XBiotech Inc. — Q3 2016 Form 10-Q
Reporting period: Three and nine months ended September 30, 2016. XBiotech is a clinical-stage biopharmaceutical company developing True Human monoclonal antibodies. Its lead candidate, Xilonix, was in a U.S. Phase III colorectal cancer trial; its European Phase III trials were complete and its marketing application was under EMA review. Unless noted otherwise, financial amounts below are in U.S. dollars and millions.
Financial performance and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $9.8 | $9.7 | $28.8 | $20.9 |
| General and administrative expense | $2.7 | $1.1 | $7.5 | $4.5 |
| Net loss | $12.5 | $10.7 | $36.4 | $25.6 |
| Net loss per share | $0.38 | $0.33 | $1.12 | $0.84 |
| Cash used in operating activities | — | — | $33.2 | $22.6 |
| Cash used in investing activities | — | — | $11.9 | $6.6 |
- At September 30, cash and cash equivalents were $46.8 million, down from $91.1 million at December 31, 2015. Current assets were $48.8 million and current liabilities $6.6 million; no borrowings or debt are reported on the balance sheet.
- Total assets were $78.3 million; total liabilities were $6.7 million; accumulated deficit was $167.0 million. Building construction in progress was $19.4 million.
- Operating margins are not meaningful because the company had no revenue. The filing reports no material market-risk exposure and no hedging activity.
Material changes and drivers
- Nine-month operating expenses rose 43% to $36.3 million, and net loss widened 42% to $36.4 million year over year. R&D rose 38%, principally from clinical activity, workforce growth, and laboratory and manufacturing supplies.
- Q3 R&D was nearly unchanged year over year: lower clinical-trial costs were largely offset by higher salaries and manufacturing supplies. Q3 G&A increased 148%, mainly due to European commercialization-related professional fees, stock compensation, and employee costs.
- Operating cash use increased year over year, while investing cash use also rose as the company continued construction and equipment purchases. Nine-month financing provided only $0.9 million in 2016, compared with $77.5 million in 2015, which included IPO proceeds.
- Employees numbered 106 at quarter-end. The company reported 5.2 million outstanding stock options and $5.1 million of unrecognized compensation cost.
Outlook, risks and contingencies
- Management expects significant and increasing operating losses for the foreseeable future and says profitability depends on successful commercialization; the company has never been profitable and has not generated revenue.
- Xilonix’s EMA marketing-authorization decision was described as potentially occurring in 2016. The U.S. Phase III colorectal cancer trial remained on track under FDA Fast Track designation. A Phase II study in pyoderma gangrenosum was complete, with data being finalized; a Phase I/II study of 514G3 for Staphylococcus aureus bacteremia was ongoing.
- The new manufacturing facility was being prepared for registration batches. The company planned to submit supporting data to the EMA at the end of Q1 2017; the facility would not enter service until approval. At September 30, forecast additional construction and equipment spending was $1.2 million and $5.6 million, respectively, with final payments expected in Q4 2016.
- A September 2016 at-the-market equity program authorized up to $50.26 million in share sales. On November 1, after quarter-end, the company sold 100,000 shares for gross proceeds of approximately $1.36 million.
- A motion to dismiss the Texas securities class action was granted with prejudice on October 7, 2016. Related litigation continued in California; the company could not estimate its outcome or financial impact. Management reported no material changes to the risk factors in its 2015 annual report.
- The filing identifies funding needs, clinical and regulatory uncertainty, commercialization, competition, intellectual-property protection, and the ability to achieve profitability as risks. The filing text does not provide a specific operating-cash runway estimate.
Important facts for investors to verify
- Regulatory progress and timing for Xilonix in Europe, including the EMA decision and manufacturing-facility approval.
- Results, timing, and funding needs for the U.S. Phase III Xilonix trial and the 514G3 and other clinical programs.
- Cash burn, remaining facility and equipment commitments, and whether available cash plus ATM sales will fund planned operations.
- Actual dilution and proceeds from ATM share sales, and the status and potential impact of the California securities litigation.
- Whether clinical, regulatory, and commercialization progress can lead to revenue, given the company’s continuing losses and lack of sales.