XENETIC BIOSCIENCES, INC. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended. All statements contained in this Quarterly Report other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, future revenues, projected costs, prospects and our objectives for future operations, are forward-looking statements. These forward-looking statements include, but are not limited to, statements concerning: the anticipated effects and duration of the novel coronavirus, or COVID-19, global pandemic and the responses thereto, including the pandemic's impact on general economic and market conditions, as well as on our business, results of operations and financial condition; the uncertainty due to the conflict betweenRussia andUkraine and associated sanctions imposed bythe United States ("U.S.") and other countries in response; our plans to develop our proposed drug candidates; our expectations regarding the nature, timing and extent of clinical trials and proposed clinical trials; our expectations regarding the timing for proposed submissions of regulatory filings, including but not limited to, any Investigational New Drug filing or any New Drug Application; the nature, timing and extent of collaboration arrangements; the expected results pursuant to collaboration arrangements, including the receipts of future payments that may arise pursuant to collaboration arrangements; the outcome of our plans to obtain regulatory approval of our drug candidates; the outcome of our plans for the commercialization of our drug candidates; our plans to address certain markets, engage third party manufacturers, and evaluate additional drug candidates for subsequent commercial development along with the likelihood and extent of competition to our drug candidates; our plans to advance innovative immune-oncology technologies addressing hard to treat oncology indications; expectations regarding our Deoxyribonuclease ("DNase") oncology platform, such as regarding the DNase platform being in development for the treatment of solid tumors and being aimed at improving outcomes of existing treatments, including immunotherapies, by targeting Neutrophil Extracellular Traps ("NETs") and our expectations to prioritize our efforts and resources on this newly acquired technology; the development of the XCART™ Chimeric Antigen Receptor ("CAR") T cell technology and plans to develop cell-based therapeutics by targeting the unique B cell receptor on the surface of an individual patient's malignant tumor cells for the treatment of B-cell lymphomas; and our expectations regarding our PolyXen®platform, including concerning our plans to leverage the platform by partnering with biotechnology and pharmaceutical companies and its application to protein or peptide therapeutics and its application to improve the half-life and other pharmaceutical properties of next-generation biologic drugs. In some cases, these statements may be identified by terminology such as "may," "will," "would," "could," "should," "expect," "plan," "anticipate," "believe," "estimate," "seek," "approximately," "intend," "predict," "potential," "projects," or "continue," or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, we cannot guarantee future results, the levels of activity, performance or achievements. These statements involve known and unknown risks and uncertainties that may cause our or our industry's results, levels of activity, performance or achievements to be materially different from those expressed or implied by forward-looking statements. The Management's Discussion and Analysis of Financial Condition and Results of Operations (the "MD&A") should be read together with our condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report. This Quarterly Report, including the MD&A, contains trend analysis and other forward-looking statements. Any statements in this Quarterly Report that are not statements of historical facts are forward-looking statements. These forward-looking statements made herein are based on our current expectations, involve a number of risks and uncertainties and should not be considered as guarantees of future performance. 16
Some factors that could cause actual results to differ materially include without limitation:
· unexpected costs, charges or expenses resulting from the transaction
with CLS Therapeutics LTD ("CLS") and the licensing of the DNase
platform;
· uncertainty of the expected financial performance of the Company
following completion of the transaction with CLS and the licensing of
the DNase platform;
· failure to realize the anticipated potential of the DNase, XCART or
PolyXen technologies;
· our ability to implement our business strategy;
· our failure to meet the continued listing requirements of the Nasdaq
Capital Market;
· our need to raise additional working capital in the future for the
purpose of further developing our DNase technology and to continue as a
going concern;
· our ability to finance our business;
· our ability to successfully execute, manage and integrate key
acquisitions and mergers;
· product development and commercialization risks, including our ability
to successfully develop the DNase technology;· the impact of adverse safety outcomes and clinical trial results for
our therapies;
· our ability to secure and maintain a manufacturer for our technologies;
· the impact of new therapies and new uses of existing therapies on the
competitive environment;
· our ability to successfully commercialize our current and future drug
