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Xenetic Biosciences Reports 2017 Second Quarter Financial Results and Provides Business Update

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Xenetic Biosciences, Inc. (NASDAQ:XBIO) ("Xenetic" or the "Company"), a
clinical-stage biopharmaceutical company focused on the discovery,
research and development of next-generation biologic drugs and novel
orphan oncology therapeutics, announced today its unaudited financial
results for the quarter ended June 30, 2017.

Xenetic also provided an update to its corporate progress as well as
clinical and regulatory status and anticipated milestones for the
Company's lead product candidate, XBIO-101 (sodium cridanimod), a
small-molecule immunomodulator and interferon inducer which, in
preliminary studies, has been shown to increase progesterone receptor
("PrR") expression in endometrial tumor tissue, and an update on its
proprietary PolyXen™ platform technology.

"The second quarter was marked by the advancement of our flagship
program, XBIO-101, into our Phase 2 program for the treatment of
endometrial cancer, along with the important data we received from
Shire's Phase 1/2 study of SHP656, which utilized our PolyXen platform
technology. While this study did not meet its primary endpoint and Shire
has subsequently stated the program has been discontinued, key findings
from the study specific to our PolyXen platform technology, provide
further validation that it has the potential to improve the clinical
utility of protein and peptide drugs," stated M.
Scott Maguire, Xenetic's CEO
.

XBIO-101 Program Update

In the second quarter of 2017, the Company commenced patient enrollment
for its Phase 2 clinical study of XBIO-101 in conjunction with progestin
therapy for the treatment of endometrial cancer. The study targets a
population of patients who have either failed progestin monotherapy or
who have been identified as having progesterone receptor negative
("PrR-") tumors.

The primary objective of the open-label, multi-center, single-arm,
two-period Phase 2 study is to assess the antitumor activity of XBIO-101
in conjunction with progestin therapy as measured by Overall Disease
Control Rate in women with recurrent or persistent endometrial carcinoma
not amenable to surgical treatment or radiotherapy who have either
failed progestin monotherapy or who have been identified as PrR-.
Secondary objectives include assessments of efficacy and
safety/tolerability parameters.

The study is expected to enroll up to 72 women with recurrent or
persistent endometrial cancer not amenable to surgical treatment or
radiotherapy but suitable to be treated with progestins. All subjects
determined to be PrR- at screening, as well as those subjects who
experience disease progression after at least 4 weeks of progestin
monotherapy, will receive XBIO-101 in combination with continued
progestin treatment. Subjects will receive treatment until disease
progression as defined according to RECIST 1.1 criteria.

Xenetic has also filed a protocol under its existing Investigational New
Drug application to expand the development of XBIO-101 into a biomarker
study related to the treatment of triple negative breast cancer.

Expected Upcoming Milestones

  • Commence patient dosing in the Phase 2 clinical study evaluating
    XBIO-101 in conjunction with progestin therapy for the treatment of
    progestin resistant endometrial cancer in Q3 2017; and
  • Announce interim data from Phase 2 study before the end of 2018.

PolyXen Platform Technology Update

In May 2017, the Company, along with its strategic collaborator, Shire
plc ((LSE: SHP, NASDAQ:SHPG), announced data from Shire's Phase 1/2
program of SHP656, its PSA-Recombinant Factor VIII ("rFVIII"), which was
being developed as a long-acting therapeutic for the treatment of
hemophilia A, utilizing Xenetic's PolyXen platform technology to
conjugate polysialic acid to therapeutic blood-clotting factors. Despite
not achieving the principal objective of once-weekly dosing in this
Phase 1/2 study, the Company's PolyXen technology demonstrated that it
works as a platform to successfully extend the circulating half-life of
rFVIII with no drug-related serious adverse events reported to date.
Including the Company's own studies with a polysialylated erythropoietin
("PSA-EPO", "ErepoXen™") candidate, this is the second instance in which
PolyXen platform technology has been demonstrated, in a human clinical
trial setting, to confer extended half-life to a biotherapeutic, while
maintaining pharmacological activity and a favorable safety and
tolerability profile. Moving forward, Xenetic believes data from Shire's
SHP656 program, although discontinued, continues to support the broad
utility of its proprietary PolyXen technology platform, and expects the
growing body of data from this platform will enable the Company to build
a pipeline of partnerships utilizing this proven technology.

