INmune Bio(INMB) - 2019 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements INmune Bio, Inc.'s unaudited consolidated financial statements for Q1 2019 show a reduced net loss and an increased accumulated deficit Key Financial Highlights (Three Months Ended March 31) | Metric | 2019 (USD) | 2018 (USD) | Change (2019 vs 2018) (USD) | | :-------------------------------- | :----------- | :----------- | :-------------------- | | Net Loss | $(1,901,045) | $(2,846,384) | $(945,339) | | Basic and Diluted Loss per Share | $(0.20) | $(0.33) | $(0.13) | | Total Comprehensive Loss | $(1,901,767) | $(2,831,954) | $(930,187) | | Net Cash Used in Operating Activities | $(1,387,702) | $(328,841) | $(1,058,861) | | Net Cash Provided by Financing Activities | $7,251,142 | $900,000 | $6,351,142 | | Cash and Cash Equivalents (End of Period) | $6,048,922 | $1,956,300 | $4,092,622 | - The company completed its initial public offering in February 2019, selling 1,020,820 shares of common stock for net proceeds of $7,251,142[64][98][110] - As of March 31, 2019, the company had an accumulated deficit of $15,498,913, primarily due to substantial research and development expenses and lack of revenue[9][26][88][104] Balance Sheets This section provides a summary of the company's financial position as of March 31, 2019, and December 31, 2018 Balance Sheet Summary | Metric | March 31, 2019 (USD) | December 31, 2018 (USD) | | :----------------------------------- | :------------- | :---------------- | | Total Current Assets | $7,130,510 | $849,342 | | Total Assets | $23,644,510 | $17,363,342 | | Total Current Liabilities | $780,860 | $823,766 | | Total Stockholders' Equity | $22,863,650 | $16,539,576 | | Accumulated Deficit | $(15,498,913) | $(13,597,868) | Consolidated Statements of Operations This section details the company's revenues, expenses, and net loss for the three months ended March 31, 2019 and 2018 Consolidated Statements of Operations Summary | Metric | Three Months Ended March 31, 2019 (USD) | Three Months Ended March 31, 2018 (USD) | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $ - | $ - | | Research and Development | $101,592 | $104,011 | | General and Administrative | $1,809,495 | $2,742,373 | | Total Operating Expenses | $1,911,087 | $2,846,384 | | Loss from Operations | $(1,911,087) | $(2,846,384) | | Net Loss | $(1,901,045) | $(2,846,384) | | Basic and Diluted Loss per Common Share | $(0.20) | $(0.33) | | Weighted Average Shares Outstanding | 9,388,645 | 8,546,108 | Consolidated Statement of Changes in Stockholders' Equity This section outlines changes in stockholders' equity for the three months ended March 31, 2019 and 2018 Changes in Stockholders' Equity (Q1 2019) | Item | Amount (USD) | | :----------------------------------- | :----------- | | Balance, December 31, 2018 | $16,539,576 | | Issuance of common stock and warrants for cash, net of issuance costs | $7,251,142 | | Stock-based compensation | $974,699 | | Loss on foreign currency translation | $(722) | | Net loss | $(1,901,045) | | Balance, March 31, 2019 | $22,863,650 | Changes in Stockholders' Equity (Q1 2018) | Item | Amount (USD) | | :----------------------------------- | :----------- | | Balance, December 31, 2017 | $18,103,753 | | Issuance of common stock for cash, net | $900,000 | | Stock-based compensation | $2,461,429 | | Gain on foreign currency translation | $14,430 | | Net loss | $(2,846,384) | | Balance, March 31, 2018 | $18,633,228 | Consolidated Statements of Cash Flows This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Summary | Cash Flow Activity | Three Months Ended March 31, 2019 (USD) | Three Months Ended March 31, 2018 (USD) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net Cash Used in Operating Activities | $(1,387,702) | $(328,841) | | Net Cash Provided by Financing Activities | $7,251,142 | $900,000 | | Impact on Cash from Foreign Currency Translation | $(722) | $14,430 | | Net Increase in Cash and Cash Equivalents | $5,862,718 | $585,589 | | Cash and Cash Equivalents – Ending | $6,048,922 | $1,956,300 | Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements Note 1 - Business Organization, Nature of Operations This note describes INmune Bio's business, drug platforms, and the structure of its international subsidiaries - INmune Bio, Inc. is an early-stage specialty pharmaceutical company focused on developing product candidates to treat diseases involving innate immune system dysfunction[23] - The company's drug platforms include INKmune (primes NK cells), INB03 (down-regulates MDSC cells), and XPro1595 (targets microglial cell activation in the brain)[23] - INmune Bio International Ltd (UK) and INmune Bio Australia Pty Ltd (Australia) are wholly-owned subsidiaries performing drug manufacturing, research, and development, benefiting from R&D rebate programs[24][25] Note 2 – Going Concern This note addresses the company's ability to continue operations, given its accumulated deficit and funding plans - As of March 31, 2019, the company had an accumulated deficit of $15,498,913 and has experienced losses since inception, raising substantial doubt