Business context and reporting period
Hemispherx Biopharma, Inc. (identified in the request as AIM ImmunoTech Inc.) filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2016. The company was a specialty pharmaceutical business focused on Ampligen (experimental, except approved for sale in Argentina) and Alferon N Injection (FDA-approved for a limited indication, but not then available for commercial sale). Unless otherwise noted, financial amounts below are in thousands of dollars.
Financial results and condition
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $22 | $23 | $76 | $106 |
| Operating loss | $(3,226) | $(3,983) | $(9,719) | $(13,807) |
| Net loss | $(2,862) | $(3,803) | $(6,329) | $(12,093) |
| Loss per share | $(0.13) | $(0.18) | $(0.30) | $(0.62) |
| Operating cash used | Not presented by quarter | $(5,278) | $(12,739) |
Revenue was entirely from the Ampligen open-label cost-recovery treatment program; no Alferon finished goods were available for commercial sale. Revenue remained immaterial relative to operating expenses, so the filing does not present a meaningful operating margin. Production costs were $272 in Q3 and $830 for nine months.
At September 30, 2016, cash and cash equivalents were $4,473 and marketable securities were $3,536, for combined liquidity of $8,009. Total current assets were $9,332, current liabilities $2,431, total assets $21,576 and stockholders’ equity $16,631. The balance sheet reported no current capital lease balance and no material conventional debt; redeemable warrants were recorded separately as a $2,514 liability. Accumulated deficit was $299,328.
Cash increased by $2,358 during the first nine months, from $2,115 to $4,473. Financing provided $4,693, primarily from the September equity and warrant offering; investing provided $2,943, including proceeds from marketable-security sales and maturities. Operating activities used $5,278. The company reported no off-balance-sheet arrangements.
Material changes versus prior comparable periods
- Net loss narrowed 25% in Q3 and 48% for the nine-month period. Lower R&D and production costs were important drivers; the year-to-date comparison also benefited from $1,626 of net insurance proceeds and a $1,561 gain from selling state tax attributes. These items, rather than increased product revenue, materially supported the improvement.
- R&D expense fell 32% in Q3 and 54% year to date, reflecting austerity measures, lower Alferon compliance and clinical work, and lower executive compensation; Ampligen-related spending partly offset the reductions. Nine-month G&A rose 2%, to $5,721.
- Operating cash use fell 59% from the prior-year nine-month period. The company raised approximately $4,520 net in September by selling 3,333,334 shares and warrants to purchase 2,500,000 shares. The warrants are exercisable after six months at $2.00 per share; placement-agent warrants covered a further 166,667 shares. The issuance increased dilution exposure.
- After stockholder approval, the company effected a 1-for-12 reverse split in August 2016; prior per-share figures were retrospectively adjusted. It reported regaining NYSE MKT compliance in September after a low-share-price deficiency.
- Marketable securities declined from $6,795 at year-end 2015 to $3,536 at September 30, 2016, while cash rose from $2,115 to $4,473.
Outlook, commentary, risks and unusual items
- Funding and losses: Management said additional financing would likely be needed to fund operations, manufacturing revalidation and commercialization. It warned funding may not be available and that further equity issuance could dilute shareholders. The filing gives no specific cash-runway estimate or earnings guidance.
- Regulatory and commercial outlook: Argentina approved Ampligen for severe ME/CFS in August 2016, but commercialization still depended on reimbursement, marketing, manufacturing preparation and other steps. The U.S. FDA had issued a 2013 Complete Response Letter requiring at least one additional clinical trial, nonclinical work and data analyses; management said the necessary trial could take 18 months to three years after design acceptance and was beyond current financial resources without additional funding.
- Manufacturing: Alferon production remained on hold following a January 2016 facility flood and other production interruptions. Although management believed repairs were complete, there was no definitive timetable to restart; FDA inspection and product-release approvals remained necessary, and revalidation was expected to require additional funds. Alferon work-in-process inventory was reclassified to other assets because production timing exceeded one year. Ampligen technology transfer to Avecia was completed in October, after quarter-end; the first cGMP lot was expected to be released in December 2016, a forecast rather than an achieved result.
- Other strategic developments: Management described an austerity plan, executive leadership changes and efforts to secure co-development partners. It also explored a sale of an underused building; after quarter-end, on November 8, it received a letter of intent subject to due diligence. The property was carried as held for sale at $764 at quarter-end.
- Unusual items and contingencies: Nine-month results included $1,626 net insurance proceeds related to legal settlements and a $1,561 gain from sale of New Jersey tax attributes. The warrant valuation generated a noncash $103 gain; the $2,514 quarter-end liability was valued using a Level 3 Monte Carlo model with significant assumptions. Related shareholder actions were settled, with attorneys’ fees funded by insurers; the company stated it made no payment for those fees. The separate Cato matter had been decided in the company’s favor, and it was pursuing collection of its judgment.
- Key risks: Ongoing losses, minimal revenue, dependence on financing and partners, FDA approval uncertainty, manufacturing and supplier constraints, reimbursement and market acceptance, competition, potential dilution, and volatile share trading. Management reported disclosure controls were effective at September 30, 2016, and no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether the company subsequently secured funding sufficient for operations, Alferon facility revalidation and required clinical work, and how long available liquidity supported operations.
- Whether Avecia produced and released the anticipated Ampligen cGMP lot, and whether EAP activity generated meaningful sales or receipts.
- Whether Alferon manufacturing restarted, the facility passed required FDA inspection, and commercial product received FDA release approval.
- Whether Argentina commercialization advanced beyond the approval, including reimbursement, launch readiness and actual product sales.
- The final economic effect of the share and warrant financing, including exercises, dilution and any subsequent equity raises.
- Whether the building sale closed and at what proceeds, and whether any remaining legal matters or insurance recoveries changed the company’s financial position.