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What changed in CervoMed Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CervoMed Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+1334 added−526 removedSource: 10-K (2024-03-29) vs 10-K (2023-03-24)

Top changes in CervoMed Inc.'s 2023 10-K

1334 paragraphs added · 526 removed · 125 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

61 edited+470 added−152 removed3 unchanged
Biggest changeProcess Overview The FDA drug approval process generally involves the following steps: • completion of extensive preclinical laboratory studies, including studies conducted in accordance with GLP requirements; • submission to the FDA of an IND application, which must become effective before clinical trials involving human subjects or patients may begin; • performance of adequate and well-controlled human clinical trials in accordance with applicable IND regulations, GCP requirements, and other clinical trial-related regulations to establish the safety and efficacy of the investigational product for each proposed indication, including approval by an IRB or independent ethics committee before each trial may be initiated; • submission to the FDA of an NDA; • a determination by the FDA within 60 days of its receipt of an NDA as to whether it will accept the filing for review; • satisfactory completion of one or more FDA pre-approval inspections of the manufacturing facility or facilities where the drug will be produced to assess compliance with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; • a potential FDA audit of the clinical trial sites that generated the data in support of the NDA; • payment of user fees for FDA review of the NDA; and • FDA review and approval of the NDA, including consideration of the views of any FDA advisory committee, prior to any commercial marketing or sale of the biologic or drug in the United States.
Biggest changeThe process required by the FDA before a drug may be marketed in the United States generally involves the following: ● Completion of nonclinical laboratory tests, potentially animal studies and formulation studies in compliance with the FDA’s GLP regulations; ● Submission to the FDA of an IND, which must become effective before human clinical trials may begin; ● Approval by an IRB covering each clinical trial site before each trial may be initiated at that site; ● Performance of adequate and well-controlled human clinical trials in accordance with GCP regulations and other clinical trial-related requirements to establish the safety and efficacy of the proposed drug product for each indication; ● Submission to the FDA of an NDA seeking marketing approval; ● A determination by the FDA within 60 days of its receipt of an NDA that the NDA is sufficiently complete to permit a substantial review, in which case the NDA is filed; ● Satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with cGMP requirements and to assure that the facilities, methods and controls are adequate to preserve the drug’s identity, strength, quality and purity; ● Satisfactory completion of FDA audits of clinical trial sites that generated data in support of the NDA to assure compliance with GCP regulations and the integrity of the clinical data and/or FDA audits of the nonclinical studies submitted as part of the NDA; and ● FDA review and approval of the NDA, including consideration of the views of an FDA advisory committee, if one was involved, prior to any commercial marketing or sale of the drug in the United States.
Employee Development and Training Our employees are encouraged to attend scientific, clinical, technological, and other relevant meetings and conferences and we strive to provide employees access to a broad set of internal resources intended to help them be successful, including a variety of training and educational materials.
Development and Training Our employees are encouraged to attend scientific, clinical, technological, and other relevant meetings and conferences and we strive to provide employees access to a broad set of internal resources intended to help them be successful, including a variety of training and educational materials.
Available Information We make available on or through our website certain reports that we file with or furnish to the SEC in accordance with Exchange Act.
Other Available Information We make available on or through our website certain reports that we file with or furnish to the SEC in accordance with Exchange Act.
We also make available, free of charge and through our website, the charters of the committees of the Board, our Corporate Governance Guidelines, and our Code of Business Conduct and Ethics. 19
We also make available, free of charge and through our website, the charters of the committees of the Board, our Corporate Governance Guidelines, and our Code of Business Conduct and Ethics. 44
The patent term restoration period is generally 50% of the amount of time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence.
The patent term restoration period is generally one half of the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of the NDA and the approval of that application, except that the review period is reduced by any time during which the applicant failed to exercise due diligence.
The Hatch-Waxman Amendments permit restoration of the patent term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. Patent term restoration, however, cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date.
The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product candidate’s approval date.
Further, there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which have resulted in several recent Congressional inquiries, presidential executive orders and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products.
In recent years, there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for drug products.
Progress reports detailing the results of the clinical trials, among other information, must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators 15 calendar days after the trial sponsor determines the information qualifies for reporting for serious and unexpected suspected adverse events, findings from other studies or animal or in vitro testing that suggest a significant risk for human subjects and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and written IND safety reports must be submitted to the FDA and the investigators for serious and unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the investigational drug, findings from animal or in vitro testing that suggest a significant risk for human subjects and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigator brochure.
In recent years, we have taken certain measures and responded to changes in our operational needs, including actions designed to further promote a safe work environment for our employees, including investing in technology solutions to support increased work-from-home capabilities.
In addition to the benefits package described above, in recent years, we have taken certain measures and responded to changes in our operational needs, including actions designed to further promote a safe work environment for our employees, such as investing in technology solutions to support increased work-from-home capabilities and moving to an unlimited paid leave policy.
Similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.
A person or entity does not need to have actual knowledge of the AKS or specific intent to violate it to have committed a violation.
Specifically, new drugs are eligible for fast track designation if they are intended to treat a serious or life-threatening condition and preclinical or clinical data demonstrate the potential to address unmet medical needs for the condition. Fast track designation applies to both the product and the specific indication for which it is being studied.
Specifically, new drugs are eligible for fast track designation if they are intended to treat a serious or life-threatening condition and demonstrate the potential to address unmet medical needs for the condition.
Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or the time period for FDA review or approval may not be shortened.
A drug designated as breakthrough therapy is also eligible for accelerated approval if the relevant criteria are met. Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
Diversity and Inclusion We believe that an inclusive culture is required to understand and develop products that benefit all patients. By embracing differences, we aim to foster an environment of respect and trust in an effort to facilitate creativity, spark passion, and help us achieve better outcomes for all those who work at and with Diffusion.
By embracing differences, we aim to foster an environment of respect and trust in an effort to facilitate creativity, spark passion and help us achieve better outcomes for all those who work at and with CervoMed.
We are committed to creating and maintaining a workplace free from discrimination or harassment, including on the basis of any class protected by applicable law, and our recruitment, hiring, development, training, compensation, and advancement practices are based on qualifications, performance, skills, and experience without regard to gender, race, or ethnicity.
We are committed to creating and maintaining a workplace free from discrimination or harassment, including on the basis of any class protected by applicable law, and our recruitment, hiring, development, training, compensation, and advancement practices are based on qualifications, performance, skills, and experience without regard to gender, race, ethnicity or other demographics. 42 Our management team and employees are expected to exhibit and promote honest, ethical, and respectful conduct in the workplace, including adhering to the standards for appropriate behavior set forth in our code of conduct.
Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions, and settlements in the healthcare industry.
Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. Ensuring that business arrangements with third parties comply with applicable healthcare laws and regulations is costly and time consuming.
We also offer every full-time employee the benefit of equity ownership in Diffusion through stock option grants. We believe these grants both help promote alignment between our employees and our stockholders and provide retention benefits, as the awards generally vest over a three-year period.
We also offer every full-time employee the benefit of equity ownership in CervoMed through stock option grants with vesting conditions designed to facilitate retention through the opportunity to benefit financially from our growth and profitability, as they generally vest over a three- or four-year period. We believe these grants also help promote alignment between our employees and our stockholders.
Additionally, a drug may be eligible for designation as a breakthrough therapy if the product is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening condition and preliminary clinical evidence indicates that the product may demonstrate substantial improvement over currently approved therapies on one or more clinically significant endpoints.
In addition, a sponsor may seek FDA designation of its product candidate as a breakthrough therapy if the product candidate is intended, alone or in combination with one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the therapy may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development.
These sanctions could include, among other actions, the FDA’s refusal to approve pending applications, withdrawal of an approval, license revocation, a clinical hold, untitled or warning letters, voluntary or mandatory product recalls, market withdrawals, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement and civil or criminal penalties, any of which could have a material adverse effect on our business, financial position, or results of operations.
These sanctions could include, among other actions, the FDA’s refusal to approve a pending NDA, withdrawal of an approval, imposition of a clinical hold, issuance of warning letters or other notices of violation, product recalls or market withdrawals, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.
Compensation and Benefits We operate in a highly competitive environment for human capital, particularly as we seek to attract and retain talent with relevant experience in the biotechnology and pharmaceutical sectors.
Compensation and Benefits We operate in a highly competitive environment for human capital, particularly as we seek to attract and retain talent with relevant experience in the biotechnology and pharmaceutical sectors. Therefore, we strive to provide a total rewards package to our employees that is competitive with our peer companies and helps meet the needs of our employees.
If our operations are found to be in violation of any of these laws or any other related governmental regulations that may apply to us, we may be subject to significant civil, criminal, and administrative penalties, damages, fines, imprisonment, disgorgement, exclusion of drugs from government funded healthcare programs, such as Medicare and Medicaid, reputational harm, additional oversight, and reporting obligations if we become subject to a corporate integrity agreement or similar settlement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations.
If business operations are found to be in violation of any of the laws described above or any other applicable governmental regulations a pharmaceutical manufacturer may be subject to penalties, including civil, criminal and administrative penalties, damages, fines, disgorgement, individual imprisonment, exclusion from governmental funded healthcare programs, such as Medicare and Medicaid, contractual damages, reputational harm, diminished profits and future earnings, additional reporting obligations and oversight if subject to a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws, and curtailment or restructuring of operations, any of which could adversely affect a pharmaceutical manufacturer’s ability to operate its business and the results of its operations.
However, the information included on our website and available through our social media channels is not incorporated by reference into, and should not be considered part of, this Annual Report or any other filings we make with the SEC.
Our website, www.cervomed.com, including the Investor Relations section, ir.cervomed.com, contains a significant amount of information about the Company. However, the information included on our website is not incorporated by reference into, and should not be considered part of, this Annual Report or any other filings we make with the SEC.
Each trial is conducted under a protocol detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. Each protocol involving testing on U.S. patients and subsequent protocol amendments must be submitted to the FDA as part of the IND.
Clinical trials are conducted under protocols detailing, among other things, the objectives of the trial, the trial procedures, subject selection and exclusion criteria, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND.
The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the patients are being exposed to an unacceptable health risk.
It is possible that Phase 1, Phase 2 or Phase 3 trials may not be completed successfully within any specified period, or at all. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk.
