AzurRx BioPharma, Inc. — Q2 2017 Form 10-Q
Filing identity: The supplied filing is for AzurRx BioPharma, Inc., not Gridai Technologies Corp. It covers the quarter and six months ended June 30, 2017; statements are unaudited.
Business context and reporting period
AzurRx is a pre-revenue biotechnology company developing non-systemic biologics for gastrointestinal disorders. Its pipeline included MS1819, a lipase candidate for exocrine pancreatic insufficiency, and AZ1101, an enzyme candidate addressing antibiotic-related infections and diarrhea. The company reported no revenue.
Key financial metrics
| Metric | Q2 2017 / June 30, 2017 | Comparable period / prior balance |
|---|---|---|
| Revenue | None | None reported |
| Net loss | Q2: $2.67 million; first half: $5.48 million | Q2 2016: $3.77 million; first half 2016: $5.76 million |
| Loss per share, basic and diluted | Q2: $0.27; first half: $0.56 | Q2 2016: $0.63; first half 2016: $1.07 |
| Operating expenses | First-half R&D: $1.28 million; G&A: $3.56 million | First-half 2016: R&D $1.53 million; G&A $1.55 million |
| Operating cash flow | First-half cash used: $3.42 million | First-half 2016 cash used: $1.29 million |
| Cash | $3.83 million | $1.77 million at December 31, 2016 |
| Current assets and liabilities | $5.03 million and $2.56 million; working capital approximately $2.47 million | December 31, 2016: $2.96 million and $2.34 million |
| Debt and other liabilities | Convertible debt carrying value $645,119; note payable $26,010; contingent consideration $1.56 million | December 31, 2016: no convertible debt; note payable $155,187; contingent consideration $1.20 million |
| Accumulated deficit | $28.37 million | $22.89 million at December 31, 2016 |
No meaningful revenue margin was reported because the company had no revenue.
Material changes versus prior periods
- First-half net loss narrowed by about $281,000 year over year, while operating cash use increased by about $2.13 million.
- First-half G&A rose $2.01 million, mainly reflecting noncash stock and warrant compensation and increased public-company, investor-relations, legal, accounting, and insurance costs. R&D fell $249,000, primarily because 2016 included manufacturing costs for additional MS1819 batches.
- First-half interest expense decreased to $288,000 from $1.10 million, and the prior-year warrant fair-value adjustment did not recur. A $360,000 fair-value expense for contingent consideration was recorded in the first half of 2017.
- Cash increased largely through financing: the company reported $5.52 million of net financing cash flow, including $4.65 million net proceeds from a June equity-and-warrant placement and $1.0 million of convertible debt proceeds. Common shares outstanding rose to 11.12 million from 9.63 million.
Outlook, risks, contingencies, and unusual items
- Management estimated cash would fund operations until March 2018, but said additional financing would be needed. The filing states that funding uncertainty raises substantial doubt about the company’s ability to continue as a going concern through August 2018; without financing, it may have to delay, curtail, or eliminate programs.
- The $1.0 million principal 12% secured convertible debenture carries a $120,000 original issue discount; principal plus discount of $1.12 million is due by November 10, 2017, or earlier following receipt of specified tax credits. Extension to July 11, 2018 is conditional on receiving those credits. The company warned that failure to pay or restructure could result in default. The reported effective interest rate after warrant and conversion-feature accounting was 363%.
- The June placement generated $5.0 million gross proceeds and included common shares and warrants. A further $400,000 gross closing occurred July 5, after quarter-end. These securities and potential warrant exercises create dilution risk.
- After quarter-end, the company signed an exclusive TransChem sublicense relating to potential bacterial infection treatments. Upfront, maintenance, milestone, and royalty payment terms apply; the filing does not specify the amounts.
- A €1.0 million payment to Mayoly may be due upon FDA approval of MS1819; no contingent liability was recorded. The company also carries $1.56 million of contingent consideration tied to its acquisition agreement.
- Management concluded disclosure controls were not effective because of previously disclosed material weaknesses in internal control over financial reporting; no material control changes were identified during the quarter.
- Other risks include development and regulatory uncertainty, reliance on external financing, possible limits on use of tax-loss carryforwards after an ownership change, foreign-currency exposure, and cash balances above FDIC insurance limits.
Important facts for investors to verify
- Confirm the registrant’s identity: the filing is AzurRx BioPharma, Inc., despite the request metadata naming Gridai Technologies Corp.
- Track cash burn, financing availability, and the company’s stated March 2018 cash runway and going-concern warning.
- Verify receipt and timing of the French tax credits, debenture maturity or extension, and any repayment or restructuring of the debenture.
- Assess clinical and regulatory progress for MS1819 and AZ1101, and the costs and obligations associated with the TransChem sublicense and Mayoly agreement.
- Review the material weakness remediation, potential dilution from outstanding warrants and convertible debt, and the accuracy of contingent-consideration estimates.