REGENXBIO Inc. — Q3 2016 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2016; financial statements are unaudited. REGENXBIO is a clinical-stage gene-therapy company developing and licensing its NAV AAV-vector platform. Its pipeline comprised 29 candidates: five internally developed and 24 partnered. It had no approved products and generated no product-sales revenue.
Financial performance and position
Amounts below are in millions, except per-share data. Comparisons are with the corresponding 2015 period.
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Total revenue | $0.125 | $1.140 | $2.893 | $3.140 |
| Research and development expense | $12.560 | $5.664 | $29.423 | $12.471 |
| General and administrative expense | $6.200 | $2.567 | $17.848 | $7.671 |
| Operating loss | $(18.668) | $(7.347) | $(44.871) | $(17.638) |
| Net loss | $(18.154) | $(7.332) | $(43.359) | $(17.635) |
| Basic and diluted loss per share | $(0.69) | $(1.52) | $(1.64) | $(5.48) |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $(28.135) | $(18.072) |
- Revenue and margins: Revenue was limited to licensing, reagent sales and grants; there was no meaningful product-sales base from which to assess commercial margins. The filing does not provide a clear gross-margin measure.
- Liquidity: Cash and cash equivalents were $28.108 million; marketable securities were $156.749 million, for combined cash and securities of $184.857 million. Current assets were $96.620 million and current liabilities $14.382 million.
- Debt and other balance-sheet items: The filing reports no outstanding debt at September 30, 2016. Total liabilities were $15.749 million; total assets were $195.975 million. Accumulated deficit was $94.979 million.
- Cash use and investment: Nine-month investing cash flow was positive $1.953 million, reflecting securities maturities and sales exceeding purchases, partly offset by $3.714 million of property and equipment purchases. Financing cash flow was $0.174 million, from option exercises. Cash and cash equivalents declined $26.008 million during the nine months.
Material changes versus prior comparable periods
- Q3 revenue fell $1.015 million, principally because Q3 2015 included a $1.000 million commercial-license upfront fee from Dimension; no commercial licenses were granted in Q3 2016.
- Nine-month revenue declined $0.247 million. Higher license revenue was offset by lower grant revenue; the company said U.S. federal grants were complete and expected substantially lower EU grant activity.
- Q3 R&D expense increased $6.896 million and G&A expense increased $3.633 million. For the nine months, those expenses rose $16.952 million and $10.177 million, respectively, reflecting increased staffing and stock compensation, preclinical work, RGX-501 clinical activity, manufacturing development, and public-company costs.
- Nine-month operating cash use increased $10.063 million, primarily due to the higher net loss. Property and equipment, net, increased from $0.538 million at year-end 2015 to $5.804 million.
- Investment income rose to $1.512 million for the nine months, from $0.023 million, largely reflecting the larger investment portfolio. Other comprehensive income included $1.572 million of unrealized gains on available-for-sale securities.
Outlook, commentary and risks
- Management said available cash and marketable securities were expected to fund operations and capital needs into 2018, while the liquidity note separately stated they were sufficient for at least the next 12 months. Management expected to fund continued RGX-501 Phase I/II work, an RGX-314 IND filing, and RGX-111 and RGX-121 IND filings.
- At the time of filing, management expected the first RGX-501 patient dose in the second half of 2016, an RGX-314 IND in Q1 2017, and RGX-111 and RGX-121 INDs in the first half of 2017. These are forward-looking expectations, not reported milestones achieved.
- The company expected losses and R&D and G&A expenses to continue rising for the foreseeable future. It may need substantial additional capital; financing may be unavailable or could dilute shareholders or require unfavorable terms.
- Key risks include early-stage clinical development and gene-therapy safety uncertainty; trial enrollment, regulatory, manufacturing and timing delays; reliance on Penn and third-party manufacturers and licensees; dependence on licensed intellectual property; and uncertainty of future licensing and milestone revenue. One customer accounted for approximately 69% of nine-month revenue.
- There were no material pending legal actions identified. Management concluded disclosure controls were effective and said previously identified internal-control material weaknesses had been remediated as of June 30, 2016.
Important facts for investors to verify
- Whether RGX-501 dosing and the stated IND timelines were achieved, and whether clinical or regulatory developments changed the expected schedule.
- Actual cash burn, investment liquidity and whether the stated runway into 2018 remains supportable as development spending grows.
- Revenue concentration, the timing and conditions of license milestones and royalties, and the pace of grant-revenue decline.
- Clinical and manufacturing progress, including trial enrollment, safety findings, production capacity and dependence on Penn and other third parties.
- Potential additional financing needs and dilution, and the continuing effectiveness of financial reporting controls.