Business context and reporting period
CNS Pharmaceuticals, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2020. The clinical-stage pharmaceutical company is developing anti-cancer drug candidates, principally Berubicin for brain and central nervous system tumors. It has no product revenue reported and relies on third parties for manufacturing.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $1.49 million (2019: $42,730) | $2.11 million (2019: $91,037) |
| General and administrative expense | $981,486 (2019: $372,332) | $2.34 million (2019: $519,115) |
| Net loss | $2.47 million (2019: $431,707) | $4.44 million (2019: $643,208) |
| Basic and diluted loss per share | $0.15 (2019: $0.03) | $0.27 (2019: $0.05) |
| Net cash used in operating activities | $4.60 million for six months (2019: $699,573) |
Margins are not meaningful because the filing reports no revenue. At June 30, cash and cash equivalents were $2.63 million, down from $7.24 million at December 31, 2019; working capital was $3.69 million. Total current liabilities were $261,205, with no debt balance reported. Total assets were $3.99 million and stockholders’ equity was $3.72 million. Cash used in investing activities was $17,945; there were no financing cash flows in the first half of 2020.
Material changes versus prior comparable periods
- Six-month net loss increased to $4.44 million from $643,208, reflecting higher personnel and business activity associated with clinical-trial preparation.
- R&D expense rose substantially, primarily for drug manufacturing and labor related to preparing the Berubicin Phase II study. Management expects R&D costs to rise as development expands.
- G&A expense increased, with cited drivers including compensation, stock-based compensation, board compensation, investor relations, advertising and marketing, professional fees, and insurance.
- Operating cash use increased to $4.60 million from $699,573. No common shares were issued in the first half of 2020; outstanding shares were 16,450,234 at June 30 and August 10.
Outlook, risks and unusual items
- Management stated existing cash could fund planned operations into, but not beyond, the near term. The company needs additional capital and estimates approximately $10 million to complete the Berubicin trial and approximately $2 million for near-term WP1244 preclinical work, plus working capital. It had no financing commitments and warned that failure to raise funds could require delayed payments, cost reductions, or scaling back operations. The filing cites substantial doubt about the company’s ability to continue as a going concern.
- Berubicin requires a new IND before further clinical trials because the prior IND lapsed. The FDA granted Berubicin Orphan Drug Designation in June 2020; management says this is now its primary intellectual-property protection after the licensed patents expired in March 2020.
- The company agreed to fund approximately $1.134 million over two years under a UTMDACC sponsored research agreement; it reported $334,000 paid through June 30. A further $775,000 payment to WPD is contingent on achievement and independent verification of a Phase II milestone under a development agreement.
- In May 2020, the SEC temporarily suspended trading in the company’s securities amid questions about the accuracy and adequacy of marketplace information, including statements concerning WP1122 and COVID-19. Nasdaq also halted trading pending information; both halts were lifted. The company said it could not assure against similar future actions.
- Disclosure controls and internal control over financial reporting were reported ineffective due to a material weakness involving insufficient personnel for segregation of duties. Management described planned hiring, consultant support, and accounting-system upgrades.
- Related-party and governance matters merit attention: WPD and HPI are affiliated with founder and largest shareholder Dr. Priebe, who is also principal investigator for the UTMDACC research agreement.
Important facts for investors to verify
- Availability and timing of financing relative to cash burn, trial costs, and the stated near-term runway.
- Clinical and regulatory progress for Berubicin, including the new IND requirement and Phase II trial timing, and progress on WP1244 preclinical milestones.
- Protection and economics of Berubicin following patent expiration, including the scope and conditions of Orphan Drug exclusivity and contractual royalties.
- Fulfillment of license, research, and development commitments, including UTMDACC diligence milestones and contingent WPD payments.
- Remediation of the disclosed internal-control material weakness and any subsequent SEC or Nasdaq trading-related developments.
- Potential dilution from outstanding warrants to purchase 3,986,630 shares and options to purchase 2,250,736 shares; these were excluded from diluted loss per share as antidilutive.