about its ability to continue as a going concern[26] - Management plans to seek additional funding through common stock issuance and strategic plan implementation, estimating current funds will meet operating requirements into Q1 2020[26][27] Note 3 – Summary of Significant Accounting Policies This note outlines the key accounting principles and estimates used in preparing the financial statements - The financial statements are prepared in U.S. dollars, in accordance with US GAAP and SEC rules, and involve management estimates and assumptions[28][30] - Key accounting policies include treating short-term, highly liquid investments as cash equivalents, recognizing R&D tax credits and grants as a reduction of R&D costs, and capitalizing in-process R&D intangible assets[31][32][33][36][37] - The company adopted ASU 2016-02 (Leases) and ASU 2018-07 (Nonemployee Share-based Payment Accounting) in Q1 2019, with no material impact on consolidated statements[42][43] Note 4 – Research and Development Activity This note details the company's R&D expenses, tax credits, and licensing agreements for its product candidates R&D Tax Credit and Other Tax Receivables | Receivable Type | March 31, 2019 (USD) | December 31, 2018 (USD) | | :-------------------------------- | :------------- | :---------------- | | UK R&D Tax Credit Receivable | $295,568 | $370,900 | | Australia R&D Tax Credit Receivable | $310,163 | $221,761 | | UK VAT Receivable | $126,469 | $6,282 | | Australia GST Receivable | $34,116 | $26,127 | | Joint Development Cost Receivable (Novamune) | $34,525 | $17,989 | - The company holds an exclusive worldwide license for Xencor's XPRO1595, acquired for $100,000 cash, 1,585,000 common shares ($12.2 million fair value), and warrants ($4.2 million fair value), totaling $16.5 million in intangible assets[49][50] - The INKmune License Agreement (with Immune Ventures, owned by company officers) includes milestone payments and royalties, with specific development milestones required by October 2019-2025[54][55][56] - The University of Pittsburgh License Agreement (assigned from Immune Ventures) involves annual maintenance fees, royalties (2.5% of net sales), and milestone payments (e.g., $50,000 for Phase I initiation, $1.25 million for first commercial sale)[57][58][59][60] Note 5 – Related Party Transactions This note discloses transactions with related parties, including amounts owed for medical research - The company owed UCL Consultants Limited $9,220 as of March 31, 2019, for medical research, where the company's Chief Scientific and Manufacturing Officer is a professor[62] Note 6 – Commitments and Contingencies This note outlines the company's commitments and potential liabilities, including a legal settlement obligation - A legal settlement from November 2016 resulted in an obligation to issue 33,335 shares of common stock (valued at $50,000) to a claimant, pending a two-year transfer restriction post-IPO[63] Note 7 – Stockholders' Equity This note details the company's authorized shares, stock issuances, stock options, and warrants - The company is authorized to issue 200,000,000 common shares ($0.001 par value) and 10,000,000 preferred shares ($0.001 par value)[64] - In Q1 2019, 1,020,820 common shares were sold in the IPO for $7.25 million net proceeds. In Q1 2018, 400,000 common shares were sold to Luminus (a significant shareholder) for $0.9 million[64][65] Stock Option Activity (Q1 2019) | Metric | Number of Shares | Weighted Average Exercise Price (USD) | | :------------------------------ | :--------------- | :------------------------------ | | Outstanding at December 31, 2018 | 1,632,000 | $7.80 | | Outstanding at March 31, 2019 | 1,632,000 | $7.80 | | Exercisable at March 31, 2019 | 994,000 | $7.80 | - Stock-based compensation expense was $974,699 for Q1 2019, down from $2,461,429 for Q1 2018. Unrecognized compensation cost for non-vested options was $4,067,375 as of March 31, 2019[68] - Warrants were issued to placement agents (40,982 shares, $9.60 exercise price, $247,452 fair value) in connection with the IPO, and previously to Xencor and a third party[69][70][71] Note 8 – Subsequent Events This note reports significant events occurring after the balance sheet date, including share sales and waivers - In April and May 2019, the company sold 522,212 common shares for $4,699,904 cash, including purchases by the CEO and CFO[72] - Pacific Seaboard waived the issuance of 200,000 common shares in April 2019, reducing the total shares to be issued under its consulting agreement from 600,000 to 400,000[73] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q1 2019 financial condition and operations, covering business, R&D, IPO impact, and liquidity - The company is a clinical-stage immunotherapy company focused on reprogramming the innate immune system to treat diseases by targeting NK cells, MDSC, and microglial cells[76] - Product candidates include INKmune (NK cell therapy), INB03 (MDSC therapy for cancer), and XPro1595 (microglial therapy for neurodegenerative/neuropsychiatric diseases, identical to INB03 but for different