Business context and reporting period
Galena Biopharma, Inc. (the filing registrant; not named SELLAS in this 10-K) reported for the year ended December 31, 2015. The company shifted its focus to clinical-stage oncology development and sold its Abstral and Zuplenz commercial assets during the fourth quarter, ceasing commercial operations at year-end. Its leading program, NeuVax, was in a pivotal Phase 3 breast-cancer recurrence-prevention trial; other programs included GALE-301/302 in cancer immunotherapy and GALE-401 for elevated platelet counts in myeloproliferative neoplasms.
Financial performance, cash flow and liquidity
| Metric | 2015 | 2014 |
|---|---|---|
| Net loss | $63.9 million | $36.6 million |
| Loss from continuing operations | $39.0 million | $28.3 million |
| Continuing operating expenses | $34.2 million | $43.9 million |
| Research and development | $23.6 million | $27.7 million |
| General and administrative | $10.6 million | $16.2 million |
| Cash and cash equivalents, year-end | $29.7 million | $23.7 million |
| Total assets | $82.1 million | $80.5 million |
| Total debt | $4.7 million | $8.4 million |
| Stockholders’ equity | $13.5 million | $37.1 million |
Net loss per share was $0.41, versus $0.31 in 2014. Discontinued operations generated $9.7 million of net revenue but a $24.9 million loss in 2015, including an $8.1 million impairment charge, a $4.5 million loss on asset sales and $1.3 million of severance and exit costs. No continuing-business revenue is reported as a recurring source after the divestitures. The filing does not provide a meaningful continuing-operations gross margin.
Net cash used in operating activities was $48.2 million, up from $42.9 million. Investing activities provided $10.4 million, mainly from commercial-asset sales; financing activities provided $43.8 million, principally from equity issuance. Cash increased by $6.1 million. Current liabilities were $57.1 million, including a $25.0 million litigation-settlement payable; current assets were $53.6 million, including a $21.7 million litigation insurance-recovery receivable. The company had $4.7 million of debt classified as current at year-end, with principal and final payment due in 2016.
2015 net proceeds from common-stock issuance were $47.4 million. A January 2016 public offering generated approximately $20.1 million net proceeds; cash and cash equivalents were approximately $38.2 million as of February 29, 2016. Management said existing cash and expected access to the LPC purchase agreement and ATM facilities should fund operations for at least one year, subject to execution, financing availability and changes in plans. The company remained loss-making and expected continued operating losses.
Material changes versus prior period
- Net loss increased to $63.9 million from $36.6 million, chiefly reflecting the larger discontinued-operations loss and a $5.3 million litigation-settlement expense; the prior-year result benefited from a $16.6 million non-cash gain from changes in warrant fair value, versus a $1.2 million gain in 2015.
- R&D expense fell 15%, mainly because enrollment in the Phase 3 PRESENT trial was completed; G&A fell 35%, including lower legal and stock-compensation expense.
- Operating cash use increased by $5.3 million. Equity financing and proceeds from divestitures supported year-end cash despite the cash burn and debt repayments.
- Commercial operations were divested: Abstral sold in November and Zuplenz in December 2015. The company received $11.3 million net from the sales and may receive up to $30 million in future sales-based milestone payments, which are contingent.
- Shares outstanding rose from 129.5 million at 2014 year-end to 161.9 million at 2015 year-end; the January 2016 offering added further shares and warrants.
Outlook, risks and unusual items
- The PRESENT Phase 3 trial enrolled 758 patients, above its 700-patient target. Management expected an interim analysis in Q2 2016 and the final endpoint in 2018; these are estimates, not assured outcomes. FDA approval is not guaranteed, notwithstanding the trial’s Special Protocol Assessment.
- Management expected R&D expense to increase in 2016 as the pipeline and clinical operations expanded and NeuVax filing preparations advanced.
- Preliminary GALE-301 Phase 2a results showed estimated two-year disease-free survival of 85.7% in the 1,000-mcg group versus 33.6% in controls (p<0.02). The filing cautions that the study was not powered for efficacy; the broader vaccine-group recurrence comparison was not statistically significant.
- Key risks include trial failure or delay, funding needs and potential shareholder dilution, dependence on contract manufacturers and GM-CSF supply, and trial-site exposure to geopolitical disruption: about 39% of PRESENT sites and 44% of randomized patients were in Russia and Ukraine.
- Legal and regulatory matters include securities and derivative litigation settlements subject to court approval, related opt-out claims, an SEC investigation concerning investor-relations professionals, and government subpoenas/investigations concerning Abstral marketing practices. The company reported that it was cooperating; outcomes and potential costs were uncertain. Settlement terms included $25 million total payable, largely insurance-funded, plus company cash and stock contributions and cancellation of 1.2 million director options under the derivative settlement.
- The stock was below Nasdaq’s $1 minimum bid requirement for more than 30 consecutive trading days; the filing stated an August 22, 2016 deadline to regain compliance. Further equity issuance and warrants could dilute shareholders. The filing also notes that NeuVax’s composition-of-matter patent had expired in 2015, leaving reliance on method-of-use and other intellectual-property protection.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2015.
Most important facts for investors to verify
- Subsequent cash, operating burn and actual availability of LPC/ATM financing relative to the stated one-year funding outlook.
- PRESENT interim and final results, enrollment follow-up, and any changes to the expected analysis timeline or FDA requirements.
- Final court approval, company-funded costs and remaining exposure from litigation, opt-out claims and government investigations.
- Nasdaq bid-price compliance and the share and warrant dilution from the 2015 and January 2016 offerings.
- Whether contingent divestiture milestones are achieved and whether post-sale liabilities, channel obligations or indemnities create additional cash costs.