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MNOV > SEC Filings for MNOV > Form 10-Q on 8-Aug-2013All Recent SEC Filings

Show all filings for MEDICINOVA INC

Form 10-Q for MEDICINOVA INC


8-Aug-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2012 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 28, 2013. Past operating results are not necessarily indicative of results that may occur in future periods.

This Quarterly Report on Form 10-Qcontains forward-looking statements that are subject to risks and uncertainties, many of which are beyond our control. Our actual results may differ from those anticipated in these forward-looking statements as a result of various factors, including those set forth in Part II of this Quarterly Report on Form 10-Q under the caption "Item 1A. Risk Factors" and under the caption "Item 1A. Risk Factors" in our Annual Report on Form 10-K, and the differences may be material. Forward-looking statements discuss matters that are not historical facts. Forward-looking statements include, but are not limited to, statements regarding our plans, strategies, objectives, product development programs, clinical trials, industry, financial condition, liquidity and capital resources, future performance and other statements that are not historical facts. Such forward-looking statements include statements preceded by, followed by or that otherwise include the words "may," "might," "will," "intend," "should," "could," "can," "would," "expect," "believe," "estimate," "anticipate," "predict," "potential," "plan" or similar words. For such statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. You should not rely unduly on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

Overview and Recent Developments

We are a development stage biopharmaceutical company focused on acquiring and developing novel, small molecule therapeutics for the treatment of serious diseases with unmet medical needs with a commercial focus on the U.S. market. We were incorporated in Delaware in September 2000.

We have incurred significant net losses since our inception. We incurred losses of $5.2 million for the six months ended June 30, 2013, and at June 30, 2013, from inception, our accumulated deficit is $301.4 million, including $50.9 million of non-cash stock-based compensation charges. We expect to incur substantial net losses for the next several years as we continue to develop certain of our existing product development programs, and we may incur substantial net losses over the long-term if we expand our research and development programs and/or acquire products, technologies or businesses that are complementary to our own. As of June 30, 2013, we had available cash and cash equivalents of $12.0 million and working capital of $11.4 million. While there can be no assurances given, we believe our working capital at June 30, 2013 will be sufficient to fund our operations for at least the next 12 months, assuming that we operate our business in accordance with our current operating plan. This belief is based on assumptions that could prove to be wrong, and we could utilize our available working capital sooner than we currently expect.

Between August 21, 2012 and June 30, 2013 we have generated net proceeds of $5.3 million under the common stock purchase agreement with Aspire and the Company has made no sales of our common to stock to Aspire subsequent to June 30, 2013 through the date of this report. We have the right, subject to the terms of the common stock purchase agreement, to cause Aspire to acquire up to 3,231,096 shares for total gross proceeds not to exceed $20 million, subject to daily dollar limitations and subject to the maximum dollar amount we can sell from time to time under our registration statement on Form S-3. Between April 17, 2013 and June 30, 2013, we have generated net proceeds of $5.1 million under the at-the-market equity distribution agreement with MCUSA on sales of 1,770,971 shares of our common stock. Between April 17, 2013 and the date of this report, we have generated gross proceeds of $6.0 million under the at-the-market equity distribution agreement with MCUSA,


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including gross proceeds of $0.4 million on the sale of 165,266 shares of our common stock subsequent to June 30, 2013. On May 14, 2013, we closed the Private Placement generating gross proceeds of $3.7 million through the sale of 1,158,730 shares of our common stock and warrants to purchase 750,000 and 119,047 shares of our common stock with an exercise price of $3.15 per share and $3.38 per share, respectively. Expenses incurred related to this transaction were $0.3 million.

We may pursue other opportunities to raise capital in the near future. There can be no assurances that there will be adequate financing available to us on acceptable terms, or at all. If the Company is unable to obtain additional financing, we may have to sell one or more of our programs or cease operations.

We are currently focusing our development activities on MN-166, a drug candidate for the treatment of neurological disorders, and on MN-221, a drug candidate for the treatment of acute exacerbations of asthma and COPD.

