HCW Biologics Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. HCW Biologics is a clinical-stage biopharmaceutical company developing immunotherapies for cancer and other age-related diseases. It has no approved products and has not generated commercial product sales. Financial statements were audited by Grant Thornton LLP, which issued an unqualified opinion.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $2.84 million | $6.72 million |
| Cost of revenue | $2.28 million | $4.14 million |
| Net revenue after cost of revenue | $0.56 million | $2.59 million |
| Research and development expense | $7.68 million | $9.34 million |
| General and administrative expense | $13.35 million | $8.33 million |
| Operating loss | $25.72 million | $15.08 million |
| Net loss | $24.99 million | $14.90 million |
| Net loss per share | $0.70 | $0.42 |
| Cash used in operating activities | $22.51 million | $10.39 million |
Revenue came exclusively from Wugen-related licensing and supply activities; Wugen reduced purchases in 2023 amid changes to its clinical program and manufacturing delays. Net revenue after cost of revenue was approximately 20% of revenue in 2023, versus 38% in 2022.
Cash and cash equivalents fell to $3.60 million from $22.33 million at year-end 2022. Current assets were $6.40 million and current liabilities $8.75 million. Total assets were $28.51 million; total liabilities were $15.05 million, including $6.30 million of net noncurrent debt. The existing Cogent Bank loan had $6.4 million outstanding, a 5.75% fixed rate, and an August 2027 maturity; the company reported covenant compliance at year-end.
Material changes and unusual items
- Net loss increased by about $10.1 million. General and administrative expense rose 60%, primarily because legal professional fees for the Altor/NantCell dispute increased by about $5.0 million.
- Operating expenses included a $5.25 million reserve for credit losses on an interest-reserve deposit made under a Prime Capital Ventures credit agreement. HCW terminated that agreement in January 2024; the lender subsequently defaulted on returning the deposit. The company is pursuing recovery, but the reserve reflects a full impairment.
- Research and development expense declined 18%, mainly due to lower manufacturing/material and preclinical costs; clinical-trial expense increased 33%.
- Investing cash flow was positive $3.80 million, reflecting $10.0 million of investment maturities less $6.20 million of property and construction spending. The company reported $6.9 million of remaining construction commitments and $1.2 million of manufacturing commitments at year-end.
Development, outlook and principal risks
- HCW9218: Phase 1 solid-tumor and Phase 1b pancreatic study safety-evaluation periods concluded in February 2024, and both studies established a recommended Phase 2 dose. In the solid-tumor study, 5 of 7 ovarian cancer patients showed stable disease; there were no complete or partial responses in the earlier reported assessment. In the pancreatic study, 2 of 15 patients showed stable disease. These are preliminary clinical observations, not evidence of confirmed efficacy.
- The company planned an investigator-sponsored Phase 2 ovarian cancer study with UPMC, with enrollment expected in the first half of 2024, and a Phase 2 pancreatic cancer study with NCI, expected to begin in the second half of 2024. Timing and execution depend on funding, site readiness and regulatory authorization.
- HCW9302: The company planned to submit an IND for an autoimmune-disease study in the first half of 2024, subject to completing toxicology work and FDA clearance. It remained preclinical at year-end.
- After year-end, HCW Biologics completed a $2.5 million common-stock placement at $1.40 per share and entered into agreements for $10.0 million of senior secured notes. $2.0 million of the notes had funded by the filing date. The notes bear 9% annual interest, mature March 27, 2026, and are secured by the company’s 5.6% Wugen ownership stake. Management also described plans for further fundraising; absent additional financing, it may reduce spending, trials, staffing or manufacturing plans.
- The filing states there was substantial doubt about the company’s ability to continue as a going concern based on year-end cash. Management said post-year-end financing commitments and potential operating reductions were expected to support at least 12 months, but outcomes depend on implementation and additional funding.
- Altor/NantCell alleges trade-secret misappropriation and related claims involving the company and its CEO, including seeking rights to patents and patent applications. Arbitration was scheduled for May 20, 2024. Altor/NantCell also sought contribution toward legal expenses advanced to the CEO. The company said potential losses could not be reasonably estimated and recorded no accrual; an adverse result could materially affect the business and intellectual property.
- Other significant risks include clinical and regulatory uncertainty, dependence on third-party manufacturing and clinical sites, competition, financing and dilution risk, and supply-chain, inflation and geopolitical disruptions. The company reported no material cybersecurity incident through year-end.
Important facts for investors to verify
- Actual cash runway and whether the full $10.0 million secured-note commitment was funded, alongside any additional financing and its terms.
- Recovery prospects and timing for the $5.25 million Prime Capital Ventures deposit, including any legal or insurance proceeds.
- Current status and outcomes of the Altor/NantCell arbitration and expense-advancement litigation, including any potential impact on HCW’s patents and technology.
- Updated, complete clinical data for HCW9218, including safety, response measures, enrollment plans and authorization for Phase 2 studies.
- Whether HCW9302’s IND was submitted and cleared, and whether the planned manufacturing-facility buildout and validation remain on schedule and within budget.