X4 Pharmaceuticals(XFOR) - 2020 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION Financial Statements The company's net loss widened to $26.3 million in H1 2020 due to higher expenses, while cash decreased to $103.7 million despite recognizing $3.0 million in license revenue Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $103,744 | $126,184 | | Total current assets | $109,887 | $129,278 | | Total assets | $142,534 | $160,698 | | Liabilities & Equity | | | | Total current liabilities | $10,781 | $9,447 | | Long-term debt, net | $25,398 | $20,097 | | Total liabilities | $37,650 | $31,478 | | Total stockholders' equity | $104,884 | $129,220 | - Cash and cash equivalents decreased by $22.4 million in the first six months of 2020[18] - Total liabilities increased primarily due to a rise in long-term debt from $20.1 million to $25.4 million[18] Condensed Consolidated Statements of Operations and Comprehensive Loss Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--- | :--- | :--- | :--- | :--- | | License revenue | $0 | $0 | $3,000 | $0 | | Research and development | $9,342 | $8,854 | $18,253 | $14,509 | | General and administrative | $5,316 | $4,560 | $9,986 | $9,343 | | Loss from operations | $(14,658) | $(13,414) | $(25,239) | $(23,852) | | Net loss | $(15,144) | $(13,383) | $(26,282) | $(24,256) | | Net loss per share | $(0.76) | $(1.02) | $(1.31) | $(3.32) | - The company recognized $3.0 million in license revenue during the six months ended June 30, 2020, which was not present in the prior year period[22] - Operating expenses increased for both the three and six-month periods year-over-year, driven by higher R&D and G&A costs[22] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(26,986) | $(26,042) | | Net cash (used in) provided by investing activities | $(564) | $26,396 | | Net cash provided by financing activities | $5,049 | $86,791 | | Net (decrease) increase in cash | $(22,441) | $87,143 | - Net cash used in operating activities remained relatively stable year-over-year at approximately $27.0 million[34] - Financing activities in 2020 primarily consisted of $4.9 million in net proceeds from borrowings, compared to $86.8 million in 2019 which included proceeds from a common stock sale[34][164] - Investing activities in 2019 included $26.4 million in cash acquired from the merger with Arsanis, a non-recurring event[34] Notes to Condensed Consolidated Financial Statements - The company is a clinical-stage biotech focused on mavorixafor, a CXCR4 inhibitor for rare diseases like WHIM syndrome, SCN, and WM[36] - As of June 30, 2020, the company had $103.7 million in cash and cash equivalents and believes it has sufficient funds for at least the next twelve months[37] - The COVID-19 pandemic has caused disruptions, including temporary closures of clinical trial sites and slower patient enrollment[40] - In March 2020, the company received a $3.0 million milestone payment from its license agreement with Abbisko, which was recognized as license revenue[66][67] - In March 2020, the company amended its loan agreement with Hercules, increasing the total borrowing capacity to $50.0 million and drawing an additional $5.0 million, bringing the total principal to $25.0 million[80] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the impact of COVID-19 on clinical trial timelines, rising operating expenses, and the company's capital sufficiency for the next year Overview and Pipeline - The company is a clinical-stage biopharmaceutical firm focused on oral, small molecule antagonists of the CXCR4 receptor for treating rare diseases, including primary immunodeficiencies and certain cancers[131] - The lead product candidate, mavorixafor, is in a pivotal Phase 3 trial for WHIM syndrome, a Phase 1b trial for Severe Congenital Neutropenia (SCN), and a Phase 1b trial for Waldenström's macroglobulinemia (WM)[132][133] - Due to the COVID-19 pandemic, the top-line data from the Phase 3 WHIM trial is now expected in 2022, and initial data from the SCN trial is delayed into 2021[132][133] COVID-19 Business Update - The company has implemented business continuity measures, with its workforce transitioning to remote work in response to Massachusetts state orders[137] - Clinical development has been disrupted, leading to delays in trial site initiation and patient enrollment[138] - The company expects adequate global supply of mavorixafor through 2020 but acknowledges potential future supply chain disruptions if the pandemic persists[140] - Potential delays in regulatory review and interactions with the FDA and European Commission are anticipated due to the diversion of regulatory resources to COVID-19 related activities[141] Results of Operations Comparison of Operating Results (in thousands) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change | | :--- | :--- | :--- | :--- | | License revenue | $3,000 | $0 | $3,000 | | Research and development | $18,253 | $14,509 | $3,744 | | General and administrative | $9,986 | $9,343 | $643 | | Loss from operations | $(25,239) | $(23,852) | $(1,387) | - License revenue of $3.0 million was recognized in the first six months of 2020 due to achieving a financial milestone in the Abbisko agreement[144] - Research and