Oragenics, Inc. — Q2 2020 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2020. Oragenics is a clinical-stage biotechnology company developing TerraCoV2, a preclinical SARS-CoV-2 vaccine candidate, and OG716, a nonclinical lantibiotic candidate for C. difficile. The company reports no significant operating revenues.
Financial performance and position
| Metric | Q2 2020 / June 30, 2020 | Comparable period / prior year-end |
|---|---|---|
| Revenue | No significant operating revenue disclosed | No significant operating revenue disclosed |
| Operating expenses | Three months: $12.35 million; six months: $17.58 million | Three months: $4.90 million; six months: $8.30 million |
| Net loss | Three months: $12.34 million; six months: $17.53 million | Three months: $4.81 million; six months: $8.13 million |
| Net loss per share | Three months: $0.24; six months: $0.36 | Three months: $0.10; six months: $0.21 |
| Cash and cash equivalents | $9.63 million | $18.27 million at December 31, 2019 |
| Operating cash used | Six months: $8.66 million, per cash flow statement | Six months 2019: $5.70 million |
| Working capital | $8.56 million | $16.99 million at December 31, 2019 |
| Debt and lease liabilities | $132,088 short-term notes; $754,546 operating lease liabilities | Short-term notes: $143,864 at December 31, 2019 |
Margins are not meaningful given the absence of significant operating revenue. The company recorded a $9.96 million noncash acquisition expense in research and development for the May 2020 purchase of Noachis Terra, which holds the vaccine-related NIH license. At period end, total assets were $10.73 million and shareholders’ equity was $8.79 million.
Material changes versus prior periods
- Six-month operating expenses more than doubled, primarily reflecting the Noachis Terra acquisition and TerraCoV2 development costs; lower oral-mucositis and other collaboration costs partly offset the increase.
- Cash fell by $8.64 million during the first half of 2020. Financing cash flow was only $16,724, compared with $11.22 million in the first half of 2019, when the company completed a public offering.
- Common shares outstanding increased from 46.12 million at December 31, 2019 to 55.36 million at June 30, 2020. The filing reports 61.00 million shares outstanding as of August 7, 2020.
- AG013 failed to show statistical significance on its primary Phase 2 endpoint. The company later discontinued the program and terminated its collaboration agreement, effective July 2020.
Outlook, risks and unusual items
- Funding and going concern: Management says cash, together with subsequent warrant-exercise proceeds, is expected to fund the operating plan into the first quarter of 2021. The filing states there is substantial doubt about the company’s ability to continue as a going concern beyond that period. Additional funding is not committed or assured; failure to obtain it could delay or curtail development.
- Subsequent warrant exercises: From June 30 through July 28, 2020, exercises generated $5.14 million in gross proceeds and resulted in 5.63 million additional shares. The company paid $1.22 million of related contingent consideration to the former Noachis Terra shareholder.
- Development plans: Management planned an FDA pre-IND meeting for TerraCoV2 in Q3 2020 and anticipated Phase 1 studies in early 2021. Vaccine development depends on additional funding, including potential BARDA support. OG716 work is also subject to available human and financial resources.
- Other obligations: The Noachis Terra transaction includes contingent payments tied to exercises of certain outstanding warrants. The lantibiotic collaboration includes substantial milestone payments, including $25 million upon regulatory approval, as well as royalties and potential sublicensing payments.
- Operating risks: COVID-19 could disrupt suppliers, manufacturing, clinical operations, trial recruitment and third-party partners. The company also warns that future equity financing could dilute shareholders and that debt or preferred financing could carry senior rights or restrictive terms.
- PPP loan: The company received a $132,088 Paycheck Protection Program loan and believed it would meet forgiveness requirements, but stated forgiveness was not assured.
Important facts for investors to verify
- Reconcile material inconsistencies in the filing: the financial statements report six-month net loss of $17.53 million and operating cash use of $8.66 million, while other filing text cites net loss of about $7.5 million and operating cash use of $6.73 million. The balance sheet reports accumulated deficit of $145.54 million, while a note cites $135.55 million.
- Confirm the actual cash runway and spending assumptions, including whether additional financing or BARDA funding is obtained and how subsequent warrant proceeds and the $1.22 million contingent payment affect liquidity.
- Track TerraCoV2 preclinical progress, regulatory interactions, funding and clinical-trial timing; separately assess the status and resourcing of OG716.
- Review dilution and potential cash proceeds from outstanding warrants, contingent consideration payable on specified warrant exercises, and preferred-stock dividend and liquidation rights.
- Assess the consequences of AG013’s discontinued Phase 2 program and whether any remaining regulatory or contractual costs apply.