UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

For the quarterly period ended March 31, 2021

OR

For the transition period from _______________ to _______________

Commission File Number: 001-39661

 

ATEA PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

(857) 284-8891

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

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

 

 

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  ☒

As of May 13, 2021, the registrant had 82,736,937 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, our clinical results and other future conditions. The words “aim,” “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “goal,” “intend,” “may,” "on track," “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would” or the negative of these terms or other similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

 

These forward-looking statements include, among other things, statements about:

 

 

These forward-looking statements are based on management’s current expectations. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors that may cause actual results to differ materially from current expectations include the initiation, execution and completion of clinical trials, uncertainties surrounding the timing of availability of data from our clinical trials, ongoing discussions with and actions by regulatory authorities, our development activities and those other factors we discuss in Part II, Item 1A. “Risk Factors.” You should read these factors and the other cautionary statements made in this report as being applicable to all related forward-looking statements wherever they appear in this report. These risk factors are not exhaustive and other sections of this report may include additional factors which could adversely impact our business and financial performance. Given these uncertainties, you should not rely on these forward-looking statements as predictions of future events. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

 

As used in this Quarterly Report on Form 10-Q, unless otherwise specified or the context otherwise requires, the terms “we,” “our,” “us,” the “Company” refer to Atea Pharmaceuticals, Inc. and its subsidiary.  All brand names or trademarks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners.

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SUMMARY RISK FACTORS

 

Our business is subject to numerous risks and uncertainties, including those described in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. The principal risks and uncertainties affecting our business include the following:

 

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Table of Contents

 

 

 

 

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

ATEA PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)

(Unaudited)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

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ATEA PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)

(in thousands, except share and per share amounts)

(Unaudited)

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

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ATEA PHARMACEUTICALS, INC.

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

(in thousands, except share amounts)

(Unaudited)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

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ATEA PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

The accompanying notes are an integral part of these consolidated financial statements.

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ATEA PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

(in thousands, except share and per share amounts)

(Unaudited)

1. Nature of Business

Background

Atea Pharmaceuticals, Inc., together with its subsidiary Atea Pharmaceuticals Securities Corporation, is referred to on a consolidated basis as “the Company”.

The Company is a clinical-stage biopharmaceutical company focused on discovering, developing and commercializing antiviral therapeutics to improve the lives of patients suffering from life-threatening viral infections.

 

On November 3, 2020, the Company completed an initial public offering of its common stock (the “IPO”).  In connection with the IPO, the Company issued 14,375,000 shares of its common stock at $24.00 per share for net proceeds of $317,605 after deducting underwriting discounts and commissions and offering expenses.  Upon closing of the IPO, all outstanding shares of the Company’s convertible preferred stock converted into 57,932,090 shares of common stock.

Risks and Uncertainties

The Company is subject to risks and uncertainties common to clinical-stage biopharmaceutical companies. These risks include, but are not limited to, potential failure of preclinical and clinical studies, uncertainties associated with research and development activities generally, competition from technical innovations of others, dependence upon key personnel, compliance with governmental regulations, the need to obtain marketing approval for any product candidate that the Company may discover and develop, the need to gain broad acceptance among patients, payers and health care providers to successfully commercialize any product for which marketing approval is obtained and the need to secure and maintain adequate intellectual property protection for the Company’s proprietary technology and products. Further, the Company is currently dependent on third-party service providers for much of its preclinical research, clinical development and manufacturing activities. Product candidates currently under development will require significant amounts of additional capital, additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval, prior to commercialization. Even if the Company is able to generate revenues from the sale of its product candidates, if approved, it may not become profitable or be able to sustain profitability. If the Company fails to become profitable or is unable to sustain profitability on a continuing basis, then it may be unable to continue its operations at planned levels and be forced to reduce its operations. The Company is also subject to risks associated with the COVID-19 global pandemic, including actual and potential delays associated with certain of its ongoing and anticipated trials, and potential negative impacts on the Company’s business operations and its ability to raise additional capital to finance its operations.

The Company may seek additional capital through one or more of a combination of financing through the sale of additional equity securities, debt financing, or funding in connection with any additional collaborative relationships it may enter into or other arrangements. There can be no assurance that the Company will be able to obtain such additional funding, on terms acceptable to the Company, on a timely basis or at all. The terms of any financing may adversely affect the holdings or the rights of the Company’s existing shareholders. The Company believes that its cash and cash equivalents of $833,751 as of March 31, 2021 will be sufficient to fund its operations as currently planned through at least 2023.

2. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited interim condensed consolidated financial statements of the Company included herein have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) as found in the Accounting Standards Codification (“ASC”), Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”) and the rules and regulations of the Securities and Exchange Commission

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(“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted from this report, as is permitted by such rules and regulations. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 30, 2021.

Use of Estimates

The preparation of unaudited financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and in these accompanying notes. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors and assumptions that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, which include but are not limited to estimates of revenue recognition, accrued research and development expenses and the valuation of common stock in connection with the issuance of stock-based awards prior to the Company’s IPO. Changes in estimates are recorded in the period in which they become known.

Principles of Consolidation

The unaudited consolidated financial statements include the accounts of Atea Pharmaceuticals, Inc. and its wholly owned subsidiary, Atea Pharmaceuticals Securities Corporation. All intercompany amounts have been eliminated in consolidation.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of March 31, 2021, the condensed consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2021 and 2020, the condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) for the three months ended March 31, 2021 and 2020, and the condensed consolidated statements of cash flows for the three months ended March 31, 2021 and 2020 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of March 31, 2021, the results of its operations for the three months ended March 31, 2021 and 2020 and its cash flows for the three months ended March 31, 2021 and 2020. The results for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, or any other interim period.

Significant Accounting Policies

There were no changes in the Company’s significant accounting policies as described in the Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on March 30, 2021 except as discussed below.

Leases

The Company adopted Accounting Standards Updated (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or “ASC 842”) effective January 1, 2021, using the modified retrospective method and utilized the effective date as its date of initial application, with prior periods presented in accordance with previous guidance under ASC 840, Leases (“ASC 840”).

