OvaScience, Inc. — Q3 2017 Form 10-Q
Issuer discrepancy: The supplied filing is for OvaScience, Inc., not Tempest Therapeutics, Inc. It covers the unaudited quarter and nine months ended September 30, 2017.
Business context and strategy
OvaScience was developing fertility treatments based on egg precursor cells. Its stated priorities were advancing OvaPrime in clinical development and OvaTure in preclinical development. In June 2017, it discontinued ongoing AUGMENT efforts outside North America and reduced its workforce by approximately 50%, following a prior reduction of approximately 30% in December 2016. The company said it had generated limited revenue and did not expect significant near-term revenue.
Financial results and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0.056m | $0.197m | $0.204m | $0.532m |
| Operating loss | $9.406m | $18.964m | $41.922m | $58.644m |
| Net loss | $9.367m | $19.291m | $42.447m | $59.617m |
| Research and development | $4.016m | $4.990m | $14.777m | $16.932m |
| Selling, general and administrative | $5.056m | $12.612m | $22.935m | $38.276m |
| Restructuring expense | $0.361m | — | $3.842m | — |
| Net loss per share | $0.26 | $0.54 | $1.19 | $1.92 |
Revenue was immaterial relative to expenses, so conventional revenue margins are not informative. For the nine months, operating cash use was $37.579m, investing cash provided was $18.424m (primarily net investment maturities), and financing cash flow was zero. Cash and cash equivalents were $24.775m; short-term investments were $50.961m. Combined cash and investments totaled $75.736m, down from $114.388m at December 31, 2016. Working capital was $68.704m. Total liabilities were $9.737m; the balance sheet reported no debt.
Management stated that available cash, equivalents and short-term investments were expected to fund its current operating plan for at least 12 months from the filing date, while warning that assumptions could prove wrong and external funding was not committed. The company had an accumulated deficit of $293.0m.
Changes, outlook and risks
- Lower operating expenses and net losses versus 2016 largely reflected workforce reductions and reduced commercial and marketing activity. Nine-month results included $3.842m of restructuring charges; remaining restructuring cash payments were estimated at $1.2m through Q1 2018. Management expected only immaterial additional restructuring charges in Q4 2017.
- OvaPrime: the company expected to complete biopsies in 70 trial patients and announce initial safety data from the first 20 by year-end 2017. These were expectations, not reported results.
- OvaTure: management described ongoing development work but said there was no certainty that efforts would produce a fertilized bovine EggPC-derived egg by year-end. It was also discussing the future of the OvaXon joint venture with Intrexon.
- AUGMENT: the FDA had previously advised the company to file an investigational new drug application for U.S. use. The company said it was discussing a regulatory pathway with the FDA but could not assure that the agency would change its position. A subsequent October 25, 2017 agreement granted IVF Japan Group an exclusive, one-year license in Japan; compensation included $1,000 per cycle, reimbursement of anticipated lab and personnel costs of about $0.2m, and materials reimbursement for cycles above 100.
- Several shareholder class and derivative lawsuits remained pending. The company disputed the claims, but said it could not estimate potential losses; an adverse resolution could materially affect financial position or results.
- Key risks included clinical and preclinical development uncertainty, regulatory approval, commercialization and market acceptance, intellectual-property protection, and the need for additional capital. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer identity: this filing is OvaScience, not Tempest Therapeutics.
- Track cash burn against the stated 12-month runway and assumptions underlying the operating plan.
- Verify OvaPrime trial progress and safety findings, and whether OvaTure development produces reproducible evidence.
- Monitor the FDA’s position on AUGMENT and the economics, cycle volume and renewal of the Japan agreement.
- Follow developments in the pending litigation and any resulting estimate or disclosure of potential losses.