Oragenics, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. Oragenics is a development-stage biotechnology company focused on novel antibiotics and treatments for oral mucositis. It reported no revenue for the periods presented.
Financial performance and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $3.07 million | $1.58 million | $9.36 million | $4.18 million |
| General and administrative expense | $0.85 million | $1.18 million | $2.86 million | $2.99 million |
| Net loss | $3.84 million | $2.76 million | $11.97 million | $7.16 million |
| Net loss per share | $0.08 | $0.35 | $0.29 | $1.12 |
Gross margin and operating margin are not meaningful because the company had no revenue. The Q3 2018 per-share loss included a $1.41 million deemed dividend on Series D preferred stock; there was no such dividend in 2019.
- Cash: $22.29 million at September 30, 2019, versus $20.21 million at December 31, 2018.
- Cash flow: Operating activities used $9.08 million in the first nine months of 2019, up from $6.10 million in the prior-year period. Investing activities used $11,354; financing activities provided $11.17 million.
- Liquidity: Working capital was $20.60 million. Current liabilities were $2.25 million; total liabilities were approximately $2.83 million, including $721,290 of operating lease liabilities and $217,419 of short-term notes payable.
- Capital and dilution: A March 2019 public offering generated approximately $12.5 million gross proceeds. Common shares outstanding increased from 29.43 million at year-end 2018 to 46.12 million at September 30, 2019. The company also had 26.54 million warrants outstanding.
Material changes and business developments
- Nine-month R&D expense increased 124% year over year, primarily from work under the Intrexon collaboration agreements and the AG013 clinical trial. Q3 R&D rose 94% year over year. G&A declined 4% for the nine-month period, mainly due to lower stock-based compensation and bonus costs.
- AG013 Phase 2 enrollment was approximately 182 of a contemplated 200 patients, with 59 sites active in four countries. Management expected to complete enrollment in Q4 2019 and release top-line results in early 2020. A September 2019 safety review covering the first 100 patients who completed the trial recommended continuation without changes.
- Blinded interim trial information presented in September showed an overall severe oral mucositis incidence of 47% in the described evaluation; treatment assignments remained blinded, so comparative efficacy was not established.
- For antibiotic candidate OG716, the company said requisite preclinical studies began in October 2019 and an IND filing was expected after their completion, subject to available capital.
Outlook, risks and contingencies
- Management expected existing cash to support operations, as presently structured, through Q4 2020. The filing nevertheless states there is substantial doubt about the company’s ability to continue as a going concern beyond that period without additional financing. No financing sources were committed, and funding availability and terms were uncertain.
- The company expects substantial losses and cash use to continue as it advances clinical and preclinical programs. If capital is unavailable, it may need to delay or reduce development programs. Future equity financing could dilute shareholders; debt or preferred financing could carry senior rights or restrictive terms.
- Intrexon collaboration agreements include significant potential milestone payments upon regulatory approvals: up to $25 million for the lantibiotic program and $27.5 million for the oral mucositis program, plus additional milestone and royalty or sublicense obligations. No milestones had been achieved by September 30, 2019.
- Series C preferred stock held by Intrexon accrues dividends in additional preferred shares; its annual rate increased from 12% to 20% effective May 10, 2019. The filing identifies potential redemption of this stock as a factor affecting funding needs.
- Additional risks include clinical and regulatory uncertainty, dependence on collaboration and financing, potential dilution from preferred conversions and warrants, and uncertainty over UK/EU regulatory arrangements following Brexit. The company reported no material legal proceedings. Management stated disclosure controls were effective as of September 30, 2019.
Key investor verification points
- Check whether AG013 enrollment was completed and whether top-line results arrived on the stated early-2020 timetable; review the unblinded efficacy and safety data.
- Assess cash burn and financing needs against the stated Q4 2020 runway, including whether additional capital or partnerships were secured.
- Review warrant exercise, potential dilution, Series C dividend accrual and any redemption developments.
- Track OG716 preclinical progress, timing and funding for an IND submission, and potential Intrexon milestone obligations.