ALECTOR, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion contains forward-looking statements that involve risks and uncertainties, including those described in the section titled "Special Note Regarding Forward Looking Statements." Our actual results and the timing of selected events could differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those set forth under the section titled "Risk Factors" included elsewhere in this report.
Overview
We are a clinical stage biopharmaceutical company pioneering immuno-neurology, a
novel therapeutic approach for the treatment of neurodegeneration.
On
Latozinemab modulates progranulin (PGRN), a key regulator of immune activity in
the brain with genetic links to multiple neurodegenerative disorders.
Latozinemab is in development to treat FTD, a severe, rapidly progressing
neurodegenerative disorder that affects 50,000 to 60,000 people in
Latozinemab is currently being studied in a global pivotal Phase 3 trial, INFRONT-3, for the potential treatment of adults at risk for or with symptomatic FTD-GRN. In prior clinical studies, latozinemab successfully demonstrated elevation of progranulin levels back to the normal range and encouraging early signals of biomarker and clinical activity. Latozinemab has been well tolerated in healthy volunteers and FTD patients in our Phase 1a, Phase 1b, and Phase 2 clinical trials.
In 2021, we presented our most comprehensive dataset generated to date for latozinemab from our ongoing open-label Phase 2 clinical trial, INFRONT-2 in patients with FTD-GRN. INFRONT-2 was designed to establish the safety and tolerability of chronic administration of latozinemab at therapeutic doses, and also measured biomarkers of disease and clinical outcomes. Treatment with latozinemab was well tolerated and suggested a reversal of the progranulin deficiency; progranulin levels were restored to normal ranges in both plasma and cerebrospinal fluid (CSF) for the duration of treatment. Multiple disease-relevant biomarkers trended toward normalization or remained stable, including time-dependent and durable normalization of lysosomal, inflammatory, and astrogliosis biomarkers over twelve months of treatment compared to baseline and age-matched controls. Additionally, mean levels of plasma and CSF neurofilament light chain (NfL), a marker of axonal damage, remained stable over 12 months. A matched historic control cohort of participants from the Genetic FTD Initiative (GENFI2) patient registry was utilized as a comparator for brain atrophy and clinical outcome assessments. Volumetric MRI found a greater than 10% reduction in atrophy rates in favor of latozinemab for the whole brain and frontotemporal cortex, and an approximately 50% reduction in the rate of ventricular enlargement, relative to the GENFI2 matched control cohort. Clinical outcome assessments using the CDR® plus NACC FTLD-SB scale found that latozinemab treatment slowed clinical progression by 48% compared to the GENFI2 matched control cohort.
In
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treatment in both plasma and CSF in latozinemab-treated FTD-C9orf72 patients and mean levels of glial fibrillary acidic protein (GFAP), a biomarker of astrogliosis that is an indicator of disease and/or injury to the central nervous system, decreased over 12 months in both plasma and CSF in latozinemab-treated FTD-C9orf72 patients.
In
AL101, the second product candidate in our PGRN portfolio, is designed to elevate progranulin levels, similar to latozinemab, with plans to investigate AL101 for the treatment of Alzheimer's disease and Parkinson's disease. Mutations that moderately reduce the expression levels of PGRN are associated with increased risk of developing Alzheimer's disease and Parkinson's disease. In animal models, increased PGRN levels have been demonstrated to be protective for these diseases. In 2021, we presented interim data from our ongoing Phase 1 clinical trial testing the safety, tolerability, pharmacokinetics, pharmacodynamics, and bioavailability of single doses of intravenously or subcutaneously administered AL101 in healthy volunteers. AL101 increased progranulin levels in the periphery and the brain persisting for one month. AL101 was found to be well tolerated at all doses administered. Alector completed enrollment of additional cohorts to test further dosages of AL101 administered intravenously and subcutaneously, with data expected to be available in the fourth quarter of 2022.
Our AL002 product candidate targets Triggering Receptor Expressed on Myeloid cells 2 (TREM2) to increase the functionality of TREM2 signaling and enhance microglia cell activation. We are initially developing AL002 for the treatment of Alzheimer's disease in collaboration with AbbVie.
