Athira Pharma(ATHA) - 2024 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited financial statements show a net loss of $81.9 million for the nine months ended September 30, 2024, with cash and investments of $68.9 million, reflecting restructuring and legal expenses Condensed Consolidated Financial Statements The company's financial position shows a decrease in total assets from $160.2 million at year-end 2023 to $86.2 million as of September 30, 2024 Condensed Consolidated Balance Sheet Data (in thousands) | | September 30, 2024 (unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $82,002 | $154,729 | | Total Assets | $86,246 | $160,245 | | Total Current Liabilities | $27,751 | $28,840 | | Total Liabilities | $28,663 | $30,057 | | Total Stockholders' Equity | $57,583 | $130,188 | Condensed Consolidated Statements of Operations Data (in thousands, except per share data) | | Three Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2024 | | :--- | :--- | :--- | | Total Operating Expenses | $29,621 | $85,336 | | Loss from Operations | $(29,621) | $(85,336) | | Net Loss | $(28,741) | $(81,937) | | Net Loss Per Share | $(0.75) | $(2.13) | Condensed Consolidated Statements of Cash Flows Data (in thousands) | | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(71,157) | $(74,460) | | Net cash provided by investing activities | $57,642 | $88,698 | | Net cash provided by financing activities | $160 | $341 | | Net (decrease) increase in cash | $(13,355) | $14,579 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's financial condition, including $68.9 million in cash, a 70% workforce reduction, and significant legal expenses for settlements and investigations - As of September 30, 2024, the company had $68.9 million in cash, cash equivalents, and investments[17][18] - Management estimates this will be sufficient to fund operations and capital expenditures for at least the next 12 months[17][18] - On September 15, 2024, the company initiated a restructuring to terminate approximately 70% of its workforce, expecting to incur about $2.8 million in severance costs[40][99][100] - As of September 30, 2024, a liability of $2.3 million was accrued for severance costs[40][99][100] - The company recorded a $10.0 million legal settlement expense for a securities class action, with an expected $1.6 million insurance recovery[69][76] - An additional $4.1 million legal expense was recorded in Q3 2024 related to a government investigation[69][76] - The company's license agreement with WSU includes potential future milestone payments of $300,000 upon initiation of a Phase 3 trial and $600,000 upon marketing approval for the first licensed product[54] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift to ATH-1105 for ALS, a 70% workforce reduction, decreased R&D expenses, and $68.9 million in cash and investments Overview & Recent Developments The company shifted focus to ATH-1105 for ALS after fosgonimeton's trial failure, initiating a strategic review and a 70% workforce reduction - Following the failure of the LIFT-AD trial for fosgonimeton to meet its endpoints, the company has paused its development and shifted focus to the clinical development of ATH-1105 for Amyotrophic Lateral Sclerosis (ALS)[112][116] - The company is exploring strategic alternatives, which may include an acquisition, merger, sale of assets, or other transactions, to maximize stockholder value[123][132] - On September 15, 2024, the company committed to a workforce reduction of approximately 70% to decrease costs and support strategic priorities, including the development of ATH-1105[134] Results of Operations Total operating expenses decreased to $85.3 million for the nine months ended September 30, 2024, driven by reduced R&D and G&A, despite new legal expenses Comparison of Results of Operations (in thousands) | | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Research and development | $61,312 | $70,110 | $(8,798) | (13%) | | General and administrative | $19,897 | $26,342 | $(6,445) | (24%) | | Legal expense | $4,127 | $— | $4,127 | 100% | | Total operating expenses | $85,336 | $96,452 | $(11,116) | (12%) | | Net loss | $(81,937) | $(90,387) | $8,450 | (9%) | - The decrease in R&D expenses for the nine months ended Sep 30, 2024 was primarily due to a $12.1 million decrease in fosgonimeton program costs, partially offset by a $6.8 million increase in ATH-1105 program costs associated with its Phase 1 trial[153] - A legal expense of $4.1 million was recorded during the third quarter of 2024 in connection with the Department of Justice investigation[149][155] Liquidity and Capital Resources As of September 30, 2024, the company had $68.9 million in cash and investments, deemed sufficient for 12 months, with an unutilized $75.0 million ATM program - As of September 30, 2024, the company had $68.9 million in cash, cash equivalents and investments[159] - The company estimates that its existing cash and investments are sufficient to fund operating expenses and capital expenditure requirements through at least the next 12 months[161] - The company has an active sales agreement for an "at the market" (ATM) equity offering of up to $75.0 million, but has not sold any securities under this program as of the report date[161] Summary of Cash Flows (in thousands) | | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(71,157) | $(74,460) | | Net cash provided by investing activities | $57,642 | $88,698 | | Net cash provided by financing activities | $160 | $341 | Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Athira Pharma, Inc. is