Wave Life Sciences Ltd. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Unaudited financial statements are presented in U.S. dollars; amounts below are in millions unless stated otherwise. Wave is a preclinical biotechnology company developing stereopure nucleic acid therapeutics and has not generated product revenue.
Financial performance and position
- Revenue: $0.0 in Q1 2016, versus $0.026 million in Q1 2015. The prior-year revenue related to research and development services under an agreement terminated in May 2015.
- Operating expenses: $7.952 million, up $4.461 million year over year. Research and development was $4.736 million, up $3.129 million; general and administrative expense was $3.216 million, up $1.332 million.
- Loss and margins: Operating loss was $7.952 million, compared with $3.465 million. Net loss was $7.847 million, versus $3.465 million; basic and diluted loss per share was $0.36 versus $0.42. Revenue was negligible, so operating margins are not meaningful.
- Cash flow: Operating activities used $7.136 million; investing activities used $0.685 million, principally for property and equipment; financing activities used $0.016 million. Cash declined $7.823 million during the quarter.
- Liquidity: Cash was $153.397 million at March 31, 2016, compared with $161.220 million at December 31, 2015. Restricted cash was $1.055 million. Current assets were $154.000 million and current liabilities were $3.770 million.
- Debt and liabilities: Total liabilities were $4.127 million, including $0.124 million of capital lease obligations. The filing reports no off-balance-sheet arrangements.
- Other balance-sheet items: Accumulated deficit was $42.923 million. Share-based compensation expense was $0.866 million.
Material changes versus Q1 2015
- Operating expenses rose as Wave expanded discovery and platform work, advanced Huntington’s disease and DMD programs, and increased staffing and related costs.
- Research and development spending on other discovery programs and platform development increased to $3.973 million from $1.511 million. Huntington’s disease program spending was $0.477 million versus $0.028 million; DMD Exon 51 spending was $0.235 million versus $0.031 million.
- General and administrative expense increased primarily because of higher professional fees and outside support services associated with operating as a public company.
- Cash used in operations increased to $7.136 million from $1.619 million. Q1 2015 financing cash flow included $11.631 million of share proceeds; there were no comparable share proceeds in Q1 2016.
- Weighted-average ordinary shares increased to 21.551 million from 8.274 million, while loss per share decreased to $0.36 from $0.42.
Outlook, developments and risks
- Management expected R&D and public-company costs to rise as it advances programs and prepares for clinical development. The company expected to select a lead candidate for its IBD SMAD7 program in late 2016 and stated plans to file INDs for Huntington’s disease HTT SNP-1 and HTT SNP-2 in late 2016 and DMD Exon 51 in mid-2017.
- On May 5, 2016, after quarter-end, Wave entered a four-year research collaboration with Pfizer covering up to five genetically defined hepatic-target programs. The agreements provide for $40 million upfront, including a $30 million equity investment. Subject to Pfizer option exercises and successful development and commercialization, potential additional milestones could total up to $871 million, plus tiered royalties up to the low double digits.
- Management said cash on hand at March 31 together with the Pfizer agreement proceeds was expected to fund operating and capital requirements into 2019, while cautioning that assumptions could prove wrong. The filing’s runway statement refers to $40 million of upfront payments despite noting that $30 million is equity; investors should distinguish cash proceeds from the equity investment.
- Wave remained preclinical, unprofitable and dependent on additional financing if needed. Key risks include failure or delay in preclinical or clinical development, regulatory challenges, inability to protect intellectual property, competition, and uncertainty about raising capital on acceptable terms.
- Management concluded disclosure controls and procedures were not effective as of March 31, 2016. A material weakness involved review and approval controls for manual journal entries and supporting calculations; remediation included adding finance personnel and strengthening review and monitoring.
- The company reported no material legal proceedings and no material changes to the risk factors in its 2015 Form 10-K. A possible decrease of approximately $0.7 million in unrecognized tax benefits by year-end 2016 was noted in connection with planned amendments to prior-year transfer-pricing tax filings.
Important facts for investors to verify
- Whether planned IND filings and candidate-selection milestones were achieved, and the resulting clinical-development timelines and costs.
- The Pfizer agreement’s cash payment terms, equity issuance, option exercises, milestone conditions, royalties and program economics.
- Actual cash burn and whether available resources continue to support management’s stated runway into 2019.
- Progress in remediating the material weakness and whether disclosure controls become effective.
- Future financing needs, dilution risk and the potential impact of development setbacks or regulatory delays.