The information set forth below should be read in conjunction with the condensed
consolidated financial statements and the notes thereto included elsewhere in
this Quarterly Report on Form 10-Q as well as the audited financial statements
and the notes thereto contained in our current report on Form 10-K filed with
the
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. All statements other than statements of historical fact contained herein, including statements regarding our business plans or strategies, projected or anticipated benefits or other consequences of our plans or strategies, projected or anticipated benefits from acquisitions to be made by us, or projections involving anticipated revenues, earnings or other aspects of our operating results, are forward-looking statements. Words such as "anticipates," "assumes," "believes," "can," "could," "estimates," "expects," "forecasts," "guides," "intends," "is confident that," "may," "plans," "seeks," "projects," "targets," and "would," and their opposites and similar expressions, as well as statements in future tense, are intended to identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will actually be achieved. Forward-looking statements are based on information we have when those statements are made or our management's good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
? the impact of the novel coronavirus ("COVID-19") on the Company's ongoing and planned clinical trials; ? the geographic, social and economic impact of COVID-19 on the Company's ongoing and planned clinical trials; ? our history of recurring losses and negative cash flows from operating activities, significant future commitments and the uncertainty regarding the adequacy of our liquidity to pursue or complete our business objectives; ? our inability to carry out research, development and commercialization plans; ? our inability to manufacture our product candidates on a commercial scale on our own or in collaborations with third parties; ? our inability to complete preclinical testing and clinical trials as anticipated; ? our collaborators' inability to successfully carry out their contractual duties; ? termination of certain license agreements; ? our ability to adequately protect and enforce rights to intellectual property, or defend against claims of infringement by others; ? difficulties in obtaining financing on commercially reasonable terms, or at all; ? intense competition in our industry, with competitors having substantially greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution, personnel and resources than we do; ? entry of new competitors and products and potential technological obsolescence of our products; ? adverse market and economic conditions; ? loss of one or more key executives or scientists; and ? difficulties in securing regulatory approval to market our product candidates.
For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those projected in these forward-looking statements, see the risk factors and uncertainties set forth in Part II, Item 1A of this Quarterly Report. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise, except as required by law.
Overview Business
We are a clinical stage biotechnology company focused on the discovery and development of novel inhaled therapeutic products intended to prevent and treat respiratory and other diseases and infections with significant unmet medical needs.
We design and develop inhaled therapeutic products based on our proprietary dry powder delivery technology, iSPERSE (inhaled Small Particles Easily Respirable and Emitted), which enables delivery of small or large molecule drugs to the lungs by inhalation for local or systemic applications. The iSPERSE powders are engineered to be small, dense particles with highly efficient dispersibility and delivery to airways. iSPERSE powders can be used with an array of dry powder inhaler technologies and can be formulated with a broad range of drug substances including small molecules and biologics. We believe the iSPERSE dry powder technology offers enhanced drug loading and delivery efficiency that outperforms traditional lactose-blend inhaled dry powder therapies. We believe the advantages of using the iSPERSE technology include reduced total inhaled powder mass, enhanced dosing efficiency, reduced cost of goods and improved safety and tolerability profiles. We are developing iSPERSE-based therapeutic candidates targeted at the prevention and treatment of a range of diseases, including allergic bronchopulmonary aspergillosis ("ABPA") in patients with asthma and in patients with cystic fibrosis ("CF"), and lung cancer. We are also exploring iSPERSE based therapeutics in neurological diseases.
Our goal is to develop breakthrough therapeutic products that are safe, convenient and more efficient than the existing therapeutic products for respiratory and other diseases where iSPERSE properties are advantageous. In support of this goal, we are focusing on developing inhaled anti-fungal therapies to prevent and treat pulmonary infections and allergic/hypersensitivity responses to fungus in patients with asthma and CF as well as other rare/orphan indications. We intend to capitalize on our iSPERSE technology platform and our expertise in inhaled therapeutics to identify new product candidates for the prevention and treatment of diseases with significant unmet medical needs and to build our product pipeline beyond our existing candidates. In order to advance our clinical trials for our therapeutic candidates for respiratory and neurological diseases, and leverage the iSPERSE platform to enable delivery of partnered compounds, we intend to form strategic alliances with third parties, including pharmaceutical, biotechnology companies or academic or private research institutes.
