Business Context and Reporting Period
Emerald Bioscience, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. The filing describes a pre-revenue biopharmaceutical company developing cannabinoid-based therapeutics under University of Mississippi licenses. The request metadata names Skye Bioscience, but the filing identifies the registrant as Emerald Bioscience, Inc.; investors should confirm the filing-company match.
Key Financial Metrics
| Metric | Period / date | Reported result |
|---|---|---|
| Revenue | Three and nine months ended September 30, 2019 | None; the company said it did not expect product revenue in the near future. |
| Research and development | Q3 2019; nine months 2019 | $513,004; $1,522,031 |
| General and administrative | Q3 2019; nine months 2019 | $990,110; $3,267,037 |
| Operating loss | Q3 2019; nine months 2019 | $1,503,114; $4,789,068 |
| Net loss | Q3 2019; nine months 2019 | $4,931,125; $3,800,227 |
| Loss per share, basic and diluted | Q3 2019; nine months 2019 | $0.04; $0.03 |
| Operating cash flow | Nine months 2019 | $(4,524,712) |
| Cash and restricted cash | September 30, 2019 | $1,323,872, including $1,319,360 cash |
| Working capital | September 30, 2019 | Deficit of $12,540,955 |
| Related-party convertible debt | September 30, 2019 | $6,000,000 principal; $3,296,249 carrying value net of discounts and costs |
| Total assets / liabilities | September 30, 2019 | $1,725,037 / $18,127,498 |
Gross margin is not applicable because the company had no revenue. The filing does not provide a cash runway estimate. Stockholders’ deficit was $16,402,461 and accumulated deficit was $37,025,334. The company reported no material off-balance-sheet arrangements.
Material Changes Versus Prior Comparable Period
- Q3 operating expenses rose to $1.50 million from $1.05 million in Q3 2018, largely because R&D increased to $513,004 from $67,291; G&A was broadly unchanged.
- Q3 net loss widened to $4.93 million from $2.10 million. A $3.13 million increase in derivative-liability fair value, attributed by management primarily to a higher share price, was the main unusual expense.
- For the nine months, operating expenses rose to $4.79 million from $3.38 million, primarily reflecting expanded R&D. Net loss narrowed to $3.80 million from $12.97 million, mainly because of a favorable derivative-liability fair-value change and the absence of prior-year financing-related charges.
- Operating cash use increased to $4.52 million from $2.93 million. Financing provided $3.99 million in net proceeds from the Emerald Health Sciences credit facility; cash declined from $1.86 million at year-end 2018.
- Related-party credit facility principal increased from $2 million at December 31, 2018 to $6 million at September 30, 2019. The facility’s $20 million maximum was subject to board approval, and $14 million remained unused at quarter-end.
Outlook, Commentary, Risks, and Unusual Items
- Management stated that existing funds would not be sufficient to meet obligations beyond one year after issuance of the financial statements without additional funding. The company disclosed substantial doubt about its ability to continue as a going concern.
- The company expected continued losses and significant R&D, public-company, and staffing costs. It warned that unavailable financing could force spending reductions, program delays or curtailment, asset sales, or cessation of operations; equity financing could dilute shareholders.
- Management anticipated launching an NB1111 first-in-human clinical trial in Australia in the second half of 2020, subject to development and regulatory progress. NB1111 is being developed for glaucoma or ocular hypertension. Reported preclinical findings included reduced intraocular pressure in animal and laboratory models; these are not clinical efficacy results.
- In May 2019, licenses for UM 5050 and UM 8930 were expanded from ocular use to all fields of use. The company also described development work on NB2222 and NB3111. License obligations include fees, milestones, royalties, and patent-cost reimbursement.
- A Form S-1/A filed in October 2019 was declared effective October 28; the company said a securities sale was expected as soon as practicable, subject to market conditions, but gave no assurance it would raise capital.
- Key risks include early-stage drug development and regulatory approval, dependence on UM and outside contractors, financing needs, and the possibility that U.S. regulators may not accept data from trials conducted in Australia. The company also noted uncertainty about eligibility for Australia’s R&D tax credit.
- Derivative liabilities totaled $14.31 million, mostly current. Their Level 3 fair values depend on estimates and market-sensitive assumptions. The stated fair value of credit-facility advances was $8.25 million, versus a $3.30 million carrying value.
Important Facts for Investors to Verify
- Confirm that Emerald Bioscience, Inc. is the intended issuer, given the request metadata’s different company name.
- Review financing availability, board approval conditions, and terms and status of the proposed registered offering; assess the going-concern warning against current funding needs.
- Check the credit facility’s conversion, default, interest, and warrant provisions, including dilution exposure. At quarter-end, 57,943,250 warrants were outstanding; the filing also reported 4,512,715 options and 15 million shares underlying convertible debt among potential equivalents.
- Track clinical, manufacturing, and regulatory milestones for NB1111 and whether Australian trial data will meet FDA requirements.
- Assess the sensitivity of derivative-liability valuations and earnings to share-price changes, and distinguish non-cash fair-value effects from operating cash consumption.