ALIGOS THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this Annual Report on Form
10-K. In addition to historical financial information, this discussion contains
forward-looking statements based upon current expectations that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including those set forth under "Special Note Regarding Forward-Looking
Statements" and "Risk Factors" and elsewhere in this Annual Report on Form 10-K.
Our fiscal year ends on
Overview
We are a clinical-stage biopharmaceutical company focused on developing novel therapeutics to address unmet medical needs in liver diseases and viral infections, including in the areas of non-alcoholic steatohepatitis (NASH), coronavirus (e.g., SARS-CoV-2 and related infections) and chronic hepatitis B (CHB). We utilize our proprietary small molecule and oligonucleotide platforms to develop pharmacologically optimized drug candidates for use in combination regimens designed to achieve improved treatment outcomes.
In
Our primary area of focus is NASH, a complex, chronic liver disease where
combination regimens may prove beneficial. Our most advanced drug candidate for
NASH is ALG055009, a small molecule thyroid hormone receptor (THRß) agonist.
This drug candidate is being evaluated in a Phase 1 study in healthy volunteers
(HVs) (oral single ascending doses (SAD)) and subjects with hyperlipidemia (14
oral daily doses). Preliminary data after single doses up to 4 mg and multiple
doses up to 1 mg have previously been reported at the
In addition to our small molecule THRß program, we are also progressing oligonucleotide projects for NASH, including in collaboration with Merck. The programs are currently progressing through preclinical activities.
Our second area of focus is to develop drug candidates with pan-coronavirus
activity, including against Severe Acute Respiratory Syndrome coronavirus 2
(SARS-CoV-2), the virus responsible for COVID-19. In this area of focus, we are
using a small molecule approach, where we are exploring coronavirus 3CL protease
inhibitors (PIs) in collaboration with Katholieke Universiteit Leuven (KU
Leuven), the
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based on publicly available data. We are currently completing first-in-human enabling nonclinical studies for ALG097558 and anticipate a Phase 1 CTA filing and initiation of dosing in HVs in the second quarter of 2023.
Our third area of focus seeks to enhance the rate of functional cure for CHB, which often results in life-threatening conditions such as cirrhosis, and the most common form of liver cancer, hepatocellular carcinoma (HCC). The most widely used treatment for CHB, nucleos(t)ide analogs (NAs), suppress viral replication, but only achieve low rates of functional cure and often require long-term administration. To address this, we have developed a portfolio of differentiated drug candidates for CHB, including a small molecule Capsid Assembly Modulator that results in the production of empty viral capsids (CAM-E), and a small interfering ribonucleic acid (siRNA), which is designed to suppress production of hepatitis B virus (HBV) surface antigen (HBsAg). Each of these drugs is designed against clinically validated targets in the HBV life cycle and is currently being evaluated in clinical trials.
The initial Phase 1a study in HVs for our CAM-E, ALG000184, has been completed as has a Phase 1b dose ranging study evaluating the safety, pharmacokinetics and antiviral activity of 10-300 mg doses of ALG000184 for 28 days among untreated HBV E-antigen (HBeAg) positive/negative CHB subjects. ALG000184 was found in these portions of the study to be well tolerated with a favorable PK profile and demonstrated potentially best-in-class HBV DNA and RNA reductions as well as HBsAg reductions in a subset of HBeAg positive subjects receiving 300 mg ALG000184 (Hou et. al, AASLD 2022). Based on the favorable profile after dosing ?300 mg ALG000184 x 28 days, additional Phase 1b cohorts are currently being evaluated for the risk-benefit profile of 100-300 mg doses of ALG000184 with or without background entecavir (ETV) therapy for ?48 weeks in HBeAg positive or negative CHB patients. Preliminary data presented for these cohorts (Hou et. al, APASL 2023) indicate that ALG000184 dosed for up to 12 weeks is well tolerated with a favorable PK profile and potentially best-in-class antiviral activity. Specifically, antiviral activity data through Week 10 were summarized in cohorts of HBeAg positive subjects with normal baseline ALT (100 mg (Part 4 Cohort 1) and HBeAg positive subjects with normal/elevated baseline ALT (300 mg (Part 4 Cohort 2)). In Part 4 Cohorts 1 and 2, respectively, we observed greater mean DNA (4.9, 5.2 log10 IU/mL) and RNA (2.7, 3.3 log10 copies/mL) reductions vs. ETV alone (3.7 log10 IU/mL reduction, 0.1 log10 copies/mL increase, respectively). Similarly, among subjects with available data at Week 10, HBsAg levels declined in cohorts 1 and 2 to a maximum of 0.3 log10 IU/mL and 0.7 log10 IU/mL compared to no meaningful change in subjects dosed with ETV alone. Dosing in these and at least one additional cohort will continue throughout 2023 and interim safety, PK, and antiviral activity data will be presented at scientific conferences throughout the year.
