EDGAR 10-K Filing

Company CIK: 1840904
Filing Year: 2022
Filename: 1840904_10-K_2022_0000950170-22-005013.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.
None.

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ITEM 2. PROPERTIES
Item 2. Properties.
Our principal executive office is located at Krausenstraße 9-10, 10117 Berlin, Germany, where we lease approximately 430 square feet of office space at pursuant to a lease based on a two-month rolling contract. We also lease office space in other locations including London, the United Kingdom; New York, New York; and Boston, Massachusetts. 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, 2022, there were 149 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 Reports on Form 10-Q for the quarters ended June 30, 2021 and September 30, 2021 filed with the SEC on August 16, 2021 and November 15, 2021, respectively, there were no sales of unregistered equity securities during the year ended December 31, 2021.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Use of Proceeds
On June 22, 2021, we completed our initial public offering and issued and sold 17,250,000 of our common shares (including 2,250,000 common shares in connection with the full exercise of the underwriters' option to purchase additional shares) at a price to the public of $15.00 per share.
As of December 31, 2021, net proceeds of approximately $231.6 million from our initial public offering have been invested in a variety of capital preservation investments, including term deposits, and short-term, investment-grade and interest-bearing instruments. There has been no material change in the expected use of the net proceeds from our initial public offering as described in our final prospectus dated June 17, 2021, filed with the SEC pursuant to Rule 424(b)(4) under the Securities Act, relating to our Registration Statements on Form S-1 (File No. 333-255383).

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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 as a 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, including psychedelic compounds and digital therapeutics. We have built a pipeline of 13 drug and discovery programs and four enabling technologies, each led by focused teams with deep expertise in their respective fields and supported by our internal development and operational infrastructure. We believe that several of our therapeutic programs’ target indications have potential market opportunities of at least $1 billion in annual sales, if approved. One of our atai companies, Recognify Life Sciences, has completed a Phase 2a proof-of-mechanism trial in the United States. In addition, we initiated Perception’s Phase 2a proof-of-concept trial for TRD, and DemeRx’s Phase 1/2a OUD trial in the third quarter of 2021.
Our business is organized along three strategic pillars:
•Rapid acting intervention: first, second, and third generation compounds that result in rapid-acting improvement of mental health disorders;
•Ongoing digital support: additional care that is provided to patients before, during, and after initial treatment interventions; and
•Biomarker-driven precision mental health: the identification of patient sub-types using biological and digital biomarkers.
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 development of our programs and enabling technologies that 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. 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. Examples of specific services we provide include project management, research and development, market strategy and development and corporate finance.
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 2,500,000 shares 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 $167.8 million and $169.8 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and December 31, 2020, our accumulated deficit was $357.8 million and $190.0 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 and general and administrative costs associated with our operations. In the future, we intend to continue to conduct research and development, preclinical
testing, clinical trials, regulatory compliance, market access, commercialization and business development activities that, together with anticipated general and administrative expenses, will result in incurring further significant losses for at least the next several years. Our operating losses stem primarily from development of our 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 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, 2021, we had cash and cash equivalents of $362.3 million. We believe that our existing cash will be sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. 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 and from issuances of convertible notes.
Our Emerging Clinical and Preclinical Programs
The table below summarizes the status of our product candidate portfolio as of the filing date of this Annual Report. Our pipeline currently consists of therapeutic candidates across multiple neuropsychiatric indications including depression, cognitive impairment associated with schizophrenia, or CIAS, OUD, anxiety, mTBI and PTSD. We rely on third parties to conduct our preclinical and clinical trials and, as such, progress and timing of these preclinical and clinical trials and related milestone events, including those discussed in greater detail below, may be impacted by several factors including, but not limited to, changes in existing or future contractual obligations or arrangements with these third parties, geographic developments, such as site locations or regulatory requirements, and other changing circumstances associated with these third parties and the clinical trial sites. See the section titled “Risk Factors-Risks Related to Reliance on Third Parties” in this Form 10-K. We currently hold at least a majority interest, or have options to obtain a majority interest, in each of these atai companies.
Note: DMT = N,N-dimethyltryptamine; MDMA = 3,4-Methyl enedioxy methamphetamine; DTx = Digital Therapeutics
(1)Perception, Recognify, DemeRx IB, Kures, and Neuronasal are all variable interest entities; GABA is a non-consolidated VIE with operational involvement through MSA model, including Srinivas Rao serving as CMO; EmpathBio, Revixia and Viridia are wholly-owned subsidiaries; COMPASS Pathways and DemeRx NB are non-controlling equity interests.
(2)RL-007 compound is (2R, 3S)-2-amino-3-hydroxy-3-pyridin-4-yl-1-pyrrolidin-1-yl-propan-1-one(L)-(+) tartrate salts
(3)Including EntheogeniX, TryptageniX, Invyxis
The following is a summary of our clinical and preclinical programs, including related prior evidence in humans based on third-party clinical trials or studies, recent advancements, and upcoming milestones, as applicable.
Perception Neuroscience: PCN-101 for TRD
• Product concept: PCN-101 is a parenteral formulation of R-ketamine, a glutamatergic modulator that is a component of racemic ketamine and is being developed as a rapid-acting antidepressant, with the potential to be an at-home non-dissociative alternative to S-ketamine (marketed as SPRAVATO).
•Prior evidence in humans: In a third-party clinical trial, another formulation of R-ketamine was observed to produce a rapid and durable response with limited dissociative side effects in patients with TRD. In September 2020, Perception Neuroscience completed a Phase 1 trial of PCN-101 supporting the advancement of PCN-101 into a Phase 2a proof-of-concept trial. In September 2021, the Phase 2a proof-of-concept trial of PCN-101 for TRD was initiated.
•Upcoming milestones: In December 2021, the FDA gave Investigational New Drug ("IND") clearance for the development of PCN-101 for the treatment of TRD. In September 2021, the Phase 2a proof-of-concept trial of PCN-101 for TRD was initiated. This randomized, double-blind, placebo-controlled Phase 2a proof-of-concept trial is designed to assess the efficacy, safety, dose response, and duration of response in patients with TRD. A topline data readout of this trial is expected by the end of 2022. We also anticipate results from a PCN-101 Phase 1 trial that bridges between the current intravenous formulation to a subcutaneous formulation to support at-home use, by the end of 2022.
Recognify Life Sciences: RL-007 for CIAS
• Product concept: RL-007, a cholinergic, glutamatergic and GABA-B receptor modulator, is an orally available compound that is thought to alter the excitatory/inhibitory balance in the brain to produce pro-cognitive effects. We are developing this compound for the treatment of CIAS.
•Prior evidence in humans: In third-party studies, other formulations of this compound have been shown to effect a significant improvement in aspects of cognitive function in both experimental paradigms involving healthy subjects as well as in a Phase 2 trial in patients suffering from diabetic peripheral neuropathic pain. In April 2021, Recognify initiated a Phase 2 proof-of-mechanism study for RL-007 in 32 CIAS patients, after receiving IND clearance from the U.S. Food and Drug Administration to commence clinical trials for the treatment of CIAS. The study was designed to evaluate the effects of RL-007 on safety, tolerability, electroencephalogram-based biomarkers and cognition.
•Recent advancements: In December 2021, we announced positive biomarker data from the Phase 2a proof-of-mechanism study of RL-007 in CIAS patients. RL-007 was well tolerated and demonstrated a clinically meaningful behavioral pro-cognitive profile consistent with previous Phase 1 and 2 trials of this compound. Changes in quantitative electroencephalogram ("qEEG") consistent with a previous Phase 1 trial involving a scopolamine challenge were noted. These results support the progression of RL-007 to a double-blind, placebo-controlled Phase 2a proof-of-concept trial with the goal of demonstrating the pro-cognitive benefit of RL-007 in CIAS.
•Upcoming milestones: We anticipate the Phase 2a proof-of-concept trial to be initiated in the second half of 2022.
GABA: GRX-917 for GAD
•Product concept: GRX-917 is an oral formulation of a deuterated version of etifoxine, a compound that has a long history of prescription use in France and other countries for treating anxiety disorders. GRX-917 is designed to provide rapid anxiolytic activity with improved tolerability compared to current treatments for anxiety available in the United States.
•Prior evidence in humans: Etifoxine has been observed to have the rapid onset of anxiolytic activity of benzodiazepines without their sedating or addicting properties. Furthermore, etifoxine is not associated with abuse, dependence or respiratory depression and has been observed to have no significant impact on motor skills or cognition.
•Recent advancements: In June 2021, GABA initiated a Phase 1 single and multiple ascending dose trial of GRX-917. The ongoing Phase 1 trial is a randomized, double-blind, placebo-controlled study of the safety, tolerability and pharmacokinetics of single-ascending and multiple-ascending doses of GRX-917 administered orally to healthy volunteers.
•Upcoming milestones: Topline data for this trial is expected by mid-year 2022 and the initiation of a Phase 2a proof-of-concept trial is anticipated to follow in the second half of this year.
DemeRx IB: DMX-1002 for OUD3
•Product concept: DMX-1002 is an oral formulation of ibogaine, a cholinergic, glutamatergic and monoaminergic receptor modulator that is a naturally occurring psychedelic product isolated from a West African shrub, that we are developing for the treatment of OUD.
•Prior evidence in humans: In third-party studies evaluating other formulations of ibogaine, significant reductions in opioid cravings were observed, both at discharge and at one month post treatment, and were associated with improved mood in patients with OUD.
•Recent advancements: DMX-1002 is being tested in an ongoing Phase 1/2 trial to evaluate its safety, tolerability, pharmacokinetics, and efficacy in recreational drug users and healthy volunteers, to help inform future studies in patients with opioid use disorder.
•Upcoming milestones: We expect safety data from the phase 1 element of the trial in the second half of 2022.
Kures: KUR-101 for OUD
•Product concept: KUR-101 is an oral formulation of deuterated mitragynine being developed for the treatment of OUD. Mitragynine is a component of the leaves of kratom (Mitragnyna speciosaz).
•Prior evidence in humans: Kratom has a long history of traditional medicine use as an analgesic in parts of Southeast Asia, and its use in the United States has increased in recent years, particularly amongst individuals seeking to reduce prescription opioid consumption or manage opioid withdrawal symptoms. Published third-party human data involving isolated mitragynine are limited, but recent mechanistic insights suggest that this compound may be well-suited for the medically assisted therapy of OUD.
•Recent advancements: KUR-101 is a Phase 1 randomized, double-blind, two-part study of the safety, tolerability, pharmacokinetics, analgesic and respiratory effects of KUR-101 in healthy volunteers. Part 1 is a 5 cohort ascending dose design of a single dose of KUR-101. Part 2 is a three-period crossover design to compare the analgesic and respiratory effects of a single oral dose of KUR-101, a single oral dose of OxyNorm®, and a single oral dose of placebo in healthy male volunteers.
•Upcoming milestones: A Phase 1 single ascending dose trial to evaluate the maximum tolerable dosage was initiated, with first patient dosed in March and topline results expected in the second half of 2022.
Revixia Life Sciences: RLS-01 for TRD
•Product concept: RLS-01 is a formulation of SalA, a naturally occurring dissociative hallucinogenic compound, with pharmacology differentiated from that of psilocybin or DMT, being developed for the treatment of TRD and other indications.
•Prior evidence in humans: In a third-party study of another formulation of SalA, the effects of the compound were observed to be similar to those of psilocybin based upon functional brain imaging. We believe these data combined with anecdotal usage reports suggest that SalA may possess rapid-acting antidepressant properties.
•Upcoming milestones: RLS-01 is in preclinical development for TRD with a Phase 1 trial expected to be initiated in the second half of 2022.
Viridia Life Sciences: VLS-01 for TRD
•Product concept: VLS-01 is a formulation of DMT, the active moiety of the traditional, hallucinogenic drink ayahuasca. DMT is characterized by an intrinsically short duration of psychedelic effect with a serum half-life estimated at less than 10 minutes. VLS-01 is formulated to provide a psychedelic experience lasting 30 to 45 minutes, thus potentially allowing for a shorter clinic visit compared to many other psychedelic compounds that may require a patient to be monitored for four or more hours.
•Prior evidence in humans: Ayahuasca administration was shown to provide significant antidepressant effects compared with placebo at one, two and seven days after dosing in a double-blind, randomized, placebo-controlled third-party clinical trial in patients with TRD.
•Upcoming milestones: VLS-01 is in preclinical development for TRD with a Phase 1 trial expected to be initiated in the middle of 2022. The study will utilize buccal and IV formulations in healthy adult volunteers to assess the relative bioavailability of the buccal versus IV formulations, the safety and tolerability of VLS-01 administered by both routes, as well as pharmacodynamics using qEEG and other measures.
EmpathBio: EMP-01 for PTSD
•Product concept: EMP-01 is an oral formulation of an MDMA derivative being developed for the treatment of PTSD. We are developing EMP-01 for the potential to have an improved therapeutic index compared to racemic MDMA.
•Prior evidence in humans: In a meta-analysis of 21 third-party trials of other formulations of MDMA-combined with psychotherapy for the treatment of PTSD, the benefits of such treatment were statistically significant versus placebo or active placebo-assisted therapy alone. In addition, a recent third-party randomized, double-blind, placebo-controlled phase 3 study with 90 patients with severe PTSD, showed statistically significant reduction in PTSD symptoms in the MDMA-assisted psychotherapy group versus placebo.
•Upcoming milestones: EMP-01 is in preclinical development for PTSD with a Phase 1 trial expected to be initiated in the second half of 2022.
Neuronasal: NN-101 for mTBI
•Product concept: NN-101 is a novel intranasal formulation of NAC. NAC is believed to stimulate the synthesis of GSH, an endogenous antioxidant that plays a protective role in the pathogenesis of mTBI.
•Prior evidence in humans: An orally administered formulation of NAC was shown to increase the probability of mTBI symptom resolution at seven days in a third-party study conducted by the U.S. Army. Neuronasal has also completed a pilot study of NN-101 in nine healthy volunteers. In this pilot study, NN-101 was observed to be approximately 20 times and 100 times more brain-penetrant compared to IV and oral NAC, respectively, and was well tolerated.
Our Ownership Position in COMPASS
In addition to our emerging clinical and preclinical programs and enabling technologies, we led the Series A financing round in 2018 for COMPASS, co-led their Series B financing round in 2020 and continue to hold a significant equity ownership position in COMPASS. COMPASS is developing its investigational COMP360 psilocybin therapy, which comprises administration of COMP360 with psychological support from specially trained therapists, with an initial focus on TRD. The therapeutic potential of psilocybin administered in conjunction with psychological support has been shown in multiple academic-sponsored studies, which did not involve COMP360, specifically exhibiting rapid reductions in depression symptoms after a single high dose with no SAEs. COMPASS evaluated COMP360 in conjunction with psychological support in a Phase 2b trial that concluded in July 2021 and reported its topline data in November 2021. The Phase 2b trial produced positive results that showed patient improvements beyond reduction of depression symptoms, including in positive affect and quality of life. The randomized, double-blind, dose-ranging study investigated the safety and efficacy of psilocybin therapy in 233 patients, the largest clinical trial with psilocybin to date. COMPASS also launched a Phase 2 study of COMP360 psilocybin therapy for post-traumatic stress disorder. As of December 31, 2021, we beneficially owned 9,565,774 shares representing a 22.8% equity interest in COMPASS. Certain of our founding investors were also seed investors and founders of COMPASS. Our interest in the product candidates of COMPASS is limited to the potential appreciation of our equity interest.
Our Enabling Technologies
We believe our enabling technologies have the potential to support the development of our pipeline and be used as patient support tools. We currently have four enabling technologies housed at our atai companies: Introspect Digital Therapeutics, InnarisBio and Psyber, as well as IntelGenx Technologies, a strategic investment of ours. None of our existing programs were developed using these enabling technologies, and many of these technologies remain in early stage testing and development. We intend to use these enabling technologies to support the future development of our programs. For more information regarding our enabling technologies, see the section titled “Enabling Technologies” in Part 1, Item 1 of this Form 10-K.
