AmpliPhi Biosciences Corporation — Q3 2016 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2016; filed November 10, 2016. The supplied filing is for AmpliPhi Biosciences Corporation, not Armata Pharmaceuticals, Inc. The company was developing bacteriophage therapies and had no product sales.
Financial results and position
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $29,000 | $143,000 | $238,000 | $347,000 |
| Research and development expense | $1.655 million | $728,000 | $4.876 million | $2.777 million |
| General and administrative expense | $1.781 million | $1.843 million | $6.876 million | $4.857 million |
| Operating loss | $3.407 million | $2.428 million | $11.514 million | $7.287 million |
| Net income (loss) | $(2.375) million | $5.439 million | $(9.338) million | $1.715 million |
| Net loss attributable to common stockholders | $(3.589) million | $(1.724) million | $(14.776) million | $(7.614) million |
| Basic loss per share | $(0.32) | $(0.30) | $(1.72) | $(1.45) |
Revenue was primarily from the former gene-therapy program and the Takara license. The company reported no product revenue. Gross margin is not presented in the filing and is not meaningful as a key operating measure given the minimal revenue.
Net cash used in operations was $9.108 million for the first nine months of 2016, versus $7.464 million in 2015. Investing activities used $266,000; financing provided $3.971 million, principally from the June 2016 equity offering. Cash fell to $3.967 million from $9.370 million at December 31, 2015.
At September 30, 2016, current assets were $4.561 million and current liabilities were $3.154 million. Total liabilities were $7.808 million; the balance sheet reported no interest-bearing debt. Stockholders’ equity was $18.228 million. Accumulated deficit was $371.860 million.
Changes and significant transactions
- Operating expenses rose year over year: nine-month R&D increased $2.099 million, and G&A increased $2.019 million, including substantially higher executive stock-based compensation.
- Derivative fair-value gains were $1.032 million in Q3 2016 and $2.403 million for the first nine months, compared with $7.738 million and $9.304 million in the respective 2015 periods. These non-cash gains affected reported net results; 2015 net income did not reflect operating profitability.
- All Series B preferred shares converted into common stock in April 2016. The conversion and related consideration produced a $3.580 million nine-month charge to common stockholders’ results; the company also issued shares and amended certain warrants.
- A June 2016 public offering raised $5.0 million gross and approximately $4.2 million net through common shares and warrants. The offering triggered anti-dilution rights under the Common Stock Issuance Agreement; 750,206 additional shares were issued, with further issuances potentially required in future below-threshold financings.
- The company recorded a $409,000 in-process R&D expense for assets acquired from Novolytics. It terminated its Intrexon collaboration effective July 12, 2016 without an early-termination penalty.
- The filing identifies an immaterial error in the fair-value assumptions for a financing derivative in prior 2016 interim periods; the correction is reflected in the September 2016 statements.
Outlook, risks and unusual items
- Management said existing resources were expected to fund planned operations only through the end of 2016. The filing states that recurring losses, negative operating cash flows and limited cash raised substantial doubt about the company’s ability to continue as a going concern. Additional funding would be required, with no assurance it could be obtained on acceptable terms.
- Management expected Q4 2016 R&D and G&A expenses to remain relatively flat versus Q3, while R&D could rise later as studies, trials and discovery work advance. The company expected significant losses to continue and no near-term product revenue.
- In October 2016, after quarter-end, the company received an Australian R&D tax incentive payment of approximately $0.9 million, to be recorded as a reduction of R&D expense in Q4.
- Management reported topline Phase 1 AB-SA01 results: the chronic-rhinosinusitis trial reported good tolerability and no drug-related serious adverse events; S. aureus eradication occurred in two of three patients in Cohort 2 and none in Cohort 1. A separate 12-person topical healthy-volunteer study also reported good tolerability and no drug-related serious adverse events. Complete reports were expected by year-end 2016.
- A principal stockholder sued the company and current directors, alleging wrongful conduct around the Series B conversion and breach of fiduciary duties. The complaint sought unspecified damages; management intended to defend the case and could not estimate a potential loss.
- Disclosure controls were deemed ineffective because of an existing material weakness in controls over complex and non-routine transactions and earnings-per-share accounting. Remediation efforts were ongoing.
- Key business risks include the early-stage nature of phage therapeutics, clinical and regulatory uncertainty, manufacturing scale-up and compliance, financing and dilution risk, litigation, and reliance on third parties.
Important facts for investors to verify
- Confirm the issuer identity: this filing names AmpliPhi Biosciences Corporation, although the request metadata identifies Armata Pharmaceuticals, Inc.
- Verify current cash runway and subsequent financing, including the effect of the October $0.9 million tax incentive and any post-quarter developments.
- Review the going-concern disclosure, financing alternatives, potential equity dilution, and the CSIA’s remaining share-issuance obligations.
- Assess the complete AB-SA01 clinical reports and subsequent development, regulatory and manufacturing milestones.
- Review the NRM litigation status and any later estimate or disclosure of potential exposure.
- Check remediation of the material weakness and the company’s treatment of derivative valuations and per-share results.