SELLAS LIFE SCIENCES GROUP, INC. This management's discussion and analysis of financial condition as ofMarch 31, 2022 and results of operations for the three months endedMarch 31, 2022 and 2021, respectively, should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , as filed with theSecurities and Exchange Commission , orSEC , onMarch 31, 2022 , or our 2021 Annual Report, and our other public reports filed with theSEC .
Overview
We are a late-stage clinical biopharmaceutical company focused on the development of novel cancer therapies for a broad range of indications. Our product development candidates currently include galinpepimut-S, or GPS, and GFH009. We are pursuing an outlicensing strategy for a third product candidate, nelipepimut-S, or NPS. Galinpepimut-S, or GPS Our lead product candidate, GPS, is a cancer immunotherapeutic agent licensed fromMemorial Sloan Kettering Cancer Center , or MSK, that targets theWilms tumor 1, or WT1, protein, which is present in 20 or more cancer types. Based on its mechanism of action as a directly immunizing agent, GPS has potential as a monotherapy or in combination with other immunotherapeutic agents to address a broad spectrum of hematologic, or blood, cancers and solid tumor indications. InJanuary 2020 , we commenced inthe United States a Phase 3 clinical trial, the REGAL study, for GPS monotherapy in patients with acute myeloid leukemia, or AML, in the maintenance setting after achievement of second complete remission, or CR2, following successful completion of second-line antileukemic therapy. We expect this study will be used as the basis for submission of a Biologics License Application, or BLA, subject to a statistically significant and clinically meaningful data outcome and agreement with theU.S. Food & Drug Administration , or the FDA. We plan to enroll approximately 116 patients at up to approximately 85 clinical sites inthe United States ,Europe andAsia with a planned interim safety and futility analysis after 80 events (deaths). Under our current planning assumptions, which take into account our best estimates of potential delays due to COVID-19, we believe that we will complete enrollment for the REGAL study in late 2022 or early in the first quarter of 2023. Based upon these current assumptions with respect to completion of enrollment and the estimated survival times for both the treated and control groups in the study, we believe, after discussions with our external statisticians and experts, that the planned interim analysis after 80 events (deaths) per the protocol will occur by the end of the first half of 2023, provided that our statistical assumptions and assumptions regarding the impact of COVID-19 on the operations of our clinical sites as well as the duration of the pandemic remain unchanged. Because this analysis is event driven, it may occur at a different time than currently expected. InDecember 2020 , we entered into an exclusive license agreement with 3DMedicines Inc. , or 3DMed, aChina -based biopharmaceutical company developing next-generation immuno-oncology drugs, for the development and commercialization of GPS, as well as our next generation heptavalent immunotherapeutic GPS Plus, which is at preclinical stage, across all therapeutic and diagnostic uses in theGreater China territory (mainlandChina ,Hong Kong ,Macau andTaiwan ). We have retained sole rights to GPS and GPS Plus outside of theGreater China area. OnMarch 30, 2022 , an investigational new drug, or IND, application filed by 3DMed to initiate the first clinical trial inChina for 3D189, also known as GPS, was approved byChina's National Medical Products Administration , or NMPA. The IND is for a small Phase 1 clinical trial investigating safety. The approval by the NMPA triggered a$1.0 million milestone payment to the Company which was received in the second quarter of 2022. InDecember 2018 , pursuant to a Clinical Trial Collaboration and Supply Agreement, we initiated a Phase 1/2 multi-arm "basket" type clinical study of GPS in combination with Merck & Co., Inc.'s, or Merck, anti-PD-1 therapy, Keytruda® (pembrolizumab). In 2020, we and Merck determined to focus on ovarian cancer (second or third line WT1+ relapsed or refractory metastatic ovarian cancer). We reported updated clinical and initial immune response data from this study inJune 2021 . InFebruary 2022 , we reported that we had completed enrollment of 17 evaluable patients in this study. Data from 15 of the 17 evaluable patients is expected to be examined by mid-2022, with final data analysis for all evaluable patients expected by the end of 2022. 20 -------------------------------------------------------------------------------- InFebruary 2020 , we commenced a Phase 1 open-label investigator-sponsored clinical trial of GPS, in combination with Bristol-Myers Squibb's anti-PD-1 therapy, nivolumab (Opdivo®), in patients with malignant pleural mesothelioma, or MPM, who harbor relapsed or refractory disease after having received frontline standard of care multimodality therapy at MSK. InJune 2021 , we announced updated data from this study. Completion of enrollment of a target total of 10 evaluable patients is expected during the second half of 2022. We expect to report additional clinical and immune response data in the first half of 2022. GPS was granted Orphan Drug Product Designations from the FDA, as well as Orphan Medicinal Product Designations from theEuropean Medicines Agency , or EMA, for GPS in AML, MPM, and multiple myeloma, or MM, as well as Fast Track designation for AML, MPM, and MM from the FDA.
GFH009
OnMarch 31, 2022 , we entered into an exclusive license agreement withGenFleet Therapeutics (Shanghai), Inc. , or GenFleet, a clinical-stage biotechnology company developing cutting-edge therapeutics in oncology and immunology, that grants rights to us for the development and commercialization of GFH009, a highly selective small molecule cyclin-dependent kinase 9, or CDK9, inhibitor, across all therapeutic and diagnostic uses worldwide outside of mainlandChina ,Hong Kong ,Macau andTaiwan . CDK9 activity has been shown to correlate negatively with overall survival in a number of cancer types, including hematologic cancers, such as AML and lymphomas, as well as solid cancers, such as osteosarcoma, pediatric soft tissue sarcomas, and melanoma, and endometrial, lung, prostate, breast and ovarian cancer. As demonstrated in pre-clinical and clinical data, to date, GFH009's high selectivity has the potential to reduce toxicity as compared to older CDK9 inhibitors and other next-generation CDK9 inhibitors currently in clinical development. GFH009 is currently in Phase 1 clinical trials inthe United States andChina . There are six dose levels in this dose-escalating trial of up to 80 patients (2.5 mg, 4.5 mg, 9 mg, 15 mg, 22.5 mg, and 30 mg) and the indications are relapsed/refractory AML, chronic lymphocytic leukemia, or CLL, small lymphocytic leukemia, or SLL, and lymphoma. The fifth dose level (22.5 mg) cohort of the study (in relapsed/refractory AML) began in earlyApril 2022 . GFH009 is administered twice a week in this study. The primary goal of the trial is to establish the maximum tolerated dose and to assess safety. We expect the trial to be completed by the end of 2022.
Following completion of the Phase 1 clinical trial and achievement of a maximum tolerated dose, we intend to commence a Phase 2 clinical trial of GFH009 in combination with venetoclax and azacitidine in AML patients. The current standard of care for the vast majority of AML patients, including older patients, is venetoclax in combination with a hypomethylating agent such as azacitidine. GFH009 has shown in preclinical models a strong synergy with venetoclax.
The goal of the Phase 2 clinical trial, which we expect to initiate by the end of the second quarter of 2023, would be to show improved efficacy of venetoclax and would include patients who are resistant to venetoclax. We also intend to commence a Phase 1/2 basket clinical trial of monotherapy GFH009 in pediatric soft tissue sarcomas including Ewing's sarcoma and rhabdomyosarcoma in late 2022 or early 2023 and complete by the end of 2023. We believe positive results from this program could provide the basis for a rare pediatric disease priority voucher.
Nelipepimut-S or NPS
Nelipepimut-S, or NPS, is a cancer immunotherapy that targets human epidermal
growth factor receptor 2, or HER2, expressing cancers. We do not currently plan
to conduct or fund a further development program for NPS and are seeking to
out-license the asset.
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--------------------------------------------------------------------------------Impact of COVID-19
The ongoing global COVID-19 pandemic, including the surges of cases from the Delta and Omicron variants, continues to disrupt our business operations and those of our collaborators, including 3D Med and GenFleet, contractors, contract research organizations, or CROs, suppliers, clinical sites, contract manufacturing organizations, or CMOs, and other partners. The COVID-19 pandemic could affect the health and availability of our workforce and that of the third-parties we rely on, such as our CROs, clinical sites, CMOs, and other contractors as well as the governmental agencies, such as the FDA and health authorities in other countries which could delay or otherwise adversely impact the ability of such parties to fulfill their obligations. We have implemented a return-to-work policy in compliance with federal, state and local requirements and guidance, which provides for a hybrid of remote and in-office work. We are continuously monitoring the impact of the pandemic on our clinical development programs and on those of our partners, 3DMed and GenFleet. Our Phase 3 REGAL study is progressing, with the necessary work to activate additional sites inthe United States ,Europe andAsia continuing. However, since the onset of the COVID-19 pandemic, we have observed that, at certain times and in certain instances, clinical site initiations, patient screening and patient enrollment have been delayed. These delays are likely due to many reasons, which have been changing and evolving as the COVID-19 pandemic itself has evolved, including the prioritization of hospital resources towards the care of patients with COVID-19, delays in reviews and approvals by independent institutional review boards, or IRBs, and/or ethics committees at clinical sites, the challenges for clinicians and patients to comply with clinical trial protocols due to quarantines impeding patient movement or interrupting operations at sites, restrictions on travel and, most recently, inadequate staffing at clinical sites, supply chain-related delays, materials shortages and, most recently, lockdowns inChina . Throughoutthe United States ,Europe andAsia , newly initiated sites have taken longer than expected to become fully operational and begin enrolling patients. We are continuing to monitor each clinical site through our CROs as well as conducting direct outreach to investigators and study staff through site visits investigator meetings and other modes of communication. The full extent to which the COVID-19 pandemic will continue to directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain, subject to change and cannot be predicted with confidence, including the duration of the outbreak, the continued availability and efficacy of vaccines, new information which may emerge concerning the severity of COVID-19, the emergence of new variants of COVID-19, and the actions to contain COVID-19 or treat its impact, including continuing or new lockdowns, among others. 22 --------------------------------------------------------------------------------
Components of Results of Operations
License Revenue
License revenue consists of revenue recognized pursuant to our Exclusive License Agreement with 3DMed datedDecember 7, 2020 , or the 3DMed License Agreement. In the future, we may generate revenue from a combination of reimbursements, up-front payments, milestone payments and royalties in connection with the 3DMed License Agreement. Cost of License Revenue
Cost of license revenue consists of sublicensing fees incurred under our license from MSK in connection with the 3DMed License Agreement.
Research and Development Expense
Research and development expense consists of expenses incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses include:
•expenses incurred under agreements with CROs, as well as investigative sites and consultants that conduct our preclinical studies and clinical trials;
•manufacturing expenses;
•quality control and quality assurance services;
•outsourced professional scientific development services;
•employee-related expenses, which include salaries, benefits and stock-based compensation;
•payments made under our license agreements, under which we acquired certain intellectual property;
•expenses relating to certain regulatory activities, including filing fees paid to regulatory agencies;
•laboratory materials and supplies used to support our research activities; and
•allocated expenses, utilities and other facility-related costs.
The successful development of our current and future product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the remainder of the development of, or when, if ever, material net cash inflows may commence from any current or future product candidates. This uncertainty is due to the numerous risks and uncertainties associated with the duration and cost of our clinical trials, which vary significantly over the life of a project as a result of many factors, including, but not limited to:
•the number of clinical sites and participating countries included in the trials;
•the length of time required to enroll suitable patients;
•the number of patients that ultimately participate in the trials;
•the number of doses patients receive;
•the duration of patient follow-up;
•the results of clinical trials;
•the expenses associated with manufacturing;
•the receipt of marketing approvals;
•the commercialization of current and future product candidates; and
•the impact of the COVID-19 pandemic.
23
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Research and development activities are central to our business model. Oncology
product candidates in the later stages of clinical development generally have
higher development costs than those in the earlier stages of clinical
development, primarily due to the increased size and duration of the later-stage
clinical trials. We expect our research and development expenses to increase for
the foreseeable future as we conduct and complete our ongoing early and late
stage clinical trials and initiate additional clinical trials.
Our expenditures are subject to additional uncertainties, including the terms
and timing of regulatory approvals. We may never succeed in achieving regulatory
approval for any of our current or future product candidates. We may obtain
unexpected results from our clinical trials. We may elect to discontinue, delay
or modify clinical trials of some product candidates or target indications or
focus on others. A change in the outcome of any of these variables with respect
to the development of a product candidate could mean a significant change in the
costs and timing associated with the development of that product candidate. For
example, if the FDA or other regulatory authorities were to require us to
conduct clinical trials beyond those that we currently anticipate, or if we
experience significant delays in enrollment in any of our clinical trials due to
the COVID-19 pandemic or otherwise, we could be required to expend significant
additional financial resources and time on the completion of clinical
development.
Acquired in-process research and development consists of costs to acquire or license product candidates from third-parties for development with no alternative future use.
General and Administrative Expense
General and administrative expenses consist principally of salaries and related costs for personnel in executive, administrative, finance and legal functions, including stock-based compensation, travel expenses and recruiting expenses, fees for outside legal counsel, amortization of contract acquisition costs (commissions), and director and officer insurance premiums. Other general and administrative expenses include facility related costs, patent filing and prosecution costs, professional fees for business development, accounting, consulting, legal and tax-related services associated with maintaining compliance with our Nasdaq listing andSEC reporting requirements, investor relations costs, and other expenses associated with being a public company. If and when we believe that regulatory approval of a product candidate appears likely, we anticipate that an increase in general and administrative expenses will occur as a result of our preparation for commercial operations, particularly as it relates to the sales and marketing of such product candidate. Oncology product commercialization may take several years and millions of dollars in development costs.
Non-Operating (Expense) Income, Net
Non-operating (expense) income, net consists of changes in fair value of our warrant liability, changes in fair value of our contingent consideration, and interest income. Interest income primarily reflects interest earned from our cash and cash equivalents.
Critical Accounting Policies and Estimates
In the 2021 Annual Report, we disclosed our critical accounting policies and estimates upon which our financial statements are derived. There have been no material changes to these policies sinceDecember 31, 2021 that are not included in Note 3 of the accompanying consolidated financial statements for the three months endedMarch 31, 2022 . Readers are encouraged to read the 2021 Annual Report in conjunction with this Quarterly Report on Form 10-Q. 24 --------------------------------------------------------------------------------
Results of Operations for the Three and Nine Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended March 31,
2022 2021 Change
Licensing revenue $ 1,000 $ 5,700 $ (4,700)
Operating expenses:
Cost of license revenue 100 100 -
Research and development 4,611 4,284 327
Acquired in-process research and development 10,000 - 10,000
General and administrative 3,024 3,561 (537)
Total operating expenses 17,735 7,945 9,790
Operating loss (16,735) (2,245) (14,490)
Non-operating income (expense), net (9) (158) 149
Net loss $ (16,744) $ (2,403) $ (14,341) Further analysis of the changes and trends in our operating results are discussed below.
Licensing Revenue
Licensing revenue was$1.0 million for the three months endedMarch 31, 2022 and was related toChina's NMPA approving an IND application for a small Phase I clinical trial investigating safety of GPS inChina , which triggered a development milestone under the 3DMed License Agreement. Licensing revenue was$5.7 million for the three months endedMarch 31, 2021 and was related to the initial transaction price of$9.5 million under the 3DMed License Agreement, which was recognized over a period of time to satisfy the out-licensing of intellectual property rights and transfer of technical know-how.
Cost of License Revenue
We incurred$0.1 million of sublicensing fees payable under our license from MSK in connection with the 3DMed License Agreement during the three months endedMarch 31, 2022 and 2021. Research and Development Research and development expenses were$4.6 million for the three months endedMarch 31, 2022 compared to$4.3 million for the three months endedMarch 31, 2021 . The$0.3 million increase was primarily attributable to a$1.3 million increase in clinical trial expenses primarily related to our ongoing Phase 3 REGAL clinical trial of GPS in AML and a$0.3 million increase in personnel related expenses due to increased headcount. These increases were partially offset by a$1.1 million decrease in manufacturing expenses due to the timing of the manufacturing of registration batches of GPS in the prior year and a$0.2 million decrease in other research and development expenses. We anticipate that our research and development expenses will increase in the future as we continue to advance the development of GPS and GFH009, including our Phase 3 clinical trial of GPS in AML, the ongoing basket trial of GPS in combination with pembrolizumab, and the ongoing Phase 1 clinical trial of GFH009.
During the three months ended
25
--------------------------------------------------------------------------------General and Administrative
General and administrative expenses were$3.0 million for the three months endedMarch 31, 2022 compared to$3.6 million for the three months endedMarch 31, 2021 . The$0.6 million decrease was primarily due to a$0.8 million decrease related to the amortization of contract asset costs associated with the 3DMed License Agreement in the prior year with no comparable expense in the current year and a$0.3 million decrease in professional service fees. These decreases were partially offset by a$0.4 million increase in personnel related expenses, including a$0.2 million increase in non-cash stock-based compensation, due to increased headcount and a$0.1 million increase in other general and administrative expenses.
Non-Operating Income (Expense), Net
Non-operating income (expense), net for the three months ended
Three Months
Ended
2022 2021 Change
Change in fair value of warrant liability
(31)$ 20 Change in fair value of contingent consideration - (129) 129 Interest income 2 2 -
Total non-operating income (expense), net
Net non-operating expense was nominal for the three months ended
Net non-operating expense of$0.2 million during the three months endedMarch 31, 2021 was primarily due to the increase in the change in the fair value of the contingent consideration liability and a slight increase in the change in the fair value of the warrant liability partially offset by nominal interest income. The change in the fair value of contingent consideration liability reflects the interest component of contingent consideration related to the passage of time. The increase in the estimated fair value of our warrant liability was primarily due to an increase in our common stock price. Interest income consisted of interest earned from our cash and cash equivalents.
The change in fair value of warrant liability and change in fair value of contingent consideration are non-cash in nature.
Income Tax Expense
There was no income tax expense for the three months ended
Liquidity and Capital Resources
We did not generate any revenue from product sales during the three months endedMarch 31, 2022 and 2021. ThroughMarch 31, 2022 , the Company has only generated licensing revenue from the 3DMed License Agreement. Since inception, we have incurred net losses, used net cash in our operations, and have funded substantially all of our operations through proceeds of the sale of equity securities and convertible notes. OnApril 5, 2022 , we consummated an underwritten public offering, or theApril 2022 Offering, issuing 4,629,630 shares of common stock and accompanying common stock warrants to purchase an aggregate of 4,629,630 shares of common stock. The shares of common stock and accompanying common stock warrants were sold at a combined price of$5.40 per share and accompanying common stock warrant. Each common stock warrant sold with the shares of common stock represents the right to purchase one share of our common stock at an exercise price of$5.40 per share. The common stock warrants are exercisable immediately and will expire onApril 5, 2027 , five years from the date of issuance. The net proceeds to us from theApril 2022 Offering, after deducting the underwriting discounts and commissions and other offering expenses, and excluding the exercise of any warrants, were approximately$23.0 million . 26 -------------------------------------------------------------------------------- OnMarch 31, 2022 , the Company announced that an IND application filed by 3DMed, pursuant to its Exclusive License Agreement for GPS, for a small Phase 1 clinical trial investigating safety of GPS inChina was approved byChina's NMPA. The IND approval by the NMPA triggered a$1.0 million milestone payment to the Company which was received subsequent toMarch 31, 2022 . An additional$191.5 million in potential future development, regulatory, and sales milestones, not including future royalties, remains under the 3DMed License Agreement as ofMarch 31, 2022 , which milestones are variable in nature and not under the Company's control. The current clinical development plan provides for initiation of a Phase II clinical trial following receipt of satisfactory safety data from the Phase 1 clinical trial; the initiation of the Phase II clinical trial will also trigger a milestone payment to the Company which is expected in the second half of 2022, subject to any potential delays due to COVID-related lockdowns inChina . OnApril 16, 2021 , we entered into a Controlled Equity OfferingSM Sales Agreement, or the Sales Agreement, withCantor Fitzgerald & Co. , or the Agent. From time to time during the term of the Sales Agreement, we may offer and sell shares of our common stock having an aggregate offering price up to a total of$50.0 million in gross proceeds. The Agent will collect a fee equal to 3% of the gross sales price of all shares of common stock sold. Shares of common stock sold under the Sales Agreement are offered and sold pursuant to our registration statement on Form S-3, which was filed with theSEC onApril 16, 2021 and declared effective onApril 29, 2021 . Under the Sales Agreement, we sold a total of 786,927 shares of common stock at an average price of$12.04 per share for aggregate net proceeds of approximately$9.0 million during the year endedDecember 31, 2021 . There were no sales of shares of common stock under the Sales Agreement during the three months endedMarch 31, 2022 . There remains approximately$40.5 million available for future sales of shares of common stock under the Sales Agreement. Other than the Sales Agreement, we currently do not have any commitments to obtain additional funds. As ofMarch 31, 2022 , we had an accumulated deficit of$155.3 million , cash and cash equivalents of$14.3 million and restricted cash and cash equivalents of$0.1 million . In addition, we had current liabilities of$10.7 million as ofMarch 31, 2022 . We expect that our cash and cash equivalents, together with the net proceeds of approximately$23.0 million from theApril 2022 Offering, will be sufficient to fund current planned operations for at least the next twelve months from the date of issuance of these financial statements, although we may pursue additional capital resources through public or private equity or debt financings or by establishing additional collaborations with other companies. Our expectations with respect to our ability to fund current planned operations is based on estimates that are subject to risks and uncertainties. If actual results are different from management's estimates, we may need to seek additional strategic or financing opportunities sooner than would otherwise be expected. There is no guarantee that any of these strategic or financing opportunities will be executed or executed on favorable terms, and some could be dilutive to existing stockholders. If we are unable to obtain additional funding on a timely basis, we may be forced to significantly curtail, delay, or discontinue one or more of our planned research and development programs or be unable to expand our operations or otherwise prepare for the potential regulatory approval and commercialization of our product candidates, assuming positive data. Our future operations are highly dependent on a combination of factors, including (i) the timely and successful completion of any additional financings, (ii) our ability to complete revenue-generating partnerships with pharmaceutical and biotechnology companies, (iii) the success of our research and development activities, (iv) the development of competitive therapies by other biotechnology and pharmaceutical companies, and, ultimately, (v) regulatory approval and market acceptance of our proposed future products. 27 --------------------------------------------------------------------------------
Cash Flows
The following table summarizes our cash flows from operating and financing activities for the three months endedMarch 31, 2022 and 2021 (in thousands): Three Months Ended March 31, 2022 2021 Net cash (used in) provided by: Operating activities$ (7,150) $ (10,269) Financing activities 47 3,000 Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents$ (7,103) $ (7,269)
We had no investing activities during the three months ended
Net cash used in operating activities of$7.2 million during the three months endedMarch 31, 2022 was primarily attributable to our net loss of$16.7 million and the net change in our operating assets and liabilities of approximately$0.9 million , which were partially offset by various net non-cash charges of$10.4 million . The net change in our operating assets and liabilities of$0.9 million is primarily attributable to an increase in accounts receivable under the 3DMed License Agreement for$1.0 million and an increase in prepaid expenses and other current assets of$0.6 million , which were partially offset by an increase in accounts payable of$0.7 million . Net non-cash charges were driven by$10.0 million in expense related to the acquired in-process research and development and$0.4 million in non-cash stock compensation expense. Net cash used in operating activities of$10.3 million during the three months endedMarch 31, 2021 was primarily attributable to a$9.1 million change in our operating assets and liabilities and our net loss of$2.4 million , which was offset by various net non-cash charges of$1.2 million . The net change in our operating assets and liabilities of$9.1 million is primarily attributable to a decrease in deferred revenue of$4.7 million and one-time payments totaling$1.4 million for contract acquisition costs related to the out-licensing of intellectual property rights and transfer of technical know-how associated with the 3DMed License Agreement, a$2.7 million increase in prepaid expenses and other assets primarily for prepaid insurance premiums and clinical trial costs and a$0.3 million decrease in accounts payable and accrued expenses and other current liabilities.
Net Cash Provided by Financing Activities
We generated
We generated$3.0 million of net cash from financing activities for the three months endedMarch 31, 2021 from the exercise of warrants to acquire shares of common stock.
Off-Balance Sheet Arrangements
We have not entered into any off-balance sheet financing arrangements as of
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