REGENXBIO Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; unaudited consolidated financial statements. REGENXBIO is a clinical-stage gene-therapy company developing its NAV AAV-vector platform internally and through licensees. It had no approved products or product-sales revenue.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 or prior date |
|---|---|---|
| Revenue | $132.4 million, all license revenue | $0.5 million |
| Operating expenses | $30.4 million | $23.4 million |
| Operating income (loss) | $102.0 million | $(22.9) million |
| Net income (loss) | $104.2 million | $(22.0) million |
| Basic / diluted earnings (loss) per share | $3.30 / $3.04 | $(0.82) / $(0.82) |
| Operating cash flow | $58.1 million provided | $17.5 million used |
| Cash, cash equivalents and marketable securities | $235.8 million | $176.4 million at Dec. 31, 2017 |
| Total assets / total liabilities | $317.2 million / $17.9 million | $198.7 million / $15.6 million at Dec. 31, 2017 |
At March 31, cash and cash equivalents were $71.9 million, current marketable securities $158.0 million, and non-current marketable securities $5.9 million. Current assets were $262.7 million versus current liabilities of $14.9 million. The balance sheet reports no borrowings or debt. Cash, cash equivalents and restricted cash totaled $72.1 million for cash-flow reporting purposes.
R&D expense increased 18% to $19.6 million; general and administrative expense rose 27% to $8.4 million. The company reported an accumulated deficit of $78.7 million. The reported profit and exceptionally high apparent operating margin reflect a large, non-recurring license transaction and should not be viewed as evidence of recurring product profitability.
Material changes and unusual items
- AveXis license amendment: In January 2018, REGENXBIO expanded the SMA license to cover additional vectors. It received $80 million upfront and is due two further $30 million payments in January 2019 and January 2020, plus potential sales milestones of up to $120 million. Under newly adopted ASC 606, it recognized $132.1 million of revenue for the amendment in Q1, including the present value of the future fixed payments. The $80 million upfront receipt is not the same as the full revenue recognized.
- Revenue-recognition change: ASC 606 adoption on January 1, 2018 increased opening retained equity by $4.8 million (reduced accumulated deficit), primarily by accelerating recognition of license maintenance fees. The company’s reconciliation says Q1 revenue would have been $80.7 million and net income $52.2 million under the prior standard, versus reported revenue of $132.4 million and net income of $104.2 million.
- Receivables and concentration: Accounts receivable totaled $58.6 million, including $26.0 million current and $32.6 million non-current. AveXis represented 93% of receivables and approximately 99% of Q1 revenue. The large receivable increase contributed to a $51.4 million operating-cash-flow use from changes in accounts receivable.
- Licensing costs increased to $2.4 million, primarily sublicense fees owed to licensors on license revenue. Q1 operating cash flow benefited from the $80 million AveXis payment; it is not a measure of recurring cash generation.
- In April 2018, after quarter-end, AveXis announced a planned acquisition by Novartis. If completed, REGENXBIO expects it to qualify as a change of control under the amendment, potentially accelerating certain unpaid fees. Completion was subject to tender-offer and other closing conditions.
Outlook, commentary and risks
- Management said available cash, cash equivalents and marketable securities should fund operations and capital expenditures for at least 12 months from the report date under its current plan. It also expects continued losses for at least several years, rising R&D and G&A expenses, and a need for substantial additional capital. Additional financing may be unavailable or may dilute shareholders or require concessions.
- Management expected license revenue to be substantially lower for the remainder of 2018 and the foreseeable future because the AveXis amendment revenue was non-recurring. Future licensing, milestones and royalties depend on licensee development and commercialization; no licensed products had been commercialized using the platform.
- Clinical outlook: RGX-314 (wet AMD) and RGX-501 (HoFH) topline data were expected in late 2018. RGX-111 (MPS I) and RGX-121 (MPS II) trials were expected to begin enrolling in mid-2018. The company also expected to announce another lead candidate in the second half of 2018.
- Key risks include early-stage clinical programs and uncertain safety, efficacy, enrollment and regulatory outcomes; complex gene-therapy manufacturing; reliance on collaborators and third-party manufacturers; financing needs; and dependence on licensee success and a small number of customers.
- A third party challenged the validity of a Penn-owned, REGENXBIO-licensed AAV8 European patent. The company could not estimate the outcome; EPO oral proceedings were scheduled for October 2018. No related liability was recorded.
- The company reported no material pending legal actions expected to adversely affect it, no off-balance-sheet arrangements, and effective disclosure controls as of March 31, 2018. It disclosed no material change in market-risk exposure.
Important facts for investors to verify
- How much of reported Q1 revenue and earnings reflects ASC 606 acceleration and the one-time AveXis amendment, versus recurring license economics.
- Whether AveXis’s announced acquisition closed and whether it triggered payment acceleration; confirm collection of the two $30 million installments and any applicable milestones.
- Collection timing and credit exposure for the $58.6 million of receivables, particularly the concentration in AveXis.
- Progress, safety findings and data timing for RGX-314, RGX-501, RGX-111 and RGX-121, alongside cash burn and financing needs.
- Outcome of the AAV8 European patent opposition and any effect on the platform’s intellectual-property protection.