Business context and reporting period
The supplied filing is OvaScience, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2016; it does not appear to be a Tempest Therapeutics filing. OvaScience develops fertility treatments based on EggPC cells. Its AUGMENT treatment was offered at select international IVF clinics, while OvaPrime and OvaTure remained in development. The company reported limited treatment revenue and continued operating losses.
Financial results and liquidity
Amounts below are in millions, except per-share data.
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $0.189 | $0.030 | $0.335 | $0.045 |
| Costs of revenue | $1.233 | $0.116 | $2.409 | $0.151 |
| Research and development | $5.987 | $4.021 | $11.942 | $9.768 |
| Selling, general and administrative | $11.210 | $13.067 | $25.664 | $24.113 |
| Operating loss | $(18.241) | $(17.174) | $(39.680) | $(33.987) |
| Net loss | $(18.568) | $(17.490) | $(40.326) | $(34.696) |
| Basic and diluted loss per share | $(0.62) | $(0.64) | $(1.41) | $(1.29) |
- Costs of revenue exceeded revenue, implying gross losses of about $1.044 million in Q2 and $2.074 million in the first half of 2016. The filing does not present gross margin as a percentage.
- At June 30, cash and cash equivalents were $95.894 million and short-term investments were $51.759 million, totaling $147.653 million. Working capital was $139.371 million; current liabilities were $10.740 million. No debt is shown on the balance sheet.
- Operating cash use was $31.329 million in the first half, versus $26.445 million a year earlier. Investing activities provided $29.939 million, largely from investment maturities and sales; financing provided $54.060 million.
- A June public offering of 8,222,500 shares at $7.00 per share generated $53.9 million net proceeds. Shares outstanding were 35,560,346 at quarter-end, up from 27,296,747 at year-end 2015.
Material changes versus the prior comparable period
- First-half revenue rose to $0.335 million from $0.045 million, but remained small relative to operating costs. Q2 revenue was $0.189 million; the company recognized revenue for 34 AUGMENT treatments and received biopsies for another 25 patients.
- First-half net loss increased by $5.630 million to $40.326 million. R&D increased, principally from staffing and clinical-study costs; SG&A also rose for the first half, including international growth and intellectual-property expenses.
- Q2 SG&A declined year over year, partly due to lower stock-based compensation and a $1.3 million net compensation reversal following a senior executive’s departure. For the first half, stock-based compensation reversals and prior-year items also affected expense comparisons.
- Cash and short-term investments increased by approximately $21.0 million from December 31, 2015, primarily reflecting the June equity offering, partly offset by operating cash use.
Outlook, commentary, risks and unusual items
- Management stated that $147.7 million of cash, cash equivalents and short-term investments was expected to fund its current operating plan for at least 12 months. It cautioned that this estimate depends on assumptions and capital could be used sooner than expected. The company expected significant expenses and losses to continue for at least several years and anticipated modest revenue growth in the second half of 2016.
- Commercial plans focused on expanding AUGMENT in Canada and Japan. Six Canadian partner clinics were expected to offer the treatment after training; in Japan, a letter of intent allowed limited commercial treatments while a final agreement was being negotiated. Neither a final Japanese agreement nor continued clinic participation was assured.
- The AUGMENT study at IVI Valencia continued enrollment, with an interim analysis planned after data from 60 patients and final data expected in the second half of 2017, subject to changes or discontinuation based on interim results. OvaPrime studies were underway in the UAE and, following IRB approval, planned in Canada; management expected to update its development path by year-end 2016. OvaTure development and regulatory-path work continued.
- Management cited risks including clinical and commercial uncertainty, regulatory requirements, market acceptance, competition, intellectual-property protection and the need for additional financing. Future financing could dilute shareholders or require the company to limit programs or license rights on unfavorable terms.
- A consolidated securities class action concerning the January 2015 offering alleged violations of the Securities Act. The company said it considered the claims without merit and intended to defend them, but could not estimate potential losses; an adverse resolution could materially affect financial position or results.
- The company reported no material changes to previously disclosed risk factors, no off-balance-sheet arrangements, and effective disclosure controls. A hypothetical 100-basis-point interest-rate increase was estimated to reduce investment fair value by approximately $0.2 million.
Important facts for investors to verify
- Confirm the issuer identity: the provided document names OvaScience, Inc., not Tempest Therapeutics, Inc.
- Track AUGMENT treatment volumes, recognized revenue, deferred revenue timing, clinic conversions and the economics of processing treatments.
- Assess clinical evidence and regulatory pathways for AUGMENT, OvaPrime and OvaTure, including the IVI interim analysis and the Japan commercial agreement.
- Monitor operating cash burn against management’s stated 12-month runway and the company’s dependence on future financing.
- Follow the securities litigation, executive departures and any resulting financial or governance developments.