Our Drug Discovery Companies
We also believe in the development of innovative and scalable solutions to better meet patient needs. In November 2019, we acquired a majority interest in EntheogeniX Biosciences, a controlled variable interest entity, that is an AI-enabled computational biophysics platform designed to optimize and accelerate drug discovery. PsyProtix, a majority owned subsidiary we launched in February 2021, is developing metabolomics-based biomarkers that stratify TRD patients with the aim to improve patient outcomes through a precision psychiatry approach. In addition, in December 2021 and January 2022, respectively, we announced the launch of two new companies to support this commitment in driving next-generation approaches in the treatment of mental health disorders, TryptageniX and Invyxis. These two companies’ approaches to drug discovery are highly complementary to that of EntheogeniX, our existing AI-enable drug discovery company, of which we acquired a majority interest in 2019. TryptageniX will specialize in both the discovery of new chemical entities (“NCEs”) for our pipeline through bioprospecting and on biosynthesis of our naturally derived development candidates and Invyxis will bring proven medicinal chemistry tools and comprehensive biological screening approaches to our growing enterprise of drug discovery and design. Expanding intellectual property has been essential to our strategy since inception, with key investments made to unlock NCEs. We have already made substantial progress in our drug discovery efforts to date, synthesizing and screening approximately 300 compounds
and identifying novel scaffolds that display potential in targeting mental health disorders. For more information regarding our drug discovery companies, see the section titled “Drug Discovery Companies” in Part 1, Item 1 of this Form 10-K.
Factors Affecting our Results
We believe that the most significant factors affecting our results of operations include:
Research and Development Expenses
Our ability to successfully develop innovative product candidates through our programs will be the primary factor affecting our future growth. Our approach to the discovery and development of our product candidates is still being demonstrated. As such, we do not know whether we will be able to successfully develop any of our product candidates. Developing novel product candidates requires a significant investment of resources over a prolonged period of time, and a core part of our strategy is to continue making sustained investments in this area. We have chosen to leverage our platform to initially focus on advancing our product candidates in the area of mental health.
All of our product candidates are still in development stages, and we have incurred and will continue to incur significant research and development costs for preclinical studies and clinical trials. We expect that our research and development expenses will constitute the most substantial part of our expenses in future periods in line with the advancement and expansion of the development of our product candidates.
Acquisitions/Investments
To continue to grow our business and to aid in the development of our various product candidates, we are continually acquiring and investing in companies that share our common goal towards advancing transformative treatments, including psychedelic compounds and digital therapeutics, for patients that suffer from mental health disorders. For the year ended December 31, 2021, our net cash outflow was $1.0 million in relation to the acquisition of TryptageniX, Inc., which represents the portion of the total cash consideration that was paid to the seller. The remaining cash was paid to acquire majority equity in TryptageniX, which is a consolidated variable interest entity ("VIE") and is included in our consolidated financial statements. For the year ended December 31, 2021, our net cash outflow was $76.6 million in relation to equity method investments and other investments. For the year ended December 31, 2020, our net cash outflow was $0 in relation to acquiring Recognify, Inc. For the year ended December 31, 2020, our net cash outflow was $26.0 million in relation to equity method investments and other investments.
Acquisition of In-Process Research and Development Expenses
In an asset acquisition, including the initial consolidation of a VIE that is not a business, acquired in-process research and development, or IPR&D, with no alternative future is charged to the consolidated statements of operations as a component of operating expenses at the acquisition date.
Since inception, we have grown primarily by continually acquiring and investing in other companies. Our IPR&D expenses were $15.5 million and $12.0 million, representing 9.9% and 11.5% of our total operating expenses for the years ended December 31, 2021 and 2020, respectively. As we continue to acquire and invest in companies, we expect our IPR&D expenses to increase.
Stock-Based Compensation
In August 2020, we adopted the 2020 Equity Incentive Plan and the Hurdle Share Option Plan, which allowed us to grant stock-based awards to executive officers, directors, employees and consultants. Prior to our IPO, we issued stock options that vest over a two to four-year service period, only if and when a “Liquidity Event” (as defined in the plans) occurs, with accelerated vesting if a Liquidity Event occurred by specified dates. Upon the closing of our IPO, the stock-based award vesting contingent upon a Liquidity Event was no longer deferred. For the years ended December 31, 2021 and 2020, we incurred $63.4 million and $67.2 million of stock-based compensation expense, respectively.
Impact of COVID-19
The COVID-19 pandemic has continued to present global public health and economic challenges. Although some research and development timelines have been impacted by delays related to the COVID-19 pandemic, we have not experienced material financial impacts on our business and operations as a result. The full extent to which the COVID-19 pandemic will continue to directly or indirectly impact our results of operations and financial condition, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat it, the success or failure of ongoing vaccination programs worldwide, the emergence and spread of additional variants of COVID-19, as well as the overall impact on local, regional, national and international markets and the global economy. We continue to monitor the impact of the COVID-19 pandemic on our employees and business, including working remotely on a part or full time basis, and have, and will continue to, undertake business
continuity measures to mitigate potential disruption to our operations and safety of our employees. For a discussion of the risks related to COVID-19 and impact to the Company’s business and operations, including its research and development programs and related clinical trials, refer to the section titled “Risk Factors” in Part I, Item 1A of this Form 10-K.
Financial Overview
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 development of our programs and enabling technologies that 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.
Wholly owned subsidiaries and VIEs with greater than 50% ownership and deemed control are consolidated in our financial statements, and our net income (loss) is reduced for the non-controlling interest of the VIE’s share, resulting in net income (loss) attributable to atai stockholders.
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 recorded under 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.
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 and from issuances of convertible notes.
We were incorporated pursuant to the laws of the Netherlands on September 10, 2020. As more fully described in the section titled “Business" and Note 1 to our Consolidated Financial Statements appearing elsewhere in this Form 10-K, we undertook a corporate reorganization ("Corporate Reorganization") on April 23, 2021. In April 2021, all of the outstanding shares in ATAI Life Sciences AG were contributed and transferred to ATAI Life Sciences N.V. in a capital increase in exchange for newly issued common shares of ATAI Life Sciences N.V. on a 1 to 10 basis, and, as a result, ATAI Life Sciences AG became a wholly owned subsidiary of ATAI Life Sciences N.V. Furthermore, on June 7, 2021, shares of ATAI Life Sciences N.V. were split applying a ratio of 1.6 to one. The Corporate Reorganization 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 Life Sciences N.V. for accounting and reporting purposes. All share, per-share and financial information presented and corresponding disclosures 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 N.V. with identical restrictions.
On June 22, 2021, we completed an IPO on Nasdaq, in which we issued and sold 17,250,000 of our common shares at a public offering price of $15.00 per share, including 2,500,000 shares of common stock sold pursuant to the underwriters’ exercise of their option to purchase additional shares of common stock, 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 $167.8 million and $169.8 million for the years ended December 31, 2021 and 2020, respectively. As of December 31, 2021 and December 31, 2020, our accumulated deficit was $357.8 million and $190.0 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 VIE 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 and general and administrative costs associated with our operations. In the future, we intend to continue to conduct research and development, preclinical testing, clinical trials, regulatory compliance, market access, commercialization and business development activities that, together with anticipated general and administrative expenses, will result in incurring further significant losses for at least the next several years. Our operating losses stem primarily from development of our mental health research programs. As a result, we anticipate that 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.
As of December 31, 2021, we had cash and cash equivalents of $362.3 million. We believe that our existing cash will be sufficient for us to fund our operating expenses and capital expenditure requirements for at least the next 12 months. 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.
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.
The tables below show our principal subsidiaries as of December 31, 2021.
Wholly owned subsidiaries
Consolidated Entities
Date of
Formation
ATAI Life Sciences AG
February 2018
ATAI Life Sciences US Inc.
February 2019
ATAI Life Sciences UK Ltd
March 2021
Viridia Life Sciences, Inc.
June 2020
IntroSpect Digital Therapeutics, Inc.
June 2020
EmpathBio, Inc.
June 2020
Revixia Life Sciences, Inc.
October 2020
Invyxis, Inc.
December 2021
Consolidated VIEs
Consolidated Entities
Date Control
Obtained
Ownership %
December 31,
Perception Neuroscience Holdings, Inc.
November 2018
58.9%
Kures, Inc.
August 2019
54.1%
EntheogeniX Biosciences, Inc.
November 2019
80.0%
DemeRx IB, Inc.
December 2019
59.5%
Recognify Life Sciences, Inc.
November 2020
52.0%
PsyProtix, Inc.
February 2021
75.0%
Psyber, Inc.
February 2021
75.0%
InnarisBio, Inc.
March 2021
82.0%
Neuronasal, Inc.
May 2021
56.5%
TryptageniX Inc.
December 2021
65.0%
Investments Accounted for Under the Equity Method
Common Stock Ownership Percentage(1)
Investee
as of December 31, 2021
Innoplexus A.G.(2)
35.0%
COMPASS Pathways plc(3)
22.8%
GABA Therapeutics, Inc(4)
7.5%
Neuronasal, Inc(5)
N/A
(1)Common stock ownership percentage represents our common stock ownership percentage of our equity method investee’s outstanding common stock.
(2)In February 2021, we entered into a Share Purchase and Assignment Agreement to sell our shares of common and preferred stock held in Innoplexus to a current investor of Innoplexus. The transaction was accounted for as a secured financing as it did not qualify for sale accounting under ASC Topic 860, Transfers and Servicing. Refer to Note 5 to our consolidated financial statements appearing elsewhere in this Annual Report for further information.
(3)On August 7, 2020, as part of a corporate reorganization, all shareholders of COMPASS Pathfinder Holdings Limited exchanged their shares for newly issued shares of COMPASS Rx Limited. COMPASS Rx Limited was re-registered as a public limited company and renamed COMPASS Pathways plc, effective on August 21, 2020.
(4)We are deemed to have significant influence over this entity through our total ownership interest in the entity’s equity, including our investment in the respective entity’s preferred stock.
(5)Neuronasal common stock was accounted for under the equity method until the entity was consolidated on May 17, 2021.
Investments held at fair value
As permitted under Accounting Standards Codification 825, Financial Instruments, or ASC 825, we have elected the fair value option to account for our investment in common shares of IntelGenx. In accordance with ASC 825, we record this investment at fair value under the Other investments held at fair value in our consolidated balance sheets. We received the IntelGenx common shares, warrants and additional unit warrants in May 2021. The fair value of the investment in IntelGenx as of December 31, 2021 was $0. Refer to Note 5 to our consolidated financial statements appearing elsewhere in this Annual Report for further information.
Other Investments
Investee
Date First Acquired
Juvenescence Limited
June 2018
GABA Therapeutics, Inc.
August 2019
DemeRx NB, Inc.
December 2019
Neuronasal, Inc.(1)
December 2019
(1)Neuronasal common stock was accounted for under the equity method until the entity was consolidated on May 17, 2021.
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. The remaining deferred revenue balance related to the Otsuka Agreement is not material as of December 31, 2021. To date, there have been no milestones achieved under the Otsuka Agreement. License revenue of $20.4 million was recorded for the year ended December 31, 2021.
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, 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.
We do not allocate internal research and development expenses consisting of employee and contractor-related costs, to specific product candidate programs because these costs are deployed across multiple product candidate programs under research and development and, as such, are separately classified.
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 IPR&D expenses consist of acquired in-process research and development with no future alternative use based on the probability of clinical success. We expect our acquisition of IPR&D expenses to increase as we continue to grow and expand.
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, which include allocated expenses for rent and maintenance of facilities, 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 also have incurred increased expenses associated with being a public company, including increased costs for accounting, 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 Short Term Notes Receivable-Related Party
Changes in fair value of short term notes receivable-related party, including interest, consists of subsequent remeasurement of our short term notes receivable-related party with COMPASS for which we have elected the fair value option. The COMPASS notes were converted during 2020. See “-Liquidity and Capital Resources-Indebtedness” below for further discussion of our short term notes receivable - related party.
Change in Fair Value of Convertible Promissory Notes
Changes in fair value of convertible promissory notes consists of subsequent remeasurement of our convertible promissory notes for which we have elected the fair value option. The promissory notes were converted during 2020. See “-Liquidity and Capital Resources-Indebtedness” below for further discussion of our convertible promissory notes.
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 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.
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 the consolidated statements of operations. Subsequently, changes in fair value of the common shares, the warrants and additional unit warrants are recorded as a component of other income (expense), net in the consolidated statement of operations.
Unrealized Gain on Other Investments
In March 2020, we entered into a series of transactions including the purchase of additional shares of COMPASS Series A and Series B preferred stock under the secondary Series A preferred stock purchase agreement and the Series B preferred stock subscription agreement, respectively. In April 2020, COMPASS entered into a Series B preferred stock subscription agreement with other investors for issuance of its Series B preferred stock, which resulted in the automatic conversion of our COMPASS convertible notes receivable into shares of COMPASS Series B preferred stock. We remeasured our investment in COMPASS’ Series A preferred shares to fair value due to the observable price change in connection with COMPASS’ secondary Series A preferred stock purchase in March 2020 and recognized unrealized gains on other investments in the consolidated statements of operations in association with the transaction.
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.
Loss on Asset Acquisition of a Variable Interest Entity
Loss on asset acquisition of a VIE resulted from the purchase of shares of Recognify in November 2020. We measured the assets acquired, liabilities assumed and noncontrolling interest in the transaction based on their fair values as of the acquisition date, resulting in a loss of $0.5 million in our consolidated statements of operations for the year ended December 31, 2020.
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.
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 Income (Expense), net
Other income (expense), net consists principally of interest expense and impairment related to our other investments.
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. Accordingly, we maintain a full valuation allowance against net deferred tax assets as of December 31, 2021 in certain jurisdictions, consistent with prior periods, which primarily relate to our German and international tax loss carryforwards and temporary timing differences related to share-based compensation. We recognize net deferred tax assets with regard to two subsidiaries in the United States and the United Kingdom for which sufficient positive evidence exists, including current and projected future taxable income, that we believe it is more-likely-than-not that such 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. 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.
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, 2021 and December 31, 2020, 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.
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 and impairment 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, 2021 and 2020
Year Ended December 31,
$ Change
% Change
(in thousands, except percentages)
License revenue
$
20,376
$
-
20,376
100.0%
Operating expenses:
Research and development
47,956
11,408
36,548
320.4%
Acquisition of in-process research and development
15,480
12,020
3,460
28.8%
General and administrative
92,745
80,734
12,011
14.9%
Total operating expenses
156,181
104,162
52,019
49.9%
Loss from operations
(135,805
)
(104,162
)
(31,643
)
30.4%
Other income (expense), net:
Interest income
188.7%
Change in fair value of contingent consideration liability -
related parties
(1,133
)
1,306
(115.3%)
Change in fair value of short term notes receivable - related party
-
(718
)
(100%)
Change in fair value of convertible promissory notes
-
(16,974
)
16,974
(100%)
Change in fair value of derivative liability
(109
)
(72.7%)
Change in fair value of warrant liability
(87
)
-
(87
)
100.0%
Unrealized loss on other investments held at fair value
(12,346
)
-
(12,346
)
100.0%
Unrealized gain on other investments
-
19,856
(19,856
)
(100%)
Loss on conversion of convertible promissory notes
(513
)
-
(513
)
100.0%
Loss on asset acquisition of a variable interest entity
-
(504
)
(100%)
Gain on consolidation of a variable interest entity
3,543
-
3,543
100.0%
Foreign exchange gain (loss), net
8,481
(194
)
8,675
(4471.6%)
Other income (expense), net
(293
)
(652
)
(181.6%)
Total other income (expense), net
(796
)
2,349
(3,145
)
(133.9%)
Net loss before income taxes
(136,601
)
(101,813
)
(34,788
)
34.2%
Benefit from (provision for) income taxes
3,989
(305
)
4,294
(1407.9%)
Gain on dilution of equity method investment
16,923
-
16,923
100.0%
Losses from investments in equity method investees, net of tax
(58,555
)
(76,507
)
17,952
(23.5%)
Net loss
(174,244
)
(178,625
)
4,381
(2.5%)
Net income (loss) attributable to redeemable noncontrolling interests and
noncontrolling interests
(6,436
)
(8,782
)
2,346
(26.7%)
Net loss attributable to ATAI Life Sciences N.V. stockholders
$
(167,808
)
$
(169,843
)
$
2,035
-1.2%
License Revenue
License revenue was $20.4 million for the year ended December 31, 2021, which related to the Otsuka Agreement. The license revenue recognized during the year primarily relates to the delivery of the license to Otsuka, which occurred in March 2021. No license revenue was recognized for the year ended December 31, 2020.
