Pulmatrix, Inc. — FY 2015 Form 10-K
Business context and reporting period
This is an annual report for the fiscal year ended December 31, 2015, not a standalone fourth-quarter report. Pulmatrix is a clinical-stage biotechnology company developing inhaled therapies using its iSPERSE dry-powder delivery technology. On June 15, 2015, the former Ruthigen merged with Pulmatrix Operating in a reverse merger; Pulmatrix Operating was the accounting acquirer. Accordingly, 2015 results combine Pulmatrix Operating’s operations through June 15 with the post-merger company’s results thereafter, while 2014 comparatives reflect Pulmatrix Operating. The company has no approved products and has not generated product-sales revenue.
Financial and operating results
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Revenue | $1.201 million | $0.352 million |
| Research and development expense | $7.187 million | $6.590 million |
| General and administrative expense | $17.032 million | $2.838 million |
| Operating loss | $23.018 million | $9.076 million |
| Net loss | $26.167 million | $24.144 million |
| Net cash used in operating activities | $12.472 million | $9.166 million |
| Cash and cash equivalents at year-end | $18.902 million | $0.451 million |
Revenue was primarily collaboration expense reimbursement from Mylan and fees for feasibility work; it was not product revenue. Gross margin is not presented as a meaningful operating measure in the filing. Basic and diluted net loss per share was $3.23 in 2015 versus $34.52 in 2014; the prior-year per-share figure was affected by preferred-stock-related items and a much smaller weighted-average share count.
Cash flow from investing activities was positive $9.405 million, largely reflecting $9.671 million of cash acquired in the merger, less capital purchases. Financing activities provided $21.518 million, including proceeds from a $10.0 million private placement, a $7.0 million term loan and $4.5 million of bridge notes. Working capital was $16.854 million. Year-end total assets were $44.873 million and total liabilities were $12.267 million; stockholders’ equity was $32.606 million.
At year-end, the company had a $7.0 million Hercules term loan, reported at a net carrying amount of $6.721 million. It is secured by substantially all company assets other than intellectual property, bears a floating rate (9.75% at year-end), and matures July 1, 2018. Principal and interest installments began August 2016. The company reported compliance with loan covenants at December 31, 2015. Legacy convertible notes and the 2015 bridge notes were converted into equity in connection with the merger.
Material changes versus the prior comparable period
- Revenue increased by $0.849 million, mainly due to the Mylan collaboration; it remains small and non-product-based.
- R&D expense increased 9%, reflecting higher clinical and external-service costs for PUR0200 and PUR1900.
- G&A expense rose $14.194 million. Drivers included merger advisory, legal and accounting costs, stock-based compensation and costs associated with public-company operations.
- Net loss increased by $2.023 million. Lower interest expense versus 2014, when substantial noncash debt-discount accretion was recorded, partly offset higher operating losses and 2015 conversion and derivative-related charges.
- Cash increased to $18.902 million from $0.451 million, principally following merger-related cash acquisition and financing transactions.
Outlook, commentary, risks and unusual items
Management stated that available resources were expected to fund planned operations into the second quarter of 2017, while also saying cash plus anticipated additional non-dilutive financing should cover at least twelve months from the filing date. These estimates depend on assumptions and are not assured. The filing says current funding is not sufficient to complete additional clinical work across the pipeline; further capital, collaborations or other financing will be needed. Failure to obtain funds could force program delays or reductions and raise substantial doubt about continuing operations.
- Pipeline: PUR1900, inhaled itraconazole for pulmonary fungal infections, was expected to enter Phase I/Ib studies in the second half of 2016. PUR0200, an inhaled COPD bronchodilator, had prior Phase Ib data showing bronchodilator activity and comparable lung-function effects to a reference product; a Mylan-supported pilot pharmacokinetic study began in Europe in January 2016. PUR1500 for IPF remained in feasibility and preclinical work. A Celdara Medical collaboration received a $1.7 million NIH grant for inhaled biologic development.
- Key risks: recurring losses and operating cash outflows; need for additional funding; clinical, regulatory and manufacturing uncertainty; reliance on contract research/manufacturing organizations and single API suppliers for PUR0200 and PUR1900; competition; and uncertainty around patent protection and reimbursement.
- Unusual items: merger transaction expenses and substantial stock compensation contributed to higher G&A. Noncash derivative fair-value movements and the loss on conversion of bridge notes affected reported earnings. The merger added $15.942 million of goodwill and $7.534 million of in-process R&D; neither was reported impaired at year-end.
- Contingencies and governance: no material legal proceedings were reported. The Hercules loan restricts dividends and certain transactions. Management concluded disclosure controls and internal control over financial reporting were effective as of year-end; the auditor did not audit internal control effectiveness.
Important facts for investors to verify
- Confirm the cash runway, expected financing sources and whether planned trials can proceed within available resources; reconcile the stated runway through Q2 2017 with the filing’s financing caveats.
- Track PUR1900’s clinical start and results, and PUR0200’s pharmacokinetic/bioequivalence progress, Mylan option terms and potential U.S. development funding.
- Review the Hercules loan’s repayment schedule, floating interest rate, collateral and covenant compliance, including future principal payments.
- Assess the quality and repeatability of collaboration-derived revenue versus ongoing operating cash burn and noncash merger-related expenses.
- Monitor dilution from outstanding warrants, options and restricted stock units, as well as the company’s ability to raise capital without materially diluting existing holders.
- Verify the merger accounting and valuation assumptions for goodwill and acquired in-process R&D, and assess any later impairment or purchase-price-allocation adjustments.