Business context and reporting period
The supplied filing is Pieris Pharmaceuticals, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2019—not a filing for “Pavella Therapeutics, Inc.” The filing describes a clinical-stage biopharmaceutical company developing Anticalin-based medicines, with revenue from collaborations and licenses rather than product sales.
Key programs include PRS-060 for asthma, PRS-343 in immuno-oncology, PRS-080 for anemia, and partnered and proprietary discovery programs. The company reported ongoing Phase 1 studies for PRS-060 and PRS-343; the PRS-080 Phase 2a study was complete, with final data and a potential Asian-territory license decision still pending.
Financial performance and liquidity
Amounts below are in U.S. dollars; financial statement figures are rounded to millions unless noted.
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $5.3 million | $11.7 million | $13.9 million | $15.8 million |
| Research and development expense | $13.4 million | $9.2 million | $27.7 million | $17.1 million |
| General and administrative expense | $4.2 million | $4.8 million | $9.1 million | $9.1 million |
| Net loss | $11.8 million | $0.2 million | $22.1 million | $8.9 million |
| Net loss per share, basic and diluted | $0.24 | Approximately zero | $0.44 | $0.17 |
| Operating cash flow | Not presented by quarter | $(25.8) million | $22.4 million |
Revenue fell 54% year over year in Q2 and 12% for the six-month period. The filing attributes the quarterly decline principally to $1.5 million of Roche revenue recognized in the prior-year period upon termination of that collaboration and lower activity under Seattle Genetics and AstraZeneca agreements. R&D expense rose 46% in Q2 and 62% in the first half, driven by immuno-oncology, respiratory programs, personnel and facility costs. No product-sales revenue was reported; the filing does not provide a meaningful product gross margin.
At June 30, cash and cash equivalents were $54.9 million and short-term investments were $44.8 million, or $99.7 million combined. Current assets were $111.5 million and current liabilities $40.9 million. Total assets were $130.8 million, total liabilities $111.4 million and stockholders’ equity $19.5 million. The filing does not identify conventional borrowings in the presented balance sheet; liabilities include substantial deferred revenue and a $12.3 million deferred-rent liability. Cash and investments declined from $128.1 million at December 31, 2018. Management said available cash and investments were expected to fund operations and capital requirements for at least 12 months from the filing date.
Six-month investing cash flow was positive $7.6 million, principally reflecting investment maturities exceeding purchases; financing cash flow was $0.3 million, compared with $48.2 million in the prior-year period, which included a public stock offering. Cash declined by $20.0 million during the first half, including a $2.0 million adverse foreign-exchange effect.
Material changes and accounting comparability
- The company adopted ASC 606 effective January 1, 2019 using the modified retrospective method; 2018 comparative results were not restated. Adoption reduced opening equity by $1.6 million. On a pro forma ASC 605 basis, Q2 2019 revenue would have been $4.1 million and net loss $13.0 million, rather than reported revenue of $5.3 million and net loss of $11.8 million. Six-month ASC 605 pro forma revenue was $13.4 million and net loss $22.7 million.
- A new German office and laboratory lease was under construction/preparation for occupancy. The filing recorded $12.3 million of deferred rent, including an $11.7 million tenant-improvement allowance; rent expense was $0.6 million for the first half.
- In January, BVF exchanged 5.0 million common shares for 5,000 Series B convertible preferred shares. The preferred shares are convertible into common shares, subject to ownership limits.
- Reported deferred revenue totaled $86.5 million at June 30, including $28.4 million current and $58.1 million non-current; it reflects amounts received for collaboration obligations not yet satisfied.
Outlook, commentary and risks
- Management expects substantial losses and rising cash needs as clinical and preclinical development continues. Additional capital may be needed; financing availability, clinical progress, collaboration terms and development costs are identified as important uncertainties.
- On August 9, 2019, after quarter-end, the company entered an at-the-market agreement allowing up to $50 million of gross common-stock sales through Jefferies, subject to company-set parameters. No shares had been sold under the agreement as of the filing. Sales could dilute existing shareholders.
- Management reported PRS-060 Phase 1 single-dose results as supportive of further development and planned to present multiple-dose study data in October 2019. The company planned to report PRS-343 Phase 1 dose-escalation and combination-study data later in 2019, and intended to file an IND for PRS-344 in the second half of 2019.
- PRS-080 Phase 2a results presented in June showed tolerability and iron mobilization; preliminary hemoglobin separation from placebo was reported at the higher dose. Final data were to be shared with ASKA, which would then decide whether to exercise its option.
- Milestone payments are contingent on research, clinical, regulatory and commercial success. The filing lists potential partner milestones, but emphasizes that research and development milestones remain constrained because achievement is uncertain. Collaboration partners may also terminate programs under specified contractual terms.
- Disclosure controls and procedures were deemed ineffective at June 30 because of a previously reported material weakness in the income-tax provision process, including evaluation of the Tax Cuts and Jobs Act. Management described remediation efforts and said the weakness had not caused a financial-statement misstatement.
- The company reported no material pending legal proceedings and no material changes to the risk factors in its 2018 Form 10-K. It highlighted clinical, regulatory, funding, intellectual-property, partner-dependence, manufacturing and foreign-exchange risks.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for Pieris Pharmaceuticals, Inc., despite the request metadata naming Pavella Therapeutics, Inc.
- Track cash consumption and runway against management’s estimate of at least 12 months, including any proceeds and dilution from the $50 million ATM program.
- Assess clinical progress and risk for PRS-060, PRS-343, PRS-344 and PRS-080, including the timing and outcomes of planned data, IND and partner-option decisions.
- Review revenue concentration, collaboration activity, remaining performance obligations and the effects of ASC 606 when comparing results with 2018.
- Monitor remediation of the tax-control material weakness and the financial impact of the new German lease and ongoing facility costs.