Kissei Stock Purchase

In October 2011, pursuant to a stock purchase agreement by and between us and Kissei Pharmaceutical Co., Ltd., or Kissei, Kissei purchased for $7.5 million
(i) an aggregate of 800,000 shares of our common stock, par value $0.001 per share, at a price of $2.50 per share, which approximated the fair value of our common stock at the time of the transaction, and (ii) 220,000 shares of our Series B Convertible Preferred Stock, par value $0.01 per share, at a price of $25.00 per share, which approximated the fair value of our preferred stock on an as converted basis at the time of the transaction. The purchase agreement contains customary representations, warranties and covenants and a standstill agreement from Kissei that terminates if Kissei beneficially owned less than three percent of our outstanding voting stock. Each share of the Series B Preferred Stock is convertible into 10 shares of common stock. The Series B Preferred ranks pari passu (on an as-if-converted-to-common-stock basis) with the common stock in liquidation and dividend rights. The holders of the Series B Preferred do not have voting rights, and the consent of a majority of the outstanding Series B Preferred is required for certain actions of the Company.

Kissei Services Agreement

In October 2011, we entered into an agreement with Kissei to perform research and development services relating to MN-221 in exchange for a non-refundable upfront payment of $2.5 million. We assessed the deliverables in accordance with the authoritative guidance and concluded the existence of one deliverable, which was research and development services. Under the terms of the agreement, we are responsible for all costs to be incurred in the performance of these services. As such, we are recognizing the $2.5 million payment as revenue as the research and development services are performed. Certain of these research and development services were completed in 2012 and the remaining services are expected to be completed after 2013.

Common Stock Purchase Agreement

On August 20, 2012, we entered into a common stock purchase agreement with Aspire pursuant to which the Company may sell to Aspire, and Aspire would be obligated to purchase, up to an aggregate of $20 million of our common stock over the two year term of the agreement including $1 million in common stock purchased by Aspire in connection with execution of the agreement. Periodic sales of our common stock to Aspire are subject to certain limitations and the per share sales price is based on closing stock prices at or near each transaction date. No more than 3,231,096 shares of our common stock can be issued under this agreement, including the 363,636 shares initially issued to Aspire in consideration of entering into the agreement. Our proceeds will depend on the frequency and number of shares of our common stock sold to Aspire and the per share purchase price of each transaction. In addition to the initial issuance of shares, between August 21, 2012 and June 30, 2013, the Company had completed sales to Aspire totaling 2,454,532 shares of common stock at prices ranging from $1.60 to $3.82 per share, generating gross proceeds of $5.3 million. The Company has made no sales of our common to stock to Aspire subsequent to June 30, 2013 through the date of this report.


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At-The-Market Equity Distribution Agreement

On April 17, 2013, we entered into an at-the-market equity distribution agreement with MCUSA pursuant to which the Company may from time to time sell through MCUSA acting as a sales agent, shares of our common stock up to an aggregate offering price of $6 million. Unless mutually agreed otherwise, no sale of an amount of shares of our common stock may be greater than the lower of $50,000 and 10% of the lower of the 5-day or 3-month average daily traded value of our common stock as reported by Bloomberg as of the date of the applicable issuance notice, and the price per share may not be less than the greater of $1.19 or the last available closing price of a share of common stock on The Nasdaq Global Market. We will pay MCUSA an aggregate commission rate of 8.0% of the gross proceeds of any common stock sold through MCUSA under the agreement. Our proceeds will depend on the number of shares of our common stock sold to MCUSA and the per share purchase price of each transaction. The agreement with MCUSA provides both MCUSA and the Company the right to terminate the agreement in its sole discretion upon giving five business days written notice. As of June 30, 2013, the Company had completed sales to MCUSA totaling 1,770,971 shares of common stock at prices ranging from $2.44 to $4.10 per share, generating gross proceeds of $5.6 million. Between April 17, 2013 and the date of this report, we have generated gross proceeds of $6.0 million under the at-the-market equity distribution agreement with MCUSA, including gross proceeds of $0.4 million on the sale of 165,266 shares of our common stock subsequent to June 30, 2013.

