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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission File Number: 001-39522
COMPASS Pathways plc
(Exact name of registrant as specified in its charter)
England and WalesNot Applicable
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
33 Broadwick Street
London W1F 0DQ
United Kingdom
(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
 
CMPS
 
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 filerAccelerated filer
Non-accelerated filerSmaller 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 42,576,544 shares of common stock outstanding as of November 2, 2022.
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Condensed Consolidated Balance Sheets As of September 30, 2022 and December 31, 2021
Condensed Consolidated Statements of Operations and Comprehensive Loss for The Three Months and Nine Months Ended September 30, 2022 and 2021
Condensed Consolidated Statements of Stockholders’ Equity for The Three and Nine Months Ended September 30, 2022 and 2021
Condensed Consolidated Statements of Cash Flows for The Nine Months Ended September 30, 2022 and 2021
Notes to Condensed Consolidated Financial Statements
28
113
114
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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, including the timing of the launch and completion of our Phase 3 clinical program for treatment-resistant depression, or TRD, 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 TRD, anorexia nervosa, and post-traumatic stress disorder, or PTSD;
our ability to identify, develop or acquire digital technologies to enhance our administration of our investigational COMP360 psilocybin therapy;
our ability to leverage our technology and drug development candidates to advance new psychedelic compounds in other areas of unmet mental health need;
our ability to successfully establish and maintain Centers of Excellence and our ability to achieve our goals with respect to the Center 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;
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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 and inflation, and foreign exchange fluctuations, particularly the Pound Sterling to U.S. Dollar, on our business;
the effect of the COVID-19 pandemic, including the emergence of any variants or 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 Quarterly Report on Form 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. 
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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. Our ability to raise additional funds may be adversely impacted by macroeconomic conditions and disruptions to and volatility in the credit and financial markets in the United States and worldwide. 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 or grant rights to develop and market products or therapeutic candidates that we would otherwise prefer to develop and market ourselves;
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 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, or changes in 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 any 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 COMP360, 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;
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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;
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. 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;
Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations. Economic uncertainty and worsening or deteriorating global economic conditions and financial market conditions may materially and adversely affect our business, including our ability to raise capital and our financial results;
A pandemic, epidemic, or outbreak of an infectious disease, or new variant of COVID-19, 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;
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 fail to 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.
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PART I—FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

COMPASS PATHWAYS PLC
Condensed Consolidated Balance Sheets
(unaudited)
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)
September 30,December 31,
20222021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents$173,076 $273,243 
Restricted cash155 104 
Prepaid income tax465 332 
Prepaid expenses and other current assets44,755 21,621 
Total current assets218,451 295,300 
NON-CURRENT ASSETS:
Investment432 525 
Property and equipment, net555 398 
Operating lease right-of-use assets2,338 3,696 
Deferred tax assets2,445 766 
Other assets299 213 
Total assets$224,520 $300,898 
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable$19,885 $2,564 
Accrued expenses and other liabilities7,817 10,308 
Operating lease liabilities - current1,831 2,235 
Total current liabilities29,533 15,107 
NON-CURRENT LIABILITIES
Operating lease liabilities - non-current425 1,379 
Total liabilities29,958 16,486 
Commitments and contingencies (Note 12)
SHAREHOLDERS' EQUITY:
Ordinary shares, £0.008 par value; 42,554,384 and 42,019,874 shares authorized, issued and outstanding at September 30, 2022 and December 31, 2021, respectively
440 435 
Deferred shares, £21,921.504 par value; one share authorized, issued and outstanding at September 30, 2022 and December 31, 2021
28 28 
Additional paid-in capital454,957 444,750 
Accumulated other comprehensive (loss)/income(30,643)8,840 
Accumulated deficit(230,220)(169,641)
Total shareholders' equity194,562 284,412 
Total liabilities and shareholders' equity$224,520 $300,898 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPASS PATHWAYS PLC
Condensed Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
(in thousands, except share and per share amounts)
(expressed in U.S. Dollars, unless otherwise stated)
Three months ended September 30,Nine months ended September 30,
2022202120222021
OPERATING EXPENSES:
Research and development$13,977 $12,197 $45,259 $30,434 
General and administrative11,559 9,571 32,953 24,464 
    Total operating expenses25,536 21,768 78,212 54,898 
LOSS FROM OPERATIONS:(25,536)(21,768)(78,212)(54,898)
OTHER INCOME, NET:
Other income, net3,206  3,580 2 
Foreign exchange gains1,096 3,364 4,387 2,171 
Benefit from R&D tax credit2,983 2,618 9,982 6,733 
    Total other income, net7,285 5,982 17,949 8,906 
Loss before income taxes(18,251)(15,786)(60,263)(45,992)
Income tax expense(120)(63)(316)(100)
Net loss(18,371)(15,849)(60,579)(46,092)
Other comprehensive loss:
Foreign exchange translation adjustment(15,156)(8,401)(39,483)(6,768)
Comprehensive loss(33,527)(24,250)(100,062)(52,860)
Net loss per share attributable to ordinary shareholders—basic and diluted$(0.43)$(0.38)$(1.43)$(1.17)
Weighted average ordinary shares outstanding—basic and diluted42,525,85541,708,22042,377,89539,378,824

