PharmaCyte Biotech, Inc. — Form 10-Q summary
Reporting period: Three and six months ended October 31, 2015 (fiscal second quarter and first half). The filing is unaudited. PharmaCyte is a clinical-stage biotechnology company developing cancer and diabetes treatments using its licensed Cell-in-a-Box technology; it reported no product revenue.
Financial results and position
| Metric | Three months ended Oct. 31, 2015 | Six months ended Oct. 31, 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1.13 million | $2.14 million |
| Net loss | $1.10 million | $1.65 million |
| Cash used in operating activities | — | $2.12 million |
- Gross margin was not meaningful because the company had no revenue or cost of revenue.
- At October 31, cash was $2.31 million, current assets were $2.51 million, current liabilities were $1.08 million, and working capital was approximately $1.4 million. Total liabilities were $1.08 million; the filing reports no conventional borrowing balance.
- Cash declined $387,307 during the six months. Financing provided $1.73 million, principally from common-stock sales; investing activities were nil.
- Total assets were $7.64 million, including $3.55 million of intangible assets and a $1.57 million investment in SG Austria. Stockholders’ equity was $6.56 million.
Changes versus the prior comparable period
- First-half net loss narrowed to $1.65 million from $5.65 million; second-quarter net loss narrowed to $1.10 million from $4.06 million.
- First-half operating expenses fell to $2.14 million from $7.83 million. Management attributed the decrease mainly to lower stock-based compensation, as well as lower general and administrative and legal costs.
- Prior-year other income included a $2.18 million gain on settlement of stock recoveries. In the current first half, other income was $492,000, primarily from a noncash gain as the derivative liability was remeasured to zero. These items materially affect year-over-year loss comparisons.
- Cash used in operations was $2.12 million, versus $2.40 million in the prior-year first half. Cash at period-end was $2.31 million, compared with $1.16 million a year earlier.
Outlook, risks and notable items
- Management said October 31 cash was expected to fund current operations and general corporate needs for the next 12 months. It also planned to pursue additional funding for clinical trials, including further common-stock sales; this expectation is not a guarantee.
- Plans included preparing a Phase 2b trial for advanced, inoperable non-metastatic pancreatic cancer, a trial relating to malignant ascites, and preclinical diabetes work. Trial preparation, regulatory steps, funding, and production of clinical-grade encapsulated cells remain execution dependencies; the filing provides no firm trial-start or commercialization guidance.
- The company had paid $1.4 million of the $2.0 million cannabis-license upfront payment and owed $600,000 at quarter-end. The payment deadline was extended to June 30, 2016. A subsequent $100,000 payment was made November 27, 2015. Manufacturing terms for this program remained unsigned and under negotiation.
- License arrangements may require substantial future milestone payments and royalties. The filing describes, among other terms, royalties on sales or sublicensing and development and regulatory milestones; amounts depend on program progress and commercial success.
- Purchases from subsidiaries of SG Austria, in which PharmaCyte owns 14.5%, were approximately $203,000 for the six months, versus $6,000 in the prior-year period. Consulting payments to a company owned by SG Austria officers were approximately $19,000. These are related-party transactions.
- The company sold approximately 14.7 million shares during the first half for net proceeds of approximately $1.7 million. Common shares outstanding were 747.4 million at October 31; 72.97 million warrants were outstanding and exercisable, in addition to outstanding options. Further equity financing could dilute existing shareholders.
- Management reported disclosure controls and internal control over financial reporting were not effective because of material weaknesses, including governance, communications, documentation, segregation of duties, and IT controls. Remediation was planned but had not yet been implemented; management warned of potential misstatement or restatement risk.
- The company reported no material pending legal proceedings and no material change in risk factors since its April 30, 2015 Form 10-K. It also disclosed approximately $2.06 million of cash above the FDIC-insured limit at one financial institution.
Important facts for investors to verify
- Cash burn, funding needs, and whether the stated 12-month operating runway proved sufficient; assess subsequent equity issuance and dilution.
- Clinical, regulatory, and manufacturing milestones, including the status of planned pancreatic-cancer studies and diabetes preclinical work.
- Payment status and negotiated terms for the cannabis license, and the potential timing and size of other license milestones and royalties.
- Progress in remediating internal-control material weaknesses and whether any subsequent financial reporting issues arose.
- Related-party purchasing and consulting arrangements, and the assumptions underlying the valuation of intangible assets and the SG Austria investment.