077

 

12,205,934

 

5,263,469

Total operating expenses

 

17,778,834

 

13,448,219

 

50,270,291

 

23,869,692

Loss from operations

 

(17,778,834)

 

(13,448,219)

 

(50,270,291)

 

(23,869,692)

Interest income (expense)

 

(548,158)

 

(313,995)

 

(540,847)

 

(532,898)

Net loss

$

(18,326,992)

$

(13,762,214)

$

(50,811,138)

$

(24,402,590)

Net loss per common share, basic and diluted

$

(0.49)

$

(0.41)

$

(1.37)

$

(0.73)

Weighted average common shares outstanding, basic and diluted

 

37,100,770

 

33,801,749

 

37,081,064

 

33,429,178

The accompanying notes are an integral part of the consolidated financial statements.

5

Table of Contents

Axsome Therapeutics, Inc.

Consolidated Statements of Stockholders’ Equity

(Unaudited)

Common stock

 

    

    

    

Additional

    

Accumulated

    

Total stockholders’

 

Shares

Amount

paid-in capital

deficit

 equity

Balance at December 31, 2018

 

30,087,213

 

3,009

 

108,485,219

 

(107,550,307)

 

937,921

Stock-based compensation

1,256,310

1,256,310

Issuance of common stock upon exercise of options

 

52,819

5

410,157

410,162

Issuance of warrants upon debt financing

426,000

426,000

Issuance of common stock upon financing

3,164,015

316

24,983,366

24,983,682

Net loss

 

(10,640,376)

(10,640,376)

Balance at March 31, 2019

33,304,047

$

3,330

$

135,561,052

$

(118,190,683)

$

17,373,699

Stock-based compensation

888,556

888,556

Issuance of common stock upon exercise of options

 

59,720

6

205,330

205,336

Issuance of common stock upon exercise of warrants

24,389

2

144,868

144,870

Issuance of warrants upon debt financing

(39,000)

(39,000)

Issuance of common stock upon financing

942,285

95

19,471,603

19,471,698

Net loss

 

(13,762,214)

(13,762,214)

Balance at June 30, 2019

34,330,441

$

3,433

$

156,232,409

$

(131,952,897)

$

24,282,945

Balance at December 31, 2019

 

36,933,217

 

3,693

 

354,614,189

 

(175,895,493)

 

178,722,389

Stock-based compensation

2,133,530

2,133,530

Issuance of common stock upon exercise of options

 

60,186

6

629,750

629,756

Issuance of common stock related to license agreement

82,019

8

7,155,329

7,155,337

Net loss

 

(32,484,146)

(32,484,146)

Balance at March 31, 2020

 

37,075,422

$

3,707

$

364,532,798

$

(208,379,639)

$

156,156,866

Stock-based compensation

4,148,025

4,148,025

Issuance of common stock upon exercise of options

 

20,428

2

190,407

190,409

Issuance of common stock upon exercise of warrants

29,982

3

-

3

Issuance of common stock upon financing

141,678

14

12,074,985

12,074,999

Net loss

 

(18,326,992)

(18,326,992)

Balance at June 30, 2020

 

37,267,510

$

3,726

$

380,946,215

$

(226,706,631)

$

154,243,310

The accompanying notes are an integral part of the consolidated financial statements.

6

Table of Contents

Axsome Therapeutics, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

Six months ended June 30, 

 

    

2020

    

2019

 

 

Cash flows from operating activities

Net loss

$

(50,811,138)

$

(24,402,590)

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

Stock-based compensation expense

 

6,281,555

 

2,144,866

Non-cash research and development license expense

7,155,337

Amortization of debt discount

 

356,664

 

294,818

Depreciation

 

10,960

 

22,549

Changes in operating assets and liabilities:

Prepaid expenses and other current assets

 

275,914

 

431,447

Other assets

 

 

(56,624)

Accounts payable

 

(1,580,100)

 

2,449,875

Accrued expenses and other current liabilities

 

(3,857,658)

 

934,659

Net cash used in operating activities

 

(42,168,466)

 

(18,181,000)

Cash flows from investing activities

Purchases of equipment

 

(10,759)

 

(11,464)

Net cash used in investing activities

 

(10,759)

 

(11,464)

Cash flows from financing activities

Proceeds from issuance of common stock upon financing, net

 

12,074,999

 

44,455,380

Proceeds from issuance of term loan

20,000,000

Repayment of principal on term loan

 

(7,238,889)

Proceeds from issuance of common stock upon exercise of options

820,165

615,498

Proceeds from issuance of common stock upon exercise of warrants

3

144,870

Net cash (used in) provided by financing activities

 

12,895,167

 

57,976,859

Net (decrease) increase in cash

 

(29,284,058)

 

39,784,395

Cash at beginning of period

 

219,966,167

 

13,968,742

Cash at end of period

$

190,682,109

$

53,753,137

Supplemental disclosures of cash flow information:

Interest paid

$

762,501

$

595,833

Supplemental disclosures of non-cash financing activity:

Issuance of warrants in connection with debt financing

$

$

387,000

The accompanying notes are an integral part of the consolidated financial statements.

7

Table of Contents

Axsome Therapeutics, Inc.

Notes to Consolidated Financial Statements (Unaudited)

Note 1. Nature of Business and Basis of Presentation

Axsome Therapeutics, Inc. (“Axsome” or the “Company”) is a biopharmaceutical company developing novel therapies for central nervous system (“CNS”) disorders for which there are limited treatment options. By focusing on this therapeutic area, the Company is addressing significant and growing markets where current treatment options are limited or inadequate. The Company’s core CNS portfolio includes five product candidates, AXS-05, AXS-07, AXS-09, AXS-12, and AXS-14, which are being developed for multiple indications. The Company aims to become a fully integrated biopharmaceutical company that develops and commercializes differentiated therapies that expand the treatment options available to caregivers and improve the lives of patients living with CNS disorders. The Company was incorporated on January 12, 2012 in the State of Delaware.

The accompanying unaudited interim consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. These unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 12, 2020.

In the opinion of management, the unaudited interim consolidated financial statements reflect all adjustments, which are normal recurring adjustments, necessary for the fair presentation of the financial information for the interim periods. The results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or any future period.

Liquidity and Capital Resources

The Company has incurred operating losses since its inception, and expects to continue to incur operating losses for the foreseeable future and may never become profitable. As of June 30, 2020, the Company had an accumulated deficit of $226.7 million.

The Company’s primary sources of cash have been proceeds from the issuance and sale of its common stock in public offerings. The Company has not yet commercialized any of its product candidates and cannot be sure if it will ever be able to do so. The Company’s ability to achieve profitability depends on a number of factors, including its ability to obtain regulatory approval for its product candidates, successfully complete any post-approval regulatory obligations and successfully commercialize its product candidates alone or in partnership. The Company may continue to incur substantial operating losses even if it begins to generate revenues from its product candidates.

The Company believes its existing cash will be sufficient to fund its anticipated operating cash requirements for at least twelve months following the date of this filing. The actual amount of cash that the Company will need to operate is subject to many factors, including, but not limited to, the timing, design and conduct of clinical trials for its product candidates. The Company may use a combination of public and private equity offerings, debt financings, other third-party funding, strategic alliances, licensing arrangements or marketing and distribution arrangements if market conditions are favorable or in light of other strategic considerations to finance its future cash needs.

The Company’s common stock is listed on the Nasdaq Global Market and trades under the symbol “AXSM”.

