SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
⊠ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 001-39522
COMPASS Pathways plc
(Exact name of registrant as specified in its charter)
|England and Wales||Not Applicable|
|(State or other jurisdiction of|
incorporation or organization)
33 Broadwick Street
London W1F 0DQ
(Address of principal executive offices, zip code)
+1 (716) 676-6461
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
|Title of Each Class|| ||Trading Symbol|| ||Name of each exchange on which registered|
American Depositary Shares, each representing one ordinary share, par value of £0.008 per share
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|Large accelerated filer||☒||Accelerated filer ||☐|
|Non-Accelerated filer||☐||Smaller reporting company||☒|
|Emerging growth company||☐|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had 42,522,397 shares of common stock outstanding as of August 3, 2022.
TABLE OF CONTENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the “Securities Act,” and Section 21E of the Securities Exchange Act of 1934, as amended, or the “Exchange Act”. Forward-looking statements generally relate to future events or our future financial or operating performance. All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q, including regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management, are forward-looking statements. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions. The forward-looking statements and opinions contained in this 10-Q are based upon information available to our management as of the date of this 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
•the timing, progress and results of our investigational COMP360 psilocybin therapy, 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;
•our reliance on the success of our investigational COMP360 psilocybin therapy;
•the timing, scope or likelihood of regulatory filings and approvals;
•our expectations regarding the size of the eligible patient populations for COMP360 psilocybin therapy, if approved for commercial use;
•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 implement our business model and our strategic plans for our business and our investigational COMP360 psilocybin therapy;
•our ability to identify new indications for COMP360 beyond our current primary focuses on treatment-resistant depression, or TRD, post-traumatic stress disorder, or PTSD, and anorexia nervosa;
•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 Centres of Excellence and our ability to achieve our goals with respect to the Centre for Mental Health Research and Innovation;
•our commercialization, marketing and manufacturing capabilities and strategy;
•the pricing, coverage and reimbursement of our investigational COMP360 psilocybin therapy, if approved;
•the scalability and commercial viability of our manufacturing methods and processes;
•the rate and degree of market acceptance and clinical utility of our investigational 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;
•the scope of protection we and any current or future licensors or collaboration partners are able to establish and maintain for intellectual property rights covering COMP360;
•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;
•the effectiveness of our internal control over financial reporting;
•our estimates regarding expenses, capital requirements and needs for and ability to raise additional financing;
•our ability to effectively manage our anticipated growth;
•our ability to attract and retain qualified employees and key personnel;
•the effect of global financial, economic and geopolitical events, including fluctuations in the stock market, rising interest rates, foreign exchange fluctuations and inflation, on our business;
•the effect of the ongoing COVID-19 pandemic, including any future mitigation efforts and current or future economic effects, on any of the foregoing or other aspects of our business or operations;
•whether we are classified as a controlled foreign corporation, or CFC, or a passive foreign investment company, or PFIC, under the Internal Revenue Code of 1986, as amended, for current and future periods; and
•the future trading price of the ADSs and impact of securities analysts’ reports on these prices.
We caution you that the foregoing list may not contain all of the forward-looking statements made in this Form 10-Q.
You should not rely upon forward-looking statements as predictions of future events, which speak only as of the date made. We have based the forward-looking statements contained in this Quarterly Report on Form 10-Q primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, results of operations and prospects. The outcomes of the events described in these forward-looking statements are subject to risks, uncertainties and other factors described in the section titled “Risk Factors” in Part II, Item 1A, of this 10-Q and our other filings with the Securities and Exchange Commission, or the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward-looking statements contained in this Quarterly Report on Form 10-Q. We cannot assure you that the results, events and circumstances reflected in the forward-looking statements will be achieved or occur, and actual results, events or circumstances could differ materially from those described in the forward-looking statements. Except as otherwise required by the securities laws of the United States, we disclaim any obligation to subsequently revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events.
SUMMARY OF THE MATERIAL RISKS ASSOCIATED WITH OUR BUSINESS
Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks and uncertainties include, but are not limited to, the following:
•We are a clinical-stage mental health care company and have incurred significant losses since our inception. We expect to incur losses for the foreseeable future and may never achieve or maintain profitability;
•We will need substantial additional funding to complete the development and commercialization of our investigational COMP360 psilocybin therapy or any future therapeutic candidates. Failure to obtain additional funding when needed or on favorable terms may force us to delay, limit or terminate certain or all of our product discovery, therapeutic development, research operations or commercialization efforts;
•Raising additional capital may cause dilution to holders of our ordinary shares and ADSs, restrict our operations or require us to relinquish rights to COMP360 or any future therapeutic candidates;
•We are dependent on the successful development of our investigational COMP360 psilocybin therapy. We cannot give any assurance that COMP360 will successfully complete clinical trials or receive regulatory approval, which is necessary before it can be commercialized;
•COMP360 is, and any future therapeutic candidates we may develop in the future may be, subject to controlled substance laws and regulations in the jurisdictions where our products, if approved, may be marketed, and failure to comply with these laws and regulations, or the cost of compliance with these laws and regulations, may adversely affect the results of our business operations , both during clinical development and post approval, and our financial condition. In addition, during the review process of COMP360, and prior to approval, the U.S. Food and Drug Administration, or FDA and/or other regulatory bodies may require additional data, including with respect to whether COMP360 has abuse or misuse potential, which may delay approval and any potential rescheduling process;
•COMP360 contains controlled substances, the use of which may generate public controversy. Adverse publicity or public perception regarding our investigational COMP360 psilocybin therapy, in particular, and psilocybin-based therapies, in general, or our current or future investigational therapies using psilocybin may negatively influence the success of these therapies;
•Clinical drug development is a lengthy and expensive process with uncertain timelines and uncertain outcomes. If clinical trials of COMP360 psilocybin therapy or any future therapeutic candidates are prolonged or delayed, we or our current or future collaborators may be unable to obtain required regulatory approvals, and therefore we will be unable to commercialize our investigational COMP360 psilocybin therapy or any future therapeutic candidates on a timely basis or at all, which will adversely affect our business;
•COMP360 psilocybin therapy and any future therapeutic candidates we may develop may have serious adverse, undesirable or unacceptable side effects which may delay or prevent marketing approval. If such side effects are identified during the development of COMP360 psilocybin therapy or any future therapeutic candidates or following approval, if any, we may need to abandon our development of such therapeutic candidates, the commercial profile of any approved label may be limited, or we may be subject to other significant negative consequences;
