Filing summary
Entity and period discrepancy: The supplied filing is for Senesco Technologies, Inc. and its subsidiary, not Eloxx Pharmaceuticals, Inc. It reports the three months ended September 30, 2012, Senesco’s first fiscal quarter of fiscal 2013, and was filed November 14, 2012. The financial statements are unaudited.
Business context
Senesco was a development-stage biotechnology company developing gene-based technologies for human therapeutics and agricultural applications. Its lead therapeutic candidate, SNS01-T, was in a Phase 1b/2a dose-escalation study for multiple myeloma and certain B-cell lymphomas. The company also licensed agricultural applications to partners. It reported nine active agricultural license agreements and no meaningful operating revenue.
Key financial metrics
| Metric | Quarter ended September 30, 2012 | Comparable 2011 period |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1.246 million | $1.280 million |
| Operating loss | $1.246 million | $1.280 million |
| Net loss | $2.085 million | $1.039 million |
| Loss applicable to common shares | $2.710 million | $1.948 million |
| Basic and diluted loss per share | $0.03 | $0.02 |
| Net cash used in operating activities | $636,454 | $1.090 million |
| Cash and cash equivalents at period end | $1.312 million | $2.842 million |
Margins are not meaningful because the company had no quarterly revenue. Research and development expense was $513,433, down 27.9% year over year; general and administrative expense was $732,720, up 13.5%. The net loss included a $785,171 loss on extinguishment of debt and a $20,148 warrant-liability fair-value expense. Preferred dividends were $624,169.
At September 30, 2012, total assets were $6.260 million, total liabilities $3.631 million, and stockholders’ equity $2.629 million. Current assets were $2.772 million versus current liabilities of $3.436 million, resulting in a $664,562 working-capital deficit. The company had $2.199 million outstanding on a line of credit, bearing interest at the broker rate plus 2% (3.75% broker rate at quarter end); the facility allowed up to $3 million subject to restrictions and suitable collateral.
Changes, financing and capital structure
- Net loss increased by $1.046 million, or 100.7%, despite lower operating expenses. Management attributed the increase primarily to non-operating expense and higher G&A.
- Operating cash use improved by about $454,000 from the prior-year quarter. Investing activities used $146,998, mainly for patent costs; financing activities provided $94,183, primarily from ATM share sales.
- Cash declined by $689,269 during the quarter. The company said its cash was expected to fund operations through December 2012; use of available credit and cost deferrals could extend this to at least March 31, 2013. It planned to raise additional capital to support operations through at least September 2013, but could not assure financing would be available on acceptable terms.
- Common shares outstanding rose from 94.1 million at June 30 to 116.8 million at September 30. The quarter included preferred-stock conversions, common shares issued for dividends, and a warrant exchange. The filing reported 59.6 million potentially dilutive shares, including conversion shares and options and warrants.
Outlook, developments and principal risks
- Going concern and funding: The filing states recurring losses and negative operating cash flows raised substantial doubt about the company’s ability to continue as a going concern; the prior-year auditor report included an explanatory paragraph on this uncertainty. Management expected continuing losses for several years and could not predict when, if ever, the company would become profitable. Without new financing, it might curtail research, seek partners or a sale, cease operations, or file for bankruptcy.
- Clinical program: The company reported that the first SNS01-T clinical-trial cohort showed the candidate was safe and well tolerated, with stable disease in two of three evaluable patients; it was treating patients in the second cohort. These early findings do not establish efficacy or predict later-stage results.
- Listing and trading: Senesco expected delisting from NYSE MKT after failing to regain compliance with continued-listing standards. It intended to seek OTC quotation; delisting could reduce liquidity, impair access to financing, and cause the stock to be treated as a penny stock.
- Other material risks: The business depended on unproven technology, third-party research and commercial partners, patent protection, and successful regulatory and clinical outcomes. Additional risks included dilution from future financing and outstanding securities, potential manufacturing and supply constraints, competition, and product-liability exposure.
- Other items: No legal proceedings or off-balance-sheet arrangements were reported. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. No formal financial guidance was provided.
Important facts for investors to verify
- Confirm issuer identity and period: this filing is Senesco Technologies’ September 2012 quarterly report, not an Eloxx Pharmaceuticals filing.
- Check the company’s subsequent cash position, financing, and actual runway against the stated December 2012 and March 2013 estimates.
- Verify the outcome and timing of NYSE MKT delisting and any subsequent OTC or exchange quotation.
- Review subsequent SNS01-T clinical disclosures; the first-cohort results were preliminary and based on only three evaluable patients.
- Assess dilution and capital-structure changes, including preferred conversions, warrant exchanges, and outstanding options and warrants.