CervoMed Inc.: Form 10-Q for the period ended Mar 31, 2026

This discussion and analysis contains information related to historical and prospective events intended to enable you to assess our financial condition and results of operations. The information contained in this discussion and analysis should be read in conjunction with our unaudited condensed consolidated interim financial statements and the related notes contained elsewhere in this Quarterly Report, as well as the risks and uncertainties discussed under the headings, "Part II — Item 1A — Risk Factors" and “Note Regarding Forward-Looking Statements.”

Overview

We are a clinical-stage biotechnology company developing treatments for age-related brain disorders. Our lead drug candidate, neflamapimod, is an investigational, orally administered small-molecule drug that readily crosses the blood–brain barrier and selectively inhibits the enzyme p38α, a key driver of neuroinflammation and synaptic dysfunction. By targeting the critical disease processes underlying degenerative disorders of the brain, neflamapimod has the potential to reverse synaptic dysfunction, improve neuron health, and slow or prevent disease progression. Neflamapimod is currently in clinical development for the treatment of DLB, our lead indication, as well as nfvPPA, RAS, and ALS.

Our novel approach focuses on reducing the impact of neuroinflammation, which we believe is a key factor in the manifestation of degenerative diseases of the brain. Chronic activation of p38α in the brains of people with certain neurodegenerative diseases is believed to impair how neurons communicate through synapses. This synaptic dysfunction leads to deterioration of cognitive and motor abilities. Left untreated, synaptic dysfunction can result in irreversible neuronal loss that leads to devastating disabilities, significant reliance on a caretaker, long term care living, and, ultimately, death. However, before neuronal loss commences, disease progression in many major neurodegenerative disorders, including DLB, initially involves a protracted period of reversible functional loss, particularly with respect to the synapses. We believe that inhibiting p38α activity in the brain has the potential to reverse the clinical progression observed in the early-stages of certain neurodegenerative diseases, as well as slow further progression by delaying permanent synaptic dysfunction and neuron death, by interfering with key pathogenic drivers of disease.

We believe we are a leader in the industry in developing a treatment for DLB, a disease with no approved therapies in the US or European Union despite being the second most common progressive dementia. Neflamapimod is the only clinical drug candidate that, to our knowledge, has shown statistically significant improvements on clinical endpoints and a biomarker of neurodegeneration in both a Phase 2a and Phase 2b clinical trial. Differentiating our approach from potential competitors, we believe we are also the only company specifically targeting the treatment of DLB patients without AD co-pathology. While DLB patients with AD co-pathology generally have significant, irreversible neuronal loss, DLB without AD co-pathology is primarily a disease of functional deficits of synapses that we believe is more treatable. We believe if neflamapimod is given in the early stages of certain degenerative diseases of the brain like DLB without AD co-pathology, it may reverse synaptic dysfunction, improve neuron health and function, and slow further progression by delaying synaptic dysfunction and neuronal death. We believe this approach enhances the alignment of our development path with neflamapimod’s mechanism of action, reduces the heterogeneity of our target patient population, and provides the opportunity to demonstrate heightened clinical effect in shorter duration trials.

Financial Summary

As of March 31, 2026, we had cash, cash equivalents, and marketable securities of approximately $12.9 million. To date, we have not had any products approved for sale and have not generated any revenue from product sales, and our ability to do so in the future will depend on the successful development and eventual commercialization of neflamapimod (or another product candidate that we could acquire or develop in the future). We do not expect to generate revenue from product sales until such time, if ever.

Our accumulated deficit as of March 31, 2026 was $105.7 million. We have never been profitable, and we will continue to require additional capital to develop neflamapimod and fund operations for the foreseeable future. We have historically incurred net losses in each year since inception. Our net loss was $8.0 million and $4.9 million in the three months ended March 31, 2026 and 2025, respectively. We expect our expenses will increase in connection with our ongoing activities, as we:

• advance neflamapimod through clinical trials, including our planned Phase 3 trial in DLB, subject to available funding;
• manufacture supplies for our nonclinical studies and clinical trials;
• obtain, maintain, expand, and protect our intellectual property portfolio;
• hire additional personnel to support our operations and growth; and
• continue to operate as a public company.

Based on our current operating plan, we do not believe our existing cash, cash equivalents, and marketable securities on hand as of March 31, 2026, will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months from the issuance of the unaudited condensed consolidated interim financial statements included in this Quarterly Report. The unaudited condensed consolidated interim financial statements appearing elsewhere in this Quarterly Report have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business and do not include any adjustments that might result from the outcome of this uncertainty.

