What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-17 compared with 2020-11-09 · 57 added, 99 removed, 92 unchanged (63% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q and our consolidated financial statements and related notes for the year ended December 31, 2019 included in our annual report on Form 10-K, which was filed with the Securities and Exchange Commission on March 27, 2020.

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this quarterly report on Form 10-Q and our consolidated financial statements and related notes for the year ended December 31, 2020 included in our annual report on Form 10-K, which was filed with the Securities and Exchange Commission on February 25, 2021.

This quarterly report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties.

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an intranasal immune modulating therapeutic for COVID-19 (T-COVID);

and next generation peptide therapeutics for NASH (ALT-801) and chronic hepatitis B (HepTcell).

and next generation peptide therapeutics for non-alcoholic steatohepatitis (“NASH”) (ALT-801) and chronic hepatitis B (HepTcell).

Impact of COVID-19

We are closely monitoring how the spread of COVID-19 is affecting our employees, business, preclinical studies and clinical trials.

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 and ALT-801.

We expect the pandemic to have some near-term impact on the initiation of our HepTcell Phase 2 trial and, accordingly, we will delay the initiation of this trial.

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

Although operations have not been materially affected by the COVID-19 pandemic as of and for the three months ended March 31, 2021, 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.

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.

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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.

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 months ended March 3 1 , 202 1 , we have rec ognized approximately $0.5 million of grant revenue under the contract.

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

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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.

For the three months ended March 31, 2021 and 2020, we have recognized approximately $0.2 million and $1.6 million, respectively, of grant revenue under the current BARDA contract.

Critical Accounting Policies and Significant Judgment and Estimates

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and the rules and regulations of the SEC for interim financial reporting.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosure of contingent assets and liabilities.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and the disclosure of contingent liabilities in our consolidated financial statements.

We base our estimates and judgments on historical experience, knowledge of current conditions, and expectations of what could occur in the future given available information.

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Results of Operations

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

Comparison of the three months ended March 31, 2021 and 2020:

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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Other income (expense):

Changes in fair value of warrant liability

Interest expense

Interest income

Other income (expenses), net

Total other income, net

Net loss before income tax benefit

Income tax benefit

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

For the Nine Months Ended

September 30,

Increase (Decrease)

Operating expenses

Research and development

General and administrative

Impairment charges

Total operating expenses

Loss from operations

Other income (expense):

Changes in fair value of warrant liability

Interest expense

Interest income

Other income (expenses), net

Total other income, net

Other (expense) income, net

Total other (expense) income, net

Net loss before income tax benefit

Income tax benefit

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;

Revenue consists primarily of research grants in the United States from MTEC for our T-COVID product candidate and BARDA for our NasoShield vaccine product candidate.

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

Revenue decreased by $1.4 million, or 62%, for the three months ended March 31, 2021, as compared to the same period in 2020.

The decrease was primarily the result of:

a decrease of $2.0 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.

an increase of $0.5 million in MTEC revenue attributable to a clinical trial and development work on the T-COVID program.

Research and development expenses

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.

Research and development operating expense increased by $4.7 million, or 65%, for the three months ended March 31, 2021, as compared to the same period in 2020.

The increase was primarily the result of:

an increase of $5.4 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 $1.2 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 $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 $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;

a decrease of $1.5 million due to timing of a clinical trial and development activities for NasoShield.

a decrease of $1.5 million due primarily to a decrease in the fair value of contingent consideration liability with respect to the acquisition of ALT-801 and development activities for ALT-801.

General and administrative expenses

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.

General and administrative expense increased by $1.5 million, or 64%, for the three months ended March 31, 2021, as compared to the same period in 2020 due primarily to an increase in stock compensation expense and other labor related costs.

Total other (expense) income, net

Total other (expense) income, net decreased by $0.2 million during the three months ended March 31, 2021, as compared to the same period in 2020.

The decrease is primarily due to changes in interest income.

Income tax benefit

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 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.

