MediciNova, Inc. — Form 10-Q Summary
Business Context and Reporting Period
MediciNova is a biopharmaceutical company developing small-molecule therapeutics for serious diseases with unmet medical needs. Its principal programs are MN-166 (ibudilast) for progressive multiple sclerosis, ALS, and substance dependence; MN-001 (tipelukast) for NASH and IPF; MN-221 for acute asthma exacerbation; and MN-029 for solid tumors. This unaudited Form 10-Q covers the three months ended March 31, 2018, and was filed April 25, 2018.
Financial Results and Liquidity
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research, development and patent expense | $1.7 million | $0.9 million |
| General and administrative expense | $3.0 million | $2.1 million |
| Total operating expenses | $4.7 million | $3.0 million |
| Net loss | $4.5 million | $3.0 million |
| Basic and diluted loss per share | $0.12 | $0.09 |
| Net cash used in operating activities | $4.1 million | $2.5 million |
| Cash and cash equivalents at period end | $62.9 million | $21.6 million |
No revenue was recognized from the Kissei collaboration during either period. Consequently, revenue-based margins are not meaningful. The company reported an operating loss of $4.7 million and a comprehensive loss of $4.5 million in Q1 2018. Other income was $131,345, principally contributing to the difference between operating loss and loss before tax.
Cash increased from $28.0 million at December 31, 2017 to $62.9 million at March 31, 2018. Working capital was $62.4 million. The company reported total liabilities of $3.1 million, consisting primarily of current liabilities, deferred tax liability, and long-term deferred revenue; the filing does not disclose outstanding debt or borrowings. Management stated that available working capital is expected to fund operations at least through December 31, 2019, but cautioned that it may not support all planned research and development programs.
Material Changes Versus the Prior Comparable Period
- Research, development and patent expense increased approximately 84% to $1.7 million, driven by higher performance-based stock compensation and increased MN-166 clinical activity.
- General and administrative expense increased approximately 42% to $3.0 million, primarily because of higher performance-based stock compensation tied to the company’s increased stock price.
- Stock-based compensation increased to $2.5 million from $1.2 million and represented a substantial portion of operating expenses.
- Net loss increased approximately 51% to $4.5 million, and loss per share increased to $0.12 from $0.09.
- Operating cash use increased to $4.1 million from $2.5 million.
- Financing cash inflows increased substantially because of a February 2018 public offering. The company issued 4,419,890 shares for gross proceeds of $40.0 million and subsequently issued 126,038 additional shares for gross proceeds of approximately $1.1 million from a partial over-allotment exercise. Net proceeds from the offering were approximately $38.5 million, according to management’s discussion.
- Shares outstanding increased to 41.1 million at March 31, 2018 from 36.5 million at December 31, 2017, creating material equity dilution.
Guidance, Outlook, Risks, and Unusual Items
- Management expects research and development costs to increase during 2018 as development programs progress.
- The second Kissei-sponsored MN-221 study had not begun as of March 31, 2018 and is expected to be completed after 2018. The remaining deferred revenue was $1.7 million.
- The company expects substantial net losses for the next several years and has an accumulated deficit of $346.0 million.
- Key risks include the need for additional capital, the absence of product revenue, clinical-trial delays or failures, regulatory approval risk, safety and efficacy concerns, dependence on MN-166 and MN-001, reliance on third-party manufacturers and clinical-trial providers, intellectual-property disputes, competition, and potential difficulty forming strategic partnerships.
- The company had 7.3 million potentially dilutive stock options and warrants excluded from diluted loss per share because they were anti-dilutive. Of these, 750,000 warrants had an exercise price of $3.15 and expired May 9, 2018.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements.
- Disclosure controls and procedures were assessed as effective at the reasonable-assurance level, with no material change in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Confirm the company’s cash runway against actual quarterly operating cash burn and planned clinical-trial spending.
- Review the February 2018 equity offering, subsequent share issuance, and resulting dilution.
- Monitor MN-166 and MN-001 clinical-development milestones, enrollment, funding sources, and regulatory progress.
- Assess the timing and remaining obligations associated with the Kissei MN-221 collaboration and deferred revenue.
- Evaluate the effect of performance-based stock compensation and the remaining unamortized compensation cost of $6.4 million.
- Review the company’s dependence on future financing, partnering, grants, and eventual product revenue to sustain operations.