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OFFON

ATAI LIFE SCIENCES N.V.

(ATAI)
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ATAI LIFE SCIENCES N : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q/A)

08/20/2021 | 05:06pm EDT
You should read the following discussion and analysis of our financial condition
and results of operations together with our condensed financial statements and
related notes included in this Quarterly Report and our audited consolidated
financial statements and related notes thereto for the year ended December 31,
2020, included in our prospectus dated June 17, 2021 (the "Prospectus"), as
filed with the Securities and Exchange Commission (the "SEC"), pursuant to Rule
424(b)(4) under the Securities Act of 1933, as amended, (the "Securities Act"),
relating to our Registration Statements on Form
S-1
(File
No. 333-255383).
This discussion contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. We intend such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in Section 27A of the Securities Act of 1933, as amended
(the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"). In some cases, you can identify these
statements by forward-looking words such as "may," "will," "expect," "believe,"
"anticipate," "intend," "could," "should," "estimate," or "continue," and
similar expressions or variations. Such forward-looking statements are subject
to risks, uncertainties and other factors that could cause actual results and
the timing of certain events to differ materially from future results expressed
or implied by such forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those identified
below, and those discussed in the section titled "Risk Factors" included in the
Prospectus. The forward-looking statements in this Quarterly Report represent
our views as of the date of this Quarterly Report. Except as may be required by
law, we assume no obligation to update these forward-looking statements or the
reasons that results could differ from these forward-looking statements. You
should, therefore, not rely on these forward-looking statements as representing
our views as of any date subsequent to the date of this Quarterly Report.
Additionally, our historical results are not necessarily indicative of the
results that may be expected for any period in the future. All references to
years, unless otherwise noted, refer to our fiscal years, which end on December
31. Unless the context otherwise requires, all references in this subsection to
"we," "us," "our," "ATAI" or the "Company" refer to ATAI and its consolidated
subsidiaries.
Business Overview
We are a clinical-stage biopharmaceutical company aiming to transform the
treatment of mental health disorders. We founded atai Life Sciences in 2018 as a
response to the significant unmet need and lack of innovation in the mental
health treatment landscape, as well as the emergence of therapies that
previously may have been overlooked or underused, including psychedelic
compounds and digital therapeutics. We have built a pipeline of 11 development
programs and six enabling technologies, each led by focused teams with deep
expertise in their respective fields and supported by our internal development
and operational infrastructure. We believe that several of our therapeutic
programs' target indications have potential market opportunities of at least
$1 billion in annual sales, if approved. One of our ATAI companies, Recognify
Life Sciences, has initiated a Phase 2a trial in the United States. In addition,
we plan to initiate Perception's Phase 2 trial for TRD and DemeRx's Phase 1/2
OUD trial in Q3 2021. Additionally, we plan to initiate three Phase 2 trials and
also expect to initiate four Phase 1 trials in 2022.
Our Emerging Clinical and Preclinical Programs
The table below summarizes the status of our product candidate portfolio as of
the filing date of this Quarterly Report. Our pipeline currently consists of
therapeutic candidates across multiple neuropsychiatric indications including
depression, cognitive impairment associated with schizophrenia, or CIAS, SUD,
anxiety, mTBI and PTSD. We currently hold at least a majority interest, or have
options to obtain a majority interest, in each of these atai companies.

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Table of Contents

                               [[Image Removed]]
Majority Owned Companies
Note: TRD = Treatment-resistant depression; CIAS = Cognitive impairment
associated with schizophrenia; OUD = Opioid use disorder;
GAD = Generalized anxiety disorder; mTBI = Mild traumatic brain injury; DMT =
N,N-dimethyltryptamine;
MDMA =
3,4-Methylenedioxymethamphetamine;
PTSD = Post-traumatic stress disorder, VIE = Variable interest entity.

(1) Unless otherwise indicated herein, ownership percentage based on ownership of

securities with voting rights as of June 30, 2021.

(2) Perception does not give effect to the shares of common stock issuable after

giving full effect to the anti-dilution feature of the Stock Purchase

Agreement, which would not impact our majority position in Perception.

(3) RL-007

compound is (2R,

3S)-2-amino-3-hydroxy-3-pyridin-4-yl-1-pyrrolidin-1-yl-propan-1-one(L)-(+)

tartrate salt.

(4) Neuronasal ownership does not give effect to the obligation to acquire

further shares upon the achievement of specified development milestones which

may increase the ownership to up to 64.5%.

(5) Kures ownership does not give effect to the obligation to acquire further

shares upon the achievement of specified development milestones which may

increase the ownership to up to 67.9%.

(6) Operational involvement through MSA model, including Srinivas Rao serving as

GABA CMO; GABA ownership does not give effect to the obligation to acquire

further shares upon the achievement of specified development milestones which

may increase the ownership to up to 54.2%.

Perception Neuroscience: PCN-101 for TRD

• Product concept

: PCN-101 is a parenteral formulation of R-ketamine, a glutamatergic

modulator that is a component of ketamine and being developed as a

rapid-acting antidepressant, with the potential to be an at-home

non-dissociative alternative to S-ketamine (marketed as SPRAVATO).

• Prior evidence in humans

: In a third-party clinical trial, another formulation of R-ketamine was

observed to produce a rapid and durable response with limited

dissociative side effects in patients with TRD. In September 2020,

Perception Neuroscience completed a Phase 1 trial of PCN-101 supporting

          the advancement of PCN-101 into a Phase 2 trial.



    •     Upcoming milestones
          : We expect to initiate a Phase 2 randomized, double blind,

placebo-controlled trial in patients with treatment-resistant depression

in the third quarter and anticipate the trial to run through late 2022.

The trial will assess the efficacy and safety, dose response and duration

of action in patients with TRD.

Recognify Life Sciences: RL-007 for CIAS

• Product concept

: RL-007, a cholinergic, glutamatergic and GABA-B receptor modulator, is

an orally available compound that is thought to alter the

excitatory/inhibitory balance in the brain to produce pro-cognitive

effects. We are developing this compound for the treatment of cognitive

          impairments associated with schizophrenia.



    •     Prior evidence in humans

: In third-party studies, other formulations of this compound have been

shown to effect a significant improvement in aspects of cognitive

function in both experimental paradigms involving healthy subjects as

well as in a Phase 2 trial in patients suffering from diabetic peripheral

          neuropathic pain.



    •     Recent a
          dvancements
          : In April 2021, Recognify initiated a Phase 2a study for RL-007, after

receiving IND clearance from the U.S. Food and Drug Administration to

commence clinical trials for the treatment of Cognitive Impairment

Associated with Schizophrenia (CIAS). The study is designed to evaluate

the effects of RL-007 on safety, tolerability, electroencephalogram-based

          biomarkers and cognition.



    •     Upcoming milestones

: We expect topline results from the Phase 2a single-arm, multiple dose

trial in patients with CIAS in late 2021.

DemeRx IB: DMX-1002 for OUD

• Product concept

: DMX-1002 is an oral formulation of ibogaine, a cholinergic,

glutamatergic and monoaminergic receptor modulator that is a naturally

          occurring psychedelic product isolated from a West African shrub, that we
          are developing for the treatment of OUD.



    •     Prior evidence in humans

: In third-party studies evaluating other formulations of ibogaine,

          significant reductions in opioid cravings were observed, both at
          discharge and at one month post treatment, and were associated with
          improved mood in patients with OUD.



    •     Upcoming milestones
          : We expect to initiate the Phase 1 component of Phase 1/2 trial of
          DMX-1002 in recreational drug users and healthy volunteers to be

initiated in Q3 and to read out safety data in early 2022. The trial is

designed to assess safety, tolerability, pharmacokinetics, and efficacy,

          and the results will inform future studies in patients with opioid use
          disorder.


GABA: GRX-917 for GAD

    •     Product concept

: GRX-917 is an oral formulation of a deuterated version of etifoxine, a

compound that has a long history of prescription use in France for

treating anxiety disorders. GRX-917 is designed to provide rapid

anxiolytic activity with improved tolerability to current treatments for

          anxiety in the United States.



    •     Prior evidence in humans

: Etifoxine has been observed to have the rapid onset of anxiolytic

          activity of benzodiazepines without their sedating or addicting
          properties. Furthermore, etifoxine is not associated with abuse,
          dependence or respiratory depression and has been observed to have no
          significant impact on motor skills or cognition.



    •     Recent a
          dvancements
          : In June 2021, GABA initiated a randomized, double blind,
          placebo-controlled Phase 1 trial. The study will evaluate safety,
          tolerability, pharmacokinetics, as well as pharmacodynamics using qEEG.



    •     Upcoming milestones
          : We expect topline results from the Phase 1 single ascending
          dose/multiple ascending dose program in early 2022.

Neuronasal: NN-101 for mTBI

• Product concept

: NN-101 is a novel intranasal formulation of NAC. NAC is believed to

stimulate the synthesis of GSH, an endogenous antioxidant that plays a

          protective role in the pathogenesis of mTBI.



    •     Prior evidence in humans

: An orally administered formulation of NAC was shown to increase the

probability of mTBI symptom resolution at seven days in a third-party

          study conducted by the U.S. Army. Neuronasal has also completed a pilot
          study of NN-101 in nine healthy volunteers. In this pilot study, NN-101
          was observed to be approximately 20 times and 100 times more
          brain-penetrant compared to IV and oral NAC, respectively, and was well
          tolerated.

Viridia Life Sciences: VLS-01 for TRD

• Product concept

: VLS-01 is a formulation of DMT, the active moiety of the traditional,

hallucinogenic drink ayahuasca. DMT is characterized by an intrinsically

short duration of psychedelic effect with a serum half-life estimated at

less than 10 minutes. VLS-01 is formulated to provide a psychedelic

          experience lasting 30 to 45 minutes, thus potentially allowing for a
          shorter clinic visit compared to many other psychedelic compounds that
          may require a patient to be monitored for four or more hours.



    •     Prior evidence in humans
          : Ayahuasca has shown significant antidepressant effects compared with

placebo at one, two and seven days after dosing in a double-blind,

          randomized, placebo-controlled third-party clinical trial in patients
          with TRD.


EmpathBio: EMP-01 for PTSD

• Product concept:

EMP-01 is an oral formulation of an MDMA derivative being developed for

the treatment of PTSD. We are developing EMP-01 for the potential to have

          an improved therapeutic index compared to MDMA.



    •     Prior evidence in humans:

In a meta-analysis of 21 third-party trials of other formulations of

MDMA-combined with psychotherapy for the treatment of PTSD, the benefits

of such treatment were statistically significant versus placebo or active

placebo-assisted therapy alone. In addition, a recent third-party

randomized, double-blind, placebo-controlled phase 3 study with 90

patients with severe PTSD, showed statistically significant reduction in

PTSD symptoms in the MDMA-assisted psychotherapy group versus placebo.

Revixia Life Sciences: RLS-01 for TRD

• Product concept:

RLS-01 is a formulation of SalA, a naturally occurring psychedelic

          compound with pharmacology differentiated from that of psilocybin or DMT,
          being developed for the treatment of TRD and other indications.



    •     Prior evidence in humans:

In a third-party study of another formulation of SalA, the effects of the

compound were observed to be similar to those of psilocybin based upon

functional brain imaging. We believe these data combined with anecdotal

          usage reports suggest that SalA may possess rapid-acting antidepressant
          properties.


Kures: KUR-101 for OUD

    •     Product concept:

KUR-101 is an oral formulation of deuterated mitragynine being developed

for the treatment of OUD. Mitragynine is a component of the leaves of

          kratom (
          Mitragnyna speciosa
          ).



    •     Prior evidence in humans:

Kratom has a long history of traditional medicine use as an analgesic in

parts of Southeast Asia, and its use in the United States has increased

in recent years, particularly amongst individuals seeking to reduce

prescription opioid consumption or manage opioid withdrawal symptoms.

