Akers Biosciences, Inc. (Nasdaq: AKER) — Form 10-Q
Reporting period: Three and nine months ended September 30, 2020. Filed November 16, 2020. Financial statements are unaudited.
Business context
Akers shifted its focus from rapid point-of-care screening and testing products to developing a COVID-19 vaccine candidate with Premas Biotech. It stopped production and sales of its former products in July 2020 and classified that business as discontinued operations. The Thorofare facility lease was set to terminate December 13, 2020.
Financial performance
| Metric | Q3 2020 | Nine months 2020 | Comparable 2019 |
|---|---|---|---|
| Continuing-operations revenue | $0 | $0 | $0 |
| Research and development expense | $1.741 million | $6.140 million | $0 |
| Operating loss | $2.971 million | $9.141 million | $0.849 million / $2.781 million |
| Loss from continuing operations | $2.916 million | $9.047 million | $0.821 million / $2.703 million |
| Loss from discontinued operations | $4.211 million | $5.247 million | $0.016 million loss / $0.154 million income |
| Net loss | $7.127 million | $14.294 million | $0.837 million / $2.549 million |
Amounts in the 2019 columns are for the three and nine months, respectively; comparative presentation was revised to separate discontinued operations. No continuing-operation sales means a gross margin is not meaningful. Q3 and nine-month basic and diluted loss per share were $0.93 and $2.83, respectively, versus $1.54 and $4.71 in 2019; weighted-average shares rose to 7.627 million and 5.045 million from approximately 542,000.
- Cash flow: Operating cash used was $8.843 million for the nine months; investing activities provided $2.210 million and financing activities provided $22.305 million.
- Liquidity at September 30: Cash and restricted cash totaled $16.305 million, marketable securities $6.929 million, working capital $21.010 million, and shareholders’ equity $21.169 million.
- Liabilities and debt: Total liabilities were $2.556 million, including $1.458 million of discontinued-operation liabilities and a $40,506 current operating-lease liability. The balance sheet reports no borrowings or other financial debt.
- Capital raises: April, May and August stock offerings and Series C warrant exercises generated $22.305 million of net financing cash in the period. Common shares outstanding increased from 1.739 million at year-end 2019 to 8.860 million at September 30, 2020.
Material changes and unusual items
- R&D spending began in 2020, reflecting Cystron acquisition and vaccine license/development costs; nine-month vaccine license and development costs were $6.060 million.
- Discontinued operations recorded a $4.031 million nine-month litigation-settlement expense, alongside product and asset write-downs. Q3 net loss included a $2.810 million ChubeWorkx settlement expense, settled with $300,000 cash and 500,000 shares valued at $2.510 million; the settlement also terminated ChubeWorkx’s security interests in company assets.
- After quarter-end, Akers settled the NovoTek case for $1.350 million, payable within 60 days. The company recorded the obligation and expense in discontinued operations as of September 30.
- Akers reported positive proof-of-concept results in mice with its candidate, with reported safety and immune-response endpoints met. The candidate remained in early development, with preclinical, clinical and regulatory steps ahead and no human trials underway.
Outlook, risks and subsequent developments
Management said resources at the financial-statement issuance date were sufficient for the current 12-month operating budget. However, Akers stated that existing resources would not fund the vaccine through all clinical trials, regulatory approval and commercialization, and that significant additional funding would be needed. Access to capital, pandemic-related disruption, development outcomes and competition were significant risks.
- On November 11, 2020, Akers signed a merger agreement with MYMD Pharmaceuticals, subject to conditions including stockholder approvals. Former MYMD securityholders were expected to own approximately 80% of the combined company; existing Akers holders approximately 20%, before other dilution. The agreement includes potential stock-based market-capitalization milestone payments and up to $3 million in secured bridge financing to MYMD.
- Akers also agreed to a private placement expected to raise approximately $18.1 million gross, before fees and expenses, subject to closing conditions. Proceeds were intended partly to meet the merger’s $25 million closing-cash requirement and to pay approximately $1.8 million to Cystron’s former members under the acquisition agreement.
- The Cystron agreement includes further contingent payments, potential milestone stock, royalties on future vaccine sales, and change-of-control consideration. Premas temporarily returned certain amounts to Akers in 2020 and returned another $908,117 after quarter-end for stated regulatory reasons in India.
- Akers adopted a rights plan with a 10% ownership trigger. The board approved a $150,000 special cash bonus for its Executive Chairman on November 11.
- Management assessed disclosure controls as effective at a reasonable-assurance level; it reported no material internal-control changes during Q3. The filing identifies no significant known off-balance-sheet arrangements.
Most important facts for investors to verify
- Whether the MYMD merger and related private placement closed, and the resulting cash position, share count, ownership split and dilution.
- Actual vaccine development milestones, clinical-trial plans, regulatory progress, funding needs and Premas license status; the mouse results do not establish human safety or efficacy.
- Cash burn and runway, including settlement payments, Cystron-related obligations and any additional capital requirements.
- The final accounting and payment status of the NovoTek settlement and other discontinued-operation liabilities.
- Potential dilution from warrants, preferred stock, equity compensation, merger consideration and contingent milestone shares.