With respect to our siRNA drug candidate, ALG125755, a Phase 1 study is ongoing
in
We are also exploring ways to boost immune responses via small molecule inhibitors of the programmed death 1 (ligand) PD-1/PD-L1 interaction. We have rationally designed these T cell activating drugs to localize in the liver and thereby potentially mitigate systemic toxicity in an effort to develop better tolerated PD-1/PD-L1 inhibitors for CHB patients. Lead molecules developed to date show similar in vivo efficacy to approved PD-1/PD-L1 antibodies and greater target occupancy at a lower dose in a liver metastatic tumor model compared to a subcutaneous tumor model. We believe that combination regimens utilizing our broad portfolio of CHB drug candidates, with or without other mechanisms of action, may lead to higher rates of functional cure.
In
We have incurred net losses and negative cash flows from operations in each year
since our formation in
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Components of our results of operations
Operating expenses
Our operating expenses since inception have consisted solely of research and development costs and general and administrative costs.
Research and development expenses
We rely substantially on third parties to conduct our discovery activities, nonclinical studies, clinical trials and manufacturing. We primarily estimate research and development expenses based on estimates of services performed and rely on third party contractors and vendors to provide us with timely and accurate estimates of expenses of services performed to assist us in these estimates. A portion of our research and development expenses are based on contractual milestones. Research and development costs consist primarily of costs incurred for the identification and development of our drug candidates through our technology platforms, which include:
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salaries, benefits and other employee-related costs, including stock-based compensation expense, for personnel engaged in research and development functions;
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costs of outside consultants, including their fees, and related travel expenses;
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costs associated with in-process research and development, including license fees and milestones paid to third-party collaborators for technologies with no alternative use;
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costs related to production of clinical materials, including fees paid to contract manufacturers;
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expenses incurred under agreements with collaborators that perform nonclinical activities;
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costs related to compliance with regulatory requirements; and
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facility costs, depreciation, and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance, and other supplies.
We expense research and development costs as the services are performed or the goods are received. Non-refundable payments for goods or services that will be used for future research and development activities are deferred and capitalized. Such amounts are recognized as an expense as the goods are delivered or the related services are performed until it is no longer expected that the goods will be delivered, or the services will be rendered.
Our research and development costs may increase in future periods as we continue to invest in research and development activities and advance our nonclinical and clinical programs through clinical development. The process of conducting nonclinical studies and, eventually, clinical trials necessary to obtain regulatory approval is costly and time consuming, and the successful development of our drug candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or clinical trials or if and to what extent we will generate revenue from the commercialization and sale of any of our drug candidates.
