See accompanying notes to condensed financial statements.















See accompanying notes to condensed financial statements.















See accompanying notes to condensed financial statements.

See accompanying notes to condensed financial statements.

PAIN THERAPEUTICS, INC.Cassava Sciences, Inc.



Notes to Condensed Financial Statements

(Unaudited)



Note 1.  General and Liquidity



Cassava Sciences, Inc. (the “Company”), formerly known as Pain Therapeutics, Inc. (the “Company”, “Pain Therapeutics” or “we”) develops proprietary drugs that offer significant improvements to patients and healthcare professionals. WeThe Company generally focus ourfocuses its drug development efforts on disorders of the nervous system.

In the course of our development activities, we have sustained cumulative operating losses. There are no assurances that additional financing will be available on favorable terms, or at all.



We have prepared theThe accompanying unaudited condensed financial statements of Pain TherapeuticsCassava Sciences have been prepared in accordance with generally accepted accounting principles (“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 financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In ourthe 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, 2018March  31, 2019 are not necessarily indicative of the results that may be expected for any other interim period or for the year 20182019.  For further information, refer to the consolidated financial statements and footnotes thereto included in ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.  



Liquidity



The Company has incurred significant net losses and negative cash flows since inception, and as a result has an accumulated deficit of $162$165.3 million at June 30, 2018. We expect ourMarch 31, 2019.  The Company expects its cash requirements to be significant in the future. As of June 30, 2018, the Company had $9.6 million incash and cash equivalents, which is available to fund future operations. The amount and timing of ourthe Company’s future cash requirements will depend on regulatory and market acceptance of our drugits product candidates and the resources we devoteit devotes to researching and developing, formulating, manufacturing, commercializing and supporting ourits products. WeThe Company may seek additional future funding through public or private financing within this timeframe,in the future, if such funding is available and on terms acceptable to us.the Company. There are no assurances that additional financing will be available on favorable terms, or at all.





Note 2.  Significant Accounting Policies



Use of Estimates



We makeThe Company makes estimates and assumptions in preparing ourits financial statements in conformity with U.S. 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 financial statements and the reported amount of revenue earned and expenses incurred during the reporting period. We evaluate ourThe Company evaluates its estimates on an ongoing basis, including those estimates related to agreements, research collaborations and investments. Actual results could differ from these estimates and assumptions.



Cash and Cash Equivalents Marketable Securities and Concentration of Credit Risk



We investThe Company invests in cash equivalents and marketable securities. We considercash equivalents. The Company considers highly-liquid financial instruments with original maturities of three months or less to be cash equivalents. Our marketable securitiesHighly liquid investments that are considered cash equivalents include interest-bearing financial instruments, generally consistingmoney market funds, certificates of corporate or governmentdeposits, treasury bills and commercial paper.  The carrying value of cash equivalents approximates fair value due to the short-term maturity of these securities.

Our investment policy allows for investments in marketable securities with active secondary or resale markets, establishes diversification and credit quality requirements and limits investments by maturity and issuer. We maintain our The Company maintains its investments at one financial institution.

 

A change in prevailing interest rates may cause the fair value of the investment to fluctuate. We do not recognize an impairment charge related to this type of fluctuation because the fluctuation is temporary and eliminated by the

time an investment matures. We would recognize an impairment charge if and when we determine that a decline in the fair value below the amortized cost of an investment is other-than-temporary. We consider various factors in determining whether to recognize an impairment charge, including any adverse changes in the investees’ financial condition, how long the fair value has been below the amortized cost and whether it is more likely than not that we would elect to or be required to sell the marketable security before its anticipated recovery.

We may elect to sell marketable securities before they mature. We hold these investments as “available for sale” and include these investments in our balance sheets as current assets, even though the contractual maturity of a particular investment may be beyond one year.

Fair Value Measurements



We report ourThe Company reports its cash equivalents and marketable securitiescash equivalents at fair value as Level 1, Level 2 or Level 3 using the following inputs:





We include unrealized gains or lossesIf 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 all cash and cash equivalents was based on our investments as accumulated other comprehensive loss in the stockholders’ equity section of our balance sheets. We include changes in net unrealized gains or losses in our statements of comprehensive income. We would recognize significant realized gainsLevel 1 inputs at March 31, 2019 and losses on a specific identification basis as other income in our statements of operations.December 31, 2018.