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. The Company has elected not to recognize leases with an original term of one year or less on the condensed consolidated balance sheet. The Company typically only includes an initial lease term in its assessment of a lease arrangement. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and current and non-current lease liabilities, as applicable.

Leases that are economically similar to the purchase of assets are generally classified as finance leases; otherwise the leases are classified as operating leases. Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The

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interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. Prospectively, the Company will adjust the right-of-use assets for straight-line rent expense or any incentives received and remeasure the lease liability at the net present value using the same incremental borrowing rate that was in effect as of the lease commencement or transition date.

Net Income (Loss) Per Share Attributable to Common Stockholders

Basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) attributable to common stockholders is computed by adjusting net income (loss) attributable to common stockholders to reallocate undistributed earnings based on the potential impact of dilutive securities, including outstanding stock options. Diluted net income (loss) per share attributable to common stockholders is computed by dividing the diluted net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock options.

Prior to the Company’s IPO in November 2020, basic and diluted net loss per share attributable to common stockholders was determined using the two-class method, which is required for participating securities.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or “ASC 842”), which requires a lessee to record a right-of-use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.

In July 2018, an amendment was made that allows companies the option of using the effective date of the new standard as the initial application date (at the beginning of the period in which the new standard is adopted, rather than at the beginning of the earliest comparative period). This update includes a short-term lease exception for leases with a term of 12 months or less, in which a lessee can make an accounting policy election not to recognize the associated lease assets and lease liabilities on its balance sheet.

 

Additionally, in March 2019, the FASB issued ASU 2019-01 (“ASU No. 2019-01”). ASU No. 2019-01 clarifies the transition guidance related to interim disclosures provided in the year of adoption. Lessees will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases, using classification criteria that are substantially similar to the previous guidance. For lessees, the recognition, measurement, and presentation of expenses and cash flows arising from a lease did not significantly change from previous U.S. GAAP. The modified retrospective method includes several optional practical expedients that entities may elect to apply, as well as transition guidance specific to nonstandard leasing transactions.

As the Company has elected to use the extended transition period for complying with new or revised accounting standards as available under the Jobs Act, the Company adopted the new standard effective January 1, 2021 using the modified retrospective method as of the beginning of the period of the adoption. The Company has elected the package of practical expedients permitted in ASC Topic 842. Accordingly, the Company accounted for its existing operating lease as operating lease under the new guidance, without reassessing (a) whether the contracts contain a lease under ASC Topic 842, (b) whether classification of the operating leases would be different in accordance with ASC Topic 842, or (c) whether the unamortized initial direct costs would have met the definition of initial direct costs in ASC Topic 842 at lease commencement.

 

The adoption of this standard resulted in the recording of operating lease liabilities and right-of-use assets on the Company’s condensed consolidated balance sheet (see Note 9). The adoption of the standard did not have a material effect on the Company’s condensed consolidated statements of operations and comprehensive income (loss), condensed consolidated statements of cash flows or condensed consolidated statement of stockholders’ equity (deficit).

In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815) I. Accounting for Certain Financial Instruments with

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Down Round Features II. Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). Part I applies to entities that issue financial instruments such as warrants, convertible debt or convertible preferred stock that contain down-round features. Part II replaces the indefinite deferral for certain mandatorily redeemable noncontrolling interests and mandatorily redeemable financial instruments of nonpublic entities contained within ASC Topic 480 with a scope exception and does not impact the accounting for these mandatorily redeemable instruments. The Company adopted the standard effective January 1, 2021.  The adoption of the standard did not have a material effect on the Company’s condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive income (loss), condensed consolidated statements of cash flows or condensed consolidated statement of stockholders’ equity (deficit).

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify the accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The Company adopted the standard effective January 1, 2021.  The adoption of the standard did not have a material effect on the Company’s condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive income (loss), condensed consolidated statements of cash flows or condensed consolidated statement of stockholders’ equity (deficit).

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Statements. The new standard requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. It also limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases. As an emerging growth company, the Company expects to delay adoption until January 1, 2023 and is evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements.

 

3. Collaboration Revenue

 

Background

 

In October 2020, the Company licensed to F. Hoffmann-LaRoche Ltd. and Genentech, Inc. (collectively, “Roche”) under a license agreement (the “Roche License Agreement”) ex-US rights to develop and commercialize certain of the Company’s compounds, including AT-527.  

The Company is responsible for completing certain ongoing clinical and non-clinical and manufacturing activities at its own expense. These obligations are referred to as the Atea Ongoing Studies and the Atea Manufacturing Obligations, respectively. The parties are collaboratively executing a global development plan intended to support regulatory approvals and are sharing joint development costs equally.  

 

The Roche License Agreement provided for a nonrefundable upfront payment of $350,000 which the Company received in November 2020. In addition, the Roche License Agreement further provides that Roche is obligated to pay the Company up to $330,000 in the aggregate upon the achievement of certain development and regulatory milestone events; up to $320,000 in the aggregate upon the achievement of certain sales based milestone events; and tiered royalties based on annual net sales of the products covered by the agreement, ranging between low double-digits and mid-twenties, subject to certain adjustments and limitations. Further, under the Roche License Agreement, the Company has a one time option to request that Roche co-promote with the Company in the United States products covered by the Roche License Agreement that are successfully developed and commercialized. Roche has the right to terminate the Roche License Agreement for convenience pursuant to the terms of the agreement.

 

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Accounting Analysis

 

The Company concluded that the License Agreement is under the scope of ASC 808 as both parties will actively participate in a joint operating activity and are exposed to significant risks and rewards that depend on the activity’s commercial success.  ASC 808 provides that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all of the guidance in ASC 606 should be applied, including recognition, measurement, presentation, and disclosure requirements related to such unit of account. The unit-of-account guidance in ASC 808, which aligns with the guidance in ASC 606 (that is, a distinct good or service) is used when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of ASC 606. Based on the Company’s analysis, it concluded that the delivery of the license to Roche, the performance of the Atea Ongoing Studies and the Atea Manufacturing Obligations should be accounted for under ASC 606.  The Company’s efforts under the global development plan and certain Atea Manufacturing Obligations in the initial year of the contract, will be accounted for under ASC 808.