These regulations are numerous and extensive in their scope, relating to, among other things, the research and development, manufacture, storage, quality control and testing, approval, labeling and packaging, promotion, marketing, and advertising, distribution, post-approval monitoring and reporting, export and import, and record keeping of pharmaceutical products.
These agencies and other federal, state and local entities regulate, among other things, the research and development, testing, manufacture, quality control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion, distribution, post-approval monitoring and reporting, sampling and export and import of pharmaceutical products.
Our most advanced product candidate, TSC, has been investigated and developed to enhance the diffusion of oxygen to tissues with low oxygen levels, also known as hypoxia, a serious complication of many of medicine’s most intractable and difficult-to-treat conditions, including hypoxic solid tumors like GBM.
The most advanced of these product candidates, TSC, has been investigated and developed to enhance the diffusion of oxygen to tissues with low oxygen levels, also known as hypoxia.
We have also implemented a comprehensive employee evaluation program tied to the achievement of individual, team, and company goals to help further support, retain, and develop our people and further promote alignment of interests between our employees and our stockholders. 18 Directors and Executive Officers The information set forth in " Part III — Item 10 — Directors, Officers, and Corporate Governance ," of this Annual Report is incorporated herein by reference.
We have also implemented a comprehensive employee evaluation program tied to the achievement of individual, team, and company goals to help further support, retain, and develop our people and further promote alignment of interests between our employees and our stockholders. Our Directors The table below sets forth, as of March 28, 2024, certain information concerning our current directors.
Therefore, we strive to provide a total rewards package to our employees that is competitive with our peer companies, currently including competitive pay, a comprehensive healthcare benefits package (including an 80% employer contribution to family medical coverage), 25 days of paid leave, a company-sponsored 401(k) savings plan, short-term and long-term disability, and other benefits, as well as remote working and flexible work schedules.
This package currently includes competitive salaries, a cash bonus plan, a comprehensive healthcare benefits package (including a 90% employer contribution to family medical coverage), unlimited paid time off, a company-sponsored 401(k) savings plan, short-term and long-term disability, and other benefits, as well as remote working and flexible work schedules.
However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of the nonclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and efficacy.
Five-year and three-year exclusivity also will not delay the submission or approval of a traditional NDA filed under Section 505(b)(1) of the FDCA. However, an applicant submitting a traditional NDA would be required to either conduct or obtain a right of reference to all of the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Only one patent applicable to an approved drug is eligible for such an extension and the application for the extension must be submitted prior to the expiration of the patent.
Only one patent applicable to an approved product candidate is eligible for the extension and the application for extension must be made prior to expiration of the patent. The USPTO, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration.
For example, some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant federal government compliance guidance, require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers, and restrict marketing practices or require disclosure of marketing expenditures.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, or the relevant compliance guidance promulgated by the federal government, in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures to the extent that those laws impose requirements that are more stringent than the Physician Payments Sunshine Act.
As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing clinical trials.
As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform post-marketing clinical trials to verify and describe the predicted effect on IMM or other clinical endpoint, and the product may be subject to expedited withdrawal procedures.
This three-year exclusivity covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the active agent for the original indication or condition of use.
This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication. The three-year exclusivity covers only the conditions of use associated with the new clinical investigations and does not prohibit the FDA from approving follow-on applications for drugs containing the original active agent.
This advisory committee is typically a panel that includes clinicians and other experts in the relevant indication or subject matter who review and evaluate the NDA and provide a recommendation to the FDA as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee, but it generally follows such recommendations.
Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it considers such recommendations carefully when making final decisions on approval.
Immediately following the closing of the merger, we changed our name from "RestorGenex Corporation" to "Diffusion Pharmaceuticals Inc." Our principal corporate office is located at 300 East Main Street, Suite 201, Charlottesville, Virginia 22902, and our telephone number is (434) 220-0718.
Immediately following the closing of the merger, we changed our name from "Diffusion Pharmaceuticals Inc." to "CervoMed Inc." Where to Find Us Our principal corporate office is located at 20 Park Plaza, Suite 424, Boston, Massachusetts 02116, and our telephone number is (617) 744-4400.
In addition, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it. • False Claims Laws - The federal False Claims Act imposes civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities (including manufacturers) for, among other things, knowingly presenting, or causing to be presented, false or fraudulent claims for payment by a federal healthcare program or making a false statement or record material to payment of a false claim or avoiding, decreasing, or concealing an obligation to pay money to the federal government.
In addition, the government may assert that a claim including items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the FCA or federal civil money penalties statute; ● The federal civil and criminal false claims laws and civil monetary penalty laws, including the federal False Claims Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement material to a false or fraudulent claim or an obligation to pay or transmit money to the federal government, or knowingly concealing or knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the federal government.
In addition, it must demonstrate an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier than IMM that is reasonably likely to predict an effect on IMM or other clinical benefit.
Surrogate endpoints can often be measured more easily or more rapidly than clinical endpoints. An intermediate clinical endpoint is a measurement of a therapeutic effect that is considered reasonably likely to predict the clinical benefit of a drug or biologic, such as an effect on IMM.
Future Healthcare Laws and Regulations In the United States and foreign jurisdictions, there have been a number of proposed changes regarding the healthcare system and its regulation that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities, and affect our ability to profitably sell any product candidates for which we obtain marketing approval.
Limited third-party reimbursement for our product candidates or a decision by a third-party payor not to cover our product candidates could reduce physician usage of our products once approved and have a material adverse effect on our sales, results of operations and financial condition. 39 Healthcare Reform In the United States and some foreign jurisdictions, there have been, and continue to be, several legislative and regulatory changes and proposed changes regarding the healthcare system that could prevent or delay marketing approval of product and therapeutic candidates, restrict or regulate post-approval activities, and affect the ability to profitably sell product and therapeutic candidates that obtain marketing approval.
These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication and are commonly intended to generate additional safety data regarding use of the product in a clinical setting. In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.
In certain instances, the FDA may mandate the performance of Phase 4 clinical trials as a condition of approval of an NDA.
Furthermore, fast track designation, priority review, accelerated approval, and breakthrough therapy designation do not change the standards for approval, but may expedite the development or approval process. Rare Pediatric Disease Priority Review Voucher Program In 2012, Congress authorized the FDA to award priority review vouchers to sponsors of certain rare pediatric disease product applications.
Fast track, priority review and breakthrough therapy designations do not change the scientific or medical standards for approval or the quality of evidence necessary to support approval but may expedite the development or approval process.
Additionally, the FDA will inspect the facility or facilities at which the drug is manufactured to confirm compliance with cGMP. The FDA may also refer applications for novel drug products, or drug products that present difficult questions of safety or efficacy, to an advisory committee.
The FDA may refer any NDA, including applications for novel drug candidates which present difficult questions of safety or efficacy to an advisory committee to provide clinical insight on application review questions.
Sponsors are also obligated to discuss the results of their clinical trials after completion.
Sponsors are also obligated to disclose the results of their clinical trials after completion, but such disclosures may be delayed in some cases for up to two years after the date of completion of the trial.
FDA Approval Letter An FDA approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications.
After the FDA evaluates an NDA and conducts inspections of the manufacturing facilities where the investigational product and/or its drug substance will be produced, the FDA may issue an approval letter or a CRL. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications.
The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country. We have invested significant time, effort, and resources into the development and maintenance of our patent portfolio.
However, the actual protection afforded by a patent varies on a product-by-product basis, from country to country and depends upon many factors, including the type of patent, the scope of its coverage, the availability of regulatory-related extensions, the availability of legal remedies in a particular country and the validity and enforceability of the patent.
Certain state and foreign laws also govern the privacy and security of health information in some circumstances and these data privacy and security laws may differ from both HIPAA and each other in significant ways, which would potentially increase our compliance burden. 16 The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform.
State and foreign laws also govern the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing, or information, in order for the FDA to reconsider the application. The FDA has committed to reviewing such resubmissions in two to six months depending on the type of new information included.
A CRL indicates that the review cycle of the application is complete and the application will not be approved in its present form. A CRL generally outlines the deficiencies in the submission and may require substantial additional testing, information or clarification for FDA to reconsider the application.
Further, changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or facilities, require submission and FDA approval of a new NDA or NDA supplement before the change can be implemented.
If there are any modifications to the product, including changes in indications, labeling or manufacturing processes or facilities, the applicant may be required to submit and obtain FDA approval of a new NDA or a supplement to an NDA, which may require the applicant to develop additional data or conduct additional nonclinical studies and clinical trials.
Potential competitors in the United States are numerous and include major pharmaceutical and specialty pharmaceutical companies, smaller biopharmaceutical companies, research universities, and others. The biopharmaceutical and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition, and a strong emphasis on developing proprietary therapeutics.
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. We face potential competition from many different sources, including pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions.
ITEM 1. BUSINESS Overview Diffusion is a biopharmaceutical company that has historically focused on developing novel therapies that may enhance the body’s ability to deliver oxygen to the areas where it is needed most.
The ability to develop one or more of these co-crystal products requires a fuller evaluation of the potential manufacturing processes than has been performed to date. Trans Sodium Crocetinate Prior to the Merger in August 2023, Diffusion focused on developing novel therapies that may enhance the body’s ability to deliver oxygen to areas where it is needed most.
Orange Book Listing and Abbreviated New Drug Applications In seeking approval for a drug through an NDA, applicants are required to list with the FDA each patent whose claims cover the applicant’s product.
Hatch-Waxman Patent Certification and the 30-Month Stay Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or an approved method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book.
Other Information About Our Company Corporate Information and History We were originally incorporated under the laws of the State of Nevada on January 10, 1995 and reincorporated under the laws of the State of Delaware on June 18, 2015 under the name, “RestorGenex Corporation.” On January 8, 2016, we completed the merger of our wholly owned subsidiary with and into Diffusion LLC, which was treated as a "reverse acquisition" under GAAP pursuant to which Diffusion LLC's historical results of operations replaced the Company's for all periods prior to the merger.
On August 16, 2023, we completed the merger of Merger Sub with and into EIP, which was treated as a "reverse recapitalization" under U.S. GAAP pursuant to which EIP’s historical results of operations replaced the Company's for all periods prior to the merger.