Income tax benefit decreased by $3.2 million during the three months ended March 31, 2021, as compared to the same period in 2020.

In both 2020 and 2021, we had a valuation allowance against all of our deferred tax assets, but in 2020 a benefit was recognized related to a net operating loss carryback refund claim pursuant to the Coronavirus Aid, Relief, and Economic Security Act.

Liquidity and Capital Resources

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.

Our primary sources of cash during the three months ended March 31, 2021 were from sales of equity, 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 $226.5 million at March 31, 2021.

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 March 31, 2021, 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 the issuance date of our March 31, 2021 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.

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We have incurred significant losses since we commenced operations.

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

As of March 31, 2021, we had accumulated losses of $210.9 million since our inception.

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

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As capital resources are consumed to fund our research and development activities, we may not have sufficient capital to fund our plan of operations.

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

In 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.

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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.

Through March 31, 2021, we have collected approximately $1.6 million in cash 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 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,

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 March 31, 2021, we have collected approximately $24.9 million in cash under the current BARDA contract.

The following table provides information regarding our cash flows for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

Net cash provided by (used in):

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Financing activities

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

Net increase in cash and cash equivalents and restricted cash

Operating Activities

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.

Net cash used in operating activities was $19.6 million for the three months ended March 31, 2021 compared to $4.3 million during the three months ended March 31, 2020.

Our sources of cash provided by operations during the three months ended March 31, 2021 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 increase in cash used in operations of $13.4 million year over year is due to an increase in net loss as adjusted for non-cash items of $6.4 million and changes in working capital accounts of $7.0 million, primarily due to recording of the income tax benefit receivable.

The increase in cash used in operations of $15.2 million year over year is due to an increase in net loss as adjusted for non-cash items of $10.8 million and changes in working capital accounts of $4.4 million.

Investing Activities

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.

Net cash provided by investing activities was $19.2 million for the three months ended March 31, 2021 compared to $6.6 million during the three months ended March 31, 2020.

The net cash provided by investing activities during the three months ended March 31, 2021 was primarily due to net proceeds from short-term investment activity, partially offset by purchases of property and equipment.

The net cash provided by investing activities during the three months ended March 31, 2020 was primarily due to net proceeds from short-term investment activity.

Financing Activities

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 .

Net cash provided by financing activities during the three months ended March 31, 2021 was $34.4 million compared to $0.1 million for the three months ended March 31, 2020.

The net cash provided by financing activities during the three months ended March 31, 2021 was primarily the result of the receipt of $34.2 million in proceeds from the issuance of common stock from our at-the-market offering program and $0.1 million in proceeds from the issuance of common stock from our Employee Stock Purchase Plan .

The net cash provided by financing activities during the three months ended March 31, 2020 was primarily the result of proceeds from the issuance of common stock from our Employee Stock Purchase Plan and exercise of warrants.

Public Offering

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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

At-the-Market Offerings

On February 25, 2021, we entered into an Equity Distribution Agreement (the “2021 Agreement”) with Piper Sandler & Co., Evercore Group L.L.C., and B.

Riley Securities, Inc., serving as sales agents (the “Sales Agents”) with respect to an at-the-market offering program under which we may offer and sell, from time to time at its sole discretion, shares of our common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $125.0 million (the “Shares”) through the Sale Agents (the “2021 Offering”).

As of March 31, 2021, we sold 2,110,800 shares of Common Stock under the 2021 Agreement resulting in approximately $34.2 million in net proceeds, with $89.7 million remaining available to be sold under the 2021 Agreement.

On March 27, 2020, we entered into an Equity Distribution Agreement (the “2020 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 “2020 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.

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 2020 Agreement which amended the prospectus supplement dated March 27, 2020 to increase the aggregate offering price to $50.0 million .

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.

As of March 30, 202 1, the 2020 Agreement was fully utilized .

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 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.

At March 31, 2021 , we had $150.0 million of cash, cash equivalents and restricted cash and $76.6 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 March 31, 2021 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 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.

As of March 31, 2021, 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