Solid Biosciences Inc. — Q2 2018 Form 10-Q
Reporting period: Three and six months ended June 30, 2018. Unaudited results; financial statement amounts below are in millions of dollars unless otherwise noted. Solid is a clinical-stage biotechnology company developing treatments for Duchenne muscular dystrophy (DMD); it had no approved products and generated no revenue.
Financial performance and position
- Revenue and margins: No revenue in Q2 or the first half of 2018 or comparable 2017 periods. Profit margins are not meaningful for a pre-revenue company.
- Q2 results: R&D expense was $13.6 million versus $8.6 million a year earlier; G&A was $4.6 million versus $3.3 million. Total operating expenses were $18.2 million, up $6.3 million. Net loss was $18.0 million versus $11.3 million; basic and diluted loss per share was $0.52 versus $0.66.
- First-half results: R&D expense was $25.5 million versus $17.3 million; G&A was $8.6 million versus $8.7 million. Total operating expenses were $34.2 million versus $26.0 million. Net loss was $33.9 million versus $25.2 million; loss per share was $1.06 versus $1.12.
- Drivers of expense changes: Management attributed the first-half R&D increase mainly to higher personnel and facility costs, including the new laboratory, and greater SGT-001 clinical-development and manufacturing activity. Lower preclinical costs partly offset the SGT-001 increase. First-half G&A was broadly flat; lower equity compensation offset higher personnel, facility and other corporate costs.
- Cash flow: First-half cash used in operations was $33.5 million, compared with $19.8 million in 2017. Investing activities used $4.1 million, including property and equipment purchases; financing provided $131.5 million, principally from the IPO. Cash, cash equivalents and restricted cash increased by $93.9 million to $146.1 million.
- Liquidity and debt: At June 30, cash and cash equivalents were $145.8 million and available-for-sale securities were $16.9 million, totaling $162.8 million. Total assets were $171.5 million, total liabilities $9.2 million, and stockholders’ equity $162.3 million. The company reported no debt. It said this liquidity was expected to fund operations and capital needs through the end of 2019; the notes also state it expected to fund at least the next 12 months from issuance of the statements.
- Financing and share count: The January 2018 IPO raised approximately $129.1 million net from 8,984,375 shares sold at $16 per share. At June 30, 35,444,792 common shares were outstanding.
Material developments and outlook
- SGT-001 clinical program: Following an unexpected serious adverse event in the first patient dosed, the FDA placed IGNITE DMD on full clinical hold in March 2018. The reported event included reduced platelet and red blood cell counts, transient renal impairment and complement activation; the patient’s condition resolved. The FDA lifted the hold in June, and screening resumed. The revised protocol adds early IV glucocorticoids, enhanced complement monitoring and availability of eculizumab if complement activation occurs. The company planned to dose several children before additional adolescents and expected initial interim trial data in the second half of 2019.
- Funding needs and spending: Management expected losses and expenses to rise as clinical development, manufacturing, facilities and public-company costs increase. It said substantial additional funding would be needed to meet longer-term objectives; future financing could dilute shareholders or constrain operations. A potential company GMP manufacturing facility was estimated to require $35–$45 million of capital expenditure, with a decision expected after initial IGNITE DMD data.
- Other commitments and unusual items: Operating lease commitments totaled $8.1 million. The company settled a dispute with a former third-party development/manufacturing provider for $1.32 million in April 2018. Charitable-organization income declined year over year and was not expected to increase significantly.
- Legal and regulatory risks: Two putative securities class actions concerning alleged disclosure of SGT-001 safety risks remained pending; a related third action was dismissed without prejudice, and a state-court case was stayed. The company could not estimate potential losses or determine whether an adverse outcome was probable. Clinical safety, trial enrollment, manufacturing consistency and regulatory delays remain significant uncertainties.
- Controls and intellectual property: Management concluded disclosure controls were not effective at the reasonable-assurance level because of material weaknesses in staffing, formal accounting controls and controls for complex transactions. Remediation was underway. The filing also highlights reliance on licensed IP and notes the company had no owned issued patents or pending non-provisional patent applications at the time.
Important facts for investors to verify
- Whether IGNITE DMD enrollment and dosing resumed as planned, and whether new safety findings or protocol changes affect the trial timetable and expected second-half 2019 interim data.
- How quickly the $162.8 million of cash and securities is being used, and whether the stated end-2019 runway remains supportable as development and facility costs rise.
- Manufacturing yield, clinical supply availability, and the timing, funding and necessity of any proposed $35–$45 million GMP facility.
- Status and potential financial impact of the securities litigation; the filing says losses cannot currently be estimated.
- Progress in remediating material weaknesses, and the scope and strength of the company’s licensed and owned intellectual-property protection.