Xenetic Biosciences, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited results; comparative period is Q1 2019.
Business context
Xenetic is a clinical-stage biopharmaceutical company focused on its personalized CAR T XCART platform for B-cell lymphomas, alongside the PolyXen drug-delivery platform and partner programs. The company has suspended further development of XBIO-101 and says it has no current plans to resume it. No drug candidates have received marketing authorization.
Financial highlights
| Metric | Q1 2020 | Q1 2019 / prior date |
|---|---|---|
| Revenue | $56,749 | $0 |
| Research and development expense | $359,651 | $463,782 |
| General and administrative expense | $927,880 | $863,373 |
| Total operating expenses | $1,287,531 | $1,327,155 |
| Loss from operations | $1,230,782 | $1,327,155 |
| Net loss | $1,179,429 | $1,327,250 |
| Basic and diluted loss per share | $0.19 | $6.45 |
| Cash and cash equivalents at period end | $9,367,200 | $10,367,920 at Dec. 31, 2019 |
| Working capital | Approximately $9.2 million | Approximately $9.7 million at Dec. 31, 2019 |
| Current liabilities | $1,507,301 | $1,415,157 at Dec. 31, 2019 |
Gross margin is not presented; with only royalty revenue and no reported cost of revenue, a margin comparison is not meaningful. The company reported no conventional debt liability on the balance sheet. A loan advanced to related party Pharmsynthez is an asset, not company debt; it accrues interest at 10% and has a 15-month term.
Operating cash use was $1,000,720, compared with $1,254,522 in Q1 2019. There was no investing or financing cash flow in Q1 2020. Q1 2019 financing cash flow included $2,699,050 of net proceeds from a registered direct offering.
Material changes and unusual items
- Revenue was $56,749 of PolyXen sublicense royalties attributable to sublicensee sales in Q4 2019. Xenetic recognizes these royalties when Takeda reports the sales, generally in the following quarter. No revenue was recorded in Q1 2019.
- Net loss improved by about 11% year over year. Lower R&D spending, principally as XBIO-101 trial costs declined after enrollment closed in March 2019 and development was suspended, contributed to the change; XCART spending partially offset the reduction. G&A rose 7.5%, mainly from investor-relations and consulting costs.
- Interest income increased to $51,487 from $150, primarily due to the larger cash balance following the July 2019 public offering. The prior-year loss per share also included a $3,879,447 deemed dividend related to a Series B preferred-stock down-round provision; there was no such dividend in Q1 2020.
- During Q1 2020, approximately 219,000 financing warrants were exercised cashlessly, resulting in 219,474 additional issued common shares. Outstanding common shares were 6,284,915 at March 31, 2020.
Outlook, liquidity, and risks
Management says existing resources are expected to fund operations through mid-2021, but anticipates that additional capital may be needed over the longer term. The company has incurred substantial losses and expects continued operating losses; management states these conditions raise substantial doubt about its ability to continue as a going concern. Future funding could depend on equity or debt financings, collaborations, licensing, or related-party funding.
COVID-19 had not materially affected operations during Q1, but the company could not predict its future effects. On April 20, 2020, Nasdaq notified Xenetic that its share price had been below the $1 minimum bid requirement for 30 consecutive business days. The compliance period was tolled through June 30, 2020; Xenetic had until December 28, 2020 to regain compliance, subject to Nasdaq rules. Failure could lead to delisting. The filing reports no material legal proceedings and no material changes to contractual obligations.
No specific financial or clinical guidance was provided. Development, clinical and regulatory timelines, collaboration receipts, financing availability, COVID-19 effects, and Nasdaq compliance remain uncertain.
Important facts for investors to verify
- Whether cash use and access to financing support management’s expected runway through mid-2021, given the going-concern disclosure.
- Progress, funding requirements, and timelines for XCART development and any plans to restart XBIO-101.
- Royalty reports and receipts from Takeda and the concentration of historical collaboration revenue in that relationship.
- Nasdaq bid-price compliance status and any actions affecting listing or share count.
- COVID-19’s eventual effects on operations, clinical development, markets, and the company’s ability to raise capital.