EDGAR 10-K Filing

Company CIK: 1840904
Filing Year: 2023
Filename: 1840904_10-K_2023_0000950170-23-009756.json

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ITEM 1. BUSINESS
Item 1.
Business

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ITEM 1A. RISK FACTORS
Item 1A.
Risk Factors

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B.
Unresolved Staff Comments

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ITEM 2. PROPERTIES
Item 2. Properties.
Our principal executive office is located at Wallstraße 16, 10179, Berlin, Germany where we lease approximately 7,400 square feet of office space. The lease commenced in February 2023 and we will make payments over a five year term. We also lease office space in other locations including London, the United Kingdom; New York, New York; and San Diego, California. We believe that these facilities will be adequate for our near-term needs and that we will be able to renew these leases. If required, we believe that suitable additional or alternative space would be available in the future on commercially reasonable terms.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings.
From time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of our business. Although the results of litigation and claims cannot be predicted with certainty, we do not believe we are party to any claim or litigation the
outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a material adverse impact on our financial position, results of operations or cash flows. Regardless of the outcome, litigation can have an adverse effect on us because of defense and settlement costs, diversion of management resources and other factors.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures.
Not applicable
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common shares began trading on The Nasdaq Global Market under the symbol “ATAI” on June 18, 2021. Prior to that time, there was no established public trading market for our common shares.
Holders of Record
As of March 15, 2023, there were 105 holders of record of our common shares. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common shares whose shares are held in the names of various security brokers, dealers and registered clearing agencies.
Dividend Policy
We have never paid or declared any cash dividends on our common shares in the past, and we do not anticipate paying any cash dividends on our common shares in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. As of the completion of our corporate reorganization, under Dutch law, we may only pay dividends to the extent our shareholders’ equity (eigen vermogen) exceeds the sum of the paid-in and called-up share capital plus the reserves required to be maintained by Dutch law or by our articles of association and (if it concerns a distribution of profits) after adoption of the annual accounts by the general meeting from which it appears that such dividend distribution is allowed. Subject to such restrictions, any future determination to pay dividends or other distributions from our reserves will be at the discretion of our management board with the approval of our supervisory board and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our management board and supervisory board deem relevant.
Recent Sales of Unregistered Securities
Except as disclosed in our Quarterly Report on Form 10-Q for the quarter June 30, 2022 filed with the SEC on August 15, 2022, there were no sales of unregistered equity securities during the year ended December 31, 2022.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7.	Management’s Discussion and Analysis of Fina ncial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this Form 10-K. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” and in other parts of this Form 10-K.
Business Overview
We are a clinical-stage biopharmaceutical company aiming to transform the treatment of mental health disorders. We were founded in 2018 in response to the significant unmet need and lack of innovation in the mental health treatment landscape, as well as the emergence of therapies that previously may have been overlooked or underused.
We have a bold and ambitious vision: to heal mental health disorders so that everyone, everywhere can live a more fulfilled life.
Mental health disorders such as depression, substance use disorder, or SUD, and anxiety, which are among our initial focus indications, are highly prevalent and estimated to affect more than one billion people globally. In addition, the total costs of mental health disorders are significant and expected to increase substantially. Between 2009 and 2019, spending on mental health care in the United States increased by more than 50%, reaching $225 billion, and a Lancet Commission report estimates the global economic cost will reach $16 trillion by 2030. While current treatments, such as selective serotonin reuptake inhibitors, or SSRIs, and serotonin-norepinephrine reuptake inhibitors, or SNRIs, are well established and effective for certain patients, a significant percentage of patients either respond inadequately or relapse, translating to a significant unmet patient need.
Since our inception in 2018, we have focused substantially all of our efforts and financial resources on acquiring and developing product and technology rights, establishing our platform, building our intellectual property portfolio and conducting research and development activities for our product candidates within our atai companies that we consolidate based on our controlling financial interest of such entities. We operate a decentralized model to enable scalable drug or technological development at our atai companies. Our atai companies drive the development of our programs and enabling technologies for which we have either acquired a controlling or significant interest in or created de novo. We believe that this model provides our development teams the support and incentives to rapidly advance their therapeutic candidates or technologies in a cost-efficient manner. We look to optimize deployment of our capital in order to maximize value for our stakeholders.
We provide our development teams with access to shared services including scientific, intellectual property, clinical, and regulatory support, as well as project management, research and development, market strategy, and development and corporate finance. Our global team of subject matter professionals provides deep domain expertise in areas such as mental health drug development and life sciences intellectual property. Development teams have access to relevant expertise specific to each stage of their development. We believe our knowledge and specialization in psychedelics and mental health continuously enhance the quality of the services we provide through the sharing of learnings and experiences across the teams.
On June 22, 2021, we completed an IPO on Nasdaq, in which we issued and sold 17,250,000 common shares at a public offering price of $15.00 per share, including 2,250,000 common shares sold pursuant to the underwriters’ exercise of their option to purchase additional common shares, for aggregate net proceeds of $231.6 million, after deducting underwriting discounts and commissions of $18.1 million and offering costs of $9.0 million. Prior to the IPO, we received gross cash proceeds of $361.5 million from sales of our common shares and convertible notes.
We have incurred significant operating losses since our inception. Our net loss attributable to ATAI Life Sciences N.V. stockholders was $152.4 million and $167.8 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, our accumulated deficit was $510.2 million and $357.8 million, respectively. Our ability to generate product revenue sufficient to achieve profitability will depend substantially on the successful development and eventual commercialization of product candidates at our atai companies that we consolidate based on our controlling financial interest of such entities as determined under the variable interest entity model ("VIE model") or voting interest entity model ("VOE model"). We expect to continue to incur significant expenses and increasing operating losses for at least the next several years.
Our historical losses resulted principally from costs incurred in connection with research and development activities, as well as 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 the development of our mental health research programs. Furthermore, we expect to incur additional
costs associated with operating as a public company, including audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance premiums, and investor relations costs. 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 our product candidates, if ever, we expect to finance our operations through a combination of equity offerings, debt financings, strategic collaborations and alliances or licensing arrangements. Our inability to raise capital as and when needed could have a negative impact on our financial condition and our 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 December 31, 2022, we had cash and cash equivalents of $190.6 million and short-term securities of $82.5 million. We believe that our existing cash and cash equivalents and short-term securities will be sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next 12 months following the filing of this Annual Report. 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-Liquidity Risk” below.
We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations to date primarily with proceeds from the sale of our common shares, issuances of convertible notes and a term loan.
Impactful Capital Allocation and Strategic Value Capture
Consistent with our strategy, we provide the necessary funding and operational support to our programs to maximize their probability of success in clinical development and commercialization. We also regularly review the status of our programs to assess whether there are alternative forms of ownership, partnership or other forms of collaboration that would optimize our economic interests and the success of our programs. To that end, we are focusing on clinical phase programs and business development that we expect to generate meaningful data in the near term, and therefore prioritizing programs and opportunities that we believe have the highest return potential and value. As a result, in July 2022 through reduction of capital allocation and operational resources, we decided to decelerate some of our drug discovery programs and Revixia Life Sciences. In November 2022, we finalized and entered into agreements through which we disposed of our equity interests in (and residual Preferred Stock Purchase Agreement funding obligations to) Neuronasal. We are also evaluating potential divestiture of our equity interests in certain programs and also exploring other opportunities, including but not limited to seeking strategic partnership options, for example, with PCN-101 and KUR-101.
In addition, in February 2023 we conducted a reduction in force of approximately 30% of our global workforce in February 2023 in order to more effectively allocate our research and development and other resources supporting the revised business and program priorities and to reduce operational costs.
Hercules Term Loan
On August 9, 2022, we entered into the Loan Agreement (as defined below) with Hercules Capital, Inc., which provided for a term loan facility for up to $175 million. Under the terms of the Loan Agreement, $15 million was drawn at closing, with an additional $20 million available to be drawn at our option by May 1, 2023, and thereafter, an additional $25 million available to be drawn at our option by December 15, 2023. The remaining $115 million becomes available in tranches through March 31, 2025, subject to the satisfaction of certain conditions. More information about the terms and conditions of the Loan Agreement See Note 10 to our consolidated financial statements included in this Annual Report as well as “-Liquidity and Capital Resources-Indebtedness-Hercules Term Loan.”
Basis of Presentation and Consolidation
Since our inception, we have created wholly owned subsidiaries or made investments in certain controlled entities, including partially-owned subsidiaries for which we have majority voting interest under the VOE model or for which we are the primary beneficiary under the VIE model, which we refer to collectively as our consolidated entities. Ownership interests in entities over which we have significant influence, but not a controlling financial interest, are accounted for as cost and equity method investments. Ownership interests in consolidated entities that are held by entities other than us are reported as redeemable convertible noncontrolling interests and noncontrolling interests in our consolidated balance sheets. Losses attributed to redeemable convertible noncontrolling interests and noncontrolling interests are reported separately in our consolidated statements of operations.
Wholly owned subsidiaries and VIEs with greater than 50% ownership and deemed control are consolidated in our consolidated financial statements, and our net income (loss) is reduced for the noncontrolling interest of the VIE’s share, resulting in net income (loss) attributable to atai shareholders.
Investments where we have ownership in the underlying company’s equity greater than 20% and less than 50% or where we have significant influence are accounted for using the equity method. We then record losses from investments in equity method investees, net of tax, for our proportionate share of the underlying company’s net results until the investment balance is adjusted to zero. If we make subsequent additional investments in that same company, we may record additional gains(losses) based on changes to our investment basis and also may record additional income(loss) in equity method investments.
Components of Our Results of Operations
Revenue
On March 11, 2021, we entered into a license and collaboration agreement (the "Otsuka Agreement"), with Otsuka Pharmaceutical Co., LTD ("Otsuka"), under which we granted exclusive rights to Otsuka to develop and commercialize certain products containing arketamine in Japan for the treatment of depression and other select indications. We received an upfront, non-refundable payment of $20.0 million in June 2021 and we are also eligible to receive up to $35.0 million if certain development and regulatory milestones are achieved and up to $66.0 million in commercial milestones upon the achievement of certain commercial sales thresholds. We are eligible to receive tiered, royalties ranging from low-teens to high-teens on net sales of licensed products subject to reduction in certain circumstances.
In March 2021, we satisfied the performance obligation related to the license upon delivery of the license and recognized the amount of $19.8 million allocated to the license as license revenue. Additionally, we recognized revenues of $0.6 million related to certain research and development services. Total license revenue of $20.4 million was recorded for the year ended December 31, 2021.
We recognized $0.2 million of license revenue for the year ended December 31, 2022. The remaining deferred revenue balance related to the Otsuka Agreement is not material as of December 31, 2022. To date, there have been no milestones achieved under the Otsuka Agreement.
For the foreseeable future, we may generate revenue from reimbursements of services under the Otsuka Agreement, as well as milestone payments under our current and/or future collaboration agreements. We do not expect to generate any revenue from the sale of products unless and until such time that our product candidates have advanced through clinical development and regulatory approval, if ever. We expect that any revenue we generate, if at all, will fluctuate from year-to-year as a result of the timing and amount of payments relating to such services and milestones and the extent to which any of our products are approved and successfully commercialized. Our ability to generate future revenues will also depend on our ability to complete preclinical and clinical development of product candidates or obtain regulatory approval for them.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our research activities, including our discovery efforts and the development of our product candidates, which include:
•employee-related expenses, including salaries, related benefits and stock-based compensation, for employees engaged in research and development functions;
•expenses incurred in connection with the preclinical and clinical development of our product candidates, including our agreements with third parties, such as consultants and CROs;
•expenses incurred under agreements with consultants who supplement our internal capabilities;
•the cost of lab supplies and acquiring, developing and manufacturing preclinical study materials and clinical trial materials;
•costs related to compliance with regulatory requirements;
•facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other operating costs; and
•payments made in connection with third-party licensing agreements.
Research and development costs, including costs reimbursed under the Otsuka Agreement, are expensed as incurred, with reimbursements of such amounts being recognized as revenue. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received.
Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, contract manufacturing organizations (“CMOs”) and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under third-party license agreements.
Certain internal research and development expenses consisting of employee and contractor-related costs are not allocated to specific product candidate programs because these costs are deployed across multiple product candidate programs under research and development expense.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. We expect that our research and development expenses will continue to increase for the foreseeable future in connection with our planned preclinical and clinical development activities in the near term and in the future.
The successful development of our product candidates is highly uncertain. As such, at this time, we cannot reasonably estimate or know the nature, timing and estimated costs of the efforts that will be necessary to complete the remainder of the development of these product candidates. We are also unable to predict when, if ever, material net cash inflows will commence from our product candidates. This is due to the numerous risks and uncertainties associated with developing products, including the uncertainty of whether (i) any clinical trials will be conducted or progress as planned or completed on schedule, if at all, (ii) we obtain regulatory approval for our product candidates and (iii) we successfully commercialize product candidates.
Acquisition of In-Process Research and Development Expenses
Acquisition of in-process research and development (“IPR&D”) expenses consist of acquired IPR&D with no future alternative use based on the probability of clinical success.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions, professional fees for legal, patent, accounting, auditing, tax and consulting services, travel expenses and facility-related expenses, advertising, and information technology-related expenses.
We expect that our general and administrative expenses will increase in the future as we increase our general and administrative headcount to support our continued research and development and potential commercialization of our product candidates. We have incurred increased expenses due to costs incurred to support organizational growth as part of commercial readiness activities. We also have incurred increased expenses associated with being a public company, including increased costs for audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and SEC requirements, director and officer insurance costs, and investor and public relations costs.
Other Income (Expense), Net
Interest Income
Interest income consists of interest earned on cash balances held in interest-bearing accounts and interest earned on notes receivable. We expect that our interest income will fluctuate based on the timing and ability to raise additional funds as well as the amount of expenditures for our research and development of our product candidates and ongoing business operations
Change in Fair Value of Contingent Consideration Liability-Related Parties
Changes in fair value of contingent consideration liability-related parties, consists of subsequent remeasurement of our contingent consideration liability-related parties with Perception, TryptageniX and InnarisBio for which we record at fair value. See “-Liquidity and Capital Resources-Indebtedness” below for further discussion of our contingent consideration liability-related parties.
Change in Fair Value of Derivative Liability
Changes in fair value of derivative liability consists of subsequent remeasurement of our derivative liability relating to certain embedded features contained in the Perception convertible promissory notes for which we record at fair value. The Perception convertible promissory notes were converted during June 2021. See “-Liquidity and Capital Resources-Indebtedness” below for further discussion the Perception convertible promissory notes.
Change in Fair Value of Warrant Liability
Changes in fair value of warrant liability consists of subsequent remeasurement of our warrant liability relating to issued and outstanding warrants to purchase shares of Neuronasal's common stock acquired in connection with the acquisition of Neuronasal in May 2021. We deconsolidated Neuronasal in November 2022. See Note 3 in our consolidated financial statements for further discussion.
Change in Fair Value of Securities carried at Fair Value
Changes in fair value of securities consists of changes in fair value of our available for sale securities. We first purchased securities in January 2022.
Unrealized Loss on Other Investments Held at Fair Value
In May 2021, we received IntelGenx common stock, warrants and additional unit warrants for a price of approximately $12.3 million. We determined that the initial aggregate fair value is equal to the transaction price and recorded the common shares at $3.0 million, the warrants at $1.2 million and the additional unit warrants at $8.2 million on a relative fair value basis resulting in no initial gain or loss recognized in our consolidated statements of operations. Subsequently, changes in fair value of the common stock, the warrants and additional unit warrants are recorded as an unrealized loss on other investments held at fair value in the consolidated statement of operations.
Loss on Conversion of Convertible Promissory Notes
In June 2021, upon the funding of the Otsuka Agreement, the Perception convertible promissory notes were converted into Perception Series A preferred stock. The loss represents the difference between (i) carrying value including derivative liability of the Perception December 2020 Notes of $2.2 million and (ii) the fair value of Perception Series A preferred stock into which the Perception convertible promissory notes converted of $2.7 million.
Gain on Consolidation of a Variable Interest Entity
Gain on consolidation of a VIE resulted from the purchase of additional shares of Neuronasal in May 2021. The gain was calculated as the sum of the consideration paid, the fair value of the noncontrolling interest issued, the carrying value of our investments prior to consolidation, less the fair value of identifiable net assets acquired.
Gain on Deconsolidation of a Variable Interest Entity
Gain on deconsolidation of a VIE of $1.5 million was the result of removing Neuronasal assets and liabilities from our consolidated balance sheet following our change of control in Neuronasal in November 2022.
Foreign exchange gain (loss), net
Foreign exchange gain (loss), net consists of the impact of changes in foreign currency exchange rates on our foreign exchange denominated assets and liabilities, relative to the U.S. dollar. The impact of foreign currency exchange rates on our results of operations fluctuates period over period based on our foreign currency exposures resulting from changes in applicable exchange rates associated with our foreign denominated assets and liabilities.
Other expense, net
Other expense, net consists principally of interest expense and an impairment of a loan receivable. Interest expense consists primarily of interest expense incurred in connection with our term loan under the Loan Agreement entered into in August 2022. Upon closing of the Loan Agreement, Hercules issued a term loan advance in the amount of $15.0 million. See “-Liquidity and Capital Resources-Indebtedness” below for further discussion of the 2022 Term Loan Facility. Impairment of loan receivable relates to our impairment of the outstanding Neuronasal loans in connection with deconsolidation during the year ended December 31, 2022.
Benefit From (Provision For) Income Taxes
For our consolidated entities, deferred income taxes are provided for the effects of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
We regularly assess the need to record a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In assessing the realizability of deferred tax assets, we consider the scheduled reversal of deferred tax liabilities (including the effect in available carryback and carryforward periods), future projected taxable income, including the character and jurisdiction of such income, and tax-planning strategies in making this assessment.
In 2022, as a result of the commercial evolution of our intercompany arrangements, intercompany recharge structure, and other planning considerations, we re-evaluated our transfer pricing policies including with respect to share based compensation. As a result of the modified transfer pricing policy, the ultimate timing and recharge to our subsidiary service providers was no longer certain. As a result, it is no longer guaranteed that, or can be reasonably forecast whether, the deferred tax assets reported by these entities will reverse in the foreseeable future. The 2022 change in transfer pricing policy, taken together with our three-year cumulative loss position and decreased projected future earnings provided sufficient negative evidence that a full valuation allowance should be established against the net deferred
tax assets with respect to certain subsidiaries. Accordingly, as of December 31, 2022, we maintain a full valuation allowance against net deferred tax assets in all jurisdictions.
As of December 31, 2021, sufficient positive evidence existed for net deferred tax assets with regard to two subsidiaries in the United States and the United Kingdom and it was determined more-likely-than-not that such deferred tax assets would be realized and a valuation allowance was not established for those entities.
Unrecognized tax benefits arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of the considerations described above. As of December 31, 2022 and December 31, 2021, we had no unrecognized tax benefits.
Gain on Dilution of Equity Method Investment
In May 2021, COMPASS completed an additional round of equity financing through the offering of 4,000,000 American Depository Shares. We participated in this financing round but did not purchase enough shares to maintain our ownership percentage. As the purchase of shares resulted in a decrease in our equity ownership percentage in COMPASS, we recorded a gain on dilution of $16.9 million for the year ended December 31, 2021.
Losses from Investments in Equity Method Investees, Net of Tax
Losses from investments in equity method investees, net of tax consists of our share of equity method investees losses on the basis of our equity ownership percentage, IPR&D charges resulting from basis differences related to our equity method investments.
Net Loss Attributable to Redeemable Noncontrolling Interests and Noncontrolling Interests
Net loss attributable to redeemable noncontrolling interests and noncontrolling interests in our consolidated statements of operations is a result of our investments in certain of our consolidated VIEs and consists of the portion of the net loss of these consolidated entities that is not allocated to us. Net losses in consolidated VIEs are attributed to redeemable noncontrolling interests and noncontrolling interests considering the liquidation preferences of the different classes of equity held by the shareholders in the VIE and their respective interests in the net assets of the consolidated VIE in the event of liquidation, and their pro rata ownership. Changes in the amount of net loss attributable to redeemable noncontrolling interests and noncontrolling interests are directly impacted by changes in the net loss of our VIEs and our ownership percentage changes.
Results of Operations
Comparison of the Years Ended December 31, 2022 and 2021
Year Ended December 31,
$ Change
% Change
(in thousands, except percentages)
License revenue
$
$
20,376
(20,143
)
-98.9
%
Operating expenses:
Research and development
74,313
47,956
26,357
55.0
%
Acquisition of in-process research and development
15,480
(15,123
)
-97.7
%
General and administrative
70,350
92,745
(22,395
)
-24.1
%
Total operating expenses
145,020
156,181
(11,161
)
-7.1
%
Loss from operations
(144,787
)
(135,805
)
(8,982
)
6.6
%
Other income (expense), net:
Interest income
167.3
%
Change in fair value of contingent consideration liability -
related parties
1,475
1,302
752.6
%
Change in fair value of derivative liability
-
(41
)
-100.0
%
Change in fair value of warrant liability
(87
)
-486.2
%
Change in fair value of securities carried at fair value
-
100.0
%
Unrealized loss on other investments held at fair value
-
(12,346
)
12,346
-100.0
%
Loss on conversion of convertible promissory notes
-
(513
)
-100.0
%
Gain on consolidation of a variable interest entity
-
3,543
(3,543
)
-100.0
%
Gain on deconsolidation of a variable interest entity
1,484
-
1,484
100.0
%
Foreign exchange gain, net
6,902
8,481
(1,579
)
-18.6
%
Other expense, net
(1,412
)
(293
)
(1,119
)
381.9
%
Total other income (expense), net
9,605
(796
)
10,401
-1306.7
%
Loss before income taxes
(135,182
)
(136,601
)
1,419
-1.0
%
Benefit from (provision for) income taxes
(6,229
)
3,989
(10,218
)
-256.2
%
Gain on dilution of equity method investment
-
16,923
(16,923
)
-100.0
%
Losses from investments in equity method investees, net of tax
(16,006
)
(58,555
)
42,549
-72.7
%
Net loss
$
(157,417
)
$
(174,244
)
16,827
-9.7
%
Net loss attributable to redeemable noncontrolling interests and
noncontrolling interests
(5,032
)
(6,436
)
1,404
-21.8
%
Net loss attributable to ATAI Life Sciences N.V. stockholders
$
(152,385
)
$
(167,808
)
$
15,423
-9.2
%
License Revenue
License revenue was $0.2 million for the year ended December 31, 2022, which related to certain research and development expenses under the Otsuka Agreement. License revenue was $20.4 million for the year ended December 31, 2021, which primarily related to the delivery of the license to Otsuka, which occurred in March 2021.
Research and Development Expenses
The table and discussion below present research and development expenses for the years ended December 31, 2022 and 2021:
Year Ended December 31,
$ Change
% Change
(in thousands, except percentages)
Direct research and development expenses by program:
Key Clinical Programs
RL-007 (Recognify)
$
3,586
$
2,492
$
1,094
43.9
%
VLS-01 (Viridia)
4,206
2,378
1,828
76.9
%
DMX-1002 (DemeRx IB)
3,495
3,583
(88
)
-2.5
%
EMP-01 (EmpathBio)
4,365
1,534
2,831
184.6
%
Other Clinical Programs
PCN-101 (Perception)
14,206
6,862
7,344
107.0
%
KUR-101 (Kures)
3,347
1,488
1,859
124.9
%
RLS-01 (Revixia)
2,026
1,074
112.8
%
Enabling Technologies and Drug Discovery Platforms
8,772
2,492
6,280
252.0
%
Unallocated research and development expenses:
Personnel expenses
28,716
25,244
3,472
13.8
%
Professional and consulting services
1,006
123.1
%
Other
22.7
%
Total research and development expenses
$
74,313
$
47,956
$
26,358
55.0
%
Research and development expenses were $74.3 million for the year ended December 31, 2022, compared to $48.0 million for the year ended December 31, 2021. The increase of $26.3 million was primarily attributable to an increase of $22.2 million of direct costs at the platform companies as discussed below, a $3.5 million increase in personnel costs and a $0.6 million increase in professional and consulting fees.
Our Key Clinical Programs:
RL-007 (Recognify Life Sciences)
The $1.1 million increase in direct costs for the RL-007 program was primarily due to an increase of $0.8 million of clinical development costs and $0.3 million of manufacturing costs relating to the start of our Phase 2b proof-of-concept clinical trial for RL-007 in CIAS.
Viridia Life Sciences: VLS-01 (N,N-Dimethyltryptamine; DMT) for Treatment Resistant Depression (TRD)
The $1.8 million increase in direct costs for VLS-01 was primarily due to an increase of $1.7 million of clinical development costs and $0.2 million of preclinical development costs, partially offset by a decrease of $0.1 million of manufacturing costs relating to the initiation of our Phase 1 open-label, single ascending dose, two-part trial of VLS-01.
DemeRx IB: DMX-1002 (ibogaine) for OUD
The $0.1 million decrease in direct costs for the DMX-1002 program was primarily due to a decrease of $0.7 million of preclinical development costs, partially offset by an increase of $0.4 million of clinical development costs, $0.1 million of manufacturing costs, and $0.1 million of personnel related costs for the conduct of our ongoing Phase 1/2 trial to evaluate its safety, tolerability, pharmacokinetics, and efficacy in recreational drug users and healthy volunteers.
EmpathBio: EMP-01 (MDMA derivative) for PTSD
The $2.8 million increase in direct costs for EMP-01 was primarily due to an increase of $2.4 million preclinical activities as well as a $0.4 million increase of clinical development costs relating to the initiation our Phase 1 single ascending dose trial to assess the safety and tolerability of orally administered EMP-01.
Our Other Clinical Programs
Perception Neuroscience: PCN-101(R-Ketamine) for TRD
The $7.3 million increase in direct costs for PCN-101 was primarily due to an increase of $4.8 million of clinical development costs, $1.1 million of preclinical development costs, $0.9 million of manufacturing costs for the conduct of our Phase 2a study of PCN-101, and $0.6 million of consulting and personnel related costs.
Kures: KUR-101(deuterated mitragynine) for OUD
The $1.9 million increase in direct costs for KUR-101 was primarily due to a $1.9 million increase of clinical development costs and a $0.2 million increase in preclinical development costs for the conduct of our Phase 1 study of KUR-101, partially offset by a decrease of personnel costs of $0.3 million, of which $0.1 million related to stock-based compensation.
Revixia Life Sciences: RLS-01 for TRD
The $1.1 million increase in direct costs for RLS-01 was primarily due to a $0.8 million increase of manufacturing costs and $0.3 million of preclinical development costs.
Enabling Technologies and Drug Discovery Platforms
The $6.3 million increase in our enabling technologies and drug discovery platforms primarily relates to increased direct costs of $3.4 million in our Invyxis program, $1.7 million in our TryptageniX program, $0.9 million in our EntheogeniX program and $0.4 million in our InnarisBio program. We also incurred immaterial costs in association with IntroSpect, Psyber, Psyprotix, and Neuronasal.
Acquisition of In-Process Research and Development Expense
Year Ended December 31,
Change
% Change
(in thousands, except percentages)
Acquisition of in-process research and development expense by
program:
Kures
$
$
-
$
100.0%
Neuronasal
$
-
$
7,962
$
(7,962
)
-100.0%
TryptageniX
-
6,546
(6,546
)
-100.0%
InnarisBio
-
(972
)
-100.0%
Total acquisition of in-process research and development
expense
$
$
15,480
$
(15,123
)
-97.7%
Acquisition of in-process research and development expenses was $0.4 million for the year ended December 31, 2022, which relates to license costs incurred by Kures. Acquisition of in-process research and development expenses was $15.5 million for the year ended December 31, 2021, which was IPR&D acquired from InnarisBio in March 2021, Neuronasal in May 2021 and TryptageniX in December 2021. The acquired IPR&D was considered to have no future alternative use.
General and Administrative Expenses
General and administrative expenses were $70.4 million for the year ended December 31, 2022 compared to $92.7 million for the year ended December 31, 2021. The decrease of $22.3 million was largely attributable to a decrease of $18.0 million in non-cash stock compensation expense, $9.8 million decrease in value added tax expense and a $4.0 million decrease in professional consulting services. These decreases were partially offset by an increase of $7.3 million in personnel expenses and a $1.9 million increase in insurance expenses.
Interest Income
Interest income for the years ended December 31, 2022 and 2021 primarily consisted of interest earned on our cash balances and notes receivable during these periods. We had interest income for the years ended December 31, 2022 and 2021 of $0.5 million and $0.2 million, respectively.
Change in Fair Value of Contingent Consideration Liability-Related Parties
The milestone and royalty payments in relation to the acquisition of Perception Neuroscience, InnarisBio and TryptageniX were recorded at the acquisition date or at the exercise date related to the call option, and is subsequently remeasured to fair value quarterly. We recorded income of $1.5 million for the year ended December 31, 2022 compared to $0.2 million for the year ended December 31, 2021, an increase of $1.3 million. The change in the fair value of our contingent consideration liability was primarily attributable to updates to certain estimated assumptions in relation to Perception Neuroscience and TryptageniX.
Change in Warrant Liability
Change in warrant liability was an unrealized gain of $0.3 million and unrealized loss of $0.1 million for the years ended December 31, 2022 and 2021, respectively. Change in warrant liability for the year ended December 31, 2022 primarily consisted of an unrealized gain attributed to the deconsolidation of Neuronasal. The Company remeasured the Neuronasal warrant liability at fair value immediately prior to deconsolidation in November 2022. The fair value of the Neuronasal warrant liability was determined to be de minimis on November 9, 2022, resulting in a $0.3 million unrealized gain immediately prior to deconsolidation.
Unrealized Loss on Other Investments Held at Fair Value
In May 2021, we received IntelGenx common stock, warrants and additional unit warrants for a price of approximately $12.3 million. We determined that the initial aggregate fair value is equal to the transaction price and recorded the common shares at $3.0 million, the warrants at $1.2 million and the additional unit warrants at $8.2 million on a relative fair value basis resulting in no initial gain or loss recognized in our consolidated statements of operations. Subsequently, changes in fair value of the common stock, the warrants and additional unit warrants are recorded as a component of other income (expense), net in our consolidated statements of operations. During the year ended December 31, 2022, we recognized $0 of unrealized loss on other investments held at fair value. During the year ended December 31, 2021, we recognized $12.3 million of unrealized loss on other investments held at fair value.
We did not record an unrealized loss on other investments held at fair value for year ended December 31, 2022.
Loss on Conversion of Convertible Promissory Notes
Loss on conversion of convertible promissory notes for the year ended December 31, 2021 was $0.5 million. In June 2021, upon the funding of the Otsuka Agreement, the Perception convertible promissory notes were converted into Perception Series A preferred stock. The loss represents the difference between (i) carrying value including derivative liability of the Perception December 2020 Notes of $2.2 million and (ii) the fair value of Perception Series A preferred stock into which the notes converted of $2.7 million. There was no loss on conversion of convertible promissory notes recorded in the year ended December 31, 2022.
There was no loss on conversion of convertible promissory notes recorded in the year ended December 31, 2022.
Gain on Consolidation of a Variable Interest Entity
Gain on consolidation of a variable interest entity was $3.5 million for the year ended December 31, 2021. We purchased additional shares of Neuronasal in May 2021 and recognized a gain of $3.5 million. The gain was calculated as the sum of the consideration paid of $1.0 million, the fair value of the noncontrolling interest issued of $3.0 million, the carrying value of our investments in Neuronasal’s common stock and preferred stock prior to May 2021 of $0.8 million, less the fair value of identifiable net assets acquired of $8.3 million. The fair value of the IPR&D acquired of $8.0 million was charged to research and development expense as it had no alternative future use at the time of the acquisition.
There was no gain on consolidation of a variable interest entity recorded in the year ended December 31, 2022.
Gain on Deconsolidation of a Variable Interest Entity
Gain on deconsolidation of a variable interest entity was $1.5 million for the year ended December 31, 2022 as a result of the deconsolidation of Neuronasal. Upon the effective termination date in November 2022, we derecognized all of Neuronasal's assets and liabilities from our balance sheet, and recognized a gain of $1.5 million,
There was no gain on deconsolidation of a variable interest entity recorded in the year ended December 31, 2021.
Foreign Exchange Gain, Net
Foreign exchange gain, net was $6.9 million for the year ended December 31, 2022 compared to $8.5 million for the year ended December 31, 2021. The decrease of $1.6 million was primarily a result of the impact of fluctuations in the foreign currency exchange rate between the Euro and the U.S. dollar on our foreign denominated balances.
