Oragenics, Inc. — Q2 2016 Form 10-Q
Business context and reporting period. The filing covers the three and six months ended June 30, 2016. Oragenics is a development-stage biotechnology company focused on novel antibiotics, including its OG253 lantibiotic candidate, and AG013 for oral mucositis. In June, it sold its consumer probiotics business, which had generated its product sales.
Key financial metrics
| Metric | Q2 2016 / June 30, 2016 | Comparable period / prior balance |
|---|---|---|
| Revenue from continuing operations | $0 | $0 in Q2 2015 |
| Net loss from continuing operations | $1.734 million | $6.349 million in Q2 2015 |
| Net loss | $313,000 | $6.335 million in Q2 2015 |
| Six-month revenue from discontinued operations | $453,000 | $606,000 in H1 2015 |
| Six-month net loss | $2.376 million | $7.628 million in H1 2015 |
| Cash used in operating activities, six months | $3.540 million | $2.188 million in H1 2015 |
| Cash and cash equivalents | $5.457 million | $5.083 million at Dec. 31, 2015 |
| Total assets | $6.137 million | $5.778 million at Dec. 31, 2015 |
| Current liabilities | $898,000 | $1.047 million at Dec. 31, 2015 |
| Short-term notes payable | $34,778 | $63,352 at Dec. 31, 2015 |
There was no continuing-operations revenue, so gross margin is not meaningful. H1 research and development expense was $2.054 million, down from $6.289 million; SG&A was $1.754 million, up from $1.431 million. Q2 discontinued operations included a $1.454 million gain on sale, contributing to the much smaller reported net loss. No income tax benefit was recorded.
Material changes and financing
- R&D expense fell largely because H1 2015 included a $5 million Intrexon technology access fee; 2016 R&D also reflected increased collaboration-related work and patent costs.
- On June 30, the company issued 9,045,679 shares at $0.5159 per share in a private placement, raising approximately $4.667 million. A $2 million portion was payable by the Koski Family Limited Partnership under a 3% note due by September 30, 2016. The filing does not report its subsequent collection.
- On June 27, the company sold its probiotics business to ProBiora Health, an entity owned by a then-director, for $1.7 million: $1.25 million at closing and a $450,000 note. The $450,000 note was paid July 29, 2016. The seller may also receive contingent payments over ten years, capped at $2 million. ProBiora Health assumed certain liabilities.
- Common shares outstanding were 49,114,219 at June 30 and August 1, compared with 39,858,540 at year-end 2015.
Outlook, risks, and unusual items
- Management said June 30 working capital plus anticipated receipt of the $2 million stock-sale note should fund the business as presently structured through February 2017. The company expects to need additional financing; no committed financing source was disclosed. Failure to raise capital could delay or curtail development.
- The filing reports recurring losses and negative operating cash flow, and cites the prior-year auditor’s substantial-doubt going-concern paragraph. The company had an accumulated deficit of $90.0 million.
- Management expected to pursue an IND for OG253 in 2017, subject to available capital and development needs. For AG013, the company was discussing with the FDA what additional information would be needed before a planned Phase 2 trial; timing was not assured.
- NYSE MKT accepted the company’s plan to regain stockholders’ equity listing compliance by November 10, 2017, subject to periodic review. Failure to meet the plan or deadline could lead to delisting proceedings.
- The company had not achieved the Texas A&M license milestone for first Phase 1 patient enrollment, due June 1, 2016, and planned to seek an extension. The Intrexon collaboration agreements also provide for product royalties and potentially substantial milestone payments; none of the disclosed milestones had been achieved at June 30.
- The filing gives inconsistent working-capital figures: the balance-sheet current assets less current liabilities imply approximately $5.135 million, while MD&A reports a $7.135 million surplus. The filing text does not clearly reconcile the difference.
- Intrexon and the Koski interests beneficially owned approximately 31.5% and 34.5%, respectively, of common shares at June 30, creating significant ownership concentration. The June financing included both parties and the company’s chairman.
Important facts for investors to verify
- Whether the $2 million stock-purchase note was collected by its due date and how much usable liquidity remained after subsequent spending.
- The reconciliation of reported working capital to the balance sheet and the company’s actual cash runway.
- Progress toward NYSE MKT equity compliance and any exchange review or listing developments.
- FDA requirements and timing for OG253’s IND and AG013’s planned Phase 2 trial, including funding available for both programs.
- Status of the Texas A&M milestone extension and potential cash, share-issuance, royalty, and milestone obligations under collaboration and license agreements.
- ProBiora Health’s contingent sales-based payments and any continuing costs or obligations following the business sale.