GT Biopharma, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2017; filed August 11, 2017. The company was then known as OXIS International and changed its name to GT Biopharma in July 2017. Interim financial statements are unaudited.
Business context
The company is a pre-revenue biotechnology business focused on cancer therapeutics. Its pipeline includes OXS-1550, a bispecific drug conjugate in clinical development for B-cell lymphoma or leukemia; OXS-4235 for multiple myeloma and related bone disease; and OXS-2175 for triple-negative breast cancer. OXS-1550 Phase 1/2 enrollment was underway, with the filing reporting 32 trial participants and Phase 2 dosing beginning in April 2017. The company also reported research and co-development work on its TriKE technology.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 in 2017 and 2016 | $0 in 2017 and 2016 |
| Operating expenses | $1.285 million in 2017; $2.121 million in 2016 | $2.823 million in 2017; $6.022 million in 2016 |
| Operating loss | $1.285 million in 2017; $2.121 million in 2016 | $2.823 million in 2017; $6.022 million in 2016 |
| Net income (loss) | $(2.830) million in 2017; $1.543 million in 2016 | $(5.145) million in 2017; $27.492 million in 2016 |
| Operating cash flow | Not provided by quarter | $(1.041) million in 2017; $(1.232) million in 2016 |
Gross profit and operating margin were not meaningful because the company reported no revenue. The 2016 comparative net income was substantially affected by a $36.759 million six-month gain from changes in warrant and derivative fair values; the corresponding 2017 gain was $2.376 million. Six-month interest expense rose to $4.698 million from $3.245 million. For the second quarter, interest expense was $1.178 million versus $1.599 million in 2016, despite MD&A describing it as an increase; the filing’s explanation attributes expense growth primarily to non-cash debt-discount amortization.
At June 30, cash was $39,000, total current assets were $39,000, current liabilities were $20.126 million, and working capital deficit was $20.087 million. Total assets were $42,000 and stockholders’ deficit was $20.084 million. Accounts payable was $2.347 million; accrued interest was $4.339 million; and warrant liability was $964,000. Convertible debentures, net of discount, totaled $10.663 million current and $844,000 noncurrent; a settlement note of $691,000 was also reported as current. No interest or income taxes were paid in the first half.
Changes and financing
- SG&A decreased to $2.438 million for the first half from $5.547 million, which the company attributed mainly to lower professional fees and stock compensation. R&D declined to $385,000 from $475,000.
- Cash increased by only $20,000 in the first half, to $39,000. Financing provided $1.061 million, while operating activities used $1.041 million.
- The company issued 418,448 common shares during the first half to cancel $2.025 million of debt and $486,000 of accrued interest. Common shares outstanding were reported as 496,441 at June 30, compared with 104,218 at year-end; the filing states a July 2017 one-for-300 reverse split was applied retroactively.
- First-half financing included new convertible debentures. The notes generally bear 10% interest and include conversion prices tied to recent low trading prices, along with warrants, creating potential dilution.
Outlook, risks and notable items
- Going concern and liquidity: Management stated that the cash-use rate raised substantial doubt about the company’s ability to continue as a going concern absent significant cash flows. It said additional capital was needed by the end of the next quarter and estimated a need to raise approximately $4–5 million to fund operations and current liabilities over the next 12 months. There is no assurance financing will be obtained.
- Debt and default exposure: The company disclosed defaulted legacy obligations, including a settlement note payable and 2006 debentures. The 2006 debentures carry default-related rights, including potential acceleration and security interests in substantially all assets. Many convertible instruments have full-ratchet anti-dilution provisions.
- Subsequent events: In July 2017, the company entered into a $650,000 convertible-debenture financing with warrants; approved a one-for-300 reverse split; and amended its charter to authorize 750 million common shares. It also announced an agreement to acquire Georgetown Translational Pharmaceuticals, with consideration of 33% of outstanding shares and an anticipated closing within 90 days. The filing does not establish that the acquisition was completed.
- Development and partnership: The company reported a June 2017 exclusive co-development partnership with Altor BioScience for a TriKE fusion protein, and a July 2017 patent issuance for OXS-4235. Clinical and preclinical outcomes remain uncertain.
- Controls and legal matters: Management concluded disclosure controls and internal control over financial reporting were ineffective at June 30, identifying material weaknesses related to segregation of duties, reliance on consultants, and risk of executive override. Pending matters included a $73,898 consulting-services suit and an arbitration claim seeking $207,783 plus interest and costs; a separate case was settled and dismissed in January 2017.
Important facts for investors to verify
- Whether the company raised the stated $4–5 million, maintained operations, and addressed its going-concern uncertainty.
- Current cash, debt maturities and defaults, accrued interest, security interests, and terms or conversions of outstanding debentures and warrants.
- Post-reverse-split share count, fully diluted share count, and the actual dilution from financings and any Georgetown acquisition.
- Clinical-trial enrollment, safety and efficacy data for OXS-1550, and development milestones for other programs and the Altor collaboration.
- Status and potential exposure from the disclosed litigation and arbitration, and remediation of the identified internal-control weaknesses.
- The reported second-quarter interest-expense comparison: the figures show a year-over-year decrease, although MD&A calls it an increase.