Filing summary
Issuer mismatch: The supplied 10-Q is for StemCells, Inc., not Microbot Medical Inc. It covers the quarter ended September 30, 2014, and was signed November 13, 2014.
Business context and reporting period
StemCells was a pre-commercial biopharmaceutical company developing HuCNS-SC neural stem cells for central nervous system conditions, alongside a small stem-cell research-products business. It reported unaudited results for the three and nine months ended September 30, 2014, compared with the same periods in 2013.
Financial performance and position
| Metric | Q3 2014 | Nine months 2014 |
|---|---|---|
| Revenue | $270,000 | $851,000 |
| Gross profit | $212,000 | $628,000 |
| Operating loss | $6.52 million | $21.52 million |
| Net loss | $2.76 million | $22.49 million |
| Net loss per share | $0.04 | $0.38 |
| Cash used in operations | Not separately stated | $20.96 million |
- At September 30, cash and cash equivalents were $32.21 million, versus $30.59 million at December 31, 2013. Total current assets were $33.56 million and current liabilities $7.87 million.
- Loan payable, net of discount, totaled $15.97 million, including $3.92 million current and $12.05 million non-current. The company also had $4.01 million in warrant liabilities. Rhode Island bonds were paid off in August 2014.
- Gross profit as a share of total revenue was about 78% in both periods; product-sales cost was the reported cost of revenue. Revenue was modest relative to research and development spending.
Material changes versus prior comparable periods
- Q3 revenue fell 17% year over year, primarily because SC Proven product volumes declined. Nine-month revenue fell 4%.
- Q3 operating expenses declined 2%; lower R&D costs were partly offset by higher SG&A. For the first nine months, operating expenses rose 12%, including R&D up 8% and SG&A up 25%.
- Q3 net loss narrowed from $7.19 million to $2.76 million, mainly because a $4.08 million non-cash gain from remeasuring warrant liabilities replaced a prior-year expense. The nine-month net loss widened from $19.48 million to $22.49 million.
- Nine-month operating cash use increased 28% year over year. Financing provided $23.19 million, including equity and warrant proceeds and CIRM loan disbursements. The July equity-and-warrant offering raised $20 million gross and contributed to share-count growth; period-end shares were 68.66 million, versus 55.14 million at year-end 2013.
Outlook, commentary, risks, and unusual items
- Management expected substantial operating losses to continue and did not expect profitability in the next several years. It said significant additional capital would be needed; financing may not be available on acceptable terms, and a funding shortfall could force delays, reductions, or elimination of programs and potentially threaten the ability to meet obligations.
- Clinical updates: enrollment in the chronic spinal cord injury Phase I/II study was completed; final results were expected in mid-2015. A Phase II cervical spinal cord injury study began in October 2014. The dry AMD Phase I/II trial closed enrollment following positive interim results, with a follow-on Phase II study planned for later 2014 or early 2015. These are management-reported interim findings, not proof of efficacy.
- The CIRM forgivable loan could provide up to approximately $19.3 million for Alzheimer’s disease preclinical work, subject to milestones and other conditions; approximately $9.6 million was recorded as its carrying value at September 30.
- On November 10, 2014, StemCells agreed to license and transfer specified SC Proven research-tools assets to Takara Bio for $800,000, with worldwide exclusivity in that field beginning January 1, 2015. The company anticipated winding down the related business after inventory disposition and technology transfer.
- Neuralstem patent litigation remained pending, with the first trial phase expected to begin in December 2014. Management reported no material change to the risk factors in its 2013 Form 10-K. Long-term facility leases and other contractual cash obligations totaled $23.60 million.
- Warrant remeasurement gains or losses are non-cash and can materially affect reported earnings. Clinical, regulatory, financing, intellectual-property, and potential asset-impairment risks remain significant.
Important facts for investors to verify
- Confirm issuer identity: this filing is StemCells, Inc., not Microbot Medical Inc.
- Assess cash runway against the reported $20.96 million nine-month operating cash burn and management’s stated need for additional financing.
- Review the terms, potential dilution, and exercise status of the July 2014 warrants and other outstanding securities.
- Track clinical-trial progress and distinguish interim results from final, controlled efficacy and safety data.
- Verify completion and accounting effects of the Takara transaction and the planned SC Proven business wind-down.
- Monitor the Neuralstem litigation and the timing and possible consequences of trial proceedings.