 

The Company concluded that the provision of the license to Roche, the performance of the Atea Ongoing Studies and the Atea Manufacturing Obligations should be combined as one performance obligation as Roche cannot receive the benefit of each promise without the other promises.  Specifically, Roche is dependent on the Company’s expertise and ability to complete the Atea Ongoing Studies and the Atea Manufacturing Obligations, which cannot be performed by other third parties, in order to exploit the value from the license.

 

The transaction price consists of the $350,000 upfront payment. The Company concluded that all other forms of variable consideration, including future development and regulatory milestones should be constrained at contract inception. As part of this conclusion, the Company assessed the stage of development and risk associated with remaining development required to achieve each milestone, including whether the achievement of certain milestones was outside the control of the Company. Sales based milestone payments and royalty payments qualify for the sales based royalty exception and will be recognized when the underlying sale transaction have occurred.

 

The transaction price is being recognized as collaboration revenue over the period in which the Company performs the Atea Ongoing Studies and the Atea Manufacturing Obligations.  The Company concluded that an inputs method based on costs incurred compared to total estimated costs-to-complete approach most faithfully depicts the Company’s progress towards completion.

 

The Company concluded that its efforts to complete the global development plan will be accounted for under ASC 808.  The Company will account for expenses incurred and reimbursements made or received from Roche pursuant to ASC 730, Research and Development.  As such, the Company will expense costs as incurred, including any reimbursements made to Roche, and recognize reimbursement received from Roche as a reduction of research and development expense.

 

The Company classifies all revenues recognized under the Roche License Agreement as collaboration revenues within the accompanying condensed consolidated statements of operations and comprehensive income (loss).  For the three months ended March 31, 2021, the Company recognized collaboration revenue of $65,985 related to the combined performance obligation. As of March 31, 2021, the Company had deferred revenue of $235,382 related to the Roche License Agreement.  Deferred revenue is classified in current liabilities in the accompanying condensed consolidated balance sheet as of March 31, 2021 as the performance obligation is expected to be completed within twelve months.

 

For the three months ended March 31, 2021, costs reimbursable by Roche which are reflected as a reduction to operating expenses were $3,419. The Company recorded research and development expense of $14,517 related to its share of costs incurred by Roche of which $8,807 had not been reimbursed by the Company as of March 31, 2021 and was recorded as accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet. Unbilled receivables related to the Roche Agreement were offset against amounts due to Roche included in accrued expenses and other current liabilities at March 31, 2021.

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4. Fair Value Measurements

The following tables present information about the Company’s financial assets measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values:

 

 

 

The Company’s assets with fair value categorized as Level 1 within the fair value hierarchy include money market funds. Money market funds are publicly traded mutual funds and are presented as cash equivalents on the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020.

There were no transfers among Level 1, Level 2 or Level 3 categories in the three months ended March 31, 2021 and 2020.

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

 

6. Common Stock

At March 31, 2021, the authorized capital of the Company included 300,000,000 shares of common stock, of which 82,736,937 shares of common stock were issued and outstanding. On all matters to be voted upon by the holders of common stock, holders of common stock are entitled to one vote per share. The holders of common stock have no preemptive, redemption or conversion rights.

 

7. Stock-based Compensation

In October 2020, the Company’s shareholders approved the Company’s 2020 Incentive Award Plan (the “2020 Plan”), which became effective in connection with the Company’s initial public offering on October 29, 2020. The 2020 Plan provides for the issuance of up to 7,924,000 shares of common stock and for grant of incentive stock options or other incentive awards to employees, officers, directors and consultants of the Company. The number of shares of common stock that may be issued under 2020 Plan is also subject to increase on the first day of each calendar year equal to the lesser of i) 5% of the aggregate number of shares of common stock outstanding on the final day of the immediately preceding calendar year or ii) such smaller number of shares as is determined by the board of directors. In January 2021, the shares available under the plan were increased by 4,130,847 shares.

The 2020 Plan replaced and is the successor of 2013 Equity Incentive Plan, as amended (the “2013 Plan”), which provided for the grant of incentive stock options, non-qualified stock options, restricted common stock awards and other awards for up to 7,807,200 shares of common stock to employees, officers, directors and consultants of the Company. Upon the closing of the Company’s initial public offering the 2013 Plan was terminated and no further

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awards will be made under the 2013 Plan. Any cancellation of outstanding awards at the time of the IPO under the 2013 Plan will be made available for grant under 2020 Plan.

As of March 31, 2021 there were 8,977,597 shares of common stock remaining available for future issuance under the 2020 Plan. 

Stock Options

During the three months ended March 31, 2021, the Company granted 2,212,250 options to employees with an aggregate grant date fair market value of $112,471. No options were granted during the three months ended March 31, 2020.

 

Stock-based Compensation Expense

Stock-based compensation expense is classified as follows:

 

 

8. Net Income (Loss) Per Share Attributable to Common Stockholders

Basic and diluted earnings per share are calculated as follows:

 

 

Stock options for the purchase of 1,532,944 weighted average shares were excluded from the computation of diluted net income per share attributable to common stockholders for the three months ended March 31, 2021 because those options had an anti-dilutive impact due to the assumed proceeds per share using the treasury stock method being greater than the average fair value of the Company’s common shares for the period. For the three months ended March 31, 2020, 33,645,447 shares of convertible preferred stock, options to purchase 3,911,633 shares of common stock and 200,000 shares of non-vested restricted common stock have been excluded from the calculation of diluted net loss per share, as their effect is anti-dilutive. 

 

9. Leases

As of January 1, 2021, the date of adoption of ASC 842, the Company utilized operating classification for its facility lease and recorded a right-of-use asset and lease liability.

