See accompanying notes to condensed financial statements.















See accompanying notes to condensed financial statements.















See accompanying notes to condensed financial statements.

Cassava Sciences, Inc.



Notes to Condensed Financial Statements

(Unaudited)



Note 1.  General and Liquidity



Cassava Sciences, Inc. (the “Company”) discovers and develops proprietary drugspharmaceutical product candidates that may offer significant improvements to patients and healthcare professionals. The Company generally focuses its drugdiscovery 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 accounting principlesin 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 nine months ended September 30, 20192020 are not necessarily indicative of the results that may be expected for any other interim period or for the year 20192020.  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, 2018.  2019.

Coronavirus Disease 2019 (COVID-19)

The recent, 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 November 9, 2020. 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 $167.1$172.3 million at September 30, 2019.2020. 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 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 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 agreements, research collaborations and investments. 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-liquidhighly 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 funds, certificates of deposits, and treasury bills and commercial paper.  The carrying value of cash equivalents approximates fair value due to the short-term maturity of these securities.bills. The Company maintains its investments at one financial institution.



Fair Value Measurements



The Company reports its cash and cash equivalents at fair value as Level 1, Level 2 or Level 3 using the following 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 allcash and cash equivalents was based on Level 1 and Level 2 inputs at December 31, 2019. A certificate of deposit totaling $13.0 million at December 31, 2019 was included within cash equivalents as a Level 2 input. The fair value of cash and cash equivalents was based on Level 1 inputs at September 30, 2019 and December 31, 2018.2020.

 

Awards of and Proceeds from Grants

 

During the three months ended September 30, 2020 and 2019, the Company was awarded areceived reimbursements totaling $1.0 million and $1.5 million pursuant to National Institutes of Health (“NIH”) grant totaling up to $1.9 million to support the Company’s product development.  During the nine months ended September 30, 2019, the Company was awarded NIH grants totaling up to $3.4 million to support the Company’s product development.

During the three months ended September 30, 2019 and 2018,  the Company received reimbursements totaling $1.5 million and $1.1 million pursuant to previously announced NIH research grants, respectively. During the nine months ended September 30, 20192020 and 2018,2019, the Company received reimbursements totaling $3.8$3.4 million and $1.9$3.8 million pursuant to NIH research grants, respectively. The Company records the proceeds from these grants as reductions to its research and development expenses.

Non-cash 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. The Company adopted ASU No. 2018-07, Compensation—Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, on January 1, 2019. Accordingly, forFor 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 market 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.

 

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 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):



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.

 

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  

 

The Company makes estimates and judgments in determining the need for a provisionaccounts for income taxes includingunder the estimationasset 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 its taxable income or loss for each full fiscal year.

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, itthe Company offsets these deferred tax assets with a valuation allowance.



The Company mayaccounts 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 future determineCompany’s condensed financial statements only if that certain deferredposition 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 assetspositions will likely be realized, in which case it will reduce its valuation allowance in the period in which such determination is made. If the valuation allowance is reduced, the Company may recognizereflected as a benefit fromcomponent of income taxes in its statement of operations in that period.tax expense.

Research Contract Costs and Accruals

The Company classifies interest recognized pursuant to its deferred tax assetshas 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 interest expense, when appropriate.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.   



Recently Adopted Accounting PronouncementsRight-of-use Asset and Liability



The Company has a single non-cancelable operating lease for approximately 6,000 square feet of office space in Austin, Texas that expiresis scheduled to expire on December 31, 2020, whichand is used for the development of novel drugs. PriorOn September 4, 2020, the Company entered into a lease amendment that extends the termination date of the existing lease to April 30, 2024 and sets new rental rates effective as of 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 lease and did not give recognition to any lease related assets or liabilities on its balance sheet.2021. 

 

On January 1, 2019, theThe 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 therecognizes assets and liabilities that arise from leases.  For operating leases, a lesseethe Company 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 statementcondensed statements of financial position. The Company recognizedrecorded a right-of-use asset and operating lease liability uponof $316,000 as a result of the adoption of ASU 2016-02 which increased total assets and total liabilities relative to such amounts prior to adoption.lease modification at September 30, 2020.  The Company utilized a discount rate of 5.5%3.25% for the modified lease to determine the present value of the future lease payments which representsapproximates the Company’s incremental borrowing rate.rate at September 30, 2020.  