Other Expense, Net
Other expense, net for the year ended December 31, 2022 was $1.4 million, compared to $0.3 million for the year ended December 31, 2021. The increase of $1.1 million was primarily related to our impairment of a loan receivable recognized in relation to the impairment of the outstanding Neuronasal loans in connection with deconsolidation during the year ended December 31, 2022.
Benefit From (Provision For) Income Taxes
We incurred current income tax expense of $1.1 million and a deferred income tax expense of $5.1 million for the year ended December 31, 2022. We incurred current income tax expense of $1.1 million and a deferred income tax benefit of $5.1 million for the year ended December 31, 2021. Our current income tax expense relates to book profits and thus taxable profits generated in one of our United States subsidiaries, our United Kingdom subsidiary, and one of our Australian subsidiaries. The deferred income tax expense relates to certain deferred tax assets being offset by a valuation allowance in the year ended December 31, 2022 primarily with regard to temporary timing difference arising in connection with share-based compensation expense.
Given our early-stage development and lack of prior earnings history, we have a full valuation allowance primarily related to German and international tax loss carryforwards and temporary timing differences related to share-based compensation that we consider-more-likely-than-not not to be realized.
Gain on Dilution of Equity Method Investment
In May 2021, COMPASS completed an additional round of equity financing through the offering of 4,000,000 American Depository Shares. We participated in this financing round but did not purchase enough shares to maintain an ownership percentage equal to what we owned prior to the financing. As the purchase of shares resulted in a decrease in our equity ownership percentage in COMPASS, we recorded a gain on dilution of $16.9 million for the year ended December 31, 2021.
Losses from Investments in Equity Method Investees
Losses from investment in equity method investees for the years ended December 31, 2022 and 2021 were $16.0 million and $58.6 million, respectively. Loss from investment in equity method investees represents our share of equity method investee losses on the basis of our equity ownership percentages or based on our proportionate share of the respective class of securities in our other investments in the event that the carrying amount of our equity method investments was zero.
Liquidity and Capital Resources
Overview
For the years ended December 31, 2022 and 2021, we had net losses attributable to ATAI Life Sciences N.V. shareholders of $152.4 million and $167.8 million, respectively. As of December 31, 2022 and 2021, our accumulated deficit was $510.2 million and $357.8 million, respectively. We expect to continue to incur losses and operating cash outflows for the foreseeable future until we are able to commercialize any of our product candidates. Our primary sources of liquidity are our cash and cash equivalents and short-term securities, as further described below. We maintain cash balances with financial institutions in excess of insured limits.
Sources of Liquidity
Initial Public Offering
In June 2021, we completed our IPO and issued and sold 17,250,000 of our common shares at a price to the public of $15.00 per share, which included the exercise in full by the underwriters of their option to purchase 2,250,000 additional common shares. We received aggregate net proceeds of $231.6 million, after underwriting discounts and commissions of $18.1 million and offering costs of $9.0 million. As of December 31, 2022, we had cash and cash equivalents of $190.6 million and short-term securities of $82.5 million.
Convertible Promissory Notes
In November 2018, we issued an aggregate principal amount of $0.2 million of convertible notes (“2018 Convertible Notes”). The 2018 Convertible Notes are non-interest-bearing and have a maturity date of September 30, 2025, unless previously redeemed, converted, purchased or cancelled. In October 2020, we issued an additional principal amount of $1.0 million of the 2018 Convertible Notes. Each note has a face value of €1 and is convertible into one ordinary share of ATAI Life Sciences AG upon the payment of €17.00. In 2021, several noteholders elected to convert their 2018 Convertible Notes into shares of ATAI Life Sciences N.V. These investors each paid €17.00 per share for an aggregate amount of €5.8 million ($6.9 million) in order to convert their respective 2018 Convertible Notes into ATAI Life Sciences AG common shares. In May and July 2022, certain investors elected to convert some of their 2018 Convertible Notes into shares of ATAI Life Sciences N.V. The investors each paid €17.00 per share for an aggregate amount of €4.6 million ($4.6 million) in
order to convert their respective 2018 Convertible Notes into ATAI Life Sciences AG common shares. Concurrently with the conversion of the 2018 Convertible Notes into ATAI Life Sciences AG shares, the shares of ATAI Life Sciences AG that were issued to the investors who elected to convert their respective 2018 Convertible Notes in 2021 and in May and July 2022 were then exchanged for shares of ATAI Life Sciences N.V. on a one to one basis through a transfer and sale arrangement such that ATAI Life Sciences AG continued to remain a wholly owned subsidiary of ATAI Life Sciences N.V and the transaction was accounted for as an equity transaction that resulted in no gain or loss recognition. The remaining 2018 Convertible Notes balance as of December 31, 2022, 2022 was $0.4 million.
Investments
While a significant potential source of liquidity resides in our investment in COMPASS's American Depositary shares, we do not expect that our investment in COMPASS will be a material source of liquidity in the near term. Based on quoted market prices, the market value of our ownership in COMPASS was $76.8 million as of December 31, 2022. As of December 31, 2022, the carrying value of our investment in COMPASS was $0 million under the equity method. As of December 31, 2022, our voting interest in COMPASS was 22.4%.
Hercules Term Loan
On August 9, 2022, we entered into the Loan Agreement with Hercules See “ “-Liquidity and Capital Resources-Indebtedness-Hercules Term Loan” for additional information.
Liquidity Risks
As of December 31, 2022, we had cash and cash equivalents of $190.6 million and short-term securities of $82.5 million. We believe that our cash and cash equivalents and short-term securities will be sufficient to fund our projected operating expenses and capital expenditures through at least the next 12 months from the date of this Annual Report.
We expect to continue to incur substantial additional expenditures in the near term to support our ongoing activities. Additionally, we have incurred and expect to continue to incur additional costs as a result of operating as a public company. We expect to continue to incur net losses for the foreseeable future. Our ability to fund our product development and clinical operations as well as commercialization of our product candidates, will depend on the amount and timing of cash received from planned financings.
Our future capital requirements will depend on many factors, including:
•the time and cost necessary to complete ongoing and planned clinical trials;
•the outcome, timing and cost of meeting regulatory requirements established by the FDA, the EMA and other comparable foreign regulatory authorities;
•the progress, timing, scope and costs of our preclinical studies, clinical trials and other related activities for our ongoing and planned clinical trials, and potential future clinical trials;
•the costs of commercialization activities for any of our product candidates that receive marketing approval, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities, or entering into strategic collaborations with third parties to leverage or access these capabilities;
•the amount and timing of sales and other revenues from our product candidates, if approved, including the sales price and the availability of coverage and adequate third party reimbursement;
•the cash requirements for purchasing additional equity from certain of our portfolio companies upon the achievement of specified development milestone events;
•the cash requirements for developing our programs and our ability and willingness to finance their continued development;
•the cash requirements for any future acquisitions or discovery of product candidates; and
•the time and cost necessary to respond to technological and market developments, including other products that may compete with one or more of our product candidates.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans. If we are unable to obtain this funding when needed and on acceptable terms, we could be forced to delay, limit or terminate our product development efforts.
Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operations through a combination of equity financings, debt financings, collaborations with other companies and other strategic transactions. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we are unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
Cash Flows
The following table summarizes our cash flows for years ended December 31, 2022 and 2021:
December 31,
(in thousands)
Net cash used in operating activities
$
(104,467
)
$
(63,246
)
Net cash used in investing activities
(86,848
)
(81,276
)
Net cash provided by financing activities
20,785
409,862
Effect of foreign exchange rate changes on cash
(1,123
)
(320
)
Net increase (decrease) in cash
$
(171,653
)
$
265,020
Net Cash Used in Operating Activities
Net cash used in operating activities was $104.5 million for the year ended December 31, 2022, which consisted of a net loss of $157.4 million, adjusted by non-cash charges of $56.3 million and net cash outflows from the change in operating assets and liabilities of $3.3 million. The non-cash charges primarily consisted of $42.4 million of stock-based compensation, $16.0 million of losses from our equity method investments, $5.1 million of deferred tax provision expense, $0.9 million impairment of loan receivable and $0.4 million of IPR&D considered to have no future alternative use, partially offset by $5.0 million of unrealized foreign exchange gains, $1.5 million gain on deconsolidation of a variable interest entity and $1.5 million gain from the change in fair value of contingent consideration liabilities. The net cash outflows from the change in operating assets and liabilities were primarily due to a $3.0 million decrease in accounts payable and a $1.5 million increase in prepaid expenses, partially offset by a $1.2 million increase in accrued liabilities.
Net cash used in operating activities was $63.2 million for the year ended December 31, 2021, which consisted of a net loss of $174.2 million, adjusted by non-cash charges of $118.6 million and net cash outflows from the change in operating assets and liabilities of $7.6 million. The non-cash charges primarily consisted of $63.4 million of stock-based compensation, $15.5 million of IPR&D considered to have no future alternative use, $58.6 million of losses from our equity method investments and $12.3 million of unrealized loss on other investments held at fair value, partially offset by $11.4 million of unrealized foreign exchange gains, $16.9 million of gain on investment dilution and a $3.5 million gain on consolidation of variable interest entities. The net cash outflows from the change in operating assets and liabilities were primarily due to a $5.0 million increase in prepaid expenses, a $4.4 million increase in other receivables, a $5.1 million increase in our deferred tax asset, partially offset by a net $2.3 million increase in accounts payable, partially offset by a $5.7 million increase in accrued liabilities.
Net Cash Used in Investing Activities
Net cash used in investing activities was $86.8 million for the year ended December 31, 2022, primarily driven by $309.1 million of cash paid for securities carried at fair value, $3.0 million of loans remitted to related parties, additional investments of $0.6 million in our other investments, $0.8 million of purchases of property and equipment, and $0.3 million of capitalized internal-use software development costs, partially offset by $226.8 million of proceeds from sale and maturities of securities at fair value.
Net cash used in investing activities was $81.3 million for the year ended December 31, 2021, primarily driven by $52.9 million additional investments into equity-method investees, additional investments of $11.3 million in our other investments, additional investments of $12.3 million in our other investments held at fair value, $2.6 million of loans remitted to related parties, $1.0 million of cash paid for asset acquisitions, $1.0 million of capitalized internal-use software development costs and $0.2 million of purchases of property and equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $20.8 million for the year ended December 31, 2022, primarily due to $15 million of proceeds from debt financings, $4.6 million of proceeds from conversion of convertible notes to common shares, $2.3 million of proceeds from stock option exercises and $0.6 million of proceeds from issuance of subsidiary preferred shares, partially offset by $1.7 million of debt financing costs paid.
Net cash provided by financing activities was $409.9 million for the year ended December 31, 2021, primarily due to $409.9 million of proceeds from the issuance of our common shares, $6.9 million of proceeds from conversion of convertible notes to common shares, $2.4 million of proceeds from our sale of Innoplexus AG investments treated as a secured financing, $1.6 million of proceeds from the issuance of convertible promissory notes and $0.9 million of proceeds from stock option exercises. The net cash influx was offset by $12.4 million paid for common share issuance costs.
Indebtedness
Convertible Notes
In November 2018, we issued an aggregate principal amount of $0.2 million of the 2018 Convertible Notes. The 2018 Convertible Notes are non-interest-bearing and have a maturity date of September 30, 2025, unless previously redeemed, converted, purchased or cancelled. In October 2020, we issued an additional principal amount of $1.0 million of 2018 Convertible Notes. Each note has a face value of €1 and is convertible into one ordinary share of ATAI Life Sciences AG upon the payment of €17.00. Conversion rights may be exercised by a noteholder at any time prior to maturity, except during certain periods subsequent to the consummation of the IPO. In 2021, several noteholders elected to convert their convertible promissory notes into shares of ATAI Life Sciences N.V. These investors paid €17.00 per share for the aggregate amount of €5.8 million ($6.9 million) in order to convert their convertible promissory notes into ATAI Life Sciences AG common shares, which was in accordance with the original terms of the 2018 Convertible Note Agreements. In May 2022 and July 2022, additional noteholders elected to convert some of their convertible promissory notes into shares of ATAI Life Sciences N.V. The investors paid €17.00 per share for the aggregate amount of €4.6 million or $4.6 million in order to convert their convertible promissory notes into ATAI Life Sciences AG common shares, which was in accordance with the original terms of the 2018 Convertible Note Agreements. Concurrent with the conversion of the 2018 Convertible Notes into ATAI Life Sciences AG shares, the shares of ATAI Life Sciences AG that were issued to the noteholders were exchanged for 5,478,176 shares of ATAI Life Sciences N.V. through a transfer and sale arrangement such that ATAI Life Sciences AG continued to remain a wholly owned subsidiary of ATAI Life Sciences N.V and the transaction was accounted for as an equity transaction that resulted in no gain or loss recognition. As of December 31, 2022 an aggregate principal amount of $0.4 million remained outstanding under the 2018 Convertible Notes.
In March 2020, we received proceeds of $0.6 million from the issuance of Perception Notes, as defined below, to third party investors. In December 2020, January 2021, and May 2021 we received $0.4 million, $0.8 million, and $0.8 million respectively, in proceeds from the issuance of additional Perception Notes. The Perception Notes are convertible upon mandatory conversion events into shares of Perception. The Perception Notes converted in June 2021 in connection with the receipt of proceeds of $20.0 million pursuant to the Otsuka Agreement.
Investment in Convertible Promissory Notes-Related Party
On March 16, 2020, Perception entered into a convertible promissory note agreement with us and certain other unrelated investors (the “First Perception Note Purchase Agreement”), pursuant to which Perception issued $3.9 million in principal amount of convertible notes in aggregate (the “First Perception Notes”). Under the First Perception Note Purchase Agreement, Perception issued the First Perception Notes in an aggregate principal amount of $3.3 million to us and $0.6 million to other investors, including related parties. The First Perception Notes bear interest at an annual rate of 5% and were due and payable on June 30, 2022 unless earlier converted. In December 2020, Perception entered into an additional convertible promissory note agreement with us and certain other unrelated investors (the “Second Perception Note Purchase Agreement”), pursuant to which Perception issued additional convertible notes (the “Second Perception Notes” and together with the First Perception Notes, the “Perception Notes”) to us, certain related parties and third party investors in an aggregate principal amount of $7.0 million, of which $5.8 million was issued to us and $1.2 million was issued to other investors, including related parties. In January 2021, pursuant to the Second Perception Note Purchase Agreement, Perception issued the Second Perception Notes in an aggregate principal amount of $0.8 million to other investors, including related parties, as part of its first tranche funding. In May 2021, Perception issued additional Second Perception Notes to us, certain related parties and third party investors in an aggregate principal amount of $5.0 million, of which $4.2 million was issued to us and $0.8 million was issued to other investors, including related parties, as part of its second tranche funding. The Second Perception Notes bear interest at an annual rate of 5% and were due and payable on February 28, 2022, unless earlier converted. Perception may not prepay in whole or in part without our consent.
In June 2021, Perception received proceeds of $20.0 million pursuant to the Otsuka Agreement. Upon receipt of the proceeds, the Perception Notes automatically converted into 6,456,595 shares of Series A preferred stock of Perception pursuant to their original terms.
Hercules Term Loan
On August 9, 2022 (the “Closing Date”), we, ATAI Life Sciences AG (“ATAI AG” and together with the Company, the “Borrowers”) and certain of our subsidiary guarantors (collectively, the “Subsidiary Guarantors”) entered into a Loan and Security Agreement (as amended by the certain First Amendment to Loan and Security Agreement dated as of March 13, 2023, the “Loan Agreement”) with Hercules Capital, Inc. (“Hercules”), in its capacity as administrative agent and collateral agent (the “Agent”) and as a lender, and certain other financial institutions that from time to time may become parties to the Loan Agreement as lenders (collectively, the “Lenders”). The Loan Agreement provides for term loans in an aggregate principal amount of up to $175.0 million under multiple tranches (the “2022 Term Loan Facility”), available as follows: (i) a term loan advance in the amount of $15.0 million on the Closing Date (the “Tranche 1A Advance”); (ii) at any time after the Closing Date but on or prior to May 1, 2023 (the “Tranche 1B Expiration Date”), term loan advances in an aggregate principal amount of up to $20.0 million (the “Tranche 1B Advances”); (iii) at any time beginning upon the earlier of (A) the Tranche 1B Expiration Date and (B) the date on which all amounts available to be drawn under the Tranche 1B Advances have been drawn and on or prior to December 15, 2023 (the “Tranche 1C Expiration Date”), term loan advances in an aggregate principal amount of up to $25.0 million (the “Tranche 1C Advances” and together with the Tranche 1A Advance and the Tranche 1B Advances, the “Tranche 1 Advances”); (iv) subject to us achieving certain performance milestones and, beginning upon the earlier of (A) the date on which all amounts available to be drawn under the Tranche 1C Advances have been drawn and (B) the Tranche 1C Expiration Date, on or prior to June 30, 2024, term loan advances in an aggregate principal amount of $15.0 million (the “Tranche 2 Advances”); and (v) subject to approval by the Lenders’ respective investment committees in its discretion, on or prior to March 31, 2025, term loan advances in an aggregate principal amount of up to $100.0 million (the “Tranche 3 Advances”). With the exception of the first $15.0 million tranche which was drawn on the Closing Date, each of the tranches may be drawn down in $5.0 million increments at our election, subject to applicable conditions to draw. We have agreed to use the proceeds of the 2022 Term Loan Facility for working capital and general business purposes.
We are permitted to engage in certain specified transactions (subject to mandatory prepayment in certain instances as well as certain limitations, including the pledge of equity interests of certain subsidiaries and VIEs), including but not limited to, (i) entering into non-exclusive and certain specified exclusive licensing arrangements with respect to intellectual property without the consent of the Lenders; and (ii) entering into certain permitted acquisitions.
The 2022 Term Loan Facility will mature on August 1, 2026 (the “Maturity Date”), which may be extended until February 1, 2027 if we achieve certain performance milestones, raise at least $175.0 million of unrestricted new net cash proceeds from certain permitted sources after the Closing Date and prior to June 30, 2024, and satisfy certain other specified conditions. The outstanding principal balance of the 2022 Term Loan Facility bears interest at a floating interest rate per annum equal to the greater of either (i) the prime rate as reported in the Wall Street Journal plus 4.55% and (ii) 8.55%. Accrued interest is payable monthly following the funding of each term loan advance. We may make payments of interest only, without any loan amortization payments, for a period of thirty (30) months following the Closing Date, which period may be extended to (i) thirty-six months if certain additional performance milestones have been achieved; and (ii) forty-two months if certain additional performance milestones have been achieved. At the end of the interest only period, we are required to begin repayment of the outstanding principal of the 2022 Term Loan Facility in equal monthly installments.
As collateral for the obligations under the 2022 Term Loan Facility, we have granted to the Agent for the benefit of the Lenders a senior security interest in substantially all of our, ATAI AG and each Subsidiary Guarantor’s property (including a pledge of equity interests of certain subsidiaries and VIEs), exclusive of intellectual property, with certain limited exceptions set forth in the Loan Agreement.
The Loan Agreement contains customary closing and commitment fees, prepayment fees and provisions, events of default and representations, warranties and affirmative and negative covenants, including a financial covenant requiring us to maintain certain levels of cash in accounts subject to a control agreement in favor of the Agent (the “Qualified Cash”) at all times commencing from the Closing Date, which includes a cap on the amount of cash that can be held by, among others, certain of our foreign subsidiaries in Australia and the United Kingdom. In addition, the financial covenant under the Loan Agreement requires that beginning on the later of (i) July 1, 2023 and (ii) the date on which the aggregate outstanding amount borrowed under the 2022 Term Loan Facility is equal to or greater than $40.0 million, we shall maintain Qualified Cash in an amount no less than the sum of (1) 33% of the outstanding amount under the 2022 Term Loan Facility, and (2) the amount of the Borrowers’ and Subsidiary Guarantors’ accounts payable that have not been paid within 180 days from the invoice date of the relevant account payable, subject to certain exceptions; provided, that the financial covenant shall not apply on any day that our market capitalization is at least $600.0 million measured on a consecutive 10-business day period immediately prior to such date of measurement and tested on a daily basis. Upon the occurrence of an event of default, including a material adverse effect, subject to certain exceptions, on our and ATAI AG’s, taken together, business, operations, properties, assets or financial condition, and subject to any specified cure periods, all amounts owed by us may be declared immediately due and payable by the Lenders. As of December 31, 2022, we were in compliance with all applicable covenants under the Loan Agreement.
In addition, we are required to make a final payment fee (the “End of Term Charge”) upon the earlier of (i) the Maturity Date, (ii) the date that we prepay, in full or in part, the principal balance of the 2022 Term Loan Facility, or (iii) the date that the outstanding balance of the
2022 Term Loan Facility becomes due and payable. The End of Term Charge is 6.95% of the aggregate original principal amount of the term loans so repaid or prepaid under the Loan Agreement.
We may, at our option, prepay the term loans in full or in part, subject to a prepayment penalty equal to (i) 2.00% of the principal amount prepaid if the prepayment occurs on or prior to the first anniversary of the Closing Date, (ii) 1.0% of the principal amount prepaid if the prepayment occurs after the first anniversary and on or prior to the second anniversary of the Closing Date, and (iii) 0.5% of the principal amount prepaid if the prepayment occurs after the second anniversary and prior to the Maturity Date.
Contractual Obligations and Commitments
We have entered into other contracts in the normal course of business with certain CROs, CMOs and other third parties for preclinical research studies and testing, clinical trials and manufacturing services. These contracts do not contain any minimum purchase commitments and are cancelable by us upon written notice. Payments due upon cancellation consist only of payments for services provided and expenses incurred, including noncancelable obligations of our service providers, up to the date of cancellation. The amounts and timing of such payments are not known.
In addition, under various licensing and related agreements to which we are a party, we are obligated to pay annual license maintenance fees and may be required to make milestone payments and to pay royalties and other amounts to third parties. The payment obligations under these agreements are contingent upon future events, such as our achievement of specified milestones or generating product sales, and the amount, timing and likelihood of such payments are not known. Such contingent payment obligations are described below. For additional information regarding our license agreements described below, see Note 16 to our consolidated financial statements included elsewhere in this Annual Report. For additional information regarding our contingent commitments and future put rights or options associated with our investments, see Note 3 to our consolidated financial statements included elsewhere in this Annual Report.
National University Corporation Chiba University License Agreement
In August 2017, Perception entered into a license agreement or CHIBA License with the National University Corporation Chiba University or CHIBA, relating to Perception’s drug discovery and development initiatives. Under the CHIBA License, Perception has been granted a worldwide exclusive license under certain patents and know-how of CHIBA to research, develop, manufacture, use and commercialize therapeutic products. Perception paid an upfront license fee and is required to pay an annual maintenance fee until the filing of a new drug application with the Food and Drug Administration. In addition, Perception is also required to pay tiered royalties ranging in the low to mid-single-digit on future net sales of licensed products that are covered by a valid claim of a licensed patent, if any. Perception is also obligated to make contingent milestone payments totaling up to $1.2 million upon the achievement of certain clinical or regulatory milestones for each of the first two licensed products and $1.0 million upon the achievement of certain clinical or regulatory milestones for each additional licensed product. The CHIBA License will remain in effect until terminated by the parties according to their rights.
During the year ended December 31, 2022 we made no material payments pursuant to the CHIBA License.
Allergan License Agreement
In February 2020, Recognify entered into a license agreement with Allergan Sales, LLC, or Allergan, which grants Recognify an exclusive sublicensable and worldwide license under certain patent rights and know-how controlled by Allergan to develop, manufacture and commercialize certain products for use in all fields including the treatment of certain diseases and conditions of the central nervous system. Recognify paid Allergan an upfront payment of $0.5 million and will pay Allergan a mid-single-digit royalty on the net sales of the licensed products. In addition, Recognify is obligated to pay Allergan a low teen percentage of the non-royalty sublicense payments it receives from a third party receiving a sublicense to practice the rights licensed to Recognify under the Allergan License Agreement. Upon the occurrence of certain change of control transactions involving Recognify, or sale, assignment or transfer (other than sublicense) to a third party of any rights licensed to Recognify under the Allergan License Agreement, Recognify is required to share with Allergan a low teen percentage of the proceeds it receives from such transactions. The Allergan License Agreement will remain in effect until terminated by the parties according to their rights.
During the year ended December 31, 2022, we had made no material payments pursuant to the Allergan License agreement.
Columbia Stock Purchase Agreement
In June 2020, Kures entered into a license agreement (the “License Agreement”) with Trustees of Columbia University (“Columbia”), pursuant to which, Kures obtained an exclusive license under certain patents and technical information to discover, develop, manufacture, use and commercialize such patents or other products in all uses and applications (“Columbia IP”). In addition, in consideration for the rights to the Columbia IP, Kures entered into a Stock Purchase Agreement (the “SPA”) with Columbia in contemplation of the License Agreement. Pursuant to the SPA, Kures issued to Columbia certain shares of the Kures’ capital stock, representing 5.0% of Kures common stock on a fully diluted basis. Furthermore, the SPA provided that from time to time, Kures shall issue to Columbia additional shares of
Kures’ common stock, at a per share price equal to the then fair market value of each such share, which price shall be deemed to have been paid in partial consideration for the execution, delivery and performance by Columbia of the License Agreement, such that the common stock held by Columbia shall equal to 5.0% of the common stock on a fully diluted basis, at all times up to and through the achievement of certain funding threshold.
In April 2022, Kures issued shares of Series A-2 Preferred Stock to certain investors upon the achievement of Series A-2 milestone events. Accordingly, we issued certain anti-dilution common stock to Columbia worth $0.3 million. We expensed the cost incurred for acquiring license as research & development expense at inception. Since, the additional anti-dilution shares were issued as partial consideration towards the same license arrangement, the cost of such additional shares was also expensed as research & development expense during the year ended December 31, 2022. During the year ended December 31, 2022 we recognized $0.4 million of IPR&D expense in connection with the SPA and the License Agreement.
During the year ended December 31, 2022, we made no material payments in connection with the Columbia agreement.
Accelerate License Agreement
On April 27, 2021, Psyber entered into a license arrangement (the “Accelerate License Agreement”) with Accelerate Technologies Pte. Ltd. (“Accelerate”), whereby Accelerate grants Psyber non-exclusive rights to license and use the technology to commercialize of Psyber’s BCI-enabled companion digital therapeutics in United States of America, Singapore, Member Countries of the European Union, Canada, Australia and New Zealand as a potential treatment for mental health and behavior change, such as substance use disorders including opioid use disorder, mood and anxiety disorders including post-traumatic stress disorder, and treatment-resistant depression. Psyber will pay Accelerate an upfront payment of $0.1 million, up to $0.3 million upon the achievement of certain clinical and sale milestones, and low to mid-single digit royalty payments based on net sales.
As of December 31 2022, we had made no material payments pursuant to the Accelerate License Agreement.
Dalriada License Agreement
In December 2021, Invyxis, Inc., or Invyxis, entered into an exclusive services and license agreement (the “Dalriada License Agreement”) with Dalriada Drug Discovery Inc. (“Dalriada”). Under the Dalriada License Agreement, Dalriada is to exclusively collaborate with Invyxis to develop products, services and processes with the specific purpose of generating products consisting of new chemical entities. Invyxis will pay Dalriada up to $12.8 million in service fees for research and support services. In addition, Invyxis will pay Dalriada development milestone payments and low single digit royalty payments based on net product sales. We have the right, but not the obligation, to settle future royalty payments based on net product sales with the our common shares. Invyxis, our wholly-owned subsidiary, and Dalriada will determine the equity settlement based on a price per share determined by both parties.
In December 2022, we executed an amendment to the Dalriada License Agreement, which reduced the upfront deposit from $1.1 million to $0.5 million. As such, the remaining $0.6 million was applied against research and development expense incurred. We expensed the remaining deposit as the services are performed as a component of research and development expense in the consolidated statements of operations. During the year ended December 31, 2022, we recorded $2.8 million as research and development expense. We did not record a material amount of research & development expense for the year ended December 31, 2021. During the years ended December 31, 2022 and 2021, Invyxis made no other service fee payments to Dalriada.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, costs and expenses and the disclosure of contingent liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in greater detail in Note 2, “Summary of Significant Accounting Policies” in our consolidated financial statements appearing under Part II, Item 8, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Licenses of Intellectual Property
We may enter into collaboration and licensing arrangements for research and development, manufacturing, and commercialization activities with counterparties for the development and commercialization of its product candidates. The agreements may have units of account within
the scope of Accounting Standards Codification (“ASC”) 606 where the counterparties meet the definition of a customer as well as units of account within the scope of ASC 808 where both parties are determined to be active participants exposed to significant risk and rewards.
The arrangements may contain multiple components, which may include (i) licenses, or options to obtain licenses to our intellectual property or sale of our license, (ii) research and development activities, (iii) participation on joint steering committees, and (iv) the manufacturing of commercial, clinical or preclinical material. Payments pursuant to these arrangements may include non-refundable, upfront payments, milestone payments upon the achievement of significant development events, research and development reimbursements, sales milestones, and royalties on product sales. The amount of variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its collaboration and license agreements, we perform the following steps: (i) identification of the promised goods or services in the contract within the scope of ASC 606; (ii) determination of whether the promised goods or services are performance obligations including whether they are capable of being distinct and distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. As part of the accounting for these arrangements we must use significant judgment to determine: (a) the number of performance obligations based on the determination under step (ii) above; (b) the transaction price under step (iii) above; (c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above; and d) the measure of progress in step (v) above. We use judgment to determine whether milestones or other variable consideration, except for sales-based milestones and royalties on license arrangements, should be included in the transaction price as described further below.
If a license to our intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, we recognize revenue from consideration allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether a promise or performance obligation is distinct from the other elements, we consider factors such as the research, development, manufacturing and commercialization capabilities of the counterparties and the availability of its associated expertise in the general marketplace. In addition, we consider whether the counterparties can benefit from a promise for its intended purpose without the receipt of the remaining elements, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise. For licenses that are combined with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress as of each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, is subject to estimates by management and may change over the course of the arrangement. Such a change could have a material impact on the amount of revenue we record in future periods.
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred.
We accrue expense for preclinical studies and clinical trial activities performed by vendors based upon estimates of the proportion of work completed. We determine such estimates by reviewing contracts, vendor agreements, and through discussions with our internal personnel and external service providers as to the progress or stage of completion and the agreed-upon fee to be paid for such services. However, actual costs and timing of preclinical studies and clinical trials are highly uncertain, subject to risks, and may change depending upon a number of factors, including our clinical development plan.
We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known at that time. If the actual timing of the performance of services or the level of effort varies from the estimate, the accrual is adjusted accordingly. Nonrefundable advance payments for goods and services are deferred and recognized as expense in the period that the related goods are consumed or services are performed.
Acquisitions and Dispositions
We evaluate each of our acquisitions under the accounting framework in ASC 805, Business Combinations, to determine whether the transaction is a business combination or an asset acquisition. In determining whether an acquisition should be accounted for as a business combination or an asset acquisition, we first perform a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the acquired set is not deemed to be a business and is instead accounted for as an asset acquisition. If this is not the case, we further evaluate whether the acquired set includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, we
conclude that the acquired set is a business. During the years ended December 31, 2022 and 2021, we did not have any acquisitions that were accounted for as business combinations.
For asset acquisitions that involve the initial consolidation of a VIE that is not a business for which we are the primary beneficiary, the transactions are accounted for under ASC 810, Consolidation, and no goodwill is recognized. Rather, we recognize the identifiable assets acquired (excluding goodwill), the liabilities assumed, and any noncontrolling interests as though the VIE was a business and subject to the guidance on recognition and measurement in a business combination under ASC 805, and recognize a gain or loss for the difference between (a) the sum of the fair values of consideration paid (including any contingent consideration) and noncontrolling interests, (b) the fair value of the VIE’s identifiable assets and liabilities, and (c) the reported amounts of any previously held interests. Acquisition-related expenses incurred in asset acquisitions that involve the initial consolidation of a VIE that is not a business, are not included as a component of consideration transferred, but are accounted for as an expense in the period in which the costs are incurred. In an asset acquisition, including the initial consolidation of a VIE that is not a business, acquired IPR&D with no alternative future use is charged to research and development expense at the acquisition date.
