Business context and reporting period
SELLAS Life Sciences Group, Inc. filed this Form 10-K for the fiscal year ended December 31, 2018; it does not provide standalone fourth-quarter results. SELLAS is a clinical-stage biopharmaceutical company developing cancer immunotherapies, principally galinpepimut-S (GPS) and nelipepimut-S (NPS). It has no approved products and generated no revenue in 2018 or 2017. The 2017 comparison reflects Private SELLAS as the accounting acquirer in the December 2017 reverse acquisition with Galena Biopharma.
Key financial metrics
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $8.8 million | $6.1 million |
| General and administrative expense | $12.8 million | $15.1 million |
| Operating loss | $31.1 million | $23.0 million |
| Net loss | $27.7 million | $23.8 million |
| Net loss attributable to common stockholders | $41.3 million | $24.4 million |
| Basic and diluted loss per common share | $3.15 | $10.44 |
| Net cash used in operating activities | $30.4 million | $11.0 million |
| Cash and cash equivalents at year-end | $5.3 million | $2.3 million |
| Restricted cash at year-end | $0.1 million | $10.4 million |
| Debt at year-end | None | $11.0 million |
Gross margin is not applicable because the company had no product revenue. Year-end 2018 total current liabilities were $6.0 million; total assets were $16.9 million and stockholders’ equity was $5.2 million. The 2018 common-stockholder loss included substantial non-cash deemed dividends related to preferred-stock conversion and warrant provisions.
Material changes versus the prior comparable period
- Net loss increased by $3.9 million. Operating loss increased by $8.1 million, primarily due to a $9.6 million impairment charge after the company abandoned GALE-401; lower G&A and other items partly offset the increase.
- R&D expense rose by $2.7 million, including startup and clinical costs for the GPS/pembrolizumab basket trial and costs related to NPS/trastuzumab.
- Operating cash use rose to $30.4 million from $11.0 million. The company cited reduced accounts payable and accrued expenses as contributing to the cash outflow.
- Debt was eliminated following the JGB settlement. The company received $6.6 million from JGB in November 2018 and terminated the secured debenture and related security agreements.
- Financing activities provided $23.1 million, chiefly from the July public offering and March/May preferred-stock financing, offset in part by debt repayments.
Guidance, outlook, risks and unusual items
- Liquidity and going concern: Management and the auditor reported substantial doubt about the company’s ability to continue as a going concern. Management estimated year-end cash, together with up to $4.2 million of potential warrant-exercise proceeds, would fund operating expenses through June 2019. By the filing date, approximately $1.3 million had been received under the warrant agreement; the remaining proceeds were not assured. Additional financing is required, and failure to obtain it could force delays, reductions, asset transactions or cessation of operations.
- Strategic alternatives: In February 2019, SELLAS engaged Cantor Fitzgerald to explore options including a sale, merger, financing, strategic investment, asset disposition or funded partnership. No transaction was assured.
- Pipeline: The company said it was ready to start a GPS Phase 3 AML maintenance trial, subject to funding. The planned study would enroll about 116 patients and use overall survival as its primary endpoint. A Phase 1/2 GPS plus pembrolizumab basket trial began in December 2018. NPS Phase 2b results reported 24-month disease-free survival of 92.6% for the TNBC cohort receiving NPS plus trastuzumab versus 70.2% with trastuzumab alone; the company was seeking FDA guidance on further development. These are clinical-stage findings, not evidence of regulatory approval or commercial success.
- Other significant items: The $9.6 million GALE-401 impairment was non-cash. The 2018 non-operating result included a $5.3 million non-cash gain from a decrease in warrant liability fair value and a $3.0 million non-cash increase in contingent consideration. No debt remained at year-end.
- Key risks: Clinical and regulatory outcomes are uncertain; funding is inadequate for planned development; warrants and future financings may dilute shareholders; GPS depends on its MSK license, and the filing notes certain required MSK payments were not made, potentially giving MSK termination rights after notice. The company also relies on third parties for manufacturing and clinical execution. Legacy shareholder and derivative litigation remained pending, and the Aon insurance coverage dispute was scheduled for trial in May 2019.
Important facts for investors to verify
- Actual cash runway and subsequent financing proceeds, including the status and terms of the warrant exercises and any strategic transaction.
- Whether funding is secured to initiate and complete the planned GPS Phase 3 study, and whether FDA discussions support the proposed NPS development path.
- Full clinical-trial data, including patient numbers, follow-up, statistical methods, safety findings and the extent to which results rely on historical or subgroup comparisons.
- Current standing of the MSK license, unpaid obligations, and any milestone, royalty or contingent-consideration exposure.
- Updates and potential financial impact of the pending securities and derivative suits, the Aon case, and any other legacy Galena proceedings.
- Potential dilution from the substantial outstanding warrant pool and other equity-linked securities; the filing reported 17.7 million warrants outstanding at year-end 2018.