ATHIRA PHARMA, INC. You should read the following management's discussion and analysis of financial condition and results of operations in conjunction with our consolidated financial statements and notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. This discussion and analysis and other parts of this report contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives, expectations, forecasts and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the section of this Annual Report on Form 10-K titled "Risk Factors" and elsewhere in this report. You should carefully read the "Risk Factors" to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section of this report titled "Special Note Regarding Forward-Looking Statements."
Overview
We are a late clinical-stage biopharmaceutical company focused on developing small molecules engineered to restore neuronal health and slow neurodegeneration. Our approach is designed to target the HGF/MET system that is critical to normal brain function and may play a key role in maintaining the health and functioning of neuronal networks. We believe that by acting on the HGF/MET system and its multiple downstream signaling pathways, we may be able to enhance the body's natural ability to protect and repair neuronal networks by reducing inflammation, promoting regeneration and reducing disease-specific protein pathologies, thereby positively impacting the course of disease. We aim to achieve these goals by advancing our pipeline of novel small molecule compounds which are designed to and have exhibited properties in enhancing the HGF/MET system in either the central nervous system, or CNS, by crossing the blood brain barrier, or BBB, or the peripheral nervous system, or PNS.
Our lead candidate, fosgonimeton, is a subcutaneously administered, small molecule positive modulator of the HGF/MET system for CNS disorders. The effects of fosgonimeton in its primary target indication, AD, are currently being evaluated in multiple clinical trials:
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ACT-AD*, was a randomized, double-blind, placebo-controlled, parallel-group
26-week exploratory Phase 2 clinical trial in mild-to-moderate AD, with ERP P300
latency as the primary endpoint. Initiated in
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LIFT-AD, a randomized, double-blind, placebo-controlled, parallel-group 26-week
Phase 2/3 clinical trial with fosgonimeton for the treatment of mild-to-moderate
AD. In
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independent data monitoring committee recommended continuation of the LIFT-AD trial. The committee also determined that, with the additional enrollment of fewer than 150 participants for a total enrollment of less than 300 participants without background AChEIs, the amended trial will be well powered for the primary endpoint given the preliminary effect size observed. We are targeting to complete enrollment in mid-2023 and report topline data in early 2024.
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In
*The ACT-AD trial and the related open-label extension for ACT-AD participants
(described further below) was and are supported by a grant from the
The following figure illustrates the current development stage of our ATH compounds and early discovery and development programs. Our pipeline consists of both BBB permeable and peripherally restricted drug candidates for CNS, PNS and other indications. In addition, we are exploring the use of our ATH compounds in additional indications in the CNS and PNS as we aim to improve neuronal health in multiple neurodegenerative diseases. Our drug discovery efforts are focused on designing and testing new early compounds to enhance the HGF/MET system for a variety of clinical applications.
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We constantly strive to grow and optimize our portfolio through in-house discovery and plan on additional external business development activities enabled by our innovative internal research and development capabilities.
We were incorporated in
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sufficient to achieve profitability, if ever, will depend on the successful development of one or more of our product candidates which we expect will take a number of years.
We are focused on the development of small molecule therapeutics which enables us to use well-established and widely available manufacturing processes and infrastructure, formulation compositions and drug administration technologies or devices. We do not currently operate our own facilities for manufacturing, storing, or distributing our product candidates. We utilize third-party contract manufacturing organizations, or CMOs, to manufacture and supply our preclinical and clinical materials during the development of our product candidates. We believe the synthesis of fosgonimeton is reliable and reproducible and the synthetic methods can be further optimized to enable large-scale production that continues to avoid use of toxic materials or specialized equipment or handling during the manufacturing process. We plan to continue to optimize the manufacturing process to support future large-scale and commercial supply. Our goal is to identify and develop small molecule product candidates that are cost-effective to manufacture and easily transferable to third party CMOs. We expect to use similar contract resources for commercialization of our products, at least until our resources and operations are at a scale that justifies investment in internal manufacturing capabilities.
Given our stage of development, we have not yet established a commercial organization or distribution capabilities. We intend to build a commercial infrastructure to support sales of our product candidates. We expect to manage sales, marketing and distribution through internal resources and third-party relationships. While we may commit significant financial and management resources to commercial activities, we will also consider collaborating with one or more pharmaceutical companies to enhance our commercial capabilities.
