Business Context and Reporting Period
The filing is Selecta Biosciences, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2019. The request metadata identifies Cartesian Therapeutics, Inc., but the supplied filing identifies Selecta Biosciences, Inc. (Nasdaq: SELB); this company identity should be verified.
Selecta is a clinical-stage biotechnology company developing biologic therapies using its ImmTOR immune-tolerance platform. Its lead program is SEL-212 for chronic refractory gout, with additional gene-therapy programs, including collaborations with AskBio and CureCN. The company has no approved products or product sales.
Financial Metrics
| Metric | Three Months Ended September 30, 2019 | Prior Comparable Period | Nine Months Ended September 30, 2019 | Prior Comparable Period |
|---|---|---|---|---|
| Grant and collaboration revenue | $0 | $0 | $0.023 million | $0 |
| Research and development expense | $8.104 million | $11.885 million | $27.591 million | $37.431 million |
| General and administrative expense | $3.690 million | $4.056 million | $12.317 million | $13.092 million |
| Net loss | $11.994 million | $16.001 million | $40.462 million | $50.685 million |
| Net loss per share | $0.26 | $0.71 | $0.94 | $2.27 |
| Net cash used in operating activities | Not separately provided | Not separately provided | $38.559 million | $46.413 million |
Operating margin and gross margin are not meaningful because revenue was negligible and the company remains pre-commercial. Operating loss was $11.794 million in the quarter and $39.885 million for the nine-month period.
- Cash, cash equivalents and restricted cash were $35.892 million at September 30, 2019, compared with $37.682 million at December 31, 2018. Approximately $0.4 million was held by the Russian subsidiary and designated for its operations.
- Total assets were $39.544 million; total liabilities were $44.459 million; and stockholders’ deficit was $4.915 million.
- The company had $20.3 million of outstanding principal under its Silicon Valley Bank term loan. All $20.927 million of the carrying amount was classified as current because of going-concern considerations and the lender’s material-adverse-change clause.
- Nine-month financing cash inflows were $36.507 million, including $30.942 million from the January follow-on offering, $5.715 million from the August private placement and $0.372 million from the at-the-market offering.
- The company had $16.004 million of contract liabilities at September 30, 2019, primarily deferred revenue associated with the Spark agreement.
Material Changes Versus the Prior Comparable Period
- Quarterly research and development expense declined 32% to $8.104 million; nine-month research and development expense declined 26% to $27.591 million. The company attributed the reductions to timing of COMPARE trial spending, early-2019 headcount reductions and completion or discontinuation of prior programs.
- Quarterly general and administrative expense declined 9%, and nine-month expense declined 6%, primarily due to lower legal and professional fees.
- Quarterly net loss improved by $4.007 million, while the nine-month net loss improved by $10.223 million, largely reflecting lower operating expenses.
- Operating cash burn declined by $7.854 million year over year, but financing dependence remained high.
- Shares outstanding increased to 48.196 million at September 30, 2019 from 22.472 million at December 31, 2018, primarily due to equity financings.
- The company adopted ASC 842 lease accounting on January 1, 2019 and recorded right-of-use assets and lease liabilities. It also entered into a new eight-year facility lease with total minimum commitments of approximately $15.794 million.
- In August 2019, the company entered into an AskBio feasibility study and license agreement for ImmTOR-enabled AAV gene-therapy programs. No collaboration expense was recognized under the arrangement during the nine-month period.
- The company notified MEE in September 2019 that it intended to terminate the MEE license effective December 15, 2019.
Guidance, Outlook, Risks and Unusual Items
- Management stated that existing cash, investments and restricted cash were expected to fund operating and capital requirements through the first quarter of 2020. The company required additional capital to complete the Phase 2 COMPARE trial and commence the planned Phase 3 SEL-212 program.
- The financial statements disclose substantial doubt about the company’s ability to continue as a going concern within one year after filing. Management was pursuing equity financing, strategic collaborations, licenses and other sources of capital and warned that failure to obtain funding could require delaying, reducing or terminating development programs.
- The company expected interim COMPARE data in the first quarter of 2020 and six-month top-line statistical superiority data by mid-2020. Planning for Phase 3 was expected to continue after anticipated FDA feedback in January 2020, subject to financing and regulatory considerations.
- MIT could terminate the exclusive patent license if the company failed to satisfy a diligence obligation, including initiating a Phase 3 trial in the fourth quarter of 2019. Management was negotiating an amendment to defer the obligation and stated that failure to reach an acceptable amendment could materially harm the business.
- The term loan is secured by substantially all company assets other than intellectual property, includes a negative pledge over intellectual property and contains subjective acceleration provisions. No lender event of default had been reported as of the filing date.
- Key business risks include clinical-trial failure or delay, regulatory uncertainty, manufacturing dependence on third parties including 3SBio in China, limited capital, reliance on collaborators, intellectual-property challenges, potential dilution and the unproven nature of the ImmTOR platform.
- The company discontinued or deprioritized certain programs, including SELA-070, SEL-701 and the oncology program. SEL-403 development was terminated after a clinical hold related to serious adverse events, including a patient death associated by the investigator with pneumonitis.
- The company reported no material legal proceedings and no off-balance-sheet arrangements.
Important Facts for Investors to Verify
- Confirm the correct issuer: the supplied filing is for Selecta Biosciences, Inc., not Cartesian Therapeutics, Inc.
- Verify the company’s post-filing financing activity and whether sufficient capital was raised to address the disclosed going-concern uncertainty.
- Check whether the MIT license diligence requirement was amended or otherwise satisfied before termination rights became actionable.
- Verify subsequent clinical results, enrollment and financing for the COMPARE trial and the status of the planned SEL-212 Phase 3 program.
- Review the maturity, covenants, collateral and repayment status of the Silicon Valley Bank term loan.
- Assess the financial and strategic impact of the AskBio collaboration, the MEE license termination and the new facility lease commitments.
- Reconcile subsequent share issuance and potential dilution with the 48.196 million shares outstanding at September 30, 2019.