Business Context and Reporting Period
The supplied filing is Neuralstem, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2017, not Palisade Bio, Inc. Neuralstem is a clinical-stage biopharmaceutical company developing neural stem-cell therapies and small-molecule compounds for central nervous system diseases. Its principal programs included NSI-189 and NSI-566.
The company had 12,117,429 common shares outstanding as of July 31, 2017, following a 1-for-13 reverse stock split effective January 6, 2017.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 | Comparable Prior Period |
|---|---|---|---|
| Revenue | $2,500 | $5,000 | $2,500 and $5,000, respectively |
| Operating expenses | $4.22 million | $8.46 million | $3.84 million and $10.07 million |
| Operating loss | $4.22 million | $8.45 million | $3.83 million and $10.07 million |
| Net loss | $4.65 million | $12.22 million | $3.85 million and $10.46 million |
| Loss per share | $0.39 | $1.06 | $0.47 and $1.37 |
| Net cash used in operating activities | Not separately provided | $7.81 million | $7.06 million |
Revenue consisted solely of small ongoing intellectual-property license fees. The company generated no revenue from commercial product sales, and operating and net margins were not meaningful because revenue was negligible relative to research and development and general and administrative costs.
- Research and development expense was $5.49 million for the six months, down 1% year over year; higher Phase 2 MDD clinical-trial costs largely offset restructuring-related cost reductions.
- General and administrative expense was $2.97 million, down 35%, primarily due to personnel savings following the 2016 restructuring, partly offset by severance.
- Cash and cash equivalents were $6.44 million at June 30, 2017, and short-term investments were $5.00 million, for total cash, cash equivalents and short-term investments of approximately $11.4 million.
- Total assets were $13.27 million and stockholders’ equity was $7.69 million at June 30, 2017.
- The company paid off its amended long-term loan in April 2017. No current portion of long-term debt remained at June 30, 2017, although derivative liabilities related to warrants totaled $3.27 million.
- Accumulated deficit was $205.25 million at June 30, 2017.
Material Changes Versus the Prior Comparable Period
- Second-quarter operating expenses increased 10% to $4.22 million, driven by higher research and development and general and administrative costs.
- Six-month operating expenses decreased 16%, primarily because of lower personnel and restructuring-related costs.
- Six-month net loss increased to $12.22 million from $10.46 million, despite lower operating expenses, because of a $3.08 million loss from changes in the fair value of warrant derivative liabilities and $564,000 of warrant-inducement expense.
- Operating cash usage increased 11% to $7.81 million. Cash declined from $15.19 million at year-end 2016 to $6.44 million at June 30, 2017.
- Financing activity included approximately $3.01 million of net proceeds from warrant exercises and approximately $97,000 from common-stock sales, offset by debt repayments.
- In May 2017, the company ceased using its San Diego research facility and recorded an approximately $92,000 loss for remaining lease obligations and vacancy-related costs.
- Shares outstanding increased during the period through warrant exercises, while the company also issued inducement warrants in connection with those exercises.
Guidance, Outlook, Risks and Unusual Items
Management expected average monthly cash burn of approximately $0.8 million in the second half of 2017 and $0.6 million in the first half of 2018. Based on its operating plans, management expected existing cash resources to fund operations into the fourth quarter of 2018, but stated that additional capital would be required thereafter and that no future funding commitments existed.
On August 1, 2017, after the reporting date, Neuralstem completed a public offering of 3.0 million common shares and 2.25 million warrants, generating $6.0 million of gross proceeds and approximately $5.4 million of net proceeds.
On July 25, 2017, the company reported that its Phase 2 NSI-189 major depressive disorder study did not meet its primary MADRS efficacy endpoint. The 40 mg once-daily dose was directionally positive, and one secondary endpoint was statistically significant, but management was continuing to evaluate the data. This result could materially reduce the future commercial or licensing prospects of NSI-189.
Key risks include continuing operating losses, dependence on additional equity or debt financing, possible inability to continue as a going concern, clinical-trial failure or delay, uncertain FDA and foreign regulatory approval, reliance on third-party manufacturers and clinical-trial providers, intellectual-property challenges, dilution from additional securities issuance, and potential Nasdaq listing noncompliance. The company had no current legal proceedings considered material.
Management stated that disclosure controls were effective as of June 30, 2017. The former CFO left effective April 30, 2017, and the CEO assumed interim principal financial and accounting officer responsibilities with assistance from third-party consultants.
Important Facts for Investors to Verify
- Verify the issuer identity: the supplied filing is for Neuralstem, Inc. rather than Palisade Bio, Inc.
- Verify the post-quarter NSI-189 Phase 2 results, including the failed primary endpoint and the company’s subsequent development strategy.
- Reconcile June 30 cash of approximately $11.4 million, the August 1 financing proceeds, and the projected cash runway into the fourth quarter of 2018.
- Review warrant derivative liabilities, inducement warrants, potential dilution, and the related fair-value volatility.
- Assess whether additional financing will be available on acceptable terms and whether the company can continue as a going concern.
- Review clinical, regulatory, manufacturing, intellectual-property and Nasdaq-listing risks before relying on management’s outlook.