Perspective Therapeutics(CATX) - 2022 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1 - Consolidated Financial Statements (Unaudited) This section presents the company's unaudited consolidated financial statements and accompanying notes for the quarter ended September 30, 2021 Consolidated Balance Sheets (Unaudited) Total assets and stockholders' equity slightly decreased, primarily driven by a reduction in cash and cash equivalents Consolidated Balance Sheet Summary | Metric | Sep 30, 2021 (in thousands) | Jun 30, 2021 (in thousands) | Change (vs. Jun 30, 2021) | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $61,690 | $63,828 | -$2,138 | | Total current assets | $64,958 | $67,302 | -$2,344 | | Total assets | $68,710 | $70,416 | -$1,706 | | Total current liabilities | $1,799 | $1,801 | -$2 | | Total liabilities | $2,951 | $3,010 | -$59 | | Total stockholders' equity | $65,759 | $67,406 | -$1,647 | Consolidated Statements of Operations (Unaudited) The company reported an increased net loss compared to the prior year, driven by higher operating expenses despite a rise in net sales Consolidated Statement of Operations | Metric | Q3 2021 (in thousands) | Q3 2020 (in thousands) | Change (YoY) | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Sales, net | $2,564 | $2,384 | $180 | 7.55% | | Cost of sales | $1,535 | $1,138 | $397 | 34.89% | | Gross profit | $1,029 | $1,246 | -$217 | -17.42% | | Research and development | $702 | $312 | $390 | 125.00% | | Sales and marketing | $761 | $581 | $180 | 30.98% | | General and administrative | $1,840 | $1,067 | $773 | 72.45% | | Total operating expenses | $3,303 | $1,960 | $1,343 | 68.52% | | Operating loss | $(2,274) | $(714) | -$1,560 | 218.49% | | Net loss | $(2,243) | $(713) | -$1,530 | 214.59% | | Basic and diluted loss per share | $(0.02) | $(0.01) | -$0.01 | 100.00% | | Weighted average shares (Basic/Diluted) | 141,915 | 68,898 | 73,017 | 105.98% | Consolidated Statements of Cash Flows (Unaudited) Net cash used in operations increased significantly due to a larger net loss and higher inventory, resulting in a greater overall decrease in cash - The increase in net cash used by operating activities was largely due to a higher net loss and a significant increase in inventory (from $(63)K in Q3 2020 to $(796)K in Q3 2021)[12] Consolidated Statement of Cash Flows | Metric | Q3 2021 (in thousands) | Q3 2020 (in thousands) | Change (YoY) | | :--- | :--- | :--- | :--- | | Net cash used by operating activities | $(2,084) | $(338) | $(1,746) | | Net cash used by investing activities | $(54) | $(113) | $59 | | Net decrease in cash, cash equivalents, and restricted cash | $(2,138) | $(451) | $(1,687) | | Cash, cash equivalents, and restricted cash beginning of quarter | $64,010 | $2,573 | $61,437 | Consolidated Statements of Changes in Stockholders' Equity (Unaudited) Stockholders' equity decreased during the quarter due to the net loss, which was partially offset by share-based compensation - Share-based compensation contributed $596K to additional paid-in capital, while a net loss of $2,243K increased the accumulated deficit[19] Consolidated Statement of Changes in Stockholders' Equity | Metric | Jun 30, 2021 (in thousands) | Sep 30, 2021 (in thousands) | Change | | :--- | :--- | :--- | :--- | | Common Stock Amount | $142 | $142 | $0 | | Additional Paid-in Capital | $158,589 | $159,185 | $596 | | Accumulated Deficit | $(91,325) | $(93,568) | $(2,243) | | Total Stockholders' Equity | $67,406 | $65,759 | $(1,647) | Notes to the Consolidated Financial Statements (Unaudited) These notes detail the accounting policies and provide further context for the unaudited interim consolidated financial statements 1. Basis of Presentation The unaudited interim financial statements are prepared according to SEC rules and GAAP, with management expecting a 0% effective tax rate for fiscal 2022 - The Company anticipates a 0% effective income tax rate for fiscal year 2022 due to ongoing operating losses and significant net operating losses from prior fiscal years[24] 2. New Accounting Standards No new accounting standards are expected to materially impact the company's consolidated financial statements upon future adoption - Accounting