Altimmune, Inc. — 2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter report. The filing was signed March 30, 2018. Altimmune is a clinical-stage immunotherapeutics company with no product sales; its reported revenue primarily comes from government research contracts and grants.
Business context and reporting period
Altimmune’s programs use its RespirVec and Densigen platforms. Its principal candidates include NasoVAX (influenza), NasoShield and SparVax-L (anthrax), HepTcell (chronic hepatitis B), and preclinical Oncosyn (cancer immunotherapy). The May 2017 merger with PharmAthene brought the NIAID-funded SparVax-L program into the company and makes year-over-year comparisons less like-for-like: 2016 results largely reflect legacy Altimmune, while 2017 includes PharmAthene from May 4 onward. Historical share and per-share information was adjusted for the merger exchange ratio.
Key financial metrics
| Metric | 2017 | 2016 |
|---|---|---|
| Revenue | $10.74 million | $3.24 million |
| Research and development expense | $18.41 million | $7.22 million |
| General and administrative expense | $8.46 million | $7.11 million |
| Goodwill impairment | $35.92 million | None |
| Operating loss | $52.05 million | $11.09 million |
| Net loss | $46.43 million | $11.09 million |
| Net loss attributable to common stockholders | $51.36 million | $11.46 million |
| Basic and diluted loss per share | $4.01 | $1.66 |
| Net cash used in operating activities | $20.21 million | $6.35 million |
Contract and grant revenue was $10.70 million, up 279%; license revenue was $41,503, down from $410,102. BARDA and NIAID accounted for approximately 83% and 17%, respectively, of 2017 research-grant and contract revenue. The filing reports no product-sales revenue. Gross margin is not applicable to the reported contract- and grant-based revenue profile.
Revenue growth reflected the BARDA contract and inclusion of NIAID revenue acquired in the merger. R&D spending increased 155%, mainly due to NasoShield, NasoVAX, SparVax-L and HepTcell activity. The $35.92 million goodwill impairment, attributed to the decline in the company’s share price, was the principal reason operating expenses and losses rose sharply. A $5.64 million income tax benefit reduced the reported net loss; it included expected tax refunds related to carrying back 2017 losses.
At year-end, cash, cash equivalents and restricted cash totaled $12.30 million, including $3.50 million restricted under preferred-stock terms. Working capital was $19.63 million; total assets were $63.03 million; total liabilities were $14.35 million; and stockholders’ equity was $39.40 million. The balance sheet also included $9.28 million of redeemable preferred stock, presented outside permanent equity. The company reported $49,702 of current notes payable and $599,927 of BPI France funding repayable in installments from 2019 to 2023. It had a $250,000 secured credit line maturing in April 2018. No separate conventional long-term borrowing balance is identified in the selected data.
Operating cash use increased year over year. Investing cash flow was positive $13.73 million, principally from cash acquired in the merger; financing cash flow was positive $15.84 million, chiefly from the March notes and August redeemable preferred-stock financing. The filing states that year-end resources and expected receipts were expected to fund operations only into the first quarter of 2019, while also emphasizing that financing was needed and that substantial doubt existed about the company’s ability to continue as a going concern. The independent auditor included a going-concern explanatory paragraph.
Material changes and unusual items
- The PharmAthene merger closed May 4, 2017. It added $13.68 million of cash at acquisition and $22.39 million of acquired in-process R&D, among other assets and liabilities. The purchase-price allocation was described as preliminary.
- Altimmune issued $14.72 million gross of redeemable preferred stock and warrants in August 2017, receiving $13.02 million net of issuance costs. The preferred stock has scheduled installments, a stated August 2018 maturity, and conversion and redemption provisions. The company had converted 3,479 shares into 2,474,480 common shares by year-end; 12,177 preferred shares remained outstanding.
- The preferred financing and associated warrants create material dilution and potential cash-redemption exposure. The warrants and embedded redemption derivative were recorded as liabilities; their year-end carrying values were $3.40 million and $27,236, respectively.
- The company recorded a $35.92 million goodwill write-off and a $5.64 million income tax benefit. Tax accounting also reflects the Tax Cuts and Jobs Act and provisional estimates; the company noted that final tax effects could differ.
Outlook, management commentary, and risks
Management anticipated continued substantial R&D spending and operating losses, with no near-term product revenue expected. Its stated plans included completing NasoVAX Phase 2 follow-up and evaluating a quadrivalent candidate, advancing NasoShield subject to continued BARDA support, and reviewing HepTcell follow-up results before deciding whether to continue development. These are forward-looking plans reported in 2018, not completed 2017 results.
- Clinical and regulatory uncertainty: NasoVAX preliminary data reported in March 2018 indicated tolerability and seroprotection at the two highest doses, but final data were pending. HepTcell’s preliminary clinical results were described as inconclusive. All programs remain subject to trial outcomes, regulatory review, safety findings, and possible delays.
- Government funding concentration: BARDA and NIAID funding supports key programs. BARDA’s contract is valued at up to $127.5 million, but future options and funding depend on agency decisions and program milestones; government contracts may be modified or terminated. NIAID elected only one additional option, bringing committed funding under that contract to $15.1 million.
- Financing and dilution: The going-concern warning, limited cash runway, preferred-stock installment obligations, warrant overhang, and potential future capital raises create funding and dilution risks. Management stated that additional financing might not be available on acceptable terms or at all.
- Execution and commercial risks: The company relies on third parties for manufacturing and clinical work, has no commercial products or sales infrastructure, and faces competition, intellectual-property risks, and uncertainty over reimbursement and market acceptance.
- Other matters: An IRS examination of PharmAthene’s 2016 federal tax return had begun; its outcome was uncertain. Management said ordinary-course contractual disputes, litigation, and potential claims were not expected to have a material adverse effect. No material off-balance-sheet arrangements or legal proceedings were reported.
Important facts for investors to verify
- Whether the company obtained financing after the filing date and how actual cash runway compared with the stated first-quarter 2019 estimate; reconcile that estimate with the auditor’s going-concern warning.
- BARDA option exercise, milestone performance, reimbursement timing, and the amount of funding actually available for NasoShield development.
- Final NasoVAX and HepTcell trial data, subsequent development decisions, and any safety or regulatory developments.
- Preferred-stock installments, cash redemptions or conversions, warrant exercises, anti-dilution adjustments, and resulting share-count dilution.
- Resolution of the IRS examination, realization of the expected tax refunds, and the final effects of the 2017 tax-law changes.
- Updates to the merger purchase-price allocation and impairment assessments, including the carrying value and recoverability of acquired in-process R&D assets.