Alector, Inc. — Q2 2020 Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2020. Filed August 11, 2020. Alector is a clinical-stage biopharmaceutical company developing immuno-neurology therapies; it had no approved products and generated no product-sales revenue.
Financial performance
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Collaboration revenue | $3.2 million | $6.9 million | $10.3 million | $12.5 million |
| Research and development expense | $34.1 million | $25.6 million | $68.7 million | $46.2 million |
| General and administrative expense | $15.7 million | $8.4 million | $30.3 million | $14.2 million |
| Operating loss | $46.6 million | $27.2 million | $88.7 million | $47.9 million |
| Net loss | $45.3 million | $24.6 million | $85.3 million | $43.1 million |
| Basic and diluted loss per share | $0.58 | $0.36 | $1.11 | $0.77 |
Revenue came primarily from the AbbVie collaboration and declined as program expenses fell versus the prior-year period and expected total program costs increased. A 3% increase in the forecast of AbbVie program costs in Q2 caused an estimated $1.7 million cumulative catch-up reduction in revenue. The company reported $143.1 million of deferred revenue at June 30, expected to be recognized as research and development services are performed. No revenue or payments had yet been recorded under the March 2020 Innovent agreement.
Operating expenses rose with clinical and manufacturing activity, headcount and stock-based compensation. Q2 R&D expense increased $8.4 million, including higher AL001 and AL014 spending, partly offset by lower AL002 costs. Q2 G&A increased $7.3 million, mainly from $3.8 million more legal expense, chiefly related to arbitration, and higher personnel costs. Lower investment yields reduced other income year over year.
Cash, liquidity and capital
- At June 30, cash and cash equivalents were $92.5 million and marketable securities were $411.1 million; together these totaled $503.6 million. Current assets were $510.1 million and current liabilities $65.9 million.
- Six-month operating cash use was $78.3 million, compared with $41.6 million in 2019. Investing cash use was $149.6 million, primarily net purchases of marketable securities; financing provided $230.7 million, mainly from the January follow-on offering.
- The January 2020 follow-on offering generated $224.5 million net proceeds. A May 2020 at-the-market facility permits sales of up to $150 million of stock; no ATM shares had been sold as of June 30.
- The company reported no borrowings in the presented balance sheet. It had operating lease liabilities of $46.7 million in total ($6.7 million current and $40.0 million long term). Accumulated deficit was $305.2 million; stockholders’ equity was $355.3 million.
Management said existing cash, cash equivalents and marketable securities were expected to fund operating expenses and capital requirements through at least the next 12 months from the filing date. Alector expects substantial additional funding will be needed over time; actual runway may differ from estimates, and equity financing could dilute shareholders. No specific revenue, earnings or cash-burn guidance was provided.
Business developments, outlook and risks
- AL001: In July 2020, after the reporting date, Alector began the pivotal Phase 3 INFRONT-3 study in pre-symptomatic and symptomatic FTD-GRN participants. Preliminary Phase 1b/Phase 2 findings presented in July indicated general tolerability and biomarker changes; the company cautioned that additional Phase 2 data would follow. These early findings do not establish clinical efficacy.
- AL002: Alector and AbbVie decided to close enrollment in the COVID-19-affected Phase 1b Alzheimer’s study and proceed toward a Phase 2 study in 2020. Earlier Phase 1a results in healthy volunteers showed target engagement and biomarker changes.
- AL101: Phase 1a data were expected in 2020. Alector also described AL003 as in Phase 1 development and planned to initiate an AL014 Phase 1 study in the first half of 2021.
- Innovent collaboration: Innovent licensed AL008 for development and commercialization in China. Potential payments include up to $11.5 million in development milestones and $112.5 million in sales milestones, plus royalties; milestones were fully constrained from revenue recognition at quarter-end.
- COVID-19: Some trial sites suspended or altered visits, and some participants missed scheduled doses. Alector warned of possible delays to enrollment, trials and data collection, as well as risks to data integrity and reliability. It continued to monitor impacts on operations and third parties.
- Legal contingency: Alector initiated confidential arbitration in June 2019 against former consulting co-founder Asa Abeliovich, alleging contract breaches and improper use of confidential information. The company said it could not assess or assure the outcome; legal costs were a material driver of higher G&A expense.
- Principal risks: Clinical and regulatory failure, trial delays and patient recruitment challenges, manufacturing and third-party dependence, competition, intellectual-property disputes, future financing needs and the impact of COVID-19. Alector stated that its disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether AL001 Phase 3 enrollment, execution and subsequent data support the preliminary biomarker observations and demonstrate meaningful clinical benefit.
- How COVID-19 affects trial timelines, missed visits or doses, enrollment, and the quality and completeness of clinical data.
- Actual cash burn and runway relative to management’s estimate, including planned R&D spending and any use of the $150 million ATM facility.
- Changes in AbbVie program cost forecasts and collaboration revenue recognition, and whether Innovent milestones become probable and recognizable.
- The status and potential cost or intellectual-property consequences of the confidential arbitration.