Revolution Medicines, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Financial statements are unaudited. Revolution Medicines is a clinical-stage precision oncology company developing therapies for RAS-driven cancers; it has no products approved for sale and has not generated product-sales revenue.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Collaboration revenue | $3.4m | $1.1m | $20.1m | $19.9m |
| Research and development expense | $69.5m | $46.5m | $186.9m | $133.3m |
| General and administrative expense | $10.4m | $7.8m | $29.7m | $21.8m |
| Net loss | $73.3m | $52.9m | $192.2m | $134.4m |
| Basic and diluted net loss per share | $0.87 | $0.72 | $2.47 | $1.85 |
All amounts are losses or expenses where indicated. Revenue is entirely collaboration revenue under the Sanofi agreement; product-sales revenue and meaningful product gross margins are not reported. Operating loss was $76.5m in Q3 and $196.6m for the nine months.
- Cash and investments: Cash and cash equivalents were $178.9m and marketable securities were $476.1m at September 30, totaling approximately $655.0m, compared with approximately $577.1m at December 31, 2021.
- Cash flow, nine months: Net cash used in operations was $162.6m, versus $107.9m in 2021; investing activities used $17.0m, versus $150.7m; financing provided $250.1m, versus $283.5m. Financing included $248.1m net proceeds from the July 2022 public offering.
- Debt and obligations: The filing does not report borrowings or funded debt. Operating lease liabilities totaled $65.2m, including $7.0m current and $58.2m noncurrent. Undiscounted lease payments were $91.4m.
- Equity: Accumulated deficit was $644.8m. Shares issued and outstanding increased to 87.8m at September 30, from 74.1m at December 31, 2021, primarily reflecting the July offering. In October, after quarter-end, the company sold ATM shares for $18.0m net proceeds.
Changes versus the prior comparable period
- Q3 revenue increased $2.3m year over year, largely because the comparable 2021 period had a larger negative cumulative catch-up adjustment. For the nine-month period, revenue was nearly unchanged.
- R&D expense rose 49% in Q3 and 40% for the nine months. Management cited clinical-trial spending for RMC-6236 and RMC-6291, expanded preclinical work, higher headcount, facilities costs and stock-based compensation.
- G&A expense increased 34% in Q3 and 36% for the nine months, mainly reflecting personnel and stock-based compensation costs.
- Net loss widened by $20.4m in Q3 and $57.8m for the nine months. Higher interest income partly offset operating losses.
- Unrealized losses on investments were $2.0m for the nine months, recorded in other comprehensive loss. Marketable securities’ gross unrealized losses totaled $2.4m at September 30.
Outlook, management commentary and risks
- Management expects existing cash, cash equivalents and marketable securities to fund planned operations for at least 12 months following the filing. It also expects R&D and G&A expenses to increase and states that substantial additional funding will be needed in the future. No specific financial guidance is provided.
- Clinical milestones stated by management: evidence of single-agent activity for RMC-6236 and preliminary evidence of superior activity for RMC-6291 are expected in 2023; first-patient dosing for RMC-9805 is expected in mid-2023; and topline results from the RMC-4630-03 study are planned for the second half of 2023. These are forward-looking expectations, not assured outcomes.
- Sanofi collaboration revenue is recognized over a combined performance obligation using a cost-based measure of progress. Increased estimated development-plan costs in Q3 resulted in a $4.6m cumulative catch-up reduction in collaboration revenue. Sanofi may terminate the agreement for convenience, and controls important SHP2 development and commercialization rights.
- Key risks include clinical and regulatory failure or delay, uncertain early-stage RAS(ON) technology, patient enrollment and trial-site disruptions, reliance on third-party manufacturers and collaborators, competition, intellectual-property challenges, and the need for additional capital. COVID-19 could disrupt trials or suppliers; the company also notes potential trial impacts from the Russia-Ukraine conflict.
- The company reported no litigation it believes is likely to have a material adverse effect. It has standard indemnification arrangements whose maximum potential payments are not determinable. Contract research, manufacturing and vendor agreements are generally cancelable on 30–90 days’ notice. Disclosure controls were assessed as effective at the reasonable-assurance level.
Important facts for investors to verify
- Whether the stated 2023 clinical milestones and RMC-4630-03 data timing remain achievable, and how subsequent clinical evidence compares with management’s expectations.
- Cash burn and available runway as R&D programs advance, including the extent of future dilution or other financing needs.
- Sanofi’s continued participation, expense reimbursements, development decisions and any termination or material changes to the collaboration.
- The assumptions behind Sanofi revenue recognition and the effect of changes in estimated costs and progress on future collaboration revenue.
- Potential trial, manufacturing or enrollment delays from COVID-19, geopolitical events, competition or third-party dependencies.