GT Biopharma, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. The audited consolidated statements cover 2017 and 2016. GT Biopharma is a clinical-stage biopharmaceutical company developing immuno-oncology therapies and CNS product candidates; it reported no product or license revenue in either year.
Financial performance and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.068 million | $0.975 million |
| Selling, general and administrative expense | $134.502 million | $8.399 million |
| Operating loss | $135.570 million | $9.374 million |
| Net income (loss) | $(143.247) million | $9.768 million |
| Net cash used in operating activities | $5.430 million | $1.930 million |
| Cash at year-end | $0.576 million | $0.019 million |
Gross margin is not meaningful because there was no revenue. Interest expense was $8.602 million, compared with $6.555 million in 2016. The 2016 net income reflected a $25.697 million gain from changes in warrant and derivative fair value; the comparable 2017 gain was $0.925 million. The company restated its 2016 financial statements, increasing that year’s net income by $11.265 million to correct the derivative valuation reporting.
At December 31, 2017, current assets were $0.576 million and current liabilities were $2.679 million, a working capital deficit of $2.103 million. The company reported $2.679 million of total liabilities and no convertible-debenture balance at year-end, after converting debt into equity. Cash flows included $5.991 million of financing proceeds. No cash-flow margin is presented.
SG&A increased sharply, primarily due to non-cash stock compensation: the cash flow statement reports $130.124 million of stock compensation expense in 2017. Total assets rose to $254.368 million, chiefly reflecting $253.777 million of acquired intangible assets recorded in the GTP transaction. The company had an accumulated deficit of $267.896 million.
Business developments and changes
- GT Biopharma changed its name from Oxis International in July 2017 and acquired Georgetown Translational Pharmaceuticals (GTP) in September. It issued 16,927,878 common shares to GTP’s former owners, approximately 33% of the company’s fully diluted shares at closing.
- OXS-1550, a bispecific antibody-drug conjugate targeting CD19/CD22 malignancies, was in a Phase 2 trial with 18 patients enrolled; the company expected data in the second half of 2018. In the Phase 1 study, two of nine patients treated at higher doses had durable complete responses, according to the filing.
- The University of Minnesota filed the OXS-3550 IND in June 2017. The FDA requested additional nonclinical toxicology and manufacturing and clinical information before trials could begin. The company expected a Phase 1 trial in the second half of 2018.
- The CNS portfolio expanded through the GTP acquisition. GTP-004 completed Phase 1 dosing in January 2018; GTP-011 proof-of-concept testing began in February 2018; and the company planned PainBrake manufacturing for a bioequivalence study in the second half of 2018. The company also anticipated human trials for selected solid-tumor candidates in 2019.
Outlook, risks and unusual items
- Management projected approximately $10–12 million of 2018 R&D spending and said it needed to raise approximately $8–10 million to fund operations and current liabilities over the next 12 months. At year-end, it said additional capital was needed by the end of the next quarter.
- The auditor’s report and management disclosures raise substantial doubt about the company’s ability to continue as a going concern. The company stated that it had no assurance of obtaining sufficient financing or generating future product revenue; the financial statements contain no adjustments for a possible inability to continue operations.
- After year-end, the company entered into an agreement for senior convertible notes with aggregate principal of $7.761 million and five-year warrants for approximately 1.694 million shares. This was a subsequent financing arrangement, not a year-end cash balance.
- Principal risks include ongoing losses and no revenue, dependence on further financing, clinical and regulatory uncertainty, reliance on third-party manufacturers and research partners, competition, and potential dilution from equity-linked financing. The company had five employees and no company-operated manufacturing facilities.
- Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end. Identified material weaknesses included inadequate segregation of duties and insufficient written accounting and reporting procedures; management said these had not been remediated.
- Legal matters included a consulting-services claim seeking $73,898 and an arbitration award in favor of MultiCell of $207,783 plus $34,699 interest.
Most important facts for investors to verify
- Whether the January 2018 note financing closed, its net proceeds and terms, and the company’s subsequent cash runway and financing needs.
- Progress and results of the OXS-1550 Phase 2 trial and whether FDA-requested work enabled OXS-3550’s Phase 1 trial to start as planned.
- Recoverability and valuation assumptions for the $253.777 million of acquired intangible assets, given the company’s early-stage programs and lack of revenue.
- The extent and timing of remediation of internal-control material weaknesses, and the unusual scale of 2017 stock compensation and associated equity issuance.
- Potential dilution from convertible securities, warrants, executive equity awards and other financing; the filing reported 50,117,978 common shares outstanding as of February 28, 2018.