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NeoStem (NYSE MKT: NBS) Q1/13 Results – BUY

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.