10-Q 1 atha-10q_20200930.htm 10-Q atha-10q_20200930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2020

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____ to ____

Commission File Number: 001-39503

 

Athira Pharma, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

45-3368487

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

 

4000 Mason Road, Suite 300

Seattle, Washington 98195

(Address of principal executive offices)

(206) 221-8112

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value per share

ATHA

The Nasdaq Stock Market LLC

 

 

(The Nasdaq Global Select Market)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

As of November 9, 2020 there were 32,485,184 shares of registrant’s common stock, $0.0001 par value per share, outstanding.

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

4

Item 1.

Financial Statements (Unaudited)

4

 

Condensed Consolidated Balance Sheets

4

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

5

 

Condensed Consolidated Statements of Cash Flows

6

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

32

Item 4.

Controls and Procedures

32

PART II.

OTHER INFORMATION

33

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

79

Item 3.

Defaults Upon Senior Securities

80

Item 4.

Mine Safety Disclosures

80

Item 5.

Other Information

80

Item 6.

Exhibits

81

Signatures

83

2


 

SUMMARY RISK FACTORS

 

Our business is subject to numerous risks and uncertainties, including those highlighted in the section of this report captioned “Risk Factors.” The following is a summary of the principal risks we face:

 

We are a late clinical-stage biopharmaceutical company with a limited operating history.

 

Our ability to generate revenue and achieve profitability depends significantly on our ability to achieve a number of objectives.

 

Our development of ATH-1017 may never lead to a marketable product.

 

Our approach to targeting brain growth factors through the use of small molecules is based on a novel therapeutic approach, which exposes us to unforeseen risks. We have limited data from our Phase 1a and 1b clinical trials, including only 11 patients with mild to moderate Alzheimer’s disease, and we cannot be certain that future trials will yield similar data. In addition, our use of electroencephalogram methods to gather data requires placement of electrodes on a subject’s scalp and, if not properly placed, we may be unable to obtain the data sought or data obtained may be unreliable.

 

We have concentrated our research and development efforts on the treatment of central nervous system and peripheral degenerative disorders, a field that has seen very limited success in product development.

 

Clinical development involves a lengthy and expensive process with an uncertain outcome, and results of early, smaller-scale studies and clinical trials with a single or few clinical trial sites may not be predictive of eventual safety or effectiveness in large-scale pivotal clinical trials across multiple clinical trial sites. We may encounter substantial delays in clinical trials, or may not be able to conduct or complete clinical trials on the expected timelines, if at all.

 

If we experience delays or difficulties in the enrollment and/or retention of patients in clinical trials, our regulatory submissions or receipt of necessary marketing approvals could be delayed or prevented.

 

We face significant competition, and if our competitors develop and market technologies or products more rapidly than we do or that are more effective, safer, or less expensive than the product candidates we develop, our commercial opportunities will be negatively impacted.

 

The outbreak of the novel coronavirus disease, COVID-19, could adversely impact our business, including our nonclinical studies and clinical trials.

 

We have incurred significant losses since our inception and anticipate that we will continue to incur significant losses for the foreseeable future.

 

We will require substantial additional funding to finance our operations, complete the development and commercialization of ATH-1017, and evaluate other and future product candidates. If we are unable to raise this funding when needed, we may be forced to delay, reduce, or eliminate our product development programs or other operations.

 

The regulatory approval processes of the U.S. Food and Drug Administration and other comparable foreign regulatory authorities are lengthy, time consuming and inherently unpredictable. If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals for our product candidates, we will not be able to commercialize, or will be delayed in commercializing, our product candidates, and our ability to generate revenue will be materially impaired.

 

We plan to rely on third parties to conduct our nonclinical studies and clinical trials. If these third parties do not properly and successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of or commercialize our product candidates.

 

Even if approved, our product candidates may not achieve adequate market acceptance among physicians, patients, healthcare payors and others in the medical community necessary for commercial success.

 

We have never commercialized a product candidate before and may lack the necessary expertise, personnel and resources to successfully commercialize any products on our own or together with suitable collaborators.

 

Our success depends on our ability to protect our intellectual property and our proprietary technologies.

 

If the scope of any patent protection we obtain is not sufficiently broad, or if we lose any of our patent protection, our ability to prevent our competitors from commercializing similar or identical product candidates would be adversely affected.

 

The market price of our common stock may be volatile, which could result in substantial losses for investors.

