GT Biopharma, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2017; filed November 14, 2017. The company, renamed from Oxis International in July 2017, describes itself as an immuno-oncology and CNS therapeutics company. It acquired Georgetown Translational Pharmaceuticals (GTP) on September 1, expanding its portfolio of CNS drug candidates. Financial statements are unaudited.
Financial performance and liquidity
- Revenue: No product, license, or total revenue in either the three- or nine-month periods in 2017 or 2016. Gross profit and margins therefore were not applicable.
- Operating expenses: For the quarter, R&D was $526,000 versus $250,000 a year earlier; SG&A was $126.330 million versus $2.280 million. For nine months, R&D was $911,000 versus $725,000; SG&A was $128.768 million versus $7.827 million. The filing attributes the SG&A increase primarily to stock compensation. The MD&A gives quarterly 2017 SG&A as $126.323 million, $7,000 below the financial-statement figure.
- Net results: Quarterly net loss was $132.076 million versus $3.630 million. Nine-month net loss was $137.221 million versus net income of $23.862 million. The prior-year nine-month result included a $37.195 million gain from changes in warrant and derivative liability values; the corresponding 2017 gain was $925,000. Nine-month interest expense rose to $8.467 million from $4.781 million. Large noncash stock compensation and debt-discount amortization affected results.
- Cash flow: Nine-month operating cash use was $3.278 million versus $1.795 million. Financing provided $5.991 million, and cash increased $2.713 million to $2.732 million. Stock compensation of $125.905 million was a noncash adjustment. No interest or income taxes were paid.
- Balance sheet at September 30: Current assets were $2.732 million, current liabilities $2.802 million, and working capital deficit $70,000. Total liabilities were $2.802 million; the listed convertible debentures, settlement note, and demand notes had been converted, while $31,000 remained on a line of credit. Goodwill was $253.777 million, recorded in connection with the GTP acquisition. Stockholders’ equity was $253.718 million, compared with a deficit of $18.924 million at year-end 2016.
Material changes and business developments
- The GTP acquisition was funded with 16,927,878 common shares, stated to represent 33% of the company’s fully diluted shares. The company also issued substantial common and Series J preferred shares to convert debt and interest and settle other securities. Common shares outstanding were 49,767,978 at November 14, 2017, versus 104,218 at December 31, 2016; a 1-for-300 reverse split was applied retroactively to presented share data.
- All outstanding convertible debentures were converted into common or Series J preferred stock in August 2017; other note balances were also converted during the year. The conversions reduced reported debt but involved significant equity issuance and dilution.
- The company reported OXS-1550 in a Phase 1/Phase 2 clinical trial, with 18 patients enrolled and the first Phase 2 patient dosed in April 2017. For OXS-3550, FDA requested additional preclinical toxicology and manufacturing clarifications before clinical trials could begin.
- The company reported a June 2017 exclusive co-development agreement with Altor BioScience for a TriKE candidate, and a University of Minnesota sponsored research agreement. GTP’s portfolio includes candidates for neuropathic pain, myasthenia gravis, motion sickness, and other CNS conditions.
Outlook, risks, contingencies, and unusual items
- Going concern and funding: Management stated that the cash-use rate raises substantial doubt about the company’s ability to continue as a going concern without significant cash flows. It said additional capital would be needed by the end of the next quarter and estimated $4–5 million would be required to fund operations and current liabilities over the next 12 months. Management intended to pursue equity or debt financing but gave no assurance it could obtain sufficient funds or generate future product revenue.
- Development and execution: The business has no reported revenue, and product candidates remain in development. OXS-3550’s requested additional toxicology and manufacturing clarifications could delay clinical initiation. The filing provides no financial guidance or quantified commercialization outlook.
- Controls: Management concluded disclosure controls and internal control over financial reporting were not effective at September 30, 2017, identifying material weaknesses involving inadequate segregation of duties, a small staff, reliance on outside consultants, and risk of executive override.
- Legal matters: Lippert/Heilshorn sought $73,898 for consulting services. In a separate arbitration, MultiCell was awarded $207,783 plus $34,699 interest; the company said counsel was reviewing whether the award was legally binding.
- Other commitments: A new three-year Washington, D.C. office lease has $324,000 of stated minimum future payments. Executive employment agreements include annual salaries and substantial restricted-stock awards; change-in-control provisions provide additional potential payments and benefits.
Most important facts for investors to verify
- Whether the company secured the stated $4–5 million funding need and whether financing terms caused further dilution.
- The accounting, valuation, and potential impairment risk of the $253.777 million goodwill balance relative to the acquired GTP business.
- The status of OXS-1550 clinical development and resolution of FDA requests affecting OXS-3550.
- Whether management remediated the disclosed internal-control material weaknesses and whether subsequent filings report effective controls.
- The final status and financial impact of the MultiCell arbitration award and Lippert/Heilshorn claim.
- The quarterly SG&A discrepancy and the composition and recurrence of stock-based compensation and other noncash charges.