Business Context and Reporting Period
Connect Biopharma Holdings Limited is a clinical-stage biopharmaceutical company developing immune-modulating therapies for T cell-driven inflammatory diseases. Its lead programs are rademikibart for atopic dermatitis and asthma, and icanbelimod for ulcerative colitis. This Form 6-K, furnished September 12, 2023, reports unaudited interim results for the six months ended June 30, 2023, prepared under IAS 34.
Financial Overview
| Metric | Six months ended June 30, 2023 | Comparable period |
|---|---|---|
| Revenue | None | None |
| Research and development expense | RMB185.3 million (US$25.6 million) | RMB340.8 million |
| Administrative expense | RMB56.2 million (US$7.8 million) | RMB71.8 million |
| Operating loss | RMB223.3 million (US$30.9 million) | RMB401.8 million |
| Net loss | RMB212.0 million (US$29.3 million) | RMB401.3 million |
| Basic and diluted loss per share | RMB3.9 loss | RMB7.3 loss |
| Net cash used in operating activities | RMB215.5 million (US$29.8 million) | RMB342.5 million |
There is no meaningful revenue or operating margin because the company has no approved products. Net loss attributable to owners was RMB212.0 million, and accumulated losses were approximately RMB3.4 billion at June 30, 2023.
- Cash and cash equivalents were RMB589.7 million (US$81.6 million).
- Cash, cash equivalents and short-term investments totaled approximately RMB950.7 million (US$131.6 million).
- Total assets were RMB1.041 billion and net assets were RMB929.7 million.
- Total liabilities were RMB111.4 million, including RMB4.3 million of lease liabilities. The filing does not identify material interest-bearing debt.
- Net cash generated from investing activities was RMB237.4 million, principally reflecting RMB454.0 million of maturities of financial assets at FVOCI, partly offset by RMB214.6 million of purchases.
- Net cash used in financing activities was RMB0.9 million, primarily lease-liability payments.
Material Changes Versus the Prior Comparable Period
- R&D expense declined by RMB155.5 million, primarily because clinical-trial and drug-manufacturing costs decreased from RMB282.7 million to RMB138.8 million. Drivers included completion of the icanbelimod global Phase 2 program, termination of the rademikibart CRSwNP Phase 2 program in 2022, and higher manufacturing costs incurred in 2022.
- Administrative expense decreased by RMB15.6 million, reflecting lower professional fees, personnel-related costs, insurance and other corporate expenses.
- Net loss decreased by RMB189.3 million, while operating cash outflow decreased by RMB127.0 million.
- Finance income increased to RMB11.8 million from RMB1.3 million, primarily due to higher interest income from FVOCI investments.
- Other income increased to RMB10.1 million from RMB1.6 million, including Chinese government subsidies and an Australian R&D tax incentive.
- Investing cash flow changed from a RMB491.3 million outflow to a RMB237.4 million inflow because of investment maturities and lower purchases.
- In April 2023, a Chinese local government agreed to repurchase land-use rights for RMB21.1 million. The company recorded a RMB0.3 million loss related to the termination of the construction project; the cash was received in early September 2023.
- The company granted 1.68 million stock options during the period and recorded RMB16.1 million of share-based compensation, down from RMB27.9 million.
Guidance, Outlook, Risks and Unusual Items
No formal revenue, earnings or expense guidance is provided. Management expects continued significant expenses and operating losses as it advances clinical programs, conducts research, seeks regulatory approvals, expands its pipeline and protects its intellectual property.
- Management believes existing cash, cash equivalents and short-term investments are sufficient for at least the next 12 months from issuance of the interim financial statements.
- Commencement of any Phase 3 program for rademikibart is contingent on securing one or more partnerships sufficient to fund completion of the program.
- The company may require additional capital, licensing proceeds or partnership funding to fund late-stage development and potential commercialization.
- Clinical development costs and timelines remain uncertain because of enrollment, trial size, regulatory requirements, manufacturing, safety and efficacy considerations.
- The company may never obtain regulatory approval or generate product revenue.
- Cash denominated in RMB is subject to PRC foreign-exchange controls. The portfolio also contains USD-denominated investments and is exposed to foreign-exchange and investment risks.
- Results for the six months ended June 30, 2023 are not necessarily indicative of full-year or future results.
Investor Verification Priorities
- Verify the current cash runway against updated clinical spending, partnership activity and any subsequent financing.
- Confirm the status, timing and funding plan for rademikibart’s pivotal and potential Phase 3 development.
- Review clinical, regulatory and safety updates for rademikibart and icanbelimod, including results from ongoing or completed trials.
- Reconcile the reported RMB950.7 million of cash, cash equivalents and short-term investments with subsequent maturities, investment purchases and market values.
- Assess the potential impact of continued operating losses, stock-based compensation and future dilution.
- Confirm receipt and accounting treatment of the RMB21.1 million land-use-rights repurchase proceeds received in September 2023.