Rezolute(US:RZLT)2023-02-10 21:16PART I - FINANCIAL INFORMATION Financial Statements The company's financial statements for the period ended December 31, 2022, show a decrease in cash and total assets compared to June 30, 2022, with operating and net losses widening due to increased R&D and G&A expenses, leading to a decrease in shareholders' equity despite stock issuance proceeds, and increased cash usage from operations while financing activities provided less cash than the prior year Unaudited Condensed Consolidated Balance Sheets As of December 31, 2022, the company had cash and cash equivalents of $146.7 million, a slight decrease from $150.4 million at June 30, 2022, with total assets decreasing to $150.2 million from $152.4 million, total liabilities increasing significantly to $8.9 million from $2.9 million primarily due to new operating lease liabilities, and total shareholders' equity consequently decreasing to $141.3 million from $149.5 million Condensed Consolidated Balance Sheet Data (in thousands) | | December 31, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $146,746 | $150,410 | | Total current assets | $147,606 | $152,104 | | Total assets | $150,208 | $152,420 | | Liabilities and Shareholders' Equity | | | | Total current liabilities | $6,313 | $2,462 | | Total liabilities | $8,943 | $2,949 | | Total shareholders' equity | $141,265 | $149,471 | Unaudited Condensed Consolidated Statements of Operations For the three months ended December 31, 2022, the company reported a net loss of $13.6 million, compared to a net loss of $12.6 million for the same period in 2021, while for the six-month period, the net loss was $23.4 million in 2022, up from $20.4 million in 2021, with increased losses primarily driven by higher research and development and general and administrative expenses Operating Results (in thousands, except per share amounts) | | Three Months Ended Dec 31, | Six Months Ended Dec 31, | | :--- | :--- | :--- | | | 2022 | 2021 | 2022 | 2021 | | Research and development | $10,945 | $9,452 | $18,649 | $15,226 | | General and administrative | $3,447 | $2,697 | $5,961 | $4,563 | | Operating loss | $(14,392) | $(12,149) | $(24,610) | $(19,789) | | Net loss | $(13,556) | $(12,593) | $(23,387) | $(20,429) | | Net loss per share (basic and diluted) | $(0.26) | $(0.80) | $(0.46) | $(1.69) | Unaudited Condensed Consolidated Statements of Shareholders' Equity For the six months ended December 31, 2022, total shareholders' equity decreased from $149.5 million to $141.3 million, primarily due to a net loss of $23.4 million, partially offset by $12.3 million in gross proceeds from common stock issuance in a private placement and $3.6 million in share-based compensation - In the six months ended December 31, 2022, the company raised $12.3 million in gross proceeds from a private placement of common stock17 - The net loss for the six-month period was $23.4 million, which reduced shareholders' equity17 Unaudited Condensed Consolidated Statements of Cash Flows For the six months ended December 31, 2022, net cash used in operating activities was $15.1 million, an increase from $13.5 million in the prior-year period, while net cash provided by financing activities was $11.6 million, primarily from a private placement, a significant decrease from $54.9 million in the same period of 2021 which included a large underwritten public offering, resulting in a net decrease in cash of $3.7 million for the period Cash Flow Summary (in thousands) | | Six Months Ended December 31, | | :--- | :--- | :--- | | | 2022 | 2021 | | Net Cash Used in Operating Activities | $(15,082) | $(13,538) | | Net Cash Used in Investing Activities | $(153) | $— | | Net Cash Provided by Financing Activities | $11,571 | $54,894 | | Net decrease/increase in cash | $(3,664) | $41,356 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's operations as a clinical-stage biopharmaceutical firm focused on metabolic diseases, highlighting its liquidity status with sufficient cash to operate through February 2024, significant commitments including milestone payments for its RZ358 and RZ402 programs, recent financing activities including a private placement in July 2022, and a subsequent event note on a $3.0 million milestone payment triggered in February 2023 - The company is a clinical-stage biopharmaceutical company developing therapies for metabolic diseases, with primary clinical assets being RZ358 for congenital hyperinsulinism and RZ402 for diabetic macular edema23 - Management believes its cash balance of $146.7 million as of December 31, 2022, is adequate to fund operations at least through February 202440 - A $3.0 million milestone payment to ActiveSite became due in February 2023 upon dosing the first patient in the RZ402 Phase 2 study100 - A $5.0 million milestone payment to XOMA for the RZ358 program is expected to be due within the next 12 months upon dosing the first patient in a Phase 3 trial3746 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the progress of its lead clinical assets, RZ358 and RZ402, with RZ358 anticipated to start a Phase 3 trial in Summer 2023 and RZ402 having initiated a Phase 2 study in December 2022, while the analysis of financial results shows increased operating expenses due to higher R&D and G&A headcount and clinical trial activities, and the company's liquidity is strong with $146.7 million in cash, deemed sufficient to fund operations and key clinical milestones into early 2024, supported by recent financing activities Status of Clinical Assets The company