Werewolf Therapeutics, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Werewolf is a clinical-stage cancer biopharmaceutical company developing conditionally activated INDUKINE molecules using its PREDATOR platform. Its lead independent programs, WTX-124 and WTX-330, were in Phase 1/1b and Phase 1 trials, respectively. The company reported no product-sale revenue.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Collaboration revenue | $4.5 million | None; entirely under the Jazz agreement |
| Research and development expense | $11.7 million | $10.9 million |
| General and administrative expense | $5.0 million | $4.4 million |
| Operating loss | $12.2 million | $15.4 million |
| Net loss | $12.0 million; $0.34 per share | $15.3 million; $0.56 per share |
| Operating cash used | $9.9 million | $14.0 million |
| Cash and cash equivalents at quarter-end | $147.9 million | $129.3 million at December 31, 2022 |
| Restricted cash at quarter-end | $21.0 million | $1.2 million at December 31, 2022 |
| Term-loan principal outstanding | $40.0 million; $39.1 million net carrying amount | No balance at December 31, 2022 |
Q1 financing cash flow was $48.6 million, principally from a $40.0 million term-loan draw and $8.7 million of net ATM proceeds. Investing cash use was $0.2 million. Total cash, cash equivalents and restricted cash rose by $38.6 million to $169.1 million. No profit margin is meaningful given continuing operating losses and the absence of product sales.
Changes and notable items
- Net loss narrowed by $3.4 million year over year, mainly reflecting $4.5 million of Jazz collaboration revenue; operating expenses rose $1.3 million.
- R&D expense increased $0.8 million, with higher personnel, contract research and lab costs partly offset by lower manufacturing expense. G&A expense increased $0.6 million.
- Other expense included a $1.0 million increase in the fair value of the PWB success-fee liability; interest income rose to $1.3 million.
- Werewolf recognized $4.5 million of Jazz collaboration revenue and ended the quarter with $5.3 million of deferred revenue. No milestone or royalty payments had been received.
- In April 2023, the company achieved the loan agreement’s $50 million funding milestone, paid PWB the $1.6 million success fee and triggered the $20 million minimum-cash covenant. The amortization date became August 31, 2024; principal and accrued interest are due by August 31, 2026. Interest is floating-rate, at the greater of prime plus 0.5% or 4.5%.
- Shares issued increased from 31.5 million at year-end to 35.3 million at March 31, including 3.824 million shares sold through the ATM offering during the quarter.
Outlook, commentary and risks
- Management expects substantial ongoing losses and rising expenses as clinical development, manufacturing, and other programs advance. It expects no near-term product revenue and says additional funding will be needed to complete development.
- The filing’s runway statements differ in scope: the notes say cash and cash equivalents are expected to fund expenses and capital needs for at least 12 months from the filing date; MD&A says existing cash plus anticipated collaboration revenue is expected to fund operations through at least Q4 2024. Both estimates depend on assumptions and may prove inaccurate.
- WTX-124’s first clinical data were anticipated in Q4 2023. The filing reports first-patient dosing for WTX-330 in Q1 2023; it does not provide clinical efficacy results.
- Key risks include clinical-trial failure or delay, patient enrollment, manufacturing and third-party supply constraints, dependence on external financing, competition, and intellectual-property and regulatory uncertainty. Werewolf relies on third parties for clinical and commercial manufacturing and has no approved products.
- Management reported disclosure controls effective as of March 31, 2023 and no material change in internal control over financial reporting during the quarter. The company disclosed that past material weaknesses had been remediated.
- On May 9, 2023, COO Reid Leonard notified the company of his intention to retire effective June 30, 2023.
Important facts for investors to verify
- Reconcile the cash-runway statements and assess the assumptions behind the Q4 2024 estimate, including expected Jazz reimbursements and spending plans.
- Confirm the post-quarter payment of the $1.6 million PWB success fee, the $20 million cash covenant, and the loan’s floating interest rate and repayment terms.
- Track WTX-124 and WTX-330 trial progress, safety, enrollment, and the timing and substance of any data announcements.
- Review ATM issuance and potential future financing for dilution, and assess the company’s remaining cash available after restricted balances and debt obligations.
- Monitor Jazz collaboration performance, deferred revenue recognition, and whether development or sales milestones and royalties are achieved.