ALLOVIR, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the "Risk Factors" section of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a leading late clinical-stage cell therapy company developing highly innovative allogeneic T cell therapies to treat and prevent devastating viral diseases. Our innovative and proprietary virus-specific T cell, or VST, therapy platform allows us to generate off-the-shelf VSTs designed to restore immunity in patients with T cell deficiencies who are at risk from the life-threatening consequences of viral diseases. There is an urgent medical need for therapies to treat a large number of patients suffering from viral diseases who currently have limited or no treatment options. We are developing three innovative, allogeneic, off-the-shelf VST therapy candidates targeting 11 different devastating viruses. Our lead product, posoleucel (previously referred to as Viralym-M or ALVR105), is a multi-VST therapy that targets six viruses: adenovirus, or AdV, BK virus, or BKV, cytomegalovirus, or CMV, Epstein-Barr virus, or EBV, human herpesvirus 6, or HHV-6, and JC virus, or JCV. We believe posoleucel has the potential to fundamentally transform the treatment landscape for transplant patients by substantially reducing or preventing disease morbidity and mortality, thereby dramatically improving patient outcomes.
Posoleucel is being studied in three ongoing Phase 3 registrational trials for 3
distinct indications - the prevention of clinically significant infections from
multiple viruses, the treatment of virus-associated hemorrhagic cystitis, or HC,
and the treatment of AdV infections - all in allogeneic hematopoietic cell
transplant, or HCT, patients who are at high risk for life-threatening viral
infections from the six viruses targeted by posoleucel. We have successfully
accelerated the multi-prevention study in recognition of the fact that
prevention best addresses patients' unmet medical needs. The three Phase 3
studies are expected to complete enrollment by the end of 2023, enabling
potential data readouts from all three trials in 2024. In addition to the
ongoing Phase 3 registrational studies, posoleucel has been studied in a Phase 2
proof-of-concept study for the treatment of BK viremia in kidney transplant
patients. Positive topline results of this study were reported in
Our pipeline includes additional investigational VST therapies that may benefit
high-risk individuals. ALVR106 is our second off-the-shelf, multi-VST product
candidate targeting devastating respiratory diseases caused by human
metapneumovirus, or hMPV, influenza, parainfluenza virus, or PIV and respiratory
syncytial virus, or RSV. A Phase 1b/2 POC clinical study of ALVR106 is enrolling
patients in the
Since inception, we have devoted substantially all of our resources on raising capital, organizing and staffing our company, business planning, conducting discovery and research activities, acquiring or discovering product candidates, establishing and protecting our intellectual property portfolio, developing and progressing posoleucel, ALVR106, ALVR107,and other product candidates and preparing for clinical trials and establishing arrangements with third parties for the manufacture of our product candidates and component materials. We do not have any product candidates approved for sale and have not generated any revenue from product sales.
On
On
On
109
--------------------------------------------------------------------------------
warrants and/or units of any combination thereof. We simultaneously entered into
a sales agreement with
We have incurred significant operating losses since inception, including net
losses of
These losses have resulted primarily from costs incurred in connection with research and development activities and general and administrative costs associated with our operations. We expect to continue to incur significant and increasing expenses and operating losses for the foreseeable future, particularly if and as we:
•
initiate and conduct additional preclinical studies and clinical trials for our product candidates;
•
continue to discover and develop additional product candidates;
•
acquire or in-license other product candidates and technologies;
•
maintain, expand, and protect our intellectual property portfolio;
•
hire additional clinical and scientific personnel;
•
expand our manufacturing capabilities with third parties and establish manufacturing capabilities in-house;
•
seek regulatory approvals and pursue commercialization for any product candidates that successfully complete clinical trials; and
•
add operational, financial, and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts.
We expect to incur additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses that we did not incur as a private company. As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, including potential collaborations with other companies or other strategic transactions. Our inability to raise capital as and when needed could have a negative impact on our financial condition and ability to pursue our business strategies. There can be no assurances, however, that the current operating plan will be achieved or that additional funding will be available on terms acceptable to us, or at all.
