Equillium, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Financial statements are unaudited; dollar amounts below are in millions unless noted.
Business context and reporting period
Equillium is a clinical-stage biotechnology company developing itolizumab (EQ001), an antibody targeting CD6, for severe immune-inflammatory diseases. It has no product sales or other operating revenue and depends on external financing to fund development.
Key financial metrics
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $4.218 | $4.182 | $12.817 | $12.191 |
| General and administrative expense | $2.298 | $2.142 | $7.761 | $6.920 |
| Total operating expenses | $6.516 | $6.324 | $20.578 | $19.111 |
| Net loss | $6.597 | $6.014 | $20.895 | $18.033 |
| Basic and diluted loss per share | $0.31 | $0.35 | $1.11 | $1.04 |
| Cash used in operating activities | Not separately provided | Not separately provided | $16.371 | $13.916 |
At September 30, 2020, cash and cash equivalents were $49.249 and short-term investments were $41.288, totaling $90.537. Total current assets were $92.160, versus current liabilities of $5.145. Notes payable had $10.0 million principal and a $9.876 million carrying amount ($0.833 million current; $9.043 million long-term). The notes carry a floating rate of at least 8.25%; the filing reports covenant compliance at quarter-end. No revenue or profit margin is applicable because the company had no revenue and incurred losses.
Material changes versus comparable periods
- Q3 net loss increased 9.7% year over year; nine-month net loss increased 15.9%. Nine-month operating expenses rose 7.7%.
- Nine-month operating cash use increased from $13.916 million to $16.371 million.
- Cash and cash equivalents plus short-term investments rose from $53.143 million at December 31, 2019 to $90.537 million at September 30, 2020, principally following equity financing.
- Financing activities provided $53.934 million in the first nine months, including $35.758 million net from an August follow-on offering and $18.080 million net from ATM sales. Shares outstanding increased to 24,724,544 at quarter-end from 17,425,654 at year-end 2019.
- Interest expense rose to $0.823 million for the first nine months, mainly reflecting the term loan; interest income fell to $0.423 million from $1.097 million as rates declined.
Outlook, commentary, risks, and unusual items
- Management said available cash, cash equivalents, and investments were expected to fund planned operations for at least 12 months from the filing date. It also cautioned that estimates may prove inaccurate and additional financing may be needed. The company expects continued losses and no product revenue within the next 12 months, if ever.
- R&D expense included approximately $1.0 million of Australian research and development tax incentive benefits recognized in Q3, including $0.7 million received and an estimated $0.3 million benefit. Without this offset, reported R&D expense would have been higher.
- COVID-19 caused slower enrollment and a March pause in the asthma and lupus nephritis trials; enrollment resumed in July. The company warned that COVID-19 could further affect trial timing, sites, suppliers, personnel, and access to capital.
- Post-quarter developments described in the filing include reported interim aGVHD results: 7 of 8 patients across the first three dose cohorts responded by Day 29, including 7 complete responses. These are interim results and may change with further data and verification. Management planned to report Phase 1b topline data in the first half of 2021.
- The filing also reports that the FDA issued a Study May Proceed letter in October 2020 for a planned Phase 3 COVID-19 trial; initial enrollment was anticipated in Q4 2020, with initial data expected mid-2021. These are forward-looking plans, not reported outcomes.
- Potential additional $10 million of term loans was milestone-dependent, with draw windows ending no later than December 31, 2020. The company also cited potential dilution from future equity issuance and restrictions under its secured loan agreement.
- Biocon is the exclusive clinical drug-product supplier and the company’s license carries development obligations, up to $30 million in regulatory milestones, up to $565 million in sales milestones, and royalties if products are commercialized. The filing reports no milestone or royalty payments to date.
- The company reported no legal proceedings. Management concluded disclosure controls were effective as of September 30, 2020, with no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether aGVHD, asthma, lupus nephritis, and COVID-19 trial enrollment and data timelines meet management’s stated expectations, and how interim findings compare with final, audited results.
- Whether the reported $90.5 million liquidity supports the planned development program at the current cash-burn rate, and whether further financing will be required.
- Whether conditional loan availability expired or became available by the December 31, 2020 deadline, and the effects of debt service, covenants, and collateral provisions.
- Potential share dilution from the $150 million ATM facility, Lincoln Park purchase agreement, outstanding options and warrants, and any subsequent equity issuance.
- Clinical supply continuity from Biocon, including manufacturing and export risks, and Equillium’s ability to satisfy license diligence and milestone obligations.