PharmAthene, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2012; filed November 6, 2012. The supplied filing identifies the registrant as PharmAthene, Inc., not Altimmune, Inc.
Business context
PharmAthene was a biodefense company developing medical countermeasures, including SparVax anthrax vaccine, rBChE nerve-agent bioscavenger, and Valortim anthrax antibody. Revenue came primarily from U.S. government development contracts and grants, rather than commercial product sales.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $6.70 million | $5.26 million | $19.16 million | $18.03 million |
| Operating expenses | $8.49 million | $8.28 million | $24.00 million | $28.67 million |
| Loss from operations | $1.79 million | $3.02 million | $4.84 million | $10.64 million |
| Net loss | $0.21 million | $0.03 million | $3.65 million | $4.55 million |
| Net loss per share | $0.00 | $0.00 | $0.08 | $0.10 |
| Net cash used in operations | Not provided for quarter | Not provided for quarter | $0.18 million | $7.00 million |
Q3 operating loss equaled approximately 27% of revenue, versus 57% a year earlier; the nine-month operating-loss margin improved to approximately 25% from 59%. No gross margin is presented. Q3 net loss increased year over year despite improved operating results, in part because the prior-year quarter included a larger noncash gain from derivative fair-value changes.
At September 30, 2012, cash and cash equivalents were $14.73 million, total current assets $20.38 million, and current liabilities $6.97 million. Total debt was approximately $3.65 million: a $2.50 million term loan and $1.21 million drawn on a revolving facility. Stockholders’ equity was $12.55 million. Cash increased $3.49 million from year-end 2011, mainly from debt financing.
Material changes and unusual items
- Nine-month revenue increased 6% year over year. SparVax revenue rose to $16.9 million from $15.1 million; rBChE revenue also increased. Valortim revenue fell to $0.5 million from $2.8 million as its NIAID contract ended in Q1 2012.
- Nine-month R&D expense decreased to $14.76 million from $16.69 million, while G&A declined to $9.00 million from $11.63 million, mainly reflecting lower Valortim and indirect costs and reduced legal/professional fees compared with SIGA trial activity in 2011.
- The company recognized $1.23 million of income upon substantially liquidating its Canadian subsidiary, reclassifying accumulated foreign-currency translation adjustments into earnings.
- Derivative fair-value gains were $0.34 million for the first nine months, compared with $6.08 million in 2011; these are noncash and depend on valuation assumptions and stock price.
- In March 2012, PharmAthene obtained a GE Capital facility: a $2.5 million term loan and a receivables-based revolver of up to $5 million. About $1.3 million remained available at quarter-end. The debt is secured by substantially all assets, subject to stated exceptions, and includes covenants and default-related acceleration provisions.
Outlook, risks and contingencies
- The FDA placed SparVax on clinical hold in August 2012, requesting additional stability data and information on stability-indicating assays. The company had submitted supporting information and intended a full response, but said it was unclear when, or whether, the planned Phase 2 trial could begin. Management expected near-term SparVax revenue and R&D costs to be lower than otherwise planned.
- Management estimated that cash, available credit, receivable collections, and revenue under existing contracts would fund ongoing expenses and capital needs through at least September 30, 2013. The company also stated that it had not historically generated positive operating cash flow and expected to continue needing financing.
- In July 2012, the DoD exercised a $2.5 million option for continued rBChE development. Management said additional government funding for Valortim was unlikely in the near term.
- The SIGA litigation judgment provides for a 50% share of qualifying net profits from ST-246 sales for 10 years after SIGA first earns $40 million in net profits, plus approximately $2.4 million of legal and expert fees and interest. SIGA appealed and PharmAthene cross-appealed; oral argument was scheduled for January 2013. No amount had been recorded, and the outcome and any future proceeds were uncertain.
- Risks include potential U.S. government budget cuts and sequestration affecting contracts and funding, clinical and regulatory uncertainty, manufacturing and product-development risks, and the possibility that credit or other financing may not be available on acceptable terms.
Important facts for investors to verify
- Confirm the issuer identity: this filing is for PharmAthene, not Altimmune.
- Check subsequent FDA actions and funding implications for the SparVax clinical hold.
- Review later government contract awards, options, collections, and customer concentration.
- Track cash burn, receivable collections, remaining revolver availability, debt service, and compliance with GE Capital covenants.
- Follow the SIGA appeal and any eventual entitlement or recovery; the filing recorded no related asset or income.
- Assess whether the stated cash runway and development plans remain achievable as government funding and financing conditions change.