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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended June 30, 2014

OR

For the transition period from              to

Commission File No. 001-36517

Minerva Neurosciences, Inc.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (617) 444-8444

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

Explanatory Note: The registrant became subject to the filing requirements of Section 13 of the Securities Exchange Act of 1934 on June 30, 2014.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES   x     NO   o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES   o     NO   x

18,439,482 shares, $0.0001 par value per share, were outstanding as of August 6, 2014.

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INDEX TO FORM 10-Q

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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. These forward-looking statements reflect our plans, estimates and beliefs. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties. Because of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not transpire. These risks and uncertainties include, but are not limited to, the risks included in this Quarterly Report on Form 10-Q under Part II, Item IA, “Risk Factors and beginning on Page 9 under the heading “Risk Factors” of our prospectus dated June 30, 2014, filed pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended (the “Securities Act”), with the Securities and Exchange Commission on July 1, 2014 (the “Prospectus”).

Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our estimates and assumptions only as of the date of this document. You should read this document with the understanding that our actual future results may be materially different from what we expect. Except as required by law, we do not undertake any obligation to publicly update or revise any forward-looking statements contained in this report, whether as a result of new information, future events or otherwise.

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PART I

MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

See accompanying notes to condensed consolidated financial statements

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MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

See accompanying notes to condensed consolidated financial statements

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MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

See accompanying notes to condensed consolidated financial statements

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MINERVA NEUROSCIENCES, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

See accompanying notes to condensed consolidated financial statements

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MINERVA NEUROSCIENCES, INC.

Notes to Condensed Consolidated Financial Statements

For Six Months Ended June 30, 2014

(unaudited)

NOTE 1 — NATURE OF OPERATIONS AND LIQUIDITY

Nature of Operations

Minerva Neurosciences, Inc. (“Minerva” or the “Company”), formerly known as Cyrenaic Pharmaceuticals Inc. (“Cyrenaic”) was incorporated on April 23, 2007. The Company is a development stage biopharmaceutical company focused on the development of an experimental drug for the treatment of schizophrenia (discussed further in Note 6 — License Agreement). The Company has historically operated as a virtual company with no employees and managed by its Board of Directors. On November 12, 2013, Sonkei Pharmaceuticals, Inc. (“Sonkei”), a development stage biopharmaceutical company focused on the development of an experimental drug for the treatment of depression and an affiliated company through certain common ownership, was merged into Cyrenaic with Cyrenaic being the surviving company. Subsequent to the merger, Cyrenaic changed its name to Minerva Neurosciences, Inc.

On February 11, 2014, the Company acquired Mind-NRG (discussed further in Note 3 — Business Combinations).  Mind-NRG is a Swiss development stage biopharmaceutical company focused on the development and commercialization of an experimental drug for the treatment of Parkinson’s disease. The Company acquired 100% of the share capital of Mind-NRG largely to obtain the intellectual property estate which underpins Mind-NRG’s lead product candidate, renamed MIN-301.

On February 12, 2014, subject to the completion of an initial public offering (“IPO”), the Company entered into a co-development and license agreement (discussed further in Note 8 — Co-Development and License Agreement) pursuant to which the licensor granted the Company an exclusive license, in certain territories, under certain patent and patent applications to sell products containing any orexin 2 compound, controlled by the licensor and claimed in a licensor patent right, as an active ingredient, or MIN-202, for any use in humans. The license will become effective simultaneously with the closing of an IPO and an initial upfront license payment of $22.0 million. The Company completed an IPO on July 7, 2014 and paid the $22.0 million license fee in July 2014.

Going Concern

The Company has limited capital resources and has incurred recurring operating losses and negative cash flows from operations since inception. As of June 30, 2014, the Company has an accumulated deficit of approximately $40.1 million. Management expects to continue to incur operating losses and negative cash flows from operations. The Company has financed its business to date from proceeds from the sale of common stock, loans and convertible promissory notes. On July 7, 2014, the Company completed an IPO and received net proceeds of $29.9 million, including the over allotment and the proceeds of the Mind-NRG private investment, and after deducting the underwriter discount of $2.6 million, expenses of $3.1 million, loan repayments of $1.4 million and the $0.7 million ProteoSys license fee payment. The Company will need to raise additional capital in order to continue to fund operations and fully fund its clinical development programs. The Company believes that it will be able to obtain additional working capital through equity financings or other arrangements to fund operations; however, there can be no assurance that such additional financing, if available, can be obtained on terms acceptable to the Company.  If the Company is unable to obtain such additional financing, future operations would need to be scaled back or discontinued.

The accompanying consolidated financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 2 — SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of the Company’s management, the accompanying unaudited financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the financial position as of June 30, 2014 and the results of operations for the three and six months ended June 30, 2014 and 2013 and cash flows for the six months ended June 30, 2014 and 2013. The results of operations for the three and six months ended June 30, 2014, are not necessarily indicative of the results to be expected for the full year. When preparing financial statements in conformity with GAAP, management must make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period.

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Actual results could differ from those estimates. The balance sheet as of December 31, 2013 was derived from the audited financial statements. The accompanying unaudited condensed consolidated financial statements and notes thereto should be read in conjunction with the audited financial statements for the years ended December 31, 2013 and 2012.

From its inception the Company has devoted substantially all of its efforts to business planning, engaging regulatory, manufacturing and other technical consultants, planning and executing clinical trials and raising capital.

Consolidation

The accompanying consolidated financial statements include the results of the Company and its wholly-owned subsidiary, Mind-NRG. Intercompany transactions have been eliminated.

Significant risks and uncertainties

The Company’s operations are subject to a number of factors that can affect its operating results and financial condition. Such factors include, but are not limited to: the results of clinical testing and trial activities of the Company’s products, the Company’s ability to obtain regulatory approval to market its products, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, Company products, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, and the Company’s ability to raise capital.

The Company currently has no commercially approved products and there can be no assurance that the Company’s research and development will be successfully commercialized. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting intellectual property.

Use of estimates

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

The Company utilizes significant estimates and assumptions in determining the fair value of its common stock. The board of directors has determined the estimated fair value of the Company’s common stock based on a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, discounted cash flows and the likelihood of achieving a liquidity event, such as an IPO of common stock or a sale of the Company. The Company utilized various valuation methodologies in accordance with the framework of the 2013 American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its common stock. The methodologies included a probability-weighted expected return methodology that determined an estimated value under an IPO scenario and a sale scenario based upon an assessment of the probability of occurrence of each scenario. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These estimates include assumptions regarding future performance, including the successful completion of preclinical studies and clinical trials and the time to complete an IPO or sale. Significant changes to the key assumptions used in the valuations could result in different fair values of common stock at each valuation date.

Research and development costs

Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain technology in the Company’s research and development projects as well as fees paid to consultants and various entities that perform certain research and testing on behalf of the Company. Costs for certain development activities, such as clinical trials are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided by vendors on their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued expenses.

In-process research and development (“IPR&D”) assets represent capitalized incomplete research projects that the Company acquired through business combinations. Such assets are initially measured at their acquisition date fair values. The fair value of the research projects is recorded as intangible assets on the balance sheet, rather than expensed, regardless of whether these assets have an alternative future use.

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The amounts capitalized are being accounted for as indefinite-lived intangible assets, subject to impairment testing, until completion or abandonment of research and development efforts associated with the project. An IPR&D asset is considered abandoned when it ceases to be used (that is, research and development efforts associated with the asset have ceased, and there are no plans to sell or license the asset or derive defensive value from the asset). At that point, the asset is considered to be disposed of and is written off. Upon successful completion of each project, the Company will make a determination about the then remaining useful life of the intangible asset and begin amortization. The Company tests its indefinite-lived intangibles, IPR&D assets, for impairment annually on November 30 and more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. When testing indefinite-lived intangibles for impairment, the Company may assess qualitative factors for its indefinite-lived intangibles to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the asset is impaired. Alternatively, the Company may bypass this qualitative assessment for some or all of its indefinite-lived intangibles and perform the quantitative impairment test that compares the fair value of the indefinite- lived intangible asset with the asset’s carrying amount.

Stock-based compensation

The Company recognizes compensation cost relating to share-based payment transactions in operating results using a fair-value measurement method, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Series Codification (“ASC”) -718 Compensation-Stock Compensation. ASC-718 requires all share-based payments to employees, including grants of employee stock options, to be recognized in operating results as compensation expense based on fair value over the requisite service period of the awards. The Company will determine the fair value of share-based awards using the Black-Scholes option-pricing model which uses both historical and current market data to estimate fair value. The method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield, expected forfeiture rate and expected life of the options.

Grants to non-employees are accounted for in accordance with ASC-505-50 Equity — Based Payments to Non-Employees. The date of expense recognition is the earlier of the date at which a commitment for performance by the counterparty to earn the equity instrument is reached or the date at which the counterparty’s performance is complete. The Company determines the fair value of share-based awards granted to non-employees similar to the way fair value of awards are determined for employees except that certain assumptions used in the Black-Scholes option-pricing model, such as expected life of the option, may be different and the fair value of each unvested award is adjusted at the end of each period for any change in fair value from the previous valuation until the award vests.

Loss per share

Basic loss per share excludes dilution and is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that shared in the earnings of the entity.

Income taxes

The Company utilizes the liability method of accounting for income taxes as required by ASC Topic 740 Income Taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Uncertain tax positions are evaluated in accordance with this topic and if appropriate, the amount of unrecognized tax benefits are recorded within deferred tax assets. Deferred tax assets are evaluated for realization based on a more-likely-than-not criterion in determining if a valuation allowance should be provided. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

ASC Topic 740 also clarifies the accounting for uncertainty in income taxes recognized in the consolidated financial statements. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. ASC Topic 740 provides guidance on the recognition of interest and penalties related to income taxes. There were no interest or penalties related to income taxes for the three and six months ended June 30, 2014 and 2013. The Company has elected to treat interest and penalties, to the extent they arise, as a component of income taxes. Income tax years beginning in 2010 for federal and state purposes are generally subject to examination by taxing authorities, although net operating losses from all prior years are subject to examinations and adjustments for at least three years following the year in which the tax attributes are utilized.

Deferred public offering costs

Deferred public offering costs include certain legal, accounting and other costs directly attributable to the Company’s public offering of common stock. Upon completion of the initial public offering on July 7, 2014, these amounts will be offset against the proceeds of the offering.

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Business combinations

For business combinations the Company utilizes the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations. These standards require that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based their respective fair values at the date of acquisition. The allocation of the purchase price is dependent upon certain valuations and other studies. Acquisition costs are expensed as incurred. The Company recognizes separately from goodwill the fair value of assets acquired and the liabilities assumed. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the acquisition date fair values of the assets acquired and liabilities assumed. While the Company uses its best estimates and assumptions as a part of the purchase price allocation process to accurately value assets acquired and liabilities assumed at the acquisition date, the Company’s estimates are subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, the Company may retroactively record adjustments to the fair value of the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company’s consolidated statements of operations.

Goodwill

The Company tests its goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing its reporting unit’s carrying value to its implied fair value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. If the Company determines that an impairment has occurred, it is required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill the Company must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact those judgments in the future and require an adjustment to the recorded balances. The Company tested its goodwill for impairment as of November 30. There was no impairment of goodwill for the year ended December 31, 2013. The Company believes there was no impairment for the three and six months ended June 30, 2014.

Convertible promissory notes

The Company’s convertible promissory notes at June 30, 2014 consist of (i) $1.3 million face value convertible promissory notes, plus accrued interest of approximately $67,000 and (ii) €518,519 face value convertible promissory notes, plus accrued interest of approximately $35,000. The Euro denominated notes were acquired in conjunction with the merger with Sonkei (discussed further in Note 3 — Business Combinations), and recorded at their fair value of approximately $0.7 million on the date of the merger. At June 30, 2014, the fair market value and carrying of the convertible promissory notes is approximately $2.0 million.

Discount Purchase Option

The Company’s 8% convertible promissory notes contain an embedded derivative related to the conversion option containing a discount purchase feature in a qualified financing, as defined. The derivative is carried at fair value and is classified as Level 3 in the fair value hierarchy due to the use of significant unobservable inputs. As of December 31, 2013, the fair value of the derivative liability was determined to be $10,093 using a probability-weighted valuation model applying the following assumptions: (i) discount rate of 8.0%, (ii) remaining term of approximately 6 months and (iii) the probabilities of conversion under various circumstances as at the date of measurement.

As of March 31, 2014, the fair value of the derivative liability was determined to be $4,900 using a probability-weighted valuation model applying the following assumptions: (i) discount rate of 8.0%, (ii) remaining term of approximately 3 months and (iii) the probabilities of conversion under various circumstances as at the date of measurement. The $5,193 decrease in the fair value of the derivative liability was recognized in interest expense as a gain on change in fair value of derivative liability for the three months ended March 31, 2014.

As of June 30, 2014, the fair value of the derivative liability was determined to be $0. The $4,900 decrease in the fair value of the derivative liability was recognized in interest expense as a gain on change in fair value of derivative liability for the three months ended June 30, 2014.

$3.50/€3.50 Conversion Option

The Company’s 8% convertible promissory notes contain an embedded derivative related to the beneficial conversion feature of the notes. The initial fair value of the derivative liability at the date of issuance in November 2013 was determined by measuring the difference between the conversion price and the fair value of common stock at the commitment date. The Company recorded a debt discount for the fair value of the derivative, which was limited to the proceeds received of approximately $2.0 million, with an offsetting increase to additional paid-in capital. The beneficial conversion charge has been included in the balance sheets at June 30, 2014 and December 31, 2013 as a discount to the related convertible promissory notes. The discount was accreted as non-cash interest expense over the expected term of the debt (June 30, 2014) using the effective interest method, which totaled approximately $1.7 million and $2.0 million for the three and six months ended June 30, 2014, respectively.

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Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by FASB and are adopted by the Company as of the specified effective date. The Company believes that the impact of other recently issued but not yet adopted accounting pronouncements will not have a material impact on the financial position, results of operations, and cash flows, or do not apply to the Company’s operations.

In June 2014, the FASB issued Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915) which eliminates the definition of a development stage entity and removes the financial reporting distinction between development stage entities and other reporting entities under GAAP.  The Company early adopted this standard and thus has eliminated its historical inception to date information in the financial statements.

NOTE 3 — BUSINESS COMBINATIONS

Mind-NRG

On February 11, 2014, the Company acquired Mind-NRG, a Swiss development stage biopharmaceutical company focused on the development and commercialization of an experimental drug for the treatment of Parkinson’s disease. This transaction was accounted for as a business combination by the Company. The purchase price consists of 1,481,583 shares of the Company’s common stock (which includes 148,160 shares held in escrow until the expiration of the holdback period, February 11, 2015) with an estimated fair value of $11.17 per share, or approximately $16.5 million. The Company acquired 100% of the share capital of Mind-NRG largely to obtain the intellectual property estate which underpins Mind-NRG’s lead product candidate, recently renamed MIN-301.

