Axovant Sciences (AXON) is a clinical-stage biopharmaceutical company dedicated to advancing treatments for patients with life-altering neurologic conditions. To date, its primary focus has been on developing intepirdine, an orally administered antagonist of the 5-HT 6 receptor, for the treatment of Alzheimer's disease and dementia with Lewy bodies, or DLB, and its second product candidate, nelotanserin, a potent and highly selective inverse agonist of the 5-HT 2A receptor, for the treatment of visual hallucinations in patients with Lewy body dementia, or LBD, movement disorder symptoms in patients with DLB and REM behavior disorder, or RBD, in patients with LBD. In September 2017, the company announced that the Phase 3 MINDSET clinical trial of 35 mg intepirdine in patients with mild-to-moderate Alzheimer's disease who were receiving background donepezil therapy did not meet its co-primary efficacy endpoints. Axovant Sciences is continuing to advance the products in its pipeline, focusing on the cognitive, functional and behavioral aspects of debilitating conditions such as Alzheimer's and Lewy body dementia and other neurological disorders and are also committed to identifying, developing and commercializing other novel treatments for unmet needs in neurology, including areas outside of dementia. Axovant Sciences is actively exploring opportunities to obtain rights to additional products, product candidates and technologies to continue to build its pipeline.

In September 2017, the company announced top-line results from the MINDSET study. At 24 weeks, patients treated with 35 mg of intepirdine did not experience improvement in cognition or in measures of activities of daily living as measured by the Alzheimer's Disease Assessment Scale-Cognitive Subscale (ADAS-Cog) and by the Alzheimer's Disease Cooperative Study-Activities of Daily Living scale (ADCS-ADL), respectively, compared to patients treated with placebo. After 24 weeks of treatment, change from baseline in cognition was non-significantly improved in the intepirdine arm versus the placebo arm (0.36 ADAS-Cog points; p-value = 0.22). In addition, there was essentially no difference between the intepirdine and placebo arms in change from baseline in activities of daily living (0.09 ADCS-ADL points; p-value = 0.83). Of the endpoints analyzed to date, the only endpoint in which any significant improvement was seen in the intepirdine arm versus the placebo arm was in the first key secondary endpoint, the Clinician Interview-Based Impression of Change plus caregiver interview, or CIBIC+ (0.12 CIBIC+ points; p-value = 0.02). In the study, intepirdine was generally well tolerated. Axovant Sciences has discontinued plans to develop the 35 mg dose of intepirdine for Alzheimer's disease and RVT-103 for Alzheimer's disease.

The company will continue to develop intepirdine for the treatment of DLB in its HEADWAY study testing 35 mg and 70 mg compared to placebo. Axovant Sciences is also studying the effects of intepirdine on gait and balance in patients with Alzheimer's disease, DLB and Parkinson's disease dementia in an ongoing Phase 2 study. Axovant Sciences is continuing to develop nelotanserin, a highly selective 5-HT 2A receptor inverse agonist, for the treatment of visual hallucinations in patients with LBD, movement disorder symptoms in patients with DLB and RBD, in patients with LBD. In addition, Axovant Sciences is also developing RVT-104, a combination of rivastigmine and a peripheral muscarinic receptor antagonist, as a potential treatment for patients with Alzheimer's disease or DLB.

The company were founded in October 2014 and its operations to date have been limited to organizing and staffing its company, raising capital, acquiring its product candidates and advancing its lead product candidates, intepirdine and nelotanserin, into clinical development. In June 2015, the company completed its initial public offering, or IPO, from which the company raised net proceeds of $334.5 million, after deducting underwriting discounts and commissions and offering expenses paid by it. In February 2017, the company and its subsidiaries entered into a loan and security agreement with Hercules Capital, Inc., from which the company raised net proceeds of $53.5 million. In April 2017, the company completed a follow-on public offering of its common shares, from which the company raised net proceeds of approximately $134.5 million , after deducting underwriting discounts and commissions and offering expenses paid by it.

