Perspective Therapeutics, Inc. annual report, FY2018

Business context and reporting period

The supplied filing is IsoRay, Inc.’s Form 10-K for the fiscal year ended June 30, 2018, with comparative results for fiscal 2017 and 2016; it is not a 2017 Q4 filing. The issuer named in the filing is IsoRay, Inc., not Perspective Therapeutics, Inc. IsoRay develops, manufactures, and sells Cesium-131 brachytherapy products. Prostate cancer remained its core market, accounting for 86% of fiscal 2018 sales.

Financial performance and position

Sales rose 24%, and gross margin improved as production volume better absorbed facility and personnel costs and isotope was used more efficiently. Operating expenses increased 20% to $8.571 million, including higher R&D and sales and marketing spending. Cash and cash equivalents plus current certificates of deposit totaled $3.425 million at year-end. The balance sheet reports no interest-bearing debt; liabilities include a $590,000 asset-retirement obligation. Net cash from investing activities was $1.859 million, largely reflecting certificate-of-deposit maturities and purchases. Financing activities provided $521,000, including net proceeds from an at-the-market share sale.

Material changes and unusual items

• Prostate sales increased 22% to $5.097 million; other brachytherapy sales increased 41% to $826,000. The revenue mix remains concentrated in prostate treatment.
• Cash declined by $3.332 million during FY2018, while working capital fell by $5.574 million year over year. Operating cash use remained at $5.712 million.
• On July 11, 2018, after year-end, IsoRay sold 11 million shares for $8.25 million gross proceeds, with estimated net proceeds of $7.6 million, and issued warrants for up to 5.5 million additional shares. Management said this should cover operations for the next fiscal year without another capital raise.
• GammaTile received FDA 510(k) clearance on July 6, 2018; GT Medical Technologies is the exclusive commercial agent. The planned NTAP reimbursement application was to be resubmitted in October 2018.
• The company recognized $404,000 of share-based compensation and $203,000 of share-based compensation for third-party services. The FY2017 cash-flow comparison included a $195,000 litigation settlement payment.

Outlook, commentary, and risks

Management forecast FY2019 revenue growth of 20% and said cash and cash equivalents plus certificates of deposit should fund projected operating needs for several years. It estimated cash-flow break-even in three to five years if the targeted annual growth is achieved; neither the growth nor timing is assured. Plans include expanded sales and marketing, commercializing the Blu Build loading device (then expected in October 2018), and supporting GT Medical’s planned GammaTile launch.

Key risks include reliance on one product and a single-country-dominant customer base; roughly 37% of FY2018 revenue came from three customers, including 24.2% from one group of facilities. Approximately 80% of FY2018 Cesium-131 supply came through Russian sources, and the company planned to end its MURR supply agreement in December 2018, increasing supplier and geopolitical concentration. The Russian supply contract was due to expire December 31, 2018 and was being renegotiated. Other risks include declining brachytherapy market share, reimbursement uncertainty for inpatient and non-prostate procedures, dependence on successful clinical adoption, regulatory and manufacturing requirements, and future equity dilution. The filing reports continuing operating losses and an accumulated deficit; the financial statements report an accumulated deficit of $79.348 million at June 30, 2018.

Important facts for investors to verify

• Confirm the issuer and period: this text is IsoRay’s FY2018 10-K, not a Perspective Therapeutics filing or a 2017 Q4 report.
• Review the actual cash runway after the July 2018 financing, subsequent spending, and any planned capital investment, including the additional approximately $310,000 planned for production automation.
• Check the status and terms of the Russian isotope supply arrangements, including contract renewal, reactor outage contingencies, and the termination of MURR supply.
• Verify whether FY2019 revenue growth, Blu Build commercialization, and GammaTile launch and reimbursement milestones were achieved.
• Reconcile figures that differ within the filing: the risk-factor text gives FY2018 net loss as $6.659 million, while the audited statements report $6.700 million; the filing also gives accumulated-deficit figures that differ from the audited balance sheet.
• Assess the dilution potential from the post-year-end share issuance and warrants, as well as the outstanding options and warrants.