AzurRx BioPharma, Inc. — Q1 2020 Form 10-Q
Entity note: The request metadata names Gridai Technologies Corp., but the supplied filing is for AzurRx BioPharma, Inc. (Nasdaq: AZRX). This summary reflects the filing provided.
Business context and reporting period
Unaudited consolidated results cover the three months ended March 31, 2020, compared with the same 2019 period. AzurRx is a clinical-stage biotechnology company focused on MS1819, a recombinant lipase candidate for exocrine pancreatic insufficiency associated with cystic fibrosis and chronic pancreatitis. The company reported no product revenue and cautioned that interim results are not necessarily indicative of full-year results.
Key financial metrics
| Metric | Q1 2020 / March 31, 2020 | Prior period / December 31, 2019 |
|---|---|---|
| Revenue | $0 | $0 in Q1 2019 |
| Research and development expense | $1.55 million | $3.01 million in Q1 2019 |
| General and administrative expense | $1.38 million | $1.59 million in Q1 2019 |
| Operating loss | $2.93 million | $4.60 million in Q1 2019 |
| Interest expense | $2.33 million | $57,111 in Q1 2019 |
| Net loss | $5.26 million; $0.20 per share | $4.66 million; $0.26 per share in Q1 2019 |
| Cash and cash equivalents | $1.63 million | $175,796 at December 31, 2019 |
| Net cash used in operating activities | $1.29 million | $2.63 million in Q1 2019 |
| Current assets / current liabilities | $2.90 million / $5.14 million | Negative working capital of approximately $2.2 million at quarter-end |
| Convertible debt | $2.99 million carrying value; $6.90 million principal outstanding | $1.08 million carrying value at December 31, 2019 |
| Total assets / stockholders’ equity | $8.18 million / $3.04 million | $8.90 million / $4.62 million at December 31, 2019 |
Margins are not meaningful because the company had no revenue. Cash-flow funding included $3.23 million net proceeds from convertible debt and $144,000 from its equity line; operating cash use was partly offset by collection of French R&D tax credits. The filing’s cash-flow statement reports investing cash use of $4,340 and financing cash provided of $2.76 million, while MD&A gives different amounts ($5,080 and $2.75 million); investors should reconcile this inconsistency.
Material changes versus the prior comparable period
- R&D expense fell 48%, mainly due to lower clinical-trial spending, including recruitment delays in the Combination Trial; management expected R&D spending to increase as studies and manufacturing activities progressed.
- G&A expense decreased 14% as reported, although cash G&A expense increased about 8% after excluding specified non-cash items.
- Net loss increased by approximately $601,000 despite lower operating expenses, largely because interest expense rose sharply. The company attributed this to debt-discount amortization and accrued interest on convertible notes; debt-discount accretion alone was $2.06 million.
- Cash rose from $176,000 at year-end, primarily reflecting financing and receipt of approximately $1.77 million in 2017–2018 French R&D tax credits. Convertible-note principal increased to $6.90 million, with $3.52 million of unamortized discounts and costs reducing the reported carrying value.
Outlook, risks, contingencies and unusual items
- Going concern: The company reported recurring losses, negative operating cash flows, negative working capital and a $67.9 million accumulated deficit, and stated that these conditions raise substantial doubt about its ability to continue as a going concern. Further equity or debt funding is needed to fund operations and meet obligations.
- Debt and dilution: The $6.90 million principal of senior convertible notes matures September 20, 2020, bears 9% interest and is convertible at $0.97 per share. The filing also reports 7.39 million outstanding warrants and 1.998 million options. The LPC equity facility permits additional share issuance; the company sold 150,000 shares for $144,000 in Q1.
- Clinical outlook: The OPTION 2 Phase 2b trial had FDA protocol review without comments and received U.S. site and IRB approvals in April 2020. Management expected initiation by the end of Q2 2020, enrollment completion in Q4 2020 and study completion in Q1 2021, subject to COVID-19 delays. Combination Trial topline results were delayed to Q1 2021 from the original end-2020 expectation.
- Other subsequent events: After quarter-end, the company reported $456,698 gross proceeds from LPC share sales, received approximately $721,000 in French R&D tax credits, and returned an approximately $180,000 PPP loan after reviewing updated eligibility guidance.
- Listing and legal matters: Nasdaq notified the company in March 2020 that its share price did not meet the $1 minimum bid requirement; the initial compliance deadline was September 21, 2020. Although the filing reports no legal proceedings, it describes a former CEO’s disputed bonus claim and negotiations over amounts potentially due to him or his controlled consulting company.
- Management expected cash G&A expense to remain relatively flat for the rest of 2020. The company terminated its TransChem sublicense agreement, with notice given in March.
Most important facts for investors to verify
- Whether the company secured sufficient financing, and the status and repayment, extension or restructuring of the September 2020 convertible notes.
- Actual cash runway, subsequent cash balances and the reconciliation of the cash-flow figures that differ between the statements and MD&A.
- Whether the OPTION 2 and Combination Trial timelines were achieved and how COVID-19 affected enrollment, costs and results.
- Current share count and potential dilution from convertible notes, warrants, options and further LPC equity-line usage.
- Whether Nasdaq minimum-bid compliance was regained and the eventual resolution of the former CEO-related disputed amounts.