The fair value of the Company’s common stock issued was determined based on a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, discounted cash flows and the likelihood of achieving a liquidity event, such as an IPO or a sale of the Company. The purchase price allocation was based upon an analysis of the fair value of the assets and liabilities acquired from Mind-NRG. The final purchase price may be adjusted up to one year from the date of the merger. Identifying the fair value of the tangible and intangible assets and liabilities acquired required the use of estimates by management, and were based upon currently available data, as noted below.

·                  The fair value of current assets and liabilities approximated their book value.

·                  The Company measured the value of the acquired IPR&D using the income approach — multi period excess earnings method and assembled workforce using the cost approach (for contributory asset charge calculations). The multi-period excess earning method measures the present value of the future earnings expected to be generated during the remaining lives of the subject assets.

·                  The Company recorded a deferred tax liability for the difference in the book and tax basis of the IPR&D, multiplied by the effective income tax rate.

The purchase price allocation below is based on February 11, 2014 financial information and may be adjusted upon the completion of the final valuation. The final valuation is expected to be completed as soon as practicable but no later than one year from the consummation of the acquisition. The establishment of the fair value of the consideration for an acquisition, and the allocation to identifiable tangible and intangible assets and liabilities requires the extensive use of accounting estimates and management judgment. The fair values assigned to the assets acquired and liabilities assumed are from estimates and assumptions based on data currently available.

The Company allocated the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. The goodwill recorded recognizes the value of the overall development program, both the current pre-clinical development program in process and the future clinical trial development strategy. Such goodwill is not deductible for tax purposes. The aggregate consideration of $16.5 million has been allocated to assets acquired and liabilities assumed based on estimated fair values at the February 11, 2014 as follows:

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IPR&D, an indefinite-lived asset, will be included as an asset on the Company’s balance sheet until such time that: (i) a marketing approval to commercially sell the drug is received from a regulatory agency, in which case it will be amortized over its expected commercial life, or (ii) such time as the IPR&D is deemed to be impaired, in which case it will be expensed. The transaction is being treated as a stock purchase for income tax purposes and accordingly, the tax bases of Mind-NRG’s assets and liabilities are not adjusted for the effect of purchase accounting. A deferred tax liability of $6.1 million has been recorded for the difference in the book and tax basis of the IPR&D, multiplied by the effective income tax.

Sonkei

On November 12, 2013, Cyrenaic was merged with Sonkei, with Cyrenaic being the survivor company. Each share of Sonkei common stock was converted into 0.383 shares of Cyrenaic common stock, resulting in the issuance of 2,423,368 shares. There were certain common stockholders between Sonkei and Cyrenaic however, since the underlying investors in the venture funds were not “substantially similar”, the merger was accounted for a business combination with Cyrenaic being treated as the acquirer. The results of Sonkei are included in the accompanying consolidated financial statements commencing November 12, 2013. The Company merged with Sonkei in order to acquire Sonkei’s lead product candidate, MIN-117.

At the date of the merger, a Sonkei non-employee held 1,112,500 shares of Sonkei common stock with a nonrecourse note due to Sonkei, which was being treated as a stock option for accounting purposes. In connection with the merger, the Company issued 426,176 shares to the holder with a nonrecourse note (discussed further in Note 9 — Stockholders’ Equity) in order to replace the holder’s stock options in Sonkei. Due to the nonrecourse note, these shares of the Company were treated as stock options for accounting purposes and the holder of the option can only vest in the stock options if the holder continues to provide services to the Company through the time of a change in control, as defined. In summary, the Company issued replacement stock options of the Company for the old Sonkei stock options. As a change in control was not deemed probable as of the merger date, the options have not been included as part of the consideration transferred in the merger accounting. Accordingly, the Company will recognize all of the compensation expense for these stock options in the consolidated statement of operations once achievement of the performance condition becomes probable (see Note 9 — Stockholders’ Equity). The merger accounting purchase price was therefore determined based upon the common stock shares issued of 1,997,192 at a valuation of $9.49 per common share for a total purchase price of approximately $18.9 million.

The fair value of the Company’s common stock issued was determined based on a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, discounted cash flows and the likelihood of achieving a liquidity event, such as an IPO or a sale of the Company. The purchase price allocation was based upon an analysis of the fair value of the assets and liabilities acquired from Sonkei. Identifying the fair value of the tangible and intangible assets and liabilities acquired required the use of estimates by management, and were based upon currently available data, as noted below.

·                  The fair value of current assets and liabilities approximated their book value.

·                  The fair value of the convertible promissory notes was determined based upon a number of factors including (i) interest rate, (ii) creditworthiness of the Company, (iii) the applicable foreign exchange rate and (iv) the conversion features (described in Note 7 — Debt). The face amount of the note acquired is €518,519 (approximately $0.7 million at November 12, 2013).

·                  The Company measured the value of the acquired IPR&D using the income approach — multi period excess earnings method and assembled workforce using the cost approach (for contributory asset charge calculations). The multi-period excess earning method measures the present value of the future earnings expected to be generated during the remaining lives of the subject assets.

·                  The Company recorded a deferred tax liability for the difference in the book and tax basis of the IPR&D, multiplied by the effective income tax rate.

The Company allocated the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. The goodwill recorded recognizes the synergies and value of the overall combined development programs, both the current pre-clinical development program in process and the future clinical trial development strategy. Such goodwill is not deductible for tax purposes. The aggregate consideration of $18.9 million has been allocated to assets acquired and liabilities assumed based on estimated fair values at the date of merger November 12, 2013 as follows:

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The above cash was obtained by Sonkei in a November 6, 2013 financing and thus has been classified as a financing activity in the consolidated statements of cash flows. The IPR&D, an indefinite-lived asset, will be included as an asset on the Company’s consolidated balance sheet until such time that: (i) a marketing approval to commercially sell the drug is received from a regulatory agency, in which case it will be amortized over its expected commercial life, or (ii) such time as the IPR&D is deemed to be impaired, in which case it will be expensed. The transaction is being treated as a stock purchase for income tax purposes and accordingly, the tax bases of Sonkei’s assets and liabilities are not adjusted for the effect of purchase accounting. A deferred tax liability of $7.6 million has been recorded for the difference in the book and tax basis of the IPR&D, multiplied by the effective income tax. The acquired net operating losses of Sonkei of approximately $5.3 million had a full valuation allowance, however, will be not limited under Internal Revenue Code Section 382 as the amount that could be utilized after limitation exceeds the amount of the net operating loss carryforward.

Pro Forma Results

The unaudited financial information in the table below summarizes the combined results of operations for the Company, Sonkei and Mind-NRG on a pro forma basis as though the companies had been combined as of January 1, 2013. The unaudited pro forma financial information for the three and six months ended June 30, 2014 and 2013 combines the Company’s historical results for these years with the historical results for the comparable reporting periods for Sonkei and Mind-NRG. The unaudited pro forma financial information below is for informational purposes only and is not indicative of the results of operations or financial condition that would have been achieved if the merger would have taken place at the beginning of each of the periods presented and should not be taken as indicative of the Company’s future results of operations or financial condition.

NOTE 4 — ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following:

(1)                                 Included in accrued professional fees at June 30, 2014 and December 31, 2013 are $0.2 million and $0.4 million, respectively, incurred in connection with the preparation of a public offering of the Company’s common stock.

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(2)                                 Under the terms of certain employment agreements, the Company is obligated to pay $0.5 million in bonuses upon the completion of an IPO. The Company’s registration statement was declared effective on June 30, 2014 and thus, the bonuses became probable. The portion accrued as of June 30, 2014 represents the amortization of the bonus expense from the date of the employment agreements through June 30, 2014.

(3)                                 Under the terms of the acquisition agreement for Mind-NRG, the Company is obligated to make a €0.5 million (or $0.7 million, as converted) milestone payment to ProteoSys by the earlier of January 1, 2015, or upon completion of an IPO, or equity financing of at least $5.0 million.

(4)                                 Under the terms of a research agreement with Primomed, the Company received grant funds that will be used to offset certain costs under the MIN-301 development program.

NOTE 5 — NET LOSS PER SHARE OF COMMON STOCK

Diluted loss per share is the same as basic loss per share for all periods presented as the effects of potentially dilutive items were anti-dilutive given the Company’s net loss. Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding. The following table sets forth the computation of basic and diluted loss per share for common stockholders:

The following securities outstanding at June 30, 2014 and 2013 have been excluded from the calculation of weighted average shares outstanding as their effect on the calculation of loss per share is antidilutive:

The above table does not include the potentially dilutive securities that would be issuable under the convertible promissory notes outstanding as described in Note 7 — Debt.

NOTE 6 — LICENSE AGREEMENT

In January 2014, the Company renegotiated the structure of the license for MIN-101 such that the Company is required to make milestone payments upon the achievement of one development milestone totaling $0.5 million and certain commercial milestones, which could total up to $47.5 million. In addition, in the event that the Company sells the rights to the license, the licensor will be entitled to a percentage of milestone payments in the low teens and a percentage of royalties received by the Company in the low double digits. Under the terms of the amended agreement, the Company is required to meet a certain diligence obligation to commence a clinical pharmacology study of the licensed compound by the end of April 2015. The Company may extend this deadline for a further year by making an extension payment of $0.5 million. The number of extension payments which may be made is unlimited. In addition, if the Company fails to achieve this development milestone by end of April 2015 or make an extension payment, the licensor may elect to terminate the agreement.

In January 2014, the Company renegotiated the structure of the license for MIN-117 such that the Company is required to make certain milestone payments upon the achievement of certain commercial milestones up to $47.5 million. In addition, in the event that the Company sells the rights to the license, the licensor will be entitled to a percentage of milestone payments in the low teens and a percentage of royalties received by the Company in the low double digits. Under the terms of the amended agreement, the Company is required to meet a certain diligence obligation to initiate either a Phase II(a) or Phase II(b) study with the licensed compound in patients suffering major mood disorders where initiation is defined as first patient enrolled in the study by the end of April 2015. If the Company fails to achieve this milestone, the Company may elect to extend the timeline to achieve the milestone by one year increments by making an extension payment of $0.5 million. The number of extension payments which may be made is unlimited. In addition, if the Company fails to achieve this development milestone by end April 2015 or make an extension payment, the licensor may elect to terminate the agreement.

The Company did not make any license payments under the agreements for the six months ended June 30, 2014 and 2013.

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NOTE 7 — DEBT

Loans Payable

In conjunction with the Mind-NRG acquisition on February 11, 2014 (discussed further in Note 3 — Business Combinations), working capital loans were executed between Mind-NRG and several stockholders or affiliates of stockholders for a maximum drawdown of $0.6 million. The loans bear interest at 8% and are repayable at the time the Company completes an IPO or December 1, 2015. The loans may be repaid at any time and contains standard terms of default, under which the interest rate would increase to 11%.

In April 2014, Mind-NRG repaid the working capital loans plus accrued interest, and certain stockholders and their affiliates subsequently executed new working capital loan agreements, with substantially identical terms, directly with the Company (the April Bridge Loan). The Company drew down the maximum $0.6 million available under the agreement in May 2014.

In May 2014, the Company entered into a new loan agreement (the May Bridge Loan) with certain stockholders and their affiliates. The Third Loan Agreement provides loan facilities to the Company up to a maximum of $1.0 million. The Third Loan Agreement bears interest at 8% per annum and is repayable at the time the Company completes an IPO or on December 1, 2015. The Third Loan Agreement contains standard terms of default, under which the interest rate would increase to 11% per annum. The Third Loan Agreement provides that any amount outstanding may be repaid at any time without penalty.

At June 30, 2014, the balance outstanding under the April and May Bridge Loan agreements was approximately $1.4 million, which has been included under loans payable.  Interest expense related to these loans for the three and six months ended June 30, 2014 was $11 thousand.

Convertible Promissory Notes

On November 6, 2013, the Company issued $1.3 million 8% convertible promissory notes due June 30, 2014 to certain stockholders that are payable on demand at maturity. The notes contain certain terms of default, under which conditions the interest rate increases to 11% per annum.

In conjunction with the merger of Sonkei on November 12, 2013, the Company assumed convertible promissory notes held by certain stockholders with a principal amount of €518,519 ($0.7 million as of June 30, 2014). These notes have a stated interest rate of 8% per annum, mature on June 30, 2014, and are payable on demand on such date. The notes contains certain terms of default, under which conditions the interest rate increases to 11% per annum.

The notes issued by the Company on November 6, 2013 and the notes issued by Sonkei on November 6, 2013 and subsequently acquired by the Company on November 12, 2013 (collectively, the “Notes”) contain identical terms and may be converted into common shares of the Company under the following conditions;

i)                                         Discount Purchase Option. If the Company sells shares of its capital stock in the qualified financing, as defined, and the convertible promissory notes have not been paid in full, then the outstanding principal balance of these convertible promissory notes and accrued interest thereon shall convert into the common stock sold at the first closing of the qualified financing at a conversion price equal to the price per share paid by the Investors for each share of common stock multiplied by 80%. A qualified financing shall mean the first sale of the qualified stock, in one transaction or series of related transactions with aggregate gross proceeds to the Company of at least $5.0 million, which sale or sales shall take place on or before the maturity date; provided, however, that an IPO shall not be deemed a qualified financing. A qualified financing is defined as a transaction (or a series of transactions) with gross proceeds to the Company of at least $5.0 million, which takes place on or before June 30, 2014.

ii)                                      Initial Public Offering. If the Company conducts an IPO of its common shares before June 30, 2014, then the convertible promissory notes plus accrued interest will convert at the price per share issued in the IPO. Under the terms of the Notes, an IPO is not considered a qualified financing.

iii)                                   $3.50/€3.50 Conversion Option. Subsequent to April 30, 2014, investors may elect to convert the Notes, and accrued interest into common stock of the Company at a conversion price of $3.50 per common share.

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Discount Purchase Option

The Notes contain an embedded derivative related to the discount purchase feature. The initial fair value of the derivative liability at the date of initial recognition was determined to be $9,976 using a probability-weighted valuation model applying the following assumptions: (i) discount rate of 8.0%, (ii) remaining term of approximately 7 months and (iii) the probabilities of conversion under various circumstances as at the date of measurement. The proceeds allocated to this conversion option of $9,976 were deducted from the initial fair value of the debt obligation. As of December 31, 2013, the fair value of the derivative liability was determined to be $10,093 using a probability-weighted valuation model applying the following assumptions: (i) discount rate of 8.0%, (ii) remaining term of approximately 6 months and (iii) the probabilities of conversion under various circumstances as at the date of measurement.