In general, patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in various countries where patent protection is obtained, with term adjustments or extensions possible in certain cases based on patent office delays or pursuant to certain administrative and legislative exceptions.
Individual patents extend for varying periods depending on the date of filing of the patent application or the date of patent issuance and the legal term of patents in the countries in which they are obtained.
The FDC Act also provides a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval of an NDA for a new chemical entity, meaning the FDA has not previously approved any other new drug containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance.
The FDCA provides a period of five years of non-patent data exclusivity for a new drug containing an NCE. For the purposes of this provision, an NCE, is a drug that contains no active moiety that has previously been approved by the FDA in any other NDA.
In the United States, the competent regulatory authority is the FDA, which, pursuant to the FDC Act, is responsible for the review and approval of all data required to support a license to commercially market pharmaceutical products. 7 The process of obtaining regulatory approvals and the subsequent compliance with FDA regulations requires the expenditure of substantial time and financial resources and failure to comply with the applicable requirements at any time during the product development process, approval process, or, if approved, following approval may subject an applicant to administrative or judicial sanctions.
Failure to comply with the applicable U.S. requirements at any time during the product development and approval process or after approval may subject an applicant to a variety of administrative or judicial sanctions.
We cannot be certain that any approvals for any product candidates we attempt to develop in the future will be granted on a timely basis or at all. Preclinical Studies Preclinical studies include laboratory evaluation of product chemistry, formulation, and toxicity, as well as animal trials to assess the characteristics and potential safety and efficacy of the drug.
Preclinical Studies and IND Preclinical, or nonclinical studies generally include laboratory evaluation of product chemistry, toxicity and formulation, as well as in vitro and animal studies to assess the potential for adverse events and in some cases to establish a rationale for the investigational product’s therapeutic use.
We do not have any employees that are represented by a labor union or that have entered into a collective bargaining agreement with the Company. Safety and Wellness At Diffusion, we believe that health matters to everyone, and the safety health, and wellness of our employees is one of our top priorities.
Employee Engagement, Safety and Wellness At CervoMed, we believe that health matters to everyone and that the success of our business is fundamentally connected to the physical and mental well-being of our people. Accordingly, the safety health, and wellness of our employees is one of our top priorities.
The review process, whether standard or priority, may be extended by the FDA for three additional months to consider certain late-submitted information or information intended to clarify information already provided in the submission. Before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP.
Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing facilities are not acceptable, it will outline the deficiencies as part of the review process and often will request additional testing or information.
The FDC Act provides three years of marketing exclusivity for an NDA, or supplement to an existing NDA, if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to the approval of the application, for example investigations related to new indications, dosages, or strengths of an existing drug.
In cases where such NCE exclusivity has been granted, an ANDA or 505(b)(2) NDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification (described below), in which case the applicant may submit its application four years following the original product approval. 35 The FDCA also provides for a period of three years of exclusivity for an NDA, 505(b)(2) NDA or supplement thereto if one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant are deemed by the FDA to be essential to the approval of the application.
The FDA has 60 days from its receipt of an NDA to determine whether the NDA will be accepted for filing based on the agency’s threshold determination that it is sufficiently complete to permit substantive review. Once the submission is accepted for filing, the FDA begins an in-depth review subject to certain performance goals agreed upon by the FDA.
The FDA must make a decision on accepting an NDA for filing within 60 days of receipt and must inform the sponsor by the 74th day after the FDA’s receipt of the submission whether the application is sufficiently complete to permit substantive review.
We expect that further implementation of current laws, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we, or any strategic collaborators, may receive for any approved products.
We expect that additional federal, state, and foreign healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in limited coverage and reimbursement and reduced demand for our products, once approved, or additional pricing pressures.
The approval process and requirements governing the conduct of clinical trials, product licensing, pricing, and reimbursement vary greatly from place to place, and the time may be longer or shorter than that required for FDA approval.
Regulation Outside the United States For countries outside of the United States, the requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from country to country. In all cases, clinical trials must be conducted in accordance with GCP and the other applicable regulatory requirements.
Violations of this law are punishable by up to five years in prison, criminal fines, administrative civil money penalties, and exclusion from participation in federal healthcare programs.
Violations of the fraud and abuse laws are punishable by criminal and civil sanctions, including, in some instances, exclusion from participation in federal and state health care programs, including Medicare and Medicaid.
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Ongoing Evaluation of Strategic Opportunities In early 2022, we identified the pursuit of an opportunistic transaction with the potential to complement and diversify our portfolio of product candidates as one of our key strategic objectives for the year. The intended purpose is to reduce the Company's overall risk profile as an investment and enhance long-term value for our stockholders.
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ITEM 1. BUSINESS Overview We are a clinical-stage biotechnology company focused on developing treatments for age-related neurologic disorders. We are currently focused on the development of our lead drug candidate, neflamapimod, an investigational, orally administered, small molecule brain penetrant that inhibits p38α in the neurons (nerve cells) within the brains of people with neurodegenerative diseases.
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In pursuit of this objective, during the fourth quarter of 2021 and first half of 2022, our management team held conversations with several potential counterparties and, in July 2022, we engaged Canaccord Genuity LLC as our financial advisor to support the ongoing evaluation.
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Neflamapimod has the potential to treat and improve synaptic dysfunction, the reversible aspect of the underlying disease processes in DLB and certain other major neurological disorders, and is currently being evaluated in our ongoing RewinD-LB Trial, a Phase 2b study in patients with DLB funded by a $21.0 million grant from the NIA.
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In October 2022, following further deterioration of the public capital markets throughout 2022, and the corresponding increase in the cost of capital for small biopharmaceutical companies, we publicly announced our Board's authorization of an expanded evaluation and review of potential transactions, including a joint venture, licensing, merger, reverse merger, sale or divestiture of some of the Company’s proprietary technologies or a sale of the Company, among others.
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We expect to complete enrollment in the RewinD-LB Trial during the second quarter of 2024 and to report initial results from the placebo-controlled portion of the study during the fourth quarter of 2024.
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Since that time, our management team has been increasingly focused on advancing this strategic review process through conversations about potential deal constructs with multiple companies, both including and excluding the Company’s lead asset, TSC. However, there is no assurance the Board’s review will result in any transaction being consummated.
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Our novel approach focuses on reducing the impact of inflammation in the brain, or neuroinflammation, which we believe is a key factor in the manifestation of degenerative diseases of the brain, including DLB.
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Any further comments or disclosures regarding the strategic review process will be made from time to time as and when we determine an update is appropriate.
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Chronic activation of the enzyme p38α in the neurons (nerve cells) within the brains of people with neurodegenerative diseases is believed to impair how neurons communicate through synapses (the connections between neurons). This impairment, termed synaptic dysfunction, leads to deterioration of cognitive and motor abilities.
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Our Most Advanced Historical Development Programs: Trans Sodium Crocetinate Prior to the initiation of our strategic review process, our core focus was the development and commercialization of novel therapies that enhance the body’s ability to deliver oxygen to areas where it is needed most and improve treatment outcomes for patients suffering from conditions complicated by hypoxia.
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Left untreated, synaptic dysfunction can result in neuronal loss that leads to devastating disabilities, significant reliance on a caretaker, long term care living, and, ultimately, death. However, before neuronal loss commences, disease progression in major neurodegenerative disorders, including DLB, initially involves a protracted period of functional loss, particularly with respect to the synapses.
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The Company’s development efforts have been primarily focused on advancing our most advanced product candidate, TSC, and we continue to believe TSC has potential benefits for patients, particularly as an adjuvant treatment to standard of care therapy for GBM and other hypoxic solid tumors.
Added
We believe that inhibiting p38α activity in the brain, by interfering with key pathogenic drivers of disease, has the potential to reverse the clinical progression observed in early-stage neurodegenerative diseases, and that it is possible to slow further progression by delaying permanent synaptic dysfunction and neuron death.
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In connection with our strategic review process and pending its conclusion, we have paused significant portions of our TSC development activities, including initiation of our previously announced Phase 2 study of TSC in newly diagnosed GBM patients. 1 Trans Sodium Crocetinate: Enhancing Oxygen, Fueling Life We believe TSC is the first therapeutic candidate specifically designed to enhance the efficiency of the oxygen diffusion process.
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We believe we are a leader in the industry in developing a treatment for DLB, as we are the only company of which we are aware with an asset that has shown statistically significant improvements compared to placebo in a Phase 2a clinical trial (our AscenD-LB Trial) and has initiated a Phase 2b clinical evaluation (our ongoing RewinD-LB Trial), from which we expect initial results before the end of 2024.
Removed
By supporting normal, physiologic levels of oxygen diffusion at the uptake and delivery points of the circulatory system, we believe TSC may have the ability to improve the current standard-of-care treatment for conditions complicated by hypoxia. Furthermore, in animal models, TSC’s diffusion-enhancing mechanism of action has been observed to affect hypoxic tissue preferentially while avoiding excessive oxygen-related tissue toxicity.
Added
The clinical symptoms in DLB are most directly linked to synaptic dysfunction in cholinergic neurons (neurons producing the neurotransmitter acetylcholine) in a part of the brain named the basal forebrain.
Removed
TSC's Demonstrated Clinical Safety Profile TSC has been observed to be safe and well-tolerated at a variety of doses in over 220 subjects included in clinical studies conducted to date, including those studies that evaluated the effects of TSC in patients with medical conditions often complicated by hypoxia, such as GBM, peripheral artery disease with intermittent claudication, stroke, COVID-19, and interstitial lung disease.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn addition our Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for certain actions, including derivative actions brought on the Company's behalf, stockholder actions claiming breaches of a fiduciary duty owed by any of our directors or officers, and claims arising under our organizational documents, in each case, subject to said Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein.
Biggest changeThe Company’s certificate of incorporation provides that, unless the Company consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, the federal district court for the District of Delaware) will be the sole and exclusive forum for certain proceedings, including: (1) any derivative action or proceeding brought on the Company’s behalf, (2) any action asserting a claim of breach of a fiduciary duty owed by any of the Company’s directors, officers, employees or stockholders to the company or its stockholders, (3) any action asserting a claim arising pursuant to any provision of the DGCL or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware or (4) any action asserting a claim arising pursuant to any provision of the Company’s certificate of incorporation or amended and restated bylaws (in each case, as they may be amended from time to time) or governed by the internal affairs doctrine.
