Filing summary
Entity and period: The supplied filing is AmpliPhi Biosciences Corporation’s unaudited Form 10-Q for the quarter and six months ended June 30, 2014—not a filing under the name Armata Pharmaceuticals, Inc. The filing describes AmpliPhi as a development-stage biotechnology company focused on bacteriophage therapeutics.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $310,000 | $314,000 | $310,000 | $336,000 |
| Research and development | $1.876 million | $3.721 million | $2.883 million | $4.272 million |
| General and administrative | $2.151 million | $2.875 million | $3.745 million | $3.566 million |
| Operating loss | $3.717 million | $6.282 million | $6.318 million | $7.502 million |
| Net income (loss) | $15.403 million | $(12.813) million | $3.374 million | $(14.432) million |
| Basic earnings (loss) per share | $0.08 | $(0.14) | $0.02 | $(0.18) |
Revenue came from sublicensing arrangements related to the company’s former gene-therapy program; the filing reports no product revenue. Gross margin is not presented. The reported net income chiefly reflects a noncash $19.1 million gain from remeasuring derivative liabilities in Q2; it does not indicate operating profitability.
- Cash and liquidity: Cash and cash equivalents were $12.55 million at June 30, 2014, down from $20.355 million at December 31, 2013. Current assets were $12.983 million and current liabilities $1.366 million.
- Cash flow: Six-month operating cash use was $6.725 million, investing cash use $1.060 million, and financing cash flow zero. Cash declined $7.805 million during the period.
- Debt and liabilities: The balance sheet reports no conventional debt balance; the filing says outstanding convertible notes had been converted previously. Long-term liabilities were $38.917 million, mainly derivative preferred-share conversion and warrant liabilities. Total liabilities were $40.283 million, exceeding total assets of $31.262 million; stockholders’ deficit was $9.021 million.
- Share count: 187.159 million common shares were outstanding at June 30, 2014; 187.159 million were reported outstanding on August 7, 2014. The filing also reports 38.890 million warrants and substantial options and other reserved shares.
Changes versus prior period
- Q2 revenue was nearly unchanged year over year; six-month revenue declined $26,000, attributed to lower grant revenue.
- Reported R&D expense fell year over year, but 2013 included a one-time, noncash $3.0 million technology-access fee. Excluding that fee, management said R&D expense increased $1.2 million for Q2 and $1.6 million for the first half, reflecting increased discovery, laboratory, nonclinical, collaboration and clinical-planning costs.
- Q2 G&A declined by $724,000, primarily because of 2013 Series B placement fees. First-half G&A rose by $179,000, with higher public-company legal and staffing costs partly offset by lower placement fees.
- The company reported positive net income versus a loss in the comparable periods, driven by the derivative-liability gain. The six-month operating loss narrowed, while operating cash use increased from $2.431 million to $6.725 million.
Outlook, risks and unusual items
- Management estimated that available resources would fund operations only into the first quarter of 2015. It expected 2014 cash requirements of $15 million to $17 million and said additional capital or debt would be needed; financing availability and terms were uncertain.
- The filing states that recurring losses, negative operating cash flows and a $374.7 million accumulated deficit raise substantial doubt about the company’s ability to continue as a going concern. Without financing, possible responses included cost reductions, reduced development activity, asset or technology sales, or cessation of operations.
- Management expected R&D spending to increase as it prepared for clinical trials and continued discovery work, and expected higher G&A costs associated with operating as a public company. The filing does not provide numerical revenue or earnings guidance.
- AmpliPhi identified AmpliPhage-002 (MRSA), AmpliPhage-001 (P. aeruginosa lung infections in cystic fibrosis patients) and AmpliPhage-004 (C. difficile) as development candidates. It expected no product revenue in the near term.
- Q2 G&A included $190,000 in accrued penalties related to a registration statement not becoming effective within the prescribed period after the December financing. Fair-value derivative remeasurement produced large, potentially volatile noncash gains or losses.
- The company reported no legal proceeding it believed would have a material adverse effect and no material change to its previously disclosed risk factors.
Important facts for investors to verify
- Confirm the issuer: the supplied 10-Q is for AmpliPhi Biosciences Corporation, while the request names Armata Pharmaceuticals, Inc.
- Review the going-concern disclosure, cash runway assumptions, and whether subsequent financing was obtained.
- Distinguish operating performance and cash burn from reported net income, which was materially affected by noncash derivative valuation changes.
- Assess potential dilution from preferred shares, warrants, options and other reserved shares, including the terms of their conversion or exercise.
- Check development and clinical-trial progress, funding requirements, and any changes to candidate programs or anticipated spending.