MediciNova, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2012; filed November 8, 2012. The interim financial statements are unaudited. MediciNova is a development-stage biopharmaceutical company focused on small-molecule therapeutics for serious diseases with unmet medical needs.
Financial Position and Results
| Metric | Q3 2012 | Nine months 2012 | Comparable period |
|---|---|---|---|
| Revenue | $83,787 | $768,584 | $0 in Q3 and nine months 2011 |
| Research and development expense | $872,555 | $4.23 million | $1.68 million and $6.34 million, respectively, in 2011 |
| General and administrative expense | $1.57 million | $5.06 million | $2.23 million and $6.26 million, respectively, in 2011 |
| Operating loss | $2.36 million | $8.52 million | $3.91 million and $12.61 million, respectively, in 2011 |
| Net loss | $2.38 million | $8.53 million | $3.89 million and $14.23 million, respectively, in 2011 |
| Loss per common share | $0.14 | $0.52 | $0.25 and $0.99, respectively, in 2011 |
| Net cash used in operating activities | Not separately reported | $9.68 million | $12.36 million in 2011 |
Revenue was generated under the Kissei research and development services agreement. The $2.5 million nonrefundable upfront payment is recognized as services are performed; $1.69 million remained deferred at September 30, 2012. Gross margin is not meaningful because the company reported no cost of revenues for the quarter and recorded the related development-service costs in research and development expense.
- Cash and cash equivalents were $5.74 million at September 30, 2012, down from $15.09 million at December 31, 2011.
- Total assets were $21.50 million and total liabilities were $4.80 million at September 30, 2012.
- There was no debt or interest expense during the first nine months of 2012. The prior Oxford loan had been repaid in full in April 2011.
- Accumulated deficit was $293.8 million, including approximately $50.2 million of cumulative noncash stock-based compensation.
- Stockholders’ equity was $16.70 million at September 30, 2012.
Material Changes Versus 2011
- Nine-month revenue increased from zero to $768,584 because of the Kissei services agreement.
- Nine-month research and development expense declined $2.11 million, primarily because the MN-221 CL-007 asthma trial was completed in March 2012. This was partly offset by approximately $1.3 million of spending on the MN-221 CL-012 COPD trial.
- Nine-month general and administrative expense declined approximately $1.2 million, primarily from lower employee compensation and stock-based compensation.
- Nine-month net loss improved by approximately $5.70 million, principally due to lower operating expenses and the absence of approximately $1.6 million of 2011 interest expense.
- Operating cash use declined from $12.36 million to $9.68 million for the first nine months.
- Common shares outstanding increased from 16.09 million at December 31, 2011 to 17.15 million at September 30, 2012, before considering additional subsequent issuances.
Outlook, Liquidity, Risks, and Unusual Items
- Management expects substantial operating losses to continue for at least the next several years and stated that September 30 working capital was expected to fund operations through March 31, 2013, assuming the current plan and no new clinical trials.
- The company expects to require additional financing through equity issuances, debt, collaborations, or a combination of these sources. Insufficient funding could delay, reduce, or terminate development programs and could result in loss of license rights.
- On August 20, 2012, MediciNova entered into a two-year agreement allowing sales of up to $20 million of common stock to Aspire Capital, subject to volume, price, and other limitations. As of November 7, 2012, it had sold 656,060 shares for gross proceeds of approximately $1.1 million at prices ranging from $1.65 to $1.92 per share.
- MN-221 CL-007 preliminary results did not statistically meet the primary FEV1 endpoint. Following an October 22, 2012 FDA meeting, the agency identified the risk-benefit profile as central to further development and indicated that reduction in hospitalizations would need to be a pivotal-trial primary endpoint. Future trial design, cost, timing, and development strategy remained uncertain.
- Preliminary results from the MN-221 CL-012 COPD trial were announced as positive on August 23, 2012. The company continued to prioritize MN-221 and MN-166 while limiting spending on other programs.
- MediciNova invested $680,000 for a 30% interest in Zhejiang Sunmy, a China joint venture for MN-221. The required MN-221 sublicense had not been executed, and the company was not the primary beneficiary.
- A former employee litigation matter was stayed in arbitration. Management did not expect a material adverse effect, although other disputes could arise and outcomes can change.
- The company reported no off-balance-sheet arrangements. Management concluded that disclosure controls were effective at the reasonable assurance level.
Investor Verification Checklist
- Verify the cash runway and financing needs against current operating burn, including the assumptions underlying the March 31, 2013 liquidity estimate.
- Review the FDA feedback and subsequent development decision for MN-221, including the potential cost and design of any hospitalization-focused pivotal trial.
- Track MN-221 CL-012 results and the status of the MN-166 clinical and partnering programs.
- Assess dilution from the Aspire facility, outstanding options and warrants, and the Series B preferred stock convertible into 2.2 million common shares.
- Confirm recognition of the remaining Kissei deferred revenue and the company’s obligations to perform the related research services.
- Monitor the Zhejiang Sunmy sublicense and the company’s continuing obligations under product-license agreements.