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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16
under the Securities Exchange Act of 1934
For the month of November 2021
Commission File Number: 001-39522

COMPASS PATHWAYS PLC
(Translation of registrant’s name into English)


3rd Floor
1 Ashley Road
Altrincham
Cheshire WA14 2DT
United Kingdom
Tel: +1 (646) 905-3974
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

1


INFORMATION CONTAINED IN THIS REPORT ON FORM 6-K

This Report of Foreign Private Issuer on Form 6-K, or Report, is being provided by COMPASS Pathways plc, or the Company, to the U.S. Securities and Exchange Commission, or the SEC, for the sole purposes of: (i) filed as Exhibit 10.1 hereto, the Settlement Agreement between the Chief Financial Officer and the Company, dated July 29, 2021 (ii) filed as Exhibit 10.2 hereto, the Settlement Agreement between the General Counsel and Chief Legal Officer and the Company, dated September 29, 2021, (iii) filed as Exhibit 10.3 hereto, the part-time Agreement between the President, Chief Business Officer and Co-founder and the Company (iv) filed, as Exhibit 99.1 hereto, the unaudited interim condensed consolidated financial statements as of, and for the three months and nine months ended, September 30, 2021, or the Financial Statements, (v) filed, as Exhibit 99.2 hereto, Management’s Discussion and Analysis of Financial Condition and Results of Operations, which discusses and analyzes the Company’s financial condition and results of operations as of, and for the three months and nine months ended, September 30, 2021, (vi) furnishing, as Exhibit 99.3 hereto, a press release issued by the Company on November 09, 2021 announcing its third quarter 2021 financial results, and (vii) furnishing, as Exhibit 101 hereto, materials which are formatted in XBRL (eXtensible Business Reporting Language).

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 6-K contains forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “would,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “assume,” “intend,” “potential,” “continue” or other similar words or the negative of these terms. These statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. The outcomes of the events described in these forward-looking statements are subject to risks, uncertainties and other factors referenced under “Risk Factors” described in our periodic filings on Form 20-F with the SEC, as supplemented by our subsequent filings with the SEC. Accordingly, you should not place undue reliance upon these forward- looking statements. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur, the timing of events and circumstances and actual results could differ materially from those projected in the forward looking statements. Forward-looking statements contained in this Form 6-K include, but are not limited to, statements about:

the timing, progress and results of clinical trials and preclinical studies for COMP360 and any other product candidates we develop in the future, including statements regarding the timing of initiation and completion of trials or studies and related preparatory work, the period during which the results of the trials will become available and our research and development programs;
the ongoing impact of the pandemic caused by the novel coronavirus, or COVID-19, on our business;
our reliance on the success of our investigational COMP360 psilocybin therapy;
the timing, scope or likelihood of regulatory submissions, filings, and approvals;
our ability to identify third-party clinical sites to conduct our trials and our ability to identify and train appropriately qualified therapists to administer COMP360 psilocybin therapy;
our ability to develop and advance product candidates into, and successfully complete, clinical trials;
our expectations regarding the size of the patient populations for COMP360 and any other product candidates that we develop, in each case if approved for commercial use;
2


the implementation of our business model and our strategic plans for our business, our investigational COMP360 psilocybin therapy, and any other product candidates that we develop in the future;
our ability to identify new indications for COMP360 beyond our current primary focus on treatment resistant depression;
our ability to identify, develop or acquire digital technologies to enhance our administration of our investigational COMP360 psilocybin therapy;
our ability to leverage our technology and drug development candidates to advance new psychedelic compounds in other areas of unmet mental health need;
our ability to successfully establish and maintain Centers of Excellence;
our commercialization, marketing and manufacturing capabilities and strategy;
the pricing and reimbursement of COMP360 and any other product candidates that we develop in the future, if approved;
the scalability and commercial viability of our manufacturing methods and processes, including our plans to develop our in-house manufacturing operations;
the rate and degree of market acceptance and clinical utility of our COMP360 psilocybin therapy, in particular, and psilocybin-based therapies, in general;
our ability to establish or maintain collaborations or strategic relationships or obtain additional funding;
our expectations regarding potential benefits of our investigational COMP360 psilocybin therapy and our therapeutic approach generally;
our expectations around regulatory development paths and with respect to Controlled Substances Act designation;
our competitive position;
the scope of protection we and/or any current or future licensors or collaboration partners are able to establish and maintain for intellectual property rights covering COMP360 and any other product candidates that we develop in the future;
our ability to operate our business without infringing, misappropriating, or otherwise violating the intellectual property rights and proprietary technology of third parties;
regulatory developments in the United States, under the laws and regulations of England and Wales, and other jurisdictions;
developments and projections relating to our competitors and our industry;
our estimates regarding expenses, future revenue, capital requirements, the sufficiency of our cash resources, our expected cash runway and our needs for additional financing;
the impact of laws and regulations;
our ability to contract with third party suppliers and manufacturers and their ability to perform adequately;
our ability to attract and retain qualified employees and key personnel;
our ability to maintain adequate internal controls over financial reporting;
our expectations regarding the time during which we will be an emerging growth company under the JOBS Act; and
other risks and uncertainties, including those listed under the caption “Risk Factors” in this prospectus as well as those risk factors that are incorporated by reference in this prospectus.

3


The forward-looking statements made in this Form 6-K relate only to events as of the date on which the statements are made. We have included important factors in the cautionary statements included in this prospectus and incorporated herein by reference, including under the caption entitled “Risk Factors” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make. Except as required by law, we do not assume any intent to update any forward-looking statements after the date on which the statement is made, whether as a result of new information, future events or circumstances or otherwise.
4


EXHIBIT INDEX
EXHIBIT NUMBERDESCRIPTION OF EXHIBIT
10.1
10.2
10.3
99.1
99.2
99.3
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

5


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
COMPASS PATHWAYS PLC
Date: November 09, 2021
By:
/s/ George Goldsmith
George Goldsmith
Chief Executive Officer

