Eloxx Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2018. The filing was signed August 9, 2018. Eloxx is a clinical-stage biopharmaceutical company developing ELX-02 for rare diseases involving premature stop codons; it had no product revenue and no approved products.
Financial performance and position
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 | Comparable 2017 period |
|---|---|---|---|
| Revenue | No product revenue | No product revenue | No product revenue reported |
| Research and development expense | $4.15 million | $8.54 million | $2.60 million and $4.95 million, respectively |
| General and administrative expense | $9.56 million | $12.95 million | $0.58 million and $0.86 million, respectively |
| Total operating expenses | $13.54 million | $22.09 million | $3.18 million and $5.81 million, respectively |
| Net loss | $13.41 million | $22.00 million | $3.88 million and $6.56 million, respectively |
| Basic and diluted net loss per share | $0.42 | $0.74 | $1.04 and $1.77, respectively |
- Cash flow: Six-month operating cash use was $14.21 million, investing cash use was $0.10 million, and financing provided $53.67 million. Cash, cash equivalents and restricted cash ended the period at $63.51 million, including $63.41 million of unrestricted cash and cash equivalents.
- Liquidity and debt: Current assets were $63.97 million and current liabilities $4.36 million. The balance sheet lists no debt at June 30, 2018; the prior convertible loan had converted into preferred stock in 2017. Management expected cash to fund current operations to 2020, but said additional financing would be needed thereafter.
- Equity financing: The April 30 public offering of 5,899,500 shares at $9.75 per share generated approximately $53.6 million net. Common shares issued rose to 34.87 million at June 30. The filing reports 34,857,680 shares outstanding on August 3, 2018.
- Margins: Operating and profit margins are not meaningful because Eloxx had no product revenue and incurred operating losses.
Material changes and unusual items
- Six-month R&D expense increased $3.59 million year over year, mainly from ELX-02 subcontractor, consultant and advisor costs and higher personnel costs.
- Six-month G&A increased $12.09 million. Management attributed the increase principally to a $5.0 million director stock-compensation charge, increased headcount and related costs, and professional services.
- Stock-based compensation totaled $6.91 million for the six months, versus $21,000 in 2017. This non-cash expense partly explains the difference between net loss and operating cash use.
- The company corrected an immaterial prior-period classification error: for the six months, $0.4 million was added to R&D and $0.9 million to G&A, with a corresponding $1.3 million reduction in reverse-merger expenses. The reclassification did not change net loss or cash flows.
- On June 13, 2018, Eloxx issued 569,395 shares to the Technion Research and Development Foundation (TRDF) to settle a previously asserted exit-fee claim; the related $3.4 million expense had been recorded in 2017.
Outlook, development and risks
- ELX-02 was in early clinical development focused on cystic fibrosis and cystinosis. The company reported that its U.S. IND was open and its European CTA had been approved. It expected to initiate Phase 2 studies in both indications in 2018.
- The Phase 1 single-ascending-dose study in 60 healthy volunteers was complete. The multiple-ascending-dose study in 45 volunteers had completed four cohorts, with dosing in the fifth and final cohort expected to begin; completion was anticipated in 2018.
- Eloxx planned to initiate IND-enabling studies for at least one additional library candidate in 2018. These were plans and expectations, not assured outcomes.
- The company expected operating losses and expenses to increase as it advanced ELX-02 and other research programs. Management cautioned that additional capital may be unavailable on acceptable terms and that it could have to delay, reduce or stop development activities.
- Key development risks include failure to demonstrate safety or efficacy, delays or difficulty enrolling patients in rare-disease trials, regulatory setbacks, reliance on third parties, and dependence on ELX-02 as its only clinical-stage candidate. Preclinical testing observed renal toxicity in animals at doses above those expected for clinical trials.
- Other disclosed risks include potential dilution from future financing and equity awards, the impact of the recent reverse merger, patent and licensing risks, and operational exposure to conditions in Israel. The company also reported conditional Israeli Innovation Authority royalty obligations of approximately $2.7 million, including interest, and royalties of 3% to 6% on relevant product revenue.
- No material pending litigation was reported. Management concluded disclosure controls were effective at a reasonable assurance level and reported no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the expected 2018 Phase 2 studies and Phase 1 MAD study proceeded as planned, and the clinical results, safety profile and timing of subsequent milestones.
- Whether the stated cash runway to 2020 remains realistic in light of development spending, operating cash burn and any new financing.
- The drivers, recurrence and cash implications of unusually high stock-based compensation and the corrected expense classification.
- The terms and potential future costs of the TRDF license and Israeli Innovation Authority obligations, including any restrictions on technology transfer.
- Potential dilution from outstanding options, restricted stock units and future capital raises; the filing reported 3.87 million options and 871,064 unvested restricted stock units at June 30, 2018.