Xenetic Biosciences, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. The company is a development-stage biopharmaceutical business focused on its personalized XCART CAR T platform, while also partnering around its PolyXen drug-delivery technology. XBIO-101 development is suspended, with no current plans to resume it.
Financial performance and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $112,927 | $0 | $169,676 | $0 |
| Operating expenses | $1.10 million | $1.38 million | $2.38 million | $2.71 million |
| Operating loss | $982,459 | $1.38 million | $2.21 million | $2.71 million |
| Net loss | $953,642 | $1.38 million | $2.13 million | $2.70 million |
| Basic and diluted loss per share | $0.15 | $1.56 | $0.34 | $7.79 |
| Net cash used in operating activities | Not reported separately | Not reported separately | $2.30 million | $2.31 million |
Revenue was entirely Takeda-related royalty income; the company reports recognizing it when sales reports make the royalties reliably measurable. Revenue remains small relative to operating expenses, and the filing does not present a meaningful gross margin.
At June 30, cash was $8.07 million, compared with $10.37 million at December 31, 2019. Current assets were $9.12 million and current liabilities $787,328; reported working capital was approximately $8.3 million. Total assets were $19.06 million and total liabilities $3.71 million, including a $2.92 million deferred tax liability. No borrowings or material financial debt are reported. Accumulated deficit was $168.14 million.
Changes from comparable periods
- Royalty revenue began in 2020: $112,927 for Q2 and $169,676 for the first half, versus none in 2019.
- Q2 operating expenses fell 20.5%; first-half expenses fell 11.9%. Lower XBIO-101 trial spending and lower share-based expense contributed, partly offset by XCART development and employee costs.
- Net loss narrowed by 30.8% in Q2 and 21.1% for the first half. First-half 2019 loss applicable to common stockholders included a $3.88 million deemed dividend related to the Series B preferred stock down-round provision; first-half 2019 net loss before that dividend was $2.70 million.
- First-half operating cash use was broadly unchanged year over year. Cash decreased $2.30 million, and there were no financing cash proceeds in the first half of 2020.
- Common shares outstanding rose from 6,065,441 at December 31, 2019 to 6,296,227 at June 30, 2020, principally reflecting warrant exercises.
Outlook, agreements, risks, and unusual items
- Management states that substantial losses and expected near-term operating losses raise substantial doubt about the company’s ability to continue as a going concern. It believes existing resources will fund operations through mid-2021, but anticipates potential long-term financing needs. Funding options include equity, debt, collaborations, related-party funding, or licensing.
- Under a May 2020 agreement, Xenetic agreed to provide Scripps Research up to $3.0 million for XCART preclinical research, payable quarterly over 27 months, with an initial payment of approximately $300,000.
- A June 2020 related-party master services agreement and work order with Pharmsynthez cover XCART research. The work order is estimated at approximately $1.8 million, with milestone payments up to $1.05 million or, at the company’s discretion, up to 1.0 million common shares. The work is expected to take approximately 20 months. No costs were incurred under the work order by June 30.
- COVID-19 had not materially affected operations during the first half, but the company said the future effects on operations, financial results, and cash flows were uncertain and could be adverse.
- Q2 general and administrative expense benefited partly from a $143,639 gain on settlement of vendor amounts related to closing out the XBIO-101 trial. Interest income also increased substantially year over year, primarily due to cash raised in 2019.
- The $9.24 million indefinite-lived OncoHist in-process research and development asset had no impairment recorded in the period. The company reported no material legal proceedings or off-balance-sheet financing arrangements.
Investor verification priorities
- Confirm cash burn, the basis for management’s mid-2021 runway estimate, and the timing and terms of any required future financing.
- Track XCART research progress, costs, milestones, and potential equity settlement under the Scripps and Pharmsynthez agreements, including related-party governance and disclosures.
- Verify the source, reporting lag, and sustainability of Takeda royalties, given that royalty and milestone income to date has been heavily concentrated in one collaborator.
- Assess clinical and development risks for XCART and the implications of suspended XBIO-101 development, along with the effects of COVID-19 on research and funding conditions.
- Monitor the carrying value and impairment testing of the OncoHist intangible asset and any changes in share count or warrant dilution.