SELLAS Life Sciences Group, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter ended September 30, 2019; interim financial statements are unaudited. SELLAS is a clinical-stage biopharmaceutical company developing cancer immunotherapies and reported no product or collaboration revenue. Unless otherwise noted, financial amounts below are in U.S. dollars.
Key financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $1.8 million | $1.7 million | $5.0 million | $5.1 million |
| General and administrative expense | $2.4 million | $1.3 million | $7.5 million | $10.1 million |
| Operating loss | $4.2 million | $3.1 million | $12.6 million | $15.2 million |
| Net loss | $4.2 million | $0.3 million | $11.9 million | $14.3 million |
| Net loss attributable to common stockholders | $11.5 million | $9.4 million | $20.5 million | $27.9 million |
| Net cash used in operating activities | — | — | $13.5 million | $25.9 million |
There are no meaningful revenue margins because the company has not generated revenue. The difference between net loss and loss attributable to common stockholders primarily reflects non-cash deemed dividends from warrant modifications: $7.3 million in Q3 2019 and $8.7 million for the nine months. Basic and diluted loss per share was $2.68 for Q3 and $11.37 for the nine months in 2019; share and per-share figures reflect the subsequent 1-for-50 reverse split.
Balance sheet and liquidity
- At September 30, 2019, cash and cash equivalents were $9.1 million, restricted cash was $0.1 million, and current assets totaled $10.2 million.
- Current liabilities were $5.6 million, including $3.8 million of accounts payable, $1.5 million of accrued expenses and other current liabilities, and a $0.3 million current operating lease liability. Total liabilities were $10.8 million; stockholders’ equity was $10.6 million.
- The balance sheet reports no outstanding debt. Other significant obligations include $4.8 million of contingent consideration related to the Apthera acquisition; future payments of up to $32 million depend on development and commercial milestones.
- Cash, cash equivalents and restricted cash increased by $3.8 million during the first nine months, as $17.3 million of financing cash inflow exceeded $13.5 million of operating cash use. Financing included approximately $13.7 million in net offering proceeds and $3.6 million from warrant and pre-funded warrant exercises.
Changes, outlook and risks
- For the first nine months, net loss improved year over year, primarily alongside lower G&A expense and operating cash use. Q3 operating loss increased year over year: G&A rose by $1.0 million, including higher legal fees, while R&D increased modestly.
- Comparisons of net loss are affected by non-cash changes in warrant and contingent-consideration fair values, as well as 2018 debt-extinguishment and litigation-related items. These items can make reported earnings differ substantially from cash operating performance.
- Management expected September 30 cash plus $1.9 million of net proceeds from post-quarter sales under a new at-the-market agreement to fund operating and capital requirements through Q3 2020. The agreement permits up to $5.0 million in gross sales, subject to a 3% agent fee. Additional financing will be needed thereafter; management disclosed substantial doubt about the company’s ability to continue as a going concern and no assurance of additional funding.
- GPS is the lead candidate. SELLAS planned to start its Phase 3 REGAL study in AML in Q4 2019, with approximately 116 patients, and expected interim data around the end of 2021. Its GPS-plus-pembrolizumab basket study had dosed its first patient in July 2019, with initial data expected in the second half of 2020. These are management plans and expectations, not assured outcomes.
- Management expected R&D spending to increase as GPS trials advance and anticipated managing G&A to preserve capital. Development, enrollment, regulatory approval, competition and access to financing remain major uncertainties.
- The company effected a 1-for-50 reverse stock split on November 7, 2019. It had not, as of the filing, regained Nasdaq’s minimum bid-price compliance through ten consecutive trading days; failure to regain compliance could threaten its listing and access to capital.
- Management said pending or threatened legal matters were not expected to materially affect the company. After quarter-end, a federal securities class action and a Delaware derivative action were dismissed without prejudice; plaintiffs could amend or refile as described in the filing.
Important facts for investors to verify
- Whether the REGAL Phase 3 trial began on schedule, its enrollment and funding needs, and the timing and results of interim analysis.
- Actual cash runway, subsequent ATM sales, and the terms and availability of additional financing or partnership proceeds.
- Nasdaq bid-price compliance and any further listing notices or actions.
- The status and potential financial impact of litigation, contingent milestone payments, and warrant-related dilution or accounting revaluations.
- Clinical progress and regulatory discussions for GPS, NPS and other candidates; the filing provides no assurance of approval or future revenue.