Cocrystal Pharma, Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone fourth-quarter report. Cocrystal is a clinical-stage antiviral drug developer; it had no approved products and no product-sale revenue. The financial statements were audited, and the auditor issued an unqualified opinion.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Collaboration revenue | $6.564 million | $0 |
| Research and development expense | $4.004 million | $4.667 million |
| General and administrative expense | $4.863 million | $4.352 million |
| Operating loss | $48.406 million | $62.924 million |
| Net loss | $48.169 million | $49.048 million |
| Net loss per share, basic and diluted | $1.51 | $1.75 |
| Cash used in operating activities | $1.563 million | $8.290 million |
- The 2019 collaboration revenue came from Merck: $4.368 million for licensed intellectual property, $1.838 million for research and development, and $0.358 million in expense reimbursements. Merck accounted for all revenue and receivables at year-end; $0.644 million was receivable.
- Net loss included a $46.103 million non-cash goodwill impairment. The 2018 net loss included a $53.905 million non-cash impairment of in-process research and development. 2018 also included a $13.582 million income tax benefit; there was no income tax benefit in 2019.
- Cash and restricted cash were $7.468 million at year-end, including $7.418 million unrestricted cash. Current assets were $8.281 million and current liabilities $2.286 million. Total liabilities were $2.823 million, including $0.700 million of operating lease liabilities and $0.117 million of finance lease liabilities; no convertible notes remained outstanding.
- Financing activities provided $6.424 million in 2019, primarily from stock issuance. After year-end, three equity offerings raised approximately $20.0 million gross, or about $18.3 million net. Management estimated approximately $22 million cash at March 26, 2020 and runway of about two years, while also stating resources were sufficient for at least the next 12 months; the estimate is subject to COVID-19 and collaboration risks.
Changes versus 2018
- Revenue rose from zero following the Merck collaboration. Operating cash use declined, which the company attributed principally to Merck-related receipts.
- Operating loss narrowed, but remained substantial. R&D expense decreased about 14%, primarily because the HCV Phase 2a trial was completed and Merck reimbursed expenses; G&A increased about 12%, mainly due to litigation-related professional fees and higher insurance costs.
- Goodwill fell from $65.195 million to $19.092 million after the impairment charge. The acquired HCV in-process R&D asset had already been fully impaired in 2018.
- Year-end common shares outstanding increased to 35.150 million from 29.938 million. Post-year-end offerings further increased shares outstanding; the filing reports approximately 52.1 million shares as of March 30, 2020.
Programs, outlook and material risks
- HCV: CC-31244 completed a Phase 2a study using two weeks of CC-31244 with Epclusa followed by four weeks of Epclusa alone. Eight of 12 participants achieved SVR12; the treatment was reported as well tolerated, with no discontinuations due to adverse events. The company is seeking a partner for further development.
- Influenza: CC-42344 was selected as a preclinical lead. The company reported preclinical activity against influenza A strains, including Tamiflu-resistant and avian strains, and planned a Phase 1 study during 2021. Under its Merck agreement, Merck funds the program and controls clinical development and commercialization. Cocrystal received a $4 million upfront payment and may receive up to $156 million in milestones plus royalties, but Merck may terminate before first commercial sale.
- Coronavirus and norovirus: A February 2020 Kansas State University Research Foundation license added human-use antiviral rights. Terms include an $80,000 initiation fee, $20,000 annual maintenance fees, expense reimbursements and up to $3.1 million in contingent milestones. These programs were early-stage; the filing provides no clinical efficacy results.
- COVID-19 disruption: The company warned that Washington’s stay-at-home order could prevent access to its Bothell research laboratory and suspend research if restrictions continued. It also cited potential effects on personnel, suppliers, laboratory materials, third-party research and the Merck collaboration. The Hong Kong investigator-initiated HCV trial agreement was terminated effective March 24, 2020, citing unrest and the pandemic.
- Funding and execution: Cocrystal has accumulated losses of approximately $235 million and expects substantial future losses, with no assurance of profitability or future financing. Equity raises may dilute shareholders. Its small workforce, reliance on third parties, clinical and regulatory uncertainty, competition, patent risks, and dependence on Merck are significant risks.
- Legal and governance matters: The filing describes a securities class action, a related derivative action and an insurer’s lawsuit disputing coverage and seeking recovery of $1 million advanced in connection with an SEC investigation. Potential losses were not estimable and no loss contingency was recorded. A director’s prior injunction also limits the company’s ability to rely on certain securities-law exemptions without an SEC waiver, which could complicate future financing.
- Management reported effective disclosure controls and internal control over financial reporting as of year-end, following remediation of prior-year material weaknesses. The company reported no quantified product margin; product sales had not begun.
Important facts for investors to verify
- Reconcile the reported cash runway estimates with actual post-year-end cash, planned R&D spending and the effects of COVID-19.
- Track Merck’s funding, program progress, termination rights, and the conditions required for milestone and royalty payments.
- Assess the clinical significance and limitations of the 8-of-12 HCV SVR12 result, and whether a development partner is secured.
- Confirm the status and timing of CC-42344 IND-enabling work and the stated 2021 Phase 1 target.
- Monitor dilution from post-year-end offerings, the expanded share count, and any additional financing needs.
- Review developments in the disclosed litigation, insurance coverage dispute, and financing restrictions related to the director’s injunction.
- Note that 2019 revenue was entirely collaboration-related and concentrated in one customer; it was not product-sale revenue.