Business Context and Reporting Period
The filing is a Form 10-Q for the quarter ended June 30, 2015, filed August 12, 2015. The source filing identifies the registrant as EyeGate Pharmaceuticals, Inc., not Kiora Pharmaceuticals, Inc.; investors should verify the company and filing identifier.
EyeGate was a clinical-stage specialty pharmaceutical company developing EGP-437, a dexamethasone phosphate product delivered through its proprietary EyeGate II Delivery System for diseases of the eye. The company had not generated revenue and remained dependent on external financing.
Financial Results and Position
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Research and development expense | $0.604 million in 2015 vs. $0.092 million in 2014 | $0.926 million vs. $0.310 million |
| General and administrative expense | $0.939 million vs. $0.510 million | $1.722 million vs. $1.166 million |
| Total operating expenses | $1.544 million vs. $0.603 million | $2.648 million vs. $1.477 million |
| Net loss | $1.541 million vs. $0.647 million | $4.342 million vs. $1.550 million |
| Net loss attributable to common stockholders | $1.541 million vs. $0.705 million | $12.570 million vs. $1.667 million |
| Loss per common share | $0.24 vs. $3.82 | $2.57 vs. $9.04 |
The six-month net loss attributable to common stockholders included an $8.222 million deemed dividend arising from the conversion of preferred stock to common stock. The six-month results also included $1.664 million of non-cash interest expense related to the beneficial conversion feature of converted notes and a $0.223 million favorable change in warrant liability.
- Cash and cash equivalents at June 30, 2015: $1.274 million, compared with $0.167 million at December 31, 2014.
- Total current assets: $1.430 million; total current liabilities: $0.643 million.
- Stockholders’ equity was $0.914 million at June 30, 2015, compared with a deficit of $46.807 million at year-end 2014, primarily reflecting the IPO and capital restructurings.
- Accumulated deficit: $61.210 million.
- No debt, preferred stock, warrant liability, or non-controlling interest remained outstanding at June 30, 2015 following the IPO-related conversions.
- Net cash used in operating activities was $2.741 million for the six months, compared with $0.484 million in the prior-year period.
- Net cash provided by financing activities was $3.788 million, including $4.100 million of gross IPO proceeds. Net cash used in investing activities was $0.020 million.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased $0.615 million for the first six months, primarily because Phase III clinical activity for anterior uveitis resumed.
- General and administrative expense increased $0.556 million, driven principally by stock compensation associated with IPO-related options and higher costs of operating as a public company.
- Operating cash use increased substantially as the company funded larger operating losses and paid down operating liabilities after receiving IPO proceeds.
- The February 2015 IPO issued 683,250 common shares at $6.00 per share. All outstanding preferred stock and shareholder notes were converted into common stock, and the remaining non-controlling interest was acquired through conversion to common stock.
- Common shares outstanding increased to 6,477,093 at June 30, 2015 from 201,787 at December 31, 2014.
Guidance, Outlook, Risks, and Unusual Items
- Management expected significant expenses and increasing operating losses as EGP-437 and the EyeGate II Delivery System progressed through clinical development and regulatory review.
- The company stated that cash on hand and IPO proceeds would not fund operating and capital requirements for the following twelve months and that additional financing would be required.
- The filing disclosed substantial doubt about the company’s ability to continue as a going concern. Management expected to seek equity or debt financing, grants, collaborations, strategic alliances, and licensing arrangements, but had no committed external funding source.
- On July 9, 2015, after the reporting date, EyeGate granted Valeant exclusive worldwide commercial and manufacturing rights for the product in uveitis. EyeGate received a $1.0 million upfront payment and was eligible for up to $32.5 million in development and commercial milestones plus royalties; terms were subject to specified conditions.
- On August 5, 2015, after the reporting date, the company completed an offering of 1,176,470 common shares and warrants, generating approximately $8.8 million of net proceeds before any additional warrant exercise. The warrants had a $10.62 exercise price and expire August 5, 2020.
- The company disclosed material weaknesses in internal controls, including insufficient SEC financial-reporting expertise, inadequate segregation of duties, and inadequate disclosure controls that resulted in significant audit adjustments.
- A potential FBAR filing penalty remained unaccrued. The filing states that penalties could be up to the greater of $100,000 per year or 50% of the account balance at the time of violation, although management believed a significant penalty was unlikely.
- No revenue, profitability, or commercial product availability guidance was provided. The company stated that EGP-437 was not expected to be commercially available for several years, if at all.
Important Facts to Verify
- Confirm that this filing belongs to EyeGate Pharmaceuticals rather than Kiora Pharmaceuticals, Inc.
- Verify the impact of the August 2015 financing and the Valeant licensing transaction on post-quarter liquidity and ownership dilution.
- Assess the going-concern disclosure, monthly cash burn, financing requirements, and availability of additional capital.
- Review clinical and regulatory milestones for EGP-437, including the Phase III anterior uveitis program and the 505(b)(2) NDA pathway.
- Monitor the disclosed material weaknesses and any subsequent remediation of financial reporting controls.
- Evaluate dilution from 637,980 outstanding warrants and 1,156,090 outstanding stock options at June 30, 2015, in addition to the post-quarter warrants.