Xenetic Biosciences, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. The company is a clinical-stage biopharmaceutical developer focused on biologics and orphan oncology therapeutics. Its lead candidate, XBIO-101, was in a Phase 2 trial for endometrial cancer; enrollment began in June 2017. The company said capital constraints limited internal development primarily to XBIO-101.
Financial performance and position
| Metric | Q3 2017 / September 30, 2017 | Comparable period / December 31, 2016 |
|---|---|---|
| Revenue | $85,000 | $0 in Q3 2016 |
| Operating loss | $2.24 million | $2.25 million in Q3 2016 |
| Net loss | $2.26 million | $2.47 million in Q3 2016 |
| Nine-month net loss | $8.04 million | $53.81 million in 2016 |
| Cash | $694,752 | $4.05 million |
| Working capital | Approximately negative $0.1 million | $6.5 million |
| Total liabilities | $5.08 million | $4.80 million |
Q3 collaboration-services revenue was offset by $97,028 of related costs, so the filing reports no positive contribution from that activity. Nine-month revenue was also $85,000, with $156,119 of related costs. The filing does not provide a conventional gross-margin percentage. No hybrid debt instruments were outstanding at September 30, 2017; current liabilities were $2.16 million. Nine-month operating cash use was $3.34 million, compared with $4.16 million in 2016. Cash declined by $3.35 million during the period, with no financing cash inflows in 2017.
Changes and notable items
- Nine-month net loss improved substantially from 2016, primarily because 2016 included a $39.5 million in-process R&D charge for acquiring XBIO-101 and significant debt-related losses. Excluding that acquisition charge, R&D expense declined 15.5% to $2.98 million; G&A expense rose 14.0% to $4.95 million, mainly from personnel and share-based compensation costs.
- Q3 R&D expense was nearly unchanged year over year, although outside research and clinical costs increased as the XBIO-101 Phase 2 trial began site initiation and recruitment.
- In May 2017, Shire stopped further development of SHP656, a PolyXen-enabled rFVIII candidate, after it did not meet a predefined once-weekly dosing criterion. The company reported no known drug-related adverse events, serious adverse events, or rFVIII inhibitors to date.
- After quarter-end, Xenetic signed a sublicense agreement with Shire subsidiaries Baxalta and received a one-time $7.5 million payment in November 2017. The agreement also provides for single-digit royalties on covered-product net sales, subject to the sublicense arrangement.
- A Swiss court ruled in July 2017 in favor of former supplier Eurogentec, ordering payment of approximately $0.7 million plus interest and fees. Xenetic had accrued an additional $0.1 million following the ruling and appealed.
Liquidity, outlook, and risks
Xenetic reported an accumulated deficit of $150.4 million and substantial doubt about its ability to continue as a going concern. Management said the company expected to incur losses and would need additional capital or strategic alternatives. It estimated existing resources would fund planned operations, obligations, and commitments through the second quarter of 2018; it had no committed additional financing. The subsequent $7.5 million receipt is a material post-quarter liquidity event, but the filing does not provide a revised cash runway estimate incorporating it.
Management warned that inability to obtain financing could require cuts to development programs and operating costs, delays or cessation of clinical research, asset or technology dispositions, relinquishment of rights, or cessation of operations. Other risks include clinical and regulatory uncertainty, reliance on collaborators and licensing arrangements, competition, and limited funding. There is no specific revenue or earnings guidance in the filing. Disclosure controls were reported effective at a reasonable-assurance level, with no material change in internal control over financial reporting.
Facts investors should verify
- How the November 2017 sublicense payment affects current cash, working capital, and the company’s updated runway and financing needs.
- XBIO-101 Phase 2 enrollment, trial progress, costs, and the next clinical milestones.
- The status and potential financial exposure of the Eurogentec appeal.
- Whether Baxalta sublicenses the covered patents and whether royalty-bearing product sales occur.
- The impact of Shire’s SHP656 discontinuation on other PolyXen collaborations and prospective licensing opportunities.