Moleculin Biotech, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. The company is a clinical-stage oncology drug developer with no product revenue; the statements are unaudited.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $1.332 million | $1.061 million | $6.801 million | $2.260 million |
| General and administrative | $1.248 million | $1.338 million | $3.859 million | $2.987 million |
| Total operating expenses | $2.591 million | $2.404 million | $10.687 million | $5.260 million |
| Net loss | $2.038 million | $2.866 million | $9.091 million | $6.620 million |
| Net loss per share, basic and diluted | $0.08 | $0.14 | $0.36 | $0.37 |
- Cash and liquidity: Cash and equivalents were $8.600 million at September 30, 2018, versus $7.714 million at December 31, 2017. Current assets were $9.360 million and current liabilities $3.129 million.
- Cash flows, nine months: Operating activities used $9.093 million; investing activities used $0.303 million; financing activities provided $10.284 million. Cash increased $0.886 million.
- Liabilities and equity: Total liabilities were $5.931 million, including a $3.079 million warrant liability. The filing reports no conventional borrowing balance. Stockholders’ equity was $14.968 million; accumulated deficit was $23.571 million.
- Margins: Not meaningful because the company reported no revenue. No operating profit was reported.
Material changes and financing
- Nine-month R&D expense increased $4.541 million year over year, primarily from Annamycin clinical drug supply and WP1732 preclinical work, a $1.0 million HPI option-repurchase accrual, and higher R&D staffing costs.
- Nine-month G&A expense increased $0.872 million, mainly due to higher headcount, payroll, stock compensation, and consulting costs.
- The nine-month net loss increased by $2.471 million, although the comparison was affected by noncash warrant remeasurement: a $1.614 million gain in 2018 versus a $2.753 million loss in 2017. The 2017 period also included gains from liability settlement and warrant expiration.
- The company raised approximately $8.2 million net in a February 2018 registered offering and approximately $2.1 million net in a June 2018 offering. Common shares outstanding increased from 21.469 million at year-end 2017 to 26.861 million at September 30, 2018.
- After quarter-end, Moleculin entered a discretionary equity purchase agreement with Lincoln Park for up to $20 million over 36 months and issued 243,013 commitment shares. No shares had been sold under the agreement as of the filing. Availability depends on agreement conditions, trading price, and share limits; further share sales may dilute existing holders.
Outlook, risks and notable items
- Going concern: Management stated that cash on hand was expected to fund planned operations into, but not beyond, the near term. It estimated funding into the second quarter of 2019 without using the Lincoln Park facility. The accumulated deficit, absence of revenue, and need for additional financing raise substantial doubt about the company’s ability to continue as a going concern.
- Clinical development: Annamycin treatment had begun in the U.S., but recruitment was slow, which management attributed to competing trials and the low starting dose required by the FDA. Although the Polish trial and first site were approved, additional regulatory approvals were still needed to ship drug product. Management expected Polish treatment by the end of Q1 2019 and the recommended Phase II dose during 2019; neither outcome was assured.
- Other programs: The physician-sponsored WP1066 brain-tumor Phase I trial began treating patients in September 2018. WP1220’s Polish trial application for cutaneous T-cell lymphoma remained subject to approval. Management anticipated an IND filing for WP1732 in 2019, subject to successful preclinical work and regulatory progress.
- Funding and dilution risks: Management expects to need additional capital before generating product revenue. Financing may be unavailable or costly and could require dilution, reduced or delayed development, or licensing rights to others. Lincoln Park’s facility is not guaranteed funding at a fixed amount or price.
- Commitments: The company accrued $1.0 million for a contemplated HPI option-repurchase payment. It also has license, milestone, sponsored-research, lease, and employee termination commitments. The new Houston lease began in August 2018, runs initially for 66 months, and has base rent of about $4,300 per month plus operating expenses.
- Controls: Management concluded disclosure controls and procedures were not effective because of a material weakness in segregation of accounting duties. The company added accounting staff and implemented a new accounting system in October 2018, but remediation was ongoing.
- Intellectual property and operations: Annamycin drug substance is no longer covered by existing patent protection; planned applications for formulation and related processes are not assured. The company relies on third-party manufacturers and licensed technology. Its Australia subsidiary’s planned R&D tax credit and operations there are also subject to risk.
Important facts for investors to verify
- Cash runway assumptions, upcoming cash needs, and whether the company can obtain financing on acceptable terms.
- Progress in Annamycin patient enrollment, Polish shipment approvals, and achievement of the recommended Phase II dose.
- WP1066 trial progress and regulatory status of WP1220 and WP1732, including any changes to development timelines or costs.
- Potential dilution from the Lincoln Park agreement, warrants, options, and any future equity offerings.
- Payment and accounting treatment of the HPI repurchase accrual and other license, research, and clinical commitments.
- Whether the accounting-control material weakness is fully remediated and whether subsequent filings report any control or financial-statement issues.