standards updates to become effective in future periods are not expected to have a material impact on the consolidated financial statements[25] 3. Loss per Share Potentially dilutive securities were excluded from the loss per share calculation as their inclusion would be antidilutive due to the net loss - Due to the Company's net loss, potentially dilutive securities (preferred stock, warrants, options) were excluded from diluted EPS calculation as they would be antidilutive[27] Potential Dilutive Securities (in thousands) | Security Type | Sep 30, 2021 | Sep 30, 2020 | | :--- | :--- | :--- | | Series B preferred stock | - | 59 | | Common stock warrants | 2,646 | 6,080 | | Common stock options | 7,326 | 5,533 | | Total potential dilutive securities | 9,972 | 11,672 | 4. Inventory Total inventory increased, driven by a significant rise in non-current enriched barium due to a new consignment agreement - The Company purchased 6,000 mg of enriched barium carbonate for $720,000 in September 2021 under a new consignment agreement, significantly increasing non-current inventory[30] Inventory Breakdown (in thousands) | Inventory Type | Sep 30, 2021 | Jun 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Raw materials (current) | $757 | $645 | $112 | | Work in process | $268 | $286 | $(18) | | Finished goods | $35 | $49 | $(14) | | Total inventory, current | $1,060 | $980 | $80 | | Enriched barium (non-current) | $720 | $- | $720 | | Raw materials (non-current) | $72 | $76 | $(4) | | Total inventory, non-current | $792 | $76 | $716 | 5. Property and Equipment Net property and equipment remained stable, with the new production facility project on hold due to sufficient current capacity - Costs associated with a new production facility (approx. $207,000) are included in "Other" property and equipment, but the project is currently on hold[32] Property and Equipment, Net (in thousands) | Asset Category | Sep 30, 2021 | Jun 30, 2021 | Change | | :--- | :--- | :--- | :--- | | Land | $366 | $366 | $0 | | Equipment | $4,305 | $4,202 | $103 | | Leasehold improvements | $4,143 | $4,143 | $0 | | Other | $445 | $495 | $(50) | | Property and equipment | $9,259 | $9,206 | $53 | | Less accumulated depreciation | $(7,306) | $(7,248) | $(58) | | Property and equipment, net | $1,953 | $1,958 | $(5) | 6. Share-Based Compensation Share-based compensation expense increased significantly due to a higher number and fair value of stock option awards granted - The weighted average fair value of stock options issued increased from $0.46 in Q3 2020 to $0.58 in Q3 2021, and the number of options granted surged from 40,000 to 2,951,600[34] - As of September 30, 2021, total unrecognized compensation expense related to stock-based options was approximately $1,572,000, expected to be recognized over approximately 1.31 years[36] Share-Based Compensation Expense (in thousands) | Expense Category | Q3 2021 | Q3 2020 | Change (YoY) | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Cost of sales | $44 | $2 | $42 | 2100.00% | | Research and development expenses | $130 | $12 | $118 | 983.33% | | Sales and marketing expenses | $49 | $18 | $31 | 172.22% | | General and administrative expenses | $373 | $53 | $320 | 603.77% | | Total share-based compensation | $596 | $85 | $511 | 601.18% | 7. Commitments and Contingencies The company updated its Cesium-131 supply contracts, adding a new supplier for enriched barium carbonate manufacturing - A new supply contract with JSC Isotope for Cesium-131 is in effect from March 2021 through March 2023[39] - An addendum signed in August 2021 added MedikorPharma-Ural LLC as a supplier of enriched barium carbonate for Cesium-131 manufacturing[39] 8. Leases Operating lease expense slightly increased year-over-year, with a weighted average remaining lease term of 2.6 years - As of September 30, 2021, the weighted average remaining lease term was 2.6 years and the discount rate was 6%[41] Operating Lease Expense (in thousands) | Expense Category | Q3 2021 | Q3 2020 | Change (YoY) | | :--- | :--- | :--- | :--- | | Total operating lease expense | $77 | $73 | $4 | | Recognized in cost of sales | $49 | $46 | $3 | | Recognized in G&A expense | $28 | $27 | $1 | 9. Contracts