As of March 31, 2014, the fair value of the derivative liability was determined to be $4,900 using a probability-weighted valuation model applying the following assumptions: (i) discount rate of 8.0%, (ii) remaining term of approximately 3 months and (iii) the probabilities of conversion under various circumstances as at the date of measurement. The $5,193 decrease in the fair value of the derivative liability was included as a component of interest expense for the three months ended March 31, 2014.

As of June 30, 2014, the fair value of the derivative liability was determined to be $0. The $4,900 decrease in the fair value of the derivative liability was included as a component of interest for the three months ended June 30, 2014.

$3.50/€3.50 Conversion Option

The Notes contain a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was calculated by measuring the difference between the effective conversion price and the fair value of the common stock at initial recognition. The Company recorded a debt discount for the intrinsic value of the beneficial conversion feature which was limited to the proceeds of the Notes received of approximately $2.0 million, with an offsetting increase to additional paid-in capital. The discount was amortized to interest expense using the effective interest method through the Notes’ maturity date of June 30, 2014.

On April 25, 2014, the Company amended the convertible promissory notes such that the option to convert the outstanding principal and interest into common shares at a conversion price of $3.50 per share on or after April 30, 2014 was extended to September 30, 2014. Also, in the event that the Company files a registration statement for an IPO with the Securities and Exchange Commission and it becomes effective by September 30, 2014, the $3.50/€3.50 conversion option will be cancelled.

As of June 30, 2014 and December 31, 2013, the convertible promissory notes and debt discount are as follows:

For the three months ended June 30, 2014, the Company recognized interest expense of $1.7 million related to the Notes, comprised primarily of the amortization of the debt discount and $40 thousand in coupon interest. For the six months ended June 30, 2014, the Company recognized interest expense of approximately $2.0 million related to the Notes, which includes $1.9 million for the amortization of the debt discount and $79 thousand in coupon interest.

NOTE 8 — CO-DEVELOPMENT AND LICENSE AGREEMENT

Upon completion of the Company’s IPO and payment of a $22.0 million license fee in July 2014, the Company closed on a co-development and license agreement dated February 12, 2014, pursuant to which, among other things, the licensor granted the Company an exclusive license, with the right to sublicense, in the European Union, Switzerland, Liechtenstein, Iceland and Norway, referred to as the Minerva Territory, under certain patent and patent applications to sell products containing any orexin 2 compound, controlled by the licensor and claimed in a licensor patent right, as an active ingredient, or MIN-202, for any use in humans. In addition, upon regulatory approval in the Minerva Territory (and earlier if certain default events occur), the Company will have rights to manufacture MIN-202. The Company has granted to the licensor an exclusive license, with the right to sublicense, under all patent rights and know-how controlled by the Company related to MIN-202 to sell MIN-202 outside the Minerva Territory.

In consideration of the licenses granted, the Company made an initial upfront payment of $22.0 million in July 2014 which will be expensed in the third quarter of 2014 and will pay a quarterly royalty in the high single digits on the aggregate net sales for MIN-202 products sold by the Company, its affiliates and sublicensees in the European Union. The licensor will pay a quarterly royalty in the high single digits on the aggregate net sales for MIN-202 products sold by the licensor outside the European Union.

The Company will pay 40% of MIN-202 development costs related to the joint development of any MIN-202 products. However, the Company’s share of aggregate development costs shall not exceed (i) $5.0 million for the period beginning from the effective date of the license and ending following the completion of certain Phase Ib clinical trials and animal toxicology studies, and (ii) $24.0 million for the period beginning from the effective date of the license and ending following the completion of certain Phase II clinical trials.

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The licensor has a right to opt out at the end of certain development milestones, with the first milestone being the completion of a single day Phase I clinical trial in patients with Major Depressive Disorder (“MDD”). Upon opt out, the licensor will not have to fund further development of MIN-202 and the Minerva Territory will be expanded to also include all of North America. The Company would then owe the licensor a reduced royalty in the mid-single digits for all sales in the Minerva Territory. The Company has the right to terminate the license following certain development milestones the first being completion of a certain Phase Ib clinical trial in patients with insomnia and certain toxicology studies in animals. If the Company terminates the license within 45 days of this milestone, the Company must pay a termination fee equal to $3.0 million. If the Company terminates the license at any time following the last development milestone involving a certain Phase IIb clinical trial, the Company will be entitled to a royalty in the mid-single digits from sales of MIN-202 by the licensor. The licensor may also terminate the agreement for the Company’s material breach or certain insolvency events, including if the Company is unable to fund its portion of the development costs.

The Company entered into a common stock purchase agreement with an affiliate of the above mentioned licensor, dated as of February 12, 2014, pursuant to which, among other things, the affiliate agreed to purchase from the Company up to $26.0 million of common stock in a private placement concurrent with the closing of the IPO at a price equal to the IPO price. This investment was consummated simultaneously with the closing of an IPO in July 2014 with the purchase by the affiliate of 3,284,353 shares of common stock resulting in net proceeds to the Company of $19.7 million.

NOTE 9 — STOCKHOLDERS’ EQUITY

Reverse Stock Split

The board of directors and holders of the requisite number of outstanding shares of our common stock have approved an amendment to our restated certificate of incorporation to effect a 3.5-to-1 reverse stock split of our outstanding common stock (the “reverse stock split”). The reverse stock split became effective on June 9, 2014 upon the filing of our Certificate of Amendment of the Restated Certificate of Incorporation with the Delaware Secretary of State. The reverse stock split did not result in an adjustment to par value. All issued and outstanding common stock, warrants for common stock, options to purchase common stock, share transactions, and related per share amounts contained in the financial statements have been retroactively adjusted to reflect this reverse stock split for all periods presented. On June 9, 2014, the Company amended its Amended and Restated Certificate of Incorporation to increase the total number of authorized shares to 225,000,000 shares, consisting of 125,000,000 shares of common stock, par value $0.0001 per share and 100,000,000 shares of preferred stock, par value $0.0001 per share.

Common Stock Issued for Nonrecourse Notes

On April 26, 2012, the Company issued 821,429 shares of its common stock in exchange for a nonrecourse note of $3,058,026 (or approximately $3.71 per share, the “Original Price”). The note payable was due in a single installment on February 28, 2014, and was amended to extend the maturity date to June 30, 2014. The note bears interest at the rate of 0.19% per annum and is secured solely by the underlying stock. The stock purchase agreement contains i) a right of first refusal held by the Company, whereby if a third party buyer offers to buy the holder’s stock at a certain price, then the Company has the right to purchase the stock at that same price; and ii) a standard drag-along in case of a sale of the Company. In lieu of payment, the holder is entitled to offset amounts owed under the nonrecourse note in connection with the Company repurchasing common stock from the holder. The Company has the option (a call option) to repurchase the shares if the holder ceases to provide services to the Company or after June 30, 2014, at the Original Price. The holder has the option (a put option) to require the Company to repurchase the shares at any time at the Original Price.

In accordance with ASC 718-10-25, the purchase of stock in exchange for a nonrecourse note effectively is the same as granting a stock option. If the value of the underlying shares falls below the note amount, the stockholder will relinquish the stock in lieu of repaying the note and would be in the same position as if he or she never purchased the stock. Further, as the shares sold subject to the nonrecourse note are considered an option for accounting purposes, the Company did not record a nonrecourse note or shares outstanding on the balance sheet. The Company also did not recognize interest income on the note as that interest is included in the exercise price of the option. The ultimate holder of the option can only benefit from the instrument if he continues to provide services to the Company through the time of a change in control, as defined. As a change in control is not deemed probable, stock-based compensation expense was not recorded for the year ended December 31, 2013 or the six months ended June 30, 2014.

In December 2013, the Company issued 27,925 shares of common stock to the holder, subject to a $97,737 nonrecourse note payable by the holder. The accounting for the additional share issuance is consistent with the 821,429 shares discussed above.

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Sonkei had a similar arrangement with the consultant, whereby Sonkei issued 1,112,500 shares of its common stock in exchange for a nonrecourse note of €1,119,017 (approximately $1.5 million at December 31, 2013). The note payable is due in a single installment on April 30, 2015. The note bears interest at the rate of 0.19% per annum and is secured solely by the underlying stock. As the shares sold subject to the nonrecourse note are considered an option for accounting purposes, the Company did not record a note or shares outstanding on the balance sheet. The Company also did not recognize interest income on the note as that interest is included in the exercise price of the option.

The ultimate holder of the option can only benefit from the instrument if he continues to provide services to the Company through the time of a change in control, as defined. As a change in control is not deemed probable, stock-based compensation expense will not be recorded until a change in control occurs at the then fair value of the option. The Company assumed this agreement upon the merger with Sonkei, and the Sonkei shares were converted into the Company’s common shares in accordance with the terms of the merger agreement (see Note 3 — Business Combinations).

On March 31, 2014, the issuer of the $4.7 million nonrecourse notes, which includes accrued interest, remitted to the Company 348,926 shares of common stock with a fair value of $13.51 per share in full settlement of the outstanding note due in a cashless transaction. Additionally, the Company further modified the awards by cancelling the put option and adding a term whereby upon an IPO the award will vest. The remittance of the shares in exchange for settling the outstanding note, the cancellation of the put option, and the addition of the IPO performance condition, represents a modification of the original terms of the stock options. The effect of these changes is that the Company has modified the awards and has converted approximately 1.3 million stock options with an exercise price of $4.7 million to 926,604 shares of non-vested stock (with no exercise price). The non-vested stock is still subject to the above mentioned vesting conditions of a change in control and IPO, which are not deemed probable until they occur. As described in the preceding sentence, the effect of the modification was to replace stock options that were improbable of vesting with non-vested stock that is improbable of vesting and accordingly, the Company will recognize stock-based compensation expense for the non-vested stock at the time that the vesting conditions are deemed probable of occurrence.  The following is a summary of common shares issued in exchange for nonrecourse notes for the years December 31, 2012 and 2013 and the six months ended June 30, 2014:

The 926,604 shares of non-vested common stock held by the consultant became probable of vesting upon the effectiveness of the Company’s IPO registration statement on June 30, 2014, resulting in a charge for stock-based compensation of approximately $10.5 million, representing the 926,604 shares multiplied by the fair value per share on May 1, 2014, the date the consultant became an employee, less previous compensation expense recorded.

NOTE 10 — STOCK OPTION PLAN

The Company adopted the 2013 Equity Incentive Plan (the Plan) in December 2013, which provides for the issuance of options, stock appreciation rights, stock awards and stock units. On April 30, 2014, the Company increased the shares reserved for issuance under the 2013 Equity Incentive Plan to 3,543,754.  The exercise price per share shall not be less than the fair value of the Company’s underlying common stock on the grant date and no option may have a term in excess of ten years. Stock option activity under the Plan is as follows:

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The fair value of each stock option to purchase common stock of the Company granted on December 20, 2013 was estimated by management using the Black-Scholes option pricing model applying the following assumptions: (i) expected term of 5.8 to 10 years, (ii) risk free interest rate of 1.9 to 2.9%, (iii) volatility of 102 to 107%, (iv) no dividend yield and (v) a grant date fair value of common stock of $9.49 per share. The Company recognized stock-based compensation expense for the three and six months ended June 30, 2014 related to these options of $0.3 million and $0.6 million, respectively, which is included in general and administrative expense.

The table above includes stock options granted on December 20, 2013 to purchase 20,089 of the Company’s common stock which became fully vested and exercisable upon June 30, 2014, the effective date of the Company’s IPO registration statement.  The Company recognized stock-based compensation expense for the six months ended June 30, 2014 related to these options of $0.1 million, which is included in general and administrative expense.

The Company entered into two employment agreements effective May 1, 2014. The aggregate salaries are $655,000 plus an annual bonus target of 50% of their annual salaries and a one-time bonus to one of the employees of $175,000 to be paid within seven days following the closing of an IPO. The employment agreements can be terminated with six-months’ notice and contain severance provisions. In addition, the employment agreements provide for the grant of (1) an aggregate of 539,116 fully vested stock options to purchase common shares of the Company at an exercise price equal to the common stock price issued to the public in connection with an IPO and (2) stock options to purchase an aggregate number of common shares such that, upon the closing of an IPO, the holders will have options equal to 2.2% of the number of fully diluted shares of the Company, which vest over four years.  In addition, under the employment agreement with the CEO, the Company is obligated to grant stock options to purchase an aggregate number of common shares such that, upon the pricing of an IPO, the CEO will have options equal to 5% of the number of fully diluted shares of the Company, which vest over 4 years.

In accordance with these employment agreements, 539,116 stock options were granted upon the effective date of the Company’s IPO registration statement, and were 100% vested on the grant date.  The Company recognized stock-based compensation expense related to these options of approximately $2.8 million for the three and six months ended June 30, 2014.  The fair value of each stock option to purchase common stock of the Company granted on June 30, 2014 was estimated by management using the Black Scholes option pricing model applying the following assumptions: (i) expected term of 6.25 years, (ii) risk free interest rate of 1.94%, (iii) volatility of 113%, (iv) no dividend yield and (v) a grant date fair value of common stock of $6.00 per share.

Also in accordance with the above three employment agreements, an additional 955,932 stock options were granted upon the effective date of the Company's registration statement, which vest over a four-year period beginning from November 12, 2013, the date of the Sonkei Merger.  The Company recognized stock-based compensation expense related to these options of approximately $0.8 million for the three and six months ended June 30, 2014.  The fair value of each stock option to purchase common stock of the Company granted on June 30, 2014 was estimated by management using the Black Scholes option pricing model applying the following assumptions: (i) expected term of 6.25 years, (ii) risk free interest rate of 1.94%, (iii) volatility of 113%, (iv) no dividend yield and (v) a grant date fair value of common stock of $6.00 per share.

The weighted average fair value of stock options granted in June 2014 was $5.11 per share. Total unrecognized compensation costs related to non-vested awards at June 30, 2014 was approximately $8.0 million and is expected to be recognized within future operating results over a period of 3.3 years. At June 30, 2014, the weighted average contractual term of the options outstanding is approximately 9.9 years. The intrinsic value of outstanding stock options at June 30, 2014 was zero.

NOTE 11 — INCOME TAXES

There was no provision for income taxes for the three and six month periods ended June 30, 2014 and 2013 due to losses.

As of December 31, 2013, the Company has approximately $16.0 million of Federal net operating losses that will begin to expire in 2027. As of December 31, 2013, the Company had approximately $11.0 million of New Jersey operating losses that will begin to expire in 2014. As of December 31, 2013, the Company had approximately $0.2 million of federal research and development credits that will begin to expire in 2027. The Internal Revenue Code (“IRC”) limits the amounts of net operating loss carryforwards that a company may use in any one year in the event of certain cumulative changes in ownership over a three-year period as described in Section 382 of the IRC. The Company has not performed a detailed analysis to determine whether an ownership change has occurred as of December 31, 2013.

