Altimmune, Inc. 10-Q

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, 2019 included in our annual report on Form 10-K, which was filed with the Securities and Exchange Commission on March 27, 2020. 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. We have included important factors in the cautionary statements included in this quarterly report on Form 10-Q, particularly in the section entitled “Risk Factors” in Part II, Item 1A, that could cause actual results or events to differ materially from the forward-looking statements that we make. 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 intranasal vaccines, immune modulating therapies and treatments for liver disease. Our diverse pipeline includes proprietary intranasal vaccines for COVID-19 (AdCOVID), anthrax (NasoShield) and influenza (NasoVAX); an intranasal immune modulating therapeutic for COVID-19 (T-COVID); and next generation peptide therapeutics for NASH (ALT-801) and chronic hepatitis B (HepTcell). Impact of COVID-19 We are closely monitoring how the spread of COVID-19 is affecting our employees, business, preclinical studies and clinical trials. In response to the COVID-19 pandemic, we have closed our executive offices with certain employees continuing their work outside of our offices and travel for all employees has been restricted. Essential laboratory staff continue to work onsite with enhanced safety measures. 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 NasoShield, T-COVID, AdCOVID and ALT-801. We expect the pandemic to have some near-term impact on the initiation of our HepTcell Phase 2 trial and, accordingly, we will delay the initiation of this trial. We expect we will be able to provide an update on timing for initiating the study in the second half of 2020. Although operations have not been materially affected by the COVID-19 pandemic as of and for the three and six months ended June 30, 2020, at this time, however, there is significant uncertainty relating to the trajectory of the pandemic and the impact of related responses, and 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 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. See “Risk Factors— Our business, results of operations and financial condition may be adversely affected by the widespread outbreak of an illness or any other communicable disease, or any other public health crisis, including the ongoing coronavirus disease (COVID-19) pandemic.” in Part II, Item 1A of this Quarterly Report on Form 10-Q. 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 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, and expenses, and the related disclosure of contingent assets and liabilities. 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. 14 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 yea r ended December 31, 2019 except for recently adopted accounting standards (Se e Note 2 to the consolidated financial statements appearing in Item 1 of this report ). 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, 2019 . Results of Operations Comparison of the three months ended June 30, 2020 and 2019: For the Three Months Ended June 30, 2020 2019 Increase (Decrease) Revenue $ 721,636 $ 1,626,029 $ (904,393 ) (56 ) % Operating expenses: Research and development 16,594,250 2,945,096 13,649,154 463 General and administrative 2,545,356 2,231,817 313,539 14 Total operating expenses 19,139,606 5,176,913 13,962,693 270 Loss from operations (18,417,970 ) (3,550,884 ) (14,867,086 ) (419 ) Other income (expense): Changes in fair value of warrant liability — (46,000 ) 46,000 100 Interest expense (3,308 ) (748 ) (2,560 ) (342 ) Interest income 81,458 239,964 (158,506 ) (66 ) Other (expenses), net (5,878 ) (29,220 ) 23,342 80 Total other (expense) income, net 72,272 163,996 (91,724 ) (56 ) Net loss before income tax benefit (18,345,698 ) (3,386,888 ) (14,958,810 ) (442 ) Income tax benefit 1,578,782 — 1,578,782 100 Net loss $ (16,766,916 ) $ (3,386,888 ) $ (13,380,028 ) (395 ) % Comparison of the six months ended June 30, 2020 and 2019: For the Six Months Ended June 30, 2020 2019 Increase (Decrease) Revenue $ 2,934,330 $ 4,581,622 $ (1,647,292 ) (36 ) % Operating expenses Research and development 23,781,781 6,162,768 17,619,013 286 General and administrative 4,877,273 4,298,299 578,974 13 Total operating expenses 28,659,054 10,461,067 18,197,987 174 Loss from operations (25,724,724 ) (5,879,445 ) (19,845,279 ) (338 ) Other income (expense): Changes in fair value of warrant liability — (46,000 ) 46,000 100 Interest expense (5,193 ) (1,488 ) (3,705 ) (249 ) Interest income 233,027 425,211 (192,184 ) (45 ) Other (expenses) income, net 19,664 17,528 2,136 12 Total other income, net 247,498 395,251 (147,753 ) (37 ) Net loss before income tax benefit (25,477,226 ) (5,484,194 ) (19,993,032 ) (365 ) Income tax benefit 4,824,661 — 4,824,661 100 Net loss $ (20,652,565 ) $ (5,484,194 ) $ (15,168,371 ) (277 ) % Revenue Revenue consists primarily of research grants from Biomedical Advanced Research and Development Authority, or BARDA, and in 2019, the National Institute of Allergy and Infectious Diseases, or NIAID, in the United States for our anthrax vaccine product candidates. These grants consist of cost reimbursement contracts, with a fixed fee based on either costs or milestones. Revenue decreased by $0.9 million, or 56%, for the three months ended June 30, 2020 as compared to the same period in 2019. The decrease was primarily the result of: • a decrease of $1.1 million in BARDA revenue due to timing of clinical trials and development activities on the NasoShield program; and • an increase of $0.2 million in other revenue related to the sale of flu virus vials. 