PharmaCyte Biotech, Inc. — Form 10-Q Summary
Reporting period: Three and six months ended October 31, 2016; comparisons are to the same 2015 periods. The company is a clinical-stage biotechnology business developing cancer and diabetes treatments using its Cell-in-a-Box live-cell encapsulation technology. It reported no product revenue.
Financial results and position
| Metric | Three months ended Oct. 31, 2016 | Six months ended Oct. 31, 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $974,195 | $2,005,592 |
| Net loss | $974,551 | $2,006,517 |
| Basic and diluted loss per share | $0.00, rounded | $0.00, rounded |
| Net cash used in operating activities | Not stated by quarter | $1,613,274 |
- Gross margin is not applicable because there was no revenue or cost of revenue.
- At October 31, 2016, cash was $1,551,610, working capital approximately $1.1 million, total assets $6,731,714, and total liabilities $448,990. The company reported no borrowings or other financial debt on its balance sheet.
- Six-month financing cash inflow was $1,243,221, principally from common stock sales; cash declined $369,215 to $1,551,610. There was no investing cash flow.
- Accumulated deficit was $86,698,134. Intangible assets were $3,549,427 and the investment in SG Austria was $1,572,193.
Changes versus comparable periods
- Three-month net loss improved to $974,551 from $1,635,582; six-month net loss improved to $2,006,517 from $3,150,620.
- Operating expenses declined $661,623 for the quarter and $1,144,537 for the six months. Management attributed the reductions chiefly to lower general and administrative costs, including lower consulting-related costs and, for the six-month comparison, the prior-year amortization of prepaid warrants and consultant stock. Research and development expense also declined; compensation expense increased.
- Six-month operating cash use improved to $1,613,274 from $2,116,367, while stock-sale proceeds fell to $1,243,221 from $1,728,935.
- Cash decreased from $1,920,825 at April 30, 2016. The $150,000 license-agreement obligation outstanding at April 30 was paid in full by October 31.
- Shares outstanding increased from 781,233,338 at April 30 to 849,154,665 at October 31. The company sold approximately 66.8 million shares in the six months, raising approximately $1.3 million net.
Outlook, developments, and risks
- Management said available cash, unregistered share sales, and potential public offerings were expected to fund operations through October 31, 2017. The company nevertheless requires substantial additional capital and expects future operating losses; management warned that failure to raise funds could delay, modify, or abandon planned research and clinical programs.
- The company was ineligible to make a primary offering under Form S-3 as of the report date. Management said eligibility could return if non-affiliate market value exceeded $75 million or the stock became listed on a national securities exchange. Future financing could be unavailable, costly, or dilutive.
- A pre-IND meeting with FDA’s CBER had been granted for the planned pancreatic-cancer Phase 2b trial, but the filing gives no assurance about when the meeting would occur or whether an IND would be approved. The trial remains subject to regulatory approval and funding.
- Management planned a 2017 clinical trial for malignant ascites only if preclinical results supported it and FDA approval was obtained. Diabetes and cannabinoid programs remained in development.
- Material execution risks include clinical and preclinical outcomes, regulatory approval, reliance on third parties, manufacturing readiness, and funding. The filing describes no material change to the risk factors in the company’s preceding Form 10-K.
- License agreements include contingent royalties and development milestones. The Cannabis license’s $2 million upfront payment was paid; a separate $800,000 manufacturing setup fee would be payable if a manufacturing agreement is signed, which it had not been by October 31. Approximately $186,500 in future ViruSure testing milestone payments were disclosed. Future license royalties and milestones may become payable as products advance or generate sales.
- The company disclosed no material pending legal proceedings. It identified material weaknesses in internal control, including ineffective corporate governance and internal communication, insufficient documentation and segregation of duties, and inadequate IT controls. Disclosure controls were deemed ineffective; remediation work had begun but no changes had yet been implemented.
- Options and warrants totaled approximately 166.1 million potentially dilutive shares, excluded from diluted loss per share because they were anti-dilutive. The filing also disclosed related-party purchases and consulting payments involving entities associated with SG Austria.
Important facts for investors to verify
- Whether cash burn, financing access, and the stated runway through October 2017 remain consistent with subsequent filings and capital raises.
- Regulatory status and timing of the pancreatic-cancer Phase 2b program, including FDA feedback, IND submission, and trial funding.
- Progress and results of preclinical work, cell-bank preparation, manufacturing arrangements, and the conditional ascites program.
- Potential dilution from additional share sales, outstanding options and warrants, and any financing terms senior to common stock.
- Whether the identified internal-control weaknesses have been remediated and independently assessed.
- Future milestone, royalty, manufacturing, and related-party obligations under the company’s license and service agreements.