candidates;
· our ability to achieve milestone and other payments associated with our
current and future co-development collaborations and strategic
arrangements;
· the impact of new technologies on our drug candidates and our
competition;
· changes in laws or regulations of governmental agencies;
· interruptions or cancellation of existing contracts;
· impact of competitive products and pricing;
· product demand and market acceptance and risks;
· the presence of competitors with greater financial resources;· continued availability of supplies or materials used in manufacturing
at the current prices;
· the ability of management to execute plans and motivate personnel in
the execution of those plans;
· our ability to attract and retain key personnel;
· adverse publicity related to our products or the Company itself;
· adverse claims relating to our intellectual property;
· the adoption of new, or changes in, accounting principles;
· the costs inherent with complying with statutes and regulations
applicable to public reporting companies, such as theSarbanes-Oxley
Act of 2002;
· other new lines of business that the Company may enter in the future;
· general economic and business conditions, as well as inflationary
trends;
· the 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 our financial condition and results of
operations; and
· other factors set forth in the Risk Factors section of our Annual
Report on Form 10-K and in subsequent filings with theSecurities and
Exchange Commission ("SEC"). These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in the forward-looking statements in this Quarterly Report. Other unknown or unpredictable factors also could have material adverse effects on our future results, including, but not limited to, those discussed in the section titled "Risk Factors." The forward-looking statements in this Quarterly Report are made only as of the date of this Quarterly Report, and we do not undertake any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. We intend that all forward-looking statements be subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. 17 BUSINESS OVERVIEW We are a biopharmaceutical company focused on advancing innovative immune-oncology technologies addressing hard to treat cancers. The Company's DNase platform is designed to improve outcomes of existing treatments, including immunotherapies, by targeting NETs. We licensed the DNase oncology platform inApril 2022 and expect to prioritize our efforts and resources on the development of this newly acquired technology. Additionally, we have partnered with biotechnology and pharmaceutical companies to develop our proprietary drug delivery platform, PolyXen, and receive royalty payments under an exclusive license arrangement in the field of blood coagulation disorders. We incorporate our patented and proprietary technologies into drug candidates currently under development with biotechnology and pharmaceutical industry collaborators to create what we believe will be the next-generation biologic drugs with improved pharmacological properties over existing therapeutics. Our drug candidates have resulted from our research activities or that of our collaborators and are in the development stage. As a result, we continue to commit a significant amount of our resources to our research and development activities and anticipate continuing to do so for the near future. To date, none of our drug candidates have received regulatory marketing authorization in theU.S. by theFood and Drug Administration ("FDA") nor in any other territories by any applicable agencies. We are receiving ongoing royalties pursuant to a license of our PolyXen technology to an industry partner. Although we hold a broad patent portfolio, the focus of our internal efforts during the three and nine months endedSeptember 30, 2022 , was on the acquisition and advancing of our DNase oncology platform and on the development of our XCART platform technology.
Effects of the COVID-19 Pandemic
DuringMarch 2020 , a global pandemic was declared by theWorld Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus, or COVID-19. The pandemic has significantly affected economic conditions in theU.S. , accelerating during the first half ofMarch 2020 and continuing throughout 2021 and into 2022, as federal, state and local governments reacted to the public health crisis with mitigation measures, creating significant uncertainties in theU.S. economy. We continue to evaluate the effects of the COVID-19 pandemic on our business, and while there has been no significant impact to our operations to date despite social distancing and other measures taken in response to the pandemic, the ultimate impact of the COVID-19 pandemic on our results of operations and financial condition is dependent on future developments, including the duration of the pandemic and the related extent of its severity, the pace and rate at which vaccines are administered, and the continued emergence of new strains of COVID-19, such as the Delta and Omicron variants and any subvariants, as well as its impact on macroeconomic conditions, which are uncertain and cannot be predicted at this time. If the global response to contain the COVID-19 pandemic escalates further or is unsuccessful, or if governmental decisions to ease pandemic related restrictions are ineffective, premature or counterproductive, we could experience a material adverse effect on our business, financial condition, results of operations and cash flows.
