Akari Therapeutics plc — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Akari is a clinical-stage biotechnology company developing Coversin and other treatments for rare autoimmune and inflammatory diseases. It reported no revenue.
Financial results and liquidity
| Metric | Q1 2016 | Q1 2015 |
|---|---|---|
| Revenue | None | None |
| Research and development expense | $1.50 million | $1.55 million |
| General and administrative expense | $2.35 million | $0.10 million |
| Operating loss | $3.85 million | $1.65 million |
| Net loss | $2.99 million | $1.70 million |
| Net cash used in operations | $7.44 million | $1.99 million |
- Cash and cash equivalents were $61.43 million at quarter-end, down from $68.92 million at December 31, 2015. Management estimated available cash would fund operations through the end of 2017.
- Current assets were $62.69 million and current liabilities $16.55 million, including $15.69 million of option and warrant liabilities. Total liabilities were $16.60 million; shareholders’ equity was $46.36 million.
- The balance sheet presents no separate conventional borrowing balance. The option liability relates in part to RPC options issued in connection with a prior short-term working-capital loan. The company reported no financing cash flows in the quarter.
- Gross margin is not applicable because the company had no revenue. Basic and diluted loss per share was $0.003; weighted-average shares were 1.178 billion.
Changes and unusual items
- G&A expense rose by $2.25 million year over year, principally reflecting professional and consulting costs, stock-based compensation, salaries, insurance, rent, and board expenses. R&D expense decreased 4%, mainly due to lower manufacturing and clinical-trial costs.
- Other income was $0.87 million, versus other expense of $0.04 million in Q1 2015. The 2016 amount included a $0.70 million gain from a decrease in the fair value of option and warrant liabilities, $0.15 million of foreign-exchange gains, and $0.03 million of interest income. These fair-value liabilities use Level 3 inputs.
- Operating cash use increased year over year, including a $3.88 million cash outflow from the decrease in accounts payable and accrued expenses.
- Comparability is affected by the September 2015 reverse acquisition: the reported historical results reflect Volution as the accounting acquirer. The 2015 share and earnings-per-share data were recast for the transaction.
Outlook, risks, and contingencies
- Management expects ongoing losses and negative cash flows, with R&D remaining a major expense and increasing as clinical programs advance. The company has not generated revenue and expects to need additional capital to complete development and commercialize candidates; financing may be unavailable or dilutive.
- A Phase Ib healthy-volunteer trial began in January 2016. Management expected to start a Phase II PNH trial in Q2 2016, a Phase II GBS trial around mid-2016, and a Phase II aHUS trial in late 2016; PNH Phase II data were expected by year-end 2016. These are forward-looking plans, not reported outcomes.
- Akari reported initial Coversin results in a European patient resistant to eculizumab: complete complement inhibition and marked LDH reduction. It said results from the open-label resistance program would be reported as available.
- Management cited risks common to clinical-stage companies, including clinical and regulatory uncertainty, reliance on outside providers, intellectual-property protection, competition, and dependence on additional financing. No material changes to the prior annual-report risk factors were reported. The company reported no material legal proceedings or off-balance-sheet arrangements.
- Management said disclosure controls were effective and reported no material quarterly changes in internal control over financial reporting.
Important facts for investors to verify
- Whether the planned PNH, GBS, and aHUS trial starts and data timelines were achieved, and what subsequent safety and efficacy results showed.
- Whether the cash runway estimate through year-end 2017 remains supportable given operating cash use and planned trial spending.
- The terms and valuation assumptions for the RPC options and warrant liabilities, including the filing’s statement that the exact RPC option terms had not been finalized.
- Potential dilution from outstanding options and warrants: 72.36 million options and 7.59 million warrants were outstanding at March 31, 2016; the filing excluded them from diluted loss per share as anti-dilutive.
- The drivers of the quarter’s elevated cash burn and G&A costs, and the extent to which those expenses are recurring or non-cash.