Lipocine Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Lipocine is a clinical-stage biopharmaceutical company developing oral therapies for endocrine and metabolic disorders. It has not generated product-sales revenue.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $0 | $165,000 | $0 | $165,000 |
| Research and development | $2.49 million | $1.71 million | $7.27 million | $5.63 million |
| General and administrative | $1.89 million | $1.43 million | $5.93 million | $3.99 million |
| Operating loss | $4.38 million | $2.98 million | $13.19 million | $9.45 million |
| Net loss | $4.31 million | $3.06 million | $16.45 million | $9.72 million |
| Loss per share | $0.07 | $0.12 | $0.32 | $0.40 |
Margins are not meaningful because the company had no product revenue and only $165,000 of license revenue in the 2019 comparison periods. The 2020 year-to-date net loss included a $3.03 million non-cash loss from revaluing warrant liabilities; Q3 included a $140,000 non-cash gain.
- Cash and liquidity: At September 30, unrestricted cash, cash equivalents and marketable securities totaled $18.8 million, up from $14.1 million at December 31, 2019. An additional $5.0 million was restricted as loan collateral. Current assets were $24.7 million and current liabilities were $5.8 million.
- Cash flow: Operating activities used $11.6 million in the first nine months, versus $8.4 million in 2019. Investing activities used $1.5 million, compared with $2.4 million provided in 2019. Financing activities provided $16.3 million, primarily from equity offerings and warrant exercises.
- Debt: Balance-sheet debt was $6.36 million, split between $3.21 million current and $3.15 million non-current. The SVB loan carries interest at prime plus 1% (4.25% at September 30), matures June 2022 and requires a $650,000 final payment. Principal repayments had been deferred for six months starting April 2020. The company also reported a $234,000 PPP loan and had requested forgiveness.
- Equity and dilution: Common shares outstanding rose from 37.65 million at December 31, 2019 to 65.69 million at September 30, 2020, reflecting offerings and warrant exercises. The company raised $5.7 million net in its February offering, $3.9 million net through its ATM in the first nine months, and $7.7 million from warrant exercises.
Material changes and management commentary
- Revenue fell to zero because the $165,000 received in 2019 was a Spriaso royalty payment; Lipocine reported no such payment in 2020.
- Year-to-date R&D expense increased $1.64 million, mainly due to LPCN 1144’s LiFT NASH study, partly offset by lower TLANDO costs after completion of the ABPM study. G&A expense rose $1.94 million, primarily from legal expenses related to Clarus litigation and the shareholder class action.
- Management said existing capital resources were expected to fund projected operations through at least September 30, 2021, including the ongoing LPCN 1144 study, regulatory compliance and litigation. This estimate depends on assumptions; the company expects to need additional capital through financing or licensing to support longer-term operations. Faster spending, additional studies or commercialization activity could shorten the runway.
- Management prioritized TLANDO and LPCN 1144 in 2020. It did not expect to start Phase 3 TLANDO XR or Phase 2 LPCN 1148 studies in 2020 without additional capital or an out-license; LPCN 1107 Phase 3 was also not anticipated in 2020 absent additional funding or licensing.
Outlook, risks and unusual items
- TLANDO: The FDA had extended its review beyond the August 28, 2020 PDUFA date. On November 5, the FDA said it was working toward action around the week of November 30, 2020, but Lipocine cautioned that timing was not assured. The prior complete response letter cited unmet testosterone Cmax secondary endpoints. Commercial launch timing depends on approval, supply, COVID-19 impacts, available capital and whether Lipocine licenses the product or builds a commercial organization. Clarus’s JATENZO exclusivity could potentially delay TLANDO approval until March 2022, according to the filing.
- Pipeline: LPCN 1144 LiFT enrollment was complete; top-line 12-week MRI-PDFF liver-fat results were expected in January 2021 and 36-week biopsy data in mid-2021. Management warned COVID-19 could affect study completion and dropout rates. The FDA accepted the LPCN 1148 investigational new drug application in May 2020.
- Litigation: The Delaware shareholder derivative complaint was dismissed in its entirety in July 2020. Patent litigation against Clarus continued, with a jury trial scheduled to begin February 8, 2021. A separate shareholder class action remained pending; the company had moved to dismiss it, reported insurance subject to a $1.25 million retention, and had not accrued a loss because it considered the outcome not probable or estimable.
- Other risks: The filing highlights ongoing financing needs, possible dilution or unfavorable financing terms, clinical and regulatory uncertainty, COVID-19 disruption, litigation costs and volatility in the Level 3 warrant liability. The $5.0 million collateral restriction remains until TLANDO is FDA-approved. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Subsequent FDA action and actual approval status and timing for TLANDO, including any impact from JATENZO exclusivity.
- Cash use, financing availability and whether the stated runway through September 2021 remains supportable.
- LPCN 1144 January 2021 interim results, expected biopsy timing and any COVID-related study disruption.
- Clarus patent-case developments and the status and potential cost of the shareholder class action.
- Further share issuance, warrant exercises and changes in warrant-liability valuation that could affect dilution and reported results.