ABVC BIOPHARMA, INC. (American BriVision (Holding) Corporation) — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. The filing identifies the registrant as American BriVision (Holding) Corporation. Amounts are in U.S. dollars unless stated otherwise.
Business context
The company is a clinical-stage biotechnology and medical-device developer focused on plant-derived products, alongside BioKey’s contract development and manufacturing (CDMO) services. Its strategy is generally to advance candidates through early clinical development and seek licensing partners rather than build commercial distribution operations. The company reports limited revenue and has not yet earned royalties from its collaborations.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $115,553 | $197,733 | $420,852 | $601,757 |
| Gross profit | $106,934 | $194,936 | $404,038 | $584,109 |
| Gross margin | 92.5% | 98.6% | 96.0% | 97.1% |
| Operating expenses | $1,396,700 | $1,310,558 | $4,059,195 | $2,919,104 |
| Operating loss | $(1,289,766) | $(1,115,622) | $(3,655,157) | $(2,334,995) |
| Net loss | $(2,131,131) | $(1,329,685) | $(5,624,450) | $(2,817,454) |
| Net loss attributable to ABVC | $(1,846,046) | $(1,214,859) | $(4,942,881) | $(2,564,105) |
| Basic and diluted loss per share | $(0.09) | $(0.06) | $(0.25) | $(0.15) |
- Revenue declined about 42% year over year in Q3 and 30% over the nine-month period. Management attributed the decline primarily to COVID-19-related customer project delays in the CDMO business.
- At September 30, 2020, cash and cash equivalents were $135,705, with $16,148 of restricted cash. The company used $2,375,873 in operating cash flow during the first nine months; investing activities used $332,539 and financing activities provided $2,698,793. Ending cash and cash equivalents in the cash-flow statement were $151,853, including restricted cash.
- Current assets were $1,177,789 versus current liabilities of $6,045,547, a working-capital deficit of $4,867,758. Total assets were $6,529,385, total liabilities $7,721,225, and total equity was a deficit of $1,191,840.
- Current obligations included $1,698,750 of short-term bank loans, $500,000 of convertible notes, a $100,000 short-term loan, $126,917 of notes payable, and $124,400 under the PPP loan. Operating lease liabilities totaled $1,842,988, of which $311,740 was current.
Material changes and unusual items
- Nine-month net loss roughly doubled year over year. SG&A rose 73% to $3,692,821, which management attributed mainly to marketing, up-listing-related and salary expenses; R&D fell 53% to $366,374, mainly because of fewer milestone payments.
- Other expense for the nine months was $2,103,240, including a $952,711 impairment loss on an equity investment, a $38,272 investment loss and $1,067,298 in equity-method investment losses. The latter was principally associated with BioFirst, a related party.
- Nonemployee stock-based compensation was approximately $999,820 for the nine months. The filing also reports a $1,697,051 May private placement and $456,180 of additional private-placement proceeds recorded as subscribed stock at quarter-end; it reports 20,393,903 common shares outstanding at September 30.
- Related-party balances were significant: $632,517 due from related parties and $146,078 in related-party receivables at quarter-end. The company also advanced $469,627 to related parties during the period, per the cash-flow statement.
Outlook, risks and contingencies
- Management expected to seek a commercialization partner for Vitargus in 2021 and reported that Vitargus’ first-in-human Phase I study found it well tolerated, with no apparent ocular-tissue toxicity in 11 participants. These findings are preliminary and do not establish regulatory approval or commercial success.
- Management’s stated priorities include advancing Vitargus, pursuing licensing for ABV-1504 after Phase II, and completing ABV-1505 Phase II Part 2. It reported positive ABV-1504 Phase II results in 2019; a small ABV-1505 Phase II Part I report was announced after quarter-end.
- After quarter-end, the company reported a November 2020 equity-and-warrant financing with $5 million in aggregate net proceeds and a separate $2.5 million convertible note bearing 10% interest. It also reported an October share issuance in lieu of unpaid salaries. These subsequent financings are not September 30 cash balances.
- COVID-19, delays in customer projects and clinical timelines, competition, market volatility, and the company’s ability to contain costs and raise capital are identified risks. The filing does not provide a quantified cash runway or specific financial guidance.
- Management concluded disclosure controls and procedures were not effective as of September 30, 2020 and described remediation plans involving staff training and external consultants. No legal proceedings were reported. Management stated there were no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Near-term liquidity and ability to fund operations: reconcile the low unrestricted cash balance, working-capital deficit and operating cash burn against the subsequent financings and obligations due.
- Terms, closing proceeds and dilution from the equity, warrant and convertible-note financings, including warrants issued with note conversions and private placements.
- Recoverability and valuation of investments, particularly related-party investments and balances; confirm the basis for the $952,711 impairment and $1,067,298 equity-method loss.
- Clinical-trial status, next milestones, regulatory requirements and partner prospects for Vitargus and the drug pipeline; distinguish reported preliminary findings from demonstrated efficacy and approval.
- Remediation of ineffective disclosure controls and the company’s capacity to improve financial reporting processes.
- Revenue comparison: the financial statements report Q3 2019 revenue of $197,733, while one MD&A sentence states $191,733; verify the intended comparable-period figure.