Awards of and Proceeds from Grants



During the first sixthree months of 2018 and 2017, we received $0.8 million and $0.1 million pursuant toended March 31, 2019, the Company was awarded a previously disclosed research grant from the National Institutes of Health (“NIH”) grant totaling up to $1.5 million to support the Company’s on-going development of new technology to detect Alzheimer’s disease with a simple blood test.

During the three months ended March 31, 2019 and National Institute on Drug Abuse

(“NIDA”) that we recorded2018,  the Company received reimbursements totaling $0.8 million and $0.4 million pursuant to previously announced NIH research grants, respectively. The Company records the proceeds from these grants as a reductionreductions to ourits research and development expenses.

Non-cash Stock-based Compensation 



We recognizeThe Company recognizes non-cash expense for the fair value of all stock options and other share-based awards. We useThe 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 options granted to employees and directors, we recognizeit recognizes the resulting fair value as expense on a straight-line basis over the vesting period of each respective stock option, generally four years. For options granted to non-employees, we remeasurethe Company remeasures the fair value expense using Black-Scholes each reporting period.



We haveThe Company has granted share-based awards that vest upon achievement of certain performance criteria (“Performance Awards”). We multiplyThe Company multiplies the number of Performance Awards by the fair market value of ourits common stock on the date of grant to calculate the fair value of each award. We estimateIt estimates an implicit service period for achieving performance criteria for each award. We recognizeThe Company recognizes the resulting fair value as expense over the implicit service period when we concludeit concludes that achieving the performance criteria is probable. WeIt periodically reviewreviews and updateupdates as appropriate ourits 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.



Net Loss per Share



We computeThe Company computes basic net loss per share on the basis of the weighted-average number of common shares outstanding for the reporting period. We compute dilutedDiluted 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.options and warrants.  There is no difference between the Company’s net loss and comprehensive loss.



We include

The Company included the following in the calculation of basic and diluted net loss per share (in thousands, except per share data):



WeThe Company excluded 2,961,848 common stock options and 9,126,601 common stock 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.



Fair Value of Financial Instruments

Financial instruments include cash and cash equivalents, 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 cash and cash equivalents, accounts payable and accrued liabilities are at cost, which approximates fair value due to the short maturity of those instruments.

Income Taxes 



We makeThe Company makes estimates and judgments in determining the need for a provision for income taxes, including the estimation of ourits taxable income or loss for each full fiscal year.



We haveThe 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. We areThe Company is uncertain about the timing and amount of any future earnings. Accordingly, we offsetit offsets these deferred tax assets with a valuation allowance.



WeThe Company may in the future determine that certain deferred tax assets will likely be realized, in which case weit will reduce ourits valuation allowance in the period in which such determination is made. If the valuation allowance is reduced, wethe Company may recognize a benefit from income taxes in our Statementits statement of Operationsoperations in that period.

We classifyThe Company classifies interest recognized pursuant to ourits deferred tax assets as interest expense, when appropriate. 

Note 3.  Cash, Cash Equivalents and Marketable Securities and Assets Measured at Fair ValueRecently Adopted Accounting Pronouncements



Our cash, cash equivalents and marketable securities consistedThe Company has a single non-cancelable operating lease for approximately 6,000 square feet of office space in Austin, Texas that expires on December 31, 2020, which is used for the development of novel drugs. Prior to January 1, 2019, the Company accounted for leases in accordance with the provisions of ASC Topic 840. Under the previous leasing guidance, the Company expensed lease payments over the term of the following (in thousands):

Welease and did not realizegive recognition to any material gainslease related assets or lossesliabilities on our investments in marketable securities during the six months ended June 30, 2018 and December 31, 2017. To date we have not recorded any impairment charges on marketable securities related to other-than-temporary declines in market value.its balance sheet.



OurOn January 1, 2019, the Company adopted ASU No. 2016-02, Leases (ASC 842) which, as permitted by ASC Topic 842, is the date of initial application. The core principle of ASC Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases.  For operating leases, a lessee is required to recognize a right-of-use asset and a lease liability, initially measured at fairthe present value of the lease payments, in the statement of financial position.  The Company recognized a right-of-use asset and operating lease liability upon the adoption of ASU 2016-02 which increased total assets and total liabilities relative to such amounts prior to adoption. The Company utilized a discount rate of 5.5% to determine the present value of the future lease payments which represents the Company’s incremental borrowing rate.

