COGNITION THERAPEUTICS INC 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial conditions and results of operations should be read together with our condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report, and our final prospectus, or the Prospectus, for our initial public offering, or IPO, dated October 7, 2021 and filed with the United States Securities and Exchange Commission, or SEC, pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, or the Securities Act. Some of the information with respect to our plans and strategy for our business, including forward-looking statements that involve risks and uncertainties. As a result of many factors, including those set forth in the section entitled “Risk Factors in Part II, Item 1A of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the section entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Overview We are a clinical-stage biopharmaceutical company engaged in the discovery and development of innovative, small molecule therapeutics targeting age-related degenerative diseases and disorders of the central nervous system, or CNS, and retina. Currently available therapies for these diseases are limited, with many diseases having no approved therapies or treatments. Our goal is to develop disease modifying treatments for patients with these degenerative disorders by initially leveraging our expertise in the σ-2 (sigma-2) receptor, or S2R, which is expressed by multiple cell types, including neuronal synapses, and acts as a key regulator of cellular damage commonly associated with certain age-related degenerative diseases of the CNS and retina. We believe that targeting the S2R complex represents a mechanism that is functionally distinct from other current approaches in clinical development for the treatment of degenerative diseases. Since our inception in 2007, we have incurred significant operating losses and devoted substantially all of our time and resources to developing our lead product candidate, CT1812, building our intellectual property portfolio, raising capital and recruiting management and technical staff to support these operations. As of September 30, 2021 and December 31, 2020, we had an accumulated deficit of $86.7 and $68.2 million, respectively. We incurred net losses of $3.1 million and $4.4 million for the three and nine months ended September 30, 2021, respectively, and $1.8 million and $6.0 million for the three and nine months ended September 30, 2020, respectively. To date, we have funded our operations primarily with proceeds from grants awarded by the National Institute of Aging, or NIA, a division of the National Institutes of Health, or NIH, and proceeds from the sales of our convertible promissory notes, convertible preferred stock, Simple Agreements for Future Equity, or SAFEs, and stock option exercises. Since our inception, we have received approximately $168.4 million in cumulative grant awards to fund our clinical trials, primarily from the NIA, and we have raised approximately $106.9 million in net proceeds from sales of our equity securities, convertible notes, SAFEs, stock option exercises, and our IPO. On March 25, 2021, we entered into SAFEs, with various investors, pursuant to which we received gross proceeds in an aggregate amount equal to $8.9 million. As of September 30, 2021, we had cash and cash equivalents of $8.3 million. On October 13, 2021, we completed our IPO, pursuant to which we issued and sold 3,768,116 shares of our common stock at a public offering price of $12.00 per share. We received net proceeds of approximately $38.1 million, after deducting underwriting discounts and commissions and other offering related expenses payable by us. On November 12, 2021, the underwriters exercise of their over-allotment option in full to purchase 565,217 shares of our common stock closed. We received net proceeds of approximately $6.3 million, after deducting underwriting discounts and commissions and other offering related expenses payable by us. We expect to continue to incur significant and increasing expenses and net losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company. We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. In addition, if we obtain regulatory approval for our product candidates and do not enter into a third-party commercialization 31 Table of Contents partnership, we expect to incur significant expenses related to developing our commercialization capability to support product sales, marketing, manufacturing and distribution activities. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity offerings, debt financings or other sources, such as potential collaboration agreements and strategic alliances, licensing or similar arrangements with third parties. To the extent available, we expect to continue our pursuit of non-dilutive research contributions, or grants, including additional NIA grant funding. However, we may fail to receive additional NIA grants, or we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to obtain additional NIA grants or raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition. Because of the numerous risks and uncertainties associated with product development, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to raise capital, maintain our research and development efforts, expand our business or continue our operations at planned levels, and as a result we may be forced to substantially reduce or terminate our operations. We do not own or operate manufacturing facilities. We rely, and expect to continue to rely, on third parties for the manufacture of CT1812 for preclinical studies and clinical trials, as well as for commercial manufacture if CT1812 obtains marketing approval. We also rely, and expect to continue to rely, on third parties to manufacture, package, label, store, and distribute CT1812, if marketing approval is obtained. We believe that this strategy allows us to maintain a more efficient infrastructure by eliminating the need for us to invest in our own manufacturing facilities, equipment, and personnel while also enabling us to focus our expertise and resources on the development of CT1812. Impact of COVID-19 on Our Business Our business has been and could continue to be adversely affected by the effects of the recent and evolving COVID-19 pandemic, which was declared by the World Health Organization as a global pandemic. Our clinical trials have been, and may in the future be, affected by the COVID-19 pandemic. For example, the COVID-19 pandemic may impact patient enrollment in our ongoing and future clinical trials of CT1812. In particular, some sites have in the past or may in the future pause enrollment to focus on, and direct resources to, COVID-19, while at other sites, patients may choose not to enroll or continue participating in the clinical trial as a result of the pandemic. In addition, patient visits to medical providers in the United States have slowed as a result of the COVID-19 pandemic. Further, according to the Centers for Disease Control and Prevention, people who have serious chronic medical conditions are at higher risk of getting very sick from COVID-19. As a result, potential patients in our ongoing and future clinical trials of CT1812 may choose to not enroll, not participate in follow-up clinical visits or drop out of the trial as a precaution against contracting COVID-19. Further, some patients may not be able or willing to comply with clinical trial protocols if quarantines impede patient movement or interrupts healthcare services. Our ongoing or planned clinical trials may also be impacted by interruptions or delays in the operations of the FDA and comparable foreign regulatory authorities. For example, we have made certain adjustments to the operation of our trials in an effort to ensure the monitoring and safety of patients and minimize risks to trial integrity during the pandemic in accordance with the guidance issued by the FDA and may need to make further adjustments in the future. We have also initiated our clinical trial protocols to enable remote visits to mitigate any potential impacts as a result of the COVID-19 pandemic. Many of these adjustments are new and untested, may not be effective, may affect the integrity of data collected, and may have unforeseen effects on the progress and completion of our clinical trials and the findings from such clinical trials. The spread of COVID-19, including the spread of new strains and variants of COVID-19, and actions taken to reduce such spread may also materially affect us economically. While the potential economic impact brought by, and the duration of, the COVID-19 pandemic may be difficult to assess or predict, there could be a significant disruption of 32 Table of Contents global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity and financial position. In addition, the trading prices for other pharmaceutical companies have been highly volatile as a result of the COVID-19 pandemic. As a result, we may face difficulties raising capital through sales of our common stock or such sales may be on unfavorable terms. Components of Our Results of Operations Operating Expenses Research and Development Expenses Research and development expenses consist primarily of direct and indirect costs incurred for our research activities, including development of 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, 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. 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 substantially 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 begin to 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. General and Administrative Expenses General and administrative expenses consist primarily of personnel-related costs, including employee salaries, related benefits, and stock-based compensation expense for our employees in the executive, finance and accounting, 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. We expense general and administrative costs as incurred. We expect that our general and administrative expenses will increase substantially for the foreseeable future as we increase our headcount to support our continued research activities and development of our programs. Following the completion of our IPO on October 13, 2021, we expect that we will incur substantially increased 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. 