Artelo Biosciences, Inc. — Q2 FY2021 Form 10-Q
Reporting period: Three and six months ended February 28, 2021; fiscal year ends August 31. The company is a clinical-stage biopharmaceutical developer focused on lipid-signaling pathways, including the endocannabinoid system. It reported no revenue.
Financial performance and position
| Metric | Three months ended Feb. 28, 2021 | Six months ended Feb. 28, 2021 |
|---|---|---|
| Revenue | None | None |
| Operating expenses | $1.87 million | $3.30 million |
| Net loss | $1.87 million | $3.30 million |
| Basic and diluted loss per share | $0.11 | $0.24 |
| Cash used in operating activities | Not stated for the quarter | $2.82 million |
- At February 28, 2021, cash and cash equivalents were $10.71 million, marketable securities $0.51 million, current assets $11.41 million, current liabilities $0.59 million, and working capital $10.82 million.
- Total assets were $13.44 million; total liabilities were $0.59 million; stockholders’ equity was $12.86 million. The balance sheet reports no debt borrowings.
- Six-month investing cash outflow was $0.51 million, principally for marketable securities. Financing provided $11.90 million. Cash increased $8.56 million from August 31, 2020.
- No meaningful revenue margin is available because the company had no revenue.
Changes versus comparable periods
- Quarterly operating expenses rose $0.50 million (36%) year over year, and net loss increased $0.50 million (36%). General and administrative expense increased $0.57 million, mainly from payroll and director compensation, including stock-based compensation; R&D expense declined $0.06 million.
- Six-month operating expenses increased $0.60 million (22%) and net loss increased $0.62 million (23%) year over year. Higher G&A and professional fees more than offset lower R&D. Management attributed professional-fee growth to accounting/control-environment work, intellectual-property legal costs, and a transfer-agent change.
- Cash increased from $2.14 million at August 31, 2020, primarily from an October public offering and warrant exercises. During the six months, the company issued 10.12 million shares in the offering and received $6.58 million net proceeds; warrant exercises generated a further $5.33 million.
- Common shares outstanding increased from 4.99 million at August 31, 2020 to 22.21 million at February 28, 2021. The filing reports 23.13 million shares outstanding as of April 12, 2021.
Outlook, risks and notable items
- Going concern: The company has no established revenue source, reported a $3.30 million six-month net loss and a $12.77 million accumulated deficit, and says substantial doubt exists about its ability to continue as a going concern. Management states that available capital may not be sufficient to fund operations for at least the 12 months following filing and that additional financing is needed; no assurance is given that financing will be available.
- Management expects operating losses and cash use to increase as development advances. Potential funding sources include equity, debt, management or significant-stockholder capital, and collaborations; additional equity could dilute shareholders.
- Pipeline: ART27.13 is being studied for cancer-related anorexia; the first patient in a Phase 1b/2a study was dosed in April 2021. ART26.12, a FABP5-inhibitor program, was in lead optimization, with cancer clinical studies anticipated in the second half of 2022 or early 2023, subject to COVID-19 and other factors. ART12.11, a CBD cocrystal, was preclinical. These are management plans, not assured milestones.
- COVID-19 could disrupt clinical recruitment, trials, regulatory review, supply chains, and development timelines. Other principal risks include clinical and regulatory failure, dependence on third-party research and manufacturing, controlled-substance regulation, intellectual-property and licensing obligations, competition, and future financing needs.
- Subsequent to quarter-end, the company received $690,000 from the March 4, 2021 exercise of 920,000 warrants at $0.75 per share. It also granted additional options in March.
- The company reported no material legal proceedings, defaults on senior securities, or material off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Key facts for investors to verify
- Whether financing secured after the reporting date is sufficient to address the stated going-concern risk and fund the planned development program.
- Actual cash runway, quarterly operating burn, and the timing and terms of any further capital raises.
- Progress, enrollment, safety, and regulatory status of the ART27.13 trial, and whether ART26.12 timelines remain achievable.
- Fully diluted share count, including outstanding warrants and options, and potential dilution from future exercises or financing.
- Potential effects of COVID-19, supply constraints, controlled-substance requirements, and license milestones on development costs and schedules.