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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-03-27 · 231 added, 242 removed, 154 unchanged (75% of the section changed)

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Altimmune, Inc.

is a clinical stage biopharmaceutical company focused on developing treatments for liver disease, immune modulating therapies, and vaccines.

Our diverse pipeline of product candidates includes next generation peptide therapeutics for NASH (ALT-801) and chronic hepatitis B (HepTcell), conjugated immunostimulants for the treatment of cancer (ALT-702) and intranasal vaccines (NasoVAX, NasoShield and AdCOVID).

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 non-alcoholic steatohepatitis (“NASH”) (ALT-801) and chronic hepatitis B (HepTcell).

Our business is the result of a merger between PharmAthene, Inc.

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(“Private Altimmune”).

In May 2017, Private Altimmune merged with PharmAthene pursuant to an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) dated January 18, 2017, among Private Altimmune, PharmAthene, its wholly owned acquisition subsidiaries Mustang Merger Sub Corp I Inc.

(“Merger Sub Corp”) and Mustang Merger Sub II LLC (“Merger Sub LLC”).

Pursuant to the Merger Agreement, Merger Sub LLC agreed to acquire 100% of the outstanding capital stock of Private Altimmune in a reverse triangular merger and reorganization pursuant to section 368(a) of the Internal Revenue Code (the “Mergers”).

On May 4, 2017, Private Altimmune merged with PharmAthene in a series of mergers and reorganizations (collectively, the “Mergers”) pursuant to an Agreement and Plan of Merger and Reorganization (the “PharmAthene Merger Agreement”) dated January 18, 2017, among Private Altimmune, PharmAthene, its wholly owned acquisition subsidiaries Mustang Merger Sub Corp I Inc.

and Mustang Merger Sub II LLC.

Upon closing of the Mergers, all equity instruments of Private Altimmune were exchanged for corresponding equity instruments of PharmAthene.

Prior to the Mergers, PharmAthene was a publicly traded biodefense company engaged in Phase 2 clinical trials.

We completed an acquisition in July 2019 to acquire all of the equity interests of Spitfire Pharma, Inc.

(“Spitfire”).

Spitfire was a privately held, preclinical pharmaceutical company with the primary asset being a novel, peptide-based dual GLP-1/glucagon receptor agonist for the treatment of NASH.

We refer to this product candidate as ALT-801, and it is designed to treat the metabolic dysfunction that causes non-alcoholic steatohepatitis.

NASH, the most severe form of NAFLD, involves multiple metabolic pathways leading to the abnormal accumulation of liver fat, toxic lipid metabolites, and inflammation, leading to fibrosis or eventually liver cancer.

As observed in a well-established preclinical model of the disease, ALT-801 was capable of inducing significant weight loss and treating the obesity and metabolic dysfunction underlying the disorder.

We plan to advance ALT-801 into Phase 1 development in 2020.

HepTcell is an immunotherapeutic product candidate for patients chronically infected with the hepatitis B virus (“HBV”).

It is designed to drive CD4+ and CD8+ T-cell responses against all HBV genotypes in patients of all ethnic backgrounds.

Stimulating T-cell responses in chronically infected HBV patients has been challenging because chronic infection with HBV strongly diminishes T-cell immunity directed against the virus.

HepTcell focuses the immune system on discrete highly conserved regions of the HBV proteome.

We believe our approach may allow HepTcell to break immune tolerance by activating T-cells against critical viral sequences with decreased probability of immune escape due to viral mutation.

HepTcell is based on our synthetic peptide technology platform and is given by intramuscular injection.

In 2018 we completed a Phase 1 trial in the United Kingdom and South Korea in patients with chronic HBV.

The HepTcell Phase 1 trial was a double-blinded, placebo-controlled, randomized, dose-escalation study that enrolled 61 subjects with chronic HBV who were HBeAg-negative and well-controlled on licensed antivirals.

A total of 41 patients received one of two dose levels of HepTcell, with and without IC31 TM , a depot forming TLR9 adjuvant developed by Valneva SE, while 20 control patients received either placebo or IC31 alone.

Patients received three injections each 28 days apart and were followed for six months after the final dose.

All dose combinations were generally well tolerated and met the primary endpoint of safety.

In the two adjuvanted HepTcell arms, T-cell responses against HBV markedly increased over baseline compared to placebo.

We plan to advance HepTcell into Phase 2 development in 2020.

ALT-702 is an investigational targeted tumor immunostimulant designed to act locally to reverse local immunosuppression within the tumor microenvironment and stimulate systemic antitumor immune responses.

The ALT-702 technology is a novel synthetic peptide conjugate technology platform designed to retain and concentrate immunostimulants within a tumor potentially leading to enhanced immune stimulation without the risk of systemic inflammation.

We believe that ALT-702 represents a new approach in immuno-oncology that may be developed as a monotherapy or be used in conjunction with immune checkpoint inhibitors, oncolytic viruses or other approaches in immuno-oncology or improve their effectiveness.

We are currently conducting preclinical studies using on an aggressive tumor model based on the murine CT26 colorectal carcinoma cell line.

We recently met a key pre-

clinical milestone with the demonstration of systemic antitumor activity following intra-tumoral injection in an individual solid tumor.

The aggressive tumor model involved the establishment of a tumor in each flank of a mouse.

In the study, three doses of ALT-702 were injected into one tumor mass over five days with concomitant treatment with an anti-CTLA4 antibody immune checkpoint inhibitor administered intraperitoneally.

Tumor regression was noted in both injected (88%) and non-injected (38%) lesions, and overall survival in the ALT-702 + anti-CTLA4 group was markedly better than either agent alone.

We plan to complete ALT-702’s pre-clinical data set in 20 20.

Except where the context indicates otherwise, references to “we,” “us,” “our,” “Altimmune” or the “Company” refer, for periods prior to the completion of the Mergers, to Private Altimmune and its subsidiaries, and for periods following the completion of the Mergers to the combined company and its subsidiaries.

AdCOVID is an intranasal COVID-19 vaccine candidate designed to guard the respiratory tract from viral invasion and to provide downstream protection against viral spread through stimulation of both mucosal and systemic antibodies (IgA and IgG) as well as cell-mediated immunity.

By stimulating mucosal immunity in the nasal cavity, a key point of entry and replication for the SARS-CoV-2 virus, AdCOVID has the potential to defend against both the infection and spread of the virus to others.

AdCOVID’s intranasal delivery method provides an easier route of administration than an injection and may eliminate the need for administration by trained medical personnel.

We believe nasal mucosal immunity has the potential to provide an effective protection at the site of viral entry and early replication, and may block transmission by shed virus.

We believe AdCOVID has the potential to meet most of the World Health Organization’s published preferred attributes for a COVID-19 vaccine, including single dose, rapid onset of protection, immunity lasting one year, non-injected and temperature stability.

