Xencor, Inc. — Q1 2015 Form 10-Q
Business context and reporting period
Clinical-stage biopharmaceutical company developing engineered antibodies using its XmAb technology platform. The unaudited quarter ended March 31, 2015; comparisons are with the three months ended March 31, 2014. Xencor had no approved products or product-sale revenue and depended on collaboration, licensing and milestone revenue, as well as financing.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Collaboration, license and milestone revenue | $1.491m | $2.184m |
| Research and development expense | $5.205m | $4.228m |
| General and administrative expense | $2.764m | $1.723m |
| Total operating expenses | $7.969m | $5.951m |
| Operating loss | $(6.478)m | $(3.767)m |
| Net loss | $(6.444)m | $(3.751)m |
| Basic and diluted loss per share | $(0.19) | $(0.12) |
| Net cash used in operating activities | $(2.093)m | $(4.993)m |
Revenue declined about 32% year over year, while operating expenses rose about 34% and net loss widened about 72%. R&D spending increased principally due to bispecific development; G&A increased with staffing and public-company costs. Gross margin is not meaningful for this business and was not presented. Interest income was $0.101m; net other income was $0.034m.
At March 31, cash and cash equivalents were $119.048m and marketable securities were $47.815m, totaling $166.9m in cash, equivalents and securities. Total assets were $178.639m; total liabilities were $9.337m, including $4.5m of deferred revenue and $0.6m of deferred rent. No borrowing or debt balance is reported. Management expected available resources, together with anticipated collaboration payments, to fund operations through 2019, but cautioned that estimates and milestone payments are uncertain.
Operating cash use improved from the prior-year quarter, largely due to lower accounts receivable. Investing cash use was $49.058m, primarily reflecting purchases of marketable securities. Financing provided $115.550m, mainly from a March follow-on offering: 8.625m shares sold at $14.25 per share, generating $115.2m net proceeds. Shares outstanding increased from 31.434m at year-end 2014 to 40.358m at March 31, 2015.
Material changes and operating developments
- Revenue fell by $0.693m, reflecting the absence of prior-year Amgen and CSL revenue, partly offset by Novo Nordisk collaboration revenue and an Alexion milestone.
- R&D increased by $0.977m; bispecific program spending rose $1.3m to $2.0m as XmAb14045 advanced into IND-enabling work and manufacturing preparation.
- G&A rose by $1.041m, primarily from approximately $0.7m of staffing and compensation costs and $0.4m of public-company costs.
- Accumulated deficit was $250.437m. The company continues to expect significant losses and does not anticipate product-sale revenue for the foreseeable future.
Outlook, commentary, risks and unusual items
- XmAb5871: January 2015 topline Phase 1b/2a rheumatoid arthritis results included remission or low disease activity in 5 of 15 treated patients versus none on placebo; 3 treated patients had ACR70 responses and 6 had ACR50 responses. Two treated patients experienced treatment-related serious adverse events: an infusion reaction and venous thrombosis. Xencor planned an IgG4-related disease trial in 2015 and exploration of other indications; it did not plan the previously contemplated RA Phase 2b trial.
- XmAb7195: Interim data showed rapid free-IgE reductions. A dose-limiting transient thrombocytopenia occurred at 3.0 mg/kg; urticaria was also reported. Part 2 of the Phase 1a study was enrolling.
- Bispecifics: XmAb14045, targeting CD123 and CD3, was selected for IND-enabling studies; management planned to initiate an acute myeloid leukemia trial in 2016. Additional candidates remained in discovery.
- Partnerships: Amgen’s XmAb5871 collaboration was terminated in October 2014, with rights reverting to Xencor and Amgen retaining a right of first negotiation. CSL terminated a separate license in March 2015. Novo Nordisk collaboration revenue was recognized over its research term.
- Contingency: A purported class action filed in Delaware on March 3, 2015 alleges director fiduciary-duty breaches related to a pre-IPO recapitalization and challenges certain consents. The company disputed the claims; potential loss could not be estimated.
- Other considerations: Clinical development, regulatory approval, enrollment, manufacturing, partner performance, intellectual property and future financing are significant risks. The filing says disclosure controls were effective at a reasonable-assurance level and reports no material quarterly change in internal control over financial reporting; it also describes prior control weaknesses and remediation efforts.
Important facts for investors to verify
- Whether the clinical benefits and safety profile of XmAb5871 are confirmed in fuller analyses and subsequent trials, particularly given the reported serious adverse events.
- Whether XmAb7195’s thrombocytopenia and urticaria findings constrain dosing, and what later trial data show.
- Whether XmAb14045 reaches the planned clinical start and whether development spending or timelines change.
- Whether cash runway through 2019 remains realistic as clinical costs rise, and how much depends on uncertain partner milestones and payments.
- The status and potential financial or governance consequences of the Delaware shareholder litigation.
- Revenue recognition, continued control remediation, and the dilution implications of the 2015 offering and equity-plan share increases.