Xencor, Inc. — Q2 2015 Form 10-Q
Reporting period: Three and six months ended June 30, 2015. Unaudited results; dollar amounts below are in millions unless noted. Xencor is a clinical-stage antibody-engineering company with no products approved for sale and no product-sales revenue.
Financial performance and liquidity
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $1.014 | $0.824 | $2.505 | $3.008 |
| Research and development expense | $7.476 | $4.283 | $12.681 | $8.511 |
| General and administrative expense | $2.524 | $1.594 | $5.288 | $3.317 |
| Operating loss | $(8.986) | $(5.053) | $(15.464) | $(8.820) |
| Net loss | $(8.868) | $(5.044) | $(15.312) | $(8.795) |
| Basic and diluted loss per share | $(0.22) | $(0.16) | $(0.41) | $(0.28) |
| Operating cash flow | Not separately provided quarterly | $(9.009) | $(10.767) |
- At June 30, cash and cash equivalents were $11.171; marketable securities were $147.998, for combined cash and investments of approximately $159.2. Current assets were $69.720 and current liabilities $8.408.
- Total liabilities were $10.495, including deferred revenue and deferred rent. The filing reports no borrowings or material debt; operating lease payments remain committed.
- Six-month investing cash use was $150.349, primarily reflecting $148.328 of marketable-security purchases. Financing provided $115.880, principally net proceeds from the March stock offering.
- Gross margin is not meaningful because Xencor had no product sales. The filing does not present a product-sales margin.
Changes versus prior comparable periods
- Q2 revenue increased by about $0.2 million, while six-month revenue fell $0.5 million. The six-month decline primarily reflected lower licensing revenue, including CSL-related revenue; Novo Nordisk collaboration revenue partly offset the change. The Amgen collaboration had ended in 2014.
- Q2 and six-month operating expenses increased $4.1 million and $6.2 million, respectively. R&D increases were driven mainly by bispecific antibody development and XmAb5871 work; G&A growth reflected staffing, professional fees and stock-based compensation.
- Six-month net loss widened by $6.5 million. Higher expenses and lower revenue more than offset increased interest income.
- In March 2015, Xencor sold 8.625 million shares for net proceeds of $115.2 million. Shares outstanding increased from 31.4 million at year-end 2014 to 40.5 million at June 30, 2015, diluting existing holders.
Outlook, programs and risks
- Management estimated that cash, cash equivalents, marketable securities and anticipated collaboration payments would fund operations through 2019. This is based on assumptions that may prove incorrect; management also stated that additional funding would be needed to complete development and that milestone and contingent payments are uncertain.
- Planned development included an XmAb5871 trial in IgG4-related disease later in 2015; clinical trials for bispecific candidates XmAb14045 and XmAb13676 were planned for 2016. The XmAb7195 Phase 1 expansion was underway, with data expected in the first half of 2016; a subcutaneous-formulation trial was planned for 2016.
- XmAb5871 Phase 1b/2a results showed activity in rheumatoid arthritis, but the filing describes early-stage data. Treatment-related serious adverse events included an infusion reaction and venous thrombosis. XmAb7195 studies reported dose-limiting transient thrombocytopenia and urticaria.
- Key risks include clinical and regulatory failure or delay, patient enrollment, safety, dependence on third-party manufacturers and collaborators, uncertain milestone income, competition, intellectual-property claims and the need for future financing. The company reported reliance on Catalent and KBI for clinical supply and no commercial supply agreements for the candidates discussed.
- A Delaware shareholder class action concerning 2013 corporate transactions was consolidated with the company’s Section 205 petition. Xencor intended to defend the action but said potential loss could not be estimated.
- Management concluded disclosure controls were effective at the reasonable-assurance level as of June 30, 2015. The filing also describes a previously identified material weakness in revenue recognition and significant deficiencies, with remediation efforts underway.
Investor verification priorities
- Confirm subsequent clinical-trial progress and full safety and efficacy data, particularly for XmAb5871 and XmAb7195.
- Assess whether the stated runway through 2019 remains supportable under updated spending, trial timelines and collaboration-payment assumptions.
- Track bispecific manufacturing readiness, clinical-trial timing and the availability of commercial-scale supply agreements.
- Review the shareholder litigation for developments, potential financial exposure and any impact on corporate actions.
- Monitor revenue-recognition control remediation, collaboration revenue concentration and dilution from equity compensation or future financing.