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10-Q: ALX ONCOLOGY HOLDINGS INC

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(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, include forward-looking statements 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 "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a clinical-stage immuno-oncology company focused on helping patients fight cancer by developing therapies that block the CD47 checkpoint pathway and bridge the innate and adaptive immune system. Cancer cells leverage CD47, a cell surface protein, as a "don't eat me" signal to evade detection by the immune system. Our company is developing a next-generation checkpoint inhibitor designed to have a high affinity for CD47 and to avoid the limitations caused by hematologic toxicities inherent in other CD47 blocking approaches. We believe our lead product candidate, evorpacept (also known as ALX148), will have a wide therapeutic window to block the "don't eat me" signal on cancer cells, and to leverage the immune activation of broadly used anti-cancer agents through combination strategies. As of September 30, 2021, we had dosed over 185 subjects with evorpacept across a range of hematologic and solid malignancies in combination with a number of leading anti-cancer agents. We plan to initiate additional studies in combination with leading anti-cancer agents. In hematologic malignancies, we have dosed 13 subjects for the treatment of myelodysplastic syndromes, or MDS, and intend to advance evorpacept into clinical development for the treatment of acute myeloid leukemia, or AML, in the fourth quarter of 2021. In solid tumors, we have initiated two randomized Phase 2 trials of evorpacept for the treatment of first-line head and neck squamous cell carcinoma, or HNSCC, and dosed the first subject in the first trial in May 2021, and dosed the first subject in the second trial in July 2021, and we also initiated a Phase 1 trial in collaboration with Zymeworks for the treatment of breast cancer and dosed the first subject in October 2021. We intend to initiate a randomized Phase 2 trial of evorpacept for the treatment of second line gastric/gastroesophageal junction, or GEJ, cancer in the fourth quarter of 2021. Based on our clinical results to date in multiple oncology indications showing encouraging anti-tumor activity and tolerability and our clinical development plans, our strategy is to pursue evorpacept as a potentially critical component for future combination treatments in oncology.

Our predecessor company, ALX Oncology Limited, an Irish private company limited by shares, was initially incorporated in Ireland on March 13, 2015 under the name Alexo Therapeutics Limited and changed its name to ALX Oncology Limited on October 11, 2018. We were then incorporated in Delaware on April 1, 2020 under the name ALX Oncology Holdings Inc. and completed an internal reorganization effective as of the same date whereby ALX Oncology Limited became our wholly-owned subsidiary and all of the stockholders, warrant holders and option holders of ALX Oncology Limited became our stockholders, warrant holders and option holders, holding the same number of corresponding shares, warrants and/or options in us as they did in ALX Oncology Limited immediately prior to the internal reorganization. The information included herein are presented as that of ALX Oncology Holdings Inc., unless such information refers to a date prior to April 1, 2020, in which case it will reflect that of our predecessor company.

Since our founding, we have devoted substantially all of our resources to identifying and developing evorpacept, advancing preclinical programs, scaling up manufacturing, conducting clinical trials and providing general and administrative support for these operations. We have no products approved for marketing and we have never received any revenue from drug product sales.

In July 2020, we consummated our initial public offering, raising net proceeds of $169.5 million, after deducting underwriting discounts and commissions of $13.0 million and offering-related expenses of $3.2 million. In December 2020, we consummated a follow-on public offering, raising net proceeds of $194.9 million, after deducting underwriting discounts and commissions of $12.5 million and offering-related expenses of $0.7 million. From inception through September 30, 2021, we have raised an aggregate of $545.3 million to fund our operations, of which $175.1 million were net proceeds from sales of our convertible preferred stock, $5.8 million were net proceeds from borrowings under a term loan, $169.5 million were net proceeds from our initial public offering and $194.9 million were net proceeds from our follow-on public offering.

We have incurred net losses in each year since inception. Our net losses were $24.6 million and $10.2 million for the three months ended September 30, 2021 and 2020, respectively, and $55.0 million and $27.0 million for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, we had an accumulated deficit of $173.5 million. Substantially all of our operating losses are a result of expenses incurred in connection with our research and development programs, primarily evorpacept, and from general and administrative expenses associated with our operations.

