Oragenics, Inc. — Q1 2016 Form 10-Q
Business context and period. This unaudited report covers the three months ended March 31, 2016, compared with Q1 2015. Oragenics develops antibiotic and oral mucositis candidates and sells probiotic oral-care products under the Evora and ProBiora brands. Product sales are its only current commercial revenue; the company has not achieved profitability.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $262,258 | $363,774 |
| Gross profit / margin | $172,304 / 65.7% | $195,777 / 53.8% |
| Research and development | $1,241,410 | $676,595 |
| Selling, general and administrative | $994,426 | $815,465 |
| Operating loss | $(2,063,532) | $(1,296,283) |
| Net loss | $(2,062,885) | $(1,292,777) |
| Net loss per share, basic and diluted | $(0.05) | $(0.04) |
| Cash used in operating activities | $(1,681,761) | $(1,288,371) |
Cash and cash equivalents were $3.37 million at March 31, 2016, down from $5.08 million at year-end 2015. Working capital was $2.75 million, versus $4.59 million at year-end. Current liabilities were $1.08 million; these included $78,800 of short-term notes payable. Total assets were $3.96 million and shareholders’ equity was $2.87 million. No long-term debt is reported in the balance sheet.
Material changes versus Q1 2015
- Revenue fell $101,516 (about 28%), primarily due to lower private-label sales. Cost of revenue declined $78,043, also mainly reflecting lower private-label sales; gross margin improved from 53.8% to 65.7%.
- R&D expense increased $564,815, mainly from Intrexon collaboration work, patent costs, salaries and stock-based compensation.
- SG&A expense increased $178,961 (21.9%), principally due to option and legal costs, filing fees, selling costs, board fees and employee costs.
- Net loss increased by $770,108. Operating cash use rose by $393,390. The company ended Q1 2015 with $9.05 million cash, compared with $3.37 million at Q1 2016.
Outlook, risks and contingencies
- Funding and going concern: Management said available cash was expected to fund the business as then structured only through June 2016 and disclosed substantial doubt about the company’s ability to continue as a going concern. Additional financing is needed; there are no committed financing sources. Failure to raise funds could require reduced or delayed development activities and could dilute shareholders.
- Development outlook: Subject to sufficient capital, Oragenics expected to file an IND for antibiotic candidate OG253 in the second half of 2016. For AG013, an oral mucositis candidate, it reported a confirmatory animal study in Q1 and was evaluating further studies before deciding whether to proceed with a Phase 2 trial. No assurance or firm timing was provided for the trial.
- Pipeline evidence: The filing reports that one MU1140 homolog achieved 100% survival in a preclinical study, versus about 30% for the vancomycin control. AG013 was reported safe and well tolerated in a 25-patient Phase 1b study, with a 35% reduction in duration of ulcerative mucositis versus placebo. These are early-stage findings, not evidence of regulatory approval or commercial success.
- NYSE MKT listing: On May 10, 2016, the company said it had received notice of noncompliance with the exchange’s $6.0 million stockholders’ equity standard; equity was $4.7 million at December 31, 2015. It intended to submit a compliance plan by June 10, 2016, with compliance required by November 10, 2017. Failure could lead to delisting.
- Contractual and contingent payments: No milestones under the Texas A&M or Intrexon collaboration agreements had been achieved at March 31, 2016. The first Texas A&M clinical enrollment milestone was due by June 1, 2016; the company planned to seek an extension. Future collaboration milestones include substantial cash payments under the oral mucositis agreement and potential share issuances under the lantibiotic agreement. The filing does not quantify a current payable for these unachieved milestones.
- Other risks: ProBiora3 marketing had limited success, and the company was exploring strategic alternatives for that business. It depends on four key suppliers for probiotic products. The company reported no pending material legal proceeding. Management concluded disclosure controls were effective as of March 31, 2016.
Important facts for investors to verify
- Whether Oragenics obtained financing after the reporting date and how long available cash ultimately supported operations.
- The status and acceptance of the NYSE MKT compliance plan, and whether listing standards were regained by the deadline.
- Progress on the OG253 IND and AG013 Phase 2 decision, including any updated timelines, study results or regulatory feedback.
- Whether Texas A&M extended the first-patient enrollment milestone and whether any collaboration milestones or payments were triggered.
- Subsequent revenue trends, cash burn, supplier continuity, and any strategic transaction involving the probiotic business.
- Potential dilution from future equity financing, director awards and collaboration-related share issuances.