Financial Operations Overview

Revenue

To date, we have not generated any revenue from product sales and we do not expect to do so in the near future. In January 2023, we were awarded our $21.0 million NIA Grant and, in August 2024, we were awarded an additional $0.3 million under our NIA Grant. Funding from the NIA Grant was to be received in three annual installments and recognized as grant revenue as the qualifying expenses related thereto are incurred. There was no revenue recognized from the NIA Grant for the three months ended March 31, 2026. The total revenue recognized from the NIA Grant was $1.9 million for the three months ended March 31, 2025.

Research and Development Expenses

Research and development expenses account for a significant portion of our operating expenses and primarily consist of costs incurred for the discovery and development of our product candidates, including:

• expenses incurred under agreements with CROs, preclinical testing organizations, consultants, and other third-party vendors, collaborators and service providers;
• costs related to production of clinical materials, including fees paid to CDMOs;
• vendor expenses related to the execution of preclinical studies and clinical trials;
• personnel-related expenses, including salaries, benefits, and stock-based compensation for personnel engaged in research and development functions;
• costs related to the preparation of regulatory submissions;
• third-party license fees; and
• expenses for rent and other supplies.

We recognize research and development expenses as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators, and third-party service providers. Non-refundable advance payments made by us for future research and development activities are capitalized and expensed as the related goods are delivered and as services are performed.

Specific program expenses include expenses associated with the development of our lead product candidate, neflamapimod. Personnel and other operating expenses incurred for our research and development programs primarily relate to salaries and benefits, stock-based compensation, and facility expenses.

At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, neflamapimod, or for any other product candidates that we may develop or acquire. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing neflamapimod such as conducting larger clinical trials, seeking regulatory approval and incurring expenses associated with hiring personnel to support other research and development efforts. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of product candidates, including neflamapimod, is highly uncertain.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, including stock-based compensation for our personnel in executive, finance and accounting, and other administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees paid for accounting, auditing, consulting, and tax services, insurance costs, and facility costs.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development activities and as we continue development activities. We also anticipate that we will incur increased expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and those of any national securities exchange on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities, and other administrative and professional services.

Interest Income

Interest income consists of interest earned on our marketable securities and on our cash and cash equivalent balances held with financial institutions.

Results of Operations

Comparison of the Three Months Ended March 31, 2026 and 2025

The following table summarizes our results of operations:

*(a) Not meaningful

Net Loss

Our net loss was $8.0 million for the three months ended March 31, 2026, compared to $4.9 million in the prior year period. The aggregate increase of $3.1 million was primarily due to a $1.9 million decrease in grant revenue and a $0.9 million increase in total operating expenses, in each case, as further described below.

Grant Revenue

There was no revenue recognized from the NIA Grant for the three months ended March 31, 2026. The total revenue recognized from the NIA Grant was $1.9 million for the three months ended March 31, 2025. The decrease of $1.9 million was due to the completion of the RewinD-LB Trial in mid-2025 and, accordingly, there currently being no further funding available or expected under the NIA Grant.

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended March 31, 2026, and 2025:

* Includes early-stage clinical studies that are not indication-specific and related costs.

Research and development expenses were $5.1 million for the three months ended March 31, 2026, compared to $4.8 million for the three months ended March 31, 2025. The aggregate $0.3 million increase in research and development expenses was primarily due to increases of $0.8 million in other research and development costs and $0.4 million in other clinical and nonclinical costs, driven, in each case, by increased CMC and other activities to develop and evaluate a stable crystal form of neflamapimod and new, controlled manufacturing process, as well as increases of $0.3 million in costs related to FTD, as we continued to progress our Phase 2a trial in nfvPPA, and $0.2 million in personnel costs, driven by higher headcount and outsourced consulting costs. These increases were offset by $1.4 million decrease in costs related to our DLB program – including our recently completed RewinD-LB Trial.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, 2026, and 2025:

General and administrative expenses were $3.0 million for the three months ended March 31, 2026, compared to $2.4 million for the three months ended March 31, 2025. The aggregate increase of $0.6 million was primarily due to a $0.4 million increase in professional fees, driven by legal expenses and consulting expenses, and a $0.2 million increase in personnel costs, primarily driven by increased headcount.

Other Expense

There was a de minimis amount of other expenses for the three months ended March 31, 2026 and 2025.

