FLNA 10-Q
Filana Therapeutics, Inc. (FLNA)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________
Form
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| OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the Quarterly Period Ended
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| OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ___________ to ___________ |
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Commission File Number:
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(Exact name of registrant as specified in its charter)
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(Address, including zip code, of registrant’s principal executive offices and
telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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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 (§232.405 of this chapter) 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.
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| Large Accelerated Filer ¨ | Accelerated Filer ¨ |
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| 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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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| Common Stock, $0.001 par value |
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| Shares Outstanding as of August 2, 2021 |
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CASSAVA SCIENCES, INC.
TABLE OF CONTENTS
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PART I. | FINANCIAL INFORMATION |
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Item 1. | Financial Statements |
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| Condensed Balance Sheets – June 30, 2021 and December 31, 2020 | 3 | ||
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| Condensed Statements of Operations – Three and Six Months Ended June 30, 2021 and 2020 | 4 | ||
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| Condensed Statements of Cash Flows – Six Months Ended June 30, 2021 and 2020 | 5 | ||
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 | ||
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Item 3. | 30 | |||
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Item 4. | 31 | |||
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PART II. | OTHER INFORMATION |
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Item 1. | 31 | |||
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Item 1A | 31 | |||
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Item 2. | 31 | |||
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Item 3. | 31 | |||
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Item 4. | 31 | |||
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Item 5. | 31 | |||
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Item 6. | 32 | |||
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33 | ||||
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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CASSAVA SCIENCES, INC. | ||||||
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CONDENSED BALANCE SHEETS | ||||||
(Unaudited, in thousands, except share and par value data) | ||||||
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| June 30, 2021 |
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| December 31, 2020 |
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ASSETS | ||||||
Current assets: |
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Cash and cash equivalents | $ | |
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Prepaid expenses and other current assets |
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Total current assets |
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Operating lease right-of-use assets |
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Property and equipment, net |
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Other assets |
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Total assets | $ | |
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LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
Current liabilities: |
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Accounts payable | $ | |
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Accrued development expense |
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Accrued compensation and benefits |
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Operating lease liabilities, current |
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Other current liabilities |
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Total current liabilities |
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Operating lease liabilities, non-current |
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Total liabilities |
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Commitments and contingencies (Notes 6 and 8) |
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Stockholders' equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders' equity |
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Total liabilities and stockholders' equity | $ | |
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See accompanying notes to condensed financial statements.
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CASSAVA SCIENCES, INC. | ||||||||||||
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CONDENSED STATEMENTS OF OPERATIONS | ||||||||||||
(Unaudited, in thousands, except per share data) | ||||||||||||
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Operating expenses: |
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Research and development, net of grant reimbursement |
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General and administrative |
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Gain on sale of property and equipment |
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Total operating expenses |
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Operating loss |
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Interest income |
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Net loss |
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Net loss per share, basic and diluted |
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Shares used in computing net loss per share, basic and diluted |
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See accompanying notes to condensed financial statements.
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CASSAVA SCIENCES, INC. | |||||
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CONDENSED STATEMENTS OF CASH FLOWS | |||||
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| Six months ended June 30, | ||||
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Cash flows from operating activities: |
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Net loss | $ | ( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation |
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Depreciation and amortization |
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Gain on sale of property and equipment |
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Changes in operating assets and liabilities: |
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Prepaid and other assets |
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Operating lease right-of-use assets and liabilities |
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Accounts payable |
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Accrued development expense |
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Accrued compensation and benefits |
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Other current liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Purchase of property and equipment |
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Proceeds from sale of property and equipment |
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Net cash (used in) provided by investing activities |
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Cash flows from financing activities: |
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Proceeds from exercise of stock options |
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Proceeds from exercise of common stock warrants |
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Proceeds from registered direct offering, net of issuance costs |
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Net cash provided by financing activities |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents at beginning of period |
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Cash and cash equivalents at end of period | $ | |
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See accompanying notes to condensed financial statements.
Cassava Sciences, Inc.
Notes to Condensed Financial Statements
(Unaudited)
Cassava Sciences, Inc. (the “Company”) discovers and develops proprietary pharmaceutical product candidates that may offer significant improvements to patients and healthcare professionals. The Company generally focuses its discovery and product development efforts on disorders of the nervous system.
The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and pursuant to the instructions to the Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, the condensed financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for any other interim period or for the year 2021. For further information, refer to the financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Coronavirus Disease 2019 (COVID-19)
The widespread outbreak of a novel infectious disease called Coronavirus Disease 2019, or COVID-19, has not significantly impacted the Company’s operations or financial condition as of August 4, 2021. However, this pandemic has created a dynamic and uncertain situation in the national economy. The Company continues to closely monitor the latest information to make timely, informed business decisions and public disclosures regarding the potential impact of pandemic on its operations and financial condition. The scope of pandemic is unprecedented and its long-term impact on the Company’s operations and financial condition cannot be reasonably estimated at this time.
Liquidity
The Company has incurred significant net losses and negative cash flows since inception, and as a result has an accumulated deficit of $
The Company makes estimates and assumptions in preparing its condensed financial statements in conformity with GAAP. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amount of revenue earned and expenses incurred during the reporting period. The Company evaluates its estimates on an ongoing basis, including those estimates related to manufacturing agreements and research collaborations. Actual results could differ from these estimates and assumptions.
The Company invests in cash and cash equivalents. The Company considers highly liquid financial instruments with original maturities of three months or less to be cash equivalents. Highly liquid investments that are considered
cash equivalents include money market accounts and funds, certificates of deposits, and U.S. Treasury securities. The Company maintains its cash and cash equivalents at one financial institution.
The Company recognizes financial instruments in accordance with the authoritative guidance on fair value measurements and disclosures for financial assets and liabilities. This guidance defines fair value, establishes a framework for measuring fair value in accordance with GAAP, and expands disclosures about fair value measurements. The guidance also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:
Level 1 includes quoted prices in active markets.
Level 2 includes significant observable inputs, such as quoted prices for identical or similar securities, or other inputs that are observable and can be corroborated by observable market data for similar securities. The Company uses market pricing and other observable market inputs obtained from third-party providers. It uses the bid price to establish fair value where a bid price is available. The Company does not have any financial instruments where the fair value is based on Level 2 inputs.
Level 3 includes unobservable inputs that are supported by little or no market activity. The Company does not have any financial instruments where the fair value is based on Level 3 inputs.
If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument will be categorized based upon the lowest level of input that is significant to the fair value calculation. The fair value of cash and cash equivalents was based on Level 1 inputs at June 30, 2021 and December 31, 2020.
During the three months ended June 30, 2021 and 2020, the Company received reimbursements totaling $
The Company recognizes non-cash expense for the fair value of all stock options and other share-based awards. The Company uses the Black-Scholes option valuation model (“Black-Scholes”) to calculate the fair value of stock options, using the single-option award approach and straight-line attribution method. For all options granted, it recognizes the resulting fair value as expense on a straight-line basis over the vesting period of each respective stock option, generally
The Company has granted share-based awards that vest upon achievement of certain performance criteria (“Performance Awards”). The Company multiplies the number of Performance Awards by the fair value of its common stock on the date of grant to calculate the fair value of each award. It estimates an implicit service period for achieving performance criteria for each award. The Company recognizes the resulting fair value as expense over the implicit service period when it concludes that achieving the performance criteria is probable. It periodically reviews and updates as appropriate its estimates of implicit service periods and conclusions on achieving the performance criteria. Performance Awards vest and common stock is issued upon achievement of the performance criteria.