Supplemental cash flow information regarding assets and liabilities recorded on January 1, 2019 as a recurring basis areresult of the change in accounting principle were as follows (in thousands):





DuringThe Company recorded a reduction of the sixnon-current portion of the lease liability and an offsetting reduction in the right-of-use assets of $22,500 during the three months ended June 30, 2018, there wereMarch 31, 2019.  There was no transfers between Level 1, Level 2change to the statement of operations or Level 3.

statement of cash flows during the three months ended March 31, 2019 as a result of the adoption of ASC Topic 842.  See additional information regarding leases in Note 5 – Commitments.



Note 4.3.  Stockholders’ Equity and Stock-Based Compensation Expense



Stockholders’ equity activity inEquity Activity during the Three Months Ended March 31, 2019 and 2018



During the sixthree months ended June 30,March  31, 2019 and 2018,  ourthe Company’s common stock outstanding and stockholders’ equity

(in thousands) changed as follows:





At the Market

At-the-Market Common Stock Issuance



At the Market Issuance Sales Agreement — On February 8, 2018, wethe Company entered into a Capital on Demand™ Sales Agreement or the ATM Agreement,(the “ATM Agreement”) with JonesTrading. In accordance with the terms of the sales agreement, we areATM Agreement, the Company was able to offer and sell up to $16.9 million of shares of ourits common stock, from time to time in one or more public offerings of ourits common stock, with JonesTrading acting as agent, in transactions pursuant to a shelf registration statement that was declared effective by the SECU.S. Securities and Exchange Commission (the “SEC”) on July 31, 2017.  On August 16, 2018, the Company suspended sales of its common stock under its ATM Agreement.



There were no common stock sales under the ATM Agreement during the three months ended March 31, 2019. During the sixthree months ended June 30,March 31, 2018, wethe Company sold a total of 300,000 shares of ourits common stock under the ATM Agreement, in the open market at an average gross selling price of $6.70 per share for net proceeds of $1.9 million. WeThe Company expensed approximately $0.1 million of cost for the offering, excluding JonesTrading commissions. During the six months ended June 30, 2018, we charged $0.01 million of these costs against addition paid-in capital. As of July 24, 2018, we had up to $14.7 million of shares of our common stock available for sale under the ATM Agreement.



Stock optionOption and Performance Award activityActivity in 20182019



During the sixthree months ended June 30, 2018,March  31, 2019, stock options and unvested Performance Awards outstanding under our Equity Incentivethe Company’s 2018 Plan (defined below) changed as follows:





The weighted average exercise price of options outstanding at June 30, 2018March  31, 2019 was $15.44.$14.14. As outstanding options vest over the current remaining vesting period of three2.6 years, we expectthe Company expects to recognize non-cash expense of $3.6$2.5 million. If and when outstanding Performance Awards vest, wethe Company would recognize non-cash expense of $2.5$2.3 million over the implicit service period.



Stock-based Compensation Expense in 20182019



During the three and six months ended June 30,March  31, 2019 and 2018,  and 2017, ourthe Company’s non-cash stock-related compensation expenses were as follows (in thousands):

2018 Equity Incentive Plan

On January 31, 2018, the Company’s Board of Directors approved the Company’s 2018 Omnibus Incentive Plan (the “2018 Plan”). The Company’s Board of Directors or a designated committee of the Board of Directors 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 ten years from the date of grant. The 2018 Plan provides for issuance of up to 1,000,000 shares of common stock, par value $0.001 per share under the 2018 Plan, subject to adjustment as provided in the 2018 Plan.

When stock options or performance awards are exercised net of the exercise price and taxes, the number of shares of stock issued is reduced by the number of shares equal to the amount of taxes owed by the award recipient and that number of shares are cancelled. The Company then uses its cash to pay tax authorities the amount of statutory taxes owed by and on behalf of the award recipient.





Note 5.4.  Income Taxes 



On December 22, 2017, legislation commonly known as the Tax Cuts and Jobs Act, or the Tax Act, was signed into law. The Tax Act, among other changes, reduces the U.S. federal corporate tax rate from 35% to 21%, requires taxpayers to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings.  On December 31, 2017, the Company did not have any foreign subsidiaries and the international aspects of the Tax Act are not applicable.

