Eloxx Pharmaceuticals, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Unaudited; amounts are in U.S. dollars unless stated otherwise.
Business context and reporting period
Eloxx is a clinical-stage biopharmaceutical company developing RNA-modulating ERSG compounds for rare diseases involving premature stop codons. Its lead candidate, ELX-02, is being studied for cystic fibrosis and cystinosis and is not approved for sale. During the quarter, the company completed its multiple-ascending-dose study and renal-impairment study, and advanced ELX-02 into Phase 2. It also began an intravitreal ERSG program focused initially on Usher syndrome.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | None | None | None | None |
| Research and development expense | $7.34m | $4.15m | $13.36m | $8.54m |
| General and administrative expense | $6.97m | $9.56m | $12.93m | $12.95m |
| Total operating expenses | $14.31m | $13.54m | $26.29m | $22.09m |
| Net loss | $14.45m | $13.41m | $26.37m | $22.00m |
| Basic and diluted loss per share | $0.40 | $0.42 | $0.73 | $0.74 |
| Cash used in operating activities | — | $18.81m | $14.21m |
At June 30, 2019, cash and cash equivalents were $49.33m and marketable securities were $26.97m, totaling $76.30m. Total assets were $79.04m, current liabilities $10.99m, and stockholders’ equity $55.22m. Debt principal outstanding was $15.0m; its carrying value was $13.64m, including unamortized discount. No product revenue has been generated, and the company expects continued losses and cash use.
Cash and cash equivalents increased $0.72m in the first half. Financing provided $46.40m, principally from the June public offering ($32.22m net) and $15.0m of term-loan proceeds. Investing used $26.87m, mainly for purchases of marketable securities. The company reported $18.81m of operating cash use.
Material changes versus prior comparable periods
- Q2 R&D expense increased 77% year over year, primarily from clinical-trial and research subcontractor costs and increased personnel costs. First-half R&D expense rose 56%.
- Q2 G&A expense fell 27%, mainly because of lower stock-based compensation; first-half G&A was essentially unchanged.
- Net loss increased 8% in Q2 and 20% for the first half. Higher R&D spending and debt-related interest expense contributed; lower G&A partially offset the increase.
- The company raised $32.2m net through a June 2019 public offering of 3,833,334 shares at $9.00 per share. Common shares outstanding were 39,914,668 at quarter-end and 39,939,668 on August 1, 2019.
- The company entered a $15m term loan in January. A further $10m advance is conditional on clinical milestones and at least $75m of additional equity-offering proceeds. The loan bears interest at the greater of 5.25% or prime plus 2.5%; the rate was 8% at June 30. Its effective interest rate was 13.05%.
Outlook, commentary, and risks
- Management said available cash, cash equivalents, and marketable securities were expected to fund anticipated needs through top-line Phase 2 data in cystinosis and cystic fibrosis in 2019 and support current and planned operations into the first quarter of 2021. This is management’s estimate, not a guarantee.
- Management expected top-line cystinosis data early in Q4 2019 and top-line cystic fibrosis data before year-end 2019. The filing provides no numerical financial guidance.
- Preliminary renal-impairment study results were described as supporting continued development and evaluation in additional renal disorders; the filing does not provide a clear numerical result. The company disclosed renal toxicities in preclinical testing at doses above those expected in clinical trials.
- Key risks include clinical safety or efficacy setbacks, delays or difficulty enrolling rare-disease trials, regulatory approval uncertainty, reliance on third parties, need for additional financing and potential dilution. The company has no approved products and may never achieve profitability.
- The SVB/WestRiver loan is secured by substantially all company assets other than intellectual property, which is subject to a negative pledge. Principal payments are scheduled to begin in February 2020, but the start may be extended to February 2021 if specified milestones are achieved. The loan matures January 2023.
- The company reported no material pending legal proceedings, no material changes in internal control over financial reporting, and effective disclosure controls as of June 30, 2019.
Important facts for investors to verify
- Timing and results of the promised 2019 Phase 2 cystinosis and cystic fibrosis readouts, including safety and efficacy data.
- Whether clinical milestones and equity-proceeds conditions for the additional $10m loan advance are met, and the resulting repayment schedule and financing costs.
- Cash burn and runway relative to management’s estimate through Q1 2021, including expected increases in development spending.
- Share dilution from future equity issuance, outstanding options and warrants, and any additional financing required.
- Progress and evidence supporting the retinal and additional renal-disease programs, which remain at an early stage.