MediciNova, Inc. Form 10-Q Summary
Business Context and Reporting Period
MediciNova is a development-stage biopharmaceutical company focused on therapeutics for serious diseases with unmet medical needs. Its principal programs include MN-166 (ibudilast) for progressive multiple sclerosis, ALS and substance dependence; MN-001 (tipelukast) for NASH, IPF and other fibrotic diseases; MN-221 (bedoradrine) for acute asthma exacerbation; and MN-029 (denibulin) for solid tumors. The filing covers the quarter and nine months ended September 30, 2014. The financial statements are unaudited.
Financial Performance and Position
| Metric | Three Months Ended September 30, 2014 | Three Months Ended September 30, 2013 | Nine Months Ended September 30, 2014 | Nine Months Ended September 30, 2013 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $3,257 |
| Research, development and patent expense | $893,265 | $785,573 | $2,476,797 | $2,427,650 |
| General and administrative expense | $1,451,994 | $1,456,774 | $4,363,237 | $5,023,445 |
| Total operating expenses | $2,345,259 | $2,242,347 | $6,840,034 | $7,451,095 |
| Net loss | $2,340,241 | $2,236,750 | $6,814,474 | $7,441,793 |
| Basic and diluted loss per share | $0.10 | $0.10 | $0.28 | $0.37 |
| Net cash provided by operating activities | Not provided for the quarter | Not provided for the quarter | $1,849,299 | $(6,624,818) |
At September 30, 2014, cash and cash equivalents were $11.9 million, compared with $6.7 million at December 31, 2013. Working capital was $11.5 million. Total assets were $27.8 million and total liabilities were $4.8 million. The company had no conventional debt disclosed; liabilities primarily comprised current operating obligations, a $2.0 million deferred tax liability and $1.7 million of long-term deferred revenue.
Accumulated deficit was $308.2 million. Goodwill was $9.6 million and in-process research and development was $4.8 million. Stock-based compensation expense was $497,675 in the quarter and $984,095 for the nine-month period.
Material Changes Versus the Prior Comparable Period
- Quarterly revenue remained zero. Nine-month revenue declined from $3,257 in 2013 to zero in 2014 because no Kissei research and development revenue was recognized.
- Quarterly research and development expense increased approximately 14% to $0.9 million, while nine-month expense increased approximately 2% to $2.5 million.
- Quarterly general and administrative expense was substantially unchanged. Nine-month general and administrative expense decreased approximately $0.6 million, primarily due to lower professional fees and cost-containment efforts.
- Nine-month net loss improved by approximately $0.6 million, and loss per share improved from $0.37 to $0.28, partly reflecting a higher share count.
- Operating cash flow improved from $6.6 million used in the first nine months of 2013 to $1.8 million provided in 2014. The principal driver was collection of the $6.0 million Genzyme-related receivable recorded in 2013.
- Financing cash inflows decreased from $13.3 million to $3.4 million. The 2014 financing proceeds primarily came from at-the-market common-stock sales, warrant exercises and the employee stock purchase plan.
- Common shares outstanding increased to 24.2 million as of November 7, 2014, from 22.5 million at December 31, 2013, reflecting equity issuance and exercises.
Guidance, Outlook, Risks and Unusual Items
Management expects substantial net losses to continue for the next several years as it develops its product candidates. The company stated that available working capital was believed sufficient to fund operations through at least December 31, 2015, but cautioned that additional capital may be required to conduct all planned research and development. Management is pursuing additional equity financing, strategic initiatives and potential partnerships; failure to obtain financing could require selling programs or ceasing operations.
The company’s development strategy emphasizes non-dilutive funding, investigator-sponsored and grant-funded trials for MN-166, continued development of MN-001, and strategic partnerships for later-stage development and commercialization. No specific revenue, earnings or clinical milestone guidance was provided.
- MediciNova has no approved commercial products and generated no revenue in the quarter.
- Clinical, regulatory and commercialization outcomes for its pipeline remain uncertain, and development programs may require substantial additional funding.
- The company’s 50% investment in Zhejiang Sunmy Bio-Medical is accounted for under the equity method. A required sublicense for MN-221 had not been executed, and there was no assurance that the joint venture would proceed with development in China.
- Goodwill and in-process research and development are subject to impairment testing. No impairment was reported in the filing.
- Potential dilution was material: 9.1 million potentially dilutive shares from preferred stock, options and warrants were excluded from diluted loss per share because they were anti-dilutive.
- The company reported no material legal proceedings and no material changes to previously disclosed risk factors.
- Subsequent to September 30, 2014, the company raised approximately $0.1 million gross and net through the sale of 45,000 shares under its at-the-market agreement.
Investor Verification Checklist
- Verify the timing and amount of future financing needs relative to the stated cash runway through at least December 31, 2015.
- Review clinical-trial progress, funding sources and regulatory plans for MN-166 and MN-001.
- Confirm whether the Zhejiang Sunmy sublicense for MN-221 is executed and whether the joint venture is operationally advancing the program.
- Assess dilution from the at-the-market program, outstanding options, warrants and convertible preferred stock.
- Monitor impairment risk associated with the $9.6 million goodwill balance and $4.8 million in-process research and development asset.
- Reconcile future revenue expectations with the absence of current product revenue and the remaining $1.7 million of deferred Kissei revenue.