Candel Therapeutics, Inc. — Q1 2022 Form 10-Q
Business context and reporting period. Candel is a clinical-stage biopharmaceutical company developing oncolytic viral immunotherapies. This unaudited filing covers the three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. The company has no approved products and has generated no product-sales revenue. Its reported revenue is a small amount of research and development services revenue from related party Ventagen.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 / prior balance date |
|---|---|---|
| Revenue | $31,000 | $31,000 |
| Research and development expense | $5.417 million | $2.753 million |
| General and administrative expense | $3.600 million | $1.935 million |
| Operating loss | $8.986 million | $4.657 million |
| Net loss | $874,000 | $4.478 million |
| Basic and diluted loss per share | $0.03 | $0.38 |
| Cash and cash equivalents | $94.321 million | $82.642 million |
| Net cash used in operating activities | $8.053 million | $5.627 million |
| Net cash provided by financing activities | $19.916 million | $112,000 |
| Total assets | $101.562 million | $89.205 million |
| Total liabilities | $37.800 million | $25.068 million |
Amounts are in U.S. dollars; financial statement figures are rounded. The filing reports no product-sales revenue, so product margins are not meaningful. The net loss improvement was primarily due to an $8.287 million noncash gain from remeasurement of warrant liabilities, not improved operating performance. Operating loss widened as operating expenses increased.
At March 31, 2022, the company had $437,000 of restricted cash in addition to cash and cash equivalents. It reported a $19.943 million carrying amount for its SVB term loan and $582,000 of other long-term debt. The SVB loan has a $20 million funded principal balance, floating interest of at least 5.75% (7.75% weighted-average effective rate in Q1), monthly interest payments, and principal installments scheduled to begin in February 2024. A 4.5% final payment fee and prepayment premiums apply.
Material changes versus the prior comparable period
- R&D expense rose $2.664 million, mainly from higher employee-related costs, including a $1.0 million severance charge associated with the departure of the former Chief Scientific Officer and Chief Medical Officer; clinical development and preclinical costs also increased.
- G&A expense increased $1.665 million, primarily due to higher directors’ and officers’ insurance following the IPO, increased staffing, and professional and consulting fees.
- Operating cash use increased by $2.426 million. The reported net loss nevertheless narrowed because of the warrant-liability fair-value gain.
- The company borrowed $20 million from SVB in February 2022, contributing to a $19.916 million net financing cash inflow.
- Effective January 1, 2022, adoption of lease accounting guidance added a right-of-use asset and lease liability; the company reported $2.267 million of lease liability at quarter-end. Management said adoption did not materially affect operations or cash flows.
- The NIH grant that generated $191,000 of income in Q1 2021 was completed at the end of 2021; no grant income was recorded in Q1 2022.
Outlook, management commentary, risks and contingencies
- Management estimated that cash and cash equivalents at March 31, 2022 would fund operations into the fourth quarter of 2023. It cautioned that this estimate depends on assumptions and cash could be used sooner. The filing also states that existing resources were expected to fund planned operations for at least 12 months from the date the financial statements were available to be issued.
- The company expects significant operating losses and rising R&D and G&A spending as it advances clinical programs, builds manufacturing capabilities, and operates as a public company. It expects to need additional financing and has no committed external source of funds.
- CAN-2409 prostate cancer Phase 3 enrollment was completed in September 2021; final data were expected at the end of 2024. The FDA-agreed Special Protocol Assessment does not guarantee approval, and the company noted it had made minor protocol amendments without obtaining an SPA amendment.
- Management expected to be ready to initiate a potentially registrational CAN-2409 Phase 3 trial in high-grade glioma around mid-2022. Initial CAN-2409 NSCLC Phase 2 safety and activity data were expected at ASCO in June 2022; further Phase 3 development depended on trial results. CAN-3110 remained in an investigator-initiated Phase 1 trial in recurrent high-grade glioma.
- The SVB agreement permits up to $5 million in additional borrowing only if specified clinical milestones and at least $75 million of qualifying equity proceeds are achieved by December 31, 2022. The loan is secured by substantially all company assets other than intellectual property, which is subject to a negative pledge, and includes restrictive covenants.
- COVID-19 had caused enrollment delays and site closures, though management said these had not materially affected development timelines to date. Further disruption to trials, manufacturing, supply chains, regulatory activity, or financing remains a risk.
- Reported risks include clinical efficacy and safety uncertainty, regulatory and manufacturing hurdles, dependence on CAN-2409 and CAN-3110, need for additional capital, competition, licensing obligations, and possible dilution. The filing lists known treatment-related adverse events, including serious events in earlier trials.
- No material legal proceedings were reported. The company disclosed unremediated material weaknesses in internal control over financial reporting related to accounting expertise, formal controls for complex transactions, monitoring, and segregation of duties. Management said remediation was ongoing; disclosure controls and procedures were considered effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether the company’s cash runway estimate remains achievable given operating cash use, planned trial spending, manufacturing investment, and financing needs.
- Progress and results of CAN-2409 trials, including the prostate Phase 3 timeline, glioma trial initiation, and NSCLC data; verify whether regulatory interactions or protocol changes affect plans.
- The likelihood of satisfying the SVB’s clinical and equity-financing conditions for access to the additional $5 million, and the impact of loan covenants, interest, and final payment fee.
- The size and volatility of the Level 3 warrant liability and the effect of future remeasurement gains or losses on reported net income; the Q1 gain was noncash.
- Whether internal-control material weaknesses are remediated and whether future filings report any changes or restatements.
- The nature and terms of Ventagen-related revenue and potential milestone payments, given the related-party relationship and the absence of product-sales revenue.
- Potential dilution from outstanding options and warrants; the filing lists 7,507,708 warrants and 5,824,424 outstanding options at March 31, 2022.