Business context and reporting period
The supplied filing is PharmAthene, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2016. It does not identify Altimmune, Inc.; verify that this is the intended filing. PharmAthene describes itself as a biodefense company developing a next-generation anthrax vaccine, with revenue primarily from U.S. government contracts.
Key financial metrics
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Contract revenue | $2.1 million | $1.1 million | $3.1 million | $8.2 million |
| Operating expenses | $2.6 million | $3.1 million | $4.9 million | $9.0 million |
| Operating loss | $(0.5) million | $(2.0) million | $(1.8) million | $(0.8) million |
| Net income (loss) | $8.0 million | $(2.3) million | $6.8 million | $(0.9) million |
| Operating cash flow | — | — | $7.2 million | $(0.1) million |
At June 30, 2016, cash and cash equivalents were $23.2 million, accounts receivable was $1.8 million, current assets were $25.4 million, and current liabilities were $3.3 million. Total liabilities were $3.7 million and stockholders’ equity was $24.3 million. The balance sheet shows no debt balance. Cash increased $7.6 million in the first half; investing activities used $0.03 million and financing activities provided $0.4 million. Management said cash on hand at June 30, excluding SIGA proceeds intended for distribution, was expected to fund operations for at least 12 months.
Material changes and unusual items
- Q2 revenue rose from the prior year, while first-half revenue fell 62%, primarily reflecting a large 2015 BARDA audit-related revenue item. First-half 2016 revenue included $2.3 million from the NIAID SparVax-L contract and $0.8 million from a BARDA audit adjustment.
- Operating expenses declined year over year, largely due to the 2015 realignment, workforce reductions, lower facility costs and lower legal expenses.
- Reported Q2 net income included $8.9 million of SIGA litigation-related income, including $5 million credited against the judgment and approximately $3.9 million of interest. This one-time item drove reported profitability despite an operating loss.
- First-half operating cash flow also reflects SIGA-related cash receipts; it should not be treated as a measure of recurring operating performance.
Outlook, risks and contingencies
- The Delaware Supreme Court had affirmed a judgment against SIGA, estimated by the company at approximately $205 million plus interest. Under SIGA’s bankruptcy plan, settlement could be cash, 100% of SIGA common stock, or another mutually agreed and court-approved treatment. PharmAthene cautioned that additional collection was uncertain and had not recognized unreceived potential proceeds.
- PharmAthene received $20 million from SIGA in July 2016 to extend the judgment deadline to October 19, 2016. A subsequent joint motion sought an extension to November 30, conditioned on a $100 million payment by October 19; court approval was not assured. Interest on the unpaid balance accrued at 8.75%.
- If the judgment is paid fully in cash, management expected, absent unexpected material events, to distribute at least 90% of after-tax net cash proceeds to stockholders. Timing and form were undecided. The company also intended to seek an M&A transaction for its remaining assets; no transaction or value increase was assured.
- The NIAID SparVax-L contract could reach approximately $28.1 million if milestones are met and all options are exercised. NIAID exercised a third option in July 2016, adding approximately $1.1 million and extending the performance period through April 30, 2017. Further options and funding were discretionary.
- Key risks include SIGA’s ability to pay, government funding and contract termination or audit adjustments, achievement of vaccine milestones, product safety and efficacy, and possible limitations on tax net operating losses. Management reported effective disclosure controls and no material change in internal control during the quarter. No formal earnings guidance was provided.
Important facts for investors to verify
- Confirm the intended issuer: the filing is for PharmAthene, not Altimmune.
- Check subsequent court rulings and SIGA payments, including whether the proposed deadline extension and required payment were approved and completed.
- Distinguish recurring contract revenue and operating cash generation from litigation-related income and receipts.
- Verify NIAID option exercises, milestone progress, remaining contract funding, and the effect of government audits or funding changes.
- Monitor any announced distribution, its amount and timing, and any later M&A or transition plans.