The impact of adopting ASC 842 on  assets and liabilities recorded as of January 1, 2019 were as follows (in thousands):



The Company recorded a reduction of the non-current portion of the lease liability and an offsetting reduction in the right-of-use assets of $22,500 and $67,500 during the three and nine months ended September 30, 2019, respectively.  There was no change to2020 and 2019. The Company recorded a reduction of the statementlease liability and an offsetting reduction in the right-of-use assets of operations during the three and nine months ended September  30, 2019 or statement of cash flows$68,000 during the nine months ended September 30, 2019 as a result of the adoption of ASC Topic 842.2020 and 2019. See additional information regarding leases in Note 56 – Commitments.



Note 3.  Other Current Assets

Other current assets at September 30, 2020 and December 31, 2019 consisted of the following (in thousands):





Note 3.4.  Stockholders’ Equity and Stock-Based Compensation Expense



Stockholders’ Equity Activity during the Nine Months Ended September 30, 20192020 and 20182019



During the nine months ended September 30, 20192020 and 2018,2019, the Company’s common stock outstanding and stockholders’ equity changed as follows:



At-the-Market Common Stock IssuanceOffering



On February 8, 2018,March 27, 2020, the Company entered into a Capital on Demand™ Sales Agreement (the “ATM Agreement”established an at-the-market offering program (“ATM”) with JonesTrading. In accordance with the terms of the ATM Agreement, the Company was able to offer and sell, shares of its common stock, from time to time, in one or more public offeringsshares of itsCompany common stock with JonesTrading acting as agent,having an aggregate offering price of up to $100 million in transactions pursuant to a shelf registration statement that was declared effective by the U.S. Securities and Exchange Commission (the “SEC”) on July 31, 2017.  On August 16, 2018,May 5, 2020. The Company is obligated to pay a commission of 3.0% of the Company suspended salesgross proceeds from the sale of itsshares of common stock under its ATM Agreement.in the offering. The Company is not obligated to sell any shares in the offering.



There were no common stock sales under the ATM Agreementduring the nine months ended September 30, 2020.

Common Stock Warrants

In August 2018, the Company issued warrants to purchase up to an aggregate of 9.1 million shares of its common stock in conjunction with an offering of its common stock. As of September 30, 2020, 0.8 million warrants remain outstanding, each with a strike price of $1.25 per share. Subject to certain ownership limitations described in the warrants, the warrants will remain exercisable until expiration on February 17, 2021. The warrants will be exercisable on a “cashless” basis in certain circumstances, including while there is no effective registration statement registering the shares of common stock issuable upon exercise of the warrants at any time until the expiry of the warrants. Such registration statement was declared effective by the SEC on January 30, 2019. The warrants provide that holders will

have the right to participate in any rights offering or distribution of assets together with the holders of common stock on an as-exercised basis.

During the three months ended September 30, 2020, the Company received proceeds of $0.7 million from the exercise of 0.6 million warrants. During the nine months ended September 30, 2020, the Company received proceeds of $4.6 million from the exercise of 3.7 million warrants. There were no warrants exercised during the three and nine months ended September 30, 2019.



During the three months ended September 30, 2018, the Company sold a total of 1,463,013 share of its common stock under the ATM AgreementStock Option and Performance Award Activity in the open market for net proceeds of $2.0 million. During the three months ended September 30, 2018, the Company recorded $0.1 million of offering costs against addition paid-in capital in addition to trading commissions.2020



During the nine months ended September 30, 2018, the Company sold a total of 1,763,013 shares of its common stock under the ATM Agreement in the open market for net proceeds of $3.9 million. During the nine months ended September 30, 2018, the Company recorded $0.1 million of offering costs against addition paid-in capital in addition to trading commissions. 

Stock Option and Performance Award Activity in 2019

During the nine months ended September  30, 2019,2020, stock options and unvested Performance Awards outstanding under the Company’s 2018 Plan (defined below)stock option plans changed as follows:









The weighted average exercise price of options outstanding at September 30, 20192020 was $13.66.$11.81. As outstanding options vest over the current remaining vesting period of 2.32.1 years, the Company expects to recognize non-cash expense of $1.8$1.5 million. If and when outstanding Performance Awards vest, the Company wouldwill recognize non-cash expense of $2.3 million over the implicit service period.