Upon the occurrence of certain events and on a regular basis, we evaluate whether we no longer have a controlling interest in our consolidated VIEs. If we determine that we no longer have a controlling interest, the subsidiary is deconsolidated. We will record a gain or loss on deconsolidation based on the difference on the deconsolidation date between (i) the aggregate of (a) the fair value of any consideration received, (b) the fair value of any retained noncontrolling investment in our former subsidiary and (c) the carrying amount of any noncontrolling interest in the subsidiary being deconsolidated, less (ii) the carrying amount of the former subsidiary’s assets and liabilities.
Share-Based Compensation
We recognize compensation costs related to share-based awards granted to employees, directors, and consultants based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value, and the resulting share-based compensation expense, for stock options that only have service vesting requirements or performance-based vesting requirements without market conditions using the Black-Scholes option-pricing model. The grant date fair value of the share-based awards with service vesting requirements is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. Determining the appropriate amount to expense for performance-based awards based on the achievement of stated goals requires judgment. We recognize expense for performance-based awards if the stated goals are determined to be probable of being met as of the period end. If any applicable financial performance goals are not met, no compensation cost is recognized and any previously recognized compensation cost is reversed. For performance-based awards with market conditions, we determine the fair value of awards as of the grant date using a Monte Carlo simulation model. We have elected to recognize forfeitures of stock-based compensation awards as they occur.
We estimate the fair value of stock options using the Black-Scholes option-pricing model, which requires assumptions, including the fair value of our Common Shares prior to our initial public offering, volatility, the expected term of our stock options, the risk-free interest rate for a period that approximates the expected term of our stock options, and our expected dividend yield. Certain assumptions used in our Black-Scholes option-pricing model represent management’s best estimates and involve a number of variables, uncertainties and assumptions and the application of management’s judgment, as they are inherently subjective. If any assumptions change, our stock-based compensation expense could be materially different in the future.
These subjective assumptions are estimated as follows:
Expected term-We have generally elected to use the “simplified method” for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option (generally 10 years).
Expected volatility-As we have limited trading history for our common shares, the expected volatility was estimated based on the average volatility for comparable publicly traded biotechnology companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on their similar size, stage in the life cycle or area of specialty. We also included our own historical volatility in the determination of expected volatility.
Risk-free interest rate-The risk-free rate assumption is based on the implied yield with an equivalent expected term at the grant date.
Expected dividend yield-We have not issued any dividends in our history and do not expect to issue dividends over the life of the options; therefore, we have estimated the dividend yield to be zero.
As part of the valuation of share-based compensation under the Black-Scholes option-pricing model, it is necessary for us to estimate the fair value of our common shares. Prior to our IPO, we were required to periodically estimate the fair value of our common shares when issuing options and in computing our estimated share-based compensation expense. Given the absence of a public trading market prior to
the completion our initial public offering, and in accordance with the American Institute of Certified Public Accountants’ Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, we exercised reasonable judgment and considered numerous objective and subjective factors to determine our best estimate of the fair value of our common shares. The estimation of the fair value of our common shares considered factors including the following: the estimated present value of our future cash flows; our business, financial condition and results of operations; our forecasted operating performance; the illiquid nature of our common shares; industry information such as market size and growth; market capitalization of comparable companies and the estimated value of transactions such companies have engaged in; and macroeconomic conditions. We apply similar methodology to estimate the fair value of our privately held subsidiaries' common shares. After the closing of the IPO, our board of directors determined the fair value of each common share underlying stock-based awards based on the closing price of our common shares as reported on Nasdaq on the date of grant.
Recently Adopted Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2, “Summary of Significant Accounting Policies - Recently Adopted Accounting Pronouncements” in our consolidated financial statements appearing under Part II, Item 8.
JOBS Act
We are an emerging growth company, as defined in the JOBS Act. We intend to rely on certain of the exemptions and reduced reporting requirements provided by the JOBS Act. As an emerging growth company, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, and (ii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). We have elected to use the extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that (i) we are no longer an emerging growth company or (ii) we affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We expect to use the extended transition period for any other new or revised accounting standards during the period in which we remain an emerging growth company.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risks in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily the result of fluctuations in interest rates and foreign currency exchange rates. In addition, our portfolio of notes receivables is exposed to credit risk in the form of non-payment or non-performance. In mitigating our credit risk, we consider multiple factors, including the duration and terms of the note and the nature of and our relationship with the counterparty. The following analysis provides quantitative information regarding these risks.
Interest Rate Sensitivity
Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. As of December 31, 2022, we had cash and cash equivalents of $190.6 million and short-term securities of $82.5 million. We generally hold our cash in interest-bearing demand deposit accounts and short-term securities. Due to the nature of our cash and investment portfolio, a hypothetical 100 basis point change in interest rates would not have a material effect on the fair value of our cash. Our cash is held for working capital purposes. We purchase investment grade marketable debt securities which are rated by nationally recognized statistical credit rating organizations in accordance with its investment policy. This policy is designed to minimize our exposure to credit losses and to ensure that the adequate liquidity is maintained at all times to meet anticipated cash flow needs.
As of December 31, 2022, we had $0.4 million in convertible promissory notes - related parties, net, which was comprised of non-interest-bearing borrowings under the 2018 Convertible Notes. Based on the principal amounts of the convertible promissory notes and the interest rate assigned to the convertible promissory notes, an immediate 10% change in interest rates would not have a material impact on our convertible promissory notes, financial position or results of operations.
As of December 31, 2022, the carrying amount of our short and long-term notes receivables was an aggregate amount of $7.2 million. Based on the principal amounts of the notes receivable and the interest rates assigned to each note receivable as per their respective contracts, an immediate 10% change in the interest rates would not have a material impact on our notes receivables, financial position or results of operations.
Foreign Currency Exchange Risk
Our reporting and functional currency is the U.S. dollar, and the functional currency of our foreign subsidiaries is generally the respective local currency. The assets and liabilities of each of our foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at each balance sheet date. Adjustments resulting from translating foreign functional currency financial statements into U.S. dollars are recorded as a separate component on the condensed consolidated statements of comprehensive loss. Equity transactions are translated using historical exchange rates. Expenses are translated using the average exchange rate during the previous month. Gains or losses due to transactions in foreign currencies are included in interest and other income, net in our condensed consolidated statements of operations.
The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in foreign exchange gains and losses related to changes in foreign currency exchange rates. In the event our foreign currency denominated assets, liabilities, revenue, or expenses increase, our results of operations may be more greatly affected by fluctuations in the exchange rates of the currencies in which we do business, resulting in unrealized foreign exchange gains or losses. We have not engaged in the hedging of foreign currency transactions to date, although we may choose to do so in the future. No strategy can completely insulate us from risks associated with such fluctuations and our currency exchange rate risk management activities could expose us to substantial losses if such rates move materially differently from our expectations.
A hypothetical 10% change in the relative value of the U.S. dollar to other currencies during any of the periods presented would not have had a material effect on our consolidated financial statements, but could result in significant unrealized foreign exchange gains or losses for any given period.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 34)
Consolidated Balance Sheets as of December 31, 2022 and 2021
Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Redeemable Noncontrolling Interests and Stockholders’ Equity for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors of ATAI Life Sciences N.V.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of ATAI Life Sciences N.V. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, redeemable noncontrolling interests and stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Morristown, New Jersey
March 24, 2023
We have served as the Company's auditor since 2020.
ATAI LIFE SCIENCES N.V.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
December 31,
Assets
Current assets:
Cash and cash equivalents
$
190,613
$
362,266
Securities carried at fair value
82,496
-
Prepaid expenses and other current assets
14,036
11,903
Short term notes receivable
-
Total current assets
287,145
375,082
Property and equipment, net
Equity method investments
-
16,131
Other investments
6,755
11,628
Long term notes receivable - related parties
7,262
3,835
Other assets
3,351
7,341
Total assets
$
305,441
$
414,166
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
2,399
6,004
Accrued liabilities
17,306
14,829
Current portion of contingent consideration liability - related parties
-
Other current liabilities
Total current liabilities
19,897
20,935
Non-current portion of contingent consideration liability - related parties
2,432
Convertible promissory notes - related parties, net of discounts and deferred
issuance costs
Long-term debt, net
14,702
-
Other liabilities
3,708
4,097
Total liabilities
$
39,675
$
28,207
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common stock, €0.10 par value ($0.12 par value at December 31, 2022 and December 31, 2021, respectively); 750,000,000 shares authorized at December 31, 2022 and December 31, 2021, respectively; 165,935,914 and 160,677,001 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively
18,562
18,002
Additional paid-in capital
774,092
725,045
Share subscription receivable
(24
)
-
Accumulated other comprehensive loss
(21,702
)
(8,336
)
Accumulated deficit
(510,188
)
(357,803
)
Total stockholders’ equity attributable to ATAI Life Sciences N.V. stockholders
260,740
376,908
Noncontrolling interests
5,026
9,051
Total stockholders’ equity
265,766
385,959
Total liabilities and stockholders’ equity
$
305,441
$
414,166
See accompanying notes to the consolidated financial statements.
ATAI LIFE SCIENCES N.V.
CONSOLIDATED STATEMEN TS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
Years Ended December 31,
License revenue
$
$
20,376
Operating expenses:
Research and development
74,313
47,956
Acquisition of in-process research and development
15,480
General and administrative
70,350
92,745
Total operating expenses
145,020
156,181
Loss from operations
(144,787
)
(135,805
)
Other income (expense), net:
Interest income
Change in fair value of contingent consideration liability -
related parties
1,475
Change in fair value of derivative liability
-
Change in fair value of warrant liability
(87
)
Change in fair value of securities carried at fair value
-
Unrealized loss on other investments held at fair value
-
(12,346
)
Loss on conversion of convertible promissory notes
-
(513
)
Gain on consolidation of a variable interest entity
-
3,543
Gain on deconsolidation of a variable interest entity
1,484
-
Foreign exchange gain, net
6,902
8,481
Other expense, net
(1,412
)
(293
)
Total other income (expense), net
9,605
(796
)
Loss before income taxes
(135,182
)
(136,601
)
Benefit from (provision for) income taxes
(6,229
)
3,989
Gain on dilution of equity method investment
-
16,923
Losses from investments in equity method investees, net of tax
(16,006
)
(58,555
)
Net loss
(157,417
)
(174,244
)
Net loss attributable to redeemable noncontrolling interests and noncontrolling interests
(5,032
)
(6,436
)
Net loss attributable to ATAI Life Sciences N.V. stockholders
$
(152,385
)
$
(167,808
)
Net loss per share attributable to ATAI Life Sciences N.V.
stockholders - basic and diluted
$
(0.98
)
$
(1.21
)
Weighted average common shares outstanding attributable to ATAI
Life Sciences N.V. stockholders - basic and diluted
155,719,585
138,265,859
See accompanying notes to the consolidated financial statements.
ATAI LIFE SCIENCES N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands)
Years Ended December 31,
Net loss
$
(157,417
)
$
(174,244
)
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax
(13,366
)
(14,155
)
Comprehensive loss:
$
(170,783
)
$
(188,399
)
Comprehensive loss attributable to redeemable noncontrolling interests and noncontrolling interests
(5,032
)
(6,436
)
Foreign currency translation adjustments, net of tax attributable to noncontrolling interests
(24
)
Comprehensive loss attributable to redeemable noncontrolling
interests and noncontrolling interests
(4,982
)
(6,460
)
Comprehensive loss attributable to ATAI Life Sciences
N.V. stockholders
$
(165,801
)
$
(181,939
)
See accompanying notes to the consolidated financial statements.
ATAI LIFE SCIENCES N.V.
CONSOLIDATED STATEMENTS OF REDEEMABLE NONCONTROLLING
INTERESTS AND STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share and per share amounts)
Total
Accumulated
Stockholders’
Redeemable
Additional
Share
Other
Equity Attributable to
Total
Noncontrolling
Common Stock
Paid-In
Subscriptions
Comprehensive
Accumulated
ATAI Life Sciences N.V.
Noncontrolling
Stockholders’
Interests
Shares
Amount
Capital
Receivable
Loss
Deficit
Stockholders
Interests
Equity
Balances at December 31, 2020
$
-
114,735,712
$
13,372
$
261,626
$
-
$
5,819
$
(189,995
)
$
90,822
$
4,546
$
95,368
Issuance of common shares for Series C and Series D financing, net of issuance costs of $4.9 million
-
15,552,688
1,881
162,497
(140,868
)
-
-
23,510
-
23,510
Issuance of common shares for IPO, net of issuance costs of $9.0 million
-
17,250,000
2,046
229,535
-
-
-
231,581
-
231,581
Issuance of common shares under the Hurdle Share Option Plan (see Note 12)
-
7,281,376
-
-
-
-
-
-
-
-
Settlement of issuance of common shares, net of issuance costs of $4.9 million
-
-
-
-
140,868
-
-
140,868
-
140,868
Conversion of convertible notes to common stock
-
5,478,176
6,613
-
-
-
7,259
-
7,259
Issuance of noncontrolling interest
2,555
-
-
-
-
-
-
-
8,411
8,411
Issuance of shares upon exercise of stock options
-
379,049
-
-
-
-
Exercise of Hurdle Share Option Plan award (see Note 12)
-
-
-
-
-
-
Stock-based compensation expense
-
-
-
63,362
-
-
-
63,362
-
63,362
Foreign currency translation adjustment, net of tax
-
-
-
-
-
(14,155
)
-
(14,155
)
(24
)
(14,179
)
Net income (loss)
(2,555
)
-
-
-
-
-
(167,808
)
(167,808
)
(3,882
)
(171,690
)
Balances at December 31, 2021
$
-
160,677,001
$
18,002
$
725,045
$
-
$
(8,336
)
$
(357,803
)
$
376,908
$
9,051
$
385,959
Conversion of convertible notes to common stock
-
4,320,000
4,466
-
-
-
4,913
-
4,913
Issuance of shares upon exercise of stock options
-
938,913
2,206
(24
)
-
-
2,295
-
2,295
Issuance of subsidiary preferred shares
-
-
-
-
-
-
-
-
Issuance of subsidiary common shares
-
-
-
-
-
-
-
-
Stock-based compensation expense
-
-
-
42,375
-
-
-
42,375
-
42,375
Foreign currency translation adjustment, net of tax
-
-
-
-
-
(13,366
)
-
(13,366
)
(13,316
)
Net loss
-
-
-
-
-
-
(152,385
)
(152,385
)
(5,032
)
(157,417
)
Balances at December 31, 2022
$
-
165,935,914
$
18,562
$
774,092
$
(24
)
$
(21,702
)
$
(510,188
)
$
260,740
$
5,026
$
265,766
See accompanying notes to the consolidated financial statements.
ATAI LIFE SCIENCES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Years Ended December 31,
Cash flows from operating activities
Net loss
$
(157,417
)
$
(174,244
)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization expense
Amortization of debt discount
Change in fair value of contingent consideration liability-related parties
(1,475
)
(173
)
Change in fair value of securities carried at fair value
(272
)
-
Provision for deferred income taxes
5,074
-
Change in fair value of derivative liability
-
(41
)
Impairment of loan receivable
-
Change in fair value of warrant liability
(336
)
Unrealized loss on other investments held at fair value
-
12,346
Gain on dilution of equity method investment
-
(16,923
)
Loss on conversion of convertible notes
-
Gain on consolidation of a variable interest entity
-
(3,543
)
Gain on deconsolidation of a variable interest entity
(1,484
)
-
Losses from investments in equity method investees
16,006
58,555
In-process research and development expense
15,480
Stock-based compensation expense
42,375
63,362
Unrealized foreign exchange gains
(4,950
)
(11,346
)
Other
(161
)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
(1,522
)
(9,699
)
Other assets
-
(5,973
)
Accounts payable
(3,034
)
2,300
Accrued liabilities
1,221
5,756
Deferred revenue
-
Net cash used in operating activities
(104,467
)
(63,246
)
Cash flows from investing activities
Purchases of property and equipment
(773
)
(173
)
Capitalized internal-use software development costs
(251
)
(955
)
Cash paid for securities carried at fair value
(309,058
)
-
Proceeds from sale and maturities of securities carried at fair value
226,834
-
Cash acquired in asset acquisitions, net
-
Cash paid for asset acquisitions, net
-
(1,000
)
Cash paid for equity method investments
-
(52,937
)
Cash paid for other investments
(600
)
(23,658
)
Loans to related parties
(3,000
)
(2,600
)
Net cash used in investing activities
(86,848
)
(81,276
)
Cash flows from financing activities
Proceeds from issuance of common stock
-
409,884
Cash paid for common stock issuance costs
-
(12,350
)
Proceeds from issuance of share option awards
-
Proceeds from secured borrowing liability
-
2,417
Proceeds from issuance of shares upon exercise of stock options
2,294
Proceeds from issuance of subsidiary preferred shares
-
Proceeds from conversion of convertible notes to common stock
4,636
6,854
Proceeds from debt financings
15,000
-
Financing costs paid
(1,745
)
-
Proceeds from issuance of convertible promissory notes
-
1,588
Net cash provided by financing activities
20,785
409,862
Effect of foreign exchange rate changes on cash
(1,123
)
(320
)
Net increase (decrease) in cash and cash equivalents
(171,653
)
265,020
Cash and cash equivalents - beginning of the period
362,266
97,246
Cash and cash equivalents - end of the period
$
190,613
$
362,266
Supplemental disclosures:
Cash paid for interest
$
$
-
Cash paid for taxes
$
$
-
Supplemental disclosures of non cash investing and financing information:
Right of use asset obtained in exchange for operating lease liabilities
$
$
-
Issuance of subsidiary shares to non-controlling interests in connection with Columbia stock purchase agreement
$
$
-
Share subscription receivable
$
$
-
Fair value of noncontrolling interests issued in connection with consolidation of a VIE
$
-
$
Fair value of redeemable noncontrolling interests issued in connection with consolidation of a VIE
$
-
$
2,555
Fair value of noncontrolling interests issued in connection with asset acquisitions
$
-
$
4,761
Issuance of derivative instrument related to convertible promissory notes
$
-
$
Exercise of Hurdle Share Option Plan award
$
-
$
Issuance of subsidiary shares in connection with the conversion of convertible notes
$
-
$
3,258
See accompanying notes to the consolidated financial statements.
1. Organization and Description of Business
ATAI Life Sciences N.V. (“atai”) is the parent company of ATAI Life Sciences AG and, along with its subsidiaries, is a clinical-stage biopharmaceutical company aiming to transform the treatment of mental health disorders. atai was founded in 2018 as a response to the significant unmet need and lack of innovation in the mental health treatment landscape. atai is dedicated to acquiring, incubating and efficiently developing innovative therapeutics to treat depression, anxiety, addiction, and other mental health disorders.
Since inception, atai has either created wholly owned subsidiaries or has made investments in certain controlled entities, including variable interest entities (“VIEs”) for which atai is the primary beneficiary under the VIE model (collectively, the “Company”). atai is headquartered in Berlin, Germany.
The Company has determined that it has one operating and reporting segment.
Corporate Reorganization and Initial Public Offering
atai was incorporated pursuant to the laws of the Netherlands as a Dutch private company with limited liability on September 10, 2020 for the purposes of becoming a holding company for ATAI Life Sciences AG and consummating the corporate reorganization described below. atai did not conduct any operations prior to the corporate reorganization other than activities incidental to its formation. ATAI Life Sciences AG was formed as a separate company on February 7, 2018.
In contemplation of the consummation of atai’s initial public offering (“IPO”) of common shares, atai undertook a corporate reorganization (the “Corporate Reorganization”). The Corporate Reorganization consisted of several steps as described below:
•Exchange of ATAI Life Sciences AG Securities for ATAI Life Sciences B.V. Common Shares and Share Split: In April 2021, the existing shareholders of ATAI Life Sciences AG each became a party to a separate notarial deed of issue under Dutch law and (i) subscribed for new common shares in ATAI Life Sciences B.V. and (ii) transferred their respective shares in ATAI Life Sciences AG, on a 1 to 10 basis (the “Exchange Ratio”), to ATAI Life Sciences B.V. as a contribution in kind on the common shares in ATAI Life Sciences B.V. As a result of the issuance of common shares in ATAI Life Sciences B.V. to the shareholders of ATAI Life Sciences AG and the contribution and transfer of their respective shares in ATAI Life Sciences AG to ATAI Life Sciences B.V., ATAI Life Sciences AG became a wholly owned subsidiary of ATAI Life Sciences B.V. No shareholder rights or preferences changed as a result of the share for share exchange. In connection with such exchange, the common share in ATAI Life Sciences B.V. held by Apeiron was cancelled. On June 7, 2021, shares of ATAI Life Sciences B.V. were split applying a ratio of 1.6 to one, and the nominal value of the shares was reduced to €0.10, pursuant to a shareholders’ resolution and amendment to the articles of association.
•Conversion of ATAI Life Sciences B.V. into ATAI Life Sciences N.V.: Immediately preceding the Company’s IPO, the legal form of ATAI Life Sciences B.V. was converted from a Dutch private company with limited liability to a Dutch public company, and the articles of association of ATAI Life Sciences N.V., became effective. Following the Corporate Reorganization, ATAI Life Sciences N.V. became the holding company of ATAI Life Sciences AG.
The Corporate Reorganization, as described above, is considered a continuation of ATAI Life Sciences AG resulting in no change in the carrying values of assets or liabilities. As a result, the financial statements for periods prior to the Corporate Reorganization are the financial statements of ATAI Life Sciences AG as the predecessor to atai for accounting and reporting purposes. All share, per-share and related information presented in these consolidated financial statements and corresponding disclosure notes have been retrospectively adjusted, where applicable, to reflect the impact of the share exchange and share split resulting from the Corporate Reorganization. In connection with the Corporate Reorganization, outstanding share awards and option grants of ATAI Life Sciences AG were exchanged for share awards and option grants of ATAI Life Sciences B.V. with identical restrictions.
On June 22, 2021, atai closed the IPO of its common shares on the Nasdaq Stock Market ("Nasdaq"). As part of the IPO, the Company issued and sold 17,250,000 shares of its common shares, which included 2,250,000 shares sold pursuant to the exercise of the underwriters’ over-allotment option, at a public offering price of $15.00 per share. The Company received net proceeds of approximately $231.6 million from the IPO, after deducting underwriters’ discounts and commissions of $18.1 million and offering costs of $9.0 million.
Impact of COVID-19 Pandemic
The COVID-19 pandemic has continued to present global public health and economic challenges during the year ended December 31, 2022. The Company has not experienced material financial impacts on its business and operations. The Company continues to monitor the impact of the COVID-19 pandemic on its employees and business and has undertaken business continuity measures to mitigate potential disruption to its operations.
The future impact of COVID-19 on the Company’s business and operations, including its research and development programs and related clinical trials, will largely depend on future developments, which are highly uncertain, such as the duration of the pandemic, the spread of the disease and variants thereof, the availability and effectiveness of vaccines and related roll-out efforts, breakthrough infections among the vaccinated, vaccine hesitancy, the implementation of vaccine mandates, travel restrictions, social distancing and related government actions around the world, business closures or business disruptions and the ultimate impact of COVID-19 on financial markets and the global economy.
Liquidity and Going Concern
The Company has incurred significant losses and negative cash flows from operations since its inception. As of December 31, 2022, the Company had cash and cash equivalents of $190.6 million, short-term securities of $82.5 million and its accumulated deficit was $510.2 million. The Company has historically financed its operations through the sale of equity securities, debt financings, sale of convertible notes and revenue generated from licensing and collaboration arrangements. The Company has not generated any revenues to date from the sale of its product candidates and does not anticipate generating any revenues from the sale of its product candidates unless and until it successfully completes development and obtains regulatory approval to market its product candidates.
The Company currently expects that its existing cash and cash equivalents and short-term securities as of December 31, 2022 will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months from the date the consolidated financial statements are issued.
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of our financial position, our results of operations and comprehensive loss, and our cash flows for the periods presented. The Company's consolidated financial statements include the accounts of the Company and the accounts of the Company's subsidiaries. Any reference in these notes to applicable accounting guidance is meant to refer to the authoritative U.S. GAAP included in the Accounting Standards Codification (“ASC”), and Accounting Standards Update (“ASU”) issued by the Financial Accounting Standards Board (“FASB”). All intercompany transactions and accounts have been eliminated in consolidation.
For consolidated entities where the Company owns or is exposed to less than 100% of the economics, the Company allocates net losses between the controlling and the noncontrolling interests in its consolidated statements of operations after considering the liquidation preference and the equity ownership percentages. The Company continually assesses whether changes to existing relationships or future transactions may result in the consolidation or deconsolidation of subsidiaries.
The results of operations for the years ended December 31, 2022 and 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any other future annual or interim period.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates and assumptions made in the accompanying consolidated financial statements include, but are not limited to the fair value of the Company’s investment in Intelgenx Technologies Corp. (“IntelGenx”), securities carried at fair value, contingent consideration liability-related parties, in-process research and development (“IPRD”) assets, derivative liability associated with the Perception convertible promissory notes, redeemable noncontrolling interests and noncontrolling interests recognized in acquisitions, the valuations of common shares prior to IPO and share-based awards, and accruals for research and development costs.
The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
Additionally, the Company assessed the impact that the COVID-19 pandemic has had on its operations and financial results as of December 31, 2022 and through the issuance of these consolidated financial statements. The Company’s analysis was informed by the facts and circumstances as they were known to the Company. This assessment considered the impact COVID-19 may have on financial estimates and assumptions that affect the reported amounts of assets and liabilities and expenses. The Company has not experienced any significant financial impacts due to COVID-19.
Risks and Uncertainties
The Company is subject to risks common to companies in the biopharmaceutical industry. The Company believes that changes in any of the following areas could have a material adverse effect on future financial position or results of operations: ability to obtain future financing; regulatory approval and market acceptance of, and reimbursement for, product candidates; performance of third-party clinical research organizations and manufacturers upon which the Company relies; protection of the Company’s intellectual property; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; and the Company’s ability to attract and retain employees.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments, and all notes receivables. The Company’s cash is mainly held in financial institutions in the United States, United Kingdom, Germany and Australia. Amounts on deposit may at times exceed federally insured limits. The credit risk associated with the Company’s investment in all notes receivables is monitored and assessed periodically. The Company has not experienced any credit losses related to these financial instruments and does not believe that it is exposed to any significant credit risk related to these instruments.
Segments
The Company operates and manages the business as one reporting and one operating segment, which is the business of identifying and advancing mental health innovations. The Company has determined that its chief executive officer is the chief operating decision maker (“CODM”). The CODM reviews consolidated operating results to make decisions about allocating resources or capital to specific compounds or projects in line with overall Company’s strategies and goals. The Company operates in two geographic regions primarily in the United States and Germany.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less from the purchase date to be cash equivalents. As of December 31, 2022 and December 31, 2021, cash and cash equivalents consisted of cash on deposit and cash held in high-yield savings accounts and money market funds, and at times in excess of federally insured limits.
Investment Securities Portfolio
The following table sets forth the fair value of atai's available-for-sale securities portfolio at the dates indicated:
Fair Value
December 31, 2022
December 31, 2021
Money Market Funds
$
72,334
$
-
Commercial Paper
5,958
-
Corporate Notes/Bonds
17,719
-
U.S. Government Agencies
58,819
-
$
154,830
$
-
In January 2022, the Company invested in a certain investment portfolio, which is comprised of Money Market Funds, U.S. Treasury securities, Commercial Paper, Corporate Notes/Bonds, and U.S. government agencies securities. The Company classified securities in the investment portfolio as available-for-sale securities. Furthermore, the Company elected the fair value option for the available-for-sale securities in the investment portfolio (see Note 7). The decision to elect the fair value option, which is irrevocable once elected, is determined on an instrument-by-instrument basis and applied to an entire instrument. The net gains or losses, if any, on an investment for which the fair value option has been elected are recognized as a change in fair value of securities on the consolidated Statements of Operations and the amortized cost of investments approximates their fair value. The Company's securities in the investment portfolio will mature within two years.
Property and Equipment
Property and equipment, consisting primarily of furniture and fixtures and leasehold improvements, is recorded at cost, less accumulated depreciation. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred. Upon disposal, retirement or sale, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in the results of operations. Depreciation of property and equipment is recorded using the straight-line method over the estimated useful lives of the related assets once the asset has been placed in service. Leasehold improvements are amortized using the straight-line method over the estimated useful life or remaining lease term, whichever is shorter. The following table provides the range of estimated useful lives used for each asset type:
Furniture and fixtures
7 years
Leasehold improvements
Lesser of estimated useful life or remaining lease term
Variable Interest Entities and Voting Interest Entities
The Company consolidates those entities in which it has a direct or indirect controlling financial interest based on either the variable interest model (the “VIE model”) or the voting interest model (the “VOE model”).
VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties; or (ii) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity.
The primary beneficiary of a VIE is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE through its interest in the VIE.
To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Company considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE (management and representation on the board of directors) and have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.
To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers all of its economic interests, which primarily include equity investments in preferred and common stock and notes receivable that are convertible into preferred stock, that are deemed to be variable interests in the VIE. This assessment requires the Company to apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing the significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by the Company.
At the VIE’s inception, the Company determines whether it is the primary beneficiary and if the VIE should be consolidated based on the facts and circumstances. The Company then performs on-going reassessments of the VIE based on reconsideration events and reevaluates whether a change to the consolidation conclusion is required each reporting period. If the Company is not deemed to be the primary beneficiary in a VIE, the Company accounts for the investment or other variable interests in a VIE in accordance with the applicable GAAP (See Note 4).
Upon the occurrence of certain events and on a regular basis, the Company evaluates whether it no longer has a controlling interest in its consolidated VIEs. If the Company determines it no longer has a controlling interest, the subsidiary is deconsolidated. The Company records a gain or loss on deconsolidation based on the difference on the deconsolidation date between (i) the aggregate of (a) the fair value of any consideration received, (b) the fair value of any retained noncontrolling investment in the former subsidiary and (c) the carrying amount of any noncontrolling interest in the subsidiary being deconsolidated, less (ii) the carrying amount of the former subsidiary’s assets and liabilities.
Entities that do not qualify as a VIE are assessed for consolidation under the VOE model. Under the VOE model, the Company consolidates the entity if it determines that it, directly or indirectly, has greater than 50% of the voting shares and that other equity holders do not have substantive voting, participating or liquidation rights (See Note 4).
Acquisitions
The Company evaluates each of its acquisitions under the accounting framework in Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, to determine whether the transaction is a business combination or an asset acquisition. In determining whether an acquisition should be accounted for as a business combination or an asset acquisition, the Company first performs a screen test to determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the acquired set is not deemed to be a business and is instead accounted for as an asset acquisition. If this is not the case, the Company then further evaluates whether the acquired set includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, the Company concludes that the acquired set is a business. During the years ended December 31, 2022 and 2021, the Company did not have any acquisitions that were accounted for as business combinations.
For asset acquisitions that involve the initial consolidation of a VIE that is not a business for which atai is the primary beneficiary, the transactions are accounted for under ASC 810, Consolidation, and no goodwill is recognized. Rather, the Company recognizes the identifiable assets acquired (excluding goodwill), the liabilities assumed, and any noncontrolling interests as though the VIE was a business and subject to the guidance on recognition and measurement in a business combination under ASC 805, and recognizes a gain or loss for the difference between (a) the sum of the fair values of consideration paid (including any contingent consideration) and noncontrolling interests, (b) the fair value of the VIE’s identifiable assets and liabilities, and (c) the reported amounts of any previously held interests. Acquisition-related expenses incurred by the Company in asset acquisitions that involve the initial consolidation of a VIE that is not a business, are not included as a component of consideration transferred, but are accounted for as an expense in the period in which the costs are incurred. In an asset acquisition, including the initial consolidation of a VIE that is not a business, acquired IPR&D with no alternative future use is charged to research and development expense at the acquisition date.
Equity Method Investments
The Company utilizes the equity method to account for investments when it possesses the ability to exercise significant influence, but not control, over the operating and financial decisions of the investee. Generally, the ability to exercise significant influence is presumed when the investor possesses more than 20% of the voting interests of the investee. This presumption may be overcome based on specific facts and circumstances that demonstrate that the ability to exercise significant influence is not present. The Company applies the equity method to investments in common stock and to other investments in non-consolidated entities that have risk and reward characteristics that are substantially similar to an investment in the investee’s common stock.