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The following assets and liabilities are recorded on the Company’s balance sheet as of March 31, 2021.  The right-of-use asset is included in other assets, the current lease liability is included in accrued expenses and other current liabilities and the non-current lease liability is included in other liabilities, respectively.

 

 

The components of the lease costs for the three months ended March 31, 2021 were as follows:

 

 

The variable lease costs for the three months ended March 31, 2021 include common area maintenance and other operating charges associated with the Company’s lease of its principal office facilities in Boston, MA. As the Company’s lease does not provide an implicit rate, the Company utilized its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

 

 

Future minimum payments under the Company’s operating leases as of March 31, 2021 were as follows:

 

 

10. Income Taxes

During the three months ended March 31, 2021 and 2020, the Company recorded no income tax provision for federal or state income taxes. The Company maintained a full valuation allowance for the three months ended March 31, 2021 and 2020 due to uncertainty regarding future taxable income.

11. Commitments and Contingencies

 

The Company has an agreement with a consultant that requires payment of a success fee calculated as a percentage of certain product sales, subject to a cumulative maximum payout of $5.0 million. This success payment is contingent upon the occurrence of future events and the timing and likelihood of such payment is neither probable nor estimable.

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Indemnification

The Company enters into certain types of contracts that contingently require the Company to indemnify various parties against claims from third parties. These contracts primarily relate to (i) the Company’s bylaws, under which the Company must indemnify directors and executive officers, and may indemnify other officers and employees, for liabilities arising out of their relationship, (ii) contracts under which the Company must indemnify directors and certain officers and consultants for liabilities arising out of their relationship, and (iii) procurement, service or license agreements under which the Company may be required to indemnify vendors, service providers or licensees for certain claims, including claims that may be brought against them arising from the Company’s acts or omissions with respect to the Company’s products, technology, intellectual property or services.

From time to time, the Company may receive indemnification claims under these contracts in the normal course of business. In the event that one or more of these matters were to result in a claim against the Company, an adverse outcome, including a judgment or settlement, may cause a material adverse effect on the Company’s future business, operating results or financial condition. It is not possible to determine the maximum potential amount potentially payable under these contracts since the Company has no history of prior indemnification claims and the unique facts and circumstances involved in each particular claim will be determinative.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 included elsewhere in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and related notes as disclosed in our Annual Report on Form 10-K, dated December 31, 2020, filed with the Securities and Exchange Commission (“SEC”) on March 30, 2021. This discussion contains forward-looking statements based upon current plans, expectations and beliefs involving risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II, Item 1A, “Risk Factors” and other factors set forth in other parts of this Quarterly Report on Form 10-Q.

Overview

We are a clinical stage biopharmaceutical company focused on discovering, developing and commercializing antiviral therapeutics to improve the lives of patients suffering from life threatening viral infections. Leveraging our deep understanding of antiviral drug development, nucleoside biology, and medicinal chemistry, we have built a proprietary purine nucleotide prodrug platform to develop novel product candidates to treat single stranded ribonucleic acid viruses, which are a prevalent cause of severe viral diseases. Currently, we are focused on the development of orally available, potent, and selective nucleotide and nucleoside prodrugs for difficult to treat, life-threatening viral infections, including SARS-CoV-2, the virus that causes COVID-19, dengue virus, chronic hepatitis C infection (“HCV”), and respiratory syncytial virus (“RSV”).

AT-527 for the Treatment of COVID-19

Our product candidate for the treatment of patients with COVID-19 is AT-527, an orally administered, novel antiviral agent. In October 2020, we entered into a license agreement (“Roche License Agreement”) with F. Hoffmann-LaRoche Ltd. and Genentech, Inc. (together, “Roche”) under which we granted to Roche an exclusive license to development and commercialization rights related to certain of our compounds, including AT-527, outside of the United States (other than for certain HCV uses). We, together with our collaborator Roche, initiated in April 2021 a Phase 3 clinical trial to study AT-527 in adult patients with mild or moderate COVID-19 in the outpatient setting (MORNINGSKY). In addition, currently we are evaluating AT-527 for the treatment of patients with mild or moderate COVID-19 in two Phase 2 clinical trials.  The first trial is a randomized, double-blind, placebo-controlled Phase 2 clinical trial in approximately 190 adult patients with moderate COVID-19 and one or more risk factors for poor outcomes in a hospitalized setting.  We dosed our first patient in September 2020 and expect to report interim virology data from this clinical trial in the second quarter of 2021. The second trial, which is being conducted in collaboration with Roche, is a randomized, double-blind, placebo-controlled Phase 2 clinical trial in up to 220 adult patients with mild or moderate COVID-19 in an outpatient setting (MOONSONG). The first patient in this trial was dosed in February 2021. We expect to report interim virology data from this trial in the second quarter of 2021. We recently reported positive results from a Phase 1 trial which is part of a comprehensive Phase 1 program that includes several clinical trials in healthy volunteers either currently underway or planned.

AT-752 for the Treatment of Dengue

We are developing AT-752, an oral, purine nucleoside prodrug product candidate for the treatment of dengue.  AT-752 has shown potent activity against all serotypes tested in preclinical studies. In March 2021, we initiated a randomized, double-blind, placebo-controlled Phase 1a trial to evaluate the safety and pharmacokinetics (“PK”) of several different dosages of AT-752 in 50-60 healthy adult subjects. Following the completion of the Phase 1a trial, we expect to initiate in the second half of 2021 a Phase 1b trial of AT-752 in 60-80 adult subjects with dengue virus infection to evaluate antiviral activity, safety and PK. As part of the Roche License Agreement, we agreed that we would not commercialize AT-752 outside the United States unless we enter into a separate agreement with Roche to do so.