Deferred tax liabilities related to indefinite-lived assets typically are not used as a source of income to support realization of deferred tax assets in jurisdictions where tax attributes expire (e.g., jurisdictions where net operating loss carryforwards expire) unless the deferred tax liability is expected to reverse prior to the expiration date of the tax attribute. Therefore, the net operating losses of Sonkei cannot be used to offset the deferred tax liability resulting from the IPR&D due to the fact that the IPR&D currently has an indefinite life while the NOLs have a maximum life of 20 years.

NOTE 12 — COMMITMENTS

In November 2013, the Company hired a Chief Executive Officer (“CEO”) pursuant to an employment contract, which calls for a base salary of $425,000 plus bonus of up to 50% of base salary, a special bonus of $250,000 upon successful consummation of an IPO and severance arrangements if terminated for cause or terminated not for cause. In addition, on December 20, 2013, the CEO was granted an option to purchase 5%, or 540,722 shares, of the outstanding common stock of the Company with an exercise price equal to the per share fair value of the Company on such date, which was $9.49 per share. The option will vest ratably over 4 years. Further, upon the pricing of an IPO, which occured on June 30, 2014, the CEO was granted an “anti-dilution option” to purchase a number of shares of common stock of the Company, with an exercise price equal to $6.00, such that when the option and anti-dilution option are aggregated, the CEO will hold 5% of fully diluted outstanding shares expected to be outstanding on the closing of the IPO.  In accordance with this agreement, the Company granted options to purchase 498,621 common shares of the Company discussed in Note 10 - Stock Option Plan.

On February 11, 2014, the Company entered into an agreement with Quotient Ltd, a Contract Research Organization based in Nottingham, UK to conduct a two-part study to evaluate the pharmacokinetic profile of MIN-101 modified release prototype formulations, and to evaluate the relationship between the pharmacokinetic profile and cardiovascular parameters following multiple dose administration. The total cost of the project is €1.6 million (or $2.2 million, as converted).

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NOTE 13 — RELATED PARTY TRANSACTIONS

An investor provided accounting and other services to the Company and Sonkei for $60 thousand per Company per year during 2013 and early 2014. For the six months ended June 30, 2014 and 2013, the expense recognized in operating results in connection with these services was $35 thousand and $30 thousand, respectively.  For the three months ended June 30, 2014 and 2013, the expense recognized in operating results in connection with these services was $15 thousand in both periods.

The Company retained the services of certain consultants who were also stockholders of the Company.  For the six months ended June 30, 2014 and 2013, the expense recognized by the Company in connection with these services was $0.3 million and $0.2 million, respectively. For the three months ended June 30, 2014 and 2013, the expense recognized by the Company in connection with these services was $0.2 million and $0.1 million, respectively.

The Company’s convertible promissory notes and loans payable are held by certain stockholders and their affiliates. Accrued interest payable of approximately $0.1 million as listed in Note 7 at June 30, 2014 relates to these promissory notes and bridge loans. Interest expense for the six month periods ended June 30, 2014 and 2013 was $2.0 million and $0, respectively.

NOTE 14 — SUBSEQUENT EVENTS

The Company evaluated subsequent events for financial reporting purposes through August 7, 2014, the date which the financial statements were available to be issued to determine whether any events occurred that required disclosure in the accompanying financial statements.

On July 7, 2014, the Company closed the sale of 5,454,545 shares of its common stock at a price to the public of $6.00 per share, or an aggregate of approximately $32.7 million.  Net proceeds to the Company were approximately $25.2 million, after deducting the underwriting discount of $2.3 million, expenses of approximately $3.1 million, repayment of the bridge loans of $1.4 million and the ProteoSys license payment of $0.7 million.

On July 7, 2014, the Company closed the sale in a private placement of 666,666 shares of its common stock at a price of $6.00 per share, or an aggregate of approximately $4.0 million.  Net proceeds to the Company were approximately $3.7 million, after deducting the underwriting discount of $0.3 million.

On July 7, 2014, in accordance with the license agreement for MIN-202, Johnson & Johnson Development Corporation, or JJDC, an affiliate of Janssen Pharmaceutica N.V., or Janssen, purchased 3,284,353 shares of the Company’s common stock in a private placement resulting in net proceeds to the Company of approximately $19.7 million.

In July 2014, in accordance with the Company’s license agreement for MIN-202 (see Note 8), the Company paid a $22.0 million license fee to Janssen which will be expensed in the third quarter of 2014.

In conjunction with the IPO, the Company’s 8% convertible promissory notes due June 30, 2014 in the face amount of $1.3 million and €518,519 ($0.7 million as of June 30, 2014), including $0.1 million in accrued interest, were converted at the IPO price of $6.00 per share into 352,000 shares of the Company’s common stock.

In July 2014, the Company repaid its outstanding working capital loans and accrued interest of approximately $1.4 million.

On July 29, 2014, the Company closed the sale of an over-allotment of 160,993 shares of its common stock at a price of $6.00 per share, resulting in net proceeds to the Company of approximately $0.9 million, after deducting the underwriting discount of approximately $0.1 million.

In July 2014, in accordance with certain employment agreements, the Company granted stock options to purchase an aggregate of 366,562 shares of common stock at an exercise price of $6.00 per share to certain employees and directors of the Company for which the Company will begin to recognize stock-based compensation expense in the third quarter of 2014. These options vest over four years.

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

You should read the following discussion of our financial condition and results of operations in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our annual audited consolidated financial statements included in the Prospectus for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on June 30, 2014.

Overview

We are a clinical-stage biopharmaceutical company focused on the development and commercialization of a portfolio of product candidates to treat patients suffering from central nervous system, or CNS, diseases. Leveraging our domain expertise, we have acquired or in-licensed four development-stage proprietary compounds that we believe have innovative mechanisms of action with potentially positive therapeutic profiles. Our lead product candidates are MIN-101, a compound we are developing for the treatment of patients with schizophrenia, and MIN-117, a compound we are developing for the treatment of patients suffering from major depressive disorder, or MDD. In addition, our portfolio includes MIN-202, a compound we are co-developing for the treatment of patients suffering from primary and secondary insomnia, and MIN-301, a compound we are developing for the treatment of patients suffering from Parkinson’s disease. We believe our innovative product candidates have significant potential to transform the lives of a large number of affected patients and their families who are currently not well-served by available therapies in each of their respective indications.

We exclusively licensed MIN-101 from Mitsubishi Tanabe Pharma Corporation, or MTPC, in 2007 with the rights to develop, sell and import MIN-101 globally, excluding most of Asia. In November 2013, we merged with Sonkei Pharmaceuticals Inc., or Sonkei, a clinical-stage biopharmaceutical company and, in February 2014, we acquired Mind-NRG SA, or Mind-NRG, a pre-clinical-stage biopharmaceutical company. We refer to these transactions as the Sonkei Merger and Mind-NRG Acquisition, respectively. Sonkei licensed MIN-117 from MTPC in 2008 with the rights to develop, sell and import MIN-117 globally, excluding most of Asia. With the acquisition of Mind-NRG, we obtained exclusive rights to develop and commercialize MIN-301. We have also entered into a co-development and license agreement with Janssen for the exclusive rights to develop and commercialize MIN-202 in the European Union, subject to royalty payments to Janssen, and royalty rights for any sales outside the European Union.

We have not received regulatory approvals to sell any of our product candidates, and we have not generated any revenue from the sales or license of our product candidates. We have incurred significant operating losses since inception. In addition, neither Sonkei nor Mind-NRG have received any regulatory approvals to sell any product candidates and have also incurred significant operating losses since their respective inceptions in 2008 and 2010.

We have historically financed our operations, including the development of MIN-101, through the sale of common stock and convertible promissory notes. Likewise, Sonkei raised capital to fund the development of MIN-117 through the sale of common stock and convertible promissory notes. Funds managed by Care Capital and Index Ventures are our principal investors, and were the principal investors of Sonkei, and collectively owned approximately 76% of our capital stock at June 30, 2014.  The operations of Mind-NRG were financed through the sale of preferred stock. Funds managed by Index Ventures were among the investors in Mind-NRG.

On June 30, 2014, our registration statement on Form S-1 was declared effective by the Securities and Exchange Commission for our initial public offering pursuant to which we sold an aggregate of 5,454,545 shares of our common stock pursuant to an underwriting agreement dated June 30, 2014, at a price to the public of $6.00 per share, or an aggregate of approximately $32.7 million. On July 7, 2014, we closed the sale of all such shares, resulting in net proceeds to us of approximately $25.2 million, after deducting the underwriting discount of $2.3 million, expenses of approximately $3.1 million, the repayment of the bridge loans of $1.4 million and the ProteoSys license fee payment of $0.7 million.  On July 7, 2014 we also closed the sale of a private placement of 666,666 common shares resulting in net proceeds to us of approximately $3.7 million, after deducting the underwriting discount of $0.3 million.

On July 7, 2014, in accordance with our license agreement for MIN-202, JJDC purchased 3,284,353 shares of our common stock in a private placement resulting in net proceeds to us of approximately $19.7 million, representing approximately 18% of our outstanding common shares.  In conjunction with the private placement and in accordance with our license agreement for MIN-202, on July7, 2014 we paid a $22.0 million license fee to Janssen.  We expect to incur net losses and negative cash flow from operating activities for the foreseeable future in connection with the clinical development and the potential regulatory approval, infrastructure development and commercialization of our product candidates.

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Financial Overview

Presentation

Our results include the accounts of Mind-NRG from February 12, 2014 to June 30, 2014, reflecting the Mind-NRG Acquisition, which was effective on February 11, 2014 and accounted for using the acquisition method. The purchase price of approximately $16.5 million was primarily assigned to in-process research and development of $15.2 million and goodwill of $7.2 million, offset by a deferred tax liability of $6.1 million. On the effective date of the acquisition, Mind-NRG had no employees and minimal clinical activity.

Financial Operations Overview

Revenue. None of our product candidates have been approved for commercialization and we have not received any revenue in connection with the sale or license of our product candidates.

Research and Development Expense. Research and development expense consists of costs incurred in connection with the development of our product candidates, including: fees paid to consultants and clinical research organizations, or CROs, including in connection with our non-clinical and clinical trials, and other related clinical trial fees, such as for investigator grants, patient screening, laboratory work, clinical trial database management, clinical trial material management and statistical compilation and analysis; licensing fees; costs related to acquiring clinical trial materials; costs related to compliance with regulatory requirements; and costs related to salaries, bonuses and stock-based compensation granted to consultants and employees in research and development functions.  We expense research and development costs as they are incurred.

General and Administrative Expense. General and administrative expenses consist principally of consulting and professional services costs for functions in executive, finance, business development, legal, auditing and taxes. Historically, substantially all of these services were provided by third party consultants, as none of the three former companies had employees in 2011 through October 2013. Our general and administrative expenses in 2014 include non-cash stock-based compensation expense with respect to option grants to consultants and employees hired and directors who joined our board subsequent to October 2013. Other costs primarily include salaries, bonuses, facility costs and professional fees for accounting, consulting and legal services.

Foreign Exchange Gains. Foreign exchange gains are comprised primarily of foreign currency exchange gains or losses resulting from clinical trial expenses denominated in Euros.  Since our initial planned clinical trials are expected to be in Europe, we expect to continue to incur expenses in Euros. We record expenses in U.S. dollars at the time the liability is incurred. Changes in the applicable foreign currency rate between the date an expense is recorded and the payment date is recorded as a foreign currency gain or loss.

Interest Expense (Income), Net. Interest expense consists of interest incurred under our debt obligations, including our 8.0% convertible promissory notes and our 8.0% working capital loans.  Interest expense under our 8.0% convertible promissory notes includes the amortization of the debt discount related to the beneficial conversion feature of the convertible promissory notes as well as coupon interest.  Interest income consists of interest earned on our cash and cash equivalents.

Costs Associated with the Acquisitions and Financings

On November 12, 2013, Cyrenaic Pharmaceuticals, Inc., or Cyrenaic, merged with Sonkei, with Cyrenaic being the surviving company, which was renamed Minerva. In the merger, each share of Sonkei common stock was converted into 0.383 shares of Cyrenaic common stock, resulting in the issuance of 2,423,368 shares of Cyrenaic common stock to the former Sonkei stockholders. Although there were certain venture funds that were common stockholders of each of Sonkei and Cyrenaic, since the underlying investors in the venture funds were not “substantially similar”, the merger was accounted for a business combination with Cyrenaic being treated as the acquirer. The results of Sonkei are included in our accompanying financial statements commencing November 12, 2013. We merged with Sonkei in order to acquire Sonkei’s lead product candidate, MIN-117.

At the date of the merger, a Sonkei consultant held 1,112,500 shares of Sonkei common stock with a nonrecourse note due to Sonkei, which was being treated as a stock option for accounting purposes. In connection with the merger, we issued 426,176 shares of common stock to this consultant in order to replace the holder’s common stock in Sonkei. Due to the nonrecourse note, these shares were treated as stock options for accounting purposes and the holder of the option could only vest in the stock options if the holder continues to provide services to us through the time of a change in control. As a change in control was not deemed probable as of the merger date, the value of the options have not been included as part of the consideration transferred in the merger for accounting purposes. Rather, we will recognize all of the non-cash stock-based compensation expense of approximately $10.5 million for these stock options in our statement of operations upon the effective date of the IPO. The merger accounting purchase price was therefore determined based upon the remaining 1,997,192 shares of common stock issued in the merger at a valuation of $9.49 per share for a total purchase price of approximately $18.9 million.

The fair value of our common stock issued in the merger was determined based on a number of objective and subjective factors, including external market conditions affecting the biotechnology industry sector, discounted cash flows and the likelihood of achieving a liquidity event, such as an initial public offering of common stock or our sale. Substantially all of the purchase price was allocated to in-process research and development and goodwill. As part of the acquisition, we also assumed €0.5 million ($0.7 million as of June 30, 2014) of convertible notes, which have a stated interest rate of 8%. The outstanding principal balance of the notes and accrued but unpaid interest was converted into common stock on July 7, 2014 at the IPO offering price of $6.00 per share.

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We acquired Mind-NRG in February 2014 in order to acquire Mind-NRG’s lead product candidate, MIN-301. The fair value of the 1,481,583 shares of common stock issued to the stockholders of Mind-NRG was approximately $16.5 million. The fair value of the common shares issued and the allocation of the purchase price was based upon our valuation of our common stock as approved by our board of directors. Substantially all of the purchase price was allocated to in-process research and development and goodwill.

In connection with the acquisition, we entered into loan agreements for working capital up to a maximum of $0.6 million. The Mind-NRG loans have an interest rate of 8% per annum that is added to the principal. The Mind-NRG loans, including accrued interest, were repaid in full in April 2014 for $0.5 million. We subsequently entered into two loan agreements with certain stockholders for $0.6 million and $1.0 million, the April Bridge Loan and the May Bridge Loan, respectively. The outstanding balance of these loans as of June 30, 2014 was $0.6 million and $0.8 million, respectively. Both bridge loans and accrued interest thereon were repaid in full in July 2014.  As part of the Mind-NRG Acquisition, we have agreed to pay ProteoSys a final license payment of €0.5 million ($0.7 million as of June 30, 2014) following the closing of the IPO.  This payment was made in July 2014.

