alec-10q_20200331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                      TO

Commission File Number 001-38792

 

Alector, Inc.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

82-2933343

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer
Identification No.)

131 Oyster Point Blvd, Suite 600

South San Francisco, California

 

94080

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: 415-231-5660

 

 

Not applicable

(Former name, former address, and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock

ALEC

The Nasdaq Stock Market LLC

(The Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of May 1, 2020, the registrant had 79,033,205 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 


Alector, Inc.

 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

1

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations and Comprehensive Loss

2

 

Condensed Consolidated Statements of Stockholders’ Equity

3

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19

Item 4.

Controls and Procedures

19

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

21

Item 1A.

Risk Factors

21

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

64

Item 6.

Exhibits

66

 

Signatures

67

 

 

 

 

 

 

i


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical facts contained in this report, including statements regarding our future results of operations and financial position, business strategy, product candidates, planned preclinical studies and clinical trials, results of clinical trials, research and development costs, regulatory approvals, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. These statements involve known and unknown risks, uncertainties, and other important factors that are in some cases beyond our control and may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other similar expressions. Forward-looking statements contained in this report include, but are not limited to, statements about:

 

the ability of our clinical trials to demonstrate safety and efficacy of our product candidates, and other positive results;

 

the timing and focus of our future clinical trials, and the reporting of data from those trials;

 

the impact of the coronavirus (COVID-19) pandemic on our business;

 

our plans relating to commercializing our product candidates, if approved, including the geographic areas of focus and sales strategy;

 

the expected potential benefits of strategic collaborations with third parties and our ability to attract collaborators with development, regulatory and commercialization expertise;

 

our estimates of the number of patients in the United States who suffer from the diseases we are targeting and the number of patients that will enroll in our clinical trials;

 

the size of the market opportunity for our product candidates in each of the diseases we are targeting;

 

our ability to expand our product candidates into additional indications and patient populations;

 

the success of competing therapies that are or may become available;

 

the beneficial characteristics, safety, efficacy, and therapeutic effects of our product candidates;

 

the timing or likelihood of regulatory filings and approvals, including our expectation to seek special designations, such as orphan drug designation, for our product candidates for various diseases;

 

our ability to obtain and maintain regulatory approval of our product candidates;

 

our plans relating to the further development and manufacturing of our product candidates, including additional indications that we may pursue;

 

existing regulations and regulatory developments in the United States and other jurisdictions;

 

our continued reliance on third parties to conduct additional clinical trials of our product candidates, and for the manufacture of our product candidates for preclinical studies and clinical trials;

 

our plans and ability to obtain or protect intellectual property rights, including extensions of existing patent terms where available and the outcome of our ongoing arbitration proceedings;

 

the need to hire additional personnel and our ability to attract and retain such personnel;

 

the accuracy of our estimates regarding expenses, future revenue, capital requirements, and needs for additional financing;

 

our financial performance;

 

 

the sufficiency of our existing cash and cash equivalents to fund our future operating expenses and capital expenditure requirements; and

 

our expectations regarding the period during which we will qualify as an emerging growth company under the Jumpstart Our Business Startups Act of 2012 (JOBS Act).

ii


We have based these forward-looking statements largely on our current expectations and projections about our business, the industry in which we operate and financial trends that we believe may affect our business, financial condition, results of operations, and prospects, and these forward-looking statements are not guarantees of future performance or development. These forward-looking statements speak only as of the date of this report and are subject to a number of risks, uncertainties, and assumptions described in the section titled “Risk Factors” and elsewhere in this report. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein until after we distribute this Quarterly Report on Form 10-Q, whether as a result of any new information, future events, or otherwise.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this report, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely upon these statements.

Investors and others should note that we may announce material business and financial information to our investors using our investor relations website (https://investors.alector.com), Securities and Exchange Commission (SEC) filings, webcasts, press releases, and conference calls. We use these mediums, including our website, to communicate with our stockholders and public about our company, our products, and other issues. It is possible that the information that we make available may be deemed to be material information. We therefore encourage investors and others interested in our company to review the information that we make available on our website.

