Lipocine Inc. — Q2 2018 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2018. Lipocine is a development-stage specialty pharmaceutical company focused on oral drug delivery, with no product sales to date. Its lead candidate is TLANDO, an oral testosterone replacement therapy.
Financial performance and liquidity
| Metric | Q2 2018 | Q2 2017 | Six months 2018 | Six months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $428,031 | $0 |
| Research and development | $1.48 million | $4.11 million | $2.86 million | $7.19 million |
| General and administrative | $1.68 million | $2.03 million | $3.37 million | $3.86 million |
| Operating loss | $3.16 million | $6.14 million | $5.80 million | $11.05 million |
| Net loss | $3.26 million | $6.09 million | $5.98 million | $10.95 million |
| Loss per share, basic and diluted | $0.15 | $0.31 | $0.28 | $0.58 |
The six-month license revenue was a royalty payment from related party Spriaso, LLC; there was no Q2 revenue. The company remains loss-making, so a profit margin is not meaningful. Management attributed the lower year-over-year operating expenses primarily to completion of TLANDO’s DV and DF studies in 2017 and lower personnel and professional costs.
- Cash flow: Operating cash use was $6.49 million in the first half of 2018, versus $7.84 million a year earlier. Investing activities used $122,000; financing provided $10.0 million from the SVB loan. Cash, cash equivalents and restricted cash totaled $6.60 million at June 30.
- Liquidity: Cash, cash equivalents and marketable securities were approximately $20.1 million at June 30, excluding $5.0 million of restricted cash collateral. Management said existing resources should fund projected operating requirements through June 30, 2019, but the estimate depends on assumptions and additional capital will eventually be required.
- Debt: The company borrowed $10.0 million from Silicon Valley Bank in January. The loan bears interest at prime plus 1%, matures December 2021, and requires interest-only payments through December 2018, followed by principal and interest payments. A $650,000 final payment charge is due at maturity. Debt carrying value was approximately $10.13 million, including the accrued final payment charge.
- Other balance-sheet measures: Total assets were $25.30 million; total liabilities were $11.42 million; accumulated deficit was $132.38 million. The $5.0 million cash collateral remains restricted until TLANDO receives FDA approval.
Material changes and operating developments
- On May 8, 2018, the FDA issued a Complete Response Letter for TLANDO, meaning the NDA could not be approved in its then-current form. The FDA cited four issues: reliability of testosterone measurements due to possible ex vivo conversion in collection tubes; need for an ambulatory blood pressure monitoring (ABPM) study; reliability and analysis of Cmax data; and appropriate patient stopping criteria.
- Following a July 19 post-action meeting, Lipocine reported that the FDA clarified a path toward resubmission. The company was conducting an ABPM study expected to enroll up to 140 subjects, with results anticipated in Q1 2019, and planned a definitive phlebotomy study by year-end 2018.
- Six-month R&D expense fell by $4.33 million year over year, chiefly because the 2017 DV and DF studies had concluded. R&D spending is expected to rise during the ABPM study; management estimated approximately $5.1 million of additional R&D costs to conduct and complete it.
- The securities class action settlement was approved by the court on July 2, 2018. The $4.3 million settlement was funded into escrow by the company and its insurer; the insurer paid $3.6 million, with the company responsible for the balance under its retention. The related liability and insurance receivable had no balance at June 30.
- Operating cash flow benefited from the reversal/settlement of litigation-related balances; cash use should not be interpreted as a simple measure of recurring operating burn.
Outlook, risks and contingencies
- Management expects continued operating losses and significant expenses. TLANDO is the primary near-term focus; approval, timing, labeling and commercialization remain uncertain. An adverse ABPM result or further FDA requirements could delay or prevent approval and increase costs.
- Management does not anticipate starting Phase 3 studies for LPCN 1111 or LPCN 1107 in 2018 unless additional capital is secured or a candidate is out-licensed. A potential LPCN 1107 license was being explored, but no agreement had been entered into.
- The company expects to need additional financing. Financing may be unavailable or dilutive; if it cannot raise funds, it may need to delay, reduce or suspend development or commercialization plans.
- The SVB facility is secured by substantially all company assets other than intellectual property and certain other assets, includes financial and operating covenants, and has default provisions that could increase the interest rate by five percentage points and permit remedies against collateral.
- Other risks include regulatory and safety uncertainty for testosterone replacement therapies, potential post-approval cardiovascular studies or warnings, dependence on TLANDO, and an unresolved patent interference with Clarus. Management said it did not believe other legal matters would materially adversely affect the company.
- Management reported effective disclosure controls as of June 30, 2018 and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress, enrollment and results of the TLANDO ABPM and definitive phlebotomy studies, and the timing and content of any NDA resubmission.
- Whether the FDA accepts Lipocine’s proposed analyses and stopping criteria, and whether additional studies, labeling restrictions or cardiovascular obligations are required.
- Actual cash burn and available liquidity, including the restricted $5.0 million, debt service beginning in 2019, and the assumptions supporting management’s runway estimate through June 2019.
- Potential additional financing, dilution, or licensing arrangements, especially for LPCN 1107 and other pipeline programs.
- Outcome of the pending patent interference and any obligations or royalties under existing agreements, including the 1% Abbott royalty on future TLANDO net sales.