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. Immuno-neurology targets immune dysfunction as a root cause of multiple pathologies that are drivers of degenerative brain disorders. We are developing therapies designed to simultaneously counteract these pathologies by restoring healthy immune function to the brain. Supporting our scientific approach, our Discovery Platform enables us to advance a broad portfolio of product candidates, validated by human genetics, which we believe will improve the probability of technical success over shorter development timelines. As a result, in the last six years, we have identified over 120 immune system targets, progressed 14 programs into preclinical development, and advanced four product candidates, AL001, AL002, AL003, and AL101 into clinical development.
At Alector we are committed to developing transformative treatments for neurodegeneration. We believe that our mission could potentially benefit millions of patients and families affected by neurodegenerative diseases worldwide, and even with the current global COVID-19 pandemic, we remain focused on advancing our portfolio of immuno-neurology programs. Our primary responsibility is ensuring the health and safety of our employees, participants in our clinical trials, and our clinical trial site teams, and we are continuing to monitor and comply with current regulatory, institutional, and government guidance for conduct of our business. We are closely monitoring the evolving impact of COVID-19 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 has impacted the ability of certain clinical sites to maintain scheduled events for clinical study participants due in part to the site's temporary suspension of activities or regional shelter-in-place directives. We intend to continue to collect data from all existing clinical trial participants and to make progress in completing the enrollment across these on-going clinical trials taking into account applicable regulatory, institutional, and government guidance compliance regimes. Any unscheduled changes in study conduct due to COVID-19-related events could negatively impact the integrity, reliability, or robustness of the data from our clinical trials.
AL001, our first product candidate in the clinic, modulates progranulin (PGRN),
a key regulator of immune activity in the brain with genetic links to multiple
neurodegenerative disorders, including frontotemporal dementia (FTD),
Alzheimer's disease, and Parkinson's disease. AL001 is initially designed to
treat FTD, a severe, rapidly progressing neurodegenerative disorder that affects
50,000 to 60,000 people in
Our AL001 product candidate is initially aimed at treating people with FTD who
have a known genetic mutation that causes a deficiency in PGRN, which is called
FTD-GRN. The
Additionally, in
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(NfL) testing. In these five patients, no significant increases in plasma NfL levels, an exploratory biomarker of neuronal degeneration, were reported after 12 weeks. Moreover, an initial trend showing a 14% reduction in plasma NfL levels compared to baseline levels (n=5; mean=14%; range=-4% to 41%) was also observed. In the open-label Phase 2 study, treatment with AL001 led to sustained restoration of plasma progranulin (PGRN) levels in all FTD-GRN participants back to the normal range. These preliminary findings also showed that the majority of symptomatic FTD-GRN participants (six out of the eight) experienced a decrease in NfL levels from baseline at the last measured time point. We plan to continue this 96-week open-label Phase 2 study and present additional data from the study participants, at a later date.
We are developing AL101, our second product candidate in our PGRN portfolio, for people suffering from more prevalent neurodegenerative diseases including Alzheimer's disease and Parkinson's disease, in addition to FTD. In line with our therapeutic hypothesis for FTD, mutations that moderately reduce the expression levels of PGRN have been shown to increase the risk of developing Alzheimer's disease and Parkinson's disease, and increased PGRN levels have been demonstrated to be protective for these diseases in animal models. The FDA has granted orphan drug designation for the treatment of FTD to AL101, as well as Fast Track designation for the treatment of people with FTD-GRN. We initiated the Phase 1 study of AL101 in the fourth quarter of 2019. We expect Phase 1a data in 2020. We own worldwide rights to both AL001 and AL101.
Our next development programs, AL002 and AL003, are focused on modulating check-point receptors on the brain's immune cells, with AL002 targeting Triggering Receptor Expressed on Myeloid cells 2 (TREM2) and AL003 targeting sialic acid binding Ig-like lectin 3 (SIGLEC 3), respectively. The AL002 and AL003 programs are aimed at treating people with Alzheimer's disease.
In the third quarter of 2019, we completed the Phase 1a portion of a clinical trial in healthy volunteers with AL002. AL002 was generally safe and well-tolerated in the single ascending dose part of the Phase 1 study. In addition, a dose dependent and statistically significant change in both soluble TREM2 (sTREM2) and downstream biomarkers for microglia functionality in cerebrospinal fluid were observed upon treatment, indicating both target engagement and proof-of-mechanism in healthy volunteers. We believe that this is the first time that a drug product candidate that targets TREM2 has successfully demonstrated safety, target engagement, and indicated proof-of-mechanism in healthy volunteers. In the second quarter of 2019, based on the safety and tolerability observed in the Phase 1a healthy volunteer study, as well as encouraging biomarker data, we initiated the Phase 1b portion of the trial with AL002 in people with Alzheimer's disease. Based on the data collected to date in preclinical studies as well as in healthy volunteers, and in alignment with our partner AbbVie, we have decided to close enrollment in the Phase 1b study, which was impacted by the COVID-19 pandemic, and proceed with initiating a Phase 2 study in people with Alzheimer's disease in 2020.