 

iii


PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ALECTOR, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

160,917

 

 

$

89,641

 

Marketable securities

 

 

387,618

 

 

 

263,432

 

Prepaid expenses and other current assets

 

 

7,669

 

 

 

4,364

 

Total current assets

 

 

556,204

 

 

 

357,437

 

Property and equipment, net

 

 

32,670

 

 

 

33,852

 

Operating lease right-of-use assets

 

 

28,179

 

 

 

28,476

 

Restricted cash

 

 

1,472

 

 

 

1,472

 

Other assets

 

 

403

 

 

 

676

 

Total Assets

 

$

618,928

 

 

$

421,913

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,039

 

 

$

278

 

Accrued clinical supply costs

 

 

12,315

 

 

 

6,706

 

Accrued liabilities

 

 

16,709

 

 

 

18,256

 

Deferred revenue, current portion

 

 

32,089

 

 

 

30,165

 

Operating lease liabilities, current portion

 

 

6,623

 

 

 

6,565

 

Total current liabilities

 

 

71,775

 

 

 

61,970

 

Deferred revenue, long-term portion

 

 

114,141

 

 

 

123,236

 

Operating lease liabilities, long-term portion

 

 

40,785

 

 

 

41,471

 

Other long-term liabilities

 

 

493

 

 

 

493

 

Total liabilities

 

 

227,194

 

 

 

227,170

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized as of March 31,

   2020 and December 31, 2019; 79,016,469 and 69,052,873 shares issued and

   outstanding as of March 31, 2020 and December 31, 2019, respectively

 

 

8

 

 

 

7

 

Additional paid-in capital

 

 

648,783

 

 

 

414,414

 

Accumulated other comprehensive income

 

 

2,782

 

 

 

142

 

Accumulated deficit

 

 

(259,839

)

 

 

(219,820

)

Total stockholders' equity

 

 

391,734

 

 

 

194,743

 

Total liabilities and stockholders’ equity

 

$

618,928

 

 

$

421,913

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

1


ALECTOR, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Collaboration revenue

 

$

7,171

 

 

$

5,605

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

34,605

 

 

 

20,607

 

General and administrative

 

 

14,644

 

 

 

5,759

 

Total operating expenses

 

 

49,249

 

 

 

26,366

 

Loss from operations

 

 

(42,078

)

 

 

(20,761

)

Other income, net

 

 

2,059

 

 

 

2,201

 

Net loss

 

 

(40,019

)

 

 

(18,560

)

Unrealized gain on marketable securities

 

 

2,640

 

 

 

150

 

Comprehensive loss

 

$

(37,379

)

 

$

(18,410

)

Net loss per share, basic and diluted

 

$

(0.53

)

 

$

(0.42

)

Shares used in computing net loss per share, basic and diluted

 

 

74,820,950

 

 

 

43,828,106

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

2


ALECTOR, INC.

Condensed Consolidated Statement of Stockholders’ Equity

(Unaudited)

(In thousands, except share data)

 

 

 

Common Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Income

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — December 31, 2019

 

 

69,052,873

 

 

$

7

 

 

$

414,414

 

 

$

142

 

 

$

(219,820

)

 

$

194,743

 

Issuance of common stock upon   follow-on    public offering, net of issuance costs of $1,148

 

 

9,602,500

 

 

 

1

 

 

 

224,510

 

 

 

 

 

 

 

 

 

224,511

 

Exercise of stock options

 

 

361,096

 

 

 

 

 

 

3,217

 

 

 

 

 

 

 

 

 

3,217

 

Stock-based compensation

 

 

 

 

 

 

 

 

6,642

 

 

 

 

 

 

 

 

 

6,642

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

2,640

 

 

 

 

 

 

2,640

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(40,019

)

 

 

(40,019

)

Balance — March 31, 2020

 

 

79,016,469

 

 

$

8

 

 

$

648,783

 

 

$

2,782

 

 

$

(259,839

)

 

$

391,734

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


ALECTOR, INC.

