Business context and reporting period
Rezolute, Inc. is a clinical-stage biopharmaceutical company with no revenue to date. Its pipeline includes RZ358 for congenital hyperinsulinism, AB101 (Phase 1) and RZ402 (late-stage preclinical). The filing covers the three and nine months ended March 31, 2018, compared with the periods ended March 31, 2017. Although the request metadata says “2017 Q3,” the filing is for fiscal 2018 Q3. The company was formerly named AntriaBio, Inc.
Key financial metrics
| Metric | Period / date | Reported value |
|---|---|---|
| Revenue | Three and nine months ended March 31, 2018 | None |
| Operating expenses | Three months / nine months ended March 31, 2018 | $4.95 million / $17.42 million |
| Net loss | Three months / nine months ended March 31, 2018 | $4.97 million / $17.37 million |
| Net loss per share, basic and diluted | Three months / nine months ended March 31, 2018 | $0.09 / $0.32 |
| Cash used in operating activities | Nine months ended March 31, 2018 | $10.23 million |
| Cash | March 31, 2018 | $78,119 |
| Working capital | March 31, 2018 | Deficit of approximately $3.93 million |
| Total assets / total liabilities | March 31, 2018 | $5.14 million / $4.61 million |
| Convertible notes payable, net | March 31, 2018 | $924,697; additional note details are described below |
| Stockholders’ equity | March 31, 2018 | $532,930 |
Gross margin is not meaningful because the company reported no revenue. The filing reports no income tax provision for the periods, citing expected future losses and a full valuation allowance on deferred tax assets.
Material changes versus the prior comparable periods
- Third-quarter net loss improved to $4.97 million from $5.38 million. Operating expenses declined to $4.95 million from $5.39 million; R&D was lower, partly because clinical materials had already been manufactured.
- Nine-month net loss increased to $17.37 million from $14.09 million, and operating expenses rose to $17.42 million from $14.10 million. R&D increased to $10.22 million from $9.00 million, reflecting a newly licensed program and the start of the AB101 clinical trial. G&A rose to $7.20 million from $5.10 million, primarily due to higher stock-based compensation and employee cost allocation.
- Cash fell from $4.49 million at June 30, 2017 to $78,119 at March 31, 2018. Nine-month operating cash use exceeded the $5.64 million provided by financing activities.
- The company issued 4.5 million common shares in a private placement during the nine-month period, raising $4.44 million net. At March 31, 2018, 54.1 million shares were issued and outstanding; the cover reports 62.2 million shares outstanding as of May 15, 2018.
Outlook, risks and unusual items
- Funding and going concern: Management said available cash and expected operating cash flows would not sustain operations for more than one year and disclosed substantial doubt about the company’s ability to continue as a going concern. Management said at least $25 million of capital was needed to pursue its development objectives and that financing was needed before the end of calendar Q2 2018. No assurance was given that financing would be available on acceptable terms or on time.
- Development objectives: For the second half of calendar 2018, management planned to initiate a Phase 2b RZ358 study in the U.S. and Europe, complete the AB101 Phase 1 study, and complete RZ402 toxicology work toward an IND and clinical studies in 2019.
- Subsequent financing: The company reported closing notes totaling $4.1 million on April 3 and April 11, 2018; elsewhere in MD&A it describes approximately $4.7 million of debt financing through April. The notes bear 12% interest, are secured by company assets, mature in one year and include warrants. Terms of two earlier $700,000 notes were amended into the later financing.
- Licenses and potential obligations: The ActiveSite license includes up to $36.5 million of development and regulatory milestones and $10 million of sales milestones. The XOMA agreement for RZ358 includes required payments and share issuances tied to financing, development-spend obligations, up to $222 million of clinical, regulatory and sales milestones, and royalties. On April 3, 2018, seven million shares and approximately 1.1 million interim financing shares were issued to XOMA, according to the filing.
- Workforce reduction: On April 5, 2018, the company reduced its workforce by 30 employees and recorded approximately $575,000 of severance liability. Management said the action was intended to reduce monthly cash expenses.
- Controls: Management concluded disclosure controls were ineffective at March 31, 2018, citing a material weakness involving segregation of duties, the internal control environment and review of complex accounting issues.
- Other: The company reported no pending or threatened litigation expected to have a material effect and no off-balance-sheet arrangements. It reported no material changes to the risk factors in its prior Form 10-K.
Important facts for investors to verify
- Whether subsequent debt and any planned equity financing provide sufficient liquidity, and what dilution, collateral and warrant terms result.
- How management’s stated $25 million capital requirement and the filing’s differing descriptions of approximately $4.1 million versus $4.7 million of post-quarter debt financing reconcile.
- The timing, funding and clinical progress of RZ358, AB101 and RZ402, including the effects of the workforce reduction and any potential AB101 out-licensing.
- The full cash, share-issuance, milestone and royalty obligations under the XOMA and ActiveSite agreements.
- Remediation of the disclosed material weakness and the company’s ability to maintain effective financial reporting controls.
- The R&D expense discrepancy: the financial statements report $2.496 million for the March 2018 quarter, while MD&A states approximately $2.469 million.