Outlook Therapeutics(OTLK) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The unaudited interim consolidated financial statements for the period ended March 31, 2024, reflect a significant increase in net loss, primarily driven by non-cash expenses related to warrant liabilities and changes in the fair value of promissory notes Consolidated Balance Sheets As of March 31, 2024, total assets increased to $59.0 million, total liabilities surged to $193.3 million, and stockholders' deficit worsened to $(134.2) million, primarily due to warrant liability and convertible notes Consolidated Balance Sheets Summary (in thousands) | Balance Sheet Item | March 31, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $47,229 | $23,392 | | Total current assets | $57,786 | $30,979 | | Total assets | $59,029 | $32,301 | | Liabilities & Stockholders' Deficit | | | | Unsecured convertible promissory note | $44,745 | $35,551 | | Warrant liability | $139,185 | $6 | | Total current liabilities | $54,080 | $46,732 | | Total liabilities | $193,265 | $46,738 | | Total stockholders' deficit | $(134,236) | $(14,438) | Consolidated Statements of Operations For the three and six months ended March 31, 2024, net losses significantly increased due to large non-cash expenses from warrant liabilities and promissory notes, alongside higher research and development costs Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $13,509 | $545 | $18,038 | $10,407 | | General and administrative | $5,431 | $6,293 | $11,225 | $12,119 | | Loss from operations | $(18,940) | $(6,838) | $(29,263) | $(22,526) | | Warrant related expenses | $34,098 | $0 | $34,098 | $0 | | Change in fair value of warrant liability | $49,615 | $(19) | $49,668 | $(49) | | Net loss | $(114,289) | $(6,654) | $(125,467) | $(25,317) | | Net loss per share, basic and diluted | $(8.01) | $(0.52) | $(9.20) | $(2.09) | Consolidated Statements of Cash Flows Net cash used in operating activities increased to $32.3 million for the six months ended March 31, 2024, while financing activities provided $56.1 million, resulting in a net increase in cash and cash equivalents of $23.8 million Consolidated Statements of Cash Flows Summary (in thousands) | Cash Flow Activity | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(32,299) | $(17,016) | | Net cash provided by financing activities | $56,137 | $43,248 | | Net increase in cash and cash equivalents | $23,837 | $26,232 | | Cash and cash equivalents at end of period | $47,229 | $43,629 | Notes to Unaudited Interim Consolidated Financial Statements The notes detail the company's business focus on ONS-5010, its significant liquidity challenges leading to a going concern doubt, and key financial events including a reverse stock split, a major private placement, warrant liability classification, convertible debt terms, and a pending securities class action lawsuit - The company's financial statements have been prepared on a going concern basis, but recurring losses and negative cash flows raise substantial doubt about its ability to continue. Management believes existing cash, combined with recent financing and potential warrant exercises, will be sufficient to fund operations through 2025[26][28][31] - A one-for-twenty reverse stock split was implemented on March 14, 2024. All common share and per-share data have been adjusted to reflect this split for all periods presented[35] - In March 2024, a private placement raised $55.5 million in net proceeds through the issuance of 8,571,423 shares and warrants to purchase 12,857,133 shares. The warrants were classified as a liability, and their fair value at issuance exceeded the net proceeds, resulting in a $34.1 million charge to warrant related expenses[85][86][90] - A securities class action lawsuit was filed against the company in November 2023, alleging false and misleading statements related to the Biologics License Application (BLA) for ONS-5010. The company cannot estimate the possible cost and has not established a reserve[74][75][77] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the status of its lead product candidate, ONS-5010, including the FDA's Complete Response Letter (CRL) which requires an additional clinical trial (NORSE EIGHT), and the recent positive CHMP opinion in the EU, while addressing substantial doubt about its ability to continue as a going concern and outlining a plan to fund operations through 2025 via recent financing and potential warrant exercises Overview Outlook Therapeutics is focused on launching ONS-5010, initiating the NORSE EIGHT trial under an FDA Special Protocol Assessment (SPA) after a Complete Response Letter (CRL), while the EMA's CHMP issued a positive opinion for ONS-5010 in March 2024 - The FDA issued a Complete Response Letter (CRL) for the ONS-5010 BLA, citing CMC issues and