Altimmune, Inc. (ALT) FY 2022 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. Some of the information contained in this discussion and analysis contains forward-looking statements that involve substantial risks and uncertainties. See “Forward-looking statements” in Part I of this Annual Report and the section entitled “Risk Factors” in Part I, Item 1A of this Annual Report for a discussion of certain factors that could cause actual results or events to differ materially from the forward-looking statements that we make.

Overview

Altimmune, Inc. is a clinical stage biopharmaceutical company focused on developing treatments for obesity and liver diseases. Our lead product candidate, pemvidutide (formerly known as ALT-801), is a GLP-1/glucagon dual receptor agonist that is being developed for the treatment of obesity and non-alcoholic steatohepatitis (“NASH”). In addition, we are developing HepTcell, an immunotherapeutic agent designed to achieve a functional cure for chronic hepatitis B. Except where the context indicates otherwise, references to “we,” “us,” “our,” “Altimmune” or the “Company” refer to the company and its subsidiaries.

Fiscal Year 2022 Business Update

In December 2021, an Investigational New Drug application for obesity was submitted to the U.S. Food and Drug Administration (“FDA”) and on January 31, 2022 we received FDA clearance for a Phase 2 trial in this indication.

In April 2022, we announced that we had enrolled the first subject in the 48-week Phase 2 MOMENTUM trial evaluating the safety and efficacy of pemvidutide in subjects with obesity or overweight. The trial is being conducted at approximately 30 sites in the U.S. The randomized, placebo-controlled trial enrolled approximately 320 non-diabetic subjects randomized 1:1:1:1 to receive either 1.2 mg, 1.8 mg, 2.4 mg pemvidutide or placebo weekly for 48 weeks. No dose titration is being used with the 1.2 mg or 1.8 mg dose, while a short 4-week dose titration is being employed at the 2.4 mg dose. The primary endpoint of the trial is the relative (percent) change in body weight at 48 weeks compared to baseline, with additional readouts including metabolic and lipid profiles, cardiovascular measures and glucose homeostasis. The trial is being conducted with adjunctive diet and exercise interventions that is typical in weight loss studies.

In August 2022, we announced that 167 subjects had been randomized and we further announced on September 28, 2022 the first dosing of all subjects in the MOMENTUM trial.

In September 2022, we announced the topline results from our 12-week Phase 1b clinical trial of pemvidutide in subjects with non-alcoholic fatty liver disease (“NAFLD”). The trial was a double-blind, placebo-controlled study. Subjects were randomized 1:1:1:1 to 1.2 mg, 1.8 mg, 2.4 mg pemvidutide or placebo administered weekly for 12 weeks. No dose titration was used with 1.2 mg or 1.8 mg dose, while a short 4-week dose titration was employed at the 2.4 mg dose. The primary efficacy endpoint was the percent (%) reduction in liver fat content (“LFC”) from baseline, and the key secondary efficacy endpoint was the % weight loss from baseline, both at 12 weeks of treatment. The trial was conducted without adjunctive diet and exercise interventions that are the standard for obesity trials.

In December 2022 we announced the topline results from our 24-week (12-week extension) Phase 1b clinical trial of pemvidutide in subjects with NAFLD. The trial was conducted without adjunctive diet and exercise interventions and the double-blinding of the trial was maintained during the extension study. The same endpoints as the 12-week parent NAFLD trial were employed, with a primary efficacy endpoint of percent (%) reduction in liver fat content; key secondary endpoints were reduction in liver inflammation, as measured by serum alanine aminotransferase (“ALT”) levels and corrected T1 (“cT1”), and percent weight loss.

Impact of COVID-19

We are closely monitoring how the spread of COVID-19, including any resurgences or the emergence of new variants, is affecting our employees, business, preclinical studies and clinical trials. We have reopened our executive office to allow employees to return to the office based on an approach that is intended to comply with federal and state guidelines,

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with a focus on employee safety and optimal work environment. We are continuing our regular interactions with the FDA and other regulatory agencies and, based on current information, we do not anticipate COVID-19 to materially affect our regulatory timelines for our ongoing clinical trials. Furthermore, as a government contractor, we are subject to the federal government vaccination mandate, which requires federal contractor employees, except in certain limited circumstances, to be vaccinated against COVID-19 by December 8, 2021. While the vaccination mandate remains subject to the interpretation of various government agencies and other entities, and questions remain regarding the specific application of the vaccination mandate, we are continuing to develop and implement health, safety, employment and operational protocols in order to timely comply with the vaccination mandate. As of and for the year ended December 31, 2022, the vaccination mandate has not had a material impact on our employees or operations.