In our Phase 1 clinical trial, AL002 demonstrated tolerability, target
engagement, and proof-of-mechanism in the central nervous systems of healthy
volunteers. In
Amyloid Related Imaging Abnormalities (ARIA) have been observed in our ongoing INVOKE-2 Phase 2 clinical trial in Alzheimer's disease. ARIA are MRI findings suggestive of vasogenic edema or hemosiderin deposits. ARIA has been reported to occur in Alzheimer's disease patients and typically resolves or stabilizes within four to 16 weeks with or without treatment. The incidence of ARIA has been shown to increase in this patient population with the administration of certain Alzheimer's disease therapeutics, namely anti-?-amyloid antibodies. Most ARIA cases observed in our INVOKE-2 Phase 2 clinical trial were asymptomatic and non-serious. However, a small number of serious adverse events occurred in patients with the APOE e4/e4 genotype. APOE e4/e4 homozygotes are estimated to represent 10-15% percent of the Alzheimer's disease population. In addition to voluntary protocol amendments put in place last year to mitigate risks associated with ARIA, we discontinued dosing and enrollment of APOE e4/e4 homozygotes in our INVOKE-2 Phase 2 clinical trial. No additional serious adverse events related to ARIA have occurred following this change. We also plan to submit an additional voluntary amendment to the trial protocol to exclude APOE e4/e4 homozygotes from this trial. The potential impact, if any, of this protocol amendment on timing to complete enrollment of the INVOKE-2 Phase 2 clinical trial continues to be assessed. We are implementing MRI monitoring prior to dose escalation for all clinical trial participants, consistent with recently published guidelines for ARIA monitoring and management. We are conducting this study under the guidance of an Independent Data Monitoring Committee (IDMC), which is allowed to review unblinded data and to make trial recommendations. We, along with the IDMC, will continue to monitor the INVOKE-2 Phase 2 clinical trial, and if necessary, we will make additional modifications to the study protocol.
AL044 is the latest Alector-discovered therapeutic candidate for neurodegeneration. AL044 targets membrane-spanning 4-domains subfamily A (MS4A), a major risk locus for Alzheimer's disease. MS4A gene family members encode a transmembrane receptor protein that is expressed selectively on myeloid cells in the brain and is associated with control of microglia functionality and potentially with microglia viability. We intend to develop AL044 for the treatment of Alzheimer's disease and potentially orphan neurodegenerative indications. We have submitted an IND for AL044. We expect to initiate a first-in-human trial for AL044 in the second half of 2022. We own worldwide rights to AL044.
The neuroimmune system of the brain is part of the body's innate immune system, and based on our pioneering work in immuno-neurology, we have identified potential oncology applications for several of our therapeutic programs. We believe that products focused on innate immune biology may complement and expand the efficacy of current immuno-oncology drugs that target the adaptive immune system.
AL008 is our lead innate immuno-oncology antibody, which is designed to inhibit the CD47-SIRP-alpha (SIRP?) pathway, a potent immune checkpoint pathway co-opted by tumors to evade the immune system. AL008 is a SIRP-alpha inhibitor with a novel dual mechanism of action that inhibits immune suppression and promotes immune stimulation. We
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entered into a licensing agreement with Innovent in 2020, under which Innovent
would develop and commercialize AL008 in
We intend to re-acquire the rights we granted to Innovent for the development
and commercialization of AL008. Innovent submitted an IND with the Chinese
regulatory authorities and Alector plans to utilize data and documentation from
this application to potentially support an IND submission in the
AL009, our second innate immuno-oncology product candidate, is a multi Siglec inhibitor that is designed to enhance both the innate and adaptive immune system response to tumors by blocking a critical glycan checkpoint pathway that drives immune suppression. We plan to advance AL009 into clinical studies in patients with advanced solid tumors within the next year. We own worldwide rights to AL009.
