Business context and reporting period
This is Hemispherx Biopharma, Inc.’s Form 10-K for the fiscal year ended December 31, 2013, filed March 14, 2014. The filing identifies the registrant as Hemispherx Biopharma—not AIM Immunotech. The company was a development-stage specialty pharmaceutical business focused on Ampligen, an investigational therapy, and Alferon products. Alferon N Injection was approved for a limited genital-warts indication, but U.S. commercial sales were halted.
Financial performance and condition
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $150,000 | $213,000 |
| Total costs and expenses | $17.317 million | $20.553 million |
| Operating loss | $17.167 million | $20.340 million |
| Net loss | $16.225 million | $17.354 million |
| Net loss per share | $0.10 | $0.12 |
| Cash used in operating activities | $16.830 million | $13.136 million |
- Revenue was primarily from the FDA-authorized Ampligen cost-recovery treatment program; the company reported no Alferon finished-goods inventory available for commercial sale. Revenue was immaterial relative to expenses, so operating margins are not meaningfully informative.
- At year-end, cash and cash equivalents were $803,000 and unrestricted marketable securities were $17.391 million, totaling $18.194 million. This was down $25.759 million from year-end 2012, when cash and unrestricted and restricted marketable securities totaled $43.953 million.
- Working capital was $16.020 million; current assets were $18.552 million and current liabilities $2.532 million. Stockholders’ equity was $29.298 million, down from $44.700 million.
- The $7.051 million margin-account loan was fully repaid in October 2013 using about half of restricted marketable securities. Year-end debt consisted of capital leases totaling approximately $56,000; the filing reports no margin loan outstanding.
- Capital expenditures were $898,000. Construction in progress at the New Brunswick facility was $7.046 million.
Material changes versus the prior comparable period
- Net loss narrowed by $1.129 million, or about 7%, from 2012, principally due to lower research and development, general and administrative, and production costs. These improvements were partly offset by an $800,000 marketable-securities impairment, lower income from investments, and lower proceeds from sales of New Jersey tax-loss carryforwards.
- Operating cash use increased $3.694 million, or 28%, to $16.830 million, despite the lower net loss. The company cited bonus payments and increased payments of accounts payable among the drivers.
- Revenue declined $63,000, or 30%, as participation in the Ampligen cost-recovery program fell.
- Research and development expense decreased 12% to $8.360 million; general and administrative expense decreased 15% to $7.723 million. Legal fees rose by approximately $525,000 amid pending litigation.
- Marketable securities fell substantially, reflecting their use to repay the margin loan and fund operations; the company also recorded an $800,000 impairment loss.
Outlook, risks, contingencies and unusual items
- Ampligen regulatory setback: The FDA issued a Complete Response Letter on February 1, 2013, declining to approve the CFS application. The FDA requested at least one additional clinical trial, nonclinical studies, data analyses, and stronger control of manufacturing and lot variation. The company estimated a new well-controlled trial could take 18 months to three years after design acceptance, but said the work was beyond its available financial resources without additional funding. It could not estimate costs or timing.
- Alferon restart remains uncertain: Older work-in-process inventory was written off after the company concluded it could not resolve FDA concerns. New production depended on completion and validation of facility upgrades, FDA reaffirmation of the facility’s status, inspection, and product release approval. The company estimated newly produced API might be ready for FDA review in the second half of 2014 or approximately 18 months after the relevant production steps; commercial sales were not assured.
- Financing and dilution: Management said additional financing would likely be needed for development and commercialization. A $75 million at-the-market equity program was available, but the company cautioned that funding might be insufficient or unavailable and that share issuance could dilute investors. From January 1 through March 1, 2014, it sold approximately 10.65 million shares for net proceeds of approximately $4.788 million.
- Other development programs: Ampligen nasal-adjuvant influenza study enrollment was to expand in 2014 after safety review. Alferon LDO’s Phase II study remained delayed. The Alferon influenza study in India was discontinued; the ovarian-cancer study at the University of Pennsylvania was suspended and was unlikely to continue. These programs remained experimental.
- Litigation: The company disclosed securities and shareholder derivative suits, a CFO severance and wage dispute, and other commercial disputes. It recorded no gain or loss contingencies for the identified matters and could not estimate outcomes. A March 2014 jury verdict favored the company in the MidSouth case, but appeal or retrial remained possible. The company also reported an unrecorded $188 million judgment against Johannesburg Consolidated Investments; collection depended on South African proceedings.
- Other unusual items: The company sold New Jersey tax-loss carryforwards for $686,000 in 2013. A further sale for approximately $1.126 million occurred in February 2014. The 2013 redeemable-warrant valuation adjustment was a noncash gain of $281,000. The company reported an accumulated deficit of $260.319 million and said it had not reported net income since 1987.
- Management reported effective disclosure controls and internal control over financial reporting, with no material weaknesses identified. The independent auditor gave an unqualified opinion on the financial statements.
Important facts investors should verify
- Confirm the issuer and filing: the document is Hemispherx Biopharma’s 2013 10-K, despite the request metadata naming AIM Immunotech.
- Review the FDA’s specific Ampligen requirements, the design and funding status of any proposed additional trial, and whether the FDA has provided further direction.
- Track New Brunswick facility validation, inspections, Alferon production, and any FDA release decisions before assuming commercial sales can resume.
- Assess cash burn against available cash and securities, subsequent ATM proceeds, remaining share-issuance capacity, and potential dilution.
- Monitor the securities, derivative, employment, and commercial litigation, including possible outcomes and effects not accrued in the financial statements.