MediciNova, Inc. 2017 Second-Quarter Form 10-Q Summary
Business Context and Reporting Period
MediciNova is a clinical-stage biopharmaceutical company developing small-molecule therapeutics for serious diseases with unmet medical needs. Its principal programs are MN-166 (ibudilast) for neurological disorders and substance dependence, and MN-001 (tipelukast) for fibrotic diseases. The pipeline also includes MN-221 for acute asthma exacerbations and MN-029 for solid tumors.
This unaudited Form 10-Q covers the three and six months ended June 30, 2017. The company had 35,018,640 shares outstanding at June 30, 2017 and 35,068,662 shares outstanding as of July 26, 2017.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2017 | Six Months Ended June 30, 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research, development and patent expense | $0.9 million | $1.8 million |
| General and administrative expense | $1.9 million | $4.0 million |
| Total operating expenses | $2.8 million | $5.8 million |
| Net loss | $2.8 million | $5.8 million |
| Net loss per share | $0.08 | $0.17 |
| Net cash used in operating activities | Not separately provided | $4.0 million |
The company reported no revenue for either 2017 period. The Kissei agreement generated no revenue during the quarter or year to date; approximately $1.7 million remains recorded as long-term deferred revenue. Profit margins are not meaningful because the company had no revenue and continued to incur operating losses.
- Cash and cash equivalents were $22.9 million at June 30, 2017, compared with $24.1 million at December 31, 2016.
- Working capital was $21.9 million at June 30, 2017.
- Total assets were $38.5 million and total liabilities were $5.1 million.
- Stockholders’ equity was $33.4 million, including an accumulated deficit of $336.1 million.
- The filing does not disclose material interest-bearing debt; reported liabilities primarily consist of accounts payable, accrued expenses, deferred taxes and deferred revenue.
- Goodwill was $9.6 million and in-process research and development was $4.8 million, both subject to impairment considerations.
Material Changes Versus the Prior Comparable Period
- Six-month operating expenses declined to $5.8 million from $6.6 million, primarily because of lower performance-based stock compensation.
- Six-month research, development and patent expense declined to $1.8 million from $2.0 million.
- Six-month general and administrative expense declined to $4.0 million from $4.6 million.
- Six-month net loss improved to $5.8 million from $6.6 million, while loss per share improved to $0.17 from $0.21.
- Operating cash use increased modestly to $4.0 million from $3.9 million despite the lower net loss.
- Financing cash inflows declined to $2.7 million from $8.4 million. The 2017 proceeds primarily came from the sale of 482,187 shares under the at-the-market facility, compared with substantial warrant and option exercises in 2016.
- Shares used to calculate six-month loss per share increased to 34.6 million from 31.5 million, reflecting equity issuance and dilution.
- Stock-based compensation declined to $1.9 million for the first six months of 2017 from $2.8 million in the prior-year period.
Guidance, Outlook, Risks and Unusual Items
Management stated that available cash and working capital were expected to fund operations at least through December 31, 2019, but cautioned that available resources might not support all planned research and development programs. The company expects substantial net losses to continue for the next several years and anticipates increasing research and development spending as programs progress.
- Management intends to advance MN-166 through company-funded, investigator-sponsored and grant-supported clinical trials, including programs in progressive multiple sclerosis and ALS.
- Management plans to continue development of MN-001 in NASH and IPF and seeks strategic partnerships to support later-stage development and commercialization.
- On July 24, 2017, after the reporting period, MediciNova and Beijing Medfron agreed to dissolve the Zhejiang Sunmy China joint venture, subject to applicable Chinese regulatory approval. No MN-221 sublicense to the joint venture had been executed as of the filing date.
- The company raised approximately $2.8 million of gross proceeds through its at-the-market facility during the first six months, with approximately $2.7 million of net financing proceeds.
- Outstanding warrants at June 30, 2017 covered 869,047 shares and expire May 9, 2018, creating potential future dilution if exercised.
- Stockholders approved an additional 1.2 million shares for the 2013 Equity Incentive Plan. A total of 1,248,192 shares remained available for future grants at June 30, 2017.
- Key risks include clinical-trial failure or delay, regulatory nonapproval, inability to raise additional capital, dependence on MN-166 and MN-001, reliance on third parties, licensing and intellectual-property disputes, competition, product-market acceptance and loss of key personnel.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors and effective disclosure controls at the end of the quarter.
Important Facts for Investors to Verify
- Whether the stated cash runway through December 31, 2019 remains adequate under the company’s expanded clinical-development plans.
- Clinical-trial enrollment, timing, funding sources and results for MN-166 and MN-001.
- The status and regulatory approval of the proposed dissolution of Zhejiang Sunmy and any effect on MN-221 development in China.
- Remaining capacity under the $30.0 million at-the-market equity facility and the potential dilution from additional stock sales, options and warrants.
- The carrying value and impairment risk associated with $9.6 million of goodwill and $4.8 million of in-process research and development.
- The company’s ability to generate future revenue, given that no revenue was recorded in the current or prior comparable periods.