REGENXBIO Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017; filed August 8, 2017. REGENXBIO is a clinical-stage gene therapy company developing products using its NAV AAV-vector platform and licensing the platform to third parties. It had no approved products or product-sale revenue.
Financial results
Amounts in millions, except per-share data. Comparisons are with the corresponding 2016 period.
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $6.56 | $2.38 | $7.02 | $2.77 |
| Research and development | $13.92 | $10.68 | $30.54 | $16.86 |
| General and administrative | $6.36 | $6.17 | $12.98 | $11.65 |
| Operating loss | $(15.06) | $(14.95) | $(37.98) | $(26.20) |
| Net loss | $(14.47) | $(14.44) | $(36.47) | $(25.21) |
| Basic and diluted loss per share | $(0.47) | $(0.55) | $(1.27) | $(0.96) |
- Revenue growth primarily reflected a $6.0 million upfront commercial license payment from AveXis, recognized in June. License revenue was $6.56 million in Q2 and $7.01 million year to date; reagent sales were zero in 2017, and grant revenue was minimal.
- For the six months, R&D expense rose $13.67 million, mainly from clinical-trial material, process development and manufacturing, added personnel, and new laboratory and equipment costs. Q2 R&D increased $3.24 million year over year. Management expects R&D and G&A spending to increase as development advances.
- License and reagent costs totaled $1.32 million in Q2 and $1.41 million year to date. Revenue less these costs was approximately 80% of revenue in both periods; this is not a measure of product profitability for the clinical-stage business.
- Investment income was $0.58 million in Q2 and $1.51 million for six months. The year-to-date figure included $0.5 million of realized investment gains.
- Operating cash use was $27.03 million for the six months, versus $16.32 million in 2016. Investing cash use was $22.41 million, including $4.61 million of property and equipment purchases and net purchases of marketable securities. Financing provided $82.25 million, primarily from the follow-on stock offering.
Balance sheet and liquidity
- At June 30, cash and cash equivalents were $57.65 million and marketable securities were $150.85 million, totaling $208.50 million in cash, cash equivalents and marketable securities. Total assets were $224.38 million.
- Total liabilities were $12.68 million, including $11.46 million current liabilities. The balance sheet reports no debt; liabilities primarily comprised accounts payable, accruals and deferred rent.
- Accumulated deficit was $151.05 million. Management said available funds were expected to cover operating and capital requirements for at least 12 months from the report date, based on its current plan. It also anticipated continued losses and a need for substantial additional funding.
- The March–April follow-on offering generated approximately $81.5 million net proceeds, including the underwriters’ exercised option. Shares issued and outstanding rose to 30.85 million at June 30 from 26.48 million at year-end.
Developments, outlook and risks
- RGX-314 Phase I enrollment began in May 2017; management expected an interim update in late 2017. RGX-501 Phase I/II enrollment began in March 2017, with an interim update also expected in late 2017. RGX-111 enrollment was expected in the first half of 2018, and an RGX-121 IND filing was expected in the second half of 2017.
- The June AveXis license covers AAV9-based development for Rett syndrome and SOD1-associated ALS. Besides the $6.0 million upfront payment, it provides for annual maintenance fees, up to $36.0 million in milestones, royalties on net sales and a share of certain sublicense fees. Future contingent revenue depends on partner development and commercialization.
- One customer accounted for approximately 86% of revenue for the six months ended June 30, 2017, underscoring revenue concentration and the period’s dependence on licensing activity.
- A third party challenged the validity of a Penn-owned, REGENXBIO-licensed European AAV8 patent before the European Patent Office in June. The matter was at an early stage; the company could not estimate its timing or outcome and had recorded no liability.
- Principal risks include early-stage clinical and regulatory uncertainty, safety and manufacturing challenges in gene therapy, reliance on licensors and development partners, intellectual-property exposure, and the possibility that financing may be unavailable on acceptable terms or may dilute shareholders. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Clinical-trial enrollment, safety findings and the timing and content of the anticipated program updates and regulatory filings.
- Cash burn against the stated runway, planned R&D and capital spending, and the timing and terms of any additional financing.
- How recurring and contingent license revenue develops, including AveXis milestones and the effect of customer concentration.
- Status and potential consequences of the AAV8 patent opposition, as well as the strength and scope of the company’s licensed intellectual-property rights.
- Whether the financial position or outlook changed after June 30; the filing also disclosed a July amendment adding laboratory and office space and extending a lease.