•Research and development of drugs targeting the central nervous system is particularly difficult, which makes it difficult to predict and understand why the drug has a positive effect on some patients but not others;
•We have never commercialized a therapeutic candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize our therapies on our own or with suitable collaborators;
•The future commercial success of our investigational COMP360 psilocybin therapy or any future therapeutic candidates will depend on the degree of market access and acceptance of our potential therapies among healthcare professionals, patients, healthcare payors, health technology assessment bodies and the medical community at large;
•Our business and commercialization strategy depends on our ability to identify, qualify, prepare, certify and support third-party therapy sites offering any approved therapy. If we are unable to do so, our commercialization prospects would be limited and our business, financial condition and results of operations would be harmed;
•We currently rely on qualified therapists working at third-party clinical trial sites to administer our investigational COMP360 psilocybin therapy in our clinical trials and we expect this to continue upon approval, if any, of COMP360 or any future therapeutic candidates. If third-party sites fail to recruit and retain a sufficient number of therapists or effectively manage their therapists, our business, financial condition and results of operations would be materially harmed;
•Intellectual property rights of third parties could adversely affect our ability to develop or commercialize our investigational therapies, such that we could be required to litigate or obtain licenses from third parties in order to develop or market our investigational therapies. Such litigation or licenses could be costly or not available on commercially reasonable terms;
•Others may claim an ownership interest in our intellectual property and our product candidates, which could expose us to litigation and have a significant adverse effect on our prospects;
•Psilocybin and psilocin are listed as Schedule I controlled substances under the Comprehensive Drug Abuse Prevention and Control Act of 1970, also known as the Controlled Substances Act, or CSA, in the United States, and similar controlled substance legislation in other countries and any significant breaches in our compliance with these laws and regulations, or changes in the laws and regulations may result in interruptions to our development activity or business continuity;
•Enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our investigational COMP360 psilocybin therapy or any future therapeutic candidates and could have a material adverse effect on our business;
•We rely on third parties to supply and manufacture the psilocybin and psilocin incorporated in COMP360 and expect to continue to rely on third parties to supply and manufacture any future therapeutic candidates, and we will rely on third parties to manufacture these substances for commercial supply, if approved. If any third-party provider fails to meet its obligations to manufacture COMP360 or our future therapeutic candidates, or fails to maintain or achieve satisfactory regulatory compliance, the development of such substances and the commercialization of any therapies, if approved, could be stopped, delayed or made commercially unviable, less profitable or may result in enforcement actions against us;
•There are a number of third parties who conduct investigator-initiated studies, or IISs, using COMP360 provided by us. We do not sponsor these IISs, and we encourage the open publication of all IIS findings. Any failure by a third party to meet its obligations with respect to the clinical development of our investigational COMP360 psilocybin therapy or any future therapeutic candidates may delay or impair our ability to obtain regulatory approval for COMP360. IISs of COMP360 or any future therapeutic candidates may generate clinical trial data that raises concerns regarding the safety or effectiveness of COMP360 and any data generated in IISs may not be predictive of the results in populations or indications in which we are conducting, or plan to conduct, clinical trials;
•A pandemic, epidemic, or outbreak of an infectious disease, or new variant of the ongoing COVID-19 pandemic, may materially and adversely affect our business, including our preclinical studies, clinical trials, third parties on whom we rely, our supply chain, our ability to raise capital, our ability to conduct regular business and our financial results;
•We face substantial competition and our competitors may discover, develop or commercialize therapies before or more successfully than us, which may result in the reduction or elimination of our commercial opportunities;
•Acquisitions and investments could result in operating difficulties, dilution and other harmful consequences that may adversely impact our business, financial condition and results of operations. Additionally, if we are not able to identify and successfully acquire suitable businesses, our operating results and prospects could be harmed;
•Our business is subject to economic, political, regulatory and other risks associated with international operations; and
•We previously identified and subsequently remediated material weaknesses in our internal control over financial reporting. We may identify future material weaknesses in our internal controls over financial reporting. If we are unable to remedy these material weaknesses, or if we fail to establish and maintain effective internal controls, we may be unable to produce accurate and timely financial statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and our ADS price.
PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COMPASS PATHWAYS PLC
Condensed Consolidated Balance Sheets
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)
|June 30,||December 31,|
|Cash and cash equivalents||$||207,177 ||$||273,243 |
|Restricted cash||104 ||104 |
|Prepaid income tax||— ||332 |
|Prepaid expenses and other current assets||24,713 ||21,621 |
|Total current assets||231,994 ||295,300 |
|Investment||470 ||525 |
|Property and equipment, net||681 ||398 |
|Operating lease right-of-use assets||3,087 ||3,696 |
|Deferred tax assets||1,994 ||766 |
|Other assets||410 ||213 |
|Total assets||$||238,636 ||$||300,898 |
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|Accounts payable||$||3,354 ||$||2,564 |
|Accrued expenses and other liabilities||7,710 ||10,308 |
|Operating lease liabilities - current||2,169 ||2,235 |
|Total current liabilities||13,233 ||15,107 |
|Operating lease liabilities - non-current||818 ||1,379 |
|Total liabilities||14,051 ||16,486 |
|Commitments and contingencies (Note 12)|
Ordinary shares, £0.008 par value; 42,522,397 and 42,019,874 shares authorized, issued and outstanding at June 30, 2022 and December 31, 2021, respectively
|440 ||435 |
Deferred shares, £21,921.504 par value; one share authorized, issued and outstanding at June 30, 2022 and December 31, 2021
|28 ||28 |
|Additional paid-in capital||451,453 ||444,750 |
|Accumulated other comprehensive (loss)/income||(15,487)||8,840 |
|Total shareholders' equity||224,585 ||284,412 |
|Total liabilities and shareholders' equity||$||238,636 ||$||300,898 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
COMPASS PATHWAYS PLC
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)
Three months ended June 30,
|Six months ended June 30,|
|Research and development||$||15,920 ||$||11,353 ||$||31,282 ||$||18,237 |
|General and administrative||11,336 ||8,175 ||21,394 ||14,893 |
| Total operating expenses||27,256 ||19,528 ||52,676 ||33,130 |
|LOSS FROM OPERATIONS:||(27,256)||(19,528)||(52,676)||(33,130)|
|OTHER INCOME (EXPENSE), NET:|
|Other income, net||240 ||1 ||374 ||2 |
|Foreign exchange gains (losses)||1,958 ||(550)||3,291 ||(1,193)|
|Benefit from R&D tax credit||4,077 ||2,558 ||6,999 ||4,115 |
| Total other income, net||6,275 ||2,009 ||10,664 ||2,924 |
|Loss before income taxes||(20,981)||(17,519)||(42,012)||(30,206)|
|Income tax expense||(56)||(9)||(196)||(37)|
|Other comprehensive (loss) income:|
|Foreign exchange translation adjustment||(17,134)||(355)||(24,327)||1,633 |
|Net loss per share attributable to ordinary shareholders—basic and diluted||$||(0.50)||$||(0.44)||$||(1.00)||$||(0.79)|
|Weighted average ordinary shares outstanding—basic and diluted||42,474,987||39,802,532||42,110,161||38,194,822|
The accompanying notes are an integral part of these condensed consolidated financial statements.