During the three and nine months ended September 30, 2020, there were 71,000 stock options exercised resulting in proceeds to the Company totaling $256,000. There were no stock options exercised during the three and nine months ended September 30, 2019.

Stock-based Compensation Expense in 20192020



During the three and nine months ended September 30, 20192020 and 2018,2019, the Company’s non-cash stock-based compensation expenses were as follows (in thousands):

2018 Equity Incentive Plan

  

OnIn January 31, 2018, the Company’s Board of Directors (the “Board”) 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.Performance Awards. Share-based awards generally expire ten10 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 awardsPerformance 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 4.5.  Income Taxes 



The Company did not provide for income taxes during the three and nine months ended September  30 2019,, 2020, because it has projected a net loss for the full year 2019.2020 for which any benefit will be offset by an increase in the valuation allowance. There was also no provision for income taxes for the three and nine months ended September  30, 2018.2019.



Note 5.6.  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 has a non-cancelable operating lease for approximately 6,000 square feet of office space in Austin, Texas that expiresis scheduled to expire on December 31, 2020. On September 4, 2020, the Company entered into a lease amendment that extended the termination date of the existing lease to April 30, 2024. Minimum lease payments as of September 30, 20192020 were as follows (in thousands):







Building rent expense for the three months ended September 30, 2020 and 2019 totaled $25,000 and 2018 totaled $24,000, and $22,000, respectively. Building rent expense for the nine months ended September 30, 2020 and 2019 totaled $75,000 and 2018 totaled $72,000, and $67,000, respectively. These amounts were equal to the Company’s operating cash outflow from operating leases.



Note 6.7.  Collaboration AgreementsAgreement



The Company had formerly entered into a Development and License Agreement (the “License Agreement”) with Durect Corporation around certain controlled-release technology. OnIn March 20, 2019, the Company gave notice of termination for such License Agreement.  This and other actions effectively ended the Company’s development of any product candidates related to such technology.





Note 8.  Sale of Property and Equipment

During the nine months ended September 30, 2020, the Company sold surplus manufacturing equipment to an independent third party and received proceeds totaling $360,000. The original cost of the property and equipment was

$892,000 and accumulated depreciation was $878,000, resulting a gain on sale of property and equipment of $346,000 during the nine months ended September 30, 2020. There were no sales of property and equipment during the three months ended September 30, 2020 and the three and nine months ended September 30, 2019.

Note 9.  2020 Cash Incentive Bonus Plan

On August 26, 2020, the Board approved the 2020 Cash Incentive Bonus Plan (the “Plan”). The Plan was established to provide a further incentive to promote the long-term success of the Company by establishing an “at-risk” cash bonus program that rewards Plan participants with additional cash compensation in lockstep with significant increases in the Company’s valuation. The Plan is considered “at-risk” because Plan participants will not receive a cash bonus unless the Company’s valuation increases significantly and certain other thresholds specified in the Plan are met.  In addition, Plan participants will not be paid any cash bonuses unless the Board 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 September 30, 2020.  Plan participants will be paid all earned cash bonuses in the event of a merger or acquisition transaction that constitutes a sale of ownership of the Company or its assets (a “Merger Transaction”).

The Company’s valuation 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, a calculation commonly referred as ‘market  capitalization’ 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 cash bonus each time the Company’s valuation increases significantly, up to a maximum $5 billion in market capitalization. The Plan specifies 14 incremental valuations between $200 million and $5 billion  (each increment, a “Valuation Milestone”). Each Valuation Milestone triggers a cash bonus award in a pre-set amount defined in the Plan. Each Valuation Milestone must be achieved and maintained for no less than 20 consecutive trading days for Plan participants to be eligible for a cash bonus award. Approximately 57% of each cash bonus award associated with a Valuation Milestone is subject to adjustment and approval by the Compensation Committee of the Board (the “Compensation Committee”).  Any amounts not awarded by the Compensation Committee are no longer available for distribution.