The Company computes basic net loss per share on the basis of the weighted-average number of common shares outstanding for the reporting period. Diluted net loss per share is computed on the basis of the weighted-average number of common shares outstanding plus potential dilutive common shares outstanding using the treasury-stock method. Potential dilutive common shares consist of outstanding common stock options and warrants. There is no difference between the Company’s net loss and comprehensive loss.
The Company included the following in the calculation of basic and diluted net loss per share (in thousands, except per share data):
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| June 30, |
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| 2021 |
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Numerator: |
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Net loss |
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Denominator: |
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Shares used in computing net loss per share, basic and diluted |
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Net loss per share, basic and diluted |
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Dilutive common stock options excluded from net loss per share, diluted |
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Common stock warrants excluded from net loss per share, diluted |
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The Company excluded common stock options and warrants outstanding from the calculation of net loss per share, diluted, because the effect of including options and warrants outstanding would have been anti-dilutive.
Financial instruments include accounts payable and accrued liabilities. The estimated fair value of certain financial instruments may be determined using available market information or other appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop estimates of fair value; therefore, the estimates are not necessarily indicative of the amounts that could be realized or would be paid in a current market exchange. The effect of using different market assumptions and/or estimation methodologies may be material to the estimated fair value amounts. The carrying amounts of accounts payable and accrued liabilities are at cost, which approximates fair value due to the short maturity of those instruments.
The Company has entered into various research and development contracts with research institutions and other third-party vendors. These agreements are generally cancelable, and related payments are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates have not been materially different from actual costs.
In 2020, the Company established the 2020 Cash Incentive Bonus Plan (the “Plan”) to incentivize Plan participants. Awards under the Plan are accounted for as liability awards under Accounting Standards Codification (ASC) 718 “Stock-based Compensation”. The fair value of each potential Plan award will be determined once a grant date occurs and will be remeasured each reporting period. Compensation expense associated with the Plan will be recognized over the expected achievement period for each Plan award, when a Performance Condition is considered probable of being met. See Note 8 for further discussion of the Plan.
The Company recognizes assets and liabilities that arise from leases. For operating leases, the Company is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments during the lease term, in the condensed balance sheets. The Company elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company does not recognize right-of-use assets or lease liabilities. As the Company`s leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
The Company accounts for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax balances are adjusted to reflect tax rates based on currently enacted tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. The Company has accumulated significant deferred tax assets that reflect the tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of certain deferred tax assets is dependent upon future earnings. The Company is uncertain about the timing and amount of any future earnings. Accordingly, the Company offsets these deferred tax assets with a valuation allowance.
The Company accounts for uncertain tax positions in accordance with ASC 740, “Income Taxes”, which clarifies the accounting for uncertainty in tax positions. These provisions require recognition of the impact of a tax position in the Company’s condensed financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflected as a component of income tax expense.
Prepaid and other assets at June 30, 2021 and December 31, 2020 consisted of the following (in thousands):
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Prepaid insurance | $ | — |
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Contract research organization deposit |
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Other |
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Total prepaid expenses and other current assets | $ | |
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Contract research organization deposit | $ | |
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Total other assets | $ | |
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Stockholders’ Equity Activity during the Six Months Ended June 30, 2021 and 2020
During the six months ended June 30, 2021 and 2020, the Company’s common stock outstanding and stockholders’ equity changed as follows:
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Balance at December 31, 2019 | |
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Stock-based compensation for: |
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Stock options for employees |
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Stock options for non-employees |
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Proceeds from exercise of common stock warrants | |
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Net loss |
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Balance at March 31, 2020 | |
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Stock-based compensation for: |
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Stock options for employees |
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Stock options for non-employees |
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Proceeds from exercise of common stock warrants | |
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Net loss |
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Balance at June 30, 2020 | |
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Balance at December 31, 2020 | |
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Stock-based compensation for: |
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Stock options for employees |
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Stock options for non-employees |
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Proceeds from exercise of common stock warrants | |
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Exercise of stock options | |
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Proceeds from registered direct offering of common stock | |
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Net loss |
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Balance at March 31, 2021 | |
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Stock-based compensation for: |
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Stock options for employees |
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Stock options for non-employees |
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Exercise of stock options | |
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Net loss |
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Balance at June 30, 2021 | |
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2021 Registered Direct Offering
On February 12, 2021, the Company completed a common stock offering pursuant to which certain investors purchased
At-the-Market Common Stock Offering
In March 2020, the Company established an at-the-market offering program (“ATM”) to sell, from time to time, shares of Company common stock having an aggregate offering price of up to $
There were
Common Stock Warrants
In August 2018, the Company issued warrants to purchase up to an aggregate of
The Company did
During the six months ended June 30, 2021, the Company received proceeds of $
There were
Stock Option and Performance Award Activity in 2021
During the six months ended June 30, 2021, stock options and unvested Performance Awards outstanding under the Company’s stock option plans changed as follows:
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Outstanding as of December 31, 2020 |
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Options granted |
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Options exercised |
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Options forfeited/canceled |
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Outstanding as of June 30, 2021 |
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The weighted average exercise price of options outstanding at June 30, 2021 was $
During the three months ended June 30, 2021, there were
During the six months ended June 30, 2021, there were
There were
Subsequent to June 30, 2021, there were
Stock-based Compensation Expense in 2021
During the three and six months ended June 30, 2021 and 2020, the Company’s stock-based compensation expense was as follows (in thousands):
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Research and development |
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General and administrative |
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Total stock-based compensation expense |
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2018 Equity Incentive Plan
In January 2018, the Company’s Board of Directors (the “Board”) approved the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”). The Board or a designated committee of the Board is responsible for administration of the 2018 Plan and determines the terms and conditions of each option granted, consistent with the terms of the 2018 Plan. The Company’s employees, directors, and consultants are eligible to receive awards under the 2018 Plan, including grants of stock options and Performance Awards. Share-based awards generally expire
The Company did not provide for income taxes during the three and six months ended June 30, 2021, because it has projected a net loss for the full year 2021 for which any benefit will be offset by an increase in the valuation allowance. There was also
Right-of-use Asset and Liability
The Company has a non-cancelable operating lease for approximately
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Future lease payments |
| 2021 | 2022 | 2023 | 2024 | Total future lease payments | Less: imputed interest |
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Operating leases | $ | | | | | | ( | $ | |
Short-term operating lease | $ | | |
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Rent expense for the three months ended June 30, 2021 and 2020 totaled $
Rent expense for the six months ended June 30, 2021 and 2020 totaled $
Cash paid for operating lease liabilities during the three months ended June 30, 2021 and 2020 totaled $
Other Commitments
The Company conducts its product research and development programs through a combination of internal and collaborative programs that include, among others, arrangements with universities, contract research organizations and clinical research sites. The Company has contractual arrangements with these organizations that are cancelable. The Company’s obligations under these contracts are largely based on services performed. The Company also had non-cancellable commitments for the manufacture of simufilam totaling approximately $
There were sales of property and equipment during the three and six months ended June 30, 2021.
During the three months ended June 30, 2020, the Company sold surplus manufacturing equipment to a third party and received proceeds totaling $
On August 26, 2020, the Board approved the Plan. The Plan was established to promote the long-term success of the Company by creating an “at-risk” cash bonus program that rewards Plan participants with additional cash compensation in lockstep with significant increases in the Company’s market capitalization. The Plan is considered “at-risk” because Plan participants will not receive a cash bonus unless the Company’s market capitalization increases significantly and certain other conditions specified in the Plan are met. Specifically, Plan participants will not be paid any cash bonuses unless (1) the Company completes a merger or acquisition transaction that constitutes a sale of ownership of the Company or its assets (a Merger Transaction) or (2) the Compensation Committee of the Board (the Compensation Committee) determines the Company has sufficient cash on hand, as defined in the Plan. Because of the inherent discretion and uncertainty regarding these requirements, the Company has concluded that a Plan grant date has not occurred as of June 30, 2021.