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPASS PATHWAYS PLC
Condensed Consolidated Statements of Shareholders’ Equity
(unaudited)
(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 CAPITALACCUMULATED OTHER COMPREHENSIVE (LOSS)/ INCOMEACCUMULATED DEFICITTOTAL SHAREHOLDERS' EQUITY
PAR VALUE
£21,921.504 PAR VALUE
SHARESAMOUNTSHARESAMOUNTAMOUNTAMOUNTAMOUNTAMOUNT
Balance at December 31, 202035,930,331 $367 1 $28 $279,480 $14,585 $(97,899)$196,561 
Exercise of share options581,328 6 — — 992 — — 998 
Issuance of shares due to options exercised in previous year232,227 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, 202136,743,886 $376 1 $28 $282,135 $16,573 $(110,614)$188,498 
Issuance of ordinary shares, net of issuance costs4,600,000 51 — — 154,743 — — 154,794 
Exercise of share options351,449 4 — — 43 — — 47 
Share-based compensation expense— — — — 1,904 — — 1,904 
Unrealized loss on foreign currency translation— — — — — (355)— (355)
Net loss— — — — — — (17,528)(17,528)
Balance at June 30, 202141,695,335 $431 1 $28 $438,825 $16,218 $(128,142)$327,360 
Exercise of share options23,238 — — — 23 — — 23 
Vesting of restricted stock units12,607 — — — — — —  
Share-based compensation expense— — — — 2,287 — — 2,287 
Unrealized loss on foreign currency translation— — — — — (8,401)— (8,401)
Net loss— — — — — — (15,849)(15,849)
Balance at September 30, 202141,731,180 $431 1 $28 $441,135 $7,817 $(143,991)$305,420 
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ORDINARY SHARES £0.008
DEFERRED SHARESADDITIONAL PAID-IN CAPITALACCUMULATED OTHER COMPREHENSIVE (LOSS)/ INCOMEACCUMULATED DEFICITTOTAL SHAREHOLDERS' EQUITY
PAR VALUE
£21,921.504 PAR VALUE
SHARESAMOUNTSHARESAMOUNTAMOUNTAMOUNTAMOUNTAMOUNT
Balance at December 31, 202142,019,874 $435 1 $28 $444,750 $8,840 $(169,641)$284,412 
Exercise of share options376,158 4 — — 393 — — 397 
Vesting of restricted stock units68,534 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, 202242,464,566 $440 1 $28 $448,271 $1,647 $(190,812)$259,574 
Exercise of share options55,727 — — — 4 — — 4 
Vesting of restricted stock units2,104 — — — — — —  
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, 202242,522,397 $440 1 $28 $451,453 $(15,487)$(211,849)$224,585 
Exercise of share options29,887 — — — — — — — 
Vesting of restricted stock units2,100 — — — — — — — 
Share-based compensation expense— — — — 3,504 — — 3,504 
Unrealized loss on foreign currency translation— — — — — (15,156)— (15,156)
Net loss— — — — — — (18,371)(18,371)
Balance at September 30, 202242,554,384 $440 1 $28 $454,957 $(30,643)$(230,220)$194,562 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPASS PATHWAYS PLC
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
(expressed in U.S. Dollars, unless otherwise stated)
Nine Months Ended September 30,
20222021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(60,579)$(46,092)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization234 123 
Non-cash gain on foreign currency remeasurement3,842 31 
Non-cash share-based compensation9,810 5,857 
Non-cash lease expenses1,610 1,023 
Changes in operating assets and liabilities
Prepaid expenses and other current assets(30,141)(6,798)
Deferred and prepaid tax assets(1,813)(631)
Other assets(306)(168)
Operating lease liabilities(1,571)(1,023)
Accounts payable20,018 36 
Accrued expenses and other liabilities(1,253)2,266 
Net cash used in operating activities(60,149)(45,376)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(489)(241)
Net cash used in investing activities(489)(241)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of ordinary shares, net of issuance costs 154,794 
Proceeds from exercise of share options401 1,047 
Net cash provided by financing activities401 155,841 
Effect of exchange rate changes on cash, cash equivalents and restricted cash(39,879)(6,517)
Net (decrease)/increase in cash, cash equivalents and restricted cash(100,116)103,707 
Cash, cash equivalents and restricted cash, beginning of the period273,347 190,356 
Cash, cash equivalents and restricted cash, end of the period$173,231 $294,063 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Right-of-use assets obtained in exchange for new operating lease liabilities$796 $5,599 
Proceeds from exercise of options were received and recorded in other current assets$ $21 
Deferred issuance costs included in accrued expenses$ $234 
The following table provides a reconciliation of the cash, cash equivalents and restricted cash balances as of each of the periods, shown above:
Nine Months Ended September 30,
20222021
Cash and cash equivalents$173,076 $293,959 
Short-term restricted cash155 104 
Total cash, cash equivalents and restricted cash$173,231 $294,063 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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COMPASS PATHWAYS PLC
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Nature of Business
COMPASS Pathways plc, or the Company, is a mental health care company dedicated to accelerating patient access to evidence-based innovation in mental health. The Company is developing 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 clinical 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, and its $154.8 million May 2021 follow-on offering. On 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 $60.6 million and $46.1 million for the nine months ended September 30, 2022 and 2021, respectively. In addition, as of September 30, 2022, the Company had an accumulated deficit of $230.2 million. The Company expects to continue to generate operating losses for the foreseeable future. The future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all.
The Company believes the cash and cash equivalents on hand as of September 30, 2022 of $173.1 million will be sufficient to fund its operating expenses and capital expenditure requirements into 2024. The Company 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.
As the COVID-19 pandemic continues to evolve, the Company continues to assess its business plans and the additional impact which resurgences or the emergence of new variants of COVID-19 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.