If the Company exceeds 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 $134.2 million up to a maximum of $322.3 million.  Payment of cash bonuses is deferred until such time as (1) the Company completes a Merger Transaction, or (2) the Board determines the Company has sufficient cash on hand to render payment (each, a “Performance Condition”),  neither of which may ever occur. Accordingly, there can be no assurance that Plan participants will ever be paid a cash bonus that is awarded under the Plan, even if the Company’s market capitalization increases significantly.

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 cash bonus award of $7.3 million in total for all Plan participants. However, no compensation expense has been recorded and no payments have been made since no grant date has occurred and no Performance Conditions are considered probable of being met. There is no continuing service requirement for Plan participants once the Compensation Committee approves a cash bonus award.



Note 7.10.  Recently Issued Accounting Pronouncements

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, and is applicable for the Company in fiscal 2021. Early adoption is permitted. The Company does not anticipate that this guidance will have a material impact on its condensed financial statements.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606. The amendments in this update provide guidance on how to assess whether certain transactions between collaborative arrangement participants should be accounted for within the revenue recognition standard. The amendments in this update are effective for interim and annual periods for the Company beginning on January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s condensed financial statements.



In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impactadoption of ASU 2018-13 did not have a material impact on its consolidatedthe Company’s condensed financial statements.







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:





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



Please also refer to the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018,2019, as such risk factors may be amended, updated or modified periodically in our reports filed with the SECU.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 prospectus,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 drug developmentclinical stage biotechnology company. Our expertisemission is to develop new product candidatesdetect and guidetreat neurodegenerative diseases, such candidates through various regulatory and development pathwaysas Alzheimer’s disease. Our novel science is based on stabilizing – but not removing – a critical protein in preparation for their potential commercialization. Since our inception,the brain.

Over the past 10 years, we have generally focused our drug development efforts on disorders of the central nervous system. We are currently conducting a Phase 2 clinical programcombined state-of-the-art technology with new insights in neurobiology to treat patients withdevelop novel solutions for Alzheimer’s disease.  By necessity, the conduct of drug development is complex, lengthy, expensivedisease and risky. The U.S. Food and Drug Administration (the “FDA”) has not yet established the safety or efficacy of our product candidates.

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



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 ourcurrently have two clinical-stage biopharmaceutical assets:assets under development:



PTI-125 – PTI-125 is the name of our product candidate for the treatment of Alzheimer’s disease.  This proprietary small molecule drug represents an entirely new approach to treat Alzheimer’s disease.  PTI-125 benefits from a strong scientific rationale, publications in prestigious peer-reviewed journals and multiple peer-reviewed research grant awards from the National Institutes of Health (“NIH”), the primary agency of the U.S. government for biomedical research.  The content of this Form 10-Q is solely our responsibility and does not necessarily represent the official views of 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, without royalty obligations to any third party. Our on-going Phase 2 clinical program with PTI-125 is substantially funded by research grant awards from NIH.  

Phase 2 Clinical Trial

In 2018, we initiated a Phase 2 clinical program for patients with Alzheimer’s disease using PTI-125, with funding provided by NIH.  On April 15, 2019, we announced completion of patient enrollment for a Phase 2a study for PTI-125. On September 9, 2019, we reported positive Phase 2a clinical results in Alzheimer’s patients. In this study, all evaluable patients showed a biomarker response to PTI-125. The drug was well tolerated, with no observable drug-related adverse events.

A key objective of this first-in-patient study was to measure drug effects on biomarkers in the brain (i.e. cerebrospinal fluid, or (“CSF”)) before and after 28 days of treatment with PTI-125.

Key results include:



Cognition was not assessed in this first-in-patient study; however, published studies show that elevated levels of CSF biomarkers P-tau and total tau/Aβ₄₂ ratio correlate with deficiencies on a range of memory and sustained attention assessments.

