UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________________________________________
FORM 10-Q
_____________________________________________________________________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended September 30, 2023
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from __________ to __________
Commission File Number: 001-38295
_____________________________________________________________________________________
(Exact name of registrant as specified in its charter)
_____________________________________________________________________________________
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) | (Zip Code) | ||||
(857 ) 529-8300
(Registrant’s telephone number, including area code)
____________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||||||
| ☒ | Smaller reporting company | |||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 7, 2023, the registrant had 167,291,209 shares of common stock outstanding.
Condensed Consolidated Balance Sheets (unaudited) as of September 30, 2023 and December 31, 2022 | ||||||||
Condensed Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2023 and 2022 | ||||||||
2
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, or the (“Exchange Act”), that relate to future events or to our future operations or financial performance. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects, plans and objectives of management, are forward-looking statements. These statements may be identified by such forward-looking terminology as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in these forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” and elsewhere in this report, regarding, among other things:
•the initiation, timing, progress and results of our current and future preclinical studies and clinical trials and related preparatory work and the period during which the results of the trials will become available, as well as our research and development programs;
•the potential benefits, including clinical utility, that may be derived from any of our product candidates;
•the timing of and our ability to obtain and maintain regulatory approval of our existing product candidates or any product candidates that we may develop in the future, and any related restrictions, limitations, or warnings in the label of any approved product candidates;
•our plans to research, develop, manufacture and commercialize our product candidates;
•the timing of our regulatory filings for our product candidates, along with regulatory developments in the United States and other foreign countries;
•the size and growth potential of the markets for our product candidates, if approved, and the rate and degree of market acceptance of our product candidates, including reimbursement that may be received from payors;
•the benefits of U.S. Food and Drug Administration (“FDA”) and European Commission designations, including, without limitation, Fast Track, Orphan Drug and Breakthrough Therapy;
•our commercialization, marketing and manufacturing capabilities and strategy;
•our ability to attract and retain qualified employees and key personnel;
•our competitive position and the development of and projections relating to our competitors or our industry;
•our expectations regarding our ability to obtain and maintain intellectual property protection;
•the success of competing therapies that are or may become available;
•our estimates and expectations regarding future operations, financial position, revenues, costs, expenses, uses of cash, capital requirements or our need for additional financing;
•our ability to continue as a going concern;
•our plans to in-license, acquire, develop and commercialize additional product candidates;
•the impact of laws and regulations;
•our plans to identify additional product candidates with significant commercial potential that are consistent with our commercial objectives;
•our ability to raise additional capital;
•our strategies, prospects, plans, expectations or objectives; and
3
•other risks and uncertainties, including those listed under the section titled “Risk Factors” in this Quarterly Report.
You should refer to the section titled “Risk Factors" in this Quarterly Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Quarterly Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report.
4
SUMMARY OF SELECTED RISKS ASSOCIATED WITH OUR BUSINESS
Our business faces significant risks and uncertainties. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. You should carefully review and consider the full discussion of our risk factors in the section titled “Risk Factors” in Part I, Item 1A of this Quarterly Report. Some of the more significant risks include the following:
•We have incurred significant losses and have not generated revenue from product sales since our inception. We expect to continue to incur losses for the foreseeable future, and we may never achieve or maintain profitability.
•We will require substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate any product development programs or commercialization efforts.
•Raising additional capital may cause dilution to our investors, restrict our operations or require us to relinquish rights to our technologies or product candidates. Future debt obligations may expose us to risks that could adversely affect our business, operating results and financial condition and may result in further dilution to our stockholders.
•We depend almost entirely on the success of our lead product candidate, mavorixafor, which we are developing for the potential treatment of chronic neutropenic disorders, including WHIM (Warts, Hypogammaglobulinemia, Infections, and Myelokathexis) syndrome and, contingent on a potential strategic partnerships, for the treatment of Waldenström’s. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, mavorixafor or any other product candidate.
•The regulatory review and approval processes of the FDA and comparable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, including mavorixafor, our business will be substantially harmed.
•We depend on license agreements with Genzyme, Beth Israel Deaconess Medical Center, Georgetown University and Dana-Farber Cancer Institute to permit us to use patents and patent applications. Termination of these rights or the failure to comply with obligations under these agreements could materially harm our business and prevent us from developing or commercializing our product candidates.
•The results of clinical trials may not support our product candidate claims.
•We may fail to enroll a sufficient number of patients in our clinical trials in a timely manner, which could delay or prevent clinical trials of our product candidates.
•If the commercial opportunity for mavorixafor in chronic neutropenic disorders, including WHIM syndrome, is smaller than we anticipate, our potential future revenue from mavorixafor for the treatment of any of the diseases may be adversely affected and our business may suffer.
•Interim top-line and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become available and are subject to audit and verification procedures that could result in material changes in the final data.
•A Breakthrough Therapy designation or Fast Track designation by the FDA for our product candidates may not lead to a faster development or regulatory review or approval process, and neither of these designations increases the likelihood that our product candidates will receive marketing approval.
•Product candidates may cause undesirable side effects that could delay or prevent their marketing approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any, including marketing withdrawal.
•If, in the future, we are unable to establish sales and marketing capabilities or to selectively enter into agreements with third parties to sell and market our product candidates, we may not be successful in commercializing our product candidates if and when they are approved.
•We face substantial competition that may result in others discovering, developing or commercializing products before or more successfully than we do.
•Even if we obtain and maintain approval for our product candidates from the FDA, we may never obtain approval for our product candidates outside of the United States, which would limit our market opportunities and could harm our business.
•Even if we are able to commercialize mavorixafor or any other product candidate that we develop, the product may become subject to unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives, which would harm our business.
5
•We have no experience manufacturing our product candidates on a large clinical or commercial scale and have no manufacturing facility. We are currently dependent on a single third party manufacturer for the manufacture of mavorixafor, the active pharmaceutical ingredient (“API”) and a single manufacturer of mavorixafor finished drug product capsules. If we experience problems with these third parties, the manufacturing of mavorixafor could be delayed, which could harm our results of operations.
•We rely on third-party Contract Research Organizations (“CROs”) to conduct our preclinical studies and clinical trials. If these CROs do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
•Disruptions in our supply chain could delay the commercial launch of our product candidates.
•Our employees, principal investigators, CROs and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have a material adverse effect on our business.
•We may depend on such collaborations for the development and commercialization of our product candidates. If those collaborations are not successful, we may not be able to capitalize on the market potential of our product candidates.
•If we are unable to protect our intellectual property rights, our competitive position could be harmed.
•Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.
•Our future success depends on our ability to retain executives and to attract, retain and motivate key personnel in a competitive environment for skilled biotechnology personnel.
•We will need to grow the size of our organization, and we may experience difficulties in managing this growth.
•Our term load contains restrictions that limit our flexibility in operating our business.
•Our business could be adversely affected by economic downturns, inflation, increases in interest rates, natural disasters, public health crises such as the COVID-19 pandemic, political crises, geopolitical events, such as the wars in Ukraine and Israel, or other macroeconomic conditions, which have in the past and may in the future negatively impact our business and financial performance.
•Our stock price has been and is likely to continue to be volatile and fluctuate substantially.
