Wave Life Sciences Ltd. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017; financial statements are unaudited. Wave is a pre-commercial biotechnology company developing stereopure nucleic acid therapeutics for genetically defined diseases. All amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0.7m | $0.4m | $2.0m | $0.8m |
| Research and development | $20.1m | $13.7m | $53.9m | $26.8m |
| General and administrative | $7.6m | $3.9m | $20.1m | $10.8m |
| Operating loss | $(27.0)m | $(17.2)m | $(72.0)m | $(36.8)m |
| Net loss | $(26.1)m | $(17.5)m | $(71.8)m | $(36.9)m |
| Net loss per ordinary share | $(0.94) | $(0.75) | $(2.75) | $(1.64) |
| Operating cash flow | Not presented quarterly | $(60.9)m | $(18.6)m |
- All reported revenue came from the Pfizer collaboration; Wave reported no product revenue. The filing does not provide a clear gross margin, and the business remains loss-making.
- At September 30, cash and cash equivalents were $168.5m, versus $150.3m at December 31, 2016; restricted cash was $3.6m. Total assets were $202.1m and total liabilities $28.4m.
- Nine-month investing cash outflow was $14.8m, primarily property and equipment purchases, compared with $2.8m in 2016. Financing provided $93.8m, mainly from the April 2017 follow-on offering, which generated $93.5m net proceeds.
- No material borrowing balance is reported; capital lease obligations were $31,000 current and nil long-term. Liabilities also included $9.0m deferred revenue and lease-related obligations.
Changes versus the prior comparable period
- Nine-month revenue rose to $2.0m from $0.8m, reflecting a full nine months of Pfizer collaboration revenue in 2017 versus five months in 2016, as well as the third target nomination.
- Nine-month R&D expense approximately doubled, increasing $27.1m. The largest increases were other discovery and platform costs (+$17.5m) and DMD program costs (+$9.2m). G&A rose $9.3m, mainly with increased headcount, facility costs, and other operating expenses.
- Nine-month net loss widened by $34.9m. Operating cash use increased by $42.3m year over year; 2016 operating cash flow had benefited from a $11.7m increase in deferred revenue tied to Pfizer upfront payments.
- Property and equipment, net, increased to $24.6m from $8.6m, principally reflecting investment in the Lexington facility. The company began occupying its new 90,000-square-foot manufacturing, laboratory, and office facility in July 2017.
Outlook, management commentary, and risks
- Management estimated that cash resources at September 30, together with anticipated Pfizer milestone payments, would fund operating expenses and capital requirements into mid-2019. This is an estimate based on assumptions that may prove incorrect. The company had no committed external funding source other than possible future Pfizer milestone payments.
- Management expects expenses and operating losses to increase as clinical trials, research, and internal cGMP manufacturing capabilities expand. No formal revenue or earnings guidance was provided.
- Clinical programs included two Phase 1b/2a HD trials initiated in July 2017. The exon 51 DMD Phase 1 trial began in November 2017, after quarter-end. Management expected to initiate ALS/FTD clinical development in Q4 2018 and reported that an exon 53 DMD program was expected to begin clinical trials in Q1 2019.
- Pfizer could select up to five hepatic targets and may elect to license programs after clinical-candidate selection. On November 5, 2017, after quarter-end, the parties extended Pfizer’s period to nominate the two remaining targets to May 5, 2018. Potential collaboration payments are contingent; the agreement provides for up to $871m in research, development, and commercial milestones if five products are successfully developed and commercialized, plus royalties.
- Key risks include clinical and regulatory uncertainty, substantial continuing cash requirements, possible inability to obtain further financing on acceptable terms, competition, and intellectual-property protection. Additional equity financing could dilute shareholders. Management reported no material changes to previously disclosed risk factors, no material legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- Whether clinical-trial progress and data support the stated program timelines and continued development.
- Whether cash burn, facility spending, and actual Pfizer milestone receipts support the projected mid-2019 funding runway.
- Pfizer’s remaining target nominations, any program option exercises, and the timing and conditions of potential milestone or royalty payments.
- The effects of the new manufacturing facility, rising operating costs, and potential future financing on cash needs and shareholder dilution.