Voyager Therapeutics(VYGR) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, with notes on accounting policies and key financial events Condensed Consolidated Balance Sheets Total assets significantly increased to $388.6 million from $177.0 million, driven by cash and marketable securities, while liabilities and stockholders' equity also grew Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $79,885 | $46,859 | | Total current assets | $340,775 | $162,481 | | Total assets | $388,592 | $177,029 | | Liabilities & Stockholders' Equity | | | | Deferred revenue, current | $52,291 | $20,847 | | Deferred revenue, non-current | $167,436 | $92,199 | | Total liabilities | $270,188 | $130,583 | | Total stockholders' equity | $118,404 | $46,446 | | Total liabilities and stockholders' equity | $388,592 | $177,029 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) The company reported $11.2 million net income for Q2 2019, a significant turnaround from a prior-year loss, driven by increased collaboration revenue, despite rising R&D expenses Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Collaboration Revenue | $46,087 | $2,575 | $51,284 | $3,517 | | Research and Development | $28,576 | $16,507 | $53,407 | $31,360 | | General and Administrative | $8,322 | $11,762 | $17,981 | $18,945 | | Operating Income (Loss) | $9,189 | $(25,694) | $(20,104) | $(46,788) | | Net Income (Loss) | $11,153 | $(25,541) | $(16,017) | $(45,468) | | Net Income (Loss) per Share, Diluted | $0.29 | $(0.80) | $(0.46) | $(1.43) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity significantly increased to $118.4 million by June 30, 2019, primarily due to common stock issuance from the Neurocrine Collaboration and net income - Total stockholders' equity increased to $118.4 million as of June 30, 2019, up from $46.4 million at the end of 2018[25] - The issuance of 4,179,728 shares of common stock related to the Neurocrine Collaboration Agreement contributed $77.6 million to additional paid-in capital during the first quarter of 2019[25] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly increased to $93.6 million for H1 2019, driven by collaboration revenue, while investing activities used $139.5 million for marketable securities Six Months Ended June 30 Cash Flow Summary (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $93,605 | $26,108 | | Net cash used in investing activities | $(139,549) | $(970) | | Net cash provided by financing activities | $78,970 | $2,946 | | Net increase in cash, cash equivalents, and restricted cash | $33,026 | $28,084 | Notes to Unaudited Condensed Consolidated Financial Statements This section details the company's accounting policies, fair value measurements, and collaboration agreements, providing context for the financial statements - The company is a clinical-stage gene therapy company focused on severe neurological diseases using an adeno-associated virus (AAV) platform[30] - As of June 30, 2019, the company had an accumulated deficit of $285.1 million and believes its cash, cash equivalents, and marketable securities of $327.5 million are sufficient to fund operations into mid-2022[33][34] - Effective January 1, 2019, the company adopted the new lease accounting standard ASC 842, resulting in the recognition of a right-of-use asset of approximately $31.0 million and a lease liability of approximately $36.7 million[58] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition, operational results, and liquidity, highlighting the impact of collaboration revenues and future funding requirements Overview Voyager is a clinical-stage gene therapy company focused on neurological diseases, with its lead candidate VY-AADC for Parkinson's in Phase 2, and recently regained rights to its Huntington's program - The most advanced clinical candidate, VY-AADC for Parkinson's disease, is being evaluated in the RESTORE-1 Phase 2 trial[216][223] - In June 2019, the collaboration with Sanofi Genzyme was terminated, resulting in Voyager regaining worldwide rights to its Huntington's disease program (VY-HTT01) and ex-U.S. rights to its Friedreich's ataxia program (VY-FXN01)[214][229] - The company plans to file an Investigational New Drug (IND) application for its Huntington's disease program (VY-HTT01) during 2019[228][232] Results of Operations Q2 2019 collaboration revenue surged to $46.1 million due to the Sanofi Genzyme termination and ongoing collaborations, while R&D expenses increased and G&A expenses decreased Comparison of Three Months Ended June 30 (in thousands) | Item | 2019 | 2018 | Change | | :--- | :--- | :--- | :--- | | Collaboration revenue | $46,087 | $2,575 | $43,512 | | Research and development | $28,576 | $16,507 | $12,069 | | General and administrative | $8,322 | $11,762 | $(3,440) | | Net Income (loss) | $11,153 | $(25,541) | $36,694 | - The increase in Q2 2019 collaboration revenue was primarily driven by the recognition of $30.2 million related to the termination of the Sanofi Genzyme Collaboration[261] - The decrease in G&A expense was mainly due to a $3.4 million reduction in compensation costs, as the prior-year period included a one-time $5.4 million stock-based compensation charge related to the former CEO's retirement[265] Liquidity and Capital Resources The company held $327.5 million in cash and marketable securities as of June 30, 2019, expecting these funds to support operations into mid-2022, primarily from collaboration agreements - As of June 30, 2019, the company held $327.5 million in cash, cash equivalents, and marketable debt securities[278] - The company expects its existing cash and anticipated reimbursements from the Neurocrine Collaboration will fund operating expenses and capital requirements into mid-2022[286][340] Six Months Ended June 30 Cash Flow Summary (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $93,605 | $26,108 | | Net cash used in investing activities | $(139,549) | $(970) | | Net cash provided by financing activities | $78,970 | $2,946 | Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity on its short-term, low-risk investment portfolio, with no material exposure to foreign currency or inflation risk - The company's main market risk is interest rate sensitivity affecting its portfolio of money market funds and U.S. Treasury notes[314] - Management asserts that due to the short-term and low-risk nature of its investments, a 1% change in interest rates would not materially impact the portfolio's fair market value[314] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting during the quarter - As of June 30, 2019, management concluded that the company's disclosure controls and procedures were effective[318] - No material changes to the company's internal control over financial reporting occurred during the three months ended June 30, 2019[321] PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings and does not anticipate future