Filing Overview
Filing entity: Neuralstem, Inc., not Palisade Bio, Inc. The filing is a Form 10-K for the fiscal year ended December 31, 2018, filed March 22, 2019. The company is a clinical-stage biotechnology business developing neural stem-cell therapies and small-molecule compounds for central nervous system diseases.
Business Context and Pipeline
- Lead clinical programs were NSI-566, a neural stem-cell therapy being evaluated in ALS, ischemic stroke and chronic spinal cord injury, and NSI-189, a small molecule being evaluated for major depressive disorder and other potential indications.
- In August 2018, the company initiated a randomized, sham-surgery-controlled Phase 2 ischemic stroke trial in China, with up to 24 patients.
- NSI-189 received FDA orphan designation for Angelman syndrome in August 2018.
- The company also pursued preclinical programs, including NSI-532, NSI-577 and research relating to traumatic brain injury, Alzheimer’s disease and demyelinating diseases.
Financial Results and Liquidity
| Metric | 2018 | 2017 | Change |
|---|---|---|---|
| Revenue | $260,000 | $260,000 | Flat |
| Research and development expense | $3.96 million | $8.10 million | Down 51% |
| General and administrative expense | $4.56 million | $5.47 million | Down 17% |
| Total operating expenses | $8.52 million | $13.57 million | Down 37% |
| Operating loss | $(8.26) million | $(13.31) million | Improved |
| Net loss | $(4.92) million | $(15.67) million | Improved 69% |
| Net loss per common share | $(0.32) | $(1.20) | Improved |
| Net cash used in operating activities | $(7.69) million | $(13.42) million | Improved 43% |
| Cash and cash equivalents | $5.79 million | $6.67 million | Down 13% |
| Cash and short-term investments | $5.79 million | $11.67 million | Down 50% |
Revenue consisted of $250,000 of milestone-based royalties from a prior patent-infringement settlement and $10,000 of licensing fees in each year. The company generated no revenue from product sales. No clear gross margin is provided; the business remains pre-commercial and heavily loss-making.
At December 31, 2018, total assets were $7.68 million, total liabilities were $1.63 million and stockholders’ equity was $6.05 million. The balance sheet showed $583,734 of warrant liabilities and no long-term debt balance; short-term notes payable activity was reflected in financing cash flows.
In October 2018, the company raised gross proceeds of $2.1 million through the issuance of 3.0 million common shares and 3.0 million warrants. Financing activities provided $1.81 million of net cash in 2018, while investing activities provided $5.00 million from the maturity of short-term investments.
Material Changes Versus 2017
- Research and development expense declined primarily because the NSI-189 Phase 2 trial was completed, personnel and facility costs were reduced, share-based compensation declined, and grant reimbursements increased.
- General and administrative expense decreased due to restructuring and cost reductions, partly offset by higher tax, insurance, consulting and professional-service expenses.
- Net loss improved substantially, principally because of lower operating costs and a $3.27 million non-cash gain from the change in fair value of liability-classified warrants. This gain is not an operating cash benefit.
- Cash and short-term investments declined by approximately $5.9 million as the company continued to fund operations and converted $5.0 million of short-term investments into cash.
- Common shares outstanding increased from 15.16 million to 18.21 million, reflecting the October equity offering and resulting dilution. Preferred stock outstanding remained 1.0 million shares and was convertible into approximately 3.89 million common shares.
- Management and executive leadership changed materially. The former CEO and CFO departed effective July 31, 2018, an interim CEO was appointed, and Kenneth Carter became Executive Chairman and principal executive and accounting officer effective January 1, 2019.
Outlook, Risks and Unusual Items
- Management expected existing cash to fund operations into the third quarter of 2019 based on the then-current spending plan. The company stated that additional financing was required to continue operations and clinical development.
- The independent auditors reported substantial doubt about the company’s ability to continue as a going concern. The filing states that failure to raise capital could require curtailing or stopping clinical trials, ceasing operations or filing for bankruptcy.
- NSI-189’s Phase 2 major depressive disorder trial failed to meet its primary efficacy endpoint in 2017, although certain secondary and patient-reported measures were directionally or statistically positive. The company acknowledged that this result could limit future licensing revenue and financing access.
- The ischemic stroke Phase 2 trial was described as non-GCP compliant, creating potential regulatory and data-acceptance risk.
- The company had not received FDA approval for any product candidate and had no commercial products. Clinical, regulatory, manufacturing, reimbursement, intellectual-property and market-acceptance risks remain substantial.
- On November 29, 2018, Nasdaq notified the company that its stock had traded below the $1.00 minimum bid price for 30 consecutive business days. The initial compliance deadline was May 28, 2019, with a possible additional grace period and potential reverse stock split.
- Outstanding warrants included anti-dilution or down-round provisions. Exercise prices on 2.98 million liability-classified warrants were reduced to $0.57 per share following the October 2018 offering, increasing potential dilution and financing complexity.
- The company had approximately $156.0 million of federal net operating loss carryforwards at year-end 2018, but recorded a full valuation allowance against deferred tax assets.
Investor Verification Checklist
- Verify the filing identity: the supplied filing is for Neuralstem, Inc., whereas the request metadata identifies Palisade Bio, Inc.
- Confirm subsequent financing, cash runway, going-concern status and any restructuring or bankruptcy developments after March 22, 2019.
- Review subsequent clinical-trial results, regulatory correspondence and the status of NSI-566, NSI-189 and the Angelman syndrome program.
- Assess the effect of the Nasdaq minimum-bid deficiency, any reverse stock split and any subsequent delisting.
- Reconcile fully diluted shares, including convertible preferred stock, approximately 7.08 million outstanding warrants and stock options, before evaluating per-share value.
- Review the terms and subsequent collectability of the approximately $458,000 related-party receivable and the March 2019 modification that forgave part of the receivable.