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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

​

​

FORM 10-Q

​

​

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

​

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

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OR

​

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

​

For the transition period from to

​

COMMISSION FILE NUMBER 001-36576

​

​

​

MARINUS PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

​

​

​ | ​ | ​
Delaware | ​ | 20-0198082
(State or other jurisdiction of incorporation or organization) | ​ | (I.R.S. Employer Identification No.)

​

5 Radnor Corporate Center, Suite 500

100 Matsonford Rd

Radnor, PA 19087

(Address of registrant’s principal executive offices, including zip code)

​

Registrant’s telephone number, including area code: (484) 801-4670

Securities registered pursuant to Section 12(b) of the Act:

​

| ​ |  | ​ |
Title of Each Class | ​ | Trading Symbol(s) | ​ | Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share | ​ | MRNS | ​ | Nasdaq Global Market

​

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ⌧ Yes☐ No.

​

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No.

​

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

​

​ | ​ | ​ | ​
Large accelerated filer ☐ | ​ | Accelerated filer | ☐
​ | ​ | ​ | ​
Non-accelerated filer ☒ | ​ | Smaller reporting company | ☒
​ | ​ | ​ | ​
Emerging growth company ☐ | ​ | ​ | ​

​

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

​

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐Yes ☒ No.

​

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, as of May 14, 2021 was: 36,633,490.

​

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Table of Contents

Risk Factor Summary

​

The following summarizes the principal factors that make an investment in us speculative or risky, all of which are more fully described in the Risk Factors section below. This summary should be read in conjunction with the Risk Factors section and should not be relied upon as an exhaustive summary of the material risks facing our business.

Risks Related to our Financial Position and Need for Additional Capital

​

● | We have incurred significant losses since our inception and anticipate that we will continue to incur losses in the future.

● | We have not generated any revenue to date from product sales. We may never achieve or sustain profitability, which could depress the market price of our common stock, and could cause you to lose all or a part of your investment.

● | We will require additional capital to fund our operations and if we fail to obtain necessary financing, we may be unable to complete the development and commercialization of ganaxolone.

● | Our failure to comply with the covenants or other terms of the Credit Agreement, including as a result of events beyond our control, could result in a default under the Credit Agreement that could materially and adversely affect the ongoing viability of our business.

● | Our Credit Agreement contains restrictions that limit our flexibility in operating our business.

● | Raising additional capital could dilute our stockholders, restrict our operations or require us to relinquish rights to ganaxolone or any other future product candidates.

● | We intend to expend our limited resources to pursue our sole clinical stage product candidate, ganaxolone, and may fail to capitalize on other technologies or product candidates that may be more profitable or for which there may be a greater likelihood of success.

● | We have a limited operating history, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

Risks Related to Clinical Development and Regulatory Approval of our Product Candidates

​

● | Our future success is dependent on the successful clinical development, regulatory approval and commercialization of ganaxolone, which is being studied in four clinical trials and will require significant capital resources and years of additional clinical development effort.

● | We plan to submit an NDA for ganaxolone for the treatment of CDD in mid-2021 and we may not receive regulatory approval of our application.

● | Because the results of preclinical studies or earlier clinical trials are not necessarily predictive of future results, ganaxolone may not have favorable results in later clinical trials or receive regulatory approval.

● | Ganaxolone may cause undesirable side effects or have other properties that could delay or prevent its regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following any marketing approval.

● | The therapeutic efficacy and safety of ganaxolone are unproven, and we may not be able to successfully develop and commercialize ganaxolone in the future.

● | Clinical development of product candidates involves a lengthy and expensive process with an uncertain outcome.

● | Even if ganaxolone receives regulatory approval, we will still face regulatory difficulties.

● | We may not be able to obtain orphan drug exclusivity for ganaxolone, which could limit the potential profitability of ganaxolone.

● | Even though we have received RPD Designation for ganaxolone for the treatment of CDD, we may not receive a rare pediatric disease priority review voucher.

● | Failure to obtain regulatory approval in international jurisdictions would prevent ganaxolone from being marketed in these jurisdictions.

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2

Table of Contents

Risks Related to the Commercialization of Our Product

​

● | Our commercial success depends upon attaining significant market access and acceptance of ganaxolone, if approved, among physicians, patients, government and private payers and others in the medical community and attaining sufficient reimbursement for ganaxolone.

● | We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

● | If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell ganaxolone, we may be unable to generate any revenue.

● | Even if we are able to commercialize ganaxolone, it may not receive coverage and adequate reimbursement from third-party payers, which could harm our business.

● | If the market opportunities for ganaxolone are smaller than we believe they are, our results of operations may be adversely affected and our business may suffer.

​

Risks Related to Our Dependence on Third Parties

​

● | We rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their duties in compliance with contractual and/or regulatory requirements or meet expected deadlines, our development plans may be adversely affected and we may not be able to obtain regulatory approval for or commercialize ganaxolone.

● | Our experience manufacturing ganaxolone is limited to the needs of our preclinical studies and clinical trials. We have no experience manufacturing ganaxolone on a commercial scale and have no manufacturing facility. We are dependent on third-party manufacturers for the manufacture of ganaxolone as well as on third parties for our supply chain, and if we experience problems with any such third parties, the manufacturing of ganaxolone could be delayed.

● | Government funding for certain of our programs adds uncertainty to our research efforts with respect to those programs and may impose requirements that increase the costs of commercialization and production of product candidates developed under those government-funded programs.

Risks Related to Regulatory Compliance

​

● | Recently enacted and future legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the difficulty and cost for us to obtain marketing approval of and commercialize ganaxolone and affect the prices we may obtain.

​

Risks Related to Intellectual Property

​

● | If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology and product candidates, our competitive position could be harmed.

● | Third parties, such as Ovid Therapeutics, Inc., may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could harm our business.

● | We may not be able to protect our intellectual property rights throughout the world.

● | Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time.

● | We rely on government funding for certain of our research and development activities and we may develop intellectual property through such activities and therefore may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S. based companies. Compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.

​

Risks Related to our Business Operations and Ownership of Our Common Stock

​

●The COVID-19 pandemic could adversely affect our business and our ability to conduct and complete clinical trials.

● | The market price of our stock has been, and may continue to be, highly volatile, and you could lose all or part of your investment.

● | Insiders have substantial influence over us and could delay or prevent a change in corporate control.

3

Table of Contents

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2021

​

PART I – FINANCIAL INFORMATION | ​
Item 1. | Consolidated Financial Statements (unaudited) | ​
​ | Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 | 5
​ | Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2021 and 2020 | 6
​ | Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020 | 7
​ | Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2021 and 2020 | 8
​ | Notes to Consolidated Financial Statements | 9
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18
Item 3. | Quantitative and Qualitative Disclosure About Market Risk | 31
Item 4. | Controls and Procedures | 31
​ | ​ | ​
PART II – OTHER INFORMATION | ​
Item 1. | Legal Proceedings | 33
Item 1A. | Risk Factors | 33
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 75
Item 3. | Defaults Upon Senior Securities | 75
Item 4. | Mine Safety Disclosures | 75
Item 5. | Other Information | 75
Item 6. | Exhibits | 77
​ | Signatures | 79

​

​

Unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to the “Company,” “Marinus,” “we,” “us,” and “our” include Marinus Pharmaceuticals, Inc. and its wholly owned subsidiary, Marinus Pharmaceuticals Emerald Limited, an Ireland company.

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4

Table of Contents

PART I

​

FINANCIAL INFORMATION

​

Item 1. Consolidated Financial Statements

​

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

​

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

(unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31, | ​ | December 31, | ​
​ | ​ | 2021 | ​ | 2020 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​
ASSETS |  | ​ |  |  | ​ |  | ​
Current assets: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Cash and cash equivalents | ​ | $ | 123,472 | ​ | $ | 138,509 | ​
Short-term investments | ​ | ​ | — | ​ | ​ | 1,474 | ​
Federal contract revenue receivable | ​ | ​ | 2,650 | ​ | ​ | 1,646 | ​
Prepaid expenses and other current assets | ​ |  | 3,676 | ​ |  | 4,638 | ​
Total current assets | ​ |  | 129,798 | ​ |  | 146,267 | ​
Property and equipment, net | ​ |  | 1,894 | ​ |  | 1,945 | ​
Other assets | ​ |  | 2,167 | ​ |  | 2,250 | ​
Total assets | ​ | $ | 133,859 | ​ | $ | 150,462 | ​
LIABILITIES AND STOCKHOLDERS’ EQUITY | ​ | ​ | ​ | ​ | ​ | ​ | ​
Current liabilities: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Accounts payable | ​ | $ | 5,167 | ​ | $ | 2,211 | ​
Accrued expenses | ​ | ​ | 10,954 | ​ | ​ | 8,518 | ​
Total current liabilities | ​ |  | 16,121 | ​ |  | 10,729 | ​
Other long-term liabilities | ​ | ​ | 2,404 | ​ | ​ | 2,534 | ​
Total liabilities | ​ | ​ | 18,525 | ​ | ​ | 13,263 | ​
Stockholders’ equity: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Series A convertible preferred stock, $0.001 par value; 25,000,000 shares authorized, 4,753 shares issued and outstanding at March 31, 2021 and December 31, 2020 | ​ | ​ | 4,469 | ​ | ​ | 4,469 | ​
Common stock, $0.001 par value; 150,000,000 shares authorized, 36,640,797 issued and 36,633,490 outstanding at March 31, 2021 and 36,585,767 issued and 36,578,400 outstanding at December 31, 2020 | ​ |  | 37 | ​ |  | 37 | ​
Additional paid-in capital | ​ |  | 449,898 | ​ |  | 444,622 | ​
Treasury stock at cost, 7,307 shares at March 31, 2021 and December 31, 2020 | ​ |  | — | ​ |  | — | ​
Accumulated deficit | ​ |  | (339,070) | ​ |  | (311,929) | ​
Total stockholders’ equity | ​ |  | 115,334 | ​ |  | 137,199 | ​
Total liabilities and stockholders’ equity | ​ | $ | 133,859 | ​ | $ | 150,462 | ​

​

See accompanying notes to consolidated financial statements.

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5

Table of Contents

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

​

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except share and per share amounts)

(unaudited)

​

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended March 31, | ​ | ​
​ |  | 2021 |  | 2020 |  | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Federal contract revenue |  | $ | 1,806 |  | $ | — |  |
Expenses: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Research and development | ​ | $ | 18,591 | ​ | $ | 15,004 | ​ | ​
General and administrative | ​ |  | 10,376 | ​ |  | 3,850 | ​ | ​
Loss from operations | ​ |  | (27,161) | ​ |  | (18,854) | ​ | ​
Interest income | ​ |  | 24 | ​ |  | 222 | ​ | ​
Other expense, net | ​ |  | (4) | ​ |  | (40) | ​ | ​
Net loss and comprehensive loss | ​ | $ | (27,141) | ​ | $ | (18,672) | ​ | ​
Deemed dividends on convertible preferred stock | ​ | ​ | — | ​ | ​ | (8,880) | ​ | ​
Net loss and comprehensive loss applicable to common shareholders | ​ | $ | (27,141) | ​ | $ | (27,552) | ​ | ​
Per share information: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Net loss per share of common stock—basic and diluted | ​ | $ | (0.74) | ​ | $ | (1.27) | ​ | ​
Basic and diluted weighted average shares outstanding | ​ |  | 36,599,701 | ​ |  | 21,665,461 | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​

​

See accompanying notes to consolidated financial statements.

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MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

​

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

​

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended March 31, |
​ | ​ | 2021 | ​ | 2020 |
​ | ​ | ​ | ​ | ​ | ​ | ​ |
Cash flows from operating activities |  | ​ |  |  | ​ |  | ​
Net loss | ​ | $ | (27,141) | ​ | $ | (18,672) | ​
Adjustments to reconcile net loss to net cash used in operating activities: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Depreciation and amortization | ​ |  | 85 | ​ |  | 84 | ​
Stock-based compensation expense | ​ |  | 5,035 | ​ |  | 1,876 | ​
Noncash lease expense | ​ |  | 73 | ​ |  | 62 | ​
Noncash lease liability | ​ | ​ | 82 | ​ | ​ | 95 | ​
Amortization of discount on investments | ​ | ​ | — | ​ | ​ | 1 | ​
Changes in operating assets and liabilities: | ​ | ​ | ​ | ​ | ​ | ​ | ​
Prepaid expenses and other current and non-current assets and federal contract revenue receivables | ​ |  | 366 | ​ |  | 258 | ​
Accounts payable, accrued expenses and other long term-liabilities | ​ |  | 5,325 | ​ |  | 2,259 | ​
Net cash used in operating activities | ​ |  | (16,175) | ​ |  | (14,037) | ​
Cash flows from investing activities | ​ | ​ | ​ | ​ | ​ | ​ | ​
Maturities of short-term investments | ​ |  | 1,474 | ​ |  | 1,737 | ​
Purchases of short-term investments | ​ | ​ | — | ​ | ​ | (8,433) | ​
Deposit on property and equipment | ​ | ​ | (404) | ​ | ​ | — | ​
Purchases of property and equipment | ​ |  | (28) | ​ |  | (1) | ​
Net cash provided by (used in) investing activities | ​ |  | 1,042 | ​ |  | (6,697) | ​
Cash flows from financing activities | ​ | ​ | ​ | ​ | ​ | ​ | ​
Proceeds from exercise of stock options | ​ |  | 244 | ​ |  | 312 | ​
Financing costs | ​ | ​ | (148) | ​ | ​ | (195) | ​
Net cash provided by financing activities | ​ |  | 96 | ​ |  | 117 | ​
Net decrease in cash and cash equivalents | ​ |  | (15,037) | ​ |  | (20,617) | ​
Cash and cash equivalents—beginning of period | ​ |  | 138,509 | ​ |  | 90,943 | ​
Cash and cash equivalents—end of period | ​ | $ | 123,472 | ​ | $ | 70,326 | ​

​

See accompanying notes to consolidated financial statements.

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Table of Contents

MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

​

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share amounts)

(unaudited)

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Accumulated | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Series A | ​ | ​ | ​ | ​ | ​ | ​ | Additional | ​ | ​ | ​ | ​ | ​ | ​ | Other | ​ | ​ | ​ | Total | ​
​ | ​ | Convertible Preferred Stock | ​ | Common Stock | ​ | Paid-in | ​ | Treasury Stock | ​ | Comprehensive | ​ | Accumulated | ​ | Stockholders’ | ​
​ |  | Shares |  | Amount |  | Shares |  | Amount |  | Capital |  | Shares |  | Amount |  | Income |  | Deficit |  | Equity | ​
Balance, December 31, 2019 | ​ | — | ​ | $ | — | ​ | 21,625,088 | ​ | $ | 22 | ​ | $ | 295,056 | ​ | 7,307 | ​ | $ | — | ​ | $ | — | ​ | $ | (235,574) | ​ | $ | 59,569 | ​
Stock-Based Compensation Expense | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 1,876 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 1,876 | ​
Exercise of stock options | ​ | ​ | ​ | ​ | ​ | ​ | 59,978 | ​ | ​ | ​ | ​ | ​ | 312 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 312 | ​
Issuance of restricted stock | ​ | ​ | ​ | ​ | ​ | ​ | 5,250 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | — | ​
Unrealized gain on investments | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 28 | ​ | ​ | ​ | ​ | ​ | 28 | ​
Deemed dividend on beneficial conversion feature - Series A convertible preferred stock | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 8,880 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (8,880) | ​ | ​ | — | ​
Net Loss | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (18,672) | ​ | ​ | (18,672) | ​
Balance, March 31, 2020 |  | — | ​ | ​ | — | ​ | 21,690,316 | ​ | ​ | 22 | ​ | ​ | 306,124 | ​ | 7,307 | ​ | ​ | — | ​ | ​ | 28 | ​ | ​ | (263,126) | ​ | ​ | 43,113 | ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Balance, December 31, 2020 |  | 4,753 | ​ | $ | 4,469 | ​ | 36,585,767 | ​ | $ | 37 | ​ | $ | 444,622 | ​ | 7,307 | ​ | $ | — | ​ | $ | — | ​ | $ | (311,929) | ​ | $ | 137,199 | ​
Stock-Based Compensation Expense | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 5,035 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 5,035 | ​
Exercise of stock options | ​ | ​ | ​ | ​ | ​ | ​ | 55,030 | ​ | ​ | ​ | ​ | ​ | 244 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | 244 | ​
Financing Costs | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (3) | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | (3) | ​
Net Loss | ​ | ​ | ​ | ​ | ​ | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | (27,141) | ​ | ​ | (27,141) | ​
Balance, March 31, 2021 | ​ | 4,753 | ​ | $ | 4,469 | ​ | 36,640,797 | ​ | $ | 37 | ​ | $ | 449,898 | ​ | 7,307 | ​ | $ | — | ​ | $ | — | ​ | $ | (339,070) | ​ | $ | 115,334 | ​

​

See accompanying notes to consolidated financial statements.

​

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MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS

1. Description of the Business and Liquidity

​

We are a clinical stage pharmaceutical company focused on developing and commercializing innovative therapeutics to treat patients suffering from rare seizure disorders. Our clinical stage product candidate, ganaxolone, is a positive allosteric modulator of GABAA that is being developed in formulations for two different routes of administration: intravenous (IV) and oral. Ganaxolone is a synthetic analog of allopregnanolone, an endogenous neurosteroid. The different formulations are intended to maximize potential therapeutic applications of ganaxolone for adult and pediatric patient populations, in both acute and chronic care, and for both in-patient and self-administered settings. Ganaxolone acts at both synaptic and extrasynaptic GABAA receptors, a target known for its anti-seizure, antidepressant and anxiolytic potential.

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) was identified in Wuhan, China. This virus was declared a pandemic by the World Health Organization in March 2020 and has spread to nearly every country in the world, including the United States (U.S.). Efforts to contain the spread of COVID-19 have intensified and many countries, including the U.S., have implemented severe travel restrictions, business shutdowns and social distancing measures that have impacted clinical development through supply chain shortages and clinical trial enrollment difficulties as hospitals reduce and redeploy staff, divert resources to patients suffering from COVID-19 and limit hospital access for non-patients. The pandemic poses the risk that we, our employees, contractors, suppliers, or other partners may be prevented from conducting normal business activities for an indefinite period of time, including those due to shutdowns that may be requested or mandated by governmental authorities.

The continued global spread of COVID-19 has impacted our operations but did not have a material impact on our business, operating results, financial condition or cash flows as of and for the three months ended March 31, 2021. For example, several of our Phase 1 trials of oral ganaxolone to support the development of CDD have experienced delays in enrollment due to COVID-19; however we do not expect these delays to impact our ability to file an NDA. Further, in response to COVID-19, for our ongoing clinical trials, we have implemented multiple measures consistent with the U.S. Food and Drug Administration’s guidance on the conduct of clinical trials of medical products during the COVID-19 pandemic, including implementing remote site monitoring and remote visits using telemedicine where needed. However, COVID-19 may still adversely impact our clinical trials. For example, our Phase 3 clinical trial in RSE is conducted in hospitals and resources related to the COVID-19 outbreak may divert staffing in hospitals, taking resources away from our clinical trial. Our ganaxolone clinical trials in the outpatient setting may be negatively impacted if patients and their caregivers do not want to participate in a clinical trial while COVID-19 outbreaks continue. Although operations have not been materially affected by the COVID-19 pandemic as of and for the three months ended March 31, 2021, we are unable to predict the impact that COVID-19 will have in the future on our business, financial position, operating results and cash flows due to numerous uncertainties. The duration and severity of the pandemic and its long-term impact on our business are uncertain at this time, and our ability to raise sufficient additional financing depends on many factors beyond our control, including the current volatility in the capital markets as a result of the COVID-19 pandemic.

Liquidity

We have not generated any product revenues and have incurred operating losses since inception, including losses of $27.1 million for the three months ended March 31, 2021. There is no assurance that profitable operations will ever be achieved, and if achieved, could be sustained on a continuing basis. In addition, development activities, clinical and preclinical testing, if approved, and commercialization of our product candidates will require significant additional financing. Our accumulated deficit as of March 31, 2021 was $339.1 million and we expect to incur substantial losses in future periods. We plan to finance our future operations with a combination of proceeds from the issuance of equity securities, the issuance of debt, government funding, collaborations, licensing transactions and other commercial transactions and revenues from future product sales, if any. We have not generated positive cash flows from operations,

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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)

and there are no assurances that we will be successful in obtaining an adequate level of financing for the development and, if approved, commercialization of our product candidates.

On May 11, 2021 (the Closing Date), we entered into a Credit Agreement and Guaranty (as amended by that certain letter agreement on May 17, 2021, the Credit Agreement) with Oaktree Fund Administration, LLC, as administrative agent and the lenders party thereto that provides for a five-year senior secured term loan facility in an aggregate original principal amount of up to $125.0 million available to us in five tranches as follows (collectively, the Term Loans):

| ● | $15.0 million of tranche A-1 term loans advanced on the Closing Date.

| ● | $30.0 million of tranche A-2 term loans subject to written acceptance by the U.S. Food and Drug Administration (FDA) of a New Drug Application (NDA) filing relating to the use of ganaxolone in the treatment of CDKL5 deficiency disorder (CDD).

| ● | $30.0 million of tranche B term loans subject to receipt of written approval from the FDA of an NDA permitting the marketing of ganaxolone in interstate commerce in the United States to treat CDD (the FDA Approval).

| ● | $25.0 million of tranche C term loans subject to receipt of the FDA Approval and the completion of one or more financings, including through the issuance of common stock, convertible debt, subordinated debt, a synthetic royalty or a sublicense in which we receive gross proceeds in an aggregate amount of at least $40.0 million and net proceeds in an aggregate amount of at least $36.0 million. In addition, the availability of this tranche is subject to either our current Phase 3 trial in RSE or a Phase 3 trial in tuberous sclerosis complex (TSC) achieving statistical significance (p value < 0.05) across all primary endpoints and ganaxolone must be generally well tolerated, with a safety profile generally consistent with previous clinical trials.

| ● | $25.0 million of tranche D term loans subject to receipt of the FDA Approval and us earning at least $50 million in net product revenue in the United States for a period of six consecutive months.

The Term Loans will bear interest at a fixed per annum rate (subject to increase during an event of default) of 11.50% and are scheduled to mature on the fifth anniversary of the Closing Date (the Maturity Date). In addition, at the time of funding of any tranche of the Term Loans, we are required to pay an upfront fee of 2.0% of the aggregate principal amount being funded. We are required to make quarterly interest payments until the Maturity Date. We are also required to make principal payments, which are payable in quarterly installments beginning on the last day of the first quarter ending after the third anniversary of the Closing Date in an amount equal to 5.0% of the aggregate amount of the Term Loans outstanding on the date of the first such quarterly principal payment and continuing until the Maturity Date, on which date all outstanding Term Loans and other amounts owed under the Credit Agreement will be required to be paid in full. A commitment fee of 75 basis points per annum will accrue on each of the tranche B, C and D commitments for the period beginning 120 days after the funding date of the tranche A-2 term loans until the applicable tranche is either funded or terminated.

In September 2020, we entered into a contract (BARDA Contract) with the Biomedical Advanced Research and Development Authority (BARDA), a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response. Under the BARDA Contract, we receive d an award of up to an estimated $51 million for development of IV-administered ganaxolone for the treatment of refractory status epilepticus (RSE). The BARDA Contract provides for f unding to include support, on a cost-sharing basis, the completion of a Phase 3 clinical trial of IV-administered ganaxolone in patients with RSE (our Phase 3 clinical trial evaluating IV ganaxolone for the treatment of RSE (RAISE Trial)) , funding of pre-clinical studies to provide support that IV-administered

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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)

ganaxolone could be an effective treatment for RSE due to chemical nerve gas agent exposure, and funding of certain manufacturing scale-up and regulatory activities.

The BARDA Contract consists of an approximately two-year base period-during which BARDA will provide approximately $21 million of funding for the RAISE Trial on a cost share basis and funding of additional preclinical studies of ganaxolone in nerve agent exposure models. Following successful completion of the RAISE Trial and preclinical studies in the base period, the BARDA Contract provides for approximately $30 million of additional BARDA funding for three options in support of manufacturing, supply chain, clinical, regulatory and toxicology activities. Under the BARDA Contract, we will be responsible for cost sharing in the amount of approximately $33 million and BARDA will be responsible for approximately $51 million, if all development options are completed. The contract period-of-performance (base period plus option exercises) is up to approximately five years.