Impact of the Conflict in
The short and long-term implications of
18 RESULTS OF OPERATIONS
Comparison of Quarter Ended
The comparison of our historical results of operations for the fiscal quarter endedSeptember 30, 2022 to the fiscal quarter endedSeptember 30, 2021 is
as
follows:
Quarter Ended Quarter Ended
September 30, September 30, Increase Percentage
Description 2022 2021 (Decrease) Change
Revenues:
Royalty revenue $ 414,250 $ 349,269 $ 64,981 18.6 %
Operating costs and expenses:
Research and development (398,803 ) (780,153 ) (381,350 ) (48.9 )
General and administrative (863,233 ) (945,115 ) (81,882 ) (8.7 )
Total operating costs and expenses (1,262,036 ) (1,725,268 ) (463,232 ) (26.9 )
Loss from operations (847,786 ) (1,375,999 ) (528,213 ) (38.4 )
Other income (expense):
Other expense (1,706 ) (2,906 ) (1,200 ) (41.3 )
Interest income, net 45,475 28,029
17,446 62.2
Net loss $ (804,017 ) $ (1,350,876 ) $ (546,859 ) (40.5 )
Revenue
Revenue for the three months ended September 30, 2022 increased by $0.1 million ,
or 18.6%, to $0.4 million from approximately $0.3 million for the three months
ended September 30, 2021 . This increase represents an increase in royalty
revenue related to our sublicense agreement with Takeda Pharmaceuticals Co. Ltd.
("Takeda") for the three months ended September 30, 2022 as compared to the same
period in 2021 as Takeda's sublicensee continued its worldwide launch of the
product.
Research and Development Expenses
Research & development ("R&D") expenses for the three months ended September 30,
2022 decreased by $0.4 million , or 48.9% to $0.4 million from $0.8 million in
the comparable quarter in 2021. The table below sets forth the R&D costs
incurred by the Company by category of expense for the quarters ended September
30, 2022 and 2021:
Quarter Ended,
September 30, September 30,
Category of Expense 2022 2021
Outside services and contract research organizations $ 214,453 $ 607,967
Salaries and wages 112,875 102,404
Share-based expense 23,382 19,236
Other 48,093 50,546Total research and development expense$ 398,803
$ 780,153 19 The decrease in outside services and contract research organizations expense was primarily due to decreased spending related to our XCART platform technology partially offset by spending related to our DNase oncology platform during the three months endedSeptember 30, 2022 as compared to the same period in the prior year. Costs related to our XCART program were significantly lower for the three months endedSeptember 30, 2022 as compared to the same period in 2021 as we prioritized our R&D efforts and resources on our newly acquired DNase oncology platform.
General and Administrative Expenses
General and administrative expenses for the three months endedSeptember 30, 2022 decreased by approximately$82,000 , or 8.7%, to approximately$863,000 from approximately$945,000 in the comparable quarter in 2021. The decrease was primarily due to a decrease in costs related to our intellectual property during the three months endedSeptember 30, 2022 compared to the same period in 2021. Other Expense
Other expense was approximately$1,700 for the three months endedSeptember 30, 2022 compared to approximately$2,900 of other expense for the same period in 2021. This decrease in other expense was primarily related to changes in foreign currency exchange rates during the three months endedSeptember 30, 2022 as compared to the same period in 2021. Interest Income
Interest income increased to approximately$45,000 during the three months endedSeptember 30, 2022 as compared to approximately$28,000 for the same period in the prior year. This increase is primarily due to higher interest rates on invested funds during the third quarter of 2022 as compared to the same period in the prior year.
