XBiotech Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unaudited results; amounts below are in U.S. dollars unless noted. XBiotech is a pre-market biopharmaceutical company developing naturally occurring “True Human” antibody therapies. Its reported revenue was primarily from manufacturing bermekimab for Janssen clinical trials.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1.68 million | $4.52 million | $3.71 million | $13.89 million |
| Gross profit | $1.47 million | $3.41 million | $3.08 million | $9.12 million |
| Gross margin | 87.2% | 75.4% | 82.9% | 65.6% |
| Operating expenses | $7.85 million | $7.14 million | $29.40 million | $27.01 million |
| Net loss | $12.66 million | $3.26 million | $29.70 million | $10.95 million |
| Net loss per share | $0.42 | $0.11 | $0.98 | $0.37 |
At September 30, 2022, cash and cash equivalents were $160.6 million, with a further $59.5 million in 12-month interest-bearing time deposits. Current assets were $223.4 million and total liabilities $6.0 million; the filing reports no borrowings. For the first nine months, operating cash use was $17.5 million and investing cash use was $60.0 million, including the time-deposit purchase; cash and cash equivalents fell by $76.4 million. Interest income was $1.35 million for the nine months.
Changes and notable items
- Revenue declined 63% in Q3 and 73% for the nine-month period year over year, mainly reflecting the prior manufacturing arrangement’s completion and lower revenue under the February 2022 Janssen addendum. The clinical-trial services agreement ended in 2022.
- Research and development expense rose 25% in Q3 and 24% year to date, to $7.0 million and $24.2 million, respectively. Management attributed the increase mainly to a shift in operating activity and higher laboratory and manufacturing supplies and share-based compensation.
- General and administrative expense fell 45% in Q3 and 31% year to date, to $0.8 million and $5.2 million, respectively.
- Foreign-exchange losses were $4.9 million in Q3 and $5.9 million year to date, versus losses of $1.3 million and $0.1 million in the comparable periods. These losses contributed materially to the wider net loss; Q3 also included $1.0 million of interest income.
- The 2021 comparison includes a $75 million Janssen escrow receipt in operating cash flow and a $75 million shareholder dividend in financing cash flow. No options were exercised in the first nine months of 2022.
Outlook, risks, and contingencies
The February 2022 Janssen manufacturing addendum runs through December 2023 and may generate up to $4.7 million in revenue through that date. XBiotech expects no further revenue under the agreement after it expires. Management expects significant and increasing operating losses for the foreseeable future and says the company will need substantial revenue to reach or sustain profitability. It expects available cash to fund operations for at least 12 months from the filing date and to support several potential clinical-development milestones.
The company is advancing antibody candidates targeting IL-1α outside dermatology, including a candidate already in an oncology clinical study. Management cautions that development timing, costs, clinical success, regulatory approvals, commercialization, and future financing are uncertain. XBiotech does not allocate R&D costs by individual candidate, limiting program-level cost visibility. It reported no material changes to the risk factors in its 2021 Form 10-K, and management concluded disclosure controls were effective. The filing states that the company was not currently exposed to material market risk, although it recorded substantial foreign-exchange losses during the period.
Important facts for investors to verify
- Clinical progress, trial results, and expected timing or costs for the oncology and other pipeline programs.
- Cash burn and runway assumptions, including the liquidity and maturity terms of the $59.5 million time deposits.
- Revenue and manufacturing activity under the Janssen addendum through its December 2023 expiration, and the company’s plans for revenue thereafter.
- Drivers and potential recurrence of foreign-exchange losses, given the large year-to-date impact.
- Tax provision and valuation-allowance assumptions: Q3 2022 included $2.4 million of income tax expense, while the nine-month period reported a $1.3 million tax benefit.