Pulmatrix, Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. Amounts below are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Business context and reporting period
Pulmatrix is a clinical-stage biotechnology company developing inhaled therapies using its iSPERSE dry-powder delivery platform. Its pipeline includes PUR1900 for cystic fibrosis and other at-risk patients, PUR0200 for COPD, and preclinical PUR1500 for idiopathic pulmonary fibrosis. The company reported no product sales; revenue came primarily from collaborations and services.
On June 15, 2015, the former Ruthigen merged with Pulmatrix Operating. The transaction was accounted for as a reverse merger, with Pulmatrix Operating as the accounting acquirer. Accordingly, 2015 results combine Pulmatrix Operating through June 15 with the post-merger company thereafter; Q3 reflects a full quarter of combined operations. Comparisons with 2014 are therefore affected by the transaction and are not fully like-for-like.
Key financial metrics
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $0.651 | $0.030 | $0.926 | $0.038 |
| Research and development expense | $2.193 | $1.929 | $4.721 | $5.420 |
| General and administrative expense | $3.119 | $0.695 | $14.929 | $2.071 |
| Operating loss | $(4.661) | $(2.594) | $(18.724) | $(7.453) |
| Net loss | $(4.932) | $(11.134) | $(21.631) | $(21.588) |
| Basic and diluted loss per share | $(0.34) | $(59.60) | $(3.69) | $(115.78) |
| Cash used in operating activities | Not provided for quarter | Not provided for quarter | $(9.494) | $(7.329) |
Revenue growth reflected Mylan collaboration reimbursement; it was not product revenue. The filing does not provide a meaningful product gross margin. Q3 net loss improved versus 2014 largely because the prior-year quarter included substantial non-cash interest expense; nine-month net loss was nearly unchanged despite a much larger operating loss, in part because interest expense fell sharply.
| Balance sheet and liquidity at September 30, 2015 | Amount |
|---|---|
| Cash and cash equivalents | $22.026 |
| Current assets | $23.359 |
| Current liabilities | $2.475 |
| Total assets | $47.664 |
| Total liabilities | $11.758 |
| Accumulated deficit | $(123.567) |
| Term loan carrying amount, net of discount | $6.726 |
The $7.0 million Hercules term loan is secured by substantially all company assets other than intellectual property. It bears interest at a floating rate with a 9.5% floor; principal amortization begins August 2016 and the loan matures July 1, 2018. A $0.245 million end-of-term charge is also due. The company reported covenant compliance at September 30, 2015.
Cash increased by $21.575 million during the first nine months. Financing provided $21.518 million, including $10.0 million from a Pulmatrix private placement, $6.9 million from the term loan, and $4.5 million from bridge notes. The $9.551 million investing cash inflow primarily reflects cash acquired in the merger, not recurring operating cash generation.
Material changes versus prior comparable periods
- Nine-month operating expenses rose to $19.650 million from $7.491 million, principally because G&A increased with merger-related advisory, legal and consulting costs, incentive compensation, and stock-based compensation. The company reported $6.863 million of its own merger transaction costs in G&A.
- Nine-month R&D expense decreased 13%, mainly due to lower compensation after a prior-year headcount reduction and reduced PUR0200 spending, partly offset by incentive compensation. Q3 R&D rose 14%, with increased spending on PUR1900 and PUR0200.
- Interest expense fell to $0.731 million for nine months from $14.754 million in 2014, largely because interest on legacy convertible notes stopped accruing after December 31, 2014 and those notes converted in the merger.
- The merger converted legacy preferred stock and convertible notes into common shares and eliminated the related preferred-stock warrant liability. Common shares outstanding were 14,696,100 at September 30; the filing reports 14,516,010 outstanding as of October 31, excluding vested RSUs deliverable later.
Outlook, commentary, risks and unusual items
- Management estimated existing resources would fund planned operations into the second quarter of 2017; elsewhere it described the runway as into mid-2017. The filing cautions that estimates depend on assumptions and funds could be used sooner.
- Management said available funding could support PUR1900 through a Phase 1b trial in cystic fibrosis patients, PUR0200 chemistry, manufacturing and controls work, and preclinical evaluation of PUR1500, but would not fund additional clinical work across the pipeline. Additional capital will be needed.
- The company expects continuing losses and increasing expenses as development advances. It has no approved products, no product-sales revenue, and depends on future financing, partnerships, licensing, or asset sales. Failure to raise capital could delay or curtail programs and raise substantial doubt about continued operations.
- Merger accounting added $7.534 million of in-process R&D and $15.942 million of goodwill. No impairment was identified at September 30. The acquired RUT58-60 program is subject to a one-year development-obligation waiver; the company may seek a buyer, with Oculus rights including a right of first refusal and potential proceeds participation. If unsold by June 15, 2016, Oculus may cancel the license and reclaim rights.
- On October 27, 2015, the company extended its office and laboratory lease through December 2020; disclosed future minimum lease payments total $3.422 million.
- The company disclosed a prior-period weighted-average-share calculation error that understated loss per share in its June 2015 quarterly filing. It corrected the affected figures and concluded the misstatements were not material to those financial statements.
- Principal risks include clinical and regulatory failure or delay, manufacturing and third-party vendor dependence, intellectual-property challenges, competition, recurring losses, and the need for additional financing. Disclosure controls were reported effective, with no material quarterly change in internal control over financial reporting.
Important facts for investors to verify
- Whether the stated cash runway remains adequate against actual operating cash burn and the timing and cost of planned clinical work.
- Progress, trial plans, enrollment and funding needs for PUR1900, PUR0200 and PUR1500, including any collaboration milestones or Mylan option developments.
- Term-loan interest, covenants, repayment schedule and collateral exposure, particularly as principal payments begin in 2016.
- Status and valuation of acquired RUT58-60 rights, including any sale process, Oculus rights, and potential impairment or license consequences after June 15, 2016.
- Merger-related expenses, stock-based compensation, potential dilution from outstanding options and warrants, and the release or use of merger escrow shares.