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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 September 30, 2022, the results of its operations and comprehensive loss for the three months and nine months ended September 30, 2022 and 2021 and its cash flows for the nine months ended September 30, 2022 and 2021.
The results for the three months and nine months ended September 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 the Company’s 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 material cash equivalents.
Restricted Cash
Restricted cash as of September 30, 2022 and December 31, 2021 represents a collateral deposit for employee credit cards.
Investment
The investment does not have readily determinable fair value and it is carried at cost, less impairment, adjusted for subsequent changes to estimated fair value up to the original cost, in 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 inputs for the first two are considered observable and the inputs for the last are considered unobservable:
Level 1—Quoted prices in active markets for identical assets or liabilities.
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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 equipment5 years
Office equipment
3-5 years
Furniture and fixtures3 years
Leasehold improvementsShorter of useful life or remaining lease term
Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the condensed consolidated statements of operations and comprehensive loss. Expenditures for repairs and maintenance are charged to expense as incurred.
Impairment of Long-Lived Assets
The Company evaluates assets for potential impairment when events or changes in circumstances indicate the carrying value of the assets may not be recoverable. Recoverability is measured by comparing the book values of the assets to the expected future net undiscounted cash flows that the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the book values of the assets exceed their fair value. The Company has not recognized any impairment losses or had triggering events related to its underlying assets for the nine months ended September 30, 2022 and 2021.
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker in deciding how to allocate resources and assess performance. The Company and the Company’s chief operating decision maker, the Company’s Chief Executive Officer, view the Company’s operations and 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.
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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 cancellable, 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.
Share-Based Compensation
The Company accounts for all share-based payment awards granted to employees and non-employees as share-based compensation expense at fair value. The Company grants equity awards under its share-based compensation programs, which may include share options and restricted ordinary shares. The measurement date for employee and non-employee awards is the date of grant, and share-based compensation costs are recognized as expense over the requisite service period, which is the vesting period, on a straight-line basis. Share-based compensation expense is classified in the accompanying condensed consolidated statements of operations and comprehensive loss based on the function to which the related services are provided. The Company recognizes share-based compensation expense for the portion of awards that have vested. Forfeitures are recorded as they occur.
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. The Company 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 or day of the grant.
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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.
Leases
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. 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 September 30, 2022 and 2021 respectively.
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, net in the condensed consolidated statements of operations and comprehensive loss. The Company recorded foreign exchange gains of approximately $1.1 million and $3.4 million for the three months ended September 30, 2022 and 2021, respectively. For the nine months ended September 30, 2022 and 2021, the Company recorded a foreign exchange gain of $4.4 million and $2.2 million respectively. These gains 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.
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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, net are translated at the average exchange rates for the periods presented 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.
Income Taxes
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.
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 based on the difference between the financial statements and tax basis of assets and liabilities using 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 September 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 September 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.

