Business context and reporting period
This is Galena Biopharma, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2014, filed August 11, 2014. The filing describes a biopharmaceutical company commercializing Abstral for breakthrough cancer pain and developing NeuVax, GALE-301 and GALE-401. Zuplenz was licensed after quarter-end. The request metadata names SELLAS Life Sciences Group, Inc.; that does not match the registrant identified in this filing.
Financial performance and position
| Metric | Three months ended June 30, 2014 | Six months ended June 30, 2014 | Comparable 2013 period |
|---|---|---|---|
| Net revenue | $2.331 million | $4.504 million | $0 |
| Operating loss | $15.783 million | $27.632 million | $7.986 million; $14.597 million |
| Net loss | $19.941 million | $22.477 million | $9.597 million; $18.890 million |
| Basic and diluted loss per share | $0.17 | $0.19 | $0.11; $0.23 |
For the quarter, cost of revenue was $0.347 million and acquired-intangible amortization was $0.098 million, implying gross profit of about $1.886 million and an approximately 81% margin after both items. For the six months, the corresponding amounts were $0.678 million and $0.189 million, implying gross profit of about $3.637 million and an approximately 81% margin. These are calculated from reported figures.
- Cash and liquidity: Cash and cash equivalents were $39.162 million at June 30, versus $47.787 million at December 31, 2013. Current assets were $43.684 million and current liabilities $33.413 million, giving working capital of $10.271 million.
- Cash flow: Six-month operating cash use was $21.020 million; investing cash use was $2.344 million; financing provided $14.739 million. Cash declined by $8.625 million.
- Debt and other obligations: Long-term debt, including current maturities, totaled $10.079 million. Debt bears 8.45% interest and amortizes after 12 months of interest-only payments, with maturity in November 2016. The balance sheet also included $15.506 million of potentially cash-settleable warrant liabilities and $7.477 million of contingent purchase-price consideration.
- Equity and dilution: Stockholders’ equity was $28.311 million, versus $5.886 million at year-end. Shares outstanding rose from 109.426 million at December 31 to 118.138 million at June 30; the filing reports 118.205 million outstanding on July 31.
Material changes versus prior periods
- Abstral generated revenue for the first time in the second half of 2013; there was no revenue in the 2013 comparable periods. Second-quarter 2014 net revenue was $2.331 million, up from $2.173 million in the first quarter.
- Second-quarter net loss increased about 108% year over year, while six-month net loss increased about 19%. Research and development expense increased 53% for the quarter and 43% for the half, mainly from the Phase 3 PRESENT trial. Selling, general and administrative expense increased 254% and 288%, respectively, reflecting the commercial launch and higher legal expenses.
- Warrant exercises and stock-option exercises generated $14.655 million of reported proceeds combined during the half; 5.690 million warrants and 3.328 million options were exercised. The warrant liability declined from $48.965 million to $15.506 million, including a $6.439 million favorable fair-value change and reclassification upon warrant exercise. These non-cash valuation movements materially affected reported non-operating results.
- Cash used in operations rose from $12.454 million in the first half of 2013 to $21.020 million in 2014. Financing cash flow was higher, while investing cash use was lower than in 2013, when the company paid for Abstral rights.
Outlook, commentary, risks and unusual items
- Management expected existing working capital and Abstral revenue to fund operations for at least a year, but said this depended on plans and revenue assumptions; no financing commitments were in place. The company expected continued operating losses and said it might never achieve profitability or positive cash flow.
- Management anticipated Abstral demand and sales growth in the second half of 2014 after patient-support and assistance-program changes. However, a large customer order contributed about $0.9 million of second-quarter net revenue, and the filing cautioned that this could reduce that customer’s third-quarter orders.
- In August 2014, Express Scripts announced a formulary exclusion of Abstral effective January 1, 2015. Management did not preliminarily expect a material adverse effect, but warned other payors could follow.
- After quarter-end, Galena licensed U.S. rights to Zuplenz. The agreement included $5 million in cash and stock, additional potential payments and double-digit royalties; MonoSol retained exclusive supply rights, subject to conditions. The filing describes a planned launch by December 31, 2014 in the agreement, while its strategy section refers to launch during the first quarter of 2015.
- Development plans included the Phase 3 NeuVax PRESENT study, NeuVax combination and gastric-cancer trials, GALE-301 Phase 2 work, and a GALE-401 Phase 2 trial. Management expected the first GALE-401 clinical-trial milestone in the third quarter of 2014; related milestone shares and their value were not reasonably estimable at June 30.
- Five securities class actions and multiple shareholder derivative suits were pending, and the SEC was investigating matters relating to the company and outside investor-relations professionals. The company intended to defend the claims; it had recorded no material litigation liability and could not estimate potential losses. It also reported approximately $3.0 million of second-quarter legal expenses.
- NeuVax’s international Phase 3 trial faced risks from unrest in Ukraine and Russia. Other risks included dependence on commercial acceptance, reimbursement and supply for Abstral and Zuplenz, competition, clinical and regulatory uncertainty, and potential future financing needs. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for Galena Biopharma, Inc., not SELLAS Life Sciences Group, Inc.
- Track Abstral net sales, gross-to-net deductions, customer ordering patterns, customer concentration and the impact of the Express Scripts exclusion.
- Assess cash burn against management’s at-least-one-year funding estimate, including the costs and timing of Zuplenz commercialization and clinical programs.
- Review dilution exposure from outstanding warrants, options, milestone shares and potential stock consideration under the Zuplenz agreement.
- Monitor clinical-trial enrollment and results, GALE-401 milestone timing, litigation and SEC-investigation developments, and any changes to recorded contingencies.