Atea Pharmaceuticals, Inc. — Q2 2021 Form 10-Q Summary
Business context and reporting period
Atea is a clinical-stage biopharmaceutical company developing oral antiviral therapies for COVID-19, dengue, hepatitis C and respiratory syncytial virus. This report covers the quarter and six months ended June 30, 2021, compared primarily with the corresponding 2020 periods. The company had no approved products or product-sale revenue.
Atea’s principal program was AT-527 for COVID-19, developed in collaboration with Roche outside the United States. Atea also advanced AT-752 for dengue, planned to restart AT-787 development for hepatitis C, and expected to nominate an RSV candidate and begin IND-enabling studies in the second half of 2021.
Financial performance and liquidity
| Metric | Three months ended June 30, 2021 | Three months ended June 30, 2020 | Six months ended June 30, 2021 | Six months ended June 30, 2020 |
|---|---|---|---|---|
| Collaboration revenue | $60.4 million | $0 | $126.4 million | $0 |
| Research and development expense | $39.8 million | $7.8 million | $66.4 million | $10.6 million |
| General and administrative expense | $11.9 million | $2.2 million | $20.7 million | $3.5 million |
| Total operating expenses | $51.7 million | $10.0 million | $87.0 million | $14.0 million |
| Income (loss) from operations | $8.7 million | $(10.0) million | $39.3 million | $(14.0) million |
| Net income (loss) | $1.5 million | $(10.0) million | $32.3 million | $(14.0) million |
| Net income (loss) per diluted share | $0.02 | $(0.99) | $0.36 | $(1.39) |
Reported operating margin was approximately 14.4% for the quarter and 31.1% for the six-month period. Net margin was approximately 2.5% and 25.5%, respectively. These margins were driven by recognition of Roche collaboration revenue rather than product sales and are not representative of a commercial operating model.
- Collaboration revenue arose from the Roche license agreement, including a $50.0 million development milestone achieved during the quarter. The agreement’s transaction price increased to $400.0 million, consisting of the $350.0 million upfront payment and the milestone.
- Deferred revenue was $225.0 million at June 30, 2021, and the $50.0 million milestone receivable was collected in July 2021.
- Cash and cash equivalents were $816.5 million at June 30, 2021, compared with $850.1 million at December 31, 2020. Cash, cash equivalents and restricted cash totaled $816.6 million.
- Net cash used in operating activities was $34.2 million for the first six months of 2021, versus $12.3 million in the prior-year period. Financing activities provided $0.5 million, primarily from stock-option exercises; investing cash flow was zero.
- The company reported no debt financing and no material debt obligations in the filing. Total liabilities were $273.7 million, primarily deferred revenue, accounts payable and accrued expenses.
- Stock-based compensation expense was $17.3 million for the first six months, including $10.0 million in the second quarter.
- Management stated that available cash and cash equivalents were expected to fund planned operations through at least 2023, although additional capital will ultimately be required.
Material changes versus the prior comparable period
- Revenue increased from zero to $60.4 million for the quarter and $126.4 million for the first six months, reflecting Roche collaboration revenue recognition.
- Research and development expense increased by $32.0 million for the quarter and $55.8 million for the first six months, principally due to COVID-19 and dengue clinical development, CRO and CMO activity, Roche cost-sharing obligations and higher personnel costs.
- General and administrative expense increased by $9.7 million for the quarter and $17.2 million for the first six months as the organization expanded and public-company, personnel and professional costs increased.
- The company moved from losses in 2020 to net income of $1.5 million for the quarter and $32.3 million for the first six months, substantially because of collaboration revenue recognition.
- Operating cash use increased despite reported net income because recognized revenue had largely been recorded previously as deferred revenue and because of working-capital changes, including a $76.4 million reduction in deferred revenue.
- Common shares outstanding increased to 82.8 million at June 30, 2021 from 82.4 million at December 31, 2020, primarily from option exercises.
Guidance, outlook, commentary and risks
- A Phase 3 AT-527 trial for mild or moderate outpatient COVID-19 began in April 2021, and a six-month follow-on study began enrolling in June 2021. Atea expected interim virology data from the outpatient Phase 2 MOONSONG trial in the second half of 2021.
- Management reported interim Phase 2 virology data showing a 0.7 log10, or approximately 80%, greater mean viral-load reduction at Day 2 versus placebo in the evaluable population. The filing cautions that interim data may change after additional data, audits and verification.
- Atea expected to restart its paused AT-787 hepatitis C program in the second half of 2021 and to nominate an RSV candidate and begin IND-enabling studies during the same period.
- Research and development and general and administrative expenses are expected to increase substantially as clinical programs advance, regulatory activities continue, commercial capabilities are developed and the company expands its workforce.
- Key risks include failure of AT-527 or other candidates in clinical development, regulatory delay or non-approval, safety findings, patient-enrollment and manufacturing delays, COVID-19-related disruptions, competition from vaccines and other antivirals, and reliance on third-party CROs, CMOs and Roche.
- Roche holds exclusive ex-U.S. development and commercialization rights for certain compounds, including AT-527, subject to the license agreement. Roche is also the exclusive global supplier of AT-527 commercial product if approved, creating collaboration and supply-chain dependence.
- The company has no product revenue and expects to require substantial additional financing. Future equity financing could dilute stockholders, while debt or collaboration financing could impose restrictive terms or require relinquishment of rights.
- Atea recorded $7.2 million of income tax expense for the quarter and six months. It used approximately $17.1 million of deferred tax assets to offset taxable income but maintained a full valuation allowance on remaining deferred tax assets.
- On July 19, 2021, Atea entered into a Boston office sublease expected to run from January 2022 through December 2026, with initial base rent of $66,000 per month and a leasehold improvement allowance of $877,000.
Most important facts for investors to verify
- Whether subsequent AT-527 Phase 2 and Phase 3 results confirmed or contradicted the reported interim virology findings.
- The timing and probability of regulatory approval for AT-527 and the status of any potential expedited or accelerated approval pathway.
- The remaining performance obligations supporting the $225.0 million deferred revenue balance and the timing of future Roche revenue recognition.
- Roche’s ongoing funding, development, commercialization and manufacturing commitments, including the effect of any termination or change in collaboration strategy.
- The company’s actual quarterly cash burn as clinical and commercialization spending accelerates, compared with management’s projection that cash will fund operations through at least 2023.
- Competitive developments in oral COVID-19 antivirals, vaccines and other treatments, as well as changes in the size of the COVID-19 treatment market.
- Clinical-trial enrollment, safety, manufacturing capacity, regulatory inspection results and intellectual-property protection for AT-527 and the other pipeline candidates.
- The effect of the transition out of emerging growth company status and the expected increase in public-company compliance and internal-control costs after December 31, 2021.