Condensed Consolidated Statement of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

(Unaudited)

(In thousands, except share data)

 

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity (Deficit)

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance — December 31, 2018

 

 

45,374,836

 

 

$

210,520

 

 

 

 

13,764,829

 

 

$

1

 

 

$

17,078

 

 

$

(42

)

 

$

(114,435

)

 

$

(97,398

)

Conversion of convertible preferred

   stock into common stock

 

 

(45,374,836

)

 

 

(210,520

)

 

 

 

45,374,836

 

 

 

5

 

 

 

210,516

 

 

 

 

 

 

 

 

 

210,521

 

Issuance of common stock upon

   initial public offering, net of

   issuance costs of $3,874

 

 

 

 

 

 

 

 

 

9,739,541

 

 

 

1

 

 

 

168,222

 

 

 

 

 

 

 

 

 

168,223

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

625

 

 

 

 

 

 

5

 

 

 

 

 

 

 

 

 

5

 

Forfeiture of restricted common

   stock

 

 

 

 

 

 

 

 

 

(8,039

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,245

 

 

 

 

 

 

 

 

 

3,245

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

150

 

 

 

 

 

 

150

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,560

)

 

 

(18,560

)

Balance — March 31, 2019

 

 

 

 

$

 

 

 

 

68,871,792

 

 

$

7

 

 

$

399,066

 

 

$

108

 

 

$

(132,995

)

 

$

266,186

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


ALECTOR, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(40,019

)

 

$

(18,560

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,446

 

 

 

298

 

Stock-based compensation

 

 

6,642

 

 

 

3,245

 

Accretion of discount on marketable securities

 

 

(240

)

 

 

(1,321

)

Amortization of right-of-use assets

 

 

297

 

 

 

768

 

Loss from disposal of property and equipment, net

 

 

9

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(3,305

)

 

 

(2,751

)

Other assets

 

 

(284

)

 

 

17

 

Accounts payable

 

 

3,135

 

 

 

683

 

Accrued liabilities and accrued clinical supply costs

 

 

7,805

 

 

 

(952

)

Deferred revenue

 

 

(7,171

)

 

 

(5,605

)

Deferred rent

 

 

 

 

 

(44

)

Lease liabilities

 

 

(628

)

 

 

656

 

Net cash used in operating activities

 

 

(32,313

)

 

 

(23,566

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(3,566

)

 

 

(2,030

)

Purchase of marketable securities

 

 

(202,906

)

 

 

(267,232

)

Maturities of marketable securities

 

 

81,600

 

 

 

118,000

 

Net cash used in investing activities

 

 

(124,872

)

 

 

(151,262

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock upon initial public offering, net

   of issuance costs

 

 

 

 

 

170,307

 

Proceeds from issuance of common stock upon follow-on public offering, net of

   issuance costs

 

 

225,244

 

 

 

 

Proceeds from the exercise of options to purchase common stock

 

 

3,217

 

 

 

5

 

Net cash provided by financing activities

 

 

228,461

 

 

 

170,312

 

Net increase in cash, cash equivalents, and restricted cash

 

 

71,276

 

 

 

(4,516

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

91,113

 

 

 

66,942

 

Cash, cash equivalents, and restricted cash at end of period

 

$

162,389

 

 

$

62,426

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment purchases included in accounts payable and accrued liabilities

 

$

178

 

 

$

1,071

 

Deferred offering costs in accounts payable and accrued liabilities

 

$

641

 

 

$

179

 

Tenant improvements paid by landlord

 

$

 

 

$

8,286

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


 

ALECTOR, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1.

The Company and Liquidity

Alector, Inc. (Alector or the Company) is a Delaware corporation headquartered in South San Francisco, California. Alector is a clinical stage biopharmaceutical company pioneering immuno-neurology, a novel therapeutic approach for the treatment of neurodegeneration.

