X4 Pharmaceuticals, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. The company is a clinical-stage biotechnology business developing therapies for rare diseases; it had no product sales. Financial figures below are unaudited and in U.S. dollars.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 | Change / context |
|---|---|---|---|
| Revenue | $3.0 million | None | Entirely license revenue from Abbisko milestone recognition; not product sales. |
| Research and development expense | $8.9 million | $5.7 million | Up $3.3 million, primarily from mavorixafor clinical-trial costs and added personnel. |
| General and administrative expense | $4.7 million | $4.8 million | Down $0.1 million. |
| Total operating expenses | $13.6 million | $10.4 million | Up $3.1 million. |
| Loss from operations | $10.6 million | $10.4 million | Operating loss increased $0.1 million. |
| Net loss | $11.1 million | $10.9 million | Net loss increased $0.3 million; Q1 2020 included a $0.1 million tax provision and $0.2 million debt-extinguishment loss. |
| Net loss per common share, basic and diluted | $0.56 | $6.67 | Per-share comparison is affected by the substantially different weighted-average share counts following the 2019 merger. |
| Cash and cash equivalents | $115.1 million | — | Down from $126.2 million at December 31, 2019. Restricted cash was an additional $1.9 million. |
| Net cash used in operating activities | $15.5 million | $11.8 million | Higher outflow, including working-capital uses related to the license receivable and clinical-trial payments. |
| Long-term debt, carrying value | $25.3 million | $20.1 million at Dec. 31, 2019 | $25.0 million principal outstanding at March 31, 2020. |
Cash, cash equivalents and restricted cash totaled $117.0 million at quarter-end, versus $128.1 million at year-end 2019. Stockholders’ equity was $118.8 million, and accumulated deficit was $143.2 million. Profitability and operating margins are not meaningful indicators for this pre-commercial development-stage company.
Material developments and comparisons
- Q1 revenue was the $3.0 million Abbisko financial milestone, recognized after Abbisko completed a qualifying financing in March. The cash payment was received in April 2020, so the quarter-end balance sheet included a $3.0 million receivable.
- On March 13, 2020, the company amended and refinanced its Hercules loan, increasing principal from $20.0 million to $25.0 million with a $5.0 million additional draw. The refinancing generated a $0.2 million extinguishment loss.
- Research and development spending rose to $8.9 million from $5.7 million. Direct mavorixafor expense increased to $4.5 million from $2.9 million; unallocated R&D expense increased to $3.9 million from $2.7 million.
- Q1 2019 included $26.4 million of cash acquired in the Arsanis merger in investing activities; Q1 2020 investing activities used $0.6 million, primarily for laboratory equipment. The periods are therefore not directly comparable for investing cash flow.
Outlook, risks and contingencies
- Liquidity: Management expected cash and cash equivalents to fund forecast operating expenses, capital expenditures and debt service for at least 12 months from the financial-statement issuance date. The company expects expenses to rise and anticipates needing additional capital; access to financing is uncertain.
- Clinical timelines: COVID-19-related site-activation delays and slower enrollment shifted anticipated top-line results from the Phase 3 WHIM trial from the second half of 2021 to 2022. Initial SCN trial data were expected to be delayed into 2021. The company continued to expect initial WM trial data by the end of 2020.
- COVID-19: Site closures, travel restrictions, remote-work arrangements, diverted healthcare resources and enrollment disruption could further delay trials and regulatory interactions. The company reported limited financial impact at the time but could not predict the pandemic’s duration or full effect. It expected adequate global mavorixafor supply through 2020.
- Debt terms: The Hercules facility bears variable interest at the greater of 3.75% plus prime or 8.75%; its effective annual rate was 10.7% at March 31. Principal payments were scheduled to begin in February 2022, with maturity in July 2023. Additional borrowing is conditional, and the facility includes collateral, covenants and potential cash-maintenance requirements if outstanding principal exceeds $25 million.
- Business risks: The company depends principally on mavorixafor, has no approved products or product-sale revenue, and relies on single-source manufacturers for drug substance and finished capsules. Clinical success, regulatory approval, financing, intellectual-property protection and collaborators remain uncertain.
- Abbisko potential consideration: The agreement provides for up to $208 million in development, regulatory and commercial milestones, assuming development in six indications, plus tiered royalties in the low-double-digit range. These amounts are contingent, and the filing does not establish that they will be achieved.
- The company reported no material legal proceedings and no off-balance-sheet arrangements. Management assessed disclosure controls as effective as of March 31, 2020.
Important facts for investors to verify
- Progress, enrollment and updated timing for the WHIM Phase 3, SCN Phase 1b and WM Phase 1b trials, including any continuing COVID-19 effects.
- Cash runway assumptions and quarterly operating cash use, along with the availability and terms of future financing.
- Hercules loan covenants, cash-maintenance triggers, interest costs, repayment schedule and conditions on further advances.
- Timing and collection of the Abbisko milestone, and the conditions and uncertainty attached to any further milestone or royalty revenue.
- Clinical-supply continuity and contingency plans for the company’s single-source mavorixafor manufacturers.
- The reported $0.56 loss per share: weighted-average shares were 20.014 million, including the weighted-average effect of 3.88 million prefunded warrants, while actual common shares outstanding at March 31 were 16.142 million.