# Filana Therapeutics, Inc.: Form 10-Q for the period ended Sep 30, 2023 - Company: [Filana Therapeutics, Inc.](/companies/flna.md) (CIK 1069530) - Form: 10-Q - Filed: 2023-11-07 - Accepted by EDGAR: Nov 7, 2023, 09:19 ET - Period: 2023-09-30 - Accession: 0001437749-23-030502 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1069530/000143774923030502/sava20230930_10q.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1069530/000143774923030502/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2023-09-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Research and development | 3 months, 2023-07-01 to 2023-09-30 | $23.6m | us-gaap:ResearchAndDevelopmentExpense | | Research and development | 9 months, 2023-01-01 to 2023-09-30 | $70.7m | us-gaap:ResearchAndDevelopmentExpense | | Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$27.9m | us-gaap:OperatingIncomeLoss | | Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$83.2m | us-gaap:OperatingIncomeLoss | | Income tax | 3 months, 2023-07-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2023-07-01 to 2023-09-30 | −$25.7m | us-gaap:NetIncomeLoss | | Net income | 9 months, 2023-01-01 to 2023-09-30 | −$76.3m | us-gaap:NetIncomeLoss | | Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.61 | us-gaap:EarningsPerShareBasic | | Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$1.82 | us-gaap:EarningsPerShareBasic | | Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$59.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $373.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Cash and equivalents | at 2023-09-30 | $142.3m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2023-09-30 | $150.2m | us-gaap:AssetsCurrent | | Total assets | at 2023-09-30 | $172.5m | us-gaap:Assets | | Current liabilities | at 2023-09-30 | $17.4m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2023-09-30 | $17.4m | us-gaap:Liabilities | | Shareholders' equity | at 2023-09-30 | $155.1m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 62,436 characters. This discussion and analysis should be read in conjunction with Cassava Sciences, Inc.’s (the “Company,” “we,” “us,” or “our”) condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. Operating results are not necessarily indicative of results that may occur in future periods. This Quarterly Report on Form 10-Q contains certain statements that are considered forward-looking statements within the meaning of the Private Securities Reform Act of 1995. We intend that such statements be protected by the safe harbor created thereby. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology. The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements involve risks and uncertainties and our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Examples of such forward-looking statements include, but are not limited to statements about: - the expected safety profile or treatment benefits of simufilam for people with Alzheimer’s disease in our on-going Phase 3 studies; - our reliance on third-party contractors to conduct the clinical trials and make drug supply on a large-scale for our Phase 3 clinical program, or their ability to do so on-time or on-budget; - limitations around data interpretation from results of our Cognition Maintenance Study (CMS) and long-term open-label study, as compared to efficacy results from a fully completed Phase 3 clinical program; - the ability of clinical scales to assess cognition or health in our trials of Alzheimer’s disease; - any significant changes we may make, or anticipate making, to the design of any of our on-going studies of simufilam in patients with Alzheimer’s disease; - our ability to initiate, conduct or analyze additional clinical and non-clinical studies with our product candidates targeted at Alzheimer’s disease and other neurodegenerative diseases; - the impact of pre-clinical findings on our ability to develop our product candidates; - the interpretation of results from our pre-clinical or early clinical studies, such as Phase 1 and Phase 2 studies; - our plans to further develop SavaDx, our investigational blood-based diagnostic, and to evaluate a non-antibody approach for SavaDx; - our ability or willingness to expand therapeutic indications for simufilam outside of Alzheimer’s disease; - the safety, efficacy, or potential therapeutic benefits of our product candidates; - our ability to file for and obtain regulatory approval of our product candidates; - our strategy and ability to establish an infrastructure to commercialize any product candidates, if approved; - the potential future revenues of our product candidates, if approved and commercialized; - the market acceptance of our product candidates, if approved and commercialized; - the pricing and reimbursement of our product candidates, if approved and commercialized; - the utility of protection, or the sufficiency, of our intellectual property; - our potential competitors or competitive products for the treatment of Alzheimer’s disease; - our need to raise new capital from time to time to continue our operations or to expand our operations; - our use of multiple third-party vendors, including a Clinical Research Organization (CRO), to conduct clinical studies of our lead product candidate; - expectations regarding trade secrets, technological innovations, licensing agreements and outsourcing of certain business functions; - our expenses increasing by unanticipated amounts due to inflation; - fluctuations in our financial or operating results; - our operating losses, anticipated operating and capital expenditures and legal expenses; - expectations regarding the issuance of shares of common stock, options or other equity to employees or directors pursuant to equity compensation awards, net of employment taxes; 18 - the development and maintenance of our internal information systems and infrastructure; - our need to hire additional personnel and our ability to attract and retain such personnel; - existing regulations and regulatory developments in the United States and other jurisdictions in which we operate; - our plans to expand the size and scope of our operations; - the sufficiency of our current resources to continue to fund our operations; - potential future agreements with third parties in connection with the commercialization of our product candidates; - the accuracy of our estimates regarding expenses, capital requirements, and needs for additional financing; - assumptions and estimates used for our disclosures regarding stock-based compensation; - the expense, timing and outcome of pending or future litigation or other legal proceedings and claims, including government inquiries; and - litigation, claims or other uncertainties that may arise from allegations made against us or our collaborators. Such forward-looking statements and our business involve risks and uncertainties, including, but not limited to the following: - We have a limited operating history in our business targeting Alzheimer’s disease and no products approved for commercial sale. - Research and development of biopharmaceutical products is a highly uncertain undertaking and involves a substantial degree of risk and our business is heavily dependent on the successful development of our product candidates. - We are concentrating a substantial portion of our research and development efforts on the diagnosis and treatment of Alzheimer’s disease, an area of research that has recorded many clinical failures. - We may encounter substantial delays in our clinical trials or may not be able to conduct or complete our clinical trials on the timelines we expect, if at all. - Our clinical trials may fail to demonstrate evidence of the safety and efficacy of our product candidates, which would prevent, delay, or limit the scope of regulatory approval and the commercialization of our product candidates. - We may need to obtain substantial additional financing to complete the development and any commercialization of our product candidates. - We are a small company with no sales force