Expected Next Steps

  • Pursue business development activities to identify target molecules to
    explore partnerships utilizing PolyXen delivery platform; and
  • Explore other potential applications of the PolyXen platform
    technology within the Shire portfolio.

"We remain focused on driving forward with our strategy, including the
continued advancement of our lead product candidate XBIO-101, as well as
leveraging our proprietary PolyXen platform technology with the goal of
building shareholder value in both the near and long-term," concluded
Mr. Maguire.

Summary of Financial Results for Second Quarter 2017

Net loss for the three months ended June 30, 2017, was $2.9 million
compared to a net loss of approximately $47.8 million for the same
period in 2016. The decrease in net loss was primarily due to a decrease
of in-process research and development expense, as well as a decrease in
share-based compensation expense related to warrants previously issued
in 2016. These decreases were offset by an increase in general operating
costs and costs related to the initiation of our XBIO-101 Phase 2
clinical study.

The Company ended the quarter with approximately $2.3 million of cash.

About Xenetic Biosciences

Xenetic Biosciences, Inc. is a clinical-stage biopharmaceutical company
focused on the discovery, research and development of next-generation
biologic drugs and novel orphan oncology therapeutics. Xenetic's
proprietary drug development platforms include PolyXen, which enables
next-generation biologic drugs by improving their half-life and other
pharmacological properties. Xenetic's lead investigational product
candidates include oncology therapeutic XBIO-101 (sodium cridanimod) for
the treatment of progesterone resistant endometrial cancer, and a
polysialylated form of erythropoietin for the treatment of anemia in
pre-dialysis patients with chronic kidney disease.

Xenetic is party to an agreement with Baxalta US Inc. and Baxalta AB
(wholly owned subsidiaries of Shire plc) covering the development of a
novel series of polysialylated blood coagulation factors. This
collaboration relies on Xenetic's PolyXen technology to conjugate
polysialic acid ("PSA") to therapeutic blood-clotting factors, with the
goal of improving the pharmacokinetic profile and extending the active
life of these biologic molecules. Shire is a significant stockholder of
the Company, having invested $10 million in the Company during 2014. The
agreement is an exclusive research, development and license agreement
which grants Shire a worldwide, exclusive, royalty-bearing license to
Xenetic's PSA patented and proprietary technology in combination with
Shire's proprietary molecules designed for the treatment of blood and
bleeding disorders. The first program under this agreement was a next
generation Factor VIII, and this program was terminated by Shire
following a Phase 1/2 clinical trial. Xenetic and Shire are currently
exploring whether to engage in further development of other blood
coagulation factors. Additionally, Xenetic has previously received
strategic investments from OPKO Health (NASDAQ:OPK), Serum Institute of
India Limited and PJSC Pharmsynthez.

Xenetic is also developing a broad pipeline of clinical candidates for
next-generation biologics and novel oncology therapeutics in a number of
orphan disease indications. For more information, please visit the
Company's website at www.xeneticbio.com
and connect on Twitter,
LinkedIn,
Facebook
and Google+.

Forward-Looking Statements

This press release contains forward-looking statements for purposes of
the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. All statements contained in this press release other than
statements of historical facts may constitute forward-looking statements
within the meaning of the federal securities laws. These statements can
be identified by words such as "expects," "plans," "projects," "will,"
"may," "anticipates," "believes," "should," "intends," "estimates," and
other words of similar meaning, including statements regarding the
Company's ability to develop and customize the Company's PolyXen™
platform technology to improve the clinical utility of protein and
peptide drugs; the Company's anticipated corporate development
strategies and pursuit of current and future collaborations to
co-develop new product candidates; its ability to add new programs to
its pipeline and expand the development of its current product
candidates into new indications; the initiation, timing, progress,
enrollment and reporting of results of its preclinical programs and
clinical trials; the Company's potential for future growth and creation
of shareholder value; and the Company's liquidity and ability to fund
its future operations;. Any forward-looking statements contained herein
are based on current expectations, and are subject to a number of risks
and uncertainties. Many factors could cause our actual activities or
results to differ materially from the activities and results anticipated
in forward-looking statements. These risks and uncertainties include
those described in the "Risk Factors" section of the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 2016 and
filed with the Securities and Exchange Commission on March 31, 2017, and
subsequent reports that it may file with the Securities and Exchange
Commission. In addition, forward-looking statements may also be
adversely affected by general market factors, competitive product
development, product availability, federal and state regulations and
legislation, the regulatory process for new product candidates and
indications, manufacturing issues that may arise, patent positions and
litigation, among other factors. The forward-looking statements
contained in this press release speak only as of the date the statements
were made, and the Company does not undertake any obligation to update
forward-looking statements, except as required by law.

