Cocrystal Pharma, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Cocrystal is a clinical-stage biopharmaceutical company developing antiviral candidates; it has no products approved for sale and relies primarily on equity financing. Dollar amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $0 | $0.489 | $0 | $1.504 |
| Research and development expense | $2.165 | $2.077 | $6.489 | $5.336 |
| General and administrative expense | $1.788 | $1.121 | $4.030 | $4.288 |
| Operating loss | $(3.953) | $(2.709) | $(10.519) | $(8.120) |
| Net loss | $(3.941) | $(2.670) | $(10.500) | $(8.155) |
| Basic and diluted loss per share | $(0.04) | $(0.05) | $(0.12) | $(0.16) |
- Revenue was absent in 2021 after Cocrystal completed its primary research responsibilities under the Merck collaboration in January; Merck is responsible for further development. The company said it did not expect 2021 revenue other than possible collaboration milestone payments.
- Operating expenses totaled $3.953 million in Q3 and $10.519 million for nine months. Management attributed year-to-date R&D growth mainly to advancing COVID-19 and influenza programs. Q3 G&A increased primarily because of legal litigation settlements; nine-month G&A declined due to lower professional fees after certain legal matters concluded.
- Operating cash used was $9.797 million for nine months, versus $7.449 million in 2020. Investing cash used was $0.044 million, versus $0.239 million. Financing provided $38.475 million, mainly from equity offerings.
- At September 30, cash was $61.644 million and restricted cash was $0.050 million. Current assets were $62.441 million and current liabilities $1.228 million. Total liabilities were $1.586 million, primarily lease liabilities; the filing reports no material conventional borrowing. Management believed unrestricted cash would fund planned operations for at least 36 months.
- Net loss widened year over year for both the quarter and nine-month period. Nine-month operating cash use also increased. The 2020 comparison included Merck collaboration revenue, while 2021 had none.
Capital, business developments, and outlook
- In May 2021, Cocrystal sold 26 million shares at $1.54 per share and received approximately $36.4 million net. January ATM sales generated approximately $2.072 million net. Nine-month net proceeds from common-stock sales were $38.505 million.
- Shares outstanding increased from 70.439 million at December 31, 2020 to 97.469 million at September 30, 2021. Authorized common shares were raised from 100 million to 150 million in August 2021. Further equity financing may be needed and could dilute shareholders.
- Influenza: CC-42344 was selected as a preclinical lead; the company reported completion of preclinical IND-enabling studies and Australian authorization to begin a Phase 1 study. Merck continues work on its influenza A/B collaboration program; Cocrystal anticipated a further update in Q1 2022.
- COVID-19 and other coronaviruses: CDI-45205 was being prepared for potential clinical development, with a stated goal of trials in 2022. The company also anticipated selecting an oral SARS-CoV-2 3CL protease preclinical lead by the end of 2021 and continued work on replication inhibitors. These are forward-looking plans, not assured milestones.
- Norovirus: The company continued development of polymerase and protease inhibitors and held exclusive rights to certain KSURF-licensed antiviral compounds. No quantified commercial outlook or formal financial guidance was provided.
- COVID-19-related raw-material and test-animal shortages, as well as delays involving CROs and CDMOs, had affected research. Management cited potential further supply, laboratory-access, trial-recruitment, and Australia-related delays.
- Goodwill was $19.092 million; management reported no impairment required at September 30, 2021. The company recorded no income tax expense or benefit and maintained a full valuation allowance against deferred tax assets.
Legal matters, contingencies, and other notable items
- In August 2021, the company settled the A.G.P./Alliance Global Partners lawsuit; it was dismissed with prejudice. Q3 G&A was affected by legal litigation settlements.
- Liberty Insurance Underwriters sued over coverage and recovery of approximately $1 million previously paid in connection with an SEC investigation and related litigation. Cocrystal denied the allegations and asserted counterclaims; trial was scheduled for July 2022.
- A Pederson appeal remained pending after dismissal of a prior lawsuit against the company and others. A separate September 2021 state-court complaint named other parties, not Cocrystal, but allegedly referenced the company. Cocrystal said outcomes of the proceedings could not be predicted and potential losses could not be reasonably estimated; no loss contingency was recorded.
- On September 1, 2021, Cocrystal extended its Miami office lease for three years with an entity controlled by director and principal stockholder Dr. Phillip Frost. Annualized straight-line rent was approximately $62,000.
Important facts for investors to verify
- Whether CC-42344’s Phase 1 trial began as planned and what clinical results, timing, and costs have since been reported.
- Progress toward CDI-45205 and oral COVID-19 candidate IND-enabling work and clinical milestones, including the effects of supply and trial delays.
- Merck program progress and any development, regulatory, or sales milestone payments; the potential milestone amount is up to $156 million, plus royalties, but Merck may terminate before first commercial sale.
- Cash burn, actual runway versus management’s estimate of at least 36 months, and the potential need and terms for additional financing.
- Share-count changes and dilution, including remaining ATM capacity and future equity-plan awards.
- Developments in the insurance coverage litigation and other legal proceedings, as well as any resulting payments or liabilities.