Filing summary
Entity note: The supplied filing is Catalyst Biosciences, Inc.’s Form 10-Q, not a filing under the name GYRE THERAPEUTICS, INC. The registrant reported as Catalyst Biosciences, Inc. for the quarter ended September 30, 2015.
Business context and reporting period
Catalyst is a clinical-stage biotechnology company developing engineered proteases, principally for hemophilia and bleeding disorders, and complement-mediated diseases. Its lead Factor VIIa candidate had completed a Phase 1 trial; its Factor IX and Factor Xa programs were preclinical. The August 20, 2015 reverse merger with Targacept made Catalyst the accounting acquirer; the financial statements show Old Catalyst’s historical results before the merger and do not include Targacept’s pre-merger operating results. A 7-for-1 reverse stock split also occurred.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Contract revenue | $0.109 million | $0.547 million | $1.641 million | $1.141 million |
| Research and development | $1.486 million | $1.336 million | $4.192 million | $3.871 million |
| General and administrative | $2.508 million | $0.849 million | $6.567 million | $2.980 million |
| Operating loss | $3.885 million | $1.638 million | $9.118 million | $5.710 million |
| Interest expense | $1.439 million | None reported | $1.478 million | None reported |
| Net loss | $5.051 million | $1.502 million | $9.632 million | $5.311 million |
| Basic and diluted loss per share | $0.93 | $4.08 | $4.65 | $14.49 |
The company had no commercial product sales; contract revenue came from collaboration agreements. Gross profit and gross margin are not separately presented. At September 30, 2015, total assets were $74.513 million, total liabilities $38.307 million, and stockholders’ equity $36.206 million, versus a $109.352 million deficit at December 31, 2014. Accumulated deficit was $125.907 million.
Cash and cash equivalents were $23.096 million, short- and long-term investments totaled $14.490 million, and restricted cash was $34.950 million. The company reported $37.6 million of cash, cash equivalents and marketable securities available for operations; most restricted cash was held in escrow for noteholders. Redeemable convertible notes were $34.775 million at quarter-end, with a $0.676 million derivative liability. Current assets were $72.854 million and current liabilities $37.906 million, but restricted escrow funds should not be treated as freely available operating liquidity.
For the nine months, operating cash outflow was $13.976 million, investing cash inflow $26.382 million and financing cash inflow $9.146 million. Cash and cash equivalents increased by $21.552 million to $23.096 million; merger proceeds and investment maturities were major investing inflows. The filing reports no off-balance-sheet arrangements.
Material changes versus comparable periods
- Q3 revenue fell 80% year over year, principally because Pfizer’s collaboration terminated effective June 1, 2015. Nine-month revenue rose 44%, largely because termination accelerated recognition of Pfizer-related deferred revenue.
- Q3 operating expenses rose 83%; general and administrative expense increased 195%, reflecting merger and patent legal/accounting costs and preparation for public-company operations. Nine-month operating expenses rose 57%.
- Q3 net loss increased to $5.051 million from $1.502 million. The 2015 loss included $1.4 million of interest expense from immediate accretion of the discount on redeemable convertible notes.
- Cash used in operations increased to $13.976 million from $4.330 million for the nine-month comparison, including the effect of a $4.543 million reduction in accounts payable and lower deferred revenue.
- The merger materially changed the balance sheet and capital structure: preferred stock converted to common equity, and the company received Targacept assets and assumed its redeemable notes. The filing’s pre-merger operating comparisons are not a combined-company comparison.
Outlook, commentary and risks
- Management said available resources should fund the operating plan for at least 12 months; the risk-factor discussion said available cash was expected to fund operations at least through 2016. Management cautioned that estimates depend on assumptions and spending could be reduced if results fall short.
- The company expected losses to continue for several years and anticipated higher R&D spending as development advanced. Additional capital may be needed; equity or convertible financing could dilute shareholders, and debt or partnerships may impose restrictions or require licensing rights.
- Pfizer’s termination returned certain Factor VIIa rights to Catalyst. Catalyst planned to continue development but needed to transfer manufacturing, clinical and technical know-how from Pfizer; successful transfer and acceptable terms were not assured.
- The filing identified a possible treatment-related, non-neutralizing anti-drug antibody observation in one Phase 1 patient for CB 813d/PF-05280602. Confirmatory testing was planned, and the study report or further development could be delayed. The single-dose trial did not resolve risks that may appear with repeated dosing.
- Management expected ISU Abxis to initiate a Phase 1 trial of CB 2679d/ISU 304 in 2016. Catalyst had delayed IND-enabling work on its anti-C3 delayed-graft-function program while reassessing costs and timelines.
- Major risks include clinical and regulatory failure, immunogenicity, manufacturing and trial delays, dependence on ISU Abxis and other third parties, uncertain collaboration financing, intellectual-property challenges, competition, and the need for additional capital. The filing also disclosed a European patent opposition involving claims that may read on the lead Factor VIIa candidate.
- The company reported effective disclosure controls at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter. It reported no material legal proceedings.
Most important facts to verify
- Confirm the intended issuer: this filing is for Catalyst Biosciences, not GYRE Therapeutics.
- Review the note terms, redemptions and conversions, and distinguish escrowed restricted cash from funds available for operations.
- Assess the actual cash runway against operating cash burn, planned clinical spending and any future financing needs.
- Check the status of Pfizer’s data and manufacturing-technology transfer, antibody retesting, and the next development plans for the Factor VIIa candidate.
- Verify ISU Abxis’s clinical-development progress and the impact of the delayed anti-C3 program on future spending and priorities.
- Interpret year-over-year results in light of the reverse merger, accelerated deferred-revenue recognition and the exclusion of Targacept’s pre-merger operating results.