Moleculin Biotech, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Moleculin is a preclinical- and clinical-stage oncology drug developer formed in July 2015. It reported no revenue. The company states there is no comparable prior-period financial information because it was recently formed.
Financial results and liquidity
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $361,728 | $376,728 |
| General and administrative expense | $618,001 | $923,572 |
| Total operating expenses | $980,381 | $1,300,952 |
| Interest expense | $15,235 | $26,905 |
| Net loss | $995,616 | $1,327,857 |
| Basic and diluted loss per share | $0.11 | $0.17 |
- Gross margin and operating margin are not meaningful because the company had no revenue.
- At June 30, cash and cash equivalents were $7.245 million; current assets were $7.560 million and total assets were $19.233 million, including $11.666 million of net intangible assets.
- Current liabilities were $1.403 million and total liabilities were $2.003 million. These included $431,644 of convertible notes, $250,000 payable to related party, and $600,000 of long-term related-party payable.
- Six-month operating cash use was $1.646 million. Financing provided $8.862 million, primarily from the IPO; cash increased $7.217 million to $7.245 million.
- The IPO closed May 31, 2016: 1,540,026 shares sold at $6.00 per share, yielding $8.464 million net proceeds. At August 8, 11,254,756 common shares were outstanding.
Material developments and outlook
- On May 2, Moleculin LLC merged into the company, adding the WP1066 portfolio. The company also holds licensed rights to WP1122 and is developing liposomal Annamycin for relapsed or refractory acute myeloid leukemia.
- Annamycin’s prior IND had been terminated after a previous developer’s lack of activity. Management intended to seek a new IND using existing data updated for subsequent clinical data and to begin a Phase II trial.
- Management said June 30 cash was expected to fund planned operations through at least the end of May 2017, including commencement of the planned Annamycin Phase II registration trial. The company expects to need additional capital; no product-sale revenue is expected for years, if at all.
- Management expects R&D and G&A costs to increase as development expands. No quantified earnings or revenue guidance was provided.
- Remaining convertible notes may convert into approximately 2.692 million additional shares, subject to a 4.99% beneficial-ownership limit, creating potential dilution.
Risks, contingencies, and unusual items
- The filing says accumulated losses and lack of operating revenue raise substantial doubt about the company’s ability to continue as a going concern; continued equity financing and eventual profitable operations are important dependencies.
- The HPI WP1066 agreement includes $750,000 of payments over three years and a right to buy out HPI’s granted rights for $1.0 million within three years. If not exercised, the license converts to exclusive for HPI, and the company could lose access to non-dermatology WP1066 uses. Management said it did not expect to maintain a reserve for the buyout and might need additional financing.
- The Moleculin acquisition valuation remained provisional and could change significantly. The company warned that impairment of its $11.666 million intangible assets could reduce earnings and equity; the transactions involved related parties and were not arm’s length.
- Substantial doubt, financing needs, clinical and regulatory uncertainty, licensing obligations, third-party manufacturing and clinical-trial dependence, and intellectual-property protection are key risks. Annamycin’s drug substance lacked existing patent protection; planned patent applications and potential orphan-drug or other exclusivity were not assured.
- Disclosure controls and procedures were determined to be ineffective as of June 30, 2016. No material changes to internal control over financial reporting were reported during the quarter.
- At June 30, $6.745 million of cash exceeded FDIC insurance limits. The filing also identifies possible MD Anderson license maintenance, milestone, royalty, and patent-cost obligations.
Important facts for investors to verify
- Progress toward a new Annamycin IND and the planned Phase II trial, including timing, regulatory requirements, and funding.
- Actual cash burn and whether available funds remain sufficient for management’s stated runway and development plans.
- Conversion and potential dilution from the remaining notes, as well as other outstanding options and warrants.
- Final fair values and impairment assessment for acquired intangible assets, and the related-party terms and payment obligations involving HPI and other affiliates.
- Remediation of ineffective disclosure controls and the company’s ability to meet license, clinical, and regulatory obligations.