SELLAS Life Sciences Group, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Unaudited consolidated financial statements; amounts below are in U.S. dollars. SELLAS is a clinical-stage biopharmaceutical company developing cancer immunotherapies, principally GPS and NPS. It reported no product-sales revenue.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 or period-end comparator |
|---|---|---|
| License revenue | $5.7 million | None |
| Research and development expense | $4.3 million | $1.9 million |
| General and administrative expense | $3.6 million | $2.2 million |
| Operating loss | $2.2 million | $4.1 million |
| Net loss | $2.4 million | $4.1 million |
| Net loss per share, basic and diluted | $0.16 | $0.66 |
| Net cash used in operating activities | $10.3 million | $6.8 million |
| Cash and cash equivalents at period-end | $28.0 million | $35.3 million at December 31, 2020 |
| Total current assets / current liabilities | $31.4 million / $6.0 million | $36.9 million / $12.3 million at December 31, 2020 |
| Total liabilities | $11.8 million | $18.1 million at December 31, 2020 |
The $5.7 million of revenue came from the 3D Medicines (3DMed) GPS license and technology transfer, not product sales. Cost of license revenue was $0.1 million. Revenue recognized exceeded operating expenses by no means enough to make the quarter profitable: SELLAS recorded a $2.2 million operating loss and $2.4 million net loss. The filing does not present a standalone gross-margin measure; license revenue less stated cost of license revenue was approximately $5.6 million before other expenses.
Cash, cash equivalents and restricted cash totaled $28.1 million at March 31, 2021. Operating cash use was $10.3 million, while $3.0 million came from warrant exercises; cash and restricted cash declined $7.3 million during the quarter. The company reported no debt balance in the presented balance sheet. It had an accumulated deficit of $120.3 million.
Material changes and notable items
- Revenue increased from zero to $5.7 million following the 3DMed agreement. SELLAS recognized $5.7 million over the technology-transfer period and reported $0.9 million of deferred revenue at quarter-end. The initial transaction price was $9.5 million, including $2.0 million of development milestones assessed as probable; $1.0 million of those milestones was achieved in Q1, with the remaining $1.0 million expected in Q2. Up to $192.5 million of other future milestones remained constrained and were not recognized as revenue.
- R&D expense rose $2.4 million year over year, principally due to GPS manufacturing and drug-supply costs, REGAL trial costs, consulting and personnel. G&A increased $1.4 million, including $0.8 million of amortization of 3DMed contract-acquisition costs and higher legal fees.
- Operating cash use increased by $3.4 million year over year. Q1 2021 cash use included $1.4 million of contract-acquisition payments, a $2.7 million increase in prepaid expenses and other assets, and a $4.7 million reduction in deferred revenue.
- SELLAS issued 830,200 common shares through warrant exercises for $3.0 million. Common shares outstanding rose from 14.25 million at year-end to 15.08 million at March 31, 2021.
Outlook, risks and contingencies
- Management expects continued operating losses and negative operating cash flows for the next few years and expects R&D expense to increase as clinical programs advance. It stated that cash on hand, together with access to a subsequent equity sales facility, was expected to fund planned operations for at least 12 months from the financial-statement issuance date.
- On April 16, 2021, after quarter-end, SELLAS entered into a sales agreement allowing it to offer up to $50 million of common stock, subject to a 3% sales fee. Issuance would dilute existing shareholders; access to the facility and future financing are not assured.
- The Phase 3 REGAL trial is evaluating GPS in AML. The company anticipated an interim safety and futility analysis after 80 deaths, expected in the first half of 2022, subject to enrollment and pandemic-related delays. Management reported site activation progressing but said COVID-19-related hospital priorities and restrictions could delay site operations and enrollment.
- SELLAS is seeking an out-licensing partner to fund and conduct NPS’s planned Phase 3 program and said it does not plan to fund that trial itself. Product development, regulatory approval and commercialization remain uncertain.
- The 3DMed agreement licenses GPS rights in mainland China, Hong Kong, Macau and Taiwan and includes up to $194.5 million of milestones plus tiered royalties. Milestones and royalties are contingent and are not assured.
- Potential contingent consideration tied to NPS milestones was recorded at $4.8 million; future payments range from zero to a maximum of $30 million, depending on milestone achievement. Payment may be in cash or shares, subject to stated conditions and shareholder approval for share settlement.
- SELLAS disclosed that it had reached settlements in principle, subject to final documentation and court approval, in a predecessor-related securities class action and three derivative cases. Management said legal matters were not expected to materially affect results, financial position or cash flows.
Most important facts for investors to verify
- How quickly the $28.0 million of unrestricted cash is being consumed, and whether the $50 million equity facility is used and on what dilution terms.
- Progress, enrollment and timing of the REGAL Phase 3 trial, including whether COVID-19 disruptions affect the anticipated interim analysis.
- Whether 3DMed completes the technology transfer, achieves the remaining near-term milestone, and advances GPS development; distinguish recognized license revenue from recurring product revenue.
- Whether SELLAS secures an NPS licensing partner and financing for further development.
- Final terms and court approval of the legal settlements, and the potential cash or share impact of contingent milestone obligations.