SEC Form 10-Q Summary
Filing entity: Histogenics Corporation, not Ocugen, Inc. The filing covers the quarter and nine months ended September 30, 2018, and was signed November 8, 2018. The financial statements are unaudited.
Business Context and Reporting Period
Histogenics was a clinical-stage biotechnology company developing restorative cell therapies, principally NeoCart, an investigational autologous cell therapy for knee cartilage damage. NeoCart was being evaluated in a 249-patient Phase 3 trial under a special protocol assessment with the FDA. The company had not generated revenue from its planned principal operations and had devoted substantially all resources to research, clinical development, manufacturing infrastructure, regulatory activities and capital raising.
In the third quarter, the Phase 3 trial did not meet its primary one-year endpoint versus microfracture, although the company reported statistically significant and clinically meaningful results at six months and on nearly all individual pain and function measures at one and two years. The company met with the FDA on October 30, 2018 regarding a potential Biologics License Application.
Financial Metrics
| Metric | Three months ended September 30, 2018 | Three months ended September 30, 2017 | Nine months ended September 30, 2018 | Nine months ended September 30, 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $4.6 million | $3.5 million | $12.3 million | $12.2 million |
| General and administrative expense | $2.4 million | $2.2 million | $8.1 million | $6.7 million |
| Operating loss | $7.0 million | $5.7 million | $20.4 million | $18.9 million |
| Net income (loss) | $10.8 million | $(6.0) million | $(7.8) million | $(19.6) million |
| Net income (loss) per basic share | $0.36 | $(0.23) | $(0.27) | $(0.74) |
| Net loss per diluted share | $(0.24) | $(0.23) | $(0.68) | $(0.74) |
The third-quarter net income was not operationally generated. It principally reflected a $17.8 million gain from the change in fair value of the warrant liability, driven largely by the decline in the company’s stock price. For the nine months, the warrant liability generated a $12.5 million gain.
- Cash and cash equivalents at September 30, 2018 were $5.2 million, compared with $7.1 million at December 31, 2017.
- Restricted cash was $0.1 million; total cash, cash equivalents and restricted cash were $5.3 million at September 30, 2018.
- Marketable securities declined from $0.9 million at year-end 2017 to zero.
- Total assets were $10.9 million and total liabilities were $20.6 million.
- Stockholders’ deficit improved to $(9.7) million from $(11.3) million at December 31, 2017, primarily reflecting equity financing and the warrant-liability remeasurement.
- Accumulated deficit was $216.0 million.
- Debt was $0 at September 30, 2018; the equipment loan matured and was repaid in May 2018.
- Net cash used in operating activities was $8.8 million, compared with $18.7 million in the prior-year period.
- Net cash used in investing activities was $1.0 million, including $1.9 million of capital expenditures.
- Net cash provided by financing activities was $8.0 million, including $8.2 million of net common-stock proceeds.
Material Changes Versus the Prior Comparable Period
- Quarterly research and development expense increased 31% to $4.6 million, primarily due to higher consulting and salary-related costs.
- Nine-month research and development expense was broadly stable, as lower clinical-trial costs and depreciation offset increases in consulting, materials, repairs and sponsored research.
- General and administrative expense increased 9% for the quarter and 20% for the nine months, primarily from higher salary, consulting, professional and facility-related costs.
- Operating losses increased to $20.4 million for the nine months from $18.9 million.
- Cash used in operations improved by $9.9 million, principally because of the $10.0 million upfront MEDINET payment recorded as deferred revenue and other working-capital changes. The payment was not recognized as revenue.
- Common shares outstanding increased substantially during 2018 through a January registered direct offering and sales under an at-the-market program. The filing reported 35.0 million shares outstanding at September 30, 2018 and 62.0 million shares outstanding as of November 6, 2018.
- The warrant liability declined from $14.7 million at December 31, 2017 to $2.2 million at September 30, 2018, creating a substantial non-cash gain.
Guidance, Outlook, Risks and Unusual Items
- Management expected existing cash, cash equivalents and marketable securities to fund operations only into the middle of 2019 and stated that substantial additional capital would be required. The filing disclosed substantial doubt about the company’s ability to continue as a going concern.
- Histogenics expected continued losses and no product-sale revenue until regulatory approval and commercialization, if achieved.
- The FDA had not made a final decision on whether the NeoCart BLA could be submitted or accepted. Additional supplemental clinical data, longer-term data or additional studies could be required.
- On October 10, 2018, the company completed an offering of 26.2 million shares and warrants to purchase up to 19.6 million shares for gross proceeds of $17.0 million, before expenses. The warrants were immediately exercisable at $0.70 per share and expire five years after issuance.
- From October 1 through November 6, 2018, the company sold an additional 867,656 shares under its ATM program for $0.5 million of net proceeds.
- The company identified a material weakness in internal control over financial reporting related to valuation of the warrant liability. An error by a third-party valuation provider was detected by the independent accounting firm before issuance of the financial statements; management stated that no financial-statement misstatement resulted.
- On October 1, 2018, the company repriced 2.8 million stock options to an exercise price of $0.568 per share and cancelled certain performance-based options.
- Nasdaq notified the company that its stock had traded below the $1.00 minimum bid requirement for 30 consecutive business days. The company had until April 15, 2019 to regain compliance, subject to possible additional compliance measures or a reverse stock split.
- The company reported limited remaining authorized common shares after reserving shares for outstanding options, warrants, preferred stock and equity plans, creating a potential need for stockholder approval to increase authorized shares.
- Other principal risks included failure to obtain FDA approval, the need for additional clinical or manufacturing comparability data, limited manufacturing capacity, dependence on NeoCart, reimbursement uncertainty, competition, intellectual-property risks, reliance on collaborators and suppliers, future dilution and possible Nasdaq delisting.
Important Facts for Investors to Verify
- Confirm the filing-company mismatch: the provided filing is for Histogenics Corporation, whereas the request identifies Ocugen, Inc.
- Verify the FDA’s subsequent position on a NeoCart BLA, including whether a submission was accepted and whether additional clinical studies or data were required.
- Reconcile post-quarter financing proceeds, share counts, warrant issuances and dilution from the October 2018 offering and subsequent ATM sales.
- Assess whether the company resolved the disclosed warrant-valuation material weakness and whether further control deficiencies were identified.
- Review liquidity after the October financings, the timing of additional funding needs and the status of the going-concern uncertainty.
- Verify compliance with Nasdaq’s minimum bid-price requirement and any reverse stock split or authorized-share actions.
- Distinguish recurring operating performance from non-cash warrant-liability gains when evaluating profitability and cash burn.