Oragenics, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; balance-sheet comparisons are with December 31, 2017. The filing was signed May 15, 2018. Share and per-share amounts reflect the January 19, 2018 one-for-ten reverse stock split.
Business context
Oragenics is a development-stage biotechnology company focused on novel antibiotics and treatments for oral mucositis. It reported no revenue in the quarter; its consumer probiotics business was sold in 2016. Its principal programs are AG013 for oral mucositis and lantibiotic candidates, including OG716 for C. difficile.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1.326 million | $1.122 million; up 18.2% |
| General and administrative expense | $795,463 | $865,195; down 8.1% |
| Total operating expenses | $2.122 million | $1.988 million |
| Net loss | $2.119 million | $1.983 million |
| Basic and diluted loss per share | $0.42 | $0.40 |
| Cash used in operating activities | $1.367 million | $1.900 million |
- At March 31, cash and cash equivalents were $4.758 million, current assets $5.480 million, current liabilities $1.179 million, and working capital $4.301 million. Cash declined $1.408 million during the quarter.
- Total assets were $5.494 million and shareholders’ equity was $4.315 million. Short-term notes payable were $67,763; the filing reports no other outstanding debt at quarter-end.
- There was no meaningful revenue-based margin to assess. The company had an accumulated deficit of $103.579 million and reported recurring losses and negative operating cash flows.
Changes, outlook, and material items
- R&D expense increased primarily from higher Intrexon collaboration costs, partly offset by lower R&D salaries. Lower stock-based compensation and filing fees contributed to the decline in G&A expense.
- Management said cash available at March 31, together with a subsequently completed equity financing, was expected to fund the business as then structured through August 2018. The company stated there was substantial doubt about its ability to continue as a going concern beyond that point and that additional financing was necessary; no assurance of financing was provided.
- On April 10, 2018, after quarter-end, the company completed a registered direct offering of 900,000 common shares at $2 per share for $1.8 million gross proceeds, and issued five-year warrants for up to 900,000 additional shares at $2 per share. Management’s stated runway included this financing.
- Management expected R&D spending to increase as development advances, subject to available capital. The AG013 Phase 2 trial had enrolled its 20-patient interim-analysis cohort; planned European expansion and further development depended on financing. OG716’s IND timing was also contingent on funding and completion of required studies.
- Potential Intrexon milestone obligations are significant but contingent: the amended agreements include payments upon regulatory approval of $25 million for the lantibiotic program and $27.5 million for oral mucositis, with further payments for new indications or products. No such milestones had been achieved by March 31. The agreements also provide for royalties and/or sublicensing revenue shares.
- Intrexon converted approximately $3.4 million of debt and payables into Series C preferred stock in November 2017. Series C carries a 12% annual payment-in-kind dividend, increasing to 20% after May 10, 2019 if not redeemed, and ranks senior in liquidation. Series A and B preferred stock also rank ahead of common stock in specified liquidation distributions.
- As of May 14, 2018, 6,086,635 common shares were outstanding. At March 31, outstanding preferred shares were convertible into common stock and warrants covered 2,177,425 shares, presenting potential dilution. The filing also describes a proposed increase in authorized common shares and equity-plan shares, submitted to shareholders for approval.
- Management reported effective disclosure controls as of March 31 and no significant quarterly change in internal control over financial reporting. The company reported no material pending legal proceedings and no defaults upon senior securities.
Important facts for investors to verify
- Whether subsequent financing or other funding is sufficient to extend the stated August 2018 runway, and whether the going-concern risk has changed.
- Cash burn, R&D spending, and progress, enrollment, timing, and funding requirements for the AG013 trial and OG716 development.
- Potential dilution from preferred-stock conversions, outstanding and newly issued warrants, and any shareholder-approved increases in authorized shares or incentive-plan capacity.
- Terms and potential impact of senior Series C preferred stock, its escalating dividend, and contingent Intrexon milestone and royalty obligations.
- Whether licensing, partnership, or financing arrangements become available on acceptable terms; the filing says no committed financing sources were in place.