Securities Purchase Agreement

On May 9, 2013, we entered into a Securities Purchase Agreement with certain institutional and accredited investors (the "Purchase Agreement") pursuant to which we agreed to sell to the investors 1,158,730 shares of our common stock and warrants to purchase an aggregate of 869,047 shares of our common stock with an exercise price of $3.15 per share (the "Private Placement"). The Private Placement closed on May 14, 2013. The warrants will expire on May 9, 2018 and may be exercised for cash or, if the current market price of our common stock is greater than the per share exercise price, by surrender of a portion of the warrant in a cashless exercise. The aggregate purchase price for the shares and the warrants sold in the Private Placement was $3.7 million and associated expenses incurred were $0.3 million. The Purchase Agreement includes representations, warranties, covenants and closing conditions customary for transactions of this type.

In connection with the purchase by one investor of 158,730 shares of our common stock and a warrant to purchase 119,047 shares of our common stock, on May 29, 2013 the investor provided $51,389 additional consideration for the shares and the warrant, and the investor and the Company entered into an amendment to the warrant to reflect an exercise price of $3.38 per share.

Lease of Corporate Headquarters

We leased office space at our headquarters at 4350 La Jolla Village Drive, Suite 950, San Diego, California under a lease that expired on February 28, 2013. On February 27, 2013, we entered into a sublease agreement effective March 1, 2013 (the "Sublease") with Denali Advisors, LLC, the sublessor. The Sublease is for the Company's new headquarters located at 4275 Executive Square, Suite 650, La Jolla, California, 92037. The Sublease has a term of 4 years and 9 months and provides that the Company will pay Denali Advisors, LLC an initial monthly base rent of $10,699 for the premises, with monthly increases of $522 as of the 13th, 25th, 37th and 49th month.

Revenues and Cost of Revenues

For the three months ended June 30, 2013 and 2012, we recognized $0 and $0.5 million, respectively, and for the six months ended June 30, 2013 and 2012, we recognized $3,257 and $0.7 million, respectively, of revenue related to the Kissei services agreement based on the development services we performed during each period. To date through June 30, 2013 we have recognized approximately $806,000 of Kissei services revenue, and all expenses incurred related to these services have been recorded as research and development expenses.


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Other than the Kissei services revenue, our revenues to date have been from development services revenues under service agreements pursuant to which we billed consulting fees and our pass-through clinical contract costs.

Research and Development

Our research and development expenses consist primarily of the license fees related to our product candidates, salaries and related employee benefits, costs associated with the preclinical and clinical development of our product development programs, costs associated with non-clinical activities, such as regulatory expenses, and pre-commercialization manufacturing development activities. We use external service providers to manufacture our compounds to be used in clinical trials and for the majority of the services performed in connection with the preclinical and clinical development of our product candidates. Research and development expenses include fees paid to consultants, contract research organizations, contract manufacturers and other external service providers, including professional fees and costs associated with legal services, patents and patent applications for our intellectual property. Internal research and development expenses include costs of compensation and other expenses for research and development personnel, supplies, facility costs and depreciation. Research and development costs are expensed as incurred.

The following table summarizes our research and development expenses for the periods indicated for each of our product development programs. To the extent that costs, including personnel costs, are not tracked to a specific product development program, such costs are included in the "Unallocated" category (in thousands):

                                                              Three months  ended              Six months ended
Product                                                            June 30,                        June  30,
Candidate           Product Development Program             2013             2012            2013            2012
MN-166       Neurological disorders including opioid
             withdrawal, methamphetamine addiction,
             chronic MOH pain and MS                      $     601       $       153      $   1,030      $      317
MN-221       Acute exacerbations of asthma/COPD                  35             1,267            129           2,512
MN-001       Bronchial asthma                                    16                34             35             155
MN-029       Solid tumors                                         9                23             19              64
MN-001       Interstitial cystitis                                3                 4              4              34
MN-305       Generalized anxiety disorder/insomnia                1                -               1               2
MN-246       Urinary incontinence                                 1                 2              1               5
MN-447       Thrombotic disorders                                -                 -              -                6
MN-462       Thrombotic disorders                                -                 -              -               -
Unallocated                                                     280                 1            423             267