14
We expect to continue to incur significant expenses and increasing operating losses for at least the next several years based on our drug development plans. We expect our expenses and capital requirements will increase substantially in connection with our ongoing activities, as we:
? initiate and expand clinical trials for Pulmazole for ABPA, and other indications for immunocompromised at-risk patients; ? seek regulatory approval for our product candidates; ? hire personnel to support our product development, commercialization and administrative efforts; and ? advance the research and development related activities for inhaled therapeutic products in our pipeline.
We do not have any products approved for sale and have not generated any revenue from product sales. We will not generate product sales unless and until we successfully complete clinical developments and obtain regulatory approvals for our product candidates. Additionally, we currently utilize third-party contract research organizations ("CROs") to carry out our clinical development activities and third-party contract manufacturing organizations ("CMOs") to carry out our clinical manufacturing activities as we do not yet have a commercial organization. If we obtain regulatory approval for any of our product candidates, we expect to incur significant expenses related to developing our internal commercialization capability to support product sales, marketing and distribution. Accordingly, we anticipate that we will seek to fund our operations through public or private equity or debt financings, licensing agreements, collaborations with third parties, non-dilutive grants or other sources, potentially including collaborative commercial arrangements. Likewise, we intend to seek to limit our commercialization costs by partnering with other companies with complementary capabilities or larger infrastructure including sales and marketing.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.
Recent Developments COVID-19 Developments
In
Moreover, the COVID-19 outbreak has begun to have indeterminable adverse effects on general commercial activity and the world economy, and the Company's business and results of operations could be adversely affected to the extent that COVID-19 or any other epidemic harms the global economy generally.
We do not yet know the full extent of potential delays or impact on our business, our relationship with our business partners, our clinical trials or the global economy as a whole. However, any one or a combination of these events could have an adverse effect on the operation of and results from our clinical trials and on our other business operations.
Pulmazole
In July of 2019, we initiated a Phase 2 clinical investigation for Pulmazole, our inhaled formulation of itraconazole, an anti-fungal drug commercially available as an oral drug that we are developing to treat and prevent pulmonary fungal infections. To date, five subjects have completed the 28-day dosing regimen, receiving either 10 mg, 20 mg, or 35 mg of Pulmazole or placebo in a randomized, double-blind treatment assignment. In the first quarter of 2020, we initiated the process of establishing additional study sites and amending the study protocol.
On
15 PUR 1800
Separately, we plan to initiate a Phase 1b study of PUR1800 in stable moderate-severe COPD patients in the second half of 2020. The COVID-19 pandemic could delay this date or impact enrollment generally to the extent we cannot secure sites to enroll patients, patients remain or become subject to government "stay at home" mandates, patients feel like they cannot safely visit trial sites or patients drop out due to COVID-19 related issues.
Sensory Cloud Agreement
On
The Sensory Licensed Products are expected to include an emergency response
product for the reduction of pathogenic risk and transmissibility of contagions,
including with respect to COVID-19 (the "Emergency Product"). We have the right
to terminate the Agreement in the event that Sensory Cloud has not, within six
months after
Under the terms of the Agreement, Sensory Cloud may develop other over-the-counter Sensory Licensed Products that contain other active pharmaceutical ingredients or therapeutic agents and combine the Sensory Licensed Product with one or more of Sensory Cloud's proprietary delivery devices. In addition, we have granted Sensory Cloud an exclusive right of first refusal to any new over-the-counter products in the field that may be developed by us.
During the term of the Agreement, neither party may alone or with, through or for the benefit of any third party, with respect to any Sensory Licensed Product in the field, pursue any research, development or commercialization activities specifically directed to development or commercialization of any Sensory Licensed Product.
The Company shall be entitled to royalties on net sales of Sensory Licensed
Product in each country in which there is a valid claim of a patent within the
licensed intellectual property covering the Sensory Licensed Product. Our rights
to receive such royalties commences upon the first commercial sale of a Sensory
Licensed Product in any such country and terminates upon the expiration of the
last valid claim in such territory. The royalty rates are as follows: (1) 7% of
net sales during calendar year 2020, (2) 14% of net sales during calendar year
2021, and (3) 17% of net sales during calendar year 2022 and each calendar year
thereafter during the royalty term. In addition, the Company shall be entitled
to receive a milestone payment of
The Agreement shall terminate at such time that we would no longer be entitled to royalties because there are no longer any valid claims of a patent within the licensed intellectual property covering any Sensory Licensed Product. Upon there being no more such royalty payments owed by Sensory Cloud for a Sensory Licensed Product, the licenses granted by us to Sensory Cloud shall become fully-paid up, royalty free, perpetual, irrevocable and non-exclusive licenses to such Sensory Licensed Product. The Agreement may also be terminated earlier by Sensory Cloud for convenience and by Sensory Cloud or us for material breach or upon the bankruptcy or insolvency of the other party.