8

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Impact of COVID-19

In December 2019, a novel (new) coronavirus known as SARS-CoV-2 was first detected in Wuhan, Hubei Province, People’s Republic of China, causing outbreaks of the coronavirus disease, known as COVID-19, that has now spread globally. On January 30, 2020, the World Health Organization (WHO) declared COVID-19 a public health emergency. The Secretary of Health and Human Services declared a public health emergency in the United States on January 31, 2020, under section 319 of the Public Health Service Act (42 U.S.C. 247d), in response to the COVID-19 outbreak. On March 11, 2020, the WHO declared COVID-19 a pandemic. The full impact of the COVID-19 pandemic is unknown and rapidly evolving. While the potential economic impact brought by and over the duration of the COVID-19 pandemic may be difficult to assess or predict, the COVID-19 pandemic has resulted in significant disruption of global financial markets, which could in the future negatively affect the Company’s liquidity. In addition, a recession or market volatility resulting from the COVID-19 pandemic could affect the Company’s business. Given the nature and type of the Company’s short-term investments, the Company does not believe the COVID-19 pandemic has had or will have a material impact on the Company’s current investment liquidity.

Note 2. Summary of Significant Accounting Policies

Significant Risks and Uncertainties

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s product candidates; the Company’s ability to obtain regulatory approval to market its products, if approved; competition from products manufactured and sold or being developed by other companies; the price of, and demand for, the Company’s products, if approved; the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, if approved; and the Company’s ability to raise additional financing. If the Company does not successfully commercialize any of its product candidates, it will be unable to generate recurring product revenue or achieve and maintain profitability.

Use of Estimates

Management considers many factors in developing the estimates and assumptions that are used in the preparation of these financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. In preparing these financial statements, management used significant estimates in the following areas, among others: stock-based compensation expense; the determination of the fair value of the warrants; the accounting for research and development costs; and the recoverability of the Company’s net deferred tax assets and related valuation allowance.

Foreign Currency Translation

Expenses denominated in foreign currency are translated into U.S. dollars at the exchange rate on the date the expense is incurred. Assets and liabilities of foreign operations are translated at period-end exchange rates. The effect of exchange rate fluctuations on translating foreign currency into U.S. dollars is included in the Statements of Operations and is not material to the Company’s financial statements.

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Segment and Geographic Information

Operating segments are defined as components of an enterprise for which separate discrete information is available for evaluation by the chief operating decision maker or decision-making group, in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business as one operating segment, which is the business of developing novel therapies for the management of CNS disorders.

Cash Equivalents

The Company considers all highly liquid investments that have maturities of three months or less when acquired to be cash equivalents. The Company’s cash and cash equivalents includes holdings in checking and overnight sweep accounts. The Company’s cash equivalents, which are money market funds held in a sweep account, are measured at fair value on a recurring basis. As of June 30, 2020, the balance of cash and cash equivalents was $190.7 million, which approximates fair value and was determined based upon Level 1 inputs. The sweep account is valued using quoted market prices with no valuation adjustments applied. Accordingly, these securities are categorized as Level 1.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash. The Company maintains its cash at financial institutions, which at times, exceed federally insured limits. At June 30, 2020, the majority of the Company’s cash was held by one financial institution and the amount on deposit was in excess of Federal Deposit Insurance Corporation insurance limits. The Company has not recognized any losses from credit risks on such accounts since inception. The Company believes it is not exposed to significant credit risk on cash.

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Assets and liabilities that are measured at fair value are reported using a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.

Level 3—Inputs that are unobservable for the asset or liability.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The Company’s financial instruments are cash, accounts payable, accrued liabilities, and current and long-term debt. The carrying values for cash, accounts payable and accrued liabilities reported in the accompanying consolidated financial statements approximate their respective fair values due to their short-term maturities. The carrying value of debt, the 2019 Term Loan (see Note 4 – Loan and Security Agreement), is estimated to approximate its fair value as the interest rate approximates the market rate for loans with similar terms and risk characteristics.

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Debt Issuance Costs

Debt issuance costs consist of costs incurred in obtaining long-term financing. These costs are classified on the consolidated balance sheet as a direct deduction from the carrying amount of the related debt liability. These expenses are deferred and amortized as part of interest expense in the consolidated statement of operations using the effective interest rate method over the term of the debt agreement.

Equipment

Equipment consists primarily of computer equipment and is recorded at cost. Equipment is depreciated on a straight-line basis over its estimated useful life, which the Company estimates to be three years. When equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in operating expenses.

Research and Development Costs

Research and development expenses primarily consist of costs incurred in performing research and development activities, including preclinical studies, clinical trials, manufacturing costs, regulatory costs, employee salaries and benefits, stock-based compensation expense, contract services, including external research and development expenses incurred under arrangements with third parties, such as contract research organizations (“CROs”), facilities costs, overhead costs, depreciation, and other related costs.

Generally, research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and amortized over the period that the goods are delivered or the related services are performed, subject to an assessment of recoverability. The Company makes estimates of costs incurred in relation to clinical site costs. The Company analyzes the progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability. Significant judgments and estimates must be made and used in determining the accrued balance and expense in any accounting period. The Company reviews and accrues clinical trial study expenses based on work performed and relies upon estimates of those costs applicable to the stage of completion of a study. With respect to clinical site costs, the financial terms of these agreements are subject to negotiation and vary from contract to contract. Payments under these contracts may be uneven, and depend on factors such as the achievement of certain events, the successful recruitment of patients, the completion of portions of the clinical trial or similar conditions. The objective of the Company’s policy is to match the recording of expenses in its financial statements to the actual services received and efforts expended. As such, expense accruals related to clinical site costs are recognized based on the Company’s estimate of the degree of completion of the event or events specified in the specific clinical study or trial contract.

Income Taxes

Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses, and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2020 and has not recorded an income tax benefit for the six months ended June 30, 2020 and 2019 since it determined that a full valuation allowance is required against the Company’s deferred tax assets.

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The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position as well as consideration of the available facts and circumstances. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. As of June 30, 2020, the Company does not believe any material uncertain tax positions are present. In the event the Company determines that accrual of interest or penalties are necessary in the future, the amount will be presented as a component of income tax expense.

Stock-Based Compensation

For stock options issued, the Company estimates the grant date fair value of each option using the Black-Scholes option pricing model. The Black-Scholes model takes into account the expected volatility of the Company’s common stock, expected dividends of the Company’s common stock, the risk-free interest rate, the estimated life of the option, the closing market price of the Company’s common stock and the exercise price. The estimates utilized in the Black-Scholes calculation involve inherent uncertainties and the application of management’s judgment. In addition, the Company recognizes expense for equity awards forfeitures as they occur.

For restricted stock units (“RSUs”) issued, the Company issues them in the form of Company common stock. The fair value of these awards is based on the market close price per share on the grant date. Prior to January 1, 2020, the Company only granted stock options. Beginning in 2020, for grants to employees, the Company granted a mix of stock options and RSUs.

For awards subject to service-based vesting conditions, the Company recognizes stock-based compensation expense on a straight-line basis over the requisite service period, which is generally the vesting term. For awards subject to performance-based vesting conditions, the Company recognizes stock-based compensation expense using the accelerated attribution method when it is probable that the performance condition will be achieved. The expense related to the stock-based compensation is recorded within the same financial statement line item as the grantee’s cash compensation.

The Company’s policy upon exercise of stock options and RSUs is that shares will be issued as new shares from the Company’s 2015 Omnibus Incentive Compensation Plan available share pool.

Basic and Diluted Net Loss per Common Share

Basic net loss per share of common stock is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as warrants, stock options, and RSUs, which would result in the issuance of incremental shares of common stock. As the impact of these items is anti-dilutive during periods of net loss, there was no difference between basic and diluted net loss per share of common stock for the three and six months ended June 30, 2020 and 2019.

