Fulcrum Therapeutics, Inc. — Q3 2019 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2019; filed November 14, 2019. Fulcrum is a clinical-stage biotechnology company developing treatments for genetically defined diseases. It has no product sales and is not profitable.
Financial performance and liquidity
| Metric | Three months ended Sep. 30, 2019 | Three months ended Sep. 30, 2018 | Nine months ended Sep. 30, 2019 | Nine months ended Sep. 30, 2018 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| Research and development expense | $13.5m | $7.0m | $59.0m | $18.3m |
| General and administrative expense | $3.5m | $2.1m | $8.7m | $5.9m |
| Net loss | $16.5m | $8.9m | $66.6m | $23.7m |
| Net loss per share attributable to common stockholders | $0.97 | $8.08 | $10.33 | $23.28 |
At September 30, 2019, cash and cash equivalents were $101.6m ($102.7m including $1.1m restricted cash); total assets were $116.0m, total liabilities $13.8m, and stockholders’ equity $102.1m. Accumulated deficit was $134.7m. The filing reports no credit facility or committed capital source and no material conventional debt; capital-lease obligations were small. Profit margins are not applicable because the company had no revenue.
For the nine-month period, operating cash use was $35.0m, investing cash use $0.8m, and financing cash provided $64.6m, primarily from the IPO. Cash, cash equivalents, and restricted cash increased $28.8m. The company reported $22.3m in remaining minimum payments on its headquarters lease as of September 30.
Changes versus the prior comparable period
- Q3 net loss increased $7.6m year over year; nine-month net loss increased $42.8m. R&D expense rose $6.5m in Q3 and $40.7m for the nine-month period, reflecting clinical-program expansion and the GSK asset acquisition.
- The nine-month R&D expense included $25.6m of acquired in-process research and development (IPR&D), expensed because it had no alternative future use, and a $2.5m GSK clinical milestone. The IPR&D amount was noncash consideration, primarily shares.
- Cash and cash equivalents rose from $72.8m at December 31, 2018 to $101.6m at September 30, 2019, principally reflecting IPO proceeds. The July IPO sold 4.5m shares at $16 per share; net proceeds were approximately $64m.
- Upon the IPO, all preferred stock converted into 16.1m common shares. Reported loss per share comparisons are affected by the substantial change in weighted-average common shares after the IPO and by preferred-stock dividends in the earlier capital structure.
Outlook, commentary, and key risks
- Management expects operating losses and negative operating cash flows to continue as development spending grows. It estimated that September 30 cash would fund operating expenses and capital requirements into Q3 2021, while warning that assumptions could prove wrong. The liquidity note separately states the cash should cover at least 12 months from filing.
- Losmapimod for facioscapulohumeral muscular dystrophy (FSHD) entered Phase 2b and Phase 2 open-label trials in August 2019; a Phase 1 trial was also underway. The filing reports an October 2019 preliminary Phase 1 update: no serious adverse events were reported, and exposure and target engagement in blood were dose-dependent. Muscle target-engagement analysis remained ongoing. These were preliminary findings, not proof of clinical benefit.
- FTX-6058, a fetal-hemoglobin upregulator for hemoglobinopathies, was in IND-enabling work; the company planned to submit an IND in mid-2020. The filing describes promising preclinical findings, which do not establish human efficacy or safety.
- Under the GSK license for losmapimod, Fulcrum may owe up to $37.5m in specified clinical and regulatory milestones, including the $2.5m Phase 2 initiation milestone already achieved, and up to $60m in sales milestones, plus tiered royalties on sales. Fulcrum is responsible for development costs.
- Principal risks include clinical-trial failure or delay, patient enrollment and safety, regulatory uncertainty, manufacturing and supply dependence, the need for further financing and potential dilution, and intellectual-property limitations. The filing notes losmapimod composition-of-matter patents licensed from GSK are expected to expire February 10, 2023. No material legal proceedings were reported.
- Management said disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Subsequent losmapimod trial results, including muscle target engagement, clinical endpoints, safety, enrollment, and timing of updates.
- Whether the planned FTX-6058 IND timing and development plans are achieved, and how preclinical results translate to human studies.
- Cash-burn trends and the assumptions behind the stated runway into Q3 2021; assess future financing needs, dilution, and milestone or royalty obligations.
- Current status and scope of losmapimod patent protection, manufacturing transition plans, and any additional clinical or regulatory requirements.
- Reconcile reported IPO proceeds across the filing’s disclosures: amounts are stated as approximately $64m, with some statements giving differing precise net-proceeds figures.