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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following management’s discussion and analysis of financial condition and results of operations in conjunction with our consolidated financial statements and notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K. This discussion and analysis and other parts of this report contain forward-looking statements based upon current beliefs, plans and expectations related to future events and our future financial performance that involve risks, uncertainties and assumptions, such as statements regarding our intentions, plans, objectives, expectations, forecasts and projections. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those set forth under the section of this Annual Report on Form 10-K titled “Risk Factors” and elsewhere in this report. You should carefully read the “Risk Factors” to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Please also see the section of this report titled “Special Note Regarding Forward-Looking Statements.”

Overview

We are a late clinical-stage biopharmaceutical company focused on developing small molecules engineered to restore neuronal health and slow neurodegeneration. Our approach is designed to target the HGF/MET system that is critical to normal brain function and may play a key role in maintaining the health and functioning of neuronal networks. We believe that by acting on the HGF/MET system and its multiple downstream signaling pathways, we may be able to enhance the body’s natural ability to protect and repair neuronal networks by reducing inflammation, promoting regeneration and reducing disease-specific protein pathologies, thereby positively impacting the course of disease. We aim to achieve these goals by advancing our pipeline of novel small molecule compounds which are designed to and have exhibited properties in enhancing the HGF/MET system in either the central nervous system, or CNS, by crossing the blood brain barrier, or BBB, or the peripheral nervous system, or PNS.

Our lead candidate, fosgonimeton, is a subcutaneously administered, small molecule positive modulator of the HGF/MET system for CNS disorders. The effects of fosgonimeton in its primary target indication, AD, are currently being evaluated in multiple clinical trials:

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ACT-AD*, was a randomized, double-blind, placebo-controlled, parallel-group 26-week exploratory Phase 2 clinical trial in mild-to-moderate AD, with ERP P300 latency as the primary endpoint. Initiated in November 2020, the trial was designed to better characterize the overall effects of fosgonimeton on working memory processing speed and cognitive measures and inform the Phase 2/3 LIFT-AD trial. Topline results for this exploratory Phase 2 ACT-AD trial were announced in June 2022, and the primary and all secondary endpoints were not met by protocoled analysis. However, a post hoc analysis of results from ACT-AD in a pre-specified subgroup suggested positive effects on measures of cognition, function and neurodegeneration in participants taking fosgonimeton alone without background acetylcholinesterase inhibitors (AChEIs). Additionally, data from post hoc analysis of plasma biomarkers from participants on fosgonimeton without background AChEIs showed descriptive improvements (non-statistically significant) in markers of neuroinflammation and AD-specific protein pathologies when compared to placebo. Fosgonimeton was generally well tolerated in the ACT-AD study, with a favorable safety profile, and there were no treatment related serious adverse events or deaths observed.

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LIFT-AD, a randomized, double-blind, placebo-controlled, parallel-group 26-week Phase 2/3 clinical trial with fosgonimeton for the treatment of mild-to-moderate AD. In September 2020, we began site initiation and patient screening for LIFT-AD. The primary endpoint for the Phase 2/3 LIFT-AD trial will be measured by the GST, which is a composite score that combines the scores from cognition (Alzheimer's Disease Assessment Scale-Cognitive Subscale or ADAS-Cog11), and function (Alzheimer’s Disease Cooperative Study-Activities of Daily Living or ADCS-ADL23). Guided by the results from the completed exploratory ACT-AD Phase 2 trial, in September 2022, we proactively amended LIFT-AD to focus on participants not on background AChEIs. In October 2022, we announced that following an unblinded interim efficacy and futility analysis, an

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independent data monitoring committee recommended continuation of the LIFT-AD trial. The committee also determined that, with the additional enrollment of fewer than 150 participants for a total enrollment of less than 300 participants without background AChEIs, the amended trial will be well powered for the primary endpoint given the preliminary effect size observed. We are targeting to complete enrollment in mid-2023 and report topline data in early 2024.

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In July 2021, we announced that we are enrolling participants into a 26-week open-label extension study* for our LIFT-AD and ACT-AD clinical trials, which will allow us to collect up to a total of one year of safety data with fosgonimeton. In May 2022, we announced that we extended the 26-week open-label extension study for our LIFT-AD and ACT-AD clinical trials for an additional 12 months, enabling eligible participants who have completed either trial, and elect to participate in the ongoing open label extension, to now receive up to 18 months of open-label treatment with fosgonimeton.

*The ACT-AD trial and the related open-label extension for ACT-AD participants (described further below) was and are supported by a grant from the National Institute on Aging of the National Institutes of Health under Award Number R01AG06268. The information presented is solely the responsibility of Athira and does not necessarily represent the official views of the National Institutes of Health.

The following figure illustrates the current development stage of our ATH compounds and early discovery and development programs. Our pipeline consists of both BBB permeable and peripherally restricted drug candidates for CNS, PNS and other indications. In addition, we are exploring the use of our ATH compounds in additional indications in the CNS and PNS as we aim to improve neuronal health in multiple neurodegenerative diseases. Our drug discovery efforts are focused on designing and testing new early compounds to enhance the HGF/MET system for a variety of clinical applications.

We constantly strive to grow and optimize our portfolio through in-house discovery and plan on additional external business development activities enabled by our innovative internal research and development capabilities.

We were incorporated in March 2011 and since our inception, we have devoted substantially all of our resources to our research and development efforts such as small molecule compound discovery, nonclinical studies and clinical trials, as well as manufacturing activities, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations. We do not have any products approved for commercial sale, and we have not generated any revenues related to our products since inception. Our ability to generate product revenue

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sufficient to achieve profitability, if ever, will depend on the successful development of one or more of our product candidates which we expect will take a number of years.

We are focused on the development of small molecule therapeutics which enables us to use well-established and widely available manufacturing processes and infrastructure, formulation compositions and drug administration technologies or devices. We do not currently operate our own facilities for manufacturing, storing, or distributing our product candidates. We utilize third-party contract manufacturing organizations, or CMOs, to manufacture and supply our preclinical and clinical materials during the development of our product candidates. We believe the synthesis of fosgonimeton is reliable and reproducible and the synthetic methods can be further optimized to enable large-scale production that continues to avoid use of toxic materials or specialized equipment or handling during the manufacturing process. We plan to continue to optimize the manufacturing process to support future large-scale and commercial supply. Our goal is to identify and develop small molecule product candidates that are cost-effective to manufacture and easily transferable to third party CMOs. We expect to use similar contract resources for commercialization of our products, at least until our resources and operations are at a scale that justifies investment in internal manufacturing capabilities.

Given our stage of development, we have not yet established a commercial organization or distribution capabilities. We intend to build a commercial infrastructure to support sales of our product candidates. We expect to manage sales, marketing and distribution through internal resources and third-party relationships. While we may commit significant financial and management resources to commercial activities, we will also consider collaborating with one or more pharmaceutical companies to enhance our commercial capabilities.

To date, we have funded our operations primarily through proceeds from the sale of equity securities, including proceeds from the sale and issuance of common stock in our IPO and in a subsequent follow-on public offering, the sale and issuance of convertible preferred stock, common stock warrants, and convertible notes, and to a lesser extent from grant income and stock option exercises. From inception to December 31, 2022, we have raised aggregate net cash proceeds of approximately $407.4 million primarily from the issuance of our common stock (excluding option exercises), convertible preferred stock, common stock warrants, and convertible notes. We have incurred significant operating losses to date. Our net losses were $95.6 million and $54.9 million for the years ended December 30, 2022 and 2021, respectively. As of December 31, 2022, we had an accumulated deficit of $191.5 million and cash, cash equivalents and investments of $245.2 million.

We expect to continue to incur increasing operating losses for the foreseeable future as we:

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continue to advance fosgonimeton and our other product candidates through preclinical studies and clinical trials, and further extend the open label extension of the ACT-AD and LIFT-AD trials;

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expand our pipeline of product candidates;

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continue to grow our discovery organization and invest in the ATH platform;

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ramp up manufacturing activities;

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attract, hire and retain additional personnel;

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obtain, maintain, expand and protect our intellectual property portfolio;

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operate as a public company;

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expand our laboratory and office facilities;

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implement operational, financial and management information systems;

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seek regulatory approval for any product candidates that successfully complete clinical trials;

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establish a sales, marketing and distribution infrastructure to commercialize any product candidate for which we may obtain marketing approval; and

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incur legal expenses associated with ongoing litigation, as further described in “Part I, Item 3—Legal Proceedings,” and elsewhere in this report.

Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and our expenditures on other research and development activities.

We will require substantial additional funding to support our continuing operations and further the development of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, which could include income from collaboration, licensing or similar arrangements, for the foreseeable future. Adequate funding may not be available when needed or on terms acceptable to us, or at all. If we are unable to raise additional capital as needed, we may have to significantly delay, scale back or discontinue development of our product candidates. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. We cannot assure you that we will ever be profitable or generate positive cash flow from operating activities. Based upon our current operating plan, we estimate that our existing cash, cash equivalents and investments will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 12 months following the date of this report.

