Wave Life Sciences Ltd. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Unaudited consolidated statements are presented in U.S. dollars; financial statement amounts below are in millions unless otherwise noted. Wave is a preclinical biotechnology company developing stereopure nucleic acid therapeutics. It has not generated product revenue.
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0.392 | $0 | $0.809 | $0.152 |
| Research and development expense | $13.686 | $2.132 | $26.823 | $5.589 |
| General and administrative expense | $3.939 | $2.858 | $10.809 | $6.647 |
| Operating loss | $(17.233) | $(4.990) | $(36.823) | $(12.084) |
| Net loss | $(17.535) | $(4.936) | $(36.947) | $(12.101) |
| Net loss per ordinary share | $(0.75) | $(0.54) | $(1.64) | $(1.36) |
- Cash and liquidity: Cash and cash equivalents were $169.0 million at September 30, 2016, versus $161.2 million at December 31, 2015. Restricted cash was $1.1 million. Current assets were $172.1 million and current liabilities $11.4 million.
- Cash flows, nine months: Operating activities used $18.6 million; investing activities used $2.8 million, primarily for property and equipment; financing activities provided $29.1 million. Net cash increased $7.8 million.
- Debt and obligations: The balance sheet reports $0.093 million in capital lease obligations and no material borrowings. Deferred revenue was $11.7 million, including $2.7 million current. Deferred revenue is not debt.
- Margins: The filing does not present a meaningful product gross margin; revenue was collaboration-related and the company reported operating losses.
Changes versus comparable periods
- Q3 revenue was $0.392 million under the Pfizer collaboration, compared with none in Q3 2015. Nine-month revenue rose to $0.809 million from $0.152 million; the prior-year revenue came from a different collaboration terminated in May 2015.
- Q3 R&D expense increased $11.6 million year over year, led by Huntington’s disease, DMD, discovery programs, platform development, staffing, and facilities. Nine-month R&D increased $21.2 million.
- Q3 net loss widened to $17.5 million from $4.9 million; nine-month net loss widened to $36.9 million from $12.1 million. The company attributed rising expenses primarily to advancing programs and increased employee headcount.
- Cash increased despite operating cash use, supported principally by the Pfizer equity investment. The company issued 1.875 million ordinary shares to a Pfizer affiliate for $30.0 million.
Outlook, agreements, and risks
- Management outlook: Management estimated September 30 cash resources would fund operating expenses and capital expenditures into 2019, subject to assumptions that may prove incorrect. It expects expenses and operating losses to increase as development advances and clinical work begins.
- Development plans: The company expected to file INDs for its Huntington’s disease HTT SNP-1 and SNP-2 programs in late 2016 and for its DMD Exon 51 program in mid-2017. These are forward-looking targets, not assured milestones.
- Pfizer collaboration: The May 2016 agreement covers up to five genetically defined hepatic-target programs. Pfizer paid $10 million upfront and separately invested $30 million in equity. Wave may receive up to $871 million in research, development, and commercial milestone payments, plus tiered royalties, if options are exercised and products are successfully developed and commercialized; these amounts are contingent, not guaranteed. Pfizer nominated a third target in August 2016 and could nominate two more by November 5, 2017. Wave recognized $0.8 million of collaboration revenue year to date and reported $11.7 million deferred revenue.
- Manufacturing lease: A new Lexington, Massachusetts facility is intended to support GMP manufacturing, laboratory, and office needs. The initial 57,561-square-foot space carries average base rent of approximately $2.8 million annually for a 10-year, nine-month term beginning upon occupancy, anticipated in March 2017. An expansion option would add approximately $1.8 million annual base rent. A $2.6 million letter of credit was required as security and had not been posted by September 30.
- Principal risks: Programs remain in discovery or preclinical development and require substantial research, clinical testing, regulatory approvals, and additional capital. Success, timing, commercial viability, and future product revenue are uncertain; additional financing may be unavailable or dilutive. The filing reports no material change to the risk factors in the 2015 Form 10-K.
- Controls and contingencies: Management concluded disclosure controls were not effective at the reasonable-assurance level because of a material weakness involving review and approval of manual journal entries and supporting calculations. Remediation efforts included additional finance staffing, an enterprise resource system, and external consulting; the filing does not state the weakness was fully remediated. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the planned IND filings occurred on schedule and whether preclinical results support clinical development.
- Actual operating cash burn and the assumptions underlying management’s cash runway estimate into 2019.
- Progress and economics of Pfizer target nominations, options, milestones, royalties, and deferred revenue recognition.
- Facility occupancy, lease costs, expansion-option decision, and posting of the required letter of credit.
- Whether the material weakness was remediated and disclosure controls became effective.