AT-787 for the Treatment of Hepatitis C

HCV is a blood-borne, positive sense, ssRNA virus, primarily infecting cells of the liver. HCV is a leading cause of chronic liver disease and liver transplants and spreads via blood transfusion, hemodialysis and needle sticks. We are developing AT-787 for the treatment of chronic HCV infection, including patients with decompensated cirrhosis. AT-787 combines AT-527 with a second generation NS5A inhibitor, AT-777, into a single, oral, pan-genotypic fixed-dose combination therapy. Despite recent advances in treatment, there remains a large underserved HCV patient population which continues to grow. Based on our preclinical and clinical data to date, we believe that AT-787, if approved, could offer potential benefits over currently available treatments, including to

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shorten treatment duration in non-cirrhotic and compensated cirrhosis HCV in all genotypes and to eliminate the need for ribavirin in patients with decompensated cirrhosis. We temporarily paused our development program for AT-787 in HCV infected patients at the outset of the COVID-19 pandemic in March 2020. Currently we expect to restart this program in the second half of 2021, starting with our Phase 1/2a clinical trial, which is designed to evaluate the safety and PK of different dosages of AT-777 in healthy adults and evaluate the combination of AT-527 and AT-777.

AT-889 and Other Candidates for the Treatment of RSV

RSV is a seasonal respiratory virus that can be serious for infants, older adults, and the immuno-compromised population. We are evaluating AT-889, a second generation nucleoside pyrimidine prodrug and other compounds for the treatment of RSV. We believe AT-889 or one of our other candidates for RSV has the potential to inhibit both initiation of viral replication, as well as viral transcription. We anticipate nominating our product candidate and initiating the IND-enabling studies in the second half of 2021. We believe that the product candidate we develop, if successful, could be the first therapy in over 30 years to be approved specifically for the treatment of RSV.

Financial Operations Overview

As of March 31, 2021, we had cash and cash equivalents of $833.8 million. Net cash used in operating activities was $16.8 million for the three months ended March 31, 2021. We expect that our net cash used in operating activities will increase significantly as we advance our product candidates through preclinical and clinical development, seek regulatory approval, and prepare for and, if approved, proceed to commercialization; acquire, discover, validate and develop additional product candidates; obtain, maintain, protect and enforce our intellectual property portfolio; and hire additional personnel. In addition, we expect to incur additional costs as we continue to operate as a public company. We believe that our available cash and cash equivalents will be sufficient to fund our planned operations through at least 2023.

We do not have any product candidates approved for sale and have not generated any product revenue since inception. Our ability to generate product revenue will depend on the successful development, regulatory approval and eventual commercialization of one or more of our product candidates. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through private or public equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Adequate funding may not be available to us on acceptable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development and commercialization of our product candidates.

We plan to continue to use third-party service providers, including contract research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), to carry out our preclinical and clinical development and to manufacture and supply the materials to be used during the development and commercialization of our product candidates.

We expect to continue to incur significantly higher expenses over the next several years. We anticipate that our expenses will increase significantly in connection with our ongoing activities, as we:

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Components of Results of Operations

Revenue

To date, we have not generated any revenue from product sales.  Our revenue has been collaboration revenue solely derived from the Roche License Agreement, which became effective in October 2020. If our development efforts for our product candidates are successful and result in commercialization, we may generate additional revenue in the future from a combination of product sales or payments from collaboration or license agreements that we may enter into with third parties.

Operating Expenses

Research and Development Expenses

Substantially all of our research and development expenses consist of expenses incurred in connection with the development of our product candidates. These expenses include fees paid to third parties, including CROs and CMOs, to conduct certain research and development activities on our behalf, consulting costs, certain payroll and personnel-related expenses, including salaries and bonuses, employee benefit costs and stock-based compensation expenses for our research and product development employees and allocated overhead, including rent, equipment, depreciation, information technology costs and utilities attributable to research and development personnel. We expense both internal and external research and development expenses as they are incurred. In circumstances where amounts have been paid in advance or in excess of costs incurred, we record a prepaid expense, which is expensed as services are performed or goods are delivered.

A significant portion of our research and development costs have been external costs, which we track by therapeutic area. Our internal research and development costs are primarily personnel-related costs, facility costs, including depreciation and lab consumables. We have not historically tracked our internal research and development expenses by therapeutic area as they are deployed across multiple programs.

As discussed in Note 3 to our unaudited consolidated financial statements, we and Roche share certain manufacturing and clinical development costs on a 50/50 basis. Billings to us by Roche for our percentage share of such expenses are recorded in research and development expenses. These costs represent a material portion of our total expenses and may continue to increase based on the activities being performed by Roche.

The following table summarizes our external research and development expenses by indication and internal research and development expenses:

 

 

We are focusing substantially all of our resources on the development of our product candidates, particularly AT-527. We expect our research and development expenses to increase substantially for at least the next few years, as we seek to initiate additional clinical trials for our product candidates, complete our clinical programs, pursue regulatory approval of our product candidates and prepare for the possible commercialization of these product candidates. Predicting the timing or cost to complete our clinical programs or validation of our commercial manufacturing and supply processes is difficult and delays may occur because of many factors, including factors outside of our control. For example, if the U.S. Food and Drug Administration (“FDA”) or other regulatory authorities were to require us to conduct clinical trials beyond those that we currently anticipate, we could be required to expend significant additional financial resources and time on the completion of clinical development. Furthermore, we are unable to predict when or if our product candidates will receive regulatory approval with any certainty.

General and Administrative Expenses

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General and administrative expenses consist principally of payroll and personnel expenses, including salaries and bonuses, benefits and stock-based compensation expenses, professional fees for legal, consulting, accounting and tax services, allocated overhead, including rent, equipment, depreciation, information technology costs and utilities, and other general operating expenses not otherwise classified as research and development expenses.

We anticipate that our general and administrative expenses will increase as a result of increased personnel costs, expanded infrastructure and higher consulting, legal and accounting services costs associated with complying with Nasdaq and SEC requirements, investor relations costs and director and officer insurance premiums associated with being a public company.

Interest Income and Other, Net

Interest income and other, net, consists primarily of interest income earned on our cash and cash equivalents.

