Pulmatrix, Inc. — Q2 2016 Form 10-Q
Business context and period. Covers the quarter and six months ended June 30, 2016. Pulmatrix is a clinical-stage biotechnology company developing inhaled therapies using its iSPERSE dry-powder platform. It has no products approved for sale and generated no product-sales revenue; reported revenue primarily reflects collaboration and service-related activity. Pulmatrix Operating is the accounting predecessor following the June 2015 reverse merger, so 2015 comparisons are to Pulmatrix Operating and are not fully comparable with the combined company’s 2016 results.
Financial results
Amounts below are in millions, except per-share data. The filing reports no gross-profit or operating-margin measure; margins are not meaningful given the company’s development-stage operations and limited service revenue.
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $0.260 | $0.170 | $0.656 | $0.275 |
| Research and development | $2.441 | $1.610 | $5.871 | $2.528 |
| General and administrative | $2.214 | $9.879 | $4.623 | $11.812 |
| Write-off of intangibles, net of tax | $4.575 | — | $4.575 | — |
| Operating loss | $(8.970) | $(11.319) | $(14.413) | $(14.065) |
| Net loss | $(9.187) | $(14.897) | $(14.857) | $(16.699) |
| Basic and diluted loss per share | $(0.62) | $(5.77) | $(1.01) | $(12.00) |
| Cash used in operating activities | — | — | $(7.942) | $(6.082) |
At June 30, cash and cash equivalents were $10.788 million, working capital was $7.689 million, and accumulated deficit was $142.960 million. Total assets were $28.819 million and total liabilities were $8.668 million. The Hercules term loan had $7.0 million principal outstanding and a $6.781 million carrying value net of discounts and costs; $2.233 million was classified as current. Cash declined $8.114 million during the first half, with no financing cash proceeds reported in that period.
Material changes and unusual items
- Q2 revenue rose 53% year over year, and first-half revenue rose 139%, primarily due to increased revenue recognized under the Mylan collaboration. The company still had no product sales.
- R&D increased, mainly from work on PUR1900; first-half increases also included PUR0200, PUR1500, and employee-related costs.
- G&A fell versus 2015, when merger-related advisory and legal costs and higher stock compensation were incurred. The comparison is affected by the 2015 merger and is not a like-for-like operating trend.
- The company wrote off the $7.534 million RUT58-60 in-process R&D asset after it did not sell the rights within the license waiver period and the license expired. It also wrote off the related $2.959 million deferred tax liability, producing a net charge of $4.575 million. Goodwill of $15.942 million was assessed and not found impaired at June 30.
- First-half operating cash use increased to $7.942 million from $6.082 million. The 2016 net loss included the noncash intangible write-off and $2.402 million of stock-based compensation.
Outlook, liquidity, and risks
- Management stated that cash resources, together with anticipated additional non-dilutive financing and proceeds from common-stock issuance, were expected to fund the operating plan and financing obligations for at least 12 months from filing. This is an estimate dependent on assumptions; additional funding may not be available on acceptable terms or at all.
- Management said available funds were expected to support PUR1900 through completion of a Phase 1B trial, PUR0200 chemistry, manufacturing and controls work, and preclinical evaluation of PUR1500. Funding was not expected to cover further clinical work across the pipeline.
- The company expects continued and increasing losses and expenses, and will need additional capital. Risks include clinical and regulatory setbacks, manufacturing and commercialization challenges, competition, intellectual-property protection, and financing availability.
- Under the Hercules loan, monthly principal-and-interest payments began August 1, 2016 under a 30-month amortization schedule; remaining principal and interest are due at maturity on July 1, 2018. The loan is secured by substantially all assets other than intellectual property. The company reported covenant compliance at June 30, 2016.
- Lease commitments for office and laboratory space totaled $2.965 million through 2020. The filing reported no material legal proceedings, no material changes to the risk factors in the latest 10-K, and effective disclosure controls.
Most important facts for investors to verify
- Whether financing is secured to meet the stated 12-month liquidity outlook and fund clinical milestones beyond the specifically identified work.
- Progress, costs, and timelines for PUR1900, PUR0200, and PUR1500, including completion of the PUR1900 Phase 1B trial.
- The consequences of the RUT58-60 license expiration and whether any associated rights or obligations remain.
- Hercules loan repayment terms, upcoming amortization burden, collateral provisions, and continuing covenant compliance.
- The terms and duration of Mylan collaboration reimbursements and its option rights, as well as potential dilution from outstanding options and warrants.