Pulmatrix, Inc. — Form 10-Q Summary
Business context and reporting period
For the quarter ended June 30, 2015. On June 15, Pulmatrix Operating merged with Ruthigen, Inc.; the transaction was accounted for as a reverse merger, with Pulmatrix Operating as the accounting acquirer. Former Pulmatrix Operating equity holders owned approximately 81.7% of the combined company. Reported 2015 results include Pulmatrix Operating through June 15 and the combined company from June 16; 2014 comparatives reflect Pulmatrix Operating alone.
The company is a clinical-stage biotechnology business developing inhaled therapies using its iSPERSE dry-powder platform. Key programs include PUR1900 for cystic fibrosis, PUR0200 for COPD and PUR1500 for idiopathic pulmonary fibrosis. It has no approved products and no product-sales revenue.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $0.170 million (2014: nil) | $0.275 million (2014: $0.008 million) |
| Research and development expense | $1.610 million (2014: $1.729 million) | $2.528 million (2014: $3.491 million) |
| General and administrative expense | $9.879 million (2014: $0.722 million) | $11.812 million (2014: $1.379 million) |
| Operating loss | $11.319 million (2014: $2.451 million) | $14.065 million (2014: $4.862 million) |
| Net loss | $14.897 million (2014: $6.941 million) | $16.699 million (2014: $10.454 million) |
| Net loss per share | $2.66 (2014: $2.21) | $3.79 (2014: $3.33) |
At June 30, cash and cash equivalents were $25.507 million, total current assets $26.017 million, total current liabilities $1.327 million and total stockholders’ equity $39.310 million. The company reported $7.000 million principal on its term loan, carried at $6.706 million net of discount. Six-month operating cash use was $6.082 million; cash increased $25.056 million, including $9.671 million of cash acquired in the merger and $21.517 million of financing cash inflows. Gross margin was not separately presented.
Material changes and unusual items
- Six-month net loss increased by $6.245 million year over year, while operating loss widened by $9.203 million. G&A rose substantially, chiefly from merger advisory, legal, accounting and consulting costs, stock-based compensation, and incentive costs. Research and development expense declined, principally due to reduced PUR0200 spending and lower headcount.
- Reported losses include significant non-cash and transaction-related items: $4.248 million of stock issued for merger-related consulting, $2.745 million of stock-based compensation, $2.692 million quarterly expense from a derivative fair-value change, and $1.170 million loss on conversion of notes. The six-month period also included $6.863 million of Pulmatrix merger transaction costs, excluding Ruthigen costs.
- Legacy convertible notes and preferred stock converted into equity at the merger; the $4.5 million 2015 bridge notes also converted into common shares. Pulmatrix raised $10.0 million in a private placement, Ruthigen raised approximately $2.6 million in a private placement, and the company drew a $7.0 million Hercules term loan.
Outlook, risks and contingencies
Management estimated that available resources would fund planned operations into the second quarter of 2017, but cautioned that assumptions could prove incorrect and additional capital would be needed. Management said current funds could support PUR1900 through a Phase Ib trial in cystic fibrosis, PUR0200 chemistry, manufacturing and controls work, and preclinical evaluation of PUR1500, but not additional clinical work across the pipeline. The company expects continued losses and increasing development costs; financing needs, trial progress, regulatory outcomes and manufacturing remain material uncertainties.
The Hercules loan bears a floating rate with a 9.50% minimum, is secured by substantially all company assets except intellectual property, and matures July 1, 2018. Principal-and-interest amortization begins August 2016; covenants restrict, among other matters, additional debt, asset transfers and dividends. The company reported covenant compliance at June 30. Failure to meet obligations could permit lender remedies against collateral, including cash.
RUT58-60, inherited from Ruthigen, was outside the company’s core inhaled-therapy focus. A one-year waiver of development obligations allowed time to seek a buyer or partner, subject to Oculus’ right of first refusal and potential 10% payment on qualifying sale proceeds above $10 million. Subsequent to quarter-end, the company said it was exploring options and notified the FDA on August 3, 2015 that the Phase 1/2 study was terminated. The filing also highlights clinical, regulatory, financing, intellectual-property, competition, third-party manufacturing and dilution risks. No material legal proceedings were reported; management stated disclosure controls were effective.
Important facts for investors to verify
- Confirm the merger accounting, transaction-related expenses and the different business periods underlying 2015 and 2014 comparisons.
- Track cash burn against the stated runway and determine the funding needed to advance each clinical program beyond the work management said current funds could support.
- Review the Hercules loan’s floating-rate terms, collateral, covenants, amortization and maturity, as well as potential consequences of covenant or payment default.
- Assess the disposition and remaining obligations for RUT58-60, including the terminated study, Oculus rights and any sale or partnership terms.
- Evaluate potential dilution from outstanding options, warrants, restricted stock units and future financing needs.