What changed in this filing

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Item 1. Financial Statements

2020-11-09 compared with 2020-08-11 · 225 added, 191 removed, 221 unchanged (65% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

June 30, 2020

September 30, 2020

December 31, 2019

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Accrued expenses and other current liabilities

Notes payable

Total current liabilities

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33,073,035 and 15,312,167

shares outstanding at June 30, 2020 and December 31, 2019, respectively

shares outstanding at September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

7 unchanged sentences

For the Three Months Ended

For the Six Months Ended

September 30,

For the Nine Months Ended

September 30,

Operating expenses:

1 unchanged sentence

General and administrative

Impairment charges

Total operating expenses

Loss from operations

Other (expense) income:

Other income (expense):

Changes in fair value of warrant liability

1 unchanged sentence

Interest income

Other (expense) income, net

Total other (expense) income, net

Other income (expense), net

Total other income, net

Net loss before income tax benefit

Income tax benefit

Other comprehensive loss – unrealized gain (loss) on investments

Other comprehensive loss – unrealized (loss) gain on investments

Comprehensive loss

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Stock-based compensation

Exercise of stock options

Issuance of common stock from exercise of stock options

Vesting of restricted stock awards including withholding, net

Issuance of common stock in at the market offering, net of offering costs

Issuance of common stock in at the market offering, net

Issuance of common stock upon exercise of warrants

1 unchanged sentence

Balance at June 30, 2020

Stock-based compensation

Issuance of common stock from exercise of stock options

Vesting of restricted stock awards including withholding, net

Issuance of common stock from Employee Stock Purchase Plan

Issuance of common stock and pre-funded warrants in public offering, net

Issuance of common stock in at the market offering, net

Issuance of common stock upon exercise of warrants

Unrealized loss on short-term investments

Balance at September 30, 2020

ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Comprehensive

2 unchanged sentences

Stock-based compensation

Vesting of restricted stock awards

Issuance of common stock in registered direct offering, net of offering costs

Vesting of restricted stock awards including withholding, net

Issuance of common stock in registered direct offering, net

Issuance of common stock upon exercise of warrants

Balance at March 31, 2019

Stock-based compensation and vesting of restricted stock

Stock-based compensation

Vesting of restricted stock awards including withholding, net

Balance at June 30, 2019

Stock-based compensation

Vesting of restricted stock awards including withholding, net

Issuance of common stock for acquired in-process research and development

Unrealized gain on short-term investments

Balance at September 30, 2019

The accompanying notes are an integral part of the unaudited consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net loss to net cash used in operating activities:

Change in fair value of contingent consideration

Non-cash consideration for acquired in-process research and development

Change in fair value of contingent consideration liability

Impairment charge

Stock-based compensation expense

Unrealized losses (gains) on foreign currency exchange

Unrealized gains on foreign currency exchange

Changes in fair value of warrant liability

5 unchanged sentences

Tax refund receivable

Deferred taxes

Net cash used in operating activities

4 unchanged sentences

Cash paid for internally developed patents

Net cash provided by (used in) investing activities

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Cash paid in conjunction with warrant exchange

Payments of deferred offering costs

Proceeds from exercises of warrants

Proceeds from issuance of common stock in at the market offering, net of offering costs

Proceeds from issuance of common units, net of issuance costs

Proceeds from issuance of common stock in at the market offering, net

Proceeds from issuance of common stock and pre-funded warrants in public offering, net

Proceeds from issuance of common stock in registered direct offering, net

Proceeds from issuance of notes payable

Payments of notes payable

Proceeds from issuance of common stock from Employee Stock Purchase Plan

Proceeds from exercises of stock options

Payments of notes payable

Net cash provided by financing activities

Net increase in cash and cash equivalents and restricted cash

Net increase and decrease in cash and cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid for interest

SUPPLEMENTAL NON-CASH FINANCING ACTIVITIES:

Common stock issued for acquired in-process research and development

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Summary of Significant Accounting Policies

During the six months ended June 30, 2020, there have been no significant changes to the Company’s summary of significant accounting policies contained in the Company’s Annual report on Form 10-K for the year ended December 31, 2019 as filed with the SEC, except for the recently adopted accounting standard for investments.