6


COMPASS PATHWAYS PLC
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)
September 30,December 31,
20212020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$293,959 $190,327 
Restricted cash104 29 
Prepaid expenses and other current assets18,733 12,048 
Total current assets312,796 202,404 
Investment521 529 
Property and equipment, net 355 245 
Deferred tax assets852 221 
Other assets219 57 
Total assets$314,743 $203,456 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable$2,742 $2,747 
Accrued expenses and other liabilities6,581 4,148 
Total current liabilities9,323 6,895 
Total liabilities9,323 6,895 
Commitments and contingencies (Note 13)
SHAREHOLDERS’ EQUITY:
Ordinary shares, £0.008 par value; 41,731,180 and 35,930,331 shares authorized, issued and outstanding at September 30, 2021 and December 31, 2020, respectively
431 367 
Deferred shares, £21,921.504 par value; one share authorized, issued and outstanding at September 30, 2021 and December 31, 2020
28 28 
Additional paid-in capital441,135 279,480 
Accumulated other comprehensive income7,817 14,585 
Accumulated deficit(143,991)(97,899)
    Total shareholders’ equity305,420 196,561 
    Total liabilities and shareholders' equity$314,743 $203,456 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPASS PATHWAYS PLC
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)

Three Months Ended September 30,
Nine Months Ended September 30,
2021202020212020
OPERATING EXPENSES:
Research and development$12,197 $6,875 $30,434 $18,822 
General and administrative9,571 6,607 24,464 21,052 
Total operating expenses21,768 13,482 54,898 39,874 
LOSS FROM OPERATIONS:(21,768)(13,482)(54,898)(39,874)
OTHER INCOME (EXPENSE), NET:
Other income, net 109 2 302 
Foreign exchange gains (losses)3,364 (4,331)2,171 (3,252)
Fair value change of convertible notes   (1,031)
Fair value change of convertible notes - due to a related party   (723)
Benefit from R&D tax credit2,618 1,092 6,733 3,175 
Total other income (expense), net5,982 (3,130)8,906 (1,529)
Loss before income taxes(15,786)(16,612)(45,992)(41,403)
Income tax expense(63)(82)(100)(125)
Net loss(15,849)(16,694)(46,092)(41,528)
Other comprehensive (loss) income:
Foreign exchange translation adjustment, net of tax(8,401)4,806 (6,768)3,773 
Comprehensive loss$(24,250)$(11,888)$(52,860)$(37,755)
Net loss per share attributable to ordinary shareholders—basic and diluted$(0.38)$(1.30)$(1.17)$(3.90)
Weighted average ordinary shares outstanding—basic and diluted41,708,220 12,834,889 39,378,824 10,638,738 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPASS PATHWAYS PLC
Condensed Consolidated Statements of Convertible Preferred Shares and Shareholders’ Equity (Deficit)
(unaudited)
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)