3


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Athira Pharma, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

165,725

 

 

$

2,056

 

Short-term investments

 

 

60,547

 

 

 

 

Prepaid expenses and other current assets

 

 

5,994

 

 

 

97

 

Current portion of unsecured related party note receivable

 

 

 

 

 

7

 

Total current assets

 

 

232,266

 

 

 

2,160

 

Property and equipment, net

 

 

1,003

 

 

 

 

Operating lease right-of-use asset

 

 

959

 

 

 

 

Long-term investments

 

 

33,656

 

 

 

 

Other long-term assets

 

 

55

 

 

 

 

Unsecured related party note receivable

 

 

 

 

 

29

 

Total assets

 

$

267,939

 

 

$

2,189

 

Liabilities, convertible preferred stock and stockholders' equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,872

 

 

$

421

 

Accrued liabilities

 

 

2,125

 

 

 

852

 

Current operating lease liability

 

 

57

 

 

 

 

Grant liability

 

 

1,500

 

 

 

 

Total current liabilities

 

 

7,554

 

 

 

1,273

 

Operating lease liability, less current portion

 

 

915

 

 

 

 

Grant liability

 

 

 

 

 

1,036

 

Derivative liability

 

 

 

 

 

999

 

Convertible notes, net

 

 

 

 

 

1,553

 

Total liabilities

 

 

8,469

 

 

 

4,861

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Convertible preferred stock, $0.0001 par value; 0 and 2,797,464

   shares authorized at September 30, 2020 and December 31, 2019,

   respectively; 0 and 2,617,386 shares issued and outstanding

   at September 30, 2020 and December 31, 2019, respectively

 

 

 

 

 

17,051

 

Stockholders' equity (deficit):

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 900,000,000 and 10,088,017 shares

   authorized at September 30, 2020 and December 31, 2019, respectively;

   31,087,395 and 3,641,449 shares issued and outstanding at

   September 30, 2020 and December 31, 2019, respectively

 

 

3

 

 

 

 

Additional paid-in capital

 

 

292,800

 

 

 

1,364

 

Accumulated other comprehensive income

 

 

7

 

 

 

 

Accumulated deficit

 

 

(33,340

)

 

 

(21,087

)

Total stockholders' equity (deficit)

 

 

259,470

 

 

 

(19,723

)

Total liabilities, convertible preferred stock and stockholders' equity (deficit)

 

$

267,939

 

 

$

2,189

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


 

Athira Pharma, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

(unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

5,830

 

 

$

1,026

 

 

$

8,099

 

 

$

3,135

 

General and administrative

 

 

1,567

 

 

 

509

 

 

 

2,817

 

 

 

1,197

 

Total operating expenses

 

 

7,397

 

 

 

1,535

 

 

 

10,916

 

 

 

4,332

 

Loss from operations

 

 

(7,397

)

 

 

(1,535

)

 

 

(10,916

)

 

 

(4,332

)

Other income (expense), net

 

 

(1,059

)

 

 

5

 

 

 

(1,337

)

 

 

145

 

Net loss

 

$

(8,456

)

 

$

(1,530

)

 

$

(12,253

)

 

$

(4,187

)

Unrealized (loss)/gain on available-for-sale securities

 

 

7

 

 

 

 

 

 

7

 

 

 

 

Comprehensive loss attributable to common shareholders

 

$

(8,449

)

 

$

(1,530

)

 

$

(12,246

)

 

$

(4,187

)

Net loss per share attributable to common stockholders,

   basic and diluted

 

$

(1.12

)

 

$

(0.43

)

 

$

(2.38

)

 

$

(1.18

)

Weighted-average shares used in computing net loss per

   share attributable to common stockholders, basic

   and diluted

 

 

7,564,538

 

 

 

3,554,345

 

 

 

5,155,338

 

 

 

3,551,586

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

Athira Pharma, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(12,253

)

 

$

(4,187

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

218

 

 

 

189

 

Change in fair value of derivative liability

 

 

132

 

 

 

84

 

Change in fair value of convertible preferred stock warrant liability

 

 

641

 

 

 

 

Change in fair value of grant liability

 

 

464

 

 

 

51

 

Accretion of discounts on convertible notes

 

 

289

 

 

 

175

 

Non-cash interest expense

 

 

76

 

 

 

61

 

Gain on extinguishment of convertible notes

 

 

(199

)

 

 

 

Amortization of available-for-sale securities

 

