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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________

Form 10-Q

_____________________

(Mark One)

þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2023

or

¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from ___________ to ___________

Commission File Number: 000-29959

_______________

Cassava Sciences, Inc.

(Exact name of registrant as specified in its charter)

Delaware

91-1911336

(State or other jurisdiction of

(I.R.S.  Employer

incorporation or organization)

Identification Number)

6801 N. Capital of Texas Highway, Building 1; Suite 300, Austin, TX 78731

(512) 501-2444

(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:

0

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.001 par value

 

SAVA

 

Nasdaq Capital Market

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

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

Large Accelerated Filer þ

Accelerated Filer ¨

Non-accelerated Filer ¨

Smaller Reporting Company ¨

Emerging Growth Company ¨

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.001 par value

41,749,435

Shares Outstanding as of April 27, 2023

 

1


CASSAVA SCIENCES, INC.

TABLE OF CONTENTS

Page No.

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets – March 31, 2023 and December 31, 2022

3

Condensed Consolidated Statements of Operations – ThreeMonths Ended March 31, 2023 and 2022

4

Condensed Consolidated Statements of Changes in Stockholders’ Equity - Three Months Ended March 31, 2023 and 2022

5

Condensed Consolidated Statements of Cash Flows – Three Months Ended March 31, 2023 and 2022

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

32

Item 1A

Risk Factors

33

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

33

Item 3.

Defaults Upon Senior Securities

33

Item 4.

Mine Safety Disclosures

33

Item 5.

Other Information

33

Item 6.

Exhibits

34

Signatures

35

 

2


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CASSAVA SCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, In thousands, except share and par value data)

March 31,
2023

December 31,
2022

ASSETS

Current assets:

Cash and cash equivalents

$

187,467

$

201,015

Prepaid expenses and other current assets

7,532

10,211

Total current assets

194,999

211,226

Operating lease right-of-use assets

122

Property and equipment, net

22,609

22,864

Intangible assets, net

503

622

Total assets

$

218,111

$

234,834

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable and accrued expenses

$

8,242

$

4,017

Accrued development expense

5,276

2,280

Accrued compensation and benefits

212

170

Operating lease liabilities, current

104

Other current liabilities

179

492

Total current liabilities

13,909

7,063

Operating lease liabilities, non-current

35

Other non-current liabilities

197

197

Total liabilities

14,106

7,295

Commitments and contingencies (Notes 10, 11 and 12)

 

 

Stockholders' equity:

Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding

Common stock, $0.001 par value; 120,000,000 shares authorized; 41,749,435 and 41,735,557 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively

42

42

Additional paid-in capital

511,786

511,049

Accumulated deficit

(307,823)

(283,552)

Total stockholders' equity

204,005

227,539

Total liabilities and stockholders' equity

$

218,111

$

234,834

See accompanying notes to condensed consolidated financial statements.


3


 

Enstivity

CASSAVA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in thousands, except per share data)

Three months ended

March 31,

2023

2022

Operating expenses:

Research and development, net of grant reimbursement

$

22,120

$

14,906

General and administrative

4,392

2,915

Total operating expenses

26,512

17,821

Operating loss

(26,512)

(17,821)

Interest income

2,051

31

Other income, net

190

263

Net loss

$

(24,271)

$

(17,527)

Net loss per share, basic and diluted

$

(0.58)

$

(0.44)

Shares used in computing net loss per share, basic and diluted

41,739

39,962

See accompanying notes to condensed consolidated financial statements.


4


 

CASSAVA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited, in thousands, except share data)

Total

Common stock

Additional

Accumulated

stockholders'

Shares

Par value

paid-in capital

deficit

equity

Balance at December 31, 2021

40,016,792

$

40

$

461,181

$

(207,306)

$

253,915

Stock-based compensation for:

Stock options for employees

471

471

Stock options for non-employees

24

24

Issuance of common stock pursuant to exercise of stock options

14,488

211

211

Net loss

(17,527)

(17,527)

Balance at March 31, 2022

40,031,280

$

40

$

461,887

$

(224,833)

$

237,094

Balance at December 31, 2022

41,735,557

$

42

$

511,049

$

(283,552)

$

227,539

Stock-based compensation for:

Stock options for employees

650

650

Stock options for non-employees

23

23

Issuance of common stock pursuant to exercise of stock options

13,878

64

64

Net loss

(24,271)

(24,271)

Balance at March 31, 2023

41,749,435

$

42

$

511,786

$

(307,823)

$

204,005

 

See accompanying notes to condensed consolidated financial statements.

