Xenetic Biosciences, Inc. — Q2 2017 Form 10-Q
Business context and period. This clinical-stage biopharmaceutical company reported the three and six months ended June 30, 2017, with comparisons to 2016. Its principal development focus is XBIO-101, an investigational treatment for progesterone-resistant endometrial cancer, and its PolyXen platform. Enrollment in the Phase 2 XBIO-101 trial began in June 2017; the study is expected to enroll 72 patients.
Financial results
| Metric | Three months ended June 30, 2017 | Six months ended June 30, 2017 |
|---|---|---|
| Research and development expense | $0.87 million | $2.09 million |
| General and administrative expense | $1.97 million | $3.61 million |
| Operating loss | $2.90 million | $5.76 million |
| Net loss | $2.92 million | $5.78 million |
| Basic and diluted loss per share | $0.34 | $0.67 |
| Operating cash used | Not provided for the quarter | $1.71 million |
No product revenue or collaboration revenue was reported for the six-month periods; the filing reports $59,091 of costs related to funded third-party R&D programs in 2017. Gross margin and other revenue-based margins are not meaningfully stated.
- At June 30, cash was $2.33 million, versus $4.05 million at year-end 2016. Restricted cash was $66,510.
- Working capital was approximately $1.8 million, down from $6.5 million at December 31, 2016. Current liabilities were $2.00 million; total liabilities were $4.93 million.
- Total assets were $16.44 million and stockholders’ equity was $11.51 million. Accumulated deficit was $148.1 million.
- No hybrid debt instruments were outstanding, and the company reported no significant financing cash flows in the first half of 2017. The filing does not identify other material debt outstanding.
- Six-month cash used in investing activities was $9,264. Operating cash use was partly offset by receipt of a $3.0 million Shire milestone payment in January 2017.
Material changes and unusual items
- Net loss improved substantially year over year: $2.92 million for Q2 versus $47.77 million, and $5.78 million for the first half versus $51.34 million. The primary reason was the absence of the $39.5 million acquired in-process R&D charge recognized in 2016, alongside the absence of 2016 hybrid-debt issuance, conversion, and derivative fair-value items. The comparison therefore does not represent an equivalent change in underlying operating performance.
- Excluding the 2016 IPR&D charge, R&D expense declined 60% for Q2 and 21% for the first half, principally because 2016 included substantial warrant-based compensation. The company says XBIO-101 trial-related R&D costs were higher in 2017.
- G&A rose 27% in Q2 and 21% in the first half, reflecting added executive personnel costs, share-based compensation, travel, and increased investor/public-relations activity.
- Common shares outstanding increased from 8.41 million at December 31, 2016 to 8.72 million at June 30, 2017. The company also had warrants to purchase 3.52 million shares outstanding, at a weighted-average exercise price of $4.30.
- In May 2017, collaborator Shire discontinued further development of SHP656, a PolyXen-enabled rFVIII candidate, because the trial did not meet the predefined once-weekly dosing criterion. The filing says the study showed efficacy and pharmacokinetic data consistent with an extended-half-life product and reported no known drug-related adverse events, serious adverse events, or inhibitors; Xenetic intended to explore future collaboration with Shire.
Outlook, risks, and contingencies
- Management estimated existing resources would fund planned operations, obligations, and commitments only through the latter part of Q3 2017. It said additional working capital or strategic alternatives were needed in the very near term and that there were no committed sources of new capital.
- The company expects continuing losses and states that the conditions raise substantial doubt about its ability to continue as a going concern. Failure to obtain financing could require reductions or suspension of trials and development, expense cuts, asset or technology dispositions, relinquishment of rights, restructuring, or cessation of operations.
- On July 12, 2017, after quarter-end, a Swiss court ruled for former supplier Eurogentec and ordered payment of approximately $0.7 million, plus interest and court and legal fees. Xenetic had previously accrued $0.6 million and added approximately $0.1 million for interest and fees; it stated it intended to defend the action vigorously.
- The company reported that it had no material off-balance-sheet financing arrangements and no material changes in contractual obligations from its prior annual report. Management concluded disclosure controls were effective at a reasonable-assurance level.
Most important facts for investors to verify
- Whether Xenetic obtained financing after the reported runway through late Q3 2017, and the resulting terms and dilution.
- Subsequent cash burn, working capital, and progress and costs of the XBIO-101 Phase 2 trial.
- The Eurogentec judgment’s final amount, appeal or settlement status, and cash impact.
- Whether any new licensing or collaboration arrangements replaced or supplemented the discontinued Shire program, and whether they generated cash or revenue.
- Current share count and potential dilution from outstanding warrants, options, and preferred stock.