Rezolute, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended June 30, 2018, with FY2017 comparisons. Although the request metadata says “2017 Q4,” the filing is an annual report for FY2018. Rezolute is a clinical-stage biopharmaceutical company and reported no revenue.
Financial results and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $17.28 million | $12.09 million |
| General and administrative expense | $11.45 million | $8.23 million |
| Total operating expenses | $28.73 million | $20.32 million |
| Net loss | $29.86 million | $20.28 million |
| Basic and diluted loss per share | $0.53 | $0.57 |
| Net cash used in operating activities | $14.11 million | $13.31 million |
| Cash at year-end | $1.65 million | $4.49 million |
- Gross profit and operating margins are not meaningful because the company had no revenue.
- At June 30, 2018, total assets were $2.50 million, total liabilities $6.46 million, and stockholders’ deficit $3.96 million. Working-capital deficit was approximately $4.24 million.
- Cash declined by $2.84 million during FY2018. Financing provided $9.54 million net, including $5.34 million of convertible-note proceeds and $4.50 million from equity issuance. Investing activities provided $1.73 million, principally from selling assets for $1.55 million.
- Convertible notes had $4.84 million outstanding principal at year-end, subject to debt discounts and issuance costs; the balance sheet reported $3.43 million net. Notes generally matured January 31, 2019 or were subject to conversion upon a qualifying financing. Rates included 12%–15%; certain notes were accruing the 15% default rate after a missed interest payment. Interest expense was $689,188, and debt extinguishment loss was $602,193.
- Operating lease obligations totaled $2.69 million, partly offset by $789,000 of disclosed sublease income; net contractual obligations were $1.90 million.
Material changes and business developments
- Rezolute licensed RZ358 from XOMA in December 2017 for congenital hyperinsulinism (CHI), its lead program. RZ358 had prior Phase 1 and Phase 2a proof-of-concept data and U.S. and EU orphan designations. The company planned a Phase 2b study.
- It licensed ActiveSite’s oral plasma kallikrein inhibitor portfolio in August 2017. RZ402 was a preclinical candidate for diabetic macular edema, with an IND filing targeted for 2019; RZ602 was being developed for hereditary angioedema, with an IND filing targeted for 2020.
- AB101, a proposed once-weekly basal insulin, was in a Phase 1 study. Management planned to complete the study and pursue a partner or discontinue the program depending on results.
- In April 2018, the company shifted away from in-house manufacturing, sold laboratory and manufacturing assets, and planned to use external manufacturing organizations. The sale generated $1.55 million and a $663,017 loss; a $1.69 million impairment charge was recorded for leasehold improvements.
- The company reduced its workforce by 30 employees on April 5, 2018 and recorded approximately $575,000 in severance expense. R&D expense increased mainly due to RZ358 licensing, AB101 trial costs, and the acquired kallikrein inhibitor portfolio. G&A increased and included the impairment and asset-sale loss.
- Common shares outstanding rose from 49.23 million to 62.17 million. The April financing also resulted in 11.69 million warrants, exercisable at $0.52, and the filing disclosed 45.64 million total warrants outstanding at year-end.
Outlook, risks, and unusual items
- Management targeted a $40 million financing to fund operations and planned development through the end of calendar 2019. As of the October 15, 2018 filing, discussions included a potential $7 million lead investment and a syndicate, but no completed financing was reported; the proposed term sheet was nonbinding. Management said bridge funding was needed while a financing was pursued.
- The company stated that available cash and expected operating cash flows were insufficient to sustain operations for more than one year from the financial-statement filing date. The auditor’s report included a going-concern explanatory paragraph, and the filing said substantial doubt existed about the company’s ability to continue as a going concern.
- Principal risks include inability to obtain financing, clinical or regulatory failure or delay, dependence on third-party clinical and manufacturing providers, competition, intellectual-property uncertainty, product liability, and potential dilution. The company had never generated revenue and expected continued losses.
- Management reported ineffective disclosure controls and material weaknesses in internal control over financial reporting, including inadequate segregation of duties, insufficient safeguards against override, limited review of complex accounting, and ineffective review controls. Remediation was underway but not assured.
- The filing reported a $250,000 payment in FY2018 for legal expenses associated with settlement of a shareholder derivative complaint. No other material pending or threatened litigation was disclosed.
Important facts for investors to verify
- Whether the proposed $40 million financing and interim bridge funding were completed, on what terms, and whether they were sufficient to maintain operations.
- Current cash, debt balances, interest/default status, maturity or conversion terms, and any subsequent financing or dilution; the year-end figures may not reflect later developments.
- RZ358 Phase 2b plans and results, AB101 Phase 1 results and partnering status, and progress toward RZ402’s IND-enabling work.
- Whether internal-control weaknesses were remediated and whether any later filings identified reporting errors or further weaknesses.
- The economic impact of XOMA and ActiveSite license obligations, including milestones, royalties, and required development spending.