Palisade Bio, Inc. 10-Q Summary
Business context and reporting period
Filed May 14, 2021, for the quarter ended March 31, 2021. The reported financial statements primarily reflect the pre-merger operations of Seneca Biopharma, Inc., not the post-merger Palisade Bio business. On April 27, 2021, Seneca completed its merger with Leading BioSciences, Inc., changed its name to Palisade Bio, Inc., and effected a 1-for-6 reverse stock split.
Post-merger, Palisade is a clinical-stage biopharmaceutical company developing oral therapies for gastrointestinal conditions associated with disruption of the intestinal mucosal barrier. Its lead candidate is LB1148.
Financial metrics
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $0 | $6,020 | Down $6,020 |
| Research and development expense | $471,107 | $696,889 | Down 32% |
| General and administrative expense | $1,720,413 | $1,299,595 | Up 32% |
| Total operating expenses | $2,191,520 | $1,996,484 | Up 10% |
| Operating loss | $(2,191,520) | $(1,990,464) | Loss increased $201,056 |
| Net loss | $(2,285,077) | $(7,575,218) | Loss decreased $5,290,141 |
| Net loss per share | $(0.79) | $(5.58) | Improved |
| Net cash used in operating activities | $(3,941,235) | $(1,677,629) | Use increased $2,263,606 |
Because revenue was zero in Q1 2021, revenue-based margins are not meaningful. The company remains pre-commercial and has never generated product-sales revenue.
- Cash and liquidity: Cash and cash equivalents were $6.56 million at March 31, 2021, compared with $10.53 million at December 31, 2020. Including approximately $51,300 classified within assets held for sale, total cash at period end was approximately $6.61 million.
- Balance sheet: Total assets were $8.91 million and total liabilities were $1.19 million at March 31, 2021. Stockholders’ equity was $7.73 million.
- Debt and obligations: The filing does not report material outstanding conventional debt at March 31, 2021. Liabilities included $171,202 of fair-value warrant liabilities, $219,757 of liabilities associated with assets held for sale, and operating lease obligations.
- Cash runway: Management stated that available cash and investments were insufficient to fund operations for more than 12 months after the filing and concluded that substantial doubt existed regarding the company’s ability to continue as a going concern.
Material changes versus the prior comparable period
- Revenue declined to zero from $6,020. The prior-year amount consisted of intellectual-property license fees and royalty revenue from a settlement.
- Research and development expense declined $225,782 because Seneca continued winding down its stem-cell and small-molecule clinical activities.
- General and administrative expense increased $420,818, primarily due to merger-related shareholder-approval costs, legal expenses, and settlement-related costs.
- Net loss improved substantially because Q1 2020 included a $5.62 million non-cash warrant inducement expense. Q1 2021 included a $95,904 non-cash loss from warrant fair-value remeasurement.
- Operating cash use increased substantially, partly reflecting approximately $2.05 million of payments related to accrued severance and bonuses.
- Weighted-average common shares outstanding increased to 2.89 million from 1.36 million, with all share and per-share data retrospectively adjusted for the reverse stock split.
- At March 31, 2021, approximately $4.35 million of executive severance, change-in-control payments, and option repurchase obligations had been incurred. Approximately $2.17 million had been paid by March 31, with approximately $1.9 million expected to be paid in installments through September 2022.
Guidance, outlook, risks, and unusual items
- Clinical outlook: Management expected initial data from the U.S. Phase 2 LB1148 bowel-resection trial in the second half of 2021. It also planned a Phase 2/3 neonatal cardiac-surgery trial in the second half of 2021, with initial data expected in late 2021 and full-trial data in 2022.
- Development status: A prior Phase 2 investigator-sponsored trial reported an approximately 30% improvement in time to normal bowel function versus placebo, with shorter ICU and hospital stays. These results may not predict future trial outcomes.
- Financing: The company expected to require additional equity, debt, collaboration, licensing, or asset-sale proceeds. It had no commitments for future funding, and certain financing agreements restricted near-term equity issuance without investor consent.
- Merger financing: Approximately $20.0 million of gross proceeds were raised concurrently with the April 27, 2021 merger; these proceeds are not reflected in the March 31, 2021 balance sheet.
- Assets held for sale: Assets and liabilities related to the former NSI-566 neural stem-cell program were classified as held for sale. No binding sale agreement existed, and no impairment charge had been recorded.
- COVID-19: The pandemic could delay clinical trials, disrupt suppliers and contract research organizations, affect regulatory activities, and impair access to capital. The company reported no material COVID-19-related business disruption or asset impairment through the reporting date.
- Legal matters: Multiple shareholder lawsuits related to the merger were disclosed; the filing states that all such actions had been settled as of May 14, 2021.
- Controls: Disclosure controls were deemed effective as of March 31, 2021. The risk factors nevertheless disclose a material weakness in internal control over financial reporting related to financial close and reporting controls, segregation of duties, journal entries, and account reconciliations.
- Principal risks: Clinical and regulatory failure, patient enrollment delays, manufacturing and third-party dependence, intellectual-property challenges, dilution from future financing, limited operating history, and inability to commercialize LB1148.
Important facts for investors to verify
- Reconcile the post-merger capital raise and resulting cash balance to the March 31, 2021 pre-merger financial statements.
- Review the merger accounting, reverse stock split, escrowed shares, warrants, and potential dilution from options and other equity-linked instruments.
- Assess the timing and terms of required financing in light of the going-concern qualification and projected clinical-trial spending.
- Verify LB1148 trial enrollment, interim and final data, regulatory interactions, and the feasibility of the planned Phase 2/3 program.
- Monitor severance and change-in-control payments, lease obligations, warrant liabilities, and any remaining merger-related litigation costs.
- Evaluate remediation of the disclosed material weakness in internal control over financial reporting.