Alector(ALEC) - 2022 Q4 - Annual Report

PART I Business Alector is a clinical-stage biopharmaceutical company treating neurodegenerative diseases via immuno-neurology and strategic collaborations - Alector is a clinical-stage biopharmaceutical company pioneering immuno-neurology, a therapeutic approach targeting immune dysfunction as a root cause of neurodegenerative disorders[15] - The company has three product candidates in clinical development: latozinemab (AL001), AL002, and AL101, with a cash runway extended through 2025[15] - Alector has significant strategic collaborations with GlaxoSmithKline (GSK) for its progranulin programs and with AbbVie for its TREM2 program[15] Pipeline Programs The company's clinical pipeline is led by its Progranulin (PGRN) and TREM2 programs for neurodegenerative and oncology indications Clinical Pipeline Status | Product Candidate | Target | Indication | Development Stage | | :--- | :--- | :--- | :--- | | Latozinemab (AL001) | Progranulin (PGRN) | FTD-GRN | Pivotal Phase 3 (INFRONT-3) | | AL101 | Progranulin (PGRN) | Alzheimer's Disease (AD) | Phase 2 planned for 2023 | | AL002 | TREM2 | Early Alzheimer's Disease | Phase 2 (INVOKE-2) | | AL044 | MS4A | Alzheimer's Disease | Phase 1 trial closed; backup program active | | AL009 | Multi-Siglec | Oncology | Preclinical | | AL008 | SIRP-alpha | Oncology | Preclinical (IND submitted in China) | - In the ongoing INVOKE-2 Phase 2 trial for AL002 in Alzheimer's, Amyloid Related Imaging Abnormalities (ARIA) were observed, leading to the voluntary discontinuation of dosing for patients with the APOE e4/e4 genotype[18] - The Phase 1 trial for AL044 was closed based on initial data, and Alector is now actively pursuing a backup MS4A program[18][90] Strategic Alliances Alector advances its pipeline through key collaborations with GSK and AbbVie, involving significant upfront payments and milestone potential - Entered a collaboration with GSK in July 2021 for latozinemab and AL101, receiving $700 million in upfront payments and eligibility for up to $1.5 billion in milestones[98][99] - Partnered with AbbVie in October 2017 to co-develop TREM2 programs, receiving $225 million in upfront payments, with AbbVie holding an exclusive option for global development[102] - Utilizes Adimab's antibody discovery and optimization platform for several product candidates, including latozinemab, AL101, and AL002[105] Manufacturing, Commercialization, and IP The company relies on third-party CDMOs for manufacturing, lacks commercial infrastructure, and protects its assets with a multi-layered patent strategy - The company lacks internal manufacturing infrastructure and relies on third-party cGMP manufacturers (CDMOs) for production[112][113] - Alector has no existing sales, marketing, or distribution capabilities and intends to leverage partnerships if its products are approved[115] Key Program Patent Expiration Outlook | Program | Number of Patent Families | Expected Expiration Range (excluding extensions) | | :--- | :--- | :--- | | PGRN (latozinemab, AL101) | 6 | 2036 - 2042 | | TREM2 (AL002) | 7 | 2035 - 2043 | | MS4A | 2 | 2039 - 2040 | Government Regulation Operations are subject to extensive FDA and international regulation, with key programs holding Orphan Drug and Fast Track designations - Product candidates are regulated by the FDA and require a Biologics License Application (BLA) before marketing[125][127] - Latozinemab and AL101 have received Orphan Drug and Fast Track designations for FTD to expedite development and review[40][137][140] - Sales will depend on third-party payor reimbursement and face pressure from healthcare reforms like the Inflation Reduction Act of 2022[160][251] Risk Factors The company faces significant financial, clinical, and operational risks due to its clinical-stage status and reliance on key collaborations - Financial Risks: The company has a history of significant net losses ($133.3M in 2022) and will require substantial additional financing[176][177][183] - Clinical & Development Risks: Drug development is highly uncertain, and candidates could show adverse side effects, such as the ARIA observed in the AL002 trial[172][197][206] - Operational & Strategic Risks: The company is heavily dependent on its collaborations with GSK and AbbVie and on third parties for manufacturing[215][268][276] Properties Alector leases approximately 105,000 square feet for its headquarters in South San Francisco, with the lease expiring in May 2029 - The company's headquarters are located in South San Francisco, California, where it leases approximately 105,000 square feet of office and lab space[362] - An additional 18,700 square feet of office and lab space is leased in Newark, California[362] Legal Proceedings Alector is not a party to any litigation or legal proceedings expected to have a material adverse effect on its business - The company is not currently a party to any material legal proceedings that management believes would have a material adverse effect on the business[363] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Alector's common stock