XYNOMIC PHARMACEUTICALS HOLDINGS, INC. The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this Annual Report. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See "Cautionary Note Regarding Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under "Risk Factors" and elsewhere in this Annual Report.
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Special Note Regarding Forward-Looking Statements
This Annual Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 that are not historical facts, and involve risks and
uncertainties that could cause actual results to differ materially from those
expected and projected. All statements, other than statements of historical fact
included in this Annual Report including, without limitation, statements in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, business strategy and
the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of this
Annual Report. The Company's securities filings can be accessed on the EDGAR
section of the
Overview
Prior to the consummation of the Business Combination with
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We have not completed any clinical trials since our inception. With respect to
the pipeline programs referenced in the above figure, all of the completed
clinical trials of abexinostat were conducted by or on behalf of either
? Abexinostat - our most advanced drug candidate, abexinostat, has been
evaluated in 18 Phase 1/2 clinical trials for lymphoma and solid tumors. In
February 2017 , Xynomic Pharma entered into a license agreement with
Pharmacyclics for the worldwide exclusive rights to develop and commercialize
abexinostat for all human and non-human diagnostic, prophylactic, and
therapeutic uses. Since its in-licensing of abexinostat, Xynomic has started
enrolling patients in clinical trials for four different indications: (1) in
follicular lymphoma, as a monotherapy, (2) in renal cell carcinoma, in
combination with pazopanib, (3) in multiple solid tumors, in combination with
Keytruda®, and (4) in diffuse large B-cell lymphoma and mantle cell lymphoma,
in combination with Imbruvica®. We have received approval from China's
National Medical Products Administration ("NMPA") to start two pivotal
clinical trials in China . In these two trials, we will test abexinostat (as a
single agent) as a third-line treatment of diffuse large B-cell lymphoma
("DLBCL") and as a third-line treatment of follicular lymphoma ("FL"),
respectively. In addition, we plan to initiate four clinical trials of
abexinostat in the next six months.
? XP-105 (also known as BI 860585) - In December 2018 , Xynomic Pharma entered
into a license agreement with Boehringer Ingelheim for the worldwide exclusive
rights to develop and commercialize XP-105 (also known as BI 860585) for all
human and non-human diagnostic, prophylactic, and therapeutic uses. Prior to
this license, BII had completed one Phase 1 clinical trial for solid tumors.
We plan to initiate one clinical trial of XP-105 against breast cancer in
2020.
? Pre-Clinical Programs - In addition, Xynomic Pharma has several pre-clinical
oncology drug candidates in its pipeline. Among these drug candidates, XP-102
(also known as BI 882370), a selective RAF inhibitor to which Xynomic Pharma
obtained a worldwide exclusive license from Boehringer Ingelheim, is the
closest to clinical testing. We have completed pre-IND meeting with the FDA
and expect to initiate Phase I clinical trial of XP-102 against colorectal
cancer and lung cancer in the first quarter of 2021.
Business Combination:
On
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On
On
Pursuant to the Merger Agreement, among other things, Merger Sub merged with and
into Xynomic Pharma, with Xynomic Pharma continuing as the surviving entity and
a wholly-owned subsidiary of the Company (the "Merger" and the "Surviving
Company"). The merger became effective on
On
At the Closing Date, pursuant to the Backstop Agreement dated
At the Closing Date, each share of Xynomic Pharma common stock and preferred
stock issued and outstanding prior to
At the Closing Date, pursuant to the Merger Agreement, all the stockholders of
Xynomic Pharma immediately prior to the closing of the Business Combination
("Xynomic Pharma stockholders") received a number of newly issued shares of
Company common stock equal to the Closing Merger Consideration divided by
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In addition to the Closing Consideration Shares, Xynomic Pharma stockholders
received an additional 9,852,216 shares of common stock in aggregate (the
"Earnout Shares" and, together with the Closing Consideration Shares, the
"Merger Consideration Shares") because that Xynomic Pharma obtained a worldwide
exclusive license to the Phase II-ready oncology drug identified in the Merger
Agreement (XP-105) in
Pursuant to the Merger Agreement, 1,285,822 shares were deposited into an escrow account (the "Escrow Account") to serve as security for, and the exclusive source of payment of, the Company's indemnity rights under the Merger Agreement and any excess of the estimated Closing Merger Consideration over the final Closing Merger Consideration amount determined post-Closing.
