X4 Pharmaceuticals(XFOR) - 2022 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1. Financial Statements This section presents the company's unaudited condensed consolidated financial statements and accompanying detailed notes Condensed Consolidated Balance Sheets | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | :----------------------------- | | Cash and cash equivalents | $66,427 | $81,787 | $(15,360) | | Total current assets | $70,881 | $87,878 | $(16,997) | | Total assets | $99,625 | $117,176 | $(17,551) | | Total current liabilities | $14,970 | $14,023 | $947 | | Total liabilities | $49,911 | $52,764 | $(2,853) | | Total stockholders' equity | $49,714 | $64,412 | $(14,698) | Condensed Consolidated Statements of Operations and Comprehensive Loss | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | | :----------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Research and development | $14,113 | $12,104 | $2,009 | | Selling, general and administrative | $7,664 | $5,832 | $1,832 | | Gain on sale of non-financial asset | $(509) | — | $(509) | | Total operating expenses | $21,268 | $17,936 | $3,332 | | Loss from operations | $(21,268) | $(17,936) | $(3,332) | | Net loss and comprehensive loss | $(21,965) | $(18,676) | $(3,289) | | Net loss per share (basic and diluted) | $(0.72) | $(1.30) | $0.58 | Condensed Consolidated Statements of Redeemable Common Stock and Stockholders' Equity - Total Stockholders' Equity decreased by $14,698 thousand from $64,412 thousand at December 31, 2021, to $49,714 thousand at March 31, 2022[25] - Net loss for the three months ended March 31, 2022, was $(21,965) thousand[25] - Issuance of common stock and prefunded warrants, net of costs, contributed $5,820 thousand[25] - Stock-based compensation expense was $1,459 thousand[25] Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (in thousands) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash used in operating activities | $(20,229) | $(18,444) | $(1,785) | | Net cash used in investing activities | $(22) | $(496) | $474 | | Net cash provided by financing activities | $4,956 | $55,041 | $(50,085) | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(15,364) | $35,958 | $(51,322) | | Cash, cash equivalents and restricted cash at end of period | $67,744 | $116,660 | $(48,916) | Notes to Condensed Consolidated Financial Statements Provides detailed disclosures on accounting policies, financial instruments, debt, and going concern assessment Note 1. Nature of Business and Basis of Presentation - Lead product candidate, mavorixafor, is in a Phase 3 clinical trial for WHIM syndrome and Phase 1b trials for other indications[36] - Company had $66.4 million in cash and cash equivalents as of March 31, 2022, sufficient to fund operations into Q4 2022[37] - Substantial doubt exists about the company's ability to continue as a going concern due to a potential loan covenant violation in Q3 2022[37][38] - The COVID-19 pandemic has caused disruptions and delays in clinical trials[39] Note 2. Summary of Significant Accounting Policies - No material changes to significant accounting policies since December 31, 2021[42] - COVID-19 pandemic continues to pose risks, including disruptions to clinical trials and patient enrollment[43] - The company defers the adoption of ASU 2016-13 (Credit Losses) until January 1, 2023, which may increase credit loss expense[54][56] Note 3. License, Collaboration and Funding Agreements - Received $0.1 million in income from the Austrian research and development incentive program for Q1 2022[57] - Recognized a $0.5 million gain on the sale of non-financial intellectual property rights in Q1 2022[58] Note 4. Fair Value of Financial Assets and Liabilities | (in thousands) | As of March 31, 2022 | As of December 31, 2021 | | :--------------- | :------------------- | :---------------------- | | Cash equivalents | $2,626 | $47,793 | | (in thousands) | As of March 31, 2022 | As of December 31, 2021 | | :--------------- | :------------------- | :---------------------- | | Embedded derivative liability | $645 | $821 | Note 5. Property and Equipment, Net | (in thousands) | March 31, 2022 | December 31, 2021 | | :--------------- | :------------- | :---------------- | | Property and equipment, net | $1,403 | $1,514 | - Depreciation and amortization expense was $133 thousand for Q1 2022, up from $106 thousand for Q1 2021[64] Note 6. Accrued Expenses | (in thousands) | March 31, 2022 | December 31, 2021 | | :--------------- | :------------- | :---------------- | | Accrued expenses | $6,877 | $7,870 | | Accrued employee compensation and benefits | $3,784 | $5,417 | Note 7. Long-Term Debt | (in thousands) | March 31, 2022 | December 31, 2021 | | :--------------- | :------------- | :---------------- | | Principal amount of long-term debt | $32,500 | $32,500 | - The Hercules Loan Agreement was amended in February 2022, adding a financial milestone to modify the minimum cash covenant[71][73] - The company