SELLAS Life Sciences Group, Inc. quarterly report, Q3 FY2015

Business context and reporting period

This Form 10-Q covers the quarter ended September 30, 2015, and was filed by Galena Biopharma, Inc. (not SELLAS Life Sciences Group, Inc.). Galena was a clinical-stage biopharmaceutical company focused on oncology candidates, including NeuVax, GALE-301/302 and GALE-401. The company decided to sell or otherwise divest its commercial business, including Abstral and Zuplenz, and reported it as discontinued operations.

Financial performance and liquidity

MetricThree months ended September 30Nine months ended September 30
R&D expense2015: $5.7 million; 2014: $7.0 million2015: $18.8 million; 2014: $21.5 million
G&A expense2015: $2.9 million; 2014: $3.5 million2015: $7.9 million; 2014: $12.7 million
Operating loss from continuing operations2015: $8.6 million; 2014: $10.6 million2015: $26.6 million; 2014: $34.2 million
Net loss2015: $18.0 million; 2014: $6.2 million2015: $44.2 million; 2014: $28.7 million
Net loss per share2015: $0.11; 2014: $0.052015: $0.29; 2014: $0.25

Commercial discontinued operations generated revenue of $2.2 million in the quarter and $8.3 million over nine months in 2015, versus $1.6 million and $6.1 million, respectively, in 2014. Discontinued-operation losses were $11.7 million for the quarter and $16.1 million for nine months; each 2015 period included an $8.1 million impairment charge on commercial assets held for sale.

Cash and cash equivalents were $34.8 million at September 30, 2015, compared with $23.7 million at December 31, 2014. Nine-month operating cash use was $32.9 million, investing cash use was $0.8 million, and financing provided $44.9 million. Financing included $47.4 million net proceeds from common stock issuance and related activity. Current assets were $54.2 million and current liabilities $37.1 million. Total debt was $5.7 million, including $4.2 million current; the loan carried an 8.45% fixed coupon and was scheduled to mature in November 2016.

Warrant liabilities rose to $16.7 million from $5.4 million at year-end; quarter-to-quarter fair-value changes materially affected reported non-operating results. The company had 161.9 million common shares outstanding at October 31, 2015.

Material changes and management commentary

  • Net loss increased year over year, principally reflecting the commercial-asset impairment and a much smaller warrant fair-value gain than in 2014. Continuing operating losses declined as R&D and G&A expenses fell.
  • Management attributed lower R&D spending partly to completion of enrollment in the Phase 3 PRESENT trial and expected PRESENT costs to decline as it moved into monitoring and follow-up, potentially offset by other trial spending.
  • PRESENT was fully enrolled with 758 patients; the primary endpoint was expected in 2018. Management planned the NeuVax DCIS trial for late 2015 or early 2016 and a gastric-cancer trial in India for 2016.
  • Preliminary GALE-301 Phase 2a results showed estimated two-year disease-free survival of 85.7% in the 1,000-mcg group versus 33.6% in controls (p<0.02). The filing cautions that the study was not powered to establish efficacy.
  • GALE-401 Phase 2 results reported an overall platelet response rate of 78% (14 of 18 patients); management expected to present more mature data in December 2015.
  • Management expected further discontinued-operation losses in the fourth quarter while seeking a buyer. It provided no quantified cash-runway or earnings guidance and noted that funding could depend on equity financing, research funding, or partnership payments.

Risks, contingencies, and unusual items

  • The divestiture may not close, may yield limited proceeds, and could incur transaction, employee-separation, or other costs. If commercial operations are sold or discontinued, the company said it would have no recurring revenue until a product candidate receives marketing approval.
  • Litigation included securities and derivative actions; the company recorded no liability for those claims and said insurers were reimbursing a significant portion of defense costs while reserving coverage rights. The company also disclosed an SEC investigation concerning use of outside investor-relations professionals and said it was cooperating.
  • After quarter-end, on October 23, 2015, Galena and Orexo settled Abstral patent litigation with Actavis. The agreement permits generic or authorized-generic entry in June 2018 or earlier in certain circumstances; financial terms were confidential.
  • Galena highlighted foreign-trial exposure: approximately 39% of PRESENT sites and 44% of randomized patients were in Russia and Ukraine, where political conditions could disrupt trial activity.
  • Other risks include continued operating cash use, dependence on future financing or partnerships, potential dilution from warrants and stock issuance, and warrant-liability volatility.

Important facts for investors to verify

  • Confirm the filing entity: this is Galena Biopharma’s 2015 third-quarter 10-Q, despite the request metadata naming SELLAS Life Sciences Group.
  • Track progress, endpoint timing, and trial continuity for PRESENT, including risks at Russian and Ukrainian sites; verify subsequent clinical updates rather than treating estimates as established efficacy.
  • Verify whether the commercial-business divestiture closed, the proceeds and costs, and the resulting revenue and cash profile.
  • Review cash burn, debt repayment requirements, and financing needs alongside the $34.8 million quarter-end cash balance.
  • Assess warrant-liability remeasurement and potential share dilution; compare actual subsequent share counts and financing terms.
  • Follow developments in the disclosed securities/derivative litigation, SEC investigation, and Abstral settlement and generic-entry timing.