 

86

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(5,919

)

 

 

16

 

Accounts payable and accrued expenses

 

 

3,004

 

 

 

927

 

Operating lease liability

 

 

13

 

 

 

 

Net cash (used in) operating activities

 

 

(13,448

)

 

 

(2,684

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of available-for-sale securities

 

 

(94,281

)

 

 

(995

)

Maturities of available-for-sale securities

 

 

 

 

 

1,745

 

Purchases of property and equipment

 

 

(65

)

 

 

 

Principal payments received on stockholder note receivable

 

 

36

 

 

 

5

 

Net cash (used in) provided by investing activities

 

 

(94,310

)

 

 

755

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of common stock options and common stock warrants

 

 

613

 

 

 

13

 

Proceeds from initial public offering, net of issuance costs

 

 

187,224

 

 

 

 

Proceeds from sales of convertible preferred stock and stock warrants, net of issuance costs

 

 

81,926

 

 

 

 

Proceeds from issuance of convertible notes, including derivative

 

 

1,666

 

 

 

884

 

Issuance costs of convertible notes

 

 

(2

)

 

 

(5

)

Proceeds from Paycheck Protection Program loan

 

 

215

 

 

 

 

Repayment of Paycheck Protection Program loan

 

 

(215

)

 

 

 

Net cash provided by financing activities

 

 

271,427

 

 

 

892

 

Net increase (decrease) in cash and cash equivalents

 

 

163,669

 

 

 

(1,037

)

Cash and cash equivalents, beginning of period

 

 

2,056

 

 

 

3,317

 

Cash and cash equivalents, end of period

 

$

165,725

 

 

$

2,280

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and accrued liabilities

 

$

940

 

 

$

 

Deferred offering costs included in accounts payable and accrued liabilities

 

$

779

 

 

$

 

Issuance of common stock warrants in connection with Series B convertible preferred

   stock financing

 

$

10,591

 

 

$

 

Issuance of Series B preferred stock upon conversion of promissory notes

 

$

4,515

 

 

$

 

Recognition of warrant liability in connection with Series B convertible preferred

   stock financing

 

$

364

 

 

$

 

Derivative liability recorded upon issuance of convertible notes

 

$

774

 

 

$

390

 

Conversion of convertible preferred stock upon closing of initial public offering

 

$

92,537

 

 

$

 

Right-of-use asset obtained in exchange for new operating lease liability

 

$

975

 

 

$

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


 

Athira Pharma, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ (Deficit) Equity

For the Three Months Ended September 30, 2020 and 2019

(in thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Stockholders’

(Deficit)

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance as of June 30, 2020

 

 

12,503,009

 

 

$

92,537

 

 

 

 

4,607,565

 

 

$

 

 

$

12,355

 

 

$

 

 

$

(24,884

)

 

$

(12,529

)

Issuance of common stock upon exercise of

   common stock options

 

 

 

 

 

 

 

 

 

262,285

 

 

 

 

 

 

304

 

 

 

 

 

 

 

 

 

304

 

Proceeds from initial public offering, net of

   underwriters' discounts and commissions

   and issuance costs of $3.3 million

 

 

 

 

 

 

 

 

 

12,000,000

 

 

 

1

 

 

 

186,445

 

 

 

 

 

 

 

 

 

186,446

 

Conversion of convertible preferred stock

 

 

(12,503,009

)

 

 

(92,537

)

 

 

 

12,503,009

 

 

 

2

 

 

 

92,535

 

 

 

 

 

 

 

 

 

 

92,537

 

Exercise of common stock warrants

 

 

 

 

 

 

 

 

 

1,714,536

 

 

 

 

 

 

1,050

 

 

 

 

 

 

 

 

 

1,050

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

111

 

 

 

 

 

 

 

 

 

111

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,456

)

 

 

(8,456

)

Balance as of September 30, 2020

 

 

 

 

$

 

 

 

 

31,087,395

 

 

$

3

 

 

$

292,800

 

 

$

7

 

 

$

(33,340

)

 

$

259,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Stockholders’

(Deficit)

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance as of June 30, 2019

 

 

2,617,386

 

 

$

17,051

 

 

 

 

3,565,789

 

 

$

 

 

$

1,166

 

 

$

 

 

$

(18,583

)

 

$

(17,417

)

Issuance of common stock upon exercise of

   common stock options

 

 

 

 

 

 

 

 

 

6,305

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

69

 

 

 

 

 

 

 

 

 

69

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,530

)

 

 

(1,530

)

Balance as of September 30, 2019

 

 

2,617,386

 

 

$

17,051

 

 

 

 

3,572,094

 

 

$

 

 

$

1,241

 

 

$

 

 

$

(20,113

)

 

$

(18,872

)

 

7


 

Athira Pharma, Inc.