with Customers Revenue is primarily from domestic sales, with prostate brachytherapy comprising the largest segment at 77% in Q3 2021 - For Q3 2021, prostate brachytherapy accounted for 77% of revenue, while other treatments and services comprised 23%[45] - International revenue was nominal for the three months ended September 30, 2021[45] Revenue Concentration | Customer/Facility | Q3 2021 (% of revenue) | Q3 2020 (% of revenue) | | :--- | :--- | :--- | | El Camino, Los Gatos, & other facilities | 28.5% | 25.7% | | GT Medical Technologies | 15.0% | <10.0% | Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition, operational results, and future outlook Caution Regarding Forward-Looking Information This report contains forward-looking statements subject to risks and uncertainties that may cause actual results to differ materially - All statements in the Form 10-Q, other than historical facts, that address future activities, events, or developments are forward-looking statements[49] - Forward-looking statements are subject to risks and uncertainties described in Item 1A - Risk Factors, which may cause actual results to differ materially[49] Critical Accounting Policies and Estimates The company's critical accounting policies and estimates, which require management judgment, have not materially changed - The preparation of financial statements requires management to make estimates and judgments, which are evaluated on an ongoing basis[51] - As of September 30, 2021, there have been no material changes to the critical accounting policies and estimates discussed in the Company's annual report[51] Overview Isoray manufactures and sells Cesium-131 brachytherapy seeds, has secured its supply chain, and is pursuing new R&D initiatives - Isoray manufactures and sells Cesium-131 brachytherapy seeds (Cesium Blu) for cancer treatment, utilizing its unique short half-life and energy[52][53] - The Company entered a new supply contract for Cesium-131 and a consignment agreement for enriched barium carbonate to ensure supply[55][56][58] - R&D initiatives include studying Cesium-131 in combination with immunotherapy and developing a directional dosing device for advanced abdominal cancers[59][60] Results of Operations Net sales increased 8% year-over-year, but gross profit declined 17% due to higher costs, leading to a substantial rise in operating loss Sales Net sales grew 8% year-over-year, driven by new accounts, though growth was tempered by COVID-19 related disruptions - Sales were negatively impacted by hospitals' renewed focus on COVID-19, delayed/cancelled procedures, extended physician vacations, and nursing staff shortages[63] Sales Performance (in thousands) | Metric | Q3 2021 | Q3 2020 | % Change (YoY) | | :--- | :--- | :--- | :--- | | Sales, net | $2,564 | $2,384 | 8% | | Cost of sales | $1,535 | $1,138 | 35% | | Gross profit | $1,029 | $1,246 | (17)% | Sales by Application (in thousands) | Application | Q3 2021 Amount | Q3 2021 % of Sales | Q3 2020 Amount | Q3 2020 % of Sales | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | :--- | | Prostate brachytherapy | $1,973 | 77% | $1,890 | 79% | 4% | | Other sales | $591 | 23% | $494 | 21% | 20% | | Total Sales, net | $2,564 | 100% | $2,384 | 100% | 8% | Prostate Brachytherapy Prostate sales grew 4% year-over-year, with future growth anticipated from a projected increase in new cancer diagnoses - Prostate sales increased by 4% YoY, but growth was limited by hospital focus on COVID-19 and related procedure delays[68] - The American Cancer Society estimates a nearly 30% increase in new prostate cancer cases in 2021, which management believes will drive continued growth[69] - The Company began treating patients with C4 Imaging's Sirius® positive-signal MRI markers with Cesium-131 seeds in October[70] Other Sales Other sales grew 20% year-over-year, with new billing codes expected to boost future usage and reimbursement - Other sales increased by 20% YoY, mainly due to increased services and treatments for pelvic and lung cancers[71] - CMS approved 64 new ICD-10-PCS billing codes for Cesium-131, which are expected to provide greater impetus for usage and reimbursement[74][75] GammaTile™ Isoray is a contract manufacturer