Artelo Biosciences, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended August 31, 2020; comparative period is the year ended August 31, 2019. The company is a clinical-stage biopharmaceutical developer focused on treatments that modulate the endocannabinoid system. Its candidates are not approved for sale, and it reported no revenue.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $1,918,919 | $1,091,992 |
| General and administrative expense | $1,788,684 | $952,334 |
| Professional fees | $977,672 | $1,164,695 |
| Total operating expenses | $4,685,775 | $3,209,531 |
| Net loss | $4,654,862 | $2,172,176 |
| Basic and diluted loss per share | $1.26 | $1.00 |
| Cash used in operating activities | $4,347,382 | $2,792,676 |
- At August 31, 2020, cash and cash equivalents were $2.14 million, total assets were $4.38 million, current liabilities were $502,177, and working capital was $1.84 million. Stockholders’ equity was $3.87 million; accumulated deficit was $9.47 million.
- Cash declined $2.28 million during FY2020. Financing activities provided $1.98 million, mainly from the at-the-market equity program, which generated $1.92 million net proceeds. No cash was used in investing activities during FY2020.
- The filing reports no revenue or gross profit, so revenue margins are not meaningful. It reports no interest-bearing debt; liabilities consisted primarily of accounts payable and accrued liabilities, related-party amounts, and a derivative liability that was zero at year-end.
Material changes and significant events
- Net loss increased by $2.48 million year over year, as operating expenses rose $1.48 million. R&D expense increased $827,000 as the company funded its three programs; G&A increased $836,000, including higher salaries, consulting, and investor-relations costs. Professional fees declined $187,000.
- Operating cash use increased $1.55 million. Cash and working capital fell from $4.42 million and $3.42 million, respectively, at August 31, 2019.
- After year-end, the company closed an underwritten public offering on October 14, 2020, issuing 10.12 million common shares and warrants to purchase 10.12 million shares at $0.75 per share. Net proceeds were approximately $6.58 million. The company reported 15,111,587 common shares outstanding as of October 30, 2020.
- Management said cash, including the October offering proceeds, was expected to fund operations for at least 12 months after the filing. Longer-term operations will require additional financing.
Pipeline, outlook, risks and contingencies
- ART27.13: A licensed synthetic dual CB1/CB2 receptor agonist for cancer-related anorexia. The filing says prior sponsor studies dosed 205 subjects and reported acceptable tolerability in the studied exposure range, along with dose-related weight gain. Artelo planned to begin enrollment in a Phase 1b/2a study by year-end 2020. Prior studies did not show convincing analgesic efficacy in acute pain models.
- ART26.12: A preclinical FABP5 inhibitor program for cancer and anxiety-related disorders, including PTSD. Lead optimization was ongoing; the company anticipated regulatory-enabling work next and estimated cancer clinical studies could begin in H2 2021 or H1 2022, subject to COVID-19 impacts.
- ART12.11: A proprietary CBD cocrystal in preclinical development, with potential indications including inflammatory bowel disease and PTSD. The company believes its solid-state form may improve stability and absorption, but these potential benefits remain to be demonstrated.
- Funding and dilution: Artelo had a history of losses, expected losses and operating cash use to increase, and stated that additional capital would be needed beyond the near-term runway. Equity financing could dilute shareholders. The October offering added substantial shares and warrants; the filing also warns that insufficient authorized shares may prevent exercise of warrants absent stockholder approval.
- Development and operating risks: Clinical outcomes and regulatory approval are uncertain; trials may be delayed by COVID-19, enrollment, regulatory requirements, or supply-chain disruption. The company relies on third parties for research, trials, and manufacturing and has no owned laboratories or manufacturing facilities. Controlled-substance licensing, competition, intellectual-property protection, and dependence on key personnel are additional risks.
- License obligations: The NEOMED license includes potential milestone payments of up to $200 million and mid-to-high-single-digit royalties on net sales if a product is commercialized. The Stony Brook license also provides for milestones, maintenance fees, and royalties. Development or license obligations could require future cash.
- Contingencies: The company reported no legal proceedings it believed likely to have a material adverse effect. It disclosed R&D contract commitments whose additional amounts depend on progress and milestones. No material off-balance-sheet arrangements were reported.
- Audit and controls: The auditor issued an unqualified opinion on the financial statements. Management concluded disclosure controls and internal control over financial reporting were effective at August 31, 2020; the auditor did not attest to internal controls, consistent with the company’s filer exemption.
Most important facts for investors to verify
- Whether the October 2020 offering proceeds and subsequent spending support the stated minimum 12-month runway, and what financing will be needed thereafter.
- The current authorized-share capacity and the number, terms, and potential dilution from outstanding warrants, including the October 2020 warrants and any required stockholder approval for exercise.
- ART27.13 trial initiation, enrollment, safety, and interim progress, as well as whether COVID-19 or supply-chain issues have altered timelines.
- Progress in ART26.12 lead selection and regulatory-enabling studies, and evidence supporting the proposed advantages and development path for ART12.11.
- Future R&D spending, license milestones and royalties, and whether the company can meet its development obligations without materially delaying or reducing programs.