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ (Deficit) Equity

For the Nine Months Ended September 30, 2020 and 2019

(in thousands, except share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Stockholders’

(Deficit)

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2019

 

 

2,617,386

 

 

$

17,051

 

 

 

 

3,641,449

 

 

$

 

 

$

1,364

 

 

$

 

 

$

(21,087

)

 

$

(19,723

)

Issuance of common stock upon exercise of

   common stock options

 

 

 

 

 

 

 

 

 

540,334

 

 

 

 

 

 

542

 

 

 

 

 

 

 

 

 

542

 

Issuance of Series B convertible preferred

   stock and common stock warrants, net

   of issuance costs of $3.5 million

 

 

9,372,765

 

 

 

70,971

 

 

 

 

 

 

 

 

 

 

10,591

 

 

 

 

 

 

 

 

 

10,591

 

Issuance of the Series B-1 convertible

   preferred stock upon conversion of convertible notes

 

 

512,858

 

 

 

4,515

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from initial public offering, net of

   underwriters' discounts and commissions

   and issuance costs of $3.3 million

 

 

 

 

 

 

 

 

 

12,000,000

 

 

 

1

 

 

 

186,445

 

 

 

 

 

 

 

 

 

186,446

 

Conversion of convertible preferred stock

 

 

(12,503,009

)

 

 

(92,537

)

 

 

 

12,503,009

 

 

 

2

 

 

 

92,535

 

 

 

 

 

 

 

 

 

92,537

 

Exercise of common stock warrants

 

 

 

 

 

 

 

 

 

2,402,603

 

 

 

 

 

 

1,105

 

 

 

 

 

 

 

 

 

1,105

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

218

 

 

 

 

 

 

 

 

 

218

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7

 

 

 

 

 

 

7

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,253

)

 

 

(12,253

)

Balance as of September 30, 2020

 

 

 

 

$

 

 

 

 

31,087,395

 

 

$

3

 

 

$

292,800

 

 

$

7

 

 

$

(33,340

)

 

$

259,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

Total

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Other

Comprehensive

 

 

Accumulated

 

 

Stockholders’

(Deficit)

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2018

 

 

2,617,386

 

 

$

17,051

 

 

 

 

3,559,484

 

 

$

 

 

$

1,039

 

 

$

 

 

$

(15,926

)

 

$

(14,887

)

Issuance of common stock upon exercise of

   common stock options

 

 

 

 

 

 

 

 

 

12,610

 

 

 

 

 

 

13

 

 

 

 

 

 

 

 

 

13

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

189

 

 

 

 

 

 

 

 

 

189

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,187

)

 

 

(4,187

)

Balance as of September 30, 2019

 

 

2,617,386

 

 

$

17,051

 

 

 

 

3,572,094

 

 

$

 

 

$

1,241

 

 

$

 

 

$

(20,113

)

 

$

(18,872

)

 

 

8


 

ATHIRA PHARMA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

1. Description of Business

Organization

Athira Pharma, Inc. (the “Company”) was incorporated as M3 Biotechnology, Inc. in the state of Washington on March 31, 2011 and reincorporated in the state of Delaware on October 27, 2015. In April 2019, the Company changed its name to Athira Pharma, Inc. The Company currently has office and laboratory space in Seattle and Bothell Washington. The Company is a late clinical-stage biopharmaceutical company focused on developing small molecules to restore neuronal health and stop neurodegeneration.

Reverse Stock Split

On September 11, 2020, the Company effected a one-for-7.9302 reverse split of its issued and outstanding common stock, convertible preferred stock, warrants, and stock options. The par value of the common stock and convertible preferred stock was not adjusted as a result of the reverse stock split. All share and per share amounts in the accompanying unaudited condensed financial statements and notes to the unaudited condensed financial statements have been retroactively adjusted for all periods presented to reflect the reverse stock split.

