Eloxx Pharmaceuticals, Inc. — Q3 2018 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Financial statements are unaudited; amounts below are in U.S. dollars.
Business context
Eloxx is a clinical-stage biopharmaceutical company developing RNA-modulating candidates for rare genetic diseases caused by premature stop codons. Its lead candidate, ELX-02, is in early clinical development for cystic fibrosis and cystinosis. The company reported no product revenue and does not expect significant revenue before a candidate receives marketing approval and is commercialized.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $5.4 million | $3.3 million | $14.0 million | $8.2 million |
| General and administrative expense | $5.9 million | $0.7 million | $18.9 million | $1.6 million |
| Net loss | $11.2 million | $4.0 million | $33.2 million | $10.6 million |
| Net loss per share, basic and diluted | $0.32 | $1.15 | $1.05 | $2.92 |
| Operating cash used | Not separately stated | Not separately stated | $22.3 million | $9.7 million |
At September 30, 2018, cash and cash equivalents were $55.3 million, versus $24.0 million at December 31, 2017. Total current assets were $56.1 million and current liabilities were $5.1 million. Stockholders’ equity was $51.5 million; accumulated deficit was $72.1 million. No debt balance was reported on the balance sheet. The company said existing cash was expected to fund current operations to 2020, based on its then-current plans. It also cautioned that additional capital would be needed beyond that point.
Operating cash use was partly offset by $9.6 million of noncash stock-based compensation. Investing cash use was $0.1 million. Financing provided $53.7 million, principally from the April public offering, which raised $53.6 million net. The company had 35,124,844 common shares outstanding on November 1, 2018.
Material changes versus prior comparable periods
- Q3 net loss increased to $11.2 million from $4.0 million; nine-month net loss increased to $33.2 million from $10.6 million.
- R&D expense rose, primarily due to ELX-02 subcontractor, consultant and adviser costs, as well as increased personnel and occupancy costs.
- G&A expense increased sharply, reflecting higher headcount and professional fees and substantial stock-based compensation. Nine-month stock-based compensation was $9.6 million, including $8.7 million recorded in G&A; management attributed $5.0 million of the nine-month G&A increase to director stock compensation.
- The April 2018 offering issued 5,899,500 shares at $9.75 per share and generated $53.6 million net proceeds, increasing cash and the share count.
Outlook, risks and unusual items
- Management expected to complete the ongoing Phase 1 multiple-ascending-dose study of ELX-02 and initiate Phase 2 studies in cystic fibrosis and cystinosis afterward, with topline results expected in 2019. Four MAD cohorts were complete and the fifth had begun. A Phase 1 single-ascending-dose study in 60 healthy volunteers was complete.
- The company was conducting IND-enabling work on candidates for inherited retinal diseases and said it intended to select an additional candidate for clinical development later in 2018. These were forward-looking plans, not reported outcomes.
- ELX-02 was investigational and not approved by any regulator. The filing cites renal toxicity in preclinical animals at doses above those expected in clinical trials. Clinical success, safety, patient recruitment, regulatory approval and commercialization remain uncertain.
- Cash runway depends on operating plans; the company expects continued losses and expense growth and has no committed external funding source. Failure to raise additional capital could force delays, reductions or termination of development programs.
- A previously recorded $3.4 million expense related to a disputed Technion Research and Development Foundation (TRDF) exit-fee claim was settled through issuance of 569,395 shares in June 2018. The license also carries potential milestone, royalty and sublicense-payment obligations.
- The filing corrected an immaterial prior-period expense classification: for the nine months, R&D increased by $0.4 million, G&A by $0.9 million and reverse-merger expense decreased by $1.3 million. The correction did not affect net loss or cash flows.
- Management reported disclosure controls were effective at the reasonable-assurance level and no material change in internal control over financial reporting during the quarter. No material pending legal proceeding was identified.
Important facts for investors to verify
- Whether the reported cash runway to 2020 remains supported by actual spending and updated clinical-development plans.
- Progress, safety findings and timing of ELX-02 MAD completion and subsequent Phase 2 studies, including the stated 2019 topline-results target.
- Quarterly cash burn, stock-based compensation and share dilution, including future equity awards or financing needs.
- Status and financial implications of the TRDF license, settlement, potential contingent payments and Israeli Innovation Authority grant obligations.
- Whether preclinical renal toxicity or other safety, enrollment, regulatory or manufacturing issues affect ELX-02’s development prospects.