RestorGenex Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. The filing is for RestorGenex Corporation, a specialty biopharmaceutical company developing products in ophthalmology, oncology and dermatology.
Business context and pipeline
The company reported no product revenue and remains in development. Its lead candidate, RES-529, completed two Phase I studies for wet age-related macular degeneration (AMD) and is in preclinical development for cancer, including glioblastoma. Management planned to begin Phase I/II studies for wet AMD and glioblastoma in 2016, subject to completing required CMC and preclinical work. RES-440, a candidate for acne, was also in development, with Phase I/II studies planned for 2016. The FDA granted RES-529 orphan drug designation for glioblastoma in January 2015.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.552 million | $169,332 |
| General and administrative expense | $1.961 million | $1.011 million |
| Total operating expenses | $3.519 million | $1.372 million |
| Net loss | $3.516 million | $1.380 million |
| Net loss per share, basic and diluted | $0.19 | $0.23 |
| Cash used in operating activities | $2.655 million | $432,893 |
With no revenue, a revenue-based margin is not meaningful. R&D expense rose 816%, primarily reflecting development activity; G&A rose 94%, primarily due to employee and director stock-based compensation. Stock-based compensation totaled $605,427, versus $149,885 a year earlier. Lower depreciation and amortization ($6,284 versus $191,330) reflected prior-year intangible assets that were abandoned and written off in Q4 2014. Q1 2015 other income was $2,520, and there was no interest expense.
Cash and cash equivalents were $19.210 million at March 31, 2015, down from $21.884 million at December 31, 2014. Working capital was $18.908 million, down from $21.832 million. Total liabilities were $4.367 million, including $2.275 million of deferred taxes; the company reported no debt at quarter-end and no available credit facilities. Investing cash use was $19,229, with no financing cash flow in Q1. Management believed existing cash would fund planned operations at least through December 31, 2015 and into the first half of 2016, while cautioning that additional funding could be needed sooner.
Material changes, outlook and risks
- Net loss increased by $2.136 million year over year, while loss per share narrowed from $0.23 to $0.19; weighted-average shares increased from 5.934 million to 18.615 million.
- Management expected continuing losses and higher R&D and G&A costs as it advanced candidates and added personnel. The company may need new equity, debt, collaboration or licensing funding; financing may be unavailable or dilutive, and failure to obtain funds could delay or reduce development plans.
- As a subsequent event, on April 30, 2015 the company transferred rights to RES-102 and RES-214 to Or-Genix Therapeutics for a 19.9% ownership interest and purchased $250,000 of its perpetual non-redeemable preferred stock. The company said the transfer supported its focus on other technologies. A former director and executive who primarily owns Or-Genix resigned and was granted $247,500 severance.
- Future purchase obligations for preclinical development of RES-440 and RES-529 were $1.104 million. Total disclosed contractual obligations were $6.201 million, including employee contracts, rent, accrued board fees and purchase obligations.
- A former CEO’s lawsuit sought unspecified damages and other relief. In April 2015, the court granted the company’s petition to compel arbitration and stay the action. Management considered the claim without merit, but said the outcome and potential loss could not be estimated and could materially affect the company.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The company also disclosed that prior-period and annual misstatements had been adjusted in Q4 2014 and deemed immaterial.
Important facts for investors to verify
- Whether the planned RES-529 and RES-440 studies proceed on schedule, and the cost and remaining CMC and preclinical requirements.
- Cash burn, funding runway and the timing and terms of any additional financing; compare actual spending with management’s stated runway.
- The terms, valuation, governance and related-party implications of the Or-Genix transaction and the value and liquidity of the company’s interest.
- Developments and potential exposure in the former CEO’s arbitration and other contingencies.
- Potential dilution: 18.615 million common shares were outstanding at May 11, 2015; 8.326 million options and warrants were excluded from diluted loss per share as anti-dilutive.