Business context and reporting period
The supplied filing is StemCells, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2014—not a filing for Microbot Medical Inc. Investors should verify the issuer and filing before relying on this summary. StemCells was a pre-revenue biopharmaceutical company developing stem-cell therapeutics, including HuCNS-SC for spinal cord injury, dry age-related macular degeneration (AMD), Pelizaeus-Merzbacher disease and Alzheimer’s disease, alongside a small cell-culture products business.
Financial results and liquidity
| Metric | Three months ended June 30, 2014 | Six months ended June 30, 2014 |
|---|---|---|
| Total revenue | $242,204 (down 14% year over year) | $581,684 (up 3%) |
| Gross profit | $164,107; approximately 68% gross margin | $416,311; approximately 72% gross margin |
| Operating expenses | $8.27 million (up 29%) | $15.42 million (up 20%) |
| Loss from operations | $8.10 million | $15.00 million |
| Net loss | $12.12 million; $0.22 per share | $19.74 million; $0.36 per share |
| Cash used in operating activities | Not reported separately for the quarter | $14.28 million |
Second-quarter product sales were $218,725, down 13%, primarily on lower SC Proven product volumes. Six-month product sales rose 17% to $534,621, while licensing, grants and other revenue fell 56% to $47,063. Research and development expense increased 27% in the quarter and 17% for the six-month period, mainly reflecting clinical-trial costs. Selling, general and administrative expense rose 38% and 28%, respectively, including higher legal, recruiting and payroll costs.
Cash and cash equivalents were $17.85 million at June 30, down $12.74 million from year-end 2013. Current assets were $18.90 million and current liabilities $8.30 million. Total liabilities were $30.90 million, versus total assets of $28.36 million; stockholders’ equity was negative $2.54 million. Loan payable carrying value was $14.94 million, including a $7.64 million CIRM loan; bonds payable were approximately $18,000. The loan balance includes a CIRM forgivable loan whose repayment depends on the success of the Alzheimer’s program and is subject to agreement conditions.
Management reported significant operating losses and negative cash flows since inception, limited liquidity, and a need for substantial additional capital. It warned that insufficient financing could force the company to delay or reduce programs or, if obligations could not be met, consider bankruptcy proceedings. In July 2014, after quarter-end, the company raised $20 million gross from a unit offering, including warrants; this financing was not included in June 30 cash. The filing reported 68,637,776 common shares issued and outstanding at July 31, 2014.
Material changes and unusual items
- Net loss worsened year over year, partly because the company recorded a $3.65 million second-quarter loss from remeasuring warrant liabilities, compared with a $758,000 gain in the prior-year quarter. For the first six months, the warrant remeasurement loss was $3.98 million. This is a valuation-driven item, not operating cash use.
- Operating cash use increased 37% year over year to $14.28 million for the first half. The company spent $362,873 on property, plant and equipment and received $1.90 million net from financing activities, including CIRM loan proceeds.
- The July $20 million offering provided post-period capital but also involved issuance of 11,299,435 units and warrants to buy additional shares, creating potential dilution.
- The company’s contractual cash obligations totaled $25.10 million at June 30, principally operating leases ($17.11 million); this schedule reports loan principal and interest of $7.92 million and does not equal the balance-sheet carrying value of all loans.
Outlook, commentary and risks
- StemCells completed enrollment of 12 patients in its Phase I/II chronic spinal cord injury trial in April. Interim data described favorable safety and sensory-function gains in some patients; additional data were expected later in 2014 and final results around mid-2015. A controlled Phase II study was planned for the second half of 2014.
- For dry AMD, the company closed enrollment in its 16-patient Phase I/II study to focus on a planned randomized, controlled Phase II proof-of-concept study. Interim results reported a 70% reduction in geographic atrophy versus the control eye and 65% versus expected natural history; these were preliminary findings, not confirmed efficacy.
- The CIRM agreement provides up to approximately $19.3 million as a conditional, potentially forgivable loan for Alzheimer’s preclinical and IND-enabling work. Approximately $7.6 million had been disbursed by June 30; further disbursements depend on milestones, covenants and other conditions.
- Management said it did not expect profitability in the next several years and expected substantial future R&D expenses and operating losses. Commercialization timing and costs could not be meaningfully estimated; clinical, regulatory, manufacturing, financing, competition and intellectual-property risks remain significant.
- Patent litigation with Neuralstem remained pending; fact discovery was complete and the first phase of trial was expected to begin in December 2014. The company reported no material change to the risk factors in its 2013 Form 10-K.
- Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer: this source identifies StemCells, Inc., whereas the request names Microbot Medical Inc.
- Review the July 2014 financing terms, net proceeds, warrant dilution and post-offering share count.
- Assess cash burn, available financing and the conditions and repayment terms of the CIRM and Silicon Valley Bank loans.
- Validate the clinical-trial status, interim AMD and spinal-cord-injury findings, planned Phase II timelines and subsequent reported results.
- Check the warrant-liability valuation assumptions and the status and potential financial impact of the Neuralstem litigation.