Alector, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Alector is a clinical-stage biopharmaceutical company developing immuno-neurology therapies. It had no approved products and generated no product sales revenue. Financial amounts below are in U.S. dollars; millions unless noted.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Collaboration revenue | $7.2 | $5.6 |
| Research and development expense | $34.6 | $20.6 |
| General and administrative expense | $14.6 | $5.8 |
| Total operating expenses | $49.2 | $26.4 |
| Operating loss | $(42.1) | $(20.8) |
| Net loss | $(40.0) | $(18.6) |
| Net loss per share, basic and diluted | $(0.53) | $(0.42) |
| Cash used in operating activities | $(32.3) | $(23.6) |
Collaboration revenue was primarily recognized over time under the AbbVie agreement as program costs were incurred. The filing reports no product revenue. Gross margin is not presented; the filing does not provide a clear product-margin measure.
At March 31, 2020, cash and cash equivalents were $160.9, marketable securities were $387.6, and restricted cash was $1.5. Management reported $548.5 of cash, cash equivalents and marketable securities, and stated that this was expected to fund operating expenses and capital requirements through at least 12 months from the May 13, 2020 filing date, subject to assumptions. Total current assets were $556.2 and current liabilities $71.8. Total liabilities were $227.2, including operating lease liabilities; the filing reports no borrowing debt.
Investing activities used $124.9, mainly reflecting purchases of marketable securities net of maturities and $3.6 of property and equipment purchases. Financing activities provided $228.5, principally from the January follow-on offering. Operating cash use increased year over year.
Material changes versus Q1 2019
- Net loss increased by $21.5, as operating expenses rose $22.9; collaboration revenue increased $1.6.
- R&D expense rose $14.0, mainly from AL001 and AL002 manufacturing and clinical-trial progress, personnel costs, early-stage programs and AL014.
- G&A expense rose $8.9, including $4.3 higher legal expense, mainly related to arbitration, and $3.1 higher personnel-related expense.
- Cash and marketable securities increased substantially, principally following the January 2020 follow-on offering, which generated $224.5 net proceeds. The offering issued 9,602,500 shares at $25.00 per share.
Outlook, commentary and risks
- Management expected to initiate a pivotal Phase 3 study of AL001 in FTD-GRN patients and a Phase 2 study of AL002 in Alzheimer’s disease patients during 2020, and expected Phase 1a data for AL101 in 2020. These are forward-looking expectations, not assured outcomes.
- COVID-19 had already led some trial sites to delay new enrollment or pause visits, and some participants had missed or delayed scheduled doses. The company warned of possible further enrollment, trial, data-quality and operational disruption. It said it was continuing to monitor the impact and adjust trial operations.
- The company expected expenses and losses to increase as it advanced clinical and preclinical programs, and stated that substantial additional funding would be needed in the future. It had no committed source of additional capital.
- AbbVie deferred revenue was $146.2 at March 31, 2020 and was expected to be recognized over the applicable research and development period. The March 2020 Innovent license for AL008 in China could provide up to $11.5 in development milestones, $112.5 in sales milestones and royalties; no revenue or payment had been recognized by quarter-end, and milestones were fully constrained.
- Alector had initiated confidential arbitration against former consulting co-founder Dr. Asa Abeliovich concerning alleged contract breaches and misuse of confidential information. The company said it could not assess or assure the outcome; related legal costs contributed to higher G&A expense.
- Key risks include clinical-trial safety, efficacy and execution; COVID-19 disruption; manufacturing and third-party dependence; need for future financing and potential dilution; regulatory and commercialization uncertainty; and intellectual-property exposure.
Important facts for investors to verify
- Progress, timing and data from AL001, AL002, AL003 and AL101 trials, particularly any effects of COVID-19 on enrollment, dosing and data collection.
- Cash and investment levels, actual operating cash burn, and whether management’s stated funding horizon remains achievable as development spending rises.
- Changes in AbbVie revenue recognition and deferred revenue, and whether Innovent milestones or royalties become recognizable.
- Developments in the confidential arbitration and their effects on legal expenses or intellectual-property rights.
- Whether planned clinical milestones and financing needs change; reported forecasts are subject to substantial uncertainty.