Recent Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12) enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. ASU 2019-12 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the expected impact of this standard, but does not expect it to have a material impact on its consolidated financial statements upon adoption.

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Note 3. Accrued Expenses and Other Current Liabilities

At June 30, 2020 and December 31, 2019 accrued expenses and other current liabilities consisted of the following:

June 30, 

December 31, 

    

2020

2019

Research and development

$

4,432,159

$

8,209,594

Accrued compensation

1,446,891

2,056,356

Other

 

1,212,420

 

683,178

Total

$

7,091,470

$

10,949,128

Note 4. Loan and Security Agreement

Current Term Loan

2019 Term Loan

In March 2019, the Company entered into a $24.0 million growth capital term loan facility (the “2019 Term Loan”) with Silicon Valley Bank (“SVB”) and WestRiver Innovation Lending Fund VIII, L.P. (“WestRiver”). The two-tranche loan agreement consists of an initial $20.0 million tranche (the “Term A Loan Advance”), which was funded upon closing, with the remaining $4.0 million (the “Term B Loan Advance”) initially available to be drawn, at the Company’s option, subject to the achievement of positive data, on or prior to August 15, 2019 (which was extended to December 31, 2019, in connection with the First Amendment to the 2019 Term Loan, as discussed below), with respect to the Company’s Phase 2 clinical trial for AXS-12 in narcolepsy, sufficient to submit a Phase 3 protocol to FDA, provided that the Company has not received any objections from the FDA within thirty days after submission of such Phase 3 protocol (the “Milestone Event”). A portion of the first tranche was used to satisfy the Company’s existing obligations under the 2016 Amended Term Loan (as defined below) with SVB, which consisted of $5.6 million in outstanding principal balance and $0.85 million as a final payment fee, and such obligations are considered to be fully repaid and performed. The Term B Loan Advance of $4.0 million was not drawn down by the Company and has since expired.

The loan bears interest at an annual rate equal to the greater of (i) seven and one-half of one percent (7.50%) and (ii) two percent (2%) above the Prime Rate. The loan advances mature in February 2023 and initially had an interest-only payment period of 12 months (which was extended to 18 months in connection with the First Amendment to the 2019 Term Loan, as discussed below), extendable to 18 months upon the drawing of the Term B Loan Advance (which is now extendable to 24 months as a result of the First Amendment to the 2019 Term Loan). The Company did not draw down on the Term B Loan Advance, and therefore, the interest-only monthly payment period was not extended. Principal payments coming due within twelve months have been classified as current liabilities in the accompanying balance sheet. In addition, the Company was initially required to pay a final payment fee of 6.0% of the principal amount extended on the date of repayment of the 2019 Term Loan (which was increased to 6.3% in connection with the First Amendment to the 2019 Term Loan, as discussed below), which is being accreted and amortized into interest expense using the effective interest rate method over the term of the loan.

The Company could initially prepay all, but not less than all, of the 2019 Term Loan, subject to a prepayment premium of 3.0% of the outstanding principal if prepaid within one year of the effective date of the loan, 2.0% of the outstanding principal if prepaid after the first anniversary of the effective date but on or prior to the second anniversary of the effective date, and 1.0% of the outstanding principal if prepaid after the second anniversary of the effective date. The 2019 Term Loan is collateralized by a security interest in all of the Company’s assets except intellectual property. The Company’s intellectual property is subject to a negative pledge.

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First Amendment to the 2019 Term Loan

On July 25, 2019 (the “First Amendment Effective Date”), the Company entered into the first amendment to the 2019 Term Loan (the “First Amendment to the 2019 Term Loan”). Under the First Amendment to the 2019 Term Loan, the interest-only monthly payment period was extended to 18 months after the date of the 2019 Term Loan, which may be further extended to 24 months upon receipt by the Company of the Term B Loan Advance. The Company’s ability to draw down the Term B Loan Advance was extended to December 31, 2019, subject to the Company’s achievement of the Milestone Event prior to or on December 31, 2019. The Term B Loan Advance and the Term A Loan Advance (together, the “Loan Advances”) mature on February 1, 2023 (the “Maturity Date”).

Pursuant to the 2019 Term Loan, as amended by the First Amendment to the 2019 Term Loan, following the interest-only payment period, the Company will begin making monthly payments of principal in equal monthly installments for 30 consecutive months (provided, that, upon the occurrence of the Milestone Event, the repayment schedule will be decreased to 24 consecutive months) and monthly payments of interest, until the Maturity Date. Interest will accrue on the unpaid principal balance of the outstanding Loan Advances at a floating per annum rate equal to the greater of (i) seven and one-half of one percent (7.50%) and (ii) two percent (2.0%) above the prime rate. The First Amendment to the 2019 Term Loan increased the final payment fee, payable upon the Company’s repayment of the Loan Advances from 6.0% to 6.3% of the original principal amount of the Loan Advances.

The Company may prepay all, but not less than all of the Loan Advances, subject to a prepayment fee of 3.0% of any amount prepaid prior to the first anniversary of the First Amendment Effective Date, 2.0% of the amount prepaid if the prepayment occurs after the first anniversary of the First Amendment Effective Date through and including the second anniversary of the First Amendment Effective Date, or 1.0% of the amount prepaid if the prepayment occurs after the second anniversary of the First Amendment Effective Date, but prior to the Maturity Date. These percentages are unchanged from the original 2019 Term Loan.

The Company evaluated whether the First Amendment to the 2019 Term Loan entered into in July 2019 represented a debt modification or extinguishment in accordance with ASC 470-50, Debt – Modifications and Extinguishments. As the present value of the cash flows under the terms of the First Amendment to the 2019 Term Loan is less than 10% different from the remaining cash flows under the terms of the 2019 Term Loan, the First Amendment to the 2019 Term Loan was accounted for as a debt modification. Therefore, the unamortized balance of debt discount costs incurred in connection with 2019 Term Loan are being amortized through maturity in February 2023 utilizing the effective interest rate method.

Previous Term Loan

Prior to the 2019 Term Loan, the Company had a $20.0 million Term Loan Agreement with SVB which was executed in November 2016 (“2016 Original Term Loan”). The three-tranche term loan consisted of an initial $10.0 million tranche triggered upon closing, with the remaining $10.0 million available to be drawn in two $5.0 million tranches, at the Company’s option, subject to the achievement of certain clinical and financial milestones. The Company did not achieve the conditional criteria to access the second and third tranches before the specified dates and the $10.0 million in additional term loan advances subsequently expired.

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The 2016 Original Term Loan bore interest at an annual rate equal to 4.50% plus the prime rate, which is the greater of 3.50% or the Wall Street Journal prime rate, and was payable monthly. It was to mature in November 2020 and had an interest-only payment period until December 1, 2017, which was extendable to May 2018 upon the drawing of the second tranche. Because the Company did not achieve the conditional criteria to access the second and third term advances before the specified dates, the $10.0 million in additional term loan advances expired and the Company began to repay principal in December 2017. Following the interest-only payment period, the Company began making monthly payments of principal and interest and such payments would continue until the maturity date. Principal payments coming due within twelve months had been classified as current liabilities in the accompanying balance sheet. In addition to principal and interest payments under the 2016 Original Term Loan, the Company was required to pay a final payment fee of 8.5% of the principal amount extended on the date of repayment of the 2016 Original Term Loan. The Company accrued the final payment fee into interest expense using the effective interest rate method until the entry into the 2019 Term Loan in March 2019, at which time the Company paid SVB $0.85 million in satisfaction of all final payment fee liabilities due under the 2016 Original Term Loan.