Initial Public Offering

On September 17, 2020, the Company’s registration statement on Form S-1 (File No. 333-248428) for its initial public offering of common stock (“IPO”) was declared effective by the Securities and Exchange Commission (“SEC”). On September 22, 2020, the Company issued and sold 12,000,000 shares of common stock in the IPO at a public offering price of $17.00 per share, resulting in net proceeds of $186.4 million after deducting underwriting discounts and commissions and offering expenses paid by the Company.

In connection with the closing of the IPO, all of the Company’s outstanding shares of convertible preferred stock were automatically converted into 12,503,009 shares of common stock. Immediately prior to the Company’s IPO, all outstanding common stock warrants were exercised into 1,085,334 shares of common stock. Additionally, all outstanding Series B convertible preferred stock warrants were remeasured to their fair value. The final remeasurement of the Series B convertible preferred stock warrant liability resulted in a $0.6 million loss which was recorded to other income (expense), net. Following remeasurement, all Series B convertible preferred stock warrants automatically net exercised into 59,093 shares of common stock and the corresponding liability was reclassified to additional paid in capital. Following the IPO, there are no shares of convertible preferred stock, common stock warrants, or Series B convertible preferred stock warrants outstanding.  

Liquidity and Capital Resources

Since the Company’s inception, it has funded its operations primarily with proceeds from the sale and issuance of common stock, convertible preferred stock, common stock warrants, and convertible notes, and to a lesser extent from grant income and stock option exercises. From the Company’s inception through September 30, 2020, it has raised aggregate net cash proceeds of $288.5 million primarily from the issuance of its common stock, convertible preferred stock, common stock warrants, and convertible notes. As of September 30, 2020, the Company had $259.9 million in cash, cash equivalents, and investments and had not generated positive cash flows from operations. Since the Company’s inception, it has devoted substantially all of its resources to its research and development efforts such as small molecule compound discovery, nonclinical studies and clinical trials, as well as manufacturing activities, establishing and maintaining the Company’s intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.

Based upon the Company’s current operating plan, it estimates that its $259.9 million of cash, cash equivalents, and investments at September 30, 2020 will be sufficient to fund its operating expenses and capital expenditure requirements through at least the 12 months following the date of this Quarterly Report on Form 10-Q.

 

9


 

2. Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). During the third quarter of 2020, the Company incorporated Athira Pharma Australia PTY LTD in Australia and as of September 30, 2020, operations have yet to commence.

Unaudited Interim Condensed Financial Statements

The accompanying unaudited condensed balance sheet as of September 30, 2020, and condensed statements of operations and comprehensive loss, condensed statements of cash flows, and condensed statements of convertible preferred stock and stockholders’ deficit for the three and nine months ended September 30, 2020 and 2019, are unaudited. The balance sheet as of December 31, 2019 was derived from the audited financial statements as of and for the year ended December 31, 2019. The unaudited interim condensed financial statements have been prepared on a basis consistent with the audited annual financial statements as of and for the year ended December 31, 2019, and, in the opinion of management, reflect all adjustments, consisting solely of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2020, and the condensed results of its operations and its cash flows for the three and nine months ended September 30, 2020 and 2019. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2020 and 2019 are also unaudited. The condensed results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year ending December 31, 2020 or any other period. These interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements as of and for the year ended December 31, 2019 included in its amended registration statement on Form S-1 (File No. 333-248428) filed with the SEC on September 17, 2020.

Fair Value Measurements

The carrying amounts of certain financial instruments, including cash, cash equivalents, investments, accounts payable and accrued expenses approximate their fair values due to the short-term nature of those amounts. The fair values of the grant liability to Washington Life Sciences Discovery Fund (“LSDF”), currently managed by the Washington State Department of Commerce, the derivative liability, and the convertible preferred stock warrant liability were estimated using level 3 unobservable inputs.

Convertible Preferred Stock Warrant Liability

Freestanding warrants to purchase shares of the Company’s convertible preferred stock are accounted for as liabilities at fair value, because the shares underlying the warrants contain contingent redemption features outside the control of the Company. Warrants classified as liabilities are recorded on the Company’s balance sheets at their fair value on the date of issuance and remeasured to fair value on each subsequent reporting period, with the changes in fair value recognized as a component of other income (expense), net in the accompanying statements of operations. The Company adjusted the liability for the final change in the fair value of these warrants immediately preceding their automatic exercise in connection with the Company’s IPO. Subsequently, the corresponding liability was reclassified to additional paid in capital.