33 Table of Contents Other Income (Expense) Grant Income Grant income relates to the grants awarded from governmental bodies that are conditional cost reimbursement grants and are recognized as grant income as allowable costs are incurred and the right to payment is realized. The grants awarded relate to agreed upon direct and indirect costs for specific studies or clinical trials, which may include personnel and consulting costs, costs paid to contract research organizations, or CROs, research institutions and /or consortiums involved in the grant , as well as facilities and administrative costs. These grants are cost plus fixed fee arrangements in which we are reimbursed for eligible direct and indirect costs over time, up to the maximum amount of each specific grant award. Only costs that are allowable under the grant award, certain government regulations and the NIH’s supplemental policy and procedure manual may be claimed for reimbursement, and the reimbursements are subject to routine audits from governmental agencies from time to time. Our clinical trials have been funded by approximately $168.4 million in cumulative grants awarded primarily by the NIA, which includes an approximately $81.0 million grant from the NIA to fund our upcoming Phase 2 (COG0203) study of CT1812 in patients with early-stage AD. Change in fair value of derivative liability Change in fair value of our derivative liability consists of changes in the fair value of certain conversion and redemption features associated with our convertible notes that are required to be bifurcated and accounted for as free-standing derivative financial instruments. The derivative liability expired unexercised upon the conversion of the convertible notes into Series B-1 convertible preferred stock in May of 2021. Change in fair value of warrant liability Change in fair value of our warrant liability consists primarily of the change in fair value of our unexercised Series A-1 convertible preferred stock warrants during the applicable periods. These warrants expired unexercised in October 2020 and were derecognized at that time. Change in fair value of SAFEs Change in fair value of our SAFEs consist of fair value adjustments to these instruments based primarily on the changes in the probability of occurrence and estimated timing of future event inputs in the valuation model. Interest expense, net Interest expense, net primarily consists of interest expense from our convertible notes, partially offset by interest income from interest-bearing cash equivalents. Other income, net Other income, net consists primarily of research and development tax credits earned in the applicable period, as well as foreign currency transaction gains or losses. 34 Table of Contents Results of Operations Comparison of the Three Months Ended September 30, 2021 and 2020 The following table summarizes our results of operations (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ ​ ​ ​ 2021 2020 Change Operating Expenses: ​ ​ ​ Research and development ​ $ 3,675 ​ $ 3,399 ​ $ 276 General and administrative ​ 1,548 ​ 1,062 ​ 486 Total operating expenses ​ 5,223 ​ 4,461 ​ 762 Loss from operations ​ (5,223) ​ (4,461) ​ (762) Other income (expense): ​ ​ ​ ​ Grant income ​ 3,037 ​ 3,192 ​ (155) Change in the fair value of the derivative liability ​ — ​ (112) ​ 112 Change in the fair value of the warrant liability ​ — ​ 1 ​ (1) Change in the fair value of the Simple Agreements for Future Equity ​ ​ (932) ​ ​ — ​ ​ ​ Other income, net ​ 8 ​ 95 ​ (87) Interest expense, net ​ — ​ (506) ​ 506 Total other income, net ​ 2,113 ​ 2,670 ​ (557) Net loss ​ $ (3,110) ​ $ (1,791) ​ $ (1,319) ​ Research and Development Expenses The following table summarizes our research and development expenses (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended September 30, ​ ​ ​ ​ 2021 2020 Change Clinical programs ​ $ 575 ​ $ 1,257 ​ $ (682) Personnel ​ 967 ​ 1,066 ​ (99) Manufacturing ​ 1,849 ​ 601 ​ 1,248 Preclinical programs ​ 258 ​ 448 ​ (190) Facilities and other costs ​ 26 ​ 27 ​ (1) ​ ​ $ 3,675 ​ $ 3,399 ​ $ 276 ​ Research and development expenses were $3.7 million for the three months ended September 30, 2021, compared to $3.4 million for the three months ended September 30, 2020. The increase of $0.3 million was primarily due to the following: ● a decrease of $0.7 million in clinical programs related to delays due to COVID 19, resulting in timing and scope changes to clinical studies; and ● an increase of $1.2 million in manufacturing expense related to costs incurred with contract manufacturing organizations for production of pre-clinical and future clinical trial materials associated with our most advanced product candidates. General and Administrative Expenses General and administrative expenses were $1.6 million for the three months ended September 30, 2021, compared to $1.1 million for the three months ended September 30, 2020. The increase of $0.5 million was primarily due to: ● an increase of $0.5 million in professional fees and consulting services and stock compensation. 