The Company was permitted to prepay all, but not less than all, of the 2016 Original Term Loan subject to a prepayment premium of 3.0% of the outstanding principal if prepaid within two years of the effective date of the loan, 2.0% of the outstanding principal if prepaid during the third year of the loan, and 1.0% of the outstanding principal if prepaid after the third year. The 2016 Original Term Loan was collateralized by a security interest in all of the Company’s assets except intellectual property. The Company’s intellectual property was subject to a negative pledge.

In November 2018, the Company amended the 2016 Original Term Loan with SVB to provide an additional $4.0 million growth capital loan. The additional capital was available to be drawn on the amendment effective date which was November 26, 2018 through May 31, 2019, at the Company’s option, conditioned upon the achievement of a clinical milestone, which required the Company’s receipt of positive data of the Company’s Phase 2 clinical trial of AXS-12 for the treatment of narcolepsy, sufficient to submit a Phase 3 protocol to the FDA and to proceed to a Phase 3 trial (“2016 Amended Term Loan”). The financial terms for this additional growth capital were more favorable than those of the 2016 Original Term Loan. All other terms and conditions from the 2016 Original Term Loan agreement remained in place. The additional $4.0 million growth capital loan had to be drawn by May 31, 2019 and would bear interest at an annual rate equal to the greater of the prime rate plus 2.00%, or 7.25%, if drawn. The Company’s obligations under the 2016 Amended Term Loan, along with the ability of the Company to draw down on the additional $4.0 million tranche, were considered performed and completed in connection with the establishment of the 2019 Term Loan.

The Company evaluated whether the 2019 Term Loan entered into in March 2019 represented a debt modification or extinguishment in accordance with ASC 470-50, Debt – Modifications and Extinguishments. As the present value of the cash flows under the terms of the 2019 Term Loan is less than 10% different from the remaining cash flows under the terms of the 2016 Original Term Loan and the 2016 Amended Term Loan, the 2019 Term Loan was accounted for as a debt modification. Since the borrowing capacity of the 2019 Term Loan is greater than the borrowing capacity from the 2016 Original Term Loan and the 2016 Amended Term Loan, the unamortized balance of debt discount costs incurred in connection with those loans and additional debt discount costs incurred in connection with entry into the 2019 Term Loan, are being amortized through maturity in February 2023 utilizing the effective interest rate method.

Loan Interest Expense and Amortization

The Company incurred interest expense of $379,167 and $758,334 for the three and six months ended June 30, 2020, respectively, as compared to $379,166 and $595,833 for the three and six months ended June 30, 2019, respectively. In addition, amortization of the final payment fee was $119,014 and $238,028 for the three and six months ended June 30, 2020, respectively, as compared to $126,259 and $195,924 for the three and six months ended June 30, 2019, respectively.

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The outstanding debt and unamortized debt discount balances are as follows:

June 30, 

December 31, 

    

2020

2019

Total Outstanding Debt

$

20,000,000

$

20,000,000

Add: accreted liability of final payment fee

642,392

404,364

Less: unamortized debt discount, long-term

(231,404)

(405,071)

Less: current portion of long-term debt

(6,666,667)

(2,666,667)

Loan payable, long-term

$

13,744,321

$

17,332,626

Current portion of long-term debt

$

6,666,667

$

2,666,667

Less: current portion of unamortized debt discount

(119,406)

(64,375)

Loan payable, current portion

$

6,547,261

$

2,602,292

Further information on warrants issued related to the debt financings and amendments are disclosed in Note 6 - Stockholders’ Equity under the “Warrants” section.

Amortization of the debt discount in relation to warrants issued as described above was $59,998 and $118,636 for three and six months ended June 30, 2020, as compared to $61,126 and $98,894 for the three and six months ended June 30, 2019, respectively.

Scheduled Principal Payments on Outstanding Debt, as of June 30, 2020, are as follows:

2020

2,666,667

2021

8,000,000

2022

8,000,000

2023

1,333,333

Total principal payments outstanding

$

20,000,000

The Company was in compliance with all covenants and requirements of its financing arrangements as of and during the six months ended June 30, 2020.

Note 5. Net Loss per Common Share

The following table sets forth the computation of basic and diluted net loss per common share:

Three months ended June 30, 

 

Six months ended June 30, 

    

2020

    

2019

 

2020

    

2019

 

Basic and diluted net loss per common share:

Net loss

$

(18,326,992)

$

(13,762,214)

$

(50,811,138)

$

(24,402,590)

Weighted average common shares outstanding—basic and diluted

 

37,100,770

 

33,801,749

 

37,081,064

 

33,429,178

Net loss per common share—basic and diluted

$

(0.49)

$

(0.41)

$

(1.37)

$

(0.73)

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The following potentially dilutive securities outstanding at June 30, 2020 and 2019 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive:

June 30, 

 

    

2020

    

2019

 

 

Stock options

 

3,979,607

 

3,113,891

Restricted stock units

150,143

Warrants

 

37,042

 

156,982

Total

 

4,166,792

 

3,270,873

Note 6. Stockholders’ Equity

Capital Structure

In May 2019, the Company entered into a Sales Agreement with SVB Leerink (the “May 2019 Sales Agreement”), pursuant to which the Company could sell up to $50 million in shares of its common stock from time to time through SVB Leerink, acting as the Company’s sales agent, in one or more at-the-market offerings utilizing the 2016 Shelf Registration Statement (as defined below). SVB Leerink was entitled to receive a commission of 3.0% of the gross proceeds for any shares sold under the May 2019 Sales Agreement. The shares that were unsold under the May 2019 Sales Agreement at the time of the expiration of the 2016 Shelf Registration Statement were rolled over to the December 2019 Sales Agreement (see below).

In December 2019, the Company entered into a new Sales Agreement with SVB Leerink (the “December 2019 Sales Agreement”), pursuant to which the Company may sell up to $80 million in shares of the Company’s common stock from time to time through SVB Leerink, acting as the Company’s sales agent, in one or more at-the-market offerings utilizing the 2019 Shelf Registration Statement. SVB Leerink is entitled to receive a commission of 3.0% of the gross proceeds for any shares sold under the December 2019 Sales Agreement. The Company received approximately $12.4 million in gross proceeds through the sale of 141,678 shares, of which net proceeds were approximately $12.1 million during the six months ended June 30, 2020.

In December 2019, the Company completed an underwritten public offering, whereby the Company sold 2,300,000 shares of common stock at a public offering price of $87.00 per share. The Company received gross proceeds of approximately $200.1 million and net proceeds of approximately $187.1 million, after deducting underwriting discounts and offering expenses.

The holders of shares of common stock are entitled to one vote for each share of common stock held at all meetings of stockholders and written actions in lieu of meetings. The holders of shares of common stock are entitled to receive dividends, if and when declared by the board of directors.

Shelf Registration Statement

On December 5, 2019, the Company filed an automatic shelf registration statement (“2019 Shelf Registration Statement”) with the Securities and Exchange Commission (“SEC”) for the issuance of common stock, preferred stock, warrants, rights, debt securities and units. The 2019 Shelf Registration Statement was automatically effective upon filing with the SEC and is currently the Company’s only active shelf registration statement. The 2019 Shelf Registration Statement was filed in part to replace the Company’s previous non-automatic shelf registration statement, which became effective on December 16, 2016, and provided for the issuance of common stock, preferred stock, warrants, rights, debt securities and units up to an aggregate amount of $150.0 million (the “2016 Shelf Registration Statement”). The 2016 Shelf Registration Statement expired on December 16, 2019. Through the date of this report, the Company has issued common stock of approximately $219.8 million pursuant to the 2019 Shelf Registration Statement.

