XBiotech Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 10, 2021. Amounts are in U.S. dollars unless otherwise stated. XBiotech is a pre-commercial biopharmaceutical company developing naturally occurring “True Human” monoclonal antibodies. Current revenue primarily comes from Janssen-related bermekimab manufacturing and clinical-trial services.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total revenue | $4.850 million | $12.681 million |
| Gross profit / margin | $2.546 million / 52.5% | $3.007 million / 23.7% |
| Operating expenses | $6.099 million | $5.178 million |
| Operating loss | $3.553 million | $2.171 million |
| Net loss | $2.568 million ($0.09/share) | $14,000 (reported as $0.00/share) |
| Operating cash flow | +$1.809 million | -$60.673 million |
| Capital expenditures | $637,000 | $389,000 |
At March 31, 2021, cash and cash equivalents were $239.879 million, total assets $355.940 million, total liabilities $3.842 million, and shareholders’ equity $352.098 million. The balance sheet shows no interest-bearing debt. Current assets were $327.899 million versus current liabilities of $2.721 million. Cash increased $2.513 million during the quarter. The company also reported a $75.063 million escrow receivable, which it expected to receive in Q2 2021.
Changes and notable items
- Revenue fell 62% year over year: manufacturing revenue increased to $4.5 million from $3.0 million, while clinical-trial service revenue declined to $350,000 from $9.681 million.
- Gross profit declined, but gross margin improved to 52.5% from 23.7%, reflecting the changed mix of manufacturing and clinical-service revenue and costs.
- Research and development expense rose to $4.634 million from $1.155 million, primarily reflecting increased internal development activity and preparation for new trials, as well as reclassification of manufacturing department expenses. General and administrative expense declined to $1.465 million from $4.023 million, mainly due to lower share-based compensation and 2020 tender-offer-related professional fees.
- Interest income fell to $109,000 from $1.898 million; a $409,000 foreign-exchange gain partly offset the decrease.
- Operating cash flow improved from a $60.673 million use in Q1 2020, largely because of a $51.1 million income-tax payment in that prior-year quarter. Q1 2020 financing cash use included the $420 million share tender offer.
- During Q1 2021, employees exercised options for approximately 679,000 shares. The CEO exercised 500,000 options on March 22; the related $3.8 million proceeds and $2.2 million tax withholding were received/settled in April and were classified in prepaid expenses and other current assets at quarter-end.
Outlook, risks, and contingencies
- Management expects continued and potentially increasing operating losses as the company advances drug candidates; it has not provided numerical earnings or revenue guidance.
- The Janssen clinical manufacturing agreement pays $4.5 million per quarter but expires December 31, 2021. The company does not expect further manufacturing revenue under that agreement after expiry; Janssen may terminate it on 60 days’ notice. The clinical-trial services agreement is also terminable by Janssen on 30 days’ notice.
- Management said cash and expected Janssen-related receipts should support planned research and development, and stated it expects sufficient cash through at least one year from the report issuance date. The filing also identifies future funding needs and profitability as uncertainties.
- Key risks include clinical and regulatory uncertainty, ability to recruit patients and successfully develop or commercialize candidates, dependence on Janssen arrangements, manufacturing and supply-chain execution, intellectual-property protection, and possible COVID-19 effects on trials and operations. The filing reports no material changes to the risk factors in the 2020 annual report.
- The company recorded a $477,000 income-tax benefit in Q1 2021 and reported $2.1 million of unrecognized tax benefits, unchanged during the quarter. Valuation allowances remain against certain deferred tax assets.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting. No material off-balance-sheet arrangements or material market-risk exposure were reported.
Important facts for investors to verify
- Timing and receipt of the $75.063 million escrow receivable, and its availability to fund operations.
- Whether Janssen agreements continue through their stated terms and what replaces manufacturing revenue after December 2021.
- Progress, costs, and clinical timelines for bermekimab and other development programs; the filing does not allocate R&D costs by candidate.
- Clarify the filing’s inconsistent Q1 2020 net-loss reference: the financial statements report a $14,000 net loss, while MD&A describes a $0.3 million loss.
- Reconcile share counts: the March 31 balance sheet reports 29,982,801 shares outstanding, while the cover page reports 29,983,801 as of May 10, 2021.