Filing Overview
Source inconsistency: The request identifies Palisade Bio, Inc., but the supplied Form 10-Q is for Neuralstem, Inc. The summary below reflects the supplied filing. The reporting period ended June 30, 2013, and the financial statements are unaudited.
Business Context and Reporting Period
Neuralstem develops human neuronal stem-cell therapies and small-molecule compounds for central nervous system diseases. Its primary candidates were NSI-566 for ALS, chronic spinal cord injury and ischemic-stroke motor deficits, and NSI-189 for major depressive disorder. The company had 16 full-time employees and one full-time independent contractor as of June 30, 2013.
All programs remained pre-commercial and dependent on clinical development, regulatory approval, third-party manufacturing and additional financing. The company reported 70,606,448 common shares outstanding at June 30, 2013 and 71,648,968 shares outstanding as of July 31, 2013.
Financial Results and Key Metrics
| Metric | Three months ended June 30, 2013 | Three months ended June 30, 2012 | Six months ended June 30, 2013 | Six months ended June 30, 2012 |
|---|---|---|---|---|
| Revenue | $2,500 | $78,125 | $105,000 | $234,375 |
| Research and development | $1,906,387 | $1,598,696 | $3,654,734 | $3,021,060 |
| General and administrative | $1,281,210 | $821,384 | $2,477,050 | $1,983,540 |
| Total operating expenses | $3,238,102 | $2,461,380 | $6,232,382 | $5,080,846 |
| Operating loss | $(3,235,602) | $(2,383,255) | $(6,127,382) | $(4,846,471) |
| Net loss | $(6,251,630) | $(2,376,381) | $(9,841,717) | $(4,829,162) |
| Loss per share | $(0.09) | $(0.04) | $(0.14) | $(0.09) |
Revenue came from licensing and contract activities rather than product sales. The company generated no revenue from commercial sales of its proposed therapies. Six-month revenue in 2013 primarily reflected approximately $105,000 of intellectual-property licensing revenue, while 2012 included approximately $234,000 from a completed Department of Defense subcontract.
Six-month operating cash flow was negative $5,872,297, compared with negative $4,539,288 in the prior-year period. Investing cash flow was negative $237,607, primarily from patent filing fees. Financing cash flow was positive $9,832,208, including approximately $7.55 million of net debt proceeds and $2.40 million from warrant exercises. Cash and cash equivalents increased to $11,166,077 from $7,443,773 at December 31, 2012.
At June 30, 2013, total assets were $13,798,102, total liabilities were $9,425,461, and stockholders’ equity was $4,412,641. Working capital was approximately $9.0 million. The company had approximately $8 million of debt outstanding, including $1,235,636 classified as current and $6,363,676 classified as long term.
Material Changes Versus the Prior Comparable Period
- Three-month revenue declined approximately 97% year over year, and six-month revenue declined approximately 55%, primarily because the DOD contract was completed in 2012.
- Six-month research and development expense increased 21%, reflecting higher share-based compensation, personnel, project and laboratory expenses, and clinical-trial travel.
- Six-month general and administrative expense increased 25%, driven primarily by higher professional and consulting services and charitable donations.
- Six-month operating cash use increased approximately 29% as clinical and research activities expanded.
- Net loss increased substantially because of $3,071,942 of warrant modification expense, approximately $487,528 of interest expense, and $181,799 of losses from changes in the fair value of derivative instruments.
- The company entered into an $8 million term loan in March 2013, with up to $2 million of additional borrowing capacity subject to conditions. The loan bears interest at a variable rate based on prime with an 11% floor, matures in June 2016, and is secured by substantially all assets, including intellectual property.
- Warrant exercises generated approximately $2.4 million of cash proceeds but also involved repricing and replacement warrants, increasing potential dilution.
Guidance, Outlook, Risks and Unusual Items
Management stated that current cash, expected income and expected financing proceeds were expected to fund current activities at least through June 30, 2014, although activities and personnel might need to be reduced. Monthly operating cash requirements were approximately $960,000. Management also stated that the company did not expect to be profitable in the next several years and would require additional capital.
- NSI-566 Phase II ALS trials were expected to begin in the third quarter of 2013 after FDA approval in April 2013.
- NSI-566 chronic spinal cord injury trials were expected to begin in the second half of 2013.
- The China ischemic-stroke trial was expected to begin in the third quarter of 2013 and was designed to enroll up to 118 patients.
- NSI-189 Phase Ib final data were expected in the third quarter of 2013, with the company seeking a development partner.
- Clinical outcomes, FDA approvals, manufacturing scale-up, reimbursement and commercialization remained uncertain.
- The debt is secured by substantially all company assets and includes affirmative and restrictive covenants. Default could permit acceleration and foreclosure on pledged assets.
- Neuralstem was involved in ongoing patent litigation with StemCells, Inc.; the timing and outcome were unknown.
- The company asserted that a $250,000 ReNeuron milestone had been achieved, but ReNeuron disputed the claim. No related revenue had been recognized.
- Potential dilution was significant: approximately 16.3 million stock options and 18.6 million warrants were outstanding at June 30, 2013, in addition to other reserved shares.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is Neuralstem, Inc., not Palisade Bio, Inc.
- Verify the company’s ability to fund operations beyond June 30, 2014 and the assumptions underlying the stated cash runway.
- Review the March 2013 loan agreement, collateral package, covenants, interest rate, repayment schedule and conditions for the additional $2 million borrowing capacity.
- Track the timing, enrollment, safety results and regulatory status of the planned NSI-566 and NSI-189 clinical programs.
- Assess the effect of warrant repricing, replacement warrants, options and future capital raises on dilution.
- Monitor the StemCells litigation and the disputed $250,000 ReNeuron milestone.
- Reconcile the reported share counts at June 30 and July 31, 2013 with subsequent equity issuances.