Business Context and Reporting Period
Company: NanoViricides, Inc. (NNVC)
Filing Type: Form 10-Q (Unaudited)
Period Ended: September 30, 2013
Business Overview: NanoViricides is a development-stage nano-biopharmaceutical company focused on discovering and developing therapeutics for viral infections (e.g., Influenza, HIV, Dengue, Herpes). The company holds exclusive licenses from TheraCour Pharma, Inc. and has no commercialized products to date. In September 2013, the company executed a 1-for-3.5 reverse stock split and began trading on the NYSE MKT.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2013 | Three Months Ended Sept 30, 2012 | Change |
|---|---|---|---|
| Revenue | $0 | $0 | N/A |
| Net Loss | $(6,272,780) | $(1,803,955) | Increased Loss |
| Loss Per Share (Basic/Diluted) | $(0.13) | $(0.04) | Worsened |
| Cash and Cash Equivalents (Ending) | $19,200,882 | $12,929,665 | +$6,271,217 |
| Total Assets | $25,111,032 | $16,407,554 | +$8,703,478 |
| Total Liabilities | $13,359,785 | $8,397,902 | +$4,961,883 |
| Stockholders' Equity | $11,751,247 | $8,009,652 | +$3,741,595 |
Debt and Liquidity: The company holds $3,603,554 in debentures payable. A significant portion of liabilities ($7,888,736) is classified as "Derivative liability," primarily related to the fair value of embedded conversion features in preferred stock and debentures. The company reported a net cash inflow from financing activities of $9,876,074 for the quarter, driven by a registered direct offering.
Material Changes vs. Prior Period
- Net Loss Expansion: Net loss increased by approximately $4.47 million compared to the prior year quarter. This was primarily driven by a $4.14 million non-cash loss from the change in fair market value of derivative liabilities and $135,481 in amortization of discount on convertible debentures.
- Financing Activity: In September 2013, the company completed a registered direct offering raising gross proceeds of approximately $10.3 million (net of ~$618k costs). This significantly bolstered cash reserves compared to the prior period.
- Capital Structure: The company executed a 1-for-3.5 reverse stock split effective September 10, 2013. Common shares outstanding increased from ~47 million to ~50 million during the quarter due to the offering and warrant exercises.
- Asset Growth: Total assets increased by over $8.7 million, largely due to the cash infusion and a $2.2 million increase in property and equipment (net) related to facility build-outs.
Guidance, Outlook, and Risks
- Outlook: Management believes the current cash balance of ~$19.2 million is sufficient to fund operations through at least September 30, 2015. The company plans to use funds to complete Phase I and Phase IIa human clinical studies for at least one drug candidate.
- Development Milestones:
- FluCide: Injectable candidate (NV-INF-1) showed no adverse events in non-GLP safety studies; GLP studies are planned. Oral candidate (NV-INF-2) demonstrated broad-spectrum efficacy.
- DengueCide: Awarded Orphan Drug Designation by the FDA (August 2013) and EMA (November 2013).
- Manufacturing: Construction of a cGMP pilot facility in Shelton, CT, is underway with completion projected for Q1 2014.
- Risks and Contingencies:
- Going Concern: While cash is sufficient for two years, the company has a history of losses and will require additional financing for future commercialization.
- Derivative Liability Volatility: Significant non-cash losses are driven by fluctuations in the fair value of derivative liabilities associated with convertible securities.
- Legal Proceedings: The company is defending against shareholder derivative lawsuits in Nevada and Colorado regarding inspection of books and records. Management believes these claims lack merit and no accrual has been made.
- Related Party Transactions: Significant reliance on TheraCour Pharma (controlled by the CEO) for R&D and manufacturing, and KARD Scientific (controlled by a consultant) for animal studies.
Key Facts for Investor Verification
- Cash Runway: Verify the $19.2 million cash balance and the management estimate of sufficiency through September 2015 against actual burn rates.
- Derivative Liability: Investigate the $7.9 million derivative liability on the balance sheet and its sensitivity to stock price fluctuations, as this creates significant non-cash volatility in earnings.
- Related Party Costs: Review the $610,075 in development costs paid to TheraCour and $247,660 to KARD Scientific for the quarter to assess pricing fairness and dependency.
- Facility Collateral: Confirm the status of the $2 million cash collateral held by Inno-Haven, LLC (related party) for the Shelton, CT facility build-out.
- Legal Status: Monitor the status of the Yidam, Ltd. shareholder derivative lawsuits in Nevada and Colorado.