In particular, data from our NasoVAX clinical trials demonstrated a strong serological response at two weeks that remained unchanged at 400 days, after a single dose.

In addition, since it is expected to have extended stability at room temperature, AdCOVID may avoid the need for costly cold chain logistics.

During 2020, we completed initial preclinical mouse studies in collaboration with the University of Alabama at Birmingham (“UAB”) and began manufacturing AdCOVID during the third quarter of 2020.

We submitted an Investigation New Drug application (“IND”) with the U.S.

Food and Drug Administration (“FDA”) in the fourth quarter of 2020 and received clearance from the FDA in February 2021 to initiate a Phase 1 clinical trial of AdCOVID.

The Phase 1 clinical trial is currently enrolling and will evaluate the safety and immunogenicity of AdCOVID in up to 180 healthy adult volunteers between the ages of 18 and 55, with data expected in the second quarter of 2021.

T-COVID is an intranasal immune modulating therapeutic candidate based on the same replication-deficient adenovirus 5 (“RD-Ad5”) vector technology behind our other intranasal vaccine candidates, but it acts through a different mechanism.

In preclinical studies sponsored by the National Institute of Allergy and Infectious Diseases, intranasal administration of RD-Ad5 vectors modulated the innate immune response to lethal challenge with a respiratory virus in mice and protected them from death.

The immunomodulatory effects resulted in significantly decreased cellular inflammation and lower concentrations of IL-6 and other inflammatory cytokines in the lungs of treated animals compared to controls.

Excessive production of inflammatory cytokines like IL-6 has been associated with the lung pathology and death in COVID-19.

The protective effects were independent of any specific immunity or vaccine effects against the challenge virus.

These protective effects were only observed with intranasal administration of RD-Ad5, and intramuscular administration provided no survival benefit.

With the support of the U.S.

Army Medical Research & Development Command in collaboration with the Medical Technology Enterprise Consortium, we initiated a placebo-controlled Phase 1/2 double-blind clinical trial to evaluate the potential of T-COVID to

prevent clinical worsening in patients with early COVID-19 during 2020.

The trial is expected to enroll 96 community-based patients who are 18 years and older that present with fever, cough, or shortness of breath, with onset of symptoms within 48 hours, and a diagnosis of COVID-19 within 24 hours.

The trial consists of three cohorts of increasing age and risk for complications of COVID-19, and patients are randomized 1:1 to NasoVAX or placebo administered as a single 0.5ml nasal spray within 24 hours of diagnosis.

The primary endpoint of the trial is the proportion of patients with clinical worsening, defined as a 4% decrease in pulse oxygen saturation, or the need for hospitalization.

Secondary endpoints will measure the average decrease in resting pulse oxygen saturation, average increase in resting pulse rate and proportion of patients requiring oxygen supplementation and mechanical ventilation.

In order to expedite the study, we have been permitted by the FDA to use existing lots of NasoVAX, which is an identical vector to T-COVID, in lieu of newly manufactured T-COVID.

The protocol was recently amended such that 40% of patients in the final cohort, in which efficacy will primarily be assessed, to be either 65 years and older or have risk for complications of COVID-19.

Based on these protocol changes, we expect to receive results from the Phase 1/2 trial in the second quarter of 2021 .

NasoShield is an anthrax vaccine product candidate designed to provide rapid and stable protection after a single intranasal administration.

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We believe the simplified immunization route and schedule, together with the reliable stability at ambient temperature may allow NasoShield to be deployed in an anthrax event more easily and faster than the currently approved vaccine.

We plan to commence a Phase 1b trial of NasoShield in 2020.

The planned Phase 1b clinical trial builds on the Phase 1a trial completed in 2018 and will evaluate modified methods of intranasal dosing on NasoShield safety and immunogenicity.

Results are expected in the fourth quarter of 2020.

We commenced a Phase 1b trial of NasoShield in adults in 2020 which builds on the Phase 1a trial completed in 2018 and evaluates the effect of modified methods of intranasal dosing on NasoShield safety and immunogenicity.

Results are expected in the first quarter of 2021.

NasoVAX is a recombinant intranasal vaccine product candidate that is being developed for both seasonal and pandemic use.

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The durability data show that the immune response elicited by NasoVAX was stable with no overall change in the antibody titer or level of seroprotection over an average of 13 months.

We believe the combination of serum antibody, mucosal antibody and T-cell response in combination with the durability data provides the potential for improved protection against influenza and suggests that NasoVAX could have a greater impact on flu symptoms and shedding of the influenza virus.

We are evaluating strategic alternatives to fund the development of NasoVAX, such as regional licensing, government funding, or co-development of the program.

In February 2020, we announced the advancement of AdCOVID, a novel single-dose, intranasal vaccine using our proprietary intranasal vaccine technology, to protect against COVID-19, the disease caused by the SARS-CoV-2 virus.

Based on the RespirVec vaccine platform, it is expected that AdCOVID will be able to activate the mucosal, humoral, and cellular immune arms against the virus that causes COVID-19.

We believe the excellent stability of RespirVec vaccines when combined with the simple intranasal route of administration may allow for efficient and inexpensive distribution of the vaccine.

We have completed the design and synthesis of the vaccine and are now advancing it toward animal testing and manufacturing.

We plan to initiate a Phase I clinical study for AdCOVID in the third quarter of 2020.

On August 16, 2017, we issued 15,656 shares of Series B redeemable convertible preferred stock, $0.0001 par value, (“redeemable preferred stock”) and warrants to purchase up to 78,181 shares of our common stock (the “Existing Warrants”) to certain institutional investors in a registered direct offering for total gross proceeds of $14.7 million, and incurred issuance costs totaling $1.7 million.

The redeemable preferred stock matured on August 16, 2018.

The maturity date was extendable at the option of the holders to ten trading days after the curing of a triggering event (as defined in the Certificate of Designations), or ten business days after the consummation of a change of control.

In addition, the redeemable preferred stock agreements required that we reserve a sufficient number of common shares to cover at least 150% of the common shares expected to be issued upon the conversion of the redeemable preferred stock at the then current conversion price, and the exercises of common stock warrants issued in connection with the redeemable preferred stock.

The redeemable preferred stock was to be redeemed in nine specified installments.

On each of the nine

monthly specified installment dates beginning in December 2017 through maturity, we c onvert ed , redeem ed , or a combination, one-ninth of the originally issued number of shares of redeemable preferred stock at their stated value of $1,000 per share, for an aggregate value of $1.7 million for each installment.

As we elect ed to convert the installment shares, the conversion price was determined based on the lowest of (i) the then applicable conversion price (initially $2.67 per share), (ii) 85% of the average of the three lowest weighted-average prices of the common stock during the ten trading days up to the installment date, and (iii) 85% of the weighted average price of common stock on the trading day immediately before the installment date.

If we elect ed cash redemption, the redemption amount was $1,000 per share, plus any accrued but unpaid dividends and any accrued but unpaid late charges.

