Business Context and Reporting Period
The submitted filing is a Form 10-Q for Selecta Biosciences, Inc., not Cartesian Therapeutics, Inc. It covers the unaudited quarter ended March 31, 2019, with comparative results for the quarter ended March 31, 2018. Selecta was a clinical-stage biopharmaceutical company developing its ImmTOR nanoparticle immunomodulatory technology. Its lead candidate was SEL-212 for chronic refractory gout, with additional gene therapy programs in preclinical development.
Financial Highlights
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Grant and collaboration revenue | $10 thousand | $0 | +$10 thousand |
| Research and development expense | $7.4 million | $11.1 million | Down 34% |
| General and administrative expense | $4.5 million | $4.7 million | Down 3% |
| Total operating expenses | $11.9 million | $15.8 million | Down 25% |
| Net loss | $12.1 million | $15.9 million | Improved $3.8 million |
| Net loss per share | $0.31 | $0.71 | Improved |
| Net cash used in operating activities | $20.2 million | $13.4 million | Use increased $6.8 million |
Gross margin and product margin were not meaningful because the company had no product sales. The company stated that it had no source of product revenue and did not expect product revenue for the foreseeable future.
- Cash, cash equivalents and restricted cash were $32.5 million at March 31, 2019, compared with $37.4 million at December 31, 2018.
- Short-term deposits and investments were $16.2 million at March 31, 2019, resulting in total cash, restricted cash and short-term investments of approximately $48.7 million.
- Cash declined by $5.2 million during the quarter after $20.2 million of operating cash use and $16.1 million of investing cash use, offset by $31.1 million of financing proceeds.
- Operating cash use increased primarily because of a $6.1 million increase in prepaid clinical operations expenses, including inventory purchased for the COMPARE trial.
- The company had $21.0 million of principal outstanding under its 2017 term loan. The full balance of $21.5 million, including the current portion and related amounts, was classified as current because of substantial doubt about the company’s ability to continue as a going concern and the lender’s material adverse change provisions.
- Accumulated deficit increased to $292.5 million from $280.4 million at December 31, 2018.
- Total stockholders’ equity was $14.8 million at March 31, 2019, compared with a deficit of $5.4 million at December 31, 2018.
Material Changes Versus the Prior Comparable Period
- Research and development expense fell $3.8 million, primarily due to reduced salaries and benefits following a headcount reduction and lower program spending.
- SEL-212 research and development expense declined to $2.9 million from $4.8 million; the company attributed the overall decline to reduced personnel costs and changes in clinical program spending.
- Net loss improved to $12.1 million from $15.9 million, although operating cash use worsened because of clinical inventory and working-capital spending.
- The company completed a January 2019 public offering of 22.2 million common shares at $1.50 per share, generating $30.9 million of net proceeds. Shares outstanding increased to 44.8 million at March 31, 2019 from 22.5 million at December 31, 2018.
- The company adopted the new lease standard on January 1, 2019, recognizing a right-of-use asset and lease liability. The adoption did not affect net loss or cash flows.
- The company reduced budgeted headcount by approximately 36%, or approximately 17 positions, as part of a strategic shift toward SEL-212 and gene therapy. It recorded approximately $0.5 million of cash restructuring charges.
- The company vacated certain additional office space and wrote down the related $0.2 million right-of-use asset.
Guidance, Outlook, Risks and Unusual Items
- The COMPARE Phase 2 head-to-head trial of SEL-212 versus Krystexxa began in March 2019 and was expected to enroll approximately 150 patients. Interim six-month data were projected for the fourth quarter of 2019, with a full statistical superiority analysis projected for the first quarter of 2020.
- Management planned to initiate a Phase 3 SEL-212 program in the fourth quarter of 2019, subject to raising additional capital. Management believed existing resources could complete COMPARE but were insufficient for the planned Phase 3 program.
- Management concluded that substantial doubt existed regarding the company’s ability to continue as a going concern within one year after filing. The company expected operating losses and negative cash flows to continue and was evaluating equity financing, strategic collaborations and other funding sources.
- The company stated that existing cash, investments and restricted cash were expected to fund operations into the first quarter of 2020, although this estimate depended on assumptions that could prove inaccurate.
- Failure to raise capital could require the company to delay, reduce or terminate development programs or grant unfavorable rights to collaborators. Additional equity financing would dilute existing stockholders.
- The company terminated its license of LMB-100 from the National Cancer Institute effective April 9, 2019 and discontinued SEL-403 after a Grade 5 adverse event involving patient death and an FDA clinical hold.
- Deferred revenue and other contract liabilities totaled $16.4 million at March 31, 2019. The company recognized less than $0.1 million of collaboration revenue from a Spark shipment during the quarter.
- The company’s principal supply risk included dependence on 3SBio in China for pegadricase, a component of SEL-212, and reliance on third-party manufacturers and clinical research organizations.
- The company reported no material legal proceedings and no off-balance-sheet arrangements.
- John Leaman, the Chief Financial Officer and Head of Corporate Strategy, resigned effective March 31, 2019. On May 7, 2019, Ann Donohue was designated interim principal financial and accounting officer while the company searched for a new CFO.
Most Important Facts an Investor Should Verify
- Confirm the issuer identity: the supplied filing is for Selecta Biosciences, Inc., while the request identifies Cartesian Therapeutics, Inc.
- Verify the going-concern conclusion, available liquidity, projected runway into the first quarter of 2020 and the amount and timing of financing required for Phase 3.
- Review the classification and terms of the $21.0 million term loan, including the material adverse change clause and potential acceleration risk.
- Track COMPARE enrollment, interim data, final analysis and any changes to the planned SEL-212 Phase 3 program.
- Assess the consequences of the SEL-403 clinical hold, the LMB-100 license termination and the reported serious adverse events.
- Evaluate dilution from the January 2019 offering and any subsequent equity, debt or strategic financing.
- Review reliance on 3SBio and other third-party manufacturers, as well as the status of supply, regulatory and quality approvals.