Xenetic Biosciences(XBIO) - 2021 Q4 - Annual Report

Table of Contents Form 10-K General Information This section provides basic information about Xenetic Biosciences, Inc.'s Form 10-K annual report, including company name, jurisdiction, principal executive offices, stock trading symbols, and status as a non-accelerated filer and smaller reporting company Form 10-K General Information | Metric | Detail | | :--- | :--- | | Company Name | XENETIC BIOSCIENCES, INC. | | Jurisdiction of Incorporation | Nevada | | Principal Executive Offices | 40 Speen Street, Suite 102, Framingham, MA 01701 | | Telephone Number | 781-778-7720 | | Common Stock Trading Symbol | XBIO (Nasdaq Capital Market) | | Warrant Trading Symbol | XBIOW (Nasdaq Capital Market) | | Well-Known Seasoned Issuer | No | | Non-Accelerated Filer | Yes | | Smaller Reporting Company | Yes | | Aggregate Market Value of Common Stock Held by Non-Affiliates (as of June 30, 2021) | Approximately $17,462,218 | | Number of Shares of Common Stock Outstanding (as of March 18, 2022) | 13,441,296 shares | Documents Incorporated by Reference This section states that information required for Part III of Form 10-K will be provided by reference to the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders or an amendment to this annual report - Information required for Part III (Items 10, 11, 12, 13, and 14) of Form 10-K will be provided by reference to the company's definitive proxy statement for its 2022 Annual Meeting of Stockholders, information statement, or an amendment to this annual report[8] XENETIC BIOSCIENCES, INC. 2021 Annual Report on Form 10-K Table of Contents This section lists the detailed table of contents for Xenetic Biosciences, Inc.'s 2021 Form 10-K Annual Report, covering sections from business overview to financial statements and exhibits 2021 Annual Report on Form 10-K Table of Contents | Part | Item | Page | | :--- | :--- | :--- | | PART I | | 1 | | | Item 1 Business | 1 | | | Item 1A Risk Factors | 21 | | | Item 1B Unresolved Staff Comments | 49 | | | Item 2 Properties | 49 | | | Item 3 Legal Proceedings | 49 | | | Item 4 Mine Safety Disclosures | 49 | | PART II | | 50 | | | Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 50 | | | Item 6 [Reserved] | 50 | | | Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations | 50 | | | Item 7A Quantitative and Qualitative Disclosures About Market Risk | 58 | | | Item 8 Financial Statements and Supplementary Data | 59 | | | Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 60 | | | Item 9A Controls and Procedures | 60 | | | Item 9B Other Information | 61 | | | Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 61 | | PART III | | 62 | | | Item 10 Directors, Executive Officers and Corporate Governance | 62 | | | Item 11 Executive Compensation | 62 | | | Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 62 | | | Item 13 Certain Relationships and Related Transactions, and Director Independence | 62 | | | Item 14 Principal Accounting Fees and Services | 62 | | PART IV | | 63 | | | Item 15 Exhibits and Financial Statement Schedules | 63 | | | Item 16 Form 10-K Summary | 63 | CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS Forward-Looking Statements This annual report contains numerous forward-looking statements regarding the company's future operating results, financial condition, business strategy, plans, revenues, costs, prospects, and operational objectives, with particular emphasis on the impact of the COVID-19 pandemic, drug development programs, clinical trials, regulatory approvals, collaboration arrangements, and expected outcomes of XCART technology - All statements in the report that are not historical facts are forward-looking statements, covering future operating results, financial condition, business strategy, plans, revenues, costs, prospects, and operational objectives[11] - Forward-looking statements include but are not limited to: the anticipated impact and duration of the COVID-19 pandemic; development plans for drug candidates; the nature, timing, and scope of clinical trials; the anticipated timing of regulatory filings; the nature, timing, and scope of collaboration arrangements; expected results under collaboration arrangements, including future payments; outcomes of regulatory approvals for drug candidates; commercialization plans for drug candidates; and the development of XCART CAR T (chimeric antigen receptor T-cell) technology and its potential in treating B-cell lymphoma[11] - Although the company believes the expectations in its forward-looking statements are reasonable, there is no guarantee of future results, activity levels, performance, or achievements[12] Factors Causing Material Differences This section lists risk factors that could cause actual results to differ materially from forward-looking statements, including failure to realize the expected potential of technology, financing capabilities, product development and commercialization risks, competitive impacts, changes in laws and regulations, and macroeconomic events - Failure to realize the anticipated potential of XCART or PolyXen technologies - The company's ability to implement its business strategy - Future need to raise additional working capital for further development of XCART technology and continued operations - Product development and commercialization risks, including the ability to successfully develop XCART technology - Impact of adverse safety results and clinical trial outcomes for CAR T-cell therapies - Impact of new CAR T-cell therapies and new uses for existing CAR T therapies on the competitive landscape - The company's ability to successfully commercialize current and future drug candidates - Ability to achieve milestones and other payments related to current and future co-development collaborations and strategic arrangements - Changes in laws and regulations by government agencies - Disruption or cancellation of existing contracts - Impact of competitive products and pricing - Product demand and market acceptance risks - Presence of competitors with greater financial resources - Management's ability to execute plans and motivate employees to execute plans - Ability to attract and retain key personnel - Adverse publicity related to the company's products or the company itself - Adverse claims related to the company's intellectual property - Adoption or changes in new accounting principles - Inherent costs of complying with regulations applicable to public companies (such as the Sarbanes-Oxley Act) - Other new business areas the company may enter in the future - Overall economic and business conditions and inflationary trends - Impact of natural disasters or public health emergencies (such as the COVID-19 global pandemic) and geopolitical events (such as the Russian invasion of Ukraine) and related sanctions and other economic disruptions or concerns on the company's financial condition and operating