60 Degrees Pharmaceuticals, Inc. — Fiscal 2023 Form 10-K Summary
Business context and reporting period
The filing reports the fiscal year ended December 31, 2023, with comparative results for 2022. 60 Degrees Pharmaceuticals is a specialty pharmaceutical company focused on infectious diseases. Its marketed product is Arakoda (tafenoquine), approved for malaria prevention in travelers aged 18 and older. Its development pipeline includes tafenoquine programs for babesiosis and fungal infections, and Celgosivir for potential viral indications.
The Company operates primarily from Washington, D.C., with a 96.61%-owned Australian subsidiary. It is a smaller reporting company and emerging growth company. The Company has three full-time employees and two part-time contractors as of April 1, 2024.
Financial performance and liquidity
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Net product and service revenue | $253,573 | $223,208 | 13.6% increase |
| Product revenue, net | $253,573 | $192,913 | 31.4% increase |
| Gross loss | $(220,977) | $(209,162) | Loss increased $11,815 |
| Gross margin | (87.15)% | (93.71)% | Improved 6.56 percentage points |
| Research and development expense | $691,770 | $525,563 | 31.6% increase |
| General and administrative expense | $4,241,836 | $1,303,722 | 225.4% increase |
| Loss from operations | $(5,154,583) | $(1,750,445) | Loss increased $3,404,138 |
| Net loss attributable to 60 Degrees Pharmaceuticals | $(3,765,702) | $(6,181,720) | Loss declined $2,416,018 |
| Net loss per common share | $(0.99) | $(2.61) | Improved |
| Cash used in operating activities | $(4,542,910) | $(1,009,980) | Use increased $3,532,930 |
| Cash and cash equivalents at year-end | $2,142,485 | $264,865 | Increased $1,877,620 |
Cost of revenues exceeded product revenue, principally reflecting manufacturing costs and a $191,111 write-down for expired inventory, compared with $162,222 in 2022. Product revenue represented 93% of total net revenue from two significant customers, including a U.S. distributor at 72% and the Australian distributor at 21%.
The Company had total assets of $7.8 million and total liabilities of $3.0 million at December 31, 2023. Debt was substantially reduced through conversion or settlement in connection with the July 2023 initial public offering. Remaining debt primarily consisted of the SBA EIDL, with a balance of approximately $159,000 including accrued interest. Derivative liabilities totaled $2.31 million and primarily represented the contingent Knight milestone payment.
The July 2023 IPO generated $6.45 million of net proceeds. By December 31, 2023, approximately $4.0 million had been used for working capital and general corporate purposes, debt repayment, and research and development. A January 2024 public offering generated approximately $1.9 million of additional net proceeds.
Material changes versus the prior comparable period
- U.S. Arakoda sales increased to 1,632 boxes in 2023 from 570 boxes in 2022, although the wholesale acquisition cost declined from $285 to $235 per box.
- Product revenue increased, but discounts and rebates rose to $216,031 from $59,552, reflecting higher distribution and pharmacy benefit manager concessions.
- Research revenue fell to zero from $288,002 because the COVID-19 research grant program was completed and the Company reversed an accrued Australian research rebate.
- General and administrative expenses increased substantially due to higher professional fees, insurance, investor outreach, director compensation, and stock-based compensation.
- The Company suspended its planned Phase IIB COVID-19 study in October 2023 after determining that FDA-requested redesign alternatives were not commercially or operationally feasible.
- Most legacy debt was converted into common stock or preferred stock, or settled, upon the IPO. The conversion included 1,108,337 common shares issued to Knight and 80,965 Series A preferred shares issued for accrued interest.
- Shares outstanding increased materially, from 2,386,009 common shares at December 31, 2022 to 5,810,089 at December 31, 2023, before subsequent 2024 financing-related dilution.
Guidance, outlook, risks and unusual items
Management’s strategy is to increase Arakoda sales, pursue clinical development of tafenoquine for babesiosis and other indications, and selectively reposition small-molecule therapeutics. The Company hired a Chief Commercial Officer in February 2024 and plans market research, targeted prescriber outreach, digital marketing, and a U.S. Arakoda relaunch later in 2024.
Following a January 2024 FDA Type C meeting, the Company plans a pivotal babesiosis study with enrollment targeted for summer 2024, an interim analysis targeted by year-end 2024, and potential additional enrollment during the 2025 tick season. The protocol is being revised to include high-risk patients and a clinical endpoint.
The Company expects its cash runway, including the January 2024 offering proceeds, to extend through approximately October 31, 2024. Management expects additional financing may be required and states that financing may not be available on acceptable terms or at all.
- The auditors and management disclosed substantial doubt about the Company’s ability to continue as a going concern. The Company has an accumulated deficit of $32.6 million and has not generated sufficient revenue to cover operating expenses.
- Arakoda remains commercially unprofitable, with a negative gross margin. The Company depends heavily on a small number of distributors and customers and has concentration risk in its supply chain.
- The Company is obligated to pay Knight a contingent $10 million milestone upon a sale of Arakoda or a change in control. A 3.5% royalty on applicable net sales is also payable to Knight.
- The FDA requires a pediatric malaria prophylaxis study. Management estimates the study could cost approximately $2 million and may not begin before the third quarter of 2025.
- Management concluded that disclosure controls and internal control over financial reporting were not effective as of December 31, 2023 due to material weaknesses involving control design, documentation, supervision, system access, and segregation of duties.
- The Company had no formalized cybersecurity framework, dedicated cybersecurity team, comprehensive risk assessment, or incident response plan as of the filing date.
- Nasdaq compliance was regained in January 2024, but the Company received a new deficiency notice in February 2024 after its stock remained below the $1.00 minimum bid price for 31 consecutive business days. The initial compliance period runs through August 26, 2024.
- Future indications for tafenoquine and Celgosivir remain investigational and require successful clinical development and regulatory approval.
Most important facts for investors to verify
- Whether Arakoda sales growth can reach gross profitability despite substantial discounts, rebates, inventory expiration, and competition from lower-cost generic products.
- The Company’s cash burn and available liquidity after the January 2024 offering, including the timing and terms of any required additional financing.
- Progress, funding, enrollment, interim results, and FDA feedback for the planned pivotal babesiosis study.
- The terms, valuation, and potential timing of the $10 million Knight contingent milestone and the 3.5% Knight royalty.
- Remediation of the disclosed material weaknesses in disclosure controls and internal control over financial reporting.
- Potential dilution from the January 2024 offering, pre-funded warrants, warrants, preferred stock, equity awards, and other outstanding securities.
- Nasdaq’s decision regarding the Company’s minimum bid-price deficiency and continued listing.
- The status, cost, and regulatory expectations for the FDA-required pediatric malaria study.