During the nine months ended September 30, 2020, there have been no significant changes to the Company’s summary of significant accounting policies contained in the Company’s Annual report on Form 10-K for the year ended December 31, 2019 as filed with the SEC, except for the recently adopted accounting standard for investments.

Use of Estimates

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The extent to which the COVID-19 pandemic may directly or indirectly impact the Company’s business, financial condition, and results of operations is highly uncertain and subject to change.

The Company considered the potential impact of the COVID-19 pandemic on the Company’s estimates and assumptions and determined that there was not a material impact to the Company’s consolidated financial statements as of and for the three and six months ended June 30, 2020.

However, actual results could differ from those estimates and there may be changes to the Company’s estimates in future periods.

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The Company adopted this guidance effective January 1, 2020 which resulted in expanded disclosures in Note 3 regarding the Company’s recurring Level 3 fair value measurements.

Contingent Consideration

ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

T he Company ente red into a definitive agreement to acquire all of the equity interests of Spitfire Pharma, Inc.

(“Spitfire”) on July 8, 2019 .

Spitfire was a privately held, preclinical pharmaceutical company developing a novel dual GLP-1/glucagon receptor agonist for the treatment of non-alcoholic steatohepatitis.

The transaction closed on July 12, 2019.

The Company issued 1,887,250 unregistered shares of its common stock (the “shares”) as upfront consideration to certain former securityholders of Spitfire (collectively, the “Spitfire Equityholders”), representing an amount equal to $5.0 million less working capital and transaction expense adjustment amounts as defined in the agreement.

The Merger Agreement also includes future contingent payments up to $88.0 million in cash and shares of the Company’s common stock as follows (each, a “Milestone Event”):

a one-time payment of $5.0 million (the “IND Milestone Consideration Amount”) within sixty days of the submission of an Investigational New Drug Application (“IND”) to the United States Food and Drug Administration (the “FDA”) or other applicable governmental authority in a foreign jurisdiction, which IND has not been rejected or placed on clinical hold by the FDA or such applicable foreign governmental authority within time specified in the Merger Agreement;

a one-time payment of $3.0 million (the “Phase 2 Milestone Consideration Amount” and together with the IND Milestone Consideration Amount, the “Regulatory Milestones”) within sixty days of the initiation of a Phase 2 clinical trial of a product candidate anywhere in the world;

payments of up to $80.0 million upon the achievement of specified worldwide net sales (the “Sales Milestones”) of all products developed using the technology acquired in the License Agreement within ten years following the approval of a new drug application filed with the FDA.

The Regulatory Milestones will be payable in shares of the Company’s Common Stock, with the number of shares of the Company’s Common Stock to be issued in connection with each milestone amount, if any, are dependent on the share price at the time of achievement.

The number of any shares issued in consideration for the IND Milestone Consideration Amount will be determined based on lower of (A) the average of the closing prices of our Common Stock as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days prior to the IND Reference Date or (B) $2.95.

The value of any shares issued in consideration for the Phase 2 Milestone Consideration Amount shall be determined based the lower of (A) on the average of the closing trading prices of our Common Stock as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days immediately preceding the date of the occurrence of the Phase 2 Milestone Event or (B) $3.54.

The acquisition of Spitfire was accounted for as an asset acquisition instead of a business combination because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset or group of similar identifiable assets, and therefore, the asset was not considered a business.

The Company expensed the acquired intellectual property as of the acquisition date as in-process research and development with no alternative future uses.

The Company recorded an in-process research and development expense for the up-front consideration during the third quarter of 2019.

Transaction costs of $0.6 million were recorded within research and development expense on the Company’s consolidated statements of operations and comprehensive loss during the three and six months ended June 30, 2019.

The future contingent payments related to the Regulatory Milestones are stock-based payments accounted for under FASB Accounting Standards Codification Topic 480, Distinguishing Liabilities From Equity .

Such stock-based payments are subject to a lock-up whereby 50% of the shares are released at 3 months and 50% are released at 6 months.