trades on Nasdaq under "ALEC," and the company has never paid cash dividends and does not plan to - The company's common stock is traded on the Nasdaq Global Select Market under the symbol "ALEC"[365] - Alector has not paid any cash dividends since its inception and does not plan to pay any in the foreseeable future[367] Management's Discussion and Analysis of Financial Condition and Results of Operations The company reported a net loss of $133.3 million in 2022, with cash reserves of $712.9 million expected to fund operations through 2025 Results of Operations Net loss widened to $133.3 million in 2022 from $36.3 million in 2021, driven by lower revenue and higher R&D expenses Comparison of Financial Results (2022 vs. 2021) | Financial Metric | 2022 (in millions) | 2021 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Collaboration Revenue | $133.6 | $207.1 | $(73.5) | | Research & Development | $210.4 | $189.4 | $21.0 | | General & Administrative | $61.0 | $55.0 | $6.0 | | Net Loss | $(133.3) | $(36.3) | $(97.0) | - The decrease in 2022 collaboration revenue was primarily due to the recognition of $173.4 million in license revenue from the GSK Agreement in 2021[381] R&D Expenses by Program (2022 vs. 2021) | Program | 2022 (in millions) | 2021 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Latozinemab | $22.1 | $31.7 | $(9.6) | | AL101 | $7.8 | $6.7 | $1.1 | | AL002 | $34.8 | $25.9 | $8.9 | | AL044 | $7.5 | $9.9 | $(2.4) | | Other early stage | $37.4 | $37.7 | $(0.3) | | Personnel & Unallocated | $100.8 | $77.4 | $23.4 | Liquidity and Capital Resources The company ended 2022 with $712.9 million in cash, which is expected to be sufficient to fund operations and capital needs through 2025 - The company held $712.9 million in cash, cash equivalents, and marketable securities as of December 31, 2022[389] - Based on the current operating plan, existing cash is expected to fund operations and capital requirements through 2025[390] Summary of Cash Flows (in thousands) | Cash Flow Activity | 2022 | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Operating Activities | $(20,329) | $298,551 | $(166,734) | | Investing Activities | $(159,014) | $(49,663) | $(105,051) | | Financing Activities | $4,514 | $30,295 | $232,113 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity on its investment portfolio, while foreign currency risk is minimal - The company's main market risk is interest rate sensitivity on its $712.9 million portfolio of cash, cash equivalents, and marketable securities[409] - A hypothetical 100 basis point (1%) change in interest rates would impact the fair value of the investment portfolio by approximately $2.6 million[409] - Foreign currency risk is minimal as most expenses are denominated in U.S. dollars[410] Financial Statements and Supplementary Data Audited financial statements for 2022 show total assets of $787.6 million, a net loss of $133.3 million, and stockholders' equity of $214.4 million Key Balance Sheet Data (as of Dec 31, 2022) | Account | Amount (in thousands) | | :--- | :--- | | Cash, cash equivalents, and marketable securities | $712,851 | | Total Assets | $787,648 | | Deferred Revenue (Current & Long-term) | $491,601 | | Total Liabilities | $573,206 | | Total Stockholders' Equity | $214,442 | Key Income Statement Data (Year ended Dec 31, 2022) | Account | Amount (in thousands) | | :--- | :--- | | Collaboration Revenue | $133,617 | | Research and Development Expenses | $210,418 | | General and Administrative Expenses | $61,033 | | Net Loss | $(133,310) | Controls and Procedures Management concluded that the company's disclosure controls, procedures, and internal control over financial reporting were effective - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[500] - Management's assessment concluded that the company's internal control over financial reporting was effective as of December 31, 2022[502][504] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - The required information for this item is incorporated by reference from the company's 2023 Proxy Statement[509] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2023 Proxy Statement - The required information for this item is incorporated by reference from the company's 2023 Proxy Statement[510] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's 2023 Proxy Statement - The required information for this item is incorporated by reference from the company's 2023 Proxy Statement[511] Certain Relationships and Related Transactions, and Director Independence Information regarding related transactions and director independence is incorporated by reference from the 2023 Proxy Statement - The required information for this item is incorporated by reference from the company's 2023 Proxy Statement[512] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2023 Proxy Statement - The required information for this item is incorporated by reference from the company's 2023 Proxy Statement[513] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - This section contains the list of financial statements and exhibits filed with the Form 10-K[515]