In connection with the closing of an equity financing in December 2020, we issued a total of 5,000,000 shares of common stock in an underwritten public offering resulting in aggregate net proceeds, after underwriting discounts and commissions in the public offering and other estimated offering expenses, of $64.9 million.

In connection with the closing of an equity financing in June 2020, we issued a total of 4,600,000 shares of common stock in an underwritten public offering resulting in aggregate net proceeds, after underwriting discounts and commissions in the public offering and other estimated offering expenses, of $42.9 million.

We believe that our cash and cash equivalents balances as of March 31, 2021, including the net upfront proceeds received in May 2021 from our Credit Agreement, will enable us to fund our operating expenses and capital expenditure requirements for at least the next 12 months.

Reverse stock split

On September 23, 2020, we effected a 1-for-4 reverse split of shares of our common stock (Reverse Split), as approved by our board of directors and stockholders. The par value per share of our common stock was not adjusted as a result of the Reverse Split, and our authorized shares of common stock was reduced to 150,000,000. All of the share and per share amounts included in the accompanying financial statements and these notes have been adjusted to reflect the Reverse Split.

​

2. Summary of Significant Accounting Policies

​

Basis of Presentation

​

The accompanying unaudited interim consolidated financial statements include the accounts of Marinus Pharmaceuticals, Inc. (a Delaware corporation) as well as the accounts of Marinus Pharmaceuticals Emerald Limited (an Ireland company incorporated in February 2021), a wholly owned subsidiary requiring consolidation. Marinus Pharmaceuticals Emerald Limited serves as a corporate presence in the European Union for regulatory purposes. The unaudited interim consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all information and disclosures necessary for a presentation of our financial position, results of operations and cash flows in conformity with generally accepted accounting principles in the U.S. (GAAP) for annual financial statements. In the opinion of management, these unaudited interim consolidated financial statements reflect all adjustments, consisting primarily of normal recurring accruals, necessary for a fair presentation of our financial position and results of operations and cash flows for the periods presented. The results of operations for interim periods are not necessarily indicative of the results for the full year. These unaudited interim consolidated financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 2020 and accompanying notes thereto included in our annual report on Form 10-K filed with the SEC on March 9, 2021.

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MARINUS PHARMACEUTICALS, INC. AND SUBSIDIARY

CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)

​

Use of Estimates

​

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from such estimates.

​

Federal Contract Revenue

​

We recognize federal contract revenue from the BARDA Contract in the period in which the allowable research and development expenses are incurred, and receivables associated with this revenue are recorded as federal contract revenue receivable on our interim consolidated balance sheets. This revenue is not within the scope of Accounting Standards Codification (ASC) 606 – Revenue from contracts with customers.

​

3. Fair Value Measurements

​

FASB accounting guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date. The accounting guidance outlines a valuation framework and creates a fair value hierarchy in order to increase the consistency and comparability of fair value measurements and the related disclosures. In determining fair value, we use quoted prices and observable inputs. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources.

​

The fair value hierarchy is broken down into three levels based on the source of inputs as follows:

| ● | Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities.

| ● | Level 2 — Valuations based on observable inputs and quoted prices in active markets for similar assets and liabilities.

| ● | Level 3 — Valuations based on inputs that are unobservable and models that are significant to the overall fair value measurement.

If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument.

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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)

The following fair value hierarchy table presents information about each major category of our financial assets and liabilities measured at fair value on a recurring basis (in thousands):

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | Level 1 |  | Level 2 |  | Level 3 |  | Total |
March 31, 2021 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Assets | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Money market funds (cash equivalents) | ​ | $ | 122,210 | ​ | $ | — | ​ | $ | — | ​ | $ | 122,210 | ​
Total assets | ​ | $ | 122,210 | ​ | $ | — | ​ | $ | — | ​ | $ | 122,210 | ​
December 31, 2020 | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Assets | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Money market funds (cash equivalents) | ​ | $ | 138,509 | ​ | $ | — | ​ | $ | — | ​ | $ | 138,509 | ​
Certificates of deposit | ​ | ​ | 1,474 | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 1,474 | ​
Total assets | ​ | $ | 139,983 | ​ | $ | — | ​ | $ | — | ​ | $ | 139,983 | ​

​

​

4. Accrued Expenses

​

Accrued expenses consisted of the following (in thousands):

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31, | ​ | December 31, | ​
​ | ​ | 2021 | ​ | 2020 | ​
Payroll and related costs | ​ | $ | 2,533 | ​ | $ | 4,097 |
Clinical trials and drug development | ​ | ​ | 6,645 | ​ | ​ | 2,452 | ​
Professional fees | ​ | ​ | 1,158 | ​ | ​ | 927 | ​
Short-term lease liabilities | ​ | ​ | 519 | ​ | ​ | 510 | ​
Other | ​ | ​ | 99 | ​ | ​ | 532 | ​
Total accrued expenses | ​ | $ | 10,954 | ​ | $ | 8,518 | ​

​

​

5. Investments

​

We did not have any investments as of March 31, 2021. As of December 31, 2020, our investments consisted of certificates of deposit with various financial institutions with original maturities of six to nine months. Investments are classified as short- or long-term investments on our balance sheets based on original maturity. Certificates of deposits were classified as held-to-maturity and were recorded at amortized cost, which approximated fair value. We have never experienced a credit loss on the principal or interest receivable of our cash equivalents or short-term investments. Our certificates of deposit are each individually and fully insured by the federal Depsot Insurance Company (FDIC). Accordingly, we did not record any allowance for potential credit losses as of December 31, 2020.

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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)

6. Loss Per Share of Common Stock

​

Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible preferred stock, convertible notes payable, warrants, stock options, and unvested restricted stock, which would result in the issuance of incremental shares of common stock. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation. These potentially dilutive securities are more fully described in Note 7, and summarized in the table below:

​

​ | ​ | ​ | ​ | ​ | ​
​ | ​ | March 31,
​ | ​ | 2021 | ​ | 2020 | ​
Convertible preferred stock |  | 950,600 |  | 6,000,000 |
Restricted stock |  | 22,000 |  | 5,250 |
Stock options |  | 4,436,778 |  | 3,264,041 |
​ |  | 5,409,378 |  | 9,269,291 |

​

​

7. Stockholders’ Equity

​

In 2005, we adopted the 2005 Stock Option and Incentive Plan (2005 Plan) that authorizes us to grant stock options, restricted stock and other equity-based awards. As of March 31, 2021, 6,565 options to purchase shares of common stock were outstanding pursuant to grants in connection with the 2005 Plan. No additional shares are available for issuance under the 2005 Plan.

​

In August 2014, we adopted our 2014 Equity Incentive Plan, most recently amended in May 2020 (2014 Plan), that authorizes us to grant stock options, restricted stock, and other equity-based awards, subject to adjustment in accordance with the 2014 Plan. The amount, terms of grants, and exercisability provisions are determined and set by our board of directors. As of March 31, 2021, 3,386,335 options to purchase shares of common stock were outstanding pursuant to grants in connection with the 2014 Plan, and 646,221 shares of common stock were available for future issuance. The amount, terms of grants, and exercisability provisions are determined and set by our board of directors.

​

Stock Options

​

There were 4,436,778 stock options outstanding as of March 31, 2021 at a weighted-average exercise price of $11.97 per share, including 1,043,878 stock options outstanding outside of the 2014 Plan, granted as inducements to new employees. During the three months ended March 31, 2021, 1,235,351 options were granted to employees and directors at a weighted-average exercise price of $13.33 per share. Of the options granted, 1,005,038 options were granted pursuant to the 2014 Plan and 230,313 were granted outside of the 2014 Plan as inducements for new employees.

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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)

Total compensation cost recognized for all stock option awards in the statements of operations is as follows (in thousands):

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​
​ | ​ | March 31, | ​
​ | ​ | 2021 | ​ | 2020 | ​
Research and development |  | $ | 1,190 |  | $ | 729 |
General and administrative | ​ |  | 3,790 | ​ |  | 1,146 | ​
Total | ​ | $ | 4,980 | ​ | $ | 1,875 | ​

​

Restricted Stock

​

All issued and outstanding restricted shares of common stock are time-based, and become vested between one and three years after the grant date. Compensation expense is recorded ratably over the requisite service period. Compensation expense related to restricted stock is measured based on the fair value using the closing market price of our common stock on the date of the grant.

​

We issued 0 and 5,250 restricted shares of common stock during the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021 there were 22,000 restricted shares of common stock outstanding.

​

Total compensation cost recognized for all restricted stock awards in the statements of operations is as follows (in thousands):

​

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​
​ | ​ | March 31, | ​
​ | ​ | 2021 | ​ | 2020 | ​
General and administrative | ​ |  | 55 | ​ |  | 1 | ​
Total | ​ | $ | 55 | ​ | $ | 1 | ​

​

​

​

​

​

Preferred Stock

​

As of March 31, 2021, 4,753 shares of our Series A Convertible Preferred Stock (Preferred Stock) remained outstanding, convertible into 950,600 shares of our common stock. In May 2020, a registration statement covering the resale of shares of our common stock underlying our Preferred Stock was declared effective by the SEC. In accordance with the securities purchase agreements underlying the Preferred Stock, the liquidation preference was terminated, and we reclassified the Preferred Stock into permanent equity.

​

Deemed Dividends

​

On March 31, 2020, our stockholders approved an amendment to our company charter, which was filed with the Secretary of State of the State of Delaware to increase the number of authorized shares of common stock, which resulted in the recognition of a beneficial conversion feature on our Preferred Stock. Accordingly, we recorded $8.9 million in deemed dividends in the three months ended March 31, 2020, which was calculated as the difference between the conversion price and the fair value of our common stock on the commitment date (transaction date) in connection with the closing of concurrent equity financings during the fourth quarter of 2019.

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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)

8. Leases

​

We have entered into operating leases for real estate. These leases have terms which range from 36 to 78 months, and include renewal terms which can extend the lease terms by 24 to 60 months, which are included in the lease term when it is reasonably certain that we will exercise the option. As of March 31, 2021, our operating leases had a weighted average remaining lease term of 53 months. These right-of-use (ROU) assets are included in "Other assets" on our interim consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively, and represent our right to use the underlying asset for the lease term. Our obligations to make lease payments are included in "Accrued expenses" and "Other long-term liabilities" on our interim consolidated balance sheets as of March 31, 2021 and December 31, 2020, respectively. The ROU assets were initially measured at cost, which comprises the initial amount of the lease liability adjusted for lease payments made at or before the lease commencement date, plus any initial direct costs incurred, less any lease incentives received. The ROU assets are subsequently measured throughout the lease term at the carrying amount of the lease liability, plus initial direct costs, plus (minus) any prepaid (accrued) lease payments, less the unamortized balance of lease incentives received.

As of March 31, 2021 and December 31, 2020, ROU assets were $1.9 million and $2.0 million, respectively, and operating lease liabilities were $2.9 million and $3.0 million, respectively. We have entered into various short-term operating leases, primarily for clinical trial equipment, with an initial term of twelve months or less. These leases are not recorded on our balance sheets. All operating lease expense is recognized on a straight-line basis over the lease term. During each of the three months ended March 31, 2021 and 2020, we recognized $0.2 million in total lease costs, which included less than $0.1 million in short-term lease costs related to short-term operating leases.

Because the rate implicit in each lease is not readily determinable, we use our incremental borrowing rate to determine the present value of the lease payments. The weighted average incremental borrowing rate used to determine the initial value of ROU assets and lease liabilities was 11.0%, derived from a corporate yield curve based on a synthetic credit rating model using a market signal analysis. We have certain contracts for real estate which may contain lease and non-lease components which we have elected to treat as a single lease component.

ROU assets for operating leases are periodically reduced by impairment losses. We use the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant, and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize. As of March 31, 2021 and December 31, 2020, we have not recognized any impairment losses for our ROU assets.

We monitor for events or changes in circumstances that require a reassessment of one of our leases. When a reassessment results in the remeasurement of a lease liability, a corresponding adjustment is made to the carrying amount of the corresponding ROU asset unless doing so would reduce the carrying amount of the ROU asset to an amount less than zero. In that case, the amount of the adjustment that would result in a negative ROU asset balance is recorded in our interim consolidated statements of operations and comprehensive loss.

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CONSOLIDATED NOTES TO FINANCIAL STATEMENTS (Continued)

Maturities of operating lease liabilities as of March 31, 2021 were as follows (in thousands):

​ | ​ | ​ | ​ | ​
​ |  | ​ |
​ | ​ | ​ | ​ | ​
Remaining nine months of 2021 | ​ |  | 616 | ​
2022 | ​ |  | 807 | ​
2023 | ​ |  | 823 | ​
2024 | ​ |  | 840 | ​
Thereafter | ​ |  | 642 | ​
​ | ​ | ​ | 3,728 | ​
Less: imputed interest | ​ | ​ | (805) | ​
Total lease liabilities | ​ | $ | 2,923 | ​
​ | ​ | ​ | ​ | ​
Current operating lease liabilities | ​ | $ | 519 | ​
Non-current operating lease liabilities | ​ | ​ | 2,404 | ​
Total lease liabilities | ​ | $ | 2,923 | ​

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements, within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, that involve substantial risks and uncertainties. In some cases, you can identify forward-looking statements by the words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “ongoing,” “plan,” “predict,” “project,” “potential,” “should,” “will,” or “would,” and or the negative of these terms, or other comparable terminology intended to identify statements about the future. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Although we believe that we have a reasonable basis for each forward-looking statement contained in this Quarterly Report on Form 10-Q, we caution you that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about which we cannot be certain.

The forward-looking statements in this Quarterly Report on Form 10-Q include, among other things, statements about:

| ● | our ability to develop and commercialize ganaxolone;

| ● | status, timing and results of preclinical studies and clinical trials;

| ● | design of and enrollment in clinical trials, availability of data from ongoing clinical trials, expectations for regulatory approvals, or the attainment of clinical trial results that will be supportive of regulatory approvals;

| ● | the potential benefits of ganaxolone;

| ● | the timing of seeking marketing approval of ganaxolone;

| ● | our ability to obtain and maintain marketing approval;

| ● | our estimates of expenses and future revenue and profitability;

| ● | our estimates regarding our capital requirements and our needs for additional financing;

| ● | our plans to develop and market ganaxolone and the timing of our development programs;

| ● | our estimates of the size of the potential markets for ganaxolone;

| ● | our selection and licensing of ganaxolone;

| ● | our ability to attract collaborators with acceptable development, regulatory and commercial expertise;

| ● | the benefits to be derived from corporate collaborations, license agreements, and other collaborative or acquisition efforts, including those relating to the development and commercialization of ganaxolone;

| ● | sources of revenue, including contributions from our contract (BARDA Contract) with the Biomedical Advanced Research and Development Authority (BARDA), corporate collaborations, license agreements, and other collaborative efforts for the development and commercialization of ganaxolone and our product candidates;

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| ● | our ability to create an effective sales and marketing infrastructure if we elect to market and sell ganaxolone directly;

| ● | the rate and degree of market acceptance of ganaxolone;

| ● | the timing and amount of reimbursement for ganaxolone;

| ● | the success of other competing therapies that may become available;

| ● | the manufacturing capacity for ganaxolone;

| ● | the extent to which our ability to market and sell ganaxolone may be negatively impacted by third party patents;

| ● | our ability to maintain and protect our intellectual property rights;

| ● | our results of operations, financial condition, liquidity, prospects, and growth strategies;

| ● | the industry in which we operate;

| ● | the extent to which our business may be adversely impacted by the effects of the COVID-19 coronavirus pandemic or by other pandemics, epidemics or outbreaks;

| ● | t he enforceability of the exclusive forum provisions in our fourth amended and restated certificate of incorporation; and

| ● | the trends that may affect the industry or us.

You should refer to Part II Item 1A. “Risk Factors” of this Quarterly Report on this Form 10-Q for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report on Form 10-Q will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with: (i) the interim consolidated financial statements and related notes thereto which are included in this Quarterly Report on Form 10-Q; and (ii) our annual financial statements for the year ended December 31, 2020 which are included in our Annual Report on Form 10-K filed with the SEC on March 9, 2021.

Overview

​

We are a clinical stage pharmaceutical company focused on developing and commercializing innovative therapeutics to treat patients suffering from rare seizure disorders. Our clinical stage product candidate, ganaxolone, is a positive allosteric modulator of GABAA that is being developed in formulations for two different routes of administration: intravenous (IV) and oral. Ganaxolone is a synthetic analog of allopregnanolone, an endogenous

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neurosteroid. The different formulations are intended to maximize potential therapeutic applications of ganaxolone for adult and pediatric patient populations, in both acute and chronic care, and for both in-patient and self-administered settings. Ganaxolone acts at both synaptic and extrasynaptic GABAA receptors, a target known for its anti-seizure, antidepressant and anxiolytic potential.

COVID-19

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) was identified in Wuhan, China. This virus was declared a pandemic by the World Health Organization in March 2020 and has spread to nearly every country in the world, including the U.S. Efforts to contain the spread of COVID-19 have intensified and many countries, including the U.S., have implemented severe travel restrictions, business shutdowns and social distancing measures that have impacted clinical development through supply chain shortages and clinical trial enrollment difficulties as hospitals reduce and redeploy staff, divert resources to patients suffering COVID-19 and limit hospital access for non-patients. The pandemic poses the risk that we, our contractors, suppliers, or other partners may be prevented from conducting normal business activities for an indefinite period of time, including those due to shutdowns that may be requested or mandated by governmental authorities.

The continued global spread of COVID-19 has affected our operations but did not have a material impact on our business, operating results, financial condition or cash flows as of and for the three months ended March 31, 2021. For example, several of our Phase 1 trials of oral ganaxolone to support the development of CDD have experienced delays in enrollment due to COVID-19; however, we do not expect these delays to impact our ability to file an NDA. Further, in response to COVID-19, for our ongoing clinical trials, we have implemented multiple measures consistent with guidance of the FDA on the conduct of clinical trials of medical products during the COVID-19 pandemic, including implementing remote site monitoring and remote visits using telemedicine where needed. However, COVID-19 may still adversely impact our clinical trials. For example, our RAISE Trial in refractory status epilepticus (RSE) is being conducted in hospitals, and resources related to the COVID-19 pandemic may divert staffing in hospitals, taking resources away from our clinical trial. Our ganaxolone clinical trials in the outpatient setting may be negatively impacted if patients and their caregivers do not want to participate in a clinical trial while COVID-19 outbreaks continue. Although operations were not materially affected by the COVID-19 pandemic as of and for the three months ended March 31, 2021, we are unable to predict the impact that COVID-19 will have in the future on our business, financial position, operating results and cash flows due to numerous uncertainties. The duration and severity of the pandemic and its long-term impact on our business are uncertain at this time, and our ability to raise sufficient additional financing depends on many factors beyond our control, including the current volatility in the capital markets as a result of the COVID-19 pandemic.

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Our Pipeline

We are developing ganaxolone in indications where there is a mechanistic rationale for ganaxolone to provide a benefit, including the following indications:

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Status Epilepticus (SE)

Status epilepticus (SE) is a life-threatening condition characterized by continuous, prolonged seizures or rapidly recurring seizures without intervening recovery of consciousness. If SE is not treated urgently, permanent neuronal damage may occur, which contributes to high rates of morbidity and mortality. Patients with SE who do not respond to first-line benzodiazepine treatment are classified as having established SE (ESE) and those who then progress to and then fail at least one second-line antiepileptic drug (AED) are classified as having refractory status epilepticus (RSE). In RSE, synaptic GABAA receptors are internalized into the neuron, resulting in decreased responsiveness to drugs such as benzodiazepines. Treatment for RSE unresponsive to one or more second-line AEDs is IV anesthesia to terminate seizures and prevent neuronal injury and other complications. The IV anesthetic is increased to a level that induces deep coma and is maintained at that rate for 24 hours or more. SE that recurs following an attempted wean of IV anesthesia is classified as super refractory status epilepticus (SRSE). In April 2016, we were granted FDA orphan drug designation for IV formulation of ganaxolone for the treatment of SE, which includes RSE.

In January 2021, we enrolled the first patient in a Phase 3 pivotal clinical trial (the RAISE Trial). The RAISE Trial is a randomized, double-blind, placebo-controlled clinical trial in patients with RSE. Approximately 80 trial sites in hospitals across the U.S. will participate in the RAISE Trial. The RAISE Trial is designed to enroll approximately 124 patients, who will be randomized to receive ganaxolone or placebo added to standard of care. With this number of patients, the trial will provide over 90 percent power to detect a 30 percent efficacy difference between ganaxolone and placebo.

The co-primary endpoints for the RAISE Trial are (1) proportion of patients with RSE who experience seizure cessation within 30 minutes of treatment initiation without other medications for RSE treatment, and (2) proportion of patients with no progression to IV anesthesia for 36 hours following initiation of the study drug. We plan to announce

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top-line data from the trial in the first half of 2022. Planning continues for a separate RSE trial to be conducted in Europe (the RAISE II Trial). Following a meeting with the EMA in the first quarter of 2021, at which we discussed study design, trial initiation is planned for the first half of 2022. The RAISE II Trial will be a double blind, placebo-controlled pivotal registration study expected to enroll 70 patients who have failed first-line benzodiazepine treatment and at least one prior second-line AED. Patients will receive either ganaxolone or placebo, administered in combination with a standard-of-care second-line AED. The RAISE II Trial in Europe differs from the RAISE trial in the U.S., with the RAISE II Trial using adjunctive ganaxolone that can be initiated earlier in the course of RSE.

CDKL5 Deficiency Disorder (CDD)

CDD is a serious and rare genetic disorder that is caused by a mutation of the cyclin-dependent kinase-like 5 (CDKL5) gene, located on the X chromosome. It predominantly affects females and is characterized by early-onset, difficult-to-control seizures and severe neuro-developmental impairment. The CDKL5 gene encodes proteins essential for normal brain function. Most children affected by CDD cannot walk normally, talk, or care for themselves. Many also suffer from scoliosis, visual impairment, gastrointestinal difficulties or sleep disorders. There are no medications approved specifically for the treatment of CDD. Genetic testing is available to determine if a patient has a mutation in the CDKL5 gene. To our knowledge, no previous late-stage clinical trials have been conducted in this patient population. In June 2017, we were granted FDA orphan drug designation for ganaxolone for the treatment of CDKL5 Disorder. Additionally, in November 2019, the European Medicine Agency’s (EMA) Committee for Orphan Medicinal Products (COMP) granted orphan drug designation for ganaxolone for the treatment of CDD.

In September 2020, we announced in top-line results that ganaxolone achieved the primary endpoint in a pivotal Phase 3 clinical trial (Marigold Study), which evaluated the use of oral ganaxolone in children and young adults with CDD. We have received feedback from the FDA that the efficacy and safety data resulting from the Marigold Study appear capable of supporting the filing of an NDA for ganaxolone in the treatment of CDD. The adequacy of these data to support an approval of ganaxolone for the proposed indication will be a matter of review for the FDA. We had a pre-NDA meeting with the FDA in March 2021 to discuss the proposed format and content of the NDA. The top-line results reported for the Marigold Study in September 2020 indicated that the primary endpoint, median 28-day major motor seizure frequency reduction, was 32.2 percent for ganaxolone compared to 4.0 percent for placebo (p=0.002). In connection with the preparation of the NDA submission for CDD, we determined that the top-line data previously reported in September 2020 included seizure diary entries that were duplicates of seizures that parents or caregivers had already entered. The duplicate data, which was the result of programming and data transfer errors, affected approximately 1.7 percent of total seizures reported. These duplicate entries were deleted from the final data analysis that will be submitted in the NDA for the Marigold Study. The final data analysis of the primary endpoint resulted in a median 28-day major motor seizure frequency reduction of 30.7 percent compared to 6.9 percent for placebo (p=0.0036). We do not believe these changes affect the statistical or clinical conclusions of the Marigold Study.

We also had a pre-Marketing Authorization Application (MAA) meeting with the EMA in March 2021 to discuss the proposed format and content of the MAA. We plan to submit an NDA for ganaxolone in the treatment of CDD to the FDA in mid-2021 and an MAA for ganaxolone for the treatment of CDD to the EMA at the end of the third quarter of 2021.