We expect to continue to incur significant expenses and increasing operating losses over at least the foreseeable future. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

advance evorpacept through multiple clinical trials in multiple indications;

pursue regulatory approval of evorpacept in hematological malignancies and solid tumors;

continue our discovery and preclinical and clinical development efforts, including our collaborations with Tallac Therapeutics and Zymeworks and our recent acquisition of ScalmiBio;

obtain and maintain patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates;

manufacture supplies for our preclinical studies and clinical trials; and

continue to add operational, financial and management information systems to support ongoing operations as a public company.

Components of Results of Operations

Related-Party Revenue

To date, we have not generated any revenue from product sales, licenses or collaborations and do not expect to generate any revenue from the sale of products in the foreseeable future. We recognized related-party revenue related to research and development services to Tallac Therapeutics, which ceased as of July 1, 2020. If our clinical development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue from future product sales. If we enter into license or collaboration agreements for any of our product candidates or intellectual property, we may generate revenue in the future from payments as a result of such license or collaboration agreements. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates including evorpacept. We may never succeed in obtaining regulatory approval for any of our product candidates.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred for the development of our lead product candidate, evorpacept, which include:

expenses incurred in connection with the preclinical and clinical development, including expenses incurred under agreements with contract research organizations, or CROs;

expenses incurred in connection with the preclinical and clinical development, including expenses incurred under collaboration agreements;

employee-related expenses, including salaries, related benefits, travel and stock-based compensation expense for employees engaged in research and development functions;

expenses related to production of clinical materials, including fees paid to contract manufacturing organizations, or CMOs;

laboratory and vendor expenses related to the execution of preclinical studies and clinical trials; and

facilities and other expenses, which include expenses for rent and maintenance of facilities, depreciation and amortization expense and other supplies.

We expense research and development costs as incurred. Nonrefundable advance payments for goods or services to be received in future periods for use in research and development activities are deferred and capitalized. The capitalized amounts are then expensed as the related goods are delivered or as services are performed. We record accruals for estimated costs of research, preclinical studies and clinical trials and manufacturing development, which are a significant component of research and development expenses. We determine the estimated costs through discussions with internal personnel and external service providers as to the progress or stage of completion of the services and the agreed-upon fees to be paid for such services.

Our research and development expenses consist primarily of costs associated with the development of our lead product candidate evorpacept and include external costs, such as fees paid to consultants, central laboratories, contractors, collaborators, CMOs and CROs in connection with our preclinical and clinical development activities.

Almost all of our research and development expenses to date related to the clinical development of our lead product candidate, evorpacept. We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to progress on our existing product candidates and developing new product candidates. As our product candidates advance into later stages of development, we begin to conduct larger clinical trials. The process of conducting the necessary clinical trials to obtain regulatory approval is costly and time-consuming, and the successful development of our product candidates is highly uncertain. As a result, we are unable to determine the duration and completion costs of our research and development projects or when and to what extent we will generate revenue from the commercialization and sale of any of our product candidates. In addition, we will incur expenses related to the preclinical research conducted internally and through the contract with Tallac Therapeutics, as further described in Note 9 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.

The successful development of our current and future product candidates is highly uncertain. This is due to the numerous risks and uncertainties, including the following:

successful completion of preclinical studies and clinical trials;

delays in regulators or institutional review boards authorizing us or our investigators to commence our clinical trials or in our ability to negotiate agreements with clinical trial sites or CROs;

the number and location of clinical sites included in the trials;

raising additional funds necessary to complete clinical development of our product candidates;

obtaining and maintaining patent, trade secret and other intellectual property protection and regulatory exclusivity for our product candidates;

contracting with third-party manufacturers for clinical supplies of our product candidates;

protecting and enforcing our rights in our intellectual property portfolio, including, if necessary, litigation; and

maintaining a continued acceptable safety profile of the products following approval.

A change in the outcome of any of these variables with respect to the development of our product candidates may significantly impact the costs and timing associated with the development of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.

Research and development activities are central to our business model. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development. In addition, future regulatory factors beyond our control may impact the success, cost or timing of our clinical development programs.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel-related expenses, business development expenses, facilities expenses, depreciation and amortization expenses and professional services expenses, including legal, human resources, audit, accounting and tax-related services, and directors and officers liability insurance premiums. Personnel and related costs primarily consist of salaries, benefits and stock-based compensation expense. Facilities costs primarily consist of rent and maintenance of facilities.