In connection with the initial analysis of the impact of the Tax Act, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. The remeasurement of the Company's deferred tax balance was primarily offset by application of its valuation allowance.  The Company is still in the process of analyzing the impact to the Company of the Tax Act. Where the Company has been able to make reasonable estimates of the effects for which its analysis is not yet complete, the Company has recorded provisional amounts. Where the Company has not yet been able to make reasonable estimates of the impact of certain elements, the Company has not recorded any amounts related to those elements and has continued accounting for them in accordance with ASC 740 on the basis of the tax laws in effect immediately prior to the enactment of the Tax Act.  For the six months ended June 30, 2018 no adjustments to the remeasurement of the Company’s deferred tax accounts were recognized.

We did not provide for income taxes during the sixthree months ended June 30, 2018,March 31, 2019, because we haveit has projected a net loss for the full year 2019. There was also no provision for income taxes for the three months ended March 31, 2018.



Note 6.5.  Commitments



We conduct ourThe 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. We haveThe Company has contractual arrangements with these organizations that are cancelable. OurThe Company’s obligations under these contracts are largely based on services performed.



We have

The Company has a non-cancelable operating lease for approximately 6,000 square feet of office space in Austin, Texas that expires inon  December 31, 2020. Minimum lease payments areas of March 31, 2019 were as follows (in thousands):





Building rent for the three months ended March 31, 2019 and 2018 totaled $24,000 and $23,000, respectively.  These amounts were equal to the Company’s operating cash outflow from operating leases.



6.  Collaboration Agreements

The Company had formerly entered into a Development and License Agreement (the “License Agreement”) with Durect Corporation around certain controlled-release technology. On March 20, 2019, the Company gave notice of termination to Durect Corporation for such License Agreement.  This and other actions effectively ended the Company’s development of any product candidates related to such technology. There were no payments made to Durect Corporation during the three months ended March 31, 2019 and 2018.



Note 7.  Recently Issued Accounting Pronouncements



We reviewed recently issued accounting pronouncements and have adopted or plan to adopt those that are applicable to us. We do not expect the adoption of these pronouncements to have a material impact on our financial position, results of operations or cash flows. 

In August 2016,2018, the FASB issued ASU No. 2016-15, 2018-13,Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value MeasurementStatement (“ASU 2018-13”), which is designed to improve the effectiveness of Cash Flows (Topic 230)disclosures by removing, modifying and adding disclosures related to fair value measurements. ASU : Classification of Certain Cash Receipts and Cash Payments.  This ASU provides guidance on statement of cash flows presentation for eight specific cash flow issues where diversity in practice exists.  The Company adopted ASU 2016-15 effective January 1, 2018, and this guidance did not have any impact on the Company’s financial statements. 

In February 2016, the FASB issued ASU No. 2016-022018-13, Leases (Topic 842).  The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases.  For operating leases, a lessee is required to recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position.  This ASU is effective for fiscal years beginning after December 15, 2018,2019, including interim periods within those fiscal years. The Company is currently evaluating the effect that the adoptionimpact of this ASU will have2018-13 on its consolidated financial statements.  The Company currently expects that its operating lease commitment will be subject to the new standard and recognized as right-of-use asset and operating lease liability upon adoption of ASU 2016-02, which will increase the total assets and total liabilities that it reports relative to such amounts prior to adoption.





Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations



This discussion and analysis should be read in conjunction with ourCassava Sciences, Inc.’s (the “Company,”, “we,” “us,” or “our”) 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:



Such forward-looking statements and our business involve risks and uncertainties, including, but not limited to those risks and uncertainties relating to:the following:  



In addition, such statements are subjectPlease also refer to the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, as such risk factors may be amended, updated or modified periodically in our reports filed with the SEC for further information on these and other risks and uncertaintiesaffecting 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 the "Risk Factors" section and elsewhere in this document. 

prospectus, except as required by law.



Overview



Pain Therapeutics develops proprietary drugs that offer significant improvements to patients and healthcare professionals. We generally focus ourCassava Sciences, Inc. is a clinical-stage drug development efforts on disorders of the nervous system.

company. Our expertise consists of developingis to develop new drugproduct candidates and guiding these drugguide such candidates through various regulatory and development pathways in preparation for their potential commercialization. Since our inception, we have generally focused our drug development efforts on disorders of the central nervous system. We are currently conducting a Phase II clinical program for patients with Alzheimer’s disease.  By necessity, the conduct of drug development is complex, lengthy, expensive and risky. The FDAU.S. Food and Drug Administration (the “FDA”) has not yet established the safety or efficacy of our drugproduct candidates.