In applying the equity method, the Company’s investments are initially recorded at cost on the consolidated balance sheets. Upon recording an equity method investment, the Company evaluates whether there are basis differences between the carrying value and fair value of the Company’s proportionate share of the investee’s underlying net assets. Typically, the Company amortizes basis differences identified on a straight-line basis over the underlying assets’ estimated useful lives when calculating the attributable earnings or losses, excluding the basis differences attributable to IPR&D that had no alternative future use. To the extent a basis difference relates to IPR&D and the investee is not a business as defined in ASC 805, the Company immediately expenses such basis difference related to IPR&D. If the Company is unable to attribute all the basis difference to specific assets or liabilities of the investee, the residual excess of the cost of the investment over the proportional fair value of the investee’s assets and liabilities is recognized within the equity investment balance.
The Company subsequently adjusts the carrying amount of the investment by the Company’s proportionate share of the net earnings or losses and other comprehensive income or loss of the investee based on the Company’s percentage of common stock or in-substance common stock ownership during the respective reporting period. The Company records its share of the results of equity method investees and any impairment related to equity method investments as earnings or losses from investments in equity method investees, net of tax in the consolidated statements of operations. In the event that net losses of the investee reduce the carrying amount to zero, additional net losses may be recorded if the Company has other investment or other outstanding loans and advances to the investee and would be determined based on the Company’s proportionate share of the respective class of securities.
Currently the Company is not obligated to make additional capital contributions for its equity method investments, and therefore only records losses up to the amount of its total investment, inclusive of other investments in and loans to the investee, which are not accounted for as equity method investments. To the extent that the Company’s share of losses of the equity method investee on a cumulative basis exceeds its total investment amount, inclusive of its equity method investment, other investments, and loans, the Company will discontinue equity method loss recognition as the Company does not have guaranteed obligations of the investee nor has the Company otherwise committed to provide further financial support for the investee. The Company will resume recording its share of losses in future periods only after its share of the earnings of the equity method investee equals the Company’s share of losses not recognized during the suspended period. The Company evaluates additional equity method investments made after the suspension of loss recognition to determine whether such investments represent the funding of prior suspended losses of the equity method investee.
Equity method investments are reviewed for indicators of other-than-temporary impairment at each reporting period. Equity method investments are written down to fair value if there is evidence of a loss in value that is other-than-temporary. Methodologies that the Company may use to estimate the fair value of its equity method investments include, but are not limited to, considering recent investee equity transactions, discounted cash flow analysis, recent operating results, comparable public company operating cash flow multiples and in certain situations, balance sheet liquidation values. If the fair value of the investment has declined below the carrying amount, management considers several factors when determining whether an other-than-temporary decline has occurred, such as the length of the time and the extent to which the estimated fair value or market value has been below the carrying value, the financial condition and the near-term prospects of the investee, the intent and ability of the Company to retain its investment in the investee for a period of time sufficient to allow for any anticipated recovery in market value and general market conditions. The estimation of fair value and whether an other-than-temporary impairment has occurred requires the application of significant judgment and future results may vary from current assumptions. If declines in the value of the equity method investments are determined to be other-than-temporary, a loss is recorded in earnings in the current period as a component of losses from investments in equity method investees, net of tax on the consolidated statements of operations. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment. This evaluation consists of several qualitative and quantitative factors including recent financial results and operating trends of the investee, implied values in recent transactions of investee securities, or other publicly available information that may affect the value of the Company’s investments. The Company presents income/losses from equity investments and any impairment related to equity method investments as losses from investments in equity method investees on the consolidated statement of operations. The Company did not identify factors that would indicate that a potential other-than-temporary impairment of the carrying values of its equity method investments had occurred during the years ended December 31, 2022 and 2021.
Fair Value Option
As permitted under ASC 825, Financial Instruments, or ASC 825, the Company has elected the fair value option to account for its investment in common shares of IntelGenx, which otherwise would be subject to ASC 323. In accordance with ASC 825, the Company records this investment at fair value under Other investments held at fair value in the Company's consolidated balance sheets and changes in fair value are recognized as a component of other income (expense), net in the consolidated statements of operations. The carrying value of the investment remained at zero as of December 31, 2022 and December 31, 2021, respectively.
The Company has also elected the fair value option for its investment securities portfolio.
Other Investments
Other investments include ownership rights that either (i) do not provide the Company with control or significant influence, or (ii) do not have risk and reward characteristics that are substantially similar to an investment in the investee’s common stock. The Company records such investments under the measurement alternative method pursuant to ASC 321 as these investments do not have readily determinable fair values. Under the measurement alternative method, the Company records the investment at cost less impairment losses, if any, unless it identifies observable price changes in orderly transactions for the identical or a similar investment of the same issuer, in which case the Company will measure its investments at fair value as of the date that the observable transaction occurred. Such investments are presented as Other Investments on the consolidated balance sheets and any impairment recognized related to these investments are presented as a component of other income (expense), net in the consolidated statements of operations.
The Company performs a qualitative assessment at each reporting period considering impairment indicators to evaluate whether the investment is impaired. Impairment indicators that the Company considers include but are not limited to; i) a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, ii) a significant adverse change in the regulatory, economic, or technological environment of the investee, iii) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates, iv) a bona fide offer to purchase, an offer by the investee to sell, or a completed auction process for the same or similar investment for an amount less than the carrying amount of that investment; v) factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants. If the qualitative assessment indicates that an investment is impaired, a loss is recorded equal to the difference between the fair value and carrying value of the investment.
Notes Receivable
The Company has certain notes receivable that are carried at cost, which includes the principal value of the note receivable, accrued interest and net of any payments received and impairment losses recognized. Generally, a loan is considered to be impaired when it is probable that the Company will not be able to collect any remaining amounts due in accordance with contractual terms of the loans and the amount of the loss can be reasonably estimated. As of December 31, 2022, there is no impairment loss recognized associated with the notes receivable that are carried at cost. Based on the terms of the notes receivable, certain notes receivable are classified as long term as their payments are due after twelve months from the balance sheet date.
Contingent Consideration Liability-Related Parties
The Company may record contingent consideration as part of the cost of acquisitions. Contingent consideration is recognized at fair value as of the date of acquisition and recorded as a liability on the consolidated balance sheet. The contingent consideration is re-valued on a quarterly basis using a discounted cash-flow valuation technique until fulfillment of the contingency. Changes in the fair value of the contingent consideration are recognized as a component of other income (expense), net in the consolidated statements of operations.
Convertible Promissory Notes
The Company does not use derivative instruments to hedge exposures to interest rate, market, or foreign currency risks. The Company evaluates all of its financial instruments, including convertible promissory notes, to determine if such instruments contain features that meet the definition of embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the consolidated statements of operations at each reporting period. Bifurcated embedded derivatives are classified with the related host contract in the Company’s consolidated balance sheets.
On March 16, 2020, Perception entered into a convertible promissory note agreement with the Company and other investors, including related parties, which provided for the issuance of convertible notes of $3.3 million to the Company and $0.6 million to other investors. On December 1, 2020, Perception entered into an additional convertible promissory note agreement with the Company and other investors, including related parties, which provided for the issuance of convertible notes of up to $12.0 million to the Company in aggregate of which (i) $6.2 million and $0.8 million were issued in December 2020 and January 2021, respectively, under the First Tranche Funding and (ii) $5.0 million was issued under the Second Tranche Funding in May 2021 (See Note 10). The Perception convertible promissory notes issued to the Company represent intercompany debt and are eliminated upon consolidation.
In addition, the Perception convertible promissory notes contain certain embedded features, which are redemption features and meet the definition of derivative instruments. The Company classifies these instruments as a liability on its consolidated balance sheets as the redemption features involve substantial discounts, provide for the accelerated repayment of the notes upon the occurrence of specified events, and are not clearly and closely related to its host instrument. The derivative liability was initially recorded at fair value upon issuance of the convertible promissory notes and is subsequently remeasured to fair value at each reporting date. Both the Perception convertible promissory notes and the derivative liability were classified as long-term and presented as convertible promissory notes and derivative liability in the Company’s consolidated balance sheets.
Changes in the fair value of the derivative liability are recognized as a component of other income (expense), net in the consolidated statements of operations. Changes in the fair value of the derivative liability were recognized until the convertible promissory notes converted in June 2021. As such, the derivative liability balance is $0 as of December 31, 2022 and December 31, 2021, respectively.
Debt Issuance Costs and Debt Discount
Debt issuance costs include incremental and direct costs incurred in relation to debt, such as legal fees, accounting fees, and other direct costs of the financing. Amounts paid to the lender are a reduction in the proceeds received by the Company and are generally considered a component of issuance discount, unless it is paid to compensate the lender for the services rendered or as a reimbursement of direct costs incurred by them in relation to the debt, in which case it would be akin to a debt issuance cost.
Debt issuance costs related to a recognized debt liability are presented in the consolidated balance sheet as a direct deduction from the carrying amount of the debt liability rather than as an asset, consistent with the presentation of debt discounts, and are amortized to interest expense over the term of the related debt using the effective interest method.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development consist of salaries, benefits and other personnel related costs including equity-based compensation expense, laboratory supplies, preclinical studies, clinical trials and related clinical manufacturing costs, costs related to manufacturing preparations, fees paid to other entities to conduct certain research and development activities on the Company’s behalf and allocated facility and other related costs. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized as prepaid expenses until the related goods are delivered or services are performed.
Preclinical and clinical study costs are accrued over the service periods specified in the contracts and adjusted as necessary based upon an ongoing review of the level of effort and costs actually incurred. Payments for a product license prior to regulatory approval of the product and payments for milestones achieved prior to regulatory approval of the product are expensed in the period incurred as research and development expense.
Contingencies
The Company may be, from time to time, a party to various disputes and claims arising from normal business activities. The Company continually assesses any litigation or other claims it may confront to determine if an unfavorable outcome would lead to a probable loss or reasonably possible loss which could be estimated. The Company will accrue for all contingencies at the earliest date at which the Company deems it probable that a liability has been incurred and the amount of such liability can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely than another, the Company will accrue the minimum of the range. In the cases where the Company believes that a reasonably possible loss exists, the Company will disclose the facts and circumstances of the litigation, including an estimable range, if possible.
Licenses of Intellectual Property
The Company may enter into collaboration and out-licensing arrangements for research and development, manufacturing, and commercialization activities with counterparties for the development and commercialization of its product candidates. The agreements may have units of account within the scope of ASC 606 where the counterparties meet the definition of a customer as well as units of account within the scope of ASC 808 where both parties are determined to be active participants exposed to significant risk and rewards.
The arrangements may contain multiple components, which may include (i) licenses, or options to obtain licenses to the Company’s intellectual property or sale of the Company’s license, (ii) research and development activities, (iii) participation on joint steering committees, and (iv) the manufacturing of commercial, clinical or preclinical material. Payments pursuant to these arrangements may include non-refundable, upfront payments, milestone payments upon the achievement of significant development events, research and development reimbursements, sales milestones, and royalties on product sales. The amount of variable consideration is constrained until it is probable that the revenue is not at a significant risk of reversal in a future period. The contracts into which the Company enters generally do not include significant financing components.
In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under each of its collaboration and license agreements, the Company performs the following steps: (i) identification of the promised goods or services in the contract within the scope of ASC 606; (ii) determination of whether the promised goods or services are performance obligations including whether they are capable of being distinct and distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. As part of the accounting for these arrangements, the Company must use significant judgment to determine: a) the number of performance obligations based on the determination under step (ii) above; b) the transaction price under step (iii) above; c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above; and d) the measure of progress in step (v) above. The Company uses judgment to determine whether milestones or other variable consideration, except for sales-based milestones and royalties on license arrangements, should be included in the transaction price as described further below.
If a license to the Company’s intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, the Company recognizes revenue from consideration allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether a promise or performance obligation is distinct from the other elements, the Company considers factors such as the research, development, manufacturing and commercialization capabilities of the counterparties and the availability of its associated expertise in the general marketplace. In addition, the Company considers whether the counterparties can benefit from a promise for its intended purpose without the receipt of the remaining elements, whether the value of the promise is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise. For licenses that are combined with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance
obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress as of each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, is subject to estimates by management and may change over the course of the arrangement. Such a change could have a material impact on the amount of revenue the Company records in future periods.
Customer Options: If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services such as research and development services or manufacturing services, the goods and services underlying the customer options are not considered to be performance obligations at the inception of the arrangement unless a material right is provided to the customer. If the customer option does not represent a material right, the obligation to provide such goods and services is contingent on exercise of the option, and the associated consideration is not included in the transaction price. If a customer option is determined to include a significant and incremental discount and, therefore, represents a material right, the material right is recognized as a separate performance obligation at the outset of the arrangement. The Company allocates the transaction price to material rights based on the relative standalone selling price.
Milestone Payments: At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most-likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company evaluates factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the respective milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, the Company reevaluates the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.
Royalties: For license arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.
Stock-Based Compensation
The Company accounts for all stock-based payment awards granted to employees, directors and non-employees as stock-based compensation expense based on their grant date fair value. The stock-based payment awards are measured at fair value on the date of the grant and that fair value is recognized as share-based compensation expense in the Company’s consolidated statements of operations over the requisite service period of the respective award. The estimated fair value of awards that contain performance conditions is expensed when the Company concludes that it is probable that the performance condition will be achieved. The Company may grant awards with graded-vesting features. When such awards have only service vesting requirements, the Company elected to record share-based compensation expense on a straight-line basis. Recognition of compensation cost relating to awards that vest on a “Liquidity Event” (as defined in the award) will be deferred until the consummation of such transaction.
The Company measures the fair value of its stock options that only have service vesting requirements or performance-based options without market conditions using the Black-Scholes option pricing model. For performance-based awards with market conditions, the Company determines the fair value of the awards as of the grant date using a Monte Carlo simulation model.
Certain assumptions need to be made with respect to utilizing the Black-Scholes option pricing model, including the expected life of the award, volatility of the underlying shares, the risk-free interest rate and the fair value of the Company’s common shares. Since the Company has limited option exercise history, it has generally elected to estimate the expected life of an award based upon the “simplified method” with the continued use of this method extended until such time the Company has sufficient exercise history. The risk-free interest rate is based on the rates paid on securities issued by the U.S. Treasury with a term approximating the expected life of the equity award. Because the Company did not have an extended trading history for its common shares, the expected volatility was estimated using weighted average measures of the Company's historical volatility and the historical volatility of a peer group of companies for a period equal to the expected life of the stock options. The Company’s peer group of publicly traded biopharmaceutical companies was chosen based on their similar size, stage in the life cycle or area of specialty. The Company has elected to recognize forfeitures of stock-based compensation awards as they occur.
As part of the valuation of stock-based compensation under the Black-Scholes option pricing model, it is necessary for the Company to use the fair value of its common stock as a valuation input. Prior to the closing of the IPO, the fair value of the Company’s common stock was estimated on each grant date. The fair value of the Company's privately held subsidiaries' common stock was also estimated on each grant
date. Given the absence of a public trading market, and in accordance with the American Institute of Certified Public Accountants’ Practice Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation, the Company exercised reasonable judgment and considered numerous objective and subjective factors to determine its best estimate of the fair value of its common stock. The estimation of the fair value of the common stock considered factors including the following: the estimated present value of the Company’s future cash flows; the Company’s business, financial condition and results of operations; the Company’s forecasted operating performance; the illiquid nature of the Company’s common stock; industry information such as market size and growth; market capitalization of comparable companies and the estimated value of transactions such companies have engaged in; and macroeconomic conditions.
After the closing of the IPO in June 2021, the Company’s board of directors determined the fair value of each share of common stock underlying stock-based awards based on the closing price of the Company’s common stock as reported by Nasdaq on the date of grant.
Noncontrolling Interests
The Company recognizes noncontrolling interests related to its consolidated VIEs in the consolidated balance sheets as a component of equity, separate from atai stockholders’ equity. Changes in the Company’s ownership interest in a consolidated VIE that do not result in a loss of control are accounted for as equity transactions. The noncontrolling interests related to its consolidated VIEs are initially recorded at fair value. Net losses in consolidated VIEs are attributed to noncontrolling interests considering the liquidation preferences of the different classes of equity held by the shareholders in the VIE and their respective interests in the net assets of the consolidated VIE in the event of liquidation, and their pro rata ownership.
In addition, the Company evaluates the classification of noncontrolling interests based upon a review of the legal provisions governing the redemption of such interests as the obligation to redeem these shares are triggered by events that are within the control of the Company. The Company evaluates individual noncontrolling interests for the ability to recognize the noncontrolling interest as permanent equity on the consolidated balance sheets at the time such interests are issued and on a continual basis. Any noncontrolling interest that fails to qualify as permanent equity are considered redeemable noncontrolling interests and reclassified as temporary equity.
The amount of net loss attributable to noncontrolling interests are included in consolidated net loss on the face of the consolidated statements of operations. Refer to Note 4 for further information.
Redeemable Noncontrolling Interests
Noncontrolling interests related to certain consolidated VIEs are subject to redemptions by third-party investors. As these interests are redeemable upon the occurrence of events that are not solely within the control of the Company, amounts relating to third-party interests in such consolidated entities are classified in the temporary equity as redeemable noncontrolling interest within the consolidated balance sheets. The redeemable noncontrolling interests related to its consolidated VIEs are initially recorded at fair value. Net losses in consolidated VIEs are attributed to redeemable noncontrolling interests considering their liquidation preferences for the different classes of equity held by the shareholders in the VIE and their respective interests in the net assets of the consolidated VIE.
The amount of net loss attributable to redeemable noncontrolling interests are included in the consolidated net loss on the face of the consolidated statements of operations. Refer to Note 4 for further information.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and the respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when, after consideration of all positive and negative evidence, it is not more likely than not that the Company’s deferred tax assets will be realizable. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company recognizes interest and penalties related to the underpayment of income taxes as a component of the provision for income taxes.
Fair Value Measurements
Assets and liabilities recorded at fair value on a recurring basis in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability 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. The authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:
Level 1-Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;
Level 2-Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and
Level 3-Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
The Company’s contingent consideration liability-related parties, derivative liability associated with the Perception convertible promissory notes, IntelGenx Initial Warrants and Additional Unit Warrants, and warrant liability with Neuronasal, Inc. are carried at fair value, determined according to Level 3 inputs in the fair value hierarchy described above (See Note 7). The IntelGenx common stock is carried at fair value, determined according to Level 2 inputs in the fair value hierarchy above. The carrying amount reflected in the accompanying consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their fair values, due to their short-term nature.
The carrying amounts of the Company’s remaining outstanding convertible promissory notes-related parties issued in 2018 and 2020 (collectively, the “2018 Convertible Notes”) do not approximate fair value because the fair value is driven by the underlying value of the Company’s common stock into which the notes are to be converted. As of December 31, 2022, the carrying amount and fair value amount of the 2018 Convertible Notes was $0.4 million and $13.1 million, respectively. As of December 31, 2021, the carrying amount and fair value amount of the 2018 Convertible Notes was $0.8 million and $69.7 million, respectively. Several noteholders of the 2018 Convertible Notes elected to convert their promissory notes into shares of the Company's common stock during the years ended December 31, 2022 and 2021, respectively. See Note 10 for additional discussion.
The carrying amounts of the Perception convertible promissory notes issued during 2020, do not approximate fair value because carrying amounts are net of unamortized debt discounts and bifurcated derivative liabilities. The fair value of the Perception convertible promissory notes was determined based on the changes in expectation and increase in probability of occurrence of certain conversion events, including a qualified equity financing and a licensing transaction, that would have beneficial conversion terms for the note holders. In June 2021, the Perception convertible promissory notes converted into shares of Series A preferred stock of Perception pursuant to their original terms. As of December 31, 2022 and December 31, 2021 there were no Perception convertible promissory notes outstanding. See Note 10 for additional discussion.
Foreign Currency
Assets and liabilities of foreign operations are translated using exchange rates in effect at the balance sheet date and their results of operations are translated using average exchange rates for the year. Investments accounted for under the equity method and stockholders’ equity are translated based on historical exchange rates. Certain transactions of the Company and its subsidiaries are denominated in currencies other than their functional currency. Adjustments resulting from the translation of the financial statements of the Company’s foreign functional currency subsidiaries into U.S. dollars are excluded from the determination of net loss and are accumulated in a separate component of shareholders’ equity. Foreign exchange transaction gains and losses are recognized as a component of other income (expense), net in the consolidated statements of operations.
Emerging Growth Company Status
The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of
the date that it (i) is no longer an emerging growth company or (ii) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act. As a result, these consolidated financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
As described in “Recently Adopted Accounting Pronouncements” below, the Company early adopted certain accounting standards, as the JOBS Act does not preclude an emerging growth company from adopting a new or revised accounting standard earlier than the time that such standard applies to private companies. The Company expects to use the extended transition period for any other new or revised accounting standards during the period in which it remains an emerging growth company.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which is a comprehensive new lease standard that amends various aspects of existing accounting guidance for leases. The core principle of Topic 842 requires lessees to recognize on the consolidated balance sheets a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term for both finance and operating leases with lease terms greater than twelve months. The lease liability is measured at the present value of the unpaid lease payments and the right-of-use asset is derived from the calculation of the lease liability. Topic 842 also requires lessees to disclose key information about leasing arrangements. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-02 is effective for the Company beginning after December 15, 2021.
The Company adopted the new standard on January 1, 2022 using the modified transition approach as of the effective date.
The new standard provides a number of optional practical expedients in transition. The Company elected the “package of practical expedients,” which permitted it to not reassess under the new standard its prior conclusions about lease identification, lease classification, and initial direct costs. As a result, the Company has continued to account for existing leases - i.e. leases for which the commencement date is before January 1, 2022 - in accordance with Topic 840 throughout the entire lease term, including periods after the effective date, with the exception that the Company applied the new balance sheet recognition guidance for operating leases and applied Topic 842 for remeasurements and modifications after the Transition Date. The Company also elected the hindsight expedient in determining the lease term and assessing impairment of right-of-use assets when transitioning to ASC 842. As a result, the Company evaluated the lease term for its existing leases as of the transition date, January 1, 2022.
The most significant impact of the adoption of Topic 842 on the Company’s consolidated financial statements was the recognition of a $0.2 million operating lease right-of-use asset, a $0.1 million current operating lease liability, and a $0.1 million long-term operating lease liability on the Company’s consolidated balance sheet related to its existing facility operating lease. The Company did not have a deferred rent liability recorded in connection with its existing facility operating lease. There was no material impact to the Company’s consolidated balance sheet, statement of operations, and no cumulative-effect adjustment to accumulated deficit. The Company recorded an immaterial amount of general and administrative expense in its consolidated statement of operations related to lease expense, including short-term lease expense during the year ended December 31, 2022.
Recently Issued Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses. This update requires immediate recognition of management’s estimates of current expected credit losses. Under the prior model, losses were recognized only as they were incurred. The new model is applicable to most financial assets and certain other instruments that are not measured at fair value through net income. In November 2019, the FASB issued ASU 2019-10, which delays adoption for "smaller reporting companies" as defined under the rules promulgated under the Exchange Act.
The allowance for credit losses is a valuation account which is presented separately on the consolidated balance sheet by deducting it from the assets amortized cost. Furthermore, the allowance for credit losses is adjusted each period to reflect the movement in expected credit losses.
The Company utilizes an undiscounted probability-of-default (“PD”) and loss-given-default (“LGD”) method for estimating credit losses on its assets pool, which is comprised of loans to other companies. Under the PD and LGD method, the expected credit loss percentage (or “loss rate”) is calculated as the probability of default (i.e., the probability the asset will default within the given time frame) multiplied by the loss given default (i.e., the percentage of the asset not expected to be collected because of default). To implement the PD and LGD method, the Company utilizes readily observable market information from term-matched public debt to derive market implied current expected credit losses (“MICECL”) grouped by Standard & Poor’s (“S&P”) credit rating scale. The MICECL framework considers risk characteristics of assets pool based on publicly available or estimated S&P credit ratings to calculate an appropriate credit loss reserve for the pool or group of assets.
ASU 2016-13 requires a cumulative effect adjustment to the statement of financial position as of the beginning of the first reporting period in which it is effective. The Company will adopt ASU 2016-13 effective January 1, 2023 with the cumulative effect of adoption recorded as an adjustment to accumulated deficit. We estimate the adoption impact to be in the range of $0.5 million to $0.8 million.
3. Acquisitions and Dispositions
2021 Acquisitions
PsyProtix, Inc.
In February 2021, the Company jointly formed PsyProtix with Chymia, LLC (“Chymia”). PsyProtix was created for the purpose of exploring and developing a metabolomics-based precision psychiatry approach, initially targeting the stratification and treatment of Treatment Resistant Depression (“TRD”) patients. In February 2021, pursuant to a Series A Preferred Stock Purchase Agreement (the “PsyProtix Purchase Agreement”), the Company acquired shares of PsyProtix’s Series A preferred stock in exchange for an initial payment of $0.1 million in cash. In addition, pursuant to the PsyProtix Purchase Agreement, the Company agreed to make aggregate payments to PsyProtix of up to $4.9 million upon the achievement of specified clinical milestones to complete the purchase of the shares and provide additional funding to PsyProtix. The PsyProtix Purchase Agreement resulted in the Company holding a 75.0% voting interest and Chymia holding a 25.0% voting interest in PsyProtix. In connection with the Company’s agreement for additional funding, PsyProtix issued the corresponding Series A preferred shares to the Company provided that the shares are held in an escrow account (the “PsyProtix Escrow Shares”). The PsyProtix Escrow Shares will be released, from time to time, to the Company upon PsyProtix achieving certain milestones as defined in the PsyProtix Purchase Agreement with cash payments to be made by the Company. In addition, the Company has the right, but not the obligation, to make payment for the certain PsyProtix Escrow Shares at any time, regardless of the achievement of any milestones. The PsyProtix Escrow Shares have voting and all other rights until an event of default occurs where the Company fails to make a payment within 10 days following the written notice of the achievement of the relevant milestone. In the event of default, PsyProtix shall automatically repurchase a pro rata portion of the Escrow Shares from atai (“Repurchase Event”) for a purchase price per share equal to the par value of such Escrow Shares. Upon the Repurchase Event, the Escrow Shares are released from escrow to PsyProtix and thereafter cancelled. The Repurchase Event is the sole remedy upon atai’s failure to make the payment for the milestone shares. In addition, prior to the occurrence of the earlier of a certain milestone event or reaching of the Company’s capital contribution threshold of $5.0 million, PsyProtix will issue additional shares of common stock to Chymia to maintain Chymia’s current ownership percentage. This anti-dilution right was concluded to be embedded in the common shares held by Chymia.
Immediately following the closing of the PsyProtix Purchase Agreement, PsyProtix loaned $0.1 million to Chymia in exchange for a duly executed promissory note (the “Chymia Note”). The Chymia Note shall accrue interest at a 5% rate per annum until payment in full. The aggregate principal amount of $0.1 million, together with all accrued and unpaid interest and all other amounts payable are due to be paid on the date that is the earlier of (i) five years from the promissory note agreement date or (ii) the occurrence of a liquidation event or a deemed liquidation event (as defined in the PsyProtix’s certificate of incorporation). As of December 31, 2022, the Chymia Note was $0.1 million and included as a component of long-term notes receivable-related parties on the consolidated balance sheets.
The PsyProtix Purchase Agreement provided the Company unilateral rights to control all decisions related to the significant activities of PsyProtix. The Company concluded that PsyProtix was not considered a business based on its assessment under ASC 805 and accounted for the Company’s acquisition in PsyProtix as an initial consolidation of a VIE that is not a business under ASC 810 (See Note 4). The assets acquired, liabilities assumed, and noncontrolling interest in the transaction were measured based on their fair values. The Company did not recognize a gain or a loss in connection with the consolidation of PsyProtix as the fair value of the consideration paid of $0.1 million was equivalent to the fair value of the identifiable assets acquired of $0.1 million.
In October 2021, pursuant to the Board consent letter and the PsyProtix Purchase Agreement discussed above, the Company released a payment in the amount of $0.5 million upon the achievement of specified clinical milestones. Accordingly, 500,000 Series A Preferred Stock was released from the escrow account to atai. The Company's equity ownership interest in PsyProtix remained unchanged as the PsyProtix Escrow Shares were already deemed issued, outstanding and legally owned by atai.
Psyber, Inc.
Psyber is a globally based startup focused on the development of brain-computer interface-enabled digital therapeutics for treating mental health issues. Psyber was created as a joint venture between the Company and the founders of Psyber. In February 2021, pursuant to a Series A Preferred Stock Purchase Agreement (the “Psyber Purchase Agreement”), the Company acquired shares of Psyber’s Series A preferred stock in exchange for an initial payment of $0.2 million in cash. In addition, pursuant to the Psyber Purchase Agreement, the Company agreed to make aggregate payments to Psyber of up to $1.8 million upon the achievement of specified clinical milestones to complete the purchase of the shares and provide additional funding to Psyber. The Psyber Purchase Agreement resulted in the Company holding a 75.0% voting interest and the founders of Psyber jointly holding a 25.0% voting interest in Psyber. In connection with the Company’s agreement for additional funding, Psyber issued the corresponding Series A preferred shares to the Company provided that the shares are held in an escrow account (the “Psyber Escrow Shares”). The Psyber Escrow Shares will be released, from time to time, to the Company upon Psyber achieving certain milestones as defined in the Psyber Purchase Agreement with cash payments to be made by the Company. In addition, the Company has the right, but not the obligation, to make payment for the certain Psyber Escrow Shares at any time, regardless of the achievement of any milestones. The Psyber Escrow Shares have voting and all other rights until an event of default occurs where the Company fails to make a payment within 10 days following the written notice of the achievement of the relevant milestone. In the event of default, Psyber shall automatically repurchase a pro rata portion of the Escrow Shares from atai (“Repurchase Event”) for a purchase price per share equal to the par value of such Escrow Shares. Upon the Repurchase Event, the Escrow Shares are released from escrow to Psyber and thereafter cancelled. The Repurchase Event is the sole remedy upon atai’s failure to make the payment for the milestone shares. In addition, prior to the occurrence of the earlier of a certain milestone event or reaching of the Company’s capital contribution threshold of $2.0 million, Psyber will issue additional shares of common stock to the founders of Psyber to maintain the founders’ current ownership percentage. This anti-dilution right was concluded to be embedded in the common shares held by the founders of Psyber.
The Psyber Purchase Agreement provided the Company unilateral rights to control all decisions related to the significant activities of Psyber. The Company concluded that Psyber was not considered a business based on its assessment under ASC 805 and accounted for the Company’s acquisition in Psyber as an initial consolidation of a VIE that is not a business under ASC 810 (See Note 4). The assets acquired, liabilities assumed, and noncontrolling interest in the transaction were measured based on their fair values. The Company recognized a de minimis gain for the year ended December 31, 2021. The gain was calculated as the sum of the consideration paid of $0.2 million, less the fair value of identifiable net assets acquired of $0.2 million.
InnarisBio, Inc.
In February 2021, the Company jointly formed InnarisBio with UniQuest Pty Ltd (“UniQuest”) for the purpose of adding a solgel-based direct-to-brain intranasal drug delivery technology to the Company’s platform. In March 2021, pursuant to a Series A Preferred Stock Purchase Agreement (the “InnarisBio Purchase Agreement”), the Company acquired shares of InnarisBio’s Series A preferred stock in exchange for an initial payment of $1.1 million in cash. In addition, pursuant to the InnarisBio Purchase Agreement, the Company agreed to make aggregate payments to InnarisBio of up to $3.9 million upon the achievement of specified clinical milestones to complete the purchase of the shares and provide additional funding to InnarisBio. The InnarisBio Purchase Agreement resulted in the Company holding an 82.0% voting interest and UniQuest holding a 18.0% voting interest in InnarisBio. In connection with the Company’s agreement for additional funding, InnarisBio issued the corresponding Series A preferred shares to the Company provided that the shares are held in an escrow account (the “InnarisBio Escrow Shares”). The InnarisBio Escrow Shares will be released, from time to time, to the Company upon InnarisBio achieving certain milestones as defined in the InnarisBio Purchase Agreement with cash payments to be made by the Company. In addition, the Company has the right, but not the obligation, to make payment for the InnarisBio Escrow Shares at any time, regardless of the achievement of any milestones. The InnarisBio Escrow Shares have voting and all other rights until an event of default occurs where the Company fails to make a payment within 10 days following the written notice of the achievement of the relevant milestone. In the event of default, InnarisBio shall automatically repurchase a pro rata portion of the Escrow Shares from atai (“Repurchase Event”) for a purchase price per share equal to the par value of such Escrow Shares. Upon the Repurchase Event, the Escrow Shares are released from escrow to InnarisBio and thereafter cancelled. The Repurchase Event is the sole remedy upon atai’s failure to make the payment for the milestone shares.
