Lantern Pharma Inc. 10-Q Summary
Business Context and Reporting Period
Lantern Pharma Inc. is a clinical-stage biotechnology company developing targeted oncology therapies using its RADR® artificial intelligence, machine-learning and genomic-data platform. The filing covers the three and six months ended June 30, 2020. The company had three principal programs: LP-100, licensed to Oncology Venture and in a Phase II prostate-cancer trial; LP-300, being prepared for a Phase II non-small-cell lung-cancer trial; and LP-184, in preclinical development for solid tumors.
Lantern completed its initial public offering on June 15, 2020, issuing 1.75 million common shares at $15.00 per share. Its Series A preferred stock converted into common stock in connection with the IPO, and the company completed a 1.74-for-1 forward stock split.
Financial Performance and Position
| Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 |
|---|---|---|---|---|
| Revenue | $0 | $0 | $0 | $0 |
| General and administrative expense | $676,399 | $268,120 | $1,016,571 | $536,049 |
| Research and development expense | $157,023 | $361,273 | $294,127 | $547,317 |
| Total operating expenses | $833,422 | $629,393 | $1,310,698 | $1,083,366 |
| Net loss | $(833,422) | $(629,393) | $(1,310,698) | $(1,083,366) |
| Basic and diluted loss per share | $(0.31) | $(0.32) | $(0.55) | $(0.55) |
Because the company reported no revenue, operating and net profit margins were not meaningful. Net cash used in operating activities was $1.19 million for the six months ended June 30, 2020, compared with $0.87 million in the prior-year period. Investing cash use was $7,821, primarily for equipment. Financing activities provided $23.77 million, principally from the IPO.
Cash and cash equivalents were $23.80 million at June 30, 2020, compared with $1.23 million at December 31, 2019. Working capital increased to approximately $23.32 million from approximately $0.74 million. Total liabilities were $2.39 million, including a $108,500 PPP loan, $102,831 in current notes payable and approximately $1.71 million of insurance payable. Stockholders’ equity was $23.23 million.
Material Changes Versus the Prior Comparable Period
- Second-quarter general and administrative expense increased 152% to $676,399, driven primarily by higher labor, professional fees, Nasdaq and filing fees, insurance costs and stock-based compensation.
- Second-quarter research and development expense decreased 57% to $157,023, mainly because prior-year manufacturing, process-development and study costs were not repeated.
- Six-month net loss increased 21% to $1.31 million, while operating cash use increased approximately $325,000.
- Cash increased by approximately $22.57 million after the IPO. Net IPO proceeds were $23.42 million after underwriting discounts, commissions and other offering expenses.
- Preferred stock was eliminated through conversion into common stock, and common shares outstanding increased to 6,217,577 at June 30, 2020 from 1,978,269 at December 31, 2019.
- Stock-based compensation increased to approximately $124,000 for the six-month period from approximately $22,000 in the prior-year period; approximately $87,000 of second-quarter expense resulted from accelerated option vesting at the IPO closing.
Guidance, Outlook, Risks and Unusual Items
- Management expects significant and increasing operating losses for at least the next several years as clinical trials and other development programs advance. The company does not expect material operating revenue unless it obtains regulatory approval or generates licensing revenue.
- Management believes cash on hand and anticipated expenditures will fund operating and capital requirements for at least 12 months from the filing date. The company expects it will require substantial additional funding to complete clinical trials.
- Additional equity financing could dilute existing holders; debt financing could create fixed payment obligations and restrictive covenants. Insufficient financing could delay, scale back or terminate development programs or require unfavorable collaborations or licensing transactions.
- COVID-19 slowed enrollment in Oncology Venture’s LP-100 Phase II trial and delayed certain nonclinical research activities. Further effects on suppliers, collaborators, clinical trials, liquidity and capital markets remain uncertain.
- The company received a $108,500 PPP loan at 1% interest, with forgiveness expected subject to program requirements. A separate approximately $103,000 loan funded incorrectly was returned in July 2020 without the funds being spent.
- In July 2020, Lantern entered an agreement with Patheon API Services to manufacture and supply cGMP LP-300 material and transfer manufacturing processes and analytical methods. Payments are tied to development and manufacturing milestones; the filing does not provide a total contract value.
- Material contingent obligations include royalties, milestone payments and cost-sharing obligations under the LP-300 and LP-184 license arrangements. The company also had approximately $11,000 payable to BioNumerik at June 30, 2020.
- Historical material weaknesses in internal control over financial reporting were identified before the IPO. Management reported that disclosure controls were effective as of June 30, 2020 and plans to evaluate remediation of internal-control weaknesses in its first required annual evaluation.
Most Important Facts for Investors to Verify
- Whether the $23.80 million cash balance and stated 12-month liquidity assessment remain adequate as clinical and manufacturing spending increases.
- The timing, enrollment and results of LP-100 and planned LP-300 and LP-184 studies, including the effects of COVID-19-related delays.
- Future capital requirements, potential dilution and the company’s ability to raise financing on acceptable terms.
- The status and potential forgiveness of the PPP loan and any remaining obligations from incorrectly funded loan proceeds.
- Terms and milestone economics of the Patheon manufacturing agreement and the company’s BioNumerik and AF Chemicals obligations.
- Progress in remediating historical internal-control weaknesses and the effect of public-company compliance costs on operating expenses.
- The fully diluted share count, including 820,608 outstanding options and 332,014 outstanding common-stock warrants as of June 30, 2020.