  

Our overall strategy is to leverage our unique scientific/clinical platform to develop a first-in-class program for treating neurodegeneration.  Our goal is to address Alzheimer’s disease and other neurodegenerative diseases, particularly those with a strong neuroinflammation component, with PTI-125, our drug product candidate to treat Alzheimer’s disease, and PTI-125Dx, our diagnostic product candidate to detect Alzheimer’s disease. 

We seek to develop and gain regulatory approval for PTI-125 for the treatment of Alzheimer’s disease and PTI-125Dx for the diagnosis of Alzheimer’s disease.  The following is a summary of our pipeline of drugclinical-stage biopharmaceutical assets:

  

REMOXY ERPTI-125 (extended-release oxycodone capsules CII) – REMOXY, our lead drug candidate,PTI-125 is a proprietary abuse-deterrent, twice-daily, oral oxycodone to treat severe chronic pain. The REMOXY NDA was submitted to the FDA, with priority (six-month) review, in the first quarter of 2018 and was assigned a Prescription Drug User Fee Act (“PDUFA”) date of August 7, 2018.  The REMOXY NDA is requesting label claims against the injection, inhalation and nasal routes of abuse. The FDA held an Advisory Committee meeting (“Meeting”) on June 26, 2018, to discuss the REMOXY NDA. At the conclusion of the Meeting, members of the Advisory Committee voted 14-to-3 against regulatory approval of REMOXY ER. In addition, during the Meeting, the FDA expressed an opinion that current data for REMOXY ER may not support label claims against the injection and inhalation routes of abuse. At its sole discretion, the FDA may or may not follow the Advisory Committee’s recommendation. We own exclusive rights to develop and commercialize REMOXY worldwide, with a sales royalty obligation to onename of our technology partners.

FENROCK™ (transdermal fentanyl patch CII) – FENROCK    is a proprietary, abuse-deterrent fentanyl skin patch to treat severe pain.product candidate for the treatment of Alzheimer’s disease.  This is an early-stage program that is substantially funded by a competitive research grant award from the NIDA, the primary agency of the U.S. government for research on drug abuse. We own exclusive, worldwide rights to FENROCK, with no royalty obligations to any third party.

PTI-125 – PTI-125 is a proprietary small molecule drug for the treatment of AD.  In 2018, we completedrepresents an entirely new target to treat Alzheimer’s disease.  PTI-125 benefits from a first-in-human Phase I study with PTI-125.  This is an early-stage program that is substantially funded by competitivestrong scientific rationale, peer-reviewed publications in prestigious academic journals and multiple peer-reviewed research grant awards from the NIH,National Institutes of Health (“NIH”), the primary agency of the U.S. government for biomedical research. 

In 2018, we initiated a Phase II clinical program for patients with Alzheimer’s disease using PTI-125.  On April 15, 2019, we announced completion of patient enrollment for a Phase IIa study for PTI-125. We expect to announce top-line results of our Phase IIa study in the second half of 2019. Our Phase II clinical program with PTI-125 is substantially funded by research grant awards from NIH.  PTI-125 was discovered and designed in-house and was characterized by our academic collaborators during research activities that were conducted from approximately 2008 to date.  We own exclusive, worldwide rights to PTI-125, with nowithout royalty obligations to any third party.

PTI-125Dx – We are developing PTI-125Dx as a blood-based biomarker/diagnostic to detect Alzheimer’s disease. The goal of PTI-125Dx is to make the detection of Alzheimer’s disease as simple as getting a blood test. This clinical-stage program is substantially funded by research grant awards from NIH. PTI-125Dx was discovered and designed in-house and was characterized by our academic collaborators during research activities that were conducted from approximately 2008 to date.  We own exclusive, worldwide rights to PTI-125Dx, without royalty obligations to any third party.

  

PTI-125DXOur scientific approach is different.

For over 100 years, scientists have ascribed various neurodegenerative diseases to pathological proteins that misfold.  Misfolded proteins are also altered or they aggregate, such as amyloid and tau in the case of Alzheimer’s disease. Destruction of neuronal synapses, accelerated nerve cell death, and dysfunction of the brain support cells, are all widely believed to be a direct consequence of misfolded proteins. 