As a result of the Business Combination, the Sellers, as the former shareholders of Xynomic Pharma, became the controlling shareholders of the Company and Xynomic Pharma became a subsidiary of the Company. The Business Combination was accounted for as a reverse merger, wherein Xynomic Pharma is considered the acquirer for accounting and financial reporting purposes.
Prior to the Business Combination, we were a "shell company" (as such term is
defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended). As
a result of the Business Combination, we have ceased to be a "shell company" and
will continue the existing business operations of Xynomic Pharma as a publicly
traded company under the name "
Nasdaq Listing Compliance
On
Upon request, a hearing before the
Reg. D Offering
On or about
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The Reg. D Units, the shares of Common Stock underlying the Reg. D Units (the "Reg. D Unit Shares"), the Reg. D Warrants issued in the Reg. D Offering, and shares of Common Stock issuable upon exercise of the Reg. D Warrants (the "Reg. D Warrant Shares"), are exempt from the registration requirements of the Securities Act, pursuant to Section 4(a)(2) of the Securities Act and/or Regulation D.
The proceeds of this Reg. D Offering will be used for working capital and general corporate purposes.
The SPA also contains customary representation and warranties of the Company and the purchasers, indemnification obligations of the Company, termination provisions, and other obligations and rights of the parties. Additionally, we anticipate that the purchasers will enter into a lock-up agreement at the closing pursuant to which that they would agree not to sell or otherwise transfer or dispose the Reg. D Units, Reg. D Unit Shares, Reg. D Warrants, or Reg. D Warrant Shares during the six-month period commencing on the earlier of the effective date of a registration statement in connection with the first follow-on public offering after the date of the SPA or the issuance date of the Reg. D Units.
On
Pursuant to the Amended and Restated SPA, the holders of a majority of all of
the existing
Other than the demand registration rights, the terms and conditions of the Amended and Restated SPA remain substantially the same as contained in the SPA.
On
Stockholders' Approval for Potential Reverse Stock Split
On
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Financial Condition
As of
As of the date of this report, we have not generated any revenue. In the future,
we will seek to generate revenue from drug sales and potential strategic
relationships. Assuming we commence abexinostat's pivotal clinical trials in
Since we have not generated any revenues from product sales, substantial additional financing will be required to continue to fund our research and development activities. No assurance can be given that any such financing will be available when needed or that our research and development efforts will be successful.
Our ability to fund operations is based on our ability to attract investors and
our ability to borrow funds on reasonable economic terms. Historically, we have
relied principally on equity financing and shareholder's borrowings to fund our
operations and business development. Our ability to continue as a going concern
is dependent on management's ability to successfully execute our business plan,
which includes generating revenues after drug marketing, controlling operating
expenses, as well as, continuing to obtain additional equity financing. On
We currently do not have any commitments to obtain additional funds except the
potential Reg. D Offering that we are contemplating and a potential public
offering pursuant to a registration statement in Form S-1, as amended, initially
filed on
We have prepared our financial statements assuming that we will continue as a
going concern, which contemplates realization of assets and the satisfaction of
liabilities in the normal course of business. We incurred a net loss of
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Our operations are subject to certain risks and uncertainties including various internal and external factors that will affect whether and when our product candidates become approved drugs and how significant their market share will be, some of which are outside of our control. The length of time and cost of developing and commercializing these product candidates and/or failure of them at any stage of the drug approval process will materially affect our financial condition and future operations.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity
with
Use of Estimates
The preparation of financial statements in conformity with
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and any recorded impairment. Depreciation on property and equipment is calculated on the straight-line method over the following useful lives of the assets.
Electronic equipment 3 years Lab equipment 3-10 years Leasehold improvement The shorter of lease terms and estimated useful lives
Research and Development Expenses
Elements of research and development expenses primarily include (1) payroll and other related costs of personnel engaged in research and development activities, (2) in-licensed patent rights fee of exclusive development rights of drugs granted to the Group, (3) costs related to preclinical testing of the Group's technologies under development and clinical trials such as payments to contract research organizations ("CROs"), (4) costs to develop the product candidates, including raw materials and supplies related expenses, such as payments to contract manufacture organizations ("CMOs"), (5) other research and development expenses. Research and development expenses are charged to expense as incurred when these expenditures relate to the Group's research and development services and have no alternative future uses. The conditions enabling capitalization of development costs as an asset have not yet been met and, therefore, all development expenditures are recognized in statements of comprehensive loss when incurred.