Initial Public and Follow-on Offerings

On February 7, 2019, the Company completed an initial public offering (IPO) through issuing and selling 9,739,541 shares of common stock at a public offering price of $19.00 per share, including 489,541 shares sold pursuant to the underwriters’ partial exercise of their option to purchase additional shares, resulting in aggregate net proceeds of $168.2 million, after deducting underwriting discounts and commissions and offering costs. Upon the closing of the IPO, all of the outstanding shares of convertible preferred stock automatically converted into 45,374,836 shares of common stock. Subsequent to the closing of the IPO, there were no shares of convertible preferred stock outstanding.

On January 30, 2020, the Company completed a follow-on offering through issuing and selling 9,602,500 shares of common stock at a public offering price of $25.00 per share, including 1,252,500 shares sold pursuant to the underwriters’ full exercise of their option to purchase additional shares, resulting in aggregate net proceeds of $224.5 million, after deducting underwriting discounts and commissions and offering costs.

2.

Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (GAAP) as defined by the Financial Accounting Standards Board (FASB). In the opinion of management, these unaudited condensed consolidated financial statements include all normal, recurring adjustments that are necessary to present fairly the results of the interim periods presented. The condensed consolidated financial statements include the accounts of Alector, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on March 24, 2020.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenue and expense during the reporting period. The Company evaluates its estimates, including those related to revenue recognition, manufacturing accruals, clinical accruals, fair value of assets and liabilities, income taxes uncertainties, stock-based compensation, and related assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ from those estimates.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents, and short-term marketable securities. Cash and cash equivalents are deposited in checking and sweep accounts at a financial institution. Such deposits may, at times, exceed federally insured limits.

6


 

Cash, Cash Equivalents, and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase to be cash and cash equivalents. Cash equivalents, which consist of amounts invested in money market funds, are stated at fair value. There are no significant unrealized gains or losses on the money market funds for the periods presented.

Restricted cash as of March 31, 2020 relates to a letter of credit established for a lease entered into in June 2018.

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Cash and cash equivalents

 

$

160,917

 

 

$

60,954

 

Restricted cash

 

 

1,472

 

 

 

1,472

 

Total cash, cash equivalents, and restricted cash

 

$

162,389

 

 

$

62,426

 

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, marketable securities, accounts payable, and accrued liabilities. The Company’s financial instruments approximate fair value due to their relatively short maturities.

The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. The Company determines the fair value of its financial instruments based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes between observable and unobservable inputs, which are categorized in one of the following levels:

Level 1 – Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2 – Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3 – Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

Revenue Recognition

The Company entered into an agreement in October 2017 with AbbVie Biotechnology, Ltd. (AbbVie) to co-develop antibodies to two program targets in preclinical development (AbbVie Agreement). Under the terms of the AbbVie Agreement, AbbVie made $205.0 million in upfront payments, of which $5.0 million and $200.0 million was received by the Company in October 2017 and January 2018, respectively. The Company will perform research and development services for the antibodies to the two programs through the end of Phase 2 clinical trials which the Company expects to conduct through 2023. AbbVie will then have the exclusive right to exercise an option to enter into a license and collaboration agreement with the Company for one or both of the programs for $250.0 million each. If AbbVie exercises its option for the programs, AbbVie will take over the development of the product candidates for such program and costs will be split between the parties. The Company will also share in profits and losses upon commercialization of any products from such program. However, following AbbVie’s exercise of its option for a program, the Company may opt out of sharing in development costs and profits or losses for that program and instead receive tiered royalties. Additionally, under the terms of the AbbVie Agreement, the Company will be eligible to earn up to an additional $242.8 million in milestone payments per program related to the initiation of certain clinical studies

7


 

and regulatory approval for up to three indications per program. The Company assessed its collaboration agreement with AbbVie in the context of the delivery of the research and development services.

The Company recognizes 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. Collaboration revenue under the Company’s collaboration agreement with AbbVie during the three months ended March 31, 2020 was $7.2 million, the entire amount of which was included in deferred revenue at the beginning of the period. The Company recorded deferred revenue of $146.2 million as of March 31, 2020. The deferred revenue is expected to be recognized over the research and development period of the programs through the completion of Phase 2 clinical trials.

