Werewolf Therapeutics, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The unaudited statements are consolidated. Werewolf is a clinical-stage oncology biopharmaceutical company developing conditionally activated INDUKINE therapeutics using its PREDATOR platform. It has no approved products and no product-sale revenue.
Financial position and results
| Metric | Q3 2023 / September 30, 2023 | Comparable period / prior year-end |
|---|---|---|
| Collaboration revenue | $5.9 million | $5.0 million in Q3 2022 |
| Operating expenses | $15.1 million | $17.5 million in Q3 2022 |
| Operating loss | $9.3 million | $12.5 million in Q3 2022 |
| Net loss | $8.3 million; $0.23 per share | $11.9 million; $0.40 per share in Q3 2022 |
| Cash and cash equivalents | $130.1 million | $129.3 million at December 31, 2022 |
| Restricted cash and cash equivalents | $21.2 million | $1.2 million at December 31, 2022 |
| Total assets | $176.4 million | $160.2 million at December 31, 2022 |
| Total liabilities | $63.9 million | $37.9 million at December 31, 2022 |
| Accumulated deficit / stockholders’ equity | $332.1 million deficit / $112.4 million equity | $306.7 million deficit / $122.3 million equity at December 31, 2022 |
For the nine months ended September 30, collaboration revenue was $18.4 million (versus $9.1 million in 2022), operating expenses were $46.0 million (versus $52.0 million), operating loss was $27.5 million (versus $42.9 million), and net loss was $25.4 million (versus $41.9 million). Basic and diluted net loss per share was $0.72, compared with $1.48 in 2022. Gross margin is not a meaningful indicator here because the company reports collaboration revenue and no product sales.
Nine-month operating cash use was $28.0 million, compared with $28.7 million in 2022; investing cash use was $0.6 million, versus $3.1 million. Financing provided $49.4 million, including $40.0 million of term-loan proceeds and $9.4 million net proceeds from the at-the-market stock offering. Cash, cash equivalents and restricted cash rose by $20.8 million to $151.3 million. The $20.0 million loan-related minimum cash balance is restricted and should not be treated as freely available liquidity.
Material changes and financing
- Q3 R&D expense fell $2.2 million year over year, primarily because manufacturing costs were lower after prior-period preparation for clinical trials and an IND submission. Higher clinical-trial costs partly offset the decrease. Nine-month R&D fell $5.8 million, largely from lower manufacturing costs, partly offset by increased clinical-trial, laboratory and personnel costs.
- Higher collaboration revenue reflected a $5.0 million Jazz variable-consideration payment. The company recognized a $4.2 million cumulative revenue catch-up associated with the transaction-price increase. Nine-month revenue also benefited from reimbursed research activity. Deferred revenue was $2.4 million at September 30, down from $7.7 million at year-end 2022.
- Werewolf drew the full $40.0 million term-loan facility in March 2023. Principal outstanding was $40.0 million at September 30 (net carrying amount $39.2 million). The floating rate is the greater of 0.5% above prime or 4.5%; interest-only payments continue through August 31, 2024, followed by principal amortization, with maturity on August 31, 2026. The debt is secured by personal property, excludes intellectual property, and includes restrictive covenants and a $20.0 million minimum-cash requirement.
- In April 2023, the company met the loan’s $50.0 million funding milestone, extending the amortization date and triggering payment of a $1.6 million success fee. A $1.0 million fair-value loss on the success-payment liability contributed to nine-month other expense.
- Common shares outstanding were 35.7 million at September 30, up from 31.4 million at December 31, 2022; additional ATM issuance and equity compensation contributed to dilution. Shares outstanding were 36.2 million as of November 10, 2023.
Outlook, pipeline and risks
- Management stated that cash and cash equivalents should fund operating expenses and capital needs for at least 12 months from the November 14, 2023 issuance date. The filing also says existing cash is not sufficient to complete development of WTX-124, WTX-330 or other candidates; further funding will be needed. Future financing may involve equity or debt, collaborations, strategic alliances or licensing.
- WTX-124 is in a Phase 1/1b trial as monotherapy and with pembrolizumab; WTX-330 is in a Phase 1 trial. The filing reports that preliminary WTX-124 monotherapy data announced in November 2023 included 16 heavily pretreated patients, with data through October 18, 2023, and supported continued dose escalation. Management expected further interim monotherapy data and a recommended dose for expansion in the first half of 2024. These preliminary findings are not final clinical results.
- Jazz received FDA IND clearance for JZP898 in July 2023. Werewolf remains eligible for development and regulatory milestones of up to $520 million, sales-based milestones of up to $740 million, and tiered mid-single-digit royalties; these are contingent and not guaranteed. No royalty payments had been received by September 30.
- Management expects substantial ongoing losses and R&D spending. Key risks include clinical and regulatory uncertainty, patient enrollment, manufacturing and third-party supply dependence, competition, reliance on the Jazz collaboration, and the need for additional capital. Management’s cash-runway estimate depends on assumptions and could prove shorter.
- Disclosure controls and internal control over financial reporting were deemed ineffective at September 30 because of a material weakness in purchasing controls, including invoice-to-purchase-order matching and estimates of progress and expenses on open purchase orders. Remediation and testing were underway; management expected efforts to continue through at least Q4 2023. The filing reported no restatement from the weakness.
Important facts for investors to verify
- Whether the stated cash runway remains valid after accounting for trial pace, manufacturing commitments, restricted cash and the loan’s covenants and repayment schedule.
- Subsequent WTX-124 and WTX-330 trial updates, including safety, efficacy, enrollment, dose-escalation progress and the timing of expansion cohorts; distinguish preliminary data from complete, verified results.
- Jazz collaboration progress and the timing and conditions for any further milestones, cost reimbursements or royalties.
- Availability and terms of future financing, including potential dilution, and compliance with the loan’s cash-maintenance and other covenants.
- Whether the purchasing-control material weakness was fully remediated and independently tested after the filing date.