Ocugen, Inc. Form 10-Q Summary
Business context and reporting period
Filing covers the quarter and nine months ended September 30, 2019. Ocugen is a clinical-stage biopharmaceutical company developing gene therapies, biologics, and pharmaceutical candidates for rare and underserved eye diseases. Key programs included OCU300 for ocular graft-versus-host disease, OCU400 for inherited retinal diseases, OCU410 for dry AMD, and OCU200 for wet AMD and diabetic eye diseases.
On September 27, 2019, Histogenics Corporation completed its reverse merger with Former Ocugen. Former Ocugen was the accounting acquirer, so its historical results are presented for prior periods. The transaction was accounted for as a reverse asset acquisition and this was the first report covering the combined company.
Financial condition and key metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue | No revenue | No revenue |
| Research and development expense | $1.3 million, versus $1.6 million | $6.3 million, versus $7.4 million |
| General and administrative expense | $1.4 million, versus $0.8 million | $3.5 million, versus $3.0 million |
| Total operating expenses | $2.7 million, versus $2.4 million | $9.9 million, versus $10.5 million |
| Net loss | $22.8 million, versus $1.9 million | $32.6 million, versus $12.3 million |
| Net loss per share | $3.55, versus $0.39 | $5.59, versus $2.47 |
| Net cash used in operating activities | Not separately provided | $8.1 million, versus $8.8 million |
Operating margins are not meaningful because the company had no revenue. The quarterly and year-to-date losses were materially affected by non-cash changes in the fair value of derivative liabilities, primarily the Series B warrant liability: $18.5 million of expense in the quarter and $19.9 million for the nine months.
- Cash and cash equivalents were $15.3 million at September 30, 2019; cash, cash equivalents, and restricted cash totaled $15.5 million.
- Total assets were $23.6 million, including a $7.0 million intangible asset held for sale related to the NeoCart program.
- Total liabilities were $36.7 million and stockholders’ deficit was $13.1 million.
- Short-term warrant liability was $28.0 million, reflecting the fair value of Series B warrants.
- Long-term debt was $1.1 million, consisting primarily of the EB-5 loan; the convertible notes and senior secured notes had been converted or repaid.
- Net cash provided by financing activities was $24.2 million, including $22.4 million of Pre-Merger Financing proceeds, partially offset by debt repayment and issuance costs.
Material changes versus the prior comparable period
- Quarterly net loss increased by $20.8 million, primarily due to the $18.5 million fair-value loss on derivative liabilities and higher general and administrative costs.
- Nine-month net loss increased by $20.4 million. The principal drivers were the $19.9 million derivative-liability loss and a $0.3 million loss on debt conversion.
- Research and development expense declined, primarily because of lower clinical and preclinical activity in certain programs, while general and administrative expense increased due to professional fees and preparation for public-company operations.
- Cash improved substantially from $1.6 million at December 31, 2018 to $15.3 million at September 30, 2019, primarily due to equity and financing transactions.
- Shares outstanding increased to 10.0 million at September 30, 2019 from 5.0 million at December 31, 2018, before considering substantial potential warrant dilution.
- The company adopted ASC 842 lease accounting on January 1, 2019 and recorded approximately $0.4 million of right-of-use assets and lease liabilities.
Guidance, outlook, risks, contingencies, and unusual items
- Management stated that available cash and the Pre-Merger Financing were expected to fund operations into mid-2020, but additional capital will be required to continue development and commercialization activities.
- The financial statements disclose substantial doubt about the company’s ability to continue as a going concern within one year after issuance, reflecting recurring losses, negative operating cash flow, limited operating history, and dependence on additional financing.
- Research and development spending is expected to increase as Ocugen advances the Phase 3 OCU300 program and prepares for planned Phase 1/2 programs for OCU400 and OCU200.
- OCU300 development, regulatory approval, patient enrollment, manufacturing, and the ability to use the 505(b)(2) pathway remain significant execution risks. The prior OCU310 Phase 3 study did not meet its co-primary endpoints.
- The Series A, B, and C warrants created substantial potential dilution. Series B warrants were liability-classified and subject to reset provisions; Series C warrants initially covered up to 50.0 million shares before being amended after quarter-end to cover up to 20.0 million shares.
- After quarter-end, the company issued the warrants, released additional shares from escrow, became effective for an S-3 registration statement covering resale of up to 111.5 million shares, authorized a $2.0 million share repurchase program, and amended the warrant terms. Investors also exercised 3.8 million Series C warrants.
- The NeoCart asset sale had not closed by October 31, 2019. The purchase price increased to $7.7 million as of November 1, 2019 under the amended agreement, subject to the buyer obtaining financing and other conditions.
- Ocugen entered into a co-development and commercialization agreement with CanSino Biologics for OCU400. CanSinoBIO agreed to fund manufacturing-related development and clinical supply costs and will pay royalties on sales in its territory.
- Management reported that disclosure controls and procedures were effective as of September 30, 2019, with no material changes in internal control over financial reporting during the period.
Important facts for investors to verify
- Whether additional financing was obtained before the projected mid-2020 cash runway expired and on what dilutionary terms.
- The actual number of shares issuable under the amended Series A, B, and C warrants, including reset and anti-dilution provisions.
- The closing status and final proceeds of the NeoCart asset sale.
- Progress, enrollment, endpoints, and regulatory interactions for the OCU300 Phase 3 program.
- Timing and financing requirements for planned OCU400 and OCU200 clinical programs.
- Whether the CanSinoBIO collaboration generated development funding, milestones, or other material obligations.
- The company’s ability to address the disclosed going-concern uncertainty while continuing research and development spending.