Research and Development Expenses
The table and discussion below present research and development expenses for the years ended December 31, 2021 and 2020:
Year Ended December 31,
Change
% Change
(in thousands, except percentages)
Direct research and development expenses by program:
PCN-101 (Perception)
$
6,862
$
4,786
$
2,076
43.4
%
DMX-1002 (DemeRx IB)
3,583
1,396
2,187
156.7
%
RL-007 (Recognify)
2,492
2,346
1606.8
%
VLS-01 (Viridia)
2,378
-
2,378
100.0
%
EMP-01 (EmpathBio Inc)
1,534
-
1,534
100.0
%
KUR-101 (Kures)
1,488
2,570
(1,082
)
(42.1%)
RLS-01 (Revixia)
-
100.0
%
NN-01 (Neuronasal)
-
100.0
%
Novel drug delivery (InnarisBio)
-
100.0
%
Novel compounds (EntheogeniX)
34.4
%
Other (Introspect, Psyber, Psyprotix)
-
100.0
%
Unallocated research and development expenses:
-
Personnel expenses
25,244
1,805
23,439
1298.6
%
Professional and consulting services
200.8
%
Other
721.7
%
Total research and development expenses
$
47,956
$
11,408
$
36,547
320.4
%
Research and development expenses were $47.9 million for the year ended December 31, 2021, compared to $11.4 million for the year ended December 31, 2020. The increase of $36.5 million was primarily attributable to an increase of $23.4 million of personnel costs, which included $18.6 million in stock-based compensation and an increase of $12.4 million of direct costs at the platform companies as discussed below.
The $2.1 million increase in direct costs for PCN-101 was primarily due to an increase of $0.9 million in drug manufacturing costs, $0.6 million in clinical development costs, and $0.6 million in consulting and personnel related costs.
The $2.2 million increase in direct costs for DMX-1002 program was primarily due to an increase of $0.7 million in clinical development cost, $0.7 million in preclinical activities, $0.5 million in manufacturing, and $0.2 million increase in personnel related costs.
The $2.3 million increase in direct costs for RL-007 program was primarily due to an increase of $1.5 million in clinical development costs, $0.7 million of personnel related costs, which included $0.4 million of stock-based compensation expense and $0.2 million in manufacturing costs.
The direct costs for VLS-01 program were $2.4 million of manufacturing and control processes and other preclinical activities.
The direct costs for EMP-001 were $1.5 million of manufacturing and control processes costs and other preclinical activities.
The $1.1 million decrease in direct costs for KUR-101 was primarily due to a decrease in preclinical activities.
The direct costs for RLS-01 were $1.0 million of manufacturing and control processes costs and other preclinical activities.
The direct costs for NN-01, which are from the date of acquisition in May 2021, were $0.7 million of clinical development and personnel costs.
The direct costs for InnarisBio were $0.7 million of preclinical activities.
The $0.2 million increase is direct costs for EntheogeniX was primarily due to an increase in manufacturing and preclinical activities.
During the year ended December 31, 2021, we did not incur any significant direct costs in association with IntroSpect, Psyber, Psyprotix, TryptageniX and Invyxis ; direct costs associated with these programs were related to the ramp up of preclinical development and initial clinical-stage activities.
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:
NN-01 ('Neuronasal)
$
7,962
$
-
$
7,962
100.0%
Biosynthesis platform (TryptageniX)
6,546
-
6,546
100.0%
Novel drug delivery (InnarisBio)
-
100.0%
KUR-101 (Kures)
-
(120
)
(100.0%)
RL-007 (Recognify)
-
11,900
(11,900
)
(100.0%)
Total acquisition of in-process research and development
expense
$
15,480
$
12,020
$
3,460
28.8%
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. Acquisition of in-process research and development expenses was $12.0 million for the year ended December 31, 2020, which was IPR&D acquired from Recognify and Kures. The acquired IPR&D were all considered to have no future alternative use.
General and Administrative Expenses
General and administrative expenses were $92.7 million for the year ended December 31, 2021 compared to $80.7 million for the year ended December 31, 2020 . The increase of $12.0 million was largely attributable to an increase of $25.3 million in personnel costs and professional consulting fees, a $3.4 million increase in insurance costs, a $2.9 million increase in charitable donations and sponsorships, and a $3.3 million increase in other costs related to support of our platform growth and public company requirements. These increases were partially offset by a decrease of $23.0 million in non-cash stock compensation expense. For the year ended December 31, 2020, the Company recorded stock-based compensation expense of $61.5 million in connection with the convertible notes issued in October 2020. The stock-based compensation expense included in general and administrative expense attributed to stock options and restricted stock awards was $5.4 million for the year ended December 31, 2020.
Interest Income
Interest income for the years ended December 31, 2021 and 2020 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, 2021 and 2020 of $0.2 million and $0.1 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 as of December 31, 2021, resulting in income of $0.2 million and expense of $1.1 million being recognized for the years ended December 31, 2021 and 2020, respectively. The $1.1 million of expense recognized for the year ended December 31, 2020, was primarily attributable to Perception’s completion of its Phase 1 clinical trial in September 2020, which increased the probability of the milestone event occurring, and a potential license agreement with a third-party pharmaceutical company, which would include an upfront payment and additional milestone payments. For the year ended December 31, 2021, we recorded a $0.2 million income due to updates to the forecast assumptions and discount rate. There were no material changes in any of the significant assumptions used to determine the TryptageniX or InnarisBio Contentigent Consideration Liability for the year ended December 31, 2021.
Change in Fair Value of Short Term Notes Receivable-Related Party
Change in fair value of short term notes receivable with COMPASS for the year ended December 31, 2020 was $0.7 million. The COMPASS notes were converted during 2020. No change in fair value of short term notes receivable of related parties was recognized for the year ended December 31, 2021.
Change in Fair Value of Convertible Promissory Notes
Change in fair value of convertible promissory notes for the year ended December 31, 2020 was $17.0 million, which was primarily associated with the change in fair value of our 2020 convertible notes (the "2020 Notes"). The change in fair value of the 2020 Notes was
primarily attributable to an increase in the fair value of the underlying common stock in 2020 leading up to the conversion of the convertible promissory notes into our common shares in November 2020. No changes in fair value of convertible promissory notes were recognized for the year ended December 31, 2021 as the 2020 Notes were converted into our common shares in November 2020.
Change in Fair Value of Derivative Liability
Change in fair value of derivative liability was $41,000 for the year ended December 31, 2021, compared to $0.2 million for the year ended December 31, 2020. The $0.1 million increase was primarily due to the additional issuance of convertible promissory notes in January 2021 and the increased probability of a potential licensing transaction with a third-party pharmaceutical company and a decrease in the probability of a potential preferred equity financing round.
Change in Warrant Liability
Change in fair value of warrant liability was $87,000 for the year ended December 31, 2021. The warrant liability was recorded in connection with issued and outstanding warrants to purchase shares of Neuronasal's common stock acquired in connection with the acquisition of Neuronasal. The warrant liability was recorded in connection with the May 2021 acquisition of Neuronasal.
Unrealized Loss on Other Investments Held at Fair Value
In May 2021, we received IntelGenx common shares, 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 the consolidated statements of operations. Subsequently, changes in fair value of the common shares, the warrants and additional unit warrants are recorded as a component of other income (expense), net in the consolidated statement of operations. During the year ended December 31, 2021, we recognized $12.3 million of unrealized loss on other investments held at fair value.
Unrealized Gain on Other Investments
Unrealized gain on other investments for the year ended December 31, 2021 was zero compared to $19.9 million for the year ended December 31, 2020. The $19.9 million gain in 2020 mainly related to our remeasurement of our investment in COMPASS’ Series A preferred shares to fair value due to the observable price change in connection with the purchase of COMPASS’ Series A preferred stock in March 2020.
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 license and collaborative 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, 2020.
Loss on Asset Acquisition of a Variable Interest Entity
We did not incur loss on asset acquisition of a variable interest entity during the year ended December 31, 2021. Loss on asset acquisition of a variable interest entity was $0.5 million for the year ended December 31, 2020. This loss was related to our acquisition of Recognify in November 2020.
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, 2020.
Foreign Exchange Gain (Loss), Net
Foreign exchange gain (loss), net was a gain of $8.5 million for the year ended December 31, 2021 compared to a loss of $0.2 million for the year ended December 31, 2020. The increase of $8.5 million was 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 Income (Expense), Net
Other expense, net for the year ended December 31, 2021 was $0.3 million, compared to other income, net, of $0.4 million for the year ended December 31, 2020. The decrease of $0.7 million was primarily related to interest expense.
Benefit From (Provision For) Income Taxes
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. We incurred $0.3 million of current income tax expense for the year ended December 31, 2020. Our current income tax expense relates to book profits and thus taxable profits generated in one of our United States subsidiaries and our United Kingdom subsidiary. The deferred income tax benefit relates to deferred tax assets generated in the year ended December 31, 2021 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, with the exception of those previously noted, primarily related to German and international tax loss carryforwards 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.
Losses from Investments in Equity Method Investees
Losses from investment in equity method investees for the years ended December 31, 2021 and 2020 were $58.6 million and $76.5 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
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. Since our inception through December 31, 2021, sources of capital raised to fund our operations were comprised of aggregate gross proceeds of $630.0 million from sales of our common shares and convertible notes. As of December 31, 2021, we had cash and cash equivalents of $362.3 million.
Convertible Promissory Notes
In November 2018, we issued an aggregate principal amount of $0.2 million of convertible notes, or 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. In September and October 2021, several investors agreed to convert their 2018 Convertible Notes into shares of ATAI Life Sciences N.V. and paid an aggregate amount of €5.8 million ($6.9 million). 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 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 convertible promissory notes balance as of December 31, 2021 was $0.7 million.
Investments
While a significant potential source of liquidity resides in our investment in COMPASS ordinary 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 $211.4 million as of December 31, 2021. As of December 31, 2021, the carrying value of our investment in COMPASS was $16.1 million under the equity method. Through a series of open market transactions between November 23, 2021 and December 7, 2021 the Company purchased additional equity investments in COMPASS common stock. From the time of the additional investment through December 31, 2021, our voting interest in COMPASS was 22.8%.
Liquidity Risks
As of December 31, 2021, we had cash and cash equivalents of $362.3 million. We believe that our cash and cash equivalents will be sufficient to fund our projected operating expenses and capital expenditures through at least the next 12 months from the date of this Form 10-K.
We expect to incur substantial additional expenditures in the near term to support our ongoing activities. Additionally, we expect 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 atai 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. We do not currently have any committed external source of funds. 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, 2021 and 2020:
December 31,
(in thousands)
Net cash used in operating activities
$
(63,246
)
$
(20,766
)
Net cash used in investing activities
(81,276
)
(28,271
)
Net cash provided by financing activities
409,862
113,052
Effect of foreign exchange rate changes on cash
(320
)
3,169
Net increase (decrease) in cash
$
265,020
$
67,184
Net Cash Used in Operating Activities
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 operating activities was $20.8 million in the year ended December 31, 2020, which consisted of a net loss of $178.6 million, adjusted by non-cash charges of $153.5 million and net cash outflows from the change in operating assets and liabilities of $4.4 million. The non-cash charges primarily consisted of $76.5 million of losses from our equity method investments, $67.2 million related to our stock-based compensation, including the non-cash compensation expense of $61.5 million in connection with our convertible notes issued in October 2020 to related parties, $17.0 million of changes in fair value related to our convertible promissory note, $12.0 million of IPR&D considered to have no future alternative use and partially offset by $19.9 million of unrealized gains on our other investments. The net cash outflows from the change in operating assets and liabilities were primarily due to a $3.9 million increase in accrued and other liabilities and a $1.7 million increase in accounts payable, partially offset by a $1.2 million increase in prepaid expenses driven by materials and non-clinical trials.
Net Cash Used in Investing Activities
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 used in investing activities was $28.3 million for the year ended December 31, 2020, primarily driven by additional investments of $23.9 million in our other investments, $2.1 million of payments made for investments in GABA and Neuronasal accounted for under the equity method, $1.9 million of purchases of long-term notes receivable in connection with loans made to DemeRx, Inc. and a COMPASS shareholder of $1.0 million and $0.9 million, respectively, and $0.2 million of purchases of a short-term notes receivable in relation to a loan made to a related party.
Net Cash Provided by Financing Activities
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.
Net cash provided by financing activities was $113.1 million in the year ended December 31, 2020, primarily due to $82.4 million of net proceeds from the issuance of our common shares, $31.4 million of proceeds from the issuance of convertible promissory notes, including convertible promissory notes issued to related parties, and $1.0 million of net proceeds from the issuance of Perception's convertible promissory note.
Indebtedness
Convertible Notes
Between November 2018 and December 2021, we issued an aggregate of $34.3 million of convertible notes.
In November 2018, we issued an aggregate principal amount of $0.2 million of convertible notes, or 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 September and October 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. 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, 2021 an aggregate principal amount of $0.7 million remaining outstanding under the 2018 Convertible Notes.
During the year ended December 31, 2020, we issued an aggregate of $30.4 million of the 2020 Notes. The 2020 Notes accrue interest at a rate of 5% per annum and have a maturity date of January 31, 2022, unless previously redeemed, converted, purchased or cancelled. The 2020 Notes are convertible upon mandatory conversion events into shares of ATAI Life Sciences N.V., subject to certain dilution adjustments. In November 2020, all of the outstanding principal and accrued interest under the 2020 Notes was automatically converted into shares of common stock.
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 licensing and collaboration arrangement between Perception and Otsuka Pharmaceutical Co., LTD.
Promissory Note
In December 2019, we executed a promissory note payable to DemeRx IB whereby we agreed, under a contribution agreement and a Series A Preferred Stock Purchase Agreement, or the DemeRx IB SPA, to make aggregate payments to DemeRx IB of up to $17.0 million upon the achievement of specified clinical and regulatory milestones. As of December 31, 2021, we had made aggregate payments of $15.0 million pursuant to the DemeRx IB SPA.
Investment in Convertible Promissory Notes-Related Party
On September 27, 2019, we purchased convertible promissory notes from COMPASS for an aggregate principal amount of $4.0 million, and on November 6, 2019, we purchased an additional convertible promissory note for $4.2 million, together, the COMPASS Notes. The COMPASS Notes bear interest at an annual rate of 3%, which was considered contingent in nature and therefore no earned interest was
recorded. We qualified for and elected the fair value option. All principal amounts under the COMPASS Notes were converted into shares of COMPASS Series B preferred stock in connection with COMPASS’ sale of Series B preferred stock in April 2020.
On March 16, 2020, Perception Neuroscience entered into a convertible promissory note agreement with us and certain other unrelated investors, or the Perception Note Purchase Agreement, pursuant to which Perception Neuroscience issued $3.9 million in principal amount of convertible notes in aggregate. Under the Perception Note Purchase Agreement, Perception Neuroscience issued convertible notes, or the Perception Notes, in the aggregate principal amount of $3.3 million to us and $0.6 million to other investors, including related parties. The Perception Notes bear interest at an annual rate of 5% and are due and payable on June 30, 2022 unless earlier converted. In December 2020, Perception Neuroscience issued additional convertible notes to us, certain related parties and third party investors in the 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 Perception Note Purchase Agreement, Perception issued 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 Neuroscience issued additional convertible notes to us, certain related parties and third party investors in the 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 notes bear interest at an annual rate of 5% and are due and payable on February 28, 2022, unless earlier converted. Perception Neuroscience may not prepay in whole or in part without our consent.
In June 2021, Perception received proceeds of $20.0 million pursuant to the licensing and collaboration arrangement between Perception and Otsuka Pharmaceutical Co., LTD. Upon receipt of the proceeds, the convertible promissory notes automatically converted into 6,456,595 shares of Series A preferred stock of Perception pursuant to their original terms.
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 Form 10-K. 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 Form 10-K.
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.
As of December 31, 2021, we had made aggregate payments of $0.3 million pursuant to the Chiba License Agreement.
GABA Preferred Stock Purchase Agreement
We entered into the Preferred Stock Purchase Agreement, or the GABA PSPA, in August 2019 with GABA Therapeutics LLC, and purchased shares of Series A preferred stock of GABA at a price of approximately $5.5 million. In addition, pursuant to the GABA PSPA, we are obligated to purchase additional shares of Series A preferred stock, at the same price as the original transaction, for up to $10.0 million, upon the achievement of specified contingent development milestones.
In October 2020, we entered into an Omnibus Amendment Agreement, or the GABA Omnibus Amendment Agreement, with GABA and GABA Therapeutics LLC under which the Right of First Refusal and Co-Sale Agreement was amended. Pursuant to the GABA Omnibus
Amendment, GABA Therapeutics LLC granted us the right to purchase additional shares of common stock of GABA held by GABA Therapeutics LLC at the call option purchase price of $1.8 million. In November 2020, we exercised the call option and made a cash contribution of $1.8 million in exchange for additional shares of common stock of GABA.
In April 2021, pursuant to the GABA PSPA, we 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.
In May 2021, we purchased additional shares of Series A preferred stock prior to the achievement of certain development milestones for an aggregate cost of $5.0 million. The GABA PSPA terminates upon the occurrence of certain liquidation events.
