Wave Life Sciences, Inc. (Wave Life Sciences Ltd.) — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports unaudited fourth-quarter results. Wave is a Singapore-incorporated, preclinical biopharmaceutical company developing stereopure nucleic acid therapeutics; it had no product sales and no candidates in clinical development during the period.
Financial performance and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $0.152 million | None |
| Research and development expense | $9.057 million | $2.395 million |
| General and administrative expense | $10.393 million | $2.999 million |
| Total operating expenses | $19.450 million | $5.394 million |
| Net loss | $19.200 million | $5.229 million |
| Net loss per share, basic and diluted | $1.83 | $1.34 |
| Cash from operating activities | $(12.527) million | $(4.426) million |
Fourth-quarter 2015 revenue was zero, operating expenses were $7.214 million, net loss was $7.099 million, and basic and diluted loss per share was $0.46. In fourth-quarter 2014, operating expenses were $1.780 million and net loss was $1.749 million, with no revenue.
At year-end, cash was $161.220 million, restricted cash was $1.055 million, working capital was $157.566 million, total assets were $165.424 million and total liabilities were $4.059 million. The company reported a $0.140 million capital lease obligation and no material off-balance-sheet arrangements. Revenue consisted of a $0.152 million payment for research services under an agreement terminated in May 2015; there was no product revenue. Operating margins are not meaningful for this pre-revenue, loss-making business.
Financing activities provided $175.593 million in 2015, including approximately $100.4 million of net IPO proceeds, $62.5 million from Series B preferred shares and $11.6 million from ordinary-share issuance. Management expected year-end cash resources to fund operations and capital expenditures well into 2018, subject to assumptions that could prove incorrect.
Material changes versus the prior period
- Net loss increased by $13.971 million year over year as operating expenses rose by $14.056 million.
- R&D expense increased $6.662 million, reflecting expanded platform work, staffing and preclinical programs. G&A rose $7.394 million, driven in part by IPO-related legal and accounting fees, compensation and headcount.
- Cash increased from $1.048 million to $161.220 million, principally due to the IPO and other 2015 equity financing.
- The company completed its IPO in November 2015; its ordinary shares began trading on Nasdaq in November under WVE.
Business outlook, risks and unusual items
- Management planned to file INDs for Huntington’s disease HTT SNP-1 and HTT SNP-2 programs in late 2016, and for the DMD Exon 51 program in early 2017. It expected candidate selection for HTT SNP-2 in early 2016 and SMAD7 in late 2016; these are forward-looking plans, not completed milestones.
- Additional discovery programs target EBS KRT14 SNP-1/SNP-2 and DMD AcRIIb. Management also cited approximately 25 potential additional indications for the platform.
- The company’s central technology thesis is that controlling oligonucleotide stereochemistry may improve pharmacology. Supporting results described in the filing are preclinical; the company cautioned that favorable laboratory or animal results may not translate to humans.
- Wave expected substantial increases in R&D and public-company costs and stated it would need additional financing to achieve longer-term objectives. It had no committed external funding source and warned that financing might be unavailable or require dilution, debt restrictions or partnering concessions.
- Principal risks include preclinical and clinical failure, regulatory uncertainty for nucleic acid therapies, competition, intellectual-property challenges, dependence on third-party research and manufacturing, and the possibility of never achieving profitability.
- Disclosure controls were deemed ineffective at year-end, and management and its auditor identified a material weakness involving review and approval of manual journal entries and supporting calculations. Remediation had begun but was not complete.
- Unusual or notable commitments include $9.267 million of operating lease commitments, $0.140 million of capital lease obligations and up to $1.575 million in contingent license milestones. A lease guarantee had a stated maximum exposure of $0.600 million, subject to an indemnity from the sublessee.
- The filing reports no material legal proceedings. It also identifies foreign-currency exposure, Singapore-law shareholder and enforcement considerations, and potential U.S. PFIC tax consequences.
Most important facts for investors to verify
- Whether the stated cash runway and planned financing needs remain consistent with actual spending and subsequent funding.
- Progress against the IND-enabling, candidate-selection and IND-filing timelines, and whether subsequent evidence supports the preclinical efficacy and safety claims.
- Whether the manual-journal-entry control weakness was remediated and whether later filings report effective disclosure and financial controls.
- The status, scope and enforceability of key patents and licenses, and any subsequent changes to collaboration, manufacturing or milestone obligations.
- Potential dilution from equity compensation or future financings, and the implications of the filing’s reported concentration of ownership.