Wave Life Sciences Ltd. — Q3 2018 Form 10-Q
Business context and reporting period. The unaudited quarter and nine months ended September 30, 2018 cover a clinical-stage biotechnology company developing stereopure nucleic acid therapeutics. The company reported no product sales; revenue came from Pfizer and Takeda collaborations.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $4.5 million | $1.3 million | $10.8 million | $2.8 million |
| Research and development expense | $32.9 million | $20.1 million | $94.6 million | $53.9 million |
| General and administrative expense | $9.8 million | $7.6 million | $26.8 million | $20.1 million |
| Operating loss | $38.2 million | $26.4 million | $110.6 million | $71.2 million |
| Net loss | $37.6 million | $25.5 million | $108.8 million | $71.2 million |
| Net loss per ordinary share | $1.28 | $0.92 | $3.78 | $2.73 |
- Q3 revenue was approximately $1.0 million from Pfizer and $3.5 million from Takeda; nine-month revenue was $3.9 million from Pfizer and $6.9 million from Takeda.
- At September 30, cash and cash equivalents were $210.5 million, restricted cash was $3.6 million, and current assets totaled $233.2 million versus current liabilities of $125.8 million. Working capital was approximately $107.4 million.
- Cash, cash equivalents and restricted cash increased by $68.0 million in the nine months. Operating activities provided $10.0 million, investing activities used $6.5 million, and financing activities provided $64.4 million.
- Operating cash flow benefited substantially from collaboration-related deferred revenue: deferred revenue increased $164.2 million, while accounts receivable increased $59.0 million. The cash-flow result should not be read as evidence that ongoing operations were profitable or self-funding.
- Total deferred revenue was $172.7 million, including $103.2 million current. Takeda-related accounts receivable totaled $60.0 million, of which $50.0 million was classified long-term.
- The filing reports no conventional borrowings; the current capital lease obligation was zero. Accumulated deficit was $301.8 million. Total assets were $324.6 million and shareholders’ equity was $106.6 million.
Material changes versus prior period
- Nine-month revenue rose $8.0 million year over year, mainly reflecting the Takeda collaboration, effective April 2018, and increased Pfizer revenue. Operating expenses rose $47.3 million, driven by increased research and development spending and organizational growth; the nine-month net loss widened by $37.6 million.
- Research and development expense increased across HD, DMD, and ALS/FTD programs, with the largest increase in unallocated discovery, platform and development costs.
- Takeda paid $110.0 million upfront under its collaboration and $60.0 million for an equity investment. The company also recorded $60.0 million due from Takeda for committed research funding at quarter-end. Takeda’s collaboration includes further option, milestone and royalty economics, which are not assured.
- ASC 606 was adopted January 1, 2018 using full retrospective application. It changed the timing and presentation of collaboration revenue; prior-year comparatives in this filing are revised, not directly as originally reported. Operating cash flow for the comparative nine months was unchanged by adoption.
Outlook, commentary and risks
- Management expects existing cash and cash equivalents to fund operations for at least the next 12 months, while cautioning that assumptions may prove incorrect. It expects losses and expenses to increase as clinical development, research, and manufacturing capabilities expand; profitability depends on future product revenue that may never materialize.
- Clinical milestones cited include topline PRECISION-HD trial data in the first half of 2019; DMD WVE-210201 safety data anticipated by the end of Q4 2018 and an interim muscle dystrophin analysis in the second half of 2019; and potential ALS/FTD and DMD exon 53 topline data in the second half of 2020, subject to regulatory submissions and approvals. The company expected to announce an ophthalmology candidate in the second half of 2019 and identify an SCA3 candidate by year-end 2018.
- FDA had permitted U.S. single-dose portions of the HD trials but required an additional preclinical study before U.S. multiple-ascending-dose portions could proceed. Escalation to the highest proposed dose in one trial was also subject to FDA review of additional monitoring plans.
- Key risks include clinical or preclinical failure, regulatory delays, manufacturing and execution challenges, intellectual-property protection, competition, and the need for additional capital. Management said there were no material changes to previously disclosed risk factors. The company had no material legal proceedings and reported effective disclosure controls.
- Management’s revenue estimates under ASC 606 require judgment about performance obligations, variable consideration, and the timing of recognition. No royalty revenue had been recognized to date.
Investor facts to verify
- Whether the $60.0 million Takeda receivable was collected as expected, and the timing and conditions for recognizing remaining collaboration deferred revenue.
- Progress against clinical and regulatory milestones, particularly the additional FDA requirement for U.S. HD multiple-dose trials and the stated 2019–2020 data timelines.
- Whether cash burn and planned research, clinical, and manufacturing spending remain consistent with management’s at-least-12-month runway estimate.
- The degree to which reported revenue and operating cash flow depend on collaboration funding and accounting recognition rather than recurring product sales; the company reported no product revenue.
- Potential future dilution and the terms and likelihood of collaboration options, milestones, and any additional financing.