Business context and reporting period
Tekmira Pharmaceuticals Corporation filed this unaudited Form 10-Q for the quarter ended March 31, 2015. The company focused on hepatitis B (HBV) drug development and RNA interference (RNAi) delivery technology. It completed its acquisition of OnCore Biopharma on March 4, 2015, adding HBV programs and subsidiaries Enantigen and OnCore. The filing’s financial statements are in U.S. dollars and amounts below are in millions unless otherwise stated.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Revenue | $4.682 | $4.430 |
| Operating expenses | $22.688 | $10.388 |
| Operating loss | $(18.006) | $(5.958) |
| Net loss | $(11.989) | $(17.984) |
| Basic and diluted loss per share | $(0.40) | $(0.91) |
| Cash used in operating activities | $(17.843) | Cash provided: $9.155 |
Revenue was primarily collaboration and contract income: $3.045 million from the U.S. Department of Defense (DoD), plus amounts from Monsanto, Dicerna and other partners. DoD revenue represented about 65% of total revenue. No product-sales revenue was reported.
At March 31, 2015, cash and cash equivalents were $232.276 million, compared with cash and short-term investments totaling $112.161 million at year-end 2014. Current assets were $239.769 million and current liabilities $24.875 million. Total liabilities were $193.373 million; the balance sheet does not show a conventional borrowings or debt balance. The company raised $142.175 million net from a March share offering. Management said cash resources were sufficient for at least the next 12 months, while noting substantial additional funding would be needed to continue pipeline development.
Material changes and unusual items
- OnCore acquisition consideration was valued at approximately $381.942 million, paid primarily with 23.97 million Tekmira shares. The preliminary allocation included $389.652 million of acquired in-process research and development intangible assets, $155.865 million goodwill, and a $155.865 million deferred tax liability. The purchase-price allocation remained subject to valuation and could change materially.
- Operating expenses more than doubled year over year, including $9.295 million of one-time acquisition costs. Research and development expense increased to $10.557 million, reflecting HBV Phase I work, Ebola-Guinea manufacturing and the expanded portfolio.
- The reported net loss narrowed year over year, but included a $7.038 million foreign-exchange gain, partly offset by a $1.223 million warrant-liability fair-value charge. The prior-year quarter included a much larger $13.616 million warrant-liability charge.
- The public offering issued 7.5 million shares at $20.25 per share, for $151.875 million gross proceeds and $142.175 million net proceeds. The underwriters’ additional-share option was not exercised. Common shares outstanding were 54,095,921 at quarter-end and 54,224,261 at April 30, 2015.
Outlook, commentary and risks
- Management planned to select between two TKM-HBV formulations following Phase I results, expected in the second half of 2015, and anticipated a multiple-dose study in chronically infected patients thereafter. It also expected to complete OCB-030 studies toward an IND filing by year-end 2015.
- Management expected final TKM-PLK1 GI-NET and ACC data in the second half of 2015. The TKM-Ebola Phase I trial was expected to resume in Q2 2015, with results expected in the second half of the year; TKM-Ebola-Guinea trial results were also expected in the second half of 2015. These are forward-looking expectations, not assured outcomes.
- The FDA had modified the TKM-Ebola partial clinical hold to permit repeat dosing of healthy volunteers up to 0.24 mg/kg/day; higher doses remained restricted. Further regulatory requirements or delays could impede development.
- UBC arbitration alleged at least $3.5 million in unpaid royalties, plus an unspecified amount based on non-public information, interest and costs. The company disputed the claims and had not recorded an estimated loss. A separate Alnylam arbitration concerned a disputed $5 million milestone; the company had not recognized revenue for it, and a hearing was scheduled for May 2015.
- Other material uncertainties included development and regulatory execution, reliance on collaboration and government-contract funding, preliminary acquisition valuations, warrant fair-value volatility, and potential milestone, royalty and licensing obligations. Management cautioned that future funding might not be available on acceptable terms.
Important facts for investors to verify
- Subsequent updates on the OnCore purchase-price allocation, acquired intangible assets and contingent consideration.
- Clinical and regulatory progress for TKM-HBV, TKM-Ebola and TKM-Ebola-Guinea, including FDA hold status and trial results.
- Cash burn and funding needs against management’s stated minimum 12-month cash runway.
- Outcomes of the UBC and Alnylam arbitrations and any resulting liabilities or milestone receipts.
- Revenue concentration in the DoD contract and the timing, conditions and remaining funding available under partner agreements.