At
110
--------------------------------------------------------------------------------
The development of our product candidates could be disrupted and materially adversely affected in the future by a pandemic, epidemic or outbreak of an infectious disease, such as the ongoing COVID-19 pandemic. The spread of COVID-19 has impacted the global economy and has impacted our operations, including the interruption of our preclinical and clinical trial activities and potential interruption to our supply chain. For example, the COVID-19 pandemic has delayed clinical trials. If the disruption due to the COVID-19 pandemic continues, our planned pivotal clinical trials also could be delayed due to government orders and site policies on account of the pandemic, and some patients may be unwilling or unable to travel to study sites, enroll in our trials or be unable to comply with clinical trial protocols if quarantines impede patient movement or interrupt healthcare services, which would delay our ability to conduct preclinical studies and clinical trials or release clinical trial results and could delay our ability to obtain regulatory approval and commercialize our product candidates. Furthermore, COVID-19 could affect our employees or the employees of research sites and service providers on whom we rely, including contract research organizations, or CROs, as well as those of companies with which we do business, including our suppliers and contract manufacturing organizations, or CMOs, thereby disrupting our business operations. Quarantines and travel restrictions imposed by governments in the jurisdictions in which we and the companies with which we do business operate could materially impact the ability of employees to access preclinical and clinical sites, laboratories, manufacturing sites and offices. For the health and safety of our employees, the Company has implemented work-at-home policies and we have generally restricted on site staff to only those employees who are fully vaccinated or essential to the development and research of product candidates; accordingly, we may experience limitations in employee resources. The outbreak and any other preventative or protective actions that we, our suppliers or other third parties with which we have business relationships, or governments may take in respect of the COVID-19 pandemic, could disrupt, delay, or otherwise adversely impact our business.
We are still assessing our business plans and the impact the COVID-19 pandemic may have on our ability to advance the testing, development and manufacturing of our drug candidates, including as a result of adverse impacts on the research sites, service providers, vendors, or suppliers on whom we rely, or to raise financing to support the development of our drug candidates. No assurances can be given that this analysis will enable us to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally or in our sector in particular. We cannot presently predict the scope and severity of any potential business shutdowns or disruptions, but if we or any of the third parties on whom we rely or with whom we conduct business, were to experience shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and adversely impacted.
Relationship with ElevateBio
On
Components of Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with our research and development activities, including our drug discovery efforts and the development of our product candidates. We expense research and development costs as incurred, which include:
•
external research and development expenses incurred under agreements with CROs, as well as investigative sites and consultants that conduct our clinical trials and other scientific development services;
•
costs related to manufacturing material for our clinical trials, including fees paid to CMOs;
•
manufacturing scale-up expenses and the cost of acquiring and manufacturing clinical trial materials;
•
employee-related expenses, including salaries, bonuses, benefits, stock-based compensation and other related costs for those employees involved in research and development efforts;
•
costs of outside consultants, including their fees, stock-based compensation and related travel expenses;
111
--------------------------------------------------------------------------------
•
the costs of acquiring and developing clinical trial materials;
•
expenses to acquire technologies, such as intellectual property, to be used in research and development;
•
upfront and maintenance fees incurred under license, acquisition and other third-party agreements;
•
costs related to compliance with regulatory requirements; and
•
facilities, depreciation, and other expenses, which include direct and allocated expenses for rent, maintenance of facilities and equipment and software.
Costs for certain activities are recognized based on an evaluation of the progress to completion of specific tasks using data such as information provided to us by our vendors and analyzing the progress of our discovery studies or other services performed. Significant judgment and estimates are made in determining the accrued expense balances at the end of any reporting period.
We characterize research and development costs incurred prior to the identification of a product candidate as discovery costs. Once a product candidate has been identified, research and development costs incurred are allocated as product candidate costs.
Our direct, external research and development expenses consist primarily of fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our process development, manufacturing and clinical development activities. Our direct external research and development expenses also include fees incurred under license and intellectual property purchase agreements. We track these external research and development costs on a program-by-program basis once we have identified a mature product candidate.