To date, Axovant Sciences has not generated any revenue and the company recorded net losses of $69.1 million and $42.3 million for the three months ended September 30, 2017 and 2016, respectively, $138.4 million and $80.3 million for the six months ended September 30, 2017 and 2016, respectively, and $181.0 million for the year ended March 31, 2017. Axovant Sciences has determined that Axovant Sciences has one operating and reporting segment.

Product Pipeline

The following table summarizes the status of its development programs to which Axovant Sciences GmbH, its wholly owned subsidiary, holds global commercial rights:

Intepirdine

Overview

The company's product candidate, intepirdine, is currently being developed for the treatment of DLB. The company acquired the worldwide rights to intepirdine from Glaxo Group Limited and GlaxoSmithKline Intellectual Property Development Limited, collectively GSK, under an asset purchase agreement entered into in December 2014, or the GSK Agreement.

Alzheimer's Disease

Alzheimer's disease, the most common form of dementia. is a progressive neurodegenerative disorder that results in significant impairments in cognition, function and behavior. According to the Alzheimer's Association, Alzheimer's disease affects approximately 5.5 million people in the United States. It is estimated that between 70% and 90% of Alzheimer's disease patients age 65 and older are classified as having mild-to-moderate Alzheimer's disease. No new chemical entity has been approved by the FDA for the treatment of Alzheimer's disease since 2003.

Intepirdine Phase 3 MINDSET Trial

In September 2017, the company announced top-line results from the MINDSET trial. At 24 weeks, patients treated with 35 mg of intepirdine did not experience improvement in cognition or in measures of activities of daily living as measured by the Alzheimer's Disease Assessment Scale-Cognitive Subscale (ADAS-Cog) and by the Alzheimer's Disease Cooperative Study-Activities of Daily Living scale (ADCS-ADL), respectively, compared to patients treated with placebo. In the study, intepirdine was generally well tolerated. The company do not plan to continue development of the 35 mg dose of intepirdine for the treatment of Alzheimer's disease.

Intepirdine MINDSET Open-Label Extension Study

Subjects completing the Phase 3 MINDSET trial were eligible to enter a 12-month open-label extension, or OLE, safety study. Although the company previously disclosed that the company would conclude the MINDSET OLE safety study, Axovant Sciences has elected to keep it open while the company evaluate the feasibility of studying higher doses of intepirdine in the OLE study population, an analysis that may be influenced by any potential signals seen at the 70 mg intepirdine dose in the HEADWAY study.

Intepirdine for the Treatment of Dementia with Lewy Bodies

Axovant Sciences is developing intepirdine to address DLB, a subset of LBD, which is a progressive neurodegenerative disorder pathologically characterized by the aggregation of alpha-synuclein and other proteins in the brain, known as Lewy bodies, causing disruption in cognition, function and behavior. DLB is the second most prevalent cause of neurodegenerative dementia in elderly patients. The company estimate that DLB affects approximately 1.1 million people in the United States. In addition to suffering from deficits and fluctuations in cognition, DLB patients often suffer from visual hallucinations; parkinsonism, a constellation of motor symptoms often found in patients with Parkinson’s disease and related movement disorders, including tremor, bradykinesia, and stiffness; sensitivity to neuroleptic (antipsychotic) medications; and RBD, a condition in which patients physically act out their dreams.

In the first quarter of calendar year 2016, the company began a Phase 2b clinical trial of intepirdine, called the HEADWAY study, in patients with DLB on a background of stable standard of care therapy. In addition to the 35-mg dose of intepirdine that was studied in the MINDSET study, Axovant Sciences is evaluating a 70 mg dose of intepirdine in this trial, a higher dose which the company believe could have potentially greater activity at the 5-HT 6 receptor in addition to greater activity against the 5-HT 2A receptor to potentially address visual hallucinations, motor symptoms and REM sleep behavioral disturbances in this patient population. This decision to evaluate the higher dose was supported by a safety and food-effect study testing the 70 mg dose that the company completed in 2015. In September 2016, the company received Fast Track designation from the FDA for intepirdine for the treatment of DLB. The company completed recruitment for the Phase 2b HEADWAY study in April 2017. Axovant Sciences is reevaluating endpoints for the HEADWAY trial and plan to have a discussion with FDA to help it determine the most feasible and expeditious overall pathway to potential registration. Based on these anticipated activities, the company now expect to announce the results of HEADWAY study in January 2018.

