Pulmatrix, Inc. (Form: 10-Q, Received: 11/09/2017 17:03:35)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36199

PULMATRIX, INC.

(Exact name of registrant as specified in its charter)


Delaware		46-1821392
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

99 Hayden Avenue, Suite 390 Lexington, MA		02421
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (781) 357-2333

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 8, 2017 the registrant had 21,047,498 shares of common stock outstanding.

PULMATRIX, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements			3

Condensed Consolidated Balance Sheets as of September 30, 2017 (unaudited) and December 31, 2016			3

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2017 (unaudited) and 2016			4

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 (unaudited) and 2016			5

Notes to Condensed Consolidated Financial Statements (unaudited)			6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			15

Item 3. Quantitative and Qualitative Disclosures About Market Risk			22

Item 4. Controls and Procedures			23

PART II — OTHER INFORMATION

Item 1. Legal Proceedings			23

Item 1A. Risk Factors			23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			23

Item 3. Defaults Upon Senior Securities			23

Item 4. Mine Safety Disclosures			23

Item 5. Other Information			23

Item 6. Exhibits			24

SIGNATURES			25

PART I — FINANCIAL INFORMATION

Item 1.

Financial Statements.

PULMATRIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)


	At September 30, 2017			At December 31, 2016
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	6,360		$	4,182
Accounts Receivable		305			—
Prepaid expenses and other current assets		885			577

Total current assets		7,550			4,759
Property and equipment, net		657			786
Long-term restricted cash		204			204
Goodwill		10.914			10,914

Total assets	$	19,325		$	16,663

Liabilities and stockholders’ equity
Current liabilities:
Loan payable, net of debt discount and issuance costs	$	3,896		$	2,586
Accounts payable		1,027			747
Accrued expenses and other current liabilities		1,587			1,317

Total current liabilities		6,510			4,650
Loan payable, net of current portion, debt discount and issuance costs		—			3,217
Derivative liability		35			35

Total liabilities		6,545			7,902

Commitments (Note 14)
Stockholders’ Equity (Deficit):
Preferred stock, $0.0001 par value—500,000 authorized and 0 issued and outstanding at September 30, 2017 and December 31, 2016		—			—
Common stock, $0.0001 par value—100,000,000 shares authorized; 20,426,451 and 14,850,526 shares issued and outstanding including vested restricted stock units of 0 and 99,308, at September 30, 2017 and December 31, 2016, respectively.		2			1
Additional paid-in capital		182,256			164,706
Accumulated deficit		(169,478	)		(155,946	)

Total stockholders’ equity		12,780			8,761

Total liabilities and stockholders’ equity	$	19,325		$	16,663

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

PULMATRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except share and per share data)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues	$	335		$	61		$	335		$	718
Operating expenses
Research and development		2,618			1,507			7,654			7,378
General and administrative		2,021			1,550			5,727			6,173
Write-off of intangibles, net of tax provision		—			—			—			4,575

Total operating expenses		4,639			3,057			13,381			18,126

Loss from operations		(4,304	)		(2,996	)		(13,046	)		(17,408	)
Interest expense		(153	)		(225	)		(512	)		(673	)
Other income, net		5			64			26			68

Net loss	$	(4,452	)	$	(3,157	)		( 13,532	)		(18,013	)

Net Loss Attributable to Common Stockholders	$	(4,452	)	$	(3,157	)	$	(13,532	)	$	(18,013	)

Net loss per share attributable to common stockholders, basic and diluted	$	(0.22	)	$	(0.21	)	$	(0.72	)	$	(1.22	)

Weighted average shares used to compute basic and diluted net loss per share attributable to common stockholders		20,200,893			14,850,526			18,738,118			14,803,378

The accompanying footnotes are an integral part of these condensed consolidated financial statements.

PULMATRIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)


	For the Nine Months Ended September 30,
	2017			2016
Cash flows from operating activities:
Net loss	$	(13,532	)	$	(18,013	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		186			183
Write-off of intangible assets, net of tax provision		—			4,575
Stock-based compensation		2,077			2,878
Stock issued for consulting services in connection with the Ruthigen, Inc. merger
Non-cash rent expense		16			32
Non-cash interest expense		135			159
Non-cash debt issuance expense		9			13
Loss/(Gain) on disposal of property and equipment		—			(60	)
Changes in operating assets and liabilities:
Accounts Receivable		(305	)		—
Prepaid expenses and other current assets		(308	)		538
Accounts payable		259			(689	)
Accrued expenses		198			(402	)
Restricted cash		—			46

Net cash used by operating activities		(11,265	)		(10,740	)

Cash flows from investing activities:
Purchases of property and equipment		(36	)		(437	)

Net cash (used in) provided by investing activities		(36	)		(437	)

Cash flows from financing activities:
Net proceeds from issuance of common stock		15,170			—
Proceeds from exercise of stock options		304			—
Term loan principal payments		(1,995	)		(412	)

Net cash provided by (used in) financing activities		13,479			(412	)

Net increase (decrease) in cash and cash equivalents		2,178			(11,589	)
Cash and cash equivalents — beginning of period		4,182			18,902

Cash and cash equivalents — end of period	$	6,360		$	7,313

Supplemental disclosures of noncash financing and investing activities:
Fixed Asset purchases in account payable	$	21		$	—

PULMATRIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2017

(unaudited)

(in thousands, except share and per share data)

1. Organization

Pulmatrix, Inc. and its subsidiaries (the “Company”) is a clinical stage biotechnology company focused on the discovery and development of a novel class of inhaled therapeutic products. The Company’s proprietary dry powder delivery platform, iSPERSE™ (inhaled Small Particles Easily Respirable and Emitted), is engineered to deliver small, dense particles with highly efficient dispersibility and delivery to the airways, which can be used with an array of dry powder inhaler technologies and can be formulated with a variety of drug substances. The Company is developing a pipeline of iSPERSE-based therapeutic candidates targeted at prevention and treatment of a range of respiratory diseases and infections with significant unmet medical needs.

Liquidity

At September 30, 2017, the Company had unrestricted cash and cash equivalents of $6,360, an accumulated deficit of $169,478 and working capital of $1,040. The Company will be required to raise additional capital within the next year to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels.

The Company cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that the Company raises additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business. If unable to raise additional capital when required or on acceptable terms, the Company 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 the Company would otherwise seek to develop or commercialize on unfavorable terms.

On June 9, 2017, the Company entered into a License, Development and Commercialization Agreement (the “License Agreement”) with RespiVert Ltd. (“RespiVert”), a wholly owned subsidiary of Janssen Biotech, Inc., pursuant to which RespiVert granted the Company an exclusive, royalty-bearing license in its intellectual property portfolio of materials and technology related to narrow spectrum kinase inhibitor compounds (the “Licensed IP”), to develop and commercialize products worldwide that incorporate the Licensed IP. Under the terms of the License Agreement, the Company paid RespiVert an up-front, non-refundable license fee of $1,000,000 in partial consideration for the rights granted by RespiVert to the Company, and will pay RespiVert designated amounts when any licensed product achieves certain developmental milestones (see Note 6).

During the nine months ended September 30, 2017, the Company sold 5,432,313 shares of its common stock for aggregate net proceeds of $15,170. (See Note 9).

The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional equity or debt financing and, ultimately, to generate revenue. Those factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s condensed consolidated financial statements as of September 30, 2017 do not include any adjustments that might become necessary should the Company be unable to continue as a going concern.

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared on a going concern basis in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X, Rule 10-01. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, the Company must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the three and nine months ended September 30, 2017, are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2017. For further information, refer to the financial statements and footnotes included in the Company’s annual financial statements for the fiscal year ended December 31, 2016, which are included in the Company’s annual report on Form 10-K filed with the SEC on March 10, 2017.

3. Summary of Significant Accounting Policies

In the nine months ended September 30, 2017, there were no changes to the Company’s significant accounting policies identified in the Company’s most recent annual financial statements for the fiscal year ended December 31, 2016, which are included in the Company’s current report on Form 10-K filed with the SEC on March 10, 2017, except as noted below.

Recent Accounting Standards

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which requires an entity to recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to customers. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective in the annual period ending December 31, 2017, including interim periods within that annual period. Early application is not permitted. The standard permits the use of either the retrospective or cumulative effect transition method. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

There have been four new ASUs issued amending certain aspects of ASU 2014-09, ASU 2016-08, “ Principal versus Agent Considerations (Reporting Revenue Gross Versus Net), ” was issued in March, 2016 to clarify certain aspects of the principal versus agent guidance in ASU 2014-09. In addition, ASU 2016-10, “ Identifying Performance Obligations and Licensing,” issued in April 2016, amends other sections of ASU 2014-09 including clarifying guidance related to identifying performance obligations and licensing implementation. ASU 2016-12, “Revenue from Contracts with Customers — Narrow Scope Improvements and Practical Expedients” provides amendments and practical expedients to the guidance in ASU 2014-09 in the areas of assessing collectability, presentation of sales taxes received from customers, noncash consideration, contract modification and clarification of using the full retrospective approach to adopt ASU 2014-09. Finally, ASU 2016-20, “ Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers,” was issued in December 2016, and provides elections regarding the disclosures required for remaining performance obligations in certain cases and also makes other technical corrections and improvements to the standard. With its evaluation of the impact of ASU 2014-09, the Company will also consider the impact on its financial statements related to the updated guidance provided by these four new ASUs.

In January 2017, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update (ASU) 2017-04: “Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”), which removes Step 2 from the goodwill impairment test. It is effective for annual and interim periods beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment test performed with a measurement date after January 1, 2017. The Company has adopted this standard and its impact on its consolidated financial statements and related disclosures was immaterial.

In May 2017, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update (ASU) 2017-09: Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting which clarifies which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The standard is effective beginning after December 15, 2017; early adoption is permitted. The Company has adopted this standard and its impact on its consolidated financial statements and related disclosures was immaterial.

In July 2017, FASB issued ASU No. 2017-11, Earnings per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). ASU 2017-11 consists of two parts. The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt—Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update re-characterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect. The Company is in the process of evaluating this ASU and adoption of this ASU is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

Use of Estimates

In preparing consolidated financial statements in conformity with U.S. 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 fair value of net assets acquired in business combinations, 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.

Revenue Recognition

The Company’s principal sources of revenue during the reporting periods were 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.

In August 2017, the Company received an award from Cystic Fibrosis Foundation Therapeutics (“CFFT”), the nonprofit drug discovery and development affiliate of the Cystic Fibrosis Foundation, to support the development of its lead inhaled anti-fungal product candidate PUR1900 for the treatment of allergic bronchopulmonary aspergillosis in patients with cystic fibrosis and asthma. During the three and nine months ended September 30, 2017, the Company generated $305 of revenue related to a grant received from CFFT.

Goodwill

Goodwill represents the difference between the consideration transferred and the fair value of the net assets acquired and liabilities assumed under the acquisition method of accounting for push-down accounting. Goodwill is not amortized but is evaluated for impairment within the Company’s single reporting unit on an annual basis, during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company’s reporting unit below its carrying amount. When performing the impairment assessment, the accounting standard for testing goodwill for impairment permits a company to first assess the qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the goodwill is impaired. If the Company believes, as a result of the qualitative assessment, that it is more likely than not that the fair value of goodwill is impaired, the Company must perform the first step of the goodwill impairment test. The Company completed a qualitative assessment and determined that there was no impairment of goodwill as of September 30, 2017.

4. Goodwill

The Company recognized $10,914 of goodwill and as of September 30, 2017, there was no impairment. Goodwill has been assigned to the Company’s single reporting unit.

5. Prepaid Expenses and Other Current Assets

Prepaid expenses consisted of the following:


	At September 30, 2017		At December 31, 2016
Prepaid Insurance		273		197
Prepaid Clinical Trials		143		9
Prepaid Other		79		58
Stock Subscriptions		—		206
Deferred Clinical Costs		390		107

Total prepaid and other current assets	$	885	$	577

6. Significant Agreements

License, Development and Commercialization Agreement

On June 9, 2017, the Company entered into a License Agreement with RespiVert, a wholly owned subsidiary of Janssen Biotech, Inc., pursuant to which RespiVert granted the Company an exclusive, royalty-bearing license to its Licensed IP, to develop and commercialize products worldwide that incorporate the Licensed IP. The development, application, design and marketing of the Licensed IP and any licensed products will be managed exclusively by the Company.

Under the terms of the License Agreement, the Company paid RespiVert an up-front, non-refundable license fee of $1,000,000 in partial consideration for the rights granted by RespiVert to the Company, and will pay RespiVert designated amounts when any licensed product achieves certain developmental milestones. Following the commencement of commercial sales of the licensed products, the Company will pay RespiVert designated amounts when certain milestone events occur. The development milestones and commercial milestones range from $1,000,000 to $80,000,000 depending upon the significance of the particular milestone. The Company is also required to pay RespiVert royalties on all sales of licensed products, with such royalties ranging from 6%—10% of sales.

The License Agreement terminates upon the expiration of the Company’s obligation to pay royalties for all licensed products, unless earlier terminated. In addition, the License Agreement may be terminated (i) by the Company for any reason upon 120 days’ advance notice to RespiVert; (ii) by RespiVert upon receipt of notice from the Company of either voluntary or involuntary insolvency proceedings of the Company; and (iii) by either party for a material breach which remains uncured following the applicable cure period.

The Company recorded $1,000,000 in research and development expense for the upfront license fee during the nine month period ended September 30, 2017. The next likely development milestone payment would be $1,000,000 and result from first dosing of a patient in a Phase IIb Clinical Trial for a licensed product.

Feasibility and Development Agreement

On September 5, 2017, the Company entered into a Feasibility and Development Agreement to develop Pulmatrix’s drug candidate, PUR0200, for chronic obstructive pulmonary disease (COPD) for the U.S. market with Vectura Limited (“Vectura”). Vectura and/or its partners will be responsible for all future development costs to advance the product for the U.S. Pulmatrix will provide the data package for PUR0200 and assist with the transfer of development and manufacturing activities to Vectura. As part of the agreement, a technology access fee of $1 million will be payable to Pulmatrix upon successful achievement of pre-agreed pharmaceutical development criteria. Vectura will commence development immediately and will pay Pulmatrix a mid-teen percentage share of any future revenues that Vectura receives relating to future development and sale of PUR0200 and PUR0200-related products including future combinations.

7. Debt

Loan and Security Agreement and Warrant Agreement

On June 11, 2015, Pulmatrix Operating entered into a Loan and Security Agreement (“LSA”) with Hercules Technology Growth Capital, Inc. (“Hercules”), for a term loan in the original principal amount of $7,000 (“Term Loan”). The term loan is secured by substantially all of the Company’s assets, excluding intellectual property. As of September 30, 2017, the outstanding principal balance of the term loan was $3,959.

