SELLAS Life Sciences Group, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. SELLAS is a pre-revenue clinical-stage biopharmaceutical company developing cancer immunotherapies. Its lead candidate, GPS, is in a Phase 3 AML trial; NPS is being pursued for potential out-licensing.
Financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $2.367m | $1.799m | $6.511m | $5.039m |
| General and administrative expense | $2.125m | $2.385m | $6.312m | $7.523m |
| Operating loss | $4.492m | $4.184m | $12.823m | $12.562m |
| Net loss | $4.473m | $4.202m | $13.041m | $11.873m |
| Net loss per common share | $0.53 | $2.68 | $1.83 | $11.37 |
There are no product sales, so revenue and gross margin are not applicable. Operating expenses were $12.823m for the first nine months, versus $12.562m a year earlier. Higher clinical and consulting costs, mainly related to the GPS Phase 3 program, were partly offset by lower G&A. The prior-year loss per share was materially affected by deemed dividends from warrant modifications; these were $0.078m in the first nine months of 2020 versus $8.659m in 2019.
Cash, liquidity and capitalization
- At September 30, cash and cash equivalents were $8.203m, with $0.100m restricted cash; total current assets were $9.333m and current liabilities were $4.219m.
- Operating cash use was $13.841m in the first nine months, compared with $13.467m in 2019. Financing provided $14.767m, mainly from equity offerings; cash, cash equivalents and restricted cash increased $0.926m.
- The January offering generated approximately $6.0m net and the July PIPE approximately $8.5m net. The July financing issued 2.744m common shares and warrants for up to 2.744m additional shares.
- SELLAS reported no conventional borrowings. It had $1.009m of operating lease liabilities and $5.180m of contingent consideration, in addition to other liabilities. The contingent consideration relates to NPS milestones and could reach up to $30m if all remaining milestones are achieved.
- Common shares outstanding were 9.462m at September 30, up from 5.080m at December 31, 2019. The company also reported 3.864m warrants, 0.208m options and 0.170m RSUs outstanding.
Management estimated that September 30 cash would fund operating expenses and capital requirements through Q2 2021. The filing states that substantial doubt exists about the company’s ability to continue as a going concern; additional financing will be needed, and there is no assurance it will be available on acceptable terms.
Business developments, outlook and risks
- The REGAL Phase 3 GPS trial for AML maintenance began in January 2020. It was progressing and additional sites were activated, but COVID-19-related site and enrollment delays, including renewed European restrictions, could affect timing. The interim safety and futility analysis was expected by end-2021 or early 2022.
- A Phase 1 GPS-plus-Opdivo study in mesothelioma began in February 2020, with initial data expected by year-end 2020. Initial data from the GPS-plus-Keytruda basket study in ovarian cancer were expected in the first half of 2021.
- SELLAS is seeking partners to fund and conduct NPS’s future Phase 3 development and does not plan to fund that program itself. The company decided to cease development of GALE-301 and GALE-302 and was negotiating termination of the related license.
- Management expects R&D spending to rise as clinical programs advance. Development, enrollment, regulatory approval and commercialization remain uncertain; failure to obtain funding could require programs to be delayed, reduced or discontinued, or operations to cease.
- COVID-19 had not materially changed the company’s semi-virtual operations, but could disrupt trials, enrollment, financing and business development. Management could not estimate its full impact.
- Legacy securities class-action and derivative litigation remained pending. Management said any resulting liability was not expected to materially affect results, financial position or cash flows; outcomes are uncertain.
Most important facts for investors to verify
- Whether cash runway and financing needs have changed since the filing, and the terms and dilution of any subsequent financing.
- REGAL enrollment, site activation and interim-analysis timing, including the effect of COVID-19 and other trial disruptions.
- Clinical data timing and results for GPS studies, and progress toward an NPS licensing or co-development arrangement.
- Potential dilution from outstanding warrants, options and RSUs, and the potential timing and amount of NPS milestone payments.
- Developments in the legacy litigation and any material changes to the going-concern assessment.