RestorGenex Corporation — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2015. The filing identifies the registrant as RestorGenex Corporation; this differs from the company name in the request metadata.
Business context
RestorGenex is a development-stage specialty biopharmaceutical company focused on oncology, ophthalmology and dermatology. Its lead candidate, RES-529, completed two Phase I trials for wet age-related macular degeneration and was in preclinical development for glioblastoma. RES-440, a topical “soft” anti-androgen for acne, was also in development. The company reported no revenue and continued to seek licensing, collaboration and other strategic alternatives.
Financial performance and position
| Metric | Three months ended September 30, 2015 | Nine months ended September 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $692,709 | $3,360,057 | $1,273,186; $1,709,424 |
| General and administrative expense | $1,456,567 | $5,298,945 | $1,869,840; $4,091,530 |
| Net loss | $13,224,495 | $20,710,233 | $3,449,470; $9,284,877 |
| Basic and diluted loss per share | $0.71 | $1.11 | $0.18; $0.76 |
The 2015 net losses include an $11.1 million non-cash goodwill impairment. The company reported no debt at September 30, 2015 and no interest expense in 2015. With no revenue, profit margins are not meaningful.
- Cash and cash equivalents: $14.6 million at September 30, 2015, down from $21.9 million at December 31, 2014.
- Working capital: $13.6 million, compared with $21.8 million at year-end 2014. Total liabilities were $4.3 million, including $2.3 million in deferred taxes; current liabilities were $2.0 million.
- Cash flows, nine months: $7.0 million used in operating activities; $0.3 million used in investing activities; no financing cash flow. Cash decreased by $7.3 million.
- Equity: $19.1 million at September 30, 2015. The company had 18,614,968 common shares outstanding; options for 3.03 million shares and warrants for 4.79 million shares were outstanding, subject to exercise terms.
Changes versus prior periods
Quarterly net loss increased to $13.2 million from $3.4 million, primarily because of the goodwill impairment, despite lower quarterly R&D and G&A expenses. Nine-month net loss increased to $20.7 million from $9.3 million. Excluding the impairment, the company cited higher nine-month R&D, stock-based compensation and severance costs. R&D rose 97% and G&A rose 30% for the nine-month comparison. Cash used in operations was broadly similar to 2014, while 2014 financing cash flow had included proceeds from a private placement.
Management recorded the $11.1 million impairment after a substantial share-price decline and third-quarter strategic discussions indicated a triggering event; goodwill fell to $985,000. The company stated that it reassessed its in-process R&D intangible asset and found no impairment. Certain 2014 amounts were reclassified, and the filing describes prior-period misstatement corrections as immaterial.
Outlook, risks and contingencies
- Management expected existing cash to fund planned operations at least into the second half of 2016, but warned that additional funding could be needed earlier. No credit facilities were available; financing may dilute shareholders or require changes to development plans or technology rights.
- The company expected continued losses and substantial development spending. It planned to prepare RES-529 for a Phase I/II glioblastoma trial in 2016, and planned 2016 studies for wet AMD and acne, subject to further manufacturing, preclinical and development work. These are plans, not assured outcomes.
- Key risks include early-stage drug development, clinical and regulatory uncertainty, dependence on third parties, limited cash and no revenue, low trading liquidity, possible further goodwill impairment, and the need for future capital. Management also continued to consider strategic transactions.
- Contractual obligations totaled $3.45 million, including $528,009 in purchase commitments for RES-529 and RES-440 development. The filing also reports $453,504 accrued for former-employee transition costs.
- A former CEO’s lawsuit was ordered to arbitration and the court action stayed. The company said it believed the claim was without merit but could not estimate any loss; an adverse outcome could materially affect the company.
- Management concluded disclosure controls were effective as of period-end and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether cash runway assumptions remain valid and whether new financing or strategic transactions are needed before the anticipated second half of 2016.
- Progress, funding requirements and actual timing for the planned RES-529 and RES-440 clinical programs.
- The assumptions and third-party information used in the goodwill impairment valuation, and the outcome of the planned fourth-quarter 2015 impairment review.
- Potential costs or developments in the former CEO arbitration and the company’s other contractual commitments.
- Potential dilution from outstanding options and warrants, and whether the company can sustain operations without product revenue.