Rezolute, Inc. — Form 10-Q Summary
Business context and period: Clinical-stage biopharmaceutical company developing therapies for metabolic diseases related to chronic glucose imbalance. This report covers the fiscal quarter and six months ended December 31, 2021; amounts below are in U.S. dollars. The financial statements are unaudited. The company has no commercial products and has not generated revenue.
Financial performance and position
| Metric | Three months ended Dec. 31, 2021 | Six months ended Dec. 31, 2021 | Comparable 2020 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development | $9.5 million | $15.2 million | $4.5 million / $6.8 million |
| General and administrative | $2.7 million | $4.6 million | $2.7 million / $3.9 million |
| Operating loss | $12.1 million | $19.8 million | $7.2 million / $10.8 million |
| Net loss | $12.6 million | $20.4 million | $7.1 million / $10.7 million |
| Net loss per share | $0.80 | $1.69 | $0.88 / $1.54 |
| Operating cash used | Not stated for the quarter | $13.5 million | $9.8 million for six months |
Margins are not meaningful because the company reported no revenue. At December 31, 2021, cash and cash equivalents were $77.4 million, plus $5.0 million of restricted cash; current assets were $78.1 million and current liabilities $6.4 million, yielding working capital of approximately $71.7 million. Total assets were $83.4 million, total liabilities $21.1 million, and shareholders’ equity $62.3 million. The company reported $15.0 million of loan principal outstanding, with a $14.2 million net carrying value after unaccreted debt discount; contractual principal and final fee totaled approximately $15.7 million.
Six-month financing cash flow was $54.9 million, principally from equity offerings. Cash, cash equivalents and restricted cash increased by $41.4 million to $82.4 million. No investing cash flows were reported. Management believes unrestricted cash will fund planned activities and obligations at least through February 2023.
Material changes versus prior comparable periods
- Six-month R&D expense rose 123% to $15.2 million, mainly due to higher RZ358 and RZ402 clinical-trial costs, RZ402 toxicology work, and increased R&D staffing. Quarterly R&D expense rose 110% to $9.5 million.
- Six-month G&A expense increased 16% to $4.6 million, primarily from professional, consulting and financing-advisory fees; quarterly G&A was nearly flat.
- Six-month net loss increased to $20.4 million from $10.7 million, and operating cash use increased to $13.5 million from $9.8 million. Interest expense of $0.9 million arose in 2021 from the loan; there was none in the comparable period.
- October–November 2021 equity transactions generated approximately $52.3 million net proceeds from the underwritten public and registered direct offerings. Additional six-month proceeds included approximately $1.5 million under the equity distribution agreement and $1.2 million under the LPC purchase agreement. Common shares outstanding increased to 15.556 million from 8.352 million at June 30, 2021; pre-funded warrants for 1.661 million shares were also issued and remained unexercised at December 31.
Outlook, risks and unusual items
- RZ358 was in a Phase 2b trial for congenital hyperinsulinism. The last patient was dosed in January 2022, triggering a $2.0 million payment to XOMA; management expected top-line results in the first quarter of calendar 2022, subject to pandemic conditions.
- RZ402 was in Phase 1b multiple-ascending-dose development for diabetic macular edema. The company planned to complete the study in the first quarter of calendar 2022 and, if results were favorable, expected to advance toward a Phase 2a study in the second half of calendar 2022. A $3.0 million ActiveSite milestone is due upon first-patient dosing in a Phase 2 trial.
- The company expects operating losses for the foreseeable future and may need additional financing. The loan bears a contractual rate of 8.87% at period-end, is secured by substantially all assets including intellectual property, and requires at least $5.0 million in a lender-controlled restricted-cash arrangement. The additional $15.0 million term B and C tranches were not available because required initial clinical milestones had not been achieved.
- COVID-19 had not significantly affected reported results, but could disrupt enrollment, trial-site activity, supplies, operations and financing. The filing reported no pending or threatened litigation expected to have a material effect.
- An employee retention credit contributed $0.231 million of non-operating income in the six-month period. The company recorded no income-tax benefit because of a full valuation allowance on deferred tax assets.
- Management identified two material weaknesses in internal control over financial reporting: insufficient segregation of duties due to limited staffing, and ineffective treasury controls over authorized shares and share-issuance requirements. The share-authorization deficiency was cured in May 2021, but management said it could not assure that remediation efforts would eliminate the weaknesses.
Important facts for investors to verify
- Subsequent RZ358 top-line results, trial progress and the timing/payment of the $2.0 million XOMA milestone.
- RZ402 Phase 1b results, the timetable for any Phase 2 trial, and the associated $3.0 million ActiveSite milestone.
- Actual cash burn and runway relative to management’s February 2023 estimate, including the impact of restricted cash and license milestones.
- Availability and potential dilution from the remaining equity distribution and LPC facilities, outstanding pre-funded warrants, options and other warrants.
- Loan covenant compliance, interest and repayment obligations, collateral terms, and whether the two material weaknesses are remediated.
- Whether COVID-19 or other clinical, regulatory, financing or operating risks alter development timelines or funding needs.