Wave Life Sciences Ltd. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. The filing is for Wave Life Sciences Ltd., a Singapore-incorporated, clinical-stage genetic medicines company developing stereopure oligonucleotide therapies using its PRISM platform. It had no product sales; reported revenue came from Pfizer and Takeda collaborations. All amounts below are U.S. dollars.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $2.9 million | $4.5 million | $13.6 million | $10.8 million |
| Research and development expense | $44.6 million | $32.9 million | $126.3 million | $94.6 million |
| General and administrative expense | $12.5 million | $9.8 million | $35.1 million | $26.8 million |
| Operating loss | $54.2 million | $38.2 million | $147.8 million | $110.6 million |
| Net loss | $50.7 million | $37.6 million | $136.9 million | $108.8 million |
| Basic and diluted loss per share | $1.48 | $1.28 | $4.06 | $3.78 |
- At September 30, cash and cash equivalents were $209.0 million; restricted cash was $3.6 million. Current assets were $250.3 million and current liabilities $133.4 million, implying working capital of $116.8 million.
- Nine-month operating cash use was $127.0 million, versus $10.0 million of operating cash provided in the 2018 period. Investing cash use was $2.6 million; financing provided $163.6 million. Cash, cash equivalents and restricted cash increased by $34.2 million to $212.7 million.
- The January 2019 share offering generated $161.8 million net proceeds. Ordinary shares outstanding were 34.3 million at September 30; 34,289,750 were outstanding November 1.
- No conventional borrowings are shown on the balance sheet. Operating lease liabilities totaled $33.3 million, including $3.1 million current. Deferred revenue was $155.5 million, of which $96.3 million was current; this is a collaboration contract liability, not debt.
- Accounts receivable totaled $50.0 million ($20.0 million current). Revenue and operating margins are not representative of a commercial business because the company remains development-stage and generates collaboration revenue while reporting substantial operating losses.
Changes versus comparable periods
- Q3 revenue declined $1.6 million year over year, primarily because of lower Takeda collaboration revenue. Nine-month revenue rose $2.8 million, reflecting increased revenue under both collaborations and the Takeda agreement being active for all of 2019 versus six months in 2018.
- Q3 operating expenses increased $14.4 million and net loss widened $13.1 million. For the nine months, operating expenses rose $40.0 million and net loss widened $28.1 million.
- R&D growth reflected investment in DMD trials, HD trials, PRISM and other discovery and development work. The largest nine-month increase was DMD program spending, up $21.2 million.
- Operating cash flow turned from a $10.0 million source to a $127.0 million use, while cash balances increased due principally to the 2019 equity offering. The company adopted the new lease standard in January 2019, recording lease right-of-use assets and liabilities; management said adoption did not materially affect operations or cash flows.
Outlook, commentary and risks
- Management stated that existing cash and cash equivalents were expected to fund operations for at least the next 12 months, while cautioning that assumptions may prove incorrect and capital could be used sooner than expected. The company expects increasing R&D and operating losses and may require additional financing.
- Management expected an interim suvodirsen open-label-extension analysis in Q4 2019; subject to positive results, it anticipated a potential U.S. accelerated-approval submission in the second half of 2020. The Phase 2/3 DYSTANCE 51 trial had begun.
- Topline data from the four multiple-dose cohorts of PRECISION-HD2 were expected by year-end 2019; corresponding PRECISION-HD1 data were expected in early 2020. U.S. multiple-dose progression required additional preclinical work and FDA review. WVE-N531 data and initiation of C9orf72 clinical development were targeted for the second half of 2020, subject to required applications and approvals.
- FDA granted Fast Track designation to suvodirsen in September 2019. The filing also reports that an in vivo micronucleus assay for the HD programs prompted additional nonclinical studies, which the company said were completed satisfactorily with no further studies required.
- Takeda deferred revenue included $152.8 million allocated to unsatisfied or partially unsatisfied performance obligations; $93.6 million was current. Pfizer deferred revenue for such obligations was $2.7 million. Future recognition depends on research progress, costs incurred, and, for certain option-related amounts, partner decisions or option expiry.
- Other income included estimated UK R&D tax credits and dividend income; the increase in other income materially offset operating losses. The company maintained a full valuation allowance against deferred tax assets due to uncertainty about future taxable income.
- Key risks include clinical and regulatory uncertainty, the possibility of unsuccessful development or safety findings, need for additional capital and potential shareholder dilution, dependence on collaboration partners, competition, and intellectual-property risks. The filing reported no material change to previously disclosed risk factors, no material legal proceedings, and effective disclosure controls.
Investor verification points
- Verify subsequent clinical results and regulatory developments for suvodirsen and the PRECISION-HD trials, including the timing and status of the stated data milestones.
- Assess cash consumption against management’s at-least-12-month runway statement, including collaboration funding, receivable collection, and the possibility of additional equity issuance.
- Review the composition, timing and conditions for recognizing deferred collaboration revenue, particularly Takeda’s option rights and the $50.0 million receivable.
- Confirm whether estimated UK R&D tax credits are realized and how much reported other income recurs.
- Track clinical safety, efficacy, manufacturing and regulatory risks across the pipeline, as well as dilution from future financing and equity compensation.