Filing Summary
Filing identity: The supplied filing is AmpliPhi Biosciences Corporation’s Form 10-K for the fiscal year ended December 31, 2014, filed April 15, 2015. It is not identified in the filing as an Armata Pharmaceuticals filing. The requested “2014 Q4” period is covered only as part of the full fiscal year; standalone fourth-quarter financial results are not provided here.
Business Context and Reporting Period
AmpliPhi was a clinical-development-stage biotechnology company developing bacteriophage therapies for antibiotic-resistant infections. Its leading candidates were AmpliPhage-002 for S. aureus/MRSA wound and skin infections, AmpliPhage-001 for P. aeruginosa lung infections in cystic fibrosis patients, and AmpliPhage-004 for C. difficile infections. The company reported no commercial product sales.
Financial Results and Liquidity
| Metric | FY 2014 | FY 2013 |
|---|---|---|
| Revenue, primarily sublicensing | $0.409 million | $0.081 million |
| Research and development expense | $5.805 million | $6.469 million |
| General and administrative expense | $6.850 million | $5.996 million |
| Operating loss | $14.110 million | $12.384 million |
| Net income (loss) | $23.109 million | $(64.583) million |
| Net cash used in operations | $12.572 million | $6.292 million |
| Cash and cash equivalents at year-end | $6.581 million | $20.355 million |
FY 2014 net income did not reflect operating profitability: it included a $37.219 million non-cash gain from revaluing warrant and preferred-stock derivative liabilities, primarily as the share price declined. The company continued to report an operating loss and negative operating cash flow. Gross margin is not meaningful for the period because there were no product sales.
At December 31, 2014, total assets were $28.617 million, total liabilities were $23.190 million, and current assets and current liabilities were $7.020 million and $1.868 million, respectively. The balance sheet reported $12.320 million of preferred-stock conversion liability and $5.826 million of warrant liability; these are derivative-related liabilities, not conventional borrowings. The filing states that all convertible notes had been converted in 2013.
Changes Versus the Prior Comparable Period
- Revenue increased by $0.328 million year over year, but remained immaterial relative to operating costs.
- R&D expense declined by $0.664 million as reported, largely because 2013 included a $3.0 million one-time Intrexon technology-access fee. Excluding that fee, underlying R&D expense increased, reflecting development work and establishment of the Slovenia manufacturing operation.
- G&A expense rose by $0.854 million; FY 2014 also included a $1.864 million CEO severance charge.
- Net results swung from a $64.583 million loss to $23.109 million income, principally because the derivative revaluation moved from a $49.330 million loss in 2013 to a $37.219 million gain in 2014.
- Cash fell by $13.774 million during 2014, while cash used in operations increased by $6.280 million. Property and equipment purchases were $1.202 million, primarily for the Slovenia facility.
Outlook, Risks, and Unusual Items
- Management planned to start at least one clinical study in 2015, including a Phase 1 study of AmpliPhage-002 with the U.S. Army. The Army warned that resource diversions related to Ebola could delay initiation, potentially until the fourth quarter of 2015.
- The FDA had endorsed the proposed AmpliPhage-002 manufacturing process and product specifications and agreed that nonclinical toxicology was not needed to begin the first Phase 1 study. This was not marketing approval.
- The Slovenia facility had received an initial inspection, after which the company was addressing non-critical corrective actions. JAZMP certification to manufacture AmpliPhage-002 remained uncertain.
- The company reported that its March 2015 private placement raised approximately $13 million before commissions and stated that available capital was expected to fund operations through the second quarter of 2016. It also expected to need additional capital; future equity financing could dilute shareholders.
- The company disclosed a material weakness in controls over complex and non-routine transactions, ineffective internal control over financial reporting, and restatements of 2013 and 2014 annual and interim statements. The 2014 auditor issued an unqualified financial-statement opinion but did not audit internal-control effectiveness.
- Other significant risks include unproven phage therapy, clinical and regulatory uncertainty, manufacturing scale-up and compliance, reliance on collaborators, loss of senior leadership, and dependence on external financing. Series B preferred stock carries a 10% cumulative dividend and may become redeemable beginning in 2018 under specified conditions.
Most Important Facts to Verify
- Confirm the issuer and period: this is AmpliPhi Biosciences’ FY 2014 10-K, not a filing identified as Armata Pharmaceuticals, and it does not supply standalone Q4 results.
- Review the restated statements and subsequent filings for the full effects of the material weakness and corrected accounting.
- Check cash use, the stated Q2 2016 runway, and financing needs against subsequent cash balances and operating plans.
- Verify clinical-trial initiation and progress, Army availability, and the status of JAZMP manufacturing certification and corrective actions.
- Assess the potential dilution, dividend obligations, and fair-value volatility associated with preferred shares, warrants, options, and the March 2015 financing.