development expenses increased by $3.7 million for the six months ended June 30, 2020, compared to the prior year, primarily due to increased compensation expenses from additional personnel[148] - General and administrative expenses increased for the six months ended June 30, 2020, mainly due to an increase in G&A personnel and higher stock-based compensation[150] Liquidity and Capital Resources - As of June 30, 2020, the company had cash and cash equivalents of $103.7 million, which is believed to be sufficient to fund operations for at least the next twelve months[155] - The company has a loan facility with Hercules Capital, amended in March 2020, with $25.0 million borrowed to date and the potential to borrow up to an additional $25.0 million[156][169] - The company entered into a 7-year lease for new headquarters in Allston, MA, with annual rent of approximately $1.0 million, commencing in May 2020[158] - Net cash used in operating activities was $27.0 million for the first six months of 2020, primarily resulting from the net loss of $26.3 million[160] Quantitative and Qualitative Disclosures About Market Risk The company has elected scaled disclosure reporting obligations as a smaller reporting company and is therefore not required to provide the information for this item - As a smaller reporting company, X4 Pharmaceuticals is not required to provide quantitative and qualitative disclosures about market risk[180] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2020, with no material changes to internal controls during the quarter - Management evaluated the effectiveness of disclosure controls and procedures and concluded they were effective as of June 30, 2020[182] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[183] PART II: OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently involved in any material legal proceedings[185] Risk Factors The company faces significant financial, operational, and commercialization risks, including a history of losses, reliance on a single product, and clinical trial delays Risks Related to Financial Position and Need for Additional Capital - The company has a history of significant operating losses ($158.3 million accumulated deficit as of June 30, 2020) and expects to incur losses for the foreseeable future[187] - Substantial additional funding will be required to advance clinical development and potential commercialization, and the COVID-19 pandemic could disrupt access to capital markets[191][193] - Raising additional capital may cause significant dilution to existing stockholders or require relinquishing rights to technologies on unfavorable terms[195] Risks Related to Product Candidate Development - The company's business depends almost entirely on the success of its lead product candidate, mavorixafor[202][203] - Clinical trial delays, such as those already experienced due to COVID-19 for the WHIM and SCN trials, could jeopardize the ability to receive approvals and generate revenue[222][225] - The company may fail to enroll a sufficient number of patients in its clinical trials, particularly for rare diseases like WHIM, SCN, and WM, which could delay or prevent trial completion[224][227] - The company relies on license agreements with Genzyme and others; termination of these rights could materially harm the business[213] Risks Related to Marketing and Commercialization - A Breakthrough Therapy designation for mavorixafor does not guarantee a faster review or increase the likelihood of approval[238][239] - The company must build its own sales and marketing capabilities or rely on third parties, both of which carry significant risks and costs[241][254] - Commercial success depends on market acceptance by physicians, patients, and payors, as well as obtaining adequate reimbursement and favorable pricing[242][267] - The company faces substantial competition from major pharmaceutical and biotech companies with greater resources[256][260] Risks Related to Dependence on Third Parties - The company is dependent on single third-party manufacturers for both the active pharmaceutical ingredient (API) and the finished drug product capsules for mavorixafor[289][290] - Reliance on third-party Contract Research Organizations (CROs) to conduct clinical trials is critical; if these CROs fail to perform, regulatory approval could be delayed or denied[294] - Disruptions in the supply chain, including from the COVID-19 pandemic, could delay clinical trials and the potential commercial launch of products[298][299] Risks Related to Business Operations and Growth - The COVID-19 pandemic is adversely affecting business operations, including causing delays in clinical trial enrollment and site activation[344][346] - Future success depends on the ability to attract and retain key executives and qualified scientific personnel in a competitive environment[349] - The company relies significantly on information technology, and any cybersecurity incident could compromise sensitive data and disrupt operations[354][356] - The ability to use net operating loss (NOL) carryforwards may be limited by Section 382 of the Internal Revenue Code due to ownership changes[358][359] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[391]