Moleculin Biotech, Inc. — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Moleculin is a preclinical-stage oncology drug developer with no product revenue. Its principal programs are Annamycin for relapsed or refractory AML, the WP1066 portfolio, and the WP1122 portfolio.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $0.683 million | $0.015 million |
| General and administrative expense | $0.848 million | $0.306 million |
| Total operating expenses / operating loss | $1.535 million | $0.321 million |
| Net loss | $0.329 million; $0.02 per share | $0.332 million; $0.05 per share |
| Operating cash used | $1.391 million | $0.290 million |
| Cash and cash equivalents | $8.881 million at March 31 | $5.007 million at December 31, 2016 |
| Total liabilities | $4.175 million | $1.433 million at December 31, 2016 |
| Convertible notes payable | $0.108 million | $0.276 million at December 31, 2016 |
The reported net loss included $1.208 million of noncash gains: a $1.059 million gain from revaluing warrant liabilities and a $0.149 million gain on settling a liability with shares. Excluding these gains, management reported an adjusted net loss of approximately $1.54 million, versus $0.33 million in Q1 2016. No operating margin is meaningful given the absence of revenue. The company had $3.084 million in warrant liabilities at quarter-end, including $1.238 million current and $1.846 million long term; these are fair-value liabilities, not conventional borrowings.
Financing activities provided $5.265 million, principally from the February offering ($4.460 million net proceeds) and warrant exercises ($0.805 million). Cash increased by $3.874 million during the quarter. Management said cash at March 31 was expected to fund planned operations into Q1 2018, but the financial statements also disclose substantial doubt about the company’s ability to continue as a going concern without further financial support and funding.
Material changes and developments
- Operating expenses rose substantially year over year as the company became fully operational after its 2016 IPO. R&D increased by about $0.668 million, reflecting research, staffing, manufacturing, regulatory, and licensing costs; G&A rose by about $0.542 million, primarily from added personnel and professional fees.
- In February, the company sold 3.71 million units at $1.35 per unit, alongside warrants, and received approximately $4.5 million net. Warrant exercises in March generated a further approximately $0.8 million. The offering and exercises increased shares outstanding; 17,756,862 shares were outstanding at March 31.
- Convertible-note conversions reduced the balance from $0.276 million at year-end to $0.108 million. Remaining notes could convert into approximately 772,486 shares, excluding accrued interest.
- The FDA granted Annamycin Orphan Drug designation for AML on March 21, 2017. The designation may provide market-exclusivity benefits if the product is approved; approval and exclusivity are not assured.
Outlook, risks, and contingencies
- Annamycin: The company filed an IND on February 10, 2017, then withdrew it after FDA requested protocol revisions, additional information, and chemistry, manufacturing, and controls (CMC) data. Moleculin expected to resubmit in time for the IND to become effective by the end of July 2017, with trial-site activity later in the second half of 2017. These were expectations, not guaranteed milestones; CMC delays could postpone the trial. A Phase I component was added to evaluate a potentially higher maximum tolerated dose, adding expense and time. Management expected to announce Phase I/II results sometime in 2018.
- The company estimated that additional Annamycin drug product needed for CMC work would cost about $0.5 million. It relies on third parties for manufacturing and clinical research. Annamycin’s drug substance was no longer protected by existing patents; planned patent applications had no assurance of success.
- A physician-sponsored WP1066 IND was reportedly on hold pending GMP-production documentation. Moleculin had agreed to supply WP1066 for a potential grant-funded study, but did not control its design or conduct. WP1122 remained in preclinical development.
- Moleculin expects to need additional capital and warned that unavailable or unfavorable financing could force it to delay, reduce, or stop development programs. It also disclosed license-related fees, milestones, royalties, and other commitments. A $0.100 million payment under the MD Anderson sponsored laboratory study was due July 31, 2017; the company also had a $0.750 million HPI payment obligation over three years and a possible $1.0 million buyout option.
- The company reported a material weakness in internal control over financial reporting due to insufficient segregation of accounting duties. Disclosure controls were judged ineffective; management said it performed additional procedures and planned to add accounting staff when feasible.
- The filing disclosed that the share price had been below Nasdaq’s $1.00 minimum bid requirement since April 5, 2017. Continued noncompliance could lead to delisting and impair liquidity and access to capital.
- No pending legal proceedings were reported. The filing identified no market-risk disclosure requirement applicable to the company as a smaller reporting company.
Important facts for investors to verify
- Whether the Annamycin IND was resubmitted and became effective, and whether CMC requirements, trial approvals, and site initiation were achieved on schedule.
- Actual cash burn and runway relative to management’s Q1 2018 estimate, and the timing, terms, and dilution of any additional financing.
- The clinical and preclinical evidence supporting the drug candidates, including the basis for Annamycin’s proposed higher dose and the status of WP1066 and WP1122 studies.
- Potential dilution from outstanding warrants, convertible notes, and stock awards, and the eventual effect of warrant-liability remeasurement.
- Progress in remediating the accounting-control material weakness and maintaining Nasdaq listing compliance.
- Whether license obligations, manufacturing costs, and potential milestone or royalty commitments change as programs advance.