Oragenics, Inc. — 2017 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2017, with fourth-quarter comparisons. Oragenics is a development-stage biotechnology company focused on AG013 for oral mucositis and OG716, a preclinical antibiotic candidate for C. difficile. It has no approved products and no continuing product revenue. The consumer probiotics business was sold in 2016.
Financial performance and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue from continuing operations | $0 | $0 |
| Research and development expense | $3.54 million | $4.75 million |
| General and administrative expense | $3.18 million | $3.79 million |
| Net loss | $6.73 million | $7.01 million |
| Net cash used in operating activities | $6.36 million | $7.08 million |
| Cash and cash equivalents at year-end | $6.17 million | $4.08 million |
| Working capital | $6.29 million | $2.88 million |
- 2017 loss per share was $1.37, compared with $1.57 in 2016. The 2016 total net loss was partly offset by $1.48 million of profit from discontinued operations, including a $1.45 million gain on sale; 2017 had no such contribution.
- Operating expenses fell 21% year over year, primarily because collaboration-related R&D and personnel costs declined. Fourth-quarter net loss was $1.46 million versus $2.67 million in fourth-quarter 2016.
- Gross margin is not meaningful because continuing revenue and cost of revenue were both zero. The filing reports no operating revenue from product sales in 2017.
- At December 31, 2017, total assets were $7.21 million and current liabilities were $0.90 million, including $80,478 of short-term notes payable. The $2.4 million Intrexon note, accrued interest and related trade payables were converted into Series C preferred stock with an aggregate stated value of approximately $3.4 million. Series C carries a 12% annual dividend, rising to 20% after May 10, 2019 if not redeemed.
- Financing activities provided $8.45 million in 2017, including $3.0 million gross proceeds from Series A preferred stock and $3.3 million from Series B preferred stock. The company reported no off-balance-sheet arrangements.
Material changes and developments
- AG013 Phase 2 began in the United States in 2017; the first patient was dosed in August. The study is placebo-controlled, planned for up to 200 patients at approximately 45 sites, and is evaluating oral mucositis in head-and-neck cancer patients receiving chemoradiation.
- Management expected to expand the AG013 trial into Europe in 2018 and anticipated preliminary data from the first 20 patients in the first half of 2018.
- OG716 remained in nonclinical development. Following an FDA pre-IND meeting in the third quarter of 2017, management expected to file an IND for a first-in-human study by year-end 2018, subject to sufficient capital and completion of required work.
- November 2017 amendments to the Intrexon collaborations reduced specified sublicense shares from 50% to 25%; the lantibiotic royalty was changed from 25% of product profit to 10% of net sales. The amendments consolidated potential approval-related milestone payments, including $25 million for the lantibiotic program and $27.5 million for the oral mucositis program. None had been achieved at year-end.
- The company raised capital through preferred stock and converted approximately $3.4 million owed to Intrexon into Series C preferred stock. It regained compliance with NYSE American continued-listing standards in November 2017.
- After year-end, the company effected a 1-for-10 reverse stock split, effective January 19, 2018. Historical share and per-share data in the report are adjusted for the split.
Outlook, risks and unusual items
- The independent auditor’s report and management’s disclosures raise substantial doubt about the company’s ability to continue as a going concern. Management said year-end cash was expected to fund operations as presently structured only through June 2018; additional financing was required, and availability and terms were uncertain.
- The company expects continued operating losses and negative cash flows while advancing clinical and nonclinical programs. It may need to delay, reduce or discontinue development if financing is unavailable. The lantibiotic collaboration’s 2018 diligence commitment required at least $1.2 million in program spending.
- Key execution risks include AG013 trial enrollment and results, OG716 toxicology and IND readiness, manufacturing scale-up, regulatory approval, reliance on Intrexon and contract manufacturers, and protection of licensed intellectual property. The company had six full-time employees.
- Preferred stock and warrants create potential dilution and senior claims: Series A and B are convertible, and 2.18 million common-stock warrants were outstanding at year-end. Series C is senior to other equity in liquidation. The filing also notes concentrated ownership by the Koski interests and Intrexon.
- The 2017 tax reform led to a provisional $10.06 million deferred-tax remeasurement, offset by a full valuation allowance; no income-tax benefit was recognized. Tax-loss and credit carryforwards are subject to ownership-change limitations.
- AG013’s prior Phase 1b study reported safety and tolerability and a 35% reduction in duration of ulcerative oral mucositis versus placebo; these early findings do not establish Phase 2 efficacy. OG716’s reported animal results are preclinical and do not establish human safety or efficacy.
Important facts for investors to verify
- Cash runway, cash burn and financing completed after the filing, given the stated June 2018 runway and going-concern qualification.
- AG013 Phase 2 enrollment, timing and results, including whether preliminary data were released and whether the trial expanded to Europe.
- OG716 toxicology, manufacturing readiness and whether an IND was filed by the stated year-end 2018 target.
- Terms and potential economic impact of the Intrexon milestones, royalties, Series C dividend and any subsequent amendments or payments.
- Fully diluted share count, preferred-stock conversion and liquidation terms, warrant exercises, and the effects of the reverse split and subsequent financings.
- Whether the reported tax attributes can be used given Section 382 ownership-change limits, and the final accounting impact of the Tax Cuts and Jobs Act.