Rezolute, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2017. The company is a clinical-stage biopharmaceutical business and had generated no revenue. The filing was signed February 14, 2018.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2017 | Six months ended Dec. 31, 2017 | Prior-year comparable period |
|---|---|---|---|
| Revenue | None | None | None |
| Operating expenses | $5.75 million | $12.47 million | $4.89 million and $8.71 million, respectively |
| Net loss | $5.72 million | $12.40 million | $4.89 million and $8.70 million, respectively |
| Net loss per share | $0.11 | $0.23 | $0.12 and $0.23, respectively |
| Cash used in operations | $8.05 million for six months | $6.06 million for six months |
Six-month R&D expense rose to $7.72 million from $5.56 million, primarily reflecting hiring and commencement of the first clinical trial. G&A increased to $4.74 million from $3.15 million, mainly due to higher stock-based compensation. No operating margin is meaningful because the company had no revenue.
At December 31, cash was $868,071, total current assets $1.16 million, current liabilities $2.25 million, and working capital deficit approximately $1.09 million. Total assets were $6.32 million and total liabilities $2.52 million. Stockholders’ equity was $3.80 million; accumulated deficit was $76.73 million. The company reported $10,000 of matured convertible notes payable, with payment due and interest accruing at 8%. Lease liabilities and commitments also apply; minimum net lease commitments disclosed were approximately $2.68 million.
Cash declined by $3.62 million during the six months: $8.05 million used in operations, $5,816 used for fixed assets, and $4.44 million provided by equity financing. The company raised $4.50 million gross through a stock placement, net of $60,000 issuance costs. Common shares outstanding increased to 54,073,309 from 49,228,640 at June 30, 2017.
Material developments and outlook
- AB101: The company began a Phase 1 study in July 2017 and completed the first of up to five potential cohorts in calendar Q4 2017. It planned to proceed to a higher-dose second cohort, but said dosing would not begin until additional capital was raised. It did not expect to announce study results until the following year.
- ActiveSite license: The August 2017 agreement covers an oral plasma kallikrein inhibitor program. The $750,000 upfront payment was expensed; potential development and regulatory milestones total up to $36.5 million, with up to $10 million in sales milestones.
- XOMA license: In December 2017, Rezolute acquired exclusive rights to develop and commercialize RZ358 for congenital hyperinsulinism. The agreement calls for $6 million cash and $12 million in stock based on 2018 financing activities, with additional share and put-option provisions if specified financing does not occur. It also includes annual development-spend requirements, milestones of up to $222 million, and tiered royalties ranging from high single digits to mid-teens on RZ358 sales.
- Management was seeking at least $25 million in equity financing, which it expected might close in late Q1 or early Q2 2018, while acknowledging no assurance of completion or favorable terms. A separate convertible-note financing sought $3 million; a $500,000 secured note was issued January 30, 2018, bearing 12% interest and maturing at the earlier of January 31, 2019 or a $10 million equity financing. The note included a warrant for 250,000 shares.
- A Lincoln Park agreement provides for potential sales of up to $10 million of common stock over 36 months, subject to contractual conditions and limits. It is not committed cash until shares are sold. The company issued 344,669 commitment shares.
Risks, contingencies, and unusual items
Management and the auditor-related financial-statement note identify substantial doubt about the company’s ability to continue as a going concern. The company said existing cash and expected operating cash flows would not sustain operations for more than one year; continued operations depend on raising capital, with no assurance financing will be available on acceptable terms or at all. Management also said it could not sustain operations without bridge financing and could not advance all programs without the larger equity financing.
Disclosure controls and procedures were deemed ineffective at December 31, 2017 due to a material weakness involving inadequate segregation of duties, a need for a stronger control environment, and limited review of complex accounting matters. The company reported no material change in internal control over financial reporting during the period. It reported no material pending or threatened litigation and no off-balance-sheet arrangements.
Forward-looking outcomes are exposed to clinical and regulatory uncertainty, financing availability, competition, intellectual-property risks, reliance on third parties, and the company’s ability to control costs. The filing reported no material change to the risk factors in its prior Form 10-K.
Key facts for investors to verify
- Whether the planned debt and equity financings closed, on what terms, and whether they provided sufficient runway.
- The status and timing of AB101 cohort dosing and any subsequent clinical data, as well as development progress for RZ358 and the ActiveSite program.
- The timing and financial impact of XOMA’s cash, stock, put-option, milestone, royalty, and annual development-spend provisions.
- Cash burn, working capital, and the matured $10,000 note, including any repayment or restructuring.
- Remediation of the disclosed material weakness and whether disclosure controls became effective.
- Potential dilution from equity issuance, the Lincoln Park facility, outstanding options and warrants, and the January 2018 note warrant.