 

Short-term and Long-term Investments

The Company generally invests its excess cash in investment grade short- to intermediate-term fixed income securities. Such investments are included in cash and cash equivalents, short-term investments, and long-term investments on the consolidated balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and losses included in accumulated other comprehensive loss. Realized gains and losses on the sale of these securities are recognized in net loss.

The Company periodically evaluates whether declines in fair values of its investments below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the investment until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any investment before recovery of its amortized cost basis. Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of the investments, duration and severity of the decline in value, and our strategy and intentions for holding the investment.

10


 

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management 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 financial statements and the reported amounts of expenses during the reporting period. Estimates include those used for fair value of assets and liabilities, accrued liabilities, valuation allowance for deferred tax assets, and stock-based compensation.  Management evaluates related assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

Research and Development Expenses

Research and development expenses consist primarily of direct and indirect costs incurred for research activities, including development of our pipeline from the Company’s proprietary drug discovery platform (“ATH platform”). The Company’s drug discovery efforts and the development of its product candidates. Direct costs include laboratory materials and supplies, contracted research and manufacturing, clinical trial costs, consulting fees, and other expenses incurred to sustain the Company’s research and development program. Indirect costs include personnel-related expenses, consisting of employee salaries, related benefits, and stock-based compensation expense for employees engaged in research and development activities, and facilities and other expenses consisting of direct and allocated expenses for rent and depreciation and lab consumables.

Research and development costs are expensed as incurred. In-licensing fees and other costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use are expense when incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed. The Company estimates the period over which such services will be performed and the level of effort to be expended in each period. If actual timing of performance or the level of effort varies from the estimate, the Company adjusts the amounts recorded accordingly. The Company has not experienced any material differences between accrued or prepaid costs and actual costs since inception.

Leases

As discussed in Recently Adopted Accounting Standards below, the Company adopted Accounting Standards Codification (“ASC”) Topic 842 - Leases, on July 1, 2020, effective January 1, 2020. The Company determines if an arrangement contains a lease at inception. The Company performed an evaluation of contracts in accordance with ASC 842 and has determined it has an operating lease agreement for the laboratory and office facilities that the Company occupies. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized at the date the underlying asset becomes available for the Company’s use. Operating lease liabilities are based on the present value of the future minimum lease payments over the lease term. ROU assets are measured at the amount of the lease liability, adjusted for any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. As the Company’s lease generally does not provide an implicit interest rate, the present value of the future minimum lease payments is determined using the Company’s incremental borrowing rate. This rate is an estimate of the collateralized borrowing rate the Company would incur on its future lease payments over a similar term and is based on the information available to the Company at the lease commencement date, discussed in more detail below.

The Company’s lease contains an option to extend the lease; lease terms are adjusted for these options only when it is reasonably certain the Company will exercise these options. The Company’s lease agreement does not contain residual value guarantees or covenants.

The Company has made a policy election regarding its real estate leases not to separate nonlease components from lease components, to the extent they are fixed. Nonlease components that are not fixed are expensed as incurred as variable lease expense. The Company’s lease includes variable nonlease components, such as common-area maintenance costs. The Company has elected not to record on the balance sheet a lease that has a lease term of 12 months or less and does not contain a purchase option that the Company is reasonably certain to exercise. The Company accounts for leases with initial terms of 12 months or less as operating expenses on a straight-line basis over the lease term.

Lease expense is recognized within operating expenses on a straight-line basis over the terms of the lease. Incentives granted under the Company’s facilities lease, including rent holidays, are recognized as adjustments to lease expense on a straight-line basis over the term of the lease.

11


 

Stock-based Compensation

The Company measures compensation expense for all stock-based payments to employees, officers and directors based on the estimated fair value of the award at the grant date. For stock options, the Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. Compensation expense is recognized over the requisite service period on a straight-line basis. Forfeitures are recognized as they occur.

The Company records compensation expense for stock option grants subject to performance-based milestone vesting using the accelerated attribution method over the remaining service period when management determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date.

The Company adopted Accounting Standards Update (“ASU”) 2018-07 as of January 1, 2020. As a result, stock-based payments issued to non-employees prior to January 1, 2020 have been recorded at their fair values as of the transition date and are no longer subject to periodic adjustments as the underlying equity instruments vest. Any remaining compensation expense is recognized over the remaining vesting term on a straight-line basis, which reflects the service period, based on the fair value as of January 1, 2020.

Net Loss Per Share Attributable to Common Stockholders