ALX Oncology Holdings Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Unaudited results; amounts below are in U.S. dollars unless stated otherwise. ALX Oncology is a clinical-stage immuno-oncology company developing therapies targeting the CD47 checkpoint pathway. It has no approved products and has not generated product revenue.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Related-party revenue | $0 | $1.3 million | $1.2 million | $3.6 million |
| Research and development | $5.3 million | $2.2 million | $16.8 million | $9.6 million |
| General and administrative | $4.5 million | $0.9 million | $9.1 million | $2.2 million |
| Operating loss | $9.8 million | $3.0 million | $25.8 million | $11.5 million |
| Net loss | $10.2 million | $3.0 million | $27.0 million | $11.5 million |
| Net loss per common share | $0.36 | $1.33 | $2.67 | $4.72 |
There is no meaningful gross margin comparison: revenue was solely from related-party research services, and the company had no product sales. The service arrangement’s associated cost was $0 in Q3 2020 versus $1.1 million in Q3 2019.
- Cash and liquidity: Cash and cash equivalents were $259.5 million at September 30, 2020, versus $9.0 million at December 31, 2019. Current assets were $262.4 million and current liabilities $7.2 million.
- Cash flow: Operating activities used $24.7 million in the first nine months of 2020, versus $11.4 million in the comparable 2019 period. Investing activities provided $0.6 million, primarily from asset-sale proceeds; financing activities provided $274.5 million.
- Debt: Term-loan principal was $6.0 million; reported carrying amount was $5.8 million, split between $2.6 million current and $3.2 million non-current. The loan bears interest at 7.0% as of quarter-end, is secured by substantially all assets other than intellectual property (subject to a negative pledge), and matures September 2022. A further $4.0 million tranche was not drawn and is no longer available.
- Equity financing: The July IPO generated approximately $169.5 million net proceeds. Preferred stock and accrued dividends converted into 23.9 million common shares. Common shares outstanding were 37.1 million at September 30, 2020; the filing reports 37,107,522 outstanding at November 6, 2020.
Changes versus prior comparable periods
- Q3 net loss increased to $10.2 million from $3.0 million; nine-month net loss increased to $27.0 million from $11.5 million. Higher R&D spending, public-company and personnel costs, and stock-based compensation contributed to the increases.
- R&D expense rose 141% in Q3 and 76% for the first nine months, primarily reflecting increased clinical, preclinical and development activity for ALX148, higher headcount and stock compensation.
- G&A expense rose 378% in Q3 and 314% for the first nine months, reflecting increased personnel, professional services, public-company costs and stock compensation.
- Related-party revenue fell to zero in Q3 after termination of the Tollnine agreement effective July 1, 2020; nine-month revenue declined 67%. The company began purchasing preclinical services from Tallac Therapeutics under a new agreement.
Outlook, commentary and key risks
- Management expects significant expenses and operating losses to continue as it advances ALX148, expands clinical development and supports public-company operations. No specific revenue or earnings guidance is provided.
- The filing gives two liquidity horizons: the financial-statement note says cash is sufficient for at least 12 months after issuance; MD&A says management believes cash will fund operations through 2023. Management cautions that these estimates depend on assumptions and cash could be used sooner than expected. Additional capital will be needed to fully implement the business plan; no external funding source is committed.
- Management reported more than 150 subjects dosed with ALX148 across hematologic and solid malignancies, ongoing development in solid tumors, recently initiated clinical development for myelodysplastic syndromes, and plans to advance development for acute myeloid leukemia. These are development updates, not evidence of approval or definitive efficacy.
- Risks include clinical and regulatory uncertainty, adverse effects, patient enrollment and COVID-19 disruption, dependence on third-party manufacturers and CROs, and reliance on Tallac for substantially all preclinical research. The company has no manufacturing facilities.
- Commitments disclosed total $14.9 million, including $7.6 million for manufacturing and service contracts, $6.9 million of scheduled term-loan payments, and $0.4 million of lease obligations. Some service commitments are based on forecasts; other cancellable contracts are excluded.
- Disclosure controls and procedures were deemed not effective at a reasonable-assurance level because a material weakness in internal control over financial reporting remained. Remediation actions included hiring finance leaders and strengthening reviews and reconciliations; the company did not conclude that the weakness was remediated.
- Unusual items included $2.3 million of accelerated stock compensation in Q2 following employee transfers to Tallac and $0.2 million in Q3 related to a former executive’s transition to consulting. The filing also reports $0.7 million of nine-month noncash fair-value changes in warrant and loan derivative liabilities.
Important facts for investors to verify
- Reconcile management’s “through 2023” cash-runway estimate with the note’s “at least twelve months” statement, operating burn, and clinical/manufacturing spending assumptions.
- Review subsequent ALX148 trial enrollment, efficacy and safety data, and any COVID-19-related delays; early or interim findings may change.
- Assess Tallac’s capacity and performance as the preclinical provider, the related-party arrangements, and the implications of transferring employees and research capabilities.
- Track remediation of the material weakness and effectiveness of financial reporting controls.
- Review the $7.6 million manufacturing/service commitments, term-loan covenants and security, and potential dilution from equity awards and shares becoming eligible for sale after IPO lockups.