Replimune Group, Inc. — Form 10-Q summary
Reporting period: Quarter ended September 30, 2019 (the company’s fiscal second quarter), with six-month year-to-date comparisons to September 30, 2018. The statements are unaudited. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions where appropriate.
Business context
Replimune is a clinical-stage biotechnology company developing oncolytic immunotherapies. It had no approved products and generated no product revenue. Its lead candidate, RP1, was in clinical development; RP2 had entered Phase 1 in October 2019, and RP3 remained preclinical.
Financial results and liquidity
| Metric | Three months ended September 30 | Six months ended September 30 |
|---|---|---|
| Revenue from product sales | None | None |
| Research and development expense | 2019: $8.2 million; 2018: $5.0 million | 2019: $15.6 million; 2018: $8.9 million |
| General and administrative expense | 2019: $4.1 million; 2018: $2.1 million | 2019: $7.5 million; 2018: $4.1 million |
| Operating loss | 2019: $12.2 million; 2018: $7.1 million | 2019: $23.1 million; 2018: $13.0 million |
| Net loss | 2019: $11.1 million; 2018: $6.5 million | 2019: $20.6 million; 2018: $16.5 million |
| Basic and diluted loss per share | 2019: $0.35; 2018: $0.26 | 2019: $0.65; 2018: $1.11 |
| Operating cash flow | Not provided as a quarterly figure | 2019: cash used of $33.6 million; 2018: cash used of $13.2 million |
At September 30, 2019, cash and cash equivalents were $53.3 million and short-term investments were $56.6 million, totaling $109.9 million. Total assets were $151.4 million, current liabilities were $12.0 million, and total liabilities were $30.8 million. No operating margins are meaningful because the company had no product revenue.
Six-month investing cash flow was positive $52.1 million, primarily reflecting $83.9 million of short-term investment maturities and sales, offset by $30.6 million of purchases and $1.1 million of property and equipment purchases. Financing cash flow was positive $9.8 million, including $10.0 million of debt proceeds. Cash, cash equivalents and restricted cash ended the period at $54.9 million.
The company had $10.0 million outstanding under a secured Hercules term loan, reported net of discount at $9.7 million. The agreement provides a total facility of up to $30.0 million, with up to $20.0 million in additional advances subject to specified conditions and windows. The loan bears interest at the greater of prime plus 2.75% or 8.75%; its reported effective annual rate was approximately 10.1% for the period. The loan is secured by substantially all assets except intellectual property and includes covenants and default provisions.
Changes versus the prior comparable period
- Quarterly net loss increased by $4.7 million, as operating expenses grew faster than other income. Six-month net loss increased by $4.1 million.
- Research and development expense rose with higher RP1 clinical-trial activity and increased personnel and other program costs. General and administrative expense rose mainly with staffing, professional and facility costs.
- Six-month 2018 results included a $5.5 million warrant-liability fair-value charge that did not recur in 2019; this helped make the 2019 year-to-date net-loss comparison less adverse than the increase in operating loss.
- In August 2019, the company borrowed $10.0 million under the Hercules facility and established a $75.0 million at-the-market equity sales program. No shares had been sold under the program by September 30; subsequent to quarter-end, 287,559 shares were sold for net proceeds of $4.4 million.
- Adoption of lease accounting standard ASC 842 in April 2019 brought lease right-of-use assets and liabilities onto the balance sheet and changed the accounting for the Framingham facility. At September 30, total recognized lease liabilities were $9.8 million.
Outlook, commentary and risks
- Management expected cash and short-term investments to fund operating expenses and capital expenditures for at least 12 months from issuance of the financial statements. Elsewhere, the MD&A estimated funding into the second half of calendar 2021; these are differing runway statements and depend on assumptions. The company expects continued losses and will need additional capital beyond its available resources.
- Management expected higher expenses as it advanced RP1, RP2 and RP3, expanded clinical trials and developed an in-house manufacturing facility. Estimated facility capital expenditures were approximately $22.5 million, net of approximately $8.9 million in tenant-improvement costs.
- Management reported preliminary RP1 Phase 1 findings it characterized as encouraging, including activity in cutaneous squamous cell carcinoma and melanoma. These are early, limited-patient data, not proof of efficacy. The RP1 Phase 2 program was open across four cohorts; the company expected to analyze those cohorts by the second half of 2020. It expected a primary endpoint readout from the randomized CSCC trial of RP1 plus cemiplimab versus cemiplimab alone in the first half of 2022. Planned milestones included an RP1 transplant-recipient CSCC trial in early 2020, melanoma data in the second half of 2021, RP2 data in the second half of 2020 and RP3 clinical development during 2020, subject to progress and regulatory clearance.
- Clinical, regulatory and manufacturing execution are major uncertainties, including trial enrollment, safety and efficacy, product supply and establishing a compliant in-house manufacturing operation. The company also depends on collaborators for checkpoint-inhibitor supply; BMS supplies nivolumab at no cost for specified trials, and Regeneron shares costs and supplies cemiplimab under its collaboration.
- The company reported no material legal proceedings. It disclosed material weaknesses in financial reporting controls, including insufficient accounting expertise and segregation of duties and inadequate formal controls for complex transactions. Disclosure controls were deemed ineffective; management nevertheless concluded the financial statements were fairly presented and described remediation efforts.
Most important facts for investors to verify
- Reconcile the stated funding runway: at least 12 months from the November 2019 financial-statement issuance versus the MD&A estimate into the second half of calendar 2021.
- Track cash burn, planned manufacturing spending and whether additional Hercules advances are available and meet their conditions; assess potential dilution from the ATM program or future financing.
- Review subsequent RP1 and RP2 trial data, enrollment, safety and efficacy results against the company’s stated timelines; distinguish preliminary company commentary from established clinical evidence.
- Monitor remediation of the disclosed material weaknesses and whether disclosure controls become effective.
- Assess whether the company can secure reliable clinical and future commercial manufacturing capacity and maintain access to collaborator-supplied checkpoint inhibitors.