Oragenics, Inc. — Q2 2014 Form 10-Q
Business context and reporting period. This unaudited filing covers the three and six months ended June 30, 2014. Oragenics develops antibiotics and probiotics and sells oral-health probiotic products, its only current source of product revenue. Its principal development programs include lantibiotic candidate MU1140 and therapeutic probiotics in collaboration with Intrexon.
Financial performance and liquidity
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $303,752 | $167,668 | $518,412 | $344,075 |
| Gross profit (margin) | $178,147 (58.7%) | $81,011 (48.3%) | $313,047 (60.4%) | $193,469 (56.2%) |
| Research and development | $903,328 | $636,969 | $1,919,792 | $1,382,364 |
| Selling, general and administrative | $1,177,335 | $1,519,310 | $1,944,729 | $2,622,497 |
| Net loss | $(1,895,519) | $(2,074,035) | $(3,536,403) | $(3,663,995) |
| Basic and diluted loss per share | $(0.05) | $(0.08) | $(0.10) | $(0.13) |
- Revenue rose 81% in Q2 and 51% for the first half. Management attributed the increase primarily to ProBiora3 sales, including Evora Pro and private-label sales; first-half grant revenue declined.
- Gross margin improved in both comparison periods. Operating expenses fell 4% in Q2 and 4% for the first half: lower SG&A more than offset higher R&D. R&D increased 42% year to date, primarily reflecting development costs for the lantibiotic program.
- Cash and cash equivalents were $12.90 million at June 30, down from $16.28 million at December 31, 2013. First-half operating cash use was $3.28 million; investing cash use was $18,465 and financing cash use was $78,970.
- Working capital was $12.53 million, versus $15.81 million at year-end 2013. Current liabilities were $778,000, including $35,775 of short-term notes; the filing reports no long-term debt on the balance sheet. Accumulated deficit was $73.69 million.
Material changes, outlook and risks
- Management says available cash is expected to fund the business plan as presently structured through March 2015. The company expects substantial future expenditures and losses and says additional financing will be needed; no committed financing source is identified. Failure to raise capital could require curtailing development programs.
- Management expects R&D spending to increase as MU1140 and probiotic programs advance. It indicated MU1140 is not expected to be commercially available before 2016. No specific revenue or earnings guidance is provided; management expects ProBiora3 revenue to remain relatively flat until more resources can be devoted to marketing.
- Clinical progress remains uncertain. The filing reports that two ProBiora3 clinical studies did not support enhanced product claims and were terminated; a pilot study found no clear statistically significant improvement over the existing tablet format. A two-year study in children remained ongoing, with no results then available.
- A supplier of two of the three bacterial strains used in ProBiora3 notified the company it would discontinue production effective December 20, 2014. Oragenics was seeking an alternative supplier; failure to secure one on viable terms could impair product availability and revenue.
- Intrexon collaboration agreements include continuing development responsibilities, revenue/profit-sharing provisions and material milestone payments. None of the stated Lantibiotic, Probiotic or Texas A&M milestones had been achieved by June 30, 2014.
- On July 13, 2014, the company extended its Alachua facility lease through November 30, 2019. Initial monthly rent is $10,219, with annual 3% increases; early termination before November 30, 2014 requires nine months’ rent in advance.
- Management assessed disclosure controls as effective but disclosed a continuing material weakness in segregation of duties because of limited staffing. The company reported no material legal proceeding outside the ordinary course.
Important facts for investors to verify
- Whether cash burn and program spending remain consistent with the stated March 2015 funding runway, and what financing or partnering options are available.
- Whether a qualified replacement supplier is secured before the stated December 2014 discontinuation, and on what terms.
- Progress, timing, costs and funding needs for MU1140 preclinical work and therapeutic-probiotic development, including any changes to anticipated milestones.
- Whether ProBiora3 sales and clinical evidence support management’s commercialization expectations, and whether any additional clinical results become available.
- Potential dilution from future fundraising and equity-settled collaboration milestones; common shares outstanding were 36,178,944 as of August 5, 2014.