Outlook Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2019; comparisons are to the periods ended June 30, 2018. The filing was signed August 14, 2019. The company is a late clinical-stage biopharmaceutical company developing ONS-5010, an ophthalmic bevacizumab candidate. It had no approved products or product sales.
Financial performance
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Collaboration revenue | 2019: $0.58 million; 2018: $0.77 million | 2019: $2.29 million; 2018: $2.32 million |
| Research and development expense | 2019: $4.39 million; 2018: $5.80 million | 2019: $19.31 million; 2018: $11.35 million |
| General and administrative expense | 2019: $1.83 million; 2018: $2.20 million | 2019: $6.59 million; 2018: $8.19 million |
| Operating loss | 2019: $5.64 million; 2018: $7.22 million | 2019: $23.61 million; 2018: $17.23 million |
| Net loss | 2019: $4.44 million; 2018: $8.43 million | 2019: $24.43 million; 2018: $17.89 million |
| Basic and diluted loss per share | 2019: $0.20; 2018: $2.10 | 2019: $1.74; 2018: $9.96 |
For the nine months, operating cash use was $26.37 million, investing cash use was $0.44 million, and financing provided $39.09 million. Cash increased from $1.72 million at September 30, 2018 to $14.03 million at June 30, 2019. Cash and current assets were $14.03 million and $18.81 million, respectively; current liabilities were $23.22 million, implying a working-capital deficit of about $4.41 million. Accumulated deficit was $244.38 million.
Total liabilities were $34.57 million. These included $6.70 million of current convertible senior secured notes, $3.61 million of current stockholder notes, $1.05 million current long-term debt, and $3.55 million of capital lease obligations. The filing also describes $1.0 million of unsecured notes as subject to forbearance through March 7, 2020; investors should confirm how this relates to the reported stockholder-note balance.
Changes versus prior comparable periods
- Third-quarter net loss narrowed by about $3.99 million, despite lower collaboration revenue. The decrease was supported in part by a $1.93 million gain from the change in fair value of warrant liabilities and a $0.78 million income tax benefit; these are not measures of operating performance.
- Nine-month net loss increased by $6.54 million. R&D expense rose $7.96 million, principally because ONS-5010 advanced into Phase 3, the company wrote off $2.96 million of equipment and construction-in-progress assets, and the prior-year period included a $3.23 million favorable settlement related to inactive biosimilar candidates.
- Nine-month collaboration revenue was nearly flat. Under the revenue standard adopted October 1, 2018, milestone consideration is recognized over estimated performance periods; adoption increased accumulated deficit by $3.65 million. The company said 2019 revenue would have been $0.3 million higher for the quarter and $1.4 million higher for the nine months under the prior accounting guidance.
- Cash was bolstered by a November 2018 BioLexis private placement (about $19.8 million net) and an April 2019 public offering (about $26.2 million net). The offering issued 10.34 million common shares and warrants, contributing to substantial share-count growth and potential dilution.
Outlook, risks and unusual items
- Clinical program: NORSE 1, a Phase 3 wet-AMD trial, had enrolled 59 of its planned 60 patients, all in Australia. NORSE 2 began enrolling in July 2019 and was expected to enroll at least 220 U.S. patients. Both compare ONS-5010 with ranibizumab. The company aimed to submit for approvals in the United States, Europe and Japan in 2020 if the clinical program succeeded; this is a conditional plan, not assured guidance.
- Funding and going concern: Management said June 30 cash plus $2.6 million received from the New Jersey tax-credit and NOL sale in July was expected to fund operations into December 2019, excluding unscheduled debt repayments. The filing states that substantial doubt exists about the company’s ability to continue as a going concern. Additional financing is needed, with no assurance it will be obtained; potential responses to a shortfall include modifying trials, workforce reductions, suspending or discontinuing programs, asset sales, or seeking bankruptcy protection.
- Debt amendment: In June, the company repaid $1.8 million of senior secured notes and amended the remaining $6.7 million. Maturity remained December 22, 2019, scheduled June–August payments were removed, and the interest rate increased from 5% to 12%. The amendment was accounted for as a debt extinguishment and contributed to a $0.42 million quarterly loss on extinguishment.
- Other significant items: The company recorded a $2.96 million R&D asset write-off following its decision to focus on ONS-5010 and outsource commercial manufacturing and remaining development. A lease termination obligation of $3.90 million remained at June 30, with a further $4.0 million payment due by February 1, 2021 under the agreement. Series A-1 preferred stock carries significant liquidation preferences and dividends.
- Key risks include clinical-trial outcomes and enrollment, regulatory approval, competition, market acceptance, and the ability to secure financing or commercial partnerships. Management reported disclosure controls were effective and no material change in internal control during the quarter. It reported no pending legal matters expected to have a material adverse effect.
Important facts for investors to verify
- Whether financing or a strategic/licensing arrangement was secured to extend the stated December 2019 cash runway, and the company’s subsequent going-concern status.
- Current status, enrollment, results and regulatory plans for NORSE 1 and NORSE 2, including whether the proposed 2020 filing timetable remained achievable.
- Repayment, refinancing or further amendment of the $6.7 million senior secured notes due December 22, 2019, and the status and terms of demand notes and forbearance.
- Cash burn, trial and manufacturing commitments, and whether reported liquidity adequately reflects near-term obligations, including the lease termination payment.
- Potential dilution from outstanding warrants, preferred-stock conversion rights and future capital raises; the filing reported 16.07 million common shares issuable under outstanding warrants as of June 30, 2019.