Plan participants will be paid all earned cash bonuses in the event of a Merger Transaction.
The Company’s market capitalization for purposes of the Plan is determined based on either (1) the Company’s closing price of one share on the Nasdaq Capital Market multiplied by the total issued and outstanding shares and options to purchase shares of the Company, or (2) the aggregate consideration payable to security holders of the Company in a Merger Transaction. This constitutes a market condition under applicable accounting guidance.
The Plan triggers a potential cash bonus each time the Company’s market capitalization increases significantly, up to a maximum $
If the Company were to exceed a $5 billion market capitalization for no less than 20 consecutive trading days, all Valuation Milestones would be deemed achieved, in which case cash bonus awards would range from a minimum of $
The Plan is accounted for as a liability award. The fair value of each Valuation Milestone award will be determined once a grant date occurs and will be remeasured each reporting period. Compensation expense associated with the Plan will be recognized over the expected achievement period for each of the 14 Valuation Milestones, when a Performance Condition is considered probable of being met.
On October 13, 2020, the Company achieved the first Valuation Milestone. Subsequently, the Compensation Committee approved a potential cash bonus award of $
During the six months ended June 30, 2021, the Company achieved 10 Valuation Milestones triggering potential Company obligations to all Plan participants from a minimum of $
Subsequent to June 30, 2021, the Company achieved one additional Valuation Milestone triggering potential Company obligations to all Plan participants from a minimum of $
In December 2019, the FASB issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740) Simplifying Accounting for Income Taxes, as part of its initiative to reduce complexity in the accounting standards. The guidance amended certain disclosure requirements that had become redundant, outdated or superseded. Additionally, this guidance amends accounting for the interim period effects of changes in tax laws or rates, and simplifies aspects of the accounting for franchise taxes. The guidance is effective for annual periods beginning after December 15, 2020, including interim periods therein. The adoption of ASU 2019-12 in the first quarter of 2021 did not have a material impact on the Company’s condensed financial statements.
On August 4, 2021, the Company completed the purchase of a two-building office complex in Austin, Texas, which will serve as its new corporate headquarters. This property is intended to accommodate the Company’s anticipated significant growth and expansion of its operations in the coming years. Company management expects to be hands-off with regards to property management. Maintenance, physical facilities, leasing, property management and other key responsibilities around property ownership will all be assumed by professional real-estate managers under long-term contract with the Company. The property purchase price was $
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis should be read in conjunction with Cassava Sciences, Inc.’s (the “Company,”, “we,” “us,” or “our”) condensed financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. Operating results are not necessarily indicative of results that may occur in future periods.
This Quarterly Report on Form 10-Q contains certain statements that are considered forward-looking statements within the meaning of the Private Securities Reform Act of 1995. We intend that such statements be protected by the safe harbor created thereby. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology.
The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements involve risks and uncertainties and our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Examples of such forward-looking statements include, but are not limited to statements about:
our intention to initiate a pivotal Phase 3 clinical program with simufilam in Alzheimer’s disease, the anticipated scope of Phase 3 studies and our estimated timeline for doing so;
our reliance on third-party contractors to make drug supply on a large-scale for our Phase 3 clinical program, or their ability to do so on-time or on-budget;
limitations around the interpretation of cognitive results from a long-term open-label study design, as compared to efficacy results from a fully completed, randomized controlled study design;
the expected rate of cognitive decline over time in untreated Alzheimer’s patients;
the ability of the Alzheimer's Disease Assessment Scale-Cognitive Subscale (ADAS-cog), Alzheimer’s Disease Cooperative Study – Activities of Daily Living (ADCS-ADL), Neuropsychiatric Inventory (NPI), CANTAB or other clinical scales to assess cognition or health in our trials of Alzheimer’s disease;
announcements or plans regarding any future interim analyses of our open-label study of simufilam and our estimated timeline for doing so;
any significant changes we have made, or anticipate making, to the design of an on-going open-label study of simufilam;
announcements regarding an End-of-Phase 2 meeting with the U.S. Food and Drug Administration (FDA);
our ability to initiate, conduct or analyze additional clinical and non-clinical studies with our product candidates targeted at Alzheimer’s disease and other neurodegenerative diseases;
the interpretation of results from our Phase 2 clinical studies;
our estimated timeline for publishing in a peer-reviewed technical journal clinical results of our Phase 2b study of simufilam;
our plans to further develop SavaDx, our investigational blood-based diagnostic, and our estimated timeline for doing so;
the safety, efficacy, or potential therapeutic benefits of our product candidates;
the utility of protection, or the sufficiency, of our intellectual property;
our potential competitors or competitive products;
expected future sources of revenue and capital and increasing cash needs;
our use of Clinical Research Organizations (CROs) to conduct clinical studies of our product candidates;
expectations regarding trade secrets, technological innovations, licensing agreements and outsourcing of certain business functions;
our expenses increasing or fluctuations in our financial or operating results;
our operating losses and anticipated operating and capital expenditures;
expectations regarding the issuance of shares of common stock to employees pursuant to equity compensation awards, net of employment taxes;
the development and maintenance of our internal information systems and infrastructure;
our need to hire additional personnel and our ability to attract and retain such personnel;
existing regulations and regulatory developments in the United States and other jurisdictions;
our need to expand the size and scope of our physical facilities;
the sufficiency of our current resources to continue to fund our operations;
the accuracy of our estimates regarding expenses, capital requirements, and needs for additional financing;
assumptions and estimates used for our disclosures regarding stock-based compensation; and
the long-term impact of COVID-19, a novel coronavirus first detected in 2019, on our operations and financial condition.
Such forward-looking statements and our business involve risks and uncertainties, including, but not limited to the following:
We are in the early stages of clinical drug development and have a limited operating history in our business targeting Alzheimer’s disease and no products approved for commercial sale.
We have incurred significant net losses in each period since our inception and anticipate that we will continue to incur net losses for the foreseeable future.
Research and development of biopharmaceutical products is a highly uncertain undertaking and involves a substantial degree of risk and our business is heavily dependent on the successful development of our product candidates.
We may need to obtain substantial additional financing to complete the development and any commercialization of our product candidates.
We may not be successful in our efforts to continue to develop product candidates or commercially successful products.
We may not be successful in our efforts to expand indications for product candidates.
We are concentrating a substantial portion of our research and development efforts on the diagnosis and treatment of Alzheimer’s disease, an area of research that has recorded many clinical failures.
We may encounter substantial delays in our clinical trials or may not be able to conduct or complete our clinical trials on the timelines we expect, if at all.
Our clinical trials may fail to demonstrate evidence of the safety and efficacy of our product candidates, which would prevent, delay, or limit the scope of regulatory approval and the commercialization of our product candidates.
We may be unable to protect our intellectual property rights or trade secrets.
We may be subject to third-party claims of intellectual property infringement.
We may not succeed in our maintenance or pursuit of licensing rights or third-party intellectual property necessary for the development of our product candidates.
Enacted or future legislation or regulatory actions may adversely affect our product pricing, or limit the reimbursement we may receive for our products.
A significant breakdown, security breach or interruption affecting our internal computer systems, or those used by our third-party research collaborators, may compromise the confidentiality of our financial or proprietary information, result in material disruptions of our products and operations and adversely affect our reputation.
We may be unsuccessful at hiring and retaining qualified personnel.
