Business Context and Reporting Period
The supplied filing identifies the registrant as Enochian BioSciences, Inc., not Lunai Bioworks Inc. It is an unaudited Form 10-Q for the three months ended September 30, 2021, the first quarter of fiscal 2022. Enochian is a preclinical biotechnology company developing gene, cell and immune therapies for HIV, HBV, influenza, coronavirus infections and cancer. The company has generated no revenue to date.
Key Financial Metrics
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $7.5 million | $2.9 million |
| Loss from operations | $(7.5) million | $(2.9) million |
| Net loss | $(10.4) million | $(2.4) million |
| Loss per share | $(0.20) | $(0.05) |
| Cash flow from operations | $(5.3) million | $(2.8) million |
| Cash and cash equivalents at period end | $15.4 million | $5.7 million |
There is no meaningful gross or operating margin because the company is pre-revenue. General and administrative expense was $4.5 million, including substantial stock-based compensation, and research and development expense was $3.0 million. Total assets were $184.1 million, including $154.8 million of indefinite-lived license-related intangible assets and $11.6 million of goodwill.
At September 30, 2021, current liabilities were $1.2 million and non-current liabilities were $17.1 million. Debt included $1.2 million of convertible notes due February 2023 and $4.7 million of notes payable, net of discount, with the principal note maturity extended to November 2022. The contingent consideration liability was $8.9 million. Working capital was $14.2 million, down from $19.0 million at June 30, 2021.
Material Changes Versus the Prior Comparable Period
- Operating expenses increased 163% to $7.5 million. General and administrative expense increased 151%, primarily from a $2.4 million increase in stock-based compensation and higher compensation expense.
- Research and development expense increased 186% to $3.0 million, driven by a $1.5 million ENOB-HB-01 pre-IND milestone, approximately $0.6 million of ENOB-HV-21 costs, coronavirus license payments and higher regulatory and contract research costs.
- Other expense was $2.9 million versus other income of $0.3 million in the prior period, primarily because the fair value of contingent consideration increased by $2.8 million.
- Net loss increased by $8.0 million, or 335%, to $10.4 million.
- Cash declined by $5.3 million during the quarter. There were no financing cash flows and only $5,156 of investing cash outflows.
- The company granted options to purchase approximately 3.1 million shares during the quarter, and recorded $2.7 million of stock-based compensation versus $0.3 million in the prior period.
Guidance, Outlook, Risks and Unusual Items
Management stated that existing liquidity and access to committed funds were expected to fund operations for the next twelve months, but additional capital may be needed for personnel, equipment, research and development, IND-enabling work, license obligations and potential acquisitions. The company may seek additional equity or debt financing, which may not be available on acceptable terms.
- Management expects the company to remain pre-revenue until products receive marketing approval and states that it may never become profitable.
- Management expected a Pre-IND submission for ENOB-HV-01 in the latter part of 2022 and reported completion of FDA Pre-IND processes for ENOB-HB-01 during the quarter and ENOB-HV-21 after quarter-end.
- The company entered a coronavirus and influenza license agreement requiring a $10.0 million upfront payment, a $0.8 million payment for prior expenditures, additional milestone payments and a 3% royalty on potential net sales. The filing reports $75,000 paid for related research as of September 30, 2021.
- Related-party payments to G-Tech and affiliated entities totaled $2.2 million during the quarter, including HIV, HBV, coronavirus and security-related costs.
- COVID-19 had not materially affected operations as of the filing, but had delayed some experiments and increased animal-study costs. Future restrictions could affect research, regulatory and manufacturing timelines and access to capital.
- The contingent consideration liability is a Level 3 fair-value measurement and is highly sensitive to the company’s stock price, volatility and other valuation assumptions.
- Disclosure controls were deemed ineffective because of a material weakness involving insufficient segregation of accounting duties. Management expected the deficiency to continue until sufficient capital was available to hire additional accounting staff.
- The filing reports no material pending legal proceedings and no material subsequent events requiring disclosure.
Facts Investors Should Verify
- Confirm the issuer identity: the source filing is for Enochian BioSciences, Inc. and does not reference Lunai Bioworks Inc.
- Assess cash runway against the $5.3 million quarterly operating cash burn and the company’s stated need for additional funding.
- Review the valuation and potential dilution implications of the $8.9 million contingent consideration liability, 1.35 million contingent shares or warrants, outstanding options and future financing capacity.
- Verify the obligations, milestones, related-party relationships and payment status under the HBV and coronavirus license agreements.
- Evaluate the recoverability of the $154.8 million license-related intangible asset and $11.6 million goodwill balance.
- Monitor remediation of the material weakness in disclosure controls and the effect of stock-based compensation on reported losses and dilution.