Business context and reporting period
This is ZIOPHARM Oncology, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2016—not a filing under the name Alaunos Therapeutics. The company was a clinical-stage biopharmaceutical developer focused on immuno-oncology and graft-versus-host disease (GvHD), with collaboration revenue but no approved products or meaningful product sales.
Key financial metrics
Amounts are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Collaboration revenue | $1.598 | $1.869 | $5.264 | $2.413 |
| Research and development expense | $8.975 | $16.970 | $148.402 | $98.643 |
| General and administrative expense | $3.537 | $3.065 | $11.058 | $14.388 |
| Net loss | $10.854 | $18.170 | $154.073 | $110.612 |
| Net loss applicable to common stockholders | $14.445 | $18.170 | $157.664 | $110.612 |
| Operating cash flow | Not separately presented | Not separately presented | $(45.261) | $23.792 |
- At September 30, 2016, cash and cash equivalents were $94.683 million, down from $140.717 million at year-end 2015. Working capital was $100.0 million, versus $134.4 million at year-end 2015.
- Total assets were $117.122 million and total liabilities were $59.726 million. The filing reports no borrowings or debt balance; preferred stock was presented separately from liabilities and common stockholders’ equity.
- Gross margin and conventional operating margin are not meaningful measures for this development-stage business; collaboration revenue was substantially below operating expenses. No positive earnings or product revenue were reported.
- Deferred revenue was $49.5 million, principally the unrecognized portion of the Ares Trading upfront payment. Current assets included $19.8 million related to MD Anderson research funding.
Material changes versus comparable periods
- Q3 revenue decreased 14% year over year, while nine-month revenue rose 118%, mainly because of Ares Trading collaboration revenue recognized in 2016; Solasia revenue ended after its related research effort was completed in March 2016.
- Q3 R&D expense fell 47%, primarily because Q3 2015 included a one-time $10.0 million GvHD in-process R&D charge. Nine-month R&D expense rose 50%, largely reflecting a $119.0 million noncash preferred-stock charge related to amendments with Intrexon, as well as higher program and personnel costs. The prior-year period included $67.3 million of noncash expense for common shares issued under the MD Anderson license and the $10.0 million GvHD charge.
- Nine-month net loss increased to $154.1 million from $110.6 million; the unusually large R&D charge was a major driver. The company used $45.3 million of operating cash, compared with $23.8 million provided in the prior-year period. Prior-year operating cash flow included substantial deferred-revenue receipts and noncash license consideration.
- In June 2016, amendments reduced Intrexon’s share of profits on covered product sales from 50% to 20%, subject to agreement terms and offsets. In exchange, ZIOPHARM issued 100,000 Series 1 preferred shares with a stated value of $1,200 each. The shares carry monthly dividends in additional preferred shares and potential conversion and liquidation rights.
Outlook, commentary, risks and unusual items
- Management expected existing cash resources to fund operations into the fourth quarter of 2017, but stated that additional financing would be needed for longer-term clinical development and that no committed additional capital sources existed. Funding could involve equity, collaborations, debt or other sources; dilution or unfavorable terms were possible.
- Planned development included further clinical work on Ad-RTS-IL-12 plus veledimex in glioblastoma and breast cancer, and expected 2017 studies in pediatric brain tumors, a checkpoint-inhibitor combination, and CD33 CAR-T. These were forward-looking plans, not assured milestones.
- Management described early glioblastoma data as encouraging, including 10 of 11 patients alive at the May 18, 2016 data cutoff and median follow-up of 6.2 months. The small, early-stage dataset does not establish efficacy. In the breast cancer study, nine patients were initially assessed; reported disease control was 44% at week 6 and 22% at week 12, and the response rate was 11% at week 12.
- In the glioblastoma trial, reported adverse events included cytokine release syndrome and other toxicities; related serious events occurred. A reported intracranial hemorrhage death was determined by the trial safety review committee to be unrelated to study drug. The filing also described higher incidence of grade 3 or greater adverse events in the 40 mg veledimex cohort.
- Key risks include clinical and regulatory failure or delay, limited clinical evidence, manufacturing and supply constraints, dependence on Intrexon and MD Anderson licenses and collaborators, competition, and the need for further financing. Series 1 preferred stock creates ongoing dividend accretion, potential common-stock dilution and preferred-holder rights that may constrain corporate actions.
- Contractual obligations totaled $27.5 million, including $4.5 million of operating leases and $23.0 million of royalty and license fees, chiefly MD Anderson funding commitments. No material legal proceedings or material subsequent events were reported. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the issuer and filing identity: this 2016 10-Q names ZIOPHARM Oncology, Inc.; the supplied company metadata says Alaunos Therapeutics, Inc.
- Assess cash runway against actual spending and the stated Q4 2017 estimate, including the recurring MD Anderson funding and planned clinical expansion.
- Separate recurring operating costs from the $119.0 million noncash preferred-stock charge when assessing the nine-month loss and R&D trend.
- Review the Series 1 preferred stock’s dividend, conversion, liquidation and protective provisions, and their potential dilution and governance effects.
- Check subsequent clinical-trial data and safety disclosures; the filing’s efficacy observations were preliminary and based on small patient groups.