Eloxx Pharmaceuticals, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. The company is a clinical-stage biopharmaceutical developer with no approved products and no product revenue.
Business context and development
Lead candidate ELX-02 is being developed for premature stop codon diseases, particularly cystic fibrosis and cystinosis. Management expected to complete the multiple ascending dose study in the first half of 2019 and report Phase 2 top-line results in the second half of 2019. The company also began preclinical work on intravitreal ERSG candidates for inherited retinal disorders, with a focus on Usher syndrome.
Financial performance and liquidity
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $6.0 million | $4.4 million |
| General and administrative expense | $6.0 million | $3.4 million |
| Total operating expenses | $12.0 million | $8.5 million |
| Net loss | $11.9 million | $8.6 million |
| Basic and diluted loss per share | $0.33 | $0.31 |
| Cash used in operating activities | $9.2 million | $5.7 million |
At March 31, 2019, cash and cash equivalents were $44.6 million and marketable securities were $8.9 million, totaling approximately $53.5 million. Management said these resources were expected to fund planned operations into the second quarter of 2020 and support reaching anticipated 2019 Phase 2 data. Accumulated deficit was $98.1 million. As a pre-revenue company, profit and operating margins are not meaningful.
Cash declined $4.0 million during the quarter. Financing cash flow was $5.2 million, including $15.0 million of term-loan proceeds, partly offset by $8.9 million used to buy marketable securities and $1.1 million of taxes paid upon restricted-stock vesting. Investing cash outflow was $19,000.
The company received a $15 million initial term-loan advance under a facility of up to $25 million. The additional $10 million advance is conditional on clinical milestones and at least $75 million of proceeds from an additional equity offering. The loan bears floating interest (8% at March 31, 2019); principal payments were scheduled to begin in February 2020, potentially deferred to February 2021 if specified conditions are met. The loan is secured by substantially all assets other than intellectual property. The balance sheet reports $984,000 of current debt and $13.4 million of long-term debt; stated principal outstanding was $15 million.
Changes versus prior period
- Net loss increased 39% year over year, while total operating expenses rose 40%.
- R&D expense increased 37%, primarily from clinical/research subcontractors and higher personnel costs.
- G&A expense increased 76%, primarily reflecting increased headcount, compensation and stock-based compensation. Stock-based compensation rose to $2.7 million from $735,000.
- Q1 2018 included $761,000 of reverse-merger expenses; none were reported in Q1 2019.
- Operating cash use increased to $9.2 million from $5.7 million. The company added debt financing and marketable securities during Q1 2019.
Outlook, risks and unusual items
- Management anticipated continued losses and cash use, with no significant revenue expected before product approval and commercialization. Additional financing may be needed; unavailable financing could require spending reductions or delays.
- Clinical outcomes, trial enrollment and timing, regulatory approval, and ELX-02 safety are major uncertainties. The filing notes renal toxicities in animal testing at doses above those expected in clinical trials.
- The company relies on ELX-02 as its only candidate in clinical development. It cautions that positive preclinical results may not predict human outcomes.
- Potential dilution and financing constraints remain relevant. The company reported approximately $47 million available under its equity sales agreement at March 31, 2019.
- Israeli operations expose the company to geopolitical, personnel, currency and IIA-grant conditions. IIA-related contingent royalty obligations, including interest, were approximately $2.7 million.
- No material pending legal proceedings or material off-balance-sheet arrangements were reported. Management stated disclosure controls were effective and reported no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Progress and results of the ELX-02 MAD and Phase 2 programs, including whether the stated 2019 timelines were achieved.
- Actual cash burn and runway relative to management’s estimate through Q2 2020, including the effect of trial expansion and other programs.
- Debt repayment schedule, interest burden, collateral provisions and conditions for accessing the additional $10 million.
- Clinical safety findings, particularly renal safety, and whether patient enrollment or regulatory requirements affect development plans.
- Future financing needs, potential dilution, and the accuracy of the reported equity-sales capacity and IIA-related obligations.