projects it would be in violation of the minimum cash covenant in Q3 2022, which could trigger debt repayment[73] - The annual effective interest rate of the Hercules Loan Agreement was 10.7% as of March 31, 2022[74] Note 8. Leases | Lease Cost (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Total lease expense | $530 | $518 | - Weighted-average remaining lease term for operating leases is 4.7 years[79] - Weighted-average discount rate for operating leases is 11.3%[79] - Total operating lease liabilities as of March 31, 2022, were $5,591 thousand[79] Note 9. Commitments and Contingencies - The company has agreements with CROs and CMOs for clinical trials and manufacturing, which may include early termination fees[80][82] - Indemnification agreements are in place with board members and executive officers, with no material costs incurred to date[83] - The company is not currently a party to any litigation and has not established contingency reserves[84] Note 10. Common Stock and Common Stock Warrants - Common stock issued and outstanding: 30,809,476 shares as of March 31, 2022, up from 28,127,657 shares as of December 31, 2021[18] - In March 2022, the company completed a private placement, generating $3.0 million in gross proceeds[86][93] - The exercise price of Class B warrants was adjusted to $1.80 from $15.00 on March 3, 2022[88][90] - Total outstanding and exercisable warrants to purchase common shares increased to 14,023,726 as of March 31, 2022[91] Note 11. Stock-Based Compensation | (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--------------- | :-------------------------------- | :-------------------------------- | | Total stock-based compensation | $1,459 | $1,258 | - Total unrecognized compensation expense was $8.5 million as of March 31, 2022, to be recognized over a weighted average period of 2.0 years[101] - Granted 1,242,756 restricted stock units during the three months ended March 31, 2022[100] Note 12. Income Taxes - No U.S. federal or state income tax benefit was recorded for losses in Q1 2022 and Q1 2021 due to a full valuation allowance[103] - An immaterial income tax provision was recorded related to the Austrian subsidiary for both Q1 2022 and Q1 2021[103] Note 13. Net Loss Per Share | (in thousands, except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net loss attributable to common stockholders | $(24,224) | $(26,915) | | Net loss per share (basic and diluted) | $(0.72) | $(1.30) | | Weighted average shares outstanding | 33,737 | 20,751 | - A deemed dividend on Class B warrant price reset of $(2,259) thousand was recorded for Q1 2022[104][106] - All potentially dilutive securities were excluded from diluted net loss per share calculation as their effect would be anti-dilutive[107] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial results, product pipeline progress, and liquidity challenges Overview of Business and Product Pipeline - The company is a late-stage clinical biopharmaceutical company focused on rare diseases, with mavorixafor as its lead product candidate[109] - Mavorixafor is in a global Phase 3 trial for WHIM syndrome with top-line data expected in Q4 2022[110][111] - Mavorixafor has received Breakthrough Therapy, Fast Track, and Rare Pediatric Designations from the FDA for WHIM syndrome[112] - The company is advancing X4P-003 and X4P-002 to expand its pipeline[114][117] - No revenue from product sales has been generated to date, and significant revenue is not expected in the foreseeable future[115] COVID-19 Business Update - Implemented business continuity measures and a hybrid work model[118] - Experienced disruptions and delays in clinical trial enrollment due to COVID-19, impacting timelines[119] - Working with third-party manufacturers to manage supply chain and mitigate disruptions, including direct-to-patient drug shipments[120][121] - Anticipates potential delays in regulatory review due to COVID-19[122] Results of Operations | Operating Expense Category | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | Change (in millions) | | :--------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Research and development | $14.1 | $12.1 | $2.0 | | Selling, general and administrative | $7.7 | $5.8 | $1.9 | | Gain on sale of non-financial asset | $(0.5) | — | $(0.5) | | Total operating expenses | $21.3 | $17.9 | $3.4 | | Net loss | $(22.0) | $(18.6) | $(3.4) | - Research and development expenses increased by $2.0 million, driven by higher headcount and costs for the X4P-002 oncology program[126][127] - Selling, general and administrative expenses increased by $1.9 million, primarily due to higher stock-based compensation and recruiting costs[128] Liquidity and Capital Resources - Cash and cash equivalents were $66.4 million as of March 31, 2022[138] - The Hercules Loan Agreement includes a covenant requiring a minimum cash level starting September 1, 2022[138] - The company projects a potential violation of the minimum cash covenant in Q3 