Cocrystal Pharma, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Cocrystal is a clinical-stage biopharmaceutical company developing antiviral drug candidates. The financial statements are unaudited and report dollar amounts in thousands unless otherwise noted.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | No revenue amount is reported; the company says it has no products approved for sale and no ongoing revenue sufficient to cover operating costs. | |||
| Research and development expense | $3,872 | $2,105 | $9,105 | $6,061 |
| General and administrative expense | $1,822 | $1,848 | $4,530 | $4,458 |
| Total operating expenses | $5,694 | $3,953 | $34,327 | $10,519 |
| Net loss | $5,700 | $3,941 | $34,336 | $10,500 |
| Net loss per share | $0.70 | $0.48 | $4.23 | $1.44 |
Margins are not meaningful because the company reports no revenue. The nine-month 2022 loss includes a $19,092 non-cash goodwill impairment and a $1,600 legal-settlement expense. Excluding those unusual items, the reported loss was still higher year over year as research and development spending increased.
- Cash and liquidity: At September 30, 2022, cash was $42,056 and restricted cash was $75, versus cash of $58,705 and restricted cash of $50 at December 31, 2021. Management said unrestricted cash was sufficient for planned operations for the next 36 months.
- Cash flows: Nine-month operating cash use was $16,542, compared with $9,797 in 2021; investing cash use was $62 versus $44; financing cash use was $20 versus $38,475 of financing inflows in 2021. The 2021 financing included a public offering.
- Debt and liabilities: Total liabilities were $1,738, including $346 of operating lease liabilities and $14 of current finance lease liabilities. The filing reports no material conventional borrowing balance.
- Equity and assets: Total assets were $45,647 and stockholders’ equity was $43,909, compared with $79,392 and $77,549, respectively, at year-end 2021. Goodwill fell from $19,092 to zero following the impairment.
Changes and operating developments
- Q3 research and development expense increased $1,767 year over year, primarily due to the influenza CC-42344 clinical trial and advancement of the COVID-19 program. Nine-month R&D expense rose $3,044.
- For CC-42344, the company reported completion of the single-ascending-dose portion of its Phase 1 study and completion of enrollment in October 2022. It expected to report top-line Phase 1 results in 2022 and planned to seek UK authorization for a human-challenge Phase 2a study in early 2023, with the study expected to begin in the second half of 2023 if cleared.
- The company planned a Phase 1 study of COVID-19 candidate CDI-988 in Australia in Q1 2023. CDI-45205 remained in IND-enabling development; the company also reported a nonclinical evaluation collaboration with NIAID.
- The company expected to select a norovirus lead compound in the first half of 2023. Merck continued development of influenza A/B compounds under its collaboration, after Cocrystal completed its research obligations.
- In August 2022, Cocrystal engaged hVIVO for a Phase 2a influenza trial; the estimated agreement cost was approximately $7.2 million, including a $1.7 million reservation fee.
Outlook, risks, and unusual items
- Management expected R&D expense to continue increasing as influenza clinical work and COVID-19 preclinical development progressed. The company has not established sufficient recurring revenue and may need additional capital; future financing availability and terms are uncertain, and equity financing could dilute shareholders.
- Goodwill was fully impaired in Q2 2022 after a significant decline in the share price and market capitalization. This $19,092 charge was non-cash.
- In an insurance dispute, the court awarded Liberty Insurance $1,359,063 in June 2022. Cocrystal appealed and deposited $1.6 million as security; the company recorded a $1.6 million judgment expense, inclusive of estimated costs. The appeal outcome is uncertain.
- COVID-19-related supply-chain, raw-material, test-animal, and service-provider constraints had delayed research activities and could cause further delays. The filing also cites clinical-trial recruitment, regulatory, competition, partner, inflation, and financing risks.
- A one-for-12 reverse stock split became effective October 11, 2022, after quarter-end. Share and per-share data in the filing are retroactively restated for the split. The company approved issuance of 20,841 additional shares in October to round up fractional shares.
Key facts for investors to verify
- Whether the stated 36-month cash runway remains supportable given the higher operating cash use and planned clinical-trial spending.
- Progress and results for CC-42344 Phase 1 and the timing and regulatory clearance of its planned Phase 2a trial.
- Development milestones and funding needs for CDI-988, CDI-45205, and the norovirus program.
- Status and accounting treatment of the $1.6 million court deposit, and the outcome of the insurance appeal.
- Potential need for additional capital, the terms of any financing, and resulting dilution following the reverse split.