Ocugen, Inc. Form 10-Q Summary
Business context and reporting period
Ocugen is a development-stage biopharmaceutical company focused on gene therapies and biologics for blindness-related diseases. The report covers the three and nine months ended September 30, 2020. The company had no approved products or product-sales revenue and operated as one segment.
- Lead programs included OCU400 for retinitis pigmentosa, OCU410 for dry age-related macular degeneration, and OCU200 for diabetic macular edema, diabetic retinopathy, and wet AMD.
- Management planned Phase 1/2a trials for OCU400 in the second half of 2021, OCU410 in 2022, and OCU200 in the first half of 2022.
- OCU300 development was discontinued after an interim analysis indicated that its Phase 3 trial was unlikely to meet its co-primary endpoints; the trial was not stopped for safety concerns.
Financial performance and liquidity
| Metric | Three months ended September 30, 2020 | Nine months ended September 30, 2020 |
|---|---|---|
| Collaboration revenue | $0 | $42,620 |
| Research and development expense | $1.5 million | $4.8 million |
| In-process research and development expense | $7.0 million | $7.0 million |
| General and administrative expense | $1.7 million | $5.8 million |
| Loss from operations | $10.2 million | $17.5 million |
| Net loss | $10.5 million | $18.0 million |
| Net loss attributable to common stockholders | $10.5 million | $30.6 million |
| Basic and diluted loss per share | $0.07 | $0.33 |
- The nine-month net loss attributable to common stockholders included a $12.5 million deemed dividend related to the April 2020 warrant exchange.
- Cash, cash equivalents, and restricted cash totaled $19.3 million at September 30, 2020, compared with $7.6 million at December 31, 2019.
- Operating cash usage was $10.4 million for the first nine months of 2020. Investing cash usage was $55,488, while financing activities provided $22.1 million.
- Total debt carrying value was $3.2 million, consisting primarily of EB-5 borrowings of $1.6 million, warrant exchange notes of $1.1 million, and a PPP loan of $0.4 million.
- Accounts payable and accrued expenses were $2.6 million at September 30, 2020. Accumulated deficit was $69.5 million.
- As a development-stage company without product revenue, meaningful revenue or net profit margins were not established; operating losses remained substantial.
Material changes versus the prior comparable period
- For the nine-month period, revenue increased from zero to $42,620 due to the Advaite collaboration, while the company continued to have no product-sales revenue.
- Net loss improved from $32.6 million to $18.0 million, primarily because the prior-year period included a $19.9 million loss from changes in derivative liabilities and a $0.3 million debt-conversion loss.
- Operating loss increased from $9.9 million to $17.5 million. The increase primarily reflected a $7.0 million charge after the NeoCart asset ceased to qualify as held for sale and higher general and administrative expenses.
- Research and development expense declined by $1.6 million year over year, mainly because of reduced OCU310 trial activity, partially offset by severance and OCU300-related costs.
- General and administrative expense increased by $2.2 million, driven by higher insurance, professional and consulting, employee, director, and severance costs.
- The company sold 86.2 million common shares through at-the-market offerings during the nine months, generating $25.6 million of net proceeds. Shares outstanding increased from 52.6 million at December 31, 2019 to 162.0 million at September 30, 2020, indicating substantial equity dilution.
- The company exchanged Series A warrants for 21.9 million shares and promissory notes. All pre-merger financing warrants were extinguished by September 30, 2020.
Guidance, outlook, risks, and unusual items
- Management expected research and development spending, excluding the NeoCart charge, to increase modestly as preclinical work progressed toward planned 2021 and 2022 trials. General and administrative expenses were also expected to rise as public-company infrastructure expanded.
- Management stated that the $19.3 million cash, cash equivalents, and restricted cash balance was unlikely to satisfy near-term requirements or fund operations for the next 12 months.
- The filing disclosed substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements. Additional financing was expected to be required through equity or debt offerings, strategic arrangements, asset sales, or licensing and collaborations.
- Failure to obtain funding could require the company to delay, scale back, or eliminate development programs, pursue strategic alternatives, or cease operations.
- Five employees, approximately one-third of the workforce, were terminated in June 2020. The company recorded $1.1 million of severance charges for the first nine months and expected to pay approximately $0.4 million in 2020 and $0.7 million in 2021. Management projected approximately $2.0 million of annualized cost savings beginning in 2021.
- The NeoCart intangible asset was written down from $7.0 million to zero because a sale was no longer considered probable within the required period. The company continued to market the asset and remained party to an asset purchase agreement.
- After quarter-end, the company paid the remaining $1.3 million principal balance on the warrant exchange notes, eliminating that debt.
- Nasdaq granted the company until March 8, 2021 to regain compliance with the minimum bid-price requirement. Failure to regain compliance could result in delisting and impair access to public equity financing.
- COVID-19, clinical-development delays, regulatory approval uncertainty, manufacturing costs, intellectual-property disputes, market acceptance, and the need for additional capital were identified as significant risks.
- The company entered into a seven-year lease for expanded office and laboratory space, with estimated base rent of $1.8 million over the initial term, expected to commence in early 2021.
Important facts for investors to verify
- Actual cash runway, monthly cash burn, and the timing and terms of any required financing.
- Whether the company can regain Nasdaq’s minimum bid-price compliance by March 8, 2021.
- Progress, financing, regulatory status, and enrollment plans for OCU400, OCU410, and OCU200.
- Whether the Advaite COVID-19 collaboration generates material reimbursements or royalty revenue, including related-party governance considerations.
- Potential dilution from future equity offerings, stock options, warrants, and other equity-linked instruments.
- Resolution or sale status of the NeoCart asset and any related proceeds or obligations.
- Effect of the new laboratory lease and planned manufacturing arrangement on future cash requirements.