Business context and reporting period
The supplied filing is StemCells, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2013—not a filing identified as Microbot Medical Inc. Investors should verify the company and filing before relying on this summary. StemCells develops cell-based therapeutics and stem-cell research products; its lead HuCNS-SC program was in clinical development for spinal cord injury, dry age-related macular degeneration (AMD), and Pelizaeus-Merzbacher disease (PMD), with Alzheimer’s disease research in preclinical development.
Financial results and liquidity
| Metric | Q2 2013 | Six months 2013 |
|---|---|---|
| Revenue | $281,697 | $565,897 |
| Gross profit and margin | $204,124; 72.5% | $421,483; 74.5% |
| Operating expenses | $6.43 million | $12.90 million |
| Operating loss | $6.22 million | $12.48 million |
| Net income (loss) | $(5.87) million | $(12.29) million |
| Net cash used in operating activities | Not separately reported | $10.43 million |
- Q2 revenue was up 13% year over year, principally on higher product sales; first-half revenue fell 37%, mainly because the prior-year period included genOway licensing revenue. First-half product sales declined 5%.
- R&D expense rose 28% in Q2 and 22% for the first half, largely reflecting HuCNS-SC preclinical work and manufacturing, quality-control, process-development, and clinical activities. SG&A declined 11% in Q2 and 6% for the first half.
- Q2 2013 included a $758,000 gain from revaluing warrant liabilities, versus a $6.21 million gain in Q2 2012. These non-cash fair-value gains materially affect period-to-period net income comparisons.
- At June 30, cash and cash equivalents were $22.75 million and current marketable securities were $1.43 million; total current assets were $25.99 million and current liabilities $7.82 million. Cash, cash equivalents, and marketable securities totaled $24.18 million.
- The company reported a $9.59 million carrying amount for its SVB loan, plus $231,000 of bonds and $16,000 of capital lease obligations. SVB’s loan carries 6% annual interest, a three-year term, and a $1 million final fee; it is secured by substantially all assets except intellectual property.
- Six-month financing cash flow was $14.72 million, including $9.78 million net loan proceeds and equity-related proceeds. Investing cash flow was $9.99 million, mainly reflecting marketable-security maturities. Cash increased by $14.29 million during the six months.
- Contractual cash obligations totaled $30.32 million, including $18.99 million of operating-lease payments. Stockholders’ equity was $8.76 million, down from $13.98 million at year-end 2012.
Material changes, outlook, risks, and unusual items
- In April, StemCells borrowed $10 million from Silicon Valley Bank. In June, it received $3 million gross from an institutional investor share sale and obtained the right, subject to limitations, to sell up to a further $27 million over three years. It also issued 329,131 shares as consideration for that arrangement without cash proceeds.
- In April, the company entered a CIRM agreement for up to approximately $19.3 million in conditional, potentially forgivable funding for Alzheimer’s disease preclinical and IND-enabling work. It received an initial $3.8 million disbursement in July; the filing estimates pro forma June 30 cash, cash equivalents, and marketable securities of approximately $28 million.
- Management said it expected continued operating losses and substantial R&D spending, did not expect profitability in the next several years, and required significant additional capital. It warned that unavailable financing could force delays or reductions in programs and could leave it unable to meet obligations, potentially requiring bankruptcy proceedings.
- No specific revenue, earnings, or cash-flow guidance was provided. Management said development timelines and costs were not meaningfully estimable given clinical, regulatory, and scientific uncertainty.
- Clinical updates included five patients dosed in the spinal cord injury trial and four in the dry AMD trial by June 2013. Health Canada authorized expansion of the spinal cord injury trial into Canada. The filing reported preliminary PMD findings; August 2013 follow-up commentary on two-year data was subsequent to the reporting date.
- The company cited risks including uncertain clinical efficacy and regulatory approval, financing needs, manufacturing and scale-up, competition, intellectual-property validity, and litigation. Consolidated patent litigation with Neuralstem remained in discovery, with trial anticipated in 2014. The Rhode Island facility lease and related wind-down reserve ended June 30, 2013.
- Warrant liabilities were $8.28 million at June 30 and are remeasured through earnings using valuation models, including subjective assumptions for certain warrants. The company also reported a $5.30 million unrecognized stock-compensation balance expected to be expensed over a weighted-average 3.3 years.
Important facts for investors to verify
- Confirm that StemCells, Inc.—rather than Microbot Medical Inc.—is the intended issuer and that the 2013 reporting period is correct.
- Review the full filing and subsequent reports for cash burn, financing availability, CIRM disbursement conditions and milestones, and any further equity issuance or dilution.
- Check clinical-trial enrollment, safety and efficacy updates, regulatory progress, and the timing and funding needs of the HuCNS-SC programs.
- Assess SVB loan repayment terms, lease commitments, warrant-liability valuation sensitivity, and the status and potential financial impact of the Neuralstem litigation.