Solid Biosciences Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018; comparisons are with the corresponding 2017 periods. Dollar amounts below are in millions unless stated otherwise. The company is a pre-revenue biotechnology company developing gene therapies for Duchenne muscular dystrophy (DMD); its lead candidate is SGT-001.
Financial results and liquidity
- Revenue: None in either comparable period. The company has no approved products and does not expect product revenue for the next several years, if ever; profit margins are therefore not meaningful.
- Q3 2018: Research and development expense was $14.7, general and administrative expense was $4.5, and total operating expense was $19.2. Net loss was $19.0, or $0.55 per share, versus a $13.5 net loss, or $0.79 per share, in Q3 2017.
- Nine months 2018: Research and development expense was $40.2, general and administrative expense was $13.1, and total operating expense was $53.3. Net loss was $52.9, or $1.61 per share, versus a $38.7 net loss, or $1.99 per share, in the first nine months of 2017.
- Cash flow: Operating activities used $48.8 in the first nine months, compared with $29.2 in 2017. Investing activities used $5.5, versus $13.3 provided in 2017. Financing activities provided $131.5, principally from the IPO. Cash, cash equivalents and restricted cash ended at $129.4.
- Liquidity and debt: Cash, cash equivalents and available-for-sale securities totaled $145.4 at September 30; current assets were $148.4 and current liabilities $10.6. The company reported no debt outstanding. Available-for-sale securities were $16.2.
- Capital and equity: The January 2018 IPO generated $129.1 net proceeds from 8,984,375 shares sold at $16 per share. Preferred and common units converted into common stock following the corporate conversion. At September 30, 35,432,460 common shares were outstanding.
Changes versus the prior comparable period
- Q3 operating expenses rose $5.5 (about 40%) and net loss widened $5.5 year over year. Nine-month operating expenses rose $13.6 (about 34%) and net loss widened $14.2.
- Nine-month R&D increased $12.2, including $8.8 in unallocated personnel and facility costs, $2.2 in SGT-001 costs, and $1.2 for other candidates. SGT-001 spending reflected higher clinical and manufacturing activity, partly offset by lower preclinical costs.
- Q3 G&A increased $1.4, mainly from personnel and other corporate expenses. Nine-month G&A increased $1.4; higher personnel, facility and professional-service costs were partly offset by lower equity compensation.
- Operating cash use increased $19.6 year over year. The IPO materially strengthened cash and equity; the company also invested in laboratory equipment and facility improvements.
Outlook, development, risks and unusual items
- Runway and funding: Management estimated that September 30 liquidity would fund operating and capital needs through the first quarter of 2020, subject to assumptions that may prove incorrect. The financial-statement note also states that available funds are expected to cover at least the next 12 months. Management expects rising R&D and public-company costs and may need additional financing; no external funding source is committed.
- SGT-001 trial: The FDA lifted the full clinical hold in June 2018 after an unexpected serious adverse event in the first treated patient, involving platelet and red-blood-cell declines, transient renal impairment and complement activation; the event resolved. The amended protocol includes IV glucocorticoids, enhanced monitoring and access to eculizumab if needed. By the filing, six patients had been randomized—three treated and three in delayed-treatment control—and the company reported no serious adverse events in the two additional children dosed after the hold was lifted. A transient platelet decline was reported and resolved. The company planned to share preliminary biopsy data in Q1 2019.
- Manufacturing and investment: Clinical supply relies on third-party manufacturers, with reported variability in manufacturing yields. The company was considering an own GMP facility, estimated to require $60–$75 million, with plans to decide after initial trial data. This potential expenditure is not a committed build decision.
- Other commitments and contingencies: Operating lease commitments totaled $7.7. A dispute with a former development/manufacturing/testing contractor was settled for $1.32 in April 2018. Securities class actions alleged inadequate disclosure of SGT-001 safety risks; the federal plaintiff dismissed claims without prejudice on October 16, while the state case was stayed. The company could not estimate potential loss.
- Controls: Management concluded disclosure controls were not effective at the reasonable-assurance level because of material weaknesses in staffing, formal accounting controls and controls over complex transactions. Remediation efforts were underway; the filing does not report that the weaknesses had been fully remediated.
- Other: The company reported no income-tax benefit for 2018 losses, with a full valuation allowance against deferred tax assets. It also stated that a 10% immediate change in interest rates would not materially affect its short-term investment portfolio or financial position.
Key facts investors should verify
- Clinical-trial updates, including safety findings, enrollment pace, biopsy data and any renewed regulatory restrictions.
- Cash burn, the assumptions supporting the stated Q1 2020 runway, and whether additional financing will be needed sooner.
- Manufacturing reliability, clinical supply availability and any decision or financing plan for a $60–$75 million GMP facility.
- Progress in remediating material weaknesses and any subsequent changes to control effectiveness.
- Developments and potential costs in the stayed state securities litigation and any new legal claims.