SELLAS Life Sciences Group, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited results; amounts below are in millions of dollars except per-share data. SELLAS is a clinical-stage biopharmaceutical company developing cancer immunotherapies, principally GPS and NPS. It reported no product-sales revenue.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Licensing revenue | $0 | $0 | $7.6 | $0 |
| Research and development | $4.5 | $2.4 | $12.3 | $6.5 |
| General and administrative | $2.4 | $2.1 | $8.8 | $6.3 |
| Operating loss | $(7.0) | $(4.5) | $(13.7) | $(12.8) |
| Net loss | $(7.1) | $(4.5) | $(14.1) | $(13.0) |
| Basic and diluted loss per share | $(0.45) | $(0.53) | $(0.92) | $(1.83) |
Gross margin is not meaningfully presented because revenue is licensing revenue and was zero in Q3; nine-month cost of licensing revenue was $0.2 million. Operating expenses rose as clinical-trial and GPS manufacturing costs increased. The nine-month $7.6 million licensing revenue came from the 3DMed agreement; the $9.5 million initial transaction price, including $2.0 million of milestones, was fully recognized by Q2 2021.
For the nine months, operating cash use was $21.0 million versus $13.8 million in 2020; financing provided $12.0 million versus $14.8 million. Cash, cash equivalents and restricted cash totaled $26.4 million at September 30, down $9.0 million from year-end. Cash and cash equivalents alone were $26.3 million. Accumulated deficit was $132.0 million. Current liabilities were $5.3 million; total liabilities were $11.3 million, including lease liabilities, a $5.0 million contingent-consideration liability and an $0.08 million warrant liability. The filing does not report conventional borrowings or a debt balance.
Material changes and operating developments
- Q3 net loss increased $2.6 million year over year, largely alongside higher R&D spending. Nine-month net loss increased $1.1 million despite the new licensing revenue, as operating costs rose.
- Nine-month R&D increased $5.8 million, principally from REGAL trial costs and GPS manufacturing and drug-supply work. G&A increased $2.5 million, including $1.1 million amortization of 3DMed contract-acquisition costs and higher personnel and legal expenses.
- Weighted-average shares outstanding for the nine months rose to 15.3 million from 7.2 million in 2020. SELLAS raised $9.0 million net under its equity sales agreement and received $3.0 million from warrant exercises during the period.
- At September 30, 15.9 million common shares were outstanding. The sales agreement permits up to $50 million in gross stock sales; there were no sales under it in Q3.
Outlook, risks and contingencies
- Management expects cash and access to the equity sales agreement to fund planned operations for at least 12 months from the financial-statement issuance date. The company expects continuing operating losses and negative operating cash flow for the next few years and may need additional capital; financing could be dilutive. Failure to obtain funding could delay or curtail programs.
- SELLAS moved the anticipated REGAL Phase 3 GPS interim analysis from the first half to the second half of 2022, citing accumulated COVID-related site-initiation and enrollment delays. Timing remains subject to further pandemic effects. The study’s planned interim analysis follows 80 death events; the IDMC charter also provides for earlier analyses.
- Management expects R&D spending to increase as trials advance. GPS programs include the Phase 3 AML REGAL study and combination studies; NPS Phase 3 development depends on an out-licensing partner, and SELLAS says it does not plan to fund that program itself.
- 3DMed may provide up to $192.5 million of additional development, regulatory and sales milestones, plus tiered royalties, but milestones are variable and not under SELLAS’s control. No royalty revenue had been recognized.
- COVID-19 may continue to disrupt clinical operations. Drug-candidate development, trial results, regulatory approval and commercialization remain uncertain. Two predecessor-company shareholder litigation matters had settlements with preliminary approval; the filing says they are expected to be covered by applicable D&O insurance. Management said other legal matters were not expected to materially affect the company.
Investor verification priorities
- Track REGAL enrollment, pandemic-related delays, IDMC reviews and the revised second-half 2022 interim-analysis timing.
- Reconcile cash burn and runway against clinical-trial spending, prepaid costs, financing proceeds and future capital needs.
- Verify the availability and actual use of the $50 million equity sales facility, including dilution and remaining capacity.
- Assess progress and payment contingencies under the 3DMed license, including future milestones and potential royalties, and any NPS out-licensing outcome.
- Review clinical evidence and regulatory plans for GPS and NPS, noting that reported combination-study results involve small patient groups and are not evidence of approval or definitive efficacy.
- Follow settlement final approvals and insurance coverage for the disclosed litigation, and monitor the $5.0 million contingent consideration liability and its potential milestone-related payments.