Filing Summary: RestorGenex Corporation
Entity note: The supplied filing is for RestorGenex Corporation, not Cervomed Inc. It is a Form 10-Q for the quarter and six months ended June 30, 2015; the financial statements are unaudited.
Business context
RestorGenex is a pre-revenue specialty biopharmaceutical company developing candidates in oncology, ophthalmology and dermatology. Its lead candidate, RES-529, has completed two Phase I studies for wet age-related macular degeneration and is in preclinical development for glioblastoma. RES-440, a candidate for acne, is also in preclinical development.
Financial performance and liquidity
| Metric | Three months ended June 30, 2015 | Six months ended June 30, 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.12 million | $2.67 million |
| General and administrative expense | $1.88 million | $3.84 million |
| Former employee severance expense | $0.97 million | $0.97 million |
| Net loss | $3.97 million | $7.49 million |
| Basic and diluted loss per share | $0.21 | $0.40 |
| Cash used in operating activities | $5.13 million for the six-month period |
At June 30, cash and cash equivalents were $16.47 million, working capital was $15.26 million, total assets were $36.65 million and total liabilities were $4.84 million. The company reported no debt and no interest expense; it had no credit facility. Operating margin is not meaningful because the company reported no revenue.
Changes versus prior comparable periods
- Quarterly net loss narrowed from $4.46 million in Q2 2014 to $3.97 million, while six-month net loss increased from $5.84 million to $7.49 million. The quarterly improvement partly reflects the absence of prior-year note-settlement losses and interest expense; 2015 included severance costs.
- R&D expense rose 318% for the quarter and 511% for the six-month period. G&A expense increased 55% and 73%, respectively, as the company expanded product-development spending and incurred higher compensation and stock-based compensation.
- Cash declined $5.41 million during the first half, versus a $26.88 million increase in the prior-year period, which included $32.01 million of financing proceeds. 2015 had no financing cash inflows.
- Cash used in operations was broadly unchanged year over year at $5.13 million versus $5.12 million.
Outlook, risks and unusual items
- Management expected available cash to fund planned operations at least into the second half of 2016, but cautioned that additional funds could be needed earlier. Future financing is uncertain and may dilute shareholders or require rights concessions; failure to secure funds could delay or curtail development.
- Management anticipated continuing losses and higher R&D spending, and expected G&A to rise to support development. It planned to prepare for a Phase I/II glioblastoma trial in 2016, wet AMD studies in 2016 subject to CMC and preclinical work, and acne studies in 2016.
- The company recorded $0.97 million in severance-related expense after resignations by senior personnel; $0.69 million remained accrued at quarter-end. Former Chief Scientific Officer David Sherris resigned effective June 19, 2015.
- In April 2015, RestorGenex transferred certain non-focus technology rights to Or-Genix for a 19.9% common ownership interest and purchased $250,000 of perpetual, non-redeemable preferred stock. Or-Genix was founded and is primarily owned by a former RestorGenex director and executive.
- Goodwill was $12.06 million. Management found no interim impairment trigger by June 30, but stated that a continuing share-price decline or failure of market capitalization to recover could lead to impairment testing and a possible loss.
- Future purchase obligations for RES-529 and RES-440 development were $2.15 million; total disclosed contractual obligations were $5.99 million. A former CEO’s lawsuit was ordered to arbitration; the company said the matter could have a material effect, but could not estimate a loss.
- The filing notes immaterial corrections and reclassifications to prior-period presentation. Management concluded disclosure controls were effective at quarter-end and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether cash burn, development spending and available financing support the stated runway into the second half of 2016.
- Progress and funding needs for RES-529 and RES-440, including the stated 2016 clinical-development plans.
- Potential goodwill impairment if the company’s market capitalization remains weak.
- Timing and potential financial exposure from the former CEO’s arbitration and the accrued severance and other contractual commitments.
- The terms, valuation and governance implications of the Or-Genix interests, particularly given the former executive’s relationship with that company.