Wave Life Sciences Ltd. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Amounts below are in U.S. dollars; financial statement figures are unaudited. Wave is a clinical-stage genetic medicines company with no product sales to date; reported revenue comes from collaborations.
Financial performance and position
- Q2 revenue: $3.0 million, down from $7.6 million in Q2 2019. The decline mainly reflected lower Pfizer collaboration revenue as its research term ended in May 2020.
- Q2 operating expenses and loss: Operating expenses were $41.7 million versus $53.2 million; operating loss was $38.7 million versus $45.6 million. Net loss was $40.5 million, compared with $41.9 million. Basic and diluted loss per share was $1.15 versus $1.22.
- First-half revenue and loss: Revenue was $7.2 million versus $10.7 million. Operating expenses were $95.8 million versus $104.3 million, while net loss widened to $88.0 million from $86.1 million. Loss per share improved to $2.53 from $2.58.
- Margins: The filing does not present gross profit or gross margin; the company has no product revenue.
- Cash flow, first half: Cash used in operations was $64.4 million, down from $83.3 million in the prior-year period. Investing used $0.7 million; financing provided $12.0 million, primarily from at-the-market (ATM) share sales. Cash, cash equivalents and restricted cash fell $53.1 million to $97.7 million.
- Liquidity at June 30: Cash and cash equivalents were $94.1 million; current assets were $146.8 million and current liabilities $110.5 million, implying working capital of about $36.4 million. The company said cash, together with expected and committed cash from existing collaborations, was expected to fund operations for at least 12 months, subject to assumptions.
- Debt and liabilities: The balance sheet reports no borrowings; it includes operating lease liabilities of $31.0 million and deferred revenue of $145.9 million. Deferred revenue is collaboration-related, not identified as debt. Total liabilities were $200.6 million. Shareholders’ equity was negative $4.5 million, and accumulated deficit was $621.4 million.
Material changes and notable items
- Research and development expense declined 24% in Q2 to $31.5 million and 11% in the first half to $72.6 million. Lower DMD spending after the suvodirsen program was discontinued was partly offset by increased spending on Huntington’s disease and ALS/FTD programs.
- Wave reduced its workforce by approximately 22% under a February 2020 cost-reduction plan. It recorded a one-time restructuring charge of about $3.4 million for the first half; $0.6 million remained payable at June 30.
- General and administrative expense was $10.2 million in Q2, down from $11.6 million; for the first half it increased to $23.2 million from $22.5 million, partly due to severance and related costs.
- Wave reduced its estimate of UK refundable tax credits following an HMRC audit. The notes report a $2.5 million reduction in the receivable and other expense for 2017–2019; MD&A describes a $3.1 million decrease in income relating to periods through Q1 2020, partly offset by current-period credit income.
- The Pfizer collaboration’s four-year research term ended in May 2020. Takeda accounted for $2.8 million of Q2 revenue and $5.7 million for the first half. At June 30, $146.0 million of Takeda transaction price remained allocated to unsatisfied or partially unsatisfied obligations, including $84.9 million current; $30.0 million was in accounts receivable.
- Wave raised $12.0 million net through its ATM program in the first half. By August 9, it had sold about 2.05 million shares for $20.7 million gross proceeds. Ordinary shares outstanding were 35.7 million at June 30 and 36.5 million as of August 1.
Outlook, commentary and risks
- Management expected to continue significant R&D and manufacturing spending and operating losses; profitability depends on future product revenue, which the company does not expect in the near term and may never achieve.
- Wave expected to report PRECISION-HD1 and higher-dose PRECISION-HD2 data, and open-label extension data, in Q1 2021. It expected to submit clinical trial applications for its mHTT SNP3 and C9orf72 programs in Q4 2020.
- The FDA required an additional preclinical study and review before U.S. multiple-dose escalation in the PRECISION-HD trials. U.S. escalation to the highest proposed single-dose levels was also subject to FDA review of additional monitoring plans.
- COVID-19 had affected some early discovery work and clinical trials; restrictions at trial sites could further affect patient evaluation and timing. Wave had implemented work-from-home and facility protocols and was monitoring research, trial and supply-chain impacts.
- Management cautioned that its 12-month liquidity estimate relies on assumptions that may prove wrong. Additional capital may be needed; financing could be unavailable or dilutive. Clinical, regulatory, manufacturing, intellectual-property and collaboration risks remain significant.
- The filing reports no material legal proceedings, no material off-balance-sheet arrangements, and no material change to previously disclosed risk factors. Management concluded disclosure controls were effective as of June 30, 2020.
Investor facts to verify
- Whether collaboration cash receipts, including Takeda funding and the $30.0 million receivable, arrive on schedule and support the stated runway.
- How the end of Pfizer’s research term affects future collaboration revenue and the programs’ next steps.
- Clinical-trial progress, FDA requirements, COVID-19-related delays, and the timing and results of the planned studies and filings.
- The final amount and collection timing of UK refundable tax credits after the HMRC audit.
- Future cash burn, restructuring savings, and potential dilution from further ATM or other financing.