and may not be successful in our efforts to commercialize any product candidates which are approved. - Our CRO, contract manufacturers and other third party vendors may fail to perform as anticipated. - We may be unable to protect our intellectual property rights or trade secrets. - We may be subject to third-party claims of intellectual property infringement. - We may not succeed in our maintenance or pursuit of licensing rights or third-party intellectual property necessary for the development of our product candidates. - Enacted or future legislation or regulatory actions may adversely affect our product pricing, or limit the reimbursement we may receive for our products. - A significant breakdown, security breach or interruption affecting our internal computer systems, or those used by our third-party vendors and research collaborators, may compromise the confidentiality of our financial or other proprietary information, result in material disruptions of our products and operations and adversely affect our reputation. - We may be unsuccessful at hiring and retaining qualified personnel. - We and certain of our directors and executive officers have been named as defendants in lawsuits that could result in substantial costs and divert management’s attention. - Recessionary fears, high interest rates, inflation or other macroeconomic or political factors beyond our control may reduce demand for office space in the Austin, Texas area and may cause the market value of our commercial real estate property to decline. - We may fail to find new tenants to occupy office space that may become vacant and available for lease in the future. Please also refer to the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as such risk factors may be amended, updated or modified periodically in our reports filed with the U.S. Securities and Exchange Commission (the “SEC”) for further information on these and other risks affecting us. We caution you not to place undue reliance on forward-looking statements because our future results may differ materially from those expressed or implied by them. We do not intend to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Quarterly Report on Form 10-Q, except as required by law. This Form 10-Q may also contain statistical data and drug information received from our independent consultants or based on industry publications or other publicly available information. We have not independently verified the accuracy or completeness of the data contained in these sources of data and information. Accordingly, we make no representations as to the accuracy or completeness of such data and information. You are cautioned not to give undue weight to such data and information. Our research programs in neurodegeneration have benefited from longstanding scientific and financial support from the National Institutes of Health (“NIH”). The contents of this Quarterly Report on Form 10-Q are solely our responsibility and do not necessarily represent any official views of NIH, the Department of Health and Human Services, or the United States government. ### Overview Cassava Sciences, Inc. is a clinical-stage biotechnology company based in Austin, Texas. Our mission is to detect and treat neurodegenerative diseases, such as Alzheimer’s disease. Our novel science is based on stabilizing – but not removing – a critical protein in the brain. Our lead therapeutic drug candidate, simufilam, is being evaluated for the proposed treatment of Alzheimer’s disease dementia in Phase 3 clinical studies. For more than 10 years, we have combined state-of-the-art technology with new insights in neurobiology to develop novel solutions for Alzheimer’s disease and other neurodegenerative diseases. Our strategy is to leverage our unique scientific/clinical platform to develop a first-in-class program for treating neurodegenerative diseases, such as Alzheimer’s. We currently have two biopharmaceutical assets under development: - our lead therapeutic product candidate, called simufilam, is a novel oral treatment for Alzheimer’s disease dementia; and - our lead investigational diagnostic product candidate, called SavaDx, is a novel way to detect the presence of Alzheimer’s disease from a small sample of blood. Our scientific approach for the treatment of Alzheimer’s disease seeks to simultaneously suppress *both* neurodegeneration and neuroinflammation. We believe our ability to improve multiple vital functions in the brain represents a new, different and crucial approach to address Alzheimer’s disease. Our lead product candidate, simufilam, is a proprietary small molecule (oral) drug. Simufilam targets an altered form of a protein called filamin A (FLNA) in the Alzheimer’s brain. Published studies have demonstrated that the altered form of FLNA causes neuronal dysfunction, neuronal degeneration and neuroinflammation. We are currently conducting a Phase 3 program with simufilam in patients with mild-to-moderate Alzheimer’s disease dementia. We believe simufilam improves brain health by reverting altered FLNA back to its native, healthy conformation, thus countering the downstream toxic effects of altered FLNA. We have generated and published experimental and clinical evidence of improved brain health with simufilam. Importantly, simufilam is not dependent on clearing amyloid from the brain. Since simufilam has a unique mechanism of action, we believe its potential therapeutic effects may be additive or synergistic with those of other therapeutic candidates aiming to treat neurodegeneration. Simufilam has demonstrated a multitude of treatment effects in animal models of disease, including normalizing neurotransmission, decreasing neuroinflammation, suppressing neurodegeneration, and restoring memory and cognition. Simufilam was discovered and designed in-house and was characterized by our academic collaborators during research activities that were conducted from approximately 2008 to date. SavaDx is being developed in-house with outside collaborators. We own exclusive, worldwide rights to drug and diagnostic assets and related technologies, without royalty obligations to any third party. Our patent protection with respect to simufilam and use of simufilam for Alzheimer’s disease and other neurodegenerative diseases currently runs through 2039 and includes seven issued U.S. patents. In addition, we have patent protection with respect to simufilam for use in treating certain cancers that runs through 2034. Our patent estate further includes patents and patent applications for related compounds and treatments. Corresponding foreign filings have been made for each of the U.S. filings. **About Alzheimer’s Disease** Alzheimer’s disease is a progressive neurodegenerative disorder that affects cognition, function and behavior. As of 2021, there were approximately 55 million people worldwide living with dementia, a figure expected to increase to 139 million by 2050 according to outside sources. The annual global cost of dementia is now above $1 trillion, according to Alzheimer’s Disease International, a charitable organization. ### Phase 2a Study In 2019, we completed a small, first-in-patient, clinical-proof-of-concept, open-label Phase 2a study of simufilam in the U.S., with substantial support from the National Institute on Aging (NIA), a division of the NIH. Treatment with simufilam for 28 days significantly improved certain key biomarkers of Alzheimer’s pathology, neurodegeneration and neuroinflammation (p\<0.001). Biomarkers effects were seen in all patients in both cerebrospinal fluid (CSF) and plasma. ### Phase 2b Study In September 2020, we announced final results of a Phase 2b study with simufilam in Alzheimer’s disease. In this clinical study funded by the NIH, Alzheimer’s patients treated with 50 mg or 100 mg of simufilam twice-daily for 28 days showed statistically significant (p\<0.05) improvements in CSF biomarkers of disease pathology, neurodegeneration and neuroinflammation, versus Alzheimer’s patients who took placebo. In addition, Alzheimer’s patients