Our Collaboration and Grant Agreements

Amended and Restated Washington State University License Agreement

We are party to an amended and restated exclusive license agreement with sublicensing terms with Washington State University, or WSU, that we entered into in 2015. Under this agreement, we have an exclusive license to make, use, sell, and offer for sale products covered by certain licensed patents, including dihexa, the chemical compound into which fosgonimeton metabolizes following administration. The term of the license continues until the earlier of the date in which no valid claim remains enforceable and the payment of royalties ceases for more than four consecutive quarters after such royalty payments begin. One of these licensed patents is jointly owned by WSU and Pacific Northwest Biotechnology, Inc. We do not expect Pacific Northwest Biotechnology, Inc.’s joint ownership to materially affect our license of such patent or the development of any of our product candidates to which the patent relates.

The initiation of our first Phase 2 clinical trial in September 2020 triggered a $50,000 liability to WSU, which was repaid in full as of December 31, 2020.

We are obligated to pay to WSU the following if the related milestones are reached:

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$300,000 – At initiation of the first Phase 3 clinical trial in the United States, European Union or Japan for the first licensed product.

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$600,000 – Marketing approval in the United States, European Union or Japan for the first licensed product.

We are obligated to pay WSU a royalty in the mid-single digits of net sales.

Additionally, under the agreement we have the right to sublicense the licensed rights, subject to additional payments to WSU for sublicense consideration received. Such amounts are dependent on the terms of the underlying sublicense, and range from the mid-single digits to mid tens of any non-sales based payments received, and low twenties of net sales-based sublicense royalties.

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National Institutes of Health Grant

In December 2020, we accepted a grant from the NIH to support our ACT-AD Phase 2 clinical trial for fosgonimeton. Under the terms of the agreement and approval received from the NIH, we may receive up to an aggregate of $15.2 million. For additional information regarding this grant, see the section of this Annual Report on Form 10-K titled “Business—Our Collaboration and Grant Agreements.” We recognized $5.2 million and $8.8 million of income related to our NIH grant during the years ended December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, we received cash of $6.3 million and $7.6 million, respectively, in connection with the NIH grant. As of December 31, 2022 and 2021, we had incurred qualifying expenses in excess of cash received of approximately $1.2 million and $2.3 million, respectively, which is included in unbilled grant receivable on the consolidated balance sheets. In February 2023, we received cash of $1.2 million in connection with the unbilled grant receivable balance as of December 31, 2022. As of December 31, 2022, we had recognized aggregate grant income of $15.1 million of the total $15.2 million approved in connection with the NIH grant.

Components of Operating Results

Operating Expenses

Research and Development

Research and development expenses consist primarily of direct and indirect costs incurred for our research activities, including development of the ATH platform, our drug discovery efforts and the development of our product candidates. Direct costs include laboratory materials and supplies, contracted research and manufacturing, clinical trial costs, consulting fees, and other expenses incurred to sustain our research and development program. Indirect costs include personnel-related expenses, consisting of employee salaries, related benefits, and stock-based compensation expense for employees engaged in research and development activities, and facilities and other expenses consisting of direct and allocated expenses for rent and depreciation, and lab consumables.

We expense research and development costs as incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed. In-licensing fees and other costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use are expensed when incurred. We track direct costs by stage of program, clinical or preclinical. However, we do not track indirect costs on a program specific basis because these costs are deployed across multiple programs and, as such, are not separately classified.

As of the date of this report, we cannot reasonably determine the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. Product candidates in later stages of development generally have higher development costs than those in earlier stages. We expect that our research and development expenses will increase for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, as our product candidates advance into later stages of development, as we conduct larger clinical trials, as we seek regulatory approvals for any product candidates that successfully complete clinical trials, as we expand our product pipeline, as we maintain, expand, protect and enforce our intellectual property portfolio, and as we incur expenses associated with hiring additional personnel to support our research and development efforts. In particular, we have seen, and expect to continue to see, our research and development expenses increase as we conduct our clinical trials for fosgonimeton, including open-label extensions for those trials. Additionally, we may experience an overall increase in research and development expenses as a result of inflation.

The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. Our research and development expenses may vary significantly based on factors such as:

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the number and scope of preclinical and IND-enabling studies;

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the phases of development of our product candidates;

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the progress and results of our research and development activities;

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per subject trial costs;

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the number of trials required for regulatory approval, in particular with respect to fosgonimeton for the treatment of mild-to-moderate AD;

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the further extension of the open label extension of the ACT-AD and LIFT-AD trials;

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the number of sites included in the trials;

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the countries in which the trials are conducted;

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the length of time required to enroll eligible subjects and initiate clinical trials;

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the number of subjects that participate in the trials;

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the drop-out and discontinuation rate of subjects;

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potential additional safety monitoring requested by regulatory agencies;

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the duration of subject participation in the trials and follow-up;

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the cost and timing of manufacturing of our product candidates;

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the receipt of regulatory approvals from applicable regulatory authorities;

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the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;

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the hiring and retention of research and development personnel;

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the degree to which we obtain, maintain, defend and enforce our intellectual property rights;

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the impact of COVID-19 or other health epidemics on timelines and clinical operations, which may lead to increased costs; and

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the extent to which we establish collaboration, licensing or similar arrangements and the performance of any related third parties.

A change in the outcome of any of these variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate.

General and Administrative

General and administrative expenses consist primarily of personnel-related costs, consisting of employee salaries, related benefits, and stock-based compensation expense for our employees in the executive, legal, finance and accounting, human resources, and other administrative functions. General and administrative expenses also include third-party costs such as legal costs, insurance costs, accounting, auditing and tax related fees, business development fees, consulting fees and facilities and other expenses not otherwise included as research and development expenses. We expense general and administrative costs as incurred.

We expect that our general and administrative expenses will increase for the foreseeable future as we increase our headcount to support our continued research activities and development of our programs. We also anticipate that we will continue to incur expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, and those of any national securities exchange on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities, and other administrative and professional services. We expect continued legal expenses related to our ongoing legal proceedings and proposed settlement to resolve such claims. We also expect to continue to increase the size of our administrative function to support the

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growth of our business. Additionally, we may experience an overall increase in general and administrative expenses as a result of inflation.

Grant Income

Grant income consists of income related to the NIH grant and is recognized as qualifying expenses under the grant agreement are incurred. Under the terms of the agreement and approval received from the NIH, we may receive up to an aggregate of $15.2 million. As of December 31, 2022, we had recognized aggregate grant income of $15.1 million in connection with the NIH grant.

Other Income, Net

Other income, net consists primarily of interest earned on our cash, cash equivalents and investments and the amortization of premiums and accretion of discounts on our available-for-sale securities. Absent further fundraising, we expect interest earned on our cash, cash equivalents and investments to decrease over the long term as we continue to expend our cash balances to fund our ongoing operations.

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Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

The following table summarizes our results of operations for the periods presented:

Year Ended December 31,

Dollar %

(in thousands)

Operating expenses:

* Not meaningful

Research and Development Expenses

The following table shows the primary components of our research and development expenses for the periods presented:

Year Ended December 31,

Dollar %

(in thousands)

Direct costs:

Indirect costs:

* Not meaningful

Research and development expenses increased by $18.7 million, from $42.8 million for the year ended December 31, 2021 to $61.5 million for the year ended December 31, 2022. The increase was driven primarily by an increase in personnel-related costs of $8.1 million due to an increase in headcount, including a $1.9 million increase in stock-based compensation expense in connection with equity grants to new hires and existing employees, an increase in expenses for fosgonimeton of $4.9 million related to continued patient enrollment and clinical site visit activity for our Phase 2 and Phase 2/3 clinical trials and the corresponding open-label extension for our Phase 2 and Phase 2/3 clinical trials, an increase in preclinical research and development expenses of $3.0 million, $1.9 million of expense associated with our ATH-1020 Phase 1 clinical trial, which commenced in the first quarter of 2022, and an increase of $0.8 million related to facilities and other indirect costs.

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General and Administrative Expenses

General and administrative expenses increased by $11.3 million, from $21.2 million for the year ended December 31, 2021 to $32.6 million for the year ended December 31, 2022. The increase was primarily due to an increase in personnel-related costs of $6.6 million, due primarily to increases in headcount to support our continued growth, including a $4.1 million increase in stock-based compensation expense in connection with equity grants to new hires and existing employees, an increase in legal costs of $2.2 million, which includes costs related to our ongoing legal proceedings and the proxy contest in connection with our 2022 annual meeting of stockholders, an increase in business development expenses of $0.9 million, an increase in facilities expenses of $0.6 million, an increase in insurance and other general corporate expenses of $0.6 million, and an increase in professional services expenses of $0.5 million.

