Filing summary
Filing identity: The supplied filing is MEI Pharma, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2019, filed November 7, 2019. This does not match the request metadata identifying Lite Strategy, Inc. and 2018 Q1; verify the intended company and period before relying on this summary.
Business context and reporting period
MEI Pharma is a clinical-stage oncology company with four drug candidates: ME-401, voruciclib, ME-344 and pracinostat. It reported one candidate in a Phase 3 registration trial and another in a Phase 2 trial intended to support a potential accelerated-approval application. The quarter is the first quarter of MEI’s fiscal year 2020; comparative results are for the three months ended September 30, 2018.
Financial and operating performance
| Metric | Quarter ended Sep. 30, 2019 | Comparable 2018 quarter |
|---|---|---|
| Revenue | $1.157 million | $0.488 million |
| Cost of revenue | $0.688 million | $0.989 million |
| Research and development | $8.962 million | $6.131 million |
| General and administrative | $4.130 million | $3.401 million |
| Operating loss | $12.623 million | $10.033 million |
| Net loss | $2.994 million | $14.542 million |
| Basic and diluted loss per share | $0.04 | $0.21 |
| Net cash used in operating activities | $14.078 million | $12.816 million |
- Revenue less cost of revenue was $0.469 million, versus a negative $0.501 million in the prior-year quarter. The filing does not report a gross-margin percentage.
- Net loss improved mainly because of a $9.269 million noncash gain from the change in fair value of warrant liabilities; the prior-year quarter recorded a $4.962 million noncash loss on that item. Operating loss nevertheless widened.
- At September 30, 2019, cash and cash equivalents were $5.984 million and short-term investments were $59.932 million, totaling $65.916 million. The balance sheet also showed no common-stock proceeds receivable at quarter-end. Total current assets were $68.051 million and current liabilities $10.068 million.
- Total assets were $68.923 million, total liabilities $21.643 million and stockholders’ equity $47.280 million. The filing shows no borrowings or conventional debt; the $8.344 million warrant liability is a fair-value liability, not stated debt.
- Cash and cash equivalents decreased $3.606 million during the quarter. Investing activities provided $4.967 million net, and financing activities provided $5.505 million, including collection of $5.274 million in previously receivable stock proceeds.
Material changes and management commentary
- Revenue rose primarily because MEI recognized $0.797 million under its Kyowa Kirin (KKC) ME-401 license, with a further $0.360 million from the Helsinn pracinostat agreement. Revenue in the prior-year quarter came from Helsinn.
- R&D expense increased $2.831 million, driven mainly by $2.4 million of higher ME-401 clinical-trial costs following the start of the Phase 2 study. G&A expense increased $0.729 million, primarily due to staffing and professional-services costs.
- Operating cash use increased by $1.262 million, which management attributed to higher clinical-development spending, including ME-401 Phase 2 start-up costs.
- The warrant liability declined from $17.613 million at June 30 to $8.344 million at September 30, producing the noncash gain. Its valuation is Level 3 and depends on unobservable assumptions, including volatility and estimated term.
Outlook, risks and contingencies
- Management expected operating losses and negative operating cash flows to continue and R&D spending to increase. It believed available cash, cash equivalents and short-term investments were sufficient to fund obligations and operations for at least 12 months from issuance of the financial statements.
- MEI expected to pursue additional financing through equity, debt, license arrangements or strategic partnerships; it cautioned that additional capital may not be available on acceptable terms or at all. A shelf registration allowed up to $150 million of securities; $144.3 million remained available at quarter-end.
- ME-401’s Phase 2 study was recruiting approximately 166 patients and evaluating continuous and intermittent dosing. Any accelerated-approval strategy is subject to trial results and FDA review. October 2019 interim Phase 1b data reported an 81% overall response rate among 73 evaluable patients; this was interim clinical data, not a filing-period financial result.
- Other principal uncertainties include clinical-trial outcomes and timing, regulatory approvals, reliance on collaborators and third parties, manufacturing and development costs, commercialization, competition, intellectual-property claims and the ability to raise capital. MEI reported no material change to the risk factors in its 2019 annual report.
- Potential contingent obligations include up to $179 million in development, regulatory and commercial milestones under the Presage agreement and up to $74.5 million in S*Bio milestone payments, plus possible royalties or other payments. No amounts for these potential future payments were accrued at quarter-end. The office lease had approximately $0.5 million of remaining contractual payments and expires in May 2020.
- MEI reported no legal proceedings and stated that disclosure controls and procedures were effective; no material change in internal control over financial reporting was reported for the quarter.
Most important facts to verify
- Confirm the filing is the intended one: the source identifies MEI Pharma and September 30, 2019, not Lite Strategy and 2018 Q1.
- Assess cash runway against the reported $14.078 million quarterly operating cash use, expected increases in R&D spending and management’s financing plans.
- Track ME-401 Phase 2 progress, the durability and safety of interim results, and the evidence and regulatory requirements for any accelerated-approval application.
- Review the assumptions behind the Level 3 warrant valuation and the potential dilution from 16.062 million outstanding warrants and stock awards.
- Monitor collaboration revenue and deferred revenue recognition, as well as contingent milestone and royalty obligations under license and asset-purchase agreements.