Adverse circumstances caused by disease epidemics or pandemics, such as Coronavirus Disease 2019, or COVID-19, a novel coronavirus first detected in 2019;
Please also refer to the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as such risk factors may be amended, updated or modified periodically in our reports filed with the U.S. Securities and Exchange Commission (the “SEC”) for further information on these and other risks affecting us.
We caution you not to place undue reliance on forward-looking statements because our future results may differ materially from those expressed or implied by them. We do not intend to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Quarterly Report on Form 10-Q, except as required by law.
Our research programs in neurodegeneration benefit from longstanding scientific and financial support from the National Institutes of Health (“NIH”). The contents of this Quarterly Report on Form 10-Q are solely our responsibility and do not necessarily represent any official views of NIH.
Overview
Cassava Sciences, Inc. is a clinical-stage biotechnology company based in Austin, Tx. Our mission is to detect and treat neurodegenerative diseases, such as Alzheimer’s disease. Our novel science is based on stabilizing – but not removing – a critical protein in the brain.
Over the past 10 years, we have combined state-of-the-art technology with new insights in neurobiology to develop novel solutions for Alzheimer’s disease and other neurodegenerative diseases. Our strategy is to leverage our unique scientific/clinical platform to develop a first-in-class program for treating neurodegenerative diseases, such as Alzheimer’s.
We currently have two clinical-stage biopharmaceutical assets under development:
our lead therapeutic product candidate, called simufilam, is a novel treatment for Alzheimer’s disease; and
our lead investigational diagnostic product candidate, called SavaDx, is a novel way to detect the presence of Alzheimer’s disease from a small sample of blood, possibly years before the overt appearance of clinical symptoms.
Our scientific approach for the treatment of Alzheimer’s disease seeks to simultaneously improve both neurodegeneration and neuroinflammation. We believe our ability to improve multiple vital functions in the brain represents a new, different and crucial approach to address Alzheimer’s disease.
Our lead therapeutic product candidate, simufilam, is a proprietary small molecule (oral) drug. Simufilam targets an altered form of a protein called filamin A (FLNA) in the Alzheimer’s brain. Published studies have demonstrated that the altered form of FLNA causes neuronal dysfunction, neuronal degeneration and neuroinflammation.
We believe simufilam improves brain health by reverting altered FLNA back to its native, healthy conformation, thus countering the downstream toxic effects of altered FLNA. We have generated and published experimental and clinical evidence of improved brain health with simufilam. Importantly, simufilam is not dependent on clearing amyloid from the brain. Since simufilam has a unique mechanism of action, we believe its potential therapeutic effects may be additive or synergistic with that of other therapeutic candidates aiming to treat neurodegeneration.
Simufilam has demonstrated a multitude of beneficial effects in animal models of disease, including normalizing neurotransmission, decreasing neuroinflammation, suppressing neurodegeneration, and restoring memory and cognition.
Simufilam and SavaDx were both discovered and designed in-house and were characterized by our academic collaborators during research activities that were conducted from approximately 2008 to date. We own exclusive, worldwide rights to these drug assets and related technologies, without royalty obligations to any third party. Our patent protection with respect to simufilam and use of simufilam for Alzheimer’s disease and other neurodegenerative disease currently runs through 2033 and includes six issued patents and related patent filings and applications. In addition, we have patent protection with respect to simufilam for use in treating certain cancers that runs through 2034.
We currently have no patents or patent applications with respect to SavaDx, which is protected in the United States by trade secrets, know-how and other proprietary rights technology.
Alzheimer’s disease is a progressive neurodegenerative disorder that affects cognition, function and behavior. There are no disease-modifying drug therapies to treat the disease. As of 2020, there were approximately 50 million people worldwide living with dementia, a figure expected to increase to 150 million by 2050 and the annual global cost of dementia is now above $1 trillion, according to Alzheimer’s Disease International, a charitable organization. According to the non-profit Alzheimer's Association, Alzheimer’s disease is expected to nearly triple in the U.S. between now and 2050. If this occurs, there is potential for Alzheimer's disease to cause a major financial drain on the national economy.
Phase 2a Study
In 2019, we completed a small, first-in-patient, clinical-proof-of-concept, open-label Phase 2a study of simufilam in the U.S., with substantial support from the National Institute on Aging (NIA), a division of the NIH. Treatment with simufilam for 28 days significantly improved key biomarkers of Alzheimer’s pathology, neurodegeneration and neuroinflammation (p<0.001). Biomarkers effects were seen in all patients in both cerebrospinal fluid (CSF) and plasma.
Phase 2b Study
In September 2020, we announced final results of a Phase 2b study with simufilam in Alzheimer’s disease. In this clinical study funded by the NIH, Alzheimer’s patients treated with 50 mg or 100 mg of simufilam twice-daily for 28 days showed statistically significant (p<0.05) improvements in CSF biomarkers of disease pathology, neurodegeneration and neuroinflammation, versus Alzheimer’s patients who took placebo. In addition, Alzheimer’s patients treated with simufilam showed improvements in validated tests of episodic memory and spatial working memory, versus patients on placebo (Effect Size 17-46%). Cognitive improvements correlated most strongly (R2=0.5) with decreases in levels of P-tau181.
Clinical Strategy Around Open-label Study
Much of the value of our open-label study is to gain data to support simufilam’s long-term safety profile in patients. Interim efficacy data from an open-label study has limitations compared to efficacy data from a fully completed, large, randomized controlled clinical trial, or from a fully enrolled open-label study.
We believe there is logic to conducting an open-label study prior to conducting a large, expensive Phase 3 clinical testing program. First, this is a standard clinical method of demonstrating drug safety. Second, we believe that if an experimental drug for Alzheimer’s shows no treatment benefits in a well-designed open-label study, then there is no chance that drug will succeed in Phase 3 clinical testing. Of course, the opposite is not true: encouraging treatment effects in an open-label study is not proof of drug efficacy, nor can encouraging treatment effects predict clinical success in a Phase 3 program.
In short, we believe a well-designed, open-label study is an exercise in prudent risk-management. Clinical results may serve as a tool to help inform and manage the inherent risks and uncertainties of drug development prior to undertaking a large, expensive Phase 3 clinical testing program.
Open-label Study Strategy
In March 2020, we initiated a long-term, open-label study to evaluate simufilam in patients with Alzheimer’s disease. This study is funded by a research grant award from the National Institutes of Health (NIH). The study is intended to monitor the long-term safety and tolerability of simufilam 100 mg twice-daily for 12 or more months. Another study objective is to measure changes in cognition using ADAS-Cog, a standard test of cognition in Alzheimer’s disease. The study protocol has pre-specified cognition measurements at 6, 9 and 12 months. This study also uses the Neuropsychiatric Inventory (NPI) to assess the presence and severity of dementia-related behavior. ADAS-Cog and NPI scales are both widely used clinical tools in trials of Alzheimer’s disease.
In June 2021, the open-label study reached its target enrollment of 150 subjects with mild-to-moderate Alzheimer’s disease. By physician and patient request, clinical sites may continue to enroll additional subjects up through the initiation of the Company’s Phase 3 pivotal program of simufilam.
In February 2021, we announced results of a preplanned interim analysis of our open-label study with simufilam. This interim analysis summarized clinical data in the first 50 patients who have completed at least 6 months of drug treatment. Patients’ cognition and behavior scores both improved following six months of simufilam treatment, with no safety issues. Six months of simufilam treatment improved cognition scores by 1.6 points on ADAS-Cog11, a 10% mean improvement from baseline to month 6. In these same patients, simufilam also improved dementia-related behavior, such as anxiety, delusions and agitation, by 1.3 points on the Neuropsychiatric Inventory, a 29% mean improvement from baseline to month 6.
