SAB Biotherapeutics, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Unaudited results are compared with the corresponding 2022 periods. SAB is a clinical-stage biopharmaceutical company developing fully human polyclonal antibody therapies using its DiversitAb platform. It has no commercially approved products; reported revenue is grant revenue.
Key financial results
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue, all grant revenue | $1.27 million | $3.59 million | $1.93 million | $21.74 million |
| Research and development | $4.02 million | $7.35 million | $12.22 million | $29.30 million |
| General and administrative | $2.57 million | $4.04 million | $8.92 million | $13.50 million |
| Operating loss | $5.32 million | $7.81 million | $19.20 million | $21.06 million |
| Net loss | $5.10 million | $7.08 million | $19.34 million | $10.87 million |
| Basic and diluted loss per share | $0.10 | $0.16 | $0.38 | $0.25 |
Cash flow and liquidity: Cash and cash equivalents were $2.43 million at September 30, 2023, versus $15.05 million at December 31, 2022. For the first nine months, operating cash use was $11.67 million, investing cash use $0.08 million, and financing cash use $0.86 million; cash declined by $12.62 million. Current assets were $3.13 million against current liabilities of $9.21 million, a working-capital deficit of approximately $6.08 million. The filing reports no product-sales margins; gross margin is not meaningfully presented.
Debt and obligations: The balance sheet included a $542,000 8% unsecured convertible note due September 2024, plus finance lease liabilities of $3.58 million. The insurance-premium financing note had been fully repaid by September 30, 2023. Total liabilities were $13.08 million; accumulated deficit was $67.21 million.
Changes versus prior comparable periods
- Revenue fell 64.7% in Q3 and 91.1% for the nine-month period, primarily because the Department of Defense JPEO Rapid Response contract was terminated in 2022. 2023 grant revenue largely reflects residual closeout activities; management expects lower future revenue absent new funding or partnerships.
- R&D expense declined 45.3% in Q3 and 58.3% year to date. Management attributed the decreases to cost reductions, paused unfunded SAB-185 work, and lower manufacturing, laboratory and staffing costs. G&A fell 36.4% in Q3 and 33.9% year to date, reflecting discretionary reductions and efficiencies.
- Q3 net loss improved year over year, but nine-month net loss increased despite a lower operating loss. The 2022 comparison included a $10.36 million gain from changes in warrant fair value; 2023 recorded a $96,000 loss from those changes.
- Operating cash use decreased from $21.90 million to $11.67 million for the nine-month period, principally due to working-capital movements and lower adjusted net loss. Lower capital spending and the absence of the prior-year $5.52 million share repurchase also reduced investing and financing cash use, respectively.
Outlook, financing, risks and unusual items
- Management expects continued losses and significant investment in research, development and regulatory work. It expects future R&D costs related to SAB-185 production to decline, while pursuing SAB-142 and other programs. The company expected to begin a SAB-142 Phase 1 trial in Australia in Q4 2023; the filing does not report that the trial had started by the reporting date.
- Management stated that existing resources, considering the company’s current operating expense level, were expected to cover operating cash needs for 12 months following issuance of the financial statements. It also stated that additional capital is required for long-term plans and that financing may not be available on acceptable terms. Failure to raise capital could require program cuts, headcount reductions, asset sales, restructuring or cessation of operations.
- Subsequent financing: The September 2023 private placement closed after quarter-end. SAB received $7.5 million gross on October 3, 2023 and approximately $59.7 million gross from Preferred Tranche A warrant exercises between October and November. Remaining Tranche B and C warrants had stated aggregate exercise prices of approximately $42.85 million and $107.1 million, respectively; exercise and proceeds are not assured. Preferred-stock conversion requires stockholder approvals, including an increase in authorized common shares from 490 million to 800 million, and conversion is subject to ownership limits.
- The company disclosed that up to 344.6 million common shares were registered for resale in connection with the October 2023 private placement—approximately 658.7% of common shares outstanding at October 30, 2023. Many shares are issuable upon preferred-stock conversion or warrant exercise; potential sales and dilution could pressure the share price.
- SAB formed an Australian subsidiary to conduct SAB-142 activities and pursue a 43.5% Australian R&D tax credit on eligible expenditures. Eligibility, receipt and continued availability are uncertain; management recognized $97,000 of other income in the nine-month period from Australian R&D incentives.
- The JPEO contract settlement left deferred grant income of $1.63 million at September 30, potentially payable to the DoD depending on later negotiations with third-party vendors. SAB stated it believed there was a reasonable basis for no other present or future obligations.
- The filing reports no material litigation. A Ladenburg settlement was partly satisfied with 1,916,894 common shares; $1.1 million of consideration remained under the agreement at September 30, payable in cash or shares at the company’s option.
- Management concluded disclosure controls and procedures were not effective at September 30 due to a material weakness in review controls for technical accounting and significant or unusual transactions. Remediation includes added technical-accounting resources and a contract-management platform; management cautioned that remediation may take time and may not achieve its intended effect.
- Key business risks include clinical and regulatory uncertainty, dependence on future financing and grant or partnership funding, lack of approved products, and the possibility that historical trial results may not predict future results.
Important facts for investors to verify
- Whether the SAB-142-101 Phase 1 trial began as planned and what clinical data or milestones are subsequently reported.
- Cash runway and operating burn after the approximately $67.1 million of post-quarter gross preferred-stock proceeds, including offering costs and actual spending.
- Stockholder approval status, preferred-stock conversion terms, exercise of remaining warrants, and resulting dilution and resale activity.
- Any DoD settlement obligations arising from vendor negotiations and the status of the $1.63 million deferred grant income.
- Progress in remediating the material weakness and whether later filings report effective controls.
- Eligibility for Australian R&D tax credits and the timing and amount of any future reimbursements.