Intepirdine for Gait and Balance in Alzheimer's Disease, Dementia with Lewy Bodies and Parkinson's Disease Dementia

In addition to evaluating intepirdine in patients with DLB, Axovant Sciences is also evaluating the effects of 35 mg intepirdine on gait and balance in patients with Alzheimer's disease, DLB and Parkinson's disease dementia. In addition to cognitive deficits, these patients often present with a history of defined gait impairment.

Falls are a significant issue in the elderly, and 35% and 40% of community-dwelling generally healthy adults over age 65 fall each year. Falls also impose a significant economic burden on the healthcare system in addition to the serious morbidity and mortality with which they are associated. It is estimated that the annual direct medical costs for fall injuries are approximately $31 billion. Patients with dementia are more prone to falls due to impaired cognition and gait.

In September 2016, the company initiated a double-blind, randomized, placebo-controlled Phase 2 crossover study of 35 mg intepirdine to evaluate its effects on gait and balance in patients with Alzheimer's disease, DLB and Parkinson's disease dementia. Axovant Sciences has enrolled 38 patients in this Phase 2 study. The company anticipate announcing the results of this study in January 2018.

Nelotanserin

Overview

In October 2015, the company acquired from its parent company, Roivant Sciences Ltd., or RSL, the global rights to nelotanserin, a highly selective inverse agonist of the 5-HT 2A receptor. Initially, Axovant Sciences is investigating and developing nelotanserin to address visual hallucinations in patients with LBD and RBD in patients with LBD.

Nelotanserin for Visual Hallucinations in Lewy Body Dementia

LBD includes two similar conditions, DLB and Parkinson’s disease dementia. There is significant overlap in the pathology and clinical presentation of both conditions; however, the primary difference generally depends on the timing of the onset of cognitive decline relative to the onset of movement-related symptoms. In DLB, the cognitive decline typically occurs before or within one year of the onset of movement disorder symptoms. In Parkinson's disease dementia, movement disorder symptoms typically precede cognitive decline by more than one year. The Lewy Body Dementia Association estimates that there are 1.4 million patients with LBD in the United States.

LBD patients suffer from frequent visual hallucinations, which are often treated with off-label atypical antipsychotic medications such as quetiapine. Use of atypical antipsychotic medications, which have activity against the dopamine D2 receptor, can lead to increased or possibly irreversible parkinsonism in LBD patients and a life threatening side-effect resembling neuroleptic malignant syndrome. The company believe that there is a need for new therapeutic options that can reduce visual hallucinations in LBD patients without risk of these severe side effects.

In January 2016, the company initiated a double-blind, randomized, placebo-controlled, cross-over Phase 2 clinical study of nelotanserin in approximately 20 patients with either DLB or Parkinson's disease dementia who had experienced frequent visual hallucinations. In February 2017, the company reported preliminary results from a planned interim analysis of the first 11 patients to complete this pilot study.