Results of Operations

Comparison of Three Months Ended June 30, 2014 versus June 30, 2013

Research and Development Expenses

Research and development expenses totaled $14.6 million for the three months ended June 30, 2014 compared to $0.3 million for the same period in 2013, an increase of $14.3 million. Research and development expenses are summarized in the following table (in thousands):

(1)         Research and development expenses were $1.6 million for the three months ended June 30, 2014 compared to $0.3 million for the same period in 2013, an increase of $1.3 million. This increase was principally attributable to $0.5 million higher drug development program costs primarily due to a study initiated in 2014 to evaluate the pharmacokinetic profile of MIN-101, $0.3 million higher development costs in 2014 due to the addition of MIN-117 as a result of the Sonkei Merger in November 2013 and $0.5 million in additional development costs related to MIN-301 as a result of the Mind-NRG Acquisition in February 2014.

(2)         Research and development expenses included $13.0 million in non-cash stock-based compensation expense for the three months ended June 30, 2014 as compared to $0 for the same period in 2013.  The increase in stock-based compensation expense was due to $10.5 million related to previously issued common shares that became probable of vesting upon the effective date of our IPO registration statement.  An additional $2.3 million was related to an option grant to one employee on the effective date of the IPO registration statement that was 100% vested on that date.

In the future, we expect research and development expense to consist of the items described above as well as expense incurred in performing research and development activities, including compensation and benefits for full-time research and development employees and facilities expenses. These costs may also include non-cash stock-based compensation expense as part of our compensation strategy to attract and retain qualified staff.  We expect research and development expense to be our largest category of operating expense and to increase as we continue our planned pre-clinical and clinical trials for our product candidates, including MIN-202, which we licensed from Janssen upon the completion of our IPO in July 2014.  Under this license agreement we made a $22.0 million license fee payment in July 2014, which will be included in research and development expense in the third quarter of 2014.

Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success or failure of each product candidate, the estimated costs to continue the development program relative to the Company’s available resources, as well as an ongoing assessment as to each product candidate’s commercial potential. We will need to raise additional capital or may seek additional product collaborations in the future in order to complete the development and commercialization of our product candidates.

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General and Administrative Expenses

General and administrative expenses totaled $3.1 million for the three months ended June 30, 2014 compared to $0.1 million for the same period in 2013, representing an increase of approximately $3.0 million.  General and administrative expenses are summarized in the following table (in thousands):

(1)         General and administrative expenses were $1.1 million for the three months ended June 30, 2014 compared to $0.1 million for the same period in 2013, representing an increase of approximately $1.0 million.  The increase in general and administrative expenses in 2014 was due primarily to higher legal and professional fees of $0.6 million related to intellectual property matters and preparing for our operation as a public reporting company and $0.4 million related to staffing, office leases and information systems as we invest in the infrastructure necessary to support the Company’s operations.

(2)         In accordance with three employment agreements, we recorded $0.5 million for IPO related bonus payments that were probable on June 30, 2014.

(3)         General and administrative expenses included $1.5 million in non-cash stock-based compensation expense for the three months ended June 30, 2014 as compared to $0 for the same period in 2013. The increase in stock-based compensation expense was due to $0.3 million related to options granted in December 2013.  An additional $1.2 million was due to certain option grants made on the effective date of the IPO registration statement.

In the future, we expect general and administrative expenses to consist primarily of salaries and related benefits, facility costs, information technology, travel expenses and professional fees for auditing, tax and legal services including non-cash stock-based compensation.  General and administrative costs also include non-cash stock-based compensation expense as part of our compensation strategy to attract and retain qualified staff.  We expect that general and administrative expenses will increase as a result of merging with Sonkei, the acquisition of Mind-NRG and licensing MIN-202 from Janssen.  In addition, we expect to incur greater expenses relating to our operations as a public reporting company, including increased payroll, consulting, legal and compliance, accounting, insurance and investor relations costs.

Foreign Exchange Gains

Foreign exchange gains were $11 thousand for the three months ended June 30, 2014 compared to $0 for the same period in 2013.  The increase in foreign exchange gains was due primarily to certain expenses of Mind-NRG and certain clinical activities being denominated in Euros, with more positive currency movements in 2014.

Interest (Income)/Expense, Net

Interest expense was $1.7 million for the three months ended June 30, 2014 compared to $0 for the same period in 2013. For the three months ended June 30, 2014, we recognized interest expense of approximately $1.7 million related to our convertible promissory notes, comprised primarily of the amortization of the debt discount related to the debt discount created upon allocation of proceeds to the beneficial conversion feature of the notes and $40 thousand in coupon interest.  For the three months ended June 30, 2014, we also recorded $11 thousand in interest expense related to our 8% short term working capital loans.

The convertible promissory notes contain a beneficial conversion feature allowing noteholders to convert the notes and accrued interest into shares of our common stock at a conversion price of $3.50 per common share at any time after April 30, 2014. On April 25, 2014, the convertible promissory notes were amended to provide for conversion only after September 30, 2014. The notes were converted into common stock in conjunction with our IPO on July 7, 2014.  The intrinsic value of the beneficial conversion feature was calculated by measuring the difference between the effective conversion price and the fair value of the common stock at initial recognition. We recorded a debt discount for the intrinsic value of the beneficial conversion feature which was limited to the proceeds of the convertible promissory notes received of approximately $2.0 million, with an offsetting increase to additional paid-in capital. The discount was amortized to interest expense using the effective interest method through the notes’ maturity date of June 30, 2014.

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Comparison of Six Months Ended June 30, 2014 versus June 30, 2013

Research and Development Expenses

Research and development expenses totaled approximately $15.1 million for the six months ended June 30, 2014 compared to $0.4 million for the same period in 2013, an increase of $14.7 million. Research and development expenses are summarized in the following table (in thousands):

(1)         Research and development expenses were approximately $2.2 million for the six months ended June 30, 2014 compared to $0.4 million for the same period in 2013, an increase of $1.8 million. This increase was principally attributable to $0.6 million in higher drug development program costs associated with a study initiated in 2014 to evaluate the pharmacokinetic profile of MIN-101, $0.5 million in higher development costs in 2014 due to the addition of MIN-117 as a result of the Sonkei Merger in November 2013 and $0.7 million in additional development costs related to MIN-301 as a result of the Mind-NRG Acquisition in February 2014.

(2)         Research and development expenses included $13.0 million in non-cash stock-based compensation expense for the six months ended June 30, 2014 as compared to $0 for the same period in 2013.  The increase in stock-based compensation expense was due to $10.5 million related to previously issued common shares that became probable of vesting upon the effective date of our IPO registration statement.  An additional $2.3 million was related to an option grant to one employee on the effective date of the IPO registration statement that was 100% vested on that date.

In the future, we expect research and development expense to consist of the items described above as well as expense incurred in performing research and development activities, including compensation and benefits for full-time research and development employees and facilities expenses. These costs may also include non-cash stock-based compensation expense as part of our compensation strategy to attract and retain qualified staff.  We expect research and development expense to be our largest category of operating expense and to increase as we continue our planned pre-clinical and clinical trials for our product candidates, including MIN-202, which we licensed from Janssen upon the completion of our IPO in July 2014.  Under this license agreement we made a $22.0 million license fee payment in July 2014, which will be included in research and development expense in the third quarter of 2014.

Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success or failure of each product candidate, the estimated costs to continue the development program relative to the Company’s available resources, as well as an ongoing assessment as to each product candidate’s commercial potential. We will need to raise additional capital or may seek additional product collaborations in the future in order to complete the development and commercialization of our product candidates.

General and Administrative Expenses

General and administrative expenses totaled $5.1 million for the six months ended June 30, 2014 compared to $0.3 million for the same period in 2013, representing an increase of approximately $4.8 million.  General and administrative expenses are summarized in the following table (in thousands):

(1)         General and administrative expenses totaled $2.8 million for the six months ended June 30, 2014 compared to $0.3 million for the same period in 2013, representing an increase of approximately $2.5 million.  The increase in general and administrative expenses in 2014 was due primarily to $1.1 million in higher legal and professional fees related to intellectual property matters and preparing for our operation as a public reporting company, and $1.4 million in higher costs related to staffing, consultants, office leases and information systems as we build the infrastructure necessary to support the Company’s operations. We incurred legal and other professional fees associated with the acquisition of Mind-NRG in February 2014, which costs are expensed as incurred. We also incurred professional fees associated with entering into the co-development and licensing agreement with Janssen in February 2014 and engaging valuation specialists.

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(2)         In accordance with three employment agreements, we recorded $0.5 million for IPO related bonus payments that were probable as of June 30, 2014.

(3)         General and administrative expenses included approximately $1.9 million in non-cash stock-based compensation expense for the six months ended June 30, 2014 as compared to $0 for the same period in 2013. The increase in stock-based compensation expense was due to $0.6 million related to options granted in December 2013.  An additional $1.3 million was due to certain option grants that became vested upon the effective date of the IPO registration statement.

In the future, we expect general and administrative expenses to consist primarily of salaries and related benefits, facility costs, information technology, travel expenses and professional fees for auditing, tax and legal services including non-cash stock-based compensation.  General and administrative costs also include non-cash stock-based compensation expense as part of our compensation strategy to attract and retain qualified staff.  We expect that general and administrative expenses will increase as a result of merging with Sonkei, the acquisition of Mind-NRG and licensing MIN-202 from Janssen. In addition, we expect to incur greater expenses relating to our operations as a public reporting company, including increased payroll, consulting, legal and compliance, accounting, insurance and investor relations costs.

Foreign Exchange Gains

Foreign exchange gains were $4 thousand for the three months ended June 30, 2014 compared to $0 for the same period in 2013.  The increase in foreign exchange gains was due primarily to certain expenses of Mind-NRG and certain clinical activities being denominated in Euros, with more positive currency movements in 2014.

Interest (Income)/Expense, Net

Interest expense was approximately $2.0 million for the six months ended June 30, 2014 compared to $0 for the same period in 2013. For the six months ended June 30, 2014, we recognized interest expense of approximately $2.0 million related to our convertible promissory notes, comprised primarily of the amortization of the debt discount related to the debt discount created upon allocation of proceeds to the beneficial conversion feature of the notes and $79 thousand in coupon interest.  For the six months ended June 30, 2014, we also recorded $11 thousand in interest expense related to our 8% short term working capital loans.

The convertible promissory notes contain a beneficial conversion feature allowing noteholders to convert the notes and accrued interest into shares of our common stock at a conversion price of $3.50 per common share at any time after April 30, 2014. On April 25, 2014, the convertible promissory notes were amended to provide for conversion only after September 30, 2014. The notes were converted into 352,000 common stock in conjunction with our IPO on July 7, 2014.  The intrinsic value of the beneficial conversion feature was calculated by measuring the difference between the effective conversion price and the fair value of the common stock at initial recognition. We recorded a debt discount for the intrinsic value of the beneficial conversion feature which was limited to the proceeds of the convertible promissory notes received of approximately $2.0 million, with an offsetting increase to additional paid-in capital. The discount was amortized to interest expense using the effective interest method through the notes’ maturity date of June 30, 2014.

Liquidity and Capital Resources

Sources of Liquidity

We have incurred losses and cumulative negative cash flows from operations since our inception in April 2007 and, as of June 30, 2014, we had an accumulated deficit of approximately $40.1 million. We anticipate that we will continue to incur net losses for the foreseeable future as we continue the development and potential commercialization of our product candidates and incur additional costs associated with being a public company. At June 30, 2014, we had $0.5 million in cash and cash equivalents.

Initial Public Offering

On June 30, 2014, our registration statement on Form S-1 was declared effective by the Securities and Exchange Commission for our initial public offering pursuant to which we sold an aggregate of 5,454,545 shares of our common stock pursuant to an underwriting agreement dated June 30, 2014, at a price to the public of $6.00 per share, or an aggregate of approximately $32.7 million. On July 7, 2014, we closed the sale of all such shares, resulting in net proceeds to us of approximately $25.2 million, after deducting the underwriting discount of $2.3 million, expenses of approximately $3.1 million, repayment of the bridge loans of $1.4 million and the ProteoSys license payment of $0.7 million.

Private Placement

On July 7, 2014 we also closed the sale of a private placement of 666,666 common shares resulting in net proceeds to us of approximately $3.7 million, after deducting the underwriting discount of $0.3 million.

Janssen Co-Development and License Agreement

On July 7, 2014, in accordance with our license agreement for MIN-202, JJDC purchased 3,284,353 shares of our common stock in a private placement resulting in net proceeds to us of approximately $19.7 million, representing approximately 18% of our outstanding common shares.  In conjunction with the private placement and in accordance with our license agreement for MIN-202, on July7, 2014 we paid a $22.0 million license fee to Janssen.

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Convertible Promissory Notes

During November 2013, we issued 8% convertible promissory notes for approximately $1.3 million in aggregate to certain stockholders which are payable by us on June 30, 2014.  During November 2013, prior to the merger of Sonkei into us, Sonkei issued convertible promissory notes for €0.5 million (or $0.7 million, as converted) in aggregate to certain stockholders which we assumed at the time of the merger with Sonkei and which are payable by us on June 30, 2014. The notes have a stated interest rate of 8% per annum. Upon completion of the IPO in July 2014, the outstanding principal balance of the notes and accrued interest were converted into common stock at the offering price of $6.00 per share, resulting in the issuance of 352,000 shares of common stock.

Working Capital Loans

In February 2014, we entered into loan agreements for working capital up to a maximum of $0.6 million in connection with the Mind-NRG Acquisition. As of March 31, 2014, the balance outstanding under these loans was $0.5 million, which were repaid in full with accrued interest in April 2014.

On April 30, 2014 we entered into the April Bridge Loan with certain stockholders and their affiliates. The April Bridge Loan provides loan facilities of $0.6 million, of which we have drawn $0.6 million, with an annual interest rate of 8% and is repayable at the time we complete an IPO or December 1, 2015. The April Bridge Loan contains standard terms of default, under which the interest rate would increase to 11% per annum. Any amount outstanding may be repaid at any time without penalty. As of June 30, 2014, the balance outstanding under these loans was $0.6 million, which were repaid in full with accrued interest in July 2014.

On May 22, 2014, we entered into the May Bridge Loan with certain stockholders and their affiliates. The May Bridge Loan provides loan facilities up to a maximum of $1.0 million, at an annual interest rate of 8% and is repayable at the time we complete an IPO or December 1, 2015. The May Bridge Loan contains standard terms of default, under which the interest rate would increase to 11% per annum. Any amount outstanding may be repaid at any time without penalty. As of June 30, 2014, the balance outstanding under these loans was $1.4 million, which were repaid in full with accrued interest in July 2014.

