Cocrystal Pharma, Inc. — 2020 Form 10-K
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2020. Cocrystal is a clinical-stage biotechnology company developing antiviral drug candidates; it has no approved products and has never generated product-sales revenue. Its programs target influenza, coronaviruses, hepatitis C (HCV), and norovirus.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Collaboration revenue | $2.014 million | $6.564 million |
| Research and development expense | $6.307 million | $4.004 million |
| General and administrative expense | $5.293 million | $4.863 million |
| Operating loss | $9.586 million | $48.406 million |
| Net loss | $9.648 million | $48.169 million |
| Basic and diluted loss per share | $0.17 | $1.51 |
| Cash used in operating activities | $9.830 million | $1.563 million |
At year-end, cash was $33.010 million, plus $0.050 million restricted cash; total assets were $54.242 million and total liabilities were $1.737 million. Liabilities included $0.523 million of operating lease obligations, $0.073 million of finance lease obligations, and $0.061 million of derivative liabilities. No material conventional borrowing balance is reported. The company reported $52.505 million in stockholders’ equity.
As of March 15, 2021, Cocrystal reported approximately $33.5 million in cash and estimated this would fund working capital needs for at least 21 months. The company cautions that further capital or partnerships may be required. No gross margin is reported; there were no product sales.
Material changes versus 2019
- Revenue fell by $4.550 million, mainly because 2019 included a $4.000 million upfront Merck payment for the influenza collaboration.
- Net loss narrowed substantially, primarily because 2019 included a $46.103 million goodwill impairment charge. No goodwill impairment was recorded in 2020; year-end goodwill remained $19.092 million.
- Research and development spending increased by $2.303 million, while G&A increased by $0.430 million, partly due to litigation-related professional fees and higher insurance costs.
- Operating cash use increased by $8.267 million, reflecting lower collaboration receipts and changes in working capital.
- Equity financing generated $35.783 million net proceeds in 2020. Common shares outstanding increased from 35.150 million to 70.439 million during the year.
Outlook, pipeline, risks, and unusual items
- Influenza A: CC-42344 was selected as a preclinical lead. The company reported encouraging preclinical antiviral activity and planned to initiate a Phase 1 study in the third quarter of 2021, subject to completion of IND-enabling work and possible pandemic-related delays.
- Coronavirus: CDI-45205 was selected in December 2020 as a lead for further development; Cocrystal was working toward pre-IND status. Further COVID-19 inhibitors were a 2021 development objective.
- Norovirus: The company expected to complete a proof-of-concept animal study in the first half of 2021.
- HCV: CC-31244 had completed Phase 1a/b and Phase 2a work; the company was seeking a partner for further clinical development. Its stated aim is to pursue a shorter treatment regimen.
- Merck collaboration: Merck funded the influenza A/B program and is responsible for its further development and commercialization following Cocrystal’s completion of its research obligations in January 2021. Cocrystal may receive up to $156 million in development, regulatory, and sales milestones, plus royalties, but these payments are contingent and not assured.
- KSURF licenses: The two agreements carry potential milestone payments of up to approximately $7.3 million in total, plus royalties and license fees, subject to development and commercial milestones.
- Principal risks: Ongoing losses, dependence on future financing, clinical and regulatory uncertainty, competition from better-funded companies, reliance on partners and third parties, intellectual-property and licensing risks, and potential COVID-19-related supply, trial, or operational delays. The company also notes potential dilution from future equity issuance.
- Legal matters: The company paid $0.450 million toward settlement of a securities class action; related derivative litigation required governance changes. Separate insurance-coverage litigation and an underwriter dispute remain pending. AGP seeks damages estimated above $1 million; a former lawyer’s appeal in another case remains pending. The company said potential losses could not be reasonably estimated and recorded no loss contingency for the remaining claims.
- Audit and controls: The independent auditor issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting. Goodwill impairment testing was identified as a critical audit matter due to significant valuation assumptions.
Most important facts for investors to verify
- Whether available cash and the stated runway remain adequate as R&D spending increases, and what additional financing may be needed.
- Progress, timing, and results for the planned CC-42344 Phase 1 study and the coronavirus and norovirus programs.
- Merck’s development progress and the conditions, timing, and likelihood of any milestone or royalty receipts.
- The status and financial exposure of the pending insurance, AGP, and other litigation matters.
- The impact of substantial 2020 share issuance and any future equity financing on dilution and per-share value.