Phase 2a Study Design

Phase 2a was a first-in-patient, open-label, multi-center, safety, pharmacokinetic and biomarker study of PTI-125 in the U.S.  Thirteen patients with mild-to-moderate Alzheimer’s disease, age 50-85, received 100 mg oral PTI-125 twice daily for 28 days. A diagnosis of Alzheimer’s disease was confirmed with Mini-Mental State Examination (MMSE) ≥ 16 and ≤ 24 and a CSF T-tau/Aβ₄₂ ratio ≥ 0.30. Safety was assessed by ECGs, clinical labs, adverse event monitoring and physical examinations. CSF was drawn from patients before dosing started and again after 28 continuous days of dosing with PTI-125. CSF samples were then analyzed for biomarkers of Alzheimer’s pathology (T-tau, P-tau, Aβ₄₂); neurodegeneration (NfL, neurogranin); and neuroinflammation (YKL-40, IL-6, IL-1β and TNFα). A consultingbiostatistician conducted an independentanalysis of the data set.

Cassava Sciences is scheduled to present data from this Phase 2a study on December 5, 2019 at the 12th International Conference on Clinical Trials on Alzheimer’s Disease(CTAD), a conference for the medical and scientific community being held in San Diego, CA. CTAD has selected our Phase 2a data as a “Late Breaking Oral Communication” at CTAD 2019.

Phase 2b Clinical Study

On September 16, 2019, we announced initiation of a Phase 2b clinical study in Alzheimer’s patients, with funding provided by NIH.  This Phase 2b clinical study is designed to evaluate safety, tolerability and drug effects of PTI-125 on validated biomarkers of Alzheimer’s disease. This is a blinded, randomized, placebo-controlled, multi-center, multi-dose research study in approximately 60 patients with mild-to-moderate Alzheimer’s disease.  Patients will be dosed with PTI-125 100 mg, 50 mg, or matching placebo, twice daily for 28 continuous days. The primary endpoint is improvement in biomarkers of Alzheimer’s disease from baseline to Day 28.  Patient enrollment may take up to 12 months.

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.

Our 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. 

Since drug innovation is a trial-and-error process, clinical failures present 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 consider more recent and innovative approaches regarding the neurobiology of Alzheimer’s disease. We believe such scientific approaches may broaden the range of possible treatment approaches.

Over the last ten years, we have developed a new and promising scientific approach for the treatment and diagnosis of neurodegeneration, particularly Alzheimer’s disease. 

Importantly, we do not seekdisease seeks to clear amyloid out of the brain.  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 itssimultaneously improve normalboth functionneurodegeneration and disrupts or injures the function of surrounding cells, tissues and organs.  Through years of basic research, we have identified a structurally altered protein in the brain.neuroinflammation. 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 target of PTI-125 is an altered form of a scaffolding protein called filamin A (“FLNA”). Altered FLNA causes a cascade of toxic effects in the brain.  Altered FLNA is a proteopathy, which means that this protein is no longer capable of executing a stable, beneficial and protective role and instead becomes harmful and destructive to the 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 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 manymultiple vital functions in the brain represents a new, different and crucial approach to address neurodegeneration.Alzheimer’s disease.



Our lead therapeutic product candidate, sumifilam, is a proprietary small molecule (oral) drug. Sumifilam 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 sumifilam 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 sumifilam.  Importantly, since PTI-125sumifilam is not dependent on clearing amyloid from the brain. Since sumifilam 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 treatment ofaiming to treat 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 candidateSumifilam has demonstrated both cognitive improvement and slowinga multitude of disease progressionbeneficial effects in animal models of disease.  PTI-125disease, including normalizing neurotransmission, decreasing neuroinflammation, suppressing neurodegeneration, and restoring memory and cognition.

Sumifilam 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 product candidates and related technologies, without royalty obligations to any third party. Our patent protection in this area currently runs  through 2037, plus extensions.

Alzheimer’s disease is a progressive neurodegenerative disorder that affects cognition, function and behavior. An estimated 5.8 million Americans are living with Alzheimer’s disease in 2020, according to the Alzheimer’s Association, a non-profit organization. There are no disease-modifying drug therapies to treat the disease.

Phase 2 clinical stage2a Study

In 2019, we completed a small, first-in-patient, clinical-proof-of-concept, open-label Phase 2a study of development,sumifilam in the U.S., with substantial support from the National Institute on Aging  (“NIA”), a division of NIH. Drug was safe and well-tolerated in this study. Treatment with sumifilam 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.