We do not allocate employee costs, costs associated with our discovery efforts, and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources and third-party consultants primarily to conduct our research and discovery activities as well as for managing our process development, manufacturing and clinical development activities.
The successful development of our product candidates is highly uncertain. We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of our product candidates and manufacturing processes and conduct discovery and research activities for our clinical programs. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future clinical trials of our product candidates due to the inherently unpredictable nature of preclinical and clinical development. Clinical development timelines, the probability of success and development costs can differ materially from expectations. We anticipate that we will make determinations as to which product candidates to pursue and how much funding to direct to each product candidate on an ongoing basis in response to the results of ongoing and future clinical trials, regulatory developments and our ongoing assessments as to each product candidate's commercial potential. We will need to raise substantial additional capital in the future. Our clinical development costs are expected to increase significantly with our ongoing clinical trials. We anticipate that our expenses will increase substantially, particularly due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:
•
the scope, rate of progress and expenses of our ongoing research activities and clinical trials and other research and development activities;
•
establishing an appropriate safety profile;
•
successful enrollment in and completion of clinical trials;
•
whether our product candidates show safety and efficacy in our clinical trials;
•
receipt of marketing approvals from applicable regulatory authorities;
•
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
•
obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;
•
commercializing product candidates, if and when approved, whether alone or in collaboration with others; and
•
continued acceptable safety profile of the products following any regulatory approval.
Any changes in the outcome of any of these variables with respect to the
development of our product candidates in clinical development could mean a
significant change in the costs and timing associated with the development of
these product candidates. We may never succeed in achieving regulatory approval
for any of our product candidates. We may obtain unexpected results from our
clinical trials. We may elect to discontinue, delay or modify clinical trials of
some product candidates or focus on others. For example, if the
112
--------------------------------------------------------------------------------
were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of employee-related costs, including salaries, bonuses, benefits, stock-based compensation and other related costs, as well as expenses for outside professional services, including legal, accounting and audit services and other consulting fees, rent expense and other general administrative expenses.
Total Other Income (Loss), Net
Interest income
Interest income consists of interest income on cash, cash equivalents and short-term investments held in financial institutions.
Other income (loss), net
"Other income (loss), net" consists primarily of investment amortization and accretion of discounts and premiums on short-term investments and foreign exchange gains and losses.
Income tax (benefit) expense
Income tax (benefit) expense consists of current income tax (benefit) expense which is expected to be (refundable) payable for the current year.
Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations (in thousands):
Years Ended December 31,
2022 2021 Change
Operating expenses:
Research and development $ 118,870 $ 120,735 $ (1,865 )
General and administrative 52,332 49,083 3,249
Total operating expenses 171,202 169,818 1,384
Loss from operations (171,202 ) (169,818 ) (1,384 )
Total other income (loss), net:
Interest income 1,876 1,315 561
Other income (loss), net 351 (2,452 ) 2,803
Loss before income taxes (168,975 ) (170,955 ) 1,980
Income tax (benefit) expense (265 ) 1,007 (1,272 )
Net loss $ (168,710 ) $ (171,962 ) $ 3,252
113--------------------------------------------------------------------------------
Research and Development Expenses
The following table summarizes our research and development costs for each of the periods presented (in thousands):
Years Ended December 31,
2022 2021 Change
Direct research and development expenses by
program:
posoleucel $ 58,629 $ 49,696 $ 8,933
ALVR106 4,313 9,224 (4,911 )
Unallocated research and development
expenses:
Personnel expenses (including stock-based
compensation) 47,541 52,019 (4,478 )
Other expenses 8,387 9,796 (1,409 )
Total research and development expenses
Research and development expenses were
•
a
•
a
•
a
•
a
General and Administrative Expenses
General and administrative expenses were
Total Other Income (Loss), Net
Total "other income (loss), net" was
Income Tax Expense
Income tax expense was
Liquidity and Capital Resources
Sources of Liquidity
At
114
--------------------------------------------------------------------------------
On
We currently have no ongoing material financing commitments, such as lines of credit or guarantees, that are expected to affect our liquidity over the next five years, other than our manufacturing, licensing and lease obligations described further below.
