Rezolute, Inc. — Form 10-Q Summary
Reporting period: Quarter ended March 31, 2022 (Rezolute fiscal third quarter of 2022), with nine-month results compared with the periods ended March 31, 2021. The filing is dated May 12, 2022. Rezolute is a clinical-stage biopharmaceutical company developing therapies for metabolic diseases and reported no product revenue.
Financial position and performance
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue | None in 2022 or 2021 | None in 2022 or 2021 |
| Research and development expense | $8.7 million vs. $3.8 million | $23.9 million vs. $10.6 million |
| General and administrative expense | $2.1 million vs. $1.7 million | $6.6 million vs. $5.7 million |
| Net loss | $11.2 million vs. $3.7 million | $31.6 million vs. $14.4 million |
| Net loss per share, basic and diluted | $0.65 vs. $0.44 | $2.30 vs. $1.94 |
| Cash used in operating activities | Not provided for the quarter | $27.5 million vs. $15.2 million |
At March 31, 2022, cash and cash equivalents were $63.4 million, plus $5.0 million of restricted cash; total current assets were $64.3 million and current liabilities were $2.9 million. Working capital was approximately $61.5 million. Total liabilities were $17.7 million, including $14.3 million of net carrying value for debt; contractual principal and final-fee obligations on the term loan totaled $15.7 million. The loan bears a floating rate of 8.98% at March 31, 2022, is interest-only through at least May 1, 2023, and matures April 1, 2026. The lender has a security interest in substantially all company assets, including intellectual property.
No profit or operating margin was reported because the company had no revenue and incurred operating losses. The filing reports no investing cash flows for the nine-month period. Financing activities provided $54.9 million in cash, primarily from equity offerings. Accumulated deficit was $199.8 million.
Changes versus the prior comparable period
- Nine-month net loss increased by $17.2 million, while operating cash use increased by $12.3 million.
- Nine-month R&D expense increased 126%, chiefly from drug manufacturing, clinical trial activity, higher R&D staffing, and a $2.0 million Xoma milestone payment triggered by the final patient dosing in the RZ358 Phase 2b study.
- Nine-month G&A expense increased 17%, mainly due to professional and advisory fees and compensation.
- Interest expense rose to $1.3 million for the nine months, reflecting the loan entered into in April 2021. The prior-year period included a non-cash $1.8 million gain from revaluing a derivative related to an authorized-share deficiency; that deficiency was eliminated in May 2021.
- Cash and cash equivalents increased from $41.0 million at June 30, 2021 to $63.4 million at March 31, 2022, aided by equity financing. Common shares issued and outstanding rose from 8.4 million at June 30, 2021 to 15.6 million at March 31, 2022.
Outlook, developments, and risks
- Liquidity: Management said March 31 cash, combined with unrestricted net proceeds from the May 2022 registered direct offering, should fund contractual obligations, clinical trials, and planned activities through at least May 2023. The company remains pre-revenue and expects continuing operating losses and further financing needs.
- Subsequent financing: A May 4, 2022 offering generated approximately $110.5 million in net proceeds. It included common shares and Class A and Class B pre-funded warrants; $41.6 million of proceeds related to Class B warrants whose exercise requires shareholder approval to increase authorized shares. A separate private placement of Class C warrants was expected to generate approximately $11.4 million net and was expected to close in May. The filing does not establish that this private placement subsequently closed.
- Shareholder and registration conditions: Class B and Class C warrant exercise depends on approval of an increase in authorized shares. Failure to obtain approval by June 30, 2022 could trigger liquidated damages of approximately $1.1 million, with further payments for subsequent failures. The company also disclosed likely registration-related liquidated damages of approximately $1.1 million based on its planned timing. These warrants were expected to be recorded as derivative liabilities until approval, with fair-value changes affecting earnings.
- Clinical programs: Management reported positive topline Phase 2b RIZE results for RZ358 in congenital hyperinsulinism: over 50% improvement in hypoglycemic events across pooled doses and approximately 75% improvement at the two higher doses; time in glucose range improved 7% across doses and 16% at the highest dose. No adverse drug reactions, dose-limiting toxicities, or drug-related serious adverse events were reported. Management planned regulatory discussions in the second half of 2022 and, subject to clearance, a Phase 3 start in the first half of 2023.
- Management reported positive Phase 1b multiple-ascending-dose results for RZ402, an oral candidate for diabetic macular edema, and planned to initiate a Phase 2a proof-of-concept study in the second half of 2022.
- Commitments: Future license milestones include $5.0 million upon first-patient dosing in a Phase 3 RZ358 trial and $3.0 million upon first-patient dosing in a Phase 2 RZ402 trial. An April 2022 headquarters lease adds approximately $2.9 million of base rent through July 2027.
- Other risks: COVID-19 could disrupt trial enrollment, sites, supplies, operations, or access to capital, although management said results through the reported period were not significantly affected. The company disclosed two material weaknesses in internal control: inadequate segregation of duties due to limited staff and ineffective treasury controls over authorized shares and securities issuance. Management said these weaknesses had not been fully remediated.
Investor facts to verify
- Whether shareholders approved the authorized-share increase by the required date, and whether Class B and Class C warrants became exercisable or triggered damages.
- Whether the expected Class C private placement closed and the company received its anticipated net proceeds.
- Post-offering share count, warrant overhang, and resulting dilution; the filing reported 33,582,831 common shares outstanding as of May 6, 2022.
- Actual cash runway and burn rate after the May financing, including the impact of clinical spending, milestone payments, debt service, and the new lease.
- Follow-through on RZ358 regulatory discussions and Phase 3 plans, and RZ402 Phase 2a initiation and results.
- Progress in remediating the two material weaknesses in internal controls.