PULMATRIX, INC. The information set forth below should be read in conjunction with our
consolidated financial statements and related notes thereto included elsewhere
in this Annual Report on Form 10-K. This discussion and analysis contain
forward-looking statements based on our current expectations, assumptions,
estimates and projections. These forward-looking statements involve risks and
uncertainties. Our actual results could differ materially from those indicated
in these forward-looking statements as a result of certain factors, including
those discussed in Item 1 of this Annual Report on Form 10-K, entitled
"Business," under "Forward-Looking Statements" and Item 1A of this Annual Report
on Form 10-K, entitled "Risk Factors." References in this discussion and
analysis to "us," "we," "our," or our "Company" refer to
Overview
We are a clinical stage biotechnology company focused on the discovery and development of novel inhaled therapeutic products intended to prevent and treat respiratory 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"), lung cancer, and in patients suffering from neurological diseases such as acute migraine.
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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. The iSPERSE technology may potentially improve upon the known efficacy and safety profile of currently available therapies. Our current pipeline is aligned to this goal with the Pulmazole program for inhaled antifungal therapy to treat ABPA in patients with asthma, the PUR3100 program for treatment of acute migraine, and the PUR1800 program, which has potential application in both lung cancer and chronic obstructive pulmonary disease ("COPD"). All of these programs leverage improvements provided by iSPERSE. 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 and biotechnology companies or academic or private research institutes.
We do not have any products approved for sale and have not generated any revenue from our product sales. We fund our operations through proceeds from issuances of common stock, licensing agreements, collaborations with third parties and non-dilutive grants.
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;
? expand clinical trials for PUR1800 focused on COPD and lung cancer prevention;
? continue preclinical studies of PUR3100 for treatment of acute migraine to
enable a Phase 2 study start in early 2022
? 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 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 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
License, Development and Commercialization Agreement with JJEI
On
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As consideration for our entry into the JJEI License Agreement, JJEI paid an
upfront fee of
Under the terms of the JJEI License Agreement, JJEI will have three months from
the later of (1) the completion of a Phase 1b clinical study for the Licensed
Product and JJEI's receipt of audited final reports and (2) JJEI's receipt of
audited draft reports for a toxicology study of the Licensed Product to exercise
the option. If the option is not exercised, we may terminate the JJEI License
Agreement by providing a 30-day written notice, and all licenses will revert
back to
In
Development and Commercialization Agreement with Cipla
On
Pursuant to the Cipla Agreement, Cipla made an initial upfront payment of
We initiated a Phase 2 study in 2019, entitled: "A Randomized, Double-Blind,
Multicenter, Placebo-Controlled, Phase 2 Study to Evaluate the Safety,
Tolerability, and Pharmacokinetics of Itraconazole Administered as a Dry Powder
for Inhalation (PUR1900) in Adult Asthmatic Patients with ABPA. This study was
terminated in
We conducted a Type C meeting with the FDA on
In addition to the planned new Phase 2b study, as part of the contemplated
amendments to the Cipla Agreement, we may assign to Cipla the exclusive rights
to develop and commercialize Pulmazole in
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Collaboration and License Agreement with Sensory Cloud
On
Under the Sensory Cloud Agreement, we are entitled to royalties on net sales of
licensed products in each country in which there is a valid claim of a patent
within the licensed intellectual property covering the licensed product. 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, we are entitled to a milestone payment of
Sensory Cloud launched product sales of FEND during the fourth quarter 2020 and
minimal royalties have been recorded during the period ending
Financial Overview
To date, we have not generated any product sales. Our 2020 revenue was primarily generated through the recognition of revenue from both the Cipla Agreement and the JJEI Agreement and includes minimal royalties generated by sales of FEND by Sensory Cloud. Our 2019 recognized revenue resulted from the Cipla Agreement.
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 share-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 85%, of our staff are research and development employees. In addition, we maintain a 22,119 square foot research and development facility which includes laboratory space and capital equipment to promote our iSPERSE powders for our pipeline programs. As we identify opportunities for iSPERSE in additional 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.
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General and Administrative Expenses
General and administrative expenses consist principally of salaries, benefits 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 legal fees. Other general and administrative expenses include travel expenses, expenses related to being 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
Impairment of
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 consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.
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 our license and reimbursement arrangement that related to the JJEI Agreement. 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.