results - The company has never been profitable and may not achieve or maintain profitability in the future - The company requires substantial additional funding to achieve its objectives, and failure to obtain required funding in a timely manner may force the company to delay, limit, or terminate product development efforts, other operations, or commercialization efforts - Raising additional capital may result in dilution to stockholders' equity, restrict the company's operations, or require the company to relinquish rights to its technology or drug candidates[13][18][19][20] PART I ITEM 1 – BUSINESS Xenetic Biosciences, Inc. is a biopharmaceutical company focused on advancing its XCART personalized CAR T platform technology, primarily for treating B-cell lymphoma, and also leverages its PolyXen drug delivery platform through collaborations with biotechnology and pharmaceutical companies - The company is a biopharmaceutical company focused on advancing XCART, a personalized CAR T platform technology, designed to target patient and tumor-specific neoantigens, initially for the treatment of B-cell lymphoma[23][26][297] - The company also leverages its proprietary drug delivery platform, PolyXen, through collaborations with biotechnology and pharmaceutical companies to extend drug half-life and improve pharmacological properties[27][298] - In 2021, the company's internal development efforts focused on advancing XCART technology, while PolyXen or other technologies were not actively developed[28][42][299] Overview Xenetic Biosciences focuses on its XCART personalized CAR T platform technology, aiming to treat B-cell lymphoma by targeting patient and tumor-specific B-cell receptors, which is expected to enhance the safety and efficacy of cell therapies, and also utilizes its PolyXen drug delivery platform to develop next-generation biologics through collaborations - XCART technology aims to significantly enhance the safety and efficacy of B-cell lymphoma cell therapies by generating patient and tumor-specific CAR T cells[23][26] - The PolyXen platform technology utilizes the natural polymer polysialic acid (PSA) to extend the circulating half-life of drugs and potentially improve other pharmacological properties[27] - The company currently does not have regulatory marketing approval for any drug candidates but receives ongoing royalty revenue through PolyXen technology licensing agreements[27] Our Strategy The company's core strategy is to advance XCART technology through regulatory approval and commercialization, seeking industry collaborations to expand its applications, while also planning to advance the PolyXen platform through collaborative licensing arrangements to support XCART development, and pursuing orphan drug designation and accelerated approval pathways - The company plans to apply XCART technology to the development of cell therapies for B-cell lymphoma, with regulatory approval and commercialization as its primary focus[30] - The company intends to opportunistically advance the PolyXen platform technology through collaborative licensing agreements with pharmaceutical companies to obtain clinical data and working capital to support XCART development[31] - The company plans to seek orphan drug designation and accelerated approval pathways for relevant oncology indications to gain advantages such as market exclusivity[32] - The company primarily advances drug candidate development through contract manufacturing and contract research organizations (CROs) to efficiently manage resources[33] Business Developments In 2021, the company undertook several business developments, including revising its XCART technology development agreement with Pharmsynthez, terminating old work orders and entering new ones with associated payments, raising approximately $11.5 million in net proceeds through a private placement of common stock and warrants, and establishing an ATM offering program with no sales in 2021 - The company revised its Master Services Agreement (MSA) with Pharmsynthez on October 12, 2021, terminating all old work orders and entering into a new Second Work Order to support XCART technology development[35][427] - Pursuant to the MSA amendment and Second Work Order, the company paid Pharmsynthez a one-time fee of $40,000, with $21,000 settling all amounts under old work orders and the remaining $19,000 creditable against future new work order fees[36][428] - The company completed a private placement on July 28, 2021, issuing 950,000 shares of common stock, 4,629,630 Series A warrants, and 3,679,630 Series B pre-funded warrants, raising approximately $11.5 million in net proceeds; all Series B warrants were exercised in 2021[40][455][457] - The company entered into an ATM offering agreement with H.C. Wainwright & Co., LLC on November 19, 2021, to sell up to $4.0 million of common stock from time to time, but no shares were sold under this agreement as of December 31, 2021[37][39][452][454] Our Technology and Drug Candidates Xenetic Biosciences applies proprietary technology to internally and collaboratively developed drug candidates, primarily focusing on oncology drugs, with the XCART platform technology designed for personalized B-cell lymphoma treatment and the PolyXen platform technology used to extend drug molecule circulation time in the body, and the company co-develops drugs with partners like Pharmsynthez and Serum Institute, utilizing their clinical data for decision-making - The company applies proprietary and patented technology to internally and collaboratively developed drug candidates, primarily aiming to create next-generation biologics and therapies with a focus on oncology drugs[41] - The XCART technology platform enables personalized treatment of B-cell lymphoma by screening peptide ligands that bind to unique B-cell receptors on patient tumor cells, then inserting them into the antigen-binding domain of CAR T cells, expected to limit off-target toxicity[44][47] - PolyXen is a bioplatform technology that chemically links polysialic acid (PSA) to drug molecules to extend their circulation time in the human body, thereby creating potentially superior next-generation therapeutic candidates[44] - The company co-develops drugs with partners such as Pharmsynthez and Serum Institute, retaining rights in key markets and jointly owning clinical data to inform development and commercialization decisions in those markets[45][46][50] - ErepoXen (PSA-EPO) utilizes the PolyXen platform technology to treat anemia in chronic kidney disease (CKD) patients, aiming to reduce dosing frequency by extending the circulating half-life of the therapeutic drug; Pharmsynthez has completed Phase IIb/III clinical trials for ErepoXen in Russia and submitted registration documents, while Serum Institute has also completed Phase I/II clinical trials in India[49][51][52][53] Significant Collaborations and Strategic Arrangements Xenetic Biosciences