GT Biopharma, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. GT Biopharma is a clinical-stage biopharmaceutical company developing TriKE and Dual Targeting TriKE immune-oncology candidates. It had no approved products and reported no product or licensing revenue.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $(84,000) | $671,000 | $252,000 | $1.659 million |
| Selling, general and administrative expense | $2.029 million | $3.585 million | $4.321 million | $8.932 million |
| Operating loss | $(1.945) million | $(8.855) million | $(4.573) million | $(15.190) million |
| Net loss | $(2.876) million | $(29.878) million | $(13.363) million | $(31.177) million |
| Net loss per share, basic and diluted | $(0.04) | $(0.51) | $(0.18) | $(0.69) |
| Net cash used in operating activities | Not separately presented | $(5.335) million | $(3.174) million |
The reported Q3 2020 R&D amount is a credit of $84,000. The filing attributes lower R&D and SG&A primarily to reduced employee, consultant, clinical/preclinical, payroll and stock-compensation costs. There are no meaningful revenue or margin figures to assess.
Financial position and liquidity
- At September 30, 2020, cash and cash equivalents were $350,000, current assets were $833,000, and total assets were $917,000. The balance-sheet table’s date headings are garbled; the filing otherwise identifies the comparison date as December 31, 2019.
- Current liabilities and total liabilities were $30.694 million, including $23.0 million of convertible notes, $4.182 million of accrued interest, and $2.171 million of accounts payable. Stockholders’ deficit was $29.777 million.
- Operating cash outflow for the first nine months was $5.335 million, funded in part by $5.657 million of note proceeds. Cash increased from $28,000 at the start of the period to $350,000.
- Management said the company needed to raise an additional $18 million to fund operations and pay current liabilities over the next 12 months. It estimated SG&A cash use of $1 million to $2 million in coming quarters, with R&D spending dependent on clinical activity.
Changes, outlook and material risks
- Losses narrowed year over year, but the comparison is affected by unusual 2019 expenses: a $20.463 million loss on disposal of assets and a $4.599 million impairment charge. Interest expense increased to $6.227 million for the first nine months of 2020 from $1.493 million, primarily due to default interest.
- The company had an accumulated deficit of approximately $580 million and disclosed substantial doubt about its ability to continue as a going concern. Management was pursuing equity or debt financing and potential strategic, licensing or marketing arrangements; its ability to secure funding was not assured.
- Approximately $13.2 million principal amount of convertible notes was in default. Those notes accrue interest at 18%, and approximately $3.9 million of additional default amounts had accrued by September 30. Holders agreed to forbear until a qualifying financing or January 31, 2021, subject to earlier termination conditions. The filing’s MD&A also gives an inconsistent January 31, 2020 date.
- Convertible notes generally bear 10% interest, may rise to 18% on default, and have a $0.20 conversion price subject to adjustment. Approximately $8.9 million of notes were secured by a first-priority interest in substantially all company and subsidiary assets. Potential conversions and warrants create substantial dilution risk; 114.9 million potentially dilutive shares were excluded from loss-per-share calculations.
- The company expected direct clinical costs to increase in Q4 as it continued the Phase I trial of GTB-3550. An October 2020 manufacturing agreement made Cytovance the exclusive GMP manufacturer for three TriKE candidates; milestone payments could reach $6 million, payable in cash or shares. COVID-19 TriKE work remained at preclinical-development stage.
- Subsequent events included a $250,000 November note financing and an agreement to issue about $1.211 million of settlement notes, both convertible at $0.20 per share. The CFO resigned November 11, citing disagreement over decision-making; interim finance leadership and two new directors were appointed. These developments occurred after the reporting date.
- A lawsuit alleged breaches of license and consulting agreements and sought $1.67 million in damages and a substantial share issuance; the filing does not state an outcome. Disclosure controls were deemed ineffective due to material weaknesses involving segregation of duties, executive override risk, and insufficient accounting and reporting procedures.
Important facts for investors to verify
- Whether the company obtained the financing needed to address its stated $18 million funding requirement and near-term liabilities.
- The status, terms and consequences of defaulted notes, accrued default amounts, forbearance extensions, and any required conversions or repayments.
- Cash runway and actual operating cash use compared with management’s estimates, including clinical-trial and GMP manufacturing commitments.
- Potential dilution from convertible notes, settlement notes, preferred stock and warrants, including any price adjustments.
- Progress of the GTB-3550 Phase I trial, the Cytovance manufacturing milestones, and the pending litigation.
- Remediation of internal-control weaknesses and the balance-sheet comparison date, given the source text’s inconsistent headings.