Filing Context and Reporting Period
This Form 10-Q covers the quarter and six months ended June 30, 2016, filed August 11, 2016, by Histogenics Corporation, not Ocugen, Inc. The filing identifies Histogenics as a regenerative medicine company developing NeoCart, a Phase 3 product candidate for knee cartilage damage. The financial statements are unaudited and presented under U.S. GAAP.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $5.8 million | $11.4 million |
| General and administrative expense | $2.2 million | $4.4 million |
| Net loss | $8.0 million | $16.0 million |
| Loss per share | $0.61 | $1.20 |
| Net cash used in operating activities | Not separately provided | $14.4 million |
- Gross margin and operating margin are not meaningful because the company generated no revenue.
- Cash and cash equivalents were $15.9 million at June 30, 2016, down from $30.9 million at December 31, 2015.
- Total assets were $21.3 million and total liabilities were $8.4 million at June 30, 2016.
- Total debt was $1.1 million, consisting of equipment financing; $583,000 was classified as current.
- Stockholders’ equity was $12.9 million, compared with $28.2 million at December 31, 2015. Accumulated deficit was $181.5 million.
- Cash used in investing activities was $314,000, primarily for property and equipment. Financing activities used $291,000 for equipment-loan repayments.
Material Changes Versus Prior Comparable Period
- Six-month net loss increased from $15.6 million in 2015 to $16.0 million in 2016, while quarterly net loss increased from $7.6 million to $8.0 million.
- Six-month research and development expense decreased 2% to $11.4 million, mainly because 2015 included larger raw-material purchases, consulting costs and patient-recruiting costs. These savings were partly offset by higher personnel, clinical-trial, stock-compensation and depreciation costs.
- Six-month general and administrative expense increased 14% to $4.4 million, primarily due to new-hire compensation, recruiting, facilities, legal costs and stock-based compensation.
- Operating cash burn improved from $16.2 million to $14.4 million, but the company had no financing inflows in 2016 compared with $4.7 million of net proceeds from an IPO overallotment in 2015.
- Debt declined from $1.34 million at year-end 2015 to $1.05 million at June 30, 2016.
- In April 2016, the FDA approved submitted equivalence data for collagen manufactured at the company’s Lexington, Massachusetts facility; additional comparability and manufacturing approvals remained necessary for other materials and processes.
- In May 2016, the company acquired development and commercialization rights to NeoCart for Japan from Purpose Co., Ltd., subject to future milestone and royalty obligations.
- After quarter-end, the company entered into a sponsored research agreement with Brigham and Women’s Hospital requiring up to $168,000 of milestone payments over 18 months.
Guidance, Outlook, Risks and Unusual Items
- Management expected existing cash to fund projected needs into the first quarter of 2017, but stated that additional capital would be required to complete NeoCart trial enrollment and further develop its product candidates.
- The company explicitly stated that these conditions raised substantial doubt about its ability to continue as a going concern.
- Management expected continued net losses for several years and did not expect significant product revenue unless NeoCart or another product candidate received regulatory approval and was commercialized.
- NeoCart enrollment completion guidance had previously been moved from June 2016 to June 2017 because enrollment trends were below expectations.
- Principal risks included failure or delay in NeoCart enrollment, unfavorable clinical results, FDA requirements for additional studies, manufacturing-transfer and raw-material comparability issues, cGMP compliance, regulatory approval uncertainty, dependence on third-party suppliers and partners, intellectual-property challenges, competition, and the need for additional financing.
- The company’s equipment loan was secured by a first-priority lien on financed equipment and included covenants restricting additional debt, asset sales, liens, investments, dividends, affiliate transactions and other activities. The company reported compliance with the covenants at June 30, 2016.
- Related-party accrued expenses owed to Intrexon were $2.3 million at June 30, 2016. The Intrexon collaboration also contemplated $12.0 million of commercialization milestones, $22.5 million of sales milestones and royalty obligations if specified conditions were achieved.
- No material pending legal proceedings or off-balance-sheet arrangements were reported. Management concluded that disclosure controls and procedures were effective as of June 30, 2016.
Investor Verification Checklist
- Verify the issuer identity: the supplied filing is for Histogenics Corporation, while the request metadata names Ocugen, Inc.
- Confirm the company’s post-filing financing, liquidity and going-concern status, particularly after the projected first-quarter 2017 cash runway.
- Track NeoCart Phase 3 enrollment against the revised June 2017 target and review subsequent clinical results and regulatory communications.
- Assess whether FDA comparability, manufacturing-site and cGMP requirements were satisfied without additional trials or material delays.
- Review any equity or debt financing for dilution, restrictive covenants and effects on existing shareholders.
- Monitor Intrexon, Purpose and other license-related milestone, royalty and related-party obligations.