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PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
X4 PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
| September 30, 2023 | December 31, 2022 | ||||||||||
| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Marketable securities | |||||||||||
| Research and development incentive receivable | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Right-of-use assets | |||||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
Liabilities and Stockholders’ Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Current portion of lease liability | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, net of discount and current portion | |||||||||||
| Lease liabilities | |||||||||||
| Warrant liability (Note 4) | |||||||||||
| Other liabilities | |||||||||||
| Total liabilities | |||||||||||
| Commitments and contingencies (Note 9) | |||||||||||
| Stockholders’ equity: | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
Total liabilities and stockholders’ equity | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7
X4 PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)
(Unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | $ | $ | |||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
| Gain on sale of non-financial asset | ( | ||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Change in fair value of derivative liability | |||||||||||||||||||||||
| Change in fair value of warrant liability | |||||||||||||||||||||||
| Other income (expense), net | ( | ( | |||||||||||||||||||||
| Total other income (expense), net | ( | ( | |||||||||||||||||||||
| Loss before provision for income taxes | ( | ( | ( | ( | |||||||||||||||||||
| Provision for income taxes | ( | ||||||||||||||||||||||
| Net loss and comprehensive loss | ( | ( | ( | ( | |||||||||||||||||||
| Deemed dividend on Class B Warrant price reset | ( | ( | |||||||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Net loss per share attributable to common stockholders—basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Weighted average shares of common stock outstanding—basic and diluted | |||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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X4 PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||||||||
| Net loss | ( | ( | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | ( | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock and prefunded warrants in private placement equity transaction, net of issuance costs | |||||||||||||||||||||||||||||||||||
| Issuance of shares of common stock under employee stock purchase plan | — | ||||||||||||||||||||||||||||||||||
| Exercise of stock options and warrants | |||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||||||||
| Net loss | ( | ( | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | ( | ( | |||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | |||||||||||||||||||||||||||||||||||
| Exercise of stock options and warrants | |||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||||||||
| Net loss | ( | ( | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
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X4 PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
Issuance of common stock, redeemable common stock and pre-funded warrants for the purchase of common stock, net of issuance costs | |||||||||||||||||||||||||||||||||||
| Exercise of warrants | — | — | |||||||||||||||||||||||||||||||||
| Vesting of restricted stock units, net of shares withheld and retired to satisfy tax obligations | ( | ( | |||||||||||||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||||||||||||||
| Net loss | ( | ( | |||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | ( | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock under employee stock purchase plan | |||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | — | |||||||||||||||||||||||||||||||||
| Stock-based compensation | |||||||||||||||||||||||||||||||||||
| Net loss | ( | ( | |||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | ( | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock and prefunded warrants for the purchase of common stock, net of issuance costs | |||||||||||||||||||||||||||||||||||
| Vesting of restricted stock units | — | ||||||||||||||||||||||||||||||||||
| Reclassification of warrant liability to equity | |||||||||||||||||||||||||||||||||||
| Stock-based compensation expense | |||||||||||||||||||||||||||||||||||
| Net loss | ( | ( | |||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
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X4 PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Stock-based compensation expense | |||||||||||
| Depreciation and amortization expense | |||||||||||
| Non-cash lease expense | |||||||||||
| Accretion of debt discount | |||||||||||
| Change in fair value of warrant liability | ( | ||||||||||
| Other | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Prepaid expenses, other current assets and research and development incentive receivable | |||||||||||
| Accounts payable | ( | ||||||||||
| Accrued expenses and other long-term liabilities | |||||||||||
| Lease liabilities | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| Cash flows from investing activities: | |||||||||||
| Purchase of marketable securities | ( | ||||||||||
| Sales and maturities of marketable securities | |||||||||||
| Acquisition of property and equipment | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash flows from financing activities: | |||||||||||
| Proceeds from issuance of shares of common stock under employee stock purchase plan and from exercise of stock options and warrants | |||||||||||
| Employee taxes paid related to net share settlement of vested restricted stock units | ( | ||||||||||
| Fees paid to amendment loan and security agreement and issuance costs related to the sale of warrants | ( | ( | |||||||||
| Repayments of borrowings and accrued end-of-term fees under loan and security agreement | ( | ( | |||||||||
| Proceeds from borrowings under loan and security agreement | |||||||||||
| Proceeds from sale of common stock, warrants and pre-funded warrants, net of issuance costs | |||||||||||
| Net cash provided by financing activities | |||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( | ( | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
| Issuance costs not yet paid related to sale of shares of common stock, warrants and pre-funded warrants | $ | $ | |||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
11
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF THE BUSINESS AND BASIS OF PRESENTATION
X4 Pharmaceuticals, Inc. (together with its subsidiaries, the “Company”) is a late-stage clinical biopharmaceutical company discovering and developing novel therapeutics for the treatment of rare diseases and those with limited treatment options, with a focus on conditions resulting from dysfunction of the immune system. The Company’s lead clinical candidate is mavorixafor, a small-molecule antagonist of the chemokine receptor CXCR4 that is being developed as an oral, once-daily therapy. Due to its ability to increase the mobilization of mature, functional white blood cells from the bone marrow into the bloodstream, the Company believes that mavorixafor has the potential to provide therapeutic benefit across a variety of chronic neutropenic disorders and WHIM (Warts, Hypogammaglobulinemia, Infections, and Myelokathexis) syndrome (“WHIM”), a rare, primary immunodeficiency. Following announcement of positive top-line data from the Company’s pivotal, global, Phase 3 clinical trial in November 2022, the Company submitted a New Drug Application (“NDA”) to the U.S. Food and Drug Administration (“FDA”) in August 2023, seeking approval of oral, once-daily mavorixafor in the treatment of people aged 12 years and older with WHIM syndrome. The FDA accepted the NDA on October 30, 2023 for Priority Review, establishing a PDUFA/action date of April 30, 2024. As the Company prepares for a potential launch of mavorixafor for WHIM in the U.S. in the second quarter of 2024, the Company is also enrolling participants in a Phase 2 clinical trial evaluating the safety and efficacy of mavorixafor in people with certain chronic neutropenic disorders. X4 also expects to initiate a pivotal, global, Phase 3 clinical trial in the first half of 2024 in certain chronic neutropenic disorders. The Company is headquartered in Boston, Massachusetts and has a research facility in Vienna, Austria.
Going Concern Assessment—In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) (“ASU 2014-15”), the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after November 9, 2023, which is the date that the condensed consolidated financial statements were issued. Since inception, the Company has incurred significant operating losses and negative cash flows from operations. As of September 30, 2023, the Company had $141.7 million of cash, cash equivalents and short-term marketable securities, and an accumulated deficit of $458.8 million. Net cash used in operating activities was $68.8 million for the nine months ended September 30, 2023. On August 2, 2023, the Company entered into an amendment (the “Amendment”) to its Second Amended and Restated Loan and Security Agreement (as amended by the Amendment, the “Hercules Loan Agreement”) with Hercules Capital Inc. (“Hercules”). The Amendment extended the interest-only period from September 2024 to March 2025, provided an additional $22.5 million in borrowings at closing and increased the available borrowing capacity to $115.0 million. The Hercules Loan Agreement requires that the Company maintain a minimum level of cash of $20 million through January 2025 and thereafter subject to reductions upon the Company’s achievement of operational milestones.
Management has assessed the Company’s ability to continue as a going concern in accordance with the requirements of Accounting Standards Codification (“ASC”) 205-40. The Company has adequate financial resources to fund its forecasted operating costs for at least one year after the date that these condensed consolidated financial statements were issued on November 9, 2023. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Based on its current cash flow projections and considering the terms of the Hercules Loan Agreement and with no additional funding, the Company believes it has sufficient cash, cash equivalents and marketable securities to fund operations into 2025. However, to finance its operations in 2025 and beyond, the Company will need to raise additional capital, which cannot be assured. Unless and until the Company reaches profitability in the future, it will require additional capital to fund our operations, which could be raised through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations and strategic alliances. If the Company is unable to obtain funding, it could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which would adversely affect its business prospects, or it may be unable to continue operations.
12
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Unaudited Interim Condensed Consolidated Financial Statements— The condensed consolidated balance sheet at December 31, 2022 that is presented in these interim condensed consolidated financial statements was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying condensed consolidated financial statements are unaudited. The accompanying unaudited interim condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the year ended December 31, 2022 included in the 2022 Annual Report filed with the SEC on March 21, 2023. In the opinion of management, all adjustments, consisting only of normal recurring adjustments as necessary, for the fair statement of the Company’s condensed financial position, condensed results of its operations and cash flows have been made. The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results of operations that may be expected for the year ending December 31, 2023.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant Accounting Policies—The Company’s significant accounting policies are disclosed in the audited consolidated financial statements and the notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 21, 2023. Since the date of those consolidated financial statements, there have been no material changes to the Company’s significant accounting policies.
Cash and Cash Equivalents— The Company considers all highly liquid investments with maturities of 90 days or less at the date of purchase to be cash equivalents. Cash equivalents consisted of money market funds, treasury bills and federal government agency notes as of September 30, 2023 and December 31, 2022.
Marketable Securities— Marketable securities consist of short-term securities classified as available-for-sale having maturities greater than 90 days, but less than 365 days from the date of acquisition. The Company determines the appropriate classification of the securities at the time they are acquired and evaluate the appropriateness of such classifications at each balance sheet date. The Company’s marketable securities consist of available-for-sale securities that are classified as Level 2 because their value is based on valuations using significant inputs derived from, or corroborated by, observable market data. The cost of available-for-sale securities sold is based on the specific-identification method. Unrealized gain and losses on available-for-sale are included as a component of other comprehensive (loss) income on the condensed consolidated balance sheets and condensed consolidated statements of stockholders’ equity and as a component of total comprehensive (loss) income on the condensed consolidated statement of operations and comprehensive loss until realized. Realized gains and losses on the sale of marketable securities are determined using the specific-identification method and recorded in other (expense) income, net on the accompanying condensed consolidated statements of operations and comprehensive loss. The Company reviews marketable securities for impairment whenever the fair value of a marketable security is less than the amortized cost and evidence indicates that a marketable security’s carrying amount is not recoverable. Unrealized losses are evaluated for impairment under ASC 326, Financial Instruments - Credit Losses, to determine if the impairment is credit-related or noncredit-related. Credit-related impairment is recognized as an allowance on the condensed consolidated balance sheets with a
13
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| (in thousands) | As of September 30, 2023 | As of December 31, 2022 | |||||||||
| Letter of credit security: Waltham lease | $ | $ | |||||||||
| Letter of credit security: Vienna Austria lease | |||||||||||
| Letter of credit security: Boston lease | |||||||||||
| Total restricted cash | $ | $ | |||||||||
| Restricted cash included in prepaid expenses and other current assets | $ | $ | |||||||||
| Restricted cash included in other assets | $ | $ | |||||||||
In connection with the Company’s lease agreements for its facilities in Massachusetts and Austria, the Company maintains letters of credit, which are secured by restricted cash, for the benefit of the respective landlord.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the sum of the total of amounts shown in the Company’s condensed consolidated statements of cash flows as of September 30, 2023 and December 31, 2022:
| (in thousands) | September 30, 2023 | December 31, 2022 | |||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash, current portion | |||||||||||
| Restricted cash, non-current | |||||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | |||||||||
The Company assesses qualitative factors to determine whether the existence of events or circumstances would indicate that it is more likely than not that the fair value of the reporting unit is less than its carrying amount. If after assessing the totality of events or circumstances, the Company were to determine that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, then the Company would perform an interim quantitative impairment test, whereby the Company compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of its net assets, goodwill is not impaired, and no further testing is required. If the fair value of the reporting unit is less than its carrying value, the Company measures the amount of impairment loss, if any, as the excess of the carrying value over the fair value of the reporting unit. There were no triggering events during the three months ended September 30, 2023 that necessitated an interim impairment test of goodwill.
