GT Biopharma, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2018. The company is a clinical-stage biopharmaceutical business developing immuno-oncology therapies, with no approved products and no product-sales revenue.
Financial results and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $1.1 million | $0.5 million | $7.8 million | $0.9 million |
| Selling, general and administrative expense | $5.0 million | $126.3 million | $10.6 million | $128.8 million |
| Impairment expense | $228.5 million | None | $228.5 million | None |
| Net loss | $235.8 million | $130.6 million | $255.0 million | $138.1 million |
| Basic and diluted loss per share | $4.70 | $8.15 | $5.09 | $24.54 |
At September 30, 2018, cash and cash equivalents were $1.2 million, total assets were $26.5 million, total liabilities were $13.2 million, and stockholders’ equity was $13.3 million. Current liabilities included $10.6 million of convertible debentures, net of discount, and a $31,000 line of credit. The company reported an accumulated deficit of $524.5 million.
For the first nine months, operating cash use was $9.4 million; financing provided $10.1 million; and cash increased by $656,000 to $1.2 million. Cash from financing included $15.0 million of note proceeds, offset by $4.4 million of note repayments and $533,000 of loan costs. The company reported no off-balance-sheet arrangements. Gross margin is not applicable because no product revenue was reported.
Material changes and unusual items
- The $228.5 million impairment reduced the carrying value of acquired CNS in-process research and development assets. Management cited a strategic shift toward immuno-oncology, limited resources delaying CNS development, and an assessment supporting potential licensing. This was a noncash charge and the principal reason the 2018 net loss increased.
- 2017 SG&A included unusually large noncash stock compensation related to the Georgetown Translational Pharmaceuticals acquisition: $123.8 million for Q3 and $125.9 million for the nine-month period. Corresponding 2018 amounts were $2.2 million and $8.2 million.
- R&D expense increased as the company added employees and consultants and incurred higher preclinical and clinical costs. The nine-month 2018 amount included $6.5 million of noncash compensation.
- Interest expense was $8.0 million for the first nine months, versus $8.5 million in 2017; management attributed financing costs primarily to amortization of original issue discounts and warrant value.
Financing, outlook, and risks
- The company issued 10% senior convertible debentures in August and September 2018, generally convertible at $2 per share. The August transaction included $5.14 million principal; September issuances were $2.05 million and $800,000. Proceeds were partly used to repay earlier notes; some remaining January notes were converted into debentures. These instruments create interest and potential dilution.
- Management stated that substantial additional financing is needed and that the company’s losses and cash position raise substantial doubt about its ability to continue as a going concern. Management believed planned financing efforts, if successful, could fund operations for at least six months from the financial statements’ issuance; there is no assurance funding will be obtained.
- Management expected SG&A cash spending, excluding stock compensation, to be approximately $1–$2 million in coming quarters, with R&D spending dependent on clinical activity. It anticipated increased direct clinical costs and aimed to start a Phase 1 GTB-3550 trial in the first half of 2019, subject to drug supply.
- The FDA had authorized the GTB-3550 Phase 1 study after the company submitted requested IND information. GTB-1550 was being evaluated in an investigator-led Phase 1/2 study; an interim review reported clinical benefit in 7 of 13 evaluable patients, including one complete and one partial remission. Final trial data were expected in Q1 2019. These are interim clinical findings, not approved-product results.
- After quarter-end, the company entered a three-year Westlake Village office lease with minimum payments totaling $212,000. It also reported executive and consulting changes, including the CEO’s employment agreement and a revised consultant agreement. The CFO had resigned in October 2018.
- Disclosure controls and procedures were reported ineffective because of a material weakness in internal control over financial reporting, involving inadequate segregation of duties, reliance on outside consultants, and risk of executive override. Management described planned remediation through finance hires, risk-control matrices, and documented procedures.
- A dispute with MultiCell was settled in September 2018 for $100,000 cash and 75,000 common shares. The filing reported no defaults upon senior securities.
Key facts for investors to verify
- Cash runway, near-term financing needs, and whether additional capital can be raised on acceptable terms.
- Terms, maturities, conversion provisions, and potential dilution from the outstanding senior convertible debentures and warrants.
- Basis and assumptions behind the CNS asset valuation and impairment, and whether licensing or other value realization is achievable.
- Drug supply and timing for the planned GTB-3550 Phase 1 study, and subsequent, complete GTB-1550 clinical results and safety data.
- Progress in remediating the disclosed material weakness and the effect of leadership and finance-team changes on reporting controls.