The InnarisBio Purchase Agreement provided the Company unilateral rights to control all decisions related to the significant activities of InnarisBio. The Company concluded that InnarisBio was not considered a business based on its assessment under ASC 805 and accounted for the Company’s acquisition in InnarisBio as an initial consolidation of a VIE that is not a business under ASC 810 (See Note 4). The assets acquired, liabilities assumed, and noncontrolling interest in the transaction were measured based on their fair values. The Company recognized a de minimis loss on consolidation for the year ended December 31, 2021. The loss was calculated as the sum of the consideration paid of $1.1 million, the fair value of the noncontrolling interest issued of $0.9 million, less the fair value of identifiable net assets acquired of $2.0 million. The fair value of the contingent milestone payments of $0.1 million was included in the total purchase consideration for the noncontrolling interest and recognized as a liability by InnarisBio at the date of acquisition. The fair value of the IPR&D acquired of $1.0 million was reflected as acquired in-process research and development expense on the consolidated statements of operations for the year ended December 31, 2021 as it had no alternative future use at the time of the acquisition.
Neuronasal, Inc.
Neuronasal, Inc. (“Neuronasal”) is developing a novel intranasal formulation of N-acetylcysteine for acute mild traumatic brain injury. The Company first acquired investments in Neuronasal in December 2019 pursuant to a Preferred Stock Purchase Agreement (the “Neuronasal PSPA”). In December 2019, in connection with the original purchase of the preferred shares, Neuronasal and the Company entered into the Secondary Sale and Put Right Agreement (the “Neuronasal Secondary Sale Agreement”), whereby upon the achievement of certain contingent development milestones, existing common shareholders have the right to sell and the Company has the option but not the obligation to purchase additional shares of common stock at a price determined based on the fair market value per share on the date of exercise. These options that will allow the Company to purchase additional common shares are contingent upon the exercise of the options by Neuronasal’s common shareholders to sell shares to the Company. On March 10, 2021, pursuant to the Neuronasal PSPA, the Company purchased additional Series A preferred shares for approximately $0.8 million based on the achievement of certain development milestones. Also, pursuant to the Neuronasal Secondary Sale Agreement, the Company purchased additional common shares for approximately $0.3 million. On May 17, 2021, pursuant to the Neuronasal PSPA the Company exercised its option to purchase additional shares of Series A preferred stock of Neuronasal for an aggregate cost of $1.0 million. The additional purchase on May 17, 2021 resulted in the Company obtaining an aggregate 56.5% ownership interest in Neuronasal, including the Company’s previously acquired investments in Neuronasal’s common and preferred stock, and provided the Company with control of Neuronasal’s board of directors and the unilateral rights to control all decisions related to the significant activities of Neuronasal. Prior to May 17, 2021, the Company accounted for its investments in Neuronasal’s common stock under the equity method and Neuronasal’s preferred stock under the measurement alternative (See Note 5). Following the closing of this acquisition on May 17, 2021, the results of Neuronasal have been consolidated in the Company’s consolidated financial statements.
The Company concluded that Neuronasal was not considered a business based on its assessment under ASC 805 and accounted for the Company’s acquisition in Neuronasal as an initial consolidation of a variable interest entity (“VIE”) that is not a business under ASC 810 (See Note 4). The assets acquired, liabilities assumed, and noncontrolling interest in the transaction were measured based on their fair values. The Company recognized a gain of $3.5 million for the year ended December 31, 2021. The gain was calculated as the sum of the consideration paid of $1.0 million, the fair value of the noncontrolling interest issued of $3.0 million, the carrying value of the Company’s investments in Neuronasal’s common stock and preferred stock prior to May 17, 2021 of $0.8 million, less the fair value of identifiable net assets acquired of $8.3 million. The fair value of the IPR&D acquired of $8.0 million was reflected as acquired in-research and development expense on the consolidated statements of operations for the year ended December 31, 2021 as it had no alternative future use at the time of the acquisition.
TryptageniX, Inc.
TryptageniX, Inc. ("TryptageniX"), a Delaware corporation, was incorporated by CB Therapeutics, Inc. (“CBT”) on November 17, 2021, for the purpose of developing and commercializing Intellectual Property (“IP”) and to develop innovative biosynthetic methods to manufacture bioidentical, clinically relevant compounds, including psychoactive compounds which are highly difficult to produce sustainability through traditional methods. TryptageniX will generate New Chemical Entities (“NCE"). In December 2021, pursuant to the Stock Purchase Agreement (TryptageniX-ATAI Stock Purchase Agreement"), atai acquired Class A Common Stock in exchange for $2.0 million and received a certificate representing additional Class A Common Stock to be held in escrow ("Escrow Shares") by TryptageniX to be released upon achievement of specified clinical milestones and corresponding milestone payments. The TryptageniX-ATAI Stock Purchase Agreement resulted in the Company holding a 65% equity ownership interest and CBT holding a 35% equity ownership interest in TryptageniX. The Escrow Shares will be released, from time to time, to the Company upon TryptageniX achieving certain milestones as defined in the TryptageniX Purchase Agreement with cash payments to be made by the Company. Notwithstanding anything to the contrary, atai shall be the owner of the Escrow Shares and has the right, but not the obligation, to make payment for the Escrow Shares at any time, regardless of the achievement of any milestones. The Escrow Shares have voting and all other rights until an event of default occurs where the Company fails to make a payment within 10 days following the written notice of the achievement of the relevant milestone. In the event of default, TryptageniX shall automatically repurchase a pro rata portion of the Escrow Shares from atai (“Repurchase Event”) for a purchase price per share equal to the par value of such Escrow Shares. Upon the Repurchase Event, the Escrow Shares are released from escrow to TryptageniX and thereafter cancelled. The Repurchase Event is the sole remedy upon atai’s failure to make the payment for the milestone shares.
On December 3, 2021, the Company made an additional payment of $1.0 million to CBT for the first installment of a $2.0 million exclusivity fee to become a party to the TryptageniX-ATAI Stock Purchase Agreement. The fee represents the exclusive right to the CBT technology and know-how defined in the TryptageniX Stockholders Agreement. The remaining installment of $1.0 million shall be paid no later than the second anniversary of the acquisition date, either in cash or in common shares of atai.
The TryptageniX-ATAI Stock Purchase Agreement provided the Company unilateral rights to control all decisions related to the significant activities of TryptageniX. The Company concluded that the acquired assets and activities of TryptageniX did not constitute a business based on its assessment under ASC 805 and accounted for the acquisition as an initial consolidation of a VIE that is not a business under
ASC 810 (See Note 4). The assets acquired, liabilities assumed, and noncontrolling interest in the transaction were measured based on their fair values. The Company did not recognize a gain or a loss in connection with the consolidation of TryptageniX as the fair value of the consideration paid of $1.0 million was equivalent to the fair value of identifiable net assets acquired of $6.5 million, less the fair value of the noncontrolling interest issued of $3.9 million, fair value of the contingent consideration of $0.9 million, and fair value of liability for seller financing of $0.8 million. The Company elected to expense the entire fair value of the acquired IPR&D asset of $6.5 million as it has no alternative use at the acquisition date.
All acquisitions discussed above were considered as asset acquisitions and no goodwill was recognized upon consolidation.
2022 Dispositions
Neuronasal, Inc.
In November 2022, the Company finalized and entered into a Redemption, Termination and Release Agreement ("Termination Agreement") with Neuronasal through which atai disposed of its equity interests and residual SPA funding obligations. Pursuant to the Neuronasal Termination Agreement, the Company transferred all of its approximately 56.5% equity interest in Neuronasal in exchange for the redemption consideration in the form of certain warrants. The Neuronasal Termination Agreement entitles the Company to purchase certain common stock in Neuronasal upon the occurrence of certain contingencies, such as an initial public offering, qualified financing event, or certain clinical studies. The Company has no further obligations to fund Neuronasal.
As a result of the disposition, the Company ceased having controlling financial interest in Neuronasal and the Company deconsolidated Neuronasal in November 2022 because it determined that it no longer was the primary beneficiary of Neuronsasal as it no longer had the power to direct the significant activities of Neuronasal. Upon the effective termination date, the Company derecognized all of Neuronasal's assets and liabilities from its balance sheet, and recognized a gain of $1.5 million, which was recognized as a component of other income in the consolidated statement of operations for the year ended December 31, 2022. The Company determined that the value of the warrants received in connection with the Termination Agreement were de minimis as of the termination date. In connection with the deconsolidation of Neuronasal, the Company concluded that a loan loss has been incurred and the loan assets were impaired accordingly. The Company recognized an impairment of loan receivable of $0.9 million for the year ended December 31, 2022.
The Company concluded that the decision to deconsolidate Neuronasal, which was based on clinical data that did not meet expectations, did not represent a significant strategic shift. Therefore, the Company did not present the results of Neuronasal prior to deconsolidation as discontinued operations in its consolidated statements of operations for the year ended December 31, 2022.
4. Variable Interest Entities and a Voting Interest Entity
Consolidated VIEs
At each reporting period, the Company reassesses whether it remains the primary beneficiary for Variable Interest Entities (“VIEs”) consolidated under the VIE model.
The entities consolidated by the Company are comprised of wholly and partially owned entities for which the Company is the primary beneficiary under the VIE model as the Company has (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses that could potentially be significant to the VIE, or the right to receive benefits from the VIE that could potentially be significant to the VIE. The results of operations of the consolidated entities are included within the Company’s consolidated financial statements from the date of acquisition to December 31, 2022.
As of December 31, 2022 and December 31, 2021, the Company has accounted for the following consolidated investments as VIEs, excluding the wholly owned subsidiaries:
Consolidated Entities
Relationship as of
December 31, 2022
Relationship as of
December 31, 2021
Date
Control
Obtained
Ownership %
December 31,
Ownership %
December 31,
Perception Neuroscience Holdings, Inc.
Controlled VIE
Controlled VIE
November 2018
58.9%
58.9%
Kures, Inc.
Controlled VIE
Controlled VIE
August 2019
64.5%
54.1%
EntheogeniX Biosciences, Inc.
Controlled VIE
Controlled VIE
November 2019
80.0%
80.0%
DemeRx IB, Inc.
Controlled VIE
Controlled VIE
December 2019
59.5%
59.5%
Recognify Life Sciences, Inc.
Controlled VIE
Controlled VIE
November 2020
51.9%
51.9%
PsyProtix, Inc.
Controlled VIE
Controlled VIE
February 2021
75.0%
75.0%
Psyber, Inc.
Controlled VIE
Controlled VIE
February 2021
75.0%
75.0%
InnarisBio, Inc.
Controlled VIE
Controlled VIE
March 2021
82.0%
82.0%
Neuronasal, Inc.
-
(1)
Controlled VIE
May 2021
-
56.5%
TryptageniX Inc.
Controlled VIE
Controlled VIE
December 2021
65.0%
65.0%
(1) As discussed in Note 3, the Company deconsolidated Neuronsal, Inc. in November 2022.
As of December 31, 2022 and December 31, 2021, the assets of the consolidated VIEs can only be used to settle the obligations of the respective VIEs. The liabilities of the consolidated VIEs are obligations of the respective VIEs and their creditors have no recourse to the general credit or assets of atai.
EntheogeniX Biosciences, Inc.
In November 2019, the Company entered into a series of agreements with Cyclica Inc. ("Cyclica") to form EntheogeniX Biosciences, Inc. ("EntheogeniX"), a company dedicated to developing the next generation of innovative mental health drugs employing an AI-enabled computational biophysics platform designed to optimize and accelerate drug discovery. Based on the Company's assessment of the transaction at the time of acquisition, the Company concluded that EntheogeniX was not a business and accounted for the Company's investment as an initial consolidation of a VIE that is not a business under ASC 810.
In September 2021, the Company executed an amendment to the Stockholders Agreement and Contribution and Subscription Agreement ("EntheogeniX Amendment") between atai, EntheogeniX and Cyclica, in which atai agreed to purchase additional Class A common stock for an aggregate purchase price of $0.5 million. In February and September 2022, pursuant to the EntheogeniX Amendment, atai purchased additional shares of Class A common stock for an aggregate purchase price of $2.2 million. As a result of anti-dilution protection available to Cyclica, the Company's ownership percentage in EntheogeniX did not change due to the Class A common stock purchase. As of December 31, 2022 and December 31, 2021, the Company owned 80% of the outstanding common stock of EntheogeniX.
The purchase of additional Class A common stock was deemed to be a reconsideration event. The Company determined that EntheogeniX is still considered a VIE subsequent to the additional Class A common stock purchase as EntheogeniX does not have sufficient equity at risk to carry out its principal activities without additional subordinated financial support.
The following table presents the assets and liabilities (excluding intercompany balances that were eliminated in consolidation) for all VIEs as of December 31, 2022 (in thousands):
Perception
Kures
EntheogeniX
DemeRx IB
Recognify
PsyProtix
Psyber
InnarisBio
TryptageniX
Assets:
Current assets:
Cash
$
8,703
$
$
$
12,251
$
7,526
$
$
$
$
Accounts receivable
-
-
-
-
-
-
-
-
Prepaid expenses and other current assets
1,742
-
2,850
Total current assets
9,366
12,272
9,268
3,363
Long term notes receivable
-
-
-
1,075
-
-
-
-
Other assets
-
-
-
-
-
-
-
-
Total assets
$
9,366
$
$
$
13,347
$
9,268
$
$
1,036
$
$
3,363
Liabilities:
Current liabilities:
Accounts payable
$
$
$
$
$
$
$
$
$
-
Accrued liabilities
1,738
Other current liabilities
-
-
Total current liabilities
2,520
1,136
Total liabilities
$
2,520
$
$
$
1,136
$
$
$
$
$
The following table presents the assets and liabilities (excluding intercompany balances that were eliminated in consolidation) for all consolidated VIEs as of December 31, 2021 (in thousands):
Perception
Kures
EntheogeniX
DemeRx IB
Recognify
PsyProtix
Psyber
InnarisBio
Neuronasal
TryptageniX
Assets:
Current assets:
Cash
$
23,099
$
1,048
$
$
8,511
$
2,519
$
$
$
1,487
$
$
2,000
Unbilled receivable
-
-
-
-
-
-
-
-
-
Prepaid expenses and other current assets
1,138
-
-
-
Total current assets
24,301
1,152
8,581
2,523
1,549
2,000
Property and equipment, net
-
-
-
-
-
-
-
-
-
Long term notes receivable
-
-
-
1,075
-
-
-
-
-
Other assets
-
-
-
-
-
-
-
-
-
Total assets
$
24,302
$
1,152
$
$
9,656
$
2,523
$
$
$
1,549
$
$
2,000
Liabilities:
Current liabilities:
Accounts payable
$
$
$
$
$
$
$
$
-
$
$
-
Accrued liabilities
-
Current portion of contingent consideration liability - related parties
-
-
-
-
-
-
-
-
-
Deferred revenue
-
-
-
-
-
-
-
-
-
Short-term notes payable
-
-
-
-
-
-
-
-
-
Total current liabilities
1,548
1,113
-
Contingent consideration liability
1,489
-
-
-
-
-
-
-
Other non-current liabilities
-
-
-
-
-
-
-
-
Total liabilities
$
3,037
$
$
$
$
$
$
$
$
1,449
$
1,670
Noncontrolling Interests
The Company recognizes noncontrolling interests related to its consolidated VIEs and provides a rollforward of the noncontrolling interests balance, as follows (in thousands):
Perception
Recognify
Psyber
InnarisBio
Neuronasal
TryptageniX
Total
Balance as of December 31, 2020
$
-
$
4,546
$
-
$
-
$
-
$
-
$
4,546
Issuance of noncontrolling interests
3,258
-
3,876
8,411
Net income (loss) attributable to noncontrolling
interests - common
-
-
(8
)
(877
)
(392
)
(3,876
)
(5,153
)
Net income (loss) attributable to noncontrolling
interests - preferred
1,998
(727
)
-
-
-
-
1,271
Comprehensive loss attributable to noncontrolling
interests
(24
)
-
-
-
-
-
(24
)
Balance as of December 31, 2021
$
5,232
$
3,819
$
-
$
-
$
-
$
-
$
9,051
Perception
Kures
Recognify
Total
Balance as of December 31, 2021
$
5,232
$
-
$
3,819
$
9,051
Issuance of noncontrolling interests
-
-
Net loss attributable to noncontrolling interests - preferred
(3,551
)
(149
)
(975
)
(4,675
)
Net loss attributable to noncontrolling interests - common
-
(357
)
-
(357
)
Comprehensive income attributable to noncontrolling interests
-
-
Balance as of December 31, 2022
$
1,731
$
$
2,844
$
5,026
Redeemable Noncontrolling Interests
In connection with the consolidation of Kures, Inc. (“Kures”) the Company recognized the shares of Kures common stock and Series A-1 preferred stock held by the founders of Kures as redeemable noncontrolling interests as they contain embedded put options that are exercisable by the founders following a successful completion of a future event, which is not solely within the control of the Company.
In connection with the consolidation of DemeRx IB, the Company recognized common stock held by DemeRx as redeemable noncontrolling interests as they are redeemable upon the occurrence of events that are not solely within the control of the Company.
In connection with the consolidation of Neuronasal, the Company recognized the shares of Neuronasal common stock held by the founders of Neuronasal as redeemable noncontrolling interests as they contain embedded put options that are exercisable by the founders following a successful completion of a future event, which is not solely within the control of the Company. As discussed in Note 3, the Company deconsolidated Neuronasal in November 2022.
The redeemable noncontrolling interests were initially measured at fair value upon issuance and are redeemable at fair value at the holder’s option upon the successful completion or occurrence of future events. As of December 31, 2022 and December 31, 2021, the Company did not adjust the carrying value of the redeemable noncontrolling interests based on their estimated redemption values since it was not probable that the events that would allow the shares to become redeemable would occur. Subsequent adjustments to increase or decrease the carrying values of the redeemable noncontrolling interests to their estimated redemption values will be made if and when it becomes probable that such events will occur.
As of December 31, 2022 and December 31, 2021, the balance of redeemable noncontrolling interests in temporary equity on the consolidated balance sheets was zero. There was no redeemable noncontrolling interest activity during the year ended December 31, 2022.
The following table provides a rollforward of the redeemable noncontrolling interests balance activity (in thousands):
Neuronasal
Total
Balance as of December 31, 2020
$
-
$
-
Issuance of redeemable noncontrolling interests
2,555
2,555
Net loss attributable to redeemable noncontrolling interests - common
(2,555
)
(2,555
)
Balance as of December 31, 2021
$
-
$
-
Non-consolidated VIEs
The Company evaluated the nature of its investments in Innoplexus AG (“Innoplexus”), DemeRx NB, Inc. (“DemeRx NB”) and IntelGenx and determined that the investments are VIEs as of the date of the Company’s initial investment through December 31, 2022. The Company is not the primary beneficiary as it did not have the power to direct the activities that most significantly impact the investments’ economic performance and therefore concluded that it did not have a controlling financial interest that would require consolidation as of December 31, 2022 and December 31, 2021.
The Company will reevaluate if the investments meet the definition of a VIE upon the occurrence of specific reconsideration events. The Company accounted for these investments under either the equity method or the measurement alternative included within ASC 321 (See Note 5). As of December 31, 2022, the Company’s maximum exposure for its non-consolidated VIEs was $6.8 million relating to the carrying values in other investments and other investments held at fair value and $7.2 million relating to the carrying value in long term notes receivable - related party. As of December 31, 2021, the Company’s maximum exposure for its non-consolidated VIEs was $11.6 million relating to the carrying values in its other investments and $3.8 million relating to the carrying value in short term notes receivable-related party.
5. Equity Method Investments and Other Investments
Equity Method Investments
As of December 31, 2022 and December 31, 2021, the Company accounted for the following investments in the investee’s common stock under the equity method (amounts in thousands):
As of December 31, 2022
As of December 31, 2021
Date First
Common Stock
Carrying
Common Stock
Carrying
Investee
Acquired
Ownership %
Value
Ownership %
Value
Innoplexus A.G.
August 2018
35.0%
$
-
35.0%
$
-
COMPASS Pathways plc
December 2018
22.4%
-
22.8%
16,131
GABA Therapeutics, Inc
November 2020
7.5%
(1)
-
7.5%
(1)
-
Total
$
-
$
16,131
(1)The Company is deemed to have significant influence over this entity through its total ownership interest in the entity’s equity, including the Company’s investment in the respective entity’s preferred stock, described below in Other Investments. The Company’s total ownership interest, considering both preferred and common stock is 54.7%.
COMPASS Pathways plc
COMPASS Pathways plc ("COMPASS") is a mental health care company dedicated to pioneering the development of a new model of psilocybin therapy with its product COMP360. The Company first acquired investments in COMPASS in December 2018.
Equity Investment
Through a series of open market transactions between November 23, 2021 and December 7, 2021, the Company purchased an additional 1,490,111 of COMPASS ADSs at an aggregate purchase price of $47.4 million. The additional shares acquired resulted in an increase in the Company’s ownership of COMPASS ADSs to 22.8%. The Company applied the cost accumulation model and recorded its investment at cost. At the date of the investment, a basis difference was identified as the cost basis of the Company’s investment in COMPASS exceeded the Company’s proportionate share of the underlying net assets in COMPASS. The Company concluded that the basis differences were primarily attributable to COMPASS’s IPR&D associated with COMP360, a psilocybin therapy, which COMPASS recently completed a Phase IIb clinical trial for. As the Company’s investment in COMPASS did not meet the definition of a business due to substantially all of the estimated fair value of the gross assets being concentrated in COMP360 and the associated IPR&D, the basis differences were attributable to the IPR&D with no alternative future use and were immediately expensed at the time of the additional investment. As of
December 31, 2022, the Company owned 22.4% of COMPASS ADS. Based on quoted market prices, the market value of the Company’s ownership in COMPASS was $76.8 million and $211.4 million as of December 31, 2022 and 2021, respectively.
Upon the completion of the COMPASS IPO, the Company was deemed to have significant influence over COMPASS primarily through its ownership interest in COMPASS’ equity and the Company's representation on COMPASS board of directors. Following the COMPASS 2022 annual shareholder meeting, the Company no longer is represented on the COMPASS board. However, the Company maintains significant influence through its ownership interest. Accordingly, the Company’s investment in COMPASS’ ADS was accounted for in accordance with the equity method through December 31, 2022
During the years ended December 31, 2022 and 2021, the Company recognized its proportionate share of COMPASS’ net loss of $10.1 million and $10.5 million, respectively, as losses from investments in equity method investees, net of tax on the consolidated statements of operations.
Other Investments
The Company has accounted for its other investments that do not have a readily determinable fair value under the measurement alternative. As of December 31, 2022 and December 31, 2021, the carrying values of other investments, which consisted of investments in the investee’s preferred stock and common stock not in the scope of ASC 323 were as follows (in thousands):
December 31,
December 31,
GABA Therapeutics, Inc.
$
5,387
$
10,260
DemeRx NB, Inc.
1,024
1,024
Juvenescence Limited
Total
$
6,755
$
11,628
The Company’s investments in the preferred stock of Innoplexus, GABA, and DemeRx NB are not considered as in-substance common stock due to the existence of substantial liquidation preferences and therefore did not have subordination characteristics that were substantially similar to the common stock. Although the Company’s investment in Juvenescence Limited (“Juvenescence”) is in common stock, it is not able to exercise significant influence over the operating and financial decisions of Juvenescence. The Company concluded that its ownership interests in above Other Investments do not have a readily determinable fair value and are accounted for under the measurement alternative. Under the measurement alternative, the Company measured its other investments at cost, less any impairment, plus or minus, if any, observable price changes in orderly transactions for an identical or similar investment of the same issuer.
During the years ended December 31, 2022 and 2021 there were no observable changes in price recorded related to the Company’s Other Investments.
During the years ended December 31, 2022 and 2021, the Company evaluated all of its other investments to determine if certain events or changes in circumstance during these time periods in 2022 and 2021 had a significant adverse effect on the fair value of any of its investments in non-consolidated entities. Based on this analysis, the Company did not note any impairment indicators associated with the Company’s Other Investments.
Innoplexus AG
Innoplexus AG is a technology company that provides “Data as a Service” and “Continuous Analytics as a Service” solutions that aims to help healthcare organizations leverage their technologies and expedite the drug development process across all stages-preclinical, clinical, regulatory and commercial. The Company first acquired investments in Innoplexus in August 2018.
As of December 31, 2020, the Company owned 35.0% of the common stock issued by Innoplexus. The Company has significant influence over Innoplexus through its noncontrolling representation on the investee’s supervisory board. Accordingly, the Company’s investment in Innoplexus’ common stock was accounted for in accordance with the equity method. The Company’s investment in Innoplexus’ preferred stock did not meet the criteria for in-substance common stock. As such, the investment in Innoplexus’ preferred stock was accounted for under the measurement alternative as discussed below.
In February 2021, the Company entered into a Share Purchase and Assignment Agreement (the “Innoplexus SPA”) to sell its shares of common and preferred stock held in Innoplexus to a current investor of Innoplexus (the “Purchaser”) in exchange for an initial purchase price of approximately $2.4 million. In addition, the Company is entitled to receive contingent payments based on the occurrence of subsequent equity transactions or liquidity events at Innoplexus as determined under the Innoplexus SPA.
Pursuant to the Innoplexus SPA, the Purchaser is required to hold a minimum number of shares equivalent to the number of shares purchased from the Company through December 31, 2026. In the event that the Purchaser is in breach of this requirement, the purchaser is required to pay the Company an additional purchase price of approximately $9.6 million. The transaction was accounted for as a secured financing as it did not qualify for sale accounting under ASC Topic 860, Transfers and Servicing (ASC 860), due to the provision under the Innoplexus SPA which constrained the Purchaser from its right to pledge or exchange the underlying shares and provided more than a trivial benefit to the Company. The initial proceeds from the transaction are reflected as a secured borrowing liability of $2.4 million as of December 31, 2022 and 2021, which is included in Other liabilities in the Company’s consolidated balance sheets. The Company will continue to account for its investment in Innoplexus’ common stock under the equity method of accounting and its investment in Innoplexus’ preferred shares under the measurement alternative.
In addition, the Innoplexus SPA also provides the rights for the Company to receive additional consideration with a maximum payment outcome of $22.3 million should the equity value of Innoplexus exceed certain thresholds upon the occurrence of certain events. The Company concluded that this feature met the definition of a derivative which required bifurcation. As the probability of the occurrence of certain events defined in the Innoplexus SPA was less than remote, the Company concluded that the fair value of the embedded derivative ascribed to this feature was de minimis as of December 31, 2022 and 2021.
The carrying value of the Company’s investment in Innoplexus was zero as of December 31, 2022 and December 31, 2021.
GABA Therapeutics, Inc.
GABA is a California based biotechnology company focused on developing GRX-917 for anxiety, depression and a broad range of neurological disorders. The Company is deemed to have significant influence over GABA through its total ownership interest in GABA’s equity, including the Company’s investment in GABA’s preferred stock, and the Company’s noncontrolling representation on GABA’s board of directors.
Common Stock Investment
The Company’s investment in GABA’s common stock was accounted for in accordance with the equity method. The Company’s investment in GABA’s preferred stock did not meet the criteria for in-substance common stock. As such, the investment in GABA’s preferred stock is accounted for under the measurement alternative as discussed below.
The carrying value of the investment in GABA common stock was reduced to zero as of December 31, 2020 due to IPR&D charges with no alternative future use and remained zero as of December 31, 2022. Accordingly, GABA’s net losses attributable to the Company were determined based on the Company’s ownership percentage of preferred stock in GABA and recorded to the Company’s investments in GABA preferred stock discussed below. During the years ended December 31, 2022 and 2021, the Company recognized its proportionate share of GABA’s net loss of $5.9 million and $5.0 million, respectively, as losses from investments in equity method investees, net of tax on the consolidated statements of operations.
Preferred Stock Investment
In August 2019, GABA and the Company entered into the Preferred Stock Purchase Agreement (the “GABA PSPA”), whereby GABA issued shares of its Series A preferred stock to the Company at a price of approximately $5.5 million. At closing, the Company had an overall ownership interest of over 20% in GABA and a noncontrolling representation on the board. On May 15, 2021, GABA and the Company entered into an Amendment to Preferred Stock Purchase Agreement (the Amended GABA PSPA”) under which the GABA PSPA was amended. In September 2022, pursuant to the Amended PSPA, GABA issued additional shares of its Series A preferred stock to the Company at a price of approximately $0.6 million. As of December 31, 2022 and 2021, the investment in GABA’s preferred stock was recorded in Other Investments on the consolidated balance sheets under the measurement alternative under ASC 321.
Pursuant to the GABA PSPA, the Company is obligated to purchase additional shares of Series A preferred stock for up to $10.0 million with the same price per share as its initial investment, upon the achievement of specified contingent clinical development milestones. On April 13, 2021, pursuant to the GABA PSPA, the Company purchased additional shares of Series A preferred stock of GABA, for an aggregate cost of $5.0 million based on the achievement of certain development milestones. On May 21, 2021, the Company exercised its option to purchase additional shares of Series A preferred stock prior to the achievement of certain development milestone for an aggregate cost of $5.0 million. The completion of the Series A Preferred stock purchase in May 2021 was deemed to be a reconsideration event at which point GABA was no longer deemed a VIE as GABA now had sufficient equity at risk to finance its activities through the initial development period without additional subordinated financial support. Entities that do not qualify as a VIE are assessed for consolidation under the voting interest model (“VOE model”). Under the VOE model, the Company consolidates the entity if it determines that it, directly or indirectly, has greater than 50% of the voting shares and that other equity holders do not have substantive voting, participating or liquidation rights. While the Company holds greater than 50% of the outstanding equity interest of GABA, the Company does not have the
power to control the entity. Concurrent with the exercise of the option, the Company executed a side letter with the other equity holders of GABA agreeing to forego the rights to additional seats on the board of directors, resulting in the Company lacking the ability to control the investee. The Company concluded that it does not have a controlling financial interest that would require consolidation under the VOE model and accounted for the investments in GABA preferred stock under the measurement alternative per ASC 323.
As of December 31, 2021, the Company completed the purchase of the additional shares of Series A preferred stock for $10.0 million pursuant to the GABA PSPA. Pursuant to the Amended GABA PSPA, the Company is obligated to purchase additional shares of Series A preferred stock from GABA for up to $1.5 million with the same price per share as its initial investment upon the achievement of specified contingent clinical development milestones.
In accordance with the Amended GABA PSPA, the Company also has the option but not the obligation to purchase the aforementioned additional shares of Series A preferred stock at any time prior to the achievement of any milestone at the same price per share as its initial investment. In August 2019, pursuant to the Right of First Refusal and Co-Sale Agreement, the Company has the option but not the obligation to purchase additional shares of common stock for up to $2.0 million from the existing common shareholders.
In November 2020 the Company exercised its option to purchase additional shares of common stock of GABA at a price of approximately $1.8 million pursuant to an Omnibus Amendment Agreement under which the Right of First Refusal and Co-Sale Agreement was amended.
Neuronasal, Inc.
Neuronasal is developing a novel intranasal formulation of N-acetylcysteine (“NAC”) for acute mild traumatic brain injury.
Common Stock Investment
In October 2020, upon the achievement of certain development milestones, the Company made a cash contribution of $0.3 million in exchange for 9.8% of the outstanding common stock of Neuronasal. The carrying value of the investment in Neuronasal common stock was reduced to zero as of December 31, 2020 due to IPR&D charges with no alternative future use. Accordingly, Neuronasal’s net losses attributable to the Company was determined based on the Company’s ownership percentage of preferred stock in Neuronasal and recorded to the Company’s investments in Neuronasal preferred stock discussed below.
