COGNITION THERAPEUTICS, INC. The following discussion and analysis of our financial conditions and results of
operations should be read together with our consolidated financial statements
and related notes appearing elsewhere in this Quarterly Report and our audited
financial statements and notes thereto as of and for the years ended
Overview
We are a clinical-stage biopharmaceutical company engaged in the discovery and development of innovative, small molecule therapeutics targeting age-related degenerative diseases and disorders of the central nervous system, or CNS, and retina. Currently available therapies for these diseases are limited, with many diseases having no approved therapies or treatments. Our goal is to develop disease modifying treatments for patients with these degenerative disorders by initially leveraging our expertise in the ?-2 (sigma-2) receptor, or S2R, which is expressed by multiple cell types, including neuronal synapses, and acts as a key regulator of cellular damage commonly associated with certain age-related degenerative diseases of the CNS and retina. We believe that targeting the S2R complex represents a mechanism that is functionally distinct from other current approaches in clinical development for the treatment of degenerative diseases.
Since our inception in 2007, we have incurred significant operating losses and
devoted substantially all of our time and resources to developing our lead
product candidate, CT1812, building our intellectual property portfolio, raising
capital and recruiting management and technical staff to support these
operations. As of
To date, we have funded our operations primarily with proceeds from grants
awarded by the
On
On
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On
We expect to continue to incur significant and increasing expenses and net losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings, debt financings or other sources, such as potential collaboration agreements and strategic alliances, licensing or similar arrangements with third parties. To the extent available, we expect to continue our pursuit of non-dilutive research contributions, or grants, including additional NIA grant funding. However, we may fail to receive additional NIA grants, or we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to obtain additional NIA grants or raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.
Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations.
We do not own or operate manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of CT1812 for preclinical studies and clinical trials, as well as for commercial manufacture if CT1812 obtains marketing approval. We also rely, and expect to continue to rely, on third parties to manufacture, package, label, store, and distribute CT1812, if marketing approval is obtained. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of CT1812.
Impact of COVID-19 on Our Business
Our business has been and could continue to be adversely affected by the effects of the ongoing COVID-19 pandemic, including, but not limited to, our clinical trials. For example, our ongoing and/or planned clinical trials may be impacted by interruptions or delays in the operations of the FDA and comparable foreign regulatory authorities. Additionally, we have made certain adjustments to the operation of our trials in an effort to ensure the monitoring and safety of patients and minimize risks to trial integrity during the pandemic in accordance with the guidance issued by the FDA and may need to make further adjustments in the future. We have also initiated our clinical trial protocols to enable remote visits to mitigate any potential impacts as a result of the COVID-19 pandemic. Many of these adjustments are new and untested, may not be effective, may affect the integrity of data collected, and may have unforeseen effects on the progress and completion of our clinical trials and the findings from such clinical trials.
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The spread of COVID-19, including the spread of new strains and variants of COVID-19, and actions taken to reduce such spread may also materially affect us economically. While the potential further economic impact brought by, and the duration of, the COVID 19 pandemic may be difficult to assess or predict, there could be a significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity and financial position. As a result, we may face difficulties raising capital through future sales of our common stock or such sales may be on unfavorable terms.
Components of Our Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of direct and indirect costs incurred for our research activities, including development of 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, 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.
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 substantially 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 begin to 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.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, including employee salaries, related benefits, and stock-based compensation expense for our employees in the executive, finance and accounting, 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, 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.
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Other Income (Expense)
Grant Income
Grant income relates to the grants awarded from governmental bodies that are
conditional cost reimbursement grants and are recognized as grant income as
allowable costs are incurred and the right to payment is realized. The grants
awarded relate to agreed upon direct and indirect costs for specific studies or
clinical trials, which may include personnel and consulting costs, costs paid to
contract research organizations, research institutions and /or consortiums
involved in the grant, as well as facilities and administrative costs. These
grants are cost plus fixed fee arrangements in which we are reimbursed for
eligible direct and indirect costs over time, up to the maximum amount of each
specific grant award. Only costs that are allowable under the grant award,
certain government regulations and the
Interest Expense
Interest expense for the three months ended
Other Expense, Net
Other expense, net consists primarily of other fees such as offering costs incurred to establish our equity line financing, as well as foreign currency transaction gains or losses.
