Pulmatrix, Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Pulmatrix is a clinical-stage biotechnology company developing inhaled therapies using its iSPERSE dry-powder delivery platform. It had no approved products and no product-sales revenue. Financial amounts below are in thousands of dollars unless noted.
Financial results and liquidity
- Revenue: Q2 revenue was $3,500, down $1,319 from $4,819 in Q2 2019. First-half revenue was $6,262, up $1,443 from $4,819. Revenue came from collaboration and license arrangements, not product sales.
- Operating results: Q2 R&D expense was $3,184 versus $3,164; G&A was $1,490 versus $3,128. Operating loss was $1,174 versus $7,947, and net loss was $1,170 versus $7,844. First-half R&D was $8,471 versus $5,340; G&A was $3,702 versus $5,115. First-half operating loss was $5,911 versus $12,904, and net loss was $5,856 versus $13,000.
- Per-share loss: Basic and diluted net loss per share was $0.05 for Q2 and $0.26 for the first half, compared with $0.41 and $0.99, respectively, in 2019.
- Margins: The filing does not present a clear gross-margin measure.
- Cash flow: First-half operating activities used $4,200, versus $11,591 provided in 2019; investing used $98 versus $35; financing provided $8,113 versus $17,698. Cash, cash equivalents and restricted cash increased $3,815 to $27,459. Financing included $7,314 net proceeds from a stock offering and $775 from warrant and option exercises.
- Balance sheet: At June 30, cash and cash equivalents were $27,255; current assets were $29,056 and current liabilities $14,636. Total assets were $35,072, total liabilities $21,187, and stockholders’ equity $13,885. Deferred revenue totaled $15,406. No conventional borrowings were reported at period-end; a $617 PPP loan received and repaid during April was fully repaid.
- Other obligations: The company reported $4,701 of remaining research and development contract commitments and $2,044 of operating lease liabilities. It extended its office and lab lease through June 30, 2022.
Material changes and notable developments
- Q2 revenue fell mainly because revenue recognized under the Cipla agreement declined by $3,000, partly offset by a $1,700 increase from the JJEI license agreement. First-half revenue rose as JJEI-related revenue increased $2,400, partly offset by a $1,000 decline in Cipla-related revenue.
- First-half R&D expense increased $3,131, primarily reflecting $2,900 of higher PUR1800 spending, including manufacturing and clinical-study costs. G&A fell $1,413, primarily because of lower employment and share-based compensation expense.
- No goodwill impairment was recorded in 2020. The comparable 2019 periods included impairment charges of $6,474 for Q2 and $7,268 for the first half, contributing substantially to the year-over-year improvement in reported losses.
- Shares outstanding increased to 25,749,356 at June 30 from 19,994,560 at year-end 2019. An April registered direct offering sold 4,787,553 shares for $8,000 gross proceeds and included warrants for an equal number of shares; additional warrants were issued to the placement agent.
Outlook, risks and contingencies
- Management expected June 30 cash and anticipated interest income to fund operating expenses and capital requirements for at least 12 months following the filing date. It also expected continuing losses and said additional capital may be needed; funding plans may depend on equity or debt financing, collaborations and other sources.
- COVID-19 disrupted Pulmazole Phase 2 enrollment. The joint steering committee with Cipla terminated that study on July 10, 2020, while the parties considered a new Phase 2b study. Management anticipated site activation in Q3 2021 and topline data 18 months after study start, subject to delays and other uncertainties. The amendment was not definitive; anticipated terms included Pulmatrix bearing a greater share of certain overhead and consulting costs and granting Cipla exclusive rights in specified countries without royalties to Pulmatrix. Failure to agree could halt development or lead to arbitration.
- Management planned to initiate a PUR1800 Phase 1b study in moderate-to-severe COPD patients in the second half of 2020; COVID-19 could delay enrollment or study operations.
- Under an April license with Sensory Cloud for NasoCalm products, Pulmatrix is eligible for royalties of 7% of net sales in 2020, 14% in 2021 and 17% from 2022 onward where covered by a valid patent claim, plus a $1,000 milestone upon $20,000 of aggregate product net sales. Sensory Cloud planned to begin FEND commercial sales in September 2020; the filing reports no realized royalty revenue to date.
- After quarter-end, investors agreed to exercise warrants covering up to 10,085,741 shares at $1.35 per share, with approximately $13,616 gross proceeds expected before fees and expenses; new five-year warrants covering the same number of shares at $1.80 were to be issued. The filing also reports a July 8 exercise of 270,000 warrants for $365.
- Key risks include recurring losses and negative operating cash flow, reliance on external financing and collaborators, clinical and regulatory uncertainty, possible COVID-19 impacts, manufacturing and intellectual-property risks, and potential dilution from outstanding options and warrants. The company reported no material legal proceedings and no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether Pulmatrix and Cipla finalized a Phase 2b plan, cost-sharing terms and territorial rights for Pulmazole after terminating the prior Phase 2 study.
- Whether the post-quarter warrant exercise closed and what net proceeds and resulting dilution were realized.
- Whether the planned PUR1800 study and Sensory Cloud’s planned FEND launch proceeded on schedule, and whether they generated subsequent costs or revenue.
- Whether the stated cash runway remains adequate as clinical spending, contract commitments and financing needs evolve.