CNS Pharmaceuticals, Inc. — FY 2020 Form 10-K
Reporting period: Year ended December 31, 2020; filed February 12, 2021. This is an annual report, not a standalone fourth-quarter report. CNS is a clinical-stage drug developer focused on cancers of the brain and central nervous system. It had no approved products and generated no product revenue.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue from product sales | $0 | $0 |
| General and administrative expense | $4.39 million | $1.98 million |
| Research and development expense | $5.06 million | $1.85 million |
| Net loss | $9.46 million | $3.88 million |
| Loss per share, basic and diluted | $0.57 | $0.28 |
| Net cash used in operations | $7.32 million | $3.55 million |
| Cash and cash equivalents at year-end | $14.04 million | $7.24 million |
| Working capital at year-end | $13.59 million | Not clearly stated |
Total assets were $15.85 million and total liabilities were $1.91 million at December 31, 2020. Current liabilities included $439,294 of notes payable, due by September 30, 2021. The company reported no operating profit or positive operating cash flow; profit margins are not applicable given the absence of revenue.
Cash provided by financing activities was $14.13 million in 2020, including $14.22 million in net proceeds from stock and warrant issuances, partly offset by financing-related payments. Investing cash outflow was $17,945.
Material changes from 2019
- Net loss increased to $9.46 million from $3.88 million, principally reflecting expanded staffing and activity in preparation for clinical trials.
- R&D expense increased to $5.06 million from $1.85 million; G&A expense rose to $4.39 million from $1.98 million.
- Operating cash use more than doubled, from $3.55 million to $7.32 million.
- Cash increased following equity financing, including a December 2020 offering of 5.75 million shares at $2.00 per share, bundled with warrants exercisable at $2.20. The offering produced approximately $10.59 million in net proceeds. CNS also sold shares to Lincoln Park during 2020.
Outlook, development and risks
- Berubicin: The FDA’s IND for a recurrent glioblastoma study was in effect in December 2020. CNS planned to start a randomized Phase 2 trial in the first quarter of 2021, comparing Berubicin with lomustine, with overall survival as the primary endpoint and an interim analysis. The filing describes the trial as planned; it does not report that it had begun by year-end.
- Management estimated that approximately $18 million in additional financing would be needed to complete the Berubicin Phase 2 trial, plus approximately $2 million for near-term WP1244 preclinical work and additional operating capital. Cash was expected to fund planned operations through, but not beyond, 2021. The company had no commitment for the additional required funding.
- The auditor’s report highlights substantial doubt about the company’s ability to continue as a going concern, due to recurring operating losses. Management’s plans depend on obtaining additional financing; the financial statements contain no adjustments for a possible failure to continue as a going concern.
- The company reported promising but limited prior Phase 1 observations, including one durable complete response. These early results do not establish efficacy in later-stage trials. Berubicin received FDA Orphan Drug Designation for malignant gliomas, which is not marketing approval or a guarantee of exclusivity.
- Key risks include clinical-trial failure or delay, financing needs and potential dilution, dependence on third-party manufacturers, competition, and the March 2020 expiration of licensed U.S. patents. The company’s principal Berubicin protection is expected to rely on potential orphan-drug exclusivity if the product is approved.
- Other notable matters: the company disclosed related-party arrangements involving founder-affiliated entities; a May 2020 SEC trading suspension and subsequent Nasdaq halt; and ineffective internal controls due to insufficient segregation of duties and lack of formal control documentation. Management said it engaged an outside firm to assist with remediation.
- COVID-19 could hinder trial enrollment, regulatory interactions, and access to capital. The company had no manufacturing facilities or sales organization and relied on third parties for manufacturing.
Important facts for investors to verify
- Whether the planned Berubicin Phase 2 trial started on schedule, enrollment progress, and any updates to its design, endpoints, or costs.
- Available cash, actual operating runway, and the status, terms, and potential dilution of financing needed for the trial and WP1244 work.
- Clinical evidence supporting Berubicin’s safety and efficacy, especially the distinction between limited historical Phase 1 observations and results from the planned controlled study.
- Manufacturing supply and regulatory readiness, and the scope and durability of intellectual-property protection after patent expiry.
- Progress in remediating the material weakness in internal controls and any continuing effects of related-party transactions or the prior trading interruptions.