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ATAI LIFE SCIENCES N.V. Management’s Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)


You should read the following discussion and analysis of our financial condition
and results of operations together with our condensed consolidated financial
statements and related notes included in this Quarterly Report and our audited
financial statements and related notes thereto for the year ended December 31,
2021, included in our Form 10-K.

This discussion contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. We intend such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in Section 27A of the Securities Act, and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In some
cases, you can identify these statements by forward-looking words such as "may,"
"will," "expect," "believe," "anticipate," "intend," "could," "should,"
"estimate," or "continue," and similar expressions or variations. Such
forward-looking statements are subject to risks, uncertainties and other factors
that could cause actual results and the timing of certain events to differ
materially from future results expressed or implied by such forward-looking
statements. Factors that could cause or contribute to such differences include,
but are not limited to, those identified below, and those discussed in the
section titled "Risk Factors" included in Part I, Item 1A of our Form 10-K and
elsewhere in our Form 10-K. The forward-looking statements in this Quarterly
Report represent our views as of the date of this Quarterly Report. Except as
may be required by law, we assume no obligation to update these forward-looking
statements or the reasons that results could differ from these forward-looking
statements. You should, therefore, not rely on these forward-looking statements
as representing our views as of any date subsequent to the date of this
Quarterly Report. Additionally, our historical results are not necessarily
indicative of the results that may be expected for any period in the future. All
references to years, unless otherwise noted, refer to our fiscal years, which
end on December 31. Unless the context otherwise requires, all references in
this subsection to "we," "us," "our," "atai" or the "Company" refer to atai and
its consolidated subsidiaries.



Business Overview


We are a clinical-stage biopharmaceutical company aiming to transform the
treatment of mental health disorders. We were founded in 2018 as a response to
the significant unmet need and lack of innovation in the mental health treatment
landscape, as well as the emergence of therapies that previously may have been
overlooked or underused, including psychedelic compounds and digital
therapeutics. We have built a pipeline of 13 drug and discovery programs and
four enabling technologies, each led by focused teams with deep expertise in
their respective fields and supported by our internal development and
operational infrastructure. We believe that several of our therapeutic programs'
target indications have potential market opportunities of at least $1 billion in
annual sales, if approved. A summary of our clinical and preclinical programs,
including related prior evidence in humans based on third-party clinical trials
or studies, recent advancements, and upcoming milestones, as applicable, follows
under the heading "Our Emerging Clinical and Preclinical Programs" below.

Our business is organized along three strategic pillars:

Rapid acting intervention: first, second, and third generation compounds that
result in rapid-acting improvement of mental health disorders;

Ongoing digital support: additional care that is provided to patients before,
during, and after initial treatment interventions; and

Biomarker-driven precision mental health: the identification of patient
sub-types using biological and digital biomarkers.


Since our inception in 2018, we have focused substantially all of our efforts
and financial resources on acquiring and developing product and technology
rights, establishing our platform, building our intellectual property portfolio
and conducting research and development activities for our product candidates
within our atai companies that we consolidate based on our controlling financial
interest of such entities. We operate a decentralized model to enable scalable
drug or technological development at our atai companies. Our atai companies
drive development of our programs and enabling technologies that we have either
acquired a controlling or significant interest in or created de novo. We believe
that this model provides our development teams the support and incentives to
rapidly advance their therapeutic candidates or technologies in a cost-efficient
manner. We look to optimize deployment of our capital in order to maximize value
for our stakeholders.

We provide our development teams with access to shared services including
scientific, intellectual property, clinical and regulatory support. Our global
team of subject matter professionals provides deep domain expertise in areas
such as mental health drug development and life sciences intellectual property.
Development teams have access to relevant expertise specific to each stage of
their development. We believe our knowledge and specialization in psychedelics
and mental health continuously enhance the quality of the services we provide
through the sharing of learnings and experiences across the teams. Examples of
specific services we provide include project management, research and
development, market strategy and development and corporate finance.

On June 22, 2021, we completed an IPO on Nasdaq, in which we issued and sold
17,250,000 common shares at a public offering price of $15.00 per share,
including 2,500,000 shares common shares sold pursuant to the underwriters’
exercise of their option to purchase

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additional common shares, for aggregate net proceeds of $231.6 million, after
deducting underwriting discounts and commissions of $18.1 million and offering
costs of $9.0 million. Prior to the IPO, we received gross cash proceeds of
$361.5 million from sales of our common shares and convertible notes.

We have incurred significant operating losses since our inception. Our net loss
attributable to ATAI Life Sciences N.V. stockholders was $36.9 million for the
three months ended March 31, 2022. We generated $0.7 million in net income
attributable to ATAI Life Sciences N.V. stockholders for the three months ended
March 31, 2021, primarily due to $19.9 million of license revenue recognized
during the period related to the "Otsuka Agreement". Refer to Note 16 for
further details. As of March 31, 2022 and December 31, 2021, our accumulated
deficit was $394.7 million and $357.8 million, respectively. Our ability to
generate product revenue sufficient to achieve profitability will depend
substantially on the successful development and eventual commercialization of
product candidates at our atai companies that we consolidate based on our
controlling financial interest of such entities as determined under the variable
interest entity model ("VIE model") or voting interest entity model ("VOE
model") . We expect to continue to incur significant expenses and increasing
operating losses for at least the next several years.

Our historical losses resulted principally from costs incurred in connection
with research and development activities and general and administrative costs
associated with our operations. In the future, we intend to continue to conduct
research and development, preclinical testing, clinical trials, regulatory
compliance, market access, commercialization and business development activities
that, together with anticipated general and administrative expenses, will result
in incurring further significant losses for at least the next several years. Our
operating losses stem primarily from development of our mental health research
programs. Furthermore, we expect to incur additional costs associated with
operating as a public company, including audit, legal, regulatory, and
tax-related services associated with maintaining compliance with exchange
listing and SEC requirements, director and officer insurance premiums, and
investor relations costs. As a result, we will need substantial additional
funding to support our continuing operations and pursue our growth strategy.
Until such time as we can generate significant revenue from sales of our product
candidates, if ever, we expect to finance our operations through a combination
of equity offerings, debt financings, strategic collaborations and alliances or
licensing arrangements. Our inability to raise capital as and when needed could
have a negative impact on our financial condition and ability to pursue our
business strategies. There can be no assurances, however, that our current
operating plan will be achieved or that additional funding will be available on
terms acceptable to us, or at all.

As of March 31, 2022, we had cash and cash equivalents of $124.0 million and
short-term debt securities of $210.9 million. We believe that our existing cash
and short-term debt securities will be sufficient for us to fund our operating
expenses and capital expenditure requirements for at least the next 12 months
following the filing of this Quarterly Report. We have based this estimate on
assumptions that may prove to be wrong, and we could exhaust our available
capital resources sooner than we expect. See "Liquidity and Capital
Resources-Liquidity Risk" below.

We do not have any products approved for sale and have not generated any revenue
from product sales. We have funded our operations to date primarily with
proceeds from the sale of our common shares and from issuances of convertible
notes.


Our Emerging Clinical and Preclinical Programs



The table below summarizes the status of our product candidate portfolio as of
the filing date of this Quarterly Report. Our pipeline currently consists of
therapeutic candidates across multiple neuropsychiatric indications including
depression, cognitive impairment associated with schizophrenia, or CIAS, OUD,
anxiety, mTBI and PTSD. We rely on third parties to conduct our preclinical and
clinical trials and, as such, progress and timing of these preclinical and
clinical trials and related milestone events, including those discussed in
greater detail below, may be impacted by several factors including, but not
limited to, changes in existing or future contractual obligations or
arrangements with these third parties, geographic developments, such as site
locations or regulatory requirements, and other changing circumstances
associated with these third parties and the clinical trial sites. See the
section titled "Risk Factors-Risks Related to Reliance on Third Parties" in the
Form 10-K. We currently hold at least a majority interest, or have options to
obtain a majority interest, in each of these atai companies.
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                     [[Image Removed: img105015185_0.jpg]]
Note: DMT = N,N-dimethyltryptamine; MDMA = 3,4-Methyl enedioxy methamphetamine;
DTx = Digital Therapeutics
(1)
Perception, Recognify, DemeRx IB, Kures, and Neuronasal are all VIEs; GABA is a
non-consolidated VIE with operational involvement through MSA model, including
Srinivas Rao serving as CMO; EmpathBio, Revixia and Viridia are wholly owned
subsidiaries; COMPASS Pathways and DemeRx NB are non-controlling equity
interests.
(2)
RL-007 compound is (2R,
3S)-2-amino-3-hydroxy-3-pyridin-4-yl-1-pyrrolidin-1-yl-propan-1-one(L)-(+)
tartrate salts.
(3)
Including EntheogeniX, TryptageniX and Invyxis.

