Athira Pharma Inc

From time to time, we are subject to various legal proceedings or claims that arise in the ordinary course of business. The following is a brief description of the more significant legal proceedings in which we have been involved.

Securities Class Actions

Starting in June 2021, putative securities class action lawsuits were filed in the U.S. District Court for the Western District of Washington against us and certain of our current and former members of management and the board of directors. After these lawsuits were consolidated and lead plaintiffs were appointed to represent the putative class, lead plaintiffs filed a consolidated amended complaint on January 7, 2022, which asserted violations of Sections 10(b) and 20(a) of the Exchange Act and SEC Rule 10b-5 and Sections 11, 12, and 15 of the Securities Act. The consolidated amended complaint alleged that our initial public offering, or IPO, and secondary public offering, or SPO, registration statements and/or other public statements were materially false and misleading because they omitted to state that certain of our former CEO’s published doctoral research papers at Washington State University, or WSU, contained allegedly improperly altered images. Lead plaintiffs sought unspecified compensatory damages, as well as equitable and injunctive relief on behalf of themselves and the purported class. On July 29, 2022, the court issued an order granting in part and denying in part the defendant’s motion to dismiss. The order dismissed the Section 10(b) and Section 20(a) claims arising under the Exchange Act, dismissed the Section 11 claim arising under the Securities Act as to all defendants other than the Company and our former CEO, dismissed the Section 12(a)(2) claim arising under the Securities Act as to the lead plaintiffs, and dismissed the Section 15 claim arising under the Securities Act against all defendants other than our former CEO. On November 4, 2022, we and our former CEO filed our individual answers to the consolidated amended complaint. In mid-November 2022, the parties began conducting fact discovery.

On March 29, 2024, following a mediation and the parties’ agreement in the fourth quarter of 2022 to settle the securities class action for $10 million subject to the court’s approval, the court entered an order preliminarily approving a settlement of the securities class action.

On November 1, 2024, following class notice and a final approval hearing, the court entered a final written judgment and order granting final approval of the settlement and closed the case.

As a result of the foregoing, we recorded a legal settlement expense of $10.0 million in operating expenses in the fourth quarter of 2022. An accrued liability of $10.0 million was recorded on the accompanying condensed consolidated balance sheets as of December 31, 2023. Additionally, we recorded an insurance recovery of $1.6 million in operating expenses in the fourth quarter of 2023 and an insurance recovery receivable of $1.6 million on the accompanying condensed consolidated balance sheets as of December 31, 2023. This insurance recovery represents the amount of the settlement covered by our insurers. We and our insurance providers paid the settlement fee during 2024 and no further liability exists following the court granting final approval of the settlement and closing the case in November 2024.

Shareholder Derivative Actions

Starting in April 2022, shareholder derivative actions were filed in the U.S. District Court for the Western District of Washington against certain current and former members of our board of directors. The derivative complaints alleged that our board of directors breached its fiduciary duties by failing to prevent alleged misstatements in our public filings, failing to discover altered images in certain research papers, and failing to take appropriate action. The derivative complaints asserted claims for violations of Section 14(a) of the Exchange Act as well as claims for breach of fiduciary duty, contribution and indemnification, aiding and abetting, and waste of corporate assets.

On May 26, 2022, the court issued an order consolidating the derivative cases and staying them until further order of the court. On March 18, 2024, following a mediation and the parties entering into a stipulation of settlement to settle the consolidated derivative action for certain corporate governance reforms and the payment of a fee and expense award to plaintiffs’ counsel, plaintiffs filed an unopposed motion for preliminary approval of a settlement of the derivative action. On July 18, 2024, the court entered an order and judgment granting plaintiffs’ motion for final approval of derivative settlement, finding the settlement to be fair, reasonable, and adequate to the settling parties and our shareholders, and dismissing the derivative action with prejudice.

We paid the fee and expense award related to this shareholder derivative action settlement during the third quarter of 2024.

Government Investigation

In November 2022, we received a Civil Investigative Demand from the Civil Division of the Department of Justice, or the Demand. The Demand sought documents and information relating to our relationship with WSU, certain of our grant applications in 2016 and 2019 with the NIH and our receipt of a NIH grant in 2020. We cooperated with the Department of Justice with respect to the Demand.

In September 2024, we reached an agreement in principle (subject to approvals within the Department of Justice and the Office of Inspector General of the U.S. Department of Health and Humans Service) to settle the Department of Justice’s claims, including alleged violations of the False Claims Act in connection with the NIH grant applications and our receipt of an NIH grant in connection with one of those applications. This agreement also included the same claims alleged in a confidential, sealedqui tam complaint. On December 31, 2024, we entered into a settlement agreement with the Department of Justice, OIG-HHS, and thequi tam lawsuit relator in which we agreed to pay approximately $4.1 million.

We recorded a legal expense of $4.1 million based on developments in the third quarter of 2024 and a corresponding accrued liability on the accompanying consolidated balance sheets as of December 31, 2024. We paid the $4.1 million settlement in January 2025.