Cocrystal Pharma, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; filed August 14, 2023. Amounts are in U.S. dollars; financial statement figures are in thousands unless otherwise noted.
Business context
Cocrystal is a clinical-stage biopharmaceutical company developing antiviral drug candidates. It has no products approved for sale and reported no revenue for the periods presented. Its principal programs include influenza candidate CC-42344 and coronavirus/norovirus candidate CDI-988.
Financial performance and liquidity
| Metric | Three months ended June 30, 2023 | Six months ended June 30, 2023 | Comparable 2022 period |
|---|---|---|---|
| Revenue | None reported | None reported | None reported |
| Research and development expense | $2.801 million | $6.708 million | $2.361 million and $5.233 million, respectively |
| General and administrative expense | $1.538 million | $2.742 million | $1.375 million and $2.708 million, respectively |
| Operating loss | $4.339 million | $9.450 million | $24.428 million and $28.633 million, respectively |
| Net loss | $4.166 million | $9.355 million | $24.428 million and $28.636 million, respectively |
| Basic and diluted loss per share | $0.41 | $1.03 | $3.00 and $3.48, respectively |
Gross and operating margins are not meaningful because the company reported no revenue. Six-month net cash used in operating activities was $8.659 million, versus $7.634 million in 2022. Investing activities used $59,000; financing provided $3.993 million, principally from a $4.0 million stock placement. Cash and restricted cash totaled $32.494 million at June 30, 2023, including $32.419 million unrestricted cash. Management said cash was sufficient for planned operations for more than 12 months.
Total assets were $36.279 million and stockholders’ equity was $34.682 million. Total liabilities were $1.597 million, primarily accounts payable, accrued expenses, and lease liabilities; the filing reports no conventional borrowings. The company had a $1.207 million tax-credit receivable. Lease liabilities totaled $176,000.
Changes versus prior periods
- Q2 2023 R&D expense increased $440,000 year over year; six-month expense increased $1.475 million. Management attributed the increases mainly to preparation for the CC-42344 Phase 2a influenza study and advancement of CDI-988 toward clinical testing.
- Six-month operating cash use increased by $1.025 million year over year, which management attributed primarily to clinical-trial completion and preparation costs.
- Net loss was substantially lower than in 2022, mainly because 2022 included a $19.092 million noncash goodwill impairment and $1.6 million legal-settlement expense; neither charge recurred in 2023.
- In April 2023, the company issued 2,030,458 shares at $1.97 per share for $4.0 million. The purchasers included an entity controlled by a director and an investor who subsequently joined the Board. Shares outstanding rose to 10.174 million at June 30, from 8.143 million at year-end 2022.
Outlook, risks, and unusual items
- Management was preparing to initiate a Phase 2a human-challenge study of CC-42344 for influenza A and a Phase 1 study of CDI-988 for coronavirus. In August 2023, the company also announced CDI-988 as its lead oral norovirus candidate. These are plans, not reported trial outcomes.
- Merck continues development of influenza A/B compounds under a collaboration agreement. Cocrystal may receive development, regulatory, and sales milestones (up to $156 million) and royalties, but Merck may terminate the agreement before first commercial sale.
- The company has incurred recurring losses and negative operating cash flows and has no established revenue source. Management expects it may need additional capital; future financing may be unavailable or dilutive.
- Liberty Insurance litigation remains pending. The appellate court vacated an earlier judgment in Cocrystal’s favor on appeal and remanded the matter for trial; a December 4, 2023 trial date was set. The court ordered the return of the $1.6 million deposit, which the company reported receiving on August 8, 2023.
- Management cited clinical-development and regulatory uncertainty, trial recruitment and vendor/supply-chain risks, competition, virus mutations, reliance on collaboration partners, macroeconomic pressures, and the outcome of the Liberty litigation. It reported disclosure controls were effective and no material internal-control changes during the quarter.
Important facts for investors to verify
- Whether reported cash runway remains adequate as clinical-program spending progresses, and what financing may be required.
- Timing, enrollment, safety results, and costs for the CC-42344 Phase 2a and CDI-988 clinical programs.
- Outcome of the Liberty coverage dispute and any resulting financial exposure or recovery.
- Terms and potential dilution from future equity financing, including any use of the company’s ATM offering facility.
- Progress and potential milestone or royalty economics of the Merck collaboration.