for GammaTile™ Therapy, with revenues from this partnership comprising 15% of total sales - Isoray is a contract manufacturer for GammaTile™ Therapy, which delivers Cesium-131 brachytherapy seeds for brain cancer treatment[76] - GammaTile™ Therapy received expanded FDA clearance in January 2020 to include treatment of newly diagnosed malignant brain tumors[77][78] - Total revenues from sales to GT Med Tech were approximately 15% of total sales for the three months ended September 30, 2021[78] Cost of sales Cost of sales increased 35% year-over-year, driven by higher isotope, materials, labor, and depreciation expenses - Cost of sales increased by 35% YoY, driven by higher isotope and other materials costs, increased labor, and higher depreciation[80] - Lower than forecasted sales volumes resulted in excess unused isotope, contributing to increased cost of sales[80] Gross Profit Gross profit declined 17% year-over-year due to lower-than-anticipated sales volumes and increased isotope and payroll costs - Gross profit declined by 17% YoY, attributed to lower sales volumes, increased isotope costs due to excess unused inventory, and higher payroll and material costs[81] Research and development R&D expenses increased 125% year-over-year, driven by higher payroll and consulting expenses for market research - R&D expenses increased by 125% YoY, driven by higher payroll and increased market research consulting, partially offset by reduced investment in the Blu Build™ delivery system[83] - The Company received FDA 510k clearance for C4 Imaging's Sirius® positive-signal MRI markers with Cesium-131 seeds in December 2020[85] Sales and marketing expenses Sales and marketing expenses rose 31% year-over-year due to increased travel, tradeshow, and payroll costs as COVID-19 restrictions eased - Sales and marketing expenses increased by 31% YoY, mainly due to higher travel and tradeshow costs and increased payroll[88] General and administrative expenses G&A expenses increased 72% year-over-year, driven by higher payroll, insurance, professional fees, and a shift in stock grant timing - G&A expenses increased by 72% YoY, attributed to higher payroll, hiring expenses, IT consulting, D&O insurance, public company expenses, audit/legal fees, and travel[90] - The timing of annual employee and director stock grants in July 2021 increased share-based compensation expense in Q3 2021[90] Impact of COVID-19 Sales revenue remained below pre-pandemic levels as hospitals' focus on COVID-19 variants led to delayed or cancelled procedures - Despite an 8% sales increase in Q3 2021 YoY, revenues remained below pre-COVID-19 levels due to the Delta variant's impact on procedures[92] - The Company missed its target of 25% increased revenue in Q3 2022 due to the Delta variant and increased physician vacations[93] Liquidity and capital resources The company projects sufficient cash for the next twelve months but forecasts increased cash needs for strategic investments Cash flows from operating activities Net cash used by operating activities increased significantly, driven by a larger net loss and increased inventory purchases - Net cash used by operating activities was $2.084 million in Q3 2021, primarily driven by a $2.24 million net loss and increased inventory[97] - The increase in inventory was mainly due to the purchase of enriched barium carbonate[97] Cash flows from investing activities Investing activities primarily involved the purchase of fixed assets, with plans to continue investing in production technology Cash Used in Investing Activities (in thousands) | Metric | Q3 2021 | Q3 2020 | Change (YoY) | | :--- | :--- | :--- | :--- | | Additions to property and equipment | $(54) | $(113) | $59 | | Net cash used by investing activities | $(54) | $(113) | $59 | Cash flows from Financing activities There were no financing activities during the quarters ended September 30, 2021, and 2020 - No financing activities occurred in Q3 2021 or Q3 2020[100] Projected fiscal 2022 liquidity and capital resources Management forecasts increased cash needs for fiscal 2022 but expects current cash to be sufficient for the next twelve months - Fiscal 2022 cash requirements are projected to increase due