Funding Requirements
At
We expect to incur significant expenses and operating losses for the foreseeable future as we advance our product candidates through clinical development, seek regulatory approval and pursue commercialization of any approved product candidates. We expect that our research and development and general and administrative costs will increase in connection with our planned research and development activities. If we receive regulatory approval for our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize. We may also require additional capital to pursue in-licenses or acquisitions of other product candidates.
Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the amount of our working capital requirements. Our future capital requirements will depend on many factors, including:
•
the scope, progress, results and costs of researching and developing posoleucel for our initial and potential additional indications, as well as ALVR106 and other product candidates we may develop, including any COVID-19-related delays or other effects on our development programs;
•
the timing of, and the costs involved in, obtaining marketing approvals for posoleucel for our initial and potential additional indications, and ALVR106 and other product candidates we may develop;
•
if approved, the costs of commercialization activities for posoleucel for any approved indications, or ALVR106 or any other product candidate that receives regulatory approval to the extent such costs are not the responsibility of a collaborator that we may contract with in the future, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;
•
subject to receipt of regulatory approval, revenue, if any, received from commercial sales of posoleucel for any approved indications or ALVR106 or any other product candidates;
•
the extent to which we in-license or acquire rights to other products, product candidates or technologies;
•
our headcount growth and associated costs as we expand our research and development, increase our office space, and establish a commercial infrastructure;
•
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights, including enforcing and defending intellectual property related claims; and
•
the ongoing costs of operating as a public company.
Until such time, if ever, as we can generate substantial product revenues to support our cost structure, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations and other similar arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our shareholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common shareholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our product candidates even if we would otherwise prefer to develop and market such product candidates ourselves.
115
--------------------------------------------------------------------------------
Cash Flows
The following table summarizes our cash flows for each of the periods presented (in thousands):
Years Ended December 31,
2022 2021
Net cash used in operating activities $ (142,052 ) $ (106,319 ) Net cash (used in) provided by investing activities (80,478 ) 185,983 Net cash provided by financing activities
126,961 232
Effect of exchange rate changes on cash and cash
equivalents - (44 )
Net (decrease) increase in cash and cash
equivalents $ (95,569 ) $ 79,852
Operating Activities
Net cash used in operating activities was
Net cash used in operating activities was
Investing Activities
Net cash used in investing activities was
Net cash provided by investing activities was
Financing Activities
Net cash provided by financing activities was
Net cash provided by financing activities was
Contractual Obligations
Operating Leases
Operating lease payments represent our commitments for future minimum lease
costs under non-cancelable leases for our corporate headquarters in
116
--------------------------------------------------------------------------------
In
Purchase and Other Obligations
We enter into contracts in the normal course of business with CROs and other third-party vendors for clinical trials and testing and manufacturing services, which can contain purchase commitments or other noncancelable obligations. Most contracts do not contain minimum purchase commitments and are cancellable by us upon written notice. Payments due upon cancellation consist of payments for services provided or expenses incurred, including non-cancelable obligations of services provided up to one year after the date of cancellation. The amount and timing of such payments are not known.
We may incur potential contingent payments upon our achievement of clinical,
regulatory and commercial milestones, as applicable, or we may be required to
make royalty payments under license and grant agreements we have entered into
with various entities pursuant to which we have in-licensed certain intellectual
property. Due to the uncertainty of the achievement and timing of the events
requiring payment under these agreements, the amounts to be paid by us are not
fixed or determinable at this time. See "
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in
While our significant accounting policies are described in more detail in Note 2 to our audited consolidated financial statements appearing elsewhere in this report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.
Stock-Based Compensation Expense
We grant restricted stock and stock options to employees, consultants, and directors. We measure stock-based compensation for employees and non-employees based on the grant date fair value of the stock-based awards, and recognize stock-based compensation cost for awards with performance conditions if and when we conclude that it is probable that the performance conditions will be achieved using a graded-vesting basis over the requisite service period. For awards with only a service condition, we expense stock-based compensation on a straight-line basis over the requisite employee service period, which is generally the vesting period of the respective award.
