Ocugen, Inc. Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019; filed March 27, 2020. The filing is an annual report rather than a quarterly filing. Results primarily reflect former Ocugen as the accounting acquirer following the September 27, 2019 reverse merger with Histogenics Corporation.
Business Context
Ocugen is a clinical-stage biopharmaceutical company developing ophthalmic therapies. Its lead program, OCU300, is a Phase 3 brimonidine tartrate nanoemulsion for ocular redness and discomfort associated with ocular graft-versus-host disease. OCU400 is a gene therapy candidate with two FDA Orphan Drug Designations and a planned Phase 1/2a trial. OCU410 and OCU200 remain in preclinical development.
- OCU300 Phase 3 enrollment exceeded 95% as of March 20, 2020; the company expected first-trial top-line data in the second half of 2020.
- OCU310’s Phase 3 dry-eye trial was safe and well tolerated but failed its co-primary endpoints; development was discontinued.
- The company entered a co-development and commercialization agreement with CanSinoBIO for OCU400, including CanSinoBIO-funded manufacturing and development activities in specified territories.
Key Financial Metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No product revenue in either period |
| Research and development expense | $8.1 million | $10.3 million | Decreased $2.2 million |
| General and administrative expense | $6.1 million | $5.8 million | Increased $0.3 million |
| Loss from operations | $14.2 million | $16.1 million | Improved $2.0 million |
| Net loss | $20.2 million | $18.2 million | Loss increased $2.0 million |
| Net loss per share | $1.46 | $3.67 | Improved due primarily to higher share count |
| Net cash used in operating activities | $16.9 million | $11.6 million | Use increased $5.3 million |
| Cash, cash equivalents and restricted cash at year-end | $7.6 million | $1.8 million | Increased $5.8 million |
At December 31, 2019, cash and cash equivalents were $7.4 million, restricted cash was $0.2 million, total assets were $16.8 million, and stockholders’ equity was $11.0 million. The company had an accumulated deficit of $51.5 million and accounts payable and accrued expenses of $4.2 million.
Financing activities provided $25.1 million in 2019, primarily from the $25.0 million pre-merger financing, partially offset by debt repayments and financing costs. Investing activities used $2.4 million, including $2.3 million of merger-related asset acquisition costs.
Debt and Liquidity
- Year-end debt consisted primarily of $1.0 million of EB-5 principal, with a carrying value of $1.1 million after accrued interest and debt issuance costs.
- All previously issued convertible notes were converted or settled during 2019.
- The EB-5 facility bears fixed interest of 4.0% and is secured by substantially all company assets other than intellectual property.
- Management stated that available cash was expected to fund operations into mid-2020. The company stated that substantial additional financing would be required thereafter.
- On March 26, 2020, the company borrowed an additional $0.5 million under the EB-5 facility, increasing principal outstanding to $1.5 million.
Material Changes Versus 2018
- Operating expenses declined because of lower OCU300 development and manufacturing costs, although general and administrative costs increased with professional, consulting, insurance and public-company expenses.
- Net loss increased because of a $3.2 million loss from changes in derivative liability fair values, compared with a $1.7 million gain in 2018, and a $0.3 million loss on debt conversion.
- Interest expense decreased to $1.8 million from $3.8 million as convertible debt was converted or settled.
- Common shares outstanding increased substantially through the merger, debt conversions, financing and warrant exercises. The company reported 52.6 million shares outstanding as of March 20, 2020.
- The company repurchased 121,500 shares in November and December 2019 for approximately $47,864 under a program authorizing up to $2.0 million of repurchases.
Guidance, Outlook and Unusual Items
- Management expected research and development spending to rise as OCU300 approached completion and as OCU400, OCU410 and OCU200 advanced.
- The company expected no product commercialization before 2021, if at all, and provided no specific revenue or earnings guidance.
- The Histogenics NeoCart asset was classified as held for sale at $7.0 million. The related Medavate transaction had not closed by December 31, 2019; the contractual purchase price had increased to $8.5 million at year-end and to $11.3 million by March 1, 2020.
- The independent auditor included a going-concern explanatory paragraph. Management stated that recurring losses, negative operating cash flow and the need for additional financing created substantial doubt about the company’s ability to continue as a going concern.
- COVID-19 was identified as a material emerging risk, including potential delays to OCU300 enrollment and reliance on CanSinoBIO in China for OCU400 manufacturing and chemistry, manufacturing and controls activities.
- On December 27, 2019, Nasdaq notified the company that its stock had traded below the $1.00 minimum bid price for 30 consecutive business days. The initial compliance deadline was June 24, 2020, subject to possible extension.
- Series A warrants covering approximately 8.8 million shares had price-based anti-dilution provisions, creating potential additional dilution.
Principal Risks
- No approved products, no product revenue and continuing operating losses.
- Dependence on successful Phase 3 results and FDA approval of OCU300.
- Clinical enrollment, regulatory, manufacturing and supply-chain delays.
- Uncertainty surrounding novel gene therapy and biologic platforms.
- Need for substantial additional capital, with possible dilution, restrictive debt terms or loss of product rights.
- Competition from established ophthalmology, pharmaceutical and gene therapy companies.
- Reliance on third-party manufacturers, clinical research organizations, licensors and collaborators.
- Potential patent disputes, license termination, product liability and reimbursement limitations.
- Potential Nasdaq delisting and volatility related to financing, warrant exercises and the company’s low share price.
Investor Verification Items
- Verify current cash runway, financing completed after March 27, 2020, and whether the going-concern uncertainty was resolved.
- Verify final OCU300 Phase 3 enrollment, top-line results, FDA interactions and any NDA submission or approval.
- Verify the status and final consideration of the Medavate sale of the NeoCart assets.
- Review the outstanding Series A warrants, anti-dilution adjustments and potential share dilution.
- Confirm the status of Nasdaq minimum-bid-price compliance and continued listing.
- Assess the impact of COVID-19 on clinical trials, CanSinoBIO manufacturing and operating expenses.
- Review the reverse-merger accounting, historical comparability and the effect of the substantially higher 2019 share count on per-share results.