2022, raising substantial doubt about its going concern status[138][139] - Recent capital raises include $53.0 million in March 2021, $10.0 million in November 2021, and $3.0 million in March 2022[135][136] - The company has a common stock purchase agreement with Lincoln Park Capital for up to $50.0 million over 36 months[136] Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash used in operating activities | $(20,229) | $(18,444) | | Net cash used in investing activities | $(22) | $(496) | | Net cash provided by financing activities | $4,956 | $55,041 | - Net cash used in operating activities increased by $1.785 million year-over-year[141] - Net cash provided by financing activities decreased significantly by $50.085 million year-over-year due to lower proceeds from equity offerings[141][144] Funding Requirements - The company expects expenses to continue increasing due to ongoing clinical trials and preparation for commercialization[145] - Without additional funding, the company projects a violation of the Hercules Loan Agreement's minimum cash covenant in Q3 2022[145] - Future funding requirements are uncertain and depend on clinical trial progress, regulatory approvals, and manufacturing costs[145][146] Hercules Loan Agreement - Refers to Note 7 for a full description of the Hercules Loan Agreement, which includes a minimum cash covenant[147] Critical Accounting Policies and Significant Judgments and Estimates - No material changes to critical accounting policies were reported during the three months ended March 31, 2022[149] - Refers to Note 2 for details on new accounting pronouncements[149] Emerging Growth Company and Smaller Reporting Company Status - The company is an 'emerging growth company' and a 'smaller reporting company,' allowing for reduced disclosure requirements[150][151] - The company has irrevocably elected to 'opt out' of the extended transition period for new accounting standards[5][150] - Benefits from reduced disclosure obligations, including exemptions from auditor attestation and certain executive compensation disclosures[354] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exempt from market risk disclosures due to its status as a smaller reporting company - The company is not required to provide these disclosures due to its status as a smaller reporting company[152] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures with no material changes reported Evaluation of Disclosure Controls and Procedures - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2022[154] Changes in Internal Control Over Financial Reporting - There were no changes in the company's internal control over financial reporting during the quarter that had a material effect[155] PART II: OTHER INFORMATION Item 1. Legal Proceedings The company reports no material current, pending, or threatened legal proceedings - The company is not currently a party to any material legal proceedings[158] - The company is not aware of any pending or threatened legal proceedings that could have a material adverse effect on its business[158] Item 1A. Risk Factors Outlines significant risks related to financial position, product development, and business operations Risks Related to Financial Position and Capital Needs - The company has incurred significant operating losses, with a net loss of $22.0 million for Q1 2022 and an accumulated deficit of $304.8 million[160] - The company expects to continue incurring significant losses and requires substantial additional funding[161][165] - Raising additional capital may cause dilution to investors or restrict operations[166][172] - The ability to generate revenue depends entirely on successfully obtaining regulatory approval and commercializing products, which is uncertain[163][174] Risks Related to Product Candidate Development - The business depends almost entirely on the successful development and commercialization of its lead product candidate, mavorixafor[179][180] - Developing mavorixafor in combination with other therapies exposes the company to additional approval and supply risks[185] - The regulatory review and approval processes are lengthy and inherently unpredictable[188][190] - Reliance on license agreements means termination or non-compliance could materially harm the business[191][192][194][196][197][198] - Patient enrollment can be challenging, especially for rare diseases, exacerbated by COVID-19 and geopolitical conflicts[200][201][202][204][206][215] - Interim top-line and preliminary data from clinical trials may change as more patient data become available[216] Risks Related to Marketing and Commercialization - Breakthrough Therapy and Fast Track designations do not guarantee faster development or approval[218][220] - The company may not be able to obtain or maintain orphan drug designation or exclusivity[221] - The company lacks its own sales and marketing infrastructure and faces significant competition[222][235][237] - Commercial success depends on