X4 Pharmaceuticals, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. The unaudited statements are consolidated. X4 is a clinical-stage biotechnology company developing therapies for rare diseases; it had no product-sale revenue.
Financial results and liquidity
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| License revenue | — | — | $3.0 million | — |
| Research and development expense | $9.3 million | $8.9 million | $18.3 million | $14.5 million |
| General and administrative expense | $5.3 million | $4.6 million | $10.0 million | $9.3 million |
| Net loss | $15.1 million | $13.4 million | $26.3 million | $24.3 million |
| Net loss per share | $0.76 | $1.02 | $1.31 | $3.32 |
| Cash used in operating activities | Not separately stated | Not separately stated | $27.0 million | $26.0 million |
- At June 30, cash and cash equivalents were $103.7 million, down from $126.2 million at December 31, 2019. Restricted cash was $1.9 million. Cash, cash equivalents and restricted cash together were $105.6 million.
- Total assets were $142.5 million; total liabilities were $37.7 million. Long-term debt, including accretion and net of discount, was $25.4 million; principal outstanding was $25.0 million. The debt’s effective annual interest rate was 10.7%.
- There were no product sales, so product gross margin was not applicable. Operating losses reflect the company’s research and development and administrative costs.
Changes versus the prior comparable period
- Six-month operating expenses rose $4.4 million year over year, principally from higher research and development staffing and stock-based compensation. Q2 expenses also increased, while mavorixafor clinical costs were lower than in Q2 2019.
- Six-month license revenue of $3.0 million came from an Abbisko financing milestone received in April 2020; no license revenue was recorded in Q2.
- Net loss increased by $1.8 million for Q2 and $2.0 million for the first half. Higher interest expense and lower interest income contributed to the deterioration; the first half also included a $162,000 debt-extinguishment loss and a $148,000 tax provision.
- Operating cash use was broadly similar year over year. First-half 2019 cash flows included $26.4 million acquired in the Arsanis merger and $79.3 million of net equity-offering proceeds; neither item recurred in first-half 2020.
Outlook, risks and notable items
- Management expects cash and cash equivalents to fund forecast operating expenses, capital expenditures and debt service for at least 12 months from the financial statements’ issuance date. The company expects continued losses, rising expenses and a need for additional capital; there is no assurance funding will be available on acceptable terms.
- COVID-19 disrupted trial-site activation, patient enrollment, trial visits and drug delivery. Management expected top-line Phase 3 WHIM data to be delayed into 2022 and initial SCN trial data into 2021; initial WM data remained expected by year-end 2020. The company reported adequate global mavorixafor supply through 2020, but further disruption remained possible.
- Mavorixafor is in a Phase 3 trial for WHIM syndrome and Phase 1b trials for severe congenital neutropenia and Waldenström’s macroglobulinemia. The company said further development of mavorixafor in renal cancer would require a strategic collaboration. X4P-002 and X4P-003 remained early-stage candidates.
- The March 2020 Hercules loan amendment raised principal debt to $25.0 million, with potential additional advances subject to milestones, conditions and, for one tranche, lender discretion. Interest-only payments run through January 2022; principal payments begin in February 2022, and maturity is July 2023. Covenants, collateral and potential acceleration on specified defaults constrain flexibility.
- The company’s new Allston lease was expected to commence in Q3 2020, with approximately $1.0 million in annual base rent over seven years. It had incurred about $2.9 million in construction costs, with $1.5 million reimbursed, and expected another $2.1 million of construction and improvement costs in the second half. A July 17, 2020 agreement terminated the Cambridge lease effective September 30 for a fee.
- Other notable items: stockholders approved increasing authorized common shares to 125 million; 16,176,154 shares were outstanding at June 30. Management reported effective disclosure controls and no material litigation or off-balance-sheet arrangements.
- Key risks include clinical and regulatory failure or delay, limited rare-disease patient populations, reliance on single-source mavorixafor manufacturers, dependence on CROs and collaborators, intellectual-property and licensing risks, competition, and the possibility that COVID-19 or market disruption limits access to capital.
Important facts for investors to verify
- Whether COVID-related delays, enrollment levels and trial-site availability change the WHIM, SCN or WM data timelines, and whether trial results support further development.
- Whether the stated cash runway remains adequate as operating costs, Allston spending and debt service evolve, and what financing may be required.
- The Hercules facility’s milestone conditions, liquidity covenant triggers, repayment obligations and default provisions.
- Potential dilution: 13.7 million common-stock warrants were outstanding at June 30; weighted-average basic shares included pre-funded warrants. Confirm current share, warrant and equity-plan totals.
- Whether the Abbisko milestone is a one-time revenue item and whether any further development, regulatory or commercial milestones become probable and recognizable.
- The ultimate cost and timing of the Allston move and Cambridge lease termination, alongside continuing COVID-related operating and supply-chain effects.