Pulmatrix, Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; filed March 26, 2020. Pulmatrix is a clinical-stage biotechnology company developing inhaled therapies using its iSPERSE dry-powder delivery platform. It had no approved products or product-sales revenue.
Financial results and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Revenue | $7.910 million | $0.153 million |
| Research and development expense | $12.845 million | $12.966 million |
| General and administrative expense | $8.489 million | $7.518 million |
| Goodwill impairment | $7.268 million | $0.069 million |
| Net loss | $20.596 million | $20.563 million |
| Net cash from/(used in) operating activities | $3.230 million | $(16.761) million |
| Net cash from financing activities | $17.705 million | $15.793 million |
- Revenue was primarily collaboration and license revenue under the Cipla agreement, not product sales. Pulmatrix recognized $6.298 million for research and development services and $1.612 million for the license in 2019.
- Operating cash flow was positive largely because of a $21.290 million increase in deferred revenue; it should not be read as evidence of profitable operations. Net loss remained approximately $20.6 million.
- At year-end, cash and cash equivalents were $23.440 million; an additional $7.200 million receivable from JJEI was collected in January 2020. Restricted cash was $0.204 million. Current assets were $31.417 million and current liabilities $17.200 million.
- The company reported no term debt outstanding; its prior Hercules term loan was fully repaid in 2018. The filing does not report a gross margin measure meaningful for product sales.
- Accumulated deficit was $215.161 million. Management estimated existing resources would fund planned operations into the second quarter of 2021, subject to assumptions and possible faster-than-expected cash use.
Material changes from 2018
- Revenue increased by $7.757 million, principally from the Cipla collaboration; 2018 revenue was mainly a Cystic Fibrosis Foundation grant reimbursement.
- Net loss was broadly unchanged, while total operating expenses rose by $8.049 million, principally due to the $7.268 million goodwill impairment. R&D expense decreased slightly and G&A expense increased by $0.971 million.
- Operating cash flow improved from a $16.761 million use to $3.230 million provided, chiefly reflecting collaboration-related deferred revenue and other working-capital changes.
- Cash increased from $2.563 million to $23.440 million, supported by $17.705 million of 2019 net financing proceeds. Common shares outstanding at year-end rose to 19,994,560 from 4,923,723; the filing’s share and per-share amounts reflect a 1-for-10 reverse split in 2019.
Programs, agreements, outlook and risks
- Pulmazole: In 2019, Pulmatrix began a Phase 2 study of inhaled itraconazole for allergic bronchopulmonary aspergillosis (ABPA) in adults with asthma. Top-line data were anticipated in Q1 2021, but COVID-19 had already led seven trial institutions to suspend enrollment; further delays or suspension were possible. FDA Fast Track designation was granted on January 28, 2020.
- Cipla collaboration: Cipla paid $22 million upfront for assigned pulmonary-indication assets and a worldwide co-development and commercialization arrangement. The parties share future development costs equally after the designated $24 million initial development funding is exhausted, and share commercialization free cash flow equally. Pulmatrix leads clinical development; Cipla leads commercialization. At year-end, $14.090 million remained in deferred revenue under this arrangement.
- PUR1800/JJEI: Under a December 2019 agreement, JJEI was to fund $7.2 million for a Phase 1b study and $3.4 million for toxicology work; the $7.2 million upfront amount was recorded as a year-end receivable and received in January 2020. Pulmatrix could earn a $2 million study-completion milestone and, if JJEI exercises its option, a $14 million option payment, up to $32 million in development milestones, $45 million in commercial milestones and 1%–2% royalties. The option depends on study and toxicology outcomes; JJEI may terminate on notice. Pulmatrix planned to initiate the Phase 1b study in the first half of 2020, subject to COVID-19 disruption.
- Other pipeline: Pulmatrix identified PUR3000 and PUR4000 for further preclinical consideration and intended to prioritize one for work in 2020. Timing and development outcomes were uncertain.
- Key risks: Recurring losses, negative historical operating cash flows, need for additional capital, clinical and regulatory uncertainty, COVID-19 trial disruption, reliance on collaborators and third-party manufacturers, intellectual-property risks, and potential dilution. The company had $4.569 million of remaining R&D contract commitments at year-end and approximately 18.653 million common warrants outstanding.
- Management reported effective disclosure controls and internal control over financial reporting as of December 31, 2019. The auditor issued an unqualified opinion on the financial statements.
Important facts for investors to verify
- Whether Pulmazole enrollment resumed and how COVID-19 affected trial timing, site participation and the anticipated data timeline.
- Whether the planned PUR1800 Phase 1b and chronic toxicology program were completed, and whether JJEI exercised or terminated its option.
- How quickly deferred collaboration revenue is recognized and how much cash remains dedicated to Pulmazole development under the Cipla agreement.
- Current cash runway, subsequent financing needs and the effect of outstanding warrants, options and other potential share issuance on dilution.
- Whether the 2019 goodwill impairment, deferred-revenue balances and positive operating cash flow are understood in context: the company remained loss-making and had no product sales.