Clene Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Clene is a clinical-stage biopharmaceutical company developing clean-surfaced nanocrystal drugs, including lead candidate CNM-Au8. The December 2020 business combination was accounted for as a reverse recapitalization, so comparative operating results reflect Clene Nanomedicine before the transaction.
Financial performance and position
- Revenue: $213,000, up from $70,000 in Q1 2020. Revenue came from dietary supplements and related-party arrangements; the company reported no drug revenue.
- Costs and margins: Cost of revenue was $243,000, exceeding revenue by $30,000. Research and development expense was $6.3 million; general and administrative expense was $5.4 million.
- Loss: Operating loss was $11.7 million, versus $4.0 million a year earlier. Net loss was $39.8 million, or $0.66 per share, versus $3.9 million, or $0.23 per share. The larger net loss principally reflects $28.6 million of noncash expense from remeasuring contingent earn-out liabilities.
- Cash flow: Operating cash use was $9.2 million, compared with $3.3 million in Q1 2020; capital expenditures were $203,000. Cash declined to $48.0 million from $59.3 million at December 31, 2020.
- Liquidity and obligations: Current assets were $53.3 million and current liabilities $4.1 million. Notes payable were $1.8 million; finance and operating lease obligations totaled approximately $2.3 million. Contingent earn-out liabilities were $86.5 million. Total liabilities were $94.6 million and stockholders’ deficit was $36.1 million.
Changes versus prior comparable period
- Revenue increased by $143,000, but remains immaterial relative to operating expenses and came from supplements rather than drugs.
- R&D expense rose 96% to $6.3 million, primarily with progress and enrollment in REPAIR-PD and REPAIR-MS and participation costs for the Healey ALS Platform Trial.
- G&A expense rose to $5.4 million from $812,000, reflecting public-company costs, professional fees, insurance and stock-based compensation.
- Net cash used in operations increased to $9.2 million from $3.3 million. Q1 2021 financing cash use included $1.9 million of deferred offering-cost payments; Q1 2020 included $1.6 million of note proceeds.
Outlook, risks and unusual items
- Management expects March 31 cash to fund operations for more than twelve months after issuance of the statements, while cautioning that assumptions may prove wrong. It expects continued losses and higher R&D spending and says additional capital may be needed; financing may not be available on acceptable terms.
- The company has no FDA-approved drugs and depends on clinical progress, regulatory approval, market acceptance, third-party CROs and manufacturers, and protection of intellectual property. COVID-19-related research restrictions and trial pauses had been temporary, but further disruption remains possible.
- The $600,000 Paycheck Protection Program loan was forgiven in January 2021 and recorded as a gain. Australian R&D credits contributed $339,000 of other income; a $500,000 Michael J. Fox Foundation grant reduced R&D expense.
- Contingent earn-outs are remeasured using Level 3 estimates and are sensitive to share-price assumptions. No milestones had been achieved by March 31. Certain earn-outs depend on share-price thresholds of $15 and $20, or completion of a statistically significant COVID-19 study by December 30, 2021.
- Management concluded disclosure controls were not effective because of material weaknesses in financial-reporting controls, including staffing and accounting expertise, review and segregation of duties, complex transaction accounting, and IT controls. Remediation was underway, including implementation of a new ERP system.
- The company reported no current material litigation and no material changes to the risk factors in its 2020 Form 10-K.
Key facts for investors to verify
- Whether clinical trials, particularly CNM-Au8 studies, meet enrollment, timing and efficacy objectives—and whether the COVID-19 milestone is achieved by its deadline.
- Cash burn, trial spending and the assumptions behind management’s stated runway; assess whether further financing will be required.
- The effect of earn-out liability remeasurement on reported earnings and potential share dilution if milestones are achieved.
- Progress in remediating material weaknesses and whether disclosure controls become effective.
- The terms and performance of related-party supplement arrangements, and whether any warrant exercises generate the potential proceeds disclosed by the company.