Published third-party human data involving isolated mitragynine are

limited, but recent mechanistic insights suggest that this compound may

be well-suited for the medically assisted therapy of OUD.

DemeRx NB: DMX-1001 for OUD

• Product concept:

DMX-1001 is an oral formulation of noribogaine being developed for the

treatment of OUD. Noribogaine is an active metabolite of ibogaine

designed to have a longer plasma half-life and potentially reduced

          hallucinogenic effects compared with ibogaine.



    •     Prior evidence in humans:

Three third-party clinical trials have been conducted, testing various

doses of another formulation of noribogaine in both healthy subjects and

          opioid dependent subjects undergoing detoxification. We believe the
          results from these trials support further development.


Our Ownership Position in COMPASS
In addition to our emerging clinical and preclinical programs and enabling
technologies, we led the Series A financing round in 2018 for COMPASS, co-led
their Series B financing round in 2020 and continue to hold a significant equity
ownership position in COMPASS. COMPASS is developing its investigational COMP360
psilocybin therapy, which comprises administration of COMP360 with psychological
support from specially trained therapists, with an initial focus on TRD. The
therapeutic potential of psilocybin administered in conjunction with
psychological support has been shown in multiple academic-sponsored studies,
which did not involve COMP360, specifically exhibiting rapid reductions in
depression symptoms after a single high dose with no SAEs. COMPASS evaluated
COMP360 in conjunction with psychological support in a Phase 2b trial that
concluded in June 2021 and expects to report data from this trial in late 2021.
The randomized, double-blind, dose-ranging study investigated the safety and
efficacy of psilocybin therapy in 233 patients, the largest clinical trial with
psilocybin to date. As of June 30, 2021, we beneficially owned 8,075,663 shares
representing 19.4 % equity interest in COMPASS. Certain of our founding
investors were also seed investors and founders of COMPASS. Our interest in the
product candidates of COMPASS is limited to the potential appreciation of our
equity interest.
Recent Developments
Purchase of GABA Shares
In April 2021, pursuant to the GABA Preferred Stock Purchase Agreement, we
purchased additional shares of Series A preferred stock of GABA for an aggregate
cost of $5.0 million based on the achievement of certain development milestones.
In May 2021, we exercised our option to purchase additional shares of Series A
preferred stock prior to the achievement of certain development milestone for an
aggregate cost of $5.0 million. The purchase of additional shares of Series A
preferred stock resulted in us holding an 53.8% equity interest in the
outstanding common stock and Series A preferred stock of GABA.
Purchase of COMPASS Ordinary Shares
In May 2021, we purchased additional ordinary shares of COMPASS (represented by
American Depositary Shares) common stock for an aggregate cost of $5.0 million.
Following the close of the additional purchase, we held a 19.4% equity interest
in COMPASS ordinary shares.
Purchase of IntelGenx Shares
In May 2021, we entered into the IntelGenx Share Purchase Agreement, ("SPA"),
whereby IntelGenx issued shares of its common stock and warrants to us at an
aggregate price of approximately $12.3 million. Pursuant to the IntelGenx SPA,
we have the right to purchase additional shares of common stock at a price
determined in the IntelGenx SPA. Following the initial close of the transaction,
we held a 25% voting interest in IntelGenx.

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Consolidation of Neuronasal
In May 2021, pursuant to the Neuronasal Preferred Share Purchase Agreement, we
exercised our option to purchase additional shares of Series A preferred stock
of Neuronasal for an aggregate cost of $1.0 million. The purchase of additional
shares of Series A preferred stock resulted in us holding an 56.0% equity
interest in the outstanding common stock and Series A preferred stock of
Neuronasal as of the date of purchase. Following the closing of this share
purchase, the results of Neuronasal have been consolidated in our condensed
consolidated financial statements.
Financial Overview
Since our inception in 2018, we have focused substantially all of our efforts
and financial resources on acquiring and developing product and technology
rights, establishing our platform, building our intellectual property portfolio
and conducting research and development activities for our product candidates
within our ATAI companies that we consolidate based on our controlling financial
interest of such entities. We operate a decentralized model to enable scalable
drug or technological development at our ATAI companies. Our ATAI companies
drive development of our programs and enabling technologies that we have either
acquired a controlling or significant interest in or created
de novo
. We believe that this model provides our development teams the support and
incentives to rapidly advance their therapeutic candidates or technologies in a
cost-efficient manner. We look to optimize deployment of our capital in order to
maximize value for our stakeholders.
Wholly owned subsidiaries and variable interest entities with greater than 50%
ownership and deemed control are consolidated in our financial statements, and
our net income (loss) is reduced for the
non-controlling
interest of the VIE's share, resulting in net income(loss) attributable to ATAI
stockholders.
Investments, where we have ownership in the underlying company's equity greater
than 20% and less than 50%, or where we have significant influence, are recorded
under the equity method. We then record income(loss) in equity method
investments for our proportionate share of the underlying company's net results
until the investment balance is adjusted to zero. If we make subsequent
additional investments in that same company, we may record additional
gains(losses) based on changes to our investment basis and also may record
additional income(loss) in equity method investments.
We do not have any products approved for sale and have not generated any revenue
from product sales. We have funded our operations to date primarily with
proceeds from the sale of our common stock and from issuances of convertible
notes.
We were incorporated pursuant to the laws of the Netherlands on September 10,
2020. As more fully described in the Prospectus in the section titled "Corporate
Reorganization," and in the Notes to Condensed Consolidated Financial Statements
appearing elsewhere in this Quarterly Report, we undertook a corporate
reorganization, or the Corporate Reorganization on April 23, 2021. In April
2021, all of the outstanding shares in ATAI Life Sciences AG were contributed
and transferred to ATAI Life Sciences N.V. in a capital increase in exchange for
newly issued common shares of ATAI Life Sciences N.V. on a 1 to 10 basis, and,
as a result, ATAI Life Sciences AG became a wholly owned subsidiary of ATAI Life
Sciences N.V. Furthermore, on June 7, 2021, shares of ATAI Life Sciences N.V.
were split applying a ratio of 1.6 to one. The Corporate Reorganization is
considered a continuation of ATAI Life Sciences AG resulting in no change in the
carrying values of assets or liabilities. As a result, the financial statements
for periods prior to the Corporate Reorganization are the financial statements
of ATAI Life Sciences AG as the predecessor to ATAI Life Sciences N.V. for
accounting and reporting purposes. All share,
per-share
and financial information presented and corresponding disclosures have been
retrospectively adjusted, where applicable, to reflect the impact of the share
exchange and share split resulting from the Corporate Reorganization. In
connection with the Corporate Reorganization, outstanding share awards and
option grants of ATAI Life Sciences AG were exchanged for share awards and
option grants of ATAI Life Sciences N.V. with identical restrictions.

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On June 22, 2021, we completed an IPO on Nasdaq, in which we issued and
sold 17,250,000 shares of our common stock at a public offering price of $15.00
per share, including 2,500,000 shares of common stock sold pursuant to the
underwriters' exercise of their option to purchase additional shares of common
stock, for aggregate net proceeds of $231.6 million, after deducting
underwriting discounts and commissions of $18.1 million and offering costs of
$9.0 million. Prior to the IPO, we received gross cash proceeds of
$361.5 million from sales of our common stock and convertible notes.
We have incurred significant operating losses since our inception. Our net loss
attributable to ATAI Life Sciences N.V. stockholders was $48.5 million and
$16.4 million for the three months ended June 30, 2021 and 2020, respectively,
and $47.8 million and $0.05 million for the six months ended June 30, 2021 and
2020, respectively. As of June 30, 2021 and December 31, 2020, our accumulated
deficit was $237.8 million and $190.0 million, respectively. Our ability to
generate product revenue sufficient to achieve profitability will depend
substantially on the successful development and eventual commercialization of
product candidates at our ATAI companies and at our ATAI companies that we
consolidate based on our controlling financial interest of such entities as
determined under the variable interest entity model, or VIEs. We expect to
continue to incur significant expenses and increasing operating losses for at
least the next several years.
Our historical losses resulted principally from costs incurred in connection
with research and development activities and general and administrative costs
associated with our operations. In the future, we intend to continue to conduct
research and development, preclinical testing, clinical trials, regulatory
compliance, market access, commercialization and business development activities
that, together with anticipated general and administrative expenses, will result
in incurring further significant losses for at least the next several years. Our
operating losses stem primarily from development of our mental health research
programs. Furthermore, we expect to incur additional costs associated with
operating as a public company, including audit, legal, regulatory, and
tax-related
services associated with maintaining compliance with exchange listing and SEC
requirements, director and officer insurance premiums, and investor relations
costs. As a result, we will need substantial additional funding to support our
continuing operations and pursue our growth strategy. Until such time as we can
generate significant revenue from sales of our product candidates, if ever, we
expect to finance our operations through a combination of equity offerings, debt
financings, strategic collaborations and alliances or licensing arrangements.
Our inability to raise capital as and when needed could have a negative impact
on our financial condition and ability to pursue our business strategies. There
can be no assurances, however, that our current operating plan will be achieved
or that additional funding will be available on terms acceptable to us, or at
all.
As of June 30, 2021, we had cash and cash equivalents of $453.6 million We
believe that our existing cash will be sufficient for us to fund our operating
expenses and capital expenditure requirements for at least the next 12 months.
We have based this estimate on assumptions that may prove to be wrong, and we
could exhaust our available capital resources sooner than we expect. See
"Liquidity and Capital Resources-Liquidity Risk" below.
Factors Affecting our Results
We believe that the most significant factors affecting our results of operations
include:
Acquisitions/Investments
To continue to grow our business and to aid in the development of our various
product candidates, we are continually acquiring and investing in companies that
share our common goal towards advancing transformative treatments, including
psychedelic compounds and digital therapeutics, for patients that suffer from
mental health disorders. During the three months ended June 30, 2021, we spent
$28.8 million on investments in GABA, COMPASS, IntelGenx and Neuronasal.