During the year ended December 31, 2018, we converted 9,813 shares of the redeemable preferred sto ck for an aggregate of 502,078 shares of common stock.

We redeemed the remaining 2,364 shares of redeemable preferred stock for face value on June 22, 2018 in conjunction with the Exchanges (as defined below) .

On June 22, 2018 we entered into separate exchange agreements with certain holders of our redeemable preferred stock and Existing Warrants (“the “First Exchange Holders”) pursuant to which, we (i) issued an aggregate of 167,700 shares of common stock to the First Exchange Holders, (ii) issued convertible notes (the “Exchange Notes”) to the First Exchange Holders with an aggregate principal value of $1.5 million, which are initially convertible into up to 73,530 shares of our common stock upon the default by the Company or at the holder’s option on the maturity date subject to adjustment under certain circumstances in accordance with the terms of the Exchange Notes and (iii) paid $1.1 million in aggregate cash consideration to the First Exchange Holders, all in exchange for Existing Warrants to purchase up to 53,125 shares of common stock held by the First Exchange Holders.

We refer to these transactions as the “First Exchange.” In addition, the Company agreed to redeem the remaining shares of redeemable preferred stock held by the First Exchange Holders, in cash, at the aggregate face value of $2.4 million.

On July 11, 2018, we entered into exchange agreements with certain other holders of our redeemable preferred stock and Existing Warrants (the “Second Exchange Holders”) pursuant to which we (i) issued an aggregate of 32,124 shares of common stock to the Second Exchange Holders and (ii) paid $22,241 in aggregate cash consideration to the Second Exchange Holders, all in exchange for all of the outstanding shares of our redeemable preferred stock held by the Second Exchange Holders.

After receiving the approval of our stockholders at our annual meeting of stockholders held on August 30, 2018, we issued an additional 145,038 shares of common stock to the Second Exchange Holders in exchange for Existing Warrants to purchase up to 22,523 shares of common stock held by the Second Exchange Holders.

We refer to these transactions as the “Second Exchange.”

On September 7, 2018, we entered into exchange agreements with certain other holders of our Existing Warrants (“the Third Exchange Holders”) pursuant to which we issued an aggregate of 5,929 shares of common stock to the Third Exchange Holders in exchange for Existing Warrants to purchase up to 921 shares of common stock held by the Third Exchange Holders.

We refer to this transaction as the “Third Exchange” and together with the First Exchange and Second Exchange as the “Exchanges.”

On September 26, 2018, we issued an aggregate of 286,633 shares of our common stock at a purchase price of $17.02 per share to certain institutional investors in a registered direct offering (the “First Registered Direct Offering”).

The net proceeds of the First Registered Direct Offering were approximately $4.3 million, after deducting placement agent fees and estimated offering expenses payable by us.

On October 2, 2018, we issued a combined total of 2,400,000 common units and pre-funded units in an underwritten public offering (the “Unit Offering”).

Each common unit in the Offering was sold at a public offering price of $5.00 and consisted of one share of our common stock and a warrant to purchase one share of our common stock at an exercise price of $6.00.

Each warrant sold in the Unit Offering is exercisable immediately and expires five years from the date of issuance.

Each pre-funded unit in the Unit Offering was sold at a public offering price of $4.99 and consisted of a pre-funded warrant to purchase one share of our common stock at an exercise price of $0.01 per share and a warrant to purchase one share of our common stock at an exercise price of $6.00.

The pre-funded warrants were immediately exercisable and could be exercised at any time until all of the pre-funded warrants are exercised in full.

All of the pre-funded warrants were exercised between October 2, 2018 and December 31, 2018.

The net proceeds of the Unit Offering were approximately $10.7 million, after deducting the underwriting discount and estimated offering expenses payable by us.

The warrants issued in the Unit Offering are each subject to anti-dilution protection.

Accordingly, to the extent we were to issue additional common stock or securities convertible into common stock at an issuance price lower than exercise price of the warrants, the exercise price of the warrants would be adjusted to the lower of (i) the issuance price or (ii) the lowest volume weighted average price of the Company’s common stock on the five trading days following the announcement of the new offering.

On October 10, 2018, we issued a combined total of 4,629,630 common units and pre-funded units to certain institutional investors in a registered direct offering (the “Second Registered Direct Offering”).

Each common unit in the offering was sold at a price of $5.40 and consisted of one share of our common stock and a warrant to purchase one share of our common stock at an exercise price of $5.40.

Each warrant sold in the Second Registered Direct Offering is exercisable immediately and expires five years from the date of issuance.

Each pre-funded unit in the Second Registered Direct Offering was sold at a public offering price of $5.39

and consisted of a pre-funded warrant to purchase one share of our common stock at an exercise price of $0.01 per share and a warrant to purchase one share of our common stock at an exercise price of $5.40.

The pre-funded warrants were immediately exercisable and could be exercised at any time until all of the pre-funded warrants were exercised in full.

All of the pre-funded warrants were exercised between October 2, 2018 and December 31, 2018.

The net proceeds of the Second Registered Direct Offering were approximately $22.4 million, after deducting the underwriting discount and estimated offering expenses payable by us.

The Second Registered Direct Offering triggered an adjustment to the exercise price of the warrants issued in the Unit Offering from $6.00 to $4.1798.

On March 12, 2019, we issued a combined total of 4,361,370 common units and pre-funded units to certain institutional investors in a registered direct offering (the “Third Registered Direct Offering”).

Each common unit in the Third Registered Direct Offering was sold at a price of $3.21 and consisted of one share of our common stock and 0.70 of a warrant to purchase one share of our common stock at an exercise price of $3.21.

Each warrant sold in the Third Registered Direct Offering was exercisable immediately and expires five years from the date of issuance.

Each pre-funded unit in the Third Registered Direct Offering was sold at a public offering price of $3.20 and consisted of a pre-funded warrant to purchase one share of our common stock at an exercise price of $0.01 per share and 0.70 of a warrant to purchase one share of our common stock at an exercise price of $3.21.

The combination of serum antibody, mucosal antibody and T-cell response in combination with the durability data provides the potential for improved protection against influenza and suggests that NasoVAX could have a great impact on flu symptoms and shedding of the influenza virus.

We are currently evaluating the development path of NasoVAX .

We completed an acquisition in July 2019 of all of the equity interests of Spitfire Pharma, Inc.

(“Spitfire”).

Spitfire was a privately held, preclinical pharmaceutical company with the primary asset being a novel peptide-based dual GLP-1/glucagon receptor agonist for the treatment of NASH.

We refer to this product candidate as ALT-801, and it is designed to treat the obesity and metabolic dysfunction that causes NASH.

NASH, the most severe form of non-alcoholic fatty liver disease (“NAFLD”), involves multiple metabolic pathways leading to the abnormal accumulation of liver fat, toxic lipid metabolites, and inflammation, leading to fibrosis or eventually liver cancer.