Interest income

Interest income was $0.1 million for the three months ended March 31, 2026, compared to $0.4 million for the three months ended March 31, 2025. The decrease of $0.3 million was primarily due to change in returns on investments driven by a lower investment balance due to cash used for operations.

Liquidity and Capital Resources

Capital Requirements

From the date of our inception through March 31, 2026, our operations have primarily been financed through the issuance of common stock, convertible preferred stock and convertible debt financings. As of March 31, 2026, we had approximately $12.9 million of cash, cash equivalents, and marketable securities. We have not generated positive cash flows from operations and as of March 31, 2026, we had an accumulated deficit of approximately $105.7 million. In January 2023, we were awarded a $21.0 million grant from the NIA to support the RewinD-LB Trial, which was expected to be received over a three-year period. In August 2024, we received an additional $0.3 million from the NIA. As of March 31, 2026, aggregate total cash funding of $20.9 million has been received from the NIA Grant. There is no further funding available under this grant and no receivable balance remaining as of March 31, 2026. During the three months ended March 31, 2026, we forfeited $0.2 million previously awarded under the NIA Grant due to underbilling on an agreement with a clinical trial site. During the year ended December 31, 2025, we received access to 98% of the year 3 funding provided for in the NIA Grant, due to then-current NIA policy. In January 2026, we were informed that we would not receive the final 2% of year 3 grant funding, or approximately $0.2 million, that remained unavailable as of December 31, 2025, as a result of agency-wide reductions in NIA funding.

On May 12, 2025, we entered into the Sales Agreement with Leerink Partners LLC, as sales agent, pursuant to which we may offer and sell shares of common stock from time-to-time with an aggregate offering price of up to $50.0 million under an “at-the-market" offering program. In June 2025, we sold 550,000 shares of common stock to an institutional investor in a block sale for proceeds of $4.7 million, net of $0.1 million of issuance costs. There was no activity related to the Sales Agreement in the three months ended March 31, 2026.

Our primary uses of cash are to fund our operations, which consist primarily of research and development expenditures related to our programs and, to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Any product candidates we may develop may never achieve commercialization, and we anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. In addition, we expect to incur costs associated with operating as a public company. As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including potential collaborations, licenses and other similar arrangements. Our primary uses of capital are, and we expect will continue to be, costs related to clinical research, manufacturing and development services; compensation and related expenses; costs relating to the build-out of our headquarters, other offices and laboratories; license payments or milestone obligations that may arise; laboratory expenses and costs for related supplies; manufacturing costs; legal and other regulatory expenses and general overhead costs.

Based on our current operating plan, we do not believe our existing cash, cash equivalents, and marketable securities on hand as of March 31, 2026, will enable us to fund our operating expenses and capital expenditure requirements for at least twelve months from the issuance of the unaudited condensed consolidated interim financial statements included in this Quarterly Report. Accordingly, substantial doubt exists about our ability to continue as a going concern within one year after the date the unaudited condensed consolidated interim financial statements included elsewhere in this Quarterly Report are issued. The accompanying unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited interim condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. We will continue to require additional financing to advance our current product candidates through clinical development, to develop, acquire or in-license other potential product candidates and to fund operations for the foreseeable future. We will continue to seek funds through equity offerings, debt financings, royalty arrangements, or other dilutive or non-dilutive capital sources, including potential collaborations, licenses and/or other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through a debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we may need to delay, reduce or terminate planned activities to reduce costs, including our development or commercialization activities for neflamapimod. We might also be required to seek funds through arrangements with third parties that require us to relinquish certain of our rights to neflamapimod or otherwise agree to terms unfavorable to us.

Because of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, we are unable to estimate the exact amount of our operating capital requirements. Our future capital requirements will depend on, and could increase significantly as a result of, many factors, including:

• the enrollment, progress, timing, costs and results of our clinical trials and other development activities for neflamapimod;
• the outcome, timing and cost of meeting regulatory requirements established by the FDA and other comparable foreign regulatory authorities;
• our ability to reach certain milestone events set forth in our collaboration agreements and the timing of such achievements, triggering our obligation to make applicable payments;
• the hiring of additional clinical, scientific and commercial personnel to pursue our development plans, as well as the increased costs of internal and external resources to support our operations as a public reporting company;
• the cost and timing of securing manufacturing arrangements for clinical or commercial production;
• the cost of establishing, either internally or in collaboration with others, sales, marketing and distribution capabilities to commercialize neflamapimod, if approved;
• the cost of filing, prosecuting, enforcing, and defending our patent claims and other intellectual property rights, including defending against any patent infringement actions brought by third parties against us;
• the ability to receive additional non-dilutive funding, including grants from organizations and foundations;
• our ability to establish strategic collaborations, licensing or other arrangements with other parties on favorable terms, if at all; and
• the extent to which we may in-license or acquire other product candidates or technologies.

