Bone Biologics Corporation — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed April 15, 2021. Although the request metadata refers to 2019 Q4, this filing reports on fiscal 2020 and compares with 2019.
Business context
Bone Biologics is a development-stage medical-device company with no product revenue. Its lead candidate, NELL-1/DBX, is intended to promote bone regeneration in lumbar spinal fusion. The FDA advised that it is a combination product regulated under device authorities, with the Center for Devices and Radiological Health as lead, and the company expects a Class III premarket approval pathway. The company holds an exclusive worldwide UCLA license for specified applications.
The filing describes a pilot study planned for 30 patients in Australia and reports Human Research Ethics Committee approval for the first center. It also describes prior preclinical work and a pivotal animal study; no human efficacy results are reported.
Financial results and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $340,672 | $1,095,176 |
| General and administrative expense | $484,342 | $1,352,258 |
| Total operating expenses | $825,014 | $2,447,434 |
| Interest expense, related party | $998,076 | $975,774 |
| Net loss | $1,824,690 | $3,424,811 |
| Basic and diluted loss per share | $0.25 | $0.47 |
| Cash used in operating activities | $426,933 | $3,251,229 |
| Cash at year-end | $0 | $24,145 |
Gross margin and operating margins are not meaningful because the company had no revenue. The 2020 net loss narrowed as operating expenses fell amid curtailed operations; interest expense increased slightly. The company reported no assets at year-end, current liabilities and total liabilities of $13,692,310, and a stockholders’ deficit of $13,692,310. Accumulated losses were approximately $69.0 million.
Related-party notes payable to Hankey Capital totaled $11,712,179 at December 31, 2020, bore interest at 8.5%, and were due December 31, 2021. Interest payable to the related party was $1,251,626. The notes are secured by collateral shares and company assets, including assignments of license agreements. The second credit facility had $387,821 available at year-end; the company subsequently drew $75,697. The filing’s cash-flow statement reports $402,788 of financing cash flow, including a $10,609 bank overdraft; MD&A separately describes $329,179 as cash provided by financing from facility draws.
Changes, outlook and key risks
- Operating expenses declined 66% from 2019, including a 69% reduction in R&D, because the company curtailed operations and cut costs amid limited funding and COVID-19-related delays.
- Management estimated $6.6 million of operating expenditures for the next 12 months. It estimated a further $20 million to complete protein synthesis, animal studies and begin first-in-human studies, plus $27 million to reach a spine interbody-fusion product launch. These are estimates, not committed funding.
- The auditor’s report and management disclosure state that recurring losses, operating cash use and the stockholders’ deficit raise substantial doubt about the company’s ability to continue as a going concern. Future operations depend on obtaining financing; failure to do so could force further reductions or discontinuation of development.
- Hankey Capital is the principal funding source and related-party lender, and is reported to control approximately 89% of common stock including collateral shares. The concentration of ownership, related-party debt, collateral arrangements and potential dilution are significant investor considerations.
- COVID-19 delayed or extended clinical-trial work by several months, according to the company’s clinical research organizations, and may increase costs or constrain financing. The company amended its UCLA license in August 2020 to revise certain milestone dates and address overdue patent, maintenance and related amounts.
- Clinical, regulatory, manufacturing, intellectual-property, market-acceptance and financing risks remain substantial. The filing reports a pending lawsuit concerning terminated professional-service agreements; the possible loss could not be estimated because the matter was at an early stage.
- Management concluded disclosure controls were ineffective and identified a material weakness caused by insufficient staffing for financial-statement preparation and review. The company also reported that interim filings were not timely.
Important facts for investors to verify
- Whether financing was secured after year-end, including the status, terms and maturity of Hankey Capital facilities and the notes due December 31, 2021.
- Current cash, liabilities, interest payable and near-term funding needs, given zero year-end cash and the going-concern warning.
- The actual clinical-trial status, enrollment, COVID-19 delays and regulatory milestones for NELL-1/DBX, including the expected PMA pathway.
- Whether UCLA license obligations and revised development milestones are current, and whether any license rights or milestone dates are at risk.
- The status and potential financial exposure of the Soo and Ting litigation, and progress in remediating the material weakness in internal controls.
- Reconcile the filing’s differing presentation of 2020 financing cash flow and confirm subsequent-period financing and cash balances.