Werewolf Therapeutics, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Werewolf is an early-stage oncology biopharmaceutical company developing conditionally activated INDUKINE therapeutics using its PREDATOR platform. It has no approved products and has not generated product-sales revenue.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Collaboration revenue | $4.1 million | None | $4.1 million | None |
| Research and development expense | $13.9 million | $7.3 million | $24.8 million | $12.1 million |
| General and administrative expense | $5.2 million | $3.7 million | $9.7 million | $6.3 million |
| Operating loss | $15.0 million | $11.0 million | $30.3 million | $18.4 million |
| Net loss | $14.6 million | $10.9 million | $29.9 million | $18.4 million |
| Net loss per common share | $0.53 | $3.82 | $1.09 | $17.86 |
Amounts are in U.S. dollars. The 2021 per-share losses include substantial accretion of redeemable preferred stock to redemption value; that accretion did not recur in 2022, so per-share comparisons overstate the improvement in underlying operating performance. Profit margins are not meaningful given the company’s development-stage losses and limited collaboration revenue.
- Cash and liquidity: Cash and cash equivalents were $145.7 million at June 30, 2022, down from $157.5 million at year-end 2021. Cash, cash equivalents and restricted cash totaled $147.0 million. Current assets were $154.2 million and current liabilities $30.4 million.
- Cash flow: Operating activities used $14.3 million in the first half of 2022, versus $17.8 million in the prior-year period. Investing activities used $1.1 million, principally for facility improvements. Financing activities provided $3.6 million, including $3.3 million net proceeds from the ATM offering.
- Debt and commitments: No term loans were drawn at June 30 or, according to the filing, August 11, 2022. The PWB facility makes up to $20 million available in Tranche I and up to a further $20 million subject to conditions, including FDA acceptance of two INDs by March 31, 2023. The company recorded an $0.9 million contingent success-fee liability. The facility includes covenants requiring at least $50 million of gross proceeds from equity, strategic partnerships or similar transactions by September 30, 2023, and at least $20 million of unrestricted cash at PWB after those proceeds are received.
- Other obligations: Operating lease liability was $15.5 million. Total liabilities were $45.5 million, including $13.1 million of deferred collaboration revenue; no term-loan principal was outstanding.
Material changes versus the prior comparable period
- Revenue began under the Jazz Pharmaceuticals collaboration: the company recognized $4.1 million in the first half, while R&D expenses more than doubled year over year to $24.8 million. Higher personnel, manufacturing and contract research costs reflected expanded development and clinical-start-up work.
- First-half net loss increased by $11.6 million to $29.9 million. Operating cash use nevertheless declined by $3.5 million, aided by the collaboration’s upfront payment reflected in deferred revenue and higher non-cash stock compensation.
- The company sold 801,462 shares through its ATM offering by June 30, raising $3.3 million net. Common shares outstanding were 28.3 million at quarter-end; 29.5 million were outstanding as of August 5.
- Werewolf moved into a new 25,778-square-foot office and laboratory facility in May 2022. It subleased its former space to Crossbow Therapeutics, an entity affiliated with MPM Capital, for rent that the filing says exceeds Werewolf’s rent to the landlord. Board chair Luke Evnin and director Briggs Morrison are affiliated with MPM Capital.
Outlook, management commentary and key risks
- Management said existing cash was expected to fund operating expenses and capital needs through at least the fourth quarter of 2023. The filing also states cash should cover at least 12 months from filing, but additional funding will be needed beyond that period and current cash is insufficient to complete development of WTX-124, WTX-330 or other candidates.
- The FDA cleared the WTX-124 IND in Q2; the company planned a Phase 1/1b trial as monotherapy and with checkpoint inhibitors. It planned to submit the WTX-330 IND in the second half of 2022. These are forward-looking plans, not reported trial outcomes.
- The Jazz agreement covers WTX-613, now known as JZP898. Werewolf received a $15 million nonrefundable upfront payment and may receive research-cost reimbursements, up to $520 million in development and regulatory milestones, up to $740 million in sales-based milestones, and tiered mid-single-digit royalties. Milestones and royalties had not been received by June 30; future milestone revenue was excluded from the transaction price because achievement was uncertain.
- Management expects R&D spending and losses to increase as the company advances its candidates. Principal risks include clinical and regulatory failure or delay, manufacturing and third-party supply constraints, competition, reliance on external funding, and uncertainty about future collaboration receipts. The company reported no material COVID-19 disruption to date but said future effects remain uncertain.
- Disclosure controls and procedures were assessed as effective at the reasonable-assurance level as of June 30, 2022; no material change in internal control over financial reporting was reported during the quarter. The filing notes material weaknesses identified in earlier periods had been remediated.
Most important facts for investors to verify
- Whether WTX-124 and WTX-330 meet the stated IND and clinical-development timelines, and what subsequent clinical or regulatory updates show.
- Cash burn and runway relative to the fourth-quarter 2023 estimate, including whether additional financing is needed and its dilution or other terms.
- Progress and economics under the Jazz agreement, distinguishing recognized revenue and cost reimbursement from contingent milestones and royalties.
- Compliance with the PWB facility’s $50 million proceeds covenant and $20 million cash-maintenance requirement, and any subsequent loan draw or covenant changes.
- Execution and financial effect of the new facility and related-party sublease, as well as the company’s ability to control rising R&D, manufacturing and clinical costs.