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During the year ended
Milestone Payments
At the inception of each arrangement that includes research or development
milestone payments, we evaluate 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 our control or the
licensee, such as regulatory approvals, are not considered probable of being
achieved until those approvals are received. We evaluate 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, we reevaluate the probability of achievement of all milestones
subject to constraint and, if necessary, adjust the 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, we recognize 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, we have recognized an insignificant amount of royalty revenue in the fourth quarter 2020 which resulted from a licensing arrangement.
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
Leases
At the inception of an arrangement, we determine whether the arrangement is, or contains a lease, based on the unique facts and circumstances present. Most leases with a term greater than one year are recognized on the balance sheet as right-of-use assets, lease liabilities and long-term lease liabilities. We have elected not to recognize on the balance sheet leases with terms of one year or less. Options to renew a lease are not included in our initial lease term assessment unless there is reasonable certainty that we will renew. We evaluate our plans to renew any material lease on a quarterly basis.
Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of lease payments over the expected remaining lease term. However, certain adjustments to the right-of-use asset may be required for items, such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, we utilize our incremental borrowing rates, which are the rates incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
Goodwill
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Basic and Diluted Net Loss Per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common stock outstanding during the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period. In periods in which we report a net loss, diluted net loss per share is the same as basic net loss per share because common stock equivalents are excluded as their inclusion would be anti-dilutive.
Income Taxes
Income taxes are recorded in accordance with
We account for uncertain tax positions in accordance with the provisions of ASC
740. When uncertain tax positions exist, we recognize the tax benefit of tax
positions to the extent that the benefit will more likely than not be realized.
The determination as to whether the tax benefit will more likely than not be
realized is based upon the technical merits of the tax position, as well as
consideration of the available facts and circumstances. As of
Results of Operations
Comparison of the Years Ended
The following table sets forth our results of operations for each of the periods set forth below (in thousands):
Year ended
December 31,
2020 2019 Change
Revenues $ 12,634 $ 7,910 $ 4,724
Operating expenses
Research and development 15,609 12,845 2,764
General and administrative 6,887 8,489 (1,602 )
Impairment of Goodwill - 7,268 (7,268 )
Total operating expenses 22,496 28,602 (6,106 )
Loss from operations (9,862 ) (20,692 ) 10,830
Other income (expense)
Interest income 82 301 (219 )
Settlement expense - (200 ) 200
Warrant inducement expense (9,289 ) - (9,289 )
Other expense, net (239 ) (5 ) (234 )
Loss before income taxes $ (19,308 ) $ (20,596 ) $ 1,288
Net loss $ (19,308 ) $ (20,596 ) $ 1,288 Revenue - Revenue was
Research and development expenses - Research and development expense was
General and administrative expenses - General and administrative expense was
Impairment of goodwill - In 2020 and 2019, the Company performed an impairment
assessment and concluded that during 2019, the carrying amount of the goodwill
exceeded its fair value and recorded the resulting impairment charges of
Warrant inducement expenses - During 2020 we executed a warrant exercise
inducement transaction with existing investors who held existing and outstanding
warrants that had an exercise price of
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Liquidity and Capital Resources
At
We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. If unable to raise additional capital when required or on acceptable terms we may have to (i) delay, scale back or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaborators for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize ourselves on unfavorable terms.
Under the JJEI License Agreement, we are also eligible to earn a
We expect that our existing cash and cash equivalents at
During the year ended
In
The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):
Year ended
December 31,
2020 2019
Net cash (used in)/provided by operating activities $ (12,483 ) $ 3,230
Net cash used in investing activities (281 ) (58 )
Net cash provided by financing activities 20,981 17,705
Net increase in cash and cash equivalents $ 8,217 $ 20,877 Cash Flows from Operating Activities
Net cash used in operating activities for the year ended
Net cash provided by operating activities for the year ended
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Cash Flows from Investing Activities
Net cash used in investing activities for the years ended
Cash Flows from Financing Activities
Net cash provided by financing activities for the year ended
Net cash provided by financing activities for the year ended
Financings
Based on our planned use for our existing cash resources, we believe that our available funds will enable us to support administrative, preclinical, clinical, and chemistry manufacturing and control activities in support our programs for at least 12 months following the filing date of this Annual Report on Form 10-K. We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
? 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, or defend against claims of infringement by
others;
? 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.
2021 Financings
On
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.
2020 Financings
On
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On
2019 Financings
On
On
After giving effect to
On
We recorded gross proceeds of
All of the 8,947,112 pre-funded warrants issued in the offering were exercised
during 2019 which resulted in the issuance of an additional 8,647,112 shares of
common stock with net proceeds of
Exercise of Warrants
During January and
Commitments
We contract with various other organizations to conduct research and development
activities. As of
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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