Wave Life Sciences Ltd. — Q1 2020 Form 10-Q
Business context and period: Clinical-stage genetic medicines company developing stereopure oligonucleotide therapies. This unaudited report covers the three months ended March 31, 2020; financial amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $4.2 million | $3.0 million; up $1.1 million |
| Research and development expense | $41.2 million | $40.1 million |
| General and administrative expense | $13.0 million | $10.9 million |
| Operating loss | $50.0 million | $48.0 million |
| Net loss | $47.5 million; $1.38 per share | $44.2 million; $1.36 per share |
| Net cash used in operating activities | $26.3 million | $50.4 million |
- Revenue came from the Pfizer and Takeda collaborations; Wave reported no product revenue. Q1 revenue rose as collaboration research and development services increased.
- Operating expenses were $54.2 million, up $3.1 million year over year. Lower DMD-program spending was more than offset by increased HD, ALS/FTD, platform and other R&D costs, as well as higher G&A.
- Cash and cash equivalents were $120.9 million at quarter-end, versus $147.2 million at December 31, 2019. Including restricted cash, the balance was $124.6 million. Management expected cash and cash equivalents to fund operations for at least the next 12 months.
- Current assets were $149.8 million and current liabilities were $118.9 million. Total liabilities were $209.8 million, including $148.9 million of deferred revenue and operating lease liabilities. The filing does not report borrowings as debt.
- Operating cash use improved year over year, partly reflecting a $20.0 million decrease in accounts receivable. Investing cash use was $0.6 million; financing provided $0.6 million, primarily from at-the-market share sales. Q1 2019 financing included $162.1 million of net proceeds from a public offering.
- No product gross margin was reported; the filing does not provide a clear product-margin measure. The company remained loss-making and had an accumulated deficit of $580.9 million.
Material changes versus the prior comparable period
- Net loss increased $3.3 million, while revenue increased $1.1 million. Other income declined $1.3 million, mainly because of lower dividend income.
- R&D expense increased $1.0 million: DMD spending fell $7.9 million, while HD rose $4.1 million, ALS/FTD rose $1.3 million, and PRISM and other R&D rose $3.6 million.
- Cash used in operations fell by $24.1 million versus Q1 2019. The company also had substantially less financing cash inflow than in that period, when it completed a large follow-on offering.
- Wave issued approximately 60,000 shares through its at-the-market program for $0.6 million net proceeds during the quarter. By May 11, 2020, it reported aggregate proceeds of approximately $3.4 million under the program.
Outlook, commentary and risks
- Wave expected to continue significant R&D and manufacturing spending and recurring operating losses; it stated that substantial additional funding would be needed to achieve its objectives. Additional financing may be unavailable or dilutive.
- Management expected Q2 2020 data from the 32 mg PRECISION-HD1 and PRECISION-HD2 cohorts in the second half of 2020, and expected to initiate clinical development of its mHTT SNP3 and C9orf72 programs in the second half of 2020.
- The FDA required an additional preclinical study and review before Wave could proceed with U.S. multiple-dose portions of the PRECISION-HD trials. U.S. escalation to the highest proposed PRECISION-HD1 doses was also subject to FDA review of additional monitoring plans.
- COVID-19 measures included remote work for most employees and revised laboratory and manufacturing protocols. The company said clinical trials and early-stage discovery could be affected by site access, enrollment, travel, vendor, supply-chain and regulatory disruptions; the extent and duration were uncertain.
- Following discontinuation of suvodirsen and other DMD programs, Wave reduced its workforce by approximately 22%. It recorded a one-time $3.4 million restructuring charge in Q1; $1.3 million remained accrued at March 31, 2020.
- Takeda deferred revenue was $148.7 million, of which $87.8 million was current; the related long-term accounts receivable was $30.0 million. Pfizer deferred revenue allocated to remaining performance obligations was $0.2 million, with about one month of research term remaining at quarter-end. Deferred revenue reflects collaboration obligations, not debt.
- The filing reported no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective as of March 31, 2020.
Important facts for investors to verify
- Whether clinical milestones and planned second-half 2020 data and program starts were achieved, and how COVID-19 affected trial conduct and timelines.
- Whether the additional FDA-required preclinical work and monitoring reviews changed U.S. trial plans.
- Cash use and runway relative to management’s at-least-12-month estimate, including the timing of collaboration funding and any new capital raises.
- Progress and revenue recognition under the Takeda collaboration, and the implications of the Pfizer research term ending shortly after quarter-end.
- Future R&D spending and program priorities following the DMD discontinuations and workforce reduction.