CNS Pharmaceuticals, Inc. — Q1 2021 Form 10-Q
Business context and period: This unaudited quarterly report covers the three months ended March 31, 2021. CNS Pharmaceuticals is a pre-revenue clinical-stage company developing anti-cancer drug candidates. Its primary near-term focus is Berubicin for glioblastoma; it also holds rights to WP1244 and other programs.
Financial highlights
- Revenue: No revenue was reported for Q1 2021 or Q1 2020.
- Operating expenses and loss: Operating expenses were $3.61 million, up from $1.97 million. Net loss was $3.61 million versus $1.97 million; loss per share was $0.15 versus $0.12.
- Research and development: R&D expense rose to $2.21 million from $613,077, primarily reflecting drug manufacturing and labor for Phase 2 trial preparation.
- General and administrative: G&A expense was $1.40 million compared with $1.36 million.
- Cash flow: Operating cash use was $3.31 million, versus $1.86 million. Investing cash use was $3,672. Financing provided $347,432, including stock and warrant proceeds, net of note repayments.
- Liquidity and debt: Cash and cash equivalents were $11.08 million at March 31, down from $14.04 million at year-end 2020. Working capital was approximately $10.89 million. Current notes payable were $309,133; total liabilities were $1.90 million.
- Capitalization: Stockholders’ equity was $11.24 million. Shares outstanding were 25.35 million at quarter-end and 25,359,059 as of May 10, 2021. Potentially dilutive warrants and options were excluded from loss per share as anti-dilutive.
Material changes and developments
- R&D spending increased substantially year over year, and net loss and operating cash use both widened.
- During the quarter, the company sold 43,083 shares for net proceeds of $144,843 and received $332,750 from cash warrant exercises. It also entered a sales agreement allowing up to $20 million of common stock to be sold through agents; the filing reports limited sales under the agreement during Q1.
- The company issued 536,000 options to officers and employees, with a $3.36 exercise price and four-year vesting. Stock-based compensation was $430,679.
- Cash declined by $2.96 million during the quarter. The company reported $132,648 due from a related party, including an upfront Berubicin supply payment and pass-through costs.
Outlook, risks, and unusual items
- Management said the FDA-cleared Berubicin IND was in effect and intended to begin a Phase 2 trial in Q2 2021. The planned study would enroll 243 patients, randomize them 2:1 to Berubicin or lomustine, and use overall survival as its primary endpoint, with an interim analysis and adaptive design. Trial timing and execution remain uncertain.
- Management estimated approximately $18 million of additional financing to complete the Berubicin trial, approximately $2 million for near-term WP1244 preclinical work, and additional working capital. It stated cash was expected to fund planned operations into, but not beyond, the near term.
- The filing identifies substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, negative operating cash flows, and dependence on additional financing. Management said it may pursue equity, debt, grants, partnerships or other funding, or reduce or delay spending; success is not assured.
- Key risks include clinical and regulatory outcomes, financing availability, reliance on third-party manufacturers, commercialization and market acceptance, and intellectual-property protections. Berubicin’s orphan-drug designation may provide exclusivity if approved, but the company noted its licensed Berubicin patents expired in March 2020 and it was exploring additional protections.
- Related-party arrangements include licenses and research agreements involving entities affiliated with the founder and largest shareholder. The company reported a $400,000 accrued balance for UTMDACC sponsored research at quarter-end and payments under its UTMDACC agreements.
- Management concluded disclosure controls were ineffective because of material weaknesses involving segregation of duties and formal control documentation. It said additional analysis and post-closing procedures were being performed and described plans to add finance personnel, retain consultants, and upgrade its accounting system when feasible.
- No legal proceedings were pending as of the filing. The company reported no material capital-expenditure commitments, but has contractual development, license, royalty and milestone obligations.
Most important facts for investors to verify
- Whether the Berubicin Phase 2 trial began as planned, its enrollment and interim-analysis progress, and any updated protocol or regulatory communications.
- Cash burn, remaining runway, and the amount, timing and dilution or terms of financing needed for Berubicin, WP1244 and working capital.
- Whether the $20 million share-sale facility is used and how additional share issuance, warrants and options affect dilution.
- Progress on WP1244 development and obligations under university, license, manufacturing and related-party agreements.
- Remediation of the disclosed internal-control material weaknesses and any subsequent changes in financial reporting controls.