Quarterly Report for Quarter Ending June 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis should be read in conjunction with Filana Therapeutics, Inc.'s (the "Company," "we," "us," or "our") condensed consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10-Q. Operating results are not necessarily indicative of results that may occur in future periods.

Forward-looking Statements and Notices

This Quarterly Report on Form 10-Q contains certain statements that are considered forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will" and "would" or the negatives of these terms or other comparable terminology.

The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. Forward-looking statements involve risks and uncertainties and our actual results and the timing of events may differ significantly from the results discussed in the forward-looking statements. Examples of such forward-looking statements include, but are not limited to statements about:

	●	the timing and conduct of our planned and future potential clinical trials and studies for Simufilam in Tuberous Sclerosis Complex (TSC) and additional indications, including the timing of initiation, enrollment and completion of the trials and the period during which the results of the trials will become available;
	●	the safety profile or treatment benefits, if any, of simufilam;
	●	our ability to conduct planned preclinical studies of simufilam relating to epilepsy in TSC;
	●	our ability to initiate, conduct or analyze additional clinical and non-clinical studies with our product candidates targeted at central nervous system disorders, including TSC-related epilepsy;
	●	our ability to successfully carry out our obligations under our license agreement with Yale, for which we have assumed all responsibility for global development and commercialization for simufilam for the treatment of TSC-related epilepsy;
	●	our plans or ability to expand therapeutic indications for simufilam outside of TSC-related epilepsy;
	●	our reliance on third-party contractors to conduct all of our clinical and non-clinical trials and to make drug supply, or their ability to do so on-time or on-budget;
	●	the interpretation of data from our pre-clinical or early clinical studies, such as Phase 1 and Phase 2 studies, and any studies that are not randomized controlled trials;
	●	the impact of pre-clinical findings on our ability to develop our product candidates;
	●	our use of exploratory 'research use only' non-safety related biomarkers in our clinical studies;
	●	our ability to file for and obtain regulatory approval of our product candidates;
	●	our strategy and ability to establish an infrastructure to commercialize any product candidates, if approved;
	●	the potential future revenues of our product candidates, if approved and commercialized;
	●	the market acceptance of our product candidates, if approved and commercialized;
	●	the pricing and reimbursement of our product candidates, if approved and commercialized;
	●	the utility of protection, or the sufficiency, of our intellectual property;
	●	our potential competitors or competitive products for therapeutic areas we may elect to pursue;
	●	our need to raise new capital from time to time to finance our operations and the impact of macroeconomic conditions on our ability to effectively raise capital;
	●	expectations regarding trade secrets, technological innovations, licensing agreements and outsourcing of certain business functions;
	●	our expenses or incurred costs increasing by material amounts in excess of budgeted amounts due to unexpected cost overruns, imperfect forecasting, increased scope of activities or other causes;
	●	fluctuations in our financial or operating results;
	●	our operating losses, anticipated operating and capital expenditures and legal expenses;
	●	expectations regarding the issuance of shares of common stock, options or other equity to employees or directors pursuant to equity compensation awards, net of employment taxes;
	●	the development and maintenance of our internal information systems and infrastructure;

	●	our ability to minimize the likelihood and impact of adverse cybersecurity incidents in our information systems and infrastructure;
	●	our ability to attract and retain personnel;
	●	existing or emerging regulations and regulatory developments in the United States and other jurisdictions in which we operate;
	●	our expectations regarding the appropriate size and scope of our operations;
	●	the sufficiency of our cash resources to continue to fund our operations;
	●	potential future agreements with third parties in connection with the commercialization of our product candidates;
	●	the accuracy of our estimates regarding expenses, loss contingency reserves, capital requirements, and needs for additional financing;
	●	assumptions and estimates used for our disclosures regarding stock-based compensation;
	●	expense, timing and outcome of pending or future litigation or other legal proceedings and claims (including U.S. government inquiries) including the potential for negotiated settlements of such matters; and
	●	litigation, claims or other uncertainties that may arise from allegations made against us or our former employees or collaborators and the potential resolution of same.

Please also refer to the section entitled "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 and this Quarterly Report on Form 10-Q, as such risk factors may be further amended, updated or modified periodically in our reports filed with the U.S. Securities and Exchange Commission (the "SEC") for further information on these and other risks affecting us.

We caution you not to place undue reliance on forward-looking statements because our future results may differ materially from those expressed or implied by them. We do not undertake to update any forward-looking statement, whether written or oral, relating to the matters discussed in this Quarterly Report on Form 10-Q, except as required by law.

