10-Q Summary
Registrant and period: The supplied filing is for Enochian Biosciences, Inc., not Lunai Bioworks Inc. It is an unaudited Form 10-Q for the three and six months ended December 31, 2020, within the fiscal year ending June 30, 2021. Enochian is a pre-clinical biotechnology company developing genetically modified cellular, gene and immune therapies for HIV, HBV and certain cancers.
Financial Metrics
| Metric | Three Months Ended Dec. 31, 2020 | Six Months Ended Dec. 31, 2020 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $3.31 million | $6.16 million |
| Operating loss | $3.31 million | $6.16 million |
| Net loss | $2.93 million | $5.33 million |
| Loss per share | $0.06 | $0.11 |
| Operating cash flow | Not separately provided for the quarter | $(5.25) million |
- Gross profit was zero because the company had no revenue or cost of goods sold.
- Research and development expense was $1.33 million for the quarter and $2.38 million for the six-month period.
- Cash declined to $3.43 million at December 31, 2020 from $8.70 million at June 30, 2020. Working capital declined to $2.45 million from $7.61 million.
- Total assets were $172.89 million, including $154.82 million of indefinite-life license-related intangible assets and $11.64 million of goodwill.
- Total liabilities were $10.94 million, including $1.20 million of convertible notes, $4.73 million of long-term notes payable net of discount, $2.07 million of contingent consideration and $1.67 million of operating lease liabilities.
- Stockholders’ equity was $161.94 million. Shares outstanding increased to 46.76 million from 46.50 million at June 30, 2020.
Changes Versus Prior Comparable Period
- Quarterly operating expenses increased 17.3% to $3.31 million, primarily because of higher research and development spending.
- Six-month operating expenses increased 17.2% to $6.16 million. R&D expense increased 120.5%, while general and administrative expense decreased 10.1%.
- Quarterly net loss increased 70.5% from $1.72 million to $2.93 million, driven by higher R&D costs and a smaller favorable change in the fair value of contingent consideration.
- Six-month net loss improved 8.2% from $5.80 million to $5.33 million, primarily because the contingent consideration adjustment changed from a $860,000 expense to $920,811 of income.
- Operating cash use increased from $4.38 million to $5.25 million for the six-month period, while financing cash flow changed from $1.00 million provided to $40,408 used.
- R&D increases reflected the HBV license program, HBV proof-of-concept studies, staffing costs and the non-human-primate study for ENOB-HV11/12. The company also reported lower HIV contractual costs after related obligations expired in February 2020.
Outlook, Risks and Unusual Items
- Management stated that sales revenue will not support current operations until products or therapies receive regulatory approval and acknowledged that the company may never become profitable.
- Management believed available liquidity and committed funds were sufficient for the next twelve months, but stated that additional capital may be needed for R&D, equipment, potential IND filings, the HBV license program and possible strategic acquisitions.
- The company had a purchase agreement with Lincoln Park Capital for potential sales of up to $20 million of common stock, subject to conditions. No shares were sold under the agreement during the quarter or six-month period.
- Development milestones were described as potential rather than assured: an ENOB-HV-01 pre-IND submission could occur by the fourth quarter of 2021, an HBV pre-IND submission could occur by the second quarter of 2021, and preliminary ENOB-HV-11/12 study results could be available by the end of 2021.
- COVID-19 continued to create uncertainty, and management stated that its effects on operations, liquidity and capital resources could not be reasonably estimated.
- The contingent consideration liability is a Level 3 fair-value measurement and is highly sensitive to assumptions, including stock price and volatility. It declined to $2.07 million from $3.18 million at June 30, 2020.
- On February 11, 2021, the company extended the maturity of its $5.00 million unsecured note from November 30, 2021 to November 30, 2022 and issued 74,054 shares as prepaid interest valued at $298,178.
- The company reported that disclosure controls and procedures were not effective as of December 31, 2020 because of material weaknesses related to limited accounting resources, complex accounting matters and insufficient segregation of duties. Consultants were engaged to assist with U.S. GAAP and SEC reporting.
- The filing reported no material pending legal proceedings and no material changes to the risk factors in the fiscal 2020 Form 10-K.
Most Important Facts to Verify
- Confirm the company identity: the supplied filing names Enochian Biosciences, Inc., while the request metadata names Lunai Bioworks Inc.
- Assess cash runway against quarterly cash use, expected R&D commitments and the company’s stated need for possible additional financing.
- Review the regulatory and clinical evidence supporting the projected pre-IND and study milestones, which are subject to substantial uncertainty.
- Evaluate dilution risk from the Lincoln Park facility, options, warrants, contingent shares and the 74,054 shares issued after period-end.
- Review valuation and impairment risk for the $154.82 million license asset and $11.64 million goodwill balance.
- Review remediation of the material weaknesses in internal controls and whether additional accounting personnel have been hired.