The occurrence of the events contemplated by one or more of the factors we describe below could cause the market price of our common stock to decline, resulting in the loss of all or part of any investment in our common stock.
The occurrence of the events contemplated by one or more of the factors we describe below could cause the market price of our securities to decline, resulting in the loss of all or part of any investment in our common stock.
Furthermore, a depressed stock price could limit our ability to raise necessary capital through the sale of additional equity securities on terms that are acceptable.
Furthermore, a depressed stock price could limit the Company’s ability to raise necessary capital through the sale of additional equity securities on terms that are acceptable.
We also cannot assure you that any such sale of common stock or other securities will be at a price per share that is equal to or greater than the price per share paid by you for our common stock.
The Company also cannot assure you that any such sale of common stock or other securities will be at a price per share that is equal to or greater than the price per share paid by you for the Company’s common stock.
In the event that our common stock is delisted from NASDAQ and is not eligible for quotation or listing on another market or exchange, trading of our common stock could be conducted only in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board.
In the event the Company’s common stock is delisted from Nasdaq for a failure to meet such requirements and is not eligible for quotation or listing on another market or exchange, trading of the Company’s common stock could be conducted only in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation or other proceedings, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation or other proceedings, including as a result of public announcements of the results of hearings, motions or other interim proceedings or developments, or public access to related documents.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of the Company’s confidential information could be compromised by disclosure during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or other interim proceedings or developments.
We have funded our operations to date through the issuance of securities, including common stock, warrants to purchase common stock, convertible preferred stock, and convertible debt securities, and we expect that in the future we will need to raise additional capital through similar means to fund our continued operations and liquidity needs.
The Company has funded its operations to date through the issuance of securities, including common stock, warrants to purchase common stock (including pre-funded warrants), convertible preferred stock, and convertible debt securities, and expects that in the future it will need to raise additional capital through similar means to fund its continued operations and liquidity needs.
The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to pharmaceuticals, which could make it difficult for us to stop the infringement of our patents or marketing of competing products in violation of our proprietary rights generally in those countries.
The legal systems of certain countries do not favor the enforcement of patents, trade secrets and other intellectual property protection, which could make it difficult for the Company to stop the infringement of its patents or marketing of competing products in violation of the Company’s proprietary rights generally.
Assuming funding is available on acceptable terms, any future issuance of common stock or securities convertible for or exchangeable into common stock – including any stock issued to fund an acquisition, in connection with our strategic review process or otherwise, will result in dilution to our existing stockholders and could depress the market price of our common stock.
Assuming funding is available on acceptable terms, any future issuance of common stock or securities convertible for or exchangeable into common stock will result in dilution to the Company ’ s existing stockholders and could depress the market price of its common stock.
We cannot predict the likelihood, nature, or extent of government regulation that may arise from future legislation or administrative or executive action, whether in the U.S. or other market territories we may pursue. 36
The Company cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the U.S. or abroad.
Any of the foregoing events could result in significant costs and the diversion of time and resources. • Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated as a result of any non-compliance with these requirements.
Obtaining and maintaining the Company ’ s patent protection depends on compliance with various procedural, document submission, fee payment, and other requirements imposed by governmental patent agencies, and the Company ’ s patent protection could be reduced or eliminated for non-compliance with these requirements.
Furthermore, the terms of future financing transactions may contain provisions that restrict our operations or require us to relinquish certain rights to our product candidates or other technologies.
Furthermore, the terms of future financing transactions may contain provisions that restrict our operations or require us to relinquish certain rights to our product candidates or other technologies. The Company will likely need to raise additional funds in the future to continue its operations, fund research and development, and, if approved, commercialize its product candidates.
ITEM 1A. RISK FACTORS Investing in our common stock involves a high degree of risk. Set forth below are certain material risks and uncertainties known to us that could adversely affect our business, financial condition, or results of operations or could cause our actual results to differ materially from our expectations expressed elsewhere in this Annual Report.
Set forth below are certain material risks and uncertainties known to us that could adversely affect our business, financial condition, or results of operations or could cause our actual results to differ materially from our expectations expressed in our filings with the SEC and other public statements.
Any issuance or sale of shares, or the perception in the market of an intent to issue or sell shares in the near-term, by the Company or holders of a large number of shares could reduce the market price of our common stock.
Any issuance or sale of shares, or the perception in the market of an intent to issue or sell shares in the near-term, by the Company or holders of a large number of shares could reduce the market price of the Company’s common stock, including in connection with the 2024 Private Placement which is expected to close on or about April 1, 2024, subject to customary closing conditions.
In such event, it could become more difficult for us to raise capital and for our stockholders to dispose of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price of our common stock to decline further.
There would likely also be a decline in the liquidity of the trading market for the Company’s common stock and a reduction in the Company’s coverage by securities analysts and the news media, which could cause the price of the Company’s common stock to decline further.
Our Board may determine at any time to raise additional capital if it believes the terms are in the best interests of our stockholders. In addition, we may also issue securities to counterparties as part of an acquisition, merger, or similar transaction, including as part of our strategic review process.
In addition, the Company may also issue securities to counterparties as part of an acquisition, merger, or similar transaction, including as part of our strategic review process.
Any of the foregoing could have a material adverse effect on our business, financial condition, or results of operation. which could adversely affect our operations and financial results.
Any of the above could have a material adverse effect on the Company’s business, financial condition, reputation, competitive advantage, results of operations or prospects.
The patent application process, also known as patent prosecution, is expensive and time-consuming, and we may not be able to prepare, file, and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
The Company’s patent applications may fail to result in issued patents with claims that provide further coverage for neflamapimod in the U.S. or in foreign countries. The patent prosecution process is expensive and time-consuming, and the Company may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
If the breadth or strength of protection provided by the patents we hold or pursue with respect to our product candidates is challenged, it could dissuade companies from collaborating with us to develop, or threaten our ability to commercialize, our product candidates.
In addition, if the breadth or strength of protection provided by the Company’s patents and patent applications is threatened, it could dissuade companies from collaborating with the Company to license, develop or commercialize current or future product candidates.
Our common stock is currently listed on the NASDAQ Capital Market. To maintain the listing of our common stock on the NASDAQ Capital Market, we are required to meet certain listing requirements.
The Company’s common stock is currently listed on the Nasdaq Capital Market. To maintain this listing, the Company is required to meet certain listing requirements related to, among other things, the trading price of the Company’s common stock, the Company’s market capitalization and certain corporate governance-related requirements.
Before investing in our common stock, you should carefully consider these risks and uncertainties, together with all other information in this Annual Report, including our consolidated financial statements and related notes, the information included in, Part II — Item 7 — Management ’ s Discussion and Analysis of Financial Condition and Results of Operations, and the information incorporated herein by reference.
You should carefully consider the risk factors set forth below as may updated by our subsequent filings under the Exchange Act together with all the other information in this Annual Report, including our consolidated financial statements and the related notes included in Part II, Item 8 – Financial Statements and Supplementary Data of this Annual Report and the information set forth in Part II, Item 7A -- Management ’ s Discussion and Analysis of Financial Condition and Results of Operations, as well as in our other filings with the SEC, before making any investment decisions.
If we cannot continue to satisfy the NASDAQ Capital Market continued listing standards and other NASDAQ rules, our Common Stock could be delisted, which would harm our business, the trading price of our Common Stock, our ability to raise additional capital and the liquidity of the market for our Common Stock.
If one or more equity research analysts cease coverage of the Company or fails to publish reports on the Company regularly, demand for the Company’s common stock could decrease, which in turn could cause its stock price or trading volume to decline. 76 If the Company cannot continue to satisfy the Nasdaq Capital Market continued listing standards and other Nasdaq rules, its common stock could be delisted, which could harm the Company ’ s business, the trading price of its common stock, the Company ’ s ability to raise additional capital and the liquidity of the market for its common stock.
Third parties may design around or challenge the validity, enforceability or scope of such issued patents or any other issued patents we own or license, which may result in such patents being narrowed, invalidated or held unenforceable.
Although the Company has already obtained several issued patents and is working to expand its estate with additional patent applications, third parties may challenge the validity, enforceability, or scope of the Company’s patents, which may result in such patents being narrowed, invalidated, or held unenforceable.
Furthermore, our disclosure controls and procedures are subject to inherent limitations, human error, and other systematic breakdowns, and therefore may not prevent or detect all errors or acts of fraud.
The Company ’ s disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
If we or any of these third parties fail to comply with applicable GCP, GLP, or other regulatory requirements, the clinical data generated in our clinical trials may be deemed unreliable and we may be required to perform additional clinical trials to supplement or replace such data before receiving approval of a product candidate from the FDA foreign regulatory authority.
If the Company or its CROs fail to comply with GCP requirements, the clinical data generated in the Company’s clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatory authorities may require the Company to perform additional clinical trials before approving marketing applications for the Company’s product candidates.
In the U.S., the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available under a variety of legislative and regulatory avenues but often the life afforded by these extensions and the protections they afford are limited relative to full patent protection.
For example, in the U.S., if all maintenance fees are paid timely, the natural expiration of a patent is generally 20 years after its first effective filing date. Although various extensions may be available, the life of a patent, and the protection it affords, is limited.
If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us, we may have to significantly delay, scale back, discontinue the development or commercialization of one or more of our product candidates, or seek alternative financing opportunities such as collaborations or licensing opportunities.
If the Company is unable to secure additional capital in sufficient amounts or on terms acceptable to the Company, it may have to delay, scale back or discontinue its development or commercialization activities for neflamapimod.
A number of companies in the pharmaceutical and biopharmaceutical industry have suffered significant setbacks in later-stage Phase 3 clinical development even after promising results in earlier preclinical studies or clinical trials.
A number of companies in the biopharmaceutical industry, both generally and in the DLB treatment space in particular, have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials.
The FDA or applicable foreign regulatory agencies may ask us to conduct additional costly and time-consuming clinical trials in order to obtain marketing approval or approval to enter into a further phase of clinical development, or may change the requirements for approval even after such agency has reviewed and commented on the design for the clinical trials.
Further, the FDA or comparable foreign regulatory authorities may disagree with the Company’s clinical trial design and the Company’s interpretation of data from clinical trials or may change the requirements for approval even after the FDA has reviewed and commented on the design for the Company’s clinical trials.
