MediciNova, Inc. — Q1 2019 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 primary programs are MN-166 (ibudilast) for neurological disorders and MN-001 (tipelukast) for fibrotic diseases. The company also has MN-221 and MN-029 in its pipeline. This unaudited report covers the three months ended March 31, 2019, compared with the same period in 2018.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | No revenue recognized | No revenue recognized | Unchanged |
| Research, development and patents | $1.6 million | $1.7 million | Down approximately $0.1 million |
| General and administrative | $3.3 million | $3.0 million | Up approximately $0.3 million |
| Total operating expenses | $5.0 million | $4.7 million | Up approximately $0.3 million |
| Operating loss | $5.0 million | $4.7 million | Higher loss |
| Net loss | $4.7 million | $4.5 million | Up approximately $0.2 million |
| Basic and diluted loss per share | $0.11 | $0.12 | Lower loss per share due to higher share count |
| Net cash used in operating activities | $3.0 million | $4.1 million | Improved by approximately $1.1 million |
No meaningful revenue or profit margin was reported because the company recognized no revenue and remains dependent on research funding and capital resources. Stock-based compensation was $2.7 million, or approximately 54% of operating expenses, compared with $2.5 million in Q1 2018.
Cash and cash equivalents were $63.2 million at March 31, 2019, compared with $62.3 million at December 31, 2018. Working capital was $62.4 million. Management stated that available working capital was sufficient to fund operations at least through December 31, 2020, although it could not assure that resources would fund all planned development programs.
Total liabilities were $3.5 million, including $1.7 million of long-term deferred revenue, $0.2 million of deferred tax liabilities and approximately $0.3 million of operating lease liabilities. The filing does not identify conventional debt or borrowings.
Material changes versus the prior comparable period
- Research and development expense declined modestly, primarily because an MN-001 study was completed in 2018.
- General and administrative expense increased primarily because of higher performance-based stock compensation.
- Net loss increased to $4.7 million from $4.5 million, while loss per share decreased to $0.11 from $0.12 because the weighted-average share count rose from 39.1 million to 42.5 million.
- Operating cash use improved to $3.0 million from $4.1 million.
- Financing cash inflows fell sharply to $3.9 million from $39.0 million. Q1 2019 inflows primarily reflected proceeds from exercising 977,454 options, whereas Q1 2018 included approximately $38.5 million of net public-offering proceeds.
- Shares outstanding increased to 43.1 million at March 31, 2019 from 42.1 million at December 31, 2018, primarily due to option exercises.
- The company adopted the new lease accounting standard in Q1 2019, recognizing approximately $0.4 million of right-of-use assets and approximately $0.4 million of operating lease liabilities, with no material effect on operations.
Guidance, outlook, risks and unusual items
Management expects research and development costs to increase throughout 2019 as development programs progress. The company intends to advance MN-166 and MN-001 through company-funded, investigator-sponsored and grant-supported trials and expects to pursue strategic partnerships to support later-stage development and commercialization.
The Kissei collaboration for MN-221 generated no revenue in Q1 2019 or Q1 2018. Approximately $1.7 million remains recorded as long-term deferred revenue, and the second study under the agreement had not begun as of March 31, 2019; management expected completion after 2019.
Key risks include the need for additional capital over time, continued operating losses, dependence on MN-166 and MN-001, clinical-trial delays or failures, regulatory approval risk, reliance on third-party manufacturers and clinical research organizations, intellectual-property disputes, partner and commercialization risk, market acceptance and reimbursement uncertainty, and potential dilution from equity financing or equity awards.
The company reported no material legal proceedings, no material changes to the risk factors in its 2018 Form 10-K, no off-balance-sheet arrangements and effective disclosure controls. It had no sales under its $30 million at-the-market facility during the quarter.
Most important facts for investors to verify
- Whether the stated cash runway through December 31, 2020 remains adequate given expected increases in development spending and the absence of recurring product revenue.
- Progress, enrollment, funding and results for MN-166 and MN-001 clinical programs, including reliance on grants and investigator-sponsored trials.
- The timing and remaining obligations of the Kissei MN-221 study and the related deferred revenue.
- Potential dilution from 6.8 million outstanding stock options, including 5.6 million exercisable options, and any future equity financing.
- Whether the company can secure strategic partnerships or other non-dilutive funding to support late-stage development and commercialization.
- The carrying values and future impairment risk of $9.6 million of goodwill and $4.8 million of in-process research and development.