Viridian Therapeutics, Inc. annual report, FY2016

Business context and reporting period

Issuer clarification: The supplied filing is Signal Genetics, Inc.’s Form 10-K for the fiscal year ended December 31, 2016, filed March 24, 2017. Signal completed its merger with privately held Miragen Therapeutics, Inc. on February 13, 2017, then changed its name to Miragen Therapeutics, Inc. and its ticker to MGEN. It is not a filing by Viridian Therapeutics, Inc.

The audited 2016 and 2015 financial statements are for Signal and its subsidiary before the merger, not for the combined company. Signal’s former MyPRS diagnostic business was sold to Quest Diagnostics on February 13, 2017; the post-merger business is a clinical-stage microRNA therapeutics company. Accordingly, historical Signal revenue and costs are not indicative of the new company’s expected operations.

Financial results and liquidity

At December 31, 2016, current liabilities were $4.585 million, including a $1.045 million related-party note and $3.377 million of accrued liabilities; stockholders’ equity was negative $0.326 million. Management reported a $0.3 million working-capital deficit. No product-sales revenue was reported; 2016 revenue came from the diagnostic business.

Material changes versus the prior period

• Revenue grew 31% year over year, while billed tests declined 10%. Growth came mainly from clinical-patient and direct-billed customers; research testing revenue fell 81%, largely because UAMS had less funding available.
• Cost of revenue was 76% of revenue, versus 97% in 2015, improving gross margin. Management attributed revenue growth partly to higher test volumes and improved collection-based estimates for non-contracted payors.
• Operating loss increased by $1.321 million. 2016 included $2.037 million in exit costs and $0.797 million in asset impairments related to winding down Signal’s lab and corporate operations.
• Cash declined by $7.491 million. Operating cash use was partly offset by higher accrued liabilities; 2015 financing had included $13.095 million of net stock-issuance proceeds, while 2016 financing provided no comparable proceeds.
• Revenue estimates included a favorable $239,000 adjustment for prior-year non-contracted revenue in 2016; 2015 included a $193,000 unfavorable adjustment.

Outlook, management commentary, risks and unusual items

Signal sold the MyPRS assets to Quest for $825,000, plus $100,000 for extending lab operations beyond year-end and $21,000 of reimbursement. Signal expected to use about $1.8 million of cash in the first quarter of 2017 for remaining severance, retention and contract-termination costs. The related-party note converted into 279,067 common shares at the merger closing.

The post-merger company reported a concurrent financing of approximately $40.7 million. Management stated that Private Miragen’s December 2016 cash, the financing and the amended Silicon Valley Bank facility were expected to fund operations through at least March 31, 2018. The facility included a $5 million tranche funded in 2015 and a further tranche of up to $5 million, subject to specified conditions, including mechanistic proof-of-concept for MRG-106. This post-merger liquidity outlook is distinct from Signal’s audited year-end cash balance.

Miragen’s lead candidates, MRG-106 (miR-155 inhibitor for blood cancers) and MRG-201 (miR-29 replacement for fibrosis), were in Phase 1 trials. The filing described preliminary safety, biomarker and exploratory response observations, based on small early-stage cohorts; these are not proof of efficacy. Management anticipated continued development and significant losses, and stated that additional capital would be required over time. No quantitative revenue or earnings guidance was provided.

• Key risks include clinical and regulatory uncertainty for a novel technology with no approved microRNA therapeutics, delivery and manufacturing challenges, adverse events, patient-enrollment delays, reliance on third-party manufacturers and collaborators, and future financing needs.
• Commercial success would also depend on intellectual-property protection, competition, market acceptance, pricing and reimbursement. The filing noted potential ownership-change limits on tax attributes.
• Signal had no material legal proceeding identified and disclosed no material commitments beyond recorded liabilities. Its auditor issued an unqualified opinion; management concluded disclosure controls and internal control over financial reporting were effective at year-end.

Most important facts for investors to verify

• Confirm issuer identity and transaction scope: the 2016 audited financials are Signal’s pre-merger results, not Viridian’s or the combined Miragen company’s.
• Reconcile post-merger cash, financing proceeds, debt outstanding and the stated March 31, 2018 runway against subsequent filings; the 10-K’s audited Signal cash was only $3.341 million at December 31, 2016.
• Track remaining wind-down costs, final Quest consideration and any continuing liabilities associated with the former MyPRS business.
• Assess updated trial enrollment, safety, dose selection and clinically meaningful efficacy data for MRG-106 and MRG-201; distinguish exploratory Phase 1 results from confirmed benefit.
• Review the conditions and availability of the undrawn SVB tranche, future capital requirements, and any dilution or restrictions from financing.