CONVERTIBLEA CONVERTIBLEB CONVERTIBLE
ORDINARY SHARES £0.008
DEFERRED SHARES ADDITIONAL PAID-IN CAPITALACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)ACCUMULATED DEFICITTOTAL SHAREHOLDERS' EQUITY (DEFICIT)
PREFERRED SHARESPREFERRED SHARESPREFERRED SHARESPAR VALUE
£21,921.504 PAR VALUE
SHARESAMOUNTSHARESAMOUNTSHARESAMOUNTSHARESAMOUNTSHARESAMOUNTAMOUNTAMOUNTAMOUNTAMOUNT
Balance at December 31, 2020 $  $  $ 35,930,331 $367 1 $28 $279,480 $14,585 $(97,899)$196,561 
Exercise of share options— — — — — — 581,328 6 — — 992 — — 998 
Issuance of shares due to options exercised in previous year— — — — — — 232,227 3 — — (3)— —  
Share-based compensation expense— — — — — — — — — — 1,666 — — 1,666 
Unrealized gain (loss) on foreign currency translation— — — — — — — — — — — 1,988 — 1,988 
Net loss— — — — — — — — — — — — (12,715)(12,715)
Balance at March 31, 2021 $  $  $ 36,743,886 $376 1 $28 $282,135 $16,573 $(110,614)$188,498 
Issuance of ordinary shares, net of issuance costs— — — — — — 4,600,000 51 — — 154,743 — — 154,794 
Exercise of share options— — — — — — 351,449 4 — — 43 — — 47 
Share-based compensation expense— — — — — — — — — — 1,904 — — 1,904 
Unrealized gain (loss) on foreign currency translation— — — — — — — — — — — (355)— (355)
Net loss— — — — — — — — — — — — (17,528)(17,528)
Balance at June 30, 2021 $  $  $ 41,695,335 $431 1 $28 $438,825 $16,218 $(128,142)$327,360 
Exercise of share options— — — — — — 23,238 — — — 23 — 23 
Vesting of restricted stock units— — — — — — 12,607 — — — — — — — 
Share-based compensation expense— — — — — — — — — — 2,287 — — 2,287 
Unrealized gain (loss) on foreign currency translation— — — — — — — — — — — (8,401)— (8,401)
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Net loss— — — — — — — — — — — — (15,849)(15,849)
Balance at September 30, 2021$ $ $ 41,731,180$431 1$28 $441,135 $7,817 $(143,991)$305,420 
Balance at December 31, 20192,650,980$3,761 7,131,525$35,147 10,752,429$111 $7,162 $(98)$(37,565)$(30,390)
Share-based compensation expense— — — — — — — — — — 1,704 — — 1,704 
Unrealized gain (loss) on foreign currency translation— — — — — — — — — — — (348)— (348)
Net loss— — — — — — — — — — — — (8,585)(8,585)
Balance at March 31, 20202,650,980$3,761 7,131,525$35,147 $ 10,752,429$111 $ $8,866 $(446)$(46,150)$(37,619)
Issuance of B convertible preferred shares, net of issuance costs4,487,53355,975
Conversion of notes into B convertible preferred shares1,723,26321,614
Share-based compensation expense9,6989,698
Unrealized gain (loss) on foreign currency translation(685)(685)
Net loss(16,249)(16,249)
Balance at June 30, 20202,650,980 $3,761 7,131,525 $35,147 6,210,796 $77,589 10,752,429 $111  $ $18,564 $(1,131)$(62,399)$(44,855)
Issuance of B convertible preferred shares, net of issuance costs425,8715,341
Exercise of share options197,7022(2)
Forfeiture of ordinary shares(63,972)(1)1
Effect of corporate reorganization including conversion of convertible preferred shares to ordinary shares(2,650,980)(3,761)(7,131,525)(35,147)(6,636,667)(82,930)16,419,172167128121,643121,838
Issuance of ordinary shares in initial public offering, net of issuance costs of $4,838
8,625,00088132,677132,765
Share-based compensation expense5,2155,215
Unrealized gain (loss) on foreign currency translation4,8064,806
Net loss(16,694)(16,694)
Balance at September 30, 2020$ $ $ 35,930,331$367 1$28 $278,098 $3,675 $(79,093)$203,075 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPASS PATHWAYS PLC
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
(expressed in U.S. Dollars, unless otherwise stated)
Nine Months Ended September 30,
20212020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(46,092)$(41,528)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization123 84 
Non-cash gain on foreign currency remeasurement31  
Change in fair value of convertible notes 1,754 
Non-cash share-based compensation 5,857 16,617 
Changes in operating assets and liabilities
   Prepaid expenses and other current assets(6,798)(3,685)
   Deferred tax assets(631) 
   Other assets(168)(59)
   Accounts payable36 1,338 
   Accrued expenses and other liabilities2,266 853 
Net cash used in operating activities(45,376)(24,626)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(241)(104)
Purchase of investments (492)
Net cash used in investing activities(241)(596)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options1,047  
Proceeds of issuance of preferred shares, net of issuance costs 61,316 
Proceeds of issuance of ordinary shares, net of issuance costs154,794 132,823 
Net cash provided by financing activities155,841 194,139 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(6,517)2,633 
Net increase in cash, cash equivalents and restricted cash103,707 171,550 
Cash, cash equivalents and restricted cash, beginning of the period190,356 24,984 
Cash, cash equivalents and restricted cash, end of the period$294,063 $196,534 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Proceeds from exercise of options which were not received and recorded in other current assets$21 $ 
Deferred issuance costs included in accrued expenses$234 $ 
Conversion of convertible notes into convertible preferred shares$ $21,614 
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The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of each of the periods, shown above:
Nine Months Ended September 30,
20212020
Cash and cash equivalents$293,959 $196,505 
Restricted cash104 29 
Total cash, cash equivalents and restricted cash$294,063 $196,534 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPASS PATHWAYS PLC
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Nature of Business
COMPASS Pathways plc, or the Company, is a mental health care company dedicated to accelerating patient access to evidence-based innovation in mental health. The Company is developing psilocybin therapy through late-stage clinical trials in Europe and North America for patients with treatment-resistant depression.
The Company is a public limited company incorporated in England and Wales and was originally incorporated under the name COMPASS Rx Limited before being renamed COMPASS Pathways plc as part of our corporate reorganization as more particularly described below. Prior to and in contemplation of the consummation of the Company's initial public offering, or IPO, of American Depositary Shares, or ADSs, the Company undertook a corporate reorganization. The corporate reorganization took place in several steps, all of which have been completed. The Company refers to the following steps, which are discussed in more detail below, as the “corporate reorganization”.
• Prior to the corporate reorganization, the holding company of the COMPASS group was COMPASS Pathfinder Holdings Limited.
• Pursuant to the terms of a share for share exchange completed on August 7, 2020, all of the shareholders of COMPASS Pathfinder Holdings Limited, which, until the corporate reorganization was the holding company of the COMPASS group, exchanged each of the shares held by them for 1,161 of the same class, with the same shareholder rights, of newly issued shares of COMPASS Rx Limited and, as a result, COMPASS Pathfinder Holdings Limited became a wholly owned subsidiary of COMPASS Rx Limited. This share exchange had the effect of a 1:1,161 share split. No shareholder rights or preferences changed as a result of the share for share exchange. COMPASS Pathfinder Holdings Limited is a private limited liability company incorporated under the laws of England and Wales and its primary offices are in London, United Kingdom (“UK”). COMPASS Pathfinder Holdings Limited has one wholly-owned subsidiary, COMPASS Pathfinder Limited, whose primary office is in London, United Kingdom. COMPASS Pathfinder Limited has one wholly-owned subsidiary, COMPASS Pathways Inc. whose primary office is located in New York, United States of America.
• Pursuant to Part 17 of the Companies Act 2006, on August 19, 2020, COMPASS Rx Limited reduced its share capital by way of a reduction of the nominal value of each share in the capital of COMPASS Rx Limited from £1.00 to £0.001 in order to satisfy the net asset test requirement in section 92 of the Companies Act 2006 for the re-registration of COMPASS Rx Limited as a public limited company and to create distributable reserves in order to support future distribution activities by the Company (although we note that none is currently planned).
• COMPASS Rx Limited was re-registered as a public limited company and renamed COMPASS Pathways plc, effective on August 21, 2020. COMPASS Pathways plc is a holding company with nominal activity.
• Immediately prior to the completion of the Company’s IPO on September 22, 2020, the different classes of issued share capital of COMPASS Pathways plc were reorganized on a one-for-0.1136 basis into a single class of 27,305,331 ordinary shares by way of a reverse share split, which was retroactively restated in our condensed consolidated financial statements. As part of this reverse share split, the nominal value of COMPASS Pathways plc’s ordinary shares changed from £0.001 per share to £0.008 per share and a single, non-voting deferred share with a nominal value of £21,921.504 in the capital of the Company was created and transferred to the Company.
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• On September 22, 2020, the Company completed the IPO. In the IPO, the Company sold an aggregate of 8,625,000 ADSs representing the same number of ordinary shares, including 1,125,000 ADSs pursuant to the underwriters’ over-allotment right option to purchase additional ADSs, at a public offering price of $17.00 per ADS. Net proceeds were approximately $132.8 million, after deducting underwriting discounts and commissions and other offering expenses.
COMPASS Pathways plc is a continuation of COMPASS Pathfinder Holdings Limited and its subsidiaries, and the corporate reorganization has been accounted for as a combination of entities under common control. The corporate reorganization associated with the IPO has been given retrospective effect in these historical unaudited condensed consolidated financial statements and such financial statements represent the financial statements of COMPASS Pathways plc. In connection with the corporate reorganization, outstanding restricted share awards and option grants of COMPASS Pathfinder Holdings Limited were exchanged for share awards and option grants of COMPASS Pathways plc with identical restrictions.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Therapeutic candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s therapeutic development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from sales.