In the first quarter of 2019, we initiated a Phase 1a study in healthy volunteers with AL003 for the treatment of Alzheimer's disease. Thirty-eight healthy volunteers were dosed over eight dose cohorts in the AL003 Phase 1a dose escalation trial. A dose dependent, long-lasting downregulation of monocyte Siglec-3, a marker of target engagement, was observed following a single dose administration. At the dose level that is currently evaluated in the Phase 1b study, the maximal mean downregulation was >90% and statistically significant up to 8 weeks after dosing compared with placebo. In addition, we plan to initiate a Phase 1 study with AL014 for the treatment of Alzheimer's disease in the first half of 2021. AL014 is the latest prioritized product candidate that targets MS4A4A, a major risk gene for Alzheimer's disease that encodes a transmembrane receptor protein that is expressed selectively in microglia in the brain and is associated with control of microglia functionality and potential viability.
We are also expanding our discovery platform to other indications, such as the field of immuno-oncology. We believe that products focused on innate immune biology will complement and expand the efficacy of current immuno-oncology drugs that target the adaptive immune system. Microglia display similar gene expression signature and function to the innate cells of the peripheral immune system. These peripheral innate cells such as macrophages, NK cells, and others, likely play a significant role in multiple chronic diseases including cancer, inflammation, and autoimmune disorders. We are leveraging our expertise in the innate immune system to develop additional innate immune check-point focused programs, including programs targeting the Siglec protein family and the SIRP protein family, for peripheral disorders, particularly cancer. For example, we recently entered into a licensing agreement with Innovent to develop and commercialize AL008, our novel antibody targeting the CD47-SIRP-alpha pathway, a potent survival pathway co-opted by tumors to evade the innate immune system. AL008 is a potential best-in-class SIRP-alpha inhibitor with a unique dual mechanism of action that non-competitively antagonizes the CD47-SIRP-alpha pathway by inducing the internalization and degradation of the inhibitory receptor on macrophages to relieve immune suppression (a "don't eat me signal") while also engaging Fc gamma receptors to promote immuno-stimulatory pathways that drive anti-tumor immunity.
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Our operations have been financed primarily through the issuance and sale of
convertible preferred stock, our collaboration with AbbVie, and issuance of
common stock upon the completion of our IPO and follow-on public 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 nor been profitable. 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 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 losses were
• advance product candidates through preclinical studies and clinical trials;
• pursue regulatory approval of product candidates;
• hire additional personnel;
• operate as a public company;
• acquire, discover, validate, and develop additional product candidates;
• require the manufacture of supplies for our preclinical studies and
clinical trials; and
• obtain, maintain, expand, and protect our intellectual property portfolio.
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 to co-develop product candidates in two programs in clinical development with AbbVie. We recognize revenue related to our research and development grant as the related research services are performed. We recognize revenue from the upfront payments under the AbbVie Agreement over time as the services are provided. Revenues 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. In addition to receiving the upfront payments, we may also be entitled to development and regulatory milestone payments, opt-in payments for continued development after proof-of-concept for AL002 and AL003, and other future payments from profit sharing or royalties after commercialization of product candidates from such programs.
We expect that our revenue for the next several years will be derived primarily
from the AbbVie Agreement. We recorded deferred revenue of
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:
• expenses incurred under agreements with third-party contract
organizations, preclinical testing organizations, and consultants;
• costs related to production of clinical materials, including fees paid to
contract manufacturers;
• 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;
• costs related to the preparation of regulatory submissions;
• third-party license fees; and
• 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.
Specific program expenses include expenses associated with the development of our most advanced product candidates, AL001, which commenced dosing of the first patient in a pivotal Phase 3 clinical trial, INFRONT-3, and remains in an ongoing Phase 2 clinical trial, and AL002, AL003, and AL101, which are in Phase 1 clinical trials. 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. We do not track personnel or other operating expenses incurred for our research and development programs on a program-specific basis. These expenses primarily relate to salaries and benefits, stock-based compensation, facility expenses, including depreciation, and lab consumables.