We track direct external research and development expenses on a program-specific basis (chronic hepatitis B, coronaviruses, steatohepatitis and early-stage programs). The following table summarizes these research and development costs, in thousands:
Year Ended December 31,
2022 2021
Direct research and development expenses by development program:
Non-alcoholic Steatohepatitis program $ 3,489 $ 3,937
Coronaviruses program 5,651 2,118
Chronic Hepatitis B program 20,681 45,763
Other early-stage programs 11,324 10,911
Total direct research and development expenses $ 41,145 $ 62,729
Total indirect research and development expenses 43,931 41,425
Total research and development expense $ 85,077 $ 104,153 General and administrative expenses
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General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, corporate and business development and administrative functions. General and administrative expenses also include legal fees relating to patent and corporate matters; professional fees for accounting, auditing, tax and consulting services; insurance costs; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs not otherwise classified as research and development costs.
Interest and other (expense) income, net
Interest and other (expense) income, net comprises interest (expense) income, net and other income (expense), net. Interest income (expense), net primarily consists of interest earned on our cash, cash equivalents, and investments. Other (expense) income, net consists primarily of foreign currency exchange gains and losses.
Provision for income taxes
Since our inception in 2018, we have not recorded any
Results of operations
Comparison of the years ended
The following table summarizes our operating expenses for the years endedDecember 31, 2022 and 2021: Consolidated Statements of Operations Data: 2022 2021 Change (in thousands) $ % Revenue from collaborations$ 13,907 $ 4,359 $ 9,548 219 % Operating expenses: Research and development 85,077 104,153 (19,076 ) (18 )% General and administrative 26,410 28,527 (2,117 ) (7 )% Total operating expenses 111,487 132,680 (21,193 ) (16 )% Loss from operations (97,580 ) (128,321 ) 30,741 (24 )% Interest and other income, net Interest income, net 1,521 242 1,279 527 % Other income (loss), net 119 (110 ) 229 (208 )% Total interest and other income, net 1,640 132 1,508 1,142 % Loss before provision for income taxes (95,940 ) (128,189 ) 32,249 (25 )% Income tax expense (106 ) (143 ) 37 (26 )% Net loss$ (96,046 ) $ (128,332 ) $ 32,286 (25 )% 96
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Research and development expenses
Research and development expenses were
General and administrative expenses
General and administrative expenses were
Interest income, net
Interest income, net increased to
Other income (loss), net
Other income (loss), net was an income of
Liquidity and capital resources
Liquidity
We have incurred net losses since inception. We have not generated any revenue from product sales or any other sources and have incurred significant operating losses. We have not yet commercialized any products and we do not expect to generate revenue from sales of any drug candidates for at least several years, if ever.
Our operations have been financed primarily by net proceeds from the sale and
issuance of our convertible preferred stock, net proceeds from our IPO, and the
issuance of convertible debt. In
As of
Capital resources
Our primary use of cash is to fund operating expenses, which consist primarily of research and development costs related to our drug candidates and our discovery programs, and to a lesser extent, general and administrative expenditures. We expect our expenses to increase substantially in connection with our ongoing clinical development activities related to our NASH drug candidate ALG-055009, which we have initiated clinical trials, as well as our research and development of our other drug candidates within our coronavirus and CHB programs.
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In addition, we continue to incur additional costs associated with operating as
a public company following our IPO in
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conduct our current and future clinical trials, and additional nonclinical studies;
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initiate and continue research and nonclinical and clinical development of other drug candidates;
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seek to identify additional drug candidates;
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pursue marketing approvals for any of our drug candidates that successfully complete clinical trials, if any;
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establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain marketing approval;
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require the manufacture of larger quantities of our drug candidates for clinical development and potentially commercialization;
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obtain, maintain, expand, protect and enforce our intellectual property portfolio;
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acquire or in-license other drug candidates and technologies;
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hire and retain additional clinical, quality control and scientific personnel;
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achieve milestones triggering payments by us under our current and potential future licensing and/or collaboration agreements;
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build out or expand existing facilities to support our ongoing development activity; and
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add operational, financial and management information systems and personnel, including personnel to support our drug development, any future commercialization efforts and any additional requirement of being a public company.
We believe that our existing cash, cash equivalents and investments will enable us to fund our planned operating expenses and capital expenditure requirements through at least the twelve months from the date of issuing our financial statements. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. Furthermore, we may elect to raise additional capital on an opportunistic basis to fund operations.