This Quarterly Report on Form 10-Q may also contain statistical data and drug information received from our independent consultants or based on industry publications or other publicly available information. We have not independently verified the accuracy or completeness of the data contained in these sources of data and information. Accordingly, we make no representations as to the accuracy or completeness of such data and information. You are cautioned not to give undue weight to such data and information.

Our research programs in neurodegeneration have historically benefited from scientific and financial support from the National Institutes of Health ("NIH"). The contents of this Quarterly Report on Form 10-Q are solely our responsibility and do not necessarily represent any official views of NIH, the Department of Health and Human Services, or any other agency of the United States government, or any of our vendors, collaborators or unrelated third-parties.

All our pharmaceutical assets under development are investigational product candidates. These have not been approved for use in any medical indication by any regulatory authority in any jurisdiction and their safety, efficacy or other desirable attributes, if any, have not been established in any patient population. Consequently, none of our product candidates are approved or available for sale anywhere in the world.

Our clinical results from earlier-stage clinical trials may not be indicative of future results from later-stage or larger scale clinical trials and do not ensure regulatory approval. You are cautioned that subsequent results may differ materially.

Overview

Filana Therapeutics, Inc. is a clinical-stage biotechnology company based in Austin, Texas. Our mission is to develop transformative medicines to improve the lives of patients with central nervous system (CNS) disorders, such as Tuberous Sclerosis Complex (TSC)-related epilepsy and other diseases associated with dysregulation or overexpression of filamin A. Our science is based on modulating the activity of a critical protein in the brain for patients with certain CNS disorders, such as TSC. Our lead therapeutic drug candidate, simufilam, was under clinical evaluation for the proposed treatment of Alzheimer's disease in two Phase 3 clinical studies through 2024, when all ongoing clinical trials for simufilam in Alzheimer's disease were discontinued. The phase out of the Company's Alzheimer's disease development program was completed in the second quarter of 2025.

Our lead therapeutic product candidate, simufilam, is a proprietary small molecule oral treatment drug being studied for the treatment of TSC-related epilepsy. Simufilam was discovered and designed in-house and was characterized by our academic collaborators during research activities that were conducted from approximately 2008 to date.

Simufilam is intended to modulate the activity of a protein called filamin A, which regulates diverse aspects of neuronal cell development. Our and our collaborators' published studies have demonstrated that the combination of mTOR activation and filamin A overexpression causes cell overgrowth, abnormal connectivity, and brain malformations, leading to seizures in patients with TSC. While such seizures have historically been treated with mTOR inhibitors and other drugs, filamin A represents a novel target for the potential treatment of TSC-related epilepsy, independent of mTOR. Simufilam is a potential first-in-class filamin A-modulating agent with the potential to treat TSC-related epilepsy. We continue to explore other potential indications for simufilam, both CNS related and otherwise, where our pre-clinical experiments suggest that simufilam may provide a benefit.

We Own or Control Worldwide Rights to Our Drug Development Program

Our success depends in part on our ability to obtain, maintain, and enforce intellectual property protection for our product candidates, including simufilam, and related technologies. We seek to protect our proprietary position through a combination of patents, patent applications, trade secrets, know-how, and other intellectual property rights.

We own or exclusively control a portfolio of issued patents and pending patent applications directed to simufilam and related diagnostic assets. These intellectual property rights include patents covering composition of matter for simufilam in the United States, Europe, Australia, Israel, and Canada, as well as patents covering certain methods of use of simufilam in the United States, Europe, and Japan. We also own pending patent applications covering diagnostic assets related to simufilam in the United States, Europe, Japan, China, Canada, and Australia, as well as additional pending patent applications covering other diagnostic assets in the United States, Europe, Japan, China, and Canada.

In the United States, our patent protection relating to simufilam, including its solid forms and methods of use for Alzheimer's disease and other neurodegenerative diseases, consists of nine issued U.S. patents, with expiration dates ranging from 2029 to 2040, subject to potential patent term extensions and adjustments. We have filed corresponding foreign patent applications for each of these U.S. patent families where we believe such protection is commercially appropriate.

In addition to our owned intellectual property, on February 26, 2025, we entered into a License Agreement (the "License Agreement") with Yale University ("Yale") pursuant to which we were granted exclusive worldwide rights, with rights to sublicense, to Yale's interest in certain patent and other intellectual property rights that could be useful or necessary to the development and commercialization of simufilam for the treatment of TSC-related epilepsy and other potential indications. Under this exclusive, worldwide license, we have the right to sublicense the licensed intellectual property. The license is subject to customary diligence obligations and includes milestone payments, royalties on net sales of licensed products, and other contingent payments, including payments tied to the transfer of any regulatory priority review voucher, if issued. As a result, commercial sales of simufilam or related products, if any, may be subject to royalty obligations to Yale.