Legal Settlement Expense

In connection with the proposed settlement of the securities class action litigation, we recorded a legal settlement expense of $10.0 million for the year ended December 31, 2022. For more information see the section of this report titled “Legal Proceedings— Securities Class Actions".

Grant Income

Grant income decreased by $3.7 million, from $8.8 million for the year ended December 31, 2021 to $5.2 million for the year ended December 31, 2022. The decrease was driven by a decrease in expenses qualifying for reimbursement under the terms of the NIH grant upon the public readout of topline data of our Phase 2 ACT-AD clinical trial in the second quarter of 2022.

Other Income, Net

Other income, net, increased by $2.9 million, from $0.3 million for the year ended December 31, 2021 to $3.2 million for the year ended December 31, 2022 due to higher interest income earned on our available-for-sale securities resulting from rising interest rates on debt securities, in addition to accretion of discounts on debt securities purchased below par value and held to maturity.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception, we have funded our operations primarily with proceeds from the sale and issuance of common stock, convertible preferred stock, common stock warrants, and convertible notes, and to a lesser extent from grant income and stock option exercises. From our inception through December 31, 2022, we have raised aggregate net cash proceeds of $407.4 million primarily from the issuance of our common stock (excluding option exercises), convertible preferred stock, common stock warrants, and convertible notes.

Recent sales of our common stock were as follows:

Common Net

Shares Price Proceeds

Issued Per Share (in millions)

As of December 31, 2022, we had $245.2 million in cash, cash equivalents and investments and have not generated positive cash flows from operations. Since our inception, we have devoted substantially all of our resources to our research and development efforts such as small molecule compound discovery,

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nonclinical studies and clinical trials, as well as manufacturing activities, establishing and maintaining our intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.

Material Cash and Future Funding Requirements

Our material cash requirements include our operating leases for laboratory and office facilities. As of December 31, 2022, we had lease payment obligations of $2.3 million, with $0.5 million payable within 12 months. For additional information regarding our lease commitments, see Note 7 to our consolidated financial statements included elsewhere in this report. We are contingently committed to $0.9 million of potential future research and development milestone payments, in addition to sales-based payments and royalties, under our license agreement with WSU. Payments generally are due and payable only upon achievement of certain developmental, regulatory, and sales milestones for which the specific timing cannot be predicted. Refer to Note 6 to our consolidated financial statements for additional information regarding the WSU license agreement. Additionally, we have purchase obligations and open purchase orders that support normal operations and are primarily due in the next 12 months. These purchase obligations and open purchase orders are generally cancellable in full or in part through the contractual provisions. We also anticipate that our research and development expenses and our general and administrative expenses will increase over at least the near-term as we advance our clinical development and our product candidates through clinical trials, increase our headcount to support our operations, and incur legal and other professional expenses related to our ongoing legal proceedings. We cannot predict with certainty the amount and timing of these increased expenses.

Based upon our current operating plan, we estimate that our $245.2 million of cash, cash equivalents and investments at December 31, 2022 will be sufficient to fund our operating expenses and capital expenditure requirements through at least the next 12 months following the date of this report. We will need to raise substantial additional capital to fund the development of our product candidates. Until such time as we can generate significant revenue from product sales, we expect to finance our operations through the sale of equity securities, debt financings, or other capital, which could include income from collaboration, licensing or similar arrangements with third parties, or receiving research contributions, or grants. For example, in January 2023, we entered into a sales agreement with Cantor Fitzgerald and BTIG to sell shares of our common stock having aggregate sales proceeds of up to $75.0 million, from time to time, through an at-the-market, or ATM, equity offering program under which Cantor and BTIG are acting as sales agents. As of the date of this report, we have not sold any securities pursuant to this ATM offering. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, licenses and other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us or may reduce the value of our common stock. Adequate funding may not be available when needed or on terms acceptable to us, or at all. Our ability to raise additional funds may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide. If we fail to obtain necessary capital when needed on acceptable terms, or at all, it could force us to delay, limit, reduce or terminate our product development programs, commercialization efforts or other operations. Insufficient liquidity may also require us to relinquish rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise choose. We cannot assure you that we will ever be profitable or generate positive cash flows from operating activities.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of

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biotechnology products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

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the scope, timing, progress and results of our ongoing preclinical studies and clinical trials of our product candidates;

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the number of trials required for regulatory approval, in particular with respect to fosgonimeton for the treatment of mild-to-moderate AD;

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the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials of other product candidates that we may pursue;

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our ability to establish and maintain collaboration, licensing or other similar arrangements, and the financial terms of any such arrangements, including the timing and amount of any future milestone, royalty or other payments due thereunder;

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the costs, timing and outcome of regulatory review of our product candidates;

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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution, for any of our product candidates for which we receive marketing approval;

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the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval;

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the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending any intellectual property-related claims;

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the costs related to ongoing legal proceedings;

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any expenses needed to attract, hire and retain skilled personnel;

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the costs of operating as a public company;

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the costs associated with expanding our laboratory and office facilities; and

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the extent to which we acquire or in-license other companies’ product candidates and technologies or engage in other strategic transactions.

A change in the outcome of any of these or other factors with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plan may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plan.

Cash Flows

The following table summarizes our cash flows for the periods indicated:

Year Ended December 31,

(in thousands)

Net cash (used in) provided by:

Operating Activities

During the year ended December 31, 2022, net cash used in operating activities was $72.5 million. This consisted primarily of a net loss of $95.6 million, partially offset by non-cash charges of $11.2 million

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and a decrease in our net operating assets of $11.9 million. The non-cash charges primarily consisted of stock-based compensation expense, depreciation expense, and amortization of premiums and accretion of discounts on our available-for-sale securities. The decrease in our net operating assets was primarily due to a decrease in unbilled grant receivable, an increase in accounts payable and accrued expenses, and an accrual for legal settlement expenses related to the securities class action litigation, partially offset by an increase in prepaid expenses and other current assets.

During the year ended December 31, 2021, net cash used in operating activities was $43.1 million. This consisted primarily of a net loss of $54.9 million, partially offset by non-cash charges of $5.6 million and a decrease in our net operating assets of $6.2 million. The non-cash charges primarily consisted of stock-based compensation expense, depreciation expense, and amortization of premiums and accretion of discounts on our available-for-sale securities. The decrease in our net operating assets was due to an increase in accounts payable and accrued expenses and a decrease in prepaid expenses and other current assets, partially offset by an increase in unbilled grant receivable.

Investing Activities

During the year ended December 31, 2022, net cash provided by investing was $57.7 million. This consisted of maturities of available-for-sale securities of $154.1 million, partially offset by purchases of available-for-sale securities of $95.3 million and property and equipment of $1.1 million.

During the year ended December 31, 2021, net cash used in investing activities was $4.1 million. This consisted primarily of purchases of available-for-sale securities of $299.2 million and purchases of property and equipment of $1.6 million, partially offset by maturities of available-for-sale securities of $278.6 million and sales of available-for-sale securities of $18.1 million.

Financing Activities

During the year ended December 31, 2022, net cash provided by financing activities was $0.7 million, consisting of proceeds received from exercises of stock options.

During the year ended December 31, 2021, net cash provided by financing activities was $97.1 million, primarily driven by proceeds received from our follow-on public offering, and to a lesser extent from exercises of stock options.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Grant Income

In December 2020, we accepted a grant from the NIH to support our ACT-AD Phase 2 clinical trial for fosgonimeton. Under the terms of the agreement and approval received from the NIH, we may receive up to an aggregate of $15.2 million. We recognize income related to the NIH grant within the consolidated statement of operations and comprehensive loss as qualifying expenses under the grant agreement are

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incurred. We record qualifying expenses incurred in excess of cash received in unbilled grant receivable on the consolidated balance sheets.

Research and Development Costs

Research and development costs, including costs associated with our clinical trials, are expensed as incurred. In-licensing fees and other costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use are expensed when incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed. We estimate the period over which such services will be performed and the level of effort to be expended in each period. If actual timing of performance or the level of effort varies from the estimate, we will adjust the amounts recorded accordingly. We have not experienced any material differences between accrued or prepaid costs and actual costs since inception.

Stock-based Compensation

We maintain a stock-based compensation plan as a long-term incentive for employees, non-employee directors and consultants. The plan allows for the issuance of incentive stock options, non-qualified stock options, restricted stock units, and other forms of equity awards.

We recognize stock-based compensation expense for stock options on a straight-line basis over the requisite service period and account for forfeitures as they occur. Our stock-based compensation costs for stock options are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model. To the extent any stock option grants are made subject to the achievement of a performance-based milestone, management evaluates when the achievement of any such performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date.

The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include:

•

Fair Value of Common Stock. See the subsection titled “—Common Stock Valuations” below.

•

Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.

•

Expected Volatility. Because we were privately held prior to September 2020 and do not yet have sufficient trading history for our common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded life sciences companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on the similar size, stage in life cycle or area of specialty. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.

