Altimmune, Inc. — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. Amounts are U.S. dollars. Altimmune is a clinical-stage immunotherapy and vaccine developer; it reported no product-sale revenue. The May 4, 2017 reverse merger with PharmAthene expanded the business and affects comparability with 2016, which included Altimmune only.
Financial results and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue, grants and contracts | $4.59 million | $0.90 million | $7.93 million | $2.15 million |
| Research and development expense | $5.91 million | $2.40 million | $13.95 million | $4.85 million |
| Operating loss | $30.95 million | $4.79 million | $39.48 million | $7.99 million |
| Net loss | $29.91 million | $4.80 million | $37.59 million | $8.02 million |
| Net loss per common share | $2.05 | $0.71 | $3.43 | $1.20 |
- Revenue growth was driven principally by BARDA and NIAID research contracts, not product sales. No gross margin measure is presented.
- Nine-month operating cash use was $15.41 million, versus $4.86 million in 2016. Investing activities provided $13.75 million, primarily from $13.68 million cash acquired in the merger; financing provided $15.84 million.
- At September 30, cash and cash equivalents were $17.12 million, with restricted cash of $0.03 million. Current assets were $26.12 million and current liabilities $4.18 million. The balance sheet reported total debt of about $0.64 million, and redeemable preferred stock outside permanent equity with an $8.24 million carrying/redemption value.
- Accumulated deficit was $68.85 million. Total assets were $74.35 million, including $38.10 million of in-process research and development and $9.33 million of goodwill.
Material changes and unusual items
- Q3 and nine-month losses include a $26.6 million noncash goodwill impairment after the share-price decline; goodwill fell to $9.33 million. The company stated acquired in-process R&D was not impaired.
- Research and development spending rose substantially, reflecting NasoShield BARDA work, NasoVAX Phase 2 preparation, HepTcell development, and acquired SparVax-L activity. General and administrative expense rose 29% year to date, partly from merger-related professional costs, though it declined 8% in Q3.
- The company recorded income tax benefits of $1.53 million for Q3 and $2.53 million year to date, related to anticipated refunds from carrying back 2017 losses. Tax refund receivable was $5.06 million at quarter-end.
- August financing generated $13.02 million net proceeds from redeemable preferred stock and warrants. The preferred stock has installment settlement requirements beginning December 2017 and cash-redemption provisions, including maturity in August 2018; conversion and warrant exercise could materially dilute common shareholders. Related warrant and embedded-derivative liabilities are remeasured at fair value.
- Basic and diluted loss per share are equal because potential shares were antidilutive. The filing lists 5.86 million shares initially issuable on preferred conversion and 2.35 million warrant shares, before contractual limits or adjustments.
Outlook, risks and contingencies
- Management anticipated NasoVAX Phase 2 initial data about six months after enrollment began in September 2017; preliminary HepTcell Phase 1 results were expected by year-end 2017. A NasoShield Phase 1 trial was anticipated in Q1 2018, subject to continued BARDA support.
- The BARDA NasoShield contract has a potential value up to $127.5 million, including a base period of about $21.6 million through July 2018; later funding depends on BARDA exercising options. The NIAID contract’s total committed funding was stated as $15.1 million, with performance extended through December 31, 2017.
- Going-concern warning: the filing says recurring losses and operating cash use raise substantial doubt about the company’s ability to continue as a going concern, and that financing may be needed. The notes say available resources are insufficient to fund operations and R&D for at least 12 months from the expected financial-statement issuance date. MD&A, however, says cash, expected refunds and contract revenue were believed adequate through September 2018. This is a material difference in the filing’s liquidity descriptions.
- Further goodwill impairment could result from sustained share-price weakness. Other stated risks include financing availability, preferred-stock redemption and dilution, and dependence on government contract funding. The company reported no material expected adverse effect from ordinary-course disputes, no legal proceedings, and no off-balance-sheet arrangements.
Key facts for investors to verify
- Reconcile the differing going-concern and cash-runway statements, and assess financing needs and the timing/availability of the anticipated tax refunds.
- Review the preferred-stock installment, conversion, redemption, cash-reserve covenant and warrant terms, including potential dilution and cash obligations.
- Track BARDA option exercises and NIAID contract funding, plus clinical-trial progress and reported data timing.
- Evaluate the merger purchase-price allocation, goodwill impairment assumptions and any subsequent impairment or valuation updates.
- Separate merger-related effects and noncash impairment from recurring operating cash burn when comparing results with 2016.