Historically, the drug industry has attempted to treat Alzheimer’s disease by developing drugs that block the synthesis of, or remove or dis-aggregate, beta amyloid and, more recently, tau. Essentially, the prevailing doctrine said that amyloid must be cleared out of the brain.  This scientific approach – known as the amyloid hypothesis - has been repeatedly tested by our competitors in late stage clinical trials using a variety of antibody backbones, epitopes, target conformations, biomarkers and in various stages of disease.  Such studies have all failed to yield therapeutic benefit for patients with Alzheimer’s disease.  More recently, experimental efforts have been proposed to ramp up the brain’s immune system in people with Alzheimer’s disease to remove amyloid or tau, an approach known as immunotherapy. Current attempts to use immunotherapy to treat Alzheimer’s disease may yet work, but for over 20 years this approach has also consistently failed due to lack of efficacy and/or for safety reasons. For example, older adults who receive active immunotherapy treatment often show reduced responsiveness of the immune system, and patients who do improve sometimes develop a life-threatening brain inflammation called aseptic meningitis. More generally, even when active or passive immunization against amyloid beta has reduced the brain’s amyloid load, such effects resulted in no therapeutic benefit to patients with Alzheimer’s disease. 

PTI-125Since drug innovation is a proprietary, blood-based diagnostic/biomarkertrial-and-error process, clinical failures represent important learning opportunities.  In the case of Alzheimer’s disease, we believe the biopharmaceutical industry’s track record of persistent failure reflects a need to detect AD.  This is an early-stage program that is substantially funded by competitive research grant awards fromconsider more recent and innovative approaches regarding the NIH.neurobiology of Alzheimer’s disease. We own exclusive, worldwide rights to PTI-125DX, with no royalty obligations to any third party.believe such scientific approaches may broaden the range of possible treatment approaches.

  

REMOXY ER -  Over the last ten years, we have developed a drug candidatenew and promising scientific approach for severe chronic painthe treatment and diagnosis of neurodegeneration, particularly Alzheimer’s disease. 

  

Our lead drug candidate is called REMOXY ER (extended-release).  REMOXY is a proprietary, abuse-deterrent, twice-daily, capsule formulation of oral oxycodone, a strong opioid drug.  REMOXY is intended to meet the needs of healthcare professionals who appropriately prescribe extended-release oxycodone and whoImportantly, we do not seek to minimizeclear amyloid out of the risksbrain.  Our approach is to stabilize a critical protein in the brain.

“Proteopathy” refers to a disease in which a protein becomes structurally abnormal, assembles and aggregates, and therefore loses its normal function and disrupts or injures the function of drug diversion, abuse or accidental patient misuse.  In particular, REMOXY’s thick, sticky, high viscosity gel formulation may deter unapproved routessurrounding cells, tissues and organs.  Through years of drug administration, such as injection, snorting or smoking.basic research, we have identified a structurally altered protein in the brain. We believe our experimental evidence demonstrates that this proteopathy plays a critical role in the development of neurodegenerative diseases, including the neurodegeneration observed in Alzheimer’s disease.  Using scientific insight and advanced tools in biochemistry, bioinformatics and imaging, we have elucidated this protein dysfunction. We have engineered a family of high-affinity small molecules to target the structurally altered protein and restore the protein to its normal shape and function. This family of small molecules, including PTI-125, was designed in-house and characterized by our academic collaborators.

  

The proposed indication for REMOXYtarget of PTI-125 is for “an altered form of a scaffolding protein called filamin A (“FLNA”). Altered FLNA causes a cascade of toxic effects in the managementbrain.  Altered FLNA is a proteopathy, which means that this protein is no longer capable of pain severe enoughexecuting a stable, beneficial and protective role and instead becomes harmful and destructive to require daily, around-the-clock, long-term opioid treatmentthe brain.  By reversing the alteration of FLNA, its pathology ceases to adversely affect surrounding cells in the brain. In animal models of disease, restoring normal FLNA resulted in a multitude of therapeutic effects, including normalizing neurotransmission, decreasing neuroinflammation and for which alternative treatment options are inadequate.”restoring memory and cognition. By restoring function to multiple receptors and exerting powerful anti-inflammatory effects, we believe our approach has potential to slow the progression of neurodegeneration in humans.  Thus, we have designed product candidates, such as PTI-125, with the goal of slowing or, potentially, even reversing the deterioration of brain cells. We believe the ability to simultaneously improve many vital functions in the brain represents a new, different and crucial approach to address neurodegeneration.

