Oragenics, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The financial statements are unaudited and reflect the company before its May 1, 2020 acquisition of Noachis Terra.
Business context
Oragenics is a development-stage biotechnology company with programs in oral mucositis (AG013), lantibiotic antibiotics (including OG716), and—following the subsequent Noachis Terra acquisition—the TerraCoV2 vaccine candidate. The company reported no significant operating revenue and continues to fund research and development primarily through external financing.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | No significant operating revenue | No significant operating revenue |
| Research and development expense | $3.713 million | $2.414 million; up 53.8% |
| General and administrative expense | $1.519 million | $0.980 million; up 54.9% |
| Total operating expenses | $5.232 million | $3.394 million |
| Net loss | $5.188 million | $3.326 million |
| Basic and diluted loss per share | $0.11 | $0.11 |
| Cash used in operating activities | $3.823 million | $2.211 million |
| Cash and cash equivalents at quarter-end | $14.372 million | $18.268 million at Dec. 31, 2019 |
| Working capital | $12.675 million | $16.988 million at Dec. 31, 2019 |
| Total assets | $15.562 million | $19.753 million at Dec. 31, 2019 |
| Accumulated deficit | $133.202 million | $127.353 million at Dec. 31, 2019 |
There is no meaningful gross margin or operating margin to report because the company had no significant operating revenue. Research and development spending increased primarily from higher ECC collaboration costs; G&A growth was driven principally by stock-based compensation. Stock-based compensation totaled $865,110, versus $145,829 a year earlier. Interest income declined to $44,515 from $70,090.
Quarter-end current liabilities were $2.025 million, including $70,847 of short-term notes payable. Operating lease liabilities totaled $795,587 ($167,864 current and $627,723 long term). The filing reports no conventional long-term borrowings beyond lease obligations. Financing activities used $73,017 in Q1 2020; Q1 2019 financing provided $11.352 million, primarily from a public offering.
Material changes and developments
- Net loss increased by approximately $1.862 million year over year, while operating cash use increased by approximately $1.612 million.
- On April 15, 2020, after quarter-end, the company reported that AG013 did not achieve statistical significance on the Phase 2 trial’s primary endpoint of severe oral mucositis duration versus placebo. Top-line safety information was described as acceptable; further analyses were pending to assess possible subgroup effects.
- On May 1, 2020, the company acquired Noachis Terra for $1.925 million cash, 9.2 million restricted common shares, and warrants for 9.2 million shares at $1.25. The seller also became entitled to specified shares of proceeds from certain outstanding warrant exercises. The acquired business holds a nonexclusive NIH/NIAID license related to the TerraCoV2 vaccine candidate.
- Following the AG013 top-line announcement, 9,545,334 short-term $0.75 warrants expired unexercised on May 14, 2020; 38,000 had previously been exercised. The filing reported 26,155,259 total warrants outstanding as of May 15, 2020. The acquisition-related shares and warrants also create potential dilution, subject to their terms and applicable approvals.
- At March 31, 2020, 46,124,803 common shares were outstanding; the filing reported 55,362,803 shares outstanding as of May 15, 2020.
Outlook, risks, and contingencies
- Management expected available working capital to fund the business as then structured through the first quarter of 2021, but stated there was substantial doubt about the company’s ability to continue as a going concern beyond that point. Additional financing is required, and no committed financing source was disclosed.
- Management expects substantial development spending and stated that costs may rise as the company advances TerraCoV2 and other programs. Financing may come from equity or debt offerings, grants, licensing, partnerships, or other arrangements; availability and terms are uncertain. Failure to obtain funding could force delays, program reductions, or discontinued development and may dilute shareholders.
- Key execution risks include preclinical and clinical outcomes, regulatory approval, manufacturing and trial costs, reliance on collaboration and licensing partners, and potential COVID-19-related disruption to the company, contractors, suppliers, or regulators. BARDA funding was pending and not assured.
- Under collaboration agreements, significant contingent payments may become due upon regulatory milestones: up to $25 million for specified lantibiotic approval milestones and $27.5 million for the oral mucositis regulatory-approval milestone, with additional indication/product milestones and royalties or sublicensing payments. None of the stated milestones had been achieved as of March 31, 2020.
- Series C preferred stock carries a 20% annual dividend rate after May 10, 2019, payable in additional preferred shares; the Q1 2020 dividend increased its recorded amount by $661,458. The company also disclosed substantial accumulated losses and a full valuation allowance against deferred tax assets.
- Management concluded disclosure controls were effective as of March 31, 2020 and reported no material change in internal control over financial reporting. The company disclosed no material pending legal proceedings.
Most important facts for investors to verify
- Whether the company secured sufficient financing after quarter-end, including the status and terms of any BARDA award, partnerships, or securities offerings.
- Cash runway and expected post-acquisition cash needs, including the impact of the $1.925 million acquisition payment and TerraCoV2 development plans.
- Full AG013 Phase 2 results and whether further analyses support efficacy in any subgroup despite failure on the primary endpoint.
- TerraCoV2 development, license conditions, preclinical plans, and required regulatory and manufacturing milestones.
- Current shares and warrants outstanding, exercise restrictions, potential dilution, and the contingent consideration payable from specified warrant proceeds.
- Potential collaboration milestone, royalty, lease, and Series C preferred-stock obligations and their impact on liquidity.