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Share-based Compensation
We granted share options to our selected employee and non-employee consultants.
Share-based awards granted to employees with service conditions attached are measured at the grant date fair value and are recognized as an expense using graded vesting method over the requisite service period, which is generally the vesting period. The forfeitures are accounted for when they occur.
In
Share-based awards granted to non-employees are measured at the grant date fair value. When no future services are required to be performed by the non-employee in exchange for an award of equity instruments, the cost of the award is expensed on the grant date.
Option-pricing models are adopted to measure the value of awards at each grant date. The determination of fair value is affected by the share price as well as assumptions relating to a number of complex and subjective variables, including but not limited to the expected share price volatility, actual and projected employee and non-employee share option exercise behavior, risk-free interest rates and expected dividends. The use of the option-pricing model requires extensive actual employee and non-employee exercise behavior data for the relative probability estimation purpose, and a number of complex assumptions.
Commitments and Contingencies
In the normal course of business, the Group is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, lawsuits, and non-income tax matters. An accrual for a loss contingency is recognized when it is probable that a liability has been incurred and the amount of loss can be reasonably estimated. If a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.
Results of Operations
The Year Ended
The following table summarizes our results of operations for the years endedDecember 31, 2019 and 2018: Year Ended December 31, 2019 2018 Operating expenses: Research and development$ 12,090,710 $ 25,159,602 General and administrative 12,922,046 3,049,353 General and administrative to related parties 25,908 362,336 Total operating expenses 25,038,664 28,571,291 Loss from operations (25,038,664 ) (28,571,291 ) Other income/(expenses) Investment income - 16,541 Interest income 2,630 - Interest expenses to a related party (67,801 ) (32,874 ) Net loss$ (25,103,835 ) $ (28,587,624 ) 97
Research and Development Expense
Research and development expense was
Research and development expense for the year ended
?$18.5 million expenses related to clinical development costs associated with abexinostat; ?$1.0 million payments to external IND-enabling pre-clinical and toxicology studies as well as the commencement of manufacturing activities for XP-102; ?$3.5 million milestone payments of license fee for abexinostat; ?$1.0 million upfront payments of license fee for XP-105.
Research and development expense for the year ended
?$8.78 million clinical development costs associated with abexinostat; ?$0.67 million external IND-enabling pre-clinical and toxicology studies for XP-102; ?$1.60 million payments of research and development staff costs; ?$0.49 million other research and development expenses such as insurances, travel expenses, depreciation, rental and office supplies.
General and Administrative Expense
General and administrative expense was
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The Business Combination was consummated in
? Consulting and professional fees including external legal fees, external
auditing fees, corporate communications, public relations costs and other
listing costs related to increased $0.25 million during the year ended
December 31, 2019 when compared to the same period in year 2018.
? personnel salaries and employee benefits increased $0.38 million during the
year ended December 31, 2019 compared to that in the year ended December 31,
2018 ;
We expect that our general and administrative expense will decrease in future
periods since: 1) we will not incur the expenses associated with the Business
Combination in the future; 2) share based compensation cost will significantly
decrease since the cost incurred in the year ended
General and administrative to related parties
General and administrative expenses to related parties was
Interest Expense to a
Xynomic Nanjing accrued interest expense of
Liquidity and Capital Resources
Sources of Liquidity
From inception through the date of the Closing, Xynomic Pharma has financed its
operations primarily through gross proceeds of
From inception through the date of the Closing,
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In addition, on
Subsequent to the consummation of the Business Combination,
As of
Our recurring losses from operations since inception and the net current
liabilities (current assets less current liabilities) as of
We also plan to attract institutional investors. Further, we can adjust the pace of its clinical development and patient recruitment and control the operating expenses incurred by us.
We currently do not have any commitments to obtain additional funds other than a
potential public offering pursuant to a registration statement in Form S-1, as
amended, initially filed on
We have prepared our financial statements assuming that we will continue as a
going concern, which contemplates realization of assets and the satisfaction of
liabilities in the normal course of business. We have incurred recurring losses
from operations since inception. We incurred a net loss of
Operations are subject to certain risks and uncertainties including various internal and external factors that will affect whether and when our product candidates become approved drugs and how significant their market share will be, some of which are outside of our control. The length of time and cost of developing and commercializing these product candidates and/or failure of them at any stage of the drug approval process will materially affect our financial condition and future operations.
