Pulmatrix, Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. 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; reported revenue came from grants, clinical-study reimbursement, or other development-related sources. Financial figures below are in millions unless otherwise noted.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0.335 | $0.061 | $0.335 | $0.718 |
| Research and development | $2.618 | $1.507 | $7.654 | $7.378 |
| General and administrative | $2.021 | $1.550 | $5.727 | $6.173 |
| Net loss | $4.452 | $3.157 | $13.532 | $18.013 |
| Net loss per share | $0.22 | $0.21 | $0.72 | $1.22 |
- At September 30, cash and cash equivalents were $6.360; working capital was $1.040. Current assets were $7.550 and current liabilities were $6.510.
- Operating cash use for the first nine months was $11.265, versus $10.740 in 2016. Investing cash use was $0.036, and financing provided $13.479, primarily from stock issuance. Cash increased $2.178 from year-end 2016.
- Term-loan principal outstanding was $3.959, carried at $3.896 net of discounts and issuance costs. The loan is secured by substantially all assets other than intellectual property, bears a floating rate subject to a 9.50% floor, and matures July 1, 2018. Principal payments of $3.959 were scheduled through 2018.
- There is no meaningful product gross margin to assess because the company had no product sales. The filing does not provide a clear operating-margin measure relevant to a commercial product business.
Changes versus comparable periods
- Q3 revenue increased to $0.335 from $0.061, attributed to a Cystic Fibrosis Foundation Therapeutics grant in 2017 versus Mylan-funded clinical-study activity in 2016. Nine-month revenue fell to $0.335 from $0.718, as the prior-year period included Mylan-related revenue.
- Q3 R&D expense increased $1.111, primarily from higher PUR1900 clinical-development costs. Nine-month R&D rose $0.276; the filing cites higher PUR1800 spending, partly offset by lower PUR0200 and PUR1900 costs.
- Q3 net loss widened by $1.295. Nine-month net loss improved by $4.481, chiefly because 2016 included a $4.575 million net write-off of intangibles; 2017 had no comparable charge. Lower nine-month G&A and interest expense also contributed.
- Financing and share count increased materially: the company raised about $15.2 million net from stock sales during the nine months, and reported 20.426 million shares outstanding at September 30, versus 14.851 million at December 31, 2016. Shares outstanding were 21.047 million as of November 8.
Business developments, outlook, and risks
- In June 2017, Pulmatrix licensed narrow-spectrum kinase inhibitor intellectual property from RespiVert, a Janssen Biotech subsidiary. It paid a nonrefundable $1.0 million upfront fee, expensed as R&D. Future development and commercial milestones range from $1 million to $80 million, with royalties of 6% to 10%; the next likely development milestone is $1 million upon first patient dosing in a Phase IIb trial.
- In September, Pulmatrix agreed with Vectura to develop PUR0200 for the U.S. COPD market. Vectura or its partners will fund future development; Pulmatrix will provide data and transfer assistance. Pulmatrix may receive a $1 million technology-access fee upon meeting agreed development criteria and a mid-teen percentage share of specified future revenues.
- Management expects continued losses, with expenses and capital needs increasing for at least several years. It stated that additional capital would be required within the next year and that available funding on acceptable terms is not assured. The filing concludes that substantial doubt exists about the company’s ability to continue as a going concern.
- If capital is unavailable, Pulmatrix may delay, reduce, or stop development, seek earlier-stage collaborations on less favorable terms, or relinquish rights. Equity financing may dilute shareholders; debt financing may impose restrictive covenants. Other disclosed risks include clinical and regulatory uncertainty, manufacturing and commercialization challenges, competition, and intellectual-property protection.
- After quarter-end, the company sold 621,047 shares through its ATM program for approximately $1.174 million gross proceeds, at an average price of about $1.89 per share. This subsequent financing does not remove the disclosed need for additional capital.
- No formal financial guidance or specific clinical timetable is provided. Goodwill of $10.914 million was assessed with no impairment identified. The company reported no material legal proceedings, no material change to previously disclosed risk factors, and effective disclosure controls.
Investor verification points
- Reconcile the filing’s revenue disclosures: the statements report $0.335 million for Q3 and nine months, while the note describes $0.305 million of CFFT grant revenue and the balance sheet shows a $0.305 million receivable. The text does not clearly explain the difference.
- Confirm cash runway, expected quarterly cash use, and the financing needed to address the going-concern warning and the July 2018 loan maturity.
- Track PUR1900 and licensed-product clinical milestones, including the potential $1 million Phase IIb dosing payment, and assess the costs and timing needed to reach them.
- Monitor Vectura’s development progress and the conditions for Pulmatrix’s potential access fee and revenue share.
- Assess future dilution and remaining ATM capacity, including the post-quarter share sale and the company’s outstanding options and warrants.