MeiraGTx Holdings plc — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019; unaudited. MeiraGTx is a clinical-stage gene-therapy company with programs in ophthalmology, salivary-gland disease and neurodegenerative disorders, and a company-owned manufacturing facility. It has no approved products and has not generated product-sales revenue.
Financial performance and liquidity
- Revenue: Q2 license revenue was $2.0 million; six-month revenue was $2.8 million, both related to amortization of Janssen’s $100 million upfront payment. These amounts are not product-sales revenue. Janssen research-cost reimbursements are recorded as offsets to R&D expense.
- Losses and expenses: Q2 net loss was $20.8 million, versus $30.0 million in Q2 2018; six-month net loss was $38.8 million, versus $46.4 million. Six-month operating expenses were $44.7 million, up from $43.2 million: G&A fell to $21.9 million from $28.5 million, while R&D rose to $22.7 million from $14.7 million. No meaningful operating margin is presented for this pre-commercial business.
- Cash flow: Six-month operating cash flow was positive $60.4 million, compared with use of $36.4 million a year earlier. The 2019 inflow was principally supported by the Janssen upfront payment, much of which remained deferred revenue. Investing activities used $2.2 million; financing provided $77.6 million, primarily from the February private placement.
- Cash and liquidity: Cash and cash equivalents were $204.3 million at June 30, up from $68.1 million at December 31, 2018; cash, equivalents and restricted cash totaled $204.4 million. Current assets were $212.9 million and current liabilities $40.8 million. Management estimated available cash and expected Janssen research funding would fund operations and capital expenditures into 2022; the financial-statement liquidity note separately says cash on hand should cover at least the next 12 months.
- Debt and obligations: The filing reports no conventional borrowing balance. Lease obligations were approximately $17.1 million, principally operating leases. Total liabilities were $123.5 million, including $93.5 million of current and non-current deferred related-party revenue, largely associated with Janssen.
- Equity: The company raised $80 million gross in a February 2019 private placement, with approximately $2.4 million of issuance costs. Ordinary shares outstanding were 33.34 million at June 30; 33.37 million were reported as of July 31.
Changes versus the prior comparable period
- Six-month net loss narrowed by $7.6 million, although operating expenses increased by $1.5 million. The improvement reflected, among other items, foreign-currency gains in 2019 versus losses in 2018 and the absence of the prior-year warrant revaluation loss.
- R&D increased by $8.0 million for the first half, reflecting higher clinical-trial, consulting, manufacturing and UCL license-amendment costs; Janssen research funding partly offset these increases. G&A decreased by $6.6 million, mainly due to lower payroll and share-based compensation, partly offset by higher legal and accounting costs.
- Cash rose substantially following the $100 million Janssen upfront payment and $80 million private placement. The 2019 positive operating cash flow should not be interpreted as recurring operating profitability.
Outlook, programs and risks
- Management expects R&D and G&A costs to increase as clinical development, manufacturing capacity, hiring and public-company costs expand. The company expects to need additional capital over time; financing may dilute shareholders, impose debt restrictions or require licensing valuable rights.
- Clinical updates included an ongoing Phase 1/2 dose-finding trial of AAV-CNGA3; positive six-month AAV-RPE65 Phase 1/2 data, with regulatory discussions expected in 2019; ongoing enrollment in the AAV-hAQP1 xerostomia trial; and anticipated FDA discussions regarding the AAV-GAD Parkinson’s program. These are development updates, not approvals or guaranteed outcomes.
- Under the Janssen agreement, Janssen funds specified clinical and commercialization costs; MeiraGTx may receive further milestones and royalties. For the three inherited-retinal-disease clinical candidates, potential development and commercialization milestones total up to $340 million and royalties are 20% of net sales. As of June 30, $97.2 million of the upfront fee remained deferred and was expected to be recognized over an estimated development period of approximately 7.5 years.
- Key risks include clinical, safety and regulatory uncertainty for gene therapies; manufacturing scale-up, quality and third-party supply; dependence on collaboration and licensing partners; potential need for further financing; intellectual-property disputes; competition; foreign-exchange exposure; and the possibility that trials or regulatory discussions delay development. The filing states there were no material legal proceedings and no material changes in market risk.
- Management reported effective disclosure controls as of June 30 and no material change in internal control over financial reporting during the quarter. The company adopted lease-accounting guidance in 2019, recognizing right-of-use assets and lease liabilities; it also disclosed a planned London office lease expected to add approximately $6.9 million of lease assets and liabilities upon execution.
Important facts for investors to verify
- Whether management’s runway estimate into 2022 remains supported by spending, trial progress and Janssen funding; note that the estimate depends on assumptions and the filing warns cash could be used sooner.
- The terms, timing and conditions for Janssen reimbursements, option exercises, milestones and royalties, and the assumptions behind deferred-revenue recognition.
- Final, audited clinical data and subsequent regulatory feedback for AAV-RPE65 and the status of AAV-CNGA3, AAV-hAQP1 and AAV-GAD programs.
- Future R&D spending, manufacturing capacity and compliance, and the total lease commitments arising from recently signed or planned facilities.
- Potential dilution and share registration matters following the private placement, and whether any additional capital is required.