Altimmune, Inc. quarterly report, Q1 FY2017

Business context and reporting period

This is PharmAthene, Inc.’s unaudited Form 10-Q for the three months ended March 31, 2017—not a filing under the post-merger Altimmune name. PharmAthene was developing a next-generation anthrax vaccine, with NIAID as its primary customer and sole revenue source. A proposed merger with Altimmune was pending; closing required stockholder approval and other conditions.

Financial results and liquidity

At March 31, cash and cash equivalents were $15.78 million, with no short-term investments remaining. Current assets were $18.29 million and current liabilities $2.23 million; total liabilities were $2.68 million. The filing reports no interest-bearing debt. Stockholders’ equity was $18.05 million. Management said cash on hand was adequate for at least twelve months from the report date, based on expected operating needs and capital expenditures.

Cash fell from $153.99 million at year-end 2016, chiefly reflecting the $200.25 million special dividend, partly offset by $66.80 million from investment sales and $2.34 million of warrant and option exercise proceeds. The $1.00 million income-tax benefit reflected anticipated refunds from carrying 2017 losses back against 2016 taxes; the filing identifies realization of that benefit as a risk.

Material changes and unusual items

• G&A expense increased about $2.0 million year over year, primarily due to proposed-merger transaction costs, professional fees and labor costs.
• R&D expense declined about $0.3 million, mainly because certain stability, technology-transfer and engineering-batch work active in Q1 2016 was no longer active in Q1 2017.
• The special dividend of $2.91 per share, paid February 3, 2017, distributed approximately 98% of after-tax net proceeds from the SIGA litigation recovery.
• The NIAID contract was incrementally funded and extended through December 31, 2017. NIAID indicated it would exercise only one additional option, for a non-human-primate challenge study. Total committed funding was expected to be $15.1 million; the stated maximum of approximately $28.1 million depended on additional options and milestones.

Outlook, risks and contingencies

The merger terms contemplated Altimmune equity holders owning 58.2% and existing PharmAthene equity holders 41.8% of the combined company on an as-converted, fully diluted basis. Proposals included a reverse split within a 1-for-10 to 1-for-75 range; the final ratio was not set in this filing. Following completion, PharmAthene planned to change its name to Altimmune, Inc.

Key risks include merger completion, government funding decisions and contract options, achievement of contract milestones, possible safety or efficacy issues, and potential delays or termination of government contracts. Government contract costs may be audited and adjusted. The filing also disclosed a maximum potential registration-rights payment of approximately $0.2 million initially and $0.2 million per month during a maintenance failure, neither considered probable. No off-balance-sheet arrangements were reported. The filing stated there were no legal proceedings or risk-factor updates in the respective quarterly-report items.

Important facts for investors to verify

• Whether the merger and related stockholder proposals were approved and completed, and the final reverse-split ratio, ownership allocation and share count.
• The timing and amount of NIAID funding, remaining contract milestones and option exercise, and any BARDA follow-on funding.
• Whether the anticipated $1.0 million tax refund was realized.
• Cash consumption after the large dividend and whether the stated twelve-month liquidity assessment remained valid.
• The effect of merger-related expenses and the transition from PharmAthene’s government-contract vaccine program to the combined company’s business.