SEC Filing | Allakos

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

View:

Download DOC

Download PDF

Download XLS

Download XBRL

allk-10q_20190630.htm

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

☐	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.

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

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

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

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

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

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

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	$	33,660
Restricted cash in other long-term assets, deposit for lease facility