Atea Pharmaceuticals, Inc. quarterly report, Q2 FY2023

Atea Pharmaceuticals, Inc. — Q2 2023 Form 10-Q Summary

Business Context and Reporting Period

Atea is a clinical-stage biopharmaceutical company developing antiviral therapies. The report covers the quarter and six months ended June 30, 2023. Its lead programs are bemnifosbuvir for high-risk, non-hospitalized COVID-19 patients and bemnifosbuvir combined with ruzasvir for hepatitis C. Atea has no approved products and has generated no product revenue.

Key Financial Metrics

Metric	Three Months Ended June 30, 2023	Six Months Ended June 30, 2023	Comparable Period
Revenue	$0	$0	$0
Research and development expense	$22.1 million	$51.0 million	$19.9 million and $49.5 million
General and administrative expense	$13.2 million	$25.8 million	$12.4 million and $25.0 million
Total operating expenses	$35.2 million	$76.8 million	$32.3 million and $74.5 million
Net loss	$28.2 million	$63.7 million	$31.3 million and $73.4 million
Net loss per share	$0.34	$0.76	$0.38 and $0.88
Net cash used in operating activities	Not separately provided	$46.0 million	$78.2 million

Because the company has no revenue, gross and operating margins are not meaningful. Interest income and other, net increased to $7.3 million in the quarter and $13.6 million in the first six months, primarily due to higher interest rates and investment in higher-yielding securities.

Cash and cash equivalents were $213.7 million at June 30, 2023.
Marketable securities were $394.4 million, producing total cash, cash equivalents and marketable securities of $608.1 million.
Total assets were $626.0 million and stockholders’ equity was $602.3 million.
Total liabilities were $23.7 million, including $2.8 million of operating lease liabilities and $5.5 million of income taxes payable. The filing does not report outstanding debt financing.
Cash, cash equivalents and restricted cash increased by $25.2 million in the first six months, mainly because marketable-securities sales and maturities exceeded purchases.

Material Changes Versus the Prior Comparable Period

Second-quarter operating expenses increased $2.9 million, or approximately 9%, primarily from higher research and development spending.
Six-month operating expenses increased $2.3 million, or approximately 3%.
Net loss improved by $3.2 million in the quarter and $9.8 million year to date, despite higher operating expenses, because interest income increased substantially.
Research and development expense included a $7.9 million credit in the quarter and an $8.9 million credit for the six-month period related to Roche cost-sharing close-out adjustments. A net $7.9 million was due from Roche at June 30, 2023.
COVID-19 external research and development costs were $5.9 million in the quarter and $14.9 million year to date, while HCV external costs were $3.1 million and $6.5 million, respectively.
Stock-based compensation increased to $24.9 million for the first six months from $23.6 million in the prior-year period and represented a significant portion of operating expense.
No shares had been sold under the company’s $200 million at-the-market sales agreement as of June 30, 2023. The company issued 57,803 shares under its employee stock purchase plan for $0.2 million.

Guidance, Outlook, Risks and Unusual Items

Management stated that the $608.1 million of cash, cash equivalents and marketable securities should fund planned operations into 2026, subject to current plans and assumptions. The financial statements separately state that resources should fund operations for at least twelve months from issuance.
Atea expects operating expenses and cash use to increase as it advances clinical development, manufacturing, regulatory activities, intellectual property, personnel and potential commercialization capabilities. Additional financing will likely be required, although the timing and amount are uncertain.
SUNRISE-3, a global Phase 3 trial of bemnifosbuvir in high-risk non-hospitalized COVID-19 patients, was amended in August 2023 to broaden eligibility and increase the supportive-care population to approximately 2,200 patients from an initial target of at least 1,300. The amendment reflects lower-than-expected hospitalization and death rates and adds interim safety and futility reviews.
During the second quarter, Atea initiated enrollment in a Phase 2 HCV study evaluating eight weeks of once-daily bemnifosbuvir and ruzasvir in approximately 280 treatment-naive patients.
Atea discontinued further development of AT-752 for dengue in February 2023 and terminated RSV discovery efforts to focus resources on its more advanced programs.
The company received Fast Track designation from the FDA for bemnifosbuvir for COVID-19 in April 2023. Fast Track does not assure faster approval or regulatory success.
Roche’s license agreement terminated in February 2022, returning worldwide bemnifosbuvir rights to Atea and leaving Atea responsible for related development and commercialization activities.
Under its Merck license for ruzasvir, Atea may owe development, regulatory and sales milestones and tiered royalties ranging from high single digits to mid-teens percentages of annual net sales. The first potential milestone would be triggered by commencement of a Phase 3 trial.
Gilead’s U.S. Patent No. 11,642,361 includes a claim that purportedly covers bemnifosbuvir. On August 7, 2023, Atea filed a post-grant review petition challenging the claim. An adverse result could require a license from Gilead before commercialization, potentially on unfavorable terms or not at all.
Atea disclosed an unsolicited acquisition proposal received in May 2023; the board rejected the proposal after review with independent advisors.
Principal risks include clinical-trial failure or delay, changing COVID-19 epidemiology and standards of care, competition from approved and developing antivirals, regulatory uncertainty, reliance on third-party manufacturers and CROs, China-based supply dependencies, intellectual-property challenges, cybersecurity, and the need for additional capital.
Management concluded that disclosure controls and procedures were effective as of June 30, 2023, and reported no material changes in internal control over financial reporting during the quarter.

Important Facts for Investors to Verify

Progress, enrollment, interim reviews and eventual results of the amended SUNRISE-3 Phase 3 trial.
Safety and sustained virologic response results from the Phase 2 bemnifosbuvir/ruzasvir HCV trial.
The company’s actual cash burn, investment returns and remaining runway as clinical spending increases.
Whether additional financing is required before planned clinical and commercialization milestones and the potential dilution or restrictions associated with it.
The outcome of Atea’s post-grant review challenge to Gilead’s patent and any resulting licensing or commercialization constraints.
The amount and timing of potential Merck milestone payments and future royalty obligations.
Whether Roche’s remaining receivable and related cost-sharing credits are collected without further adjustments.
Clinical supply continuity and regulatory compliance of third-party manufacturers, particularly suppliers located in China.