PDS Biotechnology Corporation — Q3 2019 Form 10-Q
Business context and reporting period
For the three and nine months ended September 30, 2019. PDS is a clinical-stage immuno-oncology company developing Versamune-based therapies; it has no approved products and has generated no product revenue. The March 15, 2019 reverse merger with Private PDS is accounted for as a reverse acquisition, with Private PDS as the accounting acquirer. Consequently, 2018 comparatives reflect Private PDS alone and are not directly comparable with the post-merger company.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $1.83 million | $0.19 million | $4.75 million | $0.56 million |
| General and administrative expense | $3.07 million | $0.52 million | $9.36 million | $1.45 million |
| Total operating expenses | $5.85 million | $0.71 million | $15.05 million | $2.01 million |
| Net loss | $5.75 million | $0.71 million | $2.82 million | $2.02 million |
| Basic and diluted loss per share | $1.10 | $0.21 | $0.60 | $0.62 |
For the nine-month period, net loss includes an $11.94 million noncash bargain-purchase gain from the merger; excluding that gain, the reported loss would have been materially higher. No gross margin is reported because the company had no product revenue.
At September 30, cash and cash equivalents were $17.41 million, versus $0.10 million at December 31, 2018; total assets were $19.38 million and current liabilities $3.64 million. Stockholders’ equity was $15.58 million. The company had no convertible notes outstanding at quarter-end; a $30,000 note plus accrued interest converted into shares at the merger. Nine-month operating cash use was $12.55 million, compared with $1.25 million in 2018. Investing cash inflow of $29.11 million primarily reflected cash acquired in the merger; financing provided $0.75 million.
Material changes and unusual items
- Q3 operating expenses rose $5.14 million year over year, driven by higher clinical-study and personnel costs, public-company and merger-related costs, and stock-based consulting expense.
- Nine-month R&D expense increased $4.19 million, primarily from clinical studies and personnel. G&A increased $7.91 million, including higher stock compensation, personnel, insurance and legal expenses.
- The company recorded $0.94 million of lease-termination costs after agreeing to terminate its Berkeley Heights office lease; the charge included termination fees and asset write-offs. Remaining termination payments were scheduled through March 2020.
- At quarter-end, 5,278,850 common shares were outstanding. The Aspire Capital agreement permits, at the company’s discretion, up to $20 million in stock purchases, subject to price and share limits; no purchase shares had been sold by September 30. The 100,654 commitment shares issued to Aspire were recorded as a $603,924 Q3 expense.
Outlook, management commentary and risks
Management believed September 30 cash, together with expected government-program proceeds, would fund operating needs for at least one year after the filing. The company nevertheless expects continued losses, negative cash flows and substantially higher R&D spending as clinical programs advance, and anticipates needing additional financing. Equity financing could dilute holders; debt could create repayment obligations and restrictive covenants. Management stated that failure to obtain adequate funding could force delays, reductions or termination of development programs.
On October 28, 2019, after quarter-end, PDS amended its Merck collaboration to plan a Phase II study of PDS0101 plus KEYTRUDA as first-line treatment for recurrent or metastatic HPV16-positive head and neck cancer, expected to begin in Q1 2020. A separate NCI collaboration study was also anticipated to start in Q1 2020. These are plans, not achieved milestones. PDS reported retrospective data from a completed 12-patient Phase 1/2a study: robust HPV16-specific CD8+ responses and lesion regression in 60% of evaluable patients; this early result does not establish efficacy in larger trials.
Key risks include clinical and regulatory failure, competition, manufacturing and commercialization challenges, dependence on additional capital, potential dilution, intellectual-property risks, and uncertainty over reimbursement and pricing. The company was also integrating the acquired business into its internal-control framework; management reported disclosure controls effective at period-end. No material pending legal proceedings were reported.
Important facts for investors to verify
- How long the $17.41 million cash balance can support operations, given $12.55 million of nine-month operating cash use and management’s assumptions about government funding.
- Whether the planned PDS0101 combination trials begin on schedule and what their protocols, enrollment and results show.
- Whether the Aspire facility can provide usable financing on acceptable terms; no purchase shares had been sold by quarter-end.
- The effect of the merger-related bargain-purchase gain on reported nine-month results, and the limits of comparisons with 2018 standalone Private PDS results.
- Potential dilution from outstanding options and warrants, additional financing, and the company’s share-sale arrangements.