treated with simufilam showed improvements in validated tests of episodic memory and spatial working memory, versus patients on placebo. Cognitive improvements correlated most strongly with decreases in levels of P-tau181, an exploratory ‘research use only’ non-safety related biomarker that suggests brain changes from Alzheimer’s disease. Materials labeled as Research Use Only are intended for products that are still under development and are not commercially distributed. ### Open-label Study Strategy Much of the value of our open-label study is to support simufilam’s long-term safety profile in patients. We believe a well-designed, long-term, open-label study is an exercise in prudent risk-management. Clinical results serve as a tool to help inform and manage the inherent risks and uncertainties of drug development for undertaking a large, expensive Phase 3 clinical testing program. ### Open-label Study Top-line Results In March 2020, we initiated a long-term, open-label study to evaluate simufilam, our lead drug candidate, in patients with Alzheimer’s disease. This study was funded in part by a research grant award from NIH. The study was designed to evaluate the long-term safety and tolerability of simufilam 100 mg twice daily for 12 or more months. Another study objective was to assess exploratory efficacy endpoints, such as changes in cognition, and biomarkers. In January 2023, we announced positive top-line Phase 2 results for our open-label study. The study enrolled over 200 patients with mild-to-moderate Alzheimer’s disease (MMSE 16-26). Endpoints were measured at baseline (study entry) and month 12. Alzheimer’s is a degenerative disease of the brain. Over time, cognition progressively worsens in the mild-to-moderate stages of Alzheimer’s as the disease takes its toll. ADAS-Cog scores that change minimally (or improve) over 1 year is a highly desirable outcome in a clinical study of patients with mild-to-moderate Alzheimer’s disease. **Top-line Results – mean scores, baseline to month 12 (***lower is better, except for MMSE):* - ADAS-Cog11 scores changed from 19.1 (±9.2) to 19.6 (±13.3) - MMSE scores changed from 21.5 (±3.6) to 20.2 (±6.4) - NPI10 scores changed from 3.2 (±4.6) to 2.9 (±4.6) - GDS scores changed from 1.8 (±1.8) to 1.4 (±1.9) **Response Analysis – baseline to month 12** - ADAS-Cog scores improved in 47% of patients; this group had a mean change of -4.7 (±3.8) points (lower is better). - In an additional 23% of patients, ADAS-Cog declined less than 5 points; this group had a mean change of 2.5 (±1.4) points. - Patients with an NPI10 score of zero increased from 42% to 54%, indicating reduced dementia-related neuropsychiatric symptoms after 1 year on simufilam. ### Analysis of Efficacy Endpoints Efficacy outcomes were analyzed by an independent, outside biostatistical consulting firm led by Suzanne Hendrix, PhD. The pre-specified primary efficacy endpoint was change in baseline on ADAS-Cog11, a cognitive scale widely used in Alzheimer’s clinical research. Exploratory endpoints included the Mini-Mental State Examination (MMSE) to assess disease stage by cognitive impairment; the Neuropsychiatric Inventory (NPI10) to assess dementia related behavior; and the Geriatric Depression Scale (GDS). The Full Analysis Set (FAS) population (N=216) was used for the statistical analysis of efficacy endpoints. Alzheimer’s is a progressive disease. Severity of disease is typically assessed by MMSE score. In this study, mild patients are MMSE 21-26; moderate patients are MMSE 16-20. Mild and moderate sub-groups showed notable differences on changes in ADAS-Cog mean scores, baseline to month 12 (lower is better): - In the *mild* sub-group, ADAS-Cog scores improved, from 15.0 (±6.3) to 12.6 (±7.8) - In the *moderate* sub-group, ADAS-Cog scores worsened, from 25.7 (±9.2) to 30.1 (±13.1) We believe the improvement in ADAS-Cog over 1 year in mild patients taking simufilam is well outside the expected range of historic placebo decline rates from numerous other studies. Figure 1 presents a model of historical declines on ADAS-Cog in early disease (MCI + mild) and mild disease. #### Figure 1: Statistical model of simufilam versus historical 1-year placebo declines on ADAS-Cog in early disease and mild disease.1 ### Safety Data Simufilam 100 mg twice daily was generally safe and well tolerated in this open-label study. There were no drug-related serious adverse events. Three treatment-emergent adverse events (TEAEs) occurred in 7% or more of study patients: COVID-19 (12%), urinary tract infection (10%) and headache (9%). Reported TEAEs are based on all study patients who received at least one dose of drug. The top three reasons for patient discontinuations were withdrawal of informed consent (N=14), adverse events (N=13) and patient non-compliance (N=7). ### Biomarker Data Exploratory biomarkers were analyzed from cerebrospinal fluid (CSF) collected from 25 patients in the open-label study who agreed to undergo a lumbar puncture at baseline and again after 6 months of treatment. CSF samples were analyzed blind by our academic collaborator at City University of New York. All CSF biomarkers were ‘research use only’, non-safety-related exploratory biomarkers. We previously announced results of this bioanalysis in a press release dated July 29, 2021. P-values shown below are baseline vs. 6-month levels by paired t-test: - CSF biomarkers of disease pathology, t-tau and p-tau181, decreased 38% and 18%, respectively (both p\<0.00001) - CSF biomarkers of neurodegeneration, neurogranin and neurofilament light chain (NfL), decreased 72% and 55%, respectively (both p\<0.00001) - CSF biomarkers of neuroinflammation, sTREM2 and YKL-40, decreased 65% and 44% (both p\<0.00001) ### Limitations of Open-label Study and Top-line Results Data results from our open-label safety study do not constitute, and should not be interpreted as, regulatory evidence of safety or efficacy for simufilam in Alzheimer’s disease. Rigorous evidence for drug safety and efficacy is derived from one or more large, randomized, placebo-controlled studies. The open-label design and size of this study may introduce clinical or statistical bias or may generate results that may not fully distinguish between drug effects and random variation. Different methods of statistical analysis on clinical data from the same study may lead to objectively different numerical results. These and other statistical and clinical features of our open-label study add complexity or limitations to the scope of data interpretation. In addition, ‘top-line data’ is a summary of the clinical data prior to the completion of a full and final audit or quality-control of the clinical database. We communicated top-line data so that stakeholders had timely access to a summary of the study’s findings prior to us receiving the final dataset. Final data may change from initial top-line data. 1 Figure 1: Forest plot model by our independent consultant, Pentara Corporation. Data was sourced from non-randomized studies (i.e., ADNI) and randomized, controlled trials conducted by other sponsors in patients with early (i.e., MCI + mild) and mild Alzheimer’s disease. ### Cognition Maintenance Study (aka, Randomized Withdrawal Study) In May 2021, we initiated a Cognition Maintenance Study (CMS). The CMS is a randomized, withdrawal study design. ICH2 defines this type of study design as follows: “*In a randomized withdrawal trial, subjects receiving a test treatment for a specified time are randomly assigned to continued treatment with the test treatment or to placebo (i.e., withdrawal of active therapy) … Any difference that emerges between the group receiving continued treatment and the group randomized to placebo would demonstrate the effect of the active treatment.”