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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, 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, 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
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 nine months ended September 30, 2022 and 2021, the only 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.
Derivatives
The Company enters into foreign currency contracts to reduce the risk that our cash flows and earnings will be adversely affected by foreign currency exchange rate fluctuations. The Company does not enter into foreign currency contracts for speculative purposes. The Company recognizes derivative instruments, which do not qualify for hedge accounting, as either assets or liabilities on the balance sheet at fair value. The Company records changes in the fair value (gains or losses) of the derivatives in the accompanying Consolidated Statement of Operations and Comprehensive Loss as Other income, net.
3. Fair Value Measurements
There are no financial instruments measured at fair value on a recurring basis as of September 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.

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4. Investment
On March 6, 2020, the Company made a strategic investment of $0.5 million to acquire an 8% (on a fully diluted basis) shareholding in Delix Therapeutics, Inc., a drug discovery and development company researching novel small molecules for use in 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 September 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):
September 30,December 31,
20222021
UK R&D tax credit$16,774 $9,587 
Prepaid insurance premium3,068 3,359 
Prepaid research and development22,203 4,562 
VAT recoverable1,348 1,629 
Deferred offering costs 840 
Security deposit89 274 
Other current assets1,273 1,370 
$44,755 $21,621 
6. Property and Equipment, Net
Property and equipment, net consisted of the following (in thousands):
September 30,December 31,
20222021
Lab equipment$342 $370 
Office equipment443 315 
Furniture and fixtures80 65 
Leasehold improvements85 6 
950 756 
Less: accumulated depreciation(395)(358)
$555 $398 
Depreciation and amortization expenses were less than $0.1 million and $0.2 million for the three months and nine months ended September 30, 2022 respectively. For the three months and nine months ended September 30, 2021, depreciation and amortization expenses were also less than $0.1 million and $0.1 million, respectively.
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7. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
September 30,
December 31,
20222021
Accrued research and development expense$1,366 $3,043 
Accrued professional expenses1,463 1,386 
Accrued compensation and benefit costs3,810 5,018 
Payroll tax payable433 593 
Other liabilities745 268 
$7,817 $10,308 
8. Ordinary Shares
During the nine months ended September 30, 2022, the Company issued in total 461,772 ordinary shares to settle share options exercised by employees and non-employees compared to 1,188,242 in the nine months ended September 30, 2021. Of the shares issued in the nine months ended September 30, 2021, 232,227 were related to options exercised in 2020 for which shares were delivered in 2021.
During the nine months ended September 30, 2022, a total of 72,738 ordinary shares were issued in settlement of restricted share units, of which 14,863 vested and were issued during the nine months ended September 30, 2022 and 57,875 vested but had not been issued at December 31, 2021. As of September 30, 2022, there were 17,112 restricted shares vested but not settled.
In the nine months ended September 30, 2021, 56,887 restricted share units vested, of which 12,607 ordinary shares were issued in settlement of the vested restricted shares units on August 13, 2021. No ordinary shares were issued for the vested restricted share units of 44,280 in the nine months ended September 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 September 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 September 30, 2022, the Company was authorized to issue a total of 1,602,117 ordinary shares underlying outstanding options granted under the 2017 Plan prior to the IPO.
Options granted under the 2017 Plan, typically vest over a three or four-year service period with 33.3% and 25% respectively, of the award vesting on the first anniversary of the commencement date and the balance vesting monthly over the remaining years. Options granted under the 2017 Plan generally expire 10 years from the date of grant. 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.
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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, 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.
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 reserved and authorized 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 termination of the 2020 Plan, by the lesser of (i) 1% of the outstanding number of ordinary shares on the immediately preceding December 31, (ii) 510,080 ordinary shares or (iii) such lesser number of ordinary shares as determined by the plan administrator. 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 options 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 is 3,755,119 shares as of September 30, 2022, of which 761,700 shares remained available for future grant.
The options granted in 2022 under the 2020 Plan to employees generally expire 10 years from the date of grant. There are three potential vesting conditions for the 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 nine months ended September 30, 2022 and 2021, the Company granted options to purchase 1,400,783 and 752,702 ordinary shares to employees and non-employees, respectively.

