Filing and business context
The supplied filing is Salarius Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter ended September 30, 2019; it does not identify Decoy Therapeutics, Inc. Salarius is a clinical-stage biotechnology company developing epigenetic cancer treatments, led by Seclidemstat (SP-2577). It reported no product-sales revenue. Its July 19, 2019 merger with Flex Pharma was accounted for as a reverse acquisition, with Private Salarius treated as the accounting acquirer.
Financial results and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Grant revenue | $875,000 | $469,000 | $2.43 million | $1.31 million |
| Research and development expense | $1.14 million | $354,000 | $2.68 million | $804,000 |
| General and administrative expense | $3.49 million | $429,000 | $5.95 million | $1.09 million |
| Net loss | $2.63 million | $307,000 | $5.05 million | $578,000 |
| Basic and diluted loss per share | $0.73 | $0.20 | $1.68 | $0.47 |
At September 30, 2019, cash and cash equivalents were $4.00 million, working capital was $518,000, and total assets were $14.46 million. Cash included approximately $2.0 million of CPRIT grant funds restricted to allowable expenses; matching requirements were not fully met. Current liabilities were $4.72 million, including a $749,000 note payable, $1.64 million of accounts payable, and $1.58 million of deferred grant revenue. Stockholders’ equity was $9.74 million, versus a $1.27 million deficit at year-end 2018. The filing provides no meaningful product gross margin; revenue was grant revenue, not product sales.
For the first nine months, operating cash use was $8.94 million, compared with $3.79 million provided in the prior-year period. Investing activities provided $5.61 million, primarily from cash received in the merger and the HOTSHOT asset sale; financing activities provided $1.20 million. Cash, cash equivalents and restricted cash declined $2.13 million over the period.
Material changes and unusual items
- Year-over-year operating expenses rose substantially as clinical and development work advanced. R&D increases reflected clinical-trial activity, trial tablet manufacturing and preclinical work; G&A increases included merger and financing costs, a $1.35 million merger success fee, and higher insurance expense.
- A $1.13 million gain from the change in fair value of warrant liability reduced reported loss; it was a noncash fair-value item. The liability was $498,000 at quarter-end and valued using Level 3 inputs.
- The merger brought $5.4 million of net cash and recorded $8.87 million of goodwill on the balance sheet. The company sold the HOTSHOT business for $299,000 in July; the filing reported no gain or loss on the sale.
- Grant revenue increased with qualifying expenses reimbursed under the CPRIT award. Deferred revenue fell from $4.01 million at December 31, 2018 to $1.58 million at September 30, 2019.
Outlook, risks and contingencies
Management stated that existing cash was not expected to fund anticipated operating and capital requirements through 12 months from the filing date. The financial statements disclose substantial doubt about the company’s ability to continue as a going concern. Salarius expects continued losses and rising development costs and says it will need additional capital through equity or debt financing, collaborations, or other arrangements; none is assured. A CPRIT extension set the grant expiry at November 30, 2019, with further extensions available, and $9.1 million remained available to draw subject to requirements and matching funds.
After quarter-end, Salarius entered a stock purchase agreement with Aspire Capital for potential sales of up to $10.9 million over 30 months. It sold 210,526 shares for $1.0 million and issued 101,810 additional shares upon signing. Future sales are at the company’s discretion and subject to agreement limits.
The company was conducting Phase 1/2 development of SP-2577 for Ewing sarcoma and had initiated a Phase 1 trial for advanced solid tumors. Clinical efficacy and regulatory approval remain uncertain. Other material risks include the need for additional financing, potential dilution or unfavorable financing terms, CPRIT matching and grant conditions, and clinical-development execution. A stockholder proxy-related demand was settled on August 1, 2019. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the filing identity: the source is Salarius Pharmaceuticals, Inc., not Decoy Therapeutics, Inc.
- Assess near-term liquidity and the going-concern disclosure, including available unrestricted cash, operating cash burn and financing availability.
- Review CPRIT drawdown conditions, matching requirements, grant expiry and the expected timing of deferred revenue recognition.
- Track Aspire Capital share issuance, warrant liabilities and potential dilution, as well as clinical-trial progress and funding needs.