Axsome Therapeutics(AXSM) - 2023 Q4 - Annual Report

PART I ITEM 1. BUSINESS. Axsome Therapeutics is a commercial-stage biopharmaceutical company focused on developing and delivering novel CNS therapies - Axsome Therapeutics is a commercial-stage biopharmaceutical company specializing in CNS conditions with limited treatment options[8] - The company's strategy focuses on novel CNS indications with high unmet medical need, differentiated product profiles, and efficient development pathways (e.g., 505(b)(2))[12][14] Commercial Products | Product | Indication | Approval Date (US) | Commercial Launch (US) | | :-------- | :---------------------------------------------------------------------- | :----------------- | :--------------------- | | Auvelity® | Major Depressive Disorder (MDD) | August 2022 | October 2022 | | Sunosi® | Excessive Daytime Sleepiness (EDS) in narcolepsy or obstructive sleep apnea | 2019 | May 2022 (Acquisition) | OVERVIEW Commercial Products Development Programs Our Strategy CNS Product Candidates Axsome's CNS pipeline features AXS-05, AXS-07, AXS-12, AXS-14, and solriamfetol, with several candidates in advanced clinical development CNS Product Candidate Pipeline Summary | Product | MOA | Phase 1 | Phase 2 | Phase 3 | NDA | Marketed | | :----------- | :---------------------------------------------------------------------------------------------- | :------ | :------ | :-------------------------------------- | :---------------------------------------------------------------------------------------------- | :------- | | Auvelity | NMDA receptor antagonist and sigma-1 receptor agonist aminoketone CYP2D6 inhibitor | | | | | MDD | | Sunosi | Dual-acting dopamine and norepinephrine reuptake inhibitor (DNRI) | | | | Excessive Daytime Sleepiness (EDS) Associated with Narcolepsy or Obstructive Sleep Apnea (OSA) | EDS | | AXS-05 | NMDA receptor antagonist and sigma-1 receptor agonist, aminoketone CYP2D6 inhibitor | | AD Agitation | FDA Breakthrough Therapy Designation | | | | | | | Smoking Cessation | | | | | AXS-07 | MoSEIC™ COX-2 inhibitor + 5-HT1B/1D Agonist | | Migraine | | | | | AXS-12 | Highly selective NE reuptake inhibitor | | Narcolepsy | FDA Orphan Drug Designation | | | | AXS-14 | Enantiomerically purified highly selective NE reuptake inhibitor | | Fibromyalgia | | | | | Solriamfetol | Dual-acting dopamine and norepinephrine reuptake inhibitor (DNRI) and TAAR1 agonist | | ADHD | | | | | | | | Major Depressive Disorder (MDD) | | | | | | | | Binge Eating Disorder (BED) | | | | | | | | Shift Work Disorder (SWD) | | | | - AXS-05 received FDA Breakthrough Therapy designation for AD agitation and met primary endpoints in ADVANCE-1 (Phase 2/3) and ACCORD (Phase 3) trials, significantly delaying relapse[20][22][23] - AXS-07 achieved co-primary endpoints in two Phase 3 migraine trials (MOMENTUM and INTERCEPT) but received a Complete Response Letter (CRL) from the FDA in April 2022 due to CMC considerations[10][26][29][31] - AXS-12, with Orphan Drug Designation for narcolepsy, significantly reduced cataplexy attacks and improved EDS in the Phase 2 CONCERT study; a Phase 3 SYMPHONY study is ongoing with topline results anticipated in Q1 2024[11][35][37][40] - AXS-14 for fibromyalgia has positive Phase 2 and Phase 3 data from Pfizer, which Axsome in-licensed[11][41][42][44] - Solriamfetol is being developed for multiple new indications, including ADHD (Phase 3 FOCUS study initiated), binge eating disorder (Phase 3 planned), shift work disorder (Phase 3 planned), and major depressive disorder (Phase 3 planned)[11][45][47][48][50][51] AXS‑05 AXS‑07 AXS-12 AXS-14 Solriamfetol Pain and Primary Care Commercial Agreements Material License Agreements Axsome holds key license agreements for its product candidates, including with Pfizer for AXS-12/AXS-14 and Antecip for AXS-05, and has Sunosi royalty commitments - Exclusive U.S. license agreement with Pfizer for AXS-12 and AXS-14, involving an $8 million stock payment, $3 million cash upfront, and potential milestones/royalties up to $323 million[53] - Exclusive license agreements with Antecip Bioventures II LLC (related party) for AXS-05, requiring a 3.0% royalty on net sales[56] - Assumed commitments to Jazz, SK Biopharmaceuticals, and Aerial Biopharma for Sunosi, including single-digit tiered royalties and up to $165 million in revenue milestones[57] - Licensing transaction with Pharmanovia in February 2023 to market Sunosi in Europe and certain Middle East/North Africa countries[58] Intellectual Property Axsome protects its product candidates and technology through a global portfolio of over 600 issued patents and 400 pending applications - As of February 13, 2024, Axsome's intellectual property portfolio includes over 600 issued patents and more than 400 pending applications globally[61] - Patent protection for AXS-05 extends through 2043, AXS-07 through 2038, AXS-12 through 2039, and Orange Book listed patents for Sunosi extend to 2042[11][61] Sales and Marketing Axsome has established a U.S. commercial infrastructure with a targeted sales force and plans international strategic partnerships - Axsome has built a U.S. commercial infrastructure, including a targeted sales force, for its products[62] - The company plans to seek strategic partnerships for commercialization outside the U.S. to leverage third-party reach and resources[62] Competition The CNS market is highly competitive, with Axsome facing major pharmaceutical and biotech companies across its product portfolio - The CNS market is highly competitive, with numerous major pharmaceutical and biotechnology companies developing and marketing therapies[64][180] - Key competitive factors for Axsome's products include efficacy, safety, convenience, price, and reimbursement[64] - Competitors