Outlook Therapeutics, Inc. — Form 10-Q summary
Reporting period: Fiscal second quarter and six months ended March 31, 2020. The company is a late clinical-stage biopharmaceutical developer focused on ONS-5010, an investigational ophthalmic bevacizumab formulation for retinal diseases. It has no approved products and has generated no product-sales revenue.
Financial performance and position
- Revenue: No collaboration revenue in the quarter or first half of fiscal 2020, versus $0.6 million and $1.7 million, respectively, in the comparable 2019 periods. Management says prior collaboration revenue was fully recognized in fiscal 2019. Product gross margins are not applicable because there were no product sales.
- Quarterly results: Operating expenses were $6.8 million and net loss was $5.7 million, compared with $8.3 million and $10.2 million in the prior-year quarter. Net loss attributable to common stockholders was $17.5 million, or $0.36 per share, including deemed dividends of $11.8 million.
- Six-month results: Operating expenses were $14.9 million and net loss was $22.3 million, versus $19.7 million and $20.0 million, respectively, in 2019. Net loss attributable to common stockholders was $35.9 million, or $0.93 per share, including deemed dividends and preferred-stock-related charges.
- Cash flow: Operating activities used $13.8 million in the first half, compared with $16.0 million in 2019. Financing activities provided $10.4 million; investing cash flow was zero. Cash declined by $3.4 million to $4.7 million at March 31.
- Liquidity and debt: Current assets were $9.5 million and current liabilities $23.7 million. Total liabilities were $33.7 million. The company reported $7.8 million of senior secured notes principal and accrued interest, maturing December 31, 2020, and $3.6 million of stockholder notes due on demand. Management cited substantial doubt about the company’s ability to continue as a going concern.
- Equity and dilution: Stockholders’ deficit was $20.5 million. Common shares outstanding rose to 89.8 million from 28.6 million at September 30, 2019; 91.4 million were outstanding on May 13, 2020.
Material changes and unusual items
- Operating expenses fell year over year, mainly reflecting outsourced manufacturing and development, lower compensation and other R&D costs, and a smaller property impairment. ONS-5010 development costs nevertheless increased as NORSE 2 advanced.
- The December 2019 exchange of senior secured notes produced an $8.1 million noncash loss on extinguishment. A $1.8 million gain from the change in fair value of the notes’ redemption feature partially offset the first-half loss.
- In March 2020, BioLexis converted all Series A-1 preferred stock into common stock, issuing 29.4 million shares and eliminating the preferred stock’s seniority and associated redemption and liquidation preferences. The amended conversion terms resulted in a $10.3 million deemed dividend.
- February equity and warrant offerings raised approximately $9.2 million net. The company also issued 7.2 million restricted shares to MTTR principals under consulting arrangements following termination of its MTTR strategic partnership. The arrangements involve company executives and BioLexis-related parties.
Outlook, risks, and contingencies
- Cash runway and financing: Management expected March 31 cash, approximately $3.3 million received in May from selling New Jersey tax attributes, and a $0.9 million PPP loan received in May to fund operations through August 2020, excluding debt repayment. The company says it needs substantial additional financing and offers no assurance it can secure it. Without funding, it may scale back or stop development, reduce its workforce, sell assets, or seek bankruptcy protection.
- Clinical program: NORSE 1 enrollment was complete, with top-line data expected in August 2020. NORSE 2 enrollment slowed because of COVID-19 precautions; management expected completion by the end of August 2020, later than its prior May target. NORSE 3 was planned after NORSE 2 enrollment, and the company also had FDA-agreed protocols for NORSE 4, 5, and 6. Potential regulatory submissions in the United States, Europe, and Japan were targeted for 2021, subject to successful development and regulatory review.
- COVID-19: The company reported limited operational disruption and active clinical and manufacturing activities, but acknowledged enrollment delays and uncertainty about further effects on trials, vendors, financing access, and timelines.
- Subsequent events: In May, the company received the tax-attribute sale proceeds and PPP loan. The PPP loan bears 1% interest, has a two-year maturity, and may not be forgiven. Between April 1 and May 13, $0.8 million of senior-note principal and accrued interest was exchanged for 1.6 million common shares. A May 6 office-lease termination was expected to reduce cash needs by about $14 million through February 2028, in exchange for approximately $1.0 million of payments; a $0.6 million estimated termination loss was expected in the third quarter.
- Other risks: Nasdaq notified the company that it was below the $1.00 minimum bid-price requirement; the stated deadline to regain compliance was December 7, 2020. Delisting could impair liquidity and future financing. The filing also identifies risks concerning PPP eligibility or forgiveness, clinical and regulatory outcomes, competition, and use of tax attributes.
Key facts for investors to verify
- Whether subsequent financing or partnerships extended the disclosed runway beyond August 2020, and how near-term debt obligations were addressed.
- Actual NORSE 1 and NORSE 2 enrollment, clinical results, regulatory milestones, and the effect of COVID-19 on timelines.
- Nasdaq minimum-bid compliance status and any resulting share or listing changes.
- PPP loan forgiveness or repayment outcome and the final accounting and cash impact of the office-lease termination.
- Future share issuance and dilution, including note conversions, warrants, and restricted shares issued to MTTR principals.