Altimmune, Inc. annual report, FY2015

Business context and reporting period

Filing identity: The supplied filing is PharmAthene, Inc.’s Form 10-K for the fiscal year ended December 31, 2015, filed March 11, 2016. This does not match the request metadata identifying Altimmune, Inc.; verify the issuer before relying on this summary. The filing reports full-year results, with unaudited quarterly data including Q4, rather than a standalone “2015 Q4” report.

PharmAthene was a development-stage biodefense company focused on next-generation anthrax vaccines, with revenue substantially dependent on U.S. government contracts. It terminated SparVax development during 2015 and concentrated on two next-generation vaccine programs. It reported no product sales or commercialized products.

Financial results and liquidity

Revenue grew about 4.4% year over year; operating and net losses narrowed as R&D and administrative costs fell. Restructuring expense was $2.55 million. Operating and net margins were approximately negative 32% of revenue. No gross margin is reported in the filing.

Q4 2015 revenue was $1.27 million, operating loss was $0.94 million, and net loss was $1.24 million. FY 2015 included first-quarter net income of $1.46 million, helped by a $5.8 million BARDA audit-related payment; quarterly results thereafter were losses.

At December 31, 2015, working capital was $15.05 million and total liabilities were $3.21 million. The GE Capital loan was repaid in full in September 2015; the balance sheet showed no current portion of long-term debt at year-end. Management said available cash was adequate for at least the next twelve months based on expected 2016 operating and capital needs, while also warning that contract-generated cash was expected to be significantly lower in 2016. Operating lease and R&D agreement commitments totaled $1.92 million, mostly due within one year.

Material changes versus prior periods

• Revenue increased from $10.19 million in 2014, but remained well below 2013’s $17.91 million. 2015 revenue included $6.1 million associated with the BARDA SparVax contract and $4.5 million under the NIAID next-generation vaccine contract.
• R&D expense declined 45% to $5.13 million; general and administrative expense declined 43% to $6.22 million. The company attributed reductions principally to program wind-down and its workforce realignment.
• The March 2015 realignment eliminated about two-thirds of the workforce; approximately $2.0 million of severance was expensed. Year-end headcount was 11.
• Cash fell $3.07 million during 2015. Unlike 2014, when equity sales generated substantial financing proceeds, PharmAthene made no sales under its controlled equity offering in 2015.
• The company substantially liquidated its UK subsidiary, recording a $0.23 million cumulative translation loss in earnings.

Outlook, contingencies and key risks

• SIGA litigation: The Delaware Supreme Court affirmed a judgment against SIGA in December 2015. The company estimated the award at approximately $205 million plus interest, but collection is uncertain because SIGA is in Chapter 11 and has stated it lacks sufficient cash. SIGA’s proposed reorganization plan remained subject to bankruptcy court approval and allowed SIGA to choose among cash payment, transfer of all SIGA common stock, or another agreed treatment. The filing does not establish that PharmAthene had received the award.
• If PharmAthene receives the full cash award, management said it currently expects, subject to conditions, to distribute at least 90% of after-tax net cash proceeds to shareholders and then seek an M&A transaction for remaining assets and vaccine programs. If SIGA transfers its stock, PharmAthene said it would develop a plan to operate SIGA separately.
• Development plans: The NIAID contract could reach approximately $28.1 million if milestones are achieved and all options are exercised; exercised options provided about $4.9 million of additional funding and extended the period through April 30, 2017. Future options are at NIAID’s discretion. The company expected animal efficacy studies for the lyophilized vaccine in Q2 2016 and an FDA IND filing in 2017 if successful. It expected an IND filing for its DPX-adjuvanted vaccine near late 2016 or early 2017. These were expectations, not assured outcomes.
• Funding and execution risks: The NIAID contract and residual BARDA matters were key revenue sources. Government funding, contract options, audits and termination decisions could affect cash receipts. A BARDA audit of 2014 SparVax costs remained unresolved; the timing and amount of any further recovery were uncertain.
• Tax attributes: The company reported $156.3 million of U.S. federal NOL carryforwards, subject to expiration and possible Section 382 limitations. A rights plan adopted in November 2015 sought to reduce ownership-change risk, but could deter acquisitions or affect stock marketability and was intended to be submitted to shareholders for approval.
• Other material risks include continued operating losses, possible need for additional capital and dilution, reliance on third-party manufacturers and research organizations, regulatory and Animal Rule requirements, competition, and NYSE MKT continued-listing requirements.

Important facts for investors to verify

• Confirm issuer and filing: the provided document is PharmAthene’s 2015 Form 10-K, not an Altimmune filing.
• Check bankruptcy court actions, any SIGA appeal or certiorari proceedings, the final permitted settlement treatment, and actual timing and amount of any collection.
• Verify the status of BARDA audit adjustments and whether any additional SparVax-related receivables were ultimately collected.
• Review NIAID option exercise, milestone performance, funding availability and actual progress against the vaccine development timelines.
• Assess cash runway against declining expected contract receipts, restructuring obligations, lease commitments and potential financing needs; also confirm the Rights Plan’s shareholder-approval status and effects on NOL usability.

Ernst & Young issued unqualified opinions on the consolidated financial statements and on internal control over financial reporting as of December 31, 2015.