Comparison of Nine Months Ended
The comparison of our historical results of operations for the nine months endedSeptember 30, 2022 to the nine months endedSeptember 30, 2021 is as follows: Nine Months Nine Months Ended Ended September 30, September 30, Increase Percentage Description 2022 2021 (Decrease) Change Revenues: Royalty revenue$ 1,219,953 $ 828,088 $ 391,865 47.3% Operating costs and expenses: Research and development (3,577,701 ) (1,934,432 ) 1,643,269 84.9 General and administrative (2,796,832 ) (2,766,397 ) 30,435 1.1 Total operating costs and expenses (6,374,533 ) (4,700,829 )
1,673,704 35.6
Loss from operations (5,154,580 ) (3,872,741 ) 1,281,839 33.1
Other income (expense):
Other expense (2,583 ) (1,784 ) 799 44.8
Interest income, net 87,345 71,026 16,319 23.0
Net loss $ (5,069,818 ) $ (3,803,499 ) $ 1,266,319 33.3
20
Revenue
Revenue for the nine months ended September 30, 2022 increased by $0.4 million ,
or 47.3%, to $1.2 million from approximately $0.8 million for the nine months
ended September 30, 2021 . This increase represents an increase in royalty
revenue related to our sublicense agreement with Takeda as compared to the same
period in 2021, as the sublicensee continued its worldwide launch of the
product.
Research and Development Expenses
Overall, R&D expenses for the nine months endedSeptember 30, 2022 increased by$1.6 million , or 84.9% to$3.6 million from$1.9 million in the comparable period in 2021 primarily due to IPR&D expense of$1.3 million . During the nine months endedSeptember 30, 2022 , the Company expensed$1.3 million of IPR&D associated with the Company's licensing of the DNase oncology platform. There was no similar expense in 2021. Excluding the$1.3 million of IPR&D expense from total R&D expense of$3.6 million , R&D expenses increased approximately$0.3 million , or 17.5% to$2.3 million for the nine months endedSeptember 30, 2022 , from$1.9 million for the nine months endedSeptember 30, 2021 . The table below sets forth the R&D costs incurred by us, by category of expense, for the nine months endedSeptember 30, 2022 and 2021: Nine Months Ended, September 30, September 30, Category of Expense 2022 2021 IPR&D expense$ 1,305,000 $ -
Outside services and contract research organizations 1,751,134
1,418,980 Salaries and wages 345,232 341,199 Share-based expense 65,688 48,972 Other 110,647 125,281
Total research and development expense$ 3,577,701
$ 1,934,432 The increase in outside services and contract research organizations expense was primarily due to increased spending in connection with the acquisition and our initial development efforts related to our DNase oncology platform during the nine months endedSeptember 30, 2022 as compared to the same period in the
prior year.
General and Administrative Expenses
General and administrative expenses for the nine months endedSeptember 30, 2022 was$2.8 million , increasing slightly by approximately$30,000 , or 1.1%, compared to the same period in the prior year. The increase was primarily due to an increase in legal costs related to the licensing of the DNase oncology platform from CLS during the nine months endedSeptember 30, 2022 compared to the same period in 2021, substantially offset by decreased spend on intellectual property and decreased consulting costs. Other Expense
Other expense was approximately$2,600 for the nine months endedSeptember 30, 2022 compared to other expense of approximately$1,800 for the same period in 2021. This increase in other expense was primarily related to changes in foreign currency exchange rates during the nine months endedSeptember 30, 2022 as compared to the same period in 2021. Interest Income Interest income increased to approximately$87,000 during the nine months endedSeptember 30, 2022 as compared to approximately$71,000 for the same period in the prior year. This increase is primarily due to an increase in interest income on invested funds due to higher interest rates on invested funds during the first nine months of 2022 compared to the same period in 2021. This increase was partially offset by a decrease in interest income on the Pharmsynthez Loan.