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Results of Operations

Comparison of the Three Months Ended March 31, 2021 and 2020

The following table summarizes our results of operations for the periods indicated:

 

 

Revenue

 

Collaboration revenue for the three months ended March 31, 2021 was derived from the Roche License Agreement that was executed in October 2020. As discussed in Note 3 to our consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q, revenue is being recognized over the period in which the Company performs the Atea Ongoing Studies and the Atea Manufacturing Obligations.

Research and Development Expenses

Research and development expenses increased by $23.8 million from $2.8 million for the three months ended March 31, 2020 to $26.6 million for the three months ended March 31, 2021. The increase in research and development expenses was primarily due to a $17.5 million increase in external expenses incurred related to the CRO and CMO services in conjunction with the advancement of product candidates for the treatment of COVID-19 and dengue, including $14.5 million related to the Company’s share of costs incurred by Roche, and an increase of $6.2 million in internal spend primarily due to an increase in personnel-related expenses, including salaries and bonuses, benefits and stock-based compensation expense of $3.1 million for our research and product development employees and consulting fees and other research and development expenses. Research and development expenses include a reduction of $3.4 million representing Roche’s share of certain expenses incurred that are subject to ASC 808 as discussed in Note 3 to our unaudited consolidated financial statements. The Company also recorded research and development expense of $14.5 million relating to its share of costs incurred by Roche.

General and Administrative Expenses

General and administrative expenses increased by $7.6 million from $1.2 million for the three months ended March 31, 2020 to $8.8 million for the three months ended March 31, 2021. The increase in general and administrative expenses was primarily due to the expansion of our organization and reflected an increase in payroll and personnel-related expenses, including salaries, benefits and stock-based compensation expense of $5.0 million; professional fees of $1.0 million; and an increase in other general and administrative expenses of $1.5 million.

Interest Income and Other, Net

Interest income and other, net, remained consistent during the three months ended March 31, 2021 compared to the three months ended March 31, 2020 primarily due to lower interest rates applied to higher investment balances.

Liquidity and Capital Resources

Sources of Liquidity

As of March 31, 2021, we had cash and cash equivalents of $833.8 million.  We believe that our available cash and cash equivalents will be sufficient to fund our planned operations through at least 2023.

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Future Funding Requirements

To date, we have not generated any product revenue. We do not expect to generate any product revenue unless and until we obtain regulatory approval of and commercialize any of our product candidates and we do not know when, or if, this will occur. We expect to continue to incur increased expenditures for the foreseeable future, and we expect our expenses to increase as we continue the development of, and seek regulatory approvals for, our product candidates and begin to commercialize any approved products. We are subject to all of the risks typically related to the development of new product candidates, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. Moreover, we expect to incur additional general and administrative costs as we continue to operate as a public company.

We will continue to require additional capital to develop our product candidates and fund operations for the foreseeable future. We may seek to raise capital through public or private equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. We anticipate that we may need to raise substantial additional capital, the requirements for which will depend on many factors, including:

A change in the outcome of any of these or other variables with respect to the development of any of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Furthermore, our operating plans may change in the future, and we will continue to require additional capital to meet operational needs and capital requirements associated with such operating plans. If we raise additional funds by issuing equity securities, our stockholders may experience dilution. Any future debt financing into which we enter may impose upon us additional covenants that restrict our operations, including limitations on our ability to incur liens or additional debt, pay dividends, repurchase our common stock, make certain investments or engage in certain merger, consolidation or asset sale transactions. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders.

Adequate funding may not be available to us on acceptable terms or at all. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials or we may also be required to sell or license to others rights to our product candidates in certain territories or indications that we would prefer to develop and commercialize ourselves. If we are required to enter into collaborations and other arrangements to supplement our funds, we may have to give up certain rights that limit our ability to develop and commercialize our product candidates or may have other terms that are not favorable to us or our stockholders, which could materially affect our business and financial condition.

See Part II, Item 1A,“Risk Factors” for additional risks associated with our substantial capital requirements.

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Summary Statement of Cash Flows

The following table sets forth the primary sources and uses of cash, cash equivalents, and restricted cash for each of the periods presented below:

 

 

Cash Flows from Operating Activities

Net cash used in operating activities for the three months ended March 31, 2021 was $16.8 million. Cash used in operating activities was primarily due to research and development expenses of $26.6 million and general and administrative expenses of $8.8 million, offset by stock-based compensation of $7.3 million, an increase in accounts payable and accrued expenses of $10.4 million, an increase in other assets of $0.3 million and a decrease in prepaid expenses of $1.2 million. The Company recognized revenue of $66.0 million for the three months ended March 31, 2021. The revenue recognized did not have an impact on net cash used in operating activities as this amount was previously included in deferred revenue as of December 31, 2020.

Net cash used in operating activities was $4.5 million for the three months ended March 31, 2020. Cash used in operating activities was primarily related to the use of funds in our efforts to develop our product candidates, resulting in a net loss of $4.0 million, offset by stock-based compensation of $0.2 million. Additional uses of cash during the period included an increase in prepaid expenses of $0.2 million and a decrease in accounts payable and accrued expenses of $0.5 million.

Cash Flows from Investing Activities

There were no cash flows from investing activities for either the three months ended March 31, 2021 or 2020.

Cash Flows from Financing Activities

Net cash provided by financing activities was $0.5 million for the three months ended March 31, 2021 and consisted of proceeds from the exercise of stock options.

Net cash used in financing activities was less than $0.1 million for the three months ended March 31, 2020 and consisted of payments of deferred offering costs.

Contractual Obligations and Commitments

There have been no material changes to our contractual obligations during the three months ended March 31, 2021 from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020.

We enter into contracts in the normal course of business with third-party contract organizations including CROs and CMOs for preclinical and clinical studies and testing, manufacture and supply of our preclinical materials and other services and products used for operating purposes. These contracts do not contain any minimum purchase commitments and generally provide for termination following a certain period after notice, and therefore we believe that our non-cancelable obligations under these agreements are not material. Payments due upon cancelation consist only of payments for services provided and expenses incurred up to the date of cancelation.

