Oragenics, Inc. — Q3 2014 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2014. Oragenics is a development-stage biotechnology company with limited commercial sales of oral probiotic products and research programs in antibiotics and therapeutic probiotics.
Financial results and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $201,010 | $253,374 | $719,422 | $597,449 |
| Gross profit (margin) | $127,299 (63.3%) | $139,990 (55.2%) | $440,346 (61.2%) | $333,459 (55.8%) |
| Operating expenses | $1,162,148 | $9,465,455 | $5,026,669 | $13,470,316 |
| Net loss | $(1,029,544) | $(9,325,424) | $(4,565,947) | $(12,989,419) |
| Basic and diluted loss per share | $(0.03) | $(0.34) | $(0.13) | $(0.47) |
- Operating cash used in the first nine months was $4.38 million, versus $5.55 million in 2013. Investing activities used $19,705; financing activities used $113,486, compared with $3.90 million provided in 2013.
- Cash and cash equivalents were $11.76 million at September 30, down from $16.28 million at December 31, 2013. Working capital was $11.54 million, versus $15.81 million at year-end.
- Total assets were $12.30 million; total current liabilities were $739,507, including $109,564 in short-term notes payable. Accumulated deficit was $74.72 million. The filing reports no material revenue-producing product beyond its probiotic products.
Changes and business developments
- Nine-month revenue rose 20% year over year, primarily reflecting higher ProBiora3 sales, partly offset by lower grant revenue. Q3 revenue fell about 21%, primarily due to lower Evora Pro sales to private-label customers and dental distributors.
- Nine-month operating expenses and net loss declined substantially from 2013, mainly because 2013 included a $6.0 million Intrexon technology-access fee and significant stock-based compensation. The reduction does not indicate a comparable reduction in ongoing development needs.
- Management scaled back ProBiora3 marketing after prior sales efforts missed expectations; it expected revenue to remain relatively flat until more marketing resources could be devoted.
- MU1140 development timing shifted: management then expected an FDA pre-IND meeting in the second half of 2015 and a potential IND filing in 2016, later than its prior expectations. Probiotic ECC laboratory research was postponed to early 2015 after a strategy review.
- Oragenics discontinued two ProBiora3 clinical studies after baseline data did not support enhanced product claims, and concluded a pilot study showed no clear statistically significant improvement over the existing tablet format.
Outlook, risks, and unusual items
- Management said available cash was expected to fund the business plan as then structured for the next 12 months, but additional funding would be required to continue longer-term operations and development. There were no committed financing sources; financing availability and terms were uncertain, and an inability to raise funds could force program reductions or delays.
- A supplier of two of the three bacterial strains used in ProBiora3 planned to stop production effective December 20, 2014. The company said it expected existing supply to meet needs through December 2015 and was seeking an alternative, without assurance it could secure one on viable terms.
- Product development and commercialization depend on third parties and Intrexon collaborations. Potential obligations include royalties, milestone payments and, under the Probiotic ECC, milestone payments of $2 million, $5 million and $10 million at specified development or commercialization events. None of the disclosed Intrexon or Texas A&M milestones had been achieved by September 30, 2014.
- The company reported recurring losses and negative operating cash flows since inception. It expects substantial future research and development spending and cannot assure additional capital or eventual profitability. No income tax benefit was recorded; deferred tax assets carried a full valuation allowance.
- Management judged disclosure controls effective but disclosed a continuing material weakness in segregation of duties due to limited staffing. The company reported no material pending legal proceedings.
Important facts for investors to verify
- Whether cash burn and development spending keep the stated 12-month funding outlook intact, and whether additional financing becomes necessary.
- Whether a qualified replacement supplier is secured for the discontinued ProBiora3 ingredients before existing supply runs out.
- Whether MU1140 preclinical work, the pre-IND meeting and anticipated 2016 IND filing remain on schedule, and whether the therapeutic probiotic program advances as planned.
- How ProBiora3 sales perform after reduced marketing, and whether future clinical evidence supports stronger product claims.
- Potential dilution and cash obligations from Intrexon and other license or collaboration agreements, as well as progress in addressing the segregation-of-duties weakness.