Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our consolidated financial statements and related notes for the year ended December 31, 2021 included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission on March 15, 2022.
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “may,” “will,” “should,” “could,” “target,” “strategy,” “intend,” “project,” “guidance,” “likely,” “usually,” “potential,” or the negative of these words or variations of such words, similar expressions, or comparable terminology are intended to identify such forward-looking statements, although not all forward-looking statements contain these identifying words. There are a number of important risks and uncertainties that could cause our actual results to differ materially from those indicated by forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. A further list and description of risks, uncertainties and other factors that could cause actual results or events to differ materially from the forward-looking statements that we make is included in the cautionary statements herein and in our other filings with the Securities and Exchange Commission, including those set forth under Part I, Item 1A, Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we may make.
We have based the forward-looking statements included in this Quarterly Report on Form 10-Q on information available to us on the date of this quarterly report, and we assume no obligation to update any such forward-looking statements, other than as required by law. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we, in the future, may file with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Overview
Altimmune, Inc. is a clinical stage biopharmaceutical company focused on developing treatments for obesity and liver diseases. Our lead product candidate, pemvidutide (formerly known as ALT-801), is a GLP-1/glucagon receptor dual agonist that is being developed for the treatment of obesity and non-alcoholic steatohepatitis (“NASH”). In addition, we are developing HepTcell, an immunotherapeutic agent designed to achieve a functional cure for chronic hepatitis B.
Impact of COVID-19
We are closely monitoring how the spread of COVID-19, including any resurgences or the emergence of new variants, is affecting our employees, business, preclinical studies and clinical trials. We have reopened our executive office to allow employees to return to the office based on an approach that is intended to comply with federal and state guidelines, with a focus on employee safety and optimal work environment. We are continuing our regular interactions with the FDA and other regulatory agencies and, based on current information, we do not anticipate COVID-19 to materially affect our regulatory timelines for our ongoing clinical trials. Furthermore, as a government contractor, we are subject to the federal government vaccination mandate, which requires federal contractor employees, except in certain limited circumstances, to be vaccinated against COVID-19 by December 8, 2021. While the vaccination mandate remains subject to the interpretation of various government agencies and other entities, and questions remain regarding the specific application of the vaccination mandate, we are continuing to develop and implement health, safety, employment and operational protocols in order to timely comply with the vaccination mandate. As of and for the nine months ended September 30, 2022, the vaccination mandate has not had a material impact on our employees or operations.
Although operations have not been materially affected by the COVID-19 pandemic as of and for the three and nine months ended September 30, 2022, at this time, however, disruptions caused by the COVID-19 pandemic may result in difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing trials and the incurrence
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of unforeseen costs as a result of disruptions in clinical supply or preclinical study or clinical trial delays. The impact of COVID-19 on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. In addition, a recurrence of COVID-19 cases, or variants thereof, could cause other widespread or more severe impacts depending on where infection rates are highest. We continue to monitor developments as we deal with the disruptions and uncertainties relating to the COVID-19 pandemic. See “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q and “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021.
Recent Global Events
Russia and Ukraine Conflict
The military conflict in Russia and Ukraine that began in February 2022 continues as of the date of this quarterly report. As the conflict continues to evolve, we are closely monitoring the impact on our business. The conflict, and the sanctions and counter-sanctions imposed in response to it, have created increased economic uncertainty and operational complexity globally. While we have no direct exposure to Russia and Ukraine, and do not at the moment believe the situation will have a material impact on our operating results, we are monitoring any broader economic impact from the situation. Should the conflict continue or escalate, it could have a significant negative effect on the global economy or on our operations, including continued inflationary pressures on raw materials, supply chain and logistics disruptions, volatility in foreign exchange rates and interest rates and heightened cybersecurity threats.
