Pulmatrix, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Dollar figures below are in millions unless noted. Pulmatrix is a clinical-stage biotechnology company developing inhaled therapies using its iSPERSE platform; it had no approved products or product-sale revenue.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / prior period |
|---|---|---|
| Revenue | $2.762 | $0 |
| Research and development expense | $5.287 | $2.176 |
| General and administrative expense | $2.212 | $1.987 |
| Total operating expenses | $7.499 | $4.957 |
| Operating loss | $(4.737) | $(4.957) |
| Net loss | $(4.686) | $(5.156) |
| Basic and diluted loss per share | $(0.23) | $(0.74) |
| Cash and cash equivalents, March 31 | $24.402 | $2.146 |
| Net cash from (used in) operating activities | $0.798 | $(3.456) |
Q1 2020 revenue comprised $2.1 million from the Cipla collaboration and $0.7 million from the JJEI license agreement. It was not product-sale revenue. R&D expense increased $3.1 million, primarily from PUR1800 manufacturing costs ($1.9 million), the Pulmazole Phase 2 trial ($0.9 million), and employee costs ($0.3 million). G&A rose $0.2 million, mainly due to consulting costs. The prior-year period included a $0.794 million goodwill impairment; none was recorded in Q1 2020. No margin measure is particularly informative given the absence of product sales and the collaboration/license-based revenue.
At March 31, total assets were $30.822 million, current liabilities $17.359 million, total liabilities $23.886 million, and stockholders’ equity $6.936 million. The balance sheet reports no borrowings; it includes $19. (sic) million in current and long-term deferred revenue combined ($12.026 million current and $6.527 million long-term), and a $0.511 million operating lease liability. Research and development contract commitments were approximately $4.361 million. Accumulated deficit was $219.847 million.
Operating cash flow was positive despite the net loss, primarily because of working-capital movements, including a $7.2 million decrease in accounts receivable and increases in accrued expenses and accounts payable; this was partly offset by a $2.7 million decrease in deferred revenue and higher prepaid expenses. Investing cash use was $0.096 million; financing cash provided $0.260 million, mainly from warrant and option exercises. Cash, cash equivalents, and restricted cash totaled $24.606 million at quarter-end.
Material changes and developments
- Revenue rose from zero as collaboration and licensing revenue was recognized. Net loss narrowed by $0.470 million year over year, while operating expenses increased; the prior-year goodwill charge and settlement expense also affected the comparison.
- Management expected significant expenses and operating losses to continue for several years. It stated that March 31 cash and anticipated interest income were expected to fund operations and capital needs for at least 12 months following the filing, while warning that estimates could prove incorrect and further capital may be needed.
- After quarter-end, Pulmatrix raised approximately $8.0 million gross in an April 20 registered direct offering of 4,787,553 shares, and issued warrants for an additional 4,787,553 shares to investors plus placement-agent warrants. These securities create potential dilution; the gross proceeds exclude fees and expenses.
- In April, Pulmatrix licensed NasoCalm-related products to Sensory Cloud for specified over-the-counter uses. Potential royalties are 7% in 2020, 14% in 2021, and 17% from 2022 onward, with a $1.0 million milestone tied to $20.0 million of aggregate product sales. Payments depend on commercialization and applicable patent coverage; no royalty revenue had been recognized through March 31.
- The company repaid in full a $0.617 million Paycheck Protection Program loan received in April. It also extended its office and lab lease through June 30, 2022, with base rent of approximately $1.194 million, subject to annual 3% increases.
Outlook, risks, and contingencies
- COVID-19 disrupted Pulmazole Phase 2 enrollment: 11 of 21 sites suspended enrollment, and the company asked the remaining sites to pause enrollment. Assuming enrollment resumed within six months, management anticipated top-line data in mid-2021, but noted further delays were possible. Pulmazole received FDA Fast Track designation in January 2020.
- Pulmatrix planned to start a Phase 1b PUR1800 study in stable moderate-to-severe COPD patients in the second half of 2020; COVID-19 could delay initiation or enrollment.
- Key risks include recurring losses, clinical and regulatory uncertainty, trial delays, reliance on CROs/CMOs and collaborators, financing needs and potential inability to raise capital, manufacturing and commercialization challenges, intellectual-property risks, and market volatility. The company noted COVID-19 could affect operations, trials, capital access, and financial markets.
- Management reported no material legal proceedings and no material off-balance-sheet arrangements. Disclosure controls were judged effective, with no material quarterly change in internal control over financial reporting. COVID-19 was considered in the goodwill assessment; no Q1 2020 impairment was required.
Important facts for investors to verify
- Whether Pulmazole enrollment resumed and how COVID-19, protocol changes, and site additions affect the timing and results of the Phase 2 study.
- Whether PUR1800’s planned Phase 1b trial began, and whether the company’s stated cash runway remains adequate against development costs and contractual commitments.
- The net proceeds from the April offering after fees, and the dilution from its warrants and other outstanding securities; the filing reported 18.330 million warrants outstanding at March 31.
- Whether Sensory Cloud meets its development and commercialization milestones and generates royalty-bearing sales; the filing does not report realized royalties.
- The composition and timing of collaboration revenue and deferred revenue recognition, and the sustainability of positive operating cash flow given its dependence on working-capital movements.