35 Table of Contents Other Income (Expense) Grant Income Grant income was $3.0 million for the three months ended September 30, 2021, compared to $3.2 million for the three months ended September 30, 2020. Overall, the change in grant income was not significant in either period. Change in Fair Value of the Derivative Liability Changes in the fair value derivative liability resulted in no gain or loss for the three months ended September 30, 2021, compared to a loss of $0.1 million for the three months ended September 30, 2020. There was no gain or loss for the three months ended September 30, 2021 as the derecognition of the derivative liability occurred May of 2021 upon the conversion of the convertible notes into Series B-1 Convertible Preferred Stock at that time. Change in Fair Value of the Warrant Liability Changes in the fair value of warrant liabilities resulted in no gain or loss for the three months ended September 30, 2021, and a gain of less than $0.1 million for the three months ended September 30, 2020. There was no gain or loss for the three months ended September 30, 2021 as the warrants to purchase Series A-1 preferred stock expired in October 2020. Change in Fair Value of the SAFEs ​ Changes in the fair value of the SAFEs resulted in a loss of $1.0 million for the three months ended September 30, 2021. There was no change in fair value for the three months ended September 30, 2020 as the SAFEs were entered into in March 2021. The change was primarily driven by the change in the probability of occurrence of future event inputs in the valuation model during the period. ​ Other Income (Expense), Net Other income, net was less than $0.1 million for the three months ended September 30, 2021, and less than $0.1 million for the three months ended September 30, 2020. Overall, the change in other expense was not significant in either period. Interest Expense, Net There was no interest expense, net for the three months ended September 30, 2021, compared to Interest expense, net of $0.5 million for the three months ended September 30, 2020. The change of $0.5 million in interest expense, net was the result of the conversion of the convertible notes into Series B-1 convertible preferred stock in May 2021. 36 Table of Contents Comparison of the Nine Months Ended September 30, 2021 and 2020 The following table summarizes our results of operations (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ ​ ​ (in thousands) 2021 2020 Change Consolidated Statements of Operations Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Expenses: ​ ​ ​ Research and development ​ $ 12,999 ​ $ 9,600 ​ $ 3,399 General and administrative ​ 3,791 ​ 3,687 ​ 104 Total operating expenses ​ 16,790 ​ 13,287 ​ 3,503 Loss from operations ​ (16,790) ​ (13,287) ​ (3,503) Other income (expense): ​ ​ ​ ​ Grant income ​ 12,375 ​ 8,146 ​ 4,229 Change in the fair value of the derivative liability ​ 2,209 ​ 135 ​ 2,074 Change in the fair value of the warrant liability ​ — ​ 33 ​ (33) Change in the fair value of the Simple Agreements for Future Equity ​ ​ (1,976) ​ ​ — ​ ​ (1,976) Other income, net ​ 256 ​ 353 ​ (97) (Gain) loss on debt extinguishment ​ 443 ​ (129) ​ 572 Interest expense, net ​ (894) ​ (1,222) ​ 328 Total other income, net ​ 12,413 ​ 7,316 ​ 5,097 Net loss ​ $ (4,377) ​ $ (5,971) ​ $ 1,594 ​ Research and Development Expenses The following table summarizes our research and development expenses (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ ​ ​ ​ 2021 2020 Change Clinical programs ​ $ 2,259 ​ $ 4,217 ​ $ (1,958) Personnel ​ 2,903 ​ 3,042 ​ (139) Manufacturing ​ 6,568 ​ 863 ​ 5,705 Preclinical programs ​ 1,184 ​ 1,396 ​ (212) Facilities and other costs ​ 85 ​ 82 ​ 3 ​ ​ $ 12,999 ​ $ 9,600 ​ $ 3,399 ​ Research and development expenses were $13.0 million for the nine months ended September 30, 2021, compared to $9.6 million for the nine months ended September 30, 2020. The increase of $3.4 million was primarily due to the following: ● an increase of $5.7 million in manufacturing expense related to costs incurred with contract manufacturing organizations for production of pre-clinical and future clinical trial materials associated with our most advanced product candidates; and ● a decrease of $2.0 million in spending on clinical programs related to delays due to COVID 19, resulting in timing and scope changes to clinical studies. 