Filing summary
Issuer and period: The supplied filing is StemCells, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2013; it is not a Microbot Medical filing. The summary below reflects the filing’s stated issuer.
Business context
StemCells was a biopharmaceutical company developing cell-based therapeutics and stem-cell research products. Its lead HuCNS-SC human neural stem-cell candidate was in clinical development for chronic spinal cord injury, dry age-related macular degeneration (AMD), and Pelizaeus-Merzbacher disease (PMD). The company also sold cell-culture products and earned licensing and grant revenue.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Total revenue | $284,200 | $644,036; down 56% |
| Product sales | $208,558 | $271,359; down 23% |
| Licensing, grants and other revenue | $75,642 | $372,677; down 80% |
| Gross profit | $217,359 | $572,077 |
| Research and development expense | $4,563,890 | $3,938,391; up 16% |
| Selling, general and administrative expense | $1,887,757 | $1,924,325 |
| Operating loss | $(6,257,147) | $(5,325,794) |
| Net loss | $(6,416,447), or $(0.17) per share | $(10,229,439), or $(0.45) per share |
| Net cash used in operations | $(6,652,063) | $(5,630,679) |
Gross margin, calculated as gross profit divided by total revenue, was approximately 76% versus 89% in Q1 2012. The smaller net loss year over year primarily reflected a much smaller noncash loss from remeasuring warrant liabilities, not improved operating results.
At March 31, cash and cash equivalents were $7.23 million and current marketable securities were $9.82 million, totaling $17.05 million. Current assets were $18.61 million and current liabilities were $3.74 million. Total liabilities were $14.56 million, including a $9.04 million warrant liability. Bonds payable totaled $281,250; capital lease obligations totaled about $17,859. Cash and cash equivalents declined from $8.47 million at year-end 2012. The company reported $6.65 million of operating cash use, partly offset by $3.70 million of investing inflows and $1.72 million of financing inflows.
Changes, outlook and risks
- Revenue fell mainly because Q1 2012 included licensing fees from a genOway agreement; product revenue also declined, primarily due to lower SC Proven product volumes. R&D spending rose chiefly from external preclinical services and supplies supporting quality control, process development and manufacturing.
- Management expected substantial operating losses to continue and said significant additional capital was needed. It warned that inability to obtain financing could force delays or reductions in research and clinical programs and, if cash were exhausted without adequate financing, could lead to bankruptcy proceedings. The filing gives no specific profitability or revenue guidance.
- After quarter-end, the company received approximately $9.9 million net under a three-year Silicon Valley Bank loan at 6% annual interest, with six months of interest-only payments, 30 months of principal and interest repayment, and a $1 million final fee. It also issued the lender a 10-year warrant for 293,531 shares at $1.7034 per share.
- In April 2013, the company entered a CIRM agreement for approximately $19.3 million in conditional, periodically disbursed forgivable-loan funding for Alzheimer’s preclinical and IND-enabling work. Funding depends on milestones, financial covenants and other conditions; the stated goal was an IND filing within four years. The company had elected not to borrow under a separate CIRM award for spinal-cord-injury work.
- Clinical commentary included favorable safety findings in the first spinal-cord-injury cohort; sensory-function gains observed in two of three patients at six months persisted at 12 months, while the third remained stable. These early findings do not establish efficacy. A second AMD trial site was added in April.
- Material risks include clinical and regulatory uncertainty, financing needs, the possibility of further dilution, dependence on future partnerships or funding, and the uncertain validity and enforceability of patents. Neuralstem patent litigation remained ongoing, with trial anticipated in 2014. The company also carried substantial operating-lease commitments, including a new 10-year Sunnyvale lease commencing April 1, 2013.
Important facts for investors to verify
- Confirm issuer identity: the source is StemCells, Inc., despite the request metadata naming Microbot Medical.
- Review the conditions, disbursement schedule and forgiveness provisions for the CIRM award, and the full cost and covenants of the SVB loan.
- Assess cash consumption against available liquidity and financing needs; the reported quarter-end cash and securities do not include the subsequent SVB loan proceeds.
- Check clinical-trial updates and regulatory status independently; the reported patient observations were preliminary and do not demonstrate treatment efficacy.
- Evaluate potential dilution from the outstanding warrants, options and restricted stock units, and monitor the Neuralstem litigation and long-term lease obligations.