COMPASS PATHWAYS PLC
Condensed Consolidated Statements of Shareholders’ Equity
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)
ORDINARY SHARES £0.008
|DEFERRED SHARES ||ADDITIONAL PAID-IN CAPITAL||ACCUMULATED OTHER COMPREHENSIVE INCOME||ACCUMULATED DEFICIT||TOTAL SHAREHOLDERS' EQUITY|
£21,921.504 PAR VALUE
|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 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 |
|Balance at December 31, 2021||42,019,874 ||$||435 ||1 ||$||28 ||$||444,750 ||$||8,840 ||$||(169,641)||$||284,412 |
|Exercise of share options||376,158 ||4 ||— ||— ||393 ||— ||— ||397 |
|Vesting of restricted stock units||68,534 ||1 ||— ||— ||— ||— ||— ||1 |
|Share-based compensation expense||— ||— ||— ||— ||3,128 ||— ||— ||3,128 |
|Unrealized loss on foreign currency translation||— ||— ||— ||— ||— ||(7,193)||— ||(7,193)|
|Net loss||— ||— ||— ||— ||— ||— ||(21,171)||(21,171)|
|Balance at March 31, 2022||42,464,566 ||$||440 ||1 ||$||28 ||$||448,271 ||$||1,647 ||$||(190,812)||$||259,574 |
|Exercise of share options||55,727 ||— ||— ||— ||4 ||— ||— ||4 |
|Vesting of restricted stock units||2,104 ||— ||— ||— ||— ||— ||— ||— |
|Share-based compensation expense||— ||— ||— ||— ||3,178 ||— ||— ||3,178 |
|Unrealized loss on foreign currency translation||— ||— ||— ||— ||— ||(17,134)||— ||(17,134)|
|Net loss||— ||— ||— ||— ||— ||— ||(21,037)||(21,037)|
|Balance at June 30, 2022||42,522,397 ||$||440 ||1 ||$||28 ||$||451,453 ||$||(15,487)||$||(211,849)||$||224,585 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
COMPASS PATHWAYS PLC
Condensed Consolidated Statements of Cash Flows
(expressed in U.S. Dollars, unless otherwise stated)
|Six Months Ended June 30,|
|CASH FLOWS FROM OPERATING ACTIVITIES:|
|Adjustments to reconcile net loss to net cash used in operating activities|
|Depreciation and amortization||147 ||77 |
|Non-cash gain on foreign currency remeasurement||2,174 ||(253)|
|Non-cash share-based compensation||6,306 ||3,570 |
|Non-cash lease expenses||1,078 ||541 |
|Changes in operating assets and liabilities|
|Prepaid expenses and other current assets||(5,461)||(5,365)|
|Deferred and prepaid tax assets||(896)||(104)|
|Other assets||(409)||14 |
|Operating lease liabilities||(1,049)||(541)|
|Accounts payable||1,115 ||1,113 |
|Accrued expenses and other liabilities||(1,925)||(290)|
|Net cash used in operating activities||(41,128)||(31,481)|
|CASH FLOWS FROM INVESTING ACTIVITIES:|
|Purchases of property and equipment||(494)||(155)|
|Net cash used in investing activities||(494)||(155)|
|CASH FLOWS FROM FINANCING ACTIVITIES:|
|Proceeds of issuance of ordinary shares, net of issuance costs||— ||154,794 |
|Proceeds from exercise of share options||401 ||998 |
|Proceeds from vesting of restricted share units||1 ||— |
|Net cash provided by financing activities||402 ||155,792 |
|Effect of exchange rate changes on cash, cash equivalents and restricted cash||(24,846)||1,851 |
|Net (decrease)/increase in cash, cash equivalents and restricted cash||(66,066)||126,007 |
|Cash, cash equivalents and restricted cash, beginning of the period||273,347 ||190,356 |
|Cash, cash equivalents and restricted cash, end of the period||$||207,281 ||$||316,363 |
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:|
|Right-of-use assets obtained in exchange for new operating lease liabilities||$||822 ||$||1,049 |The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of each of the periods, shown above:
|Six Months Ended June 30,|
|Cash and cash equivalents||$||207,177 ||$||316,334 |
|Short-term restricted cash||104 ||29 |
|Total cash, cash equivalents and restricted cash||$||207,281 ||$||316,363 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
COMPASS PATHWAYS PLC
Notes to Condensed Consolidated Financial Statements
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 its investigational COMP360 psilocybin therapy through late-stage clinical trials in Europe and North America for patients with treatment-resistant depression.
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 intellectual property and 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, or ADSs, in connection with the Company’s initial public offering, or the IPO, in September 2020, or and its $154.8 million May 2021 follow-on offering. October 8, 2021, the Company entered into a Sales Agreement with Cowen and Company, LLC, or Cowen, under which the Company may issue and sell from time to time up to $150.0 million of its ADSs, each representing one ordinary share, through Cowen as the sales agent. Sales of the Company’s ADSs, if any, will be made at market prices. The Company has not yet sold any ADSs under this at-the-market offering. The Company has incurred recurring losses since its inception, including net losses of $42.2 million and $30.2 million for the six months ended June 30, 2022 and 2021, respectively. In addition, as of June 30, 2022, the Company had an accumulated deficit of $211.8 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 June 30, 2022 of $207.2 million will be sufficient to fund its operating expenses and capital expenditure requirements into 2024. We may raise additional capital through a combination of equity offerings, debt financings, collaborations, and other strategic transactions, including marketing, distribution or licensing arrangements. There can be no assurance that additional funding will be available on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations, and financial conditions.
