Outlook Therapeutics, Inc. — FY2018 Form 10-K
Reporting period: Fiscal year ended September 30, 2018 (not a standalone 2018 fourth-quarter report). The financial statements are audited. The company, formerly Oncobiologics, changed its name to Outlook Therapeutics in November 2018.
Business context
Outlook is a clinical-stage biopharmaceutical company with no approved products or product-sale revenue. Its sole active development candidate is ONS-5010, an ophthalmic bevacizumab formulation being developed as an innovative therapy for wet age-related macular degeneration (wet AMD), with diabetic macular edema (DME) and branch retinal vein occlusion (BRVO) also targeted. ONS-3010 and ONS-1045 biosimilar programs were inactive absent major-market partners; rights in certain emerging markets had been licensed.
Key financial metrics
| Metric | FY2018 | FY2017 |
|---|---|---|
| Collaboration revenue | $3.09 million | $3.81 million |
| Research and development expense | $18.50 million | $23.81 million |
| General and administrative expense | $14.23 million | $15.88 million |
| Loss from operations | $29.64 million | $35.88 million |
| Net loss | $30.09 million | $38.85 million |
| Net loss attributable to common stockholders | $48.02 million | $40.03 million |
| Basic net loss per common share | $1.22 | $1.67 |
| Cash used in operating activities | $33.04 million | $15.51 million |
| Cash used in investing activities | $2.78 million | $0.29 million |
| Cash provided by financing activities | $34.35 million | $16.63 million |
At September 30, 2018, cash was $1.72 million, total current assets were $3.30 million, total current liabilities were $32.04 million, and total liabilities were $43.09 million. Senior secured notes were $13.5 million principal; stockholder notes were $4.61 million, including $1.0 million due on demand and $3.6 million maturing December 22, 2018. Accumulated deficit was $216.3 million. Product gross margin is not applicable because the company had no product sales.
Changes versus prior year and unusual items
- Net loss narrowed by $8.76 million, while operating loss improved by $6.24 million. The net-loss improvement included a $3.65 million income-tax benefit, principally from selling New Jersey net operating losses; FY2017 had $0.50 million of tax expense.
- R&D expense fell $5.31 million as the company deprioritized biosimilars and focused on ONS-5010. The 2018 expense included a $3.23 million favorable settlement of a clinical-development contract and $6.32 million of ONS-5010 development costs.
- G&A expense declined $1.65 million despite a $4.17 million charge related to terminating a lease for approximately 82,000 square feet of additional space; the termination agreement provided for payments totaling up to approximately $5.8 million.
- Operating cash use increased to $33.04 million from $15.51 million, reflecting working-capital outflows, including payments of prior-year payables and prepaid R&D costs. Financing inflows funded most of the cash requirement.
- The company recorded a $1.25 million debt-extinguishment loss related to exchanging $1.5 million of senior notes for preferred stock. A $1.05 million non-cash gain from reduced warrant liability partially offset expenses.
Outlook, liquidity and principal risks
- Management planned to submit an FDA investigational new drug application and begin the U.S. portion of the second wet AMD study in Q1 2019. It expected top-line results from the first study in Q1 2020 and the second in Q3 2020, and targeted a BLA submission in Q4 2020. DME and BRVO trials were planned to begin in H2 2019. These are forward-looking targets, not assured outcomes.
- Management estimated that cash at September 30, 2018, the November 2018 BioLexis financing of up to $20 million, and anticipated proceeds of approximately $3.4 million from selling New Jersey tax attributes would fund operations into June 2019, excluding unscheduled debt repayments. Only $12 million of the $20 million financing had closed by the filing; the remaining $8 million was subject to conditions and funding milestones.
- In November 2018, senior noteholders agreed to extend the $13.5 million notes’ maturity potentially through December 22, 2019, in return for scheduled principal and interest payments and additional capital-raising commitments. The notes remained classified as current at fiscal year-end. The company stated substantial additional financing would be needed.
- The auditor’s report included a going-concern explanatory paragraph, citing recurring losses and negative operating cash flows, the accumulated deficit, and debt obligations. The statements contain no adjustments for the outcome of this uncertainty. Failure to secure funding could force reductions, program suspension, asset liquidation or bankruptcy proceedings.
- Clinical, regulatory, manufacturing, reimbursement, competition and intellectual-property risks are material. ONS-5010 still required clinical success and regulatory approval; the company relied on third parties for trials and manufacturing and had no established sales organization or ONS-5010 commercialization partner.
- BioLexis beneficially owned approximately 78.1% of common stock and controlled approximately 69.0% of voting power as of November 30, 2018, with board-designation rights. Financing terms, preferred-stock preferences, warrants and potential further equity issuance create material dilution and governance considerations.
- Nasdaq had granted the company until April 22, 2019 to demonstrate continued-listing compliance, including a $1.00 minimum bid price for at least ten consecutive business days. Delisting could trigger severe Series A-1 preferred-stock redemption consequences.
Important facts for investors to verify
- Whether the remaining BioLexis funding and anticipated tax-attribute proceeds were received, and whether they materially extended the cash runway.
- Compliance with the senior-note payment and capital-raising conditions, and the resulting maturity, conversion and warrant terms.
- Actual enrollment, trial execution, data timing and FDA requirements for ONS-5010, compared with management’s stated milestones.
- Updated cash burn, liquidity, debt maturities and any further financing needs or dilution.
- Nasdaq listing status, the Series A-1 preferred-stock terms, and BioLexis’s ownership and control after subsequent transactions.