Filing summary
Issuer mismatch: The supplied filing is StemCells, Inc.’s Form 10-Q, not a filing by Microbot Medical Inc. This summary reflects StemCells’ filing for the quarter ended September 30, 2013.
Business context and reporting period
StemCells is a development-stage biopharmaceutical company focused on stem-cell therapeutics and related research products. Its HuCNS-SC cell programs included clinical studies in chronic spinal cord injury, dry age-related macular degeneration (AMD) and Pelizaeus-Merzbacher disease (PMD), plus preclinical work in Alzheimer’s disease. The financial statements are unaudited and cover the three and nine months ended September 30, 2013, compared with the same 2012 periods.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $325,000 | $264,000 | $891,000 | $1.157 million |
| Gross profit | $239,000 | $192,000 | $661,000 | $949,000 |
| Operating expenses | $6.895 million | $5.269 million | $19.795 million | $16.702 million |
| Operating loss | $(6.656) million | $(5.077) million | $(19.134) million | $(15.753) million |
| Net loss | $(7.192) million | $(16.337) million | $(19.477) million | $(25.733) million |
| Net loss per share | $(0.17) | $(0.54) | $(0.49) | $(0.99) |
Gross margin was approximately 74% in both the quarter and nine-month period. The company reported $20.955 million in cash and cash equivalents at September 30, 2013, with no marketable securities remaining. Current assets were $22.199 million and current liabilities $8.062 million. Total liabilities were $28.756 million and stockholders’ equity $3.561 million. Loan payable was $13.468 million net of discount; bonds payable were $179,000.
For the first nine months, operating cash use was $16.432 million, investing activities provided $9.284 million (principally from maturities of marketable securities), and financing activities provided $19.635 million. Capital expenditures were $4.556 million, mainly for facility improvements. Cash increased by $12.486 million to $20.955 million.
Changes versus the prior comparable period
- Q3 revenue rose 23%, largely from a 34% increase in product sales. Nine-month revenue fell 23%, mainly because the 2012 period included a one-time licensing fee; product sales increased 7% over the nine-month comparison.
- Research and development expense rose 49% in Q3 and 30% for the first nine months, reflecting higher clinical-trial, personnel, preclinical-service, and manufacturing/process-development costs. Nine-month operating loss consequently widened.
- Net loss was lower than in 2012 despite the larger operating loss, primarily because 2012 included a substantial non-cash warrant-liability fair-value loss. The warrant remeasurement is volatile and does not represent operating performance.
- Operating cash use increased 10% year over year. Cash at quarter-end was higher than at year-end 2012 following financing and investment maturities.
Outlook, financing, risks and notable events
- Management expected substantial operating losses and significant R&D expense to continue, and did not expect the company to become profitable in the next several years. It stated that additional capital would be needed; financing may not be available on acceptable terms, and failure to obtain it could force program reductions or threaten the ability to meet obligations.
- In April 2013, StemCells entered into a three-year Silicon Valley Bank loan agreement, with a 6% stated annual interest rate, a final $1 million fee, and substantially all assets other than intellectual property pledged as collateral. In July, it received an initial $3.8 million under a CIRM forgivable-loan award of up to approximately $19.3 million. Further CIRM funding is subject to milestones, covenants and other conditions; the stated goal is an Alzheimer’s IND filing within four years.
- After quarter-end, the company raised approximately $17.3 million net in an October public offering of 12.846 million units, each comprising one share and a warrant for one-half share. It also terminated a separate stock-sale agreement without penalty. The offering provides additional cash but causes dilution and adds potential warrant dilution.
- Management reported eight patients dosed in the spinal-cord-injury trial and six in the dry-AMD trial as of October 2013. The FDA authorized an IND for U.S. spinal-cord-injury testing in October. These are development-stage programs; the filing cautions that further trials are required to establish safety and efficacy and that regulatory outcomes are uncertain.
- The company acquired its previously licensed NeuroSpheres patent portfolio in October for 139,548 shares, ending the prior agreements and associated future milestone and royalty obligations. Patent litigation with Neuralstem remained ongoing, with a trial anticipated in 2014.
- The filing identifies operating leases and debt payments as contractual commitments. The Rhode Island wind-down reserve was closed after the lease ended in June 2013. Management stated disclosure controls were effective and reported no material change in internal controls during the quarter.
Important facts for investors to verify
- Confirm the issuer: this document names StemCells, Inc., not Microbot Medical Inc.
- Review the October offering’s final terms, share and warrant dilution, and the company’s updated cash position and cash runway against its operating cash burn.
- Check the conditions, milestone schedule and repayment/forgiveness terms for the CIRM funding, and the SVB loan’s collateral, fees and repayment obligations.
- Track clinical-trial enrollment, safety and efficacy evidence, regulatory milestones, and whether the Alzheimer’s program remains on schedule.
- Assess the status and potential cost or outcome of the Neuralstem litigation and the value and enforceability of the acquired patent portfolio.