XBiotech Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019. Unless otherwise noted, financial figures are in U.S. dollars and millions. XBiotech is a pre-revenue biopharmaceutical company developing naturally occurring “True Human” monoclonal antibodies, including bermekimab.
Financial results and liquidity
- Revenue: None in Q1 2019 or Q1 2018. Gross margin and operating margin are not meaningful given the absence of revenue.
- Operating expenses: $5.805 million, up 40% from $4.150 million. Research and development was $4.527 million, up 51%; general and administrative expense was $1.278 million, up 10%.
- Loss: Operating loss was $5.805 million versus $4.150 million. Net loss was $5.864 million, or $0.16 per share, compared with $4.069 million, or $0.11 per share. The larger loss included a $146,000 foreign-exchange loss, versus a $17,000 gain a year earlier.
- Cash flow: Operating activities used $4.677 million, compared with $3.526 million. Investing activities used $6,000; financing activities provided $741,000. Cash decreased by $3.804 million during the quarter.
- Cash and liquidity: Cash and cash equivalents were $12.019 million at March 31, down from $15.823 million at year-end 2018. Current assets were $12.982 million and current liabilities $2.841 million. Management estimated available cash would fund operating and capital needs through March 31, 2020, but cautioned that assumptions may prove inaccurate and cash could be used sooner.
- Debt: No debt is reported. Total liabilities were $2.841 million; shareholders’ equity was $36.983 million. Accumulated deficit was $243.564 million.
Material changes and operating developments
- R&D expense increased mainly because laboratory and manufacturing supplies rose by $1.029 million, primarily related to clinical drug manufacturing; clinical-trial and sponsored-research costs also increased.
- Management reported positive findings from two recently completed open-label, multicenter Phase 2 studies of bermekimab for atopic dermatitis and hidradenitis suppurativa; findings were presented at a March 2019 dermatology meeting. The filing provides no numerical efficacy or safety results in the supplied text.
- On April 30, 2019, after quarter-end, the company established an at-the-market equity program permitting sales of up to 4,334,453 common shares. Potential proceeds and dilution depend on any shares sold and their sale prices.
- The company had 36,090,125 shares outstanding at March 31, 2019 and 36,113,175 as of May 9, 2019. Q1 financing included approximately $541,000 from option exercises and collection of a $200,000 subscription receivable.
Outlook, risks, and other items
- XBiotech expects substantial and potentially increasing operating losses as it advances clinical and preclinical programs. It has never been profitable and may never achieve profitability; product revenue depends on regulatory approval and successful commercialization.
- Management plans to continue clinical-pipeline development and R&D, selecting programs for further development based on preclinical and clinical results and commercial potential. No specific financial guidance was provided.
- Principal uncertainties include clinical success, regulatory approval, commercialization, competition, intellectual-property protection, recruiting patients and employees, and the availability and timing of additional financing. The company states its ability to fund planned clinical operations depends on cash receipts, collaboration or product sales, and/or financing.
- The filing reports no material changes to the risk factors in the 2018 Form 10-K. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting. Adoption of the new lease standard had no material financial-statement impact.
Investor facts to verify
- Whether bermekimab’s Phase 2 findings are supported by detailed efficacy, safety, and durability data, and what next-stage studies are planned.
- Whether the stated cash runway through March 2020 remains achievable as clinical, manufacturing, and other spending evolves.
- Whether the ATM program is used, how much capital it raises, and the resulting share dilution.
- How higher R&D spending and foreign-exchange fluctuations affect quarterly cash burn and losses.