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Research and Development Expenses
Our ability to successfully develop innovative product candidates through our
programs will be the primary factor affecting our future growth. Our approach to
the discovery and development of our product candidates is still being
demonstrated. As such, we do not know whether we will be able to successfully
develop any products. Developing novel product candidates requires a significant
investment of resources over a prolonged period of time, and a core part of our
strategy is to continue making sustained investments in this area. We have
chosen to leverage our platform to initially focus on advancing our product
candidates in the area of mental health.
All of our product candidates are still in development stages, and we have
incurred and will continue to incur significant research and development costs
for their preclinical studies and clinical trials. We expect that our research
and development expenses will constitute the most substantial part of our
expenses in future periods in line with the advancement and expansion of the
development of our product candidates.
Acquisition of
In-Process
Research and Development Expenses
In an asset acquisition, including the initial consolidation of a VIE that is
not a business, acquired
in-process
research and development, or IPR&D, with no alternative future is charged to the
condensed consolidated statements of operations as a component of operating
expenses at the acquisition date.
Since inception, we have grown primarily by continually acquiring and investing
in other companies. Our IPR&D expenses were $8.0 million and $9.0 million,
representing 13.0% and 11.6% of our total operating expenses for the three and
six months ended June 30, 2021, respectively. Our IPR&D expenses for the three
and six months ended June 30, 2020 were $0.1 million. As we continue to acquire
and invest in companies, we expect our IPR&D expenses to increase in absolute
amounts and continue to represent a significant percentage of our total
operating expenses.
Stock-Based Compensation
In August 2020, we adopted the 2020 Equity Incentive Plan and the Hurdle Share
Option Plan, which allowed us to grant stock-based awards to executive officers,
directors, employees and consultants. Prior to our IPO, we issued stock options
that vest over a two to four-year service period, only if and when a "Liquidity
Event" (as defined in the plans) occurs, with accelerated vesting if a Liquidity
Event occurred by specified dates. Upon the closing of our IPO, the stock-based
award vesting contingent upon a Liquidity Event was no longer deferred. For the
three and six months ended June 30, 2021, stock-based compensation of
$37.5 million and $37.7 million, respectively.
Impact of
COVID-19
In December 2019, a novel strain of coronavirus, severe acute respiratory
syndrome coronavirus 2, or
SARS-CoV-2,
was identified in Wuhan, China. On March 11, 2020, the World Health Organization
designated the outbreak of
COVID-19,
the disease associated with
SARS-CoV-2,
as a global pandemic. Governments and businesses around the world have taken
unprecedented actions to mitigate the spread of
COVID-19,
including, but not limited to, shelter-
in-place
orders, quarantines, significant restrictions on travel, as well as restrictions
that prohibit many employees from going to work.
We have been actively monitoring the impact of the
COVID-19
pandemic, including variants, on our employees and our business. Although some
of our research and development timelines have been impacted by delays related
to the
COVID-19
pandemic, we have not experienced material financial impacts on our business and
operations as a result of the
COVID-19
pandemic. We have undertaken a number of business continuity measures to
mitigate potential disruption to our operations and in order to preserve the
integrity of our research and development programs. However, the impact on our
future results will largely depend on future developments related to
COVID-19,
which are highly uncertain and cannot be predicted with confidence, such as the
emergence of new variants, the rate and success of vaccination roll-out efforts,
the ultimate duration and spread of the outbreak, the continuing impact of the
COVID-19
pandemic on financial markets and the global economy, travel restrictions,
social distancing and other mitigation measures in the United States and other
countries, business closures or business disruptions and the effectiveness of
actions taken in the United States and other countries to contain, treat, and
prevent the disease, including the availability and effectiveness of vaccines.

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Basis of Presentation and Consolidation
Since our inception, we have created wholly-owned subsidiaries or made
investments in certain controlled entities, including partially-owned
subsidiaries for which we have majority voting interest under the VOE model or
for which we are the primary beneficiary under the VIE model, which we refer to
collectively as our consolidated entities. Ownership interests in entities over
which we have significant influence, but not a controlling financial interest,
are accounted for as cost and equity method investments. Ownership interests in
consolidated entities that are held by entities other than us are reported as
redeemable convertible noncontrolling interests and noncontrolling interests in
our condensed consolidated balance sheets. Losses attributed to redeemable
convertible noncontrolling interests and noncontrolling interests are reported
separately in our condensed consolidated statements of operations.
Components of Our Results of Operations
Revenue
On March 11, 2021, we entered into a license and collaboration agreement, or the
Otsuka Agreement, with Otsuka Pharmaceutical Co., LTD, or Otsuka, under which we
granted exclusive rights to Otsuka to develop and commercialize certain products
containing arketamine in Japan for the treatment of depression and other select
indications. We received an
upfront, non-refundable payment
of $20.0 million in June 2021 and we are also eligible to receive up to
$35.0 million if certain development and regulatory milestones are achieved and
up to $66.0 million in commercial milestones upon the achievement of certain
commercial sales thresholds. We are eligible to receive a tiered, double-digit
royalties on net sales of licensed products subject to reduction in certain
circumstances.
In March 2021, we satisfied the performance obligation related to the license
upon delivery of the license and recognized the amount of $19.7 million
allocated to the license as license revenue. Additionally, we recognized
revenues of $0.2 million related to certain research and development services.
As of June 30, 2021, we had current deferred revenue of $0.1 million due to
certain research and development services under the Otsuka Agreement which will
be recognized over time as the respective study results are delivered. To date,
there have been no milestones achieved under the Otsuka Agreement. License
revenue of $0 and $19.9 million was recorded for the three and six months ended
June 30, 2021, respectively.
For the foreseeable future, we may generate revenue from reimbursements of
services under the Otsuka Agreement, as well as milestone payments under our
current and/or future collaboration agreements. We do not expect to generate any
revenue from the sale of products unless and until such time that our product
candidates have advanced through clinical development and regulatory approval,
if ever. We expect that any revenue we generate, if at all, will fluctuate from
quarter-to-quarter
as a result of the timing and amount of payments relating to such services and
milestones and the extent to which any of our products are approved and
successfully commercialized. If we fail to complete preclinical and clinical
development of product candidates or obtain regulatory approval for them, our
ability to generate future revenues and our results of operations and financial
position would be adversely affected.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for our
research activities, including our discovery efforts and the development of our
product candidates, which include:

    •     employee-related expenses, including salaries, related benefits and
          stock-based compensation, for employees engaged in research and
          development functions;



    •     expenses incurred in connection with the preclinical and clinical
          development of our product candidates, including our agreements with
          third parties, such as consultants and CROs;


• expenses incurred under agreements with consultants who supplement our

          internal capabilities;


• the cost of lab supplies and acquiring, developing and manufacturing

          preclinical study materials and clinical trial materials;



  •   costs related to compliance with regulatory requirements;



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• facilities, depreciation and other expenses, which include direct and

allocated expenses for rent and maintenance of facilities, insurance and

          other operating costs; and



  •   payments made in connection with third-party licensing agreements.


Research and development costs, including costs reimbursed under our
collaboration with Otsuka, are expensed as incurred, with reimbursements of such
amounts being recognized as revenue. We account for nonrefundable advance
payments for goods and services that will be used in future research and
development activities as expenses when the service has been performed or when
the goods have been received.
Our direct research and development expenses are tracked on a
program-by-program
basis for our product candidates and consist primarily of external costs, such
as fees paid to outside consultants, CROs, CMOs and research laboratories in
connection with our preclinical development, process development, manufacturing
and clinical development activities. Our direct research and development
expenses by program also include fees incurred under third-party license
agreements.
We do not allocate internal research and development expenses consisting of
employee and contractor-related costs, to specific product candidate programs
because these costs are deployed across multiple product candidate programs
under research and development and, as such, are separately classified.
Research and development activities are central to our business model. Product
candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of later-stage clinical trials.
We expect that our research and development expenses will continue to increase
for the foreseeable future in connection with our planned preclinical and
clinical development activities in the near term and in the future.
The successful development of our product candidates is highly uncertain. As
such, at this time, we cannot reasonably estimate or know the nature, timing and
estimated costs of the efforts that will be necessary to complete the remainder
of the development of these product candidates. We are also unable to predict
when, if ever, material net cash inflows will commence from our product
candidates. This is due to the numerous risks and uncertainties associated with
developing products, including the uncertainty of whether (i) any clinical
trials will be conducted or progress as planned or completed on schedule, if at
all, (ii) we obtain regulatory approval for our product candidates and (iii) we
successfully commercialize product candidates.
Acquisition of
In-Process
Research and Development Expenses
Acquisition of
in-process
research and development expenses consist of acquired
in-process
research and development with no future alternative use based on the probability
of clinical success. We expect our acquisition of IPR&D expenses to increase as
we continue to grow and expand.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other
related costs, including stock-based compensation, for personnel in our
executive, finance, corporate and business development and administrative
functions, professional fees for legal, patent, accounting, auditing, tax and
consulting services, travel expenses and facility-related expenses, which
include allocated expenses for rent and maintenance of facilities, advertising,
and information technology-related expenses.
We expect that our general and administrative expenses will increase in the
future as we increase our general and administrative headcount to support our
continued research and development and potential commercialization of our
product candidates. We also expect to incur increased expenses associated with
being a public company, including increased costs of accounting, audit, legal,
regulatory and
tax-related
services associated with maintaining compliance with exchange listing and SEC
requirements, director and officer insurance costs, and investor and public
relations costs.

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Other Income (Expense), Net
Interest Income
Interest income consists of interest earned on cash balances held in
interest-bearing accounts and interest earned on notes receivable. We expect
that our interest income will fluctuate based on the timing and ability to raise
additional funds as well as the amount of expenditures for our research and
development of our product candidates and ongoing business operations.
Change in Fair Value of Contingent Consideration Liability-Related Parties
Changes in fair value of contingent consideration liability-related parties,
consists of subsequent remeasurement of our contingent consideration
liability-related parties with Perception and InnarisBio for which we have
elected the fair value option. See "-Liquidity and Capital
Resources-Indebtedness" below for further discussion of our contingent
consideration liability-related parties.
Change in Fair Value of Short Term Notes Receivable-Related Party
Changes in fair value of short term notes receivable-related party, including
interest, consists of subsequent remeasurement of our short term notes
receivable-related party with COMPASS for which we have elected the fair value
option. The COMPASS notes were converted during 2020. See "-Liquidity and
Capital Resources-Indebtedness" below for further discussion of our short term
notes receivable
-
related party.
Change in Fair Value of Convertible Promissory Notes
Changes in fair value of convertible promissory notes consists of subsequent
remeasurement of our convertible promissory notes for which we have elected the
fair value option. See "-Liquidity and Capital Resources-Indebtedness" below for
further discussion of our convertible promissory notes.
Change in Fair Value of Derivative Liability
Changes in fair value of derivative liability consists of subsequent
remeasurement of our derivative liability relating to certain embedded features
contained in the Perception convertible promissory notes for which we have
elected the fair value option. The Perception convertible promissory notes were
converted during June 2021. See "-Liquidity and Capital Resources-Indebtedness"
below for further discussion the Perception convertible promissory notes.
Unrealized Loss on Other Investments Held at Fair Value
In May 2021, we received IntelGenx common stock, warrants and additional unit
warrants for a price of approximately $12.3 million. We determined that the
initial aggregate fair value is equal to the transaction price and recorded the
common shares at $3.0 million, the warrants at $1.2 million and the additional
unit warrants at $8.2 million on a relative fair value basis resulting in no
initial gain or loss recognized in the condensed consolidated statements of
operations. Subsequently, changes in fair value of the common shares, the
warrants and additional unit warrants are recorded as a component of other
income (expense), net in the condensed consolidated statement of operations.
Unrealized Gain on Other Investments
In March 2020, we entered into a series of transactions including the purchase
of additional shares of COMPASS Series A and Series B preferred stock under the
secondary Series A preferred stock purchase agreement and the Series B preferred
stock subscription agreement, respectively. In April 2020, COMPASS entered into
a Series B preferred stock subscription agreement with other investors for
issuance of its Series B preferred stock, which resulted in the automatic
conversion of our COMPASS convertible notes receivable into shares of COMPASS
Series B preferred stock. We remeasured our investment in COMPASS' Series A
preferred shares to fair value due to the observable price change in connection
with COMPASS' secondary Series A preferred stock purchase in March 2020 and
recognized unrealized gains on other investments in the condensed consolidated
statements of operations in association with the transaction.

