FPMI: New Capital, Industry Veteran Hired

Zacks Small Cap Research
November 19, 2013

By Brian Marckx, CFA

Q3 2013 10-Q Filed

FluoroPharma (OTC BB:FPMI) filed their 10-Q for the third quarter ending September 30, 2013.  Aside from operating expenses continuing to come in beneficially lower than our numbers, results remain mostly in-line with our estimates.  Cash burn also remains within our expectations.

Q3 operating expenses were $900k, about $200k lower than Q2 and about one-half as much as our $1.8 million estimate.  We continue to expect operating expenses to increase with clinical trials progression.  Q3 net loss to common and EPS were $2.5 million and ($0.10) but excluding $1.35 million accounted for as non-cash preferred dividends ("deemed dividend") related to revaluation of the conversion feature of the recently issued Series B preferred stock, net loss to common and EPS were $1.2 million and ($0.05), compared to our $1.9 million loss and ($0.07) estimates.

Cash used in operating activities was $564k in Q3, down from $765k in Q2.  Cash burn is averaging about $670k/quarter in 2013, down from about $825k/quarter in 2012.

Shored-Up Balance Sheet
FPMI also significantly shored up their cash position and balance sheet during the third quarter.  In Q3 the company raised almost $4.1 million gross through the sale of Series B preferred stock (5.2 million shares with 133% warrant coverage).  Gross proceeds to FPMI included $547k cash ($478k net), 1.23 million shares of freely-tradeable NAVB common stock (which was valued at about $3.5 million at time of closing but which is valued at about $1.9 million today based on NAVB's current share price).  In addition, concurrent with the financing, $275k principal of promissory notes were converted to equity in accordance with a provision that required conversion (at a 10% premium) upon a subsequent financing.

As of the 9/30/2013 balance sheet date, FPMI had $123k in cash and $3.3 million worth of NAVB common stock.  FPMI notes in the 10-Q that subsequent to the end of Q3 ("as of 10/31/2013"), they received $1.1 million gross proceeds from the sale of these freely tradeable securities  - neither the number of shares nor average selling price was disclosed.  FPMI has the option to issue up to an additional $2.7MM of preferred shares at any time until January 15, 2014.  We expect this financing arrangement, which we believe was also very wisely structured and shareholder friendly, to provide the resources necessary to help expedite the development of CardioPET and BFPET through at least phase II trials.

As a reminder, in an 8-K filed in September, FPMI announced a securities purchase agreement includes the sale of up to $7 million of Series B preferred stock with 133.1% warrant coverage.  The preferred shares are convertible to common at $0.80/share.  The five-year warrants are exercisable into common at $0.83/share.  The preferreds accrue dividends at 10% annually.  Dividends are payable in additional preferred shares (paid-in-kind) and are payable on the third anniversary following the issuance date or upon conversion into common stock.

In addition to the preferred being sold at a premium to where the common was trading at the time of the announcement, another somewhat unique (and particularly interest-piquing) aspect of this financing arrangement is that Platinum-Montaur Life Sciences, was the lead investor and purchased 4.5 million preferred shares ($3.6MM) in exchange for the 1.23 million freely-tradeable shares of Navidea Biopharmaceuticals, Inc (NAVB).  Platinum-Montaur, the healthcare division of Platinum Partners which has over $1 billion under management, is a major financier and investor in NAVB, which is involved in the development of radiopharmaceuticals primarily aimed at oncology applications.  As we noted when the financing arrangement was first announced, we view Platinum's involvement with FPMI is a meaningful vote of confidence - and the exchange of NAVB stock for preferred as somewhat intriguing.

Industry Veteran Hired to Lead Commercialization Strategy
In late October FPMI announced that they brought on Edward Lyons to fill the newly created position of V.P. of Marketing.  He comes with an impressive background which presumably offers FPMI potentially valuable industry contacts as well as significant operational and product specific knowledge.  Mr. Lyons, who was with GE Healthcare as that company's Global Marketing Director, Nuclear Medicine, will head FPMI's marketing and commercialization strategy.  Mr. Lyons comes with a vast background in diagnostic imaging including positions with Bristol-Myers and DuPont Pharmaceuticals and culminating with the high-level position at advanced imaging giant, GE Healthcare.  FPMI's press release also notes that Mr. Lyons was Chief Technologist in Nuclear Medicine and Nuclear Cardiology at Philadelphia Hear Institute and Temple University Hospital.

Product Development Progress
FluoroPharma continues to make progress with development of their pipeline while managing their financial resources.  Development timelines have been pushed back only very slightly from prior expectations and not significant enough to change our projected eventual launch timelines.  Full data from the CardioPET studies are now expected in 2014, a slight delay from the end of 2013.  Interim data is expected to be presented in January 2014.  We also think that there may be a slight delay with initiation of BFPET studies  - we had previously expected this to happen by the end of 2013 but now think this may be delayed until early 2014 due to slow enrollment. 

In June the company announced that an internal review of additional data from their ongoing phase II clinical study of CardioPET supports earlier findings of excellent image quality.  CardioPET is being developed as a PET imaging agent to better diagnose acute and chronic coronary artery disease (CAD) in patients that can not undergo stress testing, among other potential indications.  The Belgian-based phase II trial is an open label study designed to assess safety and performance of CardioPET compared to SPECT myocardial perfusion imaging (MPI) agents and angiography.  As a reminder, on 2/28/2013 FPMI announced that the initial images from the phase II trial "show high resolution in the heart and provides extremely clear image quality".  While FPMI did not provide specifics on the images in the recent June press release, Dr. Manual Cerqueira, Chairman of the Department of Nuclear Medicine at the Cleveland Clinic was quoted and noted, "The images thus far obtained from CardioPET indicate excellent image quality. The immediate acquisition of images will be very efficient for patient work flow."  FPMI expects to present the interim data in January 2014 with full results in 2014.

In early January FPMI announced that phase II trials of BFPET will be conducted at Massachusetts General Hospital.  Similar to the investigator-led study, the phase II study will compare BFPET to Rb-82 and/or traditional SPECT agents such as sestamibi which suffer from certain drawbacks such as high cost or comparably (relative to BFPET) lower image quality.  While we had expected this study to initiate by the current year-end, FPMI recently noted that enrollment has been progressing slowly, which we think may delay initiation until early 2014.

We have made no material changes to our financial projections following Q3 results.  We think 2016 or 2017 could potentially be initial launch year of FPMI's first commercialized product.  We are maintaining our Outperform rating.   

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