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Under SEC rules, the 2019 Shelf Registration Statement allows for the potential future offer and sale by the Company, from time to time, in one or more public offerings, of an indeterminate amount of the Company’s common stock, preferred stock, debt securities, and units at indeterminate prices. At the time any of the securities covered by the 2019 Shelf Registration Statement are offered for sale, a prospectus supplement will be prepared and filed with the SEC containing specific information about the terms of any such offering.

Equity Incentive Plans

There were 2,635,527 shares available for the issuance of stock options or stock-based awards under the Company’s 2015 Omnibus Incentive Compensation Plan at June 30, 2020.

Stock Options

The following table sets forth the stock option activity for the six months ended June 30, 2020:

    

    

    

Weighted

    

 

Weighted

average

Aggregate

 

Number

average

contractual

intrinsic

 

of shares

exercise price

term

value

 

Outstanding at December 31, 2019

 

3,458,447

$

10.19

 

Granted

630,135

53.75

Exercised

(80,614)

10.17

Forfeited

(28,361)

14.23

Expired

Outstanding at June 30, 2020

 

3,979,607

$

17.06

 

7.8

$

259,886,170

Vested and expected to vest at June 30, 2020

 

3,973,438

$

17.08

 

7.8

$

259,386,596

Exercisable at June 30, 2020

 

2,177,471

$

9.07

 

6.3

$

159,414,994

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The expected term of the Company’s stock options has been determined utilizing the “simplified” method as described in the SEC’s Staff Accounting Bulletin No. 107 relating to stock-based compensation. The simplified method was chosen because the Company has limited historical option exercise experience due to its short operating history. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant for a period approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. Expected volatility is based on historical volatilities of similar entities within the Company’s industry which were commensurate with the Company’s expected term assumption.

The weighted average grant date fair value of options granted was $34.24 per option for the six months ended June 30, 2020. As of June 30, 2020, there was $30.2 million of total unrecognized compensation cost related to non-vested stock options which is expected to be recognized over a weighted average period of 3.2 years. These amounts do not include 11,295 options outstanding as of June 30, 2020, which are performance-based and vest upon the achievement of certain corporate milestones. Stock‑based compensation will be measured and recorded if and when it is probable that the milestone will occur.

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Restricted Stock Units

In 2020, the Company began granting RSUs covering an equal number of its shares of common stock to employees. For the six months ended June 30, 2020 the weighted-average grant date fair value was $32.79. The fair value of RSUs is determined on the date of the grant based on the market price of its shares of common stock as of that date. The fair value of the RSUs is recognized as an expense ratably over the vesting period of four years. As of June 30, 2020, total compensation cost not yet recognized related to unvested RSUs was $4.6 million, which is expected to be recognized over a weighted-average period of 3.7 years.

The following table sets forth the RSU activity for the six months ended June 30, 2020:

    

    

Weighted

    

Weighted

    

average

average

Aggregate

Number

grant date

contractual

intrinsic

of shares

fair value

term

value

Outstanding at December 31, 2019

 

$

 

Granted

150,295

32.80

Released

Forfeited

(152)

Outstanding at June 30, 2020

 

150,143

$

32.79

 

3.7

$

12,353,766

Stock-based compensation expense recognized for the three and six months ended June 30, 2020 and 2019 was allocated as follows:

Three months ended June 30, 

Six months ended June 30, 

    

2020

2019

2020

2019

Research and development

$

1,037,530

$

264,731

$

1,671,905

$

366,432

General and administrative

 

3,110,495

 

623,825

 

4,609,650

 

1,778,434

Total

$

4,148,025

$

888,556

$

6,281,555

$

2,144,866


Warrants

The following table summarizes warrant activity for the six months ended June 30, 2020:

Weighted

average

Warrants

exercise price

Outstanding at December 31, 2019

 

69,656

$

7.21

Issued

Exercised

(32,614)

7.41

Outstanding at June 30, 2020

 

37,042

$

7.03

In connection with the 2016 Original Term Loan, SVB and Life Science Loans, LLC (“Life Science”) received warrants to purchase an aggregate 65,228 shares of the Company’s common stock at an exercise price of $7.41 per share, which are exercisable for seven years from the date of issuance. The warrants were classified as a component of stockholders’ equity. In September 2019, SVB exercised in full the 32,614 warrants it received in connection with the 2016 Original Term Loan via a cashless exercise. The Company issued SVB 24,328 shares of its common stock in connection with the warrant exercise, and did not receive any cash proceeds. In addition, in May 2020, Life Science exercised in full the 32,614 warrants it received in connection with the 2016 Original Term Loan via a cashless exercise. The Company issued Life Science 29,982 shares of its common stock in connection with the warrant exercise and did not receive any cash proceeds. As of June 30, 2020, none of the warrants issued in connection with the 2016 Original Term Loan were outstanding.

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Additionally, in connection with the 2016 Amended Term Loan, SVB and WestRiver Innovation Lending Fund VIII, L.P. received warrants to purchase an aggregate 15,750 shares of the Company’s common stock at an exercise price of $3.06 per share, which are exercisable for seven years from the date of issuance. Both of these warrants were classified as a component of stockholders’ equity. Prior to entering into the 2019 Term Loan, the fair value of these warrants and the closing costs were recorded as debt discounts and were being amortized using the effective interest rate method over the term of the loan. In August 2019, SVB exercised in full the 7,875 warrants it received in connection with the 2016 Amended Term Loan via a cashless exercise. The Company issued SVB 6,969 shares of its common stock in connection with the warrant exercise, and did not receive any cash proceeds. The 2018 warrants have a seven-year term and expire on November 25, 2025. As of June 30, 2020, WestRiver’s portion of 7,875 warrants remain outstanding.

Due to the debt modification upon entry of the 2019 Term Loan, the unamortized balance of the deferred debt issuance costs incurred with the 2016 Amended Term Loan will continue to be amortized through maturity in February 2023 along with the debt issuance costs of the 2019 Term Loan utilizing the effective interest rate method.

In connection with the 2019 Term Loan, SVB and WestRiver received warrants to purchase an aggregate 70,000 shares of the Company’s common stock at a price per share equal to $8.10 (the “March 2019 Warrants”). The warrants would initially be earned based upon the usage of the facility and are exercisable until March 4, 2026. The warrants were classified as a component of stockholder’s equity, of which 58,332 warrants were immediately exercisable and the remaining 11,668 warrants could be earned based on usage of the second tranche of the 2019 Term Loan. The additional warrants were initially immediately exercisable if and when the Term B Loan Advance was funded (however, the March 2019 Warrants were amended in connection with the First Amendment to the 2019 Term Loan, as discussed below). The relative fair value of the warrants of approximately $0.4 million at the time of issuance, which was determined using the Black-Scholes option-pricing model, was recorded as additional paid-in capital and reduced the carrying value of the debt. The discount on the debt is being amortized to interest expense over the term of the debt utilizing the effective interest rate method.