Among these patients, the company observed a statistically significant 8.73 point difference in change from baseline at week 4 of a pre-specified primary endpoint of Unified Parkinson’s Disease Rating Scale (UPDRS) Parts II+III (p-value = 0.012) during periods in which patients received nelotanserin, as compared to periods during which those same patients received placebo. On the UPDRS Part II, which measures activities of daily living, there was a 1.11 point difference from placebo (p-value = 0.434). On the UPDRS Part III, which measures motor function, there was a 7.92 point difference from placebo (p-value = 0.005). Safety analysis included measurement of the incidence of adverse events. In the interim analysis, secondary endpoints evaluating visual hallucinations did not demonstrate statistically significant differences for nelotanserin relative to placebo. Based on these preliminary results, the company expanded patient recruitment beyond the 20 patients originally planned in order to confirm the treatment benefits observed in the interim results from this ongoing study. The company now expect to report results from the expanded study in January 2018. In June 2017, the company received Fast Track designation from the FDA for nelotanserin for the treatment of visual hallucinations in DLB.

Nelotanserin for Parkinsonism in Dementia with Lewy Bodies

Parkinsonism is a core feature of LBD, which includes patients diagnosed with both Parkinson’s disease dementia and DLB. Treatment with dopaminergic agents (such as L-DOPA and/or dopamine agonists) is common for patients with Parkinson’s disease, but dopaminergic therapy can exacerbate neuropsychiatric symptoms in patients diagnosed with DLB. The company believe that there is a need for new therapeutic options for DLB patients that can reduce the burden of motor symptoms without increasing the risk of neuropsychiatric side-effects.

If Axovant Sciences is able to confirm the UPDRS improvements observed in DLB patients in the interim results of its ongoing Phase 2 clinical study of nelotanserin, the company intend to discuss with the FDA the use of UPDRS as a potential registrational endpoint for the treatment of parkinsonism in patients with DLB. Depending on the FDA's feedback, the company would potentially pursue a Phase 3 program with nelotanserin in this indication.

Nelotanserin for REM Behavior Disorder in Lewy Body Dementia

RBD is a common clinical feature of LBD, and is a condition in which patients can physically act out their dreams, impacting their quality of life and endangering themselves and their bed partners. While off-label treatment of RBD with benzodiazepines is common, this class of drugs is associated with severe side effects in patients with dementia, including sedation, worsening of cognition and increased risk of falls. The company believe that there is a need for new therapeutic options that can reduce the frequency of RBD without sedating patients or worsening cognition in patients with dementia.

In March 2016, the company initiated a four-week double-blind, randomized, placebo-controlled Phase 2 study in patients with DLB and Parkinson's disease dementia suffering from RBD. This study will utilize objective measures of efficacy as assessed in a sleep-lab setting. The company now expect to receive results from this study in the second quarter of calendar year 2018.

Nelotanserin Lewy Body Dementia Open-Label Extension Safety Study

Subjects completing either of the nelotanserin Phase 2 studies in LBD described above are eligible to enter a six-month OLE safety study. To date, three subjects in the OLE study exhibited elevated liver function test levels that led to discontinuation of the study drug. These subjects normalized their liver function test levels after they were taken off the study drug, and an independent Data Monitoring Committee, after reviewing their data, recommended continuing both of the nelotanserin Phase 2 studies and the OLE safety study with additional monitoring.

RVT-104

Overview

In August 2016, the company and Qaam Pharmaceuticals LLC, or Qaam, entered into an exclusive license agreement under which the company in-licensed the rights to develop and commercialize RVT-103 and RVT-104, product candidates that combine cholinesterase inhibitors with peripherally acting quaternary amine muscarinic receptor antagonists. These combinations could provide a means to mitigate the known peripheral side effects of cholinesterase inhibitors and may also allow higher than currently approved doses of cholinesterase inhibitors such as rivastigmine, which the company believe may improve treatment of symptoms of neurodegenerative disorders such as Alzheimer’s disease and LBD.

RVT-104 in Alzheimer's Disease and Dementia with Lewy Bodies

Cholinesterase inhibitors are the standard of care in both Alzheimer’s disease and DLB. Despite their widespread use, many patients cannot tolerate the cholinesterase inhibitors because of their cholinergic side effects such as nausea, vomiting and diarrhea. The company believe that drugs that can mitigate these cholinergic side effects will allow more patients to receive optimal cholinesterase inhibitor therapy. The company's pilot RVT-104 study, initially in healthy volunteers in an inpatient setting, is being redesigned to assess the effects in dementia patients in the outpatient setting. The company anticipate commencing this study in dementia patients in first quarter 2018.

