MediciNova, Inc. — Q2 2015 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, including progressive multiple sclerosis, ALS and substance dependence, and MN-001 (tipelukast) for fibrotic diseases, including NASH and IPF. The pipeline also includes MN-221 for acute asthma exacerbations and MN-029 for solid tumors. This unaudited report covers the three and six months ended June 30, 2015.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0 | $0 |
| Research, development and patent expense | $0.8 million | $1.5 million |
| General and administrative expense | $1.5 million | $3.0 million |
| Operating loss | $2.3 million | $4.5 million |
| Net loss applicable to common stockholders | $2.3 million | $4.5 million |
| Net loss per common share | $0.09 | $0.18 |
| Net cash used in operating activities | Not separately presented | $4.5 million |
Cash and cash equivalents were $8.6 million at June 30, 2015, compared with $11.7 million at December 31, 2014. Working capital was approximately $8.5 million. Total assets were $24.7 million, total liabilities were $4.8 million and stockholders’ equity was $19.9 million. The filing reports no debt; liabilities primarily comprised operating accruals, a $2.0 million deferred tax liability and $1.7 million of long-term deferred revenue.
Financing activities provided $1.4 million during the first six months, including proceeds from common-stock sales, warrant exercises and the employee stock purchase plan. The company had 24.9 million common shares outstanding as of July 24, 2015. Potentially dilutive securities excluded from per-share calculations totaled 9.8 million shares, comprising preferred stock equivalents, options and warrants.
Material changes versus the prior comparable period
- Second-quarter net loss increased to $2.3 million from $2.1 million, primarily because general and administrative expense increased by $0.2 million.
- Second-quarter research, development and patent expense was essentially unchanged at $0.8 million.
- Six-month net loss increased modestly to $4.5 million from $4.4 million, while total operating expenses were broadly stable at $4.5 million.
- Operating cash flow changed from $3.4 million provided in the first six months of 2014 to $4.5 million used in the first six months of 2015. The prior-year benefit principally reflected collection of a $6.0 million receivable.
- Financing cash inflows declined to $1.4 million from $3.4 million in the prior-year period.
- Stock-based compensation increased to $1.1 million from $0.5 million for the first six months, contributing to higher general and administrative expense. The company granted options covering 649,000 shares.
Guidance, outlook, risks and unusual items
Management stated that available working capital was expected to fund operations through March 2016, but cautioned that existing resources might not support all planned research and development programs. The company was pursuing additional equity financing and strategic alternatives. If additional financing cannot be obtained, management indicated it may need to sell programs or cease operations.
On May 22, 2015, the company terminated its prior $10.0 million at-the-market facility with Macquarie Capital after selling 2.1 million shares for aggregate gross proceeds of $5.3 million. It entered a new $30.0 million at-the-market agreement with MLV & Co. Through June 30, 2015, the company had sold 7,800 shares under the new facility for approximately $32,700 gross proceeds, excluding $101,800 of issuance costs.
Outstanding warrants could provide approximately $11.3 million of gross proceeds if exercised, but there is no assurance that they will be exercised. Approximately 2.4 million warrants with a $3.56 exercise price expired in March 2016, and additional warrants had May 2018 expirations.
The company recognized no revenue from the remaining Kissei research and development services during the reported periods and carried $1.7 million of deferred revenue. A vendor paid $100,000 to offset costs of drug product inadvertently destroyed by the vendor; the payment reduced general and administrative expense. The agreement with Adelaide Research & Innovation Pty Ltd. was terminated on May 1, 2015.
MediciNova had no material legal proceedings and reported no material changes to the risk factors in its 2014 Form 10-K. Key risks include continued operating losses, dependence on external financing, clinical and regulatory uncertainty, potential dilution from equity and warrant issuance, and the possibility that development programs or partnerships may not succeed. Disclosure controls and procedures were concluded to be effective at the reasonable assurance level.
Investor verification checklist
- Verify the company’s projected cash runway and expected financing requirements against current research and development plans.
- Review the terms, sales capacity and subsequent activity under the $30.0 million MLV at-the-market facility.
- Track warrant exercises, expirations and potential dilution from approximately 9.8 million excluded securities.
- Assess clinical progress, funding sources and trial requirements for MN-166, MN-001 and other pipeline programs.
- Confirm the status and recoverability of the $9.6 million goodwill balance and $4.8 million in-process research and development asset.
- Monitor whether the Kissei deferred revenue will be recognized and whether the Zhejiang Sunmy joint venture executes the required MN-221 sublicense.