The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in "Risk Factors" and "Special note regarding forward-looking statements."
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.
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
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
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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 (McClure et.
al, Global Hepatitis Summit,
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) PD1/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.
We have incurred net losses and negative cash flows from operations in each year
since our formation in
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 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 (steatohepatitis, coronaviruses, chronic hepatitis B and early-stage programs). The following table summarizes these research and development costs, in thousands:
Three months ended March 31, 2023 2022 Direct research and development expenses by development program: Non-alcoholic Steatohepatitis program $ 1,506 $ 1,023 Coronaviruses program 2,475 1,316 Chronic Hepatitis B program 1,991 14,347 Other early-stage programs 1,810 3,298
Total direct research and development expenses $ 7,781
10,354 11,692 Total research and development expense$ 18,135 $ 31,676
General and administrative expenses
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.
Our general and administrative expenses may increase in the future as we
increase our general and administrative personnel headcount to support personnel
in research and development and to support our operations generally as we
increase our research and development activities and activities related to the
potential commercialization of our drug candidates. We may also incur increased
expenses associated with operating as a public company, including costs of
accounting, audit, legal, regulatory and tax-related services associated with
maintaining compliance with exchange listing rules and requirements of the
Interest and other income (expense), net
Interest and other income (expense), net comprises interest income, net and other (loss) income, net. Interest income, net primarily consists of interest earned on our cash, cash equivalents, and investments. Other (loss) income, net consists primarily of the change in fair value of our investments and foreign currency gains/losses.
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Results of Operations
Comparison of the three months ended
Operating expenses
The following table summarizes our operating expenses for the three months ended
Three Months Ended March 31, Change 2023 2022 ($) %
Operating expenses:
Research and development
Research and development expenses
Research and development expenses decreased by
General and administrative expenses
General and administrative expenses increased by
Interest and other income (expense), net
The following table summarizes our interest and other income (expense), net for
the three months ended
` Three Months Ended March 31, Change 2023 2022 ($) % Interest income, net$ 748 $ 86 $ 662 769 % Other (loss) income, net 254 (91 ) 345 -379 % Total interest and other income (expense), net$ 1,002 $ (5 ) $ 1,007 -20130 %
Interest income, net increased by
Other (loss) income, net increased for the three months ended
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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.
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 ALG055009, which we have initiated clinical trials, as well as our research and development of our other drug candidates within our coronavirus and CHB programs.
In addition, we incur costs associated with operating as a public company. We expect that our expenses will increase substantially to the extent we:
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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 including milestone payments to our licensors;
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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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any lawsuits related to our drug candidates or commenced against us, including the costs associated with our current litigation with Janssen;
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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 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, your 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 your rights as 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 your 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):
Three Months Ended March 31, 2023 2022 Net cash used in operating activities$ (22,387 ) $ (20,434 ) Net cash provided by (used in) investing activities 19,993 (60,404 ) Net cash used in financing activities (1 ) (21 )
Net decrease in cash, cash equivalents, and restricted cash
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Operating activities
During the three months ended
During the three months ended
Investing activities
During the three months ended
During the three months ended
Financing activities
During the three months ended
During the three months ended
Contractual obligations and commitments
We have no material changes to our contractual obligations and commitments as of
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
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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 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 policies and use of 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
For a discussion of our critical accounting estimates, see "Management's
discussion and analysis of financial condition and results of operations" and
the notes to our audited financial statements in our annual report on Form 10-K,
filed with the
Recently issued and adopted accounting pronouncements
For a description of the expected impact of recently adopted accounting pronouncements, see Note 2. Summary of Significant Accounting Policies in the "Notes to Unaudited Condensed Consolidated Financial Statements" contained in Part I, Item 1 of this report.
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