Business context and reporting period
The filing is by Oncobiologics, Inc. (the registrant named in the filing; the request metadata identifies Outlook Therapeutics). This unaudited Form 10-Q covers the fiscal third quarter and nine months ended June 30, 2016. Oncobiologics was a clinical-stage biosimilar developer with no approved products or product-sale revenue. Its lead candidates were ONS-3010, a Humira biosimilar, and ONS-1045, an Avastin biosimilar; both had completed Phase 1 and were described as Phase 3-ready.
Key financial metrics
| Metric | Three months ended June 30, 2016 | Nine months ended June 30, 2016 |
|---|---|---|
| Collaboration revenue | $0.5 million | $2.5 million |
| Research and development expense | $12.0 million | $28.9 million |
| General and administrative expense | $10.5 million | $15.0 million |
| Operating loss | $22.0 million | $41.4 million |
| Net loss | $22.3 million | $42.7 million |
| Net loss per common share | $1.60 | $3.43 |
| Cash used in operating activities | Not separately presented | $35.1 million |
At June 30, 2016, cash was $13.6 million, total assets $33.0 million, total liabilities $31.4 million, and stockholders’ equity $1.6 million. Current assets were $14.9 million versus current liabilities of $22.9 million. The company reported $9.2 million of debt obligations, including $4.6 million of stockholder notes payable on demand. Nine-month investing cash outflow was $0.8 million; financing cash inflow was $40.4 million. The company reported no commercial-product margins.
Material changes versus the prior comparable period
- Third-quarter collaboration revenue fell $0.8 million to $0.5 million; nine-month revenue declined $2.2 million to $2.5 million, primarily because of fewer milestone payments.
- Third-quarter operating expenses rose $10.2 million and net loss widened $10.6 million year over year. For the nine-month period, operating expenses increased $10.0 million and net loss widened $12.1 million.
- Management attributed much of the quarter’s expense increase to IPO-triggered stock-based compensation and a one-time performance bonus. Nine-month R&D spending rose mainly as ONS-3010 preparations for a planned Phase 3 program advanced.
- Operating cash use increased to $35.1 million from $16.5 million in the prior-year nine-month period. Investing cash use declined to $0.8 million from $5.5 million as prior-year spending included manufacturing-facility buildout.
- The May 2016 IPO and concurrent private placement generated approximately $33.8 million in aggregate net proceeds. The company also repaid stockholder notes and other debt during the period.
Outlook, risks, contingencies and unusual items
- Going concern: The filing states that recurring losses, negative operating cash flows, an accumulated deficit of $136.8 million, and demand debt raise substantial doubt about the company’s ability to continue as a going concern. The statements contain no adjustments for a possible failure to continue operations.
- Management expected available cash to fund operations only through December 2016 and said substantial additional financing would be required. It was pursuing a debt facility and licensing or co-development arrangements, but gave no assurance these efforts would succeed. Without funding or partnerships, it might scale back plans or place activities on hold.
- Management planned to commence the ONS-3010 Phase 3 trial in 2016. The ONS-1045 global Phase 3 trial was planned to begin upon receipt of additional funding. Both timelines and outcomes remain subject to financing, clinical results, regulatory requirements and approvals.
- Under the Huahai arrangement, maintaining Huahai’s 51% value ownership interest in ONS-3010 was contingent on an $11.8 million payment to Oncobiologics. The filing describes ownership adjustments if Huahai does not fund its share of future development costs.
- Quarterly loss attributable to common stockholders included a $7.4 million deemed dividend from warrants issued to certain existing investors, in addition to preferred-stock and noncontrolling-interest accretion. The filing also reports $10.6 million of stock-based compensation expense for the quarter, largely associated with the IPO.
- The company said it had no material off-balance-sheet arrangements, no material changes to contractual obligations or risk factors from its IPO prospectus, and no pending legal matters expected to have a material adverse effect. Management assessed disclosure controls as effective.
Important facts for investors to verify
- Confirm the registrant identity: this filing names Oncobiologics, Inc., not Outlook Therapeutics.
- Check subsequent financing, cash runway, and whether demand stockholder notes were called, repaid, or refinanced.
- Verify whether the planned clinical trials began and review subsequent clinical and regulatory updates for ONS-3010 and ONS-1045.
- Review the status and economics of the Huahai $11.8 million payment and any resulting change to ONS-3010 ownership or development funding.
- Assess the effects of outstanding warrants and equity awards on dilution; the filing lists 8.2 million common-stock warrant equivalents at June 30, 2016.