has established several strategic collaborations with Takeda, SynBio LLC, PJSC Pharmsynthez, and Serum Institute; the exclusive R&D license agreement with Takeda terminated in August 2021, but royalty revenue under the non-exclusive sublicense agreement continues to grow, while collaborations with SynBio and Pharmsynthez focus on PolyXen and ImuXen technology development in Russia and CIS markets, leveraging their clinical data to support the company's development in other markets, and the collaboration with Serum Institute focuses on PSA-EPO development - The exclusive R&D license agreement with Takeda terminated in August 2021, but royalty revenue under the non-exclusive sublicense agreement continues to grow[55][56] Takeda Royalty Revenue | Year | Royalty Revenue (USD) | | :--- | :--- | | 2021 | Approximately $1.2 million | | 2020 | Approximately $0.4 million | | Year-over-Year Growth | 165.6% | [56][323] - The co-development agreement with SynBio LLC (a wholly-owned subsidiary of Pharmsynthez) grants SynBio an exclusive license to develop, market, and commercialize drug candidates based on PolyXen, OncoHist, and ImuXen technologies in Russia and CIS markets, while the company obtains an exclusive license to use SynBio's clinical data outside of SynBio's markets[57][61] - The collaboration agreement with PJSC Pharmsynthez grants Pharmsynthez an exclusive license to develop, commercialize, and market six product candidates based on PolyXen and ImuXen technologies in Russia and CIS markets, while the company obtains an exclusive license to use its clinical data outside of these regions[62] - Pharmsynthez and its subsidiary SynBio hold approximately 3.3% of the company's common stock and own all of the company's issued Series A preferred stock and approximately 1.5 million shares of Series B preferred stock[65][423] - The collaboration agreement with Serum Institute grants it an exclusive license to use PolyXen technology to develop PSA-EPO, with Serum Institute responsible for clinical trials and regulatory approvals in specific regions and paying royalties to the company[67][432] Our Intellectual Property Xenetic Biosciences protects its intellectual property in the biopharmaceutical sector, particularly in oncology, through patents, trade secrets, and proprietary technology, holding over 170 U.S. and international patents and pending patent applications covering XCART and PolyXen platform technologies and their drug candidates, with a patent strategy focused on major pharmaceutical markets and production sites, but patent protection is limited in duration and subject to challenges and infringement risks - The company protects and enhances its proprietary position through patent applications, reliance on trade secrets and proprietary technology, continuous innovation, and licensing opportunities, particularly in the oncology field[68] - As of January 20, 2022, the company directly or indirectly owns over 170 U.S. and international patents and pending patent applications, covering XCART platform technology, PolyXen platform technology, and other product candidates[71] - Patent protection typically lasts 20 years from the earliest effective filing date, with U.S. patents potentially receiving up to 5 years extension due to FDA regulatory review periods, but the total patent term cannot exceed 14 years after FDA approval[75] - The company has obtained patent protection for using PolyXen technology to conjugate specific therapeutic drugs (e.g., PSA-EPO, PSA-Insulin, PSA-FVIII) and for methods of endotoxin removal during PSA production and purification[73][74] - The patent landscape for pharmaceutical and biotechnology companies is uncertain, involving complex legal and factual issues; issued patents may be found invalid or unenforceable in court, and competitors may circumvent or design around the company's patents[77] Manufacturing and Supply Xenetic Biosciences lacks internal drug candidate material production capabilities and plans to rely on third-party manufacturers; currently, there is an agreement with Serum Institute for PolyXen technology-related clinical material production, but no manufacturing agreement exists for XCART technology, and the company is seeking third-party manufacturers to meet clinical supply needs - The company does not have internal capabilities to manufacture drug candidate materials and does not intend to acquire such capabilities in its current business strategy[80] - The company has an agreement with Serum Institute for the production of PolyXen technology-related clinical materials[80] - The company currently has no clinical material manufacturing agreement for XCART technology and plans to seek third-party manufacturers to meet clinical supply needs[80] Government Regulation Xenetic Biosciences' drug development is subject to stringent regulation by U.S. federal, state, and local, as well as other national government agencies, covering all stages from research and development, testing, and manufacturing to approval, marketing, and distribution; the regulatory process is lengthy and resource-intensive, including preclinical testing, IND applications, three phases of clinical trials, NDA/BLA approval, and post-market requirements, and the company may also seek orphan drug designation and utilize fast track, accelerated approval, and other expedited development and review programs, with foreign regulatory bodies having similar requirements and varying regulations and market exclusivity policies - The drug development process includes preclinical testing, IND applications, three phases of clinical trials, cGMP compliance inspections, and FDA review and approval of NDA or BLA[83][86][90][94] - The Orphan Drug Act provides incentives for drugs treating rare diseases, including a seven-year market exclusivity period, but may be limited by clinical superiority or insufficient supply[97] - The FDA offers expedited development and review programs such as Fast Track, Priority Review, Accelerated Approval, and Breakthrough Therapy designation to accelerate the development and approval of drugs for serious or life-threatening conditions that address unmet medical needs[100][101][102][103] - Post-market, drugs remain subject to ongoing regulatory requirements, including manufacturing, labeling, packaging, storage, advertising, promotion, record-keeping, post-market studies, and adverse event reporting[104] - The Biologics Price Competition and Innovation Act (BPCIA) provides 12 years of data exclusivity for innovative biologics, while the Hatch-Waxman Amendments allow for patent term extensions of up to five years to compensate for patent term lost during product development and FDA review[105][106] - In the European Union, new chemical entities typically enjoy eight years of data exclusivity and an additional two years of market exclusivity, with orphan drugs potentially receiving ten years of market