Replimune Group, Inc. quarterly report, Q3 FY2020

Replimune Group, Inc. — Form 10-Q Summary

Reporting period: Quarter and nine months ended December 31, 2019; filed February 13, 2020. The interim financial statements are unaudited. Replimune is a clinical-stage biotechnology company developing oncolytic immunotherapies and has no approved products or product revenue.

Financial performance and liquidity

Metric	Three months ended Dec. 31, 2019	Nine months ended Dec. 31, 2019	Comparable 2018 period
Revenue	No product revenue	No product revenue	No product revenue
Research and development expense	$11.9 million	$27.6 million	$7.9 million and $16.8 million
General and administrative expense	$4.7 million	$12.2 million	$2.3 million and $6.4 million
Total operating expenses / operating loss	$16.7 million	$39.8 million	$10.1 million and $23.1 million
Net loss	$16.2 million	$36.8 million	$7.7 million and $24.2 million
Net loss per share, basic and diluted	$0.46	$1.13	$0.24 and $1.18
Net cash used in operating activities	Not provided for quarter	$49.3 million	$19.3 million

Losses increased year over year in the quarter, primarily as research and development and general and administrative spending grew. The company reported no revenue-based margins because it has no product sales.

Liquidity at December 31: Cash and cash equivalents of $63.0 million and short-term investments of $117.9 million, totaling $180.9 million. Current assets were $190.9 million versus current liabilities of $14.2 million.
Cash flows for nine months: Operating activities used $49.3 million; investing activities used $13.1 million; financing activities provided $100.1 million. Financing included approximately $85.6 million net from the follow-on offering, $4.4 million from ATM sales and $10.0 million of debt proceeds.
Debt and leases: $10.0 million principal outstanding under the Hercules term loan ($9.7 million net of discount); total recognized lease liabilities were $32.3 million. The loan bears interest at the greater of prime plus 2.75% or 8.75%, is secured by substantially all assets other than intellectual property, and matures in 2023. A further $20 million may be borrowed subject to conditions.
Capitalization: 36.6 million common shares were outstanding at December 31, 2019. The company also issued pre-funded warrants for 2.2 million shares in its offering; none had been exercised by period-end.

Material changes versus prior comparable periods

Quarterly operating expenses rose $6.5 million, with R&D up $4.1 million and G&A up $2.4 million. The filing attributes increases to clinical development, staffing, supplies and facility costs, among other items.
Nine-month operating expenses rose $16.7 million. Net loss increased by $12.7 million, although 2018 included a $5.5 million warrant-liability fair-value charge that did not recur.
Operating cash use increased to $49.3 million from $19.3 million, including a $14.1 million increase in long-term prepaid rent. Investing cash use was lower than in 2018, largely reflecting purchases and maturities of short-term investments.
The November–December 2019 follow-on offering and partial underwriter option exercise generated approximately $85.6 million net. The company also raised $4.4 million net through its ATM program during the nine-month period.
Adoption of lease accounting standard ASC 842 resulted in recognition of right-of-use assets and lease liabilities, including substantial financing-lease assets associated with the Framingham facility.

Outlook, management commentary and risks

Management expected available cash and short-term investments to fund operating and capital requirements into the second half of calendar 2022. Separately, the financial-statement note says funds were expected to be sufficient for at least 12 months from issuance. Both statements are estimates based on assumptions; the filing says additional capital will be needed beyond the expected runway.
The company expects losses and expenses to increase as it advances RP1, RP2 and RP3, expands clinical programs, and starts operating its manufacturing facility. No product revenue or profitability timeline is provided.
RP1’s Phase 1 dose-escalation and combination expansion cohorts were complete. Phase 2 enrollment was open in melanoma, non-melanoma skin cancers, bladder cancer and MSI-H/dMMR tumors; melanoma enrollment was complete. Management described early results as encouraging, but these were preliminary clinical observations and do not establish efficacy or approval.
Management anticipated mid-2020 updates for melanoma and non-melanoma skin cancer cohorts, and fourth-quarter 2020 initial data from bladder and MSI-H/dMMR cohorts. It also planned an additional 125-patient cohort in anti-PD-1-refractory melanoma and a Phase 1b RP1 study in transplant recipients with cutaneous squamous cell carcinoma. RP2 initial data were expected in the second half of 2020; the company intended to pursue RP3 clinical development during 2020.
The approximately 63,000-square-foot Framingham manufacturing facility was built out and had an occupancy certificate; management expected it to be operational in the first half of 2020. Execution, validation, regulatory compliance and manufacturing scale-up remain risks.
In January 2020, the company expanded its BMS agreement to include free nivolumab supply for an additional 125-patient RP1 cohort. It also announced Philip Astley-Sparke as CEO, with Robert Coffin transitioning to President and Chief Research and Development Officer.
Material risks include clinical-trial failure or delay, regulatory and manufacturing hurdles, reliance on third-party suppliers and collaborators, need for additional capital and potential dilution, competition, and foreign-currency exposure. The company reported no material legal proceedings and no litigation reserves.
Controls: Disclosure controls were reported ineffective as of December 31, 2019 because of material weaknesses involving accounting staffing and expertise, segregation of duties, and formal controls for complex transactions. Remediation was underway but was not yet considered complete. Management stated the included financial statements fairly presented the company’s results in accordance with GAAP.

Important facts for investors to verify

Whether clinical data from RP1 cohorts support the company’s development plans, and whether projected readouts and enrollment timelines are achieved.
Whether the Framingham facility becomes operational on schedule and can meet quality, regulatory and supply requirements.
Cash burn, capital spending and the assumptions underlying the stated runway; reconcile the “at least 12 months” statement with the second-half-2022 outlook.
Availability and conditions for the remaining Hercules loan advances, and the loan’s interest, collateral, covenants and repayment terms.
Progress in remediating the material weaknesses and whether financial reporting controls are tested and found effective.
Potential dilution from future financing, equity compensation, and exercise of the outstanding pre-funded warrants and options.