Except for intellectual property licensed from third parties, including pursuant to the License Agreement with Yale, we do not owe royalties or other payments to third parties with respect to our owned patents and patent applications covering simufilam. For more information, please also refer to the section entitled "License Agreement with Yale."

About Tuberous Sclerosis Complex (TSC)

TSC is a genetic disorder that results from a mutation in the TSC1 or TSC2 genes. According to the Tuberous Sclerosis Alliance (TSCA), TSC is estimated to affect around 1 in 6,000 live births with approximately 50,000 people affected in the United States and more than one million worldwide. Clinical symptoms of TSC are variable and can impact organ systems with non-malignant tumors developing in brain, eyes, heart, kidney, skin and lungs. Interrelated neuropsychiatric manifestations of TSC such as intellectual disability, autism spectrum disorder, anxiety, aggression, attention deficit hyperactivity disorder, and sleep disturbance can significantly impact quality of life. Epilepsy is common in TSC, occurring in 84% of patients registered in the TSC Alliance Natural History Database with onset often occurring in their first year of life. Approximately 60 percent of TSC patients suffer from treatment-resistant seizures despite use of multiple anti-seizure medications. TSC-related epilepsy is associated with poor outcomes and increases the risk of cognitive deficits.

Preclinical Studies with Simufilam in Tuberous Sclerosis Complex

Preclinical research conducted at Yale indicates that simufilam (then PTI-125) may be effective in reducing TSC-related seizure activity. A study conducted by Angelique Bordey, PhD, at Yale and published in the peer-reviewed journal Neuron in 2014 found overexpression of filamin A and neuronal abnormalities in brain tissue from TSC patients, as well as in brain tissue from mice that had been genetically altered to model TSC. The study further found that genetically normalizing filamin A expression in the mice prevented neuronal abnormalities. The paper, MEK-ERK1/2-Dependent FLNA Overexpression Promotes Abnormal Dendritic Patterning in Tuberous Sclerosis Independent of mTOR (Neuron. 2014 Oct 1. PMID: 25277454), was co-authored by Zhang L, Bartley CM, Gong X, Hsieh LS, Lin TV and Feliciano DM.

A later study conducted by Dr. Bordey and published in the peer-reviewed journal Science Translational Medicine in 2020 likewise found elevated filamin A and neuronal abnormalities in brain tissue from patients with focal cortical dysplasia type II (FCDII), a genetic disorder with similar characteristics to TSC, as well as in the brains of mice that had been genetically altered to model TSC and FCDII. That study showed that normalizing filamin A expression in the mice through genetic knockdown both limited the neuronal abnormalities and reduced the frequency of epileptic seizures in the mice. This 2020 paper, Filamin A Inhibition Reduces Seizure Activity in a Mouse Model of Focal Cortical Malformations (Sci Transl Med. 2020 Feb 19. PMID: 32076941), was co-authored by Zhang L, Huang T, Teaw S, Nguyen LH, Hsieh LS, Gong X, and Lindsay Burns, a former employee of the Company.

In this 2020 study, Dr. Bordey and her colleagues also studied the effect of treatment with simufilam in the mice that had been altered to model TSC and FCDII. The research showed that treatment with simufilam limited neuronal abnormalities and reduced seizure activity in the mouse model at a level similar to genetic knockdown of filamin A expression.

Dr. Bordey joined the Company as Senior Vice President, Neuroscience, in May 2025, while continuing her tenured academic position at Yale School of Medicine on a part-time basis. In connection with plans to initiate a clinical program in TSC-related epilepsy, the Company appointed Dr. Joseph Hulihan as Chief Medical Officer in August 2025. Dr. Hulihan, who brings over 25 years of industry experience, devotes approximately half of his professional time to the Company and will advise on the clinical development of simufilam.

In August 2025, the Company announced positive preclinical results of a study evaluating simufilam in a well-accepted mouse model of TSC-related epilepsy. The study was conducted in collaboration with the TSCA and the TSC Preclinical Consortium using an animal model of TSC-related epilepsy, the Tsc1 conditional knockout (CKO) mouse line (Tsc1-CKO). These mice develop spontaneous seizures and are used by the TSC Alliance to evaluate the effectiveness and safety of novel and repurposed therapeutics in the potential treatment of TSC-related epilepsy. The study was conducted by PsychoGenics, Inc., the TSC Preclinical Consortium's research partner.

The Tsc1-CKO mice were treated with several doses of simufilam. Seizure activity was monitored for approximately three weeks after onset, and simufilam was evaluated against treatment with vehicle alone. The data showed that simufilam attenuated the progression of seizure activity, with a statistically significant correlation between simufilam dose and the number of seizures by the end of the study. Not all parameters measured reached statistical significance.

