Description

XFOR is small cap biotech that is on a dilution treadmill.  They have debt repayments starting in two months, and an ongoing concern warning in their filings because they will be in breach of their covenants in 2Q23.   With just 69M shares outstanding (87M including pre-funded warrants, and 143M including all warrant dilution), they need to issue ~75M shares at the current prices to get through FDA approval and their debt repayment.  Even if they are able to extend the debt repayment, expect massive dilution either via the ATM or offerings in the next few months.  

XFOR lead development candidate is mavorixafor, which is an antagonist of CXCR4.  They recently reported results of their Phase 3 study in WHIM (Warts, Hypogammaglobulinemia, Infections, and Myelokathexis).  The trial met its primary endpoint which was based on raising white blood cells.  However, the more important measurements of clinical benefit have not yet been analyzed.  XFOR is still analyzing the secondary endpoints and will release this data in the 1H of 2023.  This likely will show some benefits across some clinical measures once they are analyzed, though the degree and robustness of effect is less clear.

They will submit for FDA approval in the early 2H of 2023.  That leads to projected approval assuming priority review in the 2Q of 2024.  If a normal review cycle that would probably be in the 3Q of 2024.  If they can get to approval they may receive a Priority Review Voucher which they can then sell for $100M.  

In terms of the market potential for WHIM, it is a relatively modest market.  There are perhaps 1,000 patients in the US.  Pricing would likely be in the $200k - $400k annually, though it will depend on the actual clinical benefit of the drug, which we currently don’t have yet.

However to get to approval they will have to raise a significant amount of cash.  With just $80M in cash at the end of the 3Q22 and burn of $20M/Q they will run out of cash in the 3Q23.  You can see how their cash burn is remarkably steady at $20M/Q for the LTM.

Furthermore they have debt outstanding with Hercules requiring the company to hold a minimum amount of cash, and the covenants on those will trip in the 2Q23.  

They currently have $32.5M in debt outstanding with Hercules.  Principal payments of the debt start in February 2023 and extend the maturity of the loan on July 1, 2024.

They are chronically diluting their shareholders.  In just the past 4 quarters the basic share count has grown from 29M to 83M, an 186% increase!  

On March 3rd, 2022 they raised $3M from the sale of shares and pre-funded warrants at $1.80 per share.  On June 30th, 2022 the company issued 37.6M shares + 13.276M pre-funded warrants at $1.095 per share + 50.925M warrants to receive gross proceeds of $55.7M.  These raises also had the effect of lowering their Class B warrants to reduce the exercise price down to $1.50 due to the clause that allows for adjustments at the lowest weighted average offering price XFOR sells shares for.  

So to bridge the gap from 2Q23 to 2Q24 to get through FDA approval (with very little margin for error), they would need to raise ~$80M (4Q worth of burn).  This assumes that they are able to renegotiate to push out the payment of principal of the Hercules loan.  If not the cash needs would go up to >$100M.  Assuming they could raise at $1.50 (approximately where the stock is currently trading) would require ~53M shares to raise $80M.  Despite releasing the top-line data there has been no offering, perhaps a sign that there is little interest from institutional investors.  They do have an ATM outstanding with ~35M remaining on it (though this has not been updated since the 10K so it could be even less).

However, the volume here is quite low, so even with the jump in volume over the past couple of days the last 30 days ADV is only 638,000 shares.  To raise any substantial cash via the ATM will put massive pressure on the share price.

They could ask Hercules for additional borrowings.  Hercules has the sole discretion to make available another $17.5M to XFOR.  Even if we assume Hercules extends the full $17.5 and pushes out the principal payments until after FDA approval, that would still require equity sales of $60M or 40M shares.  

In terms of other catalysts that they can raise on there are not very meaningful.  They will report out the secondary endpoints for the WHIM P3 study sometime in the 1H of 2023.  Unclear if it will be in the 1Q or 2Q, but if it takes a bit longer then they will be very close to breaching the covenants.  They will also report out additional data from a P1b study in Chronic Neutropenia in the 1H of 2023, once again unlikely to be meaningful enough to support a raise.  

Catalyst

Massive dilution either through the ATM or an equity offering

Debt repayment begins on Feb 1, 2023