Cocrystal Pharma, Inc. — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Cocrystal is a clinical-stage biotechnology company developing antiviral candidates for hepatitis C, norovirus, and influenza. It reported no product sales; its only revenue was grant revenue.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Grant revenue | $27,000 | $0 |
| Research and development expense | $1.560 million | $967,000 |
| General and administrative expense | $635,000 | $565,000 |
| Operating loss | $2.168 million | $1.532 million |
| Net loss | $16.542 million | $372,000 |
| Operating cash used | $1.559 million | $1.780 million |
Revenue was immaterial relative to expenses, so a revenue margin is not meaningful. The much larger net loss chiefly reflected a $14.418 million non-cash expense from revaluing liability-classified warrants as the share price rose; management advised investors to focus on operating loss. Comprehensive loss was $17.522 million, including a $980,000 unrealized loss on marketable securities.
At March 31, cash and cash equivalents were $14.257 million and marketable securities were $993,000. Current assets totaled $15.754 million versus current liabilities of $14.648 million. Total liabilities were $79.905 million, including $13.456 million of derivative liabilities and a $65.195 million deferred tax liability. The filing reports a mortgage note receivable, not mortgage debt; it does not clearly identify conventional borrowings. Net cash from financing was $11.832 million, primarily from a private placement. Management stated that cash on hand was approximately $17 million as of May 14, 2015, and expected it to fund the current operating plan for at least 12 months.
Material changes and unusual items
- R&D expense increased 61% year over year, mainly from added scientific personnel and higher laboratory, manufacturing, and pharmacology/toxicology costs. G&A rose 12%.
- In March, preferred shares converted into common shares after shareholder approval of an increase in authorized common shares. Common shares outstanding rose to 687.2 million at quarter-end, from 122.5 million at December 31, 2014.
- The company agreed to a $15 million private placement at $0.92 per share; approximately $11.8 million had been received by March 31. Subsequent to quarter-end, the offering was expanded, with additional proceeds reported by April 28. The filing also describes $15.68 million received after December 31.
- Liability-classified warrants are Level 3 fair-value measurements. Their carrying value rose from $8.464 million at year-end to $13.456 million at March 31, driving the non-cash loss.
- Cash used in operations declined versus the prior-year quarter, while financing cash inflows increased substantially.
Outlook, risks, and contingencies
Management expects substantial operating losses and negative operating cash flows during clinical development and anticipates R&D spending will increase. The company had no approved products and stated that future operations may require additional capital; future financing availability is uncertain and equity financing could dilute shareholders. There is no formal financial earnings guidance in the filing.
Pipeline updates included selected hepatitis C lead molecules advancing toward safety pharmacology and toxicology studies, with non-GMP manufacturing completed for one candidate and planned for others. The company also reported preclinical norovirus and influenza inhibitor programs. These are development plans, not assurances of clinical or commercial success.
Disclosure controls were assessed as ineffective due to weaknesses in financial-statement review, documentation, and segregation of duties. Management was developing remediation measures, which had not been completed as of May 14, 2015. A lease-related lawsuit was withdrawn without prejudice; a separate lawsuit seeks recovery on a purported $295,000 promissory note, which the company intends to defend. The company also held 260,000 MusclePharm shares in escrow pending resolution of a lease dispute.
Important facts for investors to verify
- Whether the stated cash runway remains adequate as development spending and operating losses continue.
- Progress, costs, and regulatory timing for the hepatitis C, norovirus, and influenza programs.
- Warrant terms, potential cash settlement exposure, and the effect of share-price changes on reported earnings.
- Completion and effectiveness of the planned remediation of material weaknesses in disclosure controls.
- Resolution and potential financial impact of the promissory-note and MusclePharm-related disputes.
- Post-quarter-end financing proceeds, share issuances, and resulting dilution.