Filing Overview
Registrant: Enochian Biosciences Inc. and subsidiaries; the request metadata identifies “Lunai Bioworks Inc.,” which does not match the filing. This Form 10-Q covers the three and six months ended December 31, 2022, within the fiscal year ending June 30, 2023. The financial statements are unaudited.
Business Context
The company is a pre-revenue biotechnology business developing allogeneic cell and gene therapies for oncology, HIV and HBV. Management has prioritized the pancreatic-cancer oncology platform, particularly ENOB-DC-11, and an HIV therapeutic vaccine, ENOB-HV-12. The company states that it has never generated revenue and does not expect revenue until product candidates receive regulatory approval and are commercialized.
Financial Results and Position
| Metric | Three months ended December 31, 2022 | Three months ended December 31, 2021 | Six months ended December 31, 2022 | Six months ended December 31, 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $4.37 million | $6.33 million | $11.56 million | $13.84 million |
| Loss from operations | $(4.37) million | $(6.33) million | $(11.56) million | $(13.84) million |
| Net loss | $(4.46) million | $(6.58) million | $(12.16) million | $(16.99) million |
| Loss per share | $(0.08) | $(0.13) | $(0.22) | $(0.33) |
| Cash used in operating activities | Not separately presented for the quarter | $(6.21) million | $(9.90) million |
- Research and development expense declined 86% year over year for the quarter and 46% for the six-month period, primarily because prior-period spending included payments related to an abandoned product candidate and higher CDMO/CRO costs.
- General and administrative expense increased 1% for the quarter and 2% for the six-month period. Higher legal, compensation and related costs largely offset lower stock-based compensation.
- Cash and cash equivalents were $4.12 million at December 31, 2022, down from $9.17 million at June 30, 2022. Working capital was negative $5.90 million versus positive $3.11 million at June 30, 2022.
- Total assets were $80.27 million and total liabilities were $13.37 million at December 31, 2022. Accumulated deficit was $216.50 million.
- Cash flow included $1.63 million of proceeds from warrant exercises, offset by $466,625 of repayments under a financing agreement. Investing cash use was $23,633.
- Cash balances in excess of federally insured amounts totaled $3.83 million at December 31, 2022.
Material Changes Versus the Prior Comparable Period
- Six-month net loss improved by $4.84 million, or approximately 28%, primarily because of lower research and development spending and the absence of the prior-year $2.99 million expense from changes in the fair value of contingent consideration.
- The contingent consideration liability was extinguished during the six months, resulting in a $419,182 loss; no contingent consideration liability remained at December 31, 2022.
- Shares outstanding increased to 55,705,521 from 53,007,082 at June 30, 2022, primarily from warrant exercises, earn-out shares and shares issued in lieu of interest.
- On December 30, 2022, the $1.2 million convertible notes were amended and extended to February 28, 2024. Interest increased to 12%, and $204,392 of interest was prepaid through share issuance.
- The $5.0 million promissory note had a net carrying amount of $4.73 million at December 31, 2022, matures November 30, 2023, bears interest at 12%, and is secured together with the amended convertible notes by a lien on all company assets.
- The company terminated one lease early and began recognizing sublease income. Net operating lease expense declined to $34,040 for the six months from $168,196 in the prior-year period.
Outlook, Risks and Unusual Items
- Going concern: Management states that recurring losses, operating cash use, the $4.12 million cash balance and dependence on additional financing raise substantial doubt about the company’s ability to continue as a going concern for one year after issuance of the financial statements.
- Management plans to seek additional equity or debt financing for research and development, personnel, equipment and regulatory activities. Financing may be unavailable or available only on unfavorable terms, and equity financing could materially dilute shareholders.
- Management expected confirmatory in vivo data for ENOB-DC-11 by early 2023, a potential Pre-IND submission in early or mid-2023, and possible human trials in the first half of 2024. For ENOB-HV-12, preliminary primate results were expected in the first half of 2023, with a potential Pre-IND request by mid-2023 and Phase I trials by mid-to-late 2024. These are forward-looking targets, not guarantees.
- The company has deprioritized ENOB-HV-01, ENOB-HV-21 and ENOB-HB-01 relative to oncology and ENOB-HV-12. It is no longer pursuing product candidates under the pan-coronavirus/pan-influenza license and has filed claims seeking recovery of related payments.
- Material litigation includes securities class actions, federal and state derivative actions, a company lawsuit alleging manipulated or fabricated study results, a demand for more than $64 million under an investor-rights agreement, and a former CFO’s malicious-prosecution claim. The filing does not provide a clear estimate of probable loss for these matters.
- Nasdaq had issued notices regarding late periodic filings. As of the filing date, the company had not regained compliance with Nasdaq Listing Rule 5250(c)(1), creating potential delisting and financing risks.
- Disclosure controls and procedures were not effective as of December 31, 2022, due to a material weakness attributed to inadequate resources for complex accounting matters. Management expects the deficiency to continue until sufficient capital is available to hire additional accounting staff.
- COVID-19 had not materially affected operations as of the filing, but had caused experiment delays, supply-chain constraints and increased animal-study costs.
Investor Verification Items
- Confirm the registrant’s identity and ticker: the filing is for Enochian Biosciences Inc. (ENOB), not Lunai Bioworks Inc.
- Assess the company’s ability to raise capital and fund operations given $4.12 million of cash, negative working capital and the disclosed going-concern uncertainty.
- Review the maturity, interest rate, collateral and share-settlement provisions of the secured notes and promissory note.
- Track Nasdaq compliance and any potential delisting consequences.
- Review the status and potential financial exposure of the securities, derivative, contractual and former-CFO litigation.
- Validate progress against the stated ENOB-DC-11 and ENOB-HV-12 preclinical, Pre-IND and clinical-development milestones.
- Evaluate dilution risk from outstanding options, financing needs and future equity issuances; 4,833,436 options were outstanding at December 31, 2022, excluding other potential dilution sources.