Eledon Pharmaceuticals, Inc. quarterly report, Q2 FY2018

Eledon Pharmaceuticals, Inc. — Filing identity notice

The supplied filing is Novus Therapeutics, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2018, filed August 6, 2018. It does not appear to be an Eledon Pharmaceuticals filing; investors should verify the issuer and filing before relying on this summary.

Business context and reporting period

Novus is a development-stage specialty pharmaceutical company focused on ear, nose and throat disorders. Its lead candidate, OP-02, is a surfactant-based product in development for otitis media; OP-01, a foam-based drug-delivery platform, was paused in 2017 while resources focused on OP-02. Novus had no approved products or product revenue.

Financial performance and position

Amounts below are in millions of dollars unless otherwise stated. For Q2 2018, research and development expense was $1.329 million and general and administrative expense was $1.860 million. Total operating expenses and net loss were each $3.189 million, compared with $6.666 million and $6.662 million, respectively, in Q2 2017. Basic and diluted loss per share was $0.34, versus $1.32.

For the six months ended June 30, 2018, R&D expense was $2.426 million, G&A expense was $3.558 million, and net loss was $5.995 million, compared with $1.012 million, $7.039 million and $8.036 million, respectively, in 2017. Six-month loss per share was $0.70, versus $2.51. No revenue or meaningful operating margin was reported.

Cash was $19.189 million at June 30, 2018, up from $17.233 million at December 31, 2017; working capital was $19.6 million. Six-month operating cash use was $5.605 million, financing provided $7.491 million net, and investing cash flow was zero. Cash and restricted cash increased by $1.886 million. The company reported no debt; total liabilities were $1.452 million, all classified as current.

Material changes versus the prior comparable period

  • Q2 R&D expense increased $0.796 million (149%); management attributed the increase mainly to $0.603 million in OP-02 formulation development and $0.194 million in personnel costs. Six-month R&D rose $1.414 million (140%), primarily due to formulation development and staffing.
  • Q2 G&A expense fell $4.273 million (70%), and six-month G&A fell $3.481 million (49%), primarily because 2017 included non-recurring merger expenses. Increases in public-company costs, stock compensation and litigation costs partly offset the declines.
  • Net loss narrowed year over year, but the comparison is affected by 2017 merger-related costs and changes in weighted-average shares. Common shares outstanding rose from 7.11 million at year-end 2017 to 9.41 million at June 30, 2018.
  • Six-month operating cash use declined from $8.913 million in 2017 to $5.605 million in 2018. 2017 investing cash flow included $23.250 million received in the reverse merger, so the periods’ total cash movements are not directly comparable.

Outlook, risks and unusual items

  • Management expected to initiate an OP-02 Phase 1 program in 2018, conditional on completing formulation development and manufacturing a cGMP clinical batch. The filing states that no suitable cGMP batch had yet been manufactured and OP-02 had not been tested in humans.
  • The company expected R&D spending to rise as OP-02 advanced. It believed existing cash would fund operations for at least 12 months from issuance of the statements and concluded substantial doubt about going concern did not exist; it also said additional funding would be needed to complete development and commercialization.
  • On July 23, 2018, Novus filed a prospectus supplement permitting up to $9.8 million of additional common-stock sales through its sales agent. Such sales could dilute shareholders. The previous $8.5 million offering capacity had been used by March 2018.
  • Key risks include formulation and clinical failure or delay, regulatory approval, reliance on third-party manufacturers and CROs, need for future financing, and potential dilution. OP-01 development remained paused.
  • Tokai-related securities litigation remained unresolved. A consolidated complaint in Massachusetts state court was scheduled for defendants’ dismissal motions; the company said it could not predict the outcome or estimate a reasonably possible loss. No litigation liability was accrued. The Doshi and Garbowski actions were dismissed without prejudice.
  • The company’s Israeli Innovation Authority grants could become repayable from royalties if products are developed and generate sales; no liability was recorded because no sales had been generated. The OP-02 license also provides for potential development, regulatory and sales milestones and royalties; no milestones were achieved in the first half of 2018.

Important facts for investors to verify

  • Confirm that this Novus filing, rather than an Eledon filing, is the intended document.
  • Check whether Novus completed OP-02 formulation work, produced a cGMP batch and began the planned Phase 1 program.
  • Review cash burn, subsequent financing and dilution, including any sales under the additional $9.8 million prospectus supplement.
  • Track the Massachusetts securities litigation and any change in the company’s ability to estimate or accrue potential losses.
  • Assess whether cash runway assumptions remain valid as R&D spending rises and whether the company secured further funding or partnerships.