* The CMS study design is intended to evaluate simufilam’s effects on cognition and health outcomes in Alzheimer’s patients who continue with drug treatment versus patients who discontinue drug treatment. It is a double-blind, randomized, placebo-controlled study of simufilam in patients with mild-to-moderate Alzheimer’s disease. Study patients are randomized (1:1) to simufilam or placebo for six months. To enroll in this study, patients must have previously completed 12 months or more of open-label treatment with simufilam. Final enrollment was 157 patients. See Figure 2. ### Figure 2. Cognition Maintenance Study Design ### Top-line Results Simufilam treatment for 6 months slowed cognitive decline by 38% compared to placebo in mild-to-moderate Alzheimer’s disease (MMSE 16-26). The placebo arm declined 1.5 points on ADAS-Cog, and this arm declined at all measured timepoints. The simufilam arm declined 0.9 points on ADAS-Cog, a 38% difference in favor of drug at month 6 (95% CI, – 2.1 to 1.0; not significant for sample sizes). See Table 1 and Chart 1. ***Table 1: Results of Randomized Withdrawal Study – cognitive change, full analysis set (FAS)*** | | | | | | | --- | --- | --- | --- | --- | | Full Analysis Set | **Simufilam 100 mg (N = 78)** | **Placebo (N = 77)** | **Numerical Difference** | **Percent Difference** | | 6-month Change in ADAS-Cog | 0.9 point Decline | 1.5 point Decline | – 0.6 | 38% in favor of drug | 2 International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use (ICH), Topic E10, Choice of Control Group in Clinical Trials. Upon randomization into the CMS, mean baseline MMSE scores were 18.6 and 18.1 for the simufilam and placebo arms, respectively. Mean baseline ADAS-Cog scores were 19.3 and 21.9 for the simufilam and placebo arms, respectively. ***Simufilam Drug Effects Favored Patients with Mild Alzheimer’s Disease.*** Simufilam treatment for 6 months slowed cognitive decline \> 200% compared to placebo in mild Alzheimer’s disease. CMS patients with mild Alzheimer’s (MMSE 21-26) on placebo declined 0.6 points on ADAS-Cog over 6 months as a group. CMS patients with mild Alzheimer’s on simufilam improved 0.6 points over 6 months as a group, a 205% difference in favor of drug (95% CI, – 2.6 to 0.4; not significant for sample sizes). See Table 2 and Chart 2. ***Table 2: Results of Randomized Withdrawal Study – cognitive change, mild patients*** | | | | | | | --- | --- | --- | --- | --- | | Mild Patients | **Simufilam 100 mg (N= 40)** | **Placebo (N= 36)** | **Numerical Difference** | **Percent Difference** | | 6-month Changes in ADAS-Cog | 0.6 point Improvement | 0.6 point Decline | –1.1 | 205% in favor of drug | 25 Upon randomization into the CMS, mean baseline MMSE scores for mild patients were MMSE 24.0 and MMSE 24.1 for the simufilam and placebo arms, respectively. Mean baseline ADAS-Cog scores for mild patients were 11.0 and 11.2 for the simufilam and placebo arms, respectively. ***Simufilam for 18 months stabilized cognition in mild Alzheimer’s disease.*** After taking open-label simufilam for 12 months, 76 patients with mild Alzheimer’s disease (MMSE 21-26) enrolled in the CMS and were randomized to receive either simufilam (N=40) or placebo (N=36) for 6 months. Mild patients randomized to simufilam in the CMS showed no material decline in ADAS-Cog scores over 18 months as a group, indicating stable cognition. Mild patients randomized to placebo in the CMS (and therefore withdrawn from simufilam treatment for 6 months) declined by 0.8 points in ADAS-Cog as a group. See Figure 3. ***Figure 3. Historical declines on ADAS-Cog over 18 months in Alzheimer's disease (MMSE 20-30), placebo arms vs simufilam treatment.1*** *Notes: results shown for CLARITY P3 trial of lecanemab; EMERGE and ENGAGE P3 studies of aducanumab; and TRAILBLAZER P3 trial of donanemab; in this figure, the CMS is referred to as the ‘PTI-125-04’ study; ‘Simufilam100mg-Simufilam100mg’ refers to patients who received simufilam in both the open-label phase and the CMS; ‘Simufilam100mg-Placebo’ refers to patients who received simufilam in the open-label phase and placebo in the CMS.* 1 Figure 3: Forest plot by our independent consultant, Pentara Corporation. Data was sourced from the placebo groups in randomized, controlled trials of monoclonal antibodies conducted by other sponsors in Alzheimer’s disease (MMSE 20-30). ### Safety Data Simufilam 100 mg twice daily was safe and well tolerated in this study. There were no drug-related serious adverse events. No treatment-emergent adverse events (TEAEs) occurred in 5% or more of study participants in the CMS, except for COVID-19 which was reported in 6% of patients on drug vs 5% of patients on placebo, and falls, which was reported in 5% of patients on placebo vs 1% of patients on drug. ### Discussion The CMS was a randomized withdrawal study. Patients who completed 12 months of open-label simufilam treatment were all invited to participate in the CMS. It is not known how long a washout period may be needed to remove lingering drug effects, if any, from prior treatment with open-label simufilam for 12 months. In this small study of oral simufilam in patients with mild-to-moderate Alzheimer’s disease, the pre-specified cognitive endpoint showed a 38% decline in ADAS-Cog over six months in favor of simufilam (not statistically significant), with good drug safety. Effects were pronounced in mild patients. Mean baseline MMSE and ADAS-Cog scores were approximately balanced given the small size of each arm. ### Analysis of Efficacy Endpoints The pre-specified cognition endpoints were analyzed by Pentara Corporation, an independent consulting firm that specializes in complex statistical analysis of clinical trial results. Suzanne Hendrix, PhD, CEO of Pentara, has over 150 peer-reviewed publications of clinical trial results and statistical approaches for clinical trials, many focusing on statistical methodology for Alzheimer’s disease. ### Chain of Custody for Clinical Data Investigator sites collected clinical data from study participants. Sites entered their clinical data directly into an electronic data capture system managed by an independent, outside data management vendor. The data management vendor also maintains the clinical database. The data management vendor transmitted the clinical database directly to Pentara Corporation for analysis. ### Study Limitations The CMS is a proof-of-concept study involving a small number of patients and limited data. Top-line clinical CMS results do not constitute, and should not be interpreted as, regulatory evidence of safety or efficacy for simufilam in Alzheimer’s disease. Rigorous evidence for drug safety and efficacy is derived from one or more large, randomized placebo-controlled Phase 3 studies. The limited size of the CMS may introduce clinical or statistical bias or may generate results that may not fully distinguish between drug effects and random variation. Different methods of statistical analysis on clinical data from the same study may lead to objectively different numerical results. These and other statistical and clinical features of our CMS study add complexity or limitations to the scope of data interpretation. In addition, ‘Top-line data’ is a summary of the clinical data prior to the completion of a full and final audit or quality-control of the clinical database. We are communicating top-line data so that stakeholders may have timely access to a summary of the CMS findings prior to us receiving the final dataset. Final data may change from initial top-line data. ### End-of-Phase 2 (EOP2) Meeting with FDA In January 2021, we held an End-of-phase 2 (EOP2) meeting for simufilam with the U.S. Food and Drug Administration (FDA). The purpose of this EOP2 meeting was to gain general agreement around key elements of a pivotal Phase 3 program to treat Alzheimer’s disease dementia. FDA attendees included Robert Temple, MD, Deputy Center Director for Clinical Science and Senior Advisor in the Office of New Drugs; Billy Dunn, MD, Director, Office of Neuroscience; Eric Bastings, MD, Director, Division of Neurology, and others. In February 2021, we announced the successful completion of our EOP2 meeting. Official meeting minutes confirm that we and FDA are aligned on key elements of a Phase 3 clinical program for simufilam. FDA has