CytomX Therapeutics, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Amounts are in U.S. dollars; financial statement amounts below are in millions unless stated otherwise. The company is an oncology-focused, pre-commercial biotechnology company developing Probody therapeutics. Its revenue primarily comes from collaboration agreements, not product sales.
Financial performance and liquidity
| Metric | Three months ended September 30 | Nine months ended September 30 |
|---|---|---|
| Total revenue | 2016: $3.45; 2015: $1.94 | 2016: $8.77; 2015: $5.72 |
| Research and development | 2016: $13.34; 2015: $9.16 | 2016: $39.41; 2015: $18.85 |
| General and administrative | 2016: $5.03; 2015: $4.05 | 2016: $14.72; 2015: $8.55 |
| Operating loss | 2016: $(14.92); 2015: $(11.27) | 2016: $(45.36); 2015: $(21.68) |
| Net loss | 2016: $(14.66); 2015: $(11.87) | 2016: $(44.87); 2015: $(23.89) |
| Net loss per share, basic and diluted | 2016: $(0.40); 2015: $(14.26) | 2016: $(1.24); 2015: $(29.66) |
- Revenue increased $1.52 million for the quarter and $3.05 million for the nine-month period year over year, mainly from recognition of AbbVie upfront payments, BMS target-selection payments, and Pfizer-related revenue.
- Operating expenses rose substantially, particularly R&D. Management attributed the nine-month R&D increase mainly to manufacturing for CX-072 and CX-2009, increased personnel and stock compensation, clinical-development activity for CX-072, and laboratory and professional services.
- Cash, cash equivalents, and short- and long-term investments totaled $180.5 million at September 30, 2016, versus $186.7 million at December 31, 2015. Cash and cash equivalents alone were $59.8 million. Accumulated deficit was $162.3 million.
- Operating activities used $4.0 million of cash in the first nine months, compared with $19.2 million used in the same 2015 period. The 2016 figure was substantially offset by a $32.4 million increase in deferred revenue, principally related to AbbVie and BMS payments; it should not be read as a reduction in underlying operating losses.
- Investing activities provided $3.4 million, mainly reflecting investment maturities net of purchases and capital expenditures. Financing activities provided $0.5 million. Cash and cash equivalents declined by $0.06 million over the period.
- No material debt was outstanding at September 30, 2016; the company had repaid and terminated its loan facility in September 2015. Interest expense was $1.3 million for the first nine months of 2016.
- The filing reports no product-sales gross margin; product candidates were not commercialized. Operating loss reflects collaboration revenue less operating expenses.
Material changes and business developments
- Quarterly revenue rose about 78% and nine-month revenue about 53% year over year, while nine-month net loss increased from $23.9 million to $44.9 million as operating expenses expanded.
- In April 2016, AbbVie paid $20 million under the CD71 collaboration and $10 million under the discovery collaboration. The company reported $1.8 million of AbbVie-related revenue for the nine months; the remaining allocated upfront consideration was deferred.
- BMS selected an additional target in January 2016 and paid a $10 million milestone, recorded as deferred revenue and recognized over the remaining performance period. Pfizer’s option to select a fourth target lapsed in May 2016, reducing potential contingent payments under that agreement by $133.5 million and changing the amortization period for related deferred revenue.
- Deferred revenue was $93.2 million at September 30, 2016, including $14.1 million current and $79.1 million long-term, compared with $60.8 million total at December 31, 2015.
- Operating lease commitments totaled $47.0 million, including $34.1 million for 2020 and beyond. The new South San Francisco headquarters lease is for approximately 76,173 square feet, with a stated improvement allowance of up to $12.6 million.
Outlook, risks, and unusual items
- Management expected existing capital resources to fund operations through 2018 based on its current operating plan, but said expenditures may need to be reduced if anticipated results are not achieved and that additional funding will be needed in the future. This runway estimate is subject to development costs, trial progress, collaboration payments, and other uncertainties.
- The company had filed an IND for CX-072 in September 2016 and expected to file an IND for CX-2009 in the first half of 2017. It planned Phase 1 trials for CX-072 in 2016 and CX-2009 in 2017; timing depended on regulatory and development steps. No product candidate had yet been tested in humans, and no product was approved for sale.
- Management expected R&D spending to increase substantially as programs advanced. Key risks include clinical and regulatory failure, uncertain performance of the novel Probody approach, dependence on collaborators and third-party manufacturers, need for additional capital, intellectual-property disputes, and competition.
- Revenue is concentrated in a small number of collaborators: Customer A represented 52% of quarterly revenue and Customer B 30% in Q3 2016. This dependence makes revenue timing and amounts sensitive to partner decisions and collaboration progress.
- The filing reports no material litigation and no material off-balance-sheet arrangements. Disclosure controls were assessed as effective; no material change in internal control over financial reporting was reported.
- As a subsequent event disclosed in the filing, the CEO’s November 3, 2016 amended severance agreement increased specified termination benefits and provided that performance goals on performance-based equity awards would be deemed achieved in full upon a change of control.
Important facts for investors to verify
- Whether CX-072’s IND cleared regulatory review and whether the planned clinical-trial timing and CX-2009 IND timeline were achieved.
- How management’s “through 2018” cash-runway estimate changes with clinical, manufacturing, lease, and other spending, and when additional financing may be required.
- The progress, payment conditions, and revenue-recognition treatment for AbbVie, BMS, Pfizer, and other collaborations, including the impact of partner choices or delays.
- Whether the large deferred-revenue balance and collaboration cash receipts provide a durable funding source or mainly represent revenue to be recognized over future service periods.
- The financial effect of the new headquarters lease and the CEO severance-agreement amendment, and the implications of customer concentration and reliance on external manufacturers.