exclusivity[112][113] Other Regulatory Matters Beyond FDA regulation, Xenetic Biosciences' manufacturing, sales, and promotional activities are subject to numerous U.S. federal and state government agencies and other national regulatory bodies, including anti-kickback, false claims, data privacy and security, and physician payment transparency laws; the company must also comply with requirements for drug distribution, controlled substance handling, and child-resistant packaging, and failure to comply with these regulations could result in adverse consequences such as fines, product recalls, or withdrawal of approvals - The company's post-approval manufacturing, sales, promotion, and other activities are regulated by numerous agencies beyond the FDA (e.g., Centers for Medicare & Medicaid Services, Drug Enforcement Administration, Federal Trade Commission)[116] - Sales, marketing, and scientific/educational programs must comply with state and federal fraud and abuse laws, including anti-kickback, false claims, data privacy and security, and physician payment transparency laws[116] - Drug distribution is subject to stringent record-keeping, licensing, storage, and security requirements to prevent unauthorized sales[117] - Failure to comply with regulatory requirements may result in legal or regulatory actions such as criminal prosecution, fines, product recalls, or withdrawal of product approvals[118] Reimbursement Future sales and reimbursement of any approved products by Xenetic Biosciences will depend on coverage by third-party payers, such as government health plans, commercial insurers, and managed care organizations; government and third-party payers are increasingly challenging the prices of medical products and services and implementing cost-control measures, including price controls, reimbursement restrictions, and generic product substitution requirements; in the U.S., Medicaid, Medicare, and PHS drug pricing programs have specific requirements for drug reimbursement, and the Affordable Care Act and its amendments have significantly impacted the healthcare system, with future legislative reforms potentially further affecting drug pricing and reimbursement - Sales and reimbursement of any approved products will depend in part on coverage by third-party payers (such as government health plans, commercial insurance, and managed care organizations)[120] - Government and third-party payers are increasingly challenging the prices of medical products and services and implementing cost-control measures, including price controls, reimbursement restrictions, and generic product substitution requirements[120] - In the U.S., Medicaid, Medicare Part D and Part B, and Federal Supply Schedule (FSS) have specific requirements for drug reimbursement, requiring manufacturers to pay rebates or provide discounts[122] - The Patient Protection and Affordable Care Act (ACA) and its amendments have significantly impacted the healthcare system, and future legislative or administrative actions may further limit the amount government payers will pay for medical products or lead to additional pricing pressure[123][124] Environmental Regulation Xenetic Biosciences complies with environmental regulations, but its compliance costs are low due to not engaging in the manufacturing of drug candidates; the company uses third-party manufacturers for material production and believes its procedures for hazardous material use, handling, storage, and disposal comply with environmental standards, but risks of accidental contamination or injury still exist - The company complies with environmental regulations, but its compliance costs are low because it does not engage in the manufacturing of drug candidates[125] - The company uses third-party manufacturers for all drug candidate materials and is not involved in the manufacturing process itself[125] - The company believes its procedures for hazardous material use, handling, storage, and disposal comply with environmental standards, but cannot completely eliminate the risk of accidental contamination or injury and has not purchased specific insurance to mitigate this risk[126] Employees As of December 31, 2021, Xenetic Biosciences had four full-time employees and utilizes external experts and consultants to supplement its professional team, supporting regulatory affairs, pharmacovigilance, process engineering, manufacturing, quality assurance, preclinical and clinical development, and business development - As of December 31, 2021, the company had four full-time employees, was not party to any collective bargaining agreements, and no employees were members of a union[127] - The company utilizes experts and independent consultants in regulatory affairs, pharmacovigilance, process engineering, manufacturing, quality assurance, preclinical and clinical development, accounting, and business development to supplement its professional team[128] Competition Xenetic Biosciences faces intense competition in the biopharmaceutical industry from large pharmaceutical and biotechnology companies, academic institutions, and research organizations, which often possess greater resources and more established products; particularly in oncology and immuno-oncology, the CAR T therapy market is highly competitive, with five approved CAR T therapies and over one hundred products in development, and in drug delivery platforms, the company also faces various competing technologies such as PEGylation - The biopharmaceutical industry is highly competitive, and the company faces competition from pharmaceutical and biotechnology companies, academic institutions, government agencies, and research organizations, many of which have greater resources and more established products[129] - In the field of XCART technology for B-cell lymphoma, the company will face competition from existing standard treatments and a large number of immunotherapies (including CAR T and TCR therapies) currently in development[130][132] - Currently, there are five approved CAR T therapies in the U.S. and EU, with over one hundred CAR T therapy products in development, of which more than 35 are allogeneic and off-the-shelf cell therapies[131] - In drug delivery, the PolyXen platform faces competing platforms such as PEGylation, Fc-fusion, albumin-fusion, HESylation, PASylation, and CTP-fusion[133] Available Information Xenetic Biosciences discloses company information through its official website, SEC filings (such as Form 10-K, 10-Q, 8-K), press releases, public conference calls, and webcasts - The company provides SEC filings such as annual reports, quarterly reports, and current reports through its website (www.xeneticbio.com)[134](index=134&type=chunk) - The company also discloses current information through its investor relations website, press releases, public conference calls, and webcasts[135] ITEM 1A – RISK FACTORS Xenetic Biosciences faces multiple risks, including challenges