•

Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term), as we do not have sufficient historical data to use any other method to estimate expected term.

•

Expected Dividend Yield. We have never paid dividends on our common stock and have no plans to pay dividends on our common stock. Therefore, we used an expected dividend yield of zero.

See Note 9 to our consolidated financial statements included elsewhere in this report for more information concerning certain of the specific assumptions we used in applying the Black-Scholes option pricing model to determine the estimated fair value of our stock options. Certain of such assumptions involve inherent uncertainties and the application of significant judgment. As a result, if factors or expected

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outcomes change and we use significantly different assumptions or estimates, our stock-based compensation could be materially different.

We recognize stock-based compensation expense for restricted stock units on a straight-line basis over the requisite service period and account for forfeitures as they occur. We recognize compensation expense for restricted stock unit grants subject to performance-based milestone vesting using the accelerated attribution method over the remaining service period when we determine that achievement of the milestone is probable. We evaluate when the achievement of a performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date. Our stock-based compensation costs for restricted stock units are based upon the fair market value of our common stock based on its closing price as reported on the date of grant on the Nasdaq Global Select Market.

We recorded stock-based compensation expense of $10.6 million and $4.6 million for the years ended December 31, 2022 and 2021, respectively. As of December 31, 2022, there was $18.6 million of total unrecognized stock-based compensation expense related to non-vested stock options which we expect to recognize over a remaining weighted-average period of 2.68 years. As of December 31, 2022, there was $1.4 million of total unrecognized stock-based compensation expense related to non-vested restricted stock units which we expect to recognize over a remaining weighted-average period of 0.80 years. We expect to continue to grant stock options and other equity-based awards in the future, and to the extent that we do, our stock-based compensation expense recognized in future periods will likely increase.

Income Taxes

We recognize deferred income taxes for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. In evaluating our valuation allowance, we consider all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and recent financial performance. Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance.

As of December 31, 2022, we had $9.5 million of federal net operating loss, or NOL, carryforwards and $5.6 million of tax credit carryforwards which expire over a period of 9 to 15 years. As of December 31, 2022, we had $104.4 million of such NOLs that do not expire. As of December 31, 2022, we also had state net operating loss carryforwards of $2.7 million, which expire over a period of 19 to 20 years.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, substantial changes in our ownership may limit the amount of NOL and research and development credit carryforwards that could be used annually in the future to offset taxable income. The tax benefits related to future utilization of federal and state NOL carryforwards, credit carryforwards, and other deferred tax assets may be limited or lost if cumulative changes in ownership exceeds 50% within any three-year period. We have not completed a Section 382/383 analysis under the Code regarding the limitation of NOL and credit carryforwards. If a change in ownership were to have occurred, the annual limitation may result in the expiration of NOL carryforwards and credits before utilization.

We record unrecognized tax benefits as liabilities or reduce the underlying tax attribute, as applicable, and adjust them when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

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Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements included elsewhere in this report for additional information.

Emerging Growth Company Status

We are an emerging growth company, as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. We elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (1) are no longer an emerging growth company or (2) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

We will remain an emerging growth company until the earliest to occur of: (1) the last day of the fiscal year in which we have at least $1.235 billion in annual revenue; (2) the last day of the fiscal year in which we are deemed to be a “large accelerated filer,” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeded $700.0 million as of the last business day of the second fiscal quarter of such year; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) the last day of the fiscal year ending after the fifth anniversary of our initial public offering.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

As a smaller reporting company, we are not required to provide the information requested by this item pursuant to Item 305 of Regulation S-K.

Item 8. Financial Statements and Supplementary Data.

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Athira Pharma, Inc.

Index to Financial Statements

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 133

Consolidated Balance Sheets 134

Consolidated Statements of Operations and Comprehensive Loss 135

Consolidated Statements of Stockholders' Equity 136

Consolidated Statements of Cash Flows 137

Notes to Consolidated Financial Statements 137

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Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Athira Pharma, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Athira Pharma, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2018.

Seattle, Washington

March 23, 2023

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Athira Pharma, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

December 31,

Assets

Current assets:

Prepaid expenses and other current assets 5,962 4,704

Restricted cash 420 —

Operating lease right-of-use asset 1,263 1,460

Other long-term assets 55 56

Liabilities and stockholders' equity

Current liabilities:

Accrued legal settlement (Note 7) 10,000 —

Current operating lease liability 326 288

Operating lease liability, less current portion 1,585 1,632

Stockholders' equity:

Accumulated other comprehensive loss (1,956 ) (388 )

Total liabilities and stockholders' equity $ 258,153 $ 332,008

The accompanying notes are an integral part of these consolidated financial statements.

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Athira Pharma, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share amounts)

Year Ended December 31,

Operating expenses:

Unrealized loss on available-for-sale securities (1,568 ) (421 )

Comprehensive loss attributable to common stockholders $ (97,207 ) $ (55,274 )

The accompanying notes are an integral part of these consolidated financial statements.

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Athira Pharma, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share amounts)

Accumulated

Common Stock AdditionalPaid-In OtherComprehensive Accumulated TotalStockholders’

Shares Amount Capital Income (Loss) Deficit Equity

Issuance of common stock under employee stock purchase plan 26,640 — 364 — — 364

Stock-based compensation — — 4,623 — — 4,623

Unrealized loss on available-for-sale securities — — — (421 ) — (421 )

Issuance of common stock under employee stock purchase plan 78,361 — 345 — — 345

Unrealized loss on available-for-sale securities — — — (1,568 ) — (1,568 )

The accompanying notes are an integral part of these consolidated financial statements.

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Athira Pharma, Inc.

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,

Operating activities

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

Changes in operating assets and liabilities:

Prepaid expenses and other current assets (1,257 ) 1,650

Accounts payable and accrued liabilities 2,101 5,150

Accrued legal settlement 10,000 —

Operating lease liability (15 ) 241

Net cash used in operating activities (72,469 ) (43,098 )

Investing activities

Purchases of available-for-sale securities (95,288 ) (299,197 )

Proceeds from sales of available-for-sale securities — 18,052

Purchases of property and equipment (1,141 ) (1,573 )

Net cash provided by (used in) investing activities 57,664 (4,079 )

Financing activities

Proceeds from exercise of common stock options 654 327

Proceeds from public offering, net of issuance costs — 96,762

Net cash provided by financing activities 654 97,089

Cash, cash equivalents and restricted cash, beginning of period 110,537 60,625

Cash, cash equivalents and restricted cash, end of period $ 96,386 $ 110,537

Supplemental disclosures of cash flow information:

The accompanying notes are an integral part of these consolidated financial statements.

ATHIRA PHARMA, INC.

Notes to Consolidated Financial Statements

1. Description of Business

Organization

Athira Pharma, Inc. (the “Company”) was incorporated as M3 Biotechnology, Inc. in the state of Washington on March 31, 2011 and reincorporated in the state of Delaware on October 27, 2015. In April 2019, the Company changed its name to Athira Pharma, Inc. The Company currently has office and laboratory space in Bothell, Washington. The Company is a late clinical-stage biopharmaceutical company focused on developing small molecules to restore neuronal health and slow neurodegeneration.

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Follow-on Public Offering

In January 2021, the Company completed a follow-on public offering of its common stock. As part of the follow-on offering, the Company issued and sold 4,000,000 shares of its common stock at a public offering price of $22.50 per share. The Company received net proceeds of approximately $84.1 million from the follow-on offering, after deducting underwriting discounts and commissions and offering costs. In February 2021, the Company sold an additional 600,000 shares of common stock to the underwriters of the follow-on public offering upon full exercise of the underwriters’ option to purchase additional shares at the follow-on public offering price of $22.50 per share, less underwriting discounts and commissions and offering costs resulting in additional net proceeds to the Company of approximately $12.7 million.

At The Market Common Stock Offering

In January 2023, the Company entered into a sales agreement with Cantor Fitzgerald and BTIG to sell shares of our common stock having aggregate sales proceeds of up to $75.0 million, from time to time, through an “at the market” (“ATM”) equity offering program under which Cantor and BTIG are acting as sales agents. The Company has not sold any securities pursuant to this ATM offering.

Liquidity and Capital Resources

Since the Company’s inception, it has funded its operations primarily with proceeds from the sale and issuance of common stock, convertible preferred stock, common stock warrants, and convertible notes, and to a lesser extent from grant income and stock option exercises. From the Company’s inception through December 31, 2022, it has raised aggregate net cash proceeds of $407.4 million primarily from the issuance of its common stock (excluding option exercises), convertible preferred stock, common stock warrants, and convertible notes. As of December 31, 2022, the Company had $245.2 million in cash, cash equivalents, and investments and had not generated positive cash flows from operations. Since the Company’s inception, it has devoted substantially all of its resources to its research and development efforts such as small molecule compound discovery, nonclinical studies and clinical trials, as well as manufacturing activities, establishing and maintaining the Company’s intellectual property portfolio, hiring personnel, raising capital, and providing general and administrative support for these operations.

