Armata Pharmaceuticals, Inc. quarterly report, Q3 FY2017

Business context and reporting period

The supplied filing is AmpliPhi Biosciences Corporation’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2017—not a filing identified as Armata Pharmaceuticals. AmpliPhi was developing bacteriophage therapies for antibiotic-resistant infections; it had no product-sales revenue.

Financial results and liquidity

Revenue was from sublicensing agreements, not product sales. Gross margin is not meaningfully presented. Nine-month operating cash use was $6.823 million, investing cash use was $40,000, and financing provided $8.877 million. Cash increased to $7.725 million from $5.711 million at year-end 2016. At September 30, current liabilities were $2.477 million, including a $305,000 note payable; total liabilities were $4.024 million. The company reported an accumulated deficit of $391.854 million.

Changes versus the prior comparable period

• Third-quarter net loss narrowed to $779,000 from $2.375 million in 2016, largely reflecting a $2.0 million Australian R&D tax incentive recognized as an offset to R&D expense; reported R&D was a net benefit of $829,000.
• For the first nine months, net loss increased to $10.486 million from $9.338 million, while operating loss rose to $13.791 million from $11.514 million. Results included a $5.8 million impairment charge on acquired in-process R&D assets, partly offset by a $1.302 million income tax benefit.
• Nine-month revenue fell to $95,000 from $238,000, primarily because a sublicense agreement ended in 2016. Operating cash use decreased by $2.285 million, mainly reflecting the Australian tax incentive payment.
• A May 2017 stock-and-warrant offering generated $9.353 million in net proceeds. The company also completed a 1-for-10 reverse stock split in April and issued 523,210 shares in September under an agreement with former preferred-stock holders.

Outlook, risks and unusual items

Management said existing cash was expected to fund planned operations until mid-2018, but stated that additional capital would be needed and that its ability to continue operations depended on obtaining it. The filing expressly says recurring losses and negative operating cash flows raise substantial doubt about the company’s ability to continue as a going concern. Management expected continued significant losses and no product revenue in the foreseeable future.

The company’s strategy emphasized targeted phage therapies through single-patient expanded access, alongside clinical and preclinical development. By October 30, 2017, it had provided investigational therapies to five patients. FDA feedback on a proposed Phase 2 AB-SA01 study for chronic rhinosinusitis was described as positive, but approval, trial success, and the regulatory value of expanded-access data were uncertain. Risks include financing availability and dilution, clinical and manufacturing execution, regulatory uncertainty, and competition. The company reported ineffective disclosure controls because a previously identified material weakness in controls over complex and non-routine transactions remained outstanding; remediation efforts were ongoing.

Important facts for investors to verify

• Confirm the issuer: the supplied text names AmpliPhi Biosciences Corporation, although the request metadata names Armata Pharmaceuticals, Inc.
• Verify the cash runway assumptions behind the mid-2018 estimate, expected spending reductions, and the timing and terms of required financing.
• Review the $5.8 million R&D impairment, related tax benefit, and the remaining carrying value of the affected programs.
• Assess potential dilution from outstanding warrants and options, including 8.712 million warrants and 1.117 million options reported at September 30, 2017.
• Track remediation of the material weakness and whether disclosure controls become effective.