Inmune Bio, Inc. — Q1 2019 Form 10-Q
Business context and period: Clinical-stage immunotherapy company developing INKmune, INB03 and XPro1595, with research and development focused on innate immune system targets. This unaudited report covers the three months ended March 31, 2019; the comparable period is Q1 2018. The company reported no revenue and said commercial product revenue is not expected for several years, if ever.
Financial performance and liquidity
- Revenue and margins: No revenue in either quarter. Operating expenses were $1.91 million, down from $2.85 million; gross margin is not applicable.
- Loss: Net loss was $1.90 million versus $2.85 million. Basic and diluted loss per share was $0.20 versus $0.33.
- Expenses: R&D expense was $101,592 versus $104,011. General and administrative expense declined to $1.81 million from $2.74 million, largely because stock-based compensation fell to $974,699 from $2.46 million; higher professional fees and payroll partly offset the decline. Q1 2019 R&D expense included $0.4 million of clinical trial costs, partly offset by $0.3 million of Alzheimer’s Association grant-related contra expense.
- Cash flow: Operating activities used $1.39 million, compared with $0.33 million in Q1 2018. Financing provided $7.25 million, principally net IPO proceeds. The cash flow statement reports a $5.86 million net increase in cash, including a $722 foreign-currency translation outflow.
- Balance sheet at March 31: Cash and cash equivalents were $6.05 million, versus $186,204 at December 31, 2018. Current assets were $7.13 million and current liabilities $780,860. Total assets were $23.64 million, including $16.51 million of acquired in-process R&D intangible assets; stockholders’ equity was $22.86 million.
- Debt: No debt balance is reported on the balance sheet; the filing reports no interest paid during the quarter.
Changes, outlook and risks
- The February 2019 IPO raised $8.17 million gross and $7.25 million net, issuing 1,020,820 shares. Cash increased substantially, while shares outstanding rose to 9,740,261 at quarter-end.
- Management stated that cash, R&D tax credit reimbursements and grant funding were expected to fund planned operations through 2019 and into Q1 2020. The company expected an additional $0.4 million in grants by or before Q1 2020. It plans to seek further capital; success and timing are uncertain.
- The filing identifies substantial doubt about the company’s ability to continue as a going concern, citing recurring losses, an accumulated deficit of $15.50 million and dependence on future financing. Management said additional revenue from product candidates is not expected for several years.
- Subsequent events: the company sold 522,212 shares in April and May for $4.70 million, including purchases by the CEO and CFO. Pacific Seaboard waived issuance of the final 200,000 shares under its consulting agreement.
- Key risks include clinical and regulatory development uncertainty, rising anticipated R&D costs, dependence on additional financing, and potential delays or failure to develop products. No material change to previously disclosed risk factors was reported. No pending legal proceeding was identified as expected to have a material adverse effect.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2019, due to the company’s small size and limited segregation of duties.
- Licensing arrangements include potential milestone and royalty obligations. The INKmune license has stated development milestones, beginning with an IND or equivalent filing by October 29, 2019; failure to meet milestones may require remediation discussions and could risk termination or conversion to a non-exclusive license.
Important facts for investors to verify
- Reconcile the cash-flow presentation: the cash flow statement reports a $5,862,718 net increase after foreign-currency effects, while the MD&A table shows a $5,863,440 change before listing the separate $722 translation outflow.
- Confirm the timing and availability of the expected grant funding and R&D tax credit reimbursements, and whether post-quarter share sales materially extend the stated runway.
- Track operating cash use, planned clinical trial spending, financing needs and the company’s going-concern assessment.
- Monitor clinical progress and license milestones, particularly the INKmune IND-or-equivalent deadline, as well as potential dilution from outstanding options and warrants.
- Assess the implications of ineffective disclosure controls and the filing’s stated limits on internal-control reporting for a newly public company.