Business context and reporting period
Entity mismatch: The request identifies Altimmune, Inc., but the supplied Form 10-Q is for PharmAthene, Inc. for the quarter and six months ended June 30, 2012. The summary below reflects the filing text, not an Altimmune filing. Financial statements are unaudited.
PharmAthene was developing biodefense countermeasures, including SparVax anthrax vaccine, recombinant butyrylcholinesterase (rBChE), and Valortim. Revenue was primarily from U.S. government contracts and grants.
Financial results and position
| Metric | Three months ended June 30, 2012 | Prior period | Six months ended June 30, 2012 | Prior period |
|---|---|---|---|---|
| Revenue | $6.32 million | $6.43 million | $12.47 million | $12.77 million |
| Operating expenses | $7.78 million | $9.51 million | $15.51 million | $20.39 million |
| Operating loss | $1.46 million | $3.08 million | $3.05 million | $7.62 million |
| Net loss | $0.76 million | $2.44 million | $3.44 million | $4.51 million |
| Net loss per share | $0.02 | $0.05 | $0.07 | $0.10 |
Gross margin is not separately presented. Six-month operating cash use was $1.91 million, versus $3.39 million a year earlier. Investing activities provided $0.07 million; financing provided $2.39 million, primarily from a $2.5 million term loan. Cash and cash equivalents were $11.78 million at June 30, 2012, up from $11.24 million at year-end 2011.
Total assets were $23.81 million and stockholders’ equity was $13.55 million. Total liabilities were $10.26 million, including $2.44 million of term debt ($0.45 million current and $1.98 million long-term) and $2.05 million of derivative liabilities. Current assets were $20.68 million and current liabilities $5.66 million. The GE Capital facility also included a revolving line of credit of up to $5 million, subject to receivables eligibility; no revolver borrowings were outstanding at quarter-end, and approximately $0.1 million was then available pending completion of security arrangements.
Changes versus prior comparable periods
- Second-quarter revenue declined about 2% year over year; first-half revenue declined about 2%.
- Operating expenses fell, with R&D down to $4.92 million from $5.98 million for the quarter and G&A down to $2.78 million from $3.41 million. Management attributed reductions to lower internal R&D and Valortim activity, reduced planned labor costs, and lower SIGA-related legal and professional fees compared with 2011.
- Net loss narrowed in both the quarter and first half. The first-half comparison includes a $3.18 million derivative fair-value gain in 2011, versus a $0.17 million fair-value loss in 2012; these noncash changes affected reported results.
- Interest expense increased following the March 2012 GE Capital loan. The company also recorded 2012 income tax expense related to the difference in tax and GAAP treatment of goodwill.
Outlook, risks, contingencies, and unusual items
- Management expected existing cash, receivable collections, available credit, and revenue under current contracts to fund ongoing expenses and capital requirements through at least June 30, 2013. This is an estimate, not a guarantee; the company stated it had not historically generated positive operating cash flow and expected to continue requiring financing.
- On July 31, 2012, after quarter-end, the DoD exercised a $2.5 million option for continued rBChE advanced-expression-system work under a contract with a potential total value of $5.7 million.
- Funding and revenue depend substantially on U.S. government contracts and grants. Management cited risks of funding delays, reductions or non-renewals, contract awards to competitors, product safety or efficacy issues, development and manufacturing challenges, and uncertain regulatory approvals. Additional Valortim funding was considered unlikely in the near term.
- The SIGA litigation judgment provided for PharmAthene to receive 50% of net profits from ST-246 and related products for 10 years after initial commercial sale, once SIGA earns $40 million in net profits, plus approximately $2.4 million in specified legal and expert fees. Both parties appealed; PharmAthene had recorded no receivable or other amount due, and future sales and any recovery were uncertain.
- The GE Capital loan is secured by substantially all company assets, subject to stated exceptions, and contains financial and nonfinancial covenants. Default may permit acceleration and enforcement against collateral. Contractual obligations totaled $23.97 million, largely R&D agreements and facility leases.
- Warrant derivative liabilities are measured using a Black-Scholes model with significant unobservable inputs; fair-value changes can materially affect reported income or loss. Management reported no off-balance-sheet arrangements and effective disclosure controls.
Important facts for investors to verify
- Confirm whether PharmAthene, rather than Altimmune, is the intended filer and issuer for this request.
- Review government contract terms, funding status, receivable collectability, and the extent to which forecast revenue supports the stated cash runway.
- Check the GE Capital facility’s borrowing availability, collateral, covenant compliance, repayment schedule, and default provisions.
- Monitor the Delaware Supreme Court appeals, the conditions for any SIGA-related recovery, and the fact that no litigation asset was recorded.
- Track clinical, manufacturing, regulatory, and funding progress for SparVax, rBChE, and Valortim, including the DoD option exercised after quarter-end.
- Assess the effects of derivative fair-value volatility and the company’s continuing need for external financing.