Xenetic Biosciences, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. The unaudited filing was signed November 14, 2019. Xenetic is a development-stage biopharmaceutical company focused primarily on its newly acquired personalized CAR T-cell XCART platform. It reported no revenue for the periods presented.
Financial highlights
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $3.52 million | $0.74 million | $4.47 million | $2.37 million |
| General and administrative expense | $2.14 million | $1.08 million | $3.90 million | $3.27 million |
| Goodwill impairment | $3.28 million | — | $3.28 million | — |
| Net loss | $8.90 million | $1.81 million | $11.60 million | $5.66 million |
| Net loss applicable to common stockholders | $10.31 million | $1.81 million | $16.89 million | $5.66 million |
| Basic and diluted loss per share | $2.67 | $2.31 | $9.07 | $7.58 |
| Operating cash flow | Not provided by quarter | Not provided by quarter | $(4.72) million | $(5.42) million |
At September 30, 2019, cash was $12.04 million, current assets were $12.92 million, current liabilities were $1.70 million, and working capital was approximately $11.2 million. Total assets were $22.88 million and total liabilities were $4.62 million, including a $2.92 million deferred tax liability. The filing does not report borrowings or interest-bearing debt on the balance sheet. There were no material revenue or profit margins to assess.
For the nine months, investing cash flow was $2,000 and financing cash flow was $16.13 million, primarily from the March registered direct offering and July public offering. Cash and restricted cash increased by $11.41 million to $12.04 million; restricted cash was zero at period-end.
Material changes and notable items
- Net loss widened year over year, primarily reflecting $3.03 million of XCART in-process research and development expense, $1.1 million of related transaction costs, and a $3.28 million goodwill impairment. Excluding the acquisition-related R&D and transaction costs, management said Q3 R&D and G&A were lower than the prior-year quarter.
- The company completed the XCART technology acquisition on July 19, issuing shares valued at approximately $3.0 million and incurring approximately $1.1 million of transaction costs. It accounted for the transaction as an asset acquisition and expensed the acquired IPR&D because it had no alternative future use.
- The company recorded a $3.28 million impairment, writing off all goodwill, after a significant share-price decline reduced market capitalization below the carrying value of the reporting unit. The separate $9.24 million OncoHist indefinite-lived intangible asset was not impaired in the nine months ended September 30.
- Net proceeds were approximately $13.4 million from the July offering and $2.7 million from the March offering. The offerings and warrant exercises increased common shares and created dilution exposure; the Series B preferred-stock down-round provisions generated a $5.28 million deemed dividend for the nine months, increasing loss attributable to common stockholders but not net loss.
- Common shares outstanding were 5,633,490 at September 30 and 5,755,141 as of November 8, 2019. The company effected a 1-for-12 reverse stock split in June 2019; reported per-share figures reflect the split.
Outlook, risks, and contingencies
- Management expects continued operating losses and states that these conditions raise substantial doubt about the company’s ability to continue as a going concern. It believes 2019 financing proceeds and existing resources are adequate for operations, but anticipates possible additional capital needs over the longer term. No quantified earnings, revenue, or cash-use guidance is provided.
- XCART is an early-stage, personalized CAR T-cell platform initially aimed at B-cell lymphomas. The company expects to focus on advancing XCART, but development, clinical, regulatory, commercialization, and collaborator outcomes remain uncertain.
- Enrollment in the Phase II XBIO-101 trial closed in March 2019 because of enrollment and retention challenges, and further development was suspended. The filing reports no regulatory marketing authorization for its drug candidates.
- Funding needs, ability to raise capital, acquisition integration, obtaining an academic collaborator for XCART, product development and regulatory risks, and reliance on equity or other external funding are key risks. More than 90% of historical milestone and sublicense revenue came from one collaborator, Takeda.
- A $350,000 sponsored-research advance to related party Pharmsynthez was made in Q3; $310,000 remained recorded as prepaid at quarter-end. Subsequent to quarter-end, the company agreed to advance Pharmsynthez up to $500,000 under a 15-month, 10% loan. The company also agreed to repay an approximately $225,000 loan entered into by a Hesperix director in connection with the acquisition.
- The filing reports no material legal proceedings, no material changes to previously disclosed risk factors, and no material changes in contractual obligations. Management concluded disclosure controls were effective at a reasonable-assurance level and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether the $12.04 million quarter-end cash balance and subsequent cash use support operations for management’s stated going-concern horizon.
- XCART development milestones, collaborator arrangements, clinical plans, and expected funding requirements; the filing gives no quantified timetable or guidance.
- The status and carrying value of the $9.24 million OncoHist intangible asset and the basis for future impairment assessments.
- Potential dilution from outstanding preferred stock, warrants, and future equity financing, including the effects of preferred-stock conversion terms.
- Terms and repayment prospects of the related-party Pharmsynthez loan and the approximately $225,000 loan repayment obligation.