The Company has funded its operations primarily with proceeds from the sale of its convertible preferred shares, the issuance of convertible notes, and more recently through the sale of American Depository Shares in connection with the September 2020 IPO and its $154.8 million May 2021 follow-on offering, including the underwriters’ exercise of their over-allotment option. On October 8, 2021, the Company entered into a Sales Agreement with Cowen and Company, LLC (“Cowen”), under which the Company may issue and sell from time to time up to $150,000,000 of its ADSs, each representing one ordinary share, through Cowen as the sales agent. Sales of our ADSs, if any, will be made at market prices. The Company has incurred recurring losses since its inception, including net losses of $46.1million and $41.5 million for the nine months ended September 30, 2021 and 2020, respectively. In addition, as of September 30, 2021, the Company had an accumulated deficit of $144.0 million. The Company expects to continue to generate operating losses for the foreseeable future. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all.
The Company believes the cash and cash equivalents on hand as of September 30, 2021 of $294.0 million will be sufficient to fund its operating expenses and capital expenditure requirements through to 2024.
The Company continues to assess its business plans and the impact which the ongoing COVID-19 pandemic may have on its ability to advance the development and manufacturing of COMP360 as a result of adverse impacts on the research sites, service providers, vendors, or suppliers on whom it relies, or to raise further financing to support the development of its investigational COMP360 psilocybin therapy. No assurances can be given that this analysis will enable the Company to avoid any future impact from the ongoing COVID-19 pandemic or the emergency of new variants, including downturns in business sentiment generally or in its sector in particular. The Company cannot currently predict the scope and severity of any future potential business shutdowns or disruptions, but if the Company or any of the third parties on whom it relies or with whom the Company conducts business were to experience additional
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shutdowns or other business disruptions, the Company’s ability to conduct its business in the manner and on the timelines presently planned could be materially and adversely impacted.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, or U.S. GAAP.
The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited annual consolidated financial statements as of and for the year ended December 31, 2020, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2021, and the results of its operations and comprehensive loss for the three months and nine months ended September 30, 2021 and 2020, and its cash flows for the nine months ended September 30, 2021 and 2020.
The results for the three months and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2020, and the notes thereto, which are included elsewhere in the Company’s 20-F filed with the U.S. Securities and Exchange Commission, or SEC, on March 9, 2021.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of income and expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual for research and development expenses, the fair value of ordinary shares prior to the Company’s IPO, share-based compensation, measurement of the fair value of the Company’s convertible notes and the research and development tax credit. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates.
Cash and 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 does not currently have any cash equivalents.
Restricted Cash
Restricted cash as of September 30, 2021 and December 31, 2020 represents a collateral deposit for employee credit cards.
Investment
The investment does not have readily determinable fair value and it is carried at cost, less impairment, adjusted for subsequent changes to estimated fair value up to the original cost, in
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circumstances where the Company does not have the ability to exercise significant influence or control over the operating and financial policies of the investee.
Fair Value of Financial Instruments
Certain liabilities of the Company were carried at fair value under U.S. GAAP. 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 on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
The Company's convertible notes issued prior to IPO were classified within Level 3 of the fair value hierarchy because their fair values were estimated by utilizing valuation models and significant unobservable inputs. The convertible notes were valued using a scenario-based discounted cash flow analysis. Two primary scenarios were considered and probability weighted to arrive at the valuation conclusion for each convertible note. The first scenario considered the value impact of conversion at the stated discount to the issue price if the Company raised over £25.0 million in an equity financing before the first anniversary of the issuance date, the Qualified Financing, or otherwise converted in a Non-Qualified Financing, while the second scenario assumed the convertible notes were held to maturity. As of the issuance date of the convertible notes, an implied yield was calculated such that the probability weighted value of the convertible note was equal to the principal investment amount. The implied yield of previously issued convertible notes was carried forward and used as the primary discount rate for subsequent valuation dates. The Company estimated the fair value of the convertible notes based on a future value on projected conversion dates which have been i) discounted back to the valuation date at an appropriate discount rate and ii) probability weighted to arrive at an indication of value for the convertible notes.
On April 17, 2020, the Company closed a Series B funding round to secure an additional $80.0 million of funding, including the conversion of the $18.4 million (£15.0 million) convertible loan notes issued in 2019 through the issuance of new B convertible preference shares (See Note 8). At September 30, 2021, the Company did not hold any convertible notes.
Fair Value Option
As permitted under Accounting Standards Codification, or ASC, 825, Financial Instruments, or ASC 825, the Company elected the fair value option to account for its convertible notes. In accordance with ASC 825, the Company recorded these convertible notes at fair value with changes in fair value recorded as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. As a result of applying the fair value option, direct costs and fees related to the convertible notes were expensed as incurred and were not deferred. The Company concluded that it was appropriate to apply the fair value option to the convertible notes because there were no non-contingent beneficial conversion options related to the convertible notes.
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Concentration of Credit Risk
Financial instruments that subject the Company to credit risk consist primarily of cash and cash equivalents. The Company places cash and cash equivalents in established financial institutions. The Company has no significant off-balance-sheet risk or concentration of credit risk, such as foreign exchange contracts, options contracts, or other foreign hedging arrangements.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the respective assets, which are as follows:
Estimated Useful Life
Lab equipment5 years
Office equipment
3-5 years
Furniture and fixtures3 years
Leasehold improvementsShorter of useful life or remaining lease term
Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the condensed consolidated statements of operations and comprehensive loss. Expenditures for repairs and maintenance are charged to expense as incurred.
Impairment of Long-Lived Assets
The Company evaluates assets for potential impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Recoverability is measured by comparing the book values of the assets to the expected future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book values of the assets exceed their fair value. The Company has not recognized any impairment losses or had triggering events related to its underlying assets for the three months and nine months ended September 30, 2021 and 2020.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company and the Company’s chief operating decision maker, the Company’s Chief Executive Officer, view the Company’s operations and manages its business as a single operating segment; however, the Company operates in two geographic regions: the UK and the United States. The Company’s fixed assets are primarily located in the UK. The Company’s singular concentration is focused on accelerating patient access to evidence-based innovation in mental health.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including salaries, share-based compensation and benefits, travel, and external costs of outside vendors engaged to conduct clinical development activities, clinical trials and the cost to manufacture clinical trial materials.
Research Contract Costs, Accruals and Prepayments
The Company has entered into various research and development-related contracts with research institutions and other companies. These agreements are generally cancelable, and related payments are recorded as research and development expenses as incurred. The Company records accruals and prepayments for estimated ongoing research costs and receives updated estimates of costs and amounts owed on a monthly basis from its third-party service providers. When evaluating the adequacy of the
17


