Oragenics, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. Unaudited financial statements; filed November 6, 2015. Oragenics is a development-stage biotechnology company, with modest sales of oral-health probiotic products and research programs in lantibiotic antibiotics and oral mucositis.
Financial performance and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $329,795 | $201,010 | $935,607 | $719,422 |
| Gross profit / margin | $195,204 / 59.2% | $127,299 / 63.3% | $546,237 / 58.4% | $440,346 / 61.2% |
| Research and development | $1,170,802 | $597,034 | $7,459,318 | $2,516,826 |
| Operating expenses | $2,024,720 | $1,162,148 | $10,002,331 | $5,026,669 |
| Net loss | ($1,863,676) | ($1,029,544) | ($9,491,924) | ($4,565,947) |
| Loss per share | ($0.05) | ($0.03) | ($0.26) | ($0.13) |
- Cash and cash equivalents: $6.74 million at September 30, 2015, down from $10.45 million at December 31, 2014.
- Cash flow, nine months: $3.50 million used in operating activities, $101,231 used in investing, and $113,792 used in financing; net cash decreased $3.71 million.
- Liquidity: Working capital was $1.34 million, versus $10.23 million at year-end 2014. Current liabilities were $5.89 million, including a $5.0 million convertible note to Intrexon, accounts payable and accrued expenses of $761,830, and short-term notes of $109,510.
- Debt terms: The unsecured Intrexon note bears 3% interest and principal plus accrued interest was due December 31, 2015. Oragenics could repay in cash or common shares. Short-term notes primarily finance insurance premiums.
- Balance sheet: Total assets were $7.39 million and shareholders’ equity $1.50 million. Accumulated deficit was $85.44 million.
Changes versus prior comparable periods
- Nine-month revenue grew 30% year over year, mainly from increased private-label probiotic sales; quarterly revenue also increased. Operating losses widened substantially as R&D spending rose.
- The $5.0 million R&D increase chiefly reflects the Oral Mucositis collaboration technology access fee, recorded through a convertible note to Intrexon. Excluding the fee, R&D also reflected higher personnel, stock compensation, and clinical costs.
- Nine-month gross margin fell to 58.4% from 61.2%; Q3 margin fell to 59.2% from 63.3%.
- Interest expense increased with the Intrexon note, while lower cash balances reduced interest income.
- On September 30, Oragenics and Intrexon terminated their probiotics collaboration to focus company resources on lantibiotics and oral mucositis. The company also reported that the UFRF patent underlying its SMaRT Replacement Therapy expired in June 2015 and the associated license terminated; it is evaluating options for the technology.
Outlook, commentary, and risks
- Management reported that, assuming the Intrexon convertible note and interest could be paid in shares, September 30 cash was expected to support the business as then structured for about nine months. The company also stated it needed additional capital for the Oral Mucositis program and for operations and Lantibiotic ECC work through June 2016. These statements are conditional and do not represent committed financing.
- For lantibiotics, management planned an FDA pre-IND meeting in Q4 2015 and expected, depending on its outcome, to file an IND in the second half of 2016. A preclinical lead homolog showed 100% survival in a reported study versus about 30% for the vancomycin control; this is nonclinical evidence, not proof of human efficacy.
- For AG013 oral mucositis, the company cited prior Phase 1 findings of safety and tolerability and a 35% reduction in ulcerative mucositis duration in a 25-patient study. It was conducting further studies before deciding whether to proceed with Phase 2.
- Management expected significant losses and spending to continue. The company had no committed financing and warned that inability to raise capital could force it to delay or curtail development. It cited funding, clinical and regulatory outcomes, manufacturing scale-up, reliance on Intrexon and other suppliers, and limited probiotic revenue among key risks.
- The Oral Mucositis ECC includes substantial future milestone payments, including $2 million at Phase II initiation and additional payments at later development, regulatory, and product milestones; none had been achieved at September 30, 2015.
- Management found disclosure controls effective but disclosed a continuing material weakness in internal control over financial reporting due to inadequate segregation of duties, attributed to the company’s small staff.
- No material pending legal proceedings were reported. No income tax benefit was recorded; deferred tax assets remained fully reserved.
Most important facts for investors to verify
- Whether the $5.0 million Intrexon note and accrued interest were settled by the December 31, 2015 due date, and whether settlement involved cash or share issuance and dilution.
- Subsequent cash, operating burn, financing availability, and the company’s ability to fund both collaboration programs and operating costs.
- Progress and actual results from the lantibiotic FDA engagement and IND preparation, and the decision and funding plan for AG013 Phase 2.
- Effects of terminating the probiotics ECC, the status of probiotic-business strategic alternatives, and the ability to maintain product supply after the disclosed supplier disruption risk.
- Any remediation of the segregation-of-duties material weakness and any changes to the company’s internal-control assessment.