2020 Registered Direct Offering
On
16 SBA Loan
On
Leases
On
Financial Overview Revenues
To date, we have not generated any product sales. The 2020 revenue was generated
by the completion of a feasibility study with Nocion Therapeutics and by the
collaboration agreement and license agreement with
Research and Development Expenses
Research and development expenses consist primarily of costs incurred for the research and development of our preclinical and clinical candidates, and include:
? employee-related expenses, including salaries, benefits and stock-based compensation expense; ? expenses incurred under agreements with CROs or CMOs, and consultants that conduct our clinical trials and preclinical activities; ? the cost of acquiring, developing and manufacturing clinical trial materials and lab supplies; ? facility, depreciation and other expenses, which include direct and allocated expenses for rent, maintenance of our facility, insurance and other supplies; and ? costs associated with preclinical activities and clinical regulatory operations ? consulting and professional fees associated with research and development activities
We expense research and development costs to operations as incurred. We recognize costs for certain development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations or information provided to us by our vendors.
Research and development activities are central to our business model. We utilize a combination of internal and external efforts to advance product development from early stage work to clinical trial manufacturing and clinical trial support. External efforts include work with consultants and substantial work at CROs and CMOs. We support an internal research and development team and facility for our pipeline programs. To move these programs forward along our development timelines, a large portion, approximately (78% of staff) are research and development employees. In addition, we maintain a 12,000 square foot research and development facility which includes capital equipment for the manufacture and characterization of our iSPERSE™ powders for our pipeline programs. As we identify opportunities for iSPERSE™ in respiratory indications, we anticipate additional head count, capital, and development costs will be incurred to support these programs.
Because of the numerous risks and uncertainties associated with product development, however, we cannot determine with certainty the duration and completion costs of these or other current or future preclinical studies and clinical trials. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including the uncertainties of future clinical and preclinical studies, uncertainties in clinical trial enrollment rates and significant and changing government regulation. In addition, the probability of success for each product candidate will depend on numerous factors, including competition, manufacturing capability and commercial viability.
17
General and Administrative Expenses
General and administrative expenses consist principally of salaries and related costs such as share-based compensation for personnel and consultants in executive, finance, business development, corporate communications and human resource functions, facility costs not otherwise included in research and development expenses, patent filing fees and professional legal fees. Other general and administrative expenses include travel expenses, expenses related to a publicly-traded company and professional fees for consulting, auditing and tax services.
We anticipate that our general and administrative expenses will increase in the
future as they relate to audit, legal, regulatory, and tax-related services
associated with maintaining compliance with exchange listing and
Critical Accounting Policies
This management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with
While our significant accounting policies are described in more detail in the
notes to our condensed consolidated financial statements appearing elsewhere in
this Form 10-Q and in our audited financial statements included in our current
report on Form 10-K filed with the
Revenue Recognition
Effective
Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
Our principal sources of revenue during the reporting period were income that resulted through our collaborative arrangements and license agreements that related to the development and commercialization of Pulmazole and from reimbursement of clinical study costs. In all instances, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, and collectability of the resulting receivable is reasonably assured.
During the three months ended
18 Milestone Payments
At the inception of each arrangement that includes research or development
milestone payments, the Company evaluates whether the milestones are considered
probable of being achieved and estimates the amount to be included in the
transaction price using the most likely amount method. If it is probable that a
significant revenue reversal would not occur, the associated milestone value is
included in the transaction price. Milestone payments that are not within the
control of the Company or the licensee, such as regulatory approvals, are not
considered probable of being achieved until those approvals are received. The
Company evaluates factors such as the scientific, clinical, regulatory,
commercial, and other risks that must be overcome to achieve the particular
milestone in making this assessment. There is considerable judgment involved in
determining whether it is probable that a significant revenue reversal would not
occur. At the end of each subsequent reporting period, the Company reevaluates
the probability of achievement of all milestones subject to constraint and, if
necessary, adjusts its estimate of the overall transaction price. Any such
adjustments are recorded on a cumulative catch-up basis, which would affect
revenues and earnings in the period of adjustment. As of
Royalties.
For arrangements that include sales-based royalties, including milestone payments upon first commercial sales and milestone payments based on a level of sales, which are the result of a customer-vendor relationship and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied or partially satisfied. To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.
