ALX Oncology Holdings Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The company is a clinical-stage immuno-oncology business developing ALX148, a CD47 checkpoint inhibitor; it had no approved products and no product-sales revenue. Financial amounts below are in U.S. dollars; dollar figures are in millions unless stated otherwise.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Related-party revenue | $0.527 | $1.295 | $1.182 | $2.327 |
| Research and development expense | $7.663 | $3.628 | $11.491 | $7.361 |
| General and administrative expense | $3.172 | $0.679 | $4.645 | $1.267 |
| Net loss | $11.331 | $4.197 | $16.785 | $8.435 |
| Net loss attributable to common stockholders | $13.972 | $5.178 | $21.409 | $10.321 |
| Basic and diluted loss per share | $4.41 | $1.68 | $6.78 | $3.39 |
At June 30, 2020, cash and cash equivalents were $98.1 million, working capital was $92.9 million, and total assets were $103.1 million. Total liabilities were $12.5 million. The term loan had $6.0 million gross principal outstanding; $5.6 million was reported as current and non-current term-loan liabilities combined, net of discounts. Total scheduled loan principal, interest, and final payment were $7.0 million.
For the first six months, operating cash use was $15.1 million, investing cash use was $0.01 million, and financing cash inflow was $104.2 million. Cash increased by $89.1 million from year-end 2019.
Changes versus comparable periods
- Q2 net loss increased to $11.3 million from $4.2 million; six-month net loss increased to $16.8 million from $8.4 million.
- Q2 R&D expense rose 111% to $7.7 million, primarily from higher clinical and drug-manufacturing costs, increased personnel, and $2.3 million of stock-based compensation expense related largely to option modifications following employee transfers to Tallac Therapeutics.
- Q2 G&A expense rose to $3.2 million from $0.7 million, reflecting higher professional-service costs, headcount, and stock compensation.
- Related-party revenue declined 59% in Q2 and 49% for the first half as research-service hours under the Tollnine agreement wound down. That agreement ended July 1, 2020.
- Operating cash use increased from $8.2 million to $15.1 million for the first half, principally reflecting the larger net loss and working-capital timing.
Outlook, significant events, and risks
- Funding and runway: In July 2020, the company completed its IPO, selling 9.775 million shares at $19 per share. It reported approximately $172.7 million net proceeds after underwriting discounts and commissions but before offering expenses; the use-of-proceeds discussion reports approximately $169.0 million after estimated offering expenses. Management said existing cash plus IPO proceeds were expected to fund operations through 2023. This is an estimate based on assumptions, and the company expects continued losses and may need additional capital.
- Preferred-stock conversion and dilution: At the IPO, preferred stock and accrued dividends converted into 23.9 million common shares. The filing reported 36.9 million common shares outstanding as of August 21, 2020. The IPO and conversion occurred after the June 30 balance-sheet date.
- Operating plans: Management expects expenses and losses to increase as ALX148 advances through clinical development, including in MDS, AML, and solid tumors, and as the company incurs public-company costs. No numerical revenue or earnings guidance is provided.
- Operations and dependencies: The company has no manufacturing facilities and relies on third parties for manufacturing and clinical work. After transferring preclinical capabilities and nine employees to Tallac, it entered a four-year services agreement with Tallac; the former Chief Scientific Officer also became a consultant. This creates reliance on a key external provider and potential continuity and intellectual-property risks.
- Debt and commitments: The $6.0 million loan bears interest at 7.0% as of June 30, matures September 1, 2022, and is secured by substantially all assets other than intellectual property, which is subject to a negative pledge. Manufacturing and service-contract commitments were $6.4 million; operating lease obligations were $1.7 million. The Burlingame lease was assigned to Tallac in July, with a sublease received.
- Clinical and external risks: ALX148 remains investigational; clinical efficacy, safety, regulatory approval, patient enrollment, manufacturing supply, competition, and reimbursement are uncertain. The filing identifies COVID-19 as a potential source of trial, site, staffing, and supply disruption but does not quantify a realized financial impact.
- Controls: Management concluded disclosure controls were not effective as of June 30 because of a material weakness involving insufficient qualified personnel and deficiencies in journal-entry review, account reconciliations, and technical-accounting review. Remediation was underway, but effectiveness had not been established.
- Unusual items and contingencies: No pending or threatened litigation was reported for the six months. The company recognized $2.3 million in Q2 stock-based compensation from option modifications associated with employee transfers. It also recorded changes in fair value of warrant and embedded-derivative liabilities.
Most important facts for investors to verify
- Reconcile IPO proceeds: approximately $172.7 million before offering expenses versus approximately $169.0 million after estimated offering expenses, and confirm actual offering costs and cash available.
- Track cash burn against management’s stated runway through 2023, including increased clinical, manufacturing, and public-company spending.
- Monitor ALX148 trial progress, enrollment, safety and efficacy data, regulatory interactions, and any effects from COVID-19 or competing CD47 programs.
- Assess continuity, performance, and intellectual-property safeguards under the Tallac services arrangement and the company’s third-party manufacturing contracts.
- Follow remediation of the material weakness and evaluate whether subsequent filings establish effective financial reporting controls.
- Review dilution and potential share supply, including preferred-stock conversion, outstanding options and warrants, and lock-up expirations.