Akari Therapeutics plc — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter report. The company was a clinical-stage biopharmaceutical business developing Coversin for rare autoimmune and inflammatory diseases; it had no product sales or revenue.
Business context and key financial metrics
On September 18, 2015, Celsus Therapeutics acquired Volution Immuno Pharmaceuticals, changed its name to Akari, and completed a $75 million private placement. The transaction was accounted for as a reverse acquisition, with Volution treated as the accounting acquirer. Accordingly, reported historical results primarily reflect Volution and its predecessor, rather than Celsus, and comparisons require caution.
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $5.80 million | $1.62 million |
| General and administrative expense | $5.50 million | $0.30 million |
| Operating loss | $30.58 million | $1.92 million |
| Net loss | $45.32 million | $1.95 million |
| Net loss per share, basic and diluted | $0.05 | $0.02 |
| Net cash used in operating activities | $4.97 million | $1.48 million |
| Cash and cash equivalents at year-end | $68.92 million | $3.33 million |
| Total assets / total liabilities at year-end | $69.89 million / $21.17 million | $3.39 million / $1.17 million |
Margins are not meaningful because the company had no revenue. Cash flow from investing was $1.39 million, including cash received in the reverse acquisition; financing cash flow was $69.04 million, principally reflecting the placement. The placement generated approximately $69.57 million net of issuance costs. The filing states cash was expected to fund operations through 2017, but also says additional capital would be needed for full clinical development and commercialization.
Year-end shareholder loans were zero; 2015 loans were repaid. Current liabilities included $16.40 million of option and warrant liabilities, largely Level 3 fair-value estimates, as well as $4.32 million of accounts payable. These are not presented as conventional borrowings. Working capital was approximately $48.53 million, based on current assets of $69.66 million less current liabilities of $21.12 million. Accumulated deficit was $56.80 million.
Material changes and unusual items
- Net loss rose by $43.37 million year over year. Higher R&D and G&A costs reflected clinical/manufacturing activity, staffing, public-company costs, and acquisition-related expenses.
- The $19.28 million excess-consideration charge related to the reverse acquisition was non-cash. The company also recorded $22.97 million of non-cash financing expense and $3.05 million of interest expense, largely associated with RPC options issued alongside shareholder working-capital loans.
- A $11.41 million gain from changes in fair value of option and warrant liabilities partly offset other expenses. The liability balance was $16.40 million at year-end; valuation depended on significant unobservable inputs.
- FY2015 operating cash use was substantially below the reported net loss because of non-cash charges and changes in working capital. The comparison with FY2014 is affected by the reverse-acquisition accounting and different business scope.
- Shares outstanding increased substantially following the acquisition and financing: 1.178 billion ordinary shares at December 31, 2015. Further equity financing could materially dilute shareholders.
Pipeline, outlook, risks, and controls
Coversin had shown 100% complement C5 inhibition within 12 hours in a Phase Ia healthy-volunteer study, with single-dose effects lasting more than 96 hours; the filing reported no serious or dose-related adverse events in that study. These findings are early-stage and do not establish efficacy in patients. The company reported treatment of an eculizumab-resistant PNH patient under an approved protocol and said a repeat-dose Phase Ib study began in January 2016.
Management expected to start Phase II studies in PNH in Q2 2016, GBS around mid-2016, and aHUS in late 2016, with PNH data expected by year-end 2016. It said satisfactory Phase II results could lead to Phase III studies in Europe and the United States. These are forward-looking plans, not commitments or evidence of subsequent completion. Management also expected R&D and G&A spending to rise.
- Principal risks: no approved products or revenue; substantial continuing losses; clinical, regulatory, and patient-enrollment uncertainty; possible safety or immune-response issues from chronic C5 inhibition; and dependence on external manufacturers and service providers.
- Other material risks include the need for additional capital, potential shareholder dilution, manufacturing scale-up and supply constraints, patent challenges, competition (including eculizumab), reimbursement uncertainty, and the risk of meningococcal infection associated with terminal complement inhibition.
- The company had five full-time employees and two full-time-equivalent consultants at year-end and no internal sales, marketing, or manufacturing infrastructure. It reported no material legal proceedings and no off-balance-sheet arrangements.
- Management concluded disclosure controls and internal control over financial reporting were effective at December 31, 2015. A material weakness related to accounting for complex acquisition transactions had been reported earlier in 2015; management said remediation began during Q4. The auditor expressed an unqualified opinion on the financial statements but did not audit or opine on internal controls.
Most important facts for investors to verify
- Whether the stated cash runway through 2017 remains realistic against trial, manufacturing, and corporate spending, and when additional financing may be required.
- Actual progress, enrollment, safety findings, and efficacy results for the Phase Ib and planned Phase II programs, including the eculizumab-resistant patient program.
- The terms, settlement mechanics, and potential dilution or cash consequences of the $16.40 million option and warrant liabilities, especially the RPC options whose terms were described as not finalized.
- Whether commercial-scale manufacturing can be qualified and supplied on schedule, and whether the company secures additional manufacturers.
- Whether the Q4 control remediation fully resolved the previously reported material weakness, and whether subsequent filings disclose any control deficiencies.