Outlook Therapeutics, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended September 30, 2019. The filing is an annual report, not a standalone fourth-quarter financial report; it discusses several material fourth-quarter developments.
Business context
Outlook is a late clinical-stage biopharmaceutical company focused on ONS-5010, an investigational ophthalmic formulation of bevacizumab for wet age-related macular degeneration (wet AMD) and potentially diabetic macular edema (DME) and branch retinal vein occlusion (BRVO). The company has no approved products and has never generated product-sale revenue; reported revenue comes from collaborations and licenses.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Collaboration revenue | $8.1 million | $3.1 million |
| Research and development expense | $23.8 million | $18.5 million |
| General and administrative expense | $9.4 million | $14.2 million |
| Impairment of property and equipment | $11.3 million | None |
| Operating loss | $36.3 million | $29.6 million |
| Net loss | $34.5 million | $30.1 million |
| Net loss per common share | $1.98 | $9.74 |
| Cash used in operating activities | $32.3 million | $33.0 million |
Margins from product sales are not applicable because the company had no product sales. Collaboration revenue rose by $5.1 million, primarily because the company recognized remaining deferred revenue from the IPCA, Liomont and Huahai arrangements after determining it had no further performance obligations. Under the previous revenue-recognition guidance, FY2019 collaboration revenue would have been $4.5 million.
R&D expense increased mainly with ONS-5010’s progression into Phase 3. G&A expense declined largely because FY2018 included a $4.2 million lease-termination charge and FY2019 had lower staffing and facility costs. The $11.3 million impairment followed the decision to outsource manufacturing and development and reduce use of the company’s facilities and equipment. FY2019 also included a $2.4 million noncash gain from a decrease in the fair value of warrant liabilities and a $0.6 million debt-extinguishment loss.
At September 30, 2019, cash was $8.0 million, current assets were $13.5 million and current liabilities were $20.3 million. Total liabilities were $27.9 million; stockholders’ deficit was $16.1 million. Operating cash use was partly offset by $39.0 million of financing cash flow, including net proceeds from equity offerings and private placements. The company reported no product-sales cash flow or meaningful product margin.
Debt and obligations included $6.7 million of convertible senior secured notes due December 22, 2019, bearing 12% interest after a June 2019 amendment; $3.6 million of stockholder notes due on demand; and approximately $1.0 million of other unsecured notes subject to a forbearance agreement through March 7, 2020. Capital-lease obligations totaled $3.6 million on the balance sheet. The filing’s auditors stated that recurring losses, negative operating cash flows, the stockholders’ deficit and debt maturities raise substantial doubt about the company’s ability to continue as a going concern. Management estimated cash and anticipated New Jersey tax-credit proceeds would fund operations into March 2020, excluding debt repayment.
Material changes and notable events
- In April 2019, the company raised approximately $26.2 million net from a public offering of common stock and warrants. It also received approximately $19.8 million net from a BioLexis private placement during FY2019.
- In June 2019, it repaid approximately $1.8 million of senior secured notes, amended the remaining $6.7 million balance’s maturity to December 22, 2019, removed scheduled interim payments and increased the interest rate from 5% to 12%.
- In September 2019, $0.5 million of unsecured-note principal and accrued interest was exchanged for common shares. After year-end, the holder exchanged a further approximately $1.5 million for shares by December 5, 2019, and those notes were no longer outstanding.
- In the fourth quarter, the company substantially completed outsourcing ONS-5010 manufacturing and remaining development, reduced staff, and ceased internal support for its inactive biosimilar programs. It recognized the remaining deferred revenue under collaboration agreements and recorded the property-and-equipment impairment.
- Common shares outstanding increased substantially, including through the April offering and warrant exercises. BioLexis remained the controlling stockholder, with approximately 61% beneficial ownership of common stock reported at November 30, 2019.
Pipeline, outlook and risks
- NORSE 1, the first Phase 3 wet AMD study, completed enrollment of 61 patients in Australia in August 2019. The company expected topline results in the third quarter of calendar 2020.
- NORSE 2 began enrolling U.S. patients in July 2019, with at least 220 patients planned. Management anticipated full enrollment in calendar Q1 2020, topline results in calendar Q1 2021 and a BLA submission in calendar Q1 2021, subject to successful results and regulatory review.
- The FDA had agreed to Special Protocol Assessments for proposed BRVO and DME registration studies NORSE 4, 5 and 6. The company intended to initiate them in 2020 after NORSE 2 enrollment was complete.
- Successful ONS-5010 development could support regulatory submissions in the United States, Europe and Japan in 2021. These timelines are forward-looking estimates, not assurances.
- The principal risks are clinical-trial efficacy, safety, enrollment and timing; regulatory approval; manufacturing and supply; competition and market acceptance; reimbursement and pricing; intellectual-property exposure; and the need to secure substantial additional financing. The company said it could need to alter or halt trials, reduce its workforce, sell assets or seek bankruptcy protection if financing or partnerships are unavailable.
- The company had no committed external funding source. It planned to pursue financing and strategic licensing or co-development arrangements. It also intended to reduce facility costs by subleasing unused space; the existing Cranbury lease runs to February 2028.
Most important facts for investors to verify
- Whether the company obtained financing or partnerships sufficient to address the disclosed going-concern uncertainty and debt obligations.
- Actual NORSE 1 and NORSE 2 enrollment, topline results, safety findings, regulatory feedback and BLA timing.
- Whether planned NORSE 4, 5 and 6 studies began, and the funding and trial costs required to complete them.
- Whether ONS-5010 manufacturing outsourcing, supply arrangements and facility subleasing progressed as planned.
- The effects of dilution, warrant exercises, BioLexis control and related-party arrangements, including MTTR fees and profit-sharing terms.