The following is a summary of our clinical and preclinical programs, including
related prior evidence in humans based on third-party clinical trials or
studies, recent advancements, and upcoming milestones, as applicable.

Perception Neuroscience: PCN-101 for TRD

Product concept: PCN-101 is a parenteral formulation of R-ketamine, a
glutamatergic modulator that is a component of racemic ketamine and is being
developed as a rapid-acting antidepressant, with the potential to be an at-home
non-dissociative alternative to S-ketamine (marketed as SPRAVATO).

Prior evidence in humans: In a third-party clinical trial, another formulation
of R-ketamine was observed to produce a rapid and durable response with limited
dissociative side effects in patients with TRD. In September 2020, Perception
Neuroscience completed a Phase 1 trial of PCN-101 supporting the advancement of
PCN-101 into a Phase 2a proof-of-concept trial.

Upcoming milestones: In September 2021, the Phase 2a proof-of-concept trial of
PCN-101 for TRD was initiated. This randomized, double-blind, placebo-controlled
Phase 2a proof-of-concept trial is designed to assess the efficacy, safety, dose
response, and duration of response in patients with TRD. A topline data readout
of this trial is expected by the end of 2022. In December 2021, the FDA gave
Investigational New Drug ("IND") clearance to conduct a clinical DDI study of
PCN-101, which is being advanced alongside the Phase 2a proof-of-concept trial,
to assess the pharmacokinetics of PCN-101 when used concurrently with other
drugs. Enrollment of the study was initiated in April 2022. We also anticipate
results from a PCN-101 Phase 1 trial that bridges between the current
intravenous formulation to a subcutaneous formulation to support at-home use, by
the end of 2022.

Recognify Life Sciences: RL-007 for CIAS

Product concept: RL-007, a cholinergic, glutamatergic and GABA-B receptor
modulator, is an orally available compound that is thought to alter the
excitatory/inhibitory balance in the brain to produce pro-cognitive effects. We
are developing this compound for the treatment of CIAS.

Prior evidence in humans: In third-party studies, other formulations of this
compound have been shown to effect a significant improvement in aspects of
cognitive function in both experimental paradigms involving healthy subjects as
well as in a Phase 2 trial in patients suffering from diabetic peripheral
neuropathic pain. In April 2021, Recognify initiated a Phase 2
proof-of-mechanism study for RL-007 in 32 CIAS patients, after receiving IND
clearance from the U.S. Food and Drug Administration
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to commence clinical trials for the treatment of CIAS. The study was designed to
evaluate the effects of RL-007 on safety, tolerability,
electroencephalogram-based biomarkers and cognition.

Recent advancements: In December 2021, we announced positive biomarker data from
the Phase 2a proof-of-mechanism study of RL-007 in CIAS patients. RL-007 was
well tolerated and demonstrated a clinically meaningful behavioral pro-cognitive
profile consistent with previous Phase 1 and 2 trials of this compound. Changes
in quantitative electroencephalogram ("qEEG") consistent with a previous Phase 1
trial involving a scopolamine challenge were noted. These results support the
progression of RL-007 to a double-blind, placebo-controlled Phase 2a
proof-of-concept trial with the goal of demonstrating the pro-cognitive benefit
of RL-007 in CIAS.

Upcoming milestones: We anticipate the Phase 2a proof-of-concept trial to be
initiated in the second half of 2022.


GABA: GRX-917 for GAD


•
Product concept: GRX-917 is an oral formulation of a deuterated version of
etifoxine, a compound that has a long history of prescription use in France and
other countries for treating anxiety disorders. GRX-917 is designed to provide
rapid anxiolytic activity with improved tolerability compared to current
treatments for anxiety available in the United States.

Prior evidence in humans: Etifoxine has been observed to have the rapid onset of
anxiolytic activity of benzodiazepines without their sedating or addicting
properties. Furthermore, etifoxine is not associated with abuse, dependence or
respiratory depression and has been observed to have no significant impact on
motor skills or cognition.

Recent advancements: In June 2021, GABA initiated a Phase 1 single and multiple
ascending dose trial of GRX-917. The ongoing Phase 1 trial is a randomized,
double-blind, placebo-controlled study of the safety, tolerability and
pharmacokinetics of single-ascending and multiple-ascending doses of GRX-917
administered orally to healthy volunteers.

Upcoming milestones: Topline data for this trial is expected by mid-year 2022
and the initiation of a Phase 2a proof-of-concept trial is anticipated to follow
in the second half of this year.

DemeRx IB: DMX-1002 for OUD

Product concept: DMX-1002 is an oral formulation of ibogaine, a cholinergic,
glutamatergic and monoaminergic receptor modulator that is a naturally occurring
psychedelic product isolated from a West African shrub, that we are developing
for the treatment of OUD.

Prior evidence in humans: In third-party studies evaluating other formulations
of ibogaine, significant reductions in opioid cravings were observed, both at
discharge and at one month post treatment, and were associated with improved
mood in patients with OUD.

Recent advancements: DMX-1002 is being tested in an ongoing Phase 1/2 trial to
evaluate its safety, tolerability, pharmacokinetics, and efficacy in
recreational drug users and healthy volunteers, to help inform future studies in
patients with opioid use disorder.

Upcoming milestones: We expect safety data from the phase 1 element of the trial
in the second half of 2022.


Kures: KUR-101 for OUD


Product concept: KUR-101 is an oral formulation of deuterated mitragynine being
developed for the treatment of OUD. Mitragynine is a component of the leaves of
kratom (Mitragnyna speciosa).

Prior evidence in humans: Kratom has a long history of traditional medicine use
as an analgesic in parts of Southeast Asia, and its use in the United States has
increased in recent years, particularly amongst individuals seeking to reduce
prescription opioid consumption or manage opioid withdrawal symptoms. Published
third-party human data involving isolated mitragynine are limited, but recent
mechanistic insights suggest that this compound may be well-suited for the
medically assisted therapy of OUD.

Recent advancements: KUR-101 is a Phase 1 randomized, double-blind, two-part
study of the safety, tolerability, pharmacokinetics, analgesic and respiratory
effects of KUR-101 in healthy volunteers. Part 1 is a five-cohort, single
ascending dose study of KUR-101. Part 2 is a three-period crossover study to
compare the analgesic and respiratory effects of a single oral dose of KUR-101,
a single oral dose of immediate release oxycodone (OxyNorm®), and a single oral
dose of placebo in healthy male volunteers.

Upcoming milestones: A Phase 1 single ascending dose trial to evaluate the
maximum tolerable dosage was initiated, with first patient dosed in March and
topline results expected in the second half of 2022.

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Revixia Life Sciences: RLS-01 for TRD

Product concept: RLS-01 is a formulation of SalA, a naturally occurring
dissociative hallucinogenic compound, with pharmacology differentiated from that
of psilocybin or DMT, being developed for the treatment of TRD and other
indications.

Prior evidence in humans: In a third-party study of another formulation of SalA,
the effects of the compound were observed to be similar to those of psilocybin
based upon functional brain imaging. We believe these data combined with
anecdotal usage reports suggest that SalA may possess rapid-acting
antidepressant properties.

