REGENXBIO Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. REGENXBIO is a clinical-stage gene-therapy company developing its own candidates and licensing its NAV AAV-vector platform. It had one FDA-approved partnered product, Zolgensma, and more than 20 partnered programs in development. The company reported no revenue from sales of its own products.
Financial results and liquidity
Amounts below are in millions of dollars, except per-share data.
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $14.7 | $5.3 | $23.5 | $177.7 |
| Operating expenses | $50.6 | $28.0 | $132.1 | $92.1 |
| Operating income (loss) | $(35.9) | $(22.7) | $(108.7) | $85.7 |
| Net income (loss) | $(34.6) | $(19.2) | $(68.3) | $95.6 |
| Net income (loss) per diluted share | $(0.94) | $(0.56) | $(1.86) | $2.67 |
- Q3 revenue included $9.2 million of Zolgensma royalties. Nine-month 2019 royalties were $10.1 million. Cost of revenue was $2.5 million in Q3 and $4.5 million year to date. The filing does not present gross margin as a headline metric.
- Research and development expense was $35.7 million in Q3 and $90.4 million for nine months, up 93% and 52%, respectively, year over year. General and administrative expense was $12.4 million and $37.4 million, respectively.
- At September 30, cash and cash equivalents were $79.6 million and marketable securities were $337.5 million, totaling approximately $417.1 million. Restricted cash was an additional $1.1 million.
- Operating cash outflow was $82.2 million for the first nine months, versus $108.8 million of operating cash inflow in 2018. The 2018 period included substantial AveXis license payments. Investing activities provided $79.4 million and financing activities provided $6.8 million in 2019.
- Total liabilities were $40.8 million; the filing reports no outstanding conventional borrowings. Recorded operating lease liabilities were $6.8 million. The filing also disclosed $105.7 million of undiscounted minimum lease payments, including leases not yet commenced.
- Accumulated deficit was $151.4 million. Management said available cash, cash equivalents and marketable securities were expected to fund operations and capital needs for at least 12 months from the report date.
Changes versus the prior comparable period
- Nine-month revenue fell $154.3 million year over year, primarily because 2018 included $176.1 million of non-recurring AveXis license revenue related to the 2018 amendment and change of control. 2019 revenue benefited from Zolgensma royalties following its U.S. launch in Q2 2019.
- Nine-month 2019 net loss contrasted with 2018 net income, which reflected the one-time license revenue. 2019 investment income included a $29.4 million unrealized gain on Prevail Therapeutics shares after its IPO; the shares were valued at $29.8 million at quarter-end and had not been sold. Q3 included a $2.2 million unrealized loss on those shares.
- Operating expenses increased as REGENXBIO expanded personnel, clinical-trial activity, manufacturing-related work and facilities. Year-to-date stock-based compensation increased to $20.0 million from $11.8 million.
- Operating cash flow swung from inflow to outflow, principally because 2018 included $180 million of AveXis license payments and 2019 spending increased.
Outlook, developments and risks
- Management expected R&D and G&A spending to continue rising, with losses expected for at least several years. It anticipated significant future capital spending for office, laboratory and manufacturing capacity and said additional funding would be needed; financing may not be available on acceptable terms.
- RGX-314’s wet-AMD IND was on partial clinical hold while FDA assessed aspects of the third-party surgical delivery devices used in the trial; the company said the hold was not related to the gene-therapy product itself. The company expected to initiate a wet-AMD Phase IIb trial and file an IND for a diabetic-retinopathy Phase II trial in Q1 2020, subject to resolving the issues and regulatory progress.
- Preliminary RGX-314 results reported as of October 9, 2019: all 42 subjects had been dosed; no drug-related serious adverse events were reported. In the highest-dose cohort, the company reported over 80% reduction in annualized anti-VEGF injection rate through six months, with 75% of subjects injection-free. These were preliminary company-reported results, not a guarantee of clinical benefit or approval.
- Other pipeline updates included completed dosing in RGX-501’s second cohort, enrollment completion in RGX-121’s first dose cohort, ongoing RGX-111 recruitment, and a planned RGX-181 IND filing in the second half of 2020. The Neurimmune collaboration began in July 2019 for gene therapies targeting chronic neurodegenerative diseases.
- In October 2019, REGENXBIO exercised its Clearside option for RGX-314 delivery, triggering a $1.6 million payment and potential milestone payments up to $136 million plus royalties. In November 2019, it amended the 9800 Medical Center Drive lease to add about 38,000 square feet; additional lease payments were estimated at $22.6 million and the tenant-improvement allowance increased to $19.5 million.
- Potential Zolgensma sales milestone: $80 million upon $1 billion in cumulative net sales. Timing and achievement are uncertain. Other risks include clinical-trial outcomes, regulatory approval, manufacturing scale-up, reliance on licensees and concentration of licensing revenue. An appeal was pending in an EPO opposition involving the licensed AAV8 patent; the company reported no related liability and did not expect a material adverse impact. No material pending legal proceedings were identified.
Most important facts for investors to verify
- Current status and expected timing of resolution of the FDA partial clinical hold on RGX-314, and whether the planned trials proceeded on schedule.
- Subsequent clinical data, safety findings and durability for RGX-314 and other lead candidates.
- Zolgensma sales, royalty receipts and progress toward the $1 billion cumulative-sales milestone; distinguish earned royalties from contingent payments.
- Cash burn, spending trajectory and funding runway, including the effect of future trial, manufacturing and commercialization costs.
- Whether Prevail shares were sold after the lock-up expired and how subsequent share-price movements affected reported income and liquidity.
- Final lease costs, commencement timing and build-out obligations for the expanded 9800 Medical Center Drive facility.