U.S. Government Contracts and Grants
In June 2020, we were awarded $4.7 million from the U.S. Army Medical Research & Development Command (“USAMRDC”) to fund our Phase 1/2 clinical trial of T-COVID. The competitive award was granted by USAMRDC in collaboration with the Medical Technology Enterprise Consortium (“MTEC”), a 501(c)(3) biomedical technology consortium working in partnership with the Department of Defense (“DoD”). Under the contract, MTEC paid us a firm fixed fee based upon the achievement of certain milestones for conduct and completion of a Phase 1/2 study and research and development work on the replication-deficient adenovirus 5 (“RD-Ad5”) vector vaccine platform. For the nine months ended September 30, 2021, we recognized approximately $0.5 million of grant revenue under the contract, which completed the full recognition of this award. No revenue was recognized for this contract for the three and nine months ended September 30, 2022.
In July 2016, we signed a five-year contract with Biomedical Advanced Research and Development Authority (“BARDA”). The contract, as amended, had a total value of up to $136.8 million to be used to fund clinical development of NasoShield. Under the contract, BARDA paid us a fixed fee and reimbursed certain costs for the research and development of an Ad5-vectored, protective antigen-based intranasal anthrax vaccine through cGMP manufacture and conduct of a Phase 1 clinical trial dose ranging assessment of safety and immunogenicity. The contract consisted of an initial base performance period providing approximately $30.9 million in funding for the period July 2016 through December 2021. BARDA had seven options to extend the contract to fund certain continued development and manufacturing activities for the anthrax vaccine, including Phase 2 clinical trials. Each option, if exercised by BARDA, would have provided additional funding ranging from approximately $1.1 million to $34.4 million for a three-year period beginning in 2021. For the three and nine months ended September 30, 2021, we recognized approximately $0.1 million and $0.4 million, respectively, of grant revenue under the BARDA contract. For the three and nine months ended September 30, 2022, we have recognized de minimis grant revenue related to the close-out of the BARDA contract. BARDA did not extend the contract beyond the end of December 2021.
Critical Accounting Policies and Significant Judgment and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited consolidated financial statements, which have been prepared in accordance with accounting principles generally
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accepted in the U.S. and the rules and regulations of the SEC for interim financial reporting. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent liabilities in our consolidated financial statements. We base our estimates and judgments on historical experience, knowledge of current conditions and expectations of what could occur in the future given available information.
There have been no changes in our critical accounting policies and significant judgment and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021. For more information regarding our critical accounting policies, we encourage you to read the discussion contained in Item 7 under the heading “Critical Accounting Policies and Significant Judgments and Estimates” and Note 2 “Summary of Significant Accounting Policies” included in the notes to the consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2021.
Results of Operations
Comparison of the three months ended September 30, 2022 and 2021:
For the Three Months Ended
September 30,
(in thousands)
2022
2021
Increase (Decrease)
Revenue
$
2
$
158
$
(156)
(99)
%
Operating expenses:
Research and development
20,262
29,206
(8,944)
(31)
%
General and administrative
4,492
4,156
336
8
%
Total operating expenses
24,754
33,362
(8,608)
(26)
%
Loss from operations
(24,752)
(33,204)
8,452
25
%
Other income (expense):
Interest expense
(64)
(33)
(31)
(94)
%
Interest income
1,053
13
1,040
8,000
%
Other income (expense), net
50
(286)
336
(117)
%
Total other income (expense), net
1,039
(306)
1,345
(440)
%
Net loss before income taxes
(23,713)
(33,510)
9,797
29
%
Income tax benefit
197
—
197
Net loss
$
(23,516)
$
(33,510)
$
9,994
30
%
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Comparison of the nine months ended September 30, 2022 and 2021:
For the Nine Months Ended
September 30,
(in thousands)
2022
2021
Increase (Decrease)
Revenue
$
42
$
1,133
$
(1,091)
(96)
%
Operating expenses:
Research and development
51,359
54,356
(2,997)
(6)
%
General and administrative
13,329
11,636
1,693
15
%
Impairment loss on construction-in-progress
—
8,070
(8,070)
100
%
Total operating expenses
64,688
74,062
(9,374)
(13)
%
Loss from operations
(64,646)
(72,929)
8,283
11
%
Other income (expense):
Interest expense
(191)
(67)
(124)
(185)
%
Interest income
1,402
88
1,314
1,493
%
Other income (expense), net
185
(293)
478
163
%
Total other income (expense), net
1,396
(272)
1,668
613
%
Net loss before income taxes
(63,250)
(73,201)
9,951
14
%
Income tax benefit
197
—
197
Net loss
$
(63,053)
$
(73,201)
$
10,148
14
%
Revenue
Revenue consists primarily of research grants in the United States from MTEC for our T-COVID product candidate and BARDA for our NasoShield vaccine product candidate. These grants consist of firm fixed fee contracts based on milestones and cost reimbursement contracts, with a fixed fee based on either costs incurred or milestones met. Our T-COVID and NasoShield programs were discontinued as of the end of 2021.
