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NeoStem (NYSE MKT: NBS) Q4/12 And FY12 Results

Net loss from continuing operations of $35.8 M, or $0.26 per share in FY12

Net loss from continuing operations common shareholders of $35.8 M, or $0.26 per share in FY12, compared to $34.3 M, or $0.39 per share in FY11. Net loss for FY12 was approximately $66.4 M or $0.40 per share compared to $47.7 M or $0.54 per share <if one includes the China operation that was jettisoned>.

  • NBS had a cash balance of approximately $13.7 M on 12/31/12.

FY12 Results: Total revenues were approximately $14.3 M compared to $10.1 M for FY11 representing an increase of $4.3 M, or 43%. Cost of revenues was $11.9 M compared to $8.6 M for FY11 representing an increase of $3.3 M or 38%. Overall, gross profit for FY12 was $2.4 M or 17% of 2012 revenues, compared to gross profit for FY11 of $1.4 M or 14% or 2011 revenues. The gross profit percentage increase was due to increased efficiency in the usage of clinical manufacturing facilities, as a result of the increased volume in 2012, which were partially offset by higher levels of clinical services reimbursable revenues. R&D expenses were $10.5 M for FY12 compared to $7.7 M for FY11 representing an increase of approximately $2.8 M, or 35%. This increase was partially offset by a $1.2 M in-process research and development charge in 2011, as well as reduced internal research activities following the closing of the research facility in Cambridge, Ma in 2012. Equity-based compensation included in R&D expenses for FY12 was approximately $0.4 M, compared to approximately $0.9 M forFY11, representing a decrease of $0.5 M. SG&A expenses were $22.3 M for FY12 compared to $27.7 M for FY11 representing a decrease of approximately $5.4 M, or 19%. Equity-based compensation included in SG&A expenses for FY12 was $6.1 M, compared to $8.9 M for FY11 representing a decrease of $2.8 M. G&A expenses decreased $1.7 M, primarily due to lower overall professional fees, as well as a 1X contribution in 2011 of $0.6 M paid in equity to the Stem for Life Foundation. Selling expenses also decreased $0.8 M compared to the prior year period.

Note: On 11/13/12, NBS completed the divestiture of its 51% interest in Suzhou Erye Pharmaceuticals - the aggregate purchase price paid to NBS consisted of $12.3 M in cash, the return to us of 1.04 M shares and the cancellation of 1.17 M options and 640 K warrants. In 10/12, a warrant holder exercised warrants to purchase 225 K shares of common stock at an exercise price of $1.45 per share for gross proceeds of 300 K. As an inducement to exercise, NBS paid the warrant holder $.73 per share upon each exercise. The incremental fair value of the inducement recorded in 2012 was $0. The Convertible Redeemable Series E Preferred Stock called for annual dividends of 7% based on the stated value of the preferred stock. NBS recorded dividends of 500 K for FY12 including an additional $235 K early redemption premium upon election to early redeem. Shares used in computing the net loss for FY12 were 138.4 M compared to 88.6 M in FY11. In 8/12, NBS and Aspire entered into an amendment to the Purchase Agreement dated 9/28/11, providing for an extension of the 24-month term of the Purchase Agreement until 9/30/15. Pursuant to the amendment, NBS agreed to issue to Aspire a 5 year warrant to purchase up to 1,612,903 shares of common stock at an exercise price of $0.60per share. In Q4/12, NBS issued 5.3 M shares of common under the provisions of its equity line of credit with Aspire for gross proceeds of approximately $3.3 M. As of 12/31/12, the remaining amount available to NBS under the Purchase Agreement was $16.7 M.

FY12 Highlights:

  • Positive Data Safety Monitoring Board six month evaluation for the Phase 2 PreSERVE clinical trial of AMR-001;
  • Completion of the divestiture of its 51% ownership interest in Suzhou Erye Pharmaceutical Co. Ltd., which added $12.3 M to NeoStem's balance sheet;
  • Redemption of all remaining Series E preferred stock, simplifying NBS' capital structure;
  • Expansion of intellectual property to cover vascular insufficiency, affording protection as AMR-001′s indications expand beyond AMI;
  • Department of Defense funding to begin the first human study of VSEL(NYSE:TM) Technology and NIH funding for its VSELs and Athelos (Treg) programs.

2013 Outlook:

  • Data Safety Monitoring Board 12 month evaluation (achieved);
  • Completion of patient enrollment in the P2 PreSERVE trial;
  • Begin development of a 2nd indication for AMR-001 for congestive heart failure;
  • Further growth of the PCT cell manufacturing business, including expansion into Europe;
  • Progress in advancing VSEL™ Technology into humans for bone growth in periodontal disease;
  • Progress in its Treg program for immune mediated diseases, such as in graft-versus-host disease or GvHD.

The Bottom Line: A "good to great" clean-up year to … position NBS for the future and specifically that Suzhou Erye is gone replaced by cash, cancellation of options, return of shares and warrants. Revenues in relation to continuing operations increased 43% over 2011; R&D expenses increased of 35% over FY11, primarily due to enrolling patients in the P2 PreSERVE clinical trial while SG&A expenses decreased of 19% from 2011 and the loss from continuing operations, excluding non-cash charges was $21.8 M. Cash wasn't bad with a year-end number of $13.7 M. The question is … what is next as many RegMed companies share pricing suffers in this clinical data driven market. PCT will be the driver of NBS' revenue and other than Lonza - there's not much competition. FY13 <for all RegMed companies> will be a year of watching the burn, consolidation and "opportunistic" technology grabs!

NBS closed at $0.60 and is trading -0.37% in a tight range of $0.59 to $0.61 upon the open on Monday. The 50 day moving average is $0.62 and the 200 is $0.65 - so as always it is a hair away versus many who have suffered the hostage taking of their short positions - NBS' is 3.70% of the float or 114.53 M shares

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