PharmAthene, Inc. — Q1 2015 Form 10-Q
Issuer note: The filing is for PharmAthene, Inc., not Altimmune, Inc. It covers the quarter ended March 31, 2015; financial statements are unaudited.
Business context and reporting period
PharmAthene was a biodefense company developing anthrax vaccines and a nerve-agent countermeasure. Its revenue came primarily from U.S. government contracts. In March 2015, the company approved a realignment plan to preserve cash and focus on its NIAID contract, strategic alternatives for its biodefense assets, and the SIGA litigation.
Financial highlights
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $7.07 million | $3.74 million; up 91.9% |
| Operating income (loss) | $1.16 million | $(2.40) million |
| Net income (loss) | $1.46 million | $(2.26) million |
| Basic and diluted EPS | $0.02 | $(0.04) |
| Operating cash flow | $(2.71) million | $(2.29) million |
| Cash and cash equivalents | $15.72 million at March 31 | $18.64 million at December 31, 2014 |
| Current liabilities | $4.54 million | $2.58 million at December 31, 2014 |
| Debt | About $0.5 million owed to GE Capital; due at September 2015 maturity | — |
Gross margin is not separately presented. Revenue included a one-time $5.8 million BARDA reimbursement related to audited indirect costs from prior years; the company reported that all accounts receivable, including this amount, were collected in April 2015. The quarter’s $2.06 million restructuring expense included approximately $2.0 million of severance. Cash declined by $2.92 million, primarily reflecting operating cash use and working-capital changes, including the BARDA receivable.
Material changes and management outlook
- Revenue increased chiefly because of the BARDA audit recovery and $1.0 million recognized under the NIAID next-generation lyophilized anthrax vaccine contract. The SparVax liquid-vaccine contract formally expired February 28, 2015, and the company did not expect further BARDA funding for its development as a liquid product. The rBChE contract had ended in September 2014.
- Research and development expense fell 52.9% to $1.61 million, primarily due to BARDA contract de-scoping and expiration of the rBChE contract. General and administrative expense declined 18.0% to $2.20 million. Management expected R&D expenses to decline further.
- The realignment eliminates approximately two-thirds of the workforce; 24 employees were terminated. Estimated severance was approximately $2.0 million, substantially all expected to be paid in 2015. Management said it believed March 31 cash was sufficient to fund operations through at least the end of 2015, based on expected cash requirements and capital expenditures.
- The NIAID contract had initial base-period funding of approximately $5.2 million and a potential total value of up to $28.1 million if milestones are met and all options are exercised. Options are at NIAID’s discretion; without options, the contract would expire January 5, 2016.
- PharmAthene had a $194.6 million judgment against SIGA, including $113.1 million in expectation damages and $81.5 million in prejudgment interest and specified fees. SIGA appealed, PharmAthene cross-appealed, and SIGA was in Chapter 11. The company had not recorded any judgment proceeds and gave no assurance of the outcome or collection.
Risks, contingencies, and unusual items
- Cash runway depends on cost reductions, NIAID funding and collections, and the timing and outcome of the SIGA appeal and any eventual recovery. PharmAthene warned that inadequate funding could require it to cease operations.
- GE Capital held a security interest in substantially all assets, and could assert a default related to BARDA’s partial termination of SparVax; the company said it had received no default notice. The revolving facility was undrawn, with approximately $4.8 million available at quarter-end.
- BARDA audits may adjust government-contract costs and billings. A further audit of 2014 and 2015 SparVax costs was expected; the company could not assure the amount or timing of any additional recovery.
- The SIGA award remains subject to appeal, bankruptcy proceedings, and uncertainty about SIGA’s ability to pay. The filing states SIGA publicly said it did not then have sufficient cash to satisfy the award.
- The company reported an accumulated deficit of $218.8 million and anticipated continuing losses. Additional equity financing could dilute existing shareholders. Government funding cuts, contract termination, and reduced staffing were also identified as risks.
Important facts for investors to verify
- Whether the SIGA judgment survives appeal and whether any amount is collectible through the bankruptcy process.
- Whether post-realignment cash use and NIAID receipts support the stated runway through at least year-end 2015.
- Results and timing of BARDA audits, including any adjustments to contract costs or additional receivables.
- Repayment of the GE Capital loan at its September 2015 maturity and any lender action concerning a possible default.
- Whether NIAID funds milestones and exercises contract options, and whether the reduced workforce can execute the contract and pursue partnerships.