Rezolute(RZLT) - 2023 Q4 - Annual Report

Part I Business Rezolute, Inc. is a clinical-stage biopharmaceutical company developing therapies for metabolic diseases, with lead assets RZ358 and RZ402 in clinical trials Summary of Clinical Assets The company's pipeline is led by RZ358 for congenital hyperinsulinism, with a pivotal Phase 3 study planned, and RZ402 for diabetic macular edema, currently in Phase 2 - RZ358, for congenital hyperinsulinism (HI), is preparing to initiate a pivotal Phase 3 study (sunRIZE) outside the U.S. in Q4 2023, with topline results expected in the first half of 2025[17][19] - The FDA has imposed an age restriction (12 years and older) and dose level restrictions on RZ358 clinical studies in the U.S., making it infeasible to include the U.S. in the upcoming Phase 3 study[20] - RZ402, an oral therapy for diabetic macular edema (DME), is in a Phase 2 study. Enrollment is expected to complete in 2023, with topline results anticipated in Q1 2024[24][26] Intellectual Property The company relies on its intellectual property, holding exclusive worldwide licenses for RZ358 and RZ402 with patents extending to 2043 - The company holds a worldwide, exclusive license from XOMA for patents covering the RZ358 molecule, which expire between 2030 and 2036[29] - Rezolute holds a worldwide, exclusive license from ActiveSite for patents covering the RZ402 molecule, with these patents expected to expire between 2040 and 2043[30] Competition Rezolute faces competition from other pharmaceutical and biotechnology companies developing therapies for both HI and DME - Competitors developing therapies for HI include Eiger Biopharmaceuticals, Hanmi Pharmaceuticals, and Zealand Pharma[31] - Competitors developing therapies for DME include Curacle, KalVista, Ocuphire Pharma, Oxurion, and Verseon[32] Research and Development Research and development expenses significantly increased in fiscal year 2023 compared to 2022 Research and Development Expenses (Fiscal Years 2023 vs. 2022) | Fiscal Year Ended June 30 | R&D Expenses (in millions) | | :--- | :--- | | 2023 | $43.8 | | 2022 | $32.5 | Human Capital Management As of June 30, 2023, Rezolute had 51 employees, with a focus on R&D, diversity, talent retention, and ethical conduct - As of June 30, 2023, the company had 51 full-time employees, with 38 engaged in research and development activities[36] - The company adopted an equity and inclusion policy on May 30, 2023, to further its commitment to diversity[37] - An amended and restated Code of Business Conduct and Ethics was adopted on May 30, 2023, to improve readability and clarify areas such as compliance, conflicts of interest, and insider trading[39] Risk Factors The company faces substantial risks related to product development, business operations, intellectual property, and its common stock, including FDA holds and financial losses - The company's lead product candidate, RZ358, is under a clinical hold in the U.S. due to FDA-imposed restrictions, which may delay or prevent its development and commercialization in this key market[48][49] - The company has a history of net losses, with an accumulated deficit of $261.0 million as of June 30, 2023, and will require substantial additional capital to fund operations[86] - The company's ability to use a significant portion of its federal net operating loss (NOL) carryforwards of approximately $153.2 million is restricted due to past ownership changes under IRC Section 382[92] - The company's common stock may be delisted from the Nasdaq Capital Market if it fails to maintain the minimum $1.00 closing bid price or other continued listing standards[123][124] Properties The company leases its headquarters in Redwood City, CA, and office space in Bend, OR, which are deemed sufficient for current needs Leased Properties | Location | Size (sq. ft.) | Monthly Rent (approx.) | Lease Expiration | | :--- | :--- | :--- | :--- | | Redwood City, CA (HQ) | 9,300 | $53,000 (avg. remaining) | October 2027 | | Bend, OR | 5,000 | $8,400 | February 2024 | Legal Proceedings The company is not currently involved in any legal proceedings expected to materially affect its financial condition or operations - As of June 30, 2023, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the Company's results of operations[351] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Rezolute's