X4 Pharmaceuticals(XFOR) - 2019 Q1 - Quarterly Report

Part I: Financial Information Financial Statements The Q1 2019 financial statements show significant asset and liability increases due to the Arsanis merger, alongside a higher net loss from increased operating expenses Condensed Consolidated Balance Sheets Total assets surged to $62.5 million by March 31, 2019, primarily from the Arsanis merger's goodwill and intangibles, with liabilities rising and equity turning positive Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $22,299 | $8,134 | | Total current assets | $26,223 | $9,339 | | Goodwill | $27,407 | $0 | | Intangible assets | $4,900 | $0 | | Total assets | $62,549 | $9,944 | | Liabilities & Equity | | | | Total current liabilities | $16,450 | $7,907 | | Long-term debt, net | $13,365 | $8,145 | | Total liabilities | $33,108 | $21,621 | | Total stockholders' equity (deficit) | $29,441 | $(77,086) | Condensed Consolidated Statements of Operations For Q1 2019, net loss increased to $10.9 million due to higher operating expenses, with net loss per share at $(6.67) influenced by increased shares outstanding Condensed Consolidated Statements of Operations (in thousands) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Research and development | $5,655 | $4,744 | | General and administrative | $4,783 | $1,366 | | Total operating expenses | $10,438 | $6,110 | | Loss from operations | $(10,438) | $(6,110) | | Net loss | $(10,873) | $(7,367) | | Net loss per share—basic and diluted | $(6.67) | $(17.70) | | Weighted average common shares outstanding | 1,717,808 | 457,971 | Condensed Consolidated Statements of Cash Flows Q1 2019 saw $11.8 million cash used in operations, largely offset by $26.4 million from investing activities due to the Arsanis merger, leading to a net cash increase Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(11,750) | $(6,182) | | Net cash provided by investing activities | $26,406 | $0 | | Net cash provided by (used in) financing activities | $113 | $(1,660) | | Net increase (decrease) in cash | $14,748 | $(7,842) | | Cash at end of period | $23,246 | $19,206 | - The significant cash provided by investing activities was due to $26.4 million in cash and restricted cash acquired in connection with the Merger[29] Notes to Condensed Consolidated Financial Statements Notes detail the Arsanis reverse merger, $27.4 million goodwill, ASC 842 adoption, significant debt, and an $85.8 million April 2019 equity financing - The merger with Arsanis on March 13, 2019 was accounted for as a reverse merger, with X4 as the accounting acquirer The transaction resulted in goodwill of $27.4 million[35][110] - On April 16, 2019, the company closed a public offering with gross proceeds of $85.8 million Management expects that existing cash plus these proceeds will be sufficient to fund operations for at least the next twelve months[39][241] - As of March 31, 2019, the company has significant long-term debt, including $10.0 million outstanding under the Hercules Loan Agreement and $9.5 million under the FFG Loan Agreement acquired from Arsanis[128][147][149] - The company adopted the new lease standard ASC 842 on January 1, 2019, resulting in the recognition of $2.0 million of right-of-use assets and $2.5 million of operating lease liabilities[97] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's biopharmaceutical focus, the Arsanis merger, and the $85.8 million April 2019 financing, which is expected to fund operations for at least 12 months Overview and Recent Developments The company, a clinical-stage biopharmaceutical firm, focuses on CXCR4 antagonists, with recent developments including the Arsanis merger and an $85.8 million April 2019 equity financing - The company's lead product candidate, mavorixafor, is set to begin a Phase 3 pivotal trial for WHIM syndrome in Q2 2019, with top-line data expected in 2021[245] - On March 13, 2019, the company completed a reverse merger with Arsanis, Inc, with X4's business becoming the primary focus of the combined entity[9][246] - On April 16, 2019, the company raised gross proceeds of $85.8 million through a public offering of common stock and warrants[241][252] Results of Operations Q1 2019 operating expenses rose to $10.4 million from $6.1 million, primarily due to increased R&D and G&A costs, notably professional fees and personnel expenses from the merger Comparison of Operating Results (in thousands) | Expense Category | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Research and development | $5,655 | $4,744 | $911 | | General and administrative | $4,783 | $1,366 | $3,417 | | Total operating expenses | $10,438 | $6,110 | $4,328 | | Net loss | $(10,873) | $(7,367) | $(3,506) | Research and Development Expenses by Candidate (in thousands) | Candidate | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Mavorixafor | $2,851 | $3,010 | | X4P-002 | $84 | $0 | | X4P-003 | $8 | $0 | | Unallocated R&D expenses | $2,712 | $1,734 | | Total R&D expenses | $5,655 | $4,744 | - The increase in G&A expenses was primarily due to a $1.9 million increase in professional fees (legal, audit, market research) related to the merger and a $1.4 million increase in personnel-related costs[287] Liquidity and Capital Resources As of March 31, 2019, cash and equivalents were $22.3 million, significantly bolstered by $78.9 million net proceeds from the April 2019 offering, expected to fund operations for at least 12 months - As of March 31, 2019, cash and cash equivalents were $22.3 million Together with $78.9 million in net proceeds from the April 2019 financing, the company expects to have sufficient funds for at least the next 12 months[259][291][321] - The company has two main debt facilities: the Hercules Loan Agreement with $10.0 million borrowed and the FFG loans (acquired via merger) with $9.5 million outstanding as of March 31, 2019[301][302][315] - Future funding needs will be driven by clinical trial costs, particularly the Phase 3 trial for mavorixafor, regulatory activities, and potential commercialization expenses[319] Quantitative and Qualitative Disclosures About Market Risk This section is not required for smaller reporting companies, and therefore no information is provided - Disclosure is not required for smaller reporting companies[346] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2019, with new internal controls implemented for the lease standard and business combination - The company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[347] - Changes in internal controls during the quarter included the implementation of controls related to the new lease standard and the business combination[348] Part II: Other Information Legal Proceedings The company reports that it is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[350] Risk Factors No material changes to risk factors have occurred since prior filings, including the 2018 Form 10-K and April 2019 Form 8-K - No material changes to risk factors have occurred since prior filings[351] Unregistered Sales of Equity Securities and Use of Proceeds An unregistered warrant was issued to Hercules Capital, and all net proceeds from Arsanis's 2017 IPO were used for clinical programs and general corporate purposes - A warrant to purchase 5,000 shares of common stock at an exercise price of $19.80 per share was issued to Hercules Capital, Inc as an unregistered security[352] - As of March 31, 2019, all net proceeds from the Arsanis November 2017 IPO have been used for advancing product candidates and for working capital[356] Exhibits This section lists all exhibits filed with the Form 10-Q, including merger amendments, corporate governance, material contracts, and Sarbanes-Oxley certifications