It is also possible that we will fail to identify patentable aspects of inventions made in the course of development and commercialization activities before it is too late to obtain patent protection on them.
The Company may also fail to identify further patentable aspects of its research and development output before it is too late to obtain patent protection, including as a result of the publication of prior art.
Furthermore, due to the uncertainty of the drug development process, we are often unable to predict the timing or amount of increased expenses, or when we will be able to achieve or maintain profitability, if at all.
Due to the numerous risks and uncertainties associated with pharmaceutical product development, the Company is unable to accurately predict the timing or amount of increased expenses, or when or if it will be able to begin generating revenue from the commercialization of neflamapimod, let alone achieve or maintain profitability.
To commercialize any our other product candidates, if approved, we will need to build our marketing, sales, distribution, and other related capabilities or arrange with third parties to perform these services, and we may not be successful in doing so.
In order to market and successfully commercialize neflamapimod, if approved, the Company must build its sales, distribution, marketing, managerial and other non-technical capabilities, or make arrangements with third parties to perform these services.
Furthermore, if we are unable to obtain regulatory approval of and successfully commercialize our product candidates prior to the expirations of key underlying patents, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.
As a result, the Company’s patent portfolio may not provide it with sufficient rights to exclude others from commercializing product candidates similar or identical to the Company’s product candidates.
Enforcing a claim that a third party illegally obtained and is using our trade secrets or unpatented know-how is expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the U.S. may be less willing to protect trade secret information.
However, current or former employees, consultants, contractors and advisers may unintentionally or willfully disclose the Company’s confidential information to competitors, and confidentiality agreements may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Enforcing a claim that a third party obtained illegally and is using trade secrets or confidential know-how is expensive, time-consuming and unpredictable.
Even if patents covering our products are obtained, once the patent life has expired, we may be open to competition from competitive products. If one of our products requires extended development, testing and/or regulatory review, patents protecting such products might expire before or shortly after such products are commercialized.
Even if patents covering the Company’s product candidates are obtained, once the patent life has expired for a product, the Company may be open to competition from biosimilar or generic medications.
Subject to the outcome of our strategic review process, we will likely need to raise additional funds in the future to continue our operations, fund research and development, and, if approved, commercialize our product candidates. We plan to continue to finance our operations with a combination of equity issuances, debt arrangements, and, potentially, licensing, or other partnering relationships.
The Company currently plans to continue to finance operations with a combination of equity issuances, debt arrangements, and, potentially, licensing, or other partnering relationships. The Board may determine at any time to raise additional capital if it believes the terms are in the best interests of the Company’s stockholders.
Further, some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. In addition, interference, derivation, or other proceedings brought at the USPTO may be necessary to determine the priority or patentability of inventions with respect to our patents or patent applications.
Interference or derivation proceedings provoked by third parties or brought by the USPTO may be necessary to determine the priority of inventions with respect to, or the correct inventorship of, the Company’s patents or patent applications.
An adverse determination in any litigation or other proceedings could put one or more of our patents at risk of being invalidated, interpreted narrowly, or amended such that they do not cover our product candidates in a manner sufficient to support our development and commercialization needs or that such product candidate needs to be significantly redesigned, or put our pending patent applications at risk of not issuing, or issuing with limited and potentially inadequate scope.
An adverse result in any litigation or defense proceeding could put one or more of the Company’s patents at risk of being invalidated, held unenforceable, or interpreted narrowly and could put the Company’s patent applications at risk of not issuing.
If the FDA or a comparable foreign regulatory agency does not approve these facilities for the supply or manufacture of our product candidates or if it withdraws its approval in the future, even if such lack of approval is unrelated to Diffusion or our product candidates, we may need to find alternative supply or manufacturing facilities. 33 In addition, to date we have only manufactured TSC and our other product candidates in relatively small quantities for preclinical studies and clinical trials.
Further, if the FDA or a comparable foreign regulatory authority finds deficiencies with or does not approve a CMO’s facilities for the future commercial manufacture of neflamapimod, or if it withdraws any such approval or finds deficiencies in the future, the Company may need to find alternative manufacturing facilities, which would delay its development program and significantly impact its ability to obtain regulatory approval for or commercialize neflamapimod.
In the past, following periods of volatility in the market or significant price declines in individual securities or the market as a whole, securities class-action litigation has often been instituted against companies.
Additionally, in the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. The Company may in the future be the target of similar litigation if its stock continues to experience price volatility.
Although we expect that our existing cash resources will enable us to fund our operating expenses and capital expenditure requirements are sufficient to fund its current operations for at least 12 months following the issuance of these financial statements, subject to the outcome of our ongoing strategic review process, we will likely need to obtain additional financing in the future in order to continue our development and operational activities.
Based upon the Company’s current operating plan, the Company believes that the Company’s cash and cash equivalents as of December 31, 2023, will not be sufficient to enable the Company to fund its operating expenses and capital expenditure requirements for a period of at least 12 months following the issuance of the financial statements included elsewhere in this Annual Report without an additional equity or debt financing.
There can be no assurance that the exploration of strategic alternatives will result in any agreements or transactions, or that, if completed, any agreements or transactions will be successful or on attractive terms.
There can be no assurance that the Company will enter into any transaction as a result of these effort or that any transaction involving the Company’s TSC-related assets will be entered into or, if entered into, will be on terms that are favorable to the Company.
In the U.S., there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system intended to contain or reduce the costs of medical products and medical services including those described under the heading Part I – Item 1.
There have been, and the Company expects will continue to be, a number of legislative and regulatory proposals and changes to the healthcare systems in the U.S. and other jurisdictions that could affect the Company’s future results of operations.
Patent applications in the U.S. and many foreign jurisdictions are typically not published until 18 months after their first non-provisional filing and publications in the scientific literature often lag behind actual discoveries, meaning we cannot be certain whether others, including our competitors, have filed patent applications for technology covered by patents or our pending applications and whether any such filing has priority over our own applications or patents. 28 In the biopharmaceutical and pharmaceutical industries in particular, there is a substantial amount of litigation involving patent and other intellectual property rights.
Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the U.S. and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all.
If these third parties do not meet our requirements or otherwise conduct the trials or perform the other services for which they are engaged, we may not be able to successfully develop, obtain regulatory approval for, or commercialize our product candidates when expected or at all.
If these third parties do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to the Company’s clinical protocols or regulatory requirements or for any other reason, the Company’s clinical trials may be extended, delayed or terminated, and it may not be able to obtain regulatory approval for, or successfully commercialize any product candidate that it develops.
However, we cannot assure you that the development or future commercialization of any of our product candidates or other technologies will not result in claims that our activities infringe on the existing or future intellectual property rights of third parties. Furthermore, potential competitors may infringe our intellectual property, including our patents.
While the Company is not currently subject to any pending intellectual property litigation, and is not aware of any such threatened litigation, the Company may be exposed to future litigation by third parties based on claims that its product candidates, technologies or activities infringe the intellectual property rights of others.
In connection with an application for marketing approval, the FDA may determine not to accept data from clinical trials conducted outside of the U.S. if they determine the data presented therefrom cannot be considered valid without further inspection of the clinical trial site, are not applicable to the U.S. population and U.S. medical practice, or as a result of certain other factors.
In cases where data from non-U.S. clinical trials are intended to serve as the basis for marketing approval in the U.S., the FDA will generally not accept such foreign trial data unless: (i) the data are determined to be applicable to the U.S. population and U.S. medical practice; (ii) the trials were performed by clinical investigators of recognized competence and pursuant to GCP regulations; and (iii) the FDA is able to validate the data through an onsite inspection, if necessary.
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Risks Related to Our Business, Financial Position, Results of Operation, and Organizational Structure We are engaged in an ongoing strategic review process that could significantly impact our future operations and financial position.
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ITEM 1A. RISK FACTORS Investing in our securities involves a high degree of risk.
Removed
In November 2022, we announced that we are engaged in an ongoing strategic review process with the goal of enhancing shareholder value and have engaged Canaccord as our exclusive financial advisor to assist in this process.
Added
Furthermore, the risks and uncertainties described below and in the other information mentioned above are not the only ones the Company faces.
Removed
Potential strategic alternatives that may be considered as part of this process include an acquisition, merger, reverse merger, other business combinations, sales of assets, licensing or other strategic transactions.
Added
Additional risks and uncertainties not presently known to the Company or that we currently believe to be immaterial could, nevertheless, adversely affect the Company ’ s business, operating results and financial condition, as well as adversely affect the value of an investment in the Company ’ s securities, and the occurrence of any of these risks might cause you to lose all or part of your investment.
Removed
No timetable has been established for the completion of this process, and we do not expect to disclose developments unless and until the Board has concluded that disclosure is appropriate or required.
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Summary of Risk Factors ● The Company is a clinical stage biopharmaceutical company and has incurred significant losses since its inception. The Company expects its net losses to continue for the foreseeable future. The Company is not currently profitable and may never achieve or sustain profitability.
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If we determine to change our business strategy or to seek to engage in a strategic transaction, our future business, prospects, financial position and operating results could be significantly different than those in historical periods or projected by our management.
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The Company is unable to predict the extent of future losses or when it might become profitable, if ever. ● The Company will require additional capital to fund its operations.
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Due to the significant uncertainty regarding our future plans, we are not able to accurately predict the impact of a potential change in our business strategy and future funding requirements as of the date of this Annual Report.
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If the Company fails to obtain necessary financing on acceptable terms, or at all, it may not be able to complete the development and commercialization of neflamapimod. ● The Company currently does not have, and may never have, any products that generate significant revenues. ● The Company is heavily dependent on the success of its lead product candidate, neflamapimod, which is still under clinical development.
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Until the review process is concluded, perceived uncertainties related to our future may result in the loss of potential business opportunities, volatility in the market price of our common stock, and may make it more difficult for us to attract and retain qualified personnel and business partners.
Added
If neflamapimod does not receive regulatory approval or is not successfully commercialized, the Company’s business will be materially harmed. ● The development and commercialization of drug products is subject to extensive regulation, and the regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time-consuming, and inherently unpredictable.
Removed
The market price of our common stock may decline as a result of our ongoing strategic review process .
Added
There is no guarantee that the Company’s planned clinical trials for neflamapimod to treat patients with DLB, or in any other indications that the Company may pursue, will be successful.
