ABVC BioPharma, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The consolidated financial statements are unaudited. ABVC is a clinical-stage biotechnology and medical-device developer, with revenue also generated by BioKey’s contract development and manufacturing services.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $312,860 | $31,441 | $338,520 | $294,591 |
| Gross profit | $304,493 | $30,795 | $328,257 | $292,700 |
| Gross margin | 97.3% | 98.0% | 97.0% | 99.4% |
| Operating expenses | $2,351,353 | $2,066,310 | $8,593,838 | $3,580,960 |
| Net loss | $1,947,333 | $2,052,956 | $8,034,948 | $3,248,279 |
| Net loss per share, basic and diluted | $(0.06) | $(0.08) | $(0.26) | $(0.13) |
- Q2 revenue rose sharply, primarily from a clinical development services agreement with related party Rgene. First-half revenue increased 15% year over year, with Rgene service income partly offset by weaker CDMO revenue.
- First-half operating expenses rose 140%, chiefly due to nonemployee stock-based compensation of $4.9 million, costs associated with stock issuance, and higher R&D spending. The large stock-compensation charge is noncash.
- Cash used in operations was $6.42 million in the first half, versus $2.86 million a year earlier. Investing activities used $115,246; financing provided $3.66 million, primarily from the May 2022 common-stock offering.
- At June 30, cash and cash equivalents were $2.91 million; restricted cash was $689,000. Current assets were $9.79 million and current liabilities $3.65 million, for working capital of $6.14 million. Current assets include $3.71 million due from related parties.
- Total liabilities were $4.60 million, including $1.57 million in short-term bank loans, $462,000 due to related parties, and $1.29 million in operating lease liabilities. Convertible-note carrying value was zero. Bank debt was secured or guaranteed as described in the filing.
Changes, financing, and unusual items
- Compared with the first half of 2021, the net loss increased by $4.79 million, despite higher revenue. Lower interest expense and the absence of prior-year investment losses and government grant income partly affected the comparison.
- In May, ABVC sold 2.0 million common shares for $4.22 million gross and issued five-year warrants for 2.0 million additional shares at $2.45 per share. Net proceeds reported in financing cash flow were $3.66 million after fees and expenses.
- ABVC issued 1.381 million shares for consulting services during the first half, including 1.306 million shares for deferred service fees related to the 2021 public offering. Shares outstanding were 32.31 million at June 30 and 32.63 million as of August 10.
- The company reported no material legal proceedings and stated that disclosure controls were effective at quarter-end. No formal financial guidance was provided.
Outlook, risks, and contingencies
- Management’s strategy centers on advancing clinical-stage programs and seeking partners or out-licensing opportunities. It said it expected to seek its first commercialization partner for Vitargus in 2023; this is an expectation, not a guarantee.
- Programs described include Vitargus (ABV-1701), ABV-1504 for major depressive disorder, and ABV-1505 for ADHD. After quarter-end, the company reported Thailand ethics approval for the Vitargus Phase II protocol and said the ADHD Phase II Part II study had enrolled 22 of 32 screened subjects as of July 2022.
- Management cited COVID-19-related effects on laboratory activity and CDMO demand, and uncertainty about recovery. The filing also highlights clinical and regulatory execution, competition, access to financing, foreign-exchange effects, and the need for substantial increases in sales to support future operating income.
- Related-party exposure is significant: due-from-related-party balances increased to $3.71 million, mainly involving BioFirst, BioFirst Australia, and Rgene. The filing describes lending and service arrangements with these entities, including a Rgene convertible loan; amounts and terms should be reviewed carefully.
- The filing says goodwill was impaired based on financial condition and uncertain future cash flows, while the balance sheet reports no goodwill. It also warns that estimates, including impairment assessments, may be affected by business conditions.
Investor verification priorities
- Reconcile related-party receivables and loans, particularly the Rgene convertible loan’s principal, funded amount, repayment schedule, conversion terms, and balance-sheet presentation.
- Assess cash runway against first-half operating cash use, planned clinical-trial spending, and the company’s stated need for financing.
- Review the dilution and potential proceeds from outstanding warrants, the May offering, and shares issued for consulting services.
- Track clinical-trial enrollment, regulatory approvals, timelines, and any partnership progress for Vitargus and the drug pipeline.
- Reconcile the MD&A’s stated first-half revenue of $336,961 with the financial statements’ reported revenue of $338,520; the MD&A attributes $1,559 to related-party consulting services.