PharmaCyte Biotech, Inc. — Form 10-Q Summary
Reporting period: Three months ended July 31, 2016, the first quarter of fiscal 2017. Comparative results are for the three months ended July 31, 2015. The interim financial statements are unaudited.
Business context
PharmaCyte is a clinical-stage biotechnology company with no material revenue to date. It is developing cancer and diabetes therapies using its Cell-in-a-Box live-cell encapsulation technology, including a targeted chemotherapy approach for pancreatic cancer, a diabetes candidate, and cannabinoid-based cancer research.
Financial performance and position
| Metric | Q1 FY2017 | Q1 FY2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1.031 million | $1.514 million |
| Operating loss | $1.031 million | $1.514 million |
| Net loss | $1.032 million | $1.515 million |
| Comprehensive loss | $1.033 million | $1.517 million |
| Net cash used in operations | $907,000 | $1.064 million |
| Net cash from financing | $1.325 million | $1.274 million |
At July 31, 2016, cash was $2.340 million, working capital was approximately $1.9 million, total assets were $7.524 million, and total liabilities were $456,000. Liabilities were current; the filing reports no debt balance. Cash increased by $419,000 during the quarter, primarily due to common-stock sales. Gross margin and operating margins are not meaningful because the company had no revenue.
Changes versus the prior comparable period
- Operating expenses fell $483,000. General and administrative expense declined $514,000, primarily due to lower consulting costs; research and development increased $19,000, legal and professional expense increased $53,000, and director fees decreased $9,000.
- Net loss improved by $483,000, while operating cash use declined by $157,000.
- Common-stock issuance generated approximately $1.325 million net proceeds. Shares issued and outstanding rose from 781.2 million at April 30 to 848.7 million at July 31. Weighted-average shares were 788.2 million versus 737.9 million in the prior-year quarter.
- The $150,000 cannabis-license obligation outstanding at April 30 was paid in full during the quarter; the related $2.0 million upfront license payment was fully paid by July 31.
Outlook, risks, and contingencies
- Management said available cash and anticipated equity financing were expected to fund operations through July 31, 2017. This is management’s estimate, not a guarantee; the company expects continuing operating losses and requires substantial outside capital. Failure to obtain funding could delay or prevent planned trials.
- The company said it was ineligible to make a primary offering under Form S-3, which limits financing options; future financing may be unavailable, costly, or dilutive. It may need private financing or a Form S-1 offering.
- Subject to FDA approval, the company planned a U.S. Phase 2b pancreatic-cancer trial, with European sites. It also planned a malignant-ascites trial in 2017 only if preclinical results support it and FDA approval is obtained. These plans depend on funding, third parties, clinical outcomes, and regulatory approval.
- A July 2016 binding MOU calls for Austrianova to seek investment partners to fund cancer-product trials and development, in exchange for sharing applicable product net revenue. The filing does not establish that such funding had been secured.
- License agreements create contingent royalties and milestone payments, including payments tied to clinical-trial enrollment and regulatory approvals. The cannabis license also provides for an $800,000 manufacturing setup fee when a manufacturing agreement is signed; that agreement remained unsigned as of July 31. Approximately $171,000 of future ViruSure testing milestones were also disclosed.
- Management identified material weaknesses in internal controls: ineffective corporate governance and internal communication, insufficient control procedures and documentation, inadequate segregation of duties, and insufficient IT controls and documentation. Disclosure controls and internal control over financial reporting were deemed ineffective, and remediation work had begun but no changes had yet been implemented.
- No material pending legal proceedings were reported. Management reported no material changes to the risk factors in the prior Form 10-K.
Most important facts for investors to verify
- Whether financing actually supports operations and clinical plans beyond management’s estimated July 31, 2017 runway, particularly given the Form S-3 eligibility limitation.
- Progress, timing, funding, and regulatory status of the pancreatic Phase 2b trial and the proposed malignant-ascites trial.
- Whether Austrianova secures an investment partner, and the terms and revenue-sharing impact of any resulting arrangement.
- Potential dilution from continued stock issuance and the 81.15 million options and 84.97 million warrants outstanding at quarter-end; these were excluded from diluted loss per share as antidilutive.
- Whether the disclosed internal-control material weaknesses are remediated and whether the contingent license and manufacturing obligations change as programs advance.