Upcoming milestones: RLS-01 is in preclinical development for TRD with a Phase 1
trial expected to be initiated in the first half of 2023.

Viridia Life Sciences: VLS-01 for TRD

Product concept: VLS-01 is a formulation of DMT, the active moiety of the
traditional, hallucinogenic drink ayahuasca. DMT is characterized by an
intrinsically short duration of psychedelic effect with a serum half-life
estimated at less than 10 minutes. VLS-01 is formulated to provide a psychedelic
experience lasting 30 to 45 minutes, thus potentially allowing for a shorter
clinic visit compared to many other psychedelic compounds that may require a
patient to be monitored for four or more hours.

Prior evidence in humans: Ayahuasca administration was shown to provide
significant antidepressant effects compared with placebo at one, two and seven
days after dosing in a double-blind, randomized, placebo-controlled third-party
clinical trial in patients with TRD.

Upcoming milestones: VLS-01 is in preclinical development for TRD with a Phase 1
trial expected to be initiated in the middle of 2022. The study will utilize
buccal and IV formulations in healthy adult volunteers to assess the relative
bioavailability of the buccal versus IV formulations, the safety and
tolerability of VLS-01 administered by both routes, as well as pharmacodynamics
using qEEG and other measures.

EmpathBio: EMP-01 for PTSD

Product concept: EMP-01 is an oral formulation of an MDMA derivative being
developed for the treatment of PTSD. We are developing EMP-01 for the potential
to have an improved therapeutic index compared to racemic MDMA.

Prior evidence in humans: In a meta-analysis of 21 third-party trials of other
formulations of MDMA-combined with psychotherapy for the treatment of PTSD, the
benefits of such treatment were statistically significant versus placebo or
active placebo-assisted therapy alone. In addition, a recent third-party
randomized, double-blind, placebo-controlled phase 3 study with 90 patients with
severe PTSD, showed statistically significant reduction in PTSD symptoms in the
MDMA-assisted psychotherapy group versus placebo.

Upcoming milestones: EMP-01 is in preclinical development for PTSD with a Phase
1 trial expected to be initiated in the second half of 2022.

Neuronasal: NN-101 for mTBI

Product concept: NN-101 is a novel intranasal formulation of NAC. NAC is
believed to stimulate the synthesis of GSH, an endogenous antioxidant that plays
a protective role in the pathogenesis of mTBI.

Prior evidence in humans: An orally administered formulation of NAC was shown to
increase the probability of mTBI symptom resolution at seven days in a
third-party study conducted by the U.S. Army. Neuronasal has also completed a
pilot study of NN-101 in nine healthy volunteers. In this pilot study, NN-101
was observed to be approximately 20 times and 100 times more brain-penetrant
compared to IV and oral NAC, respectively, and was well tolerated.

Our Ownership Position in COMPASS



In addition to our emerging clinical and preclinical programs and enabling
technologies, we led the Series A financing round in 2018 for COMPASS, co-led
their Series B financing round in 2020 and continue to hold a significant equity
ownership position in COMPASS. COMPASS is developing its investigational COMP360
psilocybin therapy, which comprises administration of COMP360 with psychological
support from specially trained therapists, with an initial focus on TRD. The
therapeutic potential of psilocybin administered in conjunction with
psychological support has been shown in multiple academic-sponsored studies,
which did not involve COMP360, specifically exhibiting rapid reductions in
depression symptoms after a single high dose with no SAEs. COMPASS evaluated
COMP360 in conjunction with psychological support in a Phase 2b trial that
concluded in July 2021 and reported its topline data in November 2021. The Phase
2b trial produced positive results that showed patient improvements beyond
reduction of depression symptoms, including in positive affect and quality of
life. The randomized, double-blind, dose-ranging study investigated the safety
and efficacy of psilocybin therapy in
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233 patients, the largest clinical trial with psilocybin to date. In May 2022,
COMPASS announced its end-of-phase 2 meeting with the FDA in April and also
announced it anticipates the initiation of a Phase 3 program in the second half
of 2022. COMPASS also launched a Phase 2 study of COMP360 psilocybin therapy for
post-traumatic stress disorder. As of March 31, 2022, we beneficially owned
9,565,774 shares representing a 22.5% equity interest in COMPASS. Certain of our
founding investors were also seed investors and founders of COMPASS. Our
interest in the product candidates of COMPASS is limited to the potential
appreciation of our equity interest.

Our Enabling Technologies


We believe our enabling technologies have the potential to support the
development of our pipeline and be used as patient support tools. We currently
have four enabling technologies housed at our atai companies: Introspect Digital
Therapeutics, InnarisBio and Psyber, as well as IntelGenx Technologies, a
strategic investment of ours. None of our existing programs were developed using
these enabling technologies, and many of these technologies remain in early
stage testing and development. We intend to use these enabling technologies to
support the future development of our programs. For more information regarding
our enabling technologies, see the section titled "Enabling Technologies" in
Part 1, Item 1 of our Form 10-K filed with the SEC.


Our Drug Discovery Companies


We also believe in the development of innovative and scalable solutions to
better meet patient needs. In November 2019, we acquired a majority interest in
EntheogeniX Biosciences, a controlled variable interest entity, that is an
AI-enabled computational biophysics platform designed to optimize and accelerate
drug discovery. PsyProtix, a majority owned subsidiary we launched in February
2021, is developing metabolomics-based biomarkers that stratify TRD patients
with the aim to improve patient outcomes through a precision psychiatry
approach. In addition, in December 2021 and January 2022, respectively, we
announced the launch of two new companies to support this commitment in driving
next-generation approaches in the treatment of mental health disorders,
TryptageniX and Invyxis. These two companies' approaches to drug discovery are
highly complementary to that of EntheogeniX, our existing AI-enable drug
discovery company, of which we acquired a majority interest in 2019. TryptageniX
will specialize in both the discovery of new chemical entities ("NCEs") for our
pipeline through bioprospecting and on biosynthesis of our naturally derived
development candidates and Invyxis will bring proven medicinal chemistry tools
and comprehensive biological screening approaches to our growing enterprise of
drug discovery and design. Expanding intellectual property has been essential to
our strategy since inception, with key investments made to unlock NCEs. We have
already made substantial progress in our drug discovery efforts to date,
synthesizing and screening approximately 300 compounds and identifying novel
scaffolds that display potential in targeting mental health disorders. For more
information regarding our drug discovery companies, see the section titled "Drug
Discovery Companies" in Part 1, Item 1 our Form 10-K filed with the SEC.


Financial Overview



Since our inception in 2018, we have focused substantially all of our efforts
and financial resources on acquiring and developing product and technology
rights, establishing our platform, building our intellectual property portfolio
and conducting research and development activities for our product candidates
within our atai companies that we consolidate based on our controlling financial
interest of such entities. We operate a decentralized model to enable scalable
drug or technological development at our atai companies. Our atai companies
drive development of our programs and enabling technologies that we have either
acquired a controlling or significant interest in or created de novo. We believe
that this model provides our development teams the support and incentives to
rapidly advance their therapeutic candidates or technologies in a cost-efficient
manner. We look to optimize deployment of our capital in order to maximize value
for our stakeholders.


Wholly owned subsidiaries and VIEs with greater than 50% ownership and deemed
control are consolidated in our financial statements, and our net income (loss)
is reduced for the non-controlling interest of the VIE's share, resulting in net
income (loss) attributable to atai stockholders.


Investments, where we have ownership in the underlying company's equity greater
than 20% and less than 50%, or where we have significant influence, are recorded
under the equity method. We then record losses from investments in equity method
investees, net of tax, for our proportionate share of the underlying company's
net results until the investment balance is adjusted to zero. If we make
subsequent additional investments in that same company, we may record additional
gains(losses) based on changes to our investment basis and also may record
additional income(loss) in equity method investments.


We do not have any products approved for sale and have not generated any revenue
from product sales. We have funded our operations to date primarily with
proceeds from the sale of our common shares and from issuances of convertible
notes.