The Company continues to assess its business plans and the additional 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. While many measures have been put in place to attempt to contain the spread of COVID-19 resurgences, including existing or future variants, no assurances can be given that the Company will avoid any future impact from the ongoing COVID-19 pandemic or the emergence of new variants, including any direct or indirect impacts arising as a result of downturns in business sentiment generally or in its sector in particular, impacts on global supply chains, or other effects. 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 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 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, 2021, 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 June 30, 2022, the results of its operations and comprehensive loss for the three months and six months ended June 30, 2022 and 2021 and its cash flows for the six months ended June 30, 2022 and 2021.
The results for the three months and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022, any other interim periods, or any future years or periods. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2021, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC, on February 24, 2022.
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 on 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 prepayment and accrual for research and development expenses, discount rates for leases, the fair value of ordinary shares before IPO, share-based compensation 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 as of June 30, 2022 and December 31, 2021 represents a collateral deposit for employee credit cards.
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 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 Measurements
Certain assets and liabilities of the Company are 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 carrying amounts reflected in the condensed consolidated balance sheets for the Company’s cash and cash equivalents, restricted cash, accounts payable and accrued expenses approximate fair value because of the short-term nature of these instruments.
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 equipment||5 years|
|Furniture and fixtures||3 years|
|Leasehold improvements||Shorter 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 six months ended June 30, 2022 and 2021.
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 manage its business as a single operating segment; however, the Company operates in two geographic regions: the United Kingdom, or 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, Prepayments and Accruals
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 prepayments and accruals 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 prepayments and accrued liabilities, 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 prepaid and accrued balances at the end of any reporting period. Actual results could
differ from the Company’s estimates. The Company’s historical prepayments and accrual estimates have not been materially different from the actual costs.
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.
On October 1, 2021, the Company launched the Share Incentive Plan, or the SIP, and Employee Share Purchase Plan, or the ESPP, through which employees can purchase shares at a discounted price. We estimated the fair value of stock options and shares to be issued under the SIP and ESPP using the Black-Scholes option-pricing model on the date of grant. The fair value of shares to be issued under these plans are recognized and amortized on a straight-line basis over the purchase period, which is generally six months.
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 9 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 sufficient 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. 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 the board of directors of the Company, 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 prior to the IPO. The grant date fair value 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 Company’s 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 day prior to the grant.
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 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.
Effective January 1, 2021, the Company adopted ASU No. 2016-02, Leases (Topic 842), as amended, using the modified retrospective method and utilizing the effective date as its date of initial application, with prior periods presented in accordance with previous guidance under ASC 840, Leases, or ASC 840. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and current and non-current lease liabilities, as applicable. Entities may elect not to separate lease and non-lease components. The Company has elected to account for lease and non-lease components together as a single lease component for all underlying assets and to allocate all the contract consideration to the lease component only. All the Company’s leases are classified as operating leases.
Lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts has not been readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. As the Company does not have a rating agency-based credit rating, quotes were obtained from lenders to establish an estimated secured rate to borrow based on Company and market-based factors as of the respective lease measurement dates. The Company has elected not to recognize leases with an original term of one year or less on the balance sheets. The Company typically only includes the non-cancelable lease term in its assessment of a lease arrangement unless there is an option to extend the lease that is reasonably certain of exercise. Prospectively, the Company will adjust the right-of-use assets for straight-line rent expense or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date.
Operating lease costs are recognized on a straight-line basis over the lease term, and they are categorized within research and development and general and administrative expenses in the condensed consolidated statements of operations and comprehensive loss. The operating lease cash flows are categorized under net cash used in operating activities in the condensed consolidated statements of cash flows.
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. The Company recorded foreign exchange gains of approximately $2.0 million and foreign exchange losses of approximately $0.6 million for the three months ended June 30, 2022 and 2021, respectively. For the six months ended June 30, 2022 and 2021, the Company recorded a foreign exchange gain of $3.3 million and a foreign exchange loss of $1.2 million respectively. These gains and losses arise from U.S. dollars which are held in a financial institution in one of our UK subsidiaries that has a functional currency of Pound Sterling.
For financial reporting purposes, the condensed consolidated financial statements of the Company have been presented in the U.S. dollar, 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 and shareholders’ equity 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, a component of shareholders’ equity.
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 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 benefit 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 June 30, 2022 and December 31, 2021, the Company has not identified any uncertain tax positions.
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 June 30, 2022 and December 31, 2021 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 credits 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 credits 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. In addition, the EU State Aid cap limits the total aid claimable in respect of a given project to €7.5 million which may impact the Company's ability to claim R&D tax credits in future. Further, the U.K. Finance Act of 2021 introduced a cap on payable credit claims under the SME Program in excess of £20,000 with effect from April 2021 by reference to, broadly, three times the total Pay As You Earn, or PAYE, and National Insurance Contributions, or NICs, liability of the company, subject to an exception which prevents the cap from applying. That exception requires the company to be creating, taking steps to create or managing intellectual property, as well as having qualifying research and development expenditure in respect of connected parties, which does not exceed 15% of the total claimed. If such exception does not apply, this could restrict the amount of payable credit that we claim.
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 includes net loss as well as other changes in shareholders’ equity that result from transactions and economic events other than those with shareholders. For the three months and six months ended June 30, 2022 and 2021, the component of accumulated other comprehensive loss is 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 restricted shares and outstanding options. 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 February 2016, the Financial Accounting Standard Board, or the FASB, issued ASU No. 2016-02, Leases (Topic 842), as subsequently amended, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors), and replaces the existing guidance in ASC 840. The Company lost its Emerging Growth Company status on December 31, 2021 and adopted Topic 842 during the year-ended December 31, 2021, with an effective adoption date of January 1, 2021. Interim periods previously issued for fiscal year 2021 were reported under the legacy leasing guidance of ASC 840. The Company has elected to adopt ASC 842 by utilizing the effective date method, which resulted in a cumulative-effect adjustment to the Company’s consolidated balance sheets at January 1, 2021. The Company has elected to apply the package of three expedients to all of its leases requiring (1) no reassessment of whether any expired or existing contracts are or contain leases, (2) the lease classification of any expired or existing leases, or (3) the capitalization of initial direct costs for any existing leases.
Adoption of this standard resulted in the recording of operating lease right-of-use assets and current operating lease liabilities of $1.0 million, on the Company’s balance sheet on the effective date. The adoption of the standard did not have a material effect on the Company’s statements of operations and comprehensive loss, statements of cash flows or accumulated deficit. Refer to Note 11 for right-of-use assets and liabilities recorded during the periods ended June 30, 2022 and 2021 respectively.
