Business Context and Reporting Period
The provided filing is a Form 10-Q for Histogenics Corporation, not Ocugen, Inc., for the quarter and six months ended June 30, 2018. Histogenics was a clinical-stage restorative cell-therapy company developing NeoCart for knee cartilage repair. NeoCart was in a completed-enrollment, 249-patient Phase 3 U.S. trial under a special protocol assessment.
Top-line one-year superiority data were expected in the third quarter of 2018, with a potential Biologics License Application submission expected by year-end 2018, subject to successful results. The company had not generated revenue from its planned principal operations.
Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $0 in 2018 and 2017 | $0 in 2018 and 2017 |
| Research and development expense | $4.5 million vs. $4.2 million | $7.7 million vs. $8.7 million |
| General and administrative expense | $2.8 million vs. $2.2 million | $5.6 million vs. $4.5 million |
| Net loss | $3.8 million vs. $6.5 million | $18.6 million vs. $13.6 million |
| Net loss attributable to common stockholders | $3.7 million vs. $5.5 million | $18.1 million vs. $11.3 million |
| Loss per common share | $0.13 vs. $0.25 | $0.64 vs. $0.51 |
| Operating cash flow | Not separately reported | $(1.9) million vs. $(13.0) million |
| Capital expenditures | Not separately reported | $2.7 million vs. $0.1 million |
| Financing cash flow | Not separately reported | $5.5 million vs. $(0.3) million |
At June 30, 2018, cash and cash equivalents were $8.8 million, restricted cash was $0.1 million, and total cash, cash equivalents and restricted cash were $8.9 million. Marketable securities declined to zero from $0.9 million at December 31, 2017. Total assets were $15.2 million, compared with $11.0 million at year-end 2017.
Total liabilities were $38.6 million versus $22.3 million at December 31, 2017. The balance included $10.0 million of deferred revenue from the MEDINET agreement, a $19.9 million warrant liability, $3.0 million accrued expenses due to Intrexon, and no remaining equipment loan balance. Stockholders’ deficit increased to $23.4 million from $11.3 million.
Material Changes Versus the Prior Comparable Period
- Six-month research and development expense decreased 11%, primarily due to lower clinical-trial, salary-related and patient-recruitment costs, partially offset by higher supplies expense.
- Six-month general and administrative expense increased 25%, driven by higher salary-related costs, consulting and professional fees, and facility costs.
- Six-month net loss increased by $5.0 million, largely because the company recorded a $5.3 million unfavorable change in the fair value of its warrant liability, compared with a $0.4 million expense in the prior period.
- Second-quarter net loss improved because the warrant liability generated $3.5 million of other income, attributed primarily to a decrease in the company’s stock price during the quarter. These fair-value adjustments were non-cash and created significant earnings volatility.
- Operating cash use fell substantially because the $10.0 million MEDINET upfront payment was recorded as deferred revenue and increased operating cash flow, even though no revenue was recognized.
- The company completed a January 2018 registered direct offering of 2,691,494 common shares, generating net proceeds of $5.7 million. It also established a March 2018 at-the-market facility of up to $10.0 million, but reported no sales under that facility through June 30.
Guidance, Outlook, Risks and Unusual Items
Management expected research and development expense to decline over the following three quarters as NeoCart patients completed follow-up visits, while general and administrative expense was expected to rise in preparation for potential commercialization.
The company expected to recognize the MEDINET upfront payment over time as clinical manufacturing services were provided, beginning in the fourth quarter of 2018. Approximately 75% of the remaining performance obligations was expected to be recognized over the subsequent 12 months, with the remainder over the following 12 months, subject to changes in estimates and performance.
Management stated that existing cash and cash equivalents, and previously available marketable securities, were expected to fund operations only into the fourth quarter of 2018. The filing stated that these conditions raised substantial doubt about the company’s ability to continue as a going concern. Additional debt, equity financing or strategic transactions were required, but may not be available on acceptable terms or at all.
- NeoCart remained subject to Phase 3 efficacy results, FDA review, BLA acceptance and approval, and potential additional clinical or manufacturing-comparability requirements.
- The company was transitioning certain raw-material manufacturing processes to in-house facilities. FDA approval of comparability, facility qualification and production capacity remained significant risks.
- The company had limited manufacturing capacity and expected to have only one manufacturing suite operating during the initial commercialization period, if approved.
- Commercial success depended on reimbursement, physician and patient acceptance, competitive products, manufacturing scale and cost, and the ability to establish sales and marketing capabilities.
- The MEDINET arrangement provided potential development, regulatory and commercial milestones of approximately $76.9 million, plus royalties and supply payments, but these amounts were contingent and not recognized as revenue.
- The company had an accumulated deficit of $226.8 million and expected continued losses for several years.
- No material pending legal proceedings were reported. Management concluded that disclosure controls and procedures were effective as of June 30, 2018.
Most Important Facts for Investors to Verify
- Issuer identity: Confirm whether the intended filing was Histogenics Corporation or Ocugen, Inc.; the supplied document identifies Histogenics throughout.
- Clinical outcome: Verify the subsequent results of the NeoCart Phase 3 trial and whether a BLA was submitted or accepted by the FDA.
- Liquidity: Verify subsequent financing, cash runway, and whether the going-concern uncertainty was resolved.
- MEDINET economics: Verify the timing and amount of deferred revenue recognized, clinical manufacturing obligations, milestones and royalties.
- Capital structure: Assess dilution from the January offering, the unused $10 million ATM facility, 13.5 million liability-classified warrants, and remaining convertible preferred stock.
- Manufacturing and regulatory risk: Verify FDA approval of raw-material comparability, facility inspections, production capacity and any delays to commercialization.
- Earnings quality: Separate operating performance from non-cash warrant-liability fair-value changes when evaluating losses and trends.