Key Agreements

Asset Purchase Agreement with GlaxoSmithKline for Intepirdine

In December 2014, the company acquired the worldwide rights to intepirdine from GSK. Under the GSK Agreement, the company made an upfront payment of $5.0 million and an additional $5.0 million payment in June 2016. Axovant Sciences is also obligated to pay GSK $35.0 million, $25.0 million and $10.0 million upon the receipt of marketing approval of intepirdine in the United States, the European Union and Japan, respectively, as well as an additional one-time payment of $85.0 million for the first calendar year in which the company achieve global net sales of $1.2 billion for intepirdine. Under the GSK Agreement, Axovant Sciences is also obligated to pay a fixed 12.5% royalty based on net sales of intepirdine, subject to reduction on account of expiration of patent and regulatory exclusivity or upon generic entry.

The company's royalty obligations with respect to the GSK Agreement will end, on a product-by-product and country-by-country basis, on the latest of: (1) expiration of the last valid claim of the assigned patents covering the manufacture, use or composition of such product in such country; (2) expiration of regulatory exclusivity for such product in such country; or (3) 12 years from the first commercial sale of such product in such country, or if such country is one of the five major European countries listed in the GSK Agreement, then 12 years from the first commercial sale of such product in at least three such major European countries.

The company's royalty payment obligations and milestone payment obligations under the GSK Agreement may be reduced by a portion of royalty payments, and in some cases other payments, made to third parties for rights to certain U.S. patents, in each case subject to a maximum reduction.

Arena Development Agreement for Nelotanserin

In October 2015, the company exercised an option to acquire global rights, title, interest and obligations in and to nelotanserin from its parent company, RSL. In May 2015, RSL entered into a development, marketing and supply agreement for nelotanserin, or the Arena Development Agreement, with Arena Pharmaceuticals GmbH, or Arena, and the company entered into a Waiver and Option Agreement with RSL. Upon the exercise of its option, the company assumed RSL’s rights and obligations under the Arena Development Agreement, as amended on October 18, 2017. Under the Waiver and Option Agreement, the company recorded $5.3 million as research and development expense which was 110% of the payments made to Arena by RSL, and the costs incurred by RSL in connection with the development of nelotanserin. The company will be responsible for future contingent payments under the Arena Development Agreement, including up to $4.0 million in potential development milestone payments, up to $37.5 million in potential regulatory milestone payments and up to $60.0 million in potential commercial milestone payments. Under the Arena Development Agreement, Axovant Sciences is also obligated to purchase all commercial supplies of nelotanserin from Arena at a fixed price equal to 15% of net sales of nelotanserin.

The Arena Development Agreement will remain in effect until terminated: (1) by the parties’ mutual agreement; (2) for any reason by it upon 90 days’ written notice to Arena; (3) by either party upon written notice for the other party’s material breach or insolvency event if such party fails to cure such breach or the insolvency event is not dismissed within the specified cure period; or (4) by Arena if the company or its affiliates participate in a challenge to certain Arena patents.