Data and analyses were published in Epilepsia on April 14, 2026. Figure 3C from the article is a heatmap comparing the number of seizures per day recorded for each mouse in the study. Mice were administered vehicle (control) or simufilam at one of three ascending doses.

Epilepsia paper, Figure 3C

Heatmap of the daily number of seizures per mouse during electroencephalography (EEG) recordings in each condition. EEG monitoring spanned 20 days, but seizure counts were quantified for the first 5 and last 10 days, and comparative analysis was performed between the first and last 5 days. Gray squares: Mice had died. The 5 day-gap indicates that analysis was not performed for this period.

Status of Investigational New Drug (IND) Application

Based on the results of these studies, the Company filed an Investigational New Drug (IND) application with the U.S. Food and Drug Administration (FDA) in order to initiate a proof-of-concept clinical trial for simufilam in TSC-related epilepsy. On December 15, 2025, the Company received a formal letter from FDA confirming that the proposed clinical trial is on full clinical hold subject to the Company providing FDA with additional information, including additional pre-clinical data, and modifying the protocol design. The Company is working expeditiously to address the items identified in the letter. The timing for initiation of a clinical trial will depend on the Company's ability to provide the requested information to FDA and on satisfactory completion of FDA's review.

License Agreement with Yale

On February 26, 2025, we entered into the License Agreement with Yale pursuant to which we were granted exclusive worldwide rights, with rights to sublicense, to Yale's interest in certain patent and other intellectual property rights that could be useful or necessary to the development and commercialization of simufilam for the treatment of TSC-related epilepsy and other potential indications. Pursuant to the License Agreement, we have agreed to use reasonable commercial efforts to implement a plan designed for such development and commercialization.

In exchange for the rights acquired pursuant to the License Agreement, we paid Yale (i) a nominal upfront license fee, and agreed to pay (ii) payments upon the achievement of specified clinical, regulatory and commercial milestones, totaling up to $4.5 million and (iii) upon transfer to a third party of a regulatory priority review voucher, if issued, a low- to mid- double digit percentage of any consideration received for such transfer. We also agreed to pay Yale tiered royalties, ranging from a low- to mid- single digit percentage, on aggregate net sales of licensed products, subject to tiered minimum annual royalty payments ranging from the low- to mid- hundreds of thousands of dollars.

Unless earlier terminated, the License Agreement will continue on a country-by-country basis until the later of (i) the date on which the last valid claim of the license patents expires or otherwise lapses, (ii) the end of any government or regulatory exclusivity period, and (iii) 10 years following the date of first sale of licensed product in such country. We may terminate the License Agreement: (i) at our option, upon specified advance notice to Yale and (ii) if Yale commits a material breach of the License Agreement that is not cured within a specified timeframe. Yale may terminate the License Agreement under specified circumstances, including if we (i) fail to make any payment due under the License Agreement and fail to cure such non-payment within a specified timeframe, (ii) commit a breach of the License Agreement that is not cured within a specified timeframe, (iii) default on a material obligation to any creditor, unless cured within a specified timeframe, (iv) fail to obtain or maintain insurance required by the License Agreement, (v) bring or assist a patent challenge against Yale (or if a sublicensee does so). In addition, the License Agreement will terminate automatically upon the occurrence of certain bankruptcy and insolvency events involving us.

The License Agreement includes customary confidentiality, reporting and inspection, and indemnification provisions.

Safety Data From our Now-Discontinued Alzheimer's Disease Program

Prior to discontinuing the Alzheimer's disease program in early 2025, we conducted several Phase 1, Phase 2 and Phase 3 trials of simufilam in the indication. During this clinical trial program, more than 2,000 patients were treated with simufilam, with some patients receiving treatment for as long as 24 months. The safety observations for simufilam from the clinical trials in the discontinued Alzheimer's disease program remain relevant and important to research and clinical trials in pursuit of other indications, including TSC-related epilepsy.

Phase 1 Clinical Safety Study in Healthy Volunteers

The FDA accepted our IND submission for simufilam in 2017. This IND included the requisite preclinical studies concerning safety pharmacology, toxicology, genotoxicity and bioanalytical methods.

We thereafter investigated the safety, dosing and pharmacokinetic profile of simufilam in healthy human volunteers. The design of our first-in-human Phase 1 study was based on regulatory feedback, clinical and scientific rationale and observations from previously conducted preclinical and in vitro studies. In this Phase 1 study, simufilam was evaluated in 24 healthy human volunteers (18 simufilam, 6 placebo) in a single site in the U.S. for safety, tolerability and pharmacokinetics. Study subjects were administered a single oral dose of 50, 100 or 200 mg of simufilam or placebo. Drug appeared safe and well-tolerated. Importantly, simufilam showed no treatment-related adverse effects and no dose-limiting safety findings. Pharmacokinetic measurements demonstrated that simufilam, a small molecule, was rapidly absorbed. Dose-proportionality was observed over the full dose range of 50 to 200 mg.