In connection with the First Amendment to the 2019 Term Loan, the March 2019 Warrants were amended to fix the number of shares that may be issued upon exercise of each such March 2019 Warrant at 29,167 shares of common stock, and SVB and WestRiver were issued new warrants (the “July 2019 Warrants”), which become exercisable only upon funding of the Term B Loan Advance, to purchase 5,750 shares of the Company’s common stock at a price per share equal to $25.71. The July 2019 Warrants replace the portion of the March 2019 Warrants that could originally be earned by SVB and WestRiver upon funding of the Term B Loan Advance. Due to the Company not drawing down on the Term B Loan Advance by December 31, 2019, the July 2019 Warrants have been terminated. In December 2019, SVB exercised in full its portion of 29,167 warrants it received in connection with the 2019 Term Loan via a cashless exercise. The Company issued SVB 24,185 shares of its common stock in connection with the warrant exercise and did not receive any cash proceeds. As of June 30, 2020, WestRiver’s portion of 29,167 warrants remain outstanding.

Note 7. License Agreements

Exclusive License Agreement with Pfizer

In January 2020, the Company entered into an exclusive license agreement with Pfizer Inc. (“Pfizer”) for Pfizer’s clinical and nonclinical data, and intellectual property for reboxetine, the active pharmaceutical ingredient in AXS-12 which the Company is developing for the treatment of narcolepsy. The agreement also provides the Company exclusive rights to develop and commercialize esreboxetine, a new late-stage product candidate now referred to as AXS-14, in the U.S. for the treatment of fibromyalgia.

Under the terms of the agreement, Pfizer received 82,019 shares of the Company’s common stock having a stated value of $8.0 million, based on the average closing price of the Company’s common stock for the ten prior trading days of $97.54, in consideration for the license and rights and also received an upfront cash payment of $3.0 million. The Company determined that the fair value of each share of common stock granted to Pfizer on the closing date of January 9, 2020 was $87.24, based on the closing price of the Company’s stock on that date. As a result, the fair value of the stock issued was $7.2 million and therefore, the total research and development expense recognized was $10.2 million related to the Pfizer license agreement during the six months ended June 30, 2020.

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Pfizer can also receive up to $323 million in regulatory and sales milestones, and tiered mid-single to low double-digit royalties on future sales. Pfizer will also have a right of first negotiation on any potential future strategic transactions involving AXS-12 and AXS-14. During the six months ended June 30, 2020, no milestone payments or royalties were paid to Pfizer by the Company.

Exclusive License Agreements with Antecip

In 2012, the Company entered into three exclusive license agreements with Antecip Bioventures II LLC, or Antecip, an entity owned by Axsome’s Chief Executive Officer and Chairman of the Board, Herriot Tabuteau, M.D., in which it was granted exclusive licenses to develop, manufacture, and commercialize Antecip’s patents and applications related to the development of AXS-02, AXS-05, and AXS-04, a product candidate that is currently in early stage development, anywhere in the world for human therapeutic, veterinary, and diagnostic use. Pursuant to the agreements, the Company is required to use commercially reasonable efforts to develop, obtain regulatory approval for and commercialize AXS-02, AXS-05, and AXS-04. Under the terms of the agreements, the Company is required to pay to Antecip a royalty equal to 4.5% for AXS-02, 3.0% for AXS-05, and 1.5% for AXS-04, of net sales of products containing the licensed technology by the Company, its affiliates, or permitted sublicensees. These royalty payments are subject to reduction by an amount up to 50.0% of any required payments to third parties. Unless earlier terminated by a party for cause or by the Company for convenience, the agreements shall remain in effect on a product-by-product and country-by-country basis until the later to occur of (i) the applicable product is no longer covered by a valid claim in that country or (ii) 10 years from the first commercial sale of the applicable product in that country. Upon expiration of the agreements with respect to a product in a country, the Company’s license grant for that product in that country will become a fully paid-up, royalty-free, perpetual non-exclusive license. If Antecip terminates any of the agreements for cause, or if the Company exercises its right to terminate any of the agreements for convenience, the rights granted to the Company under such terminated agreement will revert to Antecip. To date, the Company has not been required to make any payments to Antecip under any of the license agreements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis contains forward-looking statements about our plans and expectations of what may happen in the future. Forward-looking statements are based on a number of assumptions and estimates that are inherently subject to significant risks and uncertainties, and our results could differ materially from the results anticipated by our forward-looking statements as a result of many known or unknown factors, including, but not limited to, those factors discussed in “Risk Factors.” See also the “Cautionary Note Regarding Forward-Looking Statements” set forth at the beginning of this report.

 

You should read the following discussion and analysis in conjunction with the unaudited interim consolidated financial statements, and the related footnotes thereto, appearing elsewhere in this report, and in conjunction with management’s discussion and analysis and the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 which was filed with the Securities and Exchange Commission, or SEC, on March 12, 2020.

Overview

We are a biopharmaceutical company developing novel therapies for the management of central nervous system, or CNS, disorders for which there are limited treatment options. For the many people facing unsatisfactory treatments for CNS disorders, we accelerate the invention and adoption of life-changing medicines. Our core CNS portfolio includes five CNS product candidates, AXS-05, AXS-07, AXS-09, AXS-12, and AXS-14 which are being developed for multiple indications. AXS-05 is being developed for the treatment of major depressive disorder (MDD), treatment resistant depression (TRD), Alzheimer’s disease (AD) agitation, and as an aid to smoking cessation treatment. AXS-07 is being developed for the acute treatment of migraine. AXS-12 is being developed for the treatment of narcolepsy. AXS-14 is being developed for the treatment of fibromyalgia. Additionally, we are currently evaluating other product candidates, such as AXS-09, which we intend to develop for CNS disorders. The Axsome Pain and Primary Care business unit, or Axsome PPC, houses our pain and primary care assets. We aim to become a fully integrated biopharmaceutical company that develops and commercializes differentiated therapies that expand the treatment options available and improves the lives of patients living with CNS disorders.

AXS-05 is a novel, oral, investigational NMDA, or N-methyl-D-aspartate, receptor antagonist with multimodal activity under development for the treatment of CNS disorders. AXS-05 consists of a proprietary formulation and dose of bupropion and dextromethorphan, or DM, and utilizes our metabolic inhibition technology. The DM component of AXS-05 is a non-competitive NMDA, receptor antagonist, also known as a glutamate receptor modulator. The DM component of AXS-05 is also a sigma-1 receptor agonist, nicotinic acetylcholine receptor antagonist, and inhibitor of the serotonin and norepinephrine transporters. The bupropion component of AXS-05 serves to increase the bioavailability of dextromethorphan, and is a norepinephrine and dopamine reuptake inhibitor, and a nicotinic acetylcholine receptor antagonist. We intend to seek U.S. Food and Drug Administration, or FDA, approval for AXS‑05 utilizing the 505(b)(2) regulatory development pathway. AXS-05 has been granted FDA Breakthrough Therapy designation for both the treatment of MDD and the treatment of Alzheimer’s disease agitation, as well as Fast Track designations for the treatment of Alzheimer’s disease agitation and treatment resistant depression.

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We have completed two pivotal, one Phase 2 and one Phase 3, trials of AXS-05 in MDD, which we refer to as the ASCEND and GEMINI trials, respectively. AXS-05 achieved the primary endpoint in both the ASCEND and GEMINI trials. We plan to submit a New Drug Application, or NDA, for AXS-05 for the treatment of MDD supported by the positive results from the ASCEND and GEMINI trials. AXS-05 is currently in a Phase 3, open-label, long-term safety extension study in patients with MDD and TRD known as the COMET trial to further support the NDA filing. Additionally, AXS-05 is in three Phase 2 open-label efficacy sub-studies of the COMET trial which will evaluate the efficacy and safety of AXS-05 in three clinically pertinent MDD patient populations: the COMET-TRD trial in treatment resistant MDD (TRD), the COMET-AU trial in antidepressant unresponsive MDD, and the COMET-SI trial in MDD with suicidal ideation. We have completed a Phase 3 trial of AXS-05 in TRD, which we refer to as the STRIDE-1 trial, which met key secondary endpoints but did not reach statistical significance on the primary endpoint. Additionally, we have initiated the MERIT (Mechanistic Evaluation of Response in TRD) trial, a Phase 2, double-blind, placebo-controlled, randomized withdrawal study in patients with TRD. We have also completed a Phase 2/3 trial of AXS-05 in AD agitation, which we refer to as the ADVANCE-1 trial. AXS-05 achieved the primary endpoint in the ADVANCE-1 trial. AXS-05 is also being developed as an aid to smoking cessation treatment and a positive Phase 2 trial in this indication has been completed under a research collaboration between us and Duke University.

