Filing summary
Entity discrepancy: The supplied filing is a Form 10-Q for Coronado Biosciences, Inc., not Fortress Biotech, Inc. It covers the quarter and nine months ended September 30, 2014; the interim financial statements are unaudited.
Business context and reporting period
Coronado is a development-stage biopharmaceutical company pursuing immunotherapy candidates TSO (CNDO-201) and CNDO-109, while also seeking to diversify through licensing, acquisitions, and investments. The company reported no operating revenue and an accumulated deficit of $138.0 million.
Financial performance and position
- Q3 2014: R&D expense was $1.6 million versus $5.4 million a year earlier; G&A was $2.7 million versus $2.1 million. Operating loss was $4.3 million versus $7.5 million, and net loss was $4.6 million, or $0.13 per share, versus $7.8 million, or $0.24 per share.
- Nine months ended September 30: R&D expense was $8.5 million versus $19.1 million; G&A was $7.2 million versus $7.1 million. Operating loss was $15.7 million versus $26.3 million, and net loss was $16.7 million, or $0.46 per share, versus $27.4 million, or $0.95 per share.
- Cash flows, nine months: Operating cash used was $12.8 million versus $22.5 million; investing cash used was $0.6 million versus $0.2 million; financing cash used was $14.5 million versus $88.8 million provided. Cash and cash equivalents declined by $27.9 million to $71.6 million.
- Liquidity and debt: At September 30, cash and cash equivalents were $71.6 million, restricted cash was $15.4 million, and current liabilities were $3.6 million. Total liabilities were $18.7 million. The $14.0 million IDB Note was secured by pledged cash; restricted cash also included $1.4 million pledged for a lease-related line of credit.
- Margins: Not meaningful because the company had no operating revenue.
- Equity and dilution: Shares issued and outstanding were 44.3 million at September 30, up from 39.7 million at December 31, 2013. The filing reports 8.3 million unvested restricted shares outstanding.
Material changes versus prior comparable periods
- Net loss narrowed year over year in both Q3 and the nine-month period, primarily as R&D spending fell with the wind-down of the TRUST-I study and reduced TSO development activity. Lower interest expense also helped the quarterly comparison.
- G&A rose 28% in Q3, mainly due to stock-based compensation from 2014 restricted-stock grants; nine-month G&A was nearly unchanged.
- Cash and cash equivalents fell from $99.5 million at December 31, 2013 to $71.6 million at September 30, 2014. The 2014 financing comparison also reflects the absence of the substantial equity proceeds raised in the first nine months of 2013.
- The company repaid the Hercules loan and replaced it with the IDB Note, with $14.0 million outstanding at quarter-end. It also recorded a $0.293 million loss after an option to acquire a third-party product expired unexercised.
Outlook, risks, contingencies, and unusual items
- Management said existing cash was expected to fund operations for at least the next 12 months, but warned that additional financing may be needed and may not be available on acceptable terms. Without funding, programs or the growth strategy could be delayed, curtailed, or eliminated.
- Clinical risk is significant: TRUST-I did not meet its primary endpoint, and the TRUST-II monitoring committee recommended stopping the study for lack of efficacy, although it noted no safety concerns. The company was evaluating the data and focused on investigator-initiated TSO studies in psoriasis and autism; a Phase 2a autism trial began in May 2014.
- Management expected continuing R&D costs and potentially higher future costs as programs advance, as well as higher G&A associated with development, business development, and public-company compliance.
- Unusual charges included approximately $0.8 million of lease and asset impairment costs related to abandoning the Woburn manufacturing build-out and closing the New York office, a $0.167 million termination fee for the Freie Universität Berlin research agreement, and $0.293 million from the expired product option.
- Subsequent to quarter-end, the company entered a 15-year New York office lease at average annual rent of $2.7 million. It expected to occupy the space in late 2015 or early 2016; desk-space arrangements with Opus Point Partners and TG Therapeutics were expected to offset part of the rent. The filing identifies relationships between company executives and these counterparties.
- The IDB Note’s interest rate varies with the pledged account rate, currently 0.75%, plus 1.50%; higher account rates would increase borrowing costs. The company disclosed no off-balance-sheet arrangements or legal proceedings and reported disclosure controls as effective.
Important facts for investors to verify
- Confirm the issuer identity: this filing names Coronado Biosciences, Inc., not Fortress Biotech, Inc.
- Review current clinical status and data for TSO and CNDO-109, particularly following the TRUST-I and TRUST-II outcomes.
- Verify the cash runway, restrictions on pledged cash, IDB Note terms, and the availability and cost of future financing.
- Assess the New York lease obligations, sublease or desk-space recoveries, termination provisions, and related-party arrangements.
- Review the valuation and collectability of the third-party investments and bridge loan, and the potential dilution from equity awards and future financing.