In July 2020, the FDA granted Rare Pediatric Disease (RPD) Designation for ganaxolone for the treatment of CDD. FDA grants RPD Designation for diseases that affect fewer than 200,000 people in the U.S. in which the serious or life-threatening manifestations occur primarily in individuals 18 years of age and younger. If an NDA for ganaxolone in CDD is approved, Marinus may be eligible to receive a priority review voucher from the FDA, which can be redeemed for priority review in a subsequent marketing application. The authority for the FDA to award rare pediatric disease priority review vouchers for drugs after September 30, 2024 is currently limited to drugs that RPD Designation on or prior to September 30, 2024, and the FDA may only award rare pediatric disease priority review vouchers through September 30, 2026. If the NDA for ganaxolone is not approved on or prior to September 30, 2026 for any reason, it will not be eligible for a priority review voucher. However, it is possible that the authority for the FDA to award rare pediatric disease priority review vouchers will be further extended by Congress.

In September 2020, Ovid Therapeutics, Inc. (Ovid) contacted us and disclosed that it owns two recently issued patents that include claims that encompass our product candidates for the treatment of CDD and PCDH19. Ovid may file

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a lawsuit against us alleging infringement of its patents and/or we may challenge the validity of Ovid’s patents with the USPTO or through the courts. Any such proceeding, regardless of its outcome, would likely result in the expenditure of significant financial resources and the diversion of management’s time and resources. In addition, any such proceeding may cause negative publicity, adversely impact patients, and we may be prohibited from marketing or selling ganaxolone for CDD and PCDH19, during such proceedings or if we are not successful in such proceedings. If Ovid does decide to bring an infringement lawsuit, we do not expect that it will be filed before a commercial launch of ganaxolone for CDD, or PCDH19, as applicable, based upon the “safe harbor” provisions of the Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman Act). We may need to acquire or obtain a license to the Ovid patents to market or sell ganaxolone for CDD and PCDH19, which may not be available on commercially acceptable terms or at all. If we are not able to acquire the Ovid patents or negotiate a license on acceptable terms, and if our product is determined to infringe Ovid’s patents and the patents are determined to be valid, then we may be forced to pay Ovid royalties, damages and costs, or we may be prevented from commercializing ganaxolone for CDD and PCDH19 altogether, which would have a material adverse impact on our business. We are also aware of a pending patent application by Ovid in the same patent family that includes claims that encompass our product candidate for the treatment of SE. This pending patent application is in the early stages of examination at the USPTO. It is possible that this pending patent application may issue as a patent with claims that encompass our product candidate for the treatment of RSE, in which case, the above risks would also apply to any such patent that was issued.

Tuberous Sclerosis Complex (TSC)

TSC is a rare genetic disorder that affects many organs and causes non-malignant tumors in the brain, skin, kidney, heart, eyes, and lungs. The condition is caused by inherited mutations in either the TSC1 gene or the TSC2 gene. TSC occurs with a frequency of 1:6,000 live births and a mutation is found in 85% of patients. While the disease phenotype can be extremely variable, epilepsy occurs in up to 85% of TSC patients. TSC is a leading cause of genetic epilepsy, often manifesting in the first year of life as either focal seizures or infantile spasms. There are currently few disease-specific treatments approved for seizures in TSC.

We are conducting a Phase 2 open-label trial (CALM Study) to evaluate the safety and tolerability of adjunctive ganaxolone treatment in patients with TSC. The trial is expected to enroll approximately 25 patients ages 2 to 65 and consists of a four-week baseline period followed by a 12-week treatment period and a 24-week extension. Patients will receive up to 600 mg of ganaxolone (oral liquid suspension) three times a day. The primary endpoint is the percent change in 28-day seizure frequency during the treatment period relative to baseline. We expect to report top-line data in the third quarter of 2021 and also plan to further explore whether allopregnanolone sulfate levels represent a response biomarker. Our interim evaluation of the dataset in the CALM Study supports our plan to move to a Phase 3 trial in the third quarter of 2021. An end of Phase 2 meeting with the FDA is targeted for the third quarter of 2021 and a meeting with the EMA is targeted for the fourth quarter of 2021 with the first patient enrolled in the Phase 3 clinical trial in the fourth quarter of 2021.

PCDH19-Related Epilepsy (PCDH19-RE)

PCDH19-RE is a rare epileptic syndrome characterized by early-onset seizures, cognitive and sensory impairment, and psychiatric and behavioral disturbances. Seizures occur in clusters lasting from several hours to days. The disorder is caused by a mutation in the PCDH19 gene on the X-chromosome. Unlike other X-linked disorders, it selectively affects females with very few cases reported in males. The gene encodes a protein involved in cell adhesion that is widely expressed in the central nervous system. There are no drugs approved specifically for the treatment of seizures associated with PCDH19-RE.

We conducted a Phase 2 proof-of-concept (POC) clinical trial (Violet Study) of ganaxolone treatment in patients with PCDH19-RE, in which enrollment was stratified based on allopregnanolone sulfate, a potential biomarker for the antiepileptic efficacy of ganaxolone. We enrolled 21 patients in one of two strata based on baseline allopregnanolone sulfate levels. The trial consisted of a 12-week prospective baseline period, followed by a 17-week double-blind treatment phase. Patients were titrated over four weeks to a dose of up to 600 mg of ganaxolone oral liquid suspension or matching placebo three times daily and maintain that dose for the following 13 weeks. Physicians have been offered the opportunity to continue treating patients with ganaxolone following the completion of the protocol-specified treatment on a compassionate-use basis.

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The primary efficacy endpoint was the percent change in 28-day primary seizure frequency during the 17-week double-blind phase relative to the baseline. The primary seizure types were defined in the protocol as countable focal seizures that included progressive hypotonia and impaired awareness, or any countable focal or generalized seizure with a clear motor component. Focal and generalized nonmotor seizures and myoclonic seizures did not count as the primary seizure types for the primary efficacy endpoint. The analyses of the primary endpoint were performed on the sum of the individual countable seizures and each series of continuous uncountable seizures (each contributes one to the sum).

In March 2021, we announced top-line data from the Violet Study. In the trial, patients on ganaxolone experienced a median 61.5% reduction in primary endpoint seizure frequency compared to a median 24.0% reduction in patients on placebo (p=0.17). Ganaxolone was generally well tolerated, with one patient in the ganaxolone arm discontinuing treatment due to a serious adverse event (SAE), psychogenic nonepileptic seizures, judged by the investigator to be ganaxolone-related. Allopregnanolone sulfate levels were not predictive of ganaxolone response, indicating that levels of this compound do not represent a response biomarker in the disorder.

Lennox-Gestaut Syndrome (LGS)

LGS is a severe form of epilepsy that typically begins between one and eight years of age. Affected children experience multiple seizure types that are often unresponsive to treatment, the most common being atonic, tonic and atypical absence seizures. Children with LGS may also have neurodevelopmental delay and behavioral problems.

We are pursuing the development of ganaxolone for LGS, given the overlap in seizure types and etiologies with other disorders where ganaxolone has potential to improve clinical outcomes, such as CDD and TSC. We plan to present additional details on clinical development plans for LGS in the second half of 2021, targeting initiation of a Phase 2 clinical trial in mid-2022.

Reverse stock split

​

On September 23, 2020, we effected a 1-for-4 reverse split of shares of our common stock (Reverse Split), as approved by our Board of Directors and stockholders. The par value per share of our common stock was not adjusted as a result of the Reverse Split, and our authorized shares of common stock was reduced to 150,000,000. All of the share and per share amounts included in this Quarterly Report on Form 10-Q have been adjusted to reflect the Reverse Split.

Operations

Our operations to date have consisted primarily of organizing and staffing our company and developing ganaxolone, including conducting preclinical studies, clinical trials and raising capital. We have funded our operations primarily through sales of equity and debt securities. At March 31, 2021, we had cash and cash equivalents of $123.5 million. We have no products currently available for sale, have incurred operating losses since inception, have not generated any product sales revenue and have not achieved profitable operations. We incurred a net loss of $27.1 million and $18.7 million for the three months ended March 31, 2021 and 2020, respectively. Our accumulated deficit as of March 31, 2021 was $339.1 million, and we expect to continue to incur substantial losses in future periods. We anticipate that our operating expenses will increase substantially as we continue to advance our clinical-stage product candidate, ganaxolone.

We anticipate that our expenses will increase substantially as we:

| ● | conduct later stage clinical trials in targeted indications;

| ● | continue the research, development and scale-up manufacturing capabilities to optimize ganaxolone and dose forms for which we may obtain regulatory approval;

| ● | conduct other preclinical studies and clinical trials to support the filing of NDAs with the FDA, MMAs with the EMA and other marketing authorization filings with regulatory agencies in other countries;

| ● | acquire the rights to other product candidates and fund their development;

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| ● | maintain, expand and protect our global intellectual property portfolio;

| ● | hire additional clinical, manufacturing and scientific personnel; and

| ● | add operational, financial and management information systems and personnel, including personnel to support our drug development and potential future commercialization efforts.

We believe that our cash and cash equivalents balances as of March 31, 2021, including the net upfront proceeds received in May 2021 from our Credit Agreement, will enable us to fund our operating expenses and capital expenditure requirements through the second quarter of 2022. However, we will need to secure additional funding in the future, from one or more equity or debt financings, government funding, collaborations, licensing transactions, other commercial transactions or other sources, in order to carry out all of our planned research, development and commercialization activities with respect to ganaxolone.

Financial Overview

Federal Contract Revenue

In September 2020, we entered into a contract (the BARDA Contract) with the Biomedical Advanced Research and Development Authority (BARDA), a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response. Under the BARDA Contract, we will receive an award of up to an estimated $51 million for development of IV administered ganaxolone for the treatment of RSE. Funding will include support on a cost-sharing basis for completion of a Phase 3 clinical trial of IV-administered ganaxolone in patients with RSE who are refractory to second line anti-epileptic drugs, funding of pre-clinical studies to assess whether IV-administered ganaxolone is an effective treatment for RSE due to chemical nerve gas agent exposure, and funding of certain manufacturing scale-up and regulatory activities.

The BARDA Contract consists of an approximately two-year base period-during which BARDA will provide approximately $21 million of funding for the RSE Phase 3 clinical trial on a cost share basis and funding of additional preclinical studies of ganaxolone in nerve agent exposure models. Following successful completion of the RSE Phase 3 clinical trial and preclinical studies in the base period, the BARDA Contract provides for approximately $30 million of additional BARDA funding for three options in support of manufacturing, supply chain, clinical, regulatory and toxicology activities. Under the BARDA Contract, we will be responsible for cost sharing in the amount of approximately $33 million and BARDA in the amount of approximately $51 million if all development options are completed. The contract period-of-performance (base period plus option exercises) is up to approximately five years.

We recognize federal contract revenue from the BARDA Contract in the period in which the allowable research and development expenses are incurred. We expect federal contract revenue to increase as the associated costs with our RSE Phase 3 clinical trial increase.

Research and Development Expenses

Our research and development expenses consist primarily of costs incurred for the development of ganaxolone, which include:

| ● | employee-related expenses, including salaries, benefits, travel and stock-based compensation expense;

| ● | expenses incurred under agreements with clinical research organizations (CROs) and investigative sites that conduct our clinical trials and preclinical studies;

| ● | the cost of acquiring, developing and manufacturing clinical trial materials;

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| ● | facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies; and

| ● | costs associated with preclinical activities and regulatory operations.

We expense research and development costs when we incur them. We record costs for some development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations and information our vendors provide to us.

​

We will incur substantial costs beyond our present and planned clinical trials in order to file an NDA and Supplemental New Drug Applications (sNDAs), or an MAA outside the US, for ganaxolone for various clinical indications, and in each case, the nature, design, size and cost of further clinical trials and other studies will depend in large part on the outcome of preceding studies and trials and discussions with regulators. It is difficult to determine with certainty the costs and duration of our current or future clinical trials and preclinical studies, or if, when or to what extent we will generate revenue from the commercialization and sale of ganaxolone if we obtain regulatory approval. We may never succeed in achieving regulatory approval for ganaxolone. The duration, costs and timing of clinical trials and development of ganaxolone will depend on a variety of factors, including the uncertainties of future clinical trials and preclinical studies, uncertainties in clinical trial enrollment rate and significant and changing government regulation.

​

In addition, the probability of success for our clinical programs will depend on numerous factors, including competition, manufacturing capability and commercial viability. See “Risk Factors.” Our commercial success depends upon attaining significant market acceptance, if approved, among physicians, patients, healthcare payers and the medical community. We will determine which programs to pursue and how much to fund each program in response to the scientific and clinical success, as well as an assessment of commercial potential.

​

General and Administrative Expenses

​

General and administrative expenses consist principally of salaries and related costs for executive and other administrative personnel and consultants, including stock-based compensation and travel expenses. Other general and administrative expenses include professional fees for legal, patent review, consulting and accounting services. General and administrative expenses are expensed when incurred. We expect that our general and administrative expenses will increase in the future as a result of employee hiring and our scaling-up of operations commensurate with supporting more advanced clinical trials and in preparation for commercial infrastructure. These increases will likely include increased costs for insurance, hiring of additional personnel, outside consultants, legal counsel and accountants, among other expenses.

​

Interest Income

Interest income consists principally of interest income earned on cash and cash equivalents and investment balances.

Results of Operations

Federal Contract Revenue

Federal contract revenue was $1.8 million for the three months ended March 31, 2021, compared to $0 for the three months ended March 31, 2020 as a result of the BARDA Contract.

Research and Development Expenses

We allocate direct research and development expenses, consisting principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials, and costs related to manufacturing or purchasing clinical trial materials, to specific product development programs. We do not allocate employee and contractor-related costs, costs associated with our facility expenses, including depreciation or other

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indirect costs, to specific product programs because these costs are deployed across multiple product programs under research and development and, as such, are separately classified. The table below shows our research and development expenses incurred with respect to each active program, in thousands. The primary drivers of our research and development expenditures are currently in our product development programs in RSE, CDD, TSC and PCDH19-RE. We expect our research and development expenses for ganaxolone will continue to increase during subsequent periods. We did not allocate research and development expenses to any other specific product development programs during the periods presented (in thousands):

​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Three Months Ended | ​
​ | ​ | March 31, | ​
​ | ​ | 2021 | ​ | 2020 | ​
CDKL5 deficiency disorder (1) |  | $ | 3,757 |  | $ | 5,598 |
Refractory status epilepticus (2) | ​ | ​ | 4,193 | ​ | ​ | 2,463 | ​
PCDH19-related epilepsy (3) | ​ | ​ | 2,039 | ​ | ​ | 2,180 | ​
Tuberous Sclerosis (4) | ​ | ​ | 1,755 | ​ | ​ | 428 | ​
Indirect research and development (5) | ​ | ​ | 6,847 | ​ | ​ | 4,335 | ​
Total | ​ | $ | 18,591 | ​ | $ | 15,004 | ​

​

Note: Certain prior year expenses have been reclassified to conform to current year presentation.

| (1) | The decrease in the three months ended March 31, 2021 was due to completion of the Phase 3 trial and data read out in the third quarter of 2020.

| (2) | The increase is due primarily to enhanced drug development activity, including preclinical studies and manufacturing activities for our ongoing Phase 3 clinical trial.

| (3) | Costs related to PCDH19-related epilepsy remained flat for the three months ended March 31, 2021 compared to March 31, 2020. During the three months ended March 31, 2021, we primarily incurred study closeout activities as a result of reducing the scope of the clinical trial in 2020 from a Phase 3 trial to a Phase 2 proof-of-concept trial.

| (4) | The increase was due to the fact that we began making preparations for a Phase 2 clinical trial in TSC during the first quarter of 2020, and enrollment was ongoing in an open label extension during the first quarter of 2021.

| (5) | Indirect research and development expenses in support of all our programs have increased due to the overall increase in preclinical, clinical, manufacturing and commercialization activities, and increased headcount.

General and Administrative Expenses

General and administrative expenses were $10.4 million and $3.9 million for the three months ended March 31, 2021 and 2020, respectively. The primary drivers of the increase were $1.8 million in increased commercialization preparation, $1.6 million in increased personnel costs and $2.7 million in increased noncash stock-based compensation. Of the increased noncash stock-based compensation, $2.1 million was due to modifications of stock options in connection with a severance agreement with our former Chief Financial Officer.

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Liquidity and Capital Resources

Since inception, we have incurred net losses and negative cash flows from our operations. We incurred net losses of $27.1 million and $18.7 million for the three months ended March 31, 2021 and 2020, respectively. Our cash used in operating activities was $16.2 million for the three months ended March 31, 2021 compared to $14.0 million for the same period a year ago. Historically, we have financed our operations principally through the sale of common stock, preferred stock and convertible debt, and the use of term loans. At March 31, 2021, we had cash and cash equivalents of $123.5 million.

​

Oaktree Credit Agreement

​

On May 11, 2021 (the Closing Date), we entered into a Credit Agreement and Guaranty (as amended by that certain letter agreement on May 17, 2021, the Credit Agreement) with Oaktree Fund Administration, LLC, as administrative agent and the lenders party thereto that provides for a five-year senior secured term loan facility in an aggregate original principal amount of up to $125.0 million available to us in five tranches as follows (collectively, the Term Loans):

| ● | $15.0 million of tranche A-1 term loans advanced on the Closing Date.

| ● | $30.0 million of tranche A-2 term loans subject to written acceptance by the FDA of an NDA filing relating to the use of ganaxolone in the treatment of CDD.

| ● | $30.0 million of tranche B term loans subject to receipt of written approval from the FDA of an NDA permitting the marketing of ganaxolone in the United States to treat CDD (the FDA Approval).

| ● | $25.0 million of tranche C term loans subject to receipt of the FDA Approval and the completion of one or more financings, including through the issuance of common stock, convertible debt, subordinated debt, a synthetic royalty or a sublicense in which we receive gross proceeds in an aggregate amount of at least $40.0 million and net proceeds in an aggregate amount of at least $36.0 million. In addition, the availability of this tranche is subject to either our current Phase 3 trial in RSE or a Phase 3 trial in TSC achieving statistical significance (p value < 0.05) across all primary endpoints and ganaxolone must be generally well tolerated, with a safety profile generally consistent with previous clinical trials.

| ● | $25 million of tranche D term loans subject to receipt of the FDA Approval and us earning at least $50 million in net product revenue in the United States for a period of six consecutive months.

The Term Loans will bear interest at a fixed per annum rate (subject to increase during an event of default) of 11.50% and are scheduled to mature on the fifth anniversary of the Closing Date (the Maturity Date). In addition, at the time of funding of any tranche of the Term Loans, we are required to pay an upfront fee of 2.0% of the aggregate principal amount being funded. We are required to make quarterly interest payments until the Maturity Date. We are also required to make principal payments, which are payable in quarterly installments beginning on the last day of the first quarter ending after the third anniversary of the Closing Date in an amount equal to 5.0% of the aggregate amount of the Term Loans outstanding on the date of the first such quarterly principal payment and continuing until the Maturity Date, on which date all outstanding Term Loans and other amounts owed under the Credit Agreement will be required to be paid in full. A commitment fee of 75 basis points per annum will accrue on each of the tranche B, C and D commitments for the period beginning 120 days after the funding date of the tranche A-2 term loans until the applicable tranche is either funded or terminated.

BARDA Contract

In September 2020, we entered into the BARDA Contract with BARDA. Under the BARDA Contract, we will receive an award of up to an estimated $51 million for development of IV administered ganaxolone for the treatment of

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RSE. Funding will include support on a cost-sharing basis for completion of a Phase 3 clinical trial of IV-administered ganaxolone in patients with RSE who are refractory to second line anti-epileptic drugs, funding of pre-clinical studies to assess whether IV-administered ganaxolone is an effective treatment for RSE due to chemical nerve gas agent exposure, and funding of certain manufacturing scale-up and regulatory activities.

The BARDA Contract consists of an approximately two-year base period-during which BARDA will provide approximately $21 million of funding for the RSE Phase 3 clinical trial on a cost share basis and funding of additional preclinical studies of ganaxolone in nerve agent exposure models. Following successful completion of the RSE Phase 3 clinical trial and preclinical studies in the base period, the BARDA Contract provides for approximately $30 million of additional BARDA funding for three options in support of manufacturing, supply chain, clinical, regulatory and toxicology activities. Under the BARDA Contract, we will be responsible for cost sharing in the amount of approximately $33 million and BARDA in the amount of approximately $51 million if all development options are completed. The contract period-of-performance (base period plus option exercises) is up to approximately five years.

Equity Financings

In connection with the closing of an equity financing in December 2020, we issued a total of 5,000,000 shares of common stock in an underwritten public offering resulting in aggregate net proceeds, after underwriting discounts and commissions in the public offering and other estimated offering expenses, of $64.9 million

In connection with the closing of an equity financing in June 2020, we issued a total of 4,600,000 shares of common stock in an underwritten public offering resulting in aggregate net proceeds, after underwriting discounts and commissions in the public offering and other estimated offering expenses, of $42.9 million.

In October 2017, we entered into an Equity Distribution Agreement (Prior EDA) with JMP Securities LLC (JMP), under which JMP, as our exclusive agent, at our discretion and at such times that we may determine from time to time, may sell over a three-year period from the execution of the agreement up to a maximum of $50 million of shares of our common stock. During the year ended December 31, 2020, we issued 78,807 shares of our common stock pursuant to the Prior EDA for aggregate net proceeds of $0.6 million. On July 9, 2020, we entered into a new Equity Distribution Agreement (New EDA) with JMP to create an at the market equity program under which we from time to time may offer and sell shares of our common stock having an aggregate offering price of up to $60.0 million through or to JMP. Subject to the terms and conditions of the New EDA, JMP will use its commercially reasonable efforts to sell shares of our common stock from time to time, based upon our instructions. JMP will be entitled to a commission of up to 3.0% of the gross proceeds from each sale of shares of our common stock. The New EDA superseded and terminated the Prior EDA effective immediately upon effectiveness of our shelf registration statement on Form S-3 (File No. 333-239780) filed with the Securities and Exchange Commission on July 9, 2020 and declared effective by the Securities and Exchange Commission on July 27, 2020. We did not sell any shares of our common stock during the three months ended March 31, 2021 under the New EDA.

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Cash Flows

Operating Activities. Cash used in operating activities increased to $16.2 million for the three months ended March 31, 2021 compared to $14.0 million for the same period a year ago. The increase was driven primarily by a $8.5 million increase in net loss, offset by an increase of $3.1 million in the change in accounts payable, accrued expenses and other non-current liabilities as we make commercial preparations and continue enrollment in our Phase 3 clinical trial in RSE and a $3.2 million increase in noncash stock based compensation.

Investing Activities. Cash provided by investing activities for the three months ended March 31, 2021 represents the maturity of short-term investments of $1.5 million offset by $0.4 million in deposits on fixed assets. Cash used in investing activities for the three months ended March 31, 2020 represents purchases of investments of $8.4 million offset by $1.7 million in maturities of short-term investments.

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Financing Activities. Cash provided by financing activities for the three months ended March 31, 2021 and 2020 each represents proceeds from the exercise of stock options offset by payments of financing costs.

Funding Requirements

We have not achieved profitability since our inception, and we expect to continue to incur net losses for the foreseeable future. We expect our cash expenditures to increase in the near term as we fund our continuing and planned clinical trials for ganaxolone, as well as scale up our operations and prepare for the potential commercialization of ganaxolone.

We believe that our cash and cash equivalents as of March 31, 2021, including the net upfront proceeds received in May 2021 from our Credit Agreement, will enable us to fund our operating expenses and capital expenditure requirements through the second quarter of 2022. However, we will need to raise substantial additional financing in the future to fund our operations. In order to meet these additional cash requirements, we may seek to sell additional equity or convertible debt securities that may result in dilution to our stockholders, or engage in federal contracts or other partnerships. If we raise additional funds through the issuance of convertible debt securities, these securities could have rights senior to those of our common stock and could contain covenants that restrict our operations. There can be no assurance that we will be able to obtain additional equity or debt financing on terms acceptable to us, if at all. Further, the continued spread of COVID-19 has also led to severe disruption and volatility in the global capital markets, which could increase our cost of capital and adversely affect our ability to access the capital markets in the future. Our failure to obtain sufficient funds on acceptable terms when needed could have a negative impact on our business, results of operations, and financial condition.