In December 2019, 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.
3. Fair Value Measurements
There are no financial instruments measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021. Management believes that the carrying amounts of the Company’s condensed consolidated financial instruments, including cash and cash equivalents, restricted cash, accounts payable and accrued expenses approximate fair value due to the short-term nature of those instruments.
On March 6, 2020, the Company made a strategic investment of $0.5 million to acquire an 8% (on a fully diluted basis) shareholding in Delix Therapeutics, Inc., a drug discovery and development company researching novel small molecules for use in Central Nervous System, or CNS, indications. The Company’s investment in Delix Therapeutics, Inc. does not provide it with significant influence over the investee. The investment does not have a readily determinable fair value and therefore will be measured at cost minus impairment adjusted by observable price changes in orderly transactions for the identical or a similar investment of the same issuer. This investment will be measured at fair value on a nonrecurring basis when there are events or changes in circumstances that may have a significant adverse effect. An impairment loss is recognized in the condensed consolidated statements of operations and comprehensive loss equal to the amount by which the carrying value exceeds the fair value of the investment. As of June 30, 2022, no impairment loss was recognized.
5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
|June 30,||December 31,|
|UK R&D tax credit||$||15,157 ||$||9,587 |
|Prepaid insurance premium||961 ||3,359 |
|Prepaid research and development||5,754 ||4,562 |
|VAT recoverable||1,793 ||1,629 |
|Deferred offering costs||— ||840 |
|Security deposit||97 ||274 |
|Other current assets||951 ||1,370 |
|$||24,713 ||$||21,621 |
6. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
|June 30,||December 31,|
|Lab equipment||$||333 ||$||370 |
|Office equipment||440 ||315 |
|Furniture and fixtures||59 ||65 |
|Leasehold improvements||195 ||6 |
|1,027 ||756 |
|Less: accumulated depreciation||(346)||(358)|
|$||681 ||$||398 |
Depreciation and amortization expenses were less than $0.1 million and $0.1 million for the three months and six months ended June 30, 2022 respectively. For the three months and six months ended June 30, 2021, depreciation and amortization expenses were also less than $0.1 million and $0.1 million, respectively.
7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
|Accrued research and development expense||$||1,831 ||$||3,043 |
|Accrued professional expenses||1,555 ||1,386 |
|Accrued compensation and benefit costs||3,030 ||5,018 |
|Payroll tax payable||572 ||593 |
|Income taxes payable||2 ||— |
|Other liabilities||720 ||268 |
|$||7,710 ||$||10,308 |
8. Ordinary Shares
During the six months ended June 30, 2022, the Company issued in total 431,885 ordinary shares to settle share options exercised by employees and non-employees compared to 1,165,004 in the six months ended June 30, 2021. Of the shares
issued in the six months ended June 30, 2021, 232,227 were related to options exercised in 2020 for which shares were delivered in 2021.
During the six months ended June 30, 2022, a total of 70,638 ordinary shares were issued in settlement of restricted share units, of which 12,763 vested and were issued during the six months ended June 30, 2022 and 57,875 vested but had not been issued at December 31, 2021.
In the six months ended June 30,2021, 8,556 restricted share units vested but were not issued. No restricted share units vested and were issued in the six months ended June 30, 2021.
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.
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 June 30, 2022, no cash dividends had been declared or paid by the Company.
9. Share-Based Compensation
2017 Equity Incentive Plan
Under the Company’s historical 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 were in the form of share options, the options were 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 provided 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 was administered by the board of directors.
As of June 30, 2022, the Company was authorized to issue a total of 1,810,688 ordinary shares underlying outstanding options granted under the 2017 Plan prior to the IPO.
Options granted under the 2017 Plan, typically vest over a 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 and quarterly thereafter. or
The options granted before June 30, 2020 were subject to 100% vesting upon the date of the listing of the Company's ordinary shares on any stock exchange. The options granted on June 30, 2020 were 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. Upon completion of the IPO, 866,268 options vested due to the accelerated vesting and a total of $3.5 million was immediately recognized in share-based compensation expense, including $1.4 million in research and development expenses and $2.1 million in general and administrative expenses.
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. Options granted under the 2017 Plan generally expire 10 years from the date of grant.
2020 Employee Share Purchase Plan
The Company’s 2020 Employee Share Purchase Plan, or the ESPP, was adopted by the Board in September 2020 and approved by shareholders in September 2020 and became effective upon the effectiveness of the Company’s Registration Statement on Form F-1 in connection with the IPO. The ESPP initially reserves and authorizes the issuance of up to a total of 340,053 ordinary shares to participating employees. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2022 and each January 1 thereafter through
January 1, 2022, by the lesser of (i) 1% of the outstanding number of ordinary shares on the immediately preceding December 31 or (ii) 510,058 ordinary shares. The number of shares reserved under the ESPP is subject to change in the event of a share split, share dividend or other change in our capitalization.
On October 1, 2021, the Company launched the SIP and the ESPP, through which employees can purchase shares at a discounted price. At the end of six months, shares will automatically be purchased at the lower of the opening and closing price of the shares for the saving period minus a 15% discount.
2020 Share Option Plan
In September 2020, the Company’s board of directors adopted, and the Company’s shareholders approved, the 2020 Share Option and Incentive 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).
Options granted under the 2020 Plan generally expire 10 years from the date of grant and typically vest over a 4 year service period with 25% of the vesting on the first anniversary of the commencement date and the balance vesting monthly over the remaining years.
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 3,755,119 shares as of June 30, 2022, of which 1,037,283 shares remained available for future grant.
The options granted in February 2022 under the 2020 Plan to employees generally expire 10 years from the date of grant. There are three potential vesting conditions for the February 2022 grants including: i) 25% per year over four year service period, ii) four year service period with 25% of the vesting on the first anniversary of the commencement date and the balance vesting monthly over the remaining years; and iii) monthly vesting over four year service period.
During the six months ended June 30, 2022 and 2021, the Company granted options to purchase 1,217,818 and 312,132 ordinary shares to employees and non-employees, respectively.