XENETIC BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 
      June 30, 2017       December 31, 2016  
  (Unaudited)    
ASSETS
Current assets:
Cash $ 2,331,950 $ 4,048,131
Restricted cash 66,510 66,510
Accounts receivable 3,000,000
Prepaid expenses and other   1,432,512         1,224,009  
Total current assets 3,830,972 8,338,650
 
Property and equipment, net 37,610 42,366
Goodwill 3,283,379 3,283,379
Indefinite-lived intangible assets 9,243,128 9,243,128
Other assets   43,380         66,342  
 
Total assets $ 16,438,469       $ 20,973,865  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,013,316 $ 1,006,903
Accrued expenses 920,313 838,888
Deferred revenue and other current liabilities   67,495         20,205  
Total current liabilities 2,001,124 1,865,996
 
Deferred tax liability 2,918,518 2,918,518
Other liabilities   10,016         19,876  
 
Total liabilities   4,929,658         4,804,390  
 
Commitments and contingent liabilities (Note 10)
 
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized
Series B, $0.001 par value: 2,120,742 and 2,305,742 issued and
outstanding as of June 30, 2017 and December 31, 2016, respectively
2,120 2,305
Series A, $0.001 par value: 970,000 shares issued and outstanding as
of June 30, 2017 and December 31, 2016
970 970
Common stock, $0.001 par value; 45,454,546 shares authorized as of
June 30, 2017 and December 31, 2016; 9,041,426 and 8,731,029 shares
issued as of June 30, 2017 and December 31, 2016, respectively;
8,717,541 and 8,407,144 shares outstanding as of June 30, 2017 and
December 31, 2016, respectively
9,040 8,730
Additional paid in capital 164,646,683 163,522,921
Accumulated deficit (148,122,556 ) (142,338,005 )
Accumulated other comprehensive income 253,734 253,734
Treasury stock   (5,281,180 )       (5,281,180 )
Total stockholders' equity   11,508,811         16,169,475  
 
Total liabilities and stockholders' equity $ 16,438,469       $ 20,973,865  
 

XENETIC BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 
      THREE MONTHS ENDED
JUNE 30,
      SIX MONTHS ENDED
JUNE 30,
 
      2017       2016       2017       2016  
Operating costs and expenses:                
Cost of research and development revenue $ (59,091 ) $ $ (59,091 ) $
Research and development (873,837 ) (2,205,213 ) (2,094,981 ) (2,634,494 )
In-process research and development expense (39,500,000 ) (39,500,000 )
General and administrative   (1,970,471 )       (1,557,677 )       (3,605,004 )       (2,980,043 )
Loss from operations   (2,903,399 )       (43,262,890 )       (5,759,076 )       (45,114,537 )
 
Other non-operating income (expense):
Change in fair value of derivative liability 1,769,275 1,905,289
Loss on issuance of hybrid debt instruments (1,584,218 )
Loss on conversion of debt (6,187,337 ) (6,187,337 )
Other income (expense) (25,276 ) 12,863 (34,632 ) (13,551 )
Interest income 10,201 13 10,201 27
Interest expense   (456 )       (103,086 )       (1,044 )       (348,470 )
Total other non-operating expense   (15,531 )       (4,508,272 )       (25,475 )       (6,228,260 )
 
Net loss $ (2,918,930 )     $ (47,771,162 )     $ (5,784,551 )     $ (51,342,797 )
 
Basic and diluted loss per share $ (0.34 )     $ (6.12 )     $ (0.67 )     $ (8.28 )
 
Weighted-average shares of common stock outstanding, basic and
diluted
  8,706,387         7,804,187         8,613,127         6,197,776  

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