Our future capital requirements will depend on many factors, including:

| ● | the effects of the COVID-19 pandemic on our business, the medical community and the global economy;

| ● | the results of our preclinical studies and clinical trials;

| ● | the development, formulation and commercialization activities related to ganaxolone;

| ● | the scope, progress, results and costs of researching and developing ganaxolone or any other future product candidates, and conducting preclinical studies and clinical trials;

| ● | the timing of, and the costs involved in, obtaining regulatory approvals for ganaxolone or any other future product candidates;

| ● | the cost of commercialization activities if ganaxolone or any other future product candidates are approved for sale, including marketing, sales and distribution costs;

| ● | the cost of manufacturing and formulating ganaxolone, or any other future product candidates, to internal and regulatory standards for use in preclinical studies, clinical trials and, if approved, commercial sale;

| ● | our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements;

| ● | our ability to receive funding under the BARDA Contract;

| ● | any product liability, infringement or other lawsuits related to our product candidates and, if approved, products;

| ● | capital needed to attract and retain skilled personnel;

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| ● | the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation; and

| ● | the timing, receipt and amount of sales of, or royalties on, future approved products, if any.

Please see “Risk Factors” for additional risks associated with our substantial capital requirements.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

Discussion of Critical Accounting Policies and Significant Judgments and Estimates

The preparation of financial statements in conformity with GAAP requires us to use judgment in making certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses in our financial statements and accompanying notes. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require difficult, subjective and complex judgments by management in order to make estimates about the effect of matters that are inherently uncertain. During the three months ended March 31, 2021, there were no significant changes to our critical accounting policies from those described in our annual financial statements for the year ended December 31, 2020, which we included in our Annual Report on Form 10-K and was filed with the SEC on March 9, 2021.

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Item 3. Quantitative and Qualitative D isclosures About Market Risk

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We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (Exchange Act) and are not required to provide the information under this item.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021.

(b) Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

OTHER INFORMATION

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Item 1. Legal Proceedings

From time to time, we may become subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceedings against us that we believe could have a material adverse effect on our business, operating results or financial condition.

Item 1A. Risk Factors

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Our business is subject to substantial risks and uncertainties. The occurrence of any of the following risks and uncertainties, either alone or taken together, could materially and adversely affect our business, financial condition, results of operations or prospects. In these circumstances, the market price of our common stock could decline and you may lose all or part of your investment. The risks and uncertainties described below are not the only ones we face. Risks and uncertainties of general applicability and additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business, financial condition, results of operations or prospects.

Risks Related to our Financial Position and Need for Additional Capital

We have incurred significant losses since our inception and anticipate that we will continue to incur losses in the future.

We have incurred significant operating losses since our inception, including a net loss of $27.1 million for the three months ended March 31, 2021. As of March 31, 2021, we had an accumulated deficit of $339.1 million. Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. Our losses have resulted principally from costs incurred in our research and development activities. We anticipate that our operating losses will substantially increase over the next several years as we execute our plan to expand our research, development and commercialization activities, including the clinical development and planned commercialization of our product candidate, ganaxolone. In addition, if we obtain regulatory approval of ganaxolone, we may incur significant sales and marketing expenses. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or whether or when we will become profitable, if ever. The net losses we incur may fluctuate significantly from quarter to quarter and year to year, such that a period-to-period comparison of our results of operations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.

We have not generated any revenue to date from product sales. We may never achieve or sustain profitability, which could depress the market price of our common stock, and could cause you to lose all or a part of your investment.

We have no products approved for commercial sale and have not generated any revenue from sales of any of our product candidates, and we do not know when, or if, we will generate revenues in the future. Our ability to generate revenue from product sales and achieve profitability will depend upon our ability to successfully gain regulatory approval and commercialize ganaxolone or other product candidates that we may develop, in-license or acquire in the future. Even if we obtain regulatory approval for ganaxolone, we do not know when we will generate revenue from product sales, if at all. Our ability to generate revenue from product sales of ganaxolone or any other future product candidates also depends on a number of additional factors, including our ability to:

| ● | successfully complete pre-clinical and clinical development activities, including enrollment of clinical trial participants, completion of the necessary pre-clinical studies and clinical trials and attainment of study and trial results that will support regulatory approvals;

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| ● | complete and submit NDAs to the FDA, MAAs with the EMA and other marketing authorization filings with regulatory agencies in other countries, and obtain regulatory approval for indications for which there is a commercial market;

| ● | make or have made commercial quantities of our products at acceptable cost levels;

| ● | develop a commercial organization capable of manufacturing, selling, marketing and distributing any products we intend to sell ourselves in the markets in which we choose to commercialize on our own;

| ● | find suitable partners to help us market, sell and distribute our approved products in other markets;

| ● | obtain adequate pricing, coverage and reimbursement from third parties, including government and private payers;

| ● | launch and commercialize product candidates for which we obtain regulatory approval;

| ● | obtain market acceptance of our product candidates as viable treatment options;

| ● | address any competing technological and market developments;

| ● | implement additional internal systems and infrastructure, as needed;

| ● | identify and validate new product candidates;

| ● | negotiate favorable terms in any collaboration, licensing or other commercial arrangements into which we may enter;

| ● | maintain, protect and expand our portfolio of intellectual property rights, including patents, trade secrets and know-how; and

| ● | attract, hire and retain qualified personnel.

In addition, because of the numerous risks and uncertainties associated with product development, including that ganaxolone may not advance through development or achieve the endpoints of applicable preclinical studies and clinical trials, we are unable to predict the timing or amount of increased expenses, or if or when we will be able to achieve or maintain profitability. Our expenses could increase beyond expectations if we are required by the FDA or other regulatory agencies, domestic or foreign, to perform preclinical studies and clinical trials or other studies in addition to those that we currently anticipate. Even if we are able to complete the development and regulatory process for ganaxolone, we anticipate incurring significant costs associated with commercializing ganaxolone.

Even if we are able to generate revenue from the sale of ganaxolone or any future commercial products, we may not become profitable and will need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, and we are not successful in obtaining additional funding, then we may be unable to continue our operations at planned levels, or at all, which would likely materially and adversely affect our business and the market price of our common stock.

We will require additional capital to fund our operations and if we fail to obtain necessary financing, we may be unable to complete the development and commercialization of ganaxolone.

Our operations have consumed substantial amounts of cash since inception. We expect to continue to spend substantial amounts to advance the clinical and regulatory development of ganaxolone and, if approved, commercialize ganaxolone. We will require additional capital for the further development, regulatory submission and potential commercialization of ganaxolone and may also need to raise additional funds sooner should we choose to accelerate

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development of ganaxolone. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts.

We believe that our cash and cash equivalents as of March 31, 2021, including the net upfront proceeds received in May 2021 from our Credit Agreement, will enable us to fund our operating expenses and capital expenditure requirements through the second quarter of 2022. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we currently expect. Our future funding requirements, both near and long-term, will depend on many factors, including, but not limited to the:

| ● | initiation, progress, timing, costs and results of preclinical studies and clinical trials, including patient enrollment in such trials, for ganaxolone or any other future product candidates;

| ● | clinical development plans we establish for ganaxolone and any other future product candidates;

| ● | obligation to make royalty and non-royalty sublicense receipt payments to third-party licensors, if any, under our existing or any future licensing agreements;

| ● | our ability to receive funding under the BARDA Contract;

| ● | number and characteristics of product candidates that we discover or in-license and develop;

| ● | outcome, timing and cost of regulatory review by the FDA, the EMA and other comparable foreign regulatory authorities, including the potential for the FDA, the EMA or other comparable foreign regulatory authorities to require that we perform more studies or clinical trials than those that we currently expect;

| ● | costs of filing, prosecuting, defending and enforcing any patent claims and maintaining and enforcing other intellectual property rights;

| ● | effects of competing technological and market developments;

| ● | our obligations to make principal and interest payments under the Credit Agreement;

| ● | costs and timing of the implementation of commercial-scale manufacturing activities; and

| ● | costs and timing of establishing sales, marketing and distribution capabilities for ganaxolone or any other product candidates for which we may receive regulatory approval.

If we are unable to expand our operations or otherwise capitalize on our business opportunities due to a lack of capital, our ability to become profitable will be compromised. Failure to progress our product development or commercialization of ganaxolone as anticipated will have a negative effect on our business, future prospects and ability to obtain further financing on acceptable terms, if at all, and the value of the enterprise, which could require us to, among other things:

| ● | significantly delay, scale back or discontinue the development or commercialization of ganaxolone or one or more of our other research and development initiatives;

| ● | seek collaborators for one or more of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available;

| ● | sell or license on unfavorable terms our rights to ganaxolone or one of our future product candidates that we otherwise would seek to develop or commercialize ourselves; or

| ● | seek bankruptcy protection.

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Our failure to comply with the covenants or other terms of the Credit Agreement, including as a result of events beyond our control, could result in a default under the Credit Agreement that could materially and adversely affect the ongoing viability of our business.

​

On May 11, 2021 (the Closing Date), we entered into a Credit Agreement and Guaranty (as amended by that certain letter agreement on May 17, 2021, the Credit Agreement) with Oaktree Fund Administration, LLC, as administrative agent (the Administrative Agent) and the lenders party thereto (the Lenders) that provides for a five-year senior secured term loan facility in an aggregate original principal amount of up to $125.0 million, consisting of (i) tranche A-1 term loans in an aggregate principal amount of $15.0 million advanced on the Closing Date, (ii) tranche A-2 term loans in an aggregate principal amount of $30.0 million, (iii) tranche B term loans in an aggregate principal amount of $30.0 million, (iv) tranche C term loans in an aggregate principal amount of $25.0 million and (v) tranche D term loans in an aggregate principal amount of $25.0 million (collectively, the Term Loans). Our ability to draw each tranche of the Term Loans is subject to the satisfaction of certain conditions applicable to each tranche as specified in the Credit Agreement. The Term Loans bear interest at a fixed per annum rate (subject to increase during an event of default) of 11.50% and are scheduled to mature on the fifth anniversary of the Closing Date (the Maturity Date). In addition, at the time of funding of any tranche of the Term Loans, we are required to pay an upfront fee of 2.0% of the aggregate principal amount being funded. We are required to make quarterly interest payments until the Maturity Date. We are also required to make principal payments, which are payable in quarterly installments beginning on the last day of the first quarter ending after the third anniversary of the Closing Date, in an amount equal to 5.0% of the aggregate amount of the Term Loans outstanding on the date of the first such quarterly principal payment and continuing until the Maturity Date, on which date all outstanding Term Loans and other amounts owed under the Credit Agreement will be required to be paid in full. A commitment fee of 75 basis points per annum will accrue on each of the tranche B, C and D commitments for the period beginning 120 days after the funding date of the tranche A-2 term loans until the applicable tranche is either funded or terminated. The Term Loans will be guaranteed by certain of our future subsidiaries. Our obligations under the Credit Agreement and the guarantee of such obligations are secured by a pledge of substantially all of our assets and will be secured by a pledge of substantially all of the assets of the future guarantors. The Credit Agreement contains various covenants that limit our ability to engage in specified types of transactions without the Administrative Agent's prior consent, as well as a financial covenant that requires us to maintain at all times cash and cash equivalents in certain deposit accounts in an amount at least equal to (i) from the Closing Date until the funding of the tranche A-2 term loans, $10.0 million, (ii) from the funding date of the tranche A-2 term loans until the funding date of the tranche B term loans, $20.0 million, and (iii) from the funding of the tranche B term loans until the Maturity Date, $15.0 million.

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The Administrative Agent may elect to accelerate the repayment of all unpaid principal of the Term Loans, accrued interest and other amounts owed under the Credit Agreement upon consummation of a specified change of control transaction or the occurrence of certain events of default (as specified in the Credit Agreement), including, among other things:

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| ● | our default in a payment obligation under the Credit Agreement;

| ● | our breach of the restrictive covenants or other terms of the Credit Agreement;

| ● | our breach of reporting obligations;

| ● | our failure to properly maintain the collateral;

| ● | certain regulatory actions that causes an ongoing delay in commercialization of ganaxolone and which could reasonably be expected to result in a material adverse effect;

| ● | a recall of ganaxolone that could reasonably be expected to result in a material adverse effect;

| ● | following the sale of ganaxolone by us in the United States to treat CDD, an injunction against the sale or manufacture of ganaxolone for more than 45 days that could, after the termination of such 45-day period, reasonably be expected to result in a material adverse effect; and

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| ● | certain specified insolvency and bankruptcy-related events.

Subject to any applicable cure period set forth in the Credit Agreement, all amounts outstanding with respect to the Term Loans (principal and accrued interest), as well as any applicable prepayment premiums, interest “make-whole” payments or exit fees, would become due and payable (i) immediately, in the case of a payment or bankruptcy event of default or (ii) in the case of any other event of default, upon the request of Lenders holding at least a majority of the outstanding Term Loans and Term Loan commitments, at a default interest rate of 13.50%. Our assets or cash flow may not be sufficient to fully repay our obligations under the Term Loans if the obligations thereunder are accelerated upon any events of default. The duration and magnitude of any negative impact from the COVID-19 pandemic on ganaxolone commercialization, development or net revenues could also affect our ability to meet the requirements to draw on one or more of the Term Loan tranches and to remain in compliance with our liquidity financial covenant. Further, if we are unable to repay, refinance or restructure our obligations under the Term Loans, the Administrative Agent on behalf of the Lenders could proceed to protect and enforce their rights under the Credit Agreement and other loan documents by exercising such remedies (including foreclosure on the assets securing our obligations under the Credit Agreement and the other loan documents) as are available to the Administrative Agent and Lenders and in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in the Credit Agreement or other loan documents or in aid of the exercise of any power granted in the Credit Agreement or other loan documents. The foregoing would materially and adversely affect the ongoing viability of our business.

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Our Credit Agreement contains restrictions that limit our flexibility in operating our business.

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The Credit Agreement contains various covenants that limit our ability to engage in specified types of transactions without the prior consent of the Administrative Agent and the Lenders holding a majority of the Term Loan commitments. These covenants limit our ability to, among other things:

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| ● | sell, transfer, lease or dispose of our assets;

| ● | create, incur or assume additional indebtedness;

| ● | encumber or permit liens on certain of our assets;

| ● | make restricted payments, including paying dividends on, repurchasing or making distributions with respect to our common stock;

| ● | make specified investments (including acquisitions, loans and advances);

| ● | consolidate, merge, sell or otherwise dispose of all or substantially all of our assets;

| ● | enter into certain transactions with our affiliates;

| ● | grant certain license rights related to our products, technology and other intellectual property rights; and

| ● | permit our cash and cash equivalents held in certain deposit accounts to at any time be less than (i) from the Closing Date until the funding of the tranche A-2 term loans, $10.0 million, (ii) from the funding of the tranche A-2 term loans until the funding of the tranche B term loans, $20.0 million and (ii) from the funding date of the tranche B term loans until the Maturity Date, $15.0 million.

The covenants in our Credit Agreement and related security agreements may limit our ability to take certain actions that may be in our long-term best interests. In the event that we breach one or more covenants, the Administrative Agent may choose to declare an event of default and require that we immediately repay all amounts outstanding under the Credit Agreement, plus penalties and interest, terminate the Lenders’ commitments to fund any undrawn Term Loan tranches and foreclose on the collateral granted to them to secure the obligations under the Credit Agreement and the other loan

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documents. Such repayment could have a material adverse effect on our business, operating results and financial condition.

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Raising additional capital could dilute our stockholders, restrict our operations or require us to relinquish rights to ganaxolone or any other future product candidates.

Until we can generate substantial revenue from product sales, if ever, we expect to seek additional capital through a combination of private and public equity offerings, debt financings, government funding, collaborations, licensing arrangements and other commercial transactions and funding opportunities. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of stockholders. Debt financing or other commercial transactions, if available, may involve agreements that include liens or restrictive covenants limiting our ability to take important actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaborations, licensing arrangements or other commercial with third parties, we may have to relinquish valuable rights to ganaxolone or any other future product candidates in particular countries, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market ganaxolone or any other future product candidates that we would otherwise prefer to develop and market ourselves.

We intend to expend our limited resources to pursue our sole clinical stage product candidate, ganaxolone, and may fail to capitalize on other technologies or product candidates that may be more profitable or for which there may be a greater likelihood of success.

Because we have limited financial and managerial resources, we are focusing on research programs relating to ganaxolone, which concentrates the risk of product failure in the event ganaxolone proves to be ineffective or inadequate for clinical development or commercialization. As a result, we may forego or delay pursuit of opportunities for other technologies or product candidates that later could prove to have greater commercial potential. We may be unable to capitalize on viable commercial products or profitable market opportunities as a result of our resource allocation decisions. Our spending on proprietary research and development programs relating to ganaxolone may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target market for ganaxolone, we may relinquish valuable rights to ganaxolone through collaboration, licensing or other commercial arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to ganaxolone.

We have a limited operating history, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

Our operations to date have been limited to conducting preclinical and clinical development activities for ganaxolone and performing research and development with respect to our preclinical and clinical programs. In addition, as a clinical stage pharmaceutical company, we have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the pharmaceutical area. Nor have we demonstrated an ability to obtain regulatory approval to commercialize any product candidate. Consequently, any predictions about our future performance may not be as accurate as they would be if we had a history of successfully developing and commercializing pharmaceutical products. Further, our budgeted expense levels are based in part on our expectations concerning the costs of our research, preclinical development and clinical trials, which depend on the success of such activities, and our ability to effectively and efficiently conduct such research, preclinical development, clinical trials and our expectations related to our efforts to achieve FDA or foreign regulatory approval with respect to ganaxolone. Our limited operating history and clinical trial experience make these costs difficult to forecast accurately. We may be unable to adjust our operations in a timely manner to compensate for any unexpected increase in costs. Further, our manufacturing costs and operating expenses may increase significantly as we expand our operations. Accordingly, a significant increase in costs could have an immediate and material adverse effect on our business, results of operations and financial condition.

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Our ability to use our net operating loss carryforwards and other tax attributes may be limited.

As of December 31, 2020, we had U.S. net operating loss, or NOL, carryforwards of approximately $212.0 million for U.S. federal income tax and approximately $209.5 million for state income tax purposes available to offset future taxable income and U.S. federal and state research and development tax credits of approximately $11.5 million, prior to consideration of annual limitations that may be imposed under Section 382 of the Internal Revenue Code of 1986, as amended, or Section 382. Our U.S. NOL carryforwards begin to expire in 2023 if not utilized.

Our U.S. NOL and tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities. Under Section 382, and corresponding provisions of U.S. state law, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change U.S. NOLs and other pre-change tax attributes, such as research and development tax credits, to offset its post-change income may be limited. We have completed several financings since our inception that may have resulted in “ownership changes” within the meaning of Section 382. We have not evaluated the ownership history of our company to determine if there were any ownership changes as defined under Section 382 and the effects any ownership change may have had. We may experience additional ownership changes in the future as a result of subsequent shifts in our stock ownership, including through completed or contemplated financings, some of which may be outside of our control. If we determine that a future ownership change has occurred and our ability to use our historical net operating loss and tax credit carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations. Furthermore, the losses could expire before we generate sufficient income to utilize them.

Risks Related to Clinical Development and Regulatory Approval of our Product Candidates

Our future success is dependent on the successful clinical development, regulatory approval and commercialization of ganaxolone, which is being studied in clinical trials and will require significant capital resources and years of additional clinical development effort.

We do not have any products that have gained regulatory approval in any jurisdiction. Our only clinical stage product candidate is ganaxolone. As a result, our business is dependent on our ability to successfully complete clinical development, scale-up manufacturing, obtain regulatory approval, and, if approved, commercialize ganaxolone in a timely manner. We cannot commercialize ganaxolone in the United States without first obtaining regulatory approval from the FDA; similarly, we cannot commercialize ganaxolone outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. Before obtaining regulatory approvals for the commercial sale of ganaxolone for a target indication, we must demonstrate with substantial evidence gathered in preclinical studies and clinical trials and, with respect to approval in the United States, to the satisfaction of the FDA, that ganaxolone is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls are adequate.

The FDA has provided guidance to the industry that the substantial evidence requirement for effectiveness, which had generally been interpreted as calling for two adequate and well-controlled clinical trials, could also be met by a single clinical trial plus confirmatory evidence. In September 2020, we announced that ganaxolone achieved the primary endpoint in the Marigold Study, which evaluated the use of oral ganaxolone in children and young adults with CDD. We requested feedback from the FDA as to whether the Marigold Study could serve as a single pivotal efficacy trial to support the approval of ganaxolone for the treatment of CDD. Based on the information we provided the FDA, which included supportive data from an earlier clinical trial, the FDA responded that the efficacy and safety data to be included in our planned NDA appear capable of supporting the filing of our planned NDA. The adequacy of these data to support an approval of ganaxolone for CDD will be a matter for FDA review of the application. There is a risk that the FDA may determine as a result of their review of our NDA, that we have not met the FDA requirements for ganaxolone approval.

In addition, ganaxolone is metabolized extensively in animals and humans. During the development of CDD, one major metabolite (M2) was present in plasma of humans that was not found in plasma of rats or dogs. The chemical structure of M2 has been identified. In October 2020, the FDA communicated that the characterization of the activity of the M2 metabolite would need to be included at the time of submission; results from any additional studies that may be

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required based on an evaluation of these data could be submitted during the review or, if unavailable, in response to a post-marketing requirement(s) if the application is approved. If such additional non-clinical data indicates a safety issue, it may impact approvability or the FDA may impose serious and extensive restrictions on the commercialization of oral ganaxolone for CDD, which could have a material adverse impact on our business, results of operations and financial condition. We have recently completed an activity assay for the M2 metabolite and believe the results are consistent with our expectations and supportive of a mid-year 2021 filing. We plan to submit an NDA for oral ganaxolone in the treatment of CDD to the FDA in mid-2021 and an MAA for oral ganaxolone for the treatment of CDD to the EMA at the end of the third quarter of 2021.

We are conducting the RAISE Trial in RSE, which is a life threatening medical condition involving prolonged seizure activity in seriously ill patients. The RAISE Trial requires expertise in electroencephalogram (EEG) interpretation, which may be subject to variability, and the FDA or foreign regulatory authorities could find the data generated in this trial inadequate or difficult to interpret, which could delay, limit or prevent regulatory approval for this indication. Additionally, the clinical trial endpoints of the RAISE Trial are based on treatment outcomes, including initiation of anesthesia for treatment of RSE. Practice variability in the use of anesthesia for SE treatment could adversely impact the ability to show a treatment effect with ganaxolone. Even if ganaxolone were to obtain approval from the FDA and comparable foreign regulatory authorities, any approval might contain significant limitations, such as restrictions as to specified age groups, warnings, precautions or contraindications, or may be subject to burdensome post-approval trial or risk management requirements. If we are unable to obtain regulatory approval for ganaxolone in one or more jurisdictions, or any approval contains significant limitations, we may not be able to obtain sufficient funding or generate sufficient revenue to continue the development of any other product candidate that we may in-license, develop or acquire in the future. Furthermore, even if we obtain regulatory approval for ganaxolone, we will still need to develop a commercial organization, establish commercially viable pricing and obtain adequate reimbursement from third-party and government payers. If we are unable to successfully commercialize ganaxolone, we may not be able to earn sufficient revenue to continue our business.

Because the results of preclinical studies or earlier clinical trials are not necessarily predictive of future results, ganaxolone may not have favorable results in later clinical trials or receive regulatory approval.

Success in preclinical studies and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate the efficacy and safety of ganaxolone. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience, have suffered significant setbacks in clinical trials, even after seeing promising results in earlier studies and clinical trials. For example, while ganaxolone showed statistical separation from placebo in a Phase 2 clinical trial in adjunctive treatment of adults with focal onset seizures, ganaxolone failed to show a similar statistically significant separation in a Phase 3 clinical trial for the same indication. As a result, we discontinued our program in adult focal onset seizures and began to focus our efforts on advancing ganaxolone in RSE and pediatric orphan genetic epilepsy indications. We do not know whether the clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market ganaxolone in any particular jurisdiction or indication. If clinical trials underway or conducted in the future do not produce favorable results, our ability to achieve regulatory approval for ganaxolone may be adversely impacted. Further, even if we believe the data collected from our clinical trials of ganaxolone are promising, these data may not be sufficient to support approval by the FDA or foreign regulatory authorities. Pre-clinical and clinical data can be interpreted in different ways. Accordingly, the FDA or foreign regulatory authorities could interpret these data in different ways from us, which could delay, limit or prevent regulatory approval.

