Cellectar Biosciences, Inc. — Q2 2016 Form 10-Q
Business context and reporting period. Unaudited quarterly report for the three and six months ended June 30, 2016. Cellectar is a clinical-stage biopharmaceutical company developing phospholipid drug conjugates for cancer treatment and imaging. It reported no product revenue and is funding operations primarily through securities offerings.
Financial performance and liquidity
| Metric | Three months ended June 30, 2016 | Six months ended June 30, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | No product revenue reported | No product revenue reported | No product revenue reported |
| Research and development expense | $965,184 | $2,004,638 | $1,382,966 and $3,026,961, respectively |
| General and administrative expense | $1,367,726 | $2,328,981 | $817,657 and $1,761,090, respectively |
| Operating loss | $2,332,910 | $4,333,619 | $2,291,123 and $4,878,551, respectively |
| Net loss | $2,132,903 | $1,308,340 | $2,286,550 and $4,587,706, respectively |
| Net loss per share | $0.49 | $0.50 | $3.02 and $6.07, respectively |
| Cash used in operating activities | — | $3,719,898 | $4,553,608 |
At June 30, 2016, cash and cash equivalents were $7.92 million, versus $3.86 million at December 31, 2015. Total current assets were $8.14 million and current liabilities $1.39 million. Total liabilities were $1.55 million, including $208,892 of current notes payable; the notes bear 2% interest and final payment is due April 1, 2017. The company had $9.83 million of stockholders’ equity.
Gross margin is not meaningful because the company reported no product revenue. The six-month net loss includes a $3.02 million noncash gain on revaluation of derivative warrants; consequently, net loss was substantially below the $4.33 million operating loss. Cash burn remained significant despite the accounting gain.
Material changes and notable items
- Six-month R&D expense declined by approximately $1.02 million, or 34%, from 2015, primarily reflecting lower personnel and travel, lab and purchased-service costs following restructuring and closure of the glioma trial, reduced SBIR-related costs, and lower facilities costs.
- Six-month G&A expense increased by approximately $568,000, or 32%, mainly from higher consulting and purchased services, personnel costs, and public-company expenses.
- In April, the company completed an underwritten offering that generated approximately $8.0 million gross and $7.2 million net proceeds. It issued 1.87 million common shares and pre-funded warrants; all pre-funded warrants were exercised by June 30. The financing and exercises contributed to the increase in shares outstanding to 5,368,235 at June 30 from 858,140 at year-end. The company also completed a 1-for-10 reverse stock split in March.
- At June 30, 4,629,842 common-stock warrants and 397,882 options were outstanding. These securities could result in substantial dilution; many warrant exercise prices and terms vary.
- Warrant amendments, exercises, and reclassification of certain warrants to equity reduced the reported derivative liability from $4.78 million at year-end to $365,562. The related fair-value accounting produced the large six-month noncash gain.
Outlook, risks, and other disclosures
- Management estimated that cash on hand would fund operations into the first quarter of 2017. The company expects operating losses to continue and said funding beyond that point depends on additional equity or debt financing, a strategic transaction, or other funding. It had not entered into negotiations for such transactions and gave no assurance funding would be available on acceptable terms.
- CLR 131, the lead radiotherapeutic candidate, remained in a Phase 1 study for relapsed or refractory multiple myeloma; enrollment was ongoing, with a study update planned for Q3 2016. CLR 1502’s FDA review resulted in combination-product classification, requiring a new investigational application before a Phase 1 breast-cancer surgery study; the company was evaluating its development path. Other candidates remained preclinical or under evaluation.
- The filing identifies clinical, regulatory, manufacturing, financing, and commercialization uncertainty. Failure to raise capital could require delayed, reduced, or discontinued development programs, or partnerships that surrender economic or proprietary rights.
- Disclosure controls and internal control over financial reporting were deemed ineffective because of an unremediated material weakness involving complex accounting and limited resources. Management nevertheless stated that the interim financial statements were fairly stated in all material respects. Remediation was ongoing, with no assurance it would be successful.
- The company reported that Nasdaq had closed its stockholders’ equity listing-compliance matter after the April offering and that it regained minimum-bid-price compliance following the reverse split. No legal proceedings were reported as material; ordinary-course matters were not expected to materially affect the financial statements.
- A former chief scientific officer and founder remained a shareholder and was affiliated with the University of Wisconsin-Madison, a research partner. The company incurred approximately $159,000 of university expenses in the first half and had approximately $84,000 accrued at quarter-end.
Important facts for investors to verify
- Whether the company secured additional financing before the stated cash runway into Q1 2017 expired, and the resulting terms and dilution.
- Actual operating cash burn and whether spending or development plans changed after June 30.
- CLR 131 enrollment, safety and activity findings, and the timing and content of the planned study update.
- The regulatory and development plan for CLR 1502 following its combination-product classification.
- Progress in remediating the material weakness in financial reporting controls.
- The potential dilution and accounting effects of the outstanding warrants and options, including any subsequent exercises or amendments.