10-Q
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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, 2022

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.)

825 Industrial Road, Suite 500

San Carlos, California

94070

(Address of principal executive offices)

(Zip Code)

 

 

(650) 597-5002

Registrant’s telephone number, including area code

 

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

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 ☒

As of August 1, 2022, the registrant had 54,844,080 shares of common stock outstanding.

 

 


ALLAKOS INC.

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

2

Item 1.

Financial Statements (Unaudited)

2

 

Balance Sheets

2

 

Statements of Operations and Comprehensive Loss

3

 

Statements of Stockholders’ Equity

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

27

PART II.

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3.

Defaults Upon Senior Securities

31

Item 4.

Mine Safety Disclosures

31

Item 5.

Other Information

31

Item 6.

Exhibits

32

Signatures

33

 

 

 

1


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited).

allakos inc.

balance sheets

(in thousands, except per share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2022

 

 

2021

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

82,452

 

 

$

152,822

 

Investments

 

 

129,987

 

 

 

271,416

 

Prepaid expenses and other current assets

 

 

9,427

 

 

 

27,343

 

Total current assets

 

 

221,866

 

 

 

451,581

 

Property and equipment, net

 

 

41,300

 

 

 

43,100

 

Operating lease right-of-use assets

 

 

31,962

 

 

 

31,707

 

Other long-term assets

 

 

11,781

 

 

 

8,436

 

Total assets

 

$

306,909

 

 

$

534,824

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

9,865

 

 

$

13,692

 

Accrued expenses and other current liabilities

 

 

26,638

 

 

 

26,557

 

Total current liabilities

 

 

36,503

 

 

 

40,249

 

Operating lease liabilities, net of current portion

 

 

47,597

 

 

 

49,099

 

Total liabilities

 

 

84,100

 

 

 

89,348

 

Contingencies (Note 7)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.001 par value per share; 20,000 shares
   authorized as of June 30, 2022 and December 31, 2021;
   
no shares issued and outstanding as of June 30, 2022
   and December 31, 2021

 

 

 

 

 

 

Common stock, $0.001 par value per share; 200,000 shares
   authorized as of June 30, 2022 and December 31, 2021;
   
54,844 and 54,622 shares issued and outstanding as of
   June 30, 2022 and December 31, 2021, respectively

 

 

54

 

 

 

54

 

Additional paid-in capital

 

 

1,081,965

 

 

 

1,058,399

 

Accumulated other comprehensive loss

 

 

(260

)

 

 

(153

)

Accumulated deficit

 

 

(858,950

)

 

 

(612,824

)

Total stockholders’ equity

 

 

222,809

 

 

 

445,476

 

Total liabilities and stockholders’ equity

 

$

306,909

 

 

$

534,824

 

 

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,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

34,448

 

 

$

40,985

 

 

$

211,255

 

 

$

79,900

 

General and administrative

 

 

14,669

 

 

 

16,210

 

 

 

33,513

 

 

 

32,880

 

Total operating expenses

 

 

49,117

 

 

 

57,195

 

 

 

244,768

 

 

 

112,780

 

Loss from operations

 

 

(49,117

)

 

 

(57,195

)

 

 

(244,768

)

 

 

(112,780

)

Interest income

 

 

104

 

 

 

103

 

 

 

187

 

 

 

233

 

Other expense, net

 

 

(90

)

 

 

(117

)

 

 

(1,545

)

 

 

(220

)

Net loss

 

 

(49,103

)

 

 

(57,209

)

 

 

(246,126

)

 

 

(112,767

)

Unrealized gain (loss) on investments

 

 

209

 

 

 

(56

)

 

 

(107

)

 

 

24

 

Comprehensive loss

 

$

(48,894

)

 

$

(57,265

)

 

$

(246,233

)

 

$

(112,743

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.90

)

 

$

(1.07

)

 

$

(4.50

)

 

$

(2.11

)

Weighted-average number of common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

54,798

 

 

 

53,669

 

 

 

54,742

 

 

 

53,429

 

 

See accompanying notes to unaudited interim financial statements

 

3


 

Allakos Inc.

Statements of STOCKHOLDERS’ EQUITY

(in thousands)

(unaudited)

 

 

 

 

Common Stock

 

 

Additional
Paid-In
Capital

 

 

Accumulated Other Comprehensive Gain (Loss)

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2021

 

 

54,622

 

 

$

54

 

 

$

1,058,399

 

 

$

(153

)

 

$

(612,824

)

 

$

445,476

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

11,392

 

 

 

 

 

 

 

 

 

11,392

 

Issuance of common stock upon exercise of stock options

 

 

34

 

 

 

 

 

 

104

 

 

 

 

 

 

 

 

 

104

 

Issuance of common stock upon 2018 ESPP purchase

 

 

42

 

 

 

 

 

 

243

 

 

 

 

 

 

 

 

 

243

 

Issuance of common stock upon vesting of restricted stock units

 

 

63

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(316

)

 

 

 

 

 

(316

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(197,023

)

 

 

(197,023

)

Balance at March 31, 2022

 

 

54,761

 

 

$

54

 

 

$

1,070,138

 

 

$

(469

)

 

$

(809,847

)

 

$

259,876

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

11,761

 

 

 

 

 

 

 

 

 

11,761

 

Issuance of common stock upon exercise of stock options

 

 

25

 

 

 

 

 

 

66

 

 

 

 

 

 

 

 

 

66

 

Issuance of common stock upon vesting of restricted stock units

 

 

58

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

209

 

 

 

 

 

 

209

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(49,103

)

 

 

(49,103

)

Balance at June 30, 2022

 

 

54,844

 

 

$

54

 

 

$

1,081,965

 

 

$

(260

)

 

$

(858,950

)

 

$

222,809

 