In July 2021, we announced results of another preplanned interim analysis of our open-label study with simufilam. This interim analysis summarized clinical data on the first 50 patients who have completed at least 9 months of drug treatment. Patients’ cognition and behavior scores both improved following six months of simufilam treatment, with no safety issues. Nine months of simufilam treatment improved cognition scores by 3.0 points on ADAS-Cog11, an 18% mean improvement from baseline to month 9 (p<0.001). Figure 1.
Figure 1. Cognition Results
Insert A ADAS-Cog11 scores improved 3 points at 9 months in the first 50 subjects. Mean ADAS-Cog Change from Baseline -4 -3 -2 -1 0 +1 +2 +3 -1.6 -3.0 DECLINE IMPROVE P < 0.001 by paired t test: Baseline vs. 9 Months 6 months 9 months 12 months CASSAVA sciences
Alzheimer’s is a progressive disease. Cognition will always decline over time. Historical controls indicate that in patients with mild-to-moderate Alzheimer’s disease, cognition scores decline 4+ points on ADAS-Cog over 9 months, as reported by the science literature, and, more recently, by Biogen, Inc. In 2020, Biogen reported a 5.2-point decline over 18 months on ADAS-Cog in placebo patients with early Alzheimer’s disease in two Phase 3 studies with their drug, aducanumab.
Despite an expectation of cognitive decline, simufilam improved ADAS-Cog scores in 66% of patients at 9 months. An additional 22% of patients declined less than an expected 4+ point decline at 9 months. Cognition outcomes suggest simufilam’s treatment effects were broad-based. Figure 2.
Figure 2. Individual Patient Changes in ADAS-Cog (N=50)
Insert B 66% of Patients Improved at 9 Months (N=33) 22% of Patients Declined Less Than Expected (N=11) Change in ADAS-Cog11 Baseline to 9 Months -15 -10 -5 0 5 10 DECLINE IMPROVE 4+ point decline over 9 months is expected in M2M AD CASSAVA sciences
Alzheimer’s is often accompanied by behaviors disorders, such as anxiety, agitation or delusions. These may become more frequent as disease progresses. Simufilam reduced dementia-related behavior at 9 months on the Neuropsychiatric Inventory (NPI), a clinical tool widely used to measure changes in dementia-related behavior.
At baseline, 34% of study subjects had no neuropsychiatric symptoms.
At month 6, 38% of study subjects had no neuropsychiatric symptoms.
At month 9, over 50% of study subjects had no neuropsychiatric symptoms.
The safety profile of simufilam in the interim analysis is consistent with prior human studies. There were no drug-related serious adverse events. Adverse events were mild and transient.
In July 2021, we also announced positive biomarker data from our open-label study. Biomarkers are objective biological data. There are no placebo effects.
A key objective of this bioanalysis was to measure changes in levels of biomarkers in patients before and after 6 months of treatment with open label simufilam. Biomarker data were analyzed from cerebrospinal fluid (CSF) collected from 25 patients with mild-to-moderate Alzheimer’s disease who are enrolled in the open-label study and who agreed to undergo a lumbar puncture at baseline and again after 6 months of treatment. All bioanalyses were conducted blind by an outside lab.
Simufilam robustly improved all measured CSF biomarkers.
Cerebrospinal fluid (CSF) biomarkers of disease pathology, t-tau and p-tau181, decreased 38% and 18%, respectively (both p<0.00001). CSF biomarkers of neurodegeneration, neurogranin and Nfl, decreased 72% and 55%, respectively (both p<0.00001). CSF biomarkers of neuroinflammation, sTREM2 and YKL-40, decreased 65% and 44% (both p<0.00001). All p-values are baseline vs. 6-month levels by paired t-test. Figure 3.
Core markers of Alzheimer’s pathology are total tau (T-tau), phosphorylated tau (P-tau181), and amyloid beta42 (Aβ42). In Alzheimer’s, tau levels are elevated and Aβ42 is low.
T-tau decreased 38% (p<0.00001)
P-tau181 decreased 18% (p<0.00001)
CSF Aβ42 increased 84% (p<0.00001)
Elevated CSF levels of two proteins, neurogranin (Ng) and neurofilament Light Chain (NfL) indicate neurodegeneration.
Ng decreased 72% (p<0.00001)
NfL decreased 55% (p<0.00001)
Elevated levels of marker YKL-40 indicate neuroinflammation.
YKL-40 decreased 44% (p<0.00001)
sTREM2 is a biomarker of microglia-induced neuroinflammation that has commanded substantial recent attention from researchers for its role in Alzheimer’s and frontotemporal dementia.
sTREM2 decreased 65% (p<0.00001)
HMGB1 protein, is a damage-related protein sometimes called a ‘danger molecule’ because it triggers additional neuroinflammation and loss of neurons.
HMGB1 decreased 53% (p<0.00001)
Figure 3. Significant Decreases in CSF Biomarkers at Month 6
Insert D % Change from Baseline -80% -70% -60% -50% -40% -30% -20% -10% 0% P-tau181 Total tau sTREM2 YKL40 Neurogranin NfL HMGB1 -18% -38% -65% -44% -72% -55% -53% P < 0.0001 for all by paired t test CASSAVA sciences
Cognition Maintenance Study
In May 2021, we initiated a double-blind, randomized, placebo-controlled study in patients with mild-to-moderate Alzheimer’s disease. Patients who have completed at least one year of open-label treatment with simufilam qualify to enroll in the Cognition Maintenance Study (CMS). Study subjects in the CMS are randomized (1:1) to simufilam or placebo for six months. The CMS is designed to compare simufilam’s effects on cognition in Alzheimer’s patients
who continue with drug treatment versus patients who discontinue drug treatment. Figure 4. The target enrollment for the CMS is 100 subjects or more; as of mid-June 2021, approximately 30 subjects were enrolled.
Figure 4. Cognition Maintenance Study Design
End-of-Phase 2 (EOP2) Meeting with FDA
In January 2021, we held an End-of-phase 2 (EOP2) meeting for simufilam with the U.S Food and Drug Administration (FDA). The purpose of this EOP2 was to gain general agreement around key elements of a pivotal Phase 3 program to treat Alzheimer’s disease dementia. FDA attendees included Robert Temple, MD, Deputy Center Director for Clinical Science and Senior Advisor in the Office of New Drugs; Billy Dunn, MD, Director, Office of Neuroscience; Eric Bastings, MD, Director, Division of Neurology, and others.
In February 2021, we announced the successful completion of our EOP2 meeting. Official meeting minutes confirm that we and FDA are aligned on key elements of a Phase 3 clinical program for simufilam. FDA has agreed that the completed Phase 2 program, together with an upcoming and well-defined Phase 3 clinical program, are sufficient to show evidence of clinical efficacy for simufilam in Alzheimer’s disease. There is also agreement that the use of separate clinical scales to assess cognition (ADAS-cog1) and function (ADCS-ADL2) are appropriate co-primary endpoints of efficacy. A clinical scale that combines cognition and function, such as iADRS3, is a secondary efficacy endpoint.
Agreements reached during the EOP2 meeting show a clear path forward for advancing simufilam into Phase 3 studies. As a result, we expect to initiate a pivotal Phase 3 program with simufilam in Alzheimer’s disease in the second half of 2021.
Phase 3 Drug Supply
In March 2021, we announced we had entered into a drug supply agreement with Evonik Industries AG for simufilam. Under the agreement, Evonik will supply us with large-scale, clinical-grade quantities of simufilam. Evonik is one of the world’s largest contract development and manufacturing organizations for pharmaceutical ingredients.
