AIM Immunotech Inc. (then Hemispherx Biopharma, Inc.) — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. The company was a clinical-stage specialty pharmaceutical business developing Ampligen and Alferon products. Its only reported revenue was from an Ampligen open-label patient cost-recovery program; it reported no commercial Alferon sales.
Financial performance and liquidity
| Metric | Q1 2016 | Q1 2015 / comparison |
|---|---|---|
| Revenue | $39,000 | $36,000 |
| Operating loss | $3.679 million | $4.923 million |
| Net loss | $2.164 million | $3.445 million |
| Basic and diluted loss per share | $0.01 | $0.02 |
| Net cash used in operating activities | $1.043 million | $4.257 million |
| Cash and cash equivalents, March 31 | $1.013 million | $2.942 million at March 31, 2015 |
| Marketable securities, March 31 | $6.836 million | — |
- Total cash, cash equivalents and marketable securities were $7.849 million at March 31, down about $1.061 million from December 31, 2015. Current assets were $9.538 million; current liabilities were $3.092 million.
- Total assets were $21.500 million and stockholders’ equity was $18.408 million. The balance sheet showed no material funded debt; the current capital-lease balance was zero.
- Production costs were $268,000, research and development expense $1.002 million, and general and administrative expense $2.448 million. The filing does not present a conventional product gross margin that is meaningful given the very low revenue and absence of commercial sales.
- The $1.561 million gain from selling New Jersey tax attributes materially reduced the reported net loss. The company reported selling $16 million of New Jersey net operating losses and research credits for approximately $1.561 million in total.
Changes versus the prior comparable period
- Net loss decreased by $1.281 million, or 37%, year over year. Management attributed the improvement principally to a $1.672 million reduction in R&D expense, lower production costs, and a higher tax-attribute sale gain.
- G&A expense increased $535,000, or 28%, mainly due to a one-time executive severance charge. The company also recorded a $107,000 realized loss on marketable securities, while interest and other income fell $45,000.
- Operating cash use declined substantially, reflecting lower spending and prior-year payments for executive bonuses and work-in-process inventory. The cash-flow statement reports $1.043 million of operating cash use, although MD&A cites approximately $1.003 million; this difference is not reconciled in the filing text.
- Weighted-average shares increased to 247.6 million from 213.6 million. The company sold 12,400 shares under its ATM program for approximately $2,000 net proceeds in Q1 2016, compared with $5.242 million net proceeds from equity sales in Q1 2015.
Outlook, management commentary and principal risks
- Management described a financial austerity plan, executive leadership changes, efforts to pursue international opportunities, and a focus on finding senior co-development partners. It gave no specific revenue, earnings, cash-flow or commercialization guidance.
- The company said additional funding would likely be needed, including to repair and revalidate its New Jersey manufacturing facility and pursue development programs. It cautioned that financing may not be available on acceptable terms; further equity financing could dilute shareholders.
- A January 5, 2016 flood damaged the upstream-processing cleanroom containing the bioreactor. Manufacturing was on hold with no definitive timetable to restore operations, and the company anticipated needing additional funds for repairs and revalidation. Commercial Alferon sales depend on production, FDA inspection and release approvals.
- The FDA had declined to approve the Ampligen CFS application in 2013 and requested at least one additional clinical trial, nonclinical studies and further analyses. Management said the cost and timing of additional work exceeded current financial resources without new funding; estimated trial completion, if the design were accepted, was approximately 18 months to three years.
- NYSE MKT notified the company on March 15 that its share price did not meet continued-listing standards. It had until September 15, 2016 to demonstrate compliance and planned to seek shareholder approval for a reverse stock split at an anticipated August 17 annual meeting.
- Other material uncertainties include regulatory approval and manufacturing risks, limited suppliers and third-party manufacturing capacity, dependence on collaborators and distributors, product-development and commercialization uncertainty, and ongoing shareholder litigation. The securities class-action settlement had received final court approval; several derivative matters had settlement agreements or agreements in principle awaiting court approval. The filing states that the financial impact of remaining proceedings was uncertain.
- After quarter-end, the company executed a consulting agreement with Huron Consulting Group on April 20, 2016. It also reported subsequent settlement developments in shareholder litigation. These events were not adjustments to the March 31 financial statements.
Most important facts for investors to verify
- Current cash burn and runway, including the discrepancy between the cash-flow statement’s $1.043 million operating cash use and MD&A’s approximately $1.003 million figure.
- Repair costs, funding sources and timetable to restore the manufacturing facility, complete FDA inspection and resume Alferon production and sales.
- Funding and partner prospects for Ampligen trials and the additional work required by the FDA; no approved commercial indication for Ampligen was reported.
- NYSE MKT compliance progress, shareholder action on the proposed reverse split and potential effects on access to capital.
- Final court approval and financial terms, if any, of derivative-litigation settlements, and resolution of the former CEO’s claim and other contingencies.