AIM ImmunoTech Inc. (then Hemispherx Biopharma, Inc.) — Form 10-Q summary
Reporting period: Quarter and nine months ended September 30, 2014. The filing is by Hemispherx Biopharma, Inc.; the company name in the request reflects its later name. Financial amounts below are in U.S. dollars; statement amounts are in thousands unless noted.
Business context
The company was a development-stage specialty pharmaceutical business focused on Ampligen, an investigational therapy, and Alferon N Injection, an FDA-approved product whose commercial sales were halted for lack of releasable finished inventory. It reported only Ampligen cost-recovery program revenue. Its New Brunswick, New Jersey facility enhancement and validation work was intended to support renewed Alferon production.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $45 | $36 | $157 | $114 |
| Operating loss | $(4,329) | $(4,459) | $(14,526) | $(13,755) |
| Net loss | $(4,202) | $(5,136) | $(12,994) | $(13,030) |
| Loss per share | $(0.02) | $(0.03) | $(0.07) | $(0.08) |
| Operating cash used | Not separately presented | Not separately presented | $(9,931) | $(13,646) |
- Q3 net loss narrowed by $934,000, mainly because the prior-year quarter included an $800,000 impairment loss on marketable securities. Nine-month net loss was essentially unchanged; 2014 included a $1.126 million gain from selling New Jersey tax net operating losses, while interest income and the warrant valuation adjustment were lower than in 2013.
- Nine-month revenue rose 38%, but remained immaterial relative to expenses. R&D expense fell 4% to $6.55 million; general and administrative expense rose 21% to $7.21 million, including higher legal fees and executive incentive compensation.
- At September 30, cash and cash equivalents were $1.262 million and marketable securities were $16.169 million, totaling $17.431 million. This was down about $763,000 from December 31, 2013. Cash-flow comparison benefited from working-capital timing; it should not be read as a forecast of future burn.
- Investing activities provided $651,000, primarily from securities maturities, while financing provided $9.739 million, principally from at-the-market share sales. The company sold 24.9 million shares for $9.763 million net proceeds; common shares outstanding rose to 193.7 million from 168.7 million at year-end. The filing reports 200,027,874 shares outstanding as of November 1, 2014.
- Total assets were $30.638 million and stockholders’ equity was $26.365 million. Total liabilities were $4.273 million, including $4.257 million current liabilities. The margin-account loan balance was zero; capital lease obligations totaled about $32,000. Construction in progress was $7.269 million.
- Gross margin and conventional operating margins are not informative given only $45,000 of quarterly revenue and substantial production and development costs. Accumulated deficit was $273.313 million.
Outlook, risks and unusual items
- Ampligen: The FDA declined to approve the CFS application in February 2013 and requested at least one additional clinical trial, nonclinical studies and further analyses, citing insufficient efficacy evidence and limitations in the safety database, among other issues. Management said the timing and cost of required work were not yet reasonably estimable and exceeded current financial resources without additional funding. A new well-controlled study could take an estimated 18 months to three years after design acceptance. In October 2014, the company committed about $700,000 for clinical batches of Ampligen.
- Alferon: Management anticipated possible emergency-use availability as early as Q1 2015 and commercial sales in the second half of 2015, subject to facility validation, FDA reaffirmation of facility status, manufacturing inspection and release of finished product. These were expectations, not assurances. No Alferon finished goods were available for commercial sale at quarter-end.
- Funding and dilution: Management warned that additional financing could be needed and might not be available. The company could seek equity, licensing, partnerships or debt financing; additional equity could dilute shareholders. It also disclosed limits on the use of certain authorized shares without stockholder approval and the availability of an at-the-market equity program.
- Development and operations: Key risks include regulatory approval, clinical efficacy and safety, manufacturing scale-up and FDA inspections, third-party supplier availability, commercialization and market acceptance. The Ampligen supply agreement with Hollister-Stier expired in March 2014; the company was working toward an amendment. The Alferon LDO Phase II study remained delayed.
- Legal and contingent matters: The company reported multiple securities and shareholder derivative suits, as well as a former CFO employment dispute; outcomes and potential impacts were uncertain, and no loss contingency was recorded. A South African arbitral panel declined to domesticate the company’s $188 million U.S. judgment against JCI and former officers; the company expected the related security bonds likely would be forfeited. The company prevailed in the Cato case in September 2014, but Cato appealed in October; Hemispherx sought approximately $1 million in fees and costs, with recovery uncertain.
- Management identified no off-balance-sheet arrangements and concluded disclosure controls were effective as of September 30, 2014. The filing cautions that interim results are not necessarily indicative of full-year results.
Important facts for investors to verify
- Current cash, securities, operating cash burn and expected funding needs, including any restrictions or collateral arrangements affecting marketable securities.
- FDA requirements and progress for Ampligen, including clinical-trial design, costs, timing and the status of the requested end-of-review discussions.
- Alferon facility validation, FDA inspection and product-release milestones against management’s 2015 expectations.
- Remaining availability under the equity distribution program, share authorization constraints and dilution since the filing.
- Developments and potential exposure in the disclosed litigation, the JCI judgment and bonds, and the Cato appeal and fee request.