Filing Overview
Filing: Neuralstem, Inc. Form 10-Q for the quarter ended September 30, 2014. The request metadata identifies Palisade Bio, Inc., but the supplied filing is for Neuralstem, Inc.; this issuer discrepancy should be verified.
Neuralstem develops human neural stem-cell therapies and small-molecule compounds. Its programs remained pre-commercial, with no product sales and only limited licensing revenue. The filing was signed November 7, 2014.
Financial Condition and Results
| Metric | Three Months Ended September 30, 2014 | Nine Months Ended September 30, 2014 | Comparable Prior Period |
|---|---|---|---|
| Revenue | $5,000 | $14,167 | $2,500 and $107,500, respectively |
| Operating expenses | $4.1 million | $12.8 million | $3.6 million and $9.9 million, respectively |
| Operating loss | $4.1 million | $12.8 million | $3.6 million and $9.8 million, respectively |
| Net loss | $4.5 million | $17.1 million | $6.7 million and $16.5 million, respectively |
| Net loss per share | $0.05 | $0.20 | $0.09 and $0.23, respectively |
| Cash flow from operations | Not separately provided | $(8.2) million | $(8.1) million |
- Research and development expense was $2.1 million for the quarter and $5.6 million year to date. General and administrative expense was $2.0 million and $7.0 million, respectively.
- Revenue consisted of intellectual-property licensing fees; the company generated no revenue from proposed therapies.
- Cash and cash equivalents were $11.9 million at September 30, 2014, compared with $16.8 million at December 31, 2013. Short-term investments were $15.0 million, producing cash and short-term investments of approximately $27.0 million.
- Cash used in investing activities was $15.5 million, primarily reflecting purchases of short-term investments net of maturities.
- Cash provided by financing activities was $18.8 million, including approximately $19.5 million of net proceeds from common-stock and warrant offerings and approximately $1.9 million of long-term debt repayments.
- Total liabilities were $8.5 million and stockholders’ equity was $20.9 million at September 30, 2014. Accumulated deficit was $145.6 million.
- Reported margins were substantially negative because revenue was immaterial relative to operating expenses; the filing does not present a meaningful commercial gross margin.
Material Changes Versus Prior Period
- Third-quarter revenue increased to $5,000 from $2,500, but nine-month revenue declined to $14,167 from $107,500 because the prior-year period included a larger upfront licensing fee.
- Third-quarter operating expenses increased 13%, driven by higher research and development payroll and clinical-activity costs, and higher legal, professional and consulting fees.
- Nine-month operating expenses increased 30%. General and administrative expense rose 67%, primarily because of non-cash stock-based compensation associated with extending a warrant term, and increased legal and professional fees.
- Nine-month net loss increased modestly despite lower warrant-related and derivative-related expenses than in 2013. The 2014 period included approximately $3.1 million of warrant-extension expense, $1.2 million of interest expense and $334,000 of derivative fair-value losses.
- Shares outstanding increased to approximately 87.2 million at September 30, 2014 from approximately 77.9 million at December 31, 2013, reflecting equity financing and exercises or conversions of equity instruments.
- The company completed a January 2014 registered direct offering that generated approximately $18.6 million of net proceeds and continued sales under its at-the-market program.
Guidance, Outlook, Risks and Unusual Items
- Management stated that available cash and expected income were anticipated to fund current activities through at least September 30, 2015, but also stated that additional capital would be required to sustain development programs and clinical activities.
- Management did not expect profitability in the next several years and anticipated additional operating losses.
- Clinical programs included Phase II ALS trials for NSI-566, a Phase I chronic spinal-cord-injury trial, a combined Phase I/II ischemic-stroke trial in China, and planned Phase II development of NSI-189 for major depressive disorder.
- Management expected to submit the NSI-189 Phase II protocol to the FDA in the fourth quarter of 2014 and expected the trial to begin near the end of the first quarter of 2015. These are forward-looking expectations, not assurances.
- In October 2014, after the reporting date, the company refinanced and modified its long-term debt. The new agreement provided $10 million of principal and approximately $4 million of net proceeds, and included a warrant for 75,188 shares at a $2.66 exercise price.
- The existing debt carried a variable rate with an 11% floor, was secured by substantially all assets including intellectual property, and required approximately $300,000 of monthly principal and interest payments before the subsequent refinancing.
- Material risks include continued operating losses, dependence on additional financing, debt-service and covenant requirements, clinical-trial failure, FDA or foreign regulatory non-approval, manufacturing and supply-chain dependence, intellectual-property litigation, dilution from future equity issuance, and highly volatile common-stock prices.
- Patent litigation with StemCells, Inc. remained pending. A bench trial focused on standing was scheduled to begin December 9, 2014; the outcome could resolve the case or permit it to proceed to expert discovery.
- Share-based compensation was $3.6 million for the first nine months, including approximately $2.0 million related to extending a warrant term based on performance milestones.
Most Important Facts to Verify
- Verify the issuer: the supplied document is Neuralstem, Inc., not Palisade Bio, Inc.
- Confirm the company’s post-quarter October 2014 debt refinancing, including proceeds, collateral, interest rate, covenants and repayment schedule.
- Assess whether approximately $27.0 million of cash and short-term investments adequately covers planned clinical, operating and debt-service needs, given the continuing quarterly cash burn.
- Review the status and results of the ALS, spinal-cord-injury, ischemic-stroke and NSI-189 trials, including enrollment, safety and efficacy data.
- Evaluate the potential financial and intellectual-property effects of the StemCells litigation.
- Review outstanding options and warrants, approximately 44.4 million shares reserved for issuance, and the resulting dilution risk.
- Confirm whether the company obtained additional financing after September 30, 2014 and whether its stated liquidity outlook remained valid.