Business context and reporting period
Entity discrepancy: The supplied filing is for Coronado Biosciences, Inc. and its subsidiary, not Fortress Biotech, Inc. It is an unaudited Form 10-Q for the quarter and nine months ended September 30, 2013; the company described itself as a development-stage biopharmaceutical business.
Coronado was developing TSO (CNDO-201) for autoimmune diseases and CNDO-109 for acute myeloid leukemia. It had not generated revenue since inception.
Financial results and position
Unless indicated otherwise, amounts are in U.S. dollars.
- Revenue and margins: No revenue was reported; profit margins are not meaningful for this pre-commercial company.
- Third quarter: R&D expense was $5.36 million, up 42% from $3.78 million a year earlier; G&A was $2.14 million, up 4%. Operating loss was $7.50 million versus $5.83 million, and net loss was $7.83 million versus $5.94 million. Basic and diluted loss per share was $0.24 in both periods.
- First nine months: R&D expense was $19.13 million, up 48%; G&A was $7.13 million, up 19%. Operating loss was $26.26 million versus $18.88 million, and net loss was $27.36 million versus $18.95 million. Loss per share was $0.95 versus $0.91.
- Cash flow: Nine-month operating cash use was $22.51 million, compared with $16.09 million in 2012; investing cash use was $0.19 million. Financing provided $88.77 million, primarily from ATM stock sales. Cash increased $66.07 million to $106.27 million.
- Liquidity and debt: At September 30, cash and cash equivalents were $106.27 million and current liabilities were $9.64 million. The Hercules note was reported at $6.06 million current and $8.41 million noncurrent, net of debt discount. The company made its first $0.45 million principal payment on October 1. Management said cash on hand was expected to fund operations for at least 12 months.
- Equity and dilution: Coronado raised $88.0 million net through ATM stock sales during the nine months and sold another $1.4 million net through October 2. Common shares outstanding rose from 24.40 million at year-end 2012 to 35.26 million at September 30, 2013.
Material changes, outlook and risks
- R&D spending rose mainly due to the TSO Crohn’s disease Phase 2 study, staffing and compensation, and construction of a Woburn manufacturing facility. Increased spending was partly offset by milestone payments, primarily to Falk, recorded in 2012.
- On October 14, 2013, after quarter-end, Coronado reported that the TRUST-I Phase 2 study of TSO in Crohn’s disease missed its primary response endpoint and key secondary remission endpoint. Overall response did not separate from placebo. A predefined subgroup with higher disease activity showed a non-significant response improvement; management attributed the overall result in part to a higher-than-expected placebo response in patients with lower disease activity. TSO was described as safe and well tolerated, with adverse events balanced between groups.
- Falk was conducting the European TRUST-II study; a second interim analysis was expected in the fourth quarter of 2013. Management was reviewing TRUST-I and other data and said it would determine TSO’s future development plan after considering TRUST-II results. Until then, it did not expect current expenditure levels to increase over the next 12 months.
- Management cautioned that further financing would be needed to fully develop and potentially commercialize candidates. It warned that financing may not be available on acceptable terms, particularly after TRUST-I; without adequate funds, programs could be delayed, reduced or eliminated, or strategic alternatives pursued.
- Key risks include early-stage development and regulatory uncertainty, reliance on collaboration partners, and dependence on third-party manufacturing. Ovamed was the sole TSO supplier, producing it at one facility in Germany; interruptions could disrupt development. The filing also disclosed reliance on third parties for CNDO-109 supplies.
- Following the TRUST-I announcement, the filing reported that the share price fell 70%, from $5.77 on October 11 to $1.72 on October 21, 2013. The company had up to $53.7 million remaining under its Amended 2013 ATM as of October 30.
- Other disclosed items included $4.07 million of nine-month stock-based compensation and $9.1 million of unrecognized compensation expense expected to be recognized over a weighted-average 1.5 years. No legal proceedings or off-balance-sheet arrangements were reported; management said disclosure controls were effective.
Important facts for investors to verify
- Confirm the intended issuer: this filing is Coronado Biosciences, not Fortress Biotech.
- Review TRUST-I’s full results and any subsequent decision on TSO development, including TRUST-II findings.
- Assess cash burn, the stated 12-month runway, future financing needs and ATM share issuance capacity.
- Verify the Hercules note’s repayment schedule, interest-rate terms and the impact of debt service on liquidity.
- Evaluate manufacturing concentration and the status and cost of the Woburn facility build-out.