37 Table of Contents General and Administrative Expenses General and administrative expenses were $3.8 million for the nine months ended September 30, 2021, compared to $3.7 million for the nine months ended September 30, 2020. The decrease of $0.1 million was primarily due to the following: ● a decrease of $0.6 million in compensation expenses; and ● an increase of $0.5 million in professional fees and consulting services. Other Income (Expense) Grant Income Grant income was $12.4 million for the nine months ended September 30, 2021, compared to $8.1 million for the nine months ended September 30, 2020. The change in grant income is correlated with the increase in eligible reimbursable costs incurred during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020. Change in Fair Value of the Derivative Liability Changes in the fair value derivative liability resulted in a gain of $2.2 million for the nine months ended September 30, 2021, compared to a gain of $0.1 million for the nine months ended September 30, 2020. The increase in the gain recorded in the nine months ended September 30, 2021 relates to the derecognition of the derivative liability in May of 2021 upon the conversion of the convertible notes into Series B-1 convertible preferred stock at that time. Change in Fair Value of the Warrant Liability Changes in the fair value of warrant liabilities resulted in no gain or loss for the nine months ended September 30, 2021, compared to a gain of less than $0.1 million for the nine months ended September 30, 2020. There was no gain or loss for the nine months ended September 30, 2021 as the warrants to purchase Series A-1 convertible preferred stock expired in October 2020. Change in Fair Value of the SAFEs Changes in the fair value of the SAFEs resulted in a loss of $2.0 million for the nine months ended September 30, 2021. There was no change in fair value for the nine months ended September 30, 2020 as the SAFEs were entered into in March 2021. The change was primarily driven by the change in the probability of occurrence of future event inputs in the valuation model during the period. Other Income (Expense), Net Other income, net was $0.3 million for the nine months ended September 30, 2021, and income of $0.4 million for the nine months ended September 30, 2020. Overall, the change in other income was not significant in either period. (Loss) gain on Debt Extinguishment Gain on debt extinguishment was $0.4 million for the nine months ended September 30, 2021. Loss on debt extinguishment was $0.1 million for the nine months ended September 30, 2020. The loss was the result of the execution of the second amendment to the convertible notes on February 27, 2020, which resulted in an extinguishment of the existing notes for accounting purposes. The gain was the result of the forgiveness of the Paycheck Protection Program loan on January 21, 2021. 38 Table of Contents Interest Expense, Net Interest expense, net was $0.9 million for the nine months ended September 30, 2021 compared to interest expense, net of $1.2 million for the nine months ended September 30, 2020. The change of $0.3 million in interest expense, net was the result of the conversion of the convertible notes into Series B-1 convertible preferred stock in May of 2021. Liquidity and Capital Resources Sources of Liquidity To date, we have funded our operations primarily with proceeds from grants awarded by the NIA, and proceeds from the sales of our convertible promissory notes, convertible preferred stock, SAFEs, stock option exercises, and our IPO. Since our inception, we have received grant awards primarily from the NIA in the aggregate amount of approximately $168.4 million and have raised approximately $106.9 million in net proceeds from sales of our equity securities, convertible notes and SAFEs, stock option exercises, and our IPO. On March 25, 2021, we completed a SAFE offering with various investors, pursuant to which we received gross proceeds in an aggregate amount equal to $8.9 million. As of September 30, 2021, we had $8.3 million in cash and cash equivalents and have not generated positive cash flows from operations. On October 13, 2021, we closed our IPO, selling 3,768,116 shares of our common stock at a public offering price of $12.00 per share. The gross proceeds from the IPO, including the exercise of the over-allotment, were $45.2 million and the net proceeds were approximately $38.1 million, after deducting underwriting discounts and commissions and other offering related expenses payable by the Company. On November 12, 2021, the underwriters exercise of their over-allotment option to purchase 565,217 shares of our common stock closed. The gross proceeds from the exercise of the over-allotment were $6.8 million and the net proceeds were approximately $6.3 million, after deducting underwriting discounts and commissions and other offering related expenses payable by the Company. Based on our current business plans, we believe that the net proceeds from the IPO, together with our existing cash and cash equivalents and income from non-dilutive grants, will be sufficient for us to fund our operating expenses and capital expenditures requirements through at least the next 24 months. We have based these estimates on assumptions that may prove to be incorrect or require adjustment as a result of