Alector, Inc. — Q1 2019 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2019. Alector is a clinical-stage biotechnology company developing immune-system-based treatments for neurodegenerative diseases. It had no approved products and generated no product-sales revenue; reported revenue came from collaboration and grant arrangements.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Total revenue | $5.6 million | $4.9 million |
| Research and development expense | $20.6 million | $11.7 million |
| General and administrative expense | $5.8 million | $2.4 million |
| Operating loss | $20.8 million | $9.2 million |
| Other income, net | $2.2 million | $0.8 million |
| Net loss | $18.6 million | $8.4 million |
| Basic and diluted loss per share | $0.42 | $0.78 |
At March 31, 2019, cash and cash equivalents were $61.0 million and marketable securities were $375.6 million, totaling approximately $436.6 million. Operating cash use was $23.6 million; investing cash use was $151.3 million, largely reflecting securities purchases; financing provided $170.3 million, primarily from the IPO. The prior-year operating cash inflow of $184.5 million was largely due to AbbVie’s $200 million upfront payment received in January 2018, not recurring operations. Accumulated deficit was $133.0 million.
No borrowings are reported. Operating lease liabilities totaled $47.8 million, including $4.4 million current and $43.4 million long term. Current assets were $442.1 million versus current liabilities of $55.8 million. The filing does not report a conventional gross margin; the company had no product sales.
Material changes versus the prior comparable period
- Revenue increased $0.7 million, as higher AbbVie collaboration revenue more than offset the absence of $0.2 million in grant revenue.
- R&D expense rose $8.9 million, reflecting clinical and program activity, headcount, and facilities; G&A increased $3.3 million, including personnel, public-company, and overhead costs.
- Net loss increased $10.1 million. Higher interest income after investment of prior preferred-stock proceeds and IPO proceeds partly offset the higher operating loss.
- The February 2019 IPO raised $168.2 million net. Preferred stock converted into common stock at IPO closing; common shares outstanding increased substantially.
- Adoption of the new lease accounting standard on January 1, 2019 added right-of-use assets and lease liabilities; comparative periods were not restated.
Outlook, commentary, and risks
Management said existing cash, cash equivalents, and marketable securities were expected to fund operating expenses and capital needs through at least the next 12 months from the filing date. The company expects expenses and losses to increase as it advances clinical programs and operates as a public company, and expects to need substantial additional funding over time. The cash-runway estimate depends on assumptions that may prove inaccurate.
AL001 completed single-ascending-dose Phase 1a dosing in healthy subjects in Q1: the filing reports no drug-related serious or dose-limiting adverse events and statistically significant increases in plasma and cerebrospinal-fluid progranulin. Subsequent to quarter-end, Alector reported starting an AL001 Phase 1b study in FTD-GRN patients and an AL002 Phase 1b study in Alzheimer’s patients. It planned an AL001 Phase 2 study in 2019 and expected FTD-GRN proof-of-concept data in the first half of 2020; it also expected to initiate an AL101 Phase 1 study in the second half of 2019. These are plans and expectations, not assured outcomes.
Key risks include early-stage clinical uncertainty, potential safety or efficacy failures and trial delays, dependence on third-party manufacturers and collaborators, the need for future financing, and intellectual-property and regulatory risks. The company reported no material litigation and no material change to contractual obligations from its latest annual report. In May 2019, it agreed to sublease approximately 25,000 square feet for 30 months, with $4.5 million of base rent payable to Alector plus a prorated share of operating expenses.
Most important facts for investors to verify
- Clinical-trial progress, safety findings, enrollment, and timing of AL001, AL002, AL003, and AL101 updates.
- Actual cash burn and whether the stated runway remains achievable as R&D and public-company costs rise.
- AbbVie collaboration terms, revenue-recognition pattern, remaining deferred revenue, and any option, milestone, or other payments.
- Share dilution and potential resales following the IPO, including the filing’s disclosed lock-up and registration-rights arrangements.
- Lease commitments and the financial effect of the new headquarters and subsequent sublease.