for Auvelity (MDD) include products from Eli Lilly, Pfizer, Takeda, AbbVie, and GlaxoSmithKline; for Sunosi (EDS), products from Jazz, Harmony, and Teva[64] - Competitors for AXS-05 (AD agitation) include Otsuka and Lundbeck; for smoking cessation, Pfizer and GlaxoSmithKline[65] - Competitors for AXS-07 (migraine) include products from Merck, Pernix, Eli Lilly, Pfizer, AbbVie, and Impel[66] - Competitors for AXS-12 (narcolepsy) include products from Novartis, Teva, Jazz, and Harmony Biosciences[67] - Competitors for AXS-14 (fibromyalgia) include products from Eli Lilly, Pfizer, and AbbVie[68] Manufacturing Axsome outsources all drug substance and product manufacturing to third-party CMOs, ensuring compliance with FDA cGMP regulations - All manufacturing of drug substances and products for Axsome's commercial products and product candidates is outsourced to third parties[69] - Third-party manufacturers must comply with FDA current Good Manufacturing Practice (cGMP) regulations[69] Government Regulation and Product Approval The pharmaceutical industry is extensively regulated by the FDA and international authorities, covering all stages from R&D to commercialization and post-approval compliance - The FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (FDCA), requiring preclinical tests, IND submission, clinical trials (Phase 1, 2, 3), cGMP compliance, and NDA submission for marketing approval[71][72][75][78] - The 505(b)(2) pathway allows reliance on FDA's prior findings of safety and efficacy or published literature, potentially reducing development time and costs[14][83] - Regulatory exclusivity (NCE, NCI, Pediatric, Orphan Drug) can provide market protection, but is subject to specific criteria and potential challenges[86][87] - Expedited programs like Fast Track and Breakthrough Therapy designations aim to accelerate development and review for serious conditions with unmet needs, but do not guarantee approval[89][91] - Post-approval, products are subject to continuous regulation, including manufacturing, labeling, advertising, adverse event reporting, and compliance with fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act, Sunshine Act)[92][94][95][97] - Commercial success depends on coverage and adequate reimbursement from governmental (Medicare, Medicaid) and private payors, which are influenced by cost-containment measures and healthcare reform legislation (e.g., ACA, IRA)[106][108][110][112][114] - Foreign regulation, including the EU centralized and decentralized procedures, also requires separate marketing authorizations and compliance with varying requirements, including data protection laws like GDPR[118][119][120][121] Research and Development Axsome significantly invests in R&D for its CNS product candidates, with expenses increasing to $97.9 million in 2023 due to ongoing clinical trials Research and Development Expenses (in millions) | Year Ended December 31, | 2023 (in millions) | 2022 (in millions) | | :---------------------- | :----------------- | :----------------- | | Research and development| $97.9 | $57.9 | - The increase in R&D expenses is primarily due to the FOCUS trial of solriamfetol in ADHD, advancement of AXS-05 and AXS-12 trials, CMC costs for AXS-07 and AXS-14, and post-marketing commitments for Auvelity and Sunosi[300] Employees and Human Capital Management As of February 13, 2024, Axsome had 545 full-time employees and focuses on attracting and retaining talent through competitive compensation - As of February 13, 2024, Axsome had 545 full-time employees[124] - The company offers competitive salaries, bonuses, equity ownership, and development programs to attract and retain key personnel[124] Corporate Information Axsome Therapeutics, Inc. was incorporated in Delaware in January 2012, with principal offices in New York, New York - Axsome Therapeutics, Inc. was incorporated in Delaware in January 2012[125] - The company's offices are located at One World Trade Center, 22nd Floor, New York, New York[125] Available Information Axsome files reports with the SEC (10-K, 10-Q, 8-K) and makes them available free of charge on its website - Axsome files reports with the SEC (Form 10-K, 10-Q, 8-K) and makes them available on its website[126] ITEM 1A. RISK FACTORS. Axsome Therapeutics faces significant risks including financial losses, funding uncertainty, clinical trial failures, intense competition, IP challenges, and regulatory compliance complexities - Axsome has incurred significant losses since inception ($239.2 million in 2023) and may never achieve or maintain profitability, requiring additional funding for development and commercialization[132][133][134] - The company's success is highly dependent on the successful completion of clinical trials, regulatory approval, and commercialization of its product candidates, which are lengthy, expensive, and uncertain processes[142][143][153][154] - Significant competition from larger pharmaceutical companies, potential undesirable side effects of product candidates, and difficulties in patient enrollment pose substantial risks to product development and market acceptance[161][165][180][181] - Intellectual property protection is difficult and costly to maintain, with risks of patent infringement lawsuits, challenges to patent validity, and the limited lifespan of patents[200][206][208] - Compliance with federal, state, and foreign healthcare laws (e.g., Anti-Kickback Statute, False Claims Act, GDPR) is complex and non-compliance could lead to substantial penalties and adverse business impacts[216][218] - The commercial success of products depends on adequate coverage and reimbursement from government and third-party payors, which are subject to price controls and healthcare reform measures (e.g., IRA)[219][221][223][225] Risk Factors Summary RISKS RELATED TO OUR FINANCIAL CONDITION AND CAPITAL REQUIREMENTS Axsome faces significant financial risks from historical losses, uncertain profitability, the need for additional funding, debt covenant restrictions, and geopolitical/climate change threats - Axsome has incurred significant operating losses since inception, with a net loss of $239.2 million in 2023 and an accumulated deficit of $835.6 million[133] - The company expects to continue incurring substantial expenses for product development, regulatory approvals, and commercialization, necessitating additional capital raises[133][134][135] - Loan agreement with Hercules Capital includes covenants limiting asset sales, indebtedness, investments, and dividend payments, and requires maintaining minimum cash balances[138] - Geopolitical tensions (e.g., Russia-Ukraine conflict, U.S.-China relations) and climate change risks (e.g., extreme weather, new regulations) could adversely affect business operations, supply chains, and financial markets[139][140] RISKS RELATED TO OUR BUSINESS AND THE DEVELOPMENT OF OUR PRODUCT CANDIDATES Axsome's business depends on successful product development and commercialization, facing risks from clinical trial failures, regulatory delays, undesirable side effects, and off-label promotion penalties - The company's business depends entirely on the successful commercialization of Auvelity and Sunosi and the development of its product candidates, which may never occur[142] - Clinical trials are expensive, time-consuming, and uncertain; preclinical and early-stage results may not predict later-stage success, and unforeseen events can cause delays or termination[153][154][155][156][157] - Product candidates may have undesirable side effects, leading to clinical trial interruptions, restrictive labeling, or denial of regulatory approval[161][162][163] - Delays or difficulties in patient enrollment for clinical trials can significantly impede regulatory approvals and increase development costs[165] - Breakthrough Therapy and Fast Track designations do not guarantee faster development or approval and can be rescinded, as seen with AXS-12[169] - Promoting products for unapproved ('off-label') uses can lead to significant fines, penalties, and reputational damage[171][173] - Ongoing regulatory obligations and post-approval review can result in significant additional expenses, labeling restrictions, market withdrawals, or other enforcement actions[175][177][178] RISKS RELATED TO THE COMMERCIALIZATION OF OUR PRODUCTS Axsome faces commercialization risks from intense competition, potential generic approvals, challenges in market acceptance, product liability exposure, and controlled substance compliance - The company faces significant competition from major pharmaceutical and biotechnology companies, which could reduce or eliminate commercial opportunities[180][181][182] - Approval of generic or similar versions of products (e.g., Teva's ANDA for Auvelity, multiple ANDAs for Sunosi) could adversely affect future revenue and profitability[182][184] - Orphan Drug Designation (e.g., for AXS-12) does not guarantee protection from competition, as other products for the same condition can be approved if clinically superior[184] - Failure to establish effective marketing, sales, and distribution capabilities or achieve broad market acceptance by physicians, patients, and payors would limit product revenues[185][187][188] - Product liability claims, even if successfully defended, could result in substantial liabilities, reputational harm, and limitations on commercialization[189][190][191] - Sunosi is a Schedule IV controlled substance, subjecting the company to strict DEA and state regulations, with non-compliance risking civil/criminal penalties and adverse business impacts[192] RISKS RELATED TO OUR DEPENDENCE ON THIRD PARTIES Axsome's heavy reliance on third parties for R&D, manufacturing, and commercial services poses risks of delays, non-compliance, and unsuccessful collaborations - Reliance on third-party CROs and investigators for preclinical and clinical trials means limited control over activities, with risks of delays, non-compliance, and unreliable data[193][194] - Outsourcing all manufacturing to third parties carries risks of supply delays, insufficient quantities, failure to meet cGMP requirements, and potential loss of revenue[194][195] - Dependence on third-party service providers for warehousing, distribution, government price reporting, and adverse event reporting means their failures could impair product delivery and lead to regulatory enforcement[197] - Collaboration arrangements may not be successful, as partners might not perform as expected, commit sufficient resources, or may terminate agreements, adversely affecting development and commercialization[198] RISKS RELATED TO INTELLECTUAL PROPERTY Protecting Axsome's intellectual property is challenging and costly, with risks of limited exclusivity, patent challenges, infringement lawsuits, and reliance on licensed IP - Market exclusivity for Sunosi expires in June 2024 (NCE) and June 2026 (Orphan Drug), and for Auvelity in August 2025 (New Product Exclusivity), potentially leading to generic competition[199] - Patent prosecution is expensive and time-consuming, with no guarantee of issued patents or effective protection against competitors[200] - The company faces risks of patent infringement lawsuits from third parties, which are costly, time-consuming, and could result in substantial damages or injunctions[206] - Reliance on licensed intellectual property (e.g., from Pfizer, Antecip) means business could be harmed if licenses are terminated or not available on reasonable terms[208][210] - Trade