Solid Biosciences Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Solid Biosciences is a development-stage biotechnology company focused on Duchenne muscular dystrophy (DMD); it has no approved products and has not generated product revenue.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $11.9 million | $8.7 million |
| General and administrative expense | $4.0 million | $5.4 million |
| Total operating expenses / operating loss | $16.0 million | $14.1 million |
| Net loss | $15.9 million | $13.9 million |
| Net loss per share, basic and diluted | $0.54 | $0.01 |
| Net cash used in operating activities | $17.2 million | $10.2 million |
At March 31, 2018, cash and cash equivalents were $164.8 million and available-for-sale securities were $17.6 million, for combined cash, cash equivalents and securities of $182.4 million. Total assets were $189.2 million, total liabilities $10.3 million, and accumulated deficit $140.1 million. The company reported no debt. Gross margin is not applicable because there was no revenue.
Cash provided by financing activities was $131.7 million, primarily from the January IPO; investing activities used $1.6 million. Cash, cash equivalents and restricted cash at period-end were $165.1 million. The filing reports operating lease commitments of $8.4 million.
Material changes and unusual items
- R&D expense rose $3.2 million year over year, including higher unallocated costs and increased SGT-001 clinical development and manufacturing activity, partly offset by lower SGT-001 preclinical costs.
- G&A expense declined $1.3 million, mainly because Q1 2017 included a large equity-compensation charge related to the 2017 recapitalization; personnel and facility costs increased in Q1 2018.
- The January 2018 IPO generated approximately $129.1 million in net proceeds. The corporate conversion also converted preferred and common units into common stock.
- The 2017 comparative per-share loss reflects preferred-unit redemption and other recapitalization accounting; the reported common-stockholder loss was only $14,000 despite a company net loss of $13.9 million.
Outlook, risks and contingencies
- The lead candidate, SGT-001, is in a Phase I/II trial. The FDA placed the trial on full clinical hold in March 2018 after an unexpected serious adverse event in the first dosed patient, involving decreased platelet and red blood cell counts and evidence of complement activation. Enrollment and dosing were halted; the company was preparing its response to FDA information requests. An earlier partial hold on the higher-dose group had been resolved.
- Management expects continuing losses and substantial spending. The filing says available funds were expected to cover operating expenses and capital expenditures through at least the next 12 months; MD&A estimates funding through the end of 2019. Both estimates depend on assumptions and spending could exceed expectations.
- The company expects no product-sales revenue for the next several years, if ever, and may need additional financing. It discussed a potential company-owned GMP manufacturing facility, estimated to require $35–$45 million to commence operations, but had not finalized plans.
- Three putative stockholder class actions filed in March and April 2018 allege failures to disclose risks relating to SGT-001 toxicity and adverse events. The company said it could not estimate potential losses. Separately, a dispute with a former development, manufacturing and testing counterparty was settled in April 2018 for $1.32 million; the amount was accrued at March 31.
- Disclosure controls were deemed ineffective due to material weaknesses in financial reporting controls. Remediation efforts included adding finance and accounting personnel and developing formal policies and controls. The filing notes prior financial-statement restatement and adjustments tied to these weaknesses.
Most important facts for investors to verify
- FDA status of the SGT-001 full clinical hold, the company’s response, and any further safety findings or trial changes.
- Actual cash burn, spending assumptions and runway, particularly given the filing’s different runway descriptions and potential manufacturing investment.
- Progress in remediating material weaknesses and whether disclosure controls become effective.
- Developments in the securities litigation and the financial or operational impact of the settled counterparty dispute.
- Future financing needs, potential dilution, and execution of manufacturing and facility plans.