In May 2021, we, GABA and GABA Therapeutics LLC entered into an Amendment Agreement under which the GABA PSPA was amended. Pursuant to the Amendment Agreement, we purchased additional shares of GABA Series A preferred stock at a price of approximately $0.6 million. We are obligated to purchase additional shares of GABA Series A preferred stock for up to $1.5 million with the same price per share as our initial investment upon the achievement of specified contingent development milestones.
Further in accordance with the GABA PSPA, we have 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 of the specified milestones. Additionally, we have the Right of First Refusal and Co-Sale Agreement with GABA Therapeutics LLC, under which we have the option but not the obligation to purchase shares of common stock for up to $2.0 million from the existing common shareholders.
As of December 31, 2021, we had made aggregate payments of $15.5 million pursuant to the GABA PSPA, $1.8 million pursuant to the GABA Omnibus Amendment Agreement and $0.6 million pursuant to the Amendment Agreement.
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.
As of December 31 2021, we had made no material payments pursuant to the Allergan License agreement.
Columbia Stock Purchase Agreement
In June 2020, Kures and Columbia entered into a stock purchase agreement, or the Kures SPA. Pursuant to the Kures SPA, Kures can, from time to time, 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, and shall be deemed to have been paid in partial consideration for the execution, delivery and performance by Columbia of the Kures License Agreement. If Kures proposes to sell any equity securities or securities convertible into equity securities, Columbia will have the right to purchase up to 5% of such securities. These rights shall terminate upon the occurrence of an IPO, if Kures becomes subject to periodic reporting requirements under Section 12(g) or 15(d) of the Exchange Act or certain liquidation events. Columbia also has certain co-sale rights. At the acquisition date, we recorded the fair value of the shares of Kures common stock issued to Columbia of $0.1 million to our additional-paid-in-capital and a debit to research and development expense.
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. 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 2021, 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 with Dalriada Drug Discovery Inc., or Dalriada. Under the Invyxis exclusive services and 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.
As of December 31, 2021, we had made no payments pursuant to the Dalriada License agreement.
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 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 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
We evaluate each of our 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, 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, 2021 and 2020, 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 in-process research and development (“IPR&D”) with no alternative future use is charged to research and development expense at the acquisition date.
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. 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.
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 initial public offering, 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, 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.
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.
As described in Note 2 to our consolidated financial statements included elsewhere in this Form 10-K, we have 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. 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.
We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, or December 31, 2026, (b) in which we have total annual gross revenues of $1.07 billion or more, or (c) in which we are deemed to be a large accelerated filer under the rules of the SEC, which means the market value of our outstanding common shares held by non-affiliates equal or exceeds $700 million as of last business day of our most recently completed second fiscal quarter, and (2) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years.

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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.
Interest Rate Sensitivity
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, 2021, we had cash and cash equivalents of $362.3 million. We generally hold our cash in interest-bearing demand deposit accounts. Due to the nature of our cash, 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 do not enter into investments for trading or speculative purposes.
As of December 31, 2021, we had $0.8 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, 2021, the carrying amount of our short and long-term notes receivables was an aggregate amount of $4.7 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.
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
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Loss
Consolidated Statements of Redeemable Convertible Noncontrolling Interests and Changes in Stockholders’ Equity
Consolidated Statements of Cash Flows
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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, 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
Parsippany, New Jersey
March 30, 2022
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
$
362,266
$
97,246
Prepaid expenses and other current assets
11,903
2,076
Short term notes receivable
-
Short term notes receivable - related party
-
Total current assets
375,082
99,548
Property and equipment, net
Deferred offering costs
-
1,575
Equity method investments
16,131
-
Other investments
11,628
8,044
Long term notes receivable
-
Long term notes receivable - related parties
3,835
1,060
Other assets
7,341
Total assets
$
414,166
$
111,548
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable
6,004
3,083
Accrued liabilities
14,829
9,215
Current portion of contingent consideration liability - related parties
-
Other current liabilities
-
Total current liabilities
20,935
12,298
Non-current portion of contingent consideration liability - related parties
2,432
1,705
Convertible promissory notes - related parties, net of discounts and deferred issuance
costs
1,199
Convertible promissory notes and derivative liability (including a related party
convertible promissory note and derivative liability of $0 million and $0.3
million at December 31, 2021 and December 31, 2020, respectively)
-
Other liabilities
4,097
-
Total liabilities
28,207
16,180
Commitments and contingencies (Note 15)
Stockholders’ equity:
Common stock, €0.10 par value ($0.12 par value at December 31, 2021 and December
31, 2020, respectively); 750,000,000 and 173,116,704 shares authorized at December
31, 2021 and December 31, 2020, respectively; 160,677,001 and 114,735,712 shares
issued and outstanding at December 31, 2021 and December 31, 2020, respectively
18,002
13,372
Additional paid-in capital
725,045
261,626
Accumulated other comprehensive income (loss)
(8,336
)
5,819
Accumulated deficit
(357,803
)
(189,995
)
Total stockholders’ equity attributable to ATAI Life Sciences N.V. stockholders
376,908
90,822
Noncontrolling interests
9,051
4,546
Total stockholders’ equity
385,959
95,368
Total liabilities and stockholders’ equity
$
414,166
$
111,548
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)
Year Ended December 31,
License revenue
$
20,376
$
-
Operating expenses:
Research and development
47,956
11,408
Acquisition of in-process research and development
15,480
12,020
General and administrative
92,745
80,734
Total operating expenses
156,181
104,162
Loss from operations
(135,805
)
(104,162
)
Other income (expense), net:
Interest income
Change in fair value of contingent consideration liability -
related parties
(1,133
)
Change in fair value of short term notes receivable - related party
-
Change in fair value of convertible promissory notes
-
(16,974
)
Change in fair value of derivative liability
Change in fair value of warrant liability
(87
)
-
Unrealized loss on other investments held at fair value
(12,346
)
-
Unrealized gain on other investments
-
19,856
Loss on conversion of convertible promissory notes
(513
)
-
Loss on asset acquisition of a variable interest entity
-
(504
)
Gain on consolidation of a variable interest entity
3,543
-
Foreign exchange gain (loss), net
8,481
(194
)
Other income (expense), net
(293
)
Total other income (expense), net
(796
)
2,349
Net income (loss) before income taxes
(136,601
)
(101,813
)
Benefit from (provision for) income taxes
3,989
(305
)
Gain on dilution of equity method investment, net of tax
16,923
-
Losses from investments in equity method investees, net of tax
(58,555
)
(76,507
)
Net loss
(174,244
)
(178,625
)
Net income (loss) attributable to redeemable noncontrolling interests and noncontrolling interests
(6,436
)
(8,782
)
Net loss attributable to ATAI Life Sciences N.V. stockholders
$
(167,808
)
$
(169,843
)
Net loss per share attributable to ATAI Life Sciences N.V.
stockholders - basic and diluted
$
(1.21
)
$
(1.83
)
Weighted average common shares outstanding attributable to ATAI
Life Sciences N.V. stockholders - basic and diluted
138,265,859
93,019,072
See accompanying notes to the consolidated financial statements.
ATAI LIFE SCIENCES N.V.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(Amounts in thousands)
Year Ended December 31,
Net loss
$
(174,244
)
$
(178,625
)
Other comprehensive loss:
Foreign currency translation adjustments, net of tax
(14,155
)
7,245
Comprehensive income (loss)
$
(188,399
)
$
(171,380
)
Comprehensive income (loss) attributable to redeemable
noncontrolling interests and noncontrolling interests
(6,436
)
(8,782
)
Foreign currency translation adjustments, net of tax attributable to
noncontrolling interests
(24
)
(13
)
Comprehensive loss attributable to redeemable noncontrolling
interests and noncontrolling interests
(6,460
)
(8,795
)
Comprehensive income (loss) attributable to ATAI Life Sciences
N.V. stockholders
$
(181,939
)
$
(162,585
)
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)
Accumulated
Total
Other
Stockholders’
Redeemable
Additional
Share
Comprehensive
Equity Attributable to
Total
Noncontrolling
Common Stock
Paid-In
Subscriptions
Income
Accumulated
ATAI Life Sciences N.V.
Noncontrolling
Stockholders’
Interests
Shares
Amount
Capital
Receivable
(Loss)
Deficit
Stockholders
Interests
Equity
Balances at December 31, 2019
$
90,709,312
$
10,510
$
69,819
$
-
$
(1,426
)
$
(20,152
)
$
58,751
$
$
59,638
Issuance of common shares, net of issuance
costs of $5.2 million
-
14,933,344
1,756
75,456
-
-
-
77,212
-
77,212
Exercise of stock options
-
320,000
-
-
-
-
Issuance of common shares in connection
with the conversion of 2020 Convertible
Promissory Notes (Note 11)
-
8,773,056
1,068
48,991
-
-
-
50,059
-
50,059
Issuance of noncontrolling interest
-
-
-
-
-
-
-
-
12,312
12,312
Issuance of subsidiary shares in connection
with the Columbia stock purchase
agreement (Note 17)
-
-
-
-
-
-
-
Stock-based compensation expense
-
-
-
67,158
-
-
-
67,158
-
67,158
Foreign currency translation adjustment, net
of tax
-
-
-
-
-
7,245
-
7,245
(13
)
7,232
Net income (loss)
(142
)
-
-
-
-
-
(169,843
)
(169,843
)
(8,640
)
(178,483
)
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
See accompanying notes to the consolidated financial statements.
ATAI LIFE SCIENCES N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year Ended December 31,
Cash flows from operating activities
Net loss
$
(174,244
)
$
(178,625
)
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
(173
)
1,133
Change in fair value of short term notes receivable - related parties
-
(718
)
Change in fair value of convertible promissory notes
-
16,974
Change in fair value of derivative liability
(41
)
(150
)
Change in fair value of warrant liability
-
Unrealized loss on other investments held at fair value
12,346
-
Unrealized gains on other investments
-
(19,856
)
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
)
-
Loss on asset acquisition of a variable interest entity
-
Losses from investments in equity method investees
58,555
76,507
In-process research and development expense
15,480
12,020
Stock-based compensation expense
63,362
67,158
Unrealized foreign exchange gains
(11,346
)
(155
)
Other
(96
)
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
(9,699
)
(1,150
)
Other assets
(5,973
)
-
Accounts payable
2,300
1,704
Accrued liabilities
5,756
3,896
Deferred revenue
-
Net cash used in operating activities
(63,246
)
(20,766
)
Cash flows from investing activities
Purchases of property and equipment
(173
)
(59
)
Capitalized internal-use software development costs
(955
)
-
Cash acquired in asset acquisitions, net
Cash paid for asset acquisitions, net
(1,000
)
-
Cash paid for equity method investments
(52,937
)
(2,088
)
Cash paid for other investments
(11,312
)
(23,920
)
Cash paid for other investments held at fair value
(12,346
)
-
Purchases of short-term notes receivable-related party
-
(226
)
Purchases of long term notes receivable
-
(1,916
)
Loans to related parties
(2,600
)
-
Other
-
(338
)
Net cash used in investing activities
(81,276
)
(28,271
)
Cash flows from financing activities
Proceeds from issuance of common stock
409,884
82,439
Cash paid for common stock issuance costs
(12,350
)
(1,314
)
Purchase of noncontrolling interest
-
-
Cash paid for deferred offering costs
-
(696
)
Proceeds from issuance of share option awards
-
Proceeds from sale of investment
2,417
-
Proceeds from issuance of convertible promissory notes-related parties
-
1,022
Proceeds from issuance of convertible promissory notes
-
30,437
Proceeds from the issuance of convertible promissory notes (including proceeds from a related party convertible promissory note of $0.3 million for 2020)
1,588
1,044
Exercise of stock options
Proceeds from conversion of convertible notes to common stock
6,854
-
Net cash provided by financing activities
409,862
113,052
Effect of foreign exchange rate changes on cash
(320
)
3,169
Net increase (decrease) in cash and cash equivalents
265,020
67,184
Cash and cash equivalents - beginning of the period
97,246
30,062
Cash and cash equivalents - end of the period
$
362,266
$
97,246
Supplemental disclosures of non-cash investing and financing information:
Common stock issuance costs in accounts payable
$
-
$
Common stock issuance costs in accrued liabilities
$
-
$
3,819
Conversion of short term notes receivable for other investments
$
-
$
9,003
Conversion of other investments into equity method investments
$
-
$
53,101
Deferred offering costs in accounts payable
$
-
$
Deferred offering costs in accrued liabilities
$
-
$
Fair value of noncontrolling interests issued in connection with asset acquisitions
$
4,761
$
12,312
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
$
-
Issuance of common shares in connection with the conversion of convertible promissory notes
$
-
$
50,059
Issuance of subsidiary shares in connection with a stock purchase agreement
$
-
$
Issuance of subsidiary shares in connection with the conversion of convertible notes
$
3,258
$
-
Exercise of Hurdle Share Option Plan award
$
$
-
Issuance of derivative instrument related to convertible promissory notes
$
$
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 stock on the Nasdaq Stock Market ("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 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 twelve months ended December 31, 2021. Although some research and development timelines have been impacted by delays related to the COVID-19 pandemic, the Company has not experienced material financial impacts on its business and operations as a result. 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. For a discussion of the risks to the Company's business from COVID-19, refer to the section titled “Risk Factors” in Part I, Item 1A.
Liquidity and Going Concern
The Company has incurred significant losses and negative cash flows from operations since its inception. As of December 31, 2021, the Company had cash and cash equivalents of $362.3 million and its accumulated deficit was $357.8 million. The Company has historically financed its operations through the sale of equity securities, 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 as of December 31, 2021 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”). 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.
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 short term notes receivable-related party with COMPASS Pathways plc, investment in Intelgenx Technologies Corp. (“IntelGenx”), warrant liability with Neuronasal Inc., convertible promissory notes issued in connection with the 2020 convertible note agreement (the “2020 Convertible Notes”), contingent consideration liability-related parties, derivative liability associated with the Perception convertible promissory notes, in-process research and development assets (“IPRD”), 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, 2021 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, 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 deemed to be limited based on the Company’s evaluation and monitoring of the liquidity and capital resources of the counterparties. 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.
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).
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, 2021 and 2020, 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 in-process research and development (“IPR&D”) with no alternative future use is charged to research and development expense at the acquisition date.
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, 2021 and December 31, 2020, cash and cash equivalents consisted of cash on deposit and cash held in high-yield savings accounts and money market funds.
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 in-process research and development (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, 2021 and 2020.
Other Investments Held at Fair Value
As permitted under Accounting Standards Codification 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 the 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.
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, 2021, 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 12 months from the balance sheet date.
Fair Value Option
The Company has also elected the fair value option to account for its short term notes receivable-related party with COMPASS Pathways plc and the 2020 Convertible Notes. In accordance with ASC 825, the Company records the short term notes receivable - related party with COMPASS Pathways plc and the 2020 Convertible Notes at fair value with changes in fair value recorded as a component of other income (expense), net in the consolidated statements of operations. The 2020 Convertible Notes converted into common shares of atai in November 2020. The short term notes receivable-related party with COMPASS Pathways plc converted into COMPASS common shares, which were exchanged for American Depository Shares in September 2020.
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 and Derivative Instruments
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 have been 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, 2021.
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 R&D.
Warrant Liability
The Company accounts for its warrant liabilities in accordance with the guidance contained in ASC 815-40 under which the warrants do not meet the criteria for equity treatment and therefore must be recorded as liabilities. Warrants are included in other liabilities in the consolidated balance sheet. The warrants are recorded at fair value and subsequently remeasured to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized as a component of other income (expense), net in the consolidated statements of operations.
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.
The expected share price volatility for the Company’s common shares is estimated by taking the average historical price volatility for industry peers. 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, 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, investment in common shares of IntelGenx, IntelGenx Initial Warrants and Additional Units Warrant, 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, 2021, the carrying amount and fair value amount of the 2018 Convertible Notes was $0.8 million and $69.7 million, respectively. As of December 31, 2020, the carrying amount and fair value amount of the 2018 Convertible Notes was $1.2 million and $76.7 million, respectively. Subsequent to the IPO, several noteholders of the 2018 Convertible Notes elected to convert their promissory notes into shares of the Company's common stock. 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, 2021, there were no Perception convertible promissory notes outstanding. As of December 31, 2020, the carrying amount and fair value amount for Perception convertible promissory notes was $0.8 million and $4.6 million, respectively. 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 August 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for the Company for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years, with early adoption permitted. The Company early adopted this standard on January 1, 2021 applying the modified retrospective transition approach. Upon adoption of ASU 2020-06, the embedded conversion option related to the 2018 Convertible Notes is no longer separated from the host contract and recognized within additional paid-in-capital and is instead accounted for as a single liability measured at amortized cost within convertible promissory notes-related parties in the consolidated balance sheets. Therefore, the unamortized debt discount of $8,000 was eliminated.
