TapImmune Inc. (not Marker Therapeutics, Inc.) — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016. The filing identifies the registrant as TapImmune Inc.; the company name in the request does not match the filing.
Business context
TapImmune was a clinical-stage immunotherapy biotechnology company developing peptide- and gene-based cancer vaccines. Its programs included TPIV 200, targeting folate receptor alpha, and HER2/neu vaccines. The company had not generated revenue and was funding operations primarily through equity and debt financings.
Financial results and liquidity
| Metric | Q2 2016 / June 30, 2016 | Comparable period / prior year-end |
|---|---|---|
| Revenue | None | None in comparable periods |
| Research and development expense | $1.25 million (quarter); $2.23 million (six months) | $0.20 million; $0.81 million |
| General and administrative expense | $1.18 million (quarter); $1.95 million (six months) | $0.94 million; $1.36 million |
| Operating loss | $2.43 million (quarter); $4.18 million (six months) | $1.14 million; $2.17 million |
| Net income (loss) | $5.97 million (quarter); $1.22 million (six months) | $(60.22) million; $(60.92) million |
| Cash and cash equivalents | $3.77 million | $6.58 million at Dec. 31, 2015 |
| Net cash used in operating activities | $2.78 million (six months) | $1.83 million |
| Working capital | $(19.33) million | $(21.36) million at Dec. 31, 2015 |
| Derivative warrant liability | $21.25 million | $26.49 million at Dec. 31, 2015 |
The reported profits principally reflected noncash gains from revaluing warrant liabilities: $8.24 million for the quarter and $5.24 million for the six-month period. These gains do not indicate operating profitability. Operating expenses increased, particularly R&D, which management attributed to Mayo-related license costs and increased research activity. Margins are not meaningful because the company had no revenue.
Basic EPS was $0.08 for Q2 and $0.02 for six months. The filing gives conflicting Q2 diluted EPS: the financial statements and EPS note report $0.03, while MD&A says a loss of $0.03. Six-month diluted EPS was reported as a loss of $0.02.
Material changes and subsequent events
- Cash declined by $2.81 million during the first six months; operating cash use rose versus the first half of 2015, and there was only $25,000 of net financing cash flow in the 2016 period.
- In August 2016, after quarter-end, the company completed a private placement of approximately $2.5 million and received $6 million from exercises of 12 million Series C and C-1 warrants. It also issued 9 million additional shares and new warrants covering 12 million shares, and amended outstanding warrants to remove terms requiring derivative-liability accounting.
- The filing presents a June 30 pro forma balance sheet reflecting these transactions: cash/assets increased by approximately $7.51 million, and the warrant derivative liability decreased by approximately $21.09 million, to about $0.16 million. Pro forma shares outstanding were 98.48 million versus 71.42 million at June 30 actual.
Outlook, risks and other notable disclosures
- Management estimated approximately $7.5 million of spending over the next 12 months and said that cash including the August financing and warrant exercises was expected to fund the operating plan through the end of 2017. Additional funding would still be needed; no committed financing sources existed.
- The financial statements state that June 30 resources were insufficient and that substantial doubt existed about the company’s ability to continue as a going concern. Further clinical development, regulatory approval and commercialization required substantial funding; financing might not be available on acceptable terms or at all, potentially forcing delays or cuts to programs and causing shareholder dilution.
- Clinical updates included a company-sponsored Phase II triple-negative breast cancer trial, with first-patient treatment announced in June, and a Phase II ovarian cancer study combining TPIV 200 with durvalumab. The filing cited positive immune responses in evaluable Phase I patients; these are clinical signals, not evidence of efficacy.
- Management reported that disclosure controls and procedures were not effective as of June 30, 2016. No material changes in internal control over financial reporting during the six-month period were reported.
- Warrant-liability fair value relied on Level 3 assumptions and could change materially. The filing also reported no material legal proceedings and no off-balance-sheet arrangements.
Important facts for investors to verify
- Resolve the conflicting Q2 diluted EPS disclosures and reconcile the reported net income with noncash warrant-revaluation gains.
- Confirm post-quarter financing proceeds, transaction costs, warrant amendments and the resulting fully diluted share count and potential dilution.
- Assess whether the stated runway through 2017 remains achievable against cash burn, clinical-trial costs and the explicit going-concern warning.
- Review clinical-trial enrollment, safety and efficacy results, regulatory milestones, and the terms and funding scope of the Mayo/Department of Defense-supported programs.
- Understand remediation of ineffective disclosure controls and the valuation assumptions and settlement exposure associated with warrant liabilities.