Xenetic Biosciences, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The company is a clinical-stage biopharmaceutical company focused primarily on developing its DNase oncology platform; it also has XCART CAR-T and PolyXen technologies. Its only reported revenue was royalties from Takeda under a PolyXen license.
Financial results
| Metric | Three months ended Sep. 30, 2023 | Three months ended Sep. 30, 2022 | Nine months ended Sep. 30, 2023 | Nine months ended Sep. 30, 2022 |
|---|---|---|---|---|
| Royalty revenue | $611,174 | $414,250 | $1,868,023 | $1,219,953 |
| Research and development expense | $1,020,618 | $398,803 | $2,519,137 | $3,577,701 |
| General and administrative expense | $737,241 | $863,233 | $2,608,934 | $2,796,832 |
| Operating loss | $1,146,685 | $847,786 | $3,260,048 | $5,154,580 |
| Net loss | $1,055,555 | $804,017 | $2,963,072 | $5,069,818 |
| Net loss per share, basic and diluted | $0.69 | $0.56 | $1.94 | $3.64 |
Revenue increased 47.5% in the quarter and 53.1% year to date, driven by higher Takeda royalties. Quarterly R&D increased 155.9%, mainly because of greater outside-services and contract research spending on DNase preclinical development. Nine-month R&D declined 29.6% year over year because 2022 included $1.305 million of one-time in-process R&D expense; excluding that expense, 2023 R&D was up about 10.8%. Nine-month G&A declined 6.7%. Higher interest income helped offset operating losses. The filing does not separately report gross margin.
Balance sheet, liquidity and cash flow
- At September 30, 2023, cash was $9.8 million, current assets were $11.3 million, current liabilities were $1.1 million, and total assets were $12.0 million. Stockholders’ equity was $10.9 million; the company reported no debt.
- Cash declined $3.3 million from $13.1 million at December 31, 2022. Working capital was $10.2 million, down from $12.6 million.
- Cash used in operating activities was $3.3 million for the first nine months of 2023, versus $3.9 million in 2022. There were no investing or financing cash flows in 2023. The 2022 investing outflow was $500,000 for the DNase license.
- Management says existing resources are expected to fund operations for at least 12 months from issuance of the financial statements, but also states that recurring losses raise substantial doubt about the company’s ability to continue as a going concern and that it may need additional long-term capital.
Material developments, outlook and risks
- The company is directing most resources to systemic DNase development for pancreatic carcinoma and locally advanced or metastatic solid tumors. It suspended development of XCART while prioritizing DNase. No candidate has received marketing approval.
- Management provided no specific revenue, earnings, or clinical-development guidance. It expects to continue operating at a loss and may seek equity, debt, collaboration, or other financing; availability and terms are uncertain.
- The Catalent manufacturing project is estimated to cost up to approximately $5 million, excluding certain fees and potential alternatives. Approximately $2.4 million had been paid through September 30, 2023; $0.9 million was recorded as a prepaid asset. The agreement is terminable on 30 days’ notice.
- Under a Scripps Research agreement, the company committed up to $938,000 for preclinical research; approximately $0.5 million had been paid, including $0.3 million recorded as prepaid.
- The Pharmsynthez loan was repaid in full in May 2023; no balance remained at September 30. Related interest and fees contributed to 2023 other income.
- A 1-for-10 reverse stock split took effect May 15, 2023. Nasdaq confirmed the company regained compliance with its minimum bid-price requirement on May 30, though the filing warns that continued listing compliance is not assured and the split may reduce share liquidity. On October 24, 2023, all Series A Preferred Stock converted into approximately 8,000 common shares.
- Principal risks include development and clinical-trial uncertainty, financing needs, dependence on collaborators and manufacturers, potential Nasdaq listing issues, competition, and economic or geopolitical disruptions. The company reported no material legal proceedings and no material changes to previously disclosed risk factors other than reverse-split-related risks.
Investor verification points
- Confirm cash runway assumptions and the timing and potential dilution of any future financing, given the going-concern disclosure and ongoing cash burn.
- Track DNase preclinical milestones, clinical-entry plans, and spending under the Catalent and Scripps agreements; assess the implications of pausing XCART.
- Verify the sustainability and timing of Takeda royalty receipts, which are the company’s sole reported revenue source.
- Monitor Nasdaq listing compliance and post-reverse-split share liquidity, as well as the effects of the Series A Preferred Stock conversion.