Based upon the Company’s current operating plan, it estimates that its $245.2 million of cash, cash equivalents, and investments at December 31, 2022 will be sufficient to fund its operating expenses and capital expenditure requirements through at least the next 12 months following the date of the Company’s Annual Report on Form 10-K.

2. Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). During the third quarter of 2020, the Company incorporated Athira Pharma Australia PTY LTD in Australia and since its creation, the Australian subsidiary’s financial position and results of operations are consolidated in the accompanying consolidated financial statements. Certain prior period amounts have been reclassified to conform to current period presentation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Estimates include those used for fair value of assets and liabilities, accrued liabilities, valuation allowance for deferred tax assets, and stock-based compensation. Management evaluates related assumptions on an ongoing basis using historical experience and other

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factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents.

Restricted Cash

Restricted cash consists of collateral pledged in connection with the Company's corporate credit cards. The table below reconciles the balances of cash and cash equivalents and restricted cash reported on the condensed consolidated balance sheets to the balances of cash, cash equivalents and restricted cash reported on the condensed consolidated statements of cash flows.

December 31,

Restricted cash 420 —

Cash, cash equivalents and restricted cash $ 96,386 $ 110,537

Short-term and Long-term Investments

The Company generally invests its excess cash in investment grade short- to intermediate-term fixed income securities. Such investments are included in cash and cash equivalents, short-term investments, and long-term investments on the consolidated balance sheets, classified as available-for-sale, and reported at fair value with unrealized gains and losses included in accumulated other comprehensive income or loss. Realized gains and losses on the sale of these securities are recognized in net loss.

The Company periodically evaluates whether declines in fair values of its investments below their book value are other-than-temporary. This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss as well as the Company’s ability and intent to hold the investment until a forecasted recovery occurs. Additionally, the Company assesses whether it has plans to sell the security or it is more likely than not it will be required to sell any investment before recovery of its amortized cost basis. Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of the investments, duration and severity of the decline in value, and our strategy and intentions for holding the investment.

Concentration of Credit Risk

The Company is exposed to credit risk from its deposits of cash in excess of amounts insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses on its deposits of cash since inception.

Property and Equipment

Property and equipment consist of computer equipment, computer software, laboratory equipment, leasehold improvements and furniture and office equipment. Property and equipment are recorded at cost and depreciation is recognized using the straight-line method based on estimated useful life, generally three to five years. Leasehold improvements are amortized over the shorter of their useful life or the remaining lease term. Maintenance and repairs are charged to expense as incurred, and costs of improvements are capitalized.

The Company reviews long-lived assets for impairment whenever events or circumstances indicate the carrying amount of an asset group may not be recoverable. Should an impairment exist, the impairment

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loss would be measured based on the excess of the asset's carrying amount over its fair value. Gains and losses from asset disposals and impairment losses are classified within the consolidated statements of operations and comprehensive loss in accordance with the use of the asset. There were no impairment losses in the years ended December 31, 2022 and 2021 as there have been no events warranting an impairment analysis.

Fair Value Measurements

The carrying amounts of certain financial instruments, including cash, cash equivalents, restricted cash, investments, accounts payable and accrued expenses approximate their fair values due to the short-term nature of those amounts.

Grant Income

In December 2020, the Company accepted a grant from the National Institute on Aging (“NIA”) of the National Institutes of Health (“NIH”) to support its ACT-AD Phase 2 clinical trial for fosgonimeton (then-named ATH-1017), the Company’s lead therapeutic candidate being developed for the treatment of individuals with mild-to-moderate Alzheimer’s disease. Under the terms of the agreement and approval received from the NIH, the Company may receive up to an aggregate of $15.2 million. The Company recognizes income related to the NIH grant in the accompanying consolidated statements of operations and comprehensive loss as qualifying expenses under the grant agreement are incurred.

During the years ended December 31, 2022 and 2021, the Company recognized grant income of $5.2 million and $8.8 million, respectively, in connection with the NIH grant. As of December 31, 2022 and December 31, 2021, the Company incurred qualifying expenses in excess of cash received of $1.2 million and $2.3 million, respectively, which is included in unbilled grant receivable on the consolidated balance sheets. The Company received cash of $6.3 million related to the NIH grant during the year ended December 31, 2022, compared to $7.6 million during the year ended December 31, 2021. As of December 31, 2022, we recognized aggregate grant income of $15.1 million of the total $15.2 million approved in connection with the NIH grant.

Research and Development Expenses

Research and development expenses consist primarily of direct and indirect costs incurred for research activities, including development of the pipeline from the Company’s proprietary drug discovery platform (“ATH platform”), the Company’s drug discovery efforts and the development of its product candidates. Direct costs include laboratory materials and supplies, contracted research and manufacturing, clinical trial costs, consulting fees, and other expenses incurred to sustain the Company’s research and development program. Indirect costs include personnel-related expenses, consisting of employee salaries, related benefits, and stock-based compensation expense for employees engaged in research and development activities, and facilities and other expenses consisting of direct and allocated expenses for rent and depreciation and lab consumables.

Research and development costs are expensed as incurred. In-licensing fees and other costs to acquire technologies used in research and development that have not yet received regulatory approval and that are not expected to have an alternative future use are expensed when incurred. Non-refundable advance payments for goods and services that will be used over time for research and development are capitalized and recognized as goods are delivered or as the related services are performed. The Company estimates the period over which such services will be performed and the level of effort to be expended in each period. If actual timing of performance or the level of effort varies from the estimate, the Company adjusts the amounts recorded accordingly. The Company has not experienced any material differences between accrued or prepaid costs and actual costs since inception.

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General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related costs, consisting of employee salaries, related benefits, and stock-based compensation expense for employees in the executive, legal, finance and accounting, human resources, and other administrative functions. General and administrative expenses also include third-party costs such as legal costs, insurance costs, accounting, auditing and tax related fees, consulting fees and facilities and other expenses not otherwise included as research and development expenses. General and administrative costs are expensed as incurred.

Leases

The Company adopted Accounting Standards Codification (“ASC”) Topic 842 - Leases effective January 1, 2020. The Company determines if an arrangement contains a lease at inception. The Company performed an evaluation of contracts in accordance with ASC 842 and has determined it has an operating lease agreement for the laboratory and office facilities that the Company occupies. Operating lease right-of-use (“ROU”) assets and operating lease liabilities are recognized at the date the underlying asset becomes available for the Company’s use. Operating lease liabilities are based on the present value of the future minimum lease payments over the lease term. ROU assets are measured at the amount of the lease liability, adjusted for any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. As the Company’s leases generally do not provide an implicit interest rate, the present value of the future minimum lease payments is determined using the Company’s incremental borrowing rate. This rate is an estimate of the collateralized borrowing rate the Company would incur on its future lease payments over a similar term and is based on the information available to the Company at the lease commencement date, discussed in more detail below.

The Company’s leases contain options to extend the leases; lease terms are adjusted for these options only when it is reasonably certain the Company will exercise these options. The Company’s lease agreements do not contain residual value guarantees or covenants.

The Company has made a policy election regarding its real estate leases not to separate non-lease components from lease components, to the extent they are fixed. Non-lease components that are not fixed are expensed as incurred as variable lease expense. The Company’s lease includes variable non-lease components, such as common-area maintenance costs. The Company has elected not to record on the balance sheet a lease that has a lease term of 12 months or less and does not contain a purchase option that the Company is reasonably certain to exercise. The Company accounts for leases with initial terms of 12 months or less as operating expenses on a straight-line basis over the lease term.

Lease expense is recognized within operating expenses on a straight-line basis over the terms of the lease. Incentives granted under the Company’s facilities lease, including rent holidays, are recognized as adjustments to lease expense on a straight-line basis over the term of the lease.

Stock-based Compensation

The Company measures compensation expense for all stock-based payments to employees, officers and directors based on the estimated fair value of the award at the grant date. For stock options, the Company estimates the grant date fair value of each option award using the Black-Scholes option-pricing model. The grant date fair value of restricted stock units is based upon the fair market value of the Company’s common stock based on its closing price as reported on the date of grant on the Nasdaq Global Select Market. Compensation expense is recognized over the requisite service period on a straight-line basis. Forfeitures are recognized as they occur.

The Company records compensation expense for stock option and restricted stock unit grants subject to performance-based milestone vesting over the remaining implicit service period when management determines that achievement of the milestone is probable. Management evaluates when the achievement of a performance-based milestone is probable based on the relative satisfaction of the performance conditions as of the reporting date.

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Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

In assessing the Company’s ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences are deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future income, tax planning strategies in making this assessment.

The Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for incomes taxes.

