Werewolf Therapeutics, Inc. — Q2 2021 Form 10-Q
Business context and reporting period
Quarter ended June 30, 2021; financial statements are unaudited. Werewolf is a clinical-stage biopharmaceutical company developing cancer immunotherapies using its PREDATOR platform. It has no approved products and has generated no revenue. Its lead candidates, WTX-124 and WTX-330, and WTX-613 remained in preclinical development.
Financial results and liquidity
Amounts below are in millions of dollars except per-share data. Revenue and revenue margins are not applicable because the company has no product revenue.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Research and development expense | $7.3 | $3.8 | $12.1 | $6.5 |
| General and administrative expense | $3.7 | $1.3 | $6.3 | $2.4 |
| Total operating expense / operating loss | $11.0 | $5.1 | $18.4 | $9.0 |
| Net income (loss) | $(10.9) | $2.3 | $(18.4) | $(1.6) |
| Net income (loss) attributable to common stockholders | $(67.8) | $2.2 | $(170.3) | $(1.6) |
The much larger common-stockholder losses reflect noncash accretion of redeemable preferred stock to its redemption value—$56.9 million in Q2 and $151.9 million in the first half—before the preferred shares converted to common stock upon the IPO. The prior-year comparison also included a $7.3 million noncash gain from remeasurement of a preferred-stock tranche liability, settled in June 2020. Thus, common-stockholder loss per share of $(3.82) for Q2 and $(17.86) for the six months is heavily affected by these preferred-stock accounting items.
- At June 30, 2021, cash and cash equivalents were $183.2 million; restricted cash was $1.2 million. Total assets were $190.4 million, total liabilities $8.9 million, and stockholders’ equity $181.6 million. Accumulated deficit was $221.3 million.
- Operating cash use was $17.8 million in the first half, versus $7.7 million a year earlier. Investing cash use was $0.1 million versus $0.5 million. Financing provided $109.7 million, primarily from the IPO.
- The May 2021 IPO sold 7.5 million shares at $16 per share, yielding $120.0 million gross and approximately $109.2 million net proceeds. All outstanding preferred stock converted into approximately 18.3 million common shares.
- No term-loan borrowings were outstanding. Up to $14.0 million was available under the Pacific Western Bank facility through November 2021, subject to its terms and covenants.
Changes versus prior comparable periods
Operating expenses rose substantially: first-half R&D increased $5.5 million, primarily from manufacturing, personnel and contract research costs; first-half G&A rose $3.9 million, largely reflecting public-company personnel, professional services and insurance. The company said these increases support expanded preclinical work and public-company operations. Operating cash use also increased by about $10.1 million year over year.
Outlook, risks and unusual items
- Management expected existing cash to fund operating expenses and capital needs through at least the second quarter of 2023. It also cautioned that estimates depend on assumptions and that additional funding will be needed to complete development of its candidates.
- The company planned to submit IND applications for WTX-124 and WTX-330 in the first half of 2022, then initiate first-in-human trials. These are plans, not assured milestones; all candidates were still preclinical.
- Management expected R&D and G&A expenses and net losses to increase as programs advance, manufacturing expands, personnel are added and public-company costs continue. Future funding may require equity or debt financing, collaborations, strategic alliances or licensing, with possible dilution or restrictions on operations.
- Key risks include preclinical and clinical failure or delay, novel biologic manufacturing and scale-up challenges, reliance on third-party manufacturers and research organizations, competition, intellectual-property and licensing risks, and possible COVID-19-related disruption. The company reported no material COVID-19 financial impact or business disruption to date, but future effects remained uncertain.
- A new Watertown headquarters lease signed in June has an approximately eight-year term targeted to begin in March 2022, with estimated base rent of $17.6 million. A separate laboratory and office lease runs through May 2022, with approximately $0.5 million in remaining base rent.
- Disclosure controls were not effective at June 30 because previously identified material weaknesses in financial-reporting controls had not been fully remediated. The weaknesses related to insufficient finance staffing and segregation of duties; remediation efforts were ongoing.
Important facts for investors to verify
- Whether the planned first-half 2022 IND submissions for WTX-124 and WTX-330 remain on schedule, and what preclinical or manufacturing results support them.
- Whether cash burn, development spending and the stated runway through Q2 2023 remain consistent with actual progress and financing needs.
- Progress in remediating internal-control material weaknesses and whether disclosure controls become effective.
- The terms and status of the $14.0 million bank facility, including its availability deadline, cash covenant and other restrictions.
- The timing, commencement and financial impact of the new headquarters lease and related operating commitments.