X4 Pharmaceuticals(XFOR) - 2019 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS The unaudited condensed consolidated financial statements for the six months ended June 30, 2019, reflect significant asset growth to $133.5 million and a shift to $96.2 million in stockholders' equity following the March 2019 reverse merger and subsequent equity financing, with a net loss of $24.3 million Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (Unaudited) | | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $90,180 | $8,134 | | Total current assets | $96,649 | $9,339 | | Goodwill | $27,109 | $— | | Intangible assets | $4,900 | $— | | Total assets | $133,507 | $9,944 | | Liabilities and Stockholders' Equity (Deficit) | | | | Total current liabilities | $13,204 | $7,907 | | Long-term debt, net | $21,748 | $8,145 | | Total liabilities | $37,339 | $21,621 | | Total stockholders' equity (deficit) | $96,168 | ($77,086) | - The significant increase in assets and the shift from a stockholders' deficit to equity is primarily due to the reverse merger with Arsanis in March 2019 and a subsequent equity financing in April 2019[19][37][176] Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (Unaudited, in thousands) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2019 | 2018 | 2019 | 2018 | | Research and development | $8,854 | $4,755 | $14,509 | $9,499 | | General and administrative | $4,560 | $1,621 | $9,343 | $2,987 | | Total operating expenses | $13,414 | $6,376 | $23,852 | $12,486 | | Loss from operations | ($13,414) | ($6,376) | ($23,852) | ($12,486) | | Net loss | ($13,383) | ($6,034) | ($24,256) | ($13,401) | | Net loss per share—basic and diluted | ($1.02) | ($14.83) | ($3.32) | ($32.53) | - Operating expenses more than doubled for the three-month period and nearly doubled for the six-month period year-over-year, driven by increased R&D activities for the mavorixafor program and higher G&A costs following the merger and becoming a public company[22][270][273] Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Unaudited, in thousands) | | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2019 | 2018 | | Net cash used in operating activities | ($26,042) | ($11,965) | | Net cash provided by investing activities | $26,396 | $— | | Net cash provided by (used in) financing activities | $86,791 | ($2,153) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $87,143 | ($14,118) | - The significant increase in cash was driven by $26.4 million in cash acquired from the Arsanis merger, $79.3 million in net proceeds from an April 2019 public offering, and $9.8 million in net proceeds from a new loan agreement[32][279] Notes to Condensed Consolidated Financial Statements The notes detail the reverse merger with Arsanis on March 13, 2019, which was treated as an acquisition of Arsanis by X4, resulting in $27.1 million of goodwill and $4.9 million of IPR&D assets, alongside an April 2019 $85.8 million equity offering and June 2019 debt refinancing up to $35.0 million, with subsequent events including a collaboration with Abbisko Therapeutics and out-licensing of preclinical programs - On March 13, 2019, the company completed a reverse merger with Arsanis, Inc., with X4 deemed the accounting acquirer, valued at a purchase price of $46.4 million[37][114] - The merger resulted in the recognition of $27.1 million in goodwill and $4.9 million in indefinite-lived in-process research and development (IPR&D) intangible assets related to Arsanis's ASN200, ASN300, and ASN500 programs[115][116][119] - In April 2019, the company raised gross proceeds of $85.8 million through a public offering of common stock and warrants[176] - In June 2019, the company refinanced its debt with Hercules Capital, entering into a new agreement for up to $35.0 million in borrowings, with an initial draw of $20.0 million[141] - Subsequent to the quarter end, in July 2019, the company entered into a collaboration with Abbisko Therapeutics to develop and commercialize mavorixafor in oncology indications in Greater China, and also out-licensed the ASN200, ASN300, and ASN500 programs acquired in the merger[228][229] Management's Discussion and Analysis of Financial Condition and Results of Operations The company, a clinical-stage biopharmaceutical firm, discusses its financial condition and operations, highlighting the impact of the March 2019 reverse merger, April 2019 equity financing, and June 2019 debt refinancing on its $90.2 million cash position, alongside increased operating expenses and a $24.3 million net loss Overview and Recent Developments - The company is a clinical-stage biopharmaceutical company focused on novel therapeutics for rare diseases, primarily targeting the CXCR4 receptor[233] - Lead product candidate, mavorixafor (X4P-001), is in a pivotal Phase 3 trial (4WHIM) for WHIM syndrome, with top-line data expected in 2021, and trials for Severe Congenital Neutropenia (SCN) and Waldenström Macroglobulinemia (WM) are planned for 2019[234] - Key recent corporate developments include the reverse merger with Arsanis (March 2019), a $79.3 million net equity financing (April 2019), a debt refinancing with Hercules for up to $35.0 million (June 2019), and a collaboration with Abbisko for mavorixafor in Greater China (July 2019)[236][239][240][241] Results of Operations Comparison of Operating Results (in thousands) | | Three Months Ended June 30, | Six Months Ended June 30, | | :--- | :--- | :--- | | | 2019 | 2018 | 2019 | 2018 | | Research and development | $8,854 | $4,755 | $14,509 | $9,499 | | General and administrative | $4,560 | $1,621 | $9,343 | $2,987 | | Loss from operations | ($13,414) | ($6,376) | ($23,852) | ($12,486) | | Net loss | ($13,383) | ($6,034) | ($24,256) | ($13,401) | - R&D expenses for the six months ended June 30, 2019 increased by $5.0 million year-over-year, primarily due to increased direct expenses for the mavorixafor program as it entered Phase 3 development and costs from the research site in Vienna acquired in the merger[270] - G&A expenses for the six months ended June 30, 2019 increased by $6.4 million year-over-year, mainly due to higher professional fees related to the merger, increased patent costs, and higher personnel-related costs to support growth and public company compliance[273] Liquidity and Capital Resources - As of June 30, 2019, the company had cash and cash equivalents of $90.2 million, which is expected to be sufficient to fund operations for at least the next 12 months[252] - Net cash used in operating activities was $26.0 million for the six months ended June 30, 2019, compared to $12.0 million for the same period in 2018[280] - Net cash provided by financing activities was $86.8 million for the first six months of 2019, primarily from the April 2019 public offering ($79.3 million net) and the June 2019 debt refinancing ($9.8 million net)[279][282] - The company has a loan agreement with Hercules providing for up to $35.0 million in borrowings and an FFG loan agreement acquired from Arsanis with $6.7 million outstanding as of June 30, 2019[288][295] Quantitative and Qualitative Disclosures About Market Risk The company, as a smaller reporting company, is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is not required to provide the information requested by this item[317] Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[318] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[320] PART II: OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings and is unaware of any pending or threatened legal actions that could materially affect its business - The company is not currently a party to any material legal proceedings[322] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018, as updated by the Current Report on Form 8-K filed on April 11, 2019 - No material changes have been made to the risk factors described in previous SEC filings[323] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds occurred during the period - There were no unregistered sales of equity securities during the period[324]