Eloxx Pharmaceuticals, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial statements are unaudited. Eloxx is a clinical-stage biopharmaceutical company developing ELX-02 and other RNA-modulating candidates for rare diseases; it had no product revenue.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $4.5 million | $6.0 million; down 24% |
| General and administrative expense | $5.2 million | $6.0 million; down 12% |
| Restructuring expense | $4.0 million | None |
| Total operating expenses | $13.8 million | $12.0 million; up 15% |
| Net loss | $13.9 million | $11.9 million |
| Net loss per share, basic and diluted | $0.35 | $0.33 |
| Net cash used in operating activities | $11.9 million | $9.2 million |
| Cash, cash equivalents and marketable securities | $44.0 million | $56.3 million at December 31, 2019 |
| Total debt carrying value | $13.3 million | $14.8 million at December 31, 2019 |
With no revenue, profit and operating margins are not meaningful. Cash and cash equivalents were $25.9 million, marketable securities $18.1 million, and total current liabilities $11.1 million at quarter-end. Accumulated deficit was $151.0 million. Debt principal outstanding was approximately $14.2 million; the SVB loan carries a 5.75% stated rate at March 31, 2020, with an effective rate of 10.86%. Scheduled principal payments begin in 2020, and the loan matures January 2023.
Material changes and unusual items
- Net loss increased by $2.0 million year over year, primarily reflecting $4.0 million in restructuring charges, partly offset by lower R&D and G&A spending. The restructuring included $2.1 million of non-cash accelerated stock compensation and $1.9 million in employee separation and contract termination costs.
- Operating cash use increased by $2.7 million year over year. Investing activities provided $15.8 million, mainly from maturities of marketable securities; this is a portfolio conversion, not operating cash generation.
- On February 24, 2020, the company approved an organizational realignment and eliminated 13 full-time positions. Management estimated annual cost savings of approximately $4.9 million, including approximately $2.4 million in fiscal 2020 net of severance costs.
- At March 31, cash, cash equivalents and marketable securities were down from $56.3 million at year-end 2019. Management said the $44.0 million balance was expected to fund current and planned operations for at least 12 months from the report’s issuance and to reach top-line Phase 2 cystic fibrosis data.
Outlook, risks and contingencies
- On March 25, enrollment in ELX-02 Phase 2 cystic fibrosis trials was temporarily paused because of COVID-19. The company planned to resume and complete enrollment and report top-line results as feasible, but gave no firm timing. Trial-site access, CRO operations, patient safety, and regulatory agency disruption could cause further delays or costs.
- The company reported positive biological activity and acceptable safety results in the first cohort of its Phase 2 nephropathic cystinosis study, but discontinued the study and did not proceed with the planned second cohort because elevated, uncontrolled baseline white blood cell cystine made treatment effects difficult to assess. It was evaluating whether to redesign a future study.
- Management expects continued operating losses and cash use and may seek additional capital through debt, equity, collaborations, or other sources. Additional financing may dilute shareholders or may not be available on acceptable terms. If financing is unavailable, spending reductions could adversely affect operations and prospects.
- On April 21, 2020, after quarter-end, Eloxx entered into and received a $0.8 million PPP loan. It bears 1% interest, matures April 21, 2022, and may be partially forgivable subject to employee-retention, eligible-use, and other SBA requirements.
- The company disclosed no material pending legal proceedings. It has a contingent obligation of approximately $2.7 million, including accrued interest, to repay Israeli Innovation Authority grants through royalties on qualifying future revenue; transfer of certain grant-supported technology may require approval and could trigger additional payments.
- Principal business risks include clinical failure or delay, COVID-19 disruption, dependence on ELX-02, limited patient populations, regulatory and manufacturing hurdles, competition, intellectual-property challenges, and the need for future financing. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Current status, enrollment pace, and expected timing of top-line data for the paused cystic fibrosis Phase 2 trials.
- Whether management’s runway estimate remains valid after trial delays, restructuring savings, and the subsequent PPP loan.
- Terms and repayment schedule of the SVB/WestRiver debt, including the final payment fee and collateral provisions.
- Whether a redesigned cystinosis study will proceed and what evidence supports advancement of ELX-02 or other pipeline programs.
- Actual realization of projected restructuring savings, and any subsequent financing, share dilution, or material changes to cash burn.
- Eligibility for PPP loan forgiveness and the status of the contingent Israeli Innovation Authority royalty obligations.