5


 

CASSAVA SCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Three months ended March 31,

2023

2022

Cash flows from operating activities:

Net loss

$

(24,271)

$

(17,527)

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

Stock-based compensation

673

495

Depreciation

272

178

Amortization of intangible assets

119

135

Changes in operating assets and liabilities:

Prepaid and other current assets

2,679

(1,063)

Operating lease right-of-use assets and liabilities

(17)

(1)

Accounts payable and accrued expenses

4,565

(3,794)

Accrued development expense

2,996

122

Accrued compensation and benefits

42

(1,705)

Other liabilities

(313)

(370)

Net cash used in operating activities

(13,255)

(23,530)

Cash flows from investing activities:

Purchase of property and equipment

(357)

(425)

Net cash used in investing activities

(357)

(425)

Cash flows from financing activities:

Proceeds from issuance of common stock upon exercise of stock options

64

211

Net cash provided by financing activities

64

211

Net decrease in cash and cash equivalents

(13,548)

(23,744)

Cash and cash equivalents at beginning of period

201,015

233,437

Cash and cash equivalents at end of period

$

187,467

$

209,693

See accompanying notes to condensed consolidated financial statements.


6


Cassava Sciences, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. General and Liquidity

Cassava Sciences, Inc. and its wholly-owned subsidiary (collectively referred to as the “Company”) discover and develop 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 consolidated 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. All intercompany transactions and balances have been eliminated in consolidation. Accordingly, the condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete consolidated 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 months ended March 31, 2023 are not necessarily indicative of the results that may be expected for any other interim period or for the year 2023. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.

Liquidity

The Company has incurred significant net losses and negative cash flows since inception, and as a result has an accumulated deficit of $307.8 million at March 31, 2023. The Company expects its cash requirements to be significant in the future. The amount and timing of the Company’s future cash requirements will depend on regulatory and market acceptance of its product candidates and the resources it devotes to researching and developing, formulating, manufacturing, commercializing and supporting its products. The Company may seek additional funding through public or private financing in the future, if such funding is available and on terms acceptable to the Company. There are no assurances that additional financing will be available on favorable terms, or at all. However, management believes that the current working capital position will be sufficient to meet the Company’s working capital needs for at least the next 12 months.

Note 2.  Significant Accounting Policies

Use of Estimates

The Company makes estimates and assumptions in preparing its condensed consolidated 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 consolidated 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.

Cash and Cash Equivalents and Concentration of Credit Risk

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 deposit, and U.S. Treasury securities. The Company maintains its cash and cash equivalents at one financial institution.

7


Fair Value Measurements

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 March 31, 2023 and December 31, 2022.



Business Segments

The Company reports segment information based on how it internally evaluates the operating performance of its business units, or segments. The Company’s operations are confined to one business segment: the development of novel drugs and diagnostics.

Proceeds from Grants



During the three months ended March 31, 2023, there were no reimbursements received pursuant to National Institutes of Health (“NIH”) research grants. During the three months ended March 31, 2022, the Company received reimbursements totaling $0.1 million pursuant to NIH research grants. The Company records the proceeds from these grants as reductions to its research and development expenses.

 

Stock-based Compensation 



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. This model requires the input of subjective assumptions including expected stock price volatility, expected life and estimated forfeitures of each award. These assumptions consist of estimates of future market conditions, which are inherently uncertain, and therefore, are subject to management's judgment. 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 four years.



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.



8


Net Loss per Share



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.  There is no difference between the Company’s net loss and comprehensive loss. The numerators and denominators in the calculation of basic and diluted net loss per share were as follows (in thousands, except net loss per share data):

Three months ended

March 31,

2023

2022

Numerator:

Net loss

$

(24,271)

$

(17,527)

Denominator:

Shares used in computing net loss per share, basic and diluted

41,739 

39,962 

Net loss per share, basic and diluted

$

(0.58)

$

(0.44)

Dilutive common stock options excluded from net loss per share, diluted

2,034 

2,086 

The Company excluded common stock options outstanding from the calculation of net loss per share, diluted, because the effect of including outstanding options would have been anti-dilutive. The Company also excluded 57,143 restricted stock awards from the calculation of net loss per share, diluted, until their expiration in June 2022 because the effect of including restricted stock awards would have been anti-dilutive.