is advancing its two main clinical assets, with RZ358 engaging with the FDA and European regulators to finalize Phase 3 study design following positive Phase 2b results, anticipating trial commencement in Summer 2023 and top-line results in Q1 2025, while a Phase 2 study for RZ402 in patients with Diabetic Macular Edema (DME) was initiated in December 2022, with results expected in Q1 2024 - RZ358: The company anticipates commencing a Phase 3 study in the Summer of 2023, with top-line results planned for the first quarter of 2025103 - RZ402: A Phase 2 study for DME was initiated in December 2022. The company expects to complete dosing in the fourth quarter of 2023 and announce results in the first quarter of 2024105 Results of Operations Comparing the periods ended December 31, 2022, and 2021, operating expenses increased for both the three-month and six-month periods, primarily due to higher compensation and benefits from an increased number of employees in both R&D and G&A functions, as well as increased spending on Phase 3 readiness for RZ358 and the Phase 2 trial for RZ402, while interest income also increased significantly due to higher cash balances from recent financings R&D Expense Comparison (in thousands) | Period | 2022 | 2021 | Increase | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Dec 31 | $10,945 | $9,452 | $1,493 | 16% | | Six Months Ended Dec 31 | $18,649 | $15,226 | $3,423 | 22% | G&A Expense Comparison (in thousands) | Period | 2022 | 2021 | Increase | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended Dec 31 | $3,447 | $2,697 | $750 | 28% | | Six Months Ended Dec 31 | $5,961 | $4,563 | $1,398 | 31% | - The increase in R&D and G&A expenses was primarily driven by higher cash-based and share-based compensation due to an increase in the average number of employees129130135136 Liquidity and Capital Resources As of December 31, 2022, the company had $146.7 million in cash and cash equivalents, which management believes are sufficient to meet contractual obligations and advance clinical trials through the end of 2023, with primary liquidity sources being equity offerings including a $12.3 million private placement in July 2022 and a $117.6 million registered direct offering in May 2022, and significant near-term cash outlays including a $3.0 million milestone payment to ActiveSite made in February 2023 and an anticipated $5.0 million milestone payment to XOMA within the next twelve months - The company held cash and cash equivalents of $146.7 million and working capital of $141.3 million as of December 31, 2022141 - Management believes it has adequate capital to fund planned activities through the fiscal quarter ending December 31, 2023144 - A $3.0 million milestone payment to ActiveSite for the RZ402 program became payable in February 2023144150 - A $5.0 million milestone payment to XOMA for the RZ358 program is anticipated within the next twelve months143149 Cash Flows Summary For the six months ended December 31, 2022, net cash used in operating activities increased to $15.1 million from $13.5 million in the prior year, driven by a higher net loss, while cash used in investing activities was minimal at $0.2 million, and net cash from financing activities was $11.6 million from a private placement, a sharp decrease from $54.9 million in the prior year which benefited from larger public offerings Cash Flow Summary (in thousands) | | 2022 | 2021 | Change | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(15,082) | $(13,538) | $(1,544) | | Net cash used in investing activities | $(153) | — | $(153) | | Net cash provided by financing activities | $11,571 | $54,894 | $(43,323) | Quantitative and Qualitative Disclosures About Market Risk This section is not applicable to the company for this reporting period - Not applicable168 Controls and Procedures Management concluded that as of December 31, 2022, the company's disclosure controls and procedures were not effective due to a material weakness in internal control, stemming from inadequate segregation of duties due to a limited number of employees, and the company is taking remedial steps including implementing more robust accounting software and hiring additional personnel in October 2022 to improve duty segregation - Management identified a material weakness in internal control over financial reporting169 - The material weakness is due to the limited number of employees, which has not allowed for adequate segregation of duties to prevent employees from overriding the internal control system170 - Remediation efforts include implementing new accounting software and hiring additional personnel in October 2022 to better segregate functions170 PART II – OTHER INFORMATION Legal Proceedings The company reported no legal proceedings during the period - None173 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - As of the date of this Report, there have been no material changes with respect to the risk factor disclosures in the 2022 Form 10-K173 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None175 Other Information The company reported no other information required to be disclosed under this item - None181 Exhibits The report includes several exhibits, most notably amended employment agreements for the CEO and CMO, and standard SEC certification filings - Filed exhibits include amended and restated employment agreements for Nevan Elam (CEO) and Brian Roberts (CMO), dated January 8, 2023183 - Certifications pursuant to Section 302 and 906 of the Sarbanes-Oxley Act of 2002 were also filed183