Factors Affecting our Results

We believe that the most significant factors affecting our results of operations
include:



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Research and Development Expenses



Our ability to successfully develop innovative product candidates through our
programs will be the primary factor affecting our future growth. Our approach to
the discovery and development of our product candidates is still being
demonstrated. As such, we do not know whether we will be able to successfully
develop any of our product candidates. Developing novel product candidates
requires a significant investment of resources over a prolonged period of time,
and a core part of our strategy is to continue making sustained investments in
this area. We have chosen to leverage our platform to initially focus on
advancing our product candidates in the area of mental health.


All of our product candidates are still in development stages, and we have
incurred and will continue to incur significant research and development costs
for preclinical studies and clinical trials. We expect that our research and
development expenses will constitute the most substantial part of our expenses
in future periods in line with the advancement and expansion of the development
of our product candidates.

Acquisitions/Investments


To continue to grow our business and to aid in the development of our various
product candidates, we are continually acquiring and investing in companies that
share our common goal towards advancing transformative treatments, including
psychedelic compounds and digital therapeutics, for patients that suffer from
mental health disorders.


Acquisition of In-Process Research and Development Expenses



In an asset acquisition, including the initial consolidation of a VIE that is
not a business, acquired in-process research and development, or IPR&D, with no
alternative future is charged to the consolidated statements of operations as a
component of operating expenses at the acquisition date.


Since inception, we have grown primarily by continually acquiring and investing
in other companies. Our IPR&D expenses were $0 and $1.0 million, representing 0%
and 6.1% of our total operating expenses for the three months ended March 31,
2022 and 2021, respectively. As we continue to acquire and invest in companies,
we expect our IPR&D expenses to increase.



Stock-Based Compensation


In August 2020, we adopted the 2020 Equity Incentive Plan and the Hurdle Share
Option Plan, which allowed us to grant stock-based awards to executive officers,
directors, employees and consultants. Prior to our IPO, we issued stock options
that vest over a two to four-year service period, only if and when a "Liquidity
Event" (as defined in the plans) occurs, with accelerated vesting if a Liquidity
Event occurred by specified dates. Upon the closing of our IPO, the stock-based
award vesting contingent upon a Liquidity Event was no longer deferred.

Effective April 23, 2021, the Company adopted and our shareholders approved the
2021 Incentive Award Plan. The 2021 Incentive Plan enables the Company to grant
incentive stock options or nonqualified stock options, restricted stock awards
and other stock-based awards to executive officers, directors and other
employees and consultants of the Company. Any shares subject to outstanding
options originally granted under the 2020 Equity Incentive Plan that terminate,
expire or lapse for any reason without the delivery of shares to the holder
thereof shall become available for issuance pursuant the atai Life Sciences 2021
Incentive Award Plan. For the three months ended March 31, 2022 and 2021, we
incurred $10.2 million and $0.2 million of stock-based compensation expense,
respectively.



Impact of COVID-19

The COVID-19 pandemic has continued to present global public health and economic
challenges. Although some research and development timelines have been impacted
by delays related to the COVID-19 pandemic, we have not experienced material
financial impacts on our business and operations as a result. The full extent to
which the COVID-19 pandemic will continue to directly or indirectly impact our
results of operations and financial condition, will depend on future
developments that are highly uncertain, including as a result of new information
that may emerge concerning COVID-19 and the actions taken to contain or treat
it, the success or failure of ongoing vaccination programs worldwide, the
emergence and spread of additional variants of COVID-19, as well as the overall
impact on local, regional, national and international markets and the global
economy. We continue to monitor the impact of the COVID-19 pandemic on our
employees and business, including working remotely on a part or full time basis,
and have, and will continue to, undertake business continuity measures to
mitigate potential disruption to our operations and safety of our employees. For
a discussion of the risks related to COVID-19 and impact to our Company's
business and operations, including our research and development programs and
related clinical trials, refer to the section titled "Risk Factors" in Part I,
Item 1A of the Form
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10-K.




Basis of Presentation and Consolidation



Since our inception, we have created wholly owned subsidiaries or made
investments in certain controlled entities, including partially-owned
subsidiaries for which we have majority voting interest under the VOE model or
for which we are the primary beneficiary under the VIE model, which we refer to
collectively as our consolidated entities. Ownership interests in entities over
which we have significant influence, but not a controlling financial interest,
are accounted for as cost and equity method investments. Ownership interests in
consolidated entities that are held by entities other than us are reported as
redeemable convertible noncontrolling interests and noncontrolling interests in
our condensed consolidated balance sheets. Losses attributed to redeemable
convertible noncontrolling interests and noncontrolling interests are reported
separately in our condensed consolidated statements of operations.




Components of Our Results of Operations

Revenue



On March 11, 2021, we entered into a license and collaboration agreement (the
"Otsuka Agreement"), with Otsuka Pharmaceutical Co., LTD ("Otsuka"), under which
we granted exclusive rights to Otsuka to develop and commercialize certain
products containing arketamine in Japan for the treatment of depression and
other select indications. We received an upfront, non-refundable payment of
$20.0 million in June 2021 and we are also eligible to receive up to $35.0
million if certain development and regulatory milestones are achieved and up to
$66.0 million in commercial milestones upon the achievement of certain
commercial sales thresholds. We are eligible to receive tiered, royalties
ranging from low-teens to high-teens on net sales of licensed products subject
to reduction in certain circumstances.


The Company did not recognize license revenue for the three months ended March
31, 2022. The remaining deferred revenue balance related to the Otsuka Agreement
is not material as of March 31, 2022. To date, there have been no milestones
achieved under the Otsuka Agreement. In March 2021, we satisfied the performance
obligation related to the license upon delivery of the license and recognized
the amount of $19.7 million allocated to the license as license revenue.
Additionally, we recognized revenues of $0.2 million related to certain research
and development services in March 2021.


For the foreseeable future, we may generate revenue from reimbursements of
services under the Otsuka Agreement, as well as milestone payments under our
current and/or future collaboration agreements. We do not expect to generate any
revenue from the sale of products unless and until such time that our product
candidates have advanced through clinical development and regulatory approval,
if ever. We expect that any revenue we generate, if at all, will fluctuate from
year-to-year as a result of the timing and amount of payments relating to such
services and milestones and the extent to which any of our products are approved
and successfully commercialized. Our ability to generate future revenues will
also depend on our ability to complete preclinical and clinical development of
product candidates or obtain regulatory approval for them.



Operating Expenses

Research and Development Expenses



Research and development expenses consist primarily of costs incurred for our
research activities, including our discovery efforts and the development of our
product candidates, which include:



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

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

expenses incurred under agreements with consultants who supplement our internal
capabilities;

the cost of lab supplies and acquiring, developing and manufacturing preclinical
study materials and clinical trial materials;

costs related to compliance with regulatory requirements;

facilities, depreciation and other expenses, which include direct and allocated
expenses for rent and maintenance of facilities, insurance and other operating
costs; and

payments made in connection with third-party licensing agreements.

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Research and development costs, including costs reimbursed under the Otsuka
Agreement, are expensed as incurred, with reimbursements of such amounts being
recognized as revenue. We account for nonrefundable advance payments for goods
and services that will be used in future research and development activities as
expenses when the service has been performed or when the goods have been
received.


Our direct research and development expenses are tracked on a program-by-program
basis for our product candidates and consist primarily of external costs, such
as fees paid to outside consultants, CROs, CMOs and research laboratories in
connection with our preclinical development, process development, manufacturing
and clinical development activities. Our direct research and development
expenses by program also include fees incurred under third-party license
agreements.


We do not allocate internal research and development expenses consisting of
employee and contractor-related costs, to specific product candidate programs
because these costs are deployed across multiple product candidate programs
under research and development and, as such, are separately classified.



Research and development activities are central to our business model. Product
candidates in later stages of clinical development generally have higher
development costs than those in earlier stages of clinical development,
primarily due to the increased size and duration of later-stage clinical trials.
We expect that our research and development expenses will continue to increase
for the foreseeable future in connection with our planned preclinical and
clinical development activities in the near term and in the future.