Phase 2 24-Month Clinical Safety Study of Simufilam in Alzheimer's Disease

In March 2020, we initiated a Phase 2 clinical safety study of simufilam in patients with Alzheimer's disease (NCT04388254). This study was funded in part by a research grant award from NIH. This study was designed to evaluate the long-term clinical safety and tolerability of simufilam in patients with Alzheimer's disease over 24 months. This study enrolled over 200 patients with Alzheimer's disease who were recruited from 16 U.S. clinical sites.

We conducted the 24-month safety study in three continuous phases:

	●	a 12-month, open-label treatment phase, followed by
	●	a 6-month randomized, placebo-controlled withdrawal phase, followed by
	●	6 additional months of open-label treatment.

Study participants received simufilam oral tablets 100 mg twice-daily in the open-label treatment phases, and simufilam or matching placebo during the randomized withdrawal phase. In an open-label study design, both the health providers and the patients are aware of the drug treatment being given.

All study participants who completed 12 months of open-label simufilam treatment were eligible to participate in the 6-month randomized, placebo-controlled withdrawal phase. Likewise, all study participants who completed the randomized, placebo-controlled withdrawal phase were eligible for 6 additional months of open-label treatment.

During this 24-month study, oral simufilam 100 mg tablets twice daily appeared safe and well tolerated. No drug-related serious adverse events were observed. The most common treatment-emergent adverse events (TEAEs) were Covid-19 and urinary tract infection.

Phase 3 Clinical Trials of Simufilam in Alzheimer's Disease

Between 2021 and 2025 we enrolled approximately 1,900 patients-including 1,153 patients treated with simufilam during the blinded phase-in two randomized placebo-controlled Phase 3 clinical trials of oral simufilam in mild-to-moderate Alzheimer's disease. The 800 patients enrolled in the first Phase 3 study, called RETHINK-ALZ, received either 100 mg simufilam tablets or placebo twice daily for 52 weeks (NCT04994483). The 1,125 patients enrolled in the second Phase 3 study, called REFOCUS-ALZ, received either 100 mg and 50 mg simufilam tablets or placebo twice daily for 76 weeks (NCT05026177). Patients who completed either of these Phase 3 studies or the 24-month Phase 2 safety study were eligible to enter a 12-month Open Label Extension study in which all patients received simufilam.

On November 25, 2024, we announced that RETHINK-ALZ did not meet each of the pre-specified co-primary, secondary and exploratory biomarker endpoints. We thereafter discontinued the Phase 3 REFOCUS-ALZ study and Open Label Extension study. On March 25, 2025, we announced that REFOCUS-ALZ also did not meet each of the pre-specified co-primary, secondary and exploratory biomarker endpoints. With the failure of both trials to meet their efficacy endpoints, we announced the decision to phase out our Alzheimer's disease development program. That process was completed in the second quarter of 2025.

Throughout both of these Phase 3 trials and the subsequent open-label extension study, simufilam demonstrated a favorable safety profile. The drug's adverse event profile was comparable to placebo, and no drug-related serious adverse events were observed.

Peer Reviewed Article Describing the Results of our Phase 3 Trials of Simufilam in Alzheimer's Disease

On January 13, 2026, we announced the publication of the article Phase 3 randomized clinical trials of simufilam in mild-to-moderate Alzheimer's disease in the Journal of Prevention of Alzheimer's Disease (JPAD). The paper provides a detailed analysis of data from the RETHINK-ALZ and REFOCUS-ALZ clinical trials. Although, the two studies did not meet their pre-specified efficacy endpoints, exploratory post-hoc analysis of the studies contained in this article offered informative insights regarding simufilam.

Risk is Fundamental to the Drug Development Process

We are in the business of new drug discovery and development. Our research and development activities are long, complex, costly and involve a high degree of risk. Holders of our common stock should carefully read our 2025 Annual Report on Form 10-K and any subsequent Quarterly and Current Reports filed with the SEC in their entirety, including important disclosures under the caption "Risk Factors." Because risk is fundamental to the process of drug discovery and development, you are cautioned to not invest in our publicly traded securities unless you are prepared to sustain a total loss of the money you have invested.

