Atea Pharmaceuticals, Inc. quarterly report, Q3 FY2021

Atea Pharmaceuticals, Inc. — Q3 2021 Form 10-Q Summary

Business context and reporting period

Atea is a clinical-stage biopharmaceutical company developing oral antiviral therapies for COVID-19, dengue, hepatitis C and respiratory syncytial virus. This report covers the three and nine months ended September 30, 2021. The company had no approved products or product sales and generated revenue solely from its Roche collaboration.

Atea and Roche are jointly developing AT-527 for COVID-19. Roche holds exclusive development and commercialization rights outside the United States, subject to specified exceptions, and is the exclusive global supplier of commercial AT-527 if approved.

Financial results and liquidity

Metric	Three months ended September 30	Nine months ended September 30
Collaboration revenue	$32.8 million in 2021; none in 2020	$159.2 million in 2021; none in 2020
Research and development expense	$43.0 million vs. $13.6 million	$109.4 million vs. $24.2 million
General and administrative expense	$11.9 million vs. $4.0 million	$32.6 million vs. $7.5 million
Net income (loss)	$(28.2) million vs. $(17.6) million	$4.1 million vs. $(31.6) million
Net income (loss) per share	$(0.34) vs. $(1.74)	$0.05 vs. $(3.13)
Net cash used in operating activities	$11.6 million for the nine months, compared with $21.8 million in 2020

Nine-month operating income was $17.2 million, compared with an operating loss of $31.7 million in the prior-year period. The improvement was driven by Roche collaboration revenue, partially offset by substantially higher development spending. The company recorded income tax expense of $6.1 million in the quarter and $13.3 million year to date because it forecast taxable income for 2021 while retaining a full valuation allowance on deferred tax assets beyond 2021.

Cash and cash equivalents were $839.7 million at September 30, 2021, compared with $850.1 million at December 31, 2020. Total assets were $843.5 million and total liabilities were $262.1 million. The filing reports no debt financing. Deferred revenue was $192.2 million, primarily related to the Roche agreement, and accounts payable and accrued liabilities increased substantially, including amounts owed to Roche for shared development costs.

Management believes cash and cash equivalents will fund planned operations through at least 2023, but expects operating expenses and cash use to increase significantly as clinical development, regulatory preparation, manufacturing and commercialization activities advance.

Material changes versus the prior comparable period

Collaboration revenue began in 2021 following the Roche agreement and included recognition of a $50.0 million development milestone in the transaction price.
Research and development expense increased 352% for the nine-month period, primarily from COVID-19 and dengue clinical development, Roche cost sharing, CRO and CMO activity, and increased personnel costs.
General and administrative expense increased 335% for the nine-month period as the company expanded its organization and incurred higher public-company, personnel and professional costs.
Cash declined by approximately $10.3 million during the first nine months of 2021, compared with an $83.7 million increase in the prior-year period, when the company received $106.6 million from preferred stock issuance.
Stock-based compensation increased to $28.3 million for the first nine months of 2021 from $4.6 million in 2020.
Common shares outstanding increased to 83.0 million at September 30, 2021 from 82.4 million at December 31, 2020, primarily through stock-option exercises.

Guidance, outlook, commentary and risks

Following October 2021 MOONSONG Phase 2 topline results, management reported that AT-527 did not meet the primary viral-load endpoint in the overall outpatient population, which was largely low-risk. The company observed an approximately 0.5 log₁₀ viral-load reduction in high-risk subgroups, but the subgroup sample sizes were small.
Atea and Roche planned to amend the MORNINGSKY Phase 3 protocol to use hospitalization or all-cause death as the primary endpoint, focus enrollment on unvaccinated high-risk patients and increase the dose to 1,100 mg twice daily. Regulatory approval is required before implementation. Topline data are now expected in the second half of 2022.
A Phase 2 hospitalized-patient study was amended to evaluate the 1,100 mg twice-daily dose, with results expected in the first half of 2022. Atea also planned a Phase 2 dengue trial and expected to restart its HCV program in the first half of 2022.
The company expected to nominate an RSV lead candidate and begin IND-enabling studies in the first half of 2022.
Key risks include clinical failure or delay, uncertain regulatory approval, adverse events, changing COVID-19 treatment demand and vaccination levels, strong competition from authorized or developing therapies, reliance on Roche and other third parties, manufacturing and supply constraints, intellectual-property challenges, cybersecurity and data-privacy risks, dependence on key personnel, and the need for additional financing.
The company entered a Boston office sublease beginning January 1, 2022, through December 31, 2026, with an initial base rent of $66,000 per month and a leasehold improvement allowance of $877,000.
Management stated that disclosure controls and procedures were effective as of September 30, 2021 and that there were no material changes in internal control over financial reporting during the quarter.

Important facts for investors to verify

Reconcile the reported nine-month profitability with the composition and timing of Roche collaboration revenue, deferred revenue and milestone recognition.
Assess the implications of the failed overall MOONSONG primary endpoint and the statistical reliability of the small high-risk subgroup findings.
Verify regulatory acceptance and implementation of the proposed MORNINGSKY protocol amendments, including the revised endpoint, patient population and dose.
Monitor AT-527 Phase 3 and hospitalized-patient trial enrollment, safety data and expected 2022 readouts.
Evaluate cash burn, development-cost growth and whether the stated cash runway through at least 2023 remains valid under revised clinical plans.
Review Roche’s ongoing obligations, termination rights, shared development costs, milestone potential and dependence as commercial supplier outside the United States.
Verify the filing’s comparative-period presentation: the MD&A table contains an apparent inconsistency for the three-month 2020 loss, while the financial statements report a $(17.6) million net loss.