Although operations have not been materially affected by the COVID-19 pandemic as of and for the year ended December 31, 2022, at this time, however, disruptions caused by the COVID-19 pandemic may result in difficulties or delays in initiating, enrolling, conducting or completing our planned and ongoing trials and the incurrence of unforeseen costs as a result of disruptions in clinical supply or preclinical study or clinical trial delays. The impact of COVID-19 on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the pandemic, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions, the ultimate impact on financial markets and the global economy, and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. In addition, a recurrence of COVID-19 cases, or variants thereof, could cause other widespread or more severe impacts depending on where infection rates are highest. We continue to monitor developments as we deal with the disruptions and uncertainties relating to the COVID-19 pandemic. See “Risk Factors— A pandemic, epidemic or outbreak of an infectious disease in the United States such as the COVID-19 pandemic may adversely affect our business.” in Part I, Item 1A of this Annual Report on Form 10-K.

Recent Global Events

Russia and Ukraine Conflict

The military conflict in Russia and Ukraine that began in February 2022 continues as of the date of this annual report. As the conflict continues to evolve, we are closely monitoring the impact on our business. The conflict, and the sanctions and counter-sanctions imposed in response to it, have created increased economic uncertainty and operational complexity globally. While we have no direct exposure to Russia and Ukraine, and do not at the moment believe the situation will have a material impact on our operating results, we are monitoring any broader economic impact from the situation. Should the conflict continue or escalate, it could have a significant negative effect on the global economy or on our operations, including continued inflationary pressures on raw materials, supply chain and logistics disruptions, volatility in foreign exchange rates and interest rates and heightened cybersecurity threats.

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Financial Operations Overview

The consolidated financial information presented below includes the accounts of Altimmune, Inc., Altimmune UK, Ltd, Spitfire Pharma, LLC. and Altimmune AU Pty, Ltd. All intercompany accounts and transactions have been eliminated in consolidation.

Revenue

We have not generated any revenues from the sale of any products to date. Our revenue in previous years consisted primarily of government and foundation grants and contracts that support our efforts on specific research projects. These grants and contracts generally provided for reimbursement of approved costs as those costs were incurred by us. Research grants and contracts and the related accounts receivable were recognized as earned when reimbursable expenses are incurred and the performance obligation was complete. Payments received in advance of services being provided were recorded as deferred revenue. We are closing out one of the remaining such contracts and any revenue reported during the year ended December 31, 2022 was for indirect rate adjustments.

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Research and development expenses

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

Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors, CROs and clinical sites.

We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if, when or to what extent we will generate sales from the commercialization of any of our product candidates if they receive regulatory approval. The successful development of our product candidates is highly uncertain and may never result in approved products. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA, or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate, we could be required to expend significant additional financial resources and time on the completion of clinical development.

We plan to increase our research and development expenses for the foreseeable future as we continue the development of clinical and preclinical candidates. Our current active and planned research and development activities include the following:

To date, a significant portion of our research and development efforts have been related to the development of pemvidutide and HepTcell, as well as for NasoShield, NasoVAX, AdCOVID and T-COVID programs which were

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discontinued in 2021. We do not allocate personnel-related costs, costs associated with our general research platform improvements, depreciation or other indirect costs to specific programs.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs for personnel, including stock-based compensation and travel expenses for our employees in executive, operational, finance and human resource functions. Other general and administrative expenses include insurance expenses, facility-related costs and professional fees for directors, accounting and legal services, and expenses associated with obtaining and maintaining our intellectual property.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development activities. We also anticipate increased expenses related to audit, legal, regulatory and tax-related services associated with maintaining compliance with exchange listing and the SEC requirements, director and officer insurance, investor relations costs and other costs associated with being a public company. Additionally, if and when we believe a regulatory approval of the first product candidate appears likely, we anticipate an increase in staffing and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

