PharmaCyte Biotech, Inc. — Form 10-Q summary
Reporting period: Three months ended July 31, 2018, compared with the three months ended July 31, 2017. The filing is dated September 12, 2018. PharmaCyte is a clinical-stage biotechnology company developing therapies for cancer and diabetes using its Cell-in-a-Box live-cell encapsulation technology. It reported no revenue in either period.
Financial results and liquidity
| Metric | Three months ended July 31, 2018 | Three months ended July 31, 2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development | $267,794 | $427,670 |
| Total operating expenses | $1,215,363 | $1,688,415 |
| Net loss | $1,215,363 | $1,688,415 |
| Net loss per share, basic and diluted | $0.00 loss per share, rounded | $0.00 loss per share, rounded |
| Cash used in operations | $622,243 | $935,567 |
| Cash proceeds from common stock sales, net | $1,395,000 | $1,751,409 |
Operating expenses fell by $473,052, or about 28%, year over year. The filing attributes the decrease to lower research and development, compensation, director fees, legal and professional, and general and administrative costs; lower travel costs contributed to the general and administrative reduction. With no revenue, a revenue-based gross margin is not applicable.
At July 31, 2018, cash was $1,831,282, current assets were $1,952,099, and current liabilities were $882,943, producing working capital of approximately $1.07 million and a current ratio of about 2.2. Total liabilities were $882,943; the balance sheet reported no long-term debt. Cash increased $771,484 during the quarter, principally because $1.395 million of financing proceeds exceeded $622,243 of operating cash use. There were no investing cash flows.
Total assets were $7.08 million and stockholders’ equity was $6.20 million at July 31, 2018. Accumulated deficit was $97.18 million. The company sold approximately 66.2 million common shares during the quarter, raising approximately $1.4 million net; shares outstanding were 1,079,499,960 at July 31, 2018, up from 1,013,260,644 at April 30, 2018. Options and warrants outstanding totaled approximately 132.6 million shares and were excluded from diluted loss per share as anti-dilutive.
Developments, outlook, and risks
- Development plans: The company was preparing an IND submission to the FDA for a planned Phase 2b trial in locally advanced pancreatic cancer (LAPC). Management said prior clinical-trial reports were insufficient to support a Phase 3 pivotal trial, and it expects a successful Phase 2b could inform Phase 3 design and possibly support an accelerated-approval application. These are plans, not assured outcomes.
- Other programs: The company described work on malignant ascites, diabetes therapies, and cannabinoid-based cancer treatments. The filing provides no revenue or clinical-stage outcome for these programs in the quarter.
- Licensing amendments: May 2018 amendments eliminated specified milestone obligations to Austrianova and SG Austria, expanded the scope of the diabetes license, and set 4% royalties on gross product sales plus defined sublicense-related payments. The company had paid the required $900,000 installment amount in full by April 30, 2018. Separate Melligen license terms include royalties, patent costs, and development milestones.
- Funding and going concern: The company stated that it needs substantial additional capital and expects future operating losses. The accumulated deficit, quarterly loss, and lack of biotechnology-sector revenue raised substantial doubt about its ability to continue as a going concern. Management said cash on hand, planned equity sales and other financing would fund operations through September 30, 2019, and that it could significantly reduce R&D spending if funding is delayed. It also cited $1.5 million in commitments it expected to receive in 2018.
- Dilution: Equity sales were a key source of liquidity. The filing says the company plans to continue raising capital through common-stock offerings, which may dilute existing shareholders.
- Financial reporting controls: Management concluded disclosure controls and internal control over financial reporting were not effective at July 31, 2018, citing material weaknesses in control procedures and documentation, segregation of CFO duties, and IT controls. Remediation work was underway; management cautioned that weaknesses could result in a material misstatement or restatement.
- Other matters: No material pending legal proceedings or material changes to the risk factors from the prior Form 10-K were reported. The company disclosed uninsured cash deposits of approximately $1.435 million at July 31, 2018, and limited foreign-currency exposure associated with overseas research and manufacturing arrangements.
Investor verification priorities
- Confirm the status, timing, funding, and FDA requirements for the LAPC IND and planned Phase 2b trial.
- Track cash burn, financing commitments, equity issuance, dilution, and whether funding remains adequate through September 30, 2019.
- Review progress in remediating the disclosed internal-control material weaknesses and any subsequent auditor or management findings.
- Check the executed license amendments and continuing royalty, sublicense, milestone, and patent-cost obligations, including the UTS/Melligen terms.
- Assess whether clinical, manufacturing, and regulatory milestones for the other programs are achieved; the filing provides no assurance of commercialization or future revenue.