GT Biopharma, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; balance-sheet comparisons are with December 31, 2018. GT Biopharma is a clinical-stage biopharmaceutical company developing immuno-oncology therapies, including TriKE/TetraKE and bispecific ADC platforms. It had no approved products and reported no revenue.
Financial results and liquidity
Amounts below are in U.S. dollars; financial statement amounts are in thousands except per-share data.
| Metric | Q1 2019 | Q1 2018 or prior date |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $834 | $3,473 |
| Selling, general and administrative expense | $3,222 | $3,687 |
| Operating loss | $(4,056) | $(7,160) |
| Interest expense | $(454) | $(2,931) |
| Net loss | $(4,510) | $(10,091) |
| Basic and diluted loss per share | $(0.09) | $(0.20) |
| Cash and cash equivalents | $51 | $60 at Dec. 31, 2018 |
| Total current liabilities | $15,523 | $14,029 at Dec. 31, 2018 |
Operating cash use was $961, compared with $4,226 in Q1 2018. Financing provided $952, principally from the February convertible-note transaction; cash declined by $9 during the quarter. Total assets were $25,539, including $25,262 of intangible assets. Stockholders’ equity was $10,016. Current assets of $78 were substantially below current liabilities, implying a $15,445 working-capital deficit.
Material changes and financing
- Compared with Q1 2018, net loss narrowed by $5,581. R&D spending fell by $2,639, which management attributed mainly to reductions in employees, consultants and preclinical expenses. SG&A fell by $465, primarily due to lower salaries. Interest expense decreased by $2,477, mainly because of lower amortization of financing discounts and warrant value.
- In February, the company issued secured convertible notes with $1,352,224 principal, comprising $1,052,224 in gross proceeds and $300,000 of settled existing debt. The notes carry 10% interest, convert at $0.60 per share, and mature August 2, 2019; default interest is 18%. Conversion-price adjustments and restrictions on prepayment apply.
- The February financing granted a first-priority security interest in substantially all assets of the company and certain subsidiaries, securing the new notes and $9,058,962 principal of specified 10% senior convertible debentures. The balance sheet reported $11,297 of current convertible debentures and a $31 line of credit.
- The company issued 723,940 common shares during Q1 upon conversion of $434,271 of note principal and interest. Common shares outstanding were 51,374,417 at March 31 and May 11, 2019.
Outlook, risks and unusual items
- Going concern: The company reported an accumulated deficit of approximately $533.3 million and only $51,000 cash at quarter-end. It stated that substantial additional financing is required and that these conditions raise substantial doubt about its ability to continue as a going concern. Management believed financing efforts, if successful, could fund operations for at least six months from issuance of the financial statements; it gave no assurance. Funding options include equity or debt offerings and strategic, licensing or marketing arrangements.
- Operating outlook: Management anticipated SG&A cash use of $1 million to $2 million in coming quarters, with R&D depending on clinical activity. It expected direct clinical costs to increase in the second half of 2019 with initiation of a Phase 1 trial of its lead TriKE candidate, OXS-3550.
- Leadership: CEO, President and Chairman Dr. Urbanski resigned on March 15, 2019. Anthony Cataldo signed the filing as CEO and Chairman.
- Subsequent financing and dilution: In April, the company issued 2,353,548 Series J-1 preferred shares, convertible into common stock at $0.60 per share. It also issued 656,181 common shares upon conversion of $393,709 of note principal and interest.
- Litigation: Investors sued over a 2018 securities purchase agreement, alleging failure to repay notes at maturity, honor a conversion notice and timely adjust warrant exercise prices. The claims concern approximately $2.2 million of notes and warrants for 480,352 shares.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective and identified material weaknesses, including inadequate segregation of duties and executive-override risk, attributed in part to a small staff and reliance on consultants.
- Prior-period unusual item: The company had recorded a $228.5 million impairment charge in 2018 on CNS in-process R&D assets after shifting strategic focus toward immuno-oncology. No Q1 2019 impairment charge is reported in the supplied filing text.
Important facts for investors to verify
- Near-term cash needs, financing availability and the company’s ability to meet obligations, including notes maturing August 2, 2019.
- Terms, collateral, conversion adjustments and potential dilution from outstanding convertible securities and the April Series J-1 issuance.
- Timing and funding of the planned OXS-3550 Phase 1 trial and progress across the immuno-oncology pipeline.
- Status and potential financial impact of the investor litigation.
- Remediation of the disclosed material weaknesses in financial reporting controls.
- Recoverability and valuation assumptions supporting the $25.262 million intangible-asset balance.