AXS-07 is a novel, oral, rapidly absorbed, multi-mechanistic, investigational medicine under development for the acute treatment of migraine. AXS-07 consists of MoSEIC™, or Molecular Solubility Enhanced Inclusion Complex, meloxicam and rizatriptan. Meloxicam is a long-acting nonsteroidal anti-inflammatory drug, or NSAID, with COX-2, an enzyme involved in inflammation and pain pathways, preferential inhibition and potent pain-relieving effects. However, standard meloxicam has an extended time to maximum plasma concentration, or Tmax, which delays its onset of action. AXS-07 utilizes our proprietary MoSEIC™ technology to substantially increase the solubility and speed the absorption of meloxicam while potentially maintaining durability of action. Meloxicam is a new molecular entity for migraine enabled by our MoSEIC™ technology. Rizatriptan is a 5-HT1B/D agonist that inhibits calcitonin gene-related peptide (CGRP)-mediated vasodilation, has been shown to have central trigeminal antinociceptive activity, and may reduce the release of inflammatory mediators from trigeminal nerves. Rizatriptan is approved as a single agent for the acute treatment of migraine. We intend to seek FDA approval for AXS-07 utilizing the 505(b)(2) regulatory development pathway.

We have completed two Phase 3 trials of AXS-07 for the acute treatment of migraine, which we refer to as the MOMENTUM and INTERCEPT trials. AXS-07 achieved the co-primary endpoints in both the MOMENTUM and INTERCEPT trials. We plan to submit an NDA for AXS-07 for the acute treatment of migraine supported by the positive results from the MOMENTUM and INTERCEPT trials. AXS-07 is currently in a Phase 3 open-label, long-term safety extension study in patients with migraine known as the MOVEMENT trial to further support the NDA filing.

AXS-09 is an oral, investigational NMDA receptor antagonist with multimodal activity consisting of esbupropion and DM, which is being developed for the treatment of CNS disorders. AXS-09 contains esbupropion, the chirally pure S-enantiomer of bupropion, as compared to the company’s first generation product candidate AXS-05 which contains racemic bupropion, equal amounts of the S- and R-enantiomers. We have demonstrated in a Phase 1 trial that DM plasma levels are substantially increased into a potentially therapeutic range with repeated administration of AXS-09. Results of this Phase 1 trial coupled with preclinical data also indicate the potential for enhanced absorption and therapeutic effect of the S-enantiomer as compared to the R-enantiomer.

AXS-12, reboxetine, is a novel, oral, investigational medicine in development for the treatment of narcolepsy. AXS-12 is a highly selective and potent norepinephrine reuptake inhibitor. AXS-12 has been granted FDA Breakthrough Therapy designation and Orphan Drug Designation for the treatment of narcolepsy. We have completed a Phase 2 trial with AXS-12, which we refer to as the CONCERT trial. AXS-12 achieved the primary endpoint in the CONCERT trial.

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AXS-14, esreboxetine, is a novel, oral, investigational medicine in development for the treatment of fibromyalgia. AXS-14 is a highly selective and potent norepinephrine reuptake inhibitor. We are initially developing esreboxetine for the treatment of fibromyalgia. Esreboxetine, the SS-enantiomer of reboxetine, is more potent and selective than racemic reboxetine. We have in-licensed data from Pfizer which includes a completed Phase 2 trial and Phase 3 trial in fibromyalgia, both of which were positive.

Since our incorporation in January 2012, our operations to date have included organizing and staffing our company, business planning, raising capital, developing our compounds, and engaging in other discovery and preclinical activities. Prior to our initial public offering, or IPO, in November 2015, we financed our operations primarily through private placements of our convertible notes and subsequent to our IPO, through proceeds from sales of our common stock and warrants to purchase shares of our common stock to equity investors and debt borrowings. For a further discussion, see the section entitled “Liquidity and Capital Resources” below.

Our ability to become profitable depends on our ability to generate revenue. We do not expect to generate significant revenue unless and until we or our collaborators obtain marketing approval for and successfully commercialize one of our product candidates.

We have incurred significant operating expenses and net losses since inception. We incurred net losses of $50.8 million and $24.4 million for the six months ended June 30, 2020 and 2019, respectively. Our accumulated deficit as of June 30, 2020 was $226.7 million, and we expect to incur significant expenses and increasing operating losses for the foreseeable future. We expect to continue to incur expenses in connection with the development of our product candidates, including with respect to conducting clinical trials and seeking regulatory approval for our current product candidates and any other product candidates that we develop or in-license and advance to clinical development. In preparation for obtaining regulatory approval for our product candidates, we expect to incur significant expenses in order to create an infrastructure and market readiness to support the commercialization of the product candidate, including manufacturing, sales, marketing, and distribution functions. Further, we have incurred and will continue to incur additional costs associated with operating as a public company. Accordingly, we will need additional financing to support our continuing operations. We will seek to fund our operations through public and/or private equity, debt financings or other sources. Adequate additional financing may not be available to us on acceptable terms, or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategy. We will need to generate significant revenue to achieve profitability, and we may never do so.

Year to Date and Recent Developments

In January 2020, we entered into an exclusive license agreement with Pfizer Inc. for Pfizer's clinical and nonclinical data, and intellectual property for reboxetine, the active pharmaceutical ingredient in AXS-12, and esreboxetine, the active pharmaceutical ingredient in AXS-14.

In February 2020, we promoted Mark Jacobson from his role of Senior Vice President, Operations to the role of Chief Operating Officer.

In March 2020, we announced topline results of the STRIDE-1 Phase 3 trial of AXS-05 in TRD.

In April 2020, we announced that AXS-07 met the co‑primary endpoints in the INTERCEPT Phase 3 trial in the early treatment of migraine.

In April 2020, we disclosed that Myrtle Potter will not stand for re-election as a director at our 2020 Annual Meeting of Stockholders because of her other professional responsibilities.

In April 2020, we announced that AXS-05 met the primary endpoint in the ADVANCE-1 Phase 2/3 trial in AD agitation.

In June 2020, we received FDA Breakthrough Therapy designation for AXS-05 for the treatment of AD.

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In June 2020, we entered into a 12-month lease at 22 Cortlandt Street, New York, NY 10007 effective as of August 1, 2020.

In July 2020, we completed a successful FDA pre-NDA meeting for AXS-05 for the treatment of MDD.

In August 2020, we received FDA Breakthrough Therapy designation for AXS-12 for the treatment of narcolepsy.

In August 2020, we announced the initiation of three Phase 2 open-label efficacy sub-studies of the COMET trial which will evaluate the efficacy and safety of AXS-05 in three clinically pertinent MDD patient populations: the COMET-TRD trial in treatment resistant MDD (TRD), the COMET-AU trial in antidepressant unresponsive MDD, and the COMET-SI trial in MDD with suicidal ideation.

