Azitra, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2023. Azitra is an early-stage dermatology biotechnology company developing engineered microbes and proteins; it has not begun commercial operations. Its limited revenue is service revenue from its Bayer joint development agreement, not product sales.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue, all related-party service revenue | $172,000 | $85,000 | $285,300 | $205,000 |
| Operating expenses | $1.66 million | $2.17 million | $3.33 million | $4.59 million |
| Operating loss | $1.49 million | $2.09 million | $3.05 million | $4.39 million |
| Net loss | $4.43 million | $1.89 million | $6.89 million | $4.22 million |
| Net loss attributable to common shareholders | $5.07 million | $2.58 million | $8.24 million | $5.60 million |
- Cash flow: For the first half of 2023, operating activities used $3.03 million and investing activities used $162,138. The IPO provided $5.99 million of net financing proceeds. Cash increased $2.80 million to $6.29 million.
- Liquidity: At June 30, cash was $6.29 million, current assets were $6.84 million and current liabilities were $1.74 million. The company reported working capital of approximately $5.1 million.
- Debt and capitalization: Convertible notes were converted in June; no convertible notes remained on the June 30 balance sheet. Total liabilities were $2.59 million, including operating lease liabilities and a $158,994 warrant liability. The IPO raised $6.0 million net, issuing 1.5 million shares at $5 per share.
- Margins: The filing does not present gross profit or a clear gross margin. Revenue was small relative to operating expenses.
Material changes versus prior periods
- Q2 revenue rose 102% and first-half revenue rose 39%, reflecting increased reimbursable development work under the Bayer agreement. All service revenue came from one customer; the filing identifies the related party as Bayer.
- Operating expenses fell 24% in Q2 and 27% in the first half, mainly because research and development spending declined. Management attributed the reductions to lower Netherton-program costs and reduced staffing. The company expects R&D expenses to increase significantly as clinical development proceeds.
- Despite lower operating losses, net losses increased: the first-half loss included a $3.63 million non-cash charge from changes in the fair value of convertible notes. The Q2 loss also included a $2.83 million such charge.
- In June, the company completed its IPO and converted its preferred stock and convertible notes into common stock. It also completed a 7.1-for-1 forward stock split in May.
Outlook, risks and unusual items
- Clinical plans: Management expected to start the ATR-12 Phase 1b trial in the second half of 2023 and report initial results in the first half of 2024. It planned to submit an IND for ATR-04 by the end of 2023, with a Phase 1b trial targeted for the first half of 2024, subject to FDA clearance. ATR-01 lead optimization and IND-enabling work was planned for 2023, with an IND filing targeted for late 2024.
- Going concern: The company disclosed substantial doubt about its ability to continue as a going concern for the next 12 months. It cited a $44.2 million accumulated deficit, operating losses and cash use, and expects to need substantial additional funding. Additional financing is not assured and could dilute shareholders or require concessions on company rights.
- Reporting-period wording issue: The MD&A says cash would fund operations through at least the “first half of 2014” and that additional capital may be needed in the “second half of 2014,” despite the report being for 2023. The filing text does not clarify the intended dates.
- Control weakness: Management concluded disclosure controls were ineffective as of June 30, 2023, citing a material weakness in segregation of accounting functions. It said it was working to remediate the weakness by increasing accounting staffing.
- Other items: The company recorded $56,285 of income from forgiveness of accounts payable. It reported no material changes to the risk factors in its IPO prospectus. Legal claims in the ordinary course were not expected by management to have a material adverse effect.
Important facts for investors to verify
- Clarify the apparent “2014” cash-runway and financing dates in MD&A.
- Reconcile the share-conversion figures: MD&A states that preferred stock and notes converted into 8,951,526 common shares, while the equity statement lists 7,707,635 shares from preferred-stock conversion and 1,846,020 from note conversion.
- Monitor financing needs and the going-concern uncertainty, including whether planned clinical programs can be funded.
- Track FDA and trial milestones for ATR-12 and ATR-04, and the expected increase in R&D spending.
- Assess reliance on Bayer for all service revenue and the company’s progress in remediating its disclosed material weakness.