not required to provide the information for this item - The company is not required to provide information for this item as it qualifies as a smaller reporting company[178] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of September 30, 2024, with no material changes in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2024[180] - There were no changes in internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, internal controls[181] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company provides updates on significant legal matters, including a $10.0 million securities class action settlement, dismissed derivative actions, and an ongoing government investigation - The securities class action lawsuit was settled for $10.0 million, with final court approval granted on November 1, 2024[192][193][194] - The company recorded the expense in Q4 2022 and an associated $1.6 million insurance recovery in Q4 2023[192][193][194] - The shareholder derivative actions were consolidated and settled, with final court approval granted on July 18, 2024, and the case dismissed[199][200] - The company paid the related fee and expense award in Q3 2024[199][200] - The company is cooperating with a Civil Investigative Demand from the Department of Justice received in November 2022, and a legal expense of $4.1 million was recorded in Q3 2024 based on developments[201][202] Item 1A. Risk Factors The company faces extensive risks including clinical development uncertainty, financial needs, potential Nasdaq delisting, strategic review outcomes, and litigation Risks Relating to Business and Drug Development Business risks include limited operating history, high dependence on ATH-1105 success in neurodegenerative disorders, and potential harm from former CEO's research misconduct investigation - The company's prospects are highly dependent on the successful development of ATH-1105, as development of its previous lead candidate, fosgonimeton, was paused after the Phase 2/3 LIFT-AD trial failed to meet its primary and key secondary endpoints[210][216] - The company's focus on neurodegenerative disorders is a high-risk field that has seen very limited success in product development[222][223] - An independent special committee found that the former CEO altered images in her doctoral research, which, along with an ongoing review by WSU, could adversely affect the company's reputation, in-licensed patents, and grants[251][253][255] Risks Relating to Financial Position and Capital Needs The company has a history of significant losses and requires substantial additional funding, with future capital needs uncertain given the strategic review - The company will require substantial additional funding to finance operations and complete the development of ATH-1105, and failure to raise capital when needed may force delays or elimination of drug development programs[276] - The company has incurred significant losses since inception, with an accumulated deficit of $391.1 million as of September 30, 2024, and anticipates continued losses for the foreseeable future[286][287] - The ability to use net operating loss (NOL) carryforwards to offset future taxable income may be subject to limitations due to past or future "ownership changes" under Section 382 of the Internal Revenue Code[299] Risks Relating to Strategic Process The ongoing strategic alternatives exploration offers no guarantee of success, is costly, and may lead to dissolution with uncertain stockholder distributions - There is no assurance that the company's exploration of strategic alternatives will result in a successful transaction, and the process is costly and time-consuming[303][304] - If a strategic transaction is not completed, the board may decide to pursue a dissolution and liquidation, where the amount of cash available for distribution to stockholders is uncertain and depends on reserving for liabilities[312] Risks Relating to Ownership of Our Common Stock Risks to common stock ownership include potential Nasdaq delisting, price volatility, activist stockholder actions, and reduced disclosure as an emerging growth company - The company's common stock is at risk of being delisted from Nasdaq for failure to comply with the minimum $1.00 per share closing bid price requirement and the minimum $50 million market value of listed securities requirement[536][537] - The market price of the company's common stock has been and may continue to be volatile due to factors such as clinical trial results, competitor announcements, and regulatory developments[542][543] - Actions by activist stockholders have been disruptive in the past and could cause uncertainty about the company's strategic direction in the future[548] - In September 2024, the company initiated a workforce reduction of approximately 70%, which carries risks including failure to achieve expected cost savings and negative impacts on morale and employee retention[571][576] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period covered by this report - There were no recent sales of unregistered equity securities[594] Item 5. Other Information During the last fiscal quarter, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the last fiscal quarter[595] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including corporate governance documents, employment and separation agreements, and required SEC certifications - The report includes exhibits such as the Amended and Restated Certificate of Incorporation, employment and separation agreements for key personnel, and certifications by the CEO and CFO[597]