ABVC Biopharma, Inc. (American BriVision (Holding) Corporation) — FY2017 Form 10-K
Business context and reporting period. The filing covers the fiscal year ended September 30, 2017, not a standalone fourth quarter. The company is a pre-revenue, clinical-stage biotechnology business developing licensed drug candidates and a medical device, with a strategy of advancing products through proof-of-concept trials and out-licensing them. The portfolio includes cancer and CNS candidates and BFC-1401, a vitreous substitute device. Most license arrangements involve related parties.
Financial performance and condition
| Metric | FY2017 / September 30, 2017 | FY2016 / September 30, 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $3.996 million | $10.997 million |
| Operating loss | $3.996 million | $10.997 million |
| Net loss | $4.072 million | $11.008 million |
| Basic and diluted loss per share | $0.02 | $0.06 |
| Cash and cash equivalents | $204,851 | $173,537 |
| Operating cash flow | $(1.599) million | $(3.475) million |
| Financing cash flow | $1.630 million | $2.653 million |
| Current assets / current liabilities | $2.755 million / $4.148 million | $173,537 / $6.556 million |
| Working capital | $(1.393) million | $(6.383) million |
| Related-party debt and other amounts due | $4.113 million | $6.500 million |
FY2017 expenses included $707,142 of selling, general and administrative expense and $3.151 million of research and development expense. With no revenue, gross and operating margins are not meaningful. Cash rose by $31,314 during the year; operations consumed cash and financing provided the offset. The $2.550 million collaboration-partner receivable is from related-party Rgene and makes up most current assets.
Material changes and unusual items
- Net loss fell 63% year over year, primarily because the prior-year results included a $10 million BioLite license milestone charge. The 2016 comparative statements were restated, including recognition of that R&D expense and $6.5 million due to a related party.
- The company issued 2.925 million shares to BioLite at $2 per share, valued at $5.85 million, as part of a $6.5 million milestone payment; it also paid $650,000 in cash.
- In 2017, the company recorded a $3 million payment obligation to related-party BioFirst for BFC-1401 as R&D expense and a related-party payable. The agreement calls for payment by September 30, 2018.
- Rgene agreed to pay $3 million for prior research contributions. The company recorded the amount as additional paid-in capital because Rgene is a related party; only $450,000 had been collected by the report date, with $2.55 million recorded as a receivable. This was not reported as revenue.
- Related-party financing included a $950,000 BioFirst loan bearing 12% annual interest and maturing February 1, 2018, plus other related-party amounts. Total due to related parties was $4.113 million at year-end.
- The report describes a reverse merger and a change from the former apparel business to biotechnology. Shares outstanding were 213.747 million at September 30, 2017.
Outlook, risks and contingencies
- Management expects no near-term revenue while products remain in development. Its plan is to pursue Phase II studies and seek licensing or development partners; successful trials, approvals, partnerships and commercialization are uncertain. No quantified financial guidance is provided.
- The auditor’s opinion is unqualified but includes a going-concern paragraph. Recurring losses, negative operating cash flows and a working-capital deficit raise substantial doubt about the company’s ability to continue. Management expects to seek shareholder support and additional equity or debt financing, but gives no assurance of obtaining it.
- The BioLite agreement provides for up to $100 million of milestone payments and 5% royalties on net sales for covered products. The agreement also creates future funding requirements as milestones are reached; a $15 million payment is tied to completion of the first Phase II trial.
- Disclosure controls and internal control over financial reporting were reported ineffective, citing inadequate financial-control monitoring and lack of segregation of duties in a one-person finance function. The auditor did not attest to internal-control effectiveness.
- Key risks include clinical and regulatory failure, dependence on BioLite licenses and external collaborators, financing needs, related-party counterparty exposure, potential product side effects, and lack of product-liability insurance. The filing also notes a limited OTCQB trading market and concentrated insider ownership.
Important facts for investors to verify
- Collection and timing of the $2.55 million Rgene receivable, and the basis for recording the full $3 million as paid-in capital despite partial cash collection.
- Funding, repayment and maturity status of the $4.113 million related-party balance, including the BioFirst loan and BFC-1401 payment obligation.
- Cash runway and actual availability of promised shareholder financing, given the going-concern warning and $204,851 year-end cash balance.
- Clinical-trial progress, regulatory status and remaining milestone obligations under the BioLite agreement, including the potential $15 million Phase II milestone.
- Reconciliation of filing inconsistencies: MD&A narrative cites approximately $707,142 as R&D spending, while the statements classify that amount as selling, general and administrative expense and report R&D of $3.151 million. The going-concern note also gives FY2017 net loss as $4.087 million, versus $4.072 million in the audited statements.