Rezolute, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2022, the first quarter of Rezolute’s fiscal year ending June 30, 2023. The filing was signed November 9, 2022. Rezolute is a clinical-stage biopharmaceutical company developing RZ358 for congenital hyperinsulinism and RZ402 for diabetic macular edema. It has no commercial products and generated no revenue.
Financial performance and position
| Metric | Quarter ended Sep. 30, 2022 | Comparable 2021 quarter |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $7.704 million | $5.774 million |
| General and administrative expense | $2.514 million | $1.866 million |
| Total operating expenses / operating loss | $10.218 million | $7.640 million |
| Net loss | $9.831 million | $7.836 million |
| Basic and diluted loss per share | $0.19 | $0.92 |
| Net cash used in operating activities | $7.589 million | $6.341 million |
- Gross margin is not applicable because the company reported no revenue.
- Cash and cash equivalents were $154.322 million at September 30, 2022, versus $150.410 million at June 30, 2022. Working capital was approximately $153.2 million; accumulated deficit was $219.0 million.
- Total liabilities were $2.898 million, including $2.429 million current liabilities, $0.161 million of operating lease liabilities, and a $0.420 million embedded derivative liability. The $15 million term loan was repaid and terminated on June 30, 2022; the company reported no interest expense in the quarter.
- Investing cash outflow was $0.070 million. Financing cash inflow was $11.571 million, primarily from the July private placement, net of offering costs. Cash increased $3.912 million during the quarter.
- The company issued approximately 3.245 million shares in the July 2022 private placement, raising $12.330 million gross and approximately $11.6 million net. It reported 36.828 million common shares outstanding at September 30 and November 7.
Changes versus the prior comparable quarter
- Net loss increased $1.995 million, about 25%. R&D expense rose 33%, principally due to higher R&D staffing and compensation, including share-based compensation, and increased RZ358 Phase 3-readiness manufacturing costs.
- G&A expense increased 35%, mainly reflecting share-based compensation, with additional facilities and travel costs.
- Interest and other income increased to $0.400 million from none, reflecting larger cash balances and higher interest rates. The prior-year quarter included $0.231 million of employee retention credit income and $0.443 million of interest expense; neither was recorded in the current quarter.
- Operating cash use increased $1.248 million year over year. Financing cash inflow was higher, mainly due to the July 2022 private placement.
Outlook, clinical programs and risks
- Liquidity: Management said cash at September 30 was sufficient for planned activities and contractual obligations. The liquidity note says cash would last at least through November 2023; MD&A describes funding through the quarter ending September 30, 2023. The filing also expects continued operating losses and says additional capital may be needed over the next several years.
- RZ358: The company reported that its Phase 2b RIZE study showed approximately 50% improvement in hypoglycemia overall and approximately 75% at the 6 mg/kg and 9 mg/kg cohorts; it described the drug as generally safe and well tolerated. It was pursuing U.S. and European regulatory discussions, aiming to complete them by the end of calendar Q1 2023 and initiate a Phase 3 study in the first half of calendar 2023.
- RZ402: The company reported favorable Phase 1a and Phase 1b safety, exposure and target-engagement results and planned to initiate a Phase 2a proof-of-concept study in calendar Q4 2022. Trial progress and the claimed clinical potential remain subject to further testing and regulatory review.
- License commitments: The filing describes up to $35 million of clinical and regulatory milestones payable to XOMA and up to $46.5 million payable to ActiveSite, plus potential royalties and additional sales-based XOMA milestones. It anticipates near-term milestone payments, but the stated amounts and triggering events are inconsistent in different sections: the notes identify $5 million for first-patient dosing in RZ358 Phase 3 and $3 million for first-patient dosing in RZ402 Phase 2, while parts of MD&A describe different amounts and/or enrollment triggers. A contingent $0.6 million exit fee also remains after the loan repayment.
- Other obligations and risks: A new headquarters lease commenced October 18, 2022, after quarter-end; the company expected to recognize approximately $2.3 million of lease assets and liabilities. It disclosed concentration of cash at one financial institution, with deposits exceeding federal insurance limits. COVID-19 impacts on trial access, operations and timelines remain uncertain. No material litigation was pending or threatened, according to the filing.
- Controls: Management determined internal control over financial reporting was not effective due to a material weakness in segregation of duties arising from a limited workforce. It cited accounting-system improvements and October 2022 hires as remediation steps but gave no assurance the weakness would be eliminated.
Important facts for investors to verify
- Reconcile the differing milestone amounts and triggering events described for the XOMA and ActiveSite licenses, and confirm which payments became due or were paid.
- Reconcile the liquidity runway estimates: at least through November 2023 in the notes versus through September 30, 2023 in MD&A.
- Check the share-count and loss-per-share disclosures: the statements report 8.513 million weighted-average shares for the 2021 quarter, while Note 11’s table reports 7.445 million common shares and a 7.445 million total; the reported 2021 loss per share is $0.92.
- Track RZ358 regulatory discussions and Phase 3 timing, and RZ402 Phase 2 initiation and milestone obligations against actual developments.
- Monitor quarterly cash burn, financing needs, dilution, and progress in remediating the material weakness in internal controls.