The Company entered into an agreement in March 2020 with Innovent Biologics (Innovent) to license, develop, and commercialize AL008 in China (Innovent Agreement). AL008 is the Company’s novel antibody targeting the CD47-SIRP-alpha pathway, a potent survival pathway co-opted by tumors to evade the innate immune system. Under the terms of the Innovent Agreement, Innovent may pay the Company up to $11.5 million in development milestones, $112.5 million in sales milestones, and future royalties for any sales. The Company retains the rights to develop and commercialize AL008 outside of China. The Company has determined there is one performance obligation for the delivery of the license and will recognize revenue when it is probable that there will not be significant reversal of cumulative revenue. Development and sales milestones under the Innovent Agreement have not been included in the transaction price, as all these amounts were fully constrained as of March 31, 2020. As of March 31, 2020, no revenue has been recognized or payments made under the Innovent Agreement.

Comprehensive Loss

Comprehensive loss includes net loss and certain changes in stockholders’ equity that are the result of transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive loss was net unrealized gain on marketable securities.

Recently Adopted Accounting Pronouncements

Effective January 1, 2020, the Company adopted Accounting Standards Update (ASU) No. 2016-13, Financial Instruments—Credit Losses (Topic 326). This ASU implements an impairment model, known as the current expected credit loss model that is based on expected losses rather than incurred losses. For available-for-sale debt securities, entities are required to recognize an allowance for credit losses rather than an other-than-temporary impairment that reduces the cost basis of the investment. Further, an entity will recognize any changes in estimated credit losses immediately in earnings. The Company has an accrued interest receivable for available-for-sale investments of $1.5 million as of March 31, 2020, that is classified in prepaid expenses and other current assets on the balance sheet. There was no material impact to the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes. This ASU modifies ASC 740 to simplify several aspects of accounting for income taxes, including eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, and the methodology for calculating income taxes in an interim period. The Company has early adopted this ASU as of January 1, 2020. There was no material impact to the Company’s consolidated financial statements.

8


 

 

3.

Fair Value Measurements

The following tables summarize the Company’s financial assets measured at fair value on a recurring basis by level within the fair value hierarchy:

 

 

 

March 31, 2020

 

 

 

Fair Value

Hierarchy

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Market

Value

 

 

 

(In thousands)

 

Money market funds

 

Level 1

 

$

128,796

 

 

$

 

 

$

 

 

$

128,796

 

U.S. government treasury securities

 

Level 1

 

 

328,509

 

 

 

2,848

 

 

 

 

 

 

331,357

 

Commercial paper

 

Level 2

 

 

61,776

 

 

 

 

 

 

 

 

 

61,776

 

Corporate bonds

 

Level 2

 

 

15,079

 

 

 

 

 

 

(66

)

 

 

15,013

 

Total cash equivalents and marketable

   securities

 

 

 

$

534,160

 

 

$

2,848

 

 

$

(66

)

 

$

536,942

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

 

Fair Value

Hierarchy

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Market

Value

 

 

 

(In thousands)

 

Money market funds

 

Level 1

 

$

61,104

 

 

$

 

 

$

 

 

$

61,104

 

U.S. government treasury securities

 

Level 1

 

 

227,446

 

 

 

149

 

 

 

(8

)

 

 

227,587

 

Commercial paper

 

Level 2

 

 

43,735

 

 

 

 

 

 

 

 

 

43,735

 

Corporate bonds

 

Level 2

 

 

10,103

 

 

 

3

 

 

 

(2

)

 

 

10,104

 

Total cash equivalents and marketable

   securities

 

 

 

$

342,388

 

 

$

152

 

 

$

(10

)

 

$

342,530

 

 

The Company’s Level 2 securities are valued using third-party pricing sources. The pricing services utilize industry standard valuation models for which all significant inputs are observable. The Company classifies marketable securities available to fund current operations as current assets. As of March 31, 2020, the remaining contractual maturities of $486.3 million of investments were less than one year and $50.6 million of investments were after one year through two years. The Company does not intend to sell the investments that are currently in an unrealized loss position, and it is highly unlikely that the Company will be required to sell the investments before recovery of their amortized cost basis, which may be maturity. As of March 31, 2020, the Company considered any unrealized losses on our marketable securities to be driven by factors other than credit risk.

