Hemispherx Biopharma, Inc. (AIM ImmunoTech filing metadata) — FY 2016 Form 10-K
Reporting period: Year ended December 31, 2016; filed March 31, 2017. The filing identifies the registrant as Hemispherx Biopharma, Inc. It is an annual report, not a quarterly report.
Business context
The company was a specialty pharmaceutical developer focused on immune-based therapies. Its principal products were Ampligen (rintatolimod), an investigational drug, and Alferon N Injection, FDA-approved for certain cases of refractory or recurring external genital warts but unavailable for commercial sale pending new manufacturing and FDA release. Alferon LDO remained in development.
Ampligen received Argentine approval in August 2016 for severe ME/CFS. The U.S. FDA had declined its ME/CFS NDA in 2013 and requested at least one additional clinical trial, further nonclinical work and data analyses. A European early-access program was underway; it did not constitute marketing authorization.
Financial performance and position
| Metric | FY 2016 | FY 2015 |
|---|---|---|
| Revenue | $92,000 | $133,000 |
| Operating loss | $13.804 million | $16.650 million |
| Net loss | $7.502 million | $15.230 million |
| Net loss per share | $0.34 | $0.77 |
| Research and development expense | $5.107 million | $8.038 million |
| General and administrative expense | $7.681 million | $7.147 million |
| Cash used in operating activities | $7.380 million | $16.053 million |
Revenue was generated from the FDA-authorized Ampligen open-label cost-recovery treatment program; the company reported no commercial Alferon finished-goods sales. Profit margins are not meaningful given the very low revenue and operating losses.
- Liquidity: At year-end, cash and cash equivalents were $2.408 million and marketable securities were $3.460 million, totaling $5.868 million. Working capital was $4.506 million, down from $8.138 million in 2015.
- Balance sheet: Total assets were $18.873 million; total current liabilities were $2.435 million. The filing reports no debt at year-end; the prior-year capital lease balance was negligible. Redeemable warrants were recorded as a $940,000 liability.
- Cash flows: Investing activities provided $2.916 million and financing activities provided $4.757 million, primarily reflecting marketable-security maturities/sales and equity issuance, respectively.
- Accumulated deficit: $300.501 million at December 31, 2016.
Changes versus the prior year
- Net loss narrowed by $7.728 million, while revenue declined by $41,000. Lower R&D and production costs, a $1.626 million net insurance-related litigation settlement, $2.870 million in proceeds/gains from sales of state tax attributes, and a $1.677 million noncash warrant valuation gain contributed to the lower reported loss.
- R&D expense fell 36%, principally due to lower Alferon compliance and clinical work, reduced staffing and austerity measures; spending associated with Ampligen increased.
- Cash used in operations fell 54%. Year-end cash, cash equivalents and marketable securities nevertheless declined by about $3.042 million from 2015.
- The company completed a 1-for-12 reverse stock split in August 2016 to regain compliance with NYSE MKT listing requirements and received notice of restored compliance in September.
Outlook, risks and unusual items
- Funding and going concern: The company stated that additional financing would likely be needed for operations, Ampligen development and Alferon facility revalidation. It reported that it had evaluated substantial doubt about its ability to continue as a going concern and believed planned actions alleviated that doubt. Those actions included cost reductions, asset sales, partnering and seeking additional equity capital; there is no assurance they will provide sufficient funding.
- Funding after year-end: A February 2017 securities offering generated approximately $850,000 net. A March 29, 2017 term sheet contemplated a secured funding line of up to $4 million, but no definitive loan agreement or actual funding was assured.
- Manufacturing: A January 2016 flood affected the New Jersey Alferon facility. Repairs were believed complete, but production remained on hold with no definitive restart timetable. Revalidation, FDA pre-approval inspection and approval of new product lots remained necessary; the company expected to need additional funding.
- Ampligen development: U.S. approval remains uncertain and further study requirements, timing and costs were not established. Management estimated that a new well-controlled study could take approximately 18 months to three years after study design acceptance, and said the effort exceeded current financial resources without additional funding.
- Commercial prospects: Argentine approval and European early access could support potential sales, but reimbursement, launch preparations, manufacturing and local regulatory steps remained outstanding. The company gave no quantified sales or earnings guidance.
- Other unusual items: The 2016 net loss benefited from the noncash warrant revaluation gain and tax-attribute sale proceeds. Three shareholder-related cases were settled and dismissed, with insurance funding the reported settlement-related amounts; the company also pursued collection of an $829,579 judgment against Cato Capital.
- Audit and controls: RSM US LLP issued an unqualified opinion on the financial statements. Management reported effective disclosure controls and internal control over financial reporting, with no material weaknesses identified; the auditor did not express an opinion on internal control.
Important facts for investors to verify
- Whether the company secured enough capital after year-end and how long available liquidity would fund operations at the subsequent cash-burn rate.
- Whether the New Jersey facility can complete revalidation, pass FDA inspection and resume Alferon production, and the total cost and timing.
- The FDA’s current requirements and the cost, financing and timetable for any additional Ampligen ME/CFS trial.
- Whether Argentine approval and early-access programs produce paid product sales, and the associated reimbursement, manufacturing and distribution terms.
- The dilution and potential cash-settlement exposure associated with outstanding shares, warrants and the warrant liability.