Filing Overview
The provided filing is a Form 10-K for Enochian BioSciences, Inc. (formerly DanDrit Biotech USA, Inc.), not Lunai Bioworks Inc. It covers the fiscal year ended June 30, 2018; the source does not provide a separate 2017 Q4 filing period. The company is a development-stage biopharmaceutical business focused on gene and cell therapies for HIV/AIDS and cancer.
Business Context and Reporting Period
- Primary programs include ENO-1001, an autologous gene-modified cell therapy for HIV; ENO-2001, an HIV vaccine; and oncology programs ENO-3001, ENO-4001, ENO-4002 and ENO-5001.
- ENO-4001 was the only product described as being in the clinical stage. The company did not plan to market it directly and expected to seek strategic partners.
- On February 16, 2018, the company acquired Enochian Biopharma and obtained an exclusive, fully paid-up worldwide HIV intellectual-property license.
- The company changed its name to Enochian BioSciences, Inc. on March 2, 2018 and traded on the OTCQB.
Financial Metrics
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $8.17 million | $2.40 million |
| Research and development expense | $616,961 | $62,763 |
| Net loss | $9.15 million | $2.14 million |
| Basic and diluted loss per share | $0.42 loss | $0.17 loss |
| Cash and cash equivalents | $15.60 million | $3.94 million |
| Working capital | $14.89 million | $1.21 million |
| Net cash used in operating activities | $4.34 million | $1.18 million |
| Net cash provided by financing activities | $16.71 million | $5.51 million |
| Total assets | $179.66 million | $4.52 million |
| Total liabilities | $23.76 million | $2.99 million |
Gross margin and EBITDA are not meaningful because the company had no revenue. The filing reports no long-term debt at June 30, 2018, although it records a $22.89 million contingent consideration liability related to the acquisition. Current liabilities were $873,722, including $571,809 of trade payables and $235,000 of related-party payables.
Material Changes Versus Prior Period
- Operating expenses increased 240.3%, primarily because of acquisition and fundraising costs, higher research spending, and amortization of acquired intangible assets.
- Net loss increased 327.1% to $9.15 million.
- Research and development spending increased approximately 883% as the company advanced ENO-1001 and ENO-4001 preclinical work.
- Depreciation and amortization increased to $2.86 million, principally from acquired patents and license-related intangible assets.
- Cash increased by $11.66 million, primarily from a $13.42 million private placement and $3.30 million of warrant exercises completed in February 2018.
- Shares outstanding increased from 12.43 million at June 30, 2017 to 36.16 million at June 30, 2018, largely because of the acquisition and equity financing.
Guidance, Outlook, Risks and Unusual Items
- Management stated that the company expects no meaningful sales revenue until its therapies are approved for marketing and sale and acknowledged that it may never become profitable.
- Available cash was expected to fund operations for the foreseeable future, but additional capital may be required for equipment, research and development, an IND filing for ENO-1001, continued oncology development and potential acquisitions.
- FDA approval, clinical development, manufacturing, intellectual-property protection, competition, product liability and market acceptance remain significant risks.
- The acquisition was recorded with $154.82 million of acquired in-process research and development and $11.64 million of goodwill. Total acquisition consideration was $166.47 million, including $21.52 million of contingent consideration at closing.
- The contingent consideration liability was remeasured upward by $1.38 million during FY2018 to $22.89 million and is based on Level 3 valuation inputs.
- The company had approximately $11.47 million of Danish and $5.11 million of U.S. tax loss carryforwards, but recorded valuation allowances against related deferred tax assets.
- Management concluded that disclosure controls and internal control over financial reporting were not effective as of June 30, 2018. The auditor was not required to provide an internal-control attestation.
- Subsequent events included termination of the Weird Science consulting agreement, a new G-Tech Bio consulting agreement with fees of up to $130,000 per month for 20 months, and increased director compensation and options.
Important Facts to Verify
- Confirm the issuer and period: the supplied filing is Enochian BioSciences’ FY2018 Form 10-K, not a Lunai Bioworks 2017 Q4 filing.
- Reconcile inconsistent expense disclosures: consulting expense is reported as $794,166 in the MD&A table but $746,166 in the financial statements.
- Reconcile the investing cash-flow presentation: the cash-flow table reports $575,732 used, while the MD&A discussion refers to $278,732.
- Review the valuation assumptions and potential dilution associated with the $22.89 million contingent consideration liability and up to 6.49 million contingent shares.
- Assess the sustainability of the $15.60 million cash balance against recurring operating cash burn and planned IND and preclinical spending.
- Review related-party consulting, licensing and acquisition arrangements, including the G-Tech Bio agreement entered into after year-end.
- Evaluate the implications of ineffective disclosure controls and internal controls over financial reporting.
- Confirm the regulatory and clinical status of ENO-1001 and the oncology programs, as no product had received marketing approval.