related to financial condition and capital requirements (e.g., never profitable, need for substantial additional funding, equity dilution risk), uncertainties in the drug discovery and development process (e.g., reliance on XCART success, clinical trial delays or failures, market acceptance risk), and dependence on third-party collaborations, intellectual property protection challenges, intense market competition, loss of key personnel, accounting and regulatory changes, and information technology system failures - The company has never been profitable and may not achieve or maintain profitability in the future, requiring substantial additional funding to support drug development and commercialization, which could lead to equity dilution or operational restrictions[138][139][142][147] - The company's business heavily relies on the success of the XCART platform, but drug development is an expensive, high-risk, and lengthy process, with potential for clinical trial delays or failures, and drug candidates may not receive regulatory approval or market acceptance[149][150][156][160][170] - The company relies on third parties for clinical research, manufacturing, and distribution, increasing risks of collaboration conflicts, poor third-party performance, and trade secret disclosure[192][197][209][213] - Intellectual property protection faces challenges, including patents being challenged, invalidated, or circumvented by competitors, and difficulties in protecting intellectual property globally[215][220][221] - The company operates in a highly competitive environment, facing challenges from competitors with greater resources and more established products, and the loss of key personnel could hinder the achievement of R&D objectives[240][241] - Macroeconomic conditions (such as the COVID-19 pandemic and geopolitical events) may adversely affect the company's financial condition, operations, and cash flows[259][260][261] Risks Related to Our Financial Condition and Capital Requirements Xenetic Biosciences has never been profitable since its inception and expects to continue incurring operating losses; the company requires substantial additional funding to advance drug development and commercialization, but financing may lead to equity dilution, operational restrictions, or forced relinquishment of technology rights, and market volatility and geopolitical events may also affect financing capabilities - The company has never been profitable since its inception, with accumulated losses of approximately $182.5 million as of December 31, 2021, and expects to continue incurring significant operating losses in the future[138][140] - The company requires substantial additional funding to initiate and complete clinical trials, obtain regulatory approvals, and commercialize drug candidates[142][143] - Raising additional capital may result in dilution to stockholders' equity, restrict the company's operations, or require the company to relinquish rights to its technology or drug candidates[147][148] - Market volatility (such as the COVID-19 pandemic) and geopolitical tensions (such as the Russian invasion of Ukraine) may adversely affect the company's ability to obtain necessary capital[144] Risks Related to the Discovery and Development of our Pharmaceutical Products Xenetic Biosciences' business heavily relies on the success of XCART, but drug development is a highly speculative and risky process; the company faces risks of difficulty in patient recruitment, delays, or failures in clinical trials, potentially preventing demonstration of drug safety and efficacy, thereby hindering regulatory approval and commercialization; even if approved, drugs may face low market acceptance, smaller-than-expected market size, and insufficient reimbursement, and the company may also fail to identify or develop more commercially promising products or obtain orphan drug designation - The company's business heavily relies on the success of the XCART platform, whose clinical development, regulatory approval, and commercialization face significant challenges and uncertainties[149] - The company may face difficulties in recruiting sufficient patients for clinical studies, leading to delays or termination of clinical studies, thereby increasing costs and impacting product development[152][153] - Clinical trials may fail to demonstrate the safety and efficacy of drug candidates, leading to delayed or denied regulatory approval, and even if approved, may be limited to narrow indications[156][160][164] - The commercial success of drugs depends on market acceptance by physicians, patients, and third-party payers; if market acceptance is insufficient, the company may not generate significant product revenue[170][171] - The commercial potential of drug candidates is difficult to predict, and a smaller-than-expected market size could negatively impact revenue, operating results, and financial condition[173] - Failure to obtain or maintain adequate coverage and reimbursement will limit the company's ability to market products and generate revenue[174][179] - The company may fail to successfully identify or discover additional drug products, or may allocate resources to projects with lower commercial potential[180][181] - The company may not obtain orphan drug designation, or even if obtained, may not maintain the benefits such as market exclusivity[183][184] - The market opportunity for drug candidates may be limited to patients unsuitable for or who have failed prior treatments, and the market size may be small[185][186] - Healthcare legislative reform measures, including the Affordable Care Act and its future amendments, could have a significant adverse impact on the company's business and operating results[187][188][189] Risks Related to Our Reliance on Third-Parties Xenetic Biosciences heavily relies on third parties for clinical research, manufacturing, and distribution, which introduces multiple risks; conflicts of interest may arise with collaborators or strategic partners, leading to actions not aligned with the company's interests; third-party CROs and clinical research sites may perform unsatisfactorily, causing clinical trial delays or unreliable data; furthermore, the company lacks internal manufacturing, sales, marketing, and distribution capabilities, requiring substantial resource investment or reliance on partners, which could result in partners failing to fulfill obligations or terminating agreements, and reliance on third parties also increases the risk of trade secret disclosure - Conflicts of interest may arise with collaborators or strategic partners, leading to actions not aligned with the company's interests, or even the development of competing products or withdrawal of support[190][191] - The company relies on CROs, clinical investigators, and clinical research sites for clinical research but has limited control over their performance; failure by third parties to