REGENXBIO Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Unaudited consolidated financial statements; amounts below are in U.S. dollars. REGENXBIO is a clinical-stage gene-therapy company that develops internal programs and licenses its NAV AAV-vector platform to third parties.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $5.3m | $1.3m | $177.7m | $8.4m |
| Operating expenses | $28.0m | $22.6m | $92.1m | $67.6m |
| Operating income (loss) | $(22.7)m | $(21.3)m | $85.7m | $(59.3)m |
| Net income (loss) | $(19.2)m | $(20.7)m | $95.6m | $(57.2)m |
| Basic EPS | $(0.56) | $(0.67) | $2.94 | $(1.94) |
- Nine-month results were dominated by the amended AveXis license: REGENXBIO recognized $176.1m of license revenue, including accelerated consideration following Novartis’s acquisition of AveXis. The company also recorded $8.4m of licensing-related interest income.
- Q3 R&D expense rose 48% to $18.5m, reflecting personnel, laboratory and facility, manufacturing/process-development, and clinical-trial costs. Nine-month R&D increased 38% to $59.5m. Nine-month G&A increased 15% to $25.7m; Q3 G&A declined modestly to $9.0m, partly because prior-year quarter costs included non-recurring expenses associated with a proposed merger.
- Conventional product margins are not meaningful: revenue principally reflects platform licenses and license-accounting estimates, not marketed products. The company has not generated product-sales revenue.
Cash, liquidity and capital
- At September 30, cash and cash equivalents were $142.4m and marketable securities were $332.5m, totaling $474.9m. Current assets were $386.4m versus current liabilities of $19.1m. Total liabilities were $20.9m; the filing reports no borrowings or debt.
- Nine-month operating cash flow was $108.8m, compared with cash used of $44.2m in 2017. The increase primarily reflected $180.0m of AveXis license payments, partly offset by operating expenditures. Investing cash use was $212.2m, mainly purchases of marketable securities and $8.4m of property and equipment. Financing provided $199.2m, including approximately $189.3m net proceeds from an August follow-on offering.
- The offering sold 3.105m shares at $65 per share and generated $189.1m net proceeds as disclosed in the notes; share count increased to 35.704m at quarter-end. Management said available cash and securities should fund the current plan for at least 12 months from issuance of the statements.
Changes, outlook and notable items
- Compared with 2017, nine-month revenue and earnings swung sharply because of AveXis-related license consideration, not recurring product sales. One customer accounted for approximately 99% of nine-month 2018 revenue.
- Topic 606 was adopted January 1, 2018 using the modified retrospective method. It increased opening accumulated earnings by $4.8m and changed the timing of revenue and licensing-cost recognition; 2017 comparatives were not restated. For the nine months, reported net income was $0.9m higher than it would have been under the prior standard. Q3 reported net loss was $2.0m lower under Topic 606 than under the prior standard.
- Management expects R&D and G&A spending to increase and losses to continue for at least several years; additional capital will be needed to achieve business objectives. Funding needs depend on trial progress, results, manufacturing capacity, regulatory review, and licensing-partner activity. No numerical earnings or revenue guidance is provided.
- Pipeline outlook: RGX-314 Phase II wet-AMD trial planned for 2019; RGX-121 enrollment and site activation expected to continue in 2019; RGX-111 Phase I enrollment expected in the first half of 2019, subject to regulatory progress; and an RGX-181 IND submission planned for 2019. RGX-501 enrollment was expected to expand under a protocol amendment using steroid prophylaxis.
- RGX-314 interim Phase I results in 24 subjects showed dose-dependent protein expression and, in Cohort 3, reduced injection need; half of Cohort 3 subjects were injection-free through six months. The company reported no drug-related adverse events at that update. These are early, limited data, not evidence of efficacy in a pivotal trial.
- RGX-501 had six subjects dosed. Transaminase elevations occurred in all three higher-dose cohort subjects; one peak ALT was 1,469 IU/L. The subjects were asymptomatic and responded to prednisone and tapering. The lower-dose cohort showed no clinically meaningful LDL-C change at 12 weeks; interpretation of higher-dose results was confounded by liver effects and steroid treatment.
- After quarter-end, the European Patent Office upheld the licensed AAV8 patent subject to amendments. The company also disclosed a November 2018 lease for approximately 132,000 square feet of future Rockville facilities, with estimated minimum payments of $87.6m and expected delivery in mid-2020. A post-quarter Abeona license was also disclosed, with up to $120m of upfront and annual payments plus potential milestones, royalties and sublicense fees.
- Key risks include clinical and regulatory uncertainty, gene-therapy safety, manufacturing execution, reliance on licensees and third parties, concentrated revenue, intellectual-property challenges, and future financing needs. Management reported effective disclosure controls; no material change in internal control was reported for the quarter.
Important facts for investors to verify
- How much of reported revenue and cash generation depends on the non-recurring AveXis arrangement, and what payments or milestones remain contingent?
- How Topic 606 estimates—including probable development milestones and contract assets—affect reported revenue, receivables and future reversals.
- Updated clinical safety and efficacy data, especially RGX-501 liver-enzyme elevations and steroid use, and the design and timing of planned trials.
- The company’s cash runway under rising R&D costs, potential financing and dilution, and the effect of the long-term facilities lease.
- Whether licensees advance programs and ultimately generate milestones, royalties or sublicense revenue; the filing says no product royalties or sales-based milestones had yet been recognized.