Cash Flows

The table below summarizes our significant sources and uses of cash for the six months ended June 30, 2014 and 2013:

Net Cash Used in Operating Activities

Net cash used in operating activities of approximately $3.8 million during the six months ended June 30, 2014 was due primarily to our net loss of $22.3 million, partially offset by non-cash interest expense of $1.9 million, non-cash stock-based compensation expense of $14.8 million and a $1.8 million increase in accounts payable, accrued expenses and other liabilities. Net cash used in operating activities of $0.6 million during the six months ended June 30, 2013 was primarily a result of our net loss of $0.6 million.

Net Cash Provided by Investing Activities

Net cash provided by investing activities in the six months ended June 30, 2014 consisted of $1.2 million of cash acquired in February 2014 in conjunction with the Mind-NRG Acquisition.

Net Cash Provided by Financing Activities

Net cash provided by financing activities of $1.3 million during the six months ended June 30, 2014 was due to the net proceeds from several working capital loan agreements of $1.4 million, partially offset by IPO costs paid during the period of $0.1 million. Net cash provided by financing activities of $1.9 million during the six months ended June 30, 2013 was due to the proceeds from the sale of common stock.

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Contractual Obligations and Commitments

The following table summarizes our contractual obligations at June 30, 2014 and the effects such obligations are expected to have on our liquidity and cash flows in future periods:

Payments Due by Period (in millions)

(1)                                 Represents operating lease costs, consisting of leases for office space in Cambridge, MA.

(2)                                 Represent amounts payable under the April and May 2014 Bridge Loans as of June 30, 2014, discussed below.

(3)                                 Represents license fee payable with respect to MIN-301 to ProteoSys SA for €0.5 million ($0.7 million as of June 30, 2014). This license fee was paid in July 2014.

Payments under our licenses described below are not considered contractual obligations due to the uncertainty of the occurrence of the events requiring payment under these agreements, including our share of potential future milestone and royalty payments. These payments generally become due and payable only upon the achievement of certain clinical development, regulatory or commercial milestones.

In April 2014 we entered into the April Bridge Loan for a maximum of $0.6 million. In May 2014 we entered into the May Bridge Loan for up to a maximum of $1.0 million. All loan facilities were repaid with interest upon the completion of the IPO in July 2014.

On February 11, 2014, we entered into an agreement with Quotient Ltd, a Contract Research Organization based in Nottingham, UK to conduct a two-part study to evaluate the pharmacokinetic profile of MIN-101 modified release prototype formulations, and to evaluate the relationship between the pharmacokinetic profile and cardiovascular parameters following multiple dose administration. The total cost of the project is €1.6 million, ($2.2 million, as converted).  As of June 30, 2014 we have paid approximately $0.4 million under the contract.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under Securities and Exchange Commission rules.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 to our financial statements appearing elsewhere in this Form 10-Q, we believe that the following accounting policies are the most critical for fully understanding and evaluating our financial condition and results of operations.

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Stock-Based Compensation

Stock-based compensation for non-employees has been a significant expense of the Company. We had one warrant issuance which required stock based compensation consideration and which was terminated in 2012, as described below. We also had a share issuance to a non-employee subject to a non-recourse promissory note (described below in the section titled “Consultant Equity Issuance”), which is treated for accounting purposes as if it were a stock option, and therefore we would recognize expense under this accounting policy. We issued stock options to an employee and two consultants in December 2013.

We determine the fair value of share-based awards using the Black-Scholes option-pricing model to determine the fair value of stock option awards. Inputs to this model requires management to apply judgment and make assumptions and estimates, including with respect to:

·                  the expected term of the issuance;

·                  the risk free interest rate, which we estimate based on the U.S. Treasury instruments whose term was consistent with the term of the warrants;

·                  the expected volatility of the underlying common stock, which we estimate based on the historical volatility of a peer group of comparable publicly traded life sciences and biotechnology companies with product candidates in similar stages of clinical development, as we do not have significant trading history for our common stock; and

·                  the fair value of our common stock determined on the date of grant, as described below.

Consultant Equity Issuance

In February 2009, we entered into a warrant agreement with an affiliate of a consultant who provides services associated with the clinical development of our drug compound. The warrant was exercisable at any time through February 28, 2014. The number of shares of our common stock subject to this warrant was dependent upon an anti-dilution formula based upon maintaining a 20% ownership after each of the common stock purchase agreement closings by the Care Capital and Index Ventures family of venture capital funds, with the total warrant shares not to exceed 1,785,714 shares, or the Warrant Shares. The exercise price of the warrant equaled the sum of $3.50, or the Numerator, plus the quotient obtained by $142 thousand divided by the number of Warrant Shares outstanding, however the Numerator would increase by 2% for each quarter the warrant was outstanding. The warrant agreement also included a performance based provision for the quantity of the Warrant Shares that could be exercised. The warrant became fully vested on May 31, 2010 upon our successful completion of specific clinical milestones. Subsequent to the date of vesting, we increased the number of warrant shares on October 26, 2011 and April 25, 2012, as a result of the anti-dilution provision described above. We determined that the warrant qualified as an equity instrument.

As of April 25, 2012, the warrant was exercisable for 821,429 shares of common stock issuable at an exercise price of $3.71 per share. On April 26, 2012, the warrant agreement was cancelled and replaced with a common stock subscription agreement for the purchase of 821,429 shares of common stock, which was immediately exercised. We have accounted for the warrant cancellation and the concurrent replacement with a common stock subscription agreement as a modification in accordance with ASC 718-20-35-8 as further discussed below.

We estimated the fair value of the warrant using the Black-Scholes option-pricing model. On April 26, 2012 we issued 821,429 shares of common stock in exchange for a nonrecourse note payable in principal amount of $3.1 million (equivalent to approximately $3.71 per share, or the original price). The note payable was originally due in a single installment on February 28, 2014, which was extended to March 31, 2014. We have the option (a call option) to repurchase the shares if the holder ceases to provide services to us or after February 28, 2014, which was extended to March 31, 2014, at the original price. The holder has the option (a put option) to require us to repurchase the shares at any time at the original price. Through December 31, 2013, neither the put nor call options were exercised and the notes were settled as described below in March 2014.

In accordance with ASC 718-10-25, the purchase of stock in exchange for a non-recourse loan effectively is the same as granting a stock option. If the value of the underlying shares falls below the loan amount, the stockholder will relinquish the stock in lieu of repaying the loan and would be in the same position as if he or she never purchased the stock. Further, as the shares sold subject to the nonrecourse note are considered an option for accounting purposes, we have not recorded a note or reflected these shares as outstanding on our balance sheets. The ultimate holder of the option can only benefit from the instrument if he continues to provide services to us through the time of a change in control, as defined. As a change in control is not deemed probable, stock-based compensation expense will not be recorded until a change in control occurs at the then fair value of the option.

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Our arrangements with the holder of the 821,429 shares noted above include a continuing anti-dilution obligation with respect to the shares owned by that holder through the date of the our initial public offering. In connection with such arrangement, we have an obligation to issue additional shares to the holder each time we issue shares to certain investors, such that the holder’s ownership percentage remains constant relative to the shares held by certain investors. Subsequent to the April 26, 2012 issuance of 821,429 shares to the holder discussed above, we sold an additional 171,429 and 528,571 shares to certain investors during 2012 and 2013, respectively. We issued 27,925 shares to the holder at a purchase price of $3.50 per share (subject to the corresponding note payable) in December 2013 in accordance with the anti-dilution agreement. Since Sonkei had a similar arrangement with the holder, upon the Sonkei Merger 426,176 shares of our common stock were issued under the same arrangement. The accounting for the additional share issuance is consistent with the 821,429 shares discussed above as the stock was purchased for a non-recourse loan, which is effectively the same as the granting of a stock option. At December 31, 2013 there were 1,275,530 shares issued under this arrangement subject to the promissory notes in the aggregate principal amount of $4.7 million.

Share Repurchase in Settlement of Nonrecourse Notes

In March 2014, the issuer of the $4.7 million nonrecourse notes, which includes accrued interest, remitted to us 348,926 shares of common stock with a fair value of $13.51 per share in full settlement of the outstanding notes in a cashless transaction. Additionally, we further modified the awards by cancelling the put option and adding a term providing for the award to vest. The original issuance of the shares and the nonrecourse notes were accounted for as a stock option, with no stock-based compensation expense recognized, as the ultimate holder of the option could only vest in the stock option if he continued to provide services to us through the time of a change in control, which is not deemed probable until the change in control occurs.

The remittance of the shares in exchange for settling the outstanding notes, the cancellation of the put option, and the addition of the vesting provision if an IPO occurs, represents a modification of the awards. This modification resulted in the conversion of approximately 1.3 million stock options with an aggregate exercise price of $4.7 million to 926,604 shares of stock that are considered non-vested stock for accounting purposes with no exercise price. These shares became probable of vesting for accounting purposes upon the effective date of the IPO registration statement on June 30, 2014. Accordingly we recognized stock-based compensation expense of approximately $10.5 million for the 926,604 shares multiplied by the fair value per share on May 1, 2014, the date the consultant became an employee, less previous compensation expense recorded.

Stock Options

We established our stock option plan in the fourth quarter of 2013, and we amended and restated our stock option plan in the second quarter of 2014. The amended and restated plan provides for the issuance of up to 3,543,754 shares of common stock, subject to automatic annual increases pursuant to the terms of the plan, each to be issued at the then fair value of our underlying common stock. We will recognize compensation cost relating to share-based payment transactions in net loss using a fair-value measurement method, in accordance with Financial Accounting Standards Board Accounting Standards Codification (ASC) 718 “Compensation-Stock Compensation.”

The following table presents the grant dates of stock options outstanding as of June 30, 2014 with the corresponding exercise price for each option grant and our current estimate of the fair value per share of our common stock on each grant date, which we utilize to calculate stock-based compensation.

We estimated the fair value of the options granted on June 30, 2014 using the Black-Scholes option pricing model with the following assumptions: (i) expected term of 6.25 years, (ii) volatility of 113%, (iii) risk free interest rate of 1.94% and (iv) a dividend yield of zero.  At June 30, 2014, options to purchase 2,141,807 shares of our common stock were outstanding, 594,930 of which are vested as of June 30, 2014. The intrinsic value of outstanding options as of June 30, 2014 is zero.

Fair Value of Common Stock

We were a private company with no active public market for our common stock. We utilized significant estimates and assumptions in determining the fair value of our common stock. We performed these valuations as of April 26, 2012, November 12, 2013, December 31, 2013, February 11, 2014, and March 31, 2014, or the Valuation Dates. The April 26, 2012 and November 12, 2013 valuation dates were based upon the dates of warrants issued pursuant to the above warrant agreement. The November 13, 2013 and February 11, 2014 valuation dates were related to the date of the issuance of shares in connection with the Sonkei Merger on November 11, 2013 and the Mind-NRG Acquisition. The March 31, 2014 valuation date related to the share repurchase in settlement of non-recourse notes described above.

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In conducting the valuations, our board of directors, with input from management considered objective and subjective factors that we believed to be relevant for each valuation conducted, including our best estimate of our business condition, prospects and operating performance at each valuation date. Within the valuations performed, we used a range of factors, assumptions and methodologies. The significant factors included:

·                  our results of operations, financial position and the status of research and development efforts;

·                  the lack of liquidity of our common stock as a private company;

·                  our stage of development and business strategy and the material risks related to our business and industry;

·                  the achievement of enterprise milestones, including entering into collaboration and license agreements, and the likelihood of entering into such agreements;

·                  the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;

·                  any external market conditions affecting the life sciences and biotechnology industry sectors;

·                  the likelihood of achieving a liquidity event for the holders of our common stock and stock options, such as an initial public offering, or IPO, or a sale of our company, given prevailing market conditions;

·                  the state of the IPO market for similarly situated privately held biotechnology companies;

·                  general U.S. and global economic conditions; and

·                  our most recent valuations prepared in accordance with methodologies outlined in the 2013 American Institute of Certified Public Accountants Technical Practice Aid.

We utilized various valuation methodologies in accordance with the framework of the 2013 American Institute of Certified Public Accountants Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of our common stock. The Practice Aid prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to its common stock. The cost approach establishes the value of an enterprise based on the cost of reproducing or replacing the property, less depreciation and functional or economic obsolescence, if present. The income approach establishes the value of an enterprise based on the present value of future cash flows that are reasonably reflective of our company’s future operations, discounting to the present value with an appropriate risk-adjusted discount rate or capitalization rate. The market approach is based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics. Given our stage of development we did not utilize the cost approach or market approach to determine our enterprise value for any of the periods discussed below. We utilized the income approach for the valuation periods.

The various methods for allocating the enterprise value across our classes and series of capital stock to determine the fair value of our common stock in accordance with the Practice Aid include the following:

·                  Current Value Method, or CVM.  Under the current value method, once the fair value of the enterprise is established, the value is allocated to the various series of preferred and common stock based on their respective seniority, liquidation preferences or conversion values, whichever is greatest. This method was utilized in the valuations discussed below.

·                  Option Pricing Method, or OPM.  Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options. Given that we had one class of stock and one warrant arrangement issued through November 2013, this method was not utilized in the valuations discussed below.

·                  Probability-Weighted Expected Return Method, or PWERM.  The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each share class. We utilized the PWERM in the valuations dated November 12, 2013, December 31, 2013, February 11, 2014, and March 31, 2014 to quantify the effect on valuation of common stock associated with the Sonkei Merger, the Mind-NRG Acquisition and implementation of the plan towards the IPO.

There are significant judgments and estimates inherent in the determination of the fair value of our common stock. These judgments and estimates include assumptions regarding our future operating performance, the time to completing an IPO or other liquidity event and the determination of the appropriate valuation methods. If we had made different assumptions, our stock-based compensation expense, net loss and net loss per common share could have been significantly different.

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We estimated the per share common stock fair value by allocating the enterprise value using the CVM or PWERM for the Valuation Dates. One of the key inputs into this model is the future estimated cash flows of us using management’s estimate of patient populations, market penetration and compliance rates, expected launch date, price and costs per unit sold, selling, general and administrative expenses, capital expenditures, and long term growth factors. We used comparable companies to develop growth and other trend rates that we built into our expected cash flow model. We selected companies within the biopharmaceutical industry and in Phase II development, or those that were in Phase III with similar characteristics. We selected a group of comparable publicly traded companies and we calculated market multiples using each company’s stock price and other financial data. We used industry standard studies to assess cumulative technical success probabilities for each phase of development. Using this data, we computed an estimate of our enterprise value. This expected future cash flows model was utilized for all periods in which the valuations were done, without changes to expected timing or net financial outcome. The December 2013, November 2013, February 11, 2014 and March 31, 2014 valuations utilized this discounted expected future cash flows, and also the expected outcomes as derived from the PWERM model.

