OvaScience, Inc. — Form 10-Q Summary
Entity note: The supplied filing is for OvaScience, Inc., not Tempest Therapeutics, Inc. It covers the quarter and six months ended June 30, 2018; financial amounts below are in millions of dollars unless stated otherwise.
Business context and reporting period
OvaScience was developing fertility treatments based on egg precursor cell technology, with limited treatment revenue. Its programs included OvaPrime and OvaTure; AUGMENT was offered in Japan through a license. The company reported substantial workforce reductions and a strategic shift toward conserving resources while evaluating its programs.
Financial performance and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0.081 | $0.084 | $0.148 | $0.147 |
| Operating loss | $7.904 | $17.930 | $15.486 | $32.517 |
| Net loss | $7.703 | $18.186 | $15.073 | $33.081 |
| Net loss per share | $0.22 | $0.51 | $0.42 | $0.93 |
| Operating cash used | Not provided separately | Not provided separately | $13.763 | $27.275 |
At June 30, cash and cash equivalents were $24.6 million and short-term investments were $29.0 million, totaling $53.6 million. Working capital was $49.4 million; total assets were $55.5 million, total liabilities $5.3 million, and stockholders’ equity $50.2 million. The balance sheet reports no debt. Cash, cash equivalents, and restricted cash totaled $25.4 million at quarter-end. Net investing cash inflow of $22.7 million mainly reflected investment maturities and purchases, rather than operating cash generation.
Revenue was immaterial and the filing reports no meaningful profitability or margin measure. Management said the $53.6 million of cash and short-term investments was expected to fund the then-current operating plan for at least 12 months from filing, but cautioned that assumptions could prove wrong and additional funding might be needed.
Material changes versus the prior comparable period
- Q2 net loss narrowed to $7.7 million from $18.2 million; six-month net loss narrowed to $15.1 million from $33.1 million. Lower research and development and selling, general and administrative costs—largely due to workforce reductions and reduced commercial activity—drove much of the improvement.
- Q2 research and development expense fell 52% to $2.4 million; six-month expense fell 53% to $5.0 million. Selling, general and administrative expense declined 75% in Q2 to $2.6 million and 62% for the six months to $6.9 million.
- Restructuring expense increased to $2.9 million in Q2 from $2.0 million a year earlier; six-month expense was $3.6 million versus $3.5 million. The 2018 charges primarily included severance and a $2.2 million asset impairment.
- Cash and short-term investments declined from $67.2 million at December 31, 2017 to $53.6 million at June 30, 2018. Operating cash use improved year over year, while investing cash flows were positive largely because of securities maturities.
Outlook, management commentary, risks, and unusual items
- Based on preliminary animal-study data, OvaScience scaled back OvaPrime research, halted its planned Phase 1b/2a trial, and continued monitoring patients in its ongoing Phase 1 trial. A small internal team was to continue OvaTure work with outside research organizations and academic partners.
- On August 8, 2018, after quarter-end, OvaScience agreed to an all-stock merger with Millendo Therapeutics. The proposed combined company was expected to focus on rare endocrine diseases. An investor syndicate committed to invest up to $30 million, and at least $70 million of combined cash was expected after the merger and financing. The transaction was expected to close in Q4 2018, subject to shareholder approval and other conditions. OvaScience shareholders were expected to own approximately 20% of the combined company before the additional financing, subject to adjustment based on OvaScience’s closing net cash.
- Merger risks include failure to close, possible transaction expense reimbursement up to $1.0 million or a $3.0 million termination fee in specified circumstances, and the possibility of liquidation if no merger or alternative strategic transaction proceeds. Management also warned that additional capital may be required and that financing could dilute shareholders or constrain operations.
- Nasdaq had notified the company that its share price did not meet the $1.00 minimum bid requirement; the stated compliance deadline was October 24, 2018. Failure to regain compliance could result in delisting.
- Several shareholder and securities-related lawsuits remained pending or stayed. The company said it could not estimate potential losses. A separate derivative-action settlement included $0.3 million in attorney fees and awaited court approval.
- The company recorded a $2.2 million property and equipment impairment as part of restructuring. Management reported that disclosure controls were effective and that no material change in internal control over financial reporting occurred during the quarter.
Important facts for investors to verify
- Whether the Millendo merger and up-to-$30 million financing closed, and the final cash balance and ownership allocation.
- Whether OvaScience regained Nasdaq’s minimum bid-price compliance by the stated deadline and whether any reverse split or delisting followed.
- Updated cash runway, operating burn, restructuring costs, and funding requirements after the announced program reductions.
- Further OvaPrime clinical and preclinical results, and whether OvaTure or AUGMENT generated material development or commercial progress.
- Developments and potential financial exposure from the pending litigation and court approval of the $0.3 million settlement.