Onconetix, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited consolidated results include Proteomedix from its December 15, 2023 acquisition; consequently, the reported prior-year comparison does not include Proteomedix and is not directly comparable.
Business context
Onconetix is focused on men’s health and oncology. Its portfolio includes Proclarix, a prostate cancer diagnostic marketed in Europe, and ENTADFI, an FDA-approved benign prostatic hyperplasia treatment. The company has paused ENTADFI commercialization and is exploring a sale or other monetization; its current focus is Proclarix. The company expects Proclarix sales revenue by 2025.
Financial results and liquidity
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $700,433 | $0 |
| Gross profit / gross margin | $189,000 / approximately 27% | $0 |
| Operating expenses | $11.27 million | $2.85 million |
| Operating loss | $11.08 million | $2.85 million |
| Net loss | $11.12 million | $2.85 million |
| Net loss per share | $0.50 | $0.18 |
| Operating cash used | $5.23 million | $4.41 million |
Q1 2024 revenue comprised approximately $0.1 million from Proclarix product sales and $0.6 million from development services. Revenue was concentrated: one customer accounted for all development-services revenue and another for 86% of product-sales revenue.
Cash was $4.46 million at March 31, 2024, versus $4.55 million at year-end 2023. Working capital was negative approximately $15.1 million; total current liabilities were $21.43 million. Notes payable, net of discounts, included $10.41 million of current notes and $4.77 million owed to a related party; an additional $0.11 million note was long-term. Total stockholders’ equity was negative $14.50 million, and Series B redeemable preferred stock was recorded separately at $64.24 million.
Cash used in investing activities was $4,578; financing provided $5.21 million, primarily from a $5.0 million related-party debenture and insurance-premium financing. Cash decreased by $90,465 over the quarter.
Material changes and unusual items
- Revenue began to reflect Proteomedix operations, whereas Q1 2023 reported no revenue.
- SG&A increased 112% to $3.74 million, mainly due to professional fees and Proteomedix expenses. Research and development fell 95.5% to $49,000 after the company halted its vaccine programs.
- The company recorded $5.19 million of goodwill impairment following a decline in its stock price and market capitalization, and $2.29 million of ENTADFI asset impairment after a competing finasteride-tadalafil product received FDA approval. The company also cited the resources and cash required for ENTADFI commercialization in pausing those activities.
- Q1 results included approximately $0.4 million of interest expense and a $0.23 million gain from the change in fair value of a related-party subscription liability.
Outlook, risks and contingencies
- Going concern: Management said cash as of May 15, 2024 was approximately $1.9 million and expected to fund operations only into Q3 2024. The filing concludes substantial doubt exists about the company’s ability to continue as a going concern for one year; management’s plans do not alleviate that doubt. No further financing commitments were in place.
- Debt and forbearance: A $5.0 million Veru note due April 19, 2024 was subject to an April 24 forbearance agreement through March 31, 2025. It accrues interest at 10% from April 20, 2024. In exchange, Onconetix agreed to pay Veru 15% of specified Proteomedix, Proclarix and Labcorp receipts and 10% of net proceeds from certain financings and asset transactions before March 31, 2025. A separate $5.0 million Veru note remains due September 30, 2024. The $5.0 million Altos related-party debenture maturity was extended to October 31, 2024.
- Preferred-stock exposure: If required stockholder approval for Series B conversion is not obtained by January 1, 2025, holders may elect cash redemption. The company estimated redemption at approximately $42.1 million using the May 17 stock price; it said it lacks sufficient cash to meet that obligation. Conversion would involve approximately 269.7 million common shares.
- ENTADFI obligations: Remaining Veru purchase-note payments and other obligations remain a funding pressure. The company has engaged an advisor to explore strategic alternatives for the assets.
- Other contingencies: WraSer, whose asset-purchase agreement Onconetix terminated in 2023, may seek damages; the company reported that recovery of its $3.5 million deposit is unlikely and had impaired it in 2023. No other material legal proceedings were reported. A CHMC license could require milestone payments of up to $59.75 million if specified milestones become probable.
- Controls: Management concluded disclosure controls were ineffective at March 31, 2024 because of material weaknesses, including inadequate segregation of duties, expense and related-party controls, accounting resources, and IT controls. The filing links the weaknesses to former management and employee misuse of company credit cards and describes remediation efforts.
Most important facts to verify
- Near-term financing, cash runway, and whether management can meet obligations as they fall due.
- Status and terms of the Series B stockholder vote, potential redemption exposure, and dilution if converted.
- Payment status and updated terms for Veru and Altos debt, including accrued interest and revenue/proceeds sharing.
- Proclarix commercialization progress, customer concentration, Labcorp launch timing, and the basis for the 2025 revenue expectation.
- ENTADFI sale or other strategic outcome and whether further impairment or costs arise.
- Remediation and testing of disclosed material weaknesses. Also reconcile the filing’s inconsistent accumulated-deficit figures: the financial statements report $67.9 million, while one MD&A passage states $63.2 million.