Leonabio, Inc. annual report, FY2020

Business context and reporting period

Entity clarification: The supplied filing is Athira Pharma, Inc.’s Form 10-K, not a filing for Leonabio, Inc. It covers the fiscal year ended December 31, 2020; it does not provide standalone fourth-quarter results.

Athira is a clinical-stage biopharmaceutical company with no approved products and no product-sales revenue. Its lead candidate, ATH-1017, is being developed for mild-to-moderate Alzheimer’s disease (AD). The company’s common stock began trading on Nasdaq in September 2020.

Financial results and position

Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.

Gross margin and operating margin are not meaningful for this pre-revenue development company. At December 31, 2020, cash and cash equivalents were $60.625 million, short-term investments $124.057 million, and long-term investments $83.509 million—$268.2 million combined. Total assets were $279.563 million, total liabilities $5.281 million, and stockholders’ equity $274.282 million. Year-end liabilities included $1.0 million of operating lease liabilities; convertible notes and other financing-related fair-value liabilities had been settled during 2020.

Cash flows included $210.068 million used in investing activities, mainly purchases of available-for-sale securities, and $292.750 million provided by financing activities, primarily public offering and preferred-stock proceeds. Cash and cash equivalents increased by $58.569 million during the year. The filing reports no off-balance-sheet arrangements.

Material changes versus 2019

• Net loss rose by $14.794 million, or 287%, as total operating expenses increased 267%.
• R&D expense increased $9.493 million, principally from ATH-1017 clinical-trial start-up and clinical drug-supply work. G&A expense increased $5.053 million, reflecting higher professional-services, personnel, insurance, and administrative costs.
• Operating cash use increased substantially, while financing proceeds expanded liquidity. The September 2020 IPO and October over-allotment generated approximately $208.5 million net proceeds in total.
• The IPO converted preferred stock to common stock and triggered repayment of a $1.5 million Washington Life Sciences Discovery Fund grant liability. The company also repaid $3.8 million of convertible-note principal and accrued interest through conversion into preferred shares in May 2020.

Outlook, commentary, risks, and unusual items

• Management estimated that year-end cash, cash equivalents, and investments would fund operating expenses and capital needs at least through 2022 under its current plan. This is an estimate, not a guarantee; the company expects substantial continuing losses and will require additional capital over time.
• LIFT-AD, a Phase 2/3 trial intended to assess ATH-1017 in mild-to-moderate AD, began site initiation and screening in September 2020; topline results were expected by the end of 2022. ACT-AD, a Phase 2 trial focused on P300 and cognitive measures, began in November 2020; topline results were expected by early 2022. The filing cautions that regulators may require additional trials.
• Phase 1a/1b studies enrolled 88 subjects, including only 11 with mild-to-moderate AD. ATH-1017 was reported as well tolerated, with no serious adverse events. The company reported a statistically significant 73-millisecond average P300-latency improvement after eight days in the treated AD group, but explicitly stated that it had not established that this biomarker result translates into improved cognition or clinical benefit.
• COVID-19 could disrupt enrollment, trial-site operations, data collection, suppliers, and timelines. Other central risks include clinical failure or delay, uncertain regulatory approval, competition, dependence on third-party research and manufacturing, and the need for future financing.
• The NIH grant accepted in December 2020 could provide approximately $7.8 million, with up to $7.4 million additional funding subject to availability and satisfactory progress. The company recognized $1.1 million of grant income in 2020. Government-funding rules may apply to inventions arising from funded research.
• The audited financial statements received an unqualified opinion. Management said disclosure controls were effective at a reasonable-assurance level; the filing did not include management’s internal-control assessment or auditor attestation, as permitted for a newly public company.

Important facts for investors to verify

• Confirm the issuer identity: this filing is for Athira Pharma, Inc. (Nasdaq: ATHA), not Leonabio, Inc.
• Track LIFT-AD and ACT-AD enrollment, final results, safety, and whether P300 changes correspond to clinically meaningful cognitive outcomes.
• Reassess cash runway against actual trial spending, capital expenditures, grant receipts, and any additional financing; the stated runway depends on management’s operating assumptions.
• Review any clinical, regulatory, manufacturing, or COVID-related delays and the possibility that regulators require further pivotal studies.
• Check the terms and conditions of NIH grant funding, future dilution from equity awards or financings, and the company’s reliance on third-party manufacturers and research organizations.