alec-10q_20200630.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 June 30, 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 August 1, 2020, the registrant had 79,262,166 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

21

Item 4.

Controls and Procedures

21

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

23

Item 1A.

Risk Factors

23

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 6.

Exhibits

68

 

Signatures

69

 

 

 

 

 

 

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)

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

92,501

 

 

$

89,641

 

Marketable securities

 

 

411,139

 

 

 

263,432

 

Prepaid expenses and other current assets

 

 

6,448

 

 

 

4,364

 

Total current assets

 

 

510,088

 

 

 

357,437

 

Property and equipment, net

 

 

31,516

 

 

 

33,852

 

Operating lease right-of-use assets

 

 

27,868

 

 

 

28,476

 

Restricted cash

 

 

1,472

 

 

 

1,472

 

Other assets

 

 

1,086

 

 

 

676

 

Total Assets

 

$

572,030

 

 

$

421,913

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,760

 

 

$

278

 

Accrued clinical supply costs

 

 

6,102

 

 

 

6,706

 

Accrued liabilities

 

 

15,576

 

 

 

18,256

 

Deferred revenue, current portion

 

 

32,739

 

 

 

30,165

 

Operating lease liabilities, current portion

 

 

6,679

 

 

 

6,565

 

Total current liabilities

 

 

65,856

 

 

 

61,970

 

Deferred revenue, long-term portion

 

 

110,321

 

 

 

123,236

 

Operating lease liabilities, long-term portion

 

 

40,029

 

 

 

41,471

 

Other long-term liabilities

 

 

493

 

 

 

493

 

Total liabilities

 

 

216,699

 

 

 

227,170

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 200,000,000 shares authorized as of June 30,

   2020 and December 31, 2019; 79,252,395 and 69,052,873 shares issued and

   outstanding as of June 30, 2020 and December 31, 2019, respectively

 

 

8

 

 

 

7

 

Additional paid-in capital

 

 

658,642

 

 

 

414,414

 

Accumulated other comprehensive income

 

 

1,846

 

 

 

142

 

Accumulated deficit

 

 

(305,165

)

 

 

(219,820

)

Total stockholders' equity

 

 

355,331

 

 

 

194,743

 

Total liabilities and stockholders’ equity

 

$

572,030

 

 

$

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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Collaboration revenue

 

$

3,170

 

 

$

6,917

 

 

$

10,341

 

 

$

12,522

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

34,062

 

 

 

25,640

 

 

 

68,667

 

 

 

46,247

 

General and administrative

 

 

15,697

 

 

 

8,429

 

 

 

30,341

 

 

 

14,188

 

Total operating expenses

 

 

49,759

 

 

 

34,069

 

 

 

99,008

 

 

 

60,435

 

Loss from operations

 

 

(46,589

)

 

 

(27,152

)

 

 

(88,667

)

 

 

(47,913

)

Other income, net

 

 

1,263

 

 

 

2,592

 

 

 

3,322

 

 

 

4,793

 

Net loss

 

 

(45,326

)

 

 

(24,560

)

 

 

(85,345

)

 

 

(43,120

)

Unrealized gain (loss) on marketable securities

 

 

(936

)

 

 

333

 

 

 

1,704

 

 

 

483

 

Comprehensive loss

 

$

(46,262

)

 

$

(24,227

)

 

$

(83,641

)

 

$

(42,637

)

Net loss per share, basic and diluted

 

$

(0.58

)

 

$

(0.36

)

 

$

(1.11

)

 

$

(0.77

)

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

 

 

78,415,195

 

 

 

67,327,975

 

 

 

76,617,938

 

 

 

55,643,532

 

 

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

 

Exercise of stock options

 

 

190,709

 

 

 

 

 

 

2,196

 

 

 

 

 

 

 

 

 

2,196

 

Purchase of common stock under

   employee stock purchase plan

 

 

45,217

 

 

 

 

 

 

715

 

 

 

 

 

 

 

 

 

715

 

Stock-based compensation

 

 

 

 

 

 

 

 

6,948

 

 

 

 

 

 

 

 

 

6,948

 

Unrealized loss on marketable securities

 

 

 

 

 

 

 

 

 

 

 

(936

)

 

 

 

 

 

(936

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(45,326

)

 

 

(45,326

)

Balance — June 30, 2020

 

 

79,252,395

 

 

$

8

 

 

$

658,642

 

 

$

1,846

 

 

$

(305,165

)

 

$

355,331

 

 

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

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

8,999

 

 

 

 

 

 

63

 

 

 

 

 

 

 

 

 

63

 

Forfeiture of restricted common

   stock

 

 

 

 

 

 

 

 

 

(48,934

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,694

 

 

 

 

 

 

 

 

 

3,694

 

Unrealized gain on marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

333

 

 

 

 

 

 

333

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(24,560

)

 

 

(24,560

)

Balance — June 30, 2019

 

 

 

 

$

 

 

 

 

68,831,857

 

 

$

7

 

 

$

402,823

 

 

$

441

 

 

$

(157,555

)

 

$

245,716

 

 

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)

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(85,345

)

 

$

(43,120

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,903

 

 

 

1,119

 

