| Commitments and Contingencies | 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, or 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 then chief financial officer, certain members of the Company’s board of directors at the time of the Company’s initial public offering, or 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, or 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 then 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 plaintiffs seek unspecified compensatory damages, reasonable costs and expenses, including attorneys’ fees, and injunctive and other equitable relief. 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 then 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 March 10, 2023, following a mediation and the parties’ agreement in principle to settle the securities class action, the court entered a stipulated order setting a deadline of April 28, 2023 for the parties to file a stipulation of settlement and for lead plaintiffs to file a motion for preliminary approval of the settlement, which the parties filed on that date. The settlement is subject to preliminary and final approval by the U.S. District Court for the Western District of Washington. On May 31, 2023, the court issued a minute order requiring the parties to file a joint status report on or before June 30, 2023 addressing several aspects of the proposed settlement, including revision of certain notices to putative class members regarding the settlement, which the parties filed on that date. On September 27, 2023, the court issued an order denying plaintiffs’ motion for preliminary approval without prejudice, citing the motion’s failure to satisfy the court’s questions and concerns regarding traceability of certain Securities Act claims. The court permitted plaintiffs to file a renewed motion for preliminary approval, which plaintiffs filed on December 15, 2023. On February 15, 2024, the court issued an order granting in part and deferring in part plaintiffs’ renewed motion for preliminary approval and ordered the parties to submit a joint status report by March 15, 2024. In its order, the court preliminarily approved the proposed settlement and certified a class with two subclasses. The court deferred ruling in part as to the proposed notices and claim form relating to the settlement. On March 29, 2024, the court issued a minute order (i) granting the portion of plaintiffs’ renewed motion for preliminary approval that the court had previously deferred ruling on, (ii) setting a final approval hearing, and (iii) ordering plaintiffs’ motion for final approval of the proposed settlement to be filed on or before September 26, 2024. On September 26, 2024, plaintiffs filed a motion for final approval of class action settlement and plan of allocation. On September 30, 2024, the court issued a minute order requiring additional information related to the claims administration process, to which plaintiffs responded. On October 25, 2024, the court held a settlement final approval hearing and ruled that the terms of the settlement are fair, reasonable and adequate and that notice was reasonable. On November 1, 2024, the court entered a final written judgment and order granting final approval of the settlement and closed the case. As a result of the foregoing, the Company recorded a legal settlement expense of $ 10.0 million in operating expenses in the fourth quarter of 2022 and an accrued liability of $ 10.0 million on the accompanying condensed consolidated balance sheets. Additionally, the Company recorded an insurance recovery of $ 1.6 million in operating expenses in the fourth quarter of 2023 and an insurance recovery receivable of $ 1.6 million on the accompanying condensed consolidated balance sheets. This insurance recovery represents the amount of the settlement to be covered by the Company's insurers. The Company has deposited $ 8.4 million into a settlement fund account pending final payment of the settlement amount, and such funds are legally restricted for use and are included within restricted cash, current on the condensed consolidated balance sheets. 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 purported to bring the action derivatively on behalf of the Company, which was a nominal defendant to the action. The derivative complaint alleged 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 asserted 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 sought unspecified damages, disgorgement of profits, benefits, and other compensation received by the individual 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 purported to bring the action derivatively on behalf of the Company, which was a nominal defendant to the action. The derivative complaint alleged 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 asserted 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 sought 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. On March 18, 2024, following a mediation and the parties entering into a stipulation of settlement to settle the consolidated derivative action for certain corporate governance reforms and the Company’s payment of a fee and expense award to plaintiffs’ counsel, plaintiffs filed an unopposed motion for preliminary approval of a settlement of the derivative action. On May 3, 2024, the court entered an order preliminarily approving the settlement. On May 17, 2024, plaintiffs filed an unopposed motion for approval of attorneys’ fees and expenses and service awards to plaintiffs. On July 3, 2024, plaintiffs filed an unopposed motion for final approval of derivative settlement. The settlement final approval hearing took place on July 18, 2024, and no Company shareholders objected to the proposed settlement or attorneys’ fees or service awards sought by plaintiffs. After the hearing, on July 18, 2024, the court entered an order and judgment granting plaintiffs’ motion for final approval of derivative settlement, finding the settlement to be fair, reasonable, and adequate to the settling parties and the Company’s shareholders, and dismissing the derivative action with prejudice. The Company paid the fee and expense award related to this shareholder derivative action settlement during the third quarter of 2024. Government Investigation In November 2022, the Company received a Civil Investigative Demand from the Civil Division of the Department of Justice, or the Demand. The Demand sought documents and information relating to the Company’s relationship with WSU, certain of its grant applications in 2016 and 2019 with the NIH, and the Company’s receipt of an NIH grant in 2020. The Company has been cooperating with the Department of Justice with respect to the Demand . The Company recorded a legal expense of $ 4.1 million based on developments in the third quarter of 2024 and a corresponding accrued liability on the accompanying condensed consolidated balance sheets. Failure by the Company to obtain a favorable resolution could have a material adverse effect on its business, results of operations and financial condition . 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 September 30, 2024, 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):
September 30,
Remaining 2024 123
2025 494
2026 509
Thereafter 346
Total undiscounted lease payments 1,472
Present value adjustment for minimum lease ( 158 )
Net lease liability $ 1,314 The weighted average remaining lease term and the weighted average discount rate used to determine the operating lease liability were as follows:
September 30,
Weighted average remaining lease term (years) 3.2
Weighted average discount rate 8.1 % Operating lease expense and variable lease expense consisted of the following (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Operating lease expense $ 89 $ 89 $ 265 $ 265
Variable lease expense 41 42 108 144 |
