Business context and reporting period
This is Hemispherx Biopharma, Inc.’s Form 10-K for the fiscal year ended December 31, 2018; the request identifies the company as AIM ImmunoTech. The company focused on developing Ampligen (rintatolimod) and Alferon N Injection. Ampligen was approved for severe ME/CFS in Argentina but remained investigational in the United States. Alferon was FDA-approved for genital warts, but commercial sales were halted because the company lacked released finished inventory.
Financial performance and liquidity
| Metric | 2018 | 2017 |
|---|---|---|
| Revenue | $367,000 | $437,000 |
| Operating loss | $11.496 million | $11.416 million |
| Net loss | $9.813 million | $8.259 million |
| Net loss per share | $0.22 | $0.29 |
| Research and development expense | $4.778 million | $4.098 million |
| Cash used in operations | $10.640 million | $7.941 million |
- Revenue consisted of Ampligen cost-recovery clinical treatment programs; the filing reports no Alferon finished-goods sales. Production costs were $884,000, exceeding revenue; the filing does not report a conventional product gross margin.
- At year-end, cash and cash equivalents were $299,000 and marketable securities were $1.526 million. Current assets were $3.799 million versus current liabilities of $5.292 million, a working-capital deficit of approximately $1.493 million.
- Year-end liabilities included a $3.408 million convertible note and a $2.517 million sale-leaseback financing obligation, of which $199,000 was current. The prior mortgage note was repaid in March 2018.
- Net loss increased 19% year over year. Drivers included higher R&D and financing costs, a smaller noncash warrant revaluation gain, and a $582,000 convertible-note fair-value loss. Offsets included lower G&A, a $474,000 litigation settlement gain, a $223,000 building-sale gain, and an $859,000 gain on sale of state tax losses.
- Common shares outstanding rose from 32.9 million at year-end 2017 to 48.7 million at year-end 2018. The filing reports 62.3 million outstanding as of March 22, 2019.
Material changes versus the prior comparable period
- Revenue declined $70,000, or 16%, which the company attributed primarily to Ampligen unavailability for the Netherlands pancreatic-cancer access program.
- Operating cash use increased $2.699 million. The company cited the timing of proceeds from New Jersey tax-loss sales and approximately $1.5 million spent on Ampligen polymer manufacturing.
- The company sold its New Brunswick manufacturing facility for $4.08 million and leased it back, recording the arrangement as financing rather than a sale. It also sold an unused neighboring property for $1.05 million.
- Equity financing and warrant exercises funded operations, but increased the share count. In 2018, common-stock proceeds were $5.070 million and warrant exercises generated $1.260 million.
Outlook, risks, contingencies, and unusual items
- Management planned to pursue Ampligen development and commercialization, including oncology trials and a potential Argentine launch; five additional oncology trials were planned for 2019 subject to funding. The filing provides no revenue or earnings guidance.
- Ampligen’s U.S. CFS NDA received an FDA Complete Response Letter in 2013 citing insufficient efficacy evidence and safety-database concerns; additional clinical and nonclinical work was requested. U.S. approval and timing remain uncertain.
- Two commercial-size Ampligen batches totaling more than 16,000 vials were released for human use. Alferon manufacturing remained on hold, with no definitive restart timetable; the company estimated approximately $10 million would be needed to resume manufacturing and prepare for FDA inspection.
- The company reported 40 pancreatic-cancer patients treated through the Netherlands early-access program. It described survival observations and quality-of-life reports, but these are access-program results and do not establish efficacy; controlled-trial confirmation is needed.
- The company reported approximately $318.6 million in accumulated deficit and said it had not generated significant product revenue. It stated additional financing may be required and that failure to obtain funding could impair development, manufacturing, and continued operations. Management said it believed actions taken had alleviated substantial doubt about its ability to continue as a going concern.
- In March 2019, a rights offering raised approximately $4.69 million net, issuing preferred shares convertible into common stock and warrants. The convertible note maturity was extended to September 2020; revised conversion and redemption rates were to be agreed, with cash payment required if no agreement was reached.
- The NYSE American notified the company of a low-share-price listing deficiency, with compliance required by September 26, 2019 through sustained price improvement or a reverse split. A special shareholder meeting on a reverse split was anticipated.
- Contingencies included a company claim against Travelers for business-interruption losses from a 2016 flood, for which claimed losses exceeded the $4.5 million policy limit; the company filed suit in March 2019. BioLife counterclaimed $96,676 in a separate contract dispute. The company also recorded a $474,000 gain from settlement of its Nitto Avecia dispute.
Important facts for investors to verify
- Cash runway and subsequent cash usage, including the effect of the March 2019 rights offering and any further capital raises or dilution.
- Current terms, repayment choices, and potential share dilution under the amended convertible note and outstanding warrants and preferred securities.
- Progress, enrollment, results, funding, and regulatory status of Ampligen trials, and whether Argentina commercialization and reimbursement are achieved.
- Funding, inspection, validation, and timing required to restart Alferon production and resume sales.
- NYSE American listing compliance, the proposed reverse split, and the status and potential recovery of the Travelers business-interruption claim.