Bone Biologics Corporation — 2016 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2016. This filing reports full-year results; it does not provide a separate fourth-quarter income statement. Bone Biologics is a development-stage medical-device company with no product revenue, focused on NELL-1/DBX for spinal fusion.
Business and development status
- The lead candidate combines recombinant human NELL-1 protein with MTF’s demineralized bone matrix (DBX). The initial proposed use is lumbar spinal fusion in defined patients.
- The FDA advised that the product is a combination product regulated under device authorities, with CDRH as lead; the company expects a Class III pathway requiring premarket approval (PMA).
- The company reported pilot-scale protein manufacturing and efficacy work in sheep and non-human primate models. It had not completed human clinical testing for the proposed indication.
Financial results and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $11.60 million | $3.67 million |
| General and administrative expense | $6.25 million | $8.33 million |
| Total operating expenses | $17.85 million | $12.00 million |
| Net interest expense | $3.17 million | $1.87 million |
| Net loss | $21.03 million | $13.88 million |
| Basic and diluted loss per share | $0.56 | $0.49 |
| Net cash used in operating activities | $7.33 million | $3.55 million |
With no revenue or gross profit, a meaningful gross margin is not available. R&D expense rose 216%, principally reflecting $6.09 million of consultant option expense, a $1.44 million Sygnal license charge, and higher development and patent costs. G&A fell 25%. The net loss increased 52%; reported expenses included substantial non-cash stock-based and financing costs.
- At December 31, 2016, cash was $620,375, total current assets were $972,843, and current liabilities were $3.32 million. Working capital was therefore negative by approximately $2.35 million.
- Total assets were $973,085; total liabilities were $9.61 million; stockholders’ deficit was $8.63 million. Gross note principal at year-end was $10.2 million, including $1.2 million current; reported notes payable, net of discounts and issuance costs, were $7.48 million in total.
- Operating cash use increased year over year. Financing provided $6.83 million in 2016 from stock issuance, warrant exercise, and note proceeds. Cash declined by $494,734 for the year.
- The company estimated $3.5 million of operating expenditures for the next 12 months and $1.2 million of principal payments due in that period. Cash at March 15, 2017 was reported as $1.79 million.
Material changes and financing
- Shares outstanding increased from 32.21 million at year-end 2015 to 38.83 million at year-end 2016. Equity compensation, service-related issuances, the Sygnal license, and financing contributed to dilution.
- In February 2016, the company issued a $2.0 million secured convertible note to Hankey Capital, completed a $2.5 million stock issuance, and received $1.25 million from warrant exercises. In October, MTF and Hankey Capital each provided a $600,000 convertible note.
- After year-end, the October notes’ maturity was extended to December 31, 2017. In February 2017, MTF and Hankey Capital each provided a further $1.0 million convertible note. These notes generally bear 8.5% interest and have conversion provisions; Hankey Capital’s notes are secured by company assets.
- At March 14, 2017, a risk-factor table reports $12.2 million of note principal, reflecting post-year-end financing. The year-end balance sheet and post-year-end debt figures use different dates and bases.
Outlook, risks, and unusual items
- Management estimated that a further $22 million would be needed to complete protein synthesis and animal studies and commence first-in-human studies, with an additional estimated $137 million to reach product launch. These are estimates, not committed funding or guidance on timing.
- The auditor’s report highlights substantial doubt about the company’s ability to continue as a going concern. Management planned to seek additional debt or equity financing; failure to secure funding could require scaling back or stopping development, pursuing strategic alliances, or discontinuing operations.
- Key risks include clinical and regulatory failure or delay, dependence on third-party manufacturers and research partners, competition, intellectual-property challenges, limited personnel, future dilution, and restricted liquidity. The product’s safety and efficacy in humans remain unestablished.
- October 2016 note proceeds were restricted to essential R&D. Management deferred 20% of earned compensation and directors deferred 50% of cash compensation until a specified cumulative funding threshold was reached.
- The company issued 700,000 shares to MTF to exercise the Sygnal distribution option and expensed the $1.44 million license cost as R&D. Founder services agreements included large option awards; the company gave notice in December 2016 of termination for cause, with the stated termination date contingent on cure of an alleged breach.
- The UCLA license carries royalties, development milestones, patent-cost obligations, and diligence requirements; failure to meet milestones could jeopardize exclusivity. No material pending legal proceedings were reported.
Important facts for investors to verify
- Current cash, subsequent financing proceeds, near-term obligations, and the company’s ability to fund operations beyond the stated 12-month expenditure estimate.
- Reconciled outstanding debt principal, carrying value, maturities, collateral, conversion terms, and any additional post-year-end financing.
- Clinical-development milestones, FDA pathway and requirements, expected trial costs and timing, and whether the stated funding estimates remain current.
- Fully diluted share count and potential dilution from options, warrants, convertible notes, collateral shares, and related-party arrangements.
- Status of the UCLA license milestones and Sygnal definitive distribution agreement, as well as resolution of the founder-services agreement dispute.