Henry McCusker's  Instablog

Net loss of $6.41 M, or $0.17 per share

Net loss of $6.41 M, or $0.17 per share compared to a net loss of $10.22 M, or $0.45 per share for Q1/2012.

Total revenue was $284 K, compared to $644 K in Q1/12 which included a 1X fee from a license agreement with genOway, for an exclusive license to IRES technology for use in the development and commercialization of genetically engineered mice. Revenue from product sales were $208 K, this 23% decline was primarily attributable to lower unit volumes compared to $271 K in Q1/12. Total operating expenses were $6.475 million, a 10% increase compared to Q1/12. This increase was driven by a 16% increase in R&D expenses, while SG&A expenses declined by 2% compared to Q1/12. The increase in R&D expenses was primarily attributable to higher external services expenses related to preclinical studies of HuCNS-SC cells and expenses related to QC, process development and manufacturing activities to support ongoing clinical trials. Loss from operations was $6'258 million, a 17% increase compared to the $5.326 million loss from operations in Q1/12.

Other expense was $159 K, compared to $4.9 million in Q1/12. This decrease in other expense was primarily due to a decrease in the estimated fair value of warrant liability, with increases in the warrant liability shown as an expense and decreases shown as income. Net cash used in operating activities in the first quarter of 2013 was $6.65 million. Shares used in computing the net loss ere 38.26 million in Q1/13 versus 22.958 million in Q1/12.

• STEM had a total of $7.23 M in cash, cash equivalents, and investments compared to $8.47 M at 12/31/12.

Q1/13 Highlights

• In 2/13, the first patient cohort in its P1/2 clinical trial with HuCNS-SC cells for chronic spinal cord injury completed the trial, and data from this first cohort showed that the multi-segment gains in sensory function observed at the 6 month assessment in 2 of the 3 patients had persisted to the 12 month assessment. The third patient remained stable;
• In 3/13, STEM acquired certain patents and patent applications from NsGene A/S, a Danish company. These patents and patent applications claim a purified population of GFAP+ Nestin+ precursor cells in which one or more of the cells are capable of differentiating into neurons;
• In 4/13, STEM added the Byers Eye Institute at Stanford as the second site for its P1/2 clinical trial with its HuCNS-SC cells in dry age-related macular degeneration (AMD);
• In 4/13, STEM closed a $10 million loan from Silicon Valley Bank (SVB). The loan has a 3 year term and the loan funds will be used for general corporate purposes.

Bottom Line: A good conference call - the net loss dropped $3.8 million and the share loss dropped $0.28 with great progress on many ongoing projects.
Beating or missing analysts expectations <Q1 EPS of -$0.17 misses by $0.04. Revenue of $284 K misses by $6 K> is irrelevant at this point. STEM is on track, and focused on accelerating enrollment in ongoing trials. The most recent data from the spinal cord injury trial showed gains in sensory function observed at the 6 month time point in 2 of 3 patients had persisted through the 12 month assessment, and that 1 of the 2 had converted from a complete injury to an incomplete injury classification. But, STEM has to be more focused on cash burn and expenditures - having reached agreement with the CIRM for $19.3 million in funding in the form of a … forgivable loan and with Silicon Valley Bank for a $10 million loan - still debt.

Let's not forget - STEM entered into the …agreement with CIRM for $19.3 million to help fund … pre-clinical development and IND-enabling activities … of its HuCNS-SC cells for Alzheimer's disease, with the goal of filing an IND application within … 4 years <a long time>. The funding, which is in the form of a forgivable loan, was awarded under CIRM's Disease Team Therapy Development Award program (RFA 10-05). STEM declined a 2nd award under RFA 10-05 for cervical spinal cord injury.

The order book for April was strong, however, getting STEM off to a positive start for Q2/13. One over-riding question - is there a succession planning process in place - love Marty but even I an - old.

STEM closed at $1.90 on 4/9 up a penny from <$0.01> for 4/8/13. A BUY on the CIRM funding, anticipated IND filing and clinical data.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Net loss of $5.33 M, or $0.05 per share

A net loss of $5.33 million or $0.05 per share in Q1/13 compared to a net loss of $4.73 million or $0.07 per share in Q1/12.

Total revenues were $2.3 million, a decrease of approximately $700 K compared to Q1/12 revenues of $3.016 million. The decrease was mostly due to license fee revenue of $1.3 million recognized in 2012 with respect to an option agreement with a top 20 global pharmaceutical company. Product sales in the quarter were $2.3 million, an increase of 34% compared $1.686 million in Q1/12.

