Bone Biologics Corporation — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter report. The company is a development-stage biotechnology business focused on NELL-1/DBX, a proposed bone-regeneration product for spinal fusion.
Financial results and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $3.67 million | $0.62 million |
| General and administrative expense | $8.33 million | $1.51 million |
| Total operating expenses | $12.00 million | $3.01 million |
| Net loss | $13.88 million | $4.42 million |
| Basic and diluted loss per share | $0.49 | $0.30 |
| Cash used in operating activities | $3.55 million | $2.76 million |
| Cash at year-end | $1.12 million | $2.66 million |
With no revenue, gross margin and operating margin are not meaningful. At December 31, 2015, total assets were $2.08 million, current assets $2.07 million, current liabilities $2.15 million, and total liabilities $7.76 million. Notes payable were $7.00 million gross, reported at $5.62 million net of debt discount. Stockholders’ deficit was $5.68 million.
Changes versus 2014
- Net loss more than tripled as operating expenses increased substantially; R&D rose by $3.04 million and G&A by $6.82 million.
- R&D growth reflected product development and a $1.82 million charge for shares promised to the founders for past NELL-1 work and data. G&A growth included a $1.37 million MTF share award, increased executive and director compensation, stock-based compensation, and legal and professional fees.
- Net interest expense increased to $1.87 million from $1.40 million, including effects of the May 2015 secured convertible note.
- Operating cash use rose, while year-end cash fell by $1.55 million. The company received $2.00 million from a convertible note in 2015, compared with $5.39 million of financing cash inflows in 2014.
Business, outlook, and material risks
- NELL-1/DBX was still in development. The company reported promising preclinical work, including large-animal studies, and a successful small-scale protein manufacturing run; it reported no human clinical trial results. The proposed initial use is lumbar spinal fusion.
- The FDA indicated the product would be a combination product regulated under device authorities, with CDRH as lead center. The company expected a Class III device pathway requiring premarket approval; clinical and regulatory success is uncertain.
- Management estimated operating expenditures of $6.9 million for the next 12 months and said additional debt and/or equity financing was needed. The auditor’s report and the company’s disclosures state that substantial doubt exists about the company’s ability to continue as a going concern. There were no principal payment requirements for the next 12 months, according to management.
- After year-end, the company reported $2.5 million of stock-sale proceeds, a $2.0 million Hankey convertible note, and $1.25 million of proceeds from warrant exercises. It also reported amendments extending the first two Hankey notes’ maturity to December 31, 2019 and fixing their conversion rate at $1.58. These transactions do not eliminate the stated need for financing.
- Hankey debt carries at least 8.5% interest, is secured by collateral shares and company licenses (and, for the 2016 note, personal property), and is convertible into stock. Warrants, options, convertible debt, and other share commitments create substantial potential dilution.
- The UCLA license requires fees, royalties, and development milestones; UCLA may terminate or reduce exclusivity if diligence milestones are missed. The licensed field excludes certain indications, including osteoporosis and cartilage, unless expanded.
- The company disclosed ineffective disclosure controls and internal control over financial reporting as of year-end. It also described related-party arrangements and significant equity compensation, including subsequent founder service agreements.
- Other risks include reliance on third parties for manufacturing and studies, need for regulatory approval and market acceptance, competition, intellectual-property protection, and possible product-liability exposure. No legal proceedings were reported as pending.
Most important facts for investors to verify
- Whether subsequent financing and warrant exercises provide sufficient runway relative to the $6.9 million estimated 12-month spending and the going-concern warning.
- The complete debt terms, collateral and conversion provisions, and the fully diluted share count after subsequent financings, warrants, options, and share commitments.
- Actual progress and costs for manufacturing, preclinical work, IDE preparation, clinical studies, and the anticipated PMA pathway; the filing gives no clear clinical start date or launch timetable.
- Whether the company meets UCLA license diligence milestones and whether its permitted field of use can be expanded.
- Remediation of ineffective disclosure and financial-reporting controls, and the accounting and governance treatment of related-party awards and agreements.