AIM ImmunoTech Inc. (then Hemispherx Biopharma, Inc.) — Q2 2019 Form 10-Q
Reporting period: Three and six months ended June 30, 2019. The company develops Ampligen (rintatolimod) and Alferon N Injection. At the time of the filing, Ampligen was approved for severe CFS in Argentina but remained investigational in the U.S.; Alferon was FDA-approved, but U.S. commercial production was on hold. Unless otherwise noted, financial figures below are in thousands of dollars.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $29 | $33 | $29 | $89 |
| Operating loss | $(3,224) | $(3,227) | $(6,150) | $(5,797) |
| Net loss | $(2,029) | $(2,415) | $(5,397) | $(5,128) |
| Basic and diluted loss per share | $(1.07) | $(2.38) | $(3.53) | $(5.57) |
| Net cash used in operating activities | Not presented quarterly | $(4,234) | $(5,245) |
Revenue was principally from Ampligen cost-recovery programs. Q2 net loss narrowed 16%, while six-month net loss increased 5%. The quarterly improvement chiefly reflected a $1,085 non-cash gain from revaluing redeemable warrants, compared with $362 in Q2 2018; operating loss was essentially unchanged. Six-month loss also included $250 of debt-discount expense related to extinguished debt.
For the first half, production costs rose to $446 from $394; R&D declined to $2,024 from $2,196, mainly due to lower Ampligen manufacturing costs, partly offset by higher clinical research costs. G&A increased to $3,709 from $3,296, including higher public relations, stock compensation and salaries. The filing reports no meaningful operating margin given minimal revenue and continued operating losses.
Balance sheet, liquidity and financing
- At June 30, cash and cash equivalents were $959 and marketable securities were $1,905, together $2,864. Current assets were $3,754 and current liabilities $1,747; total assets were $13,808.
- Long-term liabilities included a $2,283 convertible note and a $2,213 sale-leaseback financing obligation; the current portion of that financing obligation was $205. The amended convertible note bore 10% interest and was extended to September 2020. Approximately $1,400 of debt was converted into equity during the period.
- First-half cash flows included $4,234 used in operations, $626 used in investing and $5,520 provided by financing. Financing included $5,689 net proceeds from stock sales, while cash increased $660 to $959. The filing’s MD&A gives slightly different cash-flow figures ($4,214 operating outflow and $5,550 financing inflow); the presented cash-flow statement reports $4,234 and $5,520.
- Equity financing, preferred-stock issuance and conversions increased shares outstanding. A 1-for-44 reverse split took effect June 10, 2019; share and per-share figures were retrospectively adjusted. Common shares outstanding were 2,214,930 at June 30 and 2,306,967 on August 1.
- After quarter-end, the company issued a secured promissory note with $2,635 principal, 10% annual interest and a 24-month maturity. Net proceeds were $1,900 after discount and lender legal fees. Repayment is secured by substantially all company assets other than intellectual property. A new equity distribution agreement also allowed sales of up to $4,508; by August 9, the company reported $289 of sales, including a $10 agent fee.
Outlook, risks and unusual items
- Management said additional funding would be required if the company cannot commercialize Ampligen or resume material Alferon sales. It planned to seek capital and senior co-development partners and could curtail discretionary spending, including R&D. No financial guidance or assured commercialization timetable was provided.
- Five Ampligen cancer trials were open to enrollment; six additional trials were planned or in preparation, subject to funding and other conditions. The company cautioned that trial initiation, results, regulatory approvals and commercial success were uncertain. Ampligen’s U.S. NDA for CFS had received an FDA Complete Response Letter requiring additional clinical and other work.
- Alferon manufacturing remained on hold, with no definitive timetable to restart. The company estimated approximately $10 million would be needed to restart and revalidate manufacturing; FDA inspection and approval of new product would also be required. Failure to secure approvals or funding could materially adversely affect operations.
- Argentina’s approval of Ampligen did not itself permit shipments from the U.S. Commercialization depended on FDA authorization to ship, reimbursement, marketing and disease-awareness efforts by partner GP Pharm. Ampligen supply also depended on manufacturing and third-party arrangements.
- Results included significant non-cash warrant revaluation gains and a $260 preliminary insurance settlement payment related to a 2016 facility flood. The final insurance settlement remained undetermined. The company also reported a separate contract dispute with BioLife, including a $96.7 counterclaim; mediation had not resolved it.
- Management reported disclosure controls were effective as of June 30, 2019 and no material change in internal control over financial reporting during the period.
Important facts for investors to verify
- Cash needs, operating burn and access to additional capital; assess the terms, collateral and repayment requirements of the August 2019 secured note and potential dilution from equity sales.
- Whether Ampligen trials progress and produce supportive results, and whether regulatory, supply and partner requirements permit commercialization.
- Funding and timing for the estimated $10 million Alferon restart, including FDA inspection and product-release requirements.
- Whether the preliminary flood-insurance payment leads to a final recovery, and the status and potential exposure of the BioLife litigation.
- Reconcile the MD&A cash-flow figures with the financial statements and review the effects of warrant fair-value changes and the reverse split on reported results and share counts.