SELLAS Life Sciences Group, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; unaudited. SELLAS is a clinical-stage biopharmaceutical company developing cancer immunotherapies. It reported no product or collaboration revenue.
Financial results and position
| Metric | Q1 2019 | Q1 2018 / comparator |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $1.859 million | $1.804 million |
| General and administrative expense | $2.500 million | $3.880 million |
| Operating loss | $4.359 million | $5.684 million |
| Net loss | $4.537 million | $7.995 million |
| Net loss attributable to common stockholders | $4.976 million | $9.963 million |
| Basic and diluted loss per share | $0.22 | $1.67 |
| Cash used in operating activities | $4.991 million | $5.403 million |
- At March 31, cash and cash equivalents were $2.576 million, with $0.114 million restricted cash; total current assets were $3.416 million and current liabilities were $5.804 million. Total assets were $14.927 million, total liabilities $11.977 million, and stockholders’ equity $2.950 million.
- Accounts payable were $4.638 million and accrued expenses and other current liabilities were $0.807 million. The balance sheet reported no long-term debt; it included a $0.991 million warrant liability and $4.713 million contingent-consideration liability.
- Financing activities provided $2.230 million, principally from warrant exercises. Cash, cash equivalents and restricted cash declined $2.761 million during the quarter. The filing provides no meaningful revenue-based margin because the company had no revenue.
Changes versus Q1 2018
- Net loss narrowed by $3.458 million, reflecting a $1.325 million reduction in operating loss and $2.133 million less net non-operating expense.
- G&A expense fell $1.380 million, attributed to lower legal, accounting, consulting, public-company and other costs as the company conserved cash. R&D expense increased $0.055 million, with higher clinical/regulatory consulting and licensing costs partly offset by lower clinical and personnel expenses.
- Non-operating results included a $0.387 million increase in contingent consideration expense and a $0.195 million gain from the decrease in warrant liability fair value. These fair-value changes are non-cash. Common-stockholder loss also included a $0.439 million deemed dividend related to warrant modifications.
- Operating cash use improved by $0.412 million, while financing cash inflows were lower than in 2018, when the company received proceeds from a preferred-stock offering.
Liquidity, outlook and risks
- Management stated that existing cash, $1.1 million received from warrant exercises after quarter-end, and up to $0.8 million of potential remaining proceeds were expected to fund operations and capital needs only through June 2019. Further financing is required, and the filing states there is substantial doubt about the company’s ability to continue as a going concern.
- SELLAS had no committed additional funding and warned that financing may not be available on acceptable terms. Without funding, it may delay, reduce or discontinue development programs, pursue collaborations or strategic alternatives, or cease operations.
- In March, a warrant holder agreed to exercise up to 3.8 million existing warrants at $1.10 per share through May 31, 2019, with new warrants issued share-for-share at a $1.40 exercise price. About 2.2 million were exercised during Q1; a further 1.0 million was exercised after quarter-end. The agreement could provide up to approximately $4.2 million in gross proceeds if fully exercised, but proceeds are not assured and new warrants create potential dilution.
- SELLAS engaged Cantor Fitzgerald in February to explore strategic alternatives, including a sale, merger, investment, asset disposition, partnership or financing. No transaction was assured.
- GPS was described as ready for a planned Phase 3 AML maintenance trial, subject to sufficient funding; the planned study would enroll about 116 patients. A Phase 1/2 basket study combining GPS with pembrolizumab had begun. The company was discussing further development of NPS plus trastuzumab in TNBC with the FDA and expected to complete discussions in the first half of 2019. Timing and success depend on funding, trial results and regulatory decisions.
- Other exposures include up to $32 million of contingent payments tied to NPS development and commercial milestones, payable at the company’s election in cash or, subject to shareholder approval, shares. The filing also describes legacy shareholder litigation and an insurance-coverage suit against Aon; management said the legal matters were not expected to materially affect results, financial position or cash flows. The Aon trial had commenced in May 2019 and was continued to July 1–2.
Important facts for investors to verify
- Whether the company secured financing or completed a strategic transaction sufficient to extend its stated June 2019 runway.
- Actual proceeds from remaining warrant exercises, the resulting share count and dilution from newly issued warrants; 25,176,475 common shares were outstanding as of May 15, 2019.
- Funding availability and timelines for the planned GPS Phase 3 trial and other clinical programs, including the FDA discussions concerning NPS.
- Changes in cash burn, accounts payable and accrued liabilities, and the valuation or potential settlement of contingent consideration and warrant liabilities.
- Developments and outcomes in the disclosed legacy litigation and the Aon insurance dispute.