BioVie Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2020, the first quarter of BioVie’s fiscal year ending June 30, 2021. This is a clinical-stage biotechnology company; the filing reports no revenue for the quarter.
Financial and operating results
- Operating expenses: $386,755, down from $706,218 in the comparable 2019 quarter. Research and development was $100,914 versus $341,501; selling, general and administrative expense was $228,497 versus $307,373.
- Net result: Net income was $7.33 million, compared with a $3.82 million net loss a year earlier. The 2020 income included an $8.28 million noncash gain from the change in fair value of derivative liabilities, partly offset by $559,312 of interest expense. After a $53.60 million deemed dividend related to the controlling stockholder, net loss attributable to common stockholders was $46.26 million; basic and diluted loss per share were each $7.75.
- Cash flow: Cash used in operating activities was $1.08 million, versus $590,914 in the prior-year quarter. Financing provided $14.24 million, primarily reflecting the public offering and repayment of related-party debt. Cash increased from $37,195 at June 30 to $13.20 million at September 30.
- Liquidity and capital: Current assets were $13.25 million and current liabilities $203,174, yielding reported working capital of approximately $13.1 million. Total assets were $14.86 million and stockholders’ equity $14.60 million, versus a $21.50 million stockholders’ deficit at June 30.
- Debt and liabilities: The approximately $1.8 million related-party convertible debenture was repaid at the September offering closing, and warrant and conversion-option derivative liabilities were eliminated. The balance sheet reports a $62,500 long-term PPP loan payable, bearing 1% interest and potentially forgivable. Total liabilities were $265,674 on the balance sheet; MD&A separately describes them as approximately $256,000.
- Equity issuance: The September 22 registered offering sold 1,799,980 shares at $10 per share and generated approximately $15.6 million net of approximately $2.4 million in issuance costs. The company also issued 6,909,582 shares to controlling stockholder Acuitas in connection with prior contractual rights and warrant exercises. Shares outstanding were 13,916,164 at September 30 and November 3.
Material changes versus the prior comparable period
- Operating expenses fell by approximately $319,000, mainly because R&D activity was curtailed while the company focused on closing the offering.
- Interest expense declined to $559,312 from $3.48 million. Net income improved substantially, but principally because of derivative remeasurement rather than operating revenue; the large deemed dividend then produced a substantial loss attributable to common stockholders.
- The offering materially improved cash and equity and enabled repayment of the debenture and removal of derivative liabilities. The share count increased significantly, including the substantial issuance to Acuitas.
Business, outlook, and risks
- BioVie is developing BIV201, continuous-infusion terlipressin for ascites associated with cirrhosis. The company completed a Phase 2a trial in 2019. Following FDA written guidance in April 2020 and responses to follow-up questions, it said it had completed the protocol for a Phase 2 study intended to inform a pivotal Phase 3 design. BIV201 has FDA Fast Track and Orphan Drug designations.
- Management expected available funds to support operations through the next round of clinical trials through at least November 2021. The company expects substantial future losses and may require additional equity or debt financing, partnerships, licensing, or other funding; management cautioned that funding may not be available and planned research could be reduced or deferred.
- The filing identifies COVID-19-related disruption and capital-market uncertainty as potential threats to operations and fundraising. It also identifies clinical-development, regulatory, and financing risks.
- Patent contingency: In November 2019, the Patent Trial and Appeal Board found all claims of the company’s U.S. Patent No. 9,655,945 unpatentable, leaving that patent invalid or unenforceable. The company stated that its orphan-drug designations and pending liquid-formulation patent application were unaffected; the pending application was not an issued patent.
- The company disclosed royalty obligations on BIV201 and other covered terlipressin products. The PPP loan was accounted for as debt; forgiveness was not assured. Management reported no material legal proceedings, no material off-balance-sheet arrangements, and effective disclosure controls at the reasonable-assurance level.
Important facts for investors to verify
- Clinical-trial timing, enrollment, costs, FDA requirements, and whether available cash remains sufficient for the planned studies.
- The large controlling-stockholder share issuance, deemed-dividend accounting, related-party financing history, and resulting dilution and governance implications.
- The extent to which reported earnings depend on noncash derivative fair-value changes, and the difference between net income and the loss attributable to common stockholders.
- Status and scope of the pending formulation patent application, the effect of the invalidated ’945 patent, and applicable royalty obligations.
- PPP loan forgiveness status and the filing’s differing descriptions of September 30 total liabilities ($265,674 on the balance sheet versus approximately $256,000 in MD&A).