Alector(US:ALEC)2023-05-03 16:00PART I. FINANCIAL INFORMATION Financial Statements Alector reported a net loss for the quarter, with total assets decreasing, while its financial position is supported by significant deferred revenue from collaborations Condensed Consolidated Balance Sheets As of March 31, 2023, the company's cash and equivalents decreased to $669.3 million, with total assets at $748.3 million, and significant long-term deferred revenue of $431.1 million Condensed Consolidated Balance Sheet Highlights (Unaudited, in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $195,555 | $154,323 | | Marketable securities | $473,774 | $558,528 | | Total current assets | $686,002 | $726,435 | | Total assets | $748,342 | $787,648 | | Liabilities & Stockholders' Equity | | | | Deferred revenue, current portion | $61,773 | $48,231 | | Deferred revenue, long-term portion | $431,079 | $443,370 | | Total liabilities | $565,327 | $573,206 | | Total stockholders' equity | $183,015 | $214,442 | | Total liabilities and stockholders' equity | $748,342 | $787,648 | Condensed Consolidated Statements of Operations and Comprehensive Loss Collaboration revenue decreased to $16.5 million for Q1 2023, resulting in a slight increase in net loss to $45.9 million, despite a modest decrease in operating expenses Condensed Consolidated Statements of Operations (Unaudited, in thousands) | Account | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Collaboration revenue | $16,549 | $24,474 | | Research and development | $51,887 | $53,043 | | General and administrative | $14,777 | $15,554 | | Total operating expenses | $66,664 | $68,597 | | Loss from operations | ($50,115) | ($44,123) | | Net loss | ($45,857) | ($44,617) | | Net loss per share, basic and diluted | ($0.55) | ($0.54) | Condensed Consolidated Statements of Cash Flows Q1 2023 saw net cash used in operating activities of $48.5 million, a shift from the prior year, while investing activities provided $88.7 million and financing activities provided $1.1 million Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | ($48,548) | $135,091 | | Net cash provided by (used in) investing activities | $88,701 | ($12,106) | | Net cash provided by financing activities | $1,079 | $2,483 | | Net increase in cash, cash equivalents, and restricted cash | $41,232 | $125,468 | Notes to Condensed Consolidated Financial Statements Key notes detail collaboration agreements with GSK and AbbVie, generating $11.4 million and $5.2 million respectively, alongside a recent 11% workforce reduction with a $2.1 million charge - The company's collaboration with GSK for latozinemab and AL101 resulted in $11.4 million in revenue for Q1 2023. The related deferred revenue was $433.6 million as of March 31, 202341 - The collaboration with AbbVie for AL002 generated $5.2 million in revenue for Q1 2023. In February 2023, an amendment to the agreement resulted in a $17.8 million milestone payment to Alector43 - On March 28, 2023, the company initiated a plan to reduce its workforce by approximately 11% (30 employees) to align resources with strategic priorities. This is expected to result in a one-time charge of approximately $2.1 million57 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the immuno-neurology pipeline, including latozinemab and AL002/AL101, noting decreased Q1 2023 collaboration revenue and R&D expenses, with existing cash projected to fund operations through 2025 Overview Alector, a clinical-stage biopharmaceutical company, focuses on immuno-neurology with lead candidates latozinemab, AL002, and AL101, advancing programs through collaborations and a recent 11% workforce reduction - The company is focused on advancing its late-stage immuno-neurology programs: latozinemab for FTD and AL002/AL101 for Alzheimer's Disease60 - The pivotal Phase 3 INFRONT-3 trial for latozinemab is on track, with a data readout targeted for early 2025 and a potential BLA filing in late 202560 - Enrollment for the INVOKE-2 Phase 2 trial of AL002 is expected to complete in Q3 2023, with top-line data anticipated by Q4 202462 - In March 2023, the company reduced its workforce by approximately 11% (30 employees) to prioritize its late-stage programs62 Results of Operations Q1 2023 saw collaboration revenue decrease by $7.9 million to $16.5 million, while R&D expenses decreased by $1.2 million to $51.9 million, and G&A expenses also declined Results of Operations Comparison (in thousands) | Account | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Collaboration revenue | $16,549 | $24,474 | ($7,925) | | Research and development | $51,887 | $53,043 | ($1,156) | | General and administrative | $14,777 | $15,554 | ($777) | | Loss from operations | ($50,115) | ($44,123) | ($5,992) | | Net loss | ($45,857) | ($44,617) | ($1,240) | R&D Expense Breakdown (in thousands) | Program | Q1 2023 | Q1 2022 | Change | | :--- | :--- | :--- | :--- | | Latozinemab | $4,311 | $9,653 | ($5,342) | | AL101 | $1,772 | $650 | $1,122 | | AL002 | $11,064 | $6,822 | $4,242 | | Other programs | $6,974 | $11,194 | ($4,220) | | Indirect R&D | $27,766 | $24,724 | $3,042 | | Total R&D | $51,887 | $53,043 | ($1,156) | Liquidity and Capital Resources As of March 31, 2023, Alector held $669.3 million in cash and equivalents, which management believes is sufficient to fund operations through 2025, with future needs dependent on clinical and regulatory progress - The company had $669.3 million in cash, cash equivalents, and marketable securities as of March 31, 202380 - Management believes existing cash is sufficient to fund operations and capital requirements through 202581 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency sensitivities, with a 100 basis point interest rate change impacting investments by $2.4 million, while foreign currency risk is not material - The company is exposed to interest rate risk. An immediate 100 basis point increase or decrease in interest rates would cause a change in the fair value of its marketable securities of approximately $2.4 million as of March 31, 202393 - Foreign currency risk is not considered material as expenses are generally denominated in U.S. dollars94 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting during the quarter - Management concluded that as of March 31, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level96 - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control97 PART II. OTHER INFORMATION Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business - Alector is not currently a party to any litigation or legal proceedings that are likely to have a material adverse effect on the business99 Risk Factors The company faces significant risks including limited operating history, ongoing net losses, the need for substantial additional financing, dependence on key clinical candidates and collaborators, and challenges inherent in drug development and regulatory processes - The company has a limited operating history, no approved products, and has incurred significant net losses since inception, which are expected to continue101104105 - Successful development is heavily dependent on key product candidates (latozinemab, AL002, AL101) and collaborations with GSK and AbbVie101117 - The company will need substantial additional financing to complete development and commercialization, and failure to obtain it could force delays or termination of programs101111 - Clinical trials may be delayed or fail due to issues with enrollment, adverse events (such as ARIA observed in the INVOKE-2 trial), or failure to demonstrate efficacy103132 - The company relies on third-party CDMOs for manufacturing, which is complex and subject to rigorous regulatory standards and potential supply chain disruptions142195 Exhibits This section lists exhibits filed with the Form 10-Q, including an amendment to the AbbVie co-development agreement and certifications by the Principal Executive and Financial Officers - Key exhibits filed include Amendment Number One to the Co-Development and Option Agreement with AbbVie Biotechnology Ltd., effective February 13, 2023277 - Certifications by the Principal Executive Officer and Principal Financial Officer pursuant to Sarbanes-Oxley Act Sections 302 and 906 are included277