Atea Pharmaceuticals, Inc. — Q1 2021 Form 10-Q Summary
Business Context and Reporting Period
Atea is a clinical-stage biopharmaceutical company developing oral antiviral therapeutics for COVID-19, dengue, hepatitis C virus (HCV) and respiratory syncytial virus (RSV). This report covers the three months ended March 31, 2021, and was filed May 13, 2021. The company had no approved products and no product-sales revenue.
The primary program was AT-527 for COVID-19. Atea was conducting Phase 2 trials and, with Roche, initiated the Phase 3 MORNINGSKY trial in April 2021. Roche held exclusive ex-U.S. development and commercialization rights for certain compounds, including AT-527, subject to specified exceptions.
Financial Performance and Position
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Collaboration revenue | $66.0 million | $0 | +$66.0 million |
| Research and development expense | $26.6 million | $2.8 million | +$23.8 million |
| General and administrative expense | $8.8 million | $1.2 million | +$7.5 million |
| Total operating expenses | $35.3 million | $4.0 million | +$31.3 million |
| Operating income (loss) | $30.7 million | $(4.0) million | +$34.7 million |
| Net income (loss) | $30.7 million | $(4.0) million | +$34.7 million |
| Basic EPS | $0.37 | $(0.40) | Improved |
| Diluted EPS | $0.34 | $(0.40) | Improved |
| Net cash used in operating activities | $(16.8) million | $(4.5) million | $(12.3) million use |
Reported operating and net margins were approximately 46.5%, but these margins were driven by recognition of Roche collaboration revenue rather than product sales. Revenue consisted of recognition of part of Roche’s $350.0 million nonrefundable upfront payment. The company had $235.4 million of deferred revenue remaining at March 31, 2021.
- Cash and cash equivalents were $833.8 million at March 31, 2021, compared with $850.1 million at December 31, 2020.
- Total assets were $840.6 million and total liabilities were $254.4 million.
- Stockholders’ equity was $586.3 million, including an accumulated deficit of $34.4 million.
- The filing does not report outstanding debt; liabilities primarily comprised deferred revenue, accrued expenses and accounts payable.
- Cash, cash equivalents and restricted cash totaled $833.9 million at quarter-end.
- Financing cash inflow was $0.5 million from stock-option exercises; there were no investing cash flows.
Material Changes Versus the Prior Comparable Period
- Collaboration revenue increased from zero to $66.0 million due to the Roche License Agreement.
- Research and development expense increased approximately 841%, principally due to expanded COVID-19 and dengue development activities, Roche-related cost sharing and higher personnel costs.
- COVID-19 external development costs increased to $18.1 million from $0.1 million; internal research and development costs increased to $6.8 million from $0.6 million.
- General and administrative expense increased approximately 616% as the organization expanded and incurred higher payroll, stock-based compensation, professional fees and public-company costs.
- Stock-based compensation increased to $7.3 million from $0.2 million.
- Operating cash use increased to $16.8 million from $4.5 million, despite reported net income, primarily because $66.0 million of revenue had been received previously and was released from deferred revenue during the quarter.
- Common shares outstanding increased to 82.7 million from 82.4 million at December 31, 2020, primarily due to option exercises.
Guidance, Outlook, Risks and Unusual Items
- Management stated that cash and cash equivalents of $833.8 million should fund planned operations through at least 2023, although the estimate depends on assumptions that may prove incorrect.
- Operating expenses and cash use are expected to increase substantially as Atea advances AT-527, AT-752 for dengue, AT-787 for HCV and RSV candidates, expands its organization, protects intellectual property and prepares for potential commercialization.
- Atea expected to report interim virology data from two AT-527 Phase 2 trials in the second quarter of 2021.
- The company expected to initiate an AT-752 Phase 1b dengue trial in the second half of 2021, restart the AT-787 HCV program in the second half of 2021 and nominate an RSV candidate and begin IND-enabling studies in the second half of 2021.
- Roche was obligated to pay up to $330.0 million in development and regulatory milestones and up to $320.0 million in sales milestones, plus tiered royalties, but these amounts remained uncertain and were not recognized as revenue.
- Key risks include clinical-trial failure or delay, safety findings, regulatory uncertainty, competition from COVID-19 vaccines and therapeutics, declining COVID-19 treatment demand as vaccination increases, reliance on third-party manufacturers and CROs, Roche collaboration risk, intellectual-property challenges and the need for additional financing.
- The HCV program had been paused because of COVID-19-related site closures. The filing also warned that the pandemic could impair enrollment, supply chains, manufacturing, regulatory activity and trial timelines.
- The company adopted ASC 842 lease accounting effective January 1, 2021, recording a $356 thousand right-of-use asset and $437 thousand total lease liability at March 31, 2021, with no material effect on reported earnings or cash flows.
- No material legal proceedings were reported. A consultant success fee of up to $5.0 million remains contingent on future product sales, but the timing and likelihood were not probable or estimable.
Most Important Facts for Investors to Verify
- Whether AT-527 Phase 2 and Phase 3 trials produce sufficiently positive efficacy and safety results to support regulatory submissions.
- The timing and final results of the expected 2021 AT-527 data readouts and any related FDA or foreign regulatory interactions.
- Whether Roche continues to fund and execute its obligations, including development, manufacturing and potential ex-U.S. commercialization.
- The rate at which the $235.4 million deferred revenue balance is recognized and whether future collaboration revenue remains available.
- Quarterly operating cash burn and whether the stated cash runway through at least 2023 remains valid as clinical and commercialization spending accelerates.
- Potential dilution from future equity financing, option exercises or other capital-raising transactions.
- Competitive and market developments affecting the commercial opportunity for oral COVID-19 therapies, including vaccine uptake and competing antivirals.
- Clinical, manufacturing and intellectual-property risks associated with reliance on third parties and limited sources of supply.