Business Context and Reporting Period
Company: Pieris Pharmaceuticals, Inc. (formerly Marika Inc.)
Filing Type: Form 8-K (Current Report)
Date of Report: December 17, 2014
Reporting Period: The filing covers the closing of a reverse-merger acquisition on December 17, 2014, and provides historical financial data for Pieris Operating (the acquired entity) through September 30, 2014, and full years ended December 31, 2013 and 2012.
Pieris Pharmaceuticals, Inc. (the "Registrant") completed the acquisition of Pieris AG ("Pieris Operating"), a German clinical-stage biopharmaceutical company. The transaction was accounted for as a reverse merger, with Pieris Operating deemed the accounting acquirer. Consequently, the historical financial statements reflect the operations of Pieris Operating. The Registrant changed its name from Marika Inc. to Pieris Pharmaceuticals, Inc. and discontinued its previous errand concierge business to pursue the development of Anticalin® biotherapeutics.
Key Financial Metrics
Revenue (Nine Months Ended Sept 30, 2014): $2.09 million (down from $9.00 million in the prior year period).
Net Loss (Nine Months Ended Sept 30, 2014): $5.68 million.
Net Profit (Year Ended Dec 31, 2013): $0.07 million (not indicative of a trend).
Net Loss (Year Ended Dec 31, 2012): $2.32 million.
Accumulated Deficit (as of Sept 30, 2014): $61.6 million.
Cash and Cash Equivalents (as of Sept 30, 2014): $0.9 million.
Liabilities (as of Sept 30, 2014): Approximately $7.8 million (including $7.0 million in principal loan amounts).
Recent Financing (December 2014): Pieris Operating concluded a Series C financing round, raising approximately €5.97 million ($8.23 million) in cash and converting €3.0 million ($4.13 million) of outstanding bridge loans into Series C preferred shares.
Material Changes vs. Prior Period
- Corporate Structure: The company transitioned from a shell company (Marika Inc.) to an operating biopharmaceutical entity via a reverse merger. Pieris Operating is now a wholly-owned subsidiary.
- Revenue Decline: Revenues for the nine months ended September 30, 2014, decreased by approximately 77% compared to the prior year period. This was primarily due to a decrease in upfront payments and research funding from collaboration partners (Sanofi and Daiichi Sankyo) as projects were handed over to partners or terminated.
- Expense Reduction: Research and development expenses decreased by $4.3 million year-over-year for the nine-month period, largely due to the completion of preclinical studies and drug manufacturing for the lead candidate PRS-080 in the prior year.
- Debt Conversion: Existing bridge loans (2012 and 2014) were converted into equity during the Series C financing in December 2014, eliminating the principal debt obligations associated with those instruments.
Guidance, Outlook, Risks, and Unusual Items
Outlook and Guidance: The company expects to continue incurring substantial losses for the foreseeable future as it advances clinical trials for its lead candidates, PRS-080 (anemia in chronic kidney disease) and PRS-060 (asthma). Management anticipates reporting Phase I data for PRS-080 by the end of 2015 and initiating Phase I trials for PRS-060 in 2016. The company will require substantial additional funding to continue operations and has no product revenue.
Material Risks and Contingencies:
- Liquidity Risk: As of September 30, 2014, cash was only $0.9 million against $7.8 million in liabilities. The company explicitly states it will need to raise additional capital to fund operations.
- Legal Proceedings (TUM Arbitration): Pieris Operating is in arbitration with Technische Universität München (TUM) regarding the calculation of out-license fees. TUM claims approximately $3.4 million is owed for the period ending December 31, 2012, while Pieris calculated $0.4 million. Pieris has accrued a liability of approximately $373,000. An adverse ruling could have a material adverse effect.
- Internal Controls: The company identified a material weakness in internal control over financial reporting due to a lack of sufficient accounting personnel and experience with U.S. GAAP and SEC reporting requirements.
- Stock Liquidity: The common stock trades on the OTC Markets (OTCPink tier). Shares issued in the acquisition are subject to a 12-month holding period under Rule 144 before they can be resold.
Key Facts for Investor Verification
- Cash Runway: Verify the sufficiency of the $8.2 million raised in the December 2014 Series C financing relative to the company's burn rate and the $7.8 million in liabilities existing as of September 30, 2014.
- TUM Arbitration Outcome: Monitor the status of the arbitration with TUM, as the potential liability ($3.4 million claim vs. $0.4 million accrual) could significantly impact future cash flows.
- Clinical Trial Progress: Track the initiation and results of the Phase I trial for PRS-080 (expected data end of 2015) and the preclinical progress of PRS-060, as these are the primary drivers of future value.
- Internal Control Remediation: Assess the company's progress in remedying the material weakness in internal controls over financial reporting to ensure reliable future financial reporting.
- Collaboration Milestones: Monitor the status of collaborations with Sanofi, Daiichi Sankyo, and Zydus, as milestone payments and research funding are critical revenue sources.