Stock-based compensation

 

 

13,590

 

 

 

6,939

 

Accretion of discount on marketable securities

 

 

(250

)

 

 

(2,857

)

Amortization of right-of-use assets

 

 

608

 

 

 

1,217

 

Impairment loss on right-of-use asset

 

 

 

 

 

1,158

 

Loss from disposal of property and equipment, net

 

 

9

 

 

 

39

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(2,084

)

 

 

(896

)

Other assets

 

 

(967

)

 

 

17

 

Accounts payable

 

 

4,431

 

 

 

414

 

Accrued liabilities and accrued clinical supply costs

 

 

519

 

 

 

5,843

 

Deferred revenue

 

 

(10,341

)

 

 

(12,522

)

Deferred rent

 

 

 

 

 

(44

)

Lease liabilities

 

 

(1,328

)

 

 

762

 

Other long-term liabilities

 

 

 

 

 

313

 

Net cash used in operating activities

 

 

(78,255

)

 

 

(41,618

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(3,863

)

 

 

(11,393

)

Purchase of marketable securities

 

 

(307,388

)

 

 

(339,447

)

Maturities of marketable securities

 

 

161,635

 

 

 

226,000

 

Net cash used in investing activities

 

 

(149,616

)

 

 

(124,840

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

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

   of issuance costs

 

 

 

 

 

170,128

 

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

   issuance costs

 

 

224,603

 

 

 

 

Proceeds from the exercise of options to purchase common stock

 

 

5,413

 

 

 

68

 

Purchase of common stock under employee stock purchase plan

 

 

715

 

 

 

 

Net cash provided by financing activities

 

 

230,731

 

 

 

170,196

 

Net increase in cash, cash equivalents, and restricted cash

 

 

2,860

 

 

 

3,738

 

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

 

 

91,113

 

 

 

66,942

 

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

 

$

93,973

 

 

$

70,680

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment purchases included in accounts payable and accrued liabilities

 

$

184

 

 

$

2,849

 

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 June 30, 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:

 

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

Cash and cash equivalents

 

$

92,501

 

 

$

69,208

 

Restricted cash

 

 

1,472

 

 

 

1,472

 

Total cash, cash equivalents, and restricted cash

 

$

93,973

 

 

$

70,680

 

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

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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. The Company re-evaluates 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 the Company’s 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 clinical trials. The Company has had changes to the overall expected costs to satisfy the performance obligations from period to period. For the three months ended June 30, 2020, the Company had a 3% increase in the forecast of the total expected costs. For the three months ended June 30, 2020, the increase in the overall expected costs to satisfy the performance obligation resulted in an approximately $1.7 million reduction in revenue compared to if the expected costs had remained the same, as a result of the cumulative catch up for the change in estimate. Collaboration revenue under the Company’s collaboration agreement with AbbVie during the three and six months ended June 30, 2020 was $3.2 million and $10.3 million, respectively, the entire amount of which was included in deferred revenue at the beginning of the period. The Company recorded deferred revenue of $143.1 million as of June 30, 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 June 30, 2020. As of June 30, 2020, no revenue has been recognized or payments received 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 (loss) 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 $1.4 million as of June 30, 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.

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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:

 

 

 

June 30, 2020

 

 

 

Fair Value

Hierarchy

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair Market

Value

 

 

 

(In thousands)

 

Money market funds

 

Level 1

 

$

81,770

 

 

$

 

 

$

 

 

$

81,770

 

U.S. government treasury securities

 

Level 1

 

 

367,316

 

 

 

1,792

 

 

 

 

 

 

369,108

 

Commercial paper

 

Level 2

 

 

31,932

 

 

 

 

 

 

 

 

 

31,932

 

Corporate bonds

 

Level 2

 

 

10,045

 

 

 

54

 

 

 

 

 

 

10,099

 

Total cash equivalents and marketable

   securities

 

 

 

$

491,063

 

 

$

1,846

 

 

$

 

 

$

492,909

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 June 30, 2020, the remaining contractual maturities of $424.7 million of investments were less than one year and $68.2 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 June 30, 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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

(In thousands)

 

 

(In thousands)

 

Research and development

 

$

3,462

 

 

$

1,876

 

 

$

6,573

 

 

$

3,580

 

General and administrative

 

 

3,486

 

 

 

1,818

 

 

 

7,017

 

 

 

3,359

 

Total stock-based compensation

 

$

6,948

 

 

$

3,694

 

 

$

13,590

 

 

$

6,939

 

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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

 

 

(388,168

)

 

 

6.95

 

Unvested restricted common stock as of

   June 30, 2020

 

 

606,670

 

 

$

6.95

 

 

As of June 30, 2020, total unrecognized stock-based compensation related to unvested restricted common stock was $2.9 million, which the Company expects to recognize over a remaining weighted-average period of 1.2 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 June 30, 2020, the Company had reserved 15,650,430 shares of common stock for issuance under the 2019 Plan, of which 6,209,645 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

 

 

1,753,087

 

 

 

23.23

 

 

 

 

 

 

 

 

 

Exercised

 

 

(551,805

)

 

 

9.81

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(203,321

)

 

 

16.18