PharmaCyte Biotech, Inc. — Form 10-Q Summary
Reporting period: Three months ended July 31, 2017, the company’s fiscal first quarter of 2018. The filing’s interim financial statements are unaudited. PharmaCyte is a clinical-stage biotechnology company developing cancer and diabetes therapies using its Cell-in-a-Box cell-encapsulation technology. It reported no revenue.
Financial results and liquidity
| Metric | Three months ended July 31, 2017 | 2016 comparable period |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1.688 million | $1.031 million |
| Operating loss | $1.688 million | $1.031 million |
| Net loss | $1.688 million | $1.032 million |
| Operating cash used | $936,000 | $907,000 |
| Financing cash provided, primarily stock sales | $1.751 million | $1.325 million |
- At July 31, cash was $4.278 million, up from $3.464 million at April 30; working capital was approximately $3.5 million, versus $3.0 million. Total current liabilities were $866,000, comprising accounts payable and accrued expenses. The filing reports no debt.
- Total assets were $9.525 million, including $3.549 million of indefinite-lived license intangibles and a $1.572 million investment in SG Austria. Stockholders’ equity was $8.659 million.
- Management said available cash and anticipated equity sales could fund operations through September 30, 2018. The company expects continued losses and depends on outside capital; if additional funding is unavailable, it may modify, delay, or abandon plans.
Changes and notable items
- Operating expenses rose $657,000 year over year: R&D increased $253,000 to $428,000; compensation increased $166,000 to $581,000; director fees increased $87,000 to $96,000; and general and administrative expenses increased $133,000 to $388,000. Management attributed much of the G&A increase to consulting costs.
- Shares outstanding increased from 905.3 million at April 30 to 973.2 million at July 31. The company sold approximately 62.4 million shares during the quarter for net proceeds of $1.751 million. Options and warrants outstanding totaled approximately 156.4 million and were excluded from diluted loss per share as anti-dilutive.
- On August 30, 2017, after quarter-end, the company signed a binding term sheet with SG Austria and Austrianova. It eliminates specified milestone payments under the APA and the diabetes and cannabis license agreements, changes specified sales royalties to 4% and sublicense terms, and expands the scope of the diabetes license. The company also agreed to pay Austrianova Singapore $150,000 per month for six months. The filing describes the term sheet as an agreement to amend existing contracts; investors should check the final executed amendments for full terms.
- Cash used for R&D included development work on cell banks for pancreatic cancer; a June 2017 agreement with Eurofins for cell-bank preparation and characterization carries an estimated cost of approximately $300,000, excluding optional testing.
Outlook, risks, and controls
- The company planned to seek FDA authorization for a clinical trial in locally advanced, inoperable pancreatic cancer. Timing and success depend on regulatory approval, preclinical and clinical results, manufacturing readiness, and third parties. The filing gives no revenue or earnings guidance.
- Key risks include the absence of revenue, recurring losses, dependence on further equity financing, clinical and regulatory uncertainty, and reliance on third parties for research and manufacturing. Certain license agreements also include future royalties, milestone or manufacturing costs; the Melligen cell license has separate milestone and patent-cost obligations.
- Management reported material weaknesses in internal control over financial reporting, including insufficient control documentation, segregation of duties, and IT controls, as well as governance weaknesses. Disclosure controls and internal control over financial reporting were deemed ineffective as of July 31, 2017. Management warned that weaknesses could lead to a material misstatement or restatement.
- The company reported no material pending legal proceedings and no material change to the risk factors in its preceding Form 10-K. It disclosed limited foreign-currency exposure and no hedging activities.
Important facts for investors to verify
- Whether the August 2017 term sheet was finalized and how its revised royalties, sublicense economics, eliminated milestones, and $900,000 payment commitment affect cash needs.
- Cash burn, subsequent equity issuance, dilution, and whether financing is sufficient to support operations beyond management’s stated September 30, 2018 horizon.
- FDA submission and authorization status, clinical-trial readiness, and progress on cell-bank and manufacturing work.
- Progress in remediating internal-control weaknesses and the status of governance and accounting-system improvements.
- The potential dilution from outstanding options and warrants, alongside the company’s share issuance program.