Outlook Therapeutics, Inc. — Form 10-Q Summary
Reporting period: First fiscal quarter ended December 31, 2019; comparative results are for the three months ended December 31, 2018. Outlook is a late clinical-stage biopharmaceutical company developing ONS-5010, an ophthalmic bevacizumab formulation for retinal diseases. It had no approved products and no product-sales revenue.
Financial performance and position
| Metric | Three months ended Dec. 31, 2019 | Prior-year period or balance-sheet comparison |
|---|---|---|
| Collaboration revenue | $0 | $1.07 million in 2018 |
| Research and development expense | $5.85 million | $6.07 million in 2018 |
| General and administrative expense | $2.34 million | $2.90 million in 2018 |
| Operating loss | $8.18 million | $10.26 million in 2018 |
| Net loss | $16.60 million | $9.74 million in 2018 |
| Net loss attributable to common stockholders; loss per share | $18.48 million; $0.62 per share | $9.89 million; $1.00 per share in 2018 |
| Cash used in operating activities | $6.67 million | $9.78 million in 2018 |
| Cash and total assets at Dec. 31, 2019 | $1.33 million; $10.42 million | Cash was $8.02 million and total assets $17.13 million at Sept. 30, 2019 |
| Total current assets and current liabilities at Dec. 31, 2019 | $6.54 million; $20.10 million | Current liabilities were $20.29 million at Sept. 30, 2019 |
| Total liabilities; stockholders’ deficit at Dec. 31, 2019 | $35.83 million; $30.93 million | Liabilities were $27.90 million and deficit $16.13 million at Sept. 30, 2019 |
No meaningful operating margin or cash-generating revenue base was reported. Investing cash flow was zero in the quarter; financing cash flow was a net use of $8,293. Cash declined by $6.68 million from quarter start.
Changes versus the prior comparable period
- Revenue fell to zero because deferred revenue from legacy collaboration agreements had been fully recognized in fiscal 2019.
- Operating loss improved by $2.07 million, reflecting lower R&D and G&A costs and no repeat of the prior-year $2.35 million asset impairment. R&D spending on ONS-5010 itself rose about $1.53 million as the program advanced into Phase 3; lower compensation and facility-related costs partly offset that increase.
- Net loss increased by $6.86 million, principally due to an $8.06 million noncash loss on extinguishment of debt recognized in the quarter. Lower interest expense and reduced operating costs partly offset this charge.
- Operating cash use improved by $3.11 million year over year, but cash fell sharply from the September 30 balance and remained limited at quarter end.
Outlook, risks, contingencies and unusual items
- Going concern and funding: Management reported substantial doubt about the company’s ability to continue as a going concern. It estimated that December 31 cash, approximately $1.1 million received from a January 2020 warrant exercise, and approximately $3.3 million expected from a New Jersey tax-credit/NOL sale in March 2020 would fund operations only through March 2020, excluding debt repayment. Additional financing is necessary; there is no assurance it will be available. The company warned it might scale back or stop programs, reduce staff, sell assets or seek bankruptcy protection if funding is unavailable.
- Debt and liquidity exposure: New senior secured notes had approximately $7.6 million of principal and accrued interest, bore 12% interest and matured December 31, 2020, with an extension option subject to conditions and a fee. The notes are secured by company assets and include a variable-price conversion feature, subject to a $0.232 floor, and potential cash-redemption obligations. The balance sheet also reported $3.61 million of stockholder notes due on demand. The filing separately states that certain unsecured notes were exchanged for common stock and were no longer outstanding at December 31, 2019.
- Clinical and regulatory outlook: NORSE 1 enrollment was complete, with top-line results expected in August 2020. NORSE 2 was enrolling at least 220 U.S. patients, with enrollment expected to finish by the end of May 2020. The primary endpoint was revised with FDA agreement. The company also reported FDA Special Protocol Assessments for planned NORSE 4, NORSE 5 and NORSE 6 trials in BRVO and DME. If development succeeds, the company planned to seek approvals in major markets in 2021; trial success, regulatory approval and market acceptance remain uncertain.
- Capital structure and dilution: In January 2020, controlling stockholder BioLexis exercised warrants for approximately $1.1 million after their exercise price was reduced to $0.232 per share. The company also agreed to seek stockholder approval for conversion of its Series A-1 preferred stock into 29.36 million common shares; conversion would eliminate stated preferred-stock redemption and liquidation preferences. Separately, an agreement with MTTR principals contemplated issuing 7.24 million common shares and paying a $110,000 settlement fee, subject to stockholder approval.
- Other notable items: The company recorded an $8.23 million Level 3 fair-value liability for the senior-note redemption feature. It adopted lease accounting standard ASC 842, recognizing lease assets and liabilities; management said the adoption had no material effect on results or cash flows. A $3.92 million lease-termination obligation remained in other liabilities. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the expected $3.3 million tax-credit/NOL proceeds arrived and whether the company secured financing sufficient to extend its runway beyond March 2020.
- The status, terms and potential cash-redemption consequences of the secured notes, and the company’s ability to address the $3.61 million of stockholder notes due on demand.
- Stockholder approval and completion of the proposed preferred-stock conversion and MTTR share issuance, including resulting dilution and governance implications.
- NORSE 1 results, NORSE 2 enrollment and trial outcomes, and whether the clinical program supports the planned regulatory submissions.
- Subsequent SEC filings for actual cash, debt, share count and material changes to the financing and clinical outlook.