secrets are difficult to protect, and unauthorized disclosure could adversely affect the company's competitive position[213] - Protecting IP rights globally is challenging due to varying laws and enforcement, potentially allowing competitors to use technologies in other jurisdictions[214] RISKS RELATED TO LEGAL AND COMPLIANCE MATTERS Axsome is subject to extensive healthcare laws, including fraud, abuse, and data privacy, with non-compliance risking penalties, and commercial success dependent on payor coverage and reimbursement - Failure to comply with federal and state healthcare laws (e.g., Anti-Kickback Statute, False Claims Act, Sunshine Act) and data privacy laws (e.g., HIPAA, CCPA, GDPR) could result in substantial penalties, fines, and exclusion from federal healthcare programs[216][218] - Sales of products depend on adequate coverage and reimbursement from third-party payors, which are subject to cost-containment measures, price controls, and healthcare reform initiatives (e.g., Inflation Reduction Act of 2022) that could limit revenue[219][221][223][225] - Employee misconduct or noncompliance with regulatory standards could lead to regulatory sanctions and harm to reputation[227] - Third-party manufacturers' use of hazardous materials requires compliance with environmental laws, with violations potentially leading to fines, penalties, and business interruptions[228][230] RISKS RELATED TO OUR BUSINESS OPERATIONS Axsome's rapid growth strains resources, posing risks to effective management, talent retention, system security (cyber-attacks), and compliance with evolving ESG concerns - Significant growth in organization size (545 full-time employees as of Feb 2024) strains personnel resources and infrastructure, requiring effective management and hiring[124][230] - Inability to attract and retain key scientific, technical, and management personnel could seriously harm business strategy implementation[232] - System failures, including cyber-attacks, could disrupt operations, lead to loss of clinical trial data, and result in significant costs and liabilities[236] - ESG concerns may lead to increased costs, changing customer preferences, and potential damage to brand and reputation if expectations are not met[237] RISKS RELATED TO OWNERSHIP OF OUR COMMON STOCK Axsome's common stock faces high volatility, dilution from future offerings, limited NOL carryforwards, no dividends, and potential acquisition hindrances from corporate provisions - The market price of common stock is highly volatile, influenced by clinical trial results, regulatory approvals, competition, and general market conditions[239][240][241] - Quarterly operating results are expected to fluctuate significantly due to factors like commercial success, regulatory requirements, and R&D expenses[242] - Raising additional funds through equity offerings will dilute existing stockholders, and debt financing may impose restrictive covenants[243] - Principal stockholders and management own approximately 47% of outstanding common stock, allowing them to exert significant control over stockholder approval matters[247] - The use of U.S. federal net operating loss carryforwards ($547 million as of Dec 31, 2023) and research tax credits may be limited by ownership changes (Sections 382 and 383 of the Code)[246] - The company does not intend to pay cash dividends, limiting stockholder returns to stock appreciation[247] - Corporate charter documents and Delaware law provisions may prevent or frustrate attempts by stockholders to change management or acquire a controlling interest[248] ITEM 1B. UNRESOLVED STAFF COMMENTS. There are no unresolved staff comments from the SEC ITEM 1C. CYBERSECURITY Axsome Therapeutics manages cybersecurity risks through a dedicated committee, IT security team, Board oversight, technical safeguards, and incident response plans - The Board and Audit Committee oversee cybersecurity risk management, with a dedicated Cybersecurity Committee and IT security team[251] - Technical safeguards include firewalls, intrusion detection, data leak prevention, enhanced email protection, and access controls[253] - The company has incident response and data recovery plans, conducts regular assessments (audits, penetration testing), and provides employee training[251][253] - To date, cybersecurity threats have not materially affected Axsome's business strategy, results of operations, or financial condition[253] ITEM 2. PROPERTIES. Axsome Therapeutics entered a ten-year sublease for its corporate offices at One World Trade Center in New York in February 2023 - Axsome entered a ten-year sublease for its corporate offices at One World Trade Center in February 2023, commencing April 7, 2023[254] - The company has a one-time option to terminate the sublease before the fifth anniversary of rent payment commencement[254] ITEM 3. LEGAL PROCEEDINGS. Axsome Therapeutics is involved in securities class actions, shareholder derivative actions, and multiple patent infringement lawsuits against generic drug companies - A securities class action (Gru v. Axsome Therapeutics, Inc., et al.) was filed in May 2022, alleging false statements and omissions regarding CMC practices and the AXS-07 NDA. The amended complaint was dismissed in September 2023, but new plaintiffs filed a second amended complaint in February 2024[256] - A shareholder derivative action (Engel v. Herriot Tabuteau, et al.) was filed in July 2022, with similar allegations as the securities class action, and is currently stayed[257] - Axsome commenced two patent infringement actions against Teva in March and December 2023, relating to Teva's ANDA for Auvelity[258] - Multiple patent infringement actions were commenced against Hikma and five other drug companies in September 