Cognition Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2021; filed November 17, 2021. Cognition Therapeutics is a clinical-stage biopharmaceutical company developing CNS and retinal therapies, primarily CT1812. It had no approved products and had never generated revenue from product sales. Amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Research and development expense | $3.675 | $3.399 | $12.999 | $9.600 |
| General and administrative expense | $1.548 | $1.062 | $3.791 | $3.687 |
| Total operating expenses | $5.223 | $4.461 | $16.790 | $13.287 |
| Grant income | $3.037 | $3.192 | $12.375 | $8.146 |
| Net loss | $3.110 | $1.791 | $4.377 | $5.971 |
| Net loss attributable to common stockholders | $4.969 | $2.855 | $8.703 | $9.141 |
- No product-sales revenue or meaningful commercial margin was reported. Grant reimbursements are recorded as other income, not product revenue.
- For Q3, higher operating expenses and a $0.932 million SAFE fair-value loss contributed to a larger net loss. Cumulative preferred dividends further increased the loss attributable to common stockholders.
- For the first nine months, operating expenses rose $3.503 million, while grant income increased $4.229 million. Net loss improved year over year, in part reflecting non-cash gains from remeasurement/derecognition of the convertible-note derivative and forgiveness of the PPP loan; SAFE remeasurement partly offset these gains.
- Cash and cash equivalents were $8.310 million at September 30, 2021, versus $5.189 million at December 31, 2020. Current assets were $10.038 million and current liabilities $4.428 million. Accumulated deficit was $86.665 million.
- Net cash used in operating activities was $3.732 million for the nine months, compared with $2.953 million in 2020. Financing activities provided $6.840 million, primarily from $8.942 million of SAFE proceeds, offset partly by offering costs. Investing cash flow was nil.
- Convertible notes and accrued interest converted into Series B-1 preferred stock in May 2021; the PPP loan was forgiven. The $10.918 million SAFE liability remained at quarter-end and converted to common stock after the quarter. No conventional convertible-note balance remained at September 30.
- Subsequent to quarter-end, the October IPO generated approximately $38.1 million net proceeds; the November 12 full over-allotment generated a further approximately $6.3 million net. Preferred stock and SAFEs converted into common shares upon the IPO.
Material changes and operating developments
- Q3 R&D expense increased $0.276 million year over year, chiefly because manufacturing costs rose $1.248 million; clinical-program costs fell $0.682 million, which management attributed to COVID-19-related delays and changes in study timing and scope.
- Nine-month R&D expense increased $3.399 million, principally from a $5.705 million increase in manufacturing costs, partly offset by a $1.958 million decline in clinical-program spending.
- Q3 G&A increased $0.486 million, primarily from professional fees, consulting services and stock compensation. Nine-month G&A was broadly flat year over year.
- The company effected a 1-for-3.2345 reverse stock split on October 1, 2021. Share and per-share figures in the filing reflect the split retrospectively.
Outlook, risks and unusual items
- Management expects significant expenses and losses to continue as it advances CT1812 and other candidates, develops manufacturing supply, and operates as a public company. The filing provides no revenue or earnings guidance.
- Management’s liquidity statements differ: the financial-statement note says cash, including IPO proceeds, was expected to fund operations for at least 12 months from the filing date; MD&A says IPO proceeds, existing cash and grant income were expected to fund operations for at least 24 months. These are estimates based on assumptions, and further funding will be needed beyond that period.
- CT1812 is the lead candidate, with development focused on age-related degenerative diseases. The filing cites an approximately $81 million NIA grant for the planned Phase 2 COG0203 study in early-stage Alzheimer’s disease. Development remains subject to clinical, regulatory, funding and manufacturing uncertainty.
- COVID-19 had delayed or could further affect enrollment, trial visits, sites, supply chains and regulatory activity. Remote-trial adjustments were described as new and untested, with possible effects on data integrity and trial progress.
- In November 2021, after quarter-end, the company disclosed a phishing-related fraudulent wire incident and loss of approximately $0.5 million. It had submitted an insurance claim, which was under review; recovery was uncertain. The company said it believed the incident was isolated and its technology systems had not been compromised.
- The filing reports no material litigation or contingency reasonably possible as of September 30, 2021. It also notes that the company’s independent auditor had expressed substantial doubt about its ability to continue as a going concern in prior-year financial statements; management cited post-IPO resources in its updated runway assessment.
- Management concluded disclosure controls were effective at quarter-end and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Reconcile the 12-month and 24-month cash-runway statements, including the assumptions for spending, grant receipts and proceeds timing.
- Confirm current cash, burn rate and funding needs after the IPO and over-allotment, including the impact of the reported $0.5 million fraud loss and insurance recovery.
- Track CT1812 trial timelines, enrollment and results, including the planned COG0203 study and any COVID-related delays or protocol changes.
- Assess the amount, timing and audit conditions of NIA grant funding, and the risk of reduced or unavailable future awards.
- Review manufacturing readiness and third-party supply arrangements, given the sharp increase in manufacturing expense and reliance on external manufacturers.
- Evaluate post-IPO dilution, including outstanding options, warrants, new equity awards and any future financing requirements.