  

We resubmittedImportantly, since PTI-125 has a unique mechanism of action, we believe its potential therapeutic effects may be additive or synergistic with that of other therapeutic candidates aimed at the REMOXY NDAtreatment of neurodegeneration.

Our mission is to detect and treat Alzheimer’s disease.

Our lead therapeutic product candidate, called PTI-125, is initially aimed at Alzheimer’s disease.  PTI-125 is a small molecule drug with a novel mechanism of action.  This drug candidate has demonstrated both cognitive improvement and slowing of disease progression in animal models of disease.  PTI-125 is in Phase II clinical stage of development, with substantial support from the first quarterNational Institute on Aging (“NIA”), a division of 2018 with priority (six-month) review. The REMOXY NDA was subsequently accepted by the FDA and was assigned a PDUFA date of August 7, 2018.NIH.

  

The REMOXY NDAtarget of PTI-125 is requesting label claimsan altered form of filamin A (“FLNA”).  FLNA is a scaffold protein that is widely found throughout the body.  The function of a scaffold protein is to bring multiple other proteins together for abuse deterrencethem to interact.  However, an altered, and highly toxic, form of FLNA is found in the Alzheimer’s brain. Altered FLNA contributes to Alzheimer’s disease by disrupting the normal function of neurons, leading to neurodegeneration and brain inflammation. Our product candidate, PTI-125, is aimed at countering the altered and toxic form of FLNA in the brain, thus restoring the normal function of this critical protein.

PTI-125 binds to altered FLNA with very high affinity.  In doing so, PTI-125 restores the normal shape of FLNA and the normal function of three brain receptors: the alpha-7 nicotinic acetylcholine receptor; the N-methyl-D-aspartate (“NMDA”) receptor; and the insulin receptor.  These receptors have pivotal roles in brain cell survival, cognition and memory.  In animal models, treatment with PTI-125 resulted in dramatic improvements in brain health, such as reduced amyloid and tau deposits, improved insulin receptor signaling and improved learning and memory.  In addition, PTI-125 has another beneficial treatment effect of significantly reducing inflammatory cytokines in the brain. In animal models of disease, treatment with PTI-125 abolished IL-6 production and suppressed TNF-alpha and IL-1beta levels by 86% and 80%, respectively, illustrating a powerful anti-neuroinflammatory effect.

Our science is published in peer-reviewed academic journals.  In addition, our research has been supported by NIH under multiple research grant awards. Each grant was awarded following an in-depth, competitive, peer-reviewed evaluation of our approach for scientific and technical merit by a panel of outside experts in the field.  Strong, long-term support from NIH has allowed us to advance our two product candidates for neurodegeneration, PTI-125 and PTI-125Dx, into clinical development.

Our science is based on stabilizing a critical protein in the brain.

Our scientific approach is to treat neurodegeneration by targeting an altered form of a scaffolding protein called filamin A (“FLNA”).  Scaffolding proteins are essential for cell function because they participate in virtually every process within the cell.  If their function is impaired, the consequences can be devastating. Technological advances in medicine and improvements in lifestyle are making our lives longer.  But with age, genetic mutations and other factors conspire against three routeshealthy cells, resulting in altered proteins.  Sometimes a cell can rid itself of abuse: injection, inhalationaltered proteins. However, when disease changes the shape and nasal.function of critical proteins, multiple downstream processes are impaired.  There are many clinical conditions in which proteins become structurally altered and impair the normal function of cells, tissues and organs, leading to disease.   Conversely, restoring altered proteins back to health – which is called proteostasis – is a well-accepted therapeutic strategy in clinical medicine.

