Xenetic Biosciences, Inc. — Q3 2021 Form 10-Q
Business context and period: Unaudited results for the quarter and nine months ended September 30, 2021. Xenetic is a development-stage biopharmaceutical company focused on its personalized CAR-T XCART platform for B-cell lymphomas and its PolyXen drug-delivery platform. It had no approved products; revenue came from royalties under a Takeda sublicense.
Financial summary
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $349,269 | $115,934 | $828,088 | $285,610 |
| R&D expense | $780,153 | $573,061 | $1,934,432 | $1,240,612 |
| G&A expense | $945,115 | $804,149 | $2,766,397 | $2,519,515 |
| Operating loss | $(1,375,999) | $(10,504,404) | $(3,872,741) | $(12,717,645) |
| Net loss | $(1,350,876) | $(7,560,370) | $(3,803,499) | $(9,693,441) |
Basic and diluted loss per share was $0.13 in Q3 and $0.41 for the nine months, compared with $1.20 and $1.55, respectively, in 2020. No gross-margin figure is reported; revenue is royalty revenue. R&D and G&A increased as the company invested in XCART development and incurred higher personnel, legal, and consulting costs.
Cash flow and liquidity: Cash was $19.7 million at September 30, 2021, up from $11.5 million at year-end 2020. Working capital was approximately $19.5 million, versus $11.4 million. Operating cash use was $3.3 million for the nine months; financing provided $11.5 million from the July private placement. Current liabilities were $1.12 million; total liabilities were also $1.12 million, with no debt reported. The company had an accumulated deficit of $180.7 million.
Material changes and unusual items
- Takeda sublicense royalties increased 201% in Q3 and 190% for the nine-month period, reflecting continued worldwide product launch. Other collaboration agreements generated no reported revenue.
- R&D rose 56% year to date, mainly from XCART preclinical work; spending on the XBIO-101 Phase 2 trial declined after that trial closed in Q1 2021.
- 2020 comparisons include a $9.24 million impairment of OncoHist in-process R&D and a related $2.92 million income-tax benefit. Neither item recurred in 2021, materially reducing reported losses year over year.
- On July 28, 2021, the company closed a $12.5 million private placement, receiving approximately $11.5 million net. It issued 950,000 common shares and warrants; the 3.68 million pre-funded warrants were exercised during the quarter for nominal proceeds. The 4.63 million Series A warrants, exercisable at $3.30 per share, remained outstanding at quarter-end.
- In August 2021, Xenetic and Takeda mutually terminated their original exclusive agreement; the separate non-exclusive sublicense and related royalties were unaffected.
Outlook, risks, and contingencies
Management expects continuing operating losses and anticipates it may need additional capital in the long term. The filing states that substantial losses raise substantial doubt about the company’s ability to continue as a going concern, while management believes the 2020 and 2021 financings and existing resources will be adequate to continue as a going concern. No financial guidance or defined cash-runway estimate is provided.
Key uncertainties include XCART’s preclinical and future clinical development, safety and efficacy of CAR-T therapies, securing manufacturing, obtaining financing and strategic partners, and dependence on Takeda sublicense royalties. COVID-19 had not materially affected operations through the period, but future effects remained uncertain. No material legal proceedings or material changes to previously disclosed risk factors were reported. Subsequent events included October amendments to Pharmsynthez arrangements, including a revised loan repayment schedule and replacement XCART work order.
Investor verification points
- Confirm the expected timing, costs, and development milestones for XCART following the October 2021 changes to Pharmsynthez work orders.
- Assess cash runway and future financing needs against continued operating losses and management’s going-concern disclosure.
- Review potential dilution from the 4.63 million outstanding Series A warrants and other outstanding financing warrants.
- Verify the sustainability and concentration of Takeda royalty revenue, including the effect of the terminated original agreement.
- Check the amended Pharmsynthez loan terms, repayment status, and related-party exposure; approximately $0.4 million was recorded as a prepaid/other asset at quarter-end.