Oragenics, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017; balance-sheet comparisons are with December 31, 2016. Oragenics is a development-stage biotechnology company focused on AG013 for oral mucositis and lantibiotic antibiotic candidates. It reported no revenue from continuing operations.
Financial performance and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Research and development expense | $605,411 | $792,697 | $1,727,872 | $2,017,497 |
| General and administrative expense | $791,348 | $940,585 | $1,656,543 | $1,790,430 |
| Net loss from continuing operations | $1,220,987 | $1,733,562 | $3,203,562 | $3,807,560 |
| Net loss, including discontinued operations | $1,220,866 | $312,615 | $3,203,562 | $2,375,500 |
| Net loss per share | $0.02 | $0.01 | $0.07 | $0.06 |
Operating expenses and losses reflect continued development spending. No meaningful revenue-based margin measure is available. Q2 2016 included a $1.454 million gain on sale of the consumer probiotics business, which substantially reduced that period’s reported net loss.
For the first six months of 2017, operating cash use was $3.666 million, versus $3.540 million in 2016. Cash and cash equivalents were $2.089 million at June 30, with a further $1.919 million classified as restricted cash for AG013 research and clinical trials. Working capital was $3.442 million. Total assets were $4.577 million; shareholders’ equity was $505,493.
Debt included a $2.4 million unsecured note payable to Intrexon, bearing 12% simple annual interest and maturing in May 2019, plus $22,561 of short-term notes. The balance sheet also reported a $588,437 derivative liability related to warrants. Management stated that available resources, including the subsequent preferred-stock financing closing, were expected to fund the operating plan as structured through December 2017, but disclosed substantial doubt about the company’s ability to continue as a going concern beyond that point without additional financing.
Material changes and financing
- Operating expenses declined year over year: Q2 R&D fell $187,286 and G&A fell $149,237; six-month R&D fell $289,625 and G&A fell $133,887.
- Six-month net loss increased from 2016, chiefly because the prior-year period included the gain on sale of discontinued operations. Excluding discontinued operations, the six-month loss from continuing operations improved.
- In May, the company issued $2.4 million of Intrexon debt and completed the first closing of a preferred-stock financing, receiving approximately $1.302 million gross. The second closing occurred July 25, after quarter-end, adding approximately $1.698 million gross.
- The full $3.0 million preferred financing is convertible into 12 million common shares at $0.25 per share. Warrants cover 4.621 million shares from the first closing and 6.024 million from the second, exercisable at $0.31 per share. These securities could materially dilute common shareholders.
- On July 27, the warrants were amended to change their change-of-control terms so they would be classified as equity rather than a derivative liability. The filing’s pro forma presentation reduces long-term liabilities by $588,437 and increases equity by the same amount.
Outlook, risks and unusual items
- Management planned to initiate a Phase 2 AG013 study in the United States and Europe in 2017. The planned study would enroll approximately 160–180 patients; the primary endpoint is reduction in days of severe oral mucositis.
- Management expected an IND filing for OG716, the selected lantibiotic candidate for C. difficile, by year-end 2018, subject to available capital. A workforce reduction during Q2 eliminated eight laboratory positions supporting the lantibiotic program; two senior scientists remained, with external vendors expected to assist clinical development.
- The company has no committed additional financing and expects continued losses and cash requirements. It warned that unavailable or unfavorable financing could force it to delay or reduce development programs. Equity financing could dilute holders; debt or preferred securities could have senior rights.
- Under the amended Oral Mucositis collaboration with Intrexon, a $3 million milestone is due at the earlier of the last patient’s dosing in a Phase 2 trial or 24 months after the first patient’s dosing. Further collaboration milestones and royalty or sublicense-sharing obligations may also be significant.
- The company reported no material pending legal proceedings. Management concluded disclosure controls were effective as of June 30, 2017 and reported no significant quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the December 2017 cash runway assumption remains achievable, and the timing and terms of any additional financing.
- AG013 Phase 2 trial initiation, enrollment, costs, and clinical progress; and the OG716 development and IND timeline.
- The potential dilution and rights associated with preferred-stock conversion and warrant exercise, and the final accounting treatment of the amended warrants.
- Interest and repayment obligations on the Intrexon note, plus the timing and funding capacity for collaboration milestones and other contractual commitments.
- Cash available for general operations versus restricted cash, and any changes in the company’s going-concern assessment.