3. LICENSE, COLLABORATION AND FUNDING AGREEMENTS
14
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Research and Development Incentive Program
The Company participates in a research and development incentive program provided by the Austrian government whereby the Company is entitled to reimbursement by the Austrian government for a percentage of qualifying research and development expenses and capital expenditures incurred by the Company’s subsidiary in Austria. As of September 30, 2023, the amount due under the program is $0.4 million, which amount is included in research and development incentive receivable in the condensed consolidated balance sheet. During each of the nine months ended September 30, 2023 and 2022, the Company recorded $0.4
License and Collaboration Agreements
In July 2014, the Company entered into a license agreement with Genzyme (the “Genzyme Agreement”) pursuant to which the
Company was granted an exclusive license to certain patents and intellectual property owned or controlled by Genzyme related to the CXCR4 receptor to develop and commercialize products containing licensed compounds (including but not limited to
mavorixafor) for all therapeutic, prophylactic and diagnostic uses, with the exception of autologous and allogenic human stem cell therapy. Under the terms of the Genzyme Agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize licensed products for use in the field in the United States and at least one other major market country.
The Company is obligated to pay Genzyme milestone payments in the aggregate amount of up to $25.0 million, contingent upon the achievement by the Company of certain clinical-stage regulatory and sales milestones with respect to licensed products. During the nine months ended September 30, 2023, the Company accrued $5.0 million related to a development milestone under the Genzyme Agreement as the Company believes that it is probable under ASC Topic 450, Contingencies, that the milestone will be achieved. The milestone was achieved on October 30, 2023. The $5.0 million accrued payment has been recorded within research and development expense on the condensed consolidated statements of operations. An additional $7.0 million of regulatory milestone payments are not yet probable but are reasonably possible of becoming payable with the next eight to nine month period under the Genzyme Agreement. The Company is also obligated to pay Genzyme tiered royalties based on net sales of licensed products that the Company commercializes under the agreement.
Gain on Sale of Non-Financial Asset
During the nine months ended September 30, 2022, a third party, who had previously acquired rights to certain intellectual property from the Company, terminated the arrangement and transferred these rights back to the Company. During the nine months ended September 30, 2022, the Company transferred these rights to another third party in return for $0.5 million. The Company has no continuing involvement in any ongoing research and development activities associated with the intellectual property. The Company concluded that these third parties are "non-customers" as the underlying intellectual property transferred to and from these third parties supports potential drug candidates that are not aligned with the Company's strategic focus and, therefore, are not an output of the Company's ordinary activities. Accordingly, the Company accounted for the sale of the intellectual property as the sale of a non-financial asset under ASC Topic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets ("ASC 610-20"), and included the gain in gain on sale of non-financial asset for the nine months ended September 30, 2022.
There were no material modifications of the Company’s license or collaboration agreements during the nine months ended September 30, 2023.
15
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:
| Fair Value Measurements as of September 30, 2023 Using: | |||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents—money market funds | $ | $ | $ | $ | |||||||||||||||||||
| Marketable securities— treasury bills, federal government agency notes | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Embedded derivative liability | $ | $ | $ | $ | |||||||||||||||||||
| Class C warrant liability | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Fair Value Measurements as of December 31, 2022 Using: | |||||||||||||||||||||||
| (in thousands) | Level 1 | Level 2 | Level 3 | Total | |||||||||||||||||||
| Assets: | |||||||||||||||||||||||
| Cash equivalents—money market funds | $ | $ | $ | $ | |||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||
| Embedded derivative liability | $ | $ | $ | $ | |||||||||||||||||||
| Class C warrant liability | |||||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
The Company’s cash equivalents consisted of money market funds invested primarily in short term commercial paper, asset- backed securities, certificate of deposits and repurchase agreements. The money market funds were valued based on reported market pricing for the identical assets, which represents a Level 1 measurement, or by using inputs observable in active markets for similar securities, which represents a Level 2 measurement. The Company has an investment portfolio of federal government agency notes and treasury bills. These investments are measured at fair value using Level 2 assumptions.
The following table provides a roll-forward of the aggregate fair values financial instruments for which fair values are determined using Level 3 inputs:
| (in thousands) | Embedded Derivative Liability | Class C Warrant Liability | Total | ||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | ||||||||||||||
| Change in fair value | ( | ( | |||||||||||||||
| Reclassification of warrant liability to permanent equity upon exercise | ( | ( | |||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | ||||||||||||||
Embedded Derivative Liability— The fair value of the embedded derivative liability recognized in connection with the Company’s loan agreement with Hercules (see Note 7), which is associated with additional fees due to Hercules upon events of default, was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The fair value of this embedded derivative liability, which is reported within other non-current liabilities on the condensed consolidated balance sheets, is estimated by the Company at each reporting date based, in part, on the results of third party valuations, which are prepared based on a discounted cash flow model that considers the timing and
16
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
probability of occurrence of a redemption upon an event of default, the potential amount of prepayment fees or contingent interest upon an event of default and the Company’s risk-adjusted discount rate of 14 %.
Class C Warrant Liability— In December 2022, the Company issued Class C Warrants for the purchase of shares of its common stock in a public offering of common stock. The Class C Warrants are accounted for as a liability on the condensed consolidated balance sheet and are adjusted to fair value at period end through “other income (expense), net” in the condensed, consolidated statements of operations and comprehensive loss.
The Company calculated the fair value of the Class C Warrants using the Black-Scholes option pricing model, which represents a Level 3 measurement within the fair value hierarchy, with the following inputs:
| September 30, 2023 | December 31, 2022 | |||||||||||||
| Common stock price | $ | $ | ||||||||||||
| Risk-free interest rate | % | % | ||||||||||||
| Expected term (in years) | ||||||||||||||
| Expected volatility | % | % | ||||||||||||
| Expected dividend yield | % | % | ||||||||||||
5. PROPERTY AND EQUIPMENT, NET
| (in thousands) | September 30, 2023 | December 31, 2022 | |||||||||
| Leasehold improvements | $ | $ | |||||||||
| Furniture and fixtures | |||||||||||
| Computer equipment | |||||||||||
| Software | |||||||||||
| Lab equipment | |||||||||||
| Less: Accumulated depreciation and amortization | ( | ( | |||||||||
| $ | $ | ||||||||||
Depreciation and amortization expense related to property and equipment was $357 thousand and $389 thousand for the nine months ended September 30, 2023 and 2022, respectively.
17
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. ACCRUED EXPENSES
| (in thousands) | September 30, 2023 | December 31, 2022 | |||||||||
| Accrued employee compensation and benefits | $ | ||||||||||
| Accrued external research and development expenses | |||||||||||
| Accrued professional fees | |||||||||||
| Accrued deferred financing fees | |||||||||||
| Other | |||||||||||
| $ | $ | ||||||||||
7. LONG-TERM DEBT
| (in thousands) | September 30, 2023 | December 31, 2022 | |||||||||
| Principal amount of long-term debt | $ | $ | |||||||||
| Debt discount, net of accretion | ( | ( | |||||||||
| Cumulative accretion of end of term payments | |||||||||||
| Long-term debt | $ | $ | |||||||||
| Less: current portion | $ | $ | ( | ||||||||
| Long-term debt, net of current portion | $ | $ | |||||||||
Hercules Loan Agreement
In October 2018, the Company entered into the Hercules Loan Agreement, as amended most recently in August 2023, with Hercules. The Hercules Loan Agreement provides for a term loan facility of up to $115.0 million, including: (i) $32.5 million outstanding (the “Conversion Balance”) prior to effectiveness of the most recent amendment in August 2023 (the “Amendment”), (ii) a $22.5 million term loan tranche drawn upon the closing of the Amendment, (iii) an additional tranche of up to $20.0 million, which will be available in either one or two drawings following potential U.S. approval of mavorixafor in individuals with WHIM syndrome (“Approval”) until the earlier of (A) 45 days following Approval and (B) September 30, 2024 in the case of the first drawing, and until December 15, 2024 in the case of a second drawing, (iv) an additional tranche of $7.5 million, which will be available following achievement of a certain clinical development-related milestone through the earlier of (A) 45 days following achievement of such milestone and (B) December 15, 2024 and (v) an additional tranche of up to $32.5 million, which will be available subject to approval by Hercules in its sole discretion. under which the Company has borrowed an aggregate of $55.0 million of term loans to date representing the maximum borrowings.
