Business Context and Reporting Period
The filing is a Form 10-Q for Selecta Biosciences, Inc., not Cartesian Therapeutics, Inc., covering the quarter and six months ended June 30, 2019. Selecta was a clinical-stage biotechnology company developing its ImmTOR immune-tolerance platform for biologic therapies, with lead candidate SEL-212 in a Phase 2 program for chronic refractory gout and gene therapy programs in preclinical development.
The company had no approved products or product sales. Revenue consisted solely of collaboration and grant revenue. The financial statements are unaudited and prepared under U.S. GAAP.
Key Financial Metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Grant and collaboration revenue | $0.013 million in 2019; none in 2018 | $0.023 million in 2019; none in 2018 |
| Research and development expense | $12.134 million vs. $14.407 million | $19.487 million vs. $25.546 million |
| General and administrative expense | $4.114 million vs. $4.362 million | $8.627 million vs. $9.036 million |
| Net loss | $16.394 million vs. $18.796 million | $28.468 million vs. $34.684 million |
| Net loss per share | $0.37 vs. $0.84 | $0.68 vs. $1.55 |
| Net cash used in operating activities | Not separately provided | $27.437 million vs. $30.382 million |
At June 30, 2019, cash, cash equivalents and restricted cash were $30.479 million, and short-term deposits and investments were $11.480 million, for total liquidity of approximately $41.959 million. The company had total assets of $46.947 million, total liabilities of $46.891 million and stockholders’ equity of $0.056 million.
Outstanding principal under the 2017 term loan was $21.0 million. Because of the company’s going-concern assessment and the uncontrollable material-adverse-change clause, the entire loan balance, shown as $21.548 million including related amounts, was classified as current. No event of default had been reported by the lender as of the filing date.
Accumulated deficit was $308.871 million at June 30, 2019, compared with $280.403 million at December 31, 2018. The company had no off-balance-sheet arrangements.
Material Changes Versus the Prior Comparable Period
- Second-quarter R&D expense declined 16%, and six-month R&D expense declined 24%, primarily due to headcount reductions and completion or deprioritization of SELA-070 and SEL-701 work. These savings were partly offset by SEL-212 clinical program costs.
- Second-quarter G&A expense declined 6%, and six-month G&A expense declined 5%, mainly due to lower patent and consulting expenses.
- Net loss improved by $2.402 million for the quarter and $6.216 million for the six-month period, despite minimal revenue.
- Operating cash use improved by $2.945 million year over year to $27.437 million for the six months.
- Investing cash flow changed from $19.630 million provided in the first half of 2018 to $11.274 million used in the first half of 2019, primarily because the company purchased $18.188 million of short-term investments.
- Financing cash flow increased to $31.479 million from $0.362 million, driven by $30.942 million of net proceeds from a January 2019 public offering and $0.372 million from an at-the-market offering.
- Shares outstanding increased to 44.953 million at June 30, 2019 from 22.472 million at December 31, 2018, reflecting substantial equity issuance and dilution.
- The company adopted the new lease accounting standard on January 1, 2019, recording right-of-use assets and lease liabilities without an impact on net loss.
Guidance, Outlook, Risks and Unusual Items
Management expected continuing operating losses and no product revenue for the foreseeable future. The company believed existing liquidity could fund operations and capital requirements into the first quarter of 2020 and could complete the ongoing Phase 2 COMPARE trial of SEL-212 against Krystexxa. However, additional external capital was required for the planned Phase 3 program, targeted for initiation in the fourth quarter of 2019.
The financial statements disclosed substantial doubt about the company’s ability to continue as a going concern within one year after issuance. Management was evaluating equity financing, strategic collaborations, licenses and other funding sources. Failure to obtain financing could require the company to delay, reduce, terminate or out-license development programs.
The COMPARE trial was expected to enroll approximately 150 patients, with interim data expected in the fourth quarter of 2019 and a statistical superiority analysis expected in the second quarter of 2020. These milestones were subject to clinical, regulatory, enrollment and financing risks.
- The company’s ImmTOR technology and product candidates remained unproven and required substantial additional clinical and regulatory work.
- SEL-403 development was discontinued after a Grade 5 adverse event and other serious adverse events; the FDA had placed the program on full clinical hold, and the company terminated its LMB-100 license effective April 9, 2019.
- The company depended on third parties, including 3SBio in China, for pegadricase and other manufacturing activities, creating supply, regulatory, quality, tariff and geopolitical risks.
- All milestones under the Spark collaboration were constrained as of June 30, 2019. Deferred revenue related to the agreement was approximately $15.9 million, while total contract liabilities were $16.325 million.
- The company estimated that an ownership change from the January 2019 equity offering could eliminate approximately $49.5 million of federal and Massachusetts net operating loss and credit tax assets, although these assets were fully offset by a valuation allowance.
- After quarter-end, the company entered into an AskBio feasibility study and license agreement related to ImmTOR and AAV gene therapy, and signed a new Watertown lease expected to begin in 2020. These events did not affect the June 30, 2019 balance sheet.
Facts an Investor Should Verify
- Confirm the issuer identity: the supplied metadata names Cartesian Therapeutics, Inc., but the filing is for Selecta Biosciences, Inc., ticker SELB.
- Verify the company’s ability to raise sufficient capital before the planned SEL-212 Phase 3 program and to address the disclosed going-concern uncertainty.
- Review the terms, covenants and potential acceleration risk of the $21.0 million SVB term loan, which was classified entirely as current.
- Assess cash burn relative to approximately $42.0 million of cash and investments and the stated funding runway into the first quarter of 2020.
- Monitor COMPARE trial enrollment, interim results, final results, regulatory feedback and the feasibility of the proposed Phase 3 timeline.
- Evaluate dilution from the January 2019 public offering, the at-the-market program, stock options and other reserved equity awards.
- Review the adverse-event history and discontinuation of SEL-403, as well as safety and manufacturing risks affecting SEL-212 and the gene therapy programs.