AIM ImmunoTech Inc. (then Hemispherx Biopharma, Inc.) — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2012; comparisons are with the three and nine months ended September 30, 2011, or with December 31, 2011 for balance-sheet amounts. The filing was signed November 2, 2012. Financial statement amounts below are in millions of dollars unless noted.
Business context
The company was a clinical-stage biopharmaceutical company focused on Ampligen, an investigational drug, and Alferon N Injection, an FDA-approved product for a limited genital-warts indication. Alferon commercial sales had been halted for lack of saleable finished inventory. Revenue came from Ampligen’s patient cost-recovery program, not product sales.
Key financial metrics
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $0.039 | $0.045 | $0.160 | $0.123 |
| Operating loss | $(4.965) | $(3.557) | $(12.345) | $(10.395) |
| Net loss | $(6.587) | $(2.740) | $(11.895) | $(5.900) |
| Net loss per share | $(0.05) | $(0.02) | $(0.09) | $(0.04) |
| Operating cash used | Not separately presented for the quarter | $(8.181) | $(7.074) |
- Costs and margins: Nine-month costs and expenses were $12.505 million, including R&D of $5.758 million, G&A of $5.271 million, and production costs of $1.476 million. With only $0.160 million of revenue, the filing does not provide a meaningful positive gross margin.
- Cash and liquidity: At September 30, cash and cash equivalents were $3.158 million; unrestricted marketable securities were $21.898 million; restricted securities were $10.342 million. Combined cash and securities were $35.398 million, including collateral unavailable for general use. Current assets were $36.454 million and current liabilities $9.790 million.
- Debt and capital: The margin-account loan was $5.761 million, up from $1.695 million at year-end 2011, and bore an effective rate of approximately 3%. Restricted marketable securities of $10.342 million secured the loan. Capital-lease obligations totaled $0.113 million.
- Cash flows and investment: Net cash used in operations was $8.181 million; investing used $5.063 million, including $4.821 million for property, equipment, and construction; financing provided $13.299 million, including $9.268 million net proceeds from stock sales and $4.066 million in margin-loan proceeds. Cash rose by $0.055 million to $3.158 million.
- Balance sheet: Total assets were $48.578 million and total liabilities $11.966 million. Accumulated deficit was $238.635 million.
Material changes versus prior periods
- Nine-month net loss approximately doubled to $11.895 million. Operating loss increased $1.950 million as R&D, G&A, and production costs rose.
- A non-cash warrant revaluation produced a $1.732 million loss for the first nine months of 2012, versus a $1.558 million gain in 2011. For Q3 alone, the comparable amounts were a $1.968 million loss and a $0.614 million gain.
- Production costs increased $0.862 million year over year, including a roughly $0.733 million reserve/write-down related to Alferon work-in-process lots and testing.
- R&D increased 15% for the nine months, primarily reflecting Ampligen NDA work and preparation for an FDA manufacturing inspection. G&A increased 8%, including higher legal and directors’ fees.
- Revenue increased 30% for the nine months but remained immaterial; the company reported no Alferon finished goods available for commercial sale.
- Shares issued and outstanding increased from 135.6 million at December 31, 2011 to 147.5 million at September 30, 2012. The company sold 10.7 million shares through its at-the-market offering for $9.268 million net proceeds.
Outlook, management commentary, and risks
- Ampligen: The company submitted an FDA complete response on July 31, 2012; FDA classified it as a complete Class 2 response and set a February 2, 2013 review goal. An advisory committee meeting was scheduled for December 20, 2012. The filing stressed that review acceptance did not assure approval; efficacy, manufacturing readiness, inspection results, and possible additional FDA requirements remained uncertain.
- Alferon: Three of four work-in-process lots had completed fill-and-finish by September 30; one lot was deemed unsuitable for commercial sale and reserved. FDA release and process approvals were still required. The company delayed facility validation work while prioritizing Ampligen, and gave no assurance as to timing or resumption of Alferon sales.
- Facility spending: The board had authorized up to $7.2 million for manufacturing improvements. Construction in progress was $5.785 million at quarter-end. Management said Alferon validation was delayed by the Ampligen NDA and inspection effort.
- Funding and dilution: Management said additional funding might be needed and could not assure adequate proceeds from the Maxim ATM or other sources. The ATM authorized up to $75 million of common-stock sales; 40 million shares were allocated for sale under the prospectus supplement after an October update. Further issuance could materially dilute shareholders.
- Other programs: Alferon LDO’s Phase II study was delayed. An Ampligen/FluMist study had enrolled eight subjects and was cleared by its monitoring committee to proceed at a higher dose. The India influenza study was suspended pending analysis; the ovarian-cancer study had enrollment suspended after three patients, with no tumor regression reported in those initial patients.
- Contingencies: Cato Capital sought up to $9.83 million plus fees and punitive damages; a non-jury trial was scheduled for January 2, 2013. In separate litigation, appellate rulings revived certain MidSouth counterclaims for proceedings on remand. The company recorded no litigation loss contingency and said outcomes and potential losses could not be estimated.
- Unusual subsequent event: On November 2, 2012, the company amended its shareholder rights agreement, extending the rights plan to November 18, 2017.
- General risks: The company had a long history of losses and minimal revenue. Key risks included regulatory rejection or delay, manufacturing and inspection failures, dependence on third parties, financing availability and dilution, competition, product liability, and uncertain litigation outcomes. No formal financial guidance was provided.
Most important facts for investors to verify
- FDA review and advisory committee outcomes for Ampligen, including any additional efficacy, safety, or manufacturing requirements and inspection findings.
- Whether Alferon lots receive FDA release, when facility validation is completed, and whether commercial sales can resume.
- Cash consumption, the usable portion of reported liquidity after restricted collateral, and the company’s financing needs and remaining ATM capacity.
- Further share issuance and resulting dilution, including ATM sales and outstanding options and warrants.
- Developments in the Cato and MidSouth litigation, potential exposure, and any resulting financial-statement recognition.
- Manufacturing project costs and timing, and the impact of delays or cost overruns on the company’s operating cash runway.