Wave Life Sciences Ltd. — Q2 2017 Form 10-Q
Business context and reporting period: Unaudited results for the three and six months ended June 30, 2017, compared with the same 2016 periods. Wave is a genetic medicines company developing stereopure nucleic acid therapies. Its programs were early-stage; it initiated two Phase 1b/2a Huntington’s disease trials in July 2017. The company had no product sales, and reported revenue came from its Pfizer collaboration.
Financial performance and position
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $0.676m | $0.417m | $1.352m | $0.417m |
| Research and development | $19.103m | $8.401m | $33.843m | $13.137m |
| General and administrative | $6.667m | $3.654m | $12.517m | $6.870m |
| Operating loss | $(25.094)m | $(11.638)m | $(45.008)m | $(19.590)m |
| Net loss | $(24.693)m | $(11.565)m | $(45.689)m | $(19.412)m |
| Net loss per share | $(0.92) | $(0.51) | $(1.81) | $(0.88) |
Revenue was entirely collaboration revenue; product revenue and product margins were not reported. No gross margin was presented. For the first half, operating cash use was $37.506m, investing cash use was $9.207m, and financing provided $93.726m. Cash and cash equivalents increased to $197.394m from $150.293m at year-end 2016. Restricted cash was $3.606m.
At June 30, 2017, total assets were $226.432m and current assets were $201.224m, versus current liabilities of $15.555m. Total liabilities were $29.646m; the filing reports only small capital lease obligations ($0.047m current and none long-term), not material conventional borrowings. Deferred revenue was $9.664m. Accumulated deficit was $136.166m.
Changes versus prior comparable periods
- First-half revenue rose to $1.352m from $0.417m, reflecting recognition under the Pfizer collaboration.
- First-half R&D expense increased $20.706m, driven by DMD development (+$6.044m), Huntington’s programs (+$1.335m), and other discovery/platform spending (+$13.327m).
- First-half G&A expense increased $5.647m, primarily from higher compensation, facility, and general operating costs.
- First-half net loss widened by $26.277m. Share-based compensation rose to $5.966m from $2.136m.
- Capital spending increased: property and equipment purchases were $9.202m in the first half of 2017 versus $1.563m a year earlier.
Outlook, collaboration, and risks
- Management expected cash resources at June 30, together with anticipated Pfizer milestone payments, to fund operating and capital needs into mid-2019. This estimate depends on assumptions that may prove incorrect; additional financing may be needed sooner.
- Wave raised $100.0m gross, or $93.5m net, through an April 2017 follow-on offering. Approximately $400m remained available under its $500m shelf registration statement. Proceeds were intended to advance lead programs and other candidates, expand internal cGMP manufacturing capacity, support the platform, and fund general corporate purposes.
- Under the four-year Pfizer collaboration, Wave could receive up to $871m in research, development, and commercial milestones across as many as five programs, plus tiered royalties. These are contingent on program progress, Pfizer options, and potential commercialization; they are not assured. Pfizer could nominate two further targets by November 5, 2017.
- Management expected R&D and G&A expenses to increase as clinical development, discovery, staffing, and manufacturing capabilities expand. It targeted DMD clinical development in the second half of 2017 and ALS/FTD clinical development in late 2018, and aimed to initiate six development programs by the end of 2018.
- Key risks include clinical failure or delay, patient enrollment and screening challenges, manufacturing scale-up and quality, dependence on third-party research and manufacturing providers, regulatory and intellectual-property risks, competition, and the need for additional capital. The company had never been profitable and did not expect product revenue in the foreseeable future.
- The company recorded a $1.321m first-half income tax provision, mainly from U.S. income under intercompany service arrangements; it recognized no tax benefits for losses in several jurisdictions because realization was uncertain. Management reported effective disclosure controls and no material legal proceedings or off-balance-sheet arrangements.
Important facts for investors to verify
- Clinical-trial progress, safety, enrollment, and data for PRECISION-HD1 and PRECISION-HD2, and whether DMD development began as planned.
- Actual cash burn, capital spending, and runway versus the mid-2019 estimate; timing and likelihood of any Pfizer milestone payments.
- Progress on Pfizer target nominations and program options, and the terms and accounting of collaboration revenue and deferred revenue.
- Manufacturing-facility build-out, cGMP readiness, and the costs and execution risks of scaling production.
- Need, timing, and potential dilution or other terms of further financing; the filing stated additional funding might not be available on acceptable terms.