GT Biopharma, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2019; filed August 14, 2019. Financial statement amounts below are in U.S. dollars, generally millions unless stated otherwise.
Business context
GT Biopharma is a clinical-stage biotechnology company developing immuno-oncology therapies using its TriKE/TetraKE natural-killer-cell engager and bispecific antibody-drug conjugate platforms. It also describes a central nervous system portfolio. The company had no approved products and reported no product or licensing revenue.
Financial performance and position
- Revenue and margins: No revenue was reported, so revenue-based margins are not meaningful.
- Second-quarter results: Operating expenses were $2.279 million, including $154,000 of R&D and $2.125 million of SG&A. Operating and net losses were $2.279 million and $2.789 million, respectively; basic and diluted loss per share was $0.05.
- Six-month results: Operating expenses were $6.335 million, comprising $988,000 of R&D and $5.347 million of SG&A. Operating loss was $6.335 million and net loss was $7.299 million; loss per share was $0.14. The accumulated deficit was $535.984 million.
- Cash flow: For the six months, operating cash use was $2.048 million and financing provided $2.252 million; cash increased $204,000, ending at $264,000. Investing cash flow was effectively zero.
- Liquidity: At June 30, cash and current assets were $264,000 and $286,000, respectively, versus current liabilities of $16.731 million. Management said substantial additional financing is needed and disclosed substantial doubt about the company’s ability to continue as a going concern.
- Debt: Current liabilities included $12.170 million of convertible debentures and a $31,000 line of credit. The company also reported $1.710 million of accounts payable and $2.665 million of accrued expenses. Certain secured debt is backed by a first-priority security interest in substantially all assets.
Changes versus the prior comparable period
- Second-quarter net loss decreased from $9.081 million in 2018 to $2.789 million in 2019; six-month net loss decreased from $19.172 million to $7.299 million.
- Six-month R&D expense fell from $6.724 million to $988,000, which management attributed primarily to reductions in employees, consultants, and preclinical spending.
- Six-month interest expense declined from $6.855 million to $933,000, mainly because of lower amortization of debt discounts and beneficial conversion features.
- Cash at period-end was $264,000, compared with $1.096 million at June 30, 2018. The company raised approximately $2.4 million through convertible debt issuances during the first half of 2019.
Outlook, risks, and unusual items
- Management expected direct clinical costs to rise in the second half of 2019 with initiation of a Phase 1 trial of OXS-3550. It estimated upcoming quarterly SG&A cash use of $1 million to $2 million; R&D spending would depend on clinical activity.
- Management said planned financing efforts, if successful, were expected to fund at least the next six months from the financial-statement issuance date, but gave no assurance. Potential sources included equity or debt offerings and strategic, licensing, or marketing arrangements.
- February and May 2019 secured convertible notes carried 10% interest, conversion prices of $0.60 and $0.35 per share, and price-adjustment provisions; default interest was 18%. The May notes matured November 22, 2019. These terms create financing, repayment, and potential dilution risks.
- A $1.140 million expense was recorded in second-quarter SG&A in connection with issuing Series J-1 preferred shares to remedy a prior failure to file the certificate of designation for the originally intended Series J shares.
- After quarter-end, the company issued a $25,000 secured convertible note on July 31, 2019. On August 14, it granted restricted stock awards totaling 13.5 million common shares to its CEO, CFO, and two consultants.
- Empery-related plaintiffs filed a New York lawsuit alleging, among other matters, failure to repay or convert notes and adjust warrant exercise prices. The filing describes approximately $2.2 million of notes and warrants for 480,352 shares at issue; no outcome is provided.
- Management concluded disclosure controls and internal control over financial reporting were not effective at June 30, 2019, citing material weaknesses including inadequate segregation of duties and risk of executive override.
Important facts for investors to verify
- Cash runway, financing availability, and the company’s ability to meet near-term note maturities and other liabilities.
- Whether OXS-3550’s Phase 1 trial began as anticipated and how clinical spending and development priorities evolved.
- Outstanding secured convertible debt, conversion-price adjustments, collateral terms, and resulting potential share dilution, including post-quarter restricted stock awards.
- Status and potential financial impact of the Empery litigation and the preferred-stock settlement expense.
- Remediation of the disclosed material weaknesses in financial reporting controls.