Use of Estimates
In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of expenses during the reporting period. Due to inherent uncertainty involved in making estimates, actual results may differ from these estimates. On an ongoing basis, the Company evaluates its estimates and assumptions. These estimates and assumptions include valuing equity securities in share-based payments, estimating fair value of equity instruments recorded as derivative liabilities, estimating the useful lives of depreciable and amortizable assets, valuation allowance against deferred tax assets, goodwill impairment, and estimating the fair value of long-lived assets to assess whether impairment charges may apply.
Research and Development Costs
Research and development costs are expensed as incurred and include: salaries,
benefits, bonus, share-based compensation, license fees, milestone payments due
under license agreements, costs paid to third-party contractors to perform
research, conduct clinical trials, and develop drug materials and delivery
devices; and associated overhead and facilities costs. Clinical trial costs are
a significant component of research and development expenses and include costs
associated with third-party contractors, CROs and CMOs. Invoicing from
third-party contractors for services performed can lag several months. We accrue
the costs of services rendered in connection with third-party contractor
activities based on our estimate of fees and costs associated with the contract
that were rendered during the period and they are expensed as incurred. Research
and development costs that are paid in advance of performance are capitalized as
prepaid expenses and amortized over the service period as the services are
provided. As of
Goodwill
Based on the qualitative assessment for the three months ended
19 Results of Operations
Three Months Ended
The following table sets forth our results of operations for each of the periods set forth below (in thousands):
For the Three Months Ended March 31, 2020 2019 Change Revenues$ 2,762 $ -$ 2,762 Operating expenses Research and development 5,287 2,176 3,111 General and administrative 2,212 1,987 225 Impairment of goodwill - 794 (794 ) Total operating expenses 7,499 4,957 2,542 Loss from operations (4,737 ) (4,957 ) 220 Other income (expense) Interest income 52 4 48 Settlement expense - (200 ) 200 Other income (expense), net (1 ) (3 ) 2 Net loss$ (4,686 ) $ (5,156 ) $ 470
Revenue - For the three months ended
Research and development expenses - For the three months ended
General and administrative expenses - General and administrative expenses were
Impairment of goodwill - There was no impairment charge for the three months
ended
Liquidity and Capital Resources
Through
We anticipate that we will continue to incur losses, and that such losses will increase over the next several years due to development costs associated with our iSPERSE™ pipeline programs. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third-party funding and other collaborations and strategic alliances.
We expect that our existing cash and cash equivalents at
20
Impact of COVID-19 on the Company's Operations, Financial Condition and Liquidity
The ultimate impact of the COVID-19 pandemic on the Company's operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence. These include but are not limited to including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that regulators, or the board or management of the Company, may determine are needed.
The COVID-19 pandemic has created significant economic uncertainty and volatility in the credit and capital markets. The Company may not be able to raise sufficient additional capital and may tailor our drug candidate development program based on the amount of funding we are able to raise in the future. Nevertheless, there is no assurance that these initiatives will be successful.
Our future funding requirements will depend on many factors, including, but not limited to:
? the impact of the COVID-19 on the Company's ongoing and planned clinical trials; ? the geographic, social and economic impact of COVID-19 on the Company's ongoing and planned clinical trials; ? the initiation, progress, timing, costs and results of clinical studies for existing and new pipeline programs based on iSPERSE™; ? the outcome, timing and cost of regulatory approvals by the FDA and European regulatory authorities, including the potential for these agencies to require that we perform studies in addition to those that we currently have planned; ? the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; ? our need to expand our research and development activities; ? our need and ability to hire additional personnel; ? our need to implement additional infrastructure and internal systems; ? the cost of establishing and maintaining a commercial-scale manufacturing line; and ? the cost of establishing sales, marketing and distribution capabilities for any products for which we may receive regulatory approval.
If we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, financial condition and results of operations could be materially adversely affected
The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):
Three months ended March 31, 2020 2019 Net cash provided by/(used in) operating activities$ 798 $ (3,456 ) Net cash used in investing activities (96 ) (10 ) Net cash provided by financing activities 260 3,049 Net increase/(decrease) in cash and cash equivalents$ 962 $ (417 )
Cash Flows from Operating Activities
Net cash provided by operating activities for the three months ended
21
Net cash used in operating activities for the three months ended
Cash Flows from Investing Activities
Net cash used in investing activities for the three months ended
Cash Flows from Financing Activities
Net cash provided by financing activities for the three months ended
Financings 2020
Subsequent to the three months ended
2019
During the three months ended
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
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