As of the acquisition date, the Company estimated future contingent consideration of $2.8 million based upon a Monte Carlo simulation that was risk adjusted based on the probability of achieving the milestones and a discount for lack of marketability, which was expensed to in-process research and development expenses during the third quarter of 2019.

The Company remeasured the fair value of the contingent consideration as of June 30, 2020, and increased the liability from March 31, 2020 to $16.4 million primarily due to an increase in the share price during the six months ended June 30, 2020 and an increase in the probability of milestone achievement.

The increased change in the liability of $11.9 million and $13.6 million was expensed to research and development expense during the three and six months ended June 30, 2020, respectively.

The future contingent payments related to the Sales Milestones are predominately cash-based payments accounted for under FASB Accounting Standards Codification Topic 450, Contingencies .

Accordingly, the Company will recognize the Sales Milestones when the contingency is resolved and the amount is paid or payable.

Net Loss Per Share

Because the Company has reported a net loss attributable to common stockholders for all periods presented, basic and diluted net loss per share attributable to common stockholders are the same for all periods presented.

For periods presented, all unvested restricted stock, common stock warrants, and stock options have been excluded from the computation of diluted weighted-average shares outstanding because such securities would have an antidilutive impact.

ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Potential common shares issuable upon conversion, vesting or exercise of unvested restricted stock, common stock warrants, and stock options that are excluded from the computation of diluted weighted-average shares outstanding , as they are anti-dilutive, are as follows:

For the Three and Six Months Ended

June 30, 2020

June 30, 2019

Common stock warrants

Common stock options

Restricted stock

Fair Value Measurements

The Company’s assets and liabilities measured at fair value on a recurring basis at September 30, 2020 consisted of the following:

Fair Value Measurement at September 30, 2020

Recurring fair value measurements

Cash equivalents - money market funds

Short-term investments

Contingent consideration liability (see Note 8)

Warrant liability

The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2019 consisted of the following:

Fair Value Measurement at December 31, 2019

Recurring fair value measurements

Cash equivalents - money market funds

Short-term investments

Contingent consideration liability (see Note 8)

Warrant liability

Short-term investments have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services or other market observable data (Level 2).

The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value.

Short-term investments had quoted prices at September 30, 2020 as shown below:

September 30, 2020

Amortized Cost

Unrealized Gain (Loss)

United States treasury securities

Financial and corporate debt securities

Certificate of deposit

The fair value of contingent payments classified as a liability was based on the regulatory milestones described in Note 8 and estimated using the Monte Carlo simulation valuation model with Level 3 inputs.

The following table is a reconciliation of the beginning and ending balance of contingent consideration liability:

Balance at December 31, 2019

Change in fair value

Balance at September 30, 2020

The assumptions used to estimate the fair value of contingent payments that are classified as a liability at September 30, 2020 include the following significant unobservable inputs:

Unobservable input

Value or Range

Weighted Average

Expected volatility

Risk-free interest rate

Cost of capital

Discount for lack of marketability

Probability of payment

Projected year of payment

The Company’s warrant liability is valued using the Monte Carlo simulation valuation model with Level 3 inputs.

If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs.

There were no transfers into and out of any of the levels of the fair value hierarchy as of September 30, 2020 and December 31, 2019.

Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a non - recurring basis.

Assets re corded at fair value on a non - recurring basis, such as property and equipment and intangible assets are recognized at fair value when they are impaired.

As of September 30, 2020, the Company had no significant assets or liabilities that were measured at fa ir value on a non - recurring basis.

Intangible Assets

The Company’s intangible assets consisted of the following:

June 30, 2020

September 30, 2020

Internally developed patents

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Total intangible assets subject to amortization

Amortization expense of intangible assets was $12,025 and $14,836 for the three months ended June 30, 2020 and 2019, and $25,876 and $107,580 for the six months ended June 30, 2020 and 2019, respectively.

Amortization expense of intangible assets was $10,406 and $28,084 for the three months ended September 30, 2020 and 2019, and $36,282 and $135,664 for the nine months ended September 30, 2020 and 2019, respectively.

Amortization expense was classified as research and development expenses in the accompanying unaudited consolidated statements of operations and comprehensive loss.