Revenue decreased by $0.2 million, or 99% for the three months ended September 30, 2022 and $1.1 million, or 96%, for the nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021. The decrease was primarily the result of the discontinuation of development work on both T-COVID and NasoShield programs as described above.
Research and development expenses
Research and development expense decreased by $8.9 million, or 31%, for the three months ended September 30, 2022, as compared to the three months ended September 30, 2021. The decrease was primarily the result of:
● a decrease of $17.9 million due primarily to development activities for our COVID-19 programs, which included AdCOVID and T-COVID (which were discontinued in 2021);
● a decrease of $1.7 million due to change in the fair value of contingent consideration liability with respect to the acquisition of pemvidutide, which was fully paid on June 10, 2022;
● an increase of $9.1 million due to the development activities for pemvidutide primarily due to the ongoing NAFLD trials and the MOMENTUM Phase 2 trial in obesity;
● an increase of $0.2 million due to development activities for HepTcell; and
● a net increase of $1.4 million due primarily to costs associated with non-project specific research and development costs including employee compensation and facility costs.
Research and development expense decreased by $3.0 million, or 6%, for the nine months ended September 30, 2022, as compared to the nine months ended September 30, 2021. The decrease was primarily the result of:
● a decrease of $32.1 million due primarily to development activities for our COVID-19 programs, which included AdCOVID and T-COVID (which were discontinued in 2021);
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● a decrease of $1.5 million due to change in the fair value of contingent consideration liability with respect to the acquisition of pemvidutide, which was fully paid on June 10, 2022;
● an increase of $25.2 million due to the development activities for pemvidutide primarily due to the ongoing NAFLD trials and initiation of the MOMENTUM Phase 2 trial in obesity;
● an increase of $2.9 million due to development activities for HepTcell; and
● a net increase of $2.5 million due primarily to costs associated with non-project specific research and development costs including employee compensation and facility costs.
General and administrative expenses
General and administrative expense increased by $0.3 million, or 8% for the three months ended September 30, 2022, as compared to the three months ended September 30, 2022, primarily due to increase in stock compensation expense. For the nine months ended September 30, 2022, general and administrative expense increased by $1.7 million, or 15%, as compared to the nine months ended September 30, 2021, due primarily to a $1.2 million increase in stock compensation and other labor related costs and $0.4 million increase in professional fees.
Impairment loss on construction-in-progress
Impairment loss on construction-in-progress of $8.1 million reported during the nine months ended September 30, 2021 represents non-cash impairment charges recorded for assets that were previously capitalized in connection with the construction of the Lonza facility and subsequent discontinuation of AdCOVID. There were no such impairment charges reported during the nine months ended September 30, 2022.
Total other income (expense), net
Total other income (expense), net increased by $1.3 million and $1.7 million for the three and nine months ended September 30, 2022, as compared to the three and nine months ended September 30, 2021, respectively, primarily due to increase in interest income earned on our cash equivalents and short-term investments.
Income tax benefit
Income tax benefit of $0.2 million related to interest received and receivable on income tax refunds was recorded during the three and nine months ended September 30, 2022. Other than the income tax benefit related to interest, we did not record an income tax benefit in the three and nine months ended September 30, 2022 and 2021 due to a full valuation allowance.
