PharmaCyte Biotech, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended April 30, 2020 (not a calendar fourth-quarter report). The company is a pre-revenue biotechnology developer using its Cell-in-a-Box live-cell encapsulation platform for cancer and diabetes programs. Its lead candidate targets locally advanced, inoperable, non-metastatic pancreatic cancer (LAPC). No product is approved for sale.
Financial results and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $3.826 million | $4.101 million |
| Operating loss | $3.826 million | $4.101 million |
| Net loss | $3.827 million | $4.067 million |
| Net cash used in operations | $2.338 million | $2.878 million |
| Cash from financing activities | $2.726 million | $2.343 million |
| Cash at year-end | $894,861 | $515,253 |
Net loss narrowed about 5.9%; operating expenses fell about 6.7%, mainly with lower R&D, director and consulting costs. R&D expense was $301,221, down from $460,052. The company reported no product revenue, so revenue margins are not meaningful.
At April 30, 2020, total assets were $6.167 million, total liabilities $1.078 million and stockholders’ equity $5.089 million. Current assets of $1.038 million narrowly exceeded current liabilities of $1.031 million. Liabilities included a $75,200 Paycheck Protection Program loan, with $28,918 current and $46,282 long-term; the company intended to seek forgiveness but could not assure it would be forgiven. No conventional credit lines were open.
The filing states that cash expenditures were approximately $200,000 per month. After year-end, the company reported raising approximately $4.7 million and having approximately $4.9 million in the bank as of the report date; management estimated available funding would support operations through August 31, 2021. This depends on additional capital access and is not assured. The company had an accumulated deficit of $103.858 million and reported substantial doubt about its ability to continue as a going concern; management said its financing plans alleviated that doubt.
Business progress, changes and outlook
- During FY2020, the company completed two manufacturing runs of its LAPC candidate, reported that both batches passed all 10 required release tests, completed a manufacturing-facility cGMP audit, began a 24-month stability study and prepared a Drug Master File. These steps do not constitute FDA authorization to begin a trial.
- The company planned to submit an IND for LAPC shortly after filing the 10-K and proposed a Phase 2b trial, subject to FDA review. Management discussed possible trial commencement in Q4 2020 or Q1 2021, while cautioning that timing was uncertain. The FDA could require additional studies or a Phase 1 trial, and might not accept data from earlier European trials.
- COVID-19 had caused delays in materials and pre-IND work that management characterized as not material as of the report, but could delay IND review, trial activation and enrollment, disrupt suppliers, or compromise trial data.
- Other cancer and diabetes programs remained paused for further spending until the FDA allows the LAPC trial to proceed, except for ongoing UTS research on an improved insulin-producing Melligen cell line, for which the company said its funding had already been paid. The company also licensed COVID-19 diagnostic kits, registered as an importer and submitted a Pre-EUA application; it had not begun marketing and was still exchanging information with the FDA.
- Operating cash flow remained negative and operations were funded mainly by equity issuance. Common shares outstanding increased from 1.186 billion at April 30, 2019 to 1.639 billion at April 30, 2020; the filing reported 2.334 billion outstanding as of August 11, 2020. Further equity financing could materially dilute shareholders.
Risks, contingencies and controls
- The company depends on additional financing, has no commercial revenue, and expects continuing operating losses. Its ability to fund development depends on capital availability and clinical and regulatory progress.
- The company relies heavily on third parties, particularly Austrianova as its encapsulation manufacturer and sole source of product candidates, as well as consultants and research collaborators. Manufacturing, supply, regulatory, intellectual-property and partner risks could delay or prevent development.
- Earlier pancreatic-cancer studies were small, open-label and non-randomized; the filing cautions that results were not statistically significant and may not predict future outcomes. No regulatory authority has established the candidate’s safety or effectiveness.
- Management reported ineffective disclosure controls and material weaknesses in financial reporting controls, including contract review and documentation, segregation of CFO duties, and IT controls. Remediation was ongoing.
- The auditor issued an unmodified opinion on the financial statements and included an emphasis-of-matter paragraph regarding COVID-19; it did not express an opinion on internal-control effectiveness. No material litigation was reported.
Most important facts for investors to verify
- Whether and when the FDA received and cleared the LAPC IND, and what trial phase, conditions or additional studies it required.
- Current cash, monthly cash use, subsequent financing terms, share count and dilution, and whether management’s stated runway remains achievable.
- Whether the PPP loan was forgiven or requires repayment.
- Whether trial enrollment and execution have been affected by COVID-19, and whether stability, manufacturing and regulatory requirements remain satisfied.
- Progress in remediating the disclosed internal-control weaknesses and any subsequent changes in control effectiveness.