Lion Biotechnologies, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Financial statements are unaudited and amounts below are in U.S. dollars. The filing identifies the registrant as Lion Biotechnologies, Inc.
Business context
The clinical-stage biotechnology company is developing adoptive cell therapies using a patient’s tumor-infiltrating lymphocytes (TIL), initially for metastatic melanoma and also for other solid cancers. It had no commercial products and had generated no revenue.
Financial results and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development | $4.5 million | $4.1 million | $8.7 million | $6.8 million |
| General and administrative | $7.3 million | $2.4 million | $10.1 million | $4.9 million |
| Net loss | $11.6 million | $6.4 million | $18.4 million | $11.7 million |
| Basic and diluted loss per share | $0.23 | $0.14 | $0.37 | $0.28 |
| Operating cash used | Not provided separately | Not provided separately | $8.3 million | $8.0 million |
At June 30, cash and cash equivalents were $101.2 million, money market funds were $19.7 million, and short-term investments were $70.6 million, totaling $191.6 million in cash and investments. Working capital was $187.7 million; total current liabilities were $4.6 million. The company reported no long-term debt. No operating margin is meaningful given the absence of revenue.
Financing activities provided $96.2 million in the first half, principally from a June private placement that generated approximately $95.7 million net. The company reported $188.9 million in stockholders’ equity. It believes available funds will cover anticipated operating expenses for at least 12 months from the filing date.
Changes versus the prior comparable period
- First-half net loss increased to $18.4 million from $11.7 million; Q2 net loss rose to $11.6 million from $6.4 million.
- First-half R&D expense increased 27% to $8.7 million, reflecting expanded research and clinical activity, including initiation of a Phase II trial.
- First-half G&A expense increased 106% to $10.1 million, attributed to hiring, former CEO severance, and higher stock-based compensation. Total stock-based compensation was $7.1 million for the first half, versus $3.4 million a year earlier.
- Cash and investments increased from $103.7 million at December 31, 2015, largely due to the private placement. First-half operating cash use was broadly similar to 2015.
Outlook, risks, and unusual items
- Management expected no product-sale or licensing revenue in 2016, continuing net losses, and higher R&D and G&A spending as clinical operations, research, staffing, and NCI-related activities expanded.
- The Series B preferred shares issued in the private placement were not then convertible and were generally non-voting. Stockholder approval was to be sought for conversion at an initial $4.75 per common share; the scheduled vote was August 16, 2016. The preferred shares had an aggregate liquidation value of approximately $54.0 million.
- The five-year NCI CRADA expired August 5, 2016; the company said it was finalizing an extension for another five years. The filing described annual CRADA payments of $2 million and approximately $1.7 million in guaranteed commitments for the remainder of 2016 under license and research agreements.
- The company had agreed in principle to an SEC settlement framework involving a cease-and-desist order and financial penalty, but the penalty amount and final approval remained unresolved. Management did not expect the penalty to materially affect cash.
- A New York lawsuit sought more than $1.5 million plus interest and fees over alleged historical financing and securities agreements. The company denied the allegations, filed counterclaims seeking more than $500,000 and rescission, and said it would vigorously defend the case.
- Potential rescission or damages claims could arise from sales of up to 128,500 shares made in May 2016 under a resale registration statement that was no longer eligible for use. The company had not accrued a loss because the amount could not be estimated.
- An August 4, 2016 lease for a San Carlos facility was expected to involve $2.1 million in total rent over 54 months; this was entered into after quarter-end.
Investor verification priorities
- Confirm the outcome of the August 2016 shareholder vote on Series B conversion and the resulting potential common-share dilution.
- Review subsequent cash burn, clinical trial costs, and whether management’s stated funding runway remains adequate.
- Verify the status and terms of the NCI CRADA extension and related payment commitments.
- Track final SEC settlement terms and any developments in the Solomon Capital litigation or potential resale-registration claims.
- Assess the composition, liquidity, and concentration of the $191.6 million cash-and-investment balance; the filing noted that some bank cash exceeded federally insured limits.