Business Context and Reporting Period
Company: NanoViricides, Inc. (NNVC)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: March 31, 2010
Business Stage: Development Stage Company
Operations: The Company is a nano-biopharmaceutical firm focused on discovering and developing anti-viral therapeutics (nanoviricides) for diseases including HIV, Influenza, Herpes, Hepatitis, and Rabies. It holds exclusive perpetual licenses from TheraCour Pharma, Inc. The Company has no commercial products or revenue to date and relies on equity financing and research collaborations.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2010 |
Nine Months Ended Mar 31, 2010 |
Cumulative from Inception (May 2005) |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Net Loss | $(2,424,538) | $(4,081,174) | $(16,076,709) |
| Operating Expenses | $2,425,139 | $4,083,766 | $15,440,298 |
| Cash and Equivalents (Ending) | $2,947,954 (as of Mar 31, 2010) | ||
| Total Assets | $4,510,694 | ||
| Total Liabilities | $958,724 (Current) | ||
| Stockholders' Equity | $3,551,970 | ||
| Shares Outstanding | 132,214,094 Common Shares |
Cash Flow (Nine Months Ended Mar 31, 2010):
- Net cash used in operating activities: $(1,731,770)
- Net cash used in investing activities: $(323,308)
- Net cash provided by financing activities: $3,313,590 (primarily from stock issuances and warrant exercises).
Material Changes vs. Prior Period
- Increased Operating Loss: Net loss for the nine months ended March 31, 2010, was $4.08 million, compared to $2.16 million for the same period in 2009. This increase is driven by higher Research and Development (R&D) expenses ($2.68M vs. $1.33M) and General and Administrative (G&A) expenses ($1.36M vs. $0.86M).
- Significant Non-Cash Compensation: The Company recorded substantial non-cash expenses related to the issuance of Series A Convertible Preferred Stock and common stock to executive officers and consultants. This included approximately $1.22 million in preferred stock compensation and $0.43 million in common stock/warrants for services during the nine-month period.
- Liquidity Improvement: Cash and cash equivalents increased from $1.69 million (June 30, 2009) to $2.95 million (March 31, 2010), funded by private placements and warrant exercises.
- Related Party Payables: Accounts payable to related parties increased significantly from $300,969 to $708,526, largely due to development fees charged by TheraCour Pharma, Inc.
Guidance, Outlook, and Risks
Management Commentary & Outlook:
Management states that the Company has sufficient capital to continue operations through December 31, 2011, following a subsequent financing event (see below). The Company plans to prioritize drug development programs to file an Investigational New Drug (IND) application with the FDA. Key programs include FluCide (Influenza), HIVCide (HIV), and eye drops for viral conjunctivitis/keratitis.
Subsequent Financing (Post-Period):
On May 11, 2010, the Company entered into an agreement to sell 500,000 shares of Series B Convertible Preferred Stock to Seaside 88, LP for $5.0 million. Net proceeds were approximately $4.51 million. This financing is expected to extend the Company's runway through late 2011.
Risks and Contingencies:
- Going Concern: While the recent financing mitigates immediate risk, the Company has incurred significant losses since inception and expects losses to continue. Additional financing of $5M–$10M is estimated to be needed over the next 18 months for further development and facility costs.
- Development Risk: All drug candidates are in pre-clinical stages. There is no assurance that nanoviricides will prove effective or safe in human trials.
- Related Party Dependence: The Company relies heavily on TheraCour Pharma, Inc. for technology licensing, manufacturing, and laboratory facilities. TheraCour is a related party controlled by the Company's President.
- Regulatory: The Company must comply with Sarbanes-Oxley Section 404 requirements starting with the fiscal year ending June 30, 2010.
Investor Verification Checklist
- Capital Runway: Verify the closing of the $5.0 million Series B Preferred Stock offering with Seaside 88, LP and the actual net proceeds received.
- Related Party Transactions: Review the terms of the license agreement with TheraCour Pharma, Inc., specifically the 30% development fee markup and the $25,000 monthly lab supply fee, to assess ongoing cash burn.
- Equity Dilution: Monitor the conversion terms of the Series B Preferred Stock (convertible at a discount to VWAP) and the potential dilution from the 40 million shares available under the effective Form S-3 shelf registration.
- R&D Milestones: Track the results of the new research agreements with UCSF (HIV) and NEOUCOM (Herpes) announced in May 2010.
- Expense Management: Scrutinize the valuation methodology used for the $1.22 million non-cash compensation expense related to Series A Preferred Stock issued to executives.