PharmaCyte Biotech, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended April 30, 2018, with fiscal 2017 comparisons. The filing is not for 2017 Q4; its fourth-quarter data are for the quarter ended April 30, 2018.
Business context
PharmaCyte is a clinical-stage biotechnology company developing cancer and diabetes cell therapies using its Cell-in-a-Box cellulose-based cell-encapsulation technology. Its lead program is a proposed targeted chemotherapy for locally advanced, inoperable, non-metastatic pancreatic cancer (LAPC). The company had no approved products or commercial revenue.
Financial performance and liquidity
| Metric | FY2018 | FY2017 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $6.98 million | $4.44 million |
| Net loss | $6.83 million | $4.44 million |
| Net loss per share | $0.01 | $0.01 |
| Operating cash used | $5.08 million | $3.34 million |
| Financing cash provided | $2.68 million | $4.88 million |
| Cash at year-end | $1.06 million | $3.46 million |
Research and development expense increased to $2.00 million from $1.18 million. Management attributed the overall expense increase to research and development, compensation, director fees and consulting, including stock-based awards. Other income of $153,000 in FY2018 mainly reflected an Australian research and development credit and a VAT refund. No gross margin was generated because there was no revenue.
At April 30, 2018, current assets were $1.28 million and current liabilities were $644,000; working capital was approximately $640,000. Total liabilities were $644,000, with no debt reported on the balance sheet. Accumulated deficit was $95.96 million. The company used $2.40 million of cash during the year. Management reported approximately $1.9 million cash as of the filing date and estimated current cash spending at about $240,000 per month.
The company stated it expected available cash and planned stock sales to fund operations through July 31, 2019, assuming continued access to financing and its Form S-3. The auditor’s financial-statement opinion was unmodified, but the notes say operating losses and financing needs raise substantial doubt about the company’s ability to continue as a going concern; management believed its financing plans alleviated that doubt.
Material changes and operating developments
- Net loss rose by about 54% year over year as operating expenses increased by $2.54 million. Operating cash use also increased, while year-end cash fell by $2.40 million.
- The company completed production and testing of a Master Cell Bank for the pancreatic cancer program and shipped cells to Austrianova’s Thailand facility. Encapsulation, facility testing and additional product testing remained necessary for the planned trial.
- The proposed LAPC study was redesigned as a Phase 2b trial, rather than a pivotal trial. The planned study population is approximately 100 patients and would compare the cell therapy plus low-dose ifosfamide with capecitabine plus radiation or stereotactic body radiation therapy.
- The FDA had provided guidance at a January 2017 Pre-IND meeting, but the IND had not yet been submitted or approved. Three contract research organizations were under consideration.
- The Melligen diabetes cell program encountered cell-stability problems; the company was working to recreate improved cells and also exploring encapsulated human islet cells. Cannabis-related cancer research remained preclinical.
- Common shares outstanding increased from 905.3 million to 1.013 billion during FY2018. Subsequent to year-end, 66.2 million shares were sold for approximately $1.5 million gross proceeds through block trades.
Outlook, risks and unusual items
Management’s near-term priority was completing the manufacturing, testing and regulatory work needed for a Phase 2b LAPC trial, subject to FDA clearance and available funding. The company did not provide revenue or earnings guidance. It expects continuing losses and dependence on external capital; equity financing may dilute shareholders.
- The two earlier European pancreatic cancer trials were small, open-label and single-arm. The Phase 1/2 trial reported median survival of 39 weeks and a 36% one-year survival rate; the Phase 2 trial reported median survival of 40 weeks and a 23% one-year survival rate. These results were not statistically validated and do not establish efficacy; the higher ifosfamide dose in the Phase 2 trial was associated with more toxicity.
- Key risks include FDA rejection or delay of the IND, clinical-trial failure or delays, manufacturing and third-party dependence, and uncertainty over whether historical foreign trial data will be accepted by the FDA.
- The company relies substantially on Austrianova and related parties for technology and manufacturing. It owns a 14.5% interest in SG Austria and purchased about $1.39 million of products and services from SG Austria subsidiaries in FY2018.
- May 2018 amendments, after year-end, eliminated specified milestone obligations to Austrianova and SG Austria, set certain gross-sales royalties at 4%, and revised sublicense economics. The amendments also provided a five-year right of first refusal over specified Cell-in-a-Box technology and assets. The company reported that the related $900,000 payment was paid in full by April 30, 2018.
- Management identified material weaknesses in internal controls, including inadequate segregation of CFO duties and insufficient IT controls and documentation. Disclosure controls and internal control over financial reporting were deemed ineffective as of April 30, 2018.
- There was no material litigation reported. The company had no product liability insurance because it had no marketed products; it expected insurance to be needed as clinical development advanced.
Important facts for investors to verify
- Whether and when the IND is submitted and cleared, and whether required facility, encapsulation and product-release testing is completed.
- Current cash, monthly cash use, financing commitments and the company’s continuing eligibility to use its Form S-3 offering capacity.
- Actual dilution from share and warrant issuances, including subsequent financing, and the fully diluted share count.
- Progress on the redesigned Phase 2b trial, including trial sites, enrollment, funding and the final comparator and protocol.
- Execution and financial effects of the May 2018 license amendments, including royalty and sublicense terms and related-party payments.
- Remediation of the disclosed internal-control weaknesses and any subsequent auditor or management updates on going-concern risk.