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Other Income (Expense), net
Other income (expense), net consists principally of interest expense, foreign
currency transactions gains and losses, impairment related to our other
investments and credits related to our research and development tax credits
which are claimed from the Australian tax authority, in respect to qualifying
research and development costs incurred.
Income Tax
For our consolidated entities, deferred income taxes are provided for the
effects of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and the amounts recognized for
income tax purposes. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
We regularly assess the need to record a valuation allowance against net
deferred tax assets if, based upon the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized.
Accordingly we continue to maintain a full valuation allowance against our
deferred tax assets as of June 30, 2021, consistent with prior periods, which
primarily relate to our German and international tax loss carryforwards. In
assessing the realizability of deferred tax assets, we consider whether it is
more likely than not that some or all of the deferred tax assets will not be
realized. The future realization of deferred tax assets is subject to the
existence of sufficient taxable income of the appropriate character (e.g.,
ordinary income or capital gain) as provided under the carryforward provisions
of local tax law. We consider the scheduled reversal of deferred tax liabilities
(including the effect in available carryback and carryforward periods), future
projected taxable income, including the character and jurisdiction of such
income, and
tax-planning
strategies in making this assessment.
Unrecognized tax benefits arise when the estimated benefit recorded in the
financial statements differs from the amounts taken or expected to be taken in a
tax return because of the considerations described above. As of June 30, 2021
and December 31, 2020, we had no unrecognized tax benefits.
Losses from Investments in Equity Method Investees, Net of Tax
Losses from investments in equity method investees, net of tax consists of our
share of equity method investees losses on the basis of our equity ownership
percentage, IPR&D charges resulting from basis differences and impairment
related to our equity method investments.
Net Loss Attributable to Redeemable Noncontrolling Interests and Noncontrolling
Interests
Net loss attributable to redeemable noncontrolling interests and noncontrolling
interests in our condensed consolidated statements of operations is a result of
our investments in certain of our consolidated VIEs, and consists of the portion
of the net loss of these consolidated entities that is not allocated to us. Net
losses in consolidated VIEs are attributed to redeemable noncontrolling
interests and noncontrolling interests considering the liquidation preferences
of the different classes of equity held by the shareholders in the VIE and their
respective interests in the net assets of the consolidated VIE in the event of
liquidation, and their pro rata ownership. Changes in the amount of net loss
attributable to redeemable noncontrolling interests and noncontrolling interests
are directly impacted by changes in the net loss of our VIEs and our ownership
percentage changes.

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Results of Operations
Comparison of the Three Months Ended June 30, 2021 and 2020 (unaudited)

                                                  Three months ended
                                                       June 30,
                                                 2021           2020         $ Change       % Change
                                                         (in thousands, except percentages)
Operating expenses:
Research and development                       $  16,026$   2,854$  13,172          461.5 %
Acquisition of in-process research and
development                                        7,962            120          7,842         6535.0 %
General and administrative                        37,331          2,851         34,480         1209.4 %

Total operating expenses                          61,319          5,825         55,494          952.7 %

Loss from operations                             (61,319 )       (5,825 )      (55,494 )        952.7 %

Other income (expense), net:
Interest income                                       35             18             17           94.4 %
Change in fair value of contingent
consideration liability - related parties           (911 )          (42 )         (869 )       2069.0 %
Change in fair value of convertible
promissory notes                                      -          (1,260 )        1,260         (100.0 %)
Unrealized loss on other investments held at
fair value                                        (5,460 )           -          (5,460 )        100.0 %
Loss on conversion of convertible promissory
notes                                               (513 )           -            (513 )        100.0 %
Gain on consolidation of a variable interest
entity                                             3,543             -           3,543          100.0 %
Other income (expense), net                       (2,676 )          (37 )       (2,639 )       7132.4 %

Total other income (expense), net                 (5,982 )       (1,321 )   

(4,661 ) 352.8 %


Net loss before income taxes                     (67,301 )       (7,146 )      (60,155 )        841.8 %
Provision for income taxes                           (58 )           -             (58 )        100.0 %
Gain on dilution of equity method investment      16,923             -          16,923          100.0 %
Losses from investments in equity method
investees, net of tax                             (2,937 )       (9,811 )        6,874          (70.1 %)

Net loss                                         (53,373 )      (16,957 )      (36,416 )        214.8 %
Net loss attributable to redeemable
noncontrolling interests and noncontrolling
interests                                         (4,912 )         (600 )   

(4,312 ) 718.7 %


Net loss attributable to ATAI Life Sciences
AG stockholders                                $ (48,461 )$ (16,357 )$ (32,104 )        196.3 %



License Revenue
No license revenue was recognized for the three months ended June 30, 2021 or
June 30, 2020.

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Research and Development Expenses
The table and discussion below present research and development expenses for the
three months ended June 30, 2021 and 2020:

                                              Three months ended June 30,
                                                2021                2020          Change       % Change
                                                        (in thousands, except percentages)
Direct research and development expenses
by program:
PCN-101 (Perception)                       $        2,373$      1,086$  1,286          118.4 %
DMX-1002 (DemeRx IB)                                  949                152          797          524.2 %
RL-007 (Recognify)                                    676                 -           676          100.0 %
VLS-01 (Viridia)                                      646                  2          644        28618.0 %
KUR-101 (Kures)                                       376                920         (544 )        (59.1 %)
EMP-01 (EmpathBio)                                    249                 -           249          100.0 %
Novel drug delivery (InnarisBio)                      200                 -           200          100.0 %
RLS-01 (Revixia)                                      188                 -           188          100.0 %
Novel compounds (EntheogeniX)                         133                248         (114 )        (46.2 %)
NN-01 (Neuronasal)                                    122                 -           122          100.0 %
Other (Introspect, Psyber, Psyprotix)                  89                 -            89          100.0 %
Unallocated research and development
expenses:
Personnel expenses                                  9,851                365        9,486         2596.2 %
Professional and consulting services                  118                 65           53           82.0 %
Other                                                  56                 16           40          257.9 %

Total research and development expenses $ 16,026$ 2,854$ 13,172 461.6 %




Research and development expenses were $16.0 million for the three months ended
June 30, 2021, compared to $2.9 million for the three months ended June 30,
2020. The increase of $13.1 million was primarily attributable to $9.5 million
of personnel costs, which included $8.7 million of stock-based compensation and
an increase of $3.6 million of direct costs at the platform companies as
discussed below.
The $1.2 million increase in direct costs for
PCN-101
was primarily due to an increase of $0.9 million in clinical development costs,
and $0.2 million in consulting and personnel related costs.
The $0.8 million increase in direct costs for
DMX-1002
program was primarily due to an increase of $0.3 million preclinical activities,
$0.2 million in manufacturing and $0.1 million in clinical development costs.
The direct costs of $0.7 million for
RL-007
program were $0.5 million in clinical development costs and $0.2 million of
personnel related costs, which included $0.1 million of stock-based compensation
expense.
The direct costs for
VLS-01
program were $0.6 million of manufacturing and control processes and other
preclinical activities.
The decrease of $0.5 million in direct costs for KUR-101 was primarily due to a
$0.5 million decrease in preclinical activities.
The direct costs for
EMP-001
were $0.2 million of manufacturing and control processes costs and other
preclinical activities.
The direct costs for InnarisBio were $0.2 million of preclinical activities.
The direct costs for
RLS-01
were $0.2 million of manufacturing and control processes costs and other
preclinical activities.
The $0.1 million decrease in direct costs for EntheogeniX was primarily due to a
$0.2 million decrease in data and analytical support costs, partially offset by
a $1.0 million increase in manufacturing and control processes costs and other
preclinical activities.
The direct costs for NN-01, which are from the date of acquisition in May 2021
were $0.1 million in clinical development costs.

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During the three months ended June 30, 2021, we did not incur any significant
direct costs in association with IntroSpect, Psyber, or Psyprotix; direct costs
associated with these programs were related to the ramp up of preclinical
development and initial clinical-stage activities.
Acquisition of
In-Process
Research and Development Expense

                                              Three Months Ended June 30,
                                                  2021                2020        Change       % Change
                                                         (in thousands, except percentages)
Acquisition of in-process research and
development expense by program:
Neuronasal                                  $          7,962         $    -       $ 7,962          100.0 %
KUR-101 (Kures)                                           -              

120 (120 ) 100.0 %


Total acquisition of in-process research
and development expense                     $          7,962         $   120$ 7,842         6535.0 %



Acquisition of
in-process
research and development expenses was $8.0 million for the three months ended
June 30, 2021, which was IPR&D acquired from Neuronasal in May 2021. Acquisition
of
in-process
research and development expenses was $0.1 million for the three months ended
June 30, 2020, which was IPR&D acquired from Kures. The acquired IPR&D were all
considered to have no future alternative use.
General and Administrative Expenses
General and administrative expenses were $37.3 million for the three months
ended June 30, 2021 compared to $2.9 million for the three months ended June 30,
2020. The increase of $34.5 million, was attributable to $30.2 million of
personnel costs, which included $28.7 million of stock-based compensation, $3.4
million of professional fees, and $0.9 million other costs related to support of
our platform growth and public company requirements.
Interest Income
Interest income for the three months ended June 30, 2021 and 2020 primarily
consisted of interest earned on our cash balances and notes receivable during
these periods. We had interest income for the three months ended June 30, 2021
and 2020 of $35,000 and $18,000, respectively.
Change in Fair Value of Contingent Consideration Liability-Related Parties
The milestone and royalty payments in relation to the acquisition of Perception
Neuroscience were recorded at the acquisition date or at the exercise date
related to the call option, and is subsequently remeasured to fair value as of
June 30, 2021, resulting in an expense of $0.9 million and $0.04 million being
recognized for the three months ended June 30, 2021 and 2020, respectively. The
increase of $0.86 million was primarily attributable to Perception's completion
of its Phase 1 clinical trial in September 2020, which increased the probability
of the milestone event occurring, and a potential license agreement with a
third-party pharmaceutical company, which would include an upfront payment and
additional milestone payments. As the license agreement had not been executed as
of December 31, 2020, we used a probability weighted approach for the royalty
payments, where 80% was applied to the license scenario and 20% was applied to
the
no-license
scenario. At March 31, 2021, the license transaction had closed and the
scenario-based method with 80%/20% probability was no longer used.
The milestone and royalty payments in relation to the acquisition of InnarisBio
were recorded at the acquisition date and is subsequently remeasured to fair
value as of June 30, 2021, resulting in an immaterial expense being recognized
for the three months ended June 30, 2021 because there were no material changes
to any of the significant assumptions used that impacts the fair value of the
contingent liability.
Change in Fair Value of Convertible Promissory Notes
Change in fair value of convertible promissory notes for the three months ended
June 30, 2020 was $1.3 million, which was primarily associated with the change
in fair value of our 2020 convertible notes, or the 2020 Notes. The change in
fair value of the 2020 Notes was primarily attributable to an increase in the
fair value of the underlying common stock in 2020 leading up to the conversion
of the convertible promissory notes into our common shares in November 2020. We
did not recognize a change in fair value of convertible promissory notes for the
three months ended June 30, 2021.

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Unrealized Loss on Other Investments
Held at Fair Value
In May 2021, we received IntelGenx common stock, warrants and additional unit
warrants for a price of approximately $12.3 million. We determined that the
initial aggregate fair value is equal to the transaction price and recorded the
common shares at $3.0 million, the warrants at $1.2 million and the additional
unit warrants at $8.2 million on a relative fair value basis resulting in no
initial gain or loss recognized in the condensed consolidated statements of
operations. Subsequently, changes in fair value of the common shares, the
warrants and additional unit warrants are recorded as a component of other
income (expense), net in the condensed consolidated statement of operations.
During the three months ended June 30, 2021, we recognized $5.5 million of
unrealized loss on other investments held at fair value.
Loss on Conversion of Convertible Promissory Notes
Loss on conversion of convertible promissory notes for the three months ended
June 30, 2021 was $0.5 million. In June 2021, upon the funding of the Otsuka
license and collaborative agreement, the Perception convertible promissory notes
were converted into Perception Series A preferred stock. The loss represents the
difference between (i) carrying value including derivative liability of the
Perception December 2020 Notes of $2.2 million and (ii) the fair value of
Perception Series A preferred stock into which the notes converted of $2.7
million. There was no loss on conversion of convertible promissory notes
recorded in the three months ended June 30, 2020.
Gain on Consolidation of a Variable Interest Entity
Gain on consolidation of a variable interest entity for the three months ended
June 30, 2021 was $3.5 million. We purchased additional shares of Neuronasal in
May 2021 and recognized a gain of $3.5 million. The gain was calculated as the
sum of the consideration paid of $1.0 million, the fair value of the
noncontrolling interest issued of $3.0 million, the carrying value of our
investments in Neuronasal's common stock and preferred stock prior to May 2021
of $0.8 million, less the fair value of identifiable net assets acquired of $8.3
million. The fair value of the IPR&D acquired of $8.3 million was charged to
research and development expense as it had no alternative future use at the time
of the acquisition. There was no gain on asset acquisition of a variable
interest entity recorded in the three months ended June 30, 2020.
Other Income (Expense), Net
Other expense, net for the three months ended June 30, 2021 was $2.7 million,
compared to $.04 million for the three months ended June 30, 2020. The increase
of $2.7 million was primarily related to foreign currency expense.
Income Tax
We incurred income tax expense of $58,000 for the three months ended June 30,
2021. The income tax expense relates to book profits and thus taxable profits
generated in one of our United States subsidiaries. Given our early stage
development and lack of prior earnings history, we have a full valuation
allowance primarily related to German and overseas tax loss carryforwards that
we do not consider more likely than not to be realized. We did not incur income
tax expense for the three months ended June 30, 2020
Losses from Investments in Equity Method Investees
Losses from investment in equity method investees for the three months ended
June 30, 2021 and 2020 were $2.9 million and $9.8 million, respectively. Loss
from investment in equity method investees represents our share of equity method
investee losses on the basis of our equity ownership percentages or based on our
proportionate share of the respective class of securities in our other
investments in the event that the carrying amount of our equity method
investments was zero.