agreed that the completed Phase 2 program, together with an ongoing and well-defined Phase 3 clinical program, are sufficient to show evidence of clinical efficacy for simufilam in Alzheimer’s disease. There is also agreement that the use of separate clinical scales to assess cognition (ADAS-cog1) and function (ADCS-ADL2) are appropriate co-primary endpoints of efficacy. A clinical scale that combines cognition and function, such as iADRS3, is a secondary efficacy endpoint. ### Special Protocol Assessments In August 2021, we announced that we had reached agreement with FDA under a Special Protocol Assessment (SPA) for both Phase 3 studies. These SPA agreements document that FDA has reviewed and agreed upon the key design features of our Phase 3 study protocols of simufilam for the treatment of patients with Alzheimer’s disease. An SPA agreement indicates concurrence by the FDA with the adequacy and acceptability of specific critical elements of overall protocol design (e.g., entry criteria, dose selection, endpoints, etc.). These elements are critical to ensure that our planned Phase 3 studies of simufilam in Alzheimer’s disease can be considered adequate and well-controlled studies in support of a future regulatory submission and marketing application. The first clinical study protocol under the SPA is titled “*A Phase 3, Randomized, Double-Blind, Placebo-Controlled, Parallel-Group, 52-Week Study Evaluating the Safety and Efficacy of One Dose of Simufilam in Subjects with Mild-to-Moderate Alzheimer's Disease.”* The second clinical study protocol under the SPA is titled “*A Phase 3, Randomized, Double-Blind, Placebo-Controlled, Parallel-Group, 76-Week Study Evaluating the Safety and Efficacy of Two Doses of Simufilam in Subjects with Mild-to-Moderate Alzheimer’s Disease.”* ### Phase 3 Drug Supply We have entered into a drug supply agreement with Evonik Industries AG for simufilam. Under the agreement, Evonik supplies and is expected to continue to supply us with large-scale, clinical-grade quantities of simufilam. Evonik is one of the world’s largest contract development and manufacturing organizations for pharmaceutical ingredients. Other vendors supply excipients, the finished dosage form (i.e., simufilam tablets), drug packaging, package labeling and other critical steps in the supply chain for Phase 3 drug supply. ### Phase 3 Clinical Program Overview Our Phase 3 program consists of two large, double-blind, randomized, placebo-controlled studies of simufilam in patients with mild-to-moderate Alzheimer’s disease dementia. Both studies are designed to measure changes in cognition and function during their treatment period. Highlights of this clinical program are summarized in Figure 4. In June 2021, we announced the selection of Premier Research International as our CRO to help conduct our Phase 3 clinical program. Phase 3 clinical sites are located in the United States, Canada, Puerto Rico, Australia, and South Korea. *1 ADAS-Cog = The Alzheimer’s Disease Assessment Scale – Cognitive Subscale, a measure of cognition* *2 ADCS-ADL = Alzheimer’s Disease Cooperative Study – Activities of Daily Living, a measure of health function* *3 iADRS = integrated Alzheimer’s Disease Rating Scale, a composite measure of cognition and health function* ### Figure 4. Summary of Our Phase 3 Clinical Program ### RETHINK-ALZ and REFOCUS-ALZ In Fall 2021, we announced initiation of our two Phase 3 studies of simufilam in mild-to-moderate Alzheimer’s disease dementia. By early November 2023, we had announced the completion of patient enrollment in both Phase 3 studies. A total of approximately 1,900 patients have enrolled in these studies. Our first Phase 3 study, called RETHINK-ALZ, is designed to evaluate the safety and efficacy of oral simufilam 100 mg over 52 weeks. Details of the RETHINK-ALZ Phase 3 study include: - Enrollment completed – approximately 800 patients with mild-to-moderate Alzheimer’s disease dementia. - Patients are randomized (1:1) to simufilam 100 mg or placebo twice daily. - Patients are treated for 12 months. - The co-primary efficacy endpoints are ADAS-Cog121, a cognitive scale, and ADCS-ADL2, a functional scale; both are standard clinical tools in trials of Alzheimer’s disease. - A secondary efficacy endpoint is iADRS3, a standard clinical tool in trials of Alzheimer’s disease that combines cognitive and functional scores from ADAS-Cog & ADCS-ADL. - Other secondary endpoints include plasma biomarkers of disease and NPI4, a clinical tool that assesses the presence and severity of dementia-related behavior. Our second Phase 3 study, called REFOCUS-ALZ, is designed to evaluate the safety and efficacy of oral simufilam 100 mg and 50 mg over 76 weeks. Details of the REFOCUS-ALZ Phase 3 study include: - Enrollment completed – approximately 1,100 patients with mild-to-moderate Alzheimer’s disease dementia. - Patients are randomized (1:1:1) to simufilam 100 mg, 50 mg, or placebo BID. - Patients are treated for 76 weeks. - The co-primary efficacy endpoints are ADAS-Cog121, a cognitive scale, and ADCS-ADL2, a functional scale; both are widely used clinical tools in trials of Alzheimer’s disease. - A secondary efficacy endpoint is iADRS3, a widely used clinical tool in trials of Alzheimer’s disease that combines cognitive and functional scores from ADAS-Cog & ADCS-ADL. - Other secondary endpoints include CSF, plasma and imaging biomarkers of disease and NPI4, a clinical tool that assesses the presence and severity of dementia-related behavior. *1 ADAS-Cog = The Alzheimer’s Disease Assessment Scale – Cognitive Subscale, a measure of cognition* *2 ADCS-ADL = Alzheimer’s Disease Cooperative Study – Activities of Daily Living, a measure of health function* *3 iADRS = integrated Alzheimer’s Disease Rating Scale, a composite measure of cognition and health function* #### 4 Neuropsychiatric Inventory (NPI) ### Phase 3 Entry Criteria Includes a Plasma Assay for Phosphorylated Tau (pTau) We believe plasma levels of pTau proteins can provide independent confirmation of Alzheimer’s neuropathology. RETHINK-ALZ and REFOCUS-ALZ studies use a ‘research use only’, non-safety related exploratory P-tau181 plasma assay to qualify mild-to-moderate Alzheimer’s patients. The plasma assay we use does not rely on age, APOE-gene status or complex algorithms to provide a result. ### Data and Safety Monitoring Board (DSMB) In September 2023, we announced a positive interim safety review of simufilam in on-going Phase 3 clinical trials in patients with Alzheimer’s disease. A scheduled meeting of a DSMB recommended that both of our Phase 3 studies of simufilam continue as planned, without modification. This DSMB only reviewed patient safety. It did not assess drug efficacy. ### Interim MRI Safety Data In October 2023, we announced a potentially significant safety finding based on interim magnetic resonance imaging (MRI) brain data from Alzheimer’s patients who are enrolled in a Phase 3 clinical trial of simufilam. These MRI data suggest simufilam is not associated with treatment-emergent amyloid-related imaging abnormalities, or ARIA. MRIs were all analyzed for ARIA by independent, board-certified neuroradiologists. ARIA is a medical term used to describe a spectrum of brain MRI imaging abnormalities, such as brain swelling and brain bleeds. ARIA is also a known risk factor for Alzheimer’s patients taking the class of drugs known as monoclonal antibodies directed against amyloid. In contrast to such class of drugs, simufilam is a small-molecule (oral) drug candidate. The new safety finding is based on an independent, interim neuroradiological evaluation of brain MRIs taken at week 40 in a blinded sub-study of 180 Alzheimer’s patients enrolled in our on-going 76-week Phase 3 clinical trial of simufilam in mild-to-moderate Alzheimer’s (NCT#05026177). Final MRI data is expected at the conclusion of this Phase 3 study. ### Open-label Extension Study for the Phase 3 Program In October 2022, we announced the initiation of an open-label extension study for our Phase 3 program. This study