Revolution Medicines, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited; dollar amounts below are in millions unless stated otherwise.
Business context
Revolution Medicines is a clinical-stage precision oncology company developing targeted therapies for RAS-addicted cancers. It had no approved products and no product-sales revenue; reported revenue was from its Sanofi collaboration. The company reported 162 full-time employees, including 134 in research and development.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Collaboration revenue | $1.1 | $12.7 | $19.9 | $34.2 |
| Research and development expense | $46.5 | $34.9 | $133.3 | $95.2 |
| General and administrative expense | $7.8 | $5.3 | $21.8 | $15.6 |
| Net loss | $52.9 | $27.2 | $134.4 | $74.0 |
| Net loss per share, basic and diluted | $0.72 | $0.42 | $1.85 | $1.49 |
| Cash used in operating activities | Not presented quarterly | Not presented quarterly | $107.9 | $75.0 |
At September 30, 2021, cash and cash equivalents were $129.2, marketable securities were $479.5, and combined cash, cash equivalents and marketable securities were $608.7. Total current assets were $623.5 and current liabilities $51.9. Total liabilities were $96.8; no borrowings are reported. Operating lease liabilities were $31.8, with $43.4 of undiscounted lease payments. Accumulated deficit was $400.0.
Nine-month investing cash outflow was $150.7, principally reflecting purchases of marketable securities net of maturities and sales. Financing provided $283.5, primarily from the February 2021 follow-on offering, which generated $281.1 net. Cash, cash equivalents and restricted cash increased by $24.9 over the nine-month period.
Gross margin is not meaningful for this clinical-stage business: revenue was collaboration revenue, and the filing does not present a product-sales gross margin.
Material changes versus comparable periods
- Q3 collaboration revenue fell $11.6, or 91%, year over year; nine-month revenue fell $14.3, or 42%. The company cited an $8.5 cumulative catch-up reduction following changes to the Sanofi development plan and lower reimbursed manufacturing costs.
- R&D expense rose 33% in Q3 and 40% for the nine-month period, driven mainly by greater preclinical third-party costs, increased headcount and stock-based compensation.
- G&A expense rose 46% in Q3 and 39% for the nine-month period, reflecting higher stock compensation, staffing and professional-services costs.
- Net loss widened to $52.9 in Q3 and $134.4 for the first nine months. Operating cash use increased to $107.9 from $75.0 in the prior-year nine-month period.
- Cash, cash equivalents and marketable securities increased to $608.7 from $440.7 at December 31, 2020, supported in part by the February 2021 equity offering.
Outlook, management commentary and risks
- Management said existing cash, cash equivalents and marketable securities were expected to fund planned operations for at least 12 months following issuance of the financial statements. The company expects expenses, particularly R&D, to increase and expects to require substantial additional funding.
- No financial revenue, earnings or cash-flow guidance was provided. Development milestones described include planned IND submissions for RMC-6291 and RMC-6236 in the first half of 2022, and expected initial RMC-5552 safety, pharmacokinetic and single-agent activity data in 2022. The company expected preliminary findings from the RMC-4630-03 study by the end of 2022.
- In August 2021, the company added the RMC-4630-03 study to the Sanofi development plan; Sanofi reimburses 50% of that study’s costs. The parties also decided to stop enrolling new patients in RMC-4630-02, which was deprioritized. Management cited overlapping on-pathway toxicities as part of the decision to deprioritize the osimertinib combination arm.
- Sanofi may terminate its collaboration for convenience, subject to notice requirements. The agreement provides for potential development and regulatory milestones of up to $520 million, U.S. profit-and-loss sharing, and ex-U.S. royalties; milestone payments were excluded from the reported transaction price because of potential revenue reversal.
- Key risks include clinical and preclinical failure or delay, patient-enrollment challenges, COVID-19 disruption to clinical sites and suppliers, manufacturing and supply constraints, competition, intellectual-property uncertainty, reliance on Sanofi and the need for additional capital. Management reported no material COVID-19 impact on the Q3 financial statements, but noted potential trial delays.
- Subsequent events: a November 2021 lease amendment added approximately 41,445 square feet and extended existing Redwood City leases through November 2033. The company also entered into an at-the-market offering agreement for up to $250 million gross proceeds, with Cowen compensation of up to 3% of sales.
- Management stated disclosure controls and procedures were effective at the reasonable-assurance level as of September 30, 2021; no material change in internal control over financial reporting was identified during the quarter.
Important facts for investors to verify
- Progress, enrollment, safety and data timing for RMC-4630, RMC-5552 and preclinical RAS(ON) programs, including whether planned development timelines are met.
- The drivers and future accounting effects of the $8.5 million Sanofi-related revenue catch-up adjustment, and the level and timing of future Sanofi reimbursements or milestones.
- Cash burn relative to the stated runway, future R&D commitments, and whether the company uses the $250 million ATM facility and resulting dilution.
- The financial impact of the November 2021 lease expansion, which was not included in September 30 contractual-obligation totals.
- Potential clinical-site, supply-chain and enrollment effects from COVID-19, and any changes to the collaboration or development plans with Sanofi.