Moleculin Biotech, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Unaudited financial statements; amounts below are in millions of dollars unless stated otherwise.
Business context
Moleculin is a clinical-stage pharmaceutical company developing treatments for resistant cancers and viruses. Its main programs include Annamycin for acute myeloid leukemia (AML) and potential lung-metastatic cancers; WP1066 for brain tumors; and the WP1122 portfolio for cancer and potential antiviral uses. The company reported no revenue and depends on financing to fund research and development.
Financial results and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $4.435 | $2.785 | $10.971 | $7.816 |
| General and administrative expense | $1.659 | $1.672 | $5.122 | $4.748 |
| Total operating expenses | $6.151 | $4.508 | $16.247 | $12.711 |
| Net loss | $3.395 | $4.145 | $14.716 | $9.408 |
| Basic and diluted loss per share | $0.06 | $0.09 | $0.26 | $0.24 |
- Q3 operating expenses rose $1.643 million year over year, primarily from higher R&D spending. Nine-month R&D costs increased $3.155 million, reflecting clinical-trial activity, drug manufacturing, sponsored research and license costs, and added R&D staff.
- Reported net loss included a noncash gain from revaluing warrant liabilities: $2.743 million in Q3 2020 versus $0.124 million in Q3 2019; $1.489 million for the first nine months of 2020 versus $3.059 million in 2019. These gains are sensitive to share-price movements.
- Cash and cash equivalents were $12.795 million at September 30, 2020, up from $10.735 million at December 31, 2019. Nine-month operating cash use was $14.647 million, compared with $12.521 million in 2019; investing cash use was $0.360 million; financing provided $17.065 million.
- Financing included $17.077 million in net proceeds from common-stock sales during the first nine months, including ATM sales and a February offering. Shares outstanding increased from 45.7 million at year-end 2019 to 61.8 million at September 30, 2020; 62.5 million were outstanding November 5.
- Current assets were $15.250 million and current liabilities $3.438 million. Total liabilities were $12.677 million, including a $9.049 million long-term warrant liability and $0.304 million of operating lease liabilities. The filing reports no conventional interest-bearing debt balance.
- Management stated cash on hand at quarter-end was sufficient for planned operations only into, but not beyond, the near term, and identified substantial doubt about the company’s ability to continue as a going concern. Separately, management estimated cash, together with subsequent cash raised and committed, would fund planned operations into Q3 2021 without additional equity issuance. Both statements are subject to financing, spending, market and trial-enrollment assumptions.
Material developments and outlook
- Annamycin: The U.S. Phase 1 portion of the AML program had concluded after meeting its primary safety endpoint. The European Phase 1/2 trial continued dose escalation in Poland; a dose-limiting toxicity in the 240 mg/m² cohort was resolved and the cohort was to be expanded. Management said COVID-19 was slowing recruitment. A planned IND or equivalent filing for a lung-metastasis study was targeted by year-end 2020, subject to regulatory and other uncertainties.
- WP1066: Two investigator-sponsored Phase 1 studies for adult and pediatric brain tumors were underway. Management described an apparent response in one pediatric DIPG patient, but cautioned that this was preliminary single-patient information and should not support conclusions.
- WP1122 and related compounds: Preclinical antiviral and cancer work was underway, including research related to COVID-19. Management expected to pursue an IND or equivalent in the first half of 2021, with timing dependent in part on access to in-vivo studies. The company did not intend to start WP1122 viral clinical trials without external funding.
- Management said it was narrowing internally funded development toward Annamycin, intravenous WP1066 preclinical work and WP1122 IND-enabling studies, while seeking external support for other programs. It had no commitment for anticipated government or strategic funding.
- After quarter-end, the company reported $0.6 million net proceeds from October ATM sales and entered a Lincoln Park equity purchase agreement for up to $22 million, subject to limitations. It sold $2 million of stock to Lincoln Park in November and issued commitment shares. Further sales could dilute shareholders; proceeds are discretionary and not assured.
- On September 30, Nasdaq notified the company that its share price had remained below the $1 minimum for 30 consecutive business days. The initial compliance period ran through March 29, 2021; the company could consider a reverse split, but stated there was no assurance it would regain compliance.
- Disclosure controls were deemed ineffective because of a material weakness involving insufficient segregation of accounting duties. Management described remediation efforts but said the weakness would not be considered remediated until controls had operated effectively for a sufficient period and been tested.
Key risks and unusual items
- Clinical development, regulatory approval, patient enrollment, manufacturing and commercialization are uncertain; preliminary or interim clinical findings may change after further data review.
- COVID-19 had delayed clinical recruitment and could disrupt research facilities, regulators, suppliers and access to financing. The company said the extent of future operational and liquidity effects was uncertain.
- The company licenses its core technologies from MD Anderson. Failure to meet license obligations or agree on future intellectual-property licenses could jeopardize development rights.
- Warrants classified as liabilities totaled $9.049 million and are measured using Level 3 fair-value inputs; changes in value can materially affect reported earnings without corresponding operating cash flow.
- No legal proceedings were reported. The filing noted no material impact from the CARES Act for the period.
Investor verification checklist
- Confirm the company’s actual cash runway, future operating cash needs and the financing assumptions underlying the Q3 2021 runway estimate.
- Track subsequent equity sales, shares issued, remaining availability under the ATM and Lincoln Park arrangements, and resulting dilution.
- Verify enrollment, safety, dose-escalation progress and final data for Annamycin and WP1066; distinguish company-reported preliminary findings from established clinical outcomes.
- Check whether Annamycin lung-metastasis and WP1122 IND or equivalent filings occurred on the stated timelines, and whether external funding was secured for virus-related trials.
- Monitor Nasdaq bid-price compliance and the status of the accounting-control remediation plan.