AzurRx BioPharma, Inc. — Form 10-Q Summary
Company identification: The supplied filing is for AzurRx BioPharma, Inc., not Gridai Technologies Corp. It covers the quarter and nine months ended September 30, 2017; the filing was signed November 13, 2017.
Business context and reporting period
AzurRx is a pre-revenue biotechnology company developing non-systemic biologics for gastrointestinal disorders. Its pipeline included MS1819, in Phase II development in Australia and New Zealand for exocrine pancreatic insufficiency, and AZ1101, in preclinical development for prevention of certain infections and antibiotic-associated diarrhea. The interim financial statements are unaudited.
Financial results and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | No revenue reported | No revenue reported | No revenue reported | No revenue reported |
| Research and development expense | $966,685 | $744,309 | $2,244,244 | $2,270,546 |
| General and administrative expense | $2,009,432 | $543,721 | $5,564,800 | $2,089,672 |
| Operating loss | $2,726,117 | $2,188,030 | $7,919,044 | $5,260,218 |
| Net loss | $3,134,223 | $3,198,168 | $8,615,371 | $8,960,139 |
| Basic and diluted loss per share | $0.28 | $0.53 | $0.83 | $1.60 |
| Operating cash used | Not separately provided for quarter | $4,715,504 | $2,517,950 |
Margins are not meaningful because the company reported no revenue. At September 30, 2017, cash was $2,946,252, current assets were $3,184,825, current liabilities were $2,730,914, and total liabilities were $4,040,914. Convertible debt, net of unamortized costs, was $336,040; contingent consideration was $1,310,000. Stockholders’ equity was $2,795,454, and accumulated deficit was $31,502,418.
Cash increased from $1,773,525 at year-end 2016, supported by $5,854,038 in financing cash flow, including $5,009,225 net proceeds from a stock-and-warrant placement and $1,000,000 of convertible-debenture proceeds, partly offset by operating and investing cash use and repayment of a note. The company estimated its cash would fund operations only until April 2018 and said additional financing was necessary; management stated that substantial doubt existed about its ability to continue as a going concern.
Material changes versus the prior comparable period
- Third-quarter G&A expense rose $1,465,711 year over year; nine-month G&A increased $3,475,128. The company attributed increases to equity compensation, salaries and bonuses, investor relations, directors’ fees, insurance, and costs of operating as a public company.
- R&D expense increased in Q3, primarily due to the TransChem sublicense, but declined slightly for the nine-month period.
- Nine-month operating cash use increased by approximately $2.20 million. Despite higher operating loss, nine-month net loss was lower year over year, mainly reflecting lower interest expense and the absence of prior-year warrant fair-value losses.
- Common shares outstanding increased to 11,421,702 at September 30 from 9,631,088 at December 31, 2016. The company raised funds through a June/July private placement and issued shares on conversion of debenture debt.
Outlook, risks, contingencies, and unusual items
- Management expected preliminary MS1819 Phase II results in the first quarter of 2018 and expected to continue AZ1101 preclinical development through 2017. The company anticipated increasing R&D spending as clinical development progressed; no specific financial guidance was provided.
- The filing describes a 12% secured Lincoln Park debenture. After a November 10, 2017 modification, its maturity was extended to November 29, 2017, with an option for the company to extend to July 11, 2018 subject to stated conditions. The company was required to issue 30,000 shares for the extension. The filing warns that failure to pay or restructure the debt could result in default.
- The company paid $226,880 through September 30 under a new TransChem sublicense; future maintenance fees, milestones, and royalties may apply. A separate €1 million payment to Mayoly is due upon FDA approval of MS1819. These contingent payments were not recorded as liabilities.
- Management reported that disclosure controls and procedures 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 notable items include substantial noncash equity compensation and a $250,000 Q3 reduction in contingent-consideration fair value, while the nine-month fair-value adjustment was an expense of $110,000. The company reported no legal proceedings and no off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether subsequent financing or other cash resources extended the stated April 2018 runway, and the company’s latest going-concern assessment.
- The final status, repayment, conversion, and any extension of the Lincoln Park debenture, including related share or warrant issuance.
- MS1819 clinical progress and the timing and results of the expected Phase II readout; confirm the status of AZ1101 development.
- The scale and terms of potential dilution from outstanding warrants, options, restricted stock, and future financing needs.
- Whether the previously reported material weaknesses in internal controls were remediated.
- The assumptions behind contingent-consideration valuation and the potential obligations under the Protea, Mayoly, and TransChem agreements.