To date, we have funded our operations primarily through proceeds from the sale
of equity securities, including proceeds from the sale and issuance of common
stock in our IPO and in a subsequent follow-on public offering, the sale and
issuance of convertible preferred stock, common stock warrants, and convertible
notes, and to a lesser extent from grant income and stock option exercises. From
inception to
We expect to continue to incur increasing operating losses for the foreseeable future as we:
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continue to advance fosgonimeton and our other product candidates through preclinical studies and clinical trials, and further extend the open label extension of the ACT-AD and LIFT-AD trials;
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expand our pipeline of product candidates;
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continue to grow our discovery organization and invest in the ATH platform;
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ramp up manufacturing activities;
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attract, hire and retain additional personnel;
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obtain, maintain, expand and protect our intellectual property portfolio;
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operate as a public company;
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expand our laboratory and office facilities;
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implement operational, financial and management information systems;
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seek regulatory approval for any product candidates that successfully complete clinical trials;
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establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval; and
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•
incur legal expenses associated with ongoing litigation, as further described in "Part I, Item 3-Legal Proceedings," and elsewhere in this report.
Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.
We will require substantial additional funding to support our continuing
operations and further the development of our product candidates. Until such
time as we can generate significant revenue from product sales, if ever, we
expect to finance our operations through the sale of equity, debt financings, or
other capital sources, which could include income from collaboration, licensing
or similar arrangements, for the foreseeable future. Adequate funding may not be
available when needed or on terms acceptable to us, or at all. If we are unable
to raise additional capital as needed, we may have to significantly delay, scale
back or discontinue development of our product candidates. Our ability to raise
additional funds may be adversely impacted by potential worsening global
economic conditions and the recent disruptions to, and volatility in, the credit
and financial markets in
Our Collaboration and Grant Agreements
Amended and Restated Washington State University License Agreement
We are party to an amended and restated exclusive license agreement with
sublicensing terms with
The initiation of our first Phase 2 clinical trial in
We are obligated to pay to WSU the following if the related milestones are reached:
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We are obligated to pay WSU a royalty in the mid-single digits of net sales.
Additionally, under the agreement we have the right to sublicense the licensed rights, subject to additional payments to WSU for sublicense consideration received. Such amounts are dependent on the terms of the underlying sublicense, and range from the mid-single digits to mid tens of any non-sales based payments received, and low twenties of net sales-based sublicense royalties.
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In
Components of Operating Results
Operating Expenses
Research and Development
Research and development expenses consist primarily of direct and indirect costs incurred for our research activities, including development of the ATH platform, our drug discovery efforts and the development of our product candidates. Direct costs include laboratory materials and supplies, contracted research and manufacturing, clinical trial costs, consulting fees, and other expenses incurred to sustain our research and development program. Indirect costs include personnel-related expenses, consisting of employee salaries, related benefits, and stock-based compensation expense for employees engaged in research and development activities, and facilities and other expenses consisting of direct and allocated expenses for rent and depreciation, and lab consumables.
We expense research and development costs as incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed. In-licensing fees and other costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use are expensed when incurred. We track direct costs by stage of program, clinical or preclinical. However, we do not track indirect costs on a program specific basis because these costs are deployed across multiple programs and, as such, are not separately classified.
As of the date of this report, we cannot reasonably determine the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. Product candidates in later stages of development generally have higher development costs than those in earlier stages. We expect that our research and development expenses will increase for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, as our product candidates advance into later stages of development, as we conduct larger clinical trials, as we seek regulatory approvals for any product candidates that successfully complete clinical trials, as we expand our product pipeline, as we maintain, expand, protect and enforce our intellectual property portfolio, and as we incur expenses associated with hiring additional personnel to support our research and development efforts. In particular, we have seen, and expect to continue to see, our research and development expenses increase as we conduct our clinical trials for fosgonimeton, including open-label extensions for those trials. Additionally, we may experience an overall increase in research and development expenses as a result of inflation.
The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. Our research and development expenses may vary significantly based on factors such as:
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the number and scope of preclinical and IND-enabling studies;
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the phases of development of our product candidates;
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the progress and results of our research and development activities;
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per subject trial costs;
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the number of trials required for regulatory approval, in particular with respect to fosgonimeton for the treatment of mild-to-moderate AD;
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the further extension of the open label extension of the ACT-AD and LIFT-AD trials;
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the number of sites included in the trials;
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the countries in which the trials are conducted;
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the length of time required to enroll eligible subjects and initiate clinical trials;
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the number of subjects that participate in the trials;
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the drop-out and discontinuation rate of subjects;
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potential additional safety monitoring requested by regulatory agencies;
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the duration of subject participation in the trials and follow-up;
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the cost and timing of manufacturing of our product candidates;
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the receipt of regulatory approvals from applicable regulatory authorities;
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the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
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the hiring and retention of research and development personnel;
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the degree to which we obtain, maintain, defend and enforce our intellectual property rights;
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the impact of COVID-19 or other health epidemics on timelines and clinical operations, which may lead to increased costs; and
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the extent to which we establish collaboration, licensing or similar arrangements and the performance of any related third parties.