accrued liabilities and prepaid assets, the Company analyzes progress of the studies or clinical trials, including the phase or completion of events, invoices received and contracted cost estimates from third-party service providers. Estimates are made in determining the accrued and prepaid balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual and prepayment estimates have not been materially different from the actual costs.
Share-Based Compensation
The Company accounts for all share-based payment awards granted to employees and non-employees as share-based compensation expense at fair value. The Company grants equity awards under its share-based compensation programs, which may include share options and restricted ordinary shares. The measurement date for employee and non-employee awards is the date of grant, and share-based compensation costs are recognized as expense over the requisite service period, which is the vesting period, on a straight-line basis. Share-based compensation expense is classified in the accompanying condensed consolidated statements of operations and comprehensive loss based on the function to which the related services are provided. The Company recognizes share-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur.
There have been no performance conditions attached to the share options granted by the Company to date. The fair value of each share option grant is estimated on the date of grant using the Black-Scholes option pricing model. See Note 11 for the Company’s assumptions used in connection with option grants made during the periods covered by these condensed consolidated financial statements. Assumptions used in the option pricing model include the following:
Expected volatility. The Company lacks company-specific historical and implied volatility information for its ordinary shares. Therefore, it estimates its expected share volatility based on the historical volatility of publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price.
Expected term. The expected term of the Company’s share options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options.
Risk-free interest rate. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods that are approximately equal to the expected term of the award.
Expected dividend. The expected dividend yield of zero is based on the fact that the Company has never paid cash dividends on ordinary shares and does not expect to pay any cash dividends in the foreseeable future.
Fair value of ordinary shares. Given the absence of an active market for the Company’s ordinary shares prior to the IPO, the Company and its board of directors, the members of which the Company believes have extensive business, finance, and venture capital experience, were required to estimate the fair value of the Company’s ordinary shares at the time of each grant of a stock-based award. The grant date fair values of restricted ordinary shares and share options were calculated based on the grant date fair value of the underlying ordinary shares. The Company calculated the fair value of the ordinary shares in accordance with the guidelines in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or the “Practice Aid”. The Company’s valuations of ordinary shares were prepared using a market approach, based on precedent transactions in the shares, to estimate the Company’s total equity value using an option-pricing method, or OPM. After the IPO, the fair value of ordinary shares is determined by reference to the closing price of ADSs on the Nasdaq Global Select Market on the date prior to the grant date.
The OPM derives an equity value such that the value indicated for ordinary shares is consistent with the investment price, and it provides an allocation of this equity value to each of the Company’s
18


