Business Context and Reporting Period
Filing entity: EyeGate Pharmaceuticals, Inc. The request metadata identifies Kiora Pharmaceuticals, Inc., but the supplied Form 10-Q is for EyeGate Pharmaceuticals, Inc. for the quarter ended September 30, 2015, filed November 12, 2015.
EyeGate was a clinical-stage specialty pharmaceutical company developing ophthalmic therapeutics and drug-delivery systems. Its lead product, EGP-437, combines dexamethasone phosphate with the EyeGate II Delivery System and was being developed under the FDA 505(b)(2) pathway. The financial statements are unaudited and prepared under U.S. GAAP.
Financial Performance and Position
| Metric | Three months ended September 30, 2015 | Three months ended September 30, 2014 | Nine months ended September 30, 2015 | Nine months ended September 30, 2014 |
|---|---|---|---|---|
| Revenue | None; the company had not generated product revenue | None; the company had not generated product revenue | None; the company had not generated product revenue | None; the company had not generated product revenue |
| Research and development expense | $407,571 | $111,600 | $1,333,118 | $421,903 |
| General and administrative expense | $946,180 | $480,450 | $2,668,513 | $1,646,910 |
| Total operating expenses | $1,353,751 | $592,050 | $4,001,631 | $2,068,813 |
| Net loss attributable to common stockholders | $(1,355,536) | $309,592 income | $(13,925,160) | $(1,357,496) |
| Basic and diluted loss per share | $(0.19) | $1.59 income per share | $(2.46) | $(7.13) |
- Cash and cash equivalents were $9.919 million at September 30, 2015, compared with $167,001 at December 31, 2014. Restricted cash was $20,000.
- Operating cash flow was $(2.911) million for the nine months ended September 30, 2015, compared with $(514,482) in the prior-year period. Investing cash flow was $(20,000).
- Financing activities provided $12.608 million, primarily from the February IPO and August secondary offering, net of offering costs.
- The company reported total assets of $10.086 million, current liabilities of $1.409 million, and stockholders’ equity of $8.677 million at September 30, 2015.
- The company had no outstanding debt, preferred stock, non-controlling interests, or warrant liability at September 30, 2015. Previously outstanding notes and preferred stock were converted into common stock in connection with the IPO.
- Accumulated deficit was $62.565 million at September 30, 2015.
- Stock-based compensation expense was $1.145 million for the first nine months of 2015, compared with $25,452 in the prior-year period.
Material Changes Versus the Prior Comparable Period
- Third-quarter R&D expense increased $295,971, primarily because of resumed Phase III activity for anterior uveitis and Phase I/II activity for macular edema.
- Nine-month R&D expense increased $911,215, or approximately 216%, as clinical development activity increased.
- Third-quarter G&A expense increased $465,730, and nine-month G&A expense increased $1.022 million, mainly due to higher stock compensation, payroll, professional fees, and expenses associated with expanded public-company operations.
- The third quarter shifted from $309,592 of net income attributable to common stockholders to a $1.356 million net loss. The prior-year quarter benefited from warrant-liability adjustments and a $240,000 extinguishment of research liability.
- Nine-month net loss attributable to common stockholders increased by $12.568 million, largely reflecting an $8.222 million deemed dividend from preferred-stock conversion and a $1.664 million non-cash interest charge related to beneficial conversion features on notes.
- The February 2015 IPO issued 683,250 common shares at $6.00 per share. The August 2015 offering issued 1,176,470 common shares and warrants, generating approximately $8.8 million of net proceeds.
- All preferred shares, shareholder notes, and the prior warrant liability were extinguished or reclassified in connection with the IPO. The August offering resulted in 1,807,203 warrants outstanding at September 30, 2015, with a weighted-average exercise price of $9.04.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- On July 9, 2015, EyeGate granted Valeant exclusive worldwide commercial and manufacturing rights for the product in uveitis. EyeGate received a $1.0 million upfront payment and could receive up to $32.5 million in development and commercial milestones, plus royalties. The filing does not provide a revenue forecast or product launch date.
- Management expected operating expenses and losses to increase as clinical trials, regulatory activities, and potential commercialization infrastructure progressed. The product was not expected to be commercially available for several years, if at all.
- Including the August offering proceeds, management estimated that available cash would fund planned operations for approximately 15 to 18 months. Management also stated that additional capital would be required and disclosed substantial doubt about the company’s ability to continue as a going concern.
- Future financing could involve equity dilution, debt covenants, or the surrender of rights to technologies and product candidates. No committed external funding source was available.
- On October 13, 2015, the company entered into a master service agreement with a contract research organization for a Phase III study in non-infectious anterior segment uveitis.
- Contractual obligations totaled approximately $3.433 million, including $222,922 of operating leases, $75,000 of licensing obligations, and $3.135 million of purchase obligations. The purchase-obligation amounts include commitments associated with the CRO agreement.
- Management reported material weaknesses in disclosure controls, including insufficient experienced accounting personnel, segregation-of-duties limitations, and inadequate controls that led to significant audit adjustments related to a material contract.
- Potential risks included clinical and regulatory failure, inability to obtain additional financing, intellectual-property disputes, and termination or disputes under the Valeant license agreement. Valeant could terminate the agreement without cause on 90 days’ notice, subject to its terms.
- The company disclosed a possible penalty exposure related to previously delinquent Foreign Bank Account Reports for 2011 and 2012; the filing states the returns were filed in July 2014 but does not provide a final resolution or payment amount.
Most Important Facts to Verify
- Confirm the correct issuer: the supplied filing is for EyeGate Pharmaceuticals, Inc., not Kiora Pharmaceuticals, Inc.
- Verify the company’s cash runway against actual clinical spending, particularly the Phase III CRO commitments entered into after quarter-end.
- Review the Valeant agreement for milestone conditions, royalty terms, termination rights, and any subsequent amendments or disputes.
- Assess the impact of the disclosed material weaknesses on financial reporting reliability and whether remediation was completed.
- Track additional financing needs, potential dilution from 1.807 million warrants and 1.255 million options, and the company’s ability to address the going-concern uncertainty.
- Verify the status and potential exposure of the FBAR matter and any other undisclosed contingencies.