Candel Therapeutics, Inc. — Q3 2022 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2022. Candel is a clinical-stage biotechnology company developing viral immunotherapies, principally CAN-2409 and CAN-3110. It has not generated product-sales revenue.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0.031m | $0.031m | $0.094m | $0.094m |
| Research and development expense | $5.376m | $5.265m | $15.815m | $11.324m |
| General and administrative expense | $3.536m | $2.795m | $10.900m | $6.756m |
| Operating loss | $8.881m | $8.029m | $26.621m | $17.986m |
| Net loss | $8.688m | $16.162m | $13.711m | $37.720m |
| Net loss per share | $0.30 | $0.69 | $0.48 | $2.42 |
Revenue is recognition of a portion of a historical Ventagen related-party license fee for services; there were no product sales. Gross margin is not meaningful for this development-stage business. Lower net losses versus 2021 primarily reflect favorable, non-cash changes in the fair value of warrant liabilities, not improved operating profitability.
- Balance sheet at September 30: cash and cash equivalents of $77.2m, total current assets of $79.1m, total current liabilities of $5.9m, total assets of $85.0m, and total liabilities of $32.9m. Accumulated deficit was $94.0m.
- Debt: $20.0m principal borrowed from Silicon Valley Bank in February 2022; carrying amount was $20.1m. The loan has a floating interest rate (effective rate 8.83% at quarter-end), interest-only payments until February 2024, then principal installments, and matures January 2026. A further $5.0m tranche is conditional on specified clinical and financing milestones.
- Cash flows, nine months: operating activities used $24.5m, investing activities used $1.0m, and financing activities provided $19.9m, primarily from the bank loan. Cash, cash equivalents and restricted cash ended at $77.4m, down $5.6m from the start of the period.
- Capital access: the company said existing cash and cash equivalents were expected to fund its current operating plan into Q1 2024, subject to assumptions and execution risks. Its effective $200m shelf registration includes a $75m at-the-market program; no ATM shares had been sold as of the report.
Material changes versus prior comparable periods
- For the first nine months, R&D expense rose $4.5m and G&A rose $4.1m year over year. Increases included staffing, clinical/manufacturing and regulatory costs, public-company expenses, insurance, and recruiting; prior-year stock-compensation expense was higher.
- Operating cash use increased to $24.5m from $17.0m for the comparable 2021 period. The 2021 period included substantial IPO proceeds; 2022 financing was mainly the SVB loan.
- The warrant liability fell to $4.6m from $18.3m at December 31, 2021, producing $13.6m of non-cash income in the first nine months of 2022. In the comparable 2021 period, warrant remeasurement produced $20.6m of expense.
- The company adopted lease accounting standard ASC 842 in 2022, recording right-of-use assets and lease liabilities; prior-period balance-sheet figures are not directly comparable.
Outlook, developments and risks
- CAN-2409: The Phase 3 localized prostate cancer trial completed enrollment in September 2021; final data were expected at the end of 2024. The FDA’s Special Protocol Assessment does not assure approval, and the company disclosed protocol amendments without obtaining an SPA amendment.
- Other clinical programs: CAN-2409 NSCLC Phase 2 initial data reported disease control in 87.5% of 20 efficacy-evaluable patients, partial responses in 3 patients, and no treatment-related grade 4 adverse events in the reported group. Updated data were anticipated in Q4 2022. The high-grade glioma Phase 3 protocol was submitted to a central IRB in Q3; the planned study was intended to enroll approximately 600 patients. Interim Phase 1b CAN-2409 glioma data and additional CAN-3110 recurrent glioma data were also anticipated in Q4 2022.
- CAN-2409 had FDA fast-track designation for specified indications; the EMA adopted a positive opinion on orphan designation for high-grade glioma. These designations do not guarantee approval or commercial success.
- Management expects operating expenses to increase as trials advance, manufacturing capacity is developed and public-company costs continue. Additional financing will be needed; there is no committed external source of funds, and the company may need to reduce or delay development if financing is unavailable.
- Key risks include clinical-trial safety, efficacy and enrollment; regulatory uncertainty; dependence on lead candidates; manufacturing scale-up and third-party suppliers; dilution or financing constraints; and potential operational disruption from COVID-19 and broader economic conditions. Clinical observations cited are preliminary and may change.
- Internal control over financial reporting had material weaknesses that remained unremediated at September 30, 2022, involving accounting expertise, formal controls, monitoring and segregation of duties. Management reported remediation steps, including new finance leadership and systems, but said more time was required to assess effectiveness. Disclosure controls were assessed as effective at the reasonable-assurance level.
- The company reported no material legal proceedings and no litigation contingency reserves.
Important facts for investors to verify
- Whether cash use and trial/manufacturing spending remain consistent with management’s stated runway into Q1 2024, and whether additional financing or ATM sales are required.
- Progress, enrollment, safety and complete results for CAN-2409 and CAN-3110 trials, including the anticipated Q4 2022 updates and the prostate Phase 3 readout timing.
- Compliance with SVB loan covenants and eligibility for the conditional additional $5.0m tranche; monitor floating-rate interest costs.
- Whether the reported material weaknesses are remediated and controls operate effectively over a sufficient period.
- The warrant liability’s valuation and potential dilution from outstanding warrants and options; the liability is measured using significant unobservable inputs.