4.

Stock-based Compensation

The Company recognized stock-based compensation as follows:

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Research and development

 

$

3,111

 

 

$

1,704

 

General and administrative

 

 

3,531

 

 

 

1,541

 

Total stock-based compensation

 

$

6,642

 

 

$

3,245

 

9


 

Restricted Common Stock

Activity for the restricted common stock is shown below:

 

 

 

Number of

Shares

 

 

Weighted

Average Grant

Date Fair

Value per Share

 

Unvested restricted common stock as of

   December 31, 2019

 

 

994,838

 

 

$

6.95

 

Vested

 

 

(194,532

)

 

 

6.95

 

Unvested restricted common stock as of

   March 31, 2020

 

 

800,306

 

 

$

6.95

 

 

As of March 31, 2020, total unrecognized stock-based compensation related to unvested restricted common stock was $3.7 million, which the Company expects to recognize over a remaining weighted-average period of 1.5 years.

2019 Equity Incentive Plan

On February 6, 2019, the Company adopted the 2019 Equity Incentive Plan (2019 Plan) under which the Board may issue incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, and performance shares to the Company’s employees, directors, and consultants. The Company initially reserved for issuance 7,688,156 shares of common stock pursuant to the 2019 Plan. The Company’s 2017 Stock Option and Grant Plan (2017 Plan) was terminated; however, shares subject to awards granted under it will continue to be governed by the 2017 Plan. Shares reserved for issuance but not issued pursuant to, or not subject to, awards granted under the 2017 Plan were added to the available shares in the 2019 Plan. Shares subject to awards granted under the 2017 Plan that are repurchased by, or forfeited to, the Company will also be reserved for issuance under the 2019 Plan. On January 1, 2020, the Company added 3,452,643 shares to the shares reserved for issuance. As of March 31, 2020, the Company had reserved 15,841,139 shares of common stock for issuance under the 2019 Plan, of which 6,787,538 shares were available for issuance.

Activity for the options to purchase common stock shown below (in thousands, except share and per share amounts):

 

 

 

Number of

Options

 

 

Weighted

Average

Exercise

Price Per

Share

 

 

Weighted

Average

Remaining

Contractual

Term

(In years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding as of December 31, 2019

 

 

8,442,824

 

 

$

12.79

 

 

 

 

 

 

 

 

 

Granted

 

 

1,040,443

 

 

 

18.78

 

 

 

 

 

 

 

 

 

Exercised

 

 

(361,096

)

 

 

8.91

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(68,570

)

 

 

12.53

 

 

 

 

 

 

 

 

 

Outstanding as of March 31, 2020

 

 

9,053,601

 

 

$

13.64

 

 

 

9.0

 

 

$

95,572

 

Exercisable as of March 31, 2020

 

 

1,848,032

 

 

$

11.08

 

 

 

8.6

 

 

$

24,113

 

Vested and expected to vest as of March 31, 2020

 

 

9,053,601

 

 

$

13.64

 

 

 

9.0

 

 

$

95,572

 

 

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock for stock options that were in-the-money. As of March 31, 2020, total unrecognized stock-based compensation related to unvested stock options was $67.0 million, which the Company expects to recognize over a remaining weighted-average period of 3.1 years.

2019 Employee Stock Purchase Plan

On February 6, 2019, the Company adopted the 2019 Employee Stock Option Plan (2019 ESPP). The 2019 ESPP will enable eligible employees of the Company to purchase shares of common stock at a discount. As of March 31, 2020, the Company has reserved for issuance 2,019,536 shares of common stock pursuant to the 2019 ESPP. Each offering period is approximately six months long. ESPP participants will purchase shares of common stock at a price per share

10


 

equal to 85% of the lesser of (1) the fair market value per share of the common stock on the first trading day of the offering period or (2) the fair market value of the common stock on the purchase date.