As of June 30, 2020, future estimated amortization expense are as follows:

As of September 30, 2020, future estimated amortization expense was as follows:

Years ending December 31,

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2025 and thereafter

ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Operating Leases

The Company rents office and laboratory space in the United States.

The Company also leases office equipment under a non-cancellable equipment lease through December 2022.

Rent expense during the three and nine months ended September 30, 2020 under all of the Company’s operating leases was $107,709 and $281,603, respectively.

Rent expense during the three and nine months ended September 30, 2019 was $84,745 and $258,824, respectively.

Rent expense includes short-term leases and variable lease costs that are not included in the lease obligation.

Short-term leases are leases having a term of twelve months or less.

The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.

The office space leases provide for increases in future minimum annual rental payments as defined in the lease agreements.

The Company has determined the lease renewal option is not reasonably certain.

The cash paid for operating lease liabilities for the three and nine months ended September 30, 2020 was $64,244 and $190,317, respectively.

Supplemental other information related to the operating leases balance sheet information is as follows:

September 30, 2020

Operating lease obligations (see Note 6 and 9)

Operating lease right-of-use assets

Weighted-average remaining lease term

Weighted-average discount rate

Maturities of lease liabilities is as follows:

Year ending December 31,

The remainder of 2020

2025 and thereafter

Total lease payments

Less imputed interest

Accrued Expenses

Accrued expenses and other current liabilities consist of the following:

September 30,

Accrued professional services

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All or a portion of the Loan may be forgiven by the SBA and lender upon application by the Company upon documentation of expenditures in accordance with the SBA requirements.

Subsequent to the quarter ended June 30, 2020, the Company received approximately $136.2 million in net proceeds from warrant exercises, ATM usage, and the public offering of its common stock and decided to voluntarily extinguish the Promissory Note on July 21, 2020 by paying the outstanding principal and accrued interest in cash.

On July 21, 2020, the Company voluntarily extinguished the Promissory Note by paying the outstanding principal and accrued interest in cash.

As of September 30, 2020, no amounts were outstanding.

Contingent Consideration

The Company entered into a definitive agreement to acquire all of the equity interests of Spitfire Pharma, Inc.

(“Spitfire”) on July 8, 2019.

Spitfire was a privately held, preclinical pharmaceutical company developing a novel dual GLP-1/glucagon receptor agonist for the treatment of non-alcoholic steatohepatitis.

The transaction closed on July 12, 2019.

The Merger Agreement also includes future contingent payments up to $88.0 million in cash and shares of the Company’s common stock as follows (each, a “Milestone Event”):

On November 3, 2020, the Company received acknowledgement from the Australian Government Department of Health on the Company’s submitted clinical trial notification (“CTN”) which triggers the IND Milestone payment of 1,694,916 shares of the Company’s Common Stock to the previous owners.

Pursuant to the Merger Agreement, the Company will issue the shares within sixty days of the submission of the CTN, which was October 29, 2020.

The shares are subject to a lockup whereby 50% of the shares are released from restriction after 3 months, and the remainder are released from restriction after 6 months.

The Company expensed the acquired intellectual property as of the acquisition date as in-process research and development with no alternative future uses.

The Company recorded an in-process research and development expense for the up-front consideration during the third quarter of 2019.

Transaction costs of $0.1 million and $0.7 million were recorded within research and development expense on the Company’s consolidated statements of operations and comprehensive loss during the three and nine months ended September 30, 2019, respectively.

Such stock-based payments are subject to a lock-up whereby 50% of the shares are released at 3 months and 50% are released at 6 months.

The Company remeasured the fair value of the contingent consideration as of September 30, 2020, and increased the liability from June 30, 2020 to $25.1 million primarily due to an increase in the share price during the nine months ended September 30, 2020 and an increase in the probability of milestone achievement.

The change in the liability of $8.7 million and $22.3 million was expensed to research and development expense during the three and nine months ended September 30, 2020, respectively.

The future contingent payments related to the Sales Milestones are predominately cash-based payments accounted for under FASB Accounting Standards Codification Topic 450, Contingencies .

