Eledon Pharmaceuticals, Inc. quarterly report, Q3 FY2015

Business context and reporting period

This is Tokai Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2015—not a filing for Eledon Pharmaceuticals. Tokai was a clinical-stage biopharmaceutical company focused on prostate cancer; its lead candidate was galeterone for AR-V7-positive metastatic castration-resistant prostate cancer (mCRPC). The company reported no revenue and no approved products.

Financial results and liquidity

Amounts below are in millions of dollars, except per-share data.

At September 30, 2015, cash and cash equivalents were $33.168 million and marketable securities were $39.935 million, for cash and investments of $73.103 million. Total assets were $77.607 million; total liabilities were $5.708 million, with no debt reported. Current assets were $76.865 million versus current liabilities of $5.657 million. Accumulated deficit was $120.421 million. Gross margin is not meaningful because the company had no revenue.

Material changes versus prior comparable periods

• Q3 operating expenses rose $5.483 million year over year, chiefly because R&D increased $5.666 million as clinical-trial, ARMOR3-SV, companion-diagnostic and manufacturing costs grew. G&A declined $0.183 million.
• For the first nine months, operating expenses increased $16.988 million and net loss increased $16.982 million year over year. R&D rose $14.132 million, including higher clinical-trial and manufacturing costs; G&A rose $2.856 million.
• Operating cash use more than doubled year over year. Cash and cash equivalents fell $72.088 million from year-end 2014, partly reflecting $39.775 million of marketable-security purchases; these purchases shifted funds into investments rather than representing operating spend. The company had no marketable securities at December 31, 2014.
• Cash and investments declined from $105.256 million in cash at year-end 2014 to $73.103 million in combined cash and investments at September 30, 2015. The comparison reflects both operating cash burn and the reallocation into securities.

Outlook, risks and unusual items

• Management expected existing cash and investments to fund operations into the first half of 2017, including ARMOR3-SV, companion-diagnostic development and other studies intended to support an NDA. It also stated cash would cover at least the next 12 months. These estimates depend on assumptions and could prove inaccurate; additional capital would be needed.
• Tokai expected top-line ARMOR3-SV data by the end of 2016. The randomized Phase 3 trial was planned to compare galeterone with Xtandi in approximately 148 treatment-naïve, AR-V7-positive mCRPC patients; the primary endpoint was radiographic progression-free survival. The filing cautions that enrollment, assay performance, FDA interpretation and possible requests for additional trials could delay or prevent approval.
• The FDA had granted galeterone fast-track designation, which does not ensure faster review or approval. The company depended on Qiagen to develop the AR-V7 companion diagnostic and on third parties to manufacture clinical supplies; delays or failure by these partners could disrupt development.
• In October 2015, after quarter-end, Tokai filed a shelf registration statement for up to $150 million of equity and debt securities. Future financing could dilute shareholders or impose debt covenants or other restrictions.
• Other notable commitments included $2.291 million of minimum office-lease payments over the lease terms, a potential $1 million Qiagen milestone upon diagnostic premarket approval, and license-related milestone, royalty and patent-cost obligations. The filing reported no material indemnification claims and no off-balance-sheet arrangements.
• Management concluded disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

• Confirm the issuer: the supplied filing is Tokai Pharmaceuticals, not Eledon Pharmaceuticals.
• Track ARMOR3-SV enrollment, trial progress and data timing, and assess whether the FDA will accept the trial design and endpoint or require further evidence.
• Monitor development and regulatory progress of Qiagen’s AR-V7 assay and the company’s reliance on outside manufacturers.
• Reassess cash runway against actual operating cash use, trial costs and the potential need to issue securities under the $150 million shelf.
• Review share-count changes and the potential dilution from future equity or convertible-debt financing.