Business context and reporting period
This is PharmAthene, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2011; the filing is not for Altimmune, Inc. PharmAthene develops biodefense countermeasures, with revenue primarily from U.S. government contracts. Its leading programs were SparVax anthrax vaccine, Valortim anthrax antibody, and recombinant butyrylcholinesterase nerve-agent countermeasures. The company had no commercial products.
Financial performance and liquidity
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Contract revenue | $6.43 million | $4.78 million | $12.77 million | $7.90 million |
| Operating expenses | $9.51 million | $10.32 million | $20.39 million | $20.84 million |
| Operating loss | $3.08 million | $5.54 million | $7.62 million | $12.94 million |
| Net loss | $2.44 million | $6.39 million | $4.51 million | $14.34 million |
| Basic and diluted loss per share | $0.05 | $0.22 | $0.10 | $0.50 |
| Cash used in operating activities | Not separately presented quarterly | $3.39 million | $6.59 million |
At June 30, cash and cash equivalents were $14.16 million, versus $11.79 million at year-end 2010; current assets were $22.94 million and current liabilities $5.93 million. Total assets were $26.32 million and stockholders’ equity $14.07 million. No conventional borrowing balance is separately shown on the balance sheet; derivative liabilities were $5.85 million, and the company reported minimal interest expense in 2011. The filing does not provide a gross-margin figure.
Material changes versus prior periods
- Revenue increased 34% year over year in Q2 and 62% for the six-month period, primarily from SparVax scale-up and technical work; 2011 also included SparVax milestone revenue of approximately $0.9 million in Q2 and $2.2 million year to date.
- R&D expense was $5.98 million in Q2 and $11.80 million for six months, up modestly from 2010. Higher SparVax and Valortim activity was partly offset by the completion of Protexia development.
- G&A declined to $3.41 million in Q2 and $8.35 million for six months, mainly because of lower bad-debt expense. Interest expense fell sharply following conversion of the 10% convertible notes in late 2010.
- Net loss improved substantially, aided by operating-loss reduction and a $3.18 million six-month noncash gain from remeasurement of warrant-related derivative liabilities. The gain reflected a lower share price and is not operating cash generation.
- Cash increased by $2.38 million over the six months, primarily due to $5.8 million net proceeds from a June stock-and-warrant offering, partly offset by operating cash use.
Outlook, risks, contingencies and unusual items
- No formal revenue or earnings guidance is provided. Management said SparVax manufacturing scale-up was underway after successful 100-liter technology transfer; a 1,500-liter GMP run was anticipated for September 2011. The filing also reported 36-month stability results for rPA product in July.
- Management said it had not generated positive operating cash flow since inception, expected further losses, and would continue to need external financing. It warned that acceptable financing and future government funding are not assured. The statements assume the company continues as a going concern.
- Government agencies were the company’s primary customers and receivables sources, creating funding and customer concentration risks. Contract payments are subject to government audit.
- The SIGA litigation remained pending after trial and closing arguments. If PharmAthene obtains specific performance requiring an ST-246 license, it could owe $6 million–$11 million in upfront and milestone payments, with possible future milestones and royalties. The outcome and timing were uncertain; SIGA’s counterclaim sought approximately $144,000, and no accrual was recorded because management considered the loss immaterial and not probable.
- Contractual obligations totaled $13.49 million, including $8.70 million of R&D agreements and $4.79 million of facility leases. Separately, registration-rights provisions may trigger penalties for certain failures to maintain registrations.
- Warrant liabilities are Level 3 fair-value estimates based on Black-Scholes inputs, including unobservable assumptions. The June equity offering issued 1,857,143 shares and warrants for up to 371,423 additional shares at $3.50 per share.
Important facts for investors to verify
- Confirm the issuer: the supplied filing is PharmAthene, Inc., despite the request metadata naming Altimmune.
- Check subsequent SEC filings for the SIGA court decision, any resulting license obligations, and related financing needs.
- Track cash use, receivable collections, government contract awards and funding, and the company’s ability to obtain additional capital.
- Verify whether SparVax scale-up and the anticipated 1,500-liter GMP run proceeded as planned, and assess related program milestones and revenue dependence.
- Review dilution from outstanding warrants, options and future equity financing, as well as changes in the fair value of derivative liabilities.