CytomX Therapeutics, Inc. — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. Financial statements are unaudited; amounts below are in U.S. dollars. CytomX is a preclinical oncology biotechnology company developing masked-antibody Probody therapeutics. It had no product candidates in clinical trials or products for sale at the filing date.
Key financial metrics
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $3.1 million | $2.0 million | $5.3 million | $3.8 million |
| Research and development expense | $12.7 million | $5.0 million | $26.1 million | $9.7 million |
| General and administrative expense | $4.6 million | $2.6 million | $9.7 million | $4.5 million |
| Operating loss | $14.3 million | $5.5 million | $30.4 million | $10.4 million |
| Net loss | $14.2 million | $5.8 million | $30.2 million | $12.0 million |
| Net loss per share | $0.39 | $7.56 | $0.84 | $15.22 |
Margins were negative; the filing does not present a meaningful commercial-product margin measure. Q2 revenue rose $1.1 million year over year, principally from AbbVie agreement revenue recognition and BMS target-selection revenue. Revenue remains collaboration-based, not product sales.
- Liquidity: Cash, cash equivalents and short-term investments totaled $195.8 million at June 30, 2016, up from $186.7 million at year-end 2015. Current assets were $199.6 million and current liabilities $22.2 million. Accumulated deficit was $147.7 million.
- Cash flow: Six-month operating cash flow was positive $10.2 million, versus negative $11.5 million in the prior-year period. This was primarily driven by a $35.4 million increase in deferred revenue, including AbbVie upfront payments and a BMS milestone; it should not be read as evidence of operating profitability. Investing cash outflow was $7.9 million and financing cash inflow was $0.2 million.
- Debt: No borrowings are reported at June 30, 2016. The company’s debt facility was repaid and terminated in September 2015.
- Equity: Stockholders’ equity was $101.2 million, compared with $126.1 million at December 31, 2015. Common shares outstanding were 36,187,345 at June 30, 2016; 36,288,413 were outstanding on August 1.
Material changes versus prior comparable periods
- First-half R&D expense increased $16.4 million, mainly from manufacturing preparations for CX-072 and CX-2009, laboratory and professional services, stock compensation, increased headcount and royalty costs.
- First-half G&A expense increased $5.2 million, reflecting higher stock compensation, public-company professional fees and headcount.
- First-half 2016 net loss widened to $30.2 million from $12.0 million. Prior-year loss included $1.3 million of expense from remeasurement of a preferred-stock warrant liability; the liability was no longer outstanding after the IPO conversion.
- Deferred revenue rose to $96.3 million from $60.8 million at year-end 2015, largely reflecting the new AbbVie agreements and the BMS target-selection payment.
- Pfizer’s option deadline for selecting a fourth target expired in May 2016. CytomX’s potential contingent payments under that agreement were reduced by $133.5 million; the fourth target was not selected.
Outlook, commentary and risks
- Management estimated existing capital resources would fund operations through 2018 under its current operating plan, while stating it would need additional funding in the future. Spending and runway depend on development progress, trial results, costs and collaboration payments.
- The company expected to file an IND for CX-072 in the second half of 2016 and intended to begin a Phase 1 trial in 2016. It expected to file an IND for CX-2009 in the first half of 2017 and intended to begin a Phase 1 trial in 2017. These were plans, subject to trial design and regulatory requirements.
- In April 2016, AbbVie paid $20 million upfront for the CD71 co-development agreement and $10 million upfront under the discovery agreement. CytomX may receive milestone payments and royalties, but revenue depends on performance, development outcomes and partner decisions. Under the CD71 agreement, CytomX may bear 35% of later-stage net profits or losses if it participates in co-development, subject to agreement terms and an opt-out provision.
- Other collaborations include BMS, Pfizer, ImmunoGen and MD Anderson. Collaborator discretion, milestone timing, development failure or termination could affect future revenue and cash resources. Customer concentration was significant: Customer A represented 67% of first-half revenue and 72% of June 30 accounts receivable.
- Key risks include preclinical and clinical failure, uncertain regulatory pathways for the novel platform, dependence on third-party manufacturing and research providers, intellectual-property challenges, competition, and the need for future capital. CytomX had no in-house manufacturing capability.
- The company signed a ten-year lease for approximately 76,173 square feet of office and laboratory space, with first-year base rent of about $3.1 million and an improvement allowance of up to $12.6 million. Contractual operating-lease payments totaled $47.3 million as of June 30, 2016. The current lease was set to terminate early on November 30, 2016 without a termination payment.
- No material litigation was reported. Management concluded disclosure controls were effective as of June 30, 2016, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the CX-072 and CX-2009 IND and Phase 1 timelines were achieved, and whether any regulatory or preclinical findings altered those plans.
- Cash use and runway excluding collaboration-related deferred-revenue inflows, alongside the timing and conditions of future milestone receipts.
- Progress, cost-sharing exposure and opt-out terms under the AbbVie CD71 agreement, and development activity under BMS, Pfizer and other collaborations.
- Effects of the Pfizer fourth-target option expiration on the collaboration’s remaining economics and potential payments.
- Future R&D and manufacturing spending, lease costs, and financing needs; the stated runway through 2018 was management’s estimate based on its operating plan.