Solid Biosciences Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019; filed August 14, 2019. Solid Biosciences is a clinical-stage biotechnology company developing treatments for Duchenne muscular dystrophy (DMD). Its lead candidate, SGT-001, is an investigational gene transfer; the company had no approved products or product revenue.
Financial performance and liquidity
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $21.6m | $13.6m | $44.9m | $25.5m |
| General and administrative | $5.4m | $4.6m | $12.4m | $8.6m |
| Total operating expenses | $27.0m | $18.2m | $57.3m | $34.2m |
| Net loss | $26.5m | $18.0m | $56.1m | $33.9m |
| Basic and diluted loss per share | $0.76 | $0.52 | $1.61 | $1.06 |
At June 30, cash and cash equivalents were $51.8m and available-for-sale securities were $15.6m, totaling $67.4m. Cash, cash equivalents and restricted cash declined $34.5m during the first half. Operating activities used $52.2m; investing activities provided $17.7m, primarily reflecting net security maturities; financing activities provided no cash. The company reported no debt outstanding, but had operating and finance lease liabilities totaling approximately $7.9m. With no revenue, operating or profit margins are not meaningful.
Changes versus comparable periods
- Q2 net loss increased $8.5m year over year; first-half net loss increased $22.3m.
- First-half R&D expense rose $19.4m, including higher SGT-001 manufacturing and clinical-development costs, spending on other candidates, and increased personnel and laboratory-facility costs.
- First-half G&A expense rose $3.8m, principally from personnel and facility costs. Equity-based compensation was $7.4m for the first half, versus $2.1m a year earlier.
- The first half of 2018 included $131.5m of net IPO financing proceeds; the first half of 2019 had no financing cash flows.
Outlook, clinical program and key risks
- Management estimated that June 30 liquidity, combined with net proceeds of $58.2m from a July 30, 2019 private placement, would fund planned operating expenses and capital requirements into Q4 2020. The financing sold 10.6m common shares and 2.3m pre-funded warrants; it increases potential share dilution.
- Despite that estimated runway, the company stated that substantial doubt exists about its ability to continue as a going concern within twelve months after issuance of the financial statements. It expects continuing losses and says additional funding will be needed; financing may be unavailable or dilutive, and programs could be delayed, reduced or discontinued.
- SGT-001 is being studied in the Phase I/II IGNITE DMD trial. Preliminary data from the first three patients at the lowest dose showed low or undetectable microdystrophin, with varying results by assay. The company said higher doses might produce greater expression, but this was not established by those preliminary data.
- For a second-cohort patient dosed at a higher dose, the filing describes a serious gastrointestinal infection considered unrelated to treatment, a transient platelet decline considered treatment-related, and transient liver-enzyme and bilirubin elevations reported as a serious treatment-related adverse event; the abnormalities resolved, including after increased oral glucocorticoids.
- After quarter-end, the company reported protocol changes including a 25 kg upper weight limit for at least the next second-cohort patient and removal of the matched control arm for the remainder of that cohort. It said a patient had been dosed under the amended protocol and anticipated additional data later in 2019.
- The company cited gene-therapy safety, clinical and regulatory uncertainty, patient enrollment, manufacturing capacity and consistency, third-party supply reliance, and the need for further capital as material risks. It also disclosed that a proposed company-built manufacturing facility could require $60m–$75m in capital expenditures.
- Disclosure controls were not effective as of June 30 because previously identified material weaknesses in financial reporting controls remained under remediation. The company reported progress but said remediation was not complete.
- A putative securities class action was voluntarily dismissed without prejudice on June 28, 2019. The filing also notes the possibility of other litigation and its associated costs.
Important facts for investors to verify
- Progress, safety findings and protocol status in IGNITE DMD, including subsequent clinical data and any regulatory actions.
- Actual cash burn and whether the July financing and current operating plan support the stated runway; the filing’s substantial-doubt conclusion remains important despite management’s runway estimate.
- Potential dilution from the July placement, pre-funded warrants and future fundraising, and the timing and terms of any further capital needs.
- Manufacturing reliability, clinical supply availability and whether any decision to build a facility changes projected capital requirements.
- Whether internal-control material weaknesses are remediated and controls are tested and operating effectively.