Removed
The market price of our common stock may decline as a result of our ongoing strategic review process for a number of reasons, including: • the uncertainty regarding our future plans and operations inherent to such a process; • in the event we enter into a definitive agreement for a transaction in connection with the process, investors may react negatively to the prospects of the combined organization’s business and prospects from any transaction we announce; • the effect of any such proposed transaction on the combined organization’s business and prospects may not be consistent with the expectations of financial or industry analysts; or • in the event we consummate a transaction in connection with the process, the combined organization may not achieve the perceived benefits of the transaction as rapidly or to the extent anticipated by financial analysts, industry analysts or the Company.
Added
If the Company is ultimately unable to obtain regulatory approval for neflamapimod on a timely basis, or at all, its business will be substantially harmed. ● Clinical drug development involves a lengthy and expensive process, with an uncertain outcome.
Removed
There is no assurance that the strategic review process will result in a transaction be completed in a timely manner or at all. If we are unable to consummate a strategic transaction, our business could suffer materially and our stock price could decline.
Added
The Company may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of neflamapimod or any other product candidates the Company may develop or acquire. ● The Company has concentrated its research and development efforts on the treatment of DLB, a disease that has seen limited success in drug development.
Removed
If our ongoing strategic review process does not result in a transaction being consummated, we may be subject to a number of material risks, and our business and stock price could be adversely affected due to a variety of factors, including: ● we have incurred and expects to continue to incur significant expenses related to the process; ● the market price of our common stock may decline to the extent that the current market price reflects a market assumption that the process will result in a strategic transaction being consummated; and ● we may not be forced to pursue a liquidation or wind-up of the Company.
Added
The ability to successfully develop drugs for DLB and other age-related neurologic disorders is extremely difficult and is subject to a number of unique challenges.
Removed
If we consummate a transaction with a third party in connection with our ongoing strategic review process that involves the issuance of our securities as consideration, the consummation may result in our stockholders having a reduced ownership and voting interest in, and exercising less influence over the management of, the combined organization as compared to their current ownership and voting interests.
Added
In addition, its rationale for neflamapimod in the treatment of DLB is based on a scientific understanding of the disease that may be wrong. ● Enrollment and retention of participants in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside the Company’s control. ● Results of preclinical studies and early clinical trials may not be indicative of results obtained in later trials.
Removed
Nevertheless, our stockholders may not realize a benefit from any such transaction commensurate with the resulting ownership dilution they experience.
Added
In addition, preliminary, topline and interim data from the Company’s clinical trials that the Company may announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data. ● If the Company does not adequately protect its proprietary rights, the Company may not be able to compete effectively. ● The Company has no history of commercializing pharmaceutical products, which may make it difficult to evaluate the prospects for its future viability. ● Even if neflamapimod or any other product candidate the Company develops receives marketing approval, it may fail to achieve the level of acceptance necessary for commercial success. ● The Company’s future success depends in large part on the Company’s ability to retain its key employees, as well as its ability to attract, train and motivate additional qualified personnel.
Removed
If we consummate a transaction with a third party in connection with our ongoing strategic review process that involves the issuance of our securities as consideration, following the closing date of the transaction, our current stockholders would own a smaller percentage of the combined organization than their ownership of Diffusion prior to the Merger.
Added
The Company may also encounter difficulties in managing its growth, which could disrupt its operations. ● The Company has identified material weaknesses in its internal control over financial reporting which, if not corrected, could affect the reliability of the Company’s financial statements and have other adverse consequences.
Removed
If such a transaction is completed and the combined organization is unable to realize the strategic and financial benefits anticipated therefrom, our stockholders will have experienced substantial dilution of their ownership interests without receiving a commensurate benefit.
Added
The Company may identify additional material weaknesses in its internal controls over financial reporting which it may not be able to remedy in a timely manner.
Removed
Stockholder litigation and regulatory inquiries and investigations are expensive and could harm our business, financial condition and operating results and could divert management attention.
Added
If the Company fails to maintain proper and effective internal controls, its ability to produce accurate financial statements on a timely basis could be impaired. 45 Risks Related to the Company ’ s Limited Operating History, Financial Condition and Need for Additional Capital The Company is a clinical stage biopharmaceutical company and has incurred significant losses since its inception.
Removed
In the past, securities class action litigation and/or stockholder derivative litigation and inquiries or investigations by regulatory authorities have often followed certain significant business transactions, such as the sale of a company or announcement of any other strategic transaction or the announcement of negative events, such as negative results from clinical trials.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES We do not own any real property. As of December 31, 2022, we had short-term agreements to utilize membership-based co-working space in both Charlottesville, Virginia and Philadelphia, Pennsylvania. Rent expense related to our short-term agreements for the years ended December 31, 2022 and 2021 was approximately $18,000 and $5,000, respectively.
Biggest changeRent expense related to the Company’s short-term agreements was approximately $34,000 and $45,000 for the years ended December 31, 2023 and 2022, respectively. We believe the space is adequate to meet our near-term needs. 90
Added
ITEM 2. PROPERTIES We currently have a short-term lease for office space in Boston, Massachusetts and, in addition, previously had a short-term agreement to utilize membership-based co-working space in Charlottesville, Virginia, which was terminated in the first quarter of 2024.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS The information in Note 6, Commitments and Contingencies — Legal Proceedings to our consolidated financial statements set forth in, Part II — Item 8 — Financial Statements of this Annual Report is incorporated herein by reference.
Biggest changeITEM 3. LEGAL PROCEEDINGS The information in Note 10, Commitments and Contingencies — Legal Proceedings to our consolidated financial statements included in, Part II — Item 8 — Financial Statements and Supplementary Data of this Annual Report is incorporated herein by reference.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeRecent Unregistered Sales of Equity Securities and Use of Proceeds None Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.
Biggest changePurchases of Equity Securities by the Issuer and Affiliated Purchasers None.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades publicly on the Nasdaq Capital Market under the symbol “DFFN.” Holders As of March 14, 2023, there were 103 record holders of our common stock.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades publicly on the Nasdaq Capital Market under the symbol “CRVO.” Holders As of March 26, 2024, there were 115 record holders of our common stock.
Added
Recent Unregistered Sales of Equity Securities and Use of Proceeds On March 28, 2024, we entered into a securities purchase agreement with certain purchasers named therein related to the private placement of an aggregate of 2,532,285 units, each comprised of (i) (A) one share of common stock or (B) one Pre-Funded Warrant and (ii) one Series A Warrant.
Added
The 2024 Private Placement is expected to close on or about April 1, 2024, subject to customary closing conditions.
Added
The aggregate upfront gross proceeds from the 2024 Private Placement are expected to be approximately $50 million, before deducting offering fees and expenses, and additional gross proceeds of up to approximately $99.4 million may be received if the Series A Warrants are exercised in full for cash.
Added
The 2024 Private Placement is exempt from the registration requirements of the Securities Act pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act and in reliance on similar exemptions under applicable state laws, as well as in accordance with applicable Nasdaq rules.
Added
The purchasers in the 2024 Private Placement represented that they were institutional accredited investors within the meaning of rules promulgated under the Securities Act and were acquiring the securities for investment only and with no present intention of distributing any of such securities or any arrangement or understanding regarding the distribution thereof.
Added
The securities were offered without any general solicitation by us or our representatives. The securities sold and issued in the 2024 Private Placement will not be registered under the Securities Act or any state securities laws and may not be offered or sold in the U.S. absent registration with the SEC or an applicable exemption from the registration requirements.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThese amounts were partially offset by a $8.6 million non cash impairment charge in connection with the write down of our DFN-529 IPR&D asset, our net change in operating assets and liabilities of $0.4 million, and non-cash charges comprised of $0.9 million of stock-based compensation expense and the loss on the write-off of property and equipment of $0.1 million and depreciation expense of $0.1 million.
Biggest changeThe net cash outflow from operations primarily resulted from net loss of $5.8 million and change in fair value of convertible debt of $2.4 million, offset by a non-cash charge of $0.3 million for stock-based compensation, $0.1 million of capital in lieu of executive compensation and changes in operating assets and liabilities of $0.4 million.
Recently Issued Accounting Pronouncements The information in Note 3, Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements set forth in, "Part II — Item 8 — Financial Statements " of this Annual Report is incorporated herein by reference.
Recently Issued Accounting Pronouncements The information in Note 3, Basis of Presentation and Summary of Significant Accounting Policies to our consolidated financial statements set forth in, “ Part II — Item 8 — Financial Statements ” of this Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction This discussion and analysis contains information related to historical and prospective events intended to enable you to assess our financial condition and results of operations.
ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This discussion and analysis contains information related to historical and prospective events intended to enable you to assess our financial condition and results of operations.
As of the date of this Annual Report, however, we have not sold any shares pursuant to the 2022 Sales Agreement. In the future, we may seek to raise additional funds through various sources.
As of the date of this Annual Report, however, we have not sold any shares pursuant to the 2022 Sales Agreement.
Debt 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. 43 Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements, as defined by the rules and regulations of the SEC that have or are reasonably likely to have a material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
The information contained in this discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Annual Report, as well as the risks and uncertainties discussed under the headings, " Item 1A — Risk Factors " and “ Note Regarding Forward-Looking Statements .” Overview Diffusion is a biopharmaceutical company that has historically focused on developing novel therapies that may enhance the body’s ability to deliver oxygen to the areas where it is needed most.
The information contained in this discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes contained elsewhere in this Annual Report, as well as the risks and uncertainties discussed under the headings, "Item 1A — Risk Factors" and “ Note Regarding Forward-Looking Statements. ” Overview We are a clinical-stage biotechnology company focused on developing treatments for age-related neurologic disorders.
Net cash used in operating activities of $15.0 million during the year ended December 31, 2022 was primarily attributable to our net loss of $15.6 million.
For the year ended December 31, 2022, cash used in operating activities was $2.6 million.
General and administrative expenses were $8.7 million during the year ended December 31, 2022 compared to $7.4 million during the year ended December 31, 2021, an increase of 17%.
Research and Development Expenses Research and development expenses were $8.4 million for the year ended December 31, 2023, compared to $1.3 million for the year ended December 31, 2022.
