Moleculin Biotech, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. The company is a preclinical- and clinical-stage oncology drug developer with no product revenue. It was formed in July 2015; 2015 comparisons cover only the period since inception and are not directly comparable. The 2016 results include Moleculin, LLC from its May 2, 2016 acquisition.
Financial results and liquidity
| Metric | Q3 2016 | Nine months 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $496,659 | $616,498 |
| General and administrative | $924,041 | $1,847,613 |
| Total operating expenses | $1,421,677 | $2,465,740 |
| Net loss | $1,432,079 | $2,503,047 |
| Basic and diluted loss per share | $0.12 | $0.28 |
- Gross margin and operating margin are not meaningful because the company reported no revenue.
- Cash and cash equivalents were $6.18 million at September 30, 2016, versus $28,091 at December 31, 2015. Current assets were $6.43 million and current liabilities $1.28 million.
- Nine-month cash used in operations was $2.60 million; investing used $109,793; financing provided $8.86 million. Financing included $8.46 million net IPO proceeds and $702,888 from common-stock sales, partly offset by note repayments.
- Total liabilities were $1.33 million, including $297,656 of convertible notes. The notes could convert into an additional 1,928,899 shares at September 30, subject to ownership limits. The balance sheet also included $11.13 million of acquired intangible assets, primarily in-process R&D.
- The company reported an accumulated deficit of $3.25 million and stated that substantial doubt existed about its ability to continue as a going concern. It estimated available cash would fund planned operations through Q3 2017.
Changes versus prior comparable period
- Q3 net loss increased to $1.43 million from $224,315 in Q3 2015; nine-month loss was $2.50 million versus $224,315 from inception through September 2015. The periods are not directly comparable because the business was newly formed and the 2016 period reflects expanded operations and the acquisition.
- Q3 R&D increased by about $458,000 year over year, mainly due to MD Anderson license and sponsored-research costs and HPI research. Q3 G&A increased by about $740,000, including executive and board compensation, investor-relations and professional costs, and $118,000 of former-CFO severance.
- The May 2016 IPO and acquisition of Moleculin, LLC materially changed the company’s capitalization and asset base. The acquisition accounting remained provisional; the company said final valuation could change materially.
Outlook, developments, and risks
- Annamycin: The company planned a new IND and clinical trial for relapsed or refractory AML. In October, it said its review of prior trial data suggested the maximum tolerated dose might be higher than the prior 150 mg/m² level. It added a Phase I arm to its next Phase II trial, expected this to add expense and several months, and targeted useful Phase II data in the second half of 2017. The higher-dose potential was preliminary, not established clinical benefit.
- Drug supply and FDA process: An October agreement with Dermin to use its Annamycin inventory was expected to reduce drug-product costs and production time. In November, the company reported verbal positive FDA guidance that it might reference the prior developer’s IND; written FDA responses were expected by December 6, 2016. The filing does not report final written guidance or an approved IND.
- WP1066 and WP1122: A physician-sponsored WP1066 IND for brain tumors was on hold pending GMP-production documentation; the company said it did not control that process. WP1122 had encouraging preliminary mouse toxicology findings, but remained preclinical.
- Funding and development risks: The company expected to need additional capital; financing might not be available on acceptable terms or at all, potentially requiring reduced or delayed programs. Clinical, regulatory, manufacturing, partner, licensing, and intellectual-property outcomes remain uncertain.
- Licensing and related-party arrangements: HPI was owed $750,000 over three years for access to development data and know-how; the company could buy out HPI’s rights for $1.0 million within three years. Without a buyout, the license would become exclusive to HPI, potentially limiting Moleculin’s access to non-skin-cancer uses of WP1066.
- Controls and reporting: Management concluded disclosure controls were ineffective at September 30 and identified a material weakness in accounting for business combinations. On November 14, the audit committee determined the Q2 2016 financial statements should no longer be relied upon because of non-cash acquisition-accounting errors; a Q2 10-Q/A was filed. Management was working on remediation.
- Other exposures: The $11.13 million intangible-asset valuation was provisional and subject to impairment. At September 30, cash deposits exceeded FDIC insurance limits by $5.69 million; the company reported moving funds into insured CDARS accounts in October. No legal proceedings were reported.
Important facts for investors to verify
- Whether the company obtained additional financing after the stated cash runway through Q3 2017, and the resulting dilution or changes to its development plans.
- The final Annamycin IND status, FDA feedback, trial design, timing, and whether the revised dose strategy produces useful clinical data.
- The final fair-value allocation for the Moleculin acquisition and any resulting impairment of the $11.13 million intangible asset.
- Progress in remediating the acquisition-accounting material weakness and whether subsequent filings require further corrections.
- How the HPI agreement and potential $1.0 million buyout affect control of WP1066 rights and the company’s available cash.
- Whether WP1066 obtains GMP documentation and whether WP1122’s preliminary preclinical results are confirmed in further studies.