HCW Biologics Inc. — Q2 2022 Form 10-Q
Period: Quarter and six months ended June 30, 2022. Financial statements are unaudited. HCW Biologics is a clinical-stage immunotherapy company developing treatments targeting inflammation and age-related diseases; it has no approved products and no commercial product sales.
Financial performance and position
| Metric | Three months ended June 30, 2022 | Six months ended June 30, 2022 |
|---|---|---|
| Revenue | $454,000 | $3.57 million |
| Cost of revenue | $287,200 | $1.62 million |
| Net revenue after cost of revenue | $166,800 | $1.96 million |
| Research and development expense | $1.97 million | $3.76 million |
| General and administrative expense | $1.71 million | $3.59 million |
| Operating loss | $3.51 million | $5.39 million |
| Net loss | $3.51 million | $5.57 million |
| Basic and diluted net loss per share | $0.10 | $0.16 |
Revenue was generated under the Wugen materials-supply arrangement, not from commercial product sales. The company recognized revenue for transactions covered by statements of work finalized in March 2022.
- Cash flow: Operating cash use was $4.28 million in the first half, compared with $2.48 million in the prior-year period. Investing activities provided $7.96 million, mainly from maturities of short-term investments. Financing provided $8,273. Cash and cash equivalents increased $3.69 million to $15.42 million.
- Liquidity and assets: At June 30, cash and cash equivalents were $15.42 million, short-term U.S. government-backed securities were $16.99 million, and long-term Treasury notes were $9.70 million. Current assets were $34.63 million; current liabilities were $1.14 million. Total assets were $47.41 million and stockholders’ equity was $46.17 million.
- Debt and commitments: The filing reports no conventional borrowings at June 30. Operating lease liabilities totaled $269,134. Future manufacturing-related payment obligations were $4.1 million.
Changes versus comparable periods
- Q2 revenue rose from zero in 2021 to $454,000 in 2022; first-half revenue rose from zero to $3.57 million, following the Wugen statements of work. Deferred revenue declined from $1.8 million at December 31, 2021 to $314,625 at June 30, 2022.
- Q2 operating expenses increased 34% to $3.68 million, with R&D up 18% and G&A up 58%. G&A growth included higher public-company insurance costs and stock-based compensation.
- First-half operating expenses increased 19% to $7.35 million. R&D decreased 6%, primarily due to lower manufacturing and materials costs, while G&A rose 66%, primarily reflecting public-company insurance and compensation costs.
- First-half net loss was broadly similar year over year ($5.57 million versus $5.59 million), but prior-year interest and other income included a $567,311 PPP loan-forgiveness gain; 2022 included a $209,337 unrealized investment loss.
Outlook, developments and risks
- Management expects continued operating losses and higher R&D and clinical spending. It estimated available capital would fund operations and the new headquarters buildout through the end of 2023; it cautioned that assumptions may prove incorrect and additional capital may be needed.
- HCW9218 entered clinical testing in the first half of 2022 in an investigator-sponsored Phase 1 solid-tumor study. The company planned to begin a company-sponsored Phase 1b pancreatic-cancer study in Q3 2022; clinical-site staffing delays related to COVID-19 had delayed its start.
- HCW9302 remained in IND-enabling development. COVID-related delays pushed expected completion of required toxicology studies to the first half of 2023; the company planned an IND submission and Phase 1b/2 study in that timeframe, subject to progress and no further delays.
- Management cited potential clinical and regulatory delays, patient enrollment, manufacturing, financing, and headquarters construction costs as uncertainties. It also noted that the incidence of mucosal bleeding associated with HCW9218’s TGF-β trap would be assessed in clinical studies.
- After quarter-end, the company reported receiving a U.S. patent covering technology underlying HCW9302. It also committed to purchase a Miramar headquarters building for approximately $10 million and received a commitment for a five-year financing facility. The initial facility draw was expected to equal 65% of the purchase price, at a fixed 5.75% rate, subject to closing; additional funding for improvements would require further lender approval.
- The company reported no material legal proceedings and no material changes to previously disclosed risk factors. Management concluded disclosure controls were effective as of June 30, 2022.
Investor facts to verify
- Whether the headquarters purchase closed and the facility was funded on the stated terms, and the resulting debt, interest, and construction costs.
- Whether Wugen supply revenue is repeatable and when remaining deferred revenue will be recognized or collected.
- Actual enrollment, safety findings, and timing for HCW9218’s trials, including the planned pancreatic-cancer study.
- HCW9302 toxicology and IND timing, and whether COVID-related delays or other development setbacks affect the schedule.
- Cash burn, manufacturing commitments, and whether available liquidity remains sufficient to fund operations through the company’s stated end-of-2023 estimate.