Enveric Biosciences, Inc. — Q2 2021 Form 10-Q
Business context and reporting period
Unaudited results cover the three and six months ended June 30, 2021, with comparisons to 2020. Enveric is an early-stage biosciences company developing cannabinoid-based prescription products and therapies for cancer care. It reported no revenue; margins are therefore not meaningful. Historical financial statements before the December 2020 Jay Pharma transaction are those of Jay Pharma, which was treated as the accounting acquirer.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development | $0.88 million | $0.05 million | $1.08 million | $0.07 million |
| General and administrative | $2.31 million | $0.72 million | $8.74 million | $1.53 million |
| Operating expenses | $3.36 million | $0.77 million | $10.13 million | $1.60 million |
| Net loss | $0.91 million | $0.82 million | $4.16 million | $1.92 million |
| Basic and diluted loss per share | $0.04 | $0.15 | $0.22 | $0.34 |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $(5.18) million | $(1.25) million |
At June 30, 2021, cash was $20.62 million, working capital was $20.34 million, total assets were $23.69 million, and total liabilities were $4.88 million. Liabilities included a $3.71 million warrant liability and $148,604 current portion of loans payable; no long-term loan balance was reported. The company had an accumulated deficit of $15.92 million. Cash increased by $19.04 million in the first half, supported by $24.90 million in financing cash inflows, partly offset by operating and investing cash use.
Material changes versus prior comparable period
- First-half operating expenses rose to $10.13 million from $1.60 million. Management attributed the increase principally to $4.34 million of stock-based compensation, higher staffing, insurance, legal and compliance costs, increased product development, and $0.31 million of intangible-asset amortization.
- First-half net loss increased to $4.16 million from $1.92 million despite a $6.27 million noncash gain from remeasuring warrant liabilities. Q2 net loss was $0.91 million versus $0.82 million a year earlier.
- Operating cash use increased to $5.18 million from $1.25 million. The company spent $675,000 on the Diverse Bio license.
- Cash rose from $1.58 million at year-end 2020 to $20.62 million, primarily after January and February equity offerings and warrant exercises. The offerings generated approximately $21.61 million net; warrant exercises added $3.29 million.
- Common shares outstanding increased from 10.10 million at December 31, 2020 to 21.43 million at June 30, 2021. Series B preferred shares were converted into common stock during the first half.
Outlook, commentary, risks and unusual items
- Management said cash and financing commitments were sufficient for expected funding requirements over the next year, but anticipated needing additional financing over the following several years. It cautioned that funding may not be available on acceptable terms and that development plans could be reduced if capital is insufficient.
- Enveric described its candidates as early-stage and dependent on further preclinical, clinical and regulatory progress. No specific revenue, earnings or development guidance was provided.
- The proposed MagicMed amalgamation was pending. MagicMed holders were to receive shares representing approximately 36.6% of Enveric on a fully diluted basis, subject to approvals and other closing conditions; the transaction could trigger substantial dilution. A $4.5 million termination fee may apply in specified circumstances.
- The Diverse Bio license covers five therapeutic candidates and required a $675,000 upfront payment, with royalties beginning upon commercial sales. PureForm was designated the exclusive synthetic CBD supplier for specified development plans; Enveric reported meeting the initial minimum purchase requirement.
- The $6.27 million warrant remeasurement gain was noncash and based on Level 3 valuation inputs, including assumptions about share price and volatility. Warrant liabilities stood at $3.71 million at quarter-end.
- Management stated that material weaknesses in internal control over financial reporting continued at June 30, 2021 and concluded disclosure controls and procedures were not effective. The company said remediation steps were underway.
- Risks include clinical and regulatory uncertainty, reliance on external manufacturing and collaborators, COVID-19 disruption, future financing needs, foreign-currency exposure and potential delays to a planned GBM study in Israel amid regional instability. The filing also describes shareholder demand letters and related requests; management said it did not believe the claims had merit.
- After quarter-end, the SEC declared effective a Form S-3 registration statement permitting sales of up to $200 million of securities. This is a potential financing capacity, not proceeds already raised.
Important facts for investors to verify
- Cash runway assumptions, operating burn and timing or terms of any additional capital raise.
- Progress, regulatory approvals, stockholder votes and closing status of the MagicMed transaction, including fully diluted share impact.
- Development milestones and funding needs for the cannabinoid pipeline and planned GBM study in Israel.
- Warrant-liability valuation assumptions and the potential dilution from outstanding warrants, options and restricted stock awards/units.
- Remediation of the disclosed material weaknesses and effectiveness of financial reporting controls.
- Potential costs or consequences associated with shareholder demands and other legal matters.