2023 and January 2024, relating to their ANDAs for Sunosi[259] ITEM 4. MINE SAFETY DISCLOSURES. This item is not applicable to Axsome Therapeutics, Inc PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Axsome's common stock is listed on Nasdaq under "AXSM"; the company has never paid dividends and does not anticipate doing so - Axsome's common stock has been listed on The Nasdaq Global Market under "AXSM" since March 3, 2017[263] - The company has never declared or paid cash dividends and does not anticipate doing so in the foreseeable future, with returns limited to stock appreciation[269][247] - As of February 13, 2024, there were two record holders of common stock, not reflecting beneficial holders[268] Market Information Common Stock Performance Graph Holders Dividends ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Axsome Therapeutics, a commercial-stage CNS biopharmaceutical company, reported a $239.2 million net loss in 2023 despite increased revenue, with future funding needs uncertain - Axsome is a commercial-stage biopharmaceutical company with two approved products, Auvelity and Sunosi, and a pipeline of CNS product candidates[272] - The company incurred a net loss of $239.2 million in 2023, an increase from $187.1 million in 2022, primarily due to higher selling, general and administrative expenses[272][298][300] - Total revenues increased significantly to $270.6 million in 2023 from $50.0 million in 2022, driven by product sales and a $65.7 million license revenue from Pharmanovia[274][275][298] - Research and development expenses increased to $97.9 million in 2023 from $57.9 million in 2022, reflecting ongoing clinical trials and CMC costs[298][300] - Selling, general and administrative expenses rose to $323.1 million in 2023 from $159.3 million in 2022, mainly due to commercialization activities for Auvelity and Sunosi[298][300] - Cash and cash equivalents were $386.2 million as of December 31, 2023, up from $200.8 million in 2022, with net cash provided by financing activities of $331.0 million in 2023[307][367] Overview Financial Overview Axsome's 2023 financial performance saw total revenues rise to $270.6 million, but increased operating expenses led to a $239.2 million net loss Total Revenues (in thousands) | Revenue Type | 2023 | 2022 | | :-------------- | :---------- | :--------- | | Product sales, net | $202,460 | $50,037 | | License revenue | $65,735 | $— | | Royalty revenue | $2,405 | $— | | Total revenues | $270,600 | $50,037 | Operating Expenses (in thousands) | Expense Type | 2023 | 2022 | | :---------------------------------------------- | :---------- | :--------- | | Cost of revenue (excluding amortization) | $26,065 | $5,198 | | Research and development | $97,944 | $57,947 | | Selling, general and administrative | $323,123 | $159,254 | | Loss in fair value of contingent consideration | $48,918 | $3,298 | | Intangible asset amortization | $6,375 | $4,139 | | Total operating expenses | $502,425 | $229,836 | - Net loss for 2023 was $239.2 million, compared to $187.1 million in 2022, primarily due to increased commercialization and R&D expenses[298][300] Critical Accounting Policies and Significant Judgments and Estimates Axsome's financial statements rely on significant estimates for revenue recognition, contingent consideration, goodwill/intangible asset impairment, income taxes, and stock-based compensation - Revenue recognition involves significant estimates for variable consideration, including invoice discounts, government rebates, PBM/MCO rebates, chargebacks, product returns, and co-pay assistance programs[285][286] - License revenue from agreements with pharmaceutical companies is recognized upon transfer of intellectual property control, with contingent milestones estimated based on probability of significant revenue reversal[287] - Goodwill and intangible assets are tested for impairment annually or more frequently if indicators arise, requiring significant judgment in fair value determination[290][291] - Contingent consideration liabilities (e.g., royalties to Jazz) are measured at fair value using a probability-weighted income approach, sensitive to assumptions like future sales and discount rates[292] - Deferred tax assets are subject to a full valuation allowance due to historical and forecasted operating losses, limiting the realization of NOL carryforwards[294] - Stock-based compensation is estimated using the Black-Scholes model, with assumptions for volatility, risk-free interest rate, and expected term[295] Results of Operations Axsome's 2023 operations show total revenues of $270.6 million, driven by product sales and license revenue, but increased operating expenses resulted in a $239.2 million net loss Consolidated Statements of Operations Summary (in thousands) | Item | 2023 | 2022 | 2021 | | :------------------------------------------ | :---------- | :---------- | :---------- | | Product sales, net | $202,460 | $50,037 | $— | | License revenue | $65,735 | $— | $— | | Royalty revenue | $2,405 | $— | $— | | Total revenues | $270,600 | $50,037 | $— | | Cost of revenue (excluding amortization) | $26,065 | $5,198 | $— | | Research and development | $97,944 | $57,947 | $58,061 | | Selling, general and administrative | $323,123 | $159,254 | $66,646 | | Loss in fair value of contingent consideration | $48,918 | $3,298 | $— | | Intangible asset amortization | $6,375 | $4,139 | $— | | Total operating expenses | $502,425 | $229,836 | $124,707 | | Loss from operations | $(231,825) | $(179,799) | $(124,707) | | Interest expense, net | $(6,453) | $(7,335) | $(5,696) | | Income tax expense | $(960) | $— | $— | | Net loss | $(239,238) | $(187,134) | $(130,403) | | Net loss per common share, basic and diluted | $(5.27) | $(4.60) | $(3.47) | Product