Rezolute, Inc. — Form 10-Q Summary
Reporting period: Fiscal quarter and six months ended December 31, 2019; filed February 12, 2020. Rezolute is a clinical-stage biopharmaceutical company with no product revenue.
Financial results and liquidity
| Metric | Three months ended Dec. 31, 2019 | Six months ended Dec. 31, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $5.0 million | $8.3 million | $1.3 million / $2.2 million |
| General and administrative expense | $1.7 million | $3.6 million | $1.8 million / $3.4 million |
| Operating loss | $6.7 million | $11.9 million | $3.2 million / $5.7 million |
| Net loss | $6.7 million | $11.7 million | $4.2 million / $7.5 million |
| Net loss per share, basic and diluted | $0.02 | $0.04 | $0.07 / $0.12 |
| Cash used in operating activities | Not presented for the quarter | $14.4 million | $3.1 million |
- At December 31, 2019, cash and cash equivalents were $18.2 million and restricted cash was $1.5 million, totaling $19.7 million. Working capital was $14.4 million; accumulated deficit was $138.6 million.
- Total liabilities were $5.9 million, including $2.6 million payable to Xoma and $0.5 million in operating lease liabilities. The filing reports no interest expense in the 2019 periods and no off-balance-sheet arrangements.
- Net financing cash inflow was $22.6 million, from approximately $24.1 million of gross private-placement proceeds less $1.5 million in fees. The placements issued approximately 82.9 million shares at $0.29 each.
Changes versus prior year
- Six-month operating expenses rose $6.2 million and net loss increased $4.2 million, principally as clinical programs resumed following financing. R&D expense increased $6.0 million, with higher clinical-trial costs, staffing and consulting services.
- Operating cash use increased $11.3 million year over year, including the effect of $5.9 million in reduced Xoma payables. The 2018 comparison included $2.2 million of interest expense on notes repaid in January 2019; there was none in 2019.
- Common shares outstanding increased from 210.4 million at June 30 to 293.3 million at December 31, 2019. The July–August placements were a significant source of liquidity and dilution.
Programs, outlook and risks
- RZ358: The lead candidate targets congenital hyperinsulinism. The company stated that the Phase 2b RIZE trial was initiated on February 10, 2020, after the reporting date; the first patient had been screened. Management expected enrollment progress and mid-study results over the coming year.
- RZ402: An oral plasma kallikrein inhibitor in development for diabetic macular edema. Management planned to file an IND around mid-2020 and conduct a Phase 1 study before year-end, subject to completion of supporting toxicology work.
- AB101: The Phase 1 study was completed in late 2019. Results showed safety and insulin activity, but variable absorption and a need for higher doses split across multiple injections. Management said further formulation work was needed, planned no material further investment, and sought a development partner; no partner was assured.
- Runway and financing: The filing gives differing runway descriptions: the liquidity note says existing funds should support planned activity through February 2021, while MD&A says funds should support activity at least through October 2020 and also says spending could be managed to operate through February 2021. If financing is not obtained by the second quarter of calendar 2020, management planned to delay clinical spending and substantially reduce discretionary spending. Additional financing is not assured and could be on unfavorable terms.
- Commitments: Xoma held a $2.6 million remaining license-fee balance at December 31, including $2.0 million due March 2020 and $0.6 million due June 2020. The Xoma agreement also includes potential royalties on future RZ358 sales. The ActiveSite agreement provides for up to $46.5 million in milestone payments and 2% royalties; no milestone was triggered by December 31.
- Other items and risks: Approximately $0.7 million in bonuses approved in January 2020 for 2019 service was recorded as expense in the December quarter. Management reported material weaknesses in internal controls, including inadequate segregation of duties and review controls, and said remediation efforts had begun. Recent ownership changes may significantly limit use of approximately $81 million in federal tax-loss carryforwards. The board had authority to effect a 1-for-20 to 1-for-100 reverse split but had not done so as of the filing date.
Investor verification priorities
- Reconcile the stated cash runway through October 2020 versus February 2021, and assess the assumptions behind planned spending and financing needs.
- Track RIZE enrollment, interim results and cash requirements, as well as RZ402 IND timing and the required toxicology work.
- Verify progress in finding an AB101 partner and whether formulation changes or additional costs alter the stated plan.
- Review the remaining Xoma payment schedule, restricted-cash spending requirements, potential license milestones and royalties.
- Assess dilution and ownership concentration: the New Investors held approximately 62% of common shares, and 94.2 million options and warrants were excluded from diluted loss per share as anti-dilutive.
- Monitor remediation of internal-control material weaknesses and any quantified limitations on tax-loss carryforwards.