Moleculin Biotech, Inc. — Q2 2020 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2020. Moleculin is a clinical-stage drug developer focused on resistant cancers and viruses; it reported no revenue. Its programs include Annamycin, WP1066/WP1220, and the WP1122 portfolio. Its licensed technologies are principally from MD Anderson.
Financial performance and liquidity
| Metric ($ millions, except per-share data) | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | 0 | 0 | 0 | 0 |
| Research and development expense | 3.329 | 2.099 | 6.535 | 5.031 |
| General and administrative expense | 1.653 | 1.484 | 3.463 | 3.075 |
| Operating loss | (5.034) | (3.632) | (10.096) | (8.203) |
| Net loss | (10.112) | (1.221) | (11.321) | (5.262) |
| Net loss per share | (0.17) | (0.03) | (0.21) | (0.15) |
| Operating cash used | Not presented by quarter | (9.275) | (9.194) |
At June 30, cash and cash equivalents were $16.734 million, versus $10.735 million at December 31, 2019; current assets were $19.749 million and current liabilities $3.739 million. Total liabilities were $15.751 million, including an $11.792 million long-term warrant liability and lease liabilities; the filing reports no borrowings. Stockholders’ equity was $15.629 million. Six-month financing provided $15.303 million, principally from stock sales. The company had 60.4 million shares outstanding at June 30 and 61.7 million at August 7.
Operating expenses increased year over year, largely due to clinical activity, sponsored research, drug manufacturing, license costs, and additional employees. Q2 net loss also reflected a $5.099 million noncash loss from remeasuring warrant liabilities, compared with a $2.407 million gain in Q2 2019. The six-month warrant remeasurement was a $1.254 million loss versus a $2.936 million gain in 2019. As revenue was zero, revenue margins are not meaningful.
Material developments, outlook, and risks
- Funding and going concern: Management stated that cash on hand was expected to fund planned operations into, but not beyond, the near term; the financial statements disclose substantial doubt about the company’s ability to continue as a going concern. In MD&A, management estimated cash at June 30 plus subsequent proceeds would fund planned operations into Q1 2021, assuming current plans and conditions. Additional capital is expected to be needed, and future financing is not assured.
- Equity financing and dilution: During the first half, the company raised net proceeds through a February offering and April ATM sales. In July it raised a further $1.9 million under the 2019 ATM and established a new ATM facility allowing up to $15 million of sales; no sales had occurred under the new facility by the report date. The February offering also included warrants, contributing to potential dilution and the warrant liability.
- Development plans: Annamycin’s US Phase 1 portion met its safety endpoint; the European Phase 1/2 trial was dose-escalating, with the company seeking to establish a recommended Phase 2 dose and obtain further safety and efficacy data. The company reported no cardiotoxicity among treated patients to date, but these are preliminary clinical observations. WP1066 was in two physician-sponsored Phase 1 brain-tumor trials. WP1122 antiviral work remained preclinical; the company said additional studies were needed following FDA feedback and targeted a possible IND filing by year-end 2020. Such plans and timing are uncertain and do not establish clinical efficacy or regulatory approval.
- COVID-19: The pandemic had caused limited interruption to drug supply and some limits on monitoring at Polish trial sites, which had not materially slowed trials at the time of filing. Further disruption, trial enrollment delays, regulatory delays, and financing impacts remained risks.
- Regulatory and disclosure event: The SEC temporarily suspended trading in the company’s securities from May 4 through May 15, 2020, citing questions about the accuracy and adequacy of market information concerning, among other things, WP1122 and potential COVID-19 applications. Nasdaq separately halted trading pending additional information; that halt was lifted May 28. The company said it believed its disclosures were accurate but could not rule out similar future actions.
- Controls and commitments: Management deemed disclosure controls ineffective due to a material weakness in segregation of accounting duties, despite remediation efforts and additional procedures. A May 2020 amendment shortened WP1122 license development deadlines, subject to possible paid extensions. Failure to meet license obligations could put rights at risk. The filing reports no legal proceedings.
Most important facts for investors to verify
- Cash runway assumptions, subsequent financing, planned spending, and the availability and dilution impact of additional capital.
- Clinical-trial progress, patient enrollment, safety and efficacy evidence, and whether planned IND submissions and dose-development timelines are achieved.
- WP1122’s preclinical evidence and FDA requirements; distinguish company targets and laboratory findings from demonstrated patient benefit.
- The warrant liability’s valuation assumptions and potential dilution from outstanding warrants, options, and future equity sales.
- Progress in remediating the material weakness and any further SEC, Nasdaq, or disclosure-related developments.