GT Biopharma, Inc. — Q2 2021 Form 10-Q
Business context and reporting period
Quarter and six months ended June 30, 2021. GT Biopharma is a clinical-stage biopharmaceutical company developing TriKE and related natural-killer-cell engager therapies. It had no approved products and generated no revenue.
Financial results and liquidity
- Revenue: $0 for the quarter and first half, unchanged from 2020; gross margin is not meaningful.
- Net loss: Q2 loss was $4.861 million, versus $17.422 million in Q2 2020. First-half loss was $34.538 million, versus $19.130 million. Basic and diluted loss per share was $0.15 and $1.39, respectively, compared with $0.24 and $0.27 in the comparable periods.
- Operating costs: Q2 R&D was $639,000 versus $12,000; SG&A was $3.742 million versus $1.546 million. First-half R&D was $2.279 million versus $336,000; SG&A was $31.104 million versus $2.292 million. First-half SG&A included $25.007 million of stock-based compensation, a substantial noncash expense.
- Cash flow: First-half operating cash use was $7.972 million, versus $3.634 million in 2020. Financing provided $42.180 million; cash increased by $34.208 million to $39.505 million.
- Balance sheet: Current assets were $39.567 million and current liabilities $3.276 million, including $842,000 of derivative liabilities and a $31,000 line of credit. Convertible notes and accrued interest totaling $38.799 million were mandatorily converted into common stock in February; no convertible notes remained at June 30. Stockholders’ equity was $36.291 million.
Material changes and capital structure
A February public offering generated $24.679 million net proceeds and included warrants for 5,192,250 shares. Exercise of warrants generated a further $16.296 million. The debt conversion, warrant exercises, offering and other issuances materially increased common shares: 28.144 million were issued and outstanding at June 30, compared with 5.218 million at year-end 2020. Another 3.152 million conversion shares were recorded as issuable at quarter-end; the filing says 2.313 million of these were issued after quarter-end. A 1-for-17 reverse stock split took effect in February.
First-half losses rose year over year, principally alongside higher operating expenses and substantial stock compensation. Comparisons also reflect 2020 settlement expense of $11.206 million and interest expense of $5.296 million; first-half 2021 interest expense was $696,000, and there was no settlement expense. The change in derivative fair value added $459,000 of expense in the first half of 2021.
Outlook, risks and unusual items
- Going concern: Management and the filing identify substantial doubt about the company’s ability to continue as a going concern. Management said available funds were expected to support operations through the next six months in the notes; MD&A separately says planned financing efforts, if successful, could provide resources for at least nine months from the financial statements’ issuance date. Additional funding may be needed, and there is no assurance it will be obtained.
- Clinical development: The company was conducting a Phase I/II trial of its lead candidate, identified as GTB-3550 in the notes and OXS-3550 in MD&A. Management expected direct clinical costs to rise during the remainder of 2021. No numerical revenue or earnings guidance was provided.
- Equity compensation and commitments: Significant stock awards to executives, directors and consultants drove noncash expense and dilution. Remaining employee compensation commitments were reported at $8.739 million. The company also disclosed increased CEO and CFO salary and target bonus arrangements.
- Contingencies: A lawsuit by Jeffrey Lion and Daniel Vallera remained pending, with trial scheduled for May 2022; the company said it believed the case lacked merit. The filing presents differing descriptions of the plaintiffs’ claims in its notes and legal-proceedings section. A separate lease dispute was settled for $100,000 in July, accrued at June 30.
- Controls and other risks: Disclosure controls were deemed ineffective due to material weaknesses involving segregation of duties, executive override risk, and insufficient accounting and reporting policies. Management described remediation plans. The company said COVID-19 affected first-half operations, but the extent of future effects was uncertain.
Important facts for investors to verify
- Reconcile the differing management runway estimates and assess the company’s financing needs and ability to raise capital.
- Confirm the status of all conversion shares still issuable at June 30, subsequent share issuances, warrant overhang and resulting dilution.
- Review the clinical trial’s progress, costs, and candidate naming/status, and distinguish expectations from established results.
- Reconcile the lawsuit descriptions and claimed amounts across the filing; monitor the settled lease matter and other contingencies.
- Review the extent and remediation of internal-control material weaknesses, and the scale and vesting of equity compensation.