Pulmatrix, Inc. — FY 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. Pulmatrix is a clinical-stage biotechnology company developing inhaled respiratory therapies using its iSPERSE dry-powder delivery platform. It had no approved products and generated no product-sales revenue.
Financial performance and liquidity
| Metric | FY 2017 | FY 2016 |
|---|---|---|
| Revenue | $0.335 million | $0.835 million |
| Research and development expense | $10.243 million | $10.152 million |
| General and administrative expense | $7.567 million | $8.015 million |
| Operating loss | $17.475 million | $24.866 million |
| Net loss | $18.056 million | $27.843 million |
| Net cash used in operating activities | $14.477 million | $13.243 million |
| Cash and cash equivalents at year-end | $3.550 million | $4.182 million |
- 2017 revenue was primarily from a Cystic Fibrosis Foundation Therapeutics award supporting Pulmazole; 2016 revenue came from the Mylan collaboration. Revenue fell by $0.5 million as the Mylan-funded study ended.
- Net loss narrowed by $9.8 million, largely because 2016 included a $7.5 million intangible write-off and a $5.0 million goodwill impairment; 2017 had neither charge. R&D spending was broadly flat. No gross margin measure is meaningful because the company had no product sales.
- Year-end current assets were $4.246 million and current liabilities were $5.840 million, a $1.594 million working-capital deficit. Accumulated deficit was $174.0 million.
- Operating cash burn increased year over year despite the lower net loss, which included substantial noncash charges in 2016. Financing cash flow was $13.919 million in 2017, including $16.310 million net proceeds from stock sales and $0.304 million from option exercises, offset by $2.695 million of term-loan principal payments.
- The term loan’s remaining principal was $3.259 million at December 31, 2017, due July 1, 2018; its interest rate was 10.75%. It is secured by substantially all company and subsidiary assets except intellectual property. The balance sheet reports $3.221 million of loan payable net of discount and issuance costs.
Changes, outlook, and key risks
- Pipeline: Pulmazole (inhaled itraconazole for pulmonary fungal infection and ABPA) began clinical testing in healthy volunteers and asthma patients in Q1 2018. PUR1800, licensed from RespiVert/Janssen for COPD exacerbations, was planned for preclinical safety studies in 2018. PUR0200 development for the U.S. market was partnered with Vectura, which is responsible for future development costs and may owe a $1 million technology-access fee if specified criteria are achieved. PUR5700 remained in development.
- Liquidity and going concern: Management said year-end resources would fund planned operations only into Q2 2018; the filing states additional capital was needed, with substantial doubt about the company’s ability to continue as a going concern. The auditor’s opinion was unmodified but included a going-concern explanatory paragraph. Management warned that financing might not be available on acceptable terms, or at all, and that programs could be delayed, reduced, or stopped.
- Subsequent financing: The company reported approximately $1.8 million estimated net proceeds from sales of 1,232,662 shares through its ATM facility in January and February 2018. The filing also says it would need additional capital within two months of filing to pursue all business objectives without partner or other strategic funding.
- Other obligations: Contracted R&D commitments were approximately $2.8 million at year-end; future minimum facility lease payments totaled $2.028 million through 2020. No material legal proceedings or off-balance-sheet arrangements were reported.
- Principal risks: recurring losses and cash burn; dependence on future financing; clinical, regulatory, manufacturing and commercialization uncertainty; reliance on third-party manufacturers and a single API supplier for Pulmazole and PUR1800; competition; intellectual-property challenges; and loan maturity, collateral and covenant risks. Dilutive equity financing could reduce existing shareholders’ ownership.
Important facts for investors to verify
- Cash runway, subsequent ATM proceeds, and the availability and terms of additional financing.
- Repayment or refinancing of the term loan due July 1, 2018, including any lender restrictions or security interests.
- Timing, enrollment, safety findings and results from Pulmazole’s clinical program, and progress of PUR1800’s planned preclinical work.
- Whether Vectura advances PUR0200 and whether the stated development criteria for its potential $1 million fee are met.
- Current share count and potential dilution from future equity offerings, outstanding options and warrants.