HCW Biologics Inc. (NASDAQ:HCWB) is a clinical-stage biopharmaceutical company at the forefront of developing novel immunotherapies to address the critical link between chronic, low-grade inflammation and age-related diseases. The company's innovative approach aims to disrupt the cycle of "inflammaging," a significant contributor to a wide range of conditions, including cancer, cardiovascular disease, diabetes, neurodegenerative diseases, and autoimmune disorders.
Business Overview
HCW Biologics' core focus is on harnessing the power of the immune system to combat the detrimental effects of chronic inflammation. The company's lead product candidates, HCW9218 and HCW9302, are designed to target the two primary processes that drive inflammaging: the accumulation of senescent cells and the secretion of proinflammatory factors.
HCW9218, the company's clinical-stage lead drug candidate, is a bifunctional molecule that activates natural killer (NK) cells, innate lymphoid group-1, and CD8+ T cells, while also neutralizing transforming growth factor-beta (TGF-β). This unique mechanism of action allows HCW9218 to both reduce senescent cells and eliminate the senescence-associated proinflammatory factors they secrete, making it a promising candidate for the company's cancer program.
HCW9302, the company's preclinical-stage lead drug candidate, is designed to activate and expand regulatory T (Treg) cells, which can suppress the activity of inflammasome-bearing cells and the inflammatory factors they secrete. This approach forms the basis for HCW's autoimmune program.
Financials
In the fiscal year ended December 31, 2023, HCW Biologics reported annual revenue of $2.8 million, a decrease from the previous year's revenue of $3.1 million. The company's net loss for the year was $25.0 million, compared to a net loss of $22.5 million in the prior year. Operating cash flow for the year was negative $22.5 million, and free cash flow was negative $28.7 million.
For the first quarter of 2024, the company reported revenues of $1.1 million, a significant increase from the $41,883 generated in the same period of the prior year. However, the company's net loss for the quarter was $7.5 million, compared to a net loss of $5.1 million in the first quarter of 2023. Operating cash flow for the quarter was negative $3.6 million, and free cash flow was negative $3.7 million.
The increase in quarterly revenue was primarily attributable to Wugen, the company's licensing partner, ramping up its clinical development program and manufacturing process, leading to higher demand for HCW Biologics' licensed molecules. The increase in net loss and negative cash flows was driven by higher legal expenses related to the ongoing arbitration proceedings with Altor/NantCell, as well as continued investment in the company's clinical development and research activities.
Clinical Development Highlights
HCW Biologics has made significant progress in advancing its lead product candidates through clinical trials. The Phase 1 clinical trial to evaluate HCW9218 in solid tumors and the Phase 1b clinical trial to evaluate HCW9218 in pancreatic cancer were both completed in February 2024. In the Phase 1 study, over 70% of patients with ovarian cancer (5/7) showed evidence of stable disease. In the Phase 1b study, 13% (2/15) of patients who participated in the study showed evidence of stable disease. These studies met the primary objective of determining a recommended Phase 2 dose (RP2D) for HCW9218.
Building on these promising results, in February 2024, the company entered into an agreement with the University of Pittsburgh Medical Center (UPMC) to conduct an Investigator-sponsored Phase 2 clinical trial to evaluate HCW9218 in patients with metastatic advanced stage ovarian cancer in combination with neoadjuvant chemotherapy. Patient enrollment for this study is expected to begin in the second half of 2024.
Additionally, the company plans to modify the protocol for a randomized Phase 2 clinical trial led by the National Cancer Institute (NCI), operating under an existing Cooperative Research and Development Agreement (CRADA), to evaluate HCW9218 in the treatment of advanced pancreatic cancer in combination with standard-of-care chemotherapy. All five clinical sites from the Phase 1b portion of this study are expected to continue to participate in the Phase 2 study.
In the coming year, HCW Biologics is considering expanding its clinical studies to other age-related indications beyond cancer, with a focus on senescent cell-associated skin disorders. The company is also preparing an Investigational New Drug (IND) application to evaluate HCW9302 in an autoimmune disease, which it plans to submit in the third quarter of 2024.
Liquidity
As of March 31, 2024, HCW Biologics had $4.1 million in cash and cash equivalents, which the company believes may not be sufficient to fund its operations for the next 12 months. The company has identified substantial doubt about its ability to continue as a going concern for at least 12 months from the date of issuance of the financial statements, without additional funding or financial support.
To address its liquidity needs, the company has pursued various financing initiatives. In the first quarter of 2024, HCW Biologics raised $6.1 million, including $2.5 million from a private placement of common stock and $3.6 million from the issuance of senior secured notes (Secured Notes). Subsequent to the end of the first quarter, the company's Founder and Chief Executive Officer purchased an additional $1.6 million of Secured Notes, bringing the total raised from the Secured Notes to $5.2 million.
The company continues to pursue a plan to obtain bridge financing through the issuance of up to $10.0 million in Secured Notes, which it believes, if fully subscribed, will allow it to reach a point where it can execute plans for business development transactions, such as licenses for non-core assets and capital-raising transactions. However, the company acknowledges that there can be no assurance of the successful outcome of these financing plans, particularly given the uncertainties regarding the ongoing arbitration proceedings with Altor/NantCell.
Risks and Challenges
HCW Biologics' operations have been affected by various headwinds, including inflationary pressures, rising interest rates, ongoing global supply chain disruptions, and macroeconomic volatility. These factors have adversely impacted the company's ability to procure certain services and materials, which has, in some cases, affected the cost and timing of its clinical trials and IND-enabling activities. Additionally, the company has incurred significant legal expenses related to the ongoing arbitration proceedings with Altor/NantCell, which have contributed to its negative financial performance.
The company's ability to continue as a going concern is also subject to the successful execution of its financing plans, which may be impacted by the uncertainties surrounding the Altor/NantCell arbitration. If the company is unable to raise additional capital or secure alternative financing, it may be forced to curtail or cease operations, which could have a material adverse effect on its business, results of operations, and financial condition.
Outlook and Conclusion
Despite the challenges faced by HCW Biologics, the company remains committed to its mission of developing innovative immunotherapies to address the critical link between chronic inflammation and age-related diseases. The promising results from the completed Phase 1 and Phase 1b clinical trials for HCW9218, as well as the company's plans to expand its clinical pipeline, demonstrate its dedication to advancing its novel therapeutic approaches.
However, the company's liquidity constraints and the ongoing legal proceedings with Altor/NantCell present significant risks that must be carefully navigated. Investors should closely monitor the company's progress in securing additional financing, as well as the outcome of the arbitration proceedings, as these factors will be crucial in determining HCW Biologics' ability to continue its clinical development efforts and ultimately bring its innovative therapies to market.