Business Context and Reporting Period
Filing: Unaudited Form 10-Q for the quarter and nine months ended September 30, 2018, filed November 13, 2018. The supplied filing identifies the registrant as EyeGate Pharmaceuticals, Inc., not Kiora Pharmaceuticals, Inc.; this entity discrepancy should be verified.
EyeGate is a clinical-stage specialty pharmaceutical company developing ophthalmic products, including the EGP-437 iontophoretic dexamethasone product and EyeGate Ocular Bandage Gel (OBG), a CMHA-S-based product. The company had 43,444,130 common shares outstanding at September 30, 2018.
Key Financial Metrics
| Metric | Three months ended September 30, 2018 | Nine months ended September 30, 2018 | Comparable prior period |
|---|---|---|---|
| Collaboration revenue | $0.315 million | $1.653 million | $0.075 million and $0.408 million, respectively |
| Research and development expense | $2.260 million | $6.619 million | $3.176 million and $7.253 million, respectively |
| General and administrative expense | $1.233 million | $3.389 million | $1.039 million and $3.541 million, respectively |
| Operating loss | $3.178 million | $8.355 million | $4.140 million and $10.387 million, respectively |
| Net loss | $3.124 million | $8.283 million | $4.140 million and $10.387 million, respectively |
| Net loss per share | $0.07 | $0.25 | $0.24 and $0.78, respectively |
- Gross margin and operating margin are not meaningful because the company is clinical-stage and reports collaboration revenue rather than product sales. On a simple revenue-to-expense basis, nine-month operating expenses substantially exceeded revenue.
- Cash and cash equivalents were $9.900 million at September 30, 2018, compared with $7.806 million at December 31, 2017. Including restricted cash, ending cash was $9.945 million.
- Net cash used in operating activities was $8.841 million for the nine months, versus $5.015 million in the prior-year period.
- Net cash provided by financing activities was $11.195 million, consisting primarily of $10.109 million of net stock-offering proceeds and $1.094 million from warrant exercises.
- Total assets were $16.652 million and total liabilities were $5.552 million at September 30, 2018. Stockholders’ equity was $11.100 million, compared with a deficit of $1.927 million at December 31, 2017.
- The company reported no material debt other than trade payables and capital financing obligations. Contingent consideration was $1.210 million.
Material Changes Versus the Prior Comparable Period
- Nine-month collaboration revenue increased by $1.245 million, primarily from Bausch Health Companies milestone-related revenue in 2018 versus government-grant revenue in 2017.
- Nine-month R&D expense decreased $0.635 million, reflecting lower EGP-437 clinical activity and lower OBG chemistry, manufacturing and controls work, partly offset by increased OBG pilot-trial activity and EGP-437 CMC work.
- Nine-month G&A expense decreased $0.152 million; third-quarter G&A increased $0.194 million because of higher personnel-related costs and legal and corporate communications fees.
- The company adopted ASC Topic 606 on January 1, 2018 using the modified retrospective method. The adoption increased opening accumulated deficit by $9.478 million and reduced deferred revenue by $9.362 million, with additional revenue recognized during 2018.
- Common shares increased substantially, primarily from the April 2018 public offering, conversions of preferred stock, and warrant exercises. At September 30, 2018, 41.194 million warrants and 2.188 million stock options were outstanding, creating significant potential dilution.
Guidance, Outlook, Risks and Unusual Items
- Management expects continuing significant operating losses and cash requirements while clinical development and regulatory activities proceed. It estimated that cash on hand and expected Bausch Health receipts would fund planned operations for approximately twelve months from September 30, 2018.
- Management stated that recurring losses and negative operating cash flows create substantial doubt about the company’s ability to continue as a going concern. Additional equity, debt, licensing, collaboration or grant financing will be required, but may be unavailable or available only on unfavorable terms.
- EGP-437 showed clinical efficacy in the Phase 3 uveitis trial but failed to demonstrate non-inferiority to prednisolone acetate at Day 14. The company was assessing strategic options for the program. Its earlier Phase 2b cataract-surgery trial also failed to achieve statistical significance on its co-primary endpoints.
- EyeGate OBG pilot trials for post-PRK corneal healing and punctate epitheliopathies were initiated during the third quarter. Top-line data were announced after the reporting period, in November 2018, and therefore are subsequent information rather than third-quarter financial results.
- On September 26, 2018, the company entered an intellectual-property license agreement with SentrX and paid $250,000 upfront, recorded as an intangible asset. SentrX may receive up to $4.75 million in development and commercial milestones.
- The company received a Nasdaq minimum-bid-price deficiency notice and obtained an extension through March 18, 2019 to regain compliance.
- Contractual obligations totaled approximately $404,959, including $187,459 of lease commitments and $217,500 of licensing obligations. No material off-balance-sheet arrangements were reported other than operating leases.
Most Important Facts to Verify
- Confirm that the filing belongs to EyeGate Pharmaceuticals rather than the company identified in the request metadata as Kiora Pharmaceuticals.
- Verify liquidity assumptions, including expected Bausch Health receipts, the approximately twelve-month cash runway, and the timing and terms of required future financing.
- Assess the clinical and regulatory implications of EGP-437’s failure to meet the uveitis non-inferiority endpoint and the company’s subsequent strategic decisions.
- Review the effect of ASC Topic 606 adoption on reported collaboration revenue, deferred revenue, accumulated deficit and comparability with 2017.
- Evaluate dilution from 41.194 million outstanding warrants, 2.188 million options and 12.788 million common shares underlying Series C preferred stock.
- Confirm Nasdaq listing compliance status after the March 18, 2019 extension deadline and review subsequent financing, clinical and corporate developments.