Recently Issued Accounting Pronouncements Not Yet Adopted
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” or ASU No. 2016-02, which is a comprehensive new lease standard that amends various aspects of existing accounting guidance for leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-02 is effective for the Company beginning after December 15, 2021. Early adoption is permitted. In July 2018, the FASB issued ASU 2018-11 Leases - Targeted Improvements, or ASU 2018-11, intended to ease the implementation of the new lease standard for financial statement preparers by, among other things, allowing for an additional transition method. In lieu of presenting transition requirements to comparative periods, as previously required, an entity may now elect to show a cumulative effect adjustment on the date of adoption without the requirement to recast prior period financial statements or disclosures presented in accordance with ASU 2016-02.
The new standard provides a number of optional practical expedients in transition. We expect to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We do not expect to elect the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to us.
While we continue to assess all of the effects of adoption, we currently believe the most significant effects relate to (1) the recognition of new ROU assets and lease liabilities on our balance sheet for our real estate operating leases and (2) providing significant new disclosures for our leasing activities.
The new standard also provides practical expedients and certain exemptions for an entity’s ongoing accounting. We currently expect to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also currently expect to elect the practical expedient to not separate lease and non-lease components for all of our leases.
We have determined the completeness of our lease population as of January 1, 2022. We expect to complete our assessment of the full financial impact of ASC 842 during the first quarter of 2022, and will include all required presentation and disclosures under ASC 842 in our Form 10-Q for the three months ending March 31, 2022.
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 such, ASU 2016-13 is effective for the Company beginning after December 15, 2022. The Company is currently assessing the impact of the adoption of this ASU on its consolidated financial statements.
3. Acquisitions
2020 Acquisition
Recognify Life Sciences, Inc.
Recognify Life Sciences Inc. (“Recognify”) (previously known as FSV7, Inc.) is developing a Phase II-ready asset, previously tested in 9 clinical trials in over 500 subjects, which preliminarily exhibited pro-cognitive effects on exploratory endpoints in pain patients as well as in two volunteer trials involving experimental cognitive paradigms. On November 6, 2020, pursuant to a Series A Preferred Stock Purchase Agreement (the “Recognify Purchase Agreement”), the Company acquired shares of Recognify’s Series A preferred stock in exchange for an initial payment of $2.0 million in cash. In addition, pursuant to the Recognify Purchase Agreement, the Company agreed to make aggregate payments to Recognify of up to $18.0 million upon the achievement of specified clinical and regulatory milestones to complete the purchase of the shares and provide additional funding to Recognify. The Recognify Purchase Agreement resulted in the Company holding a 51.9% voting interest in Recognify. In connection with the Company’s agreement for additional funding, Recognify issued the corresponding Series A preferred shares to the Company provided that the shares are held in an escrow account (the “Escrow Shares”). The Escrow Shares will be released, from time to time, to the Company upon Recognify achieving certain milestones as defined in the Recognify 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 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, a pro rata portion of the Escrow Shares will automatically be surrendered and be deemed forfeited and canceled, and could result in the Company losing control of Recognify’s board of directors and its controlling financial interest in Recognify.
In addition, the Recognify Purchase Agreement provided the Company unilateral rights to control all decisions related to the significant activities of Recognify. The Company concluded that Recognify was not considered a business based on its assessment under ASC 805 and accounted for the Company’s acquisition in Recognify 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 loss of $0.5 million. The loss was calculated as the sum of the consideration paid of $2.0 million, the fair value of the noncontrolling interest issued of $12.3 million, less the fair value of identifiable net assets acquired of $13.8 million. The fair value of the IPR&D acquired of $11.9 million was charged to research and development expense as it had no alternative future use at the time of the acquisition.
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, 2021, 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 twelve months 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.
In July 2021, pursuant to the Psyber Purchase Agreement discussed above, the Company released a payment in the amount of $0.7 million upon the achievement of specified clinical milestones. Accordingly, 2,437,500 Series A Preferred Stock was released from the escrow account to atai. The Company's equity ownership interest in Psyber remained unchanged as the Psyber Escrow Shares were already deemed issued, outstanding and legally owned by atai.
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 twelve months 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 twelve months ended December 31, 2021 as it had no alternative future use at the time of the acquisition.
In November 2021, pursuant to the InnarisBio Purchase Agreement discussed above, the Company released a payment in the amount of $1.2 million upon the achievement of specified clinical milestones. Accordingly, 1,238,000 Series A Preferred Stock was released from the escrow account to atai. The Company's equity ownership interest in InnarisBio remained unchanged as the InnarisBio Escrow Shares were already deemed issued, outstanding and legally owned by atai.
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.
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. For the acquisitions further described in Note 3, the Company determined that Recognify Life Sciences, Inc., PsyProtix, Inc., Psyber, Inc., InnarisBio, Inc., Neuronasal, Inc., and TryptageniX Inc. are VIEs as each entity does not have sufficient equity at risk to carry out its principal activities without additional subordinated financial support.
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, 2021.
As of December 31, 2021 and December 31, 2020, the Company has accounted for the following consolidated investments as VIEs, excluding the wholly owned subsidiaries:
Consolidated Entities
Relationship as of
December 31, 2021
Relationship as of
December 31, 2020
Date
Control
Obtained
Ownership %
December 31,
Ownership %
December 31,
Perception Neuroscience Holdings, Inc.
Controlled VIE
Controlled VIE
November 2018
58.9%
50.1%
Kures, Inc.
Controlled VIE
Controlled VIE
August 2019
54.1%
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
-
February 2021
75.0%
-
Psyber, Inc.
Controlled VIE
-
February 2021
75.0%
-
InnarisBio, Inc.
Controlled VIE
-
March 2021
82.0%
-
Neuronasal, Inc.
Controlled VIE
Investment
May 2021
56.5%
37.2%
TryptageniX Inc.
Controlled VIE
-
December 2021
65.0%
-
As of December 31, 2021 and December 31, 2020, 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 500,000 shares of Class A common stock for an aggregate purchase price of $0.5 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, 2021 and December 31, 2020, 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, 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
The following table presents the assets and liabilities (excluding intercompany balances that were eliminated in consolidation) for all consolidated VIEs as of December 31, 2020 (in thousands):
Perception
Kures
EntheogeniX
DemeRx IB
Recognify
Assets:
Current assets:
Cash
$
6,527
$
1,264
$
$
7,252
$
1,895
Prepaid expenses and other current assets
-
Total current assets
7,295
1,388
7,445
1,939
Property and equipment, net
-
-
-
-
Long term notes receivable
-
-
-
1,060
-
Total assets
$
7,299
$
1,388
$
$
8,505
$
1,939
Liabilities:
Current liabilities:
Accounts payable
$
$
$
$
$
Accrued liabilities
Total current liabilities
Convertible promissory notes and derivative liability
-
-
-
-
Contingent consideration liability
1,705
-
-
-
-
-
Total liabilities
$
3,544
$
$
$
$
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
Kures
Recognify
Psyber
InnarisBio
Neuronasal
TryptageniX
Total
Balance as of December 31, 2019
$
$
$
-
$
-
$
-
$
-
$
-
$
Issuance of noncontrolling interests
-
-
12,312
-
-
-
-
12,312
Net income (loss) attributable to noncontrolling
interests - common
-
-
(6,508
)
-
-
-
-
(6,508
)
Net income (loss) attributable to noncontrolling
interests - preferred
(474
)
(400
)
(1,258
)
-
-
-
-
(2,132
)
Comprehensive loss attributable to noncontrolling
interests
(13
)
-
-
-
-
-
-
(13
)
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
Redeemable Noncontrolling Interests
In connection with the consolidation of 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.
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, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, the balance of redeemable noncontrolling interests in temporary equity on the consolidated balance sheets was zero.
The following table provides a rollforward of the redeemable noncontrolling interests balance (in thousands):
Kures
Neuronasal
Total
Balance as of December 31, 2019
$
$
-
$
Net loss attributable to redeemable noncontrolling interests -
preferred
(142
)
-
(142
)
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 and a VOEs
The Company evaluated the nature of its investments in Innoplexus AG (“Innoplexus”) and DemeRx NB, Inc. (“DemeRx NB”) and determined that the investments are VIEs as of the date of the Company’s initial investment through December 31, 2021. 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, 2021 and December 31, 2020.
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, 2021, the Company’s maximum exposure for its non-consolidated VIEs was $11.6 million relating to the carrying values in other investments and other investments held at fair value and $3.8 million relating to the carrying value in long term notes receivable - related party. As of December 31, 2020, the Company’s maximum exposure for its non-consolidated VIEs was $8.0 million relating to the carrying values in its other investments and $0.2 million relating to the carrying value in short term notes receivable-related party.
The Company evaluated the nature of its investment in GABA Therapeutics, Inc. (“GABA”) and determined that GABA was a VIE through May 21, 2021 when the Company exercised its option to purchase additional shares of Series A Preferred stock for an aggregate purchase price of $5.0 million (see Note 5). Prior to the option exercise, the Company was not the primary beneficiary as it did not have the power to direct the activities that most significantly impact the investment’s economic performance and therefore concluded that it did not
have a controlling financial interest that would require consolidation through May 21, 2021. 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 (See Note 5).
As disclosed in Note 5, as of December 31, 2021, the Company is obligated to purchase additional shares of Series A preferred stock of GABA for up to $1.5 million upon the achievement of certain specified contingent clinical development milestones.
The Company had an investment in COMPASS Pathways plc (formerly known as Compass Pathfinder Holding Limited) (“COMPASS”) which was determined to be an investment in a VIE as of December 31, 2019 and through the date prior to its initial public offering in September 2020 (“COMPASS IPO”); however, the Company was not the primary beneficiary as it did not have the power to direct the activities that most significantly impact the investment’s economic performance and therefore concluded that it did not have a controlling financial interest that would require consolidation during the period between December 31, 2019 and through September 2020. The completion of the COMPASS IPO in September 2020 was deemed to be a reconsideration event. Upon the completion of the COMPASS IPO, the Company’s investment in COMPASS was no longer deemed an investment in a VIE as COMPASS now had sufficient equity at risk to finance its activities 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. From the date of the COMPASS IPO through December 31, 2020, the Company’s voting interest was 26.3% which included the voting rights provided under the voting agreements as further described in Note 5 below. In April 2021, the voting agreements were terminated. On May 4, 2021, the Company purchased additional equity investments in COMPASS common stock in connection with a secondary equity offering, after which, the Company’s voting interest was 19.7%. Subsequently through a series of open market transactions between November 23, 2021 and December 7, 2021 the Company purchased additional equity investments in COMPASS common stock. From the time of the additional investment through December 31, 2021, the Company’s voting interest was 22.8%. The Company concluded that it did not have a controlling financial interest that would require consolidation under the VOE model and accounted for the investments in COMPASS common stock under the equity method (See Note 5).
5. Equity Method Investments and Other Investments
Equity Method Investments
As of December 31, 2021 and December 31, 2020, the Company accounted for the following investments in the investee’s common stock under the equity method (amounts in thousands):
As of December 31, 2021
As of December 31, 2020
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(2)
December 2018
22.8%
16,131
22.1%
-
GABA Therapeutics, Inc
November 2020
7.5%
(1)
-
7.5%
(1)
-
Neuronasal, Inc
October 2020
N/A
(3)
-
9.8%
(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.
(2)Prior to the consummation of the COMPASS IPO in September 2020, COMPASS undertook a corporate reorganization. As part of the corporate reorganization, COMPASS became a wholly owned subsidiary of COMPASS Rx Limited. COMPASS Rx Limited was re-registered as a public limited company and renamed COMPASS Pathways plc.
(3)Neuronasal common stock was accounted for under the equity method until the entity was consolidated on May 17, 2021 (See Note 3).
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, 2021 and December 31, 2020, 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.
$
10,260
$
5,519
DemeRx NB, Inc.
1,024
1,096
Juvenescence Limited
Neuronasal, Inc.
-
1,061
Total
$
11,628
$
8,044
The Company’s investments in the preferred stock of COMPASS though the date of its IPO in September 2020, Neuronasal (through May 2021), 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, 2021 and 2020 there were no observable changes in price recorded related to the Company’s Other Investments.
During the years ended December 31, 2021 and 2020, the Company evaluated all of its other investments to determine if certain events or changes in circumstance during these time periods in 2021 and 2020 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 were reflected as a secured borrowing liability of $2.4 million as of December 31, 2021, which is included in Other liabilities in the Company’s consolidated balance sheet. 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, 2021.
The carrying value of the Company’s investment in Innoplexus was zero as of December 31, 2021 and December 31, 2020.
COMPASS Pathways plc
COMPASS Pathways plc 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
During the first quarter of 2020, the Company’s investment in COMPASS common stock, which was accounted for under the equity method, was reduced to zero after the Company recognized its proportionate share of COMPASS’ net loss from investments in equity method investees. Immediately prior to the completion of the COMPASS IPO, the different classes of issued share capital of COMPASS Pathways plc were reorganized into a single class of ordinary shares through a reverse share split. Accordingly, all of the Company’s outstanding shares of COMPASS, including 7,052,003 shares of COMPASS preferred stock were converted into 7,935,663 new ordinary shares of COMPASS Pathways plc. Upon the COMPASS Preferred Stock Conversion, the Company accounted for the transaction under the equity method and recorded the carrying value of the Company’s investment in COMPASS’ ordinary shares of $53.1 million in equity method investments in the consolidated balance sheets. Concurrently, with the consummation of the COMPASS IPO, all of the Company's investment in COMPASS ordinary shares were converted into American Depository Shares ("ADS"). Accordingly, immediately after the COMPASS IPO, the Company holds 7,935,663 ADS in COMPASS Pathways plc. The COMPASS ADS have identical rights including voting rights as the ordinary shares issued and outstanding.
The carrying value of the investment in COMPASS ordinary shares was reduced to zero at the time of the COMPASS Preferred Stock Conversion due to IPR&D charge with no alternative future use. Since the Company has no obligation to provide financing support to COMPASS, the Company is not required to record further losses exceeding the carrying value of the investment. As of December 31, 2020, the Company owned 26.3% of COMPASS ADS, which includes voting interests through affiliate entities. Based on quoted market prices, the market value of the Company’s ownership in COMPASS was $378.1 million as of December 31, 2020.
On May 4, 2021, COMPASS completed an additional round of equity financing through the offering of 4,000,000 ADS. The Company participated in this financing round but did not purchase enough shares to maintain its ownership percentage. The Company acquired 140,000 ADS at an aggregate price of $5.0 million which resulted in a decrease in the Company’s equity ownership percentage in COMPASS and a gain on dilution of $16.9 million. Following the acquisition, the Company's ownership of COMPASS ADS was 19.7%. The additional shares purchased was not made to fund prior period losses.
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 ADS at an aggregate purchase price of $47.4 million. The additional shares acquired resulted in an increase in the Company’s ownership of COMPASS ADS 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 recently completed its Phase IIb clinical trial. 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. For the year ended December 31, 2021, the Company recognized losses from investments in equity method investees, net of tax of $41.3 million in association with the basis difference charge in the Company’s consolidated statements of operations. As of December 31, 2021, the Company owned 22.8% of COMPASS ADS. Based on quoted market prices, the market value of the Company’s ownership in COMPASS was $211.4 million as of December 31, 2021.
From the original acquisition of COMPASS common shares in December 2018 through the COMPASS IPO, the Company is deemed to have significant influence over COMPASS through its ownership interest in COMPASS’ equity, including the Company’s investment in COMPASS preferred stock, and the Company’s noncontrolling representation on the COMPASS’ board of directors. Accordingly, the Company’s investment in COMPASS’ common stock was accounted for in accordance with the equity method. The Company’s investment in COMPASS’ preferred stock did not meet the criteria for in-substance common stock. As such, the investment in COMPASS’ preferred stock was accounted for under the measurement alternative as discussed below. Upon the completion of the COMPASS IPO and through December 31, 2021, the Company is deemed to continue to have significant influence over COMPASS primarily through its ownership interest in COMPASS’ equity and representation on COMPASS board of directors. Accordingly, the Company’s investment in COMPASS’ common stock was accounted for in accordance with the equity method through December 31, 2021.
In December 2020, the Company entered into two voting agreements with COMPASS registered shareholders. The voting agreements provided the Company the voting rights attached to the COMPASS ordinary shares held by such COMPASS shareholders. As of December 31, 2020, the Company held 26.3% voting interest in COMPASS, which included the voting rights provided under the voting agreements. The voting agreements did not provide the Company control over COMPASS nor additional board seats and therefore had no impact on the Company’s investment in COMPASS under the equity method. In April 2021, both voting agreements were terminated.
