Pulmatrix, Inc. — Q3 2019 Form 10-Q
Reporting period: Three and nine months ended September 30, 2019; filed November 1, 2019. Amounts below are in millions of dollars unless noted.
Business context
Pulmatrix is a clinical-stage biotechnology company developing inhaled therapies using its iSPERSE dry-powder delivery platform. It has no approved products and has not generated product sales. 2019 revenue primarily reflects recognition of the upfront payment under its Pulmazole collaboration with Cipla.
Financial results and liquidity
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $1.406 | $0 | $6.225 | $0.153 |
| Research and development expense | $3.297 | $3.056 | $8.637 | $10.290 |
| General and administrative expense | $1.785 | $1.769 | $6.900 | $5.930 |
| Goodwill impairment | — | — | $7.268 | — |
| Net loss | $3.555 | $4.816 | $16.555 | $16.225 |
| Basic and diluted loss per share | $0.18 | $1.03 | $1.07 | $4.23 |
- At September 30, cash and cash equivalents were $27.879; restricted cash was $0.204. Total assets were $32.925 and stockholders’ equity was $14.726.
- Current liabilities were $11.728, including $9.304 of deferred revenue. Total deferred revenue was $15.775, including $6.471 classified as long-term. The filing reports no term-loan balance; prior term debt was repaid by June 2018.
- Net cash from operating activities was $7.663 for the first nine months, versus $12.596 used in the prior-year period. The 2019 inflow primarily reflects $15.775 of increased deferred revenue from Cipla, not operating profitability.
- Investing activities used $0.049; financing activities provided $17.702, principally from equity offerings. Cash, cash equivalents and restricted cash increased $25.316.
- Margins are not meaningful indicators of product economics at this stage because revenue is collaboration-related and the company has no product sales.
Material changes and unusual items
- Revenue increased due to the Cipla agreement; Q3 revenue was $1.406, of which $1.154 related to research and development services and $0.252 to the assigned license. Nine-month recognized amounts were $4.929 and $1.296, respectively.
- Nine-month R&D expense declined $1.653 year over year, mainly as lower PUR1800, personnel and stock-compensation costs more than offset increased Pulmazole spending. G&A increased $0.970, including higher costs related to the Cipla agreement.
- The company recorded a $7.268 goodwill impairment after a decline in its common-stock value; no further impairment was recorded in Q3.
- Net loss for the first nine months was $0.330 higher year over year, reflecting the impairment and higher total operating expenses, partly offset by increased collaboration revenue and interest income.
- Common shares outstanding increased from 4.933 million at December 31, 2018 to 19.995 million at September 30, 2019. The company also reported 18.653 million common warrants outstanding, in addition to 0.300 million pre-funded warrants. A 1-for-10 reverse split took effect in February 2019; share and per-share figures are retrospectively adjusted.
Outlook, agreement terms and risks
- Under the April 2019 worldwide Pulmazole development and commercialization agreement, Cipla paid a non-refundable $22.0 upfront amount. Pulmatrix assigned specified Pulmazole-related pulmonary-indication assets, excluding its iSPERSE technology, and remains primarily responsible for clinical development; Cipla is responsible for commercialization after approval.
- The company says $24.0 of cash was dedicated to Pulmazole development. After the initial funding is depleted, the parties share development costs equally; they also share Pulmazole free cash flow equally. The $15.775 deferred-revenue balance is expected to be recognized as development services are delivered, over a remaining research term of up to three years.
- Management said available funds were expected to support Pulmazole through the Phase 2 final report, preparation costs for a planned Phase 2b/3 trial, and completion of a PUR1800 toxicology study, all expected by Q3 2020. Management also stated that current funding would not cover additional clinical work and that further capital may be required.
- The company expects continued losses and increasing expenses for several years. Key risks include clinical and regulatory uncertainty, trial timing and cost, manufacturing and commercialization capability, intellectual-property protection, competition, and the need to obtain additional financing. The filing says no material changes were made to the risk factors in the latest Form 10-K.
- Disclosure controls were assessed as effective; the company reported no material legal proceedings and no material changes in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Progress, results and timing of the Pulmazole Phase 2 study and any planned Phase 2b/3 program, as well as PUR1800 development milestones.
- Whether the $24.0 dedicated Pulmazole funding and the company’s broader cash balance are sufficient for the stated development objectives, and the timing and terms of any additional financing.
- How Cipla-related deferred revenue is recognized as costs are incurred, and whether development costs or collaboration terms change.
- Potential dilution from the substantial warrant and option overhang, including exercise terms and actual share-count changes.
- The basis and potential implications of the $7.268 goodwill impairment and any future impairment indicators.