securities. The OPM treats the various classes of ordinary shares as call options on the total equity value of a company, with exercise prices based on the value thresholds at which the allocation among the various holders of a company’s securities changes. Under this method, the ordinary shares have value only if the funds available for distribution to shareholders exceeded the value of the share liquidation preferences of ordinary shares with senior preferences at the time of the liquidity event. Key inputs into the OPM calculation included the risk-free rate, expected time to liquidity and volatility. A reasonable discount for lack of marketability was applied to the total equity value to arrive at an estimate of the total fair value of equity on a non-marketable basis.
Foreign Currency Translation
The Company maintains its condensed consolidated financial statements in its functional currency, which is Pound Sterling. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Non-monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the exchange rates prevailing at the date of the transaction. Exchange gains or losses arising from foreign currency transactions are included in other income (expense), net in the condensed consolidated statements of operations and comprehensive loss.
For financial reporting purposes, the condensed consolidated financial statements of the Company have been presented in U.S. dollars, the reporting currency. The financial statements of entities are translated from their functional currency into the reporting currency as follows: assets and liabilities are translated at the exchange rates at the balance sheet dates, expenses and other income (expense), net are translated at the average exchange rates for the relevant period and shareholders’ deficit is translated based on historical exchange rates. Translation adjustments are not included in determining net loss but are included as a foreign exchange adjustment to other comprehensive income (loss), a component of shareholders’ equity.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the condensed consolidated financial statements or in its tax returns. Deferred tax assets and liabilities are determined on the basis of the differences between the condensed consolidated financial statements and tax basis of assets and liabilities using substantively enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company assesses the likelihood that deferred tax assets will be recovered in the future to the extent management believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.
The Company accounts for uncertainty in income taxes in the condensed consolidated financial statements by applying a two-step process to determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more-likely-than-not to be sustained, the tax position is then assessed as the amount of benefit to recognize in the condensed consolidated financial statements. The amount of benefits that may be used is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate, as well as the related net interest and penalties. As of September 30, 2021 and December 31, 2020, the Company has not identified any uncertain tax positions.
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The Company recognizes interest and penalties related to unrecognized tax benefits on the income tax expense line in the accompanying condensed consolidated statements of operations and comprehensive loss. As of September 30, 2021 and December 31, 2020 no accrued interest or penalties are included on the related tax liability line in the condensed consolidated balance sheets.
Benefit from Research and Development Tax Credit
As a company that carries out extensive research and development activities, the Company benefits from the UK research and development tax credit regime under the scheme for small or medium-sized enterprises, or SME. Under the SME regime, the Company is able to surrender some of its trading losses that arise from qualifying research and development activities for a cash rebate of up to 33.35% of such qualifying research and development expenditure. The Company meets the conditions of the SME regime. Qualifying expenditures largely comprise employment costs for research staff, consumables, outsourced contract research organization costs and utilities costs incurred as part of research projects. Certain subcontracted qualifying research and development expenditures are eligible for a cash rebate of up to 21.67%. A large portion of costs relating to research and development, clinical trials and manufacturing activities are eligible for inclusion within these tax credit cash rebate claims.
The Company is subject to corporate taxation in the UK. Due to the nature of the business, the Company has generated losses since inception. The benefit from research and development, or R&D, tax credit is recognized in the condensed consolidated statements of operations and comprehensive loss as a component of other income (expense), net, and represents the sum of the research and development tax credit recoverable in the UK.
The UK research and development tax credit is fully refundable to the Company and is not dependent on current or future taxable income. As a result, the Company has recorded the entire benefit from the UK research and development tax credit as a benefit which is included in net loss before income tax and accordingly, not reflected as part of the income tax provision. If, in the future, any UK research and development tax credits generated are needed to offset a corporate income tax liability in the UK, that portion would be recorded as a benefit within the income tax provision and any refundable portion not dependent on taxable income would continue to be recorded within other income (expense), net.
The Company may not be able to continue to claim research and development tax credits under the SME regime in the future because it may no longer qualify as a small or medium-sized company. Further, changes to the EU State Aid cap to limit the total aid claimable in respect of a given project to €7.5 million may impact the Company's ability to claim R&D tax credits in future.
Unsurrendered UK losses may be carried forward indefinitely to be offset against future taxable profits, subject to numerous utilization criteria and restrictions. The amount that can be offset each year is limited to £5.0 million plus an incremental 50% of UK taxable profits.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in shareholders’ equity (deficit) that result from transactions and economic events other than those with shareholders. For the three months and nine months ended September 30, 2021 and 2020, the component of accumulated other comprehensive income is a foreign currency translation adjustment.
Net Loss per Share
The Company has reported losses since inception and has computed basic net loss per share attributable to ordinary shareholders by dividing net loss attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding for the period, without consideration for potentially dilutive securities. The Company computes diluted net loss per ordinary share after giving consideration to all potentially dilutive ordinary shares, including unvested ordinary shares, share options, convertible preferred shares, Series A convertible preferred shares and Series B convertible preferred
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shares outstanding during the period determined using the treasury-stock and if-converted methods, except where the effect of including such securities would be antidilutive. Because the Company has reported net losses since inception, these potential ordinary shares have been anti-dilutive and basic and diluted loss per share were the same for all periods presented.
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standard Board, or the FASB, issued Accounting Standard Update, or ASU, 2019-12, “Income Taxes - Simplifying the Accounting for Income Taxes (Topic 740),” or ASU 740, which simplifies the accounting for income taxes. The new guidance removes certain exceptions to the general principles in ASC 740 such as recognizing deferred taxes for equity investments, the incremental approach to performing intra-period tax allocation and calculating income taxes in interim periods. The standard also simplifies accounting for income taxes under U.S. GAAP by clarifying and amending existing guidance, including the recognition of deferred taxes for goodwill, the allocation of taxes to members of a consolidated group and requiring that an entity reflect the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. This guidance is effective for annual periods beginning after December 15, 2020, and interim periods thereafter; however, early adoption is permitted. The Company adopted this ASU as of January 1, 2021 and it has had no material impact on the condensed consolidated financial statements.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the Financial Accounting Standards Board, or the FASB, issued Accounting Standard Update, or ASU, No. 2016-02, (Topic 842) Leases, or ASU 2016-02. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, ASU 2016-02 is effective for the Company for the year ended December 31, 2021, and all interim periods thereafter. Early adoption is permitted. In June 2020, the FASB issued 2020-05 which extended the adoption of ASU 2016-02 to the year ended December 31, 2022 and all interim periods thereafter. While early adoption is permitted, the Company intends to adopt for the year ended December 31, 2021, following the loss of Emerging Growth Company status effective January 01, 2022. In July 2018, the FASB issued ASU 2018-11 Leases – Targeted Improvements, or ASU 2018-11, intended to ease the implementation of the new lease standard for financial statement preparers by, among other things, allowing for an additional transition method. In lieu of presenting transition requirements to comparative periods, as previously required, an entity may now elect to show a cumulative effect adjustment on the date of adoption without the requirement to recast prior period financial statements or disclosures presented in accordance with ASU 2016-02.