15 Revenue decreased by $1.6 million , or 36 % , for the six months ended June 30, 2020 as compared to the same period in 2019 . The decrease was primarily the result of: • a decrease of $2.3 million in BARDA revenue due to timing of clinical trials and development activities on the NasoShield program; • a decrease of $0.2 million in NIAID revenue due to the completion of the SparVax-L contract in 2019; • an increase of $0.6 million in BARDA revenue attributable to a final payment under the Company’s previous NasoShield contract representing a reconciliation of the actual indirect rates compared to billed indirect rates; and • an increase of $0.3 million in other revenue primarily related to the sale of flu virus vials. 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 pays us a firm fixed fee based on achieving 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. As of June 30, 2020, we have not received any cash under the contract nor have we recognized any amounts of grant revenue within the statement of operations. Research and development expenses Research and development operating expense increased by $13.6 million, or 463%, for the three months ended June 30, 2020 as compared to the same period in 2019. The increase was primarily the result of: • an increase of $11.9 million due to an increase in the contingent consideration liability related to the acquisition of ALT-801; • an increase of $2.0 million due to development activities for ALT-801 which was acquired in July 2019; • an increase of $1.1 million due to development activities for the COVID-19 programs; • a decrease of $0.8 million due to timing of a clinical trial and development activities for NasoShield; and • a decrease of $0.6 million in pre-clinical projects and non-project specific research and development costs including employee compensation and facility costs. Research and development operating expense increased by $17.6 million, or 286%, for the six months ended June 30, 2020 as compared to the same period in 2019. The increase was primarily the result of: • an increase of $13.6 million due to an increase in the contingent consideration liability related to the acquisition of ALT-801; • an increase of $4.4 million due to development activities for ALT-801 which was acquired in July 2019; • an increase of $1.1 million due to development activities for the COVID-19 programs; • an increase of $0.2 million in pre-clinical projects and non-project specific research and development costs including employee compensation and facility costs; and • a decrease of $1.7 million due to timing of a clinical trial and development activities for NasoShield. General and administrative expenses General and administrative expense increased by $0.3 million, or 14%, for the three months ended June 30, 2020 and by $0.6 million, or 13%, for the six months ended June 30, 2020, as compared to the same periods in 2019 due primarily to an increase in legal, professional and labor costs. Total other (expense) income, net Total other (expense) income, net decreased by $0.1 million and $0.1 million during the three and six months ended June 30, 2020, respectively, as compared to the same period in 2019. The decreases are primarily due to changes in interest income. Income tax benefit Income tax benefit increased by $1.6 million and $4.8 million during the three and six months ended June 30, 2020, as compared to the same period in 2019. The increase is due to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020 which made temporary changes regarding the utilization and carry back of net operating losses. As of June 30, 2020, the Company intends to file a refund claim for a discrete item of $2.9 million with the Internal Revenue Service reflecting a partial refund of its 2016 tax liability by carrying back its 2019 and 2018 losses not previously claimed, and estimates $2.9 million related to net operating losses arising during the six months ended June 30, 2020 will be claimed. On June 12, 2020, the Comptroller of Maryland issued a report announcing that the state decoupled from the CARES Act loss carryback provisions for the 2020 year only, but indicated uncertainty as to whether the General Assembly would pass a measure to decouple from all years in the CARES Act and not process amended filings in the interim. As a result, an additional discrete item in the income tax benefit of $1.0 million was recognized for the three months ended June 30, 2020 related to the release of valuation allowance related to losses that could potentially be carried back to the 2016 tax year under current law. 16 Liquidity and Capital Resources Overview Our primary sources of cash during the six months ended June 30, 2020 were from equity activity, maturities of short-term investments and cash receipts of revenue from our BARDA contract. Our cash, cash equivalents, and short-term investments were $80.3 million at June 30, 2020. We believe, based on the operating cash requirements and capital expenditures expected for 2020, our cash on hand at June 30, 2020, short-term investments, revenue from our government sponsored contracts and tax refunds, are sufficient to fund operations for at least a twelve-month period from the issuance date of our June 30, 2020 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 revenues under our contract with BARDA for the development of NasoShield and to a lesser degree from other licensing arrangements. We have incurred significant losses since we commenced operations. As of June 30, 2020, we had accumulated losses of $158.0 million since our inception. 