MediciNova, Inc. Form 10-Q Summary
Business Context and Reporting Period
MediciNova is a biopharmaceutical company developing small-molecule therapeutics for serious diseases with unmet medical needs. Key programs include MN-166 for progressive multiple sclerosis, ALS and substance dependence; MN-001 for NASH and IPF; MN-221 for acute asthma exacerbations; and MN-029 for solid tumors. This unaudited Form 10-Q covers the three and nine months ended September 30, 2015.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | No revenue reported in 2015 or 2014 | No revenue reported in 2015 or 2014 |
| Operating expenses | $1.6 million, versus $2.3 million | $6.1 million, versus $6.8 million |
| Net loss applicable to common stockholders | $1.6 million, or $0.06 per share, versus $2.3 million, or $0.10 per share | $6.1 million, or $0.24 per share, versus $6.8 million, or $0.28 per share |
| Net cash from operating activities | Not separately provided | $(5.6) million, versus $1.8 million provided |
| Cash and cash equivalents | $23.6 million at September 30, 2015, versus $11.7 million at December 31, 2014 | |
| Working capital | $23.0 million at September 30, 2015 |
Research, development and patent expense was $0.6 million in the quarter and $2.1 million year to date. General and administrative expense was $1.0 million in the quarter and $4.0 million year to date. The company had an accumulated deficit of $316.7 million at September 30, 2015.
Total assets were $39.6 million, including $9.6 million of goodwill and $4.8 million of in-process research and development. Total liabilities were $5.0 million, including $2.0 million of deferred tax liability and $1.7 million of long-term deferred revenue. The filing reports no debt facilities or borrowings. Approximately $23.4 million of cash was held in money market funds.
Material Changes Versus the Prior Comparable Period
- Quarterly net loss improved by $0.7 million, while the nine-month net loss improved by $0.7 million.
- Quarterly research, development and patent expense declined by $0.3 million, primarily because of lower drug supply and manufacturing expense. Year-to-date expense declined by $0.4 million.
- Quarterly general and administrative expense declined by $0.5 million, primarily because of lower stock-based compensation for performance options. Year-to-date expense declined by $0.4 million, also reflecting lower professional expenses and a $100,000 vendor payment related to destroyed drug product.
- Operating cash flow changed from $1.8 million provided in the first nine months of 2014 to $5.6 million used in the first nine months of 2015. Management attributed the change primarily to a $6.0 million receivable collected in the first quarter of 2014 and different prepaid-expense activity.
- Financing cash inflow increased to $17.6 million from $3.4 million, primarily because of equity issuance.
- On August 24, 2015, MediciNova issued 5.0 million common shares at $3.50 per share, generating approximately $16.0 million of net proceeds.
- Common shares outstanding increased to 29.96 million at September 30, 2015 from 24.44 million at December 31, 2014, creating dilution for existing holders.
Guidance, Outlook, Risks and Unusual Items
Management expects substantial net losses to continue for the next several years as development programs advance. The company stated that its available working capital was sufficient to fund operations through December 2017, but cautioned that these resources may not fund all planned research and development programs. Additional capital may be required, and the company may pursue partnerships or licensing transactions.
The company has no commercial revenue from the Kissei MN-221 agreement during the periods presented. Approximately $1.7 million remains recorded as long-term deferred revenue and is expected to be recognized as remaining services are performed.
MediciNova terminated its prior at-the-market agreement with Macquarie Capital in May 2015 and entered into a new agreement with MLV & Co. permitting up to $30.0 million of future equity sales. Through September 30, 2015, approximately $32,700 of gross proceeds had been generated under the MLV agreement, excluding $101,800 of issuance costs.
The company owns 50% of Zhejiang Sunmy, a Chinese joint venture intended to develop and commercialize MN-221 in China, but no sublicense of MN-221 had been executed. There is no assurance that the sublicense will be completed or that the joint venture will advance the program.
Important risks include continued losses, dependence on successful clinical and regulatory development, potential need for additional financing and dilution, reliance on strategic partners and grants, and impairment risk related to $9.6 million of goodwill and $4.8 million of in-process research and development. The filing reports no material legal proceedings and no material changes to the risk factors in the 2014 Form 10-K. Disclosure controls were assessed as effective at a reasonable assurance level.
Facts Investors Should Verify
- Whether the $23.6 million cash balance and stated funding runway through December 2017 remain adequate as clinical spending increases.
- Progress, funding sources and outcomes for MN-166 trials in progressive MS and ALS, and development plans for MN-001.
- Whether MediciNova generates revenue from the remaining Kissei research and development obligations or from future partnerships.
- Future equity sales under the MLV agreement and the resulting dilution, including the 9.74 million potentially dilutive shares excluded from loss-per-share calculations.
- Status of the Zhejiang Sunmy MN-221 sublicense and the joint venture’s ability to proceed in China.
- Future impairment testing for goodwill and in-process research and development and the potential effect on reported results.