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Comparison of the Six Months Ended June 30, 2021 and 2020 (unaudited)

                                            Six months ended June 30,
                                              2021               2020       

$ Change % Change

                                                        (in thousands, except percentages)
License revenue                           $      19,880        $      -           19,880           100.0 %

Operating expenses:
Research and development                         21,611            4,998          16,613           332.4 %
Acquisition of
in-process
research and development                          8,934              120           8,814          7345.0 %
General and administrative                       46,604            4,421          42,183           954.2 %

Total operating expenses                         77,149            9,539          67,610           708.8 %

Loss from operations                            (57,269 )         (9,539 )       (47,730 )         500.4 %

Other income (expense), net:
Interest income                                      72               38              34            89.5 %
Change in fair value of contingent
consideration liability - related
parties                                            (660 )            (66 )          (594 )         100.0 %
Change in fair value of short term
notes receivable - related party                     -               718            (718 )          (100 %)
Change in fair value of convertible
promissory notes                                     -              (133 )           133            (100 %)
Change in fair value of derivative
liability                                            41               -               41           100.0 %
Unrealized loss on other investments
held at fair value                               (5,460 )             -           (5,460 )         100.0 %
Unrealized gain on other investments                 -            19,856         (19,856 )          (100 %)
Loss on conversion of convertible
promissory notes                                   (513 )             -             (513 )         100.0 %
Gain on consolidation of a variable
interest entity                                   3,543               -            3,543           100.0 %
Other income (expense), net                      (1,302 )           (119 )  

(1,183 ) 994.1 %


Total other income (expense), net                (4,279 )         20,294    

(24,573 ) (121 %)


Net income (loss) before income taxes           (61,548 )         10,755         (72,303 )          (672 %)
Provision for income taxes                          (64 )             -              (64 )         100.0 %
Gain on dilution of equity method
investment                                       16,923               -           16,923           100.0 %
Losses from investments in equity
method investees, net of tax                     (4,640 )        (11,831 )         7,191             (61 %)

Net loss                                        (49,329 )         (1,076 )       (48,253 )        4484.5 %
Net loss attributable to redeemable
noncontrolling interests and
noncontrolling interests                         (1,556 )         (1,022 )  

(534 ) 52.3 %


Net loss attributable to ATAI Life
Sciences AG stockholders                  $     (47,773 )$     (54 )$ (47,719 )       88368.5 %



License Revenue
License revenue was $19.9 million for the six months ended June 30, 2021, which
related to a license and collaboration agreement entered into with Otsuka
Pharmaceutical Co., LTD, or Otsuka, whereby Otsuka was granted an exclusive
right to develop and commercialize products containing
PCN-101
in Japan at its own cost and expense. The license revenue was recognized upon
delivery of the license to Otsuka during the period.

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Research and Development Expenses
The table and discussion below present research and development expenses for the
six months ended June 30, 2021 and 2020:

                                                    Six months ended
                                                        June 30,
                                                   2021          2020         Change       % Change
                                                         (in thousands, except percentages)
Direct research and development expenses by
program:
PCN-101
(Perception Neuroscience)                        $   4,072$ 1,787$  2,286          127.9 %
DMX-1002
(DemeRx IB)                                          1,835          361         1,474          408.4 %
RL-007
(Recognify)                                          1,076           -          1,076          100.0 %
VLS-01
(Viridia)                                            1,067            2         1,065        47316.2 %
KUR-101
(Kures)                                                688        1,594          (906 )        (56.8 %)
EMP-01
(EmpathBio)                                            331           -            331          100.0 %
RLS-01
(Revixia)                                              280           -            280          100.0 %
Novel compounds (EntheogeniX)                          245          363          (118 )        (32.5 %)
Novel drug delivery (InnarisBio)                       224           -            224          100.0 %
NN-01
(Neuronasal)                                           122           -            122          100.0 %
Other (Introspect, Psyber, Psyprotix)                   65            2     

64 3394.2 %


Unallocated research and development
expenses:
Personnel expenses                                  11,119          680        10,439         1534.9 %
Professional and consulting services                   303          104           200          192.4 %
Other                                                  182          105            76           72.5 %

Total research and development expenses $ 21,611$ 4,998

$ 16,613 326.9 %




Research and development expenses were $21.6 million for the six months ended
June 30, 2021, compared to $5.0 million for the six months ended June 30, 2020.
The increase of $16.6 million was primarily attributable to $10.4 million of
personnel costs, which included $8.9 million
in stock-based
compensation and an increase of $5.9 million of direct costs at the platform
companies as discussed below.
The $2.3 million increase in direct costs for
PCN-101
was primarily due to an increase of $1.0 million in clinical development costs,
$0.6 million in drug manufacturing costs, $0.3 million in preclinical
activities, and $0.4 million in consulting and personnel related costs.
The $1.5 million increase in direct costs for
DMX-1002
program was primarily due to an increase of $0.7 million in clinical development
cost, $0.4 million in preclinical activities, $0.3 million in manufacturing, and
$0.1 million increase in personnel related costs.
The direct costs of $1.1 million for
RL-007
were $0.6 million of clinical development costs, $0.4 million of personnel
related costs, which included $0.2 million of stock-based compensation expense
and $0.1 million in manufacturing and control processes costs.
The direct costs for
VLS-01
program were $1.1 million of manufacturing and control processes and other
preclinical activities.
The $0.9 million decrease in direct costs for KUR-101 was primarily due to a
$0.8 million reduction in preclinical activities, and a $0.2 million decrease in
manufacturing and control processes costs, offset by a $0.1 million increase in
clinical development costs.
The direct costs for
EMP-001
were $0.3 million of manufacturing and control processes costs and other
preclinical activities.
The direct costs for
RLS-01
were $0.3 million of manufacturing and control processes costs and other
preclinical activities.
The decrease of $0.1 million in direct costs for EntheogeniX was primarily due
to a $0.2 million decrease in data and analytical support costs, partially
offset by a $0.1 million increase in manufacturing and control processes costs.
The direct costs for NN-01, which are from the date of acquisition in May 2021,
were $0.1 million of clinical development costs.

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During the six months ended June 30, 2021, we did not incur any significant
direct costs in association with IntroSpect, Psyber, or Psyprotix; direct costs
associated with these programs were related to the ramp up of preclinical
development and initial clinical-stage activities.
Acquisition of
In-Process
Research and Development Expense

                                                   Six Months Ended June 30,
                                                     2021                2020        Change       % Change
                                                            (in thousands, except percentages)
Acquisition of
in-process
research and development expense by program:
Neuronasal                                      $         7,962         $    -       $ 7,962          100.0 %
InnarisBio                                                  972                          972          100.0 %
KUR-101
(Kures)                                                                     120         (120 )        100.0 %

Total acquisition of
in-process
research and development expense                $         8,934         $   120$ 8,814         7361.7 %



Acquisition of
in-process
research and development expenses was $9.0 million for the six months ended
June 30, 2021, which was IPR&D acquired from Neuronasal in May 2021 and
InnarisBio in March 2021. Acquisition of
in-process
research and development expenses was $0.1 million for the six months ended
June 30, 2020, which was IPR&D acquired from Kures. The acquired IPR&D were all
considered to have no future alternative use.
General and Administrative Expenses
General and administrative expenses were $46.6 million for the six months ended
June 30, 2021 compared to $4.4 million for the six months ended June 30, 2020.
The increase of $42.2 million, was attributable to $32.7 million of personnel
costs, which included $28.7 million of stock-based compensation, $8.2 million of
professional fees, and $1.3 million other costs related to support of our
platform growth and public company requirements.
Interest Income
Interest income for the six months ended June 30, 2021 and 2020 primarily
consisted of interest earned on our cash balances and notes receivable during
these periods. We had interest income for the six months ended June 30, 2021 and
2020 of $72,000 and $38,000, respectively.
Change in Fair Value of Contingent Consideration Liability-Related Parties
The milestone and royalty payments in relation to the acquisition of Perception
Neuroscience were recorded at the acquisition date or at the exercise date
related to the call option, and is subsequently remeasured to fair value as of
June 30, 2021, resulting in an expense of $0.7 million and $0.07 million being
recognized for the six months ended June 30, 2021 and 2020, respectively. The
increase of $0.6 million was primarily attributable to Perception's completion
of its Phase 1 clinical trial in September 2020, which increased the probability
of the milestone event occurring, and a potential license agreement with a
third-party pharmaceutical company, which would include an upfront payment and
additional milestone payments. As the license agreement had not been executed as
of December 31, 2020, we used a probability weighted approach for the royalty
payments, where 80% was applied to the license scenario and 20% was applied to
the
no-license
scenario. At March 31, 2021, the license transaction had closed and the
scenario-based method with 80%/20% probability was no longer used.
The milestone and royalty payments in relation to the acquisition of InnarisBio
were recorded at the acquisition date and is subsequently remeasured to fair
value as of June 30, 2021, resulting in an immaterial expense being recognized
for the six months ended June 30, 2021 because there were no material changes to
any of the significant assumptions used that impacts the fair value of the
contingent liability.

