Business Context and Reporting Period
Despite the request metadata identifying Kiora Pharmaceuticals, the provided filing is EyeGate Pharmaceuticals, Inc. Form 10-Q for the quarter ended March 31, 2017. EyeGate was a clinical-stage specialty pharmaceutical company developing ophthalmic products based on its EGP-437 iontophoretic delivery system and CMHA-S platform, including EyeGate OBG. The financial statements are unaudited and prepared under U.S. GAAP.
Key Financial Metrics
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Collaboration revenue | $184,532 | $0 |
| Research and development expense | $1.815 million | $0.914 million |
| General and administrative expense | $1.289 million | $1.529 million |
| Total operating expenses | $3.104 million | $2.443 million |
| Net loss | $2.920 million | $2.442 million |
| Basic and diluted loss per share | $0.28 | $0.31 |
| Net cash used in operating activities | $18,601 | $1.354 million |
| Cash and cash equivalents at period-end | $5.438 million | $7.215 million |
At March 31, 2017, total assets were $12.001 million, total liabilities were $13.148 million, and stockholders’ deficit was $1.146 million. Deferred revenue was $8.225 million, including amounts received under Valeant license agreements that had not yet been recognized as revenue. The company reported no material debt other than trade payables and capital lease obligations. Current liabilities exceeded current assets by approximately $3.970 million.
Financing activities provided $1.823 million, primarily from the sale of 642,150 common shares under the ATM program. Cash increased by $1.802 million during the quarter.
Material Changes Versus the Prior Comparable Period
- Collaboration revenue increased from zero to $184,532, reflecting revenue from U.S. government grants following the Jade acquisition.
- Research and development expense increased $901,028, primarily because of increased clinical and other activity for EyeGate OBG and the EGP-437 and CMHA-S product pipelines, together with higher payroll-related costs.
- General and administrative expense decreased $239,634, primarily because the first quarter of 2016 included costs related to the Jade acquisition.
- Net loss increased $477,221, despite the new collaboration revenue.
- Operating cash use declined substantially because the company received a $4.0 million upfront payment under the new Valeant agreement and other government funding during the quarter.
- Common shares outstanding increased from 10,130,883 at December 31, 2016 to 10,878,116 at March 31, 2017, primarily due to the ATM offering and other equity issuances.
Guidance, Outlook, Risks and Unusual Items
- Management expected to initiate a second EyeGate OBG trial in the second quarter of 2017, report top-line data in late third quarter or early fourth quarter, initiate a subsequent pivotal trial in the second half of 2017, and potentially file de novo 510(k) and CE mark applications in the first half of 2018.
- A Phase 2b trial for post-surgical ocular inflammation and pain was expected to begin in the second quarter of 2017, with top-line data expected by year-end 2017. The company also expected top-line data from its anterior uveitis Phase 3 trial in the first quarter of 2018.
- Under the February 2017 New Valeant Agreement, EyeGate received a $4.0 million upfront payment, recorded as deferred revenue, and became eligible for up to approximately $99.0 million in development and commercial milestone payments plus royalties. The filing does not indicate that these milestone amounts were guaranteed or currently earned.
- Management stated that cash on hand and expected 2017 receipts would fund planned operations for approximately five months. The company acknowledged substantial doubt about its ability to continue as a going concern and stated that additional equity, debt, licensing or grant financing would be required.
- EyeGate remained loss-making and expected increasing operating losses as clinical development progressed. It had no committed external source of funds, and additional financing might be unavailable or materially dilutive.
- On April 12, 2017, Nasdaq notified the company that it was not in compliance with continued listing requirements relating to stockholders’ equity, market value of listed securities and historical profitability. The company had until October 2, 2017 to regain compliance, subject to Nasdaq procedures.
- On April 21, 2017, the company filed a Form S-1 in anticipation of a possible future equity financing, but stated that the timing, size and completion of any transaction were uncertain.
- Contractual obligations totaled $1.977 million, including $1.690 million of near-term purchase obligations related to clinical research services, $224,385 of lease obligations and $62,500 of licensing obligations.
- No legal proceedings were reported, and management stated that disclosure controls were effective as of March 31, 2017.
Facts an Investor Should Verify
- Confirm the issuer identity: the supplied filing is for EyeGate Pharmaceuticals, Inc., not Kiora Pharmaceuticals.
- Verify the company’s actual cash runway, including the timing and collectability of expected Valeant, government grant and other receipts.
- Review the terms, restrictions and potential dilution from the ATM program, the Form S-1 financing plans, outstanding warrants and stock options.
- Assess progress and results of the planned EyeGate OBG, cataract inflammation and anterior uveitis clinical trials, including regulatory feedback and enrollment.
- Monitor whether the company regained Nasdaq listing compliance by October 2, 2017 and whether any delisting or appeal process followed.
- Evaluate the accounting and future recognition timing for the $8.225 million of deferred revenue under the Valeant agreements.
- Review the going-concern disclosure and determine whether additional financing was obtained on acceptable terms.