Clene Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless stated otherwise. Prior-period comparisons reflect Clene Nanomedicine as the accounting acquirer in the December 2020 reverse recapitalization.
Business context
Clene is a clinical-stage biopharmaceutical company developing clean-surfaced nanocrystal drug candidates, with programs focused on neurological and infectious diseases. Its lead candidate, CNM-Au8, is being studied in clinical programs including ALS, Parkinson’s disease, and multiple sclerosis. The company has no approved drug products and generated no drug revenue. Reported revenue came from dietary supplements and related royalties.
Financial performance and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $0.201 | $0.009 | $0.414 | $0.079 |
| Operating loss | $(13.775) | $(4.561) | $(25.470) | $(8.563) |
| Net loss | $(3.351) | $(5.819) | $(43.107) | $(9.760) |
| Net loss per share, basic and diluted | $(0.05) | $(0.34) | $(0.71) | $(0.56) |
| Cash used in operating activities | — | $(17.713) | $(5.402) |
- Q2 revenue comprised $138,000 of product revenue and $63,000 of royalty revenue. Cost of revenue was $555,000, producing a gross loss of approximately $354,000. For the first half, cost of revenue of $798,000 exceeded revenue by $384,000.
- Research and development expense was $6.5 million in Q2 and $12.7 million for the first half, up from $3.6 million and $6.8 million, respectively, in the comparable periods. General and administrative expense rose to $6.9 million in Q2 and $12.3 million for the first half, compared with $1.0 million and $1.8 million.
- At June 30, cash was $63.0 million, total current assets $68.2 million, and current liabilities $4.5 million. Accumulated deficit was $196.7 million; stockholders’ deficit was $25.9 million.
- Total liabilities were $99.2 million, including $4.4 million of convertible notes payable and $10.4 million of notes payable. The balance sheet also included $76.7 million of contingent earn-out liabilities, measured at fair value.
- In May, Clene received $15.0 million under an Avenue term loan and raised $9.3 million in a private stock placement. The loan bears interest at no less than 9.85%, is secured by substantially all company assets, and has a 42-month term. Additional loan funding is conditional.
Material changes and unusual items
- Q2 net loss improved year over year despite a substantially larger operating loss, principally because the company recorded $9.9 million of income from decreases in the fair value of contingent earn-out liabilities. In the first half, increases in those liabilities instead generated $18.7 million of expense, contributing to the larger net loss.
- First-half operating cash use increased to $17.7 million from $5.4 million. The reported $43.1 million net loss included substantial noncash items, notably contingent earn-out remeasurement and $7.5 million of stock-based compensation.
- First-half revenue increased from $79,000 to $414,000, but remained immaterial relative to operating costs. Revenue included sales under a supply agreement with related party 4Life Research and royalties tied to that party’s product sales.
- The $0.6 million Paycheck Protection Program loan was forgiven in January 2021 and recognized as a gain in the first half.
- Contingent earn-outs can involve up to 8.35 million shares for former Clene Nanomedicine shareholders and 750,000 shares for former Tottenham initial shareholders. No milestones had been achieved by June 30. Fair-value movements depend on share-price and other assumptions and materially affect reported earnings.
Outlook, risks, and controls
- Management stated that June 30 cash was expected to fund operations for more than twelve months from issuance of the financial statements, while cautioning that assumptions could prove wrong. The company expects continued losses and rising research and development costs, and anticipates needing additional capital to execute its plans.
- The remaining $5 million of Avenue Tranche 1 and the additional $10 million Tranche 2 are subject to specified financing, clinical-performance, and other conditions. The loan also has a minimum unrestricted-cash covenant of $5 million unless specified conditions are met. Clene reported no covenant violations.
- Key risks include clinical and regulatory uncertainty, reliance on CROs and manufacturers, financing needs, competition, manufacturing capability, intellectual-property protection, and possible effects of COVID-19 on research, manufacturing, trial sites, and capital markets. The company said pandemic-related pauses and restrictions had been temporary to date.
- Disclosure controls and procedures were reported ineffective at June 30 because of material weaknesses in the financial reporting control environment, accounting policies and review, segregation of duties, complex transaction accounting, and IT general controls. Remediation efforts included additional finance resources, consultants, and work toward a new ERP system.
- Management provided no specific financial guidance. The filing reported no material pending legal proceedings and no material changes to the risk factors in the 2020 Form 10-K.
Investor facts to verify
- Clinical-trial progress, timelines, and results for CNM-Au8 programs, and the evidence required to access conditional Avenue funding.
- Cash burn and actual runway relative to management’s estimate, including any additional financing needs or dilution.
- Avenue loan terms, covenant status, amortization, and availability of the remaining tranches.
- Related-party supplement sales and royalties, including their contribution to revenue and the relationship with 4Life Research.
- Fair-value assumptions and changes for contingent earn-outs and warrants, and the progress of material-weakness remediation.