Moleculin Biotech, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Moleculin is a clinical-stage oncology drug developer with no product revenue. Its programs include Annamycin, WP1066 and related STAT3 inhibitors, and glycolysis inhibitors WP1122/WP1234.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.237 million | $0.683 million |
| General and administrative expense | $1.392 million | $0.848 million |
| Total operating expenses | $2.637 million | $1.535 million |
| Operating loss | $2.637 million | $1.535 million |
| Net loss | $1.927 million | $0.329 million |
| Operating cash used | $2.807 million | $1.391 million |
| Cash and cash equivalents at period end | $13.114 million | $7.714 million at December 31, 2017 |
| Total assets | $24.929 million | $19.483 million at December 31, 2017 |
| Total liabilities | $4.359 million | $2.365 million at December 31, 2017 |
Net loss per share was $0.08, versus $0.02 in Q1 2017. No profit margin is meaningful because the company reported no revenue. Net loss included a $0.709 million noncash gain from remeasurement of warrant liabilities; this gain reduced the reported loss but did not provide operating cash. Cash from financing was $8.215 million, principally from the February offering. The company reported no conventional borrowings in the supplied financial statements; liabilities included $2.873 million of warrant liability and $0.150 million of related-party deferred compensation. Working capital was approximately $11.949 million.
Material changes versus Q1 2017
- Operating expenses increased $1.102 million: R&D rose about $0.554 million and G&A about $0.544 million, reflecting increased staffing, sponsored research, drug development, and preparation for clinical trials.
- Net loss increased by $1.598 million, partly because the warrant fair-value gain was smaller than in the prior-year quarter ($0.709 million versus $1.059 million) while operating costs rose.
- Operating cash use approximately doubled year over year. Financing provided $8.215 million, compared with $5.265 million in Q1 2017.
- Common shares outstanding rose to 25,768,861 from 21,469,109 at year-end 2017, primarily following the February equity financing.
Liquidity, outlook, and risks
- In February, the company sold 4.29 million shares at $2.10 per share with accompanying warrants, generating approximately $9.0 million gross and $8.2 million net. Investor warrants cover 2.145 million shares, are exercisable after six months at $2.80 per share, and have a five-year term. The financing was dilutive and created potential future dilution.
- Management stated that March 31 cash was expected to fund planned operations into the first quarter of 2019, subject to clinical enrollment and drug-product use. Separately, the liquidity note says cash was sufficient into, but not beyond, the near term and identifies substantial doubt about the company’s ability to continue as a going concern. The company expects to need additional capital; there is no assurance it can obtain funding on acceptable terms or at all.
- Annamycin’s FDA-authorized Phase I/II trial for relapsed or refractory AML began enrolling and treating patients at one U.S. site in March 2018. Polish trial commencement remained subject to national authorization; management expected a response in the first half of 2018. A CRO was engaged in May 2018 to assess possible trial expansion to Australia and Western Europe.
- Management was planning preclinical work for WP1732 and WP1122, and a Polish proof-of-concept trial for WP1220 in cutaneous T-cell lymphoma. These are development plans, not established clinical or commercial outcomes.
- Key risks include clinical, regulatory, enrollment, financing, manufacturing, and intellectual-property uncertainty. The filing states Annamycin’s drug substance is no longer covered by existing patent protection; planned patent applications for product-related matters may not succeed.
- The company entered a 66-month Houston office lease expected to begin in May 2018, with base rent of about $4,300 per month plus operating expenses. It also has license, research, and milestone obligations, including MD Anderson payments; amounts depend on contractual milestones and terms.
- Disclosure controls were reported as not effective due to a material weakness in segregation of accounting duties. The company added accounting staff and said it intended further remediation; management reported additional procedures to support the financial statements.
Most important facts for investors to verify
- Cash runway assumptions and the apparent difference between the MD&A estimate of funding into Q1 2019 and the going-concern note’s more cautious near-term assessment.
- Actual Annamycin trial enrollment, safety and efficacy progress, and Polish authorization status; these milestones are uncertain and may be delayed.
- Future financing needs, potential dilution from equity and warrants, and the company’s ability to raise capital.
- Progress in remediating the material weakness in internal controls and whether disclosure controls become effective.
- Warrant-liability valuation and its noncash effect on reported earnings, alongside recurring operating cash burn and contractual commitments.