Accordingly, the Company will recognize the Sales Milestones when the contingency is resolved and the amount is paid or payable.

Other Long-Term Liabilities

The Company’s other long-term liabilities are summarized as follows:

September 30,

Lease obligation, long-term portion (see Note 5)

Common stock warrant liability (see Note 10)

Economic conditional grants

Conditional economic incentive grants

Total other long-term liabilities

Public Offering

On July 16, 2020, the Company offered and sold (i) 3,369,564 shares of common stock, at a price to the public of $23.00 per share, and (ii) pre-funded warrants of the Company to purchase 1,630,436 shares of 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 the Company’s 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 the Company’s 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 the Company.

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 the Company.

The Company has assessed the Pre-Funded Warrants for appropriate equity or liability classification and determined that the Pre-Funded Warrants are freestanding instruments that do not meet the definition of a liability pursuant to ASC 480 and do not meet the definition of a derivative pursuant to FASB Accounting Standards Codification Topic 815, Derivatives and Hedging (“ASC 815”).

The Pre-Funded Warrants are indexed to the Company’s common stock and meet all other conditions for equity classification under ASC 480 and ASC 815.

Accordingly, the Pre-Funded Warrants are classified as equity and are accounted for as a component of additional paid-in capital at the time of issuance.

During the nine months ended September 30, 2020, no Pre-Funded Warrants were exercised.

At-the-Market Offering

O n March 27, 2020, the Company 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 the Company may offer and sell, from time to time at its sole discretion, shares of its 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”).

Any Shares offered and sold in the Offering will be issued pursuant to the Company’s Registration Statement on Form S-3 filed with the Securities and Exchange Commission (the “SEC”) on April 4, 2019, which was declared effective on April 12, 2019, the prospectus supplement relating to the Offering filed with the SEC on March 27, 2020 and any applicable additional prospectus supplements related to the Offering that

ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

form a part of the Registration Statement.

The aggregate market value of Shares eligible for sale in the Offering and under the Equity Distribution Agreement will be subject to the limitations of General Instruction I.B.6 of Form S-3, to the extent required under such instruction.

The Company offered Shares having an aggregate offering price of $ 18.9 million pursuant to the pro spectus supplement filed with the SEC on March 27, 2020.

The Company 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, the Company 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, the Company has 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.

As of June 30, 2020, the Company recorded approximately $0.3 million of offering costs which offset the proceeds received from the shares sold through June 30, 2020 and recognized approximately $0.2 million of deferred offering costs which will offset future proceeds received under the Agreement.

Subsequent to the quarter ended June 30, 2020, the Company sold 234,856 shares of Common Stock under the Equity Distribution Agreement, that resulted in $2.5 million in net proceeds, leaving $23.7 million available to be sold under the amended Agreement.

A summary of warrant activity during the six months ended June 30, 2020 is as follows:

As of September 30, 2020, the Company has sold 3,213,009 shares of Common Stock under the Agreement resulting in $25.6 million in net proceeds, with $23.4 million remaining available to be sold under the amended Agreement.

As of September 30, 2020, the Company recorded approximately $0.3 million of offering costs which offset the proceeds received from the shares sold through September 30, 2020 and recognized approximately $0.2 million of deferred offering costs which will offset future proceeds received under the Agreement.

A summary of warrant activity during the nine months ended September 30, 2020 is as follows:

Warrants outstanding, December 31, 2019

Warrants issued due to anti-dilution features triggered from Registered Direct Offering

Warrants outstanding, June 30, 2020

During the six months ended June 30, 2020, the Company received net proceeds of $31.3 million from warrant exercises.

For warrants classified as a liability, the following is a summary of the periodic changes in their fair value during the six months ended June 30, 2020:

Warrants outstanding, September 30, 2020

During the nine months ended September 30, 2020, the Company received net proceeds of $41.0 million from warrant exercises.

For warrants classified as a liability, the following is a summary of the periodic changes in their fair value during the nine months ended September 30, 2020:

Balance, December 31, 2019

Changes in fair value

Balance, June 30, 2020

Subsequent to the quarter ended June 30, 2020, there were additionally 1,983,110 warrants exercised resulting in net proceeds of $9.6 million and 1,630,436 pre-funded warrants issued in connection with a Public Offering (see Note 16).

