Revolution Medicines, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 14, 2020. Revolution Medicines is a clinical-stage precision oncology company developing targeted therapies, particularly against RAS and mTOR signaling pathways. It has no products approved for sale.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Collaboration revenue | $11.5 million | $13.2 million; down 12% |
| Research and development expense | $27.5 million | $21.2 million; up 30% |
| General and administrative expense | $5.2 million | $2.4 million; up 114% |
| Total operating expenses | $32.6 million | $23.6 million |
| Operating loss | $21.1 million | $10.4 million |
| Net loss | $19.5 million | $10.1 million |
| Operating cash used | $28.0 million | $12.6 million |
| Cash, cash equivalents and marketable securities | $347.9 million at March 31, 2020 | $122.8 million at December 31, 2019 |
All reported revenue was collaboration revenue from the related-party Sanofi agreement; the filing reports no product sales. Operating loss was approximately 183% of revenue, compared with approximately 79% in Q1 2019. The company reported no material borrowing debt; balance-sheet lease liabilities totaled $10.8 million, including operating leases. Accumulated deficit was $176.9 million. Management said available cash and marketable securities were expected to fund planned operations for at least 12 months following the report’s issuance.
Material changes and notable items
- The February 2020 IPO issued 16.1 million shares at $17 per share and generated approximately $250.7 million in net proceeds. All outstanding preferred shares converted into common stock at the IPO closing. Common shares outstanding reached 59.0 million at quarter-end.
- R&D expense rose mainly from higher third-party costs for the RAS, SOS1 and 4EBP1 programs and increased headcount. Lower RMC-4630 manufacturing costs partly offset the increase.
- G&A expense increased primarily with public-company legal, accounting and insurance costs, additional personnel, and stock-based compensation.
- Operating cash use increased year over year. Financing activities provided $253.7 million, primarily from IPO proceeds; investing cash use mainly reflected purchases of marketable securities.
- Lease accounting adoption on January 1, 2020 recognized an initial $11.5 million lease liability and $9.1 million right-of-use asset, without an impact on the income statement.
Outlook, risks and contingencies
- Management expects expenses and operating losses to increase as the company advances clinical and preclinical programs and operates as a public company. No numerical earnings or revenue guidance is provided.
- RMC-4630, a SHP2 inhibitor, is being studied in Phase 1/2 programs, including monotherapy and combination therapy with cobimetinib. The company expected to nominate its first mutant RAS(ON) development candidate in 2020.
- Under the Sanofi collaboration, Sanofi reimburses substantially all SHP2 development costs and 80% of specified 2019–2020 research costs. The agreement includes potential development and regulatory milestones of up to $520 million, plus U.S. profit/loss sharing and ex-U.S. royalties. Sanofi may terminate for convenience, which could remove funding and alter development rights.
- COVID-19 had not materially affected the quarter’s financial statements, but several RMC-4630 trial sites had temporarily stopped or delayed new enrollment. Patient screening, enrollment, monitoring and data collection could be delayed. The company then expected no material impact on RMC-4630 clinical supply.
- In April 2020, the company amended its Redwood City leases to add 19,483 square feet beginning December 2020 and extend the existing building lease through 2030. The associated future rents were not included in the quarter-end contractual-obligations table.
- Two former employees’ lawsuits were settled: one in March 2020 and the other in May 2020. The company stated the matter had no material adverse effect. It reported no other litigation it believed probable to have a material adverse effect.
- Management assessed disclosure controls as effective at the reasonable-assurance level; no material change in internal control over financial reporting was reported for the quarter.
Most important facts for investors to verify
- Cash runway assumptions and the pace of operating cash use, given the $28.0 million quarterly operating cash outflow and management’s at-least-12-month runway statement.
- RMC-4630 trial progress, enrollment and supply, including the extent and duration of COVID-19-related site disruptions.
- Sanofi’s continued participation, cost reimbursements, milestone conditions and termination rights.
- Use of IPO proceeds, subsequent share dilution and equity-plan awards; per-share loss comparisons are affected by the reverse stock split and IPO-related share changes.
- The financial effect of the expanded and extended leases, which were agreed after quarter-end.