ORAGENICS INC quarterly report, Q2 FY2018

Full document

Business context and reporting period

Oragenics, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2018. The clinical-stage biotechnology company is developing AG013 for oral mucositis and lantibiotic antibiotic candidates. It reports no current operating revenue following the 2016 sale of its consumer probiotics business.

Financial results and liquidity

  • Revenue: $0 for the three and six months ended June 30, 2018; revenue-based margins are not applicable.
  • Net loss: $2.28 million for Q2 2018, compared with $1.22 million in Q2 2017; $4.40 million for the first half of 2018, compared with $3.20 million in the first half of 2017. Loss per share was $0.38 and $0.80, respectively, in 2018.
  • Operating expenses: Q2 R&D was $1.27 million (+110% year over year) and G&A was $1.01 million (+28%). First-half R&D was $2.60 million (+50%) and G&A was $1.81 million (+9%). The company attributed higher R&D mainly to increased Intrexon collaboration costs.
  • Cash flow: First-half operating cash use was $3.65 million, versus $3.67 million in 2017. Financing activities provided $1.42 million, and cash declined $2.23 million to $3.94 million.
  • Balance sheet at June 30: Current assets were $5.20 million, current liabilities $1.56 million, and working capital $3.64 million. Total assets were $5.21 million; shareholders’ equity was $3.65 million. Short-term notes payable were $20,912.
  • Funding after quarter-end: The July 17 public offering raised approximately $13.8 million gross and $12.3 million net. Pro forma shareholders’ equity, adding the net proceeds, was reported as $15.95 million.

Material changes versus the prior comparable period

Losses increased year over year in both the quarter and first half, driven principally by higher R&D spending on collaboration programs. In Q2 2017, a $231,644 gain from a change in derivative liability contributed to other income; there was no comparable gain in 2018. Cash was $3.94 million at June 30, 2018, down from $6.17 million at December 31, 2017. Common shares outstanding increased from 4,928,335 at year-end 2017 to 6,102,635 at June 30, 2018; the filing says historical share data reflects the January 2018 one-for-ten reverse split.

Outlook, commentary, risks and unusual items

  • Management stated that cash at June 30, together with the subsequent public offering, was expected to fund the business as presently structured through June 2019. The filing also states there is substantial doubt about the company’s ability to continue as a going concern beyond that date; further financing will be needed, with no assurance it will be available on acceptable terms.
  • AG013’s Phase 2 trial continued after an interim safety review by an independent Data Safety Monitoring Board. The board recommended proceeding without study changes; reported adverse-event profiles were similar between AG013 and placebo, and no bacteremia or sepsis was reported in the reviewed data. The company expected top-line Phase 2 results in late 2019.
  • The timing of an OG716 investigational new drug filing depends on completing required studies and having sufficient funding. The company expects R&D and G&A expenditures to rise as development proceeds.
  • Potential dilution is substantial: the July offering issued common shares, convertible Series D preferred shares and warrants. The filing identifies 13.8 million offering warrants and 9.364 million Series D shares convertible into common stock, in addition to earlier preferred shares and warrants.
  • Collaboration and license agreements include significant contingent payments. Among them, Intrexon milestone payments include $25 million upon specified lantibiotic regulatory approval and $27.5 million upon specified oral mucositis regulatory approval, with additional payments for new indications or products. None of the cited Intrexon or Texas A&M milestones had been achieved as of June 30, 2018.
  • The MD&A says financing activities “used” $1,421,846 in the first half of 2018, but the cash flow statement reports that financing activities provided that amount. The filing’s cash-flow statement also reports a net cash decrease consistent with financing inflows; this discrepancy should be checked.

Most important facts for investors to verify

  1. Whether the $12.3 million net offering proceeds and current spending plan support operations through June 2019, and the company’s financing needs thereafter.
  2. Enrollment progress, safety and efficacy results, and the timing of the AG013 Phase 2 readout.
  3. OG716 development milestones, required study costs and the timing of any IND filing.
  4. The potential dilution and economic terms of outstanding preferred stock, warrants and the July 2018 offering securities.
  5. The financing cash-flow wording discrepancy in MD&A and the precise terms and possible future impact of contingent collaboration and license payments.