Alector, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Alector is a clinical-stage biopharmaceutical company developing immuno-neurology therapies. It had no approved products and generated no product-sales revenue; reported revenue came from collaborations.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Collaboration revenue | $182.4m | $5.9m | $193.1m | $16.2m |
| Research and development expense | $43.1m | $43.8m | $136.6m | $112.5m |
| General and administrative expense | $13.0m | $15.8m | $38.1m | $46.2m |
| Operating income (loss) | $126.3m | $(53.7)m | $18.4m | $(142.4)m |
| Net income (loss) | $126.6m | $(52.7)m | $19.3m | $(138.0)m |
| Diluted earnings (loss) per share | $1.49 | $(0.67) | $0.23 | $(1.78) |
Q3 collaboration revenue included $173.4m recognized when the GSK FTD-GRN license and know-how were delivered. The resulting profit and positive operating cash flow are therefore heavily affected by collaboration accounting and should not be read as evidence of recurring product profitability.
- Cash and investments: $777.9m of cash, cash equivalents and marketable securities at September 30, 2021, versus $413.3m at December 31, 2020. Cash and equivalents alone were $516.5m; marketable securities were $261.3m.
- Cash flows, nine months: operating activities provided $347.8m (used $119.1m in 2020); investing activities provided $97.1m (used $116.6m); financing activities provided $21.7m (provided $231.0m in 2020). The operating cash inflow principally reflected the GSK upfront payment and a $306.9m increase in deferred revenue.
- Deferred revenue: $439.2m at quarter-end, including $320.2m related to GSK and $119.0m related to AbbVie. Revenue from deferred balances is expected to be recognized as specified research and development obligations are performed.
- Debt and liabilities: The balance sheet reports no borrowing debt. Total liabilities were $518.3m, primarily deferred revenue and operating lease liabilities; lease liabilities totaled $48.6m.
- Equity and accumulated losses: Stockholders’ equity was $335.9m and accumulated deficit was $390.8m at September 30, 2021. Nine-month stock-based compensation was $28.1m.
Material changes versus the prior comparable period
- Revenue increased $176.5m in Q3 and $176.8m year to date, primarily due to the GSK collaboration and recognition of the AL001 FTD-GRN license.
- Q3 R&D expense declined $0.8m, reflecting timing of manufacturing and trial-startup costs, partly offset by higher personnel costs. Nine-month R&D expense rose $24.1m, principally from personnel, early-stage programs and facilities.
- G&A expense decreased $2.8m in Q3 and $8.1m year to date, mainly because arbitration-related legal costs ended in 2020.
- Other income declined year to date by $3.5m, which the company attributed to lower investment yields.
- Cash and investments rose substantially, chiefly following receipt of $500m of GSK’s upfront payment in Q3. The remaining $200m was expected to be invoiceable in Q1 2022.
Outlook, management commentary and risks
- GSK collaboration: The agreement covers global development and commercialization of AL001 and AL101. It provides $700m in upfront payments, of which $500m had been received, and eligibility for up to $1.5bn in additional development, regulatory and commercial milestones. GSK funds 60% and Alector 40% of shared development costs, subject to stated exceptions; U.S. profits and losses are shared equally, while Alector is eligible for double-digit tiered royalties outside the U.S. Milestones are contingent, not assured.
- Runway and funding: Management expected existing resources plus anticipated GSK proceeds to fund operating expenses and capital needs into mid-2024, based on assumptions that may change. It expects expenses to rise as programs advance and states that further funding will be needed over time.
- Pipeline: AL001 was in a pivotal Phase 3 trial for FTD-GRN. Management reported favorable safety and biomarker findings from a small, open-label Phase 2 dataset and exploratory comparisons with historical controls; these are not confirmatory Phase 3 results. AL002 was in Phase 2 for early Alzheimer’s disease; AL003 had completed Phase 1b enrollment, with data anticipated in Q4 2021. AL101 Phase 1a data were expected in 2021, and AL044 was expected to enter first-in-human studies in 2022.
- Safety and trial execution: Amyloid-related imaging abnormalities (ARIA) had been observed in the AL002 Phase 2 trial, including a small number classified as serious adverse events. The protocol had been amended to add risk-mitigation steps, and an independent monitoring committee was reviewing the study. COVID-19-related site disruptions and missed or delayed participant visits could affect enrollment, timelines and data quality.
- Key risks: Clinical and regulatory outcomes are uncertain; the company has no commercial products, depends on collaborators and third-party manufacturers, and may face trial delays, safety issues, competition, intellectual-property challenges and future financing needs. Management reported disclosure controls effective at a reasonable assurance level and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the timing and receipt of the remaining $200m GSK upfront payment and review the collaboration’s cost-sharing, opt-out, termination and milestone terms.
- Track AL001 Phase 3 progress and assess whether its results support the encouraging but exploratory Phase 2 findings.
- Monitor AL002 ARIA incidence, severity, protocol changes and independent monitoring committee recommendations.
- Reconcile future collaboration revenue and cash flow with deferred-revenue recognition, program costs and the timing of partner payments.
- Test the mid-2024 cash-runway estimate against clinical spending, collaboration obligations and any changes in operating plans.
- Review dilution and equity compensation: common shares outstanding were 81.25m at September 30, 2021, and the company also maintained a $150m at-the-market facility that it had not used as of the filing.