Filing identity and reporting period
Important mismatch: The supplied filing is NeoStem, Inc.’s Form 10-K for the fiscal year ended December 31, 2012, filed March 8, 2013. It is not a Lisata Therapeutics filing and does not report 2011 Q4 results. The summary below reflects the filing provided.
Business context
NeoStem focused on cellular therapy, combining its contract development and manufacturing business, Progenitor Cell Therapy (PCT), with development of proprietary therapies. Its lead candidate, AMR-001, was in a Phase 2 trial for post-heart-attack patients. The company also pursued T-regulatory-cell and VSEL programs. During 2012, NeoStem exited its China regenerative-medicine operations and sold its 51% interest in Chinese pharmaceutical manufacturer Suzhou Erye; the company thereafter reported one operating segment, Cell Therapy.
Key financial results
| Metric | FY2012 | FY2011 |
|---|---|---|
| Revenue from continuing operations | $14.3 million | $10.1 million |
| Gross profit / gross margin | $2.4 million / 17% | $1.4 million / 14% |
| Research and development expense | $10.5 million | $7.7 million |
| Operating expenses | $32.8 million | $35.4 million |
| Operating loss | $30.4 million | $34.0 million |
| Loss from continuing operations | $36.1 million | $34.6 million |
| Net loss, including discontinued operations | $66.4 million | $56.6 million |
| Net loss attributable to common stockholders | $55.3 million | $47.8 million |
| Basic and diluted loss per share | $0.40 | $0.54 |
- Continuing-operations revenue rose 43%, with growth in PCT clinical services and processing and storage services. Gross margin improved as facility utilization increased, partly offset by reimbursable costs that carry little or no margin.
- R&D expense increased 35%, primarily reflecting AMR-001 Phase 2 trial costs. Selling, general and administrative expense declined 19%, including lower equity-based compensation and professional fees.
- Other expense included a $4.42 million increase in the estimated fair value of AMR-001 acquisition-related contingent consideration, which reached $7.55 million at year-end.
Cash flow, liquidity and debt
- Year-end cash and cash equivalents were $13.7 million, compared with $3.9 million at December 31, 2011. Working capital was $6.8 million and stockholders’ equity was $33.2 million.
- Cash used in operating activities from continuing operations was $18.8 million, versus $21.8 million in 2011. Total company cash used in operating activities was $13.9 million, including cash provided by discontinued operations.
- Continuing-operations investing activities provided $11.7 million, primarily from the Erye sale; continuing-operations financing activities provided $17.1 million.
- NeoStem raised capital through public and private equity offerings, warrant exercises and its Aspire Capital equity line. The Erye sale provided approximately $12.3 million in cash. The Aspire agreement retained up to $16.7 million of stated capacity at year-end, subject to its terms and market-price conditions.
- Year-end mortgages were $3.44 million; notes payable were approximately $0.37 million. The company was out of compliance with financial covenants on both mortgages at multiple measurement dates, including December 31, 2012, and obtained lender waivers. The mortgages were classified as current liabilities.
- Common shares outstanding increased to 163.8 million from 109.3 million. The filing also reports 21.7 million outstanding options and 55.3 million warrants at year-end, creating substantial potential dilution.
Material changes and unusual items
- NeoStem completed the sale of its 51% Erye stake in November 2012 for consideration including $12.3 million cash, returned shares and canceled options and warrants. It recorded a $3.42 million loss on the sale.
- The company exited its China regenerative-medicine business and recorded a $1.14 million exit loss. Discontinued operations also included substantial Erye impairment charges; the combined discontinued-operations loss was $30.3 million in 2012.
- All Series E preferred stock was redeemed in October 2012, with approximately $3.4 million paid in cash, including an early-redemption premium and accrued interest.
- The independent auditor issued an unqualified opinion on the financial statements. The auditor was not engaged to audit internal control over financial reporting.
Outlook, management commentary and risks
- Management expected to complete enrollment in the 160-patient AMR-001 Phase 2 PreSERVE trial in 2013, with an initial data readout six to eight months later. As of March 8, 2013, 87 patients had been enrolled; FDA authorization allowed enrollment up to 180 if needed.
- The trial was estimated to cost about $16 million over its first two years and up to $22 million over five years, including manufacturing. Approximately $6.7 million had been incurred by December 31, 2012.
- Management anticipated further capital needs to fund clinical development and expand PCT, including potential European operations, automation and commercial manufacturing capacity. The filing gives no assurance financing will be available on acceptable terms and warns that equity financing may dilute shareholders.
- Other stated plans included an IND filing for a T-regulatory-cell program in 2013 and a VSEL periodontitis program in late 2013 or early 2014. These are plans, not assured milestones.
- Key risks include continuing losses and negative operating cash flow; dependence on external financing; AMR-001 trial enrollment, efficacy, safety and regulatory uncertainty; limited commercial-scale manufacturing capacity and reliance on PCT; competition and uncertain reimbursement; and the early, unproven market for cellular therapies.
- The filing notes serious adverse events in the AMR-001 Phase 1 study and serious adverse events in Phase 2 whose treatment-group status was not clear. A Phase 1 clinical hold following a participant death was lifted after the company presented evidence attributing the death to recurrent myocardial infarction from stent thrombosis before infusion.
Investor verification priorities
- Confirm the issuer and period: this is NeoStem’s FY2012 10-K, not a Lisata Therapeutics 2011 Q4 filing.
- Review the AMR-001 trial’s enrollment progress, safety disclosures, endpoints and timing of results in subsequent filings.
- Assess cash burn against available liquidity, the terms and remaining capacity of the Aspire facility, and subsequent capital raises or share issuance.
- Verify the status of mortgage covenant waivers, current-liability classification and any lender terms or amendments.
- Reconcile discontinued-operations losses and Erye sale proceeds, including the impairment and disposal accounting.
- Evaluate dilution from outstanding options and warrants and the assumptions underlying the $7.55 million contingent-consideration valuation.