Business Context and Reporting Period
Lantern Pharma Inc. is a clinical-stage biopharmaceutical company using its RADR® artificial intelligence, machine-learning and genomic-data platform to develop targeted oncology therapies. The company’s portfolio included LP-100, out-licensed to Allarity Therapeutics and in a Phase II prostate-cancer trial; LP-300, in planning for a Phase II non-small-cell lung-cancer trial; and LP-184, in preclinical development for solid tumors.
This unaudited Form 10-Q covers the three and nine months ended September 30, 2020, with comparisons to the same periods in 2019. Lantern completed its initial public offering on June 15, 2020 and became a Nasdaq-listed public company.
Financial Performance and Position
| Metric | Three Months Ended September 30 | Nine Months Ended September 30 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $1.70 million | $3.01 million |
| Net loss | $1.70 million | $3.01 million |
| Net loss per share | $0.27 | $0.82 |
| Cash used in operating activities | Not separately provided | $4.08 million |
- General and administrative expense was $1.10 million for the quarter and $2.12 million for the nine months.
- Research and development expense was $601,000 for the quarter and $895,000 for the nine months. Third-quarter project allocations were $149,000 for LP-300, $248,000 for LP-184, $141,000 for the RADR platform and $62,000 for other activities.
- Cash and cash equivalents were $20.80 million at September 30, 2020, versus $1.23 million at December 31, 2019. Working capital was approximately $21.66 million versus $744,000 at year-end 2019.
- Total liabilities were $923,000, including an $108,500 PPP loan payable. The company had no long-term debt reported.
- Financing activities provided $23.67 million during the first nine months, primarily from the IPO. Investing activities used $11,000.
- Operating margins and profitability metrics are not meaningful because the company had no operating revenue and remained loss-making.
Material Changes Versus the Prior Comparable Period
- Third-quarter net loss increased to $1.70 million from $670,000, while nine-month net loss increased to $3.01 million from $1.75 million.
- Third-quarter general and administrative expense increased 149%, primarily due to higher labor, business-development and corporate-insurance costs. Nine-month general and administrative expense increased 117%.
- Third-quarter research and development expense increased 163%, driven by higher research-study, manufacturing-related and employee costs. Nine-month research and development expense increased 15%, partly offset by lower product-candidate manufacturing costs.
- Cash used in operations increased to $4.08 million from $1.42 million for the comparable nine-month period, principally due to higher net loss and increased prepaid expenses.
- The IPO generated gross proceeds of $26.25 million and net proceeds of $23.42 million. Preferred stock converted into common stock, and shares outstanding increased to 6,217,577 from 1,978,269 at December 31, 2019.
- Stock-based compensation increased to $167,000 from $54,000 for the first nine months.
Guidance, Outlook, Risks and Unusual Items
- Management expects significant and increasing operating losses for at least the next several years as it advances LP-300, LP-184 and other candidates. The company does not expect material revenue unless it achieves licensing, development or regulatory milestones, or obtains product approvals.
- Management stated that cash on hand and anticipated expenditures should fund operating and capital requirements for at least 12 months from the filing date. However, the company expects to need substantial additional funding to complete clinical trials.
- Future financing may dilute existing shareholders or impose debt obligations and restrictive covenants. Inability to obtain capital could delay, reduce or discontinue development programs or lead to less favorable partnering or licensing transactions.
- COVID-19 slowed LP-100 Phase II enrollment, nonclinical research and service-provider activities. Further disruption could affect suppliers, collaborators, clinical timelines, liquidity and operating results.
- The company entered into a Patheon agreement for LP-300 manufacturing and paid approximately $194,000 during the quarter; approximately $116,000 remained prepaid at September 30, 2020. It expects additional milestone payments.
- Approximately $1.25 million of prepaid insurance costs remained on the balance sheet, following approximately $1.8 million of director and officer liability insurance payments associated with IPO-proceeds usage.
- The company expects to satisfy PPP loan-forgiveness requirements. If forgiveness is not obtained, the $108,500 loan bears 1% interest and requires repayment under the program’s terms.
- LP-300 is subject to contingent royalties and transaction-payment obligations under its assignment agreement. LP-184 and LP-100 are subject to license fees, milestone payments, royalties and development-extension obligations.
- Management disclosed historical material weaknesses in internal control over financial reporting related to the period-end close, reporting processes and monitoring resources. Management reported disclosure controls and procedures were effective as of September 30, 2020, but the first required internal-control effectiveness evaluation is not due until fiscal year 2021.
- No material litigation was pending or threatened, and the company reported no off-balance-sheet arrangements.
Important Facts for Investors to Verify
- Whether current cash resources remain sufficient as clinical, manufacturing and research spending increases.
- Timing, enrollment and results of the LP-100, LP-300 and LP-184 development programs, including the effect of COVID-19-related delays.
- Whether the PPP loan is forgiven and whether additional debt or equity financing will be required.
- Future cash commitments under the Patheon, SwRI, Fox Chase and other research-service agreements, including undisclosed milestone amounts.
- Potential dilution from 820,608 outstanding stock options and 332,014 common-stock warrants as of September 30, 2020.
- Progress in remediating the previously identified material weaknesses in internal control over financial reporting.
- Contingent royalties, milestone payments and revenue-sharing obligations associated with LP-300, LP-184 and LP-100 licenses.