Disc Medicine, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. The unaudited financial statements are presented under U.S. GAAP. Disc Medicine is a clinical-stage biopharmaceutical company developing treatments for serious hematologic diseases; it has no approved products and has generated no product revenue. The December 2022 merger with Gemini was accounted for as a reverse recapitalization, with Private Disc as the accounting acquirer.
Financial results and liquidity
| Metric (USD millions, except per-share data) | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | 12.1 | 7.7 | 32.3 | 15.5 |
| General and administrative expense | 5.2 | 4.3 | 10.2 | 6.4 |
| Total operating expenses / operating loss | 17.3 | 12.0 | 42.5 | 22.0 |
| Net loss | 15.9 | 9.6 | 38.7 | 19.4 |
| Net loss per share, basic and diluted | $0.74 | $10.14 | $1.91 | $20.80 |
| Interest income | 2.9 | 0.05 | 5.3 | 0.05 |
Balance sheet at June 30, 2023: Cash and cash equivalents were $377.6 million, versus $194.6 million at December 31, 2022; total current assets were $381.7 million; total assets were $384.2 million; and stockholders’ equity was $371.2 million. Total liabilities were $13.0 million, including $2.1 million of operating lease liabilities and a $1.5 million contingent value right (CVR) liability. The filing reports no debt borrowings. Accumulated deficit was $150.9 million.
Cash flows, six months ended June 30: Net cash used in operating activities was $48.2 million (2022: $22.9 million); investing activities used $0.04 million (2022: $0.12 million); financing activities provided $231.2 million (2022: $0.1 million). Cash, cash equivalents and restricted cash increased by $182.9 million to $377.7 million.
Profitability and operating margins are not meaningful measures for this pre-commercial company. The filing gives no product-sales margin. Management says available cash is expected to fund planned operating and capital needs well into 2026; the financial statement note separately states cash is expected to fund requirements for at least twelve months from issuance. Both are estimates based on assumptions, not guarantees.
Changes versus the prior comparable period
- Q2 operating expenses rose $5.3 million year over year; net loss increased $6.4 million. For the first six months, operating expenses increased $20.5 million and net loss increased $19.3 million.
- R&D growth reflected increased bitopertin clinical and manufacturing activity and higher personnel costs. First-half R&D also included the $10.0 million upfront payment under the Mabwell license agreement; MWTX-003 spending was $10.6 million for the six months.
- G&A increased, primarily from higher headcount and public-company costs. Interest income rose substantially with the larger cash balance and higher rates.
- Comparisons should be read in light of the December 2022 reverse merger and recapitalization. The 2022 operating results reflect Private Disc, and the weighted-average share counts and per-share losses differ substantially between periods.
Funding, programs and outlook
- During the first half, the company reported net financing proceeds of $147.9 million from a follow-on public offering, $62.4 million from a registered direct offering and $19.5 million from ATM sales, alongside option exercise proceeds. The ATM program was suspended effective June 12, 2023; sales require a new prospectus supplement or registration statement.
- Bitopertin: Phase 2 BEACON in EPP and XLP is underway in Australia; initial data were presented in June 2023. Management expects data from all BEACON patients by year-end 2023 and AURORA Phase 2 EPP topline data by early 2024. The NIH-sponsored DBA trial enrolled its first patient July 27, 2023, after quarter-end.
- DISC-0974: Phase 1b/2 trials are underway in myelofibrosis anemia and non-dialysis-dependent CKD anemia. Initial data from both trials are expected by year-end 2023.
- MWTX-003: The FDA-cleared candidate is planned to enter a Phase 1 healthy-volunteer trial in the second half of 2023. DISC-0998 remains preclinical.
- The company expects R&D and G&A expenses to increase as programs advance. It expects to need substantial additional funding over time; future financing may dilute shareholders, impose restrictive terms or require the company to grant rights to its programs.
Risks, contingencies and unusual items
- Clinical and regulatory risk is high: candidates are early-stage, trial outcomes may not predict later results, enrollment may be difficult, and interim data may change. The company has completed one Phase 1 trial and has no approved products.
- Operations depend on CROs, CDMOs and a limited number of suppliers. Manufacturing, quality, supply or vendor delays could affect clinical development; some APIs have single-source suppliers.
- Key financial risks include continued operating losses, dependence on future capital, potential equity dilution, and exposure to banking-sector disruptions. The company says it places cash with high-credit-quality financial institutions, but deposits may exceed insured limits.
- The $1.5 million Q2 CVR fair-value expense relates to possible proceeds from disposition of Gemini’s legacy assets; no such proceeds had been received by June 30, 2023, and CVRs may expire without payment. The CVR is valued using significant unobservable inputs.
- License agreements include contingent future milestones and royalties: up to $127.5 million in development and regulatory milestones and $275.0 million in commercial milestones under Mabwell, plus obligations under Roche and AbbVie agreements. These contingent amounts are not recorded as current liabilities in the filing’s contractual-obligations table.
- Operating leases total $2.5 million in undiscounted future minimum payments. The Watertown lease was amended in June 2023, including rent abatement, and the company subleased additional office space through November 2026.
- No material legal proceedings were reported. Management concluded disclosure controls and procedures were effective as of June 30, 2023; no material change in internal control over financial reporting was reported for the six-month period.
Most important facts for investors to verify
- Whether the stated cash runway into 2026 remains supported by actual spending, trial plans and updated financing needs.
- Timing and final results for BEACON, AURORA and both DISC-0974 trials, including how preliminary data compare with complete datasets.
- Whether MWTX-003 begins its planned Phase 1 trial in the stated timeframe and whether the July 2023 DBA enrollment progresses.
- R&D spending growth, including the Mabwell upfront payment, and the pace of ongoing cash use.
- Potential dilution, warrant exercise, ATM program status and any additional capital raises or licensing transactions.
- Clinical supply and manufacturing readiness, particularly reliance on third parties and single-source suppliers, as programs progress.