indications)[77][78][79][80][85] - The company incurred net losses of $1,901,045 and $2,846,384 for the three months ended March 31, 2019 and 2018, respectively, primarily due to R&D and general and administrative costs[88][99] Description of Business This section provides an overview of the company's business model and its pipeline of product candidates Overview This overview introduces INmune Bio as a clinical-stage immunotherapy company targeting innate immune system dysfunction - INmune Bio is a clinical-stage immunotherapy company focused on reprogramming the patient's innate immune system to treat disease, targeting NK cells, MDSC, and microglial cells[76] - INB03 and XPro1595 are the same drug, with INB03 used for cancer applications and XPro1595 for neurology and psychiatric indications[76] Product Candidates This section details the company's key product candidates: INKmune, INB03, XPro1595, and Mesenchymal Stem Cells - INKmune improves the patient's NK cells to attack tumors by converting inert NK cells into primed NK cells, designed for post-chemotherapy residual disease[79] - INB03 is a selective TNF inhibitor that neutralizes soluble TNF, leading to MDSC population collapse and improved anti-tumor immune response without immunosuppression[80][82] - XPro1595, identical to INB03, targets microglial cells in the central nervous system to decrease neuroinflammation, with initial development focused on Alzheimer's disease[85] - The company also has access to technology for producing high-quality Mesenchymal Stem Cells (MSC) for anti-inflammatory treatment or drug delivery, with potential for third-party sales[86] Integrated Discovery and Development Process This section describes the company's development focus on manufacturing, bioassays, and expanding into new indications - The company's development efforts focus on improving manufacturing systems for INKmune and INB03/XPro1595 and optimizing bioassays for clinical trials[87] - While near-term focus is on immuno-oncology for INB03 and Alzheimer's for XPro1595, the company plans to expand into other indications as resources become available, aiming for non-dilutive funding[87] Research and Development This section details the company's R&D expense recognition policies and expected future increases in R&D costs - R&D expenses are recognized as incurred and include costs for preclinical studies, clinical trials, manufacturing development, regulatory filings, and personnel[91] - R&D expenses are expected to increase significantly as more product candidates advance through clinical development, with the successful development being highly uncertain[93] - The costs of clinical trials vary significantly based on factors like per-patient costs, number of sites, patient enrollment, and duration of follow-up[95] Initial Public Offering This section summarizes the company's IPO in February 2019, including shares sold and net proceeds - In February 2019, the company completed its IPO, selling 1,020,820 shares of common stock for gross proceeds of $8,166,560 (net proceeds of $7,251,142)[98] - Warrants to purchase 40,982 common shares at an exercise price of $9.60 were issued to placement agents, exercisable until December 19, 2023[98] Results of Operations This section analyzes the company's financial performance for the three months ended March 31, 2019 and 2018 Comparison of the Three Months Ended March 31, 2019 and 2018 This section compares key operating expenses and net loss between Q1 2019 and Q1 2018 Operating Expenses and Net Loss Comparison | Metric | 2019 (USD) | 2018 (USD) | Change (USD) | | :------------------------ | :----------- | :----------- | :----------- | | Research and Development | $101,592 | $104,011 | $(2,419) | | General and Administrative | $1,809,495 | $2,742,373 | $(932,878) | | Total Operating Expenses | $1,911,087 | $2,846,384 | $(935,297) | | Loss from Operations | $(1,911,087) | $(2,846,384) | $(935,297) | | Other Income | $10,042 | $ - | $10,042 | | Net Loss | $(1,901,045) | $(2,846,384) | $(945,339) | General and Administrative This section analyzes the changes in general and administrative expenses between Q1 2019 and Q1 2018 - General and administrative expenses decreased by approximately $0.9 million to $1.8 million in Q1 2019, primarily due to lower stock-based compensation ($1.0 million in 2019 vs. $2.5 million in 2018)[100] - The decrease was partially offset by higher professional fees ($0.3 million) and payroll expense ($0.1 million)[100] Research and Development This section examines the stability of research and development expenses between Q1 2019 and Q1 2018 - Research and development expenses remained stable at $0.1 million in Q1 2019 and Q1 2018[101] - Q1 2019 R&D expenses included $0.4 million for clinical trials, partially offset by $0.3 million in contra R&D expenses from an Alzheimer's Association grant[101] Liquidity and Capital Resources This section discusses the company's cash position, funding needs, and plans to address its going concern risk Liquidity This section assesses the company's ability to meet short-term obligations and its going concern status - The