XBiotech Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Unaudited interim financial statements; amounts below are in U.S. dollars unless stated otherwise.
Business context and outlook
XBiotech is a pre-commercial biopharmaceutical company developing naturally occurring “True Human” monoclonal antibodies, including candidates targeting IL-1α. The company says it is pursuing multiple candidates for different medical areas, including a candidate in an oncology clinical study. Its Janssen-related bermekimab manufacturing agreement ended in November 2022, and XBiotech expects no revenue in the next year.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $0 | $1.530 million | $0 | $2.030 million |
| Operating expenses | $13.258 million | $13.417 million | $20.404 million | $21.551 million |
| Operating loss | $13.258 million | $12.094 million | $20.404 million | $19.941 million |
| Net loss | $8.742 million | $11.644 million | $12.558 million | $17.039 million |
| Basic and diluted loss per share | $0.29 | $0.38 | $0.41 | $0.56 |
Q2 2023 net loss was lower despite a larger operating loss, reflecting higher interest income and a favorable foreign-exchange result. Six-month interest income was $5.289 million, and the company recorded a $1.711 million foreign-exchange gain. The filing also reports $750,000 of other income received under a settlement agreement.
Research and development expense was $11.266 million in Q2 and $17.497 million for the first six months, up 8% and 2%, respectively, from the comparable 2022 periods. General and administrative expense declined 34% to $1.992 million in Q2 and 33% to $2.907 million for six months. Management attributes part of the R&D increase to a new study and CEO bonus allocation; the CEO’s June 2023 bonus was $4.5 million, allocated 85% to R&D and 15% to G&A.
At June 30, 2023, cash and cash equivalents were $143.391 million, with an additional $61.380 million in interest-bearing time deposits. Current assets totaled $209.512 million; current liabilities were $4.450 million and total liabilities were $6.073 million. No debt is reported. Six-month operating cash use was $13.805 million, investing cash use was $214,000, and financing cash use was $14,000. Cash and cash equivalents declined by $13.915 million from year-end 2022. Management says available cash is expected to fund operations for at least 12 months from the report date.
Material changes, risks, and contingencies
- Revenue and manufacturing costs were nil in 2023 after the Janssen manufacturing work ended; the prior-year periods included $1.530 million and $2.030 million of revenue.
- Operating losses increased year over year, although net losses narrowed because of interest income and foreign-exchange movements.
- Management expects significant and increasing operating losses as drug candidates advance, and says profitability may never be achieved. Clinical development costs may rise; timing, success, and total costs remain uncertain.
- The company says it has sufficient cash for 12 months from the filing date, but future funding needs depend on R&D progress and possible collaboration, product-sale, or financing receipts.
- The filing reports no material changes to the risk factors in the 2022 Form 10-K, no material market-risk exposure, and no off-balance-sheet arrangements. Management assessed disclosure controls as effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the cash runway against planned clinical studies, expected spending, and the stated 12-month liquidity outlook.
- Assess the status, timing, cost, and clinical progress of the company’s IL-1α and other product candidates; the filing does not allocate R&D costs by candidate.
- Review the CEO bonus and the allocation of compensation between R&D and G&A, as these affected period-to-period expense comparisons.
- Reconcile the filing’s comparative six-month 2022 operating cash use: the cash-flow statement reports $10.510 million, while MD&A gives $11.500 million.
- Consider potential dilution: 5,073,418 options were outstanding at June 30, 2023; 30,435,714 common shares were issued and outstanding.