Xenetic Biosciences, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. The unaudited filing was signed August 11, 2022. Xenetic is a clinical-stage biopharmaceutical company developing DNase-based oncology and personalized XCART CAR T technologies; it also receives PolyXen royalties.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue, all royalties | $416,710 | $287,603 | $805,703 | $478,819 |
| Research and development expense | $2.08 million | $0.52 million | $3.18 million | $1.15 million |
| General and administrative expense | $1.03 million | $0.89 million | $1.93 million | $1.82 million |
| Operating loss | $2.69 million | $1.13 million | $4.31 million | $2.50 million |
| Net loss | $2.67 million | $1.11 million | $4.27 million | $2.45 million |
| Basic and diluted loss per share | $0.19 | $0.13 | $0.31 | $0.28 |
Revenue increased 44.9% in Q2 and 68.3% for the first half, primarily reflecting higher Takeda-related royalties as its sublicensee continued a worldwide product launch. Revenue remained royalty-based; the company reported no revenue from its Serum Institute, Pharmsynthez, or SynBio collaborations. Operating margins are not meaningful for assessing this loss-making development-stage business; the filing does not present a margin measure.
Q2 R&D included $1.305 million of acquired in-process R&D expense related to the DNase licenses. Excluding that item, Q2 R&D was approximately $0.8 million, up 47.3% year over year. Higher outside research and contract costs also reflected continued XCART preclinical work and some DNase spending. G&A rose mainly due to legal costs related to the CLS licenses.
At June 30, 2022, cash was $14.93 million, total current assets $15.38 million, current liabilities $1.28 million, working capital approximately $14.1 million, and total assets $16.47 million. Total liabilities were $1.28 million; the filing reports no debt. Cash declined from $18.24 million at December 31, 2021. For the first half, operating cash use was $2.82 million, investing cash use was $0.50 million for the DNase license, and financing cash flow was zero; cash decreased by $3.32 million. No cash interest was paid.
Material changes and business developments
- On April 26, Xenetic licensed CLS’s DNase oncology platform through an exclusive license and sublicense. Consideration included $0.5 million cash and 875,000 common shares, valued at approximately $0.8 million; the approximately $1.3 million total was expensed as R&D. The agreements include potential cash milestones of up to $13 million under each agreement, additional share milestones under the sublicense, and royalties and sublicense-revenue sharing.
- Common shares issued increased to 14,343,587 at June 30 from 13,466,603 at year-end, including the 875,000 shares issued for the CLS transactions. The filing reported 14,316,596 shares outstanding as of August 5.
- During Q2, Xenetic and Scripps Research mutually ended additional funding under their XCART research agreement. Scripps was to continue work until previously advanced funds were expended; Xenetic had paid $2.4 million through June 30.
- A June 30 Catalent statement of work provides for cGMP manufacture of human DNase I, with estimated project costs up to approximately $5 million, excluding certain fees and alternatives, over an expected 17 months from project start. It is terminable by Xenetic on 30 days’ notice; no costs were incurred or payments made through June 30.
- On August 2, after quarter-end, Xenetic announced an exploratory, Volition-funded collaboration to evaluate NETs-targeted adoptive cell therapies. The parties will share proceeds from any resulting commercialization or licensing.
Outlook, risks, and contingencies
- Management expects existing resources to fund operations into the third quarter of 2023, but states that substantial doubt about the company’s ability to continue as a going concern exists because of recurring losses and expected near-term operating losses. Additional long-term capital may be needed; the timing and availability of financing are uncertain.
- Nasdaq notified Xenetic on June 3 that its share price had been below $1 for 30 consecutive business days. The company had until November 30, 2022 to regain compliance, including a closing bid of at least $1 for ten consecutive business days. Delisting could impair trading liquidity and access to capital; the filing gives no assurance compliance would be regained.
- Key risks include clinical, regulatory, manufacturing, and commercialization uncertainty—especially for the newly licensed DNase platform—need for financing and collaborators, and potential effects of geopolitical events and related sanctions. Management reported no significant operating impact from COVID-19 to date but noted continuing uncertainty.
- The Pharmsynthez related-party loan receivable was approximately $0.4 million and classified as long-term. Pharmsynthez requested an extension; terms remained under negotiation. Xenetic reported that U.S.-based collateral was adequate, but received no Q2 interest payment after Pharmsynthez cited sanctions-related constraints.
- No material legal proceedings or material changes to previously disclosed contractual obligations were reported. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether cash use and development spending remain consistent with the stated runway into Q3 2023, and what financing may be required thereafter.
- Progress, funding needs, and clinical and regulatory plans for the DNase and XCART programs, including the expected manufacturing costs and timing under the Catalent work.
- Nasdaq bid-price compliance status and any effect on listing, liquidity, or capital-raising capacity.
- Actual royalty trends and their reliance on Takeda-related sublicense sales, alongside the company’s continuing operating losses.
- Status and collectability of the Pharmsynthez loan, and potential future CLS milestone, royalty, and share obligations.