Alector, Inc. — Q1 2021 Form 10-Q
Business context and reporting period
Clinical-stage biopharmaceutical company developing immuno-neurology therapies for neurodegenerative disease. This unaudited report covers the three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Alector had no approved products and no product-sales revenue.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Collaboration revenue | $4.1 million | $7.2 million; down $3.1 million |
| Research and development expense | $45.7 million | $34.6 million; up $11.1 million |
| General and administrative expense | $11.0 million | $14.6 million; down $3.6 million |
| Total operating expenses | $56.7 million | $49.2 million |
| Operating loss | $52.6 million | $42.1 million |
| Other income, net | $0.5 million | $2.1 million |
| Net loss | $52.2 million; $0.66 per share | $40.0 million; $0.53 per share |
| Operating cash used | $52.7 million | $32.3 million |
| Cash, cash equivalents and marketable securities | $362.7 million at March 31, 2021 | $413.3 million at December 31, 2020 |
The balance sheet reported total assets of $440.4 million, total liabilities of $212.5 million and stockholders’ equity of $227.8 million. Current assets were $374.7 million versus current liabilities of $64.1 million. Liabilities included $128.2 million of deferred revenue and $50.5 million of operating lease liabilities; the filing does not report borrowings or other financial debt. The company reported an accumulated deficit of $462.2 million. No product gross margin was reported.
Material changes and significant items
- Net loss increased by $12.2 million year over year, primarily reflecting higher R&D spending, lower collaboration revenue and lower investment income.
- R&D expense rose with increased staffing and stock compensation, continued AL001 clinical development, investment in early-stage programs, and facility and equipment costs. G&A fell partly because arbitration-related legal costs ended and a $1.3 million arbitration award was recorded as an expense offset.
- AbbVie collaboration revenue fell to $4.1 million. A 4% increase in estimated total program costs caused a cumulative catch-up reduction of approximately $4.6 million in Q1 revenue versus the prior cost estimate. Deferred revenue was $128.2 million at quarter-end and is expected to be recognized as research services are performed through Phase 2 completion.
- Investing activities provided $109.6 million, mainly from $110.5 million of marketable-security maturities. Financing activities provided $3.9 million from option exercises; Q1 2020 financing had included $224.5 million of net follow-on offering proceeds.
Pipeline, outlook and risks
- AL001 was in the pivotal Phase 3 INFRONT-3 trial for FTD-GRN, with Phase 2 work also ongoing. AL002 began a Phase 2 early-Alzheimer’s trial in January 2021. AL003’s Phase 1b Alzheimer’s study was continuing after enrollment; AL101 was in Phase 1, with initial data expected in 2021. AL044 was a prioritized research candidate. AL002 and AL003 are being developed with AbbVie.
- Management expected expenses to increase substantially as programs advance. Based on its current operating plan, it said existing funds were expected to support operating expenses and capital expenditures through at least mid-2022. Elsewhere, the risk discussion says funds should cover projected operations through at least the next 12 months after the filing date. Both statements are subject to assumptions and uncertainty.
- The company expects no near-term product revenue and will require substantial additional funding. A $150 million at-the-market equity facility was available, but no shares had been sold under it as of the report. Additional financing may dilute shareholders or require unfavorable terms; no committed source of additional capital was identified.
- COVID-19 had caused clinical-site visit delays and some participants missed scheduled doses. Alector warned that further disruption could delay enrollment and data readouts or affect trial data integrity. Other key risks include clinical and regulatory uncertainty, competition, dependence on collaborators and contract manufacturers, and intellectual-property challenges.
- An independent arbitrator found the company’s former consulting co-founder liable for confidentiality-agreement breach and document spoliation; damages of $1.3 million were set in March 2021. The company said it was not party to other proceedings likely to have a material adverse effect in management’s opinion.
Important facts for investors to verify
- Whether cash runway assumptions remain valid as clinical spending rises, and how the differing runway statements reconcile.
- Progress, enrollment, safety, and timing of data for AL001, AL002, AL003 and AL101, including any continuing COVID-19 effects.
- AbbVie program cost forecasts and the resulting variability in collaboration revenue recognition.
- Potential financing needs and dilution, including any use of the $150 million ATM facility.
- Whether collaboration, milestone, royalty or licensing payments materialize; Innovent milestones and royalties were constrained from revenue recognition and no Innovent revenue or payment had been recorded by quarter-end.