Business context and reporting period
The supplied filing is Coronado Biosciences, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2012—not a Fortress Biotech filing. The company describes itself as a development-stage biopharmaceutical business developing TSO (CNDO-201) for autoimmune diseases and CNDO-109 for acute myeloid leukemia. It had not begun planned principal operations and had generated no revenue.
Financial results and liquidity
Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise. As a development-stage company with no revenue, operating margins are not meaningful.
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $3.777 | $1.753 | $12.893 | $5.141 |
| General and administrative expense | $2.054 | $1.778 | $5.984 | $3.965 |
| Operating loss | $(5.831) | $(3.531) | $(18.877) | $(29.812) |
| Net loss | $(5.935) | $(3.365) | $(18.945) | $(29.641) |
| Net loss per common share | $(0.24) | $(0.48) | $(0.91) | $(6.02) |
At September 30, 2012, cash and cash equivalents were $47.478 million, total current assets $47.995 million, current liabilities $4.465 million, total liabilities $18.957 million and stockholders’ equity $29.128 million. Cash used in operating activities was $16.089 million for the first nine months, versus $7.291 million in the comparable 2011 period. Financing activities provided $40.407 million; cash increased $24.318 million to $47.478 million.
The company received $26.4 million net from its June 2012 common-stock offering and $14.7 million net from a $15 million Hercules term loan in August. The loan matures March 1, 2016, bears interest at a rate of at least 9.25%, is secured by substantially all company assets other than intellectual property, and requires interest-only payments for the first 12 months. The company repaid a $750,000 related-party note plus accrued interest in September.
Material changes versus prior comparable periods
- Q3 R&D expense rose 115%, primarily reflecting increased TSO development costs as the Crohn’s disease Phase 2 trial began; Q3 net loss increased 76%.
- Nine-month R&D expense rose 151%, including $3.4 million of Falk collaboration milestone costs. G&A expense rose 51%, including higher personnel and stock-based compensation costs.
- Nine-month operating loss and net loss were lower than in 2011, but the comparison is affected by a $20.706 million acquired in-process R&D charge in 2011. The 2011 loss attributable to common stock also included a $5.861 million preferred-stock dividend; there was no such charge in 2012.
- Basic and diluted weighted-average shares increased substantially: 24.4 million in Q3 2012 versus 7.0 million in Q3 2011, reflecting equity issuance and share history.
Outlook, risks and unusual items
- Management estimated existing cash would fund operations into the first quarter of 2014 under its current business plan. It said additional financing would be needed to advance development, obtain regulatory approvals, fund losses and potentially support commercialization; financing may be unavailable or dilutive.
- Management expected R&D spending to increase as the TSO Phase 2 trial continued and the planned CNDO-109 Phase 1/2 trial commenced. The filing provides no product revenue or profitability guidance.
- Contractual obligations totaled $41.919 million, excluding contingent milestone payments, including $18.707 million of note and interest payments, $14.036 million of purchase and other obligations, $8.700 million of projected annual license fees and $0.476 million of operating leases. Purchase obligations included approximately $11.8 million related to the TSO Phase 2 trial and $1.9 million for the planned CNDO-109 trial.
- Key risks include clinical and regulatory failure, dependence on third-party manufacturers, and reliance on OvaMed as the sole TSO supplier at one German facility. The Hercules loan carries asset liens and restrictive covenants; default could permit acceleration and enforcement against collateral.
- The filing reports $1.5 million payable to OvaMed in November 2012 for a milestone, and describes further contingent TSO and CNDO-109 license or collaboration payments. It also cites the prior auditor’s going-concern explanatory paragraph and substantial doubt about continued operations, while noting the recent financing and management’s cash-runway estimate.
- The company reported effective disclosure controls as of September 30, 2012, no changes in internal control over financial reporting, and no legal proceedings.
Important facts for investors to verify
- Confirm issuer identity: the supplied 10-Q names Coronado Biosciences, Inc.; the request metadata names Fortress Biotech, Inc.
- Check subsequent cash use, financing, and whether the stated first-quarter 2014 runway estimate was achieved.
- Review TSO and CNDO-109 trial progress, safety and efficacy disclosures, and any regulatory developments.
- Verify supplier continuity and obligations to OvaMed, Falk and licensors, including contingent milestones and the stated contractual-payment schedule.
- Assess Hercules loan terms, repayment capacity, covenant compliance and collateral exposure, as well as potential dilution from outstanding options and warrants.