SELLAS Life Sciences Group, Inc. — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019. Unaudited results; financial amounts below are in U.S. dollars. SELLAS is a development-stage biopharmaceutical company focused on cancer immunotherapies and had no product or collaboration revenue.
Financial and operating performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $1.381m | $1.592m | $3.240m | $3.396m |
| General and administrative expense | $2.638m | $4.909m | $5.138m | $8.789m |
| Operating loss | $4.019m | $6.501m | $8.378m | $12.185m |
| Net loss | $3.134m | $6.062m | $7.671m | $14.057m |
| Net loss attributable to common stockholders | $4.086m | $8.530m | $9.062m | $18.493m |
| Loss per common share, basic and diluted | $0.13 | $1.26 | $0.33 | $2.89 |
At June 30, cash and cash equivalents were $12.751m, with another $0.114m restricted. Total assets were $25.034m; total liabilities were $10.696m; and stockholders’ equity was $14.338m. Current liabilities were $5.400m, including $3.762m accounts payable, $1.276m accrued expenses and current lease liability. The balance sheet lists no conventional long-term borrowings; it includes a $4.808m contingent-consideration liability and $0.103m warrant liability. Operating lease liabilities totaled $0.390m.
For the first half, operating cash use was $9.647m, versus $11.702m a year earlier. Financing provided $17.061m, and cash, cash equivalents and restricted cash increased by $7.414m to $12.865m. Gross margin is not applicable because the company reported no revenue.
Changes and notable items
- Operating expenses fell 38% in Q2 and 31% in the first half, mainly reflecting lower G&A costs, including legal and public-company expenses, and reduced headcount. Management expected R&D spending to rise as clinical development advanced, while continuing to manage G&A costs.
- Non-operating results included noncash gains from lower fair values of liability-classified warrants: $0.962m in Q2 and $1.157m for the first half. Changes in contingent consideration partly offset these gains. These fair-value movements contributed to reported losses and are not operating cash flows.
- The June offering raised approximately $13.4m net before warrant exercises, through common shares, pre-funded warrants and accompanying warrants. The company also reported $3.3m net proceeds from warrant exercises during the first half. The offering and exercises substantially increased potential and actual share count: 100.135m common shares were outstanding at quarter-end, versus 22.026m at year-end 2018.
Outlook, programs and risks
- Management said June 30 cash was expected to fund operating expenses and capital requirements through the end of 2020. The company continued to incur losses, had an accumulated deficit of $89.526m, and expected further losses. Additional financing will be required thereafter; management warned funding may not be available on acceptable terms and that programs could be delayed, reduced or stopped, or operations cease.
- SELLAS planned to initiate a Phase 3 GPS trial in AML in Q4 2019, subject to development progress. It also reported that the first patient in its GPS-plus-pembrolizumab basket trial was dosed in July 2019. FDA discussions continued on further development of NPS plus trastuzumab for triple-negative breast cancer; GALE-301/302 was under evaluation for internal development, partnership or other rationalization.
- The company engaged Cantor Fitzgerald in February 2019 to explore strategic alternatives, including a sale, merger, investment, asset transaction, partnership or financing. No additional transaction was assured.
- After quarter-end, investors agreed to support a contemplated reverse stock split proposal. SELLAS disclosed that 98.634m June-offering warrants were subsequently cashlessly exercised, the remaining 25.6663m pre-funded warrants were exercised, and it received $0.3m from exercise of other warrants. The company reported 226.545m common shares outstanding as of August 14, 2019.
- Nasdaq had notified SELLAS that it failed the $1.00 minimum bid-price requirement. The initial compliance period ran through November 27, 2019; a reverse split was among possible measures. Failure to regain compliance could result in delisting and impair liquidity and capital access.
- Legal matters included a July 2019 trial verdict awarding no damages in the company’s insurance-coverage dispute, with final judgment expected, and pending securities and derivative litigation. Management said the matters were not expected to materially affect results, financial position or cash flows, but outcomes are uncertain.
Investor verification priorities
- Confirm the timing and assumptions behind management’s cash runway through the end of 2020, planned spending and need for additional financing.
- Review dilution from the June offering, subsequent warrant exercises, remaining warrants and the reported August 14 share count.
- Track the GPS Phase 3 start, clinical-trial progress and FDA discussions regarding NPS.
- Monitor Nasdaq bid-price compliance, any reverse-stock-split proposal and the status of strategic-alternative discussions.
- Assess the fair-value assumptions underlying contingent consideration and warrant liabilities, and developments in the outstanding litigation.