SELLAS Life Sciences Group, Inc. — Q1 2020 Form 10-Q
Period: Three months ended March 31, 2020. SELLAS is a clinical-stage biopharmaceutical company developing cancer immunotherapies; it reported no revenue. Share and per-share figures reflect the 1-for-50 reverse stock split effective November 7, 2019.
Financial overview
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $1.864 million | $1.859 million |
| General and administrative expense | $2.200 million | $2.500 million |
| Operating loss | $4.064 million | $4.359 million |
| Net loss | $4.143 million | $4.537 million |
| Net loss attributable to common stockholders | $4.221 million | $4.976 million |
| Net loss per common share | $0.66 | $11.12 |
| Net cash used in operating activities | $6.831 million | $4.991 million |
At March 31, 2020, cash and cash equivalents were $6.746 million, plus $0.100 million restricted cash; current assets were $8.790 million and current liabilities $3.635 million. Total liabilities were $8.964 million, including $5.050 million of contingent consideration and $0.123 million of operating lease liability. The filing does not report conventional borrowing debt. Accumulated deficit was $105.290 million. Profit margins are not meaningful because the company had no revenue.
Changes and funding
- Net loss narrowed by $0.394 million year over year. R&D expense was essentially flat; G&A declined $0.300 million, mainly from lower legal, accounting and personnel costs, partly offset by higher insurance and consulting costs.
- Operating cash use increased by $1.840 million, partly because of higher prepaid expenses and reduced accounts payable and accrued liabilities. Cash, cash equivalents and restricted cash decreased $0.531 million during the quarter.
- A January registered offering and concurrent warrant placement generated approximately $6.0 million net proceeds. The offering included 1,189,000 common shares and 448,800 pre-funded warrants; 818,900 additional warrants were issued. Common shares outstanding rose to 6,717,900 from 5,080,100 at year-end.
- Management expects March 31 cash to fund operating expenses and capital requirements through the end of 2020, but says additional financing will be needed thereafter. The company has no committed future financing and disclosed substantial doubt about its ability to continue as a going concern.
Business outlook, risks and contingencies
- SELLAS began a Phase 3 trial of GPS as AML maintenance therapy in January 2020, targeting approximately 116 patients; a Phase 1/2 GPS-plus-pembrolizumab study and an investigator-sponsored GPS-plus-Opdivo study are also underway. Management expects R&D spending to rise as GPS trials advance.
- COVID-19 had not materially affected overall operations as of the filing, but some trial sites had limited activity. MSK paused new enrollment in the mesothelioma study while continuing treatment of enrolled patients. SELLAS moved expected initial data from the GPS/pembrolizumab study to the first half of 2021. Further effects on trials, financing and operations were uncertain.
- SELLAS does not plan to fund a Phase 3 NPS program itself and is seeking out-licensing or co-development partners. It decided to cease GALE-301/302 development and was negotiating termination of the related license.
- Potential NPS milestone payments could total up to $30 million, at the company’s election in cash or shares subject to Nasdaq stockholder-approval requirements. The recorded contingent consideration liability was $5.050 million.
- Legacy Galena securities class-action litigation and related derivative actions remain pending; the company said management did not expect these matters to materially affect results, financial position or cash flows. It also disclosed a New York office lease ending July 2020.
- No formal financial guidance was provided. Future results depend on clinical outcomes, regulatory approvals, partnerships and the ability to raise capital; failure to secure funding could require program cuts, delays or cessation of operations.
Investor verification points
- Confirm current cash runway, subsequent financing, and any changes to the going-concern assessment.
- Track enrollment, site activity, milestones and data timing for the GPS trials, particularly in light of COVID-19.
- Verify progress on NPS partnering and termination of the GALE licenses.
- Review dilution and warrant terms from the January financing, and potential contingent milestone obligations.
- Check developments in the legacy securities and derivative litigation.