Our Science

Our Science is Based on Modulating the Activity of Filamin A

Our scientific approach is to treat central nervous system diseases by modulating the activity of the filamin A scaffolding protein. Based on existing research, we believe that filamin A is a promising target for drug development with respect to TSC-related epilepsy.

Research that we sponsored has identified a family of high-affinity, small molecules to target filamin A as a means of potentially treating central nervous system disorders such as TSC-related epilepsy. This family of small molecules, including simufilam, our lead small molecule (oral) therapeutic product candidate, was designed in-house and characterized by our academic collaborators.

Filamin A is a scaffolding protein found in the brain and elsewhere in the body. Scaffolding proteins bring multiple proteins together, coordinating their interaction. Our product candidate, simufilam, is a potential first-in-class filamin A-modulating agent with the potential to treat TSC-related epilepsy. We continue to explore other potential indications for simufilam, both CNS related and otherwise, where our pre-clinical experiments suggest that simufilam may provide a benefit.

Published research shows that patients with TSC have elevated levels of filamin A and that this overexpression of filamin A, in combination with mTOR activation, causes cell overgrowth, abnormal connectivity, and brain malformations, leading to seizures. Preclinical studies in a mouse model showed that genetically normalizing filamin A levels reduced seizure activity and limited neuronal abnormalities independent of mTOR activation.

In this same mouse model, treatment with simufilam reduced seizure activity and limited neuronal abnormalities in a manner similar to genetically normalizing filamin A levels. A second study in a well-accepted mouse model of TSC-related epilepsy showed that treatment with simufilam attenuated the progression of seizure activity.

Extension of Our Science to Other Indications

We may leverage our scientific insights in neurodegeneration and neuroinflammation and advanced tools in molecular biology, biochemistry, and imaging to expand our science to other diseases, including other diseases in which filamin A may be associated with the disease process. New indications and new drug development approaches may complement or supersede our current focus priorities.

In addition, we are exploring and incorporating artificial intelligence (AI) capabilities and related data analytics to target improvements in productivity and efficiency in our business, enhancements to research and development activities, and advancements in statistical analysis capabilities.

Simufilam Drug Supply

We have a drug supply agreement with Evonik Industries AG for simufilam. Under the agreement, Evonik supplies and is expected to continue to supply us with clinical-grade quantities of simufilam. Evonik is one of the world's largest contract development and manufacturing organizations for pharmaceutical ingredients. Other vendors supply excipients, the finished dosage form (i.e., simufilam tablets), drug packaging, package labeling and other critical components of the supply chain for drug supply that can be used for clinical studies.

SavaDx

Our product candidate, called SavaDx, was an early-stage program focused on detecting the presence of Alzheimer's disease from a small sample of blood. For business, technical and personnel reasons, we discontinued the development of SavaDx as of mid-2025. Development activity related to SavaDx accounted for less than 1% of our research budget in all periods presented prior to the program's discontinuation.

Financial Overview

We have yet to generate any revenues from product sales. We have an accumulated deficit of $515.0 million at June 30, 2026. These losses have resulted principally from costs incurred in connection with research and development activities, salaries and other personnel-related costs, legal related costs and general corporate expenses. Research and development activities include costs of clinical and preclinical trials as well as clinical supplies associated with our product candidates. Salaries and other personnel-related costs include stock-based compensation associated with stock options and other equity awards granted to employees and non-employees. Our operating results may fluctuate substantially from period to period as a result of enrollment rates of clinical trials for our product candidates, timing of preclinical activities and our need for clinical supplies.

We expect to continue to use significant cash resources in our operations for the next several years. Our cash requirements for operating activities and capital expenditures may increase in the future as we:

	●	engage with, and satisfactorily respond to, requests for additional information from the FDA concerning the clinical hold on our IND application for simufilam in TSC-related epilepsy
	●	conduct preclinical and clinical studies for our product candidates, including simufilam for TSC-related epilepsy;
	●	seek regulatory approvals for our product candidates;
	●	develop, formulate, manufacture and commercialize our product candidates;
	●	acquire or in-license additional products or technologies, or expand the use of our technology;
	●	maintain, defend and expand the scope of our intellectual property; and
	●	expend resources related to legal proceedings and claims, including U.S. government inquiries.

Product revenue will depend on our ability to receive regulatory approvals for, and successfully market, our product candidates. If our development efforts result in regulatory approval and successful commercialization of our product candidates, we expect to generate revenue from direct sales of our drugs and/or, if we license our drugs to future collaborators, from the receipt of license fees and royalties from sales of licensed products. We conduct our research and development programs through a combination of internal and collaborative programs. We rely on arrangements with universities, certain collaborators, contract development and manufacturing organizations, clinical research organizations ("CROs") and clinical research sites for a significant portion of our product development efforts.

