Matinas BioPharma Holdings, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Matinas is a clinical-stage biopharmaceutical company developing medicines using its lipid nano-crystal (LNC) delivery platform, with a focus on anti-infective candidates including MAT2203 and MAT2501. It has no approved products and has not generated product revenue.
Financial performance and position
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $29,937, entirely contract research revenue | $14,969 |
| Research and development expense | $2.193 million | $2.384 million, down $191,000 |
| General and administrative expense | $1.958 million | $2.118 million, down $160,000 |
| Total operating expenses | $4.151 million | $4.502 million |
| Operating loss | $4.121 million | $4.487 million |
| Net loss | $4.110 million | $4.496 million |
| Net loss attributable to common shareholders | $4.257 million; $0.05 per share | $21.396 million; $0.25 per share, including a $16.741 million warrant inducement charge |
Revenue came from a Cystic Fibrosis Foundation grant supporting MAT2501 preclinical research; the agreement was expected to continue into Q4 2018 or until the studies concluded. Revenue remains immaterial relative to development costs, so a meaningful operating margin is not applicable. Stock-based compensation was $1.748 million, compared with $1.372 million in Q1 2017.
- Cash and liquidity: Cash and cash equivalents were $4.263 million at quarter-end, down from $7.307 million at December 31, 2017. Including restricted cash of $691,456, cash, cash equivalents and restricted cash totaled $4.955 million. Reported working capital was approximately $3.9 million.
- Cash flow: Operating activities used $2.806 million; investing activities used $102,000, primarily for equipment; financing activities used $136,000, mainly for note and lease payments. Total cash, cash equivalents and restricted cash decreased $3.043 million during the quarter.
- Liabilities: Total liabilities were $3.056 million, including $42,559 of current notes payable and approximately $168,000 of lease liabilities. The company also reported $3.219 million of future minimum rental payments. Series A preferred stock had a stated-value liquidation preference of approximately $7.953 million and accrues an 8% annual dividend payable in common shares upon conversion.
- Equity and dilution: Common shares outstanding were 93,981,562 at March 31, 2018; 94,035,562 were outstanding as of May 8. The company had 5.958 million warrants outstanding and 11.614 million options outstanding at quarter-end. Its Cantor equity sales program permits sales of up to $30 million of common stock; approximately $1.1 million in net proceeds had been raised through March 31, 2018.
Material changes versus the prior comparable period
- Net loss improved by approximately $386,000 year over year as operating expenses declined; R&D expense fell mainly because of lower MAT2203 clinical-study spending, while G&A decreased due to lower professional fees and compensation costs.
- Reported loss attributable to common shareholders fell sharply from Q1 2017, largely because the prior-year period included the $16.741 million warrant inducement charge. The underlying net loss comparison is more informative.
- Operating cash use improved modestly, from $3.032 million to $2.806 million. Unlike Q1 2017, which included substantial warrant-exercise financing, Q1 2018 had net financing cash outflow and no warrant exercise proceeds.
- Cash and cash equivalents fell by approximately $3.043 million from year-end 2017 when viewed alongside restricted cash in the cash-flow statement.
Outlook, risks and unusual items
- Going concern and funding: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It estimated that March 31 cash and cash equivalents would fund planned operations into September 2018. Continued operations depend on expense control, equity sales under the Cantor program and additional financing; no committed external funding source was identified. Financing may be unavailable or dilutive, and failure to raise funds could force delays, reductions or termination of development programs.
- Development outlook: The company expected to pursue an enhanced MAT2203 dosage formulation, start new Phase II studies for MAT2203 and advance its delivery platform during 2018. It anticipated higher R&D costs as clinical programs progress. The filing says FDA approval for one or more candidates is not expected before 2023 at the earliest in its liquidity discussion; timing and approval are uncertain.
- Other risks and obligations: Candidates remain in development and depend on successful clinical trials, regulatory approval, manufacturing, third-party collaborators and protection of the Rutgers-licensed LNC technology. Series A holders have potential royalties tied to MAT2203 and MAT2501 net sales and licensing proceeds if applicable approvals or transactions occur. The filing reports no legal proceedings and no material changes to previously disclosed risk factors or contractual obligations.
- Controls: Disclosure controls were not effective as of March 31, 2018 because of a material weakness involving accounting for stock-based compensation on modified consultant awards. Remediation steps had begun, but had not operated long enough for management to conclude the weakness was remediated; the filing says it had not resulted in a restatement.
- Accounting: Adoption of the new revenue recognition standard in Q1 2018 had no material impact. The company reported no goodwill or in-process R&D impairment for the quarter.
Important facts for investors to verify
- Whether the company obtained sufficient financing after the filing date to extend its stated cash runway beyond September 2018, and the terms and dilution associated with any funding.
- Current cash burn, restricted-cash availability and the progress of the Cantor equity program.
- MAT2203 and MAT2501 clinical timelines, spending needs, trial outcomes and any changes to management’s approval expectations.
- The status and remediation of the stock-based-compensation control weakness.
- The potential economic effect of Series A preferred dividends, liquidation preference and royalty rights, along with outstanding options and warrants.