Restricted Share Units
A summary of the changes in the Company’s unvested restricted share units during the six months ended June 30, 2022 are as follows:
|Number of Shares||Weighted Average Grant Date Fair Value|
|Unvested and Outstanding as of December 31, 2021||115,140 ||$||10.19 |
|Granted||92,590 ||$||13.13 |
|Forfeited||— ||$||— |
Unvested and Outstanding as of June 30, 2022
|186,411 ||$||11.86 |
As of June 30, 2022 and 2021, there was $2.0 million and $1.8 million of unrecognized compensation cost related to unvested restricted share units, respectively, which is expected to be recognized over a weighted-average period of 2.95 years and 3.05 years, respectively. The exercise price of restricted share units is at a nominal value less than £0.01 per share.
The following table summarizes the Company’s share options activity for the six months ended June 30, 2022:
|Number of Shares||Weighted Average Exercise Price||Weighted Average Remaining Contractual Term (Years)||Aggregate Intrinsic Value (in thousands)|
Outstanding as of December 31, 2021
|3,915,503 ||$||13.53 ||8.64||$||51,162 |
|Granted||1,217,818 ||$||13.97 |
Outstanding as of June 30, 2022
|4,340,885 ||$||14.62 ||8.63||$||18,283 |
Exercisable as of June 30, 2022
|1,897,406 ||$||5.62 ||7.97||$||15,618 |
Unvested as of June 30, 2022
|2,443,479 ||$||19.88 ||9.14||$||2,665 |
The aggregate intrinsic value of options exercised during the six months ended June 30, 2022 and 2021 was $5.3 million and $39.2 million, respectively.
The aggregate intrinsic value of share options is calculated as the difference between the exercise price of the share options and the fair value of the Company’s ordinary shares for those share options that had exercise prices lower than the fair value of the Company’s ordinary shares.
The weighted average grant-date fair value of share options granted was $10.67 and $25.29 per share during the six months ended June 30, 2022, and 2021, respectively.
As of June 30, 2022 and 2021, there was $29.7 million and $21.5 million of unrecognized compensation cost related to unvested share options, which is expected to be recognized over a weighted-average period of 2.93 years and 3.20 years, respectively.
Share Option Valuation
The weighted-average assumptions used in the Black-Scholes option pricing model to determine the fair value of the share options granted to employees and directors during the six months ended June 30, 2022, and 2021 were as follows:
|Three Months Ended June 30,|
Six Months Ended June 30,
|Expected option life (years)||5.50 years||6.00 years||5.85 years||6.05 years|
|Expected volatility||81.17 ||%||67.40 ||%||80.29 ||%||67.70 ||%|
|Risk-free interest rate||3.35 ||%||1.08 ||%||1.80 ||%||0.83 ||%|
|Expected dividend yield||— ||%||— ||%||— ||%||— ||%|
|Fair value of underlying ordinary shares||$||10.08 ||$||36.13 ||$||15.01 ||$||41.80 |
Share-based Compensation Expense
Share-based compensation expense recorded as research and development and general and administrative expenses is as follows (in thousands):
|Three Months Ended June 30,||Six Months Ended June 30,|
|Research and development||1,830 ||934 ||3,622 ||1,735 |
|General and administrative||1,348 ||970 ||2,684 ||1,835 |
|Total stock based compensation expense||$||3,178 ||$||1,904 ||$||6,306 ||$||3,570 |
10. Net Loss Per Share
Basic and diluted net loss per share attributable to ordinary shareholders was calculated as follows (in thousands, except share and per share amounts):
|Three Months Ended June 30,||Six Months Ended June 30,|
|Net loss attributable to ordinary shareholders - basic and diluted||$||(21,037)||$||(17,528)||$||(42,208)||$||(30,243)|
|Weighted-average number of ordinary shares used in net loss per share - basic and diluted||42,474,987 ||39,802,532 ||42,110,161 ||38,194,822 |
|Net loss per share - basic and diluted||$||(0.50)||$||(0.44)||$||(1.00)||$||(0.79)|
The Company’s potentially dilutive securities, which include unvested ordinary shares, unvested restricted share units, and options granted, have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share. Therefore, the weighted-average number of ordinary shares outstanding used to calculate both basic and diluted net loss per share attributable to ordinary shareholders is the same. The Company excluded the following potential ordinary shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to ordinary shareholders for the three months and six months ended June 30, 2022, and 2021 because including them would have had an anti-dilutive effect:
|Three Months Ended June 30,||Six Months Ended June 30,|
|Unvested restricted share units||186,411 ||197,899 ||186,411 ||197,899 |
|Share options||4,340,885 ||3,744,871 ||4,340,885 ||3,744,871 |
|4,527,296 ||3,942,770 ||4,527,296 ||3,942,770 |
11. Right of use of assets
Eastbourne Terrace, London, UK
In November 2019, the Company entered into an operating lease located at 19 Eastbourne Terrace, London, UK. This lease commenced on January 1, 2020, and expired on December 31, 2021. Under the terms of the lease, the Company paid £780,000 per year, and paid a refundable deposit of £130,000 upon signing the agreement. Additionally, in February 2021, the Company entered into an Amendment for rental relief in January and February 2021 for a total of £32,500, due to extended periods working from home as a result of the COVID-19 pandemic.
New York, NY
In May 2019, the Company entered into a lease with BioLabs for 200 rentable square feet of office space at 180 Varick Street, New York, New York 10014, United States. The lease is cancellable with 30 days’ notice. This lease is accounted for as a short-term lease as the Company is not reasonably certain to extend the lease beyond twelve months and is therefore not recognized on the Company’s condensed consolidated balance sheets.
Soho, London, UK
In July 2021, the Company entered into a two-year operating lease with Fora Space Limited commencing on September 1, 2021. The noncancellable term is 24 months and there is no option to extend the lease. The recurring residency fee per month is £136,200, and the Company paid a refundable deposit of £136,200 at the execution of the agreement. Additionally, at the start of each calendar year, the monthly residency fee will be subject to an automatic inflation linked increase of the previous years’ amount.
San Francisco, CA
In August 2021, the Company entered into an operating lease commencing in August 2021 for approximately 2,526 rentable square feet located in San Francisco, California. The lease is set to expire on August 31, 2022 with no option to renew. The total monthly rent for the lease term is $10,000 per month, and the Company paid $9,000 of advanced rent upon lease execution. Additionally, the Company paid a refundable security deposit of $20,000 upon execution of the lease.
Denmark Hill, London, UK
In March 2022, the Company entered into an agreement for a lease with South London and Maudsley NHS Foundation Trust for land and buildings at 5 Windsor Walk, Maudsley Hospital, Denmark Hill, London, UK. The lease commenced on June 21, 2022 and has a contractual term of five years. The rent is £180,000 per year, with no deposit payable, and payment dates occurring once per quarter.