TheOn July 15, 2020, we presented additional Phase 2a clinical results at the Biomarkers for Alzheimer’s Disease Summit, a virtual scientific conference.  In addition to showing that SavaDx could distinguish and stratify patients with Alzheimer’s disease, this presentation provided direct evidence for target engagement and for the treatment effects of PTI-125 is an altered form of filamin A (“FLNA”).  FLNAsumifilam. Target engagement is a scaffold proteincrucial step in drug research because it shows that is widely found throughoutour small molecule drug candidate binds to its intended site of action in cells and confirms that treatment effects are caused by the body.  The functiondrug hitting its target.

Phase 2b Study

In March 2020, we announced the completion of a scaffold protein is to bring multiple other proteins together for them to interact.  However, an altered, and highly toxic, formrandomized, placebo-controlled, double-blind study of FLNA is foundsumifilam in the Alzheimer’s brain. Altered FLNA contributes to64 patients with mild-to-moderate Alzheimer’s disease, 50-85 years of age, with MMSE scores 16 to 26. Study participants received sumifilam 100 mg, 50 mg or matching placebo, twice-daily, for 28 continuous days. This study was substantially funded 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.a research grant award from NIH.



PTI-125 bindsOn September 14, 2020,  we reported positive Phase 2b clinical study results. Drug was safe and well-tolerated in this study. Sumifilam significantly (P<0.05) improved an entire panel of validated biomarkers of disease in patients with Alzheimer’s disease compared to altered FLNAa placebo group. In addition, Alzheimer’s patients treated 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 dramaticsumifilam showed directional improvements in brain health, suchvalidated tests of episodic memory and spatial working memory, versus patients on placebo(Effect Sizes 46-17%). Cognitive improvements correlated most strongly (R2=0.5) with decreases in levels of P-tau181 in CSF. The study achieved a 98% response rate, defined as reduced amyloid and tau deposits, improved insulin receptor signaling and improved learning and memory.  In addition, PTI-125 has another beneficial treatment effectthe proportion of significantly reducing inflammatory cytokines in the brain.study participants taking

In animal modelssumifilam who showed improvements in biomarkers. Importantly, we believe these data are consistent with prior clinical and preclinical results, the drug’s mechanism of disease, treatment with PTI-125 abolished IL-6 productionaction and suppressed TNF-alpha and IL-1beta levels by 86% and 80%, respectively, illustrating a powerful anti-neuroinflammatory effect.over 10 years of basic research.



Our science isThe ability to improve multiple biomarkers from distinct biological pathways with one drug has never been shown before in patients with Alzheimer’s disease. Phase 2b study results are expected to be published in a 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 bypublication at 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.future date.



Our science isIn May 2020, we announced that an outside lab with whom the Company had no prior work experience had generated an initial bioanalysis in which our Phase 2b study missed its pre-specified primary outcome. The data set from the initial bioanalysis showed unnaturally high variability and other problems, such as no correlation among changes in levels of biomarkers over 28 days, even in the placebo group, and different biomarkers of disease moving in opposite directions in the same patient. Overall, we believe data from the initial bioanalysis can be interpreted as anomalous and highly improbable. With its validity in question, the initial bioanalysis serves no useful purpose.

CTAD Late-breaking Presentation of Phase 2b Clinical Data

In September 2020,  we announced that Phase 2b results with sumifilam were selected for a late-breaking oral presentation by the 13thInternational Conference onClinical Trials on Alzheimer’s Disease (“CTAD”), whichtook place virtually November 4-7th, 2020. Members of CTAD’s scientific committee select research abstracts for late-breaking, oral presentation based on stabilizingmedical and scientific significance, quality of data and methodology.

Open-label Study

On March 25, 2020, we announced the initiation of an open-label extension study to evaluate sumifilam in patients with Alzheimer’s disease. This open-label, multi-center, extension study will monitor the long-term safety and tolerability of sumifilam at 100 mg twice-daily for 12 months. The study’s target enrollment is approximately 100 patients with mild-to-moderate Alzheimer’s disease, including patients from prior studies of sumifilam.  This study has exceeded 60% enrollment.

The Alzheimer's Disease Assessment Scale-Cognitive Subscale (“ADAS-Cog-11”) is being used to assess cognitive symptoms of dementia in patients enrolled in the open-label study. The Company plans to announce results of an interim analysis for this study as additional safety and cognition data is collected from patients enrolled in the open-label Study.

