Actinium Pharmaceuticals, Inc. — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014. The interim financial statements are unaudited. Actinium is a development-stage biotechnology company with no commercial revenue; its candidates remain in development.
Business context
The company develops targeted cancer therapies, including Actimab-A for acute myeloid leukemia (AML) and Iomab-B for patients undergoing hematopoietic stem cell transplantation. It reported four candidates in active clinical trials, but said it was actively pursuing Actimab-A and Iomab-B. Actinium began trading on NYSE MKT on March 26, 2014.
Financial results and liquidity
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $0 | $0 |
| Research and development expense | $2.46 million | $1.09 million |
| General and administrative expense | $1.68 million | $0.93 million |
| Operating loss | $4.14 million | $2.02 million |
| Net loss | $16.70 million | $0.69 million |
| Net loss per share, basic and diluted | $0.66 | $0.03 |
| Cash used in operating activities | $2.49 million | $2.31 million |
- Cash and cash equivalents were $5.88 million at March 31, up from $5.53 million at December 31, 2013. Cash increased $0.34 million during the quarter, supported by $2.84 million of net financing cash flow; net investing cash use was $1,699.
- Current assets were $6.55 million and current liabilities $20.03 million. Current liabilities included $19.13 million of derivative liabilities. Notes payable were $94,481, related to financing the directors’ and officers’ insurance premium.
- Stockholders’ deficit was $13.47 million, and accumulated development-stage deficit was $83.22 million. The filing gives no formal cash runway estimate.
Changes versus the prior comparable period
- R&D expense rose about $1.38 million, principally due to the Actimab-A multicenter trial, BC8 manufacturing for Iomab-B, and development and regulatory work. Management expected R&D spending to increase further.
- G&A expense increased about $0.74 million, reflecting professional fees associated with the NYSE MKT listing, added personnel, and higher stock-based compensation. Management also expected G&A costs to rise.
- Net loss increased by about $16.01 million. The main driver was a $12.56 million noncash loss from the change in fair value of derivative liabilities, compared with a $1.33 million gain in Q1 2013; higher operating expenses also contributed.
- Operating cash use rose about $0.18 million year over year. The company reported $2.87 million of net proceeds from stock sales in Q1 2014, compared with no stock-sale proceeds in Q1 2013.
Outlook, risks and unusual items
- Management intends to finance operations through equity and/or debt. In January, the company completed a private-placement tranche issuing 551,810 shares at $6.00 each and warrants for 137,952 shares at $9.00; it received $3.31 million gross proceeds. Total gross proceeds from the offering were reported as $6.64 million.
- A shelf registration statement became effective April 17, 2014, covering up to $200 million of securities and a sales-agreement offering of up to $75 million of common stock. The filing reports 500 shares sold under that agreement; a subsequent-event note says the April 28 sale produced $6,000 net.
- Actinium estimated direct costs of approximately $7 million to complete both parts of the ongoing Actimab-A Phase I/II trial and $15–20 million to complete an anticipated Iomab-B pivotal trial, with completion anticipated in 2015. These are estimates, not assurances of completion or approval.
- Key disclosed risks include clinical-trial results and regulatory approval, continued access to collaborators and antibody rights, supply of actinium-225 and other materials, manufacturing capability, intellectual-property protection, and the need for additional capital. The company said it planned to continue increasing R&D investment and incur further losses.
- Derivative liabilities were valued using Level 3 inputs and a modified binomial model. Their fair value increased from $6.71 million at year-end to $19.13 million at March 31; management attributed the change mainly to fluctuations in the company’s stock price.
- Disclosure controls and procedures were concluded to be ineffective as of March 31, 2014, due to material weaknesses previously reported in the 2013 Form 10-K. The filing says no material change in internal control occurred during the quarter.
- Related-party amounts payable to MSKCC were $189,537 at March 31. A new manufacturing agreement for Iomab-B antibody production had a total cost of $2.81 million; approximately $2.08 million remained at quarter-end.
Important facts for investors to verify
- Clinical-trial progress, costs, enrollment, and regulatory plans for Actimab-A and Iomab-B, including the assumptions behind the stated trial cost estimates.
- Cash burn, future financing needs, and the terms and actual use of the shelf and sales-agreement facilities.
- The valuation assumptions and potential share-price sensitivity of the $19.13 million Level 3 derivative liability.
- Remediation of the disclosed material weaknesses and improvement in disclosure controls.
- Share-count reconciliation: the balance sheet reports 25,562,346 shares outstanding at March 31, while the cover reports 25,562,846 as of May 9, 2014.