Pulmatrix, Inc. — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. Pulmatrix is a clinical-stage biotechnology company developing inhaled therapies using its iSPERSE platform. It has no products approved for sale; reported revenue is collaboration or grant-related, not product sales. Financial amounts below are in thousands of dollars unless stated otherwise.
Financial performance and position
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $4,819 | $0 | $4,819 | $153 |
| Research and development | $3,164 | $4,013 | $5,340 | $7,234 |
| General and administrative | $3,128 | $2,115 | $5,115 | $4,161 |
| Goodwill impairment | $6,474 | $0 | $7,268 | $0 |
| Operating loss | $(7,947) | $(6,128) | $(12,904) | $(11,242) |
| Net loss | $(7,844) | $(6,188) | $(13,000) | $(11,409) |
| Basic and diluted loss per share | $(0.41) | $(1.34) | $(0.99) | $(3.35) |
- Revenue in 2019 came from recognizing part of the $22 million non-refundable Cipla upfront payment. Pulmatrix recognized $4.8 million and reported $17.2 million of remaining deferred revenue, including $11.0 million current. Revenue is recognized as development services are performed; the filing expects recognition over the remaining research term, estimated at up to three years as of June 2019.
- Gross profit or operating margins are not presented, and a meaningful product-sales margin is not available because the company has no product sales.
- At June 30, cash and cash equivalents were $31.817 million, restricted cash was $0.204 million, and working capital was $20.178 million. Total assets were $37.047 million; total liabilities were $18.955 million, including $17.181 million of deferred revenue. Goodwill was reduced to $3.577 million after impairment. The filing reports no term-loan interest expense in 2019; the loan was fully repaid by June 30, 2018.
- For the six months, operating cash flow was positive $11.591 million, largely reflecting the $17.181 million increase in deferred revenue and noncash adjustments, despite a $13.0 million net loss. Investing cash use was $0.035 million; financing provided $17.698 million, principally from equity issuance. Cash, cash equivalents and restricted cash increased $29.254 million to $32.021 million.
Material changes and notable items
- Revenue increased from none in Q2 2018 and $0.153 million for the first half of 2018, primarily due to the Cipla agreement.
- Q2 operating loss widened by $1.819 million year over year, principally because of the $6.474 million goodwill impairment and higher G&A, partly offset by lower R&D and new collaboration revenue. First-half net loss increased by $1.591 million year over year.
- R&D declined year over year: management cited reduced PUR1800 spending and employment costs, partly offset by increased Pulmazole spending. G&A increased, including costs associated with accelerated vesting of a former CEO’s options, a Cystic Fibrosis Foundation royalty, and Cipla-related legal costs.
- The company completed multiple 2019 equity financings, recording $17.698 million of net proceeds for the first half. Common shares outstanding rose from 4.933 million at December 31, 2018 to 19.625 million at June 30, 2019; 19.323 million warrants were outstanding at period end. A 1-for-10 reverse stock split took effect in February 2019, and share and per-share data are retrospectively adjusted.
- The $7.268 million first-half goodwill charge followed a decline in the company’s stock value. Other income/expense for the first half included a $0.2 million settlement charge, partly offset by interest income.
Agreement, outlook and risks
- Under the April 2019 worldwide Pulmazole development and commercialization agreement, Cipla paid $22 million for assigned Pulmazole-related pulmonary assets, while Pulmatrix retained its iSPERSE platform. Pulmatrix leads clinical development and Cipla is responsible for commercialization after approval. The parties are to share development costs equally after the initial development funding is depleted and share total free cash flow equally upon commercialization.
- Management stated the Pulmazole Phase 2 study was fully funded and expected available resources to support Pulmazole through the Phase 2 final report, preparation for a planned Phase 2b/3 study, and a PUR1800 toxicology study, which it expected to conclude during Q3 2020. The filing cautions that funding is not sufficient for additional clinical work across the pipeline.
- Management expects continuing losses and increasing expenses for at least the next several years and anticipates needing additional capital. It cited clinical, regulatory, manufacturing, intellectual-property, competition, financing and commercialization risks. The company has recurring losses and a $207.565 million accumulated deficit; actual cash runway may differ from projections.
- No material changes to the prior Form 10-K risk factors were reported. Pulmatrix reported no material legal proceedings, no material off-balance-sheet arrangements, and effective disclosure controls; it reported no material internal-control changes during the quarter.
Important facts for investors to verify
- Whether the Cipla arrangement’s development obligations, funding pool, cost-sharing mechanics and revenue-recognition assumptions remain on track.
- Cash burn and available liquidity excluding the timing benefit of deferred revenue, and the timing and amount of any future financing needs.
- Clinical progress, costs and milestones for Pulmazole and PUR1800, including the stated Q3 2020 expected completion timing.
- Potential dilution from outstanding warrants, options and future equity financing; confirm current share and warrant counts, as the filing’s share count is dated June 30, 2019 (and the cover reports 19,624,560 shares outstanding as of August 1, 2019).
- The basis for goodwill impairment and any subsequent changes in the company’s financial outlook or risk factors.