MediciNova, Inc. 2019 Q2 Form 10-Q Summary
Business Context and Reporting Period
MediciNova is a biopharmaceutical company developing small-molecule therapies for serious diseases with unmet medical needs. Its principal programs are MN-166 (ibudilast) for neurological disorders and MN-001 (tipelukast) for fibrotic diseases, with additional programs MN-221 and MN-029. The filing covers the quarter and six months ended June 30, 2019. The financial statements are unaudited.
Key Financial Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | No revenue recognized | No revenue recognized |
| Research, development and patents expense | $1.5 million | $3.1 million |
| General and administrative expense | $2.7 million | $6.1 million |
| Total operating expenses | $4.2 million | $9.2 million |
| Operating loss | $4.2 million | $9.2 million |
| Interest income | $0.3 million | $0.6 million |
| Net loss | $3.9 million | $8.6 million |
| Basic and diluted loss per share | $0.09 | $0.20 |
| Net cash used in operating activities | Not separately provided | $4.7 million |
Because the company reported no revenue, gross margin and operating margin are not meaningful. Cash and cash equivalents were $61.7 million at June 30, 2019, compared with $62.3 million at December 31, 2018. Working capital was $60.5 million. Total liabilities were $4.0 million, including approximately $0.5 million of operating lease liabilities. The filing does not report outstanding debt, and no material borrowing arrangements are described.
Material Changes Versus the Prior Comparable Period
- Second-quarter net loss increased to $3.9 million from $3.1 million; six-month net loss increased to $8.6 million from $7.7 million.
- Second-quarter operating expenses increased to $4.2 million from $3.4 million; six-month expenses increased to $9.2 million from $8.1 million.
- Research and development expense increased modestly, primarily because of higher performance-based stock compensation, partly offset by lower clinical-trial costs.
- General and administrative expense increased by approximately $0.7 million in the quarter and $1.1 million for the six months, primarily due to higher performance-based stock compensation.
- Operating cash burn improved to $4.7 million for the first six months from $5.7 million in the prior-year period, despite the higher net loss, largely because of higher non-cash stock-based compensation.
- Financing cash inflows fell to $4.1 million from $41.3 million. The 2019 inflows primarily reflected proceeds from exercising stock options, while 2018 included a $38.5 million public offering and $2.4 million from warrant exercises.
- Shares outstanding increased to 43.1 million at June 30, 2019 from 42.1 million at December 31, 2018. Approximately 6.8 million potentially dilutive option shares were excluded from diluted loss per share because their effect was anti-dilutive.
Guidance, Outlook, Risks and Unusual Items
Management expects research and development costs to increase as development programs progress and expects substantial net losses for the next several years. Management stated that available working capital was sufficient to fund operations at least through December 31, 2020, but cautioned that resources may not support all planned research and development programs.
- The Kissei collaboration has approximately $1.7 million of long-term deferred revenue remaining; no revenue was recognized during the periods presented, and the second required study had not begun as of June 30, 2019.
- The company relies substantially on MN-166 and MN-001 and faces clinical, regulatory, manufacturing, commercialization, intellectual property, partnership and financing risks.
- Management reported no material legal proceedings and no material changes to the risk factors disclosed in the 2018 Form 10-K.
- Adoption of the new lease standard resulted in approximately $0.4 million of right-of-use assets and lease liabilities with no material income-statement effect.
- Stock-based compensation was $1.8 million in the quarter and $4.5 million for the six months, compared with $0.8 million and $3.4 million, respectively, in the prior-year periods.
- After quarter-end, on July 2, 2019, the company sold 149,787 shares under its ATM facility for net proceeds of approximately $1.4 million.
- Disclosure controls and procedures were assessed as effective at the reasonable assurance level, with no material changes in internal control over financial reporting.
Facts Investors Should Verify
- Clinical progress, enrollment, efficacy and safety results for MN-166 and MN-001 programs, including the timing and funding of planned trials.
- Whether the stated cash runway through December 31, 2020 remains adequate as research and development spending increases.
- Future use of the ATM facility and potential dilution from equity sales, stock options and other awards.
- The timing and collectability of the deferred Kissei revenue and commencement of the remaining study.
- The magnitude and cash impact of recurring stock-based compensation and the company’s continuing accumulated deficit, which was $364.7 million at June 30, 2019.