Oragenics, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet figures are compared with December 31, 2012. Oragenics is a development-stage healthcare company focused on antibiotics, oral-health products and related technologies. Its only commercial products are ProBiora3 probiotic products.
Financial results and position
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Revenue | $176,407 | $380,527; down 53.6% |
| Gross profit / margin | $112,458 / 63.8% | $182,318 / 47.9% |
| Research and development | $745,395 | $353,198; up 111.0% |
| Selling, general and administrative | $1,103,187 | $1,307,994; down 15.7% |
| Operating loss | $(1,736,124) | $(1,478,874) |
| Net loss | $(1,589,960); $(0.06) per share | $(1,616,908); $(0.25) per share |
| Cash used in operations | $(1,580,901) | $(1,143,100) |
Gross margin increased despite lower revenue, while the operating loss widened as R&D spending rose. Net loss improved slightly, primarily because of $144,503 in other income related to the purchase of the Company’s membership interest in a mutual insurer and lower interest expense following conversion of shareholder debt in 2012.
At March 31, cash and cash equivalents were $8.35 million, restricted cash was $25,771, and working capital was $7.59 million. Total assets were $8.82 million; current liabilities were $1.17 million, including $67,281 of short-term insurance-financing notes. Accumulated deficit was $55.68 million. Management stated that available working capital was expected to support the current business plan through March 2014; additional financing will be needed thereafter, and no committed financing source was in place.
Material developments and outlook
- ProBiora3 revenue declined, principally due to lower sales to international customers. The Company said it was prioritizing direct-to-consumer and dental channels and implementing marketing plans. A three-year agreement appointed Organic Wave as exclusive distributor of its pet oral-care products in Japan.
- R&D growth reflected higher Intrexon collaboration consulting costs and clinical-trial costs. Oragenics reported improved MU1140 fermentation yield and a new purification process, but further manufacturing and research work remained necessary.
- Management expected to begin preclinical testing of native MU1140 or an analog in the second half of 2013. If successful, it expected to file an FDA Investigational New Drug application by Q1 2015. The filing said the MU1140 candidate was not expected to be commercially available before 2014.
- The Company discontinued its SMaRT Replacement Therapy Phase 1b trial because restrictive enrollment criteria made recruitment difficult, and planned to explore partnering opportunities. It expected to limit spending on other candidates while pursuing licensing or partnerships.
- April 2013 amendments to University of Florida Research Foundation licenses reduced aggregate annual maintenance payments from $100,000 to $20,000 and removed a $1.0 million annual R&D spending requirement. The amendments increased sublicensing revenue payments from 20% to 22% and added potential commercialization and royalty payments.
- Oragenics began trading on NYSE MKT on April 10, 2013. The filing cautioned that listing may not improve liquidity and that continued listing is not assured.
Risks, contingencies and controls
The Company had incurred recurring losses and negative operating cash flows since inception and expected substantial losses to continue. Its ability to continue operations and execute development plans depends on raising additional capital, generating product revenue, or obtaining partners; financing may be unavailable or dilutive. ProBiora3 sales growth, clinical and preclinical progress, manufacturing capacity, regulatory approvals, and licensing relationships remain uncertain. The filing reported no material pending legal proceedings.
Management reported disclosure controls were effective, but also stated that a material weakness in internal control over financial reporting remained because staffing was insufficient to provide adequate segregation of duties. Remediation efforts were ongoing.
Investor facts to verify
- Whether ProBiora3 sales recover and the marketing and distribution initiatives generate sustained revenue growth.
- Progress, costs and manufacturing feasibility for MU1140 under the Intrexon collaboration, and the timing and results of planned preclinical work.
- Cash burn against management’s stated March 2014 funding horizon, and the availability and terms of future financing.
- The effects of the amended University of Florida license terms and any future milestone, royalty or sublicense obligations.
- Whether the remaining internal-control material weakness is remediated and whether NYSE MKT listing requirements continue to be met.