Moleculin Biotech, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise. Moleculin is a clinical-stage oncology company with no product revenue.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $2.785 | $1.332 | $7.816 | $6.801 |
| General and administrative expense | $1.672 | $1.248 | $4.748 | $3.859 |
| Total operating expenses | $4.508 | $2.591 | $12.711 | $10.687 |
| Net loss | $(4.145) | $(2.038) | $(9.408) | $(9.091) |
| Net loss per share | $(0.09) | $(0.08) | $(0.24) | $(0.36) |
- Operating expenses rose approximately 74% in Q3 and 19% year to date. Management attributed the increases mainly to expanded clinical activity, payroll and stock-based compensation; Q3 R&D also included $0.5 million of common stock issued for license rights.
- Net loss includes noncash gains from remeasurement of warrant liabilities of $0.124 million in Q3 and $3.059 million for the nine months. A $0.229 million income tax benefit related to Australian R&D tax credits reduced the reported nine-month loss.
- Cash and cash equivalents were $15.409 million at September 30, 2019, versus $7.134 million at December 31, 2018. Current assets were $18.586 million and current liabilities $11.119 million. Prepaid expenses included approximately $1.7 million for Annamycin production commitments.
- Operating cash use was $12.521 million for the nine months, compared with $9.093 million in 2018; investing cash use was $0.042 million. Financing provided $20.854 million, principally from common-stock offerings and warrant exercises.
- Total liabilities were $11.423 million, including a $6.820 million warrant liability and $0.404 million of operating lease liabilities. The filing does not disclose conventional interest-bearing debt.
- Common shares outstanding increased from 28.5 million at December 31, 2018 to 45.7 million at September 30, 2019. The company reported 45,727,700 shares outstanding at November 8, 2019.
Business developments and changes
- The company reported three drugs in four clinical trials: Annamycin in Phase I/II AML trials in the U.S. and Poland; WP1066 in a physician-sponsored brain-tumor trial; and WP1220 in a Polish CTCL proof-of-concept trial, which completed enrollment in August 2019.
- Compared with 2018, clinical activity expanded from two drugs in three trials to three drugs in four trials. Management cited higher development, manufacturing, testing, sponsored-research and licensing costs.
- Poland’s Annamycin AML study had advanced to its third cohort. The company reported preliminary safety and efficacy observations, including no reported cardiotoxicity to date; these are early, limited clinical findings, not established treatment outcomes. U.S. enrollment was described as slow, in part due to competition and a lower initial dose.
- During October 2019, after quarter-end, the company announced increased Annamycin production commitments and reported FDA comments on the revised U.S. AML trial protocol. Management said it had incorporated requested changes and did not anticipate a material timing impact.
Outlook, risks and unusual items
- Management expected September 30 cash to fund planned operations into, but not beyond, the near term; its liquidity discussion estimated funding into the second quarter of 2020 without additional equity. The company expects to need further capital and said financing may not be available on acceptable terms, or at all.
- The financial statements identify substantial doubt about the company’s ability to continue as a going concern, citing its accumulated deficit of $35.8 million, lack of operating revenue and dependence on additional financing and eventual profitable operations.
- No product-sales revenue or formal financial guidance was reported. Management expects that commercialization, if achieved, is years away and uncertain. It stated that IND submissions for WP1732 or another intravenous WP1066 formulation, and WP1122, are expected in 2021.
- Key risks include clinical-trial safety, efficacy, enrollment and timing; regulatory approval; dependence on third-party manufacturers and research providers; intellectual-property protection; and the ability to raise capital. Annamycin’s drug substance lacks existing patent protection; new formulation, process and reconstitution applications had been filed, but approval is not assured.
- Warrant liabilities are Level 3 fair-value estimates using a Black-Scholes model and can materially affect reported earnings. At September 30, 10.3 million warrants were outstanding.
- Disclosure controls and procedures were reported as not effective due to a material weakness in segregation of accounting duties. Management described staffing, IT and process improvements underway, but stated the weakness remained.
- The company has royalty, milestone, sponsored-research and lease commitments. It also disclosed approximately $0.9 million of potential employee termination benefits and related-party sublicensing arrangements.
Important facts for investors to verify
- Cash burn, the stated runway into Q2 2020, and the timing and terms of any additional financing or ATM share sales.
- Current enrollment, dose-escalation progress, safety findings and efficacy data for each clinical program, especially Annamycin and the fully enrolled WP1220 study.
- Whether Annamycin’s proposed production expansion, supply commitments and patent applications progress as planned.
- Potential dilution from outstanding warrants, options, future equity issuance and the $15 million ATM facility; no shares had been sold under that ATM agreement as of the filing.
- Progress in remediating the material weakness in internal controls and any future changes in warrant-liability valuations.