Liquidity and Capital Resources
Overview
Our primary sources of cash during the nine months ended September 30, 2022 were from equity transactions. Our cash, cash equivalents, restricted cash and short-term investments were $201.9 million as of September 30, 2022. We believe, based on the operating cash requirements and capital expenditures expected for 2022 and 2023, our cash on hand as of September 30, 2022, together with expected cash receipts from our income tax refunds and R&D incentives, are sufficient to fund operations for at least a twelve-month period from the issuance date of our September 30, 2022 consolidated financial statements.
We have not generated any revenues from the sale of any products to date, and there is no assurance of any future revenues from product sales. Our sources of revenue have consisted of grant revenues under our arrangements with BARDA for the development of NasoShield, MTEC for a clinical trial and development work on T-COVID, and to a lesser degree from other licensing arrangements. We have incurred significant losses since we commenced operations. As of September 30, 2022, we had an accumulated deficit of $356.2 million. In addition, we have not generated positive cash flows from operations. We have had to rely on a variety of financing sources, including the issuance of debt and equity
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securities. As capital resources are consumed to fund our research and development activities, we may require additional capital beyond our currently anticipated amounts. In order to address our capital needs, including our planned clinical trials, we must continue to actively pursue additional equity or debt financing, government funding, and monetization of our existing programs through partnership arrangements or sales to third parties.
On December 31, 2020, we filed a shelf registration statement on Form S-3, which was declared effective by the SEC on January 11, 2021. This shelf registration statement covered the offering, issuance and sale by us of up to an aggregate of $250.0 million of our common stock, preferred stock, debt securities, warrants, rights and units (the “2021 Shelf”). As of September 30, 2022, approximately $125.0 million remained available to be sold under the 2021 Shelf.
In June 2020, we were awarded $4.7 million from the U.S. Army Medical Research & Development Command (“USAMRDC”) to fund our Phase 1/2 clinical trial of T-COVID. The competitive award was granted by USAMRDC in collaboration with the Medical Technology Enterprise Consortium (“MTEC”), a 501(c)(3) biomedical technology consortium working in partnership with the Department of Defense (“DoD”). Under the contract, MTEC paid us a firm fixed fee based upon the achievement of certain milestones for conduct and completion of a Phase 1/2 study and research and development work on the replication-deficient adenovirus 5 (“RD-Ad5”) vector vaccine platform. Through September 30, 2022, we have collected approximately $4.7 million in cash under the contract, which completed the full recognition of this award.
In July 2016, we signed a five-year contract with BARDA. The contract, as amended, had a total value of up to $136.8 million to be used to fund clinical development of NasoShield. Under the contract, BARDA paid us a fixed fee and reimbursed certain costs for the research and development of an Ad5-vectored, protective antigen-based intranasal anthrax vaccine through cGMP manufacture and conduct of a Phase 1 clinical trial dose ranging assessment of safety and immunogenicity. The contract consisted of an initial base performance period providing approximately $30.9 million in funding for the period July 2016 through December 2021. BARDA had seven options to extend the contract to fund certain continued development and manufacturing activities for the anthrax vaccine, including Phase 2 clinical trials. Each option, if exercised by BARDA, would have provided additional funding ranging from approximately $1.1 million to $34.4 million for a three-year period beginning in 2021. Through September 30, 2022, we have collected approximately $29.3 million in cash under the BARDA contract. BARDA did not extend the contract beyond the end of December 2021.
Cash Flows
The following table provides information regarding our cash flows for the nine months ended September 30, 2022 and 2021:
Nine Months Ended September 30,
(in thousands)
2022
2021
Net cash (used in) provided by:
Operating activities
$
(45,280)
$
(56,271)
Investing activities
(74,380)
62,654
Financing activities
56,824
52,563
Net (decrease) increase in cash and cash equivalents and restricted cash
$
(62,836)
$
58,946
Operating Activities
Net cash used in operating activities was $45.3 million for the nine months ended September 30, 2022 compared to $56.3 million during the nine months ended September 30, 2021. The primary uses of cash from our operating activities include payments for labor and labor-related costs, professional fees, research and development costs associated with our clinical trials and other general corporate expenditures. The decrease in cash used in operations of $11.0 million year over year is due to changes in working capital accounts of $9.3 million and a decrease in net loss as adjusted for non-cash items of $1.7 million.
