Matinas BioPharma Holdings, Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Matinas is a clinical-stage biopharmaceutical company developing products using its lipid nano-crystal (LNC) drug-delivery platform. It had no approved products and generated only contract research revenue.
Financial results and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $89,813 | $44,906 | $119,750 | $59,875 |
| Research and development | $1.52 million | $2.31 million | $3.72 million | $4.70 million |
| General and administrative | $1.97 million | $1.71 million | $3.93 million | $3.82 million |
| Net loss | $3.41 million | $3.97 million | $7.52 million | $8.46 million |
| Net loss attributable to common shareholders | $3.58 million | $4.12 million | $7.84 million | $25.52 million |
| Basic and diluted loss per share | $0.04 | $0.04 | $0.08 | $0.29 |
- Revenue was from a Cystic Fibrosis Foundation grant supporting MAT2501 research; the grant was expected to continue into Q4 2018 or until the study concludes.
- For the six months, operating cash use was $5.06 million, investing cash use $0.26 million, and financing cash provided $6.87 million. Cash, cash equivalents and restricted cash increased $1.54 million to $9.54 million; cash and cash equivalents alone were $8.90 million.
- At June 30, total assets were $16.04 million, current assets $9.34 million, current liabilities $1.49 million, and working capital approximately $7.8 million. Total liabilities were $3.52 million. The company reported no current note payable; lease liabilities remained outstanding.
- There is no meaningful operating margin comparison given the company’s minimal grant revenue and continuing development costs. The filing does not provide a quarterly cash-flow statement.
Changes versus comparable periods
- Q2 revenue approximately doubled year over year, but remained immaterial relative to operating expenses.
- Q2 R&D expense fell $0.79 million; six-month R&D fell $0.98 million. Management attributed the reduction mainly to lower MAT2203 clinical-study spending after a major human study ended in the prior year. Manufacturing-process development and preclinical spending increased.
- G&A rose $0.27 million in Q2 and $0.11 million for the first half, reflecting higher compensation and severance costs. The company recorded $0.4 million of additional severance expense for a former executive.
- Net loss improved year over year. The much larger 2017 six-month loss attributable to common shareholders included a $16.74 million warrant-inducement charge; no such charge was recorded in 2018.
- In June, the company raised $8.0 million gross, approximately $7.1 million net, through Series B convertible preferred stock. The financing carries conversion rights and scheduled stock dividends, creating potential dilution. Common shares outstanding were 94.24 million at quarter-end and 94.58 million as of August 6.
Outlook, risks and other notable items
- Management estimated available cash would fund planned operations into April 2019. The company stated that substantial doubt exists about its ability to continue as a going concern, given recurring losses, negative operating cash flows and the need for additional financing. Future equity sales, including use of its Cantor equity facility, may be unavailable or insufficient.
- Management expected increasing losses and expenses as it advances MAT2203 and other candidates. It planned to enhance MAT2203 formulation, begin new Phase II studies, and advance the platform. The company said it did not expect FDA approval of a candidate before 2023 at the earliest.
- Key risks include clinical and regulatory uncertainty, manufacturing and third-party dependence, patent and licensing risks, and the need to raise capital. Failure to obtain funding could force delays, reductions or termination of development programs, or licensing of rights on unfavorable terms.
- Series A preferred stock carries an 8% annual stock dividend and potential royalties on MAT2203 and MAT2501 sales or licensing proceeds if applicable milestones occur. Series B preferred stock carries stock dividends of 10%, 15% and 20% on specified anniversaries, subject to its terms and ownership limitations.
- Disclosure controls were deemed ineffective as of June 30 because of a material weakness in accounting for stock-based compensation on modified consultant awards. Management had introduced remedial controls but said they had not operated long enough to conclude the weakness was remediated. No legal proceedings were reported.
- The company reported no goodwill impairment in the period. It also disclosed that cash balances exceeded FDIC insurance limits during the first half.
Investor verification priorities
- Confirm cash burn, financing needs and the assumptions behind the stated runway into April 2019, including availability of the Cantor equity facility or other capital.
- Track MAT2203 formulation and Phase II plans, MAT2501 study progress, and the timing and requirements for clinical and regulatory milestones.
- Review the Series B conversion and dividend provisions, potential dilution, and the Series A royalty obligations tied to future product sales or licensing.
- Monitor remediation and testing of the disclosed internal-control material weakness.
- Assess the significance of the executive severance charge, stock-based compensation, and continuing lease commitments against the company’s limited revenue and cash resources.