PharmaCyte Biotech, Inc. — Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended October 31, 2018, the second quarter of the company’s fiscal year ending April 30, 2019. PharmaCyte is a development-stage biotechnology company pursuing Cell-in-a-Box-based therapies for cancer and diabetes. It reported no revenue.
Financial results and liquidity
| Metric | Three months ended Oct. 31, 2018 | Three months ended Oct. 31, 2017 | Six months ended Oct. 31, 2018 | Six months ended Oct. 31, 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Operating expenses and operating loss | $1.037 million | $1.814 million | $2.252 million | $3.503 million |
| Net loss | $1.037 million | $1.814 million | $2.252 million | $3.503 million |
| Cash used in operating activities | Not separately provided for the quarter | $1.540 million | $2.532 million |
Balance sheet at October 31, 2018: Cash was $907,417; current assets were $937,582; current liabilities were $662,370; working capital was approximately $275,000. Total liabilities were $662,370, all current; the filing reports no debt. Total assets were $6.067 million, including $3.549 million of intangible assets and a $1.572 million investment in SG Austria. Stockholders’ equity was $5.404 million. No impairment of intangible assets was recorded.
For the six months, financing provided $1.395 million, primarily from common-stock sales; cash declined by $152,381 to $907,417. There were no investing cash flows. The company had no meaningful operating margin because it had no revenue.
Material changes versus the prior comparable period
- Six-month operating expenses and net loss declined by $1.251 million, approximately 36%, year over year. Lower R&D costs accounted for $560,233 of the expense reduction; compensation, director fees, legal and professional costs, and general and administrative costs also fell.
- Cash used in operations decreased by $992,010 year over year, while net financing proceeds from stock sales fell from $1.751 million to $1.395 million.
- Cash at October 31, 2018 was approximately $907,000, versus approximately $2.7 million at October 31, 2017, according to MD&A.
- During the six months, the company sold approximately 66.2 million common shares for net proceeds of $1.395 million. Shares outstanding were 1.081 billion at October 31, versus 1.013 billion at April 30, 2018. At December 14, 2018, the company reported 1.127 billion shares outstanding.
Outlook, risks, contingencies and unusual items
- Management said it was preparing an FDA IND for a planned Phase 2b trial in locally advanced pancreatic cancer. Management stated that prior clinical-trial data were not sufficient to support a Phase 3 pivotal trial, and that the proposed Phase 2b study is intended to inform a potential Phase 3 design. Timing and regulatory outcomes remain uncertain.
- The company also described preclinical cancer and diabetes programs, including malignant ascites, cannabinoid-based cancer research and insulin-producing cell therapies. The filing provides no revenue or earnings guidance.
- The company had an accumulated deficit of $98.216 million and a six-month net loss of $2.252 million. The filing states these conditions raise substantial doubt about its ability to continue as a going concern. Management said available cash, planned securities sales and the ability to reduce R&D spending were expected to fund operations through December 31, 2019. This outlook depends on access to additional financing.
- On November 1, 2018, the company received $500,000 gross from a common-stock Block Trade. From November 1 through December 14, it sold 45,454,545 shares for approximately $500,000 gross proceeds; the placement agent fee was $35,000 and the agent was entitled to warrants covering approximately 2.3 million shares.
- The company disclosed material weaknesses in financial reporting controls: insufficient control procedures and documentation, inadequate segregation of CFO duties, and deficient IT controls and documentation. Management concluded disclosure controls and internal control over financial reporting were not effective as of October 31, 2018, and said remediation work was underway.
- May 2018 amendments eliminated specified milestone payments under the SG Austria and Austrianova agreements and revised royalty arrangements. Certain license royalties are 4% of company gross sales; sublicense-related and other consideration-sharing terms also apply. The separate Melligen license retains contingent milestones, royalties and patent-prosecution costs.
- There were no material pending legal proceedings. The company had $27,570 of remaining minimum office lease payments, due within one year.
Most important facts for investors to verify
- Whether the company can raise sufficient capital to meet its stated funding needs and extend its cash runway without substantial further dilution.
- Progress, timing, funding and FDA requirements for the pancreatic-cancer IND and planned Phase 2b trial.
- Whether management’s internal-control remediation addresses the disclosed weaknesses, and whether any misstatements or restatements arise.
- The fully diluted share count and potential dilution from outstanding options, warrants and subsequent financing. At October 31, 2018, the filing listed 96.45 million options and 37.31 million warrants.
- The conditions and economics of the Cell-in-a-Box, diabetes and sublicense royalty arrangements, including remaining Melligen milestones and costs.