Lipocine Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019. The unaudited statements cover a clinical-stage biopharmaceutical company with no product sales. The filing, dated November 12, 2019, also reports a material subsequent event: the FDA issued a Complete Response Letter (CRL) for TLANDO on November 8, 2019.
Key financial results
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $165,000 | $0 | $165,000 | $428,000 |
| Research and development expense | $1.71 million | $1.42 million | $5.63 million | $4.28 million |
| General and administrative expense | $1.43 million | $930,000 | $3.99 million | $4.30 million |
| Operating loss | $2.98 million | $2.35 million | $9.45 million | $8.15 million |
| Net loss | $3.06 million | $2.46 million | $9.72 million | $8.43 million |
| Loss per share, basic and diluted | $0.12 | $0.12 | $0.40 | $0.40 |
Revenue was royalty income from related-party Spriaso, not product sales. With no product sales and limited license revenue, conventional operating or gross margins are not meaningful indicators here.
- Liquidity: At September 30, cash and cash equivalents were $6.66 million, marketable securities were $4.88 million, and restricted cash was $5.0 million. Unrestricted cash, cash equivalents and marketable securities totaled approximately $11.5 million, down from $15.3 million at December 31, 2018. The restricted amount is collateral under the SVB loan and is tied to TLANDO approval.
- Cash flow: Operating activities used $8.36 million in the first nine months, versus $9.85 million in 2018. Investing activities provided $2.44 million, principally from net maturities of marketable securities. Financing provided $4.50 million, including $6.95 million net ATM proceeds, partly offset by $2.5 million of debt repayment.
- Debt: Balance-sheet debt was approximately $7.94 million, including $3.33 million current and $4.60 million non-current. The SVB facility bears interest at prime plus 1% (6% at September 30), matures December 2021, and requires a $650,000 final payment charge. The company pledged substantially all assets other than intellectual property and certain other assets.
- Equity: The company sold 3.28 million shares through its ATM during the first nine months for $6.9 million net proceeds. Shares outstanding were 25.03 million at September 30; 25.40 million were reported outstanding November 11.
Changes and business developments
- Nine-month net loss increased to $9.72 million from $8.43 million, principally reflecting higher R&D spending. R&D rose by $1.34 million, mainly due to LPCN 1144 clinical work and TLANDO activities.
- Q3 R&D increased by $290,000, while G&A increased by $497,000, chiefly because of legal costs related to the Clarus patent litigation. For the nine-month period, G&A decreased by $310,000, largely reflecting lower personnel costs, partly offset by increased legal and insurance costs.
- Management stated that existing resources were expected to fund projected operations through at least March 31, 2020. It also said additional capital would be needed at some point to support operations, the LPCN 1144 study and regulatory compliance. The estimate depends on assumptions and could prove insufficient.
Outlook, risks and unusual items
- TLANDO: The November 8 FDA CRL stated that the efficacy trial did not meet three secondary Cmax endpoints; the filing says the CRL did not identify specific CMC issues. The company intended to request an FDA meeting to discuss a path forward. The CRL followed two earlier CRLs. Further studies, costs or delay may be required, and approval is uncertain.
- Pipeline: LPCN 1144’s LiFT Phase 2 paired-biopsy study began dosing in Q3. Management expected MRI-PDFF liver-fat data in mid-2020 and biopsy data by year-end 2020 or early 2021. An IND for LPCN 1148 was planned by December 31, 2019. The company did not expect to start an LPCN 1107 Phase 3 trial in 2019 absent additional capital or an out-license; no such license had been secured.
- Funding and going concern risk: The company expects continuing operating losses and must obtain further financing through equity, debt, licensing or partnerships. Financing may be unavailable or dilutive; insufficient funds could force reductions, delays or suspension of development programs and could threaten its ability to continue as a going concern.
- Litigation: A shareholder derivative suit alleges fiduciary-duty breaches and unjust enrichment related to TLANDO NDA disclosures; the company recorded no liability because loss was not considered probable or estimable. Lipocine’s patent-infringement suit against Clarus over JATENZO was in discovery and claim construction, with trial scheduled for August 2020. Clarus also appealed the PTAB decision cancelling claims in its 428 patent.
- Other items: The filing reports a perpetual 1% royalty to Abbott on TLANDO net sales, subject to stated terms, and a 2015 rights plan extended through November 5, 2021. Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- What the FDA requires to address the TLANDO CRL, the timing and cost of any resubmission, and whether the agency accepts the proposed path forward.
- Actual cash burn and financing needs relative to management’s March 31, 2020 runway estimate, including how the $5.0 million restricted balance affects usable liquidity.
- Progress, enrollment and reported results for LPCN 1144, and whether LPCN 1148 and LPCN 1107 advance as planned or require additional funding or partners.
- Debt repayment and final-payment obligations, ATM issuance and dilution, and the status and potential costs or outcomes of the pending litigation.
- Whether the $165,000 of Spriaso royalty revenue recurs; the filing reports no product-sale revenue.