Alzamend Neuro, Inc. — Form 10-Q Summary
Reporting period: The filing covers the three months ended July 31, 2021 (the company’s fiscal first quarter), compared with the three months ended July 31, 2020. The filing was signed September 13, 2021.
Business context
Alzamend is an early clinical-stage biopharmaceutical company focused on Alzheimer’s disease and other neurodegenerative and psychiatric disorders. Its two candidates are AL001, an oral lithium-based ionic cocrystal, and AL002, a cell-based therapeutic vaccine. The company had no product revenue and said it expects none for the foreseeable future.
Financial performance and liquidity
| Metric | Three months ended July 31, 2021 | Prior-year period |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $916,408 | $308,846 |
| General and administrative expense | $1,389,831 | $1,009,461 |
| Operating loss | $2,306,239 | $1,318,307 |
| Net loss | $2,319,867 | $1,316,752 |
| Basic and diluted loss per share | $0.03 | $0.02 |
| Net cash used in operating activities | $1,222,664 | $205,096 |
At July 31, 2021, cash was $15.6 million, total current assets were $16.8 million, and current liabilities were $1.47 million. Current liabilities included $340,098 of convertible notes, net, and $1.07 million of accounts payable and accrued liabilities. The company reported no revenue, so operating margins are not meaningful. Accumulated deficit was $19.2 million.
Material changes and financing
- R&D expense increased 197% year over year, principally reflecting scientific and FDA-related services, AL001 chemistry, manufacturing and controls work, and stock compensation.
- G&A expense rose 38%, with increases in professional fees, salaries and benefits, and other costs.
- Operating cash use increased to $1.22 million from $205,096. Financing provided $14.9 million, primarily from the IPO and a related-party securities purchase.
- The June 2021 IPO sold 2.875 million shares at $5.00 per share and generated $12.9 million net proceeds. In July, Digital Power Lending (DPL), a related party, purchased 1.33 million shares for $2 million and received warrants. The quarter-end common shares outstanding were 86.9 million, versus 67.4 million at April 30, 2021.
- All 750,000 Series A preferred shares converted into 15 million common shares in connection with the IPO. A related-party note receivable of $14.88 million remained outstanding and was recorded as an offset to additional paid-in capital; its maturity was extended to December 31, 2023.
Outlook, risks and unusual items
- The FDA issued a “Study May Proceed” letter for AL001’s Phase Ia study on July 28, 2021. The company later reported that a six-month Phase I relative bioavailability study began September 10, 2021. AL002’s preclinical work was completed, and the company submitted a pre-IND meeting request in July.
- Management expects continued losses and says additional capital will be needed to fund development and commercial operations. It nevertheless believes July 31 cash is sufficient for anticipated requirements for the twelve months following issuance of the financial statements. No revenue, earnings, or clinical-development guidance with quantified targets was provided.
- Development depends on clinical and regulatory progress, future financing, and meeting license milestones. Failure to meet specified milestones may allow the licensor to terminate licenses; the agreements also provide for future milestone payments and royalties.
- COVID-19 previously delayed AL001 development and manufacturing work and AL002 preclinical studies. The filing says operations at the company and third-party facilities were approaching pre-pandemic levels, but future effects remained uncertain.
- Stock-based compensation was $739,622, a substantial non-cash expense. Management disclosed a material weakness in internal control over financial reporting related to insufficient accounting resources and procedures; remediation efforts were underway, with no material control change reported during the quarter.
- The company disclosed no material legal proceedings and no material off-balance-sheet arrangements. It reported no defaults upon senior securities.
Important facts for investors to verify
- Clinical-trial timing, results, regulatory progress, and required license milestones for AL001 and AL002.
- Cash burn and financing needs relative to management’s stated twelve-month liquidity assessment, including whether the remaining DPL funding tranches are completed.
- Terms, collectability, and related-party implications of the $14.88 million note receivable and other related-party transactions.
- Potential dilution from outstanding options and warrants, as well as future equity financing.
- Progress and effectiveness of remediation of the disclosed material weakness in financial reporting controls.