Filing summary
Entity note: The supplied filing is AmpliPhi Biosciences Corporation’s Form 10-Q, not a filing under the name Armata Pharmaceuticals, Inc. It covers the quarter and six months ended June 30, 2016; statements are unaudited.
Business context and reporting period
AmpliPhi was a development-stage biotechnology company developing bacteriophage therapies for bacterial infections. Its lead candidate was AB-SA01 for S. aureus; AB-PA01 targeted P. aeruginosa, and AB-CD01 for C. difficile was preclinical. Reported revenue came from a legacy gene-therapy licensing program, not product sales.
Financial performance and liquidity
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $103,000 | $102,000 | $209,000 | $204,000 |
| Research and development | $1.241 million | $1.077 million | $3.221 million | $2.049 million |
| General and administrative | $2.451 million | $1.617 million | $5.095 million | $3.014 million |
| Operating loss | $3.589 million | $2.592 million | $8.107 million | $4.859 million |
| Net income (loss) | $(3.851) million | $10.769 million | $(6.963) million | $(3.724) million |
| Net income (loss) attributable to common stockholders | $(6.350) million | $8.941 million | $(11.187) million | $(5.890) million |
| Basic earnings (loss) per share | $(0.73) | $1.27 | $(1.53) | $(1.19) |
| Operating cash used | — | — | $5.977 million | $4.967 million |
At June 30, 2016, cash and cash equivalents were $7.144 million, down from $9.370 million at December 31, 2015. Current assets were $7.738 million and current liabilities $3.324 million. Total liabilities were $7.795 million; the filing does not report conventional interest-bearing debt. The company raised $5.0 million gross, approximately $4.2 million net, in a June stock-and-warrant offering. Cash used in investing activities was $237,000; financing activities provided $3.988 million net. No meaningful product margin was reported, and operating margins are not informative given the company’s minimal licensing revenue and substantial R&D spending.
Material changes and unusual items
- Operating expenses increased year over year: six-month R&D rose by $1.172 million and G&A by $2.081 million. Management attributed the increases to compensation, recruiting, the Novolytics asset purchase, and higher stock-based compensation, including awards for new executives.
- Q2 2015 net income included a $13.361 million derivative fair-value gain; Q2 2016 instead recorded $262,000 of total other expense. Six-month 2016 other income included a $1.371 million noncash derivative gain. These valuation movements materially affect period comparisons.
- On April 8, 2016, all Series B preferred shares converted into common stock. The conversion and related agreement involved common shares and amended warrants; in exchange, holders waived approximately $2.2 million of accrued-dividend cash payments. A June offering triggered additional shares under the agreement: 750,206 were issued to former preferred holders without additional consideration.
- The company acquired Novolytics preclinical materials and intangible assets for approximately $409,000 in combined cash and warrant value, expensed as in-process R&D.
- Series B preferred stock was eliminated from the June 30 balance sheet, but $970,000 of dividends payable to former preferred holders remained a current liability.
Outlook, risks and contingencies
- Management said existing resources were expected to fund planned operations only into the fourth quarter of 2016. The filing states that recurring losses and negative operating cash flow raise substantial doubt about the company’s ability to continue as a going concern. Additional financing would be required; availability and terms were uncertain.
- Management expected R&D and G&A spending to remain relatively flat in the second half of 2016 versus the first half, while anticipating that R&D could rise later as studies, trials, staffing and discovery work advance. Significant losses were expected for the foreseeable future; no product revenue was expected in the near term.
- After quarter-end, the company reported completion of enrollment in its Phase 1 AB-SA01 topical safety study in healthy adults. The filing describes a small, dose-escalation study; it does not provide study results.
- NRM VII Holdings, a principal stockholder, amended a lawsuit alleging that the company and directors improperly forced conversion of Series B preferred shares. The complaint seeks unspecified damages. Management planned to defend the case and could not estimate a possible loss.
- Disclosure controls were assessed as ineffective at the reasonable-assurance level, stemming from a previously identified material weakness concerning complex/non-routine transactions and earnings-per-share accounting. Remediation was ongoing.
- Key business risks include financing and dilution, clinical and regulatory uncertainty, unproven phage-therapy manufacturing and formulation, dependence on collaborators, and possible adverse litigation outcomes.
Important facts for investors to verify
- Confirm the issuer identity: this filing names AmpliPhi Biosciences Corporation, whereas the request identifies Armata Pharmaceuticals, Inc.
- Check subsequent financing, cash runway, and any later going-concern disclosures; management’s stated runway ended in Q4 2016.
- Review subsequent AB-SA01 trial results and the development status of AB-PA01 and AB-CD01.
- Verify the outcome and financial impact, if any, of the NRM litigation and the remaining anti-dilution share obligations.
- Assess progress remediating the material weakness and the effect of outstanding warrants, options, and potential equity issuances on dilution.