PharmaCyte Biotech, Inc. — Form 10-Q Summary
Reporting period: Three months ended July 31, 2019 (the company’s fiscal first quarter); filed September 13, 2019. Unaudited financial statements.
Business context
PharmaCyte is a pre-revenue biotechnology company developing cellular therapies using its Cell-in-a-Box encapsulation technology. Programs include locally advanced pancreatic cancer, cannabinoid-based cancer treatments, malignant ascites, and diabetes. The company was working toward an FDA investigational new drug submission for a planned pancreatic-cancer trial; its programs remain subject to preclinical, manufacturing, funding, and regulatory requirements.
Financial results and liquidity
| Metric | Quarter ended July 31, 2019 | Comparable 2018 period |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1,134,075 | $1,215,363 |
| Net loss | $1,134,075 | $1,215,363 |
| Basic and diluted loss per share | $(0.00), rounded | $(0.00), rounded |
| Cash used in operating activities | $763,140 | $622,243 |
| Cash provided by financing activities | $582,500 | $1,395,000 |
- At July 31, cash was $327,751, current assets were $477,039, current liabilities were $606,556, and working capital was approximately negative $130,000. Cash was $1.83 million at July 31, 2018.
- Total assets were $5.61 million, including $3.55 million of indefinite-lived licensing intangibles and a $1.57 million investment in SG Austria. Total liabilities were $606,556; the balance sheet reports no debt.
- Accumulated deficit was $101.17 million. No revenue or income-tax expense was reported.
- Operating expenses declined $81,288 year over year. R&D fell $195,464 to $72,330; compensation rose $36,004, and general and administrative expense rose $121,139, mainly due to travel. The MD&A narrative also contains an apparent contradictory G&A decrease figure; the expense table supports the increase.
- The company issued approximately 66.7 million shares for net proceeds of approximately $558,000, compared with approximately 66.2 million shares and $1.4 million net proceeds in the prior-year quarter. It reported 1.258 billion shares outstanding at July 31 and 1.328 billion as of September 13.
Outlook, risks, and notable items
- Management said cash on hand, further equity sales/private placements, and possible expense reductions were expected to fund operations through September 30, 2020. The filing nevertheless identifies conditions raising substantial doubt about going concern, including recurring losses, no biotechnology revenue, and the need for substantial additional capital.
- The company no longer met the stated eligibility requirements to use Form S-3 as of the report date. It reported raising approximately $600,000 through block trades from May 1 through July 31 and another $350,000 after quarter-end through August 8. Management also described an investor group’s plan to invest $2.5–$3.0 million over 12–18 months; this is not presented as completed funding.
- Clinical progress depends on FDA action, successful preclinical work, and GMP-compliant manufacturing. No formal revenue or earnings guidance is provided.
- Potential future obligations include license royalties, including 4% of applicable gross sales and specified sublicensee-related payments. The Melligen diabetes license also includes milestone payments of up to $3.0 million and royalties if relevant development and commercial milestones are achieved.
- Options and warrants create potential dilution: 108.95 million options and 45.41 million warrants were outstanding at July 31. Subsequent to quarter-end, the company issued 70 million shares for approximately $350,000 gross and granted 3.5 million warrants in connection with that block trade.
- Management concluded disclosure controls and internal controls over financial reporting were ineffective because of material weaknesses in contract-review/control documentation, CFO segregation of duties, and IT controls/documentation. Remediation work was ongoing; the filing warns of potential material misstatement or restatement risk.
- The company reported no material pending legal proceedings. Adoption of lease accounting had an immaterial balance-sheet effect; remaining office lease payments were $31,197.
Important facts for investors to verify
- Whether additional financing was obtained, on what terms, and whether it was sufficient to support the stated runway.
- Progress and timing of the FDA submission, clinical-trial plans, preclinical studies, and GMP manufacturing readiness.
- Whether internal-control weaknesses were remediated and whether subsequent filings report any corrections.
- Actual dilution from ongoing share sales, outstanding options and warrants, and the post-quarter block trade.
- Whether the investor group’s proposed $2.5–$3.0 million investment was completed, and the terms of any future license or sublicense arrangements.