Business context and reporting period
This is Emerald Bioscience, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2019, filed May 9, 2019. The request identifies Skye Bioscience, Inc.; the supplied filing instead names Emerald Bioscience, Inc. (formerly Nemus Bioscience, Inc.), so confirm the intended issuer.
Emerald is an early-stage biopharmaceutical company developing cannabinoid-based therapeutics under licenses from the University of Mississippi. It reported no product revenue and said it was years from potential commercial operations. Its common stock traded on OTCQB under EMBI following a March 25, 2019 name and ticker change.
Financial performance and position
| Metric | Q1 2019 | Q1 2018 or comparison |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $321,000 | $25,000 |
| General and administrative expense | $1.194 million | $1.226 million |
| Total operating expenses / operating loss | $1.515 million | $1.251 million |
| Net loss | $14.774 million | $8.214 million |
| Net loss per share, basic and diluted | $0.11 | $0.09 |
| Net cash used in operations | $1.431 million | $1.053 million |
At March 31, 2019, cash and cash equivalents were $4.413 million (plus $4,512 restricted cash), versus $1.853 million at year-end. Total assets were $4.725 million; current liabilities were $28.712 million; total liabilities were $32.589 million; and stockholders’ deficit was $27.864 million. The company reported a working-capital deficit of $23.990 million and accumulated deficit of $47.999 million.
Related-party convertible credit had $6.0 million principal outstanding, a $2.914 million carrying value after discounts and costs, and a $14.0 million undrawn facility balance. The unsecured facility bears 7% interest, matures October 2022, and allows the lender to convert at $0.40 per share, subject to adjustments. Advances require board approval. Current derivative liabilities were $28.332 million, with another $0.963 million noncurrent.
Material changes versus the prior comparable period
- Net loss increased $6.561 million, primarily because derivative remeasurement expense was $12.821 million in Q1 2019, compared with a $977,000 fair-value gain in Q1 2018. The 2019 loss also included $323,000 of derivative value in excess of proceeds.
- Operating expenses rose $264,000, as R&D increased $296,000 with expanded development work; G&A declined modestly.
- Operating cash use increased by $378,000. Financing provided $3.991 million in Q1 2019, primarily from two $2 million facility draws, compared with $3.740 million in Q1 2018 from equity, warrant exercises and related-party debt.
- Derivative-liability balances increased substantially, largely reflecting the higher stock price and the resulting revaluation of warrants. These fair-value charges are not equivalent to operating cash outflows.
Outlook, commentary and risks
- Management stated that, without additional funding, available funds would not cover obligations for one year after the financial statements were issued; it identified substantial doubt about the company’s ability to continue as a going concern. The statements were prepared on a going-concern basis without adjustments for a possible failure to continue.
- Management planned to pursue equity or debt financing, licensing, asset sales, grants or other funding, but gave no assurance funds would be available. Potential consequences include dilution, reduced or suspended programs, asset sales or cessation of operations.
- Management expected continued losses, significant R&D spending over the next 12 months, public-company costs, and possible additional hiring ahead of clinical studies. No financial guidance or assured funding plan was provided.
- NB1111, the lead glaucoma candidate, was being advanced toward first-in-human studies. The company reported favorable preclinical findings, including lower intraocular pressure than latanoprost in a rabbit model; these findings do not establish clinical safety or efficacy. NB2222 and NB3111 were also in research-stage development.
- Key risks include early-stage drug development and regulatory uncertainty, dependence on additional financing and Emerald Health Sciences, potential dilution, reliance on the University of Mississippi and third-party providers, and uncertainty around intellectual property and market acceptance.
- The company reported no material change to previously disclosed risk factors, no material legal-proceeding developments, and no subsequent events to report. Disclosure controls were deemed effective at a reasonable-assurance level.
Important facts for investors to verify
- Confirm issuer identity: the supplied filing is for Emerald Bioscience, not Skye Bioscience.
- Verify the availability and terms of future related-party facility draws; the remaining $14 million was not cash on hand and draws required board approval.
- Assess cash runway against the reported operating cash use, planned R&D and management’s explicit going-concern warning.
- Review the valuation assumptions and potential share dilution associated with large warrant and derivative liabilities; 58.1 million warrants were outstanding at quarter-end.
- Confirm development milestones and regulatory progress for NB1111 and other candidates, distinguishing preclinical results from human clinical evidence.