The term loan bears interest at a floating annual rate equal to the greater of (i) 9.50% and (ii) the sum of (a) the prime rate as reported by The Wall Street Journal minus 3.25% plus (b) 8.50%. The Company is required to make interest payments in cash on the first business day of each month, beginning on July 1, 2015. Beginning on August 1, 2016, the Company began to make monthly payments on the first business day of each month consisting of principal and interest based upon a 30-month amortization schedule, and any unpaid principal and interest is due on the maturity date of July 1, 2018. Upon repayment of the term loan, the Company is also required to pay an end of term charge to the Lenders equal to $245. As of September 30, 2017, the Company has accrued $211 of the total $245 end of term charge, of which $56 and $76 accrued during the nine months ended September 30, 2017 and 2016, respectively.

The Company may elect to prepay all, but not less than all, of the outstanding principal balance of the term loan, subject to a prepayment fee of 1% – 3%, depending on the date of repayment. Contingent on the occurrence of several events, including that the Company’s closing stock price exceed $11.73 per share for the seven days preceding a payment date, the Company may elect to pay, in whole or in part, any regularly scheduled installment of principal up to an aggregate maximum amount of $1,000 by converting a portion of the principal into shares of the Company’s common stock at a price of $11.73 per share. Hercules may elect to receive payments in the Company common stock by requiring the Company to effect a conversion option whereby Hercules can elect to receive a principal installment payment in shares of the Company common stock based on a price of $11.73 per share, subject to an aggregate maximum principal amount of $1,000.

The Company determined that the Company’s provisions allowing conversion of all or a portion of the LSA contained a beneficial conversion feature (“BCF”). The BCF is contingent upon the occurrence of certain events and as such, the Company will not record the BCF until the contingency is resolved. Through September 30, 2017 the contingency was not resolved.

The credit facility includes affirmative and negative covenants. The affirmative covenants include, among others, covenants requiring the Company to maintain its legal existence and governmental approvals, deliver certain financial reports and maintain insurance coverage. The negative covenants include, among others, restrictions on transferring collateral, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, selling assets, and undergoing a change in control, in each case subject to certain exceptions. In general, the Term Loan prohibits the Company from (i) repurchasing or redeeming any class of capital stock, including common stock or (ii) declaring or paying any cash dividend or making cash distribution on any class of capital stock, including common stock.

The LSA includes provisions requiring the embedded interest rate reset upon an event of default and the put option upon an event of default or qualified change of control each represent an embedded derivative instrument requiring bifurcation from the loan. The embedded derivatives were bundled and valued as one compound derivative in accordance with the applicable accounting guidance for derivatives and hedging. The fair value of the compound derivative at issuance of $11 was recorded as a derivative liability and as a discount to the debt. The derivative liability is remeasured at fair value at each reporting date, with changes in fair value being recorded as other income (expense) in the statements of operations (Note 12). At September 30, 2017 and December 31, 2016, the fair value of the derivative liability was valued at $35. The net debt discounts resulting from the embedded compound derivative and lender fees are being amortized as interest expense from the date of issuance through the maturity date using the effective interest method. The Company incurred interest expense of $153 and $512 during the three and nine months ended September 30, 2017 and $225 and $673 during the three and nine months ended September 30, 2016. Of the total interest expense, $112 and $377 was payable in cash during the three and nine months ended September 30, 2017 and $169 and $516 was payable in cash during the three and nine months ended September 30, 2016.

The carrying amounts of the Company’s Term Loan as of January 1, 2017 and September 30, 2017 were as follows:


	Hercules Term Loan			Debt Discount			Issuance Costs			Total
Balance — January 1, 2017	$	5,954		$	(136	)	$			$	5,803
Accretion of debt discount					79						79
Accretion of issuance costs								9			9
Principal payments		(1,995	)								(1,995	)

Balance — September 30, 2017	$	3,959		$	(57	)	$	(6	)	$	3,896

Current portion of debt, net of debt discount and issuance costs										$	3,896

Future principal payments in connection with the Term Loan are as follows:


Remainder of 2017	$	700
2018		3,259

	$	3,959

8. Accrued Expenses and Other Current Liabilities

Accrued expenses consisted of the following:


	At September 30, 2017		At December 31, 2016
Accrued vacation	$	92	$	54
Accrued wages and incentive		646		796
Accrued clinical & consulting		453		202
Accrued legal & patent		99		51
Accrued end of term fee		211		155
Deferred rent		62		46
Accrued other expenses		24		13

Total accrued expenses and other current liabilities	$	1,587	$	1,317

9. Common Stock

Registered Direct Offering

On January 27, 2017, Pulmatrix, Inc. (the “Company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with certain investors for the sale by the Company of 2,000,000 shares (the “Shares”) of the Company’s common stock, par value $0.0001 per share, at a purchase price of $2.50 per share in a registered direct offering. The closing of the sale of the Shares under the Purchase Agreement occurred on February 2, 2017.

On February 3, 2017, Pulmatrix, Inc. entered into a Securities Purchase Agreement (the “Second Purchase Agreement”) with certain investors for the sale by the Company of 950,000 shares of the Company’s common stock, par value $0.0001 per share, at a purchase price of $3.50 per share in a registered direct offering. The closing of the sale of the Shares under the Second Purchase Agreement occurred on February 8, 2017.

Net of issuance costs totaling $26, aggregate net proceeds of the two noted registered direct offerings were $7,598. The Shares were offered and sold by the Company pursuant to an effective shelf registration statement on Form S-3, which was filed with the Securities and Exchange Commission on July 15, 2016, and subsequently declared effective on August 3, 2016 (File No. 333-212546), and a related prospectus.

At-the-Market Offering

On March 17, 2017, the Company entered into an At-The-Market Sales Agreement (the “Sales Agreement”) with BTIG, LLC (“BTIG”) to act as the Company’s sales agent with respect to the issuance and sale of up to $11,000,000 of the Company’s shares of common stock, from time to time in an at-the-market public offering (the “Offering”). Sales of common stock under the Sales Agreement are made pursuant to an effective shelf registration statement on Form S-3, which was filed with the Securities and Exchange Commission on July 15, 2016, and subsequently declared effective on August 3, 2016 (File No. 333-212546), and a related prospectus. BTIG acts as the Company’s sales agent on a commercially reasonable efforts basis, consistent with its normal trading and sales practices and applicable state and federal laws, rules and regulations and the rules of The NASDAQ Global Market. If expressly authorized by the Company, BTIG may also sell the Company’s common stock in privately negotiated transactions. There is no specific date on which the Offering will end, there are no minimum sale requirements and there are no arrangements to place any of the proceeds of this offering in an escrow, trust or similar account.

BTIG is entitled to compensation at a fixed commission rate of 3.0% of the gross proceeds from the sale of the Company’s common stock pursuant to the Sales Agreement.

During the ninth month period ended September 30, 2017 the Company sold 2,482,313 shares of its common stock under the Sales Agreement at an average selling price of approximately $3.1913 per share which resulted in gross proceeds of approximately $7,922 and net proceeds of approximately $7,572 after payment of 3% commission to BTIG and other issuance costs.

10. Warrants

There were 3,284,440 common stock warrants outstanding at September 30, 2017. The warrants had a weighted-average exercise price of $7.79 with no intrinsic value and a remaining contractual life of 2.7 years.

11. Stock-Based Compensation

The Company sponsors the Pulmatrix, Inc. 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Plan). As of September 30, 2017, the 2013 Plan provides for the grant of up to 4,193,075 shares of Company Common Stock, of which 812,846 shares remained available for future grant.

In addition, the Company has two legacy plans: The Pulmatrix Operating’s 2013 Employee, Director and Consultant Equity Incentive Plan (the “Original 2013 Plan”) and Pulmatrix Operating’s 2003 Employee, Director, and Consultant Stock Plan (the “2003 Plan”). As of September 30, 2017, a total of 499,297 shares of Company Common Stock may be delivered under options outstanding under the Original 2013 Plan and the 2003 Plan, however no additional awards may be granted under the Original 2013 Plan or the 2003 Plan.

Options

During the first nine months of 2017, the Company granted options to purchase 690,555, 30,800 and 10,000 shares of Company Common Stock to employees, directors and consultants, respectively. At the date of grant the weighted average fair value of those options aggregated to $1,277, $57 and $19 respectively. The stock options granted to employees and directors vest over 48 months (the “Time Based Options”). Subject to the grantees’ continuous service with the Company, Time Based Options vest 25% on the first anniversary of the option grant date and the remainder in 36 equal monthly installments beginning in the month after the vesting start date. Stock options generally expire ten years after the date of grant. The stock options granted to consultants vest over 24 months (the “Consultant Time Based Options”). Subject to the grantees’ continuous service with the Company, Consultant Time Based Options vest 50% on the first anniversary of the option grant date and the remainder in 12 equal monthly installments beginning in the month after the vesting start date. Stock options generally expire ten years after the date of grant.

The following table summarizes stock option activity for the nine months ended September 30, 2017:


	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding — January 1, 2017		2,829,301		$	6.89
Granted		731,355		$	2.72
Exercised		(138,425	)	$	2.19
Forfeited or expired		(85,863	)	$	8.27

Outstanding — September 30, 2017		3,336,368		$	6.14		7.80	$	29

Exercisable — September 30, 2017		1,671,927		$	7.14		6.91	$	22
Vested and expected to vest — September 30, 2017		3,293,611		$	6.12		7.80	$	29

The estimated weighted average fair values of employee stock options granted during the three and nine months ended September 30, 2017 and 2016, were determined on the date of grant using the Black-Scholes option-pricing model with the following assumptions:


	Three Months Ended September 30,		Nine Months Ended September 30,
	2017	2016	2017	2016
Expected option life (years)	6.08	6.22	6.13	6.22
Risk-free interest rate	2.04%	1.60%	2.07%	1.60% - 1.94%
Expected volatility	75%	87%	77%	70% - 87%
Expected dividend yield	0%	0%	0%	0%

The risk-free interest rate was obtained from U.S. Treasury rates for the applicable periods. The Company’s expected volatility was based upon the historical volatility for industry peers and used an average of those volatilities. The expected life of the Company’s options was determined using the simplified method as a result of limited historical data regarding the Company’s activity. The dividend yield considers that the Company has not historically paid dividends, and does not expect to pay dividends in the foreseeable future. As of September 30, 2017 there was $4,790 of unrecognized stock-based compensation expense related to unvested stock options granted under the Company’s stock award plans. This expense is expected to be recognized over a weighted-average period of approximately 2.0 years.

The following table presents total stock-based compensation expense for the three and nine months ended September 30, 2017 and 2016:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Research and development	$	184	$	63	$	514	$	502
General and administrative		556		413		1,563		2,376

Total stock based compensation expense	$	740	$	476	$	2,077	$	2,878

Restricted Stock Units (RSU)

In August 2015, the Company granted 10,374 RSUs to employees that vested over a two year period. The Company recorded stock-based compensation expense of $0 and $13 for the RSUs during the three and nine months ended September 30, 2017 and $7 and $25 during the three and nine months ended September 30, 2016. At September 30, 2017, no RSUs were outstanding.

12. Fair Value Measurements

Information about the liabilities measured at fair value on a recurring basis as of September 30, 2017 and December 31, 2016, and the input categories associated with those liabilities, is as follows:


	September 30, 2017
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
Liabilities:
Embedded compound derivative	$	—	$	—	$	35	$	35


	December 31, 2016
	Fair Value Measurements Using
	Level 1		Level 2		Level 3		Total
Liabilities:
Embedded compound derivative	$	—	$	—	$	35	$	35

Embedded Compound Derivatives — LSA with Hercules

As described in Note 7, the LSA contains an interest rate reset upon an event of default and a put option upon an event of default or qualified change of control. Each of these features represents an embedded derivative instrument requiring bifurcation from the Term Loan. The embedded derivatives were bundled and valued as one compound derivative in accordance with the applicable accounting guidance for derivatives and hedging. The proceeds from the issuance of the Term Loan were allocated first to the warrant and compound derivative at their respective fair values, with the residual going to the carrying amount of the loan resulting in a discount to the face value of the debt. The fair value of the compound derivative upon issuance of $11 was recognized as a derivative liability and will be adjusted to fair value at each reporting date. At December 31, 2016, the fair value of the derivative liability was remeasured and valued at $35. The fair value of the derivative instruments is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company used an income approach to estimate the fair value of the derivative liability and estimated the probability of an event of default occurring at various dates and then estimates the present value of the amount the holders would receive upon an event of default.

The significant assumption used in the model is the probability of the following scenarios occurring:


	At Issuance Date	At September 30, 2017
Probability of an event of default	10%	50%
Prepayment penalties	1.0% - 3.0%	1.0% - 3.0%
End of term payment	$245,000	$245,000
Risk-free interest rate	1.01%	1.03%

A roll-forward of the preferred stock warrant liability and derivative liability categorized with Level 3 inputs is as follows:


	Derivative Instruments
Balance — January 1, 2017	$	35
Change in fair value		—

Balance — September 30, 2017	$	35

Gains and/or losses arising from changes in the estimated fair value of the warrants and embedded compound derivatives are recorded within other income, net, on the condensed consolidated statement of operations.

13. Net Loss Per Share

The Company computes basic and diluted net loss per share using a methodology that gives effect to the impact of outstanding participating securities (the “two-class method”). As the three and six months ended September 30, 2017 and 2016 resulted in net losses attributable to common shareholders, there is no income allocation required under the two-class method or dilution attributed to weighted average shares outstanding in the calculation of diluted net loss per share.

The following potentially dilutive securities outstanding prior to the use of the treasury stock method have been excluded from the computation of diluted weighted-average shares outstanding, as they would be anti-dilutive.


	As of September 30,
	2017		2016
Options to purchase common stock		3,336,368		3,008,980
Warrants to purchase common stock		3,284,440		3,284,440
Restricted Stock Units		—		5,187
Settlement of term loan		85,251		85,251

14. Commitments

Future minimum lease payments under the non-cancelable operating lease for office and lab space is as follows:


	Amount
2017		158
2018		654
2019		676
2020		698

Total	$	2,186

15. Subsequent Events

Subsequent to September 30, 2017, the Company sold 621,047 shares of its common stock under the Sales Agreement with BTIG at an average selling price of approximately $1.89 per share which resulted in gross proceeds of approximately $1,174.

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 Securities and Exchange Commission (the “SEC”) on March 10, 2017. Unless stated otherwise, references in this Quarterly Report on Form 10-Q to “us,” “we,” “our,” or our “Company” and similar terms refer to Pulmatrix, Inc., a Delaware corporation, and its subsidiaries.

Forward-Looking Statements

This Quarterly Report contains forward-looking statements as that term is defined in the federal securities laws. The events described in forward-looking statements contained in this Quarterly Report may not occur. Generally these statements relate to 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. The words “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 are intended to identify forward-looking statements. We caution you that these statements are not guarantees of future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond our control that could cause our actual results, performance and achievements to differ materially from those expressed or implied in these forward-looking statements. Factors which may affect our results include, but are not limited to:

•

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 our complete business objectives;

•

difficulties in obtaining financing on commercially reasonable terms;

•

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 ability to adequately protect and enforce rights to intellectual property;

•

intense competition in our industry, with competitors having substantially greater financial, technological, research and development, regulatory and clinical, manufacturing, marketing and sales, distribution and personnel 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.