During the years ended December 31, 2021 and 2020, the Company recognized its proportionate share of COMPASS’ net loss of $10.5 million and $20.6 million, respectively, as losses from investments in equity method investees, net of tax on the consolidated statements of operations. During the year ended December 31, 2020, the Company’s proportionate share of COMPASS’ net loss was more than the Company’s proportionate share using the common stock ownership percentage described above because the aggregate net losses attributable to the Company’s investment in COMPASS common stock reduced the carrying amount to zero in the first quarter of 2020.
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, 2021. 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 twelve months ended December 31, 2021, the Company recognized its proportionate share of GABA’s net loss of $5.0 million 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. 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, 2021 and December 31, 2020, 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. 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. The contingent obligation to purchase additional shares of Series A preferred stock from GABA was $1.5 million as of December 31, 2021.
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.
The Company has evaluated the contingent obligation (forward) and option and concluded that they both: (i) represent freestanding financial instruments as they are legally detachable and separately exercisable from the underlying shares; and (ii) are equity securities under ASC 321. The Company accounted for the contingent obligation based on the measurement alternative under ASC 321 which is included in Other Investments as of December 31, 2021 and December 31, 2020.
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 twelve months ended December 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, 2021 and December 31, 2020.
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” 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 has less than 20% of ownership interest in DemeRx NB and a noncontrolling representation on the board. The investment in DemeRx NB was recorded in Other Investments on the consolidated balance sheets under the measurement alternative under ASC 321.
In accordance with the DemeRx NB PSPA, the Company also has the option but not the obligation to purchase additional shares of Series A preferred stock at a purchase price of up to $19.0 million with the same price per share as its initial investment. As of December 31, 2021, the Company has not exercised its option to purchase any shares of Series A preferred stock of DemeRx NB. The Company has evaluated the option and concluded that it: (i) represents a freestanding financial instrument as it is legally detachable and separately exercisable from the underlying shares; and (ii) is an equity security under ASC 321. The Company accounted for the option based on the measurement alternative under ASC 321, which is included in Other Investments as of December 31, 2021 and December 31, 2020.
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 for a period of three years from the closing of the initial investment. 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 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. No material research and development services have been performed as of 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. During the year ended December 31, 2021, the Company recognized a mark-to-market ("MTM") loss due to the change in fair value of the investment in IntelGenx’s common stock and Warrants of $3.0 million and $9.4 million, respectively, in the consolidated statements of operations, which reduced the carrying amount of the investment to zero.
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, 2021
Compass
Neuronasal(1)
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
$
-
$
December 31, 2020
Compass
Neuronasal(1)
GABA
Current assets
$
202,404
$
$
3,302
Non-current assets
1,052
-
Total assets
$
203,456
$
$
3,302
Current liabilities
$
6,895
$
$
Non-current liabilities
-
-
Total liabilities
$
6,895
$
$
Statements of operations
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
)
Year Ended December 31, 2020
Compass
Neuronasal(1)
GABA
Revenue
$
-
$
-
$
-
Loss from continuing operations
$
(51,393
)
$
(1,208
)
$
(2,685
)
Net loss
$
(60,334
)
$
(1,208
)
$
(2,685
)
(1)Results from operations for Neuronasal are through May 17, 2021 at which point the entity is consolidated.
6. Notes Receivable
Short Term Notes Receivable-Related Party
Investment in COMPASS Convertible Promissory Note-Related Party
On September 27, 2019, the Company purchased a convertible promissory note for a total principal amount of £3.0 million or $4.0 million. On November 6, 2019, the Company purchased an additional convertible promissory note for £3.2 million or $4.2 million (the “COMPASS Notes”). The COMPASS Notes bear interest at an annual rate of 3% and are due one year after the date of the note. The Company will earn interest on the COMPASS Notes only if a conversion event does not occur. The Conversion event is a new qualifying financing round; the Company has no control of the conversion event. At the time of issuance, the Company determined it was probable that the contingent event would occur and therefore, did not record interest income for either COMPASS convertible promissory note as of the date of conversion on April 17, 2020.
The COMPASS Notes are automatically convertible into shares of the class of equity securities issued upon the occurrence of a qualified equity financing in which COMPASS receives at least £25 million or $33.2 million, or if a noteholder majority has approved a non-qualifying equity financing in which COMPASS receives £25 million or $33.2 million, or less. On the conversion date, COMPASS shall convert the principal amount of the COMPASS Notes into a number of new fully paid preferred shares at a price per share representing a 15% discount to the price per share paid for preferred shares by the investors in a qualified equity financing or approved non-qualifying equity financing the conversion price is subject to a maximum price per share of £2,397 or $3,181.
The Company is eligible to elect the fair value option under and bypass analysis of the potential embedded derivative features described above and further analysis of bifurcation of any such derivatives and has elected such option. The Company believes that the fair value option better reflects the underlying economics of the COMPASS Notes. As a result, the COMPASS Notes were recorded at its fair value upon issuance and will be subsequently remeasured at each reporting date until settled or converted. Changes in the fair value of the COMPASS Notes will continue to be recognized until the notes are converted or repaid. Under the fair value election, changes in fair value will be reported in the consolidated statements of operations as change in fair value of short term notes receivable-related party. The Company initially recorded the notes at £6.2 million or $7.8 million since fair value approximated the purchase price of the COMPASS Notes.
On April 17, 2020, in a transaction that constituted a qualified financing round, COMPASS issued and sold shares of Series B preferred stock to other investors resulting in proceeds of approximately $49.8 million. In connection with the qualified financing, all of the Company’s outstanding aggregate principal under the COMPASS Notes totaling £6.2 million or $7.6 million was converted into shares of COMPASS Series B preferred stock. The COMPASS Notes was converted at a price equal to 85% of the Series B issuance price paid by the investors in COMPASS’ Series B qualified financing as per the terms of the promissory notes. Under the fair value option, the notes were remeasured to fair value to $9.0 million immediately prior to conversion. Once the notes were converted, the acquired shares were recorded at a price per share equal to the fair value of the Series B shares of £1,350 or $1,654. The change in fair value in the COMPASS Notes from December 31, 2019 to its conversion to Series B preferred stock in April 2020, were $0.7 million and included in change in fair value of short term notes receivable-related party in the consolidated statements of operations. See Note 5 for further information regarding the Company's equity method investment in COMPASS.
Loan to a Compass Shareholder
On December 3, 2020, the Company entered into loan and voting agreements with a COMPASS shareholder (collectively, the “Compass Shareholder Agreement”) for £0.7 million or approximately $0.9 million. The purpose of the Compass Shareholder Agreement is to allow the COMPASS shareholder to exercise his stock options in COMPASS Pathways plc and to transfer the relevant rights (i.e. voting rights) attached to the ordinary shares to the Company. The Company has the full power to exercise these relevant rights at its absolute discretion in its own best interest. These relevant rights are valid until the COMPASS shareholder no longer holds the ordinary shares of COMPASS Pathways plc. This loan bears no interest and shall be repayable on or before April 1, 2022. Pursuant to the Compass Shareholder Agreement, the COMPASS shareholder shall not transfer, assign or otherwise dispose of any of the shares without the prior written consent of the Company.
The Company recorded the Compass Shareholder Agreement at cost as a short term note receivable which included a principal balance of the note, net of any payments received, on its consolidated balance sheets. As of December 31, 2020, the Compass Shareholder Agreement has an outstanding balance of $0.9 million. In April 2021, the Compass Shareholder Agreement was terminated.
Long Term Notes Receivable - related party
Loan to IntelGenx Corp.
On March 8, 2021, the Company and IntelGenx entered into a loan agreement under which the Company provided the 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 additional investment in IntelGenx Tech Corp. by the Company. On May 14, 2021, the Company amended the Term Loans 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 amended the Term Loans, and 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 will 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, net of any payments received, in Long term notes receivables - related parties on its consolidated balance sheets. As of December 31, 2021, the Term Loans have an outstanding balance of $2.5 million. During the year ended December 31, 2021, the recognized interest income associated with the Term Loans was immaterial.
Investment in DemeRx Promissory Note-Related Party
On January 3, 2020, DemeRx IB loaned to DemeRx $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”). The DemeRx Note bears interest on the unpaid principal balance of the note at a 6% rate per annum, computed on the basis of a 360-day year, from until payment in full of all outstanding balance of the DemeRx Note. Such interest shall be accrued and be payable upon the earlier of the DemeRx Maturity Date or acceleration as a result of an event of default. 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 the sole discretion pay any amount due under this 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. In addition, DemeRx has the right to prepay the principal amount in whole or in part upon three (3) days’ written notice to DemeRx IB without payment of any premium or penalty, and any such prepayment shall be applied to reduce the principal payment of the DemeRx Note. The Company concluded that these embedded features do not meet the criteria to be bifurcated and separately accounted for as derivatives. Upon the occurrence of an event of default, DemeRx IB can declare the principal and any accrued and unpaid interests of the DemeRx Note to be immediately due and payable and during the occurrence and continuance of any event of default, the interest rate will increase to a default rate of 11% from 6% from the date of such event of default until the earlier of (i) the waiver of such event of default by DemeRx IB, or (ii) the payment in full of all outstanding balance of the DemeRx Note. The Company concluded that this feature met the definition of a derivative which required bifurcation. As the probability of this event of default occurring was less than remote, the Company concluded that the fair value of the embedded derivative ascribed to this feature were de minimis.
The Company recorded the DemeRx Note at cost which included the principal balance of the note and accrued interest, net of any payments received, on its consolidated balance sheets. As of December 31, 2021 and 2020, the DemeRx Note had an outstanding balance of $1.1 million. For the years ended December 31, 2021 and 2020, 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.
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
December 31, 2021 Using:
Level 1
Level 2
Level 3
Total
Assets:
Cash equivalents:
Money market funds
$
271,856
$
-
$
-
$
271,856
Other investment held at fair value
-
-
-
-
$
271,856
$
-
$
-
$
271,856
Liabilities:
Contingent consideration liability - related parties
$
-
$
-
$
2,483
$
2,483
Warrant Liability
-
-
$
-
$
-
$
2,819
$
2,819
Fair Value Measurements as of
December 31, 2020 Using:
Level 1
Level 2
Level 3
Total
Assets:
$
-
Liabilities:
Contingent consideration liability - related parties
$
-
$
-
$
1,705
$
1,705
Derivative liability
-
-
$
-
$
-
$
1,919
$
1,919
During the years ended December 31, 2021 and 2020, there were no transfers between Level 1, Level 2 or Level 3.
Valuation of COMPASS Note Receivable-Related Party
The fair value of the COMPASS Notes at issuance and subsequent financial reporting dates was estimated based on significant inputs not observable in the market, which represent Level 3 measurements within the fair value hierarchy. The Company estimated the fair value of the COMPASS Notes during the first quarter of 2020 and immediately prior to the conversion of the notes in April 2020 using the fair value of the Series B preferred stock of COMPASS. The fair value of the Notes was estimated to be $9.0 million immediately prior to the conversion of the notes. Once the notes were converted, the acquired shares were recorded at a price per share equal to the fair value of the Series B shares of £1,350 or $1,654. The change in fair value in the COMPASS Notes from December 31, 2019 to its conversion to Series B preferred stock in April 2020, were $0.7 million and included in change in fair value of short term notes receivable-related party in the consolidated statements of operations for the year ended December 31, 2020.
Contingent Consideration Liability-Related Parties-Perception, Innaris Bio, 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, 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 as of December 31, 2021.
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. As of the fourth quarter of 2020, Perception negotiated a license transaction with a third-party pharmaceutical company that closed in March 2021. The Company used a scenario-based model (“SBM”) to consider the Company’s estimate of 80 percent probability that the transaction would happen and the 20 percent probability that it would fail to close. The valuation used inputs that were unobservable inputs with the most significant being the discount rates for royalties on projected commercial revenue and clinical milestones, probability of the transaction closing, and probability of success estimates over the following ten years.
As of December 31, 2021, the license transaction had closed and the scenario-based method was no longer used (See Note 16). The valuation used inputs that were unobservable with the most significant being the discount rates for royalties on projected clinical milestones and commercial revenue and the probability of success estimates over the following ten years.
The fair value of the contingent milestone and royalty liabilities for Perception was estimated to be $1.5 million and $1.7 million as of December 31, 2021 and December 31, 2020, respectively.
The fair value of the contingent milestone and royalty liabilities could change in future periods depending on the prospects for the first patient dosing and the outcome of obtaining approval from FDA or regulatory authorities for potential drug product using the solgel-based direct-to-brain intranasal drug delivery technology, and whether the Company realizes a significant increase or decrease in sales upon commercialization. The most significant assumptions in the income approach valuation technique used to estimate the contingent liabilities are the probability of each milestone being met, the probability of number of drug products being developed, projected milestone timing and discount rate.
The fair value of the Perception contingent consideration liability - related parties was calculated using the following significant unobservable inputs:
December 31, 2021
December 31, 2020
Weighted
Weighted
Valuation Technique
Significant Unobservable Inputs
Input Range
Average
Input Range
Average
Discounted cash flow
Milestone contingent consideration:
Discount rate
11.4%
11.4%
8.4% to 14.1%
9.4%
Probability of the milestone
51.9%
51.9%
10.5% to 48.7%
34.8%
Discounted cash flow
with SBM
Royalty contingent consideration:
Discount rate for royalties
19.2% - 20.1%
19.9%
12.0% to 13.0%
12.5%
Discount rate for royalties on milestones
10.9% - 11.8%
11.6%
8.4%
8.4%
Probability of success rate
26.5% to 100.0%
35.6%
3.95% to 100.0%
12.6%
Probability of the close of the license transaction (1)
N/A
N/A
80.0%
80.0%
(1)This input was used in fourth quarter of 2020 in relation to a potential license transaction that Perception had with a third-party pharmaceutical company.
The fair value of the contingent liability for TryptageniX was estimated to be $0.9 million as of December 31, 2021. 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. The Company determined that the change in fair value from the acquisition date of December 3, 2021 to December 31, 2021 was not material.
Valuation of 2020 Convertible Notes Payable
The fair value of the 2020 Convertible Notes at issuance and at each reporting period was estimated based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company used a SBM to incorporate estimates and assumptions concerning company prospects and market indications into a model to estimate the value of the notes. The most significant estimates and assumptions used as inputs in the SBM valuation technique impacting the fair value of the 2020 Convertible Notes are those concerning type, timing and probability of specific scenario outcomes. At the issuance dates of the 2020 Convertible Notes, a qualified financing was assumed to occur within the year following issuance. Specifically, the Company discounted the cash flows for fixed payments by using annualized discount rates that were applied across valuation dates from issuance dates of the 2020 Convertible Notes until conversion in November 2020. The discount rates were based on certain considerations including: time to payment, an assessment of the credit position of atai, market yields of companies with similar credit risk at the date of valuation estimation, and calibrated rates based on the fair value relative to the original issue price from the 2020 Convertible Notes.
Payments that are sensitive to the total equity value of the Company at the date of payment were valued at each valuation date using an option pricing model (“OPM”). Key assumptions used in the OPM included risk free rate, volatility across the period of the valuation dates, dividend yield, and a period of estimation commensurate with time until payment. The inputs to the option pricing model were determined based on assessment of the Company’s most recent financing transaction, assessed and adjusted for the market value of a group of publicly traded peer guideline companies and relevant equity indices as of each valuation date from issuance to conversion.
The following table summarizes significant unobservable inputs by valuation technique that are included in the valuation of the 2020 Convertible Notes from the issuance date of the notes in January 2020 to the note conversion date in November 2020:
Weighted
Valuation Technique
Significant Unobservable Inputs
Input Range
Average
SBM
Discount rate
-0.5% to 7.2%
0.8%
Probability scenarios:
Conversion upon a financing event
50% to 90%
65.5%
OPM
Volatility
70.0% to 85.0%
79.0%
Dividend yield
0%
0%
Valuation of Derivative Liability-Perception Convertible Notes
The derivative liability in the table above relates to the embedded conversion features in connection with the Perception Convertible Notes issued in 2020 and 2021 discussed in Note 10. The Perception March 2020 Notes contained a derivative, which is related to embedded conversion feature upon a qualified financing transaction. The Perception December 2020 Notes contained a derivative, which is related to embedded conversion features upon a qualified financing transaction and a licensing transaction. The fair value of the embedded conversion features at issuance of the Perception Convertible Notes and subsequent financial reporting dates was estimated based on significant inputs not observable in the market, which represent Level 3 measurements within the fair value hierarchy. The Company used a SBM to incorporate estimates and assumptions concerning company prospects and market indications into a model to estimate the value of the derivative liability. An SBM considers a range of various potential scenario outcomes assumed to occur with associated probabilities. Cash flow outcomes are then discounted to present value to estimate fair value. The SBM procedure is as follows: (i) estimate future cash flows that arise from scenario outcomes, (ii) discount the cash flows to present value using a market-based discount rate and (iii) probability weight the present values to form a probability weighted, expected return analysis that estimates fair value at the subject valuation date. The most significant estimates and assumptions used as inputs in the SBM valuation technique impacting the fair value of the embedded conversion features are those concerning the scenario outcomes’ type, timing and probability.