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 securities. As capital resources are consumed to fund our research and development activities, we may not have sufficient capital to fund our plan of operations. In order to address our capital needs, including our planned clinical trials, we have initiated the ATM Offering and the Public Offering and 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. In July 2016, we signed a five-year contract with BARDA. The contract, as amended, has a total value of up to $133.7 million and is used to fund clinical development of NasoShield. Under the contract, BARDA pays us a fixed fee and reimburses 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 consists of an initial base performance period providing approximately $27.8 million in funding for the period July 2016 through December 2020. BARDA has 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 provide additional funding ranging from approximately $1.1 million to $34.4 million for a three-year period beginning January 2021. Through June 30, 2020, we have received an aggregate of approximately $23.8 million under the current BARDA contract. Cash Flows The following table provides information regarding our cash flows for the six months ended June 30, 2020 and 2019: Six Months Ended June 30, 2020 2019 Net cash provided by (used in): Operating activities $ (11,518,302 ) $ (5,173,080 ) Investing activities 12,661,500 (17,100 ) Financing activities 54,636,037 12,542,963 Net increase in cash and cash equivalents and restricted cash $ 55,779,235 $ 7,352,783 Operating Activities Net cash used in operating activities was $11.5 million for the six months ended June 30, 2020 compared to $5.2 million during the six months ended June 30, 2019. Our sources of cash provided by operations during the six months ended June 30, 2020 were primarily cash receipts of revenue generated by our BARDA contract. 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 increase in cash used in operations of $6.3 million year over year is due to an increase in net loss as adjusted for non-cash items of $1.8 million and changes in working capital accounts of $4.5 million, primarily due to recording of the income tax benefit receivable. Investing Activities Net cash provided by investing activities was $12.7 million for the six months ended June 30, 2020 compared to net cash used in investing activities of $17,100 during the six months ended June 30, 2019. The net cash provided by investing activities during 2020 was primarily due to maturities of short-term investments. The net cash used in investing activities in 2019 was primarily due to purchases of equipment and capitalized patent costs. Financing Activities Net cash provided by financing activities during the six months ended June 30, 2020 was $54.6 million compared to $12.5 million for the six months ended June 30, 2019. The net cash provided by financing activities during the six months ended June 30, 2020 was primarily the result of $31.3 million in proceeds from the exercise of warrants and $22.8 million in proceeds from the issuance of common stock from our at-the-market offering program. The net cash provided by financing activities during the six months ended June 30, 2019 was primarily the result of $12.7 million in proceeds from a registered direct offering of units that consisted of common stock and warrants . Financing Public Offering 17 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 w ith 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. T he 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 offe ring expenses . The net proceeds of this offering were approximately $124.0 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. At-the-Market Offering On March 27, 2020, we entered into an Equity Distribution Agreement (the “Agreement”) with JMP Securities LLC, serving as placement agent (the “Placement Agent”) with respect to an at-the-market offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $50.0 million (the “Shares”) through the Placement Agent (the “Offering”). We offered Shares having an aggregate offering price of $18.9 million pursuant to the prospectus supplement filed with the SEC on March 27, 2020. On June 1, 2020, we filed an amendment to the Agreement which amended the prospectus supplement dated March 27, 2020 to increase the aggregate offering price to $50.0 million. As of June 30, 2020, we sold 2,965,144 shares of Common Stock under the Agreement resulting in $22.8 million in net proceeds, leaving $26.3 million available to be sold under the amended Agreement. 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. At June 30, 2020 , we had $64.8 million of cash, cash equivalents and restricted cash and $15.5 million of short-term investments. Accordingly, management believes that the Company has sufficient capital to fund its plan of operations for at least a twelve-month period from the issuance date of our June 30, 2020 financial statements. However, in order to address our capital needs in the long-term, 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. Off-Balance Sheet Arrangements As of June 30, 2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as “special purpose” entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. 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.