Business context and reporting period
The supplied filing is OvaScience, Inc.’s Form 10-K for the fiscal year ended December 31, 2016—not a filing for Tempest Therapeutics, Inc. It describes a fertility-treatment company developing products based on egg precursor cells. AUGMENT was offered through select clinics outside the U.S.; OvaPrime was in early clinical studies, and OvaTure remained in development.
Financial performance and position
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $0.653 million | $0.277 million |
| Operating loss | $81.0 million | $72.0 million |
| Net loss | $82.3 million | $73.2 million |
| Net loss per share | $2.56 | $2.70 |
| Operating cash used | $61.7 million | $50.3 million |
| Cash, cash equivalents and short-term investments at year-end | $114.4 million | $126.7 million |
| Working capital at year-end | $103.2 million | $118.6 million |
| Total liabilities at year-end | $14.3 million | $11.8 million |
Costs of revenue were $5.4 million against $0.653 million of revenue, so the commercial treatment activity was loss-making before other operating expenses. The filing reports no separate margin measure. The balance sheet lists no borrowings; it reports $13.2 million of current liabilities and $1.1 million of non-current liabilities. Accumulated deficit was $250.2 million.
Fourth-quarter detail
For the three months ended December 31, 2016, revenue was $0.121 million and net loss was $22.6 million, including $5.4 million of restructuring charges. The comparable 2015 quarter had revenue of $0.157 million and net loss of $20.6 million.
Material changes versus prior period
- Annual revenue increased 136% from 2015, but remained very small relative to costs.
- Net loss widened by $9.0 million; operating cash use increased by $11.4 million.
- Research and development expense rose 17% to $21.6 million. Selling, general and administrative expense declined 5% to $49.2 million.
- In December 2016, the company announced a strategic shift toward OvaPrime and OvaTure, slower AUGMENT commercial expansion, and a workforce reduction of approximately 30%. It raised $53.9 million net in a June 2016 stock offering; shares outstanding increased to 35.6 million from 27.3 million.
Outlook, commentary, risks and unusual items
- Management said year-end liquidity was expected to fund its current operating plan for at least 12 months; elsewhere, the filing’s risk discussion refers to at least 24 months, and it says the restructuring extends cash into the first quarter of 2019. These statements use different horizons and assumptions; verify the applicable forecast and burn-rate basis.
- Management did not expect significant near-term revenue after slowing AUGMENT expansion. OvaPrime’s Canadian study had enrolled 50 of a planned 70 patients, with remaining enrollment expected in the first half of 2017. OvaTure required further process development and authorization before human fertilization research. Management’s stated bovine development milestones were targets, not assurances.
- Restructuring charges were $5.4 million in 2016, including a $2.0 million fixed-asset impairment. The filing projected another $1.4–$2.8 million of restructuring charges in 2017 and total cash expenditures of $5.7–$6.5 million over 2017–2018. Approximately $0.4 million of excess inventory was also written off in cost of revenue.
- Key risks include unproven science and limited human clinical evidence, clinical and regulatory uncertainty, including FDA’s 2013 letter advising an IND for AUGMENT; dependence on clinics and Intrexon; uncertain reimbursement and patient willingness to pay; need for additional capital; and competition. The company reported securities class-action and derivative litigation, with potential losses not estimable.
- Ernst & Young issued an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective as of year-end.
Important facts for investors to verify
- Confirm the issuer identity: this source is OvaScience, not Tempest Therapeutics.
- Reconcile management’s differing 12-month and 24-month liquidity statements with the cash runway assumptions and expected restructuring payments.
- Review subsequent OvaPrime and OvaTure study results, required authorizations, and whether stated milestones were achieved.
- Check the status and potential financial exposure of the lawsuits and any subsequent financing or dilution.
- Assess whether AUGMENT clinic use and revenue can support its costs, and whether the strategic shift reduced ongoing cash burn as intended.