Wave Life Sciences Ltd. — FY2016 Form 10-K
Reporting period: Fiscal year ended December 31, 2016; filed March 16, 2017. This is an annual report, with unaudited fourth-quarter results also disclosed. Wave is a Singapore-incorporated, pre-revenue genetic medicines company developing stereopure oligonucleotide therapeutics. Its programs remained preclinical at year-end.
Financial performance and liquidity
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $1.5 million | $0.2 million |
| Research and development expense | $40.8 million | $9.1 million |
| General and administrative expense | $16.0 million | $10.4 million |
| Operating loss | $55.3 million | $19.3 million |
| Net loss | $55.4 million | $19.2 million |
| Basic and diluted loss per share | $2.43 | $1.83 |
| Cash used in operating activities | $31.9 million | $12.5 million |
2016 revenue arose from the Pfizer collaboration; the company reported no product revenue. Losses widened as research and development, staffing, platform investment and facility-related spending increased. Profitability and conventional profit margins are not meaningful at this stage.
At December 31, 2016, cash and cash equivalents were $150.3 million, restricted cash was $3.6 million, and working capital was $139.8 million. Total liabilities were $22.1 million, including $11.0 million of deferred revenue and $78,000 of capital lease obligations. The company disclosed $58.0 million of operating lease commitments, including its new manufacturing facility; these are contractual lease obligations, not debt. Management estimated available resources and anticipated collaboration milestones would fund operating and capital needs into 2019, subject to assumptions.
Investing activities used $8.2 million, primarily for property and equipment and restricted cash. Financing activities provided $29.1 million, primarily from Pfizer’s $30.0 million equity investment. Cash declined by $10.9 million during the year. The Pfizer agreement also provided a $10.0 million upfront license fee; potential future milestones of up to $871.0 million and tiered royalties depend on target options and successful development and commercialization.
Material changes and quarterly results
- Revenue increased to $1.5 million from $0.2 million, but remained small relative to operating costs.
- R&D expense rose $31.8 million year over year. General and administrative expense rose $5.6 million. Net loss increased by $36.2 million.
- Unaudited Q4 2016 revenue was $676,000; operating expenses were $19.2 million; net loss was $18.5 million; and loss per share was $0.79. The quarter’s net loss was the largest of the four reported quarters in 2016.
- Property and equipment increased to $8.6 million from $2.8 million, reflecting facility and equipment investment. Restricted cash rose to $3.6 million, mainly for lease letters of credit.
Business outlook, commentary and risks
- Wave planned to begin clinical development of two Huntington’s disease candidates, WVE-120101 and WVE-120102, in mid-2017, and its exon-51 Duchenne muscular dystrophy candidate, WVE-210201, in the second half of 2017. These were plans, not clinical results; the candidates had not yet entered clinical trials.
- Management aimed to select three additional development candidates by the end of 2017 and reach six wholly owned programs by the end of 2018. It planned to occupy a roughly 90,000-square-foot Lexington, Massachusetts facility by late Q2 2017 to build internal cGMP manufacturing capacity.
- The company’s claims of improved potency, stability, selectivity and safety for stereopure compounds are based on preclinical studies. Wave cautioned that these findings may not translate to humans.
- Key risks include clinical, regulatory and manufacturing failure or delay; uncertainty about the novel platform and regulatory pathway; need for substantial future funding; competition and intellectual-property challenges; and reliance on collaborators and contract manufacturers. The pipeline had no approved products and no product sales.
- Wave said its existing resources were expected to fund operations into 2019, but additional capital might be required sooner. A $500 million shelf registration statement became effective in February 2017; it permits, but does not require, future securities offerings and could enable shareholder dilution.
- The company reported no material legal proceedings. Management stated that a previously identified material weakness in journal-entry controls had been remediated by December 31, 2016; disclosure controls were deemed effective. The auditor did not provide an internal-control attestation because Wave was an emerging growth company.
Important facts for investors to verify
- Whether the planned HD and DMD trials began on schedule, and what clinical safety, tolerability and target-engagement data show.
- How much cash remains, the actual spending rate and whether the stated runway still holds after trial and manufacturing costs.
- Pfizer’s target nominations, option decisions, milestone conditions and the timing and accounting of collaboration revenue.
- Progress, cost and capacity of the Lexington facility buildout and internal cGMP manufacturing qualification.
- Whether preclinical advantages and patent protections support differentiated products, and whether future financing or share-based compensation materially dilutes shareholders.