Overview

Recent Developments

Business

The Company is a clinical stage biotechnology company focused on the discovery and development of a novel class of inhaled therapeutic products. The Company’s proprietary dry powder delivery platform, iSPERSE™ (inhaled Small Particles Easily Respirable and Emitted), is engineered to deliver small, dense particles with highly efficient dispersibility and delivery to the airways, which can be used with an array of dry powder inhaler technologies and can be formulated with a variety of drug substances. The Company is developing a pipeline of iSPERSE-based therapeutic candidates targeted at prevention and treatment of a range of respiratory diseases and infections with significant unmet medical needs. Since our inception in 2003, we have devoted substantially all of our efforts to product research and development. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations to date through proceeds from issuances of common and convertible preferred stock, issuances of convertible debt, collaborations with third parties and non-dilutive grants received from government agencies.

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 PUR1900 for patients with severe lung disease;

•

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, or CROs, to carry out our clinical development activities, and 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.

On June 9, 2017, the Company entered into a License, Development and Commercialization Agreement (the “License Agreement”) with RespiVert Ltd. (“RespiVert”), a wholly owned subsidiary of Janssen Biotech, Inc., pursuant to which RespiVert granted the Company an exclusive, royalty-bearing license in its intellectual property portfolio of materials and technology related to narrow spectrum kinase inhibitor compounds (the “Licensed IP”), to develop and commercialize products worldwide that incorporate the Licensed IP. The development, application, design and marketing of the Licensed IP and any licensed products will be managed exclusively by the Company.

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, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

Financial Overview

Revenues

To date, we have not generated any product sales. Our limited revenues have been derived from feasibility work as part of agreements with other pharmaceutical companies and grants from government agencies. On March 24, 2015, we entered into the long-acting muscarinic agent collaboration agreement with Mylan under which we are eligible to receive reimbursement of up to $1.5 million for third-party out of pocket expenses directly related to clinical trials. On September 14, 2015, the Company entered into an amendment to the collaboration agreement to provide reimbursements with a new cost cap of $1.878 million. As consideration for the funding received, we agreed to grant to Mylan an option for the exclusive right to develop, manufacture, commercialize and market any resulting products outside the United States for 180 days following the delivery of a clinical studies report, in exchange for a tiered share of gross profit of up to 20% of such pharmaceutical company’s sales on the resulting products. In December 2016, Mylan’s option expired. As of September 30, 2017, Pulmatrix owns the exclusive right to develop, manufacture, commercialize and market any resulting products of PUR0200.

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, contract manufacturing organizations, 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 regulatory operations.

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 including PUR1900, our lead anti-fungal, PUR1800, our lead anti-inflammatory for COPD and PUR1500, our preclinical stage therapeutic for treatment of idiopathic pulmonary fibrosis (IPF). In order to move these programs forward along our development timelines, we maintain a significant staff of research and development employees (71% of staff). In addition, we maintain a 12,000 square foot research and development facility which includes capital equipment for the manufacture, characterization, and in vitro/in vivo evaluation 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.

On June 9, 2017, the Company entered into a License Agreement with RespiVert, pursuant to which RespiVert granted the Company an exclusive, royalty-bearing license to its Licensed IP, to develop and commercialize products worldwide that incorporate the Licensed IP. The $1.0 million up-front, non-refundable license fee to RespiVert was paid in July 2017.

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.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs such as stock-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 and professional fees for consulting, auditing and tax services.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates. We also anticipate increased expenses related to audit, legal, regulatory, and tax-related services associated with maintaining compliance with exchange listing and Securities and Exchange Commission requirements, director and officer liability insurance, investor relations costs and other costs associated with being a public company. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in staffing and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

Interest Expense

We have been incurring and expect to continue to incur interest expense associated with the $7 million term loan executed in June 2015.

Other Income (Expenses), Net

Other income (expenses), net is comprised primarily of interest income on investments, gains and/or losses on disposal of assets, non-income related tax expense and fair value adjustments for compound derivative instruments embedded within certain of our convertible notes.

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 U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

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 SEC on March 10, 2017, we believe the following accounting policies to be most critical to the judgments and estimates used in the preparation of our financial statements.

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 fair value of net assets acquired in business combinations, 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.

Revenue Recognition

Our principal sources of revenue are income 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.

Goodwill

Goodwill represents the difference between the consideration transferred and the fair value of the net assets acquired under the acquisition method of accounting for push-down accounting. Goodwill is not amortized but is evaluated for impairment on an annual basis, during the fourth quarter, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of the related reporting unit below its carrying amount. When performing the impairment assessment, the accounting standard for testing goodwill for impairment permits a company to first assess the qualitative factors to determine whether the existence of events and circumstances indicates that it is more likely than not that the goodwill is impaired. If we believe, as a result of the qualitative assessment, that it is more likely than not that the fair value of goodwill is impaired, we must perform the goodwill impairment test. We have determined that goodwill was not impaired as of September 30, 2017.

Results of Operations

Three Months Ended September 30, 2017 Compared with Three Months Ended September 30, 2016

The following table sets forth our results of operations for each of the periods set forth below (in thousands):


	Three Months Ended September 30,						Change
	2017			2016			$
Revenue	$	335		$	61		$	274
Operating expenses
Research and development		2,618			1,507			1,111
General and administrative		2,021			1,550			471

Total operating expenses		4,639			3,057			1,582

Loss from operations		(4,304	)		(2,996	)		(1,308	)
Interest expense		(153	)		(225	)		72
Other income, net		5			64			(59	)

Net loss	$	(4,452	)	$	(3,157	)	$	(1,295	)

Revenue — For the three months ended September 30, 2017, revenue was $0.3 million compared to $0.1 million for the three months ended September 30, 2016, an increase of $0.3 million. The revenue for the three months ended September 30, 2017 was associated with a grant received from the Cystic Fibrosis Foundation Therapeutics, Inc. The revenue for the three months ended September 30, 2016 related to the clinical study funded under our collaboration agreement with Mylan.

Research and development expenses — For the three months ended September 30, 2017, research and development expense was $2.6 million compared to $1.5 million for the three months ended September 30, 2016, an increase of $1.1 million. The increase was primarily due to increases in clinical development costs of $1.0 million on the PUR1900 project and $0.1 million on the PUR1800 project.

General and administrative expenses — For the three months ended September 30, 2017, general and administrative expense was $2.0 million compared to $1.6 million for the three months ended September 30, 2016, an increase of $0.5 million. The increase was primarily due to increases in employment costs of $0.3 million and increases in consulting costs of $0.2 million.

Interest expense — For the three months ended September 30, 2017, interest expense was $0.2 million compared to $0.2 million for the three months ended September 30, 2016. In both periods, the interest expense incurred related to the term loan agreement that we entered into in June 2015.

Nine Months Ended September 30, 2017 Compared with Nine Months Ended September 30, 2016

The following table sets forth our results of operations for each of the periods set forth below (in thousands):


	Nine Months Ended September 30,						Change
	2017			2016			$
Revenue	$	335		$	718		$	( 383	)
Operating expenses
Research and development		7,654			7,378			276
General and administrative		5,727			6,173			(446	)
Write-off of intangibles, net of tax provision		—			4,575			(4,575	)

Total operating expenses		13,381			18,126			(4,745	)

Loss from operations		(13,046	)		(17,408	)		4,362
Interest expense		(512	)		(673	)		161
Other income, net		26			68			(42	)

Net loss	$	(13,532	)	$	(18,013	)	$	4,481

Revenue — For the nine months ended September 30, 2017, revenue was $0.3 million compared to $0.7 million for the nine months ended September 30, 2016, a decrease of $0.4 million. The revenue for the nine months ended September 30, 2017 was associated with a grant received from the Cystic Fibrosis Foundation Therapeutics, Inc. The revenue for the nine months ended September 30, 2016 related to the clinical study funded under our collaboration agreement with Mylan.

Research and development expenses — For the nine months ended September 30, 2017, research and development expense was $7.7 million compared to $7.4 million for the nine months ended September 30, 2016, an increase of $0.3 million. The increase was primarily due to an increase of $1.1 million on the PUR1800 project, net of decreases of $0.6 million on the PUR0200 project and $0.2 million on the PUR1900 project.

General and administrative expenses — For the nine months ended September 30, 2017, general and administrative expense was $5.7 million compared to $6.2 million for the nine months ended September 30, 2016, a decrease of $0.4 million. The decrease was primarily due to a decrease of $0.9 million in stock-based compensation expense, net of increases of $0.3 million in salary related expense and $0.2 million in legal and consulting related expense.

Write-off of intangibles, net of tax provision — For the nine months ended September 30, 2017, the write-off of intangibles, net of tax provision, was $0.0 million compared to $4.6 million for the nine months ended September 30, 2016. A full write-off was made of both the IPR&D acquired from our 2015 merger with Ruthigen, Inc., $7.5 million, and the associated deferred tax liability, $2.9 million, as of September 30, 2016.

Interest expense — For the nine months ended September 30, 2017, interest expense was $0.5 million compared to $0.7 million for the nine months ended September 30, 2016. During both periods, interest expense incurred related to the term loan agreement that we entered into in June 2015.

Liquidity and Capital Resources

Through September 30, 2017, we have incurred an accumulated deficit of $169.0 million, primarily as a result of expenses incurred through a combination of research and development activities related to our various product candidates and general and administrative expenses supporting those activities and our 2015 merger with Ruthigen, Inc. We have financed our operations since inception primarily through the sale of preferred and common stock and the issuance of convertible promissory notes and term loans. On June 9, 2017, the Company entered into a License Agreement with RespiVert, pursuant to which RespiVert granted the Company an exclusive, royalty-bearing license to its Licensed IP, to develop and commercialize products worldwide that incorporate the Licensed IP. The $1.0 million up-front, non-refundable license fee to RespiVert was paid in July 2017.

Our total cash and cash equivalents balance as of September 30, 2017 was $6.4 million. 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. The Company’s ability to continue as a going concern is dependent upon its ability to obtain additional equity or debt financing and, ultimately, to generate revenue. Those factors raise substantial doubt about the Company’s ability to continue as a going concern.

The following table sets forth the major sources and uses of cash for each of the periods set forth below (in thousands):


	Nine Months Ended September 30,
	2017			2016
Net cash used in operating activities	$	(11,265	)	$	(10,740	)
Net cash used in by investing activities		(36	)		(437	)
Net cash provided by (used in) financing activities		13,479			(412	)

Net increase (decrease) in cash and cash equivalents	$	2,178		$	(11,589	)

Cash Flows from Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2017 was $11.3 million, which was primarily the result of a net loss of $13.5 million and $0.2 million in cash outflows associated with changes in operating assets and liabilities, partially offset by $2.4 million of net non-cash adjustments. Our non-cash adjustments were primarily comprised of $2.1 million of stock-based compensation expense, $0.3 million of depreciation and amortization and non-cash interest expense. The net cash outflows associated with changes in operating assets and liabilities was primarily due to a $0.6 million decrease in prepaid expenses, partially offset by $0.4 increase in accounts payable and accrued expenses.

Net cash used in operating activities for the nine months ended September 30, 2016 was $10.7 million, which was primarily the result of a net loss of $18.0 million and $0.5 million in cash outflows associated with changes in operating assets and liabilities, partially offset by $7.8 million of net non-cash adjustments. Our non-cash adjustments were primarily comprised of $4.6 million of the write-off of IPR&D, net of tax provision, $2.9 million of stock-based compensation expense, $0.3 million of depreciation and amortization and non-cash interest expense. The net cash outflows associated with changes in operating assets and liabilities was primarily due to a $1.1 million decrease accounts payable and accrued expenses, partially offsets by $0.6 million decrease in prepaid expenses, other current assets and restricted cash.

Cash Flows from Investing Activities

Net cash used in investing activities for the six months ended June 30, 2017 and June 30, 2016 were entirely due to purchases of property and equipment.

Cash Flows from Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2017 was $13.5 million, as compared to cash used in financing activities of $0.4 million for the nine months ended September 30, 2016. Net cash provided by financing activities for the nine months ended September 30, 2017 resulted primarily from the issuance of common stock for proceeds of $15.2 million and $0.3 million in proceeds from the exercise of common stock, partially offset by $2.0 million term loan principal payments. Net cash used in financing activities for the nine months ended September 30, 2016 was entirely due to term loan principal payments.

Financings

On January 27, 2017 and February 3, 2017 respectively, the Company entered a Securities Purchase Agreements with certain investors for the sale of the Company’s common stock pursuant to its effective shelf registration statement on Form S-3, which was filed with the Securities and Exchange Commission on July 15, 2016, and subsequently declared effective on August 3, 2016 (File No. 333-212546), and related prospectuses. In February 2017, the Company closed the sales of 2,950,000 shares of its common stock pursuant to the Securities Purchase Agreements for aggregate net proceeds of approximately $7.6 million.

On March 17, 2017, the Company entered into an At-The-Market Sales Agreement with respect to the issuance and sale of up to $11 million of the Company’s common stock from time to time in an at-the-market public offering. During the nine months ended September 30, 2017, the company sold 2,482,313 shares of its common stock pursuant to the At-The-Market Sales Agreement for aggregate net proceeds of approximately $7.6 million.

The Company will be required to raise additional capital within the next year to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of 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;

•

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.

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.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4.

Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures . Our principal executive officer and principal financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Form 10-Q, have concluded that, based on such evaluation, our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(b) Changes in Internal Controls. There were no changes in our internal control over financial reporting, identified in connection with the evaluation of such internal control that occurred during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings.

From time to time, we may be involved in litigation that arises through the normal course of business. As of the date of this filing, we are not aware of any material legal proceedings to which we or any of our subsidiaries is a party or to which any of our property is subject, nor are we aware of any such threatened or pending litigation or any such proceedings known to be contemplated by governmental authorities.

We are not aware of any material proceedings in which any of our directors, officers or affiliates or any registered or beneficial stockholder of more than 5% of our common stock, or any associate of any of the foregoing, is a party adverse to or has a material interest adverse to, us or any of our subsidiaries.

Item 1A.

Risk Factors.

There have been no material changes to the risk factors disclosed under “Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K. For more information concerning our risk factors, please refer to “Item 1A. Risk Factors” of our most recent Annual Report on Form 10-K.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

(a) Unregistered Sales of Equity Securities

None.

(b) Issuer Purchases of Equity Securities

We did not repurchase any of our equity securities during the quarter ended September 30, 2017.

Item 3.

Defaults Upon Senior Securities.

None.

Item 4.

Mine Safety Disclosures.

Not applicable.

Item 5.

Other Information.

None.

Item 6.

Exhibits.


Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation of Pulmatrix, Inc., as amended through June 15, 2015 (incorporated by reference to Exhibit 3.1 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2015).

3.2		Restated Bylaws of Pulmatrix, Inc., as amended through June 15, 2015 (incorporated by reference to Exhibit 3.2 to Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 14, 2015).

10.1*#		Feasibility and Development Agreement, dated September 5, 2017, by and between Pulmatrix, Inc. and Vectura Limited

31.1*		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101*		The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015, (ii) Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 (unaudited), (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited), and (iv) Notes to Condensed Consolidated Financial Statements (unaudited).

