XBiotech Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. Financial statement amounts below are in U.S. dollars; millions are used for readability unless stated otherwise.
Business context
XBiotech is a pre-revenue biopharmaceutical company developing naturally occurring “True Human” monoclonal antibodies. Its pipeline includes bermekimab and other candidates across oncology, dermatology, inflammatory and infectious diseases. The company reported 58 employees and had not generated revenue.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $4.53 | $3.94 | $13.75 | $10.88 |
| General and administrative expense | $1.58 | $1.18 | $4.17 | $4.00 |
| Total operating expense | $6.11 | $5.12 | $17.92 | $14.89 |
| Net loss | $6.15 | $5.05 | $17.87 | $15.03 |
| Net loss per share, basic and diluted | $0.15 | $0.14 | $0.47 | $0.42 |
- At September 30, cash and cash equivalents were $40.34 million, versus $15.82 million at December 31, 2018. Current assets were $40.91 million and current liabilities $2.02 million; total assets were $66.64 million.
- Total liabilities were $2.02 million, comprising current accounts payable and accrued expenses; the balance sheet reported no debt.
- For the first nine months, operating cash use was $14.52 million, investing cash use was $0.20 million, and financing provided $38.92 million. Ending cash increased by $24.52 million.
- No revenue or positive operating margin was reported. The company has an accumulated deficit of $255.57 million and says it has never been profitable.
Changes versus prior comparable periods
- Q3 net loss increased about 22% year over year; nine-month net loss increased about 19%. Nine-month operating expenses rose about 20%.
- R&D expense rose 15% in Q3 and 26% for the nine-month period, primarily reflecting increased laboratory and manufacturing supplies for clinical drug manufacturing and higher personnel and share-based compensation. The company said clinical-trial and sponsored-research costs fell in Q3 as two trials completed and a new trial had not yet fully ramped.
- G&A expense rose 34% in Q3 and 4% for nine months. The Q3 increase included a $228,000 CEO bonus and higher share-based compensation; nine-month professional fees also increased, partly related to the underwriting agreement.
- 2019 financing included a June sale of approximately 4.8 million shares at $8.25 per share, producing about $37.5 million net proceeds. Shares outstanding increased from 35.90 million at year-end 2018 to 41.07 million at September 30, 2019.
Outlook, developments and risks
- Management expected the September 30 cash balance to fund operating expenses and capital expenditures through September 30, 2020, subject to assumptions that could prove inaccurate; it also stated cash could be used sooner than expected. The filing does not provide formal revenue or earnings guidance.
- The company launched a randomized Phase 2 bermekimab study in hidradenitis suppurativa and reported first-patient enrollment in a Phase 2 systemic sclerosis study. A Phase 2 atopic dermatitis study was expected to enroll its first patient around the filing date.
- Management cited earlier study observations in hidradenitis suppurativa and atopic dermatitis; these are clinical findings, not evidence of regulatory approval or commercial success. The company’s development plans depend on clinical results, regulatory approvals, financing and eventual commercialization.
- XBiotech expects substantial operating losses to continue and says profitability may never be achieved. It identified clinical and regulatory uncertainty, funding needs, competition, intellectual-property protection and dependence on key personnel among its risks. It reported no material changes to the risk factors in its 2018 Form 10-K.
- Foreign-exchange losses were $289,000 in Q3 2019, compared with $36,000 in Q3 2018. Management said it was not then exposed to material market risk and did not hedge.
Important facts for investors to verify
- Clinical-trial enrollment, timelines, endpoints and subsequent results for bermekimab, particularly the Phase 2 dermatology and systemic sclerosis programs.
- Whether the stated cash runway through September 2020 remains achievable as trial and manufacturing spending develops.
- Cash burn, future financing needs and potential dilution following the 2019 share offering and continued stock-option issuance.
- The evidentiary basis and limitations of management’s reported earlier-study observations, and the status of regulatory and patent developments.