is designed to provide no-cost access to oral simufilam for up to one year to Alzheimer’s patients who have successfully completed a Phase 3 study of simufilam and who meet other entry criteria. The open-label extension study is expected to generate long-term safety and tolerability data for (oral) simufilam 100 mg twice daily over 52 weeks. There is no obligation for a patient or a physician to participate in the open-label extension study. Each clinical investigational site and each patient chooses whether to participate in this open-label extension study. Patient enrollment for this study began November 2022. ### Publication Confirming Mechanism of Action of Simufilam In September 2023, we announced the publication of new research that confirms the biological activity of simufilam. Researchers at the Cochin Institute (Paris, France) used a highly precise cell-based assay to show that simufilam interrupts amyloid binding to the α7 nicotinic acetylcholine receptor (α7nAChR). We believe this protein interaction underlies simufilam’s mechanism of action in Alzheimer’s disease. The research appears in a special issue of *International Journal of Molecular Sciences,* a peer-reviewed scientific publication. ### Publication Showing Simufilam Suppresses Overactive mTOR In June 2023, we announced the publication of new research that showed the effects of simufilam on mTOR. Scientific literature shows overactive mTOR plays a key role in aging, Alzheimer’s disease and other conditions. When functioning normally, mTOR monitors cellular needs and is activated by insulin. The new published research shows mTOR is overactive in lymphocytes isolated from blood collected from Alzheimer's patients versus healthy controls. After oral administration of simufilam 100 mg twice daily to Alzheimer's patients for 28 days, lymphocytes showed normalized mTOR activity and restored mTOR sensitivity to insulin. These data suggest a meaningful impact of simufilam on mTOR signaling. The research appeared in *Frontiers in Aging*, a peer-reviewed scientific publication. ### SavaDx Our investigational product candidate, called SavaDx, is early-stage program focused on detecting the presence of Alzheimer’s disease from a small sample of blood. For business, technical and personnel reasons, we continue to prioritize the development of simufilam, our novel drug candidate, over SavaDx, our novel diagnostic candidate. SavaDx is a research-use only, non-safety related exploratory biomarker. SavaDx accounts for 1% or less of our research budget. The regulatory pathway for SavaDx may eventually include formal analytical validation studies and clinical studies that support evidence of sensitivity, specificity and other variables in various healthy and diseased patient populations. We have not conducted such studies and do not expect to conduct such studies in 2023. SavaDx is currently designed as an antibody-based detection system for altered filamin A (FLNA). Working with third parties, we are evaluating the use of mass spectrometry to detect FLNA, i.e., without the use of antibodies. These evaluations are on-going. ### Financial Overview We have yet to generate any revenues from product sales. We have an accumulated deficit of $359.9 million at September 30, 2023. These losses have resulted principally from costs incurred in connection with research and development activities, salaries and other personnel-related costs and general corporate expenses. Research and development activities include costs of clinical and preclinical trials as well as clinical supplies associated with our product candidates. Salaries and other personnel-related costs include stock-based compensation associated with stock options and other equity awards granted to employees and non-employees. Our operating results may fluctuate substantially from period to period as a result of enrollment rates of clinical trials for our product candidates, timing of preclinical activities and our need for clinical supplies. We expect to continue to use significant cash resources in our operations for the next several years. Our cash requirements for operating activities and capital expenditures may increase in the future as we: - continue our ongoing Phase 3 program with simufilam; - manufacture large-scale supplies for simufilam; - conduct other preclinical and clinical studies for our product candidates; - seek regulatory approvals for our product candidates; - develop, formulate, manufacture and commercialize our product candidates; - implement additional internal systems and develop new infrastructure; - acquire or in-license additional products or technologies, or expand the use of our technology; - maintain, defend and expand the scope of our intellectual property; - incur costs related to legal proceedings and claims, including U.S. government inquiries; and - hire additional personnel. Product revenue will depend on our ability to receive regulatory approvals for, and successfully market, our product candidates. If our development efforts result in regulatory approval and successful commercialization of our product candidates, we expect to generate revenue from direct sales of our drugs and/or, if we license our drugs to future collaborators, from the receipt of license fees and royalties from sales of licensed products. We conduct our research and development programs through a combination of internal and collaborative programs. We rely on arrangements with universities, certain collaborators, contract development and manufacturing organizations (CDMOs), CROs and clinical research sites for a significant portion of our product development efforts. We focus substantially all of our research and development efforts in the development of simufilam. Research and development expenses for our investigational diagnostic product candidate, SavaDx, represented less than 1% of total research and development expenses for the periods presented. The following table summarizes expenses by category for research and development efforts (in thousands): | | Three months ended September 30, 2023 | 2022 | Nine months ended September 30, 2023 | 2022 | | --- | ---: | ---: | ---: | ---: | | Clinical trials | $19,532 | $14,778 | $57,018 | $39,592 | | Pre-clinical projects | 1,290 | 1,022 | 4,464 | 2,411 | | Chemical, Manufacturing and Controls costs (“CMC costs”) | 602 | 668 | 2,834 | 2,080 | | Personnel related | 1,450 | 1,365 | 4,273 | 4,278 | | Stock-based compensation | 405 | 399 | 1,186 | 1,234 | | Other | 324 | 294 | 917 | 785 | | | $23,603 | $18,526 | $70,692 | $50,380 | Clinical trial costs include the costs of our CRO. CMC costs include costs related to our contract development and manufacturing organizations. Research and development expenses include compensation, contractor fees and supplies as well as allocated common costs such as facilities. During the three and nine months ended September 30, 2023, we did not receive reimbursement from NIH research grants. During the three and nine months ended September 30, 2022, we received $0.4 million and $0.9 million from NIH research grants, respectively. These reimbursements were recorded as a reduction to our research and development expenses. Estimating the dates of completion of clinical development, and the costs to complete development, of our product candidates would be highly speculative, subjective and potentially misleading. Pharmaceutical product candidates take a significant amount of time to research, develop and commercialize. The clinical trial portion of the development of a new drug alone usually spans several years. The cost and pace of our future research and development activities are linked and subject to change. ### Critical Accounting Estimates This discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported expenses and net loss incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no material changes to our critical accounting estimates during the nine months ended September 30, 2023 from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on February 