Xenetic Biosciences, Inc. — Q3 2018 Form 10-Q
Reporting period: Three and nine months ended September 30, 2018. Xenetic is a development-stage biopharmaceutical company focused on biologics and oncology therapeutics. Its lead candidate is XBIO-101 for progestin-resistant endometrial cancer; its Phase 2 trial began dosing in October 2017. The company also develops the PolyXen platform technology.
Financial performance and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $85,000 | $0 | $85,000 |
| R&D expense | $735,879 | $884,797 | $2,369,219 | $2,979,778 |
| General and administrative expense | $1,079,008 | $1,343,671 | $3,267,597 | $4,948,675 |
| Operating loss | $1,814,887 | $2,240,496 | $5,636,816 | $7,999,572 |
| Net loss | $1,812,536 | $2,255,900 | $5,661,230 | $8,040,451 |
| Basic and diluted loss per share | $0.19 | $0.26 | $0.63 | $0.93 |
With no revenue in 2018, revenue margins are not meaningful. At September 30, cash was $1.61 million and restricted cash was $66,510, versus $5.53 million and $66,510, respectively, at December 31, 2017. Working capital fell to approximately $1.0 million from $3.9 million. Total assets were $15.53 million; total liabilities were $4.24 million, including $1.32 million of current liabilities and a $2.92 million deferred tax liability. No borrowings are separately reported on the balance sheet.
For the first nine months, operating cash use was $5.42 million; investing activities provided $22,500, and warrant exercises provided $1.48 million in financing. Cash and restricted cash declined by $3.92 million to $1.68 million. The filing reports no material change in contractual obligations from the 2017 Form 10-K.
Changes versus prior period and notable items
- Revenue from collaboration services recognized in 2017 did not recur in 2018; the filing says no revenue was recognized under the collaboration agreements in either nine-month period.
- Nine-month net loss improved by $2.38 million, or 29.6%, primarily as R&D and G&A spending declined. Management attributed lower spending to capital constraints, reduced headcount and focusing development on XBIO-101; XBIO-101 trial costs increased.
- In the first nine months of 2018, 370,000 Class B warrants were exercised for approximately $1.48 million. At September 30, warrants to purchase 3,152,225 common shares remained outstanding, with a weighted-average exercise price of $4.33.
- The company sold laboratory equipment for $22,500, recording an approximately $15,000 gain. The OncoHist in-process research and development intangible asset remained recorded at approximately $9.2 million, with no impairment recorded for the period.
Outlook, risks and contingencies
Management estimated that available resources would fund planned operations, obligations and commitments only into the fourth quarter of 2018. It said additional working capital or strategic alternatives were needed in the very near term, but no additional financing was committed. The filing states that these conditions raise substantial doubt about the company’s ability to continue as a going concern. If funding is unavailable, Xenetic may have to reduce or suspend development and clinical activities, cut expenses, dispose of assets, relinquish rights, or cease operations.
Management reported slower-than-expected progress in the XBIO-101 Phase 2 trial, could not predict when preliminary data would be available, and was evaluating options for the trial. Xenetic continued to seek out-licensing arrangements but could not reliably predict whether or when one might be completed. Revenue and milestone receipts have historically been concentrated, with more than 90% of milestone and sublicense revenue to date coming from Shire. No formal financial guidance is provided. The filing reports no material legal proceedings, no material changes to previously disclosed risk factors, and no subsequent events requiring disclosure.
Key facts for investors to verify
- Whether the company obtained financing after the filing and whether its stated cash runway extended beyond Q4 2018.
- Current enrollment, trial plans and timing of data for XBIO-101, including the outcome of management’s evaluation of the Phase 2 trial.
- Any executed licensing or collaboration agreements, and the timing and certainty of related payments.
- Current cash burn, working capital, unpaid obligations and potential dilution from outstanding warrants or other securities.
- Whether the carrying value of the OncoHist intangible asset remains supportable and whether any impairment indicators have arisen.