5.

Related Party Transactions

The Company has a collaboration agreement with Adimab, LLC (Adimab) under which the Company is developing antibodies discovered by Adimab in its AL001 and AL101 product candidates, and the Company is developing antibodies optimized by Adimab in its AL002 and AL003 product candidates (2014 Adimab Agreement). In August 2019, the Company signed a new collaboration agreement with Adimab for research and development of additional antibodies (2019 Adimab Agreement). The Chief Executive Officer of Adimab is a Co-founder and Chairperson of the board of directors of Alector. For the three months ended March 31, 2020 and 2019, the Company incurred expenses under the 2014 Adimab Agreement of zero and $0.8 million, respectively. The Company had zero in accrued liabilities due to Adimab as of March 31, 2020 and December 31, 2019. Under the 2014 Adimab Agreement, the Company will owe up to $3.5 million in milestone payments per program to Adimab for its product candidates. The Company will also owe low- to mid- single-digit royalty payments for commercial sales of such product candidates. Under the 2019 Adimab Agreement, the Company will owe certain milestone payments per program for its product candidates and low single-digit royalty payments for commercial sales of such product candidates.

On January 30, 2020, in connection with the Company’s follow-on offering, a member of the Company’s board of directors purchased 20,000 shares of the Company’s common stock at the public offering price of $25.00 per share.

6.

Net Loss Per Share

The following outstanding potentially dilutive shares have been excluded from the calculation of diluted net loss per share for the periods presented due to their anti-dilutive effect:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Restricted stock subject to future vesting

 

 

800,306

 

 

 

1,669,382

 

Options to purchase common stock

 

 

9,053,601

 

 

 

5,476,184

 

Shares committed under ESPP

 

 

44,464

 

 

 

58,127

 

Total

 

 

9,898,371

 

 

 

7,203,693

 

 

 

 

11


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 over ten programs into preclinical research, 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 COVID-19 health crisis, 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 recent regulatory, institutional, and government guidance for conduct of our business. As this pandemic continues to evolve, we are focused on initiating both a pivotal Phase 3 study of AL001 in FTD-GRN patients and a Phase 2 study of AL002 in Alzheimer’s Disease patients in 2020. 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.

Currently, certain clinical trial sites have delayed enrollment of new patients and paused clinical trial visits across all Alector development programs. We are aware that some participants in our trials have not been able to receive scheduled doses on time, due in part to site closures or various state and local 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.  

AL001, our first product candidate in the clinic, modulates progranulin (PGRN), a 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 approximately 170,000 individuals in the United States and the European Union, with potentially higher prevalence in Asia and Latin America.

Our AL001 product candidate is initially aimed at treating FTD patients who have a known genetic mutation that causes a deficiency in PGRN, which is called FTD-GRN. The U.S. Food and Drug Administration (FDA) has granted orphan drug designation for treatment of FTD to AL001, as well as Fast Track designation for the treatment of patients with FTD-GRN. Fast Track designation is designed to facilitate the development and expedite the review of therapies which treat serious conditions and fill an unmet medical need. Programs with Fast Track designation may benefit from early and frequent communications with the FDA, potential priority review, and additionally, a rolling submission of the marketing application. In the third quarter of 2019, we advanced AL001 into a Phase 2 study with preliminary patient data in FTD-GRN patients expected throughout 2020. The Phase 2 study also includes an additional genetic subset of FTD patients (FTD-C9orf72). In addition, in consultation with the FDA, we plan to advance AL001 into a Phase 3 study in FTD-GRN patients in 2020.

We are developing AL101, our second product candidate in our PGRN portfolio, for patients 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 patients with FTD-GRN. We initiated the

12


 

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 Alzheimer’s disease patients.

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 a downstream biomarker for microglia functionality in cerebrospinal fluid was 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 Alzheimer’s disease patients. 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 COVID-19, and proceed with initiating a Phase 2 study in Alzheimer’s disease patients 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 patients. Thirty-eight healthy volunteers were dosed over eight dose cohorts in the AL003 Phase 1a dose escalation trial. A dose dependent change in target engagement in a blood biomarker was observed following upon a single dose administration. The volunteers were treated with corticosteroids and recovered. In January 2020, we initiated dosing of Alzheimer’s disease patients in a Phase 1b study with AL003.