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations (in thousands):
Three Months Ended March 31,
2023 2022 Change
Operating Expenses:
Research and development $ 5,430 $ 6,518 $ (1,088)
General and administrative 3,543 2,895 648
Total operating expenses 8,973 9,413 (440)
Loss from operations (8,973) (9,413) 440
Other income (expense):
Grant income 3,426 5,904 (2,478)
Other expense, net (615) (195) (420)
Interest expense (10) (9) (1)
Total other income, net 2,801 5,700 (2,899)
Loss before income tax (6,172) (3,713) (2,459)
Income tax expense - (125) 125
Net loss $ (6,172) $ (3,838) $ (2,334)
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Research and Development Expenses
The following table summarizes our research and development expenses (in
thousands):
Three Months Ended March 31,
2023 2022 Change
Clinical programs $ 1,980 $ 3,565 $ (1,585)
Personnel 2,459 1,485 974
Manufacturing 145 951 (806)
Preclinical programs 775 511 264
Facilities and other costs 71 6 65
$ 5,430 $ 6,518 $ (1,088) Research and development expenses were
? A decrease of
trial activity primarily due to decreased contract research organization spend;
? an increase of
research and development activities, and equity-based compensation expense;
a decrease of
? related to costs incurred with contract manufacturing organizations for
production of pre-clinical and future clinical trial materials associated with
our most advanced product candidates; and
? an increase of
primarily due to increased sponsored research spend under grants.
General and Administrative Expenses
General and administrative expenses were
? a decrease of
expenses;
? an increase of
driven by increased audit, tax, and legal expenses; and
? an increase of
grants. Other Income (Expense) Grant Income
Grant income was
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Other Expense, Net
Other expense, net was
Interest Expense
Interest expense was less than
Liquidity and Capital Resources
Sources of Liquidity
To date, we have funded our operations primarily with proceeds from grants
awarded by the NIA, and proceeds from the sales of our convertible promissory
notes, convertible preferred stock, SAFE, stock option exercises, follow-on
equity offerings, sales under our ATM, and our IPO. Since our inception, we have
received grant awards primarily from the NIA in the aggregate amount of
approximately
As of
Future Funding Requirements
We expect to continue to incur significant and increasing expenses and net losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel, and operate as a public company. We anticipate that we will need to raise additional funding in the future to fund our operations, including the commercialization of any approved product candidates. We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business.
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Our future funding requirements will depend on many factors, including, but not limited to:
the scope, progress, costs and results of our ongoing and planned clinical
trials of CT1812, as well as the associated costs, including any unforeseen
? costs we may incur as a result of preclinical study or clinical trial delays
due to the COVID-19 pandemic or other diseases, macroeconomic conditions,
global or political instability, such as the ongoing conflict between
and
the scope, progress, costs and results of preclinical development, laboratory
? testing and clinical trials for any future product candidates we may decide to
pursue;
? the extent to which we develop, in-license or acquire other product candidates
and technologies;
the costs and timing of process development and manufacturing scale-up
? activities associated with our product candidates and other programs as we
advance them through preclinical and clinical development;
? the availability, timing, and receipt of any future NIA grants;
? the number and development requirements of other product candidates that we may
pursue;
? the costs, timing and outcome of regulatory review of our product candidates;
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;
? the revenue, if any, received from commercial sales of our product candidates
for which we receive marketing approval;
? our ability to establish collaborations to commercialize CT1812 or any of our
other product candidates outside
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; and
the additional costs we may incur as a result of operating as a public company,
? including our efforts to enhance operational systems and hire additional
personnel, including enhanced internal controls over financial reporting.
Until such time as we can generate significant revenue from product sales, we expect to finance our operations through a combination of public or private equity offerings, debt financings or other sources, such as potential collaboration agreements and strategic alliances, licensing or similar arrangements with third parties. To the extent available, we expect to continue our pursuit of non-dilutive research contributions, or grants, including additional NIA grant funding. However, we may fail to receive additional NIA grants, or we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to obtain additional NIA grants or raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition.
To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. 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 capital expenditures or declaring dividends. If we raise funds through collaborations, licenses and other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may
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not be favorable to us and/or may reduce the value of our common stock. Adequate
funding may not be available when needed or on terms acceptable to us, or at
all. 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
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