Hemispherx Biopharma, Inc. — Q2 2011 Form 10-Q
Entity note: The filing is for Hemispherx Biopharma, Inc., not AIM ImmunoTech Inc. It covers the quarter and six months ended June 30, 2011; interim financial statements are unaudited. Amounts below are in U.S. dollars.
Business context and reporting period
Hemispherx was a specialty pharmaceutical company developing Ampligen and Alferon products. Its reported revenue came from Ampligen cost-recovery clinical treatment programs; Alferon N Injection sales had been halted since 2008 because finished inventory expired.
Financial metrics
| Metric | Q2 2011 | Six months 2011 | Comparable 2010 |
|---|---|---|---|
| Revenue | $36,000 | $78,000 | $41,000 quarter; $73,000 six months |
| Operating loss | $3.248 million | $6.838 million | $3.769 million quarter; $7.842 million six months |
| Net loss | $2.294 million | $3.160 million | $1.416 million quarter; $6.796 million six months |
| Basic and diluted loss per share | $0.02 | $0.02 | $0.01 quarter; $0.05 six months |
| Cash used in operating activities | Not separately provided | $4.802 million | $7.388 million six months |
Gross profitability and conventional operating margins are not meaningful given minimal revenue and operating losses. Six-month net loss included $2.272 million from selling New Jersey tax-loss carryforwards and a $944,000 noncash gain from warrant revaluation. Q2 net loss also reflected a $643,000 noncash warrant revaluation gain.
At June 30, cash and cash equivalents were $2.080 million and marketable securities totaled $37.674 million, for combined cash, equivalents and securities of about $39.754 million. Total assets were $47.604 million; total liabilities were $3.932 million, including $188,000 of capital-lease obligations and a $1.860 million redeemable-warrant liability. Stockholders’ equity was $43.672 million. Cash and securities declined about $4.6 million from year-end 2010.
Material changes versus prior comparable periods
- Q2 net loss increased to $2.294 million from $1.416 million, principally because the noncash warrant-valuation gain was smaller than in Q2 2010; lower R&D, general and administrative, and production costs, plus higher investment income, partly offset this.
- Six-month net loss improved to $3.160 million from $6.796 million. Lower R&D and G&A costs, higher investment income, the tax-loss sale proceeds, and warrant revaluation contributed.
- Six-month operating cash use fell by $2.586 million year over year. Management said that excluding the tax-loss sale, the reduction in operating cash use was approximately $314,000.
- Marketable securities recorded value declined from $41.467 million at December 31, 2010 to $37.674 million at June 30, 2011. The filing reported $179,000 of other-than-temporary impairments during the period.
Outlook, risks, contingencies and unusual items
- Ampligen: The FDA’s 2009 Complete Response Letter said the submitted studies did not provide credible evidence of efficacy and recommended at least one additional study. The company estimated a 600-patient Phase III trial could cost $7.2 million–$11.1 million and take approximately 18 months to three years from commencement. The company had received a one-year extension in December 2010 to respond to the letter; the filing gives no assurance of approval or a clear date for a new trial.
- Alferon N Injection: A contract manufacturer reported FDA 483 production issues in June 2011. Hemispherx planned to find an alternative manufacturer, qualify it and obtain FDA approval; management estimated sales might resume in early 2012, subject to those steps and lot approvals.
- Funding and dilution: The company warned it may need further financing and that funding may not be available. It reported only about 31.8 million authorized but unissued and unreserved shares, limiting equity-funding capacity. The ATM program had produced no proceeds in the first half of 2011.
- Manufacturing investment: A New Brunswick facility improvement project had Board approval of up to $4.4 million. Construction was delayed by permits, demolition and design changes. Management estimated approximately $800,000 in equipment cost savings to date.
- Subsequent event: On July 26, 2011, the company established a margin account for up to $4 million of borrowing, secured by approximately $8 million of restricted marketable securities; the stated effective interest rate was approximately 3% annually on amounts drawn.
- Other development and scientific risks: The NIH reported in June 2011 that XMRV was unlikely to cause CFS and that reported associations could reflect sample contamination. A Japanese partner, Biken, declined to continue an Ampligen influenza-vaccine evaluation, citing unresolved safety-data concerns; the company disputed its interpretation. FDA authorization for an intranasal Ampligen trial was reported in July 2011.
- Legal matters: The company reported a $188 million judgment plus interest against Johannesburg Consolidated Investments and former officers, but recognized no gain because collection and domestication in South Africa remained uncertain. Other disclosed litigation included claims against the company and appeals; no loss contingencies were recorded for the listed matters.
Important facts for investors to verify
- Whether cash burn, project spending and the restricted collateral supporting the new margin facility leave sufficient usable liquidity for planned trials and operations.
- Progress and costs for the Ampligen response to the FDA, any Phase III design and trial funding, and the status of CFS diagnostic work.
- Whether a qualified, FDA-approved contract manufacturer is secured for Alferon N Injection and whether the early-2012 sales estimate remains achievable.
- The quality and liquidity of the investment portfolio, including impairment assessments, and the assumptions behind the Level 3 warrant valuation.
- Potential dilution and financing capacity, alongside the status and possible recovery of the legal judgment and other litigation.