comply with regulations or recruit sufficient patients may lead to clinical trial delays or termination[192][193][194] - Collaborators or strategic partners may adopt alternative technologies, or fail to utilize the company's technology to develop commercially viable products, thereby impacting the company's revenue and product development strategy[197] - The company may be unable to establish additional collaboration relationships on commercially reasonable terms, forcing it to alter development and commercialization plans or bear high development costs independently[198][199][201] - Future collaborations may require the company to relinquish significant rights and control over drug candidates or accept unfavorable terms[203] - The company lacks internal manufacturing, sales, marketing, or distribution capabilities and relies on third-party manufacturers and collaborators, which could lead to supply disruptions, regulatory non-compliance, or partner defaults[204][209][210] - Reliance on third parties requires the company to share trade secrets, increasing the likelihood of competitors discovering or trade secrets being misappropriated or disclosed[213][214] Risks Related to Our Intellectual Property Xenetic Biosciences' success highly depends on its intellectual property, but patents and trademarks may face challenges, invalidation, or cancellation risks; patent applications may not be approved or may have limited scope, and the company may face claims of infringing third-party intellectual property; failure to comply with licensing agreement obligations could result in the loss of important license rights; furthermore, changes in U.S. patent law may weaken patent value, and the company may face risks of employees disclosing trade secrets or disputes over patent ownership - The company's success and competitive ability heavily rely on its patents, proprietary formulations, and trademarks, but these intellectual properties may face challenges, invalidation, or cancellation risks[215][216] - Patent applications may not be approved, or even if approved, their scope may be significantly narrowed before issuance, and the company may be unable to protect its intellectual property globally[217][221][222] - The company may infringe on others' intellectual property, leading to inability to continue developing, manufacturing, using, or selling related technologies or products, or requiring payment of substantial damages[224] - Failure to comply with obligations in licensing agreements or disruption of relationships with licensors may result in the company losing license rights critical to its business[225][227] - Changes in U.S. patent law (such as the Leahy-Smith America Invents Act and Supreme Court rulings) may reduce patent value and increase uncertainty and costs in patent application and enforcement[233][234] - The company may face claims of improper use or disclosure of third-party confidential information or former employers' trade secrets by employees, consultants, or independent contractors[236] - The company may face claims challenging the inventorship or ownership of patents or other intellectual property[237] - Failure to protect confidential information and trade secrets will harm the company's competitive position and business[238] - Obtaining and maintaining patent protection relies on compliance with various procedural, documentation, and fee payment requirements of government patent agencies; non-compliance may result in loss of patent rights[239] Risks Related to Our Business Operations Xenetic Biosciences operates in a highly competitive biopharmaceutical industry, facing challenges from competitors with greater resources and more established products; the company's future success depends on its ability to retain key executives and consultants and attract qualified personnel; potential new accounting standards or legislative actions may adversely affect future financial condition, and the company needs to expand its organization, where managing growth may lead to operational disruptions; additionally, complex commercial agreements with partners may result in disputes, litigation, or liabilities - The company operates in a highly competitive biopharmaceutical industry, facing challenges from competitors with greater resources and more established products, which may lead to decreased competitiveness or obsolescence of the company's products[240] - The company's future success depends on its ability to retain key executives and consultants and attract and retain qualified personnel; industry talent shortages and high turnover rates pose risks[241] - Potential new accounting standards or legislative actions may adversely affect the company's future financial condition or operating results and increase compliance costs[242][243] - The company needs to expand its organization, and managing growth may lead to weak infrastructure, operational errors, lost business opportunities, and decreased employee productivity[245] - Complex commercial agreements entered into with partners may result in disputes, litigation, or liabilities, thereby adversely affecting the business, operating results, and financial condition[246][247] Risks Related to Our Common Stock Xenetic Biosciences' common stock and warrants trade on the Nasdaq Capital Market, but an active, liquid, and orderly market may not develop; the market price of the company's securities may be highly volatile, influenced by various factors including clinical trial results, financing capabilities, regulatory decisions, competition, intellectual property disputes, changes in key personnel, litigation, and macroeconomic conditions; the rights of the company's preferred stock are senior to common stock, and future issuance of common stock may result in dilution; the company does not intend to pay dividends, and certain provisions in the company's charter and Nevada Revised Statutes may have anti-takeover effects - The company's common stock and warrants trade on the Nasdaq Capital Market, but an active, liquid, and orderly market may not develop, affecting investors' ability to sell securities[249] - The market price of the company's securities may be highly volatile, influenced by various factors including clinical trial results, financing capabilities, regulatory decisions, competition, intellectual property disputes, changes in key personnel, litigation, and macroeconomic conditions[250][251] - The company's preferred stock (Series A and Series B) has liquidation and dividend rights senior to common stock and is convertible into common stock, which could dilute the interests of common stockholders[253][255] - The company does not intend to pay dividends on common or preferred stock, so any return will be limited to appreciation in stock value[257] - Certain provisions in the company's charter and Nevada Revised Statutes may have anti-takeover effects, potentially delaying, deterring, or