Revolution Medicines, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Revolution Medicines is a clinical-stage precision oncology company with no approved products or product-sales revenue. All reported revenue came from its related-party Sanofi collaboration.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Collaboration revenue | $10.0 million | $12.3 million | $21.6 million | $25.4 million |
| Research and development expense | $32.9 million | $20.1 million | $60.4 million | $41.3 million |
| General and administrative expense | $5.1 million | $2.7 million | $10.3 million | $5.1 million |
| Net loss | $27.2 million | $10.1 million | $46.7 million | $20.3 million |
| Net loss per share, basic and diluted | $0.46 | $4.85 | $1.11 | $9.69 |
| Cash used in operating activities | — | $48.0 million | $24.1 million |
Amounts are in U.S. dollars; losses and cash used are shown as positive amounts in the table for readability. Operating margins are not meaningful for this pre-commercial company.
- Liquidity: At June 30, cash and cash equivalents were $24.0 million and marketable securities were $301.5 million, totaling $325.4 million. Management said these resources were expected to fund planned operations for at least 12 months following issuance of the financial statements.
- Cash flow: Six-month investing cash outflow was $196.2 million, primarily reflecting purchases of marketable securities, partly offset by maturities and sales. Financing provided $252.4 million, primarily from the February IPO. Cash, cash equivalents and restricted cash increased $8.2 million.
- Debt and obligations: The filing reports no material conventional debt balance. Lease liabilities were $34.1 million, including $34.0 million of operating lease liabilities; undiscounted operating lease payments totaled $48.7 million. No off-balance-sheet arrangements were reported.
- Balance sheet: Total assets were $454.0 million and total liabilities were $93.5 million. Accumulated deficit was $204.1 million.
Material changes versus the prior comparable period
- Q2 revenue fell 18% year over year, and first-half revenue fell 15%, mainly because lower SHP2-program manufacturing costs reduced reimbursable Sanofi collaboration activity; higher clinical-trial costs partly offset the decline.
- Q2 R&D expense rose 64%; first-half R&D expense rose 46%, primarily from greater preclinical portfolio spending and increased headcount. G&A expense rose 87% in Q2 and doubled in the first half, reflecting public-company insurance, legal and accounting costs, stock compensation and staffing.
- Net loss widened as operating expenses increased while collaboration revenue declined. Per-share loss comparisons are affected by the February 2020 IPO and conversion of preferred stock into common stock; the substantially larger share count makes the per-share figures not directly comparable.
- The IPO raised $250.7 million net in February. After quarter-end, a July public offering raised a further $167.9 million net; that proceeds amount is not included in June 30 cash and investments.
Outlook, commentary and risks
- Management expects expenses and operating losses to increase for at least the next several years as it advances clinical and preclinical programs, expands discovery work and operates as a public company. The filing gives no specific revenue or earnings guidance.
- RMC-4630, an SHP2 inhibitor, was being studied in four Phase 1/2 or Phase 1b/2 trials, including monotherapy and combinations. The company also expected to nominate its first RAS(ON) development candidate in 2020 and reported RMC-5552 remained on track to be IND-ready by year-end.
- The Sanofi agreement provides research and development reimbursements and potential development and regulatory milestone payments, but Sanofi may terminate for convenience. The collaboration is a significant source of revenue and support for the SHP2 program. Milestone payments were excluded from the recognized transaction price because of the risk of significant revenue reversal.
- COVID-19 had not materially affected the quarter’s financial statements, according to management, but several U.S. clinical sites had temporarily stopped or delayed new-patient enrollment. The company warned that enrollment, monitoring, data collection, suppliers and trial timelines could be disrupted.
- Key risks include clinical and regulatory failure or delay, dependence on Sanofi and third-party manufacturers and research organizations, future financing needs, competition, intellectual-property uncertainty and the technical and manufacturing challenges of some larger “Beyond Rule of 5” compounds. No litigation was identified as likely to have a material adverse effect.
- The company expanded and extended its Redwood City leases through 2030, adding approximately 19,000 square feet; this increased long-term lease commitments. Disclosure controls were assessed as effective at the reasonable-assurance level, with no material internal-control changes reported for the quarter.
Important facts for investors to verify
- Whether RMC-4630 trial enrollment and timelines were affected by COVID-19, and how subsequent clinical data compare with preliminary disclosures.
- How Sanofi reimbursements, collaboration revenue and any milestone payments develop, including the effect of Sanofi’s termination rights.
- The company’s cash burn and runway after the July offering, against its stated plan for rising R&D spending and operating losses.
- Whether preclinical RAS(ON), SOS1 and RMC-5552 programs meet the stated development milestones, and what resources they require.
- The impact of the expanded lease obligations, future share issuance and equity compensation on liquidity and dilution.