CNS Pharmaceuticals, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. CNS is a clinical-stage pharmaceutical company focused on anti-cancer drug candidates; it reported no revenue.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | None reported | None reported |
| General and administrative expense | $1.355 million | $146,783 |
| Research and development expense | $613,077 | $48,307 |
| Operating loss | $1.968 million | $195,090 |
| Net loss | $1.968 million | $211,501 |
| Basic and diluted loss per share | $0.12 | $0.02 |
| Net cash used in operating activities | $1.855 million | $82,688 |
Margins are not meaningful because the company reported no revenue. At March 31, cash and cash equivalents were $5.380 million, total current assets $6.189 million, working capital $5.852 million, and current liabilities $336,040. Total liabilities were $336,040; no debt was reported at quarter-end. Cash declined by $1.861 million during the quarter. The company said IPO proceeds had resolved previously disclosed substantial doubt about its ability to continue as a going concern and management believed cash could fund planned operations beyond the near term.
Changes versus the prior comparable period
- Net loss rose to $1.968 million from $211,501, principally reflecting higher personnel and activity associated with clinical-trial preparation.
- G&A expense increased by about $1.208 million. Management attributed the increase mainly to employee compensation and taxes, advertising and marketing, stock-based compensation, investor relations, insurance, and legal and accounting costs.
- R&D expense increased to $613,077 from $48,307, driven by drug manufacturing and labor related to preparation for the Berubicin Phase II study.
- Operating cash use increased to $1.855 million from $82,688. The company reported no financing cash flows in Q1 2020, compared with $48,025 of net financing cash use in Q1 2019.
Outlook, risks, and notable items
- The company’s primary operating plan was a Phase II clinical trial for Berubicin. Management estimated approximately $10 million of additional financing to complete the trial and approximately $2 million for near-term WP1244 preclinical work, plus working capital. It stated that additional capital would be needed and that trial timing and cost estimates could prove inaccurate.
- On January 10, 2020, CNS licensed WP1244-related intellectual property from UTMDACC, with license fees, milestones, royalties, and diligence milestones. CNS paid UTMDACC $50,000 during the quarter. A subsequent May 2020 research agreement required approximately $1.3 million of funding over two years.
- A March 2020 development agreement with WPD covered antiviral products, including WP1122. CNS paid the $225,000 upfront amount in April 2020 and could owe a further $775,000 upon verified achievement of a Phase II milestone. WPD is affiliated with the company’s founder and largest shareholder.
- On May 1, 2020, the SEC ordered a temporary trading suspension, effective May 4 through May 15, over questions about the accuracy and adequacy of market information concerning the company, including WP1122 and COVID-19-related statements. CNS said it petitioned to terminate the suspension; extension was possible. The filing also contains references to “Moleculin” in the suspension discussion, an apparent inconsistency investors should check against the underlying SEC order and company disclosures.
- The company identified COVID-19-related risks to trial enrollment, clinical-site operations, drug supply, regulatory timelines, and access to financing.
- Disclosure controls and internal control over financial reporting were reported ineffective due to insufficient staff to segregate duties and inadequate formal documentation. Management said it planned to hire experienced finance personnel, retain consultants, and upgrade its accounting system when economically feasible.
- Potential dilution included 3,986,630 warrants and 1,939,500 options outstanding at March 31, 2020; these were excluded from diluted loss per share as anti-dilutive. Common shares outstanding were 16,450,234 at March 31 and May 15, 2020.
No formal financial guidance was provided. The company cautioned that operating results for the quarter were not necessarily indicative of full-year results.
Important facts for investors to verify
- Current status and outcome of the SEC trading suspension, and the accuracy and adequacy of disclosures concerning WP1122 and COVID-19.
- Berubicin Phase II timing, regulatory pathway, trial budget, and funding needs; the prior Berubicin IND had lapsed and a new IND was required before further trials.
- Cash runway against expected spending, including the estimated $10 million Berubicin funding need, WP1244 work, and subsequent research and development commitments.
- Related-party terms, payments, and milestones involving WPD, HPI, and UTMDACC, including the founder’s affiliations and the research agreement’s principal investigator.
- Progress in remediating the disclosed material weaknesses in disclosure controls and internal controls over financial reporting.