Ganaxolone may cause undesirable side effects or have other properties, such as abuse potential, that could delay or prevent its regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following any marketing approval.

Undesirable side effects caused by ganaxolone could cause us, an international review board (IRB), or regulatory authorities to interrupt, delay or halt clinical trials and could result in a restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign regulatory authority. Although ganaxolone has generally been safe and well-tolerated by patients in our clinical trials to date, in some cases there were side effects, and some of

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the side effects were severe. The most frequent side effects were dizziness, fatigue and somnolence (or drowsiness). More side effects of the CNS were categorized as severe as compared to side effects of other body systems.

If these side effects are reported in future clinical trials, or if other safety or toxicity issues are reported in our future clinical trials, we may not receive approval to market ganaxolone or approval may be limited, which could prevent us from ever generating material revenue or achieving profitability. Furthermore, although we are currently developing ganaxolone for multiple indications, negative safety findings in any one indication could force us to delay or discontinue development in other indications. Results of our clinical trials could reveal an unacceptably high severity and prevalence of side effects. In such an event, our clinical trials could be suspended or terminated, and the FDA or comparable foreign regulatory authorities could order us to cease further development, or deny approval, of ganaxolone for any or all targeted indications. Drug-related side effects could affect trial subject recruitment or the ability of enrolled patients to complete our future clinical trials and may result in potential product liability claims.

In addition, ganaxolone is metabolized extensively in animals and humans. During the development of CDD, one major metabolite (M2) was present in plasma of humans that was not found in plasma of rats or dogs. The chemical structure of M2 has been identified. In October 2020, the FDA communicated that the characterization of the activity of the M2 metabolite would need to be included at the time of submission; results from any additional studies that may be required based on an evaluation of these data could be submitted during the review or, if unavailable, in response to a post-marketing requirement(s) if the application is approved. If such additional non-clinical data indicates a safety issue, it may impact approvability or the FDA may impose serious and extensive restrictions on the commercialization of CDD, which could have a material adverse impact on our business, results of operations and financial condition. We have recently completed an activity assay for the M2 metabolite and believe the results are consistent with our expectations and supportive of a mid-year 2021 filing.

If ganaxolone receives marketing approval, and we or others later identify undesirable side effects caused by ganaxolone, a number of potentially significant negative consequences could result, including:

| ● | we may be forced to suspend marketing of ganaxolone;

| ● | regulatory authorities may withdraw their approvals of ganaxolone;

| ● | regulatory authorities may require additional warnings on the label that could diminish the usage or otherwise limit the commercial success of ganaxolone;

| ● | we may be required to conduct post-marketing trials;

| ● | we may be required to develop a Risk Evaluation and Mitigation Strategy (REMS) for ganaxolone or if a REMS is already in place, to incorporate additional requirements under the REMS, and comparable regulatory authorities outside the United States may require similar risk management strategies;

| ● | we could be sued and held liable for harm caused to patients; and

| ● | our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of ganaxolone, if approved.

Additionally, the FDA may recommend scheduling of ganaxolone as a controlled substance if it determines ganaxolone has abuse potential. In such event, the U.S. Drug Enforcement Administration (the DEA) will need to determine the controlled substance schedule of the product, taking into account the recommendation of the FDA. The timing of the scheduling process is uncertain and may delay our ability to market ganaxolone if approved. If ganaxolone is determined to be a controlled substance, the manufacture, import, export, distribution, storage, sale, dispensing, prescribing, and use will be subject to a significant degree of additional regulation by the DEA as well as state regulatory

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authorities. The restrictive nature of these regulations could also limit commercialization and market acceptance of ganaxolone, if approved.

The therapeutic efficacy and safety of ganaxolone are unproven, and we may not be able to successfully develop and commercialize ganaxolone in the future.

Ganaxolone is a novel compound and its potential therapeutic benefit is unproven. Our ability to generate revenue from ganaxolone, which we do not expect will occur for at least the next several years, if ever, will depend on our successful development and commercialization after regulatory approval, which is subject to many potential risks and may not occur. Ganaxolone may interact with human biological systems in unforeseen, ineffective or harmful ways. If ganaxolone is associated with undesirable side effects or has characteristics that are unexpected, we may need to abandon its development or limit development to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective. Many compounds that initially showed promise in early stage testing for treating the target indications for ganaxolone have later been found to cause side effects that prevented further development of the compound. As a result of these and other risks described herein that are inherent in the development of novel therapeutic agents, we may never successfully develop, enter into or maintain third-party licensing or collaboration transactions with respect to, or successfully commercialize, ganaxolone, in which case we will not achieve profitability and the value of our stock may decline.

Clinical development of product candidates involves a lengthy and expensive process with an uncertain outcome.

Clinical trials are expensive, can take many years to complete, and are inherently uncertain as to outcome. Failure can occur at any time during the clinical development process.

We may experience delays in our ongoing or future clinical trials and we do not know whether planned clinical trials will begin or enroll patients on time, need to be redesigned or be completed on schedule, if at all. There can be no assurance that the FDA or other foreign regulatory authorities will not put clinical trials of ganaxolone on clinical hold now or in the future. Clinical trials may be delayed, suspended or prematurely terminated for a variety of reasons, such as:

| ● | delay or failure in reaching agreement with the FDA or a comparable foreign regulatory authority on a trial design that we are able to execute;

| ● | delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatory authority regarding the scope or design of a clinical trial;

| ● | delay or failure in reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

| ● | a ny shelter-in-place orders from local, state or federal governments or clinical trial site policies resulting from the COVID-19 pandemic that determine essential and non-essential functions and staff, which may impact the ability of site staff to conduct assessments, or result in delays to the conduct of the assessments, as part of our clinical trial protocols, or the ability to enter assessment results into clinical trial databases in a timely manner;

| ● | delay or failure in obtaining IRB approval or the approval of other reviewing entities, including comparable foreign regulatory authorities, to conduct a clinical trial at each site;

| ● | withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site to participate in our clinical trials;

| ● | delay or failure in recruiting and enrolling suitable trial patients to participate in a trial;

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| ● | delay or failure in trial patients completing a trial or returning for post-treatment follow-up;

| ● | clinical sites and investigators deviating from a trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out of a trial;

| ● | inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including some that may be for competing product candidates with the same indication;

| ● | failure of our third-party clinical trial managers to satisfy their contractual duties or meet expected deadlines;

| ● | l imitations on our or our third-party clinical trial managers’ ability to access and verify clinical trial data captured at clinical trial sites through monitoring and source document verification;

| ● | delay or failure in adding new clinical trial sites;

| ● | ambiguous or negative interim results or results that are inconsistent with earlier results;

| ● | feedback from the FDA or a comparable regulatory authority outside the United States, IRBs, or data safety monitoring boards, or results from earlier stage or concurrent preclinical studies and clinical trials, that might require modification to the protocol for the trial;

| ● | decision by the FDA or a comparable regulatory authority outside the United States, an IRB or us, or a recommendation by a data safety monitoring board to suspend or terminate clinical trials at any time for safety issues or for any other reason;

| ● | unacceptable risk-benefit profile, unforeseen safety issues or adverse side effects or AEs associate with a product candidate;

| ● | failure of a product candidate to demonstrate any or enough of a benefit;

| ● | difficulties in manufacturing or obtaining from third parties sufficient quantities of a product candidate for use in clinical trials that meet internal and regulatory standards;

| ● | lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct additional clinical trials or increased expenses associated with the services of our CROs and other third parties;

| ● | political developments that affect our ability to develop and obtain approval for ganaxolone or impair our license rights to develop and obtain approval for ganaxolone in other countries; or

| ● | changes in governmental regulations or administrative actions.

Trial subject enrollment, which significantly impacts the timing of clinical trials, is affected by many factors including the size and nature of the subject population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, ability to obtain and maintain patient consents, risk that enrolled patients will drop out before completion, competing clinical trials and clinicians’ and patients’ perceptions as to the potential advantages of the product candidate being studied in relation to other available therapies, including any new drugs that may be approved or product candidates that may be studied in competing clinical trials for the indications we are investigating. Some of our clinical trials are directed at small patient populations. Patient enrollment in these trials could be particularly challenging. In the past, we have experienced delays in enrolling patients in trials directed at small patient populations. We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials,

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and while we have agreements governing their committed activities, we have limited influence over their actual performance.

If we experience delays in the completion of any clinical trial of ganaxolone, the commercial prospects of ganaxolone may be harmed, and our ability to generate product revenue from ganaxolone, if approved, will be delayed. In addition, any delays in completing our clinical trials will increase our costs, slow down our development and approval process for ganaxolone and jeopardize our ability to commence product sales and generate revenues. In addition, many of the factors that could cause a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of ganaxolone.

Even if ganaxolone receives regulatory approval, we will still face regulatory difficulties.

Even if we obtain regulatory approval for ganaxolone, it would be subject to ongoing requirements by the FDA and comparable foreign regulatory authorities governing the manufacture, quality control, further development, labeling, packaging, storage, distribution, safety surveillance, patient registry, import, export, advertising, promotion, recordkeeping and reporting of safety and other post-market information. The safety profile of ganaxolone will continue to be closely monitored by the FDA and comparable foreign regulatory authorities after approval. If new safety information becomes available after approval of ganaxolone, the FDA or comparable foreign regulatory authorities may require labeling changes or establishment of a REMS or similar strategy, impose significant restrictions on ganaxolone’s indicated uses or marketing, or impose ongoing requirements for potentially costly post-approval trials or post-market surveillance. We will also be subject to continued compliance with current good manufacturing practices (cGMP) and good clinical practices (GCP) requirements for any clinical trials that we conduct post-approval.

In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP and other regulations. If we or a regulatory authority discover previously unknown problems with a product, such as adverse events (AEs) of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory authority may impose restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension of manufacturing. If we, ganaxolone or the manufacturing facilities for ganaxolone fail to comply with applicable regulatory requirements, a regulatory authority may, among other things:

| ● | issue warning letters or untitled letters;

| ● | mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;

| ● | require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;

| ● | seek an injunction or impose civil or criminal penalties or monetary fines;

| ● | suspend or withdraw regulatory approval;

| ● | suspend any ongoing clinical trials;

| ● | refuse to approve pending applications or supplements to applications filed by us;

| ● | suspend or impose restrictions on operations, including costly new manufacturing requirements; or

| ● | seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall.

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The occurrence of any event or penalty described above may inhibit or preclude our ability to commercialize ganaxolone and generate revenue.

The FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval for ganaxolone that we may have obtained, and we may not achieve or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.

Advertising and promotion of ganaxolone, if approved by the FDA, will be heavily scrutinized by, among others, the FDA, the United States Department of Justice (DOJ), the Office of the Inspector General of the United States Department of Health and Human Services (HHS OIG), state attorneys general, members of Congress and the public. The FDA and other federal regulatory agencies closely regulate the marketing and promotion of drugs through, among other things, standards and regulations for direct-to-consumer advertising, advertising and promotion to healthcare professionals, communications regarding unapproved uses, industry-sponsored scientific and educational activities, and promotional activities involving the Internet. A product cannot be promoted before it is approved. After approval, product promotion can include only those claims relating to safety and effectiveness that are consistent with the labeling approved by the FDA. Healthcare providers are permitted to prescribe drugs for “off-label” uses — that is, uses not approved by the FDA and not described in the product’s labeling — because the FDA does not regulate the practice of medicine. However, FDA regulations impose restrictions on manufacturers’ communications regarding off-label uses. Broadly speaking, a manufacturer may not promote a drug for off-label use, but under certain conditions may engage in non-promotional, balanced, scientific communication regarding off-label use. Failure to comply with applicable FDA requirements and restrictions in this area may subject a company to adverse publicity and enforcement action, including enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA or other government agencies. In addition, advertising and promotion of ganaxolone, if approved outside of the United States, will be heavily scrutinized by comparable foreign regulatory authorities.

In the United States, promoting ganaxolone for unapproved indications can also subject us to false claims litigation under federal and state statutes, and other litigation and/or investigation, which can lead to civil and criminal penalties and fines and agreements that materially restrict the manner in which we promote or distribute our drug products. These false claims statutes include the False Claims Act (FCA), which allows any individual to bring a lawsuit against a pharmaceutical company on behalf of the federal government alleging submission of false or fraudulent claims, or causing to present such false or fraudulent claims, for payment by a federal program such as Medicare or Medicaid. If the government prevails in the lawsuit, the individual will share in any fines or settlement funds. If we do not lawfully promote our approved products, we may become subject to such litigation and/or investigation and, if we are not successful in defending against such actions, those actions could adversely affect our business prospects, financial condition and results of operations.

In the European Union (EU), strict requirements and restrictions regarding advertising and promotion apply, the details of which may vary per EU Member States. Violation of those rules could subject us to litigation, investigations and/or civil and criminal penalties, which could adversely affect our business, prospects, financial condition and results of operations.

We may not be able to obtain orphan drug exclusivity for ganaxolone, which could limit the potential profitability of ganaxolone.

Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for an indication for which it receives the designation, then the product is entitled to a period of marketing exclusivity that precludes the FDA from approving another marketing application for the same drug for the same indication for the exclusivity period except in limited situations.

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For purposes of small molecule drugs, the FDA defines “same drug” as a drug that contains the same active moiety and is intended for the same use as the drug in question. A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation.

We have received orphan drug designation in the United States for treating Infantile Spasms, SE, CDD, and PCDH19-Related Epilepsy (PCDH19-RE) with ganaxolone and expect that we may in the future pursue orphan drug designations for ganaxolone for one or more additional indications. However, obtaining an orphan drug designation can be difficult and we may not be successful in doing so for additional ganaxolone indications. Orphan drug exclusivity for a product candidate may not effectively protect the product from the competition of different drugs for the same condition, which could be approved during the exclusivity period. In addition, after an orphan drug is approved, the FDA could subsequently approve another application for the same drug for the same indication if the FDA concludes that the later drug is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug exclusive marketing rights in the United States also may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition. The failure to obtain or maintain an orphan drug designation for any indication of ganaxolone that we may develop, or the inability to obtain or maintain orphan drug exclusivity could reduce our ability to make sufficient sales of ganaxolone to balance our expenses incurred to develop it, which would have a negative impact on our operational results and financial condition.

In the EU, we have received orphan designation for treating CDD with ganaxolone. Orphan designation would entitle us to receive ten years of orphan market exclusivity in the EU, but only if the product continues to meet the orphan designation criteria when the marketing authorization is granted. If a similar medicinal product (i.e., a medicinal product with an identical active substance, or an active substance with the same principal molecular structural features and which acts via the same mechanism) receives marketing authorization for the same indication before we receive marketing authorization, the other product’s orphan market exclusivity may prevent ganaxolone from receiving marketing authorization, unless we are able to demonstrate that ganaxolone is safer, more effective or otherwise clinically superior. In the EU, if we obtain and maintain orphan designation for ganaxolone upon marketing authorization, the European Commission could subsequently approve a similar medicinal product for the same indication if the European Commission, after assessment by the EMA, concludes that the similar medicinal product is safer, more effective or otherwise clinically superior. Orphan market exclusivity rights in the EU may also be lost if we are unable to supply sufficient quantities of the product.

The failure to obtain or maintain an orphan drug designation for any indication of ganaxolone that we may develop, or the inability to obtain or maintain orphan drug exclusivity could reduce our ability to make sufficient sales of ganaxolone to balance our expenses incurred to develop it, which would have a negative impact on our operational results and financial condition.

Even though we have received RPD Designation for ganaxolone for the treatment of CDD, we may not receive a rare pediatric disease priority review voucher.

In July 2020, the FDA granted RPD Designation for ganaxolone for the treatment of CDD. The FDA grants RPD Designation for diseases that affect fewer than 200,000 people in the U.S. in which serious or life-threatening manifestations occur primarily in individuals 18 years of age and younger. If an NDA for ganaxolone in CDD is approved, we may be eligible to receive a priority review voucher from the FDA, which can be redeemed for priority review in a subsequent marketing application. However, receiving an RPD Designation for ganaxolone for the treatment of CDD does not guarantee that an NDA for ganaxolone for the treatment of CDD will meet the eligibility criteria for a RPD priority review voucher at the time the application is approved. Under the Federal Food, Drug, and Cosmetic Act (the FDC Act), we will need to request an RPD priority review voucher in our original NDA for ganaxolone. The FDA may determine that the NDA for ganaxolone, if approved, does not meet the eligibility criteria for an RPD priority review voucher, including for the following reasons:

| ● | C DD no longer meets the definition of an RPD;

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| ● | g anaxolone contains an active ingredient (including any ester or salt of the active ingredient) that has been previously approved in an application;

| ● | t he NDA is not deemed eligible for priority review;

| ● | t he NDA does not rely on clinical data derived from studies examining a pediatric population and dosages of the drug intended for that population; or

| ● | t he NDA seeks approval for a different adult indication than the rare pediatric disease for which ganaxolone is designated.

The authority for the FDA to award RPD priority review vouchers for drugs after September 30, 2024 is currently limited to drugs that receive rare pediatric disease designation on or prior to September 30, 2024, and the FDA may only award RPD priority review vouchers through September 30, 2026. If the NDA for ganaxolone is not approved on or prior to September 30, 2026 for any reason, it will not be eligible for a priority review voucher. However, it is possible the authority for the FDA to award RPD priority review vouchers will be further extended by Congress.

If a priority review voucher is granted, we may use the voucher for our own FDA approval processes or decide to sell the voucher to other biotech or pharmaceutical companies. The market for priority review vouchers has a limited history and disclosed sales prices may not be indicative of the current value of vouchers, which may also fluctuate significantly. The Consolidated Appropriations Act, 2021, which was enacted on December 27, 2020, extended the priority review voucher program such that drugs designated for an RPD by September 30, 2024 can receive a voucher if the drug is submitted and approved by September 30, 2026. Further, the potential award of a voucher would trigger an obligation to market the relevant RPD product within one year from FDA approval or the FDA may revoke the voucher. Finally, a voucher award subjects us to additional post-marketing reporting obligations to the FDA.

​

Failure to obtain regulatory approval in international jurisdictions would prevent ganaxolone from being marketed in these jurisdictions.

In order to market and sell our products in the EU and many other jurisdictions, we must obtain separate marketing approvals and comply with numerous and varying regulatory requirements. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval may differ substantially from that required to obtain FDA approval. The regulatory approval process outside the United States generally includes all of the risks associated with obtaining FDA approval. In addition, many countries outside the United States require that a product be approved for reimbursement before the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United States on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries or jurisdictions, and approval by one regulatory authority outside the United States does not ensure approval by regulatory authorities in other countries or jurisdictions or by the FDA. We may not be able to file for marketing approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval of ganaxolone by regulatory authorities in the EU or another country or jurisdiction, the commercial prospects of ganaxolone may be significantly diminished and our business prospects could decline.

Ganaxolone may be regulated as a controlled substance, the making, use, sale, importation, exportation, and distribution of which is subject to significant regulation by the DEA and other regulatory agencies.

The FDA may recommend controlled substance scheduling for ganaxolone. In such event, the DEA will need to determine the controlled substance schedule taking into account the recommendation of the FDA. The DEA regulates controlled substances as Schedule I, II, III, IV or V substances. Schedule I substances by definition have no established medicinal use, and may not be marketed or sold in the U.S. A pharmaceutical product may be listed as Schedule II, III, IV or V, with Schedule II substances considered to present the highest risk of abuse and Schedule V substances the lowest relative risk of abuse among such substances. If ganaxolone is determined to be a controlled substance, the manufacturing, shipping, distribution, import, export, packaging, storing, prescribing, dispensing, selling and use of ganaxolone will be subject to an additional regulation, including under the CSA and DEA regulations. Regulations

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associated with controlled substances also govern production and procurement quotas, recordkeeping, reporting, handling, and disposal Additionally, if ganaxolone is determined to be a controlled substance, facilities conducting research, manufacturing, distributing, importing or exporting, or dispending ganaxolone must be registered (licensed) to perform these activities and have the security, control, recordkeeping, reporting and inventory mechanisms required by the DEA to prevent drug loss and intervention. All these facilities must renew their registrations annually, except dispensing facilities, which must renew every three years. The DEA, and some states, also conduct periodic inspections of registered establishments that handle controlled substances. These regulations increase the personnel needs and the expense associated with development commercialization of products. Because of their restrictive nature, these laws and regulations could also limit commercialization of ganaxolone, if approved. Failure to comply with these laws and regulations could also result in withdrawal of our DEA registrations, disruption in manufacturing and distribution activities, consent decrees, criminal and civil penalties and state actions, among other consequences.

Various states also independently regulate controlled substances. Though state controlled substances laws often mirror federal law, because states are separate jurisdictions, they may separately schedule drugs as well. While some states automatically schedule a drug when the DEA does so, in other states there must be a rulemaking or a legislative action. State scheduling may delay commercial sale of ganaxolone, if approved, and adverse scheduling could impair the commercial attractiveness of ganaxolone. We must also obtain separate state registrations in order to be able to obtain, handle and distribute controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions from the states in addition to those from the DEA or otherwise arising under federal law.

Risks Related to the Commercialization of Our Product

Our commercial success depends upon attaining significant market access and acceptance of ganaxolone, if approved, among physicians, patients, government and private payers and others in the medical community and attaining sufficient reimbursement for ganaxolone.

Even if ganaxolone receives regulatory approval, it may not gain market acceptance among physicians, patients, government and private payers, or others in the medical community. Market acceptance of ganaxolone, if we receive approval, depends on a number of factors, including:

| ● | clinically and commercially viable product profile as supported by clinical trials;

| ● | efficacy and safety of ganaxolone, or ganaxolone administered with other drugs, each as demonstrated in clinical trials and post-marketing experience;

| ● | clinical indications for which ganaxolone is approved;

| ● | acceptance by physicians and patients of ganaxolone as a safe and effective treatment;

| ● | potential and perceived advantages of ganaxolone over alternative treatments;

| ● | safety of ganaxolone seen in a broader patient group, including its use outside the approved indications should physicians choose to prescribe for such uses;

| ● | prevalence and severity of any side effects and drug interactions;

| ● | product labeling or product insert requirements of the FDA or comparable foreign regulatory authorities;

| ● | timing of market introduction of ganaxolone as well as competitive products;

| ● | cost of treatment in relation to alternative treatments;

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| ● | availability of coverage and adequate reimbursement and pricing by government and private payers;

| ● | relative convenience and ease of administration;

| ● | effectiveness of our sales and marketing strategy and efforts;

| ● | adequate commercial investment; and

| ● | stability and continuity of product supply chains.

If ganaxolone is approved but fails to achieve market acceptance among physicians, patients, government or private payers or others in the medical community, or the products or product candidates that are being administered with ganaxolone are restricted, withdrawn or recalled, or fail to be approved, as the case may be, we may not be able to generate significant revenues, which would compromise our ability to become profitable.

We face substantial competition, which may result in others discovering, developing or commercializing products before or more successfully than we do.

The development and commercialization of new drug products is highly competitive. We face competition with respect to ganaxolone and will face competition with respect to any other product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development of products for the treatment of the disease indications for which we are developing ganaxolone. Some of these competitive products and therapies are based on scientific approaches that are the same as, or similar to, our approach, and others are based on entirely different approaches. For example, there are several companies developing product candidates that target the same GABAA neuroreceptor that we are targeting or that are testing product candidates in the same indications that we are testing. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization.

Ganaxolone is presently being developed as an antiepileptic therapeutic. There are a variety of marketed therapies available for these patients.

Specifically, there are more than 25 approved antiepileptic drugs (AEDs) available in the United States and worldwide, including the generic products levetiracetam, lamotrigine, carbamazepine, oxcarbazepine, valproic acid and topiramate. Recent market entrants include branded products developed by Lundbeck, UCB, Eisai, Jazz Pharmaceuticals (via acquisition of GW Pharmaceuticals), Zogenix, SK Biopharmaceuticals and Sunovion Pharmaceuticals. In addition, there are several drugs in development for the treatment of pediatric orphan indications, including compounds being developed by Jazz Pharmaceuticals (via acquisition of GW Pharmaceuticals), Zogenix, Zynerba and Ovid.

Many of the approved drugs are well established therapies or products and are widely accepted by physicians, patients and third-party payers. Insurers and other third-party payers may also encourage the use of generic products. These factors may make it difficult for us to achieve market acceptance at desired levels or in a timely manner to ensure viability of our business.