preventing acquisition attempts, thereby leading to a decrease in the market price of common stock[258] General Risk Factors Xenetic Biosciences' financial condition, operating results, and cash flows may be adversely affected by unfavorable U.S. or global economic conditions, including the COVID-19 pandemic and geopolitical events such as the Russian invasion of Ukraine; the company's ability to offset taxable income with future operating losses and federal and state NOL carryforwards may be limited; governments may implement price controls, affecting future profitability; employees, key researchers, consultants, and business partners may engage in misconduct; drug candidates may cause adverse side effects, leading to product liability claims; failure to comply with environmental, health, and safety laws and regulations may result in fines; non-cash expenses (such as equity-based payments) may adversely affect operating results; inconsistent interpretation of accounting standards may lead to restatements; information technology system failures or cybersecurity attacks may disrupt operations; as a smaller reporting company, its simplified reporting requirements may reduce the attractiveness of common stock to investors - The company's financial condition, operating results, business, and cash flows may be adversely affected by unfavorable U.S. or global economic conditions, including the COVID-19 pandemic and geopolitical events such as the Russian invasion of Ukraine[259][260][261] - The company's ability to utilize future operating losses and federal and state NOL carryforwards to offset taxable income may be limited, which could result in income tax payments even with NOL carryforwards[263][265] - Governments may implement price controls, particularly in foreign jurisdictions such as the European Union, which could adversely affect the pricing and profitability of the company's future products[268] - Employees, key researchers, consultants, and business partners may engage in misconduct, including non-compliance with regulatory standards and insider trading, potentially leading to regulatory sanctions and reputational damage[269] - The use of drug candidates may be associated with adverse side effects, leading to withdrawal of regulatory approval, product liability claims, and high costs[270][271][272] - Failure to comply with environmental, health, and safety laws and regulations may result in fines or costs, significantly adversely affecting business success[274] - Non-cash expenses (such as equity-based payments) may adversely affect the company's operating results[276] - Different interpretations of existing accounting standards and rules may lead the company to restate previously reported operating results[277] - Information technology system failures, including cybersecurity attacks or other data security incidents, could severely disrupt company operations[279][280] - As a smaller reporting company, its simplified reporting requirements may reduce the attractiveness of common stock to investors, leading to an inactive trading market and stock price volatility[281] ITEM 1B – UNRESOLVED STAFF COMMENTS This item is not applicable to the company, therefore there are no unresolved staff comments ITEM 2 – PROPERTIES Xenetic Biosciences leases approximately 1,700 square feet of office space in Framingham, Massachusetts, as its headquarters, with the lease term extending until September 2022; additionally, the company leases 360 square feet of office space in Miami, Florida, with the lease term extended until November 30, 2022, and the company believes these spaces are sufficient for current needs - The company leases approximately 1,700 square feet of office space in Framingham, Massachusetts, with the lease term extending until September 2022[283] - The company leases 360 square feet of office space in Miami, Florida, with the lease term extended until November 30, 2022[284] - The company believes its existing office space is sufficient for current needs, and if necessary, additional space can be obtained nearby on reasonable commercial terms[283][284] ITEM 3 – LEGAL PROCEEDINGS Xenetic Biosciences is occasionally involved in litigation and claims in the ordinary course of business; as of December 31, 2021, management believes the ultimate outcome of these ordinary matters will not have a material adverse effect on the company's business, but litigation itself may incur costs and divert management resources - The company may be involved in litigation and claims in the ordinary course of business from time to time[285] - As of December 31, 2021, management believes there are no legal matters that could have a material adverse effect on the company's financial condition, operating results, or cash flows[286] - Regardless of the outcome, litigation may adversely affect the company due to defense and settlement costs, diversion of management resources, and other factors[285] ITEM 4 – MINE SAFETY DISCLOSURES This item is not applicable to the company, therefore there are no mine safety disclosures PART II ITEM 5 – MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Xenetic Biosciences' common stock and warrants trade on the Nasdaq Capital Market; as of March 18, 2022, the company had 424 common stockholders, has never declared or paid cash dividends, and plans to retain future earnings for business development; this section also references equity compensation plan information and notes no unregistered securities sales or equity security repurchases in 2021 - The company's common stock and common stock warrants are listed on the Nasdaq Capital Market under the symbols “XBIO” and “XBIOW”, respectively[290] - As of March 18, 2022, the company had 424 holders of record of its common stock[291] - The company has never declared or paid any cash dividends on its common stock and plans to retain earnings for business development for the foreseeable future[292] - The company did not repurchase any of its outstanding common stock during the fourth quarter of 2021[295] ITEM 6 – [RESERVED] This item is reserved ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section discusses Xenetic Biosciences' business overview, critical accounting policies and estimates, impact of the COVID-19 pandemic, results of operations, liquidity and capital resources, and contractual obligations; the company focuses on XCART and PolyXen technologies, with 2021 revenue primarily from Takeda royalties and significantly increased R&D expenses; the company continues to incur losses, but a 2021 private placement enhanced liquidity, and existing funds are expected to support operations until Q2 2023 - The company focuses on XCART personalized CAR T platform technology and PolyXen drug delivery platform, with internal development efforts in 2021 primarily on XCART[297][298][299] - In 2021, the company's revenue primarily came from Takeda royalties, increasing by 