Net cash provided by financing activities of $33.3 million during the year ended December 31, 2021 which was attributable to net proceeds of $31.1 received from the sale of our common stock in connection with the February 2021 Offering and $2.2 million in proceeds received from the exercise of previously issued common stock warrants.
Financing Activities For the year ended December 31, 2023, net cash provided by financing activities was $11.1 million. The net cash provided by financing activities primarily resulted from the net assets assumed in connection with the reverse recapitalization and sale of common stock offset by the payment of offering costs.
As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements.
As a result, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these arrangements. 99 Critical Accounting Polices and Estimates Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.
Interest income was $0.4 million for the year ended December 31, 2022 compared to $0.1 million for the year ended December 31, 2021 primarily as a result of investing a significant portion of our cash balance in marketable securities during the second half of the year ended December 31, 2021 and rising interest rates during 2022.
Interest income Interest income was $0.2 million and $0.1 million for the years ended December 31, 2023 and 2022, respectively. The increase was primarily due to higher interest earned as a result of an increased cash equivalents balance.
To date, we have funded our operations and short-term liquidity needs primarily through the issuance and sale of common stock, warrants to purchase common stock, convertible debt, and convertible preferred stock.
Liquidity and Capital Resources Capital Requirements From the date of our inception through December 31, 2023, our operations had primarily been financed through the issuance of common stock, convertible preferred stock and convertible debt financings. As of December 31, 2023, we had approximately $7.8 million of cash and cash equivalents.
Removed
Our most advanced product candidate, TSC, has been investigated and developed to enhance the diffusion of oxygen to tissues with low oxygen levels, also known as hypoxia, a serious complication of many of medicine’s most intractable and difficult-to-treat conditions, including hypoxic solid tumors like GBM.
Added
We are currently focused on the development of our lead drug candidate, neflamapimod, an investigational, orally administered, small molecule brain penetrant that inhibits p38α in the neurons (nerve cells) within the brains of people with neurodegenerative diseases.
Removed
Ongoing Evaluation of Strategic Opportunities In early 2022, we identified the pursuit of an opportunistic transaction with the potential to complement and diversify our portfolio of product candidates as one of our key strategic objectives for the year. The intended purpose is to reduce the Company's overall risk profile as an investment and enhance long-term value for our stockholders.
Added
Neflamapimod has the potential to treat and improve synaptic dysfunction, the reversible aspect of the underlying disease processes in DLB and certain other major neurological disorders, and is currently being evaluated in our ongoing RewinD-LB Trial, a Phase 2b study in patients with DLB funded by a $21.0 million grant from the NIA.
Removed
In pursuit of this objective, during the fourth quarter of 2021 and first half of 2022, our management team held conversations with several potential counterparties and, in July 2022, we engaged Canaccord Genuity LLC as our financial advisor to support the ongoing evaluation.
Added
We expect to complete enrollment in the RewinD-LB Trial during the second quarter of 2024 and to report initial results from the placebo-controlled portion of the study during the fourth quarter of 2024.
Removed
In October 2022, following further deterioration of the public capital markets throughout 2022, and the corresponding increase in the cost of capital for small biopharmaceutical companies, we publicly announced our Board's authorization of an expanded evaluation and review of potential transactions, including a joint venture, licensing, merger, reverse merger, sale or divestiture of some of the Company’s proprietary technologies or a sale of the Company, among others.
Added
Our novel approach focuses on reducing the impact of inflammation in the brain, or neuroinflammation, which we believe is a key factor in the manifestation of degenerative diseases of the brain, including DLB.
Removed
Since that time, our management team has been increasingly focused on advancing this strategic review process through conversations about potential deal constructs with multiple companies.
Added
Chronic activation of the enzyme p38α in the neurons (nerve cells) within the brains of people with neurodegenerative diseases is believed to impair how neurons communicate through synapses (the connections between neurons). This impairment, termed synaptic dysfunction, leads to deterioration of cognitive and motor abilities.
Removed
In connection with our strategic review process and pending its conclusion, we have paused significant portions of our TSC development activities, including initiation of our previously announced Phase 2 study of TSC in newly diagnosed GBM patients. There is no assurance the Board’s review will result in any transaction being consummated.
Added
Left untreated, synaptic dysfunction can result in neuronal loss that leads to devastating disabilities, significant reliance on a caretaker, long term care living, and, ultimately, death. However, before neuronal loss commences, disease progression in major neurodegenerative disorders, including DLB, initially involves a protracted period of functional loss, particularly with respect to the synapses.
Removed
Any further comments or disclosures regarding the strategic review process will be made from time to time as and when we determine an update is appropriate. Financial Summary As of December 31, 2022, we had cash, cash equivalents, and marketable securities of $22.5 million.
Added
We believe that inhibiting p38α activity in the brain, by interfering with key pathogenic drivers of disease, has the potential to reverse the clinical progression observed in early-stage neurodegenerative diseases, and that it is possible to slow further progression by delaying permanent synaptic dysfunction and neuron death.
Removed
We have incurred operating losses since inception, have not generated any product sales revenue, and have not achieved profitable operations. We incurred net losses of $15.6 million and $24.1 million for the years ended December 31, 2022 and 2021, respectively.
Added
We believe we are a leader in the industry in developing a treatment for DLB, as we are the only company of which we are aware with an asset that has shown statistically significant improvements compared to placebo in a Phase 2a clinical trial (our AscenD-LB Trial) and has initiated a Phase 2b clinical evaluation (our ongoing RewinD-LB Trial), from which we expect initial results before the end of 2024.
Removed
We expect to continue funding our operations through similar means for the foreseeable future, assuming the availability of additional capital, though we may enter into strategic partnerships or other alternative transactions in order to fund our ongoing capital requirements.
Added
The clinical symptoms in DLB are most directly linked to synaptic dysfunction in cholinergic neurons (neurons producing the neurotransmitter acetylcholine) in a part of the brain named the basal forebrain.
Removed
Our accumulated deficit as of December 31, 2022, was $145.6 million and we expect to continue to incur substantial losses in future periods for the foreseeable future, including any costs related to: • our ongoing strategic review process; • any additional studies we may undertake to evaluate our current or future product candidates, including other preclinical and clinical studies to support the filing of any NDA with the FDA; • other research, development, and manufacturing activities designed to develop and optimize formulation, manufacturing processes, dosage, dose forms, and other characteristics prior to regulatory approval; • the maintenance, expansion, and protection our global intellectual property portfolio; • the hiring of additional clinical, manufacturing, scientific, sales, or other personnel; • research and development related to any other product candidates we may acquire or in-license in the future; and • investments in operational, financial, and management information systems.
Added
Based on available preclinical and clinical data, we believe if neflamapimod is given in the early stages of certain degenerative diseases of the brain, it may reverse synaptic dysfunction and improve neuron health and function. In preclinical studies, neflamapimod has been shown to reverse the neurodegenerative process in the BFC system.
Removed
Subject to the outcome and timing of our ongoing strategic review process, we currently expect that our existing cash, cash equivalents and marketable securities as of December 31, 2022 are sufficient to fund its current operations for at least 12 months following the issuance of these financial statements. 39 Financial Operations Overview Revenues We have not yet generated any revenue from product sales.
Added
Following earlier clinical studies demonstrating blood-brain-barrier penetration, target (p38α) engagement, and identification of dose-response, we obtained positive Phase 2a clinical data in patients with DLB in our AscenD-LB Trial.
Removed
We do not expect to generate revenue from product sales for the foreseeable future. Research and Development Expense R&D expenses include, but are not limited to, third-party CRO arrangements and employee-related expenses, including salaries, benefits, stock-based compensation, and travel expense reimbursement. R&D activities are central to our business model.
Added
Specifically, statistically significant improvement was observed in patients treated with neflamapimod compared to patients treated with placebo on measures of dementia severity (as measured by CDR-SB) and functional mobility (i.e., walking ability, as measured by the TUG test) in the primary (intention-to-treat) analysis that includes all patients randomized into the study that had at least one measurement of the endpoint analyzed.
Removed
Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical studies.
Added
In addition, in a secondary analysis, neflamapimod demonstrated statistically significant improvement compared to placebo in a battery of cognitive tests, particularly with respect to tests that measured attention. 93 In October 2023, the major clinical neurology journal, Neurology, published additional analyses of the AscenD-LB Trial data that further strengthened these conclusions regarding neflamapimod’s potential efficacy and identified the DLB patient population most responsive to neflamapimod treatment.
Removed
General and Administrative Expense G&A expenses consist principally of salaries and related costs for executive and other personnel, including stock-based compensation, other employee benefit costs, expenses associated with investment bank and other financial advisory services, and travel expenses.
Added
In these analyses, the results were stratified by pre-treatment levels of plasma ptau181, which recent scientific literature has identified as a biomarker to differentiate DLB patients with AD-associated co-pathology – a form of mixed dementia which we sometimes refer to as “DLB+AD” – from DLB patients without AD-associated co-pathology – which we sometimes refer to as “pure DLB.” In pure DLB patients, who generally represent early-stage patients with limited neurodegeneration in the hippocampus, the treatment response to neflamapimod in the AscenD-LB Trial was substantial (Cohen’s d effect size ≥ 0.7 and statistically significant vs. placebo on the CDR-SB, TUG, cognitive tests of attention and working memory) and greater than the overall patient population.
Removed
Other G&A expenses include, facility-related costs, communication expenses and professional fees for legal, patent prosecution and maintenance, consulting, accounting, and other professional services. Interest Income Interest income consists of interest earned from our cash, cash equivalents and marketable securities Income Tax Benefit The Company recorded no income tax benefit or expense during the year ended December 31, 2022.
Added
In a February 2024 publication in the Journal of Prevention of Alzheimer’s Disease, results from our prior clinical trials of neflamapimod in AD and DLB were integrated to show not only the demonstrated effects of neflamapimod on cognition and function, but on other biomarkers such as EEG and brain volume and functional connectivity in the basal forebrain.
Removed
The Company maintains a full valuation allowance against its deferred tax assets due to the Company’s history of losses as of December 31, 2022. The Company maintains a full valuation allowance against its deferred tax assets due to the Company’s history of losses as of December 31, 2022.
Added
Our ongoing RewinD-LB Trial is a double-blind, placebo-controlled, 16-week Phase 2b study in 160 patients with pure DLB funded by a $21.0 million grant from the NIA. The trial is intended to confirm the efficacy findings from the AscenD-LB Trial and definitively demonstrate proof-of-concept.
