PharmaCyte Biotech, Inc. — Form 10-Q Summary
Reporting period: Three months ended July 31, 2023, the company’s fiscal first quarter; filed September 18, 2023. PharmaCyte is a pre-revenue biotechnology company developing Cell-in-a-Box-based therapies for cancer, diabetes and malignant ascites.
Financial results and liquidity
| Metric | Quarter ended July 31, 2023 | Comparable period / balance date |
|---|---|---|
| Revenue | $0 | $0 in 2022 |
| Operating expenses | $2.08 million | $1.68 million in 2022 |
| Operating loss | $2.08 million | $1.68 million in 2022 |
| Net loss | $3.18 million; $3.50 million attributable to common stockholders after preferred dividends | $1.55 million in 2022 |
| Loss per share | $0.28 basic and diluted | $0.07 in 2022 |
| Cash and cash equivalents | $74.66 million | $68.04 million at April 30, 2023; $82.23 million at July 31, 2022 |
| Cash flow | $0.34 million provided by operations; $6.28 million provided by financing; cash increased $6.62 million | Operations used $1.08 million and financing used $2.09 million in 2022 |
| Working capital | Approximately $73 million | Approximately $81 million at July 31, 2022 |
No meaningful revenue or profit margin was reported. Research and development expense was $104,483, down from $159,273. No investing cash flows or conventional borrowings are reported. Total liabilities were $20.40 million, including $15.58 million of warrant liability and $3.30 million of derivative liability, both measured using Level 3 inputs. The company says existing cash is expected to fund operating expenses for at least 12 months following issuance of the financial statements, but additional capital may be needed.
Material changes and financing
- Operating expenses increased by $394,718 year over year. General and administrative expense rose substantially, including $913,640 of warrant issuance costs; lower R&D, compensation and legal/professional costs partly offset the increase.
- Net loss worsened mainly as new warrant and embedded derivative liabilities generated $1.45 million and $530,000 of fair-value losses, respectively. Interest income increased to $875,878 from $139,502.
- In May 2023, the company raised $35 million gross through 35,000 Series B convertible preferred shares and issued warrants for up to 8.75 million common shares. Preferred shares carry a 4% annual dividend, are subject to monthly redemptions beginning November 9, 2023, and have an initial $4 conversion price. The warrants have a $4 exercise price and a five-year term. Cash or share settlement is subject to contractual and Nasdaq-related conditions.
- The company spent $26.46 million, including fees and expenses, on a tender offer for 8,085,879 common shares at $3.25 each. At July 31, treasury stock totaled 12,893,977 shares at a cost of $40.02 million. The tender purchase reduced outstanding shares; potential conversion and warrant shares create material dilution risk.
- After quarter-end, stockholders approved an increase in authorized common shares from 133,333,334 to 200 million, effective September 6, 2023.
Outlook, risks and unusual items
- The FDA clinical hold on the planned pancreatic cancer trial remains in place. The company reports completing product and cell-bank stability work and several other requested studies, but multiple regulatory, manufacturing, delivery-system and biocompatibility items remain. A two-pig pilot study is complete; preliminary data are being evaluated before a planned 90-pig study.
- Development spending has been curtailed pending a board and Business Review Committee review. The review includes the company’s relationship with SG Austria; the company says relevant know-how resides with SG Austria, all licensed patents have expired, and it may reconsider programs dependent on that relationship if a new framework cannot be reached. These factors could delay or end development programs.
- The company depends on Austrianova for manufacturing and certain preclinical and clinical activities and says it knows of no available substitute manufacturer. Clinical-hold resolution and any future trial remain uncertain; no FDA clearance date or specific financial guidance is provided.
- The company reported that disclosure controls and procedures were not effective as of September 8, 2023, due to material weaknesses in internal control over financial reporting.
- The company reported no material pending legal proceedings. It also disclosed potential COVID-19-related trial, supply-chain and operational delays.
Important facts for investors to verify
- Current progress, remaining FDA requirements, and the timing and funding of the 90-pig study and any clinical-hold response.
- Cash runway assumptions, expected operating spend, and the cash/redemption obligations and terms of the Series B preferred shares.
- Potential dilution from preferred-share conversion and 18.57 million outstanding warrants, including applicable share-issuance limits and stockholder approvals.
- Terms and status of any new arrangement with SG Austria, access to proprietary know-how, and availability of alternative manufacturing.
- Remediation of the disclosed material weaknesses and the valuation assumptions behind the Level 3 warrant and derivative liabilities.