AzurRx BioPharma, Inc. — Form 10-Q summary
Issuer identification: The filing is for AzurRx BioPharma, Inc. (Nasdaq: AZRX), not Gridai Technologies Corp. It reports the quarter and six months ended June 30, 2020; filed August 14, 2020. The financial statements are unaudited.
Business context and reporting period
AzurRx is a clinical-stage biotechnology company developing non-systemic biologics for gastrointestinal disorders. Its lead candidate, MS1819, is an oral recombinant lipase being developed for exocrine pancreatic insufficiency associated with cystic fibrosis and chronic pancreatitis. The company had no product revenue.
Financial performance and condition
| Metric | Three months ended June 30, 2020 | Six months ended June 30, 2020 | Comparison |
|---|---|---|---|
| Revenue | $0 | $0 | No revenue in comparable 2019 periods |
| Research and development expense | $1.09 million | $2.64 million | Down 62.1% and 57.1%, respectively, year over year |
| General and administrative expense | $1.30 million | $2.68 million | Down 36.6% and 20.3%, respectively, year over year |
| Interest expense | $2.30 million | $4.64 million | Substantially higher, mainly from convertible-debt discounts and accrued interest |
| Net loss | $4.70 million | $9.96 million | Quarterly loss narrowed from $5.04 million; six-month loss increased from $9.70 million |
| Loss per share, basic and diluted | $0.17 | $0.36 | 2019 comparison: $0.25 and $0.51 |
| Operating cash used | Not separately stated for the quarter | $2.63 million | Compared with $6.65 million used in first-half 2019 |
At June 30, cash was $985,000, current assets were $1.60 million, and current liabilities were $7.62 million, implying negative working capital of approximately $6.0 million. Total liabilities were $7.66 million, including $5.29 million of convertible debt; stockholders’ equity was negative $797,000. Cash increased from $176,000 at December 31, 2019, supported by financing and receipt of French research tax credits. The company reported an accumulated deficit of $72.7 million and substantial doubt about its ability to continue as a going concern.
Material changes versus the prior comparable period
- Lower research spending reflected reduced clinical activity and COVID-related recruitment delays in the Combination Trial; management expected research spending to rise in the second half of 2020 as trials and manufacturing activities advanced.
- Lower general and administrative spending reflected fewer bonuses and reduced public-company, director, legal, and travel costs, partly offset by higher insurance, consulting, and IT costs. Management expected G&A spending to increase later in the year.
- Interest expense rose sharply because of the December 2019–January 2020 convertible-note financing and related debt discounts. At June 30, carrying value of convertible debt was $5.29 million.
- Common shares outstanding increased to 28.50 million from 26.80 million at year-end 2019. The company issued 1.50 million shares under its Lincoln Park equity line in the first half for approximately $988,000 net proceeds.
Outlook, developments, and risks
- Clinical program: The OPTION 2 Phase 2 trial began in July 2020, with the first patient screened and three U.S. sites activated. Topline data was anticipated in first-quarter 2021, subject to possible COVID-19 delays. Combination Trial topline data was expected in the first half of 2021. An August 11, 2020 update reported positive interim results in the first five Combination Trial patients; these were preliminary company-reported findings, not final trial results.
- Post-quarter financing and debt exchange: On July 16, 2020, the company completed a Series B preferred-stock and warrant financing, receiving approximately $15.2 million gross and $13.5 million net cash proceeds. It also exchanged approximately $6.9 million of note principal plus accrued interest for preferred stock and warrants; following the exchange and repayment of a nonparticipating holder, no convertible notes remained outstanding.
- Financing approval risk and dilution: Series B securities were initially convertible into approximately 29.1 million common shares, with warrants for approximately 14.6 million additional shares, before other related warrants. Stockholder approval was required. If the required approval was not obtained by October 14, 2020, subject to permitted extension, the company could be required to repurchase the preferred stock for approximately $34.4 million in cash—a major liquidity risk.
- Nasdaq listing: The company had regained compliance with Nasdaq’s issuance rules, but remained below the $1.00 minimum bid-price requirement. It had until December 3, 2020 to regain compliance; failure could lead to delisting.
- COVID-19 and capital needs: The filing cites potential disruption to patient recruitment, trial sites, supply chains, regulatory timelines, and access to capital. Management said additional financing would be needed to fund operations and development; the post-quarter financing did not eliminate the stated dependence on future funding.
- Other notable items: The company returned a $179,418 Paycheck Protection Program loan after reviewing eligibility guidance. It settled claims with former executives after quarter-end, including issuing 150,000 warrants to the former CEO and paying legal expenses.
Most important facts for investors to verify
- Confirm the issuer identity: the supplied filing is AzurRx BioPharma, Inc., not Gridai Technologies Corp.
- Check the outcome of the 2020 stockholder votes on the Series B financing and exchange, and whether any repurchase obligation arose.
- Review the Series B preferred-stock terms, accrued dividends, conversion and warrant dilution, and the company’s cash runway after the financing.
- Track Nasdaq minimum-bid compliance and any subsequent listing notices or extensions.
- Monitor enrollment, safety, and efficacy results for OPTION 2 and the Combination Trial, distinguishing interim data from final results.
- Assess whether COVID-19 affected trial timelines, clinical supply, operating costs, or the company’s ability to raise additional capital.