Rezolute, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2020. The company is a clinical-stage biopharmaceutical developer with no commercial products or revenue.
Financial performance and position
| Metric | Three months ended Dec. 31 | Six months ended Dec. 31 |
|---|---|---|
| Revenue | $0 | $0 |
| R&D expense | $4.5 million vs. $5.0 million | $6.8 million vs. $8.3 million |
| General and administrative expense | $2.7 million vs. $1.7 million | $3.9 million vs. $3.6 million |
| Net loss | $7.1 million vs. $6.7 million | $10.7 million vs. $11.7 million |
| Net loss per share | $0.88 vs. $1.14 | $1.54 vs. $2.08 |
| Cash used in operating activities | Not provided for quarter | $9.8 million vs. $14.4 million |
At December 31, 2020, cash and cash equivalents were $37.6 million, working capital was approximately $35.4 million, total liabilities were $3.0 million, and accumulated deficit was $158.0 million. Total assets were $38.9 million. The company reported no interest expense or income tax benefit. Operating margins are not meaningful because the company had no revenue.
Cash increased from $10.0 million at June 30, 2020, primarily after an October private placement that raised $41.0 million gross and approximately $37.5 million net. The financing issued approximately 2.5 million shares and warrants for approximately 0.8 million shares. The company had 8.352 million shares outstanding at December 31; outstanding options and warrants add potential dilution. A $50.0 million at-the-market equity facility was established in December, but no shares had been sold under it by quarter-end.
The company had no conventional borrowings reported. It paid the remaining $1.4 million owed to Xoma in October. Balance-sheet liabilities included operating lease obligations of approximately $0.6 million.
Changes versus the prior comparable period
- Quarterly net loss increased approximately 6%, while six-month net loss decreased approximately 9% year over year. Lower six-month R&D spending was partly offset by higher G&A.
- R&D expense fell 17% for the six-month period, mainly because COVID-19 delayed clinical activity and reduced related trial, consulting, and other costs. The period included a $1.0 million ActiveSite milestone expense after FDA clearance of the RZ402 IND.
- Quarterly G&A increased 58%, chiefly due to compensation, bonuses, stock-based compensation, and public-company and investor-relations costs. Six-month G&A increased 8%.
- The October financing substantially strengthened liquidity but increased the share count. The company also completed a 1-for-50 reverse stock split and began trading on Nasdaq in November.
Outlook, programs, and risks
- Management said existing cash was expected to fund currently planned activities at least through March 31, 2022. It also noted that additional financing may be needed thereafter and may not be available on acceptable terms.
- RZ358’s Phase 2b RIZE study in congenital hyperinsulinism was paused during the pandemic; site activity resumed and patient enrollment recommenced in January 2021. Subject to COVID-19 conditions, management expected study completion in the second half of calendar 2021. A $2.0 million Xoma milestone is tied to enrollment of the final patient. Xoma obligations also include up to $37.0 million in clinical and regulatory milestones, royalties, and up to $185.0 million in potential sales-based milestones.
- RZ402 received FDA IND clearance in December 2020; first-patient dosing in a Phase 1 study occurred in January 2021. Management expected completion in the first half of calendar 2021. The ActiveSite agreement provides for up to $46.5 million in milestones and 2% royalties; the first $1.0 million milestone was paid.
- Management reported no significant COVID-19 impact on reported-period financial results, but warned of possible trial delays, higher clinical costs, operational disruption, and more difficult future fundraising. AB101 was not advanced after top-line results indicated further formulation work was needed.
- Management identified a material weakness in internal controls related to inadequate segregation of duties given the company’s limited staffing; it had not been fully remediated at quarter-end.
- Following a director’s resignation, the company notified Nasdaq that it no longer met certain board-independence and audit-committee requirements. A cure period applied, but failure to regain compliance could result in delisting.
- The filing reported no pending or threatened lawsuits expected to have a material effect. Handok and Genexine held approximately 24% and 22% of shares, respectively, at December 31; Handok also received a Korea-territory license for specified products.
Important facts for investors to verify
- Whether the RIZE and RZ402 studies met the stated timelines, and how enrollment, safety, and efficacy results develop.
- Cash burn and remaining runway relative to management’s March 31, 2022 estimate, including the impact of trial costs and milestone payments.
- Any use of the $50 million at-the-market facility, associated dilution, and the exercise or dilution effects of outstanding warrants and options.
- Progress in remediating the material weakness and regaining Nasdaq board and audit-committee compliance.
- Potential additional COVID-19 effects, license milestones and royalties, and future financing availability and terms.