Business Context and Reporting Period
Form 10-Q for the quarter ended March 31, 2016. The filing identifies the registrant as EyeGate Pharmaceuticals, Inc., although the request metadata identifies Kiora Pharmaceuticals. EyeGate was a clinical-stage specialty pharmaceutical company developing ophthalmic therapeutics and drug-delivery systems, including EGP-437 and the EyeGate II Delivery System.
On March 7, 2016, EyeGate acquired Jade Therapeutics, Inc., adding a preclinical pipeline based on CMHA-S polymer technology for ophthalmic indications. The filing states that the acquisition was intended to broaden the Company’s ocular therapeutics portfolio.
Financial Performance and Position
| Metric | Three Months Ended March 31, 2016 | Three Months Ended March 31, 2015 |
|---|---|---|
| Research and development expense | $0.914 million | $0.321 million |
| General and administrative expense | $1.529 million | $0.783 million |
| Total operating expenses | $2.443 million | $1.104 million |
| Net loss | $2.442 million | $2.801 million |
| Net loss attributable to common stockholders | $2.442 million | $11.028 million |
| Basic and diluted loss per share | $0.31 loss | $3.23 loss |
| Net cash used in operating activities | $1.354 million | $1.769 million |
The financial statements do not provide a clear current-period revenue amount in the statements of operations. Management reported limited historical revenue, principally from government grants and licensing-related arrangements. Deferred revenue was $2.660 million at March 31, 2016, compared with $1.908 million at December 31, 2015.
- Cash and cash equivalents were $7.215 million at March 31, 2016, down from $8.394 million at December 31, 2015.
- Total assets were $12.317 million, including $3.912 million of in-process research and development associated with the Jade acquisition.
- Total current liabilities were $5.650 million, including $1.210 million of contingent consideration related to Jade.
- Stockholders’ equity was $6.667 million, compared with $6.087 million at December 31, 2015.
- The Company reported no indebtedness other than ordinary-course trade and accounts payable.
- The filing does not present meaningful operating margins because the Company is clinical-stage, has limited revenue, and reports operating losses.
- Cash used in investing activities was $0.176 million, primarily reflecting the Jade transaction and an increase in restricted cash. No financing cash was generated during the quarter.
Material Changes Versus the Prior Comparable Period
- Research and development expense increased $0.593 million, primarily because of increased clinical activity, including the resumed Phase III anterior uveitis trial, a Phase I/II macular edema trial, and Jade-related research.
- General and administrative expense increased $0.746 million, driven primarily by stock-based compensation, higher payroll and other operating costs, and the expansion of operations following public offerings and the Jade acquisition.
- Operating expenses more than doubled year over year, but the net loss improved because the prior-year period included approximately $1.920 million of interest expense and a non-recurring $8.222 million deemed dividend on preferred stock.
- Operating cash use decreased by approximately $0.415 million year over year, partly because of cash payments received under the Valeant agreement and classified as deferred revenue.
- Common shares outstanding increased from 7,657,287 at December 31, 2015 to 8,346,444 at March 31, 2016, principally due to shares issued or issuable in connection with the Jade acquisition.
- The Jade acquisition added approximately $2.702 million of in-process research and development and resulted in $0.234 million of acquisition-related expense during the quarter.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected cash on hand at March 31, 2016 to fund planned operations for approximately 12 to 15 months, subject to changes in spending and development timing.
- The Company expected increasing research and development and general and administrative expenses as it advanced EGP-437, the EyeGate delivery system, and Jade’s product candidates.
- Management stated that additional capital would be required through equity or debt financing, grants, collaborations, or licensing arrangements. The Company had no committed external source of funding.
- The filing states that these conditions raised substantial doubt about the Company’s ability to continue as a going concern. The financial statements were not adjusted for the potential effects of a failure to continue as a going concern.
- On May 6, 2016, after the reporting date, the SEC declared effective a shelf registration covering up to 100 million common shares. Management stated that the success and terms of any offering were uncertain.
- The Valeant agreement provided for up to $32.5 million of additional developmental and commercial milestones, subject to achievement, plus royalties. The Company had received approximately $2.2 million in aggregate milestone payments by March 31, 2016.
- Jade consideration included 765,728 common shares, with 10% held back for 18 months, repayment of certain liabilities, and a potential $2.164 million cash earn-out contingent on FDA marketing approval of a Jade product.
- Contractual obligations totaled approximately $2.684 million, including operating leases, licensing commitments, and purchase obligations under a clinical research organization agreement. A separate contingent Jade earn-out is not included in that table.
- The Company reported no legal proceedings and no off-balance-sheet arrangements. Internal control procedures were considered effective, while integration of Jade’s controls and accounting systems was ongoing.
- Principal risks include failure to obtain regulatory approval, clinical-trial uncertainty, continued losses and cash burn, inability to raise capital, dilution, dependence on licensing and collaboration arrangements, and failure to realize anticipated benefits from the Jade acquisition.
Important Facts for Investors to Verify
- Confirm the correct registrant and ticker because the supplied metadata names Kiora Pharmaceuticals while the filing text identifies EyeGate Pharmaceuticals, Inc.
- Verify the amount and timing of revenue recognized from Valeant licensing arrangements and government grants, given the significant deferred revenue balance.
- Assess the Company’s ability to raise capital before the projected 12-to-15-month cash runway expires and the implications of the going-concern disclosure.
- Review the clinical and regulatory status, trial costs, and milestones for EGP-437 and Jade’s lead product candidate.
- Evaluate dilution from 1.982 million outstanding warrants, 1.488 million outstanding options, and shares reserved or issuable under the Jade transaction.
- Confirm the valuation and completion of the preliminary purchase-price allocation for Jade, including the $1.210 million contingent consideration and potential $2.164 million FDA-related earn-out.