Alzamend Neuro, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended January 31, 2022, the company’s fiscal third quarter. Filed March 15, 2022. Alzamend is an early clinical-stage biopharmaceutical company developing candidates primarily for Alzheimer’s disease. It reported no product revenue.
Financial results and liquidity
| Metric | Three months ended Jan. 31, 2022 | Nine months ended Jan. 31, 2022 | Comparable 2021 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $874,000 | $3.54 million | $234,000; $1.02 million |
| General and administrative expense | $1.68 million | $4.91 million | $881,000; $2.71 million |
| Total operating expenses | $2.56 million | $8.45 million | $1.12 million; $3.73 million |
| Net loss | $2.57 million | $8.49 million | $1.12 million; $3.79 million |
| Basic and diluted loss per share | $0.03 | $0.09 | $0.02; $0.05 |
As of January 31, 2022, cash was $11.79 million, current assets were $12.43 million, and current liabilities were $467,000. The balance sheet reported no convertible notes outstanding; the remaining note balance had converted to common shares. Stockholders’ equity was $11.96 million, against an accumulated deficit of $25.33 million. No revenue means profit margins are not meaningful.
For the nine-month period, operating cash use was $5.05 million, investing cash flow was zero, and financing provided $14.91 million. Cash increased by $9.86 million from April 30, 2021. Financing included $12.91 million of net IPO proceeds and $2.00 million from a related-party stock sale. The company said $5.0 million of IPO proceeds had been used by January 31.
Changes versus the prior comparable period
- Nine-month operating expenses rose 126% and net loss rose 124%; R&D expense increased 248%, largely reflecting scientific and clinical development costs for AL001.
- Quarterly net loss increased 130%. Quarterly R&D expense rose 273% and G&A rose 91%.
- Cash increased substantially following the June 2021 IPO and related-party equity financing. Common shares outstanding at January 31 were 90.10 million, versus 67.43 million at April 30, 2021.
- Stock-based compensation was $3.15 million for the nine months, compared with $1.74 million in 2021; it is a non-cash expense. G&A also included $500,000 of insurance expense, primarily directors’ and officers’ coverage.
Outlook, developments and risks
- Pipeline: AL001 is a lithium-based oral candidate. The FDA allowed its Phase I study to proceed; the company reported positive topline Phase I data in December 2021 and expected a full report in March 2022. Management described a planned Phase II multiple-ascending-dose study, subject to development and regulatory progress.
- AL002: A preclinical cell-based vaccine candidate. The FDA response supported a planned combined Phase 1/2 approach; the company expected to file an IND in the second quarter of 2022, citing manufacturing-partner selection and the revised trial plan.
- Funding: Management expects continuing losses and says additional capital will be needed to fund development and operations. It believed January 31 cash would cover anticipated requirements for the 12 months following issuance of the financial statements. A further $4 million from related party DPL is conditional on completion of AL001 Phase I; DPL also has a potential right to invest an additional $10 million after the final tranche, on terms not yet specified.
- Clinical and operating risks: Product candidates require further trials, regulatory review and substantial funding, with no assurance of approval or commercial revenue. The company reported prior COVID-19-related delays to development and third-party laboratory/manufacturing work and said further effects remained uncertain.
- License obligations: University/licensor agreements require royalties and milestone payments, including significant payments tied to later clinical, regulatory and commercial milestones. Failure to meet specified milestones may allow license termination.
- Controls: Management concluded internal control over financial reporting was ineffective because of a material weakness related to insufficient accounting resources and/or policies and procedures. Remediation efforts included added procedures and outside accounting support.
- Related-party and dilution considerations: DPL and other entities associated with founder Milton Ault are involved in financing and governance arrangements. At January 31, the company reported 8.83 million warrants outstanding and 18.0 million options outstanding; potential dilution is excluded from diluted loss per share because the securities were anti-dilutive.
- The company reported no material legal proceedings, defaults on senior securities, or material off-balance-sheet arrangements.
Investor verification priorities
- Review AL001’s complete Phase I results and confirm the status, design, funding and timing of the planned Phase II study.
- Confirm whether AL002’s IND was filed and whether the proposed combined Phase 1/2 trial and manufacturing arrangements advanced as expected.
- Assess cash runway against actual operating cash use, future clinical costs, and the timing and conditions of DPL’s remaining $4 million tranche and potential additional investment.
- Reconcile reported weighted-average shares used for quarterly loss per share (94.17 million) with period-end common shares outstanding (90.10 million), and evaluate options, warrants and other dilution.
- Track remediation of the material weakness and review the company’s related-party financing, governance, licensing milestones and royalty commitments.