MediciNova, Inc. — Q3 2019 Form 10-Q Summary
Business context and reporting period
MediciNova is a clinical-stage biopharmaceutical company developing small-molecule therapeutics for serious diseases with unmet medical needs. Its principal programs are MN-166 (ibudilast) for neurological disorders and MN-001 (tipelukast) for fibrotic diseases; the pipeline also includes MN-221 and MN-029. This unaudited Form 10-Q covers the three and nine months ended September 30, 2019, compared with the corresponding 2018 periods.
Financial condition and key metrics
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research, development and patents expense | $1.2 million | $2.4 million | $4.3 million | $5.4 million |
| General and administrative expense | $1.5 million | $4.7 million | $7.6 million | $9.7 million |
| Total operating expenses | $2.6 million | $7.0 million | $11.8 million | $15.1 million |
| Net loss | $2.4 million | $6.8 million | $11.0 million | $14.5 million |
| Net loss per share | $0.05 | $0.16 | $0.26 | $0.35 |
| Cash used in operating activities | Not separately provided | Not separately provided | $6.7 million | $7.5 million |
The company had cash and cash equivalents of $62.9 million at September 30, 2019, versus $62.3 million at December 31, 2018. Working capital was $61.5 million. Total assets were $78.2 million and total liabilities were $3.9 million, including $1.7 million of long-term deferred revenue and approximately $0.5 million of operating lease liabilities. The filing does not report conventional debt borrowings.
Interest income was $0.3 million in the third quarter and $0.9 million for the first nine months. Operating and net profit margins are not meaningful because the company reported no revenue and continued to incur operating losses. Stock-based compensation was $0.4 million in Q3 and $4.9 million for the nine months, compared with $4.7 million and $8.1 million, respectively, in the comparable 2018 periods.
Material changes versus the prior comparable period
- Third-quarter net loss decreased by $4.4 million, or approximately 65%, primarily because performance-based stock compensation declined as the company’s stock price decreased.
- Nine-month net loss decreased by $3.5 million, or approximately 24%, for the same principal reason.
- Research and development expense declined by $1.2 million in Q3 and $1.1 million for the nine-month period.
- General and administrative expense declined by $3.2 million in Q3 and $2.1 million for the nine-month period.
- Operating cash burn improved to $6.7 million for the first nine months from $7.5 million in the prior-year period.
- Financing cash inflows fell substantially to $7.3 million from $41.3 million, because 2018 included a $38.5 million public equity offering. In 2019, financing proceeds primarily reflected option exercises and ATM equity sales.
- The company issued 347,902 shares under its ATM programs for net proceeds of approximately $3.2 million during the first nine months. The prior 2015 ATM agreement was terminated and replaced by a new $75 million ATM agreement on August 23, 2019.
- Shares outstanding increased to 43.45 million at September 30, 2019 from 42.08 million at December 31, 2018; 43.84 million shares were outstanding as of October 23, 2019.
Outlook, commentary, risks and unusual items
Management expects substantial net losses to continue as development programs advance. It stated that available cash and working capital were sufficient to fund operations at least through December 31, 2020, but cautioned that resources may not support all planned research and development activities. The company expects research and development spending to increase as programs progress and intends to seek strategic alliances and other non-dilutive funding.
The Kissei collaboration includes $1.7 million of long-term deferred revenue. No related revenue was recognized during either 2019 or 2018 because the remaining study had not begun; management expected completion after 2019.
Subsequent to September 30, 2019, the company sold 393,361 shares under the 2019 ATM agreement at a weighted-average price of $7.38 per share for net proceeds of approximately $2.8 million.
Key risks include the need for additional capital, the absence of product-sales revenue, clinical-trial delays or failures, regulatory approval risk, dependence on MN-166 and MN-001, reliance on third-party manufacturers and clinical-trial providers, intellectual-property disputes, competitive developments, market acceptance and reimbursement risk, and potential loss of key personnel. The company reported no material legal proceedings and no material changes to the risk factors in its 2018 Form 10-K.
The company adopted the new lease accounting standard in the first quarter of 2019, recognizing approximately $0.4 million of right-of-use assets and approximately $0.4 million of lease liabilities, with no material effect on earnings.
Important facts for investors to verify
- Whether the cash balance and stated funding horizon remain adequate relative to planned clinical-trial spending and future operating losses.
- Progress, results and funding sources for MN-166 and MN-001 clinical programs, including the extent of government, grant or partner support.
- The timing and economics of the remaining Kissei performance obligation and any future recognition of deferred revenue.
- Potential dilution from the $75 million ATM facility, outstanding options and future equity financing.
- Regulatory, clinical, manufacturing, intellectual-property and commercialization risks affecting the pipeline.
- The effect of the post-quarter ATM issuance and any additional equity sales on cash resources and per-share ownership.