Business Context and Reporting Period
Filing inconsistency: The request identifies Palisade Bio, Inc., but the supplied Form 10-Q is for Neuralstem, Inc. for the quarter ended September 30, 2017. The summary below reflects the supplied filing.
Neuralstem is a clinical-stage biopharmaceutical company developing neural stem-cell therapies and small-molecule compounds for central nervous system diseases. Its principal programs included NSI-189 and NSI-566. The company had seven full-time employees as of November 1, 2017 and operated facilities in Maryland and China.
Key Financial Metrics
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | $2,500 in 2017 and 2016 | $7,500 in 2017 and 2016 |
| Research and development expense | $1.38 million; down 61% | $6.87 million; down 25% |
| General and administrative expense | $1.21 million; down 9% | $4.17 million; down 29% |
| Total operating expenses | $2.59 million; down 47% | $11.05 million; down 26% |
| Operating loss | $2.59 million | $11.04 million |
| Net loss | $133,783, or $0.01 basic loss per share | $12.35 million, or $1.00 basic loss per share |
| Cash used in operating activities | Not separately provided | $11.13 million |
The third-quarter net loss was substantially lower than the prior-year loss because of a $2.68 million non-cash gain from changes in derivative fair values and lower operating expenses. The filing does not provide a meaningful operating margin because revenue was nominal and the company remained pre-commercial.
At September 30, 2017, cash and cash equivalents were $9.06 million, short-term investments were $5.00 million, and total liquidity was approximately $14.1 million. Total assets were $16.19 million, total liabilities were $4.62 million, and stockholders’ equity was $11.56 million.
The company reported no current portion of long-term debt at September 30, 2017. Its prior long-term loan was paid off in April 2017. Derivative liabilities, primarily warrant-related, were $2.79 million. Common shares outstanding were 15.15 million at September 30, 2017, compared with 11.03 million at December 31, 2016.
Material Changes Versus the Prior Comparable Period
- Research and development expense decreased $2.21 million in the third quarter, primarily because the NSI-189 Phase 2 trial was completed, along with restructuring-related cost reductions and lower stock compensation.
- Nine-month research and development expense declined $2.26 million, while general and administrative expense declined $1.69 million, reflecting restructuring, headcount reductions and lower non-cash compensation.
- Operating cash use improved modestly from $11.54 million to $11.13 million for the first nine months.
- Investing cash flow changed from $7.39 million provided in 2016, primarily from short-term investment maturities, to $93,638 used in 2017.
- Financing activities provided $5.09 million, including approximately $5.41 million of net proceeds from the August offering and $3.23 million from warrant exercises, partially offset by debt payments.
- In August 2017, the company issued 3.0 million common shares and 2.25 million warrants for gross proceeds of $6.0 million and net proceeds of approximately $5.4 million.
- The company adopted a 1-for-13 reverse stock split effective January 6, 2017; share and per-share amounts were retrospectively adjusted.
Guidance, Outlook, Risks and Unusual Items
Management stated that existing cash and investments were expected to fund planned operations through December 2018, assuming the current operating plan and declining average monthly cash burn. The company also stated that additional capital will be required for continued clinical and preclinical development and that it had no commitments for future funding.
Management warned that failure to obtain financing could require delaying, scaling back or eliminating development programs and clinical trials, curtailing operations, ceasing operations or filing for bankruptcy. The filing indicates substantial uncertainty regarding the company’s ability to continue as a going concern if additional financing is not obtained.
- The NSI-189 Phase 2 major depressive disorder trial did not meet its primary efficacy endpoint. A secondary patient-rated endpoint was statistically significant at the 40 mg once-daily dose, and other results were directionally positive; further analyses were planned for late 2017.
- The company received an approximately $1 million NIH SBIR grant for NSI-189 diabetic-neuropathy preclinical studies, payable over two years subject to conditions. Proceeds are expected to reduce research and development expense.
- The company recognized approximately $92,000 related to ceasing use of a San Diego research facility and the expected remaining lease obligations.
- Third-quarter other income included a $2.68 million non-cash derivative fair-value gain. Nine-month other expense included $564,000 of warrant-inducement expense, $403,000 of derivative fair-value losses and $243,000 of costs related to liability-classified warrants.
- Clinical, regulatory, manufacturing, intellectual-property, reimbursement, third-party supplier and financing risks remain significant. No product candidate had received regulatory approval or generated commercial sales.
- The company reported effective disclosure controls as of September 30, 2017 and no material changes in internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is Neuralstem, Inc., not Palisade Bio, Inc.
- Verify cash runway assumptions through December 2018 and the timing and terms of required future financing.
- Review the full warrant and preferred-stock terms, including potential dilution, derivative-liability accounting and approximately 10.87 million shares reserved for future issuance under outstanding instruments and equity plans.
- Assess the implications of the failed primary endpoint in the NSI-189 Phase 2 trial and the company’s subsequent development strategy.
- Confirm the status, costs and milestones of the NSI-566 clinical programs and the NIH-funded NSI-189 preclinical program.
- Evaluate the impact of the August 2017 financing, warrant exercises, reverse stock split and outstanding warrant obligations on capitalization and future liquidity.