More established companies may have a competitive advantage over us due to their greater size, cash flows and institutional experience. Compared to us, many of our competitors may have significantly greater financial, technical and human resources.

As a result of these factors, our competitors may obtain regulatory approval of their products before we are able to, which may limit our ability to develop or commercialize ganaxolone. Our competitors may also develop products that are safer, more effective, more widely used and cheaper than ours, and may also be more successful than us in

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manufacturing and marketing their products. These appreciable advantages could render ganaxolone obsolete or non-competitive before we can recover the expenses of ganaxolone’s development and commercialization.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell ganaxolone, we may be unable to generate any revenue.

We do not currently have an organization for the sale, marketing and distribution of pharmaceutical products and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market ganaxolone, if approved by the FDA or comparable foreign regulatory authorities, we must build our sales, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently or with third parties, we may not be able to generate product revenue and may not become profitable. We will be competing with many companies that currently have extensive and well-funded sales and marketing operations. Without an internal commercial organization or the support of a third party to perform sales and marketing functions, we may be unable to compete successfully against these more established companies. To the extent we rely on third parties to commercialize ganaxolone, if approved, we may have little or no control over the marketing and sales efforts of such third parties, and our revenues from product sales may be lower than if we had commercialized ganaxolone ourselves.

Even if we are able to commercialize ganaxolone, it may not receive coverage and adequate reimbursement from third-party payers, which could harm our business.

Our ability to commercialize ganaxolone successfully will depend, in part, on the extent to which coverage and adequate reimbursement for ganaxolone and related treatments will be available from government health administration authorities, private health insurers and other organizations. Government authorities and third-party payers, such as private health insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels. A primary trend in the United States healthcare industry and elsewhere is cost containment. Government authorities and third-party payers have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payers are requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for drugs. Third-party payers may also seek additional clinical evidence, beyond the data required to obtain marketing approval, demonstrating clinical benefits and value in specific patient populations before covering ganaxolone for those patients. We cannot be sure that coverage and adequate reimbursement will be available for ganaxolone and, if reimbursement is available, what the level of reimbursement will be. Coverage and reimbursement may impact the demand for, or the price of, ganaxolone, if we obtain marketing approval. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize ganaxolone even if we obtain marketing approval.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payers and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Third-party payers often rely upon Medicare coverage policy and payment limitations in setting their own reimbursement policies. Our inability to obtain coverage

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and profitable reimbursement rates from both government-funded and private payers for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

If the market opportunities for ganaxolone are smaller than we believe they are, our results of operations may be adversely affected and our business may suffer.

We focus our research and product development on therapeutics to treat patients suffering from rare seizure disorders. Our projections of both the number of people who have these disorders, as well as the subset of people with these diseases who have the potential to benefit from treatment with ganaxolone, are based on estimates. These estimates may prove to be incorrect and new studies or clinical trials may change the estimated incidence or prevalence of these disorders. The number of patients in the United States and elsewhere may turn out to be lower than expected, may not be otherwise amenable to treatment with ganaxolone, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business.

A variety of risks associated with marketing ganaxolone internationally could materially adversely affect our business.

We plan to seek regulatory approval for ganaxolone outside of the United States, and, accordingly, we expect that we will be subject to additional risks related to operating in foreign countries if we obtain the necessary approvals, including:

| ● | differing regulatory requirements in foreign countries;

| ● | the potential for so-called parallel importing, which is what happens when a local seller, faced with high or higher local prices, opts to import goods from a foreign market (with low or lower prices) rather than buying them locally;

| ● | viable pricing awarded in international markets to support commercial investment is required;

| ● | unexpected changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements;

| ● | economic weakness, including inflation, or political instability in particular foreign economies and markets;

| ● | compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

| ● | foreign taxes, including with respect to our Irish subsidiary;

| ● | foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

| ● | difficulties staffing and managing foreign operations;

| ● | workforce uncertainty in countries where labor unrest is more common than in the United States;

| ● | challenges enforcing our contractual and intellectual property rights, especially in those foreign countries that do not respect and protect intellectual property rights to the same extent as the United States;

| ● | production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and

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| ● | business interruptions resulting from geo-political actions, including war and terrorism, as well as from pandemics, including the COVID-19 pandemic.

These and other risks associated with our international operations may materially adversely affect our ability to attain or maintain profitable operations.

Product liability lawsuits against us could cause us to incur substantial liabilities and to limit commercialization of ganaxolone or other product candidates that we may develop.

We face an inherent risk of product liability exposure related to the testing of ganaxolone by us or our investigators in human clinical trials and will face an even greater risk if ganaxolone receives regulatory approval and we subsequently commercialize it. Product liability claims may be brought against us by subjects enrolled in our clinical trials, patients, healthcare providers or others using, administering or selling ganaxolone. If we cannot successfully defend ourselves against claims that ganaxolone caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in, for example:

| ● | decreased demand for ganaxolone;

| ● | termination of clinical trial sites, entire clinical trials or development programs;

| ● | injury to our reputation and significant negative media attention;

| ● | withdrawal of clinical trial patients;

| ● | significant costs to defend the related litigation;

| ● | substantial monetary awards to patients;

| ● | loss of revenue;

| ● | diversion of management and scientific resources from our business operations;

| ● | the inability to commercialize ganaxolone; and

| ● | increased scrutiny and potential investigation by, among others, the FDA, the DOJ, the HHS OIG, state attorneys general, members of Congress and the public.

We currently have product liability insurance coverage, which may not be adequate to cover all liabilities that we may incur. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. We intend to expand our product liability insurance coverage to include the sale of commercial products if we obtain marketing approval for ganaxolone, but we may be unable to obtain commercially reasonable product liability insurance for ganaxolone, if approved for marketing. Large judgments have been awarded in class action lawsuits based on drugs that had unanticipated side effects. A successful product liability claim or series of claims brought against us, particularly if judgments exceed our insurance coverage, could have a material adverse effect on our business and financial condition.

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Risks Related to Our Dependence on Third Parties

We rely on third parties to conduct our preclinical studies and clinical trials. If these third parties do not successfully carry out their duties in compliance with contractual terms and/or regulatory requirements or meet expected deadlines, our development plans may be adversely affected and we may not be able to obtain regulatory approval for or commercialize ganaxolone.

We rely on third-party CROs to monitor and manage data for our ongoing preclinical and clinical programs. We also rely on third parties to assist in conducting our preclinical studies in accordance with GLP and the Animal Welfare Act requirements, where applicable. We and our CROs are required to comply with federal regulations and GCP, which are international requirements meant to protect the rights and health of patients that are enforced by the FDA, the competent authorities of the EU Member States and comparable foreign regulatory authorities for ganaxolone. Regulatory authorities enforce GCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCP, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP requirements. In addition, our clinical trials must be conducted with product produced under cGMP requirements. Failure to comply with these regulations may require us to repeat or conduct additional preclinical studies and clinical trials, which would delay the regulatory approval process.

Although we depend heavily on these parties and have contractual agreements governing their activities, we cannot control them and therefore, we cannot be assured that these third parties will devote sufficient time and resources to our ongoing clinical, nonclinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements or for other reasons, our preclinical studies and clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize ganaxolone. As a result, our results of operations and the commercial prospects for ganaxolone would be harmed, our costs could increase and our ability to generate revenue could be delayed.

If any of our relations terminate, switching or adding additional CROs would involve additional cost and require management time and focus. Identifying, qualifying and managing performance of third-party service providers can be difficult, time consuming and cause delays in our development programs. In addition, there is a natural transition period when a new CRO commences work. If any of our relationships with our third-party CROs terminate, we may not be able to enter into arrangements with alternative CROs or to do so on commercially reasonable terms. As a result, delays my occur, which can materially impact our ability to meet our desired development timelines.

In addition, the use of third-party service providers requires us to disclose our proprietary information to these parties, which could increase the risk that this information will be misappropriated. We currently have a small number of employees, which limits the internal resources we have available to monitor our third-party providers. To the extent we are unable to identify and successfully manage the performance of third-party service providers, our business may be adversely affected. Though we carefully manage our relationships with our CROs, there can be no assurance that we will not encounter challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, financial condition and prospects.

Our experience manufacturing ganaxolone is limited to the needs of our preclinical studies and clinical trials. We have no experience manufacturing ganaxolone on a commercial scale and have no manufacturing facility. We are dependent on third-party manufacturers for the manufacture of ganaxolone as well as on third parties for our supply chain, and if we experience problems with any such third parties, the manufacturing of ganaxolone could be delayed.

We do not own or operate facilities for the manufacture of ganaxolone. We currently have no plans to build our own clinical or commercial scale manufacturing capabilities. We currently rely on contract manufacturing organizations (CMOs) for the chemical manufacture of raw materials and active pharmaceutical ingredients for ganaxolone and other CMOs for the production of the ganaxolone nanoparticulate formulation into capsules, liquid suspension and IV, and we

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plan to rely on CMOs for the manufacture of ganaxolone for commercial use, if approved. To meet our projected needs for preclinical and clinical supplies to support our activities through regulatory approval and commercial manufacturing, the CMOs with whom we currently work will need to increase the scale of production. We may need to identify additional CMOs for continued production of supply for ganaxolone. Although alternative third-party suppliers with the necessary manufacturing and regulatory expertise and facilities exist, it could be expensive and take a significant amount of time to arrange for alternative suppliers. If we are unable to arrange for alternative third-party manufacturing sources on commercially reasonable terms, in a timely manner or at all, we may not be able to complete development of ganaxolone, or market or distribute ganaxolone.

Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured ganaxolone ourselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control, including a failure to synthesize and manufacture ganaxolone, and the possibility of termination or nonrenewal of the manufacturing agreement by the third party, based on its own business priorities, at a time that is costly or damaging to us. In addition, the FDA and other regulatory authorities will require that ganaxolone be manufactured according to cGMP and similar foreign standards. Any failure by our third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of ganaxolone in a timely manner, could lead to a delay in, or failure to obtain, regulatory approval of ganaxolone. In addition, such failure could be the basis for the FDA or other regulatory authorities to issue a warning letter, withdraw approvals for ganaxolone previously granted to us, or take other regulatory or legal action, including recall or seizure of outside supplies of ganaxolone, total or partial suspension of production, suspension of ongoing clinical trials, refusal to approve pending applications or supplemental applications, detention of product, refusal to permit the import or export of products, injunction, or imposing civil and criminal penalties.

Any significant disruption in our supplier relationships could harm our business. Any significant delay in the supply of ganaxolone or its key raw materials for an ongoing preclinical study or clinical trial could considerably delay completion of such preclinical study or clinical trial, product testing and potential regulatory approval of ganaxolone. If our manufacturers or we are unable to purchase these key raw materials after regulatory approval has been obtained for ganaxolone, the commercial launch of ganaxolone would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of ganaxolone.

Government funding for certain of our programs adds uncertainty to our research efforts with respect to those programs and may impose requirements that increase the costs of commercialization and production of product candidates developed under those government-funded programs.

In September 2020, we entered into the BARDA Contract with BARDA, a division of the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response. Under the BARDA Contract, we received an award of up to an estimated $51 million for development of IV administered ganaxolone for the treatment of RSE. The BARDA Contract consists of an approximately two-year base period-during which BARDA will provide approximately $21 million of funding for the RSE Phase 3 clinical trial on a cost share basis and funding of additional preclinical studies of ganaxolone in nerve agent exposure models. Following successful completion of the RSE Phase 3 clinical trial and preclinical studies in the base period, the BARDA Contract provides for approximately $30 million of additional BARDA funding for three options in support of manufacturing, supply chain, clinical, regulatory and toxicology activities. Under the BARDA Contract, we will be responsible for cost sharing in the amount of approximately $33 million and BARDA will be responsible for approximately $51 million, if all development options are completed. The contract period-of-performance (base period plus option exercises) is up to approximately five years.

Programs funded by the United States government and its agencies include provisions that confer on the government substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to:

| ● | terminate agreements, in whole or in part, for any reason or no reason;

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| ● | reduce or modify the government’s obligations under such agreements without the consent of the other party;

| ● | claim rights, including intellectual property rights, in products and data developed under such agreements;

| ● | audit contract-related costs and fees, including allocated indirect costs;

| ● | suspend the contractor from receiving new contracts pending resolution of alleged violations of procurement laws or regulations;

| ● | impose United States manufacturing requirements for products that embody inventions conceived or first reduced to practice under such agreements;

| ● | suspend or debar the contractor from doing future business with the government; and

| ● | control and potentially prohibit the export of products.

We may not have the right to prohibit the United States government from using or allowing others to use certain technologies developed by us, and we may not be able to prohibit third-party companies, including our competitors, from using those technologies in providing products and services to the United States government. The United States government generally obtains the right to royalty-free use of technologies that are developed under United States government contracts.

In addition, government contracts normally contain additional requirements that may increase our costs of doing business, reduce our profits, and expose us to liability for failure to comply with these terms and conditions. These requirements include, for example:

| ● | specialized accounting systems unique to government contracts;

| ● | mandatory financial audits and potential liability for price adjustments or recoupment of government funds after such funds have been spent;

| ● | public disclosures of certain contract information, which may enable competitors to gain insights into our research program; and

| ● | mandatory socioeconomic compliance requirements, including labor standards, non-discrimination and affirmative action programs and environmental compliance requirements.

If we fail to maintain compliance with these requirements, we may be subject to potential contract liability and to termination of our contracts. In addition, if an audit or review uncovers any improper or illegal activity, we may be subject to civil and criminal penalties and administrative sanctions, including termination of our contracts, forfeiture of profits, suspension of payments, fines and suspension or prohibition from doing business with the U.S. government. We could also suffer serious harm to our reputation if allegations of impropriety were made against us. In addition, under U.S. government purchasing regulations, some of our costs may not be reimbursable or allowed under the BARDA Contract. Further, as a U.S. government contractor, we are subject to an increased risk of investigations, criminal prosecution, civil fraud, whistleblower lawsuits and other legal actions and liabilities as compared to private sector commercial companies.

Further, changes in government budgets and agendas may result in a decreased and de-prioritized emphasis on supporting the RSE development program. Any reduction or delay in BARDA funding may force us to seek alternative funding in order to progress our RSE program, which may not be available on non-dilutive terms, terms favorable to us or at all.

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We may elect to enter into license or collaboration agreements to partner ganaxolone in territories currently retained by us. Our dependence on such relationships may adversely affect our business.

Because we have limited resources, we have and expect that we will continue to enter into license or collaboration agreements with other pharmaceutical or biotechnology companies. Any failure by our partners to perform their obligations or any decision by our partners to terminate these agreements could negatively impact our ability to successfully develop, obtain regulatory approvals for and commercialize ganaxolone. In the event we grant exclusive rights to such partners, we would be precluded from potential commercialization of ganaxolone within the territories in which we have a partner. In addition, any termination of our license or collaboration agreements will terminate the funding we may receive under the relevant license or collaboration agreement and may impair our ability to fund further development efforts and our progress in our development programs.

Our commercialization strategy for ganaxolone may depend on our ability to enter into agreements with partners to obtain assistance and funding for the development and potential commercialization of ganaxolone in the territories in which we seek to partner. Despite our efforts, we may be unable to secure license or collaboration agreements or other arrangements that are necessary for us to further develop and commercialize ganaxolone. Supporting diligence activities conducted by potential licensees or collaborators and negotiating the financial and other terms of a license or collaboration agreement are long and complex processes with uncertain results. Even if we are successful in entering into one or more license or collaboration agreements, such agreements may involve greater uncertainty for us, as we would have less control over certain aspects of our partnered programs than we do over our un-partnered programs. We may determine that continuing a license or collaboration under the terms provided is not in our best interest, and we may terminate the license or collaboration. Our potential future partners could delay or terminate their agreements, and as a result ganaxolone may never be successfully commercialized.

Further, our potential future partners may develop alternative products or pursue alternative technologies either on their own or in collaboration with others, including our competitors, and the priorities or focus of our partners may shift such that ganaxolone receives less attention or resources than we would like, or they may be terminated altogether. Any such actions by our potential future partners may adversely affect our business prospects and ability to earn revenue. In addition, we could have disputes with our potential future partners, such as the interpretation of terms in our agreements. Any such disagreements could lead to delays in the development or commercialization of ganaxolone or could result in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor.

If our third-party manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable for damages.

Our research and development activities involve the controlled use of potentially hazardous substances, including chemical and biological materials by our third-party manufacturers. Our manufacturers are subject to federal, state and local laws and regulations in the United States governing the use, manufacture, storage, handling and disposal of medical, radioactive and hazardous materials. We cannot completely eliminate the risk of contamination or injury resulting from medical, radioactive or hazardous materials. As a result of any such contamination or injury we may incur liability or local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from medical radioactive or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future environmental regulations may impair our research, development and production efforts, which could harm our business, prospects, financial condition or results of operations.

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Risks Related to Regulatory Compliance

Recently enacted and future legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the difficulty and cost for us to obtain marketing approval of and commercialize ganaxolone and affect the prices we may obtain.

The regulations that govern, among other things, marketing approvals, coverage, pricing and reimbursement for new drug products vary widely from country to country. In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of ganaxolone, restrict or regulate post-approval activities and affect our ability to successfully sell ganaxolone, if we obtain marketing approval.

In the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the Medicare Modernization Act) changed the way Medicare covers and pays for pharmaceutical products. The legislation expanded Medicare coverage for drug purchases by eligible beneficiaries and introduced a new reimbursement methodology based on average sales prices for physician administered drugs. In recent years, Congress has considered further reductions in Medicare reimbursement for drugs administered by physicians. Centers for Medicare & Medicaid Services (CMS) also has the authority to revise reimbursement rates and to implement coverage restrictions for drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products, which in turn would affect the price we can receive for those products. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our drugs. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for ganaxolone, if approved, or additional pricing pressures.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (the Affordable Care Act) is intended to reduce the cost of, improve the quality of, and expand access to healthcare, among other things. Among other things, the Affordable Care Act expanded manufacturers’ rebate liability to include covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations, increased the minimum rebate due for innovator drugs from 15.1% of average manufacturer price (AMP) to 23.1% of AMP and capped the total rebate amount for innovator drugs at 100.0% of AMP. The Affordable Care Act and subsequent legislation also changed the definition of AMP. Furthermore, the Affordable Care Act imposed a significant annual, nondeductible fee on companies that manufacture or import certain branded prescription drug products. Certain provisions of the Affordable Care Act have been subject to judicial challenges as well as efforts to repeal, replace or otherwise modify them or to alter their interpretation and implementation. Additional legislative changes, regulatory changes, and judicial challenges related to the Affordable Care Act remain possible, but the nature and extent of such potential changes or challenges are uncertain at this time. The implications of the Affordable Care Act, and efforts to repeal, replace, or otherwise modify or invalidate, the Affordable Care Act or its implementing regulations, or portions thereof, or the political uncertainty surrounding any efforts to repeal, replace, or otherwise modify the Affordable Care Act for our business and financial condition, if any, are not clear. We will continue to evaluate the effect that the Affordable Care Act as well as its possible repeal, replacement, modification, or invalidation, in whole or in part, has on our business.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. The Budget Control Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of an amount greater than $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions to Medicare payments to healthcare providers of, on average, 2.0% per fiscal year, starting in 2013 and continuing through 2030 (with the exception of a temporary suspension from May 1, 2020 through December 31, 2021) unless additional Congressional action is taken. The American Taxpayer Relief Act of 2012, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute of limitations period for the government to recover

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overpayments to providers from three to five years. If we ever obtain regulatory approval and commercialization of ganaxolone, these laws may result in additional reductions in Medicare and other healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations.

In addition, legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We cannot be sure whether additional legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of ganaxolone may be.

In the United States, the EU and other potentially significant markets for ganaxolone, government authorities and third-party payers are increasingly attempting to limit or regulate the price of medical products and services, particularly for new and innovative products and therapies, which has resulted in lower average selling prices. Furthermore, the increased emphasis on managed healthcare in the United States and on country and regional pricing and reimbursement controls in the EU will put additional pressure on product pricing, reimbursement and usage, which may adversely affect our future product sales and results of operations. These pressures can arise from rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement policies and pricing in general.

Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for ganaxolone in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, which could negatively impact the revenue we are able to generate from the sale of the product in that particular country. Adverse pricing limitations may hinder our ability to recoup our investment in ganaxolone even if ganaxolone obtains marketing approval.

If we participate in the Medicaid Drug Rebate Program and fail to comply with our reporting and payment obligations under that program or other governmental pricing programs that we participate in, we could be subject to additional reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

We expect to participate in and have certain price reporting obligations to the Medicaid Drug Rebate Program. Under the Medicaid Drug Rebate Program, if we successfully commercialize one or more products for which we receive regulatory approval, we would be required to pay a rebate to each state Medicaid program for our covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having federal funds being made available to the states for our drugs under Medicaid and Medicare Part B. Those rebates are based on pricing data, such as average manufacturer price and best price, that we would have to report on a monthly and quarterly basis to the CMS, the federal agency that administers the Medicaid Drug Rebate Program. These data include the average manufacturer price and, in the case of innovator products, the best price for each drug which, in general, represents the lowest price available from the manufacturer to any entity in the United States in any pricing structure, calculated to include all sales and associated rebates, discounts and other price concessions. The Affordable Care Act made significant changes to the Medicaid Drug Rebate Program, and CMS issued a final regulation, which became effective on April 1, 2016, to implement the changes to the Medicaid Drug Rebate program under the Affordable Care Act. On December 21, 2020, CMS issued a final regulation that modified existing Medicaid Drug Rebate Program regulations to permit reporting multiple Best Price figures with regard to value-based purchasing arrangements (beginning in 2022); provide definitions for “line extension,” “new formulation,” and related terms with the practical effect of expanding the scope of drugs considered to be line extensions (beginning in 2022); and revise AMP and Best Price exclusions of manufacturer-sponsored patient benefit programs, specifically regarding inapplicability of such exclusions in the context of pharmacy benefit manager “accumulator” programs (beginning in 2023). Our failure to comply with the aforementioned price reporting and rebate payment obligations if we participate in the Medicaid Drug Rebate Program could negatively impact our financial results.

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Federal law requires that any company that participates in the Medicaid Drug Rebate Program also participate in the 340B program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B. The 340B program, which is administered by the Health Resources and Services Administration (HRSA), requires participating manufacturers to agree to charge statutorily defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. These 340B covered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a disproportionate share of low-income patients. The Affordable Care Act expanded the list of covered entities to include certain free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, but exempts “orphan drugs” from the ceiling price requirements for these covered entities. The 340B ceiling price is calculated using a statutory formula based on the average manufacturer price and rebate amount for the covered outpatient drug as calculated under the Medicaid Drug Rebate Program, and in general, products subject to Medicaid price reporting and rebate liability are also subject to the 340B ceiling price calculation and discount requirement. Any additional future changes to the definition of average manufacturer price and the Medicaid rebate amount under the Affordable Care Act or other legislation or regulation could affect our 340B ceiling price calculations and negatively impact our results of operations if we successfully commercialize one or more products for which we receive regulatory approval.

HRSA issued a final regulation, effective January 1, 2019, regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered entities. HRSA also has implemented a ceiling price reporting requirement, pursuant to which manufacturers must report the 340B ceiling prices for their covered outpatient drugs to HRSA on a quarterly basis. HRSA then publishes those prices to 340B covered entities. Moreover, under a final regulation effective January 13, 2021, HRSA newly established an administrative dispute resolution (ADR) process for claims by covered entities that a manufacturer has engaged in overcharging, and by manufacturers that a covered entity violated the prohibitions against diversion or duplicate discounts. Such claims are to be resolved through an ADR panel of government officials rendering a decision that could be appealed only in federal court. An ADR proceeding could subject a manufacturer to onerous procedural requirements and could result in additional liability. In addition, legislation may be introduced that, if passed, would further expand the 340B program to additional covered entities or would require participating manufacturers to agree to provide 340B discounted pricing on drugs used in an inpatient setting.

Federal law also requires that a company that participates in the Medicaid Drug Rebate Program report average sales price information each quarter to CMS for certain categories of drugs that are paid under the Medicare Part B program. Manufacturers calculate the average sales price based on a statutorily defined formula as well as regulations and interpretations of the statute by CMS. CMS uses these submissions to determine payment rates for drugs under Medicare Part B. In a November 20, 2020 interim final rule, CMS established a “Most Favored Nation” demonstration model that would lower Medicare Part B reimbursement of certain drugs based on international reference prices. The rule has become subject to judicial challenges, and federal courts have enjoined the rule at this time. There is also proposed legislation pending that would establish an international reference price-based payment methodology.