A change in the outcome of any of these or other variables could significantly alter the costs and timing associated with the development of neflamapimod. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.

Cash Flows

Operating Activities

For the three months ended March 31, 2026, cash used in operating activities was $8.0 million. The net cash outflow from operations primarily resulted from net loss of $8.0 million, accretion of discount on marketable securities of $0.1 million, and changes in operating assets and liabilities of $0.3 million, partially offset by a non-cash expense of $0.3 million for stock-based compensation.

For the three months ended March 31, 2025, cash used in operating activities was $3.9 million. The net cash outflow from operations primarily resulted from net loss of $4.9 million and accretion of discount on marketable securities of $0.3 million, partially offset by changes in operating assets and liabilities of $0.9 million and by a non-cash expense of $0.4 million for stock-based compensation.

Investing Activities

For the three months ended March 31, 2026, cash provided by investing activities was $7.7 million due to the maturities of marketable securities, partially offset by the purchase of marketable securities.

For the three months ended March 31, 2025, cash provided by investing activities was $5.4 million due to the maturities of marketable securities, partially offset by the purchase of marketable securities.

Financing Activities

For the three months ended March 31, 2026, cash provided by financing activities was $13,800 due to proceeds from the cash exercise of employee stock options.

We did not have any cash provided by or used in financing activities for the three months ended March 31, 2025.

Contractual Obligations and Other Commitments

We enter into contracts in the normal course of business with third-party contract organizations for clinical trials, nonclinical studies and manufacturing, and other services for operating purposes. The amount and timing of contractual obligations may vary based on the timing of services. We can generally elect to discontinue the work under these agreements at any time. In the future, we could also enter into additional collaborative research, contract research, manufacturing, and supplier agreements which may require upfront payments or long-term commitments of cash.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources. As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.

Critical Accounting Policies and Estimates

During the three months ended March 31, 2026, there were no material changes to our critical accounting policies and estimates from those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report.

Recently Adopted Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 3, Summary of Significant Accounting Policies, in the notes accompanying the unaudited condensed consolidated interim financial statements included in Part I, Item 1 of this Quarterly Report.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, promulgated by the SEC under the Securities Act and Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item 3.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under 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 our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we are required to apply our judgment in evaluating the cost-benefit relationship of possible internal controls. Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered in this report. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective as of March 31, 2026.

Change in Internal Control Over Financial Reporting

Remediation of Previously Identified Material Weakness

In connection with the audit of our consolidated financial statements for the years ended December 31, 2024, 2023, and 2022, a material weakness in our internal control over financial reporting was identified in relation to the absence of effective controls regarding the accurate identification, evaluation and proper recording of various expense accounts. A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our consolidated financial statements would not be prevented or detected on a timely basis. The identified material weakness, if not remediated, could result in a material misstatement to our consolidated financial statements that may not be prevented or detected. A material weakness will not be considered remediated until a remediation plan has been fully implemented, the applicable controls operate for a sufficient period of time, and it has been concluded, through testing, that the newly implemented and enhanced controls are operating effectively.

On August 16, 2023, we completed the Merger. For financial reporting purposes, EIP was determined to be the accounting acquirer and, accordingly, for all periods prior to the Merger, EIP’s historical financial statements and results of operations replace and are deemed to be our financial statement and results of operations for such periods. While Diffusion was previously subject to the provisions of the Sarbanes-Oxley Act of 2002, EIP, as a private, non-reporting operating company prior to the Merger, was not. Accordingly, upon consummation of the Merger, we began the process of integrating the pre-Merger business of EIP into Diffusion’s pre-established public company, internal control framework, including internal controls and information systems and we continued to implement measures designed to improve our internal control over financial reporting to remediate the remaining material weakness through the year ended December 31, 2025. During the three-month period ended December 31, 2025, we completed our remediation plan with respect to the material weakness.

Except as set forth above, there were no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As of the date of this Quarterly Report, there have been no material changes to our risk factors previously disclosed in our Annual Report.