Leonabio, Inc. quarterly report, Q3 FY2021

Business context and reporting period

This filing is Athira Pharma, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2021; the supplied company metadata says Leonabio, Inc., which does not match the registrant named in the filing. Athira is a clinical-stage biopharmaceutical company developing small molecules for neurodegenerative disorders. It has no approved products and has generated no product-sales revenue.

Its lead candidate, ATH-1017, is being studied for Alzheimer’s disease. LIFT-AD is a Phase 2/3 trial; ACT-AD is a Phase 2 trial. The company also describes development work in other indications and preclinical programs.

Financial results and position

There was no product revenue. Grant income, primarily recognized against qualifying NIH-funded expenses, partly offset operating costs. Gross margin and operating margin are not meaningful for this pre-commercial company.

• Cash and liquidity: At September 30, 2021, cash and cash equivalents were $107.3m; short- and long-term investments were $128.4m and $103.6m. Combined cash, cash equivalents and investments were $339.4m, versus $268.2m at December 31, 2020.
• Cash flow: Nine-month operating cash use was $24.9m, compared with $13.4m in 2020. Investing cash use was $25.5m, mainly reflecting purchases of available-for-sale securities, partly offset by maturities and sales. Financing provided $97.1m, primarily from the 2021 follow-on offering. Cash and cash equivalents increased by $46.7m during the period.
• Debt and obligations: The balance sheet reports no borrowings at September 30, 2021. Total liabilities were $11.1m, including $2.0m of operating lease liabilities; the Bothell facility leases run through August 2027. Convertible notes had converted to preferred stock in 2020.
• Equity and funding: A January/February 2021 follow-on offering generated approximately $96.8m net proceeds. Shares outstanding were 37.35m at September 30, 2021. Accumulated deficit was $79.6m.

Material changes versus the prior period

• For Q3, operating expenses rose 141% year over year and net loss increased 85%. For the first nine months, operating expenses rose 314% and net loss increased 214%.
• ATH-1017 R&D expense increased $3.3m in Q3 and $17.9m for the nine-month period, primarily due to trial enrollment and site activity, including open-label extensions. Preclinical spending and R&D personnel costs also increased.
• G&A expense rose substantially, reflecting higher legal and investigation costs, headcount and stock-based compensation, insurance, facilities and public-company expenses.
• NIH grant income was $6.5m for the first nine months of 2021, versus negligible grant income in the comparable period. Other income also improved because 2020 included fair-value losses on liabilities and convertible-note costs.

Outlook, risks and unusual items

• Management estimated that $339.4m of cash, cash equivalents and investments would fund operating and capital needs through at least 2022 under its current plan. The company expects continued losses and says it will need substantial additional funding; actual runway may differ with trial costs and timing.
• Management expected R&D and G&A expenses to increase, particularly as ATH-1017 trials advance. ACT-AD enrollment was completed in October 2021; topline results were expected in the first half of 2022. LIFT-AD topline results were expected by the end of 2022. The company had begun open-label extensions intended to collect up to one year of safety and efficacy data.
• COVID-19 had slowed clinical-trial enrollment, including at Australian sites. Further effects on enrollment, trial sites, suppliers, timelines and costs remained uncertain.
• Research-integrity investigation: An independent board committee reported in October 2021 that former CEO Leen Kawas altered images in her 2011 dissertation and at least four co-authored research papers published from 2011–2014. The committee said the company-owned ATH-1017 patent does not cite papers it found to contain altered images, but challenged papers had been cited in some communications and applications supporting dihexa/ATH-1017 activity. WSU’s separate review remained ongoing. The filing identifies possible reputational, licensing, grant and patent risks.
• Leadership change: Kawas resigned as CEO and director effective October 18, 2021. Mark Litton became CEO and director; Rachel Lenington became COO. Kawas’s separation agreement provides for a $510,000 lump-sum severance payment and retention of vested options; the financial effects were recognized in October, after the balance-sheet date.
• Litigation: Three securities class actions alleging misleading disclosures related to the research-integrity issues were consolidated. The company could not predict the outcome or reasonably estimate a loss, and recorded no liability at September 30, 2021. The suits could materially affect the business and financial condition.
• ATH-1017’s company-owned patent family is distinct from the WSU-licensed dihexa patent family. The company-owned U.S. patent was stated to expire no earlier than June 2037; the WSU patent would normally expire by April 2032. The filing cautions that the WSU investigation and related allegations may affect the licensed patents and business relationships.

Most important facts for investors to verify

• Confirm the registrant identity: this filing is for Athira Pharma, Inc., not Leonabio, Inc.
• Track ACT-AD and LIFT-AD enrollment, topline results, trial design and whether regulators consider the evidence sufficient for approval.
• Assess cash burn against the stated runway, including rising clinical, legal and public-company costs and the need for future financing.
• Follow WSU’s investigation and any resulting effects on the dihexa license, patents, grants or clinical-development claims.
• Monitor the consolidated securities litigation, potential exposure and insurance coverage, along with leadership-transition execution.