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Change in Fair Value of Short Term Notes Receivable-Related Party
Change in fair value of short term notes receivable with COMPASS for the six
months ended June 30, 2020 was $0.7 million. The COMPASS notes were converted
during 2020. No change in fair value of short term notes receivable of related
parties was recognized for the six months ended June 30, 2021.
Change in Fair Value of Convertible Promissory Notes
Change in fair value of convertible promissory notes for the six months ended
June 30, 2020 was $0.1 million, which was primarily associated with the change
in fair value of our 2020 convertible notes, or the 2020 Notes. The change in
fair value of the 2020 Notes was primarily attributable to an increase in the
fair value of the underlying common stock in 2020 leading up to the conversion
of the convertible promissory notes into our common shares in November 2020. No
changes in fair value of convertible promissory notes were recognized for the
six months ended June 30, 2021 as the 2020 Notes were converted in November
2020.
Change in Fair Value of Derivative Liability
Change in fair value of derivative liability was $0.04 million for the six
months ended June 30, 2021, which was primarily due to the additional issuance
of convertible promissory notes in January 2021 and the increased probability of
a potential licensing transaction with a third-party pharmaceutical company and
a decrease in the probability of a potential preferred equity financing round.
We did not recognize a change in fair value of derivative liability for the six
months ended June 30, 2020.
Unrealized Loss on Other Investments
Held at Fair Value
In May 2021, we received IntelGenx common stock, warrants and additional unit
warrants for a price of approximately $12.3 million. We determined that the
initial aggregate fair value is equal to the transaction price and recorded the
common shares at $3.0 million, the warrants at $1.2 million and the additional
unit warrants at $8.2 million on a relative fair value basis resulting in no
initial gain or loss recognized in the condensed consolidated statements of
operations. Subsequently, changes in fair value of the common shares, the
warrants and additional unit warrants are recorded as a component of other
income (expense), net in the condensed consolidated statement of operations.
During the six months ended June 30, 2021, we recognized $5.5 million of
unrealized loss on other investments held at fair value.
Unrealized Gain on Other Investments
Unrealized gain on other investments for the six months ended June 30, 2021 was
zero compared to $19.9 million for the six months ended June 30, 2020. The $19.9
million gain in 2020 mainly related to our remeasurement of our investment in
COMPASS' Series A preferred shares to fair value due to the observable price
change in connection with COMPASS' secondary Series A preferred stock purchase
in March 2020.
Loss on Conversion of Convertible Promissory Notes
Loss on conversion of convertible promissory notes for the six months ended June
30, 2021 was $0.5 million. In June 2021, upon the funding of the Otsuka license
and collaborative agreement, the Perception convertible promissory notes were
converted into Perception Series A preferred stock. The loss represents the
difference between (i) carrying value including derivative liability of the
Perception December 2020 Notes of $2.2 million and (ii) the fair value of
Perception Series A preferred stock into which the notes converted of $2.7
million. There was no loss on conversion of convertible promissory notes
recorded in the six months ended June 30, 2020.
Gain on Consolidation of a Variable Interest Entity
Gain on consolidation of a variable interest entity was $3.5 million for the six
months ended June 30, 2021. We purchased additional shares of Neuronasal in May
2021 and recognized a gain of $3.5 million. The gain was calculated as the sum
of the consideration paid of $1.0 million, the fair value of the noncontrolling
interest issued of $3.0 million, the carrying value of our investments in
Neuronasal's common stock and preferred stock prior to May 2021 of $0.8 million,
less the fair value of identifiable net assets acquired of $8.3 million. The
fair value of the IPR&D acquired of $8.3 million was charged to research and
development expense as it had no alternative future use at the time of the
acquisition. There was no gain on consolidation of a variable interest entity
recorded in the six months ended June 30, 2020.
Other Income (Expense), Net
Other expense, net for the six months ended June 30, 2021 was $1.3 million,
compared to $0.1 million for the six months ended June 30, 2020. The increase of
$1.2 million was primarily related to foreign currency expense.
Income Tax
We incurred income tax expense for $64,000 for the six months ended June 30,
2021. The income tax expense relates to book profits and thus taxable profits
generated in one of our United States subsidiaries. Given our early stage
development and lack of prior earnings history, we have a full valuation
allowance primarily related to German and overseas tax loss carryforwards that
we do not consider more likely than not to be realized. We did not incur income
tax expense for the six months ended June 30, 2020.
Losses from Investments in Equity Method Investees
Losses from investment in equity method investees for the six months ended
June 30, 2021 and 2020 were $4.6 million and $11.8 million, respectively. Loss
from investment in equity method investees represents our share of equity method
investee losses on the basis of our equity ownership percentages or based on our
proportionate share of the respective class of securities in our other
investments in the event that the carrying amount of our equity method
investments was zero.

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Liquidity and Capital Resources
Sources of Liquidity
In June 2021, we completed our IPO of 17,250,000 shares of our common stock at a
price to the public of $15.00 per share, including the exercise in full by the
underwriters of their option to purchase 2,250,000 additional shares of our
common stock. We received aggregate net proceeds of $231.6 million, after
underwriting discounts and commissions of $18.1 million and offering costs of
$9.0 million. Since our inception through June 30, 2021, sources of capital
raised to fund our operations were comprised of aggregate gross proceeds of
$630.0 million from sales of our common stock and convertible notes. As of
June 30, 2021, we had cash and cash equivalents of $453.6 million.
Convertible Promissory Notes
In November 2018, we issued an aggregate principal amount of $0.2 million of
convertible notes, or the 2018 Convertible Notes. The 2018 Convertible Notes are
non-interest-bearing
and have a maturity date of September 30, 2025, unless previously redeemed,
converted, purchased or cancelled. In October 2020, we issued an additional
principal amount of $1.0 million of 2018 Convertible Notes. Each note has a face
value of €1 and is convertible into one ordinary share of ATAI Life Sciences AG
upon the payment of €17.00. We expect each of the 2018 Convertible Notes to be
amended to allow for conversion into sixteen ordinary shares of ATAI Life
Sciences N.V. As of June 30, 2021 an aggregate principal amount of $1.2 million
of the 2018 Convertible Notes remained outstanding.
Investments
While a significant potential source of liquidity resides in our investment in
COMPASS ordinary shares, we do not expect that our investment in COMPASS will be
a material source of liquidity in the near term. Based on quoted market prices,
the market value of our ownership in COMPASS was $308.1 million as of June 30,
2021. As of June 30, 2021, the carrying value of our investment in COMPASS was
$19.8 million under the equity method. As a result of additional ordinary shares
issued by COMPASS in May 2021, including additional shares purchased by us for
an aggregate cost of $5.0 million, our ownership interest in COMPASS was reduced
to 19.4%.
Liquidity Risks
As of June 30, 2021, we had cash and cash equivalents of $453.6 million. We
believe that our cash and cash equivalents will be sufficient to fund our
projected operating expenses and capital expenditures through at least the next
12 months.
We expect to incur substantial additional expenditures in the near term to
support our ongoing activities. Additionally, we expect to incur additional
costs as a result of operating as a public company. We expect to continue to
incur net losses for the foreseeable future. Our ability to fund our product
development and clinical operations as well as commercialization of our product
candidates, will depend on the amount and timing of cash received from planned
financings.
Our future capital requirements will depend on many factors, including:

• the time and cost necessary to complete ongoing and planned clinical trials;

• the outcome, timing and cost of meeting regulatory requirements

established by the FDA, the EMA and other comparable foreign regulatory

          authorities;



    •     the progress, timing, scope and costs of our preclinical studies,
          clinical trials and other related activities for our ongoing and planned
          clinical trials, and potential future clinical trials;



    •     the costs of commercialization activities for any of our product
          candidates that receive marketing approval, including the costs and
          timing of establishing product sales, marketing, distribution and

manufacturing capabilities, or entering into strategic collaborations

          with third parties to leverage or access these capabilities;



    •     the amount and timing of sales and other revenues from our product

candidates, if approved, including the sales price and the availability

          of coverage and adequate third party reimbursement;



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• the cash requirements in purchasing additional equity from certain of our

ATAI companies upon the achievement of specified development milestone

          events;


• the cash requirements of developing our programs and our ability and

          willingness to finance their continued development;


• the cash requirements of any future acquisitions or discovery of product

          candidates; and


• the time and cost necessary to respond to technological and market

developments, including other products that may compete with one or more

of our product candidates.



A change in the outcome of any of these or other variables with respect to the
development of any of our product candidates could significantly change the
costs and timing associated with the development of that product candidate.
Further, our operating plans may change in the future, and we may need
additional funds to meet operational needs and capital requirements associated
with such operating plans. If we are unable to obtain this funding when needed
and on acceptable terms, we could be forced to delay, limit or terminate our
product development efforts."
Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our operations through a combination of equity financings,
debt financings, collaborations with other companies or other strategic
transactions. We do not currently have any committed external source of funds.
Debt financing and preferred equity financing, if available, may involve
agreements that include covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt, making acquisitions or
capital expenditures or declaring dividends. If we are unable to raise
additional funds through equity or debt financings or other arrangements when
needed, we may be required to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and
market product candidates that we would otherwise prefer to develop and market
ourselves.
Further, our operating plans may change, and we may need additional funds to
meet operational needs and capital requirements for clinical trials and other
research and development activities. Because of the numerous risks and
uncertainties associated with the development and commercialization of our
product candidates, we are unable to estimate the amounts of increased capital
outlays and operating expenditures associated with our current and anticipated
product development programs.
Cash Flows
The following table summarizes our cash flows for six months ended June 30, 2021
and 2020:

                                                          June 30,
                                                    2021           2020
                                                       (in thousands)
Net cash used in operating activities             $ (14,627 )$  (9,107 )
Net cash used in investing activities               (32,029 )      (19,029 )
Net cash provided by financing activities           404,262         13,011

Effect of foreign exchange rate changes on cash (1,230 ) (204 )


Net increase (decrease) in cash                     356,376      $ (15,329 )Net Cash Used in Operating Activities
Net cash used in operating activities was $14.6 million for the six months ended
June 30, 2021, which consisted of a net loss of $49.3 million, adjusted by
non-cash
charges of $37.7 million and net cash outflows from the change in operating
assets and liabilities of $3.0 million. The
non-cash
charges primarily consisted of $37.7 million of stock-based compensation, $8.9
million of IPR&D considered to have no future alternative use, $5.5 million of
unrealized loss on other investments held at fair value and $4.6 million of
losses from our equity method investments partially offset by $16.9 million of
gain on investment dilution. The net cash outflows from the change in operating
assets and liabilities were primarily due to a $3.8 million decrease in accrued
liabilities and a $1.7 million increase in prepaid expenses offset by a $2.4
million increase in accounts payable and $0.1 million increase in deferred
revenue.

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Net cash used in operating activities was $9.1 million in the six months ended
June 30, 2020, which consisted of a net loss of $1.1 million, adjusted by
non-cash
adjustments of $8.5 million and net cash inflows from the change in operating
assets and liabilities of $0.5 million. The
non-cash
charges primarily consisted of $19.9 million of unrealized gains on other
investments associated with COMPASS, $0.7 million related to the change in the
fair value of short term note receivable with a related party, offset by
$11.8 million of losses from investments in equity method investees,
$0.1 million related to the change in the fair value of convertible promissory
notes, and $0.1 million of in process research and development expense. The net
cash inflows from the change in operating assets and liabilities were primarily
due to a $1.0 million increase in accounts payable and accrued liabilities,
offset by a $0.5 million increase in prepaid expenses.
Net Cash Used in Investing Activities
Net cash used in investing activities was $32.0 million for the six months ended
June 30, 2021, primarily driven by additional investments of $23.4 million in
our other investments, $5.4 million additional investments into equity-method
investees, $0.3 million of purchases of property, plant and equipment, $0.2
million of capitalized internal-use software development costs, $2.6 million of
loans to related parties and $0.2 million of purchase of other assets.
Net cash used in investing activities was $19.0 million in the six months ended
June 30, 2020, primarily driven by additional investments of $17.8 million in
our other investments and $1.2 million of long term notes receivable additional
investments.
Net Cash Provided by Financing Activities
Net cash provided by financing activities was $404.3 million for the six months
ended June 30, 2021, primarily due to $400.3 million of net proceeds from the
issuance of our common stock, $2.4 million of proceeds from our sale of
Innoplexus investments treated as a secured financing, and $1.6 million of
proceeds from the issuance of convertible promissory notes.
Net cash provided by financing activities was $13.0 million in the six months
ended June 30, 2020, primarily due to $13.0 million from the issuance of
convertible promissory notes.
Indebtedness
Convertible Notes
Between November 2018 and June 2021, we issued an aggregate of $34.3 million of
convertible notes.
In November 2018, we issued an aggregate principal amount of $0.2 million of
convertible notes, or the 2018 Convertible Notes. The 2018 Convertible Notes are
non-interest-bearing
and have a maturity date of September 30, 2025, unless previously redeemed,
converted, purchased or cancelled. In October 2020, we issued an additional
principal amount of $1.0 million of 2018 Convertible Notes. Each note has a face
value of €1 and is convertible into one ordinary share of ATAI Life Sciences AG
upon the payment of €17.00. Conversion rights may be exercised by a noteholder
at any time prior to maturity, except during certain periods subsequent to the
consummation of the IPO. As of June 30, 2021 and December 31, 2020, an aggregate
principal amount of $1.2 million of the 2018 Convertible Notes remained
outstanding.
During the year ended December 31, 2020, we issued an aggregate of $30.4 million
of the 2020 Notes. The 2020 Notes accrue interest at a rate of 5% per annum and
have a maturity date of January 31, 2022, unless previously redeemed, converted,
purchased or cancelled. The 2020 Notes are convertible upon mandatory conversion
events into shares of ATAI Life Sciences N.V., subject to certain dilution
adjustments. In November 2020, all of the outstanding principal and accrued
interest under the 2020 Notes was automatically converted into shares of common
stock.

