Alector, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Alector is a clinical-stage biopharmaceutical company developing immuno-neurology therapies. It has no approved products and has not generated product-sales revenue; reported revenue is from collaborations.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Collaboration revenue | $14.9m | $182.4m | $119.2m | $193.1m |
| Research and development expense | $48.3m | $43.1m | $155.9m | $136.6m |
| General and administrative expense | $14.3m | $13.0m | $45.6m | $38.1m |
| Net income (loss) | $(46.1)m | $126.6m | $(80.9)m | $19.3m |
| Basic loss per share | $(0.56) | $1.56 income | $(0.98) | $0.24 income |
- Operating loss was $47.7m in Q3 and $82.4m for the first nine months. Collaboration revenue is recognized as contractual obligations are satisfied, including over time based on program costs; conventional operating margins are therefore not a useful indicator of product economics.
- Operating cash flow was $28.6m for the nine months, versus $347.8m in 2021. The 2022 inflow was supported by an $80.8m increase in deferred revenue, including the January 2022 GSK payment, despite the net loss. Investing activities used $177.4m, principally reflecting net purchases of marketable securities; financing provided $3.9m.
- At September 30, cash and cash equivalents were $184.2m and marketable securities were $574.1m, totaling $758.3m; restricted cash was an additional $1.5m. Current assets were $775.0m and current liabilities $160.9m. Total liabilities were $583.9m, including $506.0m of deferred revenue and lease liabilities. The filing reports no borrowings or conventional funded debt.
- Accumulated deficit was $527.3m. Management estimated existing cash, cash equivalents, and marketable securities would fund operations and capital expenditures through 2024, subject to assumptions and spending changes.
Material changes and business developments
- Q3 collaboration revenue fell $167.6m year over year, chiefly because Q3 2021 included $173.4m from the GSK development license for AL001/latozinemab. For the nine months, revenue declined $73.9m; the prior-year license revenue decrease was partly offset by higher revenue recognized over the GSK programs’ initial Phase 2 trials and a net increase in AbbVie revenue associated with revised estimated program costs.
- Operating expenses increased $6.5m in Q3 and $26.9m for the nine months. R&D growth reflected higher personnel and program costs, including increased AL002 spending; G&A growth reflected personnel and support costs. Higher investment yields increased other income to $2.3m in Q3 and $4.0m for the nine months.
- GSK paid $200m in January 2022, completing the $700m upfront payments under its collaboration. Alector reported $454.8m of GSK-related and $51.2m of AbbVie-related deferred revenue at quarter-end. The GSK agreement includes potential additional milestones of up to $1.5bn; these are contingent, not assured revenue.
- AbbVie terminated the CD33 collaboration program for AL003 in June 2022; Alector will not continue its development and is not eligible for future milestones for that program. Development of AL002 continues under the AbbVie agreement.
- Alector initiated a first-in-human trial of AL044 in September 2022. The company was evaluating a potential Phase 2b study of latozinemab in ALS after closing enrollment in its earlier study. It planned to present additional AL101 Phase 1 data in November 2022 and additional FTD-C9orf72 data in 2023.
- Innovent will not continue AL008 development in China. Alector said it intended to reacquire the rights granted to Innovent and may use Innovent’s Chinese IND materials to support a potential U.S. IND.
Outlook, risks, and unusual items
- Management expects expenses and losses to continue and R&D spending to increase as candidates advance. Future funding needs depend on trial progress, enrollment, development costs, partner payments, and other factors; additional capital may be needed, and may not be available on acceptable terms.
- AL002’s Phase 2 INVOKE-2 trial has reported amyloid-related imaging abnormalities (ARIA). Alector voluntarily discontinued dosing and enrollment of APOE e4/e4 participants and implemented earlier MRI monitoring. A serious ARIA event also occurred in a participant who was not APOE e4 homozygous; the participant recovered with resolution of symptoms. An independent monitoring committee reviews the study.
- Clinical and regulatory outcomes remain uncertain. The filing highlights trial-enrollment and timing risks, possible adverse events, reliance on collaborators and third-party manufacturers, competition, intellectual-property risks, and potential disruption from COVID-19, supply-chain constraints, inflation, and geopolitical conditions.
- Marketable securities had $6.7m of unrealized losses at September 30, recorded in other comprehensive loss; the company attributed these losses to factors other than credit risk and reported no credit-related losses. A 100-basis-point interest-rate change was estimated to alter fair value by approximately $2.6m.
- Income-tax expense was $2.5m for the first nine months, primarily related to GSK cash receipts and tax rules requiring capitalization and amortization of certain R&D costs. Management said disclosure controls were effective at a reasonable assurance level and reported no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Whether clinical progress, enrollment, and safety monitoring—particularly in INFRONT-3 and INVOKE-2—remain consistent with stated plans.
- How the AL003 termination and possible reacquisition and development of AL008 affect future spending, partner economics, and runway.
- Whether the stated runway through 2024 remains supportable as R&D costs rise, and how much operating cash flow reflects deferred collaboration payments rather than sustainable operating performance.
- The timing and conditions for recognizing deferred collaboration revenue and any potential GSK or AbbVie milestones; milestone amounts are contingent.
- Potential dilution from equity awards and future financing: shares outstanding were 82.7m at September 30, and the company had a $150m at-the-market facility available under a shelf registration statement.