Business context and reporting period
Filing identity differs from request metadata: the supplied filing is MEI Pharma, Inc.’s Form 10-Q for the quarter ended December 31, 2017 (six months ended December 31, 2017), not a Lite Strategy, Inc. filing for 2016 Q2. The summary below reflects the filing text.
MEI Pharma is a clinical-stage oncology company. Its programs include pracinostat, ME-401, voruciclib and ME-344. Helsinn holds worldwide development and commercialization rights to pracinostat; MEI is responsible for developing voruciclib under its Presage license.
Financial performance and position
Amounts below are in millions of dollars, except per-share data.
| Metric | Three months ended Dec. 31, 2017 | Three months ended Dec. 31, 2016 | Six months ended Dec. 31, 2017 | Six months ended Dec. 31, 2016 |
|---|---|---|---|---|
| Total revenue | $0.358 | $17.199 | $0.641 | $18.295 |
| Operating expenses | $6.530 | $5.383 | $15.700 | $10.803 |
| Operating income (loss) | $(6.172) | $11.816 | $(15.059) | $7.492 |
| Net income (loss) | $(6.079) | $11.885 | $(14.867) | $7.615 |
| Net income (loss) per share, basic and diluted | $(0.16) | $0.32 | $(0.40) | $0.21 |
Research and development revenue was $0.358 million for the quarter and $0.641 million for the six months. There was no license revenue in 2017 periods; 2016 included $17.101 million of license revenue from completion of Helsinn-related performance obligations. The filing does not present a conventional gross margin measure; cost of research and development revenue was $0.728 million for the quarter and $1.346 million for the six months.
At December 31, 2017, cash and cash equivalents were $7.339 million and short-term investments were $35.102 million, totaling $42.441 million, down from $53.565 million at June 30, 2017. Current liabilities were $5.209 million; total assets were $43.567 million and stockholders’ equity was $38.358 million. The filing does not report interest-bearing debt.
Six-month operating cash flow was negative $11.313 million, compared with positive $5.026 million in the prior-year period, which included the Helsinn upfront payment. Investing activities provided $10.005 million, mainly from investment maturities exceeding purchases; financing provided $0.189 million from option exercises. Cash and cash equivalents declined $1.119 million during the six months.
Material changes versus the prior comparable period
- Net results shifted from income to loss, principally because the prior-year periods included $17.101 million of Helsinn license revenue and the current periods did not.
- Six-month R&D expense rose to $9.508 million from $3.288 million. The company cited increased ME-401 manufacturing costs, $2.9 million related to the Presage license, and prior-year reductions in estimated trial costs.
- Six-month general and administrative expense increased modestly to $4.846 million from $4.650 million, partly due to non-recurring professional fees associated with Presage.
- Cash, cash equivalents and short-term investments fell by $11.124 million from June 30, 2017. Common shares issued and outstanding increased to 37.052 million from 36.772 million.
Outlook, risks and unusual items
- Management said available cash and investments were expected to fund operations through at least the first calendar quarter of 2019. It expects operating losses and negative operating cash flows for the foreseeable future and anticipates needing future financing, licensing transactions or strategic partnerships.
- Pracinostat’s Phase III AML study, funded and conducted by Helsinn, began dosing in July 2017. MEI expected initial data from the first stage of its MDS dose-optimization study in Q2 2018. The filing also described planned 2018 data presentations for ME-401 and ME-344 studies.
- The FDA cleared the voruciclib IND in January 2018; MEI planned to begin a Phase I study in Q2 2018. MEI bears the development costs and owes Presage near-term payments, potential milestones and royalties.
- Potential obligations include up to $179 million in Presage development, regulatory and commercial milestones, plus royalties; up to $75.2 million in S*Bio milestones; and future CyDex milestones and royalties. These amounts are contingent and were not accrued as future milestone liabilities at period-end where stated.
- The office lease had a remaining contractual obligation of $1.3 million. Clinical and consultant contracts may require reimbursement of costs incurred through termination; certain employment agreements include severance and accelerated vesting provisions.
- The company recorded a provisional $13.6 million deferred-tax remeasurement related to the U.S. tax law change, with a corresponding valuation allowance. It was still evaluating aspects of the legislation. Net deferred tax assets were fully reserved.
- Key risks include clinical failure or delay, regulatory uncertainty, dependence on collaborators and third parties, financing needs, and Presage payment obligations. Management reported effective disclosure controls and no material changes in internal control over financial reporting. No legal proceedings were reported.
Most important facts for investors to verify
- Confirm the filing is MEI Pharma’s quarter ended December 31, 2017, as it conflicts with the requested company and period.
- Assess cash burn against the stated runway through at least Q1 2019, including any subsequent financing or spending changes.
- Track clinical progress and results for pracinostat, ME-401, voruciclib and ME-344, including the stated 2018 milestones.
- Review the terms, timing and potential cash impact of Presage, S*Bio and CyDex contingent payments and royalties.
- Monitor whether the provisional tax-law remeasurement or valuation allowance changes, and whether the absence of reported debt remains current.