PharmaCyte Biotech, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended January 31, 2018 (the third quarter of fiscal 2018), compared with the same periods in 2017. The interim financial statements are unaudited. PharmaCyte is a clinical-stage biotechnology company developing Cell-in-a-Box-based therapies, including a pancreatic cancer candidate; it reported no revenue.
Financial performance and liquidity
| Metric | Three months ended Jan. 31, 2018 | Three months ended Jan. 31, 2017 | Nine months ended Jan. 31, 2018 | Nine months ended Jan. 31, 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses | $2.03 million | $1.28 million | $5.53 million | $3.29 million |
| Net loss | $2.03 million | $1.28 million | $5.53 million | $3.29 million |
| Loss per share, basic and diluted | $0.00* | $0.00* | $0.01 | $0.00* |
| Cash used in operating activities | Not presented by quarter | $3.70 million | $2.54 million |
*Rounded as reported. Nine-month operating expenses increased $2.25 million year over year, reflecting higher R&D, compensation, director fees, legal/professional, and general and administrative costs. The company attributed much of the G&A increase to consulting and travel.
- At January 31, 2018, cash was $1.51 million, down from $3.46 million at April 30, 2017. Working capital was approximately $709,000, versus approximately $3.0 million at April 30, 2017.
- Nine-month financing cash flow was $1.75 million, from common-stock sales, compared with $3.08 million in the prior-year period. Cash declined by $1.96 million during the nine months.
- Total assets were $6.73 million and total liabilities were $887,156, including a $300,000 binding-term-sheet obligation. The balance sheet reports no interest-bearing debt. No operating margin is meaningful because the company had no revenue.
- Common shares outstanding were 980.3 million at January 31, 2018 and 1,013.3 million as of March 19, 2018. At January 31, options and warrants potentially represented a further 144.1 million shares; they were excluded from diluted loss per share as anti-dilutive.
Material changes and unusual items
- Net loss rose from $3.29 million to $5.53 million for the nine-month comparison, while operating cash use increased from $2.54 million to $3.70 million.
- The company sold approximately 62.4 million shares in the nine months, raising net proceeds of approximately $1.75 million, versus 89.2 million shares and $3.08 million in the prior-year period.
- A term sheet with SG Austria and Austrianova calls for amendments to license and asset-purchase agreements. Amendments were not finalized by January 31; $600,000 had been paid and $300,000 remained payable. The term sheet includes proposed milestone-payment eliminations, revised royalties, and other license provisions.
- Purchases from Austrianova subsidiaries, which are related parties through the company’s 14.5% investment in SG Austria, were approximately $959,000 for the nine months, compared with $517,000 in the prior-year period.
- After quarter-end, the company reported selling 33.3 million shares in a block trade from February 1 to March 16, raising $1.0 million gross. The placement agent received a 7% fee and warrants covering approximately 1.67 million shares.
Outlook, risks and contingencies
- Management estimated that available cash and anticipated equity financing would fund operations through March 31, 2019. The company nevertheless expects future losses, requires substantial additional capital, and remains dependent on external financing; failure to obtain it could require delaying or abandoning plans. This financing-dependent outlook is not a guarantee.
- For pancreatic cancer, the company is preparing an IND and designing a Phase 2b trial before a pivotal Phase 3 trial, because management believes existing trial data are insufficient to support proceeding directly to Phase 3. The additional trial may increase costs and delay regulatory review and any commercialization. FDA approval to begin the trial and eventual product approval are uncertain.
- Other development programs include therapies for malignant ascites, diabetes, and cannabinoid-based cancer treatment. These remain development efforts; the filing provides no commercial revenue or assurance of success.
- Management concluded disclosure controls and internal control over financial reporting were not effective at January 31, 2018, citing material weaknesses in internal communication, control documentation, segregation of CFO duties, and IT controls. Remediation was underway, but incomplete.
- The company reported no material pending legal proceedings. License arrangements may require future royalties, milestones, and patent costs; additional contractual and clinical-development costs remain possible.
- The Tax Cuts and Jobs Act reduced the federal corporate tax rate. The company recorded an estimated $5.447 million reduction in deferred tax assets, offset by a full valuation allowance; it had not completed its tax accounting analysis at quarter-end.
Important facts for investors to verify
- Whether the company can raise enough capital to fund operations and the planned Phase 2b trial, and whether its Form S-3 remains available for future fundraising.
- Progress and timing of the pancreatic-cancer IND, FDA feedback, trial readiness, and the evidence supporting the proposed Phase 2b design.
- Whether the SG Austria/Austrianova amendments were finalized, and the resulting payment, royalty, licensing, and related-party terms.
- Subsequent share and warrant issuances, total potential dilution, and the company’s cash runway after the reported block trade.
- Progress in remediating the disclosed material weaknesses and whether controls become effective.