Borrowings under the Hercules Loan Agreement accrue interest at a variable rate equal to the greater of (i) 10.15 % or (ii) The Wall Street Journal prime rate plus 3.15 %. In an event of default and until such event is no longer continuing, the interest rate applicable to borrowings would be increased by 4.0 %. Borrowings are repayable in monthly interest-only payments through March 1, 2025, and in equal monthly payments of principal and accrued interest from April 1, 2025 (the “Amortization Date”) until the maturity date of the loans. The Amortization Date may be extended (i) to October 1, 2026, if Approval occurs on or prior to September 30, 2026, and (ii) to the maturity date if an extension pursuant to the foregoing clause (i) has occurred and no event of default occurs. The loans mature on October 1, 2026; provided, however, such maturity date will be extended to July 1, 2027 if the Amortization Date is extended pursuant to clause (i) of the foregoing sentence. At the Company’s option, the Company may prepay all, but not less than all, of the outstanding borrowings, subject to a prepayment premium of 3% during the first 12 months following January 6, 2023 (the “Original Closing Date”), 2% during the following 12 months and 1% thereafter. In addition, the Hercules Loan Agreement provides for payment of end-of-term fees of $2.1 million plus 3.5% of the aggregate principal amount of loans drawn, if any, subsequent to the Amendment, payable upon the earlier of maturity or the repayment in full of all obligations under the Hercules Loan Agreement. Borrowings under the Hercules Loan Agreement are
18
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
collateralized by substantially all of the Company’s personal property and other assets except for its intellectual property (but including rights to payment and proceeds from the sale, licensing or disposition of the intellectual property).
Under the Hercules Loan Agreement, the Company has agreed to affirmative and negative covenants. Prior to January 31, 2025, the Company must maintain cash in an account or accounts in which Hercules has a first priority security interest (“Qualified Cash”) in an aggregate amount equal to at least $20.0 million.
•On and after January 31, 2025, such amount must equal at least 20% of the aggregate principal amount of loans outstanding under the Hercules Loan Agreement.
•From and after January 31, 2025, the Company must maintain trailing six month net product revenue of at least 55% of its forecast as approved by the Company’s Board of Directors (the “Performance Covenant”). However, the Performance Covenant will be waived during any period in which
◦(i) the Company maintains Qualified Cash in an aggregate amount equal to at least 75% of loans outstanding under the Amended Loan Agreement or
◦(ii) both (x) the Company maintains a Market Capitalization (as defined in the Hercules Loan Agreement) of at least $450.0 million and (y) the Company maintains Qualified Cash in an aggregate amount equal to at least 45% of loans outstanding.
The Hercules Loan Agreement also restricts the Company’s ability to incur additional indebtedness, pay dividends, encumber its intellectual property, or engage in certain fundamental business transactions, such as mergers or acquisitions of other businesses, with certain exceptions.
The Company recognized interest expense under the Hercules Loan Agreement as follows:
| (in thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Total interest expense | $ | $ | $ | $ | |||||||||||||||||||
| Non-cash interest expense | $ | $ | $ | $ | |||||||||||||||||||
The annual effective interest rate of the Hercules Loan Agreement as of September 30, 2023 is 13.6 %. There were no principal payments due or paid under the Hercules Loan Agreement during the nine months ended September 30, 2023. End-of-term payments of $2.1 million were paid during the nine months ended September 30, 2023.
The Company concluded that the amendments to the Hercules Loan Agreement in January 2023 and August 2023 represented modifications to the debt. Accordingly, fees paid to third parties directly related to the amendments were expensed as incurred and fees paid to Hercules in conjunction with the amendments have been deferred and are being amortized to interest expense over the life of the debt arrangement using the effective interest method.
As of September 30, 2023, future principal and accrued end-of-term payments due under the Hercules Loan Agreement were as follows (in thousands):
| Year Ending December 31, | Total | ||||
| 2023 | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| Long-term debt | $ | ||||
8. LEASES
19
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company has lease agreements for its facilities in Boston, Massachusetts, which is the Company’s principal executive office; Vienna, Austria, which is the Company’s research and development center; and Waltham, Massachusetts, which the Company has sublet to a third party. There are no restrictions or financial covenants associated with any of the lease agreements.
•Vienna Austria Leases— The Company has an operating lease for approximately 1,200 square meters of laboratory and office space in Vienna, Austria (“Vienna Lease”), which commenced in February 2021 for a term of 7 years. The annual base rent for the Vienna Lease is approximately $285 thousand.
•Boston Lease— The Company leases approximately 28,000 square feet of office space in Boston, Massachusetts (“Boston Lease”), which serves as the Company’s headquarters. Base rental payments are approximately $1.1 million annually, plus certain operating expenses. The term of the Boston Lease will continue until November 2026, unless earlier terminated. The Company has the right to sublease the premises, subject to landlord consent and also has the right to renew the Boston Lease for an additional five years at the then prevailing effective market rental rate. The Company is required to maintain a security deposit in the form of a letter of credit for $0.6 million for the benefit of the landlord.
•Waltham Lease— The Company leases approximately 6,000 square feet of office space in Waltham, Massachusetts (“Waltham Lease”). The Waltham Lease, as amended, commenced on January 1, 2019, and expires on December 31, 2023. The base rent is approximately $0.3 million annually. In addition to the base rent, the Company is also responsible for its share of operating expenses, electricity and real estate taxes, which costs are not included in the determination of the leases’ right-of-use assets or lease liabilities. The Company is subleasing the space to a third party for the duration of the lease. The right-of-use asset is being amortized to rent expense over the five-year term of the lease.
As the Company’s leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in calculating the present value of the lease payments. The Company utilizes its incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment.
| (dollars in thousands) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||
| Lease Cost | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Fixed operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Total lease expense | $ | $ | $ | $ | |||||||||||||||||||
| Other information | |||||||||||||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | |||||||||||||||||||
| Sublease income | $ | $ | $ | $ | |||||||||||||||||||
| Weighted-average remaining lease term—operating leases | |||||||||||||||||||||||
| Weighted-average discount rate—operating leases | % | ||||||||||||||||||||||
20
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Maturities of lease liabilities due under lease agreements that have commenced as of September 30, 2023 are as follows (in thousands)
| Maturity of lease liabilities | Operating Leases | ||||
| 2023 (remainder of the year) | $ | ||||
| 2024 | |||||
| 2025 | |||||
| 2026 | |||||
| 2027 | |||||
| Thereafter | |||||
| Total lease payments | |||||
| Less: interest | ( | ||||
| Total operating lease liabilities as of September 30, 2023 | $ | ||||
9. COMMITMENTS AND CONTINGENCIES
The Company has agreements with contract manufacturing organizations (“CMOs”) for the production of mavorixafor for use in clinical trials. The Company’s agreement with the CMO who produces batches of drug substance for use in the Company’s clinical drug supply contains cancellation provisions that would require the Company to pay up to the full contract value upon cancellation. As of September 30, 2023, the Company has approximately $1.8 million of such commitments in place subject to cancellation provisions.
Indemnification Agreements— In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company to, among other things, indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnification obligations. The Company is not currently aware of any indemnification claims and has no
Legal Proceedings— The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to any legal proceedings.
10. COMMON STOCK AND COMMON STOCK WARRANTS
As of September 30, 2023, the Company’s Restated Certificate of Incorporation authorized the Company to issue 500 million shares of common stock, par value $0.001 No cash dividends have been declared or paid to date.
Q2 2023 Private Placement
On May 15, 2023, the Company entered into a securities purchase agreement pursuant to which it agreed to issue and sell to several institutional and accredited investors (the “Investors”), in a private placement (the “Q2 2023 Private Placement”),
21
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
34,521,046 shares of common stock at a price of $1.52 per share and pre-funded warrants to purchase 8,263,157 shares of common stock at a purchase price of $1.519 per pre-funded warrant (representing the price of $1.52 per share minus the $0.01 per share exercise price of each such prefunded warrant). The pre-funded warrants are exercisable, subject to certain beneficial ownership restrictions, at any time after their original issuance and will not expire. The Q2 2023 Private Placement closed on May 18, 2023. The Company received gross proceeds of $65.0 million, before deducting offering expenses paid by the Company.
Also on May 15, 2023, the Company entered into a registration rights agreement (the “Registration Rights Agreement”) with the Investors, pursuant to which the Company agreed to register for resale the common shares issued in the Q2 2023 Private Placement and the issuance of the shares of common stock underlying the pre-funded warrants held by the Investors (the “Registrable Securities”). Under the Registration Rights Agreement, the Company agreed to file a registration
statement covering the resale of the Registrable Securities by no later than June 14, 2023. Such registration statement was filed on June 9, 2023 and was declared effective by the SEC on June 20, 2023. The Company has agreed to use commercially reasonable efforts to keep such registration statement effective until the date the shares of common stock sold in the Q2 2023 Private Placement and the shares of common stock underlying the pre-funded warrants covered by such registration statement have been sold or may be resold pursuant to Rule 144 without restriction.
Warrants and Pre-Funded Warrants
In connection with public and private sales of shares of its common stock, the Company has issued warrants and pre-funded warrants, which are exercisable for the purchase shares of the Company’s common stock. All outstanding warrants and pre-funded warrants are currently exercisable and do not have price reset provisions. Upon the closing of these public and private offerings, the Company received approximately 99% of the exercise price for the pre-funded warrants, for which the remaining exercise price is equal to or less than $0.01 per share.
Warrant Exercises
During the nine months ended September 30, 2023, 7,475,814 warrants were exercised and the Company received $8.4 million in proceeds.
