Business context and reporting period
Akari Therapeutics Plc’s supplied Form 10-Q is filed under its then-name, Celsus Therapeutics Plc, for the quarter and six months ended June 30, 2015. The unaudited statements are in U.S. dollars, thousands unless stated otherwise. Celsus was a development-stage biotechnology company with no product revenue. After MRX-6 failed its Phase II primary endpoint in February 2015, the company suspended the program and closed its IND in April.
Financial highlights
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | None reported | None reported |
| Research and development expense | 2015: $142; 2014: $1,540 | 2015: $1,693; 2014: $2,340 |
| General and administrative expense | 2015: $1,314; 2014: $790 | 2015: $2,105; 2014: $1,873 |
| Operating loss | 2015: $1,456; 2014: $2,330 | 2015: $3,798; 2014: $4,213 |
| Net loss | 2015: $1,671; 2014: $2,229 | 2015: $3,988; 2014: $3,969 |
| Net loss per share | 2015: $0.03; 2014: $0.04 | 2015: $0.07; 2014: $0.08 |
For the six-month period, the $560 tax benefit from surrendering U.K. research-and-development tax losses partially offset the loss. Financial expense was $750, versus $244 of financial income in the prior-year period, primarily reflecting remeasurement of warrant liabilities. No meaningful operating margin is available because the company reported no revenue.
At June 30, cash and cash equivalents were $2,718, down from $6,216 at December 31, 2014; restricted deposits were $142. Current liabilities were $960, against current assets of $2,920. Total assets were $2,960 and shareholders’ equity was $973. The filing reports no conventional borrowings; a $984 liability related to options and warrants is classified as long-term and measured at Level 3 fair value. Operating cash use was $3,498, compared with $4,376 in the first half of 2014; investing cash flow was zero, and there was no financing cash flow, versus $8,219 of financing proceeds in 2014. Cash declined by $3,498 during the period.
Material changes and subsequent developments
- Quarterly R&D expense fell 91% year over year, mainly because clinical, manufacturing, formulation and synthesis activity declined after the MRX-6 trial result. Six-month R&D expense fell 28%.
- Quarterly G&A expense rose 66%; six-month G&A rose 12%, primarily due to legal, consulting, professional, accounting and office costs.
- Warrant-related liability rose from $235 at year-end to $984 at June 30, with a $749 fair-value change recorded in the six-month results.
- In July 2015, Celsus agreed to acquire Volution Immuno Pharmaceuticals in an all-stock transaction, subject to shareholder and other conditions. The proposed combined company would focus on complement C5-related rare and orphan diseases, including PNH and aHUS. The filing anticipated a change of name to Akari Therapeutics Plc. Excluding financing, RPC was expected to own 91.68% of the combined company on a fully diluted basis; existing Celsus securityholders, 8.32%.
Outlook, risks and contingencies
Management said current liquidity was expected to support operations at least through September 30, 2016, while also stating that additional financing would be needed for long-term plans and that no committed additional capital sources existed. Management warned that the forecast was uncertain; if the acquisition or financing did not proceed, further cost reductions, including potential office subleasing and compensation cuts, might be required. The company had begun staff and cost reductions.
The acquisition was not assured and depended on shareholder approval and other closing conditions, including NASDAQ listing-related requirements and satisfactory financing arrangements. It could result in substantial dilution; the filing also describes potential termination fees of $6 million in specified circumstances and reimbursement of RPC’s expenses if shareholder approval failed. Failure to complete a transaction could leave the company seeking another alternative, including possible liquidation. U.S. office lease commitments totaled $1,312 through 2019. Celsus disclosed that its ADS bid price was below NASDAQ’s $1 minimum, with a compliance deadline of October 6, 2015; failure to regain compliance could threaten listing and the proposed acquisition.
Investor verification points
- Confirm the status and final terms of the Volution acquisition, shareholder approval, financing needs, ownership dilution and any transaction fees.
- Assess the cash runway against actual burn, restructuring costs, lease commitments and the availability and terms of further financing.
- Verify NASDAQ bid-price compliance and the effect of any ADS-ratio change or other listing remedy.
- Review the warrant and option liability valuation and potential anti-dilution effects; the filing notes that the proposed acquisition issuance could trigger full-ratchet protection.
- Reconcile the risk-factor text’s accumulated-deficit figures, which reverse the balance-sheet amounts: the balance sheet reports $34,178 at June 30, 2015 and $30,190 at December 31, 2014, while the risk-factor passage gives inconsistent figures.