XBiotech Inc. — Q3 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and nine months ended September 30, 2023. XBiotech is a pre-commercial biopharmaceutical company developing naturally occurring “True Human” antibody therapies, including candidates targeting IL-1α. The company reported 85 employees. Its Janssen-related bermekimab manufacturing agreement ended in November 2022.
Financial results
Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise indicated.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $1.68 | $0 | $3.71 |
| Operating expenses | $8.52 | $7.85 | $28.92 | $29.40 |
| Operating loss | $(8.52) | $(6.39) | $(28.92) | $(26.33) |
| Net loss | $(7.36) | $(12.66) | $(19.92) | $(29.70) |
| Net loss per share | $(0.24) | $(0.42) | $(0.65) | $(0.98) |
| Operating cash used | Not provided for quarter | Not provided for quarter | $(15.29) | $(11.66) |
- Cash and liquidity: Cash and cash equivalents were $202.2 million at September 30, 2023, versus $157.3 million at December 31, 2022. Current assets were $204.4 million and current liabilities $5.3 million. A $61.9 million time deposit matured in July 2023 and was received with accrued interest.
- Cash flows: Nine-month investing activities provided $61.6 million, primarily reflecting the time-deposit maturity; financing activities used $9,000. Cash increased by $44.9 million over the nine months.
- Debt and margins: The balance sheet reports no debt. No 2023 gross margin was recorded because there was no revenue; 2022 gross margin was $1.47 million in Q3 and $3.08 million for the nine months.
- Other income: Interest income was $2.53 million in Q3 and $7.82 million for the nine months. Foreign exchange losses were $1.07 million in Q3; the nine-month period recorded a $0.65 million foreign exchange gain. Nine-month other income also included $0.88 million related to a settlement agreement.
Changes versus prior comparable periods
- Revenue and manufacturing costs fell to zero in 2023 after the Janssen manufacturing agreement ended in November 2022.
- Q3 operating loss widened by $2.13 million, as operating expenses increased while manufacturing revenue ceased. Net loss improved by $5.29 million, helped by higher interest income and a smaller foreign-exchange loss than in Q3 2022.
- Nine-month operating loss widened by $2.60 million, while net loss improved by $9.78 million, chiefly reflecting higher interest income and the swing from foreign-exchange loss to gain.
- Research and development expense rose 8% in Q3 and 3% for the nine months. Management attributed increases to clinical trial activity, including a new study initiated in Q2 2023, and higher salaries; laboratory and manufacturing supplies declined.
- General and administrative expense rose 16% in Q3, primarily due to professional fees, but fell 25% for the nine months, partly due to lower salaries and share-based compensation.
Outlook, risks, and notable items
- Management expects no revenue in the next year and anticipates significant, increasing operating losses as it advances candidates. It says cash at September 30, 2023 should fund operations for at least 12 months from the filing date and enable progress toward several clinical-study inflection points.
- The company is pursuing multiple IL-1α candidates, including candidates in oncology and rheumatology studies and another in a Phase I neurology study. Management cautions that clinical timelines, success, and costs are uncertain; it does not allocate R&D costs by candidate.
- Management identifies dependence on future collaborations, product sales, or financing to support planned clinical operations. Product revenue depends on regulatory approval and successful commercialization, and profitability may never be achieved. It expects G&A costs to rise in part due to inflation.
- CEO bonus expense was $4.5 million in June 2023, versus $3.8 million in June 2022; the 2023 allocation was 85% to R&D and 15% to G&A, compared with 60% and 40% in 2022.
- A modified Dutch auction tender offer sought up to $80 million of shares but accepted only 3,561 shares for approximately $14,000. The company reported no material changes to the risk factors in its 2022 Form 10-K and no material change in internal control over financial reporting.
Important facts for investors to verify
- Clinical-trial progress, timelines, costs, and regulatory prospects for the oncology, rheumatology, and neurology candidates.
- Cash burn and the assumptions behind management’s stated runway of at least 12 months from the filing date.
- Whether new collaborations, licensing, financing, or eventual product approvals can replace discontinued Janssen manufacturing revenue.
- The scale and allocation of executive compensation, including the CEO bonus, and future operating-cost trends.
- Foreign-exchange exposure, tax liabilities, and the impact of valuation allowances and jurisdictional tax estimates.