4D Molecular Therapeutics, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions unless otherwise noted. The company is a clinical-stage gene therapy developer and has no approved products or product sales.
Financial performance and position
- Q2 revenue: $14.6 million, up from $3.6 million in Q2 2020. Revenue was principally Roche collaboration revenue ($14.3 million); 98% of quarterly revenue came from one customer.
- First-half revenue: $16.6 million, versus $7.2 million in the first half of 2020. The increase was primarily from Roche.
- Q2 net loss: $7.6 million, compared with $15.2 million a year earlier. First-half net loss was $24.0 million, compared with $28.3 million.
- Operating expenses: Q2 expenses were $22.2 million, up 18% year over year. R&D was $15.2 million, down 3%; G&A was $7.0 million, up 127%. First-half expenses totaled $40.5 million, up 14%.
- Margins: The filing does not present gross margin. The company reported operating losses of $7.6 million for Q2 and $23.9 million for the first half; collaboration revenue is not a measure of product profitability.
- Cash flow: First-half operating cash used was $31.6 million, compared with $20.0 million in 2020. Investing cash used was $1.4 million; financing cash used was less than $0.1 million. Cash declined $33.0 million during the half.
- Liquidity: Cash and cash equivalents were $243.7 million at June 30, 2021, versus $276.7 million at December 31, 2020. Current assets were $248.8 million and current liabilities $9.9 million. Management said available cash was expected to fund planned operations for at least one year from the financial statements’ issuance date.
- Balance sheet: Total liabilities were $14.3 million and stockholders’ equity $240.6 million. The filing does not identify interest-bearing debt as a material balance-sheet item. Accumulated deficit was $159.7 million.
Material changes and unusual items
- Roche gave notice in June to terminate its 2017 collaboration and license agreement without cause, effective September 16, 2021. On termination, Roche’s licenses end and the company is no longer entitled to future Roche milestones or royalties under that agreement.
- The termination drove a significant accounting adjustment: a $8.5 million reduction in expected reimbursable costs contributed to a $10.6 million increase in first-half 2021 revenue for work performed in prior periods. Accordingly, reported revenue and the year-over-year improvement in loss should not be treated as a recurring operating trend.
- In July, the company elected to continue choroideremia development. Rights to 4D-110 data and collaboration-generated intellectual property are reverting to the company. If it proceeds directly to a pivotal trial without a new Phase 1/2a study, the agreement requires a mid-single-digit royalty to Roche on 4D-110 net sales; a new Phase 1/2a study would eliminate that royalty obligation.
- Deferred revenue fell to $5.4 million from $19.8 million at year-end 2020, including Roche deferred revenue declining to $0.5 million from $14.3 million. The first half included $14.0 million of revenue previously included in opening deferred revenue.
- G&A growth reflected higher headcount, stock-based compensation, public-company insurance and professional fees. First-half stock-based compensation was $6.1 million versus $2.1 million.
Outlook, commentary and risks
- Management expected initial clinical activity data for 4D-125 and 4D-110 in Q4 2021, and initial 4D-310 clinical data in the second half of 2021. It expected to file INDs and initiate trials for 4D-150 and 4D-710 in the second half of 2021.
- The company expected operating losses and negative operating cash flows to continue, with R&D, G&A and capital expenditures—including spending to expand manufacturing capacity—expected to increase. It expects to require substantial additional funding and has no committed external funding source.
- Management said 2021 collaboration revenue was expected primarily from Roche and uniQure; the Roche termination makes future collaboration revenue uncertain. No numerical revenue or earnings guidance was provided.
- Key risks include clinical and regulatory uncertainty for AAV gene therapies, manufacturing and supply constraints, trial enrollment and timing, competition, intellectual-property exposure, dependence on collaborators and the need for additional capital. COVID-19 could disrupt trials, research, suppliers and timelines; the extent of impact remained uncertain.
- The company reported no material legal proceedings. A former-employee settlement was resolved through a warrant for 40,000 shares, exercised in May 2021.
Most important facts for investors to verify
- Whether Roche’s termination and return of 4D-110 rights change development costs, timelines, funding needs or potential royalty obligations.
- Whether the stated 2021 clinical-data and IND milestones were achieved, and what the resulting complete data show on safety and efficacy.
- How quickly cash is being consumed as trials and manufacturing capacity expand, and whether additional financing will be needed sooner than management expects.
- How much future revenue depends on collaboration partners, given Roche’s termination and the concentration of reported revenue in Roche.
- Whether manufacturing capacity, third-party supply and COVID-19 effects create delays or additional costs.