Services Agreements with Roivant Sciences, Inc. and Roivant Sciences GmbH

In October 2014, the company and its wholly owned subsidiary, Axovant Sciences, Inc., or ASI, entered into a services agreement with Roivant Sciences, Inc., or RSI, a wholly owned subsidiary of RSL, pursuant to which RSI provides it with services in relation to the identification of potential product candidates and project management of clinical trials, as well as other services related to its development, administrative and financial functions. In February 2017, in connection with the contribution and assignment of all of its intellectual property rights to Axovant Sciences GmbH, or ASG, the company amended and restated this services agreement effective as of December 13, 2016, as a result of which ASG was added as a recipient of services from RSI. In addition, ASG also entered into a separate services agreement with Roivant Sciences GmbH, or RSG, a wholly owned subsidiary of RSL, effective as of December 13, 2016, for the provision of services by RSG to ASG in relation to the identification of potential product candidates and project management of clinical trials, as well as other services related to development, administrative and financial activities. Under the terms of both services agreements, Axovant Sciences is obligated to pay or reimburse RSI and RSG for the costs they, or third parties acting on their behalf, incur in providing services to it or ASG, including administrative and support services as well as research and development services. In addition, Axovant Sciences is obligated to pay RSI and RSG for their services at a pre-determined mark-up on the costs incurred directly by RSI and RSG in connection with any general and administrative and research and development services provided directly by RSI and RSG.

Under the services agreement in effect as of December 31, 2016, the company incurred expenses of $1.6 million and $1.5 million for the three months ended September 30, 2017 and 2016 , respectively, and $4.4 million and $3.4 million for the six months ended September 30, 2017 and 2016, respectively, inclusive of the mark-up. Axovant Sciences has recorded these charges as research and development expense and general and administrative expense in its condensed consolidated statements of operations.

Venture Debt Financing from Hercules Capital, Inc.

On February 2, 2017, we, Axovant Holdings Limited, or AHL, ASG and ASI entered into a loan and security agreement, as amended on May 24 and September 22, 2017, the ‘‘Loan Agreement’’, with Hercules Capital, Inc., or Hercules, under which we, AHL and ASG, collectively the Borrowers, borrowed an aggregate of $55.0 million, or the Term Loan. ASI issued a guaranty of the Borrowers’ obligations under the Loan Agreement. At the closing of the Term Loan, the Borrowers paid Hercules a facility charge of $550,000. The Term Loan bears interest at a variable per annum rate calculated for any day as the greater of either  the prime rate plus 6.80%, and (ii) 10.55%. Debt issuance fees paid to Hercules were recorded as a discount on the debt and will be amortized to interest expense using the effective interest method over the life of the Loan Agreement. The Term Loan has a scheduled maturity date of March 1, 2021, or the Scheduled Maturity Date. The Borrowers are obligated to make monthly payments of accrued interest under the Loan Agreement until September 1, 2018, followed by monthly installments of principal and interest through the Scheduled Maturity Date. In connection with the Loan Agreement, the Borrowers and ASI, as guarantor, granted Hercules a first position lien on substantially all of their respective assets, excluding intellectual property. Prepayment of the Term Loan is subject to penalty.

In connection with the entry into the Loan Agreement, the company issued a warrant to Hercules which was exercisable for an aggregate of 274,086 of its common shares at an exercise price of $12.04 per share. In August 2017, Hercules exercised the warrant on a cashless basis and elected to receive a net issuance of 129,827 of its common shares.

The Loan Agreement includes customary affirmative and restrictive covenants and representations and warranties, including

a minimum cash covenant that applies commencing on July 1, 2017, a covenant against the occurrence of a “change in control,” financial reporting obligations, and certain limitations on indebtedness, liens (including a negative pledge on intellectual property and other assets), investments, distributions (including dividends), collateral, transfers, mergers or acquisitions, taxes, corporate changes, and deposit accounts. The Loan Agreement also includes customary events of default, including payment defaults, breaches of covenants following any applicable cure period, the occurrence of certain events that could reasonably be expected to have a “material adverse effect” as set forth in the Loan Agreement, cross acceleration to the debt and certain events relating to bankruptcy or insolvency. Upon the occurrence of an event of default, a default interest rate of an additional 5.0% may be applied to the outstanding principal balance, and Hercules may declare all outstanding obligations immediately due and payable and take such other actions as set forth in the Loan Agreement.

In addition, for so long as the Term Loan remains outstanding, Axovant Sciences is required to use commercially reasonable efforts to afford Hercules the opportunity to participate in future underwritten equity offerings of its common shares up to a specified amount.