Pulmatrix, Inc. — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Financial amounts below are in U.S. dollars; “$ million” is converted from the filing’s $thousands unless otherwise noted. Pulmatrix is a clinical-stage biotechnology company developing inhaled therapies using its iSPERSE platform. It had no approved products and generated no product-sale revenue.
Financial performance and liquidity
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $4.372m | $1.406m | $10.634m | $6.225m |
| Research and development expense | $3.873m | $3.297m | $12.344m | $8.637m |
| General and administrative expense | $1.776m | $1.785m | $5.478m | $6.900m |
| Operating loss | $1.277m | $3.676m | $7.188m | $16.580m |
| Net loss | $10.553m | $3.555m | $16.409m | $16.555m |
| Net loss per share, basic and diluted | $0.31 | $0.18 | $0.62 | $1.07 |
Revenue was primarily from the Cipla and JJEI collaboration/license arrangements, including reimbursed pass-through costs; the company reported no product sales. No gross margin is presented in the filing, so a product or gross margin comparison is not available.
Cash flow, nine months: Operating activities used $9.715m, versus $7.663m provided in 2019; investing activities used $0.198m; financing activities provided $20.981m. Cash, cash equivalents and restricted cash increased $11.068m to $34.712m, including $34.508m of unrestricted cash and cash equivalents at September 30.
Balance sheet: Total assets were $42.956m and total liabilities were $19.456m. Current assets were $37.119m against current liabilities of $10.566m. Liabilities included $12.250m of deferred revenue, $2.292m of common stock payable and $1.895m of operating lease liabilities in total. The filing reports no outstanding borrowing balance; a $0.617m Paycheck Protection Program loan received and repaid during the period. Accumulated deficit was $231.570m.
Material changes versus comparable periods
- Q3 revenue increased $2.966m year over year, principally reflecting the JJEI agreement executed in late 2019. Nine-month revenue increased $4.409m, with a $5.3m increase attributed to JJEI partly offset by a $0.9m decrease under the Cipla agreement.
- R&D expense rose $0.576m in Q3 and $3.707m year to date, largely reflecting PUR1800 development/manufacturing work, PUR3100 activity and program staffing; lower Pulmazole trial spending partly offset the increases.
- Q3 operating loss improved by $2.399m, but net loss increased by $6.998m, primarily because of a $9.289m warrant inducement expense. The expense was associated with replacement warrants issued in connection with cash exercises and was recorded with an offset to additional paid-in capital.
- Year-to-date net loss was nearly flat versus 2019. The 2019 period included a $7.268m goodwill impairment charge, while 2020 included the $9.289m warrant inducement expense.
- Financing activity increased cash, including a registered direct offering and warrant exercises. Common shares outstanding rose from 19.995m at December 31, 2019 to 34.407m at September 30, 2020; 23.285m warrants remained outstanding at September 30.
Outlook, developments and risks
- Management expected cash and cash equivalents at September 30, 2020, together with anticipated interest income, to fund operating expenses and capital expenditure requirements for at least 12 months from the filing date. The company also expected continuing losses and increasing development costs, and may need additional financing or partnerships.
- Pulmazole’s Phase 2 study was terminated in July 2020 after enrollment delays, including COVID-19-related site suspensions. Pulmatrix and Cipla were discussing amendments and a redesigned Phase 2b study; no amendment had been agreed as of the filing. The company planned an FDA Type-C meeting in Q1 2021 and intended to begin the study when enrollment risk was acceptable. Failure to agree on terms or cost sharing could halt development or lead to arbitration.
- PUR1800 Phase 1b in stable moderate-to-severe COPD patients was planned for the first half of 2021, subject to possible COVID-19 delays. For PUR3100, management anticipated a lead formulation for a nonclinical pharmacokinetic study by year-end 2020 and believed a Phase 1/1b study could start in the first half of 2022, following planned toxicology work.
- Sensory Cloud began commercial sales of FEND, an OTC product based on licensed NasoCalm, in October 2020. Pulmatrix is entitled to royalties of 7% in 2020, 14% in 2021 and 17% in 2022 and later, subject to patent coverage, plus a $1m milestone upon aggregate licensed-product sales of $20m. The filing reported no royalty revenue to date.
- Key risks include recurring losses and negative operating cash flow, uncertain future financing, clinical and regulatory development risk, COVID-19 effects on trials, dependence on collaborators and third-party manufacturers, and unresolved Cipla agreement negotiations. Pulmatrix stated that COVID-19 had not significantly affected goodwill carrying value as of the assessment, and recorded no 2020 goodwill impairment.
- The company reported no material legal proceedings and stated its disclosure controls were effective as of September 30, 2020. It reported no material off-balance-sheet arrangements.
Important facts for investors to verify
- Whether Pulmatrix and Cipla reach acceptable amended terms, including responsibility for the proposed Pulmazole Phase 2b study, and the resulting trial design and timing.
- Whether planned PUR1800 and PUR3100 clinical milestones proceed on schedule despite COVID-19 and other enrollment or development risks.
- How rapidly cash is consumed as R&D spending rises, and whether management’s stated 12-month liquidity outlook remains adequate.
- The quality and timing of collaboration revenue and any future FEND royalties or sales milestone; current revenue is not product sales.
- The potential dilution and future proceeds associated with outstanding warrants and the increased share count.