Business Context and Reporting Period
The filing is Selecta Biosciences, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2018. The request metadata identifies Cartesian Therapeutics, Inc., but the supplied filing identifies the registrant as Selecta Biosciences, Inc. Selecta is a clinical-stage biopharmaceutical company developing synthetic vaccine particle technology and product candidates including SEL-212, SEL-403, SELA-070, SEL-302 and SEL-313. It had no approved products or product sales.
Financial Performance and Position
| Metric | Q1 2018 | Q1 2017 | Change |
|---|---|---|---|
| Grant and collaboration revenue | $0.0 million | $0.1 million | Down $0.1 million |
| Research and development expense | $11.1 million | $11.0 million | Up 1% |
| General and administrative expense | $4.7 million | $3.9 million | Up 21% |
| Net loss | $15.9 million | $15.1 million | Loss increased $0.8 million |
| Net loss per share | $0.71 | $0.82 | Improved due primarily to higher share count |
| Net cash used in operating activities | $13.4 million | $15.3 million | Use decreased $1.9 million |
Gross margin and operating margin are not meaningful because the company reported no revenue. Investment income was $0.3 million, foreign currency transaction loss was less than $0.1 million, and interest expense was $0.4 million.
- Cash, cash equivalents and restricted cash were $58.3 million at March 31, 2018, compared with $70.7 million at December 31, 2017.
- Short-term deposits and investments were $24.8 million, bringing cash, cash equivalents, short-term investments and short-term restricted cash to approximately $83.1 million.
- Loans payable, net of current portion, were $21.1 million; the outstanding principal under the 2017 term loan was $21.0 million.
- Accumulated deficit was $228.4 million, compared with $216.9 million at December 31, 2017.
- Stockholders’ equity was $41.6 million at quarter-end, compared with $51.8 million at year-end 2017.
Material Changes Versus the Prior Comparable Period
- Revenue fell to zero as grant activity wound down and no Spark collaboration revenue was recognized in the quarter.
- Research and development expense was broadly stable, with SEL-212 spending of $4.8 million versus $5.0 million in Q1 2017. The company initiated a Phase 1 trial of SEL-403 in March 2018.
- General and administrative expense increased by $0.8 million, primarily due to increased headcount and related costs supporting a more mature public clinical-stage company.
- Net loss increased by $0.8 million, while loss per share improved because weighted-average shares outstanding increased to 22.3 million from 18.5 million.
- Operating cash use improved year over year. Investing cash flow was a $0.9 million source in Q1 2018, compared with a $16.5 million use in Q1 2017, reflecting investment maturities and purchases.
- The company adopted ASC 606 on January 1, 2018 using the modified retrospective method. The adoption increased opening accumulated deficit by $4.4 million, recognized $2.6 million of contract-related assets and reduced deferred revenue by $1.8 million. Management stated that adoption did not change Q1 2018 reported operations compared with the prior guidance.
Guidance, Outlook, Risks and Unusual Items
Management expects continued substantial operating losses and increasing research and development and general and administrative expenses for the foreseeable future. Based on its current operating plan, the company expects cash, cash equivalents, short-term investments and restricted cash at March 31, 2018 to fund operating and capital requirements into mid-2019. This estimate depends on assumptions that may prove incorrect, and the company expects to require substantial additional capital.
- Funding may come from equity or debt offerings, collaborations, licenses and research grants. No securities had been sold under the $50 million ATM facility as of March 31, 2018.
- SEL-212 was in a Phase 2 program; SEL-403 entered Phase 1; SELA-070 was in Phase 1; and SEL-302 and SEL-313 were in preclinical development.
- The company has no product revenue and expects no product sales for at least several years, if ever.
- The SVB term loan matures February 1, 2022, bears floating interest, is interest-only through August 2019, and is secured by substantially all assets other than intellectual property. Defaults could permit acceleration.
- Key risks include clinical-trial failure or delays, regulatory nonapproval, adverse events, manufacturing dependence on third parties including 3SBio in China, intellectual-property challenges, collaboration termination, future financing constraints and leadership transition risk following the CEO’s planned retirement effective December 31, 2018.
- Remaining performance obligations under customer contracts were $8.6 million at March 31, 2018, with approximately 9.0% expected to be recognized over the following 12 months. Contract liabilities totaled $17.1 million.
- No material legal proceedings or off-balance-sheet arrangements were reported. Disclosure controls and procedures were assessed as effective.
Important Facts for Investors to Verify
- Confirm the correct issuer: the supplied filing is for Selecta Biosciences, Inc., not Cartesian Therapeutics, Inc.
- Verify cash runway assumptions and the timing and terms of any future equity or debt financing.
- Monitor clinical progress, enrollment, safety data and regulatory feedback for SEL-212 and SEL-403.
- Assess the effects of ASC 606 on future collaboration and grant revenue, including the timing of Spark-related revenue recognition and potential Skolkovo reimbursement obligations.
- Review the SVB loan’s collateral, acceleration provisions, floating-rate exposure and repayment schedule.
- Evaluate dependence on 3SBio and other contract manufacturers, as well as the company’s ability to secure adequate clinical supply.
- Track the planned CEO succession and any resulting operational or strategic disruption.