We anticipate that our general and administrative expenses will continue to increase as a result of increased headcount, expanded infrastructure and higher consulting, legal, tax and regulatory-related services associated with maintaining compliance with stock exchange listing and SEC requirements, audit and investor relations costs, director and officer insurance premiums and other costs associated with being a public company.

Cost of Services for Related-Party Revenue

We previously incurred costs associated with related-party contract research services including direct labor and associated employee benefits, laboratory supplies and other expenses. These costs were recorded in cost of services for related-party transactions as a component of total operating expenses in the accompanying condensed consolidated statements of operations and comprehensive loss.

Interest Expense

Historically, our interest expense consisted primarily of interest expense on the term loan, amortization of deferred debt issuance costs, and interest related to finance leases.

Other Income (expense), Net

Our other income (expense), net, consists of interest income on cash balances, changes in the fair value of our convertible preferred stock warrant liability and compound derivative liability, and foreign currency re-measurement and transaction gains and losses. Prior to our initial public offering, the underlying shares of our Series B convertible preferred stock warrants were contingently redeemable, and we accounted for these warrants as a liability at fair value and re-measured the fair value at each balance sheet date. As a result of the completion of our initial public offering, the Series B convertible preferred stock warrant liability was reclassified to stockholders' equity and re-measurement was no longer required. The compound derivative liability was extinguished upon the extinguishment of the host instrument in December 2020.







        Results of Operations and Net Loss
        The following table summarizes our results of operations for the three and nine
        months ended September 30, 2021 and 2020 (in thousands, except percentages):
                                  Three Months Ended                                      Nine Months Ended
                                     September 30,                 Change                   September 30,                 Change
                                  2021          2020            $           %            2021          2020            $           %
        Related-party revenue   $       -     $       -     $       -         NM   %   $       -     $   1,182     $  (1,182 )     (100 ) %
        Operating expenses
        Research and
        development                18,214         5,328        12,886        242   %      39,276        16,819        22,457        134   %
        General and
        administrative              6,362         4,481         1,881         42   %      15,807         9,126         6,681         73   %
        Cost of services for
        related
          party revenue                 -             -             -         NM   %           -         1,075        (1,075 )     (100 ) %
        Total operating
        expenses                   24,576         9,809        14,767        151   %      55,083        27,020        28,063        104   %
        Loss from operations      (24,576 )      (9,809 )     (14,767 )      151   %     (55,083 )     (25,838 )     (29,245 )      113   %
        Interest expense               (4 )        (226 )         222        (98 ) %         (10 )        (660 )         650        (98 ) %
        Other income
        (expense), net                 14          (111 )         125       (113 ) %          68          (409 )         477       (117 ) %
        Loss before income
        


Related-Party Revenue

Related-party revenue for the three and nine months ended September 30, 2020 was zero and $1.2 million, respectively, which was generated solely from payments received for reimbursement of research and development expenses pursuant to the Tollnine Agreement, as further described in Note 9 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Related-party revenue for the three and nine months ended September 30, 2021 was zero due to the termination of the Tollnine Agreement as of July 1, 2020.







        Research and Development Expenses
        The following table summarizes our research and development expenses incurred
        for the three and nine months ended September 30, 2021 and 2020 (in thousands,
        except percentages):
                                Three Months Ended                                    Nine Months Ended
                                   September 30,                Change                  September 30,                Change
                                 2021          2020          $           %            2021          2020          $           %
        Clinical
        development costs     $    14,618     $ 4,612     $ 10,006        217   %   $  30,724     $ 11,913     $ 18,811        158   %
        Personnel and
        related costs               1,936       1,039          897         86   %       5,146        2,741        2,405         88   %
        Stock-based
        compensation
          expense                   1,519        (359 )      1,878       (523 ) %       2,813        2,008          805         40   %
        Other research and
          development costs           141          36          105        292   %         593          157          436        278   %
        Total research and
        development
          expense             $    18,214     $ 5,328     $ 12,886        242   %      39,276       16,819     $ 22,457        134   %
        


