Outlook Therapeutics, Inc. — Form 10-Q Summary
Business context and period. This unaudited quarterly report covers the three months ended December 31, 2018, the first quarter of fiscal 2019. Outlook is a late clinical-stage biopharmaceutical company focused on ONS-5010, a bevacizumab candidate for ophthalmic indications. It has no products approved for sale and has generated revenue only from collaborations and licensing agreements.
Financial performance and position
| Metric | Quarter ended Dec. 31, 2018 | Comparable 2017 quarter / prior balance date |
|---|---|---|
| Collaboration revenue | $1.07 million | $0.77 million |
| Research and development expense | $8.42 million | $0.40 million |
| General and administrative expense | $2.90 million | $3.55 million |
| Operating loss | $10.26 million | $3.18 million |
| Net loss | $9.74 million | $1.92 million |
| Net loss attributable to common stockholders | $9.89 million | $17.73 million |
| Basic and diluted loss per share | $0.13 | $0.71 |
| Cash used in operating activities | $9.80 million | $8.67 million |
| Cash at period end | $0.23 million | $1.72 million at Sept. 30, 2018 |
| Total assets | $18.71 million | $22.28 million at Sept. 30, 2018 |
| Total liabilities | $40.18 million | $43.09 million at Sept. 30, 2018 |
| Stockholders’ equity (deficit) | $(26.35) million | $(25.54) million at Sept. 30, 2018 |
Current assets were $2.31 million versus current liabilities of $27.54 million. Debt included $10.40 million principal of senior secured notes and $4.61 million of unsecured stockholder notes due on demand. The secured-note carrying amount was $9.06 million after debt discount. The filing does not report a gross margin or a standard liquidity ratio.
Material changes versus the prior comparable quarter
- Revenue increased about $0.30 million; the company attributed the change primarily to adopting new revenue-recognition rules. Under the prior rules, it would have recognized $0.8 million for the quarter.
- R&D expense rose about $8.0 million, reflecting ONS-5010 clinical development and a $2.35 million write-off of equipment and construction-in-progress assets after the company narrowed its focus to ONS-5010 and planned to outsource commercial manufacturing. The prior-year quarter included a $3.23 million favorable clinical-contract settlement.
- Net loss increased, while loss attributable to common stockholders and per-share loss improved from 2017, when a $15.36 million preferred-stock beneficial-conversion charge was recognized.
- Operating cash use increased to $9.80 million. Financing provided $8.53 million, chiefly from $11.8 million net proceeds from the first two tranches of the BioLexis share placement, partly offset by debt and lease payments.
Liquidity, outlook, and risks
- Going concern: The company reported substantial doubt about its ability to continue as a going concern, citing recurring losses, negative operating cash flows, limited cash, and substantial debt. It stated that additional financing is necessary and that no assurance exists that funding efforts will succeed.
- Runway: Management expected cash on hand at December 31, the remaining $8.0 million BioLexis placement proceeds received in January and February 2019, and approximately $3.4 million expected from selling New Jersey tax attributes to fund operations into June 2019, excluding unscheduled debt repayment. This estimate depends on assumptions that may prove incorrect.
- Financing and debt: The November 2018 BioLexis agreement provided for a $20.0 million common-stock placement at $0.9327 per share. The remaining $8.0 million was received after quarter-end. Senior-note maturity was extended, subject to conditions, up to December 22, 2019; the company agreed to scheduled principal and interest payments through August 2019. The notes became convertible at $1.11924 per share, and related warrant exercise prices were reduced.
- Development outlook: ONS-5010-001 enrollment was approximately 75% complete. ONS-5010-002 had been initiated in Australia, with enrollment expected to begin in March 2019; the company planned an FDA investigational new drug application in the first quarter of calendar 2019 to enable U.S. enrollment. The company targeted regulatory submissions in multiple markets in 2020 if development succeeded; these were plans, not assured outcomes.
- Key risks: Clinical-trial timing and results, regulatory approval, financing availability, competition, market acceptance, and the ability to secure collaborations could affect operations. Failure to obtain funding could require workforce reductions, program suspensions, asset sales, or bankruptcy protection.
- Unusual items and contingencies: A $1.64 million noncash gain from a decline in warrant-liability fair value partially offset losses. A $3.65 million cumulative-effect adjustment increased accumulated deficit on adoption of the new revenue standard. Series A-1 preferred stock carries a 10% annual dividend and significant liquidation or deemed-liquidation preferences. The company reported no pending legal claims believed likely to have a material adverse effect and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the BioLexis proceeds and expected tax-attribute sale proceeds were received as anticipated, and whether they extended the runway beyond June 2019.
- Compliance with senior-note repayment and financing conditions, and the status of the $4.61 million of unsecured notes due on demand.
- ONS-5010 trial enrollment, results, regulatory milestones, and the timing and funding needs of planned studies.
- The dilutive and potential cash-settlement effects of outstanding warrants, convertible notes, and Series A-1 preferred stock; common shares outstanding were 85.09 million at quarter-end and 93.67 million as of February 12, 2019.
- Whether the company can secure substantial additional capital or commercial partnerships before its stated cash runway expires.