SELLAS Life Sciences Group, Inc. — FY 2019 Form 10-K
Reporting period: Year ended December 31, 2019. Filed March 13, 2020. SELLAS is a clinical-stage biopharmaceutical company with no approved products or product revenue. Its lead candidate, galinpepimut-S (GPS), targets WT1; nelipepimut-S (NPS) targets HER2-expressing cancers.
Financial and operating performance
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $7.3 million | $8.8 million |
| General and administrative expense | $9.9 million | $12.8 million |
| IPR&D impairment charge | $2.8 million | $9.6 million |
| Operating loss | $20.0 million | $31.1 million |
| Net loss | $19.3 million | $27.7 million |
| Net loss attributable to common stockholders | $28.0 million | $41.3 million |
| Net cash used in operating activities | $17.6 million | $30.4 million |
Revenue and gross margins are not applicable because the company had no product or collaboration revenue. Lower operating expenses and net loss year over year primarily reflected reduced IPR&D impairment charges and cost controls; operating cash use also declined. The common-stockholder loss includes noncash deemed dividends, including $8.4 million related to warrant modifications in 2019.
- Year-end liquidity: Cash and cash equivalents were $7.3 million, plus $0.1 million restricted cash. Current assets were $8.2 million and current liabilities $5.3 million. Total assets were $16.6 million, total liabilities $10.5 million, and stockholders’ equity $6.1 million.
- Debt and obligations: No debt principal was outstanding at year-end; the former JGB debenture was settled in 2018. The balance sheet included $4.9 million of contingent consideration, a Level 3 fair-value liability, and $0.2 million of lease liability.
- Cash financing: Financing activities provided $19.6 million in 2019, including net equity proceeds and warrant exercises. The company raised approximately $19.6 million net during the year.
Material changes and business developments
- GPS advanced to a Phase 3 AML maintenance trial in January 2020, after year-end. REGAL is planned to enroll about 116 patients, with overall survival as the primary endpoint and an interim safety/futility analysis after 80 deaths.
- The company reported 2019 Phase 2b NPS data showing 24-month disease-free survival of 92.6% for the TNBC cohort receiving NPS plus trastuzumab, versus 70.2% with trastuzumab alone. In February 2020, following FDA feedback, SELLAS finalized a proposed Phase 3 study design, but said it was seeking an out-license and would not fund the trial itself.
- SELLAS ceased development of GALE-301 and GALE-302 and recorded a $2.8 million impairment in 2019; it was negotiating termination of the related license. GALE-401 had been abandoned and impaired in 2018.
- A 1-for-50 reverse stock split took effect in November 2019. The company regained Nasdaq minimum-bid-price compliance later that month.
Outlook, risks, and unusual items
- Management expected year-end 2019 cash plus approximately $5.9 million net proceeds from a January 2020 registered direct offering to fund operations through the end of 2020. The filing states that substantial additional financing is needed thereafter and that no further funding commitments existed.
- The auditor highlighted substantial doubt about SELLAS’s ability to continue as a going concern. The company warned that without financing it could delay or reduce programs, pursue strategic alternatives, or cease operations.
- Key execution risks include clinical-trial results and enrollment, regulatory approval, competition, reliance on single-source and third-party manufacturers, and the impact of COVID-19 on trials and supply chains, including GPS materials manufactured in northern Italy.
- Legacy Galena securities class-action litigation remained pending; related derivative actions included dismissals and stayed matters. The company said outcomes could not be predicted. It also disclosed prior Abstral-related investigations and settlements, while noting that further proceedings could arise.
- 2019 results included a $2.8 million noncash GALE-301/302 impairment and a $1.1 million noncash gain from a decrease in warrant-liability fair value. The cash-flow statement reports a $17.6 million operating cash outflow despite a $19.3 million net loss.
Most important facts for investors to verify
- Current cash runway, subsequent financing needs, dilution, and any changes to the stated end-of-2020 runway assumption.
- REGAL Phase 3 enrollment, interim-analysis timing, trial status, and FDA alignment on whether its results could support a BLA.
- Whether an NPS licensing or co-development partner is secured, and the status and results of other NPS studies.
- COVID-19 effects on trial recruitment, clinical operations, and supply availability.
- Updates to legacy litigation, contingent consideration, and any other material liabilities or financing terms.
- Reconcile year-end shares outstanding of 5,080,100 with 6,717,900 reported outstanding as of March 13, 2020, including the effect of subsequent issuances and warrant exercises.