Business context and reporting period
Entity mismatch: The supplied filing is Catalyst Biosciences, Inc.’s Form 10-Q, not a filing for Gyre Therapeutics, Inc. It covers the quarter and nine months ended September 30, 2017; the financial statements are unaudited.
Catalyst is a clinical-stage biotechnology company developing engineered protease medicines, primarily for hemophilia. Its lead programs were marzeptacog alfa (activated), a Factor VIIa candidate, and CB 2679d/ISU304, a Factor IX candidate. The company had no commercial product sales; all reported contract revenue came from its ISU Abxis collaboration.
Financial results and liquidity
| Metric (USD millions, except per-share data) | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Contract revenue | 0.318 | 0.109 | 0.700 | 0.328 |
| Research and development expense | 3.805 | 3.396 | 9.286 | 8.443 |
| General and administrative expense | 2.391 | 2.425 | 7.407 | 7.083 |
| Operating loss | (5.878) | (5.712) | (15.993) | (15.198) |
| Net loss | (5.793) | (4.771) | (15.808) | (13.195) |
| Net loss attributable to common stockholders | (5.793) | (4.771) | (19.759) | (13.195) |
| Basic and diluted loss per share | $(1.34) | $(6.04) | $(6.49) | $(17.10) |
At September 30, 2017, assets were $34.393 million, liabilities $9.511 million, and stockholders’ equity $24.882 million. Cash and cash equivalents were $10.973 million, short-term investments $16.477 million, and restricted cash $5.727 million. Thus, cash plus short-term investments totaled $27.450 million; restricted cash was separately reported and included collateral for the notes. The filing states that available cash, cash equivalents, and investments should fund operations for at least 12 months from the filing date, while cautioning that assumptions may prove incorrect.
For the first nine months, operating cash use was $13.623 million, investing cash use $9.726 million, and financing cash provided $24.058 million; cash and cash equivalents increased $0.709 million. The company reported $5.488 million of redeemable convertible notes at quarter-end, with $5.5 million of restricted cash serving as collateral. The notes do not bear interest and mature in February 2018 if not redeemed or converted. No gross margin was reported; revenue was collaboration revenue rather than product sales.
Material changes versus comparable periods
- Q3 revenue rose 192% and nine-month revenue rose 113%, primarily reflecting recognition of ISU Abxis milestone payments. Revenue remained small relative to operating expenses.
- Operating expenses increased 6% in Q3 and 8% for the nine-month period. Higher marzeptacog manufacturing costs were partly offset by lower personnel and other costs following a 2016 workforce reduction.
- Net loss increased 21% in Q3 and 20% for the nine-month period. The nine-month 2017 common-stockholder loss also included a $3.951 million noncash deemed dividend from the preferred stock beneficial conversion feature.
- Interest and other income fell sharply year over year: 2016 included gains from asset sales and a change in the notes’ derivative value that were absent in 2017.
- Financing included an April 2017 public offering that generated $18.6 million net proceeds and issued common stock, convertible preferred stock, and warrants. The company also raised $5.3 million net through its at-the-market program, which was fully used by September 30. Common shares outstanding increased to 4,310,561 from 801,756 at December 31, 2016; a 1-for-15 reverse stock split was effected in February 2017, and reported share data reflect the split.
Outlook, risks, contingencies, and unusual items
- Management expected research and development spending to increase over coming quarters, particularly for manufacturing and clinical development of marzeptacog alfa (activated) and CB 2679d/ISU304. No formal revenue or earnings guidance was provided.
- Marzeptacog alfa (activated) had completed an intravenous Phase 1 trial; management expected to advance it into the Phase 2 portion of a Phase 2/3 subcutaneous prophylaxis trial in 2017. ISU Abxis had begun a Phase 1/2 subcutaneous trial of CB 2679d/ISU304 in South Korea; dosing of the first two cohorts was complete, with completion anticipated in Q1 2018.
- The company has never been profitable, reported an accumulated deficit of $167.741 million, and expects significant losses for at least several years. It may need substantial additional capital; financing may be unavailable or dilutive, and failure to obtain funding could delay, reduce, or end development programs.
- Key dependencies include ISU Abxis’ execution of the Factor IX trial and CMC’s manufacturing work. Remaining CMC obligations were approximately $0.7 million. Potential milestone payments not included in contractual obligations include up to $17.5 million to Pfizer and up to $2.0 million to ISU Abxis; amounts and timing were uncertain.
- In October 2017, after quarter-end, Catalyst announced a co-funded research collaboration with Mosaic Biosciences to develop intravitreal anti-C3 products for Dry AMD and other retinal diseases. The filing disclosed that Catalyst’s CEO and a director also served on Mosaic’s board; disinterested directors and the audit committee reviewed and approved the transaction.
- The filing reported no material legal proceedings, no off-balance-sheet arrangements, effective disclosure controls, and no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for Catalyst Biosciences, not Gyre Therapeutics.
- Assess whether the stated 12-month cash runway remains adequate against the reported operating cash burn and expected higher development costs.
- Track clinical progress and timelines for the lead Factor VIIa and Factor IX programs, including the company’s dependence on ISU Abxis for the latter.
- Review dilution and potential future financing needs, including the remaining preferred shares, warrants, and the effect of additional equity issuance.
- Monitor the February 2018 note maturity/redemption and the contingent milestone and royalty obligations to Pfizer and ISU Abxis.