The successful development of our product candidates is highly uncertain. As
such, at this time, we cannot reasonably estimate or know the nature, timing and
estimated costs of the efforts that will be necessary to complete the remainder
of the development of these product candidates. We are also unable to predict
when, if ever, material net cash inflows will commence from our product
candidates. This is due to the numerous risks and uncertainties associated with
developing products, including the uncertainty of whether (i) any clinical
trials will be conducted or progress as planned or completed on schedule, if at
all, (ii) we obtain regulatory approval for our product candidates and (iii) we
successfully commercialize product candidates.



Acquisition of In-Process Research and Development Expenses



Acquisition of IPR&D expenses consist of acquired in-process research and
development with no future alternative use based on the probability of clinical
success. We expect our acquisition of IPR&D expenses to increase as we continue
to grow and expand.


General and Administrative Expenses



General and administrative expenses consist primarily of salaries and other
related costs, including stock-based compensation, for personnel in our
executive, finance, corporate and business development and administrative
functions, professional fees for legal, patent, accounting, auditing, tax and
consulting services, travel expenses and facility-related expenses, which
include allocated expenses for rent and maintenance of facilities, advertising,
and information technology-related expenses.


We expect that our general and administrative expenses will increase in the
future as we increase our general and administrative headcount to support our
continued research and development and potential commercialization of our
product candidates. We also have incurred increased expenses associated with
being a public company, including increased costs for accounting, audit, legal,
regulatory and tax-related services associated with maintaining compliance with
exchange listing and SEC requirements, director and officer insurance costs, and
investor and public relations costs.


Other Income (Expense), Net

Interest Income



Interest income consists of interest earned on cash balances held in
interest-bearing accounts and interest earned on notes receivable. We expect
that our interest income will fluctuate based on the timing and ability to raise
additional funds as well as the amount of expenditures for our research and
development of our product candidates and ongoing business operations.

Change in Fair Value of Contingent Consideration Liability-Related Parties



Changes in fair value of contingent consideration liability-related parties,
consists of subsequent remeasurement of our contingent consideration
liability-related parties with Perception, TryptageniX and InnarisBio for which
we record at fair value. See "-Liquidity and Capital Resources-Indebtedness"
below for further discussion of our contingent consideration liability-related
parties.


Change in Fair Value of Derivative Liability



Changes in fair value of derivative liability consists of subsequent
remeasurement of our derivative liability relating to certain embedded features
contained in the Perception convertible promissory notes for which we record at
fair value. The Perception convertible promissory
                                       50
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notes were converted during June 2021. See “-Liquidity and Capital
Resources-Indebtedness” below for further discussion the Perception convertible
promissory notes.

Change in Fair Value of Debt Securities carried at Fair Value

Changes in fair value of debt securities consists of changes in fair value of
available for sale debt securities purchased in the first quarter of 2022.

Foreign exchange gain (loss), net



Foreign exchange gain (loss), net consists of the impact of changes in foreign
currency exchange rates on our foreign exchange denominated assets and
liabilities, relative to the U.S. dollar. The impact of foreign currency
exchange rates on our results of operations fluctuates period over period based
on our foreign currency exposures resulting from changes in applicable exchange
rates associated with our foreign denominated assets and liabilities.

Other Income (Expense), net

Other income (expense), net consists principally of interest expense and
impairment related to our other investments.

Provision For Income Taxes



For our consolidated entities, deferred income taxes are provided for the
effects of temporary differences between the amounts of assets and liabilities
recognized for financial reporting purposes and the amounts recognized for
income tax purposes. Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.

We regularly assess the need to record a valuation allowance against net
deferred tax assets if, based upon the available evidence, it is more likely
than not that some or all of the deferred tax assets will not be realized.
Accordingly, we maintain a full valuation allowance against net deferred tax
assets for all entities except for certain subsidiaries in Australia, the United
States, and the United Kingdom as of March 31, 2022 which primarily relate to
German and international tax loss carryforwards. In assessing the realizability
on deferred tax assets, we consider whether it is more-likely-than-not that some
or all of deferred tax assets will not be realized. The future realization of
deferred tax assets is subject to the existence of sufficient taxable income of
the appropriate character (e.g., ordinary income or capital gain) as provided
under the carryforward provisions of local tax law. We consider the scheduled
reversal of deferred tax liabilities (including the effect in available
carryback and carryforward periods), future projected taxable income, including
the character and jurisdiction of such income, and tax-planning strategies in
making this assessment.

Unrecognized tax benefits arise when the estimated benefit recorded in the
financial statements differs from the amounts taken or expected to be taken in a
tax return because of the considerations described above. As of March 31, 2022
and December 31, 2021, we had no unrecognized tax benefits.



Losses from Investments in Equity Method Investees, Net of Tax



Losses from investments in equity method investees, net of tax consists of our
share of equity method investees losses on the basis of our equity ownership
percentage, IPR&D charges resulting from basis differences and impairment
related to our equity method investments.

Net Loss Attributable to Redeemable Noncontrolling Interests and Noncontrolling
Interests



Net loss attributable to redeemable noncontrolling interests and noncontrolling
interests in our consolidated statements of operations is a result of our
investments in certain of our consolidated VIEs, and consists of the portion of
the net loss of these consolidated entities that is not allocated to us. Net
losses in consolidated VIEs are attributed to redeemable noncontrolling
interests and noncontrolling interests considering the liquidation preferences
of the different classes of equity held by the shareholders in the VIE and their
respective interests in the net assets of the consolidated VIE in the event of
liquidation, and their pro rata ownership. Changes in the amount of net loss
attributable to redeemable noncontrolling interests and noncontrolling interests
are directly impacted by changes in the net loss of our VIEs and our ownership
percentage changes.


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Results of Operations

Comparison of the Three Months Ended March 31, 2022 and 2021 (unaudited)



                                             Three Months Ended March 31,
                                                      (unaudited)
                                               2022                 2021          $ Change       % Change
                                                         (in thousands, except percentages)
License revenue                           $             -       $      19,880       (19,880 )       (100%)
Operating expenses:
Research and development                           15,460               5,585         9,875          176.8 %
Acquisition of in-process research and
development                                             -                 972          (972 )     (100.0%)
General and administrative                         17,982               9,273         8,709           93.9 %
Total operating expenses                           33,442              

15,830 17,612 111.3 %

 Income (loss) from operations                    (33,442 )             4,050       (37,492 )     (925.7%)
Other income (expense), net:
Interest income                                        98                  37            61          164.9 %
Change in fair value of contingent
consideration liability -
  related parties                                       -                 251          (251 )     (100.0%)
Change in fair value of derivative
liability                                               -                  41           (41 )     (100.0%)
Change in fair value of debt securities
carried at fair value                                (740 )                 -          (740 )        100.0 %
Foreign exchange gain (loss), net                   2,163               1,491           672           45.1 %
Other income (expense), net                             -                (117 )         117       (100.0%)
Total other income (expense), net                   1,521               1,703          (182 )      (10.7%)
Net income (loss) before income taxes             (31,921 )             5,753       (37,674 )     (654.9%)
Provision for income taxes                            (41 )                (6 )         (35 )        583.3 %
Losses from investments in equity
method investees, net of tax                       (5,596 )            (1,703 )      (3,893 )        228.6 %
Net income (loss)                         $       (37,558 )     $       4,044       (41,602 )    (1028.7%)
Net income (loss) attributable to
redeemable noncontrolling interests and
  noncontrolling interests                           (689 )             3,356        (4,045 )     (120.5%)
Net loss attributable to ATAI Life
Sciences N.V. stockholders                $       (36,869 )     $         688     $ (37,557 )    (5458.9%)




License Revenue


The Company did not recognize license revenue for the three months ended March
31, 2022. The remaining deferred revenue balance related to the Otsuka Agreement
is not material as of March 31, 2022. During the three months ended March 31,
2021, we satisfied the performance obligation related to the license upon
delivery of the license and recognized the amount of $19.7 million allocated to
the license as license revenue. Additionally, we recognized revenues of $0.2
million related to certain research and development services during the three
months ended March 31, 2021.