On March 10, 2021, upon the achievement of certain development milestones, the Company made another cash contribution of $0.5 million in exchange for 10.8% of the outstanding common stock of Neuronasal. The Company recorded its investment in Neuronasal common stock at the carrying cost basis of $0.5 million. At the date of the investment, a basis difference was identified as the cost basis of the Company’s investment in Neuronasal exceeded the Company’s proportionate share of the underlying net assets in Neuronasal. The Company concluded that the basis differences were primarily attributable to Neuronasal’s IPR&D associated with Neuronasal’s novel intranasal formulation of NAC. As the Company’s investments in Neuronasal did not meet the definition of a business due to substantially all of the estimated fair value of the gross assets being concentrated in NAC, the basis differences were attributable to the IPR&D with no alternative future use, and were immediately expensed on the dates of investments. The Company’s proportionate share of the basis difference exceeded its carrying value of the equity method investment in Neuronasal and as a result, the March 2021 equity investment balance of $0.5 million was reduced to zero. For the three months ended March 31, 2021, the Company recognized losses from investments in equity method investees, net of tax of $0.5 million in association with the basis difference charge in the Company’s consolidated statements of operations.
The Company was deemed to have significant influence over Neuronasal through its total ownership interest in Neuronasal’s equity through the acquisition date of May 17, 2021 (see Note 3), including the Company’s investment in Neuronasal’s preferred stock, and the Company’s noncontrolling representation on Neuronasal’s board of directors. Accordingly, the Company’s investment in Neuronasal’s common stock was accounted for in accordance with the equity method. Immediately prior to the acquisition, the Company recognized its proportionate share of Neuronasal’s year to date net loss of $1.0 million, as losses from investments in equity method investees, net of tax on the consolidated statements of operations.
The Company’s investment in Neuronasal’s preferred stock did not meet the criteria for in-substance common stock. As such, the investment in Neuronasal’s preferred stock was accounted for under the measurement alternative as discussed below.
Preferred Stock Investment
In December 2019, Neuronasal and the Company entered into the Neuronasal PSPA and the Neuronasal Secondary Sale Agreement, whereby Neuronasal issued shares of its Series A preferred stock to the Company at a price of approximately $0.5 million. At closing, the Company had a less than 20% of ownership interest in Neuronasal and a noncontrolling representation on the board. In October 2020, pursuant to the Neuronasal PSPA, the Company purchased additional Series A preferred shares at a price of approximately $0.8 million. The investment in Neuronasal preferred shares was recorded in Other Investments on the consolidated balance sheets under the measurement alternative under ASC 321 as of December 31, 2022 and 2021.
In October 2020, pursuant to the Neuronasal PSPA, the Company purchased additional Series A preferred shares at a price of approximately $0.8 million upon the achievement of a specified contingent clinical development milestone. On March 10, 2021, pursuant to the Neuronasal PSPA, the Company purchased additional Series A preferred shares for approximately $0.8 million based on the achievement of certain development milestones.
On May 17, 2021, pursuant to the Neuronasal PSPA and the Neuronasal Secondary Sale Agreement, the Company, at its sole option, purchased additional shares of Series A preferred stock of Neuronasal for an aggregate cost of $1.0 million. Upon the closing of the purchase on May 17, 2021, the Company obtained a controlling financial interest in Neuronasal. The Company derecognized its other investments in Neuronasal and began to consolidate the operations of Neuronasal into its financial statements. See Note 3, “Acquisitions and Dispositions” for further discussion.
In November 2022, pursuant to the Termination Agreement, the Company deconsolidated Neuronasal. See Note 3, "Acquisitions and Dispositions" for further discussion.
DemeRx NB
In December 2019, the Company jointly formed DemeRx NB with DemeRx. DemeRx and DemeRx NB entered into a Contribution Agreement whereby DemeRx assigned all of its rights, title, and interests in and to all of its assets relating to DMX-1002, Noribogaine, in exchange for shares of common stock of DemeRx NB. DemeRx NB will use the contributed intellectual property to develop Noribogaine. Noribogaine is an active metabolite of ibogaine designed to have a longer plasma half-life and potentially reduced hallucinogenic effects compared to ibogaine.
In connection with the Contribution Agreement, the parties entered into a Series A Preferred Stock Purchase Agreement (the “DemeRx NB PSPA”) pursuant to which the Company purchased shares of Series A preferred stock of DemeRx NB at a purchase price of $1.0 million. At closing, the Company had less than 20% of ownership interest in DemeRx NB and a noncontrolling representation on DemeRx NB's board of directors. The investment in DemeRx NB was recorded in Other Investments on the consolidated balance sheets under the measurement alternative under ASC 321.
Pursuant to the DemeRx NB PSPA, the Company also has the option but not the obligation to purchase additional shares of DemeRX NB's Series A preferred stock at a purchase price of up to an aggregate of $19.0 million with the same price per share as its initial investment in December 2019. As of December 31, 2022, the Company has not exercised its option to purchase any shares of Series A preferred stock of DemeRx NB.
Other Investments Held at Fair Value
IntelGenx Technologies Corp.
IntelGenx is a novel drug delivery company focused on the development and manufacturing of novel oral thin film products for the pharmaceutical market. In March 2021, IntelGenx and the Company entered into the Strategic Development Agreement and Purchaser Rights Agreement (“PPA”). On May 14, 2021, IntelGenx and the Company executed a Securities Purchase Agreement (the “IntelGenx SPA”) after obtaining IntelGenx shareholder approval, whereby IntelGenx issued shares of its common stock and warrants to the Company at a price of approximately $12.3 million. Each warrant (the “Initial Warrants”) entitles the Company to purchase one share at a price of $0.35 per share for a period of three years from the closing of the initial investment in March 2021. Pursuant to the IntelGenx SPA, the Company has the right to purchase (in cash, or in certain circumstances, the Company’s equity) additional units for a period of three years from the closing of the initial investment (the “Additional Unit Warrants”). Each Additional Unit Warrant will be comprised of (i) one share of common stock and (ii) one half of one warrant (the “Additional Warrants”). The price for the Additional Unit Warrants will be (i) until the date which is 12 months following the closing and the purchase does not result in the Company owning more than 74,600,000 common shares of IntelGenx, $0.331 (subject to certain exceptions), and (ii) until the date which is 12 months following the closing and the purchase results in the Company owning more than 74,600,000 common shares of IntelGenx or following the date which is 12 months following the closing regardless of the number of shares held by the Company, the lower of (A) a 20% premium to the volume weighted
average price of the common share for the thirty trading days immediately preceding the news release of the additional closing, and (B) $0.50 if purchased in the second year following closing or $0.75, if purchased in the third year following closing. Each Additional Warrant will entitle the Company, for a period of three years from the date of issuance, to purchase one share at the lesser of either (i) a 20% premium to the price of the corresponding additional share, or (ii) the price per share under which shares of IntelGenx are issued under convertible instruments that were outstanding on February 16, 2021, provided that the Company may not exercise Additional Warrants to purchase more than the lesser of (x) 44,000,000 common shares of IntelGenx, and (y) the number of common shares issued by IntelGenx under outstanding convertibles held by other investors as of February 16, 2021. Following the initial closing, the Company held a 25% voting interest in IntelGenx. Pursuant to the PPA, the Company is entitled to designate a number of directors to the IntelGenx’s board of directors in the same proportion as the shares of common stock held by the Company to the outstanding of IntelGenx common shares.
Pursuant to the Strategic Development Agreement, the Company engages IntelGenx to conduct research and development projects (“Development Project”) using IntelGenx’s proprietary oral thin film technology. Under the terms of the Strategic Development Agreement, the Company can select four (4) program products. As of the effective date of the Strategic Development Agreement, the Company nominated two (2) program products - DMT and Salvinorin A. 20% of any funds that IntelGenx received or will receive through the Company’s equity investment under the IntelGenx SPA will be available to be credited towards research and development services that IntelGenx conducts for the Company under the Development Projects. The Company is eligible to receive a total credit of $2.5 million. For the year ended December 31, 2022, research and development services performed in relation to the Strategic Development Agreement were $0.5 million, which was applied as a reduction in research and development expense in accordance with the Strategic Development Agreement. No material research and development services were performed during the year ended December 31, 2021.
The Company has significant influence over IntelGenx through ownership interest in IntelGenx’s equity and the Company’s noncontrolling representation on IntelGenx’s board of directors. The Company qualified for and elected to account for its investment in the IntelGenx common stock under the fair value option. The Company believes that the fair value option better reflects the underlying economics of the IntelGenx common stock investment. The Initial Warrants and Additional Units Warrant, (collectively the “Warrants”) are accounted for at fair value under ASC 321 and recorded in Other investments held at fair value on the consolidated balance sheets. The Company applied a calibrated model and determined that the initial aggregate fair value is equal to the transaction price and recorded the common shares at $3.0 million, the Initial Warrants at $1.2 million and the Additional Unit Warrants at $8.2 million on a relative fair value basis resulting in no initial gain or loss recognized in the consolidated statements of operations. The Company recognizes subsequent changes in fair value of the common shares and the Warrants as a component of other income (expense), net in the consolidated statement of operations. The carrying amount of the investment was reduced to zero as of December 31, 2021 and during the year ended December 31, 2022, the Company recognized a $0 mark-to-market (“MTM”) gain/loss in the consolidated statement of operations. The carrying value of the investment remained at zero as of December 31, 2022 and 2021, respectively.
Summarized Financial Information
The following is a summary of financial data for investments accounted for under the equity method of accounting (in thousands):
Balance Sheets
December 31, 2022
COMPASS
GABA
Current assets
$
191,651
$
3,933
Non-current assets
5,643
-
Total assets
$
197,294
$
3,933
Current liabilities
$
15,596
$
1,542
Non-current liabilities
-
Total liabilities
$
16,014
$
1,542
December 31, 2021
COMPASS
GABA
Current assets
$
295,300
$
7,673
Non-current assets
5,598
-
Total assets
$
300,898
$
7,673
Current liabilities
$
15,107
$
Non-current liabilities
1,379
-
Total liabilities
$
16,486
$
Statements of operations
Year Ended December 31, 2022
COMPASS
GABA
Revenue
$
-
$
-
Loss from continuing operations
$
(110,403
)
$
(5,867
)
Net loss
$
(91,505
)
$
(5,867
)
Year Ended December 31, 2021
COMPASS
Neuronasal(1)
GABA
Revenue
$
-
$
-
$
-
Loss from continuing operations
$
(83,221
)
$
(985
)
$
(4,216
)
Net loss
$
(71,742
)
$
(985
)
$
(4,216
)
(1)Results from operations for Neuronasal are through May 17, 2021 at which point the entity is consolidated.
6. Notes Receivable
Long Term Notes Receivable - related party
Loan to IntelGenx Corp.
On March 8, 2021, the Company and IntelGenx entered into a loan agreement (the “IntelGenx Loan Agreement”) under which the Company provided a loan to IntelGenx for an aggregate principal amount of $2.0 million (the “March Term Loan”). Pursuant to the loan agreement, IntelGenx may, by written notice, request an advance up to an additional $0.5 million as an additional term loan if no event of default has occurred as defined in the loan agreement. On May 11, 2021, the Company paid an additional advance of $0.5 million as an additional term loan (the “May Term Loan”, and together with the March Term Loan the “Term Loans”). The Term Loans were originally due to mature 120 days following the special shareholder meeting of IntelGenx Tech Corp. to approve an additional investment in IntelGenx Tech Corp. by the Company ("Maturity Date"). On May 14, 2021, the Company amended the loan agreement under which the Maturity Date will be the first business day following the first closing of a subscription for additional units if the proceeds from such subscription amount to at least $3.0 million. The loan bears an annualized interest rate of 8% and such interest is accrued daily. The principal amount of the Term Loans plus any accrued interest shall become due and payable on the Maturity Date. On September 14, 2021, the Company entered into an amended and restated loan agreement, which among other things, increased the principal amount of loans available to IntelGenx by $6.0 million, up to a total of $8.5 million. The additional loan amount of $6.0 million shall be funded via two separate tranches of $3.0 million each in the beginning of 2022 and 2023 respectively, subject to certain conditions. In addition, the amendment further extended the Maturity Date to January 5, 2024. The first tranche was funded in January 2022.
Pursuant to the terms of the Term Loans, upon the occurrence of an event of default, the Company may accelerate the Term Loans and declare the principal and any accrued and unpaid interests of the Term Loans to be immediately due and payable. In addition, IntelGenx may prepay the Term Loans in whole or in part at any time without premium or penalty. Any prepayment of the principal shall be accompanied by a payment of interest accrued to date thereon. The Company concluded that these embedded features do not meet the criteria to be bifurcated and separately accounted for as derivatives.
The Company recorded the Term Loans at cost, which included the principal balance of the note and accrued interest in Long term notes receivables - related parties on its consolidated balance sheets. As of December 31, 2022 and 2021, the Term Loans have an outstanding balance of $5.5 million and $2.5 million, respectively. During the year ended December 31, 2022 the Company recognized $0.4 million in interest income. During the year ended December 31, 2021, the interest income recognized in connection with the Term Loans was immaterial. The Company assesses the Term Loans for impairment and records an impairment loss when information becomes available that indicates it is probable that the Term Loans have been impaired and the amount of the loss can be reasonably estimated. As of December 31, 2022, no impairment indicators were present.
As of December 31, 2022, the fair value of the term loan was $5.5 million, which is categorized as Level 3 in the fair value hierarchy.
Investment in DemeRx Promissory Note-Related Party
On January 3, 2020, DemeRx IB loaned to DemeRx Inc. $1.0 million pursuant to the terms of a separate Promissory Note ("DemeRx Note"). Pursuant to the terms of the DemeRx Note, the aggregate principal amount of $1.0 million together with all accrued and unpaid interest and any other amounts payable are due to be paid on the date that is the earlier of (i) 5 years from the initial closing and (ii) the closing of an initial public offering or a deemed liquidation event of DemeRx IB (the “DemeRx Maturity Date”). Upon occurrence of any deemed liquidation event, no proceeds generated from such event will be distributed to DemeRx until any and all outstanding amounts
under the DemeRx Note have been repaid in full. Pursuant to the terms of the DemeRx Note, DemeRx may, in its sole discretion pay any amount due under the DemeRx Note, in cash or through cancellation shares of common stock of DemeRx IB, par value $0.0001 per share, of the fair market value of such shares.
The Company recorded the DemeRx Note at cost which included the principal balance of the DemeRx Note and accrued interest, net of any payments received, on its consolidated balance sheets. As of December 21, 2022, and 2021, the DemeRx Note had an outstanding balance of $1.1 million and $1.1 million, respectively. For the year ended December 31, 2021, the Company recognized an immaterial amount of interest income associated with the DemeRx Note as a component of Other Income in the consolidated statements of operations. For the year ended December 31, 2022, the Company did not earn any interest income associated with the DemeRx Note.
7. Fair Value Measurement
The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and indicates the fair value hierarchy of the valuation (in thousands):
Fair Value Measurements as of
As of December 31, 2022
Level 1
Level 2
Level 3
Total
Assets:
Cash equivalents:
Cash & Money market funds
$
72,334
$
-
$
-
$
72,334
Investment in securities at fair value:
U.S. Treasuries
-
-
-
-
Commercial Paper
-
5,958
-
5,958
Corporate Notes/Bonds
-
17,719
-
17,719
U.S. Government Agencies
-
58,819
-
58,819
Other investment at fair value
-
-
-
-
$
72,334
$
82,496
$
-
$
154,830
Liabilities:
Contingent consideration liability - related parties
$
-
$
-
$
Warrant Liability
-
-
-
-
$
-
$
-
$
$
Fair Value Measurements as of
December 31, 2021
Level 1
Level 2
Level 3
Total
Assets:
Cash equivalents:
Cash & Money market funds
$
271,856
$
-
$
-
$
271,856
Investment in securities at fair value:
U.S. Treasuries
-
-
-
-
Commercial Paper
-
-
-
-
Corporate Notes/Bonds
-
-
-
-
U.S. Government Agencies
-
-
-
-
Other investment at fair value
-
-
-
-
$
271,856
$
-
$
-
$
271,856
Liabilities:
Contingent consideration liability - related parties
$
-
$
-
$
2,483
$
2,483
Warrant liability
-
-
$
-
$
-
$
2,819
$
2,819
Investment Securities Portfolio - Fair Value Option
The Company elected the fair value option for the securities in the investment portfolio. The fair value is based on quoted market prices, when available. When a quoted market price is not readily available, the Company uses the market price from its last sale of similar assets. The cash and cash equivalents held by the Company are categorized as Level 1 investments as quoted market prices are readily available for these investments. All other investments in the investment portfolio are categorized as Level 2 investments as inputs utilized to fair value these securities are either directly or indirectly observable, such as the market price from the last sale of similar assets.
The Company purchases investment grade marketable debt securities which are rated by nationally recognized statistical credit rating organizations in accordance with its investment policy. This policy is designed to minimize the Company's exposure to credit losses and to ensure that the adequate liquidity is maintained at all times to meet anticipated cash flow needs.
The unrealized gains and losses on the available-for-sale securities, represented by change in the fair value of the investment portfolio, is reported in earnings. Since the investment in the available-for-sale securities are already measured at fair value, no separate credit losses would be recorded in the financials.
Contingent Consideration Liability-Related Parties-Perception, InnarisBio, and TryptageniX
The contingent consideration liability-related parties in the table above relates to milestone and royalty payments in connection with the acquisition of Perception Neuroscience Holdings, Inc. (“Perception”), InnarisBio and TryptageniX. The fair value of the contingent consideration liability-related parties was determined based on significant inputs not observable in the market, which represent Level 3 measurements within the fair value hierarchy. The fair value of the contingent milestone and royalty liabilities was estimated based on the discounted cash flow valuation technique. The technique considered the following unobservable inputs:
•the probability and timing of achieving the specified milestones and royalties as of each valuation date,
•the probability of executing the license agreement,
•the expected first year of revenue, and
•market-based discount rates
The fair value of the contingent milestone and royalty liabilities for InnarisBio was estimated to be $0.1 million and $0.1 million as of December 31, 2022 and 2021, respectively.
The fair value of the Perception contingent milestone and royalty liabilities could change in future periods depending on prospects for the outcome of R-Ketamine milestone meetings with the FDA or other regulatory authorities, and whether the Company realizes a significant increase or decrease in sales upon commercialization. The most significant assumptions in the discounted cash flow valuation technique that impacts the fair value of the milestone contingent consideration are the projected milestone timing and the probability of the milestone being met. Further, significant assumptions in the discounted cash flow that impacts the fair value of the royalty contingent consideration are the projected revenue over ten years, the timing of royalties on commercial revenue, and the probability of success rate for a commercial R-Ketamine product. The valuations as of December 31, 2022 and 2021, used inputs that were unobservable inputs with the most significant being the discount rates for royalties on projected commercial revenue and clinical milestones and probability of success estimates over the following ten years, which represent Level 3 measurements within the fair value hierarchy.
The fair value of the contingent milestone and royalty liabilities for Perception was estimated to be $0.6 million and $1.5 million as of December 31, 2022 and 2021, respectively.
The fair value of the Perception contingent consideration liability - related parties was calculated using the following significant unobservable inputs:
December 31, 2022
December 31, 2021
Valuation Technique
Significant Unobservable Inputs
Input Range
Input Range
Discounted cash flow
Milestone contingent consideration:
Discount rate
13.1%
11.4%
Probability of the milestone
10.0% - 21.0%
51.9%
Discounted cash flow
with SBM
Royalty contingent consideration:
Discount rate for royalties
20.0% - 21.1%
19.2% - 20.1%
Discount rate for royalties on milestones
12.3% - 13.4%
10.9% - 11.8%
Probability of success rate
10.1% - 21.0%
26.5% to 100.0%
The fair value of the contingent liability for TryptageniX was estimated to be $0.2 million and $0.9 million as of December 31, 2022 and 2021, respectively. The contingent liability is comprised of R&D milestone success fee payments and royalties payments. The fair value of the success fee liability was estimated based on the scenario-based method within the income approach. The fair value of the contingent liability for TryptageniX was determined based on significant unobservable inputs, including the discount rate, estimated probabilities of success, and timing of achieving certain clinical milestones. The fair value of the royalties liability was determined to be de minimis as the
products are in the early stages of development. The Company will continue to assess the appropriateness of the fair value of the contingent liability as the products continue through development.
Warrant Liability
The warrant liability in the table above relates to issued and outstanding warrants to purchase shares of Neuronasal’s common stock acquired in connection with the acquisition of Neuronasal. The warrants were classified within other liabilities in the accompanying consolidated balance sheet as the underlying common stock was determined to be contingently, but not currently, redeemable. The warrant liability was recorded at fair value utilizing the Black-Scholes option pricing model. As summarized below, key inputs in connection with the Black-Scholes option pricing model represent Level 3 measurements within the fair value hierarchy. The Black Scholes option pricing model is based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates, expected dividends, and expected volatility of the price of the underlying common stock. The Company adjusted the carrying value of the warrant to its estimated fair value at each reporting date, with any related increase or decrease in the fair value recorded as a component of other income (expense), net in the consolidated statement of operations.
The fair value of the warrant liability was estimated to be $0.3 million as of December 31, 2021.
The following table summarizes significant unobservable inputs that are included in the valuation of the warrant lability as of December 31, 2021:
December 31, 2021
Stock Price
$
50.56
Expected Volatility
%
As discussed in Note 3, the Company deconsolidated Neuronasal in November 2022. The Company remeasured the Neuronasal warrant liability at fair value immediately prior to conversion in November 2022. The fair value of the Neuronasal warrant liability was determined to be de minimis on November 9, 2022, resulting in a $0.3 million unrealized gain immediately prior to deconsolidation.
IntelGenx Common Stock, Initial Warrants and Additional Units Warrant
The Company’s investment in IntelGenx consists of Common Shares, Initial Warrants and Additional Unit Warrants (collectively the “Warrants”). The Company determined Warrants do not meet the definition of derivative instrument per ASC 815. The Company has classified the Common Shares as Level 2 assets and the Initial Warrants and Additional Unit Warrants as Level 3 assets in the fair value hierarchy. The Company determined that the initial aggregate fair value was equal to the transaction price and recorded the Common Shares at $3.0 million, the Initial Warrants at $1.2 million and the Additional Units Warrant at $8.2 million on a relative fair value basis resulting in no initial gain or loss recognized in the consolidated statements of operations. The Warrants are measured at fair value on a quarterly basis and any changes in the fair value will be recorded as a component of other income (expense), net in the consolidated statement of operations.
The fair value of Common Shares is estimated by applying a discount for lack of marketability (DLOM) of 5.0% as of December 31, 2022 and 2021. The Company estimated a DLOM in connection with the valuation of the Common Shares at initial recognition and as of December 31, 2022 and 2021 to reflect the restrictions associated with the Common Shares. As of December 31, 2022 and 2021, the only restriction that remains is the unregistered nature of the Common Shares. The fair value of Common Shares, which is included in Other investments held at fair value in the consolidated balance sheet, was zero as of December 31, 2022 and 2021.
The Initial Warrant asset was recorded at fair value utilizing the Black-Scholes option pricing model. The Black Scholes option pricing model is based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term of the warrant, risk-free interest rates, expected dividends, and expected volatility of the price of the underlying common stock. The expected volatility is based on a peer group volatility which is a Level 3 input within the fair value hierarchy. The fair value of the Initial Warrants, which is included in Other investments held at fair value in the consolidated balance sheet, was zero as of December 31, 2022 and 2021.
The following table summarizes significant unobservable inputs that are included in the valuation of the Initial Warrants as of December 31, 2022 and 2021:
December 31, 2022
December 31, 2021
Value of Underlying
$
0.19
$
0.34
Expected Volatility
%
%
The fair value of the Additional Units is estimated using a Binomial Lattice in a risk-neutral framework (a special case of the Income Approach). Specifically, the future stock price of the IntelGenx is modeled assuming a Geometric Brownian Motion in a risk-neutral framework. For each modeled future price, the Additional Unit is calculated based on the contractual terms (incorporating any optimal early exercise), and then discounted at the term-matched risk-free rate. Finally, the value of the Additional Units is calculated as the probability-weighted present value over all future modeled payoffs. The fair value of the Additional Units, which is included in Other investments held at fair value in the consolidated balance sheet, was zero as of December 31, 2022 and 2021.
The following table summarizes significant unobservable inputs that are included in the valuation of the Additional Units Warrant as of December 31, 2022 and 2021:
December 31, 2022
December 31, 2021
Value of Underlying
$
0.19
$
0.34
Expected Volatility
%
%
The following table provides a roll forward of the aggregate fair values of the Company’s financial instruments described above, for which fair value is determined using Level 3 inputs (in thousands):
Contingent
Consideration
Liability -
Related Parties
Warrant
Liability
Balance as of December 31, 2021
$
2,483
$
Change in fair value
(1,480
)
(336
)
Extinguishment of liability
(50
)
-
Balance as of December 31, 2022
$
$
-
8. Prepaid Expenses and Other Current Assets
Prepaid expenses consist of the following (in thousands):
December 31,
December 31,
Prepaid research and development related expenses
$
4,626
$
2,692
Tax receivables
5,631
5,406
Prepaid insurance
2,034
3,049
Other
1,745
Total
$
14,036
$
11,903
9. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
December 31,
December 31,
Accrued accounting, legal, and other professional fees
$
3,566
$
2,667
Taxes payable
2,224
8,137
Accrued external research and development expenses
5,550
Accrued payroll
5,260
2,832
Accrued advisory fees
-
Other liabilities
Total
$
17,306
$
14,829
10. Debt
Convertible Promissory Notes
2018 Convertible Promissory Notes-Related Parties
Convertible promissory notes-related parties, net of discounts and deferred issuance costs, consisted of the following (in thousands):
December 31,
December 31,
Convertible notes issued in November 2018
-
$
Convertible notes issued in October 2020
Unamortized discount and deferred issuance costs
-
(5
)
Total
$
$
During November 2018 and October 2020, the Company executed a terms and conditions agreement (the “Convertible Note Agreement”) under which it would issue convertible promissory notes to investors. An investor would become a party to the Convertible Note Agreement and would be issued a convertible promissory note by executing and delivering a subscription form. In November 2018 and October 2020, certain investors subscribed to the Convertible Note Agreement and the Company issued convertible promissory notes in the aggregate principal amount of €1.0 million or $1.2 million (collectively, the “2018 Convertible Notes”). The 2018 Convertible Notes are non-interest-bearing, unsecured and are due and payable on September 30, 2025, unless previously redeemed, converted, purchased or cancelled (the “Maturity Date”). Each 2018 Convertible Note has a face value of €1 and is convertible into one share of ATAI Life Sciences AG upon the payment of €17.00. Conversion rights may be exercised by a noteholder at any time prior to maturity, except during certain periods subsequent to the consummation of the IPO. The 2018 Convertible Notes may be declared for early redemption by the noteholders upon occurrence of specified events of default, including payment default, insolvency and a material adverse change in the Company’s business, operations or financial or other condition. Upon early redemption, the conversion right with respect to the 2018 Convertible Notes may no longer be exercised.
The Company concluded that both the embedded conversion feature, which is exercisable by the investor at any time during the maturity, and the contingent put option, which would trigger upon the occurrence of an event of default of the 2018 Convertible Notes, do not meet the criteria to be bifurcated and separately accounted for as derivatives and the notes were recorded net of discount and issuance costs, or a reduction to the carrying value of the notes issued in November 2018, with a corresponding adjustment to additional paid in capital. The discount is being amortized using the effective interest method over the period from the respective date of issuance to the Maturity Date.
The Company determined that the October 2020 notes were issued in exchange for services previously provided by the Company’s founders and other shareholders and were fully vested and non-forfeitable upon issuance. These instruments were therefore considered share based compensation awards to non-employees, and the instruments were initially measured and recorded at their grant date fair value based on a Black-Scholes option- pricing model. The fair value of the October 2020 notes exceeded the principal amount that will be due at maturity. Therefore, at initial recognition, the October 2020 notes were accounted for as convertible debt issued at a substantial premium, such that the face value of the note is recorded as a liability and the premium was recorded as paid-in capital. For the year ended December 31, 2020, the Company recorded total compensation expense associated with the October 2020 notes issuance of $61.5 million as consideration for services previously provided by the noteholders within general and administrative expense on the consolidated statements of operations.
Conversion of 2018 Convertible Promissory Notes - Related Parties
As described in Note 1, the Company undertook a corporate reorganization. Upon the Corporate Reorganization, ATAI Life Sciences N.V became the sole shareholder of ATAI Life Sciences AG. In connection with the Corporate Reorganization, all former shareholders of ATAI Life Sciences AG contributed their shares of ATAI Life Sciences AG to ATAI Life Sciences N.V. and received sixteen shares in ATAI Life Sciences N.V. for every one share of ATAI Life Sciences AG. In 2021, several noteholders elected to convert their convertible promissory notes into shares of ATAI Life Sciences N.V. These investors paid €17.00 per share for an aggregate amount of €5.8 million or $6.9 million in order to convert their convertible promissory notes into ATAI Life Sciences AG common shares, which was in accordance with the original terms of the 2018 Convertible Note Agreements.
In May 2022 and July 2022, certain noteholders elected to convert some of their convertible promissory notes into shares of ATAI Life Sciences N.V. The investors paid €17.00 per share for the aggregate amount of €4.6 million or $4.6 million in order to convert their convertible promissory notes into ATAI Life Sciences AG common shares, which was in accordance with the original terms of the 2018 Convertible Note Agreements.
The Company accounted for the conversion of the 2018 Convertible Notes as a conversion such that carrying values of these notes were derecognized with an offset to common stock at par of ATAI Life Sciences AG and the excess of the carrying values of these notes over the
common stock at par of ATAI Life Sciences AG was recorded as additional paid-in capital. Concurrently, with the conversion of the 2018 Convertible Notes into ATAI Life Sciences AG shares, the shares of ATAI Life Sciences AG that were issued to the noteholders were exchanged for shares of ATAI Life Sciences N.V. through a transfer and sale arrangement. As ATAI Life Sciences AG continued to remain a wholly owned subsidiary of ATAI Life Sciences N.V., the transaction was accounted for as an equity transaction that resulted in no gain or loss recognition.
Perception Convertible Promissory Notes
On March 16, 2020, Perception entered into a convertible promissory note agreement with the Company and other investors, including related parties, which provided for the issuance of convertible notes of $3.9 million (the “Perception Note Purchase Agreement”).
The notes bear interest at an annual rate of 5% and were due and payable on June 30, 2022, unless earlier converted (the “Perception March 2020 Notes”).
On December 1, 2020, Perception entered into an additional convertible promissory note agreement (the “Perception December 2020 Convertible Note Agreement”) with the Company and other investors, including related parties, which provided for the issuance of convertible notes of up to $12.0 million. Pursuant to the Perception December 2020 Convertible Note Agreement, the convertible notes are issued in two tranches: (i) up to $7.0 million under the first tranche funding (the “First Tranche Funding”), with $6.2 million and $0.8 million issued in December 2020 and January 2021, respectively, and (ii) up to an additional $5.0 million under the second tranche funding (the “Second Tranche Funding”), was issued in May 2021.
Under the Second Tranche Funding, Perception issued $4.2 million to the Company, $0.2 million to Apeiron, and $0.3 million to Sonia Weiss Pick and Family, and $0.4 million to other investors.
The notes bear interest at an annual rate of 5% and were due and payable on February 28, 2022, unless earlier converted (the “Perception December 2020 Notes” and together with the Perception March 2020 Notes, the “Perception Convertible Notes”).
In the event of a qualified sale of preferred stock resulting in gross proceeds to Perception of at least $5.0 million, all the principal and accrued and unpaid interest under the Perception Convertible Notes will automatically convert, into the same equity securities issued by Perception at a 25% discount from the lowest price of the security issued. In the event that Perception receives upfront proceeds of $5.0 million or more in a licensing transaction, all the principal and accrued and unpaid interest under the Perception convertible notes will automatically convert, into shares of Series A Preferred Stock of Perception at a price per share of $0.75 for the Perception March 2020 Notes and 75% of the fair market value of the Series A Preferred Stock of Perception for the Perception December 2020 Notes. Upon a change in control of Perception, all the principal and accrued and unpaid interest under the Perception Convertible Notes will automatically convert into shares of Series A Preferred Stock of Perception at a price per share of $0.75. The Perception Convertible Notes issued to the Company represent intercompany debt and are eliminated upon consolidation.
The Perception March 2020 Notes contained an embedded conversion features in the event of a qualified financing whereas the Perception December 2020 Notes contained both embedded conversion features in the event of a qualified financing and upon the occurrence of a licensing transaction. The Company concluded that both the embedded conversion features met the definition of embedded derivatives that were required to be bifurcated and accounted for as a separate unit of accounting.
As of December 31, 2020, the Company recorded the fair value of the derivative liabilities of $0.4 million as a liability with the offset being recorded as a debt discount on the issuance dates of the Perception Convertible Notes.