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In March 2020, we received proceeds of $0.6 million from the issuance of
Perception Notes, as defined below, to third party investors. In December 2020,
January 2021, and May 2021 we received $0.4 million, $0.8 million, and $0.8
million respectively, in proceeds from the issuance of additional Perception
Notes. The Perception Notes are convertible upon mandatory conversion events
into shares of Perception. As of June 30, 2021 and December 31, 2020, $0 million
and $1.0 million, respectively, of the Perception Notes remained outstanding.
Promissory Note
In December 2019, we executed a promissory note payable to DemeRx IB whereby we
agreed, under a contribution agreement and a Series A Preferred Stock Purchase
Agreement, or the DemeRx IB SPA, to make aggregate payments to DemeRx IB of up
to $17.0 million upon the achievement of specified clinical and regulatory
milestones. As of June 30, 2021, we had made aggregate payments of $10.0 million
pursuant to the DemeRx IB SPA.
Investment in Convertible Promissory Notes-Related Party
On May 15, 2019, we purchased convertible promissory notes from Kures, or the
Kures Notes, in an aggregate principal amount of $0.1 million that earned
interest at an annual rate of 5% and matured on December 31, 2019. We qualified
for and elected the fair value option. All principal and interest accrued under
the Kures Notes was converted into shares of
Series A-1
preferred stock in connection with Kures' sale of
Series A-1
preferred stock in August 2019.
On September 27, 2019, we purchased convertible promissory notes from COMPASS
for a total principal amount of $4.0 million, and on November 6, 2019, we
purchased an additional convertible promissory note for $4.2 million, together,
the COMPASS Notes. The COMPASS Notes bear interest at an annual rate of 3%,
which was considered contingent in nature and therefore no earned interest was
recorded. We qualified for and elected the fair value option. All principal
amounts under the COMPASS Notes were converted into shares of Series B preferred
stock in connection with COMPASS' sale of Series B preferred stock in April
2020.
On March 16, 2020, Perception Neuroscience entered into a convertible promissory
note agreement with us and certain other unrelated investors, or the Perception
Note Purchase Agreement, pursuant to which Perception Neuroscience issued
$3.9 million in principal amount of convertible notes in aggregate. Under the
Perception Note Purchase Agreement, Perception Neuroscience issued convertible
notes, or the Perception Notes, in the aggregate principal amount of
$3.3 million to us and $0.6 million to other investors, including related
parties. The Perception Notes bear interest at an annual rate of 5% and are due
and payable on June 30, 2022 unless earlier converted. In December 2020,
Perception Neuroscience issued additional convertible notes to us, certain
related parties and third party investors in the aggregate principal amount of
$7.0 million, of which $5.8 million was issued to us and $1.2 million was issued
to other investors, including related parties. In May 2021, Perception
Neuroscience issued additional convertible notes to us, certain related parties
and third party investors in the aggregate principal amount of $5.0 million, of
which $4.2 million was issued to us and $0.8 million was issued to other
investors, including related parties, as part of its second tranche funding. The
notes bear interest at an annual rate of 5% and are due and payable on
February 28, 2022, unless earlier converted. Perception Neuroscience may not
prepay in whole or in part without our consent. In June 2021, the convertible
promissory notes were converted.
In January 2021, pursuant to the Perception Note Purchase Agreement, Perception
issued an aggregate principal amount of $0.8 million to other investors,
including related parties, as part of its first tranche funding.
Contractual Obligations and Commitments
We have entered into other contracts in the normal course of business with
certain CROs, CMOs and other third parties for preclinical research studies and
testing, clinical trials and manufacturing services. These contracts do not
contain any minimum purchase commitments and are cancelable by us upon written
notice. Payments due upon cancellation consist only of payments for services
provided and expenses incurred, including noncancelable obligations of our
service providers, up to the date of cancellation. The amounts and timing of
such payments are not known.

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In addition, under various licensing and related agreements to which we are a
party, we are obligated to pay annual license maintenance fees and may be
required to make milestone payments and to pay royalties and other amounts to
third parties. The payment obligations under these agreements are contingent
upon future events, such as our achievement of specified milestones or
generating product sales, and the amount, timing and likelihood of such payments
are not known. Such contingent payment obligations are described below. For
additional information regarding our license agreements described below, see
Note 17 to our condensed consolidated financial statements included elsewhere in
this Quarterly Report.
Columbia Stock Purchase Agreement
In June 2020, Kures and Columbia entered into a stock purchase agreement, or the
Kures SPA. Pursuant to the Kures SPA, Kures can, from time to time, issue to
Columbia additional shares of Kures' common stock, at a per share price equal to
the then fair market value of each such share, and shall be deemed to have been
paid in partial consideration for the execution, delivery and performance by
Columbia of the Kures License Agreement. If Kures proposes to sell any equity
securities or securities convertible into equity securities, Columbia will have
the right to purchase up to 5% of such securities. These rights shall terminate
upon the occurrence of an IPO, if Kures becomes subject to periodic reporting
requirements under Section 12(g) or 15(d) of the Exchange Act or certain
liquidation events. Columbia also has certain
co-sale
rights. At the acquisition date, we recorded the fair value of the shares of
Kures common stock issued to Columbia of $0.1 million to our
additional-paid-in-capital
and a debit to research and development expense.
GABA Preferred Stock Purchase Agreement
We entered into the Preferred Stock Purchase Agreement, or the GABA PSPA, in
August 2019 with GABA Therapeutics LLC, and purchased shares of Series A
preferred stock of GABA at a price of approximately $5.5 million. In addition,
pursuant to the GABA PSPA, we are obligated to purchase additional shares of
Series A preferred stock, at the same price as the original transaction, for up
to $10.0 million, upon the achievement of specified contingent development
milestones.
In October 2020, we entered into an Omnibus Amendment Agreement, or the GABA
Omnibus Amendment Agreement, with GABA and GABA Therapeutics LLC under which the
Right of First Refusal and
Co-Sale
Agreement was amended. Pursuant to the GABA Omnibus Amendment, GABA Therapeutics
LLC granted us the right to purchase additional shares of common stock of GABA
held by GABA Therapeutics LLC at the call option purchase price of $1.8 million.
In November 2020, we exercised the call option and made a cash contribution of
$1.8 million in exchange for additional shares of common stock of GABA.
In April 2021, pursuant to the GABA PSPA, we purchased additional shares of
Series A preferred stock of GABA for an aggregate cost of $5.0 million based on
the achievement of certain development milestones.
In May 2021, we purchased additional shares of Series A preferred stock prior to
the achievement of certain development milestones for an aggregate cost of
$5.0 million. The GABA PSPA terminates upon the occurrence of certain
liquidation events.
In May 2021, we, GABA and GABA Therapeutics LLC entered into an Amendment
Agreement under which the GABA PSPA was amended. Pursuant to the Amendment
Agreement, we purchased additional shares of GABA Series A preferred stock at a
price of approximately $0.6 million. We are obligated to purchase additional
shares of GABA Series A preferred stock for up to $1.5 million with the same
price per share as our initial investment and additional shares of GABA common
stock for up to $1.0 million upon the achievement of specified contingent
development milestones.
Further in accordance with the GABA PSPA, we have the option but not the
obligation to purchase the aforementioned additional shares of Series A
preferred stock at any time prior to the achievement of any of the specified
milestones. Additionally, we have the Right of First Refusal and
Co-Sale
Agreement with GABA Therapeutics LLC, under which we have the option but not the
obligation to purchase shares of common stock for up to $2.0 million from the
existing common shareholders.

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As of June 30, 2021, we had made aggregate payments of $15.5 million pursuant to
the GABA PSPA, $1.8 million pursuant to the GABA Omnibus Amendment Agreement and
$0.6 million pursuant to the Amendment Agreement.
Neuronasal Preferred Stock Purchase Agreement
Under our Preferred Stock Purchase Agreement, or the Neuronasal PSPA, and the
Secondary Sale and Put Right Agreement, or the Neuronasal Secondary Sale
Agreement, entered with Neuronasal in December 2019, we are obligated to
purchase additional shares of Series A preferred stock from Neuronasal, and
shares of common stock from the existing common shareholders, at the same price
as the original transaction, at a purchase price of approximately $3.8 million,
upon the achievement of specified contingent clinical development milestones.
In October 2020, pursuant to the Neuronasal PSPA, we purchased additional Series
A preferred shares at a price of approximately $0.8 million upon the achievement
of a specified contingent clinical development milestone.
In March 2021, pursuant to the Neuronasal PSPA and the Neuronasal Secondary Sale
Agreement, we purchased additional Series A preferred shares and additional
common shares for an aggregate of approximately $1.1 million based on the
achievement of certain development milestones.
In May 2021, pursuant to the Neuronasal PSPA and the Neuronasal Secondary Sale
Agreement, we exercised our option to purchase additional Series A preferred
shares for an aggregate of approximately $1.0 million.
Under the Neuronasal PSPA, we have the option but not the obligation to purchase
additional shares of Series A preferred stock, at the same price as the original
transaction, at a purchase price of up to approximately $1.0 million upon
achievement of certain contingent clinical development milestones by a specified
date. Additionally, pursuant to the Neuronasal Secondary Sale Agreement, upon
the achievement of certain development milestones, existing common shareholders
have the right to sell and we have the option but not the obligation to purchase
additional shares of common stock at a price determined based on the fair market
value per share. These options are contingent only upon the exercise of the
options of the common shareholders.
Additionally, under the Neuronasal PSPA, we have a right of first offer, which
requires Neuronasal to first offer us new securities it proposes to sell. The
Neuronasal PSPA terminates upon the occurrence of certain liquidation events.
The Neuronasal Secondary Sale Agreement terminates when shares of Neuronasal are
no longer held by us or our affiliates, Neuronasal consummates a sale of its
securities pursuant to a registration statement or the consummation of certain
mergers or consolidations.
As of June 30, 2021, we had made aggregate payments of $3.7 million pursuant to
this agreement.
Kures Preferred Stock Purchase Agreement
We entered into the Preferred Stock Purchase Agreement, or the Kures PSPA, in
August 2019 with Kures, where we purchased shares of
Series A-1
preferred stock of Kures for an aggregate purchase price of $3.5 million. The
Kures PSPA provided us with control of Kures' board of directors, resulting in
us having unilateral rights to control all decisions related to the significant
activities of Kures. In connection with the Kures PSPA, we are required to
purchase up to approximately $5.5 million of
Series A-2
preferred stock upon the achievement of specified clinical milestones. The Kures
PSPA also contains a call option, such that we have the right, but not the
obligation, to purchase up to a certain number of shares of Series B preferred
stock upon the achievement of specified clinical milestones. As of June 30,
2021, we have not exercised our option to purchase any shares of Series B
preferred stock of Kures.
As of June 30, 2021, we had made aggregate payments of $3.5 million pursuant to
the Kures PSPA.
Perception Preferred Stock Purchase Agreement
We formed ATAI US 2, Inc., or ATAI US 2, an entity formed for the sole purpose
of effecting the acquisition and a wholly owned subsidiary of Perception,
entered into a series of transactions to acquire 100% of the equity of
Perception Neuroscience, a
pre-clinical
stage biotech company. In connection with the Perception SPA and the Rollover
Agreement between us, Perception and Perception Neuroscience, Perception
acquired the outstanding

