What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-11 · 89 added, 65 removed, 102 unchanged (60% of the section changed)

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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.

We expect we will be able to provide an update on timing for initiating the study towards the end of 2020.

Although operations have not been materially affected by the COVID-19 pandemic as of and for the three and nine months ended September 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.

In addition, a recurrence or “second wave” of COVID-19 cases 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— 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.

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 pays 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 three and nine months ended September 30, 2020, we have rec ognized approximately $2.3 million of grant revenue under the contract.

In July 2016, we signed a five-year contract with Biomedical Advanced Research and Development Authority (“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.

For the three and nine months ended September 30, 2020, we have recognized approximately $0.6 million and $2.7 million, respectively, of grant revenue under the current BARDA contract.

Critical Accounting Policies and Significant Judgment and Estimates

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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 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 ).

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, 2019 except for recently adopted accounting standards (See 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:

Comparison of the three months ended September 30, 2020 and 2019:

For the Three Months Ended

September 30,

Increase (Decrease)

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General and administrative

Impairment charges

Total operating expenses

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Interest income

Other (expenses), net

Total other (expense) income, net

Other income (expenses), net

Total other income, net

Net loss before income tax benefit

Income tax benefit

Comparison of the six months ended June 30, 2020 and 2019:

For the Six Months Ended

C omparison of the nine months ended September 30, 2020 and 2019:

For the Nine Months Ended

September 30,

Increase (Decrease)

2 unchanged sentences

General and administrative

Impairment charges

Total operating expenses

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Interest income

Other (expenses) income, net

Other income (expenses), net

Total other income, net

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Income tax benefit

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;

an increase of $0.2 million in other revenue related to the sale of flu virus vials.

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;

Revenue consists primarily of research grants in the United States from MTEC for our T-COVID product candidate, BARDA, and in 2019, the National Institute of Allergy and Infectious Diseases (“NIAID”) for our anthrax vaccine product candidates.

These grants consist of firm fixed fee contracts based on milestones and cost reimbursement contracts, with a fixed fee based on either costs or milestones.

Revenue increased by $2.3 million, or 356%, for the three months ended September 30, 2020 as compared to the same period in 2019.

The increase was primarily the result of:

an increase of $2.3 million in MTEC revenue attributable to a clinical trial and development work on the T-COVID program;

an increase of $0.3 million in BARDA revenue due to timing of clinical trials and development activities on the NasoShield program;

a decrease of $0.3 million in grant revenue related to the France BPI note during 2019.

Revenue increased by $0.6 million, or 12%, for the nine months ended September 30, 2020 as compared to the same period in 2019.

The increase was primarily the result of:

an increase of $2.3 million in MTEC revenue attributable to a clinical trial and development work on the T-COVID program;

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;

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.

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.

a decrease of $2.1 million in BARDA revenue due to timing of clinical trials and development activities on the NasoShield program;

a decrease of $0.2 million in other revenue.

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.

Research and development operating expense increased by $8.3 million, or 95%, for the three months ended September 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 $4.4 million due to development activities for the COVID-19 programs, which include AdCOVID and T-COVID;

an increase of $1.5 million due to an increase in the contingent consideration liability that is partially offset by costs incurred in July 2019 with respect to the acquisition of ALT-801;

an increase of $1.2 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;

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.

an increase of $1.2 million in pre-clinical and clinical projects and non-project specific research and development costs including employee compensation and facility costs.

Research and development operating expense increased by $25.9 million, or 174%, for the nine months ended September 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 $14.6 million due to an increase in the contingent consideration liability that is partially offset by costs incurred in July 2019 with respect to the acquisition of ALT-801;

an increase of $5.5 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 $5.4 million due to development activities for the COVID-19 program s, which include AdCOVID and T-COVID ;

an increase of $1.9 million in pre-clinical projects and non-project specific research and development costs including employee compensation and facility costs;

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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.

General and administrative expense increased by $2.0 million, or 93%, for the three months ended September 30, 2020 and by $2.6 million, or 40%, for the nine months ended September 30, 2020, as compared to the same periods in 2019 due primarily to an increase in stock compensation expense, legal, professional and labor related costs.

Impairment charges

Impairment charges of $1.0 million reported during the three and nine months ended September 30, 2019 resulted from the completion of SparVax-L NIAID contract with no future funding identified.

As a result of the contract completion and the US government’s funding prioritization of only single dose anthrax vaccine candidates, we abandoned the project and impaired the remaining net book value of the SparVax-L IPR&D asset.

Total other income, net

Total other income, net decreased $0.2 million during the three months ended September 30, 2020 and decreased by $0.4 million during the nine months ended September 30, 2020 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.

Income tax benefit increased by $0.4 million and $5.2 million during the three and nine months ended September 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.

As of September 30, 2020, the Company intends to file a refund claim for a discrete item of $3.9 million with the U.S.

Federal and Maryland tax authorities, reflecting a partial refund of its 2016 tax liability by carrying back its 2018 and 2019 losses not previously claimed.

In addition, the Company is currently estimating it will be able to carry back a portion of its forecasted 2020 net operating losses, 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.

Liquidity and Capital Resources

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.

Our primary sources of cash during the nine months ended September 30, 2020 were from equity activity, maturities of short-term investments and cash receipts of revenue from our BARDA and MTEC contracts.

Our cash, cash equivalents, and short-term investments were $206.8 million at September 30, 2020.

We believe, based on the operating cash requirements and capital expenditures expected for 2020 and 2021, our cash on hand at September 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 September 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.

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 June 30, 2020, we had accumulated losses of $158.0 million since our inception.

As of September 30, 2020, we had accumulated losses of $175.8 million since our inception.

In addition, we have not generated positive cash flows from operations.

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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 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.

Under the contract, MTEC pays 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, 2020, we have received in cash an aggregate of approximately $0.1 million under the contract.

In July 2016, we signed a five-year contract with BARDA.

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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.

The following table provides information regarding our cash flows for the six months ended June 30, 2020 and 2019:

Six Months Ended June 30,

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 September 30, 2020 , we have received in cash an aggregate of approximately $24.1 million under the current BARDA contract.

The following table provides information regarding our cash flows for the nine months ended September 30, 2020 and 2019:

Nine Months Ended September 30,

Net cash provided by (used in):

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Financing activities

Net increase in cash and cash equivalents and restricted cash

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

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.

Net cash used in operating activities was $21.0 million for the nine months ended September 30, 2020 compared to $7.6 million during the nine months ended September 30, 2019.

Our sources of cash provided by operations during the nine months ended September 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.

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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.

Net cash used by investing activities was $35.2 million for the nine months ended September 30, 2020 compared to $28.2 million during the nine months ended September 30, 2019.

The net cash used by investing activities during 2020 was primarily due to purchases and maturities of short-term investments.

The net cash used in investing activities in 2019 was primarily due to purchases of short-term investments.

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 .

Net cash provided by financing activities during the nine months ended September 30, 2020 was $190.8 million compared to $12.5 million for the nine months ended September 30, 2019.

The net cash provided by financing activities during the nine months ended September 30, 2020 was primarily the result of the receipt of $124.0 million in proceeds from a public offering (as discussed below), $41.0 million in proceeds from the exercise of warrants and $25.6 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 nine months ended September 30, 2019 was primarily the result of the receipt of $12.7 million in proceeds from a registered direct offering of units that consisted of common stock and warrants .

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 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.

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 the Company.

At-the-Market Offering

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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.

As of September 30, 2020, we 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.

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.

At September 30, 2020 , we had $143.5 million of cash, cash equivalents and restricted cash and $63.3 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 September 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.

As of September 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.

Quantitative and Qualitative Disclosures about Market Risk

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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 2. Management’s Discussion and Analysis