Both the liability and the offsetting debt discount are presented together in convertible promissory notes and derivative liability on the consolidated balance sheets. The resulting debt discount is being amortized to interest expense using the effective interest method over the terms of the Perception Convertible Notes. This interest expense is recorded in other income (expense), net in the consolidated statements of operations. The derivative liabilities are subsequently remeasured to fair value at each reporting date with changes in fair value recognized as a component of other income (expense), net in the consolidated statements of operations.
Upon issuance of the notes under the Second Tranche Funding, the Company recorded the fair value of the derivative liabilities of $0.3 million as a liability with an offset being recorded as a debt discount.
On June 10, 2021, Perception received proceeds of $20.0 million pursuant to the license and collaboration arrangement between Perception and Otsuka Pharmaceutical Co., LTD (“Otsuka”) (See Note 16). Upon receipt of the proceeds, the Perception Convertible Notes automatically converted into 6,456,595 shares of Series A preferred stock of Perception pursuant to their original terms. The Company, Sonia Weiss Pick and Family, Apeiron, and other investors received 5,403,791 shares, 440,415 shares, 27,809 shares and 584,580 shares of Perception Series A preferred stock, respectively, upon conversion of the Perception Convertible Notes. The amounts associated with the shares of Perception Series A preferred stock issued to the Company represent intercompany transactions and are eliminated upon consolidation.
The Company remeasured the derivative liability immediately prior to the conversion of the Perception Notes and recorded a net gain of $41,000 resulting from the change in fair value of the derivative liability in June 2021. The conversion of the Perception December 2020 Notes was accounted for as an extinguishment as the notes were converted pursuant to an embedded conversion feature upon a licensing transaction, which was determined to be a redemption feature. Accordingly, the Company recorded a loss on extinguishment of notes of $0.5 million in the consolidated statements of operations for the year ended December 31, 2021. The loss on extinguishment of notes represents the difference between (i) carrying value including derivative liability of the Perception December 2020 Notes of $2.2 million and (ii) the fair value of Perception Series A preferred stock into which the notes converted of $2.7 million. The conversion of the Perception March 2020 Notes was accounted for as a conversion as the notes converted pursuant to a conversion feature. Accordingly, the Company derecognized the carrying amount of the Perception March 2020 notes issued to Sonia Weiss and Family and other investors in the aggregate amount of $0.6 million with an offset to Series A preferred stock, and no gain or loss was recognized. The shares issued upon conversion of the Perception March 2020 and December 2020 Notes issued to the Company represent an intercompany transaction and, therefore, eliminate in consolidation.
As of December 31, 2020, the fair value of the derivative liability was $0.2 million, including an immaterial amount of derivative liability relating to Sonia Weiss Pick and Family.
The Company recognized interest expense of $0.2 million, including amortization of debt discount of $0.2 million during the year ended December 31, 2021. As of December 31, 2021, there was no unamortized debt discount due to the conversion of the Perception Convertible Notes into Series A convertible preferred stock of Perception on June 10, 2021. The debt issuance costs associated with the Perception Convertible Notes were not material.
Term Loan
Hercules Loan and Security Agreement
In August 2022, the Company and certain subsidiaries, as guarantors, and Hercules Capital, Inc. entered into a Loan and Security Agreement (as amended by that certain First Amendment to Loan and Security Agreement dated as of March 13, 2023, the “Hercules Loan Agreement”). The Loan Agreement provides for term loans in an aggregate principal amount of up to $175.0 million under multiple tranches (the “2022 Term Loan Facility”), available as follows: (i) a term loan advance in the amount of $15.0 million on the Closing Date (the “Tranche 1A Advance”); (ii) at any time after the Closing Date but on or prior to May 1, 2023 (the “Tranche 1B Expiration Date”), term loan advances in an aggregate principal amount of up to $20.0 million (the “Tranche 1B Advances”); (iii) at any time beginning upon the earlier of (A) the Tranche 1B Expiration Date and (B) the date on which all amounts available to be drawn under the Tranche 1B Advances have been drawn and on or prior to December 15, 2023 (the “Tranche 1C Expiration Date”), term loan advances in an aggregate principal amount of up to $25.0 million (the “Tranche 1C Advances” and together with the Tranche 1A Advance and the Tranche 1B Advances, the “Tranche 1 Advances”); (iv) subject to us achieving certain performance milestones and, beginning upon the earlier of (A) the date on which all amounts available to be drawn under the Tranche 1C Advances have been drawn and (B) the Tranche 1C Expiration Date, on or prior to June 30, 2024, term loan advances in an aggregate principal amount of $15.0 million (the “Tranche 2 Advances”); and (v) subject to approval by the Lenders’ respective investment committees in its discretion, on or prior to March 31, 2025, term loan advances in an aggregate principal amount of up to $100.0 million (the “Tranche 3 Advances”). With the exception of the first $15.0 million tranche available on the Closing Date, each of the tranches may be drawn down in $5.0 million increments at the Company's election, subject to applicable conditions to draw.
The 2022 Term Loan Facility will mature on August 1, 2026 (the “Maturity Date”), which may be extended until February 1, 2027 if the Company achieves certain performance milestones, raises at least $175.0 million of unrestricted new net cash proceeds from certain permitted sources after the Closing Date and prior to June 30, 2024, and satisfies certain other specified conditions. The outstanding principal balance of the 2022 Term Loan Facility bears interest at a floating interest rate per annum equal to the greater of either (i) the prime rate as reported in the Wall Street Journal plus 4.55% and (ii) 8.55%. Accrued interest is payable monthly following the funding of each term loan advance. The Company may make payments of interest only, without any loan amortization payments, for a period of thirty (30) months following the Closing Date, which period may be extended to (i) thirty-six months if certain additional performance milestones have been achieved; and (ii) forty-two months if certain additional performance milestones have been achieved. At the end of the interest only period, the Company is required to begin repayment of the outstanding principal of the 2022 Term Loan Facility in equal monthly installments.
The Hercules Loan Agreement contains customary closing and commitment fees, prepayment fees and provisions, events of default and representations, warranties and affirmative and negative covenants, including a financial covenant requiring the Company to maintain certain levels of cash in accounts subject to a control agreement in favor of the Agent (the “Qualified Cash”) at all times commencing from the Closing Date, which includes a cap on the amount of cash that can be held by, among others, certain of our foreign subsidiaries in Australia and the United Kingdom. In addition, the financial covenant under the Loan Agreement requires that beginning on the later of (i) July 1, 2023 and (ii) the date on which the aggregate outstanding amount borrowed under the 2022 Term Loan Facility is equal to or greater
than $40.0 million, the Company shall maintain Qualified Cash in an amount no less than the sum of (1) 33% of the outstanding amount under the 2022 Term Loan Facility, and (2) the amount of the Borrowers’ and Subsidiary Guarantors’ accounts payable that have not been paid within 180 days from the invoice date of the relevant account payable, subject to certain exceptions; provided, that the financial covenant shall not apply on any day that the Company's market capitalization is at least $600.0 million measured on a consecutive 10-business day period immediately prior to such date of measurement and tested on a daily basis. Upon the occurrence of an event of default, including a material adverse effect, subject to certain exceptions, on ATAI NV and ATAI AG’s, taken together, business, operations, properties, assets or financial condition, and subject to any specified cure periods, all amounts owed by the Company may be declared immediately due and payable by the Lenders. As of December 31, 2022 the Company was in compliance with all applicable covenants under the Hercules Loan Agreement.
In addition, the Company is required to make a final payment fee (the “End of Term Charge”) upon the earlier of (i) the Maturity Date, (ii) the date that the Company prepays, in full or in part, the principal balance of the 2022 Term Loan Facility, or (iii) the date that the outstanding balance of the 2022 Term Loan Facility becomes due and payable. The End of Term Charge is 6.95% of the aggregate original principal amount of the term loans so repaid or prepaid under the Loan Agreement.
The Company may, at its option, prepay the term loans in full or in part, subject to a prepayment penalty equal to (i) 2.00% of the principal amount prepaid if the prepayment occurs on or prior to the first anniversary of the Closing Date, (ii) 1.0% of the principal amount prepaid if the prepayment occurs after the first anniversary and on or prior to the second anniversary of the Closing Date, and (iii) 0.5% of the principal amount prepaid if the prepayment occurs after the second anniversary and prior to the Maturity Date.
The Company incurred financing expenses related to the Hercules Loan Agreement, which are recorded as an offset to long-term debt on the Company's consolidated balance sheets. These deferred financing costs are being amortized over the term of the debt using the effective interest method, and are included in other income (expense), net in the Company’s consolidated statements of operations. During the year ended December 31, 2022, interest expense included $0.1 million of amortized deferred financing costs related to the 2022 Term Loan Facility.
Outstanding debt obligations are as follows (in thousands):
December 31, 2022
Principal amount
$
15,000
End of the term charge
1,042
Less: unamortized issuance discount
(274
)
Less: unamortized issuance costs
(113
)
Less: unamortized end of term charge
(952
)
Net carrying amount
14,702
Less: current maturities
-
Long-term debt, net of current maturities and unamortized debt discount and issuance costs
$
14,702
The fair value of the outstanding Hercules debt obligations was $14.9 million as of December 31, 2022. The fair value of the Hercules debt obligations represent Level 3 measurements within the fair value hierarchy.
11. Common Stock
In November and December 2020, the Company issued and sold 14,933,344 shares of common stock of €0.10 par value to new and existing investors, including related parties, at a price of €4.69 or $5.56 per share, for proceeds of $77.2 million, net of issuance costs of $5.2 million which includes advisory fees paid to Small & Mid Cap Investmentbank AG ("SMC"). SMC paid a portion of the advisory fees received from the Company to Apeiron (see Note 17).
In November 2020, in connection with the Company’s issuance and sale of its common stock, all of the outstanding principal and accrued interest under the 2020 Convertible Notes, totaling $32.2 million, was automatically converted into 8,773,056 shares of common stock pursuant to their original terms. Once the notes were converted, the converted shares were recorded at fair value of $5.56 per share price equal to the price per share of common stock issued in November 2020.
In January 2021, pursuant to an additional closing from the common stock issuance in November and December 2020, the Company issued and sold 2,133,328 shares of common stock to Apeiron at the same issuance price, for cash proceeds of $12.2 million. In March 2021, the Company issued and sold 13,419,360 shares of common stock to new and existing investors, including related parties, at a price of €9.69 or $11.71 per share, for cash proceeds of $152.2 million, net of issuance costs of $4.9 million.
On June 22, 2021, atai closed the IPO of its common stock on Nasdaq. As part of the IPO, the Company issued and sold 17,250,000 shares of its common stock, which included 2,250,000 shares sold pursuant to the exercise of the underwriters’ over-allotment option, at a public offering price of $15.00 per share. The Company received net proceeds of $231.6 million from the IPO, after deducting underwriters’ discounts and commissions of $18.1 million and offering costs of $9.0 million.
All common shareholders have identical rights. Each share of common stock entitles the holder to one vote on all matters submitted to the stockholders for a vote.
All holders of common stock are entitled to receive dividends, as may be declared by the Company’s board of directors. Upon liquidation, common stockholders will receive distribution on a pro rata basis. As of December 31, 2022 and December 31, 2021, no cash dividends have been declared or paid.
12. Stock-Based Compensation
Atai Life Sciences 2020 Equity Incentive Plan
Effective August 21, 2020, the Company adopted an equity-based compensation plan, the 2020 Employee, Director and Consultant Equity Incentive Plan (as amended from time to time, “2020 Incentive Plan”). The 2020 Incentive Plan is administered by the Company’s Board. The plan is intended to encourage ownership of shares by employees, directors and certain consultants to the Company in order to attract and retain such individuals, to induce them to work for the benefit of the Company and to provide additional incentive for them to promote the success of the Company. The 2020 Incentive Plan enables the Company to grant incentive stock options or nonqualified stock options, restricted stock awards and other stock-based awards to executive officers, directors and employees and consultants of the Company.
The Company has reserved up to 22,658,192 shares of common stock, excluding any shares issued under its Hurdle Share Option Program ("HSOP") described below, for issuance to executive officers, directors, other employees and consultants of the Company pursuant to the 2020 Incentive Plan. Shares that are expired, terminated, surrendered, or canceled without having been fully exercised will be available for future awards. As of December 31, 2022, there were no shares available for future grants under the 2020 Incentive Plan and any shares subject to outstanding options originally granted under the 2020 Equity Incentive Plan that terminate, expire or lapse for any reason without the delivery of shares to the holder thereof shall become available for issuance pursuant to the atai Life Sciences 2021 Incentive Award Plan discussed below.
Atai Life Sciences 2021 Incentive Award Plan
Effective April 23, 2021, the Company adopted and the atai shareholders approved the 2021 Incentive Award Plan (“2021 Incentive Plan”). The 2021 Incentive Plan is administered by the Company’s supervisory board. The plan is intended to encourage ownership of shares by employees, directors, and certain consultants to the Company in order to attract and retain such individuals, to induce them to work for the benefit of the Company or of an affiliate and to provide additional incentive for them to promote the success of the Company. The 2021 Incentive Plan enables the Company to grant incentive stock options or nonqualified stock options, restricted stock awards and other stock-based awards to executive officers, directors and other employees and consultants of the Company.
The Company has reserved up to 46,738,794 shares of common stock, for issuance to executive officers, directors and employees and consultants of the Company pursuant to the 2021 Incentive Plan. In accordance with the evergreen clause in the Company's 2021 Incentive Plan, effective as of January 1, 2022, the number of shares initially available for issuance was increased by 8,033,850 shares of common stock. Shares that are expired, terminated, surrendered, or canceled without having been fully exercised will be available for future awards. As of December 31, 2022, 32,837,138 shares were available for future grants under the 2021 Incentive Plan.
Stock Options
The stock options outstanding noted below consist primarily of both service and performance-based options to purchase Common Stock. These stock options have a ten-year contractual term. These awards are subject to the risk of forfeiture until vested by virtue of continued employment or service to the Company.
The following is a summary of stock option activity from December 31, 2021 to December 31, 2022:
Number of
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding as of December 31, 2021
26,687,620
$
6.85
4.85
$
74,525
Granted
13,186,659
(1)
4.93
-
-
Exercised
(938,913
)
2.47
-
-
Cancelled or forfeited
(4,054,762
)
9.15
-
-
Outstanding as of December 31, 2022
34,880,604
(2)
$
5.98
5.71
$
10,647
Options exercisable as of December 31, 2022
16,006,889
$
4.99
3.51
$
10,510
(1)Includes (a) 11,446,193 stock options that will vest over a four-year service period, (b) 754,910 stock options that will vest immediately upon the satisfaction of specified performance-based vesting conditions which became probable of achievement in December 2022, (c) 563,959 stock options that partially vest on date of grant, then over a three-year service period and upon the satisfaction of specified performance-based vesting conditions, which were achieved during the year ended December 31, 2022, (d) 37,597 stock options that vest upon the satisfaction of specified performance-based vesting conditions, which were not achieved, and (e) 384,000 stock options that will vest on the one-year anniversary of the date of grant.
(2)The 18,873,715 outstanding unvested stock options includes (a) 15,882,029 that will continue to vest over a one to four-year service period, (b) 1,617,399 that will continue to vest over a three to four-year service period and upon the satisfaction of specified performance-based vesting conditions, (c) 100,000 stock options that will continue to vest over a two-year service period and upon the satisfaction of specified market-based conditions tied to price of the Company's publicly traded shares, (d) 673,534 stock options that will vest immediately upon the satisfaction of specified performance-based vesting conditions, which are considered probable of achievement, (e) 216,756 stock options that will continue to vest over a three-year service period and upon the satisfaction of specified performance-based vesting conditions, which were achieved during the year ended December 31, 2022, and (f) 384,000 stock options that will vest on the one-year anniversary of the date of grant.
The Company estimates the fair values of stock options using the Black-Scholes option-pricing model on the date of grant. For the years ended December 31, 2022 and 2021, the assumptions used in the Black-Scholes option pricing model were as follows:
Years Ended December 31,
Weighted average expected term in years
5.89
4.16
Weighted average expected stock price volatility
71.7%
80.0%
Risk-free interest rate
1.46% - 4.31%
(0.76)%-1.33%
Expected dividend yield
0%
0%
For the years ended December 31, 2022 and 2021, the Company recorded stock-based compensation expense of $37.1 million and $41.3 million, respectively.
As of December 31, 2022, total unrecognized compensation cost related to the unvested stock-based awards was $71.6 million, which is expected to be recognized over a weighted average period of 1.85 years.
Atai Life Sciences Hurdle Share Option Plan
On August 21, 2020, the Partnership (as defined below) approved and implemented an employee stock option plan for selected executives, employees, and consultants of the Partnership (so-called Hurdle Share Options Program or “HSOP Plan”), which became effective on January 2, 2021, the date the first grants under the HSOP Plan were made (“HSOP Options”). This plan is primarily aimed at German-based executives, employees, and consultants of the Company (collectively as “HSOP Participants”). The purpose of the HSOP Plan is to permit these individuals to indirectly participate in the appreciation in value of the Company through a German law private partnership, ATAI Life Sciences HSOP GbR (the “Partnership”). The HSOP Plan was established under the Partnership Agreement of the Partnership. The HSOP Plan requires the exercise price to be equal to the fair value of the shares on the date of grant.
The Partnership acquired 7,281,376 shares of atai common stock (“HSOP Shares”) pursuant to the HSOP Plan. HSOP Options that are canceled or forfeited without having been fully exercised will be available for future awards. As of December 31, 2022, 257,419 HSOP Options were available for future grants under the HSOP Plan.
The HSOP Plan mimics the economics of a typical stock option plan, however, with the HSOP Shares to which the HSOP Options refer already being issued to the Partnership. Each HSOP Option contains both service and performance-based vesting conditions, including a liquidity-based condition, and gives the holder the option to request the distribution of HSOP Shares under its vested HSOP Options. The grantee is required to pay a nominal value (€0.06 per share) for the shares upon grant (“Nominal Upfront Payment”). The nominal amount paid at the grant date is refundable if the HSOP Options do not vest or are forfeited. Otherwise, the nominal amount is refundable until the later of the occurrence of a Liquidity Event (as defined in the “HSOP Plan”) or the exercise date.
The HSOP Shares issued under the HSOP Plan to the Partnership are indirectly owned by HSOP Participants (being the holders of HSOP Options) via their interest in the Partnership. However, each HSOP Participant signed a nonrevocable power of attorney ceding virtually all rights and decisions, including their rights as shareholders to the Managing Partner (as defined in the Partnership agreement) of the Partnership. HSOP Participants have a forfeitable right to distributions until the HSOP Options vest, at which time the right becomes nonforfeitable. Accordingly, the HSOP Shares issued to the Partnership and allocated to the HSOP Options holders are not considered outstanding for accounting purposes. Therefore, the Company accounted for the Nominal Upfront Payment as an in-substance early exercise provision under ASC 718 as the nominal amount is deducted from the exercise price upon exercise. As of December 31, 2022, the $0.5 million Nominal Upfront Payment was recorded as an Other liability on the consolidated balance sheets. The HSOP Options include a provision that requires the HSOP Options holders pay compensation equal to 2% per annum interest on the unpaid exercise price less the €0.06 nominal amount paid upon grant (“Non-recourse Loan”) upon qualifying events (as defined in the Partnership agreement), which occurred on April 23, 2021 currently with the corporate reorganization discussed in Note 1.
The 2% per annum interest rate is fixed and not linked to something other than a service, performance, or market condition, therefore, the Company accounted for the fixed rate interest charge as an in-substance non-recourse loan in a stock compensation arrangement under ASC 718. In such cases, the rights and obligations embodied in a transfer of equity shares to an employee for a note that provides no recourse to other assets or the employee (other than the correlating shares) are substantially the same as those embodied in a grant of share options. The 2% per annum interest was considered in the valuation of the HSOP Options.
HSOP Options
The HSOP Options outstanding noted below consist of service and performance-based options to request the distribution of HSOP Shares. These HSOP Options have a fifteen-year contractual term. These HSOP Options vest over a three to four-year service period, only if and when a “Liquidity Event” (as defined in the Partnership agreement) occurs within fifteen years of the date of grant. If a Change in Control (as defined in the Partnership agreement) or in the event the holder’s service with the Partnership is terminated due to his death or disability by June 30, 2021 or December 31, 2021, an additional 25% or 12.5%, respectively, HSOP Options will accelerate and vest upon the occurrence of the transaction. These awards are subject to the risk of forfeiture until vested by virtue of continued employment or service to the Company.
The liquidity-based performance condition contingent upon the achievement of a Liquidity Event was satisfied in June of 2021, therefore, the Company began recognizing expense for all associated options that were previously deemed improbable of vesting.
The following is a summary of stock option activity from December 31, 2021 to December 31, 2022:
Number of
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding as of December 31, 2021
7,046,496
6.64
14.01
$
6,961
Granted
-
-
-
-
Exercised
-
-
-
-
Cancelled or forfeited
(124,667
)
6.63
-
-
Outstanding as of December 31, 2022
6,921,829
$
6.64
13.01
$
-
Options exercisable as of December 31, 2022
5,983,060
$
6.64
13.01
The Company estimates the fair values of stock options using the Black-Scholes option-pricing model on the date of grant. As shown above, the Company did not grant any new HSOP options during the year ended December 31, 2022. Thus, the Company did not use the Black Scholes option pricing model to value any new options grants during the year ended December 31, 2022. During the year ended December 31, 2021, the assumptions used in the Black-Scholes option pricing model were as follows:
Year Ended December 31,
Weighted average expected term in years
8.00
Weighted average expected stock price volatility
70.0%
Risk-free interest rate
(0.70)%-(0.65)%
Expected dividend yield
0%
For the years ended December 31, 2022 and 2021, the Company recorded stock-based compensation expense of $4.5 million and $21.1 million, respectively.
As of December 31, 2022, total unrecognized compensation cost related to the unvested stock-based awards was $3.1 million which is expected to be recognized over a weighted average period of 0.5 years.
Subsidiary Equity Incentive Plans
Certain controlled subsidiaries of the Company adopt their own equity incentive plan (“EIP”). Each EIP is generally structured so that the applicable subsidiary, and its affiliates’ employees, directors, officers and consultants are eligible to receive non-qualified and incentive stock options and restricted stock unit awards under their respective EIP. Standard option grants have time-based vesting requirements, generally vesting over a period of four years with a contractual term of ten years. Such time-based stock options use the Black-Scholes option pricing model to determine grant date fair value.
For the years ended December 31, 2022 and 2021, the Company recorded share-based compensation expense of $0.7 million and $0.9 million, respectively, in relation to subsidiary EIPs. As of December 31, 2022, there was $0.6 million of total unrecognized stock-based compensation expense related to unvested EIP awards to employees and non-employee directors expected to be recognized over a weighted-average period of approximately 1.4 years. As of December 31, 2022, the unrecognized stock-based compensation expense from EIP's awards with liquidity-based performance vesting conditions issued to employees and non-employee directors was approximately $7.3 million, which will be recognized in future periods if and when attainment of the performance criteria becomes probable.
Stock-Based Compensation
Stock-based compensation expense is allocated to either Research and development or General and administrative expense on the consolidated statements of operations based on the cost center to which the option holder belongs.
The following table summarizes the total stock-based compensation expense by function for the year ended December 31, 2022, which includes expense related to stock options and restricted stock awards (in thousands):
Year Ended December 31, 2022
atai
ESOP
atai
HSOP
Other Subsidiaries Equity Plan
Total
Research and development
$
15,797
$
-
$
$
16,324
General and administrative
21,333
4,551
$
26,051
Total share based compensation expense
$
37,130
$
4,551
$
$
42,375
The following table summarizes the total stock-based compensation expense by function for the year ended December 31, 2021, which includes expense related to stock options and restricted stock awards (in thousands):
Year Ended December 31, 2021
atai
ESOP
atai
HSOP
Other Subsidiaries Equity Plan
Total
Research and development
$
18,676
$
-
$
$
19,339
General and administrative
22,667
21,102
$
44,023
Total share based compensation expense
$
41,343
$
21,102
$
$
63,362
13. Income Taxes
The component of German and overseas income (loss) from continuing operations before income taxes is as follows (in thousands):
Year Ended December 31,
Germany
$
(55,845
)
$
(89,061
)
International
(79,337
)
(47,540
)
Total loss before income taxes and loss from equity method investments
$
(135,182
)
$
(136,601
)
The tax provision (benefits) for income taxes consists of the following (in thousands):
Year Ended
December 31,
Current income tax provision (benefit):
Germany
$
-
$
-
International
1,155
1,117
Total current income tax provision:
$
1,155
$
1,117
Deferred income tax provision (benefit):
Germany
$
-
$
-
International
5,074
(5,106
)
Total deferred income tax provision:
5,074
(5,106
)
Total income tax provision:
$
6,229
$
(3,989
)
The international current tax provision for December 31, 2022 and 2021 is primarily comprised of corporate income taxes incurred in the United States, United Kingdom and Australia.
A reconciliation of the statutory income tax rate to the Company’s effective income tax rate for continuing operations is as follows (in thousands):
Year Ended
December 31,
Loss before income taxes:
Germany
$
(55,845
)
$
(89,061
)
International
(79,337
)
(47,540
)
Total loss before income taxes:
(135,182
)
(136,601
)
German statutory rate
30.18
%
30.18
%
Expected income tax expense (benefit)
(40,791
)
(41,220
)
US state income taxes, net of US federal tax benefit
$
(6,509
)
$
International tax rate differential
7,276
4,222
IPR&D charges and acquisition adjustments
-
3,251
Effect of Australian R&D tax credit incentives
(338
)
(3
)
Fair value adjustments
(109
)
2,934
Effect of consolidation and deconsolidation of subsidiaries
(1,394
)
-
Effect of statutory to US GAAP accounting adjustments
(10,409
)
Compensation Expenses not deductible under IRC Section 162(m)
1,690
Expenses not deductible for tax purposes
(324
)
Effect of share-based compensation expense
Other
(657
)
Change in German and International valuation allowance
46,935
35,267
Total income tax expense
$
6,229
$
(3,989
)
Effective income tax rate:
-4.61
%
2.92
%
The Company is headquartered in Berlin, Germany and has subsidiaries in the United States, Australia, the United Kingdom, and Singapore as well as minority investments in Canada, Germany, and the United Kingdom. The Company incurred tax losses in most jurisdictions,
however, generated taxable profits in certain United States subsidiaries, United Kingdom, and Australian subsidiaries. The weighted-average combined German corporate income tax rate for the year ended December 31, 2022 and 2021 was 30.18% (inclusive a corporate income tax rate of 15.83% and trade tax rate of 14.35%). The weighted-average United States corporate income tax rate for year ended December 31, 2022 and 2021 was 21.00%. The weighted-average Australia corporate income tax rate for the year ended December 31, 2022 and 2021 was 27.50%. The weighted-average United Kingdom corporate income tax rate for the year ended December 31, 2022 and 2021 was 19.00%. The Singapore corporate income tax rate for the year ended December 31, 2022 was 17.0%.
Deferred income taxes are provided for the effects of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes.
Deferred income taxes are provided for the effects of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes.
Significant components of deferred tax assets and deferred tax liabilities consisted of the following (in thousands):
Year Ended
December 31,
Deferred tax assets:
German tax loss carryforward
$
45,560
$
31,149
International tax loss carryforward
10,585
8,618
Fixed and Intangible assets
-
Share compensation
31,078
17,231
Capitalized research and experimentation expenses
11,975
-
Other deductible timing differences
1,864
Total deferred tax assets, gross
101,062
57,893
Valuation allowance
(95,678
)
(49,442
)
Total deferred tax assets, net
$
5,384
$
8,451
Deferred tax liabilities:
Fixed and intangible assets
$
(908
)
$
(17
)
Unrealized foreign exchange
$
(4,472
)
$
(3,326
)
Outside basis differences in equity and other investments
(4
)
(2
)
Total deferred tax liabilities
(5,384
)
(3,345
)
Total deferred tax asset
$
-
$
5,106
The valuation allowance provided against net deferred tax assets as of December 31, 2022 and 2021 was $95.7 million and $49.4 million, respectively. The valuation allowance recorded at both periods was primarily related to German and international tax loss carryforwards, capitalized research and experimental costs, and stock-based compensation timing differences that, in the judgement of management, are not more-likely-than-not, to be realized. In 2022, a valuation allowance was provided against net deferred tax assets recognized with regard to certain subsidiaries in the United States and United Kingdom where in the judgement of management, are not more-likely-than-not to be realized as a result of a change in tax and finance policies.
As relevant to certain United States subsidiaries, the Tax Cuts and Jobs Act of 2017 requires taxpayers to capitalize and amortize certain research and experimental (“R&D”) expenditures under Internal Revenue Code ("IRC") Section 174 for tax years beginning after December 31, 2021 resulting in the capitalization of certain R&D costs within the Company's tax provision in 2022. IRC Section 174 costs attributable to R&D performed in the United States and outside of the United States is amortizable over 5 years and 15 years, respectively.
In assessing the realizability of deferred tax assets, management regularly considers whether it is more-likely-than-not that some or all of the recorded deferred tax assets will be realized. The future realization of deferred tax assets is subject to the existence of sufficient taxable income of the appropriate character (e.g., ordinary income or capital gain) as provided under the carryforward provisions of local tax law. Additionally, deferred tax assets with respect to tax losses in the United States may be subject to limitation as a result of ownership changes within the meaning of Section 382 of the IRC. Management considers the Company’s limited history and historical tax losses, future projected taxable income, including the character and jurisdiction of such income, the scheduled reversal of deferred tax liabilities (including the effect in available carryback and carryforward periods), and tax-planning strategies in making this assessment. In the event that there is a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed.
The Company has limited prior earnings history and, due to the early stages of its development and research activities, is expected to generate losses for the next several years and cannot accurately estimate future profit projections beyond such time. As such, management
believes that it is more likely than not that the Company will not realize the benefits of such tax loss carryforwards and deductible differences.
As of December 31, 2022 and 2021 the Company did not have any significant unremitted earnings in its foreign subsidiaries
The Company’s gross tax loss carryforward for tax return purposes are as follows (in thousands):
Year Ended
December 31,
Germany tax losses
$
150,991
$
103,232
International tax losses
41,908
31,875
Total
$
192,899
$
135,107
The Company's tax loss carryforwards have an indefinite carryforward period, however, for tax years 2021 and beyond, in the United States, utilization of certain tax losses may not exceed 80% of United States taxable income in any one year, computed without regard a deduction for tax losses utilized.
The Company's 2018 through 2021 tax returns are currently open to audit and have not been subject to audit in any prior year by any tax authority.
Unrecognized tax benefits arise when the estimated benefit recorded in the financial statements differs from the amounts taken or expected to be taken in a tax return because of the uncertainties described above. As of December 31, 2022 and 2021, the Company had no unrecognized tax benefits.
14. Net Loss Per Share
Basic and diluted net loss per share attributable to atai stockholders were calculated as follows (in thousands, except share and per share data):
Years Ended December 31,
Numerator:
Net loss
$
(157,417
)
$
(174,244
)
Net loss attributable to redeemable
noncontrolling interests and noncontrolling
interests
(5,032
)
(6,436
)
Net loss attributable to ATAI Life Sciences
N.V. shareholders - basic and diluted
$
(152,385
)
$
(167,808
)
Denominator:
Weighted average common shares outstanding
attributable to ATAI Life Sciences N.V.
Stockholders - basic and diluted
155,719,585
138,265,859
Net loss per share attributable to ATAI Life
Sciences N.V. shareholders - basic and diluted
$
(0.98
)
$
(1.21
)
HSOP Shares issued to the Partnership and allocated to the HSOP Participants are not considered outstanding for accounting purposes and not included in the calculation of basic weighted average common shares outstanding in the table above because the HSOP Participants have a forfeitable right to distributions until the HSOP Options vest and are exercised, at which time the right becomes nonforfeitable.
The following also represents the maximum amount of outstanding shares of potentially dilutive securities that were excluded from the computation of diluted net loss per share attributable to common shareholders for the periods presented because including them would have been antidilutive:
Potentially dilutive securities to the Company’s common shares:
As of December 31,
Options to purchase common stock
34,880,604
26,687,820
HSOP options to purchase common stock
6,921,829
7,179,248
2018 Convertible Promissory Notes - Related Parties (Note 10)
6,201,824
10,521,824
48,004,257
44,388,892
The remaining 2018 Convertible Notes would be issuable upon the exercise of conversion rights of convertible note holders for 387,614 shares of common stock of ATAI Life Sciences AG, respectively. Upon conversion, it is expected that the remaining 2018 Convertible Notes would be exchanged on a one-for-sixteen basis for shares of ATAI Life Sciences N.V. which is reflected in the table above. See Note 10 for additional discussion.