Next Steps for Sumifilam

Key features of a large-scale Phase 3 clinical program are under evaluation, in consultation with regulatory experts, technical consultants and scientific and clinical advisors. The anticipated goal of a Phase 3 study is to evaluate the safety and efficacy of sumifilam in patients with mild-to-moderate Alzheimer’s disease.

We are scheduled to have an end-of-phase 2 (“EOP2”) meeting with the U.S. Food & Drug Administration (FDA) in January 2021. An EOP2 meeting is a critical protein inregulatory milestone to ensure that meaningful data will be generated during a Phase 3 clinical program. Our objectives for the brain.EOP2 meeting are to gain agreement around proposed Phase 3 clinical plans and protocols, and to identify outstanding requirements around safety, product development or manufacturing, or any other information needed to support the statutory requirements for a 505(b)(1) NDA submission and marketing approval of sumifilam for the treatment of mild-to-moderate Alzheimer’s disease.



SavaDx

Our scientific approachdiagnostic effort, called SavaDx, is an early-stage program focused on detecting 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 treat neurodegeneration by targeting an altered formmake the detection of Alzheimer’s disease as simple as getting 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 healthy cells, resulting in altered proteins.  Sometimes a cell can rid itself of altered proteins. However, when disease changes the shape and 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.blood test.



AccumulationWe are prioritizing the development of altered proteins is common in age-related brain disorders.  The most common is Alzheimer’s disease.  Altered proteins observed insumifilam for the aging brain include hyperphosphorylated tau and beta amyloid, both hallmarks of Alzheimer’s disease.  Our scientists and outside collaborators have demonstrated that an altered, and highly toxic, form of the scaffolding protein FLNA exists in the Alzheimer’s brain. Critically, altered FLNA enables the toxicity of both beta amyloid and tau proteins.  This toxic cascade impairs brain health, leading to worsening symptomstreatment of Alzheimer’s disease over time.  the development of SavaDx for the detection of Alzheimer’s disease in light of our assessment of each product candidate’s ability to address unmet clinical needs, severity of disease burden, market potential, growth potential, and other factors. We expect to initiate a validation/disease specificity study of SavaDx in 2021.

Impact of COVID-19 on our Business

In additionthese times of pandemic, our top priorities are to impairing brain cell function, altered FLNA enables persistent inflammationprotect the health, well-being, and safety of our employees and partners, while still focusing on the key drivers of our business. We believe we remain on-track to achieve our major strategic objectives for 2020 with sumifilam. 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 Alzheimer’s brain.national economy. We have shown that altered FLNA also promotes neuroinflammation via toll-like receptor 4 (“TLR4”), an immune receptor that causes releasecontinue to closely monitor the latest information to make timely, informed business decisions and public disclosures regarding the potential impact of pro-inflammatory cytokines.  Our therapeutic approachpandemic on our operations. However, the scope of pandemic is designed to counteract these brain pathologies by restoring altered FLNA protein back tounprecedented and its normal, non-diseased conformation with PTI-125.   Treatment with PTI-125 has been shown to restore the normal 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 also characterizes Alzheimer’s disease.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 $167.1$172.3 million at September  30, 2019.2020. 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 drugproduct candidates. Salaries and other personnel-related costs include non-cash 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 drugproduct 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 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 productsdrugs and/or, if we license our productsdrugs 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):



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 September  30, 20192020 and 2018,2019, we received $1.5$1.0 million and $1.1$1.5 million from NIH research grants, respectively. During the nine months ended September 30, 20192020 and 2018,2019, we received $3.8$3.4 million and $1.9$3.8 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 drugproduct candidates. Data, know-how, personnel, clinical results, research results and other matters related to the research and development of any one of our drugproduct candidates also relate to, and further the development of, our other drugproduct candidates. As a result, costs allocated to a specific drug candidate may not necessarily reflect the actual costs surrounding research and development of that drugproduct candidate due to cross application of the foregoing.



Estimating the dates of completion of clinical development, and the costs to complete development, of our drugproduct candidates would be highly speculative, subjective and potentially misleading. Pharmaceutical productsproduct 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 U.S. GAAPaccounting 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, research collaborations and investments. 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:





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 market 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.



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.