REGENXBIO Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Financial amounts below are in U.S. dollars; figures are rounded to millions unless stated otherwise.
Business context
REGENXBIO is a clinical-stage gene-therapy company that develops its own candidates and licenses its NAV AAV-vector platform to partners. At quarter-end, nine licensees were developing more than 20 partnered candidates. The company had no revenue from commercial sales of its own products; license and royalty revenue came from platform agreements, including royalties on Zolgensma, approved by the FDA in May 2019 and launched commercially in Q2.
Financial results and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $7.9m | $40.0m | $8.8m | $172.4m |
| Operating expenses | $44.8m | $33.7m | $81.5m | $64.0m |
| Operating income (loss) | ($36.9m) | $6.4m | ($72.8m) | $108.4m |
| Net income (loss) | ($1.5m) | $10.6m | ($33.7m) | $114.8m |
| Operating cash flow | Not separately provided | Not separately provided | ($53.0m) | $128.3m |
- Q2 investment income was $34.5m, including a $31.7m unrealized gain on Prevail Therapeutics shares after its IPO. The shares were subject to a sale lock-up through December 2019; the gain was not cash proceeds.
- At June 30, cash, cash equivalents and marketable securities totaled $449.7m. Cash and cash equivalents alone were $55.1m; marketable securities were $394.5m.
- Total liabilities were $34.5m, with no borrowings reported. Operating lease liabilities were $6.9m. The filing also estimates $105.8m of future minimum lease payments, including leases not yet commenced.
- Management said available cash, cash equivalents and marketable securities were expected to fund operations and capital requirements for at least 12 months from the report date. It also expects continuing losses and says additional capital will be needed to achieve its objectives.
Material changes versus the prior comparable period
- Revenue fell sharply year over year because 2018 included substantial non-recurring AveXis/Novartis-related license revenue: $40.0m in Q2 and $172.1m in the first half. In 2019, revenue included option exercises, development milestones and initial Zolgensma royalties.
- Operating expenses rose to $44.8m in Q2, up $11.1m, and $81.5m in the first half, up $17.5m. Higher R&D and G&A spending reflected personnel growth, clinical and manufacturing work, facilities, professional services and stock-based compensation.
- First-half operating cash flow shifted from $128.3m provided in 2018 to $53.0m used in 2019, principally because of the prior-year AveXis license payments and higher current-period operating expenses.
- The company began recognizing Zolgensma royalties following its Q2 commercial launch. It may receive an additional $80.0m sales-based milestone when cumulative Zolgensma net sales reach $1.0bn; realization is contingent on sales.
Outlook, commentary and risks
- Management planned to initiate an RGX-314 Phase IIb wet-AMD trial in late 2019, submit an IND for an RGX-314 diabetic-retinopathy trial in the second half of 2019, and submit an IND or foreign equivalent for RGX-181 in the second half of 2019. Enrollment or recruitment continued in RGX-501, RGX-121 and RGX-111 trials.
- As of July 31, 2019, management reported 42 RGX-314 trial participants across five cohorts, no drug-related serious adverse events, and 3 of 6 Cohort 3 participants injection-free at 18 months. These are preliminary company-reported results, not a guarantee of efficacy.
- The company expects R&D and G&A costs to increase, and anticipates higher capital spending for office, laboratory and manufacturing capacity. Future financing may be required and may not be available on acceptable terms.
- Key risks include clinical and regulatory uncertainty, commercialization and manufacturing execution, dependence on licensees and partner product sales, license termination, intellectual-property challenges, and volatile, restricted-to-sale equity holdings. The Prevail investment may add earnings volatility.
- A third party’s challenge to a Penn-licensed European AAV8 patent remained under appeal; the company reported no related liability and did not expect a material adverse impact. The filing reported no material changes to previously disclosed risk factors other than the added financial-position risks.
Important facts for investors to verify
- Whether Zolgensma sales produce growing royalty revenue and ultimately satisfy the $1.0bn cumulative-sales threshold for the $80.0m milestone.
- The value, liquidity and post-lock-up saleability of the Prevail shares; the $31.7m gain was unrealized at quarter-end.
- Whether the stated 12-month liquidity runway remains supportable as clinical, staffing, facility and manufacturing spending increases.
- Progress and timing of the RGX-314, RGX-181 and other clinical and regulatory milestones, including the preliminary RGX-314 findings.
- Customer and receivable concentration: $27.3m of the $33.6m total accounts receivable related to Abeona Therapeutics at June 30, 2019.