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Research and Development Expenses

The table and discussion below present research and development expenses for the
three months ended March 31, 2022 and 2021:


                                             Three Months Ended March 31,
                                               2022                 2021           Change         % Change
                                                          (in thousands, except percentages)
Direct research and development
expenses by program:
PCN-101 (Perception)                      $         2,193       $       1,700     $     493             29.0 %
VLS-01 (Viridia)                                    1,795                 421         1,374            326.4 %
EMP-01 (EmpathBio Inc)                              1,364                  83         1,281           1542.8 %
KUR-101 (Kures)                                       796                 294           502            170.6 %
DMX-1002 (DemeRx IB)                                  568                 886          (318 )        (35.8%)
RL-007 (Recognify)                                    397                 400            (3 )         (0.7%)
RLS-01 (Revixia)                                      394                  91           303            332.5 %
Novel drug compounds (Invyxis)                        366                   -           366            100.0 %
Novel drug delivery (InnarisBio)                      240                  25           216            873.7 %
Novel compounds (EntheogeniX)                         216                 112           104             93.2 %
Novel compounds (TryptageniX)                         199                   -           199            100.0 %
Other (Introspect, Psyber, Psyprotix,
Neuronasal)                                           321                 (20 )         341        (1706.5%)
Unallocated research and development
expenses:
Personnel expenses                                  6,331               1,535         4,796            312.4 %
Professional and consulting services                  227                  56           171            305.4 %
Other                                                  52                   2            50           2500.0 %

Total research and development expenses $ 15,460 $ 5,585 $ 9,875

            176.8 %




Research and development expenses were $15.5 million for the three months ended
March 31, 2022, compared to $5.6 million for the three months ended March 31,
2021. The increase of $9.9 million was primarily attributable to an increase of
$4.8 million of personnel costs, which included a $3.6 million increase in
stock-based compensation and an increase of $4.9 million of direct costs at the
platform companies as discussed below.


The $0.5 million increase in direct costs for PCN-101 was primarily due to an
increase of $1.1 million in clinical development costs, offset by a reduction of
$0.3 million of manufacturing expenses and $0.3 million of preclinical expenses.

The $1.4 million increase in direct costs for VLS-01 was primarily due to a $1.1
million increase in manufacturing costs, a $0.2 million increase in preclinical
and $0.1 million in clinical costs.

The $1.3 million increase indirect costs for EMP-001 was primarily due to a $0.9
million increase in preclinical activities cost and a $0.4 million increase in
manufacturing costs.

The $0.5 million increase in direct costs for KUR-101 was primarily due to an
increase in clinical and preclinical activities.

The reduction of direct costs for DMX-1002 program of $0.3 million primarily
relates to clinical development costs and preclinical activities costs.



The direct costs for RL-007 program were consistent with prior year, with a $0.1
million increase in clinical, offset by a $0.1 million decrease in manufacturing
costs.

The increase of direct costs for RLS-01 by $0.3 million was primary attributable
to manufacturing costs.

The direct costs of $0.4 million for Invyxis relate to preclinical and discovery
activities.

The direct costs of $0.2 million for InnarisBio relate to preclinical activities
cost.


The $0.1 million increase is direct costs for EntheogeniX was primarily due to
$0.2 million increase in preclinical activities cost, partially offset by a $0.1
million decrease in manufacturing costs.

The direct costs of $0.2 million for TryptageniX relate to preclinical and
discovery activities.


During the three months ended March 31, 2022, we incurred $0.3 million of direct
costs in association with IntroSpect, Psyber, Psyprotix, and Neuronasal ; direct
costs associated with these programs were related to preclinical development and
initial clinical-stage activities.
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Acquisition of In-Process Research and Development Expense

                                                Three Months Ended March 31,
                                                         (unaudited)
                                               2022                     2021             Change       % Change
                                                           (in thousands, except percentages)
Acquisition of in-process research and
development expense by

program:

Novel drug delivery (InnarisBio)                      -                        972           (972 )   -100.00%
Total acquisition of in-process research
and development
  expense                                  $          -           $            972     $     (972 )   -100.0%



Acquisition of in-process research and development expenses was $0 million for
the three months ended March 31, 2022,.Acquisition of in-process research and
development expenses was $1.0 million for the three months ended March 31, 2021,
which was primarily due to IPR&D acquired from InnarisBio. The acquired IPR&D
was considered to have no future alternative use.



General and Administrative Expenses



General and administrative expenses were $18.0 million for the three months
ended March 31, 2022 compared to $9.3 million for the three months ended March
31, 2021. The increase of $8.7 million was largely attributable to an increase
of $6.4 million in stock-compensation expense, a $0.7 million increase in
personnel and facilities costs, a $1.7 million increase in insurance costs.



Interest Income


Interest income for the three months ended March 31, 2022 and 2021 primarily
consisted of interest earned on our cash balances, investment balances and notes
receivable during these periods. We had interest income for the three months
ended March 31, 2022 and 2021 of $98,000 and $37,000, respectively.


Change in Fair Value of Contingent Consideration Liability-Related Parties



The milestone and royalty payments in relation to the acquisition of Perception
Neuroscience, InnarisBio and TryptageniX were recorded at the acquisition date
or at the exercise date related to the call option, and is subsequently
remeasured to fair value. For the three months ended March 31, 2022, there were
no change in the fair value of our Contingent Consideration Liabilities due to
the fact that no material changes in any of the significant assumptions used to
determine the TryptageniX or InnarisBio Contentigent Consideration Liability
occurred during the three months ended March 31, 2022. We recognized $0.3
million of income for the three months ended March 31, 2021, which was primarily
attributable to Perception's completion of its Phase 1 clinical trial in
September 2020. The completion of this Phase 1 trial increased the probability
of the milestone event occurring and a potential license agreement with a
third-party pharmaceutical company, which would include an upfront payment and
additional milestone payments.


Change in Fair Value of Derivative Liability



Change in fair value of derivative liability was $0 for the three months ended
March 31, 2022, compared to $41,000 for the three months ended March 31, 2021.
The $41,000 decrease was primarily due to the additional issuance of convertible
promissory notes in January 2021 and the increased probability of a potential
licensing transaction with a third-party pharmaceutical company and a decrease
in the probability of a potential preferred equity financing round.




Foreign Exchange Gain (Loss), Net



We recorded a gain of $2.2 million related to foreign currency exchange rates
for the three months ended March 31, 2022 compared to a gain of $1.5 million for
the three months ended March 31, 2021. The delta of $0.7 million was a result of
the impact of fluctuations in the foreign currency exchange rate between the
Euro and the U.S. dollar on our foreign denominated balances.

Other Income (Expense), Net

Other expense, net for the three months ended March 31, 2022 was $0, compared to
other expense, net, of $0.1 million for the three months ended March 31, 2021.





                                       54
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Provision For Income Taxes



We incurred current income tax expense of $41,000 for the three months ended
March 31, 2022. We incurred income tax expense of $6,000 for the three months
ended March 31, 2021. Our current income tax expense relates to book profits and
thus taxable profits generated in one of our United States subsidiaries and our
United Kingdom subsidiary.




Losses from Investments in Equity Method Investees


Losses from investment in equity method investees for the three months ended
March 31, 2022 and 2021 were $5.6 million and $1.7 million, respectively. Loss
from investment in equity method investees represents our share of equity method
investee losses on the basis of our equity ownership percentages or based on our
proportionate share of the respective class of securities in our other
investments in the event that the carrying amount of our equity method
investments was zero.


Liquidity and Capital Resources

Sources of Liquidity


Initial Public Offering

In June 2021, we completed our IPO and issued and sold 17,250,000 of our common
shares at a price to the public of $15.00 per share, which included the exercise
in full by the underwriters of their option to purchase 2,250,000 additional
common shares. We received aggregate net proceeds of $231.6 million, after
underwriting discounts and commissions of $18.1 million and offering costs of
$9.0 million. As of March 31, 2022, we had cash and cash equivalents of $124.0
million and short-term debt securities of $210.9 million.