Total research and development $ 946 $ 1,484 $ 1,642 $ 3,362

We are currently focusing our development activities on MN-166, a drug candidate for the treatment of neurological disorders, and on MN-221, a drug candidate for the treatment of acute exacerbations of asthma and chronic obstructive pulmonary disease, or COPD. Clinical development of MN-166 is ongoing in both methamphetamine addiction and opioid addiction with clinical trials being conducted by experts in both areas. In February 2013 we received Fast Track designation from the United States Food and Drug Administration, or FDA, for MN-166 in methamphetamine dependence. Fast Track designation is a process designed to facilitate development and expedite the review of drugs intended to treat serious diseases that have the potential to fill an unmet medical need. The FDA's Fast Track program emphasizes early and frequent communication between the FDA and the sponsor throughout the development process to improve product development efficiency, potentially leading to a shortened timeline to ultimate drug approval. A Phase 2 outpatient clinical trial of MN-166 in methamphetamine dependence, led by investigators at UCLA, has been funded by NIDA. A second NIDA funded clinical trial of MN-166 in prescription opioid or heroin abusers is currently ongoing with the investigators at Columbia University and the New York State Psychiatric Institute. A Phase 1b clinical trial of

MN-166 in methamphetamine dependence at UCLA and funded by NIDA was completed in June, 2013, and a


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Phase 1b/2a clinical trial of MN-166 for the treatment of opioid withdrawal and analgesia led by investigators at Columbia University and New York State Psychiatric Institute and funded by the NIDA was completed in 2010. Additionally, in July, 2013, a National Institute of Health based grant for a Phase 2b trial of MN-166 for patients with progressive multiple sclerosis was announced and patient enrollment is expected to start in the Fall of this year. Regarding MN-221, future development will be designed according to feedback received from the FDA in October 2012.

We expect our research and development expenses related to the remainder of our existing product candidates to remain low in the foreseeable future as we continue to limit our expenditures on these product candidates to only those activities deemed necessary to maintain our license rights or to maximize their value.

General and Administrative

Our general and administrative costs primarily consist of salaries, benefits and consulting and professional fees related to our administrative, finance, human resources, business development, legal, information systems support functions, facilities and insurance costs. General and administrative costs are expensed as incurred.

Our general and administrative expenses may increase in future periods if we are required to expand our infrastructure based on the success of our product development programs and in raising capital to support our product development programs or otherwise in connection with increased business development activities related to partnering, out-licensing or product disposition.

Other Income and Expense

Other income primarily consists of interest earned on our cash and cash equivalents. Other expense primarily consists of losses from the joint venture and net foreign exchange gains and losses related to vendor invoices denominated in foreign currencies. We held no debt and had no interest expense in 2012 or in the first half of 2013.

Critical Accounting Policies and Estimates

Our management's discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with principles generally accepted in the U.S. The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of contingent liabilities. We review our estimates on an ongoing basis, including those related to our significant accruals. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates.

Our significant accounting policies and estimates are the same as those noted in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on March 28, 2013.

Results of Operations

Comparison of the Three Months Ended June 30, 2013 and 2012

Revenues

Revenue for the three months ended June 30, 2013 was $0, a decrease of $0.5 million when compared to the three months ended June 30, 2012. The decrease in revenue is due to the completion of the Phase 1b/2a COPD clinical trial (MN 221-CL-012) in 2012 for which we recorded revenue related to the development services we performed under the Kissei services agreement.


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Research and Development

Research and development expenses for the three months ended June 30, 2013 were $0.9 million, a decrease of $0.6 million when compared to $1.5 million for the three months ended June 30, 2012. This decrease in research and development expenses primarily related to a decrease of $1.2 million in spending on MN-221 due to the completion of the CL-007 and CL-012 clinical trials in 2012, partially offset by an increase of $0.4 million in spending on MN-166 and employee stock based compensation expense of $0.2 million.