Because of the numerous risks and uncertainties associated with our research and development programs and because the extent to which we may enter into collaborations with third parties for development of our drug candidates is unknown, we are unable to estimate the timing and amounts of increased capital outlays and operating expenses associated with completing the research and development of our drug candidates. Our future capital requirements will depend on many factors, including:
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the scope, progress, results and costs of researching and developing our drug candidates and programs, and of conducting nonclinical studies and clinical trials;
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the timing of, and the costs involved in, obtaining marketing approvals for drug candidates we develop if clinical trials are successful;
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the cost of commercialization activities for our current drug candidates, and any future drug candidates we develop, whether alone or in collaboration, including marketing, sales and distribution costs if our current drug candidates or any future drug candidate we develop is approved for sale;
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the cost of manufacturing our current and future drug candidates for clinical trials in preparation for marketing approval and commercialization;
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our ability to establish and maintain strategic licenses or other arrangements and the financial terms of such agreements;
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the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
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the timing, receipt and amount of sales of, or profit share or royalties on, our future products, if any;
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the emergence of competing therapies for hepatological indications and viral diseases and other adverse market developments; and
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any acquisitions or in-licensing of other programs or technologies.
Developing pharmaceutical products, including conducting nonclinical studies and clinical trials, is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval for any drug candidates or generate revenue from the sale of any drug candidate for which we may obtain marketing approval. In addition, our drug candidates, if approved, may not achieve commercial success. Our commercial product revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for many years, if ever. Accordingly, we will need to obtain substantial additional funds to achieve our business objectives.
Adequate additional funds may not be available to us on acceptable terms, or at all. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, ownership interest may be diluted, and the terms of these securities may include liquidation or other preferences and anti-dilution protections that could adversely affect the rights of a common stockholder. Additional debt or preferred equity financing, if available, may involve agreements that include restrictive covenants that may limit our ability to take specific actions, such as incurring debt, making capital expenditures or declaring dividends, which could adversely constrain our ability to conduct our business, and may require the issuance of warrants, which could potentially dilute ownership interest.
If we raise additional funds through collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technology, future revenue streams, research programs, or drug candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings or collaborations, strategic alliances or licensing arrangements with third parties when needed, we may be required to delay, limit, reduce and/or terminate our product development programs or any future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
Cash Flows
The following table summarizes our sources and uses of cash for each of the periods presented:
(in thousands) 2022 2021 Net cash (used in) operating activities$ (79,389 ) $ (115,662 ) Net cash provided by (used in) investing activities (26,293 ) 3,022 Net cash provided by financing activities 164 78,677 Net decrease in cash, cash equivalents, and restricted cash$ (105,518 ) $ (33,963 ) Operating activities
During Fiscal 2022, operating activities used
The decrease in other assets resulted from reduced costs due to the discontinuation of our STOPS and ASO programs including deposits for manufacturing slot reservation fees. The increase in deferred revenue from collaborations was a result of our collaboration agreements (refer to Note 10 License and collaboration agreements, for details), partially offset by the recognition of revenue from collaborations due to progress towards the completion of the projects. Operating lease liabilities decreased due to contractual lease payments, and the decrease in accrued liabilities was due primarily due to a slowdown in manufacturing activities for various drug compounds that are expected to be consumed in future clinical trials.
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During Fiscal 2021, operating activities used
The increase in other assets resulted from advances for clinical trial costs and deposits for manufacturing slot reservation fees. The decrease in deferred revenue from collaborations was a result of recognition of revenue from collaborations due to progress towards the completion of the project. Operating lease liabilities decreased due to contractual lease payments, and the increase in accrued liabilities was due primarily due to a ramp in manufacturing activities for various drug compounds that are expected to be consumed in future clinical trials.