Cost of revenues= cost of sales of $1.267 million versus $848.4 K in Q1/12 and royalties of $5.134 K compared with zero (o) in Q1/12 with a total cost of revenues of $1.272 million and resulting in a gross profit of $1.044 million compared with Q1/12 numbers of $2.168 million.

Gross margin on product sales decreased to 44% from 50%. Sales on lower margin products, specifically Angel machines sold to international distributors, made up a more significant portion of the product mix. The medical device excise tax took effect in 2013, resulting in a decrease in gross margin on product sales. Overall gross margin decreased to 45% from 72%. The license fee recorded in the first quarter of 2012 had no associated cost of revenue and was the primary reason for the decline in overall gross margin year over year.

Q1/13 cash margins on product sales were 52% while cash margins on disposable products were 56%. CMXI defines cash margin as gross margin exclusive of patent amortization and depreciation expense, and it is a significant performance metric used by management to indicate cash profitability on product sales.

R&D expenses were $900 K, an increase of $544 K or 152% year over year. The increase was primarily due to R&D costs related to the ALD-401 P2 clinical trial. SG&A expenses were $5.1 million, an increase of 14% over the $4.5 million from Q1/12.

Total operating expenses in the quarter were $6 million an increase of $1.1 million or 24% compared to $4.88 million in Q1/12. Thus a loss from operations was $5 million versus $2.719 million in Q1/12. Cash used in operating activities during Q1/13 was $4.2 million. Shares used in computing the net loss were 99.1 million in Q1/13 compared to 63.26 million in Q1/12. There were 104.3 million shares of common stock issued and outstanding as of 3/31/13.

• Cash and cash equivalents were $7.2 million at 3/31/3.
• In 2/13, CMXI entered into <several> financing transactions for up to $27.5 million overall, which included a tranched $7.5 million senior secured term loan facility, a $5 million equity raise, and a $15 million committed equity facility. Approximately $9.5 million of gross proceeds was received upon closing with commitments for up to an additional $18 million.

Q1/13 Highlights

• The Centers for Medicare & Medicaid Services (CMS) granted formal approval of the protocols for AutoloGel TM under Coverage with Evidence Development(CED). CMS issued coding and reimbursement claims instructions for AutoloGel in non-healing chronic wounds;
• The Angel® Concentrated Platelet Rich Plasma (cPRP) System was approved for marketing in Australia;
• A 3 year agreement with Vibra Healthcare, LLC, an owner and operator of Long Term Acute Care (LTAC) hospitals and Inpatient Rehabilitation Hospitals (IRF). This agreement will facilitate the use of the AutoloGel System for the treatment of wounds at Vibra Healthcare facilities throughout the US;
• Steven A. Shallcross, CPA, was appointed as EVP, CFO, Secretary and Treasurer.

The Bottom Line: Revenues decreased $700 K - a license fee recognition issue - happens. Cost of revenues increased resulting in gross margins decreased. But, SG&A expenses increased 14%. R&D jumped but on the basis of the ALD P2 trial costs which are important to the future. The cash raise was successful in traunches for $18 million. CMXI will have sufficient cash to sustain itself through 2013. This is a consolidation and focus quarter setting CMXI's gears to move exponentially forward. CMXI also expects to begin treating Medicare beneficiaries with AutoloGel shortly and will be recording revenues for those AutoloGel treatments soon after the CED implementation date of July 1st 2013.

Product sales continued a steady growth trend, with total sales of $2.3 million in Q1/13 - Angel sales of $2.1 million were particularly strong, up 40% year over year. Both Angel and AutoloGel achieved double digit increases sequentially over Q1/12 with more than 500 Angel Systems on a worldwide basis. Over 40,000 patients are currently being treated with the Angel System on an annualized basis. Reimbursement is the most important milestone for any device - AutoloGel will be covered initially by CMS under the CED program - when CMS formally approved the clinical outcomes in the protocols submitted in response to the NCD memo. CMS has also issued coding and reimbursement instructions to its regional contractors.

The Bright Cell technology pipeline continues to move forward; the clinical development plan includes completion of enrollment in the RECOVER-Stroke Trial with top-line data available in the first half of 2014, and beginning enrollment in the P2 PACE study with ALD-301 in patients with intermittent claudication. The RECOVER-Stroke trial is currently enrolling at 10 sites. The first 30 patients have been enrolled, and CMXI expects to have the planned DSMB review soon. On the whole I am giving credit to Martin and Ed - but caution on cost and expense containment - isn't that what a new CFO is for!