The following table summarizes our costs included in our condensed consolidated statements of operations and comprehensive loss related to right of use lease assets we have entered into through June 30, 2022 (in thousands):
|Six Months Ended June 30,|
|Operating lease cost||$||1,151||$||541 |
|Variable lease cost||—||(45)|
|Short-term lease cost||86 ||86 |
|Cash paid for amounts included in the measurement of lease liabilities:||$||1,122 ||$||541 |
|Operating cash flows used in operating leases||822 ||— |
|Weighted average remaining lease term (in years)||1.83 years||0.75 years|
|Weighted average discount rate||5.52 ||%||5.00 ||%|
The following table summarizes the future minimum lease payments due under operating leases as of June 30, 2022, (in thousands):
|Total lease payments||$||3,153 |
|Less: imputed interest||(166)|
12. Commitments and Contingencies
From time to time, the Company may be a party to litigation or subject to claims incident to the ordinary course of business. The Company was not a party to any material litigation and did not have material contingency reserves established for any liabilities as of June 30, 2022, or 2021.
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnification. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.
In accordance with its Articles of Association, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date, and the Company has director and officer insurance that may enable it to recover a portion of any amounts paid for future potential claims.
13. Employee Benefit Plans
In the UK, the Company makes contributions to private defined contribution pension schemes on behalf of its employees. The Company paid less than $0.1 million in contributions for the six months ended June 30, 2022, and 2021.
In the United States, the Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. This plan covers substantially all U.S. employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company paid less than $0.1 million in contributions in the six months ended June 30, 2022 and 2021, respectively.
14. Subsequent Events
Appointment of New CEO and Issuance of Equity Awards
Effective August 1, 2022, the Company appointed Kabir Nath its Chief Executive Officer and as a member of its board of directors. The Company entered into an employment agreement, or the Employment Agreement, effective as of August 1, 2022, with Mr. Nath.
Pursuant to the Employment Agreement, Mr. Nath is entitled to an annual base salary of $580,000 (upon Mr. Nath's relocation to the United Kingdom, such salary will be paid in pound sterling, or GBP. and be equal to the greater of (i) £431,000 GBP or (ii) the GBP equivalent of $580,000 U.S. dollars calculated at the then-prevailing exchange rate) and is eligible to earn an annual incentive bonus, with a target bonus amount of 60% of his then-current annual base salary (and the ability to earn up to 125% of that target bonus amount in certain circumstances) as determined by the Board of Directors in its discretion. In addition, Mr. Nath will receive (i) a housing stipend of £12,000 per month through August 2023; (ii) a one-time reimbursement payment of up to $5,000 for attorneys’ fees; and (iii) a one-time cash payment of $250,000 when Mr. Nath relocates to the United Kingdom. Mr. Nath will receive no additional compensation for his services as a director of the Company.
On August 1, 2022, the Company granted Mr. Nath a non-qualified share option to purchase up to 600,000 ordinary shares as an inducement grant at an exercise price per share equal to $14.94, or the non-qualified share option, the closing price of the Company’s American Depositary Shares on the Nasdaq Global Select Market on the grant date. The non-qualified share option has a 10 year term and vests as to one-fourth on August 1, 2023 (the first anniversary of his employment commencement date) and as to the remaining three-fourths in equal monthly installments over the following 36 months, subject to Mr. Nath remaining an employee of the Company on the applicable vesting dates. The non-qualified share option has other terms that mirror those of non-qualified share options granted under COMPASS’s 2020 Plan and COMPASS’s standard form of non-qualified share option agreement. In addition, on August 1, 2022, the Company granted Mr. Nath 50,000 restricted share units under the Company’s 2020 Plan, which will vest over four years in equal annual installments commencing on August 1, 2023, subject to Mr. Nath remaining an employee of the Company on the applicable vesting dates.
Transition of George Goldsmith to Executive Chairman
Effective August 1, 2022, the Company appointed George Goldsmith as the Company’s Executive Chairman to facilitate the transition to a new Chief Executive Officer. Mr. Goldsmith will serve as Executive Chairman until December 31, 2022 and thereafter will remain chairman of the Board of Directors.
In connection with his appointment as Executive Chairman, Mr. Goldsmith and the Company entered into an amendment to his employment agreement dated September 14, 2020, or the Amended Employment Agreement. Pursuant to the terms of
the Amended Employment Agreement, Mr. Goldsmith will serve as Executive Chairman until December 31, 2022, at which time his employment will end, without the need for notice by either party.
Pursuant to the Amended Employment Agreement, Mr. Goldsmith is entitled to an annual base salary of £346,800 (approximately $414,200) and is eligible to receive an annual incentive bonus for the year ending December 31, 2022, with a target bonus amount of 55% of his base salary (and the ability to earn up to 125% of that target bonus amount in certain circumstances), notwithstanding the termination of his employment prior to the date of the bonus payment, provided, however, that such bonus amount shall be pro-rated to reflect his reduced salary for the period from August 1, 2022 to December 31, 2022. During this time, Mr. Goldsmith will receive no additional compensation for his services as a director of the Company.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the condensed consolidated financial statements and the related notes to those statements included earlier in this Quarterly Report on Form 10-Q. In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, beliefs and expectations that involve risks and uncertainties. Our actual results and the timing of events could differ materially from those discussed in these forward-looking statements. Important factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II, Item 1A. “Risk Factors” and the section titled “Special Note Regarding Forward-Looking Statements.”
References to “we,” “our,” “us” and “the Company” refer to COMPASS Pathways plc.