Sales, Net (in thousands) | Product | 2023 | 2022 | | :-------- | :---------- | :--------- | | Auvelity | $130,072 | $5,168 | | Sunosi | $72,388 | $44,869 | | Total | $202,460 | $50,037 | Research and Development Expenses by Product (in thousands) | Product/Category | 2023 | 2022 | | :------------------------------ | :-------- | :------- | | Solriamfetol | $18,232 | $2,834 | | AXS-05 | $34,011 | $23,949 | | AXS-07 | $8,101 | $9,061 | | AXS-12 | $10,431 | $7,091 | | AXS-14 | $7,091 | $2,330 | | Other R&D | $5,998 | $4,078 | | Stock-based compensation | $14,080 | $8,604 | | Total R&D expenses | $97,944 | $57,947 | Liquidity and Capital Resources Axsome's liquidity is funded by equity offerings, debt, and product sales, with cash and cash equivalents reaching $386.2 million by year-end 2023, but future financing needs are anticipated - Axsome's primary funding sources are equity offerings, debt financings, and product sales[303] - In June 2023, the company completed a public offering, raising $211.3 million net, with an additional $31.7 million from underwriters' option exercise[306] - Cash and cash equivalents increased by $185.4 million in 2023, reaching $386.2 million by December 31, 2023[307][367] - Net cash used in operating activities was $145.1 million in 2023, offset by $331.0 million provided by financing activities[307][309] - The company believes current cash is sufficient to fund anticipated operations into cash flow positivity, but future capital requirements are uncertain and may necessitate additional financing[306][310] Contractual Obligations and Commitments Axsome's contractual obligations include $269.5 million in term loan payments and $11.4 million in lease commitments, alongside various license and royalty agreements Contractual Obligations as of December 31, 2023 (in thousands) | Obligation | Total | 2024 | 2025-2026 | 2027-2028 | | :------------------------ | :-------- | :------ | :-------- | :-------- | | Term loan | $269,525 | $19,581 | $39,055 | $210,889 | | Lease commitments | $11,418 | $1,240 | $4,453 | $5,725 | | Total | $280,943 | $20,821 | $43,508 | $216,614 | - The Third Amendment to the Loan Agreement with Hercules Capital in January 2023 increased the loan facility to $350.0 million, extended maturity to January 2028 (potentially 2029), and revised interest rates[314][316] - The Loan Agreement includes financial covenants, such as maintaining a minimum cash balance of $30.0 million and meeting market capitalization or net product revenue targets[316][151] - Royalty payments are due to Pfizer (up to $323 million in milestones/royalties for AXS-12/AXS-14), Antecip (3.0% of Auvelity net sales), and Jazz/SK/Aerial (single-digit tiered royalties and up to $165 million in revenue milestones for Sunosi)[314][317] - A ten-year sublease for corporate offices at One World Trade Center commenced in April 2023, with a five-year lease term for accounting purposes[318] Shelf Registration Statement Axsome filed an automatic shelf registration statement in December 2022, enabling future offerings of various securities without a specified limit - An automatic shelf registration statement (2022 Shelf Registration Statement) was filed in December 2022, enabling future offerings of various securities[320] Off‑Balance Sheet Arrangements Axsome Therapeutics did not have any off-balance sheet arrangements during the periods presented - The company has no off-balance sheet arrangements[321] Recent Accounting Pronouncements Axsome adopted ASU No. 2021-08 in January 2023 with no material impact and is evaluating ASU 2023-07 and ASU 2023-09 for future periods - Adopted ASU No. 2021-08 (Business Combinations) in January 2023, with no material impact on financial statements[420] - Evaluating ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Improvements to Income Tax Disclosures), effective for fiscal years beginning after December 15, 2023, and December 15, 2024, respectively[420] ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Axsome Therapeutics' market risks are primarily from interest rate and foreign currency fluctuations, with no material impact from a 100 basis point interest rate increase or inflation in 2023 - Axsome's market risks are primarily limited to interest rate fluctuations and foreign currency exchange rates[323] - An immediate 100 basis point increase in interest rates is not expected to materially affect the fair market value of the investment portfolio or operating results/cash flows[323] - Foreign currency exchange risk exists for Euro, Swiss Franc, and British Pound, but has not had a material effect on transactions to date[324] - Inflation has not had a material effect on the business, financial condition, or results of operations during 2023[324] ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Axsome Therapeutics' consolidated financial statements and notes are incorporated by reference from Part IV, Item 15(a), part 1 - Consolidated financial statements and notes are incorporated by reference from Part IV, Item 15(a), part 1[325] ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. There have been no changes in or disagreements with accountants on accounting and financial disclosure for Axsome Therapeutics ITEM 9A. CONTROLS AND PROCEDURES. Axsome Therapeutics' management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with an unqualified opinion from Deloitte & Touche LLP - Disclosure controls and procedures were evaluated as effective as of December 31, 2023[328] - Management assessed and concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO Framework[328] - Deloitte & Touche LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting[328] - No changes in internal controls over financial reporting occurred during the period