A change in the outcome of any of these 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.
General and Administrative
General and administrative expenses consist primarily of personnel-related costs, consisting of employee salaries, related benefits, and stock-based compensation expense for our employees in the executive, legal, finance and accounting, human resources, and other administrative functions. General and administrative expenses also include third-party costs such as legal costs, insurance costs, accounting, auditing and tax related fees, business development fees, consulting fees and facilities and other expenses not otherwise included as research and development expenses. We expense general and administrative costs as incurred.
We expect that our general and administrative expenses will increase for the
foreseeable future as we increase our headcount to support our continued
research activities and development of our programs. We also anticipate that we
will continue to incur expenses as a result of operating as a public company,
including expenses related to compliance with the rules and regulations of the
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growth of our business. Additionally, we may experience an overall increase in general and administrative expenses as a result of inflation.
Grant Income
Grant income consists of income related to the
Other Income, Net
Other income, net consists primarily of interest earned on our cash, cash equivalents and investments and the amortization of premiums and accretion of discounts on our available-for-sale securities. Absent further fundraising, we expect interest earned on our cash, cash equivalents and investments to decrease over the long term as we continue to expend our cash balances to fund our ongoing operations.
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Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the periods
presented:
Year Ended December 31,
Dollar %
2022 2021 Change Change
(in thousands)
Operating expenses:
Research and development $ 61,464 $ 42,794 $ 18,670 44 %
General and administrative 32,552 21,228 11,324 53
Legal settlement 10,000 - 10,000 *
Total operating expenses 104,016 64,022 39,994 47
Loss from operations (104,016 ) (64,022 ) (39,994 ) 47
Grant income 5,161 8,835 (3,674 ) (42 )
Other income, net 3,216 334 2,882 863
Net loss $ (95,639 ) $ (54,853 ) $ (40,786 ) 56
* Not meaningful
Research and Development Expenses
The following table shows the primary components of our research and development expenses for the periods presented:
Year Ended December 31,
Dollar %
2022 2021 Change Change
(in thousands)
Direct costs:
Fosgonimeton (ATH-1017) $ 39,416 $ 34,488 $ 4,928 14 %
ATH-1020 1,874 - 1,874 *Preclinical programs and other direct costs 5,978 2,968 3,010 101 Total direct costs
47,268 37,456 9,812 26
Indirect costs:
Personnel-related costs, including stock-
based compensation 12,620 4,545 8,075 178
Facilities and other costs 1,576 793 783 99
Total research and development expenses $ 61,464 $ 42,794 $ 18,670 44
* Not meaningful
Research and development expenses increased by
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General and Administrative Expenses
General and administrative expenses increased by
Legal Settlement Expense
In connection with the proposed settlement of the securities class action
litigation, we recorded a legal settlement expense of
Grant Income
Grant income decreased by
Other Income, Net
Other income, net, increased by
Liquidity and Capital Resources
Sources of Liquidity
Since our inception, we have funded our operations primarily with proceeds from
the sale and issuance of common stock, convertible preferred stock, common stock
warrants, and convertible notes, and to a lesser extent from grant income and
stock option exercises. From our inception through
Recent sales of our common stock were as follows:
Common Net
Shares Price Proceeds
Issued Per Share (in millions)
September 2020 IPO 12,000,000 $ 17.00 $ 186.4
October 2020 overallotment exercise 1,397,712 17.00 22.1
January 2021 follow-on public offering 4,000,000 22.50 84.1
February 2021 overallotment exercise 600,000 22.50 12.7
Total 17,997,712 $ 305.3
As of
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nonclinical studies and clinical trials, as well as manufacturing activities, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.
