Filing identity and reporting period
The supplied filing is Vallon Pharmaceuticals, Inc.’s Form 10-Q for the quarter ended March 31, 2021, filed May 13, 2021. It identifies the issuer as Vallon Pharmaceuticals (Nasdaq: VLON), not GRI Bio, Inc.; verify the issuer before relying on this summary.
Vallon is a clinical-stage biopharmaceutical company developing ADAIR, an abuse-deterrent immediate-release dextroamphetamine formulation for ADHD and narcolepsy. It is also conducting formulation work on ADMIR, an abuse-deterrent methylphenidate product. The interim financial statements are unaudited.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $0 | $100,000 |
| Research and development expense | $1.772 million | $883,000 |
| General and administrative expense | $830,000 | $375,000 |
| Operating loss | $2.602 million | $1.158 million |
| Net loss | $2.638 million | $1.160 million |
| Basic and diluted loss per share | $0.46 | $0.26 |
| Cash used in operating activities | $2.948 million | $766,000 |
Revenue in Q1 2020 was a related-party license fee from Medice; Vallon reported no Q1 2021 revenue. Gross margin is not meaningful for the periods presented because the company had no product sales.
At March 31, 2021, cash and cash equivalents were $12.980 million, total current assets were $14.338 million, current liabilities were $2.427 million, and total liabilities were $2.573 million. Stockholders’ equity was $12.027 million, versus a $1.454 million deficit at December 31, 2020. The company reported no note payable balance at quarter-end; finance lease liabilities totaled $241,000, including current and non-current portions.
Cash increased by $12.871 million during the quarter, principally reflecting $15.5 million of net IPO proceeds and $350,000 of convertible-note proceeds. The notes converted into common stock upon the IPO. The IPO sold 2.25 million shares at $8.00 per share, generating $18.0 million gross proceeds; reported net proceeds were approximately $15.5 million.
Changes versus the prior comparable period
- Net loss increased by $1.478 million, as operating expenses rose and the prior-year $100,000 license fee did not recur. R&D increased by $889,000, primarily reflecting ADAIR registration development; G&A increased by $455,000, including higher public-company insurance costs and stock compensation.
- Operating cash use increased by $2.182 million. The filing attributes the change primarily to higher net loss and a $793,000 increase in prepaid expenses, partly offset by changes in accounts payable and accrued expenses.
- Cash and equity increased substantially following the February 2021 IPO. A one-for-40 reverse stock split took effect immediately before the IPO; reported share and per-share amounts reflect the split.
Outlook, risks, and unusual items
- Management estimated that quarter-end cash would fund ongoing activities into the third quarter of 2022, but said assumptions could prove wrong and disclosed substantial doubt about the company’s ability to continue as a going concern within one year of issuance. Vallon expects operating losses and negative operating cash flow to continue and may need additional financing.
- The pivotal intranasal human abuse liability study of ADAIR, Study VAL-104, had approximately $1.9 million of cumulative expense through quarter-end; total expected trial cost was approximately $3.1 million. Management expected topline results by year-end 2021. The filing also describes ongoing preclinical work and additional safety studies.
- Management expects R&D and public-company costs to increase. ADAIR’s development, regulatory approval, manufacturing, and commercialization remain uncertain; the company relies on third parties for clinical work and manufacturing. COVID-19 could disrupt trial enrollment, sites, suppliers, regulatory timelines, and access to capital.
- Medice holds an exclusive license to develop and commercialize ADAIR in Europe and is responsible for local regulatory approval. The agreement provides for milestone payments and low-double-digit tiered royalties; the filing reported no Q1 2021 license revenue.
- Unusual Q1 items included $61,000 of income from forgiveness of the PPP loan and an $89,000 expense from remeasurement of the embedded derivative in the convertible notes. The derivative was removed when the notes converted at the IPO.
- The filing says disclosure controls and procedures were effective at March 31, 2021. It also notes ongoing remediation of material weaknesses in internal control over financial reporting previously described in the annual report. No material legal proceedings were reported.
Important facts for investors to verify
- Confirm that Vallon Pharmaceuticals, Inc. (VLON), rather than GRI Bio, Inc., is the intended issuer and that the quarter ended March 31, 2021 is the intended period.
- Review the going-concern disclosure, cash runway assumptions, expected operating spend, and financing needs against subsequent filings and actual cash use.
- Check the timing and results of Study VAL-104, other required ADAIR studies, and any regulatory or manufacturing developments.
- Review the terms and related-party context of the Medice license and the convertible-note financing, including the note conversion and IPO dilution.
- Track the stated COVID-19 risks and remediation of the previously disclosed internal-control weaknesses.