As of September 30, 2023, the Company’s outstanding warrants and pre-funded warrants to purchase shares of common stock consisted of the following:
| Issuance Date | Number of Shares of Common Stock Issuable | Exercise Price | Expiration Date | |||||||||||||||||
| October 25, 2016 | $ | October 24, 2026 | ||||||||||||||||||
| December 28, 2017 | $ | December 28, 2027 | ||||||||||||||||||
| September 12, 2018 | $ | September 12, 2028 | ||||||||||||||||||
| October 19, 2018 | $ | October 19, 2028 | ||||||||||||||||||
| March 13, 2019 | $ | March 12, 2029 | ||||||||||||||||||
| April 16, 2019 | $ | April 15, 2024 | ||||||||||||||||||
| November 29, 2019 | $ | (a) | n/a | |||||||||||||||||
| March 23, 2021 | $ | (b) | n/a | |||||||||||||||||
| November 9, 2021 | $ | (c) | n/a | |||||||||||||||||
| March 3, 2022 | $ | (d) | n/a | |||||||||||||||||
| July 6, 2022 | $ | (e) | n/a | |||||||||||||||||
| July 6, 2022 | $ | July 6, 2027 | ||||||||||||||||||
| December 9, 2022 | $ | December 9, 2027 | ||||||||||||||||||
| December 9, 2022 | $ | (f) | n/a | |||||||||||||||||
| May 19, 2023 | $ | (g) | n/a | |||||||||||||||||
(a) In November 2019, the Company received $11.999 per pre-funded warrant, or $21.0 million in aggregate proceeds. Each pre-funded
warrant may be exercised for an additional $0.001 per pre-funded warrant. (b) In March 2021, the Company received $8.69 per pre-funded warrant, or $435 thousand in aggregate proceeds. Each pre-funded warrant may be exercised for an additional $0.01 per pre-funded warrant. (c) In November 2021, the Company received $4.97 per pre-funded warrant, or $10.0 million in aggregate proceeds. Each
22
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. STOCK-BASED COMPENSATION
Summary of Plans— The Company has the following equity incentive plans:
•The X4 Pharmaceuticals Inc. 2015 Employee, Director and Consultant Equity Incentive Plan, as amended (the “2015 Plan”);
•The X4 Pharmaceuticals Inc. 2017 Equity Incentive Plan (the “2017 Plan”); and
•The X4 Pharmaceuticals Inc. Amended and Restated 2019 Inducement Equity Incentive Plan (the “2019 Plan”)
The Company also has the following employee stock purchase plan:
•The X4 Pharmaceutical Inc. Amended and Restated 2017 Employee Stock Purchase Plan (the “2017 ESPP”)
These plans are administered by the Board of Directors or by a committee of the Board of Directors. The exercise prices, vesting and other restrictions are determined at the discretion of the Board of Directors, or its committee if so delegated, except that the exercise price per share of stock options may not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of the stock option may not be greater than ten years. Incentive stock options granted to employees and restricted stock awards granted to employees, officers, members of the board of directors, advisors, and consultants of the Company typically vest over four years. Non-statutory options granted to employees, officers, members of the board of directors, advisors, and consultants of the Company typically vest over three or four years. Shares that are expired, terminated, surrendered or canceled under the Plans without having been fully exercised will be available for future awards. In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for the grant of awards.
As of September 30, 2023, there are an aggregate of approximately 2.0 million shares of common stock available for issuance under the Company’s equity incentive plans. Approximately 5.0 million shares of common stock remain available for issuance under the 2017 ESPP.
Stock Option Valuation— The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted to employees, directors and non-employees.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Risk-free interest rate | % | % | % | % | |||||||||||||||||||
| Expected term (in years) | |||||||||||||||||||||||
| Expected volatility | % | % | % | % | |||||||||||||||||||
| Expected dividend yield | % | % | % | % | |||||||||||||||||||
23
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock Options
| Number of Shares | Weighted Average Exercise Price | Weighted Average Contractual Term (Years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||
| Outstanding as of December 31, 2022 | $ | $ | |||||||||||||||||||||
| Granted | |||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Forfeited and Expired | ( | ||||||||||||||||||||||
| Outstanding as of September 30, 2023 | $ | $ | |||||||||||||||||||||
| Exercisable as of September 30, 2023 | $ | $ | |||||||||||||||||||||
| Vested and expected to vest as of September 30, 2023 | $ | $ | |||||||||||||||||||||
The weighted average grant-date fair value per share of stock options granted during the nine months ended September 30, 2023 and 2022 was $1.02 and $1.24 , respectively.
Restricted Stock Units— The following table summarizes the Company's restricted stock unit activity for the nine months ended September 30, 2023:
| Number of Shares | |||||
| Unvested as of December 31, 2022 | |||||
| Granted | |||||
| Vested | ( | ||||
| Forfeited | ( | ||||
| Unvested as of September 30, 2023 | |||||
During the nine months ended September 30, 2023, the Company granted performance-based restricted stock units (“PRSUs”) to its employees. The PRSUs vest 50% based on the Company’s achievement of each of two operational milestones conditioned on the grantee’s continued employment with the Company. As of September 30, 2023, neither of the two performance criteria had been met. The Company believes that the achievement of these operational milestones is probable and, accordingly, stock-based compensation expense has been recognized for the awards using the accelerated attribution model based on the fair value of the awards as of the date of grant and management’s best estimate of the date each operational milestone will be achieved. The Company updates its estimates related to the probability and timing of achievement of the operational milestones each period until the award either vests or is forfeited.
Stock-Based Compensation— As of September 30, 2023, total unrecognized compensation expense related to unvested stock options and restricted stock units was $5.4 million, which is expected to be recognized over a weighted average period of 2.2 years.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Research and development expense | $ | $ | $ | $ | |||||||||||||||||||
| Selling, general and administrative expense | |||||||||||||||||||||||
| Total stock-based compensation | $ | $ | |||||||||||||||||||||
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X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Stock Appreciation Rights— On November 7, 2022 (the “Grant Date”), the compensation committee of the Board of Directors
approved special retention and recognition grants of stock appreciation rights (“SARs”) pursuant to the 2017 Plan to the Company’s President and Chief Executive Officer, the Company’s Chief Financial Officer and Treasurer, and certain other executive officers of the Company. The SARs have a measurement price per SAR equal to $1.80, the closing price per share of the Company’s common stock on the Grant Date, and each grant of SARs will have a maximum term of ten years from the Grant Date. Unless otherwise determined by the Board of Directors, the SARs will be settled in cash upon exercise. The settlement value will be based on the difference between the closing price of the Company’s common stock on the date of settlement less $1.80 multiplied by the number of SARs exercised. The SARs will vest and become exercisable in equal annual installments on the first, second, and third anniversaries of the Grant Date, subject to the recipient remaining an employee of the Company through and including each applicable vesting date.
The calculation of the fair value of the outstanding SARs as of September 30, 2023 includes the closing price of the Company’s common stock of $1.09 and the following assumptions on a weighted average basis:
September 30, 2023 | ||||||||
| Risk free rate | % | |||||||
| Expected term (years) | ||||||||
| Expected volatility | % | |||||||
| Expected dividend yield | % | |||||||
| Expected forfeiture rate | % | |||||||
The SARs are accounted for as liability awards as settlement will be in the form of cash unless the Board of Directors authorizes settlement in shares of the Company’s common stock and such shares are available to be issued from the 2017 Plan. The Company currently intends to settle the SARs in cash if and when exercised. Compensation expense is recorded based the fair value of the SARs, as determined using the Black-Scholes option valuation model, using an accelerated attribution method as the SARs vest. The Company remeasures the fair value of the outstanding SARs each period until settlement and adjusts life-to-date compensation expense to the period end SARs fair value. For the nine months ended September 30, 2023, the Company recognized $2.1 million of compensation expense related to the SARs.
12. INCOME TAXES
25
X4 PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. NET LOSS PER SHARE
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Deemed dividend as a result of Class B warrant price reset | ( | ( | |||||||||||||||||||||
Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
Weighted average shares of common stock outstanding—basic and diluted | |||||||||||||||||||||||
Net loss per share attributable to common stockholders— basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Basic and diluted weighted average shares of common stock outstanding for the three and nine months ended September 30, 2023 and September 30, 2022 include the weighted average effect of outstanding pre-funded warrants for the purchase of shares of common stock for which the remaining unfunded exercise price is $0.01 or less per share. During the nine months ended September 30, 2022, in accordance with the Company’s Class B Warrant agreement, the exercise price of each outstanding Class B Warrant was adjusted to the price of shares of the Company’s common stock sold in public or private offerings to the extent such price is lower than the previous Class B warrant price. These price adjustments were accounted for as a deemed dividend that adjusts net loss available to common shareholders for purposes of basic earnings per share. The deemed dividend was calculated using the Black-Scholes pricing model, taking into account historical volatility of the Company’s common stock and the estimated remaining life of the outstanding Class B Warrants. The Class B Warrants expired in December 2022.
The Company’s potentially dilutive securities include outstanding stock options, unvested restricted stock units and warrants to purchase shares of common stock for the three and nine months ended September 30, 2023 and 2022. All potentially dilutive securities have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per share, and thus they are considered “anti-dilutive.” Therefore, the weighted average number of shares of common stock outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same. The Company excluded the following potential shares of common stock, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share attributable to common stockholders for the periods indicated because including them would have had an anti-dilutive effect:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Options to purchase shares of common stock | |||||||||||||||||||||||
| Unvested restricted stock units | |||||||||||||||||||||||
Warrants to purchase shares of common stock (excluding prefunded warrants, which are included in basic shares outstanding) | |||||||||||||||||||||||
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with our unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q and the audited financial information and the notes thereto included in our Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (“SEC”), on March 21, 2023, the (“Annual Report”). This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. Our actual results, performance or experience could differ materially from what is indicated by any forward-looking statement due to various important factors, risks and uncertainties, including, but not limited to, those set forth under “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are a late clinical-stage biopharmaceutical company discovering and developing novel therapeutics for the treatment of rare diseases and those with limited treatment options, with a focus on conditions resulting from dysfunction of the immune system.
