Business context and reporting period
BioRestorative Therapies, Inc. filed this Form 10-K for the fiscal year ended December 31, 2018; it is an annual report, not a standalone fourth-quarter report. The company is a development-stage life sciences business with no significant operating revenue. Its lead program, BRTX-100, is an autologous stem-cell candidate for chronic lower back pain associated with degenerative disc disease. ThermoStem, a brown-fat cell program for metabolic disorders, remained preclinical.
Financial performance and position
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $111,000 | $81,000 |
| Operating expenses | $7,758,652 | $8,455,284 |
| Operating loss | $(7,647,652) | $(8,374,284) |
| Net loss | $(12,517,803) | $(9,444,655) |
| Net loss per share, basic and diluted | $(1.64) | $(1.74) |
| Cash used in operating activities | $(5,104,629) | $(3,853,821) |
| Cash at year-end | $117,523 | $451,680 |
- All 2018 revenue was royalty revenue under a sublicense agreement; the filing reports no significant revenue from operations. Gross margin is not presented and is not meaningful for the company’s current development-stage activity.
- At December 31, 2018, total assets were $1,192,381, total liabilities were $9,833,419, and stockholders’ deficiency was $8,641,038. Working capital deficiency was $9,073,901.
- Gross notes payable were $5,161,916 at year-end, with stated interest rates ranging from 0% to 15% and maturities through December 2019. The balance sheet reports notes payable net of debt discounts of $4,149,553, including current and noncurrent portions; accrued interest is reported separately.
- Financing activities provided $4,783,341 in cash in 2018, comprising debt proceeds and other borrowings as well as equity proceeds. The company reported no material off-balance-sheet arrangements.
Material changes versus 2017
- Revenue increased by $30,000, but remained limited to sublicense royalties.
- Operating expenses fell 8%, chiefly as research and development expenses declined 30% to $1,513,150 and consulting expenses declined 20% to $1,870,829. Marketing and promotion rose to $352,204 from $65,455; general and administrative expenses increased 3% to $4,022,469.
- Net loss widened by about $3.1 million. Other expense rose to $4,870,151 from $1,070,371, reflecting higher interest expense, debt-discount amortization and a $1,415,950 loss on extinguishment of notes payable. Debt-discount amortization alone increased to $2,289,591 from $619,266.
- Cash fell by $334,157 over 2018. Gross notes payable rose to $5,161,916 from $3,999,335. Common shares outstanding increased to 11,728,394 from 6,112,473, in large part because debt was exchanged for equity.
Outlook, risks and unusual items
- Management expected available cash to fund operations only through April 2019 and stated that substantial doubt existed about the company’s ability to continue as a going concern within one year after the financial statements’ issuance. The auditor’s report also included a going-concern explanatory paragraph.
- Management estimated that approximately $20 million would be needed to commence and complete the planned BRTX-100 Phase 2 trial, and approximately $45 million in further funding to complete BRTX-100 clinical trials, assuming no operating revenue. It also anticipated substantial additional funding for ThermoStem and other operations. There is no assurance that financing can be obtained on acceptable terms.
- The FDA had authorized a Phase 2 BRTX-100 trial in February 2017. Management planned to begin it in the third quarter of 2019, conditional on funding. The proposed study was a randomized, double-blind, placebo-controlled trial of 72 patients, with a primary efficacy endpoint at 12 months and follow-up through 24 months. The company was also exploring a strategic licensing arrangement.
- After year-end, the company reported $600,000 in equity financing and $3,073,918 in debt financing, $643,900 of debt exchanged for common stock, $1,254,805 of debt repaid, and a $155,000 maturity extension. It still reported $107,500 of notes past due. Subsequent financing included convertible notes with variable or discounted conversion prices, creating potential dilution. The filing’s reported post-year-end debt totals vary by date and presentation.
- Key risks include financing and debt repayment, clinical-trial execution and regulatory approval, manufacturing readiness, uncertain reimbursement and market acceptance, dependence on licensed technology and intellectual property, and substantial potential dilution. At year-end, the company had 57,019,880 shares reserved for future note conversions, according to the filing.
- Management reported effective disclosure controls and effective internal control over financial reporting as of December 31, 2018. The auditor did not provide an internal-control attestation, as the company qualified for the smaller-reporting-company exemption.
Important facts for investors to verify
- Current cash, cash burn, financing proceeds, debt maturities and past-due amounts; reconcile the filing’s different subsequent-event debt balances.
- Whether funding was secured to start the Phase 2 trial, and the actual trial initiation, enrollment, costs and regulatory status.
- Terms and potential dilution of convertible notes, warrants and other equity-linked securities, including the 57.0 million-share reserve for note conversions.
- Whether the company can meet license milestones and preserve exclusive rights, and whether manufacturing and quality systems are ready for clinical production.
- Progress and supporting evidence for BRTX-100 and ThermoStem, distinguishing company-reported preclinical findings and adviser feedback from demonstrated clinical efficacy.
- The scale and sustainability of royalty revenue, which was $111,000 in 2018, and the assumptions behind management’s funding estimates and going-concern plans.