Pulmatrix, Inc. — Q1 2016 Form 10-Q
Business context and reporting period
For the three months ended March 31, 2016, Pulmatrix was a clinical-stage biotechnology company developing inhaled respiratory therapies using its iSPERSE dry-powder platform. Programs included PUR1900 for cystic fibrosis, PUR0200 for COPD in collaboration with Mylan, and preclinical PUR1500 for idiopathic pulmonary fibrosis. The company had no approved products and no product-sales revenue.
The June 2015 merger with Ruthigen was accounted for as a reverse merger, with Pulmatrix Operating as the accounting acquirer. Q1 2016 reflects a full quarter of the combined company; the comparable Q1 2015 results are Pulmatrix Operating’s historical results, so the periods are not fully comparable.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | $0.396 million | $0.105 million |
| Research and development | $3.430 million | $0.918 million |
| General and administrative | $2.409 million | $1.934 million |
| Total operating expenses | $5.839 million | $2.852 million |
| Operating loss | $(5.443) million | $(2.747) million |
| Net loss | $(5.669) million | $(1.803) million |
| Net loss per share, basic and diluted | $(0.38) | $(9.55) |
| Cash used in operating activities | $(4.076) million | $(2.152) million |
Revenue increased 277%, primarily from the Mylan collaboration. There was no gross margin presented; revenue was from collaboration/services and grants, not product sales. R&D rose mainly due to PUR1900 ($1.6 million increase), PUR0200 ($0.4 million) and employment costs ($0.4 million). G&A rose by $0.5 million, including a $1.0 million increase in stock-based compensation, partly offset by lower legal expense. Q1 2016 stock-based compensation was $1.233 million.
At March 31, 2016, cash and cash equivalents were $14.753 million, down from $18.902 million at December 31, 2015. Working capital was $11.750 million; total assets were $40.223 million and total liabilities $12.053 million. Accumulated deficit was $133.772 million. The company reported no financing cash inflow in Q1 2016.
The Hercules term loan had $7.0 million principal outstanding and a $6.751 million carrying value, net of discounts and issuance costs. It is secured by substantially all company assets except intellectual property, carries a floating rate with a 9.50% floor, and matures July 1, 2018. Principal-and-interest amortization was scheduled to begin in August 2016. The company said it was compliant with loan covenants at quarter-end.
Changes, outlook, risks and unusual items
- Net loss widened by $3.866 million year over year as operating expenses increased. The Q1 2015 comparison included favorable fair-value adjustments to legacy warrant and derivative liabilities that did not recur in 2016. Per-share losses are especially difficult to compare given the merger and substantially different weighted-average share counts.
- Management said available resources were expected to fund planned operations into Q2 2017, while also stating that cash plus anticipated non-dilutive financing should cover at least 12 months from filing. Management cautioned that assumptions may prove incorrect and financing may not be available on acceptable terms.
- Management’s stated funding plan supported PUR1900 through completion of a Phase 1b trial in cystic fibrosis patients, PUR0200 chemistry, manufacturing and controls work, and preclinical evaluation of PUR1500. Funds were not expected to cover additional clinical work across the pipeline.
- The company expected continuing and increasing losses, with future capital needs dependent on clinical progress, regulatory requirements, hiring, manufacturing and commercialization plans. Potential funding sources included equity or debt financings, collaborations and strategic alliances; no formal revenue or earnings guidance was provided.
- Key risks included clinical-trial execution and enrollment, regulatory approval, manufacturing capability, intellectual-property protection, competition and access to additional financing. The company reported recurring losses and negative operating cash flow. No material legal proceedings or significant subsequent events were reported; no material changes to the prior annual report’s risk factors were identified.
- Ruthigen merger-related accounting included $7.534 million of acquired in-process R&D and $15.942 million of goodwill; neither was reported impaired at March 31, 2016. The acquired RUT58-60 asset was subject to license terms giving Oculus certain rights, including a right of first refusal and potential reversion rights.
Important facts for investors to verify
- Whether cash burn and financing availability support management’s stated runway, particularly given that current resources do not fund further clinical work beyond the specified plan.
- Progress, timing and costs of PUR1900’s Phase 1b trial and the PUR0200 and PUR1500 development programs.
- The amount and terms of Mylan collaboration reimbursements and any resulting product-option or profit-sharing obligations.
- Term-loan amortization, interest costs, covenant compliance and secured-asset exposure.
- Potential dilution from outstanding options and warrants; the filing reported 3.061 million options and 3.245 million warrants outstanding at March 31, 2016.