Comprehensive Loss Attributable to Common Stockholders

Comprehensive loss attributable to common stockholders consists of net loss and other gains and losses affecting stockholders’ equity that, under U.S. GAAP, are excluded from net loss. The Company’s comprehensive loss attributable to common stockholders is comprised of net loss and unrealized gains and losses on available-for-sale securities.

Net Loss Per Share Attributable to Common Stockholders

Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period, without consideration of potentially dilutive securities. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company.

Foreign Currency Transaction Remeasurement Adjustments

Monetary assets and liabilities denominated in foreign currencies were translated into U.S. dollars, the reporting currency, at the exchange rate prevailing at the balance sheet date. Income and expenses denominated in foreign currencies were translated into U.S. dollars at the average exchange rate for the period and the transaction remeasurement adjustments are reported within other income, net in the consolidated statement of operations and comprehensive loss. The functional currency of the Company’s Australian subsidiary is the U.S. dollar.

Segments

The Company has determined that it operates and manages one operating segment, which is the business of developing and commercializing therapeutics. The Company’s chief operating decision maker, its chief executive officer, reviews financial information on an aggregate basis for the purpose of allocating resources.

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Emerging Growth Company Status

The Company is an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies. The Company has elected to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that it is (a) no longer an emerging growth company or (b) affirmatively and irrevocably opts out of the extended transition period provided in the JOBS Act, unless early adoption is permitted. As a result, these financial statements may not be comparable to companies that comply with the new or revised accounting pronouncements as of public company effective dates.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments: Credit Losses (Topic 326) as clarified in ASU 2019-04, ASU 2019-05, and ASU 2020-02. The objective of the standard is to provide information about expected credit losses on financial instruments at each reporting date and to change how other-than-temporary impairments on investment securities are recorded. The ASU will become effective beginning January 1, 2023, with early adoption permitted. The adoption of ASU 2016-13 will not have a material impact on the Company’s financial condition, results of operations, cash flows or financial statement disclosures.

Although there were several other new accounting pronouncements issued or proposed by the FASB, the Company does not believe any of these have had or will have material impact on its consolidated financial statements.

3. Fair Value

The Company has certain assets and liabilities that are measured at fair value on a recurring basis according to a fair value hierarchy that prioritizes the inputs, assumptions and valuation techniques used to measure fair value. The three levels of the fair value hierarchy are:

Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2—Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3—Inputs are generally unobservable and reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are determined using model-based techniques, including probability-based simulation methodologies.

The determination of a financial instrument’s level within the fair value hierarchy is based on an assessment of the lowest level of any input that is significant to the fair value measurement. The Company considers observable data to be market data, which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

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The following tables reflect the Company’s financial asset balances measured on a recurring basis (in thousands):

Level AmortizedCost UnrealizedGains UnrealizedLosses FairValue

Cash equivalents:

Money market fund 1 $ 7 $ — $ — $ 7

Short-term investments:

Long-term investments:

Level AmortizedCost UnrealizedGains UnrealizedLosses FairValue

Cash equivalents:

Money market fund 1 $ 57 $ — $ — $ 57

Short-term investments:

Long-term investments:

All the commercial paper, U.S. government debt, municipal bonds and agency securities, U.S. treasury bills, and corporate bonds designated as short-term investments have an effective maturity date that is equal to or less than one year from the respective balance sheet date. Those that are designated as long-term investments have an effective maturity date that is more than one year, but less than two years, from the respective balance sheet date.

The Company evaluated its investments for other-than-temporary impairment and considers the decline in market value for the securities to be primarily attributable to current economic and market conditions. For the investments, it is not more-likely-than-not that the Company will be required to sell the investments, and the Company does not intend to do so prior to the recovery of the amortized cost basis.

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4. Property and Equipment, Net

Property and equipment consisted of the following (in thousands):

December 31,

Office furniture, fixtures, and computer equipment 692 325

Construction in progress — 1,124

Property and equipment, at cost 5,421 4,280

Less: accumulated depreciation (1,368 ) (523 )

Property and equipment, net $ 4,053 $ 3,757

Depreciation expense was $845,000 and $479,000 for the years ended December 31, 2022 and 2021, respectively.

5. Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

December 31,

Research and development expenses $ 3,843 $ 5,723

Employee compensation and benefits 3,415 1,907

Professional services and other 1,346 807

Total accrued liabilities $ 8,604 $ 8,437

6. Significant Agreements

Washington State University (“WSU”) License Agreement

The Company is party to an amended and restated exclusive license agreement with sublicensing terms with Washington State University (“WSU”) that the Company entered into in 2015. Under this agreement, the Company has an exclusive license to make, use, sell, and offer for sale products covered by certain licensed patents, including dihexa, the chemical compound into which fosgonimeton metabolizes following administration.

To keep in good standing, the agreement requires the Company to meet certain development milestones and pay annual maintenance fees. All contractual requirements have been met as of December 31, 2022.

During the year ended December 31, 2020, the Phase 2 clinical trial milestone had been reached and a payment of $50,000 to WSU was recorded.

The Company may also be obligated to pay the following if the related milestones are reached:

•

$300,000 – At initiation of the first Phase 3 clinical trial in the United States, European Union or Japan for the first licensed product; and

•

$600,000 – Upon receipt of marketing approval in the United States, European Union or Japan for the first licensed product.

Under the terms of the agreement, the Company will pay a royalty in the mid-single digits of net sales, with the first $100,000 of net sales being exempt from royalty payment, and annual minimum royalty payments of $25,000 beginning after the first commercial sale of a licensed product. As of December 31,

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2022, no sales of any licensed products had occurred and the Company had not incurred a royalty obligation under this agreement.

Additionally, the agreement allows the Company to sublicense the rights conveyed by the agreement, subject to additional payments to WSU based upon the sublicense consideration received in such event. Such amounts are dependent on the terms of the underlying sublicense and range from the mid-single digits to mid-teens of any non-sales based payments received, and low twenties of net sales based sublicense royalties. As of December 31, 2022, the Company has not entered into or incurred any liability from a sublicense agreement.

7. Commitments and Contingencies

Legal Proceedings

From time to time, the Company is subject to various legal proceedings or claims that arise in the ordinary course of business. The Company accrues a liability when the Company's management believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. The following is a brief description of the more significant legal proceedings.

Securities Class Actions

On June 25, 2021, plaintiffs Fan Wang and Hang Gao filed a putative securities class action lawsuit in the U.S. District Court for the Western District of Washington against the Company and the Company’s former chief executive officer Dr. Leen Kawas, captioned Wang v. Athira Pharma, Inc., et al., No. 2:21-cv-00861. Plaintiffs Wang and Gao assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 ("Exchange Act") and SEC Rule 10b-5, alleging that the defendants made materially false and misleading statements and omitted material adverse facts regarding the Company’s business. Specifically, the Wang plaintiffs allege that the Company failed to disclose to investors that certain research conducted by Dr. Kawas was allegedly tainted by scientific misconduct during her doctoral work at WSU, including the manipulation of data, and that as a result, the defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading. The Wang plaintiffs seek unspecified compensatory and punitive damages, and reasonable costs and expenses, including attorneys’ fees.

That same day, on June 25, 2021, plaintiff Harshdeep Jawandha filed a putative securities class action lawsuit in the U.S. District Court for the Western District of Washington against the Company, Dr. Kawas, the Company’s chief financial officer, certain members of the Company’s board of directors at the time of the Company’s initial public offering (IPO), as well as the IPO underwriters, captioned Jawandha v. Athira Pharma, Inc., et al., No. 2:21-cv-00862. The Jawandha complaint asserts violations of Sections 11 and 15 of the Securities Act of 1933 ("Securities Act"), alleging that that the Company’s IPO registration statement was materially false and misleading because it omitted to state that certain of Dr. Kawas’s published doctoral research papers at WSU contained allegedly improperly altered images, that the research was allegedly foundational to the Company’s efforts to develop treatments for Alzheimer’s disease, and that the defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading. The Jawandha plaintiff seeks unspecified compensatory damages, and reasonable costs and expenses, including attorneys’ fees.

Also on June 25, 2021, plaintiffs Timothy Slyne and Tai Slyne filed a putative securities class action lawsuit in the U.S. District Court for the Western District of Washington against the Company, Dr. Kawas, the Company’s chief financial officer, and the same members of the Company’s board of directors and underwriters as in the Jawandha complaint, captioned Slyne v. Athira Pharma, Inc. et al., No. 2:21-cv-00864. The Slyne complaint asserts violations of Sections 11 and 15 of the Securities Act, alleging that purported issues with Dr. Kawas’s doctoral research at WSU should have been disclosed in the Company’s IPO registration statement. The Slyne plaintiffsseek unspecified compensatory damages, reasonable costs and expenses, including attorneys’ fees, and injunctive and other equitable relief.

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On August 9, 2021, the court issued an order consolidating the three cases. On October 5, 2021, the district court issued an order appointing lead plaintiffs and approved their selection of lead and liaison counsel.

