XBiotech Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; filed August 9, 2022. Financial amounts below are in U.S. dollars. XBiotech is a pre-commercial biopharmaceutical company developing naturally occurring monoclonal antibodies. Its reported revenue primarily comes from manufacturing bermekimab for Janssen clinical trials; the company is also developing IL-1α-targeting candidates, including one in an oncology clinical study.
Financial performance
| Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 |
|---|---|---|---|---|
| Revenue | $1.53m | $4.53m | $2.03m | $9.38m |
| Gross profit / margin | $1.32m / 86.5% | $3.17m / 69.9% | $1.61m / 79.3% | $5.71m / 60.9% |
| Operating expenses | $13.42m | $13.77m | $21.55m | $19.87m |
| Operating loss | $(12.09)m | $(10.61)m | $(19.94)m | $(14.16)m |
| Net loss | $(11.64)m | $(5.12)m | $(17.04)m | $(7.69)m |
| Net loss per share | $(0.38) | $(0.17) | $(0.56) | $(0.26) |
Revenue fell sharply year over year as the prior Janssen manufacturing arrangement ended in 2021 and the new arrangement began in February 2022; the prior-year period also included clinical-trial service revenue, which ended in 2022. Gross margin percentage improved, alongside lower reported manufacturing costs. R&D expense rose 12% to $10.4m for Q2 and 24% to $17.2m for H1; G&A declined 33% to $3.0m for Q2 and 27% to $4.3m for H1. Management cited expense classification changes, higher supplies and share-based compensation, and lower CEO bonus expense versus 2021. The filing reports CEO bonuses of $3.8m in 2022 and $7.0m in 2021, allocated between R&D and G&A.
Other income/loss included foreign-exchange losses of $2.28m in Q2 and $0.99m in H1 2022, versus gains of $0.79m and $1.20m in the comparable periods. Management attributed the movement mainly to U.S.-dollar/Canadian-dollar fluctuations.
Cash, liquidity and balance sheet
- Cash and cash equivalents were $225.8m at June 30, 2022, down $11.2m from $237.0m at December 31, 2021. Cash was $315.3m at June 30, 2021.
- H1 operating cash use was $11.5m, compared with $74.6m of operating cash provided in H1 2021, primarily because that period included receipt of a $75m Janssen escrow payment. Investing cash use was $0.2m in H1 2022; there was no financing cash flow.
- Total assets were $266.5m, total liabilities $10.7m, and shareholders’ equity $255.8m. Current assets were $238.8m versus current liabilities of $8.2m. The balance sheet presents no borrowings or interest-bearing debt.
- Management said available cash was expected to fund operations for at least 12 months from the report date and support several potential development milestones. It also expects significant operating losses for the foreseeable future.
Outlook, risks and notable items
- The February 2022 Janssen addendum provides for continued bermekimab manufacturing through December 2023 and is expected to generate up to $4.7m in revenue through that date. The company does not expect further revenue under the agreement after it expires.
- Management expects R&D spending and clinical-development costs could increase as programs advance. The company does not allocate internal R&D costs by individual candidate, limiting program-level cost visibility.
- The filing identifies clinical, regulatory, commercialization, financing, intellectual-property, competition, staffing and foreign-exchange risks. It reports no material changes to the risk factors in the 2021 Form 10-K.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether the Janssen manufacturing addendum’s expected revenue and December 2023 end date remain on track, and what revenue sources may replace it.
- Clinical progress, timing, costs and funding needs for the IL-1α pipeline and other development programs.
- Cash consumption and the assumptions underlying management’s stated 12-month liquidity outlook, particularly as losses are expected to continue.
- The drivers and potential recurrence of foreign-exchange losses, and the effects of CEO compensation and share-based compensation on expenses.