Dermata Therapeutics, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Dermata is a clinical-stage dermatology company developing treatments for medical and aesthetic skin conditions. It has not generated revenue or commercialized a product.
Financial position and performance
| Metric | Q3 2021 / September 30, 2021 | Comparable period / prior year-end |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $1.71 million for Q3; $5.30 million for nine months | Q3 2020: $0.54 million; nine months 2020: $2.68 million |
| Net loss | $1.71 million for Q3; $5.35 million for nine months | Q3 2020: $0.60 million; nine months 2020: $2.84 million |
| Net loss attributable to common stockholders | $4.28 million for Q3; $7.91 million for nine months, including deemed dividends | Q3 2020: $0.60 million; nine months 2020: $2.84 million |
| Cash and current assets | $12.60 million cash; $13.69 million current assets | December 31, 2020: $0.53 million cash; $0.61 million current assets |
| Operating cash used | $3.89 million for nine months | $3.49 million for nine months 2020 |
| Total liabilities / debt | $1.20 million liabilities; no notes or long-term debt outstanding | December 31, 2020: $3.78 million liabilities, including debt |
| Accumulated deficit / equity | $33.43 million deficit; $12.49 million stockholders’ equity | December 31, 2020: $28.08 million deficit; $3.18 million stockholders’ deficit |
Margins are not meaningful because the company reported no revenue. Nine-month basic and diluted loss per share was $2.69, compared with $1.49 in 2020; Q3 loss per share was $0.86 versus $0.31.
Material changes and financing
- Operating expenses rose year over year: Q3 research and development (R&D) increased to $0.80 million from $0.12 million, and general and administrative expense increased to $0.91 million from $0.42 million. For the nine months, R&D was $2.35 million and G&A was $2.96 million, up from $1.49 million and $1.19 million, respectively.
- The company completed its August 2021 IPO, receiving approximately $15.4 million net proceeds after approximately $2.6 million of offering costs. Financing cash inflows were $15.96 million for the nine months.
- The IPO and related transactions converted preferred securities and some convertible notes to common stock. At September 30, 8,328,629 common shares were outstanding. IPO warrants and other warrants could add potential dilution; the filing reports 3,091,657 common stock warrants and 523,199 options outstanding.
- All long-term debt was repaid by March 2021; no promissory notes remained outstanding at quarter-end.
Outlook, risks, and unusual items
- Management estimated cash would fund operations into October 2022, including planned DMT310 studies. It also stated that available resources would not fund operations for at least the next 12 months and that substantial doubt about the company’s ability to continue as a going concern remained. Additional capital will be required; availability and terms are uncertain.
- Near-term plans include DMT310 clinical development for acne, psoriasis, and rosacea, including planned Phase 2 studies for rosacea and psoriasis and nonclinical/pharmacokinetic work for acne. The company expects continuing losses and says funding will be needed for later-stage trials and other programs. No quantified financial guidance was provided.
- A license amendment with Villani exchanged 5,221,156 preferred shares for a $1.0 million payment and increased potential milestone payments from up to $20.25 million to up to $40.5 million, plus single-digit royalties on net sales.
- Q3 and nine-month common-stockholder losses included deemed dividends of $2.29 million from amended Series 1d preferred terms and $0.27 million related to redemption of Series 1c shares. These are not operating expenses or cash operating losses.
- Management identified ineffective disclosure controls and a material weakness: no control ensured that material contracts were reviewed by accounting personnel for proper accounting and disclosure. Management was preparing remediation, including third-party review and contract controls; it reported no effect on the financial statement amounts presented.
- Key risks include clinical trial outcomes and timing, regulatory approval, manufacturing and third-party dependencies, intellectual property, financing access, and potential COVID-19 effects. The filing reports no material legal proceedings and no material risk-factor changes from the IPO prospectus.
Important facts for investors to verify
- Whether cash use and trial costs remain consistent with the stated October 2022 runway, and whether additional financing will be needed earlier.
- Progress, enrollment, timing, and results of planned DMT310 studies, as well as regulatory and manufacturing readiness.
- The terms, timing, and potential dilution from outstanding warrants and options, alongside the share count after the IPO.
- Potential milestone and royalty obligations under the amended Villani license, including conditions that could trigger payments.
- Whether management remediates and tests the material weakness in contract review and financial reporting controls.