Balance, September 30, 2020

Stock-Based Compensation

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The Company’s stock option awards generally vest over four years and typically have a contractual life of ten years.

At June 30, 2020, there was $1.9 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 3.06 years.

During the six months ended June 30, 2020, the Company granted 520,500 stock options with a weighted average exercise price of $2.31 and per share weighted average grant date fair value of $1.83.

Information related to stock options outstanding at June 30, 2020 is as follows:

ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At September 30, 2020, there was $3.1 million of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of 2.55 years.

During the nine months ended September 30, 2020, the Company granted 698,000 stock options with a weighted average exercise price of $4.64 and per share weighted average grant date fair value of 3.69.

Information related to stock options outstanding at September 30, 2020 is as follows:

Restricted Stock

At June 30, 2020, the Company had unvested restricted stock of 195,161 shares with total unrecognized compensation expense of $0.7 million, which the Company expects to recognize over a weighted average period of approximately 2.42 years.

During the six months ended June 30, 2020, the Company released 40,505 shares of common stock from restriction as a result of the vesting of restricted stock.

Restricted Stock Units

During the three months ended June 30, 2020, the Company granted 109,525 shares of restricted stock units which vest during the third quarter of 2020.

At June 30, 2020, the Company had unvested restricted stock units of 109,525 shares with total unrecognized compensation expense of $0.9 million, which the Company expects to recognize over a weighted average period of approximately 0.25 years.

At September 30, 2020, the Company had unvested restricted stock of 174,908 shares with total unrecognized compensation expense of $0.6 million, which the Company expects to recognize over a weighted average period of approximately 2.17 years.

During the nine months ended September 30, 2020, the Company released 60,758 shares of common stock from restriction as a result of the vesting of restricted stock.

During the third quarter of 2020, the Company granted 15,000 shares of restricted stock units which vest over four years.

At September 30, 2020, the Company had unvested restricted stock units of 15,000 shares with total unrecognized compensation expense of $0.2 million, which the Company expects to recognize over a weighted average period of approximately 3.99 years.

2019 Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (“ESPP”), employees purchased 38,809 shares for $56,739 during the six months ended June 30, 2020.

During the three and six months ended June 30, 2020, the Company recognized compensation expense of $20,372 and $35,084, respectively.

Under the Employee Stock Purchase Plan (“ESPP”), employees purchased 53,852 shares for $0.1 million during the three months ended September 30, 2020.

During the three and nine months ended September 30, 2020, the Company recognized compensation expense of $87,092 and $122,177, respectively.

Stock-based Compensation Expense

Stock-based compensation expense is classified in the unaudited consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2020 and 2019 as follows:

Stock-based compensation expense is classified in the unaudited consolidated statements of operations and comprehensive loss for the three and nine months ended September 30, 2020 and 2019 as follows:

For the Three Months Ended

For the Six Months Ended

September 30,

For the Nine Months Ended

September 30,

Research and development

General and administrative

Operating Leases

The Company rents office and laboratory space in the United States.

The Company also leases office equipment under a non-cancellable equipment lease through December 2022.

Rent expense during the three and six months ended June 30, 2020 under all of the Company’s operating leases was $86,295 and $173,894, respectively.

Rent expense during the three and six months ended June 30, 2019 was $83,903 and $174,079, respectively.

Rent expense includes short-term leases and variable lease costs that are not included in the lease obligation.

Short-term leases are leases having a term of twelve months or less.

The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.

The office space lease provides for increases in future minimum annual rental payments as defined in the lease agreements.

The Company has determined the lease renewal option is not reasonably certain.

The cash paid for operating lease liabilities for the three and six months ended June 30, 2020 was $64,193 and $126,073, respectively.