Stock-based compensation expense is classified in our consolidated statements of operations and comprehensive loss based on the function to which the related services are provided or in the same manner in which the grantee's payroll costs are classified or in which the grantee's service payments are classified.
Prior to our IPO, we estimated the fair value of each stock option grant and restricted common stock award. We consider the fair value of our common stock prior to the IPO, an input to the option pricing models, a critical accounting estimate.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model, which requires inputs based on certain subjective assumptions, including the fair value of our common stock and assumptions we make for the expected stock price volatility, the expected term of the option, the risk-free interest rate for a period that approximates the expected term of the option and our expected dividend yield.
117
--------------------------------------------------------------------------------
The expected term of our options granted to employees and non-employees has been
determined utilizing the "simplified" method for awards that qualify as
"plain-vanilla" options, and we calculate the expected term of these awards
using the midpoint between the vesting date and the contractual term. The
risk-free interest rate is determined by reference to the
Valuation of Common Stock
Prior to our IPO, the fair value of each restricted common stock award was estimated on the date of grant based on the fair value of our common stock on that same date. In estimating its stock price, the Company utilized a hybrid method consisting of an option-pricing method and a zero-value scenario. We determine the volatility for awards granted based on an analysis of reported data for a group of guideline companies that issued options with substantially similar terms. The expected volatility has been determined using a weighted-average of the historical volatility measures of this group of guideline companies. We expect to continue to do so until we have adequate historical data regarding the volatility of the trading price of our common stock on Nasdaq.
As there had been no public market for our common stock prior to the initial
public offering of our common stock, the historical estimated fair value of our
common stock has been approved by our board of directors, considering our most
recently available independent third-party valuations of common stock. In
accordance with the guidance outlined in the
In addition to considering the results of the third-party valuations, our board of directors considered various objective and subjective factors to determine the fair value of our common stock as of each grant date, which may be a date later than the most recent third-party valuation date, including:
•
the prices at which we sold preferred stock and the superior rights and preferences of the preferred stock relative to our common stock at the time of each grant;
•
the progress of our research and development efforts, including the status of clinical studies for our product candidates;
•
the lack of liquidity of our equity as a private company;
•
our stage of development and business strategy and the material risks related to our business and industry;
•
the achievement of enterprise milestones, including entering into collaboration and license agreements;
•
the valuation of publicly traded companies in the life sciences and biotechnology sectors, as well as recently completed mergers and acquisitions of peer companies;
•
any external market conditions affecting the biotechnology industry and trends within the biotechnology industry;
•
the likelihood of achieving a liquidity event for the holders of our preferred stock and holders of our common stock, such as an IPO, or a sale of our company, given prevailing market conditions; and
•
the analysis of IPOs and the market performance of similar companies in the biopharmaceutical industry.
There are significant judgments and estimates inherent in these valuations. The assumptions underlying these valuations represent management's best estimates, which involve inherent uncertainties and the application of management judgment. As a result, if factors or expected outcomes change and we use significantly different assumptions or estimates, our stock-based compensation expense could be materially different.
Following the closing of our initial public offering, the fair value of our common stock is determined based on the quoted market price of our common stock.
Emerging Growth Company Status
On
118
--------------------------------------------------------------------------------
and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth public companies on a case-by-case basis. As a result, our consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We intend to rely on certain of the other exemptions and reduced reporting
requirements provided by the JOBS Act. As an emerging growth company, 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), and (ii) comply with any requirement that may be adopted by the
We will remain an emerging growth company until the earlier to occur of (1) the
last day of our fiscal year (a) following the fifth anniversary of the closing
of our IPO, (b) in which we have total annual gross revenues of at least
We are also a "smaller reporting company" meaning that the market value of our
stock held by non-affiliates is less than
Recently Issued Accounting Pronouncements
A description of recent issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.
119
--------------------------------------------------------------------------------
© Edgar Online, source
