Alector, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Alector is a clinical-stage biopharmaceutical company developing immuno-neurology therapies. It had no approved products and generated no product-sales revenue.
Financial performance and liquidity
Amounts are in millions of dollars, except per-share data.
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Collaboration revenue | $5.9 | $2.7 | $16.2 | $15.2 |
| Research and development expense | $43.8 | $28.5 | $112.5 | $74.8 |
| General and administrative expense | $15.8 | $8.3 | $46.2 | $22.5 |
| Operating loss | $53.7 | $34.1 | $142.4 | $82.1 |
| Net loss | $52.7 | $31.7 | $138.0 | $74.9 |
| Basic and diluted loss per share | $0.67 | $0.47 | $1.78 | $1.25 |
- At September 30, cash and cash equivalents were $85.0 million and marketable securities were $376.7 million, totaling $461.7 million. Total current assets were $470.0 million; current liabilities were $71.1 million.
- Operating cash use for the first nine months was $119.1 million, versus $70.5 million a year earlier. Investing cash use was $116.6 million; financing provided $231.0 million, primarily from the January follow-on offering.
- Total liabilities were $221.4 million, including $137.2 million of deferred revenue and approximately $46.0 million of operating lease liabilities. No borrowings are disclosed.
- The company reported an accumulated deficit of $357.9 million. Product margins are not meaningful because there were no product sales.
Changes versus comparable periods
- Q3 collaboration revenue rose $3.2 million, while operating expenses increased $22.8 million and net loss widened $21.0 million year over year.
- For the first nine months, revenue increased $1.0 million, but operating expenses grew $61.4 million and net loss widened $63.2 million. Higher R&D reflected AL001 clinical and manufacturing work, AL014 and other pipeline investment, and increased personnel costs. Higher G&A mainly reflected legal/arbitration and personnel expenses.
- Other income declined, primarily because of lower investment yields. The January 2020 follow-on offering raised $224.5 million net and increased shares outstanding; a $150 million at-the-market facility was established but had not been used as of September 30.
Outlook, commentary, risks and unusual items
- Management said available cash, cash equivalents and marketable securities were expected to fund operations and capital needs for at least 12 months from the filing date, while noting estimates could prove inaccurate and additional funding will be needed over time. Expenses and losses are expected to rise as development advances.
- AL001 entered the pivotal Phase 3 INFRONT-3 study in July 2020. Management planned to continue the open-label Phase 2 study and present additional data in 2021. Preliminary findings cited included restoration of PGRN levels and biomarker observations; these are not evidence of established clinical efficacy.
- Management expected AL101 Phase 1a data in 2021 and planned an AL014 Phase 1 study in 2021. For AL002, the company and AbbVie decided to close Phase 1b enrollment, which had been affected by COVID-19, and proceed toward a Phase 2 study. The filing describes AL002 and AL003 as AbbVie collaboration programs.
- AbbVie collaboration revenue depends on estimated costs and research progress. A 2.3% increase in forecast total costs in Q3 resulted in an approximately $1.7 million cumulative reduction in revenue. Deferred revenue was $137.2 million at quarter-end. No revenue or payment had been recognized under the March 2020 Innovent AL008 China license agreement.
- COVID-19 had disrupted some clinical-site visits and dosing schedules; management warned of possible enrollment delays and effects on clinical-trial data integrity. Other key risks include clinical failure, manufacturing and third-party dependence, competition, intellectual-property disputes, and the need for future financing.
- In an October 2020 subsequent event, Alector signed a lease for approximately 18,700 square feet in Newark, California, with a seven-year, two-month initial term and approximately $7.7 million in fixed rent. A November 2020 update reported an interim arbitration decision in Alector’s favor against former consulting co-founder Asa Abeliovich; monetary damages were to be determined in further proceedings. Management expected related legal expense to decrease.
Important facts for investors to verify
- Whether clinical-trial enrollment, timelines and data collection—particularly for AL001 and AL002—remain on track, and how COVID-related disruptions affect data quality.
- Whether AL001’s preliminary biomarker findings translate into meaningful clinical outcomes in controlled studies.
- Cash consumption, forecast assumptions and runway relative to the company’s expanding development plans; potential use of the ATM facility and resulting dilution.
- Future changes to AbbVie cost estimates and revenue recognition, as well as progress and potential payments under the Innovent agreement.
- The arbitration’s final damages determination and the financial and operational implications of the new lease.