Convertible Promissory Notes


In November 2018, we issued an aggregate principal amount of $0.2 million of
convertible notes, or the 2018 Convertible Notes. The 2018 Convertible Notes are
non-interest-bearing and have a maturity date of September 30, 2025, unless
previously redeemed, converted, purchased or cancelled. In October 2020, we
issued an additional principal amount of $1.0 million of the 2018 Convertible
Notes. Each note has a face value of €1 and is convertible into one ordinary
share of ATAI Life Sciences AG upon the payment of €17.00. In September and
October 2021, several investors agreed to convert their 2018 Convertible Notes
into common shares of ATAI Life Sciences N.V. and paid an aggregate amount of
€5.8 million ($6.9 million). Concurrently, with the conversion of the 2018
Convertible Notes into ATAI Life Sciences AG shares, the shares of ATAI Life
Sciences AG that were issued to the noteholders were exchanged for shares of
ATAI Life Sciences N.V. through a transfer and sale arrangement such that ATAI
Life Sciences AG continued to remain a wholly owned subsidiary of ATAI Life
Sciences N.V and the transaction was accounted for as an equity transaction that
resulted in no gain or loss recognition. The remaining convertible promissory
notes balance as of March 31, 2022 was $0.7 million.



Investments


While a significant potential source of liquidity resides in our investment in
COMPASS ordinary shares, we do not expect that our investment in COMPASS will be
a material source of liquidity in the near term. Based on quoted market prices,
the market value of our ownership in COMPASS was $123.3 million as of March 31,
2022. As of March 31, 2022, the carrying value of our investment in COMPASS was
$9.8 million under the equity method. Through a series of open market
transactions between November 23, 2021 and December 7, 2021 we purchased
additional equity investments in COMPASS common stock. As of March 31, 2022, our
voting interest in COMPASS was 22.5%.



Liquidity Risks


As of March 31, 2022, we had cash and cash equivalents of $124.0 million and
short-term debt securities of $210.9 million. We believe that our cash and cash
equivalents will be sufficient to fund our projected operating expenses and
capital expenditures through at least the next 12 months from the date of this
Quarterly Report.


We expect to incur substantial additional expenditures in the near term to
support our ongoing activities. Additionally, we expect to incur additional
costs as a result of operating as a public company. We expect to continue to
incur net losses for the foreseeable future. Our ability to fund our product
development and clinical operations as well as commercialization of our product
candidates, will depend on the amount and timing of cash received from planned
financings.


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

                                       55
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the time and cost necessary to complete ongoing and planned clinical trials;

the outcome, timing and cost of meeting regulatory requirements established by
the FDA, the EMA and other comparable foreign regulatory authorities;

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

the costs of commercialization activities for any of our product candidates that
receive marketing approval, including the costs and timing of establishing
product sales, marketing, distribution and manufacturing capabilities, or
entering into strategic collaborations with third parties to leverage or access
these capabilities;

the amount and timing of sales and other revenues from our product candidates,
if approved, including the sales price and the availability of coverage and
adequate third party reimbursement;

the cash requirements for purchasing additional equity from certain of our atai
companies upon the achievement of specified development milestone events;

the cash requirements for developing our programs and our ability and
willingness to finance their continued development;

the cash requirements for any future acquisitions or discovery of product
candidates; and

the time and cost necessary to respond to technological and market developments,
including other products that may compete with one or more of our product
candidates.



A change in the outcome of any of these or other variables with respect to the
development of any of our product candidates could significantly change the
costs and timing associated with the development of that product candidate.
Further, our operating plans may change in the future, and we may need
additional funds to meet operational needs and capital requirements associated
with such operating plans. If we are unable to obtain this funding when needed
and on acceptable terms, we could be forced to delay, limit or terminate our
product development efforts."


Until such time, if ever, as we can generate substantial product revenue, we
expect to finance our operations through a combination of equity financings,
debt financings, collaborations with other companies and other strategic
transactions. We do not currently have any committed external source of funds.
Debt financing and preferred equity financing, if available, may involve
agreements that include covenants limiting or restricting our ability to take
specific actions, such as incurring additional debt, making acquisitions or
capital expenditures or declaring dividends. If we are unable to raise
additional funds through equity or debt financings or other arrangements when
needed, we may be required to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and
market product candidates that we would otherwise prefer to develop and market
ourselves.


Further, our operating plans may change, and we may need additional funds to
meet operational needs and capital requirements for clinical trials and other
research and development activities. Because of the numerous risks and
uncertainties associated with the development and commercialization of our
product candidates, we are unable to estimate the amounts of increased capital
outlays and operating expenditures associated with our current and anticipated
product development programs.



Cash Flows


The following table summarizes our cash flows for three months ended March 31,
2022 and 2021:


                                                         March 31,
                                                     2022          2021
                                                       (in thousands)
Net cash used in operating activities             $  (23,986 )   $ (16,524 )
Net cash used in investing activities               (214,736 )      (3,721 )
Net cash provided by financing activities                132        30,499

Effect of foreign exchange rate changes on cash 299 (3,131 )
Net increase (decrease) in cash

                   $ (238,291 )   $   7,123

Net Cash Used in Operating Activities



Net cash used in operating activities was $24.0 million for the three months
ended March 31, 2022, which consisted of a net loss of $37.6 million, adjusted
by non-cash charges of $15.0 million and net cash outflows from the change in
operating assets and liabilities of $1.5 million. The non-cash charges primarily
consisted of $10.2 million of stock-based compensation, $5.6 million of losses
from our equity
                                       56
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method investments and a $0.7 million loss relating to the change in the fair
value of our short-term debt securities during the period, partially offset by
$1.5 million of unrealized foreign exchange gains. The net cash outflows from
the change in operating assets and liabilities were primarily due to a $1.3
million increase in prepaid expenses and other current assets and a $1.9 million
decrease in accounts payable, partially offset by a $1.7 million increase in
accrued liabilities.

Net cash used in operating activities was $16.5 million for the three months
ended March 31, 2021, which consisted of net income of $4.0 million, adjusted by
non-cash charges of $2.7 million and net cash outflows from the change in
operating assets and liabilities of $23.2 million. The non-cash charges
primarily consisted of $1.7 million of losses from our equity method
investments, $0.2 million related to our stock-based compensation, $0.9 million
of IPR&D considered to have no future alternative use, $0.1 million of loss on
asset acquisition of a variable interest entity and partially offset by $0.2
million of changes in fair value related to our contingent consideration
liability with related parties. The net cash outflows from the change in
operating assets and liabilities were primarily due to a $20.0 million increase
to accounts receivable, a $1.8 million increase in prepaid expenses driven by
materials and non-clinical trials, and $5.4 million decrease in accrued
liabilities, offset by a $3.8 million increase in accounts payable and $0.2
million increase in deferred revenue.



Net Cash Used in Investing Activities



Net cash used in investing activities was $214.7 million for the three months
ended March 31, 2022, primarily driven by $211.7 million of cash paid for debt
securities carried at fair value and $3.0 million of loans remitted to related
parties.


Net cash used in investing activities was $3.7 million for the three months
ended March 31, 2021, primarily driven by additional investments of $0.7 million
in our other investments, $0.2 million of purchases of property, plant and
equipment, $0.5 million additional investments into equity-method investees, and
$2.1 million purchases of notes receivable and $0.2 million purchase of other
assets.


Net Cash Provided by Financing Activities

Net cash provided by financing activities was $0.1 million for the three months
ended March 31, 2022, due to $0.1 million of proceeds from stock option
exercises.


