PharmAthene, Inc. — Form 10-Q summary
Issuer discrepancy: The request identifies Altimmune, Inc., but the supplied filing is for PharmAthene, Inc. This summary reflects the filing provided. The unaudited reporting period ended September 30, 2011; comparisons are with the corresponding 2010 periods or December 31, 2010, as applicable.
Business context
PharmAthene was a biodefense company developing medical countermeasures, including SparVax anthrax vaccine, Valortim anthrax antibody, and recombinant butyrylcholinesterase (rBChE) for nerve-agent exposure. Revenue was primarily from U.S. government development contracts and grants; the company had no commercial products. The filing also reports a Court of Chancery award of a contingent 50% interest in certain future ST-246 profits.
Financial results and liquidity
| Metric | Three months ended Sep. 30, 2011 | Three months ended Sep. 30, 2010 | Nine months ended Sep. 30, 2011 | Nine months ended Sep. 30, 2010 |
|---|---|---|---|---|
| Contract revenue | $5.26 million | $6.24 million | $18.03 million | $14.14 million |
| Operating expenses | $8.28 million | $9.61 million | $28.67 million | $30.45 million |
| Operating loss | $3.02 million | $3.36 million | $10.64 million | $16.31 million |
| Net loss | $0.03 million | $4.33 million | $4.55 million | $18.67 million |
| Basic and diluted loss per share | $0.00 | $0.14 | $0.10 | $0.62 |
Quarterly net loss was nearly offset by a $2.90 million noncash gain from the change in fair value of warrant-related derivative liabilities. For the nine-month period, that gain was $6.08 million. These gains improved reported net results but were not operating cash inflows. The filing does not present a gross-profit measure or operating margin.
- Cash and cash equivalents: $10.41 million at September 30, 2011, down from $11.79 million at December 31, 2010. Restricted cash was an additional $0.10 million.
- Cash flow, nine months: $7.00 million used in operations, $0.07 million used in investing, and $5.75 million provided by financing. Financing included approximately $5.8 million of net proceeds from a June stock-and-warrant offering.
- Balance sheet: Total assets were $21.64 million; current assets were $18.34 million and current liabilities were $3.69 million. Total liabilities were $7.10 million, including $2.96 million of derivative liabilities. No outstanding debt is listed on the balance sheet; the filing says the 10% convertible notes had been converted or repaid in 2010.
- Commitments: Contractual obligations totaled $12.13 million, including $7.60 million under research and development agreements and $4.53 million in operating leases.
Material changes versus comparable periods
- Third-quarter revenue declined about 16% year over year, while nine-month revenue increased about 27%. SparVax work drove much of the nine-month increase, including scale-up activities and technical milestones. Valortim revenue also rose, while Protexia revenue largely ended after completion of its development work.
- Operating expenses declined in both comparison periods. Lower nerve-agent program costs following Protexia’s completion and lower nine-month general and administrative expense contributed to the decrease; increased SparVax activity partly offset lower research costs.
- Net loss improved substantially, but the result was materially affected by the noncash revaluation gain on warrant liabilities. The derivative liability fell from $8.36 million at year-end 2010 to $2.96 million at September 30, 2011, primarily as PharmAthene’s share price declined.
- Cash declined despite the June equity financing, with $7.00 million of operating cash used in the first nine months.
Outlook, risks and unusual items
- Management said additional financing would be needed before the end of the third quarter of 2012. The company had a history of operating losses and negative operating cash flow, and warned that future financing or government contract funding might not be available on acceptable terms or at all. The statements were prepared on a going-concern basis.
- Funding for Valortim was uncertain: its current government contract funding was scheduled to end in January 2012, and BARDA had indicated it did not expect to fund further work during the government fiscal year ending September 30, 2012.
- The September 2011 court opinion awarded PharmAthene 50% of net profits from ST-246 and related products for 10 years, after SIGA first earns $40 million in net profits, plus one-third of reasonable legal and expert fees. SIGA’s motion for re-argument was pending; a final judgment and possible appeal remained. No value for this contingent award is reflected as realized revenue in the presented results.
- SIGA’s ST-246 deliveries, regulatory approval, production schedule, sales, and profitability were uncertain. PharmAthene stated it had no firsthand information about ST-246 margins. Competing products, including candidates being developed by Chimerix, were also a risk.
- Other principal risks included dependence on government customers and funding, product safety and efficacy, regulatory approval, manufacturing scale-up and validation, competition, and the outcome of clinical and nonclinical development. Government contract payments were subject to audit; management did not expect audit adjustments to be material.
- The Canadian production facility had closed in 2010 after completion of the Protexia contract. Assets held for sale were $0.98 million at September 30, 2011; management anticipated a sale within one year.
Most important facts for investors to verify
- Confirm the issuer: the supplied filing is PharmAthene, not Altimmune, and covers the quarter ended September 30, 2011.
- Check the status and final terms of the SIGA litigation, including any re-argument, appeal, and whether ST-246 generates qualifying profits or payments.
- Assess cash runway, financing needs, and any subsequent funding or government contract awards, especially for Valortim and the broader development programs.
- Separate operating performance and cash burn from noncash warrant revaluation gains when evaluating reported net results.
- Review subsequent developments in government funding, product development, regulatory and manufacturing milestones, and the sale of Canadian assets.