REGENXBIO Inc. — Q2 2018 Form 10-Q
Business context and reporting period
Clinical-stage gene therapy company licensing its NAV AAV-vector platform and developing candidates for retinal, metabolic and neurodegenerative diseases. This unaudited filing covers the quarter and six months ended June 30, 2018, compared with the same 2017 periods. More than 20 partner product candidates were using the platform; the company had no approved products and no product-sale revenue.
Key financial metrics
| Metric | Q2 2018 | Six months 2018 | Comparable 2017 |
|---|---|---|---|
| Revenue | $40.0 million | $172.4 million | $6.6 million Q2; $7.0 million six months |
| Operating expenses | $33.7 million | $64.0 million | $21.6 million Q2; $45.0 million six months |
| Operating income (loss) | $6.4 million | $108.4 million | $(15.1) million Q2; $(38.0) million six months |
| Net income (loss) | $10.6 million | $114.8 million | $(14.5) million Q2; $(36.5) million six months |
| Diluted earnings (loss) per share | $0.30 | $3.29 | $(0.47) Q2; $(1.27) six months |
| Operating cash flow | Not separately stated | $128.3 million | $(27.0) million six months |
At June 30, cash and cash equivalents were $106.9 million and marketable securities were $199.4 million, totaling $306.3 million in cash, cash equivalents and marketable securities. Current assets were $293.3 million versus current liabilities of $16.9 million. The filing reports no debt. Accumulated deficit was $68.1 million; stockholders’ equity was $317.2 million.
Research and development expense rose 54% to $21.5 million in Q2 and 34% to $41.0 million for the six months, mainly reflecting increased personnel, clinical-trial and manufacturing/process-development costs. General and administrative expense rose 31% to $8.3 million in Q2 and 29% to $16.7 million for the six months. No gross margin is presented; reported operating results are substantially affected by license revenue.
Material changes and unusual items
- Results were driven principally by the January 2018 amendment to the AveXis SMA license and AveXis’s May acquisition by Novartis. REGENXBIO received $80 million on amendment and a further $100 million when the change-of-control clause accelerated payments. The filing attributes $172.1 million of six-month license revenue to the amended AveXis license.
- Operating cash flow of $128.3 million reflects, in large part, the $180 million of AveXis payments collected during the six months; it should not be viewed as recurring operating cash generation.
- REGENXBIO adopted ASC 606 on January 1, 2018 using the modified retrospective method. It recorded a $4.8 million reduction in opening accumulated deficit. Comparisons with 2017 are not on the same accounting basis, and ASC 606 materially shifted the timing and classification of AveXis-related revenue and interest. For example, Q2 reported license revenue was $40.0 million versus $101.3 million on the company’s “without Topic 606” comparison; reported net income was $10.6 million versus $63.7 million on that basis.
- Management expects cash and marketable securities at June 30 to fund operations and capital requirements for at least 12 months from the report date, but expects operating losses for at least several years and anticipates needing substantial additional capital.
Outlook, clinical update and risks
- RGX-314 (wet AMD): The Phase I study had dosed 18 subjects across three cohorts. Preliminary results included dose-dependent protein expression and fewer anti-VEGF injections; in Cohort 3, the reported mean reduction in injections was 53% versus subjects’ prior six-month history. A fourth, higher-dose cohort had begun dosing. The company expected to complete that cohort’s dosing by Q4 2018 and initiate Phase II in 2019. Results are early and from small cohorts.
- RGX-501 (HoFH): Six subjects had been dosed. Transaminase elevations occurred in all three Cohort II subjects; one peak ALT was 1,469 IU/L, and steroid treatment was used, with reported normalization. Two serious adverse events were considered drug-related across the study. The company planned a protocol amendment including steroid prophylaxis, later primary LDL-C assessment and cohort expansion, subject to regulatory and independent safety review.
- Other programs: RGX-111 and RGX-121 were expected to begin Phase I or Phase I/II enrollment in Q4 2018. The company also expected to announce another lead candidate in the second half of 2018.
- Key risks include clinical failure or delays, gene-therapy safety and regulatory uncertainty, manufacturing capacity and supply, dependence on licensees and partners, patent protection, and the need for future financing. One customer accounted for approximately 99% of six-month 2018 revenue. A third party’s challenge to the licensed AAV8 patent was pending before the European Patent Office, with oral proceedings scheduled for October 26, 2018.
- Management stated disclosure controls were effective as of June 30, 2018. It anticipated losing emerging-growth-company status and becoming subject to auditor attestation of internal controls beginning in 2019.
Important facts for investors to verify
- Separate cash collected from license revenue recognized, and assess the effect of ASC 606 when comparing periods.
- Review the AveXis/Novartis payment terms, remaining contingent milestone and royalty potential, and concentration of revenue in a single licensee.
- Track RGX-501 liver safety, steroid use, protocol changes and subsequent LDL-C data.
- Assess whether RGX-314’s early, small-cohort findings are sustained and support the planned Phase II timeline.
- Monitor cash burn excluding exceptional partner receipts, financing needs, manufacturing readiness and the AAV8 patent opposition.