Filing identity and reporting period
Important identity mismatch: The supplied filing is StemCells, Inc.’s Form 10-Q for the quarter ended September 30, 2011, not a Microbot Medical Inc. filing. The summary below describes the supplied StemCells filing.
The financial statements are unaudited and cover the three and nine months ended September 30, 2011, compared with the same periods in 2010. The filing was signed November 2, 2011.
Business context and key financial metrics
StemCells described itself as a biopharmaceutical company developing stem-cell therapeutics and research products. Therapeutic programs included HuCNS-SC for chronic spinal cord injury and Pelizaeus-Merzbacher disease (PMD); research-product sales included SC Proven cell-culture media and reagents.
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Total revenue | $223,586 | $253,519 | $679,150 | $727,923 |
| Gross profit (margin) | $163,085 (72.9%) | $217,605 (85.8%) | $511,760 (75.3%) | $623,385 (85.6%) |
| Operating expenses | $6.33 million | $7.22 million | $21.27 million | $22.28 million |
| Operating loss | ($6.16 million) | ($7.00 million) | ($20.76 million) | ($21.65 million) |
| Net loss | ($4.33 million) | ($5.55 million) | ($14.12 million) | ($16.29 million) |
| Basic and diluted loss per share | ($0.31) | ($0.44) | ($1.02) | ($1.33) |
At September 30, 2011, cash and cash equivalents were $7.29 million and current marketable securities were $5.24 million, totaling $12.53 million. Current assets were $13.62 million and current liabilities $5.47 million, implying working capital of approximately $8.16 million. Total liabilities were $8.48 million. Bonds payable totaled approximately $568,750; the filing also reported $35,581 of current capital-lease obligations.
For the first nine months, operating cash use was $16.85 million, investing cash use $5.38 million, and financing cash provided $9.85 million. Financing included approximately $9.4 million net proceeds from a January stock sale and further share sales. Cash declined $12.37 million to $7.29 million; the company also held $5.24 million of current marketable debt securities.
Material changes versus prior comparable periods
- Q3 revenue fell 12%; nine-month revenue fell 7%. Product sales grew 40% in Q3 and 62% year to date, while licensing and grant revenue declined 67% and 60%, respectively, mainly because grant-funded projects completed or ended.
- Gross margin declined in both comparisons as product cost rose faster than product sales and the revenue mix changed.
- Operating expenses decreased 12% in Q3 and 5% year to date. Management cited workforce reductions and consolidation of U.K. operations; lower expenses were partly offset by clinical-trial, preclinical, and new-facility costs.
- Net loss narrowed, but results benefited substantially from noncash gains on remeasurement of warrant liabilities: $1.70 million in Q3 and $6.50 million year to date. These gains are valuation-sensitive and do not represent operating cash generation.
- Cash and cash equivalents fell 63% from December 31, 2010. The company raised equity during 2011 and purchased short-term marketable securities.
Outlook, risks, contingencies, and unusual items
- Management expected additional operating losses for the foreseeable future and stated it did not expect profitability in the next several years. It said significant additional capital was required and warned that unavailable financing could force delays, reductions, or termination of development programs, or potentially bankruptcy.
- No specific revenue or earnings guidance was provided. Management said it could not meaningfully estimate the timing, duration, or cost of development programs or future commercialization.
- Clinical and regulatory uncertainty is material. The first patient in the Swiss Phase I/II chronic spinal cord injury study was transplanted in September 2011; the PMD trial was expected to complete in February 2012, with results anticipated in early 2012. The company also planned to submit an IND for dry age-related macular degeneration in 2011.
- The company reported a roughly $100,000 CIRM planning grant for an Alzheimer’s disease development application. It also described November 2011 interim PMD data as showing MRI changes consistent with early new myelin development; this announcement occurred after the reporting period.
- In May 2011, the company eliminated 20 U.S. positions, recorded approximately $260,000 of severance and related charges, and estimated annual expense reductions of approximately $2.3 million.
- Long-term operating-lease commitments totaled approximately $17.45 million, including the approximately 11.5-year Newark facility lease. Rhode Island facility obligations remained a source of uncertain wind-down costs; the associated reserve, including deferred rent, was approximately $2.48 million at September 30.
- Patent litigation with Neuralstem remained ongoing, with discovery in progress and trial anticipated in 2012. Neuralstem had appealed a European Patent Office ruling invalidating composition claims in its patent.
- A 1-for-10 reverse stock split took effect July 6, 2011. The company said it regained NASDAQ minimum-bid-price compliance later that month.
Most important facts for investors to verify
- Confirm the issuer: this source is StemCells, Inc., not Microbot Medical Inc.
- Assess cash runway using cash, marketable securities, actual operating cash burn, and the company’s stated dependence on additional financing.
- Separate operating performance from the noncash warrant-liability gains when evaluating the reported net-loss improvement.
- Verify clinical-trial progress, regulatory milestones, and the status and interpretation of the PMD interim findings.
- Review share issuance and potential dilution, warrant terms and valuation, and the material lease and Rhode Island wind-down commitments.
- Track the outcome and potential cost or strategic consequences of the Neuralstem litigation.