XBiotech Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise. XBiotech is a pre-commercial biopharmaceutical company developing naturally occurring “True Human” antibody candidates. Its reported revenue primarily comes from Janssen manufacturing and clinical-trial service agreements.
Financial results and position
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $4.5 | $10.5 | $13.9 | $38.7 |
| Gross profit | $3.4 | $1.1 | $9.1 | $6.4 |
| Gross margin | 75.4% | 10.6% | 65.6% | 16.6% |
| Operating expenses | $7.1 | $5.8 | $27.0 | $19.8 |
| Operating loss | $(3.7) | $(4.7) | $(17.9) | $(13.4) |
| Net loss | $(3.3) | $(2.5) | $(10.9) | $(9.4) |
| Basic and diluted loss per share | $(0.11) | $(0.09) | $(0.37) | $(0.30) |
- Cash and liquidity: Cash and cash equivalents were $238.9 million at September 30, 2021, versus $237.4 million at December 31, 2020. Current assets were $250.2 million and current liabilities $3.9 million. Total liabilities were $5.4 million; the filing reports no debt.
- Cash flow: Operating activities provided $71.2 million in the first nine months, substantially reflecting receipt of the $75 million Janssen escrow balance. Investing activities used $3.0 million, primarily for building expansion and warehouse construction; financing activities used $67.0 million, mainly for a $75 million dividend, partly offset by $8.0 million in option-exercise proceeds.
- Other: R&D expense was $19.5 million for the nine-month period; G&A was $7.5 million. A $1.3 million foreign-exchange loss contributed to Q3 other expense. The company recorded a $6.8 million income-tax benefit for the nine months.
Material changes and business developments
- Nine-month revenue fell 64% year over year, mainly because Janssen-related clinical trials were completed in December 2020: clinical-trial service revenue declined to $0.4 million from $25.2 million. Manufacturing revenue was $13.5 million in both nine-month periods.
- Q3 revenue declined to $4.5 million from $10.5 million, reflecting lower clinical-trial service revenue. Gross margin improved substantially as related service and manufacturing costs were lower.
- Nine-month R&D expense increased to $19.5 million from $6.1 million, reflecting higher salaries, supplies, and other costs, as well as changes in classification of manufacturing-department expenses. G&A fell to $7.5 million from $13.7 million, principally due to lower share-based compensation and fewer tender-offer-related professional fees.
- The company received the remaining $75 million escrow from the 2019 Janssen transaction in June 2021 and paid a $75 million dividend in July. Shares outstanding were approximately 30.4 million at September 30, 2021.
Outlook, risks, and notable items
- Management expects continued operating losses, potentially increasing as it advances candidates through development, and says profitability may never be achieved. The company reported $238.9 million of cash and expected it to fund operations for at least 12 months; it also stated cash should support planned activities through the foreseeable future.
- The Janssen manufacturing agreement provides $4.5 million per quarter but expires December 31, 2021; XBiotech does not expect further revenue under it after expiration. The transition-services revenue depends on ongoing Janssen trials and may be terminated on 30 days’ notice.
- XBiotech is pursuing additional IL-1α-targeting candidates, including a candidate already in an oncology clinical study. Management noted that future development costs and timing are uncertain and that R&D costs are not tracked by individual candidate.
- Key risks include clinical and regulatory uncertainty, commercialization and funding needs, patient recruitment, manufacturing and supply-chain execution, competition, intellectual-property protection, and potential COVID-19 effects. The filing says there were no material changes to the risk factors in the 2020 Form 10-K.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How the expiration of the Janssen manufacturing agreement affects revenue, cash burn, and operating plans after 2021.
- Whether clinical development milestones and planned studies progress as expected, and what funding those programs will require.
- The underlying drivers and sustainability of the reported gross-margin improvement, including manufacturing cost classifications.
- The effect of foreign-exchange movements and tax benefits on reported results; the company maintains valuation allowances against certain deferred tax assets and disclosed unrecognized tax benefits.
- Whether cash runway remains consistent with management’s stated outlook, particularly as operating losses and R&D spending continue.