On January 7, 2022, lead plaintiffs filed a consolidated amended complaint, which asserts violations of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 and Sections 11, 12, and 15 of the Securities Act. The consolidated amended complaint is brought against the Company, Dr. Kawas, the Company’s chief financial officer, certain members of the Company's board of directors at the time of the Company's IPO and secondary public offering, or SPO, and the IPO and SPO underwriters. As with the previous complaints, it is based on allegations that the IPO and SPO registration statements and/or other public statements were materially false and misleading because they omitted to state that certain of Dr. Kawas’s published doctoral research papers at WSU contained allegedly improperly altered images. Lead plaintiffs seek unspecified compensatory damages, as well as equitable and injunctive relief on behalf of themselves and the purported class. On March 8, 2022, the defendants filed a motion to dismiss lead plaintiffs’ consolidated amended complaint for failure to state a claim under the federal securities laws. On July 29, 2022, the court issued an order granting in part and denying in part the motion to dismiss. The order dismissed the Section 10(b) and Section 20(a) claims arising under the Exchange Act, dismissed the Section 11 claim arising under the Securities Act as to all defendants other than the Company and Dr. Kawas, dismissed the Section 12(a)(2) claim arising under the Securities Act as to the lead plaintiffs, and dismissed the Section 15 claim arising under the Securities Act against all defendants other than Dr. Kawas. The order permitted lead plaintiffs until August 19, 2022 to file a second consolidated amended complaint. Lead plaintiffs did not file a second consolidated amended complaint.

On August 12, 2022, defendant Dr. Kawas filed a motion for partial reconsideration of the court’s July 29, 2022 order. On October 24, 2022, the parties filed a (1) joint status report and discovery plan and (2) stipulation and case scheduling order, wherein the parties proposed deadlines for material case events, including the completion of fact discovery, expert discovery, and dispositive motion practice. On November 2, 2022, the court entered an order setting certain case deadlines. On November 4, 2022, the Company and Dr. Kawas filed their individual answers to the consolidated amended complaint. In mid-November 2022, the parties began conducting fact discovery. On December 19, 2022, the underwriter defendants filed a motion for entry of judgment. On February 17, 2023, the court issued an order directing the parties to provide briefing on the court’s proposed form of partial judgment.

On February 28, 2023, the Company reached an agreement in principle to resolve all claims in the class action lawsuit. Under the proposed settlement, the Company has agreed to make a one-time payment of $10.0 million. As a result, the Company recorded a legal settlement expense of $10.0 million in operating expenses on the accompanying consolidated statements of operations and comprehensive loss in the fourth quarter of 2022 and an accrued liability of $10.0 million on the accompanying consolidated balance sheets. The proposed settlement is subject to the parties finalizing a stipulation of settlement and preliminary and final approval of the U.S. District Court for the Western District of Washington.

Shareholder Derivative Actions

On April 14, 2022, a shareholder derivative action was filed by plaintiff Stephen Bushansky in the U.S. District Court for the Western District of Washington against certain current and former members of the Company’s board of directors, captioned Bushansky v. Kawas et al., No. 2:22-cv-497. Plaintiff purports to bring the action derivatively on behalf of the Company, which is a nominal defendant to the action. The derivative complaint alleges that the Company’s board of directors breached its fiduciary duties by failing to prevent alleged misstatements in the Company’s public filings, failing to discover altered images in certain research papers, and failing to take appropriate action. The derivative complaint asserts claims for violations of Section 14(a) of the Exchange Act as well as claims for breach of fiduciary duty, contribution and indemnification, aiding and abetting, and waste of corporate assets. The derivative complaint seeks unspecified damages, disgorgement of profits, benefits, and other compensation received by the individual

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defendants, restitution, declaratory relief, and an award of costs and expenses to the derivative plaintiff, including attorneys’ fees.

On May 6, 2022, a second shareholder derivative action was filed by plaintiff Thomas Houlihan in the U.S. District Court for the Western District of Washington against certain current and former directors and officers of the Company, captioned Houlihan v. Kawas et al., No. 2:22-cv-620. Plaintiff purports to bring the action derivatively on behalf of the Company, which is a nominal defendant to the action. The derivative complaint alleges that certain of the Company’s current and former directors and officers breached their fiduciary duties by failing to prevent alleged misstatements in the Company’s public filings and failing to take appropriate action regarding altered images in certain research papers. The derivative complaint asserts claims for violations of Section 14(a) of the Exchange Act as well as claims for breach of fiduciary duties, contribution, and indemnification. The derivative complaint seeks unspecified damages, unspecified corporate governance reforms, restitution, and an award of costs and expenses to the derivative plaintiff, including attorneys’ fees.

On May 26, 2022, the court issued an order consolidating the cases and staying them until further order of the court.

Government Investigations

In November 2022, the Company received a Civil Investigative Demand from the Civil Division of the Department of Justice, or the Demand. The Demand seeks documents and information relating to our relationship with WSU, certain of our grant applications in 2016 and 2019 with the National Institutes of Health, or NIH, and our receipt of a NIH grant in 2020. The Company is cooperating with the Department of Justice with respect to the Demand.

In February 2023, the Securities and Exchange Commission, or SEC, sent the Company a subpoena seeking documents and information relating to, among other things, our former chief executive officer's alterations of images in certain research papers. The Company is cooperating with the SEC with respect to the subpoena.

The Company cannot predict the outcome of these lawsuits or government investigations. Failure by the Company to obtain a favorable resolution of these actions could have a material adverse effect on our business, results of operations and financial condition. The Company’s chances of success on the merits are still uncertain and, other than an accrual of $10.0 million recorded for the proposed settlement of the securities class action litigation for the year ended December 31, 2022, any possible loss or range of loss cannot be reasonably estimated and as such the Company has not otherwise recorded a liability as of December 31, 2022.

Indemnifications

In the ordinary course of business, the Company enters into agreements that may include indemnification provisions. Pursuant to such agreements, the Company may indemnify, hold harmless and defend an indemnified party for losses suffered or incurred by the indemnified party. Some of the provisions will limit losses to those arising from third party actions. In some cases, the indemnification will continue after the termination of the agreement. The maximum potential amount of future payments the Company could be required to make under these provisions is not determinable. To date the Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. The Company enters into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers to the fullest extent permitted by Delaware corporate law. The Company

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currently has directors’ and officers’ insurance coverage that reduces its exposure and enables the Company to recover a portion of any future amounts paid.

Operating Leases

The Company has operating leases for laboratory and office facilities in Bothell, Washington that expire in August 2027. The initial terms of the leases range from 6.3 to 7 years and the Company has options to extend the leases for an additional five years that it is not reasonably certain to exercise. As of December 31, 2022, the Company was not party to any finance leases.

The following table reconciles the Company’s undiscounted operating lease cash flows to its operating lease liability (in thousands):

Total undiscounted lease payments 2,295

Present value adjustment for minimum lease commitments (384 )

Net lease liability $ 1,911

The weighted average remaining lease term and the weighted average discount rate used to determine the operating lease liability were as follows:

Weighted average remaining lease term (years) 4.7

Weighted average discount rate 8.1 %

Operating lease expense was $368,000 and $323,000 for the years ended December 31, 2022 and 2021, respectively. Separately, variable lease expense was $167,000 and $108,000 for operating leases during the years ended December 31, 2022 and 2021, respectively.

8. Common Stock

Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and if declared by the Company’s board of directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No cash dividends have been declared by the board of directors from inception.

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The Company has reserved the following shares of common stock for future issuance, on an as-converted basis, as follows:

December 31,

The Company’s 2020 Equity Incentive Plan (“2020 Plan”) provides for annual increases in the number of shares that may be issued under the 2020 Plan on January 1, 2021 and each subsequent January 1, thereafter, by a number of shares equal to the least of (1) 3,230,000 shares, (2) 5% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, and (3) an amount determined by the Company’s board of directors.

The Company’s 2020 Employee Stock Purchase Plan (“ESPP”) provides for annual increases in the number of shares that may be issued under the ESPP on January 1, 2021 and each subsequent January 1, thereafter, by a number of shares equal to the least of (a) 646,000 shares, (b) 1% of the number of shares of common stock issued and outstanding on the immediately preceding December 31, or (c) an amount determined by the Company’s board of directors.

Effective January 1, 2022, the Company’s 2020 Plan and ESPP reserves increased by 1,868,953 shares and 373,790 shares, respectively.

Effective January 1, 2023, the Company’s 2020 Plan and ESPP reserves increased by 1,893,869 shares and 378,773 shares, respectively.

9. Stock-based Compensation

Stock‐based compensation expense recognized was as follows (in thousands):

Year Ended December 31,

Total stock-based compensation expense $ 10,606 $ 4,623

Valuation Assumptions

The fair value of stock options was determined using the Black-Scholes option-pricing model and the assumptions below. Each of these inputs is subjective and generally required significant judgment.

