Athira Pharma, Inc. (NASDAQ:ATHA) Q4 2021 Earnings Conference Call March 24, 2022 4:30 PM ET Company Participants Julie Rathbun - Investor Relations Mark Litton - President & Chief Executive Officer Hans Moebius - Chief Medical Officer Conference Call Participants Andrew Tsai - Jefferies Paul Matteis - Stifel Corinne Jenkins - Goldman Sachs Jason Butler - JMP Disclaimer*: This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are ...

[PART I. FINANCIAL INFORMATION](index=5&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited financial statements, management's discussion and analysis, and disclosures on market risk and controls [Item 1. Financial Statements (Unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Athira Pharma's unaudited condensed consolidated financial statements, detailing balance sheets, income statements, and cash flows [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of September 30, 2021, total assets increased to **$347.3 million**, driven by cash and investments, while liabilities and equity also grew Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $107,328 | $60,625 | | Total current assets | $238,992 | $192,337 | | Total assets | $347,331 | $279,563 | | **Liabilities & Stockholders' Equity** | | | | Total current liabilities | $9,386 | $4,405 | | Total liabilities | $11,094 | $5,281 | | Total stockholders' equity | $336,237 | $274,282 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For the nine months ended September 30, 2021, the company reported a net loss of **$38.5 million**, driven by increased R&D and G&A expenses Statement of Operations Summary (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Research and development | $30,176 | $8,099 | | General and administrative | $15,068 | $2,817 | | Total operating expenses | $45,244 | $10,916 | | Loss from operations | ($45,244) | ($10,916) | | Grant income | $6,499 | $22 | | Net loss | ($38,514) | ($12,253) | | Net loss per share | ($1.12) | ($2.38) | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details cash flows, showing net cash used in operating and investing activities, largely offset by cash provided by financing activities Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | ($24,921) | ($13,448) | | Net cash used in investing activities | ($25,452) | ($94,310) | | Net cash provided by financing activities | $97,076 | $271,427 | | **Net increase in cash and cash equivalents** | **$46,703** | **$163,669** | [Notes to Unaudited Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed information supporting the financial statements, including business focus, financing, liquidity, and significant legal and operational contingencies - The company is a **late clinical-stage biopharmaceutical company** focused on developing small molecules to restore neuronal health and stop neurodegeneration[27](index=27&type=chunk) - In January and February 2021, the company completed a follow-on public offering, raising net proceeds of approximately **$96.8 million**[28](index=28&type=chunk) - As of September 30, 2021, the company had **$339.4 million** in cash, cash equivalents, and investments, estimated to fund operations for at least the next 12 months[29](index=29&type=chunk)[30](index=30&type=chunk) - The company is subject to several putative **securities class action lawsuits** filed in June 2021, alleging false and misleading statements regarding former CEO Dr. Leen Kawas's research, with an unpredictable outcome[82](index=82&type=chunk)[83](index=83&type=chunk)[85](index=85&type=chunk) - Subsequent to the quarter's end, an independent special committee concluded that former CEO Dr. Leen Kawas **altered images in her doctoral dissertation and research papers**, leading to her resignation on October 18, 2021, and the appointment of Mark Litton as new CEO[116](index=116&type=chunk)[120](index=120&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results of operations, highlighting increased operating expenses, a net loss, and strong liquidity from recent equity offerings - The company is a **late clinical-stage biopharmaceutical company** focused on developing small molecules, with its lead candidate, **ATH-1017**, in Phase 2/3 and Phase 2 trials for Alzheimer's disease[130](index=130&type=chunk)[133](index=133&type=chunk) Comparison of Operating Results (in thousands) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Research & Development | $30,176 | $8,099 | | General & Administrative | $15,068 | $2,817 | | **Loss from Operations** | **($45,244)** | **($10,916)** | | Grant Income | $6,499 | $22 | | **Net Loss** | **($38,514)** | **($12,253)** | - The increase in R&D expenses was primarily driven by a **$17.9 million increase** in costs for ATH-1017 related to patient enrollment and clinical site activity for Phase 2 and Phase 2/3 trials[171](index=171&type=chunk) - The increase in G&A expenses was primarily due to higher personnel-related costs (**$4.6 million**), legal costs (**$2.6 million**) related to litigation and the special committee investigation, and insurance costs (**$2.2 million**)[172](index=172&type=chunk) - As of September 30, 2021, the company had **$339.4 million** in cash, cash equivalents, and investments, estimated to be sufficient to fund operations at least through 2022[142](index=142&type=chunk)[145](index=145&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=47&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Athira Pharma is not required to provide the information requested under this item - The company is not required to provide quantitative and qualitative disclosures about market risk as it qualifies as a **smaller reporting company**[195](index=195&type=chunk) [Controls and Procedures](index=47&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated the company's disclosure controls and procedures, concluding they were