HCW Biologics Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; filed November 14, 2023. HCW Biologics is a clinical-stage biopharmaceutical company developing immunotherapies for age-related diseases. It has no approved products or commercial product sales. Reported revenue to date has come from its Wugen license and materials-supply arrangements; 2023-period revenue was from Wugen materials supply.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $853,102 | $1.81 million | $1.52 million | $5.38 million |
| Net revenue after cost of revenue | $174,777 | $361,805 | $307,715 | $2.32 million |
| Research and development | $1.67 million | $2.65 million | $5.54 million | $6.41 million |
| General and administrative | $3.59 million | $1.73 million | $9.72 million | $5.32 million |
| Net loss | $4.94 million | $3.91 million | $14.31 million | $9.48 million |
| Basic and diluted loss per share | $0.14 | $0.11 | $0.40 | $0.26 |
Net revenue as a share of revenue was approximately 20% in Q3 2023 and 20% for the first nine months of 2023, versus approximately 20% and 43%, respectively, in the comparable 2022 periods. The filing does not present these as labeled gross margins.
- Cash and liquidity: Cash and cash equivalents were $11.22 million at September 30, 2023, down from $22.33 million at year-end 2022. Short-term investments were nil, compared with $9.74 million at year-end. Current assets were $13.85 million and current liabilities $5.42 million. A separate $5.25 million interest reserve is classified as a noncurrent asset and is not ordinary available cash.
- Cash flow: Operating activities used $18.62 million in the first nine months, including the $5.25 million funding of the interest reserve. Investing activities provided $7.51 million, primarily from investment maturities, and financing activities provided $716. Cash declined by $11.11 million.
- Debt: The Cogent loan had approximately $6.45 million outstanding at September 30 (including $117,680 current and $6.33 million noncurrent), at a 5.75% fixed rate. The company reported covenant compliance. The separate Prime development line had no borrowings at quarter-end.
- Balance sheet: Total assets were $35.62 million, total liabilities $11.75 million, and stockholders’ equity $23.87 million. Property, plant and equipment, net, was $14.78 million.
Changes versus comparable periods
- Nine-month revenue fell 72%, which management attributed to changes and delays in Wugen’s clinical development and manufacturing ramp-up, and to revenue-recognition criteria not being met for some transactions. Q3 revenue declined 53% year over year.
- Nine-month operating expenses rose 30% to $15.26 million, driven by G&A growth that more than offset lower R&D. G&A increased 83%, primarily because of legal fees related to the Altor/NantCell dispute; R&D decreased 14% as manufacturing and preclinical costs declined while clinical-trial costs increased.
- Nine-month net loss increased by $4.83 million year over year. Operating cash use increased from $6.60 million to $18.62 million, including the interest-reserve deposit and operating losses.
Outlook, developments and risks
- Management said September 30 cash and short-term investments were expected to fund operations for at least 12 months, while noting that estimates depend on assumptions and additional capital may be needed. The company intends to seek debt or equity financing and business-development transactions; inadequate financing could require delaying product development.
- The company expected to begin drawing on the Prime line in November 2023, with up to $26.3 million available and draws anticipated over roughly ten months. Proceeds are primarily for the headquarters, laboratories, vivarium and manufacturing-facility buildout, and repayment of the Cogent loan. The line bears 7% interest and matures in April 2028. Construction delays, cost overruns and financing terms remain relevant risks.
- HCW9218’s solid-tumor Phase 1 study included 15 heavily pretreated patients as of October 16, 2023. Of eight patients with post-treatment assessments, four had stable disease; the filing reports one dose-limiting toxicity that did not trigger stopping rules. These are early, small-sample findings, not established efficacy. The company reported immune-cell activity and reduced TGF-β, and said repeated dosing was tolerated through the planned highest dose.
- The pancreatic-cancer HCW9218 study had completed three dose-escalation cohorts and begun a fourth, with no dose-limiting toxicity reported to date. Management expected completion of the Phase 1b portion in late 2023 or early 2024 and a data readout in the first half of 2024.
- HCW9302 remained in IND-enabling studies; the company intended to submit an IND for an autoimmune indication in Q4 2023. R&D costs are expected to increase as development continues.
- Altor/NantCell claims against the company and its CEO are proceeding in JAMS arbitration. The company said a possible loss or range of loss could not be reasonably estimated and recorded no loss accrual; it had accrued legal expenses. Management expected material defense costs to continue into 2024.
- Management cited inflation, rising interest rates, supply-chain disruption and geopolitical uncertainty as risks to clinical work, the headquarters buildout, costs and financial condition. It reported disclosure controls as effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Wugen’s development and manufacturing plans recover, and how that affects supply revenue and the company’s reliance on a single revenue source.
- Actual timing, amounts, interest costs and conditions of Prime line drawdowns, including the buildout budget and repayment of the Cogent loan. The filing describes debt-issuance costs as $1.8 million in one note and a $1.3 million lender fee in MD&A; reconcile the amounts.
- Cash runway under updated operating plans, distinguishing unrestricted cash from the $5.25 million interest reserve, and accounting for ongoing clinical, legal and facility spending.
- Trial enrollment, safety, follow-up and outcome data for HCW9218, and the status and timing of the HCW9302 IND submission.
- Developments in the Altor/NantCell arbitration, potential exposure and continued legal expenses; the filing does not quantify a possible loss.