XBiotech Inc. — Q3 2018 Form 10-Q
Business context and period. XBiotech is a pre-commercial biopharmaceutical company developing naturally occurring “True Human” monoclonal antibodies, including bermekimab. This unaudited report covers the quarter and nine months ended September 30, 2018; comparisons are to the corresponding 2017 periods unless otherwise noted. The company reported no product revenue and has never been profitable.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $3.94M | $4.93M | $10.88M | $20.52M |
| General and administrative expense | $1.18M | $1.66M | $4.00M | $6.04M |
| Operating loss | $(5.12)M | $(6.59)M | $(14.89)M | $(26.55)M |
| Net loss | $(5.05)M | $(6.21)M | $(15.03)M | $(25.90)M |
| Basic and diluted loss per share | $(0.14) | $(0.18) | $(0.42) | $(0.72) |
Margins are not meaningful because the company had no revenue. Nine-month operating cash use was $11.42M, versus $26.84M in 2017; investing cash use was $0.11M versus $1.15M. Financing provided $0.20M in 2018, compared with $33.32M in 2017, which included equity financing. Cash declined $10.92M during the first nine months of 2018.
At September 30, 2018, cash and cash equivalents were $20.85M, current assets $21.31M, total assets $49.24M, and total liabilities $2.31M. Liabilities consisted mainly of accounts payable and accrued expenses; the filing reports no borrowing or debt balance. Accumulated deficit was $231.59M. Outstanding common shares were 35,819,772 as of October 31, 2018.
Changes and operating developments
- Net loss narrowed year over year in both the quarter and nine-month period, principally alongside lower R&D and G&A expenses. Nine-month R&D declined 47%, mainly due to lower clinical-trial and sponsored-research costs after completion of a global trial in 2017, reduced staffing, and lower manufacturing supplies. G&A declined 34%, including lower stock-based compensation and professional fees.
- Q3 R&D expense declined 20%; management attributed the change chiefly to lower trial costs and a smaller R&D workforce, partly offset by increased supplies and equipment amortization. Management also noted a slight increase in clinical development costs as two Phase 2 dermatology studies progressed.
- Q3 foreign exchange loss was $0.04M versus a $0.27M gain in 2017; the nine-month foreign exchange loss was $0.41M versus a $0.37M gain. These movements partly offset lower operating losses.
- Management reported positive interim findings in the first, nine-patient low-dose cohort of the Phase 2 atopic dermatitis study, including tolerability and statistically significant improvement on several efficacy endpoints. Enrollment reached 37 patients; full study results were expected around year-end 2018 or early 2019.
- The company completed U.S. recruitment for its Phase 2 hidradenitis suppurativa study and expected a results readout in Q1 2019. A pancreatic cancer study combining bermekimab with chemotherapy was underway, with enrollment expected to complete around year-end 2018.
- The company continued campus consolidation and manufacturing development, including pre-filled bermekimab syringes used in two trials. It expected R&D activity in a new animal-research annex to begin in Q1 2019.
Outlook, risks, and contingencies
There is no quantitative revenue or earnings guidance. Management expects substantial operating losses for the foreseeable future and says profitability depends on successful development, regulatory approval, and commercialization. It estimated that September 30 cash would fund operating expenses and capital needs through 2019, while cautioning that assumptions could be wrong and funds could be used sooner. The company stated it would need additional financing, collaboration receipts, or product revenue to support future plans; it had no product revenue to date.
Key uncertainties include clinical and regulatory outcomes, patient recruitment, commercialization and manufacturing capability, intellectual-property protection, competition, and financing needs. Management described potential markets and clinical opportunities—including prophylactic uses of bermekimab and 514G3—as prospects, not established outcomes. No material changes to the prior annual report’s risk factors were reported.
On October 23, 2018, a Texas state court issued a letter ruling granting the company’s motion to dismiss a securities class action; a formal order was to follow. The two previously filed federal cases had also been dismissed. The filing stated no litigation remained. The company reported effective disclosure controls and no material change in internal control over financial reporting during the period described.
Important facts for investors to verify
- Whether the full Phase 2 atopic dermatitis and hidradenitis suppurativa results support advancement to pivotal studies, and whether timelines were met.
- Whether cash burn, clinical spending, and financing needs remain consistent with management’s stated funding runway through 2019.
- Regulatory and clinical status of bermekimab and other candidates; interim or company-reported findings are not approval or proof of commercial efficacy.
- Whether the state court’s formal dismissal order was entered and whether any further litigation arose.
- The expected balance-sheet effect of adopting the new lease accounting standard in 2019; the company was still evaluating the impact.