PharmaCyte Biotech, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended January 31, 2015 (fiscal third quarter). The company is a clinical-stage biotechnology business developing Cell-in-a-Box-based cancer and diabetes treatments; it reported no product revenue.
Financial performance and liquidity
| Metric | Three months ended Jan. 31, 2015 | Nine months ended Jan. 31, 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $1.457 million | $9.285 million | $0.681 million; $2.530 million |
| Operating loss | $1.457 million | $9.285 million | $0.681 million; $2.530 million |
| Net loss | $1.458 million | $7.107 million | $0.459 million; $10.783 million |
| Net cash used in operations | Not presented separately | $2.969 million | $0.616 million |
Gross margin and operating margins are not meaningful because there were no revenues. Nine-month net loss improved year over year despite a substantially higher operating loss, primarily because the prior-year period included large losses on preferred-stock conversion and debt settlement; current-period results also included a $2.183 million gain related to returned stock.
At January 31, 2015, cash was $958,816, down from $3.616 million at April 30, 2014. Nine-month investing cash use was $500,000, principally for license and patent purchases; financing provided $811,018, including stock-sale proceeds. Total assets were $6.626 million, current liabilities $378,511, and stockholders’ equity $6.248 million. The filing shows no outstanding debt at period-end; the related-party loan and accrued interest had been repaid.
Compensation expense for the nine months was $5.298 million, including substantial noncash stock-option expense. The company had 703.458 million common shares outstanding at January 31, versus 690.616 million at April 30; 25 million options and approximately 57.970 million warrants were outstanding. Shares outstanding were 707.768 million as of March 13, 2015.
Changes, outlook, and material items
- Nine-month operating expenses rose to $9.285 million from $2.530 million. Drivers included $4.308 million of option compensation, higher legal and professional fees, and increased general and administrative expenses. Research and development expense was $621,567, versus none in the prior-year period; sales and marketing declined to $230,500 from $324,600.
- Management expected the Australian Phase 2b pancreatic-cancer trial and U.S. trials focused on cancer pain and malignant ascites to begin in the third quarter of 2015. A follow-up preclinical ascites study was underway. These are forward-looking plans, not assured outcomes.
- The company entered an exclusive worldwide cannabis-related licensing agreement, with a $2 million initial fee due by June 30, 2015, royalties, and additional milestone payments. The filing reports $500,000 paid as of January 31 and a further $300,000 payment on February 20; elsewhere, MD&A says $800,000 had been paid. This payment timing should be reconciled.
- The company stated it needs substantial additional capital, expects continuing operating losses, and depends on outside funding. It warned that inability to raise funds could force it to modify, delay, or abandon plans and could jeopardize its ability to continue operations. Equity financing may dilute shareholders; debt financing could add interest and restrictive covenants.
- After quarter-end, the company sold 4,310,188 shares under its registration statement for approximately $520,553. It also disclosed new executive compensation agreements and equity awards for its CEO and COO.
- The company reported no material pending legal proceedings and no material changes to previously disclosed risk factors other than the added risk concerning the cannabis license and liquidity. Management concluded disclosure controls were effective as of January 31, while noting controls provide reasonable, not absolute, assurance.
Key facts investors should verify
- Cash runway and the timing and terms of additional financing, given the cash balance, operating cash use, and stated funding dependence.
- Reconciliation of cannabis-license payments reported as $500,000 at January 31, $800,000 in MD&A, and the subsequent $300,000 payment.
- Whether the planned clinical trials began on schedule, and their regulatory, enrollment, funding, and data milestones.
- Potential dilution from outstanding warrants, options, subsequent share sales, and executive equity awards.
- The valuation and accounting for the cannabis and diabetes license obligations and the company’s 14.5% interest in SG Austria; valuations were still underway.