The estimated future cash flows were then converted to present value using a 20% discount rate. The 20% discount was based on studies done of similar-stage biopharmaceutical companies, and reflected the single capital instrument that we had outstanding (common stock) until November 2013 when our capital structure also included the convertible bridge loans. After the issuance of the bridge loans we changed our discount rate to 17% to reflect the change in capital structure.

In addition, we applied a discount to reflect the lack of marketability of our common stock for those PWERM scenarios that did not utilize an IPO option. We based this discount on various put option analyses and considered the degree of risk for companies in the biotechnology industry.

Valuation of the Net Assets Acquired in the Sonkei Merger and Mind-NRG Acquisition

Pursuant to Accounting Standards Codification Topic 805, we are required to determine the fair value of the assets and liabilities acquired to provide insight as to the combined condensed pro forma balance sheet. The following summarizes the principle considerations utilized:

·                  The purchase price was determined based upon the fair value of the shares issued utilizing the above discussed value of the Minerva shares ($9.49 per share) on the date of the Sonkei Merger and $11.17 on the date of the Mind-NRG Acquisition.

·                  The fair value acquired net current assets and assumed convertible promissory notes are approximate to the book value of such assets and liabilities due to the short term nature of the net current assets. The terms of the convertible promissory notes are similar to other venture stage instruments in the biotechnology industry, and given the short term nature of the notes, the fair value of the notes is considered to be approximate to its carrying value.

·                  The intangible assets acquired are the significant assets of each company are valued at fair value as discussed below. The methods commonly used to develop indications of value for an intangible asset are the Income, Market, and Cost approaches.

·                  The Income Approach focuses on the income-producing capability of an asset. The Income Approach incorporates the calculation of the present value of future economic benefits, such as cash earnings, cost savings, tax deductions and proceeds from disposition proceeds. Indications of value are developed by discounting expected cash flows to the present value at a rate of return that incorporates the risk-free rate for the use of funds, the expected rate of inflation and risks associated with the particular investment. The discount rate selected is generally based on rates of return available from alternative investments of similar type and quality.

·                  The Market Approach measures the benefits of an asset through an analysis of recent sales or offerings of comparable property. Sales and offering prices are adjusted for differences in location, time of sale, utility and the terms and conditions of sale between the asset being appraised and comparable properties.

·                  The Cost Approach measures the benefits related to an asset by the cost to reconstruct or replace it with another of like utility. To the extent that the assets being analyzed provide less utility than new assets, the reproduction or replacement cost new would be adjusted to reflect appropriate physical deterioration, functional obsolescence and economic obsolescence.

We measured the value of the acquired IPR&D using the Income Approach — Multi-Period Excess Earnings Method and assembled workforce using the Cost Approach (for contributory asset charge calculations). The Multi-Period Excess Earning Method measures the present value of the future earnings expected to be generated during the remaining lives of the subject assets. The computed fair value of the IPR&D represented substantially all of the purchase price, after consideration of the net current assets acquired and the assumed convertible promissory notes.

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Prior to determining the value of each intangible asset described above, it is standard methodology as part of an acquisition to perform a “business enterprise value” analysis. This analysis incorporates all potential economics that the acquired business would theoretically recognize under a fair value scenario. The business enterprise analysis incorporates a stand-alone forecast of us. The purpose of this is to provide a reasonableness check to substantiate the assumptions used in other portions of the analysis. The basis of the business enterprise analysis includes management’s estimates regarding projected operating cash flows for the acquired businesses.

We utilized the net present value model under the Income Approach to arrive at the net cash flows attributable to each asset acquired. The estimated future cash flows were then converted to present value using a 17.5% discount rate in the case of the Sonkei acquisition and 19.9% in the case of Mind-NRG Acquisition. The 17.5% discount was based on studies done of similar-stage biopharmaceutical companies, and reflects the weighted average cost of capital including the convertible promissory notes. The 19.9% discount rate reflects the similar weighted average cost of capital, except that there was a greater weight to equity instruments after the issuance of the Sonkei merger shares.

We evaluated whether the fair value per share would be significantly different between December 31, 2013 and February 11, 2014, the date of the Mind-NRG Acquisition, and concluded that there was a change in fair value per share based upon the Mind-NRG Acquisition and proximity to the IPO. We estimated that a share of our common stock had a value of $11.17 per share at February 11, 2014, an increase of $1.68 from the prior valuation at December 31, 2013. This valuation utilized a 17% discount factor and a 10% discount for lack of marketability. We utilized a PWERM methodology to assign the possible enterprise values assuming various IPO pricing and technology sale scenarios in light of the closer proximity to our initial public offering. The discount factor reflects the weighted average cost of capital between the common stock and the convertible promissory notes. The board of directors did not believe there was a significant change in our clinical or regulatory status between December 2013 and February 2014.

IPO

We note that, as is typical in IPOs, the public offering price for the offering was not derived using a formal determination of fair value, but was determined by negotiation between us and the underwriters. Among the factors that were considered in setting this public offering price were the following: an analysis of the typical valuations seen in recent IPOs for companies in our industry; the general condition of the securities markets and the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; an assumption that there would be a receptive public trading market for clinical stage biopharmaceutical companies such as us; and an assumption that there would be sufficient demand for our common stock to support an offering of the size contemplated.

In-Process Research and Development

In-process research and development, or IPR&D, assets represent a capitalized incomplete research project that we acquired through a business combination. Such assets are initially measured at their acquisition date fair values. The fair value of the research projects is recorded as intangible assets on the balance sheet, rather than expensed, regardless of whether these assets have an alternative future use. IPR&D represents projects that have not yet received regulatory approval and are required to be classified as indefinite-lived assets until the successful completion or the abandonment of the associated research and development efforts. These project costs include expenses incurred over the course of drug development programs such as previous and current pre-clinical trial expenses, intellectual property costs, drug product development, testing expenses and other related activities. These IPR&D projects represent a material demand on liquid resources to fund the completion of the development programs.

If regulatory approval is received, the associated IPR&D is amortized over the expected useful life. The determination of the useful life is estimated by management based on many inputs including: the number and types of patents that cover the drug product, the period of time before the related patent or patents expire, changes in the regulatory environment, the approval of competing therapies or compounds, changes in applicable laws or regulations and a variety of other circumstances.

Impairment testing is performed on the IPR&D asset at least annually or when a potential triggering event occurs, to determine whether the asset may be impaired. Potential triggering events that could indicate whether an impairment to the IPR&D may have occurred include: clinical trial results where the compound under investigation did not meet pre-established criteria or clinical endpoints, failure to obtain regulatory approval, the inability to fund future clinical trials, failure to obtain patent protection, adverse changes in the regulatory environment, the approval of competing therapies or compounds, adverse changes in applicable laws or regulations and a variety of other circumstances. The impairment of IPR&D could have a material adverse impact on our financial condition. In order to determine whether an impairment has occurred, management must evaluate the events and incorporate multiple assumptions including: costs associated with continuing the development program, competing therapies or compounds, potential market size, estimated future cash flows and other factors.

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Acquisitions

The Sonkei Merger and the acquisition of Mind-NRG were accounted for using the acquisition method of accounting, which requires that the total cost of an acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based their respective fair values at the date of acquisition. The allocation of the purchase price is dependent upon certain valuations and other studies. We engaged a third party advisor to assist in the valuation of the intangible assets. These valuations incorporated many assumptions including calculations for projected cash flows based on estimates for market size, patient populations, expected launch dates, product development costs, capital expenditures and long term growth rates.

Acquisition costs are expensed as incurred. We recognize separately from goodwill the fair value of assets acquired and the liabilities assumed. We allocated the excess of purchase price over the identifiable intangible and net tangible assets to goodwill. The goodwill recorded recognizes the synergies and value of the overall combined development programs, both the current pre-clinical development program in process and the future clinical trial development strategy.

Impairment testing is performed at least annually on November 30, or when a potential triggering event occurs, to determine whether the asset may be impaired. The impairment of goodwill could have a material adverse impact on our financial condition. In order to determine whether an impairment has occurred, management must evaluate the events and incorporate multiple assumptions about future cash flows including costs associated with continuing the development program, changes in strategy or potential market size and other factors.

Research and Development Expenses and Clinical Trial Accruals

Since our inception, we have focused our resources on our research and development activities, including conducting non-clinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our products. Substantially all of these services are recognized on an outsourced basis. We recognize research and development expenses as they are incurred.

We expense payments for the acquisition and development of technology as research and development costs if, at the time of payment: the technology is under development; is not approved by the U.S. Food and Drug Administration or other regulatory agencies for marketing; has not reached technical feasibility; or otherwise has no foreseeable alternative future use.

As part of the process of preparing our financial statements, we are required to estimate our expenses resulting from our obligations under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. Our clinical trial accrual is dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.

Our objective is to reflect the appropriate clinical trial expenses in our financial statements by matching those expenses with the period in which services and efforts are expended. We account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. We determine accrual estimates through discussion with applicable personnel and outside service providers as to the progress or state of completion of clinical trials, or the services completed. During the course of a clinical trial, we adjust the rate of clinical trial expense recognition if actual results differ from the estimates. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known at that time. Although we do not expect that our estimates will be materially different from amounts actually incurred, our understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting amounts that are too high or too low for any particular period. Through June 30, 2014, there had been no material adjustments to our prior period estimates of accrued expenses for clinical trials. However, due to the nature of estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical trials.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by FASB and are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued accounting pronouncements will not have a material impact on consolidated financial position, results of operations, and cash flows, or do not apply to our operations.

In June 2014, the FASB issued Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915) which eliminates the definition of a development stage entity and removes the financial reporting distinction between development stage entities and other reporting entities under GAAP. We early adopted this standard and thus we eliminated the historical inception to date information in the financial statements.

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Fluctuation Risk

Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates. Due to the short-term duration and limited funds available for investment, we would not expect our operating results or cash flows to be affected to any significant degree by the effect of a sudden change in market interest rates on our investment portfolio. A 10% change in interest rates on June 30, 2014 would not have had a material effect on the fair market value of our portfolio.

Our convertible promissory notes issued in November 2013 contain a fixed interest rate of 8%, accordingly changes in the interest rates for similar types of debt instruments would not have a material effect on our operating results. Such convertible promissory notes were converted into common stock at the IPO.

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Foreign Currency Exchange Risk

We contract with CROs and investigational sites and third-party manufacturers in several foreign countries, including several countries in Europe and Russia. Several of these contracts are denominated in Euros and GBP. We are therefore subject to fluctuations in foreign currency rates in connection with these agreements, and recognize foreign exchange gains or losses in our statement of operations. We have not historically hedged our foreign currency exchange rate risk. To date we have not incurred any material effects from foreign currency changes on these contracts.

Further, substantially all of the Mind-NRG operations were conducted in Europe. We have translated their historical financial statements from Euros into U.S. dollars using appropriate exchange rates for purposes of presenting the combined pro forma financial statements. Subsequent to our acquisition of Mind-NRG in February 2014, the U.S. Dollar has become the functional currency of Mind-NRG. We will continue to incur expenses under our development programs primarily in U.S. Dollars and Euros. We may manage our exposure to foreign currency risk with exchange rate contracts based on our forecasted operational needs. A 10% change in the euro-to-dollar exchange rate on June 30, 2014 would not have had a material effect on our results of operations or financial condition.

Inflation Risk

Inflation generally affects us by increasing our cost of labor and clinical trial costs. We do not believe that inflation has had a material effect on our business, financial condition or results of operations during the six months ended June 30, 2014.

Item 4.   Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of December 31, 2013, we concluded that there were material weaknesses and significant deficiencies in our internal control over financial reporting. A material weakness is a significant deficiency, or a combination of significant deficiencies, in internal control over financial reporting such that it is reasonably possible that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses that we identified related to (1) lack of segregation of duties, (2) lack of personnel competent to perform complex accounting, including stock-based compensation, the convertible promissory notes beneficial conversion features, and income tax disclosures, (3) lack of financial statement disclosure controls, and (4) not performing a risk assessment. If one or more material weaknesses persist or if we fail to establish and maintain effective internal control over financial reporting, our ability to accurately report our financial results could be adversely affected. As of June 30, 2014, certain material weaknesses and significant deficiencies continued to exist, including material weaknesses related to (1) lack of segregation of duties, (2) lack of financial statement disclosure controls and (3) not performing a risk assessment.

As of June 30, 2014, we had six full-time employees. We are increasing our finance staff and management is taking steps to remediate the material weakness in our internal control over financial reporting, including the implementation of new accounting processes and control procedures and the identification of gaps in our skills base and expertise of the staff required to meet the financial reporting requirements of a public company. We have introduced procedures for proper management and control of payroll, accounts payable, treasury, equity and financial reporting, retaining third-party consultants to review our internal controls and to recommend improvements, and implementing improvements to the design and operation of internal control over financial reporting.

We will be required, pursuant to Section 404(a) of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the year following our first annual report required to be filed with the SEC. This assessment will need to include disclosure of any material weaknesses identified by management over our internal control over financial reporting. However, our independent registered public accounting firm will not be required to report on the effectiveness of our internal control over financial reporting pursuant to Section 404(b) until we are no longer an “emerging growth company.”

We are in the very early stages of the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation needed to comply with Section 404. We may not be able to complete our evaluation, testing or any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are designed and operating effectively, which could result in a loss of investor confidence in the accuracy and completeness of our financial reports. This could cause the price of our common stock to decline, and we may be subject to investigation or sanctions by the SEC.

Changes in Internal Control over Financial Reporting

During the quarter ended June 30, 2014, we began to hire finance staff in order to further develop our internal controls over financial reporting and mitigate the control deficiencies identified at December 31, 2013 and 2012.

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PART II

Item 1.         Legal Proceedings

In the ordinary course of business, we are from time to time involved in lawsuits, claims, investigations, proceedings, and threats of litigation relating to intellectual property, commercial arrangements and other matters. While the outcome of these proceedings and claims cannot be predicted with certainty, as of June 30, 2014, we were not party to any legal or arbitration proceedings that may have, or have had in the recent past, significant effects on our financial position or profitability. No governmental proceedings are pending or, to our knowledge, contemplated against us. We are not a party to any material proceedings in which any director, member of senior management or affiliate of ours is either a party adverse to us or our subsidiaries or has a material interest adverse to us or our subsidiaries.

Item 1A.         Risk Factors

This Quarterly Report on Form 10-Q contains forward-looking information based on our current expectations. Because our actual results may differ materially from any forward-looking statements that we make or that are made on our behalf, this section includes a discussion of important factors that could affect our actual future results, including, but not limited to, our capital resources, the progress and timing of our clinical programs, the safety and efficacy of our product candidates, risks associated with regulatory filings, risks associated with determinations made by regulatory agencies, the potential clinical benefits and market potential of our product candidates, commercial market estimates, future development efforts, patent protection, effects of healthcare reform, reliance on third parties, and other risks set forth below.