Investing activities
During Fiscal 2022, investing activities used
During Fiscal 2021, investing activities provided
Financing activities
During Fiscal 2022, net cash provided by financing activities was
During Fiscal 2021, net cash provided by financing activities was
Contractual obligations and commitments
Our principal commitments consist of obligations under our operating leases for
office space in
Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
Indemnification agreements
We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. We have never
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incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal.
Critical accounting estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with
While our significant accounting policies are described in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following critical accounting policies are most important to understanding and evaluating our reported financial results and future performance, as these policies relate to the more significant areas involving management's judgments and estimates.
Accrued research and development costs
We record accrued expenses for estimated costs of our research and development activities conducted by third-party service providers, which include the conduct of clinical trials and nonclinical studies. We record the estimated costs of research and development activities based upon the estimated amount of services provided but not yet invoiced and include these costs in accrued liabilities in the consolidated balance sheets and within research and development expense in the consolidated statements of operations and comprehensive loss. These expenses are a significant component of our research and development costs. We record accrued expenses for these costs based on factors such as estimates of the work completed and in accordance with agreements established with these third-party service providers. Any payments made in advance of services provided are recorded as prepaid expenses and other assets, which are expensed as the contracted services are performed.
We estimate the amount of work completed through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fee to be paid for such services. We make significant judgments and estimates in determining the accrued balance in each reporting period. As actual costs become known, we adjust our accrued estimates. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed could vary from actuals and result in us reporting amounts that are too high or too low in any particular period. Our accrued expenses are dependent, in part, upon the receipt of timely and accurate reporting from clinical research organizations and other third-party service providers. For the periods presented, we have experienced no material differences between our accrued expenses and actual expenses.
Research and development expenses
We expense research and development costs as incurred. Acquired intangible
assets are expensed as research and development if, at the time of payment, the
technology is under development; is not approved by the
Research and development expenses consist of costs incurred in performing research and development activities, including salaries, stock-based compensation and benefits, facilities costs, depreciation, and third-party license fees. Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are expensed as incurred. In-process research and development (IPR&D) expense represents the costs to acquire technologies to be used in research and development that have not reached technological feasibility or have no alternative future uses and thus are expensed as incurred. IPR&D expense also includes upfront license fees and milestones paid to collaborators for technologies with no alternative use.
Stock-based compensation
We measure stock options and other stock-based awards granted to employees, directors and other service providers based on their fair value on the date of grant and recognize compensation expense of those awards over
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the requisite service period, which is generally the vesting period of the
respective award. We recognize the impact of forfeitures on stock-based
compensation expense as forfeitures occur. We apply the straight-line method of
expense recognition to all awards with only service-based vesting conditions.
During the year ended
We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model, which requires the use of highly subjective assumptions including:
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Expected term - We have opted to use the "simplified method" for estimating the expected term of plain-vanilla options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option (generally 10 years). We estimated the expected term of performance-based vesting options based on the expected life of the options to remain outstanding, which is estimated to be materially consistent with time-vesting options.
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Risk-free interest rate - The risk-free rate assumption is based on the
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Expected dividend - We have not issued any dividends and do not anticipate to issue dividends on our common stock. As a result, we have estimated the dividend yield to be zero.
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Expected volatility - Due to our limited operating history and a lack of company-specific historical and implied volatility data, we have based our estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. The historical volatility data was computed using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of the stock-based awards.
Emerging growth company status
In
We will remain an EGC until the earliest to occur of: (1) the last day of the
fiscal year in which we have more than
In addition, we intend to rely on the other exemptions and reduced reporting
requirements provided to EGCs by the JOBS Act. Subject to certain conditions set
forth in the JOBS Act, as an EGC, we are not required to, among other things,
(i) provide an auditor's attestation report on our system of internal controls
over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of
2002, (ii) provide all of the compensation disclosure that may be required of
non-emerging growth public companies under the Dodd-Frank Wall Street Reform and
Consumer Protection Act, (iii) comply with any requirement that may be adopted
by the
Recently issued and adopted accounting pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements.
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