AIM Immunotech Inc. (formerly Hemispherx Biopharma, Inc.) — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing was signed March 18, 2013. Financial amounts below are in U.S. dollars; statements generally present figures in thousands unless stated otherwise.
Business context
The company was a development-stage specialty pharmaceutical business focused on immune-based therapies. Its principal programs were experimental Ampligen for chronic fatigue syndrome (CFS) and other potential uses; Alferon N Injection, FDA-approved for certain refractory or recurring genital warts but unavailable for commercial sale; and experimental oral Alferon LDO for influenza. 2012 revenue came solely from the Ampligen cost-recovery treatment program, not commercial product sales.
Key financial metrics
| Metric | 2012 | 2011 |
|---|---|---|
| Revenue | $213,000 | $161,000 |
| Total costs and expenses | $20.553 million | $14.456 million |
| Operating loss | $20.340 million | $14.295 million |
| Net loss | $17.354 million | $9.015 million |
| Net loss per share | $0.12 | $0.07 |
| Cash used in operating activities | $13.136 million | $10.096 million |
| Capital expenditures | $5.755 million | $1.802 million |
| Cash and cash equivalents | $2.212 million | $3.103 million |
| Marketable securities, restricted and unrestricted | $41.741 million | $31.288 million |
| Working capital | $32.079 million | $26.717 million |
| Margin account loan | $7.051 million | $1.695 million |
Cash, cash equivalents and marketable securities totaled $43.953 million, including $14.5 million of securities pledged as collateral. Current assets were $44.728 million and current liabilities were $12.649 million. The margin loan financed facility improvements, carried an effective rate of 2.50% at year-end, and was secured by restricted securities. Total liabilities were $12.999 million; stockholders’ equity was $44.700 million.
Revenue remained immaterial relative to spending: the company reported only $213,000 of revenue against $20.553 million in costs and expenses. No meaningful operating margin was reported; the business recorded a $20.340 million operating loss.
Changes versus 2011
- Net loss increased 93%, to $17.354 million. Research and development rose 41% to $9.508 million, while general and administrative expense rose 35% to $9.056 million.
- Research spending increased principally because of Ampligen NDA work and manufacturing-inspection preparation. Production costs rose 91% to $1.989 million, including a roughly $1.023 million Alferon inventory write-down.
- Revenue increased 32%, reflecting 45 cost-recovery program patients versus 36 in 2011; the company still had no commercial Alferon sales.
- Operating cash use increased 30%. Capital expenditures more than tripled as the New Brunswick facility project advanced.
- Interest and other income increased to $1.597 million from $624,000. The company received $1.328 million from selling New Jersey tax-loss carryforwards, versus $2.272 million in 2011; the smaller proceeds negatively affected the year-over-year comparison.
- The noncash gain from redeemable-warrant revaluation fell to $85,000 from $2.425 million, contributing to the larger reported net loss.
- Equity financing generated $23.003 million net proceeds through the Maxim at-the-market program, with approximately 29.5 million shares sold during 2012. Shares outstanding rose from 135.6 million at year-end 2011 to 166.5 million at year-end 2012.
Outlook, risks and unusual items
- Ampligen regulatory setback: On February 1, 2013, the FDA issued a Complete Response Letter declining to approve the CFS application. It requested at least one additional clinical trial, nonclinical studies, further analyses, carcinogenicity testing in two species, and tighter manufacturing controls. The FDA cited insufficient substantial evidence of efficacy, limited safety data, and discrepancies in submitted data. Management planned an end-of-review meeting and would consider a formal appeal; approval timing and costs were uncertain.
- Management estimated that an accepted new controlled trial could take approximately 18 months to three years. It stated that the likely trial and related work would exceed current financial resources without additional funding.
- Alferon availability: Commercial sales had been halted since 2008 after finished inventory expired. Existing work-in-process had been filled and finished but still required validation, stability testing and FDA review. New production was dependent on completion and validation of facility upgrades and FDA reaffirmation of the BLA; the company anticipated newly produced commercial inventory no earlier than the second half of 2014, subject to approvals.
- The New Brunswick facility project had a $7.2 million approved budget, with approximately $7.051 million spent by year-end. Construction was complete, but validation and regulatory acceptance remained necessary. The company gave no assurance that the facility would pass FDA inspection.
- The company had yet to generate significant product revenue, reported an accumulated deficit of $244.094 million, and warned it might need additional financing. It had a $75 million equity distribution agreement, but future proceeds were uncertain and further equity issuance could dilute shareholders. A new Ampligen trial could require financing beyond available resources.
- Other material risks included manufacturing and supplier constraints, competition, product-liability exposure, patent uncertainty, and reimbursement uncertainty. Several securities, derivative and financing-related lawsuits were pending; outcomes and potential losses were not estimable. The company recorded no gain or loss contingency for these cases. A $188 million judgment against Johannesburg Consolidated Investments was being pursued in South Africa; no gain was recorded because collection was uncertain.
- Unusual compensation included approximately $1.159 million each paid or granted to the CEO and General Counsel under contractual provisions tied to net proceeds from ATM share sales. A $1.023 million inventory reserve and the $1.328 million tax-loss sale also materially affected reported results.
- Management reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Investor facts to verify
- Current FDA requirements and the cost, design, funding plan and timeline for any further Ampligen trial and related nonclinical work.
- Whether Ampligen manufacturing controls and facility readiness meet FDA requirements, and whether the existing Alferon inventory or newly produced batches receive release approval.
- Unrestricted liquidity and cash runway, including the portion of securities pledged as collateral, operating cash burn, and the margin loan’s repayment terms.
- Subsequent equity issuance, remaining ATM capacity, share-count growth and the resulting dilution.
- Developments and potential financial exposure in the securities, shareholder derivative, Cato Capital and MidSouth litigation, as well as collectability of the South African judgment.