Xenetic Biosciences, Inc. — Q3 2022 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2022. Xenetic is a clinical-stage biopharmaceutical company developing immune-oncology technologies, particularly its DNase platform, and XCART cell therapy; it also receives royalties from a PolyXen license. It had no products approved for commercial sale.
Financial results
| Metric | Three months ended September 30, 2022 | Nine months ended September 30, 2022 |
|---|---|---|
| Revenue, all royalty revenue | $414,250 | $1,219,953 |
| Research and development expense | $398,803 | $3,577,701 |
| General and administrative expense | $863,233 | $2,796,832 |
| Operating loss | $847,786 | $5,154,580 |
| Net loss | $804,017 | $5,069,818 |
| Basic and diluted net loss per share | $0.06 | $0.36 |
| Operating cash used | Not presented for the quarter | $3,895,858 |
Gross profit and gross margin are not separately presented; royalty revenue is the company’s only reported revenue. Nine-month investing cash use was $500,000, principally for the DNase license. Financing provided no cash in the nine months; the comparable 2021 period included $11.5 million of private-placement proceeds.
At September 30, 2022, cash was $13.85 million, total current assets $14.17 million, current liabilities and total liabilities $1.05 million, and stockholders’ equity $14.52 million. Working capital was approximately $13.1 million. The filing reports no debt balance. Cash declined $4.40 million from year-end 2021; cash at December 31, 2021 was $18.24 million.
Changes versus prior periods
- Q3 revenue rose 18.6% year over year, and nine-month revenue rose 47.3%, reflecting higher Takeda-related royalties as its sublicensee continued a worldwide product launch.
- Q3 R&D expense fell 48.9%, primarily because spending on XCART was lower as the company prioritized DNase. For the nine months, R&D expense increased 84.9%, including $1.305 million of acquired in-process R&D related to the DNase licenses; excluding that charge, R&D still increased approximately 17.5%.
- Q3 net loss narrowed to $804,017 from $1.35 million in 2021, helped by lower expenses and higher interest income. Nine-month net loss widened to $5.07 million from $3.80 million, mainly reflecting increased R&D and the DNase-related charge.
- Common shares issued increased to 14.34 million from 13.47 million at year-end 2021, including 875,000 shares issued in connection with the CLS DNase licenses.
Business developments, outlook, and risks
- In April 2022, Xenetic obtained CLS licenses covering DNase cancer treatments and DNase used with CAR T therapies. The company recorded approximately $1.3 million of R&D expense for the upfront consideration, including $500,000 cash and 875,000 shares. Agreements also include potential cash milestones of up to $13 million under each agreement, additional share-based regulatory milestones under the sublicense, royalties, and sublicense-revenue sharing.
- The August 2022 Volition collaboration is an early exploratory program involving NETs-targeted adoptive cell therapies; Volition funds a research program, with proceeds from potential commercialization or licensing to be shared. Separately, a June Catalent statement of work contemplated manufacturing services costing up to approximately $5 million, with an expected project duration of about 17 months. Xenetic reported a $300,000 long-term prepayment at quarter-end.
- Management said existing resources were expected to fund operations into the first quarter of 2024, but stated that substantial doubt about the company’s ability to continue as a going concern exists because of recurring losses and expected near-term operating losses. Additional long-term capital may be needed; future financing availability, terms, and timing are uncertain.
- Nasdaq notified Xenetic that its share price had remained below the $1 minimum bid requirement. As of the filing, the company had until November 30, 2022 to regain compliance and could potentially qualify for an additional compliance period. Delisting could impair share liquidity and access to capital.
- The Pharmsynthez related-party loan receivable was approximately $0.4 million and classified as long-term amid delayed repayment and sanctions-related uncertainty. Management considered U.S.-based collateral adequate. A third loan extension was entered into on October 31, 2022, but required payments had not been received as of the filing.
- On October 12, 2022, after quarter-end, Xenetic issued 850,000 shares to CLS LLC for assignment of certain patent rights. The company cited COVID-19 and the Russia-Ukraine conflict and related sanctions as sources of uncertainty, while reporting no significant COVID-19 operational impact to date.
Important facts for investors to verify
- Whether cash use, clinical-development spending, and any new financing support the stated runway into Q1 2024, and how the going-concern uncertainty changes.
- Progress, funding requirements, manufacturing costs, and clinical plans for DNase and XCART, including the Catalent project and the extent of future collaboration funding.
- Compliance with Nasdaq’s minimum bid-price and other listing requirements, including the status of any cure or extension.
- Collection and repayment of the Pharmsynthez loan under the October 2022 extension, including the effect of sanctions and the value and enforceability of collateral.
- Potential dilution and future payments under CLS agreements, including milestone shares, cash milestones, royalties, and sublicense-sharing obligations.
- Trends in Takeda royalty revenue and the company’s ability to diversify revenue beyond that royalty stream.