that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[328] ITEM 9B. OTHER INFORMATION. In Q4 2023, Axsome directors Roger Jeffs and Mark Saad adopted Rule 10b5-1 trading arrangements for common stock sales, while the company did not Rule 10b5-1 Trading Arrangements Adopted by Directors (Q4 2023) | Name | Title | Date of Rule 10b5-1 Arrangement Adoption | Scheduled Rule 10b5-1 Trading Arrangement Expiration | Aggregate Number of Securities to Be Sold | | :---------- | :------- | :--------------------------------------- | :--------------------------------------------------- | :---------------------------------------------------------------------- | | Roger Jeffs | Director | December 2023 | September 16, 2024 | Up to 32,323 shares of common stock pursuant to the exercise of non-qualified stock options | | Mark Saad | Director | December 2023 | November 19, 2025 | Up to 89,699 shares of common stock pursuant to the exercise of non-qualified stock options | - The company did not adopt or terminate any Rule 10b5-1 trading arrangements during the fourth quarter of 2023[331] ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS There is no disclosure regarding foreign jurisdictions that prevent inspections for Axsome Therapeutics PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. Information for this item is incorporated by reference from Axsome Therapeutics' 2024 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement[332] ITEM 11. EXECUTIVE COMPENSATION. Information for this item is incorporated by reference from Axsome Therapeutics' 2024 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement[333] ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. Information for this item is incorporated by reference from Axsome Therapeutics' 2024 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement[334] ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE. Information for this item is incorporated by reference from Axsome Therapeutics' 2024 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement[335] ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Information for this item is incorporated by reference from Axsome Therapeutics' 2024 Annual Meeting of Stockholders Proxy Statement - Information is incorporated by reference from the 2024 Annual Meeting of Stockholders Proxy Statement[336] PART IV ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES. This section details consolidated financial statements, schedules, and exhibits, including auditor reports, balance sheets, statements of operations, equity, cash flows, and comprehensive notes - Includes consolidated financial statements, financial statement schedules, and a list of exhibits[342][344] - Reports from independent registered public accounting firms (Deloitte & Touche LLP and Ernst & Young LLP) are included, with Deloitte & Touche LLP providing an unqualified opinion on financial statements and internal control over financial reporting for 2023[347][348][357] - Consolidated Balance Sheets, Statements of Operations, Stockholders' Equity, and Cash Flows are provided for the years ended December 31, 2023, 2022, and 2021[339][340][341] - Detailed Notes to Consolidated Financial Statements cover significant accounting policies, business combinations, accounts receivable, inventory, goodwill, intangible assets, fair value measurements, accrued expenses, loan agreements, commitments, stockholders' equity, warrants, net loss per share, revenues, license agreements, royalty agreements, income taxes, and related party transactions[342][377][381][398][406][408][411][413][414][417][418][420][421][427][429][431][434][437][443][448][452][459][468][475][478][484][488][489][495] 1. Consolidated Financial Statements 2. Consolidated Financial Statement Schedules 3. Exhibits Reports of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on Axsome's 2023 financial statements and internal controls, with Commercial Managed Care rebate accruals as a critical audit matter - Deloitte & Touche LLP issued an unqualified opinion on Axsome's consolidated financial statements and internal control over financial reporting as of December 31, 2023[348][357] - The critical audit matter for 2023 involved the significant assumptions and judgments in calculating Commercial Managed Care rebate accruals[352][354] - Ernst & Young LLP served as the company's auditor from 2014 to 2023 and provided an unqualified opinion on the consolidated financial statements for the years ended December 31, 2022 and 2021[362][364] Consolidated Balance Sheets as of December 31, 2023 and 2022 Axsome's consolidated balance sheets show total assets increased to $588.2 million in 2023, with liabilities rising to $397.3 million and stockholders' equity to $191.0 million Consolidated Balance Sheet Summary (in thousands) | Item | December 31, 2023 | December 31, 2022 | | :------------------------------------ | :---------------- | :---------------- | | Assets | | | | Cash and cash equivalents | $386,193 | $200,842 | | Accounts receivables, net | $94,820 | $37,699 | | Inventories, net | $15,135 | $4,320 | | Total current assets | $504,263 | $245,642 | | Goodwill | $12,042 | $10,310 | | Intangible asset, net | $53,286 | $59,661 | | Total assets | $588,236 | $331,476 | | Liabilities | | | | Accounts payable | $40,679 | $38,605 | | Accrued expenses and other current liabilities | $90,501 | $51,631 | | Total current liabilities | $138,854 | $96,561 | | Contingent consideration, non-current | $73,300 | $31,100 | | Loan payable, long-term | $178,070 | $94,259 | | Total liabilities | $397,259 | $221,920 | | Total stockholders' equity | $190,977 | $109,556 | Consolidated Statements of Operations for the Years Ended December 31, 2023, 2022, and 2021 Axsome's consolidated statements