GT Biopharma, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019; filed November 14, 2019. Financial statements are unaudited. GT Biopharma is a clinical-stage biopharmaceutical company developing immuno-oncology candidates using TriKE/TetraKE and bispecific-ADC platforms. It has no product candidates approved for sale and reported no product-sales or licensing revenue.
Financial performance and position
- Revenue and margins: No revenue was reported; meaningful operating margins are therefore not available.
- Q3 2019: Operating expenses were $8.9 million and net loss was $29.9 million, or $0.51 per share. The loss included a $20.5 million loss on disposal of GTB-004 and a $4.6 million impairment charge. Q3 2018 net loss was $235.8 million, including a $228.5 million impairment.
- Nine months: Operating expenses were $15.2 million and net loss was $37.2 million, or $0.69 per share, versus $247.0 million of operating expenses and a $255.0 million net loss in the prior-year period. The prior period included the $228.5 million CNS asset impairment.
- Expense trends: Nine-month R&D fell to $1.7 million from $7.8 million; SG&A declined to $8.9 million from $10.6 million. Interest expense was $1.5 million versus $8.0 million.
- Cash flow: Nine-month operating cash use was $3.2 million, compared with $9.4 million in 2018. Financing provided $3.2 million; cash increased by $253,000 to $313,000.
- Liquidity: Current assets were $337,000 versus current liabilities of $18.8 million, a working-capital deficit of approximately $18.4 million. Accumulated deficit was $565.9 million and stockholders’ equity was a deficit of $18.3 million.
- Debt: Current convertible debentures were $13.1 million; total liabilities were $18.8 million. The filing states that approximately $10.9 million of convertible notes were in default at September 30. Certain secured notes and debentures carry a first-priority lien on substantially all company and subsidiary assets. Accrued interest was $1.5 million.
Changes and significant events
- Common shares outstanding rose to 66.9 million from 50.7 million at year-end 2018. The increase included conversions of debt and restricted-stock awards of 7.0 million shares to the CEO, 4.5 million to the CFO, and 2.0 million to consultants.
- In September, the company sold GTB-004 rights and associated patents to DAS Therapeutics for $200,000 at closing. Potential additional consideration includes $6.0 million upon specified sales objectives and a 1.5% royalty on U.S. sales through patent expiry. The sale resulted in a reported $20.5 million loss.
- The company impaired the remaining CNS project values by $4.6 million after the sale and inquiries concerning the other projects. Intangible assets were zero at September 30, 2019, compared with $25.3 million at December 31, 2018.
- The company raised approximately $3.4 million through convertible-debt issuances during the nine months, including secured notes with conversion prices as low as $0.20 per share. The filing describes price-adjustment provisions and potential dilution from conversion.
Outlook, risks and contingencies
- Management anticipated initiating a Phase 1 trial of its lead TriKE candidate, OXS-3550, in the fourth quarter of 2019, with clinical costs expected to increase. It estimated SG&A cash use of $1–2 million in coming quarters; R&D spending would depend on clinical activity. No formal revenue or earnings guidance was provided.
- Management stated that substantial additional financing is needed and that the company’s losses and financing needs raise substantial doubt about its ability to continue as a going concern. It said planned financing efforts, if successful, were expected to provide resources for at least six months from the financial-statement issuance date; there was no assurance of success.
- One material legal proceeding was disclosed: investors sued over alleged failures to repay or convert notes and adjust warrant exercise prices. The claims involve approximately $2.2 million in notes and warrants for 480,352 shares.
- Disclosure controls and internal control over financial reporting were reported ineffective. Material weaknesses included insufficient segregation of duties, reliance on outside consultants, and risk of executive override. Management said it intended to add accounting personnel as operations increased.
- The company reported no material changes to the risk factors in its 2018 Form 10-K. Management also reported no off-balance-sheet arrangements.
Important facts for investors to verify
- Current status, amounts, and remedies relating to the approximately $10.9 million of notes reported in default, including any subsequent conversions, repayments, or amendments.
- Available cash, financing raised after September 30, and whether funding is sufficient to sustain operations beyond management’s conditional six-month estimate.
- Terms and realization prospects for the GTB-004 milestone and royalty payments, and the basis for the recorded disposal loss and remaining-asset impairment.
- Clinical-trial progress and costs for OXS-3550, alongside the company’s continuing lack of product or licensing revenue.
- Potential dilution from outstanding convertible instruments and price-adjustment provisions, and progress in remediating the disclosed control weaknesses.
- Status and potential financial exposure from the investor lawsuit.