Business Context and Reporting Period
Filing identification issue: The request identifies Palisade Bio, Inc., but the provided Form 10-Q is for Neuralstem, Inc. (Nasdaq: CUR), for the quarter ended March 31, 2019, filed May 14, 2019.
Neuralstem is a clinical-stage biopharmaceutical company developing human neural stem-cell therapies and small-molecule compounds for central nervous system diseases. Its lead programs were NSI-566 for ALS, ischemic stroke and chronic spinal cord injury, and NSI-189 for major depressive disorder. The company also pursued in-licensing and acquisition opportunities.
Financial Metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $2,500 | $2,500 | Flat |
| Research and development expense | $1.514 million | $1.169 million | Up 30% |
| General and administrative expense | $945,000 | $1.182 million | Down 20% |
| Total operating expenses | $2.459 million | $2.351 million | Up 5% |
| Operating loss | $2.457 million | $2.349 million | Loss increased 5% |
| Net loss | $3.114 million | $2.147 million | Loss increased 45% |
| Basic and diluted loss per share | $0.17 | $0.14 | Loss per share increased |
| Net cash used in operating activities | $1.666 million | $1.847 million | Use decreased 10% |
| Cash and cash equivalents at period end | $4.005 million | $9.724 million | Down 59% |
Revenue consisted of ongoing intellectual-property license fees; the company generated no revenue from commercial product sales. Operating and net margins are not economically meaningful because revenue was only $2,500. Net loss was approximately 1,246 times revenue.
At March 31, 2019, total assets were $5.406 million, total liabilities were $2.134 million, and stockholders’ equity was $3.272 million. Current assets were $4.538 million versus current liabilities of $1.210 million. The filing reports warrant liabilities of $924,000, measured using Level 3 inputs. Debt-related cash payments were $117,000 during the quarter; the filing text does not provide a clear period-end debt balance.
Material Changes Versus the Prior Comparable Period
- R&D expense increased $345,000, primarily from approximately $223,000 of severance, $166,000 of strategic-alternative consulting, and $136,000 of higher non-cash share-based compensation, partly offset by lower clinical-trial costs.
- G&A expense decreased $237,000, primarily because of lower consulting and professional fees, tax and insurance costs, and share-based compensation.
- Net loss worsened by $967,000. The principal unusual items were a $368,000 write-off of a related-party receivable and a $340,000 non-cash loss from the fair-value remeasurement of liability-classified warrants. In Q1 2018, the warrant remeasurement produced a $190,000 gain.
- Cash used in operations improved by $181,000, but cash declined $1.782 million during the quarter because there were no investing inflows and the company made $117,000 of debt payments. Q1 2018 included $5.0 million from short-term investment maturities.
- Share-based compensation increased to $338,000 from $239,000. The company granted 800,000 stock options and 500,000 warrants during the quarter.
- In April 2019, 465,191 Series A preferred shares were converted into 1,808,377 common shares, according to the filing.
Guidance, Outlook, Risks and Unusual Items
- Management stated that existing cash was expected to fund operations into the third quarter of 2019. The company acknowledged substantial doubt about its ability to continue as a going concern within one year of issuance of the financial statements.
- Additional capital was required for operations, clinical and preclinical development, and the in-licensing or acquisition strategy. Potential sources included equity or debt offerings, collaborations, licensing transactions and grants; no future funding commitments existed.
- Because of limited cash, development activities were substantially curtailed except for a non-GCP Phase 2 ischemic-stroke study of NSI-566 and grant-funded studies. Sixteen subjects had been treated in the ischemic-stroke study as of the filing.
- The Phase 2 NSI-189 depression study failed to meet its primary efficacy endpoint, although certain secondary patient-reported outcomes showed statistically significant improvements. The company stated that future revenue from NSI-189 was unlikely and that the result could make financing more difficult.
- Nasdaq had notified the company that its common stock did not meet the $1.00 minimum bid-price requirement. The initial compliance deadline was May 28, 2019, with a possible additional compliance period and potential reverse stock split or delisting.
- Key risks included the need for additional financing, potential dilution, clinical and regulatory failure, reliance on third-party manufacturers and clinical research providers, intellectual-property challenges, limited personnel, stock-price volatility, and possible delisting.
- The company had five full-time employees as of April 30, 2019. It had accumulated a deficit of approximately $216.7 million since inception and did not expect profitability in the next several years.
- The company adopted new lease accounting guidance on January 1, 2019, recording an approximately $53,000 right-of-use asset and $75,700 lease liability. The adoption of nonemployee share-based compensation guidance had no material impact.
Important Facts for Investors to Verify
- Verify that the intended issuer is Neuralstem, Inc., not Palisade Bio, Inc.; the supplied filing does not correspond to the company named in the request.
- Verify subsequent financing, equity issuance, preferred-share conversions, warrant exercises and dilution after March 31, 2019.
- Verify whether the company obtained financing before its projected third-quarter 2019 cash runway expired and whether the going-concern uncertainty was resolved.
- Verify Nasdaq listing compliance, any reverse stock split, and any delisting or trading-market changes.
- Review the full warrant agreements and the potential dilution from approximately 7.2 million outstanding warrants, preferred-stock conversion rights, options and other equity-linked instruments.
- Assess the status, funding and regulatory standing of the NSI-566 clinical programs and the commercial implications of the failed primary endpoint for NSI-189.
- Reconcile the filing’s disclosure of an April preferred-stock conversion with the note stating that there were no subsequent events.