At the issuance dates of the Perception Convertible Notes and at December 31, 2020, a qualified financing and a licensing transaction were assumed to occur within the year following issuance which the Company estimated 20 percent and 80 percent probability of occurrence of a qualified financing and a licensing transaction, respectively.
As the derivative liability associated with the Perception March 2020 Notes was related to the embedded conversion feature upon a qualified financing transaction the fair value of the derivative liability associated with the Perception March 2020 Notes was reduced to zero because of a zero percent probability of the occurrence of a qualified financing transaction as of December 31, 2021.
The Company calculated the payment due to the holders of Perception Convertible Notes with and without the embedded conversion feature and discounted to present value. The Company discounted the cash flows using a discount rate of 17.0 percent annualized at the
issuance dates, and at December 31, 2020 based on an assessment of the credit position of Perception and market yields of companies with similar credit risk at the date of valuation estimation.
On May 31, 2021, the Company issued convertible notes under the Second Tranche Funding (see Note 10). In connection with the issuance of these notes, the Company determined the fair value of the derivative liability related to the embedded conversion option by calculating the payment due to the holders of these notes with and without the conversion feature. The Company discounted the cash flows using a discount rate of 18.0 percent annualized at the issuance date, based on an assessment of the credit position of Perception and market yields of companies with similar credit risk at the date of valuation estimation.
On June 10, 2021, the Perception Convertible Notes converted into shares of Series A preferred stock of Perception pursuant to their original terms. The Company remeasured the embedded derivatives related to the Perception Convertible Notes at fair value immediately prior to conversion on June 10, 2021. The Company calculated the payments due to the holders of Perception Convertible Notes with and without the conversion feature. The Company discounted the cash flows using a discount rate of 18.0 percent at June 10, 2021, based on an assessment of the credit position of Perception and market yields of companies with similar credit risk at the date of valuation estimation.
The fair value of the embedded conversion features, including the embedded conversion features associated with the notes issued under the Second Tranche Funding was determined to be $0.8 million immediately before the conversion of the Perception Convertible Notes on June 10, 2021 and reduced to zero upon conversion of the notes. The fair value of the embedded conversion features was determined to be $0.2 million as of December 31, 2020.
The significant unobservable inputs that are included in the valuation of the derivative liability as of December 31, 2020 include:
December 31, 2020
Weighted
Significant Unobservable Inputs
Input Range
Average
Discount rate
17.0
%
17.0
%
Expected term
1 year
1 year
Probability scenarios:
Qualified financing transaction
%
%
Licensing transaction
%
%
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
%
IntelGenx Common Stock, Initial Warrants and Additional Units Warrant
The Company’s investment in IntelGenx consists of Common Shares, Initial Warrants and Additional Units Warrant (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 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 13.7% as of May 14, 2021 and 5.0% as of December 31, 2021. The Company estimated a DLOM in connection with the valuation of the Common Shares at initial recognition and as of December 31, 2021 to reflect the restrictions associated with the Common Shares. As of December 31, 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 written down to zero as of December 31, 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 written down to zero as of December 31, 2021.
The following table summarizes significant unobservable inputs that are included in the valuation of the Initial Warrants as of December 31, 2021:
December 31, 2021
Value of Underlying
$
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 (GBM) 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 written down to zero as of December 31, 2021.
The following table summarizes significant unobservable inputs that are included in the valuation of the Additional Units Warrant as of December 31, 2021:
December 31, 2021
Stock Price
$
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):
Compass Notes
Receivable -
related party
Convertible
Notes Payable
Other
Investments Held
at Fair Value
Contingent
Consideration
Liability -
Related Parties
Derivative
Liability
Warrant
Liability
Balance as of December 31, 2019
$
8,244
$
-
$
-
$
$
-
$
-
Initial fair value of instrument
-
-
-
-
-
Issuance of notes payable
-
30,437
-
-
-
-
Conversion of notes receivable
(9,003
)
-
-
-
-
-
Conversion of notes payable
-
(50,059
)
-
-
-
-
Change in fair value
16,974
-
1,133
(150
)
-
Foreign currency transaction adjustments
2,648
-
-
-
-
Balance as of December 31, 2020
$
-
$
-
$
-
$
1,705
$
$
-
Initial fair value of instrument
-
-
9,359
Change in fair value
-
-
(9,359
)
(173
)
(41
)
Extinguishment of liability
-
-
-
-
(820
)
-
Balance as of December 31, 2021
$
-
$
-
$
-
$
2,483
$
-
$
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
$
2,692
$
Research and development tax credit
Sales tax receivables
4,664
Prepaid insurance
3,049
Other
Total
$
11,903
$
2,076
9. Accrued Liabilities
Accrued liabilities consist of the following (in thousands):
December 31,
December 31,
Accrued accounting, legal, and other professional fees
$
2,667
$
2,858
Taxes payable
8,137
Accrued external research and development expenses
Accrued payroll
2,832
1,098
Accrued advisory fees
3,819
Other liabilities
Total
$
14,829
$
9,215
10. 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
1,022
Unamortized discount and deferred issuance costs
(5
)
(18
)
Total
$
$
1,199
During November 2018, the Company executed a terms and conditions agreement (the “Convertible Note Agreement”) under which it would issue up to €1.0 million or $1.2 million in 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, certain investors subscribed to the Convertible Note Agreement and the Company issued convertible promissory notes in the aggregate principal amount of €0.2 million or $0.2 million.
In October 2020, certain investors subscribed to the Convertible Note Agreement and the Company issued the remainder of the 2018 Convertible Notes in the aggregate principal amount of €0.8 million or $1.0 million (collectively, the “2018 Convertible Notes”). The total aggregate principal amount of the 2018 Convertible Notes is $1.2 million as of December 31, 2020. 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.
In connection with the Convertible Note Agreement, the Company issued convertible notes in the principal amounts of €0.1 million or $0.1 million to the founders of Perception, who are also related parties of the Company in November 2018 (See Note 17). Perception is a biotech
firm acquired by the Company on November 5, 2018. Upon the purchase of certain assets of Perception in November 2018, Perception was deemed to have been a VIE, of which the Company is the primary beneficiary (See Note 4).
In addition, in connection with the Convertible Note Agreement, the Company issued convertible notes in the principal amounts of €0.5 million or $0.6 million to Apeiron, the family office of the Company’s founder, and €0.3 million or $0.4 million to one other shareholder of the Company and the founder of COMPASS in October 2020.
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.
Volatility
74.0%
Time until maturity
4.96 - 4.97 years
Dividend yield
0%
Risk-free interest rate
(0.63)% - (0.76)%
Conversion payment
€17
Fair value of ordinary shares
€75
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 in ATAI Life Sciences AG to ATAI Life Sciences N.V. and received sixteen shares in ATAI Life Sciences N.V. for one share in ATAI Life Sciences AG. In September and October 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 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. 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.
2020 Convertible Promissory Notes
In January 2020, the Company executed a terms and conditions agreement (the “2020 Convertible Note Agreement”) under which it would issue up to €30.0 million, or $33.5 million, in convertible promissory notes to various investors. The total aggregate principal amount of the remaining outstanding 2020 Convertible Notes was $32.2 million as of November 2020. The 2020 Convertible Notes converted into 8,773,056 of shares of the Company's common stock in November 2020.
For the twelve months ended December 31, 2020, the interest expense and change in fair value in the 2020 Convertible Notes from its various issuance dates to the conversion date totaled $17.0 million and is included in change in fair value of convertible promissory notes in the consolidated statements of operations.
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 are 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 are 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 during the twelve months ended December 31, 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 twelve months 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 twelve months ended December 31, 2021. As of December 31, 2020, the unamortized debt discount on the Perception Convertible Notes was $0.3 million. 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.
Line of Credit Agreements
In June 2020, the Company entered into a €4.0 million or approximately $4.5 million credit line agreement with Attersee. In September 2020, the Company entered into an amendment to the Attersee credit line agreement, pursuant to which the Company decreased the credit line to €2.0 million or approximately $2.4 million. This credit line bears an annual borrowing rate of 2.5% and an annual facility fee of 0.75%, and has a final maturity of April 30, 2023. As of December 31, 2020, there were no outstanding borrowings under this credit line agreement. In July 2021, the Company terminated its credit line with Attersee, which remained unused as of the date of cancellation.
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, 2021 and December 31, 2020, 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, 2021, 0 shares were 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 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 our shareholders approved the 2021 Incentive Award Plan (“2021 Incentive Plan”). The 2021 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 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 38,704,944 shares of common stock, for issuance to executive officers, directors and employees and consultants of the Company pursuant to the 2021 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, 2021, 34,026,163 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 five-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 December 31, 2020 stock options outstanding balance noted below includes 3,176,976 stock options that will vest over a four-year service period, only if and when a “Liquidity Event” (as defined in the 2020 Incentive Plan) occurs within five years of the date of grant. During the year ended December 31, 2021, the Company modified the vesting terms of 2,464,720 of these options held by 12 employees such that, if the Company achieves an Initial Public Offering (as defined in the awards) by June 30, 2021 or December 31, 2021, an additional 25% or 12.5%, respectively, will accelerate and vest upon the occurrence of the transaction. In each case provided, however, no option shall become vested before the first anniversary of the respective vesting start date. The Company applied modification accounting under ASC 718, which resulted in a new measurement of compensation cost, and the original grant-date fair value of the award is no longer used to measure compensation cost for the award. The weighted average fair value on the new measurement date amounted to $4.97.
In addition, during the year ended December 31, 2021, the Company cancelled 1,152,192 stock options held by 3 employees and concurrently granted 4,543,936 HSOP Options under the HSOP Plan (as defined and described below) (“Exchange Options”). The Company applied modification accounting under ASC 718, which resulted in a new measurement of compensation cost, and the original grant-date fair value of the award is no longer used to measure compensation cost for the award. The weighted average fair value on the new measurement date amounted to $4.20. Refer to the ATAI Life Sciences Hurdle Share Option Plan for more information on these stock options.
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, 2020 to December 31, 2021:
Number of
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding as of December 31, 2020
11,331,232
$
1.54
4.64
$
47,735
Granted
17,990,952
(1)
9.69
-
-
Exercised
(379,049
)
2.44
-
-
Cancelled or forfeited
(2,255,515
)
(2)
3.52
-
-
Outstanding as of December 31, 2021
26,687,620
(3)
$
6.85
4.85
$
74,525
Options exercisable as of December 31, 2021
6,468,770
$
1.21
3.63
$
41,500
(1)Includes (a) 5,391,184 stock options that will vest over a two to four-year service period, only if and when a “Liquidity Event” (as defined in the awards) occurs within five years of the date of grant. If the Company achieves an IPO (as defined in the awards) by June 30, 2021 or December 31, 2021, an additional 25% or 12.5%, respectively, the stock options will accelerate and vest upon the occurrence of the transaction, (b) 5,241,785 stock options that will vest over a one to four-year service period, only if and when a “Liquidity Event” (as defined in the awards) occurs within five years of the date of grant (c) 1,460,784 stock options that will vest over a three to four-year service period and upon the satisfaction of specified performance-based vesting conditions, only if and when a “Liquidity Event” (as defined in the awards) occurs within five years of the date of grant, (d) 624,000 stock options that will vest over a three-year service period, only if and when a “Liquidity Event” (as defined in the awards) occurs within five years of the date of grant, (e) 400,688 stock options that will vest over a four-year service period and upon the satisfaction of specified performance-based vesting conditions including liquidity-based conditions, only if and when a “Liquidity Event” (as defined in the awards) occurs within five years of the date of grant. If the Company achieves an IPO (as defined in the awards) by June 30, 2021 or December 31, 2021, an additional 25% or 12.5%, respectively, will accelerate and satisfy the service-based vesting condition upon the occurrence of the transaction, (f) 400,000 stock options that will 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, only if and when a “Liquidity Event” (as defined in the awards) occurs within five years of the date of grant, (g) 338,112 stock options that will vest over a four-year service period and upon the satisfaction of specified performance-based vesting conditions including liquidity-based conditions, only if and when a “Liquidity Event” (as defined in the awards) occurs within five years of the date of grant, (h) 100,640 stock options that will vest over a four-year service period and upon the satisfaction of specified performance-based vesting conditions, only if and when a “Liquidity Event” (as defined in the awards) occurs within five years of the date of grant, (i) 94,096 stock options that will vest only if and when a “Liquidity Event” (as defined in the awards) occurs within five years of the date of grant, (j) 3,919,997 stock options that will vest over a three to four-year service period, and (l) 19,666 stock options that were 100% vested upon grant.
(2)Includes 1,152,192 Exchange Options
(3)With the satisfaction of the Liquidity Event in June 2021, the 20,218,850 outstanding unvested stock options includes (a) 15,240,355 that will continue to vest over a one to four-year service period, (b) 4,778,495 that will continue to vest over a three to four-year service period and upon the satisfaction of specified performance-based vesting conditions, and (c) 200,000 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.
The Company estimates the fair values of stock options using the Black-Scholes option-pricing model on the date of grant. During the twelve months 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
4.16
3.92
Weighted average expected stock price volatility
80.0%
71.1%
Risk-free interest rate
(0.76)%-1.33%
0.20% - 0.22%
Expected dividend yield
0%
0%
For the twelve months ended December 31, 2021 and 2020, the Company recorded stock-based compensation expense of $41.3 million and $5.4 million, respectively.
As of December 31, 2021, total unrecognized compensation cost related to the unvested stock-based awards was $95.8 million, which is expected to be recognized over a weighted average period of 2.16 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, 2021, 132,752 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, 2021, 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 for from December 31, 2020 to December 31, 2021:
Number of
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding as of December 31, 2020
-
-
-
-
Granted
7,281,376
(1)
6.64
-
-
Exercised
(102,128
)
6.60
-
-
Cancelled or forfeited
(132,752
)
6.64
-
-
Outstanding as of December 31, 2021
7,046,496
$
6.64
14.01
$
6,961
Options exercisable as of December 31, 2021
3,936,475
$
6.64
14.01
$
3,901
(1)	Includes 4,543,936 Exchange Options
The weighted-average grant-date fair value of options granted during the twelve months ended December 31, 2021, was $4.37.
The Company estimates the fair values of stock options using the Black-Scholes option-pricing model on the date of grant. During the twelve months ended December 31, 2021, the assumptions used in the Black-Scholes option pricing model were as follows:
December 31,
Weighted average expected term in years
8.0
Weighted average expected stock price volatility
70.0%
Risk-free interest rate
(0.70)%-(0.65)%
Expected dividend yield
0%
For the twelve months ended December 31, 2021 and 2020, the Company recorded stock-based compensation expense of $21.1 million and $0.0 million, respectively.
As of December 31, 2021, total unrecognized compensation cost related to the unvested stock-based awards was $8.8 million which is expected to be recognized over a weighted average period of 1.18 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, 2021 and 2020, the Company recorded share-based compensation expense of $0.9 million and $0.3 million, respectively, in relation to subsidiary EIPs. As of December 31, 2021, there was $1.2 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 1.75 years. As of December 31, 2021, 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 $0.4 million, which will be recognized only upon the satisfaction of the vesting conditions.
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, 2021, which includes expense related to stock options and restricted stock awards (in thousands):
Twelve Months 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
The following table summarizes the total stock-based compensation expense by function for the twelve months ended December 31, 2020, which includes expense related to stock options and restricted stock awards (in thousands):
Twelve Months Ended December 31, 2020
Atai
ESOP
Atai
HSOP
Other Subsidiaries
Equity Plan
Total
Research and development
$
-
$
-
$
$
General and administrative
66,874
-
$
66,887
Total share based compensation expense
$
66,874
$
-
$
$
67,158
In connection with the convertible notes - related parties issued in October 2020 (See Note 10), the Company recorded stock-based compensation expense for the year ended December 31, 2020 of $61.5 million which is included in general and administrative expense on the consolidated statements of operations and in the table above and is recorded within additional paid in capital within equity.
