Oragenics, Inc. — Q1 2015 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three months ended March 31, 2015. Oragenics is a development-stage biotechnology company pursuing novel antibiotics, including lantibiotic candidate MU1140, and sells oral-care probiotic products. ProBiora3 was its only product revenue source during the period; the company reported recurring operating losses and had not achieved profitability.
Key financial results and liquidity
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $363,774 | $214,660; up $149,114 (69.5%) |
| Gross profit and margin | $195,777; 53.8% | $134,900; 62.8% |
| Research and development | $676,595 | $1,016,464; down 33.4% |
| Selling, general and administrative | $815,465 | $767,394; up 6.3% |
| Operating loss | $1,296,283 | $1,648,958 |
| Net loss | $1,292,777 | $1,640,884 |
| Basic and diluted loss per share | $0.04 | $0.05 |
| Cash used in operating activities | $1,288,371 | $1,584,248 |
- Cash and cash equivalents were $9.05 million at March 31, 2015, versus $10.45 million at December 31, 2014. Cash declined by $1.40 million during the quarter.
- Working capital was $8.99 million, down from $10.23 million at year-end 2014. Total assets were $9.76 million; total current liabilities were $606,000.
- Short-term notes payable were $79,390, primarily for insurance financing. The filing reports no other material debt balance.
- Accumulated deficit was $77.24 million. The company recorded no income-tax benefit.
Changes versus the prior comparable period
- Revenue rose mainly because of increased sales to international distributors. Cost of revenue increased by $88,237, including higher scrap expense; international sales carried lower margins, reducing gross margin by 9.0 percentage points.
- R&D expense fell by $339,869, primarily due to lower consulting, development, and patent costs, partly offset by higher salary-related costs. SG&A rose by $48,071, mainly reflecting higher stock compensation and professional, board, and filing costs.
- Net loss narrowed by $348,107, and operating cash use decreased by $295,877. Interest income fell by $4,223 as cash balances declined.
Outlook, management commentary, and risks
- Management said existing cash was expected to fund the business as presently structured for the next 12 months, through approximately March 2016. Additional capital will be needed to continue operations beyond then; no committed financing sources were available. Future financing may dilute shareholders or be unavailable on acceptable terms.
- Management expected a pre-IND meeting with the FDA in the second half of 2015 and anticipated being positioned to file an IND for a first-in-human study in 2016. Animal-model work for the c. diff program had been delayed by unforeseen challenges. These are expectations, not assurances.
- The company was exploring strategic alternatives for its probiotic business, including a partnership, joint venture, or sale. Marketing had been scaled back and management did not expect significant near-term sales growth.
- Oragenics was reconsidering the initial focus of its live biotherapeutic products collaboration. It also said it did not expect to devote resources to continued R&D for SMaRT Replacement Therapy or LPT3-04.
- A supplier had given notice that it would discontinue production of two of the three bacterial strains used in ProBiora3. The company was seeking an alternative supplier, with no assurance of replacement supply on viable terms.
- Under a Texas A&M license, first-patient enrollment in a Phase I trial was due by June 1, 2015, with a $50,000 milestone payment. The filing says the company planned to seek an extension; the status requires verification. The filing’s statement that no Texas A&M milestones had been achieved “as of March 31, 2013” appears inconsistent with this 2015 report and should be checked against the original filing.
- Material weakness in internal control over financial reporting persisted due to inadequate segregation of duties, attributed to the small staff. Management nevertheless concluded disclosure controls were effective and said additional procedures supported fair presentation of the financial statements.
- Other notable exposures include reliance on Intrexon collaborations, potential development and milestone obligations, concentrated ownership, and the risk that additional capital will not be available. The company reported no material pending legal proceedings.
Most important facts for investors to verify
- Cash burn, actual operating runway, and the timing, availability, and terms of financing required after the projected March 2016 runway.
- Progress on the FDA pre-IND meeting, animal studies, IND timing, and the Texas A&M Phase I enrollment deadline or any extension.
- Whether an alternative supplier can reliably produce the two discontinued ProBiora3 strains, and the resulting effect on sales and margins.
- Outcome of the probiotic-business strategic review and sales performance given reduced marketing investment.
- Potential dilution from equity awards and financing, and the company’s plans to address the segregation-of-duties material weakness.