Candel Therapeutics, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. Unaudited results; amounts in U.S. dollars. Candel is a clinical-stage oncology biotechnology company developing oncolytic viral immunotherapies, principally CAN-2409 and CAN-3110. It has not generated revenue from product sales.
Financial performance and liquidity
| Metric | Q2 2022 | Six months 2022 | Comparable 2021 period |
|---|---|---|---|
| Research and development service revenue | $31,000 | $63,000 | $31,000 and $63,000, respectively |
| Research and development expense | $5.0 million | $10.4 million | $3.3 million and $6.0 million |
| General and administrative expense | $3.8 million | $7.4 million | $2.0 million and $4.0 million |
| Operating loss | $8.8 million | $17.7 million | $5.3 million and $10.0 million |
| Net loss | $4.1 million | $5.0 million | $17.1 million and $21.6 million |
| Net loss per share, basic and diluted | $0.14 | $0.17 | $1.46 and $1.85 |
Revenue was a small amount recognized over time from a related-party Ventagen license and services agreement; there was no product-sales revenue. Gross margin and product margins are not meaningful for this development-stage business. The lower net loss versus 2021 principally reflects a noncash gain from remeasuring warrant liabilities, not improved operating performance: the six-month warrant fair-value gain was $13.3 million in 2022, versus a $12.4 million expense in 2021. Operating expenses increased substantially.
At June 30, cash and cash equivalents were $86.8 million, with $0.3 million of restricted cash. Total assets were $93.3 million and stockholders’ equity was $60.1 million. Operating cash use was $15.2 million, investing cash use $0.8 million, and financing provided $19.9 million, primarily from the bank term loan. Cash, cash equivalents and restricted cash totaled $87.0 million at period-end. No meaningful operating margin or cash-flow margin is reported.
Debt included $20.0 million principal under the SVB term loan and $0.6 million of other long-term debt; the SVB loan’s net carrying amount was $20.0 million. SVB interest is floating, with an 8.17% weighted-average effective rate at June 30. The loan also carries a 4.5% final payment fee on funded principal and covenants. Current liabilities were $5.9 million. Management estimated existing cash would fund operations into the first quarter of 2024, subject to assumptions and execution risks.
Changes versus prior comparable periods
- Q2 operating expenses rose $3.5 million year over year; six-month operating expenses rose $7.8 million. R&D growth reflected higher headcount, clinical, manufacturing and regulatory costs, depreciation and preclinical work. Six-month R&D also included about $1.0 million of severance related to the departure of the former Chief Scientific Officer and Chief Medical Officer.
- G&A increased with public-company costs, including directors’ and officers’ insurance, recruiting, professional and consulting fees, and added personnel.
- The NIH grant that contributed $0.6 million in Q2 2021 and $0.8 million in the first half of 2021 was completed at the end of 2021.
- Operating cash use increased to $15.2 million from $10.1 million for the first half. The 2022 net loss was much smaller than in 2021 mainly because warrant remeasurement moved from a substantial expense to a substantial noncash gain.
- The company adopted lease accounting standard ASC 842 on January 1, 2022, recognizing operating lease right-of-use assets and liabilities; management said adoption did not materially affect the statements of operations or cash flows.
Outlook, developments and risks
- Management expects R&D and G&A expenses and operating losses to rise as trials advance, manufacturing capacity is developed, and public-company needs continue. The filing provides a cash runway estimate, but no formal revenue or earnings guidance.
- CAN-2409 prostate cancer Phase 3 enrollment was completed in September 2021; final data were expected at the end of 2024. The trial operates under an FDA Special Protocol Assessment, which does not guarantee approval.
- In the NSCLC Phase 2 trial, initial data as of April 20, 2022 covered 35 enrolled patients, with 20 evaluable for efficacy: reported disease-control rate was 87.5%, with partial responses in 3 patients. The company reported no treatment-related grade 4 adverse events and grade 3 events in three patients. Updated data were anticipated in Q4 2022; results are interim and may change.
- The company intended to initiate a potentially registrational CAN-2409 Phase 3 trial in newly diagnosed high-grade glioma in Q3 2022, targeting approximately 600 patients. Interim data from a Phase 1b glioma trial and additional CAN-3110 Phase 1 data were anticipated in Q4 2022.
- The SVB agreement provides for up to $25 million in term loans; $20 million was borrowed. Access to the additional $5 million is conditional on specified clinical milestones and at least $75 million of qualifying net equity proceeds by December 31, 2022, among other requirements.
- Key risks include clinical-trial failure or delay, regulatory uncertainty, need for additional financing, manufacturing and supply constraints, competition, reliance on third parties and licensors, and possible COVID-19 impacts. The company reported past enrollment delays and site closures but said these had not materially affected development timelines to date.
- Disclosure controls were assessed as effective at the reasonable-assurance level, but previously identified material weaknesses in internal control over financial reporting remained unremediated at June 30, 2022. Remediation work was ongoing.
- The company reported no material legal proceedings. Its contingent $2.5 million Ventagen milestone payment is dependent on future sales and qualifying conditions and was not recognized as revenue.
Important facts for investors to verify
- Whether trial milestones, reported interim efficacy and safety results, and anticipated data-release dates were achieved; distinguish interim findings from final, audited trial outcomes.
- Cash use and runway assumptions, the timing and availability of further financing, and whether the conditional SVB tranche requirements were met.
- The impact of variable-rate loan costs, loan covenants and the final payment fee on future liquidity.
- Progress in remediating internal-control material weaknesses and whether controls operate effectively over a sufficient period.
- Manufacturing readiness, clinical supply, and the timing and cost of planned trials and facility or contract-manufacturer work.