Critical Accounting Policies, Significant Judgments and Use of Estimates

Our financial statements have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis

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for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies are described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies, Significant Judgments and Use of Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2020. We believe that these accounting policies are critical to understanding our historical and future performance, as these policies relate to significant areas involving management’s judgments and estimates. During the three months ended March 31, 2021 there were no material changes to our critical accounting policies from those discussed in our Annual Report on Form 10-K except as discussed in Note 2, “Summary of Significant Accounting Policies” in the financial statements included elsewhere in this Quarterly Report on Form 10-Q.

 

 

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Indemnification Agreements

We enter into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, we indemnify, hold harmless and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, including in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third party with respect to its technology. The term of these indemnification agreements is generally perpetual any time after the execution of the agreement. The maximum potential amount of future payments we could be required to make under these arrangements is not determinable. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements. As a result, we believe the fair value of these agreements is minimal.

We have also agreed to indemnify our directors and officers for certain events or occurrences while the director or officer is, or was serving, at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the director’s or officer’s service. The maximum potential amount of future payments we could be required to make under these indemnification agreements is not specified in the agreements; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid. We believe the estimated fair value of these indemnification agreements in excess of applicable insurance coverage is minimal.

JOBS Act Accounting Election

The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have elected to avail ourselves of this exemption from new or revised accounting standards, and, therefore, will not be subject to the same new or revised accounting standards as public companies that are not emerging growth companies. We intend to rely on other exemptions provided by the JOBS Act, including without limitation, not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act.

We will remain an emerging growth company until the earliest to occur of: (1) the last day of our first fiscal year in which we have total annual revenues of more than $1.07 billion; (2) the date we qualify as a “large accelerated filer,” with at least $700.0 million of equity securities held by non-affiliates; (3) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period; and (4) December 31, 2025.

Recent Accounting Pronouncements

See the section titled “Summary of Significant Accounting Policies—Recent Accounting Pronouncements” in Note 2 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Interest Rate Sensitivity

The market risk inherent in our financial instruments and in our financial position represents the potential loss arising from adverse changes in interest rates or exchange rates. As of March 31, 2021, we had cash and cash equivalents of $833.8 million, consisting of interest-bearing money market funds for which the fair value would be affected by changes in the general level of U.S. interest rates. However, due to the short-term maturities and the low-risk profile of our cash equivalents, an immediate 10% relative change in interest rates would not have a material effect on the fair value of our cash equivalents or on our future interest income.

We do not believe that inflation, interest rate changes or foreign currency exchange rate fluctuations have had a significant impact on our results of operations for any periods presented herein.

Item 4. Controls and Procedures.

Limitations on effectiveness of controls and procedures

In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Evaluation of disclosure controls and procedures

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2021, our disclosure controls and procedures were effective at the reasonable assurance level.

 

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are not subject to any material legal proceedings.

Item 1A. Risk Factors.

You should carefully consider the risks and uncertainties described below, as well as the other information in this Quarterly Report on Form 10-Q, including our financial statements and the related notes and “Management’s Discussion and Analysis of Results of Operations and Financial Condition.” Our business, financial condition, results of operations or prospects could be materially and adversely affected if any of these risks occurs, and as a result, the market price of our common stock could decline and you could lose all or part of your investment. Our actual results could differ materially and adversely from those anticipated in these forward-looking statements as a result of certain factors, including those set forth below.

Risks Related to COVID-19

There is significant uncertainty around our development of AT-527 as a potential treatment for COVID-19.

Our development of AT-527 for the treatment of COVID-19 is in its early stages, and we may not be successful in our development of AT-527 as a potential treatment for COVID-19.  In October 2020, we entered into a license agreement (“Roche License Agreement”) with F. Hoffmann-LaRoche Ltd. and Genentech, Inc. (together, “Roche”) under which we granted to Roche an exclusive license to development and commercialization rights related to certain of our compounds, including AT-527, outside of the United States (other than for certain HCV uses). Together with Roche, we have only recently initiated a Phase 3 clinical trial to study AT-527 in adult patients with mild or moderate COVID-19 in the outpatient setting.  Concurrently, we are also evaluating AT-527 for the treatment of patients with mild to moderate COVID-19 in two Phase 2 clinical trials. Additionally, we are currently conducting a comprehensive Phase 1 program that includes one completed trial for which results were recently published, ongoing Phase 1 studies and additional Phase 1 studies that are being planned. We have committed and plan to continue to commit significant financial and personnel resources to the development of AT-527 as a potential treatment for COVID-19. If we are unable to successfully develop AT-527 for the treatment of COVID-19, we will have taken resources away from other development programs and will not be able to recuperate the resources dedicated to developing AT-527 as a potential treatment for COVID-19, which could have a material adverse impact on our business. If the data from our clinical trials are not supportive of further development of AT-527 as a treatment for COVID-19 or the investor community has a negative reaction to the data, the demand for our common stock could decrease significantly, and the price of our common stock could decline substantially, which could result in significant losses for our stockholders.

Further, while there is currently an urgent need for a treatment for COVID-19, the longevity and extent of the ongoing COVID-19 pandemic is uncertain and it is unclear whether SARS-CoV-2 will become an endemic human coronavirus that may circulate in the human population after the current pandemic has subsided.  If the pandemic were to dissipate, whether due to a significant decrease in new infections, due to the availability of vaccines, or otherwise, the need for a treatment could decrease significantly. If the need for a treatment decreases before or soon after commercialization of AT-527, if approved, or other treatments for COVID-19 are developed before AT-527, our business could be adversely impacted.

We may expend resources in anticipation of clinical trials and potential commercialization of AT-527, which we may not be able to recover if AT-527 is not approved for the treatment of COVID-19 or we are not successful at commercializing AT-527.