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1 ADAS-Cog = The Alzheimer’s Disease Assessment Scale – Cognitive Subscale, a measure of cognition
2 ADCS-ADL = Alzheimer’s Disease Cooperative Study – Activities of Daily Living, a measure of health function
3 iADRS = integrated Alzheimer’s Disease Rating Scale, a composite measure of cognition and health function
Phase 3 Clinical Program
We plan to initiate a Phase 3 program of simufilam in Alzheimer’s disease. The Phase 3 program consists of two large, double-blind, randomized, placebo-controlled studies in patients with mild-to-moderate Alzheimer’s disease dementia. In June 2021, we announced the selection of Premier Research International as our clinical research organization (CRO) to help conduct the Phase 3 clinical program of simufilam for Alzheimer’s disease.
We expect to initiate the Phase 3 program in Q4 2021. Figure 5.
Figure 5. Phase 3 Program Overview
SavaDx
Our diagnostic effort, called SavaDx, is a clinical-stage program focused on detecting the presence of Alzheimer’s disease from a small sample of blood, possibly years before the overt appearance of clinical symptoms. We are developing SavaDx as a fast, accurate and quantitative blood-based investigational biomarker/diagnostic to detect and monitor Alzheimer's disease. The goal is to make the detection of Alzheimer’s disease as simple as getting a blood test. There is no patent protection for SavaDx in the U.S., but we believe this product candidate is protected by trade secrets, know-how and other proprietary rights technology. The SavaDx program is substantially funded by a research grant award from the National Institutes of Health (NIH).
In blinded studies, SavaDx detected >10-fold differences between patients with Alzheimer’s and age-matched normal controls or young cognitively intact subjects (N=232).
In July 2021, we announced positive clinical data with SavaDx when used to measure plasma levels of altered filamin A before and after simufilam treatment in patients with Alzheimer’s disease. In a Phase 2b randomized, controlled trial sponsored by the National Institutes of Health (NIH), simufilam significantly reduced plasma levels of altered filamin A in Alzheimer’s patients treated for 28 days. Plasma levels of p-tau181 also dropped significantly in these same patients.
Simufilam 100 mg and 50 mg reduced plasma levels of altered filamin A by 48% (p=0.003) and 44% (p=0.02) respectively, versus placebo. Additionally, simufilam 100 mg and 50 mg reduced plasma levels of p-tau181 by 17% (p=0.01) and 15% (p=0.02) respectively, versus placebo. Plasma p-tau181 is a biomarker that is known to be elevated in Alzheimer’s disease.
Impact of COVID-19 on our Business
In these times of pandemic, our top priorities are to protect the health, well-being, and safety of our employees and partners, while still focusing on the key drivers of our business. Despite COVID-19, we believe we remain on-track to achieve our major strategic objectives for 2021 with simufilam. We have not experienced major disruptions across our drug manufacturing operations or supply of materials. Our broad spectrum of technical consultants, scientific advisors and service providers continue to provide timely services. We have adapted flexible business practices, such as remote work arrangements and temporary travel restrictions, to insure we continue to operate safety and cautiously while also meeting our public health responsibilities. We recognize the pandemic has created a dynamic and uncertain situation in the national economy. We continue to closely monitor the latest information to make timely, informed business decisions and public disclosures regarding the potential impact of pandemic on our operations. However, the scope of pandemic is unprecedented and its long-term impact on our operations cannot be reasonably estimated at this time.
Financial Overview
We have yet to generate any revenues from product sales. We have an accumulated deficit of $183.6 million at June 30, 2021. These losses have resulted principally from costs incurred in connection with research and development activities, salaries and other personnel-related costs and general corporate expenses. Research and development activities include costs of preclinical and clinical trials as well as clinical supplies associated with our product candidates. Salaries and other personnel-related costs include stock-based compensation associated with stock options and other equity awards granted to employees and non-employees. Our operating results may fluctuate substantially from period to period as a result of the timing of reimbursement from NIH grants, preclinical activities, enrollment rates of clinical trials for our product candidates and our need for clinical supplies.
We expect to continue to use significant cash resources in our operations for the next several years. Our cash requirements for operating activities and capital expenditures may increase substantially in the future as we:
initiate a large-scale drug manufacturing campaign for simufilam;
plan to initiate a Phase 3 clinical program with simufilam;
conduct other preclinical and clinical studies for our product candidates;
plan to seek regulatory approvals for our product candidates;
develop, formulate, manufacture and commercialize our product candidates;
implement additional internal systems and develop new infrastructure;
acquire or in-license additional products or technologies, or expand the use of our technology;
maintain, defend and expand the scope of our intellectual property
hire additional personnel; and
expand our office facilities to accommodate growth in personnel and R&D activities.
Product revenue will depend on our ability to receive regulatory approvals for, and successfully market, our product candidates. If our development efforts result in regulatory approval and successful commercialization of our product candidates, we will generate revenue from direct sales of our drugs and/or, if we license our drugs to future collaborators, from the receipt of license fees and royalties from sales of licensed products. We conduct our research and development programs through a combination of internal and collaborative programs. We rely on arrangements with universities, our collaborators, contract research organizations and clinical research sites for a significant portion of our product development efforts.
We focus substantially all of our research and development efforts in the area of neurology. The following table summarizes expenses which have been reduced for reimbursements received for NIH grants (in thousands):
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| June 30, |
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| 2021 |
| 2020 |
| 2021 |
| 2020 |
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Research and development expenses - gross |
| $ | 4,787 |
| $ | 1,688 |
| $ | 7,892 |
| $ | 3,574 |
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Less: Reimbursement from NIH grants |
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| 886 |
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| 1,097 |
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| 1,462 |
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| 2,439 |
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Research and development expenses - net |
| $ | 3,901 |
| $ | 591 |
| $ | 6,430 |
| $ | 1,135 |
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Research and development expenses include compensation, contractor fees and supplies as well as allocated common costs. Contractor fees and supplies generally include expenses for preclinical studies and clinical trials and
costs for formulation and manufacturing activities. Other common costs include the allocation of common costs such as facilities. During the three months ended June 30, 2021 and 2020, we received $0.9 million and $1.1 million from NIH research grants, respectively. During the six months ended June 30, 2021 and 2020, we received $1.5 million and $2.4 million from NIH research grants, respectively. These reimbursements were recorded as a reduction to our research and development expenses.
Our technology has been applied across certain of our product candidates. Data, know-how, personnel, clinical results, research results and other matters related to the research and development of any one of our product candidates also relate to, and further the development of, our other product candidates. As a result, costs allocated to a specific drug candidate may not necessarily reflect the actual costs surrounding research and development of that product candidate due to cross application of the foregoing.
Estimating the dates of completion of clinical development, and the costs to complete development, of our product candidates would be highly speculative, subjective and potentially misleading. Pharmaceutical product candidates take a significant amount of time to research, develop and commercialize. The clinical trial portion of the development of a new drug alone usually spans several years. We expect to reassess our future research and development plans based on our review of data we receive from our current research and development activities. The cost and pace of our future research and development activities are linked and subject to change.
Critical Accounting Policies
The preparation of our condensed financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and interest income in our condensed financial statements and accompanying notes. We evaluate our estimates on an ongoing basis, including those estimates related to agreements and research collaborations. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following items in our condensed financial statements require significant estimates and judgments:
Research Contracts and Accruals. We have entered into various research and development contracts with research institutions and other third-party vendors. Related payments are recorded as research and development expenses as incurred. We record accruals for estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, we analyze progress of the studies including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from our estimates. Our historical accrual estimates have not been materially different from actual costs.
2020 Cash Incentive Bonus Plan. In 2020, we established the 2020 Cash Incentive Bonus Plan (the “Plan”) to incentivize Plan participants. Awards under the Plan are accounted for as liability awards under ASC 718, “Stock-based Compensation”. The fair value of each potential Plan award will be determined once a grant date occurs and will be remeasured each reporting period. Compensation expense associated with the Plan will be recognized over the expected achievement period for each Plan award, when a Performance Condition is considered probable of being met.
The Plan was established to promote the long-term success of the Company by creating an “at-risk” cash bonus program that rewards Plan participants with additional cash compensation in lockstep with significant increases in our market capitalization. The Plan is considered “at-risk” because Plan participants will not receive a cash bonus unless our market capitalization increases significantly and (1) we complete a merger or acquisition transaction that constitutes a sale of ownership of the Company or its assets (a Merger Transaction) or (2) the Compensation Committee of the Board (the Compensation Committee) determines the Company has sufficient cash on hand, as defined in the Plan, to render payment (each, a “Performance Condition”), neither of which may ever occur. Because of the inherent discretion and uncertainty regarding these requirements, we have concluded that a Plan grant date has not occurred as of June 30, 2021. No actual cash payments were authorized or made to participants under the Plan through June 30, 2021.
Stock-based Compensation. We recognize non-cash expense for the fair value of all stock options and other share-based awards. We use the Black-Scholes option valuation model to calculate the fair value of stock options, using the single-option award approach and straight-line attribution method. For all options granted, we recognize the resulting fair value as expense on a straight-line basis over the vesting period of each respective stock option, generally four years.
We have granted share-based awards that vest upon achievement of certain performance criteria, or Performance Awards. We multiply the number of Performance Awards by the fair value of our common stock on the date of grant to calculate the fair value of each award. We estimate an implicit service period for achieving performance criteria for each award. We recognize the resulting fair value as expense over the implicit service period when we conclude that achieving the performance criteria is probable. We periodically review and update as appropriate our estimates of implicit service periods and conclusions on achieving the performance criteria. Performance Awards vest and common stock is issued upon achievement of the performance criteria.
Income Taxes. We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax balances are adjusted to reflect tax rates based on currently enacted tax laws, which will be in effect in the years in which the temporary differences are expected to reverse. We have accumulated significant deferred tax assets that reflect the tax effects of net operating loss and tax credit carryovers and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Realization of certain deferred tax assets is dependent upon future earnings. We are uncertain about the timing and amount of any future earnings. Accordingly, we offset these deferred tax assets with a valuation allowance.
We account for uncertain tax positions in accordance with ASC 740, “Income Taxes”, which clarifies the accounting for uncertainty in tax positions. These provisions require recognition of the impact of a tax position in our condensed financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions will be reflected as a component of income tax expense.
Results of Operations – Three and Six Months Ended June 30, 2021 and 2020
Research and Development Expense
Research and development expenses consist primarily of costs of drug development work associated with our product candidates, including:
Pre-clinical testing,
clinical trials,
clinical supplies and related formulation and design costs, and
compensation and other personnel-related expenses.
Research and development expenses were $3.9 million and $0.6 million during the three months ended June 30, 2021 and 2020, respectively. This 560% increase was due primarily to costs related to the manufacturing of clinical trial supplies in anticipation of launching a Phase 3 clinical program in simufilam, costs of an on-going open-label study in simufilam, as well as increased personnel costs compared to the prior year.
Research and development expenses were $6.4 million and $1.1 million during the six months ended June 30, 2021 and 2020, respectively. The 467% increase was due primarily to costs related to the manufacturing of clinical trial supplies in anticipation of launching a Phase 3 clinical program in simufilam, costs of an on-going open-label study in simufilam, increased personnel costs, as well as a decrease in grant funding received from NIH compared to the prior year. During the six months ended June 30, 2021 and 2020, we received $1.5 million and $2.4 million from research grants from NIH, respectively.
We expect research and development expense to increase significantly in future periods as we continue to hire new personnel, manufacture drug supply, continue our development efforts and launch a Phase 3 clinical program in simufilam.
General and Administrative Expense
General and administrative expenses consist of personnel costs, allocated expenses and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, bonus, benefits and stock-based compensation. Allocated expenses consist primarily of facility costs. We incur expenses associated with operating as a public company, including expenses related to compliance with the rules and regulations of the SEC and Nasdaq, additional insurance expenses, additional audit expenses, investor relations activities, Sarbanes-Oxley compliance expenses and other administrative expenses and professional services.
General and administrative expenses were $1.2 million and $0.8 million during the three months ended June 30, 2021 and 2020, respectively. The 51% increase was due primarily to higher annual shareholder meeting and insurance costs in 2021 compared to the prior year.
General and administrative expenses were $2.2 million and $1.6 million during the six months ended June 30, 2021 and 2020, respectively. The 40% increase was due primarily to higher annual shareholder meeting and insurance costs in 2021 compared to the prior year.
We expect our general and administrative expenses to increase in future periods due to higher operating costs such as insurance, office space and information technology related expenses.
Gain on Sale of Property and Equipment
There were no sales of property and equipment during the three and six months ended June 30, 2021.
During the three months ended June 30, 2020, we sold surplus manufacturing equipment to an independent third party and received proceeds totaling $260,000. During the six months ended June 30, 2020, we sold surplus manufacturing equipment to an independent third party and received proceeds totaling $360,000.
We do not expect any future gains on sales of property and equipment.
Interest Income
Interest income was $13,000 and $27,000 during the three months ended June 30, 2021 and 2020, respectively. Interest income was $20,000 and $99,000 during the six months ended June 30, 2021 and 2020, respectively. The decrease in interest income was due to lower interest rates, which more than offset additional interest from increases in our cash balances compared to the prior periods.
We expect interest income to decrease in 2021 compared to 2020 due to decreases in interest rates.
Liquidity and Capital Resources
Since inception, we have financed our operations primarily through public and private stock offerings, payments received under collaboration agreements and interest earned on our cash and cash equivalents balances. We intend to continue to use our capital resources to fund research and development activities, capital expenditures, working capital requirements and other general corporate purposes. As of June 30, 2021, cash and cash equivalents were $278.3 million.
2021 Registered Direct Offering
On February 12, 2021, we completed a common stock offering pursuant to which certain investors purchased 4,081,633 shares of common stock at a price of $49.00 per share. Net proceeds of the offering were approximately $189.8 million after deducting offering expenses.
Common Stock Warrants
In August 2018, we issued warrants to purchase up to an aggregate of 9.1 million shares of common stock in conjunction with an offering of our common stock.
We did not receive any proceeds from exercise of common stock warrants during the three months ended June 30, 2021. During the three months ended June 30, 2020, we received proceeds of $0.2 million from the exercise of 0.2 million shares pursuant to warrants.
During the six months ended June 30, 2021, we received proceeds of $0.7 million from the exercise of 0.6 million shares pursuant to warrants. During the six months ended June 30, 2020, we received proceeds of $3.8 million from the exercise of 3.1 million shares pursuant to warrants.
There were no remaining common stock warrants outstanding as of June 30, 2021.
At-the-Market Common Stock Offering
In March 2020, we established an at-the-market offering program (“ATM”) to sell, from time to time, shares of our common stock having an aggregate offering price of up to $100 million in transactions pursuant to a shelf registration statement that was declared effective by the SEC on May 5, 2020. We are obligated to pay a commission of 3.0% of the gross proceeds from the sale of shares of common stock in the offering. We are not obligated to sell any shares in the offering.
