MediciNova, Inc. — Form 10-Q Summary
Business context and reporting period
MediciNova is a development-stage biopharmaceutical company focused on acquiring and developing small-molecule therapeutics, primarily through alliances with Japanese pharmaceutical companies. The filing covers the unaudited quarter and nine months ended September 30, 2011. The company had 16,088,015 common shares outstanding as of November 9, 2011.
Development priorities were MN-221 for acute asthma and COPD exacerbations and MN-166/AV411, an ibudilast-based program for multiple sclerosis and other central nervous system disorders. The company had no approved products and no product-sales revenue.
Key financial metrics
| Metric | Three months ended September 30, 2011 | Nine months ended September 30, 2011 | Comparable prior period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Research and development expense | $1.7 million | $6.3 million | $2.2 million and $7.4 million |
| General and administrative expense | $2.2 million | $6.3 million | $2.0 million and $6.1 million |
| Operating loss | $3.9 million | $12.6 million | $4.1 million and $13.5 million |
| Net loss | $3.9 million | $14.2 million | $5.7 million and $15.2 million |
| Net loss per share | $0.25 | $0.99 | $0.46 and $1.23 |
| Net cash used in operating activities | Not separately provided | $12.4 million | $14.1 million |
| Cash and cash equivalents | $8.7 million at September 30, 2011 | $28.3 million at December 31, 2010 |
Gross and operating margins are not meaningful because the company had no current-period revenue. The accumulated deficit was $281.8 million at September 30, 2011. Total assets were $24.6 million and stockholders’ equity was $19.3 million.
The company had no debt, convertible notes or restricted cash at September 30, 2011. This compares with $14.4 million of debt and $28.6 million of convertible notes at December 31, 2010. The Oxford loan was repaid in full on April 1, 2011.
Material changes versus the prior comparable period
- Quarterly net loss declined to $3.9 million from $5.7 million, while nine-month net loss declined to $14.2 million from $15.2 million.
- Quarterly research and development expense decreased by $0.5 million, primarily because of lower MN-221 spending and reduced personnel costs. Nine-month research and development expense decreased by $1.1 million.
- General and administrative expense increased by $0.2 million for both the quarter and nine-month period, reflecting higher compensation, bonuses, professional fees and China joint venture-related costs.
- Interest expense fell to zero in the quarter after the company eliminated its debt. Nine-month interest expense remained $1.1 million because it included interest and deferred interest paid before the April debt repayment.
- The company recorded a $493,000 debt-related charge for the nine months from writing off unamortized debt discounts and issuance costs upon early repayment.
- Cash declined by $19.5 million during the first nine months, from $28.3 million at December 31, 2010 to $8.7 million at September 30, 2011. Operating cash use was partly offset by approximately $7.8 million of net proceeds from common stock and warrant issuances, while $15.0 million was used to repay debt.
- In September 2011, the company received approval to form a China joint venture for MN-221 and recorded a $650,000 investment and corresponding capital contribution payable. The joint venture had not commenced operations by September 30.
Guidance, outlook, risks and unusual items
- Management expected MN-221-CL-007 enrollment to support completion in the first quarter of 2012, but stated that timing and costs remained uncertain because the trial is conducted in emergency rooms.
- The company began planning an additional Phase 1b COPD trial expected to begin enrollment in the fourth quarter of 2011. Management expected research and development spending on MN-221 to increase over the following two quarters.
- Significant further development of MN-166/AV411 was being deferred pending a strategic collaboration. The company continued seeking partners and opportunities to monetize non-prioritized programs.
- On October 13, 2011, after the reporting period, Kissei purchased 800,000 common shares at $2.50 per share and 220,000 Series B convertible preferred shares at $25.00 per share. The company received approximately $7.5 million in gross proceeds.
- Also on October 13, Kissei agreed to pay $2.5 million upfront for two clinical studies. The company will bear the related study costs. Management stated that these proceeds, together with available cash, were expected to fund operations as currently conducted for at least the following 12 months.
- The company terminated its at-the-market offering agreement in October 2011; no shares were issued under the agreement through termination.
- Management disclosed substantial recurring losses, continued dependence on external financing or partnerships, and potential going-concern pressure if adequate funds are unavailable. Failure to raise capital could require delays, reductions or termination of development programs and could jeopardize license rights.
- A former employee filed a California lawsuit concerning the work environment and termination following a January 2011 reduction-in-force. No loss range could be estimated, although management did not expect a material adverse effect on the financial statements.
- Key risks include clinical-trial delays or failure, regulatory nonapproval, dependence on third-party contract research organizations and manufacturers, reliance on licensed intellectual property, inability to secure strategic collaborations, dilution from future financing, and volatility in the company’s stock price.
- Management concluded that disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2011, with no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the October 2011 Kissei financing and $2.5 million clinical development payment were received as described and how they affected post-quarter cash runway.
- Actual cash burn, remaining cash, and financing requirements relative to the stated objective of funding operations through at least September 30, 2012.
- Enrollment progress, completion timing and clinical results for MN-221-CL-007 and the planned COPD Phase 1b study.
- Whether MediciNova secured a strategic partner for MN-166/AV411 or other programs, and the resulting development obligations and economics.
- The terms, conversion features and potential dilution associated with Kissei’s Series B preferred shares and outstanding warrants and stock options.
- The status and potential exposure of the former-employee litigation and any other legal or contractual contingencies.