GT Biopharma, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018; filed August 14, 2018. GT Biopharma is a clinical-stage biopharmaceutical company developing immuno-oncology candidates and CNS therapies. It reported no product or licensing revenue and has no products approved for sale.
Financial performance and position
| Metric | Three months ended June 30, 2018 | Three months ended June 30, 2017 | Six months ended June 30, 2018 | Six months ended June 30, 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $5.157 million | $1.285 million | $12.317 million | $2.823 million |
| Operating loss | $5.157 million | $1.285 million | $12.317 million | $2.823 million |
| Interest expense | $3.924 million | $1.178 million | $6.855 million | $4.698 million |
| Net loss | $9.081 million | $2.463 million | $19.172 million | $7.521 million |
| Basic and diluted loss per share | $0.18 | $5.14 | $0.38 | $22.42 |
Gross profit and margins were zero/not meaningful because the company had no revenue. Cash used in operating activities was $6.000 million for the first six months, compared with $1.041 million a year earlier. Financing provided $6.522 million; cash increased $520,000 to $1.096 million.
At June 30, 2018, total assets were $255.014 million, including $253.777 million of intangible assets largely recorded in the 2017 Georgetown Translational Pharmaceuticals acquisition. Current liabilities were $8.952 million, including $6.856 million of convertible debentures net of discount; total liabilities were $8.952 million. Cash was $1.096 million, implying a working-capital deficit of approximately $7.856 million. Accumulated deficit was $288.670 million. No impairment of indefinite-lived intangibles was recorded in the first half.
Changes versus the prior comparable period
- Six-month net loss widened to $19.172 million from $7.521 million; operating expenses rose to $12.317 million from $2.823 million.
- Research and development and general and administrative expenses increased substantially, reflecting staffing, consultants, preclinical and clinical work, professional fees, investor relations, loan costs, and non-cash compensation.
- Interest expense rose, primarily due to amortization of the original issue discount and the value assigned to warrants issued with the January 2018 financing.
- Cash was higher than the prior-year period-end balance of $39,000, mainly reflecting financing proceeds, but operations continued to consume cash.
Reporting inconsistency: The six-month statements list R&D expense of $6.724 million and SG&A of $5.593 million, while the MD&A narrative reverses those amounts. Investors should verify the correct classification against the filed financial statements and underlying records.
Outlook, financing, and significant developments
- Management stated that substantial additional funding is needed and that the company’s losses and cash requirements raise substantial doubt about its ability to continue as a going concern. It expected financing plans, if successful, to fund operations for at least six months from issuance of the statements; there was no assurance of success. Plans included equity or debt offerings, strategic R&D payments, licensing or marketing arrangements, and cost reductions.
- The January 2018 financing generated $7.055 million of proceeds against $7.761 million principal, with notes due July 22, 2018, convertible at an initial $4.58 per share, and warrants for approximately 1.694 million shares at an initial $4.58 exercise price.
- After quarter-end, on August 2, $3.315 million of January notes were converted into new debentures and $4.411 million was repaid. The company issued $5.140 million of one-year, 10% senior convertible debentures, convertible at $2 per share.
- Management expected to initiate a Phase 1 trial of TriKE candidate OXS-3550 in the second half of 2018 following a June IND amendment; it anticipated clinical costs would increase. OXS-1550 was in the Phase 2 component of an investigator-led NHL/ALL trial. An interim review reported clinical benefit in seven of 13 evaluable patients; management expected final data in Q4 2018 or Q1 2019. These are company-reported interim results, not evidence of regulatory approval.
- For CNS candidates, a healthy-volunteer study of GTP-004 was completed in January 2018; data from an investigator-led GTP-011 study were expected in the second half of 2018. TetraKE clinical trials were targeted for 2019.
- CEO Craig Cross resigned from the CEO role and board effective July 2, 2018. The filing also reports that the Washington, D.C. office lease was terminated effective June 30, 2018.
- The company adopted ASU 2017-11 retrospectively, changing accounting for certain warrants and conversion features; the filing presents revised comparative figures. No off-balance-sheet arrangements were reported.
Risks, contingencies, and controls
- Disclosure controls and internal control over financial reporting were reported ineffective at June 30, 2018. Identified material weaknesses included inadequate segregation of duties due to limited staff and reliance on consultants, and risk of executive override due to insufficient policies and small staffing.
- Cash balances exceeded the FDIC insurance limit by $845,000 at June 30, 2018.
- Legal matters included a consulting-services claim seeking $73,898 and an arbitration award of $207,783 plus $34,699 interest in favor of MultiCell.
- The filing said there were no material changes to the risk factors in the 2017 Form 10-K. Biopharmaceutical development, clinical outcomes, regulatory requirements, financing access, and the going-concern uncertainty remain important risks.
Important facts for investors to verify
- Cash runway, available financing, and the status and terms of post-quarter debt conversion, repayment, and debentures.
- The six-month R&D and SG&A expense classification inconsistency between the financial statements and MD&A.
- Current status, enrollment, safety, and final results of the OXS-1550 trial and progress toward the OXS-3550 Phase 1 trial.
- Whether material weaknesses in financial reporting controls have been remediated and how management addresses the going-concern uncertainty.
- Potential dilution and any price-adjustment provisions associated with convertible securities and warrants.