Xenetic Biosciences, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Financial statements are unaudited.
Business context
Xenetic is a development-stage biopharmaceutical company focused on its personalized CAR T platform, XCART, for B-cell lymphomas, and partnering its PolyXen drug-delivery platform. It reported no marketed products. The company has suspended further development of XBIO-101 and currently has no plans to resume it.
Key financial metrics
| Metric | Q3 2020 / September 30, 2020 | Comparable period / prior balance date |
|---|---|---|
| Revenue | $115,934 | $0 in Q3 2019 |
| Operating loss | $10.50 million | $8.95 million in Q3 2019 |
| Net loss | $7.56 million; $1.20 per share | $8.90 million; $2.67 per share in Q3 2019 |
| Nine-month revenue | $285,610 | $0 in 2019 |
| Nine-month net loss | $9.69 million; $1.55 per share | $11.60 million; $9.07 per share in 2019 |
| Cash and current assets | $7.05 million cash; $7.99 million current assets | $10.37 million cash; $11.09 million current assets at Dec. 31, 2019 |
| Current liabilities / working capital | $0.79 million / approximately $7.2 million | $1.42 million / approximately $9.7 million at Dec. 31, 2019 |
| Operating cash flow, nine months | $(3.31) million | $(4.72) million in 2019 |
| Total liabilities | $0.79 million | $4.33 million at Dec. 31, 2019 |
Revenue consisted of royalties tied to a Takeda sublicense. The company records royalties when Takeda reports sales, generally in the quarter after the sales occur. No debt balance is reported on the September 30 balance sheet. Profit margins are not meaningful given the company’s limited royalty revenue and continuing development-stage losses.
Material changes and unusual items
- A $9.24 million impairment charge eliminated the carrying value of the OncoHist in-process research and development asset. Management cited an indefinite decision to stop supporting its development, inability to sell or license it, and reduced market capitalization.
- The impairment caused the reversal of a $2.92 million deferred tax liability, recorded as an income tax benefit. This benefit reduced reported net loss; it did not represent operating revenue.
- Q3 R&D expense fell to $0.57 million from $3.52 million, largely because Q3 2019 included approximately $3.03 million of XCART acquisition-related in-process R&D expense. G&A fell to $0.80 million from $2.14 million, mainly because prior-year costs included XCART transaction expenses.
- For the nine months, operating costs rose to $13.00 million from $11.65 million, primarily reflecting the larger 2020 impairment. Net loss was lower largely due to the tax benefit; operating loss increased.
- No financing cash flows were reported in the first nine months of 2020. Cash declined by $3.31 million from year-end 2019.
Outlook, risks and commitments
- Management expects continuing losses and states that substantial doubt exists about the company’s ability to continue as a going concern. It believes existing resources will fund operations through mid-2021, but anticipates potentially needing additional capital in the near term. If financing is unavailable, it may reduce or suspend development and further cut expenses.
- The May 2020 Scripps Research agreement provides for up to $3.0 million in research funding over 27 months to support XCART preclinical development. A Pharmsynthez XCART work order is estimated at approximately $1.8 million, with milestone payments of up to $1.05 million or, at the company’s discretion, up to 1 million common shares.
- COVID-19 had not materially affected operations through the first nine months of 2020, but management said future effects were uncertain.
- On October 29, 2020, Nasdaq notified the company that its share price had been below the $1 minimum for 30 consecutive business days. The stated deadline to regain compliance was April 27, 2021; delisting could impair liquidity and access to capital.
- A new two-year headquarters lease was signed October 1, 2020, after quarter-end, with approximately $78,000 in total minimum rent payments.
- The company reported no material legal proceedings. Disclosure controls were assessed as effective, and no material internal-control changes were reported.
Important facts for investors to verify
- Whether cash use, financing prospects, and development spending support the stated mid-2021 runway and address the going-concern uncertainty.
- XCART research milestones, costs, and whether the Scripps and Pharmsynthez programs progress as planned.
- The basis and implications of the OncoHist impairment and the company’s decision not to support further development.
- Takeda sublicense sales and the timing and durability of royalty receipts, given the company’s dependence on a single collaborator for most historical milestone and sublicense revenue.
- Progress toward Nasdaq minimum-bid compliance and any potential share-price or dilution effects of actions taken to retain the listing.