AIM Immunotech Inc. (filed as Hemispherx Biopharma, Inc.) — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Unless otherwise stated, financial amounts are in thousands of dollars. The filing describes a specialty pharmaceutical company developing Ampligen and Alferon N Injection.
Financial results and liquidity
- Revenue: $56,000, down 33% from $84,000 in Q1 2017. Revenue came from Ampligen cost-recovery and patient-access programs; no Alferon finished goods were available for commercial sale.
- Expenses and loss: Total costs and expenses were $2.626 million, down from $3.325 million. Operating loss was $2.570 million versus $3.241 million; net loss was $2.713 million versus $2.821 million. Loss per share was $0.07 versus $0.11, with weighted-average shares increasing to 36.3 million from 25.3 million.
- Drivers of year-over-year loss change: R&D fell $536,000 (39%) and G&A fell $101,000 (6%); a $223,000 building-sale gain also helped. These benefits were partly offset by $139,000 in interest and finance costs and a $231,000 noncash warrant revaluation loss, compared with a $393,000 gain in Q1 2017.
- Cash flow: Operating cash use was $2.542 million, down from $2.993 million. Investing activities provided $1.036 million, including $1.050 million gross proceeds from a building sale. Financing activities provided $4.051 million, including lease-financing proceeds, equity proceeds and warrant exercises. Cash increased by $2.545 million during the quarter.
- Liquidity and balance sheet: Cash and cash equivalents were $3.957 million and marketable securities were $682,000 at March 31, 2018, together $4.639 million. Current assets were $5.663 million and current liabilities $2.650 million. Total assets were $16.260 million and stockholders’ equity $10.200 million.
- Debt and financing: The $1.835 million mortgage note reported at December 31, 2017 was paid off in March. The company recorded a $2.661 million sale-leaseback financing obligation, of which $222,000 was current and $2.439 million long-term. Redeemable warrant liability was $971,000.
Material changes and unusual items
- On March 16, the company received $4.080 million in a transaction involving its New Brunswick property and leased it back for ten years. Because of a repurchase option and other terms, it accounted for the arrangement as financing, not a completed sale; it continued to report and depreciate the property.
- The company also sold an underutilized building for $1.050 million and reported a $223,000 gain. Alferon work-in-process inventory of $1.115 million was reclassified to other assets because production was expected to take more than a year.
- Common shares outstanding rose from 32.9 million at year-end to 39.2 million at March 31, reflecting equity sales, warrant exercises and shares issued to settle accounts payable. The filing reports 46.2 million shares outstanding as of May 1.
- After quarter-end, the company reported an April 20 equity transaction involving 6.6 million shares and 6.6 million warrants, with $2.344 million in proceeds. The Maxim equity distribution agreement was suspended for 60 days beginning April 20.
- A dispute with Nitto Avecia was settled for a $200,000 payment to the company and return of its manufacturing equipment; final settlement documentation was signed April 23. A separate lawsuit against Biolife Plasma Services remained unresolved, with no recovery estimate available.
Outlook, management commentary and risks
- Management cited restructuring, cost reductions, efforts to pursue international sales and plans to seek co-development partners and additional public-market financing in addressing substantial doubt about the company’s ability to continue as a going concern. The company remained loss-making, with an accumulated deficit of $311.473 million, and said additional financing may be required.
- The FDA’s 2013 Complete Response Letter for Ampligen requires at least one additional clinical trial, nonclinical work and data analyses. The company had not agreed with the FDA on study design or estimated the resulting cost and timing; it said a study could take approximately 18 months to three years after design acceptance.
- Alferon commercial sales cannot resume until manufacturing is restarted, the facility passes an FDA pre-approval inspection, and product quality and stability requirements are met. The company estimated about $10 million would be needed to restart manufacturing and gave no definitive timetable.
- Ampligen had approval for sale in Argentina, but commercialization depended on further steps including reimbursement, marketing and manufacturing readiness. European and Canadian access programs were also described, with no assurance of meaningful sales or sufficient supply.
- Management noted that the company may need to cut discretionary spending and that further equity financing could materially dilute shareholders. Other principal uncertainties include regulatory approval, manufacturing readiness, clinical results, access to capital and the ability to secure commercial partners.
- No specific financial guidance was provided. Management said disclosure controls were effective as of March 31, 2018, with no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the company can fund operations and planned clinical and manufacturing work, and how the April financing affects subsequent liquidity.
- The FDA-agreed path, cost and schedule for any further Ampligen clinical work, and the status of its regulatory applications.
- Progress, required funding and FDA milestones for restarting Alferon production; verify the basis and timing of the estimated $10 million requirement.
- The terms and continuing obligations of the sale-leaseback financing, including scheduled payments, repurchase option and warrants issued to the buyer.
- Subsequent share-count changes, warrant exercises and potential dilution from outstanding equity awards and financing instruments.
- Whether access programs and international approvals generate material revenue, and the status or outcome of the Biolife litigation.