Business Context and Reporting Period
The provided filing is EyeGate Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2017; it does not identify Kiora Pharmaceuticals, Inc. as the registrant. EyeGate was a clinical-stage ophthalmic pharmaceutical company developing the EGP-437 iontophoretic drug-delivery product and CMHA-S-based products, including EyeGate OBG.
At November 10, 2017, EyeGate had 17,204,778 common shares outstanding. The filing was signed November 14, 2017.
Financial Performance and Condition
| Metric | Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 |
|---|---|---|---|---|
| Collaboration revenue | $74,696 | $274,289 | $407,518 | $508,889 |
| Research and development expense | $3,175,978 | $2,449,445 | $7,253,171 | $5,844,951 |
| General and administrative expense | $1,038,822 | $1,201,804 | $3,540,857 | $4,309,737 |
| Operating loss | $4,140,104 | $3,376,960 | $10,386,510 | $9,645,799 |
| Net loss | $4,140,368 | $3,376,662 | $10,386,885 | $9,642,376 |
| Basic and diluted loss per share | $0.24 | $0.36 | $0.78 | $1.13 |
Gross profit and gross margin are not meaningful because the company had no product sales and reported only collaboration revenue. Operating expenses substantially exceeded revenue.
- Cash and cash equivalents were $9.245 million at September 30, 2017, compared with $3.635 million at December 31, 2016.
- Total current assets were $10.229 million and total current liabilities were $12.637 million. Deferred revenue represented $10.255 million of current liabilities.
- Total liabilities were $15.380 million, including $1.210 million of contingent consideration, $1.526 million of deferred tax liabilities, and approximately $0.019 million of capital lease obligations. The filing does not disclose significant traditional funded debt.
- Stockholders’ equity was $679,445 at September 30, 2017, compared with a deficit of $329,421 at December 31, 2016.
- Net cash used in operating activities was $5.015 million for the nine months, versus $6.362 million in the prior-year period. Net cash provided by financing activities was $10.620 million, primarily from equity offerings.
- Stock-based compensation was $700,833 for the nine months, compared with $390,469 in the prior-year period.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue declined $199,593, or approximately 73%, while nine-month revenue declined $101,371, or approximately 20%, primarily reflecting government grant activity.
- Third-quarter R&D expense increased $726,533, or approximately 30%, and nine-month R&D expense increased $1.408 million, or approximately 24%, due mainly to increased clinical and other activity for the post-cataract inflammation and pain program and EyeGate OBG.
- General and administrative expense decreased $162,982 in the third quarter and $768,880 for the nine months, primarily due to lower professional fees and the absence of certain Jade acquisition-related costs.
- Nine-month net loss increased $744,509, or approximately 8%, despite lower general and administrative expense.
- Cash increased $5.609 million during the nine months, driven by $10.620 million of financing proceeds, partially offset by operating cash burn.
- In June 2017, EyeGate raised approximately $8.8 million net through a public offering of common stock and Series B preferred stock and issued warrants to purchase 6,666,667 common shares at $1.50 per share. Common shares outstanding increased from 10,130,883 at year-end 2016 to 17,204,778 at September 30, 2017.
Guidance, Outlook, Risks, and Unusual Items
- Management expected to have sufficient cash to fund planned operations for approximately eight months from September 30, 2017, but stated that additional capital would be needed. Management identified substantial doubt about the company’s ability to continue as a going concern.
- EyeGate expected to continue incurring significant operating losses and increasing R&D expenditures. It had no committed external source of funds and anticipated relying on equity or debt financings, licensing arrangements, collaborations, and grants.
- Management planned to initiate a second EyeGate OBG trial in the fourth quarter of 2017, report top-line data in the first quarter of 2018, initiate a pivotal trial in the second quarter of 2018, and potentially submit de novo 510(k) and CE mark applications in the fourth quarter of 2018, with a potential 2019 commercial launch.
- For EGP-437, a Phase 2b post-cataract trial commenced in the third quarter of 2017, with top-line data expected in the first quarter of 2018. The company expected top-line data from its anterior uveitis Phase 3 trial in the second quarter of 2018 and believed a successful trial could support an NDA filing in the second half of 2018.
- Payments received under the Valeant agreements were generally recorded as deferred revenue rather than recognized revenue. Deferred revenue was $10.255 million at September 30, 2017. The company expected to begin recognizing certain Valeant progress payments in the first quarter or second quarter of 2018, subject to performance and milestone timing.
- The February 2017 Valeant agreement provided a $4.0 million upfront payment, milestone opportunities of approximately $99.0 million, and potential royalties. The earlier Valeant agreement provided potential milestone payments totaling up to $32.5 million and royalties.
- Adoption of the new revenue standard, ASC 606, was scheduled for January 1, 2018. Management anticipated a material effect and planned to use the modified retrospective transition method, but had not quantified the impact.
- The company had no legal proceedings reported as of the filing date and reported no material changes to previously disclosed risk factors.
- Contractual obligations totaled $1.856 million, including $1.224 million of clinical research purchase obligations, $374,496 of lease obligations, and $257,500 of licensing commitments.
- On September 5, 2017, the company forgave a stockholder note, including accrued interest, totaling $91,054; the amount was recorded in general and administrative expense.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for EyeGate Pharmaceuticals, Inc., while the request metadata names Kiora Pharmaceuticals, Inc.
- Verify the timing and sufficiency of cash relative to the company’s stated approximately eight-month funding horizon and substantial doubt regarding going-concern status.
- Review the terms, dilution potential, and exercise conditions of the 9,519,403 outstanding warrants and 1,858,300 outstanding stock options.
- Assess the likelihood and timing of clinical milestones, regulatory submissions, and commercialization plans for EGP-437 and EyeGate OBG.
- Reconcile deferred revenue, Valeant milestone receipts, and the anticipated ASC 606 adoption adjustment.
- Evaluate future financing needs, potential equity dilution, and the company’s dependence on Valeant agreements and government grants.