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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to _________

 

Commission File Number: 001-38582

 

Allakos Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

45-4798831

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

975 Island Drive, Suite 201

Redwood City, California

94065

(Address of principal executive offices)

(Zip Code)

(650) 597-5002

Registrant’s telephone number, including area code

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.001

ALLK

The Nasdaq Global Select Market

As of July 31, 2019, the registrant had 43,185,253 shares of common stock outstanding.

 

 

 


ALLAKOS INC.

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

2

 

Balance Sheets

2

 

Statements of Operations and Comprehensive Loss

3

 

Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit)

4

 

Statements of Cash Flows

5

 

Notes to Unaudited Interim Financial Statements

6

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

59

Item 3.

Defaults Upon Senior Securities

59

Item 4.

Mine Safety Disclosures

59

Item 5.

Other Information

59

Item 6.

Exhibits

60

Signatures

61

 

 

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited).

allakos inc.

balance sheets

(in thousands, except per share data)

 

 

June 30,

 

 

December 31,

 

 

2019

 

 

2018

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

36,457

 

 

$

33,660

 

Investments in marketable securities

 

116,614

 

 

 

145,246

 

Prepaid expenses and other current assets

 

1,270

 

 

 

2,703

 

Total current assets

 

154,341

 

 

 

181,609

 

Property and equipment, net

 

8,734

 

 

 

8,848

 

Operating lease right-of-use assets

 

5,908

 

 

 

 

Other long-term assets

 

802

 

 

 

802

 

Total assets

$

169,785

 

 

$

191,259

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

2,966

 

 

$

2,092

 

Accrued expenses and other current liabilities

 

6,343

 

 

 

3,164

 

Total current liabilities

 

9,309

 

 

 

5,256

 

Other long-term liabilities

 

8,326

 

 

 

2,009

 

Total liabilities

 

17,635

 

 

 

7,265

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value per share; 20,000 shares

   authorized as of June 30, 2019 and December 31, 2018;

   no shares issued and outstanding as of June 30, 2019

   and December 31, 2018

 

 

 

 

 

Common stock, $0.001 par value per share; 200,000 shares

   authorized as of June 30, 2019 and December 31, 2018;

   43,184 and 42,117 shares issued and outstanding as of

   June 30, 2019 and December 31, 2018, respectively

 

43

 

 

 

42

 

Additional paid-in capital

 

295,130

 

 

 

288,079

 

Accumulated other comprehensive gain (loss)

 

114

 

 

 

(15

)

Accumulated deficit

 

(143,137

)

 

 

(104,112

)

Total stockholders’ equity

 

152,150

 

 

 

183,994

 

Total liabilities and stockholders’ equity

$

169,785

 

 

$

191,259

 

 

See accompanying notes to unaudited interim financial statements

 

2


 

 

Allakos Inc.

Statements of Operations and Comprehensive Loss

(in thousands, except per share data)

(unaudited)

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

14,111

 

 

$

7,149

 

 

$

29,209

 

 

$

13,550

 

General and administrative

 

 

5,946

 

 

 

2,375

 

 

 

11,775

 

 

 

4,683

 

Total operating expenses

 

 

20,057

 

 

 

9,524

 

 

 

40,984

 

 

 

18,233

 

Loss from operations

 

 

(20,057

)

 

 

(9,524

)

 

 

(40,984

)

 

 

(18,233

)

Interest income, net

 

 

971

 

 

 

292

 

 

 

2,001

 

 

 

516

 

Other income (expense), net

 

 

14

 

 

 

(145

)

 

 

(42

)

 

 

(145

)

Net loss

 

 

(19,072

)

 

 

(9,377

)

 

 

(39,025

)

 

 

(17,862

)

Unrealized gain on marketable securities, net of tax

 

 

84

 

 

 

3

 

 

 

129

 

 

 

3

 

Comprehensive loss

 

$

(18,988

)

 

$

(9,374

)

 

$

(38,896

)

 

$

(17,859

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.44

)

 

$

(4.17

)

 

$

(0.91

)

 

$

(8.36

)

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

43,115

 

 

 

2,248

 

 

 

42,868

 

 

 

2,137

 

 

See accompanying notes to unaudited interim financial statements

 


 

3


 

Allakos Inc.

