Artelo Biosciences, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended November 30, 2020 (the company’s fiscal year ends August 31). The filing compares results with the three months ended November 30, 2019. Artelo is a clinical-stage biopharmaceutical company with no commercial products or revenue.
Financial performance and liquidity
| Metric | Quarter ended Nov. 30, 2020 | Prior-year quarter | Change / context |
|---|---|---|---|
| Revenue | $0 | $0 | No revenue since inception |
| Operating expenses | $1,435,212 | $1,336,448 | Up $98,764 |
| Research and development | $594,625 | $666,938 | Down $72,313 |
| Professional fees | $444,652 | $266,227 | Up $178,425 |
| Net loss | $1,434,645 | $1,306,361 | Loss increased $128,284; loss per share was $0.14 versus $0.39 |
| Cash used in operating activities | $1,319,051 | $1,051,649 | Use increased $267,402 |
| Cash and cash equivalents | $7,388,686 | $2,142,072 at Aug. 31, 2020 | Increased $5,246,614 |
| Working capital | $7,014,124 | $1,835,022 at Aug. 31, 2020 | Increased $5,179,102 |
Margins are not meaningful because the company reported no revenue. Total assets were $9,539,343 and total liabilities were $485,617 at November 30, 2020. Liabilities were primarily accounts payable and accrued liabilities; the filing reports no interest-bearing debt. Cash flow from financing was $6,578,159, principally from the October public offering, net of issuance costs.
Changes and notable transactions
- On October 14, 2020, Artelo completed an underwritten offering of 10,120,000 shares and warrants to buy 10,120,000 shares at $0.75 per share, expiring October 14, 2025. Gross proceeds were $7,590,000 and net proceeds were $6,578,553.
- Common shares outstanding rose from 4,991,587 at August 31 to 15,111,587 at November 30. The offering materially increased cash but diluted existing holders. At November 30, 12,454,937 warrants and 401,834 options were outstanding.
- Operating expenses rose mainly because of higher professional fees, including accounting work on the control environment, intellectual-property legal costs, and transfer-agent transition costs. Research and development spending declined.
- The prior-year quarter included a $29,501 gain from a change in the fair value of derivative liabilities; there was no such gain in the current quarter.
Outlook, risks and contingencies
- Going concern: The company reported substantial doubt about its ability to continue as a going concern. Management said available cash may not be sufficient to fund operations for at least the 12 months following the filing date. Artelo expects to need additional capital and cannot assure it can obtain it on acceptable terms or at all.
- Pipeline: Artelo expected to begin enrollment in a Phase 1b/2a study of ART27.13 for cancer-related anorexia in January 2021; management said it did not then foresee a COVID-related delay but acknowledged circumstances could change. ART26.12 remained preclinical, with cancer clinical studies anticipated in the second half of 2022, subject to development progress and COVID-19. ART12.11, a CBD cocrystal, was also preclinical. These are expectations, not assured outcomes.
- Risks: COVID-19 could disrupt trials, recruitment, supply chains and development schedules. Other material risks include clinical and regulatory failure or delay, financing needs, dependence on third-party manufacturers and research organizations, controlled-substance regulation, and maintaining licensed intellectual property.
- Commitments and subsequent events: Research contracts may require additional milestone payments, but the filing does not provide a clear aggregate amount. In January 2021, 600,000 warrants were exercised for $450,000. Stockholders approved an increase in authorized common shares to 750,000,000 on December 3, 2020.
- The company reported no material legal proceedings, no material changes in internal control over financial reporting, and effective disclosure controls and procedures.
Key facts for investors to verify
- Whether subsequent financing or warrant exercises provide enough cash to fund the operating plan, given the stated going-concern doubt and expected cash needs.
- Actual progress, enrollment and timing for ART27.13, and whether COVID-19 or other factors have changed trial plans.
- Development milestones, funding requirements and timing for ART26.12 and ART12.11.
- Potential dilution from outstanding warrants and options, future equity financing, and the expanded authorized share count.
- Any material milestone obligations under research and license agreements and continued compliance with license terms.