Pulmatrix, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with Q1 2018 unless noted. Amounts are in thousands of dollars except per-share data and shares. Pulmatrix is a clinical-stage biotechnology company developing inhaled therapies using its iSPERSE delivery platform. It has no products approved for sale and has not generated product-sale revenue.
Financial results and liquidity
| Metric | Q1 2019 | Q1 2018 / comparison |
|---|---|---|
| Revenue | $0 | $153 |
| Research and development expense | $2,176 | $3,221 |
| General and administrative expense | $1,987 | $2,046 |
| Goodwill impairment | $794 | $0 |
| Operating loss | $(4,957) | $(5,114) |
| Net loss | $(5,156) | $(5,221) |
| Basic and diluted loss per share | $(0.74) | $(2.39) |
| Cash used in operating activities | $(3,456) | $(3,125) |
At March 31, 2019, cash and cash equivalents were $2,146; restricted cash was another $204. Current assets of $3,382 were below current liabilities of $3,795, resulting in a $413 working-capital deficit. Total assets were $13,991, including $10,051 of goodwill; stockholders’ equity was $10,196. The company reported no term-loan balance; the loan had been fully repaid by June 30, 2018. No operating margin is meaningful given the absence of revenue in the quarter.
Q1 financing provided $3,049 net proceeds from equity offerings and pre-funded warrant exercises. Cash decreased by $417 after operating and investing outflows. Accumulated deficit was $199,721. The filing identified substantial doubt about the company’s ability to continue as a going concern based on its recurring losses and cash needs at quarter-end.
Changes and notable items
- Revenue fell by $153 to zero because Cystic Fibrosis Foundation Therapeutics-funded clinical study cost reimbursements concluded in 2018.
- R&D expense decreased by $1,045, mainly from lower PUR1800 project spending ($0.5 million), employment costs ($0.4 million), and scientific consulting ($0.1 million). G&A was broadly stable; lower employment costs were offset by higher legal expense related to the Cipla agreement.
- Goodwill impairment of $794 was recorded after a decline in the company’s common-stock value indicated that carrying value exceeded fair value. This was a non-cash charge.
- Net loss improved by $65, while operating cash use increased by $331. The per-share loss was lower than in 2018, but weighted-average shares increased to 6.9 million from 2.2 million; the company also completed a 1-for-10 reverse stock split in February 2019.
- At March 31, 2019, 5.6 million warrants were outstanding, in addition to 827,000 options. These securities were excluded from diluted loss per share as anti-dilutive.
Outlook, agreements, and risks
Management expects significant expenses and increasing operating losses for at least several years as it advances Pulmazole and other pipeline programs. It expected available funds to support Pulmazole development through completion of a Phase 2 trial, then anticipated in Q2 2020, but cautioned that assumptions could prove incorrect and additional capital may be needed. The filing provides no formal earnings or revenue guidance.
- Subsequent financing: On April 8, 2019, Pulmatrix closed a public offering with approximately $16.6 million in gross proceeds, including pre-funded warrants; preliminary underwriting discounts, commissions, and other offering expenses were approximately $1.5 million. The offering also issued substantial common and underwriter warrants. Subsequent exercises of pre-funded warrants generated another $69 in additional paid-in capital.
- Cipla agreement: On April 15, 2019, Cipla paid $22 million upfront under a worldwide exclusive Pulmazole development and commercialization agreement. Pulmatrix remains primarily responsible for clinical development, while Cipla is primarily responsible for commercialization; free cash flow from commercialization is to be shared equally. Pulmatrix is to make at least $24 million available for Pulmazole development within 30 days of signing; after that amount is exhausted, the parties share specified development, regulatory, and commercialization costs equally. The agreement assigns Pulmazole-related rights and assets to Cipla, with specified rights licensed back to Pulmatrix for non-pulmonary applications.
- Management stated that the post-quarter financing and Cipla agreement alleviated substantial doubt about the company’s ability to meet obligations for the twelve months following issuance of the financial statements, and that available resources were expected to fund operations for at least that period.
- Key risks include clinical-trial execution and results, regulatory approval, manufacturing and commercialization capabilities, intellectual-property protection, competition, and the need for further financing. The filing also highlights cybersecurity and privacy-law risks, including GDPR and the upcoming California Consumer Privacy Act. Management reported no material legal proceedings and no material change to previously disclosed risk factors apart from the added technology and privacy risks.
Important facts for investors to verify
- Whether the April offering’s net proceeds and the $22 million Cipla payment were received as described, and the resulting cash balance and runway after required Pulmazole funding commitments.
- The detailed Cipla agreement terms, including assigned and licensed-back rights, development spending thresholds, cost sharing, and commercialization cash-flow sharing.
- Current Pulmazole clinical status, Phase 2 timing, funding needs, and any changes to the expected Q2 2020 trial completion.
- The potential dilution from outstanding warrants and options, including the large warrant issuances in the April offering.
- Whether future operating cash use, additional financing needs, or other developments alter management’s conclusion that going-concern doubt has been alleviated.