NAFLD is present in up to 90% of obese patients, and approximately 20% of NAFLD patients progress to NASH.

In addition, up to 40% of NASH patients develop NAFLD recurrence one year after liver transplant, which we believe indicates that the underlying metabolic disease is still present after transplant.

We believe the treatment of obesity is the cornerstone of treating NASH and the principal morbidities of NASH.

ALT-801’s dual agonist mechanism of action is designed to combine the activity of GLP-1 for the reduction of appetite and inflammation, with the direct activity of glucagon on the liver, including increased energy expenditure, adipose browning, lipolysis and mobilization of the liver fat.

ALT-801 incorporates the EuPort domain, which is designed to enhance pharmacokinetics for tolerability in the gastrointestinal tract and permit weekly dosing.

As observed in a well-established preclinical model of the disease, ALT-801 is capable of inducing significant weight loss with concomitant decreases in liver fat, inflammation and fibrosis, with superior results compared to elafibranor and semaglutide.

In addition, ALT-801 demonstrated improved metabolic function and exhibited pleiotropic effects in our preclinical testing across multiple metabolic pathways that are involved in NASH.

observed in preclinical studies that ALT-801 resulted in more profound suppression of genes associated with steatosis, inflammation and stellate cell fibrosis by RNA sequencing compared to elafibranor and semaglutide.

We commenced a Phase 1 clinical trial in Australia in overweight and obese adult volunteers in the fourth quarter of 2020.

The trial is expected to have both single-ascending and multiple-ascending dose arms over a 6 week treatment duration, with data readouts planned for each arm in the second quarter of 2021.

The endpoints of the Phase 1a trial are expected to be safety, tolerability and pharmacokinetics, with a preliminary readout on weight loss, resting energy expenditure, liver fat by MRI-PDFF and glucose homeostasis.

Pending interim results of the single-ascending dose arms, we intend to extend the multiple-ascending dose arms by 6 weeks for a twelve-week, parallel-dosing Phase 1b clinical trial.

The endpoints of the Phase 1b trial are expected to be safety, tolerability, pharmacokinetics, weight loss, decrease in liver fat (as measured by the MRI-PDFF standard) and lean body mass, as well as other metabolic biomarkers.

If successful, we expect data from the Phase 1b study Q3 2021 .

HepTcell is an immunotherapeutic product candidate for patients chronically infected with the hepatitis B virus (“HBV”).

Approximately 300 million people worldwide live with chronic HBV infection, including approximately 2.2 million in the United States.

Chronic HBV infection can lead to serious complications, including cirrhosis and liver cancer.

Approximately 780,000 people die per year worldwide due to cirrhosis and liver cancer.

HepTcell is designed to drive CD4+ and CD8+ T-cell responses against all HBV genotypes in patients of all ethnic backgrounds.

Stimulating T-cell responses in chronically infected HBV patients has been challenging because chronic infection with HBV and elevated hepatitis B surface antigen (HBsAg) levels strongly diminishes T-cell immunity directed against the virus.

HepTcell focuses the immune system on discrete highly conserved regions of the HBV proteome.

We believe our approach allows HepTcell to break immune tolerance by activating T-cells against critical viral sequences with decreased probability of immune escape due to viral mutation.

HepTcell is based on our synthetic peptide technology platform and is given by intramuscular injection.

In 2018, we completed a Phase 1 trial in the United Kingdom and South Korea in adult patients with chronic HBV.

A total of 41 patients received one of two dose levels of HepTcell, with and without IC31TM, a depot-forming TLR9 adjuvant developed by Valneva SE, while 20 control patients received either placebo or IC31 alone.

Patients received three injections each 28 days apart and were followed for six months after the final dose.

All dose combinations showed excellent tolerability and met the primary endpoint of safety.

In the two adjuvanted HepTcell arms, T-cell responses against HBV markedly increased over baseline compared to placebo.

We initiated a Phase 2 study during Q4 2020 in the United States, Canada and Europe that is a double-blind, randomized, placebo-controlled study of 80 adult patients with HBeAg-negative inactive CHB and HBsAg ≤ 100 IU/mL.

HepTcell will be administered in 6 doses at 4-week intervals for 24 weeks, and patients will be followed for one year to evaluate safety and durability of response.

The primary efficacy endpoint is virological response, defined as a 1-log reduction in HBsAg levels from baseline at 24 weeks.

Secondary efficacy endpoints include reactivation of anti-HBV T cell responses, HBsAg clearance, and other assessments of virologic response.

We expect data from this study in the first quarter of 2022.

Impact of COVID-19

We are closely monitoring how the spread of the coronavirus disease (“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, ALT-801 and HepTcell.

Although operations have not been materially affected by the COVID-19 pandemic 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 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 COVID-19 pandemic.” in Part I, Item 1A of this Annual Report on Form 10-K.

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 year ended December 31, 2020, we have recognized approximately $4.2 million of grant revenue under this 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 June 2021.

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 year ended December 31, 2020, we have recognized approximately $3.1 million of grant revenue under the current BARDA contract.

Public Offering

On July 16, 2020, we offered and sold (i) 3,369,564 shares of our common stock, at a price to the public of $23.00 per share, and (ii) pre-funded warrants to purchase 1,630,436 shares of our common stock at an exercise price equal to $0.0001 per share (the “Pre-Funded Warrants”), at a price to the public of $22.9999 per share of common stock underlying the Pre-Funded Warrants (equal to the public offering price per share of Common Stock, minus the exercise price of each Pre-Funded Warrant).

The Pre-Funded Warrants are exercisable at any time, provided that each Pre-Funded Warrant holder will be prohibited from exercising such Pre-Funded Warrants into shares of our common stock if, as a result of such exercise, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of our common stock then issued and outstanding, which percentage may change at the holders’ election to any other number less than or equal to 19.99% upon 61 days’ notice to us.

The gross proceeds of this offering were approximately $132.2 million, which includes the exercise in full of the underwriters’ option to purchase an additional 750,000 shares of common stock, before deducting underwriting discounts and commissions and offering expenses during the third quarter of 2020.

The net proceeds of this offering were approximately $124.0 million, after deducting underwriting discounts and commissions and offering expenses payable by us.

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 December 31, 2020, we sold 5,594,455 shares of Common Stock under the Agreement resulting in $48.2 million in net proceeds which completed the At-the-Market Offering.

Registered Direct Offering

On March 12, 2019, we issued a combined total of 4,361,370 common units and pre-funded units to certain institutional investors in a registered direct offering (the “Registered Direct Offering”).

Each common unit in the Registered Direct Offering was sold at a price of $3.21 and consisted of one share of our common stock and 0.70 of a warrant to purchase one share of our common stock at an exercise price of $3.21.

Each warrant sold in the Registered Direct Offering was exercisable immediately and expires five years from the date of issuance.

