Xenetic Biosciences, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. Amounts are in U.S. dollars. The company is a clinical-stage biopharmaceutical developer; it reported no commercial products or product revenue in the quarter.
Key financial results
| Metric | Three months ended September 30, 2014 | Nine months ended September 30, 2014 | Comparable 2013 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 for the quarter; $1.0 million for nine months |
| Research and development expense | $1.91 million | $3.50 million | $1.04 million and $2.61 million, respectively |
| General and administrative expense | $1.20 million | $5.20 million | $1.49 million and $3.45 million, respectively |
| Operating loss | $3.11 million | $8.71 million | $2.53 million and $5.06 million, respectively |
| Net loss | $3.18 million | $10.00 million | $2.73 million and $5.04 million, respectively |
| Basic and diluted loss per share | $0.02 | $0.07 | $0.02 and $0.04, respectively |
Margins: No meaningful current-period gross or operating margin is available because revenue was zero. In the 2013 nine-month period, the company recognized $1.0 million of revenue, with no cost of revenue.
- Cash and liquidity: Cash was $4.83 million at September 30, 2014, nearly unchanged from $4.84 million at December 31, 2013. Working capital was approximately $3.3 million, versus $1.7 million at year-end 2013. Current assets were $5.36 million and current liabilities $2.04 million.
- Cash flow: Operating activities used $9.54 million during the first nine months, compared with $4.04 million in 2013. Investing activities used $0.47 million, including the $0.43 million Hive Out payment. Financing activities provided $9.82 million, primarily from Baxter’s $10 million stock investment. Cash decreased by only $4,846 during the period.
- Debt and other obligations: The balance sheet reports a $395,000 current loan payable to related party SynBio, down from $681,124 at year-end 2013 after a $286,124 repayment. It also reports $60,729 of other liabilities related to the U.S. leasehold-improvement financing. Total liabilities were $5.30 million, including a $3.20 million deferred tax liability.
- Equity: Stockholders’ equity was $14.02 million. Accumulated deficit was $71.32 million. The company received $10 million from Baxter for approximately 10.7 million shares in January 2014.
Material changes and notable transactions
- Nine-month net loss increased to $10.00 million from $5.04 million. The comparison reflects no 2014 revenue versus a $1.0 million Baxter license fee in 2013, higher operating expenses, a $1.07 million loss on disposal of subsidiaries, and increased foreign-exchange expense.
- Quarterly R&D expense rose 84% year over year, primarily from greater outside research and manufacturing services for the OncoHist AML program and ErepoXen development. For the nine months, R&D increased 34%.
- Nine-month G&A expense rose 51%, reflecting costs associated with the transition to a U.S.-based public company, including professional fees, staffing, investor relations, insurance, and regulatory costs. Quarterly G&A fell 19% year over year.
- The January 2014 reverse acquisition made Xenetic UK the accounting acquirer. Under the related Hive Out Agreement, the company transferred its former operating subsidiaries to Oxbridge, returned and canceled 10 million shares, paid $430,000, and recorded the disposal loss.
- Research and development activity shifted from the U.K. to the U.S.; the U.K. laboratory had closed by year-end 2013. The company also gave notice to terminate its London office lease, with termination scheduled for March 2015.
Outlook, risks, and management commentary
- Management estimated that available working capital would fund the current business plan only to the middle of the first quarter of 2015. It was seeking additional financing through a private placement, potentially debt, equity, or a combination, but had no financing commitments. Management said discussions gave it a reasonable expectation of raising funds; success and terms were not assured.
- The filing states that failure to raise additional working capital by the end of 2014 could prevent the company from continuing planned operations beyond mid-Q1 2015 and raises substantial doubt about its ability to continue as a going concern. If financing is unavailable, management expected to reduce preclinical work, cut G&A, defer or stop R&D projects, and delay or stop significant clinical research services.
- The company expected 2014 operating cash use to exceed 2013 levels, principally because of planned R&D spending, and did not expect significant revenue-derived cash in 2014 because no milestone receipts were expected to fall due.
- Pipeline and collaboration outcomes remain uncertain. The filing describes ongoing ErepoXen Phase II trials in Australia and New Zealand, preclinical work supporting a planned OncoHist AML IND filing in the first half of 2015, and an ongoing MyeloXen Phase I/II trial in Russia. None of the company’s candidates had marketing approval.
- Potential Baxter collaboration receipts include up to $100 million in milestone and deadline-extension payments, contingent on Baxter achieving specified milestones; these are not assured revenue. No revenue was recognized under the collaboration in the first nine months of 2014.
- Other disclosed risks include clinical safety and efficacy, regulatory approval, access to financing, partner performance, competition, product acceptance, intellectual-property claims, and availability and cost of supplies. The company reported no material legal proceedings and said disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether the company subsequently obtained financing, its amount and terms, and how long proceeds supported operations.
- Actual cash burn and spending changes compared with the filing’s plan, including any program delays or reductions.
- Clinical and regulatory progress for ErepoXen, OncoHist, and MyeloXen, and any partner milestones or payments received.
- The status and repayment terms of the SynBio related-party loan and the U.S. lease-related liability.
- Share-count and dilution details: the September 30 balance sheet reports 136,052,498 shares outstanding and 146,740,692 issued, while the cover page reports 146,740,692 shares outstanding as of November 14, 2014; the difference should be reconciled.