CMXI closed at $0.47 on 5/9/13. The 50 day moving average is $0.50 compared with the 200 day of $0.63 - the needle needs to be pushed! Investors should compare CMXI to Cytori (CYTX) who is trading at $2.59 as a good hybrid comparable. Let's watch the statistics - short interest if low <at this price, it should be>! The issue is visibility which is being addressed in the upcoming Q's.Expectation is "murky" how perception will be - post earnings but I project a … BUY.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Net loss of $8.9 million or $0.05 per share

Net loss was approximately $8.9 million or $0.05 per share compared to $9.2 million or $0.08 for Q1/12. Net losses from continuing operations for Q1/13 and Q1/12 were approximately $8.9 million and $8 million, respectively. The net losses from discontinued operations - net for Q1/12 were approximately $1.2 million, representing the operations of former Regenerative Medicine - China segment which was …"deconsolidated" … in Q1/12, and the operations of the former Pharmaceutical Manufacturing - China segment, which related to 51% interest in Suzhou Erye was sold in Q4/12.

Total revenues were approximately $2.5 million compared to $3.8 million for Q1/12, representing a decrease of $1.2 million, or 33%. Revenues were comprised of: clinical services of $1.365 million, clinical reimbursement services of $362.8 K and processing and storage services of $795.5 K for a total of $2.524 million.

For Q1/13, total cost of revenues was approximately $2.4 million compared to $3 million for Q1/12, representing a decrease of $600 K or 19%.

Gross profit for Q1/13 was $100 K or 5% of 2013 revenues, compared to gross profit for Q1/12 of $800 K or 22% or 2012 revenues. The gross profit percentage decrease was due to lower overall third party revenue in Q1/13, creating excess capacity and lower efficiency in the usage of clinical manufacturing facilities, which were partially, offset by lower levels of clinical services reimbursable revenues that have little or no margin.

Q1/13 operating expenses increased to $9 million compared to $8.4 million for Q1/12 representing an increase of $600 K or 7%. Operating expenses were comprised of the following: R&D expenses were approximately $3.2 million compared to $1.9 million for Q1/12, representing an increase of approximately $1.3 million, or 62%.

R&D expenses increased by approximately $1.4 million in Q1/13 due to the initiation in 1/12 of the P2 clinical trial for AMR-001. This increase was partially offset by reduced internal research activities following the closing of the research facility in Cambridge, Ma in 2012 and the relocation of research activities to PCT facilities.

Equity-based compensation included in R&D expenses for Q1/13 and Q1/12 was approximately $200 K in each period.

SG&A expenses were approximately $5.8 million compared to $6.4 million for Q1/12, representing a decrease of approximately $600 K, or 10%. Equity-based compensation included in SG&A expenses was approximately $1.9 million, compared to approximately $2.2 million for Q1/12; representing a decrease of $300 K. G&A expenses decreased approximately $100 K, primarily due to lower overall professional fees. Selling expenses also decreased $200 K compared to Q1/12.

Other expense, net for Q1/13 was $11 K which was decreased from $87 K in Q1/12, and primarily relates to the revaluation of derivative liabilities that have been established in connection with the Convertible Redeemable Series E Preferred Stock and the warrants issued in connection therewith.

Interest expense decreased to $44 K compared with $524 K in Q1/12. Interest expense in FY12 was primarily due to the amortization of debt discount related to the Series E Preferred Stock. The Series E Preferred Stock was fully redeemed in October 2012.

The operations and cash flows for the Regenerative Medicine - China business for were reported in discontinued operations. For Q1/12, the loss from discontinued operations was $1.7 million, and included a $1.1 million loss on exit of segment.

Shares used in the computing of the net loss were 166.98 million in Q1/13 as compared with 111.81 million in Q1/12

• NBS ended Q1/13 with $9.3 million in cash and successfully completed a common stock offering in 5/13 which generated $10.7 million of net proceeds.

Guidance: Gross profit percentages generally will increase as clinical service revenue increases, and will fluctuate in each period due to the mix of service and reimbursable revenues and costs, as well as the timing of revenue recognition under the clinical services revenue recognition policy.

The Bottom Line: China was sold for <received> cash decreasing outflows and revenues that were about to be manipulated by Chinese policies. The net loss decreased $300 K but revenues did drop $12 million but the cost of revenues is dropping. Gross profit dropped due to lower Q1/13 overall third party revenue. Operating costs increased $600 K due to due to the initiation in 1/12 of the P2 clinical trial for AMR-001. But, SG&A expenses dropped $600 K along with equity based component of $300 K. G&A is down as is selling expense.

Not BAD considering the total refocus and spin-out of the China driven < I say draining> business to stabilize the on-going business and AMR-001 development cycle … a BUY. An offering is done - $10.7 million so it is time to show what NBS can do to focus …the next few Q's - expectation is HIGH.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.