Dermata Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2021. The unaudited statements cover a clinical-stage biotechnology company developing treatments for skin conditions. Dermata reported no revenue and has not commercialized a product. In March 2021, it converted from an LLC to a Delaware corporation; a 1-for-20.5 reverse stock split took effect July 1, 2021.
Financial performance and position
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $867,197 | $1,547,785 |
| General and administrative expense | $462,772 | $2,043,957 |
| Total operating expenses | $1,329,969 | $3,591,742 |
| Net loss | $1,331,792 | $3,636,700 |
| Basic and diluted loss per share | $0.70 | $1.90 |
Cash flow: Net cash used in operations was $1,679,433 for the six months, versus $2,122,956 in the first half of 2020. Financing activities provided $1,576,235, and cash declined $103,198 to $427,202.
Liquidity and debt at June 30: Cash was $427,202; current assets were $1,136,864 and current liabilities were $1,642,666, a working-capital deficit of $505,802. Current liabilities included $174,844 of convertible subordinated notes, net of discount. No long-term debt remained outstanding; the company had repaid its bank term loan during the first half. Accumulated deficit was $31,716,498. Gross margins are not applicable because the company had no revenue.
Changes versus the prior comparable period
- Second-quarter operating expenses rose $537,183 year over year; net loss increased $510,143 to $1,331,792. R&D increased $455,248, reflecting higher clinical, nonclinical, manufacturing, salary and stock-compensation costs.
- For the first half, operating expenses increased $1,450,379 and net loss increased $1,393,878 versus 2020. G&A rose $1,275,647, including higher salary and stock-based compensation, professional fees tied to the corporate conversion, and patent costs. R&D increased $174,732.
- First-half operating cash use was lower than in 2020 despite the larger net loss, primarily reflecting noncash stock-based compensation and increases in accounts payable and accrued liabilities.
- Interest expense declined year over year, in part because of lower debt-discount amortization and the repayment of the bank debt.
Outlook, risks and unusual items
- Management expected the August 2021 IPO proceeds to fund operations into October 2022. The IPO closed after quarter-end, raising approximately $18.0 million gross and $15.7 million net. The filing nevertheless states that substantial doubt about the company’s ability to continue as a going concern remained; management said future development will require additional capital.
- Management planned to advance DMT310 for acne, psoriasis and rosacea, including completing the ongoing psoriasis Phase 2 program, initiating a rosacea Phase 2 trial, and completing planned acne nonclinical and pharmacokinetic studies. It also planned continued research on DMT410 for aesthetic conditions. Management cautioned that available capital could be used sooner than estimated and additional financing may not be available on acceptable terms.
- On July 30, 2021, a license amendment settled disputes with Villani. In exchange for Villani’s Series 1c preferred shares, Dermata agreed to revised license economics, including up to $3.5 million in development milestones, $37.0 million in sales milestones, and sublicense fees of 10%–30% of sublicense revenues. Dermata paid Villani $1.0 million after the IPO. Royalties remain single-digit percentages of net sales, subject to contract terms.
- Key risks include clinical and regulatory uncertainty, reliance on third-party manufacturers and research organizations, intellectual-property protection, future financing needs, and possible COVID-19 effects on development activities. The filing reported no material litigation and no off-balance-sheet arrangements.
- Management found disclosure controls ineffective as of June 30, 2021, citing a material weakness: no control ensured material contracts were reviewed by accounting personnel for proper accounting and disclosure. A remediation plan was being prepared; the weakness was not yet considered remediated.
Important facts for investors to verify
- Whether the IPO proceeds and subsequent spending support the stated runway, and whether additional financing will be needed earlier than expected.
- Progress, timing and results of DMT310 clinical and nonclinical programs, and the regulatory path for each indication.
- The full economic and operational impact of the Villani amendment, including milestone triggers, sublicense fees, royalties and development obligations.
- Whether the material weakness is remediated and whether controls over contracts and financial reporting operate effectively.
- Potential dilution from IPO warrants, preferred securities, stock options and other outstanding warrants; the filing reported 4,601,337 potentially dilutive securities at June 30, 2021, before the subsequent IPO.