XTL Biopharmaceuticals Ltd. — FY 2018 Form 20-F
Reporting period: Year ended December 31, 2018; filed March 11, 2019. This is an annual report, not a standalone Q4 filing, and the supplied filing text does not provide separate fourth-quarter results. Financial statements are audited and prepared under IFRS, in U.S. dollars. Unless noted, amounts below are U.S. dollars in thousands.
Business context
XTL is a development-stage biopharmaceutical company with no product sales. Its lead candidate, hCDR1, is licensed from Yeda and is being developed for systemic lupus erythematosus (SLE) and Sjögren’s syndrome (SS). The company has no manufacturing capability and relies on outside financing and potential partners to advance development.
Financial performance and position
| Metric | FY 2018 / Dec. 31, 2018 | FY 2017 / Dec. 31, 2017 |
|---|---|---|
| Revenue | No product sales | No product sales |
| Research and development expense | $38 | $43 |
| General and administrative expense | $755 | $1,203 |
| Operating loss | $793 | $1,246 |
| Net income (loss) | $2,986 | $(781) |
| Net cash used in operations | $816 | $1,125 |
| Cash, cash equivalents and short-term bank deposits | $5,275 | $5,796 |
| Working capital | $7,942 | $5,906 |
| Total assets | $8,575 | $6,586 |
| Total shareholders’ equity | $8,322 | $3,619 |
| Long-term liabilities | None reported | $2,667 |
The 2018 net profit did not reflect operating profitability: net finance income of $3,779 included a $2,753 fair-value gain on InterCure marketable securities and a $974 gain from warrant revaluation. The warrant liability was reclassified to share premium after registration of the warrants in March 2018. Operating expenses and cash use remained positive despite the reported net income; operating margins are not meaningful because there was no revenue.
Changes, outlook and risks
- R&D expense fell from $443 in 2016 to $43 in 2017 and $38 in 2018 as the company curtailed spending pending adequate trial funding or a strategic collaboration. G&A fell 37% year over year, mainly due to lower salaries and investor-relations costs and the absence of $206 in 2017 F-1 filing costs.
- Cash and short-term deposits totaled $5,275 at year-end. Management estimated these resources would fund planned activities for at least 12 months from the report date, but stated that additional financing would be needed to conduct clinical trials through approval. If funding or acceptable collaboration is unavailable, XTL may further reduce development, or sell or sublicense technology.
- Plans, subject to financing or collaboration, included a multinational Phase 2 SLE trial and consideration of a Phase 2 study in primary SS. The planned SLE study was expected to take about two years. The SS study was not being actively pursued due to financial constraints.
- Earlier hCDR1 studies involved more than 400 SLE patients and indicated favorable tolerability and safety, but the PRELUDE Phase 2 trial missed its primary SLEDAI efficacy endpoint. The company cites encouraging secondary BILAG findings, particularly at 0.5 mg weekly; future efficacy remains unproven.
- Material risks include ongoing losses, financing and dilution risk, clinical and regulatory failure, reliance on third-party manufacturers and collaborators, dependence on licensed intellectual property, patent protection and expiration, thin ADS trading, possible Nasdaq delisting, and political, security and currency risks in Israel. The company said it may have been a PFIC in 2018.
- The filing reports $127 of unpaid Yeda patent-expense reimbursement and says the parties were negotiating revised payment terms. hCDR1 patent families were stated to expire in 2022 and 2024. The company reported no R&D contractual obligations at year-end, while describing contingent license payments and royalties.
The auditor issued an unqualified opinion on the IFRS financial statements. Management concluded disclosure controls and internal control over financial reporting were effective as of December 31, 2018; the auditor did not express an opinion on internal control.
Important facts for investors to verify
- Confirm the company’s current cash runway, subsequent financing, and whether SLE or SS trials have started; the runway estimate is from March 2019 and conditional on business plans.
- Assess the quality and sustainability of 2018 earnings by separating operating losses from fair-value gains on InterCure securities and warrants.
- Verify the status and terms of the outstanding Yeda patent reimbursement, development milestones, license rights, and patent protection.
- Reconcile share-count disclosures: the filing reports 514,205,799 ordinary shares outstanding at year-end, but later ownership text cites 784,678,019 shares, and ADS counts also differ by section. Check current shares, ADS ratio, warrants and potential dilution against subsequent filings.
- Review Nasdaq listing compliance, InterCure investment valuation and liquidity, and the company’s PFIC status for relevant U.S. tax years.