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Risks Related to Our Financial Position and Capital Requirements

We have incurred significant losses since our inception. We expect to continue to incur losses over the next several years and may never achieve or maintain profitability.

We are a clinical development-stage biopharmaceutical company. In November 2013, we merged with Sonkei Pharmaceuticals, Inc., or Sonkei, and, in February 2014, we acquired Mind-NRG, which were also clinical development-stage biopharmaceutical companies. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval or become commercially viable. As an early stage company, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly the biopharmaceutical area. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research and development and other expenses related to our ongoing operations.

We are not profitable and have incurred losses in each period since our inception in 2007. For the year ended December 31, 2013, we reported a net loss of $3.3 million. For the six months ended June 30, 2014, we reported a net loss of $22.3 million. As of June 30, 2014, we had an accumulated deficit of $40.1 million.

We expect to continue to incur significant losses for the foreseeable future, and we expect these losses to increase as we continue our research and development of, and seek regulatory approvals for, our product candidates. If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never generate revenue or become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

We will require additional capital to finance our operations, which may not be available to us on acceptable terms, or at all. As a result, we may not complete the development and commercialization of our product candidates or develop new product candidates.

Our operations and the historic operations of Sonkei and Mind-NRG have consumed substantial amounts of cash since inception. We expect our research and development expenses to increase substantially in connection with our ongoing activities, particularly as we advance our product candidates into clinical trials.

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As of June 30, 2014, we had cash and cash equivalents of $0.5 million. We believe that the net proceeds from our initial public offering and the concurrent private placements and our existing cash and cash equivalents, will fund our projected operating requirements through 2015. In particular, we expect these funds will allow us to complete our planned Phase II clinical development for one of our two lead product candidates, MIN-101, as well as to complete the planned Phase Ib clinical development of MIN-202 with Janssen and pre-clinical development of MIN-301. However, circumstances may cause us to consume capital more rapidly than we currently anticipate. We will require significant additional capital to fund the development of one of our two lead product candidates, MIN-117, and to fund future clinical trials of our other product candidate, and to obtain regulatory approval for, and to commercialize, our product candidates.

Our future funding requirements, both short and long-term, will depend on many factors, including:

·                  the initiation, progress, timing, costs and results of pre-clinical and clinical studies for our product candidates and future product candidates we may develop;

·                  the outcome, timing and cost of seeking and obtaining regulatory approvals from the EMA, FDA and comparable foreign regulatory authorities, including the potential for such authorities to require that we perform more studies than those that we currently expect;

·                  the cost to establish, maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with licensing, preparing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;

·                  the effect of competing technological and market developments;

·                  market acceptance of any approved product candidates;

·                  the costs of acquiring, licensing or investing in additional businesses, products, product candidates and technologies; and

·                  the cost of establishing sales, marketing and distribution capabilities for our product candidates for which we may receive regulatory approval and that we determine to commercialize ourselves or in collaboration with our partners.

When we need to secure additional financing, such additional fundraising efforts may divert our management from our day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts or on terms acceptable to us, if at all. Further, the evolving and volatile global economic climate and global financial market conditions could limit our ability to raise funding and otherwise adversely impact our business or those of our collaborators and providers. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercialization of one or more of our product candidates. Any of these events could significantly harm our business, financial condition and prospects.

Our recurring losses from operations have raised substantial doubt regarding our ability to continue as a going concern.

Our recurring losses from operations raise substantial doubt about our ability to continue as a going concern, and as a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2013 with respect to this uncertainty. Our ability to continue as a going concern could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise. Future reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern. We have not generated revenues or been profitable since inception, and it is possible we will never achieve profitability. None of our product candidates can be marketed until governmental approvals have been obtained. Accordingly, there is no current source of revenues much less profits, to sustain our present activities, and no revenues will likely be available until, and unless, our product candidates are approved by the EMA, FDA or comparable regulatory agencies in other countries and successfully marketed, either by us or a partner, an outcome which may not occur. After completing our initial public offering and the concurrent private placements, based upon our currently expected level of operating expenditures, we expect to be able to fund our operations to 2015. This period could be shortened if there are any significant increases in planned spending on development programs or more rapid progress of development programs than anticipated. There is no assurance that other financing will be available when needed to allow us to continue as a going concern. The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.

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We plan to use potential future operating losses and our federal and state net operating loss, or NOL, carryforwards to offset taxable income from revenue generated from operations or corporate collaborations. However, our ability to use existing NOL carryforwards would likely be limited as a result of issuance of equity securities.

As of December 31, 2013, we had approximately $16.0 million of federal net operating carryforwards. These federal NOL carryforwards will begin to expire at various dates beginning in 2027, if not utilized. We plan to use our operating losses to offset any potential future taxable income generated from operations or collaborations. To the extent we generate taxable income, we plan to use our existing NOL carryforwards and future losses to offset income that would otherwise be taxable. However, under the Tax Reform Act of 1986, the amount of benefits from our NOL carryforwards may be impaired or limited if we incur a cumulative ownership change of more than 50%, as interpreted by the U.S. Internal Revenue Service, over a three year period. We have not performed a detailed analysis to determine whether an ownership change occurred upon consummation of the merger between us and Sonkei, upon the acquisition of Mind-NRG or our initial public offering or the concurrent private placements. However, as a result of these transactions, it is likely that an ownership change would occur or has occurred, and such ownership change could also be triggered by subsequent sales of securities by us or our stockholders. Therefore, it is likely that some or all of our existing NOL carryforwards would be limited by the provisions of Section 382 of the U.S. Internal Revenue Code of 1986, as amended. Further, state NOL carryforwards may be similarly limited. We had approximately $11.0 million of state net operating carryforwards at December 31, 2013. It is also possible that future changes in ownership could similarly limit our ability to utilize NOL carryforwards. It is possible that all of our existing NOL carryforwards would be disallowed. Any such disallowances may result in greater tax liabilities than we would incur in the absence of such a limitation and any increased liabilities could adversely affect our business, results of operations, financial condition and cash flow.

Risks Related to Our Business and Industry

We are heavily dependent on the success of our two lead product candidates and we cannot give any assurance that any of our product candidates will receive regulatory approval in a timely manner or at all, which is necessary before they can be commercialized.

We have invested a significant portion of our efforts and financial resources in the licensing and development of our two lead product candidates: (i) MIN-101 for the treatment of schizophrenia and (ii) MIN-117 for the treatment of major depressive disorder, or MDD. We plan to use the substantial majority of our net proceeds from our initial public offering to fund a Phase IIb clinical trial of MIN-101 in Europe. In order to develop MIN-117, we will need to obtain additional financing. We may never successfully develop, obtain regulatory approval for, and then successfully commercialize MIN-101 or MIN-117.

The regulatory approval process is expensive and the time required to obtain approval from the EMA, FDA or other regulatory authorities in other jurisdictions to sell any product is uncertain and may take years.

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We currently hold no Investigational New Drug, or IND, approvals in the United States, and as a result do not intend to initiate human clinical trials of our product candidates (with the exception of MIN-301) in the United States until 2015 or later. Whether regulatory approval will be granted is unpredictable and depends upon numerous factors, including the substantial discretion of the regulatory authorities. Moreover, the filing of a marketing application, including a New Drug Application, or NDA, requires a payment of a significant user fee upon submission. The filing of marketing applications for our product candidates may be delayed due to our lack of financial resources to pay such user fee.

Initially, we plan to conduct clinical trials in Europe. Applications to commence clinical trials in the European Union are to member state regulatory authorities. Good Clinical Practice (in the EU under ICH 1997), or GCP, as incorporated into the EU Clinical Trials Directive 2001/20 and national implementing regulations sets out most issues in the conduct of trials but national divergences exist especially in relation to insurance and compensation, which will require a thorough understanding of the specific procedures and requirements for the specific member states in which we chose to conduct the clinical trials. Clinical trials in the European Union also require an ethics committee or institutional review board opinion, and there is often inconsistency as to ethics committee decisions. The ethics committee may ask questions, may require re-writing or amending the protocol, any and all of which would require more time and expense. Even after re-submission to the relevant ethics committee, the application may still ultimately be rejected. After clinical trial authorization, we may be inspected for compliance with GCP by inspectors from the national regulatory authorities. If the inspections provide warnings or require changes this will incur further delays and cost and we may be restricted from completing the trials.

If, following submission, our NDA or marketing authorization application is not accepted for substantive review or approval, the EMA, FDA or other comparable foreign regulatory authorities may require that we conduct additional clinical or pre-clinical trials, provide additional data, manufacture additional validation batches or develop additional analytical tests methods before they will reconsider our application. If the EMA, FDA or other comparable foreign regulatory authorities requires additional studies or data, we would incur increased costs and delays in the marketing approval process, which may require us to expend more resources than we have available. In addition, the EMA, FDA or other comparable foreign regulatory authorities may not consider sufficient any additional required trials, data or information that we perform and complete or generate, or we may decide to abandon the program.

Moreover, policies, regulations, or the type and amount of pre-clinical and clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. It is possible that none of our existing product candidates or any of our future product candidates will ever obtain regulatory approval, even if we expend substantial time and resources seeking such approval.

Our product candidates could fail to receive regulatory approval for many reasons, including the following:

·                  the EMA, FDA or other regulatory authorities may disagree with the design or implementation of our clinical trials. We have not yet consulted with the EMA or the FDA on the design and conduct of the clinical trials that have already been conducted and which we intend to conduct. Thus, the EMA, FDA and other comparable foreign authorities may not agree with the design or implementation of these trials. We intend to seek guidance from the EMA in relation to the EU clinical trial program and the FDA on the design and conduct of clinical trials of our compounds when we initiate a clinical program in the United States in the future;

·                  we may be unable to demonstrate to the satisfaction of the EMA, FDA or other regulatory authorities that a product candidate is safe and effective for its proposed indication;

·                  the results of clinical trials may not meet the level of statistical significance required by the EMA, FDA or other regulatory authorities for approval;

·                  we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

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·                  the EMA, FDA or other regulatory authorities may disagree with our interpretation of data from pre-clinical studies or clinical trials;

·                  the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere;

·                  the EMA, FDA or other regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

·                  the approval policies or regulations of the EMA, FDA or other regulatory authorities outside of the United States may significantly change in a manner rendering our clinical data insufficient for approval.

Even if we obtain approval for a particular product, regulatory authorities may approve any of our product candidates for fewer or more limited indications, including more limited patient populations, than we request, may require that contraindications, warnings, or precautions be included in the product labeling, including a black box warning, may grant approval contingent on the performance of costly post-marketing clinical trials or other post-market requirements, including risk evaluation and mitigation strategies, or REMS, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.

The clinical trials related to our product candidates have been limited to six Phase I trials completed between 2002 and 2004 for MIN-101, a Phase IIa trial for MIN-101 completed in 2009, two Phase I trials for MIN-117 completed between 2005 and 2009, and a Phase I trial for MIN-202 in 2011. Each of our product candidates has also undergone pre-clinical studies. The results of pre-clinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Interpretation of results from early, usually smaller, studies that suggest positive trends in some subjects, requires caution. Results from later stages of clinical trials enrolling more subjects may fail to show the desired safety and efficacy results or otherwise fail to be consistent with the results of earlier trials of the same product candidates. Later clinical trial results may not replicate earlier clinical trials for a variety of reasons, including differences in trial design, different trial endpoints (or lack of trial endpoints in exploratory studies), subject population, number of subjects, subject selection criteria, trial duration, drug dosage and formulation and lack of statistical power in the earlier studies. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in advanced clinical trials due to lack of efficacy or unacceptable safety profiles, notwithstanding promising results in earlier trials.

The results of clinical trials conducted at sites outside the United States may not be accepted by the FDA and the results of clinical trials conducted at sites in the United States may not be accepted by international regulatory authorities.

We plan to conduct our clinical trials outside the United States. Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well-designed and conducted and performed by qualified investigators in accordance with ethical principles such as institutional review board, or IRB, or ethics committee approval and informed consent. The study population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. Generally, the subject population for any clinical trials conducted outside of the United States must be representative of the U.S. population. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will be dependent upon its determination that the trials were conducted consistent with all applicable U.S. laws and regulations. There can be no assurance the FDA will accept data from trials conducted outside of the United States as adequate support of a marketing application and it is not unusual for the FDA to require some Phase III clinical trial data to be generated in the United States. If the FDA does not accept the data from our international clinical trials, it would likely result in the need for additional trials in the United States, which would be costly and time-consuming and could delay or permanently halt the development of one or more of our product candidates.

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If we experience delays in clinical testing, we will be delayed in commercializing our product candidates, our costs may increase and our business may be harmed.

We do not know whether our clinical trials will need to be restructured or will be completed on schedule, or at all. Our product development costs will increase if we experience delays in clinical testing. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which would impair our ability to successfully commercialize our product candidates and may harm our business, results of operations and prospects.

The commencement and completion of clinical development can be delayed or halted for a number of reasons, including:

·                  difficulties obtaining regulatory approval to commence a clinical trial or complying with conditions imposed by a regulatory authority regarding the scope or term of a clinical trial;

·                  delays in reaching or failure to reach agreement on acceptable terms with prospective clinical research organizations, or CROs, and trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

·                  deviations from the trial protocol by clinical trial sites and investigators, or failing to conduct the trial in accordance with regulatory requirements;

·                  failure of our third parties, such as CROs, to satisfy their contractual duties or meet expected deadlines;

·                  insufficient or inadequate supply or quantity of product material for use in trials due to delays in the importation and manufacture of clinical supply, including delays in the testing, validation, and delivery of the clinical supply of the investigational drug to the clinical trial sites;

·                  delays in identification and auditing of central or other laboratories and the transfer and validation of assays or tests to be used;

·                  delays in having subjects complete participation in a trial or return for post-treatment follow-up;

·                  difficulties obtaining IRB or ethics committee approval to conduct a trial at a prospective site, or complying with conditions imposed by IRBs or ethics committees;

·                  challenges recruiting and enrolling subjects to participate in clinical trials for a variety of reasons, including competition from other programs for the treatment of similar conditions;

·                  severe or unexpected drug-related adverse events experienced by subjects in a clinical trial;

·                  difficulty retaining subjects who have initiated a clinical trial but may be prone to withdraw due to side effects from the therapy, lack of efficacy or personal issues, which are common among schizophrenia and MDD subjects who we require for our clinical trials of our two lead product candidates, MIN-101 and MIN-117. For instance, 66 out of 96 subjects ceased to participate in the Phase IIa clinical trial of MIN-101;

·                  delays in adding new investigators and clinical sites;

·                  withdrawal of clinical trial sites from clinical trials;