Net cash provided by financing activities was $30.5 million for the three months
ended March 31, 2021, primarily due to $28.4 million of proceeds from the
issuance of our common stock, $0.7 million of proceeds from the issuance of
convertible promissory notes, including convertible promissory notes issued to
related parties, $0.6 million for share option awards exercised, and $2.4
million of proceeds from the sale of Innoplexus investments treated as a secured
financing, offset by $0.8 million paid to related party and $0.8 million paid
for deferred offering costs.



Indebtedness


Convertible Notes

Between November 2018 and March 31, 2022, we issued an aggregate of $34.3
million
of convertible notes.



In November 2018, we issued an aggregate principal amount of $0.2 million of
convertible notes, or the 2018 Convertible Notes. The 2018 Convertible Notes are
non-interest-bearing and have a maturity date of September 30, 2025, unless
previously redeemed, converted, purchased or cancelled. In October 2020, we
issued an additional principal amount of $1.0 million of 2018 Convertible Notes.
Each note has a face value of €1 and is convertible into one ordinary share of
ATAI Life Sciences AG upon the payment of €17.00. Conversion rights may be
exercised by a noteholder at any time prior to maturity, except during certain
periods subsequent to the consummation of the IPO. In September and October
2021, several noteholders elected to convert their convertible promissory notes
into shares of ATAI Life Sciences N.V. These investors paid €17.00 per share for
the aggregate amount of €5.8 million ($6.9 million) in order to convert their
convertible promissory notes into ATAI Life Sciences AG common shares, which was
in accordance with the original terms of the 2018 Convertible Note Agreements.
Concurrent, with the conversion of the 2018 Convertible Notes into ATAI Life
Sciences AG shares, the shares of ATAI Life Sciences AG that were issued to the
noteholders were exchanged for 5,478,176 shares of ATAI Life Sciences N.V.
through a transfer and sale arrangement such that ATAI Life Sciences AG
continued to remain a wholly owned subsidiary of ATAI Life Sciences N.V and the
transaction was accounted for as an equity transaction that resulted in no gain
or loss recognition. As of March 31, 2022 an aggregate principal amount of $0.7
million remained outstanding under the 2018 Convertible Notes.

In March 2020, we received proceeds of $0.6 million from the issuance of
Perception Notes, as defined below, to third party investors. In December 2020,
January 2021, and May 2021 we received $0.4 million, $0.8 million, and $0.8
million respectively, in proceeds from the issuance of additional Perception
Notes. The Perception Notes are convertible upon mandatory conversion events
into shares of Perception. The Perception Notes converted in June 2021 in
connection with the receipt of proceeds of $20.0 million pursuant to the
licensing and collaboration arrangement between Perception and Otsuka
Pharmaceutical Co., LTD.



                                       57
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Investment in Convertible Promissory Notes-Related Party



On September 27, 2019, we purchased convertible promissory notes from COMPASS
for an aggregate principal amount of $4.0 million, and on November 6, 2019, we
purchased an additional convertible promissory note for $4.2 million, together,
the COMPASS Notes. The COMPASS Notes bear interest at an annual rate of 3%,
which was considered contingent in nature and therefore no earned interest was
recorded. We qualified for and elected the fair value option. All principal
amounts under the COMPASS Notes were converted into shares of COMPASS Series B
preferred stock in connection with COMPASS' sale of Series B preferred stock in
April 2020.


On March 16, 2020, Perception Neuroscience entered into a convertible promissory
note agreement with us and certain other unrelated investors, or the Perception
Note Purchase Agreement, pursuant to which Perception Neuroscience issued $3.9
million in principal amount of convertible notes in aggregate. Under the
Perception Note Purchase Agreement, Perception Neuroscience issued convertible
notes, or the Perception Notes, in the aggregate principal amount of $3.3
million to us and $0.6 million to other investors, including related parties.
The Perception Notes bear interest at an annual rate of 5% and are due and
payable on June 30, 2022 unless earlier converted. In December 2020, Perception
Neuroscience issued additional convertible notes to us, certain related parties
and third party investors in the aggregate principal amount of $7.0 million, of
which $5.8 million was issued to us and $1.2 million was issued to other
investors, including related parties. In January 2021, pursuant to the
Perception Note Purchase Agreement, Perception issued an aggregate principal
amount of $0.8 million to other investors, including related parties, as part of
its first tranche funding. In May 2021, Perception Neuroscience issued
additional convertible notes to us, certain related parties and third party
investors in the aggregate principal amount of $5.0 million, of which $4.2
million was issued to us and $0.8 million was issued to other investors,
including related parties, as part of its second tranche funding. The notes bear
interest at an annual rate of 5% and are due and payable on February 28, 2022,
unless earlier converted. Perception Neuroscience may not prepay in whole or in
part without our consent.

In June 2021, Perception received proceeds of $20.0 million pursuant to the
licensing and collaboration arrangement between Perception and Otsuka
Pharmaceutical Co., LTD.
Upon receipt of the proceeds, the convertible
promissory notes automatically converted into 6,456,595 shares of Series A
preferred stock of Perception pursuant to their original terms.

Material Cash Requirements from Known Contractual and Other Obligations and
Commitments


Our commitments and obligations were reported in our Annual Report on Form 10-K
for the year ended December 31, 2021, which was filed with the Securities and
Exchange Commission, or SEC, on March 30, 2022. There have been no material
changes from the contractual commitments and obligations previously disclosed in
our Form 10-K.



Off-Balance Sheet Arrangements

As of March 31, 2022, we did not have any off-balance sheet arrangements, as
defined in Item 303(a)(4)(ii) of Regulation S-K. While we have investments
classified as VIEs, their purpose is not to provide off-balance sheet financing.

Recently Adopted Accounting Pronouncements

See Note 2, “Summary of Significant Accounting Policies-Recently Adopted
Accounting Pronouncements” to our unaudited condensed consolidated financial
statements appearing under Part 1, Item 1 for more information.

Critical Accounting Policies and Estimates

We believe that the assumptions and estimates associated with licenses of
intellectual property, research and development expenses, acquisitions and
share-based compensation have the greatest potential impact on our financial
statements. Therefore, we consider these to be our critical accounting
estimates. Our critical accounting policies are detailed in our Form 10-K.



JOBS Act


We are an emerging growth company, as defined in the JOBS Act. We intend to rely
on certain of the exemptions and reduced reporting requirements provided by the
JOBS Act. As an emerging growth company, we are not required to, among other
things, (i) provide an auditor's attestation report on our system of internal
controls over financial reporting pursuant to Section 404(b) of the
Sarbanes-Oxley Act, and (ii) comply with any requirement that may be adopted by
the Public Company Accounting Oversight Board regarding mandatory audit firm
rotation or a supplement to the auditor's report providing additional
information about the audit and the financial statements (auditor discussion and
analysis). We have elected to use the extended transition period for complying
with new or revised accounting standards that have different effective dates for
public and private companies until the earlier of the date that (i) we are no
longer an
                                       58

——————————————————————————–


emerging growth company or (ii) we affirmatively and irrevocably opt out of the
extended transition period provided in the JOBS Act. As a result, our
consolidated financial statements may not be comparable to companies that comply
with the new or revised accounting pronouncements as of public company effective
dates.


As described in Note 2 to our unaudited consolidated financial statements
included elsewhere in this Quarterly Report, we have early adopted certain
accounting standards, as the JOBS Act does not preclude an emerging growth
company from adopting a new or revised accounting standard earlier than the time
that such standard applies to private companies. We expect to use the extended
transition period for any other new or revised accounting standards during the
period in which we remain an emerging growth company.


We will remain an emerging growth company until the earliest to occur of: (1)
the last day of the fiscal year (a) following the fifth anniversary of the
completion of our initial public offering, or December 31, 2026, (b) in which we
have total annual gross revenues of $1.07 billion or more, or (c) in which we
are deemed to be a large accelerated filer under the rules of the SEC, which
means the market value of our outstanding common shares held by non-affiliates
equal or exceeds $700 million as of last business day of our most recently
completed second fiscal quarter, and (2) the date on which we have issued more
than $1.0 billion in nonconvertible debt during the previous three years.

© Edgar Online, source Glimpses



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