Ocugen, Inc. 10-Q Summary
Reporting period: Three months ended March 31, 2020; filed May 8, 2020. Ocugen is a clinical-stage biopharmaceutical company with no approved commercial products or product revenue. Its principal programs were OCU300, OCU400, OCU410, and OCU200, focused on ophthalmic and retinal diseases.
Financial Results and Position
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | No product revenue in either period |
| Research and development expense | $1.65 million | $3.79 million | Down $2.14 million |
| General and administrative expense | $2.28 million | $1.05 million | Up $1.23 million |
| Total operating expenses | $3.93 million | $4.84 million | Down $0.91 million |
| Net loss | $3.94 million | $6.31 million | Improved by $2.37 million |
| Basic and diluted loss per share | $0.07 loss | $1.27 loss | Improved |
| Net cash used in operating activities | $4.69 million | $2.67 million | Use increased by $2.02 million |
There were no meaningful operating margins because the company had no revenue. The reduction in net loss primarily reflected lower research and development spending, the absence of a $0.8 million derivative-liability loss, and substantially lower interest expense following conversion of the company’s convertible notes. These benefits were partly offset by higher general and administrative costs.
Cash and cash equivalents were $3.19 million at March 31, 2020, compared with $7.44 million at December 31, 2019. Including restricted cash, total cash, cash equivalents, and restricted cash were $3.34 million. Total assets were $12.31 million, including a $7.0 million asset held for sale. Total liabilities were $5.02 million, including $1.58 million of long-term debt, and stockholders’ equity was $7.30 million. The company had a $55.4 million accumulated deficit.
Material Changes Versus the Prior Comparable Period
- Research and development expense declined primarily because OCU310 clinical and manufacturing activities were no longer pursued. OCU310 had failed to meet its co-primary endpoints despite being safe and well tolerated. OCU300 clinical activity increased by approximately $0.4 million.
- General and administrative expense increased primarily because of higher professional fees and public-company insurance costs.
- Interest expense decreased from approximately $0.7 million to a de minimis amount because all previously issued convertible notes had been converted by December 31, 2019.
- Operating cash use increased despite the lower net loss, primarily because accounts payable and accrued expenses declined substantially.
- On March 26, 2020, the company borrowed $0.5 million under its EB-5 loan program. Principal outstanding was $1.5 million at March 31, 2020, with a 4% fixed interest rate.
- Common shares outstanding were approximately 52.6 million at March 31, 2020, compared with approximately 5.0 million at March 31, 2019, reflecting the post-merger capital structure and prior financings.
Guidance, Outlook, Risks, and Unusual Items
- Management stated that research and development expenses are expected to increase as OCU300 is completed and the company prepares potential Phase 1/2a trials for OCU400, OCU410, and OCU200.
- OCU300 enrollment was reported as 100% complete in May 2020. COVID-19 caused trial-site screening suspensions and required remote visits, self-administration of study medication, remote monitoring, and direct delivery of medication. Management stated that top-line-result timing remained unchanged at the filing date.
- The company expects to initiate an OCU400 Phase 1/2a trial in 2021 and an OCU200 Phase 1/2a trial in 2022. OCU410 remained preclinical.
- The filing states that there is substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements. Management said the $3.3 million of cash, cash equivalents, and restricted cash was insufficient for near-term and next-12-month requirements.
- Management expects to seek additional equity or debt financing, strategic payments, asset sales, licensing, or collaborations. There is no assurance that funding will be available on acceptable terms.
- The NeoCart asset remained classified as held for sale at $7.0 million. The related sale had not closed by March 31, 2020, and the company had not terminated the agreement. The purchase price could increase by 10% per month after October 31, 2019 if the agreement remained in effect.
- After quarter-end, on April 22, 2020, the company exchanged Series A warrants for 21.9 million shares and $5.6 million of non-interest-bearing notes due April 21, 2021. The notes require specified use of future financing proceeds for redemption and carry 18% default interest if unpaid following an event of default.
- On April 30, 2020, the company received a $0.4 million PPP loan bearing 1% interest and maturing April 30, 2022. Forgiveness depends on compliance with applicable requirements.
- The filing identifies substantial dilution risk from warrants, options, future financings, and warrant adjustments. At March 31, 2020, potentially dilutive securities excluded from diluted loss per share totaled approximately 12.1 million shares, including 8.8 million Series A warrants.
- The company disclosed Nasdaq minimum-bid-price compliance risk. The filing says that failure to regain compliance could lead to delisting and impair access to public equity financing. The text refers to a deficiency letter dated December 27, 2020, which appears inconsistent with the May 2020 filing date and should be verified against the original filing.
- No material pending legal proceedings were disclosed, and management reported effective disclosure controls with no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Whether subsequent financings provided sufficient liquidity and whether the going-concern uncertainty was resolved.
- The repayment, refinancing, or restructuring status of the $5.6 million April 2020 notes and the $1.5 million EB-5 debt.
- Whether the PPP loan, including any portion eligible for forgiveness, was ultimately forgiven.
- OCU300 Phase 3 top-line results, regulatory progress, and the effect of COVID-19-related trial disruptions.
- Whether the $7.0 million NeoCart asset sale closed and whether the contractual purchase-price escalation affected proceeds.
- The final impact of warrant exchanges, exercises, option grants, and subsequent equity financings on share count and dilution.
- Nasdaq listing compliance and the accuracy of the filing’s stated deficiency-letter date.