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. We also anticipate that we will incur increased
expenses as a result of operating as a public company, including expenses
related to compliance with the rules and regulations of the
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.
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Results of Operations
Comparison of the Three Months Ended
Three Months Ended
June 30, Dollar
2020 2019 Change
(In thousands)
Collaboration revenue $ 3,170 $ 6,917 $ (3,747 )
Operating expenses:
Research and development 34,062 25,640 8,422
General and administrative 15,697 8,429 7,268
Total operating expenses 49,759 34,069 15,690
Loss from operations (46,589 ) (27,152 ) (19,437 )
Other income, net 1,263 2,592 (1,329 )
Net loss $ (45,326 ) $ (24,560 ) $ (20,766 )
Revenue
Collaboration revenue was
Research and Development Expenses
Research and development expenses were
Three Months Ended
June 30, Dollar
2020 2019 Change
(In thousands)
Direct research and development expenses
AL001 $ 8,051 $ 3,364 $ 4,687
AL101 1,396 2,387 (991 )
AL002 2,287 4,506 (2,219 )
AL003 2,211 2,012 199
AL014 3,220 874 2,346
Other early stage programs 4,320 4,303 17
Indirect research and development expenses
Personnel related (including stock-based
compensation) 9,775 5,769 4,006
Facilities and other unallocated research and
development expenses 2,802 2,425 377
Total research and development expenses $ 34,062 $ 25,640 $ 8,422
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General and Administrative Expenses
General and administrative expenses were
Other Income, Net
Other income, net was
Comparison of the Six Months Ended
Six Months Ended
June 30, Dollar
2020 2019 Change
(In thousands)
Collaboration revenue $ 10,341 $ 12,522 $ (2,181 )
Operating expenses:
Research and development 68,667 46,247 22,420
General and administrative 30,341 14,188 16,153
Total operating expenses 99,008 60,435 38,573
Loss from operations (88,667 ) (47,913 ) (40,754 )
Other income, net 3,322 4,793 (1,471 )
Net loss $ (85,345 ) $ (43,120 ) $ (42,225 )
Revenue
Collaboration revenue was
Research and Development Expenses
Research and development expenses were
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Six Months Ended
June 30, Dollar
2020 2019 Change
(In thousands)
Direct research and development expenses
AL001 $ 16,048 $ 6,362 $ 9,686
AL101 2,543 3,863 (1,320 )
AL002 7,923 7,742 181
AL003 4,707 4,821 (114 )
AL014 5,060 1,012 4,048
Other early stage programs 8,315 6,395 1,920
Indirect research and development expenses
Personnel related (including stock-based
compensation) 18,430 11,211 7,219
Facilities and other unallocated research and
development expenses 5,641 4,841 800
Total research and development expenses $ 68,667 $ 46,247 $ 22,420 General and Administrative Expenses
General and administrative expenses were
Other Income, Net
Other income, net was
Liquidity and Capital Resources
Since our inception through
On
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13, 2020, with the
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 operating expenses and capital expenditure requirements through at least the next 12 months from the filing date of this Quarterly Report on Form 10-Q. 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:
• the timing and progress of preclinical and clinical development activities;
• the number and scope of preclinical and clinical programs we decide to
pursue;
• successful enrollment in and completion of clinical trials;
• 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;
• our ability to maintain our current research and development programs and
establish new research and development programs;
• addition and retention of key research and development personnel;
• our efforts to enhance operational, financial, and information management
systems, and hire additional personnel, including personnel to support
development of our product candidates;
• negotiating favorable terms in any collaboration, licensing, or other
arrangements into which we may enter and performing our obligations in
such collaborations;
• the timing and amount of milestone and other payments we may receive under
our collaboration arrangements;
• our eventual commercialization plans for our product candidates;
• the costs involved in prosecuting, defending, and enforcing patent claims
and other intellectual property claims, including related to the ongoing
arbitration proceeding that we commenced in June 2019 ;
• the costs and timing of regulatory approvals; and
• the impact of the COVID-19 pandemic on any of the foregoing items and our
business generally.
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.
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Cash Flows
The following table summarizes our cash flows for the periods indicated (in
thousands):
Six Months Ended
June 30,
2020 2019
Cash used in operating activities $ (78,255 ) $ (41,618 )
Cash used in investing activities (149,616 ) (124,840 )
Cash provided by financing activities 230,731 170,196
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
Contractual Obligations and Other Commitments
There have been no material changes to our contractual obligations and other
commitments as of
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet arrangements and do not have any holdings in variable interest entities.
Critical Accounting Polices 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 GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.
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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 collaboration revenue 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, the Company measures
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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