Fulcrum Therapeutics, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Fulcrum is a clinical-stage biopharmaceutical company developing therapies for genetically defined diseases; it had no product revenue and reported operating losses.
Financial results and liquidity
| Metric | Q2 2019 | Six months 2019 | Comparable 2018 |
|---|---|---|---|
| Revenue | None | None | None |
| Research and development expense | $10.9 million | $45.5 million | $5.8 million; $11.4 million |
| General and administrative expense | $2.6 million | $5.2 million | $2.1 million; $3.8 million |
| Net loss | $13.2 million | $50.0 million | $7.8 million; $14.8 million |
| Net loss attributable to common stockholders | $16.5 million | $56.3 million | $8.9 million; $16.7 million |
| Loss per share attributable to common stockholders | $9.21 | $32.85 | $7.50; $15.14 |
Comparable-period figures are shown in the same order: three months and six months ended June 30, 2018. The difference between net loss and common-stockholder loss reflects cumulative preferred-stock dividends. Profit margins are not meaningful because the company had no revenue.
- At June 30, cash and cash equivalents were $49.6 million; restricted cash was $1.1 million. Total assets were $65.2 million and total liabilities were $11.7 million. The filing reports no credit facility or committed sources of capital; conventional debt is not identified as a material funding source.
- Six-month operating cash use was $22.0 million, investing cash use $0.6 million, and financing cash use $0.6 million. Cash, cash equivalents and restricted cash declined $23.2 million to $50.7 million.
- In July 2019, after the reporting date, the IPO raised $63.9 million net from 4.5 million shares sold at $16 per share. Management estimated that IPO proceeds plus June 30 cash would fund operations into Q3 2021; it cautioned that this estimate depends on assumptions that may prove incorrect.
Changes, developments and outlook
- R&D expense rose substantially year over year, especially for the six-month period. It included $25.6 million of acquired in-process R&D expense related to the GSK losmapimod license; excluding that item, the filing attributes the increase mainly to clinical development, staffing, laboratory, FTX-6058 IND-enabling and facility costs.
- Under the February 2019 GSK agreement, Fulcrum received an exclusive worldwide losmapimod license and issued GSK 12.5 million Series B preferred shares valued at $25.5 million. The company may owe up to $37.5 million in clinical and regulatory milestones and up to $60 million in sales milestones, plus tiered royalties. A $2.5 million milestone became payable when a Phase 2 trial was initiated in August 2019.
- As of the filing, losmapimod was in Phase 1 development; Fulcrum reported that it initiated Phase 2b and Phase 2 open-label trials in August 2019. FTX-6058 was in IND-enabling studies, with an IND submission planned for mid-2020. These are development plans, not assured outcomes.
- Management expects operating losses and negative operating cash flows to continue and expenses to increase as it advances trials, expands research, and operates as a public company. Additional funding will be needed; unavailable or unfavorable financing could force delays, reductions or termination of programs.
- Other notable post-quarter changes included a one-for-seven reverse stock split on July 5, conversion of all preferred stock into common stock at the IPO closing, and adoption of new 2019 equity incentive and employee stock purchase plans.
Risks, commitments and controls
- Key risks include clinical-trial safety and efficacy uncertainty, patient enrollment, regulatory approval, manufacturing and supply dependence, competition, intellectual-property protection and the ability to raise further capital. The losmapimod composition-of-matter patents licensed from GSK were expected to expire in February 2023.
- The company disclosed a $25.1 million total commitment for its ten-year headquarters lease; minimum payments remaining at June 30 were $22.9 million. It reported no material legal proceedings and no material changes in contractual obligations outside the ordinary course.
- Management said disclosure controls were effective at the reasonable-assurance level and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether losmapimod Phase 2 trials and the planned FTX-6058 IND timeline proceeded as expected, and what subsequent clinical data show.
- Cash runway against actual spending, particularly the pace of clinical-trial costs and any financing needs beyond the IPO proceeds.
- GSK milestone obligations, including the August 2019 $2.5 million payment, and the agreement’s royalty and sales-milestone terms.
- The composition and dilution effects of post-IPO shares, preferred-stock conversion, reverse split and equity-plan reserves.
- Whether the near-term losmapimod patent expiry and the company’s broader intellectual-property position affect development or commercial prospects.