XTL Biopharmaceuticals Ltd. — FY 2017 Form 20-F
Reporting period: Fiscal year ended December 31, 2017; this is an annual report, not a standalone fourth-quarter filing. Financial amounts below are in U.S. dollars unless stated otherwise. The audited statements use IFRS as issued by the IASB.
Business context
XTL is a development-stage biopharmaceutical company with no product sales. Its lead candidate, hCDR1 (edratide), is being developed for systemic lupus erythematosus (SLE) and primary Sjögren’s syndrome (pSS). The company has no manufacturing capabilities and relies on third parties for clinical development and production. It has one part-time employee and five part-time service providers, according to the filing.
Financial performance and liquidity
| Metric | FY 2017 / Dec. 31, 2017 | FY 2016 / Dec. 31, 2016 |
|---|---|---|
| Revenue | No product sales; no revenue reported | No product sales; no revenue reported |
| Research and development expense | $43 thousand | $443 thousand |
| General and administrative expense | $1.203 million | $1.270 million |
| Operating loss | $1.246 million | $2.561 million |
| Net loss | $781 thousand | $2.545 million |
| Comprehensive loss | $897 thousand | $2.382 million |
| Basic and diluted loss per share | $0.002 | $0.009 |
| Net cash used in operating activities | $1.125 million | $1.732 million |
| Cash and cash equivalents | $3.289 million | $2.019 million |
| Short-term bank deposit | $2.507 million | None reported |
| Marketable securities | $298 thousand | $414 thousand |
| Working capital | $5.906 million | $2.424 million |
| Total assets | $6.586 million | $3.017 million |
| Total shareholders’ equity | $3.619 million | $2.687 million |
Cash, cash equivalents, short-term deposit and marketable securities totaled approximately $6.094 million at year-end. Current liabilities were $300 thousand. The company reported no borrowing credit facilities; its $2.667 million non-current liability was warrants measured at fair value, not conventional borrowing debt. Accumulated deficit was $155.645 million. Operating cash flow was negative; investing activities used $2.495 million, mainly for a short-term bank deposit, while financing activities provided $4.892 million net from share and warrant issuances.
Changes versus prior year
- Net loss narrowed by about $1.764 million. The operating loss improved by $1.315 million, reflecting lower R&D expense, modestly lower G&A expense and no 2017 impairment charge; the 2016 period included an $848 thousand impairment of the rHuEPO asset.
- R&D expense fell about 90% as XTL curtailed trial-related spending pending full financing or a strategic partner. Management said the reduction reflected completion of preparatory work in 2016 and the 2017 spending constraint.
- Net finance income was $465 thousand, compared with $16 thousand in 2016. It included a $765 thousand non-cash gain from warrant remeasurement and $329 thousand of warrant issuance costs. The revaluation gain helped reduce reported net loss and is not operating revenue.
- Comprehensive loss worsened to $897 thousand from $2.382 million, principally reflecting a $116 thousand decline in the fair value of available-for-sale securities in 2017 versus a $163 thousand gain in 2016.
- Issued ordinary shares increased from 274.2 million to 514.2 million during 2017. The February 2017 ADS ratio changed from 1 ADS per 20 ordinary shares to 1 per 100; warrant exercises or future share issues may create further dilution.
Outlook, risks and unusual items
- Management estimated that available cash and cash equivalents would fund activities for at least 12 months from the report date, but said additional funding is needed to conduct clinical trials through potential marketing approval. Failure to raise acceptable financing could require further cuts, asset sales or sublicensing.
- Plans to advance hCDR1 in SLE and pSS are conditional on financing and/or a collaboration. The company had not begun the planned new SLE study; a pSS Phase 2 study was not actively being considered because of financial constraints. No quantified revenue or earnings guidance was provided.
- Prior hCDR1 testing in more than 400 SLE patients showed a favorable safety profile, but the PRELUDE Phase 2 trial missed its primary SLEDAI efficacy endpoint. The company emphasized secondary BILAG results, including findings for a 0.5 mg weekly dose; those results do not establish efficacy in a future trial. FDA guidance accepted BILAG as a potential primary endpoint for the planned study.
- The rHuEPO program for multiple myeloma was abandoned and its intangible asset had been fully impaired by the end of 2016. XTL said it was negotiating a possible third-party license.
- Yeda license obligations include $127 thousand of remaining patent-expense reimbursement, development milestones, royalties and sublicense fees. The filing says the parties were negotiating a revised payment arrangement; verify status and any effect on license rights.
- Nasdaq notified XTL in October 2017 that it did not meet the stockholders’ equity requirement for the June quarter. Nasdaq advised in December that the company had regained compliance based on reported equity, but continued compliance is not assured.
- Other material risks include clinical and regulatory failure, dependence on licensors and contract manufacturers, limited staffing, potential equity dilution, low ADS trading volume, foreign-currency exposure and geopolitical risks in Israel. The company also stated it might be a passive foreign investment company (PFIC) for 2017.
- The independent auditor issued an unmodified opinion on the IFRS financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not express an opinion on internal-control effectiveness.
Important facts for investors to verify
- Current cash runway, actual operating burn, and whether financing or a strategic partnership has been secured since the report date.
- Whether and when the planned SLE trial will start, its final protocol and endpoint, and the evidence supporting the selected dose given PRELUDE’s missed primary endpoint.
- Current status of the pSS program and the proposed rHuEPO licensing discussions.
- Warrant terms, fair-value liability, potential dilution and updated ordinary-share/ADS counts; confirm the ADS ratio when comparing historical prices or share data.
- Ongoing Nasdaq listing compliance and the status of the Yeda payment amendment and related development milestones.