Our lead clinical candidate is mavorixafor, a small-molecule antagonist of chemokine receptor CXCR4 that is being developed as an oral, once-daily therapy. Due to its ability to increase the mobilization of mature, functional white blood cells from the bone marrow into the bloodstream, we believe that mavorixafor has the potential to provide therapeutic benefit across a variety of chronic neutropenic disorders and WHIM (Warts, Hypogammaglobulinemia, Infections, and Myelokathexis) syndrome, a rare, primary immunodeficiency for which there are no approved therapies.
We are currently seeking approval from the U.S. Food and Drug Administration (“FDA”) for the use of oral, once-daily mavorixafor in the treatment of people aged 12 years and older with WHIM syndrome following the late October acceptance of our New Drug Application (“NDA”) by the FDA. The FDA has granted the NDA Priority Review, establishing a goal of six months review from the date of acceptance and assigning a Prescription Drug User Fee Act (“PDUFA”) target action date of April 30, 2024. At this time, the FDA has notified us that they are not currently planning to hold an advisory committee meeting to review the filing. Due to mavorixafor’s Rare Pediatric Disease designation in the U.S. for WHIM syndrome, we are eligible to receive a Priority Review Voucher (“PRV”) that can be used to obtain Priority Review for a subsequent application or sold to another drug sponsor should mavorixafor be approved.
This accepted NDA is supported by our successfully completed global, pivotal, Phase 3 clinical trial (4WHIM) evaluating the safety and efficacy of mavorixafor in people with WHIM syndrome. The 4WHIM trial met its primary endpoint and first key secondary endpoint, statistically significantly raising trial participants’ time above threshold for absolute neutrophil counts (“TAT-ANC”) and time above threshold for absolute lymphocyte counts (“TAT-ALC”) versus placebo. Additional data revealed that mavorixafor treatment also resulted in statistically significant reductions in annualized infection rates versus placebo and effected clinically meaningful reductions in the both the severity and duration of infections versus placebo in trial participants. Mavorixafor was well tolerated throughout the 52-week trial.
In anticipation of a potential first-half 2024 U.S. launch of mavorixafor in WHIM syndrome, we have continued to build out our go-to-market organization, with key hires across commercial and medical functions, increased interactions with key stakeholders and rare disease patient advocacy organizations, and the launch of a disease-awareness campaign aiming to further the understanding of WHIM syndrome and educate patients and physicians on the importance and benefits of early diagnosis.
We are also currently advancing mavorixafor for the treatment of people with certain chronic neutropenic disorders following positive results from a Phase 1b clinical trial of a single dose of mavorixafor in people with idiopathic, cyclic, and congenital chronic neutropenia. We are now conducting a Phase 2 clinical trial, evaluating the durability, safety, and tolerability of chronic dosing of once-daily oral mavorixafor with or without concurrent treatment with injectable granulocyte colony-stimulating factor (G-CSF) in the same patient population. Preliminary results from the trial have shown that participants have experienced robust increases in ANC and have achieved ANC levels in the normal range. An abstract summarizing these data has been accepted for poster presentation at the 65th Annual Meeting of the American Society of Hematology (“ASH”), taking place from December 9 to December 12, 2023 in San Diego, California. In addition, we expect to share further data from the Phase 2 trial in the first half of 2024.
Also in the first half of 2024, we expect to initiate a 52-week, global, pivotal, placebo-controlled Phase 3 clinical trial evaluating the safety and efficacy of once-daily mavorixafor in people aged 12 and older with idiopathic and congenital chronic neutropenia with or without concurrent G-CSF treatment.
We believe that successfully developing mavorixafor and providing a new therapeutic option to individuals diagnosed with certain chronic neutropenic disorders has the potential to revolutionize the treatment landscape, which is principally served by injectable therapies (including G-CSF) that are frequently associated with treatment-limiting adverse events.
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Our Pipeline
To date, we have not generated revenue from product sales and do not expect to generate significant revenue from the sale of our products in the foreseeable future. If our development efforts for our product candidates are successful and result in regulatory approval, we may generate revenue in the future from product sales. We cannot predict if, when, or to what extent we will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.
Macroeconomic Considerations
Unfavorable conditions in the economy in the United States and abroad may negatively affect the growth of our business and our results of operations. For example, macroeconomic events, including the COVID-19 pandemic, rising inflation, the U.S. Federal Reserve raising interest rates, the Russia-Ukraine war and the war in Israel, have led to economic uncertainty globally. The effect of macroeconomic conditions may not be fully reflected in our results of operations until future periods. If, however, economic uncertainty increases or the global economy worsens, our business, financial condition and results of operations may be harmed. For further discussion of the potential impacts of macroeconomic events on our business, financial condition, and operating results, see the section titled “Risk Factors.”
28
Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2023 and 2022
The following table summarizes the results of our operations for the three and nine months ended September 30, 2023 and 2022:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||
| Research and development | $ | 19,081 | $ | 14,110 | $ | 4,971 | $ | 56,745 | $ | 42,044 | $ | 14,701 | |||||||||||||||||||||||
| Selling, general and administrative | 8,133 | 6,044 | 2,089 | 25,578 | 20,457 | 5,121 | |||||||||||||||||||||||||||||
| Gain of sale of non-financial asset | — | — | — | — | (509) | 509 | |||||||||||||||||||||||||||||
| Total operating expenses | 27,214 | 20,154 | 7,060 | 82,323 | 61,992 | 20,331 | |||||||||||||||||||||||||||||
| Loss from operations | (27,214) | (20,154) | (7,060) | (82,323) | (61,992) | (20,331) | |||||||||||||||||||||||||||||
| Total other income (expense), net | 24,935 | (1,445) | 26,380 | 331 | (2,757) | 3,088 | |||||||||||||||||||||||||||||
| Loss before provision for income taxes | (2,279) | (21,599) | 19,320 | (81,992) | (64,749) | (17,243) | |||||||||||||||||||||||||||||
| Provision for income taxes | 26 | (13) | 39 | 45 | 14 | 31 | |||||||||||||||||||||||||||||
| Net loss | $ | (2,305) | $ | (21,586) | $ | 19,281 | $ | (82,037) | $ | (64,763) | $ | (17,274) | |||||||||||||||||||||||
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates, including employee salaries and related expenses, preclinical and clinical development expenses for our product candidates; internal and third-party costs of manufacturing our drug products for use in our preclinical studies and clinical trials and validation batches of our drug substance and drug product in support of our NDA. Research and development expenses also include facility, depreciation and other expenses; costs related to compliance with regulatory requirements; and payments made under third-party licensing agreements. We expense research and development costs as incurred.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| (in thousands | |||||||||||||||||||||||||||||||||||
Direct research and development expenses by product candidate: | |||||||||||||||||||||||||||||||||||
| Mavorixafor | $ | 10,918 | $ | 7,217 | $ | 3,701 | $ | 34,186 | $ | 17,894 | $ | 16,292 | |||||||||||||||||||||||
| X4P-002 | (19) | 341 | (360) | 58 | 2,285 | (2,227) | |||||||||||||||||||||||||||||
| X4P-003 | 2 | 3 | (1) | 2 | 199 | (197) | |||||||||||||||||||||||||||||
Unallocated expense | 8,180 | 6,549 | 1,631 | 22,499 | 21,666 | 833 | |||||||||||||||||||||||||||||
| Total research and development expenses | $ | 19,081 | $ | 14,110 | $ | 4,971 | $ | 56,745 | $ | 42,044 | $ | 14,701 | |||||||||||||||||||||||
Research and development expenses increased $5.0 million and $14.7 million in the three and nine months ended September 30, 2023, respectively, as compared to the corresponding periods in the prior year. Research and development expenses were higher in the current three month period as compared to the prior year due to higher regulatory costs associated with the preparation and submission of our NDA, higher contract manufacturing costs for our drug substance and potential drug product to support the validation of such processes associated with our NDA, and higher third party costs associated with our pivotal Phase 3 clinical trial of mavorixafor for the treatment of people aged 12 years and older with WHIM syndrome. Research and development expenses were higher in the nine month period as compared to the prior year due to the factors discussed above and due to higher accrued in-license fees, including $5.0 million of accrued fees related to a development milestone under our Genzyme agreement, which we believe is probable of being achieved.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and related costs, including stock-based compensation, for personnel in sales and marketing, executive, finance and administrative functions. Selling, general and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting, and audit services. Selling, general and administrative expenses increased $2.1 million and $5.1 million for the current three and nine month periods, respectively, as compared to the corresponding periods in the prior year. These increases were driven by an increase in head count and third party costs as we begin to build out our commercial
29
operations in preparation for the potential approval of our NDA and potential product launch in the first half of 2024, as well as an increase in expense related to our stock appreciation rights (Note 11), which are measured at fair value each period. We expect selling, general and administrative expenses will grow in the future as we continue to build out our selling, general and administrative functions.
