AIM ImmunoTech Inc. (then Hemispherx Biopharma, Inc.) — Form 10-Q
Reporting period: Quarter and six months ended June 30, 2017. Dollar figures are in thousands unless stated otherwise. The filing uses the former company name, Hemispherx Biopharma.
Business context
The company develops Ampligen (rintatolimod) and Alferon N Injection. Ampligen was approved for sale in Argentina but remained unapproved in the United States; Alferon was FDA-approved for a specific indication, but commercial sales were halted pending manufacturing work and FDA review. Reported revenue came from Ampligen patient-access and cost-recovery programs, not Alferon product sales.
Financial performance
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue, 2017 / 2016 | $213 / $15 | $297 / $54 |
| Operating loss, 2017 / 2016 | $(2,730) / $(2,814) | $(5,971) / $(6,493) |
| Net loss, 2017 / 2016 | $(2,193) / $(1,303) | $(5,014) / $(3,467) |
| Loss per share, 2017 / 2016 | $(0.08) / $(0.06) | $(0.19) / $(0.16) |
| R&D expense, 2017 / 2016 | $1,106 / $900 | $2,497 / $1,902 |
| G&A expense, 2017 / 2016 | $1,619 / $1,639 | $3,283 / $4,087 |
Production costs were $218 for the quarter and $488 for the six months, exceeding revenue in both periods; the filing does not report a gross margin. Revenue increased primarily from Ampligen access programs, including the Netherlands pancreatic-cancer program. The company reported no Alferon finished product available for commercial sale.
At June 30, cash and cash equivalents were $1,222 and marketable securities were $1,989, totaling $3,211. The company reported operating cash use of $5,301 for the six months, versus $2,292 in 2016; investing activities provided $1,483, and financing activities provided $2,632. Total assets were $16,108, current liabilities $2,743, and stockholders’ equity $10,332. The balance sheet included a $517 net note payable and a $2,516 redeemable-warrant liability. No conventional profitability or liquidity ratios are provided.
Changes versus prior comparable periods
- Second-quarter net loss increased $890 (68%) year over year. The 2017 period included a $529 noncash warrant-valuation gain, while 2016 included $1,436 of net insurance proceeds from a legal settlement; R&D expense increased $206.
- Six-month net loss increased $1,547 (45%). The comparison was affected by the absence in 2017 of a $1,561 gain from selling state tax attributes and $1,436 of insurance proceeds received in 2016. R&D rose $595, while G&A fell $804, mainly because 2016 included a one-time former-executive severance charge.
- Cash, cash equivalents and marketable securities declined $2,657 from December 31, 2016. Common shares outstanding rose from 24.2 million at year-end to 29.0 million at June 30, reflecting equity financings and other issuances.
Outlook, risks and unusual items
- Management said it had alleviated substantial doubt about continuing as a going concern through cost reductions, management changes, pursuing international sales, seeking co-development partners, selling an underused building and planning further equity-market access. The company nevertheless warned it may need additional financing, which may not be available.
- The May 2017 secured funding arrangement provides a potential line of up to $4 million, subject to lender approval and other terms. The note carries interest of at least 12%, is interest-only, and is secured by company property and assets. The June 30 balance was $606 before $89 of unamortized financing costs.
- The FDA’s 2013 Complete Response Letter for Ampligen called for at least one additional clinical trial, nonclinical studies and further data analyses. Management said trial scope, timing and cost could not yet be estimated; it estimated an accepted Phase III study might take 18 months to three years and stated that funding was beyond current resources.
- Alferon production remained on hold, with no definitive restart timetable. Resumption depends on funding, manufacturing validation, an FDA pre-approval inspection and release of satisfactory quality and stability data. Ampligen manufacturing and commercialization also depend on regulatory, manufacturing and funding milestones.
- The company was pursuing damages exceeding $650 from a contract-manufacturing dispute; the counterparty denied liability and asserted a counterclaim. The litigation was at an early stage.
- Management disclosed a material weakness in controls over recording certain redeemable-warrant exercises, which could affect equity and earnings accounts. It said it implemented a new control involving review by a third-party consultant.
- Warrant remeasurement produced a $923 gain for the six months, while the related liability increased from $940 at year-end to $2,516 at June 30, including new issuances and modification effects. The valuation used Level 3 assumptions.
- No numerical financial guidance was provided. The filing describes plans to seek partners, financing and regulatory progress but gives no assurance of commercialization or profitability.
Important facts for investors to verify
- Available liquidity, operating cash use and financing needs, including lender approval and availability of additional advances under the secured facility.
- Reconciliation of reported accumulated deficit: the balance sheet shows $306.022 million, while a note states $304.581 million.
- Cash-flow presentation: the cash-flow statement’s extracted operating-cash-flow figure appears as positive $5.301 million, while MD&A describes $5.301 million as cash used.
- Warrant exercise, modification and replacement-warrant terms and share counts; the filing contains differing descriptions of certain June exercises.
- Progress and funding for Ampligen trials and manufacturing, and the timing and feasibility of restarting Alferon production and obtaining required FDA clearances.
- Status and potential financial impact of the manufacturing litigation and remediation of the disclosed material weakness.