Oragenics, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. Oragenics is a development-stage healthcare company focused on antibiotics and oral-health products. Its marketed product line, ProBiora3, generated modest revenue; the company reported recurring losses and negative operating cash flow.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $253,374 | $264,248 | $597,449 | $901,182 |
| Gross profit | $139,990 | $100,189 | $333,459 | $426,656 |
| Gross margin | 55.2% | 37.9% | 55.8% | 47.4% |
| Research and development | $6,907,250 | $600,208 | $8,289,614 | $7,130,780 |
| Selling, general and administrative | $2,558,205 | $1,596,554 | $5,180,702 | $3,740,022 |
| Net loss | $(9,325,424) | $(2,555,941) | $(12,989,419) | $(11,101,620) |
| Net loss per share | $(0.34) | $(0.11) | $(0.47) | $(0.76) |
- Cash and cash equivalents were $8.27 million at September 30, 2013, versus $9.93 million at year-end 2012. Working capital was $4.32 million, down from $9.15 million.
- Operating activities used $5.55 million of cash in the first nine months, compared with $3.47 million in 2012. Investing activities used $17,649; financing activities provided $3.90 million.
- Current liabilities totaled $4.45 million, including $2.36 million of accounts payable and accrued expenses, $108,220 of short-term notes, and a $1.956 million convertible note due December 31, 2013. The note bears 3% interest and may be repaid in cash or shares, subject to shareholder approval for conversion.
- Total assets were $8.82 million; accumulated deficit was $67.08 million. The company reported no income tax benefit.
Changes versus the prior comparable period
- Quarterly revenue declined about 4%; nine-month revenue declined about 34%, primarily reflecting lower international product sales and grant revenue.
- Quarterly net loss increased substantially, chiefly because research and development included a $6.0 million technology access fee for the new Intrexon probiotics collaboration. Nine-month R&D also rose, reflecting Intrexon-related costs.
- Nine-month SG&A rose about 39%, driven by marketing and advertising, stock-based compensation, and personnel-related costs. Lower cost of sales improved gross margin despite lower revenue.
- Nine-month cash used in operations increased by about $2.07 million. Cash financing included approximately $3.9 million of proceeds from Intrexon’s purchase of common shares.
Business developments, outlook and risks
- On September 30, Oragenics entered a new exclusive worldwide collaboration with Intrexon to develop genetically modified probiotics for certain diseases of the oral cavity, throat, sinus and esophagus. The $6.0 million access fee was paid through 1.348 million shares and the $1.956 million convertible note. Intrexon also purchased 1.3 million shares for $3.9 million.
- The probiotics agreement requires a 10% share of net sales for Intrexon and milestone payments of $2 million, $5 million and $10 million at specified clinical and commercialization events. No milestones had been achieved at quarter-end. The existing lantibiotics collaboration carries separate profit-sharing and milestone obligations.
- Management said current working capital was expected to fund the business plan through December 2014; the risk discussion separately described cash resources as sufficient for at least the next 15 months. The company has no committed additional financing and cautioned that further capital may be needed sooner or in greater amounts. Additional financing could dilute shareholders; without it, development or commercialization may be curtailed.
- Management expected increased R&D investment in MU1140 and probiotic programs, while limiting spending on other candidates and seeking partners. The filing gives differing target timing for a potential MU1140 Investigational New Drug filing: first quarter 2015 in the overview and second quarter 2015 in the risk discussion. MU1140 was not expected to be commercially available until after 2016.
- Management said the ProBiora3 marketing rollout had not met expectations in Q3. Two oral-health studies did not support enhanced claims and were to be discontinued; the company continued a separate two-year study in children in Scandinavia. SMaRT Replacement Therapy’s Phase 1b trial was discontinued because of restrictive enrollment criteria, with partnering opportunities being considered.
- Key risks include continued losses and financing dependence; uncertain product development, clinical and regulatory outcomes; manufacturing and supplier dependence; Intrexon agreement performance and potential payments; ProBiora3 demand and regulatory status; and possible shareholder dilution. A material weakness in internal control remained because of insufficient personnel to segregate duties, although management deemed disclosure controls effective and described remediation efforts.
- After quarter-end, the company awarded 422,359 shares under incentive programs following achievement of a performance goal, including awards to executives and non-employee directors. The quarter included a $1.49 million liability and expense for the expected awards.
Important facts for investors to verify
- Cash runway assumptions, the December 31, 2013 convertible-note settlement or conversion, and the need and availability of additional financing.
- Underlying ProBiora3 sales trends, especially international sales, and whether the marketing rollout improves results.
- Progress, costs and timing under both Intrexon collaborations, including clinical milestones, future milestone payments and possible equity issuance.
- The intended MU1140 IND filing timeline, given the filing’s differing first- versus second-quarter 2015 estimates, and progress toward reliable manufacturing.
- The impact of post-quarter incentive awards and other potential share issuance on dilution, and progress addressing the disclosed internal-control material weakness.