ordinary course matters to have a material adverse impact - The company is not currently party to any material legal proceedings[323] Risk Factors This section details significant risks, including financial losses, the unproven nature of gene therapy, reliance on third parties, intellectual property challenges, and commercialization uncertainties Risks Related to Financial Position and Need for Capital The company has a history of significant losses and an accumulated deficit of $285.1 million, requiring substantial additional funding to continue product development and operations - The company has incurred significant losses since inception, with an accumulated deficit of $285.1 million as of June 30, 2019, and anticipates continued losses[325] - Substantial additional funding will be needed to continue operations, and failure to raise capital may force delays, limitations, or termination of product development efforts[338] - Existing cash is expected to fund operations into mid-2022, but future capital requirements are substantial and depend on many factors, including clinical trial progress and collaboration outcomes[340][341] Risks Related to Development and Regulatory Approval Development and regulatory approval for novel AAV gene therapies are highly uncertain due to complex requirements, high failure rates, and risks associated with surgical administration - AAV gene therapy is a novel technology with only two products approved in the U.S., making it difficult to predict development time, cost, and regulatory approval pathways[348][350] - Regulatory requirements for gene therapy are frequently changing, which may lengthen the review process, require additional studies, and increase development costs[353] - The administration of product candidates like VY-AADC and VY-HTT01 requires brain surgery, which carries risks of undesirable side effects (e.g., hemorrhages) that could delay or prevent regulatory approval[392] Risks Related to Third Parties The company's revenue and development rely entirely on third-party collaborations and service providers, whose performance or financial instability could significantly harm the business - All revenue to date has been derived from collaborations with Sanofi Genzyme (now terminated), AbbVie, and Neurocrine. Termination of the ongoing collaborations would materially harm the business[440] - The company relies on the ClearPoint System from MRIC for surgical delivery in its VY-AADC trials. MRIC has disclosed financial instability and a "going concern" risk, which could disrupt the supply of this critical device[459][462] - Reliance on CROs and clinical trial sites for proper and timely execution of studies is critical, and any failure by these third parties to perform satisfactorily could delay or compromise clinical programs[469] Risks Related to Manufacturing Gene therapy manufacturing is complex and relies on third-party contractors, posing risks from regulatory non-compliance, contamination, and raw material shortages - Gene therapy manufacturing is technically complex and requires substantial expertise. The company relies on third-party contract manufacturers for its program materials[475][476] - Any failure by the company or its contract manufacturers to comply with cGMP requirements could lead to clinical holds, fines, and significant delays in the supply of product candidates[479] - The manufacturing process is vulnerable to contamination and shortages of critical raw materials, which are often sourced from a limited number of suppliers, potentially delaying clinical development[480][487] Risks Related to Business Operations Business operations face risks related to talent retention, compliance with complex healthcare laws, potential employee misconduct, and cybersecurity vulnerabilities that could disrupt programs - Future success depends on retaining key management and scientific personnel in a highly competitive market for talent with gene therapy experience[497][499] - The company is subject to numerous federal, state, and foreign healthcare laws, including fraud and abuse and data privacy regulations (like GDPR), with non-compliance carrying substantial penalties[519][525] - Internal computer systems and those of collaborators are vulnerable to cyber-attacks and security breaches, which could lead to a material disruption of development programs and loss of proprietary information[536] Risks Related to Commercialization Commercial success is uncertain due to challenges in market acceptance, high costs requiring adequate reimbursement, the need for sales capabilities, and potential negative public perception of gene therapy - The high expected cost of gene therapy products makes obtaining adequate coverage and reimbursement from government and private payors essential for commercial success, but this is highly uncertain[552] - Commercial success depends on market acceptance by physicians, patients, and the medical community, which is influenced by factors like efficacy, safety, cost-effectiveness, and convenience compared to alternative treatments[562] - Negative public opinion, ethical concerns, and increased regulatory scrutiny of gene therapy, potentially fueled by adverse events in the field, could damage perception and hinder commercialization[565] Risks Related to Intellectual Property Intellectual property risks include reliance on licensed patents, challenges in obtaining and maintaining patent protection, potential infringement lawsuits, and difficulties in protecting trade secrets - The company relies on licenses from third parties for key technology. If these licenses are terminated or fail to provide adequate protection, the ability to develop and commercialize products could be adversely affected[573][575] - The patent position of biotech companies is highly uncertain. The company's patent applications may not issue, or if they do, they may not provide meaningful protection or could be successfully challenged by competitors[582][584] - The company may face litigation from third parties claiming infringement of their intellectual property rights, which could be expensive, time-consuming, and force a halt to commercialization efforts[601] Risks Related to Ownership of Common Stock Ownership risks include significant influence by principal stockholders, potential stock price volatility, and reduced disclosure as an emerging growth and smaller reporting company - Executive officers, directors, and principal stockholders beneficially own approximately 49% of outstanding common stock, giving them significant influence over corporate matters[625] - The stock price is likely to be volatile, and sales of a substantial number of shares by existing stockholders could cause the price to fall[629][632] - The company is an "emerging growth company" and a "smaller reporting company," which permits reduced public disclosure requirements[640]