The Company is continuing to evaluate developments within the new lease guidance and is finalizing its evaluation of its existing population of contracts to ensure all contracts that meet the definition of a lease contract under the new standard are identified. The Company is currently evaluating the impact of adopting this guidance on the Company’s condensed consolidated financial statements and expects that its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and operating lease liabilities upon adoption of this standard, which will increase the total assets and total liabilities that it reports relative to such amounts presented prior to adoption.
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3. Fair Value Measurements
There are no financial instruments measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020.
Management believes that the carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts payable and accrued expenses approximate fair value due to the short-term nature of those instruments.
The Company elected the fair value option to account for its convertible notes issued during 2019 (See Note 8). The fair value of the convertible notes was determined based on significant inputs not observable in the market, which represents a level 3 measurement within the fair value hierarchy.
The Company recorded a loss of $1.8 million for changes in the fair value of the convertible notes in the condensed consolidated statements of operations and comprehensive loss for the nine months ended September 30, 2020. No change in fair value of convertible notes was recognized during the three months ended September 30, 2020.
The following table provides a roll forward of the aggregate fair value of the Company’s convertible notes, for which fair value was determined using level 3 inputs (in thousands):
Convertible notes
Balance as of December 31, 2019$21,089 
Change in fair value1,754 
Settlement of convertible notes(21,614)
Exchange difference(1,229)
Balance as of September 30, 2020$ 
4. Investment
On March 6, 2020, the Company made a strategic investment of $0.5 million to acquire an 8% (on a fully diluted basis) shareholding in Delix Therapeutics, Inc., a drug discovery and development company researching novel small molecules for use in CNS indications. The Company’s investment in Delix Therapeutics, Inc. does not provide it with significant influence over the investee. The investment does not have a readily determinable fair value and therefore will be measured at cost minus impairment adjusted by observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This investment will be measured at fair value on a nonrecurring basis when there are events or changes in circumstances that may have a significant adverse effect or require remeasurement. An impairment loss is recognized in the condensed consolidated statements of operations and comprehensive loss equal to the amount by which the carrying value exceeds the fair value of the investment. As of September 30, 2021, no impairment loss was recognized.
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5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
September 30,December 31,
20212020
UK R&D tax credit$6,664 $4,610 
Prepaid insurance premium4,469 3,154 
Prepaid research and development4,920 2,317 
VAT recoverable1,394 1,171 
Deferred offering costs228  
Other current assets1,058 796 
$18,733 $12,048 
6. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
September 30,December 31,
20212020
Lab equipment$304 $130 
Office equipment313 260 
Furniture and fixtures37 37 
Leasehold improvements6 6 
660 433 
Less: accumulated depreciation(305)(188)
$355 $245 
Depreciation and amortization expense were less than $0.1 million and $0.1 million for the three months and nine months ended September 30, 2021, respectively. Depreciation and amortization expense were less than $0.1 million and $0.1 million for the three months and nine months ended September 30, 2020, respectively.
7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
September 30,December 31,
20212020
Accrued research and development expense$2,233 $720 
Accrued professional expenses768 701 
Accrued compensation and benefit costs2,026 1,687 
Payroll tax payable530 384 
Income taxes payable581 243 
Other liabilities443 413 
$6,581 $4,148 
8. Convertible Notes
On August 28, 2019, the Company entered into convertible note agreements for a total additional principal amount of $18.4 million (£15.0 million). The convertible notes issued in 2019 are collectively
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referred to as the “2019 Convertible Notes”. The 2019 Convertible Notes bore interest at 3% per annum and were payable concurrently with repayment of the principal amount. No repayment of principal or interest was due until maturity, which occurred 12 months after issuance of the 2019 Convertible Notes. Under the agreement, the 2019 Convertible Notes automatically convert (i) upon the completion of a Qualified Financing (as defined in the 2019 Convertible Notes); or (ii) if the noteholder majority approves a Non-Qualified Financing (as defined in the 2019 Convertible Notes) which constitutes a conversion event, which is triggered at a 15% discount of the per share price of the securities sold in either a Qualified Financing or Non-Qualified Financing (each as defined in the 2019 Convertible Notes).
On April 17, 2020, upon the Series B convertible preferred share financing, which constituted a Qualified Financing under the terms of the 2019 Convertible Notes, the outstanding principal of the convertible notes of $18.4 million (£15.0 million) automatically converted into 1,723,263 Series B convertible preferred shares, and there was no outstanding balance of 2019 Convertible Notes as of September 30, 2021 and December 31, 2020.
The Company elected the fair value option to account for the 2019 Convertible Notes. The Company recorded the 2019 Convertible Notes at fair value and subsequently remeasured them to fair value at each reporting date. Changes in fair value were recognized as a component of other income (expense), net in the condensed consolidated statements of operations and comprehensive loss. The Company recognized losses in the condensed consolidated statements of operations and comprehensive loss of $1.8 million as a change in fair value of the convertible notes during the nine months ended September 30, 2020. No change in fair value of convertible notes was recognized during the three months ended September 30, 2020 as no convertible notes were outstanding during the three months ended September 30, 2020.
9. Convertible Preferred Shares
Prior to the IPO, the Company had issued convertible preferred shares, Series A convertible preferred shares and Series B convertible preferred shares.
In August 2017, the Company entered into a subscription and shareholders agreement, or the 2017 Agreements, pursuant to which the Company issued an aggregate of 2,650,980 convertible preferred shares for total proceeds of approximately $3.9 million and incurred issuance costs of $0.1 million, recorded as a reduction to convertible preferred shares.
The 2017 Agreements were amended and restated in September 2018, as so amended, the Amended 2018 Agreements. Pursuant to the Amended 2018 Agreements, the Company issued 7,131,525 Series A convertible preferred shares for an aggregate purchase price of $35.4 million and incurred issuance costs of $0.3 million, recorded as a reduction to convertible preferred shares.
On April 17, 2020, the Company closed a Series B funding round to secure an additional $80.0 million of funding, including the conversion of the 2019 Convertible Notes (see Note 8), through the issuance of Series B convertible preferred shares. The Company received $56.3 million in cash proceeds upon the issuance of 4,487,533 Series B convertible preferred shares in April 2020 and an additional $5.3 million upon the issuance of a further 425,871 Series B convertible preferred shares in August 2020 and incurred issuance costs of $0.3 million, recorded as a reduction to the convertible preferred shares during the nine months ended September 30, 2020. The 2019 Convertible Notes were converted into 1,723,263 Series B convertible preferred shares. The issuance price of the Series B convertible preferred shares was $1.42 per share.
Convertible preferred shares and Series A convertible preferred shares consisted of the following as of December 31, 2019 (in thousands, except for share amounts):
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SharesLiquidation PreferenceCarrying Value
AuthorizedOutstanding
Convertible preferred shares2,650,980 2,650,980 $3,865 $3,761 
Series A convertible preferred shares7,131,525 7,131,525 35,414 35,147 
9,782,505 9,782,505 $39,279 $38,908 
Upon closing of the IPO, the convertible preferred shares and Series A convertible preferred shares as of December 31, 2019, together with the Series B convertible preferred shares issued during the nine months ended September 30, 2020, were converted to 16,419,172 ordinary shares. The holders of the Company’s convertible preferred shares, Series A and Series B convertible preferred shares had certain voting, dividend, and redemption rights, as well as liquidation preferences and conversion privileges. All rights, preferences, and privileges associated with the convertible preferred shares, Series A convertible preferred shares and Series B convertible preferred shares were terminated at the time of the Company’s IPO in conjunction with the conversion of all outstanding shares of convertible preferred shares, Series A convertible preferred shares and Series B convertible preferred shares into ordinary shares.