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Investing Activities
Net cash used in investing activities was $74.4 million for the nine months ended September 30, 2022 compared to $62.7 million net cash provided during the nine months ended September 30, 2021. The net cash used in investing activities during the nine months ended September 30, 2022 was primarily due to purchase of short-term investments. The net cash provided by investing activities during the nine months ended September 30, 2021 was primarily due to $74.8 million net proceeds from short-term investment activity, partially offset by a $12.0 million purchases of property and equipment.
Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2022 was $56.8 million compared to $52.6 million for the nine months ended September 30, 2021. The net cash provided by financing activities during the nine months ended September 30, 2022 was primarily the result of the receipt of $56.2 million in net proceeds from the issuance of common stock from our at-the-market offerings program and $0.5 million in net proceeds from exercise of stock options. The net cash provided by financing activities during the nine months ended September 30, 2021 was primarily the result of the receipt of $52.4 million in net proceeds from the issuance of common stock from our at-the-market offerings program.
Financing
Public Offering
On July 16, 2020, we offered and sold (i) 3,369,564 shares of our common stock, at a price to the public of $23.00 per share, and (ii) pre-funded warrants to purchase 1,630,436 shares of our common stock at an exercise price equal to $0.0001 per share (the “Pre-Funded Warrants”), at a price to the public of $22.9999 per share of common stock underlying the Pre-Funded Warrants (equal to the public offering price per share of Common Stock, minus the exercise price of each Pre-Funded Warrant). The Pre-Funded Warrants are exercisable at any time, provided that each Pre-Funded Warrant holder will be prohibited from exercising such Pre-Funded Warrants into shares of our common stock if, as a result of such exercise, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of our common stock then issued and outstanding, which percentage may change at the holders’ election to any other number less than or equal to 19.99% upon 61 days’ notice to us. The gross proceeds of this offering were approximately $132.2 million, which includes the exercise in full of the underwriters’ option to purchase an additional 750,000 shares of common stock, before deducting underwriting discounts and commissions and offering expenses during the third quarter of 2020. The net proceeds of this offering were approximately $124.0 million, after deducting underwriting discounts and commissions and offering expenses payable by us. As of September 30, 2022, 760,870 of the Pre-Funded Warrants were exercised, leaving 869,566 remaining Pre-Funded Warrants unexercised.
At-the-Market Offerings
On February 25, 2021, we entered into an Equity Distribution Agreement (the “2021 Agreement”) with Piper Sandler & Co., Evercore Group L.L.C. and B. Riley Securities, Inc., serving as sales agents (the “Sales Agents”) with respect to an at-the-market offerings program under which we offered and sold shares of our common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $125.0 million through the Sales Agents from the 2021 Shelf.
During the nine months ended September 30, 2022, we sold 5,204,415 shares of Common Stock under the 2021 Agreement resulting in approximately $56.2 million in net proceeds. As of September 30, 2022, we sold 10,004,869 shares of Common Stock under the 2021 Agreement resulting in approximately $121.0 million in net proceeds. As of September 30, 2022, there were no remaining shares available for issuance under the 2021 Agreement.
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Current Resources
We have financed our operations to date principally through our equity offerings and proceeds from issuances of our preferred stock, common stock and warrants. As of September 30, 2022, we had $127.5 million of cash, cash equivalents and restricted cash and $74.4 million of short-term investments. Accordingly, management believes that we have sufficient capital to fund our plan of operations for at least a twelve-month period from the issuance date of our September 30, 2022 financial statements. However, in order to address our capital needs in the long-term, including potential future clinical trials, we must continue to actively pursue additional equity or debt financing, government funding, and monetization of our existing programs through partnership arrangements or sales to third parties.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide the information required by this Item.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.