Research and development expenses for the three months ended September 30, 2021 was $18.2 million, compared to $5.3 million for the three months ended September 30, 2020. The increase of $12.9 million was primarily attributable to (i) an increase of $10.0 million in clinical and development costs due to $8.7 million higher expenses associated with increased clinical costs mainly associated with a higher number of active clinical trials and increased patient enrollment and other research costs in advancement of our current lead product candidate, evorpacept, $0.8 million related to collaborations, of which $0.6 million was related to the Tallac Collaboration, and $0.3 million related to regulatory consulting expenses, (ii) an increase of $1.9 million in stock-based compensation expense mainly due to additional stock option awards granted in 2021 at higher fair values and negative stock-based compensation expense due to a reduction recorded in the corresponding prior period, (iii) an increase of $0.9 million in personnel expense due to $0.7 million increase driven by headcount growth and our share of Tallac's personnel expenses of $0.2 million related to the collaboration and (iv) an increase of $0.1 million in other research and development costs due to increase in clinical trial insurance as we continue to initiate new trials.

Research and development expenses for the nine months ended September 30, 2021 was $39.3 million, compared to $16.8 million for the nine months ended September 30, 2020. The increase of $22.5 million was primarily attributable to (i) an increase of $18.8 million in clinical and development costs due to $16.4 million higher expenses associated with increased pre-clinical costs, increased clinical costs mainly associated with a higher number of active clinical trials and increased patient enrollment and other research costs in advancement of our current lead product candidate, evorpacept, $1.6 million related to collaborations, of which $1.0 million was related to the Tallac Collaboration, and an increase of $0.5 million in regulatory consulting expenses, (ii) an increase of $2.4 million in personnel and related costs due to $2.0 million higher expense driven by headcount growth and recruiting expenses and our share of Tallac's personnel expenses of $0.4 million related to the collaboration,







        General and Administrative Expenses
        The following table summarizes our general and administrative expenses incurred
        for the three and nine months ended September 30, 2021 and 2020 (in thousands,
        except percentages):
                                Three Months Ended                                   Nine Months Ended
                                   September 30,                Change                 September 30,                Change
                                 2021          2020          $          %             2021         2020          $          %
        Personnel and
        related costs         $    1,444      $ 1,339     $   105          8   %   $    3,839     $ 2,577     $ 1,262         49   %
        Stock-based
        compensation
          expense                  2,672        1,048       1,624        155   %        5,415       1,685       3,730        221   %
        Other general and
          administrative
        costs                      2,246        2,094         152          7   %        6,553       4,864       1,689         35   %
        Total general and
          administrative
        expenses              $    6,362      $ 4,481     $ 1,881         42   %   $   15,807     $ 9,126     $ 6,681         73   %
        


General and administrative expenses for the three months ended September 30, 2021 was $6.4 million, compared to $4.5 million during the three months ended September 30, 2020. This increase of $1.9 million was primarily attributable to

General and administrative expenses for the nine months ended September 30, 2021 was $15.8 million, compared to $9.1 million during the nine months ended September 30, 2020. This increase of $6.7 million was primarily attributable to

Cost of Services for Related-Party Revenue

Cost of services for related-party revenue for the three and nine months ended September 30, 2020 was zero and $1.1 million, respectively, which are attributable to fee-for-service hours provided to Tallac Therapeutics. Cost of services for related-party revenue for the three and nine months ended September 30, 2021 was zero due to the termination of the Tollnine Agreement as of July 1, 2020.

Liquidity and Capital Resources; Plan of Operations

Sources of Liquidity

Since our inception, we have incurred significant operating losses and have not generated any product revenue. We have not yet commercialized any of our product candidates and we do not expect to generate revenue from sales of any product candidates for several years, if at all, subject to marketing approval of any of our product candidates. To date, we have funded our operations with proceeds from the sales of shares of our common stock and convertible preferred stock and borrowings under our term loan. Through September 30, 2021, we have received net proceeds from sales of our convertible preferred stock, borrowings under our term loan, our initial public offering and our follow-on public offering of $175.1 million, $5.8 million, $169.5 million and $194.9 million, respectively. As of September 30, 2021, we had cash and cash equivalents of $385.1 million.

Debt Extinguishment . . .

Nov 12, 2021

COMTEX_396786951/2041/2021-11-12T08:44:06

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