to planned investments in sales & marketing, R&D, and G&A[101] - Current cash and cash equivalents are expected to be sufficient for projected operating cash needs for the next twelve months[101] - The Company anticipates reaching cashflow break-even in three to four years, assuming a 25% annual revenue growth[101] Capital expenditures Construction of a new facility is on hold as current production capacity is sufficient, with a focus on deploying capital to support sales growth - The design for a new production and administration facility is complete, but construction is on hold due to sufficient current production capacity[102] - Management is reviewing all operations to efficiently deploy capital for materials, systems, and personnel to drive sales[103] Financing activities Future capital needs are expected to be financed through equity sales, collaborations, or debt, which may be dilutive to stockholders - Future capital needs are expected to be financed through equity sales, strategic collaborations, or debt financing, which may be dilutive to existing stockholders[105] Other commitments and contingencies There have been no material changes to other commitments and contingencies outside the ordinary course of business - No material changes to other commitments and contingencies occurred in Q3 2021, other than those disclosed in Note 7[106] Off-balance sheet arrangements The Company has no off-balance sheet arrangements - The Company has no off-balance sheet arrangements[107] Critical accounting policies and estimates The discussion reiterates that financial statements rely on management's estimates and no changes occurred in Q3 2021 - The preparation of consolidated financial statements requires management to make estimates and judgments, which are evaluated on an ongoing basis[108] - There have been no changes to critical accounting policies and estimates during the three months ended September 30, 2021[109] Item 3 - Quantitative and Qualitative Disclosures About Market Risk This section states that there are no quantitative and qualitative disclosures about market risk applicable to the Company - This item is not applicable to the Company[110] Item 4 - Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021 - Management concluded that the Company's disclosure controls and procedures were effective as of September 30, 2021[111] - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter[112] PART II - OTHER INFORMATION Item 1 - Legal Proceedings The Company has nothing to disclose regarding legal proceedings - There are no legal proceedings to disclose[114] Item 1A - Risk Factors A new material risk highlights heavy reliance on three customers, while uncertainty regarding Medicare reimbursement has been favorably resolved - Approximately 50% of the Company's revenues are dependent on three customers, with one group accounting for 29%, posing a material risk if any are lost[115] - CMS finalized a rule to keep all brachytherapy on a fee-for-service model, removing it from the bundled RO APM, which management believes is favorable[119][120] Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds to disclose - None to disclose[123] Item 3 - Defaults Upon Senior Securities There were no defaults upon senior securities to disclose - None to disclose[123] Item 4 - Mine Safety Disclosures This item is not applicable to the Company - Not applicable[124] Item 5 - Other Information There is no other information to disclose - None to disclose[125] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including supply contracts, agreements, and officer certifications - Key exhibits include addendums to the Cesium-131 supply contract and a new consignment agreement with MedikorPharma-Ural LLC[127] - The filing includes Rule 13a-14(a)/15d-14(a) certifications from the Principal Executive Officer and Co-Principal Financial Officers, as well as Section 1350 Certifications[127] Signatures The report is signed by the Chief Executive Officer, Chief Financial Officer, and Vice President of Finance and Corporate Controller - The report was signed by Lori A. Woods (CEO), Jonathan Hunt (CFO), and Mark J. Austin (VP of Finance and Corporate Controller) on November 10, 2021[128][129]