Business context and reporting period
This unaudited Form 10-Q covers Selecta Biosciences, Inc. for the three and nine months ended September 30, 2023. The filing was submitted after Selecta’s November 13, 2023 merger with Cartesian Therapeutics, Inc.; historical financial statements primarily reflect Selecta and its ImmTOR-based collaboration and license business, while post-merger commentary describes Cartesian’s RNA cell-therapy pipeline. The combined company trades under the symbol SELB.
- Selecta had no product sales and generated revenue primarily from collaboration and license agreements.
- Following the merger, management expects to focus on Cartesian’s RNA Armory platform and Descartes-08, Descartes-15 and Descartes-33 programs for autoimmune diseases.
Financial results and key metrics
| Metric | Three months ended September 30, 2023 | Three months ended September 30, 2022 | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 |
|---|---|---|---|---|
| Collaboration and license revenue | $6.6 million | $20.7 million | $17.7 million | $94.0 million |
| Research and development expense | $13.0 million | $16.5 million | $49.4 million | $53.4 million |
| General and administrative expense | $6.6 million | $5.8 million | $18.4 million | $17.5 million |
| Operating loss | $13.1 million | $1.6 million | $50.1 million | Operating income of $23.0 million |
| Net loss | $9.0 million | $7.9 million | $42.1 million | Net income of $29.5 million |
| Net loss per share, basic | $0.06 | $0.05 | $0.27 | Net income of $0.21 |
| Net cash used in operating activities | Not provided for the quarter | Not provided for the quarter | $27.9 million | $19.8 million |
- Quarterly operating margin was approximately negative 199%; quarterly net margin was approximately negative 137%.
- Nine-month operating margin was approximately negative 282%; nine-month net margin was approximately negative 237%.
- Cash, cash equivalents and restricted cash totaled $81.0 million at September 30, 2023, including $1.4 million of restricted cash and $0.2 million held by the Russian subsidiary.
- Cash and cash equivalents were $79.6 million; no marketable securities remained at quarter-end.
- The company had no outstanding borrowings at September 30, 2023 after repaying its term loan. The $22.3 million payoff included $19.8 million of principal, a $2.3 million final payment fee and a $0.2 million prepayment penalty.
- Total liabilities were $45.7 million and stockholders’ equity was $60.3 million. Warrant liabilities were $13.1 million.
Material changes versus the prior comparable period
- Third-quarter revenue declined 68% year over year, primarily because Sobi-related revenue fell to $5.0 million from $20.7 million.
- Nine-month revenue declined 81%, reflecting lower Sobi revenue and the absence of significant 2022 revenue from Sarepta and the terminated Spark arrangement.
- Third-quarter research and development expense decreased 21%, and nine-month research and development expense decreased 7%, primarily due to strategic reprioritization.
- General and administrative expense increased 15% in the quarter and 5% year to date, driven mainly by higher professional fees and one-time headcount-reduction costs.
- The company reported a nine-month net loss versus net income in the prior-year period, largely because 2022 included substantially higher collaboration revenue.
- Operating cash use increased to $27.9 million from $19.8 million. Investing cash flow was positive $28.1 million in 2023 because marketable securities matured, while 2022 investing cash flow was negative $20.5 million.
- Financing cash flow was negative $27.2 million in 2023, primarily due to debt repayment, compared with positive $39.2 million in 2022 from equity financings.
- Warrant revaluation produced $6.0 million of income in the first nine months of 2023, a non-cash and potentially volatile item.
Guidance, outlook, risks and unusual items
- Management expects continuing operating losses and no product revenue for the foreseeable future.
- Management stated that September 30 cash, cash equivalents and restricted cash, combined with the post-merger financing, should fund operations and capital expenditures for at least the next 12 months, subject to execution and operating assumptions.
- Concurrent with the merger, the company agreed to issue $60.25 million of gross proceeds in a private financing through 149,330.115 shares of Series A Preferred Stock.
- Series A Preferred Stock holders may have redemption rights if stockholders do not approve conversion into common stock within 18 months of the merger closing. A substantial redemption obligation could materially reduce available cash and require additional financing.
- The merger issued 6,723,662 common shares and 384,930.725 Series A Preferred Stock shares to former Cartesian holders. Cartesian securityholders owned approximately 73% of the combined company on a fully diluted basis immediately after closing.
- The company declared contingent value rights for common stockholders of record on December 4, 2023. CVR payments are tied primarily to future royalties, milestones and other proceeds from legacy assets, including SEL-212, net of specified deductions; the amount and timing of payments are uncertain.
- Takeda terminated its agreement effective July 25, 2023, and the company notified Cyrus that its agreement would terminate effective December 29, 2023.
- An October 31, 2023 Sobi amendment transferred responsibility for manufacturing ImmTOR for SEL-212 to Sobi and involved transfer of certain contracts, equipment and employees.
- Key risks include clinical and regulatory failure, unproven RNA cell-therapy technology, patient-by-patient manufacturing and logistics, reliance on third parties, intellectual-property challenges, integration of Cartesian, dilution or preferred-share redemption, and the need for substantial additional capital.
- No material litigation was reported as of September 30, 2023, and management reported effective disclosure controls and no material changes in internal control over financial reporting.
Most important facts for investors to verify
- Whether stockholders approved conversion of the Series A Preferred Stock and whether any redemption rights were triggered.
- Post-merger cash balance, financing net proceeds, burn rate and the actual runway of the combined company.
- Progress, enrollment and topline results for the Descartes-08 Phase 2b trial, expected in mid-2024, and planned autoimmune indications.
- Clinical, regulatory and manufacturing milestones for Descartes-08, Descartes-15 and Descartes-33.
- Terms, deductions, payment history and expected economics of the CVRs and the amended Sobi arrangement.
- Potential dilution from approximately 31.2 million outstanding warrants, approximately 20.0 million outstanding stock options and other equity awards.
- Whether collaboration revenue declines and the absence of product revenue create a need for earlier-than-expected additional financing.