Pulmatrix, Inc. — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016. Unless otherwise noted, amounts are in U.S. dollars; financial statement amounts below are converted from thousands to millions.
Business context and reporting period
Pulmatrix is a clinical-stage biotechnology company developing inhaled therapies using its iSPERSE dry-powder delivery platform. It had no products approved for sale and no product-sales revenue. Its programs included PUR1900, PUR0200 and PUR1500. The company reported a full quarter of combined-company results; the 2015 merger was accounted for as a reverse merger, with Pulmatrix Operating treated as the accounting acquirer.
Key financial metrics
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $0.061 million | $0.651 million | $0.718 million | $0.926 million |
| Research and development expense | $1.507 million | $2.193 million | $7.378 million | $4.721 million |
| General and administrative expense | $1.550 million | $3.119 million | $6.173 million | $14.929 million |
| Operating loss | $2.996 million | $4.661 million | $17.408 million | $18.724 million |
| Net loss | $3.157 million | $4.932 million | $18.013 million | $21.631 million |
| Net loss per share, basic and diluted | $0.21 | $0.34 | $1.22 | $3.69 |
At September 30, cash and cash equivalents were $7.313 million, working capital was $4.230 million, and accumulated deficit was $146.116 million. Total assets were $25.480 million. The term loan’s carrying value was $6.404 million, including $2.511 million current and $3.893 million long-term; stated principal outstanding was $6.588 million. The loan bears interest at a floating rate with a 9.5% floor, is secured by substantially all assets other than intellectual property, and matures July 1, 2018. The company reported compliance with loan covenants.
For the first nine months, operating cash use was $10.740 million, investing cash use was $0.437 million, and financing cash use was $0.412 million. Cash declined by $11.589 million from $18.902 million at year-end 2015. The filing does not present a meaningful product gross margin; revenue was limited to service fees and collaboration or grant-related activity.
Material changes versus comparable periods
- Q3 revenue fell $0.590 million year over year, which management attributed to the conclusion of a Mylan-funded clinical study. Nine-month revenue declined $0.208 million.
- Q3 R&D expense decreased $0.686 million, mainly from lower PUR0200 and PUR1900 costs. For the first nine months, R&D increased $2.657 million, primarily from higher PUR1900 spending and employment-related costs, partly offset by lower PUR0200 costs.
- Q3 G&A expense decreased $1.569 million, largely because 2015 included merger-related advisory costs and stock-based compensation. Nine-month G&A declined $8.756 million, also reflecting merger-related costs and compensation that did not recur.
- Net loss improved in both comparisons, but the nine-month 2016 result included a $4.575 million net write-off of acquired in-process R&D. The 2015 comparison included nonrecurring conversion and fair-value adjustments related to notes and warrants.
- Cash used in operations increased $1.246 million year over year for the first nine months, despite the lower reported net loss.
Outlook, risks and unusual items
- Funding and going concern: The filing states that substantial doubt exists about the company’s ability to continue as a going concern, and that additional capital will be required within a year to support operations at current spending levels. Management nevertheless said it believed cash resources, together with anticipated non-dilutive financing and stock issuance proceeds, could fund obligations and the operating plan for at least twelve months from the filing date. These estimates rely on assumptions that may prove incorrect.
- Management said available funds could support PUR1900 chemistry, manufacturing and controls work for a Phase 1B trial, PUR0200 development support and preclinical PUR1500 work, but would not fund additional clinical work across the pipeline. Additional equity or debt financing, collaborations or other funding may be needed; equity could dilute holders, while debt could impose restrictive terms.
- The RUT58-60 license expired June 15, 2016 after the company was unsuccessful in selling the rights. The related acquired IPR&D carrying value of $7.534 million and deferred tax liability of $2.959 million were written off, producing a net charge of $4.575 million. Goodwill of $15.942 million was not impaired based on management’s qualitative assessment.
- The company expects continued losses and significant development spending. Risks cited include clinical and regulatory uncertainty, financing availability, manufacturing and commercialization capability, competition, intellectual property protection, and retention of key personnel. No formal financial guidance was provided.
- The company reported no material legal proceedings, no material changes to its previously disclosed risk factors, effective disclosure controls, and no material quarter-specific changes in internal control over financial reporting.
Important facts for investors to verify
- Whether Pulmatrix can secure sufficient financing, on acceptable terms and in time, to fund operations and planned clinical development.
- Actual cash burn and remaining liquidity relative to the stated twelve-month funding expectation, including the impact of scheduled term-loan payments.
- Progress, timing, costs and clinical or regulatory outcomes for PUR1900, PUR0200 and PUR1500.
- Whether collaboration or other non-dilutive funding becomes available, and what rights or economics would be granted in exchange.
- Potential dilution from future equity financing and outstanding options and warrants; the filing lists 3.009 million options and 3.284 million warrants outstanding at September 30, 2016.