Supplemental other information related to the operating leases balance sheet information is as follows:

June 30, 2020

Operating lease obligations

Operating lease right-of-use assets

Weighted-average remaining lease term

Weighted-average discount rate

Maturities of lease liabilities is as follows:

ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ending December 31,

The remainder of 2020

2025 and thereafter

Total lease payments

Less imputed interest

Government Contracts and Grants

In June 2020, the Company was 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 will pay the Company 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 three and nine months ended September 30, 2020, the Company has recognized $2.3 million of grant revenue under the contract.

In response to global pandemic associated with COVID-19, President Donald Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020.

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The CARES Act enables the Company to file a refund claim to reflect a refund of its 2016 tax liability by carrying back its 2018, 2019 and 2020 losses to fully offset this liability.

The refund claim attributable to the 2018 and 2019 tax years has been recorded as a discrete item in the income tax benefit for the three months ended March 31, 2020 of $2.9 million.

In addition, the Company is currently estimating it will be able to carry back a portion of its current and forecasted 2020 net operating losses as of the end of the year and has included an estimate in its annual effective tax rate calculation as of June 30, 2020, which resulted in an additional income tax benefit of $1.0 million recorded during the six months ended June 30, 2020.

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.

Accordingly, the Company has recognized a total tax benefit of $4.8 million for the six months ended June 30, 2020.

The refund claim attributable to the 2018 and 2019 tax years has been recorded as a discrete item in the income tax benefit for the nine months ended September 30, 2020 of $3.9 million related to the U.S.

Federal and Maryland state benefit and represents a partial refund of the Company’s 2016 tax liability.

In addition, the Company is currently estimating it will be able to carry back a portion of its current and forecasted 2020 net operating losses as of the end of the year and has included an estimate in its annual effective tax rate calculation as of September 30, 2020, which resulted in an additional income tax benefit of $0.5 million and $1.4 million recorded during the three and nine months ended September 30, 2020, respectively.

Accordingly, the Company has recognized a total tax benefit of $5.3 million for the nine months ended September 30, 2020.

Net Loss Per Share

Basic net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted average numbers of shares of common stock outstanding for the period.

Basic shares outstanding includes the weighted average effect of the Company’s outstanding pre-funded warrants, the exercise of which requires little or no consideration for the delivery of shares of common stock.

Diluted net loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period.

As such, all unvested restricted stock, common stock warrants, and stock options have been excluded from the computation of diluted weighted average shares outstanding because such securities would have an anti-dilutive impact for all periods presented.

For the Three and Nine Months Ended

September 30, 2020

September 30, 2019

Common stock warrants

Common stock options

Restricted stock

Commitments and Contingencies

5 unchanged sentences

3 to the Second Restated License Agreement (the “Amendment”), by and between the Company and Janssen Vaccines & Prevention B.V.

(formerly known as Crucell Holland B.V.) (as amended by Amendment No.

(formerly known as Crucell Holland B.V.) (as amended by Amend ment No.

1 to Second Restated License Agreement and Amendment No.

2 to Second Restated License Agreement, together with the Amendment, the “License Agreement”).

Pursuant to the Amendment, the field of licenses granted to the Company for the use of the PER.C6 cell line under the License Agreement is expanded to cover COVID-19 caused by SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), in addition to the existing licenses related to Bacillus anthracis and influenza virus.

Pursuant to the Amendment, the field of licenses granted to the Company for the use of the PER.

C6 cell line under the License Agreement is expanded to cover COVID-19 caused by SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), in addition to the existing licenses related to Bacillus anthracis and influenza virus.

All capitalized terms not defined herein shall have the meanings assigned to them in the Amendment or the License Agreement, as applicable.

1 unchanged sentence

The Company also agreed to pay royalty payments as a percentage of net sales of products to a royalty stacking reduction and minimum annual royalty payments, until the expiration of the term of the License Agreement, as amended.

As of June 30, 2020, payments made under the License Agreement were de minimis.

ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2020, payments made under the License Agreement were de minimis.

In December 2019, a complaint was filed by Dr.

De-Chu Christopher Tang (“Plaintiff”) against the Company in U.S.

District Court for the Eastern District of Texas.

De-Chu Christopher Tang (“Plaintiff”) against the Company in United States District Court for the Eastern District of Texas.

The Plaintiff amended the complaint in February 2020 to include Vipin K.

