Business Context and Reporting Period
This unaudited Form 10-Q covers Nile Therapeutics, Inc. for the quarter and nine months ended September 30, 2013. The filing identifies the registrant as Nile Therapeutics, although the requested company metadata references Capricor Therapeutics. Nile was a development-stage biopharmaceutical company focused on cardiovascular and renal therapies, principally cenderitide and CU-NP, with no product sales to date.
On July 7, 2013, Nile entered into a merger agreement with Capricor, Inc., amended September 27, 2013. Upon closing, former Capricor holders were expected to own 90% of the combined company on a fully diluted basis. The transaction was subject to multiple conditions, including stockholder approval of a reverse split of up to 1-for-100, amendment of the Mayo license agreements, and satisfaction or release of substantially all accrued liabilities.
Key Financial Metrics
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Total income | $0 | $0 | $0 | $195,500 |
| Research and development expense | $30,882 | $179,142 | $130,002 | $976,945 |
| General and administrative expense | $261,083 | $397,170 | $908,178 | $1,339,159 |
| Net loss | $(348,453) | $(566,232) | $(1,428,836) | $(1,691,045) |
| Loss per share | $(0.01) | $(0.01) | $(0.03) | $(0.04) |
- Cash and cash equivalents were $71,028 at September 30, 2013, compared with $46,716 at December 31, 2012.
- Total assets were $114,366, while total liabilities were $1,681,920 and stockholders’ deficit was $1,567,554.
- Current liabilities included $326,796 of secured convertible notes, $339,245 of accounts payable, and $497,886 of accrued expenses and other current liabilities.
- The warrant liability was $499,993 at September 30, 2013, compared with $63,384 at year-end 2012.
- Operating cash use was $358,188 for the nine months ended September 30, 2013, compared with $1,950,890 in the prior-year period. Financing activities provided $382,500, producing a net cash increase of $24,312.
- Working capital deficiency was approximately $1.073 million, compared with $159,000 at December 31, 2012.
Material Changes Versus the Prior Comparable Period
- Revenue declined to zero from $195,500 for the nine-month 2012 period because the Medtronic collaboration had expired and all related reimbursements had been received by February 2012.
- R&D expense declined approximately 87% for the nine months, reflecting the winding down of cenderitide development and the absence of R&D employees.
- G&A expense declined approximately 32% for the nine months due to lower stock compensation, professional fees, consulting usage, and general operating costs.
- Net loss improved by approximately $262,000 for the nine months, but the company remained substantially undercapitalized and continued to incur losses.
- Interest expense increased to $155,345 for the nine months because of the March 2013 convertible notes; no interest expense was reported in the prior-year period.
- Other expense was $235,511 for the nine months, primarily from an increase in the fair value of the warrant liability. The increase was driven largely by the higher probability assigned to the planned Capricor merger.
- Common shares outstanding increased to 43,520,563 from 43,062,231 at year-end 2012, primarily following the exchange of warrants for 458,332 common shares.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management stated that available cash was sufficient only for minimal operating expenses until approximately the middle of the fourth quarter of 2013. The company required additional capital to continue operations and fund development.
- The filing states that these conditions raised substantial doubt about the company’s ability to continue as a going concern. If the Capricor merger failed to close or additional financing was unavailable, management stated that the company could be forced to liquidate.
- Development of cenderitide and CU-NP was on hold pending strategic alternatives. Management estimated a future Phase 2 cenderitide trial would cost approximately $15 million to $20 million and take approximately 30 months.
- The March 2013 secured convertible notes had $450,000 of principal, a March 15, 2014 maturity date, and a blanket lien on company assets. Upon certain change-of-control events, the notes could convert at approximately $0.045 per share and trigger issuance of five-year warrants.
- On October 21, 2013, the company issued additional notes with $120,510 of principal and received gross proceeds of $102,433.
- Nile was not in compliance with several terms of its cenderitide and CU-NP license agreements with Mayo, including annual maintenance fee and active-development requirements. Amounts owed to Mayo totaled approximately $193,400, and failure to renegotiate could result in loss of the licensed rights.
- Deferred salary accruals at September 30, 2013 totaled $253,926 for the CEO and $182,533 for the CFO. Certain change-of-control arrangements could require equity or cash payments based on specified percentages of the transaction.
- At a November 12, 2013 special meeting, stockholders approved the reverse-split authorization and proposed name change to Capricor Therapeutics, as well as related merger and compensation proposals. The filing does not state in the provided text whether the merger had formally closed by the filing date.
- The filing reports no material pending legal proceedings and no off-balance-sheet arrangements.
Most Important Facts to Verify
- Whether the Capricor merger closed, the effective reverse-split ratio, and the resulting ownership and capitalization.
- Whether the company obtained sufficient financing after September 30, 2013 to avoid liquidation and fund ongoing operations.
- The final status of the Mayo license amendments, outstanding Mayo obligations, and continued rights to cenderitide and CU-NP.
- The outstanding principal, conversion treatment, warrant issuance, and repayment or settlement status of the 2013 convertible notes.
- The impact of the merger, warrant exchanges, option terminations, and any subsequent equity issuances on dilution.
- Whether the combined company resumed development of cenderitide or CU-NP, and the funding and clinical timeline for those programs.