Business context and reporting period
AmpliPhi Biosciences Corporation’s unaudited Form 10-Q covers the quarter and six months ended June 30, 2015. The development-stage biotechnology company was developing bacteriophage treatments for bacterial infections, with lead candidates for Pseudomonas aeruginosa, MRSA, and C. difficile. The filing is for AmpliPhi Biosciences, not a registrant identified as Armata Pharmaceuticals.
Financial performance and position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $102,000 (2015); $101,000 (2014) | $204,000 (2015); $205,000 (2014) |
| Research and development expense | $1.077 million (2015); $1.888 million (2014) | $2.049 million (2015); $2.899 million (2014) |
| General and administrative expense | $1.617 million (2015); $1.961 million (2014) | $3.014 million (2015); $3.588 million (2014) |
| Operating loss | $2.592 million (2015); $3.748 million (2014) | $4.859 million (2015); $6.282 million (2014) |
| Net income (loss) | $10.769 million (2015); $13.873 million (2014) | $(3.724) million (2015); $2.566 million (2014) |
| Operating cash used | Not presented as a quarterly figure | $4.967 million (2015); $6.745 million (2014) |
Revenue was from sublicensing agreements associated with the former gene therapy program; the company reported no product revenue. The filing does not provide a meaningful gross-margin figure. Second-quarter net income chiefly reflected noncash fair-value gains: $4.604 million on warrant liabilities and $8.757 million on the Series B preferred-stock derivative. These gains do not indicate operating profitability.
At June 30, 2015, cash and cash equivalents were $14.351 million, up from $6.581 million at December 31, 2014. Total current assets were $14.863 million and current liabilities were $2.167 million. Total liabilities were $19.261 million, including $10.032 million of preferred-stock derivative liability and $3.984 million of warrant liability. The balance sheet presents no conventional borrowings or debt balance. Series B redeemable convertible preferred stock had a $14.053 million liquidation preference. Accumulated deficit was $365.730 million.
Six-month investing cash use was $44,000; financing provided $12.781 million, including net proceeds from the March equity financing and warrant exercises. Cash increased by $7.770 million during the period.
Changes versus the prior comparable period
- For the six months, revenue was essentially unchanged, while operating expenses declined by $1.424 million and operating loss narrowed by $1.423 million versus 2014.
- Six-month net results shifted from $2.566 million income in 2014 to a $3.724 million loss in 2015. The comparison was materially affected by noncash fair-value movements in derivative and warrant liabilities.
- Cash increased following a March 2015 private placement that raised $13.0 million gross and approximately $12.4 million net. Financing cash flow was nil in the first half of 2014.
- R&D expense was lower in the first half, mainly due to timing of nonclinical project fees and 2014 one-time manufacturing-facility start-up costs; management expected R&D spending to rise as studies and clinical-trial preparation advanced.
Outlook, risks, contingencies, and unusual items
- Management estimated existing resources would fund operations through the third quarter of 2016, based on planned development, staffing, working capital, and capital expenditures. It also stated that further funding would be needed to continue operations and complete product development; financing might not be available on acceptable terms, and shortfalls could force program delays, reductions, asset sales, or other strategic actions.
- The company expected significant operating losses for at least several years and did not expect product revenue until a candidate completed development and received marketing approval.
- Management attributed lower 2015 R&D and G&A costs partly to timing and lower costs following the prior CEO’s departure; new CEO-related expenses and higher legal and accounting fees partly offset G&A savings.
- Warrant and preferred-stock derivative liabilities were Level 3 fair-value measurements using significant unobservable assumptions. Period-to-period changes can materially affect reported earnings without corresponding operating cash flows.
- Series B preferred stock carries cumulative dividends at 10% if declared and may be redeemable at the holders’ option on or after June 26, 2018, subject to the stated conditions. No dividends had been declared through June 30, 2015.
- Subsequent events included a 1-for-50 reverse stock split effective August 7, 2015, an increase in authorized common shares to 670 million, conditional clearance to apply for NYSE MKT listing, and a milestone-based option grant to the CEO. The filing reported no legal proceedings expected to have a material adverse effect and no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether the filing and reporting entity match the intended company: this report names AmpliPhi Biosciences Corporation.
- The cash runway assumptions and the timing, amount, and terms of any future financing.
- Clinical, nonclinical, and regulatory progress for AB-PA01, AB-SA01, and AB-CD01, including expected trial-start timing and costs.
- The effects of preferred-stock redemption, dividends, conversions, warrant exercises, and derivative remeasurement on potential dilution and reported earnings.
- The post-split share count, NYSE MKT listing status, and the conditions attached to the CEO’s option grant.