4 unchanged sentences

The Court denied the motion without prejudice and allowed Plaintiff an opportunity to file an amended complaint.

Plaintiff’s second amende d complaint was filed on April 17, 2020, and Defendants filed a motion to dismiss that complaint on May 1, 2020 .

Plaintiff’s second amended complaint was filed on April 17, 2020, and Defendants filed a motion to dismiss that complaint on May 1, 2020.

A hearing on Defendants’ motion to dismiss was held on May 20, 2020, and the motion is currently pending.

Plaintiff, who is representing himself, alleges five causes of action as follows:

(1) Defendants’ alleged retention of Plaintiff’s lab notebook s;

(1) Defendants’ alleged retention of Plaintiff’s lab notebooks after the termination of his employment in 2012;

(2) alleged plagiarism based on publishing an article without naming Plaintiff as an author;

(3) use of the Adhigh System, which Plaintiff alleges he developed;

(4) allegations that Defendants manipulated the Company’s stock and caused a decrease in val ue;

and (5) allegations that the Defendants “wast[ed] government grant money and poison[ed] science by leaving data to rot.” A hearing on Defendants’ motion to dismiss was held on May 20, 2020, and the motion is currently pending.

(4) allegations that Defendants manipulated the Company’s stock and caused a decrease in value;

and (5) allegations that the Defendants “wast[ed] government grant money and poison[ed] science by leaving data to rot.” On September 30, 2020, Plaintiff filed a motion titled “Motion to Proscribe Defendants’ Allegedly Illegal Use of Plaintiff’s AdHigh System in Altimmune’s Human Clinical Trials,” to which Defendants filed an opposition on October 13, 2020.

The court has not yet ruled on that motion, which also remains pending.

The Company believes the allegations in the complaint are without merit and intends to vigorously defend the litigation.

However, the outcome of this legal proceeding is uncertain at this time and the Company cannot reasonably estimate a range of loss, if any.

Accordingly, the Com pany has not accrued any liability associated with this action.

The Company is a party in various other contractual disputes, litigation, and potential claims arising in the ordinary course of business none of which are currently reasonably possible o r probable of material loss .

Fair Value Measurement

The Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2020 consisted of the following:

Fair Value Measurement at June 30, 2020

Recurring fair value measurements

Cash equivalents - money market funds

Short-term investments

Contingent consideration

Warrant liability

The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2019 consisted of the following:

Fair Value Measurement at December 31, 2019

Recurring fair value measurements

Cash equivalents - money market funds

Short-term investments

Contingent consideration

Warrant liability

Assets recorded at fair value on a nonrecurring basis, such as property and equipment and intangible assets are recognized at fair value when they are impaired.

Cash equivalents and short-term investments have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services or other market observable data.

The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value.

Short-term investments had quoted prices at June 30, 2020 as shown below:

June 30, 2020

Amortized Cost

Unrealized Gain (Loss)

Certificate of deposit

Financial and corporate debt securities

The fair value of contingent payments classified as a liability was based on the regulatory milestones described in Note 3 and estimated using the Monte Carlo simulation valuation model with Level 3 inputs.

The following table is a reconciliation of the beginning and ending balance of contingent consideration liability:

ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Balance at December 31, 2019

Change in fair value

Balance at June 30, 2020

The assumptions used to estimate the fair value of contingent payments that are classified as a liability at June 30, 2020 include the following significant unobservable inputs:

Unobservable input

Value or Range

Weighted Average

Expected volatility

Risk-free interest rate

Cost of capital

Discount for lack of marketability

Probability of payment

Projected year of payment

The Company’s warrant liability is valued using the Monte Carlo simulation valuation model.

There were no transfers into and out of any of the levels of the fair value hierarchy as of June 30, 2020 and December 31, 2019.

Accordingly, the Company has not accrued any liability associated with this action.

Subsequent Events

Public Offering

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.

Contingent Consideration

On November 3, 2020, the Company received acknowledgement from the Australian Government Department of Health on the Company’s submitted clinical trial notification which triggers the IND Milestone payment.

See Note 8 for further details.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements