CytomX Therapeutics, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with the three months ended March 31, 2019. CytomX is a clinical-stage oncology biopharmaceutical company developing Probody therapeutics. It has no approved products and generates revenue primarily from collaboration agreements, not product sales.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 or comparison |
|---|---|---|
| Revenue | $49.6 million | $29.5 million; up $20.1 million (68%) |
| Research and development expense | $42.8 million | $36.4 million |
| General and administrative expense | $9.6 million | $9.7 million |
| Operating loss | $2.8 million | $16.6 million |
| Interest income | $1.1 million | $2.5 million |
| Pre-tax loss | $1.7 million | $14.1 million |
| Income tax benefit | $13.9 million | $0.006 million |
| Net income (loss) | $12.2 million | $(14.1) million |
| Basic and diluted earnings (loss) per share | $0.27 / $0.26 | $(0.31) / $(0.31) |
| Cash used in operating activities | $49.7 million | $39.0 million |
- Revenue growth reflected primarily a $40 million AbbVie milestone, of which $26.6 million was recognized in Q1; Bristol Myers Squibb (BMS) revenue included a $10 million milestone. Q1 revenue by partner was AbbVie $30.1 million, BMS $17.4 million, Amgen $1.7 million and Astellas $0.4 million.
- Reported net income does not indicate operating profitability: the $13.9 million tax benefit, arising from CARES Act net operating loss carrybacks and a refund of 2018 taxes, more than offset the pre-tax loss. The company reports a history of losses and expects significant future losses.
- At March 31, cash and cash equivalents were $143.3 million and short-term investments were $104.6 million, totaling $247.9 million, down from $296.1 million at December 31, 2019. Current assets were $400.1 million and current liabilities $106.0 million. Management said existing resources were expected to fund operations for at least 12 months from issuance of the statements, but stated that additional funds will be needed in the future.
- Operating cash outflow included a $130.0 million increase in receivables, including $80 million due from Astellas, $40 million from AbbVie and $10 million from BMS. The Astellas $80 million upfront payment was received in April 2020. Investing activities provided $2.4 million; financing activities provided $2.2 million.
- No borrowings or conventional debt are reported. Total liabilities of $366.9 million included $310.7 million of deferred revenue and $27.0 million of operating lease liabilities. Deferred revenue is a contract liability, not debt. Accumulated deficit was $405.0 million.
- Gross margin is not separately presented; the filing does not provide a clear product-level margin measure.
Material changes and operating developments
- Revenue rose mainly because of the AbbVie dose-escalation milestone. The increase was partly offset by lower BMS revenue versus 2019, when $17.4 million of deferred revenue was accelerated after termination of certain BMS targets.
- R&D expense increased $6.4 million. Higher licensing expenses included $9.1 million payable to UCSB and a $3.0 million ImmunoGen milestone payment tied to first patient dosing in the CX-2009 Phase 2 trial. Lower costs included the absence of a $5.0 million technology acquisition charge recorded in Q1 2019.
- In March, CytomX signed a collaboration with Astellas, receiving an $80 million upfront fee and reporting up to approximately $1.6 billion in potential development, regulatory and sales milestones; additional potential payments depend on an expansion option. These future amounts are contingent, not assured revenue. The upfront payment was received in April.
- The company entered into a $75 million at-the-market stock sales agreement in February; no shares were sold under it during Q1. Common shares outstanding were 45.9 million at March 31.
Outlook, risks and contingencies
- COVID-19 led CytomX to temporarily pause new patient enrollment and site activation in the CX-2009 Phase 2 study. The company intended to resume as soon as practicable, but timing and financial effects were uncertain. Operations continued at a reduced rate.
- CytomX decided to terminate the Phase 2 CX-072 study combining CX-072 with ipilimumab in melanoma, citing the evolving clinical, competitive and commercial landscape together with the pandemic. Management said resources would be redirected to other assets and discovery work.
- Management expected R&D expenses to increase as programs advance. The company gave no quantified revenue, earnings or cash-burn guidance and said future revenue may fluctuate with collaboration milestones and research activity. It relies on partners and third parties for development, clinical trials, manufacturing and supply.
- Key risks include clinical and regulatory failure, trial delays or enrollment difficulties, COVID-19 disruption, manufacturing and supply interruptions, dependence on collaborators and additional financing, and possible dilution or unfavorable financing terms. The company reported a prior CX-072 contract-manufacturer production failure but said it had secured current trial supply.
- A patent infringement suit filed by Vytacera Bio in March 2020 alleges infringement through certain basic-research uses of the Probody platform and seeks unspecified damages. CytomX called the suit without merit and intended to defend it; no liability was accrued and the potential loss could not be reasonably estimated.
- Management concluded disclosure controls were effective at March 31, 2020 and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether enrollment in the CX-2009 Phase 2 trial resumed, and the duration and consequences of COVID-19-related disruption.
- Collection of the $40 million AbbVie and $10 million BMS receivables, in addition to the $80 million Astellas payment received in April.
- Cash runway under actual clinical spending and the company’s plans, timing and terms for future financing or use of the $75 million ATM facility.
- Clinical progress, safety and efficacy evidence for CytomX’s and its partners’ programs, and the effect of the CX-072 combination study termination.
- Potential UCSB sublicense and maintenance obligations, future milestone-related cash flows, and the outcome or financial exposure of the Vytacera litigation.