Gridai Technologies Corp. quarterly report, Q1 FY2018

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Business context and reporting period

The filing is AzurRx BioPharma, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2018—not a filing identified as Gridai Technologies Corp. The company is a pre-revenue biopharmaceutical developer focused on non-systemic treatments for gastrointestinal disorders. Its lead program, MS1819-SD, was in a Phase IIa trial; its AZX1103 program was preclinical.

Financial performance and position

  • Revenue and margins: The company reported no revenue. Gross profit and operating margins are not applicable.
  • Expenses and loss: Research and development expense was $1.68 million, up $1.14 million year over year, primarily reflecting MS1819-SD trial milestones and production of new batches. General and administrative expense was $1.92 million, down $258,000. Net loss was $3.63 million versus $2.81 million; basic and diluted loss per share was $0.29 in both periods.
  • Cash flow: Operating cash use was $2.21 million, compared with $1.17 million in the prior-year quarter. Investing cash use was $30,000. Financing provided $2.25 million, principally from warrant exercises. Cash at quarter-end was $574,000.
  • Liquidity: Current assets were $1.81 million and current liabilities were $2.82 million, implying negative working capital of approximately $1.01 million. Accumulated deficit was $37.62 million. Management estimated that cash resources, including subsequent financing, would fund operations until July 2019.
  • Debt and obligations: Current note payable was $80,000 and convertible debt, net, was $235,000. Contingent consideration was $1.33 million. Operating lease commitments totaled $238,000 through 2020.

Material changes versus the prior comparable period

  • R&D expense more than tripled, while G&A expense declined. The reported net loss increased by $824,000.
  • Operating cash use increased by approximately $1.05 million. Cash remained nearly flat from year-end, supported by $2.32 million of common-stock proceeds from warrant exercises, partly offset by operating and investing outflows and note repayments.
  • Shares outstanding rose to 12.60 million at March 31 from 12.04 million at December 31, 2017. The company reported 16.76 million shares issued and outstanding as of May 14, 2018.
  • In May 2018, after quarter-end, the company sold 4.16 million shares at $2.50 per share, generating $10.4 million gross and approximately $9.4 million net proceeds. It also issued warrants to underwriters and an adviser, adding potential dilution.

Outlook, commentary, risks and unusual items

  • Management expected MS1819-SD Phase IIa results in the second half of 2018. An April update on the first nine patients reported dose-related activity, including greater than 21% improvement in coefficient of fat absorption in the highest-dose cohort’s evaluable patients, and no serious adverse events reported at that time.
  • The company expected to file an IND for AZX1103 by the end of 2018 and said it had no immediate plans to continue AZX1101 development. It described positive preclinical AZX1103 findings, which are not evidence of clinical efficacy or safety in humans.
  • Management expects R&D costs to rise as candidates progress through trials and G&A costs to increase as the company moves toward commercialization. The company states that it will require additional financing for development, regulatory work, operations and potentially acquisitions; financing may not be available on acceptable terms.
  • The company has incurred recurring losses and negative operating cash flows. Its statements are prepared on a going-concern basis; management’s July 2019 runway estimate incorporates the post-quarter warrant exercises and May offering, not just quarter-end cash.
  • Unusual items included a $429,000 warrant-modification charge and a $10,000 reduction in the fair value of contingent consideration. A further €1.0 million payment to Mayoly would be due upon FDA approval of MS1819-SD; no contingent liability was recorded. The Protea acquisition agreement also provides for milestone, royalty and transaction-value payments.
  • The company reported no legal proceedings and no material changes to the risk factors in its 2017 Form 10-K. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.

Important facts for investors to verify

  1. Confirm the issuer identity: the supplied metadata names Gridai Technologies Corp., while the filing text identifies AzurRx BioPharma, Inc.
  2. Reconcile the stated July 2019 cash runway with the timing and net proceeds of warrant exercises and the May 2018 public offering, and assess subsequent cash burn and financing needs.
  3. Track MS1819-SD trial results, enrollment, safety findings and timing; distinguish preliminary open-label results from completed, controlled clinical evidence.
  4. Verify AZX1103’s IND filing and development progress, and monitor whether the company resumes or discontinues AZX1101.
  5. Assess potential dilution from the May offering, outstanding warrants and options, and any future equity financing; review debt maturity and contingent payment terms.