Business Context and Reporting Period
Company: Oxygen Biotherapeutics, Inc. (formerly Synthetic Blood International, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: April 30, 2009
Business Overview: A development-stage biotechnology company focused on oxygen delivery to tissue. The primary product is Oxycyte, a perfluorocarbon-based oxygen carrier intended for surgical and trauma applications. The company also develops topical gels (Dermacyte, Wundecyte) and has out-licensed its glucose biosensor technology. The company has no commercial revenue and relies on external financing to fund clinical trials and regulatory approvals.
Key Financial Metrics
| Metric | Fiscal Year 2009 | Fiscal Year 2008 |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | $(33,218,840) | $(6,721,168) |
| Research & Development Expense | $1,598,807 | $939,998 |
| General & Administrative Expense | $7,002,518 | $1,992,687 |
| Interest Expense | $24,856,041 | $3,611,902 |
| Cash and Cash Equivalents (Ending) | $2,555,872 | $4,880,633 |
| Working Capital | $2,271,330 | $4,687,726 |
| Accumulated Deficit | $(70,960,202) | $(37,741,362) |
Material Changes vs. Prior Period
- Significant Increase in Net Loss: The net loss increased by approximately $26.5 million (394%) compared to the prior year. This was primarily driven by a $21.2 million increase in interest expense due to the amortization of discounts and debt issue costs associated with convertible notes, many of which were converted to equity during the period.
- Operating Expenses: General and administrative expenses increased by $5.0 million, largely due to a $3.1 million increase in professional consulting fees for accounting, legal, and regulatory advice, and a $703,000 increase in stock-based compensation.
- Debt Conversion: The company repaid approximately $19.9 million in principal on convertible debentures through the issuance of 80.6 million shares of common stock, significantly reducing long-term debt but increasing share count.
- Cash Position: Cash and cash equivalents decreased by $2.3 million, reflecting a net cash outflow of $4.1 million from operating activities.
Guidance, Outlook, Risks, and Unusual Items
- Clinical Development Status: A Phase II study protocol for Oxycyte was placed on clinical hold by the FDA in spring 2008 due to safety concerns. Management filed a revised dose-escalation protocol in Switzerland and Israel, with trials expected to begin in September 2009. The company also filed for orphan drug designation for Oxycyte for severe traumatic brain injury (TBI).
- Strategic Agreements:
- Hospira: Signed a development and commercial supply agreement for Oxycyte manufacturing. OBI will pay up to $876,000 in milestones during the development phase.
- U.S. Navy: Signed a cooperative research agreement for Oxycyte use in decompression sickness, with the Navy investing up to $3.8 million over three years.
- Financing (Subsequent Event): In June/July 2009, the company entered an agreement with Vatea Fund to purchase 20 million shares for $5 million, with potential for an additional $15 million contingent on milestones and warrant cancellations.
- Going Concern Risk: The auditors have issued a "substantial doubt" opinion regarding the company's ability to continue as a going concern. The company has an accumulated deficit of over $70 million and requires substantial additional funding to complete clinical trials.
- Internal Controls: Management identified material weaknesses in internal controls over financial reporting, including inconsistent maintenance of contracts and insufficient accounting knowledge due to staff turnover. Remediation plans are underway.
Investor Verification Checklist
- Financing Sustainability: Verify the status of the $5 million Vatea Fund closing and the likelihood of achieving the milestones required for the additional $15 million tranche.
- Regulatory Path: Confirm the approval status of the revised Phase II clinical trial protocols in Switzerland and Israel and the FDA's stance on the orphan drug designation for TBI.
- Dilution Impact: Assess the impact of the 80.6 million shares issued for debt conversion and the potential issuance of up to 80 million additional shares under the Vatea Fund agreement on existing shareholder equity.
- Internal Control Remediation: Monitor the company's progress in addressing the material weaknesses in financial reporting controls identified in the 10-K.
- Manufacturing Capacity: Verify the progress of the Hospira agreement to ensure clinical-grade Oxycyte can be produced for upcoming trials.