effective as of September 30, 2021, with no material changes in internal control - Management concluded that the company's **disclosure controls and procedures were effective** at a reasonable assurance level as of September 30, 2021[197](index=197&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2021[198](index=198&type=chunk) [PART II. OTHER INFORMATION](index=49&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information, including legal proceedings, risk factors, equity sales, and exhibits [Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) This section details significant legal challenges, including consolidated securities class action lawsuits alleging false statements related to the former CEO's research - Three putative **securities class action lawsuits** were filed against the company and certain officers and directors in June 2021[201](index=201&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk) - The lawsuits allege violations of federal securities laws related to allegedly false and misleading statements about the company's business and the scientific integrity of former CEO Dr. Leen Kawas's research[201](index=201&type=chunk)[202](index=202&type=chunk) - The three cases were **consolidated into a single action** in August 2021, with the company unable to predict the outcome or potential financial impact[204](index=204&type=chunk) [Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) This section outlines significant risks, including limited operating history, dependence on ATH-1017, fallout from the former CEO's research investigation, and the need for substantial additional funding - An independent special committee found that former CEO Dr. Leen Kawas **altered images in her doctoral dissertation and research papers**, potentially harming the company's reputation, patents, and business prospects[223](index=223&type=chunk)[224](index=224&type=chunk) - The company and certain directors/officers are defendants in **securities class action lawsuits** related to the former CEO's alleged misconduct, potentially incurring substantial costs and diverting management's attention[473](index=473&type=chunk)[474](index=474&type=chunk) - The company's success is highly dependent on its lead product candidate, **ATH-1017**, which is based on a novel therapeutic approach and may never lead to a marketable product[216](index=216&type=chunk)[217](index=217&type=chunk) - The company has incurred significant losses since inception (**$79.6 million accumulated deficit** as of September 30, 2021) and will require substantial additional funding to finance operations and complete product development[277](index=277&type=chunk)[279](index=279&type=chunk) - The company relies on **third parties to conduct clinical trials and manufacture product candidates**, increasing risks related to quality control, supply chain disruptions, and regulatory compliance[343](index=343&type=chunk)[348](index=348&type=chunk) - The company's intellectual property, including patents licensed from Washington State University, could be challenged, invalidated, or found unenforceable, particularly in light of the **WSU investigation into the former CEO's research**[399](index=399&type=chunk)[400](index=400&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=127&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities and no material change in the planned use of IPO proceeds - There were **no unregistered sales of equity securities** in the reporting period[502](index=502&type=chunk) - There has been **no material change in the planned use of net proceeds** from the company's IPO[505](index=505&type=chunk) [Defaults Upon Senior Securities](index=129&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable to the company for the reporting period [Mine Safety Disclosures](index=129&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company [Other Information](index=129&type=section&id=Item%205.%20Other%20Information) This item is not applicable to the company for the reporting period [Exhibits](index=130&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate documents, the former CEO's separation agreement, and officer certifications - A key exhibit filed is the **Separation Agreement** dated October 18, 2021, between the company and former CEO Leen Kawas[508](index=508&type=chunk) - Standard **officer certifications (SOX 302 and 906)** and XBRL data files are included as exhibits[508](index=508&type=chunk)[509](index=509&type=chunk)[510](index=510&type=chunk)

Financial Performance - The company reported net losses of $22.8 million for the six months ended June 30, 2021, compared to $3.8 million for the same period in 2020, indicating a significant increase in losses [128]. - As of June 30, 2021, the company had an accumulated deficit of $63.9 million and cash, cash equivalents, and investments totaling $349.9 million [128]. - The company has not generated any revenues related to its products since inception and does not have any products approved for commercial sale [123]. - Total operating expenses for the six months ended June 30, 2021, were $27.4 million, a 679% increase from $3.5 million in the same period of 2020 [156]. - The net loss for the six months ended June 30, 2021, was $22.8 million, compared to a net loss of $3.8 million for the same period in 2020, reflecting a 502% increase [156]. - Net cash used in operating activities was $14.6 million for the six months ended June 30, 2021, compared to $4.0 million for the same period in 2020 [173]. Research and Development - The lead candidate, ATH-1017, is in a Phase 2/3 clinical trial for the treatment of mild-to-moderate Alzheimer's disease, with topline results expected by the end of 2022 [121]. - Research and development expenses increased by 617% to $12.0 million for the three months ended June 30, 2021, compared