GT Biopharma, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. GT Biopharma is a clinical-stage biopharmaceutical company developing TriKE and TetraKE immunotherapy platforms. It had no approved product candidates and generated no product or licensing revenue.
Financial performance and position
- Revenue: None reported; the company stated it had not generated licensing revenue.
- Q2 2020: Operating expenses were $1.558 million and net loss was $8.779 million, or $0.12 per basic and diluted share. Q2 2019 net loss was $2.789 million, or $0.05 per share.
- First half 2020: Operating expenses were $2.628 million and net loss was $10.487 million, or $0.15 per share, compared with a $7.299 million loss, or $0.14 per share, in first half 2019.
- Expenses and margins: R&D was $12,000 in Q2 and $336,000 for the half, down from $154,000 and $988,000, respectively. SG&A was $1.546 million in Q2 and $2.292 million for the half, down from $2.125 million and $5.347 million. Revenue-based margins are not meaningful because there was no revenue.
- Cash flow: First-half cash used in operations was $3.634 million, versus $2.048 million in 2019. Financing provided $4.457 million, primarily through notes. Cash increased from $28,000 at year-end to $851,000 at June 30.
- Liquidity and liabilities: Current assets were $971,000 versus current liabilities of $28.562 million, including $21.844 million of convertible notes. Total assets were $1.063 million. Accumulated deficit was $577.819 million.
- Debt and interest: The company disclosed approximately $21.8 million principal of convertible notes and debentures outstanding; approximately $13.2 million was in default and accruing interest at 18%. Default amounts were about $3.9 million at June 30. Interest expense was $4.658 million in Q2 and $5.296 million for the first half.
Material changes and notable transactions
- Net loss increased year over year, principally because of higher interest expense and a $2.563 million settlement expense in Q2. Lower R&D and SG&A partially offset these increases.
- During the first half, the company issued 1.065 million common shares upon note conversions, 1.086 million shares for consulting services, and 3.5 million shares under its Empery settlement. Common shares outstanding were 75.436 million at June 30, compared with 69.785 million at December 31, 2019.
- The June settlement with the Empery Funds included $200,000 cash, 3.5 million common shares, pre-funded warrants for 5.5 million shares, and $450,000 principal of convertible notes.
- After quarter-end, the company issued $3.19 million of convertible notes on July 7 and reported another 1.125 million shares issued upon conversion of $225,000 principal in July.
Outlook, risks and contingencies
- Going concern: Management stated that substantial additional financing is required and that the circumstances raise substantial doubt about the company’s ability to continue as a going concern. The company said it needed to raise an additional $15 million in 2020 to finance operations and pay current liabilities over the next 12 months. Management said financing efforts, if successful, were expected to support operations for at least six months from issuance of the financial statements; there was no assurance.
- Forbearance and financing risk: Holders of $13.2 million of defaulted notes agreed to forbear from enforcement until the earlier of a qualifying $15 million financing accompanied by a Nasdaq listing or October 1, 2020, subject to earlier termination events. The agreements provide for conversion at potentially discounted prices upon qualifying financing. The notes’ maturity dates and default terms create significant repayment, dilution and refinancing risks.
- Development outlook: Management anticipated higher direct clinical costs in the second half of 2020 as the Phase I trial of GTB-3550 continued. It also described a Cytovance collaboration to develop and manufacture a coronavirus TriKE for preclinical and potential human evaluation. No specific clinical or financial guidance beyond these statements was provided.
- Legal matters: The Empery dispute was settled. A separate California lawsuit by Jeffrey Lion and Daniel Vallera seeks $1.67 million in actual damages and stock-related relief; the filing text does not provide a clear estimate of the company’s potential exposure.
- Controls: Disclosure controls were deemed ineffective due to material weaknesses involving segregation of duties, risk of executive override, and insufficient accounting and SEC-reporting policies and procedures. The company described planned remediation.
- Other risks: About $600,000 of cash was held above FDIC insurance limits at June 30. The filing reported no off-balance-sheet arrangements and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the company secured the stated $15 million financing, achieved the contemplated Nasdaq listing, and complied with the forbearance terms and deadlines.
- Current cash, operating cash burn, note balances, defaults, accrued default amounts, maturities and any subsequent conversions or repayments.
- The dilution and conversion impact of outstanding notes, warrants and preferred stock, including financing-related conversion discounts.
- Progress, timing, costs and regulatory status of the GTB-3550 trial and coronavirus TriKE program.
- Status and potential exposure of the Lion and Vallera litigation, and progress in remediating the disclosed internal-control weaknesses.
- The balance-sheet comparative column is labeled December 31, 2020 in the supplied filing text, while the filing elsewhere identifies the comparison as December 31, 2019; verify the original statement presentation.