SELLAS Life Sciences Group, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; filed August 12, 2021. SELLAS is a clinical-stage biopharmaceutical company developing cancer immunotherapies, principally GPS and NPS. It reported no product-sales revenue; licensing revenue came from its 3D Medicines agreement.
Financial results and liquidity
Amounts below are in U.S. dollars; financial statement figures are in millions except per-share data.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Licensing revenue | $1.9 | $0 | $7.6 | $0 |
| Research and development expense | $3.5 | $2.3 | $7.7 | $4.1 |
| General and administrative expense | $2.8 | $2.0 | $6.4 | $4.2 |
| Operating loss | $(4.5) | $(4.3) | $(6.7) | $(8.3) |
| Net loss | $(4.6) | $(4.4) | $(7.0) | $(8.6) |
| Net loss per share | $(0.30) | $(0.66) | $(0.47) | $(1.32) |
- Margins: Product sales were zero, so product gross margins are not applicable. Q2 licensing revenue was subject to $0.1 million of licensing costs; the filing does not present a separate gross-margin measure.
- Cash flow: Six-month operating cash use was $15.2 million, versus $10.2 million a year earlier. Financing provided $9.8 million, including $6.8 million of net equity proceeds and $3.0 million from warrant exercises. Cash, cash equivalents and restricted cash declined $5.4 million to $30.0 million.
- Balance sheet at June 30: Cash and cash equivalents were $29.9 million, restricted cash $0.1 million, and a $2.2 million stock-subscription receivable (collected July 2). Current assets were $34.6 million and current liabilities $4.2 million. Total liabilities were $10.2 million; stockholders’ equity was $33.4 million. The filing reports no outstanding debt balance; lease liabilities totaled $0.9 million. Contingent consideration was $4.9 million.
Material changes and notable items
- Six-month net loss improved by $1.6 million year over year, despite higher R&D and G&A costs, primarily because of $7.6 million in recognized 3DMed license revenue. Q2 net loss increased $0.2 million year over year.
- R&D increased as GPS Phase 3 REGAL trial activity, manufacturing and drug-supply work expanded. G&A rose partly due to amortization of 3DMed contract-acquisition costs and higher legal and personnel expenses.
- The company completed its technology transfer to 3DMed in Q2 and recognized the full $9.5 million initial transaction price over the transfer period. The agreement covers GPS in mainland China, Hong Kong, Macau and Taiwan; $192.5 million of potential future milestones and sales-based royalties remain, but are contingent and not under SELLAS’s control.
- Shares outstanding increased from 14.3 million at year-end 2020 to 15.9 million at June 30, 2021. SELLAS had an at-the-market facility allowing up to $50 million of gross stock sales, subject to a 3% agent fee.
Outlook, risks and contingencies
- Management expected cash and access to the equity sales agreement to fund planned operations for at least 12 months from issuance of the financial statements. SELLAS nevertheless expects continuing operating losses and negative operating cash flows and may seek additional financing or partnerships; future equity financing may dilute shareholders.
- R&D spending was expected to rise as development continued. The Phase 3 REGAL GPS trial planned an interim safety and futility analysis after 80 deaths, anticipated in the first half of 2022, subject to enrollment and pandemic-related delays. The company did not provide financial earnings guidance.
- COVID-19-related prioritization of hospital resources and restrictions could delay site activation and patient enrollment. The company also cited clinical, regulatory, manufacturing, financing, competition and commercialization uncertainties.
- SELLAS reported encouraging but early clinical updates: the mesothelioma investigator-sponsored study had four evaluable patients; the ovarian cancer basket study had 11 evaluable patients. These small, non-registrational datasets do not establish efficacy. NPS Phase 3 development was not planned to be funded by SELLAS itself; the company was seeking an out-license.
- Potential contingent payments tied to NPS milestones could reach $30 million, payable at SELLAS’s election in cash or shares subject to shareholder-approval requirements. Certain legacy securities and derivative lawsuits had settlements in principle, subject to documentation and court approval; the company said applicable D&O insurance would cover them.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Actual cash burn, remaining availability under the $50 million equity sales facility, and the timing or extent of any further capital raises.
- REGAL enrollment progress and whether the anticipated interim analysis timing remains achievable despite COVID-19 and site-related constraints.
- Progress toward clinical, regulatory and commercial milestones under the 3DMed agreement; future milestones and royalties are not assured.
- Evidence supporting GPS and NPS clinical claims, especially the limited patient counts and follow-up in the cited studies.
- Final court approval and insurance coverage for the legacy litigation settlements, and the potential cash or dilution impact of contingent consideration.