Business context and reporting period
This is Genesis Biopharma, Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2012; it is not identified as an Iovance Biotherapeutics filing. Investors should verify the issuer and filing identity before relying on this summary. Genesis was a development-stage biopharmaceutical company developing Contego, an adoptive cell therapy initially targeting metastatic melanoma. It reported no operating revenue.
Financial performance and position
| Metric | Q3 2012 / September 30, 2012 | Comparable period / prior date |
|---|---|---|
| Revenue | $0 | $0 in Q3 2011 |
| Operating expenses | $1.38 million | $5.81 million in Q3 2011 |
| Research and development | $250,000 | $0 in Q3 2011 |
| Net loss | $674,000; $0.01 per share | $5.82 million; $0.07 per share in Q3 2011 |
| Nine-month net loss | $6.77 million | $17.34 million in 2011 |
| Operating cash used, nine months | $2.24 million | $3.48 million in 2011 |
| Cash and cash equivalents | $0 | $510,217 at December 31, 2011 |
| Total assets / current liabilities | $28,692 / $16.61 million | $568,430 / $13.35 million at December 31, 2011 |
| Derivative liabilities | $7.66 million | $7.94 million at December 31, 2011 |
Gross margin is not meaningful because the company reported no revenue. Stockholders’ deficiency was $16.58 million. Working capital deficiency was $8.95 million excluding derivative liabilities, versus $4.89 million at December 31, 2011.
Material changes and unusual items
- Nine-month operating expenses fell to $5.00 million from $17.03 million, mainly because 2011 included substantial non-cash stock compensation, including $8.01 million in stock issued to the CEO. Nine-month 2012 share-based compensation remained significant at approximately $2.36 million.
- Q3 and nine-month losses were lower year over year, reflecting lower non-cash compensation and gains from the decrease in fair value of derivative liabilities ($1.60 million for Q3; $976,000 for nine months). These valuation gains are non-cash and depend on assumptions and share price.
- Research and development expense was $1.41 million for the first nine months of 2012, including $750,000 associated with NIH/NCI research support and $616,000 of NIH direct expenses accrued.
- Financing cash came from $1.48 million of secured notes and $250,000 from a stock sale. The company had no committed additional financing disclosed.
Liquidity, debt, outlook, and risks
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern, citing no cash, recurring losses, operating cash use, and inability to meet obligations from operations.
- Debt and default exposure: Approximately $6.48 million of note principal was outstanding, including $5.00 million of 7% senior secured convertible notes, $1.23 million of 12% secured notes, and a $250,000 September 2012 note due on demand. The filing states that $6.23 million was past due and in default and the remaining $250,000 was due on demand. The secured notes carry asset liens; default could permit acceleration, collection action, or foreclosure. The 2011 notes have default remedies that may require redemption above their outstanding balance.
- Funding needs: Management said substantial additional debt or equity funding was needed soon, had not identified sources or secured commitments, and estimated that developing Contego in line with its plan would require more than $35 million over the next 12 months. Failure to raise funding could force suspension or termination of development or operations; equity financing would dilute shareholders.
- Program obligations: NIH/NCI amounts of $616,000 and a $250,000 CRADA installment were past due; the company reported discussions to cure defaults and no termination notice. NIH license terms also provide for royalties and potential milestone payments totaling up to $36.3 million across four indications if all benchmarks are achieved.
- Controls and reporting: Management concluded disclosure controls were ineffective and identified a material weakness involving segregation of accounting duties and expertise for complex transactions. Remediation efforts were underway.
- The company did not anticipate product-sale or licensing revenue in 2012 and expected losses to continue. No material pending legal proceedings were reported.
Important facts for investors to verify
- Confirm the filing’s issuer: the source names Genesis Biopharma, Inc., not Iovance Biotherapeutics, Inc.
- Verify current status and terms of the defaulted notes, any demands or extensions, liens, and the potential redemption amounts.
- Determine whether NIH/NCI past-due amounts were paid, defaults cured, and licenses or research agreements remain in force.
- Confirm subsequent financing, cash availability, and whether the stated Contego funding requirement and development plans remain applicable.
- Review subsequent filings for resolution of the going-concern uncertainty and material weakness in financial reporting controls.