Moleculin Biotech, Inc. — 2018 Form 10-K
Reporting period: Fiscal year ended December 31, 2018. This is an annual report, not a standalone fourth-quarter results filing. Moleculin is a clinical-stage oncology company and had no approved products or product-sales revenue.
Business context and development status
The company develops drug candidates for highly resistant cancers using technologies licensed from MD Anderson. At the time of the filing, Annamycin was in Phase I/II trials for relapsed or refractory AML in the U.S. and Poland; WP1066 was in a physician-sponsored Phase I brain-tumor trial in the U.S. WP1220 received Polish trial authorization in January 2019 for cutaneous T-cell lymphoma. WP1732 and WP1122 remained in preclinical development.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $9.728 million | $4.545 million |
| General and administrative expense | $5.229 million | $4.090 million |
| Operating loss | $15.025 million | $8.653 million |
| Net loss | $11.876 million | $9.805 million |
| Basic and diluted loss per share | $0.46 | $0.53 |
| Net cash used in operating activities | $12.203 million | $7.324 million |
| Net cash provided by financing activities | $12.045 million | $10.059 million |
Operating expenses rose as clinical and preclinical work expanded, including manufacturing and toxicology, sponsored research and licensing, clinical trials, and staffing. The company had no meaningful sales-based margin to report.
Net loss included a $3.185 million noncash gain from the change in fair value of warrant liabilities, compared with a $2.548 million noncash loss in 2017. This accounting item partly offset the 2018 operating loss; the company remained loss-making and cash-flow negative.
At year-end, cash and cash equivalents were $7.134 million, down from $7.714 million. Current assets were $7.974 million and current liabilities $3.878 million. Total assets were $19.585 million, total liabilities $5.313 million, and stockholders’ equity $14.272 million. Liabilities included $1.508 million of warrant liability; the filing does not report conventional borrowings as a material balance-sheet item. The company also carried $11.148 million of in-process research and development intangible assets.
Financing cash flow in 2018 was principally from equity issuance; the audited cash-flow statement reports $12.025 million of net proceeds from common-stock sales and $15,000 from warrant exercises. The filing also reports $417,000 of investing cash outflow, mainly for fixed assets.
Material changes and liquidity
- R&D expense more than doubled year over year, while G&A expense also increased; operating cash use rose by approximately $4.9 million.
- Common shares outstanding increased from 21.469 million at December 31, 2017 to 28.529 million at December 31, 2018, reflecting equity financing and other issuances.
- The company reported $1.508 million of warrant liabilities at year-end, versus $503,000 in 2017, and a $1.0 million accrued HPI repurchase payment.
- Management estimated year-end cash plus subsequent financing would fund planned operations into the third quarter of 2019, subject to assumptions and without unplanned development costs. The auditor and management stated that substantial doubt existed about the company’s ability to continue as a going concern without additional financing.
- A $20 million Lincoln Park equity purchase facility was available subject to contractual, market and Nasdaq limits. The company sold shares under it in late 2018 and sold 600,000 shares for $0.9 million in February 2019. Further use could dilute existing shareholders.
Outlook, risks and unusual items
Moleculin expected continued losses and negative cash flows and said it would need additional capital to advance its pipeline. Without financing, it might delay, reduce or discontinue development programs. Management expected to pursue preclinical work for WP1732 and WP1122, with a U.S. IND filing for WP1732 targeted for 2019; these were plans, not assured milestones.
- Clinical and regulatory risk: Candidates are early-stage; trials may be delayed, fail, or reveal safety issues. Annamycin’s prior development included two patient deaths associated with tumor lysis syndrome, and the company noted risks around dose escalation and recruitment.
- Intellectual property: Annamycin’s composition-of-matter patent had expired; additional formulation, process and use patent applications were prospective and not assured.
- Related-party arrangements: In February 2019, the company sublicensed certain rights to WPD Pharmaceuticals and Animal Life Sciences, both affiliated with founder and major shareholder Waldemar Priebe. WPD agreed to development spending and reimbursement/royalty terms; Moleculin received a 10% ownership interest in ALI. The board obtained a fairness opinion for the WPD agreement, but not the ALI agreement.
- HPI rights: The company accrued a $1.0 million payment to regain WP1066 rights; failure to exercise the buyout could result in HPI’s license becoming exclusive, potentially affecting Moleculin’s rights.
- Controls: Management found disclosure controls and internal control over financial reporting ineffective because of a material weakness in segregation of duties. Management was pursuing remediation, but reported no assurance it would be effective.
- Other exposures: The company relied on third-party manufacturers, had no sales organization, faced equity dilution and stock-price volatility risks, and reported no current litigation.
Key facts investors should verify
- Available cash, actual monthly burn, subsequent financing, and the timing and terms of any additional capital raise.
- Clinical-trial enrollment, dose escalation, safety findings and regulatory milestones for Annamycin, WP1066 and WP1220.
- Whether the $1.0 million HPI buyout was completed and the resulting status of WP1066 development rights.
- Performance and enforceability of the WPD and ALI sublicenses, including related-party conflicts and the promised development expenditures.
- Potential dilution from the Lincoln Park facility, outstanding warrants and options, and additional share issuances.
- Progress in remediating the material weakness and the recoverability of the $11.148 million in-process R&D asset.
- The MD&A financing discussion contains figures that do not reconcile clearly with the audited cash-flow statement; verify financing sources against the statements and related offering disclosures.