requiring an additional adequate and well-controlled clinical trial[128] - The company initiated the NORSE EIGHT trial in January 2024 under an FDA Special Protocol Assessment (SPA) to address the clinical deficiency in the CRL, with topline results expected by the end of calendar year 2024[129][131][135] - The EMA's CHMP issued a positive opinion for ONS-5010 in March 2024 for the treatment of wet AMD in the EU, with a final decision from the European Commission expected within approximately 67 days[132] Results of Operations The company's net loss increased substantially for both the three and six-month periods ended March 31, 2024, compared to the prior year, primarily driven by higher R&D expenses related to the NORSE EIGHT clinical trial and significant non-cash charges related to warrants and convertible debt Comparison of Operating Results (in thousands) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | Research and development | $13,509 | $545 | $18,038 | $10,407 | | General and administrative | $5,431 | $6,293 | $11,225 | $12,119 | | Net loss | $(114,289) | $(6,654) | $(125,467) | $(25,317) | - R&D expenses for Q2 2024 increased by $13.0 million YoY, mainly due to $8.6 million in costs for the NORSE EIGHT clinical trial and a prior-year reduction of expense from a $3.9 million refund of FDA BLA submission fees[170] - G&A expenses for Q2 2024 decreased by $0.9 million YoY, primarily due to a $1.9 million reduction in professional fees from halting commercial launch activities, partially offset by higher compensation costs[171] Liquidity and Capital Resources The company has a history of net losses and negative cash flows, raising substantial doubt about its ability to continue as a going concern, but management believes that with expected proceeds from warrant exercises, it has sufficient capital to support operations through 2025 - The company does not believe its cash as of March 31, 2024, plus $5.0 million raised in April 2024, is sufficient to fund operations for one year, resulting in a going concern warning[141][201][206] - Management believes that if it can call its outstanding warrants for exercise, the proceeds, combined with current cash, would be sufficient to fund operations through 2025[141][201][206] - In March 2024, the company raised $55.5 million in net proceeds from a private placement of common stock and warrants[200] Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(32,300) | $(17,016) | | Net cash provided by financing activities | $56,137 | $43,248 | | Net increase in cash and cash equivalents | $23,837 | $26,232 | Item 3. Quantitative and Qualitative Disclosures About Market Risk As a Smaller Reporting Company, Outlook Therapeutics is not required to provide this disclosure - The company is exempt from this disclosure requirement as it qualifies as a Smaller Reporting Company[218] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective at a reasonable assurance level as of March 31, 2024, with no material changes in internal control over financial reporting during the second fiscal quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[219] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[220] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is facing a securities class action lawsuit filed on November 3, 2023, alleging violations of the Exchange Act due to allegedly false and misleading statements regarding the Biologics License Application (BLA) for ONS-5010 between December 29, 2022, and August 29, 2023, with an uncertain outcome and no reserve established - A securities class action lawsuit was filed against the company and certain officers on November 3, 2023[222] - The complaint alleges false and misleading statements related to the BLA for ONS-5010, specifically concerning evidence supporting its efficacy and unresolved CMC controls[222] - The company cannot estimate the possible cost from this matter and has not established any reserve for potential liability[223] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Form 10-K for the fiscal year ended September 30, 2023 - As of March 31, 2024, no material changes have been made to the risk factors disclosed in the Annual Report on Form 10-K filed on December 22, 2023[225] Item 5. Other Information On May 13, 2024, the company filed a Certificate of Elimination to remove its Series A, Series B, and Series A-1 Convertible Preferred Stock designations, returning them to the status of authorized but unissued preferred stock, and concurrently filed a Restated Certificate of Incorporation - On May 13, 2024, the company filed a Certificate of Elimination for its Series A, B, and A-1 Convertible Preferred Stock, as no shares were outstanding[230][231] - Immediately following the elimination, the company filed a Restated Certificate of Incorporation[231]