•

Fair Value of Common Stock—The fair value of each share of common stock is based on the closing price of the Company’s common stock on the date of grant, or other relevant determination date, as reported on The Nasdaq Global Select Market.

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•

Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero coupon issues in effect at the time of grant for periods corresponding with the expected term of the option.

•

Expected Volatility—Because the Company was previously privately held and did not have any trading history for its common stock, the expected volatility was estimated based on the average volatility for comparable publicly traded life sciences companies over a period equal to the expected term of the stock option grants. The comparable companies were chosen based on the similar size, stage in life cycle or area of specialty. The Company will continue to apply this process until a sufficient amount of historical information regarding the volatility of its own stock price becomes available.

•

Expected Term—The expected term represents the period that the stock-based awards are expected to be outstanding and is determined using the simplified method (based on the midpoint between the vesting date and the end of the contractual term) as the Company has limited history of relevant stock option exercise activity.

•

Expected Dividend Yield—The Company has never paid dividends on its common stock and has no plans to pay dividends going forward. Therefore, it used an expected dividend yield of zero.

The fair value of each stock option was estimated using the Black‐Scholes option‐pricing model with the following weighted-average assumptions:

Year Ended December 31,

Risk-free interest rate 2.15 % 0.99 %

Expected term (in years) 6.02 6.10

Expected dividend yield — —

The grant date fair value of restricted stock units is based upon the fair market value of the Company’s common stock based on its closing price as reported on the date of grant on the Nasdaq Global Select Market.

The fair value of options granted during the years ended December 31, 2022 and 2021 were $16.3 million and $14.4 million, respectively. The fair value of restricted stock units granted during the year ended December 31, 2022 and 2021 was $129,000 and $5.7 million, respectively.

Stock Option Activity

Changes in shares available for grant under the 2020 Plan during the year ended December 31, 2022 were as follows:

SharesAvailable for Grant

Options and restricted stock units granted (2,242,047 )

Options and restricted stock units forfeited, cancelled, or expired 184,633

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A summary of option activity for the year ended December 31, 2022 was as follows:

The total fair value of options granted that vested during the years ended December 31, 2022 and 2021 was $6.8 million and $1.4 million, respectively.

The aggregate intrinsic value in the table above is calculated as the difference between the exercise price of the underlying options and the estimated fair value of the Company’s common stock underlying all options that were in-the-money at December 31, 2022. The aggregate intrinsic value of options exercised was $3.0 million and $3.1 million during the year ended December 31, 2022 and 2021, respectively, determined as of the date of option exercise. As of December 31, 2022, there was $18.6 million of total unrecognized compensation cost related to non-vested stock options. The Company expects to recognize this cost over a remaining weighted-average period of 2.68 years. The Company utilizes newly issued shares to satisfy option exercises.

Stock options outstanding and exercisable consisted of the following at December 31, 2022:

Exercise Price ($) SharesOutstanding SharesExercisable

Restricted Stock Unit Activity

A summary of RSU activity for the year ended December 31, 2022 is as follows:

ShareEquivalent Weighted-AverageGrant DateFair Value

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The RSUs will vest upon achievement of certain clinical development milestones, subject to continued service to the Company during the vesting period. In June 2022, 119,911 RSUs vested in connection with the public readout of topline data from the Company's Phase 2 ACT-AD clinical trial. As of December 31, 2022, there was $1.4 million of total unrecognized compensation cost related to unvested RSUs. The Company expects to recognize this cost over a remaining weighted-average period of 0.80 years.

Employee Stock Purchase Plan

Under the ESPP, eligible employees can authorize payroll deductions for amounts up to the lesser of 15% of their qualifying wages or the statutory limit under the U.S. Internal Revenue Code. The ESPP provides for offering periods of six months in duration with one purchase period per offering period beginning May 18 and November 18 of each year. Participants in an offering period will be granted the right to purchase shares of our common stock at a price per share that is 85% of the lesser of the fair market value of the shares at (1) the first day of the offering period or (2) the end of each purchase period within the offering period. A maximum of 10,000 shares of common stock may be purchased by each participant at the purchase date during the offering period. The fair value of the ESPP options granted is determined using the Black-Scholes model and is amortized on a straight-line basis. The number of shares reserved for the ESPP automatically increases each year, beginning on January 1, 2021 by the least of (1) 646,000 shares of common stock, (2) 1% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, or (3) such number of shares determined by the board no later than the last day of the immediately preceding fiscal year. As of December 31, 2022, 916,640 shares of common stock were reserved for future grants under the ESPP. On January 1, 2023, an additional 378,773 shares of common stock became available for future grants under the ESPP. Stock-based compensation expense recognized during the years ended December 31, 2022 and 2021 associated with the ESPP was $162,000 and $164,000, respectively.

During the year ended December 31, 2022, the Company issued 78,361 shares of common stock to service providers under the ESPP.

10. Income Taxes

Components of Income and Income Tax

The Company did not record a provision (benefit) for income taxes for the years ended December 31, 2022 and 2021. Net loss is attributable to the following tax jurisdictions (in thousands):

Year Ended December 31,

The provision for income taxes differs from the amount expected by applying the federal statutory rates to the net loss before taxes as follows:

Year Ended December 31,

Federal statutory income tax rate 21.0 % 21.0 %

State taxes (0.4 ) 1.2

Stock-based compensation (1.3 ) 0.4

Non-deductible expenses and others (0.1 ) (0.2 )

Change in valuation allowance (21.4 ) (24.6 )

Effective income tax rate — % — %

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Deferred Tax Assets and Liabilities

The components of the Company’s deferred tax assets and liabilities were as follows (in thousands):

Year Ended December 31,

Deferred tax assets:

Research and development tax credit carryforwards 4,218 2,166

Operating lease liability 404 426

Capitalized research and development 10,729 —

Deferred tax liabilities:

Right of use asset (267 ) (324 )

Prepaid expenses and other (475 ) (664 )

Unrealized gain (loss) (294 )

Total deferred tax liabilities (1,036 ) (988 )

Net deferred tax assets $ — $ —

Deferred income taxes reflect temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes, and operating losses and tax credit carryforwards. The Company considers a number of factors concerning the realizability of its net deferred tax assets, including its history of operating losses, the nature of the deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible, all of which require significant judgment. As of December 31, 2022, the Company has recorded a full valuation allowance on its net deferred tax assets as the Company has concluded that it is not more likely than not that such losses or credits will be utilized. The valuation allowance increased by $20.4 million and $13.5 million during 2022 and 2021, respectively.

At December 31, 2022, the Company has federal net operating loss and tax credit carryforwards of $9.5 million and $5.6 million, respectively, which expire over a period of 9 to 15 years. Net operating loss carryforwards of $104.4 million were generated after 2017, and therefore do not expire. As of December 31, 2022, the Company also had state net operating loss carryforwards of $2.7 million, which expire over a period of 19 to 20 years.

The Tax Cuts and Jobs Act contained a provision which requires the capitalization of Section 174 costs incurred in years beginning on or after January 1, 2022. Section 174 costs are expenditures which represent research and development costs that are incident to the development or improvement of a product, process, formula, invention, computer software, or technique. This provision changes the treatment of Section 174 costs such that the expenditures are no longer allowed as an immediate deduction but rather must be capitalized and amortized. We have included the impact of this provision, which results in a deferred tax asset of approximately $10.7 million as of December 31, 2022.

Uncertain Tax Positions

The Company files federal income tax returns. With few exceptions, the Company is no longer subject to income tax examinations by tax authorities for years prior to 2016. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits

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were generated and carried forward and may make adjustments to the amount of the net operating loss or credit carryforward amount. The Company is not currently under examination in any jurisdiction.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for uncertain tax positions were as follows (in thousands):

Year Ended December 31,

Reductions for tax positions taken in prior years — (30 )

Additions for tax positions taken in the current year 684 415

If the unrecognized tax benefits for uncertain tax positions as of December 31, 2022 are recognized, there will be no impact to the effective tax rate due to the valuation allowance. The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated financial statements. At December 31, 2022, there were no material interest and penalties on uncertain tax benefits. The Company does not anticipate any significant changes to its unrecognized tax benefits in the next 12 months.

11. Employee Benefit Plans

The Company has a 401(k) Plan for all of its employees. The 401(k) Plan allows eligible employees to defer, at the employee’s discretion, up to 100% of their pretax compensation up to the Internal Revenue Service annual limit. The Company made matching contributions of $354,000 during the year ended December 31, 2022. The Company did not make any matching contributions during the year ended December 31, 2021.

12. Net Loss Per Share Attributable to Common Stockholders

The following outstanding shares of potentially dilutive securities were excluded from the computation of the diluted net loss per share attributable to common stockholders for the periods presented because their effect would have been anti-dilutive:

Year Ended December 31,

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Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.