CytomX Therapeutics, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Amounts below are in U.S. dollars; financial figures are stated in millions unless noted. The interim financial statements are unaudited.
Business context and reporting period
CytomX is a clinical-stage oncology biopharmaceutical company developing antibody therapeutics using its Probody platform. It had no approved products or product-sale revenue. CX-072 and CX-2009 were in Phase 1/2 trials; CX-188 and collaboration program CX-2029 were in IND-enabling development.
Financial performance and position
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Total revenue | $24.1 | $3.5 | $44.6 | $8.8 |
| Research and development expense | $28.9 | $13.3 | $71.6 | $39.4 |
| General and administrative expense | $6.2 | $5.0 | $18.0 | $14.7 |
| Operating loss | $(11.0) | $(14.9) | $(45.0) | $(45.4) |
| Net loss | $(10.2) | $(14.7) | $(43.7) | $(44.9) |
| Basic and diluted loss per share | $(0.28) | $(0.40) | $(1.19) | $(1.24) |
Liquidity: At September 30, cash and cash equivalents were $284.2, short-term investments were $47.1, and accounts receivable were $40.2. Cash, cash equivalents and short-term investments totaled $331.3, compared with $181.9 at December 31, 2016. Total assets were $387.0 and stockholders’ equity was $45.5. Total liabilities were $341.6, including $324.9 of deferred revenue. The filing reports no borrowings or other debt.
Cash flow: Operating activities provided $148.4 in the first nine months, versus $4.0 used in the prior-year period. Investing activities provided $28.5 and financing activities provided $2.7; cash increased $179.6. Operating cash flow was driven principally by a $169.6 increase in deferred revenue, not by profitable operations. The company reported an accumulated deficit of $220.1 and continued to incur operating losses; conventional operating margins were negative.
Material changes versus the prior comparable period
- Revenue rose sharply, principally reflecting collaboration-related payments and recognition: a $14.0 net AbbVie milestone in Q3, revenue recognized from BMS’s 2017 expanded collaboration, and revenue associated with an ImmunoGen license delivery during the nine-month period.
- R&D expense increased $15.6 in Q3 and $32.2 for the first nine months, as programs advanced and collaboration-related costs were incurred. The increase included $10.7 of acquired in-process R&D expense and a $1.2 estimated UCSB sublicense fee related to Amgen, plus a $10.0 UCSB sublicense payment associated with the BMS expansion during the nine-month period.
- Net loss narrowed year over year in both comparisons, despite higher operating expenses, as collaboration revenue increased substantially. The business remained unprofitable and had no product sales.
- Cash and investments increased mainly because CytomX received BMS’s $200.0 upfront payment in May under its collaboration amendment. The related revenue is deferred and recognized over the estimated performance period.
Outlook, management commentary and risks
- Management’s MD&A stated that existing capital resources were expected to fund operations into 2020; the liquidity note separately states resources should cover at least 12 months from issuance of the financial statements. Management cautioned that spending may need to be reduced if anticipated results are not achieved and said additional funding will be needed in the future.
- Management expected R&D spending to increase as clinical programs advance. It anticipated filing an IND for CX-188 in the second half of 2018 and CX-2029 in the first half of 2018; BMS anticipated starting a clinical trial of its CTLA-4 program by early 2018.
- On September 29, CytomX entered an Amgen collaboration and related share purchase agreement. The $40.0 collaboration upfront payment and $20.0 stock purchase proceeds were received in October, after quarter-end. The filing recorded $51.2 of deferred revenue relating to the Amgen arrangement at September 30; the $10.7 allocated to a CytomX product was charged to R&D because it had no alternative future use.
- Key risks include clinical failure or safety issues, particularly the unknown effects of targeting CD166; delays in trials, enrollment or manufacturing; dependence on collaborators and third-party suppliers; uncertainty around Probody technology and regulatory review; intense competition; and future financing needs. Management noted that safety data from CX-072 and CX-2009 trials was expected in 2018.
- Revenue was concentrated among a small number of customers: two unnamed customers represented 64% and 34% of Q3 revenue, respectively. The filing also identifies substantial dependence on collaboration revenue, which may fluctuate with milestone timing and partner decisions.
- The company reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls as of September 30, 2017. It was evaluating the impact of adopting the new revenue recognition standard effective January 1, 2018.
Important facts for investors to verify
- Reconcile the stated cash runway: the MD&A projects funding into 2020, while the liquidity note provides a minimum of 12 months from issuance.
- Assess how much reported operating cash flow reflects upfront collaboration receipts and deferred revenue rather than recurring operating cash generation.
- Confirm the timing and accounting for the Amgen October receipts, equity issuance, deferred revenue, and UCSB sublicense fee estimate.
- Track trial enrollment, safety and efficacy results for CX-072 and CX-2009, and the stated IND and trial-start timelines for CX-188, CX-2029 and the BMS program.
- Evaluate collaboration concentration and the potential effects of partner program changes, milestone uncertainty, future R&D spending and additional financing needs.