28, 2023. **Results of Operations – Three and Nine Months Ended September 30, 2023 and 2022** #### Research and Development Expense Research and development expenses consist primarily of costs of drug development work associated with our product candidates, including: - clinical trials, - pre-clinical testing, - clinical supplies and related formulation and design costs, and - compensation and other personnel-related expenses. Research and development expenses were $23.6 million and $18.5 million during the three months ended September 30, 2023 and 2022, respectively. This 27% increase was due primarily to increasing enrollment and costs to conduct the ongoing Phase 3 clinical program and open-label studies in simufilam compared to the prior year. Research and development expenses were $70.7 million and $50.4 million during the nine months ended September 30, 2023 and 2022, respectively. This 40% increase was due primarily to increasing enrollment and costs to conduct the ongoing Phase 3 clinical program and open-label studies in simufilam as well as higher preclinical costs compared to the prior year. We expect research and development expense to continue to increase in 2023 compared to 2022 as we conduct a Phase 3 clinical program and other clinical studies with simufilam, continue to hire new personnel, manufacture drug supply, and continue our development efforts. #### General and Administrative Expense General and administrative expenses consist of personnel costs, allocated expenses and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, bonus, benefits and stock-based compensation. Allocated expenses consist primarily of facility costs for our Company owned office complex in Austin, Texas. Depreciation and amortization for office space leased but not occupied by the Company is included in general and administrative expense. Depreciation and amortization for office space occupied by the Company is allocated between general and administrative expense and research and development expense. We also incur expenses associated with operating as a public company, including additional legal fees, expenses related to compliance with the rules and regulations of the SEC and Nasdaq, additional insurance and audit expenses, investor relations activities, Sarbanes-Oxley compliance expenses and other administrative expenses and professional services. General and administrative expenses were $4.3 million and $2.8 million during the three months ended September 30, 2023 and 2022, respectively. The 52% increase was due primarily to $1.0 million in higher legal expenses due to ongoing legal matters as well as a $0.5 million increase in stock-based compensation expense due to new grant awards compared to the prior year. General and administrative expenses were $12.5 million and $8.7 million during the nine months ended September 30, 2023 and 2022, respectively. The 43% increase was due primarily to $2.2 million in higher legal expenses due to ongoing legal matters, a $1.1 million increase in stock-based compensation expense due to new grant awards as well as an increase in headcount and personnel costs compared to the prior year. We expect general and administrative expense for 2023 will continue to increase compared to 2022 due primarily to stock-based compensation increases due to new grant awards during the period and higher legal and professional fees related to ongoing securities class action and derivative lawsuits, governmental investigations as well the Company’s lawsuit against a hedge fund and certain individuals who we believe executed a “short and distort” campaign against the Company. #### Interest Income Interest income was $2.0 million and $0.9 million during the three months ended September 30, 2023 and 2022, respectively. Interest income was $6.3 million and $1.2 million during the nine months ended September 30, 2023 and 2022, respectively. The increase in interest income was due to increases in interest rates compared to the prior periods. We expect interest income to continue to increase in 2023 compared to 2022 due to increases in interest rates. #### Other income, net We record the activities related to leasing office space to third parties in buildings we own as other income, net, as leasing is not core to the Company’s operations. Other income, net, was $223,000 and $210,000 during the three months ended September 30, 2023 and 2022, respectively. Other income, net, was $0.6 million and $0.7 million during the nine months ended September 30, 2023 and 2022, respectively. Other income, net, was lower in the three and nine months ended September 30, 2023 as occupancy related expenses were higher in 2023 compared to the prior year periods as the Company began occupying approximately 25% of the property beginning late August 2022. Depreciation and amortization for the office complex is included in general and administrative and research and development expense, and thus not reflected in other income, net. ### Liquidity and Capital Resources Since inception, we have financed our operations primarily through public and private stock offerings, payments received under collaboration agreements and interest earned on our cash and cash equivalents balances. We intend to continue to use our capital resources to fund research and development activities, capital expenditures, working capital requirements and other general corporate purposes. As of September 30, 2023, cash and cash equivalents were $142.4 million. ### 2022 Registered Direct Offering On November 22, 2022, we completed a common stock offering pursuant to which certain investors purchased 1,666,667 shares of common stock at a price of $30.00 per share. Net proceeds of the offering were approximately $47.3 million after deducting offering expenses. ### At-the-Market Common Stock Offering On May 1, 2023, we entered into an at-the-market offering program (“ATM”) to sell, from time to time, shares of our common stock having an aggregate offering price of up to $200 million in common stock pursuant to a shelf registration statement that was filed with the SEC on May 1, 2023 and became effective immediately upon filing. We are obligated to pay a commission of up to 3% of the gross proceeds from the sale of shares of common stock in the offering. We are not obligated to sell any shares in the offering. There were no common stock sales under the ATM during the three and nine months ended September 30, 2023. In March 2020, we entered into an at-the-market offering program (“2020 Program”) to sell, from time to time, shares of our common stock having an aggregate offering price of up to $100 million in transactions pursuant to a shelf registration statement that was declared effective by the SEC on May 5, 2020. We gave notice of termination for the 2020 Program effective on April 26, 2023, which was effective May 1, 2023. There were no common stock sales under the 2020 Program through its termination. ### 2020 Cash Incentive Bonus Plan Obligations In August 2020, the Company's Board of Directors (the "Board") approved the 2020 Cash Incentive Bonus Plan (the "Plan"). The Plan was established to promote the long-term success of the Company by creating an “at-risk” cash bonus program that rewards Plan participants with additional cash compensation in lockstep with significant increases in the Company’s market capitalization. The Plan is considered “at-risk” because Plan participants will not receive a cash bonus unless the Company’s market capitalization increases significantly and certain other conditions specified in the Plan are met. Specifically, Plan participants will not be paid any cash bonuses unless (1) the Company completes a merger or acquisition transaction that constitutes a sale of ownership of the Company or its assets (a "Merger Transaction") or (2) the Compensation Committee determines the Company has sufficient cash on hand, as defined in the Plan. Plan participants will be paid all earned cash bonuses in the event of a Merger Transaction. As of December 31, 2022, the Company’s