Statements of CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(in thousands)

(unaudited)

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated Other Comprehensive Gain (Loss)

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Equity

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2018

 

 

 

 

$

 

 

 

 

42,117

 

 

$

42

 

 

$

288,079

 

 

$

(15

)

 

$

(104,112

)

 

$

183,994

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,834

 

 

 

 

 

 

 

 

 

2,834

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

968

 

 

 

1

 

 

 

367

 

 

 

 

 

 

 

 

 

368

 

Issuance of common stock upon 2018 ESPP purchase

 

 

 

 

 

 

 

 

 

39

 

 

 

 

 

 

595

 

 

 

 

 

 

 

 

 

595

 

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Unrealized gain on marketable securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

45

 

 

 

 

 

 

45

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,953

)

 

 

(19,953

)

Balance at March 31, 2019

 

 

 

 

$

 

 

 

 

43,124

 

 

$

43

 

 

$

291,881

 

 

$

30

 

 

$

(124,065

)

 

$

167,889

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,105

 

 

 

 

 

 

 

 

 

3,105

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

60

 

 

 

 

 

 

138

 

 

 

 

 

 

 

 

 

138

 

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Unrealized gain on marketable securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

84

 

 

 

 

 

 

84

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(19,072

)

 

 

(19,072

)

Balance at June 30, 2019

 

 

 

 

$

 

 

 

 

43,184

 

 

$

43

 

 

$

295,130

 

 

$

114

 

 

$

(143,137

)

 

$

152,150

 

 

 

 

 

Convertible

Preferred Stock

 

 

 

Common Stock

 

 

Additional

Paid-In

Capital

 

 

Accumulated Other Comprehensive Gain

 

 

Accumulated

Deficit

 

 

Total

Stockholders’

Deficit

 

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

30,971

 

 

$

142,969

 

 

 

 

2,114

 

 

$

3

 

 

$

1,803

 

 

$

 

 

$

(60,574

)

 

$

(58,768

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

614

 

 

 

 

 

 

 

 

 

614

 

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,485

)

 

 

(8,485

)

Balance at March 31, 2018

 

 

30,971

 

 

$

142,969

 

 

 

 

2,114

 

 

$

3

 

 

$

2,423

 

 

$

 

 

$

(69,059

)

 

$

(66,633

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

438

 

 

 

 

 

 

 

 

 

438

 

Proceeds from repayment of recourse promissory note

 

 

 

 

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

 

 

 

 

416

 

 

 

 

 

 

291

 

 

 

 

 

 

 

 

 

291

 

Vesting of restricted common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

 

 

 

 

 

 

 

 

 

6

 

Unrealized gain on marketable securities, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,377

)

 

 

(9,377

)

Balance at June 30, 2018

 

 

30,971

 

 

$

143,019

 

 

 

 

2,530

 

 

$

3

 

 

$

3,158

 

 

$

3

 

 

$

(78,436

)

 

$

(75,272

)

 

See accompanying notes to unaudited interim financial statements

 

4


 

Allakos Inc.

Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(39,025

)

 

$

(17,862

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

732

 

 

 

119

 

Accretion of tenant improvement allowance

 

 

 

 

 

(21

)

Stock-based compensation

 

 

5,939

 

 

 

1,052

 

Net amortization of premiums and discounts on marketable securities

 

 

(1,330

)

 

 

(89

)

Noncash lease expense

 

 

142

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

1,508

 

 

 

(2,051

)

Other long-term assets

 

 

 

 

 

(22

)

Accounts payable

 

 

874

 

 

 

(647

)

Accrued expenses and other current liabilities

 

 

3,314

 

 

 

1,861

 

Other long-term liabilities

 

 

144

 

 

 

211

 

Net cash used in operating activities

 

 

(27,702

)

 

 

(17,449

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(115,984

)

 

 

(44,746

)

Purchases of property and equipment

 

 

(618

)

 

 

(1,650

)

Proceeds from maturities of marketable securities

 

 

146,000

 

 

 

 

Net cash provided by (used in) investing activities

 

 

29,398

 

 

 

(46,396

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock under the 2018 ESPP

 

 

595

 

 

 

 

Proceeds from exercise of stock options, net of repurchases

 

 

506

 

 

 

291

 

Proceeds from the repayment of recourse promissory note

 

 

 

 

 

50

 

Payments for deferred financing costs

 

 

 

 

 

(1,606

)

Net cash provided by (used in) financing activities

 

 

1,101

 

 

 

(1,265

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

2,797

 

 

 

(65,110

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

34,462

 

 

 

85,207

 

Cash, cash equivalents and restricted cash, end of period

 

$

37,259

 

 

$

20,097

 

Supplemental disclosures

 

 

 

 

 

 

 

 

Noncash investing and financing items:

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations (1)

 

$

6,050

 

 

$

 

Property and equipment purchased in accounts payable

 

$

 

 

$

14

 

Lessor funded lease incentives included in property and equipment

 

$

 

 

$

1,386

 

Deferred initial public offering costs in accounts payable and accrued expenses

 

$

 

 

$

858

 

Vesting of restricted common stock subject to repurchase

 

$

12

 

 

$

12

 

 

(1)

Amount for the six months ended June 30, 2019 includes a transition adjustment recorded as part of the Company’s adoption of a new lease accounting policy effective January 1, 2019.

 

See accompanying notes to unaudited interim financial statements

 

 

5


 

ALLAKOS INC.

NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS

1. Organization and Business

Allakos Inc. (“Allakos” or the “Company”) was incorporated in the state of Delaware in March 2012. Allakos is a clinical stage biopharmaceutical company focused on the development of AK002 for the treatment of eosinophil and mast cell related diseases. The Company’s primary activities to date have included establishing its facilities, recruiting personnel, conducting research and development of its product candidates and raising capital. The Company’s operations are located in Redwood City, California.

Liquidity Matters

Since inception, the Company has incurred net losses and negative cash flows from operations. During the six months ended June 30, 2019, the Company incurred a net loss of $39.0 million and used $27.7 million of cash in operations. At June 30, 2019, the Company had an accumulated deficit of $143.1 million and does not expect to experience positive cash flows from operating activities in the foreseeable future. The Company has financed its operations to date primarily through the sale of common stock and issuance of convertible preferred stock. Management expects to incur additional operating losses in the future as the Company continues to further develop, seek regulatory approval for and, if approved, commence commercialization of its product candidates. The Company had $153.1 million of cash, cash equivalents and marketable securities at June 30, 2019. Management believes that this amount is sufficient to fund the Company’s operations for at least the next 12 months from the issuance date of these financial statements.

Initial Public Offering and Related Transactions

On July 23, 2018, the Company completed an initial public offering (“IPO”), selling 8,203,332 shares of common stock at an offering price of $18.00 per share. Proceeds from the IPO, net of underwriting discounts and commissions, were $137.3 million. Concurrently with the IPO, the Company completed a private placement of 250,000 shares of common stock at the IPO offering price of $18.00 per share to an existing stockholder. Proceeds from this private placement were $4.5 million.

In connection with the completion of the IPO on July 23, 2018, all then outstanding shares of convertible preferred stock were converted into 30,971,627 shares of common stock.

Upon the completion of the IPO, the Company’s certificate of incorporation was amended and restated. Under the amended and restated certificate of incorporation, the Company’s authorized capital stock consists of 200,000,000 shares of common stock with a par value $0.001 per share and 20,000,000 shares of convertible preferred stock with a par value $0.001 per share.

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited interim financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes.

The interim balance sheet as of June 30, 2019, the statements of operations and comprehensive loss, statements of convertible preferred stock and stockholders’ equity (deficit) and statements of cash flows for the six months ended June 30, 2019 and 2018 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and reflect, in the opinion of management, all adjustments of a normal and recurring nature that are necessary for the fair presentation of the Company’s financial position as of June 30, 2019 and its results of operations and comprehensive loss for the three and six months ended June 30, 2019 and 2018 and its cash flows for the six months ended June 30, 2019 and 2018. Certain information and note disclosures normally included in annual audited financial statements prepared in accordance with U.S. GAAP have been omitted. The financial data and the other financial information disclosed in these notes to the interim financial statements are also unaudited. The results of operations for any interim period are not necessarily indicative of the results to be expected for the entire year or for any other future annual or interim period. The balance sheet as of December 31, 2018 included herein was derived from the audited financial statements as of that date. These interim financial statements should be read in conjunction with the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2019.

Use of Estimates

Management uses significant judgment when making estimates related to common stock valuation and related stock-based compensation expense, accrued expenses related to clinical trials, calculation of right-of-use assets and lease liabilities, and deferred tax valuation allowances. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets

 

6


 

and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates under different assumptions or conditions, and those differences could be material to the financial position and results of operations.

Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject the Company to credit risk principally consist of cash, cash equivalents and marketable securities. These financial instruments are held in accounts at a single financial institution that management believes possesses high credit quality. Amounts on deposit with this financial institution have and will continue to exceed federally-insured limits. The Company has not experienced any losses on its cash deposits. Additionally, the Company’s investment policy limits its investments to certain types of securities issued by the U.S. government and its agencies.

The Company is subject to a number of risks similar to that of other early-stage biopharmaceutical companies, including, but not limited to, the need to obtain adequate additional funding, possible failure of current or future clinical trials, its reliance on third-parties to conduct its clinical trials, the need to obtain regulatory and marketing approvals for its product candidates, competitive developments, the need to successfully commercialize and gain market acceptance of the Company’s product candidates, its right to develop and commercialize its product candidates pursuant to the terms and conditions of the licenses granted to the Company, protection of proprietary technology, the ability to make milestone, royalty or other payments due under licensing agreements, and the need to secure and maintain adequate manufacturing arrangements with third-parties. If the Company does not successfully commercialize or partner its product candidates, it will be unable to generate product revenue or achieve profitability.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. Restricted cash as of June 30, 2019 represents $0.8 million in deposits restricted from withdrawal and held by a bank in the form of collateral for an irrevocable standby letter of credit held as security for the lease of the Company’s facility in Redwood City, California. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company’s balance sheets and which, in aggregate, represent the amounts reported in the accompanying statements of cash flows (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2019

 

 

2018

 

Cash and cash equivalents

 

$

36,457