Replimune Group, Inc. — Form 10-Q Summary
Reporting period: Three months ended June 30, 2020 (the company’s fiscal first quarter of fiscal 2021). The filing was signed August 7, 2020. Replimune is a clinical-stage biotechnology company developing oncolytic immunotherapies; it had no approved products and generated no product revenue.
Financial performance and position
- Revenue: No product revenue. The company reported research and development incentives of $0.7 million as other income.
- Expenses and loss: Research and development expense was $12.2 million, up $4.7 million (63%) year over year; general and administrative expense was $5.7 million, up $2.2 million (65%). Total operating expenses were $17.8 million. Net loss was $17.5 million, versus $9.5 million a year earlier; loss per share was $0.44 versus $0.30.
- Cash flow: Operating cash use was $15.1 million, compared with $13.6 million. Investing cash use was $49.1 million, primarily reflecting purchases of short-term investments net of maturities and sales. Financing provided $109.5 million, primarily from the June offering. Cash, cash equivalents and restricted cash increased $45.3 million during the quarter to $106.4 million.
- Liquidity: Cash and cash equivalents were $104.8 million and short-term investments were $157.0 million at June 30, totaling $261.8 million. Total current assets were $267.7 million and current liabilities were $11.9 million.
- Debt and leases: Long-term debt, net of discount, was $9.8 million, representing $10.0 million principal drawn. The Hercules facility was amended to allow up to $40.0 million in total borrowings, subject to terms and conditions. Lease liabilities totaled $33.4 million, including $27.3 million for financing leases. The facility’s stated minimum interest rate is 8.75%; its annual effective rate was approximately 10.5% at quarter-end.
- Margins: Operating and net margins are not meaningful because the company had no product revenue.
- Equity financing: The June follow-on offering generated approximately $107.8 million net proceeds. It included common shares and pre-funded warrants; 3,721,738 shares underlying outstanding pre-funded warrants were not included in reported shares outstanding.
Material changes versus the prior comparable period
- Net loss increased by $8.0 million year over year, while operating expenses rose $6.9 million. R&D growth reflected RP1 clinical-trial and manufacturing costs, increased personnel, and facility operations; G&A growth reflected staffing, facility costs, insurance, and professional fees.
- Other income, net, fell to $0.3 million from $1.4 million, mainly due to new finance-lease and debt interest expense and lower investment income.
- Operating cash use increased by $1.5 million. Financing cash flow rose substantially following the June 2020 offering; the comparable 2019 quarter had only minimal financing inflows.
- Common shares issued and outstanding increased to 40.3 million from 36.7 million at March 31, 2020, in part due to the June offering and option exercises.
Outlook, management commentary and risks
- Management expects continued and increasing operating losses as it advances RP1, RP2 and RP3, conducts trials, and operates its manufacturing facility. It stated that available cash, investments and debt commitments were expected to fund operating and capital requirements to mid-2023; separately, the financial-statement note states cash and investments were expected to cover at least 12 months from issuance. These are management estimates, not guarantees.
- RP1 development includes a Phase 2 trial in cutaneous squamous cell carcinoma (CSCC) with Regeneron’s cemiplimab; management expected recruitment to take approximately 18–24 months and a primary data readout in 2022. It expected the RP1/nivolumab non-melanoma skin cancer cohort to complete accrual by year-end 2020, while sufficient MSI-H/dMMR data could be delayed into 2021. Initial RP2/nivolumab safety and efficacy data were expected in the second half of 2020; the company intended to seek IND clearance for RP3 and enter clinical development during 2020.
- Interim RP1/nivolumab results included ongoing complete responses in four of seven evaluable CSCC patients and complete or partial responses in six of seven. In anti-PD-1-refractory cutaneous melanoma, five of 16 patients met the formal response definition at the data cutoff, with two additional patients still on treatment. These were interim, small-cohort findings and are not proof of efficacy in larger trials.
- COVID-19 had slowed enrollment in some studies, notably the trial in solid-organ transplant recipients with CSCC, and could further delay trials, disrupt suppliers or manufacturing, and affect productivity and financing access. The company reported no prolonged material business disruption to date.
- Replimune is pre-revenue and faces clinical, regulatory, manufacturing, competition, financing and intellectual-property risks. It may need additional capital; future equity issuance could dilute shareholders, while debt or collaboration arrangements may impose restrictions or require rights concessions.
- Controls: Management concluded disclosure controls were not effective as of June 30, 2020 because of material weaknesses involving staffing and segregation of duties, and formal controls for complex accounting matters. Remediation was underway, but the weaknesses were not yet considered remediated.
- The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether clinical-trial enrollment, timelines and interim response findings are sustained in larger, longer-term studies, particularly amid COVID-19 disruption.
- Whether the stated mid-2023 funding runway remains achievable as trial, manufacturing and operating costs increase, and whether additional financing will be needed.
- The terms, availability and milestone conditions for undrawn Hercules advances, as well as the impact of debt interest, end-of-term charges and lease obligations.
- Potential dilution from outstanding pre-funded warrants, options, the remaining at-the-market program and future equity financing.
- Progress and effectiveness of remediation of the disclosed material weaknesses in internal financial reporting and disclosure controls.