Business Context and Reporting Period
Filing: Selecta Biosciences, Inc. Form 10-Q for the three months ended March 31, 2022. The request identifies Cartesian Therapeutics, Inc., but the supplied filing is for Selecta Biosciences, Inc. (Nasdaq: SELB); this issuer discrepancy should be verified.
Selecta is a clinical-stage biopharmaceutical company developing its ImmTOR and ImmTOR-IL immune-tolerance platforms. It has no approved products and no product sales; revenue is generated primarily from collaboration and license arrangements.
Financial Highlights
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Collaboration and license revenue | $34.0 million | $11.1 million | Up 208% |
| Research and development expense | $17.7 million | $13.0 million | Up 36% |
| General and administrative expense | $5.5 million | $5.2 million | Up 6% |
| Operating income (loss) | $10.8 million | $(7.2) million | Improved |
| Net income (loss) | $28.8 million | $(24.6) million | Improved |
| Net income (loss) per diluted share | $0.08 | $(0.22) | Improved |
| Cash used in operating activities | $(11.9) million | $(12.1) million | Similar use |
Reported operating and net margins were approximately 31.7% and 84.6%, respectively, versus negative margins in the prior-year quarter. These margins were significantly affected by collaboration revenue, the recognition of deferred revenue, and a non-cash warrant revaluation gain, and are not indicative of product commercialization economics.
- As of March 31, 2022, cash and cash equivalents were $113.4 million, marketable securities were $4.0 million, and restricted cash was $1.4 million. Total cash, cash equivalents, restricted cash and marketable securities were $118.8 million.
- Total assets were $145.7 million and total liabilities were $89.9 million. Stockholders’ equity was $55.8 million.
- Outstanding term-loan principal was $25.0 million. The March 2022 amendment deferred amortization commencement by 12 months to April 1, 2023.
- Deferred revenue declined to $38.4 million from $65.3 million at December 31, 2021, primarily because $26.9 million was recognized during the quarter.
- Accumulated deficit was $401.5 million at March 31, 2022.
Material Changes Versus the Prior Comparable Period
- Revenue increased $22.9 million, primarily from $23.8 million recognized under the Sobi license, $9.2 million recognized upon mutual termination of the Spark license, and $1.0 million recognized under the Takeda agreement.
- Research and development expense increased $4.7 million, driven by higher preclinical program costs, salaries, and contract license and milestone payments. Preclinical-stage program expense increased $2.5 million to $3.1 million.
- The Company recorded an $18.5 million gain from the decrease in the fair value of warrant liabilities, compared with a $16.7 million loss in Q1 2021. This was primarily driven by a decrease in the Company’s share price and is non-cash.
- Cash used in operations remained broadly consistent despite reported net income, reflecting a $26.9 million reduction in deferred revenue and other working-capital uses.
- The Company sold 576,418 shares through its at-the-market program for net proceeds of $1.7 million.
- The FDA removed the clinical hold on the SEL-302 Phase 1/2 trial on March 9, 2022, allowing the trial to proceed.
Guidance, Outlook, Risks and Unusual Items
- Management expected existing cash, cash equivalents, restricted cash and marketable securities, together with the April 2022 financing, to fund planned operations into mid-2024. The filing cautions that this estimate depends on assumptions that may prove inaccurate.
- On April 6, 2022, after quarter-end, the Company announced an offering of 27.4 million shares and warrants to purchase up to 20.6 million shares, generating gross proceeds of approximately $38.7 million.
- Management expected both DISSOLVE Phase 3 studies for SEL-212 to complete in the fourth quarter of 2022, with combined topline results in the first quarter of 2023. Because of the Russia-Ukraine situation, new screening and randomization in Russia and Ukraine were temporarily closed, 11 U.S. sites were added, and planned enrollment was increased to approximately 140 subjects.
- The Company expects operating losses to continue for the foreseeable future and may require additional equity, debt, licensing or collaboration financing. Additional financing may be unavailable or dilutive.
- COVID-19 could delay trial enrollment, clinical execution, preclinical work, manufacturing and supply chains, although management stated it had not materially affected clinical programs as of the filing date.
- The Company accrued $0.9 million for a probable settlement of a stockholder derivative lawsuit relating to the 2019 private placement. Settlement approval remained pending as of the filing.
- Future milestone payments under collaboration agreements remain uncertain and generally constrained until achievement becomes probable. Potential milestone opportunities include up to $1.124 billion under Takeda, $630 million under Sobi, and approximately $1.5 billion across multiple Cyrus programs, but these amounts are not assured.
- The Company’s principal risks include clinical and regulatory failure, manufacturing and supply constraints, intellectual-property protection, dependence on collaborators, continued losses, financing needs, geopolitical disruption, and the absence of product revenue.
Facts Investors Should Verify
- Confirm that the filing issuer is Selecta Biosciences, Inc., not Cartesian Therapeutics, Inc., and verify the applicable ticker and reporting period.
- Separate recurring operating performance from the $18.5 million non-cash warrant revaluation gain and the $9.2 million one-time revenue recognition from Spark termination.
- Assess the sustainability and timing of Sobi reimbursements and other collaboration revenue, given the $38.4 million remaining performance obligation balance and lack of product sales.
- Review the April 2022 equity and warrant offering, including dilution from 27.4 million shares and warrants covering up to 20.6 million additional shares.
- Monitor SEL-212 DISSOLVE enrollment, completion and Q1 2023 topline timing, including impacts from Russia, Ukraine and COVID-19.
- Evaluate liquidity relative to the $25.0 million term loan, expected continuing operating losses, and management’s mid-2024 cash runway estimate.