Business Context and Reporting Period
The filing is an unaudited Form 10-Q for Enochian Biosciences Inc. and subsidiaries, despite the request metadata identifying Lunai Bioworks Inc. It covers the three months ended September 30, 2022, and was filed March 7, 2023. The company is a pre-revenue biotechnology developer focused on cell and gene therapies for oncology, HIV, and HBV.
Management states that the company has never generated revenue and does not expect revenue until product candidates receive regulatory approval and are commercialized.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expense | $4.56 million | $4.42 million |
| Research and development expense | $2.61 million | $3.06 million |
| Total operating expenses | $7.19 million | $7.50 million |
| Loss from operations | $(7.19) million | $(7.50) million |
| Net loss | $(7.70) million | $(10.41) million |
| Basic and diluted loss per share | $(0.14) | $(0.20) |
| Net cash used in operating activities | $(2.82) million | $(5.28) million |
| Cash provided by financing activities | $1.63 million | $0 |
| Cash at period end | $7.97 million | $15.38 million |
Because the company had no revenue, gross margin and revenue-based operating margins are not meaningful. The accumulated deficit was $212.04 million at September 30, 2022. Total assets were $83.07 million, including $61.57 million of indefinite-lived license-related intangible assets and $11.64 million of goodwill.
Total liabilities were $12.75 million, including $1.20 million of current convertible notes payable, $4.65 million of non-current notes payable, and $1.13 million of operating lease liabilities. Working capital was $973,463, compared with $3.11 million at June 30, 2022.
Material Changes Versus the Prior Comparable Period
- Total operating expenses decreased $314,057, or 4%, primarily because research and development expense declined $450,060, partially offset by a $139,335 increase in general and administrative expense.
- Research and development expense declined 15%, primarily because payments related to the abandoned ENOB-CV-01 candidate decreased by $2.68 million. This was partly offset by a $2.30 million increase in CDMO and CRO collaboration costs.
- General and administrative expense increased 3%, reflecting higher legal expense of $1.28 million and compensation-related expense of $662,380, partly offset by a $1.70 million decrease in stock-based compensation.
- Net loss improved by $2.71 million, or 26%, primarily because the prior-year period included a $2.82 million change in the fair value of contingent consideration. The current period included a $419,182 loss on extinguishment of that liability.
- Operating cash use declined by $2.46 million, although the improvement was partly attributable to a $3.28 million increase in accounts payable from payment timing.
- Cash decreased $1.20 million from June 30, 2022, to $7.97 million at September 30, 2022. Warrants were exercised for $1.625 million, and 2.5 million common shares were issued, including 1.25 million shares issued as an earn-out distribution.
- Stock-based compensation declined to $1.03 million from $2.73 million in the prior-year quarter.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management reports substantial doubt about the company’s ability to continue as a going concern for one year after issuance of the financial statements. The company has recurring losses, no revenue, an accumulated deficit of $212.04 million, and depends on additional debt or equity financing. Management expects any future funding to support research and development, personnel, equipment, regulatory activities, existing obligations, and working capital.
Management has reduced overhead and is prioritizing the oncology platform, particularly ENOB-DC-11 for pancreatic cancer, and the ENOB-HV-12 HIV therapeutic vaccine. Management indicated potential confirmatory in-vivo data and a possible Pre-IND submission for ENOB-DC-11 in early 2023, and possible Pre-IND activity for ENOB-HV-12 by mid-2023. These are forward-looking objectives, not assurances.
The company no longer plans to pursue the coronavirus-related product candidate under its development license and has filed claims against the licensors seeking recovery of amounts paid. It has also deprioritized ENOB-HV-21 and ENOB-HV-01 relative to oncology programs.
- Several securities class action and derivative lawsuits were filed alleging misleading disclosures and omissions concerning the company’s relationship with Serhat Gümrükcü and its commercial prospects. Damages were generally unspecified.
- The company filed a separate lawsuit alleging that defendants manipulated or fabricated study results and that approximately $25 million was paid as a result. The defendants had not answered as of the filing.
- A demand letter alleged breach of an investor-rights agreement and sought more than $64 million in damages. The company disputes the claim.
- The company remains involved in litigation brought by a former chief financial officer and his company; the company filed a motion for summary judgment on the remaining claim.
- The company’s disclosure controls were deemed ineffective because of a material weakness involving inadequate resources for complex accounting matters. Management expects the deficiency to continue until sufficient capital is available to hire additional accounting personnel.
- The company received Nasdaq notices for late periodic filings and had not regained compliance because its December 31, 2022 Form 10-Q remained unfiled as of the report date. Continued noncompliance could lead to delisting.
- The $1.20 million convertible notes were amended after the quarter end, extending maturity to February 28, 2024, increasing interest to 12%, and securing the obligations. The $5.0 million promissory note was extended to November 30, 2023, bears 12% interest, and was subsequently secured by a lien on company assets.
- The company’s $20 million Lincoln Park equity facility became unavailable on October 17, 2022, because the related Form S-3 registration statement could no longer be used.
- COVID-19 had not materially affected operations as of the filing, but had caused experiment delays, supply constraints, and higher animal-study costs.
Investor Verification Priorities
- Verify the registrant’s identity: the filing names Enochian Biosciences Inc., not Lunai Bioworks Inc.
- Assess the company’s ability to obtain financing and the resulting dilution, given the going-concern qualification, $7.97 million of cash, and continuing operating cash burn.
- Review the maturity, interest, collateral, and potential equity-settlement terms of the amended notes.
- Monitor Nasdaq compliance and the risk of delisting related to late filings.
- Evaluate the status and potential financial exposure of the securities, derivative, licensing, investor-rights, and former-CFO litigation.
- Assess whether the large license-related intangible assets and goodwill remain recoverable, particularly given the $93.25 million impairment recorded in fiscal 2022.
- Verify clinical, regulatory, and preclinical milestones for ENOB-DC-11 and ENOB-HV-12, recognizing that the stated timelines are uncertain and dependent on financing and successful research results.