Atea Pharmaceuticals, Inc. 2020 Q3 Form 10-Q Summary
Business context and reporting period
Atea is a clinical-stage biopharmaceutical company developing antiviral therapeutics based on its purine nucleotide prodrug platform. The filing covers the unaudited three and nine months ended September 30, 2020, with comparative periods ended September 30, 2019. The company had no approved products and no commercial product revenue.
The lead candidate, AT-527, was being evaluated for COVID-19 in a Phase 2 trial of approximately 190 hospitalized patients and a Phase 1 trial in healthy volunteers. Other programs included AT-787 for hepatitis C, AT-752 for dengue, and preclinical RSV candidates AT-889 and AT-934.
Financial performance and liquidity
| Metric | Three months ended September 30, 2020 | Three months ended September 30, 2019 | Nine months ended September 30, 2020 | Nine months ended September 30, 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $13.6 million | $2.4 million | $24.2 million | $6.7 million |
| General and administrative expense | $4.0 million | $1.4 million | $7.5 million | $3.2 million |
| Total operating expenses | $17.6 million | $3.8 million | $31.7 million | $9.9 million |
| Net loss | $17.6 million | $3.6 million | $31.6 million | $9.4 million |
| Net loss per share | $1.74 | $0.36 | $3.13 | $0.93 |
Cash and cash equivalents were $105.4 million at September 30, 2020, compared with $21.7 million at December 31, 2019. Total assets were $110.1 million and total current liabilities were $10.8 million. The company reported no debt financing; liabilities consisted primarily of accounts payable and accrued expenses. Accumulated deficit was $85.8 million.
For the first nine months of 2020, operating cash use was $21.8 million, investing cash use was $21 thousand, and financing cash inflow was $105.5 million. Financing proceeds primarily reflected $106.6 million of net proceeds from the Series D preferred stock issuance. Cash, cash equivalents and restricted cash increased by $83.7 million during the period.
Gross and operating margins were not meaningful because the company had no revenue. Stock-based compensation expense was $4.2 million in the third quarter and $4.6 million for the first nine months, compared with $0.2 million and $0.5 million, respectively, in the prior-year periods.
Material changes versus the prior comparable period
- Third-quarter research and development expense increased by $11.2 million, primarily from COVID-19 and dengue CRO and CMO activity and higher personnel-related costs.
- Nine-month research and development expense increased by $17.5 million, including a $12.8 million increase in external CRO and CMO costs.
- Third-quarter general and administrative expense increased by $2.6 million due primarily to organizational expansion, compensation and stock-based compensation, and professional fees.
- Nine-month general and administrative expense increased by $4.3 million and included a $0.2 million license termination fee related to the NovaMedica agreement.
- Net loss increased by $14.0 million in the third quarter and by $22.2 million for the first nine months, reflecting the expanded development program.
- Cash increased substantially following the Series D preferred stock financing, although operating cash burn also increased materially.
Guidance, outlook, commentary and unusual items
- Management expected to report topline data from the AT-527 COVID-19 Phase 2 trial in the first half of 2021 and anticipated initiating a Phase 3 outpatient trial in the first half of 2021.
- The HCV Phase 1/2A trial for AT-787 was paused because of COVID-19-related clinical-site disruptions, with resumption dependent on site reopening and patient enrollment conditions.
- Management planned to submit a clinical trial application for AT-752 in the fourth quarter of 2020 and expected to begin Phase 1 and Phase 2 dengue studies in the first half of 2021, subject to regulatory authorization.
- In October 2020, the company issued all 8,973,261 Series D-1 preferred shares for gross proceeds of $107.5 million.
- In October 2020, Atea entered into a Roche license agreement covering development and commercialization of AT-527 outside the United States, excluding certain HCV uses. Roche paid a $350.0 million upfront payment in November 2020 and may owe up to $650.0 million in development, regulatory and sales milestones, plus tiered royalties.
- In November 2020, Atea completed its IPO of 14,375,000 common shares at $24.00 per share, generating $345.0 million of gross proceeds before underwriting discounts and offering expenses. All preferred stock converted into 57,932,090 common shares.
- Management stated that cash at September 30, 2020, together with the Series D-1 proceeds, Roche upfront payment and IPO proceeds, was expected to fund planned operations through at least 2023. This estimate depends on assumptions that may prove incorrect.
- The company expects continued operating losses and negative cash flows, with expenses increasing as clinical development, regulatory, manufacturing, staffing and public-company activities expand.
- Key risks include clinical and regulatory failure, COVID-19-related trial delays, competition from vaccines and other COVID-19 treatments, dependence on third-party manufacturers and CROs, limited operating history, intellectual-property challenges, and the need for additional capital.
Most important facts for investors to verify
- Progress, enrollment, safety findings and final results of the AT-527 COVID-19 trials, including whether planned Phase 3 development occurred.
- Revenue recognition, accounting treatment and remaining obligations under the Roche license agreement, including milestone eligibility, royalty rates and the $7.0 million financial-advisor fee.
- Actual cash runway and cash burn after the Series D-1 financing, Roche payment and IPO, compared with management’s forecast through at least 2023.
- Clinical status of AT-787, AT-752 and the RSV programs, including the effects of COVID-19-related delays.
- Preferred-stock conversion, post-IPO share count, stock-option dilution and the impact of the 2020 incentive and employee stock purchase plans.
- Manufacturing capacity and supply concentration, including reliance on a sole Chinese active pharmaceutical ingredient supplier and Roche for commercial AT-527 supply.
- Pending patent applications and third-party observations affecting AT-527 intellectual-property protection.
- Future operating losses, potential financing needs and the absence of any approved product or established commercial revenue stream.