independent directors were participants in the Plan. However, effective March 16, 2023, the Board amended the Plan to remove all independent directors as participants in the Plan and the independent directors consented to such removal. The independent directors’ share of potential benefits under the Plan were completely forfeited to the Company and will not be allocated to any other participant under the Plan. Our independent directors have not received, and as a result of such amendment will never receive, any payments under the Plan. The Company’s market capitalization, including all outstanding stock options, was $89.4 million at the inception of the Plan in August 2020. If the Company were to exceed a $5 billion market capitalization for no less than 20 consecutive trading days, and conditions noted above for payment are met, all Plan milestones would be deemed achieved, in which case total cash bonus awards would range from a minimum of $111.4 million up to a hypothetical maximum of $289.7 million. The Company’s potential financial obligation to plan participants at September 30, 2023 totaled $6.5 million (after the March 2023 Plan amendment), based upon the achievement of one Plan milestone in the Company’s market capitalization in 2020. No actual cash bonus payments have been made to any Plan participant, as the Company has not yet satisfied all the conditions necessary for amounts to be paid under the Plan. During the year ended December 31, 2021, the Company’s market capitalization increased substantially. These increases triggered the achievement of 11 additional Plan milestones. Collectively, the achievement of such milestones could trigger potential Company obligations to Plan participants ranging from a minimum of $74.9 million up to a hypothetical maximum of $202.3 million, with exact amounts to be determined by the Compensation Committee and contingent upon future satisfaction of a Performance Condition. No Valuation Milestones were achieved during the 2022 or the nine months ended September 30, 2023. No actual cash payments were authorized or made to participants under the Plan as of September 30, 2023, or through the filing date of this Form 10-Q. ### Use of Cash Net cash used in operating activities was $59.7 million for the nine months ended September 30, 2023, resulting primarily from the net loss of $76.3 million, partially offset by an increase in accounts payable and accrued expenses of $5.8 million, an increase in accrued developmental expenses of $5.1 million, a decrease in in prepaid and other current assets of $2.4 million and stock-based compensation expense of $2.5 million. Net cash used in operating activities was $56.2 million for the nine months ended September 30, 2022, resulting primarily from the net loss reported of $57.1 million, a decrease in accounts payable of $3.6 million and accrued compensation and benefits of $1.7 million, partially offset by a decrease in in prepaid and other assets of $2.8 million, an increase in accrued developmental expenses of $1.3 million and stock-based compensation expense of $1.5 million. Net cash used in investing activities during the nine months ended September 30, 2023 was $0.4 million as final payment was made on renovations and fixtures for our corporate headquarters. Net cash used in investing activities during the nine months ended September 30, 2022 was $3.0 million related to renovations and fixtures for our corporate headquarters. Net cash provided by financing activities during the nine months ended September 30, 2023 was $1.4 million, from the exercise of stock options. Net cash provided by financing activities during the nine months ended September 30, 2022 was $0.5 million, from the exercise of stock options. ### Property and Leases We own an office complex in Austin, Texas, a portion of which serves as our corporate headquarters. This property is intended to accommodate our anticipated growth and expansion of our operations in the coming years. Maintenance, physical facilities, leasing, property management and other key responsibilities related to property ownership are outsourced to professional real-estate managers. Our office complex has approximately 90,000 square feet of rentable space. At September 30, 2023, the property was over 60% leased. We occupy approximately 25% of the property since late August 2022. Virtually all tenant leases will expire in 2024. We believe tenant leases that expire in 2024 may not be extended, renewed or re-leased beyond their expiry date, in which case we will no longer receive rental payments or reimbursement for shared expense for such office space. We previously leased a different location with approximately 6,000 square feet of office space pursuant to an operating lease in Austin, Texas expiring in April 2024. We and the landlord consented to early terminate this lease on February 22, 2023 with no continuing obligations. ### Other Commitments We have an accumulated deficit of $359.9 million as of September 30, 2023. We expect our cash requirements to be significant in the future. The amount and timing of our future cash requirements will depend on regulatory and market acceptance of our drug candidates, the resources we devote to researching and developing, formulating, manufacturing, commercializing and supporting our products and other corporate needs. We believe that our current cash and cash equivalents will be sufficient to fund our operations for at least the next 12 months. We may seek additional future funding through public or private financing in the future, if such funding is available and on terms acceptable to us. However, there are no assurances that additional financing will be available on favorable terms, or at all. ## Market risk As filed, 1,224 characters. We are exposed to market risks in the ordinary course of our business, primarily related to interest rate sensitivities and, to a lesser extent, currency fluctuations related to our clinical operations outside the U.S. ### Interest Rate Sensitivity We are exposed to market risk related to changes in interest rates. We had cash and cash equivalents of $142.4 million as of September 30, 2023, which consisted primarily of U.S. Treasury securities and money market accounts. The primary objective of our investment activities is to preserve capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain investment vehicles with high credit quality and short-term duration, in accordance with our Board-approved investment policy. Such interest-earning instruments carry a degree of interest rate risk. However, due to the generally short-term maturities and low risk profile of our cash equivalents, an immediate 100 basis point increase or decrease in interest rates during any of the periods presented would increase or decrease our annual net loss by less than $2 million in our condensed consolidated financial statements. ## Controls and procedures As filed, 1,880 characters. *Evaluation of disclosure controls and procedures.* Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer (as Principal Executive Officer) and our Chief Financial Officer (as Principal Financial Officer) have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of September 30, 2023, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. *Changes in internal control over financial reporting.* There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified during the three months ended September 30, 2023 that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting. ## Risk factors As filed, 461 characters. *There have been no material changes to our risk factors from those disclosed under “Risk Factors” in Part I, Item 1A of our 2022 Annual Report on Form 10‑K. The risks and uncertainties described in our 2022 Annual Report on Form 10‑K are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition or results of operations.* Filed Nov 7, 2023. Source: SEC EDGAR, the filing index for accession 0001437749-23-030502. Last ingested by Listed: Nov 5, 2026, 12:17 ET. No prices; not investment advice.