In August 2020, we announced the initiation of the MERIT (Mechanistic Evaluation of Response in TRD) trial, a Phase 2, double-blind, placebo-controlled, randomized withdrawal study in patients with TRD.

Financial Overview

Revenue

We have not generated any revenue since we commenced operations and we do not expect to generate any revenue in the near future. To the extent we enter into additional licensing or collaboration arrangements, we may have sources of revenue in the future. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the amount and timing of payments that we may recognize upon the sale of our product candidates, to the extent that any product candidates are successfully commercialized, and the amount and timing of fees, reimbursements, and milestone and other payments received under any future licensing or collaboration arrangements. If we fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially and adversely affected.

Research and Development Expenses

Research and development expenses primarily include preclinical studies, clinical trials, manufacturing costs, regulatory costs, employee salaries and benefits, stock-based compensation expense; contract services, including external research and development expenses incurred under arrangements with third parties, such as contract research organizations, or CROs, facilities costs; overhead costs, depreciation, and other related costs.

Research and development activities are central to our business model. We will incur substantial costs beyond our present and planned clinical trials in order to file a New Drug Application, or an NDA, for any of our product candidates. It is difficult to determine with certainty the costs and duration of our current or future clinical trials and preclinical studies, or if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates if we obtain regulatory approval. We may never succeed in achieving regulatory approval. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of future clinical trials and preclinical studies, uncertainties in clinical trial enrollment rate, and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability, and commercial viability. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success of each product candidate, as well as an assessment of each product candidate’s commercial potential. Management considers many factors in developing the estimates and assumptions that are used in the preparation of our unaudited interim consolidated financial statements.

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Management must apply significant judgment in this process. In addition, other factors may affect estimates, including expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of our unaudited interim consolidated financial statements if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made.

The following table summarizes our research and development expenses for our primary programs for the three and six months ended June 30, 2020 and 2019:

Three months ended

Six months ended

 

June 30, 

June 30, 

 

    

2020

2019

2020

2019

 

 

AXS-05

$

5,257,477

$

4,312,909

$

14,575,299

$

7,662,053

AXS-07

 

2,920,493

 

5,204,570

8,930,771

7,737,188

AXS-12

153,901

429,122

5,710,963

876,149

AXS-14

5,077,669

AXS-02

43,274

41,895

91,267

89,902

AXS-06

 

 

805

 

 

4,476

Other research and development

 

1,130,282

 

749,110

 

2,006,483

 

1,870,023

Stock-based compensation

 

1,037,530

 

264,731

 

1,671,905

 

366,432

Total research and development expenses

$

10,542,957

$

11,003,142

$

38,064,357

$

18,606,223

Other research and development expenses primarily consist of employee salaries and benefits, facilities and overhead costs.

General and Administrative Expenses

General and administrative expenses primarily consist of salaries and related costs for personnel in executive, finance, commercial, and operational functions, including stock-based compensation and travel expenses. Other general and administrative expenses include facility-related costs, insurance expense, and professional fees for legal and accounting services and patent filing and prosecution costs. General and administrative expenses are expensed when incurred.

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Interest income (expense)

Interest income (expense) primarily consists of cash interest and non-cash costs related to our term loan with SVB (see “Liquidity and Capital Resources” below for a further discussion) and also the interest we receive from SVB on our cash sweep account. We record costs incurred in connection with the issuance of debt as a direct deduction from the debt liability. We amortize these costs over the term of our debt agreements in our consolidated statement of operations.

Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reported period. In accordance with GAAP, we base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting policies since the beginning of our fiscal year. Our critical accounting policies are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2019 and in the notes to the condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

Results of Operations

The following table summarizes our results of operations for the periods indicated:

Three months ended

 

Six months ended

June 30, 

 

June 30, 

    

2020

    

2019

  

2020

 

2019

 

Operating expenses:

Research and development

$

10,542,957

$

11,003,142

$

38,064,357

$

18,606,223

General and administrative

 

7,235,877

 

2,445,077

 

12,205,934

 

5,263,469

Total operating expenses

 

17,778,834

 

13,448,219

 

50,270,291

 

23,869,692

Loss from operations

 

(17,778,834)

 

(13,448,219)

 

(50,270,291)

 

(23,869,692)

Interest income (expense)

(548,158)

(313,995)

 

(540,847)

 

(532,898)

Net loss

$

(18,326,992)

$

(13,762,214)

$

(50,811,138)

$

(24,402,590)

Comparison of the Three Months Ended June 30, 2020 and 2019

Research and Development Expenses. Our research and development expenses for the three months ended June 30, 2020 were $10.5 million, compared to $11.0 million for the three months ended June 30, 2019, a decrease of $0.5 million. The decrease was driven by the completion of several of our clinical trials which were ongoing in the comparable prior period.

General and Administrative Expenses. Our general and administrative expenses for the three months ended June 30, 2020 was $7.2 million, compared to $2.4 million for the three months ended June 30, 2019, an increase of $4.8 million. The change was primarily due to an increase in stock compensation expense, along with the build-out of the commercial function.

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Interest Income (Expense). Interest income (expense) for the three months ended June 30, 2020 was an expense of $0.5 million, compared to an expense of $0.3 million for the three months ended June 30, 2019, an increase of $0.2 million. The interest expense incurred during these periods was consistent, however, the interest income earned during the three months ended June 30, 2020 was lower by $0.2 million due to a lower interest rate on our cash sweep account.

Comparison of the Six Months Ended June 30, 2020 and 2019

Research and Development Expenses. Our research and development expenses for the six months ended June 30, 2020 were $38.1 million, compared to $18.6 million for the six months ended June 30, 2019, an increase of $19.5 million. R&D expense during the 2020 fiscal year included a one-time charge of $10.2 million for the Pfizer license agreement, of which $7.2 million was non-cash related. The remaining increase was due primarily to ongoing spend for our active clinical trials during the first half of the year which include the STRIDE-1, ADVANCE-1, and INTERCEPT trials, close-out costs for our previously completed GEMINI, MOMENTUM, and CONCERT trials, along with costs associated with the AXS-05 and AXS-07 open-label safety studies.

General and Administrative Expenses. Our general and administrative expenses for the six months ended June 30, 2020 was $12.2 million, compared to $5.3 million for the six months ended June 30, 2019, an increase of $6.9 million. The change was primarily due to an increase in stock compensation expense, along with the build-out of the commercial function.

Interest Income (Expense). Interest income (expense) for the six months ended June 30, 2020 and 2019 was an expense of $0.5 million which is related to the interest expense and amortization of the debt discount associated with our March 2019 loan and security agreement with SVB for $20 million.

Liquidity and Capital Resources

Since our inception through June 30, 2020, we have financed our operations primarily through proceeds from equity offerings and debt borrowings. See discussion below.

In November 2015, we completed our IPO, in which we sold 5,666,667 shares of common stock at an offering price to the public of $9.00 per share. We received gross proceeds of approximately $51.0 million and net proceeds of approximately $45.5 million, after deducting underwriting discounts and commissions and offering-related transaction costs.

In November 2016, we entered into a loan and security agreement with SVB for a term loan of up to $20.0 million, which we refer to as the 2016 Original Term Loan. The initial tranche of $10.0 million was funded shortly after executing the loan agreement. Because we did not achieve the conditional criteria to access the second and third tranches before the specified dates, the $10.0 million in additional term loan advances expired. In November 2018, we amended the 2016 Original Term Loan to provide an additional $4.0 million growth capital loan, related to our narcolepsy clinical program with AXS-12. We refer to the