Eloxx Pharmaceuticals, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Eloxx is a clinical-stage biopharmaceutical company developing read-through therapies for rare genetic diseases. Its lead candidate, ELX-02, is being developed for cystic fibrosis and cystinosis. The December 2017 reverse merger means the statements reflect Private Eloxx as the accounting acquirer; comparisons with 2017 may not be fully like-for-like.
Financial performance and liquidity
| Metric | Q1 2018 | Q1 2017 / prior period |
|---|---|---|
| Product revenue | None | None |
| Research and development expense | $4.013 million | $2.355 million |
| General and administrative expense | $2.480 million | $0.277 million |
| Reverse-merger expenses | $2.055 million | None |
| Total operating expenses | $8.548 million | $2.632 million |
| Net loss | $8.591 million | $2.678 million |
| Net loss per share, basic and diluted | $0.31 | $0.73 |
| Cash used in operating activities | $5.697 million | $2.731 million |
- Cash and cash equivalents were $18.290 million at March 31, 2018, down from $24.049 million at December 31, 2017. Investing cash use was $57,000; there were no financing proceeds in Q1 2018. Cash declined by $5.759 million.
- Total assets were $19.155 million and current liabilities were $5.651 million, including $2.173 million of accounts payable and $3.478 million of accrued expenses. The filing reports no debt on the March 31 balance sheet; the prior convertible loan had converted to preferred stock in 2017.
- No gross margin or operating margin is meaningful because the company had no product revenue. The filing reports losses rather than profit.
Material changes versus the prior comparable period
- Net loss increased by $5.913 million. R&D expense rose $1.658 million, primarily from ELX-02 subcontractor, consultant and advisory costs; G&A rose $2.203 million, mainly personnel, stock compensation and professional services.
- Q1 2018 included $2.055 million of professional fees related to the December 2017 reverse merger, with no corresponding expense in Q1 2017.
- Operating cash use increased by $2.966 million. Q1 2017 included $2.460 million of financing proceeds from a convertible loan and related instrument; Q1 2018 had no financing cash inflow.
- Loss per share was lower despite the larger total loss, reflecting a much higher weighted-average share count in 2018 after the merger and recapitalization.
Outlook, management commentary and risks
- Management expected cash on hand at March 31 to fund current operations to 2020. Subsequent to quarter-end, the April 30 public offering of 5,899,500 shares generated approximately $53.4 million in net proceeds. The filing does not provide a revised runway estimate after the offering.
- Management planned to submit a cystic-fibrosis clinical trial application in May 2018 and a cystinosis IND shortly thereafter, with Phase 2 studies targeted for 2018 subject to regulatory authorization. The Phase 1 single-ascending-dose study in 60 healthy volunteers was complete; the multiple-ascending-dose study was ongoing, with the third cohort dosing and completion anticipated in 2018.
- The company expects continued significant expenses and operating losses, with spending potentially increasing as ELX-02 and other candidates advance. It has no approved products and has never generated product-sales revenue.
- Material development risks include clinical efficacy and safety uncertainty, trial delays or recruitment challenges in small patient populations, regulatory approval risk, and dependence on third parties. The filing notes renal toxicity in preclinical animals at doses above those expected in clinical trials.
- TRDF has asserted an entitlement to an exit fee under the license agreement. The parties were discussing a settlement involving a planned issuance of 569,395 shares; the company had recorded a $3.4 million expense in 2017. The license also includes milestone payments of up to $6.1 million and royalties and sublicense-income sharing. Separately, Israeli Innovation Authority grants carry contingent royalty and technology-transfer obligations; the filing cites approximately $2.7 million in royalty obligations, including interest.
- Management reported disclosure controls effective at a reasonable assurance level and no material change in internal control over financial reporting during the quarter. The filing states there were no material pending legal proceedings, while describing the TRDF claim above.
Important facts for investors to verify
- Whether the planned CTA and IND submissions, regulatory clearances and 2018 Phase 2 timetable were achieved, and what subsequent clinical data showed.
- How the April 2018 offering proceeds changed the cash runway, and the dilution from the offering and the 5 million additional shares authorized under the 2018 Equity Incentive Plan.
- The status and final terms of the TRDF exit-fee claim, including whether the proposed share issuance occurred, and the continuing license and IIA obligations.
- Clinical safety findings, especially renal toxicity, and whether patient enrollment and third-party execution could affect development timelines.
- The effect of the reverse merger on comparability of historical results and share-count-based metrics.