We focus substantially all of our research and development efforts in the development of simufilam. Research and development expenses for our investigational diagnostic product candidate, SavaDx, for which development was discontinued in mid-2025, represented less than 1% of total research and development expenses for the periods presented. The following table summarizes expenses by category for research and development efforts (in thousands):

		Three months ended								Six months ended
		June 30,								June 30,
		2026				2025				2026				2025
Clinical trials		$	180			$	1,313			$	282			$	9,408
Pre-clinical projects			294				827				1,252				1,542
Chemical, Manufacturing and Controls costs ("CMC costs")			171				391				873				774
Personnel related			964				1,049				2,071				2,774
Stock-based compensation			1,348				1,162				2,681				3,534
Other			346				374				688				750
		$	3,303			$	5,116			$	7,847			$	18,782

Clinical trial costs include the costs of our CRO. CMC costs include costs related to our contract development and manufacturing organizations. Research and development expenses include compensation, contractor fees and supplies as well as allocated common costs such as facilities.

Estimating the dates of completion of clinical development, and the costs to complete development, of our product candidates would be highly speculative and subjective. Pharmaceutical products take a significant amount of time to research, develop and commercialize. The clinical study portion of the development of a new drug alone usually spans several years. In the near term, we expect research and development expense for the TSC-related epilepsy program to be significantly lower compared to those for the Alzheimer's disease program. We expect to reassess our future research and development plans based on our review of data we receive from our current research and development activities. The cost and pace of our future research and development activities are linked and subject to change.

Critical Accounting Estimates

This discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, as well as the reported expenses and net loss incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

There have been no material changes to our critical accounting estimates during the six months ended June 30, 2026 from those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the SEC on March 12, 2026.

Results of Operations - Three and Six Months Ended June 30, 2026 and 2025

Research and Development Expense

Research and development expenses consist primarily of costs of drug development work associated with our product candidates, including:

	●	clinical trials,
	●	pre-clinical testing,
	●	clinical supplies and related formulation and design costs, and
	●	compensation and other personnel-related expenses.

Research and development expenses were $3.3 million and $5.1 million during the three months ended June 30, 2026 and 2025, respectively. This 35% decrease was due primarily to the phase out of the Alzheimer's disease development program, which was completed in the second quarter of 2025.

Research and development expenses were $7.8 million and $18.8 million during the six months ended June 30, 2026 and 2025, respectively. This 58% decrease was due primarily to the phase out of the Alzheimer's disease development program, which was completed in the second quarter of 2025.

In the near term, we expect research and development expense for the TSC-related epilepsy program to be significantly lower compared to those for the Alzheimer's disease program.

General and Administrative Expense

General and administrative expenses consist of personnel costs, allocated expenses and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, bonus, benefits and stock-based compensation. Allocated expenses consist primarily of facility costs for our Company owned office complex in Austin, Texas. Depreciation and amortization for office space leased but not occupied by the Company is included in general and administrative expense. Depreciation and amortization for office space occupied by the Company is allocated between general and administrative expense and research and development expense. We also incur expenses associated with operating as a public company, including additional legal fees, expenses related to compliance with the rules and regulations of the SEC and Nasdaq, additional insurance and audit expenses, investor relations activities, public company compliance expenses and other administrative expenses and professional services.

General and administrative expenses were $6.1 million and $40.3 million during the three months ended June 30, 2026 and 2025, respectively. The 85% decrease was due primarily to a $31.3 million securities litigation loss contingency recorded in the second quarter of 2025 not being repeated in 2026.

General and administrative expenses were $12.7 million and $51.2 million during the six months ended June 30, 2026 and 2025, respectively. The 75% decrease was due primarily to a $31.3 million securities litigation loss contingency and other legal loss contingencies of $3.0 million recorded in the first half of 2025 not being repeated in 2026.

We expect general and administrative expense will decrease in future periods. However, we expect general and administrative expense to remain high compared to historic levels due to professional fees, legal expense and potential settlements related to ongoing litigation.

Interest Income

Interest income was $0.7 million and $1.2 million during the three months ended June 30, 2026 and 2025, respectively. The decrease in interest income was due primarily to lower interest rates and cash balances in 2026 compared to 2025.

Interest income was $1.5 million and $2.5 million during the six months ended June 30, 2026 and 2025, respectively. The decrease in interest income was due primarily to lower interest rates and cash balances in 2026 compared to 2025.

We expect interest income to decrease in future quarters as we continue to utilize cash in our operations.

Other income (loss), net

We record the activities related to leasing office space to third parties in buildings we own as other income (loss), net, as leasing is not core to the Company's operations. Other income (loss), net, was $43,000 and $(46,000) during the three months ended June 30, 2026 and 2025, respectively.