company had a net loss of $1.9 million in Q1 2019 and an accumulated deficit of $15.5 million, raising substantial doubt about its going concern ability[103][104] - With cash on hand ($6.0 million as of March 31, 2019) and non-dilutive funding, the company estimates it can operate through 2019 and into Q1 2020[104][105] - Future operating activities are expected to be financed through equity offerings, debt, third-party funding, and collaborations, as significant revenue from product sales is not expected for several years[97] Cash Flows This section analyzes the company's cash flow from operating and financing activities for Q1 2019 and Q1 2018 Cash Flow Summary | Cash Flow Activity | Three Months Ended March 31, 2019 (USD) | Three Months Ended March 31, 2018 (USD) | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Operating Activities | $(1,387,702) | $(328,841) | | Financing Activities | $7,251,142 | $900,000 | | Cash and Cash Equivalents, End of Period | $6,048,922 | $1,956,300 | - Cash used in operating activities increased to $1.4 million in Q1 2019 (from $0.3 million in Q1 2018), driven by net loss and changes in operating assets/liabilities, partially offset by stock-based compensation[108][109] - Cash provided by financing activities significantly increased to $7.3 million in Q1 2019 (from $0.9 million in Q1 2018) due to the net proceeds from the initial public offering[110][111] Critical Accounting Policies This section highlights the company's significant accounting policies and estimates, particularly for intangible assets - The company's financial statements rely on estimates and assumptions, particularly for intangible assets and stock-based compensation[112] - Costs for in-process R&D purchased from others are capitalized if they have alternative uses and are tested for impairment annually or upon a triggering event[113] - Stock options issued to employees are recorded at fair value as compensation expense, recognized straight-line over the vesting period, net of forfeitures[114] Item 3. Quantitative and Qualitative Disclosure About Market Risk No material changes to the company's market risk assessment were reported as of March 31, 2019 - No material changes in market risk assessment were reported as of March 31, 2019, compared to the previous Annual Report on Form 10-K[115] Item 4. Controls and Procedures Disclosure controls and procedures were deemed ineffective as of March 31, 2019, due to the company's small size - Disclosure controls and procedures were evaluated as not effective as of March 31, 2019, primarily due to the company's small size and limited segregation of duties[116] - The report omits a management's assessment and auditor attestation report on internal control over financial reporting, leveraging a transition period for newly public companies[117] PART II – OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings expected to adversely affect its business - The company is not currently involved in any legal proceedings expected to have a material adverse effect on its business or financial condition[120] Item 1A. Risk Factors No material changes to risk factors were reported since the Annual Report on Form 10-K for December 31, 2018 - No material changes to risk factors were reported since the Annual Report on Form 10-K for December 31, 2018[121] - Investment in the company's common stock involves a high degree of risk, and investors should review previously disclosed risk factors[121] Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities No recent sales of unregistered securities or specific uses of registered securities proceeds are reported - No recent sales of unregistered securities or specific uses of proceeds from registered securities to report[122] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reporting period - This item is not applicable[123] Item 4. Mine Safety Disclosures This item is not applicable to the company for the reporting period - This item is not applicable[124] Item 5. Other Information No other information is reported for the period - No other information to report[125] Item 6. Exhibits This section lists the exhibits filed with Form 10-Q, including CEO/CFO certifications and XBRL documents List of Exhibits | No. | Description | | :---- | :--------------------------------------------------- | | 31.1 | Rule 13a-14(a)/ 15d-14(a) Certification of Chief Executive Officer* | | 31.2 | Rule 13a-14(a)/ 15d-14(a) Certification of Chief Financial Officer* | | 32.1 | Section 1350 Certification of Chief Executive Officer** | | 32.2 | Section 1350 Certification of Chief Financial Officer** | | 101.INS | XBRL Instance Document | | 101.SCH | XBRL Taxonomy Extension Schema | | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | | 101.DEF | XBRL Taxonomy Extension Definition Linkbase | | 101.LAB | XBRL Taxonomy Extension Label Linkbase | | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase | SIGNATURES The report is signed by INmune Bio Inc.'s CEO and CFO on May 15, 2019 - The report was signed by Raymond J. Tesi (CEO) and David J. Moss (CFO, Treasurer, Secretary) on May 15, 2019[130]