Other Income (Expense), Net
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||
| Interest income | $ | 1,388 | $ | 14 | $ | 1,374 | $ | 3,137 | $ | 21 | $ | 3,116 | |||||||||||||||||||||||
| Interest expense | (1,634) | (1,018) | (616) | (3,891) | (2,849) | (1,042) | |||||||||||||||||||||||||||||
| Change in fair value of derivative liability | — | — | — | — | 511 | (511) | |||||||||||||||||||||||||||||
| Change in fair value of Class C warrant liability | 25,164 | — | 25,164 | 743 | — | 743 | |||||||||||||||||||||||||||||
| Other income (expense) | 17 | (441) | 458 | 342 | (440) | 782 | |||||||||||||||||||||||||||||
| Total other income (expense), net | $ | 24,935 | $ | (1,445) | $ | 26,380 | $ | 331 | $ | (2,757) | $ | 3,088 | |||||||||||||||||||||||
Other income (expense), net, for the three months ended September 30, 2023 increased significantly as compared to the same periods in the prior year due to a decrease in the fair value of our Class C warrants, which were issued in the fourth quarter of 2022 and are accounted for as a liability at fair value. We value these Class C warrants using the Black-Scholes option pricing model, which includes the market value of our common stock as an input. The market price of shares of our common stock decreased during the third quarter of 2023, which was the primary contributor to the decrease in the Class C warrant liability. These Class C warrants will continue to be measured at fair value until they are exercised, which will continue to generate gains or losses each quarter. Other income (expense), net, also increased in the current period as compared to the same period in the prior year due to an increase in interest income on our money market and marketable security investments due to a general increase in interest rates and an increase in our invested funds. Other income (expense), net, increased for the nine months ended September 30, 2023, as compared to the same period in the prior year as a result of an increase in interest income due to the factors discussed above, partially offset by an increase in interest expense due to an increase in our outstanding borrowings and an increase in the effective interest rate on these borrowings.
Provision for Income Taxes
We did not record a U.S. federal or state income tax benefit for our losses for the three and nine months ended September 30, 2023 and 2022, respectively, due to our conclusion that a full valuation allowance is required against our U.S. federal and state deferred tax assets. For the three and nine months ended September 30, 2023 and 2022, we recorded income tax expense related to our Austrian subsidiary and for our investment portfolio interest income.
Liquidity and Capital Resources
Sources of Liquidity
To date, we have funded our operations primarily with proceeds from sales of common stock, warrants and prefunded
warrants for the purchase of our preferred stock and our common stock, sales of preferred stock, proceeds from the issuance of
convertible debt and borrowings under loan and security agreements.
ATM Sales Agreement — We have entered into a Controlled Equity OfferingSM Sales Agreement (“ATM Sales Agreement”), with B. Riley Securities, Inc., Cantor Fitzgerald & Co., and Stifel, Nicolaus & Company, Incorporated (collectively the “Sales Agents”), pursuant to which we may offer and sell, at our sole discretion through one or more of the Sales Agents, shares of our common stock. To date, we have sold approximately $14.3 million of our common stock, net of offering costs, under the ATM Sales Agreement. Pursuant to our Registration Statement on Form S-3 that became effective on August 24, 2023 and the related ATM prospectus contained therein, we may offer and sell shares of our common stock having an aggregate offering price of up to an additional $75 million.
30
LPC Agreement — In January 2022, we entered into a purchase agreement, (the “LPC Agreement”) with Lincoln Park Capital Fund LLC (“Lincoln Park”), pursuant to which we have the right to sell to Lincoln Park shares of our common stock, having an aggregate value of up to $50.0 million, subject to certain limitations and conditions, at our request during a 36-month period. The shares of common stock that we may sell under the LPC Agreement are capped at 5.6 million, which amount may be adjusted under certain conditions as defined in the LPC Agreement. In January 2022, we raised $3.0 million from the sale of shares of our common stock through the LPC Agreement.
Public and Private Equity Offerings — Over the past several years we have funded our operations primarily from sales of common stock, warrants and prefunded warrants through both public offerings and private placements. For example, most recently in May 2023, we sold shares of common stock and, in lieu of common stock pre-funded warrants to purchase shares of common stock in a private placement (“Q2 2023 Private Placement”) offering for gross proceeds of $65.0 million, before offering expenses.
Hercules Loan Agreement — In January 2023, we entered into a Second Amended and Restated Loan and Security Agreement with Hercules Capital, Inc., as agent and lender, and Hercules Capital Funding IV LLC and Hercules Capital Funding Trust 2022-1, as lenders (collectively, “Hercules”), which agreement amended and restated the Amended and Restated Loan and Security Agreement dated as of June 27, 2019, as subsequently amended from time to time. As of December 31, 2022, we had borrowed $32.5 million under the Second A&R Hercules Loan Agreement. On August 2, 2023, we and Hercules entered into an amendment (the “Amendment”) to the Second A&R Hercules Loan Agreement, (as amended by the Amendment, the “Hercules Loan Agreement”), which provides for aggregate maximum borrowings of up to $115.0 million. The Hercules Loan Agreement provides for a term loan facility of up to $115.0 million, including the $32.5 million outstanding prior to the Amendment and a $22.5 million term loan tranche drawn on the closing of the Amendment. Additional borrowings are available upon the achievement of operational milestones. Borrowings under the Hercules Loan Agreement accrues interest at a variable rate equal to the greater of (i) 10.15% or (ii) 3.15% plus the Wall Street Journal prime rate and are repayable in monthly interest-only payments through March 1, 2025, and in equal monthly payments of principal and accrued interest from April 1, 2025 until the maturity date of the loans, which is currently October 1, 2026, subject to extension upon our achievement of certain operational milestones. The Hercules Loan Agreement requires that we maintain a minimum level of cash of $20.0 million through January 31, 2025, which amount is subsequently adjusted subject to our achievement of operational milestones.
Going Concern— Since our inception, we have incurred significant operating losses and negative cash flows from our operations. We have not yet commercialized any products and we do not expect to generate revenue from sales of any products for several years, if at all. As of September 30, 2023, our cash and cash equivalents were $131.6 million, our restricted cash balance was $1.0 million and our investment in marketable securities were $10.1 million.
We have assessed our ability to continue as a going concern in accordance with the requirements of ASC 205-40. We believe that we have adequate financial resources to fund our forecasted operating costs and comply with the minimum cash requirements of our Hercules Loan Agreement for at least one year after the date that these condensed consolidated financial statements were issued on November 9, 2023. Accordingly, the condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course of business.
Based on our current cash flow projections and considering the terms of the Hercules Loan Agreement and with no additional funding, we believe we have sufficient cash, cash equivalents and marketable securities to fund operations into 2025. However, to finance operations in 2025 and beyond, we will need to raise additional capital, which cannot be assured. Unless and until we reach profitability in the future, we will require additional capital to fund our operations, which could be raised through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations and strategic alliances. If we are unable to obtain funding, we could be forced to delay, reduce or eliminate some or all of its research and development programs, product portfolio expansion or commercialization efforts, which would adversely affect our business prospects, or we may be unable to continue operations.
31
Cash Flows
The following table summarizes our cash flow activities for each of the periods presented:
| Nine Months Ended September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| (in thousands) | |||||||||||
| Net loss | $ | (82,037) | $ | (64,763) | |||||||
| Adjustments to reconcile net loss to net cash used in operating activities | 7,570 | 6,493 | |||||||||
| Changes in operating assets and liabilities | 5,702 | 261 | |||||||||
| Net cash used in operating activities | (68,765) | (58,009) | |||||||||
| Net cash used in investing activities | (10,050) | (69) | |||||||||
| Net cash provided by financing activities | 88,419 | 56,586 | |||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | (28) | (468) | |||||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | 9,576 | (1,960) | |||||||||
| Cash, cash equivalents and restricted cash, beginning of period | 123,028 | 83,108 | |||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 132,604 | $ | 81,148 | |||||||
Operating Activities During the nine months ended September 30, 2023, net cash used in operating activities was $68.8 million, primarily resulting from our net loss of $82.0 million, adjusted for noncash expenses of $7.6 million and changes in our operating assets and liabilities of $5.7 million. Non-cash expenses primarily includes stock-based compensation expense, non-cash lease expense and non-cash interest expense. Net cash used in operating activities for the nine months ended September 30, 2022 was $58.0 million, primarily resulting from our net losses of $64.8 million, adjusted for noncash expenses of $6.5 million and changes in our operating assets and liabilities of $0.3 million. Net cash used in operating activities increased during the nine months ended September 30, 2023 as compared to the same period in the prior year primarily due to an increase in our research and development expenses and to a lesser extent increases in our selling, general and administrative expenses as discussed above.
Investing Activities During the nine months ended September 30, 2023, cash used in investing activities included $10.0 million of net investments in short-term marketable securities. Investing activities in the prior period were not significant.
Financing Activities During the nine months ended September 30, 2023, net cash provided by in financing activities was $88.4 million, consisting primarily of net proceeds from the Q2 2023 Private Placement, which provided net proceeds of $60.4 million, and $22.5 million of new borrowings on our Hercules Loan Agreement. During the nine months ended September 30, 2022, net cash provided by financing activities was $56.6 million, consisting primarily of $60.6 million of net proceeds from two private placement equity offerings that closed during the nine month period and the sale of shares of our common stock to Lincoln Park and through our employee stock purchase plan, partially offset by $1.2 million of end-of-term payments made pursuant to our Hercules Loan Agreement and fees related to amendments to the agreement during the period.
