Filing identity and reporting period
The supplied filing is NeoStem, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2014—not a filing identified as Lisata Therapeutics, Inc. or for 2013 Q3. The filing covers the three- and nine-month periods ended September 30, 2014, with comparisons to 2013.
Business context
NeoStem combined cell-therapy research and development with PCT, a contract development and manufacturing services business. In May 2014, it acquired California Stem Cell, Inc. (CSC), adding a targeted cancer immunotherapy program. CSC’s results are included only from May 8, 2014, limiting comparability with prior periods.
Financial results and liquidity
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $4.12 million | $3.71 million | $12.66 million | $10.59 million |
| Gross profit (margin) | $0.1 million (3%) | $0.7 million (20%) | $1.1 million (9%) | $1.0 million (9%) |
| Operating loss | $(16.26) million | $(9.31) million | $(42.19) million | $(26.31) million |
| Net loss attributable to NeoStem common stockholders | $(16.97) million | $(9.07) million | $(43.26) million | $(26.45) million |
| Loss per share | $(0.48) | $(0.45) | $(1.37) | $(1.43) |
- Nine-month operating cash outflow was $35.99 million, versus $19.74 million in 2013. Investing cash outflow was $3.55 million; financing cash inflow was $25.55 million. Cash and cash equivalents ended the period at $32.14 million, with $0.67 million of marketable securities.
- Working capital was approximately $29.6 million. Total liabilities were $69.28 million. Long-term debt was $15.0 million; notes payable totaled approximately $1.95 million. The company repaid its TD Bank mortgages during the period.
- Revenue rose 20% for the nine-month period, while operating expenses increased 49%. Research and development spending rose to $19.02 million from $11.62 million; selling, general and administrative expense rose to $24.31 million from $15.68 million.
Material changes and unusual items
- Q3 revenue increased 11%, but gross margin fell to 3% from 20%, reflecting higher cost of revenues and changing service and reimbursement mix. Management noted that reimbursable revenue generally has little effect on gross profit.
- The CSC acquisition added $14.1 million of goodwill and increased reported intangible assets and contingent consideration. The September 30 contingent consideration liability was $22.43 million, measured using Level 3 assumptions; the acquisition purchase-price allocation remained preliminary.
- NeoStem obtained a $15.0 million Oxford Finance term loan at a stated 8.5% annual rate, with a possible additional $5.0 million draw subject to conditions. Net proceeds from the initial borrowing were $11.7 million after repayment of TD Bank loans and costs. The loan is secured by substantially all assets other than intellectual property, with restrictions on asset dispositions and additional indebtedness.
- Equity-based compensation was $8.94 million for the first nine months, compared with $5.41 million in 2013. Q3 included approximately $2.4 million of compensation charges tied to fully vested awards for completion of the CSC acquisition. Common shares outstanding increased from 27.2 million at December 31, 2013 to 35.5 million at September 30, 2014.
Outlook, commentary and risks
- Management estimated that cash balances, revenue-generating activities and access to the Aspire stock purchase agreement would fund operations for approximately the next 12 months. It also stated that additional capital would be needed for development and expansion; future financing availability and terms were uncertain.
- The Intus Phase 3 trial for NBS20 (DC/TC), targeting metastatic melanoma, was expected to cost approximately $25 million. Site activation began in Q4 2014, with patient enrollment expected in Q1 2015. The filing cited FDA Fast Track and Orphan Drug designations and a Special Protocol Assessment.
- Management anticipated reporting PreSERVE AMI Phase 2 data on November 17, 2014, or earlier if available. It planned, subject to regulatory review and protocol approval, a Phase 2 NBS03D study in type 1 diabetes in the first half of 2015 and a Phase 1 NBS03A study in Canada in Q4 2015.
- Key risks include continued operating losses and cash burn, reliance on new capital, potential shareholder dilution, clinical-trial and regulatory uncertainty, acquisition integration, and the possibility that development milestones and related contingent payments change in value. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer and period: the supplied filing is NeoStem, Inc., quarter ended September 30, 2014, despite the request metadata naming Lisata Therapeutics and 2013 Q3.
- Track cash burn against management’s approximately 12-month runway estimate, and review whether further capital was raised and on what terms.
- Check progress, costs, enrollment and results for the NBS20 Phase 3 trial and the NBS10 PreSERVE AMI program against the filing’s stated expectations.
- Review the final CSC purchase-price allocation, contingent consideration remeasurement, and the terms and servicing requirements of the Oxford loan.
- Assess recurring service-business margins, deferred process-development revenue, and dilution from equity issuance and compensation.