4D Molecular Therapeutics, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The company is a clinical-stage gene therapy developer; it had no approved products and generated no product-sale revenue. Financial amounts below are in U.S. dollars.
Financial performance and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Collaboration and license revenue | $1.4 million | $7.4 million | $17.9 million | $14.6 million |
| Research and development expense | $15.8 million | $11.6 million | $43.8 million | $40.4 million |
| General and administrative expense | $8.2 million | $3.7 million | $20.7 million | $10.4 million |
| Net loss | $22.2 million | $7.8 million | $46.2 million | $36.1 million |
| Basic and diluted net loss per share | $0.82 | $1.51 | $1.72 | $6.97 |
At September 30, cash and cash equivalents were $91.0 million and marketable securities were $136.2 million, totaling $227.2 million. Total current assets were $165.7 million; current liabilities were $11.4 million; total liabilities were $16.5 million; and accumulated deficit was $181.9 million. The balance sheet reports no borrowings or debt balance separately. Gross margin is not meaningful for this development-stage company, which had no product sales.
For the nine months, operating cash outflow was $47.3 million, investing cash outflow was $140.4 million, and financing cash inflow was $2.0 million. Investing outflow primarily reflected $136.4 million of marketable-security purchases and $4.0 million of property and equipment purchases. Cash and cash equivalents fell by $185.7 million from year-end 2020; much of the change reflects moving funds into marketable securities, rather than operating cash use alone.
Changes and notable developments
- Q3 revenue fell 82% year over year, mainly because Roche collaboration revenue declined by $5.9 million. Nine-month revenue rose 23%, primarily due to higher Roche revenue, including an $11.1 million catch-up revenue effect from changes to the remaining performance obligation following termination.
- Roche gave notice of termination in June 2021; the agreement ended September 16. Rights to 4D-110 data and collaboration-generated intellectual property reverted to 4D Molecular Therapeutics after the company elected to continue choroideremia development. No further Roche milestones or royalties are due under the terminated agreement. A mid-single-digit royalty could be payable to Roche on 4D-110 sales if the company proceeds directly to a pivotal trial without a new Phase 1/2a study.
- R&D expense increased 37% in Q3, primarily with higher personnel costs and headcount. Nine-month R&D rose 8%; increased personnel expense was partly offset by lower manufacturing costs. G&A increased 122% in Q3 and 99% for nine months, reflecting added personnel, public-company insurance and professional fees. Stock-based compensation was $10.1 million for the nine months.
- After quarter-end, the company completed a November follow-on offering of 4.75 million shares at $25 per share, producing $110.8 million in net proceeds; underwriters also received a 30-day option for up to 712,500 additional shares. In October, FDA cleared the 4D-710 IND and Cystic Fibrosis Foundation provided $4.0 million in exchange for 125,715 shares.
Outlook, risks and contingencies
Management expects operating losses and negative operating cash flows to continue, with expenses expected to rise as programs advance, clinical trials expand, and manufacturing capacity is developed. The company stated that September 30 cash and securities, together with the follow-on offering proceeds, were expected to fund planned operations for at least one year from the financial-statement issuance date. It has no committed external funding source and may need additional capital; financing may be unavailable or dilutive, and program delays, reductions or discontinuations could follow.
Three candidates were in clinical trials: 4D-125, 4D-110 and 4D-310. The company reported FDA IND clearance for 4D-150 and 4D-710. Key risks include clinical and regulatory uncertainty, gene-therapy safety and manufacturing challenges, reliance on third parties, intellectual-property protection, financing needs, and possible COVID-19 effects on trials, suppliers and timelines. The company disclosed no material legal proceedings at September 30 and no off-balance-sheet arrangements. Lease commitments totaled $25.3 million, including amounts due thereafter. Management reported disclosure controls were effective and no material change in internal control during the quarter.
Investor verification points
- Confirm the timing and revenue/cash-flow effects of the Roche termination, including the $11.1 million catch-up revenue and any potential 4D-110 royalty obligation.
- Review cash burn, development spending and the runway assumptions, including the effect of the November offering and future manufacturing investment.
- Track clinical progress and safety data for 4D-310, 4D-125, 4D-110, 4D-150 and 4D-710, as well as enrollment and COVID-19-related delays.
- Assess reliance on collaboration revenue: Roche accounted for most revenue in the periods presented, and that agreement has ended.
- Monitor dilution from the follow-on offering, the underwriters’ option, equity compensation and other potential share issuances.