21
Liquidity and Capital Resources
We incurred a net loss of approximately$5.1 million for the nine months endedSeptember 30, 2022 . We had an accumulated deficit of approximately$187.6 million atSeptember 30, 2022 , as compared to an accumulated deficit of approximately$182.5 million atDecember 31, 2021 . Working capital was approximately$13.1 million atSeptember 30, 2022 , and$17.3 million atDecember 31, 2021 , respectively. During the nine months endedSeptember 30, 2022 , our working capital decreased by$4.2 million primarily due to our net loss for the nine months endedSeptember 30, 2022 and cash used of$0.5 million to obtain a license to the DNase oncology platform. Our principal source of liquidity consists of cash. AtSeptember 30, 2022 , we had approximately$13.8 million in cash and$1.1 million in current liabilities. AtDecember 31, 2021 , we had approximately$18.2 million in cash and$1.4 million in current liabilities. We evaluate whether there are conditions or events, considered in the aggregate that raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. We have incurred substantial losses since our inception, and we expect to continue to incur operating losses in the near-term. These factors raise substantial doubt about our ability to continue as a going concern. We believe that we have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations, related party funding, or other means to continue as a going concern. We believe that our existing resources will be adequate to fund our operations into the first quarter of 2024. However, we anticipate we may need additional capital in the long-term to pursue our business initiatives. The terms, timing and extent of any future financing will depend upon several factors, including the achievement of progress in our clinical development programs, our ability to identify and enter into licensing or other strategic arrangements, our continued listing on theNasdaq Stock Market ("Nasdaq"), and factors related to financial, economic, geo-political, industry and market conditions, many of which are beyond our control. The capital markets for the biotech industry can be highly volatile, which make the terms, timing and extent of any future financing uncertain. OnJune 3, 2022 , we received a written notification (the "Notice") from theListing Qualifications Department of Nasdaq notifying us that the closing bid price for our common stock had been below$1.00 for 30 consecutive business days and that we therefore are not in compliance with the minimum bid price requirement for continued inclusion on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2) (the "Bid Price Requirement"). The Notice has no immediate effect on the listing of our common stock on the Nasdaq Capital Market. Under the Nasdaq Listing Rules, we have 180 calendar days from the date of the Notice to regain compliance with the Bid Price Requirement. Accordingly, we have untilNovember 30, 2022 to regain compliance with the Bid Price Requirement and may be eligible for an additional 180 calendar day compliance period if certain other criteria are met.
Cash Flows from Operating Activities
Cash flows used in operating activities for the nine months endedSeptember 30, 2022 totaled approximately$3.9 million , which was primarily due to our net loss for the period, partially offset by non-cash charges associated with acquired IPR&D and share-based expense. In addition, current liabilities decreased during the nine months endedSeptember 30, 2022 . Cash flows used in operating activities for the nine months endedSeptember 30, 2021 totaled approximately$3.3 million , which was primarily due to our net loss for the period, partially offset by non-cash charges associated with share-based expense.
Cash Flows from Investing Activities
Cash flows used in investing activities for the nine months endedSeptember 30, 2022 totaled$500,000 , which represented cash paid to license the DNase oncology platform. There were no cash flows from investing activities for the nine months endedSeptember 30, 2021 .
Cash Flow from Financing Activities
There were no cash flows from financing activities for the nine months endedSeptember 30, 2022 . Cash flows from financing activities for the nine months endedSeptember 30, 2021 totaled approximately$11.5 million representing net proceeds from our private placement inJuly 2021 .
Contractual Obligations and Commitments
As ofSeptember 30, 2022 , there were no material changes in our contractual obligations and commitments from those disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onMarch 22, 2022 , as amended onApril 28, 2022 . 22
Off Balance Sheet Arrangements
We do not have any off-balance sheet financing arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources. Recent Accounting Standards See Note 3 in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onMarch 22, 2022 , as amended onApril 28, 2022 , for a discussion of recent accounting standards.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance withU.S. GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses. We base our estimates and assumptions on historical experience and other factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates. There have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 , filed with theSEC onMarch 22, 2022 , as amended onApril 28, 2022 .
© Edgar Online, source