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2022 Inducement Option Award
On August 1, 2022, the Company granted to our new chief executive officer a non-qualified share option to purchase up to 600,000 ordinary shares as an inducement grant. The non-qualified share option has a 10 year term and vests as to one-fourth on August 1, 2023 and as to the remaining three-fourths in equal monthly installments over the following 36 months. The non-qualified share option has other terms that mirror those of non-qualified share options granted under the Company’s 2020 Plan and the Company’s standard form of non-qualified share option agreement.

Restricted Share Units
A summary of the changes in the Company’s unvested restricted share units during the nine months ended September 30, 2022 are as follows:
Number of SharesWeighted Average Grant Date Fair Value
Unvested and Outstanding as of December 31, 2021115,140 $10.19 
Granted143,830 $14.89 
Vested(31,975)$9.94 
Forfeited(600)$14.68 
Unvested and Outstanding as of September 30, 2022
226,395 $11.59 
As of September 30, 2022 and 2021, there was $2.2 million and $1.6 million of unrecognized compensation cost related to unvested restricted share units, respectively, which is expected to be recognized over a weighted-average period of 3.0 years and 2.95 years, respectively. The exercise price of restricted share units is at a nominal value less than £0.01 per share.

Share Options
The following table summarizes the Company’s share options activity for the nine months ended September 30, 2022:
Number of SharesWeighted Average Exercise PriceWeighted 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 
Granted2,000,783 $13.86 
Exercised(461,772)$0.77 
Forfeited(418,591)$9.38 
Outstanding as of September 30, 2022
5,035,923 $14.28 8.60$17,846 
Exercisable as of September 30, 2022
2,106,737 $7.07 7.82$15,544 
Unvested as of September 30, 2022
2,929,746 $16.68 9.16$2,302 
The aggregate intrinsic value of options exercised during the nine months ended September 30, 2022 and 2021 was $5.5 million and $41.8 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 $10.29 and $22.71 per share during the nine months ended September 30, 2022, and 2021, respectively.
As of September 30, 2022 and 2021, there was $30.7 million and $27.6 million of unrecognized compensation cost related to unvested share options, which is expected to be recognized over a weighted-average period of 2.97 years and 3.2 years, respectively.
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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 nine months ended September 30, 2022, and 2021 were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2022202120222021
Expected option life (years)6.086.075.946.07
Expected volatility81.40 %66.90 %80.72 %67.20 %
Risk-free interest rate2.70 %0.96 %2.15 %0.91 %
Expected dividend yield % % % %
Fair value of underlying ordinary shares$14.41 $34.83 $14.48 $37.65 
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 September 30,Nine Months Ended September 30,
2022202120222021
Research and development1,936 1,288 5,558 3,023 
General and administrative1,568 999 4,252 2,834 
Total stock based compensation expense$3,504 $2,287 $9,810 $5,857 

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 September 30,Nine Months Ended September 30,
2022202120222021
Numerator
Net loss$(18,371)$(15,849)$(60,579)$(46,092)
Net loss attributable to ordinary shareholders - basic and diluted$(18,371)$(15,849)$(60,579)$(46,092)
Denominator
Weighted-average number of ordinary shares used in net loss per share - basic and diluted42,525,855 41,708,220 42,377,895 39,378,824 
Net loss per share - basic and diluted$(0.43)$(0.38)$(1.43)$(1.17)


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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