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Cash Flows
The following table provides information regarding our cash flows for the
periods reported:
Years ended
December 31,
2019 2018
Net cash used in operating activities $ (10,674,666 ) $ (14,723,189 ) Net cash provided by/(used in) investing activities 63,262,353 (129,351 ) Net cash (used in)/provided by financing activities (57,220,482 ) 19,570,965 Effect of foreign exchange rate changes on cash
(20,914 ) (72,399 )
Net (decrease)/increase in cash $ (4,653,709 ) $ 4,646,026
The use of cash in all periods resulted primarily from our net losses adjusted
for non-cash charges and changes in components of working capital. Net cash used
in operating activities was
Net Cash Provided by/(Used in) Investing Activities
Net cash used in investing activities was
Net cash provided by financing activities was
Funding Requirements
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development, initiates clinical trials, and seek marketing approval for our drug candidates. In addition, if we obtain marketing approval for any of our drug candidates, we expect to incur significant commercialization expenses related to drug sales, marketing, manufacturing, and distribution to the extent that such sales, marketing, and distribution are not the responsibility of potential collaborators. Furthermore, as a public reporting company, we will incur additional costs associated with operating as a public company. Accordingly, we may need to obtain substantial additional funding so that we can support our continuing operations. If we are unable to raise capital when needed, or are unable to raise capital on favorable terms, we would be forced to delay, reduce, or eliminate our research and development programs or future commercialization efforts.
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Our future capital requirements will depend on many factors, including:
? the scope, progress, results, and costs of drug discovery, pre-clinical
development, laboratory testing, and clinical trials for our drug candidates;
? the scope, prioritization, and number of our research and development
programs;
? the costs, timing, and outcome of regulatory review of our drug candidates;
? our ability to establish and maintain collaborations on favorable terms, if at
all;
? the achievement of milestones or occurrence of other developments that trigger
payments under any collaboration agreements we currently have and may have in
the future;
? the extent to which we are obligated to reimburse, or entitled to
reimbursement of, clinical trial costs under future collaboration agreements,
if any;
? the costs of preparing, filing, and prosecuting patent applications,
maintaining and enforcing our intellectual property rights, and defending
intellectual property-related claims;
? the extent to which we acquire or in-license other drug candidates and
technologies;
? the costs of securing manufacturing arrangements for commercial production;
and
? the costs of establishing, or contracting for, sales and marketing
capabilities if we obtain regulatory approvals to market its drug candidates.
Identifying potential drug candidates and conducting pre-clinical testing and clinical trials is a time-consuming, expensive, and uncertain process that takes many years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve drug sales. In addition, our drug candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of drugs that we do not expect to be commercially available for quite a few years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve its business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
Until such time, if ever, as we can generate substantial drug revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances, and licensing arrangements.
If we raise funds through collaborations, strategic alliances, or licensing arrangements with third parties, we may have to relinquish valuable rights to our future revenue streams, research programs, or drug candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce, or terminate our drug development or future commercialization efforts or grant rights to develop and market drug candidates that we would otherwise prefer to develop and market ourselves.
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Contractual Obligations
The following table summarizes our significant contractual obligations as of
payment due date by period at
Less More
than 1 to 3 3 to 5 than
Total 1 Year Years Years 5 years
Debt repayments (1) $ 2,503,088 $ 2,503,088 - - -
(1) Consists of payment obligations for loan agreement with
Zhongshan Bison Healthcare Investment Limited (Limited Partnership). As ofDecember 31, 2019 , we had$404,900 in outstanding principal under the agreement withBison Capital ,$467,451 outstanding principal and interest under the agreement withZhongshan Bison Healthcare Investment Limited (Limited Partnership), and$1,630,737 outstanding principal under the agreement with Mr.Yinglin Mark Xu .
We also have obligations to make future payments to third party licensors that
become due and payable on the achievement of certain development, regulatory and
commercial milestones. This includes milestone payments associated with our
license agreements. Possible future payments under our license arrangements
include up to
Xynomic Pharma enters into agreements in the normal course of business with contract research organizations ("CRO") for clinical trials and clinical supply manufacturing and with vendors for pre-clinical research studies, synthetic chemistry, and other services and products for operating purposes. We have not included these payments in the table of contractual obligations above since the contracts are cancelable at any time by us, generally upon 30 days prior written notice to the vendor.
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined under applicable
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