Results of Operations

Comparison of years ended December 31, 2022 and December 31, 2021:

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Revenue

For the year ended December 31, 2021, revenue consisted primarily of research grants in the United States from Medical Technology Enterprise Consortium (“MTEC”) for our T-COVID product candidate and Biomedical Advanced Research and Development Authority (“BARDA”) for our NasoShield vaccine product candidate. These grants consisted of firm fixed fee contracts based on milestones and cost reimbursement contracts, with a fixed fee based on either costs incurred or milestones met. Our T-COVID and NasoShield programs were discontinued as of the end of 2021. For the

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year ended December 31, 2022, as a result of adjustments to prior year cost reimbursements under BARDA, we reported negligible negative revenue.

Revenue decreased by $4.5 million, or 102% for the year ended December 31, 2022 as compared to the year ended December 31, 2021. The decrease was primarily the result of the discontinuation of development work on both T-COVID and NasoShield programs as described above.

Research and development expenses

Research and development expenses for the years ended December 31, 2022 and 2021 consisted primarily of expenses related to product candidate development. Research and development expenses for the years ended December 31, 2022 and 2021 are summarized as follows:

Research and development expenses decreased by $4.0 million, or 5%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021. The decrease in expense was primarily due to:

General and administrative expenses

General and administrative expenses increased by $1.7 million, or 11%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021. The increased expense is primarily due to a $1.7 million increase in stock compensation and other labor-related expenses.

Impairment loss on construction-in-progress

Impairment loss on construction-in-progress of $11.4 million reported during the year ended December 31, 2021 represents non-cash impairment charges recorded for assets that were previously capitalized in connection with the construction of the Lonza facility and subsequent discontinuation of AdCOVID. There were no impairment charges reported during the year ended December 31, 2022.

Total other income (expense), net

Total other income (expense), net increased by $3.0 million during the year ended December 31, 2022 as compared to the year ended December 31, 2021, primarily due to $2.7 million increase in interest income earned on our cash equivalents and short-term investments and $0.3 million decrease in loss from foreign currency exchange.

Income tax benefit

Income tax benefit of $0.2 million related to interest received and receivable on income tax refunds was recorded during the year ended December 31, 2022. Other than the income tax benefit related to interest, we did not record an income tax benefit in the year ended December 31, 2022 and 2021 due to a full valuation allowance.

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Liquidity and Capital Resources

Overview

Our primary sources of cash for the year ended December 31, 2022 were from equity transactions. Our cash, cash equivalents, restricted cash and short-term investments were $184.9 million as of December 31, 2022. We believe, based on the operating cash requirements and capital expenditures expected for 2023 and 2024, our cash on hand at December 31, 2022, together with expected cash receipts from our income tax refunds and R&D incentives, are sufficient to fund operations for at least a twelve-month period from issuance date of our December 31, 2022 consolidated financial statements.

We have not generated any revenues from the sale of any products to date, and there is no assurance of any future revenues from product sales. In the past, our sources of revenue have consisted of grant revenues under our arrangements with BARDA for the development of NasoShield, MTEC for a clinical trial and development work on T-COVID, and to a lesser degree from other licensing arrangements. The MTEC contract was closed out in June 2021 and we are currently closing out the BARDA contract which was not renewed after December 31, 2021. We have incurred significant losses since we commenced operations. As of December 31, 2022, we had an accumulated deficit of $377.9 million. In addition, we have not generated positive cash flows from operations. We have had to rely on a variety of financing sources, including the issuance of debt and equity securities. As capital resources are consumed to fund our research and development activities, we may require additional capital beyond our currently anticipated amounts. In order to address our capital needs, including our planned clinical trials, we must continue to actively pursue additional equity or debt financing, government funding, and monetization of our existing programs through partnership arrangements or sales to third parties.

