Cellectar Biosciences, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. The company, formerly Novelos Therapeutics, changed its name to Cellectar Biosciences on February 11, 2014. It is a development-stage biopharmaceutical company with no product revenue, developing cancer imaging and therapeutic candidates.
Financial results and position
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Revenue | No product revenue reported | No product revenue reported |
| Research and development | $1.715 million | $1.591 million; up 7.8% |
| General and administrative | $1.087 million | $1.122 million; down about 3% |
| Total costs and expenses | $2.819 million | $2.712 million |
| Net loss | $2.943 million | $3.454 million |
| Basic and diluted loss per share | $0.05 | $0.07 |
| Cash used in operations | $2.595 million | $1.889 million |
With no revenue, profit margins are not meaningful. Cash and cash equivalents were $3.808 million at quarter-end, versus $2.418 million at December 31, 2013; restricted cash was an additional $55,000. Current assets were $4.075 million and current liabilities $4.408 million, implying negative working capital of approximately $332,000. Stockholders’ equity turned to a deficit of $727,000 from positive equity of $1.700 million at year-end.
Total liabilities were $8.767 million, including $3.765 million of convertible debt, $450,000 of notes payable, and a $3.414 million derivative liability. The company raised $4.0 million in gross proceeds in a February 2014 private placement. Financing cash flow was $3.999 million in Q1; investing cash use was $15,000. The filing reports no operating revenue or margin metrics.
Changes and notable items
- Net loss narrowed by about $510,000 year over year, chiefly because Q1 2013 included a $745,000 loss on issuance of derivative warrants. Q1 2014 instead included $55,000 of derivative revaluation loss and $69,000 of net interest expense, largely related to the new debentures.
- R&D spending increased as clinical costs rose, including the Phase 2 I-124-CLR1404 glioblastoma imaging trial, and preclinical work on CLR1502. Lower manufacturing and unallocated R&D costs partly offset the increases.
- The February placement issued $4.0 million of 8% convertible debentures, due February 6, 2016 and convertible at $0.50 per share into 8.0 million shares, plus warrants for 8.0 million shares at $1.00. The debt carries redemption, conversion, covenant, and default provisions; holders may have redemption rights in certain subsequent financings.
- Warrants for 5.5 million shares expired unexercised in February. Outstanding warrants totaled 39.3 million at March 31, 2014, and options totaled 12.1 million.
- Restructuring costs were $17,000. The company estimated about $200,000 of additional cash exit costs, principally severance, in Q2; incremental stock-compensation cost from option modifications was not yet estimable.
Outlook, risks and contingencies
Management said the March 31 cash balance was expected to fund operations at budgeted levels through July 2014. Continuing operations beyond then depend on additional equity or debt financing, a strategic transaction, or other funding; the company said it had not entered negotiations and could not assure funding. It expects operating losses to continue and reported an accumulated deficit of $54.0 million. The filing describes substantial doubt about the company’s ability to continue as a going concern; the financial statements include no adjustments for the outcome of that uncertainty.
Development plans included ongoing investigator-sponsored Phase 1/2 studies of I-124-CLR1404, with a glioblastoma Phase 2 trial expected to complete by year-end 2014 subject to additional funding; plans to submit an IND for I-131-CLR1404 in 2014; and anticipated IND submission for preclinical CLR1502 in 2014. In April 2014, after quarter-end, the FDA granted I-124-CLR1404 orphan designation for diagnosis/management of gliomas. These are forward-looking plans and are subject to funding, clinical, regulatory, and development risks.
The BAM dispute remained on appeal; oral argument had not been scheduled, and BAM filed a motion to modify the appellate record on April 14, 2014, which the company opposed. Management did not expect the litigation to materially adversely affect financial position, results, or cash flows. Other key risks include reliance on additional capital, clinical and regulatory uncertainty, competition, and management turnover. Management reported disclosure controls were effective at March 31, 2014 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether new financing or a strategic transaction was secured after the filing, and the resulting cash runway and dilution.
- The debenture terms and potential cash repayment exposure, including holder redemption rights and covenants.
- Actual spending, trial progress, and funding needs for the I-124-CLR1404, I-131-CLR1404, and CLR1502 programs.
- Subsequent developments in the BAM appeal and estimated legal or other contingencies.
- Management’s going-concern assessment, negative working capital, and ability to meet obligations as they come due.