PharmaCyte Biotech, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended January 31, 2019 (fiscal third quarter of 2019); filed March 14, 2019. The filing reports unaudited results. PharmaCyte is a pre-revenue biotechnology company developing Cell-in-a-Box-based therapies, including a proposed pancreatic cancer treatment, diabetes therapies, and cannabinoid-based cancer research.
Financial performance and position
| Metric | Three months ended Jan. 31, 2019 | Nine months ended Jan. 31, 2019 | Comparable 2018 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $676,347 | $2,928,284 | $2,030,660 and $5,533,373, respectively |
| Net loss | $676,347 | $2,928,284 | $2,030,660 and $5,533,373, respectively |
| Basic and diluted loss per share | $(0.00) | $(0.00) | $(0.00) and $(0.01), respectively |
| Operating cash flow | Not provided for quarter | $(2,216,549) | $(3,704,812) for nine months |
- Nine-month operating expenses fell $2.61 million year over year. Research and development expense declined $1.30 million to $442,039; compensation, legal and professional, director, and general and administrative costs also decreased.
- Cash was $699,462 at January 31, 2019, versus $1,059,798 at April 30, 2018. Current assets were $707,946 and current liabilities $471,243, giving working capital of approximately $237,000 based on the balance sheet. MD&A instead reports approximately $227,000; the filing does not reconcile the difference.
- Total liabilities were $471,243, all current; the balance sheet reports no debt. Total assets were $5.84 million and stockholders’ equity was $5.37 million.
- Financing provided $1.86 million of net cash from common-stock sales during the nine-month period. Cash decreased by $360,336 overall. No investing cash flows were reported.
- Common shares outstanding increased from 1.013 billion at April 30, 2018 to 1.127 billion at January 31, 2019. The company sold approximately 111.7 million shares under its S-3 offering during the nine months.
- Margins are not meaningful because the company had no revenue. The filing does not provide a clear gross-margin measure.
Changes, outlook, and material risks
- Management was preparing an IND submission to the FDA for a planned Phase 2b trial in locally advanced pancreatic cancer; the filing does not say that the IND had been submitted or accepted. Further trial plans depend on regulatory clearance and funding.
- The company reported an accumulated deficit of $98.9 million, continuing losses, no biotechnology-sector revenue, and substantial doubt about its ability to continue as a going concern. Management said planned securities sales and the ability to reduce R&D spending alleviated that doubt and expected available resources and financing options to fund operations through March 2020. The filing gives slightly different dates: March 30, 2020 in the notes and March 31, 2020 in MD&A.
- Funding plans depend on continued equity financing, which may dilute shareholders. The company said it planned to continue using its S-3 for at-the-market and block-trade sales; it had raised approximately $1.9 million in block trades from May 1, 2018 through January 31, 2019.
- License amendments in May 2018 eliminated specified milestone payments under the cancer and diabetes licenses and changed certain royalties. Potential obligations remain, including royalties generally tied to product or sublicense revenue; the Melligen diabetes license also has clinical milestones, royalties, and patent-cost obligations.
- Clinical, preclinical, manufacturing, regulatory, and financing execution remain significant risks. The company reported no impairment of its indefinite-lived intangible assets during the period.
- Disclosure controls and internal control over financial reporting were deemed ineffective due to material weaknesses: insufficient control procedures and documentation, inadequate segregation of CFO duties, and insufficient IT controls and documentation. Management was evaluating remediation; it warned of risk of material misstatement or restatement.
- No material pending legal proceedings were reported. The office lease was due to expire August 31, 2019, with $19,299 in disclosed remaining minimum payments.
Key facts for investors to verify
- Whether and when the pancreatic-cancer IND is submitted, accepted, and sufficient to begin the planned trial, and what funding is needed to execute it.
- Cash consumption, current working capital, and the basis for management’s stated runway through March 2020, including the March 30/March 31 discrepancy.
- Availability and terms of future equity financing, potential dilution, and the effect of continued share issuance.
- Progress and costs for the company’s clinical, preclinical, cGMP manufacturing, and other development programs.
- Remediation of the reported material weaknesses and whether subsequent filings report effective controls.
- Applicable license royalties, sublicense consideration-sharing terms, and the remaining Melligen milestone and patent-cost obligations.