of operations show total revenues increased to $270.6 million in 2023, but operating expenses resulted in a net loss of $239.2 million Consolidated Statements of Operations (in thousands, except per share amounts) | Item | 2023 | 2022 | 2021 | | :------------------------------------------ | :---------- | :---------- | :---------- | | Product sales, net | $202,460 | $50,037 | $— | | License revenue | $65,735 | $— | $— | | Royalty revenue | $2,405 | $— | $— | | Total revenues | $270,600 | $50,037 | $— | | Cost of revenue (excluding amortization) | $26,065 | $5,198 | $— | | Research and development | $97,944 | $57,947 | $58,061 | | Selling, general and administrative | $323,123 | $159,254 | $66,646 | | Loss in fair value of contingent consideration | $48,918 | $3,298 | $— | | Intangible asset amortization | $6,375 | $4,139 | $— | | Total operating expenses | $502,425 | $229,836 | $124,707 | | Loss from operations | $(231,825) | $(179,799) | $(124,707) | | Interest expense, net | $(6,453) | $(7,335) | $(5,696) | | Income tax expense | $(960) | $— | $— | | Net loss | $(239,238) | $(187,134) | $(130,403) | | Net loss per common share, basic and diluted | $(5.27) | $(4.60) | $(3.47) | Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2023, 2022, and 2021 Axsome's stockholders' equity increased to $191.0 million in 2023, driven by common stock issuance and stock-based compensation, despite a net loss Consolidated Statements of Stockholders' Equity Summary (in thousands, except share amounts) | Item | 2023 | 2022 | 2021 | | :------------------------------------------ | :------------ | :------------ | :------------ | | Balance at December 31, prior year | $109,556 | $15,631 | $113,793 | | Stock-based compensation | $65,357 | $37,726 | $20,803 | | Issuance of common stock upon exercise of options | $12,419 | $6,251 | $4,402 | | Issuance of common stock upon financing | $243,083 | $236,788 | $7,212 | | Net loss | $(239,238) | $(187,134) | $(130,403) | | Balance at December 31, current year | $190,977 | $109,556 | $15,631 | | Common Shares Outstanding (end of period) | 47,351,363 | 43,498,617 | 37,816,794 | Consolidated Statements of Cash Flows for the Years Ended December 31, 2023, 2022, and 2021 Axsome's 2023 cash flows show $145.1 million used in operations, $331.0 million provided by financing, resulting in a year-end cash balance of $386.2 million Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | 2023 | 2022 | 2021 | | :-------------------------------- | :------------ | :------------ | :------------ | | Net cash (used in) operating activities | $(145,080) | $(116,511) | $(108,226) | | Net cash used in investing activities | $(582) | $(53,702) | $(308) | | Net cash provided by financing activities | $331,013 | $284,582 | $11,130 | | Net increase (decrease) in cash | $185,351 | $114,369 | $(97,404) | | Cash at end of period | $386,193 | $200,842 | $86,473 | - Cash used in operating activities increased to $145.1 million in 2023, from $116.5 million in 2022, despite increased revenues, due to higher commercial and clinical activities[307] - Financing activities provided $331.0 million in 2023, including $211.3 million from a public offering and $83.6 million from debt draw-downs[309] Notes to Consolidated Financial Statements The notes provide detailed information on Axsome's accounting policies, financial instruments, significant transactions, including revenue recognition, asset valuation, and license agreements - Axsome's operations are subject to significant risks and uncertainties, including clinical trial outcomes, regulatory approvals, competition, and the ability to raise additional capital[381] - The company's revenue recognition policy details the five-step model for contracts with customers, including estimates for variable consideration like rebates and returns[383][385][389] - The acquisition of Sunosi in 2022 was accounted for as a business combination, resulting in goodwill of $12.0 million and an intangible asset of $63.8 million (net $53.3 million as of Dec 31, 2023)[398][425][432][435] - Contingent consideration liabilities, primarily for Sunosi royalties to Jazz, were $79.7 million as of December 31, 2023, measured using a probability-weighted income approach[402][437][441] - The company has U.S. federal NOL carryforwards of $547 million as of December 31, 2023, with a full valuation allowance against deferred tax assets[294][489][491] - Stock-based compensation expense was $62.6 million in 2023, with $162.0 million of unrecognized cost for stock options and $25.9 million for RSUs[462][466] - Key license agreements include those with Pfizer for AXS-12/AXS-14, Antecip (related party) for AXS-05, and Pharmanovia for ex-U.S. Sunosi rights[485][487][488] Note 1. Nature of Business and Basis of Presentation Note 2. Summary of Significant Accounting Policies Note 3. Business Combination Note 4. Accounts Receivable, net Note 5. Inventory Note 6. Goodwill Note 7. Intangible Asset Note 8. Fair Value of Financial Instruments Note 9. Accrued Expenses and Other Current Liabilities Note 10. Loan and Security Agreement Note 11. Commitments and Contingencies Note 12. Stockholders' Equity Note 13. Warrants Note 14. Net Loss per Common Share Note 15. Revenues Note 16. License Agreements Note 17. Royalty Agreements Note 18. Income Taxes Note 19. Related Party Transactions ITEM 16. FORM 10-K SUMMARY Axsome Therapeutics has elected not to include a summary of information required by Form 10-K - The company has elected not to include a Form 10-K summary[502] Signatures The Annual Report on Form 10-K was signed on February 23, 2024, by the CEO, CFO, and other directors - The report was signed on February 23, 2024, by Herriot Tabuteau, M.D. (CEO and Chairman) and Nick Pizzie (CFO)[503][505]