Pricing and rebate calculations vary among products and programs. The calculations are complex and are often subject to interpretation by the manufacturer, governmental or regulatory agencies, and the courts. If we participate in the Medicaid Drug Rebate Program and consequently the 340B program, we could be held liable for errors associated with our submission of pricing data. In addition to retroactive Medicaid rebates and the potential for 340B program refunds, if we are found to have knowingly submitted false average manufacturer price or best price information to the government, we may be liable for significant civil monetary penalties per item of false information. If we are found to have made a misrepresentation in the reporting of our average sales price, the Medicare statute provides for significant civil monetary penalties for each misrepresentation for each day in which the misrepresentation was applied. Civil monetary penalties can also be applied if we are found to have charged 340B covered entities more than the statutorily mandated ceiling price. A covered entity or association representing covered entities can also bring claims against us through HRSA’s 340B ADR process. Our failure to submit monthly/quarterly average manufacturer price and best price data on a timely basis could result in a significant civil monetary penalty per day for each day the information is late beyond the due date. Such failure also could be grounds for CMS to terminate our Medicaid drug rebate agreement, pursuant to which we would be participating in the Medicaid Drug Rebate Program. In the event that CMS terminates our rebate agreement, no federal payments would be available under Medicaid or Medicare Part B for our covered outpatient drugs.

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CMS and the HHS OIG have pursued manufacturers that were alleged to have failed to report these data to the government in a timely manner. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. If we participate in the Medicaid Drug Rebate Program and consequently the 340B program, we cannot assure you that our submissions will not be found to be incomplete or incorrect.

In order to be eligible to have our products that we successfully commercialize paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees, we also would have to participate in the Department of Veterans Affairs (VA) Federal Supply Schedule (FSS) pricing program. As part of this program, we would be obligated to make our products available for procurement on an FSS contract under which we must comply with standard government terms and conditions and charge a price that is no higher than the statutory Federal Ceiling Price (FCP) to four federal agencies (VA, Department of Defense (DOD), Public Health Service, and U.S. Coast Guard).

The FCP is based on the Non-Federal Average Manufacturer Price (Non-FAMP), which we would be required to calculate and report to the VA on a quarterly and annual basis. Pursuant to applicable law, knowing provision of false information in connection with a Non-FAMP filing can subject a manufacturer to significant civil monetary penalties for each item of false information. The FSS pricing and contracting obligations also contain extensive disclosure and certification requirements.

If we successfully commercialize one or more products for which we receive regulatory approval, we also would participate in the Tricare Retail Pharmacy program, under which we would be required to pay quarterly rebates on utilization of innovator products that are dispensed through the Tricare Retail Pharmacy network to Tricare beneficiaries. The rebates are calculated as the difference between the annual Non-FAMP and FCP. We would be required to list our innovator products on a Tricare Agreement in order for them to be eligible for DOD formulary inclusion. If we overcharge the government in connection with our FSS contract or Tricare Agreement, whether due to a misstated FCP or otherwise, we would be required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges could result in allegations against us under the FCA and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Laws and regulations governing international operations may preclude us from developing, manufacturing and selling product candidates outside of the United States and require us to develop and implement costly compliance programs.

As we seek to expand our operations outside of the United States, we must comply with numerous laws and regulations in each jurisdiction in which we plan to operate. The creation and implementation of international business practices compliance programs is costly and such programs are difficult to enforce, particularly where reliance on third parties is required.

The Foreign Corrupt Practices Act (FCPA) prohibits any United States individual or business from paying, offering, authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with certain accounting provisions requiring such companies to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, and to devise and maintain an adequate system of internal accounting controls for international operations. The anti-bribery provisions of the FCPA are enforced primarily by the DOJ. The SEC is involved with enforcement of the books and records provisions of the FCPA.

Compliance with the FCPA is expensive and difficult, particularly in countries in which corruption is a recognized problem. In addition, the FCPA presents particular challenges in the pharmaceutical industry, because, in many countries, hospitals are operated by the government, and doctors and other hospital employees are considered

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foreign officials. Certain payments to hospitals in connection with clinical trials and other work have been deemed to be improper payments to government officials and have led to FCPA enforcement actions.

Various laws, regulations and executive orders also restrict the use and dissemination outside of the United States, or the sharing with certain foreign nationals, of information classified for national security purposes, as well as certain products and technical data relating to those products. Our expanding presence outside of the United States will require us to dedicate additional resources to comply with these laws, and these laws may preclude us from developing, manufacturing, or selling ganaxolone outside of the United States, which could limit our growth potential and increase our development costs.

The failure to comply with laws governing international business practices may result in substantial penalties, including suspension or debarment from government contracting. Violation of the FCPA can result in significant civil and criminal penalties. Indictment alone under the FCPA can lead to suspension of the right to do business with the United States government until the pending claims are resolved. Conviction of a violation of the FCPA can result in long-term disqualification as a government contractor. The termination of a government contract or relationship as a result of our failure to satisfy any of our obligations under laws governing international business practices would have a negative impact on our operations and harm our reputation and ability to procure government contracts. The SEC also may suspend or bar issuers from trading securities on United States exchanges for violations of the FCPA’s accounting provisions.

Our relationships with customers and third-party payers will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and others will play a primary role in the recommendation and prescription of any product candidates for which we obtain marketing approval. Our future arrangements with healthcare professionals, third-party payers, patients and others will expose us to broadly applicable fraud and abuse, anti-kickback, false claims, and other healthcare laws and regulations that may affect the business or financial arrangements and relationships through which we would market, sell and distribute our products. Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payers, federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’ rights are and will be applicable to our business. Restrictions under applicable federal and state healthcare laws and regulations that may affect our operations (including our marketing, promotion, educational programs, pricing, and relationships with healthcare providers or other entities, among other things) and expose us to areas of risk including the following:

| ● | the federal Anti-Kickback Statute (AKS) prohibits, among other things, knowingly and willfully soliciting, offering, or receiving remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order or recommendation of, or arranging for the purchase, lease, or order of, any healthcare item or service, for which payment may be made under a federal healthcare program such as Medicare & Medicaid;

| ● | the FCA prohibits, among other things, individuals or entities from, among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim for payment of government funds, or knowingly making, using, or causing to be made or used a false record or statement material to an obligation to pay money to the government, or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal government;

| ● | other federal false claims laws, including, among others, federal criminal healthcare fraud and false statement statutes that extend to non-government health benefit programs;

| ● | the Health Insurance Portability and Accountability Act of 1996 and its implementing regulations (collectively, HIPAA) imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program, including private third-party payors, and also prohibits knowingly and willfully falsifying,

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|  | concealing or covering up a material fact or making any materially false statements in connection with the delivery of or payment for healthcare benefits, items or services;

| ● | the federal Physician Payments Sunshine Act, implemented as the Open Payments Program, requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid, or Children’s Health Insurance Program, to report annually to CMS information related to payments and other transfers of value to physicians, and teaching hospitals, and starting in 2022 certain other health care professionals, and ownership and investment interests held by physicians and their immediate family members and applicable group purchasing organizations; and

| ● | analogous state and foreign laws and regulations, such as state anti-kickback and false claims laws, which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payers, including private insurers, as well as other state laws and regulations governing pharmaceutical manufacturers; and

| ● | state and foreign laws govern the privacy and security of health information in specified circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

Efforts to ensure that our business arrangements with third parties are compliant with applicable healthcare laws and regulations will involve the expenditure of appropriate, and possibly significant, resources. Nonetheless, it is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare & Medicaid, and the curtailment or restructuring of our operations. If any physicians or other healthcare providers or entities with whom we expect to do business are found to not be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

We may be subject to data privacy and security regulations by both the federal government and the states in which we conduct our business, which could impose significant regulatory hurdles on our business.

HIPAA imposes requirements relating to the privacy, security and transmission of individually identifiable health information. HIPAA imposes privacy and security obligations on covered entity health care providers, health plans, and health care clearinghouses, as well as their “business associates”—independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered entity. We may obtain health information from third parties (including research institutions from which we obtain clinical trial data) that are subject to privacy and security requirements under HIPAA. Although we are not directly subject to HIPAA, other than potentially with respect to providing certain employee benefits, we could potentially be subject to criminal penalties if we, our affiliates, or our agents knowingly obtain, use, or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA. In addition, numerous other federal and state laws and regulations govern privacy and security, including state data breach notification laws, state health information and/or genetic privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the FTC Act, and the California Consumer Privacy Act (CCPA), many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts. Compliance with these laws is difficult, constantly evolving, and time consuming. Federal regulators, state attorneys general, and plaintiffs’ attorneys have been and will likely continue to be active in this space.

In California, the CCPA took effect on January 1, 2020. The CCPA establishes certain requirements for data use and sharing transparency and creates new data privacy rights for consumers. These laws and regulations are evolving and subject to interpretation, and may impose limitations on our activities or otherwise adversely affect our business. Similarly, there are a number of legislative proposals in the EU, the United States, at both the federal and state level, as well as other jurisdictions that could impose new obligations or limitations in areas affecting our business. In addition,

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some countries are considering or have passed legislation implementing data protection requirements or requiring local storage and processing of data or similar requirements that could increase the cost and complexity of delivering our services and research activities. These laws and regulations, as well as any associated claims, inquiries, or investigations or any other government actions may lead to unfavorable outcomes including increased compliance costs, delays or impediments in the development of new products, negative publicity, increased operating costs, diversion of management time and attention, and remedies that harm our business, including fines or demands or orders that we modify or cease existing business practices.

If we, our agents, or our third party partners fail to comply or are alleged to have failed to comply with these or other applicable data protection and privacy laws and regulations, or if we were to experience a data breach involving personal information, we could be subject to government enforcement actions or private lawsuits. Any associated claims, inquiries, or investigations or other government actions could lead to unfavorable outcomes that have a material impact on our business including through significant penalties or fines, monetary judgments or settlements including criminal and civil liability for us and our officers and directors, increased compliance costs, delays or impediments in the development of new products, negative publicity, increased operating costs, diversion of management time and attention, or other remedies that harm our business, including orders that we modify or cease existing business practices.

In addition to laws and regulations enacted in the United States, including the new California Consumer Privacy Act of 2018, the EU’s legislative and regulatory landscape for privacy and data security continues to evolve. There has been increased attention to privacy and data security issues that could potentially affect our business, including the EU General Data Protection Regulation (GDPR), which entered into effect on May 25, 2018 and imposes penalties up to 4% of annual global turnover for breaches of related obligations.

In the event we enroll patients in our ongoing or future clinical trials in the European Economic Area (the EEA), we will be subject to the additional privacy restrictions imposed by the General Data Protection Regulation (the GDPR), including restrictions relating to the collection, use, storage, transfer, and other processing of personal data, including personal health data, regarding individuals in the EEA as governed by the GDPR and the related national data protection laws of the individual EEA countries. The GDPR imposes several requirements on companies that process personal data, with especially strict rules on the transfer of personal data out of the EEA, including to the U.S, and fines and penalties for failure to comply with the requirements of the GDPR and the related national data protection laws of the individual EEA countries. The GDPR also confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory authorities, seek judicial remedies, and obtain compensation for damages resulting from violations of the GDPR. The obligations under the GDPR may be onerous and adversely affect our business, financial condition, results of operations and prospects. Compliance with the GDPR will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with any EEA activities. Further, the United Kingdom’s exit from the EU, often referred to as Brexit, has created uncertainty with regard to future data protection regulation in the United Kingdom.

Because of the remote work policies we implemented due to the COVID-19 pandemic, information that is normally protected, including company confidential information, may be less secure. Cybersecurity and data security threats continue to evolve and raise the risk of an incident that could affect our operations or compromise our business information or sensitive personal information, including health data.

We may also need to collect more extensive health-related information from our employees to manage our workforce. If we or our third party partners fail to comply or are alleged to have failed to comply with applicable data protection and privacy laws and regulations, and related employment rules, or if we were to experience a data breach involving personal information, we could be subject to government enforcement actions or private lawsuits.

In addition, our business could be adversely impacted if our ability to transfer personal data outside of the EEA or Switzerland is restricted, which could adversely impact our operating results. For example, in July 2020, the Court of Justice of the European Union, or the Court of Justice, declared the Privacy Shield Decision (Decision 2018/1250) invalid, which could adversely impact our ability to transfer personal data from the EU to the U.S. The Court of Justice

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further ruled that in order to transfer data outside of the EU, under the existing mechanism known as the Standard Contractual Clauses (SCCs), the importing country’s level of protection must be adequate.

On September 8, 2020, the Federal Data Protection and Information Commissioner (FDPIC) of Switzerland issued an opinion concluding that the Swiss-U.S. Privacy Shield Framework does not provide an adequate level of protection for data transfers from Switzerland to the United States. The FDPIC also found that SCCs may still be legally adequate at an individual level provided that they can pass a risk assessment conducted by the FDPIC. If the level of protection in the U.S. or any other importing country is called into question under the SCCs, this could further impact our ability to transfer data outside of the EU or Switzerland.

The impact of Brexit on the on-going validity in the UK of current EU authorizations for medicinal products, whether granted through the centralized procedure, decentralized procedure, or mutual recognition, and on the future process for obtaining marketing authorization for pharmaceutical products manufactured or sold in the UK remains uncertain. Although the body of the UK-EU Trade and Cooperation Agreement includes general terms which apply to medicinal products, greater detail on sector-specific issues is provided in an Annex to the Agreement. The Annex provides a framework for the recognition of GMP inspections and for the exchange and acceptance of official GMP documents. The regime does not, however, extend to procedures such as batch release certification. Among the changes that will now occur are that Great Britain, comprised of England, Scotland and Wales, will be treated as a third country. Northern Ireland will, with regard to EU regulations, continue to follow the EU regulatory rules. As part of the UK-EU Trade and Cooperation Agreement, the EU and the UK will recognize GMP inspections carried out by the other Party and the acceptance of official GMP documents issued by the other Party. The UK-EU Trade and Cooperation Agreement also encourages, although it does not oblige, the parties to consult one another on proposals to introduce significant changes to technical regulations or inspection procedures. Among the areas of absence of mutual recognition are batch testing and batch release. The UK has unilaterally agreed to accept EU batch testing and batch release for a period of at least two years until January 1, 2023. However, the EU continues to apply EU laws that require batch testing and batch release to take place in the EU territory. This means that medicinal products that are tested and released in the UK must be retested and re-released when entering the EU market for commercial use. As regards marketing authorizations, Great Britain will have a separate regulatory submission process, approval process and a separate national MA. Northern Ireland will, however, continue to be covered by the marketing authorizations granted by the EC.

Risks Related to Intellectual Property

If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our technology and product candidates, our competitive position could be harmed.

Our commercial success will depend in large part on our ability to obtain and maintain patent and other intellectual property protection in the United States and other countries with respect to our technology and products. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. We seek to protect our proprietary position by filing and prosecuting patent applications in the United States and abroad related to our novel technologies and products that are important to our business.

The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have in recent years been the subject of much litigation. As a result, the issuance, scope, validity, enforceability and commercial value of our patents, including those patent rights licensed to us by third parties, are highly uncertain. The steps we or our licensors have taken to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside the United States. Further, the examination process may require us or our licensors to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if these applications issue. The rights already granted under any of our currently issued patents or those licensed to us and those that may be granted under future issued patents may not provide us with the protection or competitive advantages we are seeking. If we or our licensors are unable to obtain and maintain patent protection for our technology and products, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and products similar or superior to ours, and our ability to successfully commercialize our

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technology and products may be adversely affected. It is also possible that we or our licensors will fail to identify patentable aspects of inventions made in the course of our development and commercialization activities before it is too late to obtain patent protection on them.

With respect to patent rights, the ganaxolone compound and its original synthesis were published in the early 1990s and we do not own or license patent rights on the ganaxolone compound. We seek patent protection in the United States and internationally for synthetic methods for making ganaxolone, ganaxolone nanoparticles, which are used in certain oral solid, oral liquid, and IV dose formulations, other injectable and oral ganaxolone formulations, and methods of treatment using ganaxolone. We do not know whether any of our granted or issued patents will, or if any of our pending patent applications will grant as patents that will, effectively prevent others from commercializing competitive technologies and products. There is a risk that others, including companies that make generic pharmaceuticals, may develop ganaxolone for the same as similar uses as us, and that our patents will not effectively prevent them from commercializing their ganaxolone products. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing or in some cases not at all, until they are issued as a patent. Therefore, we cannot be certain that we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions.

Our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we own or have licensed from third parties may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Protecting against the unauthorized use of our or our licensors’ patented technology, trademarks and other intellectual property rights is expensive, difficult and may in some cases not be possible. In some cases, it may be difficult or impossible to detect third-party infringement or misappropriation of our intellectual property rights, even in relation to issued patent claims, and proving any such infringement may be even more difficult.

Competitors may infringe our patents or misappropriate or otherwise violate our intellectual property rights. To counter infringement or unauthorized use, litigation may be necessary in the future to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of our own intellectual property rights or the proprietary rights of others. Also, third parties may initiate legal proceedings against us to challenge the validity or scope of intellectual property rights we own or control. These proceedings can be expensive and time consuming. Many of our current and potential competitors have the ability to dedicate substantially greater resources to defend their intellectual property rights than we can. Accordingly, despite our efforts, we may not be able to prevent third parties from infringing upon or misappropriating our intellectual property. Litigation could result in substantial costs and diversion of management resources, which could harm our business and financial results. In addition, in an infringement proceeding, a court may decide that a patent owned or controlled by us is invalid or unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation proceeding could put one or more of our patents at risk of being invalidated, held unenforceable or interpreted narrowly. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of shares of our common stock.

Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could harm our business.

Our commercial success depends upon our ability to develop, manufacture, market and sell our products, all of which contain ganaxolone, if approved, and to use our related technologies. We may become party to, or threatened with, adversarial proceedings or litigation regarding intellectual property rights with respect to one or more of our products,

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including interference or derivation proceedings before the United States Patent and Trademark Office (USPTO). Third parties may assert infringement claims against us based on existing patents or patents that may be granted in the future. If we are found to infringe a third party’s intellectual property rights, we could be required to obtain a license from such third party to continue commercializing one or more of our products. However, we may not be able to obtain any required license on commercially reasonable terms or at all. Under certain circumstances, we could be forced, including by court order, to cease commercializing one or more of our products. In addition, in any such proceeding or litigation, we could be found liable for monetary damages. A finding of infringement could prevent us from commercializing one or more of our products or force us to cease some of our business operations, which could materially harm our business. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar negative impact on our business.

While our product candidates are in preclinical studies and clinical trials, we believe that the use of our product candidates in these preclinical studies and clinical trials falls within the scope of the exemptions provided by 35 U.S.C. Section 271(e) in the United States, which exempts from patent infringement liability activities reasonably related to the development and submission of information to the FDA (Federal Development Patent Infringement Exemption). As our product candidates progress toward commercialization, the possibility of a patent infringement claim against us increases. While ganaxolone itself is off patent, we attempt to ensure that our product candidates and the methods we employ to manufacture ganaxolone do not infringe other parties’ patents and other proprietary rights. There can be no assurance they do not, however, and competitors or other parties may assert that we infringe their proprietary rights in any event.

In September 2020, Ovid Therapeutics, Inc. (Ovid) contacted us and disclosed that it owns two recently issued patents that include claims that encompass our product candidates for the treatment of CDD and PCDH19. Ovid may file a lawsuit against us alleging infringement of its patents and/or we may challenge the validity of Ovid’s patents with the USPTO or through the courts. Any such proceeding, regardless of its outcome, would likely result in the expenditure of significant financial resources and the diversion of management’s time and resources. In addition, any such proceeding may cause negative publicity, adversely impact patients, and we may be prohibited from marketing or selling ganaxolone for CDD and PCDH19, during such proceedings or if we are not successful in such proceedings. If Ovid does decide to bring an infringement lawsuit, we do not expect that it will be filed before a commercial launch of ganaxolone for CDD, or PCDH19, as applicable, based upon the “safe harbor” provisions of the Hatch-Waxman Act. We may need to acquire or obtain a license to the Ovid patents to market or sell ganaxolone for CDD and PCDH19, which may not be available on commercially acceptable terms or at all. If we are not able to acquire the Ovid patents or negotiate a license on acceptable terms, and if our product is determined to infringe Ovid’s patents and the patents are determined to be valid, then we may be forced to pay Ovid royalties, damages and costs, or we may be prevented from commercializing ganaxolone for CDD and PCDH19 altogether, which would have a material adverse impact on our business. We are also aware of a pending patent application by Ovid in the same patent family that includes claims that encompass our product candidate for the treatment of SE. This pending patent application is in the early stages of examination at the USPTO. It is possible that this pending patent application may issue as a patent with claims that encompass our product candidate for the treatment of RSE, in which case, the above risks would also apply to any such patent that was issued.

We may not be able to protect our intellectual property rights throughout the world.

Filing, prosecuting and defending patents on our product candidates and any future product candidates throughout the world would be prohibitively expensive, and our or our licensors’ intellectual property rights in some countries outside the United States can be less extensive than those in the United States. In addition, the laws and practices of some foreign countries, particularly those relating to pharmaceuticals, do not protect intellectual property rights to the same extent as federal and state laws in the United States. For example, novel formulations and methods of medical treatment and manufacturing processes may not be patentable in certain jurisdictions, and the requirements for patentability may differ in certain countries, particularly developing countries. Furthermore, generic drug manufacturers or other competitors may challenge the scope, validity or enforceability of our patents, requiring us to engage in complex, lengthy and costly litigation or other proceedings. Generic drug manufacturers may develop, seek approval for, and launch generic versions of our products. Many countries, including EU countries, India, Japan and China, have compulsory licensing laws under which a patent owner may be compelled under certain circumstances to grant licenses to third parties. In those countries, we may have limited remedies if patents are infringed or if we are compelled to grant

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a license to a third party, which could materially diminish the value of our patents. This could limit our potential revenue opportunities. Accordingly, our efforts to enforce intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from our intellectual property.

We may not be able to prevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions into or within the United States or other jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products, and may export otherwise infringing products to territories where we have patent protection, but where enforcement is not as strong as that in the United States. These products may compete with our products in jurisdictions where we do not have any issued patents and our patent claims or other intellectual property rights may not be effective or sufficient to prevent them from competing with us in these jurisdictions.

Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful.

Patent terms may be inadequate to protect our competitive position on our products for an adequate amount of time.

Given the amount of time required for the development, testing and regulatory review of new product candidates, such as our product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. For example, certain patents licensed to us by CyDex that relate to Captisol®, which is used in some of our product candidates, have expired, and sulfobutylether beta-cyclodextrin compounds that are similar to CyDex’s Captisol® are available from other suppliers. It is possible that others may seek to develop ganaxolone formulations using sulfobutylether beta-cyclodextrin compounds obtained from such other suppliers.

We expect to seek extensions of patent terms in the United States and, if available, in other countries where we are prosecuting patents. In the United States, the Drug Price Competition and Patent Term Restoration Act of 1984 permits under certain circumstances a patent term extension of up to five years beyond the normal expiration of a patent. However, the applicable authorities, including the FDA and the USPTO in the United States, and any analogous regulatory authority in other countries, may not agree with our assessment of whether such extensions are available, and may refuse to grant extensions to our patents, or may grant more limited extensions than we request. If this occurs, our competitors may be able to take advantage of our investment in development and clinical trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.

Changes in patent laws could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

As is the case with other pharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the pharmaceutical industry involve technological and legal complexity, and obtaining and enforcing pharmaceutical patents is costly, time-consuming, and inherently uncertain. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. For example, the United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce existing patents and patents we may obtain in the future. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents.

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In addition, the Leahy-Smith America Invents Act (Leahy-Smith Act) includes a number of provisions that affect the way patent applications are prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned to a “first to file” system in which the first inventor to file a patent application is entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO and may become involved in derivation, reexamination, inter-partes review or post-grant review proceedings challenging our patent rights or the patent rights of our licensors. An adverse determination in any such submission, proceeding or litigation could reduce the scope of, or invalidate patent rights, which could adversely affect our competitive position.

Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.

Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If we or our licensors fail to maintain the patents and patent applications covering our product candidates, our competitive position would be adversely affected.

We may be subject to claims by third parties asserting that we have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.

Some of our employees were previously employed at universities or at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Some of these employees, including each member of our senior management, executed proprietary rights, non-disclosure and non-competition agreements, or similar agreements, in connection with such previous employment. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such third party. Litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel or sustain damages. Such intellectual property rights could be awarded to a third party, and we could be required to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

We rely on government funding for certain of our research and development activities and we may develop intellectual property through such activities and therefore may be subject to federal regulations such as “march-in” rights, certain reporting requirements and a preference for U.S. based companies. Compliance with such regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.

In September 2020, we entered into the BARDA Contract for the completion of pre-clinical and clinical development activities for IV administered ganaxolone for the treatment of RSE. We may generate intellectual property rights through the use of this U.S. government funding and are therefore subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future product candidates pursuant to the Bayh-Dole Act of 1980 (Bayh-Dole Act), and implementing regulations. These U.S. government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet

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requirements for public use under federal regulations (also referred to as “march-in rights”). The U.S. government also has the right to take title to these inventions if we to disclose the invention to the government and fail to file an application to register the intellectual property in the specified manner and within specified time limits. These time limits have recently been changed by regulation, and may change in the future. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us to expend substantial resources. In addition, the U.S. government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property. To the extent any of our current or future intellectual property is generated through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

| ● | others may be able to make compounds or ganaxolone formulations that are similar to our product candidates but that are not covered by the claims of the patents that we own or control;

| ● | we or any strategic partners might not have been the first to make the inventions covered by the issued patents or pending patent applications that we own or control;

| ● | we might not have been the first to file patent applications covering certain of our inventions;

| ● | others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;

| ● | it is possible that our pending patent applications will not lead to issued patents;

| ● | issued patents that we own or control may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;

| ● | our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

| ● | we may not develop additional proprietary technologies that are patentable; and

| ● | the patents of others may have an adverse effect on our business.

Risks Related to our Business Operations

The COVID-19 pandemic could adversely affect our business and our ability to conduct and complete clinical trials.

In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) was identified in Wuhan, China. This virus was declared a pandemic by the World Health Organization in March 2020 and has spread to nearly every country in the world, including the United States. Many countries, including the United States, have implemented severe travel restrictions, business shutdowns and social distancing measures in order to contain the spread of COVID-19 that

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have impacted clinical development through supply chain shortages and clinical trial enrollment difficulties as hospitals reduce and redeploy staff, divert resources to patients suffering from COVID-19 and limit hospital access for non-patients. The pandemic poses the risk that we, our employees, contractors, suppliers, or other partners may be prevented from conducting normal business activities for an indefinite period of time, including those due to shutdowns that may be requested or mandated by governmental authorities.

The continued global spread of COVID-19 has impacted our operations and such impacts may continue and become material to our operations. For example, several of our Phase 1 trials of oral ganaxolone to support the development of CDD have experienced delays in enrollment due to COVID-19. Further, in response to COVID-19, for our ongoing clinical trials, we have implemented multiple measures consistent with the guidance of the FDA on the conduct of clinical trials of medical products during the COVID-19 pandemic, including implementing remote site monitoring and remote visits using telemedicine where needed. However, COVID-19 may still adversely impact our clinical trials. For example, our Phase 3 clinical trial in RSE is conducted in hospitals and resources related to the COVID-19 outbreak may divert staffing in hospitals, taking resources away from our clinical trial. Our ganaxolone clinical trials in the outpatient setting may be negatively impacted if patients and their caregivers do not want to participate in a clinical trial while COVID-19 outbreaks continue.

If a patient participating in one of our clinical trials contracts COVID-19, this could negatively impact the data readouts from these trials; for example, the patient may be unable to participate further (or may have to limit participation) in our clinical trial, the patient may show a different efficacy assessment than if the patient had not been infected, or the patient could experience an AE that could be attributed to our product candidate.

There is also a risk that clinical supplies of our product candidates may be significantly delayed or may become unavailable as a result of COVID-19 and the resulting impact on our suppliers’ labor forces and operations, including as a result of governmental restrictions on business operations and the movement of people and goods in an effort to curtail the spread of the virus. There can be no assurance that we would be able to timely implement any mitigation plans. Disruptions in our supply chain, whether as a result of restricted travel, quarantine requirements or otherwise, could negatively impact clinical supplies of our product candidates, which could materially adversely impact our clinical trial and development timelines.

The global spread of COVID-19 has also led to severe disruption and volatility in the global capital markets, which could increase our cost of capital and adversely affect our ability to access the capital markets in the future. It is likely that the continued spread of COVID-19 will cause an economic slowdown or recession or cause other unpredictable events, each of which could adversely affect our business, results of operations or financial condition.

The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 outbreak and the actions to contain the outbreak or treat its impact, among others. Moreover, the COVID-19 outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and our business and results of operations could be adversely affected to the extent that COVID-19 or any other pandemic harms the global economy generally.

We will need to grow the size of our organization, and we may experience difficulties in managing this growth.

As of March 31, 2021, we had 82 full-time and two part-time employees. As our development and commercialization plans and strategies develop, or as a result of any future acquisitions, we will need additional managerial, operational, sales, marketing, financial and other resources. In addition, it may become more cost effective to bring in house certain resources currently outsourced to consultants and other third-parties. Our management, personnel and systems currently in place may not be adequate to support our future growth. Future growth would impose significant added responsibilities on members of management, including:

| ● | managing our clinical trials effectively;

| ● | identifying, recruiting, maintaining, motivating and integrating additional employees;

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| ● | managing our internal development efforts effectively while complying with our contractual obligations to licensors, licensees, contractors and other third parties;

| ● | improving our managerial, development, operational and finance systems; and

| ● | expanding our facilities.

As our operations expand, we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Our future financial performance and our ability to commercialize ganaxolone, if approved, and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate additional management, administrative and sales and marketing personnel. Our failure to accomplish any of these tasks could prevent us from successfully growing our company.

Risks Related to Ownership of Our Common Stock

The market price of our stock has been, and may continue to be, highly volatile, and you could lose all or part of your investment.

Historically, the trading price of our common stock has been highly volatile, and it is likely that such price will continue to be volatile in the future. The trading price of our common stock could be subject to wide fluctuations in response to various factors, some of which are beyond our control. In addition to the factors discussed elsewhere in this “Risk Factors” section, these factors could include:

| ● | the success of competitive products or technologies;

| ● | regulatory actions with respect to our products or our competitors’ products;

| ● | actual or anticipated changes in our growth rate relative to our competitors;

| ● | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, collaborations or capital commitments;

| ● | developments or disputes concerning patent applications, issued patents or other proprietary rights;

| ● | the level of expenses related to our clinical development programs;

| ● | the results of our efforts to in-license or acquire additional product candidates or products;

| ● | actual or anticipated changes in estimates as to financial results, development timelines or recommendations by securities analysts;

| ● | variations in our financial results or those of companies that are perceived to be similar to us;

| ● | fluctuations in the valuation of companies perceived by investors to be comparable to us;

| ● | share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;

| ● | announcement or expectation of additional financing efforts;

| ● | sales of our common stock by us, our insiders or our other stockholders;

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| ● | changes in the structure of healthcare payment systems; and

| ● | other events or factors, many of which are beyond our control.

In addition, the stock market in general, the Nasdaq Global Market and pharmaceutical and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of these risks or any of a broad range of other risks, including those described in these “Risk Factors,” could have a dramatic and material adverse impact on the market price of our common stock.

Insiders have substantial influence over us and could delay or prevent a change in corporate control.

We estimate that our executive officers, directors and holders of 5% or more of our capital stock collectively beneficially own approximately 42.7% of our voting stock. Upon conversion of all of our outstanding convertible preferred stock, as of March 31, 2021, our executive officers, directors and holders of 5% or more of our capital stock collectively would beneficially own approximately 40.6% of our voting stock. This concentration of ownership could harm the market price of our common stock by delaying, deferring or preventing a strategic transaction, even if such a transaction would benefit other stockholders.; The interests of this group of stockholders may not always coincide with your interests or the interests of other stockholders and they may act in a manner that advances their best interests and not necessarily those of other stockholders, including seeking a premium value for their common stock, and might negatively affect the prevailing market price for our common stock.

Our operating results may fluctuate significantly in the future, which may cause our results to fall below the expectations of securities analysts, stockholders and investors.

Our operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. These factors include, but are not limited to:

| ● | the timing, implementation and cost of our research, preclinical studies and clinical trials;

| ● | our ability to attract and retain personnel with the necessary strategic, technical and creative skills required for effective operations;

| ● | introduction of new technologies;

| ● | product liability litigation, class action and derivative action litigation, or other litigation;

| ● | the amount and timing of capital expenditures and other costs relating to the expansion of our operations;

| ● | the state of the debt and/or equity capital markets at the time of any proposed offering we choose to initiate;

| ● | our ability to successfully integrate new acquisitions into our operations;

| ● | government regulation and legal developments regarding ganaxolone in the United States and in the foreign countries in which we may operate in the future; and

| ● | general economic conditions.

As a strategic response to changes in the competitive environment, we may from time to time make pricing, service, technology or marketing decisions or business or technology acquisitions that could have a material adverse effect on our operating results. Due to any of these factors, our operating results may fall below the expectations of securities analysts, stockholders and investors in any future period, which may cause our stock price to decline.

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Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

If our stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. As of March 31, 2021, we had outstanding a total of 36,578,460 shares of common stock and 4,753 shares of Series A Participating Convertible Preferred Stock, par value $0.001 per share (Series A Preferred Stock). The Series A Preferred Stock were convertible into 950,600 shares of common stock as of March 31, 2021, subject to certain ownership limitations. In addition, shares of common stock that are either subject to outstanding options or reserved for future issuance under our employee benefit plans or otherwise will become eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules and either the registration of such shares under the Securities Act of 1933, as amended (Securities Act) or the application of exemptions from such registration with respect to any sales such as Rule 144 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders and may prevent attempts by our stockholders to replace or remove our current management.

Provisions in our fourth amended and restated certificate of incorporation, as amended (Certificate of Incorporation) and amended and restated bylaws, as well as provisions of Delaware law, could make it more difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, or remove our current management. These include provisions that:

| ● | permit our board of directors to issue up to 25,000,000 shares of preferred stock, with any rights, preferences and privileges as it may designate, of which 4,753 shares of Series A Preferred Stock are outstanding;

| ● | provide that all vacancies on our board of directors, including as a result of newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

| ● | establish a classified board of directors such that only one of three classes of directors is elected each year;

| ● | provide that directors can only be removed for cause;

| ● | require that any action to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and not be taken by written consent;

| ● | provide that stockholders seeking to present proposals before a meeting of stockholders or to nominate candidates for election as directors at a meeting of stockholders must provide advance notice in writing, and also specify requirements as to the form and content of a stockholder’s notice;

| ● | not provide for cumulative voting rights, thereby allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election; and

| ● | provide that special meetings of our stockholders may be called only by the chairperson of the board of directors, the chief executive officer or the board of directors.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, who are responsible for appointing the members of our management. Because we are incorporated in Delaware, we are governed

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by the provisions of Section 203 of the Delaware General Corporation Law (DGCL), which prohibits, with some exceptions, stockholders owning in excess of 15.0% of our outstanding capital stock from merging or combining with us.

Our Certificate of Incorporation contains exclusive forum provisions, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our Certificate of Incorporation provides that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (a) any derivative action or proceeding brought on our behalf, (b) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers, employees or agents to us or our stockholders, (c) any action asserting a claim arising pursuant to any provision of the DGCL, or (d) any action asserting a claim that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery’s having personal jurisdiction over the indispensable parties named as defendants therein.

For the avoidance of doubt, the exclusive forum provisions described above do not apply to any claims arising under the Securities Act or under the Exchange Act. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder, and Section 22 of the Securities Act creates concurrent jurisdiction for federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder.

The choice of forum provisions in our Certificate of Incorporation may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and our directors, officers, employees and agents even though an action, if successful, might benefit our stockholders. The applicable courts may also reach different judgments or results than would other courts, including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments or results may be more favorable to us than to our stockholders. With respect to the provision making the Court of Chancery the sole and exclusive forum for certain types of actions, stockholders who do bring a claim in the Court of Chancery could face additional litigation costs in pursuing any such claim, particularly if they do not reside in or near Delaware. Finally, if a court were to find these provisions of our Certificate of Incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could have a material adverse effect on the company.

General Risk Factors

Our business and operations would suffer in the event of computer system failures, cyberattacks or a deficiency in our cybersecurity or those of any business partners.

Despite the implementation of security measures, our internal computer systems, and those of our CROs and other third parties on which we rely, are vulnerable to damage from computer viruses, unauthorized access, natural disasters, fire, terrorism, war and telecommunication and electrical failures, cyberattacks or cyber-intrusions over the Internet, loss of funds or information from phishing or other fraudulent schemes, attachments to emails, persons inside our organization, or persons with access to systems inside our organization or those with whom we do business. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Such an event could cause interruption of our operations or loss of Company funds and have a negative financial consequence on our business. In addition, our systems safeguard important confidential personal data regarding patients enrolled in our clinical trials. If a disruption event were to occur and cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of data relating to completed, ongoing or planned clinical trials could result in delays in our regulatory approval efforts and cause us to incur significant additional costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications, misappropriation of funds to unintended recipients, or inappropriate disclosure of confidential, proprietary

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or personal information, we could incur material legal claims and liabilities and damage to our reputation and the further development of ganaxolone could be delayed. Additionally, breach remediation costs may be significant.

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely on third-party manufacturers to produce ganaxolone. Our ability to obtain clinical supplies of ganaxolone could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. In addition, while we believe that we currently have sufficient supply of our product candidates to continue our ongoing clinical trials, some of our product candidates, or materials contained therein, come from facilities located in areas impacted by the COVID-19 pandemic. There is no guarantee that the COVID-19 pandemic, or any potential future outbreak or pandemic, would not materially impact our future supply chain. The ultimate impact on us, our significant suppliers and our general infrastructure of being in certain geographical areas is unknown, but our operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

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None.

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Item 3. Defaults upon Senior Securities

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None.

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Item 4. Mine Safety Disclosures

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Not applicable.

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Item 5. Other Information

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On May 11, 2021 (the Closing Date), we entered into a Credit Agreement and Guaranty (as amended by that certain letter agreement on May 17, 2021, the Credit Agreement) with Oaktree Fund Administration, LLC, as administrative agent (the Administrative Agent) and the lenders party thereto that provides for a five-year senior secured term loan facility in an aggregate original principal amount of up to $125.0 million available to us in five tranches as follows (collectively, the Term Loans):

| ● | $15.0 million of tranche A-1 term loans advanced on the Closing Date.

| ● | $30.0 million of tranche A-2 term loans subject to written acceptance by the Food and Drug Administration (FDA) of a New Drug Application (NDA) filing relating to the use of ganaxolone in treatment of CDKL5 deficiency disorder (CDD).

| ● | $30.0 million of tranche B term loans subject to receipt of written approval from the FDA of an NDA permitting the marketing of ganaxolone in interstate commerce in the United States to treat CDD (the FDA Approval).

| ● | $25.0 million of tranche C term loans subject to receipt of the FDA Approval and the completion of one or more financings, including through the issuance of common stock, convertible debt, subordinated debt, a synthetic royalty or a sublicense in which we receive gross proceeds in an aggregate amount of at least $40.0 million and net proceeds in an aggregate amount of at least $36.0 million. . In addition, the availability of this tranche is subject to either our current Phase 3 trial in RSE or a Phase 3 trial in TSC achieving statistical significance (p value < 0.05) across all primary

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|  | endpoints and ganaxolone must be generally well tolerated, with a safety profile generally consistent with previous clinical trials.

| ● | $25.0 million of tranche D term loans subject to receipt of the FDA Approval and us earning at least $50 million in net product revenue in the United States for a period of six consecutive months.

The Term Loans will bear interest at a fixed per annum rate (subject to increase during an event of default) of 11.50% and are scheduled to mature on the fifth anniversary of the Closing Date (the Maturity Date). In addition, at the time of funding of any tranche of the Term Loans, we are required to pay an upfront fee of 2.0% of the aggregate principal amount being funded. We are required to make quarterly interest payments until the Maturity Date. We are also required to make principal payments, which are payable in quarterly installments beginning on the last day of the first quarter ending after the third anniversary of the Closing Date in an amount equal to 5.0% of the aggregate amount of the Term Loans outstanding on the date of the first such quarterly principal payment and continuing until the Maturity Date, on which date all outstanding Term Loans and other amounts owed under the Credit Agreement will be required to be paid in full. A commitment fee of 75 basis points per annum will accrue on each of the tranche B, C and D commitments for the period beginning 120 days after the funding date of the tranche A-2 term loans until the applicable tranche is either funded or terminated.

Subject to certain exceptions, we are required to make mandatory prepayments of the Term Loans, with the proceeds of asset sales, casualty and condemnation events and prohibited debt issuances, and resulting from an event of default under the Credit Agreement upon the occurrence of a change of control (as defined in the Credit Agreement). In addition, we may make voluntary prepayments of the Term Loans, in whole or in part. All mandatory and voluntary prepayments of the Term Loans are subject to the payment of prepayment premiums as follows: (i) if prepayment (or termination of the tranche A-2 term loan commitment) occurs on or before the second anniversary of the Closing Date, an amount equal to 4% of the principal prepaid (or the tranche A-2 term loan commitment amount terminated) plus a “make-whole” amount in respect of any such principal payments (whether mandatory or voluntary) described in this clause (i), in an amount equal to the interest that would have accrued through the second anniversary of the Closing Date but for such principal repayment, (ii) if prepayment (or termination of the tranche A-2 term loan commitment) occurs after the second anniversary of the Closing Date but on or before the third anniversary of the Closing Date, an amount equal to 4% of the principal prepaid (or the tranche A-2 term loan commitment amount terminated), (iii) if prepayment occurs after the third anniversary of the Closing Date but on or before the fourth anniversary of the Closing Date, an amount equal to 2% of the principal prepaid, and (iv) if prepayment occurs after the fourth anniversary of the Closing Date, no prepayment premium is due; provided that, in lieu of paying the foregoing amounts (including the “make-whole” amount described in the foregoing clause (i)), if such prepayment occurs as a result of or in connection with a change of control, the prepayment premium shall be (i) if such prepayment occurs on or before the first anniversary of the Closing Date, 12.5% of the principal prepaid (or the tranche A-2 term loan commitment amount terminated) or (ii) if such prepayment occurs after the first anniversary of the Closing Date but on or before the second anniversary of the Closing Date, 10.0% of the principal prepaid (or the tranche A-2 term loan commitment amount terminated). We are also required to pay an exit fee in an amount equal to 2.0% of all principal repaid, whether as a prepayment or a scheduled repayment.

The Term Loans will be guaranteed by certain of our future subsidiaries that are required to become a party thereto as guarantors (the Guarantors). Our obligations under the Credit Agreement and the guarantee of such obligations are secured by a pledge of substantially all of our assets and will be secured by a pledge of substantially all of the assets of the Guarantors pursuant to the terms of the Security Agreement dated as of the Closing Date by and among us, the Administrative Agent and the Guarantors from time to time party thereto (the Security Agreement).

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The Credit Agreement contains affirmative and negative covenants customary for financings of this type, including limitations on our and our subsidiaries’ abilities, among other things, to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions and enter into affiliate transactions, in each case, subject to certain exceptions. In addition, the Credit Agreement contains a financial covenant that requires us to maintain at all times cash and cash equivalents in certain deposit accounts in an amount at least equal to (i) from the Closing Date until the funding of the tranche A-2 term loans, $10.0 million, (ii) from the funding of the tranche A-2 term loans until the funding of the tranche B term loans, $20.0

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million, and (iii) from the funding date of the tranche B term loans until the Maturity Date, $15.0 million. The foregoing amounts are reflected in the letter agreement, which revised the minimum liquidity requirements set forth in the original Credit Agreement entered into on the Closing Date, which required a minimum liquidity of $10.0 from the Closing Date until the funding of the tranche B term loans and a minimum liquidity of $15.0 million from the funding date of the tranche B term loans until the Maturity Date.

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The Credit Agreement also contains representations and warranties of us and of the Guarantors customary for financings of this type. In addition, such representations and warranties (i) are intended not as statements of fact, but rather as a way of allocating the risk between the parties to the Credit Agreement and (ii) may apply standards of materiality in a way that is different from what may be viewed as material by our stockholders or other investors. Accordingly, the Credit Agreement is included with this filing only to provide investors with information regarding the terms of the transaction, and not to provide stockholders or other investors with any other factual information regarding us. Stockholders should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of us or any of our subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date of the Credit Agreement, which subsequent information may or may not be fully reflected in public disclosures.

The Credit Agreement also includes events of default customary for financings of this type, in certain cases subject to customary periods to cure, following which the Administrative Agent may accelerate all amounts outstanding under the Loan.

The foregoing description of the Credit Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Credit Agreement, the Security Agreement and the letter agreement, which are filed herewith as Exhibits 10.1, 10.2 and 10.3 to this Quarterly Report on Form 10-Q, respectively, and are incorporated herein by reference.

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Item 6. Exhibits

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Exhibit Number |  | Exhibit Description
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3.1 | ​ | Fourth Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to Form 8-K current report filed on August 7, 2014.)
3.2 | ​ | Certificate of Amendment of the Fourth Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to Form 8-K current report filed on April 2, 2020.)
3.3 | ​ | Certificate of Amendment of the Fourth Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to Form 8-K current report filed on May 27, 2020.)
3.4 | ​ | Certificate of Amendment of the Fourth Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.1 to Form 8-K current report filed on September 22, 2020.)
3.5 | ​ | Certificate of Amendment of the Fourth Amended and Restated Certificate of Incorporation. (Incorporated by reference to Exhibit 3.2 to Form 8-K current report filed on September 22, 2020.)
3.6 ​ | ​ | Amended and Restated By-laws. (Incorporated by reference to Exhibit 3.2 to Form 8-K current report filed on August 7, 2014.)
3.7 | ​ | Certificate of Designations, Preferences and Rights of Series A Participating Convertible Preferred Stock. (Incorporated by reference to Exhibit 3.1 to Form 8-K current report filed on December 13, 2019.)
4.1 | ​ | Specimen Certificate evidencing shares of the Company’s common stock. (Incorporated by reference to Exhibit 4.1 to Form S-1/A registration statement filed on July 18, 2014.)
10.1 | ​ | Credit Agreement and Guaranty, dated May 11, 2021, by and among Marinus Pharmaceuticals, Inc., as Borrower, Oaktree Fund Administration, LLC, as Administrative Agent, and the other lenders party thereto. (filed herewith)
10.2 | ​ | Security Agreement, dated May 11, 2021, by and among Marinus Pharmaceuticals, Inc., as Grantor, and Oaktree Fund Administration, LLC, as Administrative Agent. (filed herewith)

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10.3 | ​ | Letter Agreement, dated May 17, 2021, by and among Marinus Pharmaceuticals, Inc., as Borrower, Oaktree Fund Administration, LLC, as Administrative Agent, and the other lenders party thereto. (filed herewith)
31.1 | ​ | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act (filed herewith).

31.2 | ​ | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15a-14(a) under the Exchange Act (filed herewith).
32.1 | ​ | Certification Pursuant to 18 U.S.C. Section 1350 of principal executive officer and principal financial officer (furnished herewith).
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101.INS | ​ | 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 | ​ | XBRL Taxonomy Extension Schema
101.CAL | ​ | XBRL Taxonomy Extension Calculation Linkbase
101.DEF | ​ | XBRL Taxonomy Extension Definition Linkbase
101.LAB | ​ | XBRL Taxonomy Extension Labels Linkbase
101.PRE | ​ | XBRL Taxonomy Extension Presentation Linkbase
104 | ​ | Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Signature |  | Title |  | Date
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/s/ SCOTT BRAUNSTEIN | ​ | President and Chief Executive Officer (principal executive officer) and Director | ​ | May 17, 2021
Scott Braunstein | ​ |  | ​ |
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/s/ STEVEN PFANSTIEL | ​ | Chief Financial Officer and Treasurer (principal financial and accounting officer) | ​ | May 17, 2021
Steven Pfanstiel | ​ | ​ | ​ | ​

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