Business Context and Reporting Period
This Form 10-Q covers the quarter and six months ended June 30, 2011. Although the request metadata identifies Capricor Therapeutics, the filing identifies the registrant as Nile Therapeutics, Inc., a development-stage cardiovascular biotechnology company. Its lead candidate, cenderitide, was in a Phase I trial with Medtronic; CU-NP remained preclinical. The company had no product sales.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2011 | Six Months Ended June 30, 2011 | Comparable Period |
|---|---|---|---|
| Total income | $346,000 | $346,000 | $0 in the 2010 periods |
| Research and development expense | $702,930 | $1,325,262 | $1,055,759 and $2,369,181 |
| General and administrative expense | $523,305 | $1,098,583 | $445,448 and $1,068,650 |
| Net loss | $880,530 | $2,076,322 | $1,494,521 and $3,426,341 |
| Loss per share | $0.03 | $0.06 | $0.05 and $0.12 |
| Net cash used in operating activities | Not separately reported | $2,428,133 | $2,128,999 |
The $346,000 of income represented reimbursements under the Medtronic collaboration, not product revenue. Operating loss was $880,235 for the quarter and $2,077,845 for the six-month period. Profit margins are not meaningful because the company had no commercial revenue and remained loss-making.
- Cash and cash equivalents were $3.26 million at June 30, 2011, compared with $3.38 million at December 31, 2010.
- Working capital was approximately $3.20 million, versus $2.53 million at year-end 2010.
- Total liabilities were $436,274; the filing shows no outstanding debt at June 30, 2011.
- Stockholders’ equity was $3.27 million, compared with $2.60 million at December 31, 2010.
- Financing activities provided $2.31 million during the first six months, primarily from the June private placement.
Material Changes Versus the Prior Comparable Period
- Quarterly net loss decreased to $881,000 from $1.49 million; six-month net loss decreased to $2.08 million from $3.43 million.
- R&D expense declined 33% for the quarter and 44% for the six-month period, primarily because the cenderitide Phase II study was completed in the fourth quarter of 2010. The decline was partially offset by Phase I trial costs.
- G&A expense increased approximately 17% for the quarter and was broadly unchanged for the six-month period.
- Medtronic collaboration income of $346,000 was recognized in 2011, compared with none in 2010. Management expected approximately $1.0 million of additional reimbursement income during the remainder of 2011.
- On June 23, 2011, the company completed a private placement of 5.0 million units at $0.50 per unit, generating $2.5 million of gross proceeds and approximately $2.3 million net proceeds. Each unit included one common share and warrants for one-half share at a $0.60 exercise price.
- Shares outstanding increased to 39.7 million from 34.6 million at December 31, 2010, before considering potential dilution from warrants and options.
Guidance, Outlook, Risks, and Unusual Items
- Management believed available cash would fund operations into the second quarter of 2012 under its then-current spending plan. Forecast average monthly cash expenditures for the following six months were approximately $0.3 million, net of Medtronic funding.
- The company expected to enroll approximately 50 patients in the Phase I cenderitide trial and planned a larger Phase IIb trial in 2012. That trial would require substantial additional capital.
- Management stated that the company would need additional equity, debt, licensing, or collaboration financing and disclosed that these conditions raised substantial doubt about its ability to continue as a going concern.
- Potential future financing could dilute shareholders, increase debt and covenant restrictions, or require the company to surrender rights to its technologies or product candidates.
- The cenderitide and CU-NP licenses included potential contingent milestone payments of up to $31.9 million and $24.3 million, respectively, plus other royalties, fees, or additional amounts upon expanded approvals.
- The Medtronic agreement provided for shared intellectual property, potential royalties to Medtronic, exclusivity-related restrictions, and termination rights tied to trial safety, efficacy, endpoints, breach, or bankruptcy.
- Stock-based compensation was $437,715 for the first six months of 2011 and may remain significant. At June 30, 2011, the company had 7.84 million outstanding options and 8.66 million outstanding warrants.
- The company reported no material pending legal proceedings and no off-balance-sheet arrangements. Its securities were suspended from Nasdaq trading in May 2011 and formally delisted in July 2011, after the quarter-end.
- Management concluded that disclosure controls and procedures were effective as of June 30, 2011, with no material change in internal control over financial reporting during the quarter.
Important Facts for Investors to Verify
- Confirm the registrant’s identity: the supplied filing is for Nile Therapeutics, Inc., not Capricor Therapeutics, Inc.
- Verify the company’s cash runway and the availability and terms of financing needed to fund operations beyond the second quarter of 2012.
- Track Phase I cenderitide enrollment, results, Medtronic reimbursements, and the feasibility and funding of the planned Phase IIb trial.
- Assess dilution from the June 2011 financing, 2.75 million investor warrants, 250,000 placement-agent warrants, and outstanding options.
- Review the going-concern disclosure, license milestone obligations, potential royalties, and termination provisions.
- Confirm the consequences of Nasdaq delisting and the company’s subsequent trading venue and access to capital markets.