There were no common stock sales under the ATM during the three and six months ended June 30, 2021 and 2020.
NIH Research Grant Awards
Our programs have been supported by NIH under multiple research grant awards. Strong, long-term support from NIH has allowed us to advance our two lead product candidates, simufilam and SavaDx, into clinical development.
In May 2021, we were awarded a new research grant award from NIH of up to $2.7 million to support clinical readiness activities in support of an upcoming Phase 3 program with simufilam. In April 2020, we were awarded a research grant from NIH of up to $2.5 million. In March 2020, we were awarded a supplemental research funding grant from NIH of up to $374,000. These non-dilutive research grants are intended to strengthen our clinical program of simufilam, our investigational drug to treat Alzheimer’s disease. All of our NIH research grant awards are paid out on a reimbursement basis and require milestone-based technical progress.
2020 Cash Incentive Bonus Plan Obligations
On August 26, 2020, the Board approved the 2020 Cash Incentive Bonus Plan (the Plan). The Plan was established to promote the long-term success of the Company by creating an “at-risk” cash bonus program that rewards Plan participants with additional cash compensation in lockstep with significant increases in the Company’s market capitalization. The Plan is considered “at-risk” because Plan participants will not receive a cash bonus unless the Company’s market capitalization increases significantly and certain other conditions specified in the Plan are met. Specifically, Plan participants will not be paid any cash bonuses unless (1) the Company completes a merger or acquisition transaction that constitutes a sale of ownership of the Company or its assets (a Merger Transaction) or (2) the Compensation Committee determines the Company has sufficient cash on hand, as defined in the Plan. Plan participants will be paid all earned cash bonuses in the event of a Merger Transaction.
The Company’s market capitalization, including all outstanding stock options, was $89.4 million at the inception of the Plan on August 26, 2020. If the Company were to exceed a $5 billion market capitalization for no less than 20 consecutive trading days, and conditions noted above for payment are met, all Plan milestones would be deemed achieved, in which case total cash bonus awards would range from a minimum of $139.1 million up to a hypothetical maximum of $322.3 million.
The Company’s potential financial obligation to plan participants at June 30, 2021 totaled $7.3 million, based upon the achievement of one Plan milestone in the Company’s market capitalization in 2020. No actual cash bonus payments have been made to any Plan participant, as the Company has not yet satisfied all the conditions necessary for amounts to be paid under the Plan. During the six months ended June 30, 2021, the Company’s market capitalization increased substantially. These increases triggered the achievement of 10 additional Plan milestones.
Collectively, the achievement of such milestones could trigger potential Company obligations to Plan participants ranging from a minimum of $81.0 million up to a hypothetical maximum of $195.0 million, with exact amounts to be determined by the Compensation Committee and contingent upon future satisfaction of a Performance Condition.
Subsequent to June 30, 2021, the Company achieved one additional Valuation Milestone triggering potential Company obligations to all Plan participants from a minimum of $12.7 million up to a hypothetical maximum of $30.0 million, to be determined by the Compensation Committee and contingent upon future satisfaction of a Performance Condition.
No actual cash payments have been made to participants under the Plan as of June 30, 2021, or through the filing date of this Form 10-Q.
Use of Cash
Net cash used in operating activities was $7.4 million for the six months ended June 30, 2021, resulting primarily from the net loss reported of $8.7 million and an increase in prepaid and other assets of $2.2 million, partially offset by an increase in accrued development expense of $1.7 million and accounts payable of $1.0 million, as well as stock-based compensation expense of $0.7 million.
Net cash used in operating activities was $2.0 million for the six months ended June 30, 2020, resulting primarily from the net loss reported of $2.3 million and a gain on sale of property and equipment of $0.3 million, partially offset by stock-based compensation expense of $0.5 million.
Net cash used in investing activities during the six months ended June 30, 2021 was $73,000 for purchase of property and equipment.
Net cash provided by investing activities during the six months ended June 30, 2020 was $360,000 for proceeds received from the sale of property and equipment.
Net cash provided by financing activities during the six months ended June 30, 2021 was $192.3 million, consisting of $189.8 million proceeds from our registered direct offering of common stock in February 2021, $1.7 million from exercise of stock options and $0.7 million proceeds from exercise of common stock warrants.
Net cash provided by financing activities during the six months ended June 30, 2020 was $3.8 million, resulting from proceeds from exercise of common stock warrants.
Leases
We lease approximately 6,000 square feet of office space pursuant to a non-cancelable operating lease in Austin, TX that expires in April 2024. We also lease an additional 3,600 square feet of office space in Austin, Texas that expires on April 30, 2022.
On August 4, 2021, we completed the purchase of a two-building office complex in Austin, Texas, which will serve as our new corporate headquarters. This property is intended to accommodate our anticipated significant growth and expansion of our operations in the coming years. Company management expects to be hands-off with regards to property management. Maintenance, physical facilities, leasing, property management and other key responsibilities around property ownership will all be assumed by professional real-estate managers under long-term contract with the Company. The property purchase price was $21.9 million, exclusive of closing costs, funded with cash on hand. The office complex measures approximately 90,000 rentable square feet. The property is currently 59% leased, before the effect of the Company occupying approximately 25% of the property in the near future. The seller is an independent third party not affiliated with the Company.
Other Commitments
We had non-cancellable commitments for the manufacture of simufilam totaling approximately $1.9 million at June 30, 2021.
We have an accumulated deficit of $183.6 million as of June 30, 2021. We expect our cash requirements to be significant in the future. The amount and timing of our future cash requirements will depend on regulatory and market acceptance of our drug candidates, the resources we devote to researching and developing, formulating, manufacturing,
commercializing and supporting our products and other corporate needs. We believe that our current resources will be sufficient to fund our operations for at least the next 12 months. We may seek additional future funding through public or private financing in the future, if such funding is available and on terms acceptable to us. However, there are no assurances that additional financing will be available on favorable terms, or at all.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Per Item 305(e) of Regulation S-K, the information called for by this Item 3 is not required.
Item 4. Controls and Procedures
Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer (as Principal Executive Officer) and our Chief Financial Officer (as Principal Financial Officer) have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosures.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2021, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in internal control over financial reporting. There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) identified during the three months ended June 30, 2021 that has material affected, or is reasonable likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes to our risk factors from those disclosed under “Risk Factors” in Part I, Item 1A of our 2020 Annual Report on Form 10-K. The risks and uncertainties described in our 2020 Annual Report on Form 10-K are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also materially adversely affect our business, financial condition or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
The following exhibits have been filed with this report:
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| Herewith |
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| 10-Q |
| 7/29/2005 |
| 3.1 |
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| Certificate of Amendment of Restated Certificate of Incorporation. |
| 8-K |
| 5/8/2017 |
| 3.1 |
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| Certificate of Amendment of Restated Certificate of Incorporation. |
| 10-K |
| 3/29/2019 |
| 3.3 |
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101.INS |
| XBRL Instance Document. |
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101.SCH |
| XBRL Taxonomy Extension Schema Document. |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.DEF |
| XBRL Taxonomy Extension Definition Linkbase Document. |
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101.LAB |
| XBRL Taxonomy Extension Labels Linkbase Document. |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase Document. |
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104. |
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*Confidential portions of this document have been redacted as permitted by applicable regulations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Cassava Sciences, Inc. |
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| /s/ REMI BARBIER |
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| Remi Barbier, | |
| Chairman of the Board of Directors, | |
| President and Chief Executive Officer | |
Date: August 4, 2021
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| /s/ ERIC J. SCHOEN |
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| Eric J. Schoen, | |
| Chief Financial Officer | |
Date: August 4, 2021
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