REGENXBIO Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; compared with the three months ended March 31, 2015. Unless otherwise stated, financial amounts below are in millions of U.S. dollars. REGENXBIO is a clinical-stage gene-therapy company developing and licensing its NAV AAV-vector platform. At quarter-end, the platform supported 28 product candidates: five internal and 23 partnered.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 / prior date |
|---|---|---|
| Total revenue | $0.393 | $0.644 |
| Research and development expense | $6.183 | $2.791 |
| General and administrative expense | $5.479 | $1.716 |
| Operating loss | $(11.251) | $(3.993) |
| Net loss | $(10.768) | $(4.011) |
| Basic and diluted loss per share | $(0.41) | $(0.94) |
| Net cash used in operating activities | $(7.887) | $(1.675) |
| Cash, cash equivalents and marketable securities | $208.608 | $216.367 at December 31, 2015 |
| Total liabilities | $6.383 | $4.572 at December 31, 2015 |
| Accumulated deficit | $62.388 | $51.620 at December 31, 2015 |
Revenue comprised $0.328 of license revenue, $0.059 of reagent sales and $0.006 of grant revenue. Operating margin and product-sales margins are not meaningful indicators at this stage: the company reported no sales of approved products. The filing reports no borrowings or interest expense for Q1 2016; liabilities were primarily operating items and deferred rent. Current assets were $105.580 million against current liabilities of $5.781 million.
Comprehensive loss was $9.774 million, less than net loss because of a $0.994 million unrealized gain on available-for-sale securities recorded in other comprehensive income. Investment income was $0.483 million. The company held $35.511 million of cash and cash equivalents and $173.097 million of marketable securities at March 31.
Changes versus the prior comparable period
- Revenue declined $0.251 million, or about 39%. License revenue rose $0.228 million, but grant revenue fell $0.434 million as grant-funded activity decreased; reagent sales fell $0.045 million.
- Net loss widened by $6.757 million. R&D expense increased $3.392 million, mainly from personnel, clinical-trial manufacturing and consulting costs; G&A rose $3.763 million, primarily from personnel and stock-based compensation, professional fees and public-company costs.
- Operating cash use increased $6.212 million. Investing activities used $10.739 million, largely reflecting purchases of marketable securities net of maturities; financing provided just $0.021 million, versus $26.021 million of net preferred-stock proceeds in Q1 2015.
- Loss per share improved from $(0.94) to $(0.41), but the comparison is affected by the post-IPO increase in weighted-average shares, from 2.645 million to 26.327 million, and different preferred-stock adjustments in 2015.
Outlook, risks and other notable items
- Management said available cash, cash equivalents and marketable securities were expected to fund operations and capital requirements into 2018, including planned development activities. This estimate depends on assumptions; the company expected losses and expenses to continue rising and may need additional financing.
- Development milestones were forward-looking: an RGX-501 Phase I/II trial was expected to begin in the first half of 2016; an RGX-111 IND was expected in the first half of 2016, with its trial expected in Q3; and an IND filing for wet-AMD candidate RGX-314 was expected in the second half of 2016. The filing cautions that development timing and outcomes are uncertain.
- Management expected lower grant revenue and did not plan to seek further grant awards. License and reagent revenue remained limited and uncertain; no product candidate had been commercialized by REGENXBIO or its licensees.
- Disclosure controls were not effective as of March 31, 2016 because of material weaknesses in contract review and in the resources, review and segregation of duties supporting financial reporting. Remediation was underway but was not yet considered complete; management stated the financial statements were fairly presented.
- Key risks include gene-therapy clinical, safety, manufacturing and regulatory uncertainty; reliance on licensees and third-party manufacturers; dependence on intellectual-property licenses; ongoing losses and possible future dilution; and customer concentration, with four customers accounting for about 82% of Q1 revenue.
- The company disclosed no material pending legal proceedings, no defaults on senior securities, and no off-balance-sheet arrangements. It reported $7.775 million in future minimum operating-lease payments.
Most important facts for investors to verify
- Whether the stated runway into 2018 remains credible as trial, manufacturing and operating costs rise, and whether additional capital will be required.
- Actual progress and timing for RGX-501, RGX-111 and RGX-314 clinical and regulatory milestones, including any delays or safety findings.
- Whether the company remediates and tests the disclosed material weaknesses sufficiently to conclude its financial reporting controls are effective.
- How much future revenue depends on a small number of licensees and customers, and whether licensee programs achieve development milestones.
- The distinction between net loss and comprehensive loss: the Q1 securities-related unrealized gain was recorded outside net income and does not represent operating performance.