Filing Overview
Registrant: Histogenics Corporation, not Ocugen, Inc. The provided filing is an unaudited Form 10-Q for the quarter and six months ended June 30, 2017, filed August 10, 2017. Histogenics was a clinical-stage regenerative medicine company developing NeoCart for knee cartilage damage.
Business Context and Reporting Period
NeoCart was in a U.S. Phase 3 clinical trial under an FDA special protocol assessment. Enrollment was completed in June 2017. Management expected top-line data and, subject to successful results, a Biologics License Application filing in the third quarter of 2018. The company had not generated revenue from its planned principal operations.
Financial Results and Position
| Metric | Three months ended June 30, 2017 | Three months ended June 30, 2016 | Six months ended June 30, 2017 | Six months ended June 30, 2016 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $4.2 million | $5.8 million | $8.7 million | $11.4 million |
| General and administrative expense | $2.2 million | $2.2 million | $4.5 million | $4.4 million |
| Total operating expense | $6.4 million | $8.0 million | $13.2 million | $15.8 million |
| Net loss | $6.5 million | $8.0 million | $13.6 million | $16.0 million |
| Net loss attributable to common stockholders | $5.5 million | $8.0 million | $11.3 million | $16.0 million |
| Basic and diluted loss per share | $0.25 | $0.61 | $0.51 | $1.20 |
At June 30, 2017, cash and cash equivalents were $10.6 million, marketable securities were $8.0 million, and total liquidity was approximately $18.5 million. Total assets were $22.1 million, total liabilities were $21.3 million, and stockholders’ equity was $0.8 million. The accumulated deficit was $195.4 million.
Net cash used in operating activities was $13.0 million for the six months ended June 30, 2017, compared with $14.4 million in the prior-year period. Investing cash use was $8.1 million, primarily from purchases of marketable securities, compared with $0.3 million in 2016. Financing cash use was $0.3 million in both periods. Cash and cash equivalents declined by $21.3 million to $10.6 million.
Outstanding equipment loan debt was $0.5 million, all classified as current at June 30, 2017, compared with $0.8 million at December 31, 2016. The company was in compliance with its loan covenants.
Material Changes Versus the Prior Comparable Period
- Quarterly research and development expense decreased 27%, primarily because of lower collaboration, consulting, temporary labor, salary-related, and patient recruiting costs.
- Six-month research and development expense decreased 23%, reflecting lower collaboration and consulting costs, salary-related costs, and patient recruiting expenses.
- General and administrative expense was essentially unchanged for the quarter and increased 3% for the six-month period.
- Net loss improved year over year, although the company remained pre-revenue and loss-making.
- Cash used in operating activities improved by $1.4 million, but total cash and cash equivalents declined more sharply because of the $8.0 million purchase of marketable securities.
- The warrant liability increased from approximately $13.2 million at December 31, 2016 to $13.6 million at June 30, 2017, producing a $0.4 million fair-value expense for the six-month period.
- Common shares outstanding increased to 22.3 million from 20.6 million at December 31, 2016. Potential dilution also included approximately 4.3 million shares issuable upon conversion of Series A preferred stock and 13.6 million shares issuable upon exercise of warrants.
Guidance, Outlook, Risks, and Unusual Items
- Management expected operating expenses to be lower over the next four quarters, with research and development costs declining as the NeoCart Phase 3 trial progressed and general and administrative costs remaining relatively consistent.
- The company expected existing cash, cash equivalents, and marketable securities to fund operations into the middle of 2018, but stated that additional capital would be required. Management disclosed substantial doubt about the company’s ability to continue as a going concern.
- Additional financing could take the form of debt, equity, or strategic transactions, but no assurance was given that funding would be available on acceptable terms. Failure to raise capital could delay, reduce, or terminate development and commercialization activities.
- Key contingencies included successful Phase 3 results, FDA acceptance and approval of the BLA, manufacturing technology transfer and raw-material comparability, regulatory approval of manufacturing facilities, reimbursement and market acceptance, and the ability to scale production.
- Material contractual obligations included potential NeoCart-related milestone payments and royalties under license agreements, including a potential $3.0 million FDA-approval payment under the hydrogel license and $10.2 million of potential milestones under the tissue processor sublicense.
- The company had no material pending legal proceedings identified in the filing and reported no off-balance-sheet arrangements.
- Disclosure controls and procedures were assessed as effective as of June 30, 2017, with no material changes to internal control over financial reporting.
Investor Verification Checklist
- Verify the issuer identity: the source filing names Histogenics Corporation rather than Ocugen, Inc.
- Verify the timing and results of the NeoCart Phase 3 trial, including whether the projected 2018 data and BLA milestones were achieved.
- Assess subsequent financing, dilution, warrant exercises, and the company’s ability to address the disclosed going-concern uncertainty.
- Review FDA decisions regarding NeoCart, manufacturing facilities, raw-material comparability, and any required additional studies.
- Reconcile liquidity, operating cash burn, marketable securities, debt maturities, and contingent license or collaboration payments.
- Evaluate potential dilution from preferred stock, warrants, stock options, and future equity financing.