BridgeBio Pharma, Inc. — Q3 2019 Form 10-Q Summary
Business context and reporting period
BridgeBio is a clinical-stage biopharmaceutical company developing medicines for Mendelian diseases and genetically driven cancers through a portfolio of wholly owned and controlled subsidiaries. The filing covers the three and nine months ended September 30, 2019. BridgeBio completed its corporate reorganization and initial public offering on July 1, 2019, issuing 23.575 million shares at $17.00 per share and receiving approximately $366.2 million of net proceeds.
The company had more than 15 development programs, including four product candidates in clinical trials that management believed could support marketing applications if successful. No product candidate had been approved for commercial sale, and the company had generated no product-sales revenue.
Financial performance and liquidity
| Metric | Three months ended September 30, 2019 | Three months ended September 30, 2018 | Nine months ended September 30, 2019 | Nine months ended September 30, 2018 |
|---|---|---|---|---|
| License revenue | $26.7 million | $0 | $26.7 million | $0 |
| Research and development expense | $55.3 million | $31.1 million | $152.5 million | $88.9 million |
| General and administrative expense | $23.5 million | $10.3 million | $59.4 million | $29.2 million |
| Loss from operations | $(54.5) million | $(41.5) million | $(187.6) million | $(118.1) million |
| Net loss | $(60.7) million | $(42.1) million | $(204.4) million | $(120.2) million |
| Net loss attributable to BridgeBio | $(60.0) million | $(31.4) million | $(187.1) million | $(92.1) million |
| Basic and diluted loss per share | $(0.51) | $(0.52) | $(1.86) | $(1.60) |
The quarter’s license-revenue gross margin was approximately 90.7% after $2.5 million of sublicense costs. Consolidated operating and net margins were approximately negative 203.9% and negative 226.9%, respectively, reflecting the company’s development-stage cost structure and the one-time nature of the license revenue.
- Cash and cash equivalents were $414.0 million at September 30, 2019, compared with $436.1 million at December 31, 2018.
- Marketable securities totaled $198.0 million, bringing cash, cash equivalents and marketable securities to $611.9 million.
- Working capital was approximately $518.3 million.
- Net cash used in operating activities was $177.4 million for the first nine months, compared with $90.2 million in the prior-year period.
- Net cash used in investing activities was $200.4 million, primarily reflecting $197.7 million of marketable-securities purchases.
- Net cash provided by financing activities was $355.9 million, primarily from the BridgeBio IPO, additional debt, and subsidiary financing.
- Term loans had a carrying amount of $75.0 million. Interest-only payments were scheduled through July 1, 2021, with maturity on January 1, 2023. Reported interest rates ranged from 8.60% to 9.10% as of September 30, 2019.
- Accumulated deficit was $366.6 million at September 30, 2019.
Material changes versus the prior comparable period
- Revenue increased from zero to $26.7 million in the quarter and year to date, primarily from Eidos’s September 2019 Alexion license agreement for AG10 in Japan. The amount included a $25.0 million upfront payment and a $1.7 million premium associated with Alexion’s purchase of Eidos shares.
- Research and development expense increased 77% in the quarter and 72% year to date, driven by more development programs, additional clinical trials, increased staffing, clinical-development costs, and facility and other expenses.
- General and administrative expense increased 128% in the quarter and 103% year to date, reflecting organizational expansion, public-company costs, higher professional fees, personnel costs, and equity compensation.
- Quarterly net loss increased 44%, while nine-month net loss increased 70%. Net loss attributable to BridgeBio increased 91% in the quarter and 103% year to date.
- Interest income increased substantially as the company invested IPO proceeds in cash equivalents and marketable securities, but interest expense also increased because of additional Hercules term-loan borrowings.
- PellePharm was no longer consolidated following the November 2018 LEO transaction. BridgeBio recorded $6.6 million of PellePharm losses in the quarter and $16.1 million year to date, and held a $4.0 million Level 3 LEO call-option liability.
- BridgeBio acquired control of ML Bio in July 2019 and recognized a $0.4 million loss from the asset acquisition. BridgeBio also made significant investments in several controlled entities, including $80.0 million in QED and $24.0 million in Origin.
Guidance, outlook, risks and unusual items
- Management expects significant expenses and increasing operating losses for at least the next several years, with research and development expense expected to increase substantially as Phase 3 and other clinical programs advance.
- The filing states that available resources were expected to fund operations for at least the next 12 months; the risk-factor discussion separately states that cash, cash equivalents and IPO proceeds were expected to fund operations through at least the next 24 months. Neither statement represents formal revenue or earnings guidance.
- BridgeBio expects to require substantial additional capital. Future financing could dilute stockholders, impose debt covenants, or require the company to delay, scale back, or discontinue development programs.
- The Hercules facility requires maintenance of $20.0 million of unrestricted cash unless specified market-capitalization or regulatory milestones are met. The facility is secured by company assets and equity interests and includes mandatory-prepayment provisions tied to certain asset-sale or licensing proceeds.
- The company’s principal operating risks include clinical-trial failure or delay, regulatory nonapproval, patient-enrollment difficulties, manufacturing and single-source-supplier risk, reliance on contract research and manufacturing organizations, intellectual-property disputes, reimbursement uncertainty, competition, and dependence on key personnel.
- A partial clinical hold remained relevant to Phoenix Tissue Repair’s BBP-589 program because of an FDA request concerning the potency assay for future product lots.
- The company reported effective disclosure controls as of September 30, 2019, but previously identified material weaknesses in internal control over financial reporting had not been remediated. Eidos also had an unremediated material weakness involving complex debt and equity accounting and disclosure controls.
- A PellePharm-related lawsuit filed by Children’s Hospital Research Center at Oakland was confidentially settled and dismissed with prejudice in September 2019. The filing states that ordinary-course legal matters could not be reasonably estimated and no related liability was accrued.
- Future minimum operating-lease payments totaled $10.5 million. Contractual obligations, including lease payments, principal, interest, and final debt payments, totaled approximately $102.9 million.
Most important facts for an investor to verify
- Whether the $26.7 million Alexion-related license revenue is nonrecurring and the timing and probability of the additional $30.0 million regulatory milestones and future royalties.
- The company’s cash burn, subsidiary-level cash restrictions, and the portion of the $611.9 million liquidity balance actually available to BridgeBio for general corporate purposes.
- The pace and cost of Phase 3 programs, particularly BBP-265 and BBP-831, and the status of regulatory filings and clinical milestones.
- The terms, collateral package, minimum-cash requirement, interest rates, and repayment schedule of the $75.0 million Hercules facility.
- Progress toward remediation of BridgeBio’s and Eidos’s material weaknesses in internal control over financial reporting.
- The status of the BBP-589 partial clinical hold, manufacturing readiness, and other disclosed product-specific regulatory or safety issues.
- Potential dilution from the 2019 equity plans, restricted stock, stock options, subsidiary financings, and any future capital raises.