Eloxx Pharmaceuticals, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019. The company is a clinical-stage biopharmaceutical developer; it has no approved products and has not generated product or service revenue.
Financial performance and liquidity
- Revenue and margins: No revenue was reported. Profit margins are not meaningful for this pre-revenue company.
- Q3 results: Research and development (R&D) expense was $6.8 million, up 26% year over year; general and administrative (G&A) expense was $6.0 million, up 1%. Operating loss was $12.8 million and net loss was $12.9 million, compared with $11.4 million and $11.2 million, respectively, in Q3 2018. Basic and diluted loss per share was $0.32, unchanged year over year.
- Nine-month results: R&D expense was $20.2 million, up 44%; G&A expense was $18.9 million, essentially unchanged. Net loss was $39.2 million versus $33.2 million in 2018; loss per share was $1.05 in both periods.
- Cash and liquidity: Cash, cash equivalents and marketable securities totaled $64.9 million at September 30, 2019, versus cash and restricted cash of $48.7 million at December 31, 2018. Current assets were $66.9 million and current liabilities were $11.2 million.
- Cash flow: Operating activities used $30.1 million in the first nine months, compared with $22.3 million in 2018. Investing activities used $42.6 million, primarily reflecting purchases of marketable securities, partly offset by maturities; financing activities provided $46.3 million, including public-offering proceeds and debt.
- Debt: The company had $15.0 million principal outstanding under its term loan, with a $13.8 million carrying value. The September 30 rate was 7.65%; the stated effective rate was 12.65%. A further $10.0 million advance was available subject to clinical milestones and at least $75.0 million in qualifying additional equity proceeds.
Material changes and business developments
- ELX-02 advanced into Phase 2 studies for cystic fibrosis (CF) and nephropathic cystinosis. The company also completed a renal impairment study.
- R&D costs rose with clinical-trial and research activity, subcontractor and consultant fees, and increased headcount and related compensation.
- The company raised approximately $32.2 million net in a June 2019 public offering. Shares outstanding were 39,977,654 at quarter-end; 40,002,654 were outstanding on November 1, 2019.
- Adoption of lease accounting standards resulted in recognition of operating lease right-of-use assets and liabilities.
Outlook, commentary and risks
- Management estimated that available cash and marketable securities would fund anticipated needs into the first quarter of 2021, including operations through top-line Phase 2 data in CF and cystinosis. The company expects ongoing losses and will need additional capital; reduced or deferred spending may be necessary if financing is unavailable.
- Management expected CF top-line data in the first half of 2020, revising the timing to align with site openings and patient dosing. It anticipated full CF enrollment in the first quarter of 2020 and U.S. trial enrollment beginning in Q4 2019.
- For cystinosis, the first two dose levels in the first Phase 2 cohort were complete and the next dose was underway. Management reported preliminary tolerability and a statistically significant reduction in white blood cell cystine at the second, 1.0 mg/kg dose level; it planned to report top-line data later in 2019. These are preliminary findings, not proof of efficacy.
- The Cystic Fibrosis Foundation was funding part of the U.S. CF trial; $0.4 million of milestone-related advances was recorded as a liability. The FDA and company had aligned on manufacturing formulation and process in an October 2019 CMC review, according to management.
- Key risks include clinical efficacy and safety uncertainty, slow enrollment in rare-disease trials, regulatory and manufacturing delays, reliance on third parties, and the need for future financing. The filing notes renal toxicities in preclinical animals at doses above those expected in clinical trials. ELX-02 remains investigational and unapproved.
- The company reported no material pending legal proceedings and stated that disclosure controls were effective, with no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Progress, enrollment, safety findings and timing of top-line results for the CF and cystinosis Phase 2 trials.
- Whether the reported preliminary cystinosis biomarker change is sustained and supported by further data.
- Actual cash burn and runway relative to management’s first-quarter 2021 estimate, and the availability and terms of additional financing.
- Whether the conditional $10.0 million loan advance requirements are met, and the effects of debt service and potential equity dilution.
- Clinical relevance of preclinical renal toxicity, and the regulatory and manufacturing requirements for advancing ELX-02.