Lipocine Inc. — Q3 2017 Form 10-Q
Reporting period: Three and nine months ended September 30, 2017. Lipocine is a clinical-stage specialty pharmaceutical company developing oral drug-delivery products, primarily in men’s and women’s health. It reported no product-sales revenue and continued to fund operations through equity financing and investment balances.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | None reported | None reported | None reported | None reported |
| Research and development expense | $2.05 million | $1.51 million | $9.24 million | $6.75 million |
| General and administrative expense | $2.72 million | $1.39 million | $6.58 million | $9.04 million |
| Operating loss | $4.77 million | $3.29 million | $15.82 million | $16.17 million |
| Net loss | $4.70 million | $3.24 million | $15.65 million | $16.01 million |
| Basic and diluted loss per share | $0.22 | $0.18 | $0.80 | $0.88 |
| Cash used in operating activities | Not provided quarterly | $12.41 million | $15.73 million |
- At September 30, 2017, cash and cash equivalents were $9.27 million and marketable securities were $16.41 million, totaling approximately $25.7 million. Total current liabilities were $2.48 million; the company reported no debt or credit facility.
- Cash and marketable securities together were $25.7 million, compared with $26.8 million at December 31, 2016. Total assets were $26.3 million and stockholders’ equity was $23.8 million.
- Net cash increased $3.71 million in the first nine months, reflecting $11.18 million financing proceeds and $4.94 million net investing cash inflow, offset by $12.41 million operating cash use. Financing included $10.6 million net proceeds from the ATM share offering.
- Margins are not meaningful because the company reported no revenue. Accumulated deficit was $121.1 million at September 30, 2017.
Material changes versus comparable periods
- Q3 net loss increased to $4.70 million from $3.24 million. R&D expense rose by $540,000, primarily due to TLANDO clinical and manufacturing costs. G&A increased by $1.33 million, including $664,000 more for TLANDO market research and pre-commercialization and $768,000 in severance-related benefits, partly offset by lower personnel costs.
- For the first nine months, net loss narrowed modestly to $15.65 million from $16.01 million. R&D increased $2.49 million, chiefly from TLANDO dosing-study CRO costs; G&A fell $2.46 million, reflecting lower business development, pre-commercialization, patent litigation, and personnel costs. Prior-year restructuring charges were absent in 2017.
- Weighted average shares increased: 20.89 million in Q3 versus 18.25 million in Q3 2016, and 19.67 million for nine months versus 18.25 million. The ATM offering sold 2.52 million shares through September 30.
Outlook, programs, risks, and unusual items
- TLANDO: The FDA accepted the August 2017 NDA resubmission as a complete response to its June 2016 Complete Response Letter, which concerned the dosing algorithm. The FDA set a February 8, 2018 PDUFA goal date and planned an advisory committee meeting for January 10, 2018. The company said the dosing-validation study supported fixed dosing; approval is not assured.
- Other pipeline: LPCN 1111 was in Phase 2, with an FDA meeting on a potential Phase 3 path expected in Q1 2018. LPCN 1107 had completed an FDA End-of-Phase-2 meeting; Phase 3 protocol agreement remained pending, including review of a food-effect study, and manufacturing scale-up was ongoing.
- Management estimated existing capital resources would fund projected operating requirements through September 30, 2018, but said additional capital would be needed to support longer-term operations and potential commercialization. This estimate depends on assumptions; delays, further studies, commercialization plans, or adverse financing conditions could shorten the runway. Management estimated approximately $2.5 million in additional TLANDO R&D costs for ongoing manufacturing work and advisory-committee preparation.
- Key risks include FDA rejection, delay, added labeling or studies; testosterone-therapy safety and market risks; competition, including the potential for Clarus to launch Jatenzo first; and reliance on additional financing. Equity financing may dilute shareholders. The company also has a perpetual 1% royalty obligation to Abbott on TLANDO net sales, subject to a $1 million cap for the first two calendar years after launch.
- The PTAB’s September 2017 decision in the Clarus patent interference named Clarus the senior party and Lipocine the junior party; Lipocine was permitted to present its priority case. In a securities class action, the court denied Lipocine’s motion to dismiss after October 2017 oral argument. The company said it would defend the case and did not expect a material financial impact, though it could owe up to its insurance retention amount.
- Q3 included $768,000 of severance-related benefits tied to a terminated employee agreement, including accelerated equity vesting. No restructuring expense was recorded in 2017. Management reported effective disclosure controls and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether TLANDO receives FDA approval, and the final outcome and implications of the January 10, 2018 advisory committee meeting and February 8, 2018 action date.
- Whether actual cash burn and planned development or commercialization spending remain consistent with management’s estimated runway through September 30, 2018, and the timing and terms of additional financing.
- FDA feedback and study requirements for LPCN 1111 and LPCN 1107, including LPCN 1107 Phase 3 protocol and manufacturing readiness.
- Developments in the Clarus patent interference and securities litigation, including potential effects on intellectual property rights, costs, or operations.
- Potential dilution from the ATM and shelf offerings; as of November 8, 2017, 21,196,537 common shares were outstanding.