GT Biopharma, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The company is a clinical-stage biopharmaceutical company developing immuno-oncology therapies, including its TriKE and TetraKE platforms. It reported no product-sales revenue and had no approved products.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $1.667 million | $9.067 million |
| Selling, general and administrative expense | $9.790 million | $12.487 million |
| Impairment expense | $4.599 million | $228.515 million |
| Loss on disposal of assets | $20.463 million | None reported |
| Interest expense | $2.128 million | $9.117 million |
| Net loss | $38.647 million | $259.186 million |
| Cash used in operating activities | $3.659 million | $10.677 million |
| Cash and cash equivalents at year-end | $28,000 | $60,000 |
Margins are not meaningful because the company had no product revenue. The lower 2019 net loss primarily reflects the absence of the very large 2018 impairment charge; 2019 included significant impairment and asset-disposal losses of its own.
At year-end, total assets were $396,000, total liabilities were $19.706 million, and stockholders’ equity was a deficit of $19.310 million. Current liabilities included $13.207 million of convertible debentures, $2.029 million of accrued interest, and $4.319 million of accounts payable and accrued expenses. Current assets were $274,000, implying a working-capital deficit of approximately $19.432 million.
The company raised approximately $3.5 million through convertible debt issuances during 2019. Many notes bear 10% interest, have conversion-price adjustment provisions, and are secured by substantially all company and subsidiary assets; default interest may rise to 18%. Common shares outstanding increased from 50.65 million at year-end 2018 to 69.78 million at year-end 2019. The filing also lists 66.1 million potential shares from convertible debentures and substantial additional potential dilution from warrants and preferred stock; these were excluded from diluted loss per share as anti-dilutive.
Material changes and notable items
- R&D expense fell sharply from 2018, when it included $6.8 million of non-cash compensation and costs supporting the GTB-3550 IND and other programs. Management projected 2020 R&D spending of approximately $12–15 million as clinical and IND-enabling work increased.
- The company sold GTB-004 in September 2019 for $200,000 at closing. It may receive a further $6 million upon sales milestones and a 1.5% royalty on U.S. sales, but these amounts are contingent. The sale generated a reported $20.463 million loss. The remaining CNS projects were fully impaired, producing a $4.599 million 2019 charge.
- GTB-1550 had completed two clinical studies collectively enrolling 43 patients. The company reported two complete remissions in earlier trial data, including one patient disease-free at 50 months; data from a completed 18-patient Phase 1/2 study was still being analyzed.
- GTB-3550’s first-in-human study for CD33-positive blood cancers was described as beginning in January 2020. The filing also says the trial opened for enrollment in September 2019 and elsewhere refers to a 2019 start; the precise start and enrollment status should be confirmed.
- Common stock was issued for compensation and consulting services, including 7.0 million shares to the CEO, 4.5 million to the CFO, and 4.15 million for consulting services during 2019.
Outlook, risks and contingencies
Management stated that it needed to raise an additional $15 million in 2020 to finance operations and current liabilities for the next 12 months. It anticipated quarterly SG&A, excluding stock compensation, of approximately $1–2 million. Funding alternatives included equity or debt financing and strategic or licensing arrangements. The company warned that financing might not be available on acceptable terms and that operations or development could be reduced or delayed if funds were insufficient.
The independent auditor issued an unqualified opinion on the financial statements but highlighted substantial doubt about the company’s ability to continue as a going concern, citing recurring losses and dependence on future financing and operating success. The statements contain no adjustments for a possible inability to continue as a going concern.
Management concluded that disclosure controls were ineffective and internal control over financial reporting had material weaknesses: inadequate segregation of duties, risk of executive override, and insufficient written accounting and reporting procedures. The weaknesses had not been remediated as of the filing date.
Two material legal matters were disclosed: Empery investors alleged defaults involving notes and warrants, including approximately $2.2 million of principal, with settlement negotiations ongoing but no finalized agreement; and license/consulting counterparties Jeffrey Lion and Daniel Vallera sought $1.67 million in damages and stock equivalent to 15 million shares. The filing does not state a clear estimate of the ultimate exposure for either matter.
Other principal risks include clinical and regulatory failure, dependence on third-party manufacturers and research partners, lack of commercial-scale manufacturing and sales capabilities, a two-employee workforce at year-end, intellectual-property and licensing risks, and potential further equity dilution. A March 2020 collaboration to develop a coronavirus-targeting TriKE and January 2020 financing occurred after year-end and are not 2019 operating results.
Investor verification priorities
- Confirm current cash, near-term cash needs, subsequent financing, and the status and terms of outstanding secured convertible debt, including maturities, defaults, collateral, and conversion-price adjustments.
- Review subsequent share issuances and the fully diluted share count, including convertible notes, warrants, and preferred stock.
- Verify GTB-3550 trial commencement, enrollment, safety findings, and funding; confirm the status and complete results of the GTB-1550 studies.
- Assess the likelihood and timing of GTB-004 milestone and royalty receipts, and the basis for the recorded disposal loss and impairment charges.
- Track outcomes or settlements in the Empery and Lion/Vallera disputes and determine any resulting cash or share obligations.
- Monitor remediation of internal-control weaknesses and whether the company secures enough funding to address the auditor’s going-concern concern.