HCW Biologics Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2021. The unaudited results are compared with the corresponding 2020 periods. HCW Biologics is a pre-revenue biopharmaceutical company developing immunotherapies for cancer and age-related inflammatory diseases.
Financial performance and position
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Revenue recognized | None in 2020 or 2021 | None in 2020 or 2021 |
| Research and development expense | 2021: $2.69 million; 2020: $2.10 million | 2021: $6.69 million; 2020: $5.85 million |
| General and administrative expense | 2021: $1.40 million; 2020: $0.61 million | 2021: $3.57 million; 2020: $2.04 million |
| Net loss | 2021: $4.09 million; 2020: $2.71 million | 2021: $9.69 million; 2020: $7.86 million |
| Basic and diluted loss per share | 2021: $0.14; 2020: $0.63 | 2021: $0.74; 2020: $1.84 |
For the nine months ended September 30, 2021, operating cash use was $7.60 million, investing cash use was $35.00 million, and financing cash provided was $49.26 million. Cash and cash equivalents were $15.13 million at quarter-end, alongside $25.0 million of short-term U.S. government-backed securities and $10.0 million of long-term U.S. government-backed securities. The company also held a Wugen minority investment carried at $1.6 million.
Total assets were $56.41 million and current liabilities were $2.39 million at September 30, 2021. No debt balance was reported; the $567,311 PPP loan and accrued interest were forgiven in January 2021. Product gross margin is not applicable because the company reported no product sales or recognized revenue.
Changes versus the prior comparable period
- Quarterly operating expenses rose 51% to $4.09 million; nine-month operating expenses increased 30% to $10.26 million.
- Quarterly R&D expense rose 28%, mainly reflecting higher manufacturing and preclinical activity. Nine-month R&D increased 14%, primarily because of preclinical work, partly offset by lower manufacturing expense.
- Quarterly G&A increased 130% and nine-month G&A increased 75%, reflecting compensation and bonuses, public-company costs, legal and patent services, and insurance.
- The 2021 nine-month net loss included $566,268 of interest and other income, mainly the gain from PPP loan forgiveness. Cash from operations nevertheless increased in use from $6.89 million to $7.60 million.
- The July 2021 IPO raised $56.0 million gross and approximately $49.0 million net. All Series A, B, and C preferred shares converted into common stock; approximately $2.8 million of accrued cumulative preferred dividends was forfeited. Common shares outstanding were 35,728,112 at September 30.
Outlook, commentary, and risks
- Management expects substantial continuing operating losses and increased R&D spending as programs advance. The company said IPO proceeds and existing resources were expected to fund operations for 24 months, while the liquidity discussion separately estimated adequate capital for at least 22 months following issuance of the financial statements. Both estimates depend on assumptions and actual spending could exhaust resources sooner.
- Additional financing will be needed to execute the longer-term business plan. Management may pursue equity financing, collaborations, strategic alliances, co-development, or out-licensing; unavailable or inadequate funding could force delays or reductions in development.
- HCW9218 had FDA clearance to proceed with a first-in-human Phase 1b trial in advanced pancreatic cancer, announced October 28, 2021. The company planned Phase 1b/2 oncology studies, but was still negotiating with potential clinical sites; delays or failure to reach agreements could affect timing and cost.
- HCW9302 remained in IND-enabling development. Mouse studies were expected to finish by year-end 2021; nonhuman-primate toxicology was anticipated in the second half of 2022, with an IND filing expected in the second half of 2022.
- COVID-19 could disrupt manufacturing, clinical-site availability, patient enrollment, and preclinical work. The company said it could not quantify the potential operating impact.
- Wugen shares are unlisted and have limited marketability. The company also faces interest-rate exposure on its cash and government securities. No material legal proceedings were reported; management stated there were no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Reconcile the stated 24-month and at-least-22-month cash runway estimates, including the assumptions and date basis for each.
- Track quarterly cash burn, investment maturities, and whether additional capital or partnering is required to fund planned trials.
- Verify trial-site agreements, enrollment and start dates for HCW9218, and progress toward HCW9302 toxicology completion and IND filing.
- Monitor conversion of Wugen-related deferred revenue into recognized revenue as supply performance obligations are completed; $1.1 million was deferred at quarter-end.
- Confirm the timing and cost of clinical manufacturing commitments; future payment obligations under manufacturing statements of work were $1.5 million at September 30, 2021.