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.

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 February 2019, and received $168.2 million net proceeds, after deducting underwriting discounts and commissions and offering expenses. We completed a follow-on public offering in January 2020 and received $224.5 million net proceeds, after deducting underwriting discounts and commissions and offering expenses.

13


 

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 $40.0 million and $18.6 million for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, we had an accumulated deficit of $259.8 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

 

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 $146.2 million as of March 31, 2020. The deferred revenue is expected to be recognized over the research and development period of the programs through the completion of proof-of-concept for AL002 and AL003.

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;

 

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;

14


 

 

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 is in a 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 SEC and those of the NASDAQ Stock Market on which our securities are traded, legal, auditing, additional insurance expenses, investor relations activities, and other administrative and professional services. We also commenced confidential arbitration in June 2019 with respect to certain intellectual property matters related to a former consulting co-founder that have and are expected to continue to lead to increased legal expenses.

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.

15


 

Results of Operations

Comparison of the Three Months Ended March 31, 2020 and 2019

 

 

 

Three Months Ended

March 31,

 

 

Dollar

 

 

 

2020

 

 

2019

 

 

Change

 

 

 

(In thousands)

 

Collaboration revenue

 

$

7,171

 

 

$

5,605

 

 

$

1,566

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

34,605

 

 

 

20,607

 

 

 

13,998

 

General and administrative

 

 

14,644

 

 

 

5,759

 

 

 

8,885

 

Total operating expenses

 

 

49,249

 

 

 

26,366

 

 

 

22,883

 

Loss from operations

 

 

(42,078

)

 

 

(20,761

)

 

 

(21,317

)

Other income, net

 

 

2,059

 

 

 

2,201

 

 

 

(142

)

Net loss

 

$

(40,019

)

 

$

(18,560

)

 

$

(21,459

)

 

Revenue

Collaboration revenue was $7.2 million for the three months ended March 31, 2020, compared to $5.6 million for the three months ended March 31, 2019. 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. Changes in estimates for revenue recognized over time are recognized on a cumulative basis. Revenue increased by $1.6 million primarily due to an increase in expenses for the AL002 and AL003 programs compared to the same period last year.

Research and Development Expenses

Research and development expenses were $34.6 million for the three months ended March 31, 2020, compared to $20.6 million for the three months ended March 31, 2019. The increase of $14.0 million was driven by a $5.0 million increase in AL001 and $2.4 million increase in AL002 related to manufacturing runs and continued progression through clinical trials. We had a $3.2 million increase in personnel-related expenses, including stock-based compensation, due to an increase in headcount and issuance of option grants to employees. In addition, expenses increased by $1.9 million for other early stage programs as we continue to invest in developing our pipeline and $1.7 million for AL014, our latest program to progress to preclinical trials.

 

 

 

Three Months Ended

March 31,

 

 

Dollar

 

 

 

2020

 

 

2019

 

 

Change

 

 

 

(In thousands)

 

Direct research and development expenses

 

 

 

 

 

 

 

 

 

 

 

 

AL001

 

$

7,997

 

 

$

2,998

 

 

$

4,999

 

AL101

 

 

1,147

 

 

 

1,476

 

 

 

(329

)

AL002

 

 

5,636

 

 

 

3,236

 

 

 

2,400

 

AL003

 

 

2,496

 

 

 

2,809

 

 

 

(313

)

AL014

 

 

1,840

 

 

 

138

 

 

 

1,702

 

Other early stage programs

 

 

3,995

 

 

 

2,092

 

 

 

1,903

 

Indirect research and development expenses

 

 

 

 

 

 

 

 

 

 

 

 

Personnel related (including stock-based

   compensation)

 

 

8,655

 

 

 

5,442

 

 

 

3,213

 

Facilities and other unallocated research and

   development expenses