 

 

 

 

Common Stock

 

 

Additional
Paid-In
Capital

 

 

Accumulated Other Comprehensive Gain (Loss)

 

 

Accumulated
Deficit

 

 

Total
Stockholders’
Equity

 

 

 

Shares

 

 

Amount

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2020

 

 

53,081

 

 

$

53

 

 

$

997,298

 

 

$

8

 

 

$

(342,964

)

 

$

654,395

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

12,354

 

 

 

 

 

 

 

 

 

12,354

 

Issuance of common stock upon exercise of stock options

 

 

321

 

 

 

 

 

 

3,788

 

 

 

 

 

 

 

 

 

3,788

 

Issuance of common stock upon 2018 ESPP purchase

 

 

17

 

 

 

 

 

 

995

 

 

 

 

 

 

 

 

 

995

 

Issuance of common stock upon vesting of restricted stock units

 

 

38

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on investments

 

 

 

 

 

 

 

 

 

 

 

80

 

 

 

 

 

 

80

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(55,558

)

 

 

(55,558

)

Balance at March 31, 2021

 

 

53,457

 

 

$

53

 

 

$

1,014,435

 

 

$

88

 

 

$

(398,522

)

 

$

616,054

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

11,397

 

 

 

 

 

 

 

 

 

11,397

 

Issuance of common stock upon exercise of stock options

 

 

443

 

 

 

 

 

 

800

 

 

 

 

 

 

 

 

 

800

 

Issuance of common stock upon vesting of restricted stock units

 

 

36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on investments

 

 

 

 

 

 

 

 

 

 

 

(56

)

 

 

 

 

 

(56

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(57,209

)

 

 

(57,209

)

Balance at June 30, 2021

 

 

53,936

 

 

 

53

 

 

 

1,026,632

 

 

 

32

 

 

 

(455,731

)

 

 

570,986

 

 

See accompanying notes to unaudited interim financial statements

 

4


 

Allakos Inc.

Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(246,126

)

 

$

(112,767

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

4,064

 

 

 

747

 

Stock-based compensation

 

 

23,153

 

 

 

23,751

 

Net amortization of premiums and discounts on investments

 

 

1,616

 

 

 

1,211

 

Noncash lease expense

 

 

961

 

 

 

1,541

 

Loss on disposal of property and equipment

 

 

28

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

17,621

 

 

 

(4,072

)

Other long-term assets

 

 

(4,148

)

 

 

(13,844

)

Accounts payable

 

 

(3,645

)

 

 

(2,034

)

Accrued expenses and other current liabilities

 

 

1,969

 

 

 

7,952

 

Operating lease liabilities, net of current portion

 

 

(2,550

)

 

 

1,474

 

Net cash used in operating activities

 

 

(207,057

)

 

 

(96,041

)

Cash flows from investing activities

 

 

 

 

 

 

Purchases of investments

 

 

(19,988

)

 

 

(215,461

)

Proceeds from sales of investments

 

 

19,989

 

 

 

 

Proceeds from maturities of investments

 

 

140,000

 

 

 

310,000

 

Proceeds from sale of property and equipment

 

 

1,169

 

 

 

 

Purchases of property and equipment

 

 

(5,699

)

 

 

(7,302

)

Net cash provided by investing activities

 

 

135,471

 

 

 

87,237

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

170

 

 

 

4,588

 

Proceeds from issuance of common stock under the 2018 ESPP

 

 

243

 

 

 

995

 

Net cash provided by financing activities

 

 

413

 

 

 

5,583

 

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

 

 

(71,173

)

 

 

(3,221

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

155,097

 

 

 

209,452

 

Cash, cash equivalents and restricted cash, end of period

 

$

83,924

 

 

$

206,231

 

Supplemental disclosures

 

 

 

 

 

 

Noncash investing and financing items:

 

 

 

 

 

 

Lessor-funded lease incentives included in property and equipment

 

$

 

 

$

5,348

 

Increase (decrease) in payables related to purchase of property
   and equipment

 

$

(2,238

)

 

$

4,786

 

 

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 lirentelimab (AK002) and AK006 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 San Carlos, California. The Company operates in one reportable segment.

Since inception, the Company has incurred net losses and negative cash flows from operations. During the six months ended June 30, 2022, the Company incurred a net loss of $246.1 million and used $207.1 million of cash in operations. At June 30, 2022, the Company had an accumulated deficit of $859.0 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. 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.

Due to the clinical study results released in December 2021, our Board of Directors approved in February 2022 plans to reduce our contractual commitments and a reorganization plan (the “Reorganization Plan”) to reduce operating costs and better align our workforce with the clinical development plans of our business. As part of this, the Company entered into a termination agreement (the “Termination Agreement”) with Lonza AG, Lonza Sales Ltd and Lonza Sales AG (collectively, “Lonza AG”) regarding all outstanding manufacturing service agreements in February 2022.

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, 2022, the statements of operations and comprehensive loss, statements of stockholders’ equity and statements of cash flows for the six months ended June 30, 2022 and 2021 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, 2022 and its results of operations and comprehensive loss for the three and six months ended June 30, 2022 and 2021 and its cash flows for the six months ended June 30, 2022 and 2021. 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 June 30, 2022 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 1, 2022.

Use of Estimates

Management uses significant judgment when making estimates related to common stock valuation and related stock-based compensation expense, accrued research and development expense, and lease-related assets and liabilities. 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 investments. 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 or backed 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

 

6


 

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.

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,

 

 

 

2022

 

 

2021

 

Cash and cash equivalents

 

$

82,452

 

 

$

152,822

 

Restricted cash in other long-term assets

 

 

1,472

 

 

 

2,275

 

Total

 

$

83,924

 

 

$

155,097

 

 

 

 

June 30,