Business context and reporting period
This is AmpliPhi Biosciences Corporation’s unaudited Form 10-Q for the three months ended March 31, 2014. The filing describes a biotechnology company developing bacteriophage therapies, including candidates for P. aeruginosa lung infections in cystic fibrosis patients, MRSA infections, and C. difficile infections. The filing registrant is AmpliPhi Biosciences; it does not identify itself as Armata Pharmaceuticals.
Financial results and position
- Revenue: $0 in Q1 2014, compared with $22,000 of grant revenue in Q1 2013. The company reported no product revenue.
- Expenses and loss: R&D expense was $1.006 million, up from $551,000; general and administrative expense was $1.580 million, up from $684,000. Operating loss was $2.586 million, versus $1.213 million. Net loss was $10.144 million, versus $1.612 million; the 2014 loss included a $7.558 million loss on derivative liabilities. A $8.464 million deemed preferred-stock dividend brought net loss available to common stockholders to $18.608 million, or $0.10 per share, versus $0.02 per share in Q1 2013.
- Cash flow and liquidity: Operating cash use was $3.687 million, compared with $1.006 million; investing cash use was $229,000, primarily equipment purchases. There were no Q1 2014 financing cash flows. Cash and equivalents were $16.435 million at March 31, down from $20.355 million at December 31, 2013.
- Balance sheet: Total assets were $34.351 million; total liabilities were $58.458 million, including $38.807 million in preferred-share conversion derivative liabilities and $18.772 million in warrant liabilities. Current liabilities were $879,000. The filing reports no conventional interest-bearing debt outstanding at quarter-end; derivative liabilities are not equivalent to borrowings. Stockholders’ deficit was $24.107 million. Accumulated deficit was $394.833 million.
- Margins: Not meaningful given no revenue in Q1 2014.
Material changes and unusual items
Compared with Q1 2013, R&D and G&A expenses increased, while revenue declined from $22,000 to zero. The increase in R&D reflected discovery, laboratory, nonclinical, collaboration, consulting, and clinical-development planning costs; higher G&A included legal and staffing costs associated with becoming a public company. Derivative fair-value remeasurement caused a substantial noncash charge. Cash used in operations also increased, partly reflecting a decline in accounts payable and accrued expenses.
Outlook, risks, and contingencies
Management estimated that available resources would fund operations into the first quarter of 2015 and forecast 2014 cash requirements of $15 million to $17 million. The company expected R&D and public-company costs to rise and anticipated continued operating losses for several years; it did not expect product revenue in the near term. It planned to seek additional financing but could not assure success or acceptable terms. Management disclosed substantial doubt about the company’s ability to continue as a going concern. Without additional funding, possible responses included workforce and other cost reductions, reducing or ending development programs, unfavorable financing, relinquishing technology rights, asset sales, or ceasing operations.
The filing reports no material change in previously disclosed risk factors, no legal proceedings believed likely to have a material adverse effect, and no material off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material Q1 change in internal controls over financial reporting.
Important facts for investors to verify
- Whether subsequent financing was obtained and whether the disclosed cash runway and $15–$17 million 2014 cash-needs estimate were achieved.
- The terms, dilution implications, and fair-value sensitivity of Series B preferred conversion features and outstanding warrants; their reported liabilities were material and remeasured each period.
- Clinical and regulatory progress, funding needs, and development costs for the three lead candidates.
- The effect of potential equity issuance, preferred-stock conversion, and outstanding options and warrants on common shareholders.
- The filing’s restated December 31, 2013 comparative balance-sheet figures and the basis for the substantial accumulated deficit.