Cellectar Biosciences, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The company is a clinical-stage biopharmaceutical developer of phospholipid drug conjugates (PDCs) for cancer treatment and imaging; it reported no product revenue. Per-share and share data in the filing are retroactively adjusted for the 1-for-10 reverse split effective March 4, 2016.
Financial performance and position
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | $5.16 million | $5.96 million |
| General and administrative expense | $3.40 million | $3.70 million |
| Operating loss | $8.76 million | $9.89 million |
| Net loss | $5.50 million | $8.05 million |
| Basic and diluted loss per share | $7.03 | $17.53 |
| Cash used in operating activities | $8.21 million | $8.84 million |
| Cash and cash equivalents at year-end | $3.86 million | $9.42 million |
- Net loss improved largely because of a $3.67 million non-cash gain from revaluing derivative warrants; the company still recorded an $8.76 million operating loss. It also recorded a $404,000 non-cash loss on issuance of derivative warrants.
- R&D declined 14%, principally with lower laboratory and contract research costs, reduced IND-enabling spending, and lower costs associated with SBIR reimbursement. G&A declined 8%, mainly due to restructuring-related reductions, partly offset by relocation expenses.
- At December 31, 2015, total assets were $7.60 million, total liabilities $5.95 million, and stockholders’ equity $1.65 million. Working capital was approximately negative $1.52 million.
- Notes payable totaled approximately $330,000, including $244,000 current and $87,000 long term; scheduled payments run through April 2017. Current liabilities also included a $4.78 million derivative warrant liability. The 2014 convertible debentures were exchanged for shares and warrants in 2014.
- No operating margin is meaningful because the company had no revenue. Cash declined by $5.56 million during 2015; financing provided $2.71 million, including $3.30 million gross proceeds from the October offering.
Business developments and changes
- Lead candidate CLR 131 began a Phase 1 study in relapsed or refractory multiple myeloma in April 2015. The first cohort results were reported in January 2016, and the Data Monitoring Committee supported advancement to the second cohort. The FDA granted orphan drug designation for this indication.
- CLR 125 remained in preclinical development. An NCI Fast-Track SBIR award provides up to $2.3 million in funding, with a potential additional $2.0 million Phase 2 award subject to successful completion of Phase 1 work.
- In December 2015, the company entered a research collaboration with Institut de Recherche Pierre Fabre to explore conjugates using selected cytotoxic compounds. Cellectar retains IP to resulting conjugates, subject to collaboration terms including a right of first refusal for certain third-party arrangements.
- CLR 124 is an investigational PET imaging agent studied in investigator-sponsored trials. CLR 1502’s regulatory route changed after the FDA classified it as a combination product; a new investigational application is required before a Phase 1 study.
- R&D and G&A spending fell year over year. The company also recorded approximately $204,000 of restructuring costs and appointed a new CEO in June 2015.
Outlook, risks, and unusual items
- Management said year-end cash was expected to fund budgeted operations only into the second quarter of 2016. Additional financing is necessary; the company said it planned to pursue financing alternatives but had not entered negotiations. The auditor’s report and management disclosures state that recurring losses and funding needs raise substantial doubt about the company’s ability to continue as a going concern.
- NASDAQ had notified the company of noncompliance with its minimum stockholders’ equity requirement. A hearing was scheduled for March 31, 2016 after the company did not complete a required offering by the deadline. A separate minimum-bid-price notice was received in January 2016; the company effected a 1-for-10 reverse split on March 4, 2016, but stated there was no assurance it would restore compliance.
- Management concluded disclosure controls and internal control over financial reporting were not effective at year-end because of an unremediated material weakness involving complex, non-recurring accounting and limited accounting resources. The independent auditor did not audit internal controls, but opined that the financial statements were fairly presented in accordance with U.S. GAAP.
- Key risks include limited cash and continuing losses, dependence on additional capital, clinical and regulatory uncertainty, potential trial delays or failure, manufacturing and collaborator dependence, dilution, competition, and the possibility of NASDAQ delisting. The company has no approved products and may never generate revenue or achieve profitability.
- Warrant accounting materially affected reported earnings: warrant fair-value changes are non-cash and can vary with the share price, volatility, and financing assumptions. Goodwill and fixed assets were reviewed after the share-price decline; no impairment was recorded.
Important facts for investors to verify
- Whether financing was secured after the filing and whether cash runway extended beyond the second quarter of 2016.
- NASDAQ hearing outcome and subsequent compliance with both equity and minimum-bid-price listing requirements.
- CLR 131 trial enrollment, safety, activity, dose selection, and timing of the next clinical update.
- Progress and funding conditions for CLR 125, and the development pathway and regulatory requirements for CLR 1502.
- Remediation of the material weakness and any subsequent changes to reported financial results or warrant-related liabilities.
- Potential dilution from outstanding warrants and their down-round provisions, as well as the terms and proceeds of any later financings.