AIM Immunotech Inc. (then Hemispherx Biopharma, Inc.) — Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2018. Financial statement amounts are in thousands of dollars except per-share data and share counts.
Business context
The company is an immunotherapy research and development business focused on Ampligen (experimental in the United States and approved in Argentina for severe chronic fatigue syndrome) and Alferon N Injection (FDA- and Argentina-approved for specified indications). Revenue remained limited, with activity dependent on cost-recovery and early-access programs. Management said it was seeking development partners and additional capital.
Financial performance and liquidity
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $38 | $90 | $127 | $387 |
| Operating loss | $(3,038) | $(2,652) | $(8,835) | $(8,623) |
| Net loss | $(3,078) | $(1,252) | $(8,206) | $(6,266) |
| Basic and diluted loss per share | $(0.07) | $(0.04) | $(0.19) | $(0.23) |
| Operating cash used | — | — | $(8,221) | $(7,181) |
- Nine-month revenue fell 67%; management attributed the decline primarily to Ampligen unavailability for an early-access program. The filing reports no Alferon finished goods available for commercial sale. Gross margin is not separately reported, and revenue was minimal relative to operating costs.
- Nine-month research and development expense increased 15% to $3,791, largely due to Ampligen vial and polymer manufacturing, partly offset by lower clinical costs. General and administrative expense decreased 6% to $4,569, mainly following a favorable legal-fee settlement.
- Nine-month net loss widened 31%. Noncash items included an $826 gain from redeemable-warrant revaluation and a $678 loss from fair-value adjustment of the convertible note. The prior-year warrant revaluation gain was $2,361. The 2018 period also included a $474 litigation-settlement gain and a $223 gain on a building sale.
- At September 30, cash and cash equivalents were $4,055 and marketable securities were $20, compared with $1,412 and $695, respectively, at December 31, 2017. Current assets of $4,943 were slightly below current liabilities of $4,962. The balance sheet reported total assets of $15,170 and stockholders’ equity of $6,439.
- Financing cash flow was $9,254 for the nine months, principally from financing and equity proceeds. The cash-flow statement reports a $2,643 net increase in cash, to $4,055 at period-end.
- Debt and financing obligations included a $3,170 face-value secured convertible note issued September 28, with a $3,387 fair-value carrying amount at quarter-end, and a sale-leaseback financing obligation of $2,566, including current and long-term portions. The note bears 10% interest and matures September 28, 2019, subject to conversion and redemption provisions. The former mortgage was paid off in March 2018.
Material changes and developments
- Common shares outstanding rose to 47,957,884 from 32,884,786 at year-end 2017; 48,189,570 shares were outstanding November 1. Equity issuance, employee compensation in shares and warrants contributed to dilution.
- The company raised capital through equity sales, warrant exercises, and a March sale-leaseback of its New Brunswick property. The leaseback was treated as financing, not as a completed sale for accounting purposes; payments begin at $408 annually and escalate under the agreement.
- Two commercial-size Ampligen batches were produced and released for human use in 2018. The company reported approximately 40 pancreatic-cancer patients treated through an early-access program as of September 30.
- Alferon manufacturing remained on hold. The company estimated approximately $10 million would be needed to restart production, revalidate its facility, and prepare for an FDA pre-approval inspection; there was no definitive restart timetable.
Outlook, risks and contingencies
- No quantified revenue, earnings, or cash-flow guidance was provided. Management said additional financing may be required and that it may curtail discretionary spending, including research and development, to conserve cash.
- The FDA’s 2013 Complete Response Letter for Ampligen required at least one additional clinical trial, nonclinical work, and further analyses. The company said it could not estimate the cost or timing of the FDA pathway until it agreed on a study design; its risk discussion cited an estimated 18 months to three years to complete a new controlled study after design acceptance.
- Ampligen’s commercial prospects depend on clinical outcomes, regulatory approvals, manufacturing capacity, reimbursement, and partners. Planned oncology trials may not commence or succeed. Argentina approval does not imply U.S. approval.
- Alferon sales depend on restarting manufacturing and obtaining FDA inspection and product-release approvals; the company cautioned that production may not resume or return to prior sales levels.
- The convertible note permits conversion at $0.30 per share and, beginning March 28, 2019, redemption that may be settled in cash, shares, or both. The share-settlement price can be linked to a market-price formula, creating potential dilution and financing risk.
- A lawsuit against a leukocyte supplier was in discovery; the defendant asserted a $96,676 counterclaim, which the company denied. Separately, a vendor litigation settlement generated a $474 gain during the period.
- Management concluded disclosure controls were effective as of September 30, 2018, and reported no material change in internal control over financial reporting during the nine months.
Key facts investors should verify
- Reconcile cash-flow figures: the financial statements report operating cash use of $8,221 and financing cash provided of $9,254, while the MD&A cites $8,451 and $9,484, respectively.
- Confirm available cash, current obligations, cash burn, and the company’s financing needs, including the convertible note’s maturity and potential market-linked share settlement.
- Track the FDA pathway and costs for Ampligen, and the inspection, validation, funding, and timing requirements for resuming Alferon production.
- Verify whether Ampligen early-access and planned clinical programs progress, and whether reported batches support clinical supply or commercial launch plans.
- Assess dilution from outstanding warrants, options, equity distribution sales, and the convertible note; also monitor NYSE American listing-price risk.