Business Context and Reporting Period
Company: Oxygen Biotherapeutics, Inc. (formerly Synthetic Blood International, Inc.)
Filing Type: Form 10-K (Annual Report)
Period Ended: April 30, 2010
Business Overview: A development-stage biotechnology company focused on oxygen delivery to tissue. The company is primarily developing Oxycyte, a perfluorocarbon-based oxygen carrier for acute medical situations (e.g., traumatic brain injury). It also markets Dermacyte, a line of topical cosmetic products, and is developing Wundecyte for wound healing. The company has no significant operating revenues and relies on equity and debt financing.
Key Financial Metrics
| Metric | Year Ended April 30, 2010 | Year Ended April 30, 2009 |
|---|---|---|
| Revenue | $0 (No significant product revenue) | $0 |
| Net Loss | $(10,507,376) | $(33,218,840) |
| Loss Per Share (Basic & Diluted) | $(0.54) | $(2.88) |
| Research & Development Expense | $2,917,688 | $1,598,807 |
| Sales, General & Administrative Expense | $7,235,140 | $7,002,518 |
| Interest Expense | $154,998 | $24,856,041 |
| Cash and Cash Equivalents (End of Period) | $632,706 | $2,555,872 |
| Working Capital | $785,483 | $2,271,331 |
| Accumulated Deficit | $(81,467,578) | $(70,960,202) |
| Net Cash Used in Operating Activities | $(8,587,272) | $(4,057,633) |
| Net Cash Provided by Financing Activities | $7,205,828 | $2,276,341 |
Material Changes vs. Prior Period
- Net Loss Reduction: Net loss decreased significantly from $33.2 million in 2009 to $10.5 million in 2010. This was primarily driven by a $24.7 million decrease in interest expense due to the conversion of convertible notes payable into common stock in the prior year.
- Increased Operating Expenses: Research and Development (R&D) expenses increased by 82% ($1.3 million) due to costs associated with the Phase II-b clinical trials for Oxycyte in Switzerland and Israel, and the development of Dermacyte formulations. SG&A expenses increased slightly by 3% ($232,622) due to increased headcount (from 8 to 24 employees), travel costs, and board fees, partially offset by a reduction in stock-based compensation.
- Cash Flow: Net cash used in operating activities increased by $4.5 million, reflecting higher operational costs. Net cash provided by financing activities increased by $4.9 million, driven by proceeds from a securities purchase agreement with the Vatea Fund ($10 million) and a direct registered offering in May 2010 ($4.5 million), partially offset by the repurchase of warrants ($2.8 million).
- Inventory: The company recorded $535,090 in inventory for the first time, consisting of raw materials and finished goods for the Dermacyte cosmetic line.
Guidance, Outlook, Risks, and Unusual Items
- Going Concern: The company has an accumulated deficit of $81.5 million and requires substantial additional funding to complete clinical trials. The independent auditors have included an explanatory paragraph regarding substantial doubt about the company's ability to continue as a going concern. Management believes current resources will fund operations through the third quarter of fiscal 2011.
- Clinical Progress: Phase II-b clinical trials for Oxycyte (Traumatic Brain Injury) are underway in Switzerland, Israel, and India. A previous FDA clinical hold was resolved by filing revised protocols in foreign jurisdictions. The company plans to use these results to pursue FDA approval for Phase III trials.
- Commercialization: Dermacyte Concentrate began shipping in April 2010. The company is expanding sales channels to dermatologists and medical spas. Wundecyte entered preclinical testing in Q1 2011.
- Manufacturing Risk: The FDA issued a warning letter to the company's exclusive manufacturer, Hospira, regarding CGMP violations at its North Carolina facility. While current clinical supply is sufficient for several months, future commercialization depends on Hospira remedying these issues or finding a replacement manufacturer.
- Unusual Items: The company recorded a $114,193 impairment charge related to its investment in Glucometrics, Inc., due to the investee's inability to raise capital.
Investor Verification Checklist
- Liquidity Runway: Verify if the company has secured additional financing beyond the projected third quarter of fiscal 2011 to avoid operational delays.
- Manufacturing Status: Confirm the status of Hospira's remediation of FDA CGMP violations and the timeline for qualifying alternative manufacturers if necessary.
- Clinical Trial Enrollment: Monitor the progress and enrollment rates of the Phase II-b trials in Switzerland, Israel, and India, as delays could significantly impact the timeline for FDA Phase III approval.
- Dermacyte Revenue: Assess actual sales performance of the Dermacyte cosmetic line to determine if it can generate meaningful revenue to offset operating losses.
- Dilution Risk: Review the terms of the Vatea Fund agreement and recent equity offerings to understand potential future dilution to existing shareholders.