General and Administrative

General and administrative expenses for the three months ended June 30, 2013 were $1.8 million, an increase of $0.5 million when compared to $1.3 million for the three months ended June 30, 2012. This increase in general and administrative expenses was due primarily to an increase in employee stock based compensation expense.

Other Expense

Other expense for the three months ended June 30, 2013 was approximately $1,000, as compared to $81 for the three months ended June 30, 2012. Other expense consisted of losses from the joint venture accounted for under the equity method and net foreign exchange gains and losses related to vendor invoices denominated in foreign currencies.

Other Income

Other income for the three months ended June 30, 2013 was approximately $5,000, as compared to approximately $7,000 for the three months ended June 30, 2012. The decrease is due to a decrease in interest income.

Comparison of the Six Months Ended June 30, 2013 and 2012

Revenues

Revenue for the six months ended June 30, 2013 was $3,257, a decrease of $0.7 million when compared to $0.7 million for the six months ended June 30, 2012. The decrease in revenue is due to the completion of the Phase 1b/2a COPD clinical trial (MN 221-CL-012) in 2012 for which we recorded revenue related to the development services we performed under the Kissei services agreement.

Research and Development

Research and development expenses for the six months ended June 30, 2013 were $1.6 million, a decrease of $1.8 million when compared to $3.4 million for the six months ended June 30, 2012. This decrease in research and development expenses primarily related to a decrease of $2.4 million in spending on MN-221 due to the completion of the CL-007 and CL-012 clinical trials in 2012, partially offset by $0.6 million in spending on MN-166.

General and Administrative

General and administrative expenses for the six months ended June 30, 2013 were $3.6 million, an increase of $0.1 million when compared to $3.5 million for the six months ended June 30, 2012. This increase in general and administrative expenses was due primarily to an increase in employee compensation expense of $0.1 million relating to stock-based compensation.

Other Expense

Other expense for the six months ended June 30, 2013 was approximately $6,000, as compared to approximately $5,000 for the six months ended June 30, 2012. Other expense consisted of losses from the joint


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venture accounted for under the equity method and net foreign exchange gains and losses related to vendor invoices denominated in foreign currencies.

Other Income

Other income for the six months ended June 30, 2013 was approximately $7,000, as compared to approximately $18,000 for the six months ended June 30, 2012. The decrease is due to a decrease in interest income on lower cash equivalents.

Liquidity and Capital Resources

We have incurred losses of $2.8 million and $5.2 million for the three and six months ended June 30, 2013, and $11.0 million for the year ended December 31, 2012. At June 30, 2013, from inception, our accumulated deficit was $301.4 million including $50.9 million of non-cash stock-based compensation charges. We have used net cash of $4.7 million and $11.9 million to fund our operating activities for the six months ended June 30, 2013 and for the year ended December 31, 2012, respectively. Our operating losses to date have been funded primarily through the private placement of our equity securities, the public sale of our common stock, long-term debt, development agreements with partners and the exercise of warrants. As of June 30, 2013, we had available cash and cash equivalents of $12.0 million and working capital of $11.4 million.

In October 2011, pursuant to a stock purchase agreement by and between us and Kissei, Kissei purchased (i) an aggregate of 800,000 shares of our common stock, par value $0.001 per share, at a price of $2.50 per share, and (ii) 220,000 shares of our Series B Convertible Preferred Stock, par value $0.01 per share, at a price of $25.00 per share. In October we received gross proceeds of $7.5 million related to this purchase agreement.

In October 2011, we entered into an agreement with Kissei to perform research and development services relating to MN-221 in exchange for a non-refundable upfront payment of $2.5 million. We are responsible for all costs incurred and to be incurred in the performance of these services. The amount received from Kissei, net of the amount recorded as revenue to date, is included on the balance sheet as deferred revenue and will be recognized as revenue as we perform the remaining services. For the three months ended June 30, 2013 and 2012, revenue recorded was $0 and $0.5million, respectively. For the six months ended June 30, 2013 and 2012, revenue recorded was $3,257 and $0.7 million, respectively.

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