*	Filed herewith.

#	Certain portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission under a confidential treatment request pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	PULMATRIX, INC.

Date: November 9, 2017	By:	/s/ Robert W. Clarke
		Robert W. Clarke
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: November 9, 2017	By:	/s/ William Duke, Jr.
		William Duke, Jr.
		Chief Financial Officer
		(Principal Financial Officer)

Exhibit 10.1

THE COMPANY HAS REQUESTED AN ORDER FROM THE SECURITIES AND EXCHANGE COMMISSION (THE “COMMISSION”) PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, GRANTING CONFIDENTIAL TREATMENT TO SELECTED PORTIONS. ACCORDINGLY, THE CONFIDENTIAL PORTIONS HAVE BEEN OMITTED FROM THIS EXHIBIT, AND HAVE BEEN FILED SEPARATELY WITH THE COMMISSION. OMITTED PORTIONS ARE INDICATED IN THIS EXHIBIT WITH “*****”.

THIS FEASIBILITY AND DEVELOPMENT AGREEMENT (this “ Agreement ”) is made on September 5, 2017 (the “ Effective Date ”)

BETWEEN :

(1)	VECTURA LIMITED , a company incorporated under the laws of England and Wales with its registered office at One Prospect West, Chippenham, Wiltshire, SN14 6FH, United Kingdom (“ Vectura ”); and

(2)	PULMATRIX INC of 99 Hayden Avenue, Suite 390, Lexington, MA 02421, United States of America (“ Pulmatrix ”),

each a “ Party ” and together the “ Parties ”.

BACKGROUND

(1)	Vectura and its Affiliates (as defined below) have Intellectual Property (as defined below) and other information relating to the Vectura IP (as defined below).

(2)	Pulmatrix has Intellectual Property and other information relating to the Pulmatrix Technology (as defined below).

(3)	The Parties now wish to enter into this Agreement to define the terms upon which Vectura shall conduct the Feasibility Study (as defined below) and, if successful as defined herein, continue development.

IT IS AGREED AS FOLLOWS:

1.	INTERPRETATION

1.1	In this Agreement the following words shall have the following meanings:


“ Affiliate ”		means with respect to a Party, any other person controlling, controlled by, or under common control with, such Party, for only so long as such control exists. For these purposes, “control” shall refer to: (i) the possession, directly or indirectly, of the power to direct the management or policies of a person, whether through the ownership of voting securities, by contract or otherwise, or (ii) the ownership, directly or indirectly, of more than 50 percent (50%) of the voting securities or other ownership interest of a person;

“ Applicable Laws ”		means all national and local laws, ordinances, rules and regulations as amended, re-enacted or in force from time to time applicable to this Agreement or activities contemplated hereunder, including as applicable cGLP and cGMP and the rules and regulations of Regulatory Authorities;

“ cGLP ”		means current Good Laboratory Practice promulgated by a Regulatory Authority as may be updated from time to time;

“ cGMP ”		means current Good Manufacturing Practice promulgated by a Regulatory Authority as may be updated from time to time;


“ CDA ”		means the confidential disclosure agreement entered into between the Parties dated 6 January 2017;

“ Calendar Quarter ”		means a period of three (3) consecutive months ending on the last day of March, June, September and December, respectively;

“ Completion ”		shall have the meaning set out in Clause 8.2;

“ Commercially Reasonable Efforts ”		means, with respect to a Party, those efforts to be made by that Party corresponding to the efforts that Party would make in similar circumstances for its own similar products, and if it has no such similar products, those efforts that would be made by its nearest competitor, at that time relative to the prevailing commercial, regulatory and competitive environment, which efforts shall be consistent with the exercise of prudent scientific and business judgment, it being understood that a Party’s Commercially Reasonable Efforts will not in any event require that Party to take any action that would be reasonably likely to result in a breach of any provision of this Agreement, or any other agreement between the Parties, or a conflict with, or violation or default of, any other agreement between a Party, Affiliate of such Party and/or Third Parties existing as of the Effective Date, or which that Party in good faith believes may violate any Applicable Laws or any instrument, judgment, writ, decree, order, permit, direction or licence of any court or Regulatory Authority having appropriate jurisdiction over that Party;

“ Completion Criteria ”		means the pre-agreed criteria between the Parties which, once met, evidences that the Feasibility Study has been successful, as detailed in Schedule 4;

“ Device ”		means an inhaler device to be determined by Vectura;

“ Development, Regulatory and Commercialisation Plan ”		means a detailed written description of agreed activities to be performed by Vectura (and/or an Affiliate of Vectura and/or a Sub-Licensee) and Pulmatrix to advance the development, regulatory compliance, Manufacturing and commercialisation of the Product;

“ Excluded APIs ”		means the novel proprietary kinase inhibitors acquired by Pulmatrix from Respivert Limited as announced by Pulmatrix on 13 June 2017, known by Pulmatrix at the Effective Date as PUR1800, PUR5700 and RV568, as more specifically described in Schedule 6;

“ Feasibility Study ”		means a certain study with a view to developing the Study Product in accordance with the Study Plan;

“ Feasibility Study Data ”		means the Feasibility Study Updates, the Feasibility Study Reports and any and all other data generated during the conduct of the Feasibility Study;


“ Feasibility Study Reports ”		shall have the meaning set out in Clause 7.2;

“ Feasibility Study Updates ”		shall have the meaning set out in Clause 7.2;

“ Field ”		means the treatment of respiratory disease;

“ Formulation ”		means (a) any formulation of Tiotropium formulated using the Pulmatrix Technology, including PUR0200 and/or (b) any formulation of [*] formulated using the Pulmatrix Technology;

“ Information ”		shall have the meaning set out in Clause 11.2;

“ Intellectual Property ”		means patents, supplementary protection certificates, trademarks, service marks, registered designs, rights in designs, applications for any of the foregoing, trade or business names, copyrights, rights under licences and consents for any such thing and all rights or forms of protection of a similar nature or having equivalent or similar effect subsisting anywhere in the world;

“ Manufacture ”		means all steps and procedures involved in the moulding of Device components, production, spray drying and filling of a Product into a primary container closure system, and assembly of a filled Device. “ Manufacturing ” and “ Manufactured ” have the equivalent meaning;

“ Marketing Authorisation ”		means the registration(s) of a Product in the Territory as granted by the applicable Regulatory Authority;

“ [*] ”		means [*] alone for monotherapy, and not in combination with any other active ingredient;

“ Patents ”		means any patents and patent applications listed in Schedule 3, as may be supplemented from time-to-time by patents and patent applications filed by Pulmatrix in the Territory after the Effective Date relating to the Pulmatrix Technology and/or Formulation(s);

“ Physical Materials ”		means any physical materials, including formulated Tiotropium or [*] , set out in Part 1 of Schedule 2;

“ Plans ”		means the Study Plan and, if applicable, the Development, Regulatory and Commercialisation Plan;

“ Product ”		means any product combining a Device with a Formulation;

“ Pulmatrix Data ” `		means any data, reports or other documentation, including the data package for PUR0200, in Pulmatrix’s possession or under its control as at the Effective Date, as set out in Part 2 of Schedule 2;


“ Pulmatrix IP ”		means: (a) any and all Intellectual Property owned or controlled by Pulmatrix or its Affiliates at the Effective Date relating to the Pulmatrix Technology and/or Formulation(s), including the Patents and such rights in the Pulmatrix Data; and (b) any improvements or developments thereto developed independently of this Agreement; and (c) any improvements or developments thereto created or developed by or on behalf of Vectura during the course of this Agreement except to the extent such improvements or developments constitute Vectura IP;

“ Pulmatrix Technology ”		means Pulmatrix’s proprietary iSPERSE™ technology;

“ PUR0200 ”		means a formulation of tiotropium applying the Pulmatrix Technology;

“ Regulatory Authority ”		means any regulatory authority or competent body in any jurisdiction as relevant to the Formulation, Product or Study Product and/or the Manufacture, approval, registration and sale thereof, including the FDA;

“ Requirements ”		shall have the meaning set out in Clause 6.3;

“ Specifications ”		means the Physical Material’s specifications as set out in the Study Plan;

“ Study Data ”		shall have the meaning set out in Clause 7.1;

“ Study Plan ”		means the work plan of activities, fees and timelines as detailed in Schedule 1 attached to this Agreement, which at the Effective Date is the Parties’ best estimate of the work required to be undertaken to develop the Study Product;

“ Study Product ”		means PUR0200 in a Device;

“ Sub-Licensee ”		means a Third Party that may participate in the development and/or Manufacturing and/or the commercialisation of a Product on behalf of Vectura through a sub-licence agreement with Vectura or its Affiliates;

“ Term ”		shall have the meaning set out in Clause 2.1;

“ Territory ”		means the United States of America, its territories and possessions;


“ Third Party ”		means a person who is not a Party or an Affiliate of a Party;

“ Tiotropium ”		means (a) tiotropium alone; and/or (b) tiotropium in combination with one or more other active pharmaceutical ingredients except the Excluded APIs;

“ Vectura IP ”		means any Intellectual Property: a) covering a Device and any formulation of drugs for a Device and owned or controlled by Vectura or its Affiliates as of the Effective Date (which for the avoidance of doubt shall exclude the Formulations and Pulmatrix Technology); b) any improvements or developments thereto developed independently of this Agreement; c) any improvements or developments thereto created or developed by or on behalf of Vectura during the course of this Agreement; and d) created or developed by or on behalf of either Vectura during the course of this Agreement relating to a Device, including without limitation any improvements thereto, and relating to the development, Manufacture and connectivity (for example, but without limitation, mHealth) thereof;

“ Vectura Revenues ”		means any and all payments actually received by Vectura in cleared funds from a Sub-Licensee relating to the sale and/or commercialisation of the Product, but excluding any payments received for development or manufacturing services.

1.2	Clause headings shall not affect the interpretation of this Agreement. References to Clauses and Schedules are to the Clauses of and Schedules to this Agreement.

1.3	Unless the context otherwise requires, words in the singular include the plural and in the plural include the singular and a reference to one gender shall include a reference to the other gender.

1.4

A reference to a statute, statutory provision or subordinated legislation is a reference to it as it is in force from time to time, or extended obligation, liability or restriction on, or otherwise adversely affects the rights of, any Party. A reference to a statute or statutory provision shall include any subordinate legislation made from time to time under that statute or statutory provision.

1.5	Any words following the terms including , include , in particular or any similar expression shall be construed as illustrative and shall not limit the sense of the words preceding those terms.

1.6	A person includes a natural person, corporate or unincorporated body (whether or not having separate legal personality).

1.7

Except as otherwise expressly stated in this Agreement (including, but not limited to, where consent, approval, agreement or a similar action is stated to be within a Party’s sole discretion or sole opinion), where consent, approval, mutual agreement or a similar action is required by any provision of this Agreement, such action shall not be unreasonably withheld, conditioned or delayed.

2.	COMMENCEMENT AND TERM

2.1	This Agreement shall commence on the Effective Date and shall, unless and until terminated in accordance with the terms of this Agreement, remain in force and in effect until the last sale of the last Product in the Territory (the “ Term ”).

2.2	Notwithstanding Clause 2.1, the Term may be extended by the Parties in writing.

3.	LICENCES AND RIGHTS

3.1

Subject to the terms and conditions of this Agreement, Pulmatrix hereby grants to Vectura an exclusive, sub-licensable, license under the Pulmatrix IP to research, have researched, develop, have developed, manufacture, have manufactured, import, register, market, promote, distribute, use, sell, supply and otherwise exploit Products in the Territory; and to otherwise exercise Vectura’s rights and fulfil Vectura’s obligations pursuant to and in accordance with the provisions of this Agreement.

3.2	Further, Pulmatrix hereby grants to Vectura a non-exclusive, sub-licensable, licence under the Pulmatrix IP to use the same with clinical comparator products and mono products or combination products solely for the purposes of the development of Products hereunder.

3.3	For the avoidance of doubt, the license hereunder in respect of a Product containing [*] is granted under Clause 3.1.

3.4

The Parties hereby acknowledge and agree that Vectura may sub-license the future exploitation of a Product to one or more Sub-Licensees. Therefore, Vectura may sub-license its rights under this Agreement to an Affiliate of Vectura or a Sub-Licensee in part or in whole. Vectura will provide Pulmatrix within thirty (30) days of entering into such a sub-license (a) the identity of the Sub-licensee and (b) all financial provisions (including definitions) of such sub-license related to a determination of Vectura Revenues.

3.5	Vectura hereby grants to Pulmatrix a non-exclusive, non-sub-licensable, licence to the Vectura IP solely to the extent necessary to enable Pulmatrix to fulfill its obligations under the Study Plan and, if applicable, the Development, Regulatory and Commercialisation Plan.

3.6

While the Feasibility Study is for the development of the Study Product only, this in no way limits the scope of the licences granted to Vectura hereunder. Vectura may proceed with the development of any Product or Products, whether this includes the Study Product or otherwise. Vectura may change the Device to be used in a Product at its reasonable discretion.

3.7

Pulmatrix shall not develop or license or otherwise exploit itself, or with a Third Party or an Affiliate in the Territory, whether applying the Pulmatrix Technology or otherwise: (a) tiotropium alone; (b) [*****] ; (c) any monotherapy long acting muscarinic antagonist (LAMA); (d) Tiotropium; and/or (e) any generic version of a Device or product utilising a generic version of a Device. For the avoidance of doubt, Pulmatrix has the right to develop, license or otherwise exploit itself, or with a Third Party or an Affiliate outside of the Territory, the Pulmatrix Technology in conjunction with any drug or combination of drugs, including Tiotropium. Notwithstanding the foregoing, this Section 3.7 shall terminate and be of no force and effect if Vectura terminates this Agreement pursuant to Section 14.2.

4.	GOVERNANCE

4.1	Project Managers.

4.1.1

Within ten (10) days after the Effective Date, each Party shall appoint a person (a “ Project Manager ”) who shall oversee the conduct of the collaboration and manage and facilitate communications between the Parties under this Agreement and who shall work together to resolve quickly any issues between the Parties that may arise in connection with this Agreement. Each Party may replace its Project Manager at any time by notice in writing to the other Party. In particular, the Project Managers shall:

(a)

attend meetings of the JSC and JPT (each as defined below);

(b)

assist the chairperson of each of the JSC and JPT with respect to notifying the applicable members of such committee of meetings and providing agendas and related information to such members;

(c)

assist the chairperson of each of the JSC and JPT circulate for review, and obtain approval of, the minutes of each meeting of such committee; and

(d)

otherwise coordinate the Parties’ activities under this Agreement.

4.2	Joint Project Team.

4.2.1

Within thirty (30) days after the Effective Date, the Parties will form a project team (the “ Joint Project Team ” or “ JPT ”) comprising an Project Manager from each Party and at least two (2) other representatives from each Party or such other number, maintaining equal representation, as the Parties may mutually agree in writing. The JPT will remain in existence until expiry or termination of this Agreement, or until disbanded by the Parties by mutual agreement. Each member appointed by a Party will have relevant expertise and an appropriate level of decision-making authority within such Party’s organisation to fulfil the role of the JPT. Each Party may change one or more of its representatives to the JPT at any time upon written notice to the other Party.

