Business Context and Reporting Period
Outlook Therapeutics, Inc. is a late clinical-stage biopharmaceutical company developing ONS-5010, a bevacizumab product candidate for ophthalmic conditions. This Form 10-Q covers the quarter and six months ended March 31, 2019, the company’s fiscal second quarter. The company had no approved products or product sales; reported revenue came from collaboration agreements.
Key Financial Metrics
| Metric | Three months ended March 31, 2019 | Six months ended March 31, 2019 | Comparison |
|---|---|---|---|
| Collaboration revenue | $0.64 million | $1.71 million | Prior-year periods: $0.77 million and $1.54 million |
| Research and development expense | $6.50 million | $14.92 million | Prior-year periods: $5.16 million and $5.56 million |
| General and administrative expense | $1.85 million | $4.75 million | Prior-year periods: $2.45 million and $6.00 million |
| Net loss | $10.24 million | $19.99 million | Prior-year periods: $7.54 million and $9.46 million |
| Net loss attributable to common stockholders | $11.29 million | $21.18 million | Prior-year periods: $8.56 million and $26.28 million |
| Basic and diluted loss per share | $0.98 | $1.98 | Prior-year periods: $2.66 and $8.29 |
| Cash used in operating activities | Not stated quarterly | $16.06 million | Prior-year six-month use: $16.11 million |
At March 31, 2019, cash was $0.16 million, total current assets were $2.13 million, and total current liabilities were $26.99 million. Total assets were $17.17 million; total liabilities were $40.22 million; and stockholders’ deficit was $28.09 million. Accumulated deficit was $239.94 million.
Reported debt and lease obligations included $7.62 million carrying value of convertible senior secured notes, $3.61 million of stockholder notes, $1.05 million current long-term debt, and $3.61 million capital lease obligations in total. The company also reported a $2.36 million warrant liability. The filing does not provide a conventional operating margin that is meaningful for this precommercial business.
Material Changes Versus the Prior Comparable Period
- Six-month R&D expense increased $9.36 million, reflecting $3.04 million more ONS-5010 development costs and a $2.91 million write-off of property and equipment. The prior-year period included a $3.23 million favorable settlement related to inactive biosimilar candidates.
- Six-month G&A expense declined $1.24 million, mainly from lower stock-based compensation and facility and other costs, partly offset by higher professional fees.
- Six-month net loss increased $10.53 million. In addition to higher operating expenses, the prior-year period included a $3.15 million income tax benefit.
- Revenue recognition changed with adoption of ASC 606 on October 1, 2018. The company recorded a $3.65 million cumulative-effect increase to accumulated deficit; milestone consideration is recognized over estimated performance periods. Management said revenue under the prior guidance would have been $0.3 million higher for the quarter and $1.1 million higher for the six-month period.
- Cash declined from $1.72 million at September 30, 2018 to $0.16 million at March 31, 2019. Six-month financing included $19.81 million net proceeds from the BioLexis private placement, partly offset by $4.63 million in debt repayments and $0.42 million in lease payments.
Outlook, Commentary, Risks and Unusual Items
- Management stated that cash on hand, the subsequent public offering proceeds, and expected New Jersey tax-credit sale proceeds were expected to fund operations into December 2019, excluding unscheduled debt repayment. The estimate depends on assumptions that may prove incorrect; substantial additional financing is needed.
- On April 12, 2019, after quarter-end, the company completed an offering of 10.34 million common shares and accompanying 15-month and five-year warrants, receiving approximately $26.2 million net. The warrants are exercisable at $2.90 per share. Approximately $0.8 million of expected proceeds from the New Jersey NOL and R&D credit sale was received in April; the company expected approximately $2.6 million more.
- Management disclosed substantial doubt about the company’s ability to continue as a going concern. It warned that failure to secure funding or partnerships could lead to reduced or modified trials, workforce reductions, discontinued programs, asset sales, or bankruptcy proceedings.
- ONS-5010 Phase 3 trial ONS-5010-001 in Australia had enrolled 51 of 60 planned patients. ONS-5010-002 had been initiated and was expected to begin enrolling in the United States, Australia, and New Zealand by the end of June 2019, with at least 220 patients planned. The company targeted regulatory submissions in multiple markets in 2020 if the clinical program succeeds; this is a forward-looking plan, not a guarantee.
- Unusual charges included a $2.91 million six-month property and equipment write-off following the decision to focus on ONS-5010 and outsource commercial manufacturing, and a $0.18 million debt extinguishment loss. The quarter also included a $1.30 million warrant-liability fair-value expense; the six-month change was a $0.33 million gain.
- The filing’s liquidity note describes $8.5 million of senior secured notes as maturing June 30, 2019, while other sections say their maturity was extended to December 22, 2019 subject to conditions. It also reports $3.6 million of unsecured notes due on demand and a separate $1.0 million of demand notes subject to forbearance through March 7, 2020. These debt terms and amounts warrant confirmation.
- The company reported no material pending legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls and procedures.
Important Facts for Investors to Verify
- Current cash runway, subsequent cash uses, expected timing and receipt of remaining tax-credit proceeds, and financing needs beyond the stated December 2019 runway.
- Senior secured note maturity, repayment commitments, conversion provisions, and the status and terms of demand notes and the forbearance agreement.
- Enrollment, execution, results, and regulatory implications of both ONS-5010 Phase 3 trials, including the timing and basis for anticipated 2020 submissions.
- Potential dilution and warrant overhang from the April 2019 offering and the company’s other outstanding warrants, options, and convertible securities.
- Effects of the ASC 606 transition on collaboration revenue timing and remaining performance obligations.