Removed
Our NOLs and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.
Added
We have utilized our subsequent analyses of the AscenD-LB data and the other information described above to optimize the RewinD-LB Trial’s design and bolster the trial’s statistical power.
Removed
NOL and tax credit carryforwards may become subject to an annual limitation in the event of a greater than 50.0% cumulative change in the ownership interest of significant stockholders over a three year period, as defined under Sections 382 and 383 of the Internal Revenue Code as well as similar state provisions.
Added
Critically, the RewinD-LB Trial will exclude patients with Alzheimer’s disease related co-pathology as evaluated by plasma ptau181 levels (i.e. the study will only enroll patients with pure DLB) and, to enrich for such patients, the global CDR-SB score at entry will be limited to 0.5 or 1.0.
Removed
The amount of the annual limitation is determined based on the Company’s value immediately prior to the ownership change, and subsequent ownership changes may further affect the limitation in future years.
Added
Together with additional modifications to the Phase 2a design related to dosing regimen and primary endpoint, sample size calculations indicate that the RewinD-LB Phase Trial has greater than 95% statistical power (approaching 100%) to meet its primary objective of demonstrating improvement relative to placebo on change in CDR-SB over the course of the study.
Removed
In 2019, due to the significant changes to our stockholder base as a result of the equity financing we completed during that year, we performed an analysis under Section 382 of the Internal Revenue Code and, as a result, reduced the magnitude of our NOL carryforwards to account for the ownership changes.
Added
We expect to complete enrollment in the RewinD-LB Trial during the second quarter of 2024 and to report initial results from the placebo-controlled portion of the study during the fourth quarter of 2024.
Removed
In addition, the cumulative benefit of our NOLs was remeasured, resulting in tax expense recognized during the year ended December 31, 2019.
Added
The results of the RewinD-LB Trial are intended to provide the data necessary to finalize our design of a Phase 3 clinical trial, the general framework of which, including a 24-week treatment duration, has been agreed upon with the FDA.
Removed
We have not yet performed an analysis to determine whether or not ownership changes that have occurred in the year ended December 31, 2022 (or otherwise subsequent to the 2019 analysis) give rise to any further limitations. 40 Results of Operations for Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table summarizes our results of operations for the years ended December 31, 2022 and 2021: Year ended December 31, 2022 2021 Change Operating expenses: Research and development $ 7,237,165 $ 8,499,414 $ (1,262,249 ) Intangible asset impairment charge — 8,639,000 $ (8,639,000 ) General and administrative 8,735,015 7,445,277 1,289,738 Depreciation — 93,416 (93,416 ) Loss from operations (15,972,180 ) (24,677,107 ) (8,704,927 ) Interest income 380,752 137,487 243,265 Loss from operations before income taxes (15,591,428 ) (24,539,620 ) 8,948,192 Income tax benefit — 443,893 (443,893 ) Net loss $ (15,591,428 ) $ (24,095,727 ) $ 8,504,299 Research and development expenses were $7.2 million during the year ended December 31, 2022 compared to $8.5 million during the year ended December 31, 2021, a decrease of 15%.
Added
In addition to neflamapimod’s potential to treat DLB, we believe the benefit of targeting neuroinflammation-induced synaptic dysfunction in the BFC system can be applied to other neurologic indications in which treatment of BFC dysfunction and degeneration would be expected to be clinically beneficial, including as treatment promoting recovery in the three months after ischemic stroke, as a disease-modifying treatment for early-stage Alzheimer’s disease, and as a treatment for certain forms of frontotemporal dementia.
Removed
This decrease was due to lower project spending due to the completion and/or wind-down of certain CMC-related activities and clinical studies evaluating TSC in Covid-19, GBM, and our Oxygenation Trials.
Added
Financial Summary As of December 31, 2023, we had cash and cash equivalents of approximately $7.8 million.
Removed
The decrease in intangible asset impairment charge is related to the nonrecurring $8.6 million non-cash impairment charge related to the write down of our DFN-529 IPR&D asset during the year ended December 31, 2021.
Added
To date, we have not had any products approved for sale and have not generated any revenue from product sales and our ability to do so in the future will depend on the successful development and eventual commercialization of neflamapimod (or another product candidate that we could acquire or develop in the future).
Removed
The increase was primarily due to increased headcount resulting in higher compensation expense and other costs associated with the hiring of new employees as well as an increase in professional fees related to ongoing business development activity.
Added
We do not expect to generate revenue from product sales until such time, if ever. Our accumulated deficit as of December 31, 2023 was $54.4 million. We have never been profitable, and we will continue to require additional capital to develop neflamapimod and fund operations for the foreseeable future. We have historically incurred net losses in each year since inception.
Removed
The decrease in depreciation for the year ended December 31, 2022 compared to the year ended December 31, 2021 is related to the disposal of property and equipment during the year-ended December 31, 2021 resulting in no remaining property and equipment remaining during the year ended December 31, 2022 for depreciating.
Added
Our net loss was $2.2 million and $5.8 million in the years ended December 31, 2023 and December 31, 2022, respectively.
Removed
The decrease in income tax benefit of $0.4 million during the year ended December 31, 2022 compared to the year ended December 31, 2021 is due to the tax effect of the reduction in the deferred tax liability associated with the basis differences from the DFN-529 IPR&D intangible asset that was written down in the third quarter of 2021. 41 Liquidity and Capital Resources Working Capital The following table summarizes our working capital as of December 31, 2022 and 2021: December 31, 2022 2021 Cash and cash equivalents $ 10,113,706 $ 37,313,558 Marketable securities 12,408,940 — Prepaid expenses, deposits and other assets 112,406 510,015 Total current liabilities 2,417,336 2,927,684 Working capital $ 20,217,716 $ 34,895,889 We expect to continue to incur net losses for the foreseeable future.
Added
We expect our expenses will increase in connection with our ongoing activities, as we: ● advance neflamapimod through clinical trials, including our ongoing Phase 2b trial for DLB, through to initiation of a Phase 3 trial in DLB; ● manufacture supplies for our nonclinical studies and clinical trials; ● obtain, maintain, expand, and protect our intellectual property portfolio; ● hire additional personnel to support our operations and growth; and ● continue to operate as a public company. 94 Based on our current operating plan, we believe that our cash and cash equivalents on hand as of December 31, 2023, along with the remaining funds expected to be received from the NIA Grant, will not be sufficient to allow us to fund our current operations and continue as a going concern through at least one year from the date of the issuance of our consolidated financial statements.
Removed
We intend to use our existing cash and cash equivalents for working capital purposes, to support our ongoing strategic review process and, subject to the outcome thereof, to fund the research and development of our product candidates.
Added
We expect to incur substantial expenditures for the foreseeable future for the development of neflamapimod and will require additional financing to continue this development.
Removed
Cash Flows The following table sets forth our cash flows for the years ended December 31, 2022 and 2021: December 31, Net cash (used in) provided by: 2022 2021 Operating activities $ (14,969,114 ) $ (14,501,789 ) Investing activities (12,235,738 ) 4,000 Financing activities 5,000 33,295,752 Net (decrease) increase in cash and cash equivalents $ (27,199,852 ) $ 18,797,963 Operating Activities For the year ended December 31, 2022, net cash used in operating activities increased $0.5 million, or 3% compared to the year ended December 31, 2021.
Added
On March 28, 2024, we entered into a securities purchase agreement with certain purchasers named therein related to the private placement of an aggregate of 2,532,285 units, each comprised of (i) (A) one share of common stock or (B) one Pre-Funded Warrant and (ii) one Series A Warrant.
Removed
These amounts were partially offset by our net change in operating assets and liabilities of $0.1 million, and non-cash charges comprised of $0.9 million of stock-based compensation expense, as well as $0.2 million for the amortization of premium and discount on marketable securities.
Added
The aggregate upfront gross proceeds for the 2024 Private Placement are expected to be approximately $50 million, before deducting offering fees and expenses, and up to an additional approximately $99.4 million in gross proceeds if the Series A Warrants are fully exercised for cash.
Removed
Net cash used in operating activities of $14.5 million during the year ended December 31, 2021 was primarily attributable to our net loss of $24.1 million and a $0.4 million change in deferred income taxes.
Added
The 2024 Private Placement is expected to close on or about April 1, 2024, subject to customary closing conditions.
Removed
Investing Activities Net cash used in investing activities during the year ended December 31, 2022 was attributable to the purchase of $38.0 million of marketable securities and maturities of $25.8 million of marketable securities. During the year ended December 31, 2021, we received $4,000 from the sale of property and equipment.
Added
The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations, including information regarding our liquidity, capital resources and cash runway, does not reflect the anticipated consummation of, or our anticipated receipt of proceeds from, the 2024 Private Placement.
Removed
Financing Activities For the year ended December 31, 2022, net cash provided by financing activities decreased $33.3 million, or 100% compared to the year ended December 31, 2021. 42 Net cash provided by financing activities of $5,000 during the year ended December 31, 2022 was attributable to net proceeds received from the sale of our Series C Preferred Stock.
Added
For additional information regarding the 2024 Private Placement, the terms thereof (including the conditions to closing), and our expected use of the net proceeds therefrom, refer to our Current Report on Form 8-K filed with the SEC on March 28, 2024.
Removed
Capital Requirements Historically, including during the year ended December 31, 2022, we have incurred substantial expenses and generated significant operating losses pursuing our business strategy of developing TSC.
Added
Financial Operations Overview Revenue To date, we have not generated any revenue from product sales and we do not expect to do so in the near future. In January 2023, we were awarded our $21.0 million NIA Grant. Funding from the NIA Grant is recognized as grant revenue as the qualifying expenses related thereto are incurred.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK As a "smaller reporting company" (as such term is defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information described in Item 305 of Regulation S-K and, accordingly, the information required by Item 6 of Form 10-K has been omitted from this Annual Report.
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK As a “smaller reporting company” (as such term is defined in Rule 12b-2 of the Exchange Act), we are not required to provide the information described in Item 305 of Regulation S-K and, accordingly, the information required by Item 7A of Form 10-K has been omitted from this Annual Report. 101

Other CRVO 10-K year-over-year comparisons