Artelo Biosciences, Inc. — Form 10-Q summary
Reporting period: Three months ended November 30, 2021. The company reports in U.S. dollars and changed its fiscal year-end from August 31 to December 31; it expected to file a transition report in early 2022. The filing describes Artelo as a clinical-stage biopharmaceutical company developing therapies targeting lipid-signaling pathways, including the endocannabinoid system.
Key financial metrics
Amounts below are in millions of dollars unless otherwise noted. Artelo had no revenue in the reported quarter or since inception.
| Metric | Three months ended Nov. 30, 2021 | Comparable 2020 period |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $1.273 | $0.595 |
| General and administrative expense | $1.279 | $0.841 |
| Total operating expenses | $2.552 | $1.436 |
| Net loss | $2.548 | $1.435 |
| Basic and diluted loss per share | $0.08 | $0.14 |
| Cash used in operating activities | $1.926 | $1.320 |
- Liquidity at Nov. 30, 2021: Cash and cash equivalents were $14.047 million and marketable securities were $12.318 million. Current assets were $25.355 million, current liabilities $0.659 million, and working capital $24.696 million.
- Balance sheet: Total assets were $29.004 million and total liabilities $0.718 million. The filing reports no debt; liabilities primarily included accounts payable and accrued liabilities and operating lease obligations.
- Financing and cash flows: The ATM equity program issued 17.774 million common shares at an average $1.06 per share, generating $18.262 million net proceeds. Investing activities used $8.878 million, principally for marketable securities. Cash increased by $7.418 million during the quarter.
- Margins: Not meaningful because the company had no revenue.
Changes versus the comparable period and prior balance sheet
- Operating expenses rose $1.116 million, or about 78%, and net loss increased $1.113 million from the 2020 quarter. Management attributed higher costs primarily to payroll and director compensation, including stock-based compensation, and increased subcontractor spending for ART27.13 clinical trials.
- Operating cash use increased by $0.606 million year over year.
- Compared with Aug. 31, 2021, cash rose $7.418 million and working capital increased $14.905 million, largely reflecting the ATM share issuance. Shares outstanding increased from 24.527 million to 42.301 million.
Outlook, commentary and risks
- Management expected cash and marketable securities to fund planned operations into the second half of 2023, while also anticipating higher operating losses and cash use as development advances. The company remains dependent on external financing and has no approved products or operating revenue.
- Artelo was enrolling patients in its Phase 1b/2a CAReS study of ART27.13 for cancer-related anorexia and expected to report results from the first phase by the end of the first quarter of 2022. It anticipated that clinical studies of ART26.12 in cancer could begin in early 2023, subject to regulatory-enabling work, COVID-19 effects and contractor availability. ART12.11 and ART26.12 were at preclinical stages.
- Key risks include clinical-trial failure or delay, patient recruitment and supply-chain disruptions, COVID-19 impacts, regulatory and controlled-substance requirements, dependence on third-party contractors and licensors, intellectual-property protection, and the need for additional financing. UK R&D tax credits also help reduce development costs; losing them could increase cash needs.
- Nasdaq had notified the company of noncompliance with the $1 minimum bid-price requirement. The stated compliance period ran through March 14, 2022; the company said it intended to seek continued listing, potentially through a reverse split or share buyback.
- Subsequent to quarter-end, Artelo granted 794,800 options on Dec. 1 and an additional 1,355,000 options to its CEO on Dec. 3, each with a $0.63 exercise price and ten-year term.
- The company reported no material pending legal proceedings, no material off-balance-sheet arrangements, and effective disclosure controls; it reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether CAReS produced the anticipated first-phase results and whether those results support further clinical development.
- Whether the projected cash runway into the second half of 2023 remains achievable given clinical spending, operating losses and potential funding needs.
- Nasdaq bid-price compliance and any resulting reverse split, buyback or other capital-market action.
- Progress and costs for ART26.12 regulatory-enabling studies, the potential early-2023 clinical timeline, and the availability of UK R&D tax credits.
- The effects of the substantial ATM share issuance and subsequent option grants on dilution and per-share value.