165.6% to $1.2 million[323] - R&D expenses increased by 82.7% to $3.2 million in 2021, mainly due to increased investment in preclinical development of the XCART platform technology[324][325] - The company incurred a net loss of approximately $5.6 million in 2021, a reduction from $10.9 million in 2020, but continues to incur losses, with accumulated losses of approximately $182.5 million[322][332] - As of December 31, 2021, the company had approximately $18.2 million in cash and $17.3 million in working capital, primarily due to a $11.5 million private placement in July 2021[332][333] - The company expects existing funds to support operations until the second quarter of 2023, but additional capital will be required long-term[334] BUSINESS OVERVIEW Xenetic Biosciences is a biopharmaceutical company focused on its XCART personalized CAR T platform technology for B-cell lymphoma treatment and leverages its PolyXen drug delivery platform with partners to develop next-generation biologics; the company currently has no approved drugs but receives ongoing royalty revenue from PolyXen technology licenses, with internal development in 2021 primarily focused on XCART - The company focuses on XCART personalized CAR T platform technology, designed to target patient and tumor-specific neoantigens, initially for the treatment of B-cell lymphoma[297] - The company leverages its PolyXen drug delivery platform through collaborations with biotechnology and pharmaceutical companies to extend drug half-life and improve pharmacological properties[298] - The company currently has no approved drugs for market but receives ongoing royalty revenue through PolyXen technology licensing agreements[299] - In 2021, the company's internal development efforts focused on advancing the XCART platform technology[299] Critical Accounting Policies and Estimates This section outlines Xenetic Biosciences' critical accounting policies and estimates used in preparing financial statements, including revenue recognition, R&D expenses, equity-based compensation, and accounting for warrants and indefinite-lived intangible assets, which involve significant judgments and assumptions about future events and uncertainties that could lead to material differences between actual and estimated results - The company recognizes revenue in accordance with ASC Topic 606, involving five steps: identifying contracts, performance obligations, transaction price, allocating transaction price, and recognizing revenue, with judgment required for including milestones or variable consideration[303][304] - Non-refundable upfront license fees and milestone payments, if they include future obligations, are recognized proportionally over the expected performance period; if future obligations are not significant, revenue is recognized upon technology delivery[305][306] - R&D expenses are expensed as incurred, including compensation, facilities, preclinical development, clinical trials, and CRO fees; the company needs to estimate accrued R&D expenses and adjust based on service provision[308][309] - Equity-based compensation expenses (including options and restricted stock units) are estimated at fair value using the Black-Scholes option pricing model and recognized on a straight-line basis over the vesting period[310][311][312] - Warrants are estimated at fair value using the Black-Scholes model and expensed over the service period or upon issuance; for warrants with performance targets, the company must judge the probability and timing of target achievement[313][314] - Indefinite-lived intangible assets (such as IPR&D) are not amortized but are reviewed for impairment at least annually or when circumstances change; impairment losses are measured as the amount by which the asset's carrying value exceeds its fair value, with the valuation process being complex and highly sensitive[315][316][317][318] Effects of the COVID-19 Pandemic The COVID-19 pandemic has caused significant volatility and uncertainty in the U.S. economy; although Xenetic Biosciences' operations were not materially affected in 2021, the company is still evaluating the pandemic's potential impact on future business, operations, and financial results, acknowledging its duration and severity remain uncertain - The COVID-19 pandemic has caused significant volatility, uncertainty, and economic disruption in the U.S. economy since March 2020[320] - Although the company's operations were not materially affected in 2021, it is still evaluating the pandemic's potential impact on future business, operations, and financial results[320] - The ultimate impact of the pandemic depends on its duration, severity, vaccination rates, and the emergence of new variants, all of which remain uncertain[320] Results of Operations Xenetic Biosciences' operating results for fiscal year 2021 show significant revenue growth, primarily driven by increased Takeda royalty income; R&D expenses rose substantially due to XCART technology investments, but overall operating costs and expenses decreased due to the absence of asset impairment charges present in 2020, leading to a significant narrowing of both operating and net losses Comparison of Operating Results for 2021 vs. 2020 | Description | 2021 (USD) | 2020 (USD) | Change (USD) | Percentage Change | | :--- | :--- | :--- | :--- | :--- | | Revenue: | | | | | | Royalty Revenue | $1,160,692 | $436,942 | $723,750 | 165.6% | | Operating Costs and Expenses: | | | | | | Research and Development Expenses | $(3,163,485) | $(1,731,406) | $1,432,079 | 82.7% | | General and Administrative Expenses | $(3,743,972) | $(3,400,071) | $343,901 | 10.1% | | Asset Impairment Charge | $– | $(9,243,128) | $(9,243,128) | (100.0)% | | Total Operating Costs and Expenses | $(6,907,457) | $(14,374,605) | $(7,467,148) | (51.9)% | | Operating Loss | $(5,746,765) | $(13,937,663) | $(8,190,898) | (58.8)% | | Other Income (Expense): | | | | | | Other Income (Expense) | $1,119 | $(492) | $1,611 | 327.4% | | Interest Income, Net | $100,467 | $126,171 | $(25,704) | (20.4)% | | Loss Before Income Taxes | $(5,645,179) | $(13,811,984) | $(8,166,805) | (59.1)% | | Income Tax Benefit | $– | $2,918,518 | $(2,918,518) | (100.0)% | | Net Loss | $(5,645,179) | $(10,893,466) | $(5,248,287) | (48.2)% | [322] - Royalty revenue increased by 165.6% to $1.2 million in 2021, primarily due to the continued global rollout of Takeda's re-licensed products[323] - R&D expenses increased by 82.7% to $3.2 million in 2021, mainly due to increased investment in preclinical development of the XCART platform technology[324][325] - General and administrative expenses increased by 10.1% to $3.7 million in 2021, primarily driven by higher employee-related costs, consulting, and insurance fees, partially offset by reduced legal and equity-based compensation expenses[326] - There was no asset impairment charge in 2021, compared to $9.2 million in 2020, leading to a significant **51.9