Replimune Group, Inc. — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2018. Financial statements are unaudited. Replimune is a clinical-stage biotechnology company developing oncolytic immunotherapies; it had no approved products and no product-sales revenue.
Financial performance and position
| Metric | Three months ended Dec. 31, 2018 | Nine months ended Dec. 31, 2018 |
|---|---|---|
| Revenue from product sales | None | None |
| Research and development expense | $7.9 million | $16.8 million |
| General and administrative expense | $2.3 million | $6.4 million |
| Total operating expenses | $10.1 million | $23.1 million |
| Net loss | $7.7 million | $24.2 million |
| Net loss per share, basic and diluted | $0.24 | $1.18 |
- Cash and liquidity: At December 31, cash and cash equivalents were $21.1 million and short-term investments were $120.8 million, totaling $141.8 million. Current assets were $144.9 million versus current liabilities of $3.8 million.
- Cash flow: For the nine months, operating activities used $19.3 million; investing activities used $76.4 million, primarily reflecting purchases of short-term investments; financing activities provided $101.3 million, principally from the IPO. Cash, cash equivalents and restricted cash increased by $4.6 million to $22.2 million.
- Debt and obligations: The company reported no debt outstanding. It recorded $5.0 million of lease liabilities. Future minimum operating lease payments totaled $28.3 million, and manufacturing commitments were $5.4 million through December 2019.
- Margins: Not meaningful because the company had no product revenue. It expects continued operating losses.
Changes versus the prior comparable period
- Third-quarter operating expenses rose $5.4 million year over year; R&D increased $4.3 million, mainly from RP1 clinical-trial activity, staffing and supplies. G&A increased $1.1 million, including public-company, personnel and facility costs.
- Third-quarter net loss increased from $4.4 million to $7.7 million. For the nine months, net loss increased from $12.9 million to $24.2 million, reflecting higher operating costs and a $5.5 million noncash warrant-liability fair-value charge. The warrant liability was reclassified to equity upon the IPO.
- The July 2018 IPO raised approximately $103.3 million in net proceeds before separately reported offering-cost payments; preferred stock converted into common stock. Common shares outstanding were 31.6 million at December 31 and 31.6 million as of February 12, 2019.
- Property and equipment increased to $6.1 million from $0.4 million, largely due to construction-in-progress for the planned Framingham facility.
Outlook, commentary and risks
- Management planned a randomized, controlled Phase 2 trial of RP1 plus cemiplimab versus cemiplimab alone in approximately 240 patients with cutaneous squamous cell carcinoma, and an RP2 clinical-trial start, both targeted for the first half of 2019. RP1 was already in a Phase 1/2 trial. The filing reports no clinical results for its candidates.
- The company expects increasing R&D and public-company costs and anticipates about $28 million in capital expenditures to establish its own manufacturing facility. Construction completion was then expected in September 2019.
- Runway disclosures differ: the financial-statement discussion says existing cash and investments should fund operations and capital needs for at least 12 months from February 14, 2019; a risk-factor passage estimates funding into the second half of 2021, based on assumptions. Management cautions that estimates may prove wrong and additional capital will be needed to meet longer-term objectives.
- Key risks include clinical-trial failure or delay, regulatory approval, patient enrollment, reliance on a single contract manufacturer and third-party checkpoint-inhibitor supply, facility execution, competition, intellectual-property protection, and the need for future financing. RP1 adverse events reported to date were mainly injection-site reactions and constitutional symptoms such as fatigue, fever and chills.
- Disclosure controls were deemed ineffective due to material weaknesses in staffing/segregation of duties and formal controls for complex accounting. The company hired a finance director and enhanced review procedures during the quarter; management said the financial statements fairly present the company’s position and results.
- The company reported no material litigation and no off-balance-sheet arrangements. It had no debt and no cash dividends declared or paid.
Important facts for investors to verify
- Clarify the assumptions behind the differing cash-runway estimates and expected timing and amount of additional financing.
- Track RP1 and RP2 trial initiation, enrollment, safety and efficacy updates, including access to partner-supplied checkpoint inhibitors.
- Monitor construction, capital spending and operational readiness of the planned manufacturing facility, as well as contract-manufacturing commitments.
- Assess remediation of the disclosed material weaknesses and whether disclosure controls become effective.
- Review dilution and potential share-sale overhang: the filing said up to approximately 24.1 million shares became eligible for public sale after lock-up agreements expired on January 15, 2019.