Material Cash and Future Funding Requirements
Our material cash requirements include our operating leases for laboratory and
office facilities. As of
Based upon our current operating plan, we estimate that our
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of
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biotechnology products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
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the scope, timing, progress and results of our ongoing preclinical studies and clinical trials of our product candidates;
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the number of trials required for regulatory approval, in particular with respect to fosgonimeton for the treatment of mild-to-moderate AD;
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the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials of other product candidates that we may pursue;
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our ability to establish and maintain collaboration, licensing or other similar arrangements, and the financial terms of any such arrangements, including the timing and amount of any future milestone, royalty or other payments due thereunder;
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the costs, timing and outcome of regulatory review of our product candidates;
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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;
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the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;
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the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;
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the costs related to ongoing legal proceedings;
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any expenses needed to attract, hire and retain skilled personnel;
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the costs of operating as a public company;
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the costs associated with expanding our laboratory and office facilities; and
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the extent to which we acquire or in-license other companies' product candidates and technologies or engage in other strategic transactions.
A change in the outcome of any of these or other factors 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. Furthermore, our operating plan may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plan.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
Year Ended December 31,
2022 2021
(in thousands)
Net cash (used in) provided by:
Operating activities $ (72,469 ) $ (43,098 )
Investing activities 57,664 (4,079 )
Financing activities 654 97,089
Net (decrease) increase in cash, cash equivalents
and restricted cash $ (14,151 ) $ 49,912
Operating Activities
During the year ended
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and a decrease in our net operating assets of
During the year ended
Investing Activities
During the year ended
During the year ended
Financing Activities
During the year ended
During the year ended
Critical Accounting Policies, Significant Judgments and Use of Estimates
Our financial statements have been prepared in accordance with
Grant Income
In
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incurred. We record qualifying expenses incurred in excess of cash received in unbilled grant receivable on the consolidated balance sheets.
Research and Development Costs
Research and development costs, including costs associated with our clinical trials, are expensed as incurred. In-licensing fees and other costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use are expensed when incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed. We estimate the period over which such services will be performed and the level of effort to be expended in each period. If actual timing of performance or the level of effort varies from the estimate, we will adjust the amounts recorded accordingly. We have not experienced any material differences between accrued or prepaid costs and actual costs since inception.
Stock-based Compensation
We maintain a stock-based compensation plan as a long-term incentive for employees, non-employee directors and consultants. The plan allows for the issuance of incentive stock options, non-qualified stock options, restricted stock units, and other forms of equity awards.
We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for forfeitures as they occur. Our stock-based compensation costs for stock options are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model. To the extent any stock option grants are made subject to the achievement of a performance-based milestone, management evaluates when the achievement of any such performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date.
The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include:
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Fair Value of Common Stock. See the subsection titled "-Common Stock Valuations" below.
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Risk-Free Interest Rate. The risk-free interest rate is based on the
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Expected Volatility. Because we were privately held prior to
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Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term), as we do not have sufficient historical data to use any other method to estimate expected term.
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Expected Dividend Yield. We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.
See Note 9 to our consolidated financial statements included elsewhere in this report for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options. Certain of such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected
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outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.
We recognize stock-based compensation expense for restricted stock units on a straight-line basis over the requisite service period and account for forfeitures as they occur. We recognize compensation expense for restricted stock unit grants subject to performance-based milestone vesting using the accelerated attribution method over the remaining service period when we determine that achievement of the milestone is probable. We evaluate when the achievement of a performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date. Our stock-based compensation costs for restricted stock units are based upon the fair market value of our common stock based on its closing price as reported on the date of grant on the Nasdaq Global Select Market.
We recorded stock-based compensation expense of
Income Taxes
We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. In evaluating our valuation allowance, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance.
As of
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, substantial changes in our ownership may limit the amount of NOL and research and development credit carryforwards that could be used annually in the future to offset taxable income. The tax benefits related to future utilization of federal and state NOL carryforwards, credit carryforwards, and other deferred tax assets may be limited or lost if cumulative changes in ownership exceeds 50% within any three-year period. We have not completed a Section 382/383 analysis under the Code regarding the limitation of NOL and credit carryforwards. If a change in ownership were to have occurred, the annual limitation may result in the expiration of NOL carryforwards and credits before utilization.
We record unrecognized tax benefits as liabilities or reduce the underlying tax attribute, as applicable, and adjust them when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.
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Recent Accounting Pronouncements
See Note 2 to our consolidated financial statements included elsewhere in this report for additional information.
Emerging Growth Company Status
We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this 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 we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.
We will remain an emerging growth company until the earliest to occur of: (1)
the last day of the fiscal year in which we have at least
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