Alector(ALEC) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company reported an improved net loss in Q1 2024, with strong cash reserves bolstered by a public offering and collaboration revenues Condensed Consolidated Balance Sheets The balance sheet reflects increased assets and stockholders' equity, driven by a public offering, while liabilities decreased due to reduced deferred revenue - In January 2024, the company completed a public offering, issuing 10,869,566 shares of common stock which resulted in net proceeds of $71.1 million, significantly bolstering stockholders' equity[25] Balance Sheet Summary (in thousands) | Balance Sheet Items | March 31, 2024 (in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Cash, cash equivalents, and marketable securities | $562,083 | $548,861 | | Total Assets | $635,494 | $621,827 | | Total Liabilities | $456,587 | $487,669 | | Total Stockholders' Equity | $178,907 | $134,158 | Condensed Consolidated Statements of Operations and Comprehensive Loss The company reported a reduced net loss in Q1 2024, primarily driven by a decrease in operating expenses, particularly research and development Statement of Operations Summary (in thousands, except per share data) | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Collaboration Revenue | $15,893 | $16,549 | | Research and Development | $45,167 | $51,887 | | General and Administrative | $14,434 | $14,777 | | Loss from Operations | ($43,708) | ($50,115) | | Net Loss | ($36,079) | ($45,857) | | Net Loss Per Share | ($0.38) | ($0.55) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased in Q1 2024, offset by significant cash provided from financing activities, primarily a public stock offering - The $71.1 million in cash from financing activities was due to proceeds from the issuance of common stock in a public offering, net of issuance costs[22][78] Cash Flow Summary (in thousands) | Activity | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Net cash used in operating activities | ($61,346) | ($48,548) | | Net cash (used in) provided by investing activities | ($11,765) | $88,701 | | Net cash provided by financing activities | $71,108 | $1,079 | Notes to Condensed Consolidated Financial Statements Notes detail collaboration agreements with GSK and AbbVie as primary revenue sources, alongside stock-based compensation expenses for the quarter - Under the GSK Agreement, collaboration revenue was $8.7 million in Q1 2024, with a deferred revenue balance of $238.7 million as of March 31, 2024[43] - Under the AbbVie Agreement, collaboration revenue was $7.2 million in Q1 2024, with a deferred revenue balance of $39.3 million expected to be recognized through clinical trial completion for the AL002 program[44] Stock-Based Compensation (in thousands) | Expense Category | Q1 2024 (in thousands) | Q1 2023 (in thousands) | | :--- | :--- | :--- | | Research and development | $5,395 | $5,655 | | General and administrative | $4,912 | $5,320 | | Total | $10,307 | $10,975 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's immuno-neurology focus, reduced net loss in Q1 2024 due to lower R&D, and sufficient cash to fund operations through 2026 Overview Alector, a clinical-stage biotech, focuses on immuno-neurology with lead candidates latozinemab, AL002, and AL101, and received FDA Breakthrough Therapy Designation for latozinemab - The company is focusing development resources on latozinemab for FTD and on AL002 and AL101 for Alzheimer's disease, in collaboration with GSK and AbbVie[52] - In February 2024, the FDA granted Breakthrough Therapy Designation to latozinemab for the treatment of FTD-GRN[52] - Data from the INVOKE-2 Phase 2 clinical trial for AL002 in Alzheimer's disease is expected in the fourth quarter of 2024[53] Results of Operations Q1 2024 saw a slight decrease in collaboration revenue but a significant reduction in operating expenses, primarily R&D, leading to an improved loss from operations - The $6.7 million decrease in R&D expenses was primarily due to the company's prioritization of selected late-stage programs and a decrease in personnel-related costs[65] Comparison of Operations (in thousands) | Metric | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Collaboration Revenue | $15,893 | $16,549 | ($656) | | R&D Expenses | $45,167 | $51,887 | ($6,720) | | G&A Expenses | $14,434 | $14,777 | ($343) | | Loss from Operations | ($43,708) | ($50,115) | $6,407 | | Net Loss | ($36,079) | ($45,857) | $9,778 | R&D Expense Breakdown (in thousands) | Program | Q1 2024 (in thousands) | Q1 2023 (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Latozinemab | $2,095 | $4,311 | ($2,216) | | AL101 | $938 | $1,772 | ($834) | | AL002 | $13,262 | $11,064 | $2,198 | | Other programs | $3,970 | $6,974 | ($3,004) | | Personnel related | $18,897 | $21,934 | ($3,037) | Liquidity and Capital Resources Alector held $562.1 million in cash as of March 31, 2024, projected to fund operations through 2026, though substantial additional funding will be required for future R&D - As of March 31, 2024, the company had $562.1 million in cash, cash equivalents, and marketable securities[70] - The company anticipates its existing cash will fund operations and capital expenditure requirements through 2026[71] - Cash used in operating activities was $61.3 million in Q1 2024, primarily due to the net loss of $36.1 million and changes in working capital, including a $15.9 million decrease in deferred revenue[75] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are interest rate and foreign currency fluctuations, with a 100 basis point interest rate change impacting investments by $2.9 million - The company's primary market risks are interest rate sensitivities and foreign currency risk[81][84] - As of March 31, 2024, an immediate 100 basis point increase or decrease in interest rates would cause a change in the fair value of the company's investments of approximately $2.9 million[83] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes in internal control over financial reporting - Management concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective[85] - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, internal controls[86] 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 involved in any litigation or legal proceedings expected to have a material adverse effect on the business[87] Risk Factors The company faces significant risks including a history of net losses, high drug development uncertainty, reliance on collaborators, and the need for substantial additional financing - The company has a history of significant net losses ($746.2 million accumulated deficit as of March 31, 2024) and expects to continue incurring losses for the foreseeable future[88][91] - The business is heavily dependent on the successful development of its clinical-stage product candidates (latozinemab, AL002, AL101), which is an inherently risky and uncertain process[88][100] - The company will need substantial additional financing to complete development and commercialization, and failure to obtain capital could force delays or termination of programs[88][97] - Clinical trials may reveal significant adverse events; for example, treatment-emergent MRI findings resembling Amyloid-Related Imaging Abnormalities (ARIA) have been observed in the INVOKE-2 Phase 2 trial of AL002, which could delay or prevent regulatory approval[89][110][130] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported during the period - None reported[219] Other Information No other material information was reported, including no changes to Rule 10b5-1 trading arrangements by directors or officers - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the last fiscal quarter[219] Exhibits The filing includes key exhibits such as an amended collaboration agreement with Glaxo Wellcome UK Ltd., and the Outside Director Compensation Policy - A letter agreement amending the 2021 Collaboration and License Agreement with Glaxo Wellcome UK Ltd. was filed as an exhibit[220] - The company's Outside Director Compensation Policy was filed as an exhibit[220]