Lipocine Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed March 12, 2018. Lipocine is a pre-commercial specialty pharmaceutical company developing oral drug-delivery products for men’s and women’s health. Its lead candidate, TLANDO, was under FDA review.
Financial performance and liquidity
| Metric | 2017 | 2016 |
|---|---|---|
| Product revenue | None | None |
| Research and development expense | $11.0 million | $8.1 million |
| General and administrative expense | $10.2 million | $10.4 million |
| Operating loss | $21.2 million | $19.2 million |
| Net loss | $21.0 million | $19.0 million |
| Basic and diluted loss per share | $1.05 | $1.04 |
| Cash used in operating activities | $16.7 million | $18.3 million |
| Cash, cash equivalents and marketable securities at year-end | $21.5 million | $26.8 million |
| Total assets / total liabilities at year-end | $25.3 million / $6.3 million | $27.3 million / $1.3 million |
Gross margins are not meaningful because the company had no product sales. Net loss increased by $2.0 million year over year, while R&D expense rose $2.9 million, principally from TLANDO’s dosing studies, advisory-committee work and manufacturing activity. G&A declined slightly; the 2017 figure included $930,000 of class-action settlement fees. The 2016 comparison included $729,000 of restructuring charges, versus none in 2017.
2017 financing cash flow was $11.2 million, largely from $10.6 million net proceeds under an at-the-market stock offering. Investing cash flow was $3.1 million, primarily from net maturities of marketable securities. Accumulated deficit was $126.4 million. Management estimated existing resources would fund projected operating requirements through March 31, 2019, while cautioning that assumptions could change. No debt was reported at December 31, 2017; a subsequent $10.0 million bank loan is described below.
Business developments and prior-period comparison
- TLANDO: The FDA accepted the August 2017 NDA resubmission as a complete response to the June 2016 CRL, which had raised dosing-algorithm concerns. The PDUFA action goal date was May 8, 2018. In January 2018, the FDA advisory committee voted 6–13 against finding the overall benefit-risk profile acceptable to support approval. Lipocine planned ABPM and phlebotomy studies and acknowledged another CRL was possible.
- The TLANDO Dosing Validation study reported 80% of subjects achieved average testosterone within the normal range, with a lower confidence bound of 72%; the filing states FDA efficacy thresholds were 75% and a lower bound of 65%. The Dosing Flexibility study reported 70%. These results do not assure approval.
- Other candidates: LPCN 1111 had completed Phase 2 testing, but the FDA could require additional work, including an ABPM study; the company did not expect to begin Phase 3 in 2018 without additional capital or an out-license. LPCN 1107 had completed dose-selection work and FDA discussions, but Phase 3 protocol agreement remained pending a food-effect study. No Phase 3 start was anticipated in 2018 absent added funding or an out-license.
- For the fourth quarter of 2017, operating loss was $5.4 million, net loss was $5.3 million, and basic and diluted loss per share was $0.25. Fourth-quarter 2016 net loss was $3.0 million and loss per share was $0.16.
Outlook, risks and unusual items
- Management expected to focus 2018 resources primarily on TLANDO and projected approximately $3.9 million of additional TLANDO R&D costs to complete the ABPM and phlebotomy studies. It expected R&D expense to decrease in 2018 relative to 2017, but stated costs and timelines remained uncertain.
- On January 5, 2018, Lipocine entered a $10.0 million term loan with Silicon Valley Bank, bearing interest at prime plus 1%, maturing December 1, 2021, with a $650,000 final payment. If TLANDO was not FDA-approved by May 31, 2018, $5.0 million of cash collateral would be required until approval. The loan is secured by substantially all assets other than intellectual property and specified exclusions, and contains restrictive covenants.
- The company recorded a $4.25 million securities-litigation settlement liability and a $3.32 million estimated insurance recovery at year-end, following a February 2018 memorandum of understanding. Final settlement remained subject to agreement and court approval.
- The 2017 tax-rate change under the Tax Cuts and Jobs Act generated a $13.2 million deferred-tax remeasurement expense, offset by a corresponding valuation-allowance change. A full valuation allowance was maintained against substantially all deferred tax assets.
- Key risks include TLANDO approval and cardiovascular/blood-pressure concerns; possible further FDA requests, delays and trial costs; dependence on external manufacturers and a single TU supplier; need for additional capital; dilution or restrictive financing terms; competition, reimbursement and commercialization challenges; and patent interference and other litigation. The filing notes a pending PTAB interference involving Clarus patents.
Important facts for investors to verify
- FDA actions on TLANDO, including the final decision, any CRL, required studies, labeling and post-approval obligations.
- Cash runway assumptions, actual use of the $10.0 million loan, collateral restrictions, covenant compliance and financing needs.
- Final court approval and payment mechanics for the securities-litigation settlement, including insurance recovery and retained costs.
- Whether LPCN 1111 or LPCN 1107 receives a viable development path, FDA protocol agreement and required funding.
- Manufacturing capacity and supply continuity for TLANDO, and the status and scope of Lipocine’s relevant patent rights.