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NeoStem (NASDAQ: NBS) Q2/13 Results – Beats On Revenue With A Smaller Net Loss Than Expected While Expenses Range Up And Down Due To The Discontinued Operations And New Management Additions Add To The Limelight

Net loss for Q2/13 was $8.6 M compared to $33.4 M for Q2/12.

For the six months ended 6/30/13, net loss from continuing operations excluding non-cash charges was $13 M. The net losses from discontinued operations - net for Q2/13 was $26.2 M, representing the operations of former Pharmaceutical Manufacturing - China segment, comprised of 51% interest in Suzhou Erye, which was sold in Q4/12.

Progenitor Cell Therapy generated revenue in Q2/13 to $4.4 M from $2.5 M compared to $3.4 M for Q2/12, a 73% increase in revenues from Q1/13. ForQ2/13, total cost of revenues was $4.2 M compared to $2.7 M for Q2/12, representing an increase of $1.5 M or 55%. The increase is primarily due to the completion of 3 third party process development contracts during Q2/13, resulting in the recognition of approximately $1.5 M of previously deferred costs associated with the contracts. Overall, gross profit for the $100 K or 3%, compared to gross profit for Q2/12 of $600 K or 19%.

For Q2/13, operating expenses totaled $8.3 M compared to $7.4 M forQ2/12, representing an increase of $900 K or 11%. R&D expenses were approximately $4 M for Q2/13 compared to $2.7 M for Q2/12, representing an increase of $1.3 M, or 46%. R&D expenses associated with the P2 clinical trial for AMR-001 increased by approximately $1.3 M for Q2/13. Equity-based compensation included in R&D expenses for Q2/13 was approximately $100 K compared to $300 K in Q2/12. SG&A expenses were approximately $4.3 M for Q2/13 compared to $4.7 M in Q2/12 representing a decrease of approximately $400 K, or 9%. Equity-based compensation included in DG&A expenses for Q2/13 was $900 K, compared to approximately $1 M for Q2/12 representing a decrease of $100 K. Non-equity based G&A expenses for Q2/13 was $3.4 M, compared to $3.6 M for Q2/12, representing a decrease of $200 K. Selling expenses also decreased $100 K compared to the prior year period. Other expense, net for Q2/13 was $58 K compared with $24 K in Q2/12. For Q2/13, interest expense was $100 K compared with $500 K for Q2/12.

  • Ended Q2/13 with $14.7 M in cash and, subsequent to June 30, 2013, raised an additional $3.9 M in cash through warrant exercises and issuance of stock

Highlights:

· Continued enrollment in the PreSERVE P2 AMR-001 clinical trial, with 120 patients infused as of 8/8/13;

· Executed agreements with the University of California, San Francisco to collaborate on the development of human Regulatory T cells for the treatment of type 1 diabetes ("T1D") within the Athelos subsidiary;

· Effected 1-for-10 reverse split of common stock;

· Transferred listing to NASDAQ from NYSE MKT <AMEX>;

· Raised $11.5 M in an underwritten public offering through Aegis Capital Corp;

· Named Stephen W. Potter as Executive Vice President;

· Recruited Douglas W. Losordo, MD, FACC, FAHA as Chief Medical Officer;

· Acquired new clients for Progenitor Cell Therapy;

· Expansion of intellectual property worldwide to provide regional partnering opportunities;

· PCT completed 3 process development contracts, triggering higher revenue recognition. PCT also recently signed 2 new clients, including a large pharmaceutical company that is entering the cell therapy sector;

· Secured $4.6 M in grants to support VSEL™ Technology to advance treatments for wound care, bone regeneration, and macular restoration.

6 Month Results:

Revenues from continuing operations for the six months were $6.9 M, compared to $7.1 M for the same periods in 2012. Net loss for the six months was approximately $17.5 M compared to $42.6 M for the six months ended June 30, 2012. Net losses from continuing operations for the six months were approximately $17.5 M and $15.2 M in FY12. The net losses from discontinued operations - net for the six months ended were approximately $27.4 M, representing the operations of the former Regenerative Medicine - China segment, which was deconsolidated in Q1/12 with the operations of pharmaceutical manufacturing - China segment. R&D expenses were approximately $7.1 M for the six months compared to $4.7 M for the same period in 2012 for, representing an increase of $2.4 M or 53%. R&D expenses associated with the P2 clinical trial for AMR-001 increased by $2.3 M. Equity-based compensation included in research and development expenses for the six months and June 30, 2012 were approximately $300 K in each period. SG&A expenses were approximately $10.1 M for the six months ended June 30, 2013 compared to $11.1 M for the six months ended June 30, 2012, representing a decrease of approximately $1 M, or 9%. Equity-based compensation included in SG&A expenses for the six months ended June 30, 2013 was approximately $2.8 M, compared to approximately $3.2 M for the six months ended June 30, 2012, representing a decrease of $400 K. Non-equity based G&A expenses for the six months ended June 30, 2013 were approximately $7.2 M, compared to approximately $7.5 M for the six months ended June 30, 2012, representing a decrease of $300 K. Selling expenses also decreased $400 K compared to the prior year period.

The Bottom Line: The operations are smoother but need focus to cost containment but clinical costs are on target. A cleaner version of the NBS should be better and forth-coming as Q3/13 unfolds! Equity based compensation as related to specific units should be consolidated as even I am confused! AMR-o1 advances as do … other subsidiary endeavors with a leaner focus of results and expectation. Cash position isn't bad considering other comparable entities. As the 2nd half unfolds … I expect greater specificity and metrics to evolve making measureable results more attuned to financial and trial expectations!

NBS closed DOWN -$0.10 or -1.35% to $7.30 with 306 K volume on 8/8/13 from $7.40 with 297.7 K volume on 8/7/13 and after being UP +$0.46 to $7.75 with 620.5 K on 8/6/13. Not so bad, considering the reverse and subsequent listing on the NASDAQ. <Disclosure - I attended the opening bell for NASDAQ: NBS ceremony>. Most comparable companies in the RegMed universe are trading DOWN post earnings release - I would foresee a smaller discount to the current pricing but … notice an appreciation focus to the stock as the anticipation was marginalized by events, share pricing, volume and attraction of industry named additions to the management team and hopefully … a new CFO soon.

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