Sources of Liquidity

Public Offering

On July 16, 2020, we offered and sold (i) 3,369,564 shares of our common stock, at a price to the public of $23.00 per share, and (ii) pre-funded warrants to purchase 1,630,436 shares of our common stock at an exercise price equal to $0.0001 per share (the “Pre-Funded Warrants”), at a price to the public of $22.9999 per share of common stock underlying the Pre-Funded Warrants (equal to the public offering price per share of Common Stock, minus the exercise price of each Pre-Funded Warrant). The Pre-Funded Warrants are exercisable at any time, provided that each Pre-Funded Warrant holder will be prohibited from exercising such Pre-Funded Warrants into shares of our common stock if, as a result of such exercise, the holder, together with its affiliates, would own more than 4.99% of the total number of shares of our common stock then issued and outstanding, which percentage may change at the holders’ election to any other number less than or equal to 19.99% upon 61 days’ notice to us. The gross proceeds of this offering were approximately $132.2 million, which includes the exercise in full of the underwriters’ option to purchase an additional 750,000 shares of common stock, before deducting underwriting discounts and commissions and offering expenses during the third quarter of 2020. The net proceeds of this offering were approximately $124.0 million, after deducting underwriting discounts and commissions and offering expenses payable by us. As of December 31, 2022, 760,870 of the Pre-Funded Warrants were exercised, leaving 869,566 remaining Pre-Funded Warrants unexercised.

Shelf Registration

On December 31, 2020, we filed a shelf registration statement on Form S-3, which was declared effective by the SEC on January 11, 2021. This shelf registration statement covered the offering, issuance and sale by us of up to an aggregate of $250.0 million of our common stock, preferred stock, debt securities, warrants, rights and units (the “2021 Shelf”). As of December 31, 2022, approximately $125.0 million remained available to be sold under the 2021 Shelf.

At-the-Market Offering

On February 25, 2021, we entered into an Equity Distribution Agreement (the “2021 Agreement”) with Piper Sandler & Co., Evercore Group L.L.C. and B. Riley Securities, Inc., serving as sales agents (the “Sales Agents”) with respect to an at-the-market offerings program under which we offered and sold shares of our common stock, par value $0.0001 per share (the “Common Stock”), having an aggregate offering price of up to $125.0 million through the Sale Agents from the 2021 Shelf.

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During the year ended December 31, 2022, we sold 5,204,415 shares of Common Stock under the 2021 Agreement resulting in approximately $56.2 million in net proceeds. As of December 31, 2022, we sold 10,004,869 shares of Common Stock under the 2021 Agreement resulting in approximately $121.0 million in net proceeds. As of December 31, 2022, there were no remaining shares available for issuance under the 2021 Agreement.

Cash Flows

The following table provides information regarding our cash flows for the years ended December 31, 2022 and 2021:

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Operating Activities

Net cash used in operating activities was $62.6 million for the year ended December 31, 2022 compared to $78.2 million during the year ended December 31, 2021. Our sources of cash provided by operations during the year ended December 31, 2022 was primarily cash receipts of R&D incentive credits and income tax refunds. The primary uses of cash from our operating activities include payments for labor and labor-related costs, professional fees, research and development costs associated with our clinical trials and other general corporate expenditures. The decrease in cash used in operating activities of $15.7 million is due to a decrease in net loss as adjusted for noncash items of $1.3 million and changes in working capital accounts of $14.4 million.

Investing Activities

Net cash used in investing activities was $73.4 million for the year ended December 31, 2022 compared to $87.5 million during the year ended December 31, 2021. The net cash used in investing activities during 2022 was primarily due to purchase of short-term investments, net of maturities. The net cash provided by investing activities during the year ended December 31, 2021 was primarily due to net proceeds from short-term investments activities of $99.8 million, partially offset by purchases of property and equipment of $12.1 million related to Lonza.

Financing Activities

Net cash provided by financing activities was $56.8 million for the year ended December 31, 2022 compared to $65.1 million during the year ended December 31, 2021. The net cash provided by financing activities during 2022 was primarily the result of the receipt of $56.2 million in net proceeds from the issuance of common stock from our at-the-market offerings program. The net cash provided by financing activities during 2021 was primarily the result of the receipt of $64.7 million in net proceeds from the issuance of common stock from our at-the-market offerings program.

