Business context and reporting period
This is Rexahn Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2020—not a filing under the name Opus Genetics, Inc. Rexahn was a clinical-stage oncology biopharmaceutical company. It reported that it planned no further company-sponsored trials for RX-3117 or RX-5902, while partners held licenses to develop RX-3117 and other compounds.
Key financial metrics
| Metric | Q3 2020 / September 30, 2020 | Comparable period / prior balance |
|---|---|---|
| Revenue | $0 for Q3; $1.15 million for the first nine months of 2020 | $0 for Q3 and first nine months of 2019 |
| Net loss | $1.40 million for Q3; $4.50 million for nine months | $1.96 million and $6.77 million, respectively, in 2019 |
| Loss per share, basic and diluted | $0.33 for Q3; $1.10 for nine months | $0.49 and $1.72, respectively, in 2019 |
| Operating cash flow | $(4.14) million for nine months | $(8.56) million for nine months of 2019 |
| Cash and cash equivalents | $8.08 million | $9.22 million at December 31, 2019; additionally, $3.00 million of marketable securities then held were redeemed during 2020 |
| Total assets / stockholders’ equity | $8.83 million / $5.71 million | $12.97 million / $9.96 million at December 31, 2019 |
| Liabilities | $3.12 million total, including $110,781 of warrant liabilities and $100,397 of current lease liabilities | No borrowings are reported in the presented balance sheet |
Gross margin is not meaningful for this business and is not presented. Q3 operating expenses were $1.51 million, comprising $1.36 million general and administrative and $150,000 research and development. Nine-month operating expenses were $5.57 million. No income tax provision was recorded.
Material changes versus the prior comparable period
- Nine-month revenue rose from zero to $1.15 million, reflecting recognition of $900,000 under the BioSense agreement and $250,000 under the HaiChang agreement. Q3 revenue remained zero.
- Net loss narrowed year over year in both Q3 and the nine-month period. Nine-month R&D expense fell 83% to $838,000, mainly because RX-3117 and RX-5902 trials were completed and drug manufacturing costs declined.
- Nine-month G&A expense increased 13% to $4.73 million, primarily due to merger-related legal and professional fees, partly offset by lower personnel and operating costs.
- Nine-month interest income fell to $42,235 from $256,569. Warrant fair-value changes shifted from a $2.18 million gain in 2019 to a $126,457 loss in 2020, materially affecting the year-over-year comparison.
- Cash declined by $1.14 million from year-end. Operating cash use improved versus 2019, but the company had no financing cash inflow in the first nine months of 2020, versus $7.65 million raised in 2019.
Outlook, management commentary, risks and unusual items
- Management stated that $8.1 million of cash at September 30 was expected to fund current activities for at least 12 months after issuance of the statements, assuming the merger did not close. If it did not close, Rexahn said it would need additional capital thereafter and might pursue another transaction, asset sales, renewed R&D, or liquidation.
- The proposed all-stock merger with Ocuphire was expected to close no earlier than approximately November 5, 2020, subject to stockholder approval and other conditions. The merger agreement had a November 14 end date. The filing estimated Rexahn’s net cash for merger purposes at $1.9 million to $2.4 million if closing occurred by that date; the final amount was not yet determined and would affect ownership allocation.
- Under the merger terms, Rexahn stockholders were estimated to own about 14.3% of the combined company if net cash fell between $3.2 million and $6.0 million; at $1.9 million, the estimate was about 13.1%. The filing cautioned that financing-related share adjustments and warrants could reduce existing holders’ ownership further. A $21.15 million pre-merger financing was contemplated, with price-protection provisions and warrants that could create substantial dilution.
- Rexahn stockholders were to receive contingent value rights tied to specified future receipts from BioSense, HaiChang, and certain transactions involving legacy intellectual property. Payments were uncertain, could be zero, and the rights were subordinated to the combined company’s senior obligations.
- Merger-related stockholder litigation and a demand letter alleged disclosure and fiduciary-duty issues. The company could not estimate potential losses. Several actions were dismissed or voluntarily withdrawn by the filing date or shortly thereafter; the filing reported a remaining action and retained jurisdiction for a possible fee application in one dismissed case.
- COVID-19 effects on operations, financing access, and merger completion remained uncertain. Other significant risks included ongoing losses, dependence on a small workforce, merger execution and Nasdaq listing requirements, clinical and licensing uncertainty, and potential dilution. Management expected R&D costs to decline further in the remainder of 2020.
Important facts for investors to verify
- Confirm the issuer identity: the supplied filing is Rexahn Pharmaceuticals, Inc., not Opus Genetics, Inc.
- Check subsequent filings for whether and when the Ocuphire merger and $21.15 million financing closed, the final net-cash calculation, and resulting ownership and dilution.
- Review the final financing terms, including escrowed shares, warrant exercise and reset provisions, and their effect on share count.
- Track cash burn and funding needs if the merger failed or after the stated 12-month cash runway assumption.
- Verify developments in the merger-related litigation and demand letter, and whether legacy license or intellectual-property receipts generate any CVR payments.