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
$
(89,061
)
$
(75,966
)
International
(47,540
)
(25,847
)
Total loss before income taxes and loss from equity method investments
$
(136,601
)
$
(101,813
)
The tax provision (benefits) for income taxes consists of the following (in thousands):
Year Ended
December 31,
Current income tax provision (benefit):
Germany
$
-
$
-
International
1,117
Total current income tax provision:
$
1,117
$
Deferred income tax provision (benefit):
Germany
$
-
$
-
International
(5,106
)
-
Total deferred income tax provision:
(5,106
)
-
Total income tax provision:
$
(3,989
)
$
The international current tax provision for December 31, 2021 and 2020 is primarily comprised of corporate income taxes incurred in the United States and the United Kingdom.
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
$
(89,061
)
$
(75,966
)
International
(47,540
)
(25,847
)
Total loss before income taxes:
(136,601
)
(101,813
)
German statutory rate
30.18
%
30.18
%
Expected income tax expense (benefit)
(41,220
)
(30,722
)
US state income taxes, net of US federal tax benefit and valuation allowance
$
$
International tax rate differential
4,222
2,304
Fair value adjustments
-
(247
)
IPR&D charges and acquisition adjustments
3,251
2,164
Effect of R&D credit incentives
(3
)
Fair value adjustments
2,934
(6,175
)
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
(55
)
Effect of German participation exemption on outside basis differences
-
(5
)
Effect of non-deductible compensation in respect of convertible notes
-
18,558
Effect of conversion of convertible notes
-
4,846
Effect of share-based compensation expense
-
Other
(657
)
(1
)
Change in German and International valuation allowance
35,267
9,324
Total income tax expense
$
(3,989
)
$
Effective income tax rate:
2.92
%
(0.30)%
The Company is headquartered in Berlin, Germany and has subsidiaries in the United States, Australia, and the United Kingdom 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 two of its United States subsidiaries and its United Kingdom subsidiary. The weighted-average combined German corporate income tax rate for the year ended December 31, 2020 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, 2020 and 2021 was 21.00%. The weighted-average Australia corporate income tax rate for the year ended December 31, 2020 and 2021 was 27.50%. The weighted-average United Kingdom corporate income tax rate for the year ended December 31, 2021 was 19.00%.
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
$
31,149
$
5,956
International tax loss carryforward
8,618
6,321
Intangible assets
Share compensation
17,231
1,698
Other deductible timing differences
Total deferred tax assets, gross
57,893
14,226
Valuation allowance
(49,442
)
(14,174
)
Total deferred tax assets, net
$
8,451
$
Deferred tax liabilities:
Other taxable timing differences
$
(17
)
$
(51
)
Unrealized foreign exchange
$
(3,326
)
$
-
Outside basis differences in equity and other investments
(2
)
(1
)
Total deferred tax liabilities
(3,345
)
(52
)
Total deferred tax asset (liability)
$
5,106
$
-
The valuation allowance provided against net deferred tax assets as of December 31, 2020 and 2021 was $14.2 million and $49.4 million, respectively. The valuation allowance recorded at both periods was primarily related to German and international tax loss carryforwards and stock-based compensation timing differences that, in the judgement of management, are not more-likely-than-not, to be realized. Net deferred tax assets are recognized with regard to certain subsidiaries in the United States and United Kingdom, which generate taxable profits.
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. We recognize net deferred tax assets with regard to two subsidiaries in the United States and the United Kingdom for which sufficient positive evidence exists, including current and projected future taxable income, that we believe it is more-likely-than-not that such 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 Internal Revenue Code ("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.
We note that a Section 382 analysis was undertaken in 2021, which determined that the tax loss carryforwards recorded by one United States subsidiary were able to be utilized in full, offsetting the entity's United States taxable income generated for the year ended December 31, 2021, subject to statutory limitations.
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 in certain jurisdictions 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, 2021 and 2020, the Company does not have any significant unremitted earnings in its international subsidiaries.
The Company’s gross tax loss carryforward for tax return purposes are as follows (in thousands):
Year Ended
December 31,
Germany tax losses
$
103,232
$
19,738
International tax losses
31,875
21,425
Total
$
135,107
$
41,163
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 2020 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, 2020 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):
Year Ended December 31,
Numerator:
Net loss
$
(174,244
)
$
(178,625
)
Net income (loss) attributable to redeemable
noncontrolling interests and noncontrolling
interests
(6,436
)
(8,782
)
Net income attributable to ATAI Life Sciences
N.V. shareholders - basic and diluted
$
(167,808
)
$
(169,843
)
Denominator:
Weighted average common shares outstanding
attributable to ATAI Life Sciences N.V.
Stockholders - basic and diluted
138,265,859
93,019,072
Net income per share attributable to ATAI Life
Sciences N.V. shareholders - basic and diluted
$
(1.21
)
$
(1.83
)
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 maximum amount of outstanding shares of potentially dilutive securities that were excluded from the computation of diluted net income (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
26,687,820
11,331,232
HSOP options to purchase common stock
7,179,248
-
2018 Convertible Promissory Notes - Related Parties (Note 11)
10,521,824
16,000,000
44,388,892
27,331,232
In September and October 2021, several investors elected to convert their 2018 Convertible Notes into shares of ATAI Life Sciences N.V. The remaining 2018 Convertible Notes would be issuable upon the exercise of conversion rights of convertible note holders for 657,614 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.
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, the Company entered into a license and collaboration agreement (the “Otsuka Agreement”) with Otsuka under which the Company 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. The Company retained all rights to PCN-101 outside of Japan.
Otsuka owed the Company an upfront, non-refundable payment of $20.0 million as of the execution of the Otsuka Agreement. The Company 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 the Company a tiered, double-digit royalties 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 twelve months ended December 31, 2021, there have been no additional milestones achieved under the Otsuka Agreement, except for the upfront transfer of the license. The Company 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 during the twelve months ended December 31, 2021. Additionally, the Company recognized revenues of $0.6 million related to certain research and development services during the twelve months ended December 31, 2021. As of December 31, 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, 2021 and 2020, 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 period from November 2020 (date of acquisition) to December 31, 2020, 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 with 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% of Kures common stock on a fully diluted basis, in accordance with the terms and conditions of the SPA. Kures shall, from time to time, 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. The antidilution protection provision shall be maintained up to and through the achievement of certain milestone events. At the acquisition date, the Company recorded the fair value of the shares of Kures common stock issued to Columbia of $0.1 million to atai’s additional-paid-in-capital and a debit to research and development expense for the corresponding acquired in-process research and development as it had no alternative future use at the time of the acquisition. In addition, Kures is obligated to pay tiered royalties ranging in the low to mid-single-digit percentage based on net sales of products licensed under the agreement. If Kures receives revenue from sublicensing any of its rights under the agreement, Kures is also obligated to pay a portion of that revenue to Columbia. Starting from the fourth anniversary of the effective date of the Kures License Agreement, Kures is obligated to pay Columbia annual license fees ranging from $10,000 to $0.1 million, creditable against royalties. Kures is also obligated to make milestone payments aggregating up to $15.5 million upon the achievement of certain clinical or regulatory and sales-based milestones for the first indication for each of the licensed product and up to $7.3 million for each subsequent indication for each of such products. In addition, Kures is obligated to pay Columbia a portion of the non-royalty sublicense payments it receives from a third party receiving a sublicense to practice the rights licensed to Kures under the license agreement, ranging from a low teen to low double-digit percentage. Kures has the right to terminate the Columbia agreement for any reason upon a 90-day notice and if Columbia materially breaches the agreement and fails to remedy any such default. Columbia has the right to terminate the Columbia agreement if Kures 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 Columbia’s rights to any milestone payments, royalties, and other payments described above. The Columbia agreement will remain in effect until terminated by the parties according to their rights. During the twelve months ended December 31, 2021, Kures paid $0.2 million to Columbia in connection with the Kures License Agreement. During the years ended December 31, 2021 and 2020, respectively, the Company made no material payments pursuant to 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. 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. During the year ended December 31 2021, the Company 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 atai, 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. atai has the right, but not the obligation, to settle future royalty payments based on net product sales with the Company's common stock. atai and Dalriada will determine the equity settlement based on a price per share determined by both parties.
In January 2022, in accordance with the Invyxis ESLA, Invyxis paid an upfront deposit of $1.1 million, which was capitalized as prepaid research and development expense. The Company will expense the upfront deposit as the services are performed as a component of
research and development expense in the consolidated statements of operations. During the twelve months ended December 31, 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 18.0% and 21.7% of the outstanding common stock in the Company as of December 31, 2021 and December 31, 2020, respectively. Galaxy is a NYC-based multi-strategy investment firm that owns 6.7% and 8% of the outstanding common stock in the Company as of December 31, 2021 and December 31, 2020, respectively. HCS is a German venture capital firm that owns 3.6% and 6% of the outstanding common stock in the Company as of December 31, 2021 and December 31, 2020, 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
In November and December 2020, in connection with the Company’s issuance of 14,933,344 shares of common stock of €0.10 par value, at a price of €4.69 or $5.56 per share, the Company issued common shares to Apeiron for a total purchase price of $11.9 million, and issued common shares to Galaxy for a total purchase price of $4.7 million (See Note 11).
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. During 2019, the Company engaged Koch to provide banking, advisory, other services. In addition, Apeiron has existing advisory agreements separately with SMC and Koch. Pursuant to the advisory agreements, SMC and Koch will pay a certain portion of advisory fees received from the Company to Apeiron for business referred to SMC and Koch by Apeiron. In connection with issuance of common stock in April 2019, the Company paid SMC and Koch an aggregate amount of $1.3 million of advisory fees, of which approximately $1.0 million was paid to Apeiron by SMC and Koch. In connection with 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 (See Note 11).
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 this agreement, for the twelve months ended December 31, 2021, the Company recorded $0.6 million of stock-based compensation included in general and administrative expense in its consolidated statement of operations. The Company also recorded $0.2 million of general and administrative expense in its consolidated statements of operations for the twelve months ended December 31, 2021 in connection with Mr. Angermayer's service as the Chairman of the supervisory board.
Voting Agreement with Hyperion Capital Ltd
On December 29, 2020, the Company entered into a voting agreement (“Voting Agreement”) with Hyperion Capital Ltd. (“Hyperion”), a registered shareholder of COMPASS and an affiliate of Apeiron. Pursuant to the Voting Agreement, Hyperion appointed the Company as its lawful attorney to exercise the relevant rights (i.e. voting rights) attached to its certain ordinary shares in COMPASS (the “Shares”). In accordance with the Voting Agreement, Hyperion shall not transfer, assign or otherwise dispose of any of the shares without the prior written consent of the Company and the Voting Agreements will terminate when Hyperion no longer holds any of the Shares in COMPASS. Under the Voting Agreement, the Company will pay a quarterly fee of 5 basis points (on an annualized basis) of the volume weighted average price of COMPASS during such quarter, multiplied by the number of the Shares, with such quarterly fee subject to a step-up of 5 basis points per calendar quarter (capped at 20 basis points on an annualized basis) effective from April 1, 2021 and until the earlier of (i) the first anniversary of the initial public offering of the Company or (ii) March 31, 2022. In April 2021, the Voting Agreement was terminated and no fees were remitted to Hyperion for the years ended December 31, 2021 and 2020.
Neuronasal Promissory Note
In June 2020, the Company purchased a promissory note agreement with Neuronasal under which the Company provided $0.2 million to Neuronasal.
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. The Company made an immaterial amount of 401(k) contributions for the twelve months ended December 31, 2021 and 2020, respectively.
19. Subsequent Events
Dalriada License Agreement
In January 2022, in accordance with the Invyxis ESLA, Invyxis paid an upfront deposit of $1.1 million to Dalriada.
Loan to IntelGenx
In January 2022, the Company paid IntelGenx $3.0 million in connection with the amended and restated loan agreement. See Note 6 for additional discussion.

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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 Controls and Procedures
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports under 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 Chief Executive Officer and Chief 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. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply 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, as of the end of the period covered by this Form 10-K, the effectiveness of our disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at reasonable assurance level as of December 31, 2021 as a result of the material weaknesses described below.
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 annual or interim financial statements will not be prevented or detected on a timely basis. In connection with the preparation of our consolidated financial statements for the fiscal years ended December 31, 2020 and 2021, we identified material weaknesses in our internal control over financial reporting. The material weaknesses that were 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. These deficiencies constitute material weaknesses in the design of our internal controls over financial reporting. As a result of the material weaknesses, we have relied, in part, on the assistance of outside advisors with expertise in these matters to assist us in the preparation of our consolidated financial statements and in our compliance with SEC reporting obligations and expect to continue to do so while we remediate these material weaknesses.
Management’s Remediation Efforts
As disclosed herein, we have identified and begun to implement several steps, as further described below, designed to remediate the material weaknesses described in this Item 9A and to enhance our overall control environment. Although we intend to complete the remediation process as promptly as possible, we cannot at this time estimate how long it will take to remediate these material weaknesses, and our remediation plan may not prove to be successful. We will not consider the material weaknesses remediated until our enhanced controls are operational for a sufficient period of time and tested, enabling management to conclude that the enhanced controls are operating effectively. As of December 31, 2021, the material weaknesses had not been remediated.
Our remediation plan includes, but is not limited to, the following measures:
•Formalizing our processes and internal control documentation and strengthening supervisory reviews by our financial management.
•Hiring additional qualified accounting personnel and engaging consultants to enable the implementation of internal control over financial reporting and segregating duties amongst accounting personnel.
•Implementing certain accounting systems to automate manual processes.
•We will also continue to engage third parties as required to assist with technical accounting, application of new accounting standards, tax matters, and valuations of our equity instruments, contingent consideration, notes receivable and acquired in-process research and development.
While the foregoing measures are intended to effectively remediate the material weaknesses described in this Item 9A, it is possible that additional remediation steps will be necessary. As such, as we continue to evaluate and implement our plan to remediate the material weaknesses, our management may decide to take additional measures to address the material weaknesses or modify the remediation steps described above. Until these material weaknesses are remediated, we plan to continue to perform additional analyses and other procedures to help ensure that our consolidated financial statements are prepared in accordance with GAAP.
Management’s Annual Report on Internal Control over Financial Reporting
This Form 10-K does not include a report of management’s assessment regarding our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) or an attestation report of our independent registered accounting firm due to a transition period established by rules of the SEC for newly public companies.
Changes in Internal Control over Financial Reporting
We are taking actions to remediate the material weaknesses relating to our internal controls over financial reporting, as described above. Except as discussed above, there were no changes in our internal control over financial reporting (as that term is defined in Rules 13a-15(d) or 15d-15(d) of the Exchange Act) identified in management’s evaluation pursuant to during the fiscal year ended December 31, 2021 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information.
None.
PART II- OTHER INFORMATION

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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 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2021.
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 waiver under our code of conduct in 2021.

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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 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2021.

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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 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2021.

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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 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2021.

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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 2022 Annual Meeting of Stockholders to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2021.
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
3.1
Articles of Association of ATAI Life Sciences N.V. (translated into English), currently in effect
10-Q
001-40493
3.1
8/16/2021
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 Greg Weaver
S-1/A
333- 255383
10.2
6/11/2021
10.3#
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
10.25#
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#
Atai Life Sciences N.V. 2021 Incentive Award Plan
S-1/A
333- 255383
10.5
6/11/2021
10.17#
Form of Option Award Agreement under 2021 Incentive Award Plan
S-1/A
333- 255383
10.17
6/11/2021
10.18#
Form of Restricted Stock Award Agreement under 2021 Incentive Award Plan
S-1/A
333- 255383
10.18
6/11/2021
10.19#
Form of Restricted Stock Unit Agreement under 2021 Incentive Award Plan
S-1/A
333- 255383
10.19
6/11/2021
10.20#
2020 Employee, Director, and Consultant Equity Incentive Plan
S-1/A
333- 255383
10.20
6/11/2021
10.21#
Form of Stock Option Agreement under 2020 Employee, Director and Consultant Equity Incentive Plan
S-1/A
333- 255383
10.21
6/11/2021
10.23#
Remuneration Policy for the Board of Supervisory Directors of ATAI Life Sciences N.V.
S-1/A
333- 255383
10.23
6/11/2021
10.24#
Remuneration policy for the Board of Managing Directors of ATAI Life Sciences N.V.
S-1/A
333- 255383
10.24
6/11/2021
10.7
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
10.8
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
10.9
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
10.10
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
10.11
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
10.12
Preferred Stock Purchase Agreement, dated as of December 23, 2019, among Neuronasal, Inc. and ATAI Life Sciences AG
S-1
333-255383
10.12
4/20/2021
10.13
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
10.13
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
10.14
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
10.15#
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
10.16
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
10.22
Partnership Agreement of ATAI Life Sciences HSOP GbR, dated August 21, 2020
S-1/A
333-255383
10.22
6/11/2021
10.26
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
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, 2021 and 2020 and for each of the three years ended December 31, 2021, 2020 and 2019, 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.
# 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).