4.2.2

General responsibilities . The JPT shall manage and facilitate the daily management and smooth progress of the activities under this Agreement.

4.2.3

Specific Responsibilities . Subject to the oversight and, where applicable, approval of the JSC in accordance with Clause 4.3, the JPT will be responsible for:

(a)

reviewing and monitoring the activities and the status and progress of efforts in the conduct of the Plans;

(b)

preparing amendments to the Plans;

(c)

serving as a forum for exchange and discussion of the results of and matters arising under the Plans; and

(d)

discussing other matters related to this Agreement referred to it by agreement of the Parties.

4.2.4

The JPT shall hold its first meeting, in person, within sixty (60) days after the Effective Date. The JPT will thereafter meet on a monthly basis, or at such other frequency as the Parties mutually agree, by telephone or videoconference, and in person at least once per

calendar year. Any meetings of the JPT shall be held at a mutually acceptable time, and any in-person meetings of the JPT shall be held at Vectura’s facility in Chippenham, England (or such other location in England as notified by Vectura), unless otherwise agreed by the Parties. Prior to each monthly meeting of the JPT, each Party will prepare and deliver to the other Party a report or presentation of data (the format of such to be agreed by the Parties) of the status and results of its activities under the Plans. Each such report will be in a format mutually agreed upon by the Parties. The role of chairperson of the JPT shall alternate every six (6) months between a representative of Vectura and a representative of Pulmatrix, beginning with a representative of Vectura. The chairperson will be responsible for leading meetings, but will otherwise have no greater authority on the JPT than any other member. Each Party will use reasonable efforts to cause its representatives to attend meetings of the JPT and shall keep reasonable written minutes and records of the JPT meetings. In addition, each Party may, at its discretion, invite a reasonable number of non-member employees consultants and scientific advisors, to attend meetings of the JPT or the relevant portion thereof; provided that any such non-member employees, consultants and scientific advisors are bound by written obligations of confidentiality and restrictions on use of Information at least as stringent as those set forth in this Agreement and provided that written consent for the consultants and scientific advisors is received from the other Party. Each Party shall be responsible for its own costs in connection with the meetings of the JPT.

4.2.5

Decision-making . The Parties agree to reasonably cooperate and seek a consensus on all significant issues brought to the JPT, with each Party having one vote each, provided that in the event a consensus cannot be reached within ten (10) days, the matter shall be referred to the JSC; save that Vectura has final decision making authority over any decisions relating to the Development, Regulatory and Commercialisation Plan.

4.3	Joint JSC.

4.3.1

Within thirty (30) days after the Effective Date, the Parties will form a committee (the “ Joint Steering Committee ” or “ JSC ”) comprising at least three (3) representatives from each Party or such other number, maintaining equal representation, as the Parties may mutually agree in writing. The JSC will remain in existence until expiry or termination of this Agreement, or until disbanded by the Parties by mutual agreement. Each member appointed by a Party will have relevant expertise and an appropriate level of decision-making authority within such Party’s organization to fulfil the role of the JSC. Each Party may change one or more of its representatives to the JSC at any time upon written notice to the other Party.

4.3.2

General responsibilities . The JSC shall oversee the activities of the JPT and all related decisions will be made by consensus of the JSC. The JSC will review and approve amendments to the Plans, and all related decisions will be made by consensus of the JSC.

4.3.3

Specific Responsibilities . The JSC will be responsible for:

(a)

overseeing the work of the JPT and receiving and reviewing reports and other information from the JPT;

(b)

reviewing and approving amendments to the Plans;

(c)

reviewing the safety, design and functionality profile of the Devices or the Product;

(d)

attempting to resolve all disputes referred to the JSC by the JPT; and

(e)

making such other decisions as may be delegated to the JSC under this Agreement or by written agreement of the Parties.

4.3.4

The JSC shall hold its first meeting, in person, promptly after the JPT has held its first meeting under Clause 4.2.4. The JSC will thereafter meet on a quarterly basis, or at such other frequency as the Parties mutually agree, by telephone or video conference, and in person at least once per calendar year. Any meetings of the JSC shall be held at a mutually acceptable time, and any in-person meetings of the JSC shall be held at a mutually acceptable location in Chippenham, England, unless otherwise agreed by the Parties. Prior to each quarterly meeting of the JSC, each Party will prepare and deliver to the other Party a report or presentation of data (the format of such to be agreed by the Parties) of the status and results of its activities under the Plans. Each report delivered under the preceding sentence will be in a format mutually agreed upon by the Parties. The role of chairperson of the JSC shall alternate every six (6) months between a representative of Vectura and a representative of Pulmatrix, beginning with a representative of Vectura. The chairperson will be responsible for leading meetings, but will otherwise have no greater authority on the JSC than any other member. Each Party will use reasonable efforts to cause its representatives to attend meetings of the JSC and shall keep reasonable minutes and records of the JSC meetings concerning decisions and actions of the JSC. Such minutes shall be reviewed, agreed and signed by at least one JSC member from each Party. In addition, each Party may, at its discretion, invite a reasonable number of non-member employees, consultants and scientific advisors, to attend meetings of the JSC or the relevant portion thereof; provided, that any such non-member employees, consultants and scientific advisors are bound by written obligations of confidentiality and restrictions on use of Information at least as stringent as those set forth in in this Agreement and provided that written consent for the consultants and scientific advisors is received from the other Party. Each Party shall be responsible for its own costs in connection with the meetings of the JSC.

4.3.5

The Parties agree to reasonably cooperate and seek a consensus on all significant issues brought to the JSC; provided, that, in the event a consensus cannot be reached, Vectura has final decision making authority for matters raised at the JSC which concern Device design and functionality or otherwise relate to Vectura IP and/or which relate to the Development, Regulatory and Commercialisation Plan. Other matters that cannot be resolved by the JSC shall be addressed under the dispute resolution procedures set out at Clause 26.

4.3.6

If a Party reasonably anticipates that there will be a delay of two (2) months or more in respect of a key milestone within the Study Plan or Development, Regulatory and Commercialisation Plan then the relevant Party, acting through the Project Managers, shall promptly notify the other Party and each Party shall procure its respective JSC members to convene a meeting as promptly as practicable to discuss the matter and agree an appropriate course of action. Such meeting shall be in addition to the scheduled meetings of the JSC set forth in Clause 4.3.4. In the event that the JSC cannot agree to an appropriate course of action, the matter shall be shall be addressed under the dispute resolution procedures set out at Clause 26.

4.4	Neither the JPT nor the JSC shall have the authority to amend any of the terms and conditions of this Agreement or waive any rights of a Party under this Agreement.

5.	SCOPE AND CONDUCT OF FEASIBILITY STUDY

5.1	Subject to the terms and conditions of this Agreement, Vectura shall use Commercially Reasonable Efforts to conduct the Feasibility Study.

5.2	Subject to the terms and conditions of this Agreement, each Party shall use Commercially Reasonable Efforts to meet its obligations in the Study Plan.

5.3	Each Party undertakes to perform its activities under the Study Plan in accordance with Applicable Laws.

5.4

The Parties agree and acknowledge that the provisions of the Study Plan are incorporated by reference into this Agreement and are subject to the terms and conditions of this Agreement. In the event of a conflict between the terms of the Study Plan and the terms of this Agreement, the terms of this Agreement shall prevail.

5.5	Any adjustments or amendments to the Study Plan shall be agreed by the JSC in writing. Where any amendment or adjustment affects the timelines set out in the Study Plan, the JSC shall amend the timelines accordingly.

5.6

Vectura shall be under no obligation to fulfil any of its obligations in the Study Plan unless and until it has received, in its reasonable and good faith opinion, sufficient quantities of the Physical Materials, the Pulmatrix Data and the Requirements by reference to the Study Plan. Any timelines specified in the Study Plan are estimates only, and are reliant upon delivery of the Physical Materials and/or the Pulmatrix Data and/or the Requirements, and shall be extended in the event of any delay in their delivery by the period of time required by Vectura to proceed with the Feasibility Study after delivery of the same. Vectura shall not be liable for any errors, delays or other consequences arising from Pulmatrix’s failure to provide documents, materials or information or to otherwise co-operate with Vectura in relation to the Feasibility Study.

5.7

The preparation of the Study Plan, all work proposed to be conducted under it, and the respective timelines for such work, are based on the assumptions set out therein. Should those assumptions change or prove to be incorrect and any delays result, any timelines shall be extended by a period of time considered reasonable by the JSC. Vectura shall not be liable for any errors, delays, or other consequences arising from such assumptions changing or proving to be incorrect, unless the errors, delays, or other consequences are the result of Vectura’s negligence, willful misconduct or breach of this Agreement.

5.8

If Vectura informs Pulmatrix in writing that despite using its Commercially Reasonable Efforts it is unable to achieve any given task in the Study Plan, the JSC shall promptly meet and discuss in good faith what, if any, further or alternative action or efforts should be taken by Vectura and the costs associated therewith. If Vectura is still of the opinion that it is unable to achieve any given task in the Study Plan with the said period of time, this Agreement shall automatically terminate.

5.9	Vectura shall have no obligation to conduct any work in excess of the Study Plan, and Vectura shall not be in breach of this Agreement if it does not conduct any such work.

6.	PHYSICAL MATERIALS AND PULMATRIX DATA

6.1	Pulmatrix shall deliver the Pulmatrix Data to Vectura, to an address specified by Vectura, as soon as practicable, but in no event later than fifteen (15) days from the Effective Date.

6.2	Pulmatrix shall deliver the Physical Materials to Vectura CPT (as defined in Incoterms 2010) to an address specified by Vectura, required for the Feasibility Study in such quantity as set out in the Study Plan.

6.3

All supplies of the Physical Materials shall be accompanied by analytical methods and a Material Safety Data Sheet containing the information referred to in this Clause 6.3 (“ MSDS ”) (all the foregoing being, the “ Requirements ”). Prior to receipt by Vectura of the Physical Materials, Pulmatrix shall provide to Vectura a MSDS which shall include all information known to Pulmatrix at the time about the hazardous and toxicological properties of the Physical Materials together with any and all procedures and warnings of which Pulmatrix has knowledge and which are necessary and desirable to help assure the safe handling and use of the Physical Materials.

6.4

Pulmatrix shall promptly inform Vectura of any new information which may affect the Requirements and promptly update the Requirements to reflect the same. Vectura will handle the Physical Materials according to the Requirements and will inform Pulmatrix in writing of any adverse effects experienced by persons handling the Physical Materials. Should Vectura determine that the Physical Materials are more hazardous or contains more toxicological properties than as set out in the MSDS, Vectura may, without incurring any liability to Pulmatrix, suspend the Feasibility Study. In such an event, the Parties shall promptly meet and discuss in good faith what, if any, further or alternative measures should be taken by Vectura to accommodate the increased level of hazard or toxicity, PROVIDED ALWAYS THAT if the JSC does not agree, within a reasonable period, the scope and extent of such measures and the costs associated therewith, this Agreement shall terminate.

6.5	Pulmatrix shall ensure that all Physical Materials supplied by or on behalf of Pulmatrix to Vectura shall conform with all specifications reasonably required by Vectura, and the Requirements.

6.6

Vectura does not intend to conduct any incoming goods testing in relation to the Physical Materials. Notwithstanding the foregoing, if Vectura decides to conduct testing on the Physical Materials, Vectura shall carry out such testing within forty five (45) days of receipt of the same in order to test compliance with the Requirements. If Vectura reasonably believes as a result of any such testing that any Physical Materials do not comply with the Requirements, Specifications or are defective or damaged, Vectura shall promptly notify the same to Pulmatrix and Pulmatrix shall, at its sole cost and expense, replace any such defective Physical Materials. The foregoing is without prejudice to Vectura’s right to reject any such Physical Materials upon discovering a latent defect or other damage or defect not identifiable by the aforementioned testing. In respect of such Physical Materials, Pulmatrix shall at its sole cost and expense replace the same and reimburse Vectura for all reasonable costs and fees incurred by Vectura in the use of the defective Physical Materials supplied by or on behalf of Pulmatrix. Any timelines specified in the Study Plan shall be extended by the duration of any delay caused by the discovery and/or replacement of any defective Physical Material.

6.7	Risk of loss to the Physical Materials shall pass to Vectura upon delivery of the Physical Materials pursuant to Clause 6.2.

6.8	Pulmatrix shall be responsible for retaining appropriate samples of each delivery of Physical Materials for the longer of seven (7) years or as is otherwise required by Applicable Laws.

7.	UPDATES AND OWNERSHIP OF DATA

7.1

The Feasibility Study Data and any and all other data generated during the conduct of this Agreement (including, if applicable, in relation to the Development, Regulatory and Commercialisation Plan) (the “ Study Data ”) shall be owned by Vectura subject to Clause 7.3 and without prejudice to the Intellectual Property ownership rights set out in Clause 10.

7.2

On a monthly basis, or at such other frequency to be determined by the JSC, each Party shall provide the other with an interim report detailing the progress of the Feasibility Study (“ Feasibility Study Update s ”). Formal reports that may include final results and data in respect of given tasks or items in the Study Plan (“ Feasibility Study Reports ”) will be exchanged by the Parties in accordance with the Study Plan.

7.3	Vectura hereby grants to Pulmatrix a non-exclusive, non-sub-licensable, licence to the Study Data to fulfil its obligations under this Agreement.

8.	FURTHER WORK / DEVELOPMENT, REGULATORY AND COMMERCIALISATION PLAN

8.1	Vectura shall use the Feasibility Study Data solely for the purpose of determining whether to proceed with further development under the Development, Regulatory and Commercialisation Plan upon Completion.

8.2	For the purposes hereof, if the Parties agree that all of the Completion Criteria have been met, then “ Completion ” shall have occurred. .

8.3	At any time prior to Completion being met, or for a period of no longer then three (3) months after Completion, Vectura and Pulmatrix shall discuss and agree, in good faith, the Development, Regulatory and Commercialisation Plan. An initial draft is provided as an annex to Schedule 1.

8.4

Notwithstanding Clause 8.3 or any provision hereof, and save as set out in Clause 8.5, in any event and at all times, Vectura shall be solely responsible for, and shall take, and shall be entitled to take, all decisions in its sole discretion in relation to any and all further development, regulatory compliance and commercialisation of any Products, at its sole cost, including without limitation:

8.4.1

the selection of, and tech transfer to, a development and Manufacturing site;

8.4.2

Manufacturing scale up;

8.4.3

Manufacturing of clinical trials materials;

8.4.4

validation activities;

8.4.5

performance of all non-clinical and clinical work ;

8.4.6

compilation of the regulatory dossier, submission of the regulatory dossier to the Regulatory Authority, the registration process;

8.4.7

holding and maintaining any and all Marketing Authorisations;

8.4.8

promotion, marketing and commercialisation of the Product;

8.4.9

choosing any sub-contractors or Sub-Licensees; and

8.4.10

any and all other activities desirable or required in order to commercialise, promote, market and sell the Product,

in each case in respect of a Product in or for the Territory, whether through a Sub-Licensee or otherwise.