Fair Value of Financial Instruments   

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.

Research Contract Costs and Accruals

The Company has entered into various research and development contracts with research institutions and other third-party vendors. These agreements are generally cancelable. Related payments are recorded as research and development expenses as incurred. The Company records prepaids and accruals for estimated ongoing research costs. When evaluating the adequacy of prepaid expenses and 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 prepaid and accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical prepaid and accrual estimates have not been materially different from actual costs.

Incentive Bonus Plan

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 (as defined below) is considered probable of being met. See Note 10 for further discussion of the Plan.

9


Leases

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 consolidated 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.

Property and equipment

Property and equipment is recorded at cost, net of accumulated depreciation. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets. Owned buildings and related improvements have estimated useful lives of 39 years and approximately 10 years, respectively. Tenant improvements related to leased space are amortized using the straight-line method over the useful lives of the improvements or the remaining term of the corresponding leases, whichever is shorter. The remaining term of the corresponding leases is approximately 1.1 years.

Property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. If property and equipment are considered to be impaired, an impairment loss is recognized.

Intangible assets

Acquired intangible assets are recorded at fair value at the date of acquisition and primarily consist of lease-in-place agreements and leasing commissions. Intangible assets are amortized over the estimated life of the lease-in-place agreements, which is approximately 1.0 years at March 31, 2023.

Intangible assets are reviewed for impairment on an annual basis, and when there is reason to believe that their values have been diminished or impaired. If intangible assets are considered to be impaired, an impairment loss is recognized.

Income Taxes 

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 consolidated 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.

 

10


Note 3. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets at March 31, 2023 and December 31, 2022 consisted of the following (in thousands):

March 31,
2023

December 31,
2022

Prepaid insurance

$

439 

$

874 

Contract research organization and other deposits

6,816 

9,177 

Other

277 

160 

Total prepaid expenses and other current assets

$

7,532 

$

10,211 

Contract research organization and other deposits represent cash payments made to vendors in excess of expenses incurred.

Note 4. Real Property

The Company owns a two-building office complex in Austin, Texas, a portion of which serves as its corporate headquarters. This property is intended to accommodate the Company’s anticipated growth and expansion of its operations in the coming years. Maintenance, physical facilities, leasing, property management and other key responsibilities related to property ownership are being outsourced to professional real-estate managers. The office complex measures approximately 90,000 rentable square feet. At March 31, 2023, the property was over 60% leased. The Company also occupies approximately 25% of the property.

The Company records the net income from building operations and leases as other income, net, as leasing is not core to the Company’s operations. Building depreciation and amortization for space not occupied by the Company is included in general and administrative expense. Building depreciation and amortization for space occupied by the Company is allocated between general and administrative expense and research and development expense. Components of other income, net, for the periods presented were as follows (in thousands):

Three months ended

March 31,

2023

2022

Lease revenue

$

557 

$

573 

Property operating expenses

(367)

(310)

Other income, net

$

190 

$

263 

 

Note 5. Property and equipment

The components of property and equipment, net, as of March 31, 2023 and December 31, 2022 were as follows (in thousands):

March 31,
2023

December 31,
2022

Land

$

3,734 

$

3,734 

Buildings

15,980 

15,980 

Site improvements

470 

470 

Tenant improvements

3,016 

3,016 

Furniture and equipment

868 

851 

Construction in progress

13 

13 

Gross property and equipment

$

24,081 

$

24,064 

Accumulated depreciation

(1,472)

(1,200)

Property and equipment, net

$

22,609 

$

22,864 

Depreciation expense for property and equipment was $272,000 and $178,000 for the three months ended March 31, 2023 and 2022, respectively.

11


Note 6. Intangible assets

The components of intangible assets, net, as of March 31, 2023 and December 31, 2022 were as follows (in thousands):

March 31,
2023

December 31,
2022

Lease-in-place agreements

$

1,053 

$

1,053