Business Context and Reporting Period
Company: NanoViricides, Inc. (NNVC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2010
Business Stage: Development Stage Company
Operations: NanoViricides is a nano-biopharmaceutical company focused on discovering, developing, and commercializing therapeutics for life-threatening viral infections (including HIV, Hepatitis, Influenza, Herpes, and Ebola). The company holds exclusive perpetual licenses from TheraCour Pharma, Inc. for its core technologies. As of the reporting date, the company has generated no revenues and has not commenced product commercialization.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2010 | Three Months Ended Sep 30, 2009 | Cumulative (Inception to Sep 30, 2010) |
|---|---|---|---|
| Revenues | $0 | $0 | $0 |
| Net Loss | $(1,097,491) | $(731,189) | $(17,837,234) |
| Net Loss Per Share (Basic/Diluted) | $(0.01) | $(0.01) | N/A |
| Cash and Cash Equivalents (Ending) | $7,677,554 | $4,202,675 | N/A |
| Total Assets | $9,773,445 | N/A | N/A |
| Total Current Liabilities | $1,745,437 | N/A | N/A |
| Derivative Liability | $780,153 | N/A | N/A |
| Accumulated Deficit | $(17,837,234) | N/A | N/A |
Cash Flow Summary (Three Months Ended Sep 30, 2010):
- Net cash used in operating activities: $(1,448,682)
- Net cash used in investing activities: $(124,496)
- Net cash provided by financing activities: $2,295,000 (primarily from issuance of Series B Convertible Preferred Stock)
- Net increase in cash: $721,821
Material Changes vs. Prior Period
- Operating Expenses: Total operating expenses increased to $1,111,344 for the quarter ended September 30, 2010, compared to $732,059 in the same period in 2009. This increase was driven primarily by higher Research and Development (R&D) costs ($750,128 vs. $463,922) and General and Administrative expenses ($361,216 vs. $268,137).
- Net Loss: The net loss widened to approximately $1.1 million for the quarter, compared to $0.73 million in the prior year period.
- Financing Activity: The company raised $2,295,000 in the quarter through the issuance of Series B Convertible Preferred Stock, a significant increase from the prior year period which saw proceeds from common stock and warrant exercises.
- Derivative Liability: A derivative liability of $780,153 was recorded related to Series B Preferred Stock, resulting in a gain of $11,860 on the change in fair market value during the quarter.
Outlook, Risks, and Management Commentary
Capital Requirements and Liquidity:
Management states that as of September 30, 2010, the company had cash of $7.68 million. Combined with anticipated proceeds from the remaining Series B offering, management believes this is sufficient to fund operations through December 31, 2011. However, the company estimates a need for an additional $10 million to $15 million over the next 18 months to fund toxicology studies, efficacy studies, and the filing of an Investigational New Drug (IND) application with the FDA.
Development Pipeline:
The company reports significant efficacy in pre-clinical studies for several candidates, including anti-Herpes (HSV-1) and anti-Influenza (FluCide-I) nanoviricides. Subsequent to the quarter, the company reported that its influenza candidate demonstrated greater effectiveness than Tamiflu in lethal animal models. The company plans to pursue co-development and licensing agreements to generate early revenues.
Risks and Contingencies:
- Going Concern: While currently funded, the company has incurred significant losses since inception and expects recurring losses until commercialization. There is no assurance of future profitability or ability to raise necessary capital.
- Related Party Transactions: The company relies heavily on TheraCour Pharma, Inc. (controlled by the company's President) for technology licensing and manufacturing. Related party payables totaled $658,687 as of September 30, 2010.
- Regulatory Risk: The company has limited experience in pharmaceutical drug development. Budget estimates are based on consultant advice rather than internal experience, creating uncertainty regarding timelines and costs.
Key Facts for Investor Verification
- Revenue Status: Verify that the company has generated zero revenue since inception and has no commercial products.
- Cash Runway: Confirm the sufficiency of the $7.68 million cash balance against the estimated $10M-$15M funding requirement for the next 18 months.
- Related Party Dependence: Review the extent of reliance on TheraCour Pharma, Inc. for IP licensing, manufacturing, and development costs ($295,443 in the quarter).
- Derivative Liability: Understand the impact of the $780,153 derivative liability associated with Series B Preferred Stock on future earnings and equity dilution.
- Financing Terms: Examine the conversion terms of the Series B Preferred Stock, which include automatic conversion features and dividends that may lead to significant dilution of common shareholders.