Wave Life Sciences Ltd. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. Financial statements are unaudited and amounts below are in U.S. dollars, thousands, unless stated otherwise. The filing identifies the registrant as Wave Life Sciences Ltd.; it was renamed from WAVE Life Sciences Pte. Ltd. in November 2015.
Business context
Wave is a preclinical biopharmaceutical company developing stereopure nucleic acid therapeutics. Its programs included Huntington’s disease, Duchenne muscular dystrophy (DMD), inflammatory bowel disease, and earlier-stage discovery programs. It had no product revenue and no candidates in clinical development as of the reporting date.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $152 | $0 |
| Research and development expense | $2,132 | $585 | $5,589 | $1,672 |
| General and administrative expense | $2,858 | $769 | $6,647 | $1,942 |
| Total operating expenses | $4,990 | $1,354 | $12,236 | $3,614 |
| Net loss | $(4,936) | $(1,363) | $(12,101) | $(3,480) |
| Net loss per ordinary share | $(0.54) | $(0.32) | $(1.36) | $(0.92) |
| Cash used in operating activities | Not presented by quarter | $(5,859) | $(3,194) |
- Revenue for the first nine months of 2015 was from a research-services collaboration terminated in May; the company reported no product revenue.
- Expense growth reflected expanded research and development, hiring and share-based compensation, and higher professional fees associated with preparing for the IPO. Nine-month share-based compensation was $3,210.
- At September 30, 2015, cash was $66,040; restricted cash was $1,055; total assets were $70,996; total liabilities were $3,599; and accumulated deficit was $27,977. Current assets were $67,987 versus current liabilities of $3,474.
- Debt was limited to capital lease obligations of $156 in total, including $62 current. No revenue or profit margin is meaningful given the absence of product sales and continuing losses.
- Financing activities provided $72,857 during the nine months, mainly from $62,643 net proceeds from Series B preferred shares and $11,631 from ordinary-share issuance.
Material changes and subsequent events
- Compared with the first nine months of 2014, operating expenses increased $8,622 and net loss increased $8,621. Research and development spending rose as programs and platform work expanded; general and administrative costs increased primarily from IPO-related professional fees, compensation, and headcount.
- In August 2015, Wave raised $62,643 net through a Series B preferred-share placement. Series A and B preferred shares were classified as temporary equity at quarter-end. Series B converted into 5,334,892 ordinary shares upon the IPO.
- After quarter-end, the IPO closed on November 16, 2015, with a partial over-allotment exercise on December 4. The filing reports approximately $100.5 million in aggregate net proceeds. The company said cash on hand at September 30 together with IPO proceeds was expected to fund operations and capital expenditures through at least 2017, subject to assumptions and spending needs.
- The Cambridge office and laboratory lease began in October 2015, runs for 7.5 years, and is supported by a $1,000 letter of credit. Wave also guaranteed certain obligations under a sublease through August 2019, with maximum exposure of $600 before indemnification; it expected about $91 of additional exit costs in Q4 2015.
- Following the IPO, the Compensation Committee approved discretionary executive bonuses totaling $535,000 and salary increases for two executives for 2016.
Outlook, risks, and controls
- Management expected to select lead candidates for the Huntington’s disease SNP-2 and SMAD7 programs in early 2016, and to file INDs for its lead candidates in 2016 and early 2017. These are forward-looking plans, not assured outcomes.
- Management expected research and development and public-company costs to rise. The company said it would need substantial additional funding over time and might not obtain it on acceptable terms.
- Key risks include the preclinical stage of all programs; scientific, clinical, regulatory, manufacturing, intellectual-property and commercialization uncertainty; reliance on third parties; competition; and potential foreign-exchange and tax exposures. The filing reported no material legal proceedings and no off-balance-sheet arrangements as of September 30.
- Management concluded disclosure controls were not effective at the reasonable-assurance level. The identified material weakness concerned controls over review and approval of manual journal entries and supporting calculations. Remediation had begun, including hiring a controller and plans to add finance staff and strengthen review procedures.
Most important facts for investors to verify
- Whether the stated cash runway through at least 2017 remains supported by actual post-IPO cash, spending, and development plans; the filing reports approximately $100.5 million net IPO proceeds after quarter-end.
- Whether planned lead-candidate selection and IND filing milestones are achieved, and whether preclinical results support clinical development.
- Whether operating losses and cash use accelerate as research programs, clinical preparation, and public-company costs expand.
- Whether the material weakness is remediated and disclosure controls and internal financial reporting become effective.
- Potential exposure under the sublease guarantee and the company’s ability to meet long-term lease and other funding needs.