attaining significant market acceptance among physicians, patients, and payors[223][224] - Product candidates may cause undesirable side effects, potentially delaying or preventing marketing approval[225][226] - Any approved products will be subject to extensive post-approval regulatory requirements[230][231][233] - Product liability lawsuits could cause substantial liabilities and limit commercialization[255][256] Risks Related to Government Regulation - The company is subject to federal and state anti-kickback, fraud and abuse, and transparency laws with potential for significant penalties[258][259][260] - Healthcare reform initiatives and scrutiny over drug pricing could adversely affect prices and reimbursement[261][263][266][267][268] - International operations are subject to anti-corruption laws (e.g., FCPA) and Trade Control Laws[270][272][273] - Inadequate funding for the FDA, SEC, and other government agencies could hinder their ability to review and approve new products[274][275] Risks Related to Dependence on Third Parties - The company relies on single third-party manufacturers for mavorixafor, posing risks of supply disruptions and non-compliance[276][277][278][279][280] - The company relies on third-party CROs to conduct clinical trials; their failure could substantially harm the business[281][282][283] - Disruptions in the supply chain, including from COVID-19 or geopolitical conflict, could delay commercial launch[285][286] - Employees, investigators, CROs, and consultants may engage in misconduct or improper activities[287] - Dependence on unsuccessful collaborations may prevent the company from capitalizing on market potential[288][290][291][292] - Future acquisitions or in-licenses could disrupt the business and harm financial condition[292][293] Risks Related to Intellectual Property - Changes in U.S. patent laws and court rulings create uncertainty in obtaining and enforcing patents[294][295][296][297] - Inability to obtain and maintain sufficient patent protection could allow competitors to commercialize similar products[300][301][302][303] - The patent prosecution process is expensive and time-consuming, with risks of narrow claims or invalidation[304][305][307][308] - Lawsuits to protect or enforce intellectual property are expensive, time-consuming, and may be unsuccessful[309][310][311][313][314][321][323][324][325] - Failure to comply with obligations in third-party license agreements could result in the loss of critical intellectual property rights[315][316][317][318] - Trade secrets are difficult to protect, and unauthorized disclosure could harm the company's competitive position[326] - The company may be subject to claims that its employees have wrongfully used or disclosed trade secrets of former employers[327] - Protecting intellectual property rights globally is expensive and challenging due to varying legal systems[328][329] Risks Related to Business Operations, Employees, and Growth Management - The global COVID-19 pandemic continues to adversely affect business operations and clinical trials[330][331][332][333][334][335][336] - Future success depends on the ability to retain key executives and attract qualified personnel[337][338] - The company will need to grow its organization, which will impose significant added responsibilities on management[339][340][341] - The pharmaceutical industry is highly competitive and subject to rapid technological change[342][343] - Significant reliance on information technology makes the company vulnerable to cyberattacks and data breaches[344][346] - Business disruptions from disasters could seriously harm future revenues, especially given reliance on single third-party manufacturers[347] Limitations on Net Operating Loss (NOL) Utilization - As of December 31, 2021, the company had U.S. federal NOLs of $315.0 million and state NOLs of $308.2 million[348] - The ability to use NOL carryforwards may be limited by Section 382 of the Internal Revenue Code due to ownership changes[348][349] Restrictions from Term Loan Agreement - The Hercules Loan Agreement contains various covenants that limit the company's operational flexibility[350] - The loan agreement requires maintaining a minimum cash level, which the company projects it may violate in Q3 2022[351] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report for the period[372] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported for the period[372] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[373] Item 5. Other Information This item states that there is no other information to report - No other information to report for the period[374] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents and agreements - Lists various exhibits, including corporate documents, purchase agreements, and required certifications (302 and 906)[375][376] SIGNATURES - The report was duly signed on May 12, 2022, by the President and Chief Executive Officer, and the Chief Financial Officer[381]