Business context and reporting period
This is ZIOPHARM Oncology, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2018, signed August 8, 2018. The filing is under the historical Ziopharm name; the supplied company metadata says Alaunos Therapeutics, Inc. The company was developing immuno-oncology therapies, including Controlled IL-12 gene therapy and Sleeping Beauty cell therapies, and had not generated significant product revenue.
Financial results and liquidity
Amounts below are in millions of dollars unless stated otherwise. No conventional borrowings are reported; contract liabilities and Series 1 preferred stock are significant obligations or capital-structure items, but are not ordinary debt.
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Collaboration revenue | $0 | $1.597 | $0.146 | $3.194 |
| Research and development expense | $7.489 | $10.831 | $17.672 | $22.798 |
| General and administrative expense | $4.889 | $3.780 | $11.048 | $7.375 |
| Operating loss | $(12.378) | $(13.014) | $(28.574) | $(26.979) |
| Net loss | $(12.031) | $(12.862) | $(28.051) | $(28.349) |
| Net loss attributable to common stockholders | $(17.493) | $(17.727) | $(38.633) | $(37.385) |
| Basic and diluted loss per share | $(0.12) | $(0.13) | $(0.27) | $(0.28) |
Gross margin is not meaningful for this pre-commercial company. At June 30, cash and cash equivalents were $40.404 million; another $0.389 million was restricted cash. Six-month operating cash use was $29.131 million, investing cash use was $0.376 million, and cash, cash equivalents and restricted cash decreased by $30.542 million. Working capital was $43.7 million (current assets $52.993 million less current liabilities $9.314 million). Total liabilities were $61.190 million, including $49.513 million of long-term contract liability and $2.358 million of derivative liabilities. Accumulated deficit was $748.624 million.
Material changes versus prior comparable periods
- Reported Q2 revenue fell to zero and first-half revenue fell 95% year over year. The filing attributes the timing change to adopting ASC 606 for the Ares Trading collaboration. Without ASC 606, the filing says Q2 revenue would have been $1.597 million and first-half revenue $3.194 million; first-half net loss would have been $25.003 million rather than $28.051 million.
- ASC 606 adoption resulted in an $8.131 million reduction to opening accumulated deficit and changed contract-liability classification and revenue timing. At June 30, the reported $49.513 million contract liability was all long-term.
- First-half R&D expense declined 22%, primarily reflecting lower cell-therapy and GvHD program spending; GvHD development had been discontinued and rights reverted to Precigen. G&A rose 50%, partly due to stock-option modifications and higher outside-service costs.
- First-half operating loss widened despite a slightly lower net loss, which included a favorable $0.211 million change in derivative fair value. Preferred-stock dividends of $10.582 million increased the loss attributable to common stockholders.
- Cash fell from $70.946 million at year-end 2017 to $40.404 million at June 30. Unlike first-half 2017, first-half 2018 had no common-stock offering proceeds; 2017 financing included $47.270 million net proceeds from an offering.
Outlook, commentary, risks and unusual items
- Management expected available cash to fund operations into the second quarter of 2019 and disclosed no committed additional financing. Management concluded there was substantial doubt about the company’s ability to continue as a going concern; additional capital or partnerships would be needed, and failure to obtain funding could force program delays or cuts.
- Clinical updates included reported median overall survival of 12.7 months in 15 recurrent glioblastoma patients treated with Ad-RTS-hIL-12 plus veledimex, at a mean follow-up of 12.9 months. This was an interim, small-cohort result and was compared with historical controls, not a randomized concurrent control.
- Enrollment had begun in a Phase 1 combination study with nivolumab for recurrent glioblastoma. The FDA had placed an investigator-led point-of-care CD19 CAR-T study on clinical hold, requesting additional chemistry, manufacturing and controls information; initiation could be delayed. The company also expected an NCI-led TCR trial to begin in 2018.
- Series 1 preferred stock issued to Intrexon accrued monthly dividends in additional preferred shares. The June 30 balance had a $154.428 million carrying amount and $152.4 million liquidation value; the filing estimated 41.754 million common shares on conversion at that date. Conversion is subject to Nasdaq limits and could dilute common holders.
- Other notable commitments included $7.222 million of contractual obligations, including $2.472 million of operating leases and $4.750 million classified as “Other.” The company reported no material legal proceedings and no material subsequent events. Disclosure controls were concluded effective.
- Risks emphasized funding availability and dilution, uncertain clinical and regulatory outcomes, the clinical hold, reliance on Precigen and MD Anderson licenses and collaborators, manufacturing challenges, competition, and the preferred stock’s dividend, liquidation and conversion terms. The filing provided no quantitative earnings or revenue guidance beyond the cash-runway estimate.
Important facts for investors to verify
- Confirm the issuer and security being analyzed: this filing is for ZIOPHARM Oncology, Inc., not an entity named Alaunos Therapeutics, Inc.
- Track cash burn, financing activity and the stated runway into Q2 2019; the going-concern conclusion and absence of committed financing are central risks.
- Reconcile reported collaboration revenue and contract liabilities under ASC 606 with the prior accounting basis; reported period comparisons are materially affected by the accounting change.
- Monitor FDA responses and timing for the point-of-care CD19 CAR-T clinical hold, and distinguish interim clinical observations from final or controlled-trial evidence.
- Review the Series 1 preferred stock’s continuing dividends, liquidation preference, conversion mechanics and potential dilution, as well as related-party arrangements with Precigen/Intrexon.