Assembly Biosciences, Inc. — Form 10-Q Summary
Reporting period: Quarter ended June 30, 2014. The financial statements principally reflect the company then known as Ventrus Biosciences, Inc.; the merger with Assembly Pharmaceuticals, Inc. closed on July 11, 2014, after quarter-end. The company changed its name to Assembly Biosciences and effected a 1-for-5 reverse stock split that day.
Financial results and position
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | None reported; the company stated it had not generated product revenue. | |||
| Research and development | $1.10 million | $3.51 million | $4.07 million | $6.12 million |
| General and administrative | $1.41 million | $1.30 million | $2.55 million | $2.46 million |
| Net loss | $2.47 million | $4.75 million | $6.54 million | $8.47 million |
| Net loss per share | $0.52 | $1.20 | $1.43 | $2.30 |
| Operating cash used | — | $7.51 million | $7.75 million |
At June 30, cash and cash equivalents were $21.32 million, versus $27.06 million at December 31, 2013. Total assets were $21.76 million; current liabilities were $1.47 million, primarily accounts payable. No debt is shown on the balance sheet. The company reported an accumulated deficit of $118.26 million. Profit margins are not meaningful because there was no revenue.
Cash declined by $5.74 million in the first half: $7.51 million used in operations and $2,589 used in investing, partly offset by $1.76 million of financing proceeds from common stock sales. The filing states cash was expected to fund operations for at least 12 months; MD&A more specifically estimates funding into the fourth quarter of 2015, subject to assumptions and development costs.
Material changes and business developments
- Q2 R&D expense fell 68.8% year over year, mainly because the VEN 307 clinical trial ended and stock-based compensation declined. First-half R&D fell 33.5% for similar reasons.
- Q2 G&A expense increased 8.5% year over year, and first-half G&A increased 3.5%, primarily due to merger-related legal, accounting and other costs. Interest income declined in both comparisons because cash balances were lower.
- Following the July 11 merger, former Assembly Pharmaceuticals shareholders received 4,008,848 shares; options covering 621,651 shares were assumed. These post-quarter transactions are not reflected as completed in the June 30 balance sheet.
- The company’s stated strategic focus shifted toward Assembly Pharmaceuticals’ hepatitis B virus (HBV) program and its licensed targeted-delivery platform for clostridium difficile-associated diarrhea (CDAD). HBV compounds had shown preclinical proof of principle in cell models; this is not evidence of clinical efficacy.
- In July, the company terminated the VEN 307 and VEN 308 programs and gave notice to end the related S.L.A. Pharma license, effective October 22, 2014. The filing says there are no termination penalties or continuing payment obligations under that agreement.
Outlook, risks and unusual items
- Management expects substantial losses for several years, increasing R&D spending as programs advance, and higher G&A costs as merger-related infrastructure is added. The company will need additional funding to continue and complete development; no future funding commitments were reported.
- Further financing may involve equity, debt, collaborations or licensing. Financing may not be available on acceptable terms; equity could dilute shareholders, while debt could add fixed obligations and restrictive covenants. The company’s shelf registration capacity was constrained by SEC rules to approximately $10.1 million of securities over a 12-month period as of June 30.
- Key risks include development and regulatory uncertainty, market acceptance, intellectual-property access and protection, funding needs, and successfully integrating Assembly Pharmaceuticals and retaining key personnel.
- After quarter-end, existing directors and employees forfeited 514,445 options and 75,000 restricted stock units, and the company granted 2,560,000 new options at $7.20 per share. Management expected a material charge from modifying existing options; the filing does not provide a clear estimate of that charge.
- The securities class action concerning VEN 309 was dismissed with prejudice; reconsideration was denied, and no appeal was filed by the stated deadline.
- Management reported effective disclosure controls and procedures and no material second-quarter change in internal control over financial reporting.
Key facts for investors to verify
- Post-merger cash, expenses, share count and option dilution, and whether the stated runway remains achievable after integrating Assembly Pharmaceuticals.
- Timing, costs and clinical progress of the HBV and CDAD programs; the filing reports preclinical HBV evidence, not human efficacy.
- The financial impact and recognition period of the option modification charge and new equity awards.
- Availability and terms of additional financing, given the company’s continuing losses and shelf-sale limits.
- Completion of the S.L.A. Pharma license termination and any financial obligations arising before its effective date.