We believe that there is an urgent unmet need for effective orally administered COVID-19 treatments particularly for patients in the outpatient setting. Accordingly, if the data from our ongoing and planned clinical trials of AT-527 in COVID-19 patients are positive, we may pursue certain expedited development, review and approval programs offered by the U.S. Food and Drug Administration (“FDA”) to sponsors of drugs designed to treat serious diseases and conditions. These programs may offer the potential for a more rapid approval and commercialization process than traditional FDA review pathways. In order to prepare for the possibility that we may be required to develop and rapidly commercialize AT-527, we have entered and may enter into additional agreements with, and make payments to, contract manufacturing organizations (“CMOs”), third parties we are engaging to assist us in the potential commercialization of AT-527, and other third parties prior to obtaining any approval to market AT-527 for the treatment of COVID-19. As a result, we may not be able to recover these costs if AT-527 is not approved for the treatment of COVID-19, which could have a material adverse effect on our business.

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We currently expect that the market for a treatment for COVID-19 will be large, and we cannot be certain that Roche, our exclusive supplier of AT-527 commercial product for COVID-19, will be able to satisfy commercial demand for AT-527, if approved. If AT-527 is approved and we are unable to meet commercial demand, we may not be able to fully capitalize on our development of AT-527, which could have an adverse effect on our business.

Furthermore, we have never commercialized a product and may not be successful in establishing the capabilities required for commercialization. In order to commercialize AT-527, we are developing commercial capabilities. If we do not obtain approval for AT-527, we will have expended those resources prematurely, and our business could be adversely affected.

There has also been significant media coverage regarding the pricing of any vaccine or treatment for COVID-19. For example, Gilead Sciences, Inc. came under scrutiny regarding its pricing of Veklury (remdesivir), after having donated the initial supply of the drug. Pricing for drugs to treat COVID-19 continues to evolve, and we cannot be certain of the factors that will determine the sales price of AT-527, if approved. If we are unable to sell AT-527 at a sufficient price point, our ability to commercialize AT-527, if approved, may be adversely affected.

AT-527 may face significant competition from vaccines and other treatments for COVID-19 that are in development.

Many biotechnology and pharmaceutical companies are developing treatments for COVID-19 or vaccines against SARS-CoV-2, the virus that causes COVID-19. Many of these companies, which include large pharmaceutical companies, have greater resources for development and established commercialization capabilities. For example, in October 2020, the FDA approved the antiviral drug Veklury (remdesivir), a direct acting antiviral marketed by Gilead Sciences for the treatment of COVID-19 for certain patients requiring hospitalization and in November 2020 the FDA granted Regeneron an emergency use authorization for the use of casirivimab and imdevimab, administered together, for the treatment of mild to moderate coronavirus COVID-19 in adult and certain pediatric patients with positive results of direct SARS-CoV-2 viral testing who are at high risk for progressing to severe COVID-19 and/or hospitalization. In the same month, FDA granted Eli Lily emergency use authorization for bamlanivimab for the treatment of mild to moderate COVID-19 in adult and certain pediatric patients.  There are other companies that are currently pursuing authorization for emergency use of their respective products.  For example, in March 2021, VIR Biotechnology, Inc. and GlaxoSmithKline submitted to the FDA a request for authorization for the emergency use of VIR-7831 for the treatment of adults and adolescents with mild to moderate COVID-19.  In addition to therapeutics, vaccines indicated for active immunization to prevent COVID-19 have been recently authorized for emergency use.  In December 2020, the FDA granted authorization for emergency use for vaccines from Pfizer Inc. and BioNTech and Moderna, Inc. each of which announced clinical trial results showing that their respective vaccine candidate was found to be more than 90% effective in preventing COVID-19 during such trials and in February 2021, the FDA granted emergency use authorization to a vaccine developed by Janssen Pharmaceutical Company. Additional vaccines and therapeutics are in development by other pharmaceutical and biopharmaceutical companies. For example, molnupiravir, an orally administered direct-acting antiviral, which is being developed by Merck and Ridgeback Biotherapeutics is currently in Phase 2/3 development in the outpatient setting and Pfizer has initiated clinical development of protease inhibitors, another form of direct acting antiviral.   Given the products currently approved or authorized for use as well as those in development by others, any treatment we may develop could face significant competition. If any other company develops treatments more rapidly or effectively than we do, develops a treatment that becomes the standard of care, develops a treatment at a lower cost, or is more successful at commercializing an approved treatment, we may not be able to successfully commercialize AT-527 for the treatment of COVID-19, even if approved, or compete with other treatments or vaccines, which could adversely impact our business and operations.

The COVID-19 pandemic may materially and adversely affect our business and financial results.

In December 2019, SARS-CoV-2 surfaced in China. Since then, COVID-19 has spread globally. In the United States, travel bans and government stay-at-home orders caused widespread disruption in business operations and economic activity. Governmental authorities around the world implemented measures to reduce the spread of COVID-19. These measures, including suggested or mandated “shelter-in-place” orders, have adversely affected workforces, customers, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have contributed to an economic downturn in the United States. In response to the public health directives and orders and to help minimize the risk of COVID-19 for our employees, we have taken precautionary measures, including implementing work-from-home policies for all our employees. Many of our third-party collaborators, such as our CMOs, clinical research organizations (“CROs”), suppliers and others, have taken similar precautionary measures. These measures have disrupted our business and delayed certain of our clinical programs and timelines. For example, our Phase 1/2a clinical trial of AT-787 for the treatment of hepatitis C virus (“HCV”) was paused when clinical trial sites closed due to COVID-19 precautions by the countries and medical facilities where the trial was to be conducted. As certain countries have reopened, they have experienced a new surge of infection and have in some areas reinstated stay at home and other containment measures.

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Efforts to re-open are likely to take a significant amount of time, require additional resources to implement social-distancing and other containment measures, or may not be successful.

The impact to our operations due to the COVID-19 pandemic could be severe and could negatively affect our business, financial condition and results of operations. To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risk factors described in this “Risk Factors” section, such as those relating to our clinical trial timelines, our ability to enroll subjects for clinical trials and obtain materials that are required for the production of our product candidates, and our ability to raise capital.

The COVID-19 pandemic may materially and adversely affect our clinical trials.

As a result of the COVID-19 pandemic, we may experience additional disruptions that could severely impact our clinical trials, including: