Eloxx Pharmaceuticals, Inc. — 2019 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2019. The filing was signed March 6, 2020. Eloxx is a clinical-stage biopharmaceutical company with no approved products and no product or service revenue.
Business context and development
The company is developing ELX-02, an investigational small-molecule read-through therapy intended to restore functional protein production in diseases caused by premature stop codons. Its Phase 2 programs target cystic fibrosis (CF) and nephropathic cystinosis; preclinical programs include inherited retinal disorders and autosomal dominant polycystic kidney disease. ELX-02 has not been approved by a regulatory authority.
Financial performance and position
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense, net | $25.8 million | $20.5 million |
| General and administrative expense | $24.7 million | $26.5 million |
| Total operating expenses | $50.6 million | $47.6 million |
| Net loss | $50.9 million | $47.2 million |
| Net loss per share, basic and diluted | $1.34 | $1.45 |
| Net cash used in operating activities | $39.4 million | $31.4 million |
Margins are not meaningful because the company had no revenue. R&D expense increased $5.4 million, primarily from personnel and external development costs. G&A expense declined $1.8 million, principally due to lower stock-based compensation and professional fees, partly offset by higher personnel costs.
At December 31, 2019, cash and cash equivalents were $22.5 million and marketable securities were $33.8 million, for combined cash, cash equivalents and marketable securities of $56.3 million. Total assets were $58.9 million, total liabilities $22.7 million, and stockholders’ equity $36.2 million. The accumulated deficit was $137.0 million.
Debt principal outstanding was $15.0 million under a term loan; the balance sheet reported $4.3 million current and $10.5 million long-term debt. The loan’s stated rate was 7.25% at year-end, with an effective rate of 12.40% including debt costs. Monthly principal payments began in February 2020, with maturity in January 2023. The loan is secured by substantially all assets other than intellectual property and includes customary restrictions, but no financial covenants.
Financing cash flow included $32.2 million of net proceeds from a June 2019 public offering and $14.7 million of net debt proceeds. Investing cash flow used $33.5 million, mainly reflecting purchases and maturities of marketable securities.
Material changes and outlook
- Net loss increased $3.7 million year over year, while operating cash use rose $8.0 million.
- The company reported positive safety and biological-activity signals in the first cohort of its Phase 2 cystinosis study. However, elevated and uncontrolled pretreatment white blood cell cystine levels limited interpretation of treatment effects; Eloxx discontinued the study and did not proceed with the planned second cohort. It said it would consult experts on a possible revised study design.
- The Phase 2 CF trials in the U.S. and Israel were enrolling and dosing. Management expected full enrollment and topline results in the first half of 2020. The Cystic Fibrosis Foundation was funding part of the U.S. trial.
- Management stated that year-end cash and marketable securities were expected to support current and planned operations for at least 12 months from the report’s issuance. The company also said it would need additional capital unless and until it generated sufficient revenue.
- On February 24, 2020, the board approved an organizational realignment eliminating 13 full-time positions. The company estimated annual savings of approximately $4.9 million, including approximately $2.4 million in fiscal 2020 net of severance costs. It expected first-quarter 2020 charges of about $1.7 million for separation costs and $2.5 million of non-cash accelerated stock compensation.
Risks, contingencies and unusual items
- The business depends heavily on ELX-02, which remains in clinical development; clinical efficacy, safety, regulatory approval and commercialization are uncertain. The filing notes renal toxicity observed in animals at doses above those expected for clinical use.
- Clinical development faces small-patient-population enrollment risks, trial delays, uncertain results, and dependence on third-party manufacturers, research organizations and clinical sites. The company also cited potential operational effects from the emerging COVID-19 outbreak.
- The company had no material pending litigation identified. It disclosed a contingent obligation of approximately $2.7 million, including accrued interest, for Israeli Innovation Authority grants; royalties are payable from qualifying product sales.
- The Technion license includes potential milestone payments, royalties on sales and a share of certain sublicense income. The company reported no off-balance-sheet arrangements.
- The 2019 financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of year-end.
Important facts for investors to verify
- Whether CF trial enrollment and the anticipated topline results were achieved, and what the efficacy and safety data showed.
- Whether Eloxx developed a revised cystinosis study design and how it addressed baseline biomarker variability and the limited first-cohort data.
- Actual cash burn, financing needs and runway relative to management’s 12-month liquidity estimate.
- Debt repayment, interest and security terms, and the impact of the 2020 restructuring charges and expected savings.
- Progress and funding requirements for the retinal and kidney preclinical programs, and any material regulatory, manufacturing or safety developments.