Replimune Group, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2019 (fiscal first quarter), compared with the three months ended June 30, 2018. Filed August 14, 2019. Financial statements are unaudited. Replimune is a clinical-stage biotechnology company developing oncolytic immunotherapies; it has no approved products and no product-sale revenue.
Key financial metrics
| Metric | June 30, 2019 quarter / period end | Comparable / prior period |
|---|---|---|
| Revenue | No product-sale revenue | No product-sale revenue |
| Research and development expense | $7.46 million | $3.94 million |
| General and administrative expense | $3.45 million | $1.94 million |
| Total operating expenses | $10.91 million | $5.88 million |
| Net loss | $9.51 million | $10.04 million |
| Net loss per share, basic and diluted | $0.30 | $2.02 |
| Net cash used in operating activities | $13.58 million | $6.86 million |
| Cash and cash equivalents | $38.36 million | $25.70 million at March 31, 2019 |
| Short-term investments | $82.44 million | $109.11 million at March 31, 2019 |
| Total assets / total liabilities | $143.54 million / $13.39 million | $154.33 million / $16.47 million at March 31, 2019 |
| Accumulated deficit / stockholders’ equity | $69.18 million deficit / $130.15 million equity | $59.77 million deficit / $137.86 million equity at March 31, 2019 |
Cash, cash equivalents and short-term investments totaled $120.80 million at quarter end. Operating cash use increased year over year, partly reflecting a $6.90 million increase in long-term prepaid rent following lease-accounting adoption. Investing activities provided $26.81 million, primarily from sales and maturities of short-term investments, rather than operating receipts. The company reported no debt outstanding at June 30; lease liabilities totaled $0.73 million. No revenue or gross margin from product sales was reported.
Material changes versus the prior comparable quarter
- Operating expenses rose $5.03 million, with R&D up $3.52 million and G&A up $1.51 million. Management attributed the R&D increase to RP1 clinical-trial spending, additional personnel and broader research costs; higher G&A mainly reflected hiring and expanded operations.
- Net loss improved by $0.54 million despite higher operating expenses. The comparison benefited from the absence of a $5.45 million warrant-liability fair-value charge recorded in 2018, as well as increased investment income and R&D incentives.
- Weighted-average shares increased to 31.66 million from 4.98 million, principally reflecting the July 2018 IPO and conversion of preferred stock. This substantially affects the year-over-year per-share comparison.
- Adoption of the new lease standard on April 1, 2019 changed balance-sheet presentation, including derecognition of a $11.51 million build-to-suit asset and $6.56 million financing obligation and recognition of lease-related assets and liabilities.
Outlook, developments and risks
- Liquidity outlook: Management stated that available cash and investments should fund operating and capital requirements for at least 12 months from the August 14, 2019 financial-statement issuance. The MD&A also estimated funding into the second half of calendar 2021, based on assumptions that may prove wrong. The company expects continued losses and will need additional capital to pursue its plans.
- Clinical plans: RP1 Phase 2 enrollment was open for melanoma, non-melanoma skin cancers and bladder cancer; the MSI-H/dMMR cohort was expected to open in September 2019, subject to evaluation of a Phase 1 expansion patient. A Regeneron-supported, randomized Phase 2 study of RP1 plus cemiplimab versus cemiplimab alone in approximately 240 patients with cutaneous squamous cell carcinoma was expected to begin in August 2019. RP2 Phase 1 was planned for the third quarter of 2019, pending FDA and UK regulatory questions on CMC matters; RP3 clinical development was targeted for 2020, subject to regulatory clearance.
- Manufacturing and commitments: The company was developing an in-house manufacturing facility and estimated capital expenditures of approximately $22.5 million, net of about $8.9 million in tenant-improvement costs. Clinical manufacturing commitments were $3.78 million through March 31, 2020. Completion, qualification and regulatory readiness remain risks.
- Post-quarter financing: On August 7, 2019, Replimune borrowed $10 million under a secured term-loan facility of up to $30 million, with a four-year term, interest at the greater of prime plus 2.75% or 8.75%, and customary covenants and prepayment charges. The loan is secured by substantially all assets except intellectual property, subject to exceptions. On August 8, the company entered into an ATM sales agreement permitting up to $75 million of common-stock sales, subject to its terms; sales were not assured and would incur a 3% agent commission.
- Controls and other risks: Management concluded disclosure controls were not effective at the reasonable-assurance level because of material weaknesses involving accounting staffing, segregation of duties and formal controls for complex transactions. Management said the financial statements were fairly presented and described remediation efforts. The company also faces clinical, regulatory, funding, manufacturing, collaboration, intellectual-property and foreign-exchange risks. No material litigation was reported.
Important facts for investors to verify
- Progress, safety and efficacy data from RP1 trials, including enrollment timing and the planned combination studies.
- Actual cash burn, capital spending and runway versus management’s estimates, including the effects of the post-quarter loan and any ATM share sales.
- Manufacturing-facility construction, costs, clinical supply availability and regulatory qualification.
- Whether material weaknesses are remediated and disclosure and financial-reporting controls become effective.
- Loan interest, covenants, security and repayment terms, as well as potential dilution from equity financing and outstanding equity awards.