Business Context and Reporting Period
Company: NanoViricides, Inc. (NNVC)
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2013
Business Stage: Development Stage Company
Overview: NanoViricides is a nano-biopharmaceutical company developing broad-spectrum antiviral therapeutics ("nanoviricides") for diseases including Influenza, HIV/AIDS, Dengue, and Herpes. The Company has no commercialized products and relies on exclusive licenses from TheraCour Pharma, Inc. for its core technology.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2013 | Nine Months Ended Mar 31, 2013 | Nine Months Ended Mar 31, 2012 |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net Loss | $(3,682,589) | $(6,694,929) | $(4,563,148) |
| Operating Expenses | $2,190,558 | $5,027,802 | $4,534,500 |
| Cash and Cash Equivalents (Ending) | $15,457,807 | $15,457,807 | $12,984,397 |
| Total Assets | $17,875,352 | $17,875,352 | $15,629,808 |
| Total Liabilities | $7,752,970 | $7,752,970 | $1,779,615 |
| Stockholders' Equity | $10,122,382 | $10,122,382 | $13,850,193 |
Debt and Liquidity:
- Convertible Debentures: Issued $6,000,000 in Series B Convertible Debentures in February 2013 (8% coupon, due 2017).
- Derivative Liability: Increased significantly to $3,398,611 (from $1,078,698 at June 30, 2012) due to the fair value adjustment of convertible instruments.
- Liquidity: Management estimates cash reserves are sufficient to fund operations through March 31, 2015.
Material Changes vs. Prior Period
- Net Loss Increase: Net loss for the nine months ended March 31, 2013, increased by approximately $2.1 million compared to the same period in 2012. This was driven by a $669,753 loss on the change in fair market value of derivatives and increased operating expenses.
- Financing Activity: The Company raised $6,000,000 via Series B Convertible Debentures and $608,505 net from Series C Preferred Stock issuances during the period. This contrasts with the prior year which saw significant proceeds from Series B Preferred Stock.
- Liability Structure: Total liabilities increased by over $5.9 million year-over-year, primarily due to the new debenture issuance and the reclassification of preferred stock features as derivative liabilities.
- Related Party Transactions: Accounts payable to related parties increased to $630,385. The Company also transferred $1,000,000 as cash collateral to Inno-Haven, LLC (controlled by the President) for facility renovations.
Outlook, Risks, and Management Commentary
Outlook and Guidance:
- Capital Requirements: Management anticipates needing an additional $10 million to advance one drug candidate through human clinical trials (IND filing).
- Facility Development: The Company is leasing a facility from Inno-Haven, LLC in Shelton, CT, to be renovated for cGMP manufacturing. Completion is estimated for late 2013/early 2014.
- Product Pipeline: Progress continues on FluCide (Influenza), HIVCide (HIV), and DengueCide. The Company recently demonstrated oral efficacy for its anti-influenza candidate in animal models.
Risks and Contingencies:
- Development Stage: No revenue is anticipated in the foreseeable future. Continued losses are expected until commercialization.
- Derivative Liability Volatility: Significant fluctuations in the fair value of derivative liabilities (related to convertible preferred stock and debentures) can materially impact net income.
- Related Party Dependence: The Company relies on TheraCour Pharma, Inc. (controlled by the President) for technology licenses and manufacturing. It also relies on Inno-Haven, LLC for its future manufacturing facility.
- Litigation: A shareholder derivative lawsuit (Yidam, Ltd. v. NanoViricides, Inc.) is ongoing regarding inspection of books and records. Management believes the suit lacks merit.
Investor Verification Checklist
- Derivative Liability Valuation: Verify the assumptions used to value the $3.4 million derivative liability, as changes in stock price or volatility will directly impact future earnings.
- Related Party Agreements: Review the definitive lease agreement with Inno-Haven, LLC and the terms of the technology license with TheraCour Pharma, Inc. to assess potential conflicts of interest and cost structures.
- Capital Runway: Confirm the $15.5 million cash balance and the projected burn rate to validate the claim of funding through March 2015.
- Debt Covenants: Examine the terms of the $6 million Series B Convertible Debentures, specifically the conversion price ($1.00) and the issuance of "Interest Shares" which may cause significant dilution.
- Litigation Status: Monitor the status of the Yidam, Ltd. lawsuit for any potential injunctions or costs.