Accumulation of altered proteins is common in age-related brain disorders.  The FDA heldmost common is Alzheimer’s disease.  Altered proteins observed in the aging brain include hyperphosphorylated tau and beta amyloid, both hallmarks of Alzheimer’s disease.  Our scientists and outside collaborators have demonstrated that an Advisory Committee meeting (“Meeting”) on June 26, 2018, to discuss the REMOXY NDA. At the conclusionaltered, and highly toxic, form of the Meeting, membersscaffolding protein FLNA exists in the Alzheimer’s brain. Critically, altered FLNA enables the toxicity of the Advisory Committee voted 14-to-3 against regulatory approvalboth beta amyloid and tau proteins.  This toxic cascade impairs brain health, leading to worsening symptoms of REMOXY ER.Alzheimer’s disease over time.  In addition duringto impairing brain cell function, altered FLNA enables persistent inflammation in the Meeting,Alzheimer’s brain. We have shown that altered FLNA also promotes neuroinflammation via toll-like receptor 4 (“TLR4”), an immune receptor that causes release of pro-inflammatory cytokines.  Our therapeutic approach is designed to counteract these brain pathologies by restoring altered FLNA protein back to its normal, non-diseased conformation with PTI-125.   Treatment with PTI-125 has been shown to restore the FDA expressed an opinionnormal function of three brain receptors critical to brain cell survival, cognition and memory, i.e., the alpha-7 nicotinic acetylcholine receptor; the NMDA receptor; and the insulin receptor. Treatment with PTI-125 has also been shown to dramatically reduce inflammatory cytokine levels in brains of mice with Alzheimer’s disease mutations, thus reducing the neuroinflammation that current data for REMOXY ER may not support label claims against the injection and inhalation routes of abuse. At its sole discretion, the FDA may or may not follow the Advisory Committee’s recommendation.also characterizes Alzheimer’s disease.



We own exclusive, worldwide rights to REMOXY.

Opioid drugs, such as oxycodone, are an important treatment option for patients with severe chronic pain. However, misuse, abuse and diversion of these prescription drugs remains a serious, persistent problem.  For over a decade, we have pioneered technology, tools and techniques that enable the development of Abuse-Deterrent Formulations (ADFs). ADFs are intended to make opioid drugs difficult to abuse yet provide steady pain relief when used appropriately by patients. ADFs are intended to help in the fight against prescription drug abuse.

In March 2016, we resubmitted to the FDA an  NDA for REMOXY.   In September 2016, we received a Complete Response Letter (‘CRL”) from the FDA for the REMOXY NDA. The CRL informed us that REMOXY could not be approved in its present form and specified additional actions and data needed for drug approval. The CRL substantially focused on the need to conduct a clinical abuse-deterrent study via the nasal route of administration, and additional in vitro (non-clinical) studies to further characterize the abuse-deterrent properties of REMOXY.  The 2016 CRL made no mention of clinical safety, drug efficacy, manufacturing, stability, bioequivalence or any other issues from a prior CRL.

In February 2017, we met with the FDA regarding REMOXY.  During this meeting, we reached a  written agreement with the FDA on a roadmap to resubmit the NDA for REMOXY.  Final minutes of our FDA meeting confirmed two key requirements needed for the resubmission of the REMOXY NDA:

During 2017, we conducted these mandated studies with REMOXY.  We believe positive results from these studies support label claims against abuse by injection and abuse by snorting.  In November 2017, we concluded a pre-NDA meeting with the FDA.  The purpose of this pre-NDA meeting was to agree on submission requirements for the REMOXY NDA under Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act.   During the pre-NDA meeting, we received comments and clarification from the FDA on the acceptability of the data to be included in the REMOXY NDA resubmission, including a recent intranasal study.  All questions were addressed and summarized in official minutes of the meeting issued by the FDA.  There are no discrepancies or requests for clarifications following receipt of final meeting minutes. As a result, we resubmitted the REMOXY NDA in the first quarter of 2018 with Priority (six-month) review. The REMOXY NDA was subsequently accepted by the FDA and was assigned a PDUFA date of August 7, 2018. Financial Overview



We have yet to generate any revenues from product sales. We have an accumulated deficit of $162$165.3 million at June 30, 2018.March  31, 2019. 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 drug candidates. Salaries and other personnel-related costs include non-cash stock-based compensation associated with 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 preclinical activities, enrollment rates of clinical trials for our drug 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:





Product revenue will depend on our ability to receive regulatory approvals for, and successfully market, our drugproduct candidates. If our development efforts result in regulatory approval and successful commercialization of our drugproduct candidates, we will generate revenue from direct sales of our drugsproducts and/or, if we license our drugsproducts 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 by categorywhich have been reduced for research and development effortsreimbursements received for NIH grants (in thousands):