to $1.7 million for the same period in 2020 [149]. - Research and development expenses for the six months ended June 30, 2021, totaled $19.5 million, a 758% increase from $2.3 million in the prior year [156]. - The company expects substantial increases in research and development expenses as it conducts Phase 2 and Phase 2/3 clinical trials for ATH-1017 [139]. - Direct costs for ATH-1017 increased by 635% to $10.2 million for the three months ended June 30, 2021, compared to $1.4 million in the same period of 2020 [151]. - Research and development expenses increased by $17.2 million, from $2.3 million for the six months ended June 30, 2020 to $19.5 million for the six months ended June 30, 2021, primarily driven by an increase in expenses for ATH-1017 of $14.6 million [158]. Funding and Cash Flow - The company has raised approximately $407.4 million in net cash proceeds since inception, primarily from equity securities [128]. - The company expects to require substantial additional funding to support ongoing operations and product development [132]. - The company anticipates that its existing cash, cash equivalents, and investments will be sufficient to fund operating expenses and capital expenditures at least through 2022 [132]. - Net cash provided by financing activities was $96.9 million for the six months ended June 30, 2021, primarily from a follow-on public offering [176]. - Future funding requirements will depend on various factors, including the scope and results of ongoing clinical trials and the ability to establish collaborations [168]. - The company expects to finance operations through the sale of equity securities, debt financings, or other capital until significant revenue is generated from product sales [165]. Legal and Regulatory Issues - The company is currently facing multiple securities class action lawsuits alleging misleading statements related to its business and research [190]. - The lawsuits claim that the company's positive statements were materially misleading due to undisclosed issues with research conducted by the CEO [190]. - An independent special committee is reviewing the CEO's doctoral research papers in connection with the ongoing legal proceedings [193]. - The company cannot predict the outcome of the lawsuits, which could materially affect its business and financial condition [193]. Operational Expenses - General and administrative expenses rose by 702% to $4.6 million for the three months ended June 30, 2021, up from $0.6 million in the prior year [149]. - General and administrative expenses rose by $6.6 million, from $1.3 million for the six months ended June 30, 2020 to $7.9 million for the six months ended June 30, 2021, mainly due to increased personnel-related costs and insurance costs [160]. - The company anticipates significant increases in general and administrative expenses due to growth and compliance with public company regulations [144]. Grant Income - Grant income for the three months ended June 30, 2021, was $2.6 million, recognized from the NIH grant, with no grant income reported in the same period of 2020 [153]. - Grant income increased by $4.4 million, from less than $0.1 million for the six months ended June 30, 2020 to $4.4 million for the six months ended June 30, 2021, driven by the acceptance of an NIH grant [161]. - Grant income associated with the NIH grant is expected to increase, with potential total funding of up to $15.2 million [145]. Internal Controls - The company maintains effective disclosure controls and procedures, ensuring timely reporting and communication to management [185]. - No changes in internal control over financial reporting were reported during the quarter ended June 30, 2021, that materially affected internal controls [187].

Company Overview - Athira Pharma is a late clinical-stage biopharmaceutical company focused on developing small molecules to restore neuronal health and stop neurodegeneration[7] - The company's lead asset, ATH-1017, is in a potentially pivotal trial for Alzheimer's disease, with topline data expected from the LIFT-AD trial by late 2022 and from the ACT-AD trial by early 2022[9] - Athira is expanding its pipeline of novel, small molecule compounds designed to improve neuronal health, targeting CNS degenerative disorders, PNS disorders, and neuropsychiatric indications[11, 14] Scientific Rationale - The HGF/MET system is critical to normal brain function, with MET expression reduced by 75% in the hippocampus and 25% in the frontal cortex of AD patients[23, 25] - ATH-1017 is designed to promote the HGF/MET neurotrophic system, resulting in multi-modal downstream effects and acute and sustained effects on synaptic and network function[26] - Clinical trial designs assess the effects of ATH-1017's novel mechanism of action (MOA) using qEEG and ERP P300, non-invasive methods that provide a direct measure of brain activity[34] Clinical Trial Data and Design - Phase 1b trial data showed that ATH-1017 treatment improved P300 latency in AD subjects, with a significant change from baseline observed on Day 8 in the treated group compared to placebo[47, 54] - The Phase 2/3 LIFT-AD trial is a 26-week randomized, double-blind treatment study with 240-300 mild-to-moderate AD dementia subjects, using a Global Statistical Test (GST) as the primary endpoint[60] - ATH-1020, an orally bioavailable small molecule, is in development for neuropsychiatric indications and has demonstrated anti-depressant effects in animal models[89, 90] Financial Position - Athira Pharma reported a strong capital position with $357.7 million in cash, cash equivalents, and marketable securities as of March 31, 2021, compared to $268.2 million as of December 31, 2020[95] - In the first quarter of 2021, Athira completed a follow-on public offering and raised total gross proceeds of $103.5 million[95]