Neuralstem, Inc. Form 10-Q Summary
Filing-period note: The supplied filing is for Neuralstem, Inc., not Palisade Bio, Inc. It covers the quarter and six months ended June 30, 2011 and was signed August 9, 2011. The financial statements are unaudited.
Business Context and Reporting Period
Neuralstem was developing human neural stem-cell therapies and small-molecule compounds for central nervous system diseases. Its principal programs included Phase I trials for amyotrophic lateral sclerosis (ALS) and NSI-189 for major depressive disorder, while its chronic spinal-cord-injury IND remained on clinical hold. The company reported 12 full-time employees and four full-time independent contractors at June 30, 2011.
- The ALS trial had treated 12 of up to 18 planned patients and was paused pending FDA review.
- NSI-189 Phase IA dosing began in February 2011; management expected Phase IA completion in August 2011 and anticipated starting Phase IB in the third quarter.
- The company had no commercial product revenue and stated that it was not currently focused on generating revenue.
Financial Metrics
| Metric | Three Months Ended June 30, 2011 | Six Months Ended June 30, 2011 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $3.67 million | $7.21 million |
| Research and development | $2.09 million | $3.82 million |
| General and administrative | $1.52 million | $3.30 million |
| Operating loss | $3.67 million | $7.21 million |
| Net loss | $3.65 million | $6.75 million |
| Basic and diluted loss per share | $0.08 | $0.14 |
| Net cash used in operating activities | Not separately reported | $4.50 million |
Margins are not meaningful because the company reported no revenue. Share-based compensation was $2.21 million for the six months, including $1.11 million in research and development and $1.10 million in general and administrative expense.
- Cash and cash equivalents were $6.14 million at June 30, 2011, versus $9.26 million at December 31, 2010.
- Total assets were $7.42 million and total liabilities were $1.15 million. Current liabilities consisted primarily of accounts payable, accrued expenses and accrued bonuses.
- The filing does not disclose outstanding interest-bearing debt at June 30, 2011; prior insurance-related loans had been paid off.
- Working capital surplus was approximately $5.29 million and stockholders’ equity was $6.27 million.
- Cash used in investing activities was $0.29 million, including $0.18 million for property and equipment and $0.11 million for intangible assets.
- Financing activities provided $1.67 million from warrant exercises. No comparable private-placement financing occurred in the first half of 2011.
- The company estimated a monthly cash burn of approximately $0.9 million during the first half of 2011.
Material Changes Versus Prior Comparable Period
- Second-quarter operating expenses declined 13% from $4.20 million to $3.67 million, primarily because the ALS trial had no surgeries in the quarter and incurred fewer start-up costs.
- Second-quarter research and development expense declined 20% from $2.61 million to $2.09 million.
- Six-month operating expenses declined 8% from $7.81 million to $7.21 million; research and development expense declined 15%.
- Six-month net loss improved from $11.72 million to $6.75 million, largely because the 2010 period included substantial warrant issuance, modification and fair-value expenses.
- Six-month nonoperating income was $0.45 million versus a $3.91 million expense in 2010. The 2011 amount included a $250,000 ReNeuron litigation settlement, $43,000 of interest income and a $162,000 gain from warrant fair-value changes.
- Cash used in operations improved modestly from $4.88 million to $4.50 million, while financing proceeds fell from $16.71 million to $1.67 million.
- Shares outstanding increased to 48.49 million at June 30, 2011 from 46.90 million at December 31, 2010, primarily from warrant exercises and stock-based issuances.
- All remaining derivative warrant obligations with exercise-price reset and anti-dilution features expired or were exercised by February 2011; the associated liability was reduced to zero.
Guidance, Outlook, Risks and Unusual Items
- Management stated that existing cash was expected to fund current operations, preclinical work and clinical work through the end of 2011, but additional financing would be required thereafter.
- The company did not expect to be profitable for the next several years and anticipated additional operating losses.
- Future financing could be unavailable or dilutive. The company had an effective shelf registration for up to $50 million and an ATM arrangement permitting up to $20 million of common-stock sales, but reported no sales under the ATM through the filing date.
- The company received a $250,000 ReNeuron litigation settlement in February 2011 and could receive future milestone payments, although their timing and success were uncertain.
- After quarter-end, the company announced a Department of Defense contract with a first-year award of $1.6 million, of which Neuralstem expected to receive $625,000. Continuation depended on milestones.
- Material risks included clinical-trial failure or delay, FDA restrictions, the clinical hold on the spinal-cord-injury IND, dependence on third-party manufacturers and collaborators, intellectual-property litigation, limited liquidity, potential dilution and the absence of commercial revenue.
- Pending litigation with StemCells, Inc. involved patent validity, infringement and related claims. The filing stated that the outcome and timing could not be predicted.
- Management reported that disclosure controls and procedures were effective and that no material changes had affected internal control over financial reporting during the period.
Investor Verification Priorities
- Confirm that the filing belongs to Neuralstem, Inc., despite the request identifying Palisade Bio, Inc.
- Verify the company’s cash runway, monthly burn rate and financing plans after the stated end-of-2011 funding horizon.
- Track FDA decisions regarding continuation of the ALS trial and the clinical hold on the chronic spinal-cord-injury IND.
- Assess progress, safety results and regulatory timing for the NSI-189 Phase IA and planned Phase IB trials.
- Reconcile the effects of warrant exercises, options, restricted stock and potential future equity issuance on dilution.
- Review the status and potential financial impact of the StemCells patent litigation.
- Distinguish recurring operating performance from nonrecurring items, including the ReNeuron settlement and warrant fair-value adjustments.