EyeGate Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2016. The supplied filing is for EyeGate Pharmaceuticals, Inc., although the request metadata identifies Kiora Pharmaceuticals. The filing should be verified against the intended issuer.
Business Context
EyeGate was a clinical-stage ophthalmic pharmaceutical company developing the EGP-437 product and EyeGate II iontophoretic delivery system for inflammatory eye conditions, including anterior uveitis. Following its March 2016 acquisition of Jade Therapeutics, the company also developed CMHA-S-based products, including the EyeGate Ocular Bandage Gel for corneal epithelial defects.
The financial statements are unaudited and prepared under U.S. GAAP. The company had not generated significant product revenue, had incurred losses since inception, and reported substantial doubt regarding its ability to continue as a going concern.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Collaboration revenue | $274,289 vs. $0 | $508,889 vs. $0 |
| Research and development expense | $2.449 million vs. $0.408 million | $5.845 million vs. $1.333 million |
| General and administrative expense | $1.202 million vs. $0.946 million | $4.310 million vs. $2.669 million |
| Total operating expenses | $3.651 million vs. $1.354 million | $10.155 million vs. $4.002 million |
| Net loss | $3.377 million vs. $1.356 million | $9.642 million vs. $5.698 million |
| Net loss attributable to common stockholders per share | $0.36 vs. $0.19 | $1.13 vs. $2.46 |
| Cash used in operating activities | Not separately provided | $6.362 million vs. $2.911 million |
Liquidity: Cash and cash equivalents were $5.682 million at September 30, 2016, down from $8.394 million at December 31, 2015. Total current assets were $6.263 million and total current liabilities were $6.161 million. Restricted cash was $45,000.
Capital structure and debt: Total liabilities were $7.371 million, including $1.210 million of contingent consideration related to the Jade acquisition and $3.418 million of deferred revenue. The company reported no indebtedness other than ordinary-course accounts payable and capital lease obligations. Common shares outstanding increased to 9,585,883 from 7,657,287 at year-end 2015. Potential dilution included 2.853 million warrants, 1.533 million options and 545,000 common shares issuable upon conversion of Series A preferred stock.
Cash flows: Financing activities provided $3.501 million, principally from equity offerings and option exercises. Investing activities provided $149,746, including cash acquired in the Jade transaction, partially offset by equipment purchases and restricted cash. Cash decreased by $2.712 million during the first nine months.
Material Changes Versus Prior Comparable Period
- Collaboration revenue began in 2016, primarily from U.S. government grants associated with Jade. Valeant progress payments were received but generally remained deferred rather than recognized as revenue.
- R&D expense increased by $4.512 million for the nine-month period as the company accelerated Phase 3 EGP-437 trials, the post-cataract Phase 1b/2a trial and EyeGate OBG development.
- G&A expense increased by $1.641 million due to expanded operations, clinical activity and the Jade acquisition.
- The nine-month common-stockholder loss improved from $13.925 million to $9.642 million primarily because the 2015 period included an $8.222 million deemed dividend on preferred stock. Operating losses increased materially in 2016.
- The company completed a June 2016 registered direct offering, issuing common stock, Series A preferred stock convertible into common stock and warrants, generating approximately $3.4 million of net proceeds.
- The company acquired Jade for approximately $2.910 million of equity consideration and assumed a contingent cash earn-out with a face value of $2.164 million and an acquisition-date fair value of $1.210 million. The acquisition added $4.212 million of in-process research and development.
Guidance, Outlook, Risks and Unusual Items
- Management expected cash on hand and anticipated receipts, including approximately $1 million expected from Valeant in the fourth quarter of 2016, to fund planned operations for approximately six months.
- Management stated that additional capital would be required through equity or debt financing, licensing arrangements, collaborations or grants. No committed external funding source was available.
- The company explicitly disclosed substantial doubt about its ability to continue as a going concern. Failure to raise capital could delay, reduce or terminate product development and commercialization efforts.
- Management expected continued significant expenses and increasing operating losses while advancing EGP-437 and CMHA-S candidates through clinical development and regulatory review.
- Management expected an FDA meeting before year-end 2016 regarding the clinical path for the EyeGate OBG product and expected to conduct OBG clinical testing before the end of 2016.
- Management stated that a successful confirmatory Phase 3 EGP-437 trial, together with prior Phase 3 data, could support submission of a New Drug Application for anterior uveitis, subject to meeting non-inferiority criteria.
- Deferred revenue was $3.418 million. Valeant payments included an aggregate of approximately $3.370 million received through September 30, 2016, with revenue recognition dependent on milestone achievement or performance obligations.
- Contractual obligations totaled approximately $2.357 million, including $1.983 million of purchase obligations, $308,723 of lease obligations and $65,625 of licensing commitments.
- The company had no material changes to previously disclosed risk factors and reported no current legal proceedings. It reported no off-balance-sheet arrangements.
- After the reporting period, on October 31, 2016, the company withdrew its Form S-3 registration statement that had been filed in August 2016.
Most Important Facts to Verify
- Confirm that EyeGate Pharmaceuticals, Inc. is the intended issuer because the request metadata names Kiora Pharmaceuticals.
- Verify the company’s ability to obtain financing before the projected approximately six-month cash runway expires.
- Assess the status, enrollment, results and regulatory prospects of the EGP-437 Phase 3 program and EyeGate OBG development.
- Review the terms and conversion effects of the Series A preferred stock, outstanding warrants and stock options, including potential dilution.
- Evaluate the timing and collectability of Valeant milestone payments and the conditions for recognizing deferred revenue.
- Monitor the $1.210 million fair-value contingent consideration and the potential $2.164 million Jade acquisition earn-out tied to FDA approval.
- Reconcile the withdrawal of the S-3 registration statement with the company’s stated need for additional capital.