SAB Biotherapeutics, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. This clinical-stage biopharmaceutical company reported the three months ended March 31, 2022. It develops human antibodies using its DiversitAb platform and had no commercially approved products. The filing presents consolidated results under U.S. GAAP; the 2021 business combination was accounted for as a reverse recapitalization.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Revenue, all grant revenue | $11.8 million | $16.9 million; down 30.3% |
| Research and development expense | $13.3 million | $12.8 million; up 4.2% |
| General and administrative expense | $5.2 million | $3.3 million; up 55.7% |
| Operating income (loss) | $(6.7) million | $0.8 million |
| Net income | $1.0 million | $1.4 million |
| Basic and diluted earnings per share | $0.02 | $0.05 |
| Operating cash flow | $(10.3) million | $9.5 million |
| Cash and cash equivalents at period end | $22.4 million | $33.2 million at Dec. 31, 2021 |
The reported Q1 2022 net income included a $7.85 million gain from changes in the fair value of warrant liabilities, largely reflecting their lower fair value. Accordingly, positive net income did not reflect positive operating performance or operating cash generation. No product-sales gross margin is reported; revenue was entirely grant revenue.
At March 31, 2022, total assets were $67.5 million, total liabilities $26.2 million, and stockholders’ equity $41.3 million. Current assets were $36.2 million and current liabilities $18.3 million. Warrant liabilities were $2.9 million. Notes payable were $25,013; lease liabilities totaled approximately $6.4 million, and disclosed undiscounted lease payments were $9.4 million. The remaining tractor loan was due in Q4 2022.
Investing cash flow was $(1.3) million, principally equipment purchases; financing cash flow was $(5.6) million, mainly the final $5.5 million settlement of the Forward Share Purchase Agreement and repurchase of 546,658 shares for treasury stock.
Material changes versus the prior comparable period
- Revenue fell by $5.1 million, primarily because less work was performed under the government JPEO contract. The company recognized $11.7 million from that contract in Q1, versus $16.9 million in Q1 2021.
- Operating expenses rose $2.4 million in total. R&D increased with headcount, contract manufacturing, production capacity and related supplies; G&A rose with public-company, compliance, insurance and recruiting costs.
- Operating cash flow deteriorated by $19.7 million, reflecting lower revenue, higher G&A and working-capital movements, including a $3.8 million increase in accounts receivable.
- Cash declined from $33.2 million at year-end; the separate $6.3 million of restricted cash at year-end was released/used in the Forward Share Purchase Agreement settlement during Q1.
Outlook, risks, contingencies and unusual items
- Management said existing cash, business-combination proceeds and anticipated operating cash flows were expected to meet working-capital and capital-expenditure needs for at least the next 12 months. It also expects significant expenses and possible future operating losses as it advances research, clinical programs and manufacturing capabilities. No quantified revenue or earnings guidance was provided.
- Approximately $78.2 million remained available under current government grants, with a further approximately $1.6 million subject to approval of extensions for two grants. The JPEO agreement represented the substantial majority of revenue and can be revised, discontinued or have its scope changed by the U.S. government.
- The company relies on grant funding and has no commercial product revenue. Management noted that additional financing may be needed if grants, partnerships or cash resources are insufficient; financing could be unavailable, costly or dilutive.
- Beginning in 2022, tax rules require R&D expenditures to be amortized rather than immediately deducted. The company reported $92,281 of Q1 income tax expense and said the rule could reduce cash flows. It maintained a valuation allowance on deferred tax assets.
- The company reported no material litigation. Two NIH grant extensions were pending. A planned joint-development building project was on hold while the company prioritized internal manufacturing and JPEO work.
- After quarter-end, on May 9, 2022, the company eliminated its Chief Business Officer and Chief Corporate Communications & Investor Relations Officer positions, incurring an estimated $700,000 liability.
- COVID-19 had not materially affected the business through the reported period, but future operational and supply-chain effects remained uncertain. Management reported disclosure controls effective and no material Q1 changes in internal control over financial reporting.
Important facts for investors to verify
- How much JPEO funding will remain available, and whether the U.S. government changes or terminates the agreement or its scope.
- Collection timing for the $11.8 million of accounts receivable and the pace of cash use relative to management’s stated 12-month liquidity expectation.
- Progress and funding status of the two grant extensions, and whether additional grants or partner financing are secured.
- Clinical and development progress for SAB-185 and SAB-176, including trial milestones, and the company’s ability to advance programs without substantial increases in spending.
- The effect of Section 174 tax amortization on cash taxes and the company’s liquidity.
- The noncash warrant fair-value gain’s effect on reported earnings, warrant-liability valuation assumptions, and potential dilution from warrants, options and earnout shares.
- Share-count reconciliation: the filing reports 42,955,121 common shares outstanding at March 31, while its cover page reports 42,962,121 as of April 28, 2022.