In collaboration with AbbVie, we had been developing AL003 to treat patients
with Alzheimer's disease pursuant to the AbbVie Agreement. AL003 focused on
modulating checkpoint receptors on the brain's immune cells, targeting sialic
acid binding Ig-like lectin 3 (SIGLEC 3, also called CD33). AbbVie decided to
terminate the CD33 collaboration program after AbbVie and Alector
collaboratively reviewed next steps for AL003 and concluded the program did not
warrant further development based on insufficient evidence for an effect on
pharmacodynamic biomarkers in a Phase 1 study. AbbVie provided written notice to
the Company formalizing this decision on
We are closely monitoring the evolving impact of COVID-19 and subsequent variants of the virus on our operations and we continue to be committed to our discovery, research, and clinical development plans and timelines. We are aware that the COVID-19 pandemic and subsequent variants have impacted the ability of certain clinical sites to maintain scheduled events for clinical trial participants due in part to the sites' temporary suspension of activities or regional shelter-in-place directives. We intend to continue to collect data from ongoing clinical trial participants and to make progress in completing enrollment across these ongoing clinical trials taking into account applicable regulatory, institutional, and government guidance compliance regimes. Any unscheduled changes in trial conduct due directly or indirectly to COVID-19 could negatively impact the integrity, reliability, or robustness of the data from our clinical trials.
Our operations have been financed primarily through our collaborations with
AbbVie and GSK and the issuance and sale of convertible preferred stock and of
common stock upon the completion of our IPO and follow-on offering. We completed
our IPO in
To date, we have not had any products approved for sale and have not generated
any revenue from product sales. Further, we do not expect to generate revenue
from product sales until such time, if ever, that we are able to successfully
complete the development and obtain marketing approval for one of our product
candidates. We will continue to require additional capital to develop our
product candidates and fund operations for the foreseeable future. We have
incurred net losses in each year since inception, and we expect to continue to
incur net losses for the foreseeable future. Our ability to generate product
revenue will depend on the successful development and eventual commercialization
of one or more of our product candidates. Our net income was
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advance product candidates through preclinical studies and clinical trials;
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pursue regulatory approval of product candidates;
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hire additional personnel;
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acquire, discover, validate, and develop additional product candidates;
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require the manufacture of supplies for our preclinical studies and clinical trials; and
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obtain, maintain, expand, and protect our intellectual property portfolio.
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Components of Results of Operations
Revenue
We have not generated any revenue from product sales and do not expect to do so in the near future. Our revenue to date has been primarily related to the AbbVie Agreement and GSK Agreement for the license and co-development of product candidates with those parties. We recognize revenue from the upfront payments from AbbVie over time as services are provided. We recognize revenue from the upfront payments from GSK at a point in time for a development license and over time for research and development services. Revenues for research and development services are recognized as the program costs are incurred by measuring actual costs incurred to date compared to the overall total expected costs to satisfy the performance obligation.
Under the terms of our AbbVie Agreement, in addition to receiving the upfront payments from AbbVie, we may also be entitled to development and regulatory milestone payments, opt-in payments for continued development after proof-of-concept for AL002, and other future payments from profit sharing or royalties after commercialization of product candidates from such program.
Under the terms of our GSK Agreement, we received
In
We expect that our revenue for the next several years will be derived primarily
from the AbbVie and GSK Agreements. The balance of deferred revenue was
Research and Development Expenses
Research and development expenses account for a significant portion of our operating expenses. We record research and development expenses as incurred. Research and development expenses consist primarily of costs incurred for the discovery and development of our product candidates, which include:
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expenses incurred under agreements with third-party contract organizations, preclinical testing organizations, and consultants;
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costs related to production of clinical materials, including fees paid to contract manufacturers;
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laboratory and vendor expenses related to the execution of preclinical studies and clinical trials;
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personnel-related expenses, including salaries, benefits, and stock-based compensation for personnel engaged in research and development functions;
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costs related to the preparation of regulatory submissions;
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third-party license fees; and
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facilities and other expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense, and other supplies.
We expense all research and development costs in the periods in which they are incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, collaborators, and third-party service providers. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered and as services are performed.