Each pre-funded unit in the Registered Direct Offering was sold at a public offering price of $3.20 and consisted of a pre-funded warrant to purchase one share of our common stock at an exercise price of $0.01 per share and 0.70 of a warrant to purchase one share of our common stock at an exercise price of $3.21.

The pre-funded warrants were immediately exercisable and were able to be exercised at any time.

All of the pre-funded warrants were exercised prior to March 31, 2019.

The net proceeds of the Third Registered Direct Offering were approximately $12.7 million, after deducting the underwriting discount and estimated offering expenses payable by us.

The Third Registered Direct Offering triggered an adjustment to the exercise price of the warrants issued in the Unit Offering from $4.1798 to $2.7568.

The net proceeds of the Registered Direct Offering were approximately $12.7 million, after deducting the underwriting discount and estimated offering expenses payable by us.

The Registered Direct Offering triggered an adjustment to the exercise price of the warrants issued in the 2018 Unit Offering from $4.1798 to $2.7568.

Current Resources

We have financed our operations to date principally through proceeds from issuances of our preferred stock, Registered Direct Offerings, and Unit Offering.

As described above, the Company secured net proceeds of $12.7 million and $37.4 million through equity sales that occurred during the years ended December 31, 2019 and 2018, respectively.

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 December 31, 2019 financial statements.

We have financed our operations to date principally through our equity offerings and proceeds from issuances of our preferred stock, common stock, and warrants.

We secured net proceeds of $213.2 million through our Public Offering, At-the-Market Offering, and exercise of warrants during the year ended December 31, 2020 and $12.7 million through equity sales during the year ended December 31, 2019.

Accordingly, management believes that we have sufficient capital to fund our plan of operations for at least a twelve-month period from the issuance date of our December 31, 2020 consolidated 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.

Financial Operations Overview

The consolidated financial information presented below includes the accounts of Altimmune, Inc.

and Altimmune UK, Ltd.

The consolidated financial information presented below includes the accounts of Altimmune, Inc., Altimmune UK, Ltd, Spitfire Pharma, LLC., and Altimmune AU Pty, Ltd.

All intercompany accounts and transactions have been eliminated in consolidation.

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Our current planned research and development activities include the following:

commence a Phase 1b trial of NasoShield ;

commence a Phase 2 clinical trial for HepTcell;

commence a Phase 1 trial of ALT-801 ;

commence the pre-clinical development of AdCOVID;

complete the pre-clinical development of ALT-702;

additional development of NasoVAX, contingent on non-dilutive funding from BARDA or other entities, and;

complete a Phase 2 clinical trial for HepTcell;

complete a Phase 1/2 clinical trial for T-COVID;

complete a Phase 1 clinical trial for ALT-801;

complete a Phase 1 clinical trial of AdCOVID;

commence Phase 2 development of NasoShield, contingent on BARDA exercising one or more options under our existing contract;

additional development of NasoVAX, contingent on non-dilutive funding from BARDA or other entities;

manufacture clinical trial materials in support of our clinical trials.

To date, a significant portion of our research and development efforts have been related to the development of ALT-801, HepTcell, NasoShield, and NasoVAX product candidates.

To date, a significant portion of our research and development efforts have been related to the development of AdCOVID, ALT-801, HepTcell, NasoShield, NasoVAX and T-COVID product candidates.

We do not allocate personnel-related costs, costs associated with our general research platform improvements, depreciation or other indirect costs to specific programs.

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The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this A nnual R eport, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.

Impairment of long-lived assets

We evaluate our long-lived tangible and intangible assets, including IPR&D assets and goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Impairment of long-lived assets other than goodwill and definite lived intangibles is assessed by comparing the undiscounted cash flows expected to be generated by the asset to its carrying value.

We evaluate our long-lived tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

Impairment of long-lived assets other than indefinite lived intangibles is assessed by comparing the undiscounted cash flows expected to be generated by the asset group to its carrying value.

Our IPR&D assets are currently non-amortizing.

Until such time as the projects are either completed or abandoned, we test those assets for impairment at least annually at year end, or more frequently at interim periods, by evaluating qualitative factors which could be indicative of impairment.

Qualitative factors being considered include, but are not limited to, the current project status, forecasted changes in the timing or amounts required to complete the project, forecasted changes in the future cash flows to be generated by the completed products, and changes to other market-based assumptions, such as discount rates.

If impairment indicators are present as a result of our qualitative assessment, we test those assets for impairment under a quantitative test by comparing the fair value of the assets to their carrying value.

Upon completion or abandonment, the value of the IPR&D assets will be amortized to expense or the anticipated useful life of the developed products, if completed, or charged to expense when abandoned if no alternative future use exists.

Qualitative factors being considered include, but are not limited to, the current project status, forecasted changes in the timing or amounts required to complete the project, forecasted changes in timing or changes in the future cash flows to be generated by the completed products, a probability of success of the ultimate project and changes to other market-based assumptions, such as discount rates.

If impairment indicators are present as a result of our qualitative assessment, we test those assets for impairment by comparing the fair value of the assets to their carrying value.

Upon completion or abandonment, the value of the IPR&D assets will be amortized to expense over the anticipated useful life of the developed products, if completed, or charged to expense when abandoned if no alternative future use exists.

Key assumptions used in our impairment analysis tests include projected cash flows, a probability of success of the ultimate project, and the discount rate.

During 2018, based on the continued decline of our market capitalization following the completion of the equity offerings and a strategic review of our development pipeline at the direction of our new CEO, we concluded under our qualitative assessment that an impairment indicator was present as it related to our three IPR&D assets.

Based on our strategic review, management concluded we would discontinue the development of our Oncosyn cancer immunotherapy program and accordingly the entire amount of this IPR&D asset, or $3.1 million, was charged to expense.

For our remaining two IPR&D assets related to HepTcell and SparVax-L we calculated fair value using an excess earnings method or discounted cash flow model and compared the fair value to the carrying amount of the indefinite lived asset.

Based on our analysis, the fair value of our HepTcell IPR&D asset exceeded its carrying value by an amount greater than 10%.

However, we concluded that the fair value of our SparVax-L IPR&D intangible asset was approximately $1.0 million as compared to the current carrying value of the asset of $22.4 million which resulted in an impairment charge of approximately $21.4 million.

During 2019, as a result of the SparVax-L NIAID contract completion and the US government’s funding prioritization of only single dose anthrax vaccine candidates, the Company abandoned the project and concluded that the full remaining net book value of the SparVax-L IPR&D asset was impaired, resulting in a Q3 impairment charge of $1.0 million.

For the year ended December 31, 2020, we have one IPR&D asset, HepTcell, that was acquired in 2015.

This candidate is a viral pathogen immunotherapy product for the treatment of chronic HBV.

We performed a qualitative assessment for the IPR&D impairment testing for 2020 and determined that no impairment indicators were present.

