Immuron Limited — FY2018 Form 20-F Summary
Period clarification: The supplied filing is an annual report for the fiscal year ended June 30, 2018, not a filing for 2017 Q4. Financial statements are prepared under IFRS and presented in Australian dollars (A$), unless noted otherwise.
Business context
Immuron is an Australian clinical-stage biopharmaceutical company developing oral polyclonal antibody products using hyper-immune bovine colostrum. Its prescription candidates are IMM-124E for fatty-liver conditions, including NASH, and IMM-529 for C. difficile infection. It also sells Travelan, an over-the-counter traveler’s diarrhea prevention product, and recently launched Protectyn in Australia. Travelan generated most reported operating revenue; prescription products had not generated sales.
Key financial metrics
| Metric (A$ unless stated) | FY2018 | FY2017 |
|---|---|---|
| Operating revenue | 1,842,909 | 1,396,197 |
| Gross profit / gross margin | 1,424,216 / 77.3% | 1,058,651 / 75.8% |
| Gross profit less direct selling costs | 972,517 | 515,523 |
| Other income, including R&D tax concession | 1,850,401 | 1,614,373 |
| Research and development expense | 2,257,224 | 4,630,674 |
| Net loss | (3,010,929) | (6,804,154) |
| Loss per share | 2.30 cents | 6.40 cents |
| Net cash used in operating activities | (3,527,444) | (7,031,088) |
| Cash at year-end | 4,727,430 | 3,994,924 |
| Total assets / total liabilities | 9,242,688 / 803,338 | 8,286,491 / 1,711,565 |
At June 30, 2018, current assets were A$7.05 million and equity was A$8.44 million. The company reported no borrowings or convertible notes outstanding at year-end; the prior-year convertible notes and other borrowings were repaid. The A$1.683 million receivables balance included A$1.191 million relating to the FY2018 R&D tax concession, which had not yet been received. Management stated that available cash was expected to fund requirements for at least 12 months from issuance of the financial statements, while also noting a need for additional funding to meet longer-term objectives.
Material changes versus FY2017
- Operating revenue rose A$446,712, or 32%, attributed mainly to Travelan growth in Australia and the U.S. Travelan sales were reported at approximately A$1.81 million for FY2018.
- Net loss narrowed by A$3.79 million, or 54%, largely as R&D expense fell by A$2.37 million following substantial completion of the NASH Phase II trial, and marketing and promotion costs declined.
- Operating cash outflow fell by about 50%, reflecting lower clinical-trial payments and higher customer receipts. Financing activities provided A$4.37 million, including proceeds from a March 2018 private placement.
- In March 2018, Immuron completed an approximately A$5.1 million private placement to a U.S. institutional investor. Issued ordinary shares increased to 142,778,206 at June 30, 2018.
- Inventory classification changed materially: A$2.172 million of colostrum raw material was classified as non-current based on expected use beyond 12 months. The company said it discontinued plans to sell colostrum powder to secondary markets; inventory impairment expense was A$163,600.
Outlook, commentary, risks and unusual items
- Pipeline and stated milestones: March 2018 topline results from the 133-patient IMM-124E NASH Phase II study reported a reduction of at least 15% in serum LPS in 64.3% of treated patients versus 34.5% with placebo, alongside reductions in certain liver-damage biomarkers. The filing cautions that these findings are not predictive of definitive results or regulatory approval. Management expected the final study report by the end of 2018.
- NIH-funded Phase II studies of IMM-124E in alcoholic steatohepatitis and pediatric NASH were underway; topline results were expected in 2019. IMM-529 had entered a Phase I/II trial, with topline results expected in the second half of 2019. These are management expectations stated in the filing, not guarantees.
- Management reported positive preclinical IMM-529 results and preliminary Travelan findings, but these are not proof of clinical benefit in patients. The company remained dependent on clinical development, regulatory approvals, third-party trial providers and manufacturing partners.
- Immuron had a history of operating losses, an accumulated deficit of A$52.54 million, and expected further losses. It may need additional capital; financing may be unavailable or dilutive, and failure to obtain funding could require curtailing programs or operations. The Australian R&D tax incentive is an important funding source and is subject to eligibility and government-program risk.
- The company relied on a sole manufacturer for IMM-124E drug substance and lacked established commercial-scale manufacturing for prescription candidates. Other key risks include uncertain trial outcomes, competition, market acceptance and reimbursement, intellectual-property challenges, and foreign-exchange exposure.
- Management concluded internal control over financial reporting was ineffective at June 30, 2018 because previously reported material weaknesses in financial close, monitoring and review controls remained unremediated. Disclosure controls were also assessed as ineffective. Management outlined remediation plans; no auditor attestation on internal controls was included.
- The financial statements received an unqualified audit opinion under IFRS. The filing reported no material legal proceedings, no material off-balance-sheet arrangements and no dividends. A prior convertible-note financing was fully repaid by September 2017.
Most important facts for investors to verify
- Whether the reported clinical signals translate into adequately powered, statistically significant and regulator-acceptable outcomes in subsequent trials.
- Timing, eligibility and actual receipt of the A$1.191 million FY2018 R&D tax concession receivable, and the sustainability of future incentive refunds.
- Cash burn, working-capital needs and financing runway against the filing’s expectation of at least 12 months of funding; assess dilution from further equity issuance and outstanding options and warrants.
- Whether the A$2.172 million non-current inventory is usable and recoverable as planned, given its shelf-life assumptions and prior inventory impairments.
- Progress in remediating material weaknesses in financial controls, and any subsequent changes to audit, finance staffing or reporting processes.
- Continuity and terms of critical manufacturing arrangements, particularly the IMM-124E supply agreement with Synlait, which the filing said was under renegotiation.