Other income (loss), net, was $91,000 and $(128,000) during the six months ended June 30, 2026 and 2025, respectively.

We recorded other income in the three and six months ended June 30, 2026 due to improved occupancy rates in 2026 compared to the prior year period. We expect to record modest net income on leasing activities in 2026 due to improved occupancy.

Depreciation and amortization for the office complex is included in general and administrative and research and development expense, and thus not reflected in other income, net.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through public and private stock offerings, payments received under collaboration agreements and interest earned on our cash and cash equivalents balances. We intend to continue to use our capital resources to fund research and development activities, capital expenditures, working capital requirements and other general corporate purposes. As of June 30, 2026, cash and cash equivalents were $82.7 million. Subsequent to June 30, 2026, we paid our accrued securities litigation loss contingency liability of $31.25 million into a plaintiff's escrow account pursuant to the terms of the Stipulation of Settlement in the Consolidated Securities Action discussed in Note 10 to the "Condensed Consolidated Financial Statements".

At the Market (ATM) Common Stock Issuance

On November 12, 2025, we entered into an at-the-market offering program (ATM) to sell, from time to time, shares of our common stock having an aggregate offering price of up to $50 million in common stock in transactions pursuant to a shelf registration statement that was declared effective by the U.S. Securities and Exchange Commission (the SEC) on December 5, 2025. We are obligated to pay a commission of up to 3.0% of the gross proceeds from the sale of shares of common stock in the offering. We are not obligated to sell any shares in the offering.

There were no common stock sales under the ATM during the six months ended June 30, 2026 or the year ended December 31, 2025.

2020 Cash Incentive Bonus Plan Obligations

Information with respect to the 2020 Cash Incentive Bonus Plan is included in Note 9 of "Notes to Condensed Consolidated Financial Statements" included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

No cash payments were authorized or made to participants under the CIB Plan as of June 30, 2026, or through the filing date of this Quarterly Report on Form 10-Q.

Use of Cash

The following table sets forth a summary of the primary sources and uses of cash for each of the periods presented below (in thousands):

		Six months ended June 30,
		2026				2025
Net cash used in operating activities		$	(12,733	)		$	(16,283	)
Net cash used in investing activities			(21	)			-
Net cash provided by (used in) financing activities			(67	)			90
Net decrease in cash and cash equivalents		$	(12,821	)		$	(16,193	)

Net cash used in operating activities was $12.7 million for the six months ended June 30, 2026, resulting primarily from a net loss of $18.9 million as well as decreases in accounts payable and accrued expenses of $2.4 million and accrued compensation and benefits of $1.2 million. These factors were partially offset by a decrease in prepaid and other current assets of $1.2 million. There was also a non-cash adjustment for stock-based compensation expense of $8.1 million.

Net cash used in operating activities was $16.3 million for the six months ended June 30, 2025, resulting primarily from a net loss of $67.6 million. This change was partially offset by an increase in accrued development expense of $1.3 million, an increase in accounts payable and accrued expenses of $35.2 million and a decrease in prepaid and other current assets of $5.5 million. There was also a non-cash adjustment for stock-based compensation expense of $9.8 million.

There was minimal or no net cash used in investing activities during the six months ended June 30, 2026 and 2025.

Net cash used in financing activities during the six months ended June 30, 2026 was $67,000 for costs related to the ATM. There were no sales of common stock under the ATM during the six months ended June 30, 2026.

Net cash provided by financing activities during the six months ended June 30, 2025 was $90,000 of proceeds from the exercise of stock options.

Property and Leases

We own an office complex in Austin, Texas, a portion of which serves as our corporate headquarters. Maintenance, physical facilities, leasing, property management and other key responsibilities related to property ownership are outsourced to professional real-estate managers. The office complex measures approximately 90,000 rentable square feet. At June 30, 2026, we occupied approximately 25% of the property with the remainder either leased or available for lease to third parties. We expect to record modest net income on leasing activities in 2026 due to improved occupancy compared to the prior year.

Other Commitments

We have an accumulated deficit of $515.0 million as of June 30, 2026. We expect our cash requirements to be significant in the future. The amount and timing of our future cash requirements will depend on regulatory and market acceptance of our drug candidates, the resources we devote to researching and developing, formulating, manufacturing, commercializing and supporting our products and other corporate needs. We believe that our current cash and cash equivalents will be sufficient to fund our operations for at least the next 12 months. We may seek additional future funding through public or private financing in the future, if such funding is available and on terms acceptable to us. However, there are no assurances that additional financing will be available on favorable terms, or at all.