10-Q Summary
Filing identification: The provided filing is for Enochian Biosciences Inc., not Lunai Bioworks Inc. It covers the fiscal quarter and nine-month period ended March 31, 2022 (fiscal 2022 third quarter), compared with the periods ended March 31, 2021. The financial statements are unaudited.
Business Context and Reporting Period
Enochian is a preclinical biotechnology company developing gene, cell, and immune therapies for HIV, HBV, coronavirus and influenza infections, and cancer. The company has generated no product revenue and expects to remain pre-revenue until potential therapies receive marketing approval. Its operations are funded primarily through equity issuances and debt.
Key development programs include ENOB-HV-01, ENOB-HV-12 and ENOB-HV-21 for HIV; ENOB-HB-01 for HBV; coronavirus and influenza programs; and oncology candidates. Management reported that a pre-IND submission for the respiratory program was expected in the near term and that potential IND submissions and clinical enrollment could occur during late 2022 or 2023 for certain programs.
Financial Metrics
| Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Nine Months Ended March 31, 2022 | Nine Months Ended March 31, 2021 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $4.0 million | $3.1 million | $17.9 million | $9.2 million |
| Loss from operations | $(4.0) million | $(3.1) million | $(17.9) million | $(9.2) million |
| Net loss | $(6.2) million | $(4.0) million | $(23.2) million | $(9.4) million |
| Basic and diluted loss per share | $(0.12) | $(0.09) | $(0.44) | $(0.20) |
| Net cash used in operating activities | Not separately provided | Not separately provided | $(12.7) million | $(7.6) million |
- General and administrative expense: $2.8 million for the quarter and $11.2 million year to date, increases of 47% and 101%, respectively. The year-to-date increase was driven substantially by stock-based compensation, officer compensation, salaries, and recruiting.
- Research and development expense: $1.2 million for the quarter and $6.6 million year to date, increases of 8% and 85%, respectively. Year-to-date spending included a $1.5 million HBV milestone payment, $600,000 related to ENOB-HV-21, $1.4 million of CDMO and CRO costs, and $150,000 of coronavirus license payments.
- Non-cash and unusual expense: The fair value adjustment for contingent consideration was an expense of $2.1 million for the quarter and $5.1 million year to date, compared with $0.9 million of expense and $38,313 of income, respectively, in the prior-year periods.
- Cash and liquidity: Cash was $11.2 million at March 31, 2022, down from $20.7 million at June 30, 2021. Management reported working capital of $4.2 million, down from $19.0 million.
- Assets and equity: Total assets were $180.1 million and stockholders’ equity was $161.2 million at March 31, 2022. The balance sheet included $154.8 million of indefinite-lived in-process research and development assets and $11.6 million of goodwill; management reported no impairment as of the reporting date.
- Debt and other liabilities: Total liabilities were $18.9 million, including $4.8 million of notes payable due November 2022, $1.2 million of convertible notes due February 2023, and $10.3 million of contingent consideration liability.
- Financing: Nine-month financing cash inflows were $3.2 million, including $3.5 million from the Lincoln Park Capital equity facility and $130,000 from warrant exercises. The company issued 578,606 common shares during the nine months.
Material Changes Versus the Prior Comparable Period
- Year-to-date operating expenses increased 94%, from $9.2 million to $17.9 million.
- Year-to-date net loss increased 148%, from $9.4 million to $23.2 million.
- Cash used in operations increased from $7.6 million to $12.7 million, while cash declined by $9.5 million during the current nine-month period.
- Research and development spending increased 85%, reflecting program milestones, licensing payments, and outsourced development work.
- The contingent consideration liability increased from $6.0 million at June 30, 2021 to $10.3 million at March 31, 2022, primarily due to a $5.1 million fair value adjustment, partly offset by $798,000 of contingent shares issued.
- Shares outstanding increased from 52.2 million at June 30, 2021 to 52.8 million at March 31, 2022. Potentially dilutive securities were excluded from diluted EPS because their effect was antidilutive.
Guidance, Outlook, Risks, and Unusual Items
- Management stated that existing liquidity and committed funds were expected to fund operations for the next twelve months, but additional capital may be needed for personnel, equipment, research and development, IND preparation, licensing obligations, and potential acquisitions.
- The company may raise additional capital through equity or debt offerings; financing may not be available on acceptable terms or at all.
- The company has never generated revenue, may never become profitable, and expects continuing operating losses while its programs remain in development.
- COVID-19 had not materially affected operations as of the filing date, but it had delayed experiments and increased animal-study costs. Future restrictions or disruptions could affect research, clinical, regulatory, manufacturing, and partner activities.
- The contingent consideration liability is a Level 3 fair value estimate that is highly sensitive to the company’s share price, volatility, risk-free rate, warrant terms, and remaining contingent shares.
- Disclosure controls and procedures were deemed ineffective because the company lacked sufficient accounting personnel to segregate duties. Management identified a material weakness and expected the deficiency to continue until adequate internal accounting staff could be hired.
- The company disclosed related-party relationships involving G-Tech and SRI. Payments to G-Tech totaled $354,500 for the quarter and $3.9 million year to date for consulting, license-related costs, research, and security expenses.
- No material pending legal proceedings or material subsequent events requiring disclosure were reported.
Important Facts for Investors to Verify
- Confirm the issuer and period: the supplied text identifies Enochian Biosciences Inc. and March 31, 2022, despite the request identifying Lunai Bioworks Inc. and “2021 Q3.”
- Assess the cash runway against the stated need for additional funding and the November 2022 maturity of the $5 million note.
- Review the composition, valuation assumptions, and potential settlement of the $10.3 million contingent consideration liability.
- Evaluate the carrying value and impairment risk of the $154.8 million in-process research and development asset and $11.6 million of goodwill.
- Review the material weakness in internal controls and the company’s remediation progress.
- Track clinical, pre-IND, IND, licensing, milestone, and partnership developments because the company remains preclinical and has no revenue.
- Consider dilution from the Lincoln Park equity facility, stock options, warrants, contingent shares, and other equity-linked instruments.