Filing Overview
Important identity discrepancy: The request identifies Cartesian Therapeutics, Inc., but the filing text is for Selecta Biosciences, Inc. (Nasdaq: SELB), filed May 7, 2020, for the quarter ended March 31, 2020. The summary below reflects the filing text.
Business context and reporting period
Selecta was a clinical-stage biotechnology company developing its ImmTOR immune-tolerance platform for biologic therapies, including SEL-212 for chronic refractory gout and gene-therapy programs. The interim financial statements are unaudited and cover the three months ended March 31, 2020, compared with the same period in 2019.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Grant and collaboration revenue | $0.0 million | Less than $0.1 million | Down $0.01 million |
| Research and development expense | $14.7 million | $7.4 million | Up 100% |
| General and administrative expense | $4.1 million | $4.5 million | Down 9% |
| Net loss | $19.6 million | $12.1 million | Loss increased $7.5 million |
| Net loss per share | $0.21 | $0.31 | Per-share loss improved due to higher share count |
| Net cash used in operating activities | $11.7 million | $20.2 million | Use decreased $8.5 million |
At March 31, 2020, cash and cash equivalents were $72.6 million, and total cash, cash equivalents and restricted cash were $74.3 million, down from $91.6 million at December 31, 2019. The company had an accumulated deficit of $355.4 million and stockholders’ deficit of $8.8 million.
Debt consisted primarily of the Silicon Valley Bank 2017 Term Loan, with outstanding principal of $16.1 million and $16.9 million classified as current liabilities because of substantial doubt regarding continuation as a going concern and the company’s assessment of a material-adverse-change clause. The loan is secured by substantially all assets other than intellectual property, subject to specified arrangements.
Total liabilities were $97.6 million, including $42.4 million of liability-classified warrants and $11.9 million of operating lease liabilities. The company recorded a $0.8 million non-cash loss from the increase in warrant fair value.
Material changes versus the prior comparable period
- Research and development expense doubled, principally due to the SEL-212 Phase 2 COMPARE trial and the AskBio gene-therapy collaboration.
- No collaboration revenue was recognized in Q1 2020, compared with less than $0.1 million in Q1 2019.
- General and administrative expense declined by $0.4 million, reflecting lower salaries, consulting and professional fees, partly offset by higher stock-based compensation.
- Operating cash burn improved primarily because of working-capital changes, including collection of a $5.0 million receivable and lower prepaid expenses.
- Financing cash flow changed from $31.1 million provided in Q1 2019 to $5.4 million used in Q1 2020. Q1 2020 included $4.4 million of December 2019 financing costs, $2.1 million of debt principal repayments and $1.1 million of net ATM offering proceeds.
- The company recorded an $11.8 million right-of-use asset and corresponding lease liabilities for its new headquarters at 65 Grove Street. Base rent was scheduled to begin in May 2020 at approximately $0.2 million per month during the first year.
Guidance, outlook, risks and unusual items
- Management expected existing cash, cash equivalents, investments and restricted cash to fund operating expenses and capital expenditures into the first quarter of 2021, but stated that additional capital would be required to complete the planned Phase 3 SEL-212 program.
- The filing states that recurring losses, negative operating cash flow and insufficient resources raise substantial doubt about the company’s ability to continue as a going concern within one year after filing.
- Subject to COVID-19 impacts, management expected to report top-line COMPARE data in the third quarter of 2020 and commence the SEL-212 Phase 3 program in the second half of 2020. It also expected to enter the clinic under the AskBio gene-therapy collaboration in the second half of 2020 and report data in 2021.
- COVID-19 had not materially affected clinical programs as of May 5, 2020, but could delay trial activities, patient enrollment, laboratory work, supply chains, manufacturing and access to capital. The company reported adequate material supply at that date for initiating the planned SEL-212 Phase 3 program and the AskBio clinical trial.
- The company was negotiating a further amendment to its MIT license. A diligence obligation to initiate a Phase 3 trial had been tolled only until the earlier of a specified date in Q2 2020 or the effective date of a written amendment. Failure to reach an acceptable amendment or cure any breach could materially affect the business.
- All future milestones under the AskBio and Spark arrangements remained constrained and were not included in revenue. Deferred revenue was $16.3 million at March 31, 2020.
- Subsequent to quarter-end, the company sold 470,509 shares through its ATM program for approximately $1.0 million of net proceeds.
- The filing disclosed no material legal proceedings, no off-balance-sheet arrangements and effective disclosure controls as of March 31, 2020.
Investor verification checklist
- Confirm the correct issuer: the provided filing is Selecta Biosciences, Inc., not Cartesian Therapeutics, Inc.
- Verify the company’s ability to raise sufficient capital and address the disclosed going-concern uncertainty.
- Monitor repayment, acceleration and covenant risks associated with the $16.1 million term loan and its material-adverse-change clause.
- Track COMPARE trial results, the planned SEL-212 Phase 3 launch and the effect of COVID-19 on timelines and costs.
- Review the status of the MIT license amendment and any potential license termination or diligence consequences.
- Assess dilution and potential warrant overhang from approximately 31.4 million outstanding common and pre-funded warrants, including $42.4 million of liability-classified warrants.
- Evaluate the effect of the new headquarters lease, ongoing cash burn and projected operating runway.