Business Context and Reporting Period
Company: First Wave BioPharma, Inc. (formerly AzurRx BioPharma, Inc.)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2021
Business Overview: The Company is a clinical-stage biotechnology firm developing targeted, non-systemic therapies for gastrointestinal (GI) diseases. Key drug candidates include niclosamide (for IBD and viral diseases) and adrulipase (for exocrine pancreatic insufficiency).
Material Event: On September 13, 2021, the Company completed the acquisition of First Wave Bio, Inc. (FWB), accounted for as an asset acquisition, and changed its name and ticker symbol to FWBI.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | As of Sep 30, 2021 |
|---|---|---|---|
| Revenue | $0 | $0 | N/A |
| Net Loss | $(30.4) million | $(47.4) million | N/A |
| Net Loss Applicable to Common Shareholders | $(30.5) million | $(73.2) million | N/A |
| Loss Per Share (Basic & Diluted) | $(3.27) | $(9.64) | N/A |
| Cash and Cash Equivalents | N/A | N/A | $7.2 million |
| Total Assets | N/A | N/A | $12.4 million |
| Total Liabilities | N/A | N/A | $19.4 million |
| Stockholders' Equity | N/A | N/A | $(7.0) million |
| Cash Used in Operating Activities | N/A | $(26.4) million | N/A |
| Cash Provided by Financing Activities | N/A | $37.9 million | N/A |
Material Changes vs. Prior Period
- Operating Expenses: Total operating expenses surged to $30.4 million for the three months ended September 30, 2021, compared to $3.7 million in the prior year period. This 824% increase was primarily driven by a one-time $21.3 million charge for acquired research and development (R&D) related to the FWB asset acquisition.
- R&D Expenses: Increased from $1.8 million to $24.4 million (three months) and from $4.4 million to $32.5 million (nine months). The increase includes the $21.3 million acquisition charge, plus higher clinical trial costs for niclosamide and adrulipase.
- General and Administrative (G&A): Increased from $1.9 million to $6.0 million (three months) due to public company costs, legal fees related to the merger, and insurance.
- Other Income/Expense: Interest expense decreased significantly from $1.2 million to negligible amounts in the three-month period due to the repayment of prior convertible debt. A $0.5 million gain on the change in fair value of a liability was recorded in the nine-month period.
- Debt: The Company repaid its note payable of approximately $0.55 million during the period. No convertible debt remained outstanding as of September 30, 2021.
Guidance, Outlook, Risks, and Unusual Items
- Going Concern: The Company has incurred significant cumulative losses ($142.7 million accumulated deficit) and negative operating cash flows. Management states that these conditions raise substantial doubt about the Company's ability to continue as a going concern without additional funding.
- Liquidity: As of September 30, 2021, cash was $7.2 million. The Company relies on equity and debt financings to fund operations. It has approximately $93.7 million available under a shelf registration and $37.0 million under an At-The-Market (ATM) agreement.
- FWB Acquisition Obligations: The Company has significant payment obligations to former FWB stockholders. While an $8.0 million payment was due in October 2021, a subsequent agreement (November 2021) deferred payments, requiring an immediate $2.0 million payment followed by installments totaling $17.0 million through July 2023.
- Unusual Items:
- Deemed Dividends: Significant non-cash deemed dividends were recorded due to the exchange of Series B Preferred Stock into Series C Preferred Stock and warrants ($21.0 million) and beneficial conversion features ($4.5 million), increasing the net loss applicable to common shareholders.
- Asset Acquisition Charge: The $21.3 million R&D expense related to the FWB acquisition was expensed immediately as the acquired IP had no alternative future use.
- Legal Proceedings: A complaint was filed in October 2021 by the representative of former FWB stockholders regarding the $8.0 million payment. This was settled in November 2021 with a payment deferral agreement.
Investor Verification Checklist
- Cash Runway: Verify the sufficiency of the $7.2 million cash balance against the $17.0 million deferred payment obligation to FWB and ongoing operational burn rate.
- Equity Dilution: Review the impact of the Series B to Series C exchanges and the remaining authorized shares (4.2 million available) on future dilution potential.
- FWB Milestone Payments: Confirm the terms of the November 2021 settlement agreement regarding the $17.0 million aggregate payment and the $207 million in potential contingent milestones.
- Clinical Progress: Monitor the status of the Phase 2 trials for niclosamide (FW-COV and FW-UP) and adrulipase, as these drive future valuation and potential revenue.
- Going Concern Status: Assess the Company's ability to secure additional capital given the substantial doubt expressed in the filing.