Lipocine Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. Financial statements are unaudited. Lipocine is a pre-commercial specialty pharmaceutical company developing oral drug-delivery products, led by TLANDO, an oral testosterone replacement therapy. It reported no product-sale revenue.
Financial results and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $428,000 | $0 |
| Research and development | $1.42 million | $2.05 million | $4.28 million | $9.24 million |
| General and administrative | $930,000 | $2.72 million | $4.30 million | $6.58 million |
| Operating loss | $2.35 million | $4.77 million | $8.15 million | $15.82 million |
| Net loss | $2.46 million | $4.70 million | $8.43 million | $15.65 million |
| Loss per share, basic and diluted | $0.12 | $0.22 | $0.40 | $0.80 |
| Cash used in operating activities | Not presented quarterly | $9.85 million | $12.41 million |
The nine-month $428,000 revenue was royalty income from Spriaso, an affiliated licensee; no royalties were recorded in Q3. The company had no product sales. Gross margin is not applicable to reported product sales, as none were reported.
- At September 30, 2018, cash and cash equivalents were $4.80 million, marketable securities were $12.08 million, and restricted cash was $5.00 million. Unrestricted cash, cash equivalents and marketable securities totaled approximately $16.9 million.
- Total assets were $22.69 million, current assets $22.64 million, total liabilities $10.92 million and stockholders’ equity $11.76 million. Accumulated deficit was $134.8 million.
- The company borrowed $10.0 million under a Silicon Valley Bank facility. Balance-sheet debt was $10.19 million, including the accrued final payment charge. Debt bears interest at prime plus 1%; principal and interest payments were scheduled to begin after December 31, 2018, with maturity on December 1, 2021 and a $650,000 final payment charge. $5.0 million of cash is collateralized until TLANDO receives FDA approval.
- Management estimated existing capital resources would fund projected operating requirements through September 30, 2019, but said additional capital would be needed thereafter and could be needed sooner if assumptions change.
Material changes versus prior periods
- Nine-month net loss narrowed to $8.43 million from $15.65 million. Operating expenses fell by $7.23 million, mainly because 2017 included higher TLANDO study and manufacturing costs and higher personnel and professional expenses. The comparison also reflects $428,000 of Spriaso royalty revenue in 2018.
- Nine-month operating cash use decreased to $9.85 million from $12.41 million. Financing included $10.0 million of SVB loan proceeds; 2017 financing had included $10.6 million of net ATM offering proceeds.
- Interest expense increased to $623,000 for the first nine months due to the new loan. R&D and G&A expenses were also lower in the quarter and year to date, partly reflecting reduced contract costs and lower headcount-related expenses.
- The $4.3 million securities-litigation settlement was paid in 2018; the insurer paid $3.6 million. The settlement liability and insurance receivable were both zero at September 30, 2018.
Outlook, risks and unusual items
- TLANDO: FDA issued a Complete Response Letter on May 8, 2018, identifying four deficiencies concerning possible ex vivo testosterone conversion in blood samples, blood-pressure effects, Cmax data and dose-stopping criteria. After a July 2018 FDA meeting, Lipocine reported a path toward resubmission. It had enrolled 138 subjects in an ambulatory blood-pressure study and expected results in Q1 2019; results from a definitive phlebotomy study were expected by year-end 2018. If results support resubmission, management expected to resubmit in the first half of 2019, followed by a six-month FDA review. Approval is uncertain, and clinically meaningful blood-pressure effects could prevent approval.
- Management expected approximately $4.7 million of additional TLANDO R&D costs to conduct and complete the blood-pressure and phlebotomy studies. It also expected R&D costs to rise as those studies and LPCN 1144 proof-of-concept work progressed.
- LPCN 1144 was in early development for NASH; results from proof-of-concept studies were expected in Q1 2019. LPCN 1111 and LPCN 1107 programs were not expected to enter Phase 3 in 2018 absent additional capital or an out-license. Lipocine was exploring a possible LPCN 1107 license but had no agreement.
- The company expects continuing operating losses and requires additional financing. Equity financing could dilute shareholders; debt, licensing or partnership arrangements could impose restrictions or require concessions. Failure to obtain financing could delay or reduce development activities.
- SVB holds a security interest in substantially all company assets other than intellectual property and certain other assets. Loan defaults could result in a higher interest rate and enforcement against collateral, including cash.
- The securities class-action settlement was approved and paid. A separate patent interference involving Clarus remained pending before the Patent Trial and Appeal Board.
- After quarter-end, the board extended the stockholder rights plan through November 5, 2021. The filing also disclosed a November 5, 2018 employment and severance agreement for a vice president of product development.
Important facts for investors to verify
- Whether the blood-pressure and phlebotomy study results address the FDA’s TLANDO deficiencies, and whether the company can meet its stated resubmission timeline.
- Current unrestricted liquidity, the status and availability of the $5.0 million restricted cash, cash burn, and the timing and terms of any required financing.
- SVB debt service, covenants and collateral exposure, especially as principal payments commence.
- Whether Spriaso royalty income recurs; the filing does not establish future royalty amounts.
- Progress and funding plans for LPCN 1144, LPCN 1111 and LPCN 1107, including whether any licensing arrangement is completed.
- Share dilution and trading liquidity: 21,464,030 common shares were outstanding as of November 5, 2018, and the company disclosed thin trading in its shares.