8.5	Pulmatrix shall be responsible, at its sole cost and expense, for:

8.5.1

providing reasonable support to Vectura in respect of Vectura’s responsibilities and rights under Clause 8.4 and otherwise as set out in this Agreement; and

8.5.2

without limiting the foregoing, giving all reasonable and necessary assistance to Vectura with regard to the transfer of the development and Manufacture of Products to Vectura and/or its Sub-Licensee(s) (and any Third Party agreement relating thereto, including spray drying by a Third Party appointed by Pulmatrix).

8.6	If applicable, each Party undertakes to perform its activities under the Development, Regulatory and Commercialisation Plan in accordance with Applicable Laws.

8.7

If applicable, the Parties agree and acknowledge that the provisions of the Development, Regulatory and Commercialisation Plan are incorporated by reference into this Agreement and are subject to the terms and conditions of this Agreement. In the event of a conflict between the terms of the Development, Regulatory and Commercialisation Plan and the terms of this Agreement, the terms of this Agreement shall prevail.

9.	PAYMENTS AND AUDIT OF RECORDS

9.1	Vectura shall pay to Pulmatrix the following one-off technology access fee of one million US dollars ($1,000,000) payable within forty five (45) days of Completion.

9.2	Until the last to expire of the Patents in the Territory, Vectura shall pay to Pulmatrix fifteen per cent (15%) of any and all Vectura Revenues (the “ Royalty Term ”).

9.3

Beginning at the end of the first Calendar Quarter in which the first Vectura Revenues are received, and in each Calendar Quarter thereafter in which Vectura Revenues are received and until the expiry of the Royalty Term, payments in respect of Clause 9.2 shall be made by Vectura in accordance with the terms herein. Within sixty (60) days following the end of each such Calendar Quarter, Vectura shall:-

9.3.1

provide Pulmatrix with a report, summarising the Vectura Revenues received in such Calendar Quarter; and

9.3.2

a calculation of the share of such Vectura Revenues due to Pulmatrix in accordance with Clause 9.2.

9.4	On receipt by Pulmatrix of the report referred to in Clause 9.3, Pulmatrix shall issue an invoice for such payment of the share of Vectura Revenues due to Pulmatrix as detailed therein. Vectura shall pay the same within thirty (30) days of receipt of such invoice.

9.5	Invoices shall be issued by Pulmatrix by email in PDF with a confirmatory paper copy sent by post.

9.6	Vectura shall make all payments due under this Agreement to a bank account nominated in writing by Pulmatrix at the time of issuing the invoice.

9.7

If Vectura fails to make any payment due under this Agreement in full by the due date then Pulmatrix may charge Vectura interest on any amount unpaid at the rate of 3% per annum above LIBOR from the time payment was first due until payment in full is received by Pulmatrix. In the event Vectura fails to make any payment due under this Agreement within one hundred twenty (120) days of the due date (inclusive of any permitted cure period under Clause 14), Pulmatrix shall have the right to terminate this Agreement unilaterally.

9.8	Vectura will make all payments to Pulmatrix under this Agreement without deduction or withholding of taxes except to the extent that any such deduction or withholding is required by law in effect at the time of payment. Any such obligation to withhold is and remains a duty of Vectura.

9.9

Any tax required to be withheld on amounts payable under this Agreement will promptly be paid by Vectura on behalf of Pulmatrix to the appropriate governmental authority, and Vectura will furnish Pulmatrix with proof of such tax payment within ten (10) days of receipt of the proof of such payment. Any tax required to be withheld will be an expense of and be borne by Pulmatrix.

9.10

Pulmatrix and Vectura will cooperate with respect to all documentation required by any tax authority or reasonably requested by Pulmatrix or Vectura to secure a reduction in the rate of applicable withholding taxes or recovery of VAT and other sales or indirect taxes. The cost of any delays in supplying such required documentation will be borne by the Party required to provide such information.

9.11

All amounts in this Agreement are stated exclusive of VAT and other sales or other indirect taxes. If any such taxes are payable on the payments under this Agreement then Vectura shall be responsible for the payment of such taxes to Pulmatrix following receipt of a valid VAT (or other applicable tax) invoice from Pulmatrix.

9.12

At the request of Pulmatrix, from time to time, Vectura shall permit an independent auditor appointed by Pulmatrix and reasonably acceptable to Vectura, upon reasonable notice and during business hours, to audit and examine such books and records of Vectura as may be necessary for verifying Vectura Revenues, if any, and other payment obligations under this Agreement, paid in a period not exceeding three years prior to the date of such request but no more frequently than once every calendar year at Pulmatrix’s sole expense. All non-public information made available by Vectura as part of any such audit, as part of any other reports (whether written or non-written), or otherwise under this Agreement shall be regarded as Vectura’s Information and the auditor shall not use any such information for any purpose other than determining whether Vectura has complied with its obligations hereunder. In the event that such auditor concludes that an underpayment or overpayment was made, the auditor will specify such under- or over-payment in a written report, along with the information on which such conclusion is based. This report will be shared promptly with Vectura. If Vectura Revenues are determined to have been underreported by more than five percent (5%) of the total due for the applicable period, Vectura will pay for the cost of any such audit. For clarity, Vectura will provide such auditor full access to each and every sublicense, and all other documentation necessary to conduct a complete and thorough audit.

9.13

If Vectura intends to sell the Product in the Territory itself rather than through a Sub-Licensee, it shall notify Pulmatrix in writing and the Parties shall negotiate appropriate terms for amounts to be paid by Vectura during the Royalty Term, including a definition of net sales and a royalty rate payable thereon. Clauses 9.3 to 9.12 shall apply to such payments to the same extent such clauses apply to Vectura Revenues.

10.

INTELLECTUAL PROPERTY RIGHTS AND OWNERSHIP RIGHTS

10.1	Vectura shall retain and own exclusive ownership of the Vectura IP. Pulmatrix shall retain and own exclusive ownership of Pulmatrix IP.

10.2

It is agreed that neither Party transfers by operation of this Agreement any right to any discoveries, copyright, inventions, innovations, patents, patent applications, methods, techniques, ideas and/or other Intellectual Property that either Party owns or controls prior to the Effective Date or which it develops independently of this Agreement after the Effective Date. Neither Party grants the other any right under any patent, copyright, nor other Intellectual Property owned or controlled by such Party, except as expressly provided for in this Agreement.

10.3

Vectura may file patent applications in relation to the Vectura IP. Pulmatrix hereby agrees to not do, nor omit to do, any act or thing to prejudice or otherwise adversely affect Vectura’s rights to Vectura IP, including but not limited to in the course of making any patent applications, the prosecution, maintenance, enforcement or defence of such applications or patents which arise therefrom or any other filings.

10.4

Each Party will notify the other Party, and will require its Affiliates and Sublicensees to notify it, promptly in writing upon becoming aware of any alleged or threatened infringement or violation by a Third Party of any Pulmatrix IP or Vectura IP. Pulmatrix shall have the first right to enforce any such patent in the Pulmatrix IP against any infringement or alleged infringement or other violation thereof in the Territory. If Pulmatrix does not exercise such right with sixty (60) days of becoming aware of such alleged or threatened infringement, such right shall pass to Vectura, its Affiliates or Sublicensee(s). Vectura shall reasonably cooperate in any such litigation brought by Pulmatrix, including, without limitation, joining any such suit in the Territory, at Pulmatrix’s request and expense. Vectura shall have the first right, but not the obligation, to institute or defend infringement actions against Third Parties relating to the Vectura IP (the “ Actions ”) at Vectura’s sole cost and expense in the Territory. Pulmatrix shall reasonably cooperate in any such litigation, including, without limitation, joining any such suit in the Territory, at Vectura’s request and expense. Vectura shall not be in breach of this Agreement if it does not institute or defend the same.

10.5	Pulmatrix shall promptly:

10.5.1

disclose to Vectura in writing the details of any developments constituting Vectura IP upon their creation and Actions upon becoming aware of the same; and

10.5.2

provide reasonable assistance to Vectura upon request, at its own cost and expense in relation to Clauses 10.4 and 10.5.

10.6

Neither Party shall do, or omit to do, any act or thing to prejudice or otherwise adversely affect the other Party’s Intellectual Property, including without limitation Vectura’s rights to Vectura IP, including but not limited to in the course of making any patent applications, the prosecution, maintenance, enforcement or defence of such applications or patents which arise therefrom or any other filings.

10.7

If either (i) any Product developed, made, commercialized or otherwise exploited by or under authority of Vectura becomes the subject of a Third Party’s claim or assertion of infringement of a patent relating to the manufacture, use, sale, offer for sale or importation of such Product in the Territory, or (ii) if a declaratory judgment action is brought naming either Party as a defendant and alleging invalidity of any of the Patents in the Territory, the Party first having notice of the claim or assertion shall promptly notify the other Party, and the Parties shall promptly confer to consider the claim or assertion and the appropriate course of action. Unless the Parties otherwise agree in writing, Vectura shall have the first right but not the obligation to defend itself against such claim. If Pulmatrix is named in such legal action but not Vectura, then Vectura shall have the right to join, at its own expense, any such legal action and to be represented in such action by its own counsel. Neither of the Parties shall enter into any settlement of any claim described in this Clause in the Territory that admits to the invalidity, narrowing of scope or unenforceability of the Patents or this Agreement, incurs any financial liability on the part of the other Party or requires an admission of liability, wrongdoing or fault on the part of the other Party without such other Party’s prior written consent. In any event, the other Party shall reasonably assist the Defending Party and cooperate in any such litigation at the Defending Party’s cost and the Defending Party shall reimburse the other Party’s reasonable, documented, out-of-pocket costs associated therewith.

10.8

All Pulmatrix IP created or developed during the course of this Agreement shall automatically be deemed (a) assigned and transferred to Pulmatrix and shall be the property of Pulmatrix and (b) licensed to Vectura during the Term of this Agreement pursuant to the terms of Clause 3.1. Without limiting the foregoing, Vectura will provide all reasonable and necessary assistance to Pulmatrix at Pulmatrix’s expense to facilitate the transfer of any such Pulmatrix IP to Pulmatrix and otherwise help demonstrate Pulmatrix’s ownership of such Pulmatrix IP.

11.

CONFIDENTIALITY AND PUBLICITY

11.1

Neither Party (the “ Receiving Party ”) shall disclose to any Third Party, and/or use for any purpose other than to perform its obligations under this Agreement, any Information (as defined in Clause 11.2) of the other Party (“ Disclosing Party ”), without the prior written consent of the Disclosing Party. Notwithstanding the foregoing, the Receiving Party may disclose the Disclosing Party’s Information to such of its employees, and employees of its Affiliates and sub-contractors who need to know the same to carry out such purpose and who are bound by obligations no less strict than those set out herein.

11.2

The Receiving Party undertakes to treat all information and materials, including without limitation scientific, technical, commercial and/or other information, data, documents, results, regulatory, or legally sensitive information, practices, procedures, software and other business information including, but not limited to specifications, compounds, ingredients, formulae, recipes, samples, reports, methods, strategies, plans, documents, drawings, machines, tools, models, inventions, patent disclosures, materials received from the Disclosing Party and obtained in connection with this Agreement and owned or belonging to the Disclosing Party or disclosed by it under a right of disclosure from a Third Party (hereinafter “ Information ”) as confidential in accordance with Clause 11.1 except for Information which the Receiving Party is able to demonstrate:

11.2.1

was already rightfully in the possession of the Receiving Party at the time it was acquired from the Disclosing Party as evidenced by the Receiving Party’s written records;

11.2.2

is already generally available to the public, or subsequently becomes so available without default on the part of the Receiving Party;

11.2.3

is received by the Receiving Party from a Third Party who did not acquire it directly or indirectly from the Disclosing Party in confidence; or

11.2.4

is developed by the Receiving Party, independently from and without access to the Information disclosed as evidenced by the Receiving Party’s written records.

11.3

The obligations in Clauses 11.1 and 11.2 shall not apply to Information of the Disclosing Party that: (i) is submitted by the Receiving Party to a Regulatory Authority to facilitate the issuance of, or otherwise in connection with, a Marketing Authorisation or any other regulatory approvals of the Study Product and/or Product, provided, that, reasonable measures shall be taken to assure confidential treatment of such Information; or (ii) is otherwise required to be disclosed in compliance with Applicable Laws (including for the avoidance of doubt, the requirements of the London Stock Exchange, NASDAQ, or any other stock exchange on which securities issued by the Receiving Party are traded) or order by a court or other Regulatory Authority having competent jurisdiction; provided, that, if the Receiving Party is required to make any such disclosure of the disclosing Party’s information the Receiving Party will give reasonable advance written notice to the Disclosing Party of such disclosure requirement (to the extent permitted by law).

11.4	Neither Party will use, nor authorize others to use, the name, symbols, or marks of the other Party in any advertising or publicity material or make any form of representation or statement to a Third Party with regard to this Agreement without that other Party’s prior written consent.

11.5

The Parties have agreed to a press release for issue by each of the Parties upon the Effective Date, which are attached hereto as Schedule 5 and agree to a strategy for subsequent press releases to be made upon reaching agreed milestones in the Plans (taking into account that each of Vectura and Pulmatrix is subject to public company listing rules which require Vectura Group PLC and Pulmatrix to issue press releases in certain situations). Each Party shall be able to disclose the identity of the other Party, a summary of the financial terms of this Agreement and the class of drug. Each Party shall acknowledge the contribution of the other Party in publicly available information. Following commercial launch of the Product, the Parties may report sales in the Territory.

11.6	Subject to Clause 11.5, neither Party shall make any press release concerning this Agreement or the subject matter hereof without the prior written consent of the other Party.

11.7	Pulmatrix shall notify Vectura if it intends to make any public announcement with respect to the exploitation by or on behalf of Pulmatrix outside the Territory of: (a) tiotropium alone or in combination; and/or (b) [*] .

11.8	The confidentiality obligations of this Clause 11 shall survive termination of this Agreement for a period of ten (10) years.

12.

WARRANTIES

12.1	Pulmatrix hereby represents and warrants that:

12.1.1

it is able to grant the licences under Clause 3.1 and that Vectura is permitted to use the Requirements, Physical Materials, Pulmatrix Data and Pulmatrix’s Information;

12.1.2

at the Effective Date it has no actual knowledge that any of the Intellectual Property in the Pulmatrix IP (including the Patents) are or may be invalid or that the exercise by Vectura of the licences granted to it under Clause 3.1 will infringe any Third Party Intellectual Property;

12.1.3

the Requirements, Physical Materials, Pulmatrix Data and Information supplied to Vectura or its designee hereunder are owned by Pulmatrix and are not subject to any charge or lien; the Requirements, Pulmatrix Data and other Information provided by Pulmatrix is up to date, accurate and contain all information necessary and reasonably required for Vectura to perform the Feasibility Study and development under the Development, Regulatory and Commercialisation Plan safely in accordance with the terms hereof; and

12.1.4

at the Effective Date, it has no actual knowledge that the use of the Physical Materials and/or Pulmatrix Data by Vectura in accordance with the Study Plan will infringe the rights of any Third Parties.

