Enveric Biosciences, Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 11, 2023. Enveric is a pre-revenue biotechnology company developing psychedelic-derived therapeutics, with its principal focus on psychedelic-based treatments. Its lead candidate, EB-373, is a psilocin prodrug in preclinical development for anxiety disorders. The company reported no revenue.
Financial performance and position
| Metric | Q2 2023 | First half 2023 | Comparable 2022 period |
|---|---|---|---|
| Revenue | None | None | None reported |
| Operating expenses | $5.76 million | $10.62 million | Q2: $4.71 million; first half: $9.50 million |
| Operating loss | $5.76 million | $10.62 million | Q2: $4.71 million; first half: $9.50 million |
| Net loss | $6.36 million | $11.03 million | Q2: $2.79 million; first half: $7.31 million |
| Net loss per share, basic and diluted | $3.04 | $5.35 | Q2: $2.73; first half: $7.78 |
| Operating cash used | Not separately presented | $9.60 million | $9.13 million |
At June 30, 2023, cash was $7.08 million, current assets were $8.90 million, working capital was $3.97 million, and total assets were $9.80 million. Current liabilities were $4.93 million. Shareholders’ equity was $4.87 million, down from $14.67 million at year-end 2022. The balance sheet shows no conventional borrowings; current liabilities include a $1.81 million investment-option liability and $0.37 million warrant liability. Cash declined by $10.64 million during the first half, including $1.05 million used to redeem Akos preferred stock. No gross or operating margin is meaningful because the company had no revenue.
Changes versus comparable periods
- Q2 operating expenses rose 22% year over year; first-half operating expenses rose 12%. General and administrative expense and research and development expense both increased.
- Q2 net loss more than doubled year over year, while first-half net loss increased approximately 51%. The comparisons were affected by non-cash fair-value movements: Q2 2022 included $1.97 million of warrant-liability income, whereas Q2 2023 included warrant and investment-option fair-value expenses. First-half 2022 also included $2.25 million of warrant-liability income.
- Operating cash use increased to $9.60 million from $9.13 million in the first half of 2022. Unlike the prior-year period, the first half of 2023 had no equity financing proceeds and included the Akos redemption payment.
Outlook, risks, and unusual items
- Going concern: Management stated that cash on hand is insufficient for operating needs for the 12 months following the filing and that substantial doubt exists about the company’s ability to continue as a going concern. Management plans to reduce spending, manage cash, advance programs, and seek additional capital or collaborations; financing may not be available on acceptable terms or at all. Further cuts, delays, or discontinuation of activities may be required.
- Restructuring: In May, the company completed a reduction in force affecting approximately 35% of full-time employees and planned to terminate seven consultants focused on the Akos spin-off. The filing reports $917,527 of restructuring costs incurred through June 30, of which $190,808 had been paid; the ending restructuring payable was $726,719. It separately describes approximately $453,059 of severance charges. The COO also departed under a separation agreement, with $464,468 of 2023 salary and benefits accrued for monthly payment and accelerated RSU expense recognized.
- Development spending: The Avance Clinical contract for preparation of EB-373’s planned Phase 1 study is approximately AUD 3.0 million (about US$2.0 million at period-end exchange rates). The company reported $1.13 million paid, $783,819 in prepaid assets, and $355,232 of first-half R&D expense under the contract. The filing describes the study design but does not provide a start date or trial results.
- Akos: Holders exercised their put right, and Enveric paid approximately $1.05 million to redeem all Akos Series A preferred stock in May. The planned cannabinoid-asset spin-off did not proceed as planned; Enveric said it would pursue alternative ways to capture value from those assets.
- Potential dilution and valuation: At June 30, the company reported 655,463 warrants and 1,070,000 investment options outstanding, in addition to other potentially dilutive securities. Their fair-value liabilities are Level 3 estimates and produced material non-cash expense in 2023.
- Controls and risks: Management reported continuing material weaknesses in internal control over financial reporting and concluded disclosure controls were not effective as of June 30. Other cited risks include early-stage clinical and regulatory uncertainty, ability to obtain funding, foreign-exchange exposure, and possible disruption or missed savings from restructuring. The company reported no pending litigation expected by management to have a material adverse effect.
Most important facts for investors to verify
- Whether new financing, partnership, or other funding is secured, and whether cash runway supports the planned programs.
- EB-373’s regulatory and clinical-trial progress, including timing, costs, and the impact of the company’s reduced workforce.
- The status and potential value of the cannabinoid assets following the Akos redemption and change in spin-off plans.
- The amount and terms of any future dilution from warrants, investment options, equity awards, or capital raises.
- Progress in remediating the disclosed material weaknesses in financial reporting controls.