Hemispherx BioPharma, Inc. (now AIM ImmunoTech) — Q3 2017 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2017. The filing reports the company under its then-name, Hemispherx BioPharma, Inc. Financial amounts below are in U.S. dollars; “$m” means millions.
Financial performance and liquidity
| Metric | Q3 2017 | Q3 2016 | Nine months 2017 | Nine months 2016 |
|---|---|---|---|---|
| Revenue | $0.090m | $0.022m | $0.387m | $0.076m |
| Operating loss | $(2.652)m | $(3.226)m | $(8.623)m | $(9.719)m |
| Net loss | $(1.252)m | $(2.862)m | $(6.266)m | $(6.329)m |
| Loss per share | $(0.04) | $(0.13) | $(0.23) | $(0.30) |
| Operating cash used | — | $(7.181)m | $(5.278)m |
Revenue came from Ampligen cost-recovery programs, including the European early access program and the AMP-511 open-label protocol. The company reported no commercial Alferon N Injection finished-goods sales. Revenue remains small relative to production and operating costs; the filing does not present a meaningful product margin.
At September 30, cash and cash equivalents were $0.503m and marketable securities were $1.800m, or $2.303m combined, down from $5.868m at December 31, 2016. Current assets were $3.735m and current liabilities $2.200m. Total assets were $14.725m, versus $18.873m at year-end 2016. Stockholders’ equity was $10.041m.
Long-term note payable was $1.466m net of deferred financing costs (principal advanced was $1.543m). The secured, two-year facility allows borrowing up to $4.0m subject to conditions and lender approval; interest is at least 12% annually and payments are interest-only during the term. Financing cash flows included $2.180m net stock proceeds and $1.543m note proceeds. The company also sold marketable securities during the period.
Changes versus comparable periods
- Nine-month revenue rose to $0.387m from $0.076m, principally from the pancreatic-cancer EAP; Q3 revenue increased to $0.090m from $0.022m.
- Nine-month net loss was nearly unchanged, while Q3 net loss narrowed. The improvement was materially affected by a $2.361m favorable, non-cash warrant valuation adjustment for the nine months, compared with $0.103m in 2016. The Q3 warrant adjustment was $1.438m versus $0.103m.
- Nine-month G&A fell 15% to $4.839m, largely because 2016 included an $0.850m former-executive severance charge. R&D was broadly flat at $3.284m versus $3.244m.
- Operating cash use increased 36% year over year. The company cited the absence in 2017 of 2016 receipts from NOL sales and insurance settlements, as well as a manufacturer deposit.
- Common shares outstanding increased from 24.2m at December 31, 2016 to 31.1m at September 30, 2017. The filing also describes equity and warrant financings and stock compensation.
Outlook, risks, contingencies and unusual items
- Funding and going concern: The company reported an accumulated deficit of $306.767m and stated it had incurred substantial operating losses. Management said actions—including cost reductions, international clinical-material sales, asset sales, seeking co-development partners, and plans to access equity markets—alleviated substantial doubt about continuing as a going concern. The filing nevertheless says additional financing is needed and may not be available; it does not provide a clear cash-runway estimate.
- Product and regulatory risks: FDA had declined the U.S. Ampligen NDA for ME/CFS and requested at least one additional clinical trial, nonclinical studies, analyses, and manufacturing-related work. Management estimated a new Phase III study could take 18 months to three years after design acceptance and said its cost exceeds current resources. Argentine approval does not assure commercial launch; reimbursement, manufacturing and funding steps remain.
- Manufacturing: Alferon production was on hold, with no definitive restart timetable. The company estimated approximately $10m would be needed to bring the facility back online and cited FDA inspection and product-release requirements. Ampligen contract-manufacturing validation was ongoing; a first lot was expected in Q1 2018, subject to completion of validation.
- Cash conservation and dilution: Beginning in September, employees received 50% of salary in common stock; certain officers deferred 40% of salary, and directors deferred fees. The company warned that further equity funding could dilute shareholders. Warrants were exchanged in August at a $0.45 exercise price, with potential share issuance upon exercise.
- Warrant valuation: Redeemable warrants were a $1.018m Level 3 liability, valued using a Monte Carlo model with significant assumptions. Fair-value gains improved reported earnings but were non-cash and sensitive to estimates.
- Write-off and asset sales: The company expensed $0.211m previously paid for Alferon fill-and-finish work after concluding the benefit would not be realized. It had agreed to sell a New Jersey property for $1.050m and expected to collect $0.820m from a New Jersey NOL sale; completion and collection were not confirmed in the filing.
- Legal matter and controls: The company sued Nitto Avecia Pharma Services for more than $0.650m over alleged contract breaches and product loss; the defendant denied liability and counterclaimed. Management reported disclosure controls were ineffective due to a material weakness in recording certain warrant exercises; remediation was underway and not yet deemed complete.
Most important facts for investors to verify
- Current cash position, subsequent financing, actual cash runway, and whether anticipated property and NOL-sale proceeds were received.
- Availability and terms of additional capital, including outstanding warrant exercises, dilution, and the secured note’s remaining capacity and repayment obligations.
- Progress, cost, and FDA requirements for Ampligen studies and Alferon manufacturing validation, inspection, and commercial release.
- Whether international Ampligen programs generate sustainable revenue and whether Argentine commercialization advances beyond approval.
- Status and potential financial impact of the Nitto Avecia litigation and remediation of the warrant-accounting control weakness.