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Specific program expenses include expenses associated with the development of our most advanced product candidates: latozinemab, which is being studied in a pivotal Phase 3 clinical trial, INFRONT-3, and remains in an ongoing Phase 2 clinical trial, AL002, which is being studied in a Phase 2 clinical trial, and AL101, which is in a Phase 1 clinical trial. We also have expenses related to the discovery and development of future product candidates and separately tracked expenses related to programs that we expect to move out of preclinical studies and into Phase 1 clinical trials. These expenses primarily relate to salaries and benefits, stock-based compensation, facility expenses, including depreciation, and lab consumables.
Where we share costs with our collaboration partners, such as in our GSK Agreement, research and development expenses may include cost sharing reimbursements from, or payments to, our partner.
At this time, we cannot reasonably estimate or know the nature, timing, and estimated costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, as our product candidates advance into later stages of development, as we begin to conduct larger clinical trials, as we seek regulatory approvals for any product candidates that successfully complete clinical trials, and incur expenses associated with hiring additional personnel to support our research and development efforts. The process of conducting the necessary clinical research to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel-related costs, including stock-based compensation, for our personnel in executive, legal, finance and accounting, information technology, human resources, and other administrative functions. General and administrative expenses also include legal fees relating to intellectual property and corporate matters, professional fees paid for accounting, auditing, consulting, and tax services, insurance costs, and facility costs not otherwise included in research and development expenses.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our programs.
Other Income, Net
Other income, net consists of interest earned on our cash equivalents and marketable securities and foreign currency transaction gains and losses incurred during the period.
Results of Operations
Comparison of the Three Months Ended
Three Months Ended
June 30, Dollar
2022 2021 Change
(In thousands)
Collaboration revenue $ 79,851 $ 6,568 $ 73,283
Operating expenses:
Research and development 54,534 47,818 6,716
General and administrative 15,842 14,075 1,767
Total operating expenses 70,376 61,893 8,483
Income (loss) from operations 9,475 (55,325 ) 64,800
Other income, net 1,450 178 1,272
Income (loss) before income taxes 10,925 (55,147 ) 66,072
Income tax expense 1,042 - 1,042
Net loss $ 9,883 $ (55,147 ) $ 65,030
Revenue
Collaboration revenue was
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the termination of the AL003 program, partially offset by increases in total
expected costs for the AL002 program. The increase was also due to a
Research and Development Expenses
Research and development expenses were
Three Months Ended
June 30, Dollar
2022 2022 Change
(In thousands)
Direct research and development expenses
AL001 (Latozinemab) $ 6,620 $ 7,120 $ (500 )
AL101 3,831 1,009 2,822
AL002 6,957 7,865 (908 )
AL003 335 1,359 (1,024 )
AL044 2,536 1,958 578
Other early stage programs 8,359 10,256 (1,897 )
Indirect research and development expenses
Personnel related (including stock-based
compensation) 19,549 13,795 5,754
Facilities and other unallocated research and
development expenses 6,347 4,456 1,891
Total research and development expenses
General and Administrative Expenses
General and administrative expenses were
Other Income, Net
Other income, net was
Income Tax Expense
Income tax expense was
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Comparison of the Six Months Ended
Six Months Ended
June 30, Dollar
2022 2021 Change
(In thousands)
Collaboration revenue $ 104,325 $ 10,678 $ 93,647
Operating expenses:
Research and development 107,577 93,551 14,026
General and administrative 31,396 25,087 6,309
Total operating expenses 138,973 118,638 20,335
Income (loss) from operations (34,648 ) (107,960 ) 73,312
Other income, net 1,714 642 1,072
Income (loss) before income taxes (32,934 ) (107,318 ) 74,384
Income tax expense 1,800 - 1,800
Net loss $ (34,734 ) $ (107,318 ) $ 72,584
Revenue
Collaboration revenue was
Research and Development Expenses
Research and development expenses were
Six Months Ended
June 30, Dollar
2022 2021 Change
(In thousands)
Direct research and development expenses
AL001 (Latozinemab) $ 16,273 $ 17,687 $ (1,414 )
AL101 4,481 2,041 2,440
AL002 13,779 14,711 (932 )
AL003 765 2,788 (2,023 )
AL044 2,936 4,256 (1,320 )
Other early stage programs 18,723 16,190 2,533
Indirect research and development expenses
Personnel related (including stock-based
compensation) 38,080 27,196 10,884
Facilities and other unallocated research and
development expenses 12,540 8,682 3,858
Total research and development expenses
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General and Administrative Expenses
General and administrative expenses were
Other Income, Net
Other income, net was
Income Tax Expense
Income tax expense was
Liquidity and Capital Resources
Since our inception through
As of
Future Funding Requirements
Our primary uses of cash are to fund our operations, which consist primarily of research and development expenditures related to our programs, and to a lesser extent, general and administrative expenditures. We expect our expenses to continue to increase in connection with our ongoing activities, in particular as we continue to advance our product candidates and our discovery programs. In addition, we expect to incur additional costs associated with operating as a public company.