During 2019, we also carried a $1.0 million IPR&D asset for SparVax-L, a two-dose anthrax vaccine funded by the National Institute of Allergy and Infectious Diseases (“NIAID”).

As a result of the completion of the NIAID contract and the U.S.

government’s funding prioritization of only single dose anthrax vaccine candidates, we abandoned the project and concluded that the full remaining net book value of the SparVax-L IPR&D asset was impaired, resulting in an impairment charge of $1.0 million in Q3 2019.

Fair Value Measurements

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If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term.

Level 3 — Unobservable inputs developed using estimates of assumptions developed by the Company, which reflect those that a market participant would use.

Level 3 — Unobservable inputs developed using estimates of assumptions developed by us, which reflect those that a market participant would use.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.

Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3.

Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

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We record contingent consideration associated with development and regulatory milestones that meets the definition of a liability under ASC 480 at fair value.

The fair value model used to calculate this obligation is based on the income approach (a discounted cash flow model) or a Monte Carlo simulation, if more appropriate, that has been risk adjusted based on the probability of achievement of the milestones.

The fair value model used to calculate this obligation is based on the Monte Carlo simulation that has been risk adjusted based on the probability of achievement of the milestones.

The inputs we use for determining the fair value of the contingent consideration associated with development and regulatory milestones are Level 3 fair value measurements.

We re-evaluate the fair value on a quarterly basis.

Changes in the fair value can result from adjustments to the discount rates and updates in the assumed timing of milestone achievement.

Any future increase in the fair value of the contingent consideration associated with development and regulatory milestones are based on an increased likelihood that the underlying milestones will be achieved.

Changes in the fair value can result from adjustments to the probability of achievement of the milestones, stock price, volatility and the risk-free interest rate.

The change in our estimates associated with payments which will become due and payable for development and regulatory milestones will change the fair value of contingent consideration, resulting in a charge or contra expense to research and development expense in the period in which the increase or decrease is determined.

Recently Issued Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2016-02, Leases (“ASU 2016-02”).

ASU 2016-02 requires a lessee to separate the lease components from the non-lease components in a contract and recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.

ASU 2016-02 is effective for fiscal years beginning after December 15, 2018.

The standard requires a modified retrospective approach or an optional transition to apply the new guidance in the year of transition rather than at the beginning of the earliest period presented.

We adopted ASU 2016-02 in the first quarter of 2019 under the optional transition method.

Our existing operating leases were accounted for as operating lease liabilities and right of use assets upon adoption.

We have elected the package of practical expedients permitted.

Accordingly, we accounted for existing operating leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain a lease, (b) whether classification of the operating leases would be different in accordance, or (c) whether the unamortized initial direct costs before transition adjustments would have met the definition of initial direct costs at lease commencement.

In addition, we do not allocate the consideration between lease and non-lease components.

The adjustment resulted in an increase of $756,347 to total assets and total liabilities on the January 1, 2019 consolidated balance sheet.

The adoption did not have a material impact on the consolidated statement of operations or consolidated statement of cash flows.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments, which required entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.

This update also required enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio.

This standard is effective for the Company as a smaller reporting company beginning January 1, 2023.

Adoption is not expected to have a material impact on our consolidated financial statement disclosure requirements.

In June 2018, FASB issued ASU No.

2018-07, Compensation—Stock Compensation (Topic 718)—Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”).

ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.

We adopted ASU 2018-07 in the first quarter of 2019.

The adoption of this standard did not have a material impact on our consolidated financial statements.

In August 2018, FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement , was issued to modify and enhance the disclosure requirements for fair value measurements.

This update is effective in fiscal years, including interim periods, beginning after December 15, 2019, and early adoption is permitted.

We are still completing its assessment of the impacts and anticipated adoption date of this guidance.

Adoption is not expected to have a material impact on our consolidated financial statement disclosure requirements.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740 ), Simplifying the Accounting for Income Taxes , which amends the approaches and methodologies in accounting for income taxes during interim periods and makes changes to certain income tax classifications.

The new standard allows exceptions to the use of the incremental approach for intra-period tax allocation, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for calculating income taxes in an interim period, when a year-to date loss exceeds the anticipated loss for the year.

The standard also requires franchise or similar taxes partially based on income to be reported as income tax and the effects of enacted changes in tax laws or rates to be included in the annual effective tax rate computation from the date of enactment.

Lastly, in any future acquisition, the Company would be required to evaluate when the step-up in the tax basis of goodwill is part of the business combination and when it should be considered a separate transaction.

The standard will be effective for the Company beginning January 1, 2021, with early adoption of the amendments permitted.

The Company is currently evaluating the impact from the adoption of ASU 2019-12 on its consolidated financial statements .

Research and Development

Research and development costs are expensed as incurred.

Research and development costs consist of payroll and personnel expense, consulting costs, external contract research and development expenses, which includes fees paid to other entities that conduct certain research and development activities on our behalf, such as clinical research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), raw materials, drug product manufacturing costs, laboratory supplies and allocated overhead, including depreciation and amortization, rent and utilities.

Material research and development costs that are paid in advance of performance are capitalized as a prepaid expense and amortized over the service period as the services are provided.

Clinical trial costs are a significant component of research and development expenses, and we outsource a significant portion of these costs to third parties.

Third party clinical trial expenses include investigator fees, site and patient costs, CRO costs, costs for central laboratory testing, data management and CMO costs.

The accrual for site and patient costs includes inputs such as estimates of patient enrollment, patient cycles incurred, clinical site activations, and other pass-through costs.

These inputs are required to be estimated due to a lag in receiving the actual clinical information from third parties.

Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as a prepaid asset or accrued expenses.

These third - party agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred.

Material advance payments for goods or services that will be used or rendered for future research and development activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed.

When evaluating the adequacy of the accrued expenses, we analyze progress of the studies, including the phase or completion of events, invoices received and contracted costs.

Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period.

Results of Operations

Year Ended December 31, 2019 Compared to December 31, 2018

For the Year Ended December 31,

Comparison of years ended December 31, 2020 and December 31, 2019:

Year Ended December 31,

(in thousands except percentages)

Increase (Decrease)

Operating expenses:

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General and administrative

Impairment charges

Impairment charge

Total operating expenses

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Changes in fair value of warrant liability

Changes in fair value of imbedded derivative

Interest expense

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Other income, net

Total other (expense) income, net

Net loss before tax benefit

Total other income, net

Net loss before income tax benefit

Income tax benefit

Other comprehensive loss — foreign

currency translation adjustment

Other comprehensive income — unrealized

gains on investments

Comprehensive loss

Revenue from grants and contracts for the years ended December 31, 2019 and 2018 consisted primarily of research grants from BARDA and NIAID in the United States for our anthrax vaccine product candidates.

For the Year Ended December 31,

Revenue from contracts and grants for the years ended December 31, 2020 and 2019 consisted primarily of research grants in the United States from MTEC for our T-COVID product candidate and BARDA for our NasoShield vaccine candidate.