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common shares of Perception Neuroscience, or the Rollover Shares, in exchange
for aggregate consideration which consisted of (i) a $4.0 million cash payment
by Perception at closing ($4.6 million purchase price, less transaction costs of
Perception Neuroscience assumed by Perception of $0.6 million), (ii) contingent
consideration payable to a founder of Perception Neuroscience of $2.4 million
based on the achievement of certain development milestones and royalties on
future revenues and (iii) issuance of Class B common shares of Perception to the
founders of Perception Neuroscience, representing a 100% interest in the common
equity of Perception. In connection with the Perception SPA, we are required to
make milestone payments and
sub-single-digit
royalty payments to a founder of Perception Neuroscience upon the achievement of
certain development milestones and royalties on future revenues. Also, in
connection with the Perception SPA, Perception entered into a call option
agreement with one of the founders of Perception Neuroscience, whereby
Perception was granted an option to repurchase 2,350,000 shares of its Class B
common stock from the founder. Upon the exercise of the call option, the other
founder was entitled to receive a contingent consideration payment.
In connection with the acquisition of Perception Neuroscience by Perception and,
ultimately, ATAI US 2, and pursuant to the Perception Preferred Stock Purchase
Agreement or Perception PSPA, we purchased shares of Perception's Series A
preferred stock for approximately $9.5 million. The Perception PSPA provided us
with control of Perception's board of directors, resulting in us having
unilateral rights to control all decisions related to the significant activities
of Perception. Pursuant to a Secondary Perception Preferred Stock Purchase
Agreement, we sold shares of Series A preferred stock to secondary investors for
approximately $1.6 million in November and December of 2018 under the same terms
and conditions of the original purchase. In addition, under the Perception PSPA,
Perception was granted the option to sell, and we had the obligation to purchase
additional shares of Perception Series A preferred stock at a price equal to
Perception PSPA purchase price upon the exercise of the call option. In April
2019, Perception exercised the call option with the founder resulting in the
redemption and cancellation of Perception Class B common shares. The exercise of
the call option and the related purchase of the noncontrolling interest resulted
in a cash payment of $1.0 million.
As of June 30, 2021, we had made aggregate payments of $4.0 million pursuant to
the Perception SPA and $10.5 million pursuant to the Perception PSPA.
DemeRx NB Options
We entered into a Series A Preferred Stock Purchase Agreement, or the DemeRx NB
PSPA, pursuant to which we purchased shares of Series A Preferred Stock of
DemeRx NB at a purchase price of $1.0 million. In accordance with the DemeRx NB
PSPA, we also have the option but not the obligation to purchase additional
shares of Series A preferred stock at a purchase price of up to $19.0 million.
As of June 30, 2021, we have not exercised our option to purchase any shares of
Series A preferred stock of DemeRx NB. The DemeRx NB PSPA can be terminated with
the written consent of all parties.
As of June 30, 2021, we had made aggregate payments of $1.0 million pursuant to
the DemeRx NB PSPA.
DemeRx IB Preferred Stock Purchase Agreement
In December 2019, we entered into the DemeRx IB SPA, pursuant to which we
purchased shares of Series A Preferred Stock of DemeRx IB in exchange for an
initial payment of $5.0 million in cash and a promissory note issued by us
payable to DemeRx IB. Under the promissory note, we agreed to make aggregate
payments to DemeRx IB of up to $17.0 million upon the achievement of specified
clinical and regulatory milestones. As of June 30, 2021, we had made aggregate
payments of $0 million pursuant to the DemeRx IB SPA.
Further, in connection with the promissory note issued, we pledged and assigned
to DemeRx IB a portion of shares of our Series A preferred stock of DemeRx IB,
or the Pledged Shares, as security under the promissory note. The Pledged Shares
have voting and all other rights until an event of default occurs where we fail
to make a payment when due. In the event of default, a pro rata portion of the
Pledged Shares will automatically be surrendered and be deemed forfeited and
canceled.
Recognify Preferred Stock Purchase Agreement
We entered into the Preferred Stock Purchase Agreement, or the Recognify PSPA,
in November 2020 with Recognify, where we purchased shares of Series A preferred
stock of Recognify at a purchase price of $2.0 million. In addition, pursuant to
the Recognify PSPA, we agreed to make aggregate payments to Recognify of up to

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$18.0 million upon the achievement of specified clinical and regulatory
milestones to complete the purchase of the shares and provide additional funding
to Recognify. In connection with the Recognify PSPA for additional funding,
Recognify issued the corresponding Series A preferred shares to the us provided
that the shares, or the Escrow Shares, were held in an escrow account. The
Escrow Shares will be released, from time to time, to us upon Recognify
achieving certain milestones as defined in the Recognify PSPA with cash payments
to be made by us.
In addition, we have the right, but not the obligation, to make payment for the
certain Escrow Shares at any time, regardless of the achievement of any
milestones. The Escrow Shares have voting and all other rights until an event of
default occurs where we fail to make a payment within 10 days following the
written notice of the achievement of the relevant milestone. In the event of
default, a pro rata portion of the Escrow Shares will automatically be
surrendered and be deemed forfeited and canceled, and could result in us losing
control of Recognify's board of directors and our controlling financial interest
in Recognify.
In May 2021, pursuant to the Recognify PSPA, we purchased additional shares of
Series A preferred stock prior to the achievement of certain development
milestone for an aggregate cost of $0.5 million.
As of June 30, 2021, we had made aggregate payments of $2.5 million pursuant to
the Recognify PSPA.
EntheogeniX License Agreement
In November 2019, EntheogeniX entered into a license agreement with Cyclica
relating to EntheogeniX's drug discovery and development initiatives. Pursuant
to the agreement, EntheogeniX obtained a limited,
non-transferable,
and
non-exclusive
right, solely for the term of the agreement, to access and use Cyclica's hosted
and cloud-based software platforms, solely for the purposes of screening certain
compounds generated by Cyclica pursuant to the license agreement. Upon execution
of the agreement, EntheogeniX paid Cyclica an upfront service fee of
$0.1 million. In addition, EntheogeniX is obligated to make aggregate milestone
payments to Cyclica of up to $0.3 million upon the achievement of specified
development milestones. The term of the license agreement will continue for the
life of EntheogeniX and may only be terminated by either party following a
non-curable
material breach of the shareholders agreement between Cyclica and EntheogeniX.
PsyProtix Purchase Agreement
In February 2021, we jointly formed PsyProtix with Chymia, LLC, or Chymia.
PsyProtix was created for the purpose of exploring and developing a
metabolomics-based precision psychiatry approach, initially targeting the
stratification and treatment of TRD patients. In February 2021, pursuant to a
Series A Preferred Stock Purchase Agreement, or the PsyProtix Purchase
Agreement, we acquired shares of PsyProtix's Series A preferred stock in
exchange for an initial payment of $0.1 million in cash. In addition, pursuant
to the PsyProtix Purchase Agreement, we agreed to make aggregate payments to
PsyProtix of up to $4.9 million upon the achievement of specified clinical
milestones to complete the purchase of the shares and provide additional funding
to PsyProtix.
Psyber Purchase Agreement
In February 2021, pursuant to a Series A Preferred Stock Purchase Agreement, or
the Psyber Purchase Agreement, we acquired shares of Psyber's Series A preferred
stock in exchange for an initial payment of $0.2 million in cash. In addition,
pursuant to the Psyber Purchase Agreement, we agreed to make aggregate payments
to Psyber of up to $1.8 million upon the achievement of specified clinical
milestones to complete the purchase of the shares and provide additional funding
to Psyber.
InnarisBio Preferred Stock Purchase Agreement
In February 2021, we jointly formed InnarisBio with UniQuest Pty Ltd, or
UniQuest, for the purpose of adding a solgel-based
direct-to-brain
intranasal drug delivery technology to our platform. In March 2021, pursuant to
a Series A Preferred Stock Purchase Agreement, or the InnarisBio Purchase
Agreement, we acquired shares of InnarisBio's Series A preferred stock in
exchange for an initial payment of $1.1 million in cash. In addition, pursuant
to the InnarisBio Purchase Agreement, we agreed to make aggregate payments to
InnarisBio of up to $3.9 million upon the achievement of specified clinical
milestones to complete the purchase of the shares and provide additional funding
to InnarisBio.

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For additional information regarding our contingent commitments and future put
rights or options associated with our investments, see Note 5 to our
consolidated financial statements included elsewhere in this Quarterly Report.
Off-Balance
Sheet Arrangements
As of June 30, 2021, we did not have any
off-balance
sheet arrangements, as defined in Item 303(a)(4)(ii) of Regulation
S-K.
While we have investments classified as VIEs, their purpose is not to provide
off-balance
sheet financing.
Recent Accounting Pronouncements
See Note 2, "Summary of Significant Accounting Policies-Recently Adopted
Accounting Pronouncements" to our unaudited condensed consolidated financial
statements appearing under Part 1, Item 1 for more information.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies from
our disclosure reported in "Critical Accounting Policies and Estimates" in the
section titled "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in our Prospectus.
JOBS Act
We are an emerging growth company, as defined in the JOBS Act. We intend to rely
on certain of the exemptions and reduced reporting requirements provided by the
JOBS Act. As an emerging growth company, we are not required to, among other
things, (i) provide an auditor's attestation report on our system of internal
controls over financial reporting pursuant to Section 404(b) of the
Sarbanes-Oxley Act, and (ii) comply with any requirement that may be adopted by
the Public Company Accounting Oversight Board regarding mandatory audit firm
rotation or a supplement to the auditor's report providing additional
information about the audit and the financial statements (auditor discussion and
analysis). We have elected to use the extended transition period for complying
with new or revised accounting standards that have different effective dates for
public and private companies until the earlier of the date that (i) we are no
longer an emerging growth company or (ii) we affirmatively and irrevocably opt
out of the extended transition period provided in the JOBS Act. As a result, our
consolidated financial statements may not be comparable to companies that comply
with the new or revised accounting pronouncements as of public company effective
dates.
As described in Note 2 to our condensed consolidated financial statements
included elsewhere in this Quarterly Report, we have early adopted accounting
standards, as the JOBS Act does not preclude an emerging growth company from
adopting a new or revised accounting standard earlier than the time that such
standard applies to private companies. We expect to use the extended transition
period for any other new or revised accounting standards during the period in
which we remain an emerging growth company.
We will remain an emerging growth company until the earliest to occur of:
(1) the last day of the fiscal year (a) following the fifth anniversary of the
completion of our initial public offering, or December 31, 2026, (b) in which we
have total annual gross revenues of $1.07 billion or more, or (c) in which we
are deemed to be a large accelerated filer under the rules of the SEC, which
means the market value of our outstanding common stock held by
non-affiliates
exceeds $700 million as of last business day of our most recently completed
second fiscal quarter, and (2) the date on which we have issued more than
$1.0 billion in nonconvertible debt during the previous three years.
Further, even after we no longer qualify as an emerging growth company, we may
still qualify as a "smaller reporting company," which would allow us to take
advantage of many of the same exemptions from disclosure requirements, including
reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements. We cannot predict if investors will find our
common shares less attractive because we may rely on these exemptions. If some
investors find our common shares less attractive as a result, there may be a
less active trading market for our common shares and our share price may be more
volatile.

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