Capital Resources

We have financed our operations to date principally through our equity offerings and proceeds from issuances of our preferred stock, common stock and warrants. At December 31, 2022, we had $184.9 million of cash, cash equivalents, restricted cash and short-term investments. Accordingly, management believes that we have sufficient capital to fund our plan of operations for at least a twelve-month period from the issuance date of our December 31, 2022 consolidated financial statements. However, in order to address our capital needs in the long-term, including our planned clinical trials,

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we must continue to actively pursue additional equity or debt financing, government funding and monetization of our existing programs through partnership arrangements or sales to third parties.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of our consolidated financial statements requires us to make judgments and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. On an ongoing basis, we evaluate our judgments and estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of change in estimates.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements appearing elsewhere in this Annual Report, we believe the following accounting policies used in the preparation of our consolidated financial statements require the most significant judgments and estimates.

Impairment of long-lived assets

We evaluate our long-lived tangible and intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Impairment of long-lived assets other than indefinite lived intangibles is assessed by comparing the undiscounted cash flows expected to be generated by the asset group to its carrying value.

We have one in-process research and development (“IPR&D”) asset, HepTcell, that was acquired in 2015. This candidate is a viral pathogen immunotherapy product for the treatment of chronic HBV. Our IPR&D asset is currently non-amortizing. Until such time as the project is either completed or abandoned, we test this asset for impairment at least annually at year end, or more frequently at interim periods, by evaluating qualitative factors which could be indicative of impairment. Qualitative factors being considered include, but are not limited to, the current project status, forecasted changes in the timing or amounts required to complete the project, forecasted changes in timing or changes in the future cash flows to be generated by the completed products, a probability of success of the ultimate project and changes to other market-based assumptions, such as discount rates. If impairment indicators are present as a result of our qualitative assessment, we test those assets for impairment by comparing the fair value of the assets to their carrying value. Upon completion or abandonment, the value of the IPR&D assets will be amortized to expense over the anticipated useful life of the developed product, if completed, or charged to expense when abandoned if no alternative future use exists. Key assumptions used in our impairment analysis tests include projected cash flows, a probability of success of the ultimate project and the discount rate.

We performed a qualitative assessment for the IPR&D impairment testing for the years ended December 31, 2022 and 2021 and determined that no impairment indicators were present.

Fair Value Measurements

We follow the guidance in Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), which defines fair value and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities that we can access at the measurement date.

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Level 2 — Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term.

Level 3 — Unobservable inputs developed using estimates of assumptions developed by us, which reflect those that a market participant would use.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. There were no transfers into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2022 and 2021.

Contingent Consideration

We record contingent consideration associated with development and regulatory milestones that meets the definition of a liability under FASB Accounting Standards Codification Topic 480, Distinguishing Liabilities From Equity (“ASC 480”) at fair value. The fair value model used to calculate this obligation is based on the Monte Carlo simulation that has been risk adjusted based on the probability of achievement of the milestones. The inputs we use for determining the fair value of the contingent consideration associated with development and regulatory milestones are Level 3 fair value measurements. We re-evaluate the fair value on a quarterly basis. Changes in the fair value can result from adjustments to the probability of achievement of the milestones, stock price, volatility and the risk-free interest rate.

The change in our estimates associated with payments for development and regulatory milestones could change the fair value of contingent consideration, resulting in a charge or contra expense to research and development expense in the period in which the increase or decrease is determined.

Research and Development

Research and development costs are expensed as incurred. Research and development costs consist of payroll and personnel expense, consulting costs, external contract research and development expenses, which includes fees paid to other entities that conduct certain research and development activities on our behalf, such as clinical research organizations (“CROs”) and contract manufacturing organizations (“CMOs”), raw materials, drug product manufacturing costs, laboratory supplies and allocated overhead, including depreciation and amortization, rent and utilities. Material research and development costs that are paid in advance of performance are capitalized as a prepaid expense and amortized over the service period as the services are provided.

Clinical trial costs are a significant component of research and development expenses, and we outsource a significant portion of these costs to third parties. Third-party clinical trial expenses include investigator fees, site and patient costs, CRO costs, costs for central laboratory testing, data management and CMO costs. The accrual for site and patient costs includes inputs such as estimates of patient enrollment, patient cycles incurred, clinical site activations, and other pass-through costs. These inputs are required to be estimated due to a lag in receiving the actual clinical information from third parties. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as a prepaid asset or accrued expenses. These third-party agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred. Material advance payments for goods or services that will be used or rendered for future research and development activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed. When evaluating the adequacy of the accrued expenses, we analyze progress of the studies, including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period.