Biorestorative Therapies, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; comparisons are with the corresponding 2021 periods. The company develops cell-based therapies, led by BRTX-100 for disc and spine conditions, and conducts preclinical work through its ThermoStem program. Revenue is principally royalties under a sublicense agreement.
Financial performance and position
- Revenue: Q3 revenue was $29,000, up from $8,000; nine-month revenue was $116,100, up from $41,000. Revenue remains immaterial relative to operating costs.
- Losses: Q3 operating expenses were $4.64 million and net loss was $4.66 million, versus $3.70 million and $4.18 million, respectively, in Q3 2021. For nine months, operating expenses were $14.41 million and net loss was $14.15 million, compared with $22.34 million and $23.90 million in 2021.
- Expenses and margins: Q3 R&D rose 317% to $989,170 as clinical and research activity resumed; G&A increased 5% to $3.65 million. Nine-month R&D rose to $2.84 million, while G&A fell 47% to $11.57 million, mainly because stock-based compensation was lower than in 2021. The filing does not present gross-margin figures; operating margins are not meaningful given the company’s minimal revenue and operating losses.
- Cash flow: Nine-month operating cash use was $4.30 million, versus $2.18 million in 2021. Investing cash use was $10.16 million, primarily purchases of marketable securities and equipment; there was no financing cash flow. Cash decreased $14.45 million.
- Liquidity and debt: At September 30, cash and cash equivalents were $6.57 million and marketable securities were $9.91 million; working capital was $16.17 million. Total liabilities were $915,903. The $250,000 PPP loan was forgiven in January 2022, leaving no notes payable; lease liabilities totaled about $333,000.
- Equity and noncash costs: Accumulated deficit was $148.29 million. Nine-month stock-based compensation was approximately $9.55 million. Common shares outstanding were 3,646,450 at quarter-end and 3,673,629 as of November 14, 2022.
Material changes and developments
- R&D spending increased as the company advanced its development work and Phase 2 clinical trial activities, including engaging PRC Clinical for trial management. Management expects elevated R&D expenses to continue.
- Interest expense declined substantially year over year following the exchange of convertible debt in connection with the November 2021 public offering. The 2022 nine-month results also included a $250,000 gain from PPP loan forgiveness and $16,654 of grant income.
- On September 8, the company exchanged 1,543,158 Series A preferred shares for the same number of Series B shares. The Series B conversion and voting ownership cap is 9.99%, compared with 4.99% for Series A. After quarter-end, 25,000 Series B shares converted into common shares at $10 per share.
Outlook, risks, and contingencies
- Management believes available funds will support operations for 12 months from the filing date, but says additional financing will ultimately be required to complete development and reach profitability. Failure to obtain funding could force curtailment or discontinuation of operations.
- The company reported that it did not timely meet a February 2022 milestone under its disc/spine technology license. Its exclusive rights may therefore be non-exclusive; it is negotiating with the licensor to confirm exclusivity, with no assurance of success.
- The Phase 2 trial and product development carry clinical, regulatory, commercialization, financing, and intellectual-property risks. Management does not expect the recent increase in royalty revenue to continue.
- A clinical services agreement with a 46-month term has an estimated budgeted cost of $5.84 million. The Melville facility lease runs through December 2024.
- Management concluded disclosure controls and internal control over financial reporting were ineffective as of September 30, citing material weaknesses in formal policies, risk assessment, and financial reporting procedures. Remediation includes external financial consulting and documentation of key controls.
- No material changes to previously disclosed risk factors were reported. The filing provides no quantified revenue or profitability guidance.
Key facts for investors to verify
- Whether the company can secure financing beyond its stated 12-month operating runway and fund its clinical and development plans.
- The status and terms of negotiations to confirm exclusive disc/spine technology rights.
- Phase 2 trial enrollment, progress, costs, and any regulatory or clinical developments.
- Actual future cash burn, including clinical-service commitments, and the composition and liquidity of marketable securities.
- Progress remediating internal-control material weaknesses and the effect of preferred-stock conversions and equity compensation on dilution.