PDS Biotechnology Corporation — Q1 2019 Form 10-Q
Business context and reporting period
For the quarter ended March 31, 2019. On March 15, 2019, Edge Therapeutics completed its reverse merger with privately held PDS Biotechnology, changed its name to PDS Biotechnology Corporation, and effected a 1-for-20 reverse stock split. Private PDS is the accounting acquirer, so historical and comparative results reflect Private PDS; the quarter includes the combined company only after the merger. Accordingly, year-over-year comparisons are not fully comparable.
PDS is a clinical-stage immuno-oncology company developing therapies based on its Versamune platform. It has no approved products and has generated no product revenue.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | No product revenue | No product revenue |
| Research and development expense | $1.03 million | $0.20 million |
| General and administrative expense | $3.91 million | $0.54 million |
| Total operating expenses | $4.94 million | $0.74 million |
| Operating loss | $4.94 million | $0.74 million |
| Net income (loss) | $6.82 million | $(0.74) million |
| Net cash used in operating activities | $3.37 million | $0.40 million |
Q1 2019 net income included an $11.73 million bargain purchase gain from the merger; it does not indicate operating profitability. Pro forma results assuming the merger occurred January 1, 2018 showed a Q1 2019 net loss of $15.71 million versus $21.58 million in Q1 2018, excluding the bargain purchase gain. Pro forma figures are not the reported results.
Cash and cash equivalents were $26.59 million at March 31, 2019, versus $103,695 at December 31, 2018. The quarter’s $29.11 million investing cash inflow was cash received in the reverse merger; financing provided $750,000. Total assets were $31.05 million and stockholders’ equity was $24.45 million at quarter-end. Current liabilities were $5.54 million. The company reported $1.38 million of operating lease liabilities; the $30,000 convertible note outstanding at year-end converted into shares in connection with the merger. No revenue-based margins are available.
Material changes and unusual items
- Operating expenses increased substantially from the prior-year quarter, although comparisons are affected by the merger and are not like-for-like. Management attributed the increase primarily to stock-based compensation, including $2.75 million recorded in Q1 2019, as well as higher clinical study costs, salaries, bonuses, legal fees and other public-company costs.
- The $11.73 million bargain purchase gain arose because the preliminary fair value of Edge’s acquired net assets exceeded the merger consideration. The purchase-price allocation, particularly the IPR&D asset and related deferred tax liability, remained preliminary and could change the gain.
- The merger added $29.1 million of cash and a $1.22 million in-process R&D asset related to Edge’s EG-1962/NEWTON 2 program. Edge had discontinued that trial; PDS said it was seeking partners for EG-1962 and other legacy candidates.
- The $1.95 million restructuring reserve represents unpaid Edge severance costs assumed in the merger. Merger-related stock issuance and the reverse split are reflected retrospectively in share and per-share information.
Outlook, risks and contingencies
- Management stated that March 31 cash was expected to fund anticipated requirements for at least 12 months from the May 14, 2019 filing date. This estimate depends on assumptions and may prove insufficient. The company expects continued losses and negative cash flow, and anticipates substantially higher R&D spending as it advances Versamune candidates.
- The company has no product revenue and expects to need substantial additional capital. Future equity financing could dilute shareholders; debt or partnering could impose restrictions or require rights to be shared. No committed external funding source was identified.
- PDS0101 remained in early clinical development; the filing reports completed Phase 1/2A work but gives no firm timetable or specific financial guidance for future trials. Development, regulatory approval, manufacturing, competition and commercialization remain uncertain.
- Contractual obligations included approximately $1.585 million of operating lease payments and $100,000 of milestone payments. The filing reported no material non-cancelable purchase commitments and no off-balance-sheet arrangements.
- Merger-related disclosure lawsuits were settled and dismissed with prejudice; a separate securities class action relating to EG-1962 was voluntarily dismissed without prejudice. Settlement amounts were not clearly stated.
- Management concluded disclosure controls were effective. Integration of the acquired business into the existing internal-control framework was ongoing and expected to continue through 2019.
Important facts for investors to verify
- Whether the preliminary merger valuation, IPR&D valuation and bargain purchase gain were subsequently finalized or adjusted.
- Cash burn, clinical-development spending and whether the stated 12-month runway remains achievable without new financing.
- The clinical status, data and upcoming milestones for PDS0101 and other Versamune candidates, and any actual partnering progress for EG-1962.
- Potential dilution from outstanding equity awards: 1,223,000 options were reported outstanding at March 31, 2019; confirm subsequent grants, exercises and share counts.
- The terms and financial consequences of the merger-related litigation settlements and any remaining legal or contractual obligations.