Werewolf Therapeutics, Inc. — Q1 2021 Form 10-Q
Business context and reporting period
Unaudited results cover the three months ended March 31, 2021, compared with the three months ended March 31, 2020. Werewolf is a pre-revenue, early-stage biotechnology company developing conditionally activated cancer immunotherapies using its PREDATOR platform. Its lead candidates, WTX-124 and WTX-330, and WTX-613 were all in preclinical development; the company had not begun clinical trials.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / prior balance |
|---|---|---|
| Revenue | No revenue | No revenue |
| Research and development expense | $4.817 million | $2.763 million |
| General and administrative expense | $2.635 million | $1.131 million |
| Total operating expenses / operating loss | $7.452 million | $3.894 million |
| Net loss | $7.435 million | $3.827 million |
| Net loss attributable to common stockholders | $102.451 million | $3.827 million |
| Basic and diluted loss per share attributable to common stockholders | $83.36 loss | $4.58 loss |
| Net cash used in operating activities | $7.326 million | $3.399 million |
| Cash and cash equivalents at quarter-end | $84.602 million | $92.570 million at December 31, 2020 |
| Total current assets / current liabilities | $84.865 million / $5.409 million | $92.914 million / $5.284 million at December 31, 2020 |
| Accumulated deficit | $153.756 million | $51.865 million at December 31, 2020 |
| Borrowings under term loan | None; up to $14 million available | None |
The $95.016 million increase in preferred stock redemption value was a non-cash accretion, not operating expense. It drove the substantially larger common-stockholder loss and per-share loss; net loss from operations was $7.435 million. No product revenue or profit margin was reported. Quarter-end cash, cash equivalents and restricted cash totaled $84.900 million.
Material changes versus the prior comparable period
- R&D expense increased $2.054 million, primarily from $1.678 million higher manufacturing costs for preclinical and anticipated clinical supplies, and higher personnel costs.
- G&A expense increased $1.504 million, primarily from personnel and recruiting costs and IPO-preparation consulting costs.
- Operating cash use increased $3.927 million to $7.326 million. The company reported a $7.877 million net decrease in cash, cash equivalents and restricted cash during the quarter.
- Cash and cash equivalents declined from $92.570 million at year-end 2020 to $84.602 million at March 31, 2021. The accumulated deficit increased to $153.756 million.
Outlook, commentary, risks and unusual items
- Management planned to submit IND applications for WTX-124 and WTX-330 in the first half of 2022, followed by first-in-human trials. The filing does not provide specific financial guidance for 2021.
- The company reported that its May 4, 2021 IPO raised $120.0 million gross and approximately $108.9 million net. All preferred stock outstanding at quarter-end converted into approximately 18.3 million common shares upon the IPO. The filing gives differing runway statements: at least 12 months from the June 10 filing date in a financial-statement note, versus at least 24 months in MD&A, in each case including IPO proceeds.
- Management expects substantial and increasing R&D and operating losses, and says the cash available, including IPO proceeds, will not fund complete development of its candidates. Further financing will be required; equity financing may dilute shareholders and debt or partnerships may impose restrictions or require rights to be shared.
- The company had no outstanding term-loan borrowings at March 31, 2021, but could draw up to $14 million before November 2021, subject to facility terms. The loan has a minimum cash covenant and limits on capital expenditures; borrowings would be secured by company assets other than intellectual property.
- A June 2021 Watertown laboratory and office lease, entered after quarter-end, covers approximately 25,778 square feet for an approximately eight-year term, with estimated base rent of $17.9 million and a $1.0 million letter-of-credit deposit.
- Management said COVID-19 had not caused a material financial-statement impact or business disruption to date, but noted possible effects on research, manufacturing, vendors and future clinical timelines.
- Disclosure controls were deemed ineffective as of March 31, 2021 because of unremediated material weaknesses in staffing and segregation of accounting duties. The company had hired finance staff and was implementing remediation; completion was not yet established.
- Key development risks include the preclinical stage of all candidates, uncertain safety and efficacy, novel biologics manufacturing and reliance on third-party manufacturers and research organizations, competition, intellectual-property and licensing risks, and the need for additional capital.
Important facts for investors to verify
- Reconcile the stated cash runway of at least 12 months versus at least 24 months, including the assumptions behind each estimate.
- Track actual use of IPO proceeds, quarterly cash burn, future financing needs and whether the $14 million loan facility remains available on acceptable terms.
- Monitor progress toward IND submissions for WTX-124 and WTX-330 in the first half of 2022, manufacturing readiness and any clinical-start delays.
- Confirm remediation and independent testing of the material weaknesses in financial reporting controls.
- Assess the financial and operational impact of the new Watertown lease and other post-quarter-end commitments.
- Distinguish operating losses from the large non-cash preferred-stock accretion when evaluating common-stockholder loss and loss per share.