12.2	Vectura hereby represents and warrants that:

12.2.1

it has the capacity and power to receive the Pulmatrix IP and is not under any obligation by or to third party, to disclose, license, assign, or otherwise reveal or transfer to any Third Party any Pulmatrix IP, except as permitted under this Agreement; and

12.2.2

it not presently and will not become, and will not authorize any Affiliate or Sublicensee to become, a party to any agreement that materially prohibits or restricts the exploitation of the Pulmatrix IP in the Territory as contemplated under this Agreement.

12.3	The Parties hereby represent and warrant that each has all consents and authorisations necessary to perform its obligations hereunder and that it shall comply with Applicable Laws.

12.4

Pulmatrix acknowledges that the Feasibility Study and, if applicable, any development under the Development, Regulatory and Commercialisation Plan is experimental and exploratory in nature and that Vectura makes no representation or warranty that it shall be successful, that the time lines will be met nor that it shall result in any Study Products or Products or at all. Except as expressly set forth in this Agreement, and as between Vectura and Pulmatrix, all Study Products or Products are Manufactured, and any advice is provided, by Vectura, with no representations or warranties, express or implied, including any warranty of merchantability or fitness for a particular purpose.

12.5	Except as expressly provided herein, all representations, warranties, conditions or other terms implied by statute, common law or otherwise are excluded to the fullest extent permitted by law.

13.

LIABILITY, INDEMNITY,INSURANCE AND LIMITATION ON LIABILITY

13.1

Save to the extent covered by Clause 13.2, Pulmatrix shall fully indemnify, on demand, and keep indemnified Vectura, its Affiliates and their respective officers, directors, employees and agents against any and all losses, claims, actions, demands, suits or causes of action brought by a Third Party for damages arising out of or relating to: (i) Vectura’s proper use, application, storage or disposal of the Requirements, the Physical Materials, the Pulmatrix Data and/or any Information supplied by or on behalf of Pulmatrix or Pulmatrix’s use of the Study Products; (ii) any breach by Pulmatrix of its representations, warranties or covenants hereunder; (iii) the negligence or wilful misconduct of Pulmatrix, its Affiliates and their respective officers, directors, employees, contractors and agents; (iv) Pulmatrix’s or any entity’s manufacture, use, application, storage or disposal of the Study Products; or (v) any alleged or actual infringement of Third Party Intellectual Property in the Pulmatrix Technology by Vectura’s or its Affiliates’ or Sub-Licensee’s or sub-contractor’s proper use of the same as contemplated herein.

13.2

Save to the extent covered by Clause 13.1 and subject to Clause 13.4, Vectura shall fully indemnify, on demand, and keep indemnified Pulmatrix, its Affiliates and their respective officers, directors, employees and agents against any and all losses, claims, actions, demands, suits or causes of action brought by a Third Party for damages arising out of or relating to: (i) the

negligence, recklessness or wilful misconduct of Vectura, its Affiliates and their respective officers, directors, employees, contractors and agents or (ii) the development, Manufacture, transfer, use, handling, storage, sale or other disposition of the Product by or on behalf of Vectura or any of its Affiliates, Sublicensees, agents, and contractors.

13.3

Under no circumstances shall either Party be liable to the other under any legal or equitable claim or cause of action, whether in contract, tort or otherwise, for punitive, indirect, special, incidental or consequential damages (including, without limitation, loss of profits), unless caused by gross negligence or wilful misconduct.

13.4

Except in the case of death or personal injury caused by Vectura’s negligence or fraud of Vectura or Vectura’s willful and intentional breach of Section 10 this Agreement, Vectura’s total liability in contract, tort (including negligence), misrepresentation, restitution or otherwise arising in connection with the performance, or contemplated performance, of this Agreement shall be limited to US$2,000,000. Vectura shall not be liable for any losses, claims, actions, demands, suits or causes of action arising from or otherwise related to the Physical Materials and/or Pulmatrix Data supplied by or on behalf of Pulmatrix, provided that any use of the Physical Materials and/or Pulmatrix Data are used according to Pulmatrix’s instructions, if any, and only for the purposes contemplated herein.

13.5

From the Effective Date and then extending for a period of seven (7) years after termination of this Agreement, each of the Parties shall maintain such policies of insurance including product liability insurance, with respect to its activities under this Agreement in amounts reasonably appropriate to the conduct of its business in accordance with industry standards (which shall be no less than $3 million per occurrence and in the aggregate with an annual aggregate of $3 million per year for product liability claims). Notwithstanding the foregoing, prior to commencing clinical trials, each of the Parties shall increase the amount of such coverage to $10 million per occurrence and in the aggregate with an annual aggregate of $10 million per year for product liability claims.

14.

TERM AND TERMINATION

14.1	Each Party shall be entitled to terminate this Agreement, without prejudice to any other rights to terminate this Agreement, with immediate effect by written notice to the other Party in the event:

14.1.1

that the other Party commits a material breach or default in the performance of this Agreement, and in case of a breach capable of remedy, fails to remedy the same within thirty (30) days after receipt of a written notice thereof from the Party not in breach giving full particulars of the breach and requiring it to be remedied; or

14.1.2

of insolvency of, assignment for the benefit of creditors by, or the initiation of administration proceedings by or against, the other Party.

14.2	Vectura shall be entitled without prejudice to any other rights under this Agreement, to terminate this Agreement for any reason upon provision of three (3) months’ notice of such termination to Pulmatrix in writing.

14.3

In the event that Vectura, or any of its Affiliates make any request for, or filing or declaration of, or undertake any action involving, any interference, opposition, challenges as to ownership, assertions of invalidity or unenforceability, revocation or reexamination relating to any Pulmatrix IP before any court, agency or other tribunal, then Pulmatrix shall have the right to immediately terminate this Agreement in its entirety by sending written notice of such termination to Vectura.

14.4	Upon termination or expiration of this Agreement, Vectura shall:

14.4.1

promptly refrain from using the Physical Materials, the Pulmatrix IP, the Pulmatrix Data and the Information of Pulmatrix;

14.4.2

promptly return to Pulmatrix, at Pulmatrix’s request and expense, the Pulmatrix Data and/or all documents containing solely Information of Pulmatrix or any other items put at Vectura’s disposal by Pulmatrix under this Agreement (including, but not limited to, any notes and summaries, print-outs or copies of information stored in electronic or computerized systems), except for one copy of each document to be retained by the Vectura in a confidential central file;

14.4.3

destroy or return to Pulmatrix, as per Pulmatrix’s request and expense, any remaining Physical Materials provided by Pulmatrix which remains in Vectura’s possession; and

14.4.4

provide a report of the results obtained until the termination or expiry (except if terminated by Vectura under Clause 14.1).

14.5	Upon termination or expiration of this Agreement, Pulmatrix shall:

14.5.1

promptly refrain from using the Vectura IP and/or any Device to which it may have access, and the Information of Vectura; and

14.5.2

promptly return to Vectura, at Vectura’s request and expense, all documents containing Information of Vectura or any other items put at Pulmatrix’s disposal by Vectura under this Agreement (including, but not limited to, any notes and summaries, print-outs or copies of information stored in electronic or computerized systems).

14.6	Notwithstanding the foregoing, Pulmatrix and Vectura will fulfil their respective obligations under Clause 10, including the notification of all inventions developed as a result of the work conducted by or on behalf of Vectura under this Agreement.

14.7

Termination or expiration of this Agreement shall not release either Party of any obligations in relation to this Agreement incurred prior thereto, except as specifically provided herein, nor of any other obligation which, by its terms, is understood to survive the termination or expiration of this Agreement. The provisions of Clauses 7, 10, 11, 13, 14.4 to 14.7, 16, 18 and 26 shall survive termination or expiration of this Agreement.

15.

FURTHER ASSURANCE

Pulmatrix shall, at its own cost and expense, and shall use all reasonable endeavours to procure that any necessary Third Party shall, promptly execute and deliver such documents and perform such acts as may be required for the purpose of giving full effect to this Agreement.

16.

NOTICES

All notices in connection with this Agreement (“ Notice ”) shall be in writing and sent by registered mail or courier service to the other Party. The Notice shall be deemed to have been properly served if addressed to:

Pulmatrix:

Robert Clarke

Chief Executive Officer

Pulmatrix, Inc.

99 Hayden Avenue

Suite 390

Lexington, MA 02421

USA

With a copy to:

Mr. Kevin O’Driscoll

Pulmatrix, Inc.

99 Hayden Avenue, Suite 390

Lexington, MA 02421

Email: kodriscoll@pulmatrix.com

and

Rick Werner, Esq.

Haynes and Boone, LLP

30 Rockefeller Plaza

New York, NY 10112

Email: Rick.Werner@HaynesBoone.com

Vectura:

Attention: Chief Executive Officer

Vectura Limited

One Prospect West

Chippenham

Wiltshire

SN14 6FH

United Kingdom

With a copy to:

General Counsel

Vectura PLC

46-48 Grosvenor Gardens

London SW1W 0EB

United Kingdom

or such other address or addresses of which each Party shall have given written notice not less than 7 (seven) days before the Notice is dispatched. Any such Notice will be deemed to be given when delivered by post or courier service. However, Notice given in accordance with the above but received on a non-working day or after business hours in the place of receipt will only be deemed to be given on the next working day in that premises.

17.

INDEPENDENT CONTRACTOR

For the purposes of this Agreement, each Party shall be an independent contractor and not an agent or employee of the other Party. Neither Party shall have any authority nor any power to make any statements, representations or commitments of any kind, or to take any action which is binding on the other Party, except as may be explicitly provided for herein or authorised by the other Party in writing.

18.

ENTIRE AGREEMENT, MODIFICATIONS AND AMENDMENTS

This Agreement (including the CDA and the Study Plan and, if applicable, the Development, Regulatory and Commercialisation Plan) sets forth the entire agreement between the Parties with respect to the transactions and arrangements contemplated herein and supersedes all prior oral and written arrangements. No variation, amendment or modification to this Agreement shall be valid or binding upon the Parties unless made in writing and duly signed by the representatives of such Parties.

19.

SEVERABILITY

19.1	If any provision of this Agreement (or part of a provision) is found by any court or administrative body of competent jurisdiction to be invalid, unenforceable or illegal, the other provisions shall remain in force.

19.2	If any invalid, unenforceable or illegal provision would be valid, enforceable or legal if some part of it were deleted, the provision shall apply with the minimum modification necessary to make it legal, valid and enforceable.

20.

ASSIGNMENT AND SUB-CONTRACTING

20.1

Subject to Clause 20.2, this Agreement and all rights and obligations hereunder are personal to the Parties hereto and may not be assigned or sub-contracted without the prior written consent of the other Party hereto, except that a Party shall be entitled to assign, sub-contract or delegate this Agreement or any part thereof to its Affiliates, or any Third Party taking over all or substantially all of its business, provided such Affiliate, or Third Party, agrees to be bound by all terms and conditions hereof and in the case of a Party sub-contracting, such Party shall be and remain liable to the other for the acts and omissions of the sub-contractee and where the context so permits a reference to such Party herein shall include a reference to the sub-contractee. The identity of the Affiliate, or Third Party, to whom a Party assigns or sub-contracts this Agreement in accordance with the foregoing shall be notified in writing to the other Party upon such assignment or sub-contracting. Any assignment or sub-contracting, or attempt at same, in the absence of such prior written consent shall be void and without effect.

20.2

Notwithstanding Clause 20.1, Vectura shall be freely entitled (without having to obtain Pulmatrix’s consent) to sub-contract, delegate or sub license this Agreement or any part thereof provided such sub-contractee or Sub-Licensee agrees to be bound by all terms and conditions hereof and provided that Vectura shall be and remain liable to Pulmatrix for the acts and omissions of the sub-contractee or Sub-Licensee and where the context so permits a reference to Vectura herein shall include a reference to the sub-contractee or Sub-Licensee. The identity of each sub-contractee shall be notified to Pulmatrix by Vectura upon such sub-contracting and Clause 3.4 shall apply in respect of Sub-Licensee(s).

21.

WAIVER

No actual or implied waiver by any Party in one or more instances of any of the provisions of this Agreement or the breach thereof shall be construed to be a waiver of any subsequent or prior breach of the same or any other provision of this Agreement. Furthermore, in case of waiver of a particular provision, all other provisions of this Agreement will continue in full force and effect.

22.

THIRD PARTY RIGHTS

The Contracts (Rights of Third Parties) Act 1999 shall not apply to this Agreement and no person other than the Parties shall have any rights under it.

23.

FORCE MAJEURE

Neither Party shall be responsible or liable to the other hereunder for any failure or delay in the performance of its obligations under this Agreement due to any contingency beyond such Party’s reasonable control, such as war, fire, accident or other casualty, or act of God. In the event of the applicability of this Clause 23, the Party affected by such force majeure shall use reasonable efforts, consistent with good business judgment, to eliminate, cure and overcome any of such causes and resume performance of its obligations. Such force majeure occurrence shall immediately be notified to the other Party and in the event that a force majeure occurrence continues for a period of thirty (30) days or more, the Parties shall meet and discuss in good faith what, if any, measures should be taken to overcome such occurrence. If within such thirty (30) days the Parties cannot agree on such measures, the Party not affected may terminate this Agreement.

24.

ANTI-BRIBERY

The Vectura Group, of which Vectura is a member, is committed to running a business free from discreditable behaviour of any kind and Pulmatrix confirms that it shares Vectura’s commitment in respect of its own business dealings. In particular, Pulmatrix warrants that it is not associated with bribery or the commissioning of any acts of bribery, nor does it associate with any party in relation to such matters. Pulmatrix undertakes that it will not commit nor commission any act of bribery and will take all reasonable steps to ensure that all of its and its Affiliates’ officers, employees, sub-licensees and agents and any other associated persons act accordingly. Pulmatrix shall notify Vectura promptly in writing in the event of any breach of this provision and shall provide all relevant information relating to such breach as Vectura requests and shall co-operate with Vectura and any relevant public authorities in relation thereto.

25.

ANTI-SLAVERY

25.1

With regard to its activities carried out in relation to this Agreement, Pulmatrix shall, and shall procure that its Affiliates and their respective officers, employees, sub-licensees and agents and any other associated persons, comply with applicable laws by which it is bound that concern slavery. In the case of the United Kingdom, these laws include the Modern Slavery Act 2015. If there is no applicable law which binds Pulmatrix or its Affiliates in relation to such matters, then Pulmatrix shall comply with the Modern Slavery Act 2015 in respect of that matter.

25.2

Pulmatrix shall notify Vectura promptly if it becomes aware that it is in material breach of Clause 25.1 and shall (i) promptly provide to Vectura such relevant information relating to such breach as Vectura reasonably requests and (ii) co-operate with Vectura and any relevant public authorities in relation thereto.

26.