common stock trades on Nasdaq, with 274 holders of record as of September 8, 2023, and no plans for future cash dividends - The company's common stock trades on Nasdaq under the symbol "RZLT"[139] - As of September 8, 2023, there were 274 holders of record of the company's common stock[140] - The company has never paid cash dividends and does not plan to in the foreseeable future[141] Management's Discussion and Analysis of Financial Condition and Results of Operations This section details the company's financial performance, including key objectives, FDA restrictions, increased net loss in FY2023, and a cash runway through Q3 2025 Executive Summary Key objectives include initiating the RZ358 Phase 3 study and announcing RZ402 Phase 2 results, despite FDA restrictions on RZ358 in the U.S., while diversifying cash investments - Key objectives are initiating the RZ358 Phase 3 study and announcing RZ402 Phase 2 topline results in Q1 2024[148] - The FDA affirmed its decision to impose "New Restrictions" on RZ358 in the U.S., including an age restriction of 12 years and above and re-imposing a previous exposure cap, making U.S. inclusion in the Phase 3 study infeasible[154][155] - In January 2023, the company invested $115.0 million of its cash into a portfolio of marketable debt securities to achieve higher returns[158] Results of Operations Net loss increased to $51.8 million in FY2023, driven by higher R&D and G&A expenses, partially offset by increased interest income from investments Consolidated Statements of Operations (in thousands) | | 2023 | 2022 | | :--- | :--- | :--- | | Research and development | $ 43,813 | $ 32,486 | | General and administrative | 12,177 | 9,357 | | Total operating expenses | 55,990 | 41,843 | | Operating loss | (55,990) | (41,843) | | Interest and other income | 4,208 | 80 | | Net loss | $ (51,787) | $ (41,060) | - R&D expenses increased by $11.3 million (35%), primarily due to a $5.3 million increase in R&D compensation and benefits, and a $4.3 million increase in spending on clinical programs (RZ358 and RZ402)[183][184] - The RZ402 program costs increased by $3.2 million, mainly due to a $3.0 million milestone payment triggered by the first patient dosing in the Phase 2 study in February 2023[188] - Interest and other income increased to $4.2 million from $0.1 million, primarily due to the investment of $115.0 million in marketable debt securities starting in January 2023[190] Liquidity and Capital Resources As of June 30, 2023, the company had $118.3 million in cash and investments, providing a runway through Q3 2025, with significant future milestone payment obligations Liquidity Position as of June 30, 2023 | Metric | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $16.0 | | Investments in marketable debt securities | $102.3 | | Total Cash & Investments | $118.3 | | Working Capital | $99.7 | | Accumulated Deficit | $261.0 | - The company believes it has adequate capital to fund planned activities at least through the third quarter of calendar year 2025[200] - Significant long-term obligations include potential clinical and regulatory milestone payments of up to $35.0 million to XOMA and $25.0 million to ActiveSite[201] - A milestone payment of $5.0 million to XOMA is expected to be due within the next twelve months upon the first patient dosing in the RZ358 Phase 3 study[199][206] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for FY2023 and FY2022, with an unqualified auditor's opinion, detailing key financial positions and performance Consolidated Balance Sheet Highlights (in thousands) | | June 30, 2023 | June 30, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $ 16,036 | $ 150,410 | | Investments in marketable debt securities | 102,330 | — | | Total Assets | $ 123,721 | $ 152,420 | | Total Liabilities | 7,549 | 2,949 | | Total Shareholders' Equity | 116,172 | 149,471 | Consolidated Statements of Operations Highlights (in thousands) | | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Total operating expenses | $ 55,990 | $ 41,843 | | Operating loss | (55,990) | (41,843) | | Net loss | $ (51,787) | $ (41,060) | | Comprehensive loss | $ (52,138) | $ (41,060) | Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of June 30, 2023, with a previously identified material weakness successfully remediated - The CEO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[383] - Management determined that the company's internal control over financial reporting was effective as of June 30, 2023[387] - A previously identified material weakness related to inadequate segregation of duties was successfully remediated as of June 30, 2023[388][391] Part III Directors, Executive Officers and Corporate Governance This section provides biographical information for directors and executive officers, details Board committee composition, and highlights the adoption of an amended Code of Business Conduct and Ethics - The Board of Directors has three standing committees: Audit, Compensation, and Nominating and Corporate Governance[413] - The Audit Committee is composed of independent directors Gil Labrucherie (chair), Philippe Fauchet, and Dr. Wladimir Hogenhuis, with Mr. Labrucherie and Dr. Hogenhuis qualified as "audit committee financial experts"[415] - The company adopted an amended and restated Code of Business Conduct and Ethics on May 30, 2023[412] Executive Compensation This section details compensation for Named Executive Officers and directors for FY2023 and FY2022, including salaries, bonuses, stock options, and employment agreement terms Summary Compensation for Named Executive Officers (FY 2023) | Name and Position | Salary | Bonus | All Other Compensation | Total | | :--- | :--- | :--- | :--- | :--- | | Nevan Charles Elam (CEO) | $534,112 | $416,068 | $23,466 | $973,646 | | Brian Roberts, M.D. (CMO) | $457,809 | $237,753 | $43,296 | $738,858 | - Employment agreements for NEOs include severance benefits for termination without cause or resignation for good reason, with enhanced benefits in the event of a change of control[431][432][434] - Non-employee director compensation consists of annual cash retainers for board service ($45,000) and additional fees for committee membership and chair roles[440][450] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details significant beneficial ownership, including major institutional holders and management's collective stake, along with shares available under equity compensation plans Beneficial Ownership Greater Than 5% (as of Sept 8, 2023) | Name of Beneficial Owner | Percent of Class | | :--- | :--- | | Entities associated with Federated Hermes, Inc. | 19.9 % | | Handok, Inc. | 16.1 % | | First Manhattan Co. LLC | 9.8 % | | Stonepine Capital, L.P. | 8.2 % | - Directors and executive officers as a group beneficially owned 8,052,086 shares, representing 20.8% of the class[454][458] - As of June 30, 2023, a total of 2,812 thousand shares were available for future issuance under the company's equity compensation plans[457] Certain Relationships and Related Transactions, and Director Independence The Audit Committee reviews related party transactions, the Board determined four directors are independent, and significant related party transactions include an exclusive license with Handok, Inc - The Audit Committee reviews and approves all related party transactions to prevent conflicts of interest[460] - Four directors were determined to be independent: Mr. Labrucherie, Mr. Fauchet, Dr. Hogenhuis, and Dr. Kreher[461] - The company has an exclusive license agreement with Handok, Inc., an entity affiliated with director Young-Jin Kim, for the commercialization of RZ358 and RZ402 in South Korea[463] - Handok, Inc. and its affiliates purchased an aggregate of $17.3 million in company stock through a registered direct offering and a private placement in FY2022 and July 2022[464][465] Principal Accounting Fees and Services This section discloses fees billed by the independent auditor, Plante & Moran, PLLC, for fiscal years 2023 and 2022, all pre-approved by the Audit Committee Principal Accountant Fees (in thousands) | Fee Category | 2023 | 2022 | | :--- | :--- | :--- | | Audit fees | $190.0 | $259.0 | | Tax fees | $36.6 | $47.2 | | Total | $226.6 | $306.2 | Part IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the Form 10-K, including material contracts and certifications, with financial statement schedules omitted as not applicable - The report includes a list of all exhibits filed, such as material contracts and corporate governance documents[474][475] - All financial statement schedules are omitted because they are not applicable, immaterial, or the required information is already presented in the financial statements[472]