Business Context and Reporting Period
The provided filing is Selecta Biosciences, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2018; it does not identify Cartesian Therapeutics, Inc. as the registrant. Selecta is a clinical-stage biopharmaceutical company developing nanoparticle immunomodulatory therapies using its SVP technology. Its lead candidate was SEL-212 for chronic severe gout, with additional programs in oncology, smoking cessation, gene therapy and related collaborations.
Selecta had no approved products or product sales. Revenue historically came from grants and collaboration agreements. The company reported that it was an emerging growth company and had 22.4 million common shares outstanding as of November 2, 2018.
Key Financial Metrics
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Grant and collaboration revenue | $0.0 million in 2018; $0.0 million in 2017 | $0.0 million in 2018; $0.2 million in 2017 |
| Research and development expense | $11.9 million; $9.5 million in 2017 | $37.4 million; $31.5 million in 2017 |
| General and administrative expense | $4.1 million; $4.4 million in 2017 | $13.1 million; $13.2 million in 2017 |
| Net loss | $16.0 million; $14.7 million in 2017 | $50.7 million; $45.8 million in 2017 |
| Net loss per share | $0.71; $0.66 in 2017 | $2.27; $2.31 in 2017 |
| Net cash used in operating activities | Not separately provided | $46.4 million; $39.4 million in 2017 |
- Cash, cash equivalents and restricted cash totaled $50.8 million at September 30, 2018, including $50.5 million of cash and cash equivalents. This compared with $71.0 million at December 31, 2017.
- Total assets were $60.3 million, versus $101.1 million at December 31, 2017. The decrease principally reflected the use and maturity of short-term investments.
- Total liabilities were $50.3 million and stockholders’ equity was $10.0 million at September 30, 2018.
- The $21.0 million SVB term loan was classified entirely as current because of substantial doubt about going-concern status and the assessment that a material adverse change clause was outside the company’s control. The loan carried a 7.25% effective interest rate and was secured by substantially all assets other than intellectual property, with related proceeds and payment rights included in the collateral.
- Operating expenses increased 15% year over year for the quarter and 13% for the nine-month period, driven primarily by higher clinical development spending.
Material Changes Versus the Prior Comparable Period
- Revenue fell to zero from $27,000 for the quarter and from $190,000 for the nine-month period. The company recognized no Spark collaboration revenue and no grant revenue in 2018 periods presented.
- Quarterly R&D expense increased $2.4 million, or 25%, primarily due to the SEL-212 Phase 2 trial, Phase 3 planning, increased headcount, license payments and stock compensation. Nine-month R&D expense increased $5.9 million, or 19%.
- Quarterly net loss increased $1.3 million, or 9%, while nine-month net loss increased $4.9 million, or 11%.
- Operating cash burn increased $7.0 million to $46.4 million for the nine months, reflecting higher losses and working-capital changes.
- Investing activities provided $25.6 million in 2018, primarily from maturities of short-term investments, compared with $8.2 million of investing cash use in 2017.
- Financing provided only $0.6 million in 2018, compared with $61.0 million in 2017, which included the $47.1 million net private placement and $21.0 million term-loan funding.
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective method. The adoption increased opening accumulated deficit by $4.4 million, recorded $2.6 million of contract-related assets and reduced deferred revenue by $1.8 million; management stated that reported 2018 operating results were not materially different from the prior revenue standard.
Guidance, Outlook, Commentary, Risks and Unusual Items
- Management expected operating losses and negative cash flows to continue for the foreseeable future and stated that substantial additional financing was required.
- The company disclosed substantial doubt about its ability to continue as a going concern within one year after issuance of the financial statements. It was exploring equity offerings, strategic collaborations and other funding sources. Failure to obtain funding could delay, reduce, terminate or out-license development programs.
- Additional capital was required before conducting the planned head-to-head Phase 2 trial of SEL-212 against Krystexxa and before advancing the planned Phase 3 program.
- Management expected no product revenue for the foreseeable future; remaining performance obligations under customer contracts totaled $8.6 million, with approximately 8.9% expected to be recognized over the following 12 months.
- The company drew $0.9 million from an NIH grant during the quarter, but recorded it as deferred revenue pending approval. It expected approval during the fourth quarter of 2018.
- The company ceased work under the Skolkovo grant and was required to return unused funds and reimburse certain overspent costs. A $0.1 million contract liability remained subject to the audit period.
- A patient in the SEL-403 Phase 1 trial experienced a Grade 5 serious adverse event, or death, from pneumonitis. The investigator considered it probably related to SVP-Rapamycin and possibly related to the patient’s mesothelioma; future development of SEL-403 was under evaluation.
- Key risks included clinical-trial failure or delay, adverse events, regulatory approval uncertainty, dependence on third-party manufacturers including 3SBio in China, intellectual-property challenges, collaboration termination, limited cash resources and dilution from future financing.
- The company had no material legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls and procedures were effective as of September 30, 2018.
Most Important Facts for Investors to Verify
- Confirm the issuer identity: the supplied filing is for Selecta Biosciences, Inc., not Cartesian Therapeutics, Inc.
- Verify the company’s cash runway against the $46.4 million nine-month operating cash burn and the disclosed going-concern uncertainty.
- Review the classification and covenants of the $21.0 million SVB term loan, including the material adverse change and acceleration provisions.
- Track financing activity and whether sufficient capital was raised to support the SEL-212 head-to-head Phase 2 and planned Phase 3 programs.
- Assess clinical and regulatory updates for SEL-212 and the safety-related implications for SEL-403 following the reported patient death.
- Reconcile deferred revenue, NIH approval, Skolkovo repayment obligations and the timing of revenue recognition under ASC 606.
- Evaluate potential dilution from outstanding options, warrants, restricted stock units and the 1.175 million shares reserved under the employment inducement plan.