business decisions, and we could utilize our available capital resources sooner than we currently expect. Future Funding Requirements We expect to continue to incur significant and increasing expenses and net losses for the foreseeable future, as we advance our current and future product candidates through preclinical and clinical development, manufacture drug product and drug supply, seek regulatory approval for our current and future product candidates, maintain and expand our intellectual property portfolio, hire additional research and development and business personnel and operate as a public company. We anticipate that we will need to raise additional funding in the future to fund our operations, including the commercialization of any approved product candidates. We are subject to the risks typically related to the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays, and other unknown factors that may adversely affect our business. Even with the closing of our IPO, we will need to raise substantial additional capital to fund the development of our product candidates. Our future funding requirements will depend on many factors, including, but not limited to: ● the scope, progress, costs and results of our ongoing and planned clinical trials of CT1812, as well as the associated costs, including any unforeseen costs we may incur as a result of preclinical study or clinical trial delays due to the COVID-19 pandemic or other delays; ● the scope, progress, costs and results of preclinical development, laboratory testing and clinical trials for any future product candidates we may decide to pursue; ● the extent to which we develop, in-license or acquire other product candidates and technologies; 39 Table of Contents ● the costs and timing of process development and manufacturing scale-up activities associated with our product candidates and other programs as we advance them through preclinical and clinical development; ● the availability, timing, and receipt of any future NIA grants; ● the number and development requirements of other product candidates that we may pursue; ● the costs, timing and outcome of regulatory review of our product candidates; ● 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; ● the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; ● our ability to establish collaborations to commercialize CT1812 or any of our other product candidates outside the United States; ● 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; and ● the additional costs we may incur as a result of operating as a public company, including our efforts to enhance operational systems and hire additional personnel, including enhanced internal controls over financial reporting. Until such time as we can generate significant revenue from product sales, we expect to finance our operations through a combination of public or private equity offerings, debt financings or other sources, such as potential collaboration agreements and strategic alliances, licensing or similar arrangements with third parties. To the extent available, we expect to continue our pursuit of non-dilutive research contributions, or grants, including additional NIA grant funding. However, we may fail to receive additional NIA grants, or we may be unable to raise additional funds or enter into such other agreements or arrangements when needed on acceptable terms, or at all. Our failure to obtain additional NIA grants or raise capital or enter into such agreements as and when needed could have a material adverse effect on our business, results of operations and financial condition. 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 and/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 resulting from the ongoing COVID-19 pandemic and otherwise. 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. 40 Table of Contents Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, ​ 2021 2020 ​ ​ ​ ​ ​ ​ Cash flows used in operating activities ​ $ (3,732) $ (2,953) Cash flows used in investing activities ​ — ​ (10) Cash flows provided by financing activities ​ 6,840 ​ 5,320 Effect of exchange rate changes on cash and cash equivalents ​ 13 ​ (4) Net (decrease) increase in cash and cash equivalents ​ $ 3,121 ​ $ 2,353 ​ Operating Activities Net cash used in operating activities for the nine months ended September 30, 2021 was $3.7 million, which consisted primarily of our net loss of $4.4 million as well as net non-cash gains of less than $0.1 million and a net change of $0.6 million in our operating assets and liabilities. The net non-cash gains primarily consisted of amortization of debt discounts of $0.4 million, change in derivative liabilities of $2.2 million, change in fair value of the Simple Agreements for Future Equity of $2.0 million, a gain on debt extinguishment of $0.4 million, and equity-based compensation of $0.3 million. The net change in our operating assets and liabilities was primarily due to an increase in grant receivables of $0.3 million, an increase in prepaid expenses and other current