BioRestorative Therapies, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed April 2, 2018. This is an annual report, not a standalone fourth-quarter report. The company develops adult stem-cell therapies and reported no significant operating revenue.
Business context
- brtxDISC: Lead candidate BRTX-100 uses a patient’s cultured bone-marrow mesenchymal stem cells and is intended for chronic lower-back pain associated with degenerative disc disease. The FDA authorized a Phase 2 trial in February 2017; the trial had not started by the filing and was planned for Q3 or Q4 2018, conditional on funding.
- ThermoStem: Preclinical program developing brown-adipose-derived stem-cell therapies for obesity and metabolic disorders. The company planned further animal studies beginning in 2018.
- The company also licenses a curved-needle delivery device. It had no product candidates approved for marketing and said it had not yet produced products at its laboratory.
Financial results and liquidity
| Metric | FY 2017 | FY 2016 | Change / context |
|---|---|---|---|
| Revenue | $81,000 | $36,355 | Increase; primarily sublicense royalties. One license and related royalties generated all FY 2017 revenue. |
| Gross profit / margin | $81,000 / 100% | $36,253 / approximately 100% | Minimal cost of sales; revenue remains immaterial. |
| Operating expenses | $8,455,284 | $7,821,328 | Up about 8%. |
| Operating loss | $(8,374,284) | $(7,785,075) | Loss increased. |
| Net loss | $(9,444,655) | $(8,636,292) | Loss increased about 9%; basic and diluted loss per share was $(1.74), versus $(2.10). |
| Research and development | $2,152,433 | $2,883,563 | Down about 25%, largely reflecting lower third-party lab and personnel costs. |
| Cash from operations | $(3,853,821) | $(5,002,675) | Cash use improved, but remained substantial. |
| Cash at year-end | $451,680 | $31,822 | Increase was supported by financing. |
| Working capital deficiency | $7,833,592 | $5,783,184 | Deficiency widened. |
| Gross notes payable | $3,999,335 | $2,336,565 | Debt increased; stated interest rates ranged from 0% to 15% and year-end maturities extended through December 2018. |
Total liabilities were $8.60 million against total assets of $1.76 million; stockholders’ deficiency was $6.84 million. Balance-sheet notes payable are presented net of debt discount, so the carrying amount differs from gross debt. After year-end financing, conversions, repayments and extensions, the filing reported $4.16 million of debt outstanding as of March 29, 2018, including $598,500 past due. Management expected available cash to fund operations only through April 2018.
Material changes, outlook and risks
- Consulting expense rose 45% to $2.33 million, mainly due to stock-based compensation; general and administrative expense rose 20% to $3.90 million, including higher stock compensation and professional fees. Interest expense more than doubled to $468,107.
- FY 2017 financing provided $4.28 million net cash: $2.20 million from debt and other borrowings and $2.08 million from equity financings and warrant exercises. The company continued to rely on external financing and issued shares and warrants in connection with financing, debt conversions and accrued obligations.
- Management estimated it would need approximately $20 million to commence and complete the BRTX-100 Phase 2 trial and a further approximately $45 million to complete BRTX-100 clinical trials, assuming no operating revenue. These are estimates, not secured funding or guaranteed budgets. The company also considered licensing BRTX-100 to a strategic partner.
- The independent auditor’s report included a going-concern explanatory paragraph, citing recurring losses, a substantial working-capital deficiency and the need to raise funds. The statements contain no adjustments for the outcome of that uncertainty. Management warned that failure to obtain financing or debt extensions/conversions could force it to curtail or discontinue operations.
- Development, clinical, manufacturing and regulatory outcomes remain uncertain. The planned Phase 2 trial requires funding and successful patient enrollment; the company also cited cell-product variability, manufacturing capacity, regulatory classification and approval, reimbursement, competition, intellectual-property protection, and potential dilution as material risks.
- The filing reported no legal proceedings expected to materially affect financial position and no material off-balance-sheet arrangements. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2017; the auditor did not attest to internal controls.
Most important facts for investors to verify
- Whether the company secured sufficient capital after the filing to fund operations and the planned clinical programs, and how long available cash lasted.
- Current debt balances, past-due amounts, maturity extensions, interest costs, security interests and any further conversions into equity.
- Whether BRTX-100 Phase 2 actually began, its funding and enrollment status, and any subsequent clinical or regulatory developments.
- The terms and dilution effects of subsequent equity, warrant and convertible-debt issuances; year-end common shares outstanding were 6,112,473, while 6,483,253 were reported outstanding as of March 29, 2018.
- Whether ThermoStem preclinical milestones, licensed-rights requirements and manufacturing plans progressed as intended.