Business context and reporting period
Hemispherx Biopharma, Inc. (now AIM ImmunoTech Inc.) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2013. The specialty pharmaceutical company was developing Ampligen for chronic fatigue syndrome (CFS) and other potential uses, and Alferon products. Alferon N Injection was approved for a limited genital-warts indication, but commercial sales were halted because the company had no releasable finished-goods inventory.
Financial results and liquidity
Amounts below are in millions of dollars except per-share data. Interim results are not necessarily indicative of full-year results.
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $0.036 | $0.039 | $0.114 | $0.160 |
| Operating loss | $(4.459) | $(4.965) | $(13.755) | $(12.345) |
| Net loss | $(5.136) | $(6.587) | $(13.030) | $(11.895) |
| Net loss per share | $(0.03) | $(0.05) | $(0.08) | $(0.09) |
| Operating cash used | Not stated by quarter | $(13.646) | $(8.181) |
- All reported revenue came from the Ampligen cost-recovery/open-label treatment program; there were no Alferon N Injection finished goods available for commercial sale. Revenue declined 29% for the nine-month period, attributed to fewer patients.
- At September 30, cash and cash equivalents were $1.598 million; unrestricted marketable securities were $13.555 million and restricted securities were $14.068 million. Combined cash and securities were $29.221 million, including collateral pledged against the margin loan. Total current assets were $29.553 million.
- Total assets were $42.878 million, total liabilities $10.727 million, and stockholders’ equity $32.151 million. The $7.051 million margin account loan was the principal debt; capital lease liabilities totaled $0.065 million. In October 2013, the company used restricted securities to repay the loan in full and reclassified the remaining restricted securities as unrestricted.
- Nine-month investing cash inflow was $13.068 million, mainly reflecting maturities of marketable securities. Financing cash outflow was $0.036 million; no ATM shares were sold in the 2013 nine-month period. The company reported an accumulated deficit of $257.124 million.
- Gross margin is not meaningful as a performance indicator given the very small revenue base and reported production costs; the filing does not present a margin measure.
Material changes versus comparable periods
- Q3 net loss improved by $1.451 million year over year, while nine-month net loss increased by $1.135 million. The Q3 improvement principally reflected lower production costs and a favorable noncash warrant revaluation, partly offset by higher G&A, lower investment income and an $0.800 million securities impairment charge.
- For nine months, R&D increased 19% to $6.827 million and G&A increased 13% to $5.964 million; production costs fell 27% to $1.078 million. The company cited Ampligen clinical and manufacturing work, Alferon compliance testing, and higher legal and public-relations costs.
- Operating cash use increased $5.465 million, or 67%, from the prior-year period. Management cited employee and consultant bonus payments, accounts-payable payments and increased R&D and G&A spending.
- Unrestricted marketable securities fell from $27.241 million at December 31, 2012 to $13.555 million at September 30, 2013. The company recognized $0.800 million of other-than-temporary impairment losses on marketable securities. It also wrote off the remaining $0.458 million carrying value of older Alferon work-in-process inventory during the first half of 2013 after concluding it could not address FDA concerns.
- Weighted-average shares for the nine-month period rose to 167.1 million from 136.3 million. The reported loss per share improved despite the larger loss, in part because of the higher share count and noncash warrant valuation changes.
Outlook, management commentary, and risks
- Ampligen: The FDA issued a Complete Response Letter on February 1, 2013, declining to approve the CFS application. It called for at least one additional clinical trial, nonclinical studies and data analyses, citing insufficient efficacy evidence and an inadequate safety database, among other issues. The company planned an end-of-review meeting to clarify requirements. Management estimated a new well-controlled study could take 18 months to three years after design acceptance, but said the costs and work exceeded current financial resources without additional funding. No reliable estimate of study cost or completion timing was provided.
- Alferon: Older inventory will not be submitted for commercial release. The New Brunswick facility enhancement and validation work remained underway; FDA reaffirmation of facility status and approval of new product quality and stability would be required before commercial sales could resume. Management anticipated newly produced Alferon API would be ready for FDA submission no earlier than the second half of 2014. Timing and approval were uncertain.
- Other development: The Phase II Alferon LDO influenza study remained delayed. The Ampligen-plus-FluMist study had enrolled 12 subjects toward a 72-subject objective; a data monitoring committee approved progression to the next dose level. A University of Washington HER2-vaccine study had enrolled 50 of a planned 98 patients. These are development activities, not evidence of commercial approval or efficacy.
- Funding: Management warned that additional financing could be required and might not be available; equity funding could dilute shareholders, and restrictions on certain authorized shares could limit fundraising. The ATM agreement allowed sales of up to $75 million, but no shares were sold under it in the first nine months of 2013. Management said discretionary spending could be reduced if needed.
- Contingencies and risks: Several securities and shareholder derivative suits, as well as other litigation, were pending. Outcomes and potential losses were uncertain; no loss contingency was recorded for the matters described. The filing also highlights regulatory, manufacturing, product-liability, supplier, commercialization, patent, competition and market risks. Management stated disclosure controls were effective at September 30, 2013.
Important facts for investors to verify
- Whether FDA discussions defined the additional Ampligen trial and required studies, their expected cost and whether financing was secured.
- Progress and inspection outcomes for the New Brunswick facility, FDA reaffirmation requirements, and the timing and release status of new Alferon inventory.
- Cash use, unrestricted liquidity after the October margin-loan repayment, and any subsequent financing or ATM share sales.
- Developments and potential financial exposure in the pending litigation; the filing states outcomes and loss estimates were uncertain.
- Changes in clinical enrollment, safety and efficacy evidence for Ampligen and related programs, recognizing that the reported studies were ongoing and did not establish regulatory approval.