10. Ordinary Shares
In August 2017, the Company issued 10,551,166 ordinary shares for services rendered to the Company at a nominal value of £0.008 per share. In connection with the issuance of convertible preferred shares in August 2017, vesting conditions were placed on the 10,551,166 shares. These shares vested as follows: 25% of the shares held by certain of the founders vested on August 17, 2017; 25% of the shares vested on August 17, 2018; and 50% of shares vested in twenty-four equal monthly installments from August 17, 2018 through August 17, 2020. The fair value of the ordinary shares issued to certain of the founders in excess of the consideration initially paid was recognized as share-based compensation over the vesting period.
In October 2019, the Company issued 102,214 and 99,049 ordinary shares to a non-employee and an employee, with the vesting period of three and four years, respectively. The employee left the Company in July 2020 and 63,972 ordinary shares were forfeited and repurchased by the Company.
On September 22, 2020, the Company closed its IPO of ADSs representing its ordinary shares and issued and sold 8,625,000 ADSs at a public offering price of $17.00 per ADS, resulting in net proceeds of approximately $132.8 million after deducting underwriting fees and offering costs. Upon the closing of the IPO, the convertible preferred shares and Series A convertible preferred shares and Series B convertible preferred shares were converted to 16,419,172 ordinary shares.
On May 4, 2021, the Company sold 4,000,000 ordinary shares in connection with its follow-on offering. On May 19, 2021, the underwriters exercised their option to purchase an additional 600,000 ordinary shares. This capital raise resulted in net proceeds of approximately $154.8 million after deducting underwriting fees and offering costs.
In the nine months ended September 30, 2021, the Company issued in total 1,188,242 ordinary shares to settle share options exercised by employees and non-employees, of which 232,227 ordinary shares related to options exercised in 2020, with subsequent share issuances in 2021. 59,900 options were exercised at nominal value on September 30, 2021 with the associated ordinary shares subsequently issued on October 1, 2021, hence, they are not included in the total of 1,188,242 ordinary shares above.
In the nine months ended September 30, 2021, 56,887 restricted share units vested,of which, 12,607 ordinary shares were issued in settlement of the vested restricted shares units on August 13, 2021. No ordinary shares were issued for the vested restricted share units of 44,280 in May and August 2021.
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Each ordinary share entitles the holder to one vote on all matters submitted to a vote of the Company’s shareholders. Ordinary shareholders are entitled to receive dividends, if any, as may be declared by the board of directors. Through September 30, 2021, no cash dividends had been declared or paid by the Company.
11. Share-Based Compensation
2017 Equity Incentive Plan
Under the Company’s prior shareholder and subscription agreements, the Company was authorized to issue restricted shares, restricted share units, as well as options, as incentives to its employees, non-employees and members of its board of directors. To the extent such incentives are in the form of share options, the options are granted pursuant to the terms of the 2017 Equity Incentive Plan, or the 2017 Plan. In July 2019, the Company’s board of directors adopted the 2017 Plan. The 2017 Plan provides for the grant of Enterprise Management Incentive, or EMI, options, to its UK employees, for the grant of options to its U.S. employees and non-employees of the Company. The 2017 Plan is administered by the board of directors.
As of September 30, 2021, the Company was authorized under the shareholder agreements to issue a total of 13,601,246 ordinary shares, including shares underlying options granted pursuant to the 2017 Plan. Forfeitures are accounted for as they occur. As of September 30, 2021, there were 445,943 shares available for issuance as incentives to the Company’s employees and directors, which includes shares underlying options that may be granted from time to time subsequent to September 30, 2021 under the terms of the 2017 Plan. 12,607 ordinary shares were issued for 56,887 restricted share units that vested during the nine months ended September 30, 2021.
Options granted under the 2017 Plan typically vest over a three or four-year service period with 33.3% and 25%, respectively, of the award vesting on the first anniversary of the commencement date and the balance vesting monthly over the remaining years. Restricted share units granted under the 2017 Plan, typically vest over a four-year service period with 25% of the award vesting on the first anniversary of the commencement date. The options granted by the Company prior to April 17, 2020 contain provisions that to the extent then outstanding, they will be subject to accelerated vesting upon the occurrence of a Sale, Asset Sale or listing of the Company's ordinary shares on any stock exchange, and any such unvested options accordingly became fully vested upon a Listing (as such term is defined in the 2017 Plan). 1,015,813 options granted to the President and Chief Business Officer of the Company on May 19, 2020 became fully vested on August 17, 2020, resulting in a recognition of $9.4 million in share-based compensation expense, including $2.4 million in research and development expenses and $7.0 million in general and administrative expenses in the three and nine months period ended September 30, 2020 .
The options granted on June 30, 2020 are subject to 25% vesting upon the earlier occurrence of (i) the one year anniversary of the date of grant, or (ii) the date of the listing of the Company's ordinary shares on any stock exchange, followed by straight line vesting for three years for the remaining 75% of the allocation until vested in full.
The restricted share units granted on June 30, 2020 are subject to 25% vesting upon the earlier of (i) the one year anniversary of the date of grant, or (ii) the first day following the six-month anniversary of the listing of the Company's ordinary shares on any stock exchange on which the closing price of the shares is 20% higher than the listing price for at least five consecutive trading days, provided the Company is in a trading window permitted by the Company’s Dealing Code. The remainder vests at 6.25% on the first day of the month that is three months following that in which the initial vesting date occurs, and on the expiry of each subsequent three-month period thereafter for 11 such periods. Options granted under the 2017 Plan generally expire 10 years from the date of grant.
2020 Share Option Plan
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In September 2020, the Company’s board of directors adopted, and the Company’s shareholders approved, the 2020 Share Option Plan, or (the “2020 Plan”), which became effective upon the effectiveness of the Company’s Registration Statement on Form F-1 in connection with the IPO. The 2020 Plan allows the compensation and leadership development committee to make equity-based and cash-based incentive awards to the Company’s officers, employees, directors and other key persons (including consultants). As of September 30, 2021, the Company has not granted any cash-based incentive awards.
The Company initially reserved 2,074,325 of its ordinary shares for the issuance of awards under the 2020 Plan. The 2020 Plan provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2022, by up to 4% of the outstanding number of ordinary shares on the immediately preceding December 31, or such lesser number of shares as determined by our compensation and leadership development committee. This number is subject to adjustment in the event of a sub-division, consolidation, share dividend or other change in our capitalization. The total number of ordinary shares that may be issued under the 2020 Plan was 2,074,325 shares as of September 30, 2021, of which 494,809 shares remained available for future grants.
During the nine months ended September 30, 2021 and 2020, the Company granted options to purchase 752,702 and 3,150,360 ordinary shares to employees and non-employees, respectively.
Ordinary Shares
A summary of the changes in the Company’s unvested ordinary shares during the nine months ended September 30, 2021 are as follows:
Number of SharesWeighted Average Grant Date Fair Value
Unvested and Outstanding as of December 31, 202013,757 $2.36 
Granted  
Vested(13,757)2.36 
Forfeited  
Unvested and Outstanding as of September 30, 2021
 $ 
The total fair value of vested shares was less than $0.1 million and $1.2 million for the nine months ended September 30, 2021 and 2020, respectively.
Restricted Share Units
A summary of the changes in the Company’s unvested restricted share units during the nine months ended September 30, 2021 are as follows:
Number of SharesWeighted Average Grant Date Fair Value
Unvested and Outstanding as of December 31, 2020217,482 $10.19 
Granted  
Vested(56,887)10.19 
Forfeited  
Unvested and Outstanding as of September 30, 2021
160,595 $10.19 
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As of September 30, 2021, there was $1.6 million of unrecognized compensation cost related to unvested restricted share units, which is expected to be recognized over a weighted-average period of 2.8 years. The exercise price of restricted share units is at a nominal value less than £0.01 per share.
12,607 ordinary shares were issued for 56,887 restricted share units that vested during the nine months ended September 30, 2021.
Share Options
The following table summarizes the Company’s share options activity for the nine months ended September 30, 2021:
Number of SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 20204,430,340 $5.61 9.22$186,426 
Granted752,702 $