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

Year Ended December 31,

(in thousands except percentages)

Revenue decreased by $4.5 million, or 44% for the year ended December 31, 2019 as compared to 2018.

The decrease was primarily the result of:

a decrease of $2.94 million in BARDA revenue due directly to changes in spending on the NasoShield research and development as described below;

a decrease of $1.85 million in NIAID revenue due to the activities diminishing under the SparVax-L program as the contract concluded in the third quarter of 2019 with no future funding identified.

Increase (Decrease)

Revenue increased by $2.4 million, or 41% for the year ended December 31, 2020 as compared to 2019.

The increase was primarily the result of:

an increase of $4.2 million in MTEC revenue attributable to a clinical trial and development work on the T-COVID program;

a decrease of $1.6 million in BARDA revenue due to timing of clinical trials and development activities on the NasoShield program.

Research and development expenses

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Research and development expenses for the years ended December 31, 2020 and 2019 are summarized as follows:

For the Year Ended December 31,

Year Ended December 31,

(in thousands except percentages)

Increase (Decrease)

Research and development

Research and development expenses decreased by $0.7 million, or 4%, during the year ended December 31, 2019 as compared to 2018.

The decreased expense was primarily due to:

an increase of $7.77 million due to the Spitfire acquisition costs which were recorded as acquired in process research and development;

an increase of $0.52 million in pre-clinical projects and non-project specific research and development costs including employee compensation and facility costs;

a decrease of $4.58 million due to development activities decreasing for NasoVAX as management explores strategic options with the program;

a decrease of $2.09 million due to timing of clinical trial and development activities for NasoShield.

a decrease of $1.36 million due to timing of a clinical trial and related activities for HepTcell;

a decrease of $1.0 million due to reduced development cost for SparVax-L as it the contract concluded in the third quarter of 2019.

Research and development expenses increased by $32.0 million, or 180%, during the year ended December 31, 2020 as compared to 2019.

The increased expense was primarily due to:

an increase of $12.9 million due to development activities for the COVID-19 programs, which include AdCOVID and T-COVID;

an increase of $8.5 million due to an increase in the fair value of ALT-801 contingent consideration during 2020, that is partially offset by costs incurred in 2019 with respect to the acquisition of ALT-801;

an increase of $8.6 million due to development activities for ALT-801 which was acquired in July 2019;

a net increase of $2.0 million due to the timing of clinical trial and development activities related to our other programs, along with costs associated with our pre-clinical projects and non-project specific research and development costs including employee compensation and facility costs.

General and administrative expenses

The following is a summary of general and administrative expenses for the years ended December 31, 2020 and 2019:

For the Year Ended December 31,

Year Ended December 31,

(in thousands except percentages)

Increase (Decrease)

General and administrative

General and administrative expenses decreased by $1.3 million, or 13%, during the year ended December 31, 2019 as compared to 2018.

The decreased expense is primarily due to decreases in compensation, professional services and legal costs;

offset by an increase in insurance premiums.

Impairment Charges

For the Year Ended December 31,

(in thousands except percentages)

General and administrative expenses increased by $4.7 million, or 55%, during the year ended December 31, 2020 as compared to 2019.

The increased expense is primarily due to an increase of $1.8 million in labor-related and other costs, $1.6 million in professional fees, and $1.3 million in stock compensation expense.

Impairment charges

There were no impairment charges reported during the year ended December 31, 2020.

Impairment charges of $1.0 million reported during the year ended December 31, 2019 resulted from the completion of the 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.

Impairment charges of $24.9 million reported during the year ended December 31, 2018 resulted primarily from a $21.4 million adjustment to the carrying value of the SparVax-L program due to the imminent completion of the NIAID contract discussed above in conjunction with the US government’s funding priorities.

$3.1 million of impairment is attributable to the 2018 abandonment of our Oncosyn cancer immunotherapy program, and finally $0.5 million is attributable to adjustments effecting goodwill already impaired in 2017 related to the Pharmathene business combination.

Other Income (Expense)

For the Year Ended December 31,

(in thousands except percentages)

Other income (expense):

Changes in fair value of warrant liability

Changes in fair value of imbedded derivative

Interest expense

Interest income

Other income, net

Total other (expense) income, net

Other income (expense) fluctuated by $3.4 million during the year ended December 31, 2019 as compared to the year ended December 31, 2018.

The fluctuation was primarily due to the changes in fair value of our warrant liability as a result of the Exchanges plus interest income related to our short-term investments.

Income Tax Benefit

For the Year Ended December 31,

As a result of the contract completion and the U.S.

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 by $0.5 million during the year ended December 31, 2020 as compared to the year ended December 31, 2019.

The net decrease was primarily due to changes in interest income related to our short-term investments.

Income t ax b enefit

Year Ended December 31,

(in thousands except percentages)

Increase (Decrease)

Income tax benefit

We recorded an income tax benefit of $0.1 million during the year ended December 31, 2019.

The $0.1 million discrete tax benefit was a result of the release of deferred tax liabilities associated with the $1.0 million impairment of the IPR&D asset associated with SparVax-L.

We recorded an income tax benefit of $6.2 million during the year ended December 31, 2018.

The income tax benefit recorded in 2018 represents unlimited lived federal net operating losses (“NOLs”) generated in 2018 that we determined to be realizable.

Other Comprehensive Income (Loss)

For the Year Ended December 31,

(in thousands except percentages)

Other comprehensive loss — foreign currency

translation adjustment

Other comprehensive income — unrealized gains

on investments

Total other comprehensive income (loss)

Unrealized gains on investments are related to our short-term investments comprised of debt securities that have original maturities less than or equal to one year and are classified as available-for-sale securities.

Foreign currency translation adjustment primarily related to the exchange rate differences in the carrying values of our net assets of our foreign subsidiaries.

On July 1, 2018, the functional currency for our subsidiaries was changed to U.S.

dollars, consequently the

foreign current adjustments only reflect this impact through June 30, 2018.

The translation adjustment loss of $ 0.5 million during the year ended December 31, 2018 was the net effect of a decrease in the British pound as compared to the U.S.

We do not expect there to be further comprehensive income or loss due to these assets to report in future periods.

As the functional currency of the subsidiary is now the U.S.

dollar, any foreign currency translation effects of cash assets or liabilities domiciled in other currencies will be expensed as incurred in future periods.

Income tax benefit increased by $5.4 million during the year ended December 31, 2020 as compared to the year ended December 31, 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 December 31, 2020, we filed a refund claim of $2.7 million with the U.S.

Federal and Maryland tax authorities, reflecting a partial refund of our 2016 tax liability by carrying back a portion of our 2018 and 2019 tax losses.

We plan to file additional refund claims during 2021 by carrying back our 2020 tax losses to claim the remaining refund available for the 2016 tax liability.

