Rezolute, Inc. — Form 10-Q Summary
Reporting period: Three months ended September 30, 2019, the first quarter of fiscal 2020. Financial statements are unaudited. Rezolute is a clinical-stage biopharmaceutical company with no product revenue.
Financial results and liquidity
| Metric | Quarter ended Sep. 30, 2019 | Prior-year quarter |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $3.234 million | $0.930 million |
| General and administrative expense | $1.945 million | $1.655 million |
| Operating loss | $5.179 million | $2.562 million |
| Net loss | $5.080 million | $3.365 million |
| Net loss per share | $0.02 | $0.05 |
| Cash used in operating activities | $8.929 million | $1.432 million |
At September 30, cash and cash equivalents were $22.104 million and restricted cash was $3.111 million, for total cash, cash equivalents and restricted cash of $25.215 million. Working capital was approximately $20.4 million; total liabilities were $5.954 million, including $3.609 million payable to Xoma and $0.580 million of operating lease liabilities. The filing reports no interest expense in the quarter; the prior-year period included $0.911 million of interest expense on notes converted to equity in January 2019. Profit margins are not meaningful because the company had no revenue.
Changes and notable items
- R&D spending rose by $2.304 million year over year, principally reflecting higher clinical-trial costs, employee compensation and consulting. Clinical-trial expense included approximately $0.6 million for RZ358 and $0.4 million for AB101.
- Net loss increased by $1.715 million. Operating cash use rose by $7.497 million, primarily reflecting the Xoma license payment, lower accrued liabilities and higher development spending.
- July–August private placements generated $24.1 million gross and $22.6 million net proceeds after approximately $1.5 million in fees and offering costs. The company issued approximately 82.9 million shares at $0.29 per share; outstanding shares increased from 210.4 million at June 30 to 293.3 million at September 30.
- Financing triggered approximately $3.4 million of early payments to Xoma, which were paid during the quarter and reduced future license payments. The remaining Xoma payable was $3.609 million at September 30.
- Adoption of the new lease standard resulted in recognition of $0.552 million in right-of-use assets and $0.580 million in lease liabilities at quarter-end.
Outlook, risks and contingencies
- Management said the $25.2 million cash balance was expected to fund currently planned activities at least through November 2020. Planned spending through then included $3.6 million for Xoma obligations, approximately $10.5 million for development programs and approximately $8.9 million for compensation, rent and public-company costs. A portion of cash is restricted to RZ358 development or the planned exchange uplisting.
- Fiscal 2020 objectives include initiating a Phase 2b RZ358 study, completing RZ402 toxicology work toward an IND and beginning clinical studies thereafter, completing the AB101 Phase 1 study, and pursuing an uplisting. Management expects continued operating losses and plans to seek additional equity and/or debt financing for fiscal 2021 and beyond; financing is not assured. Additional funding could accelerate development spending, while programs may be delayed to preserve capital.
- The company remains pre-revenue, with an accumulated deficit of $132.0 million. RZ358 and RZ402 require further clinical, regulatory and development work. ActiveSite agreements may require up to $36 million in milestone payments, plus royalties; none had been incurred by September 30. Commercialization of RZ358 would also entail royalties to Xoma.
- Xoma’s put option may become exercisable if the company does not list on Nasdaq or a similar national exchange by December 31, 2019. Stockholders approved authority for a 1-for-20 to 1-for-100 reverse split, but the board had not implemented it as of the filing.
- Management reported material weaknesses in internal control over financial reporting, including insufficient segregation of duties and review controls. Remediation efforts included hiring and engaging outside accounting support. The company also cited potential limitations on use of tax-loss carryforwards following ownership changes.
Key facts for investors to verify
- Cash runway assumptions, the restricted-cash spending conditions and whether additional financing is needed sooner than management anticipated.
- Execution, timing and costs of the RZ358, RZ402 and AB101 development plans, including relevant regulatory and clinical milestones.
- Remaining Xoma payment obligations and any implications of the exchange-listing deadline and put option.
- Potential dilution: approximately 46.4 million options and 45.5 million warrants were outstanding at quarter-end, in addition to the shares issued in the financings; diluted EPS excluded common equivalents as anti-dilutive.
- Progress in remediating material weaknesses and meeting national-exchange listing requirements; the filing warns that failure to uplist could leave shares trading on the less liquid OTCQB market.