15. Commitments and Contingencies
Research and Development Agreements
The Company may enter into contracts in the normal course of business with clinical research organizations for clinical trials, with contract manufacturing organizations for clinical supplies and with other vendors for preclinical studies, supplies and other services and products for operating purposes.
Leases
In May 2022 the Company entered into a five year lease arrangement that has not yet commenced. The Company expects the lease to commence during the first half of 2023. This lease will require lease payments over the term of approximately $1.8 million.
Indemnification
In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to vendors, lessors, business partners, board members, officers and other parties with respect to certain matters, including, but not limited to, losses arising out of breach of such agreements, services to be provided by the Company, negligence or willful misconduct of the Company, violations of law by the Company, or intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with directors and certain officers and employees that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors, officers or employees. No demands have been made upon the Company to provide indemnification under such agreements, and thus, there are no claims that the Company is aware of that could have a material effect on the Company’s consolidated financial statements.
The Company also maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify the Company’s directors. To date, the Company has not incurred any material costs and has not accrued any liabilities in the consolidated financial statements as a result of these provisions.
Contingencies
From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company is unable to predict the outcome of these matters or the ultimate legal and financial liability, and at this time cannot reasonably estimate the possible loss or range of loss and accordingly has not accrued a related liability. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company accrues a liability when a loss is considered probable and the amount can be reasonably estimated. When a material loss contingency is reasonably possible but not probable, the Company does not record a liability, but instead discloses the nature and the amount of the claim, and an estimate of the loss or range of loss, if such an estimate can be made. Legal fees are expensed as incurred. The Company currently believes that the outcome of these legal proceedings, either individually or in the aggregate, will not have a material effect on its consolidated financial position, results of operations or cash flows.
16. License Agreements
Otsuka License and Collaboration Agreement
On March 11, 2021, Perception entered into a license and collaboration agreement (the “Otsuka Agreement”) with Otsuka under which Perception granted exclusive rights to Otsuka to develop and commercialize products containing arketamine, known as PCN-101, in Japan for the treatment of any depression, including treatment-resistant depression, or major depressive disorder or any of their related symptoms or conditions. Under the terms of the Otsuka Agreement, Otsuka received an exclusive right to develop and commercialize products containing PCN-101 in Japan at its own cost and expense. Perception retained all rights to PCN-101 outside of Japan.
Otsuka owed Perception an upfront, non-refundable payment of $20.0 million as of the execution of the Otsuka Agreement. Perception is also entitled to receive aggregate payments of up to $35.0 million if certain development and regulatory milestones are achieved for the current or a new intravenous formulation of a product and up to $66.0 million in commercial milestones upon the achievement of certain commercial sales thresholds. Otsuka is obligated to pay Perception a tiered, double-digit royalty on net sales of products containing PCN-101 in Japan, subject to reduction in certain circumstances.
The Otsuka Agreement will expire upon the fulfillment of Otsuka’s royalty obligations on a product-by-product basis. Otsuka shall have the right to terminate this agreement in its entirety for convenience at any time (a) on ninety (90) days’ prior written notice to Perception if such notice is given before the first regulatory approval of the first licensed product in the Otsuka territory, or (b) on one hundred and eighty (180) days’ prior written notice to Perception if such notice is given on or after the first regulatory approval of the first licensed product in the Otsuka territory. The Otsuka Agreement may be terminated in its entirety at any time during the term upon written notice by either party if the other party is in material breach of its obligations and has not cured such breach within thirty (30) days in the case of a payment breach, or within ninety (90) days in the case of all other breaches.
The Company first assessed the Otsuka Agreement under ASC 808 to determine whether the Otsuka Agreement or units of accounts within the Otsuka Agreement represent a collaborative arrangement based on the risks and rewards and activities of the parties.
The Company concluded that Otsuka is a customer in the context of the Otsuka Agreement and the units of account are within the scope of ASC 606. The Company determined that the combined promise of the exclusive license to PCN-101 and non-exclusive license to conduct clinical trials in Asia are a single performance obligation. The Company determined that the option rights for CMC study data, additional research services and development supply do not represent material rights to Otsuka as these options were issued at standalone selling prices. As such, they are not performance obligations at the outset of the arrangement.
Based on this assessment, the Company concluded three performance obligations exists at the outset of the Otsuka Agreement: (i) the exclusive license to PCN-101 and exclusive license to conduct clinical trials in Japan, (ii) Global Requested Ongoing Clinical Studies and (iii) Global Ongoing Clinical Studies. The Company determined that the upfront payment of $20.0 million constitutes the transaction price at the outset of the Otsuka Agreement. Future potential milestone payments were fully constrained as the risk of significant revenue reversal related to these amounts has not yet been resolved. The achievement of the future potential milestones is not within the Company’s control and is subject to certain research and development success or regulatory approvals and therefore carry significant uncertainty. The Company will reevaluate the likelihood of achieving future milestones at the end of each reporting period. As all performance obligations will have been satisfied in advance of the achievement of the milestone events, if the risk of significant revenue reversal is resolved, any future milestone revenue from the arrangement will be added to the transaction price (and thereby recognized as revenue) in the period the risk is resolved.
For the year ended December 31, 2022, there were no additional milestones achieved under the Otsuka Agreement. For the year ended December 31, 2021, there were no additional milestones achieved under the Otsuka Agreement, except for the upfront transfer of the license. During the year ended December 31, 2021, the Company satisfied the performance obligation related to the license upon delivery of the license and recognized the amount of $19.7 million allocated to the license as license revenue. Additionally, the Company recognized revenues of $0.2 million and $0.6 million related to certain research and development services during the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022 and 2021, the remaining balance of deferred revenue related to the Otsuka Agreement was immaterial.
National University Corporation Chiba University License Agreement
In August 2017, Perception entered into a license agreement (the “CHIBA License”), with the National University Corporation Chiba University or CHIBA, relating to Perception’s drug discovery and development initiatives. Under the CHIBA License, Perception has been granted a worldwide exclusive license under certain patents and know-how of CHIBA to research, develop, manufacture, use and commercialize therapeutic products. Perception paid an upfront license fee which was recorded as research and development expense during the year ended December 31, 2017. The Company previously exercised an option and purchased licenses to additional CHIBA technologies and related know-how, and as such the Company is required to pay an annual maintenance fee until the filing of a new drug application with the Food and Drug Administration. In addition, Perception is also required to pay tiered royalties ranging in the low to mid-single-digit on future net sales of licensed products that are covered by a valid claim of a licensed patent, if any. In addition, the Company is obligated to make contingent milestone payments totaling up to $1.2 million upon the achievement of certain clinical or regulatory milestones for each of the first two licensed products and $1.0 million upon the achievement of certain clinical or regulatory milestones for each additional licensed product.
The Company has the right to terminate the CHIBA License for any reason upon a 90-day notice and if CHIBA materially breaches the agreement and fails to remedy any such default within specified cure periods. CHIBA has the right to terminate the CHIBA License if the
Company declares bankruptcy, becomes insolvent or otherwise materially breaches the agreement and fails to remedy any such default within specified cure periods. Such termination does not preclude CHIBA’s rights to any milestone payments, royalties, and other payments described above. The CHIBA License will remain in effect until terminated by the parties according to their rights.
During the years ended December 31, 2022 and 2021, respectively, the Company made no material payments pursuant to the CHIBA License.
Allergan License Agreement
In February 2020, Recognify entered into an amended and restated license agreement (the "Allergan License Agreement"), with Allergan Sales, LLC, or Allergan, under which Allergan granted Recognify an exclusive (non-exclusive as to know-how), sublicensable and worldwide license under certain patent rights and know-how controlled by Allergan to develop, manufacture and commercialize certain products for use in all fields including the treatment of certain diseases and conditions of the central nervous system.
Under the Allergan License Agreement, Recognify is subject to certain diligence obligations and is obligated to use commercially reasonable efforts, either by itself or through its affiliates or sublicensees, to develop, obtain regulatory approvals for and commercialize certain licensed products, at its sole cost. If Recognify decides to enter into negotiation of a change of control transaction with any third parties or receives a proposal from a third party for such transaction, Allergan has a right of first negotiation to negotiate the terms and conditions for acquisition of Recognify or its assets.
As partial consideration for the rights granted by Allergan to Recognify under the Allergan License Agreement, Recognify paid Allergan an upfront payment of $0.5 million which was paid prior to the Company’s acquisition of Recognify in November 2020. Recognify is also responsible for paying Allergan a mid-single-digit royalty on the net sales of the licensed products. In addition, Recognify is obligated to pay Allergan a low teen percentage of the non-royalty sublicense payments it receives from a third party receiving a sublicense to practice the rights licensed to Recognify under the Allergan License Agreement. Upon the occurrence of certain change of control transactions involving Recognify, or sale, assignment or transfer (other than sublicense) to a third party of any rights licensed to Recognify under the Allergan License Agreement, Recognify is required to share with Allergan a low teen percentage of the proceeds it receives from such transactions.
Recognify has the right to terminate the Allergan License Agreement for any reason, subject to a specified notice period, and if Allergan materially breaches the agreement and fails to remedy any such default within specified cure periods. Allergan has the right to terminate the Allergan License Agreement if Recognify declares bankruptcy, becomes insolvent or otherwise materially breaches the agreement and fails to remedy any such default within the specified cure periods. Such termination does not preclude Allergan’s rights to any milestone payments, royalties, or other payments described above. The Allergan License Agreement will remain in effect until terminated by the parties according to their rights. During the year ended December 31, 2021, the Company made no material payments pursuant to the Allergan License Agreement.
During the years ended December 31, 2022 and 2021, respectively, the Company made no material payments pursuant to the Allergan License Agreement.
Columbia Stock Purchase and License Agreement
In June 2020, Kures entered into a license agreement (the “License Agreement”) with Trustees of Columbia University (“Columbia”), pursuant to which, Kures obtained an exclusive license under certain patents and technical information to discover, develop, manufacture, use and commercialize such patents or other products in all uses and applications (“Columbia IP”). In addition, in consideration for the rights to the Columbia IP, Kures entered into a Stock Purchase Agreement (the “SPA”) with Columbia in contemplation of the License Agreement. Pursuant to the SPA, Kures issued to Columbia certain shares of the Kures’ capital stock, representing 5.0% of Kures common stock on a fully diluted basis. Furthermore, the SPA provided that from time to time, Kures shall issue to Columbia additional shares of Kures’ common stock, at a per share price equal to the then fair market value of each such share, which price shall be deemed to have been paid in partial consideration for the execution, delivery and performance by Columbia of the License Agreement, such that the common stock held by Columbia shall equal to 5.0% of the common stock on a fully diluted basis, at all times up to and through the achievement of certain funding threshold.
In April 2022, Kures issued shares of Series A-2 Preferred Stock to certain investors upon the achievement of Series A-2 milestone events. Accordingly, the Company issued certain anti-dilution common stock to Columbia worth $0.3 million. The Company expensed the cost incurred for acquiring license as research & development expense at inception. Since, the additional anti-dilution shares were issued as partial consideration towards the same license arrangement, the cost of such additional share was also expensed as research & development expense during the year ended December 31, 2022. During the years ended December 31, 2022 and 2021, the Company recognized $0.4 million and $0, respectively, of in-process research & development expense in connection with the SPA and the License Agreement.
During the years ended December 31, 2022 and 2021, Kures made no material payments in connection with the Columbia agreement.
Accelerate License Agreement
On April 27, 2021, Psyber entered into a license arrangement with Accelerate Technologies Pte. Ltd. (“Accelerate”), whereby Accelerate grants Psyber non-exclusive rights to license and use the technology to commercialize of Psyber’s BCI-enabled companion digital therapeutics in United States of America, Singapore, Member Countries of the European Union, Canada, Australia and New Zealand as a potential treatment for mental health and behavior change, such as substance use disorders including opioid use disorder, mood and anxiety disorders including post-traumatic stress disorder, and treatment-resistant depression.
During the years ended December 31, 2022 and 2021, Psyber made no material payments pursuant to the Accelerate License agreement.
Dalriada License Agreement
On December 10, 2021, Invyxis, Inc. ("Invyxis"), a wholly owned subsidiary of the Company, entered into an exclusive services and license agreement (the "Invyxis ESLA") with Dalriada Drug Discovery Inc. ("Dalriada"). Under the Invyxis ESLA, Dalriada is to exclusively collaborate with Invyxis to develop products, services and processes with the specific purpose of generating products consisting of new chemical entities. Invyxis will pay Dalriada up to $12.8 million in service fees for research and support services. In addition, Invyxis will pay Dalriada success milestone payments and low single digit royalty payments based on net product sales. Invyxis has the right, but not the obligation, to settle future royalty payments based on net product sales with the Company's common stock. Invyxis and Dalriada will determine the equity settlement based on a price per share determined by both parties.
In December 2022, the Company executed an amendment to the Invyxis ESLA, which reduced the upfront deposit from $1.1 million to $0.5 million. As such, the remaining $0.6 million was applied against research and development expense incurred. The Company will expense the remaining deposit as the services are performed as a component of research and development expense in the consolidated statements of operations. During the year ended December 31, 2022, the Company recorded $2.8 million as research and development expense. The Company did not record a material amount of research & development expense for the year ended December 31, 2021. During the years ended December 31, 2022 and 2021, Invyxis made no other service fee payments to Dalriada.
17. Related Party Transactions
atai Formation
In connection with the formation of atai in 2018, the Company entered into a series of transactions with its shareholders, Apeiron, Galaxy Group Investments LLC. (“Galaxy”) and HCS Beteiligungsgesellschaft mbH (“HCS”) whereby these shareholders contributed their investments in COMPASS, Innoplexus and Juvenescence to the Company in exchange for atai’s common stock of equivalent value. Apeiron is the family office of the Company’s founder who owns 19.7% and 18.0% of the outstanding common stock in the Company as of December 31, 2022 and December 31, 2021, respectively. Galaxy is a NYC-based multi-strategy investment firm that owns 6.5% and 6.7% of the outstanding common stock in the Company as of December 31, 2022 and December 31, 2021, respectively.
Convertible Note Agreements with Perception
In March 2020, Perception entered into the Perception Note Purchase Agreement with the Company and other investors, including related parties, which provided for the issuance of convertible notes of up to $3.9 million, among which Perception issued convertible notes in the aggregate principal amount of $3.3 million to the Company and $0.3 million to Sonia Weiss Pick and Family, and $0.3 million to other investors. In addition, in December 2020, Perception entered into the Perception December 2020 Convertible Note Agreement with the Company and other investors, including related parties, which provided for the issuance of convertible notes of up to $12.0 million in two tranches. Under the First Tranche Funding of $7.0 million, Perception issued an aggregate principal amount of $5.8 million to the Company and $0.4 million to other investors as of December 31, 2020 and $0.2 million to Apeiron, $0.5 million to Sonia Weiss Pick and Family, and $0.1 million to other investors in January 2021. Under the Second Tranche Funding of $5.0 million, Perception issued an aggregate of $4.2 million to the Company, $0.2 million to Apeiron, $0.3 million to Sonia Weiss Pick and Family, and $0.4 million to other investors.
On June 10, 2021, the Company received $20.0 million pursuant to the Otsuka Agreement. Upon receipt of the proceeds, the Perception Convertible Notes automatically converted into Series A preferred stock pursuant to their original terms. Sonia Weiss Pick and Family and Aperion received 440,415 shares and 27,809 shares of Perception Series A preferred stock, respectively, upon conversion of the Perception Convertible Notes. The conversion of the Perception December 2020 Notes was accounted for an extinguishment. The March 2020 Notes were accounted for as a conversion. These transactions are further described in Note 10.
Common Stock
Since 2018, the Company engaged SMC as the underwriting bank to provide banking, advisory services and securities-related technical support of cash and non-cash capital increase transactions. In connection with the issuance of common stock in November 2020, the Company paid SMC an aggregate amount of $4.5 million of advisory fees, of which approximately $3.7 million was paid to Apeiron by SMC during the first quarter of 2021.
In January 2021, pursuant to an additional closing from the common stock issuance in November and December 2020, the Company issued and sold 2,133,328 shares of common stock to Apeiron at the same issuance price, for cash proceeds of $12.2 million. In March 2021, in connection with the Company’s issuance of 13,419,360 shares of common stock, at a price of €9.69 or $11.71 per share, the Company issued common shares to Apeiron for a total purchase price of $14.5 million, and issued common shares to Presight II, L.P. for a total purchase price of $13.9 million (See Note 11 ). Apeiron is the co-managing member of the general partner of Presight II, L.P.
Directed Share Program
In connection with atai's initial public offering, the underwriters reserved 27% of the common shares for sale at the initial offering price to the Company's managing directors, supervisory directors and certain other parties. Apeiron participated in the program and purchased $10.5 million of common stock
Consulting Agreement with Mr. Angermayer
In January 2021, the Company entered into a consulting agreement, (the “Consulting Agreement”), with Mr. Angermayer, one of the Company’s co-founders and supervisory director. Apeiron is the family office and merchant banking business of Mr. Angermayer. Pursuant to the Consulting Agreement, Mr. Angermayer agreed to render services to the Company on business and financing strategies in exchange for 624,000 shares under the 2020 Incentive Plan upon achievement of certain performance targets. The Consulting Agreement expires on March 31, 2024.
As a result of the Consulting Agreement, for the years ended December 31 2022, and 2021, the Company recorded $0.7 million and $0.6 million, respectively, of stock-based compensation included in general and administrative expense in its consolidated statement of operations.
For the year ended December 31, 2022, the Company recorded $0.6 million of stock-based compensation included in general and administrative expense in its consolidated statement of operations related to Mr. Angermayer's service as Chairman of the supervisory board. For the year ended December 31, 2021, the Company recorded an immaterial amount of general and administrative expense in its consolidated statement of operations related to Mr. Angermayer's service as Chairman of the supervisory board.
18. Defined Contribution Plan
The Company has a defined contribution retirement savings plan under Section 401(k) of the Internal Revenue Code. This plan allows eligible employees to defer a portion of their annual compensation. Employees may make contributions by having the Company withhold a percentage of their salary up to the Internal Revenue Service annual limit. The Company recognized $0.5 million of related compensation expense for the year ended December 31, 2022. The Company recognized an immaterial amount of compensation expense for the year ended December 31, 2021.
19. Subsequent Events
Loan to IntelGenx
In January 2023, the Company loaned IntelGenx $3.0 million pursuant to the IntelGenx Loan Agreement. See Note 6 for additional discussion.
Reorganization
In February 2023, the Company announced a plan to simplify its organizational design, which included a reduction in force of approximately 30% of the Company’s global workforce. The reduction in force is expected to be substantially completed by March 31, 2023.
Lease Commencement
In February 2023, the Company commenced a new lease in Berlin, Germany. This lease will require monthly lease payments over the five year term of approximately $1.8 million.
Hercules Term Loan Amendment
In March 2023, the Company executed an amendment to the Hercules Loan Agreement. Pursuant to the amendment, the Tranche 1B Expiration Date is May 1, 2023.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures.
Limitations on Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2022. Based on this evaluation our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2022 at the reasonable assurance level.
Material Weaknesses Previously Identified and Remediated
As previously disclosed, our management identified deficiencies in our internal control over financial reporting that constituted material weaknesses as of December 31, 2021. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim consolidated financial statements will not be prevented or detected on a timely basis. The material weaknesses that were previously identified were related to the design of internal controls as follows: (1) the lack of a sufficient number of trained professionals with the expertise to design, implement and execute a formal risk assessment process and formal accounting policies, procedures and controls over accounting and financial reporting to ensure the timely recording, review, and reconciliation of financial transactions while maintaining a segregation of duties; (2) the lack of formal processes and controls specific to the identification and recording of expense transactions, including stock-based compensation, completely and accurately, and in the appropriate period; and (3) the lack of a sufficient number of trained professionals with the appropriate U.S. GAAP technical expertise to identify, evaluate and account for complex transactions and review valuation reports prepared by external specialists. As a result, we did not design and maintain formal accounting policies, processes and controls related to complex transactions necessary for an effective financial reporting process.
Remediation of Previously Identified Material Weaknesses
Subsequent to the identification of the material weaknesses, management implemented our previously disclosed remediation plan designed to remediate the material weaknesses and to enhance our overall control environment. Our remediation plan included, but was not limited to, the following measures:
•Engaged consultants to assist management in designing and implementing a formal risk assessment process.
•Formalized our accounting and financial reporting policies and the related procedures and designed and implemented controls over the timely recording, review, and reconciliation of financial transactions, including expense and stock-based compensation transactions.
•Hired additional qualified accounting personnel and implemented accounting systems to support our policies, procedures and controls, while maintaining segregation of duties amongst accounting personnel.
•Designed and implemented controls over the recording and review of technical accounting matters, application of new accounting standards, tax matters, and valuations, and engaged third parties subject to our oversight and review, as needed.
Management has completed its documentation, testing and evaluation of the enhanced controls and determined that, as of December 31, 2022, our controls have been appropriately designed and implemented, and have operated effectively for a sufficient period of time to conclude that these previously identified material weaknesses have been remediated.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our management, including our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of its evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2022.
Attestation Report of the Registered Public Accounting Firm
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm due to an exemption established by the JOBS Act for “emerging growth companies.”
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2022, we finalized the implementation and operation of our internal controls over financial reporting to remediate the previously identified material weaknesses, as described above. Except as discussed above, there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(d) or 15d-15(d) of the Exchange Act) identified in management’s evaluation during the quarter ended December 31, 2022 that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance.
Except as set forth below, the information required by this Item is incorporated by reference from our definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2022.
We have adopted a written code of conduct that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions. A current copy of the code is posted in the "Investors" section of our website under "Corporate Governance," which is located at https://ir.atai.life. We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our code of conduct, as well as Nasdaq’s requirement to disclose waivers with respect to directors and executive officers, by posting such information on our website at the address and location specified in the preceding sentence. The information contained on our website is not incorporated by reference into this Form 10-K. We granted no waivers under our code of conduct in 2022.
Information About Our Directors & Executive Officers
The following table provides information regarding our executive officers and members of our supervisory board of directors (ages as of the date of this Annual Report on Form 10-K):
Name
Age
Position at atai
Principal Employment
Florian Brand
Co-Founder and Chief Executive Officer
Same
Srinivas Rao, Ph.D.
Co-Founder and Chief Scientific Officer
Same
Rolando Gutiérrez-Esteinou, M.D.
Chief Medical Officer
Same
Stephen Bardin
Chief Financial Officer
Same
Sahil Kirpekar
Chief Business Officer
Same
Christian Angermayer
Founder and Chairman
Founder of Apeiron Investment Group
Michael Auerbach
Supervisory Director
Founder of Subversive Capital
Jason Camm
Supervisory Director
Managing Director and Chief Medical Officer at Thiel Capital
Sabrina Martucci Johnson
Supervisory Director
Founder and Chief Executive Officer of Daré Bioscience, Inc.
Amir Kalali, M.D.
Supervisory Director
Professor of Psychiatry at the University of California San Diego
Andrea Heslin Smiley
Supervisory Director
President and Chief Executive Officer of VMS BioMarketing

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference from our definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2022.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is incorporated by reference from our definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2022.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this Item is incorporated by reference from our definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2022.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accountant Fees and Services.
The information required by this Item is incorporated by reference from our definitive proxy statement for our 2023 Annual Meeting of Shareholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2022.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report
(a)(1) Financial Statements
Information in response to this Item is included in Part II, Item 8 of this Annual Report.
(a)(2) Financial Statement Schedules
All financial schedules have been omitted because the required information is either presented in the consolidated financial statements filed as part of this Annual Report or the notes thereto or is not applicable or required.
(a)(3) Exhibits
The following is a list of exhibits filed as part of this Annual Report.
Incorporated by Reference
Exhibit
Number
Description
Form
File No.
Exhibit
Filing
Date
Filed/Furnished
Herewith
1.1
Open Market Sale Agreement, dated as of November 10, 2022, between ATAI Life Sciences N.V. and Jefferies LLC
8-K
001-40493
1.1
11/10/2022
3.1
Articles of Association of ATAI Life Sciences N.V. (translated into English), currently in effect
S-3
333-265970
3.1
7/01/2022
3.2
Rules of the Management Board of ATAI Life Sciences N.V.
S-1/A
333- 255383
3.2
6/11/2021
3.3
Rules of the Supervisory Board of ATAI Life Sciences N.V.
S-1/A
333- 255383
3.3
6/11/2021
4.1
Form of Share Issue Deed
S-1/A
333- 255383
3.4
6/11/2021
4.2
Description of Securities
*
10.1#
Service Agreement, dated June 5, 2019, between the Registrant and Florian Brand, as amended by agreement dated June 10, 2021
S-1/A
333- 255383
10.1
6/11/2021
10.2#
Amended and Restated Employment Agreement, dated June 9, 2021, between ATAI Life Sciences US, Inc. and Srinivas Rao
S-1/A
333- 255383
10.3
6/11/2021
10.3#
Amended and Restated Employment Agreement, dated June 9, 2021, between Rolando Gutiérrez Esteinou and ATAI Life Sciences US, Inc.
S-1/A
333- 255383
10.25
6/11/2021
10.4#
Form of Indemnification Agreement between ATAI Life Sciences N.V. and members of the Supervisory Board or Management
S-1/A
333- 255383
10.4
6/11/2021
10.5#
Employment Agreement, dated November 8, 2022, by and between Stephen Bardin and atai Life Sciences AG
10-Q
001-40493
10.2
11/10/2022
10.6#
Atai Life Sciences N.V. 2021 Incentive Award Plan
S-1/A
333- 255383
10.5
6/11/2021
10.7#
Form of Option Award Agreement under 2021 Incentive Award Plan
S-1/A
333- 255383
10.17
6/11/2021
10.8#
Form of Restricted Stock Award Agreement under 2021 Incentive Award Plan
S-1/A
333- 255383
10.18
6/11/2021
10.9#
Form of Restricted Stock Unit Agreement under 2021 Incentive Award Plan
S-1/A
333- 255383
10.19
6/11/2021
10.10#
2020 Employee, Director, and Consultant Equity Incentive Plan
S-1/A
333- 255383
10.20
6/11/2021
10.11#
Form of Stock Option Agreement under 2020 Employee, Director and Consultant Equity Incentive Plan
S-1/A
333- 255383
10.21
6/11/2021
10.12#
Remuneration Policy for the Board of Supervisory Directors of ATAI Life Sciences N.V.
S-1/A
333- 255383
10.23
6/11/2021
10.13#
Remuneration policy for the Board of Managing Directors of ATAI Life Sciences N.V.
S-1/A
333- 255383
10.24
6/11/2021
10.14
Stock Purchase Agreement, dated as of November 5, 2018, by and between ATAI US 2, Inc. and Jonathan Sporn
S-1
333-255383
10.7
4/20/2021
10.15
License Agreement, dated as of August 14, 2017, between National University Corporation Chiba University and Perception Neurosciences, Inc., as amended by Amendment No. 1, dated as of August 7, 2018, the Second Amendment, dated as of March 17, 2020, and Amendment No. 3, dated as of March 5, 2021.
S-1
333-255383
10.8
4/20/2021
10.16
Stock Purchase Agreement, dated as of June 8, 2020, between The Trustees of Columbia University in the City of New York and Kures, Inc.
S-1
333-255383
10.9
4/20/2021
10.17
Exclusive License Agreement, dated as of June 8, 2020, between the Trustees of Columbia University in the City of New York and Kures, Inc.
S-1
333-255383
10.10
4/20/2021
10.18
Preferred Stock Purchase Agreement, dated as of August 29, 2019, between GABA Therapeutics, Inc. and ATAI Life Sciences AG, as amended by the Omnibus Amendment, dated as of October 30, 2020
S-1
333-255383
10.11
4/20/2021
10.19
Series A Preferred Stock Purchase Agreement, dated as of December 27, 2019, among DemeRx IB, Inc., ATAI Life Sciences AG and DemeRx, Inc.
S-1
333-255383
10.13
4/20/2021
10.20
Series A Preferred Stock Purchase Agreement, dated as of November 6, 2020, between FSV7, Inc. and ATAI Life Sciences AG
S-1/A
333-255383
10.13
5/27/2021
10.21
Amended and Restated License Agreement, dated as of February 21, 2020, between Allergan Sales, LLC and FSV7, LLC
S-1
333-255383
10.14
4/20/2021
10.22#
Consultancy Agreement, dated as of January 16, 2021, between ATAI Life Sciences AG and Christian Angermayer
S-1
333-255383
10.15
4/20/2021
10.23
License and Collaboration Agreement, dated as of March 11, 2021, between Perception Neuroscience, Inc. and Otsuka Pharmaceutical Co., Ltd.
S-1/A
333-255383
10.16
5/27/2021
10.24
Partnership Agreement of ATAI Life Sciences HSOP GbR, dated August 21, 2020
S-1/A
333-255383
10.22
6/11/2021
10.25
Amendment to Preferred Stock Purchase Agreement, dated as of May 15, 2021, by and among ATAI Life Sciences AG, GABA Therapeutics, LLC and GABA Therapeutics, Inc.
S-1/A
333-255383
10.26
6/4/2021
10.26
Loan and Security Agreement between the Registrant, ATAI Life Sciences AG, certain of the Registrant’s subsidiaries from time to time party thereto as a guarantor, Hercules Capital, Inc., and the several banks and other financial institutions or entities from time to time party thereto, and Hercules Capital, Inc. as administrative agent and collateral agent for itself and the lenders, dated August 9, 2022
10-Q
001-40493
10.1
8/15/2022
10.27
First Amendment to Loan and Security Agreement between the Registrant, ATAI Life Sciences AG, certain of the Registrant’s subsidiaries from time to time party thereto as a guarantor, Hercules Capital, Inc., and the several banks and other financial institutions or entities from time to time party thereto, and Hercules Capital, Inc. as administrative agent and collateral agent for itself and the lenders, dated March 13, 2022
*
10.28
Amendment to Series A Preferred Stock Purchase Agreement, dated as of May 25, 2021, by and among ATAI Life Sciences AG and FSV7, Inc.
*
10.29
Second Amendment to Series A Preferred Stock Purchase Agreement, dated as of September 17, 2021, by and among ATAI Life Sciences AG and Recognify Life Sciences Inc., f/k/a FSV7, Inc.
*
10.30
Omnibus Amendment to Series A Preferred Stock Purchase Agreement, dated as of October 5, 2022, by and among ATAI Life Sciences AG and Recognify Life Sciences, Inc., f/k/a FSV7, Inc.
*
21.1
List of Subsidiaries
*
23.1
Consent of Deloitte & Touche LLP, an independent registered public accounting firm
*
23.2
Consent of PricewaterhouseCoopers LLP, an independent registered public accounting firm
*
31.1
Certification of Principal Executive Officer pursuant to Exchange Act Rule 13a-14(a)
*
31.2
Certification of Principal Financial Officer pursuant to Exchange Act Rule 13a-14(a)
*
32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350
**
32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350
**
99.1^
Separate Consolidated Financial Statements of COMPASS Pathways plc, as of December 31, 2022 and 2021 and for each of the three years ended December 31, 2022, 2021 and 2020, filed pursuant to Regulation S-X Rule 3-09.
*
101.INS
Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document
*
101.SCH
Inline XBRL Taxonomy Extension Schema Document
*
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
*
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
*
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
*
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
*	Filed herewith.
**	Furnished herewith.
^ The audited consolidated financial statements as of and for the years ended December 31, 2022 and 2021 and related notes thereto of COMPASS Pathways plc and its subsidiaries (“COMPASS”), prepared by COMPASS and audited by its independent registered public accounting firm, are included as Exhibit 99.1 to this Form 10-K and are incorporated by reference herein. We are required to include the COMPASS financial statements in this Form 10-K due to COMPASS meeting certain tests of significance under Rule 3-09 of Regulation S-X. The management of COMPASS is solely responsible for the form and content of the COMPASS financial statements.
# Management contract or compensatory plan, contract or arrangement.
 Certain confidential portions (indicated by brackets and asterisks) have been omitted from this exhibit pursuant to Regulation S-K, Item 601(b)(10)(iv).