NanoViricides, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended September 30, 2014. The company is a pre-revenue, clinical-stage antiviral nanomedicine developer. Financial statements are unaudited; comparisons are to the three months ended September 30, 2013, unless otherwise noted.
Financial results and liquidity
| Metric | Quarter ended Sep. 30, 2014 | Prior-year quarter |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $811,107 | $1,174,221 |
| General and administrative expense | $876,026 | $714,561 |
| Total operating expenses / operating loss | $1,687,133 | $1,888,782 |
| Net loss | $239,070 | $6,272,780 |
| Basic and diluted loss per share | $0.004 | $0.04 |
| Cash used in operations | $1,696,025 | $1,324,448 |
| Cash at quarter-end | $41,120,652 | $19,200,882 |
Operating expenses fell about 11% year over year, as lower R&D spending more than offset higher G&A. The much smaller reported net loss chiefly reflects a $1.914 million noncash gain from the change in fair value of derivative liabilities; the comparable 2013 quarter recorded a $4.137 million derivative loss. Interest expense was $245,000, and convertible-debenture discount expense was $260,578. No income tax provision was recorded. Profit margins are not meaningful because the company had no revenue.
Cash increased $4.424 million during the quarter. Investing activities used $563,000, primarily for property and equipment; financing activities provided $6.682 million, reported as warrant-exercise proceeds. At September 30, current assets were $41.604 million and current liabilities were $753,000, implying working capital of about $40.851 million. Total assets were $49.018 million and total liabilities were $12.191 million.
Long-term liabilities included Series B debentures of $4.195 million and Series C debentures of $3.457 million, both net of discounts, plus a $3.785 million derivative liability. The notes describe $9 million in aggregate principal for the Series B and C debentures. The Series B carries 8% interest; the $5 million Series C director-held debenture carries a 10% coupon, is due June 30, 2018, and is convertible at $5.25 per share.
Material changes and notable items
- In September, the company accepted exercises of old warrants for 2,136,655 common shares at $3.50 per share, stated proceeds of approximately $7.478 million. Common shares outstanding were 56.535 million at September 30; approximately 57.107 million were outstanding November 14.
- R&D expense declined about 31% year over year, while G&A expense increased about 23%. Related-party TheraCour accounted for $769,185 of reported quarterly purchases and held $331,448 in accounts payable at quarter-end.
- Property and equipment, net, rose to $6.008 million. The Shelton cGMP-capable facility’s construction was completed in July, but cleaning, validation and equipment fit-outs remained in progress. The company intends to purchase the facility from related-party Inno-Haven; the transaction price was not finalized. Management budgeted approximately $5 million for the purchase, in addition to about $4.5 million already invested in fixtures and improvements.
- On October 31, 2014, after quarter-end, the company filed a shelf registration statement for up to $50 million of securities. It was not yet effective, and no securities could be sold under it unless and until it became effective.
Outlook, development and risks
- Management said quarter-end cash should fund operations through at least September 30, 2016 at the current expenditure rate. It also said additional financing may be needed to accelerate development, cover unplanned costs or advance more programs; future funding availability is not assured.
- Management estimated the next 24 months could require $10 million for R&D, $2 million for corporate overhead, $2 million for capital costs, $2 million for staffing and approximately $5 million to acquire the Shelton facility. It separately estimated about $2 million for Phase I and $5 million for Phase IIa trials of Injectable FluCide, if initiated. These are preliminary estimates based partly on outside-party quotes; the filing cautions that costs and timelines may be materially higher.
- All programs remained preclinical. Injectable FluCide was the most advanced candidate: the company reported beginning initial safety/toxicology work in October 2014, after the reporting period, and continued process scale-up toward IND-enabling studies. It said work on FluCide proceeded at a reduced pace while resources were redirected to Ebola.
- The company restarted its Ebola program in August 2014 and announced an October CRADA-MTA with USAMRIID for testing candidates. These are development plans, not evidence of clinical efficacy or regulatory approval. DengueCide has U.S. FDA and EMA orphan-drug designations, but no candidate had been commercialized.
- The company has no product revenue and expects recurring losses. Development depends on successful research, regulatory progress, manufacturing readiness, outside collaborators and access to capital. Management’s runway estimate and trial-cost projections are forward-looking and subject to substantial uncertainty.
- Two shareholder-related lawsuits were dismissed in September 2014 pursuant to settlement. The filing describes a $150,000 litigation reimbursement deposit; verify whether and when it was released and whether any further settlement obligations remain.
Most important facts for investors to verify
- Reconcile the warrant-exercise proceeds: the notes state approximately $7.478 million, while the cash-flow statement reports $6.682 million of warrant-exercise proceeds.
- Confirm the status, final purchase price, funding source and related-party terms for acquiring the Shelton facility, and the use or release of the $2 million cash collateral associated with Inno-Haven financing.
- Track whether the $50 million shelf registration became effective and whether subsequent financing materially changed cash, debt or share dilution.
- Assess progress and actual costs for FluCide toxicology, cGMP validation, IND preparation and any human trials; the filing’s timelines and cost estimates are not guaranteed.
- Review dilution exposure from convertible debentures, warrants and Series A preferred shares, including the conditional conversion rights and the preferred shares’ voting power.
- Evaluate the extent of related-party dependence on TheraCour for licensed technology, development services and manufacturing, and on Inno-Haven for the facility.