assets of less than $0.1 million, a decrease in other receivables of $0.3 million, a decrease in accounts payable of $0.3 million, an increase in accrued expenses of $0.3 million, and an increase in other current liabilities of $0.7 million. Net cash used in operating activities for the nine months ended September 30, 2020 was $3.0 million, which consisted primarily of our net loss of $6.0 million partially offset by net non-cash charges of $1.0 million and a net change of $2.1 million in our operating assets and liabilities. The non-cash charges primarily consisted of amortization of debt discounts of $0.5 million, change in derivative liabilities of $0.1 million, loss on debt extinguishment of $0.1 million, and equity-based compensation of $0.3 million. The net change in our operating assets and liabilities was primarily due to a decrease in grant receivables of less than $0.1 million, net decrease in other receivables of $1.0 million, an increase in accounts payable of $0.3 million, an increase in accrued expenses of $0.3 million, and an increase in other current liabilities of $0.8 million. Investing Activities We did not use any cash for investing activities for the nine months ended September 30, 2021. During the nine months ended September 30, 2020 we used less than $0.1 million of cash for investing activities related to purchases of property and equipment. Financing Activities Net cash provided by financing activities was $6.8 million and $5.3 million for the nine months ended September 30, 2021 and 2020, respectively. The increase in cash provided by financing activities in 2021 relates primarily to the $8.9 million of SAFEs issued during the nine months ended September 30, 2021 partially offset by $2.2 million in deferred offering costs, as compared to $5.2 million of convertible notes issued in the nine months ended September 30, 2020. Off-Balance Sheet Arrangements We have not entered into any off-balance sheet arrangements as defined under the rules and regulations of the SEC. 41 Table of Contents Contractual Obligations The following table summarizes our contractual obligations as of September 30, 2021 (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than ​ 1 to 3 ​ 3 to 5 ​ More than 5 ​ ​ ​ ​ 1 Year Years Years years Total Operating lease obligations: ​ $ 197 ​ $ 250 ​ $ 168 ​ $ 210 ​ $ 825 Total: ​ $ 197 ​ $ 250 ​ $ 168 ​ $ 210 ​ $ 825 ​ We have entered into an operating lease for office and laboratory facilities under agreements that run through February 28, 2029. The amounts reflected in the table above consist of the future minimum lease payments under the non-cancelable lease arrangements. In March 2021, we entered into SAFEs with various investors, pursuant to which we received gross proceeds in an aggregate amount equal to $8.9 million. In October 2021, the amount invested by the investors in the SAFEs automatically converted into 931,485 shares of our common stock upon the closing of our IPO at a conversion price equal to 80.0% of the IPO per share price of our common stock. The amounts reflected in the table above do not include cash payments that would be payable by us to the holders of the SAFEs if, prior to the closing of the IPO: (i) we underwent a change of control, (ii) we voluntarily terminated our operations, (iii) there was a general assignment for the benefit of our creditors or (iv) we effected any other liquidation, dissolution or winding up of our company, whether voluntary or involuntary. From March 2018 to July 2020, we issued convertible promissory notes in the aggregate principal amount of $13.0 million with an interest rate of 8.0% per annum, pursuant to note purchase agreements entered into with certain holders of our capital stock. On May 1, 2021, the holders of all of our outstanding convertible promissory notes agreed to an acceleration of the date of the automatic conversion from June 30, 2021 to May 1, 2021 for all convertible promissory notes. Accordingly, on May 1, 2021, all of our outstanding convertible promissory notes were converted into 10,926,089 shares of our Series B-1 convertible preferred stock at a conversion price equal to $1.385 per share. On July 1, 2021, we entered into an agreement to lease 2,864 square feet of office space in Purchase, New York. The lease has a term of 89 months and is expected to commence on October 1, 2021. The annual base rent under the lease is $0.07 million for the first lease year and is subject to annual increases of between 1.82% and 2.04%. We provided a security deposit in the form of a Letter of Credit in the amount of $0.04 million pursuant to the terms of the lease. We enter into contracts in the normal course of business with contract research organizations and other vendors to assist in the performance of our research and development and other services and products for operating purposes. These contracts typically do not contain minimum purchase commitments and generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations. Critical Accounting Policies and Use of Estimates 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. Research and Development Costs, Accrued Research and Development Costs and Related Prepaid Expenses Research and development costs are expensed as incurred. Research and development expenses consist principally of personnel costs, including salaries, stock-based compensation, and benefits for employees, third-party license fees and other operational costs related to our research and development activities, including allocated facility-related expenses and external costs of outside vendors, and other direct and indirect costs. Non-refundable advance payments for research and development costs are deferred and expensed as the related goods are delivered or services are performed. Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks. Costs for certain research and development activities are recognized based on the pattern of performance of the 42 Table of Contents individual arrangements, which may differ from the pattern of billings incurred, and are reflected in the consolidated financial statements as prepaid expenses or as accrued research and development expenses. Equity-Based Compensation We maintain an equity-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 equity-based compensation expense for stock options subject to time-based vesting on a straight-line basis over the requisite service period and account for forfeitures as they occur. To the extent any stock option grants are made subject to the achievement of a performance condition, 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. Our stock-based compensation costs are based upon the grant date fair value of options estimated using the Black-Scholes option pricing model. The Black-Scholes option pricing model utilizes inputs which are highly subjective assumptions and generally require significant judgment. These assumptions include: ● Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding. As we do not have sufficient historical experience for determining the expected term of the stock option awards granted, expected term has been calculated using the simplified method. ● Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S. Treasury constant maturity notes with terms approximately equal to the stock-based awards’ expected term. ● Expected Volatility. Because we have been privately held and do not have a trading history of common stock, the expected volatility was derived from the average historical stock volatilities of the common stock of several public companies within the industry that we consider to be comparable to our business over a period equivalent to the expected term of the stock-based awards. ● Expected Dividend Yield. The expected dividend yield is zero as we have not paid and do not anticipate paying any dividends in the foreseeable future. ● Fair Value of Common Stock.  — The fair value of the shares of common stock underlying the stock-based awards has historically been determined by the board of directors with input from management. Because there has been no public market for the common stock, the board of directors has determined the fair value of the common stock at the time of grant of the stock-based award by considering a number of objective and subjective factors, including having contemporaneous valuations of the common stock performed by a third-party valuation specialist. See Note 13 to our audited financial statements for the fiscal year ended December 31, 2020 included in our Prospectus 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 of September 30, 2021, the total unrecognized compensation expense related to unvested time-based vesting awards was $0.9 million, which is expected to be recognized over weighted-average remaining vesting period of approximately 2.6 years. As of September 30, 2021, total unrecognized compensation expense related to un-vested performance-based awards was $0.3 million, which would be recognized commencing with the period in which the performance condition is deemed probable of achievement. 43 Table of Contents Convertible Instruments We account for hybrid contracts with embedded conversion features in accordance with GAAP. ASC 815 — Derivatives and Hedging Activities, requires companies to bifurcate certain conversion options and redemption features from their host instruments and account for them as free-standing derivative financial instruments should certain criteria be met. The features requiring bifurcation were initially recorded at fair value, with gains and losses arising from changes in fair value recognized as a component of other income (expense) in the consolidated statement of operations and comprehensive loss. Recent Accounting Pronouncements For a description of recent accounting pronouncements, see Note 2 of the notes to our financial statements included in this Quarterly Report. 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 $1.07 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, 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 IPO.