JURISDICTION AND DISPUTE RESOLUTION

26.1	Any dispute which is not under the decision making power of the JSC shall be determined by the dispute resolution procedure hereinafter set out:

26.1.1

either Party shall give to the other written notice of the dispute, setting out its nature and full particulars (“ Dispute Notice ”), together with relevant supporting documentation. On service of the Dispute Notice the Parties’ executive officers shall attempt in good faith to resolve such dispute; and

26.1.2

if the executive officers are for any reason unable to resolve the dispute within 30 days of it being referred to them, either Party may take such further steps as it considers appropriate to resolve such dispute, including the initiation of court proceedings in compliance with Clause 26.3.

26.2	This Agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by and construed in accordance with the law of England and Wales.

26.3	The Parties agree that any dispute or claim arising out of or in connection with this Agreement which is not resolved by the applicable dispute resolution procedure hereunder shall be settled exclusively by the courts of England.

[signatures appear on following page]

IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers, each copy of which shall for all purposes be deemed to be an original.


VECTURA LIMITED				PULMATRIX INC

By:				By:
Name: Andrew Derodra				Name:
Title: Chief Financial Officer				Title:
Date: September 2017				Date:

SCHEDULE 1

STUDY PLAN

[*****]

Annex to Schedule 1 – Initial Draft of Development, Regulatory and Commercialisation Plan

[*****]

SCHEDULE 2

PHYSICAL MATERIALS AND PULMATRIX DATA

PART 1 – PHYSICAL MATERIALS

[*****]

PART 2 – PULMATRIX DATA

[*****]

PATENTS

Pulmatrix
ID #

Application
No.

PCT Filing
Date

US Filing
Date

Title

Status

Patent No.

Patent
Issue Date

PUL

115US

13/876,312

29-Sep-11

27-Mar-13

MONOVALENT

METAL CATION DRY

POWDERS

Granted

US 9,642,798

9-May-17

PUL

131US

14/870,736

13-Mar-14

30-Sep-15

TIOTROPIUM DRY

POWDERS

Granted

US 9,737,518

22-Aug-17

PUL

138US

15/517,724

7-Oct-15

7-Apr-17

ACID CONTENT

ADDITION TO

TRIOTROPIUM

CONTAINING DRY

POWDERS

active

Not yet

approved

PUL

139US

15/517,728

7-Oct-15

7-Apr-17

STABILITY OF DRY

POWDERS

CONTAINING

TIOTROPIUM AND

LEUCINE

active

Not yet

approved

SCHEDULE 4

COMPLETION CRITERIA

[*****]

Characterisation of Bulk Formulations Pre-Filling

[*****]

Stage 1

[*****]

Stage 2

[*****]

Stage 3

[*****]

SCHEDULE 5

PRESS RELEASES

Vectura Group plc

Vectura announces major new tiotropium bromide DPI development programme accelerated through licensing of Pulmatrix technology

Chippenham, UK – 6 September 2017: Vectura Group plc (LSE: VEC) (“Vectura”, “the Group”), an industry-leading device and formulation business for inhaled airways products, today announces it is progressing the development of a branded generic tiotropium bromide programme (VR410) for the US market which will be accelerated through an exclusive licence agreement with Pulmatrix Inc. (NASDAQ: PULM; “Pulmatrix”). Pulmatrix is a clinical-stage biopharmaceutical company that has been developing PUR0200, its once-daily, inhalable iSPERSE™ formulation of tiotropium bromide for COPD patients.

VR410

Vectura’s innovative dry power inhaler (“DPI”) device technology will be used to deliver PUR0200. VR410 is a branded generic alternative to Spiriva ^® HandiHaler ^® ¹ in the US.

In addition, under the agreement Vectura may develop the PUR0200 formulation in combination with one or more other active pharmaceutical ingredients. This provides Vectura with the opportunity for future additional combination assets to compete in the growing US LAMA/LABA market, worth $407m in 2016 ² . This development will be actively pursued once the monotherapy project is established.

Pulmatrix will provide the data package for PUR0200 and assist with the transfer of development and manufacturing activities to Vectura. As part of the agreement, a technology access fee of $1 million will be payable to Pulmatrix upon successful achievement of pre-agreed pharmaceutical development criteria, which will be capitalised as an intangible asset and amortised in line with the requirements of IFRS.

Vectura will commence development immediately and then plans to license VR410 and future VR410 assets to partners who would fund the remaining development and undertake commercialisation activities. After partnering, Vectura would pay Pulmatrix a mid-teen percentage share of any future revenues that Vectura receives from partners relating to the development and sale of VR410 and VR410-related products including any future combinations.

The Group does not expect a material impact on R&D expenditure for the feasibility study and early development prior to licensing.

James Ward-Lilley, Chief Executive Officer, commented:

“With this agreement Vectura now has active substitutable or branded generic development programmes for all the major established inhaled products in the US market. Tiotropium is one of the largest opportunities in the inhaled respiratory market and the agreement with Pulmatrix enables Vectura to accelerate its plans for both monotherapy and combination programmes. The development of inhaled generics requires specialised capabilities which are scarce in the industry but are core competencies of Vectura. Today’s announcement is part of the expanded generic portfolio enabled through the merger of Vectura and Skyepharma.”

- ENDS –

For enquiries, please contact


Vectura Group plc		+44 (0)1249 667700
Andrew Derodra – Chief Financial Officer Fleur Wood – Director Communications Elizabeth Knowles – Director Investor Relations and Analysis

Consilium Strategic Communications		+44 (0)20 3709 5700
Mary-Jane Elliott / Sue Stuart / Jessica Hodgson		vectura@consilium-comms.com

About Vectura

Vectura, a FTSE250 company listed on the London Stock Exchange (LSE: VEC), is an industry-leading device and formulation business for inhaled airways products offering a uniquely integrated inhaled drug delivery platform. With our extensive range of device and formulation technologies, integrated capabilities and collaborations, we are a leader in the development of inhalation products, increasing our ability to help patients suffering from respiratory diseases.

¹	Spiriva ^® and HandiHaler ^® are registered trade marks of Boehringer Ingelheim

²	Source: IMS MIDAS 2017

Vectura has eight inhaled, four non-inhaled and ten oral products marketed by partners with growing global royalty streams. The group has a diverse portfolio of drugs in clinical development, including a number of novel and generic programmes which are partnered with several global pharmaceutical and biotechnology companies including Hikma, Novartis, Sandoz, Mundipharma, Kyorin, Baxter, GSK, UCB, Ablynx, Grifols, Bayer, Chiesi, Almirall, Janssen, Dynavax and Tianjin KingYork along with two wholly owned nebulised development programmes.

About tiotropium bromide

Tiotropium bromide is the active ingredient in Spiriva ^® . Tiotropium bromide is a once-daily, inhaled, long-acting muscarinic receptor antagonist (LAMA), used as maintenance therapy to control symptoms of chronic obstructive pulmonary disease (COPD). Gross US sales and volumes for the LAMA class in 2016 were $3.6bn and 13.3m units respectively, dominated by tiotropium bromide ³ . Tiotropium bromide is the active ingredient in Spiriva ^® Handihaler ^® , in the US market the last Orange Book ⁴ listed patent currently expires on Apr 19, 2030. Total US Spiriva sales in 2016 were $1.9bn. ⁵

About PUR0200

PUR0200 is Pulmatrix’s once-daily, inhalable iSPERSE™ reformulation of tiotropium bromide for COPD patients. PUR0200 may be developed as a branded alternative to Spiriva ^® HandiHaler ^® in the US.

About Pulmatrix

Pulmatrix is a clinical stage biopharmaceutical company developing innovative inhaled therapies to address serious pulmonary disease using its patented iSPERSE™ technology. The Company’s proprietary product pipeline is focused on advancing treatments for rare diseases, including PUR1900, an inhaled anti-fungal for patients with cystic fibrosis (CF) and severe asthma, and PUR1800, a narrow spectrum kinase inhibitor for patients with COPD. In addition, Pulmatrix is pursuing opportunities in major pulmonary diseases through collaborations, including PUR0200, a branded generic in clinical development for COPD. Pulmatrix’s product candidates are based on iSPERSE™, its proprietary dry powder delivery platform, which seeks to improve therapeutic delivery to the lungs by maximising local concentrations and reducing systemic side effects to improve patient outcomes.

Forward-looking statements

This press release contains forward-looking statements, including statements about the discovery, development and commercialisation of products. Various risks may cause Vectura’s actual results to differ materially from those expressed or implied by the forward-looking statements, including: adverse results in clinical development programmes; failure to obtain patent protection for inventions; commercial limitations imposed by patents owned or controlled by third parties; dependence upon strategic alliance partners to develop and commercialise products and services; difficulties or delays in obtaining regulatory approvals to market products and services resulting from development efforts; the requirement for substantial funding to conduct research and development and to expand commercialisation activities; and product initiatives by competitors. As a result of these factors, prospective investors are cautioned not to rely on any forward-looking statements. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

³	Source: IMS MIDAS 2017

⁴	Source: FDA Orange Book: Approved Drug Products with Therapeutic Equivalence Evaluations

⁵	Source: Evaluate Pharma, estimated

September 6, 2017

Pulmatrix Licenses Inhaled COPD Drug PUR0200 to Vectura Group plc

The agreement will accelerate the development of the innovative inhaled drug

LEXINGTON, MA – Pulmatrix, Inc. (NASDAQ: PULM), a clinical stage biopharmaceutical company developing innovative inhaled therapies to address serious pulmonary diseases, today announced that it has partnered with Vectura Group plc (LSE: VEC) (“Vectura”) to develop Pulmatrix’s drug candidate, PUR0200, for chronic obstructive pulmonary disease (COPD) for the U.S. market. Vectura and/or its partners will be responsible for all future development costs to advance the product for the U.S.

Pulmatrix will provide the data package for PUR0200 and assist with the transfer of development and manufacturing activities to Vectura. As part of the agreement, a technology access fee of $1 million will be payable to Pulmatrix upon successful achievement of pre-agreed pharmaceutical development criteria. Vectura will commence development immediately and will pay Pulmatrix a mid-teen percentage share of any future revenues that Vectura receives relating to future development and sale of PUR0200 and PUR0200-related products including future combinations.

“Vectura has deep experience with inhaled drugs and innovative dry powder delivery technologies which makes them an optimal partner to advance PUR0200 as a better product for COPD patients,” explained Robert W. Clarke, Ph.D. , Chief Executive Officer of Pulmatrix. “By out-licensing the program to Vectura, PUR0200 is in the hands of a partner with a demonstrated ability to develop drugs for COPD and allows Pulmatrix to focus on our product pipeline including PUR1900 and PUR1800.”

PUR0200 combines tiotropium bromide, the active component in the billion-dollar blockbuster drug Spiriva , with Pulmatrix’s ground-breaking iSPERSE ^TM drug delivery platform. Early stage clinical trials of PUR0200 have shown the product to be up to five times more efficient at delivering the drug to the lungs than the currently marketed product. Vectura will utilize its innovative dry power inhaler device technology to deliver PUR0200, with the goal of providing enhanced delivery and a better device format of PUR0200 for patients.

About Pulmatrix

Pulmatrix is a clinical stage biopharmaceutical company developing innovative inhaled therapies to address serious pulmonary disease using its patented iSPERSE™ technology. The Company’s proprietary product pipeline is focused on advancing treatments for rare diseases, including PUR1900, an inhaled anti-fungal for patients with cystic fibrosis (CF) and severe asthma, and PUR1800, a narrow spectrum kinase inhibitor for patients with COPD. In addition, Pulmatrix is pursuing opportunities in major pulmonary diseases through collaborations, including PUR0200, a branded generic in clinical development for COPD. Pulmatrix’s product candidates are based on iSPERSE™, its proprietary dry powder delivery platform, which seeks to improve therapeutic delivery to the lungs by maximizing local concentrations and reducing systemic side effects to improve patient outcomes.

About PUR0200

PUR0200 is Pulmatrix’s once-daily, inhalable iSPERSE™ reformulation of tiotropium bromide for COPD patients. PUR0200 is a branded alternative to Spiriva ^® HandiHaler ^® in the US.

About Vectura

Vectura, a FTSE250 company listed on the London Stock Exchange (LSE: VEC), is an industry-leading device and formulation business for inhaled airways products offering a uniquely integrated inhaled drug delivery platform. With its extensive range of device and formulation technologies, integrated capabilities and collaborations, it is a leader in the development of inhalation products, increasing its ability to help patients suffering from respiratory diseases.

FORWARD-LOOKING STATEMENTS

Certain statements in this press release that are forward-looking and not statements of historical fact are forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The Company cautions that such statements involve risks and uncertainties that may materially affect the Company’s results of operations. Such forward-looking statements are based on the beliefs of management as well as assumptions made by and information currently available to management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors, including but not limited to the ability to establish that potential products are efficacious or safe in preclinical or clinical trials; the ability to establish or maintain collaborations on the development of therapeutic candidates; the ability to obtain appropriate or necessary governmental approvals to market potential products; the ability to obtain future funding for developmental products and working capital and to obtain such funding on commercially reasonable terms; the Company’s ability to manufacture product candidates on a commercial scale or in collaborations with third parties; changes in the size and nature of competitors; the ability to retain key executives and scientists; and the ability to secure and enforce legal rights related to the Company’s products, including patent protection. A discussion of these and other factors, including risks and uncertainties with respect to the Company, is set forth in the Company’s filings with the Securities and Exchange Commission, including its annual report on Form 10-K filed by the Company with the Securities and Exchange Commission on March 10, 2017, as may be supplemented or amended by the Company’s Quarterly Reports on Form 10-Q. The Company disclaims any intention or obligation to revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

###


Investor Contact
Robert Clarke, CEO					William Duke, CFO
(781) 357-2333					(781) 357-2333
rclarke@pulmatrix.com					wduke@pulmatrix.com

SCHEDULE 6

EXCLUDED APIs

Excluded APIs are identified here by structure and chemical name (including IUPAC Name and/or CA Index Name). Specifically, Excluded APIs are the structure and all salt forms thereof contained in Schedule 6.

PUR1800

[*****]

PUR5700:

[*****]

RV568

[*****]

Exhibit 31.1

CERTIFICATIONS UNDER SECTION 302

I, Robert W. Clarke, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Pulmatrix, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2017

/s/ Robert W. Clarke

Robert W. Clarke

President and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATIONS UNDER SECTION 302

I, William Duke, Jr., certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Pulmatrix, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 9, 2017

/s/ William Duke, Jr.

William Duke, Jr.

Chief Financial Officer

(Principal Financial Officer)

Exhibit 32.1

CERTIFICATIONS UNDER SECTION 906

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Pulmatrix, Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge and in the capacity of an officer, that:

The Quarterly Report for the quarter ended September 30, 2017 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.



Date: November 9, 2017				/s/ Robert W. Clarke
				Robert W. Clarke
				President and Chief Executive Officer
				(Principal Executive Officer)

Date: November 9, 2017				/s/ William Duke, Jr.
				William Duke, Jr.
				Chief Financial Officer
				(Principal Financial Officer)

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