We are a mental health care company dedicated to accelerating patient access to evidence-based innovation in mental health. We are motivated by the need to find better ways to help and empower people suffering with mental health challenges who are not helped by existing therapies, and are pioneering the development of a new model of psilocybin therapy, in which COMP360 psilocybin is administered in conjunction with psychological support, which we refer to as COMP360 psilocybin therapy. Our initial focus is on treatment-resistant depression, or TRD, a subset of major depressive disorder, or MDD, comprising patients who are inadequately served by the current treatment paradigm. Early signals from academic studies, using formulations of psilocybin not developed by us, have shown that psilocybin therapy may have the potential to improve outcomes for patients suffering with TRD, with rapid reductions in depression symptoms and effects lasting up to six months, after administration of a single high dose. We have developed a proprietary, high-purity polymorphic crystalline formulation of psilocybin, COMP360. In 2019, we completed a Phase I clinical trial administering COMP360, along with psychological support, to 89 healthy volunteers. In this trial, we observed that COMP360 was generally well-tolerated and supported continued progression of Phase IIb studies. On November 9, 2021, we announced positive topline results from our Phase IIb clinical trial evaluating COMP360 in conjunction with psychological support for the treatment of treatment-resistant depression. This is the largest, randomized, controlled, double-blind psilocybin therapy clinical trial ever completed. The topline results from the 233-participant trial showed a rapid and sustained response for patients receiving a single dose of COMP360 psilocybin with psychological support. The trial achieved its primary endpoint for the highest dose, with a 25mg dose of COMP360 demonstrating a statistically significant (p<0.001) and clinically relevant reduction in depressive symptom severity after three weeks compared with the COMP360 1mg arm. We believe that COMP360 psilocybin therapy – combining COMP360 psilocybin with psychological support from specially trained therapists – could offer a new approach to depression care. We anticipate the initiation of a Phase III program in the fourth quarter of 2022.
In the fourth quarter of 2021, we launched a Phase II clinical trial to assess the safety and tolerability of COMP360 psilocybin therapy in post-traumatic stress disorder, or PTSD. The study expands our research pipeline in COMP360 psilocybin therapy. It is a multicenter, fixed-dose open label study and will enroll 20 participants.
On March 24, 2022, we announced that we formed a long-term strategic partnership with South London and Maudsley NHS Foundation Trust, or SLaM and the Institute of Psychiatry, Psychology & Neuroscience, or IoPPN at King’s College London to launch The Centre for Mental Health Research and Innovation which will work to accelerate psychedelic research and develop new models of care for mental health in the UK. The Centre will accelerate research of emerging psychedelic
therapies, support therapist training and certification, evaluate real-world evidence, and prototype digital technologies to enable personalized, predictive and preventative care models.
On July 28, 2022, we announced that we launched a double-blind randomised controlled phase II clinical trial investigating the efficacy of COMP360 psilocybin, administered with psychological support, in people with anorexia nervosa. It is a multicenter study and will enroll 60 patients.
Since our formation, we have devoted substantially all of our resources to conducting preclinical studies and clinical trials, organizing and staffing our company, business planning, raising capital and establishing our intellectual property portfolio. We do not have any therapeutic candidates approved for sale and have not generated any revenue. We have funded our operations to date primarily with proceeds from the sale of convertible preferred shares, convertible loan notes, our initial public offering, or IPO, and our follow-on offering completed in May 2021, or Follow-On Offering, of American Depositary Shares, or ADSs, representing our ordinary shares in September 2020 and May 2021, respectively. Through June 30, 2022, we had received net cash proceeds of $116.4 million from sales of our convertible preferred shares and convertible loan notes, $132.8 million from sales of ADSs in our IPO and $154.8 million from sales of ADSs in our Follow-On Offering. In October 2021, we entered into a Sales Agreement with Cowen and Company, LLC, under which we may issue and sell from time to time up to $150.0 million of our ADSs at market prices. We have not yet sold any ADSs under this at-the-market facility.
We have incurred significant operating losses since our inception. We incurred total net losses of $42.2 million and $30.2 million for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, we had an accumulated deficit of $211.8 million. Our historical losses resulted principally from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. In the future, we intend to continue to conduct research and development, preclinical testing, clinical trials, regulatory compliance, market access, commercialization and business development activities that, together with anticipated general and administrative expenses, will result in incurring further significant losses for at least the next several years. Our operating losses stem primarily from development of our investigational COMP360 psilocybin therapy for TRD, and we expect they will continue to increase as we increase our headcount and further develop our investigational COMP360 psilocybin therapy candidate through clinical trials for TRD and studies for PTSD and anorexia nervosa, potentially including expanding into additional indications, and initiate preclinical and clinical development of additional programs for different therapeutic candidates, as well as using digital technologies and solutions to enhance our therapeutic offering. Furthermore, since the completion of our IPO, we have incurred additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from sales of therapeutic candidates, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances, however, that our current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all.
As of June 30, 2022, we had cash and cash equivalents of $207.2 million. We believe that our existing cash and cash equivalents will be sufficient for us to fund our operating expenses and capital expenditure requirements into 2024. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources—Funding Requirements” below.
While great progress has been made in the fight against the ongoing COVID-19 pandemic and most health measures put in place to attempt to contain the spread of COVID-19 have been lifted, it remains a global challenge. COVID-19 vaccines have been broadly distributed and administered in certain countries, but the COVID-19 pandemic and its effects continue to evolve. The Company is unable to predict the future path or potential rate of global or regional COVID-19 resurgences, including existing or future variants, or other public health crises. The exact timing and pace of the recovery is currently indeterminable as certain areas have experienced a resurgence of COVID-19 cases, and, throughout the course of the pandemic, new and more contagious variants of COVID-19 have been identified and spread significantly, resulting in additional restrictions put in place by certain governments around the world.
The COVID-19 pandemic has created uncertainties in the expected timelines for clinical stage companies. For example, COVID-19 delayed enrollment in and completion of our Phase IIb clinical trial of COMP360 psilocybin therapy. There can be no assurance that we will not experience additional enrollment delays in trials or studies. The ongoing COVID-19 pandemic or
other public health crises could in the future delay enrollment in and completion of our clinical trials, interrupt our clinical trial activities, our supply chain, our employees or the employees of research sites and service providers, such as therapists, suppliers, contract research organizations, or CROs, and contract manufacturing organizations, or CMOs.
Components of Our Results of Operations
To date, we have not generated any revenue and do not expect to generate any revenue from the sale of therapeutic candidates in the foreseeable future. If our development efforts for our investigational COMP360 psilocybin therapy are successful and result in regulatory approval of COMP360, we may generate revenue in the future.
Research and Development
Research and development expenses consist primarily of:
• development costs, including expenses incurred under agreements with CROs and CMOs, investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services, as well as manufacturing scale-up expenses and the cost of acquiring and manufacturing materials for preclinical studies and clinical trials and laboratory and trial site supplies and equipment;
• personnel expenses, including salaries, related benefits and travel expense for employees engaged in research and development functions;
• non-cash share-based compensation expenses resulting from equity awards granted to employees engaged in research and development functions; and
• other expenses, including costs of outside consultants, including their fees and related travel expenses, allocated facility-related expenses such as direct depreciation costs, allocated expenses for rent and maintenance of facilities and other operating costs.
We expense research and development costs as incurred. We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our condensed consolidated financ