Based on our current operating plan, we believe that our existing cash, cash equivalents, and marketable securities will enable us to fund our operations and capital expenditure requirements into at least the second half of 2024. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We may also choose to seek additional financing opportunistically. We expect to need to obtain substantial additional funding in the future for our research and development activities and continuing operations. If we were unable to raise capital when needed or on favorable terms, we would be forced to delay, reduce, or eliminate our research and development programs or future commercialization efforts.
Our future capital requirements will depend on many factors, including:
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the timing and progress of preclinical and clinical development activities; including, without limitation, our collaboration efforts with AbbVie and GSK;
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the number and scope of preclinical and clinical programs we decide to pursue;
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successful enrollment in and completion of clinical trials;
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our ability to establish agreements with third-party manufacturers for clinical supply for our clinical trials and, if our product candidates are approved, commercial manufacturing;
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our ability to maintain our current research and development programs and establish new research and development programs;
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addition and retention of key research and development personnel;
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our efforts to enhance operational, financial, and information management systems, and hire additional personnel, including personnel to support development of our product candidates;
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negotiating favorable terms in any collaboration, licensing, or other arrangements into which we may enter and performing our obligations in such collaborations;
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the timing and amount of milestone and other payments we may receive under our collaboration arrangements;
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the costs and timing of regulatory approvals;
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our eventual commercialization plans for our product candidates;
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the effects of inflationary pressures; and
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the costs involved in prosecuting, defending, and enforcing patent claims and other intellectual property claims.
A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans.
Cash Flows
The following table summarizes our cash flows for the periods indicated (in
thousands):
Six Months Ended
June 30,
2022 2021
Cash provided by (used in) operating activities
3,389 6,836
Operating Activities
For the six months ended
For the six months ended
Investing Activities
For the six months ended
For the six months ended
Financing Activities
For the six months ended
For the six months ended
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Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of
operations is based on our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in
Other than the disclosures below, there have been no material changes to our
critical accounting policies and estimates from those described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in our Annual Report on Form 10-K, as filed with the
Revenue Recognition
We recognize revenue when control of promised goods or services is transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. In determining the appropriate amount of revenue to be recognized as we fulfill our obligations under arrangements, we perform the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies the performance obligation. If it is determined that multiple performance obligations exist, the transaction price is allocated at the inception of the agreement to all identified performance obligations based on the relative SSP. The relative SSP for each deliverable is estimated using external sourced evidence if it is available. If external sourced evidence is not available, we use our best estimate of the SSP for the deliverable.
We recognize collaboration revenue at a point in time if control of the promised
good or service has been transferred to the customer. We recognize collaboration
revenue over time by measuring the progress toward complete satisfaction of the
performance obligation using an input measure. In order to recognize revenue
over the research and development period, we measure actual costs incurred to
date compared to the overall total expected costs to satisfy the performance
obligation. Revenues are recognized as the program costs are incurred. We
re-evaluate the estimate of expected costs to satisfy the performance obligation
each reporting period and make adjustments for any significant changes. Clinical
trials are expensive and can take many years to complete, and the outcome is
inherently uncertain. Changes in our forecasted costs are likely to occur over
time based upon changes in clinical trial procedures set forth in protocols,
changes in estimates of manufacturing costs, or feedback from regulators on the
design or operation of our clinical trials. We have had changes to the overall
expected costs to satisfy the performance obligations from period to period. For
the three months ended
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