Matinas BioPharma Holdings, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Matinas is a clinical-stage biopharmaceutical company developing products using its licensed cochleate drug-delivery technology. It had no approved products and no product revenue.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $59,858 | $0 | $194,494 |
| Research and development | $835,308 | $879,196 | $2,399,595 | $3,682,336 |
| General and administrative | $999,803 | $1,339,430 | $3,293,233 | $3,641,337 |
| Net loss | $1,838,436 | $2,154,625 | $5,706,931 | $7,129,267 |
| Net loss attributable to common shareholders | $6,232,245 | $2,154,625 | $10,100,740 | $7,129,267 |
| Basic and diluted loss per share | $0.11 | $0.04 | $0.18 | $0.14 |
Revenue in 2015 came from NIH contract research; those contracts ended in 2015. Gross margin is not meaningful given the absence of revenue. The common-shareholder loss includes a $4.4 million noncash deemed dividend from the preferred stock beneficial conversion feature; this increased the loss attributable to common shareholders but not net loss.
- Cash and liquidity: Cash was $6.22 million at September 30, 2016, versus $3.23 million at December 31, 2015. Working capital was approximately $5.2 million; total assets were $11.31 million and total liabilities were $2.58 million.
- Cash flow: Nine-month operating cash use was $4.00 million, compared with $6.70 million in 2015. Financing provided $7.00 million, principally from the preferred-stock placement; cash increased $2.99 million.
- Debt and obligations: Current note payable was $188,873; the filing also describes a $262,324 insurance-premium financing agreement, payable through May 2017. Lease commitments totaled $788,108.
Changes versus the prior comparable periods
- Revenue ceased after the NIH contracts ended: zero in the first nine months of 2016 versus $194,494 in 2015.
- Nine-month operating expenses fell by approximately $1.63 million, mainly because clinical spending on MAT9001 declined after studies were essentially completed in 2015. Management also cited lower investor-relations, legal and accounting costs and cost-saving measures.
- Net loss narrowed to $5.71 million from $7.13 million for the nine-month period. However, common shareholders’ loss increased to $10.10 million from $7.13 million because of the preferred-stock deemed dividend.
- Cash increased following the 2016 preferred-stock financing. The company received $8.0 million gross and reported approximately $6.8 million net proceeds after offering costs; it also received $240,000 from warrant exercises.
Outlook, risks and unusual items
- Management estimated existing cash would fund operating obligations only into April 2017 and stated that additional financing would be needed. Recurring losses and the need for financing raised substantial doubt about the company’s ability to continue as a going concern. No committed external funding source was identified.
- Management expected no further revenue in 2016 and anticipated R&D spending to rise in Q4 2016 and 2017 as MAT2203 studies proceed and a MAT2501 Phase 1 study begins. It expected full-year 2016 G&A to be flat or lower than 2015.
- MAT2203: the NIH began dosing patients in a Phase 2a study; results were expected in the first half of 2017. A separate Phase 2 study for vulvovaginal candidiasis was planned for Q4 2016, with results expected later in the first half of 2017.
- MAT2501: management planned to begin a Phase 1 study in Q4 2016, with data expected in the first half of 2017. MAT2203 and MAT2501 had FDA QIDP designations; MAT2203 also had Fast Track status, and MAT2501 had Orphan Drug designation for NTM.
- The Series A preferred stock is convertible into 16 million common shares at the current conversion price, carries cumulative 8% annual dividends payable in common shares, and has liquidation preference. It also provides holders with royalties of 4.5% of qualifying product net sales and 7.5% of qualifying licensing proceeds, subject to stated annual caps and vesting terms.
- Potential dilution includes 40.5 million outstanding warrants, 8.3 million options, the preferred-stock conversion and up to 3 million additional shares tied to acquisition milestones. The company also cited clinical, regulatory, manufacturing, intellectual-property, financing and commercialization risks.
- The filing reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No legal proceedings were reported.
Important facts for investors to verify
- Reconcile the MD&A statement that nine-month net loss attributable to common shareholders was $11.8 million with the financial statements, which report $10.10 million.
- Confirm the company’s actual cash runway and financing needs against the April 2017 estimate, including subsequent financing or spending changes.
- Review the preferred-stock conversion, dividend, liquidation and royalty provisions, and quantify the resulting potential dilution.
- Track whether the planned MAT2203 and MAT2501 clinical milestones occurred and whether results supported further development.
- Assess the implications of no recurring revenue, ongoing operating cash use and the company’s stated going-concern uncertainty.