Rezolute, Inc. — Form 10-Q Summary
Business context and reporting period
This is Rezolute’s quarterly report for the period ended March 31, 2023, the third quarter of its fiscal year ending June 30, 2023. The company is a clinical-stage biopharmaceutical developer with no commercial products or meaningful revenue. Its lead programs are RZ358 for congenital hyperinsulinism and RZ402, an oral therapy candidate for diabetic macular edema.
Financial performance and liquidity
Amounts below are in millions of dollars except per-share figures.
| Metric | Three months ended March 31, 2023 | Prior-year quarter | Nine months ended March 31, 2023 | Prior-year period |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $14.2 | $8.7 | $32.9 | $23.9 |
| General and administrative | $2.9 | $2.1 | $8.9 | $6.6 |
| Operating loss | $(17.1) | $(10.8) | $(41.8) | $(30.5) |
| Net loss | $(15.7) | $(11.2) | $(39.1) | $(31.6) |
| Basic and diluted net loss per share | $(0.30) | $(0.65) | $(0.76) | $(2.30) |
Cash used in operations was $33.1 million for the nine months, compared with $27.5 million a year earlier. Investing activities used $95.1 million, mainly to purchase marketable debt securities; financing provided $11.6 million, primarily from a July 2022 private placement. Cash and cash equivalents were $33.7 million at March 31, while marketable debt securities totaled $95.5 million ($69.3 million short-term and $26.2 million long-term). Together, cash and investments were $129.3 million. Working capital was approximately $101.1 million.
Total liabilities were $6.9 million, including $2.4 million of operating lease liabilities and a $0.4 million embedded derivative liability. The $15.0 million secured loan was repaid and the loan agreement terminated in June 2022; the filing reports no outstanding borrowings at March 31, 2023. Accumulated deficit was $248.3 million. No meaningful profit margin is applicable because the company had no revenue.
Material changes versus prior comparable periods
- Quarterly operating expenses rose 59% to $17.1 million; R&D increased 64%, primarily due to RZ358 Phase 3 preparation, workforce and compensation costs, RZ402 Phase 2 activity, and a $3.0 million ActiveSite milestone.
- Nine-month R&D rose 38% to $32.9 million and G&A rose 34% to $8.9 million. Nine-month net loss widened by $7.4 million.
- Interest and other income increased to $2.7 million for nine months, mainly from investments yielding an approximately 5% weighted average effective rate. The prior-year period included $1.3 million of interest expense on the repaid loan; the current period had none.
- Cash declined from $150.4 million at June 30, 2022 to $33.7 million, while the company shifted substantial funds into marketable debt securities. The securities portfolio had $0.132 million of net unrealized losses at March 31.
- The July 2022 private placement raised $12.3 million gross, or approximately $11.6 million net, and issued about 3.2 million common shares. Common shares outstanding were 36.8 million at March 31; weighted-average shares used for quarterly loss per share were 51.4 million, reflecting inclusion of pre-funded warrants.
Outlook, commentary, risks and unusual items
- RZ358: Management expected to start a Phase 3 study in summer 2023, subject to regulatory and operational readiness, and anticipated topline results in Q1 2025. A $5.0 million XOMA milestone is due upon first-patient dosing in Phase 3, which management expected within 12 months.
- RZ402: Phase 2 began in December 2022. Management expected enrollment to complete in 2023 and results in Q1 2024. A $3.0 million ActiveSite milestone was paid in February 2023 after the first Phase 2 patient was dosed.
- Management stated existing cash and investments were expected to fund contractual obligations and planned activities through at least May 2024 in the liquidity note. The MD&A separately describes funding through the fiscal quarter ending March 31, 2024; the filing therefore gives differing runway endpoints.
- Remaining clinical and regulatory milestones are up to $35.0 million for XOMA and $32.5 million for ActiveSite. These are contingent on future events. Potential additional commercialization milestones and royalties are also provided for in the license agreements.
- The company disclosed the March–May 2023 failures of SVB, Signature Bank and First Republic Bank. It reported no SVB deposits or SVB securities and said it did not expect an impact; approximately $20.5 million held in a money market fund advised by SVB’s affiliate was transferred to a similar investment under a new adviser in April 2023.
- Market risks include interest-rate movements, issuer downgrades, defaults and potential realized losses if securities are sold before maturity. The portfolio included $53.1 million in debt securities of banking and financial-services issuers and $24.4 million in securities of a single U.S. government agency.
- Management reported a material weakness in internal control over financial reporting related primarily to insufficient segregation of duties due to limited staffing. Additional accounting software and personnel were remediation steps, but the weakness had not been eliminated.
- No material pending or threatened litigation was reported. The company reported no off-balance-sheet arrangements and no income tax benefit, owing to a valuation allowance on deferred tax assets.
Important facts for investors to verify
- Whether RZ358 Phase 3 started on schedule, and whether the first-patient milestone and related $5.0 million payment occurred.
- RZ402 Phase 2 enrollment and the timing and interpretation of its results.
- Actual cash burn, investment maturities and liquidity runway, including the filing’s differing March 2024 and May 2024 funding estimates.
- Portfolio credit and interest-rate exposure, unrealized losses, and any subsequent investment impairment or realized loss.
- Progress in remediating the disclosed internal-control material weakness.
- Potential dilution from outstanding pre-funded warrants, stock options and other warrants; reported weighted-average loss-per-share shares materially exceed common shares outstanding.
- Timing and amounts of contingent license milestones and the company’s ability to finance operations beyond management’s stated runway.