Funding Requirements
Based on our cash, cash equivalents and marketable securities on hand as of September 30, 2023 and the increases to our borrowing capacity noted above and in Note 7 to the accompanying condensed consolidated financial statements, we believe that our cash, cash equivalents and marketable securities will allow us to fund operations into 2025. However, as noted above, based on our current financial projections we believe we would be in violation of a minimum cash covenant of the Hercules Loan Agreement in the first quarter of 2025. In order to fund operations and satisfy the minimum cash covenant in the Hercules Loan Agreement, we will be required to raise additional capital, which may be through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations and strategic alliances. During 2023 and beyond, assuming no changes to our current operational expectations, we expect our expenses to continue to increase in connection with our ongoing activities, particularly as we advance the current and anticipated clinical trials of our product candidates in development. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical product candidates, we are unable to estimate the exact amount of our funding requirements. Our short term and long term funding requirements will depend on and could increase significantly as a result of many factors, including:
•the scope, number, initiation, progress, timing, costs, design, duration, any potential delays, and results of clinical trials and nonclinical studies for our current or future product candidates, particularly our Phase 2 clinical trial of mavorixafor for the treatment of patients with chronic neutropenic disorders;
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•the outcome, timing and cost of regulatory reviews, approvals or other actions to meet regulatory requirements established by the FDA and comparable foreign regulatory authorities, including the potential for the FDA or comparable foreign regulatory authorities to require that we perform more studies for our product candidates than those that we currently expect;
•our ability to obtain marketing approval for our product candidates;
•the cost of filing, prosecuting, defending and enforcing our patent claims and other intellectual property rights covering our product candidates, including any such patent claims and intellectual property rights that we have licensed from Genzyme pursuant to the terms of our license agreement with Genzyme; and
•our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the cost of defending intellectual property disputes, including patent infringement actions brought by third parties against us or our product candidates.
Hercules Loan Agreement
Please see Note 7 to the notes to our condensed consolidated financial statements for a full description of our Hercules Loan Agreement.
Critical Accounting Policies and Significant Judgments and Estimates
Our condensed consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of our condensed consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, costs and expenses, and the disclosure of contingent assets and liabilities in our condensed consolidated financial statements. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
During the three months ended September 30, 2023, there were no material changes to our critical accounting policies as reported for the year ended December 31, 2022 as part of our Annual Report. In addition, see Note 2 of these condensed consolidated financial statements under the heading “Recently Adopted Accounting Pronouncements” for new accounting pronouncements or changes to the accounting pronouncements during the three months ended September 30, 2023.
Smaller Reporting Company Status
We are a smaller reporting company (“SRC”) as defined by Rule 12b-2 of the Exchange Act and Item 10(f)(1) of Regulation S-K. We may take advantage of certain of the scaled disclosures available to smaller reporting companies for so long as (i) our voting and non-voting common stock held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter or (ii) our annual revenue is less than $100.0 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As an SRC, we are not required to provide the information requested by this Item.
Item 4 CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Management’s Evaluation of our Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
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September 30, 2023, and have concluded that, based on such evaluation, our disclosure controls and procedures were effective as of September 30, 2023 at the reasonable assurance level. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not currently a party to any material legal proceedings and we are not aware of any pending or threatened legal proceedings against us that we believe could have a material adverse effect on our business, operating results or financial condition.
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Item 1A. RISK FACTORS
An investment in our securities involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information appearing elsewhere in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and related notes hereto, before deciding to invest in our common stock. The occurrence of any of the following risks could have a material adverse effect on our business, financial condition, results of operations and future growth prospects or cause our actual results to differ materially from those contained in forward-looking statements we have made in this report and those we may make from time to time. In these circumstances, the market price of our common stock could decline and you may lose all or part of your investment. We cannot assure you that any of the events discussed below will not occur.
Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant losses and have not generated revenue from product sales since our inception. We expect to continue to incur losses for the foreseeable future and we may never achieve or maintain profitability.
We are a late clinical-stage biopharmaceutical company. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that any potential product candidate will fail to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval or become commercially viable. Since inception, we have incurred significant operating losses. Our net losses were $93.9 million, $88.7 million and $62.1 million for the years ended December 31, 2022, 2021 and 2020, respectively, and were $82.0 million for the nine months ended September 30, 2023. As of September 30, 2023, we had an accumulated deficit of $458.8 million. We have funded our operations to date primarily with proceeds from sales of common stock, warrants and prefunded warrants for the purchase of our preferred stock and our common stock, sales of preferred stock, proceeds from the issuance of convertible debt and borrowings under loan and security agreements. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we may never generate product revenue or achieve profitability.
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years as we conduct additional clinical trials for our product candidates; continue to discover and develop additional product candidates; acquire or in-license other product candidates and technologies; maintain, expand and protect our intellectual property portfolio; hire additional clinical, scientific and commercial personnel; establish a commercial manufacturing source and secure supply chain capacity sufficient to provide commercial quantities of any product candidates for which we may obtain regulatory approval; seek regulatory approvals for any product candidates that successfully complete clinical trials; establish a sales, marketing and distribution infrastructure to commercialize any products for which we may obtain regulatory approval; and add operational, financial and management information systems and personnel, including personnel to support our product development and planned future commercialization efforts. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues.
Our ability to generate profits from operations and thereafter to remain profitable depends heavily on:
•the scope, number, progress, duration, endpoints, cost, results and timing of clinical trials and nonclinical studies of our current or potential future product candidates, including in particular the scope, progress, duration, endpoints, cost, results and timing for completion of our Phase 2 clinical trial of mavorixafor for the treatment of chronic neutropenic disorders;
•our ability to raise sufficient funds to support the development and potential commercialization of our product candidates;
•the outcomes and timing of regulatory reviews, approvals or other actions;
•our ability to obtain marketing approval for our product candidates;
•our ability to establish and maintain licensing, collaboration or similar arrangements on favorable terms and whether and to what extent we retain development or commercialization responsibilities under any new licensing, collaboration or similar arrangement;
•the success of any other business, product or technology that we acquire or in which we invest;
•our ability to maintain, expand and defend the scope of our intellectual property portfolio;
•our ability to manufacture any approved products on commercially reasonable terms;
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•our ability to establish a sales and marketing organization or suitable third-party alternatives for any approved product;
•the number and characteristics of product candidates and programs that we pursue;
•hire additional clinical, regulatory and scientific personnel; and
•incur additional legal, accounting and other expenses associated with operating as a public company.
Based on our current plans, we do not expect to generate significant revenue from product sales unless and until we (or a potential future licensee or collaborator) obtain marketing approval for, and commercialize, one or more of our current or potential future product candidates. Neither we nor a licensee may ever succeed in obtaining marketing approval for, or commercializing, our product candidates and, even if we do, we may never generate revenues that are significant enough to generate profits from operations. Even if we do generate profits from operations, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to generate profits from operations and remain profitable would decrease our value and could impair our ability to raise capital, expand our business, maintain our research and development efforts, diversify our product offerings or continue our operations. A decline in our value could also cause you to lose all or part of your investment.
We may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors that may alter or delay our plans. For example, we experienced delays in clinical trial site activation and slower patient enrollment in some of our clinical trials as a result of the COVID-19 pandemic, which delayed our expectations regarding our ability to report data from those trials. Assuming that we complete the development of and obtain marketing approval for any of our product candidates, we will need to transition from a company with a research and development focus to a company capable of supporting commercial activities. We may encounter unforeseen expenses, difficulties, complications and delays, and may not be successful in such a transition.
We will require substantial additional funding. If we are unable to raise capital when needed, we could be forced to delay, reduce or eliminate any product development programs or commercialization efforts.
We may be forced to delay or reduce the scope of our development programs and/or limit or cease our operations if we are unable to obtain additional funding to support our current operating plan.
Our operations have consumed a large amount of cash since inception. To date, we have funded our operations primarily with proceeds from sales of common stock, warrants and prefunded warrants for the purchase of our preferred stock and our common stock, sales of preferred stock, proceeds from the issuance of convertible debt and borrowings under loan and security agreements. We expect our research and development expenses to increase in future periods as we continue to advance the clinical development of our product candidates and prepare for the launch and commercialization of any product candidates for which we receive regulatory approval, including potentially building our own commercial organization to address the U.S. and certain other markets. In addition, if we obtain marketing approval for any of our product candidates that are not then subject to licensing, collaboration or similar arrangements with third parties, we expect to incur significant commercialization expenses related to product sales, marketing, distribution and manufacturing. Furthermore, we expect to incur additional costs associated with operating as a public company.
As of September 30, 2023, we have cash and cash equivalents of $131.6 million and marketable securities of $10.1 million. We will require additional capital to sustain our operations, and to carry out our business plans, which may include raising funds through public or private equity or debt financings, third-party funding, marketing and distribution arrangements, as well as other collaborations, strategic alliances and licensing arrangements, or any combination of these approaches. While we have successfully raised capital in the past, our ability to raise capital in future periods is not assured. We will also require additional capital to satisfy the covenant under our existing debt facility with Hercules Capital, Inc. and certain affiliated entities (“Hercules”) that requires that we maintain a minimum level of cash of $20.0 million through January 2025, subsequently subject to reduction upon the achievement of certain conditions. Based on our current cash flow projections and assuming no additional funding and no additional inflows of cash from the potential commercialization of our lead product candidate, we would fail to maintain the minimum cash required to satisfy this covenant in approximately the first quarter of 2025. In such event, Hercules could require the repayment of all outstanding debt.
We cannot be certain that additional funding that will be required into 2025 and beyond will be available on acceptable terms, or at all. If we are unable to raise additional capital when needed or in sufficient amounts or on terms acceptable to us, we