Liquidity and Capital Resources

Our primary sources of cash for the year ended December 31, 2019 was the receipt of $12.7 million in proceeds from the Registered Direct Offering (as discussed below).

Our primary sources of cash during the comparable period in 2018 were $37.4 million in net proceeds received from the issuance of common stock and common units.

Our primary sources of cash for the year ended December 31, 2020 were from equity transactions, maturities of short-term investments and cash receipts of revenue from our BARDA and MTEC contracts.

Our cash, cash equivalents, restricted cash, and short-term investments were $216.0 million at December 31, 2020.

We believe, based on the operating cash requirements and capital expenditures expected for 2020 and 2021, our cash on hand plus short term investments at December 31, 2019, and revenue from our government sponsored contracts, are sufficient to fund operations for at least a 12-month period from the date our consolidated financial statements are issued.

We believe, based on the operating cash requirements and capital expenditures expected for 2021 and 2022, our cash on hand and short-term investments at December 31, 2020, together with expected revenue from our government sponsored contracts and tax refunds, are sufficient to fund operations for at least a twelve-month period from issuance date of our December 31, 2020 consolidated financial statements.

We have not generated any revenues from the sale of any products to date, and there is no assurance of any future revenues from product sales.

Our sources of revenue for the years ended December 31, 2019 and 2018 consist primarily of revenues under our contract with BARDA and NIAID for the development of NasoShield and SparVax-L, respectively.

We had a $15.3 million NIAID contract that was incrementally funded for the development of SparVax-L.

Activities under this contract were completed during the quarter ended September 30, 2019 and no further funding is expected for this program.

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.

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In order to address our capital needs, including our planned clinical trials, we must continue to actively pursue additional equity or debt financing, government funding, and monetization of our existing programs through partnership arrangements or sales to third parties.

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.

Through December 31, 2020, we have collected approximately $1.1 million in cash under the contract.

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

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The contract consists of an initial base performance period providing approximately $27.8 million in funding for the period July 2016 through December 2020.

The contract consists of an initial base performance period providing approximately $27.8 million in funding for the period July 2016 through June 2021.

BARDA has seven options to extend the contract to fund certain continued development and manufacturing activities for the anthrax vaccine, including Phase 2 clinical studies.

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 Q1 2021.

Through December 31, 2019, we have received an aggregate of approximately $21.9 million under the current BARDA contract.

Through December 31, 2020, we have collected approximately $24.7 million in cash under the current BARDA contract.

Paycheck Protection Program

On April 7, 2020, we applied for a loan from ServisFirst Bank, as lender, pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) as administered by the U.S.

Small Business Administration (the "SBA").

On April 13, 2020, the Loan was approved and we received the proceeds from a loan in the amount of $632,000 (the “PPP Loan”).

The PPP Loan, which took the form of a promissory note (the “Promissory Note”), was set to mature on April 7, 2022 and bore interest at a rate of 1% per annum.

Monthly principal and interest payments, less the amount of any potential forgiveness (discussed below), was to commence on November 7, 2020.

The Promissory Note provided for customary events of default, including, among others, those relating to failure to make payment, bankruptcy, breaches of representations and material adverse effects.

We could prepay the principal of the PPP Loan at any time without incurring any prepayment charges.

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

In July 2020, we voluntarily extinguished the Promissory Note by paying the outstanding principal and accrued interest in cash.

BPI France Notes

We had two non-interest-bearing research and development funding arrangements with BPI France that were entered into in December 2013 to provide up to €750,000 in research funding in the first arrangement and up to €250,000 in the second arrangement.

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In October 2019, we paid the remaining balance on the BPI France notes.

On June 29, 2018, we issued $1.5 million aggregate principal amount of the Exchange Notes to the First Exchange Holders in conjunction with the First Exchange.

The Exchange Notes earned interest at 1% per month and we incurred interest expense of $54,226 for the year ended December 31, 2018.

On October 17, 2018, the Company extinguished the Exchange Notes by paying the outstanding principal and accrued interest in cash.

The following table provides information regarding our cash flows for the years ended December 31, 2020 and 2019:

For the Year Ended December 31,

Year Ended December 31,

(in thousands, except percentages)

Net cash (used in) provided by:

Increase (Decrease)

Net cash provided by (used in):

Operating activities

1 unchanged sentence

Financing activities

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

Operating Activities

Net cash used in operating activities was $34.4 million for the year ended December 31, 2020 compared to $9.6 million during the year ended December 31, 2019.

Our sources of cash provided by operations during the year ended December 31, 2019 were primarily cash receipts of revenue generated by our BARDA and NIAID contracts.

Our sources of cash provided by operations during the year ended December 31, 2020 were primarily cash receipts of revenue generated by our BARDA and MTEC contracts.

The primary uses of cash from our operating activities include payments for labor and labor-related costs, professional fees, research and development costs associated with our clinical trials, and other general corporate expenditures.

The decrease in cash used in operations of $0.2 million year over year is due to an increase in net loss as adjusted for noncash items of $1.1 million offset by changes in working capital accounts of $0.9 million.

The increase in cash used in operations of $24.8 million year over year is due to an increase in net loss as adjusted for noncash items of $18.6 million and changes in working capital accounts of $6.3 million.

Investing Activities

Net cash used in investing activities during the year ended December 31, 2019 was primarily due to purchases of short-term investments.

The net cash used in investing activities in 2018 was primarily due to purchases of property and equipment related to the buildout of the Company’s new office and laboratory facilities which was completed in 2018.

Net cash used in investing activities was $72.1 million for the year ended December 31, 2020 compared to $28.3 million during the year ended December 31, 2019.

The net cash used in investing activities during 2020 was primarily due to net 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 year ended December 31, 2019 of $12.5 million was primarily the result of $12.7 million net proceeds received from Third Registered Direct Offering, offset by the repayment of notes payable and warrant repurchases.

Net cash provided by financing activities during the year ended December 31, 2018 of $32.5 million was primarily the result of $37.4 million net proceeds received from the registered direct offerings and unit offerings, offset by $1.1 million paid to Existing Warrant holders in exchange for the Existing Warrants and $2.4 million paid to redeemable preferred stock holders upon redemption of our redeemable preferred stock.

Net cash provided by financing activities was $213.5 million for the year ended December 31, 2020 compared to $12.5 million during the year ended December 31, 2019.

The net cash provided by financing activities during 2020 was primarily the result of the receipt of $124.0 million in net proceeds from the Public Offering, $48.2 million in proceeds from the issuance of common stock from the At-the-Market Offering program and $41.0 million in proceeds from the exercise of warrants.

The net cash provided by financing activities in 2019 was primarily the result of the receipt of $12.7 million in proceeds from the Registered Direct Offering of units that consisted of common stock and warrants.

Off-Balance Sheet Arrangements

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What changed 10-K

Item 7. Management’s Discussion and Analysis