Xencor, Inc. — Q3 2015 Form 10-Q
Reporting period: Three and nine months ended September 30, 2015. Xencor is a clinical-stage biopharmaceutical company developing engineered antibodies using its XmAb platform. It has no approved products and has generated no product-sales revenue.
Financial performance and liquidity
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $3.5 million | $0.8 million | $6.0 million | $3.9 million |
| Research and development expense | $10.6 million | $4.9 million | $23.3 million | $13.5 million |
| General and administrative expense | $3.2 million | $2.2 million | $8.5 million | $5.5 million |
| Net loss | $10.0 million | $6.3 million | $25.3 million | $15.1 million |
| Net loss per share, basic and diluted | $0.25 | $0.20 | $0.66 | $0.48 |
At September 30, cash and cash equivalents were $57.7 million and marketable securities were $139.8 million, for total cash, cash equivalents and marketable securities of approximately $197.6 million. Current assets were $129.9 million and current liabilities were $56.6 million. Total liabilities were $58.2 million, principally deferred revenue; the filing reports no material debt balance.
Net cash provided by operating activities was $30.5 million for the first nine months, compared with $15.5 million used in the prior-year period. This included a $44.0 million increase in deferred revenue, substantially reflecting Amgen’s $45 million upfront payment, which had not been recognized as revenue by quarter-end. Investing activities used $143.4 million, chiefly for purchases of marketable securities; financing activities provided $116.0 million, primarily from the March stock offering. The filing does not present operating margins as a key measure; the company reported operating losses of $10.3 million for Q3 and $25.8 million for the nine-month period.
Material changes versus prior periods
- Q3 revenue increased $2.7 million year over year, mainly due to a $2.5 million CSL milestone for initiation of a Phase 2 trial by CSL’s sublicensee, Janssen.
- Nine-month revenue rose $2.1 million, while operating expenses increased $12.8 million. Net loss widened by $10.2 million.
- R&D spending increased, especially for bispecific candidates XmAb14045 and XmAb13676 and for XmAb5871 development. G&A expense also rose, including from staffing, professional fees and stock-based compensation.
- In March 2015, Xencor issued 8.625 million shares and received $115.2 million net. Shares outstanding increased to 40.5 million at September 30, from 31.4 million at December 31, 2014.
Outlook, management commentary and risks
- Management estimated existing cash, cash equivalents and marketable securities, together with certain potential collaboration payments, would fund operations through 2019. This estimate depends on assumptions and uncertain milestone or contingent payments; management noted capital could be used faster than anticipated.
- Under its September 2015 Amgen agreement, Xencor received $45 million upfront for a CD38xCD3 program and five discovery programs. It may receive up to $1.7 billion in aggregate development, regulatory and sales milestones, plus royalties, if programs advance and products are commercialized. Amgen assumes subsequent development and commercialization responsibilities. No upfront-payment revenue was recognized in the quarter.
- Management planned to file an IND for XmAb5871 in IgG4-related disease in 2015 and begin a pilot Phase 2 study in early 2016; it also planned development in another autoimmune disease in 2016. The company expected XmAb14045 clinical trials in the first half of 2016 and XmAb13676 trials in the second half. XmAb7195 follow-up data was expected in the first half of 2016.
- Reported clinical safety considerations include serious adverse events in two XmAb5871-treated patients, and dose-limiting transient thrombocytopenia and urticaria in the XmAb7195 Phase 1 study. Clinical outcomes, enrollment, regulatory approvals and manufacturing supply remain uncertain.
- A Delaware shareholder action concerning 2013 corporate transactions was partially settled after quarter-end as to invalidity claims. Plaintiff’s counsel requested reimbursement of legal fees up to $950,000; Xencor said it would contest the request and had accrued no loss at September 30 because the potential loss could not be estimated.
- Management said disclosure controls were effective at the reasonable-assurance level and reported no material quarterly change in internal control over financial reporting. The filing also discusses previously identified internal-control weaknesses and remediation efforts.
Important facts for investors to verify
- Whether the assumed runway through 2019 remains supported by operating costs, clinical plans and actual collaboration receipts.
- Progress and timing of the Amgen programs, including delivery and acceptance milestones, and any resulting revenue recognition.
- Clinical safety, efficacy and development timelines for XmAb5871, XmAb7195, XmAb14045 and XmAb13676.
- Whether development spending continues to rise and whether additional financing or equity issuance becomes necessary.
- Outcome of the Delaware settlement hearing and the request for up to $950,000 in legal fees.
- Ongoing remediation of historical financial-reporting control issues and the effect of stock-based compensation and share issuance on dilution.