SELLAS Life Sciences Group, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Financial statements are unaudited; dollar amounts below are in millions unless noted. Share and per-share data reflect the 1-for-50 reverse stock split. SELLAS is a clinical-stage biopharmaceutical company and reported no revenue.
Financial and operating results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Research and development expense | $2.280 | $1.381 | $4.144 | $3.240 |
| General and administrative expense | $1.987 | $2.638 | $4.187 | $5.138 |
| Operating loss | $4.267 | $4.019 | $8.331 | $8.378 |
| Net loss | $4.425 | $3.134 | $8.568 | $7.671 |
| Net loss attributable to common stockholders | $4.425 | $4.086 | $8.646 | $9.062 |
| Loss per common share, basic and diluted | $0.66 | $6.33 | $1.32 | $16.56 |
| Cash used in operating activities | Not stated for quarter | Not stated for quarter | $10.212 | $9.647 |
At June 30, cash and cash equivalents were $3.340 and restricted cash was $0.100, versus $7.277 and $0.100, respectively, at December 31, 2019. Current assets were $5.229, current liabilities $4.325, total liabilities $10.731, and stockholders’ equity $3.783. The filing reports no conventional borrowings or off-balance-sheet financing arrangements. The $5.193 contingent-consideration liability is tied to potential NPS milestones, not described as debt. No profit margin is meaningful given the absence of revenue.
Changes versus prior comparable periods
- Q2 R&D expense rose $0.899, primarily reflecting GPS Phase 3 AML trial costs and increased clinical and regulatory consulting. Six-month R&D expense rose $0.904.
- Q2 G&A expense fell $0.651 and six-month expense fell $0.951, mainly due to lower legal fees and personnel costs, partly offset by higher insurance premiums.
- Operating loss increased $0.248 in Q2 but improved $0.047 for the first half. Net loss increased $1.291 in Q2 and $0.897 for the first half, chiefly reflecting the absence of the prior-year gains from decreases in warrant fair value.
- First-half operating cash use increased $0.565 year over year. Financing cash inflow declined to $6.275 from $17.061, primarily because the prior-year period included larger equity proceeds and warrant exercises. Cash, cash equivalents and restricted cash decreased $3.937 in the first half of 2020.
- Common shares issued and outstanding increased from 5,080,100 at year-end 2019 to 6,717,900 at June 30, 2020, principally due to the January financing and exercise of pre-funded warrants.
Business, outlook and material risks
- Programs: The lead candidate, GPS, targets WT1. Its Phase 3 REGAL trial in AML maintenance began in January 2020, with approximately 116 patients planned and an interim safety/futility analysis after 80 deaths, expected by the end of 2021. Management said initial data from the GPS/pembrolizumab basket study are expected in the first half of 2021, and initial data from the GPS/nivolumab mesothelioma study are expected by year-end 2020.
- NPS and other programs: SELLAS is seeking an out-licensing partner for NPS and does not plan to fund its Phase 3 program independently. The company decided to cease development of GALE-301/-302 and was negotiating termination of the related licenses.
- Liquidity and going concern: SELLAS has no product or collaboration revenue, recurring losses, negative operating cash flows, and an accumulated deficit of $109.715. Management disclosed substantial doubt about the company’s ability to continue as a going concern and said additional financing will be required. Management estimated that June 30 cash plus proceeds from the subsequent PIPE would fund operations and capital expenditures through Q2 2021; further financing is needed thereafter.
- Subsequent financing: A July 2020 private placement closed August 4, issuing 2,744,078 shares with accompanying warrants for approximately $9.2 million gross, before fees and expenses. Warrants are exercisable at $3.30 for five years. This financing occurred after quarter-end and is not included in June 30 cash.
- COVID-19: Management reported no material operational impact to date, but flagged possible delays at newly activated trial sites in COVID-19 hotspots and uncertainty over future trial operations, timelines, financing access and financial results.
- Other items: The company recognized a new headquarters operating lease with about $1.008 of lease liability at June 30. Up to $30.0 of additional NPS milestone consideration may become payable depending on development and commercial milestones. Legacy Galena shareholder securities and derivative litigation remained pending; management said the matters were not expected to materially affect results, financial position or cash flows, while acknowledging uncertainty.
Important facts for investors to verify
- Whether the stated cash runway through Q2 2021 remains achievable, and what additional financing is required afterward.
- Net proceeds, dilution and warrant overhang from the August 2020 PIPE and any later capital raises.
- REGAL enrollment, site activity and timing of the planned interim analysis, including any COVID-related delays.
- Progress and data timing for the GPS combination trials, and any NPS licensing or co-development agreement.
- Potential exposure and timing for NPS milestone payments and the outcome of pending legacy litigation.