HCW Biologics Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Financial statements are unaudited. HCW Biologics is a preclinical-stage biopharmaceutical company developing immunotherapies; it had no product-sales revenue during the period.
Key financial metrics
| Metric | Q2 2021 | Six months 2021 | Comparable 2020 period |
|---|---|---|---|
| Revenue | No revenue reported in the statements of operations | No revenue reported in the statements of operations | No revenue reported |
| Research and development | $1.67 million | $4.00 million | $2.07 million; $3.75 million |
| General and administrative | $1.08 million | $2.16 million | $0.71 million; $1.43 million |
| Total operating expenses | $2.75 million | $6.16 million | $2.78 million; $5.18 million |
| Net loss | $2.75 million | $5.59 million | $2.78 million; $5.15 million |
| Net loss per share, basic and diluted | $0.66 | $1.34 | $0.65; $1.21 |
| Net cash used in operations | Not separately stated | $2.48 million | $4.14 million |
At June 30, cash and cash equivalents were $5.05 million, total current assets $10.05 million, current liabilities $4.17 million, total assets $13.03 million, and redeemable preferred stock $32.10 million. The company reported a $23.24 million stockholders’ deficit. No outstanding debt balance is identified at quarter-end; the $567,311 PPP loan and accrued interest were forgiven in January 2021 and recorded as a gain. The filing does not provide meaningful operating margins because the company reported no revenue in its statements of operations.
Operating cash use was lower year over year, helped by collecting $2.5 million due from Wugen and increases in accounts payable and other liabilities. Investing cash use was $23,279. Financing cash use was $901,462, primarily reflecting IPO-related offering costs before the offering closed. Cash declined $3.40 million over the six months.
Changes versus prior comparable periods
- Q2 operating expenses fell slightly year over year, as R&D declined 19% to $1.67 million, mainly because manufacturing costs fell; G&A rose 52% to $1.08 million.
- For the first six months, operating expenses increased 19% to $6.16 million. R&D rose 7%, with higher preclinical and clinical spending partly offset by lower manufacturing costs; G&A increased 51%, largely due to salaries, bonuses, and professional fees.
- Six-month net loss widened to $5.59 million from $5.15 million, while Q2 net loss was slightly lower than the prior-year quarter.
- The company collected the $2.5 million Wugen payment receivable and recognized $568,808 of interest and other income for the half-year, including the PPP loan forgiveness gain.
Outlook, risks, and notable events
- Management said the July 2021 IPO generated approximately $49.0 million in net proceeds. Including this financing, it expected available capital to fund operating expenses and capital requirements for at least 24 months from issuance of the latest financial statements; this estimate depends on assumptions and may prove inaccurate.
- The IPO closed July 22, after quarter-end, with 7.0 million shares sold at $8.00 per share. All preferred shares converted into 23,768,420 common shares; accrued unpaid preferred dividends were forfeited. The filing reports 35,723,996 common shares outstanding as of August 13.
- Management was preparing an IND for HCW9218 and targeted filing and initiation of a pancreatic cancer Phase 1b/2 trial in the second half of 2021, subject to FDA acceptance, completion of IND-enabling work, and other approvals. These were plans, not assured milestones. HCW9302 toxicology work was targeted to begin in late 2021, with an IND filing for alopecia areata potentially in mid-2022.
- Management expects continuing losses and rising R&D and public-company expenses, and says additional capital will be needed beyond the estimated runway. Financing may not be available on acceptable terms; failure to obtain it could force delays or reductions in development.
- Key uncertainties include clinical and regulatory outcomes, manufacturing and clinical-site readiness, patient enrollment, and COVID-19-related delays and disruption. The company said COVID-19’s ultimate operational impact could not be quantified.
- The Wugen investment was carried at $1.6 million and is in privately held, illiquid shares. The company also reported $1.3 million of future manufacturing payment obligations under statements of work and $142,000 of future minimum lease payments.
- The filing’s statements of operations report no revenue for Q2 or the six-month period. Elsewhere, the MD&A describes Wugen supply payments and uses wording about “recognizing” deferred revenue, while the notes identify $696,625 as deferred revenue in current liabilities. The exact revenue treatment is not clearly reconciled in the filing text provided.
Important facts for investors to verify
- Confirm the revenue accounting and reconciliation of Wugen supply activity with the zero revenue shown in the statements of operations and the $696,625 deferred-revenue liability.
- Track use of IPO proceeds against the stated 24-month runway estimate and the company’s expected increase in development and public-company costs.
- Verify actual timing and FDA status of the HCW9218 IND and clinical trial, and progress on HCW9302 toxicology and IND-enabling work.
- Monitor clinical-site agreements, manufacturing commitments, trial enrollment, and any COVID-related delays or cost changes.
- Assess the liquidity and carrying value of the Wugen investment, as well as preferred-stock conversion, dilution, and equity-plan share reservations.