Business Context and Reporting Period
This unaudited Form 10-Q covers Selecta Biosciences, Inc. for the three and nine months ended September 30, 2022. The filing identifies the registrant as Selecta Biosciences, Inc., not Cartesian Therapeutics, Inc.; investors should verify that the filing corresponds to the intended company.
Selecta is a clinical-stage biopharmaceutical company developing its ImmTOR and ImmTOR-IL platforms. It has no approved products or product sales and relies primarily on collaboration and license revenue, equity financing, debt, and other funding sources.
Key Financial Metrics
| Metric | Q3 2022 | Q3 2021 | YTD 2022 | YTD 2021 |
|---|---|---|---|---|
| Collaboration and license revenue | $20.7 million | $24.4 million | $94.0 million | $55.1 million |
| Research and development expense | $16.5 million | $21.0 million | $53.4 million | $48.4 million |
| General and administrative expense | $5.8 million | $5.4 million | $17.5 million | $15.4 million |
| Operating income (loss) | $(1.6) million | $(2.0) million | $23.0 million | $(8.7) million |
| Net income (loss) | $(7.9) million | $(17.9) million | $29.5 million | $(37.9) million |
| Net income (loss) per diluted share | $(0.05) | $(0.16) | $0.15 | $(0.34) |
| Net cash used in operating activities | Not separately reported | Not separately reported | $(19.8) million | $(28.9) million |
Q3 operating margin was approximately negative 7.7%; the nine-month operating margin was approximately 24.5%, primarily reflecting collaboration and license revenue rather than product sales. The nine-month net income included a $7.3 million favorable change in the fair value of warrant liabilities. Q3 net loss included a $6.5 million warrant-liability revaluation charge.
At September 30, 2022, cash and cash equivalents were $112.8 million, marketable securities were $33.6 million, and total cash, cash equivalents, restricted cash, and marketable securities were approximately $148.0 million. Accounts receivable were $6.9 million, primarily related to the Sobi collaboration.
Total debt consisted of a $25.0 million term loan, presented as $5.9 million current and $20.2 million long term after debt discount and other adjustments. The loan’s principal amortization begins April 1, 2023. Total liabilities were $93.4 million and stockholders’ equity was $84.9 million at quarter-end.
Material Changes Versus the Prior Comparable Period
- Q3 collaboration and license revenue decreased 15% to $20.7 million, while nine-month revenue increased 70% to $94.0 million.
- Nine-month revenue included $73.6 million from Sobi, $10.2 million from Sarepta, $9.2 million recognized upon termination of the Spark agreement, and $1.0 million from Takeda.
- Research and development expense decreased 21% in Q3, primarily because of lower SEL-212, preclinical, and AskBio collaboration costs, but increased 10% for the nine-month period due to higher preclinical, personnel, license, milestone, and stock-based compensation costs.
- On June 29, 2022, Selecta completed enrollment in the Sobi-funded DISSOLVE II trial and recognized a related $10.0 million milestone payment.
- In April 2022, Selecta raised approximately $36.9 million of net proceeds from an offering of common stock and warrants. It also raised $2.1 million through its at-the-market program during the first nine months.
- Shares outstanding increased to 153.0 million at September 30, 2022 from 123.6 million at December 31, 2021. The April offering added 27.4 million shares and warrants to purchase 20.6 million shares.
- Deferred revenue declined to $9.3 million at September 30, 2022 from $65.3 million at the beginning of the year, reflecting substantial revenue recognition.
Guidance, Outlook, Risks, and Unusual Items
- Management expected top-line results from the SEL-212 DISSOLVE I and DISSOLVE II Phase 3 trials in the first quarter of 2023. The company stated that DISSOLVE II enrollment was increased to 153 subjects to replace potentially lost subjects in Russia and Ukraine.
- Management estimated that cash, cash equivalents, restricted cash, marketable securities, and the $6.9 million Sobi receivable would fund current planned operations into mid-2024. This estimate depends on assumptions regarding spending, milestone receipts, collaboration funding, and access to capital.
- The company expects operating losses to continue for the foreseeable future and may require additional equity, debt, licensing, or collaboration financing. Additional equity financing could dilute existing shareholders.
- The company has no product revenue and does not expect product revenue for at least the next several years. Collaboration revenue may fluctuate materially based on milestones, reimbursements, supply shipments, contract changes, and agreement terminations.
- Q3 results were affected by a $6.5 million noncash increase in warrant liabilities. Nine-month results benefited from a $7.3 million noncash decrease in warrant liabilities and differed substantially from the prior year because the prior year included a $15.8 million income-tax expense related to the Sobi license tax election.
- The company expanded its headquarters lease by approximately 7,216 square feet, recording a $3.2 million right-of-use asset and lease liability. Future operating lease liabilities totaled $12.1 million at September 30, 2022.
- Key risks include clinical-trial execution and regulatory approval, manufacturing and supply-chain availability, COVID-19 and geopolitical disruption, dependence on collaborators, intellectual-property protection, competition, warrant-liability volatility, and the need for additional financing.
- A shareholder derivative lawsuit related to a 2019 private placement was dismissed with prejudice on August 1, 2022. The filing states that no litigation was expected to have a material adverse effect.
Investor Verification Items
- Verify the apparent mismatch between the requested company, Cartesian Therapeutics, Inc., and the registrant named throughout the filing, Selecta Biosciences, Inc.
- Assess how much reported revenue is recurring or reimbursable versus milestone- or termination-related, particularly the $9.2 million Spark termination revenue and Sobi-related amounts.
- Review the assumptions supporting management’s mid-2024 cash runway, including the collectability and timing of the $6.9 million Sobi receivable and potential future milestones.
- Evaluate dilution from the April 2022 offering, outstanding warrants to purchase approximately 31.0 million shares, stock options, restricted stock units, and future financing needs.
- Monitor DISSOLVE trial top-line results, regulatory milestones, and Sobi’s continued development and funding obligations for SEL-212.
- Review the warrant-liability valuation assumptions and their potential effect on reported earnings, which may not reflect operating cash performance.