SAB Biotherapeutics, Inc. — Q3 2022 Form 10-Q
Business context and period. This unaudited filing covers the quarter and nine months ended September 30, 2022. SAB is a clinical-stage biopharmaceutical company developing human polyclonal antibody therapies using its DiversitAb platform. It had no commercially approved products; revenue came entirely from grants, principally U.S. government funding.
Key financial metrics
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $3.6 million | $14.7 million | $21.7 million | $49.8 million |
| Research and development expense | $7.4 million | $15.1 million | $29.3 million | $46.5 million |
| General and administrative expense | $4.0 million | $3.6 million | $13.5 million | $9.3 million |
| Operating loss | $7.8 million | $4.0 million | $21.1 million | $6.0 million |
| Net loss | $7.1 million | $4.1 million | $10.9 million | $5.6 million |
| Net loss per share | $0.16 | $0.16 | $0.25 | $0.22 |
At September 30, cash and cash equivalents were $8.3 million, down from $33.2 million at December 31, 2021. Current assets were $22.2 million and current liabilities $17.1 million. Nine-month operating cash flow was negative $23.7 million; investing cash flow was negative $2.0 million and financing cash flow negative $5.6 million. Total assets were $52.5 million, total liabilities $21.9 million, and stockholders’ equity $30.6 million.
Interest-bearing notes payable were $25,013, due in Q4 2022. Lease liabilities totaled approximately $5.8 million ($2.0 million operating and $3.8 million finance). The filing reports no material income tax expense; the effective tax rate was 0%.
Material changes versus prior periods
- Revenue fell 75.5% in Q3 and 56.4% for the first nine months, primarily following the DoD’s August 3, 2022 termination of the JPEO Rapid Response contract.
- R&D expense declined 51.2% in Q3 and 37.0% year to date, mainly as contract manufacturing, supplies, clinical-trial and related activity decreased. G&A rose 12.3% in Q3 and 44.7% year to date, including higher public-company insurance, professional fees and compensation.
- Nine-month net loss was partly offset by a $10.4 million noncash gain from changes in warrant fair value. The Q3 warrant gain was $0.8 million. These items improved reported net loss relative to operating loss.
- Cash and restricted cash decreased by $31.2 million in the first nine months. Financing cash use included $5.5 million used to repurchase 546,658 shares under the Forward Share Purchase Agreement.
Outlook, risks and unusual items
- Going concern: Management says existing cash and anticipated receipts are not expected to fund operations for the 12 months following issuance of the financial statements; the filing states that substantial doubt exists about the company’s ability to continue as a going concern. Additional equity, debt, partnership or other funding may not be available on acceptable terms. Failure to raise capital could force reductions, delays or cessation of operations.
- DoD termination and receivable: Approximately $12.7 million of the $12.9 million accounts receivable balance relates to the terminated JPEO contract. SAB considers collection probable, but final DoD approval and payment depend on further negotiations and execution of settlement documents. The company expects compensation for eligible wind-down costs; no termination penalty is expected.
- Operating outlook: SAB expects lower future grant revenue following the termination, while pursuing partnerships, co-development and licensing for its remaining programs. It expects R&D expense related to SAB-185 to decrease, but anticipates continued significant spending and losses as it advances other programs and its platform. No specific financial guidance was provided.
- Funding concentration and development risk: All reported revenue was from government grants. The company has no approved products; clinical, regulatory, commercialization and future financing outcomes remain uncertain. Some grant extensions were pending, and management reported approximately $0.5 million remaining under current grants plus $1.6 million pending extension approval.
- Subsequent events: In October, SAB signed manufacturing-option and right-of-first-refusal agreements with Emergent BioSolutions; definitive manufacturing agreements remain contingent. A Sanford Health lease amendment abated rent for one year in exchange for an $541,644 unsecured, convertible note bearing 8% interest. Nasdaq notified SAB that its share price had been below $1 for 30 consecutive business days; the initial compliance deadline was April 3, 2023.
- The company reported no material litigation. COVID-19 had not materially affected operations to date, but future impact remained uncertain.
Important facts for investors to verify
- Status, amount and timing of the DoD termination